I’ve got the impression that Admicom’s cost discipline might not have been on a sustainable footing in the long run. Strong growth requires structures, support, experts, etc. By constantly squeezing the lemon, you end up with “organizational debt.”
Quite a few small companies are very profitable when the CEO does everything from marketing to accounting, middle management isn’t needed, communication is easy because there are few people, etc. As the scale grows, phases often occur where profitability suffers at least for a while as the organization is “strengthened” so that personnel don’t burn out or performance doesn’t suffer. Then again, once a certain size is reached, it should show up nicely as a swelling bottom line (also known as economies of scale). Profitability in small firms is also often boosted by share ownership. For example, probably all of Admicom’s original employees, down to the cleaners, became multimillionaires. It’s easy to keep wages in check when the rising share price elevates all employees to the Jyväskylä nobility.
In Admicom’s case, however, the growth investments have been reflected as some growth even in a very difficult market! So I might not criticize this company right away, although Häll, as the founder, certainly looks at the company more closely.
On the other hand, I sympathize with Häll’s view in the context of the small-cap scene in recent years generally. Everywhere they only talk about growth, growth… and a bit more growth. In practice, the last few years have been catastrophic for almost all small companies (except for someone like Viafin), because they’ve stepped on the gas in a market that isn’t growing. Costs and investments swell, but because the top line doesn’t grow or grows very slowly, profitabilities have collapsed.
If you look at the direction of communication and NUMBERS of large companies on the Helsinki Stock Exchange, I think profitability has become much more prominent in recent years. Clearly, they have started following the Swedish model, where companies don’t move a muscle unless they get a certain return on capital for the investment. An entrepreneur once told me that the Swedes have a “kusiraja” (piss limit/hurdle rate) (is that an official term in Stockholm meetings of the Wallenbergs and other moneyed families?) below which they don’t make investments. Capital has a cost: it shouldn’t be splashed around on just any project.
In Finnish small-caps, there is still a strong cult of revenue and EBITDA growth, even though looking more closely at the investments, they make no economic sense. Growth for the sake of growth can be fun empire building, but it is devastating for shareholder value. I understand that from a management perspective, it can be sweet when you can post strong revenue growth figures on LinkedIn (for which you get huge pats on the back) and demand more pay as the organization grows. But once again, Finland’s already scarce capital is funneled like fuel into a bonfire and goes up in smoke.