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The Urge to Merge
It should be no surprise to readers of The Fast Growth Blog that I am not a fan of mergers. Today’s latest “we’ll get stronger by merging” announcement between Merck and Schering Plough prompts today’s thoughts.
While it’s the big mergers that get the news, I’m hearing more and more of my clients (Imagine works exclusively with small and mid-sized business enterprises (SMEs)) float the idea of mergers as a way to get through the downturn in the economy). I’m hearing things like:
- “I had a conversation with one of my competitors and we got to talking about how we were dealing with the downturn. We thought, ‘Hey, why struggle when we could combine.’”
- “We’ve been thinking about how if we found a couple of companies that complement what we are doing, we’d be able to go-to-market more powerfully.”
- “You know, I’m getting frustrated working with limited resources. I’m really interested in what I could do with a ‘larger platform.’”
These all sound like logical, reasonable thoughts – worthy of consideration. They’re not. Why? Two reasons:
- Mergers rarely work. (I define “work” as after everything is said and done – do the resources (time, money and energy) that go into making the merger work produce better results than the same amount of resources going into growing the company/companies organically. Simply put, do I make more money for my resources after the merger.)
- All of the above reasons for a merger come from a position of weakness. The ideas are prompted because of frustration and struggles – not because of success and strength.
While I’m certainly over-simplifying (and possibly overstating) let me share the advice I give all of my clients who are considering a merger.
Never merge from weakness. Mergers from weakness fail 95% of the time. If you’re going to merge, only merge from strength. Mergers from strength only fail 60% of the time.
Now, I understand (and I hope you do as well) that no merger was ever undertaken where the parties merging didn’t believe it would succeed; yet most don’t. So realize, no matter how good the rationale for a merger is – the vast majority fail.
The reason mergers fail (especially for SMEs) is because they are a distraction. Making a merger work requires significant time, energy and focus to be spent on the internal areas of the company – not on the market. Additionally, if you want to find out what every weakness of a company is, merge. You’re sure to find them after the merger takes place.
Companies that are in a very strong position are capable (at times) of being distracted. Companies that are not firing on all cylinders cannot afford the distraction. They must be maniacally focused on the market – and nothing else.
Once you’re strong, feel free to consider the merger. Though my experience proves that once you get strong, executives no longer feel the “urge to merge.”
Reigniting Your Growth Engine
The most important thing you can do for your business right now is to start reconfiguring it for what the world will be after recession. Forget what your business was – that’s irrelevant now.
I was struck by an article in Business Week magazine about how headhunter giant Heidrick & Struggles is completely redesigning their business model. CEO Kevin Kelly commented, “What keeps me up at night is not Russell Reynolds, Korn/Ferry, Egon Zehnder, and Spencer Stuart, our direct competitors, but what is going to happen to this industry. We have a 55-year-old business model, and how many companies do you know that survive, given a 55-year-old business model? How do we do something that is more transformational?” As a result, Kelly’s future plans call for Heidrick & Struggles’ search business to be reduced from its current 95% to no more than 50%.
While I am not familiar with Heidrick & Struggles or with Kelly – I give them complete credit for looking at what their business needs to be rather than what it is. As I speak around the country to CEOs, I’m struck, and at times distraught, by how unwilling business leaders are to view their world from the prism from what is rather than what was.
At the risk of being trite, this recession represents a giant reset. Properly navigated, it also represents opportunity. I’ve said before that the underlying cause of the recession is a failure on the part of businesses to create value. Reality, at least as it exists today, has proven that much of the revenue and profits that businesses enjoyed were an illusion. Today, you must decide if you are going to pursue a strategy of real, sustainable profits or are you going to attempt to recapture the illusion.
If you are going to ignite your growth engine again, you must focus on your core business and your core customers above everything else. The problem is that many businesses don’t know what their core business is (it got lost in the illusion) and even fewer know who their core customers are. How do you identify your core and reignite growth? Here are five questions to get started:
- List the problems you solve.
- From that list, what are the problems you solve uniquely well? (This is the answer to the question: What can you be the best in the world at?)
- List the types customers/clients you serve?
- From that list, who are the customers/clients you serve you uniquely well?
- Now, what would you have to do to build a business that focuses on the intersection of your answers to question 2 and 4?
An Insight Into Brands
I’ve written before, and often said, that a brand is not what you say it is, it’s what you’re customers, stakeholders and people who come in contact with you say it is. The point is that you don’t control your brand any more – the market does. The best you can do is contribute to the conversation. (BTW, I am by no means the first, nor the most highly qualified to make this point, it is fast picking up consensus.)
Much has been written about Apple and the power of it’s brand. Anyone who knows me knows that I’m a huge (HUGE) Apple fan. In December of 08, The Simpsons, spoofed Apple in the opening of their show. It’s worth looking at because a) it’s tremendously funny and b) it provides a great insight to branding.
The Road To Hell…
“The road to hell is paved with good intentions.” – Samuel Johnson
Merely intending to do good, without actually doing it, is of no value. In customer service, it may even extract value.
As I sat down this evening to do one of my least favorite things (pay bills), I was required from Bank of America that I needed to change my online ID. While it was an interruption that I would have preferred not to have had, I certainly understand and appreciate the need for security, so I went with the flow. Needless to say, it did not go as smoothly as I would have liked or expected.
In the midst of my struggle I was greeted with what looked to be a terrific customer service addition (I was even going to blog about it). A pop up screen offered a live chat sessions from a service agent, asking if I needed help. Pleasantly surprised, I clicked yes, filled in some information and got this:
How could I get a computer generated offer of help, only to be told, “Whoops.” Here is (yet another) example of a gratuitous effort at enhancing my “experience.” I don’t want to sound ungrateful, but I’d have preferred that I not have been offered the help. I wouldn’t have been upset if I hadn’t been offered it, as I didn’t expect it.
This act is symbolic of the dangerous mantra – Exceed expectations. Look, stop trying to exceed your customer’s expectations and start a) clearly communicating them, then b) meeting them. If you can create predictability, you create value. And who knows? Maybe even loyalty.
You Are More Than You Think You Are
Yesterday, I began working with a new client to map out their go-to-market strategy using what we call The INTELLIGENT GROWTH Blueprint™.
We started talking about their company’s value proposition and they started telling me about all the ‘stuff’ they do. They told me about “on-time delivery” and “defect-free products.” While I agreed that these were important attributes, they were clearly not compelling promises. The things they were focused on seemed more like simply requirements to compete. The owner even said to me later in the conversation, “You know you’re right. It’s not at all unusual for us to win a performance reward from a company and lose the next bid because someone else was a little less expensive. It seems that once you meet that minimum threshold, performance no longer matters.”
As the discussion progressed, I got the executive team to stop looking at the world from their own corporate point of view and begin considering what the world looked like to their customers. They started to realize that their value proposition dealt more than anything else with their ability to provide unique or customized solutions to complex design issues. They began to see what made them different was not their products, per se, but their ability to understand a customer’s total situation. But more than that, they realized that they were also very good at understanding their customer’s customer’s needs. Later in the Blueprint process, we reviewed their current website. As we did, they realized that all it talked about was their stuff. Suddenly, the disconnect between what they thought was important and what mattered to their customers became obvious.
On top of that, it dawned on them that their innovation opportunities could be significantly greater than they originally thought. Working from their customers’ perspective, they were no longer ‘limited’ by the products they sold. Their playing field now was actually all of the problems their Best Few Clients™ have.
Let me leave you one piece of advice — If I could boil everything I’ve written in The Fast Growth Blog™ into just one idea, it would be this: manage your company from your Best Few Clients’ perspective and your potential for growth and profitability is unlimited.
Value Proposition Foundations
The central theme of any business is a value proposition, or promise, designed to solve important problems that potential customers face. Choosing your value proposition is only the first step in accelerating growth. The second is to determine where you are going to anchor your value proposition. There are four Value Proposition Foundations(tm) you can choose from:
Operational Excellence – This value proposition focuses on being the best at producing products and services at the lowest cost possible. The focus of this value proposition is taking out costs wherever you can, ensuring predictability and stability in the implementation or manufacturing process, passing on savings to your clients and adding some of those savings to your profit margins. Operational Excellence is typically the value proposition of great commodity organizations.
Customer Intimacy – This value proposition focuses on being the best at collaborating with your customers and having a close relationship with them. You want to get to know your clients as well as or better then they know themselves. Your solutions are always customized to their individual needs. Your customers, in essence, become collaborators with you in the development of your products and services.
Best In Class – This value proposition focuses on building the best, however you define it. The best does not mean the tightest fit. The company with this value proposition focuses almost fanatically on staying ahead of the competition. Your mission is to provide an offering that can’t be found anywhere else and is superior to everything else. When a new product/service comes to market, a Best-In-Class company is already at work making it obsolete.
Enrichment – This is the underlying value proposition of organizations that focus on being the best at making the world (or the individual) better. Much of the experience economy, comprised of companies such as Imagine, operates in the realm of enrichment. This value proposition does not mean that there is not a profit motive, but profit is pursued through the aim of enabling people or organizations to become their best or fulfill their desires.
You must choose one, and only one, value proposition foundation for your organization. Once you make that decision, everything you do should nurture and reinforce that value proposition. And I do mean everything! Your marketing must support it. Your hiring practices must support it. Your sales systems, operations and anything else you can think of must be coordinated to make you the absolute best you can possibly be in that area. The “absolute best you can” is necessarily limited by the resources you have available such as time, people and capital. But put the resources you do have available behind your one thing and be the best you are able to be at that particular moment.
You have to understand that every successful offering obviously has some elements from each of the Value Proposition Foundations. Even if you have chosen “Enrichment” as your value proposition, you must have some organizational structure, your offerings must be pertinent to your customers and the quality of what you do must meet a certain standard. But none of those things is your “one thing.” Enrichment is. The key is to develop enough competency to manage those other elements outside your chosen value proposition foundation, so they don’t prevent you from consistently delivering on your promise.
Most Messages Are Meaningless
Last year, I presented a proposal to a prospect, who is now one of my favorite clients. The conversation got around to messaging and my prospective client told me cynically that he did not believe that a ‘fresh message’ could be created in his industry. He told me that everything that could be promised had been promised. Today, his company has a message that he is very excited about.
The mistake my client made is a typical one people make in marketing circles. For a message to be effective, it must be fully integrated into every aspect of a company’s culture, processes and actions. Messaging is a strategic exercise that literally impacts every facet of an organization. The key to making your message work is to ensure that there is complete alignment behind it.
For example, if you tell people that you take an innovative approach to solving your customers’ problems; and the first interaction a potential client has with you is no different from any other company they’ve come in contact with – how likely is it that the customer will believe your message? If your Value Proposition Foundation is Customer Intimacy, yet your salespeople sell as if every prospect is the same, the reality is that your customers will not trust you or believe your message.
The challenge businesses face is that alignment is a fragile thing. A slight difference between your message, your actions and your processes thrusts you into the trap of commoditization. So, take a look at what you are telling people makes you so great and ask yourself – are we completely aligned behind it?
Geoffrey Moore Nails It – Again
I just started reading Geoffrey Moore’s new book Dealing with Darwin and he nailed a point I’ve been preaching for years. It’s so valuable, I had to share it. Here it is:
To succeed with [innovation] you must take your value proposition to such an extreme that competitors either cannot or will not follow.
What promise is your company making that no one else in your industry would have the guts to match?
The Hidden Truth About Creating Value: If You Don’t Create It, You Destroy It.
Over the last month, I’ve received several questions about creating value. For those who are not familiar with my views on this subject, creating value is the foundation for everything a company does to accelerate or sustain growth. If you do not create value, you are a commodity. If you are a commodity, your growth and profits are at risk.
Value, in the business sense, means providing something people are willing to pay a premium for. This is the only useful definition of value for fast-growth businesses. If your company doesn’t do something your customers are willing to pay more for, you are not creating value. You may be doing things that enable you to keep your customers, but you are not creating value.
This applies to everything you do. It is especially important when you assess your business development efforts. Here is how to determine whether or not your sales and marketing efforts are creating value for your company. Answer this question: Would your prospects be willing to pay for the opportunity to read your advertising or talk to your salespeople? If you need an example, look at the people in your industry who charge admission at conferences and other events to let people hear them talk about what they do. Look at the people who publish their ideas in the business journals people pay to read.
Think about it. The next time you go on a sales call (or go on a call with one of your salespeople) ask yourself, was there enough value created in the conversation that prospects would have paid for it if they had to? Was it a special event? Was it a conversation where the prospects sincerely appreciated getting some insights that could help them do their job better? My experience says the answer more than 90 percent of the time is, “No.”
Here’s the critical point: Value is binary. If you are not creating it, you are reducing it. If someone meets with your salespeople and they wouldn’t have paid for the privilege of the sales call and they end up buying anyway– they are buying in spite of your salespeople, not because of them – and that’s dangerous. Every activity has a cost, whether it’s time, attention, opportunity or money. Any time a customer or prospect interacts with your company and they don’t feel they’ve received more benefit than what it cost them in time, they feel cheated. Your salesperson has reduced the time your prospect has to work with without providing enough value in return. Even if the interaction is “neutral,” neither negative or positive, the prospect has lost the opportunity to take advantage of other opportunities.
If you want an example of what you don’t want your salespeople to be, think about checkout people at the grocery store. They may be friendly, collect money and sometimes provide some assistance by bagging your ice-cream separately, but the transaction doesn’t add value to your grocery-buying experience. In most cases, it reduces the value of the transaction because of the time you lose dealing with them. Grocery stores have employed checkout people despite the lack of value because, until now, they didn’t have an alternative. When our local supermarket introduced self-checkout, customers (including me) took advantage of the new service quickly. Imagine that — by taking out the “service component,” the perceived value was actually increased. Talk about being a commodity.
Want another example? Travel agents used to account for just about every airline ticket sold to travelers. But guess what — they only communicated value, they did not create it. They were nice and everything; but people used travel agencies in spite of the travel agent. Once direct booking became viable and travel agents began charging for service to cover their costs, people deserted them in droves. I wouldn’t want my sales efforts to rely solely on the fact that there isn’t an easier alternative…yet.
If you want to know more about how to create value, click on the blog post on the bottom or view the article on my website that explains this further.
Until next time, Doug
By the way, not creating value is only one major barrier to growth. I have an excellent tool to help assess what other barriers to your growth may be. If you are enjoying my blog, take a look at my Growth Barriers Diagnostic.
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Resources
Doug's Washington Business Journal Columns- Intelligent Growth Articles
Third Wave Selling Blog
Products to Grow
