Category Archives: Business Strategy

Strategy Step 1: Understanding Identity

Business Strategy,

One good step in strategy is understanding your business identity. Look in a conceptual mirror, at your business, not yourself; consider honestly what you see in that mirror. Who you are as a business, how you’re different, what you like to do, what you’re especially good at, and what you’re bad at.

This is like a fingerprint. It’s unique to you. Or, in this case, unique to your business.

Think about strengths and weaknesses. Think about core competence. What makes you special? What can you do for people that’s different or better than what anybody else can do?

You can’t do it in a vacuum. You have to do something other people will pay money for. It’s not all about you. Still, it’s a good first step. Start there.

(image credit: arfo/Shutterstock)

Not All Business Growth is Created Equal

Business Planning, Business Strategy, ,

Following up on my post here yesterday about this being a good time for planning, I want to share this framework for looking at different kinds of business growth, in terms of capital costs and resources.

Take your possible growth efforts and classify them into the general categories shown in my drawing here to the right. Rate each growth opportunity based on two scales:

  • On the vertical, rate each growth idea by how new the product (or service, or business offering) is, on a scale of 1 to 10 with a 1 being your existing current stuff and a 10 completely new business offerings you’d have to develop.
  • On the horizontal, rate each growth idea according to how well you know the target market, from a 1 for your current business market to a 10 for completely new markets you’ve never worked with before.

Growth in the green quadrant, selling existing products to existing customers, is by far the easiest. That is viewed in terms of capital requirements, resources, investment, time effort, and so on. Growth in the red quadrant, creating new products for new markets, is way more expensive.

Growth in the two blue quadrants falls somewhere in between. That’s selling new things to existing customers, or finding new customers to buy existing things.

In practical terms, most businesses can finance that growth in sales of existing product to existing market through existing revenues, but most companies need outside support to develop new products for new markets.

The difference is often enormous. For example, a computer company studied 800 retail dealers over three years, and classified their growth drivers according to this simple model. Sure, this was all vague and rounded, and required a lot of educated guessing. What they found was that growth in the green quadrant costs about $0.15 in capital per dollar of increased sales. Growth in the red quadrant cost an average of $0.75 in capital per dollar of increased sales. Growth in the blue varied from $0.30 to $0.55 per dollar of sales growth. Those are old numbers in one special study, so don’t take them as still valid in dollars and cents; but they’re still true conceptually. What’s still true today is that some business growth is way more easily attained than some other business growth.

And I’m not talking about sales, or costs, or expenses here: I’m talking about new capital, as in new funding. I’m talking about either investment that dilutes your ownership, or borrowing that adds to your debt. These are tough trade-offs.

It doesn’t take a lot of math or theory to figure out why; we’re human, we make mistakes. It’s not just theory. Trying to develop new markets costs a lot more because we grope a bit, do it wrong, and learn the hard (and expensive) way. Trying to develop new products is also hard and expensive. I know software pretty well. We choose the wrong platforms, we try the wrong routines, we have to stop and go back sometimes. That all adds up to costs.

And then there’s the so-called rub. If you don’t move toward new products and new markets, eventually, you go stale and the business dries up. There’s a lot of paradox in business planning.

Conclusion: make sure you address existing customers first. You can’t keep a business healthy for too long without new products and new customers, for sure; but plan your growth well.

By the way, this isn’t just my idea, although I’ve seen the practical reality of this for several decades. It isn’t my original thinking. I heard it first from another consultant. I’m told this is the Ansoff Matrix model, which was originally developed at Harvard Business School.

Don’t Underestimate Beachhead Strategy

Business Stories, Business Strategy, Growing a Business, , , , , , ,

I like beachhead strategies. The term comes from military strategy, meaning that as you invade enemy territory, you need to focus your strength and concentrate on winning a small border area (the beachhead) that becomes the stronghold from which you’ll advance into the rest of the territory.

imageThat’s what the allies did, successfully, in the D-Day invasion of Normandy in 1944. That military success was planned and led by Dwight D. Eisenhower, author of my favorite business planning quote (“The plan is useless, but planning is essential.”) It’s what you see in the opening scenes of Saving Private Ryan. It’s also something I learned mostly by playing war strategy games (although not specifically the one shown here; that’s just a good illustration).

And it’s good business. In business, particularly startups, the beachhead strategy is about focusing your resources on one key area, usually a smaller market segment or product category, and winning that market first, even dominating that market, before moving into larger markets.

Beachhead strategies are often critical for bootstrapping new businesses. And franchisor businesses should think of the beachhead strategy as making sure the initial locations are strong and successful and good models for future locations.

Sadly, people don’t always communicate beachhead strategies well. As an angel investor, and judge of business plan contests, I often see what should be beachhead strategies looking instead like they are focusing too narrowly and missing the larger markets that the beachhead will lead to.

It’s ironic. In business pitches, for startups, the beachhead strategies tend to generate criticism from judges, experts, and other assorted experts for being too narrow, too focused. They want the big picture. But, on the other hand, the big picture, do-everything strategies will often be criticized for being unrealistically ambitious, and unrealistic.

The answer to this seeming paradox is: If you are doing a beachhead strategy, make sure that you include the follow-up idea of broadening your approach later on, after establishing yourself in that first core market.

(Image credit: hoping the game publishers don’t mind seeing their cover shot here; I got it from images.google.com)

— Late addition

My friend John Reddish added one of the comments, mentioning the pictures of Normandy he sent along to add to this post. Here they are belong. Image credit, John Reddish:


Define Your Strategy by What You Aren’t Doing

Business Planning, Business Strategy

Somewhere somebody described to me the process in which Michelangelo imagined his David from inside a flawed block of granite marble that had a crack in it. The crack became the hitch in David’s arm as he holds the sling.

I think that’s something like real business strategy. The general type of business, what other people would assume it to be, is like the uncarved block of marble. The strategy is locked inside it. And the end result is created by what you take away.

So, for example, a restaurant’s strategy is about what it doesn’t do. One of my favorite restaurants serves very healthy fast foods. That’s what it’s doing. What it isn’t doing is sit-down table service, breakfasts, cheap meals, drive-through, date dinners, and on an on.

Then there’s the attorney I’ve dealt with for years who sent me to somebody else for IP law, and to a different person for litigation, and yet another for employer law. What he does is small business law. And what he doesn’t do is much bigger.

First you define your market in general terms by describing your target market segments. Then you define it better by defining who, within that segment, isn’t your customer, and why.

First you define your general strategy by what it is that you do. Then you refine it by defining what it is, within that general description, that you don’t do.

(Photo credit: K Patel 1980/Flickr)

Boomer Business Blogger Part 3: Is It Good Business?

Baby Boomer, Business Strategy, Marketing, Social media, Web/Tech, Weblogs, , ,

A nice person almost apologized to me for not having her business on Facebook. I said: “but why?”

Blogs, Twitter, Facebook, and all the rest of that “social media stuff” may or may not be good business. But not just for its own sake. It has to be part of a strategy.

Otherwise, it may or may not be fun, depending on who you are and what you like to do; but it’s not good business without a related plan for how it’s supposed to help. Does it generate leads? Page views? Validation? Or is it just a rationalization for spending time doing something you like, like keeping up with friends, being clever.

My blogging has a business strategy. I don’t sell anything, but I do talk about business planning and business management. It relates to my books, my software authorship, and the company I founded. It generates page views in the Bplans.com domain. It validates.

So it’s fun, but it’s good business too. In this case, at least. It relates directly to validation of product, to page views, and to marketing objectives.

What is it for you? What’s the business objective? How to you measure achievement of that objective? Do you have metrics to review? Do you remember to review them?

Build a Mission

Business Ethics, Business Strategy

Funny coincidence: "mission" the way we use it in business, and "mission" the way the Spanish priests used it to build colonial California. In both cases, it's foundations. As the Spanish settled California, the conquistadores who explored were followed by clerics who built missions and invited the neighboring Indians to join them in creating farms, towns, and schools around the missions.

Last year I heard Eli Halliwell, CEO of Jurlique, talk about how much extra momentum he got as he worked with that company by building a team based on a shared mission. Jurlique is about natural, healthy cosmetics.

What reminded me of that was Seth Godin's post In search of dolphin leather:

"Having a community-based quest means that there's less room for whining, for infighting and for dissolution. Having a mission not only points everyone in the same direction, it also creates motion. And motion in any direction is often better than no motion at all."

And although Jurlique comes to mind because Eli made his point very eloquently, you and I know companies like that, driven by missions. People can believe in a mission. It gives the team power and momentum. People are happier when they work on something they believe does some good to somebody.

Photo source: Mission San Diego de Alcala, flickr, by Allan Ferguson

About Eating Your Own Tail

Business Planning, Business Strategy, Technology

I just read Netflix demolishes own business model on John Caddell's blog and I think it's very much worth passing on. John is posting about Netflix now working with various (he just installed a Roku digital video player at his house) on-demand options that potentially cannibalize it's main business of DVDs by mail.

It's got to be a tough world in video media these days. Things change fast. That gap we used to fill by renting videotapes turned to DVDs and then DVR and now at our house we've also got video on demand from iTunes and Amazon Unbox and Comcast, as well as Netflix instant.

For a while there, Netflix was the only really competitive game in town. As far as I'm concerned, they blew Blockbuster out of the water. But then the whole world of DVD rental starts to go away, and what do you do?

John says:

What’s so impressive to me about this is that Netflix is investing in technology and partnerships expressly designed to make their old business model obsolete. When I think about how much they have spent, in dollars and time and thought, on the sending-videos-through the mail model, I wonder how they were able to make the leap to say, “We have this process optimized, but it’s not the future. Time to build a new model”–meaning internet streaming.

Netflix founder Reed Hastings recently said "We named the company Netflix, not DVDs by Mail, because we knew that eventually we would deliver movies directly over the Internet." That's in a post listing his 4 secrets of success: Target a niche, stay flexible, never underestimate the competition, and take no shortcuts. It speaks to flexibility, of course.

John has a more troublesome word for it: "cannibalization."

One of the most repugnant terms in the English language – referring to one of the greatest human taboos – is used when a company’s new products take sales away from its older products.

So I propose the revisionist phrase "eating your own tail." Because you're eating yourself, in a way. But isn't that also the best way to go in a fast-changing market? John concludes:

The problem is, the marketplace is a bit like the jungle. If you don’t eat your own, someone will eat them for you. And this has happened again and again. One example: GM’s abandonment of the EV1 electric car just a few years before Toyota introduced the Prius. To survive, companies will have to get rid of that taboo against cannibalization and act more like Netflix.

I have a suggestion for marketers. If you want to get approval to introduce a better product, instead of referring to “cannibalization,” call it “upselling.”

And I have a conclusion too. I'm in awe. Can you imagine what it takes to not spend all their time defending DVDs by mail? Can you imagine how hard it was, there in the Netflix headquarters, to really move into video on demand?

That's so hard to do. There's a lesson there for every business.

Dealing with Idea Ghost Images

Business Mistakes, Business Planning, Business Strategy

I find this fascinating:

"Yes, I think it’s a really good idea, and everybody around here really likes it, but what I’m worried about is that when I talk about it everybody I’m talking to sees what they think I’m saying, what they want to be the idea, rather than the real idea."

I’m not going to cite the author of that quote, because it could embarrass him with the others on his team, but it was in a phone call last week.

It reminded me that what he’s talking about is a common phenomenon. Until I find a better description, I’m referring to the misunderstood images of the original idea as Idea Ghost Images, a reference to the shadow images you get on television when you have problems with the antenna. They are a reflection of the original images, but they’re off. And the more of them you have, the greater the problem.

Have you seen this happen in your business world? Where there’s an idea being discussed but each person imagines something slightly (or maybe more than slightly) different? And sometimes companies will move forward and commit to budgets and tasks and strategy without realizing that each person is agreeing to something different. That can cause a whole lot of problems.

It’s closely related to what we  call getting everybody on the same page. Maybe we should call it asynchronous idea management, but that’s probably getting too techie with the language.

The solution, I think, is completely obvious. It’s part of the normal planning process. Define the idea in a concrete way — document, email, presentation, something that can be recorded and referred to later — and manage it through that idea definition.

It’s amazing, though, easy solution or not, how far we get sometimes without really dealing with those ghost images.  I think it’s a common problem.

Suggestion: Make The Small Modules Work First

Business Strategy

I knew a man who made a living with complicated mathematical models that he would provide for large companies. He was a professor at the Stanford Business School, but kept his consulting business on the side.

"One thing you want to look for, always, is the simple easy-to-understand model to use at the start," he said.

"Never propose a big job as a whole package. Instead, always propose a small piece of it as a first step. Assure the clients they can abandon the whole thing if they want after that first step. Make it like a tenth of the whole job.

"Make it something they can see, touch, feel. Make it simple to understand. Make it as visual as possible."

If that first piece doesn’t work, then you’re better off without the rest of the job."

I’ve used this tip a lot over the years. With my business plan consulting, with my market research, with some of the product development I’ve done or supervised. It’s very important.

This applies as well to a lot of business situations. Start with something you can show fairly easily.  Look for something that will make your clients understand the benefit of going on.   

Employee Satisfaction as a Metric

Business Planning, Business Strategy

I was with Oregon Small Business Development Center counselors and directors yesterday doing a workshop on "The Plan-As-You-Go Business Plan", talking about metrics, when an interesting question arose.

Joe Austin, an SBDC counselor who (I’m told) has been very successful as an entrepreneur in cable businesses, asked about making employee satisfaction one of the key metrics for a company’s business plan. I was taken aback, frankly, because I think of that as a measure of a company’s health, something that should always be a major factor, but not, to be honest, something that comes up as a major priority in the heart of a plan.

Still, Joe has a very interesting point. Isn’t the general mood of the employees one of, if not the, most important measure of a company’s health. I’ve posted previously on this issue several times, but I was nonetheless taken by surprise with his emphasis.

Later, during a break, I discovered the rest of the story. I’m trying to contact Joe to fill it in even more, but in the meantime, for today’s post, what I’m told is that Joe had purchased several companies and made them work very well, after acquiring them. And — here’s where it gets interesting — his main measure of the value of the company was the employee satisfaction.

This is one of those things that make me say, yes, of course, it should be obvious. But sometimes they take pointing out.