{"id":4828,"date":"2013-07-18T22:18:06","date_gmt":"2013-07-19T02:18:06","guid":{"rendered":"http:\/\/planfoundations.com\/?p=3466"},"modified":"2013-07-18T22:18:06","modified_gmt":"2013-07-19T02:18:06","slug":"why-successful-companies-stop-growing","status":"publish","type":"post","link":"https:\/\/pioneerbusinessventures.com\/nsite\/why-successful-companies-stop-growing\/","title":{"rendered":"Why Successful Companies Stop Growing"},"content":{"rendered":"

\"ScreenHunter_122<\/p>\n

We\u2019ve all seen examples of unstoppable companies that suddenly hit the wall. Growth slows down, stock prices start to decline, shareholders get nervous, and the press starts to speculate that something is wrong. In some cases, like P&G and Starbucks, the board\u00a0brings back a former CEO<\/a>who can presumably return the firm to its previous glory. In other cases, like with\u00a0Apple<\/a>, GE, or Cisco, the board holds its breath and hopes that things will change.<\/span><\/p>\n

But the reality behind many of these cases is that periodic slowdowns are inevitable, even if the company is fundamentally solid. That doesn\u2019t mean that CEOs (old or new), and other managers, can\u2019t do anything to slow the decline or reverse it more quickly. Taking action, however, requires an understanding of the three forces that always drag high-flying companies back to earth.<\/span><\/p>\n

The first is the\u00a0law of large numbers<\/strong>. As a company gets bigger, each percentage of incremental revenue suddenly represents a fundamentally larger number. As the base grows, the amount of new business needed to make a material difference in earnings also rises, increasing the pressure on sales to find new markets, new categories, and new geographies. In other words, the larger a company becomes, the more the entire engine has to work harder.<\/span><\/p>\n

A company\u2019s growth is also inhibited by\u00a0market maturity<\/strong>. Over time, markets follow more predictable patterns<\/a>\u00a0as buyers become familiar with and loyal to particular brands. Eventually, as the market becomes more crowded, prices tend to stabilize, reducing the ability to grow through price increases. Finally, some markets reach a saturation point either because of limited demographic growth or commoditization of products. Taken together, these product and\u00a0market life cycle<\/a>\u00a0forces all put pressure on the typical sources of growth for marketing and sales.<\/span><\/p>\n

The third reason that growth slows down is\u00a0psychological self-protection<\/strong>. As a company gets larger, there is more\u00a0pressure to preserve the base business<\/a>\u00a0and less willingness to\u00a0cannibalize it <\/a>through innovative new offerings. As a result, at the very moment when the company needs new sources of growth, there is a tendency to play it safe and focus more on adapting existing products and services, rather than breakthrough opportunities. This not only opens the door to potentially disruptive competitors, but constrains moves into whatever is perceived as \u201crisky\u201d territory.<\/span><\/p>\n

Taken together, these natural forces almost always damp down growth, which is why we shouldn\u2019t be surprised when successful companies hit periodic speed bumps. The challenge of course is what to do about it. Here are two suggestions that managers at all levels can consider:<\/span><\/p>\n