Five Not So Easy Lessons on Growth Leadership

Most of us watched Superbowl 52 between the Eagles and the Patriots. Part of the charm of the

Superbowl and the parties we attend, relates to seeing the commercials. In fact, much time is used “rating” the commercials in terms of humor, appeal, and somewhere down the line the effectiveness of the advertising spend. As a piece of trivia, a Superbowl commercial this year costs $5 million for a 30 second ad PLUS the actual cost of designing, developing and shooting the commercial. Note that Nick Foles, the Eagles’ Quarterback and MVP, made only $1.6 million for the entire year. By the way, as a Giant’s fan I really liked the Eli/Odell Dirty Dancing commercial.

Last year, Coke eliminated the role of Chief Marketing Officer and reorganized around a new role of Chief Growth Officer (CGO) to integrate marketing with customer and commercial teams. Other consumer package goods (CPG) companies, such as Hershey and Kellogg, have also moved to a similar function with Kellogg instituting the function in mid-2015. How successful are those companies? It may be too early to tell. Kellogg’s results over the past few years have been passable and they might not be the best model to use. Their CGO was an advertising executive – albeit very smart and well regarded and their revenue the year after his appointment was DOWN.

We can argue that a title change may be necessary but it is certainly not sufficient for improving growth and making that revenue and growth profitable. The Chief Marketing Officer has significant issues in a corporate structure. I have seen many times that marketing is regarded as a function of planning more ads, designing creative billboards, winning the contest of the best Superbowl ad, and winning creative awards. This is more “fluff and stuff” vs the reality of hard marketing and on this basis alone, a change in title from marketing to growth officer seems warranted.

Let’s take a look at five (5) lessons that can be applied to what I call Growth Leadership.

1. Growth starts with the CEO. Without the CEO and his strategy, successful growth plans cannot be put into place. I keep reminding myself of the Alice in Wonderland quote: If you don’t know where you are going, any road will take you there. Companies who want to grow have to put a CEO with that objective in place and not all CEOs fit that bill.

2. The company has to have a growth mentality. While this may start with the CEO, the people he hires and the culture of the organization must be focused on growing. I know this may sound strange to some. Unfortunately, most of us have been in companies that believe growth is based only on EBITDA increasing. While that is important, EBITDA can be improved – at least in the short term – by cutting cost. I have never believed that you can shrink yourself into greatness.

3. Innovation must be a hallmark of a growth company. Without a solid business model and without good products companies will not grow. There is just too much competition and the internet and agile development around software puts many companies on an even footing. Think about companies you know. How many of them are growing? How many of them have a solid product line and product portfolio? Growing companies have solid portfolios and products in the wings – or a good acquisition strategy to acquire new products or partners that have these new products. A creative ad on the Superbowl is not sufficient. Recall the commercials you watched. Which ads pushed minor line extensions or existing product vs. new ones? I only recall two really new products: a Kia Stinger car and a new Lexus LC500. (BTW, I like both of these cars!!)

4. P=R-C. Let’s get to basics. Any officer in a company must recognize this fundamental equation and determine how they can affect the elements which create profit. Clearly, a Chief Growth Officer will be responsible for the revenue side as well as the investment which will be put to use in generating that revenue. As a correlate, growth officers must change their internal perspective of being cost centers to investment centers. They need to think about a concept called return on investment. Even good marketing officers that I have known, focus on a concept called ROMI or return on marketing investment, treating marketing as a business and not merely a creative channel. So, when we look at the Superbowl commercials, how many of these were merely “fluff and stuff” creating awareness for the company vs. a means to drive growth? Would the company be better off spending more than $5 million on alternative marketing activities that would directly drive growth? What is interesting is that small companies with lack of budget dollars focus on the bottom line and are tactically driven.

5. An integrated approach to growth can be achieved with forethought. Whether you call the executive a Chief Growth Officer, Chief Revenue Officer or Chief Marketing Officer, I believe this person is an integrative force within the company. This person, whether directly or indirectly, must be a linking pin between the outside world of the customer and the internal world of production and manufacturing. That person needs to connect and get different functions such as marketing, product, demand generation, social media, customer service, usability/user interface, and customer service to work together to a common end.

 

That person must be responsible for a) managing at least part of the investment in growth initiatives, b) managing or certainly influencing the innovation process relating to new products, line extensions, and processes to make the customer experience better, c) the overall go-to-market strategy and tactics that are broad to include all customer touchpoints. I call this Big M marketing where the company executives are aligned for a common purpose and focus on providing the best products and services to the customer.  Individual silos are eliminated and therefore a consistent brand image can be projected. And most, important, all these components need to have targets and be measured and reviewed as part of the business battle rhythm of the company.

The title of a function is important just as a brand and its meaning is important to a company. I am not a huge fan of marketing as it is implemented in many companies because in my opinion current Chief Marketing Officers have failed with regard to helping a company grow their revenues profitably. I have argued this many times before. I believe I am correct in my assessment, as the tenure of a CMO is approximately 4 years, lowest tenure in the C-suite and approximately half as long as their CEOs. But I also believe that there is an opportunity for companies to improve their top line growth and margins by following these 5 prescriptions. We, at C-Level Partners, are focused on helping small to mid-cap businesses improve their growth and margins. Write to me at dfriedman@clevelpartners.net to see how we can help your company grow.

Your Business and Brand Renewal: Critical Components for Survival

Renewal of businesses and brands is critical for survival. That sounds trite but true. On-going businesses have challenges to stay relevant in their markets. A recent study indicated that of the Fortune 500 companies in 1975, less than 75 were on the Fortune 500 list just 40 years later. More than 500,000 new start-ups are created every year in the US alone. Of that, 50% are likely to fail within the first year. Within the first five years, another 50-80% are expected to fail.  There are many reasons for failure of businesses including a bad economy, lack of funding and lousy business ideas or structures. Certainly these are contributing factors. Yet, regardless whether you are a startup, small business or corporate giant, we believe that another big reason is a business' inability to adapt to changes and become “fast, fluid and flexible.”

                                                 

How does one meet that challenge? The marketplace demands and expects businesses and brands to evolve over time. A proactive renewal process keeps a business relevant and in tune with customers’ needs and new business models, as they too evolve. Sometimes these changes are barely noticeable beyond the normal rhythm of business news and information. On other occasions. it is big, noticeable "in-your-face" change.

Consider the following three companies: GM, GE and Kodak. During the Great Recession, GM had to be bailed out from a distressed state and eventually streamlined their car line and brought in new management to affect the turnaround. GE, a model of growth in the 80s and 90s had fallen on hard times and while the company continues to expand, it is not the Jack Welch's GE of old. Kodak, one of the great brands that many of us grew up with is a pale shell of itself as its business models and strategic plans did not evolve and the company was not able to take advantage of the new digital era. I am sure that each of the readers can think of several examples in their industry of companies that were successful and unsuccessful in their attempts to renew their business model and brand.

An example of a successful company that went through business and brand renewal is Cintas. Cintas started its business in industrial rags and laundry in the early 1950's. They created a distinctive set of capabilities and its own business model called “The Cintas Way” which was a combination of products and services wrapped in excellence in process and technology.  Their   plant operations, a highly refined logistics capability and a customer intimate focus in its sales and marketing that combined service innovation with customer knowledge helped guarantee their success.  Why? Cintas took a very proactive approach albeit somewhat evolutionary. Cintas grew its brand through continuous growth along several strategic vectors in the “Ansoff Product/Market Matrix.” They created new markets, new products and services based on their ever evolving strategic capabilities, and through distribution partnerships. Think about this. Cintas went from rags and laundry to address the security needs of companies by building a secured document destruction and document storage business. How is that for business/brand renewal?

Over and over I've seen how businesses that adapt and change are much more likely to stay in business than those who fight tooth and nail to stay the same as they have always been.

I'm here to tell you that no business is too big to fail or too small to succeed. Let's look at companies like Borders or Blockbuster.  Borders failed because they relied too heavily on the brick and mortar retail business of their stores. Barnes and Noble, by comparison, added technology in the form of Nook was more aggressive with e-commerce of their retail products. As a result, they built an eco-system of digital content delivery to reinvent their brand and their business. Borders went out of business in 2011 while Barnes and Noble is still in business today. At this time, it looks like Barnes and Noble will need another reinvention/renewal as it is struggling financially as of late.

In a similar fashion, Blockbuster failed because they stayed true to their brick and mortar stores and did not see the threat from a little-known upstart named Netflix. They failed because they were unable to adapt to the market disruptions in their business, mostly because digital delivery of content were disrupting their traditional retail storefront business. By the time they responded to Netflix, it was too late as this article explains.

Why did this happen and could it have been prevented? The companies that were proactive, fast in making decisions, fluid in their response, willing to pivot and flexible in adopting new businesses and business models were successful. Of course, a company is only as good as their executives so we have to give credit to the vision and execution of their top teams. They all anticipated change and adapted their businesses to the realities of the new marketplace. Continuous improvement requires a feedback loop that continually evaluates, assesses, designs, implements and manages the change that is derived from the process. Those companies that were successful delivered on this key requirement.

It's important to note here that this improvement process is a result of a “business system.” What do I mean by system here? A system is a repeated course of action – a way of doing things that brings about a desired result. The combination of people, time, money, tools, systems and processes used to manage the business had a significant and critical impact on the ability of these successful businesses to adapt, evolve and improve over time.

Keep in mind that no company, large or small, gets it exactly right on the first try, which is why starting a business or building a brand is such an iterative, discovery-based process. Through each business cycle executives will learn something new and modify or evolve their business model to adapt to change. Sometimes that change is incremental. At other times, the change is much more significant. Business assumptions change and your business models will change as you will learn more about the customers and niche you serve. Changing directions, implementing a new business model or revitalizing your brand does not mean failure. In fact, that realization is the end result of a visionary and clairvoyant company. It may or may not result in a completely new vision and direction. It does, however, mean taking stock of everything and adjusting the strategy and plan accordingly.

Do you have any business renewal stories you would like to share? For additional reading on this topic, please check out our other articles on renewal in our April C-Level Beacon newsletter and on our blog available at www.clevelpartners.net/blogs.  Also, there have been a couple of articles written in the HBR and TIM that focus on renewal that you may find interesting.

C-Level Partners focuses on profitable growth and we would be happy to chat with you about your brand, your business and your vision. Drop us a line at info@clevelpartner.net or vferraro@clevelpartners.net.

Adapted from my book, 'Brand to Sell', available on Amazon.com

Growth Vectors and Strategies: You Can’t Shrink Yourself into Greatness!

In this blog I will present a couple of useful tools to help companies define different growth paths- growth vectors and strategies.  It’s a little lengthy, but I trust it will provide value and will be thought provoking.

Do you know of company CEOs that say, "We don’t want to grow; we are comfortable where we are?”  There may be a few small businesses that are under the leadership of a founder or family member that take that approach and maybe that company serves a very small niche market that generates a nice income.  Typically, growth and how to grow are foremost on the minds of a company’s leadership.  Why? 

Why companies want to grow

Regardless of the ownership structure of a company, the pressure to grow is apparent because CEOs want to increase their company’s value. Whether through share appreciation for a public company or the increase in a private company’s multiple because it makes the company a more attractive acquisition candidate, value cannot increase without growth.

Growth must include both the top and bottom line.  Companies that grow top line revenue are normally accorded a higher multiple (e.g., price to earnings ratio) so upon merger or sale, the company will be at a higher value (market cap) than a comparable company with less growth.  But growing revenue alone is not necessarily sustainable.  Companies have to couple that revenue growth with reasonable margins i.e. EBITA, and margin growth.     

Some executives are less concerned with top line growth and focus on managing operational expenses, especially in times of economic downturn. I am sure we can think of executives such as Al Dunlap who was recognized as a cost cutter.  Yet, there are only so many expenses that can be cut.  Eventually, as we say, you cannot shrink yourself to greatness.

Growth is second nature to many executives.  Top line revenue growth can be developed in several ways using different strategies.   Executives have to guide their company to grow intelligently given their company’s competencies, the competition they face, the customers they have, and the culture they have created in their companies.

Growth is also important for other less tangible reasons. With growth, a company will be able to retain its employees, as opportunities for personal growth are tied to overall corporate growth. Top employees will leave a stagnant company for a company that is expanding and promises them the opportunity to grow with them.  Just look at the tech companies in Silicon Valley as poster children for this.

Growth is typically driven by innovation in products, services, processes, and technology.  A company that is stagnant will likely lose its ability to remain innovative and thus take on a much greater risk of becoming obsolete.  Once you lose the momentum of growing, it is hard to restart those efforts.

Most of our clients are interested in growing.  One company wanted to grow their business because they had a limited number of very large customers.  Losing a major customer would be a very high risk to the company, not only their value but their ability to pay for their infrastructure and salaries.  Unfortunately they lost a major customer representing approximately 30% of their business. It took several years to recover from that debacle.

Another client had a more unique problem.  They were a B2B chemical company and bought a relatively strong brand from another company.   However, they started to lose market share to competitive products and technology was such that existing customers were willing to invest in the technology on their own and become their own supplier.   The question we faced was whether their brand could survive and if it did, would they be able to grow their brand.   Fortunately, we were able to map out a product strategy and plan to enable them to stem the exodus and expand their market.

A third client wanted to grow as they positioned themselves for sale.  Yet they set self-imposed constraints on their growth because they did not want to build certain types of products because of their internal competencies and what they perceived to be competitive threats.  This company was bought in short time frame at a bargain price given the patent portfolio they created.

The Product-Market Matrix

Growth is fundamental to creating value for owners, employees, and customers. In all three cases above, there were obstacles- real or perceived- to their growth.   Their goal in all cases was to grow their business.    So the question they faced was:  How does one grow intelligently? 

Let’s take a look at a couple of tools that can be used to break down a difficult problem into smaller bite-sized chunks.  A very powerful strategic planning tool is called the Ansoff Matrix developed and reported initially by Igor Ansoff in a Harvard Business Review article in 1957.  The product market matrix described below is a classic method for analyzing the opportunities and risks facing a company seeking profitable growth.

The Ansoff Product Market Matrix

There are four broad categories for growth based on a combination of expanding products and/or markets.  Each category presents different risks, opportunities, and returns for the company.   For example, developing new products or markets assumes a higher risk than increasing market share in your existing markets.  Diversification, where a company not only develops new products but targets new markets is the most risky.  However, different strategies may be necessitated based on the business life cycle of the company, its products, and the competitive landscape.

A CEO needs to consider its strategy for growth and the risk he and his/her board want to take.   Let’s briefly look at each of the four quadrants.

Market Penetration

This strategy suggests there is room to further penetrate the current market with current products.   The product life cycle may be relatively young and both revenue and margin growth are possible.  Maybe there are new ways customers want to buy, or perhaps changes in customer buying habits increase their willingness to buy your company’s products. If the price of the company’s product is inelastic, a price increase can generate additional revenue and margin.   One small insurance company we know used this precise tactic. 

Another way to increase market penetration is by increasing awareness of your company’s products to other similarly situated customers in the markets you serve who may not know about your company and your products.  A third way to increase penetration is by expanding channels of distributions and partnership relationships.  A partner who is selling into the same market can sell your product as a tie-in sale.   One wireless company for whom I worked increased its channels of distribution and added more market development funds to several channels.  Sales increased by more than 25%.   Uber is increasing penetration in their current markets by adding new drivers.

Market Development

Companies can grow by selling its existing products into new markets.  Market development opportunities may be implemented in several different ways: by advertising different features, modifying the core product slightly by feature, repackaging the product to be more suitable to the new market, focusing on new uses, developing new applications, and expanding geographically. 

For example, it is not uncommon for veterinary medical devices to be slightly modified for the human market.  Panasonic Toughbook which is a PC slightly modified for rough terrain.  GE modified its standard bulb with a tougher covering for harsh outdoor environments. Black and Decker modified its tools slightly and rebranded them as Dewalt for the professional. Meguiars Mirror Glaze for the professional detailer market was repackaged as Meguiars Wax for the consumer market.  Arm and Hammer baking soda was repackaged as a refrigerator deodorant by changing the packaging.   Uber started in San Francisco and expanded to other US cities and then internationally.  Microsoft offered its Office product to Students and Teachers by reducing the price, changing the licensing options, and eliminating Outlook from the Student and Teacher version.  

Other means for market development may include partnerships and building a stronger eco-system.

Product Development

This growth vector relies on creating new products and selling them in its current markets.  This strategy offers a company the ability to expand its “market share of wallet” in existing markets.  Product development has its own unique risks and constraints and will be discussed below.   However, product development and innovation have the potential to yield solid financial results if performed correctly.  

Look at Apple and how they were able to expand from the PC, to the series of I-devices like the iPod, iPhone, iTouch, iPad, and then add larger sizes (line extensions) for the iPhone and iPad.  Boeing was able to take the 747 platform and develop a tanker for use in military applications.  Honda and other car companies have developed new models to appeal to specific sub-segments of the markets they served.  McDonalds developed the McCafe and Burrito to complement their existing products in their breakfast menu.  

Diversification

A company can grow by developing new product in new markets through diversification.  It offers the company a new opportunity to grow with high margins.  However, it is the most difficult because the company may need new competencies in development, new partners, new channels, new sales and marketing skills, and new processes and infrastructure.  Some companies have chosen to reduce risk by partnering with another company which brings complementary skills. 

Some companies have been successful in making that transition.  Here are some examples.   Coca-Cola diversified into Vitamin Water (related diversification) as well as branded merchandise and clothing.   The NFL has moved from the teams as the products to licensing deals for clothing with the team’s logos and other merchandise.   Eddie Bauer diversified from rugged outdoor clothing to car interiors for Ford.   Google, which was founded on search algorithms and advertising keywords, is developing self-driving cars.    

Another way companies can diversify is by taking an internal competency and commercializing it.  Amazon leveraged its internal computing and server management skills and built Amazon Web Services which is one of the dominant providers in its market.  Motorola was attempting to be diversified yet became overwhelmed and had to retrench and spin off some of its business.  So it is fraught with a high degree of difficulty.

The product development spectrum

Since product development is a major component of growth in the Ansoff matrix, I want to briefly cover the product development spectrum.  Depending on the type of product development undertaken, the risks can be relatively small or very large.  Companies need to develop a product development strategy reflecting their growth plans and include how to manage the risk of development. 

Several questions must be asked.  Does the company have the right resources and competencies?  What is the amount of time the company is willing to invest in developing new products?   Can the company protect its product through new Intellectual Property or by otherwise developing a “moat” surrounding the product?  Or is there some other strategic control point that can be developed by the company that enables a new product to be successful.  How much risk is the company willing to take in developing a new product?

From lowest risk to highest risk, the spectrum of new products is as follows:

Type of Product	Risk Level	Organization Effort
Pricing/packaging change:	Low	Very low
Minor line extension (different shape or size of product e.g. WD 40 in larger spray can)	Low	Low to Mid
Major line extension (adding significant features to the product to make it different e.g. Panasonic Toughbook or GE Tuff Bulb. Hyundai marketing the Equus as a high end competitor to Mercedes and BMW.)	Low- Mid	Mid
New to Company (adapting a product in the market or copying a competitive product, e.g. Kroger developing Cola K to mimic Coke.)	Mid- High	Mid-High
New to the World (a new technology, new IP, new process like the iWatch or iPhone when it first was commercialized.)	High- Very High	Very High

The rewards for different product development activities will vary with the ones toward the bottom of the table normally providing greater returns and a potential position of dominance in the market.  But clearly there is a higher risk to the company, especially in the area of product development costs and R&D.

Managing the growth path

This blog shares a few ways to grow a company’s business.  There is, of course, organic growth using one’s own resources as well as growing via partnerships, alliances, joint ventures or other business combinations.    The right answer depends on the analysis of both internal and external factors and the risk – technological, regulatory, business, or financial- that the company wants to endure.

Depending on the size and complexity of the company it may be pursuing several of these strategies at the same time. As part of the planning process it is helpful to plot each growth strategy against the Product Market Matrix and assess the level of risk being undertaken. We worked with a company that, upon mapping its growth strategies, realized it was taking on too much risk and slowed down its efforts to enter a new market with a new product.

As companies seek growth, they need to keep in mind the following key issues.   First, what are their new routes to revenue?  Where do they want to play on the product-market matrix and do they have the right skills, competencies, resources, and culture to be successful?  Second, as companies grow their business through these new routes to revenues, who are their ideal targets?  How will they identify them?  How will they market and sell to them?  Third, what are the financial and market metrics the companies will use to gauge success?  Will those metrics be incorporated into operations reviews and a balanced scorecard?  Fourth, how will the company determine the best growth path?  Is there consensus on how to score opportunities?  (In a future blog I will present a method called the Analytical Hierarchical Process to score disparate opportunities.)  Finally, how will the company manage risk and impact?   Brian Newton has written a couple of blogs on this topic and can provide some thoughts and tools to use.

Regardless of which direction a company takes to increase their growth vectors, metrics for success and a continual review of progress need to be implemented.  This should be accomplished through operations and strategic reviews, and incorporated into a dashboard for review and action. We suggest that companies implement a test of their strategies and tactics in order to gain feedback from customers and suppliers prior to releasing a final product.   The readers of this blog may be able to suggest other ways to manage the risk of growth (or the risk of non-growth if companies perceive they just want to manage cost efficiencies.) 

We, at C-Level Partners, would like to continue this dialog and welcome any thoughts you might have.  Feel free to contact David Friedman at dfriedman@clevelpartners.net or via phone at 949 439-4503 for a confidential discussion on how to develop new vectors for growth.  After all, you can’t grow without a plan and you can't shrink your company into greatness.