Tuesday, April 12, 2016

Strategy Planning Analogy #561: I’m Going to be Rich and Famous

THE STORY

One time, I was talking to an expert on the subject of marketing to teenagers. She said research shows that most teenagers believe that in a relatively short time, they will become rich and famous.

The rationale for why most teenagers thought they would become rich and famous went something like this:

a)     They looked at all the rich and famous people in teenage pop culture.
b)     They decided that most of those famous ones are only marginally talented or skilled.
c)     They saw that most of these rich and famous people were also messed up jerks in real life.
d)     They looked at themselves and concluded that they were at least as talented (if not much more talented) than the rich and famous ones AND they had it a lot more together in their personal lives than the rich and famous ones, too.
e)     Therefore, the teens concluded that if those “losers” could become rich and famous, then a more talented and more “together” person such as themselves would have an even better chance of becoming rich and famous. Hence, the teens felt that they were going to become rich and famous.

That’s teenage optimism for you.

THE ANALOGY

If you look at the total number of teenagers alive today (about 25 million in the US alone) and compare that to how many of them actually become rich and famous in teen pop culture (probably much less than 100), the odds of any US teen becoming rich in famous this way is less than 1 in 250,000. In other words, the likelihood of one of these teens becoming rich in famous is less than 0.0004%.

Yet, despite these terrible odds, most teenagers believe they will be one of those rich and famous ones. That seems like foolish optimism, right? Only teenagers would be silly enough to think this way, right?

Well, consider the fact that most business people think they are going to be successful. Most companies adopt strategies that they think will succeed. If you read the press releases or public filings of companies, they almost always seem to talk positively about future success. Even companies with a horrible track record and huge piles of losses talk about how their new strategy will turn things around.

It looks like that silly teenage optimism is contagious. Many businesspeople have caught that same crazy notion that THEY too will beat the odds and be one of the successful ones. After all, why would entrepreneurs put in all the effort to start businesses if they didn’t think they would succeed? Why would companies work hard to implement strategic plans if they thought they would fail?

The logic in the business world tends to be as flawed as in the teenage world. Many think that:

a)     My ___________ (company, strategy, idea, product, people, myself, etc.) is as good or better than a lot of those successful companies out there.
b)     Therefore, if they can be a success, then I should become a success, too.

Yet, we know that most new businesses fail and that a large number of older businesses go into decline, retraction, bankruptcy or some other path that cannot be defined as a major success. Companies fall off the Fortune 500 list all the time. So, is this optimism justified?

THE PRINCIPLE

The principle here is that most truly successful businesses get that way by exploiting the benefits of being a leader. And as we all know, each category can have only one leader. The rest are followers who typically struggle to just stay alive. Therefore, most companies will not be truly successful.

Since the odds are stacked against success, one shouldn’t be like teens who blindly believe that success will naturally come to them. One needs to have their eyes wide open and realize how tough their prospects actually are. Just having a written strategy is not enough. Just doing things well is not enough to ensure success, either.

You have to plan carefully and not only work exceptionally well, but exceptionally differently. This is explained below.

1. Unseating an Established Leader is Exceptionally Difficult
As Al Ries and Jack Trout have pointed out in their many books (most particularly “Positioning,” “Marketing Warfare,” and “The 22 Immutable Laws of Marketing”), established leaders are hard to topple. They have lots of inherent advantages, including:

a)     They own the category in the minds of the consumers.
b)     They have economies of scale.
c)     They have preference in the supply chain.
d)     Habitual patterns are on their side.
e)     Image is on their side (Why would anyone buy from a loser? Doesn’t that make you a loser? Winners buy from winners.)

As a result, Ries and Trout said that just being a little better than the leader is not enough to take that position away from them. In fact, they concluded that one needs to be about three times better than the leader in order to take away their position as leader. Given the unlikelihood that you can imitate the leader and do it three times better, this is a suicide mission. Blind teenage optimism cannot overtake these odds.

Most of the Ries and Trout work was written before the economy was taken over by social media, apps, and digital networking. The laws of networking make unseating a leader in this economy even harder. A network, like Facebook and LinkedIn, gains its power exponentially as their network grows. The value of the business is directly related to the number of connections.

Therefore, to unseat one of these new economy leaders, you have get huge numbers of people to simultaneously abandon the current leader and sign up with you. After all, it’s no fun to join a new network if everyone you want to network with is still with the leader. Even if everything about the way your network works is better than the leader’s, it is worthless if nobody is connected to you. Customer switching costs are so high to leave the leader (where the connections are), that your odds of unseating the leader are as bad as a teenager becoming rich and famous.

Therefore, if you blindly try to unseat the leader at its own game, you will most likely fail, no matter how hard you try, how much better you are or how optimistic you are.

2. Being Different is Better Than Trying To Outdo the Leader
The solution, according to Ries and Trout, is to find a new place to win. Rather than try to outdo the leader at their game, play a different game where the advantages are more in your favor. For example, rather than trying to beat the top burger chain by doing what they do better, do something different, like:

a)     Change the product (Chicken instead of Beef, like Chick Fil A)
b)     Change the image (go further upscale, like Umami Burger or Larkburger, or go further downscale, like Rally’s and Checkers)
c)     Change the customer (go after the health conscious, like Lyfe Kitchen  or go after those who want the best tasting basic burger, like Five Guys or Smashburger)
d)     Change the business proposition (Burger King in Asia does home delivery)

3. Make the Differences a Key Part of Your Plan
Just claiming a new position doesn’t mean you will win. New positions typically require a new business model. Southwest Airlines did not win at the low price differentiation by merely imitating the major airlines and charging a lower price. No, it created a different business model which made lower pricing more profitable, including:

a)     Flying point to point rather than hub and spoke.
b)     Not transferring luggage.
c)     Flying out of secondary airports.

Therefore, your strategy needs to do more than just identify a point of differentiation. It must design a different business model which exploits that point of differentiation and makes the differentiation profitable.

Being different requires acting different. Both differences need to be in the strategy to make it work.

4. Follow Through
A great strategy poorly executed is really a lousy strategy. Don’t be like the teens who think fame will come naturally. Do the hard work to make it happen.

5. Don’t Rest on Past Success
Even if your strategy succeeds today, that does not ensure success tomorrow. Times change, tastes change, technology changes, customers change, regulations change. These changes can make your current strategy and business model obsolete. Being the best carbon paper provider in the age of digital documents is of no benefit, because carbon paper is obsolete. (For those of you too young to remember, carbon paper was used to make multiple copies on a typewriter.)

Just as teen idols come and go, so do successful strategies. Don’t rest on past success.

SUMMARY

Just being good is not enough. Almost everyone operating a business is good or they would already be gone. To be truly successful, change your focus from being good to being different (in positioning and the business model which supports the position). Rather than trying to outdo the leader at their own game, find a new place to lead with a new game plan. Otherwise, you will most likely fail, no matter how optimistic you are.

FINAL THOUGHTS

Just as most teens who thought they could be the next “American Idol” failed at this attempt, most businesses fail at achieving major success. Don’t assume success will come naturally. Do the hard work to find your point of differentiation.

No comments:

Post a Comment