Idea 2 of 5
Where you make money is not where you think.
Most companies are in fifteen to twenty product-markets. Three or four make the money. Three or four lose it. The rest is noise, and the plan usually says "grow across the portfolio."
Ask a CEO which three product-markets make the money and most can name two with confidence. The third is a guess. Ask the CFO and the answer is different. Ask the plan and it says growth across the portfolio, which is a target with a spreadsheet, not a strategy.
"Growth across the portfolio" is a target with a spreadsheet. It is not a strategy.
A product-market is a product or service line, sold to a customer segment, in a geography, the way the P&L actually cuts. Ranked by profit dollars first, then by advantage, then by revenue, growth and execution risk, the order surprises almost every executive team the first time they see it. Profit and advantage carry most of the weight because that is where a board's number actually comes from. Revenue and growth are where most plans start, which is why most plans miss.
The honest check
The internal ranking is only half the answer. The other half is the market's view: how big is each cell, what share does the company hold, and does it have a genuine right to win there, or only a history of being present. Without that external check, every strategy is an inside job. With it, three or four cells are worth investing in, a few are worth harvesting, and at least one should be exited.
The decision nobody wants to make
The exit is where most plans fail. A channel that has lost money for four years stays in the plan because it has a history, a team and a champion. Spreading growth across everything is how a company avoids deciding. The ranking makes the decision visible; the CEO still has to make it.
When the three that make the money each have an owner, a defensible advantage and a number in next year's P&L, the board's target stops being a hope and becomes a set of decisions with names on them.
From the book, chapter 6: the Product-Market Matrix is where strategy gets real. Score every product-market combination to guide investment, then validate the choices against external market data in the Market Reality Check.
Name the three cells that make the money. Put an owner on each. Exit one. That is the plan.
In action
twenty product-markets, ranked
An illustrative $600M industrial with a $118M EBITDA target against $104M this year. Ranked by profit and advantage, three cells carry most of the gap, and one should be exited.
Illustrative. Method: profit 35%, advantage 30%, revenue 20%, growth 10%, risk 5%.
The questions
What this idea asks of a company.
- Which three product-markets make the money, by name, not by category?
- Where do we have the right to win, honestly, measured against the market and not against ourselves?
- Where do we allocate capital, and what is the criteria?
- What have we been funding for four years that we should stop?
Talk to Tim.
A short note about the decision in front of you is enough. Tim replies personally.
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