This week’s podcast is about core vs. adjacency growth. This is a good framework for thinking about growth in digital businesses’.

You can listen to this podcast here or at iTunes and Google Podcasts.

Most of this is a summary of work by Chris Zook at Bain’s strategy practice. I am citing the books:

• Profit from the Core
• Beyond the Core

Most all sustainable growth is based on 1-2 strong cores.

• A profitable core is centered on the strongest position in terms of loyal customers, competitive advantage, unique skills, and ability to earn profits.
  • My list for strong cores are growth / market, competitive advantage and attractive unit economics.
• Adapting the core can be:
  • New products / services
  • New customers – microsegments
  • New geographies
  • New businesses.

Six growth adjacencies:

• New customer segments:
  • Micro-segmentation of current segments
  • Unpenetrated segments
  • New segments
• New geographies
  • Global expansion
  • Local expansion
• New channels
  • Internet
  • Distribution
  • Indirect
• New products
  • New to world
  • Complements
  • Support services
  • Next generation
  • Just new products / services
• New Businesses
  • New to world needs
  • New substitutes
  • New models
  • Capability adjacencies
• New value chain steps
  • Forward integration
  • Backwards integration
  • Sell capability to outside

How to assess an adjacency move:

• Factor 1: Adjacency is tightly tied to a strong core.
  • Economic distance is short. How much does it overlap?
  • Need a strong core or a strong position in a channel, customer segment or product line in weaker core.
  • Usually the linkage is considered superficially. Snapple is close to Gatorade? Production is totally different. So are customers and advertising. And points of purchase and distribution.
• Factor 2: An attractive adjacency market in terms of profit pools
• Factor 3: The ability to capture economic leadership in that market. Competitive advantage as an attacker and then an incumbent.

Digital adjacencies are moderate, relentless expansions versus big trees.

A great quote from Beyond the Core

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

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