Strategic Growth Planning: Where Next Year's Growth Will Come From

What Is Strategic Growth Planning?

Strategic growth planning is deciding where next year's revenue will come from, in what amounts and in what order, and what has to be true for each amount. It ends with a check that the people, the pipeline and the cash exist to deliver it. The output is a short plan with an owner for every line.

It sits underneath the strategic plan, not beside it. The strategic plan decides which markets the company plays in and what it will be known for over three to five years. The growth plan takes the next twelve to twenty-four months of that and turns it into revenue lines somebody can be held to. A company can have a sound strategy and no growth plan, which is the more common failure, or a growth plan with no strategy, which is a list of targets.

How the wider planning cycle runs, including the phases, who should be in the room and how often to meet, is covered in the article on the strategic planning process. This one stays with the growth number.

Why Most Growth Targets Are Missed

Most growth targets are missed because they are set as a single number and never broken into sources, so nobody can see early which part is failing. The evidence that missing is normal is old, but it is large.

In 2000, Bain & Company published a study of 1,854 large public companies in seven countries over the ten years to 1998. It built its growth target by averaging the targets in a random sample of real corporate strategic plans: 5.5 percent a year, after inflation, in both revenue and profit, while creating value for shareholders. Only about half kept that up for two years on average. Fewer than 27 percent managed six. Only 13 percent did it for the whole decade.

Bain came back to the question in 2016 with a five-year study of 8,000 companies. One in eight hit its growth targets over a decade, close to the earlier figure. And 85 percent of the barriers to profitable growth were inside the company, in how it was organized and run, rather than in competitors, regulation or a market with nowhere left to grow.

These are big companies, and the first study is more than twenty-five years old. A $10 million company has different problems. The lesson that carries is not the percentages. It is that a target on its own tells you nothing until revenue arrives, and revenue arrives last. By the time it shows the miss, half the year has gone.

Start With the Gap, Not the Target

The gap is the target minus the revenue you will keep next year if nothing changes. It is always bigger than the difference between the target and this year's revenue, because some customers will leave or buy less. Plan against the gap, and count the loss first.

Take a company with $10 million of revenue this year and a target of $13 million next year. This is an example with round numbers, so put in your own. The board sees a $3 million growth plan. But the company loses about 10 percent of its revenue each year to customers who leave or spend less, so if nothing changes it starts next year at $9 million. It has 100 customers, paying about $100,000 a year each. The real gap is $4 million.

Three numbers set the gap, and all three are in records you already keep:

1. This year's revenue, from the customers you have now, at the prices they pay now.
2. What you will lose: the revenue from last year's customers who left or spent less, as a share of the total. Use two years if one was unusual.
3. The target, set by the board or by you.

Most growth plans are built on the smaller figure, and the missing million turns up in the third quarter as a shortfall nobody can explain. Writing the loss down first also puts the cheapest lever on the table before any of the expensive ones.

The Six Growth Levers, From the Core Outward

Growth comes from six places. In order, from the most certain and cheapest to the least: lose fewer customers, raise prices, sell more to the customers you have, win more customers like them, step out to a new kind of customer or a new offer next to the one you have, and go far out to a new market or an acquisition.

Most lists of revenue growth strategies start at the far end, because new markets and acquisitions are the interesting ones. A plan should start at the near end, because that is where the money is most certain.

The order matters because each ring out costs more and is less certain. Bain's study found that over 70 percent of the companies that grew profitably for a decade did it organically, moving into areas next to a strong core business rather than buying growth, and widening what they did one ring at a time. Only 15 percent of them were in fast-growing industries. The rest grew in ordinary markets, some of them mature. Bain's conclusion was that the most common way to fall short of the growth available is to write off the core business too early.

Prices come second because of what they do to profit. McKinsey worked through the income statement of the average company in the S&P 1500: a 1 percent price rise with no loss of volume would lift operating profit by 8 percent. That is nearly 50 percent more than a 1 percent cut in variable costs, and more than three times what a 1 percent rise in volume does. It works the other way too. A 5 percent price cut needs 18.7 percent more volume just to earn the same profit. Your own margins change the multiple, so run it on your numbers, but the direction holds. It is also why cutting prices to win share, a common piece of growth advice, usually makes a plan harder to hit.

Stepping out is the point where a company needs a real go-to-market strategy for the new customer or the new offer, rather than hoping the current one stretches. Going far out is where most of the risk sits, and it is the ring a founder is most tempted to start with.

If you know the four classic growth strategies, the levers map onto them. Selling more of what you have to the market you serve covers the first four levers. A new offer for the same market, or the same offer for a new market, is stepping out. A new offer for a new market, usually called diversification, is going far out, and Bain found it almost always destroyed value.

A Worked Example: Filling a $4 Million Gap

Back to the company with $10 million of revenue, a $13 million target and a $4 million gap. Its plan fills the gap from the core outward, and each amount comes with the conditions it depends on. This is a strategic growth plan example with round numbers, not a benchmark.

The new-customer line hides the trap most plans fall into. A customer who signs in June pays for half the year, not all of it. Signed evenly through the year, new customers pay for about half a year each, so $1.6 million of revenue this year needs about $3.2 million of new annual contracts. At $100,000 each, that is 32 new customers. At a win rate of one in four, it is 128 qualified opportunities, about eleven a month, which is a number marketing and sales can check against what the sales funnel produces today.

The first two lines add only $0.6 million, but they are the cheapest money in the plan and the most certain. They also help pay for the rest, which the next section comes to.

The step-out line is the least certain, so the plan treats it that way. It gets a date by which it has to show early signs, and the plan says what happens if it does not: the money moves to the lines that are working, and the shortfall is named in the second quarter instead of discovered in the fourth.

Check the Plan Against People, Pipeline and Cash

Before the plan is agreed, check each amount against three things: the people who will deliver it, the pipeline it needs, and the cash it spends before it earns. A plan that fails one of these checks is a wish with numbers in it, however carefully the numbers were built.

People. The new-customer line needs sellers who are up to speed at the start of the year, and new sellers take months to get there. If $3.2 million of new contracts needs more sellers than you have, the hiring had to start last quarter. How many, and when, is worked through in the article on how to scale a sales team. The same applies to the expansion line. Someone has to own existing customers, and if that is nobody's job today, it will not happen because it was written down.

Pipeline. The 128 opportunities have to arrive month by month, not in a lump in the autumn. If the company produces six qualified opportunities a month today, the plan needs almost twice that from January, and the marketing that fills it has to start before then.

Cash. Sellers, marketing and a new service all cost money before they bring any in. The two levers nearest the core, keeping customers and raising prices, need little spending and add straight to margin, which is why they come first. If the cash does not cover the months between spending and revenue, change the plan, not the wording of the target. The article on scaling a business covers why growing ahead of what the company can carry is so often fatal.

The One-Page Growth Plan

The whole plan should fit on one page. Anything that does not fit is not in the plan, and a page is short enough for everyone who owns a line to remember it. Here is the example company's plan, set out as a strategic growth plan template you can copy.

Three rules make the page work. Every line has one owner, a person rather than a team. Every line has an early sign that moves months before revenue does. And the last line says what the company will not do this year, because a plan that says yes to every idea is a list, and the people on the lines above are the ones who pay for it.

A lender or an investor who asks for a business growth plan wants much the same page, with the conditions from the worked example added as a column.

Reviewing the Plan Each Quarter

Each quarter, look at each lever's early sign before looking at revenue. Revenue arrives last, so by the time it shows a miss, two quarters have gone. The early signs show it while there is still time to act.

Then move people and money between the lines. If prices are holding and expansion is ahead, and the step out has not found its first customers by the date agreed, the step out gets less and the core gets more. That is the plan working, not failing. Choosing which numbers to watch, and trusting them enough to act, is the subject of data-driven decision making.

Common Strategic Growth Planning Mistakes

Six come up again and again:

1. Planning from the target instead of the gap. The customers you will lose are the first line of the plan, not a surprise in the third quarter.
2. Starting at the outer rings. New markets and acquisitions make better board slides, and they are the least certain money in the plan.
3. Counting a new customer's whole year in the year they sign. Signed evenly through the year, new customers pay for about half of it.
4. Cutting prices to hit a volume number. Unless volume rises far faster than the cut, the company does more work for less profit.
5. Giving a lever to a team instead of a person. When everyone owns expansion, nobody does.
6. Leaving out the "not this year" list. Every idea left in takes people from the lines that were meant to carry the year.

Frequently Asked Questions

What should a strategic growth plan include?

Five things: the gap between the target and the revenue you will keep, the amount each growth lever will add, what has to be true for each amount, one owner and one early sign for each lever, and a list of what the company will not do this year. It should fit on one page.

What is the difference between a strategic plan and a growth plan?

A strategic plan decides where the company is going over three to five years: which markets, which customers, and what it will be known for. A growth plan turns the next year or two of that into revenue lines with amounts and owners. The strategic plan changes rarely. The growth plan is reviewed every quarter.

How far ahead should a growth plan look?

One year in detail, by quarter, and a second year in outline. Most of the levers near the core pay back within a year, while stepping out usually takes two, so the second year is where those moves are planned. Anything further ahead belongs in the strategic plan.

What are the four growth strategies?

Selling more of what you have to the market you already serve, a new product for that market, the current product in a new market, and a new product in a new market, usually called diversification. Bain's research on large companies found growth built from the core the most reliable, and diversification the most likely to destroy value.

How do you set a realistic growth target?

Build it from the bottom up and compare it with the number the board wants. Size each lever from your own history: how many customers you kept, which price rises stuck, how many opportunities you won. If the levers add up to less than the target, the difference is a decision to make now, not a surprise later.

Who should own the growth plan?

The CEO owns the plan as a whole, and each lever has one named owner below that. The owner of a lever decides how it is delivered and reports its early sign every month. A lever owned by a committee or a whole department is a lever nobody owns.

Final Thought

A growth plan is less about finding new opportunities than choosing among the ones already in front of you. Most companies have more ideas than people to deliver them, and the plan that works is the one that says no to most of them. That is the L in Mark's UNLOCK Method, leverage the right opportunities: the right ones, in the right order, starting nearest the core. Building that plan with a founder, and holding it to account each quarter, is what Mark's work as a growth advisor is for.