Take Command of Your Growth

The top line - like the Socratic life - demands examination. Total revenues tell a story of growth, sometimes happy, sometimes less so, but they do not tell the story of how a company grows. That knowledge abides in the distinctive wellsprings from which revenues emerge. We have developed a tool - the sources of revenue statement (SRS) - that reveals those origins and helps companies make the kinds of smart, targeted decisions that transform business performance.

Many companies treat cost cutting as a core competency: Ask senior managers to pare costs by 10%, and they know just what to do. Ask them to boost growth by 10%, however, and they're stymied. That's because management tends to draw a Serenity Prayer-like distinction between things it can and cannot change. Cots fall into the former category. Growth is in the latter.

But that presumption turns out to be misguided, as the SRS amply demonstrates. The tool emerged from our research into publicly traded companies that achieved steady double-digit growth in revenues and gross profits from 1997 to 2002. Looking for the strategies and management disciplines behind those results, we interviewed senior management, reviewed the financial filings of the companies, and discussed their performance with Wall Street analysts.

Managers can influence growth, we discovered, if they possess the right diagnostic information about revenue sources. Unfortunately, that information is often unavailable to management teams, who are blinkered by the narrow perspective of traditional financial reports. Income statements generally sort revenues by geographic market, business unit, or product line, which is useful - as far as it goes. But managers not only must know where sales encourage or disappoint, they also must understand why and what to do about it.

For many companies, the top line is terra incognita. So like Livingstone seeking the headwaters of the Nile, we set out to discover the revenue sources to which all business growth can be traced. Unlike Livingstone, we found what we were looking for.

We've identified five distinct sources of growth, all centered on customers and sorted not according to the way a company is organized but, rather, by the range of strategies open to it. Three sources stem from a company's core business: continuing sales to established customers (base retention), sales won from the competition (share gain), and new sales in an expanding market (market positioning). The other two lie outside the core: moves into adjacent markets where core capabilities can be leveraged and entirely new lines of business unrelated to the core. The exhibit "Building Growth from Five Revenue Sources" traces one company's 20% revenue rise back to these origins.

The SRSW, then, is an income statement that breaks out revenue by provenance. By tracking the amount of revenue coming from each source, the SRS helps managers take control of their revenue streams, diagnose problems, and spot opportunities for growth. Yes, it is helpful to know that sales in Germany are falling short, but it is illuminating to identify a problem in base retention.