Fast growth can help you strengthen the important business relationships you have with employees, customers, and investors. But what can you do
According to a McKinsey & Company article, growth comes from identifying your best answers to three questions. Here’s what I think holds true, or isn’t so true, about each:
1. Where is my growth going to come from?
Leaders ought to figure out where they will find future growth. McKinsey suggests that they should scan for opportunities by analyzing the “structure” of the industry in which they compete, how “customers navigate” the industry, where the “profit pools” are and what “trends are emerging.”
From this analysis, you can use “data analytics” to “get granular with customer segmentation.” Ultimately, companies will grow faster by customizing their product to each granular customer segment.
I have three thoughts about these ideas. First, there are so many buzzwords that you won’t really know what they mean unless you hire McKinsey to explain them.
While I recoil from all the buzzwords McKinsey uses here, I do think the advice about identifying small customer groups with different purchasing behavior is a good idea. For example, such analysis could help you find subgroups of your current customers who with a bit of tweaking would be willing to pay a price premium for your product.
McKinsey cited a car-rental company that analyzed the behavior of its customers and identified 10 distinct customer groups. The company customized its product and advertising to each group which helped it “grow its customer base by more than 10 percent in a year, increasing revenues by almost 20 percent.”
In this part of its report, I think McKinsey’s advice assumes that the market you’re in now is where you should look for future growth. But that could be a bad idea if your current market is maturing or declining. If that’s true for your industry, this kind of customer grouping will not help much. Instead, you need to look for growth from new products, new geography, and/or new customer groups.
2. How do I grow now and tomorrow?
Those who run public companies strive to exceed growth expectations every quarter and sustain that growth over longer time periods. To do this, leaders must set ambitious goals — for new revenues — and meet (or better yet exceed) them every three months. At the same time, they must invest in growth opportunities that will enable the company to keep growing rapidly when its current growth businesses mature.
McKinsey advocates that leaders should do this along “three broad fronts.” The first, is shifting marketing money from products that are declining or not meeting their goals into ones that are growing and will benefit from the reallocation.
Second, companies can get more growth from improving the customer experience which leads to higher revenues. McKinsey cites a bank that cut the time to approve a small business loan from 20 days to under 10 minutes noting that the change let the bank “increase win rates by a third and improve average margins by more than 50 percent.”
Finally, companies can use technology to enter new markets. Such technologies can be tested and refined by initially targeting them at a new group of customers and then rolling them out to existing customers if the experiments prove successful. For instance, a consumer-goods company was testing products in “nontraditional locations such as office buildings, juice shops, and yoga studios” to find new growth.
These strike me as good ideas for improving growth in the short-term but something more is needed to boost long-term growth.
3. How do I set up my growth engine?
In my view, that something more is a CEO with the mindset needed to look into the longer-term future of the company and invest to capture growth opportunities that emerge from changing technology, evolving demographic trends, and applying the company’s culture and capabilities to gain a large share of these growth opportunities.
McKinsey advocates that companies should create what it calls a “growth engine” which means an organization in the company that removes obstacles to a “growth transformation.”
A good example here would be Amazon’s Jeff Bezos, who has led repeated innovations — such as expanding into cloud services, groceries, and online streaming. He does this through a Day One mentality which consistently pushes Amazon to reinvent the company to give customers ever better value.
With my caveats included, I think these three approaches can help you grow faster.
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