Most companies earn almost all of their profit from one or two core businesses, and almost all of their management attention goes there too. That is rational in the short term and dangerous in the long term: markets mature, technologies change and margins erode. By the time the decline is visible in the results, it is late to start building the replacement.
Three horizons, managed at the same time
- Horizon 1, the core: today's businesses, which generate the profit and the cash. The task is to defend and extend them.
- Horizon 2, emerging businesses: proven ideas that are growing and need investment to scale.
- Horizon 3, options: experiments, research, small stakes and pilots that could become the businesses of the next decade.
In this illustration the core business loses 40% of its profit over a decade, a normal pattern for a maturing market. Without horizons 2 and 3 the company would shrink. With them, total profit grows by a third, and by year ten more than half of it comes from businesses that today contribute almost nothing.
Fund and manage each horizon differently
A common rule of thumb allocates about 70% of investment to the core, 20% to emerging businesses and 10% to options. The exact split matters less than protecting horizons 2 and 3 from the annual budget cycle, where the core will always win the argument.
- Different metrics: profit and cash for the core, growth and unit economics for horizon 2, learning milestones for horizon 3.
- Different leaders: operators for the core, builders for horizon 2, explorers for horizon 3.
- Different governance: a stage-gate process that moves ideas from horizon 3 to 2 when they prove demand, and stops them quickly when they do not.
Bartor S.
Founder
