Maybe it's how well you grow that matters, not how fast.
Hino & Malee Inc., a Chicago-based designer of high-fashion women's clothing, has urged some of its big-name department-store clients to buy less, not more, of its pricey duds. Healthcare Services Group Inc., a firm in Huntingdon Valley, Pa., that contracts with nursing homes, has twice called a six-month halt to its selling and advertising efforts, in an attempt to discourage new business.
Young companies, led by their founders, turning away good business and turning up cautious? This isn't the way entrepreneurs -- bold, brash risk-seekers -- are supposed to behave. Or is it?
Howard Charney thinks it is, which is surprising when you consider his own situation. He is a co-founder of 3Com Corp., a company that lives in a neighborhood -- Silicon Valley -- and works in an industry -- microcomputers -- where spectacular growth is commonplace. But Charney and his colleagues, 3Com chairman Bob Metcalfe and chief executive officer Bill Krause, don't fit neatly into the growth-at-any-cost stereotype. Charney, in fact, thinks that the entrepreneur-as-wildcatter is a myth perpetrated by business school professors.
That may be, but the professors are not alone in their mythmaking. The business press -- this magazine often included -- bestows its plaudits and notoriety on entrepreneurs who create the most from the least in the shortest period of time. The investment community, from venture capitalists to institutional portfolio managers, looks for growth the way college admissions officers look for high test scores, and places its bets accordingly. Entrepreneurs themselves, goaded by the press, the market, or simply by pride in their own accomplishments, frequently measure their success by sales-and-revenue curves, and forget about everything else.
The riskiness of such single-mindedness occasionally shows up in the headlines. Osborne Computer Corp., for a while the darling of Silicon Valley, went from startup to more than $100 million in sales in only a year and a half before winding up in bankruptcy court. Pizza Time Theatre Inc., brainchild of Atari Corp. founder Nolan Bushnell, grew at a compound annual growth rate of 171% for five years -- enough to place it for two consecutive years on INC.'s list of the 100 fastest-growing public companies in the United States -- before it, too, filed for protection under Chapter 11.
Such stories alone prompt doubts about top-line growth as a measure of business success, particularly when compared with profitability or productivity. When entrepreneurs and CEOs forget that growth is only one measure among many -- when they become fixated on growth and feel compelled by pride or ambition to emulate or top the growth of others -- that is when they get into trouble.
But avoiding trouble isn't the only reason for putting growth in its place. More important, for a healthy company, may be the long-term strategic value of controlling growth just as one controls other variables in the calculus of business. At any given time, no growth, slow growth, or just less growth may be what is called for, if only so that the pace can pick up in the future. Indeed, if holding back today is what will make tomorrow's expansion possible, then to hold back is only good sense.
Whether more than a few growth-oriented companies subscribe to this notion of good sense isn't yet clear. But at least some entrepreneurs believe that growth at any cost is precisely what their competitive situations do not call for. To control growth, they are willing to forgo selling opportunities, limit their market share, and keep money in the bank rather than spend it. The stories of three such companies show why.
Last April, Joan Collins, of "Dynasty," and celebrity designers Bill Blass and Giorgio Sant'Angelo joined hundreds of people from the Seventh Avenue fashion industry, all bedecked in the frippery of their trade, for a festive gathering in the Grand Ballroom of The Pierre Hotel in New York City. The occasion was the judging of the first annual More (cigarette) Fashion Awards competition for young designers.
Among the young designers present were Kazuyoshi Hino and Malee Chompoo. Hino, who uses his last name because, he says, Kazuyoshi is too difficult to remember, and Malee, who prefers her first, were one of five finalist designers or design teams chosen from among 250 entrants. They didn't win. But that was all right: The recognition they received at the gathering meant they had arrived in an industry in which status is everything. Their company, Hino & Malee Inc., was indisputably hot. And it was time, by some reckonings, for the pair to shoot for the moon, to create the next fad, to ride high on a wave of trendy fashion.
Hino and Malee, by common consent, have both the design talent and the imagination to go for such goals. But they chose not to try. In fact, the flattering attention they gained at the Pierre -- and that they have gained elsewhere on numerous occasions in the past few years -- didn't change one iota the way the shy couple does business. Just surviving in the fickle fashion industry is risky enough, in their view, and the two entrepreneurs have studiously avoided taking other chances with their infant enterprise. They would much rather have a solid small company than a shaky larger one.
Their conservatism shows up in any number of areas. Their company has limited its line to a relatively small niche -- designer sportswear -- in the huge garment industry, and to a distinctive style within that niche. It does no work on speculation: Contrary to industry practice, the Chicago company won't make a garment in its 14,000-square-foot North Side factory until sales representative Tom Hewitt produces a confirmed order for it. If orders exceed the plant's capacity to produce, the company may lose some sales. On the other hand, if orders fall short of expectations, it has invested no labor -- which at 25% to 30% is the largest single component of a garment's cost -- in unsold finished goods.
