We have been accustomed to reading the now legendary blog posts by Morgan Housel at Collab Fund. Here’s Ted Lamade who writes a guest piece every now and then for the Collab Fund on a subject that all of us who have chased growth for the sake of growth can relate to.
To drive home the point, he cites the example of Ferrari – how it follows its founder Enzo Ferrari’s dictum: “Ferrari will always deliver one car fewer than the market demands.”
“How many businesses can say they do that?
In my experience, very few. In fact, many do precisely the opposite.
Why?
Because more is almost always considered better. Size, scale, and growth are seductive. It is what attracts new investors and fresh capital. It is what grabs attention and headlines.
The trouble is that size and growth isn’t necessarily synonymous with strong performance.
Look no further than the past five years in the auto industry.
From 2020 to 2024, Ferrari sold fewer than 60,000 cars, but for an average price of over $450,000.
Now compare that with two of the largest car companies in the world by sales and revenue. Since 2020, Toyota has sold more than 52 million cars at an average price of $32,000. Meanwhile GM sold close to 30 million at an average price of $51,000.
As a result, while these behemoths have produced revenue north of a trillion dollars versus Ferraris of less than $30 billion, Ferrari’s net margins have been significantly higher at close to 23% last year versus an average of less than 6% for Toyota and GM.”
The result is the staggering difference in the share price performances – Ferrari’s stock is up a staggering 865% in the past decade against a paltry 37% and 47% for Toyota and GM.
He goes on to cite other examples of self destruction in pursuit of unabridled growth and connects it to the current situation where VCs are forcing capital down founders’ throats. He quotes Benchmark’s Bill Gurley:
“It is forcing every company to go ‘all or nothing’ and ‘swing for the fences.’ It is no longer your grandfather’s startup business or your grandfather’s venture capital fund. It is a radically different world. And if you are a founder, you would like to be able to ignore all of it and build your company the way you want to build it. But if your competitor raises $300 million and is going to 10x the size of their sales force, or 50x it, you will be dead before you know it. You won’t be around. I think it’s bad for the ecosystem because it will remove all the small and middle outcomes and force businesses to just play grand slam home runs. But that’s what it feels like to me. And it feels like we didn’t learn anything from the days of 0% interest rates.”
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