Red Queen strikes again!
Sometimes, Alice, you have to keep running just to stand still.
You're right that no company can escape economic gravity forever. However that doesn't relieve the pressure to try.
The problem is that large companies are owned by investors, and investors want their investments to perform well. The value of your investment is based on expected future returns. If a company is growing, the expectation is that it will some day make a lot more, and so it is valued highly. If it isn't growing, then the expectation is that you can value it at a fairly boring multiple of current returns.
The transition can be very shocking. From the same report, of those companies that stalled, only 5% lost less than a quarter of their market value. Under 1/3 lost less than half their market value. And over 40% lost over 3/4 of their market value. Generally the size of these drops are fairly rational reactions to the resetting of future expectations for those companies.
Investors notice that kind of drop and apply pressure on management to keep it from happening. Furthermore thanks to stock options, key employees (including executives) tend to also be investors. This results in a very personal motivation to avoid that situation.
Now do you understand why a growing company feels so much pressure to keep on growing?
Cheers,
Ben
PS For this thread, comparing to GNP luckily happened to be appropriate because you can't keep on the path towards world domination unless you manage to beat GNP growth for a very long time. And the rate of failure to do that suggests that nobody is likely to succeed, ever.
I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)
