A short list of high-value opportunities will keep you focused on what really matters.
In the pursuit of growth and value, the best management teams try to focus on the few opportunities that will drive the most value in the business. Once your team has aligned on the facts surrounding your business (part of our 4-step process for getting on the same page), you can then begin to identify the handful (usually 3-5) of growth opportunities that will create a disproportionate amount of value.
Here are three steps to get you there:
1. Review the facts to identify the key business insight
If you’ve built a robust fact base, you’ve probably already made some important observations that will lead to key insights, such as:
The markets or customer segments that are largest and most profitable
The customers or geographic regions (or other segments) within the business that drive the bulk of revenue and profitability
The key drivers, or strategic rationale, that cause specific customer segments to pay more or that cost you less to serve
The competitive advantages that allow your business to offer something distinctive to customers or to serve them more profitably
2. Brainstorm new growth opportunities
Once you have a set of key insights, you can begin to brainstorm about ways that the business can turn these insights into growth. For example, you might consider extending a competitive strength into an under-utilized market or a new customer segment. You might look at fixing or improving an underperforming aspect of your business to turn around an unprofitable product line. Or you might look to invest in a new capability or strategic asset that will enable you to sell more to your best customers.
Think of each of these opportunities in terms of what you have to invest in terms of capital, additional operating cost, or resource investment to create the growth. What is the cost and benefit of this investment? Most businesses find that putting opportunities in this context ensures that they link actions–e.g., marketing spend, sales force investment or acquisitions–with the profitable growth that will be created.
3. Create a short list of the top opportunities
Once you’ve developed this longer list of opportunities, you’ll need to profile and quantify each opportunity in terms of growth potential (e.g., over 3 years), the investment required and the relative likelihood of success. As we’ve discussed in the past, this isn’t a precision exercise. A rough quantification is enough to give the team a sense of which opportunities are more valuable than others. A detailed NPV (net present value) calculation is not always necessary but may be useful to categorize opportunities in terms of size and risk.
There are always a few opportunities that rise to the top–these become the management agenda. Think about it this way: If your business is required to double revenues in four years, which 3-5 things must you absolutely achieve to get there? When your management team shows that it’s laser-focused on these core pieces, the rest of the organization typically falls in line. Simplicity and focus around a few critical growth opportunities will position the business well for achieving its growth ambitions.
Have you developed a management agenda? Share your questions or comments below, or write us at firstname.lastname@example.org.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark