question: Why do companies need to grow? Why can't a company that is successful, making a good profit for its shareholders and employing a lot of people, continue doing what it's doing?
comment: If you buy shares, you are buying part of the company. There are two different ways you can make money from this: 1) Dividends. If the company has spare cash, they can give all of their shareholders some money. This is called a dividend. It will be some number of cents per share, so the more shares you have the more you get. Not all companies pay a dividend - some are still growing and re-investing their profits, some spend their spare cash on share buy-backs (\*see later), some just aren't making a profit, and some are just saving their cash in case they need it later. A company can give a "special dividend" whenever it likes, and may give a regular dividend every year, half-year or quarter. 2) Share price. If the share price goes up, you can sell your shares at a profit. If you do that, you no longer own part of the company. Share prices are driven by supply and demand, which are mostly driven by what people think the shares will do in future. Shares that are likely to make more money (from dividends and/or share price rises) are more valuable. Shares where the company consistently performs well are less risky so are more valuable. If a company reports results that are worse than expected, then that means that everyone has been overestimating how much money the company will make, and underestimating how much risk there is. That means everyone has been pricing the shares too high, so the price will go down. If people have been expecting a profit of $100 a month and then the company only makes $90 a month, and people think they will continue making $90 a month, then the company's shares will go down in price by 10%. Worse, if people were expecting steady growth for a long time in the future, the stock will be priced based on profits of $100 the first month, $110 the next month, then $120, $130, etc, perhaps going up to $200 a month. If the growth stops, then people will re-evaluate and expect a LOT less future profit, so the shares are a lot less valuable. (\* If the company has spare cash, it can do a "share buy-back" which means it buys some of it's own shares and cancels them, which drives the price up both because of the extra demand and because any future dividends will be split across less shares. A number of stocks that don't do dividends, do share buy-backs instead. There are differences in how dividends and profits from selling shares are taxed, which can make one option better than the other).
passages: How such a situation could be prevented:
  
  BULLET::::- The company clearly didn’t calculate with growing quickly and haven’t prepared its infrastructure for it. If it set out to build an architecture that scales out well from the outset, it would diminish the power of the slowing action significantly.
   BULLET::::2. Growth drives profitability: Substantial growth may be a driver for additional profitability, e.g. by higher attractiveness for high performing young professionals, higher employee motivation, higher attractiveness for business partners as well as higher self-confidence.
  
  Beyond the profitability maximum extra efforts to handle additional growth – e.g. based on integrating new staff in large dimensions and handling culture and quality - do rise sharply and reduce overall profitability. 
  
  The combination of the patterns of revenue growth, total shareholder value creation and profitability indicates three growth zones:
  
  BULLET::::- Low Return: Low profitability and low value generation below 10% per year
   Large firms also tend to be old and in mature markets. Both of these have negative implications for future growth. Old firms tend to have a large retiree base, with high associated pension and health costs, and also tend to be unionized, with associated higher labor costs and lower productivity. Mature markets tend to only offer the potential for small, incremental growth. (Everybody might go out and buy a new invention next year, but it is unlikely they will all buy cars next year, since most people already have them.)
   Section::::Other effects which reduce competitiveness of large firms.:Inelasticity of supply.
  
  A company which is heavily dependent on a resource supply of a fixed or relatively-fixed size will have trouble increasing production. For instance, a timber company cannot increase production above the sustainable harvest rate of its land (although it can still increase production by acquiring more land). Similarly, service companies are limited by available labor (and thus tend to concentrate in large, densely-populated metropolitan areas); STEM (science, technology, engineering, and mathematics) professions are often-cited examples.
  
  Section::::Other effects which reduce competitiveness of large firms.:Reputation.
   Profitable Growth hides in fact a contradiction in terms, one often speaks of the Profitable Growth paradox. Most growth investment will at first reduce the profitability, cost reduction efforts to boost the bottom line usually have a negative impact on future growth. This is especially true with mature products or services. The only way out of the Profitable Growth paradox is through innovation. It concerns not only technical innovation but mainly business model innovation, a new product-market space where there is no competition (see Blue Ocean Strategy). An interesting piece of research by the BCG shows that no business model is able to achieve a sustainable competitive advantage for more than 10 years.
   BULLET::::- Ownership concentration has increased since the mid-1990s in more than three quarters of all US industries. Companies in industries showing the largest increases in product market concentration obtain higher profit margins, positive abnormal stock returns, and more profitable merger & acquisition deals.
   Section::::Other effects which reduce competitiveness of large firms.:Slow response time.
  
  In a reverse example, the smaller firm will know immediately if people begin to request other products, and be able to respond the next day. A large company would need to do research, create an assembly line, determine which distribution chains to use, plan an advertising campaign, etc., before any changes could be made. By this time, the smaller competitors may well have grabbed that market niche.
  
  Section::::Other effects which reduce competitiveness of large firms.:Inertia (Unwillingness to change).
   BULLET::::- Consolidation of mature industries into an oligarchy of survivors. Mature industries do not attract new capital because of low returns. Mature companies with large amounts of capital invested and brand recognition can also try to block new competitors in their markets. See also secular stagnation theory.
  
  BULLET::::- The use of credit instruments to reduce capital costs for new production.
   Rapidly growing in rapidly growing markets, are what organizations strive for; but, as we have seen, the penalty is that they are usually net cash users – they require investment. The reason for this is often because the growth is being 'bought' by the high investment, in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits. The theory behind the matrix assumes, therefore, that a higher growth rate is indicative of accompanying demands on investment. The cut-off point is usually chosen as 10 per cent per annum. Determining this cut-off point, the rate above which the growth is deemed to be significant (and likely to lead to extra demands on cash) is a critical requirement of the technique; and one that, again, makes the use of the growth–share matrix problematical in some product areas. What is more, the evidence, from fast-moving consumer goods markets at least, is that the most typical pattern is of very low growth, less than 1 per cent per annum. This is outside the range normally considered in BCG Matrix work, which may make application of this form of analysis unworkable in many markets. 
   Section::::21st century Marxist controversies.:Profit statistics.:Econometric issues.:Property income.
  
  Organizations increasingly make money from trading in already existing assets which are not used by them to produce any new products and services with. Put differently, an increasing share of total generic profit income consists of net interest, net taxes, net capital gains, fees and royalties and rents.
   BULLET::::- Tainter argues that capitalism can be seen as an example of the Runaway Train model, in that generally accepted accounting practices require publicly traded companies, along with many privately held ones, to exhibit growth as measured at some fixed interval (often three months). Moreover, the ethos of consumerism on the demand side and the practice of planned obsolescence on the supply side encourage the purchase of an ever-increasing number of goods and services even when resource extraction and food production are unsustainable if continued at current levels.
   BULLET::::- In 1975, 94 corporations accounted for half the assets of all US publicly listed corporations, and 109 corporations accounted for half of the total net income of all US publicly listed corporations. In 2015, i.e. 40 years later, 35 corporations accounted for half the assets of all US listed corporations, and 30 corporations accounted for half of the total net income of all US publicly listed corporations.
   BULLET::::- Michael Perelman shows that the content and economic meaning of capital aggregates can change considerably even within one decade or so. For example, the changing stratification of physical capital assets in the total capital stock, in terms of their age, exerts an independent influence on the productivity and profitability of enterprises.
   When a business is in a high-growth industry it is able to maintain high growth rates for a longer period of time. However, many investors take this high growth as granted which usually lead to much slower growth rates once the industry stops booming. It is believed that 65% of acquisitions which businesses buy in order to grow in size have destroyed more value than they actually created, an acquisition can’t be a substitute for a growth platform.
   This will be defined as the "we've always done it that way, so there's no need to ever change" attitude (see appeal to tradition). An old, successful company is far more likely to have this attitude than a new, struggling one. While "change for change's sake" is counter-productive, refusal to consider change, even when indicated, is likewise toxic to a company, as changes in the industry and market conditions will inevitably demand changes in the firm in order to remain successful. An example is Polaroid Corporation's delay in moving into digital imaging, which adversely affected the company, ultimately leading to bankruptcy.
   It is merely that, during a capitalist boom, when plenty finance is available, there are many more opportunities to "diversify" and expand the division of labour, with all kinds of new and interesting job titles - "adding" extra workers, to take on tasks, that the regular staff no longer want to touch themselves. Especially (but not only) during the economic slump, the division of labour is restructured by managers, so that fewer employees get to do more work, more precisely focused on the "core business" (reducing the “employee fat” of the business, that grew in the preceding era).
   BULLET::::- Long-term Sweet-Spot: Solid value generation and highest on average profitability in the revenue growth interval from 10% to 25% per year
  
  BULLET::::- High Speed: Even higher total shareholder value generation however in combination with lower profitability beyond 25% per year
  
  Growth rates of the assessed companies are widely independent of initial company size/ market share which is in alignment with Gibrat's law. Gibrat's law, sometimes called Gibrat's rule of proportionate growth is a rule defined by Robert Gibrat (1904–1980) stating that the size of a firm and its growth rate are independent.
   Summers argues that:
  
  According to Summers, the "bottom line" is the "net income" received by investors. If profitability is as high as it has been since 2016, while interest rates are low, Summers argues, one would expect to see vastly more business activity and investment; all the ordinary neoclassical models tell us this would be so. If that is nevertheless not happening, then, very likely, "higher profits do not reflect increased productivity of capital, but instead reflect an increase in monopoly power".
   Profitable growth
  
  Profitable Growth is the combination of profitability and growth, more precisely the combination of Economic Profitability and Growth of Free cash flows. Profitable growth is aimed at seducing the financial community; it emerged in the early 80s when shareholder value creation became firms’ main objective.
  
  Profitable Growth stresses that Profitability and Growth should be jointly achieved. It is a break from previous firms’ development models which advocated growth at first to achieve economies of scale and then profitability (see BCG Growth-share matrix).
  
  Section::::The Profitable Growth Paradox.
   BULLET::::- If the level of the value delivered to the society is higher than the complexity of the business, then there is a probability that the quality and quantity and timeliness of the value delivered by the company to the society will be short of the society's expectations and, as a result, the company will be able to maintain the positive bottom line only over a short-term period – poor business sustainability.
   BULLET::::1. Rapid growth. Starbucks, which grew from 100 employees to over 100,000 in just over a decade, provides structures to support improvisation. In a July 1998 Fast Company article on rapid growth, Starbucks chairman Howard Schultz said, "You can't grow if you're driven only by process, or only by the creative spirit. You've got to achieve a fragile balance between the two sides of the corporate brain."
   The use of (1) credit instruments, (2) capital insurance (derivatives) to protect capital value, and (3) various legal constructions that split out the ownership, control, financing, management and use of capital. This allows the costs, sales and profits to be arranged in ways more favourable to the enterprise or corporate group – often using various different business entities located in different countries.
  
  Section::::21st century Marxist controversies.:Profit statistics.:Econometric issues.:Statistical accuracy.
   BULLET::::- Stage 2: Survival : At this stage, organizations look to pursue growth, establish a framework and develop their capabilities. There is a focus on regularly setting targets for the organization, with the main aim being to generate sufficient revenue for survival and expansion. Some organizations enjoy adequate growth to be able to enter the next stage, whilst others are unsuccessful in achieving this and consequently fail to survive.
   A strategy closely linked to "meeting unmet consumer demand", innovation requires the development of new products and services that will be cutting-edge and face no established competitors in the marketplace. Managers face the challenge of enacting new creative business models and preserving established revenue streams that are essential to maintaining the top-line revenue. For these managers, human resources are key, as they can contribute to conceptualising new business ideas and executing them effectively. An innovation approach to top-line growth is said to be most suited to established businesses with large capital expenditure capacities, due to the large amount of research and development costs incurred.
   BULLET::::- The more debt there is in the business world, the more financial pressure exists, to increase yield in any way possible, to be able to keep paying off liabilities, stakeholders and other claimants. It is no longer just that a healthy profit rate is desirable, but that reaching a certain profit rate becomes a mandatory "requirement", to pay creditors.
  
  BULLET::::- It became possible, within the framework of tax law, for an increasing number of companies to be formed that generated plenty income, although technically (in accounting terms) they operated at a loss.
  
raw_presuppositions: A company that is successful could continue to see success just by continuing to do what it is already doing. A company that is successful could continue to see success just by continuing to do what it is already doing.
raw_corrections: A company that is successful will lose share value just by continuing to do what it is already doing and not growing further. A company that is successful will lose share value just by continuing to do what it is already doing and not growing further.