These three avenues will help you focus on the core while capturing new growth opportunities.
Every business we know struggles with the tradeoff of investing in and maximizing the core business while trying to take advantage of growth in new, adjacent markets. It’s generally easier (and more profitable) to focus on your core business. That’s the place where you have all the advantages–key customer relationships, brand recognition, strategic assets like equipment or offices, and more assurance that growth investment will pay off. However, every business that creates super-sized growth does so by extending its advantages into new, adjacent markets–new geographies, new product segments, new customer segments, or new sales channels.
How do we typically solve this dilemma? We try to balance a healthy mix of investment in the core and exploration and experimentation in new markets. Unfortunately, it’s hard to build an organization that does both well. Which is why we typically segment the business (and individuals’ roles) into one of three trajectories: maintaining business as usual, maximizing the potential of the core business, and investing in new adjacent markets.
Business as Usual
In any company, it’s important not to take your eye off the core business. Each business should be expected to maintain a healthy growth rate–usually at or above the market growth rate–which extends the growth the business has comfortably achieved in the past. We call this the “business as usual” growth rate, because it represents growth the business could achieve without significant investment. Note that it’s not a “manage for cash” position; the business still funds investment that is necessary to maintain growth. Put a team on this that is responsible for delivering “business as usual.”
Maximizing the Potential of the Core Business
What would it take to get more out of the current core business without moving into new markets? This might result in achieving a certain level of market share in core markets with targeted profitability. There is likely some significant investment required to get there, above and beyond “business as usual” investment. Assign a team to execute this investment and make them accountable for achieving the growth above the business-as-usual growth–likely over multiple years.
Investment in New, Adjacent Markets
Every company has opportunities to create growth outside of its core by leveraging its key strengths and strategic assets. This might translate into entering a new geography or adding a new product line. Make a team accountable for this growth, distinct from the rest of the business. Let them focus on experimentation-style growth over a period of time, where investments are trialed and tested. It’s important that you separate this investment from the rest of the business; otherwise, it’s too easy for these funds to be poached for investment in the first two areas.
Breaking your forecast, mindset, and organization into these three distinct pieces will ensure that you balance investment across each of your growth horizons, giving you the best chance of maximizing growth of the overall business.
Share your strategies and challenges in spreading growth investment across your business with us at karlandbill@avondalestrategicpartners.com.
Source: Inc. Magazine
