Despite general economic optimism, some of the best-run, mid-size B2B companies are finding it difficult to develop growth in areas critical to increased revenue and profitability. Companies that incorporate a comprehensive and rigorous platform for identifying and assessing opportunity beyond core activities, as either a one-time exercise or through integration into ongoing strategic thinking, find more opportunities for greater growth while assuming less risk.
Increasing top-line revenue and expanding profitability, in terms of both customers and product portfolios, are leading concerns for every mid-size B2B CEO. But with growth rates in middle market companies slowing for the first time in four quarters, business growth remains the second most important short-term and long-term internal challenge (behind staffing issues) for these organizations.
New growth opportunities begin to eclipse core capabilities and markets
Mid-size businesses understand the need to invest—with 67% willing to allocate resources to growth instead of holding cash. But with experts having squeezed every drop of efficiency out of current product portfolios and marketers having saturated the current customer base, executives are realizing that the cost-benefit ratio of incremental core growth is quickly eroding. This is why over two-thirds of B2B companies are now looking to beyond-core growth—new products or services, or expanding domestic markets—in meeting revenue objectives. In fact, beyond-core growth is so central to business strategy that two-in-five companies anticipate new capabilities and markets will account for a significantly greater portion of overall company revenue in the coming 12 months.
Successful Companies Incorporate Beyond-Core into Strategic Thinking
Generating, evaluating and validating opportunities outside of core capabilities and customers is no easy task for any organization. Nearly every process framework and talent resource a B2B company implements is exclusively designed to strengthen core assets. However, those that consistently incorporate beyond-core thinking can access significantly higher growth opportunities than those who do not.
An excellent example of beyond-core thinking exists in sharing-economy darling Uber. Originally launched as a marketplace where individuals could purchase idle time from licensed, private car services, commonly called “black cars,” Uber immediately began upsetting an over-regulated, unresponsive on-demand transportation industry. Uber originally focused on major cities with an existing supply of for-hire private transportation. Had they limited their thinking to these core capabilities and customers, regulators and established industry could have more easily suppressed their innovative service.
Uber looked beyond its core. Their opportunity to pivot to a new product and new customers came with UberX, a way to connect private drivers using their personal cars, instead of professionally licensed chauffeurs, with riders in cities around the world. By March 2015, there were more UberX drivers in New York City than licensed yellow cabs. More importantly, UberX drivers and riders gave this innovative company the popular support needed to stand up to politically-motivated regulators and a politically powerful industry.
Using the Pivot Model to Pursue Beyond-Core Growth
At Expliciti, we have developed a process model and talent resources designed to generate, evaluate and validate beyond-core growth opportunities for B2B clients in a variety of industries. Although small and large organizations can see value in the use of this approach, mid-size business, especially mid-size B2B companies, are uniquely suited to benefit from incorporating the pivot model into their strategic planning process.
Generating Beyond-Core Growth Opportunities
Teams tasked with identifying beyond-core opportunities must, by definition, be looking outside the four walls of the business. Disruptive shifts rarely originate within core activities. But rather than abandoning core capabilities and customers, the pivot model actually relies on a rigorous understanding of them in order to contextualize and evaluate potential growth.
In the pivot model, new opportunities are discovered by first establishing customer and product baselines. Who are the current customers? How is the current customer experience managed? How do products or services align with customer needs? In each area, knowledge is gathered from both internal and external sources, then validated against quantitative and qualitative research.
On top of these baselines, macro-trends in markets, technology and culture are mapped. How are competitors evolving within the market? How will current or future regulatory factors affect the business? How can data analytics affect product procurement or use? How might changing customer values and attitudes affect desirability? No company, even the most successful in the most conservative industry, is unaffected by these dynamic trends.
Evaluating Beyond-Core Growth Opportunities
In developing the internal (capability and customer) baselines and external (market, technology and culture) macro-trends, misalignments begin to surface. This is the real magic of the pivot process. Misalignments—opportunities we call pivots—begin to indicate areas of potential growth.
Every B2B company has finite resources for pursuing growth pivots. The risk of spreading them too thinly is as real as that of inaction. Equally important to identifying the pivots with beyond-core growth potential, a rigorous and systematic framework for evaluation is needed. The pivot process captures and catalogs these opportunities, mapping them into a framework that illustrates a comprehensive view of the business world beyond a company’s core. This gives decision makers intelligence in evaluating both the value potential and the pursuit costs that a pivot or path of pivots provides.
Once an effective “pivot map” incorporates the critical metrics needed to evaluate each opportunity, executives have, for the first time, a robust and comprehensive picture of the opportunity landscape within their industry and a way to make informed decisions about which opportunities to pursue next.
Validating Beyond-Core Growth Opportunities
In the third phase of the model, pivots or sets of pivots are validated in limited build-measure-learn loops. This creates a validated learning lab within mid-size B2B companies that allows them to access the advantages of a lean startup without widespread disruption of core activities. Focusing on a subset of capabilities and customers enables groups to iterate on changes in product capabilities and customer experience. Once proven, pivots can be implemented enterprise-wide, effectively incorporating beyond-core growth into an organizations core capabilities and customers.
Countering Confirmation Bias in Well-Run Companies
As B2B companies begin to look for beyond-core growth opportunities, it only seems obvious to start with internal innovation programs. These “skunkworks” initiatives are predicated on the assumption that no outside group could have the intimate product understanding, customer knowledge, day-to-day focus or passion for success that gives an internal group its inherent advantage. Those assumptions certainly have validity. But what is often ignored is the confirmation bias that exists when people with a strong incentive to substantiate existing belief structures selectively exaggerate or undervalue data and observations—even when this is not done intentionally.
In “Why Good Companies Go Bad,” Harvard Business Review author Donald Sull outlines two case studies where market-dominant companies are blind-sided by shifts in the competitive and cultural landscape. Shifts they should have seen coming, but didn’t. In this far too frequent situation, Sull observes that “when changes occur in the company’s markets, the formula that had brought success instead brings failure.”
Can Outside Teams Generate Real Results?
This may be the right time to engage an outside partner who will objectively assist in generating, identifying and validating new opportunities. Of course, most executives have a story or two about a consultant or agency that, eager to prove value, came in with their own set of biases and never connected findings or programs back to the revenue and profit they were originally tasked with generating.
A Third Approach
Traditional agencies and consultants each have a blind spot that prevents them from appropriately weighing important factors outside of their core functions—factors that still play a significant role in determining the real value of B2B growth opportunities. Advertising agencies tend to consider existing products as a set foundation upon which they explore avenues for manipulating customer behavior. While business consultants concentrate on methods of internal change to meet a static set of customer targets.
The ideal partner is a blend of both customer insight and business savvy. The potential for significant growth lies at the intersection of shifts in both capabilities and customers. Having an effective process model and talent resources to generate, evaluate and validate these pivots is imperative. The right growth partner will leverage an objective outside perspective as well as a diverse view of both internal baselines and external trends.
Looking Beyond Core Capabilities and Customers
Mid-size B2B companies, quickly exhausting the growth potential within core capabilities and customers, are looking to beyond-core sources for significant sustained and consistent growth. Beyond-core growth does not need to be accidental or risky. But unless companies can deploy a comprehensive strategic platform to generate and assess opportunities, finding the best direction to pivot beyond core competencies and customers can be a haphazard and costly exercise. CEOs and other executive leaders who see the greatest benefit from this approach task the right teams with generating the insight needed to make informed, strategic decisions about the right opportunities to pursue. Great management teams pivot towards growth.