172  Growth
We also analyzed the decay rates for the most recent 15 years and found 
similar patterns of rapid convergence to 5 percent and lower (Exhibit 9.11). 
Note how the 2008 credit crisis caused a temporary decline of growth rates 
overall but without changing the typical decay pattern from the long-term 
data in Exhibit 9.10. Comparing the decay of growth to that of ROIC shown 
in the previous chapter, it is possible to see that although companies’ rates of 
return on invested capital generally remain fairly stable over time—top com-
panies still outperform bottom companies by more than ten percentage points 
after 15 years—rates of growth do not.
As discussed earlier in this chapter, companies struggle to maintain high 
growth because product life cycles are finite and growing becomes more diffi-
cult as companies get bigger. Do any companies counter this norm? The short 
answer: very few. Exhibit 9.12 shows what happened to the growth rates of 
companies grouped by their 2004–2007 growth rates. Reading across each 
row, the percentages indicate the share of companies in each group that fell 
into each of the growth categories one decade later. Clearly, maintaining high 
growth is much less common than being stuck with slow growth. Of the com-
panies reporting less than 5 percent revenue growth from 2004 to 2007, 68 
percent continued to report growth below 5 percent ten years later. In contrast, 
only 21 percent of high-growth companies maintained better than 15 percent 
real growth ten years later. Even more concerning for high-growth compa-
nies, 58 percent of the companies that grew faster than 15 percent from 2004 
to 2007 were growing at real rates below 5 percent a decade later. Sustaining 
high growth is very difficult—much more difficult than sustaining high ROIC.
Exhibit 9.11  Revenue Growth Decay through Economic Crisis and Recovery
Median growth of portfolios,1 %
–5
–10
0
5
10
15
20
25
30
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
1 As of 2002, companies are grouped into one of five portfolios, based on their 2002–2004 revenue growth.
Source: Compustat; Corporate Performance Analytics by McKinsey.

Summary  173
Summary
To maximize value for their shareholders, companies should understand what 
drives growth and how it creates value. For large companies, the growth of 
the markets in which they operate largely drives long-term revenue growth. 
Although gains in market share contribute to revenues in the short term, these 
gains are far less important for long-term growth.
Revenue growth is not all that matters for creating value; the value created 
per dollar of additional revenues is the crucial point. In general, this depends 
on how easily competitors can respond to a company’s growth strategy. The 
growth strategy with the highest potential in this respect is true product in-
novation, because entirely new product categories by definition have no es-
tablished competition. Attracting new customers to an existing product or 
persuading existing customers to buy more of it also can create substantial 
value, because direct competitors in the same market tend to benefit as well. 
Growth through bolt-on acquisitions can add value, because such acquisitions 
can boost revenue growth at little additional cost and complexity. Typically, 
revenue growth from market share gains is much less attractive, because it 
comes at the expense of established direct competitors, who are likely to retali-
ate, especially in maturing markets.
Sustaining high growth is no less a challenge than initiating it. Because 
most products have natural life cycles, the only way to achieve lasting high 
growth is to continue introducing new products at an increasing rate—which 
is nearly impossible. Not surprisingly, growth rates for large companies decay 
much faster than do returns on invested capital; growth rates for even the 
fastest-growing companies tend to fall below 5 percent within ten years.
Exhibit 9.12  Revenue Growth Transition Probability
% Growth rate, given rate in 2004–2007
68
10
8
15
<5
63
19
8
9
5–10
64
19
7
10
10–15
Revenue growth in 2004−2007
Revenue growth in 2014–2017
58
12
9
21
>15
<5
5–10
10–15
>15

Part Two
Core Valuation Techniques