Are you feeding a dog or having a cow? Or maybe you’re dealing with a rising star? And what does this mean for your business? This is a short guide to knowing the difference between cows, dogs, stars and question marks, and most of all, how to use this for growing your business.
No, you have read it right. If you’re not familiar with BCG-matrix (aka growth-share matrix), this cow talk could’ve sounded weird, but those are the categories in which business units (or product lines), can fall into.
What’s BCG-matrix and How Are Cows Good for Me?
BCG in BCG-matrix stands for Boston Consulting Group, and it is the name of a chart developed by Bruce D. Henderson for the Boston Consulting Group in 1970. It helps you analyze your business based on market shares and growth rate. That’s how your business could end up like a cow, dog, star or question mark!
Stars: High Market Share + High Growth Rate
Stars represent high market share in a fast-growing industry. Tricky part is that stars require high funding to maintain their growth rate and compete with other market leaders. As the industry growth slows, they will become either cows (which most business owners hope for), or dogs.
Cash Cows: High Market Share + Low Growth Rate
Cash cow is high market share, within a slow-growing industry. Bad side is that they are a bit boring and usually generate just enough cash you need for maintaining the business. Good side: you can “milk” them for cash. Remember that you should do this with as little investment as possible, due to the low growth.
Dogs: Low Market Share + Low Growth Rate
Dog might be man’s best friend, but dogs in BCG-matrix are not so good. They represent business units with low market share in a slow-growing industry, and usually they generate just enough cash to keep on going. Owning this kind of business is good in a way that a dog still provides jobs, but they don’t produce (almost) any profit for the company. The tricky part is that they worsen return on asset ratio of a company, and this is something most of investors use to judge how well your company is doing. That’s why the most would agree that you should sell your dogs.
Question Marks: Low Market Share + High Growth Rate
If I tell you question marks are also known as problem children, you get the picture. But it is not really that bad. In reality, the most businesses start like question marks. They have a low market share in a high growth market. If question marks gain enough market share, they can become stars and eventually cash cows after the market growth slows and they’ve kept market share. But the tricky part is that if they don’t gain enough market share, when market growth declines they can become dogs after years of investments. This is why it is important to be careful with question marks and think twice if it is worth the investment.
Don’t be a (bad) cow or
Why you should have a little of each
As said earlier, the most usual starting point for each business is question mark: small market share in a high-growth market. From here on, with investments, good management and some luck the question marks could turn into stars. As the industry matures and the growth declines, if the stars kept the market share, they would become cash cows. Basically, question marks can end up like cash cows or dogs, and the cow is of course the better option.
A good balanced company should have both stars, cash cows and question marks.