by Tiffani Bova
In either case, the goal is to create a fast-enough feedback loop to identify new trends within a company before they fully emerge and have a major (and incontrovertible) impact. Sometimes the more dangerous of these trends (a jump in customer returns, a decrease in product yield rates) can be fixed, but others, such as a growing amount of discounting or a failing number of patent filings, may not be fixable and signal that it is time to find a new growth path.
What metrics should a company be measuring? There are actually two answers:
The first is simple company health. Thus: orders, shipments, returns, product repairs, market share, employee turnover, profit margins, cost of goods sold, salaries, and so on.
The second is more complicated: every growth path has its own set of metrics. Thus, entering a partnership has its own measures, such as sales contribution, customer acquisitions, market coverage; whereas churn includes rate of customer replacement, cost of acquisition, and LTV. That much should seem obvious. Perhaps more surprising is that you also need to begin monitoring key factors in your company related to your next growth path.
How do you do that? It is more straightforward than you may think. Chances are that when you do make the leap, there are a handful of follow-up paths, which are more likely to be the right combination decision for you. That should make your task a whole lot easier—you only have to begin measuring the key metrics of the most likely of those follow-up paths. Or, test your next most likely jump by monitoring certain metrics to find any hidden gotchas or opportunities in advance of adding another path.
This doesn’t have to be done as assiduously as your primary metrics, but it should be done consistently—both to make sure that the new growth path is still desirable when you do jump and to give you a running start on your new “vital signs” when you get there.
HERE IS A QUICK LIST OF THE MAJOR METRICS YOU MAY WANT TO MONITOR FOR EACH OF THE TEN GROWTH PATHS:
Path 1: Customer Experience > Net Promoter Score (NPS)
Path 2: Customer Base Penetration > RFM (recency, frequency, monetary)
Path 3: Market Acceleration > New logos acquired
Path 4: Product Expansion > New product usage, mix against current portfolio
Path 5: Customer and Product Diversification > Adoption rates within new customer/product categories pursued
Path 6: Optimize Sales > Quota attainment
Path 7: Churn (Minimize Defection) > Churn rate and customer defection trends
Path 8: Partnerships > Joint sales/revenue brought in
Path 9: Co-opetition > New joint product development and market launches
Path 10: Unconventional Strategies > Volunteer hours of employees
PREPARATION
Success is where preparation and opportunity meet.
—BOBBY UNSER, auto racer
If you were to abandon your current business and lead your company into a brand-new one, wouldn’t you want some time—months even—to do so? Why would think you would need less time to jump from one growth path to another? Ask yourself: What do I already know about the nature of those most likely combination paths? How best can I prepare my company and my people, and what do I need to set myself up for success?
For a start, you already know what metrics in the new growth paths you should be monitoring. You should also be thinking about creating a market intelligence team (even if it’s just one person) who consistently monitors competitor intelligence, product intelligence, market/context understanding, and changes in customer behaviors, buying habits, and expectations. The team should have “an ongoing, holistic knowledge of all aspects of the marketplace.” The output of that group would be a (real-time) complete dossier on the industry, customers, and your future competitors. And if you are really interested in learning, look outside your industry to what others are doing that would be applicable in your business.
Most of your preparation will be internal. Nearly every department in your company will be affected by the jump to a new growth path. This is not a piecemeal change done over time—the sequence of efforts may happen everywhere simultaneously, but maybe not at the same pace. That can only happen if you develop a battle plan that identifies what needs to be done in each department and how that plan will be executed, including deadline dates (days after the green light is given for the jump) by which the transformation must be completed.
If this plan is to succeed, you will have to put some teeth into it—all employees in the organization need to understand how vital their roles are. The plan also must be decisive: each department needs to determine in advance which employees have been rendered superfluous by the change or are needed elsewhere. New talent needed for this new growth path will have to be characterized, and the departments need to be prepared to begin recruiting when given the green light.
EXECUTION
Any company, regardless of size, can have the greatest ideas—but the best ideas will only be as good as its ability to execute. You have determined through the market intelligence team you have put in place, the new metrics you are now monitoring, and an enhanced understanding of changes in the market context that it’s time to jump to a new path. Now it all comes down to execution.
Execution is not just tactics—it is a discipline and a system. It has to be built into a company’s strategy, its goals, and its culture.
—RAM CHARAN, coauthor of Execution
So when it’s time to execute, what can you do to improve the likelihood of success?
Improve communication, for one thing. Those companies that have been successful at navigating themselves out of a growth stall or have increased top-line growth have developed a strong internal and external communication engine. They have processes in place to begin the communication and education process internally. Remember, the most important resource you have when embarking on growth is preparing your people, since they are the ones who will actually make it all happen. If you don’t have them on board, it will all be for naught. They will either just go through the motions, doing the minimum to keep their job, or they will sabotage the efforts, consciously or unconsciously, by resisting changes that need to occur.
Next, you may want to consider creating two different working groups within the company. One team would be focused on bringing in new revenue (via the current growth path[s]) and protecting the existing business from an unwanted decline. This team would have the responsibility of continuing to maximize returns from previous investments and looking for opportunities to enhance current efforts. Otherwise, the decline in the existing business will put too much (additional) pressure on the new path to deliver quickly. Basically—make the current business the best it can be!
The second is what I like to call a “pop-up team,” which is a group within the company focused exclusively on the planning and execution of all new growth path(s). Those who are part of this second team will be relieved of their day-to-day duties, freeing them up to focus on the task at hand—the successful planning and execution of a new growth path.
Dividing and conquering in this way reduces the risk of unnecessary distractions, benefiting the company. One is tasked with making sure the business keeps running as smoothly as it possibly can, while the other is totally dedicated to looking forward to the future—where the company needs to be going. The downside of creating a pop-up team is if a company is too small, carving out even a few resources cuts too deep into current efforts. It also puts another layer of complexity into the business for the leadership team, especially since it will most likely have to stay involved with both groups to ensure coordination on critical cross-functional decisions. This goes back the “Seller’s Dilemma” I introduced earlier. Keeping the car going around the track while you’re changing tires is tough, whether you’re a big or a small company.
Ultimately, success may come no
t from putting into place the right new tools and processes to operate efficiently on this new path but from changing the culture and attitudes and operating philosophy of the employees who will execute that philosophy. And that represents a far greater challenge to management. Thus, a fiercely independent and insular company may recognize the value of a Partnership, or even a Co-opetition, relationship with another company and simply not find the resolve or commitment to pull it off. By the same token, the innovative product-oriented company may recognize the need to finally monetize its success with a new commitment to marketing and sales but is temperamentally incapable of transforming the company to that new direction.
What this means is that following a strategy of pursuing optimal growth paths may not be as simple as it looks. Sure, the good news is that there is a finite number of paths available, and the number of viable new paths available to a current path amount to only a handful . . . but in the real world, the number of options for your company in its current configuration (culture, resources, key employees, etc.) may be even fewer than that.
A great leader can lead the kind of shifts in attitude and practice that not only make all potential new paths possible but a greater degree of success in the one chosen. That’s why the right growth path only makes successful continued growth possible. Making it real requires the right combination and sequence, and strong execution, as well as vision and great leadership. That is why preparation is so important. The most successful companies in the world regularly change direction—and do it with such confidence and coordination that it looks almost effortless. As you now see, it is anything but.
WHAT’S NEXT
Staying endlessly on your new path is ultimately as deadly as sticking to your first one. In time—months, years, if you’re lucky, decades—you will again find yourself at a crossroads—either facing an amazing opportunity to accelerate growth or an impending growth stall. And in the fast-moving world of twenty-first-century business, that next jump will likely need to occur sooner rather than later. And so it begins again.
Here is a fact that the best leaders understand, but everyone else wrestles with: growth needs to be countercyclical. The best time to create the next big opportunity is when things are going well, not when you are struggling. Too often I have seen situations in which sales are booming, growth is accelerating, a company is crushing it, and most leaders tend to get a bit overconfident in their future and their existing growth strategies. As the saying goes, they make hay while the sun is shining. But then the rain comes. The economy slows. The once reliable products or services have begun to lag. There are unexpected new competitors. Customers are going elsewhere. . . . You know the list.
When we do something in the course of the day matters almost as much as what we actually do.
—DANIEL H. PINK, author of When: The Scientific Secrets of Perfect Timing
Only then does leadership realize that the company is in a full-blown growth stall. Leadership springs into action, awoken by a true sense of urgency. It begins to assemble a team to dig into what is going on. It pulls its best and brightest to come up with a plan once it understands what is going on. Then it looks to execute that plan quickly—even if ill-prepared. But by this point, it is too late. Here’s why.
Unfortunately, your company is perfectly engineered to create the outcomes it is currently creating for yesterday’s market context. In other words, it doesn’t have the internal fortitude or capability to change quickly enough. So, under the pressure of slowing sales or waning market relevance, your perfectly engineered machine will tighten its grip on the past. The well-meaning changes will focus relentlessly on your past success formula, spending more marketing dollars, hiring more salespeople, and cutting expenses—thus accelerating your demise because what worked in the past will no longer work in the future. Making a better buggy whip, a faster film camera, a quieter typewriter, or even cleaner coal won’t keep the stagecoach operators, film processors, typesetters, or miners employed.
AMAZON CASE STUDY:
STAYING IN DAY ONE
If we have a good quarter, it’s because of the work we did three, four, and five years ago. It’s not because we did a good job this quarter.
—JEFF BEZOS
PERHAPS NO COMPANY IN OUR time has more successfully navigated the Growth IQ paths, in all their nuances and complexities, than Amazon. In less than a quarter century, the company has grown from just a dream in the imagination of founder Jeff Bezos as he drove across the United States, to one of the world’s most valuable companies, the first to realize a market cap of $1 trillion—and Bezos himself is one of the world’s richest men. The company currently employs more than half a million full- and part-time employees around the world and has annual revenues of nearly $180 billion. That makes it the largest Internet retailer in the world as measured by revenues and market value, and if its revenue were a country’s GDP, it would be the world’s fifty-fifth richest nation.
Amazon has been so successful, has grown so quickly—and dominated so many new markets—that the entire business world perpetually waits in nervous anticipation of its next move. Those moves—successful or not—are often unexpected. AWS, Kindle, Whole Foods . . . who, outside Amazon’s executive row, saw these moves coming?
But looking through the lens of Growth IQ, it’s not only possible to understand Amazon’s moves but appreciate their inevitability. In little more than two decades the company has sprinted through all of the ten growth paths, some of them more than once. Seeing how quickly Amazon navigated its way in and out of certain growth paths and combined efforts in the right sequence can only leave one in awe. Amazon isn’t so successful—and feared as a competitor—because of the paths it has taken, but how deftly it has identified each new path to jump to and quickly made the move.
It is a strategy that every company should emulate, if only on a smaller scale and over a longer time frame. Let’s take a look, through the lens of Growth IQ, at how Amazon did it:
A PHILOSOPHY OF PERPETUAL CHANGE
Jeff Bezos founded Amazon in July 1994. The idea for the company came during a cross-country trip from New York, where he’d just resigned as vice president of a brokerage, to Seattle, where he intended to start a new company. Amazon was the result.
Amazon introduced itself to the world as a seller of books online. It seemed a modest ambition—and few noticed the new firm at first.
But Amazon had much, much bigger plans. Bookselling was just its beachhead strategy—pursuing Growth Path 1: Customer Experience. It set out to give those early book-buying customers the best possible service—even if it meant six years of unprofitability—including four years after the company went public—that made it something of a joke on Wall Street.
But Amazon had the last laugh. It was, after all, the dot-com boom, and Amazon was awash in cash . . . which it spent on that Customer Experience, including warehouses, fulfillment technology, vast inventories, and one of the most efficient delivery systems. The result, for most customers, was that Amazon matched the buying experience of neighborhood bookstores, delivered books quickly enough to challenge the experience of commuting and store shopping, and offered a collection of products unmatched anywhere.
It took a while to put all of these pieces in place, then operate them to perfection—but when done, customers began to flock to Amazon by the millions. Profitability came soon thereafter, in 2001.
Meanwhile, the company set about perfecting an ordering system that made purchasing books easy—even impulsive: “one-click” with a powerful “recommendation engine.” This next move was all about Growth Path 6: Optimize Sales. Both innovative online (customer-focused) processes have been copied by almost every other online retailer ever since. To put this into perspective, the importance of the recommendation engine can be gauged by the fact that 35 percent of all sales are estimated to be generated by this one investment.
Amazon furthered this optim
ization by introducing a premium purchase and delivery system, Amazon Prime, in 2005. Everything was now in place. Amazon had revolutionized the book-selling industry. Thousands of smaller bookstores were struggling—and even the big retailers were facing an uncertain future. Amazon now made its next jump.
A decade before, as he developed the Amazon business plan, Bezos listed twenty potential markets waiting to move onto the Internet. Now, the company was ready to realize all of them, and more. It pivoted to Growth Path 2: Customer Base Penetration. Starting in 2006, it signed numerous merchant partnerships, including ones with Toys ‘R Us, Borders, Target, and Marks & Spencer, among others. The bookstore to the world was about to become the future department store to the world; and the company began to fulfill the promise of its logo, showing that it would offer customers products from “A to Z.”
Concurrently, Amazon also pursued another growth path—this time, Growth Path 5: Customer and Product Diversification. Bezos is a fan of innovating—not just to succeed in the market but also to fail quickly if he must fail. While there have been several less-than-stellar results, such as the Amazon Fire Phone, Amazon Destinations, and Amazon Local, they have been long since forgotten in the grand scheme of things.