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Growing in adjacent markets is a powerful approach to generating new revenue, rejuvenating businesses, and taking countermeasures against competitive advantage. From Netflix’s entry into streaming and then content production, to transforming Fujifilm from Kodak rival into a $ 20 billion medical imaging powerhouse, to growing Ingersoll-Rand from making air compressors to Power tool maker has led the game book to attack neighboring markets in both high-growth and mature industries. However, it is also fraught with pitfalls. How do I avoid them and follow the path of the winners?

Know the dangers first. Too often, these endeavors become a senior executive’s favorite, and the unfortunate result is that they are “loved to death.” The employees are committed to the efforts, the funding flows freely and many stakeholders are demanding a say. Decisions are made too early or the project is watered down by trying to please too many voters. The result can be an attempt to perfect a proposal before you even know if the market will be interested, long deadlines to get things done, and big budgets that are eventually cracked when the company urgently needs funds elsewhere. Conversely, the opposite danger is that a growth initiative could develop an overly long list of potential opportunities without making difficult decisions, and therefore spread the money and attention too thinly to gain real traction.

As with many other companies, the solution to these challenges lies in equilibrium – creating an approach that is neither over- nor under-structured. Inspiration doesn’t come from entrepreneurs (unless your company is actually a start-up with the freedom to act as one) nor from Silicon Valley giants (unless you happen to have a few billion dollars lying around). Rather, venture capitalists point the way to success.

Before venturing into new business, venture capitalists typically focus on five things that should also make up your checklist:

1. Start with market demands and work backwards – Rather than approaching business opportunities like a hammer looking for nails, understand what the market really needs. Often times, this is not what customers ask for directly. This is the obvious stuff that your future competitors are hearing and may already be working on. Go deeper and understand what jobs people are trying to do beyond what they might buy today. You don’t need to limit this exercise to a long period of research, but a little time spent on these topics in advance will save significant time later. From this starting point, you can assess what latent or inarticulate needs exist in the market, where current solutions are falling short, what a new solution registration would do with customers, and which triggers both accelerate adoption and create barriers to market penetration. Note that no solution has yet been defined! Being solution-independent at this stage can ensure that you think like customers, not like hammers.
2. Make strategic theses – Given these market demands, as well as contextual factors such as competitive activity, your company’s strategic strengths, and industry trends, create a clear set of theses that set out:

These theses should remain solution-independent and concentrate on what a solution has to achieve and not on what it is specifically.

3. Search for possible solutions – A solution should be found at this point in time. We find that this can best be approached from three angles. First, examine what others are doing, including outside of your geographic markets. Our company often finds inspiration in demanding external markets such as Japan, Singapore, the Netherlands, Brazil and South Africa. While the offering may not transfer 100% to your customers, the analogies can trigger new, orthogonal thinking. Second, you search the industry for startups trying to address these issues. Your approaches may be imprecise, but these companies are effective in doing market research for you. So pay attention to what they are committed to. Finally, convene a meeting with your internal stakeholders to base them on market insights, strategic theses and external market and start-up activities. Then have them come up with ideas that alternate between divergent and convergent thinking to make sure you have diverse and detailed concepts. You should convert these ideas into a comprehensible number for further investigation, with stakeholders having to determine the main risks and assumptions themselves so that no idea is shielded from difficult questions. During this process, you may have ideas that you came up with yourself, and if no one else is bringing them up, you can introduce them alongside the other concepts. In general, however, you will find more support when the stakeholders view an idea as their own even though it is shaped by some of your considerations.
4. Shape, prioritize, and iterate the solutions – Venture capitalists know one thing about an entrepreneur’s business plan: it is inevitably wrong. You are looking for the seeds of a high performing concept and a team that can repeat its path to success (more on team in a moment). Then they balance responsibility and autonomy for the startup’s team. When I ran a venture-backed company, we had monthly board meetings with the funders, but between those meetings I had broad authority to do what I needed to implement the priorities we’d agreed upon at those monthly events. This system works. Meetings need to be frequent enough that important decisions don’t get caught in the bottleneck, and then management needs to move on. The key function of governance is to set priorities, take different perspectives, and evaluate progress. It sounds basic, and yet these principles are repeatedly violated in large corporations trying to manage growth in neighboring markets as in a normal business area.
5. Put the right team together – Venture funders are looking for the right team as well as the right concept. Unfortunately, when companies attempt to mimic this practice, the search for the perfect venture leader often results in long delays as hiring practices and the inability to provide stock-like incentives hamper the ability to attract star recruits quickly. Just as finding the perfect solution can jeopardize rapid experimentation and knowledge building about a project’s prospects, finding ideal candidates can also hamper growth efforts in neighboring markets. Worse, you may find just the right person for your concept only to find that the concept needs to be fundamentally re-cast. Most companies benefit from a hybrid approach – with the staff available and possibly a little outside help from consultants doing these things, moving forward quickly, and then recruiting a great team over time. With the team on-site, you’ll have a better idea of ​​what talents you really need and how realizable the concept is as it moves beyond PowerPoint into a real deployment.

Those are the five steps in the roadmap. First, ask yourself a few questions:

• What is the strategic goal for growth in adjacent markets? Is it sales, profit, competitive positioning, option development, or some other bid? The answer might be “all of the above”, but when it comes down to it, which comes first?
• What are our implicit assumptions about the market? What do we not know? What do we seem to disagree about, and what underlying assumptions or knowledge gaps lead to these discrepancies?
• How many initiatives can we end up using? How many must be examined to get there?
• What opportunities are there to grow beyond new products or services, e. B. new business models, ecosystem partners, approaches to customer loyalty or channels? Which factors have to be taken over from the core business (e.g. important sales channels) and where is there scope to do things differently?

Growth in adjacent markets should be structured, targeted and modest. Serendipity is moody; By adopting the above roadmap, companies can achieve reliable and sustainable success.

Contribution to the Insider of Branding Strategy by Stephen Wunker, author of JOBS TO BE DONE: A Roadmap for Customer-centric Innovation

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