Especially in the services world, communication and clarity defining the scope of what is going to be a continuing business relationship – where both sides understand precisely what is being delivered, and how and when – is critical. If parties structuring their interactions rush this process (or get “go fever”) at the outset, or don’t adjust when circumstances have changed, it is not unusual to see litigation occur. Many of the commercial cases I have litigated and tried over the last 20‐plus years have had poorly defined terms at their core. Of course parties can’t realistically expect to foresee and negotiate risks for every future situation they will encounter; but hard work on the front end, with each side specifying and adequately protecting their rights (including over who holds rights to proprietary business confidential information and intellectual property), can help to prevent costly and unpredictable outcomes down the road.
He’s right. In the services world, or in the product world, what you sell needs to be clearly understood and defined. There are too many snakes out there who are all too willing to bite.
They Are Things That Can Be Valued
It may sound obvious, but in my world, growth often comes from new ideas that create goods and services that don’t yet exist. We work to help our clients “value,” or assign a dollar amount to, their idea. Later on we’ll talk about how different companies approach this, but if you want to sell something, the market has to perceive value in it. No matter how cool a new product is, or how much time you’ve invested in it, there has to be a perceived value proposition that is well understood by the client.
Combine these two most important factors and you create the revenue matrix.
The Revenue Matrix
When customers and goods/services collide, four sources of growth result:
1 An existing client and an existing product
2 An existing client and a new product/service
3 A new client and a new product/service
4 A new client and an existing product/service
FIGURE 1.1 The Revenue Matrix
If you put them together in a two‐by‐two table, you get the Revenue Matrix that presents these categories visually (Figure 1.1).
This is an extremely powerful way to think about the sources of revenue, and you can easily use this matrix to segment your current portfolio and growth plan. I’ve used this matrix throughout my career to consider how to drive revenue.
Defend and Grow
The first two quadrants deal with “Defend and Grow” opportunities, which are driven by existing client relationships. You want to defend them against competitors, but also grow what they spend with you over time.
Quadrant 1: Discount/Commoditize
Selling existing customers existing products and services is a staple for a sustainable business. This is where I would expect to see the vast majority of revenues come from in a business older than 1 year. Over time, in most businesses, this bucket declines due to commoditization. You get stale. You are vulnerable to a competitor’s fresher, more interesting offering.
Quadrant 2: Develop New Products
Next is the lower right‐hand quadrant, or selling existing customers new products and services. By developing or offering new products and services to existing clients, you leverage the goodwill you have already generated and are able to counter commoditization and price erosion in the prior quadrant.
Attack and Grow
The next two “top” quadrants deal with “Attack and Grow” opportunities. These are where you are acquiring a new client, typically taking them away from another vendor. Typically a heavier lift and riskier effort.
Quadrant 3: Innovate
Acquiring new customers and new product revenues, or the upper right‐hand quadrant of the matrix, is a “share grab”. . . using a new product to take away customers from competitors. This is an expected and classic strategy in the game of product improvement. You can see that across industries – the launch of a new phone, the introduction of a new COVID antibody test, the development of a new shoe fashion – each of these can attract new customers because they want a new product.
Quadrant 4: Grow Customer Base
New customers buying existing products and services has a variety of causes typically associated with its selection, including the failure of a competitor’s product (supply chain or product dissatisfaction) or strategies of bundling with newer more disruptive products to allow access. Often times it follows an increase in sales focus on a new customer community or geography.
Oliver Richards has been a part of Beacon’s story for the past decade. Senior Vice President and leader of our Healthcare and Lifesciences practice, Oliver is also my chief growth officer and is fundamental in driving the success of our firm. A University of Chicago undergrad in chemistry followed up by a PhD in cellular and molecular biology and an MBA from Wisconsin, Oliver is not only brilliant, he’s also a great husband and father, and takes care of all teammates and clients in his orbit. We talked a bit about the four quadrants of the Revenue Matrix.
I think by nature what we do is look at the new and the unknown quite a bit. And so I think we spend probably a disproportionate amount of time on new products and new customers. Probably in the existing customer, new product, new customer, existing product. We focus there versus where our clients spend the bulk of their time, in the existing customer, existing product bucket.
He’s right; we do tend to work on the emerging end of things at Beacon, and Oliver helps his clients drive significant growth in these vectors. As consultants, we love two‐by‐two matrices. They are easy to write, easy to understand, and if they work, they are generally powerful; if they don’t, you toss them out! Like all frameworks, they give structure to challenges and problems, which is one of the goals of this book. However, we have additional goals beyond structuring the problem. We want our output to be pragmatic, actionable, and exhaustive in the planning process. A two‐by‐two illustration alone doesn’t achieve that.
The Four Key Questions: Customers
Growth strategy is complex. Growth strategy is risky. Growth strategy is an art that can’t be taught. These are three of the biggest myths in enterprise business today. If you can answer four questions for your business, you can develop a growth strategy. The questions are simple, powerful, and linked to both risk and reward.
When I started Beacon, the challenge I had was to teach my way of thinking to the people I worked with. There is quite a bit of subjectivity to the approach, but over time I was able to determine that there were objective key risk/reward questions that drove success and failure as my clients executed growth plans in their worlds.
Beyond customer and goods/services elements, there is a near‐limitless group of questions that strategists consider depending on their industry and company. It’s what I call the Strategist’s Challenge: If there are no boundaries to your creativity, how do you know what to focus on?
I always have looked at decision‐making from a pareto position.