Sooner or later most companies find themselves struggling to produce growth. Often it’s because their business models have run their course (Yahoo!), or they’ve been overtaken by competition (Kmart), or they are being hit particularly hard by a stagnant economy (any durable goods company).
When this happens, they often react in unproductive ways. Some scramble to imitate successful strategies launched by competitors, like Microsoft did with its giant investment in Bing or Coca-Cola with its foray into energy drinks and waters. Some go for “game changers” — giant acquisitions that they hope will change their growth trajectory and how investors perceive them.
Others double down on their most loyal customers on the theory that they can build on an already strong market position and emotional connection. And all too many try to work their way out of the problem by launching multiple growth initiatives with the hope that a few of them will stick.
Most of the time, these efforts fail to reignite growth. So why pursue them? One explanation is that companies systematically underestimate opportunities for organic growth that are hiding in plain sight. We know of one business that had both a dental hygiene and retail battery business but missed the opportunity to combine those technical capabilities. Instead, they let a small startup develop the first low-cost electric toothbrushes.
Why do companies so often miss out on these opportunities? A big reason is that they often focus their organic growth efforts on their most loyal customers. But these, by definition, offer the smallest opportunities for organic growth because you already have most of their business. The big organic growth opportunity is with non-loyal customers who freely and frequently switch between competitors. For example, half of Starbucks’ customers buy only 40% of their coffee from Starbucks — they get the rest from places like Dunkin’ Donuts and McDonald’s. Getting more business from non-loyal customers is an enormous organic growth opportunity that is hidden in plain sight for most companies.
Focusing too much on traffic and cross-selling often goes nowhere for the same reason. I know of one giant retailer that was struggling to grow on a same-store basis. The problem was it was looking in many of the wrong places. The emphasis was on increasing “foot traffic” in the store and “crossing the aisle.” It turned out that providing more value within categories — such as offering a greater variety of sizes or fashions in the women’s apparel aisle and more service for electronics customers in rural areas — offered greater opportunities for growth from existing customers, many of whom were also buying at other chains, did than increasing traffic or cross-selling.
Companies can ill afford to make these mistakes. Today’s business leaders have never faced the sustained headwinds we will see over the next decade, including chronic unemployment, the specter of stagflation, and the Great Deleveraging of governments and their citizens. The next decade will present a far more difficult environment for growth than the one we saw in the past three decades.
The good news is that most companies have a big opportunity of organic growth sitting in their core businesses.The opportunity is usually enough to double the top line over three-to-five years. But two-thirds of that opportunity is almost always found in only one third of the business. It takes faith and determination to find it. It is often hidden in less loyal customers, in how customers behave (not in what they tell you), in value propositions that are not fully delivered, and in markets that cut across the internal boundaries of companies’ own organizations.