Growth! We all want it. But what does it take to achieve sustainable growth today? From my experience with clients, one of the biggest barriers to growth is the lack of an effective growth strategy. I know, I know – many business leaders role their eyeballs when they hear the word “strategy.” But your development and execution of a roadmap for growth (yes-strategy) will determine your success. I always keep an eye out for different perspectives and points of view on identifying, deciding, leading and executing strategy with clarity that achieves success.
Dr. Kaihan Krippendorff, the founder of Outthinker, a former McKinsey & Co. consultant and author of four business strategy books, most recently Outthink the Competition, offers a different lens to strategy in his latest blog, The Math Behind Big Thinking.
For decades strategy has been focused on making big choices. Michael Porter points to choosing promising industries, Jim Collins stresses building the right organizational structures, and Clayton Christensen advocates picking the right customer segments. Growth strategy, then, becomes a collection of big decisions.
Strategy Is Evolving
Krippendorff notes the in today’s faster-paced, more agile world, companies that are winning – Amazon, Google, Tesla/SpaceX – are operating at a higher order. They understand the simple mathematical principle of diversification.
Investors live by this principle assembling portfolios of investments, instead of funneling all of their capital into just one stock or bond. Yet most companies fail to apply this simple principle to their growth agendas.
In other words, most companies assess growth ideas individually, and based upon their risk tolerance and return requirements, and only pursue one idea with a comfortable level of safety.
But a smarter option is to take more risks, not fewer, while measuring the diversified return of those risks. Jeff Bezos said it best:
Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.
How to Apply the Diversification Rule
Here are some keys to applying this diversification rule to accelerate your growth development:
- Don’t assemble your team around one idea; organize them around a portfolio of ideas and judge them by the return of their portfolio.
- Think in groups of ideas rather than individual ideas.
- But what if your budget only allows you to pursue one idea? Conduct less-expensive experiments. New agile experimentation techniques make this easy. Read Sprint by the Google Ventures folks, Scrum by Jeff Sutherland, or The Start-Up Owner’s Manual by Steve Blank and Bob Dorf, and you will quickly understand how to do it.
- Bundle your ideas. Put the bundle of ideas into one group and give the group a name.
Call it a multi-prong strategy or call it a concept:
- Pick five ideas
- Bundle them together into one project
- Give the project a name
- Assemble an idea
- Run five inexpensive experiments
- Drop what fails and advance what works
So, What Do You Think?
Can you apply this diversification concept to your company’s growth development? Only you can make that judgment. My purpose has been to examine different perspectives and points of view on identifying, deciding, leading and executing strategy with clarity that will help you achieve success.
Contact me here to discus how to apply these concepts in your business.
All the best
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