There’s a famous line from the 1967 hit movie “The Graduate.” Mr. Maguire says to Benjamin Braddock, played by Dustin Hoffman, “There’s a great future in plastics. Think about it. Will you think about it?” Maybe it’s time to replace “plastics” with “diversified growth.” Diversification is the growth driver today I don’t agree with people who express “grow […]
There’s a famous line from the 1967 hit movie “The Graduate.” Mr. Maguire says to Benjamin Braddock, played by Dustin Hoffman, “There’s a great future in plastics. Think about it. Will you think about it?” Maybe it’s time to replace “plastics” with “diversified growth.”
Diversification is the growth driver today
I don’t agree with people who express “grow or die” statements, but there are numerous reasons to have a clear view of your organization’s growth road map. Here are a few reasons you need a growth road map — and hopefully, a diversified growth road map:
• It can help your products and markets from becoming irrelevant as they’re replaced with innovative new products.
• It can result in incremental, profitable revenue streams.
• It can increase the value of your business.
There are many ways to grow, including growing your existing or core business. But what if 85 percent of your business is with one customer? What if 85 percent of your business is in one market? We recognize these as business risks — maybe even enterprise risks. The experiences of businesses during the past couple of recessions should make diversification a high priority.
Here is one example. There were many businesses in the exploding mortgage market at the start of the 2008-2009 financial crisis. Months in, many vaporized because they didn’t have staying power, and the market collapsed even faster than many thought possible. Businesses that had staying power saw their revenues decrease significantly and were disadvantaged against competitors that also served banks, credit unions, securities, and insurance markets. The players with diversified portfolios not only survived, but also thrived from the loss of competitors. Some even achieved growth during that period.
The pandemic has demonstrated these dynamics in a familiar way. If you manufactured restaurant equipment only, you probably had a poor year — and could be looking at several additional slow years. Your target market is not healthy, and growth will not return soon. If you had one or two other markets besides restaurants you provided equipment to, you likely shifted your focus to those which might either have seen growth or at least are recovering more quickly.
Lulls in customer and market concentration
One of the challenges with a high customer or market concentration is lethargy. You can be celebrating your market leadership in one market right up to the day when the market dynamics turn unfavorable. You can celebrate a major customer renewal right up until the day the company gets sold and a new decision-maker comes on the scene. Any number of bad things can happen, many of which a prepared mitigation strategy would alert you to. A change in interest rates, a pandemic, an act of God, an extreme-weather event — these are only a few examples of events that can negatively impact your business in the short-term and long-term.
There is a concept in business development that can be summarized by the phrase, “The time to change is when you can, not when you need to.” This concept has a wonderful name: bifurcation. The moral of this guidance is that the best time to diversify your growth is when you have the capital to invest and the time to try options out, and the risks are low. No one wants to come up with a plan for an extra $1 million (or $100 million) in revenue when the clock is ticking and you don’t have the lead times to properly vet, prioritize, test, and manage opportunities for diversification.
How many markets you need to thrive
The answer is not zero, nor is it 80. When you use structured growth planning, you realize that “zero” means no one has thought about the future of the organization, or if they have, they really don’t have a clue how they are going to grow. The opposite scenario is an organization with too many growth ideas. Let’s call that a target-rich environment. No organization can effectively manage 80 opportunities concurrently.
I was once given the task of filling a $200 million revenue-growth gap that we identified as three years out. I had the responsibility not only to figure out what the working list of opportunities might look like, but also to develop the screening process and recommend the best-fit priorities for investment. We brainstormed 80 ideas, winnowed them down to 12, scored the 12, and selected two for investment. We also made a small acquisition to help fill the gap. Three years later, when we needed the revenue, the new revenue streams were in place. We didn’t wait until we were facing the gap to act.
Takeaway best practices
• Adopt a mentality that future growth needs constant attention.
• Adopt a structured-growth process and proactively use it to select opportunities that will help diversify your business.
• Look for opportunities that leverage your assets, capabilities, and expertise and that fit your value proposition and risk tolerance.
• Proactively develop a mix of opportunities with short-term value (one to two years), midterm value (two to three years), and longer-term value (three to five years).
• Look for markets where you can find more of the kinds of customers who represent your best customers today.
• Get started now. Prepare for the day when your only market or your big customer hits a wall that might put your business at high risk. A good growth strategy makes for a successful, healthy, high-value business.
Mark S. Coronna is area managing partner and chief marketing officer (CMO) with Chief Outsiders, a fractional CMO firm focused on mid-size company growth. He focuses on building diversified revenue and profit streams, sales-pipeline improvements, strategic marketing planning, and digital transformation.