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Is Your Business Model Sustainable?
I’m just asking.
Think about it. How do you make money? Why do people really (emphasis on really) buy from you? Are you indispensable?
These are all big questions, and they’re difficult to answer. Every time I think about them, I get a headache. While these questions are important to ponder, it’s easier to ignore them. And for years you could probably get away with it – but not today.
Today, discretionary budgets have all but disappeared. Today, corporate executives are cutting initiatives that they never considered cutting before. Today, every company that wants to survive, let alone thrive tomorrow, has come to understand that they must reduce their cost structure and the cost of growth.
While these issues occupy CEO’s minds from an operational perspective, I’ve learned that they’re not getting adequate attention from a go-to-market perspective. If companies are cutting costs and are focused on reducing their cost structures, will your offerings stand up to the must-keep, must not cut test?
Going forward the only sustainable strategy that I can see is one that focuses on being indispensable. If you are indispensable today, then your strategic job is to continue to find ways to stay that way. If you’re not indispensable, your job is to figure out how to get there.
When Is It Time to Sell Your Company
I was speaking with a group of CEOs in Detroit today. The speaker before me had been discussing the typical business cycle: envision – growth – mature – decline – envision – etc. As I was talking about the keys to creating demand, I commented that I don’t believe that the traditional business cycle is a requirement. I believe that it can, in fact, be broken. I shared that my business cycle looked more like this: envision – growth – mature/envision – growth – mature/envision – growth – etc.
I asked the group, “while companies typically wait for decline before they take the envisioning and new growth phases seriously, why couldn’t they envision the next, potentially disruptive, growth cycle while they were in the growth or mature stages of the traditional cycle?” I shared how companies like Intel do exactly this – they strive to make their offerings irrelevant while their current offerings are highly profitable, not afterward.
One CEO challenged me, asking if there doesn’t come a time where a business can’t envision and trigger a new growth cycle before the decline. He asked if there weren’t many cases where a business needs to go through the decline stage and the cutting and retrenchment that goes with it, while it creates new markets and new offerings allowing it to potentially grow again.
I responded that a) growth by no means is a guarantee or an entitlement to business. Certainly times come where the fundamental purpose of a business is no longer relevant and growth fades and disappears – trees don’t grow to the sky and neither do businesses. I added that b) if a business stays maniacally focused on who its customers are and continues to build a deeper and deeper understanding of their customers, they can reinvent themselves before the decline happens.
I believe that this answer is on-target 95% of the time. As I’ve had more time to think about the question, I realize that there is a third part to the answer. If a business is in the growth and early mature phase, and is unable to envision the next growth and maturity phase, then it is time to sell the business.
This is true for two reasons. First, it is at this point that the business is at it’s highest valuation and is the most attractive to buyers. Of course, the buyers are not necessarily wise here, but that’s not the seller’s problem. Second, the seller (or the investors) would be far better off taking money from a sale and reinvesting it in another company or set of offerings that are in the envision or growth stages.
There are only three reasons that a business doesn’t follow this advice:
- Hubris
- Ignorance
- The misguided belief that a business can create the next growth business while “milking” the decline cycle.
The reason you can’t do both is because the declining business eats your resources when the new growth business most needs it, and the declining business diverts attention and focus when the new business most needs your attention.
Even though the declining business is declining, it will still represent more revenue – and even profits – than the growing business. This makes it the master. So while you’re balancing the needs of the declining business with the needs of the new business – two types of competitors take you out. The upstart, who has no declining business to worry about; or your other established competitors (or worse yet the one who is consolidating the industry) who’s dedicated to the cash cow. Just take a look at Merrill Lynch (before being bought by Bank of America), Time Warner, or Dell to see how this game plays out.
The time to focus on the “next big thing” is while you are experiencing success, not when you are struggling. Please don’t misunderstand this point. If the next big thing is not directly aimed at your current core market, then it’s a distraction and you should follow the third part of my answer – sell. If you master the first unbreakable rule for creating demand, which requires a maniacal focus on knowing and understanding your core market better than your core market understands itself, you can initiate new growth cycles while you’re in the current one.
Welcome To The New Times Square
I’m in New York City speaking to several groups of CEOs about creating demand. I love New York City – there’s so much to do, so many people to see (and watch) and so much stimulation. It was a beautiful evening, so instead of taking a cab or the subway back to my hotel I decided to walk. I arrived in one of my favorite places – Times Square.
I’m awed by Times Square. How could so much end up in such a small place? Think about your company, your products and services – what would you do if you had to compete in Times Square? How would you gain the attention necessary?
Guess what – you do compete in Times Square. Today, there is so much stimulus competing for less and less attention. Today, you must earn the attention of any one you wish to communicate with. To do that, you must create value all the time.
So the next time you reach out to prospect, ask yourself – are you creating enough value to deserve their attention?
The Idiocy of Market Research
I had a meeting yesterday with a prospect. The prospect made it clear that he didn’t think an effective go-to-market strategy could be developed without first going through a very in-depth assessment/validation process that involved numerous conversations and analysis with customers, potential customers and people who have turned them down.
Sure, maybe 20 years ago, focus groups, customer interviews, and traditional research provided insights that could bring a company real value. That value, however, has been on an accelerating downturn since then, and today, it can actually hurt the company doing the research because it creates an illusion of certainty.
Think about it. The world has changed fundamentally. Business is down, no one knows when or how the growth will return, and buyers are required to do more and more with less and less. So, what does this company (and BTW, I don’t mean to pick on this company as their desire is highly representational of business in general) want to do? They want to ask their customers what they want, why they buy or don’t buy, and what would they need to do to get these customers to buy (or buy more) from their company.
ARE YOU KIDDING ME?! Can you imagine the selection bias that would exist in that research? Remember, research is only as good as the data and those contributing the data that is used to create it. Who’s going to spend the time (even 5 minutes) to answer questions such as these? I don’t know about you, or your customers; but mine are so busy that they can’t get to the things that are important to them, let alone stuff that is important to me.
Yesterday, it may have been worth it for buyers to spend the time answering questions like these. They both had the benefit of more time on their hands and providing that type of information could lead to better offerings and service. Today, however, if a current provider isn’t creating adequate value there are an unlimited number of alternatives that are only too happy to innovate and take your business.
The First Unbreakable Rule For Creating Demand is Know and understand your customers better than they know and understand themselves. If you find yourself saying you need to hire someone to interview your customers, it’s a pretty good bet that you don’t know your customers well enough. All hiring someone else to “interview” will do is give you the illusion of knowing your customer better, while actually moving your further away from truly understanding them.
Here’s what you get when YOU seek to understand your customers: intimacy, deep relationship and an invaluable education. Understanding is an iterative process. It requires leadership. Leadership means, well, leading. It involves risk because, a) there is no certainty you are right and b) you’ll make mistakes. If you want to create demand (and enjoy the higher margins and growth that creating demand provides), it’s your job to figure out what your customer’s want.
If all you’re asking them is what they want, all you’re getting is what they know – and what they know isn’t enough to get them the results they want (if it were, wouldn’t they already be getting those results?). You’ll gain absolutely no advantage with these answers; and likely you’ll focus your resources on those areas that created value yesterday and are unlikely to create value tomorrow.
If someone else is asking the questions for you, all you’re getting is the interpretation of what a researcher (who has no true vested interest in creating market leadership in your space) hears. All the things that aren’t heard – or said – are lost. So, with research in hand, you’re still at step one to really understanding. Don’t get me wrong, the report can be great to provide “justification” to an internal board – but it has no impact on actually succeeding in the market any faster.
Gaining a true understanding of your customers on your own is hard work and it takes a long time. It sounds so much easier and faster to just hire an “expert” to interview them – but it’s not; it’s just the opposite. So, if something is hard work and takes a long time – when’s the best time to get started?
The Drought
On our recent webinar Making It Rain Even In A Drought, I focused on some of the key actions companies need to take to grow in any market conditions – even down markets. It’s a process we call The Raindance. The first is to understand the market conditions you are in. The are three underlying conditions (a Perfect Storm if you will) that are creating the margin and growth pressures businesses are now facing – I call this The Drought. I thought I’d share an excerpt of the program with you.
By the way, we do still have spots available for September’s 2 Making It Rain webinars. Click here for details.
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Resources
Doug's Washington Business Journal Columns- Intelligent Growth Articles
Third Wave Selling Blog
Products to Grow
