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Mice vs Elephants

The generic call for businesses to grow isn’t new – go to Amazon and you’ll be able to build a 4-bedroom home with a gazebo using the titles available like Grow or Die!, Outrageous Business Growth!, and the very bizarre Alchemy of Growth (obviously a chemistry major turned author).

Broad business growth is of course good but there are some fantastic examples of organisations that have remained small compared to their core competitors but have raised their profitability to nose-bleeding heights.

Take Porsche. Although a shareholder in the Volkswagen Group since 2005 the differences in scale and business performance between the two brands are worlds apart. Porsche has a limited range of highly prized and highly priced models. Its revenue is so small it doesn’t even register on the Fortune Global 500 list (VW comes in at number 34) while output is pretty conservative – only 102,000 vehicles roll-off the Porsche production line each year whilst down the road you’ll count 5.7 million with the VW badge.

But the financials are really impressive. In the global automotive market Porsche now earns more money per car than any other manufacturer – up to US$9,000. Let’s look at revenue – VW turns over US$132 billion compared to Porsche’s US$9 billion. Now check out net profit margin. VW’s is a paltry and wafer-thin 2.6%, Porsche 19.2% (for comparison BMW was 5.9% and Toyota 6.9%). Its success has meant it being able to dance with the elephant – it increased its stake in VW to 30% (worth $19 billion) over the last two years. Imagine Dargaville Airlines buying a big chunk of Air New Zealand stock and you get the picture.

It’s a classic case study in turning around a weak and declining brand from 1993 when Porsche was producing only 15,000 cars a year.

What does this all mean? It’s pretty obvious and common business sense but if it’s good enough for Porsche then it’s worth repeating here. Big is not necessarily the best. Small equals agility. Focus on what you are really great at and don’t get tempted by the bigger growth opportunities too easy. Live and breathe what you aspire your brand to be every day. Drive operational efficiency and quality delivery in your products and services and back it all up with fantastic support and customer service. Don’t accept being good – gun for great. And use technology as a vehicle to help get you there – that’s where Intergen comes into the picture.

Above all create an experience that your customers will love you for (and pay you well).

Disclosure: Shaun Donaghey does not drive a Porsche (but wouldn’t say no to a 911 Carrera 4S).

Posted by: Shaun Donaghey | 21 September 2007

Tags: Business Growth

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