Asked why he robbed banks, Sutton supposedly said, "Because that's where the money is." That maxim has been picked up by doctors. "Sutton's Law" tells them to consider an obvious diagnosis before considering an exotic one. (Breaking this law is the basis of most episodes of "House.") It's also how cost cutters like to work in companies, starting with the biggest budget lines.
And it's often, and often disastrously, used as a principle of strategy, whereby executives see an attractive profit pool and jump in headfirst, not stopping to think whether they have what it takes to swim in those waters, or to check for rocks beneath its surface. History is littered with the consequences of strategic blunders by companies that chased blindly after growth. Dumb or failed mergers are often the consequence of a company buying into a faster-growing market, hoping to capture some of its vigor, sort of like an aging man taking a younger wife.
Think, for example, of eBay‘s $3.1 billion acquisition of Skype in 2005, which seems to have been motivated, in part, by the desire to keep the company's growth rate high even as its core auction business slowed. So eager was eBay for Skype that it allowed itself magical thinking about synergies between people who like online auctions and people who like free phone calls. At the time, smart observers like John Hagel predicted that no good would come of the deal, warning that in such cases "the pressure to find large new growth vehicles pushes management far afield from their core business." By 2007, Skype was already a drag on e-Bay's earnings as eBay took a 1.4 billion write-down. Two years after that, eBay unloaded 65% of the company for $1.9 billion, a deal that valued Skype for less than the $3.1billion it originally paid.
The eBay-Skype debacle is just one of dozens of such ill-conceived acquisitions-Anheuser-Busch and Eagle Snacks is one of my favorites. These days you can find a lot of bad growth strategies in globalization: Sure, China, India, Turkey, Indonesia, and a host of other economies are growing faster than the U.S. and EU, but it doesn't follow that any individual company can tap into that growth as easily as turning on a faucet.
Jumping into growth markets has a distinguished intellectual pedigree. The Boston Consulting Group's famous growth-share matrix advised CEOs to invest in growing markets in which they had a big market share. It's not bad advice, except that people tend to forget the second part-do you have a strong market share?-which should act as a brake on irrational exuberance about fast-growing markets. Growth markets aren't a bad thing. All things being equal, I'd rather have tailwinds than headwinds. But all things never are equal, and the real question is not whether a market is worth pursuing but whether you can find a way to win what you pursue. Late in life, Willie Sutton denied having said the words famously attributed to him. "Why did I rob banks?" he said. "Because I enjoyed it." And he enjoyed it because he knew what he was doing.
