Editor's Pick

How Fast Should Your Company Really Grow?
Perhaps no issue attracts more senior leadership attention than growth does. And for good reason. Growth—in revenues and profits—is the yardstick by which we tend to measure the competitive fitness and health of companies and determine the quality and compensation of its management. Analysts, investors, and boards pepper CEOs about growth prospects to get insight into stock prices. Employees are attracted to faster-growing companies because they offer better opportunities for advancement, higher pay, and greater job security. Suppliers prefer faster-growing customers because working with them improves their own growth prospects. Given the choice, most companies and their stakeholders would choose faster growth over slower growth.

While sustained profitable growth is a nearly universal goal, it is an elusive one for many companies. Empirical research that I and others have conducted on the long-term patterns of growth in U.S. corporations suggests that when inflation is taken into account, most companies barely grow. For instance, in an analysis of 10,897 publicly held U.S. companies from 1976 to 2019, my research associate Catherine Piner and I found that firms in the top quartile grew at an inflation-adjusted average of 11.8% per year, but those in the lower three quartiles experienced little or no growth (0.3%, 0.03%, and -0.5%, respectively). And the majority of firms in the top quartile were unable to sustain superior growth performance for more than a few years. Although challenging to achieve, sustained profitable growth is not impossible, however. In our analysis, we found that only about 15% of the companies in the top growth quartile in 1985 were able to sustain their top-quartile performance for at least 30 years.

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