Don’t Underestimate Growth Plus the Digital Operating Basics (Tech Strategy – Podcast 122)

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This week’s podcast is about combining two previously covered topics: growth and the digital operating basics. This can be surprisingly powerful.

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

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

He argues most all sustainable growth is based on 1-2 strong cores that continually adapt.

  • 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.

Then add growth adjacencies. 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.

Growth + DOB can sometimes get you the dream scenario:

  1. Grow the revenue line.
    • Add to monthly transacting users (MTUs), services and per user spending. Become a bigger business.
  2. Increase gross profits. An expanding margin with size.
  3. Increase operating leverage with increasing scale. This is more about going for scale.
  4. Invest in R&D, tech and infrastructure. This will result in a better user experience and improve operating efficiency.
    1. Drive efficiencies and increase monetization.
    2. Improve the user experience.
    3. Expand the products and services in high growth areas.
  1. Do targeted M&A. To increase innovation and protect against disruption.

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Related articles:

From the Concept Library, concepts for this article are:

  • Growth: Core vs. Adjacency
  • Digital Operating Basics
  • DOB7: Sustainable Cash Engine that Scales

From the Company Library, companies for this article are:

  • n/a

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I write, speak and consult about digital strategy and transformation.

My book Moats and Marathons details how to measure competitive advantage in digital businesses.

I also host Tech Strategy, a podcast and subscription newsletter on the strategies of the best digital companies in the US, China and Asia.

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Get a deeper understanding of the strategies and business models of the best digital companies.

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Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

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