This is a question successful companies must ask once they have already expanded into the most obvious opportunities for additional growth. When this happens, decisions must be made about next steps. And, it’s easy to get carried away with enthusiasm for next steps that stray too far from your successful business model.
The possibility of straying too far from the business model is mentioned in the recent Wall Street Journal article about Canada’s WestJet Airlines (“New Path for Canada’s Folksy Carrier” by David George-Cosh, July 29, 2015). As the article explains, Calgary based WestJet is a “one-time upstart, which now reaches more than 150 destinations…” Founded 20 years ago and following a business model much like that of Southwest Airlines, WestJet is a low cost carrier that flies Boeing 737s on short haul routes across Canada.
As the Wall Street Journal article reports, “WestJet’s growth has made it a powerful challenger to its biggest domestic rival” (Air Canada). WestJet “controls about one-third of the Canadian airline market, with Air Canada making up about half“. The article points out that WestJet’s chief executive “cites a streak of 41 profitable quarters”, but that the airline is challenged by the lack of remaining growth opportunities for domestic flights in Canada. WestJet plans to start flying across the Atlantic to London’s Gatwick Airport, a move that strays from WestJet’s roots and may put pressure on earnings.
As I see it, WestJet’s situation is a classic case of a company at a juncture where it is no longer possible to expand the way it used to. That’s when it can be extremely tempting to expand into something that’s much too different from what they did before.
Interestingly, much like WestJet, Southwest Airlines, whose business model WestJet follows, also faced the challenge of no longer being able to grow in its usual way. Southwest Airlines, however, does not seem to be straying way far from its business model, but is moving into new areas relatively gradually. For example, Southwest has expanded to the Caribbean and Mexico, which are much more like Southwest’s traditional forte than more distant international routes, say across the Atlantic or the Pacific. And, based upon my 25+ years researching business success and failure patterns, steps beyond your traditional business model that don’t stray too far have the best chances for success.
That raises the question of how vulnerable WestJet might be now that its usual growth avenues no longer remain. Adding a few trans-Atlantic routes to test the waters, particularly to destinations that might be culturally similar to Canada, might not entail straying too far. But, in the Wall Street Journal article, WestJet’s CEO says “Why not China? Why not India? Why not South America? Why not Europe? They’re large markets that could be better served.” His statement has the connotation that WestJet plans to stray far and wide to pursue a varied assortment of routes drastically different from what it does now.
But, WestJet’s moves thus far don’t seem like rapid expansion into an enormous number of highly diverse markets. We don’t see cavalier expansion that can typify an overoptimistic attitude of why not go anywhere, all over the world ala “Why not China? Why not India? Why not South America? Why not Europe?” Instead we see what may still be more prudent stepwise expansion, even though it goes outside WestJet’s primary business model.
Based on my 25+ years researching business success and failure patterns, companies can successfully stray from their previous business model. But, to be successful, they must do it in a way that builds on their strengths, gradually adds new capabilities, and limits more rapid expansion to situations where they already have needed know-how. How well WestJet can do this will influence how successfully WestJet can stray beyond its business model.
