Systematic Opportunity Discovery

The Oxford Dictionary defines opportunity as “a set of circumstances that makes it possible to do something.” Although opportunities are generally thought of as spontaneous, serendipitous, and not amenable to process, is it possible to find them systematically?

In general, an opportunity is a chance to move from state A to state B; a business opportunity requires an interaction with another person or organization to create a desired outcome. Since a business opportunity implies a relationship, a thorough understanding of how and why relationships are created is the foundation of systematic opportunity discovery. Although some opportunities arise through original creative thought, even those are based on an understanding of relationships.

The exchange of money for goods and services is one type of business interaction, but it represents a desired outcome, not an opportunity. While the ultimate measure of success is revenue generation and profitability, value creation must precede it. An opportunity is created by an exchange of resources that enhance value. What classes of value-enhancing resources are there?

Five of the most common are:

1. new products and technology,

2. brand recognition,

3. additional staffing,

4. customer relationships, and

5. new markets and industries. 

A majority of business opportunities arise from the recognition that one or more of these resources can be leveraged to add value to existing offerings. How can we intentionally and systematically identify and define opportunities based on this principle?

The process that leverages this knowledge comprises 4 steps:

1. Define your company’s value relative to others.

2. Define other companies’ value relative to yours.

3. Leverage individuals gifted in identifying and defining new opportunities.

4. Discover opportunity in the gaps.

Valuing Your Company

A crystal clear picture of your company’s value is a critical enabler of systematic opportunity discovery. What resources does your company have, and which ones does it need? Well-understood strategic positioning affects the bottom line positively. It minimizes investing in opportunities that deliver little or no return while enhancing the chance of finding richer opportunities.

Valuing Other Companies

The second step depends upon the first. Knowing clearly what your company offers, you can view other companies through this lens: if another company were to acquire mine, what would be the increase or decrease in the value of the combined companies? An exit strategy approach is a proven way to identify value in other companies, and you’ll learn what resources you may have that they need.

Leveraging Gifted Individuals

Some individuals are naturally gifted in identifying and defining opportunities. Harnessing this strength by including the right individuals in your company. If your team lacks this strength, augment your team with advisors who possess vital insight into opportunity discovery.

Opportunity in the Gaps

Opportunity is driven by accurate perceptions of value, so clarifying your understanding of what others find valuable versus what you find valuable leads to discovery. The gaps between companies represent potential opportunities.

To systematically discover opportunities, the CEO must to set the right tone. Leading your company to an opportunistic frame of mind is less tangible but vitally important. Set the right example by staying curious and remaining open to new possibilities, then follow this four-step process!

Fight, Flight, or Unite? Three Responses to Business Challenges

“…the availability of information about a threat or opportunity has little influence on who wins and who loses.            What makes the difference is what a company does with that information.”

  — Clayton M. Christensen, Scott D. Anthony, Erik A. Roth in Seeing What’s Next, 2004

Business challenges come dressed as high-impact threats and opportunities, and each demands a response. The strength of your ability to respond is the primary determinant of your next move,  whether you opt to:                                         1. compete (fight),           2.alter direction (flight), or           3. develop an alliance (unite).

The authors of Seeing What’s Next suggest that asymmetries of skills or motivation play a critical role in determining our next moves. “Asymmetries of motivation occur when one firm wants to do something that another firm specifically does not want to do. Asymmetries of skills occur when one firm’s strength is another firm’s weakness.”

In focusing businesses on growth-accelerating strategies, our consistent guidance has been to adopt a three-phase approach: “clarify, comprehend, connect.” Assuming that the CEO has aligned the company around a crisp, clear view of its own skills and weaknesses (i.e. clarify) as a foundation for effective execution, the second step is to evaluate the relative strengths and weaknesses of the competition (i.e. comprehend). When one firm demonstrates strengths in markets in which another firm’s capabilities are weaknesses, and vice versa, a self-fueling partnership (i.e. connect) may be an alternative to fight or flight.

The choices of responding to a significant threat or opportunity are:

Fight (asymmetric analysis highlights your company’s relative strength)

When your company’s processes and offerings are much stronger than competitors, leverage your unique capabilities to increase market share at the expense of competition.

Flight (asymmetric analysis highlights your company’s relative weakness)

When the cost is prohibitive of overcoming a competitor’s strengths that far outweigh your own, refocus on other markets or submarkets where your company can be a dominant player.

Unite (asymmetric analysis identifies complementary strengths and weaknesses)

If it’s clear that combining your resources with those of another company could make both stronger by compensating for weaknesses, the oft-overlooked third option is to create a symbiotic partnership.

The bottom line for any CEO? Develop an eye for asymmetries, then make a rational decision between fight, flight, or unite!

(A more detailed discussion of these alternatives are found in the excerpt “The Innovator’s Battle Plan” that is drawn from the book.)

Competing Too Hard Will Kill Your Business

Competing too hard will kill your business. If you see competition everywhere, you may be strangling your company’s growth.

Working with CEOs and management teams to create growth strategies, I watch for existing practices and attitudes that may hinder growth. It’s challenging enough to launch a new venture or a restart a faltering business without creating internal obstacles that weigh it down. An unrealistic view of competition can severely limit or slow the company’s rate of growth.

A famous CEO mentor was fond of telling me, “If you don’t have a competitor, you don’t have a business.” Competition is a great motivator. If you have a company in a market with no competitors, either the market you’re pursuing isn’t really viable, or you lack the constant competitive motivation needed to keep you at the top of your game, or both.

The diagram above illustrates how your perception of competition can affect your company’s rate of growth. Perceiving no competitors suggests that you haven’t yet identified a winnable market worth pursuing. In this situation, a company constantly chases one-off deals, is too inwardly focused, and may be in too weak a position to accelerate revenue by leveraging external assets through partnering.

The converse obstacle, defining competition too broadly and seeing it everywhere, leads to a lack of focus and an obsession with growing market share one percentage point at a time. A “quarter-inch deep, mile wide” market approach precludes finding a repeatable sales model that leads to higher margins and greater working capital. A better path is to pick one or two close competitors to focus all your competitive energy on.

The bottom line is that an unrealistic view of your company, its capabilities, and its relative strengths and weaknesses vis-a-vis other companies will impede growth. The reality deficit can come from many places, but it falls to the CEO to recognize and remove this obstacle whenever it exists, especially when the CEO is the source. Carefully consider whether you are encouraging your team to view the company through rose-colored glasses (no competition) or constantly raising the specter of competitive doom to motivate them (competition everywhere).

How then do top-performing management teams compete effectively?

  1. They realize that focusing on competing against too many others weakens their company by draining its resources, so they choose instead one or two closest competitors and focus on winning against them.
  2. They prioritize “growing the pie” over increasing the size of their slice.
  3. They stay outwardly focused to learn what the market is telling them about customer demand.
  4. “Know thyself.” They understand their company’s strengths and weaknesses so well that, when a high-impact threat or opportunity arises that can’t be addressed organically, they create self-fueling partnerships that enable them to respond quickly.

2014 Issues for a 2016 Exit

Joel Trammell requested a guest post for his American CEO blog, and it’s called 2014 Issues for a 2016 Exit. You’ll find many other great thoughts for CEOs there, and since it’s a two-part article, subscribe there and/or here to make sure you get the second half next week.

Acquisition: Result of the Original 20/20 Outlook Process

The original 20/20 outlook process evolved while I was CMO at Infoglide a few years ago. In early April the company was acquired by FICO (Fair Isaac Corp.), one of the top potential acquirers identified during the process in 2009. The acquisition resulted from a partnership formed between the two companies as suggested by the analysis.

In early 2010, I founded 20/20 Outlook LLC. The original 20/20 Outlook process is now the second of four processes used to identify and create conditions that lead to growth and acquisition:

  1. CLARIFY:  create bulletproof Strategic Positioning
  2. COMPREHEND:  develop a Valuation Framework
  3. CONNECT:  engage in Self-Fueling Partnerships
  4. COMPLETE:  develop Mutual Accountability to move from strategy to execution

At our upcoming RISE Austin session on May 17, we will focus on how to develop self-fueling partnerships built upon a solid valuation framework. (RISE session locations can be fluid, so please make a note to double check this link a day or so in advance.)

Hope to meet you there!

UPDATE: The Self-Fueling Partnerships session for RISE Austin (4pm, 5/17) will take place on the second floor at the LBJ School of Public Affairs, 2300 Red River Street. You may want to arrive early to find parking. 

 

What You Think You Know May Blind You To Growth Opportunities

TexasCEO magazine just published my latest thoughts about partnerships. In addition to correcting myths about partnerships in general, it describes major types of self-fueling partnerships and the series of steps you can employ to accelerate the growth of your business.

As always, let’s hear your feedback, either below or the TexasCEO web site.

 

How Infoglide Enhanced Its Acquisition Options

How does a company get acquired? FICO’s acquisition of Infoglide provides an excellent example of applying deliberate steps to increase the odds and accelerate the process.

CEO Mike Shultz graciously allowed us to describe the backstory in a short case study. Read it to discover what you can do to attract potential acquirers. 

 

>> CASE STUDY: How Infoglide Enhanced Its Acquisition Options

 

 

Is Your Company Geared Up for Growth?

“Gear up” means “to prepare for something that you have to do” or “to prepare someone else for something” (source: Cambridge Dictionary). To assess whether your company is prepared to grow, ask whether your management team has clear answers to 4 questions:

1. Does the company offer something special enough to compel customers to spend money?

The instinctive answer is “of course it does.” After all, a customer base exists and the company is stable, even if growth is slow. But can the management team relate a shared, crystal clear vision of the company, its category, and its primary benefit? The kinds of companies it sells to? The roles of people within those companies that are involved in purchasing? Other unique qualities that differentiate you from competitors? Answers to these questions comprise a company’s strategic positioning, and a lack of team alignment on it leads to huge inefficiencies.

2. How does the company fit into the bigger picture of the market served?

Understanding which companies are competitors and which are potential allies is essential for sales success. Companies often assume competition exists when there may be a chance to partner effectively instead. Understanding the needs of other key companies leads to a clearer understanding of current opportunities, where value exists in your market space, and the potential to leverage the success of potential partners to provide better customer solutions.

3. What relationships with other companies can accelerate growth?

Most CEOs are skeptical about partnering with another company because it’s perceived as too difficult to be successful. While most partnerships fail because of poor analysis, poor planning, and poor management, a well-planned partnership can enable a company to leapfrog its competitors.

4. How can the company operate more effectively to bring the CEO’s vision to reality?

Having the right growth strategy is important, but execution ultimately determines success. Once a company reaches a certain size, growth can be limited by having outmoded or inappropriate processes in place. “We’ve always done it this way” is not an acceptable answer. Outside help may be required to drive the strategy into successful execution.

The chart below illustrates three levels of “gearing up” that a company can find itself in: stalled, moving, and accelerating.




 

 

 

 

 

 

 

Learning how to accelerate your vision and take your company from “stalled” to “accelerating” will be the topic of a subsequent post.

Three Steps Will Recharge Your Business

Washington Post, July 2, 2012: “Outlook for U.S. economy dims as manufacturing shrinks for the first time in nearly 3 years… ‘Our forecast that the U.S. will grow by around 2 percent this year is now looking a bit optimistic,’  said Paul Dales, an economist at Capital Economics.”

Being the CEO requires committing to a “no excuses” life. Others may offer plausible reasons for non-performance, but if your company plateaus, CEO excuses aren’t an option – you must take action:

  • Softening economy? Find a way to take advantage of a changing business landscape.
  • Lengthening sales cycles? Determine how to identify highly motivated prospects.
  • Shrinking margins? Examine whether your company is leveraging its strengths.

Changing your business to address these and similar challenges incurs risk, but the risk of doing nothing is greater. How can you adopt an effective breakout strategy that will recharge you and your executive team?

Here’s a rational, three-step process guaranteed to provide direction: (1) reexamine your company’s true value and what sets it apart; (2) in light of market conditions and competition, determine an altered direction that will maximize value; and (3) identify new business relationships that will open doors to new business. In other words, you need to clarify, comprehend, and connect:

Clarify – Who are you as a company and what sets you apart? What truly separates companies like Apple, Southwest, Berkshire Hathaway, and the NE Patriots from the rest, year after year, is a sense of purpose. Clarifying the organization’s purpose and unique assets beyond a simple mission statement actually increases efficiency. It’s imperative to get this right.

Highly successful companies perform at a high level because they focus on a clearly identifiable market with a differentiated solution. Even successful companies eventually let pressure to increase revenue force acceptance of business outside their primary focus. Since profitability grows by exploiting core competencies, losing focus erodes margins. Having a crystal-clear shared vision of who your company targets and what customer problems it uniquely addresses enables employees to make decisions more rapidly (fewer meetings and emails needed) so more gets accomplished faster and margins increase.

Comprehend – Once you understand your company better, update your understanding of your immediate market. What change in direction will maximize value? Finding the right direction in a complex and competitive market accelerates growth. How do you define who’s in it and who isn’t? What is your relationship to other companies in your space?

One proven method is to pretend you’re selling your company and identify a number of companies that could acquire you and another set that you might acquire or partner with.  By comprehending the needs of potential acquirers, acquisition targets, and partners, you will develop a value framework that identifies high value opportunities.

Connect – Which relationships will increase business the most? Whether your company is B2B or B2C, strong relationships with other companies can help it grow faster. That said, many CEOs have been burned by partnerships that failed due to poor planning, unrealistic expectations, and unmonitored execution.

The solution? Design self-fueling partnerships that continually reinforce each partner’s objectives. Partnering with potential acquirers and industry leaders will drive new revenue by providing access to new markets, extended geographies, enhanced product and service offerings, better branding, and staff augmentation.

By following this three-step process, breaking out of flat growth may be easier than you think.

Too Broad, Too Narrow, or Just Right

Driving down a major boulevard in a city where we lived at the time, my wife spied a new restaurant in a place where many others had failed. In the window, it advertised food from multiple ethnicities, including both Mexican and Chinese! I’d be surprised if “Bueno Wok” lasted long.

There’s a truism about how a lack of focus can kill an enterprise. Being “a mile wide and a quarter inch deep” is widely recognized as a cause of failure.  Typically, a desire to increase revenue leads to pursuit of business that doesn’t leverage the company’s strengths and results in lower margins and muddled branding. But, are there instances where too narrow a focus can be just as harmful?

The diagram below categorizes organizations according to two attributes, focus and potential. The Focus axis ranges from single domain to multiple domains through all domains, while Potential ranges from restrictive to growing through saturated. Companies focused on several verticals are distinguished from those whose offerings are truly horizontal (i.e. domain-independent). Of course, each axis represents a continuum so that an infinite set of combinations is possible, allowing for the unique positioning of any specific company.

Back to the original question: is it possible to be too focused? Consider the example of a company providing a niche offering to several vertical markets. In the diagram it would be classified as “saturated domain-specific.”

Suppose you’re advising a new CEO hired to grow this “plateauing” company, Your first inclination may be to assess each of the company’s currently targeted vertical markets in hopes of focusing on the one with greatest growth potential. However, if the frequency of opportunities within each vertical domain is found to be sporadic and sensitive to changing business cycles, it may make more sense to remain diversified. Finding additional verticals that the company can target may represent a more fruitful direction.

So a key factor in opting to narrow or broaden our focus ia available market opportunities. Other factors include strength of brand, plus the company’s ability to execute (e.g. capitalization), integrate, partner, and acquire. These affect companies in each of the diagram’s nine categories in different ways. (NOTE: future posts will consider how, so if one of the nine categories is of particular interest, let me know when you sign up on this page to be notified by email when the next post is available.)

Translating the CEO’s vision for growth into breakout strategies requires careful thought to determine the best way to target and deploy finite corporate resources. Too often a new direction is based on an unrealistic view of the company’s position and capabilities. While it takes an optimist to run a company, it takes a realist to lead one toward its highest value.

 

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