According to Bain consultants Chris Zook and James Allen, a company can grow profitably in two ways: by diversifying or by expanding the boundaries of its core business, or what they call entering adjacencies.
Their study of thousands of companies has led them to say there are six ways to enter an adjacency:
- Expand along the value chain (De Beers moved from wholesaling into retailing diamonds, for example).
- Use new distribution channels (supplement maker EAS moved from selling to nutrition stores to selling to Wal-Mart).
- Enter new countries (Vodafone expanded from the UK to Europe, the US, Germany, and Japan).
- Address new customer segments (discount broker Charles Schwab became an advisor to the super wealthy).
- Offer new products and services (IBM pioneered "global IT" and doubled its earnings).
- Build a new business based on an in-house capability (American Airlines created Sabre, which in turn created Travelocity).
How about you? Are you expanding your boundaries?
My new business partner and I, while our direct marketing agency is still in its infancy, have already added six new products and services to the four core offerings we opened shop with in January, including PR, video production and marketing research.
We're following advice you can find in Competing Against Luck, whose authors say customers never "buy" products and services, but "hire" them "to get a job done."
We're designing a menu based on jobs our customers need to get done. We might not grow at the pace of Charles Schwab or IBM, but we're trying—and learning a lot in the process.
I'll keep you posted, in any event.