Do you have a proper understanding of unmet demand of your customers or industry, or do you mostly just invent new products or add new features to existing products and then search for a market? (paraphrased from How Companies Win)
Most companies do the latter regardless of their size. Often, they get pulled in many directions and build whatever the latest customer wants or what the salespeople are selling or something they are convinced customers want without ever talking to or observing enough of them to get a market-sized view.
They end up chasing revenue constantly and sometimes end up having to perform unnatural acts to make the month or the quarter.
They do get revenue in the short term and all seems great for a while but months or years later they find that they are stuck. Revenue has stalled and they cannot figure out why. They and the team are stressed to the breaking point or nearly so. They wonder why they cannot grow, why there is no time to get to the important work, how will they make payroll next week or next month. The founder/CEO begins to wonder if s/he wants to continue this way and should maybe just close the doors, sell the company or feels the company may be better off without him or her. I have not come across one client that has yet to experience at least one of these issues.
Usually, this happens due to the decisions (or non-decisions) that were made years earlier. Some or many of those decisions were made out of necessity or to accommodate a particular circumstance and may no longer be appropriate. However, over time, previous decisions become sacrosanct and are rarely, if ever, questioned. An important decision to question and make sure it is still relevant is the company strategy.
We, at Gazelles, define STRATEGY as the long-term plan of action to drive sustainable top-line revenue.
Two questions are key:
- Do you have a simply-stated strategy? That is, if I asked anyone in your company what the company strategy is, could they tell me in one phrase or sentence?
- Does that strategy drive sustainable top-line revenue? That is, how are you differentiated from your competitors and meaningful enough to your core customer(s) to drive consistent and predictable revenue?
Four steps to a solid strategy
1) Get to know your Core Customer(s). I believe this is the fundamental building block of any decent strategy. Most companies build products and then look for a market whether they are startups or F500 companies. According to a number of research studies and experiential books, there are a few ways to go about really getting to know your customers. In How Companies Win, authors Rick Kash and David Calhoun talk about demand pools. They identify different types of customers that buy your product for different reasons. There is a great example about dog food and how the industry, for years, segmented their customers by the size of the dog which turned out to be a suboptimal model for profit maximization and customer satisfaction. The industry was ignoring a key insight – why customers bought certain types of dog food. It was much more about the relationship they had with the dog than the dog’s size. Here is a link to an article that touches on the topic. It was a game changer for the company they worked with (not named in the book). Tony Ulwick and Clayton Christiansen have a compelling approach discussed in Jobs to be Done and Competing with Luck. They talk at length about Jobs To Be Done (JTBD) Theory and Clay reiterates the very entertaining anecdote about selling milkshakes to illustrate his point elegantly. Bob Bloom, Inside Advantage, is another great resource in this area.
I am partial to JTBD where there are three main tenets to identify a Job that your customers hires you or your product for. When you do the work to nail this, it makes designing, developing, marketing and selling much easier. They are:
- A Job does not change over time. For example, people want to “listen to music” as the JTBD. This has changed from live performance to radio, to cassette to CD to streaming service. The delivery and technology have changed but not the Job. It remains “listen to music”.
- A Job has no geographical boundaries. The Job does not change in the UK, China, Russia or Lichtenstein.
- A Job is solution agnostic. The Job does not care if you provide product, software or services. A deep understanding of the Job will inform the creation of the total solution.
I can go into a lot more depth here but will save it for another post.
2) Be clear about your Core Competencies. This revolves around what you enjoy doing AND are the best in your world at. Core Competencies typically have three main attributes:
a) They can be applied to multiple industries or markets
b) They deliver a significant contribution to your customer’s perceived value of your company and products/services
c) They are difficult to imitate
3) Fine-tune the essential strategy components. In Gazelles, we talk about the following:
a) Words you own – This is usually reflected online in SEO and top page rank on Google and other search engines (e.g., “Pizza delivery” is Domino’s)
b) Sandbox – The “Who, What and Where” of your selling proposition
c) Brand Promise – What your customers can consistently expect of you. Starbucks is great coffee. McDonalds is speed. 3M is innovation. You can also offer a guarantee to help shorten your sales cycle.
d) One Phrase Strategy – For example, IKEA is “Flat Pack Furniture” or Southwest is “Wheels Up”. Each of these has a number of important business principles supporting them. For Southwest, it is a quick turnaround from when the plane lands to when it is back in the air (i.e.A,B,C boarding process, 737s only, no in-flight meals, etc. ) Southwest knows that the principle way they make money is having planes in the air and do that better than any other airline. They have been profitable for 40+ straight years following this strategy and being hyper focused on execution.
e) Differentiating activities – These activities separate you from the pack. They attract certain types of very profitable customers and repels those that are likely to be less profitable. They may even turn away some folks that were initially interested. There is a famous return letter Herb Kelleher wrote to a flyer who complained about one or more of Southwest’s main differentiators and threatened to not fly Southwest again. All he said was, “We will miss you.”
f) Profit/X – This drives your economic engine. For instance, there is a laundry delivery company, New Systems Laundry, in Portland, OR area, that focuses on Gross Margin/Delivery. They focus their fundamental business operations on how to maximize that number.
g) BHAG – A stretch goal of what you want to hit in 10-30 years. This typically revolves around your Profit/X, your Purpose/Passion and your Core Competencies (what you are best in your world at).
h) Keep Track of Industry Trends – Many companies had a great strategy to start but lost sight of the industry as they were heads down executing their strategy only to be left behind. Paying attention to what is going on outside your walls is important. Some of these trends are Social, Technology, Consumer, Markets, and Demographics. Please note that this is NOT copying what your competitors do but continuing to build out a complete solution for your customers.
i) Innovation – Too many of us think about innovation as a huge jump forward where we leapfrog the market in one fell swoop. This is usually described as Invention. However, the most innovative companies make a science out of the innovation process. They know that there are multiple ways and places to innovate. In How Companies Win, the authors talk about 5 ways to innovate within your company.
- Invention – Breakthrough solutions that are “category-makers”
- New Product – Delivering new solutions with existing technologies or products
- Product Enhancements – Variation on an existing product or service
- Non-Product Enhancements – Packaging, merchandising or channel/distribution are examples
- Operational – Changes to process or service can thrust a company forward
- Business Model – Changes in how the product/service is delivered, produced, priced, or used can make a huge difference in the business
4) Establish a number of SMART goals that get you started on your long journey to your BHAG. A BHAG is usually a stretch goal or a North Star. Usually, it is a target that makes you a bit uncomfortable and when you set it, you do not quite yet know exactly how you are going to achieve it. The best was to get started according to Charles Duhigg in Smarter, Faster, Better is to break it into smaller chunks that you can start right away. Here is an example from his book.
As cited in the graphic above, running a marathon can be a daunting goal to set but when you break it down into Specific, Measurable, Achievable, Realistic and Time-Bound bits, it can be done. It also seems a bit less scary. The U.S. put a man on the moon with a very similar approach. Japan built the first bullet train as well using a similar long-term goal and then a series of smaller steps to get started.
There are a few other more sophisticated techniques you can employ to really dominate a market. I wrote about one of them a few months ago (click here).
A solid strategy is pivotal to having a winning company. It is not an easy task. It takes a fair amount of thinking to get started and needs to be reviewed on a regular basis as you learn more from your customers, employees, and the market. However, without solid execution, even the best strategy in the world is very likely to fail. That will be the topic of our next post.
I look forward to your comments. If you found this post useful, please share, comment and/or like.