Among companies, as among people, it's the young from whom we expect the serious growing. We're wrong
Most people think companies are like cows -- growing a lot when young and then very little thereafter. It's part of a natural tendency to ascribe a biological model to practically everything. And when we think of fast-growing companies, the tendency is compounded. We already know that rapid growers are likely to be small -- and we are quick to equate small with young.
It turns out that we're mistaken.
Companies, unlike cows, are regularly "born again." They take on new management, stumble onto a new technique, or benefit from a change in the marketplace. Whatever the cause, statistics show that older companies are more likely to grow rapidly than even the youngest ones.
Look at company growth by age group (see Figure 1 on page 2). The very youngest group of businesses has a relatively high concentration of rapid growers (as determined by an index combining percentage and absolute growth), but not the highest concentration. The rates fall off until the ripe old age of 40 or so, after which they begin to accelerate. The group with the largest concentration of rapid growers consists of companies 75 years old and older.
Well, you might argue, if older companies can, in fact, continue to grow, maybe it's because they get bigger over time and acquire the resources to grow by leaps again.
There's some truth to that -- but not much. More than two-thirds of all rapidly growing companies 10 years old and older are small (fewer than 100 employees) when they begin their growth. It appears that a smaller business can come alive at almost any time in its existence, and that a lot of them do.
We discussed in last month's column the fact that entrepreneurship is a hard grind. Maybe now we know why: it's a grind that's endless. There is potential for explosive growth throughout a company's life: it's a planted seed, waiting for the right combination of water and light to bring it alive. Older companies, it stands to reason, may provide the most fertile soil -- having accumulated the cash flow, wisdom, and experience to recognize and take advantage of opportunity when it presents itself.
If your company needs to identify the rapid growers (to sell to, work with, or invest in), there's a simple message. You can't assume that the growth-company cliches -- young high-tech hot shots -- describe your only, or even your best, target. With more growth concentrated above 10 years of age than below it, it pays to look carefully at the older generation.
And what will you find when you do? A pattern not at all in accord with most stereotypes (see Figure 2 on page 2). High tech is the smallest source of growing, older companies. (Apparently, high-tech companies are like cows -- rarely growing except when young.) Too often, and with encouragement from the business press, people assume that most high-tech companies are growing -- and worse, that most growing companies are high tech. Perhaps it's understandable that the cowlike tendencies of high-tech businesses get projected onto all companies. The reality, however, is that the growth patterns of high-tech companies are the exception, not the rule.
Second only to the high-tech stereotype is the myth that most other growing, small companies sling hamburgers and peddle beer. In fact, among older growers, eating and drinking establishments are only a tad above high tech at the bottom of the list.
What's at the top of the list may be equally surprising to those who haven't been regular readers of this column. The greatest source of growing, older companies is general-purpose, low-tech manufacturing. So it isn't just start-ups that have rekindled the manufacturing sector. The obituaries for old-line manufacturing companies appear to have been premature. No other sector during the past four years has produced more growing businesses.
In general, the recent fortunes of older companies make it clear that innovation and creativity are not one-shot affairs. Companies can and do grow rapidly at almost any time in their histories.
Older companies are not only more likely than young ones to be rapid growers; they are in many ways more attractive. They are less likely to fail or be volatile, are more experienced, and have managed to satisfy investors and meet payrolls for a long, long time.
Forget the cow. Perhaps we'd do better to think of companies as wine. ** * *
David L. Birch is president of Cognetics Inc., in Cambridge, Mass., and director of MIT's Program on Neighborhood and Regional Change.* * *
Figure 1: Company Growth by Age Group
Only among companies 75 or older are more than 1 in 10 likely to be fast growers. Not even start-up companies have as good a chance for growth as old ones.
|Age Groups||Percent of Companies|
|of Companies||in Each Age Group|
|(as of 1983)||Growing Rapidly|
|75 and older||13.1|
Figure 2: What the Older, Fast-Growing Companies Do
More than 1 in 7 rapidly growing, older firms is a nonñhigh-tech manufacturer. High tech is the smallest source of fast-growing companies at least 10 years old.
Percent of All Older (10 Years Plus), Rapidly Growing Companies
Manufacturing other than High Tech 15.8%
Business & Professional Services 12.6
Retail other than Eating & Drinking Establishments 12.3
Services other than Business & Professional 11.8
Wholesale Trade 11.5
Finance, Insurance, & Real Estate 10.0
Transportation, Communications, & Public Utilities 5.0
Eating & Drinking Establishments 3.2
Agriculture & Mining 2.6
High Tech 2.1* * *