This article was first published on @The.Shift Media here in the Anaylsis Section.
In my last few articles, I’ve been writing about growth in different kinds of markets, and how to spot a real growth market given that COVID-19 has created confusing business signals and uncertainties.
As a company, you are always in a ‘market’ and I use this term loosely, because it depends on what stage of growth you are in.
You could be in a growing, declining, fast changing or matured one.
Markets are always dynamically changing, because the problem/demand evolves or the market forces change at different levels and speed.
I was asked this year to predict which industry will grow post-pandemic, I was perplexed by the question, because it’s based on a false assumption and understanding. Growth is always at a category level and not at an industry level.
I also dislike the term industry as it’s a traditional term that does not fully reflect the emerging new world, where technology is bleeding into all industries.
So how do you categorise such companies? Is Google an education company given that it is moving into the EdTech space?
The entire education sector is undergoing structural changes, and yet the ‘online learning’ category is itself a growing market.
Organic growth is at a granular level
In this McKinsey article, The granularity of growth, check out the sidebar content named ‘A fine-grained view’ and its exhibit.
It shows you the four classifications: G1 Sector, G2 Industry, G3 Sub-Industry and G4 Categories as illustrated in the figure below.
It also concludes that the growth rates for different industries vary from approximately 2 to 16 per cent – far less than the spread at the company level, which ranges from -13 per cent to 48 per cent (exhibit). Meaning the data supports the viewpoint that talk of growth industries is meaningless.
Real growth markets start with a problem
My article here about How to spot real market growth explains the 3 key factors to recognise a real growth market.
One of the key points is that demand grows when there are a few key long term trends that reinforce a problem that gets bigger and bigger and therefore needs solutions to solve it.
As the problem grows, the demand increases and the new market itself expands.
If you are one of those companies providing a solution to this growing demand, then the rising tide will lift all boats.
You and your competitors will grow in this new space, before a winner emerges as the market leader.
I am using the term category and market interchangeably, especially for new emerging markets, because technically, a market is an aggregation of all the transacted economic value of goods and services.
It’s more useful to use the term ‘category’ than market when describing a space where a surge in startups is creating new demand.
Same industry, different category, different trajectory
I further illustrated this point in my Growth is possible article and webinar, where I showed that in a COVID-19 recovered economy, a luxury travel category/market will perform differently to an adventure travel category/market.
One is a growing market and one is facing headwinds given the adverse trends. The key trends create the demands or problems and the category may benefit from the forces or not – while both still fall under the same broad industry.
Another example, is the comparison of a niche themed restaurant like an organic vegan cafe, versus a fine dining restaurant category. They are both in the hospitality industry, but are both in different categories, and not experiencing similar growth or decline. Of course, if it’s a lockdown, both markets are restricted.
Growth in a matured market
It’s possible that even if you’re not in a growing market, you can experience high growth to gain market share over your competition in a stable, mature market.
This could happen in two ways. You have a new positioning with a better offering and suck up all the existing demand, especially from your competition. Or you have a real ‘disruptor’ offering that actually creates new economic value and new demand, and it’s not within your competition’s share of the pie.
Usually, this is what people call disruption, but I think they confuse better product and positioning, with a new market type of growth that comes from category creation.
For example, if you are an accountant for an SME, you are in a matured market, unless there is growth in the number of SMEs, or flow on services due to newer regulations etc.
To grow fast in a matured existing market, you can focus on a niche that allows incremental slow growth or a step-change to offer an innovative service that allows you to provide an outcome-based fee structure as a differentiated offering.
This may create fast growth for your business if it meets an untapped need – but you are still just growing fast in a matured market, as you will be taking away work from other accountants who can’t provide such an innovative, attractive offer to their clients.
One hit wonders VS real category growth
With the influx of startups and people creating new products and services, not all products are created equal.
Some are just a one-off product success that will not grow into a new market that has enough demand to sustain a company.
That’s why you see some entrepreneurs, who are inventors of great products, so keen to sell their business fast.
The market is flooded with entrepreneurs who build a product and then sell the business a few years in, having underestimated what it means to either build an enduring company or a category.
That’s also why some startups reach a certain stage and get stuck on where they go next for growth or pivot.
They have achieved some initial success on the product itself, but not enough demand or growth to become a substantial sized company that will make up a mainstream market and endure.
Why is this important to understand?
Because it’s vital you design your company growth for different stages and also in these different types of markets.
This enables you to understand the positioning that suits your company in order to accelerate your growth and to scale sustainably.