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The profits have moved
Competitive advantage doesn’t last forever. What worked 5 years ago cannot be relied upon today. If your revenue and growth stalls out you’ve got a choice. Find the new profit pools or close the business.
Use this portfolio matrix to establish where your products and services are positioned today.
I’ve heard some owner-managers tell me they are a victim of their own success. I don’t buy that. In my experience, success can be the cause of a stall out for a large business – such as Vodafone. However, for a small business (less than $10m turnover or $2m profit) I’d suggest that there are two reasons for running out of ‘growth-gas’.
- You are in a niche business and new markets don’t value your offering (product or service) in the same way that your old customers did; or
- You simply are not different anymore and the competition are now leaving you in their dust.
In Chris Zook’s book Unstoppable, he cites that in his experience, “only about 20 to 30 percent of managers in a company believe that they understand their customers well, understand their competitors well, or agree on what will happen in the future“. (Chris Zook is the co-head of Bain & Co’s Worldwide Strategy Practice).
So, it seems obvious what you must do. Namely, be a company with managers who are in that 20 to 30 percent. And if you do that, you will inevitably have a better business than your competitors.
At your next management team meeting (you do have these don’t you?) ask your managers these questions:
- How do we diagnose whether the growth stall-out is temporary?
- What information are we lacking about hidden assets in our business?
About the Author
Michael Cradock
Michael is a corporate finance advisor with a chartered accountant and management consulting background having worked for both KPMG and PricewaterhouseCoopers. Michael is an owner of Morgan Cradock and part-owner in two startup companies and one property fund.
As usual, I will see what negotiation insights we can add to Michael’s already sound business insights
We negotiate for the purpose of satisfying needs. Because your company has needs that are satisfied by selling products/services, and customers have needs that are satisfied by buying these products/services, your business can be described as one big system of negotiations.
Great, that means I have something to add
My first comment would be that the way the 20-30% percentage is phrased, I would probably choose to disregard it completely. It measures managers assumptions and beliefs about their own understanding, and not their actual understanding. We are thus measuring perception and not facts. I don’t think this is helpful.
Your company needs to understand your customers’ needs, and then satisfy those needs. The better those needs are satisfied, the more value your customers will get, and therefore the more value they will be prepared to give your company in return (often in the form of more dollars). The most accurate (and probably quite accessible) source for that information (i.e. your customers’ needs) would arguably be your customers. So ask them! They will tell you what their needs are.
In fact, even if you don’t ask them they will STILL tell you… through their actions! If a customer chooses to buy a service/product from anyone other company, then your products/services do not satisfy that customers needs well enough.
I would take that as an indication that your your understanding of your customers’ needs is lacking. Alternatively, maybe your understanding is perfect but your company doesn’t deliver on it, which is just as bad.
Unparalleled accuracy, unequivocal clarity, and undeniable importance!
Michael is right – you need to maintain a competitive advantage in the market, no matter how established you are. It’s been my experience with many SMEs that, having tasted success in building up their businesses by having a competitive advantage, as well as plain hard work, they fail to take their business to the next level by implementing continuous improvement, reinvestment in their product/service offering, in order to stay competitive and ahead of the competition.
I really couldn’t ask for more from this atrilce.