In 1964, a company in the S&P 500 stock exchange could expect to stay there for an average of thirty-three years. By 2016, the average length of tenure had fallen by almost a third. The projection for ten years on? Half that. The three most valuable companies of 2018 werent even in 2008s top ten.
Confronted with an unprecedented amount of churn and facing shortening product life cycles and expanding fields of competition, todays CEOs and Chief Innovation Officers are under enormous pressure to find new, fast-growth revenue. Because the corporate growth toolkit hasnt changed much in the last century, they have had only two real options: improve on their companys existing capabilities or acquire another companys capabilities. Accordingly, in 2018 alone, S&P 500 companies invested a combined total of more than $1.3 trillion in Research and Development, Capital Expenditures, and Mergers and Acquisitions.
Considering this figure is thirteen times the record $100 billion the US Venture Capital industry deployed in the same period, youd think wed all be doing at least twice as well. In fact, each dollar invested in corporate growth today returns 15 percent less revenue than it did ten years ago. Mature companies are spending more to grow less.
I believe mature companies are like tall trees; they grow until gravity constrains them. They may shoot up rapidly, generating tiers of new branches and reaching great heights, but eventually, new growth can no longer successfully compete for resources with older branches higher up the tree.
Trees, however, dont only grow vertically. Over the last 385 million years, they have developed alternate, horizontal growth systems, enabling them to become the longest-lived multicellular organism on the planet. The famously long-lived oak, once it reaches maturity, produces acorns, a method of regeneration so successful that it has become a keystone speciesone on which entire ecosystems are anchored. I believe companies, likewise, confront a natural upward growth boundary, but that they can also dramatically increase their longevity by developing lateral, offshoot companiesby creating a forest rather than a taller tree.
In this book, I argue that to survive beyond its upward growth boundary, every mature company needs to build a diversified but coherent portfolio of small, fast-growth asset companies as part of a new tree-and-forest, horizontal growth paradigm.
I call this the Acorn Method.
The Acorn Method is both a philosophical stance and a practical series of s