Go Big or Go Home: How (and When) to Use Big Bets to Achieve Aggressive Growth
By James Dorn, President
CEOs of manufacturing companies spend a lot of time thinking about growth and how best to pursue it. Is it wiser to play it safe with smaller initiatives that achieve modest growth with less risk? Or is it smarter to focus on fewer and bigger bets with higher levels of risk and reward? The answer to this question depends on your firm’s specific situation as well as what’s happening in the marketplace.
PE-backed firms and emerging firms seek aggressive growth by nature. These firms are accustomed to taking bigger bets in an effort to move the needle further and faster. But it’s a different story for established, independently owned firms, for whom growth may be more incremental or cyclical. It may take significant market disruption, competitive encroachment or concerns about relevance for these firms to kick their growth engines into high gear. Whether it’s baked into a firm’s DNA or an exception to the rule, we’ve found that almost all manufacturing companies can benefit from taking bigger bets at one time or another. Below we detail five basic corporate growth strategies that you should consider when it’s time to shake things up.
What is a “Big Bet”?
A big bet is a strategic play that moves your firm toward a new goal in pursuit of revenue and profit growth as well as competitive advantage. By definition, big bets involve some level of disruption to your firm’s current business model and go-to-market strategy – and it may even be disruptive to the industry at large. Big bets generally have a longer-term horizon and may take 2-3 years to implement.
Because big bets almost always involve pivoting in a new direction, they are challenging to forecast with certainty. Historic and reference data will only get you so far. The ROI projections may be clear, but the outcomes aren’t certain. It’s important to rate and mitigate the risks of big bets. But no amount of risk mitigation can remove the risks entirely. At the end of the day, big bets also require a leap of faith.
Five Basic Corporate Growth Strategies to Pursue Big Bets
At Dorn, we work with clients to determine when is the right time to take big bets and uncover where the greatest opportunities lie. Some examples of the types of big bets we help manufacturing companies take include:
- Digital transformation. This might involve using artificial intelligence to improve pricing, supply chain, demand planning and forecasting, audience modeling, targeting, and customer service. It could also mean making your products smarter (a la the Industrial Internet of Things) or adding a network of integrated services.
- Acquisitions. Acquiring another firm or product line in your core, adjacent or non-core markets.
- Pursuing a customer-centric strategy. This could mean selling directly to a segment of end-users that are not being serviced well by a firm’s distribution network.
- Value-added services. Adding a new service to complement your product line, such as engineering, advisory and training services, typically represents a big bet.
- Customer Service. Improving the brand experience for your channel and end-user customers by mapping and rating all touchpoints by functional group.
Big Bets, Smart Choices: How to Approach Big Bets to Minimize Risk and Maximize Reward
It’s worth considering big bets if your manufacturing company is 1) in pursuit of aggressive growth, 2) concerned about its ongoing relevance in the marketplace or 3) dealing with competitive encroachment. In these instances, big bets represent an opportunity to meaningfully shift your manufacturing company’s position for the better.
Remember, though, that big bets are inherently riskier than smaller, more incremental initiatives. So it’s crucial that you assess and approach them methodically to optimize your chances of success. We help our clients walk through each step of the process, from identifying best-fit big bets to planning, executing, and benchmarking once goals are identified. We advise firms that are making big bets to take the following approach:
- Narrow your focus. Executing big bets requires focus, coordination and a commitment of resources. If you attempt to work on too many at one time, you’ll end up with poor execution, higher levels of risk and smaller gains. Limit your organization to no more than two concurrent big bets. It may be helpful to pick two that are connected in some way (for example, pursuing an acquisition that helps your firm jumpstart a digital transformation). Prioritize the right big bets by rating your ideas based on the level of risk, the likelihood you’ll succeed, and the possible upside. Then, get your team focused around winning your big bets.
- Rely on a strong fact base. Regardless of how seasoned you might be, it’s never a good idea to make big bets based on instinct alone. Do your homework by putting together a strong fact base. This should include information on your organization’s infrastructure, brands, portfolio, competition, customers, end users, markets, and financials. If the fact base doesn’t support your gut feeling about a big bet, go with the facts.
- Develop a business case. Once you’ve identified one or two big bets, you’ll want to build a hypothesis about how exactly it might make your firm more successful. The next step is to validate your hypothesis via rigorous study and analysis. For example, when we develop a business case for our clients, we look at the available data in the fact base and then dig deeper by conducting research to fill in the gaps. This often includes facilitating customer interviews and capturing competitive intelligence. Coming out of this phase, you should be able to set growth targets and identify a specific level of investment for each of your big bets.
- Build an evolutionary plan. Once you’ve decided to move forward with a big bet or two, it’s time to develop a plan of attack. Remember that you don’t need to tackle it all at once. But you do need to come up with a plan that provides the right balance of structure and flexibility to allow your team to move forward with confidence and pivot as needed. When we partner with clients to help them build these roadmaps, we also perform a secondary analysis to identify risks and come up with solutions to mitigate them.
- Vet your bets with a pilot. Starting your initiative with a pilot run helps you to further mitigate risks and refine your go-to-market strategy. For example, if your big bet is to start selling direct to customers, you might start by selling in just one geographic region or family of products. Once your pilot is up and running, you’ll have the chance to assess the success of your strategy and fine-tune it as needed before fully rolling out your big bet initiative.
Big bets are never without some risk. But they sometimes represent the best next step. The good news? It is possible to approach them wisely and position your firm to reap the rewards. Feel free to contact us if you need some help walking through these steps.