Name the Problem Before Choosing Growth

Boards often treat a growth target as a strategy. Management assumes that the company needs to grow, a percentage goes into the plan, and the discussion moves straight to how to get there: build something, partner with someone, or buy a company.

The habit is easy to understand. A number is simple to set and simple to track, and every part of the organization can plan around it.

A number states how much the company should grow but gives no reason why. The kind of growth that would help depends on that reason, so a board that skips it can approve a plan that reaches its target and leaves the board’s original concern where it was.

Growth needs a stated reason

When a company says it is on a growth path, the board’s first job is to understand why. A company that is second in its market may want to become first. A company may see similar businesses in a nearby market growing faster and want to move into that market. Another may have spent heavily on R&D and need a way to earn it back.

Each reason gives management something specific to plan around. A board that says the company needs to grow its share has set an objective, and the share target becomes the growth metric. A board that has funded years of R&D can ask management to come back with a plan for turning that work into revenue. In both cases, the board says why, and management builds the plan.

When nobody states a reason, the company works toward the growth target. If it still sells the same products to the same customers, it can hit that target without asking what else it could do for those customers or how it could serve them better.

Six problems that look like a growth problem

When a company says it has a growth problem, the problem underneath is often something else. Six come up again and again:

• A margin problem: the company sells enough and keeps too little of it.
• A portfolio problem: some of the company’s businesses hold back the rest.
• A capability problem: the company lacks a skill its market now requires.
• A market-access problem: the company cannot reach customers it could serve.
• A capital-allocation problem: the company has cash and no clear plan for it.
• An ownership problem: a business would do better under a different owner.

Each calls for a different response, and an acquisition solves only some of them. So before a company decides on an acquisition, it has to know why it should grow and what result growth has to produce.

In my work with boards, the first thing I want settled is why the company needs to grow. The board and the CEO answer that question together, and management then builds a plan around the reason instead of around a number.

That question comes first in the Growth Decision Architecture™, the six questions I ask a board to answer about a growth decision before anyone discusses what to pay for an acquisition.

A clear reason and a hard choice

Much of my work now is for European manufacturers looking to grow in the US. For some, the reason is simple: because of tariffs, they need a footprint here. Others have no US sales and are not known here, so they want to buy a US company and build their sales from it.

One client’s board was clear about why. The company had invested heavily in China, and China had stagnated. The board looked across its markets and concluded that the company needed to grow in the US, and that with no existing US business to build on, growth would have to come through an acquisition.

The obvious move was to buy a US competitor. That proved hard because other buyers had already acquired most of the US competitors. So we looked for a company with similar capability in a different market. The client makes precision parts for automotive, and a company making precision parts for medical devices could have all the right skills, possibly better ones, with room for each side to learn from the other.

Management did not like the idea. To them, a medical device supplier was too far from their business, and they felt the board was pushing them into a deal. The company is still working through the decision.

Because the board stated its reason, the open question is narrower. The board and management agree the company needs a US presence, and the debate is how far from its core business the company should go to get one.

Comparing growth with other uses of the money

A reason to grow still has to beat the alternatives. The board asks why growth is a better use of capital than improving the core business, pruning the portfolio, or returning the money to shareholders, and what happens if the company does not grow at all.

At the public companies I worked for, every deal proposal included a slide on one question: why is spending this cash on an acquisition better than giving it back to shareholders through a buyback?

Defining success before approval

Before it approves anything, the board also needs to decide how it will tell whether the growth worked. A board can judge a deal by five things: its financial return, how investors value the company afterward, operating results such as customer retention, whether the company gained the market position it wanted, and whether the board can spot problems early enough to step in.

A deal can look good on one measure and poor on another. The company can meet its return target in the same year customers start leaving. The stock can fall on the day a deal is announced, and the company can still end up with exactly the market it wanted. A 2026 paper in the Journal of Finance by Ben-David, Bhattacharya, Huang, and Jacobsen studied this gap and found that the stock market’s reaction on announcement day does not line up well with whether the deal goes on to create value.

Once a deal has closed, each side of a debate can find a measure that supports its view. So the board decides before approval which measures count and by when.

What the board writes down

The board writes down why the company should grow and agrees on it before management chooses a growth strategy. The statement needs to cover four things:

• The problem the company is solving
• The result growth has to produce, and by when
• The other uses of the capital, and why growth beats them
• The measures of success, and which one counts most

With that statement in hand, management knows what problem its plan must solve, and the board has a standard to test the plan against when it returns.

The next time management brings a growth target to the board, can anyone in the room say what problem that growth is meant to solve?