Quote:
Originally Posted by rkw
Have you noticed that in the way business are run today there is a tendency to report a failure to accelerate growth year to year, or year over year as most tend to state it, is reported as LOSING money? A company can still be making profit and even worse still be growing but just not growing with the accelerated growth rate of the previous year. Basically meaning that in shareholder reports and quarterly reports making a profit and even profit combined with growth are no viewed as a success anymore. Today they expect the company to constantly accelerate that growth rate.
How can companies expect to sustain that with a finite number of customers? I guess they expect to move into emerging markets to sustain the acceleration but that still is finite. Odd that profit or even profit that is still growing though lower though at a lower rate the the previous quarter or year is satisfactory. The only way I can see this as possible, in the short term, is via a model with constantly accelerating prices where the mark-up is also accelerating. In my thinking this is auto-inflationary, especially in the eye of ever dwindling wages of today.
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I have noticed this too; you're not the only one.
Company X makes 10 billion in 2010.
Company X makes 11 billion in 2011; up 10%
Company X makes 12 billion in 2012; up 9.1%
"Company X is doing worse than analysts expected. It seems 1000 people will need to be fired to sustain growth rate and profits."
WHAT? You just got MORE profit, you got BIGGER, but you need to FIRE people because you didn't get as much bigger as the year before? How surprising. NOT.
To sustain even the *same* growth rate, you will need to earn more than the year before. If you earned an extra 1 billion, you'll need to earn 1.1 billion extra the year after, just to sustain the 10% rate, let alone make that rate grow. And accellerating your growth, like 2%, 4%, 7%, 11%, 16% is even harder, if not almost impossible.
At some point, it is just not possible to keep growing at the same speed, let alone increase your growing speed.
To do that, you will need to get more and more customers, people will need to spend more and more on your products, buy more products (which implies that life expectancy and/or life cycle must go down), and they must *not* buy competitor's products or your growth rate will slow down.
This is the entire problem of our current day economy. There are too many rich companies and people who just CAN'T GET ENOUGH. Running a company like this will, at some point, make it fall to pieces. If, at the end of the book year, you *have* all the money your customer's are able to spend, you can't get any more next year, and then your revenue will stagnate. Your stockholders will get grumpy, and sell all their stock. People will see your company is in "bad weather", and buy less of your brand. Revenue will get smaller, stock holders will sell even more stock.... and you can see where that goes.
Look through history. It happened time and again. People start a company... it becomes bigger... it runs well... it becomes a bit bigger still... it goes to the stock market in an effort to raise money to expand even further. And that's the beginning of the end, because the stock holders demand:
Grow, GROW, GROOOOOWWWW, GROOOOOOOWWWW you ****!!!
*BOOM*
No company anymore. At best, just a brand name owned by another company that's following the same path. You can't inflate a balloon indefinitely. You also can't inflate a market or a company indefinitely. (Some people, especially the very richest, make a sport of that; growing and earning all the money as stock holders, busting the company in the process.)
Post WWII is the fastest growing time of humankind (according to my old history teacher), with regard to knowledge, technology and wealth, but we seem to be at the end. It seems some of our top economists are slowly, very slowly starting to realise that we have inflated our economy to the breaking point in the last 50-60 years, and that in 2008-2009 or so the economy balloon has said "BOOM". As a result, it must deflate.
And probably, after a new balloon is acquired, it begins again.