Earlier articles in the Appropriately Corporate series have followed the founder journey through different stages of business size and development. The next group of articles take a different approach. These are recurring issues that can appear in that journey: ownership, leadership, growth choices, succession, wealth and exit. Each article stands alone, but together they explore some of the decisions founders repeatedly encounter as the business and their own role continue to change.
Growth discussions inside a business can become confused surprisingly quickly.
One person is talking about improving the current business. Another is proposing a new service. Someone else is enthusiastic about an idea that may or may not become a business at all.
All three may be worthwhile conversations. The problem is that they are different conversations.
A framework I keep returning to is the Three Horizons of Growth, introduced in “The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise” by Mehrdad Baghai, Stephen Coley and David White.
The book was first published in 1999. There are many newer strategy models, but this one has endured because the language remains simple and useful.
I do not use it because founders need another management methodology. I use it because it gives founders, leadership teams and advisers a common framework and a common language.
Horizon 1: extend and defend the core business
Horizon 1 is the current business.
It contains the services, clients and activities that generate most of today’s revenue, profit and cash.
The original language from The Alchemy of Growth is important: the task is to “extend and defend the core business”.
That does not mean preserving the status quo. Every business model fades. Clients change. Competitors improve. Technology develops. Regulation increases. Staff expectations move. New methods of buying services emerge.
A business does not have a permanent right to exist simply because what it does has worked well in the past. The existing business therefore needs to keep earning its right to exist.
For a recruitment agency, that may mean refreshing the client base, improving productivity, adjusting pricing, strengthening leadership, investing in technology, improving delivery methods or changing the way an established service is offered.
None of this may look particularly innovative. It is still renewal.
This is one reason I think the Three Horizons framework is useful even for a business that has no ambition to become much larger.
Growth strategy is not only about adding something new. It is also about making sure today’s successful business remains relevant, competitive and capable of generating tomorrow’s profit.
The Three Horizons
The framework then distinguishes between three different types of business activity.
- Horizon 1 is the existing core business. The objective is to extend and defend it.
- Horizon 2 contains emerging businesses that have moved beyond the idea stage and have the potential to become meaningful contributors.
- Horizon 3 contains viable options for the future: ideas, pilots, experiments and opportunities that are worth exploring but are not yet proven businesses.
The horizons are managed concurrently, not sequentially.
That distinction is useful in practical conversations. A new service for existing clients may be Horizon 2 if it has already gained traction and now needs investment to scale. An idea being tested with several clients may still be Horizon 3. A major improvement to an existing service may remain firmly in Horizon 1.
None is inherently more important than the others. They are simply at different stages and should be managed accordingly.
New does not have to mean far away
Founders tend to notice opportunities, and that can sometimes become a source of distraction.
The Three Horizons model should not become an excuse to pursue every interesting idea. Some of the best Horizon 2 and Horizon 3 opportunities sit close to the existing business and may involve an adjacent service, a different delivery model, or applying existing capability to a related market.
For most organisations, the better question is: where do our existing capabilities, relationships and market knowledge give us a genuine advantage? That keeps growth connected to what the organisation is already good at while still allowing room for experimentation.
Different horizons need different people
This is the part of the framework I increasingly find most useful.
The three horizons do not simply describe different kinds of growth. They require different leadership attributes.
- A mature Horizon 1 business benefits from strong operators. The business model is understood. The focus is on clients, productivity, margins, quality, consistency, cash flow and profit.
- Horizon 2 requires business builders. The proposition has moved beyond experimentation, but there is still work to be done in winning customers, establishing repeatability, building capability and creating scale.
- Horizon 3 requires more entrepreneurial attributes. At that stage, uncertainty is high. The proposition may still be changing. There may be no reliable revenue forecast and perhaps no settled business model.
These are different jobs.
An excellent operator may not be the right person to develop an uncertain opportunity. An entrepreneurial founder who is outstanding at creating new possibilities may not be the best person to keep intervening in a mature operation that now needs consistency and discipline. Likewise, the person who can build an emerging business from its first few clients into something substantial may add most value by staying focused on that task.
This can remove some unnecessary tension from leadership conversations. Instead of asking whether somebody is a good or bad manager, it may be more useful to ask whether their strengths match the stage of business they are being asked to lead.
Measure the right things
The different horizons also need to be judged differently.
Horizon 1 should ultimately perform. Profit, cash, productivity, client outcomes and operational performance matter.
Horizon 2 is still being built. Revenue growth, customer acquisition, repeatability, capability and progress towards scale may matter more than mature-business margins in the early stages.
Horizon 3 is earlier again. Learning matters. Are clients interested? Has an assumption been proved or disproved? Has the experiment reached its next milestone? Is there enough evidence to justify further investment?
Trying to impose Horizon 1 expectations on Horizon 3 can stop a promising idea too early. The opposite is equally dangerous. An established business cannot indefinitely be excused from delivering profit because management continues to describe it as an investment opportunity.
The horizon helps establish what should reasonably be expected.
Resource allocation makes the discussion real
Most organisations have no shortage of ideas. The more difficult issue is allocating resources.
Who owns the initiative? Who has time to work on it? What money is committed? Which capable people have actually been allocated?
Horizon 1 will normally consume most resources because it funds the organisation. That is appropriate. The danger is allowing the urgency of the current business to consume every strong leader, every available dollar and all of the founder’s attention.
Horizon 2 then never develops enough momentum to become meaningful. Horizon 3 remains a collection of interesting ideas revisited at occasional planning meetings.
The allocation of the founder’s time matters as well. Some founders add most value by opening markets, shaping new propositions and exploring opportunity. Others add more value by strengthening the core business and developing leaders. The answer may change as the organisation develops.
Size matters
The Three Horizons framework applies across organisations of very different sizes. Its implementation should not be the same.
A ten-person recruitment agency cannot establish separate teams across all three horizons in the way a large organisation might.
Its Horizon 3 activity may simply be the founder spending structured time with clients to test an adjacent idea. If that idea wins several clients, it may move into Horizon 2 and justify a named leader, budget and deliberate sales effort.
A larger organisation may be able to run several initiatives at once, with separate accountability, investment and measures.
This is another example of being appropriately corporate. The discipline should fit the size and maturity of the organisation. Small does not mean there should be no structured thought about future opportunities. Large does not mean every opportunity deserves a project team.
A common language improves the discussion
The practical value of the Three Horizons model is that it separates conversations that otherwise become mixed together.
When an initiative is proposed, ask: Are we extending and defending the core business, building an emerging business, or creating a viable option for the future?
Once that is clear, the next questions become easier. Who should lead it? What resources should it receive? What should success look like at this stage? What should we measure? How long should we give it?
And, particularly for a smaller business, what can we realistically support without weakening the core?
The framework does not tell management what strategic decision to make. Its value is more modest. It helps people understand what kind of opportunity they are discussing, what sort of leadership it requires, and how the activity should be measured.
It also reminds us that growth is only part of the challenge. Today’s core business must keep earning its right to exist while the organisation decides what may come next.
For readers who want to explore the framework in more depth, I recommend going back to the source: “The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise” by Mehrdad Baghai, Stephen Coley and David White.
More than twenty-five years after its publication, the language remains useful because the underlying management problem has not changed.
This article is part of HHMC’s Appropriately Corporate series for staffing and recruitment business owners, exploring growth, leadership, valuation and transaction readiness. If these issues are relevant to your business, we would be pleased to continue the conversation.
