The "Grow or Die" Lie: Why Everything You Think You
Know About Business Growth Is Wrong (and Six Enlightening Truths)
By Edward D. Hess
For decades entrepreneurs have been boldly following what they think they
about business growth. And for decades, they've folded under the pressures
of improperly managed growth. Professor Ed Hess debunks some popular myths
about growth and
provides proven truths to help entrepreneurs grow their businesses
All growth is good. Bigger is better. All businesses must either "grow or
die." If you're a small business owner, you might have been nodding along as
you read those business mantras, agreeing wholeheartedly with each one.
After all, it's what you've always been taught. And in fact, these popular
business axioms are routinely lauded on Wall Street, at business schools,
and by some of the most well-respected business consultants of the day. Few
question their validity. But according to Professor Ed Hess, these "truths"
are anything but.
"At best those beliefs are half-truths and at worst they're pure fiction,"
says Hess, "growth can be good and growth
can be bad. Bigger can be good and bigger can be bad."
"'Grow or die' is a belief that has no basis in scientific research or in
business reality," he adds. "When not approached carefully, growth can
destroy value as it outstrips a company's managerial capacity, processes,
quality, and financial controls, or substantially dilutes customer value
In Grow to Greatness, Hess explains how such myths came to define the way
growth is approached by entrepreneurs - often to their detriment. The book
lays out a framework for how to approach business development - and how to
manage its risks and pace. It then takes readers through chapters that
explore when the time is right to grow, how to do it, and how to manage the
vital reality that growth requires the right leadership, culture, processes,
controls, and people. Uniquely, this book aims to prepare readers for the
day-to-day reality of growth, offering up the real-life experiences of
The best way to illustrate the downside of growth, says Hess, is by looking
at well-known public companies.
"Between 2005 and 2007, Starbucks aggressively opened new store locations
and made several operational changes that diluted its customer value
proposition, diluted its high employee engagement culture, violated its real
estate site selection controls, and weakened its high value-added
'experience' business model," says Hess. "Toyota's quality issues leading to
multiple recalls resulted from too much growth too quickly."
Hess has spent much of his career studying how growth affects businesses. In
a recent study of 54 high growth private companies, he learned that several
of the successful entrepreneurs in the study were repeat entrepreneurs who
had "imploded" their first business by taking on too much growth too
quickly. Growth overwhelmed them. They learned to respect growth's
destructive ability, and in their second venture they paced growth so that
it did not overwhelm their people, processes, and controls.
"That is what I call the 'gas pedal' approach to managing growth," notes
Hess. "Let up on the growth gas pedal as needed to give your people,
processes, and controls time to catch up.
"Instead of grow or die, be motivated by this motto: 'Improve or die,'" he
adds. "Every business must continually improve its customer value
proposition better than its competition in order to stay viable. That's
where real success lies."
If everything you know about growth is wrong, what's right? Read on for
Hess's truths about growth:
Growth is change (and change isn't easy). There are limits to an
individual's and an organization's ability to process change. Growth
requires the entrepreneur to install more processes, procedures, controls,
and measurement systems. The right processes and controls must be put in
place and taught to employees. In addition, the right information needs to
reach the manager regarding variances from processes and controls so
mistakes can be fixed quickly and do not escalate into a larger problem.
"Growth also requires that the entrepreneur change what he or she does,"
says Hess. "Successful and sustainable growth requires the right kind of
leadership, the right environment (culture), and the right processes."
Growth is evolutionary. Sometimes tough decisions are required if you're
going to keep up. Growth requires the evolution of the entrepreneur and the
management team and more sophisticated processes and controls. Often, if not
always, the business model and customer value proposition evolve, too.
Furthermore, this evolution is continuous, and anticipating and responding
to it can require making some fairly dramatic—and difficult—changes.
"One surprising finding of my research was that companies frequently had to
upgrade their management teams as they grew," explains Hess. "Often managers
who operated effectively at one revenue level of the business were unable to
manage effectively at a much higher revenue level. The jobs simply outgrew
"The need to upgrade managers to fit the expanding job demands was gut
wrenching for many entrepreneurs because the now-ineffective manager had
often had a successful history with the business but was now in over his or
her head," he adds. "This is yet another important factor that you must be
prepared to deal with as you think about growing your business."
Growth requires continuous learning and constant improvement. The
entrepreneur and employees must be constantly open to learning and adapting
and improving in an incremental, iterative, and experimental manner. No
matter how big you get or want to get, continuous improvement is required.
"In my research of high organic growth companies, I found that one factor
they all share is a 'be better' DNA," says Hess. "Their 'be better' focus
was the underpinning of every growth initiative whether it was top-line,
bottom-line, or developing new concepts. Continuous improvement is the DNA
of growth. Improving your product or service, how you deliver it to your
customers, and every customer touch point is necessary to stay in business
and to grow your business. The good news is that continuous improvements
lead to more loyal customers who can be your best advertising."
Growth requires disciplined focus and prioritization. The entrepreneur must
strategically focus the business on a compelling differentiating customer
value proposition and achieving daily operational excellence and
consistency. Hess writes that one CEO provided the following description for
the concept of strategic business focus: "Be two inches wide and two miles
"Every entrepreneur has limited resources and time," says Hess. "To be
successful, businesses must prioritize their focus. This is critical because
any growing business has resource constraints: limited people, time, and
capital. So it is critical that the entrepreneur spend his or her time on
the most important areas that can drive success. These priorities, however,
may vary with the type of business or the phase of growth.
"To set priorities, entrepreneurs must have concrete and useful data about
their business, communicate the priorities to their personnel, and implement
processes to ensure that these priorities are carried out. One entrepreneur
who I interviewed prioritized his focus simply as customers, quality, and
cash flow. He stated that if an issue did not impact directly and materially
one of those three areas, it could wait."
Growth is process intensive. Growth requires implementing processes, which
include controls. Processes are like recipes for baking a cake. They are the
step-by-step instructions for how to do a task. Processes are necessary to
hire employees and train them, to minimize mistakes and institutionalize
quality standards, and to deliver products and services on time, 99 percent
defect-free. Controls are necessary to set boundaries on allowable behavior
and also alert management to deviations from processes.
"Processes are the 'how' part of doing business," says Hess. "As businesses
grow, the entrepreneur loses the ability to be hands-on with all aspects of
the business. There is simply too much to do. So, the challenge is for the
entrepreneur to increase the probability that others will do the tasks as he
or she would like them done. To accomplish this goal, the entrepreneur
"There are two basic types of processes," he adds. "The first type includes
directions, recipes, instructions, and standards for how to do specific
tasks. These include rules or controls for mitigating financial and quality
risks. Most processes are designed to instruct an employee how to do
something or what not to do. The second type has a goal of producing
reliable, timely data or feedback that will reveal variances or mistakes.
These data collecting processes are designed to get the key data in the
hands of the entrepreneur quickly as the business grows."
Growth creates business risks that must be managed. Growth stresses people,
processes, quality controls, and financial controls. Growth can dilute a
business's culture and customer value proposition and put the business in a
different competitive space. Understanding these risks is critical to
managing the pace of growth and preventing growth from overwhelming the
"To get a better handle on growth risks, consider how your strategic space
will change as you get bigger," says Hess. "You will probably enter a new
competitive space, facing bigger and better competitors than you previously
faced. Those new competitors may be better capitalized than you and be able
to engage in price competition, driving down your margins.
"The good news is that you can minimize this and other big risks by planning
for growth, pacing growth, and prioritizing what controls and processes you
need to put in place prior to taking on much growth," he adds. "I call it
'what can go wrong' thinking, and entrepreneurs can't indulge in too much of
"I am not anti-growth," Hess clarifies. "Growth can be good and growth can
be bad - it depends. Aggressive, untimely, or poorly managed growth can hurt a
business and even destroy value. And, in some cases, too much growth can
lead to business failure. Don't make growth for growth's sake your
business's goal. Understand that growth, if not properly managed, can
undermine the fundamental strengths of a business.
"Respect growth," he concludes. "Carefully consider the timing and whether
you have the right people, processes, and controls in place to manage the
growth. When you approach growth carefully, you can take your business to
greater and greater heights."
About the Author:
Edward D. Hess is author of Grow to Greatness: Smart Growth for
Entrepreneurial Businesses (Stanford University Press). He is professor of
business administration and Batten Executive-in-Residence at the Darden
Graduate School of Business, University of Virginia. He is the author of ten
books, over 60 cases, and over 60 articles. His work has appeared in over
200 media outlets around the world including CNBC, Fox Business News, Dow
Jones Radio, WSJ Radio, MSNBC Radio, NPR, Forbes, Bloomberg, BusinessWeek,
CFO magazine, Financial Executive, Journal of Applied Corporate Finance, Big
Think, the Washington Post, and Financial Times. His book Smart Growth:
Building an Enduring Business by Managing the Risks of Growth (Columbia
Business School Publishing, 2010, ISBN: 978-0-2311505-0-7, $27.95,
www.EDHLTD.com) was named a 2010 Top 25 Business Book for Business Owners by