Is your company enjoying the economic boom the economy is experiencing? 2021 has been a good year for the market with major stock markets up 15-18% year-to-date. This momentum has resulted in companies making bold moves to capture the opportunity. Those who successfully execute a growth strategy will increase enterprise value and be rewarded. Is your company executing a revenue growth strategy, or are you falling behind the competition?
From a strategic perspective, short- and long-term, a strong revenue growth strategy provides clarity on topline revenue growth projections. Companies who take this approach understand the “color of money” and how the proper revenue mix can increase enterprise value. Their revenue growth strategy provides certainty on which growth levers matter and directs commercial functions’ allocation of time, money, and resources.
For high-performing companies, the revenue growth strategy provides a roadmap articulating how a company’s revenue contribution will drive shareholder value and/or return on equity and aligns the Board, investors, and commercial leadership. There are four components to a revenue growth strategy:
- Growth Levers: How an organization will combine organic and/or inorganic sources of growth to achieve its targets
- Revenue Model: Which of the 13 different revenue models a company deploys to make money (e.g., subscription, licensing, fee-for-service)
- Go-to-Market Model: How a company employs direct, indirect and/or eCommerce resources to cover its TAM optimally and make it easy for its customers to buy
- Customer Experience: How an organization aligns its resources and commercial functions to deliver a consistent, high-quality, end-to-end customer journey
Across organic and inorganic growth levers, there are seven different considerations for companies to pursue, with leading companies prioritizing three to five big bets each year.
Historically, organic growth levers are more common; however, a new SBI CEO survey indicates that companies will pursue more aggressive inorganic revenue growth strategies in 2022, with inorganic growth estimates increasing from 23% in 2021 to 27% in 2022.
When seeking organic growth, focus on the following four areas:
- Market Penetration: Win a higher share of opportunity in existing and new markets. This requires companies to displace the competition in a saturated market, capture more share in emerging or greenfield markets, or enter new geographies.
- Market Development: Reposition existing products for purpose in other markets. A common approach to market development involves positioning products in another segment of the market – for example, expanding from mid-market to large enterprise or from one industry vertical to another industry.
- Customer Wallet Share: Gain and retain share among existing customers. When companies deploy tactics like “back to the base” or “retention is the new growth” they focus on cross-sell and upsell to increase wallet share.
- New Product Introduction: Develop and launch new products. This lever is typically attached to another lever. For example, a cloud version of legacy on-prem solution for large enterprise could be targeted to expand into mid-market (i.e., market development) or a functionality investment could enable a healthcare product to compete in the insurance industry (i.e. market penetration).
In 2021, the inorganic strategy has accelerated – due in part to compressing time horizons to generate shareholder value, and also the economic conditions created by low cost of capital. Three types of inorganic growth levers are:
- Horizontal Integration: Acquisition of a related company (e.g., competitor) who provides the same product or service. In these instances, a company acquires similar solutions and merges them into a single company, generally referred to as a “roll-up” strategy. It is typically used when a company is seeking market penetration faster than can be delivered organically.
- Vertical Integration: Acquisition of a company that operates in the same production vertical. An example is when a company moves up or down within customer experience to own the entire customer value chain and build an end-to-end offering to the marketplace. This lever is often pulled when a company is expanding customer wallet share and increasing retention through product stickiness.
- Diversification: Broaden and expand the business portfolio, typically to minimize risk. Conglomerate companies (Amazon, GE, IBM) embrace massive diversification through buy and build strategies to diversify. While a less common inorganic lever, companies who pursue this lever de-risk their overall business and are better positioned to handle economic changes and evolving market dynamics.
Market-leading companies, the top 16%, combine organic and inorganic levers to grow faster than the industry and their competition (see our new annual planning report for more detail). The secret to success is a multi-year planning process that adapts to ever-changing business dynamics. To understand the maturity of your company’s revenue growth strategy and align with your fellow leaders, complete the SBI Growth Index. The diagnostic will provide insights into the current state and identify where to invest to prepare for organic and inorganic growth.
Once the RGMM is completed, you will receive immediate results. SBI’s team of experts will be available to discuss how to execute an improvement plan to position you for success in 2022 and beyond.
To learn more, contact me as you begin your 2022 annual planning session. SBI can provide best practices to aid your plan. Our team of experts are happy to spend time with your team virtually, onsite, or at SBI’s executive briefing center, The Studio, in Dallas, TX.