By Ed Hess
Tune in to the latest financial and business news and you are likely to get a mixed-bag view of what is going on in today’s economy. One pundit might be lauding the fact that thousands of new jobs have been created, while another might be telling the story of yet another business that is shutting its doors after succumbing to the pressures of the down economy. Try to get any to-the-point information from those in charge of stabilizing the economy—politicians, government economic experts, and Wall Street big shots—and the response you’ll get is often reminiscent of the replies from the “Magic 8-Ball” toy: “Cannot predict now.” Or, even more likely, “Reply hazy, ask again later.”
In the midst of this uncertainty, notes Edward Hess, a professor at the University of Virginia’s Darden Graduate School of Business and author of the new book Smart Growth: Building an Enduring Business by Managing the Risks of Growth (Columbia Business School Publishing, 2010), there are a few things we can know. One is that job creation depends on true economic growth. A second is that smaller, private businesses are the most likely engines of that job creation.
“Growth is the goal of most businesses for many different reasons: to increase profits; to increase stability; to increase defensibility; to reduce customer concentration; to build cash reserves; to fund improvements and expansions; and to outcompete other companies in the marketplace,” says Hess. “But how can companies pursue those goals, especially in a time of economic duress, in a way that truly strengthens their business instead of putting themselves more at risk?
“The nation’s small businesses have been hit hard by the down economy. Many have had to close their doors. And for the owners who have managed to keep things going, growing their business to create jobs is probably the furthest thing from their minds. But a slow economy doesn’t have to mean the death of growth for your business. By following a methodology I call Smart Growth, you can grow through the authentic expansion of your company’s value to its customers,” said Hess.
Smart Growth features the findings of much of Hess’s research on sustainable growth, including the Darden Private Growth Company Research Project, which was funded by the Batten Institute at the Darden Graduate School of Business and the Darden School Foundation. The book introduces a research-based growth model called Smart Growth. In it, Hess counsels corporate executives and small business owners to pursue growth strategies based on what he calls the “4Gs”:
1. Growth through improvements.
2. Growth through scaling.
3. Growth through innovation.
4. Growth through strategic acquisitions.
The 4Gs—which are based on Hess’s extensive research into how both public and private companies grow successfully—take companies a step beyond the basic strategic options that have been in force at least since Harvard’s Michael Porter explored them a couple decades ago (e.g., low-cost strategies, a focus on a niche market to add value, or the pursuit of particular customer segments).
Those strategies are certainly a necessary part of the decision making about a company’s core value proposition. However, in addition to that, companies must figure out how, if at all, they intend to grow their business. Hess’s research has found that growth turns out to have similar characteristics, regardless of the particular strategy or core value proposition chosen.
“The 4Gs help companies understand that if you want to achieve authentic growth from your chosen strategy, the point isn’t simply posting better numbers,” says Hess. “There is no scientific basis whatever for believing that growth has to be continuous and linear. Real growth instead is based on one or a combination of several things: being better at what you’re doing; doing more of it on a broader scale; doing something new; or by buying growth through savvy acquisitions.”