Book Summary: The Physics of Business Growth

• Author:: Edward Hess, Jeanne Liedtka
• Source:: Kindle
• Date Finished:: January 30th, 2021
• Rating:: 3/5

Why

Sustained and long-term growth requires a different mindset, team culture that enables, and systems that support foster growth. Most teams or companies are set up for the efficiency of execution.

Short Summary

• Growth is as much about mindset as it is about execution. A corporate entity eventually evolves into an efficient machine focused on maximising productivity. Risk is avoided at all costs.
• For those companies and teams looking for new growth opportunities, this book provides a set of tools to identify and manage growth experiments. A systems approach to controlling and managing an inherently uncertain and risky activity.
• For a manager or a business owner, the authors share how growth behaviours need to be recognized and rewarded, as they are different from behaviours that maintain the status quo and avoid risk.

Tags:: #Book Notes #Marketing

---

Subscribe to my newsletter and get notes and summaries of marketing and strategy books in your inbox.

---

Long Summary

Physics of Growth

Growth = Mindsets + System + Processes

Growth is an iterative learning process.

Large orgs are set up for efficiency and execution. Growth involves exploring uncertainty.

Growth myths: Businesses do not have to grow to stay alive; growth is not always good; bigger is not always better; and continuous linear growth is the rare exception, not the rule.

Growth isn’t about taking big bets, but many small ones which are then scientifically experimented and narrowed down to those with the best chances of succeeding

Growth can’t be outsourced in the long run nor can it be achieved solely through acquisition.

Even more sobering, continuous acquisition in the absence of organic growth is akin to a drug addiction—it keeps taking bigger hits to get the same kick.

Goal = Growth + Execution

Complexity theory – orgs observe, adjust and adapt to a constantly changing environment

ants’ search for food in a process she calls “communication via sampling”: Ant foraging uses a parallel-terraced-scan strategy: many ants initially explore random directions for food. If food is discovered in any of these directions, more of the system’s resources (ants) are allocated, via feedback mechanisms, to explore those directions further. . . . As in all adaptive systems, maintaining a correct balance between these two modes of exploring (random and focused) is essential. Indeed, the optimal balance shifts over time. . . . As information is obtained and acted on, exploration gradually becomes more deterministic and focused in response to what has been perceived by the system.

Successful companies are not necessarily those with the most unique products, visionary leaders or better R&D capabilities. Instead these companies have a highly engaged workforce, compassionate leaders and a learning culture even if that means by imitation. They build an internal system of growth that enables these behaviours and culture to foster innovation.

Ideal growth team members have a growth mindset motivated to achieve an idealized outcome versus avoiding negative ones, a wide range of T-shaped experiences, and customer empathy #Mindset

Growth System

Growth System is a seamless, consistent, self-reinforcing alignment of culture, structure, leadership behaviour, HR policies and processes, and measurements and rewards that enable and promote defined growth behaviours.

Growth Behaviours

• Active listening
• Asking questions
• Experimenting with new approaches
• Paranoid about complacency
• Continuous learning
• Measure and reward these behaviours
• Ownership
• Leading by example

Toolkit: Questions to help define growth behaviours

1. What behaviors encourage or evidence a Growth Mindset?
2. What behaviors evidence a fixed mindset?
3. What behaviors promote or evidence utilization of growth-creating processes: identifying opportunities, experimenting, and building Growth Portfolios?
4. What behaviors inhibit the effective utilization of growth-creating processes?

Toolkit: What growth behaviours to measure

1. number of growth ideas generated
2. the financial impact of improvements,
3. number of experiments conducted,
4. time spent with customers exploring needs,
5. populating knowledge management content,
6. utilization of knowledge management content,
7. proficiency in Growth Processes (Black Belts), and
8. speed

Three approaches to structuring a company to enable growth within are:

• to integrate growth functions inside each business unit,
• create a separate growth center in the organization and finally,
• a hybrid approach where labs experiment with ideas and when validated are integrated or spun off into business units.

The more radical an idea, the more protection it needs within the organization.

A well-designed system can become a competitive advantage.

Discovery and Idea Validation

Finding good ideas is a volume game.

Good ideas are when customers want them, you can make them and do it with a profit

Creative ideas = creating value for customers

Ideation tools

Discovery

Discovering the “adjacent possible” is to find a “shadow future hovering at the edges of the present state of things”

Talking to the customer is unfruitful if you ask the wrong questions like “what do you want?”. Customers don’t know what they want until they see it. Instead, ask questions focused on the job they’re trying to get done.

Journey mapping to understand the emotional highs and low of a customer experience and find your blind spots

Value chain analysis looks for strategic opportunities and vulnerabilities in the value chain

Mind mapping provides output to drive the Concept Development stage.

The outputs of the discovery stage must meet design criteria for them to be successful.

Design Criteria

1. Design Goal
   • What have you learned about the target customer?    
   • What needs (functional, emotional, psychological, social) does the design have to fulfill for the target customer?    
   • Why is it strategically important for your organization to address those needs?
2. User Perceptions
   • How important is your proposed offering to the target customer’s well-being?    
   • Are there aesthetic attributes necessary to succeed with the target customer?    
   • Does the target customer expect the offering to have certain social, ethical, or ecological attributes?    
   • What does ease-of-use mean to the target customer?
3. Physical Attributes
   • Must the offering be able to capture, store, and/or transmit information about usage?    
   • Does the offering need to be designed for use in specific environments or situations?    
   • Are there weight or size considerations for lifting, use, or transport?
   • Are there memory, bandwidth, or connectivity issues?
4. Functional Attributes
   • Does the design of the offering need to accommodate specific use-case scenarios? List them in order of importance to the target customer.    
   • Does the design need to address compatibility or standards issues?
5. Constraints
   • Does the final offering need to be completed by a specific date?  
   • What constraints does your current business impose (the offering must use the existing manufacturing base, provide higher profit margins than current offerings, leverage proprietary technologies, etc.)?    
   • Are there ecosystem and regulatory concerns (height of shelves at retailers, OSHA regulations, etc.)?
     

Idea Generation

• Brainstorming
• Concept development

Ideas = possibilities x constraints x uncertainties
#[[Mental Formulas]]

Eight ways to identify new possibilities

1. Challenge the industry norm
2. Connect the dots #Analogies
3. Visualize with maps, storyboards, and prototypes
4. Collaborate with others with different capabilities
5. Have an emotional appeal
6. Constraints that act as triggers
7. Reframe the problem
8. Playful engineering

Growth Experiments

Learning launch = series of low-cost + time-efficient + small experiments to test growth ideas & their hypotheses.

The opposite of this approach is to look for the big idea resulting in big bets without much data.

An idea could take 3-4 learning launches before you make the big decision. Picking a winning idea at this stage is a low-probability game.

It is a scientific approach to testing and validating your ideas through a series of low-cost time-bound experiments.

100 growth ideas > 10 growth experiments > 2 growth initiatives

How to run a growth experiment

1. Create a testable hypotheses

Toolkit: Questions to ask yourself

{{: ((qyj-cvQ9a))}}

2. Assemble the right team

Growth Behaviours

One must be aware of [[Cognitive Dissonance]] and [[Cognitive Blindness]] when looking for data that contradicts your hypotheses.

[[Cognitive Blindness]] filters information that doesn’t fit our existing mental models. [[Cognitive Dissonance]] minimizes the importance of discomforting data.

You tackle these problems by building a diverse team with different skills, experiences and points of view.

3. Unpacking the assumptions

Toolkit:

• 5 Whats – “what must be true for a statement to be true?”
• 5 Whys
• Test the 4 kinds of assumptions
  • Customer Needs Test – Do customers really need it?
  • Execution Test – Can we do it?
    • Testable hypothesis: You build a product a customer needs and values at a profitable price of $X. Test needs to validate this statement.
  • Defensibility Test – Can competition quickly copy it?
    • This test forces your to acknowledge that your idea is probably not unique
  • Scaling Test – Are there enough customers with this need?

4. Prioritize the important assumptions

[[Ownership bias]] might cause people to get attached to their ideas.

A company’s culture might also influence what assumptions to focus on. For example, a tech/product company might focus on its capabilities to build the product.

Fatigue for lengthy deliberations on the assumption could cause a build up of a need to do a test before carefully picking out the foundational elements of the assumptions.

5. Designing each test

We need to be clear on who will look for what data, where and when.

6. Doing the test
   • Look up legal material on how discovery deposition questions are done.
   • The Discovery process is not the same as a sales process. Have two people attend the interview with one of them being a skeptic.

7. Managing the process
   • Weekly meeting to review process and data, focusing on the quality and interpretation of data gathered
   • Check whether search for disconfirming data is as aggressive as the other.

8. Make a decision
   • Continue explorations
   • Move to development
   • Drop

Growth experiment might take 3 months to run and cost an average of $40,000

Growth experiments are not to be confused with development. It is a pre-product idea discovery, exploration, and validation phase, similar to the [[Validation Board]] popularized by [[Lean Startup]]

Growth Portfolio

Growth Portfolio = Growth experiments (short term needs, long term needs)

The strategy will define the boundaries and scope of the growth ideas and processes.

S-curve depicts the lifecycle of most successful products – startup phase, growth phase, product maturity phase, steady decline. The speed of this progression varies across industries.

Map your current revenue streams on the S-curve to create a baseline of your current reality. This will tell how much new growth is needed to avoid a decline in revenues

What kind of growth do you want or need: #Growth

Growth can be classified into top-line (revenue) and bottom-line (efficiency). Rapid growth or steady growth

Pixelmattic’s [[Digital Growth System 🌱]] is a top-line long-term growth initiative primarily with some short-term growth measures

You can grow through acquisitions, improvements, innovations and scaling.

• Improvements – faster, better
• [[Scaling]] – doing more of the same
• [[Innovation]] – doing something different than before or 10x better
• [[Acquisitions]] – grow inorganically

Another dimension to growth initiatives is risk

• Color coding growth initiatives with risk levels
  • Green – a high probability of success, low financial risk
  • Yellow – medium success, medium risk
  • Red – low success, high risk

A good portfolio will diversify and hedge the risks.

A 2 x 2 x 4 x 3 growth portfolio grid will show timeline of initiative (short-term/long-term), character (top-line/bottom-line), type (improvement, scaling, innovation, acquisition) and risk (green, yellow, red)