The CEO of ABC Limited, a fintech company based in Nigeria, calls for an emergency meeting to discuss the company’s plummeting revenue. He finds it quite ironic that the company had more cash flow when it had fewer offerings and patronage last year than now that it can boast of a highly diversified portfolio and client base.
In the previous year, when the company newly launched its maiden product targeted at the top half of the market pyramid, it reached its first 100 million market cap selling to fewer than 100 persons. This year, the company added five new products to extend its reach to the bottom half but could barely reach two-thirds of the last year’s financial performance despite a 500 percent increase in client base.
It transpired that a reduction in the intensity to move upward was the price the company had to pay for exploring downward. This is reflected in the performance of the marketing unit.
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
Analysts use the terms exploration and exploitation to describe how businesses innovate and strategically service and maintain their markets. A business is said to be evaluating the option of exploring versus exploiting its market when it raises questions such as follows:
- Should we create new products or improve on existing products?
- Should we allocate resources to acquire new customers or focus on retaining existing ones?
Organizations with a dual capacity to explore and exploit are called ambidextrous.
In the case of ABC Limited, it was exploring new possibilities rather than exploiting an existing pathway it already created in the market. Consequently, it was carried away in the euphoria of reaching a larger segment.
While it is often desirable to innovate and have a wider market reach, it is required to understand the competitive landscape and which customer segment one has the greatest resources to service and then direct strategies based on that awareness.
However, there are instances where diversifying is not an option. In this case, the business must explore with caution such that it does not lose its primary flywheel.
Distracted by extraneous threats, adventures, and opportunities, leaders neglect a primary flywheel, failing to renew it with the same creative intensity that made it great in the first place. — Jim Collins.
In his book, ”How the Mighty Fall” Jim Collins identified neglecting the primary flywheel as a hubristic tendency that has led many great companies to their early extinction. He states:
‘’To disrespect the potential remaining in your primary flywheel or worse, to neglect that flywheel out of boredom while you turn your attention to The Next Big Thing in the arrogant belief that its success will continue almost automatically is hubris…’’
The above condition could have been avoided at ABC Limited if it had specialization within its marketing unit, such that each product has its own marketing team. It is believed this specialization would not only lead to healthy rivalry but also promote deeper product knowledge among marketers.
More so, having a marketing team focus on one product at a time will give maximum output. The tendency for monotony or lack of extensive product knowledge can be offset when each marketer is allowed to move across different sub-teams at specific intervals.
The conclusion to be drawn is that having more products or acquiring new customers may not readily translate to increased revenue or cash flow. The quality of your clients and the capacity of your employees also matter to the shape of your revenue curve. More importantly, while attempting to explore, attention must not be taken off your primary flywheel.