Business Strategy is Simple
Doing it is hard
In a recent post, I described a model that tries to cut through the noise of the agency landscape, simplifying the conversation down to a set of fundamental roles along an axis.
It’s daft how useful I’ve found this straight line.
“Due to the natural overlaps I’ve re-used content from my previous post where appropriate, displayed in inverted commas. They look like this.”
I’ve been thinking a lot about how businesses grow. Again, it’s something that craves simplification because it’s easy to lose sight of when when you’re neck deep in hundreds of slides of dense PowerPoint. This connection between need and use has again stood out as the primary canvas.
How businesses grow
There are three ways for any business to grow:
- Increase usage of the existing product or service
(more people and / or more often)
- Increase the value derived from each instance of use
- Increase utility of your business by serving a larger number of needs
(new products & services / bigger share of wallet)
Remember, efficiency hunting / cost saving can have a positive impact on margin, but not growth. You can’t grow your business by spending less. This isn’t the same thing as both growing and spending less, which of course is very possible. The following steps demonstrate the stages of growth.
Step 1: Make products or services that are useful and used
“…all businesses exist to meet a need. They know when they are successful when the product or service they have created…is used.”
“Agencies, consultancies and so on all operate within this space. We are all trying to help businesses to make the successful link between need and use.”
While usage will always remain the number one indicator of success…
[unless you’re running a business that depends on people being irrational and giving you money to not use your products or services, like gyms]
… the other key outcomes are what fill in the next build in this model.
Step 2: Make money and data
“Use is where value is created…”
Making money isn’t simple, even when people are using your product or service. Think about publishers. People really like using Ad Blockers, and can’t get over the idea that the internet is what they pay their telco for every month. Regardless of what you’re selling, the way in which you extract financial value has a significant impact on usage and there’s always a balance to be found between the two. It’s a fundamental part of your business strategy to understand whether you want to achieve growth by charging a higher price or by attracting more customers and acknowledging that those two choices will always live in conflict.
Making data isn’t simple either. First of all, you might be too many steps removed from use to get the data you think you need. Imagine being the producer of FMCG goods. You know what and how much you sell to the supermarkets, but who (as in real people) are buying, how often and where is usually completely closed off to you. Supermarkets share data like Joey shares food.
The next problem is doing something with that data when you’ve got it. Putting it somewhere, keeping it safe, trying to put people’s given names into an e-mail instead of “Hi [FIRSTNAME]” (many fall at the most basic of hurdles). All of this is expensive and hard and (usually) sits outside of the core competencies of the people running the business, but it’s important because you need it to help with the next bit.
Step 3: Make decisions
Business strategy is the subjective decision-making that determines which user needs an organisation will try to cater to and how they’ll do so to achieve success.
Of course this is inherent in Step 1 as well. But while the primary task remains the same, the context is different. At this point your core business is making money so you should be able to accommodate more risk i.e. increase your number of options. The dotted line from Money back to Need represents the proportion of your profit that you reinvest into R&D, NPD and so on.
The connection between Data and Need is spotty to reflect the fact that most of the data we have isn’t being used well. Despite over 2.5 quintillion bytes of data being created each day, we still depend on stopping people in the street and asking them to come to our research groups for the princely sum of £50 so we can ask them things and use their answers to evidence or justify our business decisions. For those that would like to learn about the dangers of using claimed behaviour, I’d highly recommend my brother’s book which dedicates a section to it (I expect a bitcoin in an e-mail, Faris).
However, let’s refocus on what good looks like. Along with money, you’ll be funnelling your own data back into these processes. It’s not just having your own data that’s important, it’s having data that only you have. Proprietary data has been written about quite a lot already. For me though, the most salient way to think about it is as so:
Proprietary data is your unique window into customer needs. It creates competitive advantage insofar as the needs that your data reveals to you are yours alone to act upon; to create new features, services (or products) and businesses, enabling you to grow.
Making new things is the only way to achieve sustainable growth
I can’t stress this enough. You will always run out of prospective customers, or reasons for those customers to use your product / service, or reach a price ceiling before you lose customers and hit the equilibrium. The only way to sustain growth is to keep making new things (i.e. be a conglomerate). Think of the other two ways of growing your business (more people / more often + higher price) as interim paths required to help you fund the third.
[Edit: My good friend Hamid has also helped me to understand that corporate acquisitions also fit this strategic POV. Ultimately, whether or not you make new things yourself, or you buy companies that make things that you don’t make — the outcome is the same; you are delivering against more user needs than you were previously]
Also remember that raising the price doesn’t have a positive impact on the volume of use, and therefore creates no additional data; making price hikes the most short term, unsustainable way to grow your business.
I’m a strategy consultant with over 10 years experience in digital and a keen interest in product strategy and business innovation. Ping me a note on here or Twitter to say hi if you’d like to chat.