The Shape of Growth

“Businesses just don’t grow in a straight line.”

On 8 December 2011, I wrote here about Mulberry’s growth spurt, and then on 16 January this year about Anya Hindmarch. Both companies showing us how demand for luxury goods and particularly handbags, that quintessentially British fashion item, were very much on the up.

Mulberry, the English luxury goods maker, has just reported its annual results and its shares fell heavily as they didn’t meet analysts’ expectations. For the year to March 31 its sales were £168.5M, 38 % up on the previous year, while pre-tax profits were up 54%, to £36.0M. However, in the 10 weeks to June 9 it only showed a 12% year-on-year growth.

That the share price can have lost 22% on this news is somewhat surprising and suggests that someone was taking profits because by anyone’s standards this is all pretty impressive stuff. The Chairman said that trading conditions were now a little more difficult, in some markets, so maybe he spooked the short money folk.

What is happening to Mulberry is quite normal for a growing business. No business grows linearly and all growth follows a series of often somewhat disconnected j-curves. The fact that the gradient of its current growth curve has now shallowed out a bit is to be expected.

Businesses only normally grow for short periods of time anyway, in between the adjustments and transformations necessary to take them onto the next stage of development of the business. Or rather, only the most successful businesses do this, most businesses just get stuck not knowing what to do. Even the ones that do manage the transformation to the next stage of growth often wait until they are well and truly stuck, or even in something of a decline, before they do anything about it.

If you don’t believe me, plot your company’s sales over its lifetime. If you are very successful you will see a series of j-curves, more or less connected together. Some of you will see that but most of you will see a ragged horizontal line, following some initial period of growth. That is because most businesses aren’t growing, they are stuck and they don’t know what to do next. I know all this because I specialise in helping people manage their way through these transformative periods.

For me it is a very good sign that Bruno Guillon, a former manager at Hermes, one of the global elite in luxury goods, recently took over as CEO. As growth begins to slow you need to make several adjustments to a business for it to be able to move onwards and upwards and continue to grow. They aren’t easy and they often need intervention and expertise informed by experience of a bigger version of the sort of business you want to be. I was once told that you needed to dress for the job you want not the one you have. I tend to think the same applies for business leaders.

The signs are good for Mulberry and I look forward to seeing just how they adapt to life on the next j-curve.







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