Challenging the Gospel of Growth -- Must Business Grow to Survive?

A cherished business doctrine is that growth must be a primary business purpose: "grow or perish" is a mostly unquestioned truth. At South Mountain we favor certain kinds of growth, but not expansion for its own sake, which author Edward Abbey described as "the ideology of the cancer cell." We embrace growth to achieve specific goals, but always with consideration of the consequences: it may disrupt and endanger treasured qualities. We look for ways to develop and thrive without enlarging, thereby holding to limited growth. When we grow, it is by intention rather than in response to demand. We think about "enough" rather than "more"-enough profits to retain and share, enough compensation for all, enough health and well-being, enough time to give our work the attention it deserves, enough communication, enough to manage, enough headaches.

Years ago we were designing a house for new clients. The process was going poorly. Our clients wanted to build at a beautiful spot on top of a hill. We proposed to site the house beside the hilltop, so that the lovely area on top, capped with a huge glacial rock formation with a view, would be preserved. They did not share our perspective. They could not believe, even after we presented convincing photographic evidence, that there was a design solution that would, at once, preserve the cherished hilltop landscape and secure the view they desired. I wondered whether we should end the engagement. Given such a fundamental design disagreement and lack of trust so early in the process, it was doubtful the process would go well. On the other hand, this was a big project, and we were counting on it to provide a significant chunk of our workload for the following year to keep our growing workforce busy.

I brought my partners to the site. We sat on the big rock and considered the problem. They shared my view that our design solution combined responsible use of a beautiful site and sensitivity to our clients' needs. We understood that if we withdrew from the project at such a late date, we might not be able to replace the work quickly enough and might run short of work sometime the next year.

We mused a bit. The silence was broken by my oldest partner, who speaks bluntly.

"Let's shitcan it," he said.

The next day I met with our clients and said, "You know, this isn't working the way we anticipated. Before we dig the hole deeper, let's just call it quits." They were surprised, but after some discussion we agreed that it would be better to part company.

As it turned out, we were lucky, and another opportunity quickly filled the gap. We learned to trust our intuition when it told us not to risk the quality of our work in favor of security and growth.

Until that time we had responded directly to demand. When work was offered, we accepted it, and when the volume of work required expanded capacity, we grew. This was standard operating procedure and we had no reason to question it. It was thrilling to have the opportunity. But this incident helped us contemplate the effects of growth, and we began to wonder whether this passive approach made sense for us. We began to examine growth rigorously and evaluate the benefits and detriments.

It may seem odd for a company with thirty employees to have a self-conscious concern about growth. Maybe it's why we've remained so small. While the potential to expand has been steady, we have scrutinized it carefully.

I do not know, from experience, what it would be like if our company were several times-or many times-larger than it is, so it's hard to talk with certainty about the value of smallness. But I have suspicions. I suspect that we could not retain many of the qualities we value if we were significantly larger. Many ecologists and a few intrepid economists question whether the planet can sustain a global economy that enjoys perpetual growth, but the idea of individual enterprise growth is rarely challenged in the world of business. I have searched business literature and found surprisingly little that questions the advantages of growth, or that considers optimization of size. In fact, conventional wisdom implies that small businesses are those that just haven't had greater success yet.

Not that we don't favor some kinds of expansion-we do. But we do not embrace unrestrained growth for its own sake. We grow to achieve specific goals, but we are aware that when we choose to increase in size, we may disrupt and endanger treasured qualities. Such concerns do not imply that we must limit development. Economist Herman Daly makes the distinction by explaining that to grow means to increase in size by the assimilation or accretion of materials, while to develop means to expand or realize the potentialities of; to bring to a fuller, greater, or better state. Our planet, he explains, develops over time without growing, while our economy, a subsystem of the finite and nongrowing earth, must eventually adapt to a similar pattern.

If we apply Daly's insight to our companies and look at the implications of growth and the possibilities for development without expansion, we might conclude that remaining small, manageable, and familial has concrete value.

One of the few proponents I have found for limiting business growth is Jamie Walters, the author of a book called Big Vision, Small Business. She compares the concept to precious jewels: "It's more a matter of polishing a gem and perfecting its facets, if you will, than of acquiring an ever- expanding number of gems regardless of quality or despite the fact that they might be permanently depleting the mine."2

The apparent lack of questioning about the nature and benefits of business growth, however, may simply indicate that the literature lags behind a changing conventional wisdom. In the lead article in a recent issue of Inc. magazine titled "America's Favorite Hometown Businesses," the magazine's editor-in-chief, George Gendron, says:

Wherever I go these days I run into founders who say that getting big fast is not a part of their business plan. They care about financial performance, but they're equally devoted to building a company that promotes personal and professional development, that fosters close relationships with their community, and that gives them pride and satisfaction they haven't been able to find elsewhere. . . . What they lack is business legitimacy. There's absolutely no reinforcement for such thinking in the mainstream culture, and precious few role models for founders who choose such a path.

There is intense debate within the movement for socially responsible business about a parallel growth-related issue: how to keep control of socially responsible businesses as they grow, and how to keep their original values intact. Scale is a critical issue. Many companies that start off with a mission and find early success feel that they must go public to finance expansion. Once they do, they are vulnerable to buyouts by larger companies and subject to corporate law that requires a publicly held company to prioritize profits for shareholders. The takeover of Ben and Jerry's by Unilever is the most well-known example, but there are countless others. Many small natural and organic food companies, like Stonyfield Farm, Odwalla, and Cascadian Farm-which have been emblematic of independent, live-your-beliefs-no-matter-the-consequences commerce-are now owned by the likes of Coca-Cola, Groupe Danone, and General Mills. The extent to which their freedom to embed their values in their company and their brand may be compromised by their growth is a question.

Faced with such issues, some companies have taken a different approach. Seventh Generation, the Vermont purveyor of environmentally friendly household products, went public in 1993 but saw where that path was leading and was in a position six years later to begin to buy back its stock. The company returned to private ownership and is now charting its own destiny. Patagonia, a pathbreaking environmentally and socially responsible company, has always been privately and very closely held, so when they decided to make a costly shift to organic cotton to satisfy their mission, they were free to take the plunge.

There are no outside investors and no non-employee board members at South Mountain. Each owner is an employee. We decide what kind of business ours will be. The decisions are partly economic and partly philosophical, and the people making them have well-aligned interests. Our considerations have led us to believe that if our business practice is not governed by an unquestioned growth imperative, we will have greater flexibility and freedom and the character of the business will better match our aspirations.

I am not suggesting that every workplace should be modest in scale. An unquestioning attachment to smallness seems as careless as an equivalent affinity for unconsidered expansion. In our case we believe that excessive growth may narrow our horizons and limit good things like invention, personal fulfillment, and the overall quality of our workplace and our products. Most people I talk to want these good things in their work but find it hard to resist the tug of other forces more persistent. Too often we tend to grow for increased profits rather than to stabilize and improve proficiency. I am profoundly grateful to have partners who are committed to helping one another resist those forces, in favor of a different direction with other rewards.

Why Grow?

Sometimes frantic growth, I think, becomes a purpose in itself, or the perversion of other purpose. For example, our purpose might be to make the finest bagel or supply the best mortgage. But why do we need to produce all of either? Why not make just enough? The wish to make the best of a product and the wish to make all of a product may each preclude the possibility of the other. It may be impossible to satisfy all the demand for your excellent product without compromising essential elements of product quality. A different approach would be to learn how to do it, share the learning with others, and thereby encourage the establishment of small bakeries and banks embedded in their locale, well positioned to make the best bagels and mortgages for the people they serve.

Some say that to argue about growth in commerce is spurious. Of course you have to grow, they say: "Nature demands growth just as business does." I say, "That's debatable." Wall Street demands growth; business does not. Neither does nature. Nature seeks optimized growth and imposes limits. In the book Upsizing, author Gunter Pauli points out that if an oak tree grows to 150 feet, it is strong enough to resist wind, wear, and tear. But it doesn't grow to 1,500 feet, even when nature provides sufficient nutrients. Instead, it provides room for ten other trees. If it grew to 1,500 feet, it would become too fragile and lose its resilience and stability.

Nature has many inherent limits that identify optimal size for different organisms, and we may be better off if we do the same in our organizations and businesses. As business ecologist Paul Hawken once remarked, "Do you want to be a mushroom or an oak tree? Spores beat out acorns every time in growth rates, but never in longevity or durability."

Why do most businesses want to grow? Sometimes there are legitimate reasons that make it necessary in order for a business to survive. Chroma Technology Corp., an employee-owned company in Vermont that manufactures and supplies specialized optical filters for microscopes, must respond to the industry it serves. As the microscope manufacturers grow, they demand more filters. If Chroma can't supply them, they will lose their accounts. Their position in the supply chain requires growth.

The Weaver Street Market, located in suburban Washington, D.C., had no intention of expanding, but a large development that combined residential, commercial, and retail uses was completed nearby and its residents wanted a market. They tried to get a major chain to open a store in their area, but none was interested. So the neighborhood asked Weaver Street to open a second market, and six hundred subscribers signed up to finance the start-up. The residents of the community put their money where their mouth was. How could Weaver Street refuse to offer the service?

More often, however, it seems that the pursuit of happiness has become, for many, synonymous with the accumulation of wealth and power. Maybe it's just because we've been led to believe that we're supposed to grow, supposed to win in the competition of the survival of the fittest.

Our inquiry need not be about growth versus no growth; it better serves us to think about the quality of growth. Some things we want to grow and some we do not. We want to increase our responsiveness, our satisfaction, our effectiveness, our reputation, our legacy, our sense of accomplishment, our relevance, our capacity to improve the quality of our products, and our contributions to good lives for our employees and our community. We do not want to increase our waste, our pollution, our unfulfilled commitments, our stress levels, or our callbacks.

Charles Handy thinks broadly about expansion. He believes that growth can mean not more of the same but "leaner or deeper," supporting improvement rather than expansion. Bigness, he maintains, can lead to reduced focus, excessive complexity, and less effective control. He goes on to say:

Once big enough [businesses] can grow better, not bigger. It is a formula which Germany's mittelstander (small family firms) have tried and tested to great advantage, content to corner and dominate one small niche market, through constant improvement and innovation. Rich enough, and big enough, they concentrate on the pursuit of excellence, for its own sake as much as anything.7

Handy's assessment is consistent with Daly's distinction between development and growth. Opportunities for development without growth are legion.

Rule of 150

Growth can be an extreme sport. When a company is growing quickly there's a thrill a minute. It's the same type of sensation many people seek by climbing a mountain or soaring off a cliff clinging to a hang glider. Some of us are willing to forgo such thrills in our work in exchange for familiarity and stability. Some try to get the best of both, and these people have made important discoveries.

When organizations become large, there is often the concurrent inclination to make small units within the larger structure to maintain qualities like conviviality, effective communication, and flexibility. Malcolm Gladwell's The Tipping Point explores how little changes can have big effects and turn ideas, products, messages, and behaviors into major trends. In the book Gladwell writes about the theories of anthropologist Robin Dunbar, who, in the interest of learning about optimal size, has studied how groups of varying numbers work. A striking collection of examples supports his conclusion that there is a Rule of 150, which says that 150 is the maximum number of people who can share a social relationship with each other. Therefore, organizations work best if they remain within that rough limit.

The number reveals itself in a variety of interesting settings. Dunbar looked at twenty-one different hunter-gatherer societies around the world and found that the average number of people in each village was right around 150. The pattern holds true for military organizations, whose planners have a rule of thumb for the size of a functional fighting unit: 150 to 200 soldiers. Reduced hierarchy, fewer rules, and fewer formalities are required for the group to function as a team if it remains at that size. Group behavior operates on the basis of personal loyalties and relationships in a way that is impossible with larger groups.

I cannot envision our company with 150 or more people. I can almost imagine it with fifty, or maybe sixty. Even now I don't always remember the names of all the kids of my workmates. Since many people are scattered at different job sites, I may not see someone for weeks. Occasionally it takes months or years to have follow-up conversations to the mutually probing exchanges we had around the time of a person's hiring. I wish I knew everyone better. I wish I made more time to catch up on people's lives, and shared more of mine. I wish there were more chances to explore the intricacies-the hips and valleys, the copes and scribes, the successes and failures-of the projects they're doing.

The pursuit of concentrated power and wealth may be like chasing a porcupine-if you're not careful, you just might catch it. I've come to believe that there are optimal scales for different businesses and organizations, that we need to think more broadly about the meaning of growth, and that the concept of "enough" has a place in our internal debates. As our ownership pool grows, we may have to expand our ability to create individual equity as the larger numbers dilute the distributions. If one of our goals is to extend our influence through growth, we may have to find inventive new forms of growth, like observing the Rule of 150 or implementing new forms of franchising. Careful examination and control of growth has become a prominent link South Mountain's chain of values. It's a tug on the sleeve that has our full attention; the gospel of unrestrained growth is not the right doctrine for us.

There's a story about a fisherman who was sitting on the beach with his wife one afternoon enjoying the surf and the sun. He had enjoyed a big catch that morning, so he came in for the day. A wealthy businessman heard about his success and approached him.

"Why didn't you keep fishing and bring in twice as much?" he asked.

"Why?" said the fisherman.

"Because you could make more money. Maybe buy another boat and hire some employees."

"Why?" the fisherman asked again.

"You could keep growing, increase profits, and buy more boats. If you worked long and hard at it after some years you'd grow rich."

"Why would I want to do that?"

"Because then you and your wife could retire and relax on the beach," said the businessman.

"But that's what I'm doing now."

John Abrams is the president of South Mountain Company, an employee-owned build/design firm on Martha's Vineyard. This article has been excerpted with permission from his new book, The Company We Keep: Reinventing Small Business for People, Community, and Place (Chelsea Green), in which he explores the role of small business in promoting community, creating social equity, and maintaining ecological balance.