A comprehensive growth strategy generally requires a well-balanced portfolio of organic growth programs and adjacency plays that support the core business. Winning in adjacencies is not always easy. In fact, many companies decide every few years to timidly test the waters of new markets before ultimately returning to the safe and stable profits that they know the core business can provide.
Nevertheless, those that leverage key assets from the core and use new market opportunities to bring hard-to-capture value back to the core can save themselves from the do-or-die decisions that need to be made when a company waits too long to evolve. To that end, several major tech deals over the past few months have done a good job illustrating five of the primary ways companies can use new businesses in adjacencies to support the core.
After seeing companies like these succeed in adjacencies, many others will try to do the same. Of that group, most will see diluted short-term profits and realize that they do not have the stomach for the uncertainty that a foray into a new market always brings. Many will bring in a new CEO with a leaner, back-to-basics approach that focuses all efforts back on the core business. Nevertheless, a small number of the best-run businesses in that group will succeed in their new market expeditions. And those businesses will have two things in common. First, they will leverage enough of the core’s defining competencies to earn a right to win in the new space. Put another way, they will borrow the assets that let them win, and leave behind those that would slow them down. Second, they will use the play in the new market to improve the core by bringing in value that would otherwise be expensive or difficult for the core to access. Most likely, that value will take the shape of one of the five categories from above: locking in customers, differentiating the core, creating new sources of value, blocking asymmetric threats, or creating new consumption occasions. By creating a plan that succeeds along those two dimensions, companies will be able to use new market plays to bring significant value back to the core.
Story by Dave Farber.