If you're struggling with scaling your company--or finding new areas of profitable growth--it may be some comfort to know you're not alone.
Since 1983, the global strategy consulting firm L.E.K., a 1,000-employee company based in London, has helped large organizations find new growth opportunities. And time and again, they've seen organizations make the same mistakes, when looking for those opportunities.
They botch mergers and acquisitions. They search frantically for "blue oceans" of uncontested market space. What they should be doing, instead, is analyzing their core business for as-yet-untapped growth opportunities, write L.E.K.'s Alan Lewis and Dan McKone in their new book, Edge Strategy: A Mindset for Profitable Growth. The book has received ringing endorsements from prominent executives at JetBlue, Disney, Hertz, and PayPal.
The authors define "edge strategy" as an approach in which you look for new profit sources on the edge of your core business--through the sale of ancillary goods and services which already satisfy customers. It sounds like common sense. Yet according to L.E.K.'s research, fewer than 10 percent of companies make a disciplined effort to probe at the edges of their core for growth opportunities.
Why so few? For one thing, companies are almost too relentlessly focused on the core to probe around the edges. "It's very easy for that effort to crowd out a lot of other discoveries, because you can spend every waking hour on the core alone," says McKone. In addition to this inclination to stick too closely to the core, he adds, leaders challenged by growth sometimes try too hard to swing for the fences--searching in vain for the blue ocean or miracle acquisition.
"It's not that companies aren't creative or don't have talented people," adds Lewis. "But it's only a small set of leaders who repeatedly and consistently take ideas from the core of the business and create new revenue out of them." In the final chapter of their book, Lewis and McKone offer a 10-step guide to finding the edge opportunities for growth in your own business. Here are the first five steps:
1. Understand your customers. You might think you know your customers inside and out, and by every form of segmentation under the sun. But time and again, the authors say, they see leaders blinded by their own customer segments. "Even if well-thought-out, descriptive, and perfectly geared toward the needs of the marketing communication group, this segmentation is unlikely to tell them much about how customers would respond to edge products," they write.
The point is, your current segments are based on the customers whose needs you're already meeting. You need to rethink your segments around your customers' unmet needs--the needs you'd be uniquely positioned to meet, once you innovate properly around your core assets.
2. Slice and dice your offerings in creative, profitable, customer-centric ways. Sometimes, the key to unlocking new opportunities for profit doesn't require changing what you offer, per se. It requires changing how you charge for it. For example, a manufacturer of industrial etching tools doesn't offer the same products-plus-services combination to all its customers. Global giants get 24-7 phone support and a dedicated account manager. Smaller companies buy through distributors and get their support through the web and a 9-to-5 hotline.
The lesson here is a simple reminder to ask yourself what aspect of your business your customer is really paying for. Can you slice and dice an existing offering--the authors call this "fractionating"--into several offerings, at different tiers or service levels, for the sake of greater profitability? If so, you've come up with a potentially successful edge strategy.
3. Map the customer journey. John Mackey, founder and co-CEO of Whole Foods, has famously said: "We're more than just a grocery store; we're a restaurant and a premier brand." Today, that sounds like a proud founder stating the obvious. In reality, it was an intentional strategy by which the company aimed to accommodate the various "missions" of its customers. Some customers just wanted to buy ingredients. Others wanted something partially prepared to take home and finish. Still others wanted food already cooked.
Whole Foods was the first major supermarket to find new sources of profit around the edges of its core business by addressing all of its customer missions. It had the assets: stores, foot traffic, supply chains. All it had to do was invest in prep kitchens--and build out some extra space in the stores for diners. But that, note the authors, "only required marginal changes to the labor model." And it all began because Whole Foods put some thought into the journeys of its customers--and the various missions they were on whenever they went to the store.
4. Assess your foundational assets. As laborious as it may sound, the first thing you need to do is write down an inventory of all your assets. Not just the hard stuff (equipment, buildings), but the soft stuff (your culture, your institutional knowledge) and the relationships (access to suppliers, distributors, capital). With your list of assets at the ready, ask yourself three questions, in search of your edge strategies:
- What precisely is the value of this asset to my current customers?
- Is the use of this asset uniquely aligned to meeting these needs?
- How could the asset be employed to support my customer beyond the current purpose?
Once you've answered these baseline questions, you can dive deeper: Ask yourself:
- Does your production process create by-products that you are not fully monetizing?
- Would any companies, other than a competitor, value any aspect of your business?
- If so, can you provide them access without affecting your core business?
For this deeper dive, don't hesitate to bring in trusted outsiders or industry experts for a third-party perspective. They'll provide a less biased opinion on the value (and potential) of your company's untapped assets.
5. Prioritize your edge opportunities. If you've taken the first four steps, you'll now have a list of promising opportunities. Which one(s) do you pursue first? The authors suggest evaluating each opportunity by measurable criteria: profit potential, feasibility of implementation, degree of risk, time to delivery.
What's more, you don't have to choose just one opportunity. Since all of the opportunities you uncover will be at the edges of your business, you should be able to launch them simultaneously, even comparing them for a few months based on their returns--and how those returns compare to the money and leadership bandwidth you're spending on them.