The basic premise of the model is that the lowest risk way to grow is to either take new products into your existing markets, or, take your existing products into new markets. The highest risk strategy is to take new products into new markets that you have never served.
A fundamental principle:
To me, the over-riding initial test for any growth strategy relying on a new line of business is “will this investment break the company if it fails catastrophically”? The whole point is that you are trying to grow your revenues whilst maintaining/harvesting your core product/service. It’s very rare that you will be in a position where your core business is performing so badly due to market changes that you will need to transform or pivot your business. If the market conditions are ok but your business is tanking, I would look at the effectiveness of the leadership team before new lines of business.
How to choose which opportunity to pursue:
Once you have worked out where you think the opportunities exist and convinced yourself and your investors that it won’t break the company, the next thing to do is start ranking the opportunities. In my experience, the best way to do this is to develop a set of criteria that enable you to rationally and dispassionately judge where to invest your hard-earnt money to deliver the greatest success.
My criteria (in no particular order) are as follows:
- Another quote from Warren Buffet “Never invest in a business you cannot understand”. Taking a step back, why would anyone ever think they could make an outstanding success of something where their ability to understand the complexities are limited at best.
- How do we make money and can we make enough margin as it scales?
- How long will it take before my investment phase turns into a profit phase?
- Is this idea scalable once we have enough market traction?
- How well do we understand the needs of the customer; is there independent research that supports my investment case; is the market opportunity showing strong signs of growth?
- What happens if the market conditions change during my investment phase; is there a way of adapting our business model to stay invested during the turbulence?
- Do we have access to best in class skills/talent to make it happen in time?
- Do we understand the strategic risks and do we have mitigation strategies in place to cope with them?
When driving a growth agenda, my fundamental starting point is “do you have a deep understanding of this market/opportunity and if things go badly wrong during the investment cycle, will it break the business”? Once you are past these two hurdles, then assess each opportunity against rational criteria to determine where to invest your money to deliver the greatest returns”.
Mike Lander, Director and co-founder of www.ensoul.co.uk , business adviser and writer