5 Advantages of Business Growth

John Spacey, updated on July 21, 2023

Business growth is an increase in the gross revenue of a business. This is a common goal of investors, management, employees and stakeholders in a firm such as governments. Generally speaking, growth is a positive thing as it provides for the needs of growing populations and improves quality of life. However, poorly managed growth strategies can also result in overinvestment, economic instability, and economic bads. The following are common benefits and problems related to business growth.

Benefits of Growth

The process of a small firm growing to become a large firm is a fundamental economic process that contributes to the employment levels and efficiency of a nation. In order to grow, a firm may reduce costs, improve quality, invent new markets and employ more people. The following are common benefits of business growth.

Innovation	Firms invent new markets, products, business models and methods in the pursuit of growth.
Quality	Improvements in quality to gain market share.
Cost	Growth allows firms to enjoy economies of scale that push down unit costs.
Employment	Growing firms employ more people.
Investors	All else being equal, a firm that is growing rewards investors more than a firm that is not growing. This gives incentives for investors to take risks by putting capital to work in the economy.

At some point, all businesses started with zero revenue. As such, business growth is the basis for all economic output and is not an optional feature of an economic system.

Problems With Business Growth

Growth is beneficial to investors if it is sustainable and the firm is able to quickly become profitable. In some cases, a firm spends too much to grow and grows a debt that risks the survival of the firm. Growth for the sake of growth is a common type of economic failure. The following are common types of problem associated with poorly managed business growth.

Economic Bads	A government that is desperate for business growth may allow businesses to create economic bads such as pollution, dangerous work environments, unhealthy and unsafe products.
Unsustainable Growth	A growing firm may have a volatile price as its future value may be highly uncertain. Small firms can grow very quickly such that if you assume this growth rate will last for a few years, they can receive a very high valuation. As such, the management of small firms are often under pressure to improve growth at any cost. This results in irrational strategies that destroy value for investors in the long term such as scaling out a broken business model that can never be profitable. In some cases, a firm becomes heavily indebted to fuel growth to the point that the firm is at risk of failure such that investors may eventually use their entire investment in the company. In this case, employees lose their jobs and communities may be left with the cost of cleaning up industrial sites and other remnants of the business.
Overinvestment	Economies and industries tend to follow a boom and bust cycle where undersupply and healthy demand cause prices to increase leading to growth and investment in new capacity. This often goes way too far with every firm investing heavily in new supply and hundreds of startups entering the market. This dramatically increases supply and prices fall. Firms suddenly become unprofitable as prices fall and investment stops. This causes companies to go out of business resulting in wasted resources as capital such as software and machines may simply be discarded.

Overview: Business Growth
Type	Business Growth
Definition	An increase in the gross revenue of a business.
Related Concepts	Business Growth » Quality Of Life » Economic Bads » Efficiency » Innovation » Quality »