- increase in the size of the market, and
- increasing market share.
The drivers of growth of business, in order of size, from largest to smallest, are:
- Market growth
- Mergers and acquisitions
- Market share growth
Incremental Innovation and Growth
Incremental innovation will rarely create lasting value, because competitors can easily retaliate.
Competitors can either
- lower the prices on their existing products, or,
- if the innovator raises the price of the improved product, keep their prices the same.
Product Development and Growth
With respect to product development, growth is difficult to maintain because for each product that is maturing and reaching its peak in revenue, the company must develop a new product that will grow faster to replace it.
This is called the portfolio treadmill effect.
Why have publicly traded firms grown at a higher rate than GDP?
The two reasons for this are:
- Publicly traded firms can grow faster because of their ease in raising capital, so their growth can be higher than the overall economy at the expense of nonpublic firms.
- Public firms have experienced higher growth from expanding sales to overseas markets, and expanding markets and bringing in new consumers are the most effective means of growing and creating value.