What do plastic toys, headphones, and razor blades have in common? Although these are all established categories, they still provide opportunities for spectacular growth. To create new organic growth, you need a range of capabilities from insights into unmet needs to speed of action. But perhaps most importantly, you need a systematic way to identify, organize and pursue new organic growth opportunities.
As Alexis Nasard, former CMO of Heineken, said when we spoke with him, “You have to be systematic when going after revenue growth. The creation of a common framework is extremely useful.”
Based on our analysis of 40 growth champions, such as LEGO, Beats by Dre, and Dollar Shave Club, we have found that growth champions structure their new growth initiatives along three horizons:
Now: Growth derived from new channels, segments and categories.
“Now” initiatives focus on new ways to generate growth quickly. This could mean making the most of existing products and services by marketing them to new target segments, introducing them to new markets, or making them available in new channels. “Now” initiatives have a high likelihood of impact, takes advantage of established capabilities and can show results quickly. They represent a company’s bread-and-butter business, which often still has a lot of overlooked potential to grow.
Take LEGO, the Danish toy-maker. In 2003, sales fell off a cliff. The company had ventured into many new categories in parallel: children’s clothes, accessories, and lifestyle products. “We went into three new categories per year, when we should have gone into one every three years,” says CEO Jørgen Vig Knudstorp. LEGO subsequently refocused its business on being a “small giant” in the category of construction kits. “We realized that the more we’re true to ourselves, the better we are,” says the CEO. LEGO’s revenue grew from €0.9 billion in 2004 to €4.8 billion in 2015.
New: Growth generated with new products and services.
“New” initiatives take something that works and use it as the basis for innovation, such as: the launch of a new product in an existing category, the expansion of an existing brand into a new category, or the discovery and monetization of unmet consumer needs. This approach requires being able to anticipate future growth opportunities. To borrow a phrase from Canadian hockey hero Wayne Gretzky: “A good hockey player plays where the puck is—a great hockey player plays where the puck is going to be.”
Because “new” initiatives venture beyond the existing business, it requires leaders to expand the frame of reference for innovation and apply new techniques, such as social listening and digital ethnography.
Beats by Dre successfully took this approach to reinvent the headphones category. Until a few years ago, most consumers simply used the standard in-ear headphones that came with their MP3 player or phone. Beats effectively created a new market by turning headphones into lifestyle accessories. Targeting urban teenagers and style-conscious young adults, Beats combines studio-like sound quality with self-expression. Their headphones come in eight varieties and more than a dozen different colors. The company owns two thirds of the U.S. market for headphones priced at $100 and above.
Next: Growth unlocked by new business models and big bets
“Next” initiatives are about launching a new business model that either complements an established source of value creation or disrupts it. Such initiatives often absorb a lot of time and energy, while the outcome is usually highly uncertain. But if they work, they can have huge impact. Think Uber, AirBnB, and Netflix.
The lesson for incumbent players? Unilever CMO Keith Weed put it succinctly, “Disrupt or be disrupted. As marketers, we need to become better at taking risks, accepting the occasional failure, and learning quickly along the way.” That disruption can come to even the most established businesses. For example, observers everywhere have long admired Gillette’s business model. But it didn’t protect Gillette from attackers. Only five years old, razor-blade home-delivery service Dollar Shave Club is already enjoying sales equivalent to 15% of Gillette’s U.S. market share. The start-up hit revenues of about $200 million [≈ Mitt Romney assets in 2011] in 2016, more than three times its 2014 sales. While this example seems very compelling, a recent McKinsey survey found that just 27% of companies are systematically scanning for new opportunities outside of their core business.
To drive growth, companies need to develop a new set of corporate capabilities. But that’s for another article.
Jonathan Gordon is a partner in McKinsey’s New York office.
Nils Liedtke is a consultant in McKinsey’s Brussels office.
Björn Timelin is a partner in McKinsey’s London office.