Driving consistent, profitable revenue growth is one of the most persistent challenges that business and marketing leaders face. The key word in that sentence is "consistent." Many companies can produce substantial revenue growth sporadically or over a short period of time. But it's exceptionally difficult to consistently generate above-average growth over the long term.
In my last post, I wrote that business and marketing leaders must perform two distinct but related tasks to maximize revenue growth:
- They must identify what growth opportunities are (or can be) available to them and determine which of those growth opportunities are most attractive.
- They must find the right balance between short-term and long-term growth opportunities.
In this post, I'll focus on how business and marketing leaders can identify growth opportunities. I'll cover balancing short-term and long-term opportunities in my next post.
Structural Sources of Growth
The first step in identifying potential growth opportunities is to understand the dynamics of revenue growth - how it happens or, more accurately, where it originates. There are, in fact, several distinct sources of growth. These structural sources of growth are not dependent on how a company is organized or the types of products or services it sells. Instead, they are based on the business and marketing strategies that a company uses to tap into each source.
This topic has been discussed in management and marketing literature for a long time. In a 1957 article for the Harvard Business Review, Igor Ansoff identified four structural sources of growth and four related types of growth strategies:
- Sales of existing products in existing markets (market penetration strategy)
- Sales of existing products in new markets (market development strategy)
- Sales of new products in existing markets (product development strategy)
- Sales of new products in new markets (diversification strategy)
In a 2004 article in the Harvard Business Review, Michael Treacy and Jim Sims identified five structural sources of growth:
- Continuing sales to existing customers (base retention)
- Sales won from the competition (market share gain)
- New sales in an expanding market (market positioning)
- Sales from expanding into related markets (adjacent market expansion)
- Sales from expanding into new, unrelated lines of business (diversification)
I've used both of these models when working with clients to frame our discussions about how to grow. But over the years, I've expanded on these models to create a more detailed framework of the alternative ways to generate growth. The current version of my framework is shown in the diagram at the top of this post.
This framework is a good tool for stimulating your thinking about how to grow your business and for identifying the growth opportunities that are (or can be) available to your business. When using this framework, it's important to keep several things in mind.
First, the good news is that these structural sources of growth are always present, at least to some degree. Their existence isn't dependent on the market conditions a company is facing at a particular moment in time. However, the volume of revenue that a company can obtain from each source is greatly influenced by the market and competitive environment. So the framework identifies potential sources of revenue growth, but it doesn't tell you about the relative attractiveness of those sources. To perform that evaluation, you'll need to use traditional market and competitive analysis tools and techniques.
Second, no single source of growth is likely to provide all the revenue you need to reach your growth objective.
And third, each source of growth has distinctive attributes and dynamics. So you'll need a specific strategy and game plan for each source of growth you choose to pursue.
In my next post, I'll discuss the importance of balancing short-term and long-term growth opportunities.