Separated At Birth?: ‘Average’ Growth and ‘Unfocused’

05 Jan 2012

I was in Europe mid December for a week and met with several companies. Three companies in particular had a number of similarities:

  • All midsize tech companies (two public, one still private).
  • Revenue growth for each company seemed about ‘average’; not poor performing, not stellar.
  • Low double-digit growth for each, nothing terribly exciting at first glance.
  • Each company had quite a few product offerings for a company of its size. Didn’t do the analysis, but I strongly I’d suspect I’d find a long tail of mediocre margin contributions by product type.
  • CEO’s at each indicated they felt they had decent growth but could not tell me with much precision by how much they are outgrowing the various markets they are in by product offering.
  • CEO’s at each confided in me that perhaps they are not focused enough as a company.

Weird. Three eerily similar situations and conversations.

Hmmmmm. Obvious question I had for each CEO was by how much were they outperforming the markets they are in (by product type). 20% growth isn’t impressive if the market you are in is growing at 40%, but is impressive if market growth is say 5%. It’s understandable why a lot of mid-stage companies end up with too many products:

  • Customers pull them in directions they think are ‘strategic’, they (wrongly) believe it’s an opportunity to get into new markets, but ultimately these foray’s don’t pan out.
  • In the pursuit of revenue and making their numbers companies don’t say ‘no’ enough.
  • They often don’t do the hard analysis where the real opportunities are. They are ‘convinced’ they are solving some big customer problem, but more often than not, the customers are not buying as first anticipated.
  • They fall for the ‘mirage’ effect (thinking they see a market, but it isn’t there) For whatever the reason, too many companies have too many products and their lack of focus is resulting in slower growth.

Interesting to note Steve Jobs told Google to focus on five products, do them well, and forget about everything else. Do we believe companies that stay focused grow faster? All things being equal – yes. Do we currently have the data to prove it? Not yet… (but we’re working on it – stay tuned)

So what are the takeways MAZ?…. I’d ask you to think through a number of questions with your Board and management:

  • Do you think your company isn’t focused enough? If yes, how did you get there?
  • What unfocused initiatives/products are you going to say ‘no’ to going forward?
  • If you grew 50% faster than the market(s) you are in, what would it mean for your investors and management?
  • What are you doing to make 2012 and beyond more focused and thus have higher sustained growth?

Up and Right!

1 Comment for this entry

  • Lee M. Gopadze says:

    I often wonder whether unfocused growth is not worse than no growth at all, as it lulls a Company into the belief that they are being successful when they are actually ‘treading water’. “Theory of Constraints’ is a great tool for addressing this malady.

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