THE BIG PICTURE ON GROWTH STRATEGY
1. There are many paths to growth
2. Understand where you are on the growth matrix
Are you in "A Special Kind of Hell", "Running in Place", Only if we...", or "Growth Nirvana"?
3. Think about it. A lot.
4. Focus, align and execute
Once you commit to a growth strategy, focus and align the org to execute.
SO MANY OPTIONS, SO FEW RESOURCES
There are many growth options available to a business. Growth options can be separated into three categories and nine elements of a business model:
Within each element there are three broad options:
1. Expand into new...
2. Improve existing...
Suppose you want to grow through a product strategy. In that case, you can expand into new products, improve existing products, and rationalize the portfolio of products, which frees up resources and capital to focus on more valuable growth opportunities. If you want to grow through geographies, you can expand into new geographies, improve existing geographies, and reduce your geographic footprint to free up resources and capital to focus on more valuable growth opportunities.
There are 27 broad growth strategy options (below). A strong growth strategy focuses a company's scarce resources on the right options to drive the most value.
THE COMMON THREAD TO ALMOST EVERY GROWTH STORY
Almost every successful growth story follows the very simple equation:
Killer Customer Value Proposition + The Right Targets (Market, Customer & Geographies)
If you get those two variables right and ramp up a strong go-to-market strategy (distribution, sales & marketing), and you’ll most likely be a growth story. The growth matrix below helps frame the various growth stages of companies.
If you are looking for a business coach to collaborate on your growth strategy, set up some on-demand one-on-one time with Joe Newsum, the creator of this content and a McKinsey alum
1. A SPECIAL FORM OF HELL
Let's start with the bottom left, known as "A Special Form of Hell." Companies in this state have an undifferentiated and inferior value proposition and have a fragmented, incohesive approach to target customers, markets, and geographies.
How do you know if a company is in this quadrant?
Everything is a fire and in chaos. Very little gets done. Employees dread stepping into work. The sales team will try to sell anything a customer wants. Customers don't know what the company stands for and probably don't care that much. Competitors don't even think about you as a competitor. Sales are stagnant or declining, along with morale. There is no vision from leadership, just politics. The good people leave while everyone else is trying to hang on.
The sickest of the sick
Companies in the "special form of hell" quadrant are sick, sometimes really, really sick. More often than not, they will die in bankruptcy unless things dramatically change. Some will pass quickly, while some will take years, maybe decades. Now, the good news. The patient can get better, but recovery takes a ton of leadership, tough decisions, and vision.
Step 1 - Focus the target aperture and shrink your way to growth
Why aren't companies growing in this quadrant? Because their value proposition isn't creating better value for customers versus competitors.
Now comes the problem we see over and over again. Why isn't the value proposition creating better value for customers versus competitors? What we find in the majority of these cases is one or more of the following:
The company doesn't have clarity on:
- Who their core target customers are and their needs (typically going after too many or everyone)
- What market(s) do they compete in, and who are their main competitors (typically in too many markets or haven't defined their niche markets well)
- The geographies they are going to win in and how
Their value proposition isn't creating better value for customers versus competitors because they don't know who (target customers) they are building a business for, they don't know who (competitors) they are trying to beat, and they don't know where (geographies) they are trying to beat competitors for customers.
Before trying to fix the value proposition, you have to focus the aperture of the business model on the right target customer(s) and target market(s) in target geographies. If you don't, how are you going to beat competitors who are focused?
In the customer strategy section is a case study on Brooks, a leading running shoe company, which had to focus its targets and shrink its way to growth.
The correct target customer, market positioning, and geographic focus give a team clarity, purpose, and infectious hope that will jump-start growth. The team will start filtering every decision through these targets, asking the right questions:
Will this benefit our target customer?
Does this fit our new focus, and how will we differentiate in the market?
How are we going to beat competitor A?
Focusing on target customers, markets, and geographies will focus an organization's scarce resources and time on the right strategies and actions. Bottom line, if you want a chance to win the game, you need to know who you are playing the game for (customers) and against (competitors) and where you are going to play(geographies).
Step 2 – Create a killer differentiated customer value proposition
Once a company focuses the organization on the right target customers, markets, and geographies, then it comes down to differentiating the customer value proposition.
In this situation, you have one or two big swings at changing the game, so make them count. We are talking about changing the game with your core products and services and potentially pricing. Simply expanding your distribution and marketing is not going to solve growth. Solve the core value proposition, and growth will come.
2. RUNNING IN PLACE
The majority of companies are in this quadrant. They play in a particular market, generally know their target customer, and are focused on specific geographies. They are often profitable, family-run, small to mid-sized, and comfortable workplaces. They may be pacing the growth of the market. If they are in a fast-growing market, their leadership feels on top of the world, riding the market growth wave.
Everything is fine, but they are running in place. They would be right in the middle of the thousand-person pack if they were in a marathon. Leaders may feel comfortable in their positions. The business may be run for lifestyle. Perhaps it is simply time to wake up.
Mega-loud bullhorn message to the leadership of these companies (as represented by the capitalized bold):
"SNAP OUT OF IT, GET IN THE RACE, AND PLAY TO WIN BECAUSE IF YOU AREN'T MOVING FORWARD, THE COMPETITION IS MOVING YOU BACKWARDS."
Step 1: Deeply understand and develop strategies for your targets
With companies in this quadrant, things are often smooth. The operations team runs a tight ship. Sales and marketing create customer demand. Things are good; now, let's make them great.
Typically, "running in place" companies lack a deep understanding of the competitive market and target customer segments. The first step to growth is to answer essential questions about the market and customers:
- What disruptive market dynamics will shape the industry 3, 5, or 10 years down the road?
- How do we position ourselves in the market to become the leader?
- What competitive advantages do we need to develop?
- Who is our target customer? How do they view us and the competition?
- How are their views and behaviors changing? What are their met and unmet needs?
Step 2: Innovate and differentiate
Often, leaders of these companies need to go from operators to strategists and innovators. The leadership questions need to evolve to:
- What needs to be done to the core customer value proposition to drive customer love?
- What is the 1, 3, and 5-year vision? What resources are required?
- What will make us unique, changing the value game?
- What technologies and innovations can we leverage? What IP can we create?
Growth strategy is like an insane steroid-injected game of chess. You have an almost limitless number of pieces to play with and an infinite number of moves you can make. Your competitors also have limitless options, and their moves are opaque to you. You may not even know tomorrow's competitors as they emerge from the ether, some part of your value chain, or an adjacent market. If you want to win, you better bring your "A" game.
3. ONLY IF WE FOCUSED
The "only if we focused" quadrant is the story of the company with something special, a killer value proposition, and tons of customer love. At some point, they were probably in growth nirvana. Then, the leadership team's ambition, ego, and overconfidence set in, creating a toxic brew of "let's dominate the world." Suddenly, the focus and simplicity that made the success turn into frenetic growth at all costs and a chaotic attempt at scaling in all directions. "Let's scale the sales team, go international, disrupt that market over there, go after the mass market, do a Super Bowl commercial."
In this situation, it is time to:
TAKE A DEEP BREATH.
Did you know Walmart and Kmart started four months apart in 1965, and by 1975, Kmart was TEN times the size of Walmart? While Kmart was growing at all costs, becoming the fastest retailer to a billion dollars in sales, Walmart was perfecting its supply chain and sourcing practices that would drive down prices and costs for decades. Once Walmart had a superior value proposition versus the competition, they deliberately began to scale at an unbelievable pace.
One of the fastest ways to kill a good company is to try to grow too fast too soon.
If you have a killer value proposition, always have one eye on improving the value proposition and the other on how the company can purposefully grow by targeting the right opportunities. There is a hierarchy to growing through new and expanding targets. Synergy is the guiding principle of the simple logic below:
- Have a core customer segment that loves your value proposition.
- Keep driving customer value through killer products, service, and pricing strategies.
- Find other customer segments within the market who could love your value proposition. Make the necessary tweaks, and have them fall in love.
- Selectively expand geographically; if your business model necessitates physical presence, go slower; if not, go faster.
- Only think about entering new markets if you know you can massively disrupt the market and change the value game while also reinforcing your core value proposition in your core markets with your core customers.
Call timeout if you find yourself working in a company with something unique but all over the place. It is time to refocus. You throw too much at any organization, and chaos typically ensues.
How you define your target customers, markets, and geographies defines your competitive set. If you go after too many targets, you'll find yourself playing an insane chess match with dozens, hundreds, or even thousands of competitors simultaneously. Be patient and refocus.
4. GROWTH NIRVANA
Few companies reach growth nirvana, but those that do often become the household names customers love. They change the game with a killer value proposition and keep their foot on the peddle improving it. They focus on blowing away customers, then figure out their next 5, 10, 50, and 100+ moves.
Their leaders are visionaries but patient and pragmatic. Team members love to come to work, believing they are changing the world. They are customer-centric, know the needs and wants of their customers, and make decisions with their customers as the focal. The company has a clear and compelling vision, and the employees have a strong sense of when something doesn’t fit that vision.
They can press the pedal on marketing, sales, and distribution to dominate the world while being thoughtful about when, how, and why they enter new geographies and markets and address new customer segments.
SO, NOW WHAT?
Growth strategy is complex, given the many degrees of freedom and the potential to put too much on an organization, leading to debilitating complexity and inefficiency. If you need to develop a growth strategy, please read developing a strategy or set up some time with me to start figuring it out. The growth matrix below helps frame the growth state of a company.
The growth options worksheet (below) is a helpful tool for framing the various growth options. As you use the worksheet, address the business model elements that should be rationalized or focused. Michael Porter once said, "The essence of strategy is deciding what not to do."
To use the growth options worksheet, start by describing the current state of the business model elements (e.g., What geographies do you compete in? Who is your target customer? etc.). Then, describe all of the growth options across each business model element.
Next, evaluate the potential of the growth options of each business model element based on value, effort, synergy, and risk. While it may be challenging to put a monetary number on value, comparing the relative size of the options is typically a simple exercise. The same applies to "effort." Regarding synergy, consider how each idea would reinforce and strengthen the other current business model elements. Think about risk as the probability of failure, which is a function of the ability to execute, competitive response, potential macro trends, etc.
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