ofitscurrentmarket,butitmaybeabletogrowinspiteof
this because the entire market is growing rapidly.
2.Existinggrowthrateandexcessreturns.Momentumdoes
matterwhenitcomestoprojectinggrowth.Firmsthathave
beenreportingrapidlygrowingrevenuesaremorelikelyto
seerevenuesgrowrapidlyatleastinthenearfuture.Firms
that are earning high returns on capital and high excess
returnsinthecurrentperiodaremorelikelytosustainthese
excess returns for the next few years.
- Magnitudeand sustainability of competitiveadvantages.
Thisisperhapsthemostcriticaldeterminantofthelengthof
the high-growth period. If there are significantbarriers to
entry and sustainable competitive advantages, firms can
maintainhighgrowthforlongerperiods.If,though,thereare
nooronly minorbarrierstoentryor ifthefirm’s existing
competitiveadvantages are fading,we should be far more
conservative about allowing for long growth periods. The
qualityofexistingmanagementalsoinfluencesgrowth.Some
top managers
2 havethecapacitytomakethestrategicchoicesthatincrease
competitive advantages and create new ones.
ILLUSTRATION 4.1: Length of High-Growth Period
To illustrate the process of estimating the length of the
high-growthperiod,weconsiderallofthecompaniesthatwe
willbevaluinginthenexttwochaptersandmakesubjective
judgmentsabouthowlongeachonewillbeabletomaintain
high growth.