Forums: Discussions for entrepreneurs and small business.

I have a question that I hope is not identified as “stupid.” I will try keeping this thought on point and easy to understand.

The background of the questions… All businesses try to grow. Each year, they do, or try to, post higher earning reports than the previous year. Stock holders, employees and potential investors all love higher earnings from year to year. Eventually, companies reach a sort of critical mass. They just cannot achieve larger numbers although their product or service may not change, but may still be a great product or service.

What is wrong with maintaining a stable revenue from year to year? Why do investors, employees and stockholders push for growth more than stability?



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Vincent Wilcox (a.k.a. KRAKR)
Drummer
My band: Letters Make Words

vincent,

this is a great question - and very clearly stated. "growth," as it`s pushed in all the media and from Wall Street, is not the right path for a lot of small business operators. lots of surveys indicate that entrepreneurs often are seeking ways to maintain exactly what they`re doing/generating with their business rather than ways to grow.

growth is great, but comes with sacrifice. that sacrifice may take the form of putting money at risk, having to spend more time working, managing a bigger team of people whose livelihood you`re responsible for, and other things.

i know you`ve spent a lot of time becoming familiar with our community boards and with the StartupNation content. along the way, you`ve tuned in to how we stress so strongly "Life Plan comes before Business Plan!" And your question relates directly to life planning. If you want things in life to stay the way they are--if you`re basically pretty happy--don`t fret over growth strategies. If you want things to change in life, you should consider how growth of your business could help cultivate that change you`re seeking...

would love to hear other people`s views on this...

rich

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Rich Sloan , Co-Founder, Chief Startupologist, StartupNation

I think that "growth" is expected in our culture--it is seen as a sign of success and power if your company is growing rather than just maintaining its position (or worse losing its position) in the market.

I do strongly believe that we look at growth as the action and stability as the result (x + growth = stability), especially in business.

As the saying goes, "Bigger is better."

Good post, definately something to think about.

James

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James Skinner Vice President & COO OnlineSiding LLC jskinner@onlinesiding.com www.onlinesiding.com 877-642-2496 x102

but "more" is not always really "more"...

(sorry, that`s the best i can do after a weekend with nephew, niece and lots of alcohol at joel`s wedding!)

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Rich Sloan , Co-Founder, Chief Startupologist, StartupNation

For me, there isn`t much confusion about the growth issue. I divide companies into public and closely held. A public company `sells it`s soul` when it offers stock to the public. From that point on it has to go after growth or pay big dividends.  When i `rent` my money (buy stock), to a public company I expect something back.  This is why they can`t stand still.

A public company is competing on 2 fronts.

• Competing in the traditional sense in it`s market segment.
• Competing for capital worldwide

As the name `public` implies, all the media is concerned with the competition for capital. Everyone is watching to see what these companies are doing with our money.


On the other hand, the vast majority of closely held businesses chug along quietly making money slowly year after year. They pay a salary to the owner year after year, and when you`re done the retirement program is called `selling the business`. Closely held businesses only compete in their direct market.

From a financial perspective, this is why owning your own business so attractive.

We will ponder the meaning of this. :-)

And Jeff: everything you said makes sense and is very true. They (public companies) have the stockholders at their backs who want dividends (and the dividend values the success of their investment and thus their company), whereas a small company may just have a few investors/owners who are directly involved in the success and operation of the company.

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James Skinner Vice President & COO OnlineSiding LLC jskinner@onlinesiding.com www.onlinesiding.com 877-642-2496 x102

I am gathering, it is only necessary to grow year to year if you are a public company. A slow growth or even a steady, "flat" earnings report is sought, if you enjoy your current market share/position. This flat earnings report is also disliked if you are attempting to "sell out" and pass your biz along to a new owner. (selling out is NOT a negative word in this case)

So if I am looking for a financial loan with steady/flat earning reports, would lenders be interested in me? Of course the loan would be requested to continue this flat, lack of growth projection.

I tend to believe a lender/bank is less likely to become involved, since they may not want to take the risk of a slipping (downward) income level.

How would you convince a lender to provide funds to a "flat line" business?


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Vincent Wilcox (a.k.a. KRAKR)
Drummer
My band: Letters Make Words

growth is not critical to a lender. ability to service the loan is. as long as the math works and you have plenty of track record to substantiate it, a loan should be possible.

and "sought" is probably not the right word - but "OK" probably is. you don`t seek flat revenues unless you`re making a deliberate decision to keep things the way they are.

cool topic, vincent.

rich

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Rich Sloan , Co-Founder, Chief Startupologist, StartupNation

Although growth is "rewarded" in the public sector stability is also rewarded. Many institutional investors look for stability when investing say a pension fund. Historically speaking there is data that supports stability within a company leading to a price premium on the stock.

In answering your question about getting a lender to provide funds for a business a lender may ask – why do you need funds if you are not growing? Is it to lower cost? A new machine? Their biggest concern is that the business is healthy with current pricing. They wont issue a loan to subsidize a price discount to gain market share. 



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Investors, employees and stockholders push for growth more than stability is because when starting a business is like watching your son grow with his friends(competitors). Now if he stop growing at the age of nine( really smart kid for his age) his friends will continue to grow and become biger and stronger every year. Now as a parent that`s not exceptable and thats how investors see it.

That`s how I see it and please tell me if im wrong.