Identifying high-potential opportunities

- Take the case of Starbucks around the year 2000. The company has been around for over 15 years, it is growing and doing well. Hypothetically, Starbucks could consider entering any industry or segment, which would be new to it, such as Internet search, or smartphones or pharmaceuticals, or what about telecom equipment? Obviously, such thinking would be ludicrous, and a waste of time. Any company that diversifies into a business that it knows little about is coating disaster. How then, should Starbucks identify a set of the most promising growth opportunities rapidly and logically? In answering this question, a two dimensional framework can be extremely helpful. The central idea behind this framework, is that in pursuing new growth opportunities, the company should build on its historical strengths, while also stretching itself into new marketplaces. Let the X-axis represent the company's current products and services. Along this axis, think of two options, current versus new. Now, let the Y-axis represent the company's targeted customer segments. We now have four cells on this two by two matrix. The cell on the bottom left, this cell represents the company's existing business. Within this cell the company can still grow by stealing market share from competitors and, or by increasing the size of the potential market for coffees. The bottom right cell refers to new products and services targeted at current customer segments. For Starbucks, potential growth options in this cell might include accessories, such as beverage mugs, and coffee makers. The top left cell refers to current products and services targeted at new customer segments. Potential growth options in this cell would include, expansion outside the US, but also think of cafeterias in offices, universities, and the like. In these locations, it may not be possible to set up a Starbucks store. However, it may be possible for Starbucks to enable franchise kiosks, it can to a store within a store. Finally, the top right cell refers to new products and services targeted at new customer segments. Growth options that belong to this cell represent truly wide spaces. Every company should be careful about growth options that emerge from this cell. It would generally be best to stay away from those ideas, which imply diversification into product market arenas that do not build on any core strength. However, those ideas which build on existing core strengths could represent excellent opportunities for profitable growth. For Starbucks, these could be ideas, such as tea houses, designed around gourmet teas, and aimed at tea enthusiasts. To sum up, it is not a good idea to engage in random brainstorming when generating options for future growth. Instead, such brainstorming should be guided by the two dimensional framework that we just discussed. This approach reduces the risk of overlooking potentially good opportunities, while preventing corporate leaders from distraction by red herrings.