7-11 Corporate LogoHave you ever considered how many convenience stores there could be? This question came up in the 70’s when 7-11 was expanding using the franchise model. As long as the number of franchises was growing, 7-11 was the darling of investors. But the question of how many 7-11 stores there could be is important because it illustrates the problem with modern investors’ expectations.

The ideal location for a 7-11 or any convenience store is on a corner because you get traffic coming from four directions. Theoretically, there could be a 7-11 on every corner. But then those four 7-11 stores would likely be eating each other’s business. So you would want to space the 7-11 stores far enough apart to get all the business they could without stealing it from another 7-11 store. In short, there is a limit on how many 7-11 stores there can be in any geographical area. You would then have to factor in how much business that each store could possibly get, i.e., how much bread, milk, beer, etc. would be needed by the customer base verses how much it’s actually getting.

Imagine that there is a city with no convenience stores. You open the first convenience store and it’s tremendously successful. So you open a second and it’s tremendously successful. Then a third and a fourth, and so on. But let’s also imagine that you know the exact formula for placing your stores to maximize the profit of each one without taking business form another. As you add stores your sales and profits increase. You appear to have found the formula for great success. Investors will lionize you – you’re a business wunderkid!

But at some point, you run out of places to add stores. Unless you find a way to increase sales per store – but how much bread, milk and beer do people really need – you now face stagnant sales and profits. You are still a profitable business – but it’s not growing. Now what do investors think of you? Time to dump that stock!

If you think this is just a fairy tale, then I would encourage you to consider what Apple is facing right now. Sales have been increasing with each new iPhone release – BUT sales are slowing in the first quarter of 2016. Basically, everyone who wants an iPhone has one – at least in the United States – growth is occurring only in China. So the price of Apple stock has fallen. This is for a company that is making BILLIONS in profit! And unless Apple comes up with a new product that everyone has to have, the future is bleak.

This is the problem of the growth mentality. What happens when you can’t grow?  There’s never enough.

This is not a new problem. Every organization initially grows and people think the growth will never stop. But every organism, organization, community, country or civilization has limits. And being aware of those limits allows us to prepare for when we approach those limits – because you have to change your behavior for the new environment.

One example of a company that faced this situation and dealt with it is American Telephone and Telegraph – AT&T. As a young company it grew because everyone could use a telephone – it was a great growth stock. But AT&T also realized that they couldn’t expand indefinitely. So they became the stock your great-grandparents and grandparents invested in because it always paid a dividend. It was reliable.

The problem with the growth mentality is that eventually, it’s not reliable.  It’s never enough.

A physicist by trade, author by choice, a born teacher, a retired veteran, and an adamant problem solver, Frank has helped the White House, federal agencies, military offices, historical museums, manufacturers, and over 250 technology startups get stuff done, communicate effectively, and find practical solutions that work for them. In his spare time, he makes sawdust and watches Godzilla movies.