I have a number of friends involved in retail. Whenever we meet and the talk turns to business, the word ‘growth’ is not far behind.
“Hardly any sales growth so far this year,” says one in the grocery trade.
“It’s a blood bath for us,” mutters a friend in the motor trade. “New car sales are down nearly 20% on last year, so we’re struggling.”
The business press, meanwhile, bulges with reports like ‘Economic growth in China set to edge down to 6,2% by 2017’, ‘With the economic growth rate forecast at less than 1%, unemployment in South Africa set to grow’ and ‘Malaysia GDP growth slows for 5th straight quarter’.
Whether it relates to small-town retailing, the financial state of a nation, or the forecast rise or fall of the maize crop in the coming year, the word ‘growth’ has become a mantra all over the world. But it was not always so. In his seminal book Sapiens, Yuval Harari points out that for most of history the economy stayed much the same size.
Global production increased due to population growth and settlement of new lands, but per capita production remained static. It has only been in modern times that goods and services have ballooned so dramatically, and Harari explores why this is so.
Trust and credit: the foundation of today’s world
Harari convincingly concludes that it has all been driven by ‘trust’, which led to the invention of ‘credit’ – loans made to entrepreneurs who gained sufficient trust from investors and banks to convince them that they would get their money back, with interest.
Trust was fuelled by the prospect of future business growth, growth led to more loans, which led to more growth, more trust and further loans…
As most of us know, banks make loans totalling far more than the money they hold in their vaults; if their depositors made a run on them to draw their funds the banks would collapse in a day.
Banks lend about R10 for every R1 they actually possess. Just imagine the trillions of rand of credit this creates, all of which the banks are keen to advance. And, as Harari points out, it’s trust in the future that enables banks and entire economies to survive and flourish. This reservoir of trust is the sole backing of most of the money in the world.
Deliver on your promise, and credit awaits you
What has this to do with running a profitable business? It’s quite simple. If your business delivers what it has promised and what is expected of it by all its stakeholders – shareholders, directors, managers, employees and suppliers – it will find a copious and ready supply of credit available to it in cash and kind.
If, however, it lets stakeholders down, especially without any warning, it will find the supply of credit shrinking, and business growth will decline. As this happens, trust will be negatively affected, leading to the loss of more credit, resulting in further growth decline as the downward spiral begins.
It’s not only trust in your business that matters. Trust in your industry, your region, your province and your country will all affect you.
It may be impossible to control trust levels in areas beyond your control, but you can have influence within your industry. Don’t disregard the role that you can play in building up the reservoir of trust outside your business.
In his book, Harari goes on to demonstrate the important roles that new discoveries and scientific research have played in the gigantic leaps in economic growth of modern times.
Just think of the money and human energy devoted to research by the pioneers of the revolution in communication technology.
This has led to considerable trust levels, credit and business growth. There are lessons for us in agriculture in all this, but that’s a story for another day.