By Perry Ballard, Chairman of the Board of Perry Ballard Incorporated
(From SBAM’s member-only Focus on Small Business magazine)
Continual (Not Continuous) Growth is an Astute Business Goal
Continual” growth is intermittent. Random opportunities bring you new income. You have time to absorb the work before developing the next opportunity. “Continuous” growth is like neverending water from a fire hose. Soon you can’t keep promises, make pressure errors due to haste and reduce or eliminate profit. With water or work, continuous makes it tough to catch your breath…and the end result can be fatal.
One practice to reach continual growth is periodic weeding.
Every business has unprofitable clients, products, services or machines that consume valuable time, resources, effort and dollars. That drain keeps you from developing profitable customers. You know it’s true. But it’s hard to identify and categorize each candidate and determine action to get back to a profitable situation.
A helpful tool is the Boston Consulting Group Growth-Share Matrix (BCG Matrix).
The BCG Matrix is covered in the strategic planning chapter of every marketing textbook. It helps guide effort and resource allocation and offers a way to make business decisions based on logic rather than emotion – not an easy thing to do.
A BCG matrix puts opportunity for market growth on the vertical axis and market share (your strength) on the horizontal axis.
The following examples use “products” but you can substitute clients, machinery, employees or any element key to your success. The analysis is the same.
Upper right quadrant is QUESTION MARKS. It’s where most products, services and clients start out. You have a relatively small market share, but the growth opportunity is great. Others may have a similar product so you are fighting for market share and need to differentiate your brand. You don’t know how much sales will grow, but there is real opportunity here and you want yours.
STARS is the upper left quadrant and where you’d like your QUESTION MARKS to transition. These products have high sales growth opportunity and you own a substantial share of the market. It might be a product you invented or a feature you improved. (Think iPhone or a client who really relies on you.) STARS are the easiest to identify because you wish you had dozens more of them.
CASH COWS sit in the lower left quadrant. This product has limited growth opportunity, but your market share is significant. These established brands generate cash to pay your other bills. (Established clients with a fixed budget are cash cows.) The market demand may be flat, but you make money on every sale. STARS hopefully become CASH COWS as the market matures.
Finally, the lower right quadrant is the DOGS. No growth, little market share. Think any number of small, local beer companies that were sold during the Budweiser/Miller expansion fights and before the local craft beer craze emerged. Eventually nearly every product, service, even whole industries become DOGS. (Think mimeograph machines.)
Identification is relatively easy; action is harder
Each BCG quadrant has an optimal approach. Each is difficult for distinct reasons, especially determining when a product has shifted, but recognition is the key to profit. Move your QUESTION MARKS, but where? Invest time and dollars to build them into a STAR so they can grow into a CASH COW? Or weed them if they begin to bark like a DOG? Monitor them closely and base your move on rational analysis.
The danger with QUESTION MARKS is falling in love with the product and making excuses. A QUESTION MARK should become a STAR or a CASH COW within a VERY reasonable time frame. Otherwise it’s a DOG with a QUESTION MARK tail. (A QUESTION MARK becomes a DOG when you forward a unique idea in an RFQ or RFP and the prospect sends your idea out for others to bid.)
Protect and expand your STARS. Invest resources to control market share. Develop product extensions and features to keep competitors in your dust. A STARS threat is the urge to celebrate your own brilliance instead of monitoring competitors, covering their strategic moves and meeting expanding growth opportunity with expanded (manufacturing or intellectual) capacity. Understand your customer’s need and focus on addressing that, not just selling what you make.
CASH COWS don’t require investment money, they produce it. They do, however, require attention to maintain the cash flow. Facing a shrinking market and budget, you must find ways to capture market share from others or innovate. Repackage. Modify. Reposition. But control your resource investment. Product or service, the temptation is to act as if a CASH COW will take care of itself forever. That turns the COW into a DOG. (Consider the skilled craftsmen who produced 35mm slides for presentations.)
DOGS need weeding. DOG products often sell at prices that don’t even cover overhead, due to “promise.” (One prospect said if we did the ads for free now, we’d get the “opportunity” to handle their huge budget once the product was a success. Huh?)
DOG retention excuses are countless. “It’s our first product (or client).” “We need to offer a complete line.” “It contributes to overhead, even if there is no profit.” “I don’t want to cancel that order (or let that client go), even if it is small.” Old Joe (or Mary) is so efficient at making them.” And the ever popular “That product is our identity!”
Every argument sounds valid. None should keep you from weeding out a DOG. DOGS drag time and dollars away from your ability to create value and receive value. No, you don’t just cut them loose; you hand them off. NO, you don’t publicly label them; you speak positively and weed. YES, you develop QUESTION MARKS to replace DOG income PLUS. Ideally, you release them to a competitor with a clear conscience.
The BCG Matrix can clarify your thoughts when a product problem (or a client problem) arises. You will know what is essential and non-essential to your business and can invest your resources based on conscious logic and expected success. Weed.
Perry Ballard is Chairman of the Board of Perry Ballard Incorporated.