There’s a lot of pressure on companies to deliver growth, particularly if they are public. Yet, in many companies, we have seen recipes for organic growth that rely too heavily on optimism and too little on facts and reality. If you have ever been heavy handed with a strong spice in the kitchen, you know that some flavors can overpower other ingredients and ultimately result in outcomes that fail to deliver on the 4-star reviews promised in the recipe.
Companies can also overweight certain factors when establishing growth goals. How? The CEO asks the SVP Sales to project next year’s revenue. That’s a fair question. It’s what happens next that determines the quality of the growth recipe. If the sales leader looks at this year’s numbers and, out of optimism, believes that we can grow “at least the same rate as last year or this year” or “close to or above what the Street expects” or we “can blow the doors away” in the absence of objective data and analysis, it’s time to worry about your next meal.
Pursuing a successful growth recipe needs to be driven or at least heavily supported by the CEO. When the CEO takes ownership for instilling a data-driven growth mindset, traditional problems such as the question of “who (which function) owns the data?” can quickly be addressed. Developing a data governance and decision-making process can help ensure that the right conversations occur around how to unlock growth.
Companies that accurately project and then deliver on their growth consistently involve the appropriate cross-functional leaders to establish the plan. Sales, Marketing, Innovation, Manufacturing and Supply Chain, supported by Finance, bring their capabilities and perspectives to the table. A cross-functional team that truly challenges each other to hammer out the plan has a far greater chance of delivering something they can commit to.
While getting the right people involved may seem obvious, high growth companies excel at using additional data elements beyond historical revenue levels. In addition to revenue data they look at customer retention rates, growth rates and margins associated with their various products or solutions, as well as what the competition is doing. But importantly, they frequently create new ingredients to add to the mix.
Take the example of a global insurance brokerage seeking to drive organic growth. The old way of doing things was to set an organic growth target and allocate it sensibly to the producers (sales people) based on their respective lines of business and markets. That’s a good starting point. However, using customer segmentation to identify the potential “white space” coverage or risks that existing clients should be managing based on the buying behaviors and needs of their peers can create a new ingredient to help fine tune the growth plan.
For example, some brokers are now equipping producers with apps that use predictive analytics to analyze which customers carry suboptimal coverage compared with their peers or are at a size that cyber or other risks should be considered. Machine learning can also be used to predict likely buying patterns, revenue and margins. DLA Piper created new ingredients when they implemented machine learning to predict and act on insights about which clients are likely to shrink or grow. Applying this methodology to “at risk” clients resulted in $38m in new revenue a year. Special sauce for your growth recipe, anybody?
What other ingredients are companies missing when they take a traditional approach to establishing growth goals? My former colleague and good friend Eddie Yoon, author of Superconsumers, believes that, historically, most companies have focused on selling more of their products to as many customers as possible. Not a “wrong idea,” but is there more? What if you could pinpoint “Superconsumers” – those top 10% of category customers with the most passion and profit in the category – and learn why they spend 3-7 times more than the average consumer? The good news is you can identify these customers and, most importantly, find out exactly what they would be willing to pay more for, and sometimes how much. Superconsumers are also your best marketers, as they often act as the “pied piper” as others listen, and follow their lead.According to author Yoon, Superconsumers are “a simple idea that is much easier for cross-functional leaders to embrace. Many cross-functional leaders secretly feel that marketing is not fact-based enough or is too complicated and impractical.” Superconsumers is a simple, easy-to execute-idea that has been validated in big data across 100+ categories worth $400 billion in North America. Does this taste like a growth opportunity?
Finding the special sauce for your company will require practice, and this is key. And while most companies can glean considerable value from an imperfect “data lake,” many delay getting started until they have what is believed to be the perfect big data strategy and infrastructure in place. We recommend avoiding this trap.In our view, there is such a thing as “relevant data.” Relevant data is not the perfect data set, rather it’s the set of data needed to answer very focused questions, e.g., how many of our existing ERP mid-market customers are growing and likely to need an upgrade that can add significant value to their bottom line? The message to leaders: get started early. Getting a taste for a positive uplift in growth will result in further testing and improvement to the recipe.