In Michael Treacy’s bestselling book, Double Digit Growth, he identifies five ways that companies can grow:
- Retention of existing customers
- Market share gain
- Positioning in new markets
- Penetrating adjacent markets
- New lines of business
Let’s take a look at the third type of growth, market positioning, since it is the easiest way to grow.
Many of the largest companies often hire consultancies such as McKinsey or Bain to identify market opportunities of this sort. One potential consequence of hiring third party experts, is that often everyone (all the large companies that hire consultants) reaches the same conclusion about which markets will have high growth. This causes competition to heat up substantially even while markets are still nascent.
What this says to me is that even though a market might be growing at 20% per year, it’s still not a great place to invest if 15 competitors are about to jump in. There are two ways around this problem. First is to identify growth areas that no one else will find – and achieve first-mover advantage. Second is to find markets that will balloon so fast that even if 15 of your competitors enters with you, there is still opportunity for each of you to grow at 20% per year.
This second approach is what I refer to as finding growth explosions. Here are a few examples of growth explosions:
- In the 1980’s, Bloomberg quickly created a billion dollar company by providing real-time information and analytic tools to traders and others in the financial services industry
- Starbucks brought the barista to the U.S. market – where previously coffee had been a commodity or of interest to a very niche segment
- The recent phenomenon of social networks have allowed any number of companies (Facebook, Myspace, Wikipedia) to scale large businesses in nascent markets
Could these areas have been predicted in advance, or were the companies simply lucky to be at the right place at the right time?
Growth explosions happen fast. Zero to a billion in five years, flat. And if you’re not in the market by year two, you’re too late.
There’s an old joke in consulting: an analyst needs a dozen data points on a chart to identify a trend, an associate needs two data points to identify a trend, and a Vice President needs one data point to identify a trend.
A growth explosion needs to be detected within the first year, with only one “data point.”
Next, plan a point of entry so that when the go-forward decision is made, action will follow swiftly.
Finally, monitor the market to see if this is truly a growth explosion, or simply a temporary anomaly. Does the market/business make sense? Is it sustainable for the long term?