“Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.”– Kenneth E. Boulding1
All businesses hit bumps in their lifetime. However, sometimes these bumps tend to go on for longer periods, which is when a company hits a growth plateau. It happens to the smallest and the biggest of companies. On one hand, one can find enough examples of startups beginning well, but eventually shutting shop. For instance, around 500 startups closed down in 20172 in India.
On the other hand, there are examples of established market leaders that experienced growth stalls several times through their journeys. To give an example, General Motors and Ford, which are considered the two biggest carmakers, have recently seen their growth plateauing. They both have had a rough year in the 2017 stock market, as their stocks fell by over 30%3. There are other companies such as Apple, Banc One, Caterpillar, Volvo, etc., facing similar periods in their company4. An HBR study4, of 400+ Fortune 100 companies over the years, revealed that 87% of the companies under study faced one or multiple speed bumps. The study also highlights that these “bumps” ended up eroding up to 74% market capitalization for these companies. The impact is also felt by the leadership of these companies. However, not all companies survive regular bumps and Toys R Us is one such example.
Over the years, Toys R Us didn’t just get undercut on toy prices or miss out on the e-commerce revolution. The retailer continually underinvested in its business and employees.5
Toys R Us was a leader in toy retail for several years before it filed for bankruptcy in September 2017. The key reasons were its inability to accept and flow with the continuous change, ever-increasing debt, and tough competition that they could not fight5. Additionally, some of the common issues that lead to growth stall are bad product-market fit, funding/cash flow issues, capacity issues, market slowdown, increasing competition, etc. Yes, some of these are external and not in the company’s control. However, there are some which are completely internal, and all these stem from culture. Moreover, the culture also enables the companies to deal with external reasons in a more effective manner.
Understanding the Causes for Growth Plateau and its Relationship with Culture
“…having worked with dozens of companies ranging from early-stage startups to successful businesses with hundreds of millions in revenue, I find that most companies fail to scale because of internal reasons, not external ones.”– Bruce Eckfeldt, Founder & CEO, Gazelles Business Coach6
To tackle a growth plateau, different strategies will work for different companies. To figure the core of the problem a company needs to get a deep understanding of its culture. Is the growth stall happening due to performance issues or lack of innovation or some other reason? Once the core reasons are clear, companies can align their culture to tackle this problem. Following are the parameters that are important to work on, while a company is in a growth plateau:
- Performance Focus: When a company becomes too comfortable in its incumbent state, it starts to lose focus on how well the employees are performing. In essence, a state of complacency seeps in. Employees stop taking initiatives and become averse to new challenges. Undoubtedly, growth in such a position is unlikely to happen. For a company to excel, it needs to embed performance focus in its culture. A high-performance culture focuses on the intricacies of quality of work and constant performance evaluation, in a manner that helps and motivates the employee to perform better. Performance evaluation is also a way to look back and notice all that was done, appreciate the good work, and learn from mistakes.
- Idea Generation: There are various examples of companies that ceased to exist because they failed to innovate. Toys R Us is one such example. Furthermore, in today’s world, when things are changing by the minute, the idea of rigidity has no place. To put this to perspective, let us talk about one company in specific: Apple. Apple, which is known for keeping things tight and private, has recently teamed up with Samsung for an upcoming project regarding Samsung smart TV being able to connect with iPhones. iPhones sales are declining7 and could potentially take Apple towards a growth plateau. However, they probably realized the same and decided to collaborate with Samsung8, which has been Apple’s fierce competitor over the years. It will work or not, it will be seen. But, organizations looking to break free from a plateau need to understand the importance of innovating and taking calculated risks.
- Developing Leaders: Leadership is critical for a company to prevent or tackle a growth plateau. Leadership is not only about the senior leaders in the company but leadership qualities in all its employees that enable them to take charge of situations. Such qualities are necessary for a confident, competent, and responsible workforce, which in turn helps a company in difficult phases such as a growth plateau. Thus, companies need to actively work towards creating a culture of leadership to be agile and eventually enjoy success.
- Organizational Alignment: A strategy, no matter how well designed, only succeeds when all employees in the company are aligned to it. Moreover, it is also important to keep the core of the company in mind. If a company is trying its hands on everything, it confuses the employees within and customers outside. Not aligning all available energy towards the core can lead to a growth halt. For instance, Kmart, a company that reached its peak during 1976, started to decline as the years went by4. The problem was not that Kmart wanted to pursue larger areas of growth. It was that these areas were not aligned with the company’s true core. Such a step leads to confusion and chaos and eventually hampers growth.
Making Culture a Strategy for Improvement
Culture has a critical role to play in an organization and as the organization grows its role becomes even more important. While start-ups have the option to focus on culture from the very beginning, bigger organizations have to course correct. At the end of the day, external factors such as competition, market trends, customer preferences cannot be entirely controlled by organizations.
If organizations want to excel despite these factors, they have to work internally. An aligned culture eventually helps to find ways to tackle external problems. Thus, if a company feels it has reached a plateau, they need to start introspecting.