Winning Profitable Growth from New Markets

 The ultimate objective of marketing is to drive revenue growth, and marketers understandably focus most of their efforts on increasing revenues from their company's current business.

Some companies have a vibrant core business that provides plenty of growth. However, sooner or later, most companies will likely see growth from their core business slow. When that happens, company leaders will probably start to think about some kind of business expansion.

I believe marketing leaders should play a prominent role in identifying business expansion options. They have (or should have) the knowledge and skills needed to evaluate the growth potential presented by expansion moves.

In fact, marketing leaders should always be scanning the environment to identify expansion moves that might be attractive. This is one of the behaviors that distinguishes a "chief marketing communications officer" from a true growth leader.

What Are Adjacent Market Expansions?

One attractive growth option for many companies is an adjacent market expansion, which can be defined as a move by a company into a separate market that is related to the company's core business. The diagram at the beginning of this post shows four common ways to move into an adjacent market.

• Sell existing products or services to new types of customers

• Introduce new types of products or services

• Open new selling channels

• Move into new geographic market areas

In the real world, an adjacent market expansion can span more than one of these four actions. For example, a company may simultaneously add new products or services and target new types of customers.

A successful adjacent market expansion can drive superior financial performance. Recent research by McKinsey & Company found that large manufacturing companies entering an adjacent market generated a median total shareholder return that was three percentage points higher than peer companies not making such a move.

Evaluating Adjacent Market Expansions

Adjacent market expansions can produce significant growth, but like all business expansions, they also carry substantial risks. Therefore, you should view adjacent market expansions as strategic moves that must be thoroughly evaluated. This evaluation requires you to answer two critical questions:

• Does the adjacent market offer significant potential for profitable growth?

• What are our odds of winning in that market?

To answer the first question, you'll need to perform market research to pin down three attributes of the adjacent market - its overall size, its growth rate, and the profitability of companies already operating in the market.

The second question is more complex because it requires you to answer several other questions. For example:

• Do the similarities between the adjacent market and our core business provide us a competitive advantage in the adjacent market?

• What products and/or services must we provide to have an offering that will be attractive to customers in the adjacent market?

• How strong are the primary competitors in the adjacent market, and how will they react to our entry?

• What new capabilities must we acquire or develop to compete effectively in the adjacent market?

All these questions are important, but none is more important than the first. By definition, an adjacent market expansion is a move by a company into a related business that seeks to leverage the company's competitive strengths in its core business. As the "distance from the core" increases, so does the risk associated with an adjacent market expansion.

Determining the "Distance from the Core"

"Distance from the core" refers to how similar a proposed adjacent market is to your company's core business. The less similar they are, the greater the distance from the core.

B2B markets can be described in terms of six basic characteristics.

• Customers - What kinds of businesses purchase the products and/or services the market offers?

• Products/Services - What products and/or services do the companies in the market provide to customers?

• Capabilities - What capabilities must companies possess to operate successfully in the market?

• Selling Channels - What channels do companies operating in the market use to market and sell their products and/or services?

• Geography - What is the geographic "footprint" of the market?

• Competitors - What companies sell in the market?

These six attributes define the boundaries of a market, and they also play a critical role in defining the core business of an individual company. Your company's core business consists of the particular combination of customers, products/services, capabilities, selling channels, and geographies that contribute the bulk of your company's revenues and profits.

Measuring the distance from the core is a three-step process. The first step is to describe your company's core business in terms of the six attributes just discussed. Step 2 is to describe the proposed adjacent market in terms of the same six attributes.

The final step is to rate the strength of the similarities between your core business and the potential adjacent market on an attribute-by-attribute basis. When I work with clients on this kind of project, I have them rate the similarity of each pair of attributes using a 5-point scale, with 1 meaning almost identical, and 5 meaning very dissimilar.

After you rate each pair of attributes, you add the individual ratings to create a single measure of the overall "distance" between your core business and the adjacent market. Your total score will range from 6, meaning that your core business and the adjacent market are nearly identical, to 30, indicating that all the characteristics of your core business and the adjacent market are very different.

This rating process isn't completely objective, but it does require business leaders to make a conscious judgment about the similarity or lack of similarity between their core business and a prospective adjacent market. That similarity is important, because the greater the similarity, the more likely it is that the competitive strengths you have in your core business will "translate" to the adjacent market.

[Research Round-Up] Salesforce Survey Examines the State of Marketing

Source:  Salesforce

(This month's Research Round-Up focuses exclusively on the latest edition of the State of Marketing survey by Salesforce. The new Salesforce survey is a large global survey of B2B and B2C marketers, so it provides a broad perspective on the priorities, challenges, and attitudes of the marketing community.)

Salesforce recently published the findings of its latest State of Marketing survey. The latest survey is the ninth edition of the Salesforce research. It was in the field February 5 - March 12, 2024.

Survey Demographics

• The survey produced 4,850 responses from marketing decision-makers
• Respondents were drawn from 30 countries across North America, Latin America, Asia-Pacific, and Europe
• Respondents worked in 18 industry verticals
• 50% of the respondents worked in B2C companies, and 50% worked in B2B or B2B2C companies
• 39% of the respondents were VP-level or above
• 50% of the respondents were with mid-market companies (101 - 3,500 employees), 30% were with small and medium-sized companies (1 - 100 employees), and 20% were with large enterprises (over 3,500 employees)

Marketing Performance Levels

Salesforce classified survey respondents based on their self-reported level of marketing performance and used these categories to report some survey findings. The three categories used in the survey report are:

• High performers - Respondents who were completely satisfied with the overall outcomes of their marketing investments.

• Moderate performers - Respondents who were highly satisfied with the overall outcomes of their marketing investments.

• Underperformers - Respondents who were moderately or less satisfied with the overall outcomes of their marketing investments.

Marketers' Top Priorities and Challenges

Salesforce asked survey participants to identify their top priorities and biggest challenges, and the following table shows how respondents answered those questions.

It shouldn't be surprising that survey respondents identified "implementing or leveraging AI" as their top priority and their biggest challenge. Artificial intelligence, particularly generative AI, has been the hottest topic in marketing since OpenAI released ChatGPT in late 2022.

It's also notable, but not surprising, that the top priorities and the biggest challenges are nearly identical. These survey respondents clearly believe that for marketing to have the greatest possible impact on the business, they must successfully address their biggest challenges.

The State of AI

The survey revealed that the implementation of AI is still in its early stages. Thirty-two percent of all respondents said they have fully implemented AI in their operations.

Salesforce did find that high performers were 2.5x more likely than underperformers to have fully implemented AI. Forty-two percent of high performers said they have fully implemented AI, compared to only 17% of underperformers.

The survey also asked participants how they were using or planned to use AI, and the top five use cases identified by respondents were:

1. Automating customer interactions
2. Generating content
3. Analyzing performance
4. Automating data integration
5. Driving best offers in real time

While marketers are excited about the potential benefits of AI, they also have concerns about embracing the technology, particularly generative AI. The top five concerns about generative AI identified by survey respondents were:

1. Data exposure or leakage
2. Lack of necessary data
3. Lack of strategy or use cases
4. Inaccurate outputs
5. Copyright or intellectual property concerns

The State of  Marketing survey also provides valuable data on several other topics, including:

• The strategies and sources marketers are using to collect customer data
• Where and how much marketers are using personalization in their marketing programs
• How marketers are measuring marketing performance

The Salesforce State of Marketing survey is one of the research studies I pay attention to every year. I wish Salesforce provided a breakdown of responses between B2B vs. B2C companies and by country (or at least region), but even without this more granular reporting, the survey still provides important insights.

[Book Review] A Visionary System for Managing Revenue Growth

Source:  John Willey & Sons, Inc.

"Revenue operations" has been a notable topic of conversation in the B2B world for the past few years.

Interest in revenue operations has been increasing because astute business leaders have recognized that revenue growth results from a combination of several interdependent activities that should be treated as components of a larger revenue generation process. The objective of revenue operations is to manage the entire revenue generation process holistically.

There is a fair amount of literature about some aspects of revenue operations. For example, much has been written about the growing number of companies that have created a C-level "chief revenue officer" position to manage most or all of the company's revenue-generating functions.

Until recently, however, most of the published literature has not addressed revenue operations in a comprehensive way. A book by Stephen G. Diorio and Chris K. Hummel attempts to fill this gap. Revenue Operations:  A New Way to Align Sales & Marketing, Monetize Data, and Ignite Growth (John Wiley & Sons, Inc., 2022) provides a detailed discussion of revenue operations as a holistic growth management system.

Stephen Diorio and Chris Hummel are well qualified to write about revenue operations. Diorio is the Executive Vice President, Growth Strategy at Green Thread, a B2B practice focused on helping companies achieve more sustainable, scalable, and profitable revenue growth. He is also a Senior Fellow at the Marketing Accountability Standards Board and the Wharton Customer Analytics Initiative.

Chris Hummel is the President of Green Thread and has been a two-time Fortune 500 CMO. He has also led sales, marketing, product, and digital teams at world-class companies like SAP and Oracle.

What's In the Book

Revenue Operations is structured in four parts. Diorio and Hummel use the Introduction and Part I (Chapters 1 and 2) to lay out the business case for a new approach to managing revenue growth, and they pull no punches when describing the current approach.

". . . organizations too often treat growth like a disconnected, functionally driven art form rather than the interdisciplinary science it should be. The core revenue-facing functions - Marketing, Sales, and Service - all operate in silos. Managers optimize the parts . . . while coordination between the three is episodic, temporary, and heavily influenced by the personalities involved . . . Even when this approach works, managers generally celebrate only the fact that growth happened,, since they usually cannot explain why."

The authors argue that companies need a new system for managing the revenue cycle, and they call that system "Revenue Operations."

According to Diorio and Hummel, Revenue Operations has two components - a management system that aligns the people in a company's revenue teams, and an operating system composed of technology, processes, and data.

In Part II of the book (Chapters 3-5), the authors identify and discuss the six "pillars" of the Revenue Operations management system. Chapter 5 discusses the three most common leadership models used for Revenue Operations.

• The Tsar - The company consolidates decision-making and operational control of all revenue-related functions under one leader.

• The Federation - The company creates rules of engagement among existing functional leaders to manage revenue growth activities.

• The Chief of Staff - The company merges marketing operations, sales operations, and similar roles into one unit that supports the marketing, sales, and service functions. This new unit is led by one Revenue Operations executive.

Part III of Revenue Operations (Chapters 6-10) discusses the nine building blocks of the operating system for Revenue Operations. According to Diorio and Hummel, this operating system combines technology, data, processes, and revenue teams to enable a company to generate consistent, predictable, and scalable growth.

In Part IV of the book (Chapters 11-14), the authors discuss the steps business leaders can take to begin implementing Revenue Operations, and they provide a framework for measuring the financial value of the Revenue Operations commercial model.

My Take

Revenue Operations is an ambitious book that addresses an important, broad, and complex topic. Diorio and Hummel deserve a great deal of credit for providing a comprehensive and systematic discussion of the concept of revenue operations.

Revenue Operations is a challenging book to read. It reads like a college textbook on an advanced academic subject. Most of the difficulty is due to the subject matter, although the authors tend to become repetitive in several places.

Diorio and Hummel acknowledge that their Revenue Operations "model" is nothing short of an entirely new system for managing revenue growth. Therefore, implementing this model will require business leaders to make several far-reaching organizational changes. And that will be challenging.

It's also clear that the Revenue Operations model envisioned by Diorio and Hummel depends heavily on several sophisticated technologies. For example, the authors' description of the Revenue Operations "operating system" in Part III of the book is filled with references to "artificial emotional intelligence," "AI-enabled service automation," "AI-enabled contactless selling innovations," "AI-driven simulation-based tools," "algorithmic segmentation, targeting, and coverage modeling," and many other similar capabilities.

This heavy reliance on sophisticated technologies will probably limit the number of companies that can fully implement the authors' Revenue Operations model.

Even with these caveats, Revenue Operations is an important book that business leaders responsible for revenue growth should read. Diorio and Hummel have provided a visionary approach to managing revenue growth, and that in itself has significant value.

Beware of the McNamara Fallacy When Creating Your Marketing Strategy

Most of you have probably heard the story about the inebriated man who had lost his house keys and is searching for them under a street light. A police officer comes over and asks what he's doing.

"I'm looking for my keys," the man says. He points to a spot about 20 feet away and says, "I lost them over there."

The police officer looks puzzled and asks, "Then why are you looking for them all the way over here?"

The man replies, "Because the light is so much better over here."

For the past several years, marketers have faced relentless pressure to prove the value of their activities and programs. In response to these pressures, they are placing greater emphasis on measuring the performance of marketing tactics, channels, and programs, and many marketing leaders are allocating budgets and basing marketing mix decisions on performance data.

Overall, this has been a good thing. It's hard to argue that marketers shouldn't measure the performance of their activities and use performance metrics to guide marketing investments. Common sense says this should lead to better decisions.

But, marketing performance measurement can also have a dark side. The problem arises when the ability to easily measure a marketing tactic becomes the primary criterion for determining its value.

When taken to the extreme, this way of thinking can lead marketers to choose marketing tactics based primarily on how easy they are to measure. Not that long ago, marketers accepted as fact that they couldn't tell which half of their budget was wasted. Today, some marketers seem to believe if it can't be easily measured, it isn't worth doing.

I can understand why marketers are tempted to think this way. In an environment where proving the value of your work can mean the difference between keeping or losing your job, marketing methods that are easily measured can appear to be the safe choice.

But making measurability the main criterion for determining the value of a marketing tactic or channel is short-sighted and ultimately dangerous. It's a classic example of the McNamara Fallacy.

The McNamara Fallacy was named for Robert McNamara, the U.S. Secretary of Defense during the Vietnam War. McNamara believed that the success of the U.S. war effort in Vietnam could be measured using quantitative metrics, particularly body counts. To put it bluntly, if you consistently inflict more casualties on your enemy than your forces sustain, you will win the war.

The term McNamara Fallacy was coined by the noted social scientist Daniel Yankelovich, who described it this way:

"But when the McNamara discipline is applied too literally, the first step is to measure whatever can be easily measured. The second step is to disregard that which can't be easily measured or given a quantitative value. The third step is to presume that what can't be measured easily really isn't important. The fourth step is to say that what can't be easily measured really doesn't exist. This is suicide." -Daniel Yankelovich, "Interpreting the New Life Styles," Sales Management The Marketing Magazine (November 15, 1971).

Ironically, some of our efforts to improve marketing performance measurement can also exacerbate its dark side. Most marketers have become focused on measuring the impact of marketing activities on revenue. So, we construct multitouch attribution models to assign revenue dollars to specific marketing activities.

Measuring the performance of marketing activities that produce quick results is relatively easy. It's much harder to measure the impact of marketing activities that may not bear fruit for months or even years.

For example, the content that you create and publish this year can produce a positive impression in the mind of a potential buyer, and that impression may influence a buying process that occurs months or years in the future. Likewise, some of the sales you close this year may have been influenced by marketing programs you ran last year.

Marketing activities with long gestation periods, and those whose impacts are several steps removed from the buying decision can be difficult to measure. But, many of those activities are vitally important for marketing success. Unfortunately, our fixation on measurability can lead us to underinvest in these critical marketing activities.

The lesson for marketers is clear:  Don't gauge the value of a marketing tactic solely by how easy it is to measure.

As Albert Einstein purportedly wrote on his blackboard:  "Not everything that counts can be counted, and not everything that can be counted counts."

 Illustration courtesy of Shawn Carpenter via Flickr (CC).