Strategic balance and maintaining the insurgency

Founder's Mentality - BalanceAny discussion of how companies can “maintain the insurgency” as they grow toward scale will eventually run into a fundamental tension. On the one hand, maintaining an insurgent mindset requires expansiveness—stretching beyond a company’s existing revenue streams and narrow market definition to imagine how the original insurgent mission can be applied in new, disruptive ways. On the other, sustaining profitable growth requires intense focus—a companywide commitment to continuously improve the company’s core business and exploit its full potential.

The solution to this seeming contradiction is for leaders to strike a balance between core focus and an insurgent mission as they debate growth strategies. But it’s important to understand why the tension is a necessary one.

First of all, the evidence shows that sustaining profitable growth is one of the hardest acts in business. After running the numbers for two decades, we’ve found that, on average, only 10% of companies can maintain a modest 5.5% growth rate in revenues and profits over 10 years. By studying what that 10% share in common, we’ve identified what we call the five pillars of sustainable growth, and they all emphasize the core:

  1. Build a strong, well-defined core business focused on its full potential. What, precisely, are the markets in which you compete, and what is your core insight and value proposition? Once these are defined (and details matter here), the goal of a full-potential strategy is to take a multiyear, multi-disciplined approach to maximizing the value of the business and doing what it takes to lead in your core markets.
  2. Create a path to leadership economics. Leadership gives a company an extraordinary opportunity to improve its own economics and to achieve far higher reinvestment rates than its competition. But as we’ve noted before, few leaders really act like leaders—they neither influence markets as they should nor improve their own economics.
  3. Manically focus on customer advocacy. It is easy to nod your head at this statement without really recognizing the transformational power it can have on your business. In fact, most companies suffer from customer complacency—80% of companies believe they deliver a superior proposition to their customers, yet in only 8% of the cases do their customers agree. Improving that number is the best way for companies to achieve organic leadership in a core market.
  4. Pursue adjacencies with ruthless discipline. Great companies constantly face opportunities to expand in businesses adjacent to the core. But maintaining priorities is crucial here. Actions to achieve full potential of the core should always come first. Expansion opportunities should then be evaluated based on their distance from the core. The math is compelling: Step 1 adjacencies (very close to the core) outperform Step 2 adjacencies by almost 2.5 times, and Step 3 adjacencies by more than 4 times.
  5. Build Repeatable Models® using the three design principles. Complexity is poisonous to growth, and repeatable models provide the best antidote. The reason is simple: If every growth option leverages the same model, complexity is far less than if each growth initiative requires a new way of working. The three design principles, as outlined in our book Repeatability, are focus (how you define your repeatable model), embed (how you co-create the defining details of the model with the front line) and adapt (how you build in feedback loops to ensure the model can adapt to rapid changes in the market).

These pillars are clear and robust and management teams have found them a useful foundation for strategy discussions. But they also rub up against important notions about how to maintain the kind of freewheeling insurgency mindset that helps promote and preserve a company’s essential Founder’s MentalitySM.

What we’ve learned is that leadership teams need to return to the initial “insurgent mission” to revive the energy and purpose that guided their early growth. This mission should not be limited to the core markets in which you compete today, but rather should be focused on the initial “revolution” the company was founded to pursue. Consider the example of India’s CavinKare. It famously disrupted the Indian market as a hair-care company. But its extraordinary insurgent mission—”whatever a rich man enjoys, the common man should be able to afford”—has more recently led it to take on the juice business.

Using an insurgent mission to frame a debate about growth strategy focuses leadership on innovation and redefining markets. Without that, growth strategies are destined to be rooted in incumbency thinking. You are forever constrained by the rules of the game as defined by your industry, which inevitably caps ambition (see our discussion of Google’s Larry Page and his rationale for “moon shots”).

But an important question to ask is whether insurgency also threatens chaos. As the five pillars suggest, everything we’ve learned about sustainable growth strategy screams and shouts “Focus!” Growth requires a well-defined core business, competing in well-defined markets and a narrowly focused mission to achieve full potential. If defined too broadly, won’t the insurgent mission lead to a “peanut buttering” of resources across a broad set of unrelated growth initiatives?

Debating these points always reminds me of famed astronomer Carl Sagan’s call for balance in pursuit of scientific discoveries. In his book, The Demon-Haunted World: Science as a Candle in the Dark, he writes: “At the heart of science is an essential balance between two seemingly contradictory attitudes —an openness to new ideas, no matter how bizarre or counterintuitive they may be, and the most ruthless, skeptical scrutiny of all ideas, old and new. This is how deep truths are winnowed from deep nonsense.”

In the same way, we would argue that balance is crucial in corporate strategy, and we’ve come up with a nice way of framing it: “The insurgent mission demands we widen the conversation to ensure we start strategic debates as the innovator, as the disrupter of industries. The five pillars of sustainable growth define the funnel through which any ‘insurgent’ initiative must pass.”

As the late, great comedian George Carlin liked to say, “Those who dance are considered insane by those who can’t hear the music.” Returning to the insurgent mission is an opportunity to rediscover the unique music that served as a soundtrack for your early, innovative years. It also gives you the opportunity to dance in ways the incumbents will consider insane. But for every insanely innovative growth option identified through a discussion of the insurgent mission, you need to ask four “balance questions.”

  • Will our existing repeatable models succeed in this new market? If not, you are likely to lose, or you will have to invent a whole new set of repeatable models that will add unjustified complexity to your business.
  • Can we lead in this new market? It is not enough to “succeed a bit.” To pursue a new growth option, you have to be convinced that you can establish leadership of either the whole market or a niche segment. Too often companies shift resources from defending leadership positions in their core toward follower positions in an adjacent business. Why would you ever do that?
  • Does this move defend or reinforce our core business? This is a “hard and soft” question. On the hard side: Do we need to enter this space to make sure we defend our core? Do we eventually need to get very good at this new business because it will matter in our core? On the softer side: Do our own people or our best customers expect us to play here to maintain the insurgency or to sustain or rediscover the nobler mission? This shouldn’t be the sole reason to pursue something but it does matter.
  • Does this opportunity really disrupt the current rules of the game? Insurgents are industry disruptors. They understand current market definitions but work hard to redefine markets in their favor. Asking this question forces your teams to investigate the most basic element of competitive strategy: Competing not simply by excelling at the existing rules of the game, but by changing those rules, such that you and you alone know the game and can win it.

With the growing companies of the Developing Market 100 we are working to strike the proper balance between the five pillars and a return to the insurgent mission. Getting it right will allow a company to maintain the insurgency and use it to sustain profitable growth. That’s a place most industry incumbents will never reach.

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