To succeed today, find out what your firm really sells
Business, historically, has competed on price, quality and service. But there’s a practical limit to those attributes – a limit reached when you realize that your firm’s product is just a commodity.
When you allow your firm to remain commodity-focused, cost becomes the overriding principle which controls your business; you, in turn, lose control.
You can regain control by getting a better picture of what your business really does, and what its niche is.
The charm of niches is that they offer the potential of margin, quality requirements and service obligations – which you control and profit from.
The value of a niche, in economic terms, is that demand exceeds supply.
The ideal niche market is one where you are the only provider of a service or product. The trick to getting there is to adjust your thinking and redefine your firm – what your service or product does – such that you also redefine, or create the niche you exclusively supply. Whenever competition sticks its ugly head in, you redefine yourself again. You always stay the leader.
A case example of that type of redefinition is the transformation of an $8 million producer of labels. Label production, as with most printing, is a commodity business, competing on low price, high quality and competitive service.
In working with the firm’s owners, I learned they wanted to take the business to “the next level.” That’s a common desire of business owners. But what I believe they really wanted was a way out of the commodity-driven business environment.
The cost of sales, the cost of ever-lower price quotations, and the cost of competitive quality and service have so eroded margins that simple survival of the label producer was in question.
The above-mentioned company, like so many other small companies, was full of bright, able and willing people. The only problem is that they all share a view of what they do based on work effort and experience. They shun change with the powerful attitude of “we’ve always done it this way.”
Over the course of 45 days, I was able to facilitate leadership and the marketing/sales groups to rethink and redefine their organization.
Forget the commodity game
The first requirement was to help them realize that playing the commodity game was not a success strategy. Once they got past that barrier, they quickly recognized a world of opportunity. That awareness started the real process of rethinking and redefining the firm.
We facilitated a process of self-analysis, including a critical look at what they thought about themselves, what they said about themselves -including their company name and their past sales efforts and initiatives. Additionally, we undertook an analysis of what their customer was actually buying, and what the products and services actually did – as opposed to what they physically represented.
They came to realize that, even though they produced labels, that’s not what their company actually was in business for.
What they discovered was their role in the communications business, but not just any communication – they were in the identification business. And, even more, they came to the conclusion that they were experts in tangibles identification.
Since part of their service included distribution of hardware and software providing bar-code reading and data acquisition, the further refinement to “tangibles identification and management” emerged as their true specialty.
The result of that new framework was astounding.
Within days they discovered opportunities for their new business framework that, prior to that time, were not even imaginable. One opportunity announced itself when they were asked to help a very large industrial customer solve a high-overhead maintenance cost problem. The client’s extensive physical campus had more than 500,000 locks of all sorts. Whenever someone couldn’t get through a lock, that person would call maintenance. Maintenance would pull an associate off important work and send that person to help open the lock. As was most often the case, maintenance did not know the combination or have the key. Hence, the maintenance person would go back to the department and spend valuable time researching how to get through the lock.
The cost burden of that problem was enormous.
Because of the new business framework, the label company – now an identification company – was able to propose a better approach to its problem.
The outcome for my client was the realization of margins that exceeded all expectations. More importantly, the firm discovered and created a market niche that never before existed.
New markets opened
That redefining of what the firm did opened entirely new niches and development opportunities in other areas as well. For instance, instead of making $6,000 for producing 500,000 labels for a client, the organization received a $125,000 identification and database management contract to manage a specialty tangible for the customer.
As Gary Hamel in Sloan Management reports, “I believe that only those companies which are capable of reinventing themselves and their industry in a profound way will be around a decade hence.
The question today is not whether you can re-engineer your processes; the question is whether you can reinvent the entire industry model.”
It’s only a beginning. Wal-Mart, Intel, Microsoft and The Home Depot did not become what they are by playing the game by the rules. They rewrote the rules. And so can you.
In the coming months in this series, we’ll discuss other barriers to business success and we’ll offer suggestions to overcoming them.
William Kraemer, Ph.D., is president of The Total Source, with offices in Mequon, Chicago, San Francisco and Knoxville, Tenn. He can be reached via e-mail at firstname.lastname@example.org.
July 1998 Small Business Times
To succeed today, find out what your firm really sells