The Myth of Wall Street Growth

The best book I’ve ever read on the topic of growth is by Ed Hess, and it’s aptly named Smart Growth. It’s not an anti-growth book, but through research, it dismantles the mental model of “Wall Street Rules” that states all public companies should grow continuously and smoothly. In this conversation, Ed addresses the better approach to the concept of “grow or die,” which includes continuous learning and improvement, which are pillars of smart growth.

Episode Highlights

Ed’s background before teaching and research
The reason Smart Growth is still competing against Wall Street Rules
The Growth Mental Model
The alternative to “Grow or Die”
Continuous learning and improvement
Ed’s favorite case studies in the book
When a company grows faster than its people
Smart Growth as a course

The Producer’s Book Notes on Smart Growth

I love this book, I love this author. If only I had this book as I was climbing the corporate ladder early in my career. I saw many of my peers not ready for the growth they were exposed to. This book explains why. I also worked for leaders where growth, growth, and more growth was the ongoing objective. I believed in that message. The wisdom densely packed in this impactful book would have reset my business center of gravity.

In the notes below, I share a few of my favorite snippets from this book that I reread annually.

The Growth Mental Model in Four Lines

All companies must continuously grow, or they will die.
Growth is always good.
Public company growth should occur continuously and smoothly.
Quarterly earnings should be the primary measure of public company success.

While the core four of the growth mental model is seemingly focused on public companies, this deeply embedded thought process applies to private organizations too.

Incidentally, the Growth Mental Model is big business. Ed reminds us that consultants earn a lot of money by creating tools to fulfill this growth construct.

The Grow or Die Mindset is Alive and Well

Ed references the work of Sherman and Hart that “In business, there is one simple rule: grow or die.”

As far back as 1954, Ed found that Time stated, “Grow or Die is the Chief Axiom of U.S. Business.”

There are more references to this grow-or-die mindset in the book.

The Purpose of a Business

I’m reminded of Peter Drucker’s purpose of a business – to find a customer whose chief activities are marketing and innovation. I’m sure he’d agree with Ed’s message on the purpose of a business:

Smart Growth believes that improvement is more important than growth. And if a company continuously improves in ways that meet customers’ needs faster, better, or cheaper than the competition, then growth may occur if the business ness makes the decision to grow. Smart Growth believes that growth should be a rigorous conscious decision rather than an assumption. And smart growth rejects the belief that all growth is good.
Ed Hess

In short, Ed teaches that the goal is to create an enduring business that meets the needs of customers, employees, owners, and communities.

Six Questions Regarding Growth

Why should we grow?
How much should we grow?
Are we ready to grow?
What are the best ways for us to grow?
What are the risks of growth?
How can we manage those risks?

The Research on Growth

There’s a section in the book where Ed shares other people’s research on big-company growth.

Rita McGrath found that only 7% of the companies in her research, growing 5% a year, were able to do that without resorting to acquisitions.
Edith Penrose contends that growth depends on people having the time and learned knowledge to grow.
Penrose goes on to call growth a messy process.

Case Studies

The case studies in this book were phenomenal. The big-company case studies on Sysco and Tiffany were my favorite.

There are two private company case studies, and both are insightful. However, the case study on Defender stood out. It’s a large security and satellite dealer in the Midwest. Below are two lines from the founder and a final quote on the case study from the author.

“Our sales have doubled because the capacity and talents of our leaders have doubled. A few years ago, we stopped trying to double our business and realized the way to grow was to double our team members’ enthusiasm, optimism, and skills.”
“Focus equals growth … we don’t pay people to get everything done–we pay to get the most important things done.”
Per the author, over the course of ten years, the founder reinvented Defender’s business model three times, reinvented himself and his role, but, most importantly, redefined the purpose of his business, which had evolved from making money to growing people.

The CEOs Speak Up

Ed interviewed hundreds of CEOs when compiling this important book on growth. Here are just a few of the comments he received from these leaders that are worth mentioning:

Most didn’t plan the growth; it happened.
One step forward, two steps backward.
Growth changed what the CEO did.
Had to learn how to delegate.
Difficulty in building a management team.
Alignment then became an issue.
Managing the pace of growth was hard.
There was a shift in the CEO’s role.
CEOs had to upgrade people.

Again, I love this book. Every CEO and professional serving on a senior leadership team should read this book.

When finished, consider taking the Coursera course, which you can audit for free.

Who Is Ed Hess?

Professor Ed Hess spent more than 20 years in business as a senior executive at Warburg Paribas Becker, Boettcher & Company, the Robert M. Bass Group, and Arthur Andersen.

He joined academia in 2002 as an Adjunct Professor of Organization and Management at the Goizueta School of Business at Emory University, where he taught in the business Undergraduate and MBA Programs and was the Founder and Executive Director of both The Center for Entrepreneurship and Corporate Growth and The Values-Based Leadership Institute.

In 2007, he joined the Darden Graduate School of Business faculty as a Professor of Business Administration and the first Batten Executive-in-Residence. He has taught in the MBA & EMBA Programs; in over 21 Executive Education programs at Darden, IESE (Barcelona), the Indian School of Business, Georgia Tech, and AVT Denmark and consults regularly with public and private businesses and governmental agencies.

He is the author of 15 books, 160 practitioner articles, and over 60 Darden cases, etc., dealing with innovation and learning cultures, systems, and processes. The common theme of his work is high individual and organizational performance. Six of his books were published by Academic Presses: Cambridge University Press, Stanford University Press, and Columbia Business School Publishing.

His book Smart Growth was named a Top 25 business book in 2010 by Inc. Magazine and was awarded the Wachovia Award for Research Excellence. His book Learn or Die was an Amazon best seller and was awarded the Wells Fargo Award for Research Excellence. His recent books are Humility Is the New Smart: Rethinking Human Excellence in the Smart Machine Age (Berrett-Koehler, 2017) and Hyper-Learning: How to Adapt to the Speed of Change (Berrett-Kohler, 2020).

Hess’s work has appeared in Fortune magazine, European Business Review, HBR, SHRM, Fast Company, WIRED, Forbes, INC., Huffington Post, Washington Post, Business Week, the Financial Times, and in more than 400 other global media publications as well as on CNBC Squawk Box, Fox Business News with Maria Bartiroma, Big Think, WSJ Radio, Bloomberg Radio with Kathleen Hayes, Dow Jones Radio, MSNBC Radio, Business Insider, and Wharton Radio.

His new book is OWN YOUR WORK JOURNEY! The Path to Meaningful Work and Happiness in the Age of Smart Technology and Radical Change, published by Amazon KDP.

He currently consults and does executive coaching in the areas of Organizational and Human High Performance using a mindset and behavioral approach.

Episode Highlights