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I was at a business funding seminar a couple of days ago and it got me thinking about the current business philosophy. It seems that everything to do with business at the moment is about 'high growth' - the government wants high growth businesses because it creates employment now and so, it seems, business support is really being targeted towards them - almost all current grant and funding opportunities are geared towards businesses with high growth potential. But is it the right way to go?
The problem I have with the current philosophy is that it seems to be pushing us towards businesses that are only focused on rapid growth, rather than long term stability. The problem with rapid growth is that it's almost always achieved with high levels of debt. In itself, debt isn't a bad thing, most businesses need it to get where they want to be - when it's a problem is when the levels of debt are so high and the stability of the company so low, that the business is balanced on a knife edge.
It could be argued that one of the more recent examples of this high growth culture is the solar energy industry, an industry effectively created by the government introducing new incentives - they didn't realise the effect it would have in the beginning, but were quick to pat themselves on the back at the tens of thousands of jobs being created in this high growth sector. Fast forward just over a year and it's all beginning to turn sour. The threat of 4000 business folding and 25,000 people being made redundant is now very real - why, because the government is planning to cut the subsidy.
The issue is that many of the companies set up to take advantage of the windfall have no real substance, they've got nothing to fall back on - they are totally reliant on one income stream. The income cuts are in the order of 50%, which, in any sector, is high - but the real cost of installing panels has also fallen dramatically, somewhere in the region of 30%. So the real cost to the businesses isn't as high as the headline figures suggest. The problem for the high growth businesses is that reduction is enough where they can't service the debt they had to secure in order to grow so quickly - the numbers now don't add up.
The businesses that will come out of this saga slightly bruised, but still trading, are those who saw this opportunity as an add-on, an extra or who dipped their toe in without getting too wet. They will have invested, but not to the point of over-balancing, they may lose some staff and resources, but not all of them. They grew sensibly - sustainably, if you like.
Please don't think I'm completely against high growth, because I'm not. It can be the right approach for some companies, we work with some who are doing very well - my problem is that it's not the right approach for all companies. For many, the right approach is sustainable, long-term, organic growth.
This 'high growth' push to recover from the recession means we're in danger of getting back to the root cause of the recession in the first place - living for now and not worrying about the future.
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