First, let’s start with some background.
“Star” is one of four terms coined by Boston Consulting Group (BCG) many years ago to describe their management consulting approach – The BCG Growth-Share Matrix. The Star designation is used extensively by one of its former consultants – Richard Koch – to designate a high-growth and high (relative) market share company. That is, one that has chosen and or positioned itself in a market where it has a tremendous chance to be a runaway success.
Koch has done very well financially over twenty years by investing in a dozen or so companies making hundreds of millions of dollars leveraging this simple formula. He looks for Stars. He created a 5-minute discovery process to ascertain what businesses are Stars and which are not. He also provides advice on how to turn your company into a Star in his recent book, Simplify.
Perry Marshall, Koch’s business partner, interviews Richard Koch below. The video is a bit long. If you are pressed for time, skip to 18:00 to bypass Koch’s background.
12 Star questions
On his website, http://www.starprinciple.com, Perry Marshall put together twelve questions to ask yourself and your team to see if you have the attributes of a Star.
A Star Business is one with an overwhelmingly high chance of success based on the ingenious formula in Richard Koch’s book “The Star Principle.” Richard used the Star Principle formula to grow his fortune from $4 million to over $200 million in 23 years – successfully picking 8 startup companies out of 16 that were tremendous successes. His 50% success rate is unheard of in a world where Venture Capitalists are thrilled to be at 10%. (Perry Marshall from Starprinciple.com)
These are the twelve questions Marshall asks: (I modified the questions for brevity.)
1) How much has your business grown in the last 12 months?
2) Are you THE leader in your niche?
3) Does your Unique Selling Proposition sharply differentiate you from all others?
4) Is your product or service MUCH simpler and/or clearly more useful & elegant than any competitor?
5) How fast is your niche growing per year?
6) How do your profit margins compare to the competition?
7) Have you built an enthusiastic customer fan base that is identifiably different from the main market?
8) Compared to my closest competition, my product costs___________?
9) My Market is:
- Very finite – no matter how good or affordable the products get, demand is inherently limited
- Expandable – the better & cheaper products get, the more people consume
10) How strong is the demand in my niche?
11) What is the ease with which I can mass-produce my product?
12) What is the ease with which others can replicate my product?
These questions can be answered at this website to generate a score to see if your company qualifies as a Star.
N.B. This formula can also be used for investments as well as to help you pick a company to work for.
Two ways to be a “Star” business
If you scored below 100, do not despair, there are things you can do to position yourself to be a Star. Next week, I will talk about possible ways to move your company to Star status. Koch’s new book, Simplify, goes into great detail with examples of the two main ways to follow in the footsteps of the great Stars in business – Google, Ford, Bain, Walmart, Amazon, Apple, Honda, McDonald’s, Charles Schwab and others.
Koch posits there are two ways to be an overwhelming success:
- Price-simplification, or
For fun, guess which of the two strategies were applied by the above companies to make them runaway successes? Stay tuned, I will provide the answers in my second post on the topic.
Thanks for reading!
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