The 5 Rules of Growth

What are the principles for creating growth? Or rather, what are the things you need to make sure your ideas for growth address in order for you to ensure they succeed?

Growth is a word that sooner or later begins buzzing around a company, because cost-cutting – although great for survival, won’t get you anywhere in the long run. The world is constantly moving on around you and any company thinking they can sustain themselves in business by continuously doing the same thing, but at a cheaper price, will gradually watch their market wither away.

This is yet again one of those either-or arguments. The business world is rife with the proponents for one or the other and people seem to be reconciled to the fact that you can never have both, but much like my posting on Why the desire to simplify can inhibit innovation it is in fact exactly the opposite: to be able to grow you will need to figure out a way of achieving both: repositioning yourself in the marketplace to enable growth and doing this continuously at a more competitive price in order to stay there.

I would agree that there are people whose strengths lie in one of the two camps, you are either great at cost-cutting or at generating ideas for growth, but you seldom find people who are good at both. This, however, is not an absolute truth, but more a testament to the unwillingness of people to move out of their comfort zone. It’s like saying: you are either a great pianist at birth or you will never become one. That’s nonsense! Like any skill, sport or ability – you may have a set of ‘tendencies’, but it is your sheer hard work and determination that ensures those ‘tendencies’ destine you for greatness, not what you are born with. Same in business. So to be truly great in business, if your strength is to come up with brilliant ideas for growth – stretch yourself into thinking how you can deliver that growth idea through better use of supply chain, logistics, pricing, distribution, i.e how can you use what people do in cost-cutting exercises to generate entirely new business models that help you deliver that growth idea better than if you stuck with the existing set-up and simply did an iterative improvement? OK – you see where I’m going with this? Before I stray too far, let’s recap on those rules I mentioned earlier:

1. Sustainable? No point going for a growth idea, which is not sustainable – i.e can you deliver this year after year, in a lean and efficient way without killing your staff, your company and moreover: do you know this idea is something people will ask for in 5 years time too? If not, then figure out now how you will evolve your growth idea over time to stay relevant. If you can’t you know it’s not sustainable.

2. Profitable? Forgive me for stating the obvious here, but often people don’t realise that new ideas for growth also sometimes call for new ways of measuring profit. Numbers can hide as much as they reveal. If you haven’t accounted for all the things that eventually will cost you, you may not have an accurate picture of your profits. Many companies are in this dilemma now, because the rising focus on carbon footprints and greenhouse gases/global warming means that there are entire industries whose pricing policies do not reflect the toll they take on the environment. If we suddenly had a price assigned to products and services based on the carbon footprint they require in their manufacture, many profits would instantly erode.

Companies will need to start thinking about this very soon. You say: ah well, this will automatically favour the likes of Google whose business offering is entirely virtual and thus they have no pollution to worry about. Wrong! Google has to worry about this stuff too, because by nature of the size of their business they are now renting entire server farms to fuel their need to keep indexing the net and providing the service they do. Before we even get to whether those servers are using toxic components etc. these server farms use a lot of electricity, which has to come from somewhere – now Google’s profits wouldn’t perhaps be so mind-boggling anymore if the price of electricity suddenly began reflecting the toll it takes? Just a thought.

3. Capital Efficient? Needless to say, there is no point having growth which is not.

4. Differentiated from Competition? Me too ideas are often prompted by competition moving into an area and you feeling obliged to do the same. More choice in an area is not necessarily good if you cannot offer differentiation. In a worst-case scenario it means a price-war and less profits for all. Some deliberately go for this, but unless you are absolutely sure your business models allows for cheaper, faster, more cost-effective offers (because you are using a business model radically different from your competition in this area) there is no point to go for this. Falling prices in the long run mean a commoditisation of your product/service and distinctly less value attached to it by consumers, who generally become more vary paying for anything.

5. Innovative? Everyone argues they have innovation, but innovation is a confusing word. It gets mistaken for creativity (the capacity to generate ideas) and simply going for iterative improvements. Adding another feature on a digital camera is not an innovation. The Ipod itself wasn’t even an innovation, but orchestrating Itunes and a legal way for music downloads around an MP3 player was. It’s about doing ‘new’. Turning things on their head – ultimately it is about converting ideas into profitable growth. What does that mean? Well ideas are nothing unless people are willing to buy it and after having it bought it, coming back and buying more. Innovation is about taking that leap and creating something, which starts an external shift eventually snowballing into influencing previously unconnected industries.