Seventy-five percent of growth initiatives fail. So how do the few firms that generate sustained, profitable growth succeed? They expand their strong, core businesses—in predictable, repeatable ways—into related markets where they can excel.

For example, they may continue to focus on their core products, but sell them in new geographic regions, through new distribution channels, or to new customer segments. Such companies develop—and rigorously apply—a strict repeatability formula to these adjacency moves. This formula enables them to change just one variable at a time and execute moves faster.

The payoff? Companies that execute adjacency moves using a repeatable formula grow revenues three times faster than average firms in their industry. Take Nike. By systematically expanding product sales into a series of sports, Nike raced past rival Reebok—growing its profits from $164 million to $1.1 billion, while Reebok’s shrank from $309 million to $247 million in the same timeframe.

Rules for Adjacency Moves
The particular adjacency moves you select matter less than how you choose and execute them. You generate the most growth by carrying out your moves according to well-defined rules:

• Never put your core business at risk
• Make an adjacency move only if you expect to be among the top three players in the new space
• Pursue one opportunity at a time
• Change one variable at a time

Example:
Initially distributing one product (Nigerian cashews), Olam now handles 12 agricultural commodities and operates in 35 countries. It won a reputation for profitably bringing commodity products out of developing markets—by developing vehicles for hedging price and foreign-currency risks. These vehicles formed the kernel of its repeatability formula.

Impressed, customers asked Olam to handle cashew producers in other, nearby countries. It made this adjacency move first, changing only one variable (geographic area). Next Olam started selling coffee, cocoa, and sesame through its existing infrastructure—again changing one variable (commodity product). Soon it built businesses in hulling, sorting, and processing—and eventually marketing, distribution, and risk management.

Build Your Repeatability Formula
Develop your repeatable formula based on insights about customer behavior:

Segment customers.

Use insights about customers’ behavior and purchasing decisions to identify potential adjacency moves.

Example:
Dell’s direct-to-customer business model lets it communicate regularly with end users. It uses this information to subdivide and service customers more efficiently. For example, it splits early education into primary and secondary schools, and higher education into colleges and universities. It locks onto high-priority segments and controls its margins with remarkable precision.

Grow share of wallet.

Sell related products to customers whose behavior you know intimately.

Example:
American Express strengthened its core business by analyzing millions of daily transactions from customers. The data suggested patterns of opportunity; for example, expanding from individual consumers to corporate cardholders. AmEx used these insights to create a family of credit cards with varied interest rates, terms, services, and reward programs.

Mirror customer adjacencies.

Track customers’ expansion plans and future needs.

Example:
STMicroelectronics saw wireless phones take off. Its main customer, Nokia, wanted to load phones with new services without taxing batteries. ST adapted its microprocessor power-management technology to grow with wireless handsets’ capabilities. It became Nokia’s leading supplier of a one-chip system that drove the entire phone.

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