The 5 Terrains of Business Growth

Friday morning in Madrid kicked off with a powerful keynote presentation on emerging business models and how to adjust to stay relevant in increasingly competitive times.

ALTO was proud to welcome Carlos Escario, who serves as an Adjunct Professor at IESE Business School. Carlos is also involved with a number of additional academic institutions around the world, and is a managing partner at management consultancy firm Huete&CO.

As new industries and business models continue to emerge, they create “black holes” that threaten existing businesses. Carlos revealed the patterns that facilitate the emergence of new business models and explored methods to help attendees avoid become irrelevant. Not all organisations will successfully transform over time, and Carlos diagnosed various stages of growth, and included suggestions and practices to revitalise innovation and market focus.

Over the course of the morning, Carlos took us through “The 5 Terrains” to conquer:

  1. Big or niche
  2. Market disruptors
  3. What business are you really in?
  4. Are you growing or aging?
  5. Infinite value approach

Big or niche

Typically in a mature industry, there are between three to five main players and together, they control 40-70% of market share.

Carlos explained, “If an industry is highly fragmented, it presents both risks and opportunities but overall, it is more of a risk. When you have a large incumbent that introduces new technology, they can drive market share into a new business model.

But if you’re fragmented, then the big firms will start acquiring others fast and start learning more and more about each other’s customers and acquiring more customer data. Meanwhile, the other big companies will either fold or be acquired, too.”

Carlos attributes their demise to the fact that they “won’t have the stamina to grow” because larger companies typically focus on creating efficiencies, not on driving R&D and revenue.

An over-emphasis on efficiencies makes companies risk averse, and this creates opportunities for competitors to thrive.

The result is what is known as a “land grabbing strategy” – large companies acquire their competitors and as they do, they implement micro-specialisation and they hyper-customise for their new consumers. This enables them to “steal” more competitors and more customers one by one (e.g. Google and Amazon come to mind).

Given that the language travel industry is highly fragmented, this means we are in a high-risk situation.

Market disruptors

Technology is the main driving force of change in industry disruption. As the graph below illustrates, when new technology is introduced, it has the potential to rattle current business models, sometimes to the point of creating new ones. When new technology is combined with a new business model, that’s when you see former competitors dropping like flies.

business-models

To prepare for disruption, Carlos advised attendees to consider these questions when examining your business:

  1. Who are my target clients? Who are not?
  2. What is my unique value proposition to those targets?
  3. What is my operating model and technology model to drive the proposition to those targets?
  4. What is my client experience or my distribution channels?

What business are you really in?

A company will typically focus on one of three areas:
  1. Scale – looking inward (i.e. best cost, average quality)
    • Examples: Walmart, McDonald’s
  2. Scope – looking outward (i.e. best solutions for clients)
    • Examples: IBM, Ritz-Carlton
  3. Speed – looking forward (i.e. best product with continuous innovation)
    • Examples: Apple, Disney, 3M
Through a short series of three videos, Carlos challenged the audience to explore these questions when evaluating a business:
  1. What is the main driver of the business?
  2. How important is the client for the business?
  3. How does the company monetise their value proposition?

Typically in our industry, most schools are focused on Carlos acknowledge that there are no easy answers, and he stressed, “You don’t need to have perfect clarity or vision, but you do need to be clear on where your focus is and what you provide to the customer.”

Are you growing or aging?

Likening business growth to the lifecycle of humans, Carlos explained that there are natural growing pains that companies go through as they age.

stages-of-business-growth

For example, in the Infancy stage, it’s normal to have “lots of questions but no answers”. Most decisions in this stage are made based on gut instincts, with little or no formal strategy or processes.

The Go-Go stage is make or break. Although founders might have a clear vision and supportive staff by now, cash flow is still a challenge and a lack of processes and systems can cause quality issues and inconsistent outcomes.

Those who successfully manage their way through this growth will enter the often-chaotic Adolescence stage. Here, formal systems and reporting structures come into play, yet as the company takes shape, stringent criteria can often frustrate the founder(s). “The source of growth for you as a leader in this stage is a conflictive idea,” says Carlos. Although it seems counter-intuitive, conflict is what will help push the company to the next level of growth, as more people enter the company with different ideas and management styles.

In the Prime stage, you can continue growing thanks to the systems and processes that are in place and being continually reviewed. You have a healthy profit margin, sufficient cash flow, and you can reinvest in the business to push growth even higher. As Carlos says: “The sign of being in prime stage is that you have more projects than memories.”

The sign of being in prime stage is that you have more projects than memories.

But he cautions against getting complacent or losing focus: “The lion at the top of the hill is not as hungry as the lion climbing the hill.” Those who put more focus on the bottom line than on reacting to changing customer needs are doomed to enter the Stability stage. Here, you start aging and growth slows.

Carlos warns that this stage “is a paradox” – because you’re not investing in change and you’ve cut costs, your cash flow is strong so it can feel like the business is healthy. However, you’re actually only heading faster and faster towards the final bureaucracy stages as revenue growth slows down, you cut functions to cut costs and the bottom line is squeezed.

So how do you keep young? Carlos’ top tip to keep you in Prime Time could be summed up as this: Keep buying companies in the start-up phase or launching new products/services/divisions (e.g. Facebook’s acquisitions, Google’s Alphabet) so that you have multiple lines of business that are in infancy.

Infinite value approach

Finally, Carlos explored how disruptive companies can create infinite value at zero cost. As the visual equation below shows, creating value is about increasing the return for the client and reducing the strain on the customer.

perceived-value-in-business

In language travel, this could encourage schools to place greater emphasis on the experiences students have when booking and during their time abroad in order to outweigh the discomforts and uncertainties around visas, housing, or currency swings. Conveying that overall value is where the marketing magic comes in!

2017-08-10T13:59:23+00:00
%d bloggers like this: