Strategic Planning Analogy #257: Dated Thinking

THE STORY
The dating process has always seemed a bit odd to me. In many cases, people are dating in order to find the person that they want to spend the rest of their life with, someone compatible with their lifestyle. Yet, when these people are on a date, they are acting differently than their normal lifestyle.

For example, they may be a slob, but they dress up and clean up their place for a date, something they would not otherwise do. They may drink the cheap beer when alone, but consume the good stuff on a date. They may love to spend their evenings watching TV, but endure the theater and museums on a date.

How are you supposed to find someone compatible with your lifestyle, if you never live your normal lifestyle in their presence? It makes me wonder how many businesses would go bankrupt if people stopped acting differently on dates. And it does not surprise me that many are disappointed after getting married, because their new spouse stops the unusual activity from the dating and go back to their “normal” ways.

I am reminded of a story I heard from my high school guidance counselor. He said there was a woman who didn’t want the man she was dating to know she was wearing braces, so before her dates she would yank out her braces. After the date, she would push them back in. Ouch!!

THE ANALOGY
Dating is an occasion where people can act differently from “normal.” As it turns out, it is not the only one. It could be time of the day—like drinking coffee in the morning, but never in the evening, for example. It could be time of the month—depending on how close it is to when you last got paid. Behavior can change between when you are with your friends at home versus with your boss at work.

As it turns out, there typically really isn’t a “normal” way of life for a particular individual. The behavior changes based on the occasion. Each occasion creates its own type of normalcy. It is as if we take on a different role depending on the particular occasion. I may have my “Dating” role, my “Being at Work” role, my “Being a Parent” role, my “Being with Friends Role,” and so on.

There is actually more consistency in behavior based on a particular occasion/role than there is in the total life of an individual. For example, behavior on a date may be different than behavior when not on a date, but the behavior when dating is relatively consistent whenever the dating occasion comes up.

Therefore, when creating a strategy, it is better to target the relatively consistent needs for a particular occasion than to target inconsistently-acting individuals.

THE PRINCIPLE
The idea here is that strategies focused on occasion-based solutions tend to be more effective than strategies which target individuals. Individuals slip in and out of roles depending on the occasion. Their needs and desires change based on the occasion. If you try to target one individual all the time, your appeal will have varying degrees of success, depending on which role the individual is playing at a particular time.

As a result, even though there is much talk these days about being customer-centric, real success comes from being solution-centric.

Restaurant Example
For example, let’s look at how an individual, let’s call him “Bob,” uses restaurants. When Bob is on a date, he may be looking for a restaurant that is romantic, that would impress his date. When Bob wants a meal to eat while working late at the office, he may be looking for convenience, low price, and delivery services.

If Bob is having an important business dinner, he may want someplace which is quiet, where they don’t mind if you linger, and shows off his financial strength (i.e., expensive and snooty). When eating out with his children, he may want a restaurant that is moderately priced and kid-friendly. If Bob wants a meal when alone at home, he might skip the restaurant altogether and just nuke something in the microwave.

As a restaurant owner, what would be the best restaurant approach if the strategy is to target Bob? The restaurant would need to be romantic, quiet, kid-friendly, snooty, expensive, cheap, moderate, quick, lingering, and sells things to take home and microwave. Good luck on that one.

There is no single ideal restaurant strategy to target at Bob, because Bob’s needs and desires change based on the occasion. He wants a different type of restaurant for each occasion. If you try to create one restaurant appropriate for all of those occasions, it will not be able to be the best at any particular occasion. The irony is that a single restaurant specifically designed to meet all the restaurant needs of Bob would most likely be a restaurant Bob would hate to visit, because it would never be the best option for any of his occasions/roles.

A better restaurant alternative would be to stop targeting particular people and instead start targeting a particular occasion, like being the ideal restaurant for dating. That way, when Bob is going on a date, your restaurant will be the best choice for that occasion. It doesn’t matter that Bob would never choose you for his other roles, because you are no longer targeting Bob. You are targeting anyone who is looking for the ideal dating restaurant at a particular moment. If there are enough people drifting into the role of looking for a dating restaurant solution, then you don’t have to worry about missing the other occasions.

By choosing a particular occasion, you can focus on being the best at delivering the attributes most important to that occasion. You can downplay attributes less important so that you can afford to do a better job on the ones which are important to the occasion. For example, a dating restaurant could afford to do a more effective job of being romantic, because it does not have to worry about also trying to be kid-friendly. Your brand is strengthened, because it stands for something—the best choice for a particular occasion.

Other Businesses
This principle does not just apply to consumer activities, like eating out. This also can work in pretty much any business, including industrial businesses. For example, a steel supplier could focus any one of a number of occasions:

a) When you need a problem solved in a hurry/emergencies;
b) When you need highly customized and unique solutions;
c) When you need basic commodities;
d) When you are having cash flow challenges;
e) When your project is in a particular area, like the Middle East.

By focusing on one of these occasions, the steel supplier may not get all of the total business from Bob’s Construction Company, but they have a better shot at getting all the business from Bob’s Construction Company when it falls into that particular occasion.

Portfolio of Brands
If you want to satisfy more than one occasion, it is usually better to do so under multiple brands, with each brand owning a different occasion segment. That way, each brand can specialize and own that occasion in the mind of the customer. The individual brands stay pure and don’t get diluted by trying to stand for too many things.

For example, the Lettuce Entertain You Group operates 38 separate restaurant brands. Each brand has its own name and specializes in something different. There are brands for formal occasions, casual occasions, convenience occasions, and so on. Each brand is well known in its location for its occasion segment. And none of the customers really know about or care about the parent company name.

By contrast, the Chevrolet brand is slapped on cars meeting all sorts of different needs, from economy (Aveo) to sports car prestige (Corvette). For many of the cars in the Chevrolet lineup, I’m not sure I even know what need they are trying to solve (Cobalt?). Blandness and lack of brand focus is not a path to success.

SUMMARY
Successful strategies are usually based on being the best at solving some sort of problem for the customer. Consequently, even though there is a lot of talk these days about being customer-centric, real success comes from being solution-centric (or occasion centric). By focusing on a solution/occasion, one can become the best at the attributes most important to that occasion. The same cannot be said of a consumer focus, since consumers tend to drift in and out of problems, depending on the situation of the moment. There is no single strategy that is right for a consumer under all the different situations they encounter, and to try to meet them all under one brand can be a disaster.

FINAL THOUGHTS
Eventually, people like Bob may settle down, get married, and no longer be a part of the dating scene. Life-stage changing events like these can drastically change what someone like Bob is looking for. Therefore, trying to follow Bob through his life changes can be difficult, because it would require you to make drastic changes over time (for which you may not be capable of being the best at) and which might confuse the brand. It is probably better to stick to being known as the best dating restaurant, abandon Bob, and get the next generation of daters. For more on this, see prior blog.

Strategic Planning Analogy #256: Thin is In?

THE STORY
Suppose that you had to choose your future spouse from three who are behind a curtain so that you cannot see them. The only thing you know about them is their weight.

Let’s say there are three men behind the curtain—one is of average weight and two have above average weight. At first, you might be hesitant about picking one of the men who has above average weight for fear of choosing an ugly, fat man. However, the man could also be overweight because he is a hunky, muscular guy who could be quite appealing.

Both extra muscles and extra fat can create above average weight. By just hearing what the weight is, there is no way of knowing if it is fat or muscle. The best and the worst choice could have the same weight.

Now, suppose there are three women behind the curtain—one is of average weight and two are below average. At first, you might be inclined to choose one of the women with below average weight, thinking she could have a beautiful fashion model appearance. On the other hand, below average weight can be caused by being sickly and bedridden—near death.

Just knowing the weight will not let you know if the lower weight causes the woman to look like a fashion model or a sickly person. Again, the best and the worst choice could have the same weight.

By only knowing the one attribute (weight), it is very hard to make a proper choice.

THE ANALOGY
In strategic planning, one often has to make choices—how to position the brand, who to target, what the appeal is, and so forth. For example, in creating a sales strategy, it is common to try to target specific types of customers to go after.

A problem arises if you define your target by just one variable. As we saw in the story, if all you know is one variable (weight), you may be placing both your best and your worst choice in the same target group (higher weight for men, lower weight for women).

For example, let’s say you want to target heavy spenders. As we will see in this blog, a single variable like “heavy spending” can cause problems, because both some of your best customers and some of your worst customers can be heavy spenders. This makes the target ineffective.

THE PRINCIPLE
The principle here is to avoid targeting based on only one variable. To illustrate this point, we will look at the flaws in targeting “heavy users,” based only on the single variable of sales volume with your firm.

At first, this might seem like a logical metric to target for sales. After all, people who spend a lot with you probably like you (or your products), and it shows they have the financial means to buy a lot from you. People who like you and have money to spend sound like a good target for getting additional sales, right?

Maybe yes and maybe no. As in the story, that single attribute can be deceiving. Just as an overweight man can be ugly with fat or handsome with muscle, a customer currently spending a lot with you can either be a desirable target for increased sales or an undesirable target. A best and worst target choice could have the same sales volume with you.

Here are some examples of high volume customers who would make poor targets for additional sales.

1. Those Who Know How to “Game” the System
There are many reasons why someone might buy a lot of product from you. One reason could be because they know how to “game” your system. By this, I mean that they know how to cherry-pick your offerings in a way that makes them extremely unprofitable to serve.

Perhaps they only buy your loss leaders. Perhaps they only buy when you clear items out below cost. Perhaps they are heavy users of your added services, making lots of costly demands that wipe out the profitability of their purchases.

Sure they love you. They love you because they know how to take advantage of you and get a better deal than you can afford.

I used to work with a company that was one of the largest purchasers of consumables in the United States. Just by looking at sales volume, you might think that this was a good target for getting additional sales. However, this company was an expert at gaming the system. They almost never paid anything near full price to the manufacturers of mass consumables. Additional business from them would not necessarily be profitable.

There’s the old joke about the salesman who goes to his boss and says, “I’ve got good news and bad news. The good news is that I just got Wal-Mart to purchase from us. The bad news is that I just got Wal-Mart to purchase from us.” The point is that even though selling to Wal-Mart may create high sales, the demands Wal-Mart makes for pricing and services could make that business undesirable.

If most businesses were to plot sales by customer against profits by customer, they would see that high volume customers are often among their most profitable and most unprofitable. Like in the story, the best and the worst choices can look identical on a single variable.

Therefore, when targeting customers, perhaps add some variable which help you to know how profitable they are. Profitability is more important than mere volume.

2. Those Whom You’ve “Tapped Out”
One reason why a customer could be spending a lot of money with you is because they are already buying 100% of their need for that product from you. Once you get 100% share of a customer’s business, there is virtually no potential to increase sales with them. You already have all that they are going to buy.

Therefore, if you offer these types of people all sorts of sales incentives and discounts to purchase from you, the volume of business from that customer will stay about the same. What will change is the profitability of that business. They will be buying the same amount (100% of their need), but now they will be buying it and getting your incentives and discounts. All you have succeeded in doing is lower the profit on business that was already yours in the first place.

So instead of looking at just one variable (sales volume), it probably makes sense to also look at your share of their spending in the category (share of wallet). If you already have near 100% share of their wallet, trying to get more sales out of them would most likely be unproductive. Instead, you should be looking to target customers who like you enough to spend quite a bit with you, but still are spending some of their money on your competitors. Then you can target additional sales from them by getting them to shift a higher percentage of their business with you. You will not be able to separate out this more profitable target if you only look at the single variable of sales volume.

3. Those Who Buy Differently
Not everyone is motivated in the same way. A tactic which increases sales with one type of customer may have no appeal to another. Some may appreciate price discounts. Others may prefer value-added services. By lumping all heavy users together, you are classifying them by similar end behavior (purchase volume). However, this group can have all sorts of dis-similarities when it comes to why they purchase and what motivates additional sales (intermediary behavior).

If you try to use the same sales-boosting strategy on this segment, it will probably be effective on some and not on others, depending upon whether that type of strategy appeals to them.

It would be better if you added motivational factors in your definition of segments. Then you could target the most appropriate motivational tactic separately to each segment. That way, everyone would be spoken to in the most appropriate language.

SUMMARY
Setting customer sales targets based on a single variable, like sales volume, can be a mistake, because both good and bad targets can have similar sales volume. Other factors to consider include customer profitability, share of wallet, and motivation variables.

FINAL THOUGHTS
Niche businesses can often provide a better return on investment than businesses targeted at the great masses in the middle. As a result, even the strategic goal of trying to increase sales a lot may be a mistake if it destroys your success with the niche. Narrow sales targets (based on multiple variables) may at first look limiting, but it may help reinforce your success within your niche.

Huh?

In today's Wall Street Journal, there is an article about P&G and Colgate.  It says that the companies are beset with two problems:

 

1) Consumers are trading down from the brand name products of P&G and Colgate to cheaper store brands and private label products.

 

2) Due to the economy, people are cutting back on discretionary spending in general to save money.

 

So how did the two companies react to these trends?  Both of them raised prices.  This appears to have accelerated the defection and reduced unit volume even more.  Yet, for now, the steps preserved near-term profits.

 

According to P&G CFO Jon Moeller, "While painful, pricing to protect the structural economics of our business is the right thing to do." 

 

Protect the structural economics?  What good is a strong economic structure if the customers go away?

 

Am I missing something here?  Taking steps to accelerate the movement of customers to the competition?  Raising prices at a time when customers are the most price sensitive?  Trying to squeeze a few more pennies today which could ruin long-term prospects in the future?

 

This reminds me of an earlier blog I wrote.  It talked about how financially oriented people often get in the habit of assuming the cash flow of the current business model will always continue to flow in.  Therefore, job #1 is to squeeze as much profit as possible out of that cash flow.

 

Unfortunately, if you squeeze too many dollars out, the underlying economic model stops working.  Customers will shift to a better economic model (for them), leaving you with a broken, obsolete model.

 

It sounds like Jon Moeller needs to read that blog.

Kmart Smart?

 

Mark Snyder's Challenge

Back on April 1, Chief Marketer ran an interview with Mark Snyder, the chief marketer at K Mart.  Mark Snyder took the job with Kmart about the time the stock market collapsed in 2008. 

 

What Mark inherited was a Kmart brand that was fairly worthless.  On just about every attribute, Kmart's image was worse than Target and Wal-Mart.  As Snyder put it, Kmart had "pretty heavy negative perceptions."  I'll say…I think its image could best be summed up in one word—"loser." 

 

I once did focus group research with teens about discount stores.  I'll never forget this one girl describing her feelings when her Mom insisted they go to Kmart.  She said, "I would stay in the car in the parking lot, lock the doors, roll up into a ball underneath the dashboard and pray that nobody I knew would see me."  K Mart was not exactly the brand people wanted to be associated with.

 

So Snyder's goal was to find a new brand identity for K Mart—hopefully one that was favorable.  He knew that Wal-Mart already owned "low price" and Target owned the trendy "cheap chic."  He needed to find something else to own.

 

His choice?  Smart.   To quote Snyder, "We decided Kmart could own the identity as the smartest [discounter]."

 

Smart???  If Kmart is so smart, why is it such a loser?  If I'm smart, why am I associating with such a loser?  Winners are smart, losers are dumb.  And right now, Kmart is not a winner.

 

If I had been in Snyder's shoes, I would have picked something different.  I would have picked the attribute of time.  I would have positioned Kmart as the "fastest" discounter.

 

Time Fits Who Kmart Is

Why win on time?  First, it takes advantage of the few things Kmart already has going for it.  Kmart's stores tend to be smaller than Wal-Mart's and Target's.  Small stores are faster to shop. 

 

Kmart's stores tend to be older and located closer to interior communities (whereas Target and Wal-Mart tend to be more likely on the outskirts of town).  This can make Kmart faster to get to—right in the neighborhood.   

 

Also, customers tend to equate successful stores with busy stores.  Hence, the perception would be that Target and Wal-Mart are so busy that it is hard to just get in and out quickly.  Conversely, Kmart must be faster to shop, since it is probably less crowded.

  

And best of all, if people have a negative conception of shopping Kmart, let them know that the time spent doing it is very short.  We've shortened the pain as much as possible.  Shift the attention to the experience with the product after purchase, not the shopping.

 

Time Fits Our Society Trends

People sense more pressures on their time than ever before.  There are more media choices to spend time on.  There is having to care for both your children and your aging parents at the same time.  Mobile devices mean we can never escape work, and so on. 

 

With more pressure on time, people have to make trade-offs.  Long term trends show that one of those trade-offs is spending less time shopping.  Other activities are getting a higher priority for that time than shopping.  So if that's how people value their time, than why shouldn't Kmart do the same?  Support what people desire by shortening shopping time, so that customers can spend it doing things they would rather do.

 

Time has become the new scarce commodity.  Kmart becomes the savings store that saves you time.

 

Time is Hard For Competitors to Refute

Time is the Achilles heal of Wal-Mart.  It takes forever to journey from their massive parking lots to the massive supercenters.  Navigating the inside of a Wal-Mart Supercenter is a very time-consuming chore.  And those checkout lines?  It seems like weeks go by as you stand there in frustration watching your frozen food melt before you.

 

It is extremely difficult to make significant cuts to the time a customer has to invest when shopping Wal-Mart.  They cannot suddenly make all of their mammoth stores small and convenient.  Their insistent pressure to do whatever it takes to be lowest price runs against spending the money to have fast checkouts.  In other words, Wal-Mart could no longer be who it is if it wanted to outdo Kmart on fast.  And Wal-Mart will not give up its ownership of lowest price to try.

 

Even if you want to save money, there are limits to how much time you want to waste in doing so.  Many would pay a few pennies more to claim back that time and frustration.  When you put time into the value equation, Wal-Mart's value suddenly doesn't look as strong.

 

Dollar stores, like Dollar General and Family Dollar, have seen great growth recently.  Part of that has to do with the economy and the fact that prices in these stores are cheap.  But part of it also has to do with time.  Customers realize that they can park right next to the door of a Dollar General and finish the shopping trip in just a few minutes.  Kmart could tap into that as well.

 

Implications for Kmart

So, if Kmart wants to own time and be known as the "Fastest Discounter" or "Time Savings Store" what must it do? 

 

First, make sure the checkout lines are the fastest in the business.  This is where people are most aware of time.  Make it where they are most aware of how much better you are at minimizing it.

 

Second, save people time through highly edited assortments.  Rather than forcing the customer to waste time trying to choose between dozens of types of ketchup to find the best deal, just sell the best deals.  Tell people that the Kmart merchants spend all the time seeking out the best deals so that you don't have to spend the time doing it.

 

By highly editing the assortments to the best deals, one can put all the one-stop shopping of the mammoth Wal-Mart of Target supercenter into the convenient little Kmart.  The new Kmart would be like three stores in one:  the speedy value food shopping of an Aldi/Save-A-Lot, the speedy value commodity shopping of a Dollar General/Family Dollar, and the speedy value fashion shopping that can be found nowhere else.

 

Third, save people time by linking the stores and internet shopping tightly together.  For items not in the edited assortment, you can supplement via the internet.  Allow people to pick up items ordered on line in the store, so they don't have to wait a few days for a UPS truck (saving waiting time).

 

Kmart becomes the king of convenience:  convenient locations, conveniently sized, one-stop-shopping convenience for food, fashion and commodities, and the most convenient checkout process.  Suddenly Kmart is not a loser.

 

Longer Term Opportunities

Once Kmart sheds the loser image for the time saver image, it opens future opportunities to leverage time.  Fast fashion is a hot trend in apparel retailing.  Firms like H&M and Forever 21 use it to rapidly change the fashion assortment in the store.  This has many benefits.  First, customers are less likely to procrastinate on a purchase, because they know the goods won't be around very long.  Second, customers return more frequently because they want to see the changing assortment of fashion.  Third, by purchasing in small lots, there is less chance of a store being stuck with excess inventory to mark down.

 

Thus, Kmart could morph fast shopping to include fast fashion when appropriate.

 

Then, maybe Kmart could add fast to services which are normally slow, or add fast home delivery to save time, or a host of other things.

 

Wal-Mart can say they save you money so that you live better.  Kmart could say they save you time so enjoy life more.  Now, in my mind that is a smarter Kmart.

 

Final Thoughts

"Kmart Smart" sounds to me more like an advertising slogan than a positioning statement (and not even a very good one).  But that's what happens when you let Chief Marketing Officers do strategy rather than strategists.

Strategic Planning Analogy #255: Growth

THE STORY
Once upon a time, there was a boy named Bobby who dreamed of being a great basketball star. Bobby’s dream had a problem—Bobby was short. Bobby knew that if was ever going to be a great basketball star, he would need to find a way to grow a lot.

One day, Bobby went to the carnival. In a dark corner of the carnival, far away from the midway lights and the noisy crowds, Bobby found a small tent with an old woman inside. The old woman claimed to have all kinds of magic potions for sale.

Bobby was excited! This was his chance to grow, so that he could finally become a great basketball star. Bobby asked the old woman for the strongest growth potion she had. As the old woman handed Bobby the growth potion, she tried to warn him about how it worked, but Bobby was too excited to stick around and listen. He ran straight home to take the potion.

Sure enough, the growth potion was very strong. Unfortunately, the only thing that grew were Bobby’s earlobes. His earlobes became so long that they dragged on the ground. Whenever Bobby tried to play basketball, he tripped over his earlobes and fell down. His dream had become a nightmare.

THE ANALOGY
Bobby dreamed of growth. He was willing to do almost anything to grow. Bobby got so focused on growth that he did something foolish. It lead to growth, but not the kind that helped him. Instead the growth made his situation worse.

Businesses tend to have a strong desire to grow as well. Just like with Bobby, not all business growth is good growth. Some growth can make your situation worse. Growth at any cost can often be too high of a cost.

THE PRINCIPLE
The principle here is that growth is only desirable if it makes you stronger. Growth in earlobes or cancer is not very useful. Growth in muscle and stature is. Therefore, be very careful about the type of growth you focus on. Here are my three rules on growth.

1. Focus on Growth of Market Position Rather Than Growth in Sales
Strong companies have strong market positions. Just think of the companies that tend to do well consistently over time. Nearly all of them have a strong position in the marketplace. Wal-Mart owns the price position in the marketplace. Apple owns “cool” design and usability. Toyota owns quality and reliability. Four Seasons owns Customer Service.

Conversely, struggling companies tend to have weak positions. What does Buick own? What does K Mart own? What does RCA own?

Therefore, a key growth measure is how fast you are growing the strength of your position:

A) In terms of how much your targeted customer prefers your brand (How loyal are your customers? Do they recommend you to friends? Would they pay a premium to get what you offer? How much repeat business do you get? Am I loved?);

B) In terms of performance relative to competition on the key positioning attributes (Are we the best at what matters?).

The particular metric in this area depends on your particular situation and what position you are trying to own. The key is to find a metric (or two or three) that shows how strong you are at a) rational performance on the key positional attribute, and b) emotional bonding with the customer. Think of rational performance as “muscle” and emotional bonding as “stature.”

A side benefit of a strong emotional bond is that it opens the door for the consumer to trust you as you migrate to new growth categories. For example, Apple’s emotional strength with the iPod position created the opportunity to successfully migrate to the iPhone.

This is superior to focusing on just growing sales, because not all sales are good sales. Sometimes sales growth can be like fat, or cancer, or big earlobes, rather than muscle. For example, to get extreme growth in sales, you can destroy your image. Just ask every exclusive fashion brand over the years what happened when they branched out to the masses. They got a near-term burst in sales, but in the long run destroyed the brand with its core customers and lost its ability to turn a profit.

Sometimes, the way to boost sales is to lower the price to virtually free. This can destroy profits and weaken the brand image (you get what you pay for).

Too many sales can overcome your ability to meet demand. Your standards may fall or disappointments may rise.

Or you can increase sales by venturing into diversifications in areas away from your core strengths where someone else already owns the market. Or you can pay way too much to get sales via an acquisition. Both of these can destroy profitability.

If you win on growing your market position, growth in desirable sales tends to follow. But if you look for sales growth at any cost, you can end up destroying your market position and end up with neither sales nor profits in the long term.

For more on this idea, check out my earlier blog on balloons.

2. Focus on Growth in Cash Flow Rather Than Growth in Profits
It is good to be loved and to be the best, but that isn’t worth much if you lose money on every sale. We also need to make money.

The best measure of how well you are making money is cash flow. Cash flow is about making sure more money is coming in than going out. The #1 factor determining stock price is anticipated future cash flows. The more cash flow potential you have, the more valuable is your company. Cash flow, provided it is not part of a ponzi scheme, is true muscle.

By contrast, net profits are a weaker measure. Yes, they can be muscle, but profits can also be fat, cancer or big earlobes. For example, you can buy profits through overpaying for acquisitions, which may make the bottom line go up, but create a negative return on investment and actually destroy value.

A profit focus tends to look only at outcomes. This can lead to growing near-term profits by starving investment in the future. One of the big problems at Enron was that it had such a strong focus on quarterly profits that it tended to ignore the idea of building sustainable business models.

By contrast, a cash flow focus looks at both inputs and outputs. It realizes that it is the net of the two that is most important. As long as the investments are sound, a lot of spending can be a good thing, because it builds muscle. I’d rather have a steady stream of good cash over time than a burst of profits in one year that comes at the expense of any future profit potential.

3. Strike a Balance Between Market Position and Cash Flow Growth
Both Market Position and Cash Flow should be a part of your growth plan. A focus on market position alone can lead to giving all the value from the strong position to the customer. Conversely, a focus on cash flow alone may result in not giving enough value to the customer.

However, by looking at the two together, one creates a balance. Company needs and customer desires both get fed, creating a long-term sustainable (and profitable) model, capable of growth over time.

SUMMARY
Growth is good, provided you are growing muscle rather than fat. To make sure the growth is muscle, focus on two things: growing Market Position and Cash Flow. A balanced approach in these two areas will almost always lead to muscle. By contrast, a focus on sales and profits may or may not lead to muscle. Instead it might result in fat or cancer.

FINAL THOUGHTS
They say that muscular people are more efficient at burning calories and can keep off new fat better than people who are already fat. Similarly, companies with historically strong market positions and cash flow orientation tend to continue to stay strong and avoid getting fat. So protect your future by getting into shape today.