Are you planning to start a business? Here are the few tips that could help you in succeeding in your venture. These tips are from the success stories of the world’s best brands. Let’s have a look.
1.0 TARGET NICHE MARKET
Most of us dream of building a company that would be called the next Amazon or Apple. However, we have to realize that Amazon or Apple started small before becoming influential in its field.
- Macintosh began its business by targeting a Niche customer base(Graphic Artists/Designers) and went on to dominate the market.
- Documentum introduced the ‘Electronic Document Management System(EDMS)’ in 1993 by targeting a niche — Regulatory affairs department in Fortune 500 pharmaceutical companies(Where the User pain is high — They need to file a minimum of 250,000 to 500,000 documents).
- Sam Walton, initially, started Walmart in small towns that had a population not more than 5000.
Amazon’s Earlier Niche
In 1994, Jeff Bezos, after being jolted by Internet’s 2300 percent annual growth rate, began to think about building a true ‘everything store’ online. But he knew that developing such a store is impractical, at least in the beginning. So, to position his service in people’s minds, he had to focus on a niche.
How did Bezos choose a niche?
He made a list of twenty possible categories — Computer software, office supplies, apparel, music, and a host of other items. One option popped out — The Books.
Why Books? — Bezos chose the ‘Books’ category for the following reasons
- Books were a $10 billion industry in the united states in the year 1994. A considerable percentage of people had already been buying books through mail order or postal services — A potential customer base with a need for convenience and also familiar with mail order deliveries.
- Generally, most of us would have a “Fear Of Failure” while trying out any new things. Consumers at that time had little exposure to online buying. They had this fear of buying goods of unknown quality. But books were pure commodities. A copy of a book in one store was identical to the same item in any other store. So, the customers had no Fear of Unknown. They knew what they would be getting.
- At that time, two distributors were the primary suppliers of all the books & this would help Bezos not to waste time approaching individual publishers.
- Millions of books were in print worldwide that even a bigger retail store cannot stock — too many SKUs — a potential advantage for an online store since it had no such limitations. Though Jeff Bezos could not build ‘Everything store’ in the beginning, he could catch the essence of the possibility of ‘unlimited selection’ in the books category.
NICHE, THE SUCCESS MANTRA — So, the rule of thumb for business success is to “Start small. Find the target market with maximum pain. Focus on a particular need, work on it, make your product distinctive, and dominate the niche market. Once you become a leader in the niche market, you could move to the larger markets”.
2.0 BRAND POSITIONING & VALUE PROPOSITIONS
The next step to build a business is to ponder how to occupy space inside the mind of a consumer, which is called Brand Positioning. In other words, it is how a consumer perceives a brand in lieu of competing brands.
Why does your brand need to enter his or her mind?
- If you ask a consumer to name a cola drink, Coke’s name will spurt out.
- If you ask a consumer about a toothpaste that comes immediately to the mind, then, most probably, Colgate’s name would pop out.
- If you ask about a photocopying brand, Xerox’s name will burst out.
- If you ask them the name of an energy drink, the red bull name will rush out.
Why do these brand names stay at the top of the consumer’s mind?
- Coke is the first cooldrink to enter the consumer’s mind under the Cola category.
- Seven-up is the first cooldrink under the Un-cola category.
- Redbull is the first cooldrink under the ‘energy drink’ category.
- Xerox is the first brand under the ‘photocopying’ category.
The above brands show that the easiest way to get into a person’s mind is to be first.
Being №1 in a consumer’s mind will help a business to grab a larger market share and have a sustainable business.
So, how can a business enter a consumer’s mind by being first? — The business has to create a new category that doesn’t exist in a consumer’s mind.
What is the need for categories? Our human brains are wired for categorization to help us remember things. Without that, we would be quickly overwhelmed by the vast amount of information.
Whenever we come across new things, subconsciously, we would file them under different known categories in our memories. If a consumer sees your brand, he would automatically file it under a known existing category. The problem with this filing under the earlier list is — your brand would be indexed by the mind several layers below the other brands & the consumer would fail to recollect your brand name instantly.
Example -Coke is the first product under the cola category. Pepsi is the next brand. Do you remember the third brand? Fourth brand?
To summarise, the next step in business is to position your brand inside a consumer’s mind. It could be done only after creating a new category in their minds.
How To Create A New Category? -For that, the company has to observe customers’ needs, desires, pains, and choose value propositions that will solve a customer’s pains and also match the business’ core strengths & core values. At the same time, the value offerings should be different from other competitors. It is also called Brand Differentiation.
BRAND POSITIONING OF WALMART
In the early 1960s, Sam Walton was running a chain of independent variety stores in smaller towns. He observed that the discounting store concept was gaining traction and felt that it would soon disrupt the variety stores business. To survive, he realized that he had to close the variety store business and open a discounting store as early as possible.
WALMART’S NICHE MARKET — Before positioning your business, we need to freeze the target customer segment. Focus on their particular need, work on it, make your product/service distinctive(Positioning), and dominate the market.
Sam Walton thought a lot about the type of customers he had to target.
The niche customer segment should also meet two other constraints —
- No or little competition/weak competing forces
- It should match with our core strengths and values.
Sam Walton had been running ‘Variety stores’ in small towns that had a population of around 6000.
Weak Forces — Sam Walton observed competitors in the discounting business. Kmart and other larger retailers were not going to towns that had a population below 50,000. Other medium-sized brands like Gibson did not open stores in areas that had a population below 12,000. Nobody was ready to provide products at discounted prices to the people living in small towns. But people in those places were well aware of the ‘discounting stores’ as they had friends and relatives in the cities and some of them had even visited those stores. The awareness was there.
Strengths — Sam Walton lived in one of the small towns — He lived as one among his consumers in that small community. His everyday interaction with the people of the place helped him to acquire a sound knowledge of consumer behavior, needs, desires, and wants. It became his strength.
So, if Sam Walton started a discounting store in small towns, he could serve better than anybody as he got sound knowledge about the customers.
Finally, Sam Walton opened Walmart stores in small towns having a population of around 5000.
POSITIONING STRATEGY & VALUE PROPOSITIONS — Having lived among people of smaller towns and ran several variety stores for the last fifteen years in those places, Sam Walton knew the customer’s most critical requirement.
- Always Lowest Price — Most of the small-town customers preferred to buy products from a place where it would be priced lower than other sites.
So, Sam Walton’s Walmart could attract customers if he priced his product lower than anybody else in that place. How to lower the prices?
- At that time, retailers were selling products with higher margin — A retailer would sell a product costing 80 cents for $1.20. Sam Walton, during one of his research work, found out that by pricing the product at $1.00, a retailer could sell three times the volume & the profits would be much higher.
The above tip changed Sam Walton’s idea about retail. His motto became “We Sell For Less — 20% less than the competition”. Discount everything the Wal-Mart carries.
So, Wal-Mart’s primary positioning strategy became ‘Lower Price’ than any other place.
VALUE PROPOSITION — CUSTOMER-CENTRIC — Sam learned the importance of ‘Customer Service’ while running the ‘Variety stores’ for 15 years in small towns. In those years, he and his associates built a strong relationship with customers, who would keep coming back. Loyalty drove the business. The people lived there as a community & most of them knew each other well.
Sam wanted to extend the same concept of ‘Best Customer Service’ to Wal-Mart’s customers too.
Thus, Wal-Mart’s Value Propositions were ‘Low Price’ and ‘Satisfied Customer Service’ that included a wide assortment of good quality merchandise, friendly service, convenient hours, and pleasant shopping experience.
3.0 UNDERSTANDING YOUR CUSTOMERS
One of the reasons behind Walmart’s success was Sam Walton’s knowledge of customer’s needs, desires, wants, and pains. He learned so much because he lived among his customers as one of them.
The foremost factor for a successful business is an in-depth understanding of its customers.
It is essential to understand the needs, desires, fears, wants, and limitations of your customers. To know them, you need to observe them. The more you watch them, the sooner you begin to think from their shoes. As you began to think from their perspective, you would sooner become one of them. We are them & they are us.
If you become them, you would start making business decisions from your consumer’s perspective or user’s perspective. It would help your business expand rapidly.
OBSERVING CUSTOMERS -STARBUCKS
Jerry, Siegel, and Gordon, the founders of Starbucks, were so knowledgeable and passionate about coffee beans, the wide-variety taste palettes, and the roasting process. They were one of the coffee connoisseurs. Through coffee interests, they often met other coffee lovers and interacted with them. They loved spending time in discussing coffee.
Through interactions, Jerry and Gordon observed that fellow coffee lovers were struggling to procure good quality coffee beans. Being a user themselves, they could understand the frustrations of being unable to locate a good coffee source. The user’s struggles inspired Jerry, Siegel, and Gordon to open the first store called ‘Starbucks’ in Seattle.
The purpose of the shop was to sell authentic coffee beans(Brand Positioning) and related machines to a tiny niche of gourmet coffee lovers(It was their earliest niche market). Gradually, the store became popular as it rightly met the user’s needs and also spoke in their language.
The founder’s knowledge about the customers helped the brand.
OBSERVING CUSTOMERS -USAA
The USAA offers banking, investing, and insurance to people and families who serve or served in the U.S Military. One of the reasons for the organization’s success is its employees and their culture. The company has asked every employee to walk in the customer’s shoes, think everything from the customer’s perspective, and empathize with them.
Bill Taylor writes “The USAA employees are trained to see the world through the eyes of a soldier on active duty in Iraq who needs to wire money to a sick parent, or who needs to finance a car or house. That kind of personal identification between employees and customers is what gives USAA the drive to not just provide great service but to unleash big innovations”
4.0 HIRE RIGHT PEOPLE
“If you have the right people, then the problem of how to motivate and how to manage people properly goes away” -Jim Collins.
When David Maxwell became CEO of the struggling company, Fannie Mae, in 1981, the first step he took was to get the right people on the Fannie Mae management team. (Example from the book ‘Good To Great’ by Jim Collins)
Walter Bruckart, Vice President, Circuit City said, “There are five factors that led to the transition of a company from mediocrity to excellence. One would be people. Two would be people. Three would be people. Four would be people. And five would be people. A huge part of our company’s transition can be attributed to our discipline in picking the right people” (From the book ‘Good To Great’ by Jim Collins)
“It doesn’t make sense to hire smart people and then tell them what to do; We hire smart people so that they can tell us what to do” — Steve Jobs.
“Building the muscle to hire great people is a huge competitive advantage.” -Patty McCord.
A founder alone cannot build a great company without the help of a colleague(s) who share their interests and who can bring different strengths to the company.
One of the critical reasons for Netflix’s Success is its earliest team. The founding team(Marc Randolph and Reed Hastings) hired people who shared their dreams of building a consumer-oriented company, who were passionate about their work, who were humble, who were listeners, and who enjoyed working on solving a user problem. They especially hired people who had a better understanding of consumer behavior in the field of movies.
- Mitch Lowe(One of the earlier hires) had spent thousands of hours observing consumers. He ran a ten store rental chain and built websites for video rental stores before joining the Netflix team.
- Eric Meyer(the designer of the first Netflix website) was extremely passionate about his work.
- Ted Sarandos(Netflix’s chief content officer) helped turn Netflix into an entertainment powerhouse. He was a college dropout. He had in-depth knowledge about movies as he had worked in video stores for years before joining the Netflix.
In the beginning, the Netflix founders were deeply involved in every step of the hiring process to ensure that the recruit would be culturally fit and also would meet the team-building goals.
5.0 ACTIVITIES & THE STRATEGIC FIT
Now, the next crucial part -For your new business venture, you have chosen a niche market, hired the right people, and discovered brand position & value proposition.
Now, to deliver the new proposed value proposition to a customer through your product/service, your brand/company has to perform specific actions.
Example -To deliver the value proposition of Authentic Coffee, Starbucks performs the following activities — Sourcing of quality coffee beans, Roasting, Customer Education, Baristas training, Consumer Research, R&D, Hiring, Procurement, Testing, Real Estate, Packaging, and Branding.
How a company/brand chooses an activity?
A company will only choose activities that would contribute directly to the value proposition. It could skip the activities that won’t enhance or add value to the value proposition. The company would also eliminate activities that would affect the core value proposition.
For example, Amazon’s core value propositions are Everyday Low Price and Excellent Customer Service.
Once, Amazon’s team pondered whether the company should build a storage and distribution facility or outsource it.
Amazon team realized that one of the value propositions Excellent Customer Services is primarily dependent on efficient distribution. The quality output would be a problem in the case of outsourcing. The company had no intention to compromise the quality of value offerings to the customer. So, they decided to invest in inventory and distribution systems.
STRATEGIC FIT — For a business to establish a sustainable competitive advantage, the chosen activities should interact, complement, enhance, and reinforce one another. It is called ‘Strategic Fit’ among activities. The ‘fit’ determines the brand’s success.
Southwest Airline’s positioning strategy and value proposition are low-cost & high convenience. It performs several activities to achieve the result. The brand’s success doesn’t come from a collection of activities but from the way its activities fit and reinforce one another — The Strategic Fit.
Example — Southwest’s rapid gate turnaround plays a critical role in providing high convenience at a low cost to customers. How could they achieve a quick turnaround at the gate? Because this action is enhanced by another activity — well-paid gate and ground crews that are further reinforced by another activity — flexible union rules.
Michael Porter writes that fit locks out imitators by creating a chain that is as strong as its most robust link.
“A product for everybody is a product for nobody”
Under ‘Brand Positioning’ Strategy, we saw that the first and foremost factor for business success is to try registering your brand’s name into a consumer’s memory. The way to enter their mind is to make them aware that your brand symbolizes only one thing. BMW implies driving experience. Volvo means safety.
People store a product in their memory under only one category. So, your product should mean only one thing.
Choosing a unique position in the minds of customers ensures a long-lasting business.
Michael Porter writes — Unfortunately, choosing a unique activity or differentiation is not enough to guarantee a sustainable competitive advantage as competing brands could easily mimic or imitate those value propositions and individual activities. But they would find it difficult to imitate one thing — The Trade-offs.
Trade-offs are the activities a brand chooses not to do, the actions that would be incompatible with the brand’s vision and core values.
Without trade-offs, there would be no choice and thus no need for strategy — Michael Porter.
Trade-offs played a pivotal role in Southwest Airline’s success — They avoided meals inside the airplane, seat assignment, interline baggage transfers, bigger airports & routes to avoid congestion. They traded off anything that would affect their value proposition — quick turnaround time.
Why should brands learn trade-offs? The desire to grow puts enormous pressure on the business owners, forcing them to make some compromises. They add a series of incremental changes that lead them to lose their way. So, it is essential to understand what our business should not do.
McDonald’s earliest core value proposition is to deliver a Quality Hamburger as quickly as possible and at a lower price. The company avoided any activity that would affect its core values.
NO MIXING IN BEEF PATTIES — From the beginning, McDonald’s was ready to go to extremes to maintain one hundred percent beef in the patties. For them, Hamburger patty was not just a piece of meat but meat with a soul. At times, the competitors mixed things in the grounded beef mixture to save costs. But McDonald’s remained firm in their commitment. To ensure consistent quality across all stores, the company had developed test equipment to check it.
PIZZAS — McDonald’s stopped selling Pizzas as they thought that it would affect their core strengths and core values.
AVOIDING OTHER REVENUE SOURCES — In the 1960s and 1970s, several fast food Chains were earning additional revenue through pay telephones, jukeboxes, and other types of vending machines. Being tempted by those extra profits, many franchise operators requested Ray Kroc to allow those machines. But Ray Kroc did not concede and stayed firm. He felt that it would create unproductive traffic in the store and create inconvenience to core-customers, affecting the brand’s core values. It would downgrade the family image, which McDonald’s was trying to portray.
Note: The above content is from the following book —
If you are planning to start a business, hire right people, find a niche market with the maximum pain, develop a deeper understanding of your customers, discover their needs that would match your business’ strengths & core values, position your brand inside a consumer’s mind by defining the value proposition distinctively, design & develop activities to create a strategic fit, and avoid activities that wouldn’t enhance the value proposition.
References: Pour Your Heart by Howard Hughes, Netflixed by Gina Keating, The Everything Store by Brad Stone, Made In America by Sam Walton, Positioning: The Battle Of Mind by Al Ries-Jack Trout, Grinding It Out by Ray Kroc, Blue Ocean Strategy by Renée Mauborgne and W. Chan Kim, What Is Strategy-HBR Article by Michael Porter, Good To Great by Jim Collins.