Grow Sales 4x and Your Stock Price 6x. How? With a New Category
I help companies grow. For the first half of my consulting career, most of my clients were large companies—often market leaders—whose revenues were flat to declining. This is challenging in itself, but it is even trickier when your client has 50% or even 70% or even 90% market share like Anheuser-Busch or Gillette.
My observation is that 9 of 10 companies try to grow the wrong way, by just stealing market share. The mindset of stealing market share leads to short-term tactics like discounted pricing, me-too innovation and benchmarking best practices that may work in the short-term by “renting” market share, but ultimately destroy industry profitability.
When share-stealing isn’t working, then most companies try to buy growth. That can work in certain circumstances, but the vast majority of acquisitions fail to return the cost of capital. Yet, that doesn’t stop many consultants and bankers from tempting senior management with acquisition strategies with the core premise being “synergies,” which is essentially cost reduction of overhead and SG&A, or greater economies of scale. Neither strategy necessarily drives sustainable, profitable growth.
Helping market leaders grow requires a completely different approach to growth strategy than just stealing market share from a competitor.
The far superior strategy is to grow the category or create a new category. My research has shown that category creators—companies with a breakthrough product and business model innovations—grow their sales four times faster and their stock prices six times higher than comparable companies. Other research shows that 1% of companies that become “category kings” garner 76% of the total industry’s market capitalization.
Yet this is a growth strategy so few companies employ. Large companies worry they can’t be category creators, yet ironically have the most resources to do it. Small companies strive for category growth, but do it incompletely or in the wrong way. Growing a category is a fairly simple equation of (a) number of consumers x (b) units per consumer and (c) price per unit. Said differently, growing a category requires asking “what needs to be true” to double the number of consumers, units or price?
With this topic, I will discuss eight specific ingredients and distinct recipes for becoming a category king. I’ll share examples of companies and brands that achieved category king status and what separated them from brands that didn’t make it. This is a great topic if you are ready to boldly strive for legendary achievements with your company.