Breakout Strategies in Tough Times

Entering 2013, we have larger challenges than ever.  Economic slowdowns in Europe and projected softening demand in Asia and elsewhere are forcing CEOs to pursue more challenging growth opportunities.  This is not an option: we grow or we die.

For many firms, growth has historically come from new products or innovative extensions to existing products.  The simple growth strategy where R&D generates a new widget, Marketing promotes it, and Sales introduces it to customers isn’t working that well any more.  And even if revenue is growing, profits are often generated at the expense of ever deepening cuts in personnel, core capabilities, and reduced investment in capital and equipment.  CEOs are worried that soon they will have to pay the proverbial piper.

M&A alone won’t do it either.  While firms can and often should acquire or merge to become more competitive, most M&A data shows that the combined enterprise delivers little increased profitability.  At best, results are additive, not multiplicative or geometric.  So what’s next?  Where can we find that elusive growth?

Leading companies are broadening their definition of growth beyond traditional product-based categories to include more novel growth strategies.  For CEOs to take advantage of any of them, they must consider the real impacts on their businesses and determine the capabilities they will need to succeed.

First, creative CEOs need to generate a complete portfolio of growth initiatives that include: geographic expansion and M&A; product-based extensions and positioning; integration or bundling of products and services; marketing-driven initiatives like segmentation and value-pricing; localized delivery through outsourced capabilities; value-driven arrangements like performance guarantees; and IT-based strategies like remote services.

Second, CEOs need to determine how best to apply scarce resources to these initiatives, being especially careful to avoid the trap of over-investing in existing businesses – through both capital and key resource allocation – at the expense of novel and potentially much more profitable strategies.  Communicating the necessity of and how best to implement novel strategies to their boards is a critical challenge.  Key questions include: “Do I have the right leaders in the current businesses?  Can my current team succeed in these new lines of business?  Is the plan aggressive enough?  Have we achieved the right balance of risk and projected return?”

Finally, only careful analysis will determine whether any of these breakout strategies are appropriate for your firm.  Can you get buy-in from all stakeholder groups?  Will employees get excited about the new opportunities?  Will the board support the initiatives?  Can you communicate the new direction effectively to analysts and investors?

In these especially demanding times, CEOs must gain a broader perspective and challenge their internal teams’ assumptions.  Make sure that you incorporate external research and insights into your thinking before making the hard calls.

Mutual Accountability Magic

While the latest formula or insight sells business books, most business leaders tend to find their own way, then apply and reapply principles that emerge through their experience.

James Weaver is a serial CEO who’s led multiple companies out of deep holes back to relevance and profitability. He’s one of those gifted CEO’s who quickly finds the right course of action for a failing company and leads the organization to a new and better way to operate.

When I invited him to participate in a book of CEO principles I’m assembling called Shoot the Runt, he suggested a topic immediately. In turning around companies like Gold’s Gym, James developed a mindset and process that encourages everyone in the organization to achieve their highest potential, and he was generous in sharing that process to help the book.

James found repeated success by generating a sense of accountability that drives organizations to new heights of success. Check out the latest CEO/mentor dialog called Mutual Accountability Magic that’s based on the process he’s used successfully multiple times.

Happy Thanksgiving!

Messaging – the Holy Grail of Marketing

[Guest post contributed by Cathy Martin]

Have you ever read a company’s website or marketing collateral, or had a conversation with one of its execs, and come away from the encounter with absolutely no idea what the company does – or why you should care? Me too, all the time.

Obviously, the company in question has major issues with messaging.

What troubles me most when I encounter ineffective messaging is that it’s usually an indication that the company lacks a solid positioning foundation. A well-defined positioning strategy is mission-critical for any business. For entrepreneurial companies, it’s pretty much a make or break deal.

Let’s talk about positioning for a moment.

Positioning can be defined in many different ways. I often explain it to clients like this…

Okay, imagine the ideal impact you could have on your ideal target customer. Now, imagine marketing that conveys this impact in a way that creates the ideal perception in the mind of that target customer. The process of defining this perception, the “mental position” you want to occupy (in the mind of the customer), is the fine art of positioning.

Al Ries and Jack Trout said it best in the classic, The 22 Immutable Laws of Marketing: “Marketing is not a battle of products, it’s a battle of perceptions.”

Positioning is key because it shifts your focus from the internal issues of building your company/product, and aims it squarely on your real “reason for being” – the unique customer value that you offer (your secret sauce and greatest competitive advantage) Once your positioning approach is defined, then it’s a matter of crystallizing this positioning into clear, concise, consistent messaging that inspires and engages the target customer.

How’s your messaging working?

Here’s a litmus test, in case you’re wondering… the most common messaging mistakes I see:

Kitchen sink messaging: When your messaging tries too hard to cover all the bases (be everything to everyone), the end result is that it speaks to no one. If your target customers can’t identify, quickly and easily, how your product offering relates to them, they’re off to the next contender (over and out).

Head scratch messaging: If your messaging is overly complex, vague or confusing – if it contains acronyms, “tech speak” or language that doesn’t readily resonate with the target customer – then you’ve lost a precious opportunity to create a connection with them. They quickly throw in the towel and move on.

Kool-Aid messaging: It’s all too easy to get caught up in your own world, aka “drink the Kool-Aid”, where the center of the universe is the product you’re delivering. After all, those bells and whistles are very cool, right? Unfortunately, folks aren’t going to care about all that, unless your marketing makes them care – by clearly conveying the unique value that you offer and precisely what it means to them.

Yeah, right messaging: Sure, your messaging should absolutely put your best foot forward in a way that’s bold and compelling. However, if it makes claims that seem too grandiose or unbelievable, then target customers are left to wonder about the reality of what you’re offering and the truth of your promises. Obviously, that’s deadly.

Me too messaging: I know, sometimes your competitors say things that you believe are “more true” about your company or product than theirs. But, if your messaging mimics theirs, or generally sounds like everyone else, your target customers are going to see you as just another sheep in the herd (or is that the flock?).

Messaging du jour: Here it is, the #1 Hall of Fame messaging pitfall… messaging that changes as fast, or as often, as central Texas weather. When your messaging is constantly shifting – without a validated reason or managed approach – nothing sticks, nobody gets it, you stake no clear ground in the marketplace. Game over, time to pack up your toys and go home.

Any way you slice it, creating messaging that captures and conveys your unique customer value, with precision and impact, can be a challenging endeavor. If you suspect that your messaging isn’t working quite right, don’t take it lightly. Find a way to remedy that situation – and fast.

This post was provided by Cathy Martin, owner of Cathy Martin Consults, an entrepreneurial marketing consulting firm based in Austin, Texas. Over the last two decades, Cathy has worked with dozens of companies – all shapes, sizes, stages and flavors – to define positioning strategies, messaging platforms, practical marketing plans and programs. For more entrepreneurial marketing insights, see: www.cathymartin.com.

Lead Through Culture

Last week, I attended Austin Business Journal’s CEO awards event with Ed Trevis, CEO of Corvalent. The city’s vibrant entrepreneurial scene wouldn’t exist without talented and dedicated CEOs, and an invited group had gathered to honor Austin’s best and brightest.

Brett Hurt, CEO of Bazaarvoice, won the award for large company CEOs. His company recently went public and continues to grow at a rapid pace. Fortunately, I met Brett a couple of years ago and was later able to spend some time in his office talking about his passion – managing company culture.

In the book I’m writing called Shoot the Runt, the latest CEO/mentor dialog illustrates one example of how culture affects success. Each dialog is based on real principles from serial CEOs. I’m very grateful to Brett for providing the concept for this chapter and agreeing to help with the book.

I hope you enjoy the dialog called Lead Through Culture, and as always, your input is appreciated.

Crossing the Second Chasm

Two momentous tipping points threaten most businesses during their lifetime. The first is an external threat that challenges startups, and the second is an internal threat that challenges established, growing businesses. Failing to address either one adequately can result in disaster.

In 1991, Geoff Moore introduced a powerful concept in Crossing the Chasm that became a key concept in the universal business vocabulary. He observed a startup company must leap from (a) an early market dominated by early adopters who seek new solutions to (b) the mainstream market where buyers are more conservative but sustainable financial returns are available. To survive, an emerging company must cross this chasm to secure a beachhead in the mainstream market.

The second chasm is described in Doug Tatum’s 2007 book called No Man’s Land. While less publicized and not as universally understood, this second chasm is no less real and just as inevitable. It’s encountered during “the adolescent stage in which an established but rapidly growing firm is too big to be small, but too small to be big.”

Crossing the second chasm does not call for securing a second beachhead. Instead, the challenge is personal: the CEO must modify the way the business operates without losing the uniqueness that created its initial successes. Tatum identified four “M word” dangers confronting the CEO of a company negotiating this second chasm: misalignment, management, model, and money.

Misalignment of the company with its market requires clarifying the purpose and uniqueness of the company, then focusing all its resources on activities that leverage its best strengths. To paraphrase Tatum, avoiding the hard work of clarifying and systematizing the core business has killed many companies after they make it well past the startup phase. Understanding the strategic positioning of the company (e.g., primary audience and target customers, primary benefits delivered, competitors, and unique differentiators), then aligning everyone in the company with this shared vision is vital to survival.

Outgrowing its management team is the second danger of an established company attempting to grow. Small companies are highly dependent upon the talents of the founder and CEO, but a growing company inevitably exceeds the bandwidth of its CEO and early management. Getting to the next level requires that the CEO relinquish his/her tight control over every aspect of the business in favor of bringing in established managers in key areas. The CEO’s challenge is to retain direct responsibility for key areas, where he/she is most talented, while delegating the other areas to managers who have already developed critical systems and processes before at larger companies.

Outgrowing the model is the third challenge faced by companies crossing the second chasm. The financial model of most young companies depends upon high performance of cheap labor. The CEO works for little or nothing while dedicated employees work crazy hours too for lower-than-industry-standard pay, but this doesn’t scale. As the company outgrows its management, a new financial model accommodating competitive pay, more intense competition, and maintenance of profitability must be quickly developed.

The fourth challenge is money. Entrepreneurs are often surprised that, when the growth they crave starts to happen, cash becomes more scarce rather than more abundant. They are even more surprised by the difficulty they find in getting the financial backing needed to finance more growth. What looks like good news to the CEO looks like significant risk to investors. “The key to raising money is reducing the real and perceived risk of the company” and the key to reducing risk includes taking the previously described three steps.

If you’re a CEO of a growing company and you missed No Man’s Land when it came out, reading it will provide a clearer picture of your business and the challenges you face in growing it.

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.