5 observations about growing companies

Reflecting on studies in the Antwerp Management School

Some people say that it doesn't matter what you study, it's more important what you learn. But when you study really useful things and manage to apply them to your work - that’s a perfect combo. That's exactly how I felt after finishing my studies at the Antwerp Management School. And that, in and of itself, could have been enough.

But in practice, some lessons remain a larger part of your day-to-day than others. Some are more applicable, more tangible, and more relatable. The more I thought about it, the more I wanted to write some of it down.

And now we're here.

I am not going to retell everything that I was lucky to learn from my professors. Instead, I want to share my own interpretation of what I heard. I didn't come up with these concepts, and can't claim ownership of them. However, I do find them useful, and I hope you will as well.

There is quite a lot of information that I want to share. But in this first article, let me start with 5 Observations on what growing companies do to achieve said growth. This is mostly based on a lecture by prof. Koen Vandenbempt .

Observation 1. They focus on superior customer value

It’s absolutely obvious that the growth of some companies and the stagnation of others is not just a random occurrence. There is something in the nature of these companies that makes them either move forward or stay where they are.

But what is that “something”? Have you ever tried to detect this on your own based on common real-life examples?

Non-growth companies are usually those that deliver mainly product offerings and focus only on the efficiency of their processes. As a result, they face low profitability and lack of growth.

Companies that can successfully grow, as a rule, offer services and invest their efforts into bringing value to their customers. Yes, they still take care of their efficiency and may choose different approaches to creating value. But everything they do is aimed at enhancing the benefits that their customers can leverage thanks to their offerings. And that’s one of the key components (and secrets) of their growth.

It’s worth noting that there can be two approaches to value creation. The first one is internally oriented. In this case, companies are focused mainly on increasing their efficiency.

The second approach is more about external orientation, value-based logic, and the implementation of new concepts and innovations.

In the end, you have to focus on either creating or capturing value to support continuous, sustainable growth.

Observation 2. Core growth is key

Traditionally, when we think about business growth, we start considering various “tactics” that can boost it like expansion to international markets, price increases, aggressive accounting practices, mergers and acquisitions, etc. In other words, in such a situation, you try to get fruits from what you have, without introducing any fundamental changes. Nevertheless, such efforts are not enough.?

But what will work in this case? What should be taken as the main key to the core growth? These are market-based assets, such as customer relations, networks, partnerships, strategic market intelligence, etc. Growth companies work not only with physical resources but also with their intangible assets.

And here it’s necessary not to forget about the importance of technology and design competencies. That’s all about the power of digitalization and delivering cost-efficient customer-centric solutions that represent real value.

This means that growth cannot be achieved synthetically, at least not on the long run. Yes, you can optimize a lot of your business, but if the core is weak it is only a matter of time until it will crack.

Observation 3. Commoditization happens, always

If you've never heard of commoditization, allow me to explain in simple terms. This process can be defined as the transformation of services or products into a standardized, marketable object that provides customers with a tangible value.

Very innovative products (or services) that still haven’t found their regular consumers can’t be considered a commodity. However, when they gain their clear use cases and people see what value such offers bring, that’s already a completely different story. Very often such commodities become nearly indistinguishable from similar offers except for their price. And that’s where businesses should think about enriching their products and services with unique value.

Let’s take plane tickets as an example. Today they are a commodity. People know what they are, how they can use them, and what value they will get when they buy these tickets. However, it was not always so. A few decades ago there were very few flights and tickets were absolutely inaccessible to the average person. But with time, the situation has changed. Today you have low-cost providers like Ryanair, premium jets that carry celebrities halfway across the world for a croissant, and small-scale private aviation with loads of options in-between. Flying has become a commodity.

And probably, something similar may happen to space travel. Today “space tickets” are not a commodity. They are too expensive, too impractical, and their value for a wider audience can be best defined as "controversial". But in the near future, who knows…

Can commoditization be a feature of growth companies? Definitely yes. Growth companies should be good at meeting customers’ needs and creating offers that will include segment-oriented value propositions.

You may say that commoditization (which is associated with a better market position for a company) leads to falling profitability. And, yes, it can be an alarming sign. Nevertheless, it is not exactly so. Falling profits can become an excellent incentive for businesses to look for ways to create new values for their customers in order to win a bigger market share. And that’s a continuous process that works like a perpetual motion machine.

The only way to fight it is to understand that it is inevitable, and the process is unending. To escape the squeeze you must find new value for your company and clients.

Observation 4. Hypercompetition is a fact of life

Competition fuels innovation. That’s only one side of the coin. Competition can also ensure intensified warfare for the customer. And today we can observe the competition across many points, including prices, branding, innovation, offer differentiation, and others. It exists in all the markets, including niche ones.

Growth companies are always ahead of the game. What is required to achieve this? To attract your customers’ attention and to do it faster and better than your competitors, you need to deeply understand the needs and expectations of your target audience. Getting customer insights, interpreting market trends faster than others, and being ready to break the rules by crossing industry boundaries and relying on unstandardized segmentation - these are just a couple of things that you should do.

In the conditions of hypercompetition, companies need to innovate fast, look for new opportunities, and deliver clear value to customers. Where can we observe the effect of hypercompetition today? Actually, across many sectors, including the smartphone market (where Apple, Samsung, Huawei, and others are fighting for the attention of their target audiences); online retail with such eCommerce giants as Amazon, Alibaba, and Walmart trying to win a bigger share; and video streaming with Amazon Prime, Disney+, and Netflix.

But let’s dive deeper into some real-life examples. I have two opposite cases that come to my mind.

In the 20th century, Kodak was practically the synonym of photography. The company’s tagline “Kodak moment” even entered the common vocabulary and was used to describe personal events that were worth being recorded for the future. It was the unrivaled leader in the film photography market. But what happened next? The first pitfall that it faced was the increasing competition from Fujifilm in the late 1990s. However, the main obstacle that it couldn’t overcome was the transition from film to digital photography.

Despite its attempts to move to this technology and even the presentation of its first self-contained digital camera, Kodak hesitated to push forward with innovation in this area. The main fears of the company were related to concerns that digital photography would cannibalize its film business. Nevertheless, this refusal to innovate became fatal for Kodak.

On the flip side, we can mention Apple. When it started its business journey, it wasn't leading the mobile phone market. However, the introduction of the iPhone in 2007 revolutionized mobile technology and significantly changed our understanding of what such devices could offer us in terms of functionality and interfaces.

While other market players were focused on introducing improvements to their existing technologies, Apple’s strategy was to redefine the entire user experience. Thanks to this bold approach, the company managed to win leadership not only in the smartphone market but also in the tech space at large.

So what can we see here? Due to its reluctance to innovate, Kodak had no other choice but to file for Chapter 11 bankruptcy protection in 2012, which further resulted in the company’s reorganization. Meanwhile, as of May 2024, with over $2.8 trillion, Apple is one of the largest companies by market cap all over the globe. It has one of the most recognizable brands in the world, and it continues to evolve. I strongly believe that this example perfectly illustrates the power of innovation in achieving market dominance.

Regardless of your current market position, competitive advantage, technical superiority, or any other factor you may feel makes you immune - competition will squeeze you out if you refuse to innovate.

Observation 5. Customer retention is a must

If you are building your own business, you've probably noticed that to attract customers, you need to promise something to them. But to retain you need not only to give it to them but also to adjust this to their needs. Customer retention is a rather complex process that requires continuous improvements and a deep understanding of people’s desires, interests, preferences, and demands.

Growing companies usually focus on expanding their market share with existing customers and that’s their power.

I am sure that you’ve heard about a sales funnel which is used to describe the journey that potential customers go through, from attracting clients to closing a sale. Nevertheless, growth companies shouldn’t consider the fact of a sale as a final goal. It’s much more important not just to sell as much as you can but to retain as many customers as possible. Otherwise, all your efforts won’t make any sense in the long run.?

As opposed to your traditional sales funnel the customer retention funnel is inversed. You start with your customers already there, and you need to get them to a point you want them to be. To do this you need a deep understanding of customer needs, introduce integral service offerings, and finally arrive to co-development with existing clients. This can create unique solutions and even services that can support your company growth and competitive advantage.

For growth companies it’s not enough just to push a customer to make a purchase. They view these two funnels as two integral components of one unified process of working with customers. And the final goal of their work is to build long-term relations with customers full of trust and mutual benefits.?

Conclusion

What was surprising to me is that continuous growth is not about being the best at what you do, or having the largest market share. It's about capturing value in an environment that tries to kill your company, and you should let it. The secret is that by the time commoditization or competition squeezes you out you should already have several more options for growth on their way.

And the best way to do it? Your customers. Create value for them on a permanent basis, be ready to change along the way, and you will be able to cultivate true innovation and count yourself among the ever illusive group of growth companies.

The bad news is that there already are growing companies in every industry, and somehow you need to compete with them. They are helmed by smart people who have been doing everything I described for years already. What to do with this competition?..

That's a story for the next article. Stay tuned!