Why you should maintain growth vectors, even during periods of capital discipline

Manage growth vectors and increase your chance of success

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.

How maintaining a growth vector during uncertainty can be a win

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 differentiates to gain market share
Tesla reinvents an industry
Google captures white space

Progressive differentiates to gain market share

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.

Tesla reinvents an industry

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.

Google captures white space

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”

PwC's 2022 Pulse Survey

Managing your growth vectors

Below are industry-leading practices used by corporate innovators, startups and growth investors that help form a pragmatic approach

Reset growth portfolio priorities

Companies can evaluate three key types of market signals to help inform adjustments in growth portfolio solution priorities:

Level of customer pain and growth prospects: Determine whether the pain points your solution resolves are becoming more or less acute for your target customer personas, or whether they’re being solved by more cost-effective solutions. This can inform growth vector adjustments in the personas and solution features you prioritize for investment and help nail initial product market fit. If commercialization attempts are delayed or failing and acute pain points aren’t clear, you can slow investment but stay involved in less capital-intensive ways that provide market signals to inform adjustments. This may include collaborating with academic institutions on research or investing in seed-stage ventures to help better understand drivers of market adoption.
Customer value versus budget trade-offs: Assess customers’ budget categories and spending on similar products and services, as well as value drivers that can impact their purchase choices. Your ability to reach cost of production and price points can help accelerate customer adoption while making business models profitable. You can assess customer budgets by using internal and third-party data to quantify income levels by customer segment and apply rules of thumb on budget allocation to determine if your price-to-value is compelling. You can also scrape publicly available samples of pricing and discounts data to see how you compare to competitors. Lastly, you can evaluate techniques to smoke test your solution to customers. If you have a neutral-to-positive impact on your customers’ budget and perceived value, it is a positive signal for your solution’s growth potential.
Early adopter signals: Evaluate factors driving customer adoption to help determine if your solution can bridge the gap between early adoption and mainstream market. Management consultant and author Geoffrey Moore called this “crossing the chasm,” and it can be assessed by profiling what he called the innovator, early adopter and early majority personas of your target customer populations and understanding the factors accelerating or constraining adoption. This will help inform growth vector adjustments needed to increase adoption. These may include designing new marketing programs that can increase awareness while reducing acquisition cost, tweaking messaging to resonate with the early majority and evolving pricing models to help match customer perceived value.

Boost investment burn and return

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.

Adopt an agile go-to-market model

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:

Use systems thinking to help drive positive growth feedback loops. These feedback loops can increase customer adoption while building solution value. Positive initial word of mouth leads to lower acquisition costs, which allows critical early reinvestment in feature differentiation to help achieve product/market fit and early adoption. This can in turn lead to more purchases and increases reinvestment capacity to further differentiate features and accelerate speed to market. Many companies create linear, overly simplistic growth projections for new solutions that often ignore these feedback loops. They overestimate short-term demand to get funding and underestimate long-term demand, leading to erroneous conclusions about their growth prospects. Systems thinking can build scenario models to help supercharge positive feedback loops behind growth take-off. These models also provide requirements for the firsthand intelligence needed from the market to help verify assumptions and inform focus areas for test and learn activities.
Gather privileged insights from customers and subject matter experts. To understand the market signals that can impact your growth solutions, set up more real-time mechanisms to get first-hand feedback from the constituents involved in developing and bringing your solution to market. For instance, Adobe adopted a data-driven operating model that included embedding hundreds of customer key performance indicators (KPIs). This provided a real-time baseline understanding of customer behavior and scalable systems to help analyze data across the organization. Secondary research and information won’t do — it typically trails the market and reveals only large, obvious objects. Better growth results can come from insights from customer panels for solution co-design, digital diaries to track day-to-day customer behaviors (rather than attitudes), participating in industry association and lobbying efforts to influence regulations and engaging in academic collaborations to help track the evolution of foundational sciences that enable your solutions.
Test, learn, fail fast and repeat
Committing to an ongoing test-and-learn approach to incorporate what is and isn’t working in the market into the solution plan is a culture change for many companies, but it can be a key to success. The more nascent the market and innovative the solution, the longer you should commit to failing fast and making adjustments. This often includes changes in priority features, increasing ease of use, marketing messaging, pricing and other factors that can accelerate or constrain adoption. A fail-fast mindset isn’t endorsing overall failure. It’s rewarding your teams for applying what they learn to help improve performance on key growth return measures and effectively managing the burn rate of allocated capital as they progress through market discovery, validation, MVP, launch and scale.

The bottom line

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.

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