No Stupid Questions

It's not "companies", it'spublicly traded companies.

And the answer is quite simple really: the moment you become publicly traded your stock becomes your product, and everything else becomes a means to deliver better stock prices to your investors.

Not all companies are publicly traded, I patronise privately held companies wherever possible because as a client I'm still at the core of their business strategy, and I'm wary of the alternative.

At the end of the day, bad strategies result in bad products and services. Vote with your wallet, it's very possible.

Because they run out of “create” and they’re slaves to the quarterly report.

A new company that makes/sells a widget that is desirable will grow naturally from the demand for the product. It has to get bigger to manage the demand. They go public to get more money to grow more quickly. Those public investors expect a return on their stock investment purchase.

Now competitors show up. Competition is bad for our big startup (despite being a supposed tenant of the free market that allowed our company to grow quickly in the first place) that is now a major power in the widget industry. You can only make the widget so many ways, can’t really improve it, and the market is becoming saturated. So what happens next? WidgetCo’s stock is flat! Investors are mad! The CEO is in trouble! Now we do acquisitions and enshittification. Buy the competitors and adjacent product makers. Now there’s “growth” again even though nothing new is made, in fact the product gets worse and nobody gets hired as they want attrition to get rid of redundant employees. The hope is that the widget is so engrained in society that it can’t be done without. Now do unbundling. Subscriptions. Sunsetting. Modify the product so that new versions must be bought due to batteries or servers no longer supporting previous versions. If you can’t make new things, make the customer buy new versions of the same old things.

Gotta keep pushing that quarterly report line up to keep the investors happy and the CEO bonuses coming.

Yeah that's the entire problem.

"Always bigger" is delusional or cancerous.

Because they take investment.

Privately held companies can sit around earning the exact same amount of profit forever.

But if you are publicly traded on the stock market, people are walking up and injecting money into your business. They expect a return for that investment. And that means that the part of your business they’ve bought has to be worth more in the future in order for them to sell it for more than they bought it.

Therefore: growth. Owning 1% of a $100k business isn’t with as much as owning 1% of a $200k business. So if you own 1%, you want it to go from $100k to $200k.

If you aren’t taking outside money, none of this is a problem. Unless the owners just want a raise, which most people generally do over time. If nothing else, inflation is constantly eroding the value of money so you need to grow a little just to stand still. Most people don’t want to make do with less and less over time.

This mostly only happens to companies with outside investors, and it’s in order to make the investors happy.

Companies owned privately by one or a handful of people who all just want the company to keep going, make a decent profit, and be sustainable, don’t always exhibit the “need for growth” behavior.

It’s usually because the investors don’t really give a shit about the company or its mission, they just want money. Often this kind of “need for growth” bullshit is just short term growth, since that’s what most investors care about. It stifles the company’s ability to plan for long term growth and make the right decisions to achieve it.

Because greed

Extremely oversimplified:

-for Public Companies: CEO and executives are obliged to pursue maximum profit (either short-term or long-term) for the shareholders, thus the company must grow. - - For shareholders its Cost of capital (basically shareholders want bigger returns than the investment they made) and Opportunity Cost (lose money because you don't move your investment to a company that is more profitable or gonna be more profitable)

-for private companies: Competition (grow or die from your competitor), efficiency (reducing cost), exit (sell it big and retire), psychological reasons (better safe than sorry), etc..

There are many family business or small companies that function as you describe, but they get replaced and driven out of business in a matter of years or decades (with exceptions). But being stable in an growing economy is very hard and risky. And Capitalism by definition must grow or it gets in crisis.

Nonprofit companies don't have this problem. It's an issue with capitalism.

In the strictest definition, they don't.

Capitalism is minimally fulfilled when a business sells something for a profit and reinvests the profit (now capital) in the business. Hence the term. It doesn't have to grow the business, make new products, or do anything beyond maintenance of its processes, be that fixing or updating machinery or training employees. A single person selling tomatoes in a market in Madagascar that fixes of their tomato table with profits is perfectly capitalist.

Expecting constant growth is not a requirement of anything.

Not all companies need to grow. Some do perfectly fine by just maintaining their current output like a owner operated single person plumbing company.

Another example can be Walmart, they don't need to grow but investors prefer growth so it becomes a focus.

There are some companies that need absolutely to grow to survive. This is seen a lot in tech where in order for the business model to make sense they would need some big quantity of users.

Let's say you got seeded 10M and managed to get to a minimal product with 10k users that get you $2 in revenue monthly but your cost are around 50k monthly. It means you're making a loss but with 100k users you'd make a profit. To get to 100k you need more investment but to justify that investment being sound you need show growth.

So in general if being bigger gets you economies of scale then making a loss early is fine as long as you can get the investor money you need to survive. So to survive as a business you need to grow.

Those are two ends of a spectrum and everything in between exists as well. So quick answer would be "Companies don't always need to grow but some really do because their business model only works at a different scale".

One aspect I haven't read about: competitive pressure and economics of scale.

So, imagine two carpenters: they both produce one chair a day. They sell it and can sustain their families with that. Now the one carpenter works a little overtime and uses sharper tools: he's able to produce two chairs a day. He still needs only to sustain his family, so he could sell the chairs at 50% discount. But he goes for 75% of its original price. Still cheaper, he has more.

Everybody wants to buy those chairs now: they're the same, but one is way cheaper. The other carpenter loses business, he can't sustain his family anymore, because he needs to sell one chair a day at least. To keep up, his business needs to grow now.

I highly recommend reading this https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

They don't.

See local businesses that remain a single location for generations.

It is a want not a need.

I didn't see a single top level comment be the devil's advocate so I will give it a try.

Humanity moves forward. Standards are always shifting. New technologies and needs are created everyday and people want to raise their standard of living to accommodate for new things. Also, global population has been growing since we stabilized food production in the 1800's.

If companies don't grow at least with population, that means tomorrow we will have less than today. If companies don't also grow with raising standards of living, that means someone stays poor. If companies don't also grow to match the complexities of producing new technology, that means we stopped in time technologically.

In a competitive system such as capitalism, you don't wait for more competitors to show up and fill this new ever-growing demand; you take that demand for yourself. So everyone seeks growth.

When a society does not grow (i.e. japan) for too long, capitalism doesn't break down immediately, but you clearly see it stagnates. Japan's population is not stable and their economy is facing major problems.

Whether growth is organic or fabricated is a related, but different, topic

What I was taught literally in fifth grade was this: "A company is successful when its profit is zero." Meaning, everyone has been paid and the company has lost nothing.

The way I was taught it was by the teacher asking the class and all of us getting it wrong with answers like "A company is successful when it makes a million dollars" and such.

I will never forget it.

If you have competitors, they will develop and have better products / service than you

There’s always room for improvement, and improving requires resources

Shareholder demand? Greed? Probably a lot of both.

Because the moment they go public the stock market demands they constantly have an improvement basis to keep their stock holders in a state of security to keep invested. So like get this: there’s a company that makes medical machines to keep people alive. A founder retired and the stock market dipped to half the price. Which only lasts less than a month and it recovers. Of course anyone who’s leading teams would then panic and get flustered

…like this is a company that should have its target about human life. And all the stock holders are worried about is the suit. Like it’s not even an improvement of a product. Improvements are all bullshit announcement for Wall Street.

That is..until crypto collapses it all.

Tax the rich and fix this shit.

I hate it. It even bleeds over into performance reviews. Like you'll never get a perfect score no matter how hard you work because you always have to be improving on something. It's supposed to be the sure fire sign of "success" but all it does is create impossible goals and bring everyone down.

if you look closer you'll note that it's very much related to whether a company is publicly trader or not, as soon as people are trading stocks you end up with a bunch of people who don't actually care about the company and those involved in it, they only care about making money.

a company that isn't having stocks traded around is able to focus on things other than growth, such as making sustainable revenue or being a public good (or a personal good, like a small café that barely makes any profit and just exists because the owners want to run a café).

Probably same reason cancer always needs to grow. It's a fundamentally broken part of the system.

Idiots began to demand perpetual growth and other idiots began trying to make it happen. And then it became institutionalized. And then the idiots forgot they were idiots.

I see a great deal of economic rationale being thrown around and usually I love a good discussion on economics, but I believe we are overthinking the question. I would argue any group of people getting together with some shared narrative is going to want to procure more resources for themselves. This can be a family, a tribe, a friend group, a company, a nation, etc. It's just how we are.

Valuation of companies is partially dependent on growth. A company that is projected to grow is worth more than a similarly sized company because it is expected that future growth will make the company earn more in the future, which makes the company worth more now.

They don't. It is a fallacy. Category error.

You do have some of those companies but they are super large and cant grow anymore. They have essentially taken over the entire market.

For a small company, money is safety and power. So they always want more, because otherwise they feel like someone could disrupt them and make them irrelevant.

Its the same psychology as with humans. We always want more comfort, safety, and that requires money.

The reason cited even in privately held companies is pretty much because everyone else is doing it.

Their COGS (Cost of Goods Sold) rises every year. The markup on licenses, the physical hardware, the shrinkflation from the manufacturer, and COLA (Cost of Living Adjustments) for staff all cut into the operating budget (or the profit) of the company.

Under capitalism there are hardly any checks to this, so even companies that are not seeking to grow must raise rates else they will take a loss every year.

If you have a company in a small town and everything is paid for and the size of the town isnt growing or changing, you actually do not need to grow. There is a company in Leadville, Colorado called "Melanzana". They make technical hoodies - they're pretty good. They actively shrank their business by closing their online storefront to reduce demand and reduce the burden of keeping up with that demand.

HOWEVER, if you have a business that is plugged into a larger marketplace and you have investors or have growing rents, etc. your investors expect a return on their investment and your growing costs need to be addressed so the only option is to grow to keep up.

Super interesting topic when you contextualize within a closed, limited, physical space. And by "super interesting" I mean dystopian.

There are many answers to this.

First, this is not a general capitalism thing. It is more the specific flavor we have. Second, it is not an absolute rule, there are companies that don't focus on growth, but it is rare amongst massive companies.

The original idea of capital investment is that when you need investment for your company (e.g. to buy better machines, expand production, etc.) you let people invest (by buying shares) and then give them a portion of the profits gained from that investment (in the form of dividends).

However, most companies have figured out that if they don't pay dividends but re-invest the money, shareholders are still happy because their shares get more valuable as the company grows and they get to grow the company, which is good for CEO paychecks and lot of other things.

There are things like economies of scale (if you produce million units of something per year, it is almost always cheaper per unit than if you produce ten per year). So if you don't grow, your competitor that does grow could sell cheaper than you and put you out of business.

And a lot more.

Charles Eisenstin's book "Sacred Economics" (which you can read here and that I recommend reading in full) has a nice, simple parable in chapter 6 about that.

Once upon a time, in a small village in the Outback, people used barter for all their transactions. On every market day, people walked around with chickens, eggs, hams, and breads, and engaged in prolonged negotiations among themselves to exchange what they needed. At key periods of the year, like harvests or whenever someone's barn needed big repairs after a storm, people recalled the tradition of helping each other out that they had brought from the old country. They knew that if they had a problem someday, others would aid them in return. One market day, a stranger with shiny black shoes and an elegant white hat came by and observed the whole process with a sardonic smile. When he saw one farmer running around to corral the six chickens he wanted to exchange for a big ham, he could not refrain from laughing. "Poor people," he said, "so primitive." The farmer's wife overheard him and challenged the stranger, "Do you think you can do a better job handling chickens?" "Chickens, no," responded the stranger, "But there is a much better way to eliminate all that hassle." "Oh yes, how so?" asked the woman. "See that tree there?" the stranger replied. "Well, I will go wait there for one of you to bring me one large cowhide. Then have every family visit me. I'll explain the better way." And so it happened. He took the cowhide, and cut perfect leather rounds in it, and put an elaborate and graceful little stamp on each round. Then he gave to each family 10 rounds, and explained that each represented the value of one chicken. "Now you can trade and bargain with the rounds instead of the unwieldy chickens," he explained. It made sense. Everybody was impressed with the man with the shiny shoes and inspiring hat. "Oh, by the way," he added after every family had received their 10 rounds, "in a year's time, I will come back and sit under that same tree. I want you to each bring me back 11 rounds. That 11th round is a token of appreciation for the technological improvement I just made possible in your lives." "But where will the 11th round come from?" asked the farmer with the six chickens. "You'll see," said the man with a reassuring smile. Assuming that the population and its annual production remain exactly the same during that next year, what do you think had to happen? Remember, that 11th round was never created. Therefore, bottom line, one of each 11 families will have to lose all its rounds, even if everybody managed their affairs well, in order to provide the 11th round to 10 others. So when a storm threatened the crop of one of the families, people became less generous with their time to help bring it in before disaster struck. While it was much more convenient to exchange the rounds instead of the chickens on market days, the new game also had the unintended side effect of actively discouraging the spontaneous cooperation that was traditional in the village. Instead, the new money game was generating a systemic undertow of competition among all the participants.

The development of currency results in loans. The practice of loaning starts the practice of charging interest. Interest requires constant growth.

Individual companies have to grow to keep up with the necessary constant growth of the economy as a whole. Any company that doesn't keep up dies.

Shareholder demands are part of it, but also consider the pressures from competition, inflation, and debt.

If a firm isn't growing, competition will outgrow them and then gobble up their market share. If you have 100 employees and produce a nice product, you'll lose out to the firm that has 1000 employees and produces a nicer product. The competition is always growing, so your firm has to grow too. This leads to inflation - as every firm grows in competition with each other they heat up the economy and create more demand for fiat currency - so that means a firm needs to bring in more money every year just to stay afloat. And lastly, companies start out in debt and have to pay it off, and then accumulate more debt in order to outgrow the competition and outgrow inflation, which then in turn heats up competition even more and also causes more inflation.

Competition, inflation, and debt are part of a feedback loop that eventually results in overproduction and market collapse, the surviving firms buy each other out, and the process starts all over again. This is why markets go through boom and bust cycles.

It's a very irrational system that produces a lot of waste.

I guess because otherwise you have something more akin to communism.

Which is a big scary monster and the biggest economies in the world would rather suppress a system the levels the playing field and helps everyone than give up their dollary-doos.

I think about this from time to time.

Its like, hey we make a product and it costs this much to make and we make this much profit, so that should be it. Thats how much this product makes. Dunzo. Next muffin. But it never works that way, once they have found the sweet spot where the product is useful and works well whilst also selling for a price that pays for production development and wages then it becomes about cutting costs to increase profits and that takes the form of using cheaper materials, paying lower wages, firing staff, incorporating planned obsolescence so people need to buy more. All in the name of profits and bonuses.

Its disgusting, it damages society, the environment and warps peoples minds so that people like donald trump exist and i hate it.