Growth is the essence of life and permeates relationships, business, and biology. A revolution in thinking occurred when the 19th century scientist Charles Darwin (1809-1882) recognized the law of natural selection in the world of biology and nature in his book, “On the Origin of Species by Means of Natural Selection, or The Preservation of Favoured Races in the Struggle for Life,” published in 1859. The theory suggests that evolution leads to change and animals that adapt to change survive and prosper and those which fail to adapt are replaced over time.
In human relationships, change, evolution, and growth are critical paths in life. If we do not grow and adapt in sync with our friends and partners, we find ourselves in the winds of change and often navigating new paths. In business, firms tend to grow and evolve or to be absorbed or go out of business. Growth manifests differently in all these spheres of life, but it is an essential driver of success.
Growth and metabolic energy are the principal means by which we define the living from the non- living in biology. This is true of humans, animals and plants. In many respects revenues is analogous to growth, and cash flow is analogous to metabolic energy. We need revenues to drive growth. Cash flow provides the means or energy for growth. Without revenues or cash flow, businesses are moribund. With increased revenues and cash flow, businesses are thriving and expanding.
A fascinating law of biology that underlays Darwin’s theory of natural selection relates to growth or scalability. Max Kleiber (1893-1976), a Swiss agricultural biologist at the University of California, Davis, discovered a profound rule relating to animals and their growth or scalability, popularized by his book “The Fire of Life,” published in 1961. Now known as “Kleiber’s Law,” the universal rule in biology among all animals from a mouse to an elephant states that an animal’s metabolic rate or energy consumption is proportional to its body mass raised to the ¾ power. Since the elephant and mouse burn metabolic energy according to this ¾ power rule, and the mass of the elephant is far superior, the mouse burns energy faster per gram of body weight. If you double the size of an animal, the energy requirement does not double, it only increases approximately 68%. A mouse and an elephant have a similar number of heartbeats in a lifetime, however the mouse uses its heartbeats more rapidly. Big animals use more metabolic energy than smaller animals, however on a gram basis they use less energy and are more efficient.
This underscores the thought in the animal kingdom it generally pays to be bigger and that larger animals are more efficient consumers of energy. Small mammals who spend an inordinate amount of energy eating to maintain their body temperature and sustain energy, tend to live fast and short lives. The life expectancy of a 25-gram mouse is 2 years versus 8,000 pound elephant which is 60 years. The longest living mammal in the world is the 120,000-pound bowhead whale which can live as long as 200 years. Another benefit of size in the wild, is that you are less likely to be eaten by predators. As Charlie Munger (1924-2023), billionaire investor and vice chairman of Berkshire Hathaway, observed:
“Over the long-term, big companies of America behave more like biology than they do anything else. In biology, all the individuals die and so do all the species. It’s just a question of time. And that’s pretty well what happens in the economy too.”
In the world of business and economics, the concept of “Economies of Scale,” known since time immemorial, was codified by the Scottish economist Adam Smith in the 18th century. Smith observed that specialization and division of labor in manufacturing lead to advantages of efficiency in production. When companies are the beneficiaries of economies of scale, they enjoy high volume production runs that reduce the per unit variable cost of the article since they are able to leverage the fixed costs of the property, plant and equipment.
Bruce Henderson (1915-1992) of the Boston Consulting Group in 1976 advanced a theory, “The Rule of Three and Four,” which postulates that in mature, competitive markets 3 companies generally control 70% to 90% of the market. Niche companies occupy the remaining 30% to 10% of the available market. This rule relates to advantages conferred by size such as volume advantages as the result of the experience curve in the growth of market leaders over time. Henderson theorized the ratio of market dominance of 3 companies would follow the approximate ratio of 4:2:1. According to Henderson: “A stable competitive market never has more than three significant competitors, the largest of which has no more than four times the market share of the smallest.”
One of the interesting perspectives of companies in history is that the roots of modern multinational corporations, such as the English East India Company (1600-1874) and Dutch East India Company (1602-1799), were originally monopolies built for scale. The defining characteristics of these businesses is being formed as chartered corporations, with exclusive rights and privileges to trade in certain markets, with capital raised from the public for liquid joint stock ownership, and managed by operators not necessary the owners of the company. Curiously, these monopolistic, state-sponsored companies had unusual powers including the right to bear arms and operate armies and navies. The word “monopoly” derives from Greek and means “monos” or “single” and “polein” or “sell.” Dating from the 1530s the “monopoly” has meant “exclusive control of a commodity or trade.”
While companies engaging in the right to bear arms is a thing of the past, many early origins and precedents of these companies remain today such as the predilection for scale and market dominance as well as the legal and capital structure. Today, monopolistic market tendencies of dominant companies continue to persist. However, the Sherman Anti-Trust Act of 1890 and the Clayton Anti-Trust Act of 1914 empower the Federal Trade Commission and Department of Justice with both civil and criminal enforcement to promote competition and prevent monopolies. Both Federal legislations are designed to counteract the tendency for scale advantage and market dominance leading to unfair competition at the cost of the public.
An interesting perspective on growth in business relates to the “Competitive exclusion principle” in biology and ecology. This principle states when two or more species compete for the same limited resource niche, one will prove more efficient or better adapted and will prevail and the other will over time go extinct, or shift to another ecological niche. Although this this concept was discussed by Charles Darwin and his theory of Natural Selection, it was empirically proven in a laboratory experiment by the Russian biologist and evolutionist Georgy Gause (1910-1986) in his study of two closely related variants of Paramacium, a single-celled organism, feeding on yeast and bacteria. Gause discovered that two species competing for the same resources will cause the more efficient population to grow and the less efficient population to have local extinction. This is known as the “one niche-one species” rule. Gause’s study “Experimental studies on the struggle for existence” was published in 1932.
However, there are important exceptions and qualifications to this “competitive exclusion principle.” Joseph Grinnell (1877-1939), professor of zoology and the University of California at Berkley, as early as 1904 observed but did not scientifically demonstrate that species must differ in traits for productivity in order to co-exist. Robert MacArthur (1930-1972), the Canadian American ecologist at Princeton University, demonstrated how it is possible for mutual co- existence by closely related species with niche specialization and “resource gradients.” MacArthur observed five related Warber bird species who fed on the same tree but in different locations with distinct feeding niches that led to minimal competition
Sales and growth are critically related virtues of most thriving businesses. The vitality and value of a business is integrally related to its growth rate. When businesses grow it is axiomatic that their sales grow. Of course, it is possible that profits grow at a rate that exceed sales, but this is generally a short-term phenomenon. Ultimately, sales need to grow for profits to grow. Profitability is measured as a percentage of sales. If you make 5% or 10% Earnings Before Interest Taxes Depreciation and Amortization or EBITDA , you do so against a basis of your revenues, which are generally defined as Net Revenues, which is Sales Less Discounts and Allowances.
The important takeaway is that Sales on any Profit and Loss Statement or Income Sheet is the top line, and the starting point of any financial analysis of any business. If your top line, or revenues grow, and if profits grow proportionately, your prospects are ebullient. Interestingly, when revenues grow at a healthy clip, they provide many advantages in terms of operating leverage, learning curves and market dominance, that often translate to even greater profits as a percentage of sales and a very rosy prospect.
Bankers and financial analysts pay close attention to the nature of a company’s client base in relationship to sales growth. In particular, analysts want to know if a company’s sales growth is “balanced” or “concentrated.” Ideally, sales growth includes a mixed basket of clients with no one client representing the lion’s share of sales. If one or two clients drive sales growth, this suggests risk as clients with concertation may choose to defect or take their business elsewhere. Since sales growth with a diversified and mixed group of clients represents balance, where no individual client holds undue influence, the business can afford to lose clients and not suffer a misstep. Another key metric financial analysts seek to understand is the relationship for the source of funds that fuel growth. In other words, investors want to know if growth is funded through internal profits, or by equity through stock offerings, or through debt instruments such as bonds or loans.
One of the amazing things about growth in business is the phenomena of compound growth versus arithmetic growth. As Albert Einstein (1879-1955), the theoretical physicist, observed: “Compound interest is the eighth wonder of the world. He who understand it, earn its…he who doesn’t…pays it.” Arithmetical growth is based on the quantity of increase on a linear basis over time. Geometric growth is based on the quantity increase by the square of time. The concept behind geometric growth is the same as compound interest. An example of compound growth is when you invest $100 and based on an annual interest rate of 5%, earn $105 in year one. In year two, you earn a 5% rate of return on $105 which brings your denominator to $110.25. In other words, you earn interest on your initial investment and the additional interest payment. Over time, these numbers compound and the returns are significant. If you invest in stocks or equities, you are not earning compound interest, but you are taking advantage of the concept of compound returns.
The market is dynamic and historically growth implies change. Nothing is forever and everything is subject to change. We may want our top 3 clients to remain so for the duration of our career, but if history is any guide, we understand this is unlikely in any fast moving and growing market. Of the 10 largest companies that made the blue-chip companies comprising the Dow Jones since 1896, exactly none remain on this list (and General Electric was the last one to leave). For every client or industry or job opportunity that may eclipse, a new horizon more often than not present itself.
An interesting dimension of corporate growth relates to the dichotomy of organic growth versus inorganic growth. Organic or natural growth is determined by the internal resources, assets, and profits of the company. Examples include a new product invented that may lead to exceptional sales, or the opening of a new market that augments the size of the business. Another legitimate strategy for corporate growth is, conversely, inorganic in nature, and relates to growth realized through external methods such as acquisitions or mergers. When a company acquires a business, whether through internally generated profits or by borrowing funds, they can grow the business in scale. Similarly, when a business merges with another company, achieving synergies and economies of scale, the combined entity may realize instant sales growth.
A fascinating dimension of growth in business today relates to technology and the transistor and silicon semi-conductor. Gordon Moore (1929-2023) head of research and development of Fairchild Semiconductor and a co-founder of Intel, is attributed with what is now known as “Moore’s Law.” The law which is more of an empirical observation stated in 1965 that the number of transistors in an integrated circuit would double every two years with marginal cost increases for the next 10 years. Moore wrote this prediction, which proved true, in an “Electronics” magazine article published in 1965, “Cramming more components into integrated circuits.” Moore revised this growth prediction in 1975 and advised the number of components in integrated circuit would increase by a factor of two for each year, which today still holds true. These predictions for exponential and not linear growth have proven remarkably accurate. The impact of this technological growth has led to phenomenal productivity and wealth in a variety of applications and businesses. The transistor and semi-conductor have been increasingly miniaturized, the speed of the processor accelerated, and the cost of the chip made only marginally more expensive. This has far reaching implications in our electronic world including global satellites, electronic games, mobile phones, computers and defense systems.
A new type of non-linear growth has emerged with networked technologies that are distinguished from the linear growth of traditional industrial infrastructures. In linear growth, the input for labor or capital is typically proportional to the growth of the company. If Ford Motor Company seeks to double production, for example, it will typically need to double capital and labor expenses with factories machinery and employees. Many technology companies by contrast experience non- linear growth. Once the company’s digital infrastructure and network is in place, the additional marginal cost of selling a new customer is nearly non-existent. This contributes to the highly profitable profile of technology companies such as Google, Facebook or Microsoft. The initial development cost for digital infrastructure or software may be expensive, but subsequent costs per client are marginal or minimal.
Traditional industrial companies typically experience diminishing returns as they grow. However, according to economist W. Brian Arthur, many information and networking businesses experience increasing returns as they grow. This is the result of network effects, data accumulation and feedback loops which reduce costs and drive more users.
Robert Metcalf, who co-invented the ethernet and co-founded 3COM, recognized the economic power of networking. Metcalf promulgated what is now known as “Metcalf’s Law”: the value of a network grows approximately in proportion to the square of the quantity of users connected to the network. Technology companies grow in a multiplicative pattern, rather than traditional companies whose growth is additive in nature. Consequently, network technology companies have the ability to rapidly scale in sales growth while average costs decline and increasing profits as their data accumulation and network grow into market leadership.
The word “grow” traces its history from Old English (450-1150 AD) meaning “to flourish, increase, develop, get bigger.” The Proto-Indo-European root of the word grow, “ghre,” means “to grow, become green.” We all pursue sales growth and often even associate revenue growth with what were once referred to as “greenbacks” or printed currency. The origin of the word growth is embedded in nature’s abundance and the organic quality of evergreen nature and related nourishment that leads to prosperity in all facets of life.
Copyright 2026. All Rights Reserved. Thomas S. Shure, Shure & Company.