Why Irresponsible Growth Can Be a Fatal Mistake

CEOIQ |

growth

In every Peer Advisory Group, growth is certainly a hot topic. Every leader wants to grow their company, and the best leaders want to grow their company in a way that is responsible – and sustainable. That’s because irresponsible growth can destroy your company.

Growth is vital. Your business is either moving forward or backward – you are either growing or not. There is no middle ground. 

But as Kraig Kramers, CEO of CEO Tools, says, “Growth eats cash for breakfast.”

The Mission: “To Encourage Responsible Growth”

CEOIQ Peer Advisory Group is focused on this Mission Statement. It’s a constant reminder for entrepreneurial CEOs at the helm of a company they founded or the family business, that growth is a constant balancing act. They have to guard against outrunning their capital structure, blowing their balance sheet resources, and undermining the company’s culture.

Starbucks learned this the hard way.

The Starbucks Lesson

Howard Schultz bought the coffee chain in 1988 when it was just 11 stores with 100 people. He dreamed of transforming the Starbucks name into a national brand, recognized for offering a unique customer experience. By 1992, when the company went public, Shultz had grown the business to 125 stores across North America.

But when Schultz returned as CEO in 2008 after an eight-year break, he found growth had turned toxic.

 “We were chasing growth,” Schultz said in a videotaped interview with McKinsey Quarterly. “We were making decisions that were kind of complicit with the stock price. That’s a very, very dangerous road to go down.”

The company was fixated on monthly comparable store sales, closely watched by investors. Schultz put a stop to reporting those numbers, despite being criticized for doing so. “I wanted to remove that albatross off of the neck of the operators. I wanted to focus on the customer,” he told McKinsey Quarterly.

Schultz was determined to lay the right foundation for growth and ensure the unique Starbucks culture was preserved.

Growth is important, Schultz says.  Without it, “you can’t attract and retain great people.”

Growth as a Tactic

Growth should not be viewed as an overall strategy, but rather as a tactic, he says. “The primary lesson I’ve learned over the years it that growth and success can cover up a lot of mistakes.”

Today, Starbucks is more self-critical and uses “real quantitative metrics” to study its return on investment in stores, advertising and new product introductions.

Schultz plans to continue expanding into China and other emerging markets, which he likens to a gold rush for consumer brands. “It can be seductive; we’ve got to be very disciplined.”

Starbucks has revamped its business model for these developing markets, focusing on careful growth. The company chooses new store locations based on statistics and demographics. It’s decentralizing some decision making to better serve local tastes.

Gas-pedal CEOs

University of Virginia’s Darden School of Business professor Edward Hess conducted a study of 54 high-growth private companies in 23 states, finding that CEOs who have experience in high growth have learned to adopt a “gas pedal” approach, easing up on the accelerator to let their businesses catch up.

“Growth will stress existing people, processes and controls,” Hess writes in the Ivey Business Journal. “Many entrepreneurs think that growth is just more of the same. Not so. Growth transforms almost everything in a business.”

The CEOIQ Business Model Template, adapted from the book Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder and Yves Pigneur is a great tool for imagining or, like Starbucks, re-imagining your business model. 

No matter what size your business, you have an obligation to “grow responsibly.” Your people and their families are counting on you to run a healthy, sustainable company.

Today Starbucks is a leading international name with more than 21,000 stores and 150,000 people serving a diverse blend of products in 62 countries worldwide. Schultz’s thinking applies to you whether you’re running a 20-person start-up or a mature third-generation business with 1,000 people.

That’s why his video is worth watching. And remember: Grow Responsibly!

 

Trackback from your site.