Watch the video with Andrew Stotz or read a summary of it below.
Growth is good
- Growth initiates a virtuous circle, it leads to more growth
- Faster growth attracts the attention of stock market investors, who will pay more for the stock
- Higher stock prices mean cheaper capital, which means more to invest in growth opportunities
- Growth builds customer confidence
- Growth boosts employee morale
Answer these questions to understand a company’s growth prospect
- How much growth was from existing customers?
- How much growth was lost to customer churn?
- How much growth was from new customers?
- How much growth came from new markets?
- How much growth would the company gain by targeting fast-growing market segments?
- What are the fastest-growing adjacent markets?
Things that make growth unlikely or impossible
- Losing focus of what customer’s value, eventually they will leave you for a competitor
- Getting stuck in low-or-no-growth markets
- Losing a proprietary competitive advantage (e.g. patents, contractual arrangements, regulatory protection)
- Missing changes in customer preferences. Such as customers shifting away from price sensitivity
- Failing to innovate, allowing a competitor to get an advantage by introducing a next-generation value proposition
Companies that grow at steady double-digit rates excel in six dimensions
- Risk management – They take a portfolio approach to business, having a number of diverse initiatives whose risks are complementary or offsetting
- Small steps – They set and reach achievable growth objectives in a number of areas
- Balance – They strike a balance between organic growth and acquisition
- Value – They deliver superior value to customers
- Growth capacity – They internally invest in areas of their business that help them to keep growing
- They manage growth – They have a growth focused team focused on customer attitudes and information. They have a growth focused team considering internal processes, roles, responsibilities, and behaviors
Five disciplines of companies that are growing
- Existing customers – Do not lose existing customers
- Competitors’ customers – Take customers from competitors
- New customers – Move to markets or segments where growth is going to happen
- Adjacent markets – Enter similar markets, leveraging current capabilities
- Buy new customers – Buy into new business areas rather than move their organically
Discipline #1. Existing customers – Do not lose existing customers
- Clarify the unique value of their product and service
- Raise switching cost. Making it costly, inconvenient, aggravating and time-consuming for a customer to switch to a competitor
- Be distinctive. Makes it hard for customers to compare and contrast they company’s offer with others
Discipline #2. Competitors’ customers – Take customers from competitors
- Overcome the competitors’ advantages through focused effort and persistence
- Deliver superior value on at least one of the following: operational excellence, product quality, or customer intimacy
- Buy the competitor, but only at a great price
Discipline #3. New customers – Move to markets or segments where growth is going to happen
- Customer awareness – Work to continually understand if customer’s buying preferences are shifting (e.g from quality to most cost efficient or from personalized to low cost)
- Technology – Advantage through technology
- Process – Advantage through process
- Expertise – Advantage through expertise
- Demographics – Better understanding and act on demographic changes (e.g. aging population, regional shifts in labor force, new cities rising, etc.)
Discipline #4. Adjacent markets – Enter similar markets, leveraging current capabilities
- Does this adjacent market have long-term growth and profitability opportunities?
- Can the company’s existing capabilities and expertise give a potential competitive advantage?
- Can the company match incumbents and meet the market standard with other unique capabilities?
- Does it make sense to buy an established company in that market?
Discipline #5. Buy new customers – Buy into new business areas rather than move their organically
- Be aware that this requires investment skills, very different from management skills
- Do not overpay for an acquisition
- Keep investment strategies simple otherwise, they will fail
- Become partners with existing management, appreciate that you are acquiring their skills
The risks to growth
- Customer risk – Customer expectations rise; customer preferences shift
- Competitive risk – Competitors may fight harder than expected against a new entrant. Also, technological changes at competitors can be very dangerous
- Implementation risk – The risk of stumbling when implementing a new strategy
- Operating risk – Logistical failures, manufacturing glitches, service problems and other operating failures
Learn more about double-digit growth:
Double-Digit Growth: How Great Companies Achieve It—No Matter What, by Michael Treacy
DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.