Keeping your company growing is a difficult problem and solving it cannot be achieved with a simple tweak.
The most successful founders sustain top-line expansion by placing the right bets on growth opportunities before revenues from their current product lines decline. Here are my thoughts on the six toughest growth problems and how to solve them.
1. How should I brainstorm potential growth opportunities?
If you want to keep your company growing, you have to be alert to the possibility that your current growth vectors — products, customer groups, and geographies — might be maturing.
That matters because it means you should not place bets on old growth vectors, you have to use your imagination — coupled with your knowledge of changing customer needs, new technologies, and upstart competitors — to develop new growth vectors.
To make sure you’re doing that, you should conduct what I call a “growth audit” to quantify your current sources of growth — along five dimensions of growth — and see which — if any — are still growing fast — and which are slowing down. I outlined how to do this in my 2016 book, Disciplined Growth Strategies.
To imagine, say 10, new growth vectors, think about where you might derive future growth from new products that you build or acquire, groups of customers that you currently don’t serve and countries where you currently don’t compete.
2. How should I pick the best growth opportunities for my company?
While thinking up your 10 new growth opportunities. Assuming your company has limited resources you should place bets on the one or two options with the highest chance for success.
Create an option table that ranks each new growth opportunity on how well it does on the three criteria. This begs the question of how to conduct the ranking.
3. How can I evaluate the market’s attractiveness for each potential growth opportunity?
For each option, start by evaluating its attractiveness by identifying the market segment it will target.
For example, if one option is to enter the U.S. craft beer market, you should quantify that market’s revenues, growth rate, profitability. And you should analyze the forces that are propelling — and impeding — its future growth.
When you prepare the option table, rank each one on market attractiveness from best to worst (e.g., if you have 10 options, give the option with the highest market attractiveness a 10 and 1 for the worst option).
4. How can I assess the market share gains from each potential growth opportunity?
To generate revenues from its growth options, your company must gain market share.
To do that, you need to understand your customers purchase criteria (CPC) — such as beer taste, price, and brand — and the capabilities you have now or can build in order to satisfy those CPC better than rivals do — such as purchasing raw materials, your brewing process, and thiring and motivating talented people.
Based on assessing these factors, you can estimate how much market share you’ll be able to win in the next five years — Disciplined Growth Strategies explains how — and rank each option based on your company’s future share of the market.
5. What will be the return on investment for the best growth options?
To answer this question, develop a discounted cash flow (DCF) analysis for each option. To save yourself time, do this for, say, the one or two best options based on market attractiveness and potential market share.
To do a DCF analysis, ask your finance staff to estimate 10 years of cash flows based on key assumptions including the option’s market size, growth rate, your company’s estimated market share, and its operating costs for the option.
The DCF should also include an estimate of the investment required to implement the option — such as the cost to design and build a new product or to hire a sales force in a new country. You should pick the option with the highest Net Present Value — the future cash flows in today’s dollars less the upfront investment.
6. How should I communicate my growth bets?
Once you choose your best growth options, you should articulate them as a growth strategies — using the 5 Elements of Strategy framework — which includes the following elements:
- Arenas (what product’s you’ll sell to which groups of customers),
- Value proposition (why customers will buy),
- Vehicles (whether you’ll build the product yourself or acquire a company),
- Staging (the steps you propose to follow to implement the strategy), and
- Economic logic (e.g., low price or high value/price).
To speed up your company’s growth, you’ll need resources and the enthusiastic support of your people. To do that, it’s essential that you communicate the company’s goals, why they’re important and how your growth strategy will help your company achieve them.
Read more: Inc.