Where Does Growth Come From?
Charting Your Growth: Navigating with the Horizons Model
When it comes to growth, it's important to ask: "Where does our growth come from?" Typically, mature businesses in your portfolio have the highest revenues, customers, and profits, but their growth is limited to 2-5% or even stagnates. On the other hand, younger businesses with product-market fit experience double-digit growth and may surpass the mature ones in the future. Understanding this dynamic is key to making the right investment decisions for a robust and growing business portfolio.
Grow Beyond Profit. While financial growth matters, it's equally important to consider the positive impact your business can make. The future lies in businesses that reduce negative socio-environmental effects and generate positive ones. These purpose-driven ventures are the businesses of tomorrow.
The Three Horizons Growth Framework
Navigating growth requires a simple and structured approach. That's where the Three Horizons framework comes in. Developed by McKinsey, this framework divides growth into three horizons based on time and profit/value.
Horizon 1 focuses on extending and defending your core businesses. Horizon 2 involves building emerging businesses, while Horizon 3 explores new and visionary opportunities.
By strategically allocating resources and exploring opportunities across these horizons, you can achieve balanced and sustainable growth.
Grow Through Business Model Innovation. To achieve growth, you have various strategies at your disposal, such as mergers, acquisitions, and investing in startups. However, I believe that business model innovation is the key driver of growth across all horizons.
By innovating your business model, you can adapt to changing markets, leverage new technologies, and meet evolving customer needs. This unlocks new revenue streams, reduces costs, and gives you a competitive advantage in your industry. Embracing business model innovation requires defining growth initiatives for each horizon and empowering teams to drive change.
Horizon-Specific Growth Initiatives
Each horizon requires a specific approach to drive growth:
Horizon 1: Focus on optimising your current businesses through sales programs, product development, marketing, distribution, and cost reduction. Maximise the value and profit of your core business within a 0-36 month timeframe.
Horizon 2: Build and grow new businesses by exploring adjacent business models. Develop scalable models that generate new revenue and profit within an 18-36 month timeframe.
Horizon 3: Explore radical and entirely new business models in a highly uncertain context. Experiment, pivot, and embrace innovation. While returns may take longer (>36 months), these initiatives pave the way for long-term success.
Let's Look at Apple's Growth Horizons. Apple’s growth strategy provides a real-life example of the Horizons Model:
Horizon 1: Apple focuses on product development, expanding market reach, and enhancing the supply chain within their existing business model to drive short-term growth.
Horizon 2: Apple ventures into services like Apple Music, Apple TV+, and Apple Pay, building a new business model with new revenue streams and strategic partnerships. These initiatives offer significant growth potential.
Horizon 3: Apple explores the healthcare sector, empowering users on their personal health journey. By leveraging their hardware and services, Apple is building a powerful ecosystem in healthcare.
Chart Your Growth Journey
As an entrepreneur or a business leader, charting your growth journey is vital. With the Horizons Model, you can envision your future, identify growth opportunities, and adapt your business model to thrive in a changing landscape.
Let's navigate this journey together, embrace growth, and achieve remarkable success. Get in touch.
Enduring Ideas: Three Horizons of Growth. McKinsey Quarterly, Steve Coley, 2009
McKinsey’s Three Horizons Model Defined Innovation for Years. Here’s Why It No Longer Applies. Harvard Business Review, Steve Blank, 2019