Beware growth for growth’s sake

Until the advent of the GFC, most global equity markets had experienced their longest sustained bull run in history. As a consequence there are people in the middle and latter stages of their business careers who, until a few years ago, did not appreciate that asset values don’t always automatically rise.

Out of this has grown a concept that businesses must always grow otherwise they will inevitably fail. This mindset now sees listed corporations written down in value by the market because although they have grown they have not grown enough!

I don’t wholly buy in to this mantra. There are inevitably constraints on the size of markets and ultimately exceptional growth opportunities will dissipate. Growth then will only come from individuals attacking each other for a share of the finite market.

What does this mean to a financial planning practice? Well in my opinion there is a philosophical and a practical aspect to this question. The first part lies in determining what sized business you really want to own and operate. Making a decision on this aspect will enable you to then determine a growth strategy if you wish to get bigger or a sustainability strategy if you wish to stay the same or even downsize. A sustainability strategy will of course have growth elements in it to account for and replace the inevitable drop off in clients over time.

The key learning in this is for you to disengage from the mindset that says that you must either grow or perish. There is nothing wrong with owning and operating a business that does not grow if that is your choice. There is an alternative and that lies in adopting sustainable business strategies which deliver a strong and robust business which provides the returns you desire.