Tuesday, July 31, 2007

Take the Time to Be Specific

One of my fairly serious hobbies is seeking out, analyzing, and (rarely) investing in under appreciated excellent companies. And I'm a ferocious reader, consuming a growing list of business, success, finance, investing, entrepreneurship, and related books, blogs, papers, articles, and similar texts. I've also had hands-on involvement in several start-up and more mature businesses in various capacities of responsibility.

It is interesting that a common problematic theme I come across is that of the business strategy being too fast and loose. This happens in large public companies just as often as it happens in small one-person businesses. Sometimes you hear about "needing more focus", "defining your market", "defining your niche", etc.

While this can manifest itself regardless of the stage of the business, it often becomes more dire (or at least externally apparent) as more people become involved in the business and more customers/clients are taken on. Scaling is tough due to the lack of clarity across the organization. Things get dropped. Micro-managing ensues. Mismatched product and service lines and extensions are rolled out. Resources are chaotically allocated. Turf wars can occur. Otherwise preferred and ideal customers/clients leave and similar prospects drag the sales cycle on longer. People quit in frustration -- no longer having the energy to see things through. Seemingly dumb decisions are made by otherwise highly intelligent and competent people throughout the organization.

This is all about and so often can be addressed by the same thing: Be as specific as you possibly can about your market, your niche within that market, and the characteristics of your customers. Once you do, everything else (i.e. next actions, tactical moves, where to allocate limited resources, who to hire, which investments to make, which investments to cut loose on and re-evaluate) becomes quite suddenly far far easier.

Your risk is immediately reduced and communicating your value proposition becomes a day at the beach.
Lest you think this is just a business problem not applicable to our personal lives, consider how being more specific with your goals usually makes it more likely you'll achieve them. Don't shortchange yourself or your business. Draw a specific line in the sand and say there is where I'm/we're headed (don't be afraid to do it because you suspect it may change down the road, that's just fine and shows you're thinking about it).

But that's not the entire story either. An ancillary theme -- and perhaps one causation of the prior problem -- I've noticed takes the form of over eagerness used as an excuse to keep the market/niche/customer defined so loosely. By this I mean not just that the entrepreneur (or equivalent within an existing company pursuing a new product/service concept) is eager to get started with development or selling but that their ambition is so large that they fail to realize that the way to most effectively attack a broader market is often to start by attacking a segment of it first not the entire thing (and then chip away until the entire thing is yours).

Most supposedly "large markets" are really groups of smaller micro-markets. Each of those micro-markets has slightly different needs and other characteristics which make them unique. You are making your job tougher by trying to attack the "whole thing" at the start. It's a question with differing answers -- not because the question is complex but because the question isn't specific enough.

This is a constant problem all over the place. Just this morning I was reading an article posted on GonzoBanking entitled Understanding the Decline and Fall of the Banking Industry (it happens to be told in a satire-like way which makes more sense if you end up reading the entire article but the excerpt is applicable regardless):

Excerpts from strategic plans in this period, however, indicate that bank management was still trying to target all customer segments, all product lines and all delivery approaches. Quotes from this period in business are somewhat comical as bankers write that they aspire to be “best in class,” “high performance” and “customer driven,” but none of the historical strategic plans seem to include what any of these terms actually meant.
My background is not in marketing. I'm actually stereotypically pre-disposed to think that "most marketing folks are fools and liars" since I'm generally thought of as a technology/IT geek (most of "us" tend to be cynics about all forms of marketing and advertising in seems). But that's an unfortunate, naive, and misguided reactionary opinion. After all, what geek wants to build stuff nobody wants to buy/use?

No business should be in business if it doesn't know exactly, and specifically:
  1. who it's target customer's/client's are
  2. why they are (or should be) doing business with you (from their perspective only, not yours),
  3. how they find you and acquire your products/services
This is not just another of one of those "it'd be nice if we did this" To Do items to be filed away that you can limp along without. One (or more) of the following will happen, in time:
  1. You're current (or not yet in existence but looming future) competition will consume your customer base and eat you alive
  2. You will spend money on the wrong things and go out of business (or be forced to merge with a stronger competitor, more on their terms than your own)
  3. You will be relegated, unbeknownst to you, to the least profitable and most difficult customers/clients in your loosely defined market to serve
  4. You will spend incredible and blackhole-ish increasing amounts of money acquiring (marketing to) new customers without adequate return on your investment
  5. You will burn out (and, if you have other staff and management, they too, which has it's own direct and indirect costs which will manifest themselves even if you keep plowing ahead oblivious) sooner rather than later and, along the way, probably burn bridges, alienate clients and partners, grow frustrated with seemingly piling up problems that lack a framework to prioritize them objectively within, inability to successfully delegate, freezing up and putting off critical major difficult decisions that only you can make, and otherwise eventually "giving up" (perhaps not even entirely consciously).
If you are in this boat, don't fret. You're also probably quite smart, analytical, and adaptive. You just took an early misstep. It's correctable though. Take a few moments and complete the following challenges. Go from there. The future should get clearer as you go along.

CHALLENGE #1: As specifically as possible (and if you think you are already to that point, challenge yourself to see how much more specific you can get)
write down your initial gut feeling of:
  1. who your target customer's/client's are
  2. why they are (or should be) doing business with you (from their perspective only, not yours),
  3. how they find you and acquire your products/services
CHALLENGE #2: Concisely whittle down the text from Challenge #1 to its essence. This should be a quick sentence or two that clearly articles what you REALLY do as a business from your customer's/client's perspective and who your "sweet spot" customer's/client's are.

1 comment:

Justin C. said...

I think you have a great perspective on this topic and it aligns itself well with other things I have read and heard. It is critical for a business to be focused and to know who they are selling to. Furthermore, I think it is also critical for the business to focus on being the best at selling to that identifiable target.
Although, there is a dilemma here that I often think is overlooked by people when referring to this topic especially when talking about startups or new businesses. It is really easy to say, “Focus on “X”, do it better than anyone else and you will be successful”. I would agree that that statement is absolutely true. However, if you are a startup it usually means that you are running on very little capitol. You have your fixed costs like everyone else and your bottom line is that you have to cover those costs each month. Here is where the problem arises.
Suppose I want to start a small flooring business and that I have decided to only “focus” on tile installation. I am going to work with the best materials and do the best job. In addition, I am going to be customer service driven and I am going to make sure I meet all my deadlines by being efficient and productive. At first things start great as I begin doing business with the people I know. After that runs out I am relying on my limited marketing budget and word of mouth to find new customers. Jobs are slow coming and money is getting tight.
Then, one day I get a call from someone that would like a wood floor installed; I know I should refuse the job as it is outside of my “focus”. However, in the early stages of any business MONEY drives the decisions and “focus” takes a back seat to the need to pay the bills. As a result, I decide to do the wood floor job and it gets my business through to the next month. Then, the next time this situation arises I will even be more likely to do a wood floor job a second time. Next comes a third time and then a fourth and so on. After a while people begin to think I do both tile and wood floors. Consequently, out of the need to stay afloat I have diluted my focus which I know is not the best thing for my business.
This scenario I have described is a vicious cycle that can have no limits. If a business continues down this path it can end up so “unfocused” that is creates its own demise out of its need to survive. You may very well start out focused, but for a new business with a small budget it is hard to stay that way. Consequently, I think the real challenge is trying to focus your business once you reach a certain level of success. This is no small task since it usually means no longer serving the customers that helped you achieve the level of success that will allow you to “focus”.
Running any business at any level is not always as cut and dry as we would like it to be. I am currently running my 4th company and we strive everyday to be focused. In reality, it is always a challenge until we have a defined revenue stream built on that strict “focus” that provides enough revenue to carry our business.
I am always looking for ways to improve our focus and to get my company to the point where decisions are made easier through the use of it. I’d love any feedback on how others address these types of challenges. My name is Justin Couto and I am the president of Couto Solutions. You can find us at http://www.CoutoSolutions.com