When it comes to business strategy, many focus on finding their advantage versus their competitors – what is needed to compete head-to-head with them. They define winning as beating their competitors.
In reality, head-to-head competition is a very tough approach to winning. In fact, the usual winner in that scenario is the customer. The buyer has the power because many competitors have to lower their prices to gain or retain business.
We are not suggesting that it is easy to avoid competition; in fact it is impossible. However, we are in a position to observe hundreds of businesses in the course of a year, along with their performance and business models. What we’ve found is that the best performing companies find a space in the market where they can take advantage of their differences relative to their competitors. Usually they are exploiting unique product or market characteristics. Occupying this niche gives them the best advantage to earn the highest returns on capital. Their definition of winning is profits, not defeating their competitors.
Being a niche player requires discipline. Such companies tend to have very clear boundaries about who their customers are and what markets they play in, along with strict business rules regarding the prices of their products. These companies do not chase every sale, customer, or market. They are clear about where they add the most value and they align their business to give them the best opportunity to capture that value. Often, these companies willingly sacrifice scale for the sake of profits.
Think about that for a moment, and then consider the following for your company:
- Do you have a concise “Business Statement” on one sheet of paper that identifies your target markets and customers?
- Do you have clear guidelines regarding the qualitative aspects of your customer relationships and definitions of the target economics of those relationships?
- Do you routinely turn away opportunities or do you sell to anyone you can?
We find that companies with clarity and operating discipline around these questions generate the highest margins and returns on capital. If you don’t have clarity on your “Business Statement,” perhaps it is time for a planning session.
You may also like: