Thoughts That Hurt to Think #082 – Corporations Have To Grow Or They Die!

Small businesses are a big part of this country’s economy, but they’re kind of a drop in the bucket when you compare them to corporations. Pretty much every business starts out small, before becoming a corporation; but once you cross that line, the rules change completely.

No, I’m not talking about tax cuts and government bailouts. As popular as it may be to bring those subjects up in a conversation about corporate entities, we have to look at all the costs up front that make those back end savings possible. Corporations have to pay a ton of money to government agencies just to exist in many cases, and this is not a one time fee. Each year a lot of corporations funnel a boatload of money into the government in one way or another; it’s not their fault the people in charge spend that money as if it’s endless, or keep trying to burden these businesses with more costs with each passing year.

They’ve got another problem on their hands, and it’s a big one. When getting to know the stock market in even the most rudimentary way, every potential investor learns what that problem is. The best stocks to invest in longterm are the ones that grow consistently; all the others are considered risky at best, and a company only has to have one bad year to make investors start shying away.

A lot of investors won’t even look at a stock until it has ten years of this growth behind it. You can’t rely on a company to grow if it hasn’t proved to you that it can, so many folks see investing in a new company as a risky move. That newness lasts at least ten years, the time during which almost every business struggles the most. Ideally, the company has grown consistently before that as well; but going public changes the rules, remember? Just because you can run a small business doesn’t mean you have what it takes to make a corporation thrive.

And they have to thrive. Otherwise, they die.

Small businesses are not easy to run, by the way. Most of them go out of business in the first ten years, and many of the ones that last are not really turning a profit. It’s not at all uncommon for someone to pour income from their day job into their company to keep it running, which is a nice way of saying many small business owners really have two jobs. Also, some small businesses are not really that small. The government defines a company with less than five hundred employees as a small business. That might seem like a lot for anyone who has employed even a few people for any period of time, but it shows us what kind of ridiculous scale the people in charge use when looking at this kind of thing.

However, small businesses have a lot more options than a corporation. Many of them are started to provide for a single family, and a lot of them do just that. Instead of turning a profit every year, or trying to bring in more money this year than last, these businesses can run virtually forever without really making any money. The family members that work there get paid, as do the bills; but no one is socking any money away once the checks are all written. That works out fine for everyone, as long as it works. This business needs to consider the threats of modernization and automation; but if it can weather those constant storms, it continues to serve its function indefinitely.

Some companies even do profit sharing, so all the employees get a cut instead of one fat cat at the top just getting fatter. They can do this as long as a family business can, which is right up until the company stops making money. Other companies don’t operate for profit at all; in fact, they put non-profit in their name even when they don’t really mean to operate that way sometimes. It’s another way for those fat cats to keep getting fatter, without having to admit the only cause they’re interested in is their own.

Corporations are more narrowly defined, however. They are beholden to the bottom line like nobody else, because they have stockholders. A small business can grow one year and shrink the next, and nobody is unduly surprised or concerned over it. The owners of the company may take action to ensure growth again the following year, but panic doesn’t spread when the numbers don’t consistently rise.

Technically, stockholders are the ones who own a corporation. Buying a few shares doesn’t get you a seat on the board, but it does show that you have confidence in the company’s ability to grow. If the company’s stock goes up, you can sell and turn a profit; or you can wait for your dividends check, if you have enough stock and the company is one that pays a portion of its profits to stockholders. If the stock goes down, you can wait for it to go back up or sell it and buy stock in a company that is performing better.

Corporations are keenly aware of this, because they have to be. Some people only invest in a corporation that has shown ten percent growth or better for ten years or more. That sounds great, from an investor’s perspective; but it’s a lot of pressure on the company, and most corporations make a large number of their decisions based on the investor equation. They may receive criticism for the efforts they make at growing profits and cutting costs, but they can only really acknowledge that criticism if it begins to affect their bottom line.

When you have one person telling you they don’t like the way you style your hair, and another telling you they will take away your income if you don’t keep wearing it the way you always have, you’re unlikely to change it for the person doing the complaining. Maybe you really want to wear your hair that way; but if you do, you’ll die soon after you change it. Death is a great thing to avoid, even when you’re a company; and morality becomes a peripheral concern at best when survival is on the line. You may go down in history as the person who did the right thing, but you’re still dead. All those complainers had no stake in your survival, and once they got their way they just moved on to the next thing they want to complain about. In the court of public opinion, very few people whine about corporations that tried to act in the public’s best interest and went down for it; even if they do, it doesn’t bring the dead back to life.

Looking at this from a personal perspective really changed my views on it. Even when you start at a low baseline, this kind of trajectory gets a little out of hand pretty quickly. If every person had to increase their income by ten percent every year or cease to exist, we would have an awful lot less people pretty quickly. Many of us are more than happy making about the same money this year as we did last year; we might be hoping for a nice bump in our salary, but we aren’t expecting anything crazy like ten percent. That would make the number we were trying to improve on even bigger the following year.

Which leads us to a silly little segment I like to call ‘Author Math’. Please keep in mind that I’m a writer, not a calculator; but I’ll try to get this as correct as I can. As with all other examples of this segment…even if the numbers I throw out there are wrong, they’re still pretty representative of the insanity of this situation.

The first year of working, you might pull in ten thousand dollars. That means you have to bring in eleven thousand next year, or you die. However, the following year you’re working to make ten percent more than eleven thousand; your baseline has changed, and your growth has to reflect that. You have to make twelve thousand one hundred dollars in your third year of working, or you’re done. The next year it’s thirteen thousand three hundred ten dollars, and the year after that it’s fourteen thousand six hundred forty one.

You see what this starts to do, as time goes on. Instead of doubling your income every ten years, you end up hitting double the original baseline by your ninth year. Nine years from then, you better double it again if you want to keep living. This may seem like a pretty common thing for an ambitious person first getting into the working world; but it becomes less and less common the further we take this timeline. Lots of people go from ten thousand to twenty in nine years or less, but less go from twenty to forty in the next nine years. Even fewer go from forty to eighty in the following nine years, and not many at all make the jump from eighty to one hundred sixty thousand dollars nine years after that.

If we treated people like we treat corporations, we would lose confidence in the twenty-seven year old if they hadn’t doubled their first salary. We would write them off at thirty-six if they hadn’t doubled it again, and at forty-five if they hadn’t doubled it yet again. Not many people would survive to fifty-three, but if they did it would be because they were making more than sixteen times their original salary.

People would behave a lot differently, if we knew the only way to stave off death was by consistently growing our income. Some of us would do just about anything to stay alive, and the rest of us wouldn’t matter because we would disappear from the world as we failed to keep up. Just like corporations, we might struggle to keep ourselves afloat despite a less than perfect track record; and just like them, we would be left behind as others moved on. The rare individual might make a giant comeback, as the rare corporation manages to do; but most of us would simply cease to exist, as do most of these entities we call corporations when the tide turns against them.

It might be a terrible scale to measure success by, but at least it weeds out the businesses that don’t have the smarts to exist at this higher level of functioning. When we think about this rule being applied to us as individuals, it gets kind of spooky; but what if we held the government up to these standards? Make the country ten percent better every year in every measurable way, or cease to exist; that rule would make most arguments about what we need to do as a country go away. Along with those arguments, most politicians would disappear as well. We would replace them until we got competent people in there, instead of having one popularity contest after another that somehow just kept making things worse. Americans would all be stockholders, and if we didn’t get a healthy dividends check every month we’d know it was time to end the current regime.

Once we got the right people in there, we could expect the country to be a hundred percent better within nine years. As harsh as it sounds to judge corporations this way, the truth is that a lot of people benefit from companies when they live by this rule; and in this unlikely scenario, every American would benefit from the government being held to similarly high standards. In fact, one of the few entities that could keep this up consistently over time is the government. If this had been the plan all along, we would be in space mining asteroids by now instead of being in virtually every other country waving guns around.

Maybe we should expect less from people, and even from corporations; but things get pretty sketchy when we expect less from the people in charge. If we were to give every country a value, and trade that value like a stock, smart investors would see putting money into our country as risky at best. It might not be the best way to evaluate a nation, but at least we would have some objective realities to measure in this scenario. If there’s one thing most Americans can agree on, it’s that the popularity contest doesn’t seem to be serving us. Could we really do more harm by trying something new than we’ve done by doing the same old thing over and over and expecting different results?

Not that I pretend to know the answer; I just think it’s a question worth considering.

Thanks for reading!

All the best,
Jay

J.K. Norry
The Secret Society of Deeper Meaning
Jay@JayNorry.com
Twitter: @JayNorry

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