Microsoft (MSFT), Google (GOOG), Panera Bread (PNRA), Staples (SPLS), Juniper Networks, Nike , and Endo Pharmaceuticals are just a few of America's exceptional growth companies that have managed to turn big ideas into billion-dollar revenue businesses. This elite set of companies is the heart of America's innovation and growth. They even grow through challenging economic cycles, and they represent the class of growth companies that will be the leaders for the next growth cycle. They are the companies to work for, invest in and learn from.
Whether you work for a private or public company, a unit of a large one, in government, education, or the nonprofit sector, you can take away insights from the success pattern of America's highest-growth companies and apply actions to help produce exceptional growth for your company.
The economy is moving out of a recession (fairly labeled "The Great Recession") into a new phase characterized by high unemployment with growth. Going forward, the conditions favorable to business growth will be redefined, especially if the economy is characterized by high unemployment, high debt, tight credit, increased higher regulation, and low consumer spending. Correctly projecting the shape of the recovery to come is anyone's guess: Is it a L, U, V or W recovery pattern?
Google Vs. Twitter
For at least the duration of this lengthy recovery period (and possibly longer), the numbers are pointing to an extreme financial scenario for business growth: a higher upside for those businesses that achieve growth and a greater failure rate for those that struggle.
Those of us in business naturally define business growth through different lenses, often based on our business growth or failure experiences. For example, companies with a disruptive innovation have a disruptive growth opportunity. Investors define stocks with high price/earnings or price/book ratios as members of growth funds or indices.
By contrast, I define a growth company as having a simple, single characteristic: achieving compounding customer demand as measured by revenue growth. This allows companies to increase revenue every year; the No. 1 objective of just about all for-profit management teams—and the most difficult to achieve. This is the measure, however, that ultimately defines a growth company. Contrast Google and Twitter. The former has achieved stellar revenue growth; the latter is experiencing exponential growth in subscribers and valuation but it has yet to achieve exponential revenue growth.
Good News for Select Companies
Revenue growth gives the management team the option of generating profit and returns for investors and employees. It is not sustainable to do the reverse—i.e., overinvest, or cut costs to generate profit and then look for revenue growth—yet all-too-many management teams travel this dead-end road to short term success.
Even though today's economic challenges may seem like an unfavorable headwind, consistent and compounding revenue growth can be achieved by companies of all sizes: $1 million, $10 million, $50 million, $200 million, $500 million, and even $1 billion and beyond. Growth rates may temporarily slow as a result of declining or rapidly changing market conditions, but revenues of high-growth companies still average compounding revenue-growth rates across multiple years.
Despite the turbulent recession and slow recovery currently being experienced by American businesses, there is good news—a select set of exceptional revenue growth companies are leading the way!
Who are they; what are they doing; and how many of these exceptional revenue growth companies are there?
Growth During Recessions
Revenue-growth companies are all around us. Utilizing Standard & Poor's Compustat Database, I have identified more than 400 public-revenue growth companies with revenues ranging from $50 million to $10 billion that are achieving a two-year annual revenue growth rate averaging in excess of 20%. Despite the economic meltdown in the latter part of 2008, America's best management teams are achieving revenue growth in top industries such as energy, capital goods, software and services, health care equipment and services, pharmaceuticals, biotechnology and life sciences, technology hardware and equipment, consumer services, diversified financials, materials, and commercial services and supplies. This contrasts with historic growth (1980-2007) in specialty retail, technology, and financial services as the top economic sectors for the greatest number of growth companies.
America's exceptional growth companies actually have a consistent track record of growing through recessions. While the list changes, what is in common is that companies do achieve growth during the toughest of times. During the 1993 recession, Cisco, Cadence Design, and Cracker Barrel Restaurants (CBRL), which averaged revenues of $500 million, continued to achieve revenue growth. Since this recessionary period, Cadence Design and Cracker Barrel are billion-dollar-plus companies with Cisco growing to a stellar $36 billion in revenue. Cerner (CERN) and Endo Pharmaceuticals (ENDP), leading health-care software and pain medication providers, serve as proof that companies can grow through this most recent recession along with companies like Green Mountain Coffee (GMCR), Middleby (MIDD), Deckers Outdoors (DECK), and Intuitive Surgical (ISRG). Even during recessions or slow-growth economic cycles, there are still growth market segments.
Jack Welch, while leading General Electric (GE), declared that each of GE's business units should be No. 1 or No. 2 in their respective markets. Our high-revenue growth companies are No. 1, No. 2, or No. 3 for revenue growth in their industry or market. By focusing on increasing revenue per customer and number of customers, your company will become the fastest-growth company in your market.
What are America's recession-proof, highest-growth companies doing differently? What are the values, fundamentals, and actions that will make the difference between failure or just surviving, and thriving?
The answer to these questions is what I call "The 7 Essentials." After years of research and scores of interviews, in-depth financial analysis, some earnest listening combined with problem-solving and synthesis, I identified a unique set of time-tested management practices for achieving sustainable and enduring growth.
Utilizing a mostly quantitative approach to analyzing growth, I set out to derive the difference-making fundamental and management insights common across and unique to America's highest-growth companies—with a particular focus on growing through recessionary/recovery periods.
Redefining the Blueprint for Growth
Yes, it is possible to achieve exceptional growth through challenging times; the numbers prove it. Applying the values and fundamentals of America's highest-growth businesses—the unique set that has grown through recessionary and recovery periods, especially the 2001-2003 and the 2007-2009 recessions—will be essential for your company to not only survive…but thrive.
What is unique about The 7 Essentials? Every company focuses on a market, has customers, tries to be profitable and has a management team. What makes the growth difference between a struggling company from an exceptional-growth one is the unique combination of what they do and how they do it. For example, every company has customers but I found that few have customers who sell for them and even fewer have customer advisory boards that offer advice on how to best grow to meet new customer needs.
Each subsequent column will highlight an aspect of exponential growth that I hope will redefine the framework—what I call the blueprint—for growth and the actions you can take. The next seven columns will focus on each one of the essentials so that you can turn these exceptional growth insights into actions! The next article will focus on creating and sustaining an exceptional value proposition. If you want to to measure your company's performance against each of The 7 Essentials, go to the free scorecard at http://scorecard.blueprintgrowth.com/.