The Growth Cube: A Practical Framework for Engineering Business Model Expansion

Let’s talk about growth.

More specifically, a practical framework (The Growth Cube) for developing a comprehensive growth strategy along three capability dimensions most relevant to realizing the full potential of a company’s business model: product portfolio, geographic presence, and vertical segment penetration.

Growth is a top objective for every business – if it’s not #1 on the priority list for the CEO, then it’s most likely #2 (possibly, after profitability). It generally means growing the company’s revenues. And you can grow revenues by either selling more volume or by raising one’s average price. More volume can come either from existing products and customers or from expanding the product portfolio and penetrating new customer segments.

However, as I suggested in my article on The Value Tree framework for orchestrating the corporate portfolio of strategic initiatives, there is a distinction, between ‘growth’ and ‘yield’. Growth is about delivering strategically significant step change in the size and breadth of the business, such as creating new products, accessing new inventories, opening up new markets, and achieving meaningful scale. Yield is about optimizing the existing business by increased volume penetration of customer accounts and/or by extracting a higher average price by managing the product mix and tapping customers’ willingness to pay. Thus, “sell more of the same to the same customers,” while a fine yield-optimization strategy, is not, in my view, a compelling growth strategy.

The three axes of the Growth Cube framework – products, geographies, and verticals – are the most practical and impactful dimensions for driving meaningful growth above and beyond a company’s existing business model (see Figure 1). They are distinctly independent drivers of growth, each requiring a different set of capabilities or actions.

 

Figure 1. The Growth Cube - Three Capability Dimensions for Realizing the Full Potential of a Company's Business Model 

Products

In this dimension, the fundamental question is: “What else can we sell to our existing customers?” The growth thesis is: “We have established relationships with our customers; they have additional unmet needs; and we have (or can acquire) the product and service capabilities to meet these needs, thereby generating new revenues from the same customer base.”

Adding new products or services to the portfolio of customer offerings is probably the most common growth strategy companies pursue. This is particularly true for ‘customer-centric’ companies who consider their knowledge of and relationship with their customers to be their most valuable asset and competitive differentiator. Apple is a great example of a company that has systematically unleashed growth strategies along the Product dimension, offering additional products to their fiercely loyal consumers – starting with Apple personal computers, adding the iPod and iTunes, then the iPhone, and the iPad, and Apple Watch, etc.

It is no accident that product innovation is a popular growth strategy. Building a strong brand, deep understanding of customer needs, and a loyal customer base is exceedingly difficult. Once a company has achieved success with that feat, it makes a lot of sense to monetize its investment in this asset by offering new products and services to that same customer base. Especially, if the company has solid research & development (R&D) capabilities to deliver compelling new product innovation – or a strong pipeline of potential acquisition targets and the financial wherewithal to execute on product-extension M&A.

Geographies

Here, the fundamental question is: “Where else can we find more of the same customers as our existing base?” The growth thesis being: “Customers who have the same needs as our current base exist in other geographies, where we have no presence; we can enter these new markets with our existing product portfolio and start generating new revenues from this expanded customer base.”

This is the second-most common growth strategy companies pursue. Especially, larger businesses that have the resources required to undertake a geographic expansion, either domestically or internationally. In a way, this could be considered as the ‘safest’ growth strategy, since people and businesses, regardless of where they are located, generally have universal needs and preferences. Unless, of course, cultural, socio-economic, or infrastructural differences in that new geography result in a dramatically different demand profile for the company’s products and services.

For example, Google has tried, and failed, to enter the Chinese market in a meaningful way and replicate the success of its successful flagship products there, e.g. Google Search, Google Maps and YouTube. But the political and economic landscape, both in China and here in the US, has created (at least thus far) insurmountable challenges for Google’s expansion into China.

On the other hand, McDonald’s, KFC and Starbucks were all wildly successful in replicating their products and business models in China. All three companies, icons of American consumerism and on-the-go food and beverage consumption habits, overcame cultural differences that many professed would doom their entry into the Chinese market. It turns out gourmet coffee, especially the notion of personalizing it and enjoying it socially, has a universal-enough appeal to succeed even in the 3,000-year-old birthplace of ancient tea culture.

Geographic expansion strategies are predicated on a company’s confidence in the universal appeal of its products and services, and its own ability to replicate the capabilities that are needed to deliver these customer offerings, including supply chain, physical assets, and skilled labor. At the same time, it requires investment in new assets and capabilities, such as market-specific research and insights, local partners and suppliers, and government permits and licenses.

Verticals

In this dimension, the fundamental question is: “Whom else can we target with our existing products?” The growth thesis is: “There are customer segments we do not serve today who have needs that can be met by our current products and services; we can extend our offerings to them and generate new revenues from these new customers.”

As with geographic expansion, extending the business model to new vertical segments is a “same products, new customers” growth strategy. And while geographic expansion looks to access the same customer segments but in different locations, the vertical extension is about cultivating new segments of customers in the same geography.

This growth strategy requires developing knowledge of the needs and preferences of new and different customers, and building new capabilities (e.g., sales force, marketing, customer service) to win over and retain these customers. It is de facto developing a loyal customer base from scratch, which is far from simple. At the same time, it leverages the company’s investments and success in building a compelling portfolio of products and services that can meet the needs of a broad spectrum of customer segments.

A B2C example of this growth strategy is a restaurant, a bar, or even a museum, developing a corporate events offering. The original asset base and products were designed to serve individuals and families in small groups, sometimes celebrating an occasion with a larger party. The same asset base and product capabilities, with minor (mostly marketing) tweaks, can be adapted into a new offering targeting corporate event planners and office-party organizers, thus unlocking a whole new set of (larger and less price-sensitive) pockets of dining and party budgets.

Management consulting firms provide a good B2B example. Generally, their intellectual capital and customer offerings are developed in the course of client engagement within particular industries. They, then, ‘universalize’ and repackage these same frameworks and methods, and apply them with clients across other industries and vertical segments.

For example, Booz Allen Hamilton, founded in 1914, which coined foundational business concepts such as ‘supply chain management’ and ‘product life-cycle management, developed much of this groundbreaking management science serving large industrial clients, such as Goodyear Tire & Rubber Company and the Canadian Pacific Railway.  After World War II, applying the same portfolio of intellectual capital, the firm expanded its clientele significantly to include many large US government institutions, such as the Armed Forces and the IRS. By the turn of the 21^st century, the overwhelming majority of its revenues came from public-sector clients. In the past 10-15 years, the firm has been able to replicate the same feat in reverse – adapting and introducing concepts and techniques developed in the public sector, such as ‘wargaming’, to its private-sector corporate clients.

Strategy frameworks generally simplify a complex reality in order to bring clarity and purity of thought. The Growth Cube is no exception – its three dimensions describe three ‘mutually exclusive and collectively exhaustive’ (MECE) alternatives for growth. It is a useful method to reduce complex alternatives to simpler, purer choices that are easier to analyze, prioritize, communicate and rally around. In practice, the three growth strategies are often intertwined or executed in tandem at least to some extent. For example, a market entry into a new region or country is often accompanied by some product adaptation or innovation to accommodate the cultural and economic preferences of local customers.

It takes a nontrivial amount of focus and investment – fixed assets, talent, know-how – to extend a company’s business across any one of the three axes and drive meaningful growth. The Growth Cube framework is a useful tool to visualize and analyze the alternative growth paths, envision risks and actions required to succeed at each of them, and make the best choices in prioritizing the growth strategies that the company is best equipped to execute successfully.