Market Growth is the Worst Place to Hide

There is a particular kind of company that worries me more than a company whose revenue has stopped growing: the company whose revenue is still growing, but not extraordinarily so. It might be growing at 10%, 15% or 20% a year. Customers are arriving, the team is larger than it was last year, a few new products have launched, and the annual strategy presentation contains enough green numbers to suggest that things are broadly moving in the right direction. Nothing looks particularly wrong, and that is precisely the problem. When a company is declining, it usually knows it has a problem. Falling revenue has a wonderful ability to concentrate executive attention. Suddenly, people become interested in positioning, competitors, customer behaviour, pricing and whether the product is actually as good as everyone internally believes it is. A company growing inside an expanding market does not receive the same warning. It can acquire more customers while losing market share, report record revenue while becoming less differentiated, and continue executing the same playbook while competitors quietly build stronger positions around it. This is why market growth can be such a good place for strategic weakness to hide. A favourable market can reward a company before the company has necessarily earned the reward, and from inside the business it is surprisingly difficult to separate the two. The Number That Tells You Almost Nothing Imagine two companies selling professional technology education. Last year, Company A generated $5 million in revenue. A year later, it generates $6 million. Twenty percent growth is a perfectly respectable number. In most internal reporting, this would be presented as good news. Marketing can point to increased acquisition, product can show what it launched during the year, management can talk about continued momentum, and everyone can reasonably conclude that the company is moving forward. Now suppose demand across the particular segment in which the company operates grew by 35%. The company's revenue has not changed. It is still $6 million, and the growth rate is still 20%. What changes is the interpretation. The company has grown in absolute terms while potentially becoming weaker relative to the opportunity around it. This is why I increasingly find the sentence “we grew 20% last year” strategically incomplete. Growing compared with what? Your previous year, the market, your closest competitors, the amount of capital deployed, or the growth of the underlying customer population? If the market grew 5% and you grew 20%, I want to understand what you did right. If the market grew 40% and you grew 20%, I also want to understand what happened, only for a very different reason. Absolute growth tells us that the company moved. It does not necessarily tell us whether the company became stronger. Market Lift vs. Company Lift Once you accept that relative growth is the real question, you need a way to actually separate the two things that produce a company's growth number: What the environment handed you, and what you built. I think of this as splitting company growth into two components: Market lift: the growth that arrives because the environment around the company became more favourable, and Company lift (or strategic lift): the growth that exists specifically because the company got better at something. It can help to hold this as a loose diagnostic equation rather than a strict formula: Company Growth ≈ Market Lift + Strategic Lift I want to be clear that this is not something you can compute precisely from a set of financial statements. Market share data is messy, category boundaries are debatable, and the two components blend into each other in practice. But as a lens for interrogating a growth number, it is extremely useful, because it forces a follow-up question that "we grew 20%" never invites on its own: how much of this was lift we received, and how much was lift we created? Market lift comes from favourable changes around the company. More people enter the category, customer budgets increase, a technology creates new demand, a geography becomes wealthier, regulation forces adoption, or the overall market simply expands. Strategic lift comes from something the company has become meaningfully better at doing. Perhaps it built a new distribution engine, entered a valuable customer segment, improved retention, created a product customers actively prefer, found a better pricing model, or developed a brand that increasingly generates direct demand. There is nothing inferior about market lift. If I happen to own a cybersecurity training company just as cybersecurity spending accelerates globally, I would be delighted to receive every bit of that tailwind. Good strategy includes putting yourself in markets capable of producing that lift in the first place. The problem begins when management reads a market-lift-driven number as if it were evidence of strategic lift, as evidence of improved company capability. Executives naturally connect company results to company activity. We hired a VP of Marketing, launched three products, rebuilt the website and increased the sales team, and revenue subsequently grew 18%. The temptation is to connect those events and conclude that the strategy worked. Maybe it did. But if the relevant market would have grown 25% even if everyone had stayed home, the conclusion becomes less obvious. Most of that 18% was market lift, not strategic lift, however the internal narrative gets told. This decomposition into market lift versus strategic lift is the foundational idea underneath everything else in this piece. Most of what follows is really this same question, applied to a different situation: inherited advantages, competitors, and what happens when the market stops helping. A Useful Real-World Insight Online learning is particularly useful for thinking about this because the same broad shift in customer behaviour can produce radically different outcomes for different companies. Coursera ended 2024 with roughly 168 million registered learners, up 19% year over year, and reported 3.3 million enrolments in generative-AI courses. It said the rate of enrolment in GenAI courses had risen from roughly one enrolment per minute in 2023 to six per minute in 2024. There was clearly enormous demand flowing into a new area of learning. Duolingo was benefiting from another part of the broader digital-learning market, but its results were very different in magnitude. Its daily active users grew 51% year over year in Q4 2024, paid subscribers grew 43%, and full-year revenue increased 41%. Duolingo pointed to product improvements that increased engagement and retention, alongside a marketing engine that continued to grow its user base and brand. Pluralsight offers a more complicated example. Vista Equity Partners acquired the company in 2021 for $22.50 a share in a deal valued at roughly $3.5 billion, but by May 2024 had reportedly written off its entire equity investment. A few months later, Pluralsight agreed to a recapitalisation that handed ownership to its lenders and reduced its debt by roughly $1.3 billion. The underlying demand for technology skills had not disappeared; the problem was that a growing market was no longer enough to support the debt, costs and growth expectations built around the business. Neither Coursera nor Duolingo nor Pluralsight is a clean substitute for the others, so I would not use their numbers to produce some simplistic ranking of who "won" online education. The more useful observation is that all three were operating inside a market being expanded by the same broad technological shift, and yet the shape of their growth, how much of it looks like strategic lift versus market lift, is genuinely different. (Later on, I'll come back to a fourth company in this same space, Chegg, whose experience of that shift went the other way entirely.) Inherited Momentum Market lift versus strategic lift is a question about where growth comes from in the environment. There is a related but separate question about where it comes from in time, not only how much a company is growing, but when the things actually responsible for that growth were built. Some of today's performance comes from things the company is doing now: a recently launched product, a new enterprise sales motion, better conversion, a successful repositioning or a new customer segment. A substantial amount can also come from things built years ago. Brand recognition continues attracting customers, old SEO pages continue generating traffic, a flagship product remains popular, customer relationships keep renewing, and the founder's reputation continues opening doors. This is inherited momentum: growth generated today by strategic decisions made in the past. Then there is the market itself, supplying more customers, more spending, greater awareness or new demand. The dangerous situation is not that any one of these is bad. The dangerous situation is when the latter two, inherited momentum and market lift, are doing most of the work while management believes the first is responsible, because inherited success feels exactly like current success in the revenue line. Put simply: revenue is a lagging indicator of past strategic correctness, not necessarily evidence of present strategic strength. A number on this year's income statement can be the delayed payoff of a decision made five years ago, arriving on schedule while the underlying capability that produced it has already stopped developing. Suppose an education company created an exceptional library of technical content five years ago, ranked extremely well in search, developed a strong reputation among developers and built one or two courses that became category leaders. Those assets might continue producing substantial growth today. That is exactly what good strategic assets are supposed to do. But there is an important difference between having an asset that continues to work and still possessing the capability that created the asset. If 60% of your organic acquisition comes from content produced years ago, could you build an equally powerful organic engine from zero today? If one flagship product still generates half the company's revenue, can the company reliably create another product of comparable importance? If the founder still closes the largest accounts, has the organisation actually learned how to sell without the founder? Old success can continue paying the bills while new capability quietly stops developing. You normally discover the difference only when the old asset becomes less powerful. Competition as a Stress Test I do not think companies need to obsess over competitors. There is nothing particularly strategic about forwarding every feature launch, pricing change and LinkedIn announcement from a competitor into an internal Slack channel. That usually produces anxiety rather than insight. Competition becomes useful when it is treated as a reference point outside your own reporting, and specifically, as a stress test applied directly to the two ideas above. It is where relative growth and inherited momentum stop being abstractions and turn into a concrete question: if three well-capitalized competitors entered tomorrow, what exactly would be difficult for them to take from you? If the honest answer is basically "we've been around longer" or "our courses are better," that is genuinely useful information, then it tells you that what you are calling an advantage is really just inherited momentum or an unexamined assumption about quality, not something a well-funded new entrant would actually struggle to replicate. Suppose your company grew 15% last year and the leadership team considers that a satisfactory result. Then you discover that one credible competitor grew 60%. The conclusion should not immediately be that the competitor has a better strategy. Perhaps it raised an enormous amount of capital and bought that growth. Perhaps it started from a much smaller base. Perhaps its economics are terrible. But the difference deserves investigation because the competitor may be telling you something about the market that your own numbers cannot. Perhaps customers increasingly want credentials rather than content. Perhaps enterprise buyers are becoming more attractive than individual learners. Perhaps short-form learning is replacing long courses in a particular segment. Perhaps interactive practice is becoming more important than explanation. Perhaps AI has made access to information so abundant that verification, community, application or employment outcomes have become the scarce part of the product. This is where I think companies often make a mistake in how they respond to competition. They look at what competitors are doing and try to do the same thing slightly better. A competitor launches an AI tutor, so they launch an AI tutor. Someone introduces labs, so they introduce labs. Another company adds certification, so certification appears on the roadmap. The result is often that everybody improves while everybody becomes more similar. A more useful question is not simply, “How do we become better than our competitors at what we already do?” It is “What is becoming more important to the customer that we are not currently competing on?” If everyone can produce excellent courses, perhaps the advantage moves to practice. If everyone can provide practice, perhaps it moves to verified outcomes. If everyone can provide certificates, perhaps it moves to employer relationships. The exact answer will differ by market, but the principle is the same: As an advantage becomes common, competition tends to move elsewhere. A growing market can delay the need to notice that movement because there is still enough demand for everyone to report progress. Remove the Logo There is a simple exercise I like for established companies. Take your company name off the website, remove the logo and brand colours, and put the actual offering next to the three competitors customers are most likely to consider. Then ask what would still make someone choose you. This sounds simplistic, but the answers are often revealing. “High-quality content” matters only if customers can actually perceive a meaningful difference in quality. “Great instructors” matters only if your instructors are noticeably more valuable than the alternatives. “AI-powered” has very little value as differentiation once everyone has AI somewhere on the homepage. If removing the logo makes the offerings surprisingly difficult to distinguish, the company may still possess a strong brand advantage, but it probably has a weaker offer advantage than management assumes. That does not mean the brand is unimportant. Quite the opposite. A strong brand is one of the most valuable assets a business can build. The point is simply to understand what is carrying what. A strong brand can carry an increasingly undifferentiated offer for a surprisingly long time, particularly when the market around it is growing. Success Changes the Questions We Ask One thing I have noticed about businesses doing well is that their questions tend to become increasingly operational. How do we increase conversion by 10%? Which new product should we launch? Should we spend more on Meta or Google? Can AI reduce content-production costs? How do we improve sales productivity? These are all reasonable questions, and companies should ask them. But when performance deteriorates, the questions suddenly become more fundamental. Are we selling the right thing? Has the customer changed? Why are people choosing competitors? Is our positioning still relevant? Is the business model as strong as we assumed? Ironically, a company doing badly is sometimes forced to examine its assumptions earlier than a company doing reasonably well. That creates an interesting paradox. Success gives a company more resources with which to change, but it simultaneously reduces the pressure to change. Market growth can extend this period for years because an outdated assumption does not have to be completely correct; it only has to remain economically tolerable. This is why I do not think the main danger of a strong market is complacency in the usual sense. Most executives I meet are not sitting around doing nothing. Their companies are launching products, hiring people, running campaigns and pursuing partnerships. The more subtle danger is that a company can be extremely busy while continuing to operate inside the same strategic assumptions. Chegg and the Difference Between a Need and a Route Chegg is another interesting case study as it was experiencing almost the opposite phenomenon as the examples given above (Coursera, Duolingo). Its subscription services revenue and subscriber base both declined 14% in 2024, while global non-subscriber traffic deteriorated from an 8% year-over-year decline in Q2 to 19% in Q3 and 39% in Q4. Chegg explicitly identified growing student adoption of generative AI and changes to Google search, including AI Overviews, as significant headwinds affecting traffic and subscriptions. Chegg is an uncomfortable example because the underlying customer need did not disappear. Students did not suddenly stop having questions, struggling with coursework or wanting explanations. What changed was the route through which they could satisfy that need. For years, search was an enormously important part of that route. A student searched for a problem, Google directed the student toward a relevant page, and platforms such as Chegg could convert some of that traffic into users and subscribers. Generative AI changed the equation. Search engines themselves also began answering more questions directly. Chegg subsequently reported substantial declines in non-subscriber traffic and explicitly identified generative-AI services and changes in search as important factors affecting its business. I find the example useful because it illustrates a distinction that gets lost in conversations about disruption. The customer need can survive while the mechanism through which a company captures that need changes completely. People still wanted help. The market for help had not vanished. What weakened was the assumption that the existing route between the customer and the solution would continue working in the same way. This is why inherited advantages need to be examined while they are still advantages. The more successful a distribution channel, product or business model has been historically, the more evidence the organisation has accumulated in favour of continuing it. By the time that evidence becomes obviously wrong, competitors may have spent years building around a different assumption. Run the No-Tailwind Scenario Every growing company receives some help from its environment. A category expands, customer budgets rise, technology creates new demand or a distribution channel becomes unusually effective. I think of this as a market tailwind: growth that makes the company move faster without necessarily making the company itself stronger. There is an exercise I would run with any management team, and I think it is the most useful one in this whole piece. Imagine that the next three years are boring. There is no extraordinary category boom, no sudden influx of customers, no cheap new acquisition channel and no technological wave pulling buyers toward you. The market grows at 2%. Now ask the team how the company doubles anyway. You cannot answer that the market will expand, because we have removed that possibility. You cannot rely on more people coming online or assume that AI adoption will automatically create demand. You have to explain where the growth will actually come from. Perhaps you take market share. Perhaps you reposition the company, move into enterprise, expand internationally, improve retention dramatically, change pricing, acquire another business or create a new category. There are many possible answers. The useful part is that every credible answer requires the company to do something differently. Occasionally, the answer is that with the company as currently designed, doubling would be extremely difficult. That is an excellent thing to discover while revenue is still growing. The Market Doesn't Need to Collapse When people hear arguments like this, they tend to imagine some dramatic event that eventually exposes the problem: a recession, a giant competitor, a technological disruption or a regulatory change. Usually nothing that exciting is required. A market growing 30% becomes a market growing 12%. Customer acquisition gets slightly more expensive. A competitor becomes slightly better. A feature that used to differentiate the company becomes standard. Organic distribution becomes less generous and customers become a little more demanding. Nothing catastrophic happens. The company simply has to work harder to produce the same growth. That is often when management begins asking why the old playbook no longer produces the old results. The unfortunate part is that this discovery usually arrives after the easiest period for fixing it. When revenue is rising, the company has money, credibility, customer goodwill, talent and time. It can experiment without desperation and invest in things that may not pay back immediately. These are precisely the conditions under which strategic change is easiest. They are also the conditions under which strategic change feels least urgent. The Growth Quality Audit If I were sitting with the leadership team of a growing company, I would ask everyone to answer ten questions independently before discussing them together. Relative growth: How quickly is the market we actually compete in growing compared with us? Relative growth: Are we gaining or losing ground against the competitors that matter? Market lift vs. company lift: Which parts of this year's growth came from things we built during the last two years? Inherited momentum: Which parts are still being produced by products, channels, relationships or brand assets built years ago? Competition as a stress test: Which competitor has improved its position most significantly, and what did they understand or do differently? Competition as a stress test:If our brand disappeared from the product tomorrow, what would still make customers choose us? Market lift vs. company lift: Which external change would damage our growth most? Inherited momentum: Which of our strongest current advantages could also be a dependency? Relative growth: If the market stopped growing, where would the next 50% of our growth come from? Strategic lift: What are we building today that should still be producing growth three years from now? I would not expect ten confident answers. In fact, the uncomfortable answers are usually the reason to run the exercise. A business growing 25% through a single engine can sometimes be strategically weaker than one growing 15% while developing several credible future engines. The first has stronger current performance, the second may have more room to manoeuvre if conditions change. If five executives answer these questions differently, the disagreement is probably more strategically useful than whatever number a spreadsheet would have produced. Growth is the Best Time to Ask Difficult Questions None of this is an argument against market growth. If you are lucky or smart enough to operate in a market with a strong tailwind, use it. Capture as much of that growth as you can. The point is to understand what the tailwind is doing for you. A company that can distinguish the growth it created from the growth it received can use a favourable market very differently. Instead of treating today's revenue as proof that the existing strategy works, it can use the resources created by that revenue to build whatever will matter when the environment changes. And eventually it will change. It does not necessarily have to become worse; it may simply become different. Customers find another route, competitors change the basis of competition, distribution shifts, or something that was previously scarce becomes abundant. That is what makes the good years strategically important. They are not only the years in which you should maximise growth. They are the years in which you have the greatest freedom to prepare for the next source of it. There is nothing wrong with riding a wave. The mistake is assuming that the wave is evidence that you learned how to swim. That is why I think market growth is the worst place to hide.

Market Growth is the Worst Place to Hide

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