Updated: Jul 28, 2020
If you are going to shift your mindset to a Growth Strategy Mindset (see Part 1 on Growth Strategy Mindset here), if you are going to start providing leadership around growth and focus on doing the right things right, it is time to get strategic about growth.
Think about where growth can come from.
Create a list of ideas for where you could grow.
Evaluate and score these ideas objectively to identify the best.
Think about where to focus your growth given your current situation. Then focus only where you can put a full effort.
Develop action plans to test your assumptions, improve your knowledge, and turn the ideas into execution.
Periodically review your results and what you have learned. Make the hard decision to abandon opportunities that are not performing, continue to invest those that are, and evolve your focus.
Make growth strategy into an ongoing process—a system to enable your organization to continually evolve and optimize your focus and efforts to deliver material growth.
The Growth Strategy Imperative series of articles will address each of these factors. They will help you understand what it means to be strategic about growth, why you must be strategic about growth, and most importantly, how your company can continue to be strategic about growth during constant and sometimes significant change.
The Origins of Growth Strategy
If you do an internet search of the term “growth strategy,” there is a good chance that most of the links on the first page will have some reference to Igor Ansoff.
Igor Ansoff has been called the father of strategic management, and his best-known tool is the Growth Strategy Matrix (also known as Ansoff’s Matrix). In his 1957 Harvard Business Review article “Strategies for Diversification,” Ansoff starts with the simple premise that to grow, a company sells a “product” into a “market.”
A market being a group of customers with similar needs, wants, and interests.
A product being the offering (tangible, intangible, service, material, or something else) that customers buy to address their needs, wants, and interests.
Within this context of Markets and Products, Ansoff identified four core potential growth strategies visualized in his famous matrix.
This strategy is the most basic of the growth strategies and the one where most growth efforts focus. A Market Penetration growth strategy focuses on selling more of your existing product into your existing market.
For any business or product line, this is the first growth strategy. You bring a product to market, look for product-market fit, and once you find it, you start to grow. The growth comes through market adoption, and hopefully, market leadership.
Side Note on Market Dynamics
When executing a Market Penetration growth strategy, it is critical to understand two basic rules of market dynamics.
First is the concept of product maturity. The adoption and lifecycle of a product in a market is traditionally an s-curve with a period of slow growth as adoptions starts, followed by rapid growth as adoption accelerates, followed by slow growth as the market reaches full penetration.
Second is the concept of market leadership. One or two market leaders dominate almost every market. As the market starts to mature, and the leader is clearly defined, that leader will realize an oversized share of the growth and profitability.
When you see your growth start to slow with a Market Penetration growth strategy, it is most likely for one of these two reasons. Throwing marketing and sales tactics at it won’t make a material difference. You need to take a step back and be strategic.
So, when this happens, what are your options? You need to find your next growth curve, and it has to come from one of the other core growth strategies: Market Development, Product Development, or Diversification.
A Market Development growth strategy is when you take your existing product into a new market. These new markets could be new geographic markets, industries, customer segments, or other markets with similar wants and needs.
Research from the National Center for the Middle Market identified that the most successful growers put a higher importance on Market Expansion than non-growers, explicitly calling out geographic and customer segment expansion.
Side Note on Adjacent Markets
As you start looking at potential new markets to take your existing product into, it is vital to look at adjacencies. The more similar the wants and needs of the new market are to your existing market, the easier it should be to grow successfully into that new market.
One place to start looking for adjacent markets is in your installed base. Do you have customers that do not look like your traditional customers? A customer from an industry you don’t target or that came from another geography. If so, talk with them. Often your adjacent markets find you before you find them.
A Product Development growth strategy is the other side of the coin when you create a new product for your existing market. These new products could create incremental value for your existing product or solve a new problem.
If you have strong customer intimacy and product development capabilities, this could be a preferred strategy. Talk with your customers, identify problems you can solve for them, and bring new products to market.
Side Note on Customer Engagement
Most companies have multiple touchpoints with their customers. Sales, service, and customer support talk with them regularly. While these are all significant touchpoints to have as you build customer intimacy, they are not always the best channels to identify new product opportunities.
Someone in your organization needs to engage with customers in a non-support, non-implementation, and non-sales way. Ask them open-ended questions about their problems. Understand the wants and needs they have that are not being adequately satisfied. Let them lead you to potential product opportunities.
A Diversification growth strategy is when you create a new product for a new market. As you are dealing with both new products and new markets, this is the highest risk and hardest of the growth strategies.
Diversification is not impossible, just very difficult. If you find an opportunity for a Diversification growth strategy, make sure it is as close to the upper left-hand corner as possible. The market is as adjacent as possible to your current market. The type of product you are solving is similar to those you already solve or can leverage your existing product differently.
Side Note on Core Capabilities
While Diversification is hard and the riskiest growth strategy, some companies do succeed at it. Those that do succeed with a Diversification growth strategy have a strong knowledge of and focus on their core capabilities. They can identify how they can take these capabilities into new markets and solve new problems.
Honda comes to mind and its capability in designing and manufacturing engines. Automobiles, lawn equipment, and business jets are three diverse markets, with totally different products, but due to Honda’s core capabilities, they have succeeded in each.
Start to Think Strategically About Growth
With an understanding of the four core potential growth strategies, you are ready to start to think strategically about growth.
Has your growth slowed? Take a step back. Determine if your market is reaching maturity or if one of your competitors has emerged as the leader and is getting most of the growth.
Perhaps all you need is to refine and better focus your market segmentation, value proposition, and message. A company’s growth struggles often come from trying to be too many things to too many potential customers. This adjustment can make a significant impact.
Perhaps your market is maturing, and you now need to think about starting a new growth curve. Is there an adjacent market where you can expand? Industries or customer segments? Can you identify additional problems your existing customers would pay to have you solve?
The key is to understand that slowing growth is a sign for you to get strategic, not tactical.
If you liked this post, sign-up to see more!