What comes after business growth slows?
I am fascinated by a paradox in business that I call the Missing Middle. Most companies are successful extending their core business by investing in products, sales, and marketing. But as the market growth slows, or the competitive environment changes for the worse, then what? I often seen two disparate reactions. The first is to double-down, triple-down, or quadruple-down on the core business and pour ever increasing resources towards dwindling returns. The second is to go for moonshots that will magically create another core business for the company.
Leverage Existing Assets
I describe the Missing Middle as adjacent markets or products. Examples include: moving down-market such as from enterprise to small business to home customers, or leveraging a company’s technology base into new markets through new business models or partnerships. These are not fanciful new businesses — but rather careful and thoughtful investments that grow revenue profitably because they leverage the company’s existing assets and capabilities.
Examples of the Missing Middle surround us. How did Kodak, one of the most recognized brands and the inventor of digital imaging technology, miss the digital imaging wave? How did IBM, the leader in enterprise computing services, miss becoming the leader in cloud services? How did Hilton and other multinational hotel chains, miss the power of the “sharing economy” to rent privately owned properties. In every case, these business opportunities were adjacent to the incumbent and they had significant assets to leverage. It was not necessary for the companies to create the adjacent markets; however, they did need to recognize their significance and effectively bring their assets to bear.
Why is the Middle Missing?
Having worked in over 30 different businesses, I have found recurring reasons for the Missing Middle. For example, business leaders who run highly competitive core businesses are masters of optimization to deliver challenging quarterly financial results. Understandably, they view resource investments outside of the core as a distraction. In response, some companies set up independent teams to “go get the next big business.” These innovation teams often lack political clout and steer clear of the Missing Middle to avoid entanglements with the core businesses. These teams are left to pursue moonshot projects with very low success rates. Executives, frustrated with the decreasing level of creativity and risk taking in their companies, take matters into their own hands and personally champion a new idea but their organizations and leaders often lack the necessary expertise. Even worse, the Missing Middle question is outsourced to expensive consulting firms that consume the company’s information, dissect it and then prescribe solutions without building ownership or developing the leaders responsible for execution. None of these approaches are effective ways to fill in the Missing Middle.
Filling the Missing Middle
What does work is creating a new conversation with the leaders in your company. Start by framing the issue and asking your leaders to assess their current growth portfolio in core, adjacent and transformational businesses. Next, identify the most interesting adjacent opportunities through a lens that includes value and uncertainty. Finally, form an adjacent business team that reports as a peer to the core businesses with the same level of support and accountability. You must mentor the selected leaders and apply a rigorous methodology specifically developed for adjacent business growth. Most importantly, you need to stick with it to create recurring business growth thereby filling the Missing Middle.