But it was easy, during the 1980s, to discount such tales. So what if Mulder chose to remain small, or if Bykerk couldn't hack it, or if Godfrey sacrificed growth on the altar of other values? They might decide to absent themselves from the action -- but there was no doubt about where the action lay. And sure, maybe business geniuses like Schmitt and Leonard could stay small and prosper. But how many other company owners had been squeezed out by faster-growing, more aggressive competitors? Growth still seemed not only important for America but critical to a business's survival. Look at Apple, which had so far staved off the onslaught of IBM clones only by selling zillions of Apple IIs and Macintoshes. Growth might be risky. Not growing, surely, was riskier still.
* * *
By now you may have divined where this brief retrospective has been heading. We -- meaning the two writers whose names grace this article -- are arguing that company builders had better reexamine the goal of growth.
It isn't that we think Inc. or anyone else was wrong about growth in the '80s. Rather, it's that the United States is beginning a decade that won't look much like the last. Growth served as America's entrepreneurial religion during the '80s because of a particular set of conditions. Those conditions -- demographic, political, and economic -- no longer hold.
So while Apple and its successors may have been your role models for the last decade, it's companies like Schmitt's University National Bank that will be the models for the 1990s. In the coming years all-out, high-speed growth will rarely be possible. It will rarely be desirable. Small will once again be beautiful -- by necessity.
Now, this argument may smack of heresy, printed as it is in what is still the magazine for growing companies. So we'd better consider it one thesis at a time. Together, we believe, they make up a pretty persuasive canon.
Thesis number one revolves around demographics.
During the '80s some 18.5 million people joined the work force. Many of them were baby boomers, the huge generational cohort born between 1946 and 1964. A smaller number were older women returning to the workplace after years in the home, and some were recent immigrants to the United States. In any event, more people were working than ever before -- 63% of the population in 1989, up nearly four percentage points since 1980.
That growth is over. In the '90s, according to the Hudson Institute's "Workforce 2000" study, "the U.S. population will be growing more slowly than at any time in the nation's history, with the exception of the decade of the Great Depression." The work force itself will grow equally slowly. Immigrants may continue to enter the country, but not many more women are likely to seek work outside the home than did during the '80s. (Indeed, work-force participation rates for older women peaked 20 years ago.) Most important, young workers will be startlingly scarce, as a baby-bust generation follows the fabled boomers. By the year 2000 there will be nearly 5 million fewer workers between 16 and 34 than there were in 1985.
It isn't just McDonald's that should be alarmed by those figures; a dearth of employees can put a crimp in any growing business's style. Consider Interstate Telemarketing Inc., an Omaha company founded in 1980 by Joyce McLaughlin. Interstate grew to 60 employees and was on its way, or so McLaughlin thought, to 120. But Omaha's unemployment rate in the late '80s dropped to nearly 3%, and McLaughlin simply couldn't hire the staff she needed for growth. Similar problems have cropped up in other tight labor markets, and pretty soon the market for new workers will be as tight as markets come. Overall, of course, there will still be plenty of middle-aged baby boomers in the labor force. But how many of them will be seeking the entry-level jobs that a new company typically has to offer?
The demographics of the '90s undermine growth in another way, too. A rapidly growing labor force means a rapidly growing consumer market: those new workers spend a lot on clothes, lunches, health insurance, gasoline, and other items. Per capita income (corrected for inflation) rose 20% in the '80s, largely because more people were working. As labor-force growth levels off, however, a dismal economic truism comes into play -- namely, that overall spendable income can rise only as fast as productivity. And productivity gains in recent years have been, on average, only about half of what they were in the 1960s. Conclusion: markets will grow more slowly as well.
Thesis number two has to do with politics.
By politics we don't mean just who's occupying the Oval Office or its statehouse equivalents. Rather, we mean the whole web of policies, regulations, and attitudes that affect how businesses operate. You could call it the business climate, except that the phrase itself has been turned into a political football.
During the '80s the environment for new business could scarcely have been better. Partly that was a matter of specifics: the 1978 cut in capital-gains taxes; the deregulation of transportation, telecommunication, and financial services (which opened up big niches for new companies); and the variety of state and local programs designed to provide entrepreneurs with low-cost funds and technical assistance. Partly, too, it was a matter of attitudes and atmosphere. Job-providing company builders were America's newest luminaries, wooed and feted by political leaders all over the country. You could see both factors at work in the experience of a company such as The Veragon Corp. Entrepreneurs David Pitassi and Walter Klemp had built a successful paper-diaper manufacturing company in the Pacific Northwest, only to find themselves squeezed out by their investors ("The Enemy Within," April 1987). By 1987 they were looking to start another such company and began talking to officials in several cities. The winner: Houston, which provided them with tax abatements and other financial incentives. When Veragon hit it big in the marketplace, its founders promptly became local heroes: they were named Houston's manufacturing entrepreneurs of the year, and Veragon itself was given a Houston 100 award as the city's fastest-growing private company. At the awards luncheon, it was Pitassi who gave the keynote address.
