Grow fast or die slow! or maybe die fast!
Disruptive innovation is an iterative process. After a series of failures, a firm’s eureka moment may provide an initial launch point that threatens incumbents. But in the presence of competition, growth both horizontal (scale) and vertical (service enrichment) may be essential to survive and thrive.
“Grow fast or die slow: Pivoting beyond the core”
Turbocharged initial growth is essential to surviving in the software industry. But what comes next? Here are four lessons so leaders can write their organizations’ second act.
April 2015 | by Rishi Kant, Eric Kutcher, Mitra Mahdavian, and Kara Sprague
Software companies must constantly evolve and capture new growth opportunities or risk slowly declining into irrelevance. Only 3 percent of start-ups grow into companies boasting annual revenue of at least $1 billion.1 Yet that achievement is only the end of the beginning. Act II involves developing into a multibillion-dollar company, and the odds are slim: our latest research shows that of the 3,197 public software companies launched between 1980 and 2013, just 19 have reached $4 billion in annual revenue.
We’re not suggesting that “only” having revenue of $1 billion annually is a problem or that all companies aspire to get larger and larger. Yet no company can afford to stand still. Business leaders often struggle to determine when, where, and how to move their organization beyond its initial growth spurt. Through our research into the role of growth and our extensive work in the software sector, we’ve identified four lessons:
- All companies need a second act. As companies scale, they periodically need to look beyond their core business to identify new sources of growth. How soon depends on the size of the core market and the speed of market saturation.
- Emulate the best. We’ve found three models of success that companies can emulate: rocket ships, adjacency buyers, and reinventors.
- Timing is critical. Moving too early will detract from Act I, while moving too late will stall the company. Companies that successfully navigate Act II employ “headlights” to pinpoint the right time to move.
- Keep your balance. The right growth market isn’t necessarily the largest or the fastest growing or the most adjacent. Successful companies strike a balance between aspiring on attractiveness and anchoring on familiarity.
It’s ‘grow fast or die fast’: Anaplan’s Frederic Laluyaux
Download the entire McKinsey&Company Article “Grow fast or die slow: Pivoting beyond the core” or the McKinsey&Company Interviews with Anaplan CEO Frederic Laluyaux, Jive Software executive chairman Tony Zingale, and Synopsys cofounder, chairman, and co-CEO Aart de Geus; in which they discuss how important it is for software and online-services companies not only to zero in on their main priorities but also to be prepared to reevaluate products and processes as they grow. “The reality of growth in the software industry”