Scaling the mountain of growth with strategy. Image via Midjourney.
Sustainable, profitable growth comes from making the right set of strategic choices for your customers and your organization
“Growth should not be a strategy. Growth should be an outcome.”
– Howard Schultz, Starbucks CEO, Interview with CNN Money 2018
A breakthrough strategy?
I’ve been in countless boardrooms where, when asked what their strategy is, executive leaders have enthusiastically shared some variation of:
“Our strategy is growth.”
As my job in those meetings was to get enough context to go out and discover and deliver the solutions to power that growth, I never questioned it.
Over time, I had this growing sense that “growth as a strategy” seemed off, but I couldn’t quite figure out how to express it.
Why Growth isn’t a Strategy
And then recently, it hit me — regardless how often it’s repeated and accepted at face value, not only can’t your strategy be “growth,” an unchecked focus on the wrong kind of growth can easily cause the opposite to happen.
Here are three reasons why growth can’t be your strategy:
- It’s an Outcome, not a Goal
- You’ll be tempted to hack growth for growth’s sake
- You’re ignoring the real engines of growth
#1 — It’s an Outcome, Not a Goal
“Happiness is like a butterfly, the more you chase it, the more it will elude, but if you turn your attention to other things, it will come and sit softly on your shoulder.”
– Henry David Thoreau
As with happiness, it’s been said the more you try to force growth, the less likely you’ll be to attain it.
Why? Because growth is the result of consistently matching your company’s individual capabilities to solving client wants, needs, and desires in distinctive ways.
A different growth model
Riffing off Jeff Gothelf and Jeff Patton’s excellent Metrics Mountain mental model, we can visualize the Pirate metrics that align to growth laid out as a series of “basecamps” on a mountain-climbing expedition.
We ask progressively more from our clients at each step in the journey as we seek to build trust and lasting relationships with them.
I’ve crossed-referenced Jeff & Jeff’s model with Rajesh Nerlikar and Ben Foster’s Customer Journey model from their Prodify.group practice, and book “Build What Matters” to come up with following 7 basecamps:
- Acquisition
- Trial
- Activation
- Usage
- Retention
- Revenue
- Referral
Two callouts:
Laid out like this, it’s hard to view “growth” as a single, one-off event– just “getting people in the door.”
It’s an ongoing relationship-building process that involves changing client behavior in ways that mean success for them, as well as for our business, as our relationship with our clients progresses through each stage.
In other words, growth starts when we’ve made an effective set of strategic choices that encourages clients to sign up for a free trial (Acquisition).
If their experience using our product continues to meet and exceed their expectations (“Trial”), lasting growth can unfold because we’ll increase the likelihood of turning them into a paying customer (“Activation”), through regular “Usage,” and onward, up the mountain.
The other callout is that fewer and fewer people will make it through each stage of the journey, and that’s OK.
You don’t want everybody as your customer— you just want the right customers for your product (see #3 below).
There is no “secret” to growth
“The purpose of business is to create and keep a customer”
– Peter Drucker
While we can’t control client behavior, by designing the right set of strategic choices, we can compel them to voluntarilychoose to move up to the next basecamp.
#2 — You’ll be tempted to hack growth for growth’s sake
Let’s assume you’re convinced “growth” is your goal, and you want to immediately Acquire and Activate as many random people as possible.
Growth is enough of an established set of approaches that there are any number of ways you can force a short-term bump in your user base through various “growth hacks.”
But there’s a very real possibility the growth you do get from these hacks won’t be the growth your company needs, and may attract lower-value, “bargain-hunting” users who’ll be unlikely candidates for longer-term loyalty and retention.
The Moat — targeting higher basecamps
In this remarkable passage from his 2005 shareholder letter, Warren Buffett lays out the very real dangers of “hacking” short-term growth, laid out against his unique “moat” approach to sustaining long-term competitive advantage:
“If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength.
But if we treat customers with indifference or tolerate bloat, our businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.”
Note three keys Buffett identifies as the foundations of strength:
1. Client-Centricity
2. Lean operations management
3. Continuous Innovation
Together, they form the core of the Berkshire-Hathaway “moat” strategy for long-term differentiation, an intentional focus on getting clients through Acquisition, Trial, and Activation, and focusing on the higher basecamps of continuous Usage, through Retention, Revenue, and Referral.
Buffett continues:
When our long-term competitive position improves as a result of these almost unnoticeable actions, we describe the phenomenon as “widening the moat.”
And doing that is essential if we are to have the kind of business we want a decade or two from now.
We always, of course, hope to earn more money in the short-term.
This crucial point is the core of what has made Buffett and Berkshire-Hathaway so successful, for so long:
But when short-term and long-term conflict, widening the moat must take precedence.
If a management makes bad decisions in order to hit short-term earnings targets, and consequently gets behind the eight-ball in terms of costs, customer satisfaction or brand strength, no amount of subsequent brilliance will overcome the damage that has been inflicted.”
This is exactly why stock-based CEO compensation can be such a destructive force, because it incentivizes executives to embrace the kinds of short-term decision-making that mortgages an organization’s future to meet short-term expectations.
#3 — You’re ignoring the real engines of growth
While you’re off busy trying to “hack” growth, the needs of your most important clients are being overlooked.
Progressing up the mountain
Returning to our “metrics mountain” mental model, if we take a step back, one thing that becomes obvious is that our only key to growth lies in our existing customers.
It’s impossible for new customers to begin at “Retention” or “Referral.”
Once people drop out, you have to start the whole process over again.
Which of your clients should you focus on?
As I touched on in an earlier piece on achieving and sustaining Product-Market Fit, your two best customer groups to identify and serve are:
- Your best, most loyal customers — Already at “Referral”
- Those who are close to loving you — At “Acquisition,” but may need a better reason to stay around for longer-term “Retention” and “Referral.”
While many companies push for growth by blindly shoveling any customer into Acquisition, research has demonstrated it costs nine times more to attempt to attract and cater to people who aren’t a good fit for your product.
And how will you know you’ve got the right customers?
The twin jet engines of growth
The right customers will be evident by watching your:
- Retention
- Referrals
Retention first
Retention is a signal clients are consistently “delighted” by your product.
Christina Wodtke often shares the importance of focusing on “Retention before Growth.” In essence, you can’t start by “wishing” or “hoping” for growth — you’ll need to first have a great product in place that gives clients something compelling to stay for before you ever seek to “Acquire” that first client.
And this is exactly what Warren Buffett’s “Moat” concept is based on — long-term Retention is built steadily over time by continuously “delighting customers, and improving products and services.”
This is the only way to build up reserves of trust in your product and your brand that boost Usage and form the self-reinforcing cycle of Retention.
Referral
We’ve arrived at the summit — you’ve successfully built up so much trust and good will, clients now freely give you the most valuable form of advertising.
Is your product or service that good, and your relationship with clients so strong, that people voluntarily tell their family and friends to use it?
It’s for this reason that Referral is the highest achievement on “Metrics Mountain”– But it won’t happen unless you’ve paired a great product with an effective set of strategic choices to bring them through every basecamp along the way.
(I reverse-engineered the strategy for the OŪRA Ring here, which is one of the products I’ve personally referred most to friends & family.)
TL:dr; Why “Growth” really can’t be your strategy
You can’t “make” anyone do anything.
While you can’t pretend “growth” is your strategy, there is an invisible force you can design that can draw clients forward, compelling them to move up the mountain.
That force is a complete and well-designed set of strategic choices.
Make sure your strategic choices incentivize the right behaviors, and you’re focused on building relationships that lead to long-term, mutual and lasting success, and you’ll achieve more growth than you can handle.
References
Jeff Gothelf: METRICS MOUNTAIN: A REALISTIC VISUALISATION OF ANY CUSTOMER LIFECYCLE METRICS
Prodify.group: Customer Journey Vision
https://www.prodify.group/framework/customer-journey-vision
Pirate Metrics
https://500hats.typepad.com/500blogs/2007/09/startup-metrics.html
Berkshire Hathaway 2005 Investor Letter
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