Book Review: Discovery-Driven Growth
Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity
Dr. Michael Boehlje, Professor Emeritus, Department of Agricultural Economics
In Discovery-Driven Growth, the authors write about how companies can confidently plan and pursue more aggressive growth strategies when incremental growth is no longer enough. They explain that companies can better control their costs and minimize surprises by carefully framing strategic growth opportunities, testing project assumptions, and creating a culture of action based on evidence. They also discuss ways to know when to kill a failing project before it becomes too costly.
What this means for food and agribusiness
Successful companies have always had a focus on growth. In fact, growth is a natural phenomenon for a profitable company—those profits provide the capital to expand the business and must be deployed and allocated efficiently. That is the challenge: How does one systematically assess new ventures and growth opportunities to control costs, minimize surprises and know when to disengage from ventures that provide little opportunity and exhibit unacceptable risks?
McGrath and McMillian, in their appropriately titled book Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity, provide a framework and a set of analytical tools that assist in this analysis process. The essence of their framework is that, because of the uncertainty of the future success of new ventures and growth alternatives, the process of discovery-driven growth involves investing small amounts of money—money you can afford to lose—to get the information and insight you need to invest more confidently. So you invest in learning and you simultaneously explore a number of alternatives—a portfolio of options—with specific performance expectations and regular monitoring of progress against those expectations before you make a “full-blown” commitment to a new venture, or alternatively you disengage (exit) before that commitment and move on.
To implement this process, the performance outcome (profit) that makes the growth opportunity worthwhile to pursue must be specified up front. Reverse financials are used to determine (given expected profit margins on sales) what market share and gross revenues are needed; and, assuming a reasonable asset turnover, what financial/capital resources are necessary to achieve the growth necessary to generate that profit?
Then low-commitment strategies to acquire those assets, such as leasing, outsourcing or joint venturing, are used to initiate the experiment, with careful monitoring of start-up performance benchmarked against detailed planning assumptions to real-time discover whether intermediate checkpoints are being met. The checklists, self-tests, worksheets, and figures/diagrams/illustrations, along with the case studies and vignettes illustrating the use of the process and tools in specific companies, facilitate understanding and implementing the framework and concepts.
The current downturn in the agricultural sector requires agribusiness firms to adjust to lower margins and have the financial resiliency to maintain market presence. But focusing only on the vulnerabilities of tougher markets means that the opportunities that are a natural result of changing market conditions will be ignored. In fact, some argue that during the downturn in the business cycle is exactly when the best opportunities to grow exist because competitors are focused on survival, customers are searching for alternatives, and assets are not premium priced. McGrath and McMillian’s book provides a framework and a set of analytical tools to assess the growth and repositioning alternatives that will appear in the agricultural sector during this downturn and enable firms well-positioned to capture those opportunities.