No Match Found
Today, growth often competes with cash flow and profitability for priority in a volatile market. Interest rates and inflation are up, prompting a return to capital discipline to protect margins. This uncertainty can lead you to dramatically reconsider your strategic “way to play”. But reducing growth investments or focusing only on short-term opportunities can make it harder to catch your competitors if you make the wrong choice.
Delivering growth is not just about pursuing the biggest opportunities for incumbents, new entrants and investors. It often requires being prepared with viable solutions and nurturing the market to readiness when the opportunity arrives. The rewards of staying the course can be significant. Consider how Progressive, Tesla and Google each achieved remarkable growth: Despite different goals, each stayed on a vector and made adjustments through difficult markets to capture growth opportunities.
Progressive’s dedication to developing new solutions in support of its way to play — combining granular, timely and data-driven, risk-based pricing with a hyper-efficient direct e-commerce model over 15 years and through two economic downturns — is a testament to the value of staying on course. The company experimented with foundational telemetry technology, collaborated with multiple third-party startups, worked with regulators to help gain acceptance and built a market of early adopter consumers. In the process, it continued to expand its risk-based pricing advantage and doubled its US market share of personal auto insurance lines from about 7% in 2007 to roughly 14% by 2021.
As automotive incumbents dabbled in electric vehicles, Tesla focused. It brought to bear novel science, technology and business models, saw more high-value derivative use cases for the battery technology in its electric vehicles that justified greater investment, saw more customer concern about the environment and cost of fuel and stayed the course to transform the auto market. Tesla’s market capitalization since 2020 has leapfrogged from merely competitive to an industry leader.
Companies such as Netscape, Yahoo, Firefox and Microsoft provided early browser and search engine technology, but Google captured white space by inventing and tuning algorithms to enable a new business model to monetize searches. It created a feedback loop that started by increasing the relevance and value of search results, which in turn attracted more customers and created more searches. This increased what companies were willing to pay to be featured by searches and the overall value of the platform. Search-based advertising didn’t exist before Google. Now it’s worth nearly $200 billion as of 2021, according to the Internet Advertising Revenue Report by PwC and the Interactive Advertising Bureau.
“83% of executives are focusing business strategy on growth”
Below are industry-leading practices used by corporate innovators, startups and growth investors that help form a pragmatic approach
Companies can evaluate three key types of market signals to help inform adjustments in growth portfolio solution priorities:
First, monitor innovation trends and assess the R&D and innovation investment areas of your competitors, startups, venture capitalists and private equity to make sure you are comfortable with your focus areas in light of shifting trends. Then, evaluate your growth investment allocation. A rule of thumb is 60% focused on core stay-in-business initiatives, 30% on strategic initiatives targeting significant return on investment (ROI) performance improvements — including short-term growth — and 10% allocated to option-creating innovation investments to drive the next wave of growth.
Another key is the practice used to measure returns on growth investments. In addition to measuring revenue, profit, return on invested capital and the like, it is important to both measure success and help inform ongoing capital allocation based on development-stage gates and progress against real-time, market-based proof points. You can allocate capital by specifying an amount required by early-stage gates such as market discovery, validation and minimum viable product (MVP) programs rather than exaggerated business cases. Allow the teams to specify how to use allocated capital based on agreed-upon proof points by stage gate.
Customer engagement and feedback from alpha, beta or MVP programs, progress building the demand funnel, time to sale and cost of acquisition are important early indicators of demand, product market fit and growth potential. Evaluating the cost and speed of solution development, delivery and support/service against market benchmarks can strongly indicate your ability to provide the new solution with positive economics at scale.
Venture capitalists often say bringing new solutions to market is like going through a maze: You know where it starts and ends, and it’s all about who can finish the fastest and most efficiently without running into dead ends and wasting capital. Navigating the maze effectively often requires an agile go-to-market model that helps build the market itself:
As companies start managing their growth vectors, it can be useful to adopt an entrepreneurial mindset as described by consultant and author Peter Drucker in his work Innovation and Entrepreneurship: Practice and Principles, who said, “The entrepreneur always searches for change, responds to it and exploits it as an opportunity.” There will likely always be market uncertainty, but if you actively manage your growth vectors you are more likely to be where you should be to capture your growth opportunities.