Return to site

All long term successful companies have all one thing in common

by Enable Growth

In business, there is a common consensus that an important lever of success is top line revenue growth.
But is that true? Does a proven track record of continuous, steady revenue growth demonstrate success?

To try and answer this, Enable Growth looked at how the world’s largest 2000 companies have been successful according to their growth rate.
We used the revenue variation as a growth definition and its respective market value as a measure of success, over the past 8 years (from 2009 to 2016).

broken image

Key insights:

  • There is an established correlation between revenue  and market valuation growth rate, and this correlation is magnified as the revenue growth rate accelerate. The higher the growth rate is delivered, the more value is generated from the business.
  • The top industry with the highest growth rate creates twice as much market value than the other sectors.
  • On average, companies with revenue growth higher than the average create 75% more market value.

Companies’ growth rate and market value

When looking at the top 10 performing companies over the past 8 years with the highest continuous revenue and market value growth, the correlation reaches a strong 0.69.

broken image

Insight: # 6 on the list (out of a 2000 companies) is Amazon. While optimally nurturing the business they are currently in, making them as efficient as possible, Amazon keeps investing in multiple End-use markets, products/services, geographies and channels that enable them to maintain their existing, and develop future, growth.

Industries’ growth rate and market value

Additionally, when looking at specific industry sectors, the ones with higher growth rates increase their value 25% faster than others, and grow twice as fast as other industries.

broken image

Again, the correlation between growth rate and market value is strong (0.49)..

Thus the question needs to be asked

Why aren't companies focusing effort on growing their top line, as there is a strong link between revenue and market value growth?
Well, it is easier said than done. Many companies struggle to find their next growth locomotive once they reach a certain scale, often investing in wrong projects that end up pushing them off the rail. But to make sure not to end up into obscurity the best probability of success is to keep managing and optimizing what you know the best and keep looking for what you don’t know and gearing up to understand the potential growth opportunities.
To keep this optimal balance while delivering continuous growth requires 2 organizational traits: A growth framework and a growth appetite.
A growth framework is a set of strategic dimensions that capture what you know and enable you to look for what you don’t know. Successful companies are the ones that keep looking for growth. People often refer to company strategy as an overall bullet points slide or a statement that summarize what the business is targeting. This approach (sometimes referred to as a vision statement), is optimal for shareholder communication or an earnings call, but does not do justice to what strategy for growth requires.

To achieve continuous growth, companies have to first set-up a strategic framework, as well as the people and processes to identify and deliver it.
The appetite of the people within the strategic framework who are tasked with the development and delivery of growth strategy, is as fundamentally crucial as the people within an organisation deliver that growth. Successful companies define roles (and assign/ attract/empower people to fulfill these roles) within the organizational structure, aligned with their strategic framework, to deliver the designed strategies. Without a framework and a recognition of the role that its people should play, a business cannot optimally deliver existing growth opportunities or discover the unknown potential a business may have.

Enable Growth is a strategic enablement software that helps management teams to define, develop and implement strategy in real-time, and enables contribution to this aim by all relevant management functions within a company. It’s an advanced and affordable solution for businesses of all sizes, as well as for a range of industries.

Data Source: FactSet Research Systems screen for the biggest public companies in revenues and market value. All figures are consolidated and in U.S. dollars.