At one point or another, if not all of the time, small and mid-size businesses and business units think about growing. In fact, as I’ve argued elsewhere, all businesses need to have a growth mindset.
But where can our revenue growth come from? In reality, there are only 4 sources, as shown on my napkin here.
While this picture may seem simplistic, it is very useful to clarify thinking and establish direction. For example, when thinking about revenue growth, most businesses aren’t focused on diversification.
To put the matrix in slightly more actionable terms, we can refer to the Ansoff Matrix which tells us the actions we need to take. Somehow “market development” has a different ring than “attract new customers!”
Obviously, the actions required for success in each quadrant are quite different. Gaining share usually means improving price/performance or customer service, sometimes both. On the other hand, finding new customers, perhaps in new markets, means new sales channels and/or more sales people, new marketing messages, etc. Building a new product/service requires finding unmet needs among current customers that the company can meet cost effectively.
Conventional wisdom has it that gaining share should be the easiest option, followed by new customers, then new products. But, I’m not sure that this logic holds for many businesses. A company in a highly competitive market may find it too expensive to gain share. A company in a mature market may have to give up margin to win share. In cases like these (and many others), it is essential to explore new products/services and new markets.
But which is better: a new product/service or a new market? The answer depends on the company’s strengths. Have a great sales force, strong product and good service? A new market probably makes sense. Have strong technology and good product development? A new product probably makes sense.
To state the obvious, knowing your company’s strengths and weaknesses is essential to finding the right growth path. The first step is a comprehensive SWOT (Strength, Weakness, Opportunity, Threat) analysis of each growth path: i.e. 4 SWOT’s (or 3 if diversification isn’t in your remit). In most cases, the SWOT analyses will show a clear “best” growth path, that can (and should) be followed up with a business case.
In some cases, there are two paths that seem equally attractive. Often, this is because some of the assumptions being made aren’t rigorous enough. For example, the company’s ability to develop and launch a new product in a timely manner may be taken for granted. In reality, this is seldom the case. Far better to assign a probability for success and a (longer) time frame and see if this growth path still looks attractive.
Similar risks apply to assumptions about developing new markets. Relatively few businesses have proven capabilities to penetrate new markets so being explicit about risks and timeframes can make the growth path much more realistic.
In some cases, the optimum growth path may require both market and product development. For example, a successful product may look attractive for a new market segment with some modifications.
Finding the optimum growth path requires a careful understanding of both the market (customer) dynamics and your company’s capabilities. Combining these insights will put you on your best growth path.