Six Dimensions of Growth
Succeeding in business usually means growing the top and bottom line. But how? It’s not as simple as pushing people to sell harder, but it needn’t be all that complicated either. The first step is understanding where growth comes from. We know it doesn’t come from selling the same old stuff to the same people in the same way year in and year out.
So where does it come from? We know innovation is key—finding new products, new markets, new ways to make and deliver goods and services. Just as important is figuring out what kind of growth your company should target. We’ve defined six distinct categories of growth. Once you’ve defined where growth comes from, then you can see which ones best apply to your organization and focus on the most promising innovations to get you there.
Innovation is the word we’ve attached to finding new ways to grow. Every company has a mandate to grow. The alternative—stagnation—isn’t a path to sustainability. And sustainability in today’s world is increasingly elusive. The average lifespan of a company in the S&P 500 stock index has gone from more than 35 years in 1980 to just under 25 today and is projected to be near 12 by 2027. That means in 10 years, more than half of the companies in it today will be gone.
How we view growth is a distillation of Maddock Douglas’ more than 25 years helping many Fortune 100 companies develop hundreds of growth-through-innovation initiatives. Here’s how we break it down:
- New processes. Sell the same stuff at a higher margin: Cut production and delivery costs. Automate or remove redundancies in supply chain or manufacturing—today, probably anything having to do with robots.
- New experiences. Sell more of the same stuff to the same people: Increase retention, loyalty and share by connecting more powerfully with customers. An example is what it’s like to go to an Apple store—an experience as compelling as their products.
- New features. Sell enhanced stuff to the same people: Add new capabilities that drive incremental purchases.
- New customers. Sell more of the same stuff to new people: Penetrate new markets by leveraging existing capabilities, introducing the product to markets that share similar needs with your core or where it might address a different need.
- New offerings. Make new stuff to sell: Develop a new product—not just enhancements to the current one. This means finding new needs to solve within existing markets—or investing in a new category.
- New models. Sell stuff in a new way: Reimagine the way you go to market by creating new revenue streams, channels and ways of creating value.
Each of these ways to grow requires investment, which management will yank if it doesn’t quickly generate an attractive return. It’s no different than how we look at allocating our own personal savings across a range of asset types along the risk-reward spectrum. Whatever the total allocation is, it needs to be balanced.
We look at innovation investments the same way. Among the six ways to grow, some cost less and pose less risk than others, some are costlier and riskier, and some are riskier but cheaper. We want to allocate a small amount of capital to the highest risk activities. Cutting fat is low risk but may yield only a one-time benefit. You can find cheaper labor, raw materials and delivery methods. It isn’t invention-type innovation—just an inventive way to do things better. It doesn’t create new value in the market. It’s part of continuous improvement, so we don’t consider it an innovation expense.
The easiest part of the innovation pie is focused on developing or enhancing products we know our customers want and we know how to deliver—the evolutionary share of innovation, where a central goal is to maintain relevance to your core market. About 60 percent of a company’s innovation should target these kinds of activities, and top management will seldom resist that expense.
The next largest part of the innovation pie (about 20 percent) should be devoted to achieving differentiation—developing products before someone else does. These are things we’re not quite sure how to deliver but we know the market wants, making it worthwhile for us to try to figure it out. The risk of failure is greater than the process of merely leveraging what we already know we can do, but the potential reward is also greater.
That leaves 20 percent in the innovation budget to spend on reaching new markets, either with a low-investment, fast-fail approach (15 percent) or a focused bet on something revolutionary (5 percent). In both categories, we don’t know for sure if the market wants it. The fast-fail approach involves making several small bets and quickly abandoning those that don’t work—“fast” experimentation.
Revolutionary is the highest-risk innovation category. We know if we can figure this out, we stand a chance to launch a game-changer—the new thing that will fill an unmet need that emerges only in the future. We just have to test and continue to experiment quickly and learn as we go.
Understanding the six dimensions of how growth happens is critical. That knowledge allows you to determine the best way to allocate limited innovation resources and increase the chances for success—far more so than investing in sales incentives to push more of the same stuff to the same people.