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Sometimes, small firms could be in a better position to innovate

If the company grows, who wins?

The priority to grow and the repercussions in society and innovation

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In a previous post, I explained why a lot of companies want to grow. It has benefits for investors, shareholders, executives and even workers. But, what happens to customers and, more importantly, to us as a collective? What are the repercussions for innovation?

The need to grow makes the company prioritize the short term and the expansion to new markets. None of those two things benefit the existing customers nor the society in general. Let's see that in more detail.

Short term

The obsession to grow makes the company focus on the short-term.

In public companies, an important part of shareholders is looking for quick gains. Some of them do not know and do not care about the mission or the vision. Money is the only goal.

Some of the private companies want to grow to be public as soon as possible. Others, need to expand to please early investors.

Private and public firms want to play safe. They make incremental, small changes to the existing products. We see no moonshots. That would need too much time.

There are examples in many sectors. For instance, the greatest innovations of some of the large food companies are anecdotal. It could be a new taste of an existing product or a cartoon on the packaging. Some of them claim that they invest in research. They launch a new yogurt that is good for cholesterol or weight loss. If you ask any nutritionist, they affirm that product could have some benefits. It could be useful for some people, in some circumstances. They do not lie. But, there are other products more natural, cheaper and with a great taste.

In new technologies, we face similar difficulties. Each week, there is another Android phone that looks the same as all the others. The only differentiator is any gimmick, funny, little thing. Everybody forgets that when the next appears.

If they want to solve big problems, it is necessary to take risks. They have to make mistakes and lose money without fear. That means to lose in the short term and seeking ambitious goals in the future.

Growth leads to short-term vision and then to irrelevant improvements. Ok, perhaps not always. In some cases, too many cases.

New markets

When the priority is growing, the new customers become the most important.

Sometimes the company expands to the lower end of the market. They make a cheaper, simpler version of current goods.

Other times they go to other geographic zones. First nationwide, then overseas. Nowadays, everybody has the obsession to conquer China. In a few years, it will be India. If they do not go there, competitors will.

When the company grows, it concentrates on new customers. Most of the money, time and efforts go in that direction. There is not much left to discover more critical needs of the current buyers. They can only make incremental improvements of what they have already done.

Conclusion

The fascination for growing leads to a focus on the short-term and wide angle. I mean, they go fast and point to as many people as possible. That could be good for workers and owners sometimes. But customers and society never benefit from that. There are fewer and bigger companies that tackle small problems.

Being small is good. It is ok if you do not want to grow. We should not demonize big businesses only for their size, either. But, I think growth should not be one of the primary targets. Many firms worry about that. It is almost an obsession. It should be a red flag. The way public companies and the stock market works distort the system. (I explain that in more detail in the first post of this series).

Another kind of enterprise is possible: one that prioritizes innovation and problem-solving. That could be for a small segment, even a tiny group of people. That focus can have a positive impact on society and customers. The firm can profit from that too. The satisfaction of working in something meaningful and that creates value.


I have different post related to growth:

Grow part 1: Why do they want to grow?
Grow part 2: If the company grows, who wins?

Groth is related to the fact many companies copy each other:

Copy part 1: Copy and grow
Copy part 2: Duplicated products
Copy part 3: Apple copy

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