You read correctly, what is written here is the "quality" of growth, not the "speed" of growth.
With the rapid development of the Chinese economy, many enterprises have experienced unprecedented high-speed growth, creating growth miracles, and executives seem to be "omnipotent" like superheroes. When the market goes down, people naturally expect executives to lead the company to "turn the tide", but unfortunately, the former superhuman has become ordinary again.
The Quality of Enterprise Growth
Let's take a different perspective on growth - the "quality" of growth. After experiencing the ups and downs of the market, we finally understand that only high-quality growth can achieve sustainable development.
Only companies with continuous growth in performance can become stars in the stock market, and without growth, their stocks will be ignored. So, if shareholders demand a turnover growth rate that is twice the market average growth rate and profits that are four times the market average growth rate, then stock returns can achieve three times the market average return rate. Growth has become a double-edged sword hanging over the heads of executives in listed companies. Achieving goals can lead to rewards and promotions, while the opposite means having to "get lost". The harsh reality forces them to pursue growth with all their might.
Unfortunately, achieving sustainable profitable growth has become extremely difficult. Bain&Company surveyed 2870 companies in the seven major industrialized countries with annual sales exceeding $500 million from 1994 to 2004, and the survey results showed that only 22% of large companies achieved sustained growth, with an average annual growth rate of only 5%! Sustainable growth is extremely difficult, and the growth achieved through mergers and acquisitions is often unsustainable.
Companies with significant performance growth usually have their stock prices skyrocketing, as if growth is always a good thing. In fact, many companies with rapid growth in performance once impressed us, but after we bought their stocks, their performance continued to decline. Chinese investors have paid exorbitant tuition fees for such "growth".
What is good growth? What is differential growth? Sustainable profit growth is good growth; On the contrary, unsustainable growth is differential growth. Many companies fail to achieve their expected performance growth targets after mergers and acquisitions.
We can divide the quality of performance growth into three levels.
1. Bought Growth refers to the growth obtained by attracting customers through marketing, advertising, promotions, mergers and acquisitions, subsidies, and low prices. This is an inorganic growth because growth is short-term and the model is unsustainable;
2. Mediocre Growth refers to the performance growth achieved as the market size increases. The market has increased by an average of 10%, and the sales volume of enterprises has also increased by about 10%, sometimes even less than the average value. This growth is not because the enterprises are better, but because the tide rises;
3. Earned Growth, relying on outstanding product quality and performance, as well as outstanding customer experience, wins repeat purchases from old customers to increase wallet share, and actively recommends friends to purchase, bringing in revenue growth for new customers. This is a non promotional, sustainable organic growth.
The growth of purchasing power is driven by quick success and instant benefits, with the worst quality, high customer churn rate and acquisition costs, and unsustainable growth. Mediocre growth lacks technological content and cannot be sustained. The foundation of winning growth is high-quality customer assets. By solidly delivering products and services, enterprises can achieve sustainable growth. This kind of growth is difficult to achieve immediate results, so it is often overlooked by corporate executives.
Winning growth includes two elements: Net Revenue Retention (NRR) and Earned New Customers (ENC). NRR is the ratio of revenue contribution from repeat purchases and increased wallet shares by existing customers to last year's revenue, while ENC is the ratio of revenue contribution from referrals from existing customers (non promotional) to new customers to last year's revenue.
Earned Growth Rate (EGR), also known as High Quality Growth Rate, is the sum of NRR and ENC minus 100%. For example, the performance growth rate of American 3D intelligent technology company BILT exceeds 175%. Due to the fact that most of its new customers come from word-of-mouth recommendations, the winning growth rate is as high as 160%, ensuring the sustainability of the growth.
Unfortunately, the fervent pursuit of growth has led many Chinese companies to prioritize speed over quality, opting for poor growth, high acquisition growth rates, low win growth rates, or even negative values, resulting in high customer churn rates. This is precisely the reason why many companies are facing difficulties today.
Never forget that customers are the breadwinners of a company. To achieve sustainable performance growth, it is necessary to create value for customers, improve customer experience, win a good reputation, make customers enjoy working with the company, and praise it in front of neighbors, friends, and colleagues, thereby bringing profitable growth to the company. This is the true growth path for high-quality development of enterprises.
