Text commented by Luís Felício - Executive Director of Galeazzi & Associados

"The growth thesis" is a strategy or a set of ideas that outline how a company plans to expand and increase its value over time.

At some point, the company will seek accelerated growth. The most common path is through a "growth thesis," a project it will try to sell in the market. This project requires careful consideration. Less ambitious companies may make moves with little study and depth, and while it might succeed, the probability of failure is higher.

When developing a "growth thesis," it is essential to consider a series of variables that will help develop a solid and viable strategy. It is common to consider these variables, but the problem often lies in the shallow depth of the studies on these subjects.

Here are some key variables to consider:

1. Market Analysis: The rest of the project depends on this point. Understanding the current and future market is crucial, including trends, market size, competition, customer needs, regulatory changes, and emerging opportunities. Who conducted this study? Who was briefed? What data was used? If the company did it internally, problems may arise. Analyzing the market is not a cost-free endeavor; do not overlook this point.

2. Segmentation and Target Audience: Identify the market segments the company plans to target and understand the specific needs of these target audiences. The same caution expressed in the previous point applies here.

3. Business Model: Evaluate the current business model and how it can be adapted or expanded to reach new markets or offer new products/services. Does the current model align with the new proposal? What will be the transition like, in terms of speed and human resources? Can the current staff manage this transition?

4. Innovation and Technology: Consider how innovation and technology can drive growth, whether through new products or more efficient processes. This aspect also needs to be addressed in the project.

5. Human Resources: Assess the company's ability to attract, retain, and develop the talents needed to support growth. Investment in this area comes first.

6. Distribution Channels and Marketing: Plan how products/services will be distributed and promoted to reach new markets or customer segments.

7. Risks and Mitigation: Identify the main risks associated with the proposed growth and develop strategies to mitigate them.

8. Financial Capacity: Analyze the company's financial capacity to sustain planned growth, including funding sources, cash flow, profitability, etc. Everything discussed in the previous points leads to this item, which invariably consumes the most time and attention. The required investment may not be attractive to investors, leading to a real problem of revising all parameters (usually for the worse), increasing risks to make the proposal more appealing.

What could go wrong?

There are several reasons why companies may face challenges in implementing their action plans:

1. Project Management Capability: Does the current structure have the ability to implement the plan? Can it manage day-to-day operations without sacrificing new demands? This may be the biggest challenge. If the company is already lacking in terms of results, how will the same people deliver the results of the growth thesis?

2. Communication and Alignment: If the objectives are unclear or not aligned with the company's new overall vision, there may be confusion or a lack of commitment among employees.

3. Inadequate Resources: Lack of funding, insufficient personnel, outdated technology, or inadequate infrastructure to execute the action plan. What was planned when developing the "growth thesis" may not align with reality. If the company did not have proper financial management before starting the project, which is often the case, it may face a crisis due to mismanagement of resources. Remember that it is the operation, the result, that will pay for this financing/leverage. How much is already contaminated from the past?

4. Organizational Culture: If the company's culture was already resistant to change, this element can negatively affect implementation. Changing organizational climate is not instantaneous.

5. Unforeseen External Changes: External factors such as market changes, regulations, political environment, interest rates, unexpected events, or even global crises can interfere with plan implementation.

6. Underestimated Costs: The project cost estimate was too superficial, or there was an attempt to force a budget reduction. As a result, the company may be tempted to divert resources from current operations to allocate them to the growth project. Sometimes, the real complexity is not fully understood at the beginning, leading to delays and additional costs as challenges are discovered during execution.

Addressing these challenges often requires a holistic approach, including building a change-receptive culture, effective communication, proper resource allocation, training and skill development, and flexibility to deal with unexpected changes in the external environment.

Spend more time on planning, have depth in your analyses, and resist the pressure to lower costs. Unexpected events happen.

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