Five Steps For Growth Into Adjacent Markets

Growing into adjacent markets is a powerful approach for tapping new revenues, rejuvenating businesses, and creating defenses against competitive upstarts. From Netflix’s entry into streaming and then content production, to Fujifilm’s transformation from Kodak rival into a $20 billion medical imaging powerhouse, to Ingersoll-Rand’s growth from air compressor maker to power tool manufacturer, the playbook for attacking adjacent markets has powered business successes in both high-growth and mature industries. However, it is also fraught with pitfalls. How to avoid them and follow the path of the winners?

First, know the dangers. All too often, these efforts become pet projects of a senior executive, and the unfortunate result is that they get “loved to death.” Employees bandwagon onto the effort, funding flows freely, and many stakeholders demand a say. Decisions get locked in too early, or the project gets watered down by trying to please too many constituents. The result can be a push to perfect an offering before you even know if the market will be interested, long timelines to get things done, and large budgets which are eventually whacked when the business urgently needs the funds elsewhere. Conversely, an opposite danger is that a growth initiative develops an over-long list of potential opportunities without making hard choices, and therefore spreads money and attention too thinly to get real traction.

As with much in business, the solution to these challenges lies in balance – creating an approach that is neither over nor under-structured. The inspiration does not come from entrepreneurs (unless your company is actually a start-up, with the liberty to operate as one), nor from Silicon Valley giants (unless you happen to have a few billion dollars lying around). Rather, venture capitalists point the way to success.

Before they plunge into new business, venture capitalists will typically focus on five things, which should form your checklist as well:

1. Start from market needs and work backwards – Rather than approach business opportunities like a hammer looking for nails, understand what the market really requires. Oftentimes this is not what customers are asking for directly; this is the obvious stuff that your future competitors are also hearing and may be acting upon already. Go deeper and understand what jobs people are trying to get done, beyond what they may be buying today. You don’t have to belabor this exercise into an extended research period, but a bit of time spent on these issues upfront will save significant time later. From this starting point, you can assess what latent or unarticulated needs exist in the market, where current solutions fall short, what would make a new solution register with customers, and what triggers will both speed adoption and raise obstacles to market penetration. Note that there is no solution defined yet! Being solution-agnostic in this phase helps to ensure that you are thinking like customers, not hammers.
2. Establish strategic theses – Given these market demands, as well as contextual factors such as competitive activity, your company’s strategic strengths, and industry trends, create a set of clear theses laying out:

• A market need
• Why it is currently under-addressed
• What segment looks most compelling to target for meeting that need
• Your competitive advantages in tackling the opportunity, including how exactly entry into the adjacent market derives advantages from your core business
• Why the business can grow fast, and what must hold true for that to happen
• What major risks exist, and how you can address each one

These theses should remain solution-agnostic, focusing on what a solution must accomplish rather than what specifically it is.

3. Search for potential solutions – At this point, solution-finding should occur. We find this is best tackled from three angles. First, investigate what others are doing, including outside your geographic markets. Our firm often finds inspiration in sophisticated external markets such as Japan, Singapore, the Netherlands, Brazil, and South Africa. While the proposition might not translate 100% to your customers, the analogies can spark fresh, orthogonal thinking. Second, scour the industry for startups attempting to tackle these issues. Their approaches might also be an inexact fit, but those companies are effectively doing market research for you so pay attention to what they’ve settled upon.  Last, convene a meeting with your internal stakeholders, grounding them in the market insights, strategic theses, and external market and start-up activity. Then have them create ideas, alternating between divergent and convergent thinking to ensure that you have diverse and detailed concepts. You should prioritize those ideas into a tractable number for deeper investigation, having the stakeholders stipulate key risks and assumptions themselves so that no idea is granted immunity from tough questions. During this process, you may have ideas that you have developed yourself, and if no one else raises them you can introduce them alongside the other concepts. But, generally speaking, you will find more support if stakeholders see an idea as their own, albeit shaped by some of your thinking.
4. Shape, prioritize, and iterate the solutions – Venture capitalists know one thing about an entrepreneur’s business plan: it’s inevitably wrong. They seek the seed of a powerful concept and a team that can iterate its way to success (more on the team issue shortly). Then they balance accountability and autonomy for the startup’s team. When I ran a venture backed-company, we had monthly board meetings with the funders, but between those meetings I had broad authority to do what I needed to execute on the priorities we agreed at those monthly events. This system works. Meetings need to be frequent enough so that they do not bottleneck key decisions, and then management needs to get on with things. The key function of governance is to set priorities, take different perspectives, and assess progress. It sounds basic, and yet these principles get violated repeatedly in big companies that try to micro-manage growth into adjacent markets like they would a normal line of business.
5. Get the right team in place – Venture funders look for the right team as much as the right concept. Unfortunately, when corporations try to emulate this practice, the quest for the perfect venture leader often results in large delays as hiring practices and the inability to offer equity-like incentives impede the ability to lure star recruits fast. Just as the quest for a perfect solution can jeopardize fast experimentation and knowledge-building about a project’s prospects, the search for ideal candidates can also set back growth efforts for adjacent markets. Worse, you may find exactly the right person for your concept, only to discover that the concept needs to be fundamentally re-cast. Most companies benefit from a hybrid approach – getting moving fast with the staff available and potentially a bit of outside help from consultants who do these things, and then recruiting an outstanding team over time. By the time the team is in place, you will have a better idea of what talents you really need, and how viable the concept is as it moves beyond PowerPoint and into real deployment.

Those are the five steps in the roadmap. To get started, ask yourself a few questions:

• What is the strategic objective for growing into adjacent markets? Is it revenue, profit, competitive positioning, developing options, or another imperative? The answer may be “all of the above,” but when push comes to shove what comes first?
• What are our implicit assumptions about the market? What don’t we know? What do we seem to disagree on, and what underlying assumptions or knowledge gaps drive those divergences?
• How many initiatives can we ultimately deploy? To get there, how many need to be investigated?
• What are opportunities to grow beyond new products or services, e.g. new business models, ecosystem partners, customer engagement approaches, or channels? What factors must be carried over from the core business (for instance, perhaps key sales channels) and where is there latitude to do things differently?

Growth into adjacent markets should be structured, purposeful, and humble. Serendipity is fickle; through embracing the roadmap above, companies can find reliable and sustainable success.

Contributed to Branding Strategy Insider by Stephen Wunker, Author of JOBS TO BE DONE: A Roadmap for Customer-Centered Innovation

The Blake Project Can Help You Create A Brighter Competitive Future In The Jobs To Be Done Workshop

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

FREE Publications And Resources For Marketers