How to Understand the Two (Main) Directions of Company Growth
The name of the game for a company of any size is growth.
No matter how well it has done in the past, no matter how strong its brand or how loyal its client base - the imperative for growth is constant.
And it is rising...
To build and plan for growth, it is useful to have a basic understanding of the two main directions in which a company can grow. Get a handle on these core aspects and you are well on your way to successfully taking your startup (or scale-up) to the next level.
Full disclaimer - there more areas and more subsets of growth, but for now it is enough to get a handle on these two main “axes” as they pertain to company development.
Growing Users/Clients
On the x-axis we track user or client growth.
The best tradition of Silicon Valley over the past 15-20 years has dictated that this is the main focus of high-growth startups. The more users a company can attract, the better. The more customers sign up, the more data there is to collect and the more product validation (read: feedback) there is. This, in turn, helps develop the product/market fit even further.
Most often, this axis of growth is the main focus of startup founders during the seed to series B stage of the company’s development. Without users and (eventually) without paying clients, there is little to no proof that a company has found product/market fit.
And without this hard evidence, no VC in their right mind will want to put in more money to continue the experiment.
Growth in the number of users can be tricky, of course. It often involves significant outlays in marketing budget. The best products and services create such a viral buzz that they are able to keep the Customer Acquisition Cost (CAC) relatively low. But with millions in venture funding, the temptation is often to see the x-axis accelerate, no matter what the ultimate cost.
Not all users are created equal, of course. With a “one-feature” product or service, a company may treat all users more or less the same. If the business model is based on SaaS, this is somewhat easier to do.
But if the company’s business model depends on face-to-face client interaction or personalized service, the company soon faces a series of important questions:
Which is the most valuable segment of our user base?
How do micro-interactions or “engagement points” lead to more revenue?
How much can we afford to spend in order to keep a client?
How do we build a scalable client service system to reduce overhead costs?
The answers to these questions help determine how a company plans for user growth. While tech giants like Facebook, Amazon and others have long prioritised new user acquisition above all else, it is important to ensure that a flood of new customers does not lead to poorer quality service or a loss of focus in developing a sustainable business model.
Growing Products/Services/Sales
On the y-axis of the growth chart, we have the number of products and services which can be sold. After all, a company will never be successful unless it is creating something of value which can generate sales.
Actually, there are two ways to look at the y-axis. On the one hand, it can be used to track the depth of the offering a company has. Not all products and services may be available or appropriate for all customers, but with a steady growth trajectory, it is naturally expected that a company increase its offering to users.
At the same time, the y-axis helps visualise the amount of products and services being sold to the customer base shown on the x-axis. Even if the user base is relatively small, a high ticket product or a large number of repeat sales for a particular service will translate into healthy revenue numbers.
Conversely, a low entry price, whether one-time or recurring, spread over a large client base will produce a substantial stream of income.
Growth on the y-axis does also does not come for free. Research and development, testing, distribution and many other factors make building a deeper product and service line difficult. For SaaS companies, the job may seem easier since the cost of deployment and customer contact are limited to infrastructure and digital channels. But even so, development and user testing can make the job a challenge.
One word of warning - the law of line extension (explained by Al Ries and Jack Trout in their seminal work The 22 Immutable Laws of Marketing) dictates that adding a new product or service to an existing lineup is no guarantee of increased revenue. A new feature, a new product or a new service line must complement the existing brand positioning and be part of a fluid up-selling or cross-selling strategy. Too many top brands - think Coca-Cola Pizza Hut and others - have floundered by trying to target growth on the y-axis without true clarity on how to do so.
The Holy Grail
The best-case scenario is, of course, to grow exponentially in both directions.
When it comes to a great example of this “holy grail”, we need look no further than Apple - one of the premiere brands in the world today.
After starting out with a singular product, the Macintosh personal computer, Steve Jobs and co continued to grow along both axes in steady tandem. The addition of the iPod, a completely new product line, followed by the revolutionary iPhone, the reworked personal computer in the form of the Macbook, then the Macbook Air and iMac, not to mention the iPad all created a depth of products that is practically unrivalled for a single brand.
At the same time, Apple grew its user base, expanding into multiple countries and multiple demographic groups. It retained its premium brand positioning, which allowed the company to charge a very pretty penny for its products and services, all of which were full integrated in a tidy vertical (y-axis) lineup.
Each new user in the Apple ecosystem entered with a single product, but many later became a user of more than one Apple device and more than one Apple service. Growth along both the x- and y-axis yielded the astounding company valuation that we witness today.