I met with the CEO of a small company in the Southeast recently who is really doing some interesting things. She found a unique set of needs that weren’t being met and she is aggressively working to fill the niche. This is a niche with tremendous potential in the both the consumer and corporate markets. She’s doing an awfully lot right. Chief among the “right things” she’s doing is that (for her size) she is fully funding marketing initiatives. Doing almost $3 million dollars in revenue, she’s budgeted almost $400,000 for marketing (something few small businesses would do).
As I talked more with her about her growth strategy, I began to worry. Every tactic she is funding is an old school marketing tactic. She’s got her print advertising budget, she’s beginning to do television in certain markets. Of course, there’s the direct mail, and so on. Now, she’s got the obligatory Facebook page, a blog that gets posts infrequently and she’s “on Twitter.” But, she’s not funding those initiatives with either time, money, or strategic attention. I commented to her that I’m concerned she’s doing all of the right things from “yesterday” expecting them to succeed tomorrow. David Meerman Scott talks about these “old” tactics in an excellent keynote speech at the Business Marketing Association 2009 conference. He asks, “Why do we keep spending so much time on the 3% and 20% tactics (traditional advertising and direct mail), and not the 80% and 100% tactics (engaging online)?”
She’s not the only one who is doing this. Amazon (while doing a lot of things right in their core business) appears to be following yesterday’s path to success with the strategy they are imploring with Kindle (for an interesting read on this subject, check out Joe Wikert’s post about how Amazon is screwing up the Kindle strategy). As best I can tell, Amazon is trying Gillette’s strategy to market dominance (with the obvious exception that they are not giving away the “razor” – in this case the e-reader device). Gillette lived the strategy of “give the razor away for free and sell the razor blades.” Of course, the strategy required that Gillette’s razors only work with their blades. Amazon is trying to dictate and control all aspects of the Kindle platform. As a Kindle 1.0 buyer (officially making me an early adopter), I initially fell in love with it, but have since found my love beginning to dissipate.
Why? Primarily because it hasn’t changed since I bought it. What I mean by this is that I have not been able to really make the device mine. When it first came out, it was really cool that I could carry 200+ books and read them digitally. Sure, I’d have to give up on the quality (as all the publishers did was a quick conversion from print to digital), but it was worth it. Today, well, it’s the same thing. The only improvements Amazon has introduced is a sleeker version and a bigger version, but to benefit from those improvements I have to buy the device all over again.
Radio Shack is doing it with their silly attempt to “rebrand” their stores under the name “The Shack.” Apparently, the executives at Radio Shack realized that customers no longer found their store compelling so they launched a $100 million dollar advertising campaign (I guess that was all the money they had because they didn’t even change the signs at the stores) to make the stores “more modern,” rather than going through the hard work of making the business more compelling. So far, it’s not working as “The Shack” has disappointed again. Here again, Radio Shack thought they could “control” the message when they can’t.
Other companies, both large and small have learned that the key to success in the future is participation and engagement. They realize that their buyers want to control, and today they have the power to control their environment. They realize that sellers have to play by new rules. They must create value in their selling efforts and they must be willing to listen to the market. Apple does this in the unique way they control their platform (think the apps store), but I get to make my iPhone, well, mine. Fiskers does this with how they’ve engaged their community of Fiskateers. Zappos does this by allowing customers to rate everything, and small businesses everywhere are learning that the big bucks, top-down traditional advertising approach is no longer the most effective or desirable path to create high-value customer relationships.
Tomorrow’s success is about balancing the natural control providers want over their platform, with the control all buyers demand today. While the rules to the game are still being developed, here are a few that are becoming clear:
- Control is an illusion. The market controls. If you try to take control away from your buyers, they will punish you. This doesn’t mean that you can’t exert a tremendous amount of control over the experience your provide, it means that the experience must give your buyers the feeling of great control.
- The more people talk about your offerings, the better your odds are. Sure, this isn’t a new rule, but the ability to support it is. The small company I referred to here is spending a significant amount of money to make a splash, but is underfunding everything designed to support the conversation. Rather than spending $100,000 on advertising that no one will notice, think about how that money could support on-going and new conversations.
- No matter how good your offering is, if you’re not making it better every day (EVERY DAY), it gets old. So, figure out what you’re going to do that is great today, then make it even better tomorrow.
What rules would you add?
Growth is disruptive. It requires change – all the time. There is nowhere that this is more true, and more difficult to deal with, than in the area of your client/customer base. It’s unfortunate, but the customers that get your business to one level are often the barrier to getting you to the next level of growth and profitability.
The only way a fast growth company can sustain fast growth is to find ways to increase its leverage. Fast growth must be geometric, not arithmetic. As your business grows, so does it complexity and its cost structure. You must find customers who are capable of paying you a multiple of that increase. The failure to do that will cause the business to be overwhelmed by complexity, and it will stall and stop growing.
Additionally, the most important asset you have to support fast growth is focus. You must serve a core customer base better than anyone in the world. If you growth plan has you catering to larger customers, or customers dealing with bigger problems, continuing to focus on your legacy customers merely holds you back from fully serving your future ones. Its an unfortunate truth about growth.
Sustainable fast growth is all about allocating resources to your highest value activities. And sometimes, that means you have to say goodbye to people that were very important to you.
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?
Value creation is a term that gets lots of lip service. But I’ve found that very few people actually understand what value creation really is and what it really means. Our definition of value creation is you are creating value when you are doing something that someone would be willing to pay more for.
Here’s how you know you’re creating value in your sales and marketing process – would someone pay for a sales call? Would someone pay to get access to your marketing materials or to see your advertising? Would someone pay to hear what you have to say? (Not necessarily would they buy it, but would they pay to hear what you have to say.) Additionally, when you take a look at your ultimate offering, you’re creating value when people are willing to pay more than they are for other alternatives.
How do you create value? Well, you create value by solving problems. But, solving problems is not necessarily enough to actually be in the value creation mode. Let’s take a look at the universe of problems that we have.
The big circle represents the universe of problems. What we find is that 95 percent of companies out there focus their marketing, their messaging and their efforts at the center, at the white space here in our problem universe. They focus on solving problems that customers already know and already understand.
We call that demand fulfillment. When you’re solving problems that customers are already aware of and customers already understand, you’re providing a commodity product or service.
Now, this is somewhat antithetical to traditional business because when I went to school and got my marketing degree, they taught me that my job as a marketer was to find an existing need, and then to address that need. In essence, my job was to fulfill demand. In the 1960s, 1970s and 1980s, that was enough. Today, because of commoditization, if all you’re doing is solving problems the customers already know and already understand, you’re not creating value.
All value creation occurs when you solve problems that customers don’t already know about or at least don’t fully understand. When you do that, you’re in the position to create demand.