Last year, McKinsey published their ten growth rules based on empirical research into what it takes to generate value-creating growth today. Three of these rules struck a particular chord with us for their essential role in differentiating your business in the marketplace and putting competitive advantage first.
As we begin a year in which individuals, companies and national economies grapple with inflation and recession, those with an appetite to thrive know that the key is robust and consistent revenue growth. So, what's the number one rule of business growth?
The Climate for business growth
It's worth highlighting that growth is far from a given in business. It's the goal; it's a vital characteristic of a healthy company, but, as McKinsey points out, in the 15 years since the global financial crisis, it's been hard to come by. They note, "corporate growth slowed dramatically after the global financial crisis, with the world's largest companies growing at half the rate they did before 2008."
In that time, much has changed. The way we work has evolved exponentially, with the digital boom only gaining more excellent traction, particularly having been supercharged in the pandemic. The rise of Millennials and GenZ and their relationship with brands, marketing, consumption and social values continue to change the drivers behind purchasing decisions and brand loyalty.
Climate change, social responsibility, transparency, and the mechanics of how we live (subscriptions over one-off purchases) all contribute to a changing mindset and approach to business growth.
For example, the Green Alliance recently issued their report, Climate for growth: productivity, net zero and the cost of living. It details how climate change policies can drive "forward the net zero carbon economy can help to reverse the UK's flagging productivity, contribute to economic growth and provide skilled jobs."
McKinsey sums this up by highlighting that "business leaders need to follow a holistic growth blueprint consisting of three core elements: a bold aspiration and accompanying mindset, the right enablers embedded in the organisation, and clear pathways in the form of a coherent set of growth initiatives."
The common characteristics of business growth
Keeping in mind the challenging Climate of the last 15 years and knowing that the requirements for business growth and consumer demand have evolved and continue to do so, it is interesting to look at the growth rate across leading organisations. McKinsey records that "a typical company grew at a measly 2.8% per year during the ten years preceding COVID-19, and only one in eight recorded growth rates of more than 10% per year."
The implication is that most organisations might be coasting, but they still need to identify or action the core requirements for growth in this new world. Perhaps there is a malaise and even a fear of changing a mould that, at the very least, has allowed them to stand still. Perhaps there is a lack of understanding of how they managed to survive this period. Better not to rock the boat on the off chance that you might thrive!
Yet, some organisations show that growth can be achieved, and they are the ones outgrowing and earning their peers. Amongst the top companies of the past decade, you will find the likes of Amazon, Domino's Pizza, and Netflix. You will also find gaming developer Take-Two Interactive (with stock up roughly 1,500% between 2010 and 2019) and semiconductor manufacturer Broadcom (whose share price rose 1,900% between 2010 and 2019, taking its place as one of the top 50 most valuable companies in the world.
McKinsey noted the ten following characteristics in those that have dared (or perhaps been forced) to change to thrive:
- Put competitive advantage first
- Prioritise profitable, fast-growing markets
- Don't go with the flow—you - focus on outgrowing your peers
- Focus on growth in your core industry
- Nurture growth in adjacent business areas
- Focus on growing where you have an ownership advantage
- Commit to winning on the home front
- Expand internationally if you have a transferable advantage
- Combine healthy organic growth with serial acquisitions
- Prune your portfolio if you need to
While all of these are important, and many are areas in which we have commented in the past, three interlinked points stand out to us as areas of focus for business leaders focused on revenue growth.
Put competitive advantage first.
In many ways, this feels obvious to any business leader, but sometimes the most obvious things get lost because no one thinks to safeguard them.
Your competitive advantage must remain in line with your every action and business strategy. Still, often, as companies evolve, it gets lost in the daily running of an organisation. In some cases, leadership is not even aware of the 'secret sauce' that sets them apart from their competitors, and more than one thriving organisation has lost its edge due to this blind spot.
McKinsey states: "start with a winning, scalable formula". They continue: "Companies that generate stronger returns attract and deploy more capital, a virtuous cycle that enables them to grow faster and generate still higher returns." Identify your edge, safeguard it and approach it with a view to scalability.
Win in your local market for business growth
There are several verticals in which business growth can be sought - the industry is the most obvious, but geography is just as powerful. The foundations of geographical expansion lie in winning in your local market first. Suppose this is the cultuClimatemate, legal and operational structure in which you should intuitively understand nuance and the rules of play. In that case, it's unlikely you will be able to adapt your model for other regions before you have harnessed this space.
McKinsey said: "fewer than one in five of the companies in our sample that had below-median growth rates in their local region managed to outgrow their peers." The exception to that rule was in the organisations based in generally slow-growing regions. Either way, the basis of growth is in having an acute understanding of your local market.
Drive revenue growth through international market expansion
Leading on from local markets, it's undeniable that in an interconnected, global community, international expansion (done well) is a valuable weapon in the arsenal of any business seeking revenue growth. McKinsey said: "Approximately half of the total growth by companies in our sample came from geographies outside their home regions."
They continued, noting: "Companies that expanded internationally generated 1.9 percentage points more annual TSR than their industry peers, but those with healthy growth in their home markets benefited more than those merely treading water at home." The former generated double the percentage points of annual shareholder returns.
We have often spoken about international expansion at gigCMO, which is our specialist area. For that reason, we are aware of its golden opportunities but, crucially, the groundwork that needs to go into it to make it a success. From funding to due diligence, the choice to expand internationally must be intentional, strategic, well planned and rooted in a firm understanding of what your business is and what it intends to be in its new sphere.
McKinsey's growth rules are helpful and reassuring to any business leader with their ear to the ground and eyes on a successful year ahead. They are profoundly pragmatic and insightful; there is nothing that a well-organised and well-informed business cannot aspire to and nothing that a successful business cannot take note of. We may be in a challenging economic environment, but this is where great successes are made.
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