Advertising Age recently observed, “The list of great brands that have been damaged, even ruined, as they’ve been milked for growth rather than managed for profit is a long one — and it grows every year.”
The unbridled quest for growth has played out in very visible ways in the marketing communications industry. Today, just five holding companies control 85 percent of the advertising expenditures in the world. In addition to creating leverage when negotiating media contracts, this roll up of marketing communications companies also was expected to produce significant economies of scale. It didn’t. What was the total “savings” resulting from consolidating the operations of thousands of agencies? According to one study it was less than .025 percent.
In professional services, size is not a competitive advantage
Not only is growth not a strategy, but the supposed advantages of size are diminishing, especially in professional services. Aside from the benefits of what could be considered reputational capital, “bigness” is no longer a competitive advantage for law, accounting, advertising, or consulting. In fact, the trend is clearly away from big diversified firms to smaller specialized operations. In the paper The Death of Big Law Larry Ribstein chronicles the megatrends behind the devolution of large law firms, including increased access to legal information and resources via technology, competition from lower cost economies, and the “commoditization” of some forms of legal work that are widely available on legal websites.
Business observer Jim Collins describes the stages through which successful companies pass on the way to their downfall. Second on the list: the undisciplined pursuit of more.
Growth through acquisition — pursuing more for the sake of more— is almost always an unsuccessful strategy. The majority of mergers and acquisitions fail, and sometimes spectacularly so. While some of these attempted partnerships build the CEO’s ego, they usually erode shareholder value.
The belief that less is more
Most business books feature examples of large publicly-owned companies, which largely have shaped the collective consciousness of the business community. As a result, many have come to accept business axioms (such as “grow or die”) that apply mostly to companies that are in a constant quest to satisfy shareholders. But privately held companies — which actually make up the majority of businesses — can and usually do operate under a different set of principles.
The most exceptional private companies have chosen not to focus on revenue growth but rather to be the best at what they do. They deliberately place limits on their growth, choosing instead to focus on doing great work, providing great service, and creating a great place to work. The agencies most of us admire know that size is not a strategy.
Excerpted from the new book Positioning for Professionals: How Professional Knowledge Firms Can Differentiate Their Way to Success by Tim Williams.