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All Growth Is Not Equal

One kind is better than the others. And it’s not the kind we’ve been taught to chase. One economist's study of sustained growth and why it matters more than you think.
COLLABORATORS Dr. Gary Kunkle
Kunkology1


illustration by Todd Detwiler

1. He comes bearing slides.
On a rainy morning, at a table in an empty hotel restaurant, Build’s new economist-in-residence Dr. Gary Kunkle is setting up his computer. Within it, he has slides, and he wants you to see them. (Lordy, does he want you to see them.) After years of studying how businesses grow, Kunkle has made discoveries. But he doesn’t want to tell you what he’s found; he wants to show you. He wants to present facts.

Using data, Kunkle steps through his story. Early in his career he worked in economic development, running teams for KPMG and then his own firm out of Amsterdam, scouring Europe for promising growth companies on behalf of U.S.-based development officials.

Economic development orthodoxy, Kunkle explains, holds that economies are enriched when companies in hot new industries cluster in particular locations. Kunkle’s U.S. clients wanted to attract those companies and establish those clusters at home. But the orthodoxy didn’t correspond to what Kunkle saw and experienced in the field. Nor, finally, was it reflected in the data he began to analyze. Kunkle didn’t find clusters. Instead he found robust, promising companies in every industry (even ones considered moribund), every niche, and every location. Statistically, neither being in the right industry nor in the right place offered companies any special advantage. It wasn’t why companies grew. So, wondered Kunkle, what was?

2. Dr. Gary Kunkle and the (false) mythologies of growth
Here Kunkle becomes — is this possible? — even more animated than when he began. Kunkle is tall and rangy. He’s what a football coach would call a “high motor” player, radiating that kind of irrepressible intensity that can either wire a room or be turned inward — where it can usefully fuel obsessive attention to one idea for, well, as long as it takes.

At this juncture in his slide show, Kunkle is in room-wiring mode. He explains that he took a sabbatical from his business, returned to academia, and went into his “cave” to spade through data until it spoke to him. Eventually, it did. With Doug Tatum, founder of the Tatum Group and author of the midsize-company management guide No Man’s Land: Where Growing Companies Fail, he helped launch the Institute for Exceptional Growth Companies, in part to further his new research. And he started testing his concepts in the market, working with economic development groups in Pennsylvania, Louisiana, Maryland, and elsewhere.

Kunkle has far too many slides to summarize here. (“You want all 164 of them?” he asks us, innocently.) But one finding strikes us in particular: All growth is not created equal. One kind is better than the others. And it’s not the kind we’ve been taught to chase.

3. Growth is a learning curve.
Kunkle’s discoveries about growth dynamics were triggered by a dramatic observation: As of 2010 (the most recent complete year of data when Kunkle developed the finding), 72 percent of all the new jobs in the U.S. were being created by 1 percent of the companies.

“How did this small group of companies produce such incredible job creation totals?” Kunkle writes. “It’s a modern adaptation of Aesop’s tortoise and hare story. Slow and steady wins the race. Incremental advancement, repeated over time, achieves greater results in the long run than a few short bursts.” But, Kunkle adds, “growth frequency should not be confused with the speed or the amount of growth—the conventional measures of high-growth companies.”

When Kunkle analyzed 20 years of firm-by-firm business performance over time, comparing companies that achieved periods of fast relative growth, large absolute growth, or frequent incremental growth, here’s what he discovered:

• “The faster a company grew in one period, the less likely it would be to grow again in the future. It would also be more likely to die.
• “Past absolute growth had no influence on the odds of future survival or growth.
• “But the more frequently a firm grew in the past (‘sustained’ growth), the more likely it would be to grow again in the future.

“Growth is a learning curve,” Kunkle reports. “As firms grow more often, they learn how to do it again and again.” So the firms in Kunkle’s 1 percent have learned something about creating high-performing, sustainable organizations that the rest of us need to know.

Toward that end, Build has developed the Genome Project. Launching in 2013, Genome will feature the Build 100 Register: 100 companies that are exemplars of sustained growth. Along with our founding partners, we’ll publish research that will explore how these organizations attract and retain talent, finance growth, apply technology, create and modify strategy, and attack new markets. We’ll decode growth — identifying the DNA of these companies, the mission-critical learnings that have enabled them to flourish in the midst of uncertainty. As the sustained growth Genome emerges, we’ll share the map. Not to mention, of course, the slides.

THE PLUS

Kunkle, Build’s economist-in-residence, also leads research efforts at the Institute for Exceptional Growth Companies, housed at the Edward Lowe Foundation and funded by the Nasdaq OMX Educational Foundation. For more highlights from Kunkle’s research, see “The Top One Percenters: Sustained Growth and the Surprising Superheroes of Job Creation,” a white paper due to appear on the Institute’s site in January.

Comments

  1. So, where can I get all of the 164 slides Kunkle offered? It would have been nice to make them available as a download.

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