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Soundview Executive Book SummariesConventional business wisdom dictates that companies should focus their sites on growth. But growth is no certain thing, say the authors of The Growth Gamble. Not all companies are built for rapid growth: Their markets are unsteady or extremely competitive, their infrastructure is not sufficiently flexible, or they don't have the quality or quantity of people to lend to the effort. For these companies, a slow or steady growth curve, over years or even decades, is the healthiest option.
While this flies in the face of convention, the business landscape is littered with organizations that went belly up because they tried too hard to expand their businesses too far from what they did best, or did so too rapidly to keep themselves solvent. Much of the damage was caused by a lack of rigorous analysis, or the want of a screening tool to help leadership determine what new avenues were right for their companies, and when. With The Growth Gamble and its invaluable New Businesses Traffic Lights Toolkit, businesses have what they need to grow smartly and avoid potentially fatal errors.
Beating the Odds
Most companies fail to find new growth businesses when their core businesses mature. Intel and McDonald's illustrate this important new reality: They have not found a significant new business that will enhance their growth prospects. In fact, as many as 99 percent of companies fail to create successful new growth platforms. Less than 10 percent of companies manage to restart growth once it has slowed. Only 3 percent sustain a restart for more than three years. Less than 1 percent do so by creating new growth platforms.
These sobering statistics do not, however, keep companies from trying. There are only a tiny percentage of management teams that settle for sticking to core businesses, and declining gracefully as those businesses mature. The challenge of finding new businesses is a growth gamble. To even take on the challenge is to bet against its odds. There are no easy answers.
Theory Versus Reality: An Opportunity Shortage
Current business theory instructs companies to be more entrepreneurial and to copy approaches used by the venture capital industry in building processes for developing new businesses. According to these theories, the high failure rate of new businesses is due to poor processes and skills.
The reality is quite different. Established companies have entrenched mind-sets and managerial habits, which are normally well tuned to the needs of their existing businesses. When companies delve into new businesses that are compatible with those mind-sets, they achieve success. When they try to do things that do not fit, they fail. The problem is, there are very few opportunities that fit.
A New Approach
There needs to be a new approach to the problem. The shortage of opportunities suggests that a screening tool that helps managers identify opportunities with a reasonable fit is likely to be more useful than a series of process steps for developing new businesses. Trying to make dramatic changes to ensconced managerial mind-sets — such as following venture capital processes — is also unlikely to achieve much. The mind-sets and rules of thumb that have served successful companies in good stead are likely to continue to influence success, and deviating from them will likely end in defeat. Copyright © 2005 Soundview Executive Book Summaries