Category Archives: Business Strategy

Not the Customer’s Job to Know What They Want

Business Ideas, Business Stories, Business Strategy, Venture Capital, Web/Tech, , , ,

There was a nice short video on TechCrunch the other day, quoting Mark Zuckerberg, John Doerr, and two other industry leaders on how much the iPad has changed “everything.” I picked it up because of what John Doerr says near the end.

http://player.ooyala.com/player.js?deepLinkTime=02m46s&embedCode=kwZnh5MTrZtMPzfZVRRMNSLo3_EsC71X&videoProviderCode=11amo6qGw2oucN78pR-BYbDpCESk&width=480&deepLinkEmbedCode=kwZnh5MTrZtMPzfZVRRMNSLo3_EsC71X&height=290

The video snippet I’ve embedded here skips directly to my favorite part, at 2:45, very near the end, as John Doerr talks about Steve Jobs saying what market research has done for the iPad. Jobs says:

It’s not the consumers’ job to figure out what they want.

I like that. As we turn increasingly to polling and research for answers, the problem is that people don’t often say what they really think, and quite often don’t even know what they really want. One kind of leadership, to me, is leading people instead of asking people. You take a guess. When you guess right, you win big. Guess wrong, you lose.  Is it possible that this is also called entrepreneurship? What do you think?

Strategy Step 2: Market Focus

Business Strategy, , ,

Strategy step one was understanding identity. Step two is market focus, but always with the realization that you think these two through together, not one by one. Your identity is about uniqueness, strengths, and weaknesses. That influences your choice of target market. And your market influences your identity. They mix together.

Most of us make the mistake of aiming too broadly. Think of this quote: “the secret to failure is trying to please everybody.” If we were a restaurant, we’d be trying to offer the best food at the lowest prices with the best service and a drive-through as well. Which is disastrous. Most successful restaurants focus narrowly. They want the foodies who pay high prices, or the quickies who want fast and cheap; but never both.

Really strategic target marketing is like sculpture. You start with the big block and then knock the pieces off of it. Be able to define who isn’t your target market.

Try to imagine in detail your absolute ideal buyer. Experts call this working with a persona. Give her age, family, education, job, commuting habits. Know what kind of car he drives, what websites he likes, and what he watches on TV. Know her politics. Know what he reads. The more you know the one idea, the better to manage your market message and media.

Make sure you understand this person’s underlying buying decision. Understand the real needs. With restaurants, for example, the needs and wants involved in an expensive low-lighting romantic meal for two are very different from those involved in a quick cheap drive-through hamburger happy meal. Free yourself of features, and think of benefits. Tell yourself the story of you this person finds your business, what he is looking for, and why that matters to her.

(Image: istockphoto.com/ with my modifications)

How Do You Define Small Business Strategy?

Business Strategy, , , ,

Yesterday I got this comment to my post Maybe You and I Aren’t As Good At Strategy as We Think, from last November:

I’ve been wondering: How do you define “strategy?” Is it possible to brainstorm to arrive at one? What are the “parts” of a good strategy?

strategy outlineThat’s a really good question, worth a blog post, or actually, maybe a book, or a series of books (not that I would be the author) or a whole graduate curriculum. But I do have 37 posts in the business strategy category of this blog, including this post from last October, which had this summary:

It’s really about focus. You can’t do everything, so you do the right thing.
You can’t please everybody, so you select who you please based on common sense, your strengths and your weaknesses, and how you’re different.
You can’t sell everything, so you sell what you’re really good at, what makes you appealingly different, and what sets you apart.
You can’t do everything so you do what’s most important, what gives you the most benefit per unit of resources, what aligns you best with your target market and your focused business offering.

In my Plan-as-you-go Business Plan book I divided it into three interrelated parts: identity, market, and focus.

Your Business Identity: This element is about you and your business, what I call your identity. How are you different from others? What are your strengths and weaknesses? What is your core competence? What are your goals?

Your Market: Telling the market story is about knowing and understanding your customers. Understand why they buy from you, what their wants and needs are, what business you are really in.

Strategic Focus You can’t do everything. In restaurants, you can’t credibly offer great food at bargain prices with great atmosphere. If you say you do, nobody believes you anyhow. So you have to focus. Make this focus intertwined and enmeshed with your choice of key target customer and your own business identity. All three concepts have to work together.

I hope that helps to answer that question from a reader. I’m glad she asked.

10 Ways to Improve Team Management and Grow a Business

Business Mistakes, Business Planning, Business Strategy

I’ve been traveling a bit, which means time for reflection on long plane flights. I’ve also been talking and thinking about management, what it takes to make a small business grow larger, and what it takes to manage teams better. Here’s a list I wrote up in off moments.

  1. Find people smarter than you are, hire them, and let them run. It’s no coincidence I put this first. You need ideas, interaction, a vibrant, creative environment. If you’re always the smartest person in the room you’re probably delusional, and quite possibly the dumbest.

  2. Develop ownership inside the team. By ownership I mean being really in charge of something, so you care about whether it works or doesn’t. If you’re key team members don’t swell with pride when things go well and dig in deep to change things when things go poorly, you’re screwed. Do they wait for your lead on everything? Then they don’t own anything, and nothing good is going to happen.
  3. Embrace mistakes and educated guessing. People afraid of making mistakes can’t operate. If they don’t acknowledge bad results, and don’t care, get rid of them. If they do acknowledge bad results and they bear down to solve problems and do better, make sure they know that you know that. You want people to guess and keep trying. Good decisions have bad outcomes sometimes.
  4. Improve customers’ lives. Don’t just keep shouting the same old stuff. Find something your team can do that’s good for your customers. Make your customers’ lives better. Do that on your own terms of course, within your own business area.
  5. Rally the team around the ideas. People will work for something they believe is worth doing because it makes the world better. Believe that, live that, and other people will join you. It’s not about sales growth and profits unless you own the company and plan to sell it. Until then, it’s about doing something that matters.
  6. Develop a SWOT analysis. It’s pretty simple. Get the team together and do bullet points for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal, opportunities and threats are external. It gets people thinking about strategy.
  7. Focus the business sharper. You’re probably trying to do too much, too broadly, for a way-too-generalized type of customer. Focus your vision. Bear down hard on something your business can do really well.
  8. Know the core customer story down to your bones. Your business is a story about doing something people need and want, and doing it better. It’s about helping people. Invent a best-case customer and make her a story in detail. Maybe it’s real, maybe it’s fiction, but it has to feel so real you could script an all-day conversation.
  9. Find numbers for everybody and live them and own them. Not just dollars in sales or costs or expenses; find the real numbers your team members can live with, take pride in, improve, and (point 2 above) own. That might be page views, clicks, links in, meals served, trips, engagements, conversion, calls, presentations, whatever. Give everybody numbers. Make an environment in which people care about their numbers, check them daily, hurt when they’re bad, feel good when they’re good.
  10. Plan, step, look, listen, plan, step, and so it goes. It’s a planning process, not just a plan. Start with SWOT, focus on strategy, list assumptions, develop the numbers, and then track, review, revise, and plan again. That’s what we call management.

(Image: istockphoto.com)

Business Landscapes Change. Giants Fade.

Business Stories, Business Strategy, Web/Tech, , , , ,

Quick thought for the day: business landscapes change.  Giants fall. Startups become giants.

The giant, the big power, that everybody fears, and by whom everybody wants to be acquired … it’s Google these days. It used to be Microsoft. Are you familiar with Lotus 1-2-3? There was a time when Lotus was the giant of software. And Vision? Look it up: it was the world’s largest personal computer software company in 1983.

Giants are hated and feared. 

In January 1985 Apple released the now-famous 1984 commercial that pitted the high-tech newbie against the industry giant (here’s a link to it on (ironically) Google video)  … and although it’s hard to believe now, back then that was all about IBM and everybody knew that instantly. Today it’s total anachronism. But IBM was the giant of the industry for about 20 years. It was hated and feared. They called it Big Blue.

So now it’s Google.  What do you think: For how long? Who’s next? 

Maybe You and I Aren’t As Good at Strategy as We Think

Business Strategy

To be honest I could probably make a compare and contrast list between business strategy and sex; but I decided against that. It seems like too obviously pandering to the SEO. Instead, I want to focus on just this one thing business strategy has in common with sex: both are on the short list of things almost everybody assumes they do well, and for which it takes bad news to prove them wrong.

We have to learn a lot of things. You take swimming lessons, and you learn math in school. Tennis, golf? Everybody takes lessons. But you’re good at strategy automatically; and, well, sorry to mention it, but also, sex. Or so we all believe.

I used to think it was strategy, driving, and sex. But in the last few years I’ve realized some people know they’re bad drivers. There’s progress.

I first realized this about 30 years ago when I was a vice president with Creative Strategies International. We sold market research easily, strategy with great difficulty. And that’s because, I came to believe, everybody feels great with strategy.

Don’t you?

Having watched this phenomenon for several decades now, I do think there’s a kernel of truth in this business strategy phenomenon. Think of any successful strategy you know of … doesn’t it seem obvious, after the fact? The problem is that a good strategy does seem obvious; but only after it becomes visible. The hard part is to think it up before it’s obvious.

I Love How Markets Are Constantly Dividing Into New Slices

Business Strategy, Entrepreneurship, Marketing, , ,

In a pitch presentation, the presenter said:

If we can only get 1% of the $4 billion market, we have a $40 million business.

But you won’t. Nobody ever gets the small percentage of the large market. I hate those tops-down market projections.

What happens instead, I think, is that markets are like organisms that are constantly growing and then dividing themselves into smaller markets. Think of how many different kinds of computers there are, or automobiles, or restaurants … every market seems to have started as a piece that was sliced off of a bigger market.

And I love that way of thinking about markets. Successful companies create new markets.  Then competition, the copycats, jump in, and successful companies either fend them off, deal with it, or create yet another new market.

Don’t aim for a tiny piece of a huge market. Create your own new market. Divide and conquer.

(Illustration: jscreations/Shutterstock)

Good Strategy Goes Unnoticed. Bad Strategy Goes Under. A 3-Question Strategy Test.

Business Strategy,

Another thing I like about small business and entrepreneurship is that you live the strategy without the elaborate frameworks and detailed analysis. As companies get bigger, strategy gets harder. SWOT It’s much more likely to take teams of experts tons of detail work.

Big companies are like big ships. They change course slowly. There are lots of moving parts involved.

For you and me and small business in general, strategy is always happening, whether you like it or not. And if you screw it up, changing it too frequently, failing to focus, trying to do everything, then it hurts.

Strategy for us? It’s really about focus. You can’t do everything, so you do the right thing.

  • You can’t please everybody, so you select who you please based on common sense, your strengths and your weaknesses, and how you’re different.
  • You can’t sell everything, so you sell what you’re really good at, what makes you appealingly different, and what sets you apart.
  • You can’t do everything so you do what’s most important, what gives you the most benefit per unit of resources, what aligns you best with your target market and your focused business offering.

Here’s a quick test: do a SWOT analysis, as in the illustration here. List your strengths, your weaknesses, your opportunities, and threats. Then think about your strategy. Does it pass the SWOT test, or not? Does SWOT bring up something you’re doing wrong?

And another quick test: the principal of displacement, which means everything you do rules out something else that you won’t do. Think about it: are you doing the right things? Or are you trying to do everything?

And finally, a third quick test: do you ever say no to anything? When? Why not?

(Image credit: istockphoto.com)

The Three Most Common Pricing Mistakes

Back to Fundamentals, Business Strategy, Management, ,

(Note: This was first posted last week on the Amex OPEN Forum. I’m reposting it here, with permission, for the convenience of my readers here. Tim.)

All the years I’ve been following business, strategy and small business—from the late 1970s through today—I’ve always wished for a magic formula for proper pricing. What’s the right price for this service? How should you price a new product? In teaching, writing and answering emails, this question comes up all the time. And, much as I’ve looked for the right answers, they aren’t at the back of the book.

Pricing is magic. There is no formula that works for you, or me, or any generalized group. You set your pricing as a matter of situation, strategy, costs, competition, weather, instinct and all of the above.

While I can’t really tell you how to set your pricing right, I can at least share something that I’ve learned—in classrooms, in making mistakes, in growing my own company—about how NOT to set your pricing.

Here are the three most common pricing mistakes that I see. And, just to be clear, while I wish I could drum up some rigorous research to back me, this is based on anecdotal evidence, common sense, and three decades of dealing with business problems.

1.  Trying to be the lowest price provider

One of the most damaging cliches in business is the idea that the lower price gets the highest volume.  The whole lower price equals higher volume idea, a fundamental law of economics, is for undifferentiated commodities, not your business or mine.

Successful lowest-price strategies are unusual. They usually take a lot of capital, resources and visibility. What works for Costco and Walmart doesn’t work for the corner store, some discount airlines and gasoline stations, but those strategies usually require a lot of capital and very large scale implementation.

2.   Mixing your pricing message

We forget way too often—and too soon—that price is the most powerful marketing message you have. Do you think people don’t buy your work because it’s too expensive? But isn’t it worth it? Don’t you believe in it? It’s about positioning. How are you different from the others? Is what you sell better than the one across the street? Does your price say so?

Would you get a root canal from the cheapest dentist in town? Would you save money by buying two-day-old sushi? And why isn’t the cheapest car made the most popular?

I lost a consulting job I really wanted once when I bid $25k for it and a competitor bid $75k. The guy who gave me the bad news told me everybody liked my proposal, but they wanted the best, so they went for the higher price.

What would you rather have for dinner: a $1 hamburger or a $20 steak? We used to go to a restaurant that had really good food and surprisingly low prices. But I often wished they’d raise their prices so we didn’t have to wait 45 minutes or more to get a table. And guess what: they no longer exist. They went out of business. Do you think pricing had something to do with that? I do.

3.  Underestimating real costs

Businesses go under when they run out of money. The research on how they run out of money is confusing and ambiguous, and there are rarely single identifiable causes. Still, just betting on what I’ve seen with my own eyes through a lot of years, I think businesses frequently run out of money because they underestimated real costs.

We talk a lot about gross margin in business analysis. That’s your selling price minus your direct costs. So if you buy that widget for $2 and sell it for $6, then the gross margin is $4, and your gross margin percent is 67 percent.

Unfortunately, focusing just on gross margin isn’t enough. Aside from the $2 you paid for that widget, there are all those other expenditures, including your rent, your payroll, your insurance, your electric and water bill, all of your marketing costs, and lots of hidden costs, like the computers and software you’ll need to buy next year. We call that overhead and tend to forget it. Which is a shame, because a lot of businesses forget about it all the way to the business grave. You run out of money.

Is Your Business Either Growing or Dying?

Advice, Business Mistakes, Business Strategy, Planning Fundamentals, True Stories, ,

True story: there were six of us at lunch together on a beautiful late spring day in 1996. We sat on an outside table in the shade and discussed the next big growth spurt. Would we take this marketing-on-steroids proposal, at a high cost? Would it work? Could we afford not to?

I’m not sure any more which of us said it:

The status quo is great. This company is fun. The team works well together. Do we really have to grow?

I liked the idea, but didn’t fully buy it. My answer:

Yes. We’re a software company. We shrink or grow. There’s no alternative.

We did take the growth pill. Sales doubled in the following three years. Today, 14 years later, I still think that basic idea, growth or die, is true. Technologies change quickly. Trends and fashions change. Operating systems and the tools in software change. You don’t stop moving. Settle in, and you’re in trouble.

But is it that simple? I’m less certain than I used to be. And not just because of this recent piece, but still, I’m fascinated by Karen Klein’s Your Perception of Business Growth Is Wrong a few days ago on the businessweek.com site. She interviews Edward Hess, entrepreneur, author, and academic, who says, point blank:

What most business people think about growth, like “grow or die” or “growth is always good,” is not supported by research.

I do have to say that I am not as influenced by the “supported by research” phrase as I’m supposed to be. I’ve seen a lot of foolish notions supported by research. So I’m not that impressed by the results of a team of interviewers talking to CEOs of 54 companies, with average revenue of $60 million. Companies with revenues of $60 million are enormous to me. They have very little to do with the 95+% of businesses that have no employees, or just a few.

What does impress me, though, are the arguments Hess makes in the Business Week interview:

growth that’s not managed properly can lead to dilution of your customer value proposition and risks to your reputation and brand. I think you should approach growth not as an assumption but as a well-thought-out decision. Understand the difficulty involved and go into it with eyes wide open, knowing that you can stop at any time.

companies don’t necessarily have to grow or die, but they must improve or die, meaning they have to continuously improve their customer value proposition or risk going out of business.

if you take on too much growth, it can overwhelm your processes, people, and controls. What we recommend is managing the pace of growth with something like a gas-pedal approach.

Smaller, privately held companies usually don’t have the financial safety net to withstand quality control issues or negative publicity or a legal downside.

All of these arguments, taken from the interview, make sense to me. So I don’t know. What do you think: grow or die? Grow or shrink? Is it different in software, the web, and other high-tech businesses?

(Illustration: 3DProfi/Shutterstock)