Growth is Necessary, but Not Sufficient

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An article appeared in my news reader today, “The rise of the ‘successful’ unsustainable company” which connected with me given some recent conversations we’ve been having at Cheezburger about growth strategy, investment, etc.  As a service to you, my loyal reader, I’ll highlight the parts that were relevant to me…

Describing the positive attributes of companies that seemingly had done well, but are now floundering, such as Groupon and Zynga…

The thing is, these companies are not like Nguyen’s Color. For years they demonstrated real, growing revenues (not just “active users”), a repeatable, scalable business model (not just flash-in-the-pan ideas), ownership of a large market (SMB lead-gen, social gaming), and they survived the operational challenges inherent in rapid-growth companies.

These are all the substantial things we want in healthy companies, and yet it seems to me they’re either more short-lived than we’ve all thought (i.e. that “Facebook games” is a fad rather than an industry) or that executives and investors are over-eager to value growth over sustainability (i.e. GroupOn’s engine that turned capital into revenue growth was a form of force-feeding rather than building a product).

For those who don’t know, “Nguyen’s Color” is an infamous high-profile startup flop.  And, to me, the key point in the above passage is “valu[ing] growth over sustainability”.  In other words, investors were able to make money on growth because they can cash out in the next round.

What do we want at Cheezburger?  Do we want to cash out or build a sustainable company?  We agree on the answer to that: build a sustainable company.

The author continues…

I do see companies that are sustainable even with high growth, like HubSpot whose revenue curve is as predictable as a plot on your TI-90 while also able to obsess over customer satisfaction and retention, or like Freshbooks who maintains an enviable corporate culture in addition to an unflagging revenue curve, or like SEOMoz whose insistence on TAGFEE wins over employees, customers, and investors alike, creating consistent growth even in the tumultuous market of SEO tools, or like Rackspace whose maniacal obsession with excellence in customer service allows them to charge premium prices and sustain an amazing 30% annual growth even at the massive scale of $1b in revenue.

What’s interesting to me about the above paragraph is the reference set: HubSpot, Freshbooks, SEOMoz, Rackspace. First, it’s nice to have a respectable set of companies to learn from…as managers, they’re a good group to study.

Second, it’s interesting to note that none of them are media or platform companies like Cheezburger.  They are all companies that charge their customers for a service they provide. I wonder who would be in that set if we were looking at platform or media companies?

I asked in a comment on the article, and would be interested in hearing your thoughts in the comments here too.

The author also summarizes what the above companies do eloquently…

..Rackspace-like commitment to customer service, an SEOMoz-like commitment to honesty and transparency, and a HubSpot-like obsession on introspective measurement, not just on marketing and growth but on customer happiness and retention…

And, finally, he concludes with the money line…emphasis his, not mine…

…if your goal is to build a lasting company, be honest about what “lasting” means. Growth is necessary, but not sufficient.

 

Written by scottporad

October 23rd, 2012 at 10:56 am

One Response to 'Growth is Necessary, but Not Sufficient'

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  1. Thanks Scott for this great response.

    Certainly I didn’t intend to imply that media companies ought to be excluded, and as I wrote back in a comment on my blog, in fact I see most traditional media companies as exemplifying sustainability. Even as we see many of the traditional folks not making the transition to digital/online, that doesn’t mean they weren’t sustainable for DECADES, which has to count as “sustainable.” (Everything dies eventually — so what?)

    So I like your question which is: What does it mean TODAY for a media company to be sustainable in the long term? Before it meant things like controlling distribution; now it means leveraging distribution and earning traffic.

    But I readily admit I have no special insight into your industry and what makes for a sustainable media company for the next few decades, so I’m eager to see what you and other readers have to say!

    Jason Cohen

    23 Oct 12 at 11:10 am

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