Here is a fundamental truth of business: The growth rate of the market in which your product competes will eventually slow down or decline. That's because industries go through life cycles: birth, rapid growth, maturity, and decline. 

Whether your company keeps growing or declines along with its current industry depends on what you do. You can sustain its growth by investing in new market opportunities before the ones that drive your current growth slow down or decline. 

Brainstorming Growth Options

To decide which new market opportunity to invest in, start by brainstorming possible new growth opportunities from these four growth vectors:

  • Customers. Identify which customer groups -- for example consumers in the same income bracket or companies in the same industry -- currently buy from your company. Should you try to gain a bigger share of that customer group? Or should you target a different group of customers? If so, which one?
  • Products. Can you develop new products to sell to your current customers? Or should you acquire a company that already provides those products? If so, what products?
  • Geographies. Where do you currently sell your product? Can you win a larger share of that geographic market? Or should you aim at different geographies? If so, which ones?
  • Capabilities. Finally, what are your company's most effective business capabilities (such as new product development, sales, marketing, and purchasing)? Can you use these capabilities to enter new markets? If so, which capabilities will help you aim at new markets? If not, which new capabilities must you develop to tap new market opportunities?

For example, Netflix CEO Reed Hastings realized that the DVD-by-mail service -- which enabled consumers to order and take delivery of DVDs to their mailboxes for a monthly fee -- would not keep growing forever. To succeed in that business, Netflix excelled at buying DVDs at low prices, stocking its warehouses with the most popular titles, and partnering with the USPS, which delivered and picked up DVDs.

When the iPhone was launched in 2007, Hastings saw that eventually people would watch movies on their smartphones. Sadly for some Netflix workers, to succeed in online streaming, most of its DVD-by-mail capabilities would become irrelevant.

Hastings found that studios would charge prohibitively high prices to license movies and TV programs for Netflix's online streaming service. So Netflix developed the ability to create its own popular shows. After that, Netflix revenue took off. Of course, that success attracted rivals who are competing fiercely in online streaming. Netflix needs to reinvent itself again. 

Ranking Growth Options

These four dimensions can inspire leaders to imagine many possible options. However, companies must narrow down the list and pick the best one or two options.

I've developed a simple framework to do that -- an Option Ranking Table. Many of my students have enjoyed kudos from their bosses after using this framework in their jobs.

An Option Ranking Table evaluates possible options by collecting data on three factors:

  • Market attractiveness: The size of the market that each option will target in, say, millions of dollars, projected growth rate, and average profitability.
  • Competitive advantage: The company's current share of that market and an estimate of how much market share it might be able to control in, say, five years. To justify that estimate, do customer research to assess how well the company can perform relative to rivals on specific factors that drive the customer's purchase decision.
  • Net present value: Finally, estimate the investment required to implement each option, forecast its future cash flows over the next decade, and convert them into current dollars. Subtracting the investment from the present value of the future cash flows will reveal whether its net present value is positive.

There is one more step in the process. After comparing the options through analysis of all the data mentioned above, score each option from 5 (best) to 1 (worst) on each of the criteria and add up the scores for each option. The option with the highest score is the one you should choose. 

To be sure, there is a significant amount of guessing to this scoring process. But it works for many companies because collecting from credible sources the details I mentioned above cuts down on guesswork. 

If you want to keep your company growing, you owe it to your employees, customers, and investors to be as objective as you can. To pick the growth option with the greatest chance of working, use the Option Ranking Table.