Some people will say that companies need to grow to increase the bottom line, but my experience is that growth is actually a byproduct that indicates the health of your business rather than the actual goal. Growth is a result of competition, when new markets emerge, when competitors come up with better products, there is an opportunity to increase your market share and take in more revenue. Assuming you don't leave money on the table, it's understandable that you will compete and if you're doing well you will grow.
It’s not the pursuit of growth that matters, but the achievement of growth.
Companies need to grow in places because they will inevitably be shrinking in some places (as customers age or churn out, as competitors come in to compete in segments, as new substitutive goods compete for wallet share).
Even if you want to stay the same size, you will have some amount of growth in your strategy (or you’ll fail).
It's definitely a balance. Now you don't want to grow slow enough where you're not seeing any growth month over month or year over year. The perception these days is that profitability = slow growth. That's not the case at all. We've continued to grow fast but made it a priority to control expenses in order to be default alive.
There are many ways to become a large company. You only hear about the hyper fast growth with zero concern for the bottomline.
As far as competitors are concerned, you can't control what your competitors do but what you can control is building a business that will stand the test of time. Competitors come and go, so if you pay too much attention to them you'll end up losing focus.
When you're large enough growth slows down so you make more money by building a moat and squeezing your customers. When you're still growing quickly a good product and the resulting growth leads to more revenue.
I think it's pretty well explained above, costs grow, unexpected things can happen, things you use wear out, and the market you're in will change over time. If you don't grow at least a little inflation will drown you in rising costs. If you don't grow a little you'll be less resilient to costly shocks. If you don't grow and preferences change, you'll be stuck producing something no one wants anymore. Any of these things can kill a firm. Growth allows you to reinvest and adapt.
You're right in that most businesses need to grow to increase their value (generally because growth is built into their current valuation) but the narrative you're using isn't on target.
It's entirely possible for a business to give investors good returns even if their business or market isn't growing. Profitability and cash returns from a business can grow as revenues decline if the company either increases operating efficiency, or reduces in investment in recognition of the declining opportunity. MBAs would call this a "cash cow" business - one that should be milked.
We dont tend to see this much in tech because growth is such a fundamental part of our valuations that no company is willing to admit it's in such a position. And you'd probably lose all your engineers over time. But when you look at say, Microsoft, and strip away their non-performing businesses, that's what it looks like: a company that has some assets that produce a lot of profits, but aren't really growing any more, yet if managed properly can continue to throw off gobs of cash for years to come.
In many cases, the reason they need constant growth is because they're not profitable. They're just burning through cash in an attempt to become profitable in the future, which requires growth.
Except growth doesn't just happen at the will of a company. Companies grow because people buy their products and use their services, which means they wouldn't grow unless people wanted them to. So how is growth a bad thing when it's what people want?
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