- Inbound and Outbound Strategies
Inbound and Outbound Strategies
Once it's successful, what does a company do next?
A Fork In The Road
Recently, I’ve been discussing strategy with a number of companies facing a common decision point. Despite being spread out across industries, they’ve all reached a level of success with whatever their core product or offering is. And now they’re asking the same question. They’re ready to expand beyond their current track, but they aren’t sure what to do next.
There’s something particularly fascinating about this important stage in a company’s lifecycle. Most people who are there don’t actually realize they’re at a fork in the road; or, if the do, they lack conviction about which path to choose. The consequence may be a halfhearted attempt to bring the business into the next phase. This is rarely successful.
A literal fork in the road
At this fork, there are two distinct and mutually exclusive types of strategies to focus on. I call them Inbound Strategies and Outbound Strategies.
Each of the companies I mentioned above has a successful core business and brand. Let’s call it α (alpha), since it’s the first established line of revenue:
α is a product or service of some kind that has product market fit. Maybe it’s still growing, or perhaps it has reached a growth plateau. And so the company naturally says, “Let’s expand to a few other areas. Let’s build tangentially related products.” We can refer to these as β (beta), γ (gamma), and so on.
If you’re a SaaS (software as a service) company, you may want to offer additional software products β and γ to your users. If you’re a media brand with some valuable IP in α, you may want to expand to related but different IP, β and γ.
“Great,” says the CEO. “We’ll use our existing brand equity to build up these other product lines. One of them is bound to catch on, and then we’re set.” But not quite. The leadership hasn’t identified the most important part of the diagram, which is the direction the arrows between the nodes point. The fork in the road I mentioned earlier is captured in this question: Should the arrows between these nodes be pointing towards α or away from it? Which of these products is meant to feed which other?
The goal of an Inbound Strategy is to feed the growth of the existing machine (α). It assumes that there is continued room to grow, and that establishing new products (particularly ones that appeal to a broader set of consumers) helps push users that have not yet converted to α farther down the path to doing so.
Another way to visualize Inbound Strategies is to think of them as top down, i.e. as funnels. I’ve written a lot about acquisition funnels and product funnels before (check out my articles on The Law of Funnels or Compounding Improvements to see more).
Why use an Inbound Strategy approach? Because you want to accelerate revenue growth of your existing offering.
I can think of a number of companies that have very successfully taken this approach. Let’s look at one example in the media space: The New York Times. Over the past decade, their core subscription product, like all paid journalism, has faced significant growth hurdles amidst the proliferation of digital freely-available news. The number of individuals willing to try and pay for a subscription to the Times seemed to have been limited.
And yet, the past decade has seen the Times expand its top of the funnel by bringing in new audiences to consume tangentially related products: NYT Games, NYT Cooking, and NYT Audio. It has introduced a line of branded podcasts, the most successful of which is The Daily. One might claim that each of these is an attempt to build out new lines of revenue for the business (an Outbound Strategy; more on that below). But you’d be hard pressed to prove that this nearly two-century old news outlet that has won more Pulitzer Prizes than any other newspaper is aiming to dominate the sudoku or recipe game.
Rather, their actions indicate an Inbound Strategy, whereby they build peripheral products to attract new audiences that eventually become core product subscribers. Convincing a casual news reader to fund their daily, highly addicting crossword habit brings them significantly closer to an eventual news subscription. They’re now in the Times brand umbrella, with an email and a credit card on file, and a recurring opt-in channel of communication that moves them down the news subscription funnel. Similarly, some percentage (albeit a small one) of every new cohort of The Daily listeners will end up converting to become a Times subscriber. Secondarily, podcasts are an advertising revenue generator for the business. Primarily, they’re a growth tactic for the core offering.
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Whereas Inbound Strategies attempt to introduce new products in order to fuel growth of the core one, Outbound Strategies primarily try to spin up new lines of revenue in these peripheral products.
An established line of business with product market fit has an existing audience to which one can market other products. Ultimately, customer acquisition cost dictates the rate and expense associated with new product growth. And what cheaper and more frictionless method of acquiring these new users than by leveraging the users already using a different service you offer? They know (and presumably trust) your brand.
Outbound Strategies invert the funnel we mentioned above. Rather than the peripheral products (β and γ) fueling growth of the hub (α), it is now the hub that fuels growth of the others.
Why take an Outbound Strategy? Because you want to diversify your revenue.
Which companies have successfully executed Outbound Strategies? Obvious examples include corporations that leverage the distribution of their hardware to then sell software products (Apple being the prime example). A more interesting case study however is Amazon.
In 2022, Amazon brought in $200B in revenue via their online store. But an ever-larger share of their revenue is now also attributable to other services that are growing very quickly year-over-year. AWS brings in $80B per year (compared to a tenth of that only seven years ago). Prime subscriptions bring in $35B (similarly up from a tenth about six years ago).
This is not an Inbound Strategy where the growth of products like Prime primarily drive net new users to make Amazon retail purchases. How do we know? Because the user that Prime appeals to (at least the initial free delivery version of Prime introduced in 2005) is farther down the funnel than the casual user not already using Amazon products. In other words, the core retail brand is what fuels the growth of Amazon’s peripheral products, rather than the periphery helping grow the core. (Of course, Prime does help Amazon’s top of the funnel growth, particularly today with its robust offering; that’s just not its primary purpose.)
This set of Outbound Strategies has become so successful for the brand that AWS, once a mere peripheral node compared to the retail behemoth that was Amazon’s retail store, is now its most profitable segment.
While there are other examples of both Inbound and Outbound Strategies I’ve seen succeed, there are significantly more I’ve seen fail. Stepping back to earlier-stage companies, when a leader is figuring out how to leverage his/her successful brand to expand the business, one thing is for sure: It rarely works when a company pursues both strategies at the same time.
If you’re at this inflection point, consider some of these thought starters that can help you decide if you should be on an Inbound journey or an Outbound one:
Does your core offering benefit from economies of scale? If yes, an Inbound Strategy could help propel you to more favorable economics over time. In the New York Times example, for instance, consider that nearly all of its expenses are upfront ones that can be amortized over a larger and larger subscriber base. Each incremental subscriber to the Times costs it virtually nothing to bring on, and therefore incrementally increases not only its revenue but also its margins.
Are your brand and your core product viewed as two separate things? If consumers are able to differentiate between the two, then there may be sufficient brand equity to fuel the growth of other products under the same umbrella in an Outbound Strategy. Consider brands like Microsoft (as distinct from its initial product Windows), NPR (as distinct from the many successful shows they’ve launched), Disney (you get the idea). All of these are examples of companies that reached new heights via Outbound Strategies.
Are you in a highly competitive space with little product differentiation? This could go either way: One may view this as a reason to pursue an Inbound Strategy (i.e. launching products in order to help differentiate the brand). Or one may view this as a reason to diversify lines of revenue, given the existential risk of doubling down in a competitive space.
Regardless of the strategy resulting from this exercise, it cannot succeed if it isn’t deliberate. At this critical junction, resources should either be spent making those arrows point in or making them point out, but not both.
This is, after all, a fork in the road. And no one ever journeys far by trying to keep one foot on each of two divergent paths.
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