Growth Is Killing Your Business

Improving a business' operations often happens in phases depending on the company's scale — probably something along the lines of improving core functionality, refining the user experience, audience expansion, monetary growth, and profitability.

The problem, though, is that at some point, once you have your audience figured out and engaged, you have to flip from caring more about the audience to caring more about revenue. Or do you? I think that many businesses feel this way. Still, I would argue that the point at which a company begins to focus exclusively on growth is the point that the business becomes disconnected from its audience, effectively marking the beginning of the end.

We've seen it repeatedly; a company will make a decision motivated by increasing revenue at the user's expense, whether incrementally decreasing the volume of detergent per dollar in cost or putting a portion of an app that was once free and widely used behind a paywall. Many of these 'pivots' are premeditated by the company in order to engage the audience and then monetize them; however, what lacks from this strategy is taking into consideration the long-term perception of the brand. Practicing anti-consumer behaviour, over time, tends to culminate in a begrudging and reluctant relationship with consumers.

To illustrate this further, let's look at the following tweet by Adam Mosseri:

On July 26th, Adam Mosseri, the Head of Instagram, shipped out a series of Tweets attempting to explain why people see less of their friends' content in their feeds, among other things. This has been a hot topic lately; it isn't even the first time Adam has spoken about it. This time, however, something was different. This tweet included one tiny, little detail that is incredibly interesting:

The key word here, as you've probably guessed based on the title of this newsletter, is growth.

In this tweet, Adam says, "I'd love for there to be more friend content in feed, but all the growth in photos and videos from friends has been in stories and in DMs." Ignoring that 'growth' in the feed has likely decreased because Instagram has been actively scaling stories and disincentivizing posting in your feed, there is another issue with his message. This issue lies in the expectations companies and users have for one another. Companies tend to expect audiences to care about growth as much as they do, and users expect companies to care about the user experience as much as they do. The former is a mistake, and the latter should be embraced. Perhaps there is a balance in the middle. Still, a business should cater to the audience, not expecting users to adopt the product simply because it's popular or profitable. Therefore, the relationship between a company and a user should only exist in the form of the company communicating how it's helping the user, not how it's gaining from them. Delivering value for users is, arguably, the only thing that matters in this relationship.

In this post, Adam believes he is being transparent and giving people insight into the changes happening to Instagram. While this might seem positive, you would be hard pressed to find any positive comments in reply to his post. However, this doesn't say anything about the state of Instagram, with no significant reported decrease in monthly active users in the past three years. Instead, Instagram has a large, engaged audience that deeply resents the platform. Why is that?

THE AUDIENCE KNOWS YOU ONLY CARE ABOUT MONETIZING THEM

People have become far savvier than Mad Men era advertisers would lead us to believe, and this is only increasing with each passing year. Your audience knows what they want, and they aren't easily told what that is by a business. When it comes to being savvy, younger demos are reasonably adept at picking up on transparent, pandering marketing language, which, when used ineffectively, can create distrust and resentment.

In the example from Adam Mosseri above, the inclusion of the word growth is damning. While this seems like a simple enough post, without thinking, he mentions that the way they are thinking about the user experience is by growth - a metric that the end user couldn't care less about. Any why should they? Businesses have been luring them with great products and restricting and limiting them relentlessly for years. They are used to this by now. Your audience wants a product that works for them. They do not care about the growth of your business.

When writing public-facing copy, it is essential to remove yourself from the marketer's position, and instead put yourself in your audience's shoes. You are not telling people why the product is excellent. You are describing what the end result is for them. You are communicating the benefit to the user and how it will improve their lives. This is an essential piece of communication that tends to be lacking with many large-scale brands (especially ones primarily focused on growth).

A considerable problem with businesses, once they hit a certain level of scale and flip from audience/product focused to revenue/profitability focused, is that they stop talking to their audience in a way that reflects this principle. Worse yet, they stop behaving in this way – putting the audience second behind growth.

FINDING A BALANCE

I realize that most people think that revenue and profitability are incredibly important to the success of a business and possibly even the reason for the existence of most companies in the first place. I agree, and I am not saying that we should ignore this. Instead, I am proposing that we find a balance.

When we think about growth, this often comes from one of three key pillars: vertical growth (increasing pricing, upsells), horizontal growth (adding new products/services), and retention (reducing churn, improving loyalty). Unfortunately, there is a trend for businesses to lean almost exclusively on the first pillar while ignoring the last one. In the case of Instagram, it has long favoured reducing the user experience in core parts of their app (feed, for example) to increase ad space – effectively reducing the user experience in exchange for revenue. This wouldn't necessarily be bad for a while, but as mentioned before, this culminates. Whether we want to give the audience credit or not, they notice these changes and remember them. So, when the head of Instagram begins to explain why people aren't getting the content they want, he is met with animosity, and rightfully so. It's apparent to the user that he's pandering, and while he may have had good intentions, he says explicitly to the users that they aren't getting what they want because the company needs to grow.

Here's an interesting question: Why does Instagram, with over 1,000,000,000 monthly active users, need to grow?

GROWTH IS THE WRONG GOAL

Profound, I know. I've been thinking about this quite a lot lately, and I am beginning to realize that my career-long assumption that growth is a top priority might be wrong. That isn't to say that growth isn't important, but we have become very attached to the idea that growth is always the number one goal. Growth can come at the expense of many vital factors in a successful business. In the following sections, I will explain what I mean.

LET'S TALK ABOUT TAM

The phenomenon of companies being widely adopted but widely disliked seems to occur most often at the level of scale where brands are pivoting to address TAM. What is TAM? TAM is your Total Addressable, or Available, Market. In other words, the total size of the audience a company can hope to saturate with their product over time. When companies approach this TAM with scale, they tend to pivot in two ways: shifting the messaging to give the product a more mass appeal or changing the product to build in more mass appeal. In the case of many brands, it's even a combination of the two, especially in Instagram's case.

You might think: If the product has done well enough to saturate its entire market, why change? That's a good question. Despite the implications of this, the answer is 'growth,' the all-powerful, nebulous metric that so many brands strive to achieve. But is 'growth' the right goal? I think that depends; however, I will say, against all previous conceptions, that growth isn't always a 'good' thing. Sure, if you can achieve more growth, this likely means more profits, Right? Well, not necessarily. Sometimes it does, but not always. Even if it does equate to more profits, it may come at a cost.

Funnily, this concept has been illustrated in other, more grand examples, including entire governments.

THE DEATH OF GDP

It's not just businesses that this concept of 'growth' is beginning to hinder; it's countries too. Many economists are starting to realize that the sole focus on expanding GDP (Gross Domestic Product - effectively a measurement of a country's economic health) has been detrimental to many countries, and changes to this structure of GDP as a sole indicator for success have begun to take hold worldwide. Take a look at New Zealand, for example.

There's an episode of the Freakonomics podcast where they talk about precisely this, in an episode aptly titled 'Is Economic Growth The Wrong Goal?'. It seems that GDP is well suited as an indicator of growth as an average but fails to take into account many critical nuances that add up to the actual wellbeing of a country.

We can take this same concept and apply it to businesses. When the sole focus is growth, companies must forego a focus on essential things like brand equity, operational efficiencies, and profitability.

GROWTH EFFICIENCY IS THE GOAL

Efficiency on its own is quite ambiguous, I am aware, but it at least speaks a bit more directly to how we should be thinking about business goals. Where growth is solely focused on a vertical revenue rise, efficiency can consist of several factors that more effectively represent the business's overall health. This can include growth but is not limited to it. Instead, we can look at the other measurements noted above, such as profitability, TAM saturation, brand equity and perception, etc.

Further, when we think about 'growth,' generally, brands tend only to use the vertical growth pillar while ignoring the horizontal and retention angles. Sure, retention isn't necessarily a 'growth' tool as much as it is a means to ensure consistent growth, but let's not ignore the power of horizontal growth. While some classify things like Instagram's suggested posts, reels, etc., as horizontal growth mechanisms, I would argue that these are vertical growth mechanisms. These additions to Instagram have come as a means to change the core product offering to expand its usability to a broader audience – reels to attract TikTok users that aren't otherwise using Instagram, etc. What if, for the sake of illustration only, instead of changing the functionality of Instagram's core feature, the feed, they were to acquire VSCO and allow people to access additional, high-quality filters and controls at a charge? This move would be traditional horizontal growth by adding new product offerings without changing the core offering while increasing revenue opportunities within Instagram's existing TAM.

With this approach, Instagram doesn't need to sacrifice brand equity and, instead, can improve it by becoming a product that caters even more deeply to its own customers. Scenarios like this are, in my opinion, a perfect example of how the goal of 'growth' can cloud our judgement, forcing us to make decisions that exist only for the sole benefit of improving this metric alone while ignoring other variables. It can create a vicious feedback loop that I believe has negatively affected many companies.

Lastly, I want to address one final point. One that most people might not meet with agreeance, but what I believe to be a significant consideration:

HOW MUCH REVENUE IS ENOUGH?

This point is semi-counter-capitalist in nature, so I would forgive you for disregarding it. However, it should be mentioned. When we look at our example with Instagram above, it would be reasonable to wonder at what cost the changes to core functionality come. Sure, this example isn't perfect for this point because much of Instagram's expansion is to serve the Meta Ad Platform to provide more inventory. However, the principle remains: how much revenue is enough?

We tend to think of growth as an infinitely extending variable that can be stretched indefinitely with the right amount of elbow grease. I would argue that this is incorrect when we sacrifice things that provide brands' strong, long-term success in favour of short-term gains. Brands often force growth to reach new revenue levels only to address the issues that arise from said growth afterwards — sometimes once the damage is already done. This rapid, blind expansion can come at the cost of a whole suite of issues, especially operational distress such as strain on employees, manufacturing, fulfillment, general logistics, etc.

It's not impossible to build a legacy brand that can withstand the test of time by ignoring your customers, but it's damn hard. Sure, Instagram has been around for 12 years, but with growing resentment and a product that is becoming increasingly detached from any meaningful end-user, how much longer can it last in its current form?

With that, I would argue that, at some point, enough revenue is enough, lest you sacrifice everything your brand can achieve long term. Growth as an indicator of success is a toxicity that infects our ability to determine balance reasonably. If the company isn't going to be successful long term, then growth is only a vanity metric.

If we want to think about longevity, we have to think beyond only growth and embrace a structure that supports efficiency at all levels.