How To Position With the BCG Matrix

One of the never changing "principles" that I have incorporated throughout the Sales Multiplier System is the 80/20 (Pareto) Principle.

However, another less well-known principle that is embedded is the "STAR Principle" or BCG Matrix - originally developed by Boston Consulting in the 1970's but later falling out of favour – due to its apparent over-simplification.

That was until multimillionaire investor, author and former Boston Consulting consultant, Richard Koch attributed that principle alone with the secret to amassing his fortune.

His secret is that he ONLY invests in STAR businesses.

STARS – Market leaders (by revenue) in high growth markets (> 10% Growth). Can be either a local or a global market. Likely to become Cash Cows

QUESTION MARKS – Followers in high growth markets. Must increase market share quickly or they risk becoming Dogs. In danger of running out of money before they get there.

CASH COWS – Low growth, high market share. Potentially high-profit margins

DOGS – Low growth markets, low market share. The best option is usually to get rid of these. Expensive turnaround plans typically fail.

If your business is not delivering the profits that you think it should, then the problem often gets back to positioning. You must always strive for STAR positioning.

NOTE:: You can be a STAR in a local market. Also, if your business is not already a STAR, you should strive to re-position it as a STAR. That may well mean revisiting your USP (Unique Sales Proposition) to experience a quantum leap.

Bruce D Henderson from Boston Consulting Group (BCG) came up with the matrix shown above in the early 1970s.

When Bill Bain left BCG to form Bain and Co, he invested almost exclusively in STARS (i.e., #1 companies in markets growing above 10% p.a.) He also took a very active role in driving the strategy of those companies.

The results were phenomenal.

Bain doubled the value of its investments on average every year for the first ten years of operation, i.e. a 100% internal rate of return. That type of return is unheard of in the world of venture capital. If you were to invest $100,000 at 100% internal rate of return for ten years, your portfolio would be worth over $100 million.

This BCG matrix was at the height of its popularity in the late seventies and early eighties. It then fell out of favor and was regarded as being overly simplistic and less relevant by some modern-day consultants. However, as recently as June 2014, Reeves, Moose and Venema, from Boston Consulting Group, reassessed the matrix and explored its relevance to today's business environment.

Their conclusions were:

(a)  The matrix remains hugely relevant, but we must apply it with more SPEED.

(b) Successful companies must explore new products, markets, and business models more frequently to renew their advantage.

(c) Companies need to be prepared to cash out stars and retire cows more quickly than before.

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