The End of Growth

- why it always ends

- what you can do about it


Robert M. Tomasko



Executive summary

o All growth trajectories follow a life cycle.

o Business growth invariably slows.

o If you anticipate the inevitable decline, you can push it farther into the future.

o Sustained growth ultimately requires the courage to abandon one growth path for another.



Why do bubbles burst? Because, as they grow, their surface area becomes so large that increasing amounts of energy are diverted to keep the structure intact, rather than expand its size. Some bubbles find an equilibrium point and persist, but those that keep trying to grow collapse. This collapse has little to do with outside intervention. It's a direct cause of trying too hard.

Many business also "try too hard," fighting the nature of their markets and organization, and find their growth trajectory coming to a screeching halt.

Sainsbury, not too long ago the UK's largest grocer, discovered that an attempt to maintain family control of its top management while expanding abroad and diversifying at home, was more than its growth path could endure. The result, a fall from the top as Britain's market share leader, and a change to an outside CEO.

Swissair, the long-time standard setter for classy air travel, attempted to fuel its growth with an ill-thought-out plan to buy parts of a dozen small, struggling airlines. Financial chaos from cascading losses ensued, along with a CEO-firing and resignation of the directors who endorsed such a blind-alley strategy. Bankruptcy, and an abrupt cession of flights on what was once thought to be the world's most reliable airline, soon followed.

All growth efforts eventually slow. But neither your business nor your career have to decline in tandem with them as long as you stay alert to the dynamics that are in play, and cultivate the ability to adapt. This essay examines the forces that bring high-flying businesses back to earth, and considers how they can be mitigated or lived with.


Quick analysis: the laws of gravity also apply to business

Hitting the growth wall is a problem that eventually plagues every business. The consequences usually aren't very pretty.

o Wall Street analysts hate hearing from executives with "no visibility" about their next quarter's prospects

o Underwater stock options demoralize

o Unreachable sales quotas squash motivation

o Just as rapid growth creates its own forward momentum - generating new fast track career paths - ambitious, top performers are often first to jump ship at sight of a business slowdown. Net result: fewer seasoned business growers available to rebound the business.

The cumulative impact of poor publicity, talent loss and demoralization serves only to reinforce this negative spiral.

The dynamics behind the turn-of-the-millennium e-business slowdown are not all that different from the forces that limited the expansion of the mainframe computer industry in the 1990s, energy companies in the '80s, consumer goods makers in the '70s....and a century ago, that high flying techno-wonder-network of the industrial age - the steam railways.

Sudden, out-of-the-blue, shocks are blamed for many business slowdowns. While it's become trendy to warn of "disruptive technologies," in reality they are few and far between. The internet, a favorite scapegoat, has grown far more businesses than it has destroyed.

Every market runs on a life cycle. So does every business:

o Ramp-up

o Rapid growth

o Mature stability, and

o Gradual decline

Each stage follows each other as surely as night does day.

When the two cycles - the company's and its industry's - are out of sync, growth inevitably slows and economic performance suffers. This is the story of Apple Computer as well as the internet-based grocer, Webvan. It's a lesson retailer Target has learned, and K-Mart has not. Melding the cycles can keep Amazon alive: creating a mature business that matches its mature market.

Cataclysmic events and life cycle misfits are outside-the-company growth-retarders. They can sting, but the enemy to be most wary of is lurking within.

Most businesses don't need competitors to steal their growth opportunities. They do it to themselves, making errors of both omission and co-mission.


Self-inflicted wounds

What is most commonly missing among managers and executives of slow growth companies is the ability to engage in systems thinking. These people tend to:

o Treat each happening in the business as an isolated event (or problem to be solved)

- rather than seeing them as part of a chain of cause-and-effect relations extending
over a long time period

o Focus on the needs of their own company, department or job

- rather than as seeing themselves and their business as part of a network of
interconnected players, with a change in any one's behavior having a ripple effect on all

This mentality puts a brake on growth. It forgets that every driver of growth is accompanied by some kind of limiting process:

o An awakened competitor

o An over-taxed supplier

o An extra-vigilant regulator, or

o An internal capacity constraint (usually cash or talent).

Plunging ahead in blissful ignorance of these unintended consequences is a sure way to hit the growth wall. It's what brought Cisco Systems, once the most valuable company on earth, back to earth. The firm, as if mesmerized by its we-can-do-no-wrong growth trajectory, committed the fundamental sin of doubling inventory in a weakening market, saddling it with warehouses of unsalable merchandise.


Fools gold

Not all self-inflicted growth wounds come from unintended consequences. It is also important to be wary of growth-substitutes. Among the most common are:

o Accounting trickery - "managing" earnings instead of managing growth, creating the appearance of profit increases through restructuring charges, hidden reserves and changes in pension funding policies.

o Stock buy-backs - earnings-per-share do rise when the number of shares shrink, but it's not the same as increases due to profitable revenue growth.

o Merger mania - acquisitions and mergers, as Swissair and many other firms learned, are often more of a long detour than a direct path to real growth.

o Cost-cutting - these sources of short-term gain destroy more seeds of future growth than any aggressive competitor might.


A toxic treatment

Why does cost cutting bite back? Though there are times it is the right remedy, it, like some popular medicines, is over-prescribed as a cure for stalled growth. Profits grow, of course, through cost-cutting - at least until the business runs out of expendables. But profits resulting from the creation of hard-to-duplicate benefits that are conveyed to customers, these are a sustainable, renewable resource.

Renewable, at least, as long as the business growers who create them are kept in place and motivated. But when the cost-cutting, fixer mentality with its often mindless across-the-board slashes dominates, good growers run for cover. The growth mind set is one of a carefully cultivated, experience-based "invest now for future return" behavior. Jerk people around enough who are really good at this, and they'll either leave or lay low and fall asleep.


Making it happen - forestall the inevitable


If you are facing market collapse...

o Remember: some trends are better to yield to and ally with, rather than engage in an unwinable war against.

o Example - When Intel's bread-and-butter computer memory business was threatened with commoditization by a wave of cheap Asian imports, Andy Grove accepted the inevitable and just walked away. Instead of fighting a battle he was destined to loose, he refocused Intel on the much richer business of making microprocessors.

o Even if you are facing total economic collapse, don't throw in the towel until you study up on the lessons of Brazilian and Lebanese businesses. Both are world class improvisers - the best strategy when everything seems up in the air.

o If government inefficiencies or regulatory straitjackets seem insurmountable obstacles, look hard at the ways of Northern Italy's "virtual keiretsus" and France's highly automated manufacturers.


If your market's life cycle is at war with your plans...

o Sustain your growth by getting out ahead of the curve

o Consider the first hints of growth deceleration as nature's way of telling you to shift gears. Nokia did this, growing in the same mobile phone manufacturing marketplace that did in Ericsson and Motorola.

o When the market seems to have had enough of a stream of brilliant, innovative products, consider reorienting the business around customer-defined requirements rather than inner vision.

o When growth slows because everyone in the industry seems to be following the same formula - the situation in many consumer package good companies - look skyward, follow the lead of upstarts like Southwest Airlines and Spanair, and rethink your offerings from the ground up.

o When industry domination becomes too costly to sustain, pick off the most profitable segments, focus exclusively on those customers' needs, and reap the high margin rewards that comes to specialist companies like General Electric, Rolex, and Germany's famous mittelstand.


If your company seems to be its own worst enemy...

o Don't toss that next invitation to a seminar on systems thinking. Go, and you will never think about your business the same way again.

o Keep two sets of books if you have to (as your country's laws allow, of course), but don't confuse the kinds of growth accountants create with the real thing.

o Resist the urge to merge until it is crystal clear how the acquisition will enable growth - don't let size become an end unto itself.

oNever cut costs as an end unto itself either, but only as a subordinate component of an overall growth plan.

o Never confuse stock price growth with business growth.

o Don't waste energy whining when the market tanks your shares. High-tech manufacturer Seagate took advantage of a demolished share price to divorce Wall Street, go private, and restore its growth momentum away from the distracting glare of the financial press.

o "Take no prisoners" is a phrase that belongs to the movie theater, not the board room. Microsoft's growth was much more sustainable when its standard setting opened up profitable market segments for business allies clustering under its umbrella. Taking a live-and-let live perspective on competition is a great way to expand the size of everyone's market. Coke and Pepsi need each other. And they both know it. Virgin and British Air do also, but they may not be quite as aware of the need.


Conclusion - know when to let go

Growth always ends. For some businesses it comes with a bang, others with a whimper.

The ideas here will assist in prolonging the end game. Apply them, but do it with your eyes open. Ramping-down is just as much a part of the business landscape as is ramping-up.

Knowing when to let go - and recycle your efforts in a more promising direction - is the secret to long term happiness in a business career. There are many market, industry and organizational indicators you can watch for clues that bail-out time is near. Look hard at them, but in the end the best litmus is to ask yourself a simple question: am I still having fun?

If the honest answer is no, then you know what you need to do.

This is the time when all this wisdom you've been accumulating pays off. The end of growth is obvious only in hindsight. Finding yourself reimmersed in a new, growing enterprise is the best place for that hindsight to emerge.



There is always something new to learn about growth and changing industry dynamics on the McKinsey Quarterly web site:

Two books that explore the dynamics of marketplace disruption are Richard Foster and Sarah Kaplan's Creative Destruction (Currency) and Clayton Christensen's The Innovator's Dilemma (HarperBusiness).

Some of the most accessible materials about applying systems thinking to business problems are published by Pegasus Communications (

Business critics get too easily dismissed by those of us in corporate careers. Balance Gary Hamel's enthusiasms for growth (Leading the Revolution, Harvard Business School Press) with the late Donella Meadows insights. I don't agree with everything Meadows says. But she's not completely wrong, either:





ROBERT M. TOMASKO wrote Go For Growth (John Wiley & Sons), Rethinking the Corporation and Downsizing (both Amacom). He has spoken about the ideas in these books to business audiences on six continents. Previously an Arthur D. Little consultant on organization and strategy, his clients include Coca-Cola, Exxon, Ford, Marriott, Mitsubishi and Toyota.

[This is a revised version of an essay originally published in Business: The Ultimate Resource, (Perseus, 2002) a two thousand page reference to leading business ideas, thinkers, practitioners, and best practices.]


© Robert M. Tomasko 2003



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