Growth Strategy Done Well is Risk Management

I was re-reading Clayton Christensen’s “The Innovator’s Solution” the other day and a statistic he mentioned in Chapter 3 stuck with me:

“More than 60 percent of all new product development efforts are scuttled before they ever reach the market. Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market.”

If you do the math, that is 76% of all new product development (NPD) efforts fail to make it to market or become profitable. This data astounds me.

Companies waste a lot of resources and effort for no return.

This rate of failure should not be acceptable, regardless of the size of the company.

To navigate through an economic crisis caused by a global pandemic, and emerge stronger, not even a failure rate of 50% is acceptable.

So if a company wants to navigate the crisis and emerge stronger, what should they do? How can they minimize their failure rate?

They need to manage their risks properly with a strong and effective growth strategy.

Risk Management in Growth Strategy

As an executive at GE, one of the core pillars of the management philosophy they instilled in me was the concept of "risk management". Mitigate risk through your strategies and decisions, and through that “maximize the realization of opportunities” (Wikipedia definition of risk management).

From a risk management point of view the challenge with NPD is:

How do you maximize the percent of NPD efforts that make it to market?

How do you maximize the percent of products that make it to market that become profitable?

How do you maximize the profits of these products?

Translate this to a growth strategy lens, the challenge is:

How do you make sure you put the best growth opportunities in your growth strategy?

The opportunities that optimize the combination of market potential and best odds for success given the current situation.

How do you empower your organization to deliver the right product for the right market segments and personas?

Involve your product or service delivery team in the growth strategy process. Provide them with the context they need to truly understand the wants and needs of the ideal customers you are targeting, the context to deliver a solution that resonates with the customer.

How do you empower your marketing and sales organizations to maximize their ability to identify, qualify, and close the right customers?

Again, involve your marketing and sales team in the growth strategy process. Provide them the context they need to target and engage with your ideal customers, the context of true understanding of the ideal customer’s wants and needs, and your value proposition.

Do these three things well and you will increase the percent of opportunities that make it to market. You will increase the success rate of these opportunities in the market. And, you will maximize customer value and in turn, maximize your price and margins.

This approach works regardless of the growth strategy: Market Penetration, Market Development, Product Development, or Diversification (for more on these strategies read this article). In this article, I will focus on opportunities outside of Market Penetration. Opportunities where a more formal business planning process may be prudent.

Opportunity Management at The Front End of Innovation

Start with an opportunity management process to ensure you focus your innovation and growth efforts on the right opportunities.

Sun Tzu has a great quote which I find relevant to opportunity management:

“The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.”

Every organization needs to do the “calculations” as part of its growth strategy process to ensure they focus on the right opportunities.

These calculations must identify:

opportunities that optimize market potential and odds for success;

opportunities that align with the company’s strategic focus – market segments, solution areas, differentiation, and strategic goals; and

opportunities that create the most value for customers, the market, and the organization.

Do this through an outside-in/market-focused approach to growth strategy with a clearly transparent method for prioritization. This helps you decide which opportunities to focus on, which opportunities to bypass, and which opportunities and/or existing products is it time to sunset.

A Gated Approach to Growth Strategy

A gated approach to the front-end of growth strategy is critical. Your organization needs to be in the market to discover and build a pipeline of growth opportunities, opportunities where value could be delivered to the market.

Screen and prioritize the opportunities to determine which ones to move forward to fully understand and scope.

Truly understand market segmentation, attributes of your ideal customers, pain points, and the market’s appetite for a solution.

Validate solution concepts while building a business case.

Gain insight from the market and prospective customers as to how your solution concept and approach to value delivery aligns with their needs, wants, and expectations.

Phase-Gate Approach to the Front-End of Growth Strategy

These Gates/Screens become the application of risk management.

The Idea Screen at Gate 1 ensures that only the growth opportunities that best align with corporate strategy, and with the best potential, move forward. I recommend that companies focus on only two or three opportunities at a time. Only the opportunities that you can fully resource. Create and manage a ranked pipeline of all of the opportunities.

The Opportunity Screen at Gate 2 makes sure you truly understand the opportunity in the sense of market segmentation, attributes of your ideal customers, pain points, and potential value. Only move forward with those opportunities where the market has interest and is ready.

The Investment Screen at Gate 3 is where your final business case is made. Leverage your learnings through the validation of product concepts in the market. Understand the necessary investment and resource requirements to successfully deliver a solution. Only allocate resources to the opportunities that have the highest chance of success and profitability.

Through this front-end of the growth strategy process, focus your resources on the opportunities that have the best chance for success. These opportunities should maximize the return on investment individually and in aggregate.

This front-end of growth strategy is risk management. When you do it well you increase the success rate and profitability of your growth initiatives.

When you increase the success rate and profitability of your growth initiatives, you give your company its best chance to navigate this economic crisis and emerge stronger.

Future articles will focus on the second and third challenges mentioned above. How to deliver the right product to the right market segments, and customers, and how to maximize marketing and sales abilities to identify, qualify, and close the right customers

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