Most entrepreneurs I speak to believe that they have some form of growth problem. Their business is not growing the revenue line fast enough, new customer acquisition is too slow, their product portfolios are too small and profits are lower than budgeted.
Growth is a highly prized proxy for progress. Their remedial actions usually involve something like change marketing methods, upping the sales focus, becoming more customers centric, being more innovative, extending product lines or expand geographically.
All good stuff, but are they solving the underpinning performance inhibitors. An exploration of incumbent challenges usually uncovers issues like:
- Sales cycles are longer
- Conversion ratios are lower
- Customers are more price sensitive and are wanting more value
- There is increased competitor activity
- Customers are doing more in-house
- Channels are starting to compete with us
- We have to work harder to keep customers
- It’s harder to find and keep good staff
- We are too reliant on a few key people
- Business model is costing more to operate
- Limited returns on innovation investment.
Armed with this information, do you have a growth or strategy problem?
So, growth or strategy?
My current view on this conundrum is that growth scales validated offerings and business models via replication, adaptation and careful addition while strategy solves the challenges that are stopping you from earning the right to do so.
Growth is a result of sound strategy in action but is not the primary role of the strategy process. Many businesses have vaguely defined value propositions, standard competencies and limited differentiation offering average margins. They simply tick-over.
The pursuit of growth is seen as the antidote to frustrating returns and to manage mounting shareholder pressures.
That said, I believe you have a growth problem when you have managed to build a pre-emptive market position within a viable and stable need state, evolved a scalable business model operated by inimitable and differential capabilities yet revenues, profits and new customer acquisition growth rates are below that of the market growth rate. This is rare.
A failure to grow or a slowing growth rate is usually always a strategy problem. Your business’s products and services are losing relevance or you have lost or failed to gain competitive advantage or lack the capability sets needed to operate and provision value through your chosen business model.
Your mindset needs to shift from enlargement to betterment. The latter inevitably involves exploring new value provisioning ideas coupled with the deepening of existing and development, adjustment or acquisition of new competencies and capabilities.
Goddard and Eccles argue that your strategy is a set of ideas under study. A continuous set of experiments whose execution produces generative or unproductive returns.
Your job as an entrepreneur is to continuously marry through active sensing, interpreting and transforming your ideas, internal capability building efforts with the feedback you are getting from the markets you compete in.
Growth is the market’s recognition that that your strategy ideas are congruent with customer jobs to be done.
Reasons for poor growth
If growth rates are below expectations consider the following questions when formulating a remedial strategy:
- Do your growth expectations exceed that of the market growth rate? If so, what makes this possible and who are you effectively capturing share from?
- Given your current margin levels should you be aiming at growing your revenue or profit line? Do you have a revenue or margin problem? The solutions differ.
- Are you being out competed or are customers simply not spending?
- What new alternatives do your incumbent customers have in doing the jobs you are competing for? How is this affecting their decision making and views of your offering? Are you competing for the right jobs to be done?
- Do you have to spend a greater percentage of retained earnings on demand creation activities in order to sell more? If so, what’s driving this?
- Does each additional unit of product or service increase your marginal profitability or simply maintain it? How well is your business model scaling?
- What underlying assumptions about the market and how customers behave underpin your strategy? What insight are you building your strategy around?
- What information or data have you used to substantiate these views and what information are you actively discarding and why?
- Is there both managerial insight and consensus around how your business model enables your strategy and which capabilities are pivotal to getting your model to deliver value?