Betterment…Is A Strategy July 12, 2013Posted by David Dirks in business strategy, marketing, Marketing Buzz, Sales Strategy/Tactics, Sales Tactics.
Tags: business strategy, David Dirks, differentiation, market differentiation, market strategy, marketing, marketing strategy, sales strategy, small business strategy, strategy
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Why do people buy your products or services? Are they forced to buy them out of necessity? Do you have a monopoly? Probably not. But understanding why people buy – and it’s often not on price – is one key to business longevity.
If you sell products or services that can easily be obtained elsewhere, why should they buy from you? Think about yourself as a consumer for moment. When you make a purchase – are you making it to contribute to a life of mediocrity? No. We buy things because of one basic reason: betterment. I buy milk as a staple but the place I buy my milk is the place that offers me the best tasting milk at a fair price. I don’t buy my milk anywhere else because I feel the milk I buy there is better for me and my family.
Betterment. It’s a word…a noun to be exact. Websters defines it as “becoming better” and “an improvement that adds value to property…” Consider yourself “property” as a consumer.
As a business owner, your job is to convince the rest of the world (or at least your wedge of it) that your product or service offers someone a way to better themselves…their lives…their families. In a world where everything seems like a commodity, your edge is communicating how your company delivers on improving something in the life of your customer and, most importantly, your prospective customers. The success of your business model depends on it.
That said, if betterment was easy to define, everyone would be doing it but few are – just look around you. Most business owners are stuck on price or try to differentiate based on product or service features or benefits.
Apple has long been a master at parlaying great technology and wrapping it around betterment. Apple marketing and sales messaging is almost centrally focused on how Apple products enhance or better a life. And they are able to deliver on that promise to (if you are a pc head, you don’t get this but we’re ok with that).
If you follow a blog, perhaps this one – you have the expectation that spending time here will better your life or business in some way, shape or form. Otherwise, you wouldn’t spend you time on any blog that didn’t offer and deliver on that. The most popular blogs are followed because people get something out of them (entertainment value, economic value, etc.) that they can’t find easily elsewhere.
The first step on the path of a message of betterment is to translate what your product or service does to get a customer there. The destination is betterment. For example, a landscaper cuts the grass and makes the property look great each week. Where’s the betterment? How about the time it frees you from having to do it and spend more time on things you want to do instead – like spending more time with family. By making your property look like an estate, you feel that your property and the quality of your life are enhanced (as opposed to looking at tall grass and weeds).
In other words, a betterment message is thinking of your product beyond the standard features and benefits it offers. How does it translate – tangibly or intangibly – into a path to making some aspects of a customers life better?
The second step is making sure all of your marketing and sales messaging is zeroed in on the elements of betterment…clearly…concisely…and consistently. You have to be able to draw a picture in the mind of the customer so they don’t need an algorithm to figure out why your product is the one they should buy. They should “get” betterment.
Never easy to do but clearly worth the investment of time and effort to get there. Betterment – it’s a strategy.
Pivoting as a Business Strategy July 5, 2012Posted by David Dirks in business strategy, Strategy.
Tags: business strategy, David Dirks, differentiation, market differentiation, Pivot, Pivoting, small business strategy, strategy
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A Wall Street Journal article (‘Pivoting’ Pays Off for Tech Entrepreneurs, April 26, 2011) caught my attention. What used to be called a “failed business idea” is now known as pivoting. That’s when you have a business model and learn that it does not provide the revenues and profits you need to sustain it (or the venture capitalists who might back you). Pivoting is the art of then taking the pieces of the business model that work and creating a new business model…even if that means going 180 degrees in another direction.
Pivoting as a business strategy is not new. It just didn’t happen with much frequency until the advent of the web, apps and other such fluid technologies. Now, if it doesn’t work, just pivot quickly to something else. To me, pivoting makes sense. If you start with a business plan and model that you learn has faults, you just pivot to another business plan and model.
Of course, pivoting is not easy and full of risk. First, pivoting is an admission that your original business model is either failing or has already failed. In the “old days” businesses that failed or were on the path to failing…just plain went out of business. Secondly, you can’t pivot slowly. If you pivot you have to do so with all speed. Yes, pivoting is like changing the tire on a car that is still moving at highway speed. You don’t have time to extend the debate on what in your business model stays and what parts get junked and replaced. Third, pivoting doesn’t guarantee anything. It just means you get to live and learn another day.
Pivoting isn’t new. Thomas Edison pivoted more than 1,000 times before perfecting the light bulb. Sir James Dyson created 5,127 prototypes before he perfected his bagless vacuum. Pivot if you dare.
The Experience is the Marketing April 12, 2012Posted by David Dirks in business strategy, Marketing Buzz.
Tags: best practices, business growth, business strategy, buzz marketing, David Dirks, differentiation, dirks on strategy, innovation, market differentiation, marketing strategy, small business strategy, strategy
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You want a great marketing strategy? Create an incredible customer experience and you’ll have the greatest contributor to new and recurring business you could have. Think about it. Most business owners and managers think of marketing and promoting their business in the context of spending money on advertising. While certainly advertising and other forms of marketing your business are key, creating a superior customer experience is the first worthy marketing investment you can make.
This is often a mistake made by new business start-ups who in the heat of battle forget that the experience they create for their customers is the most impressionable and lasting investments they can make.
And it doesn’t much matter that whether you provide a product or service either. We all know how much Apple pays attention to the user or customer experience. Every detail of the path their customer takes has been designed and engineered to provide a great and positive experience for the Apple customer. And yes, Apple spends plenty on traditional advertising and marketing. But I’m willing to bet that the experience of buying from Apple and then working with their products sells more product than the advertising does.
Do you know of a local business where they have created a customer experience that has the impact to keep you going back time and again?
So, for those businesses that compete on price as their primary “marketing” strategy, take note: price is your race to the bottom.
Here are a few things to consider in developing a “marketing experience” for your business:
- The customer experience begins at the point your prospect or returning customer enters your business – whether through your store or via your website.
- The first few moments of contact and connection to your business are the most critical. First impressions are important and immediate impressions are critical. If the initial impression is negative, you probably have less than a 50% chance of redeeming yourself in front of your customer or prospect.
- Customer experience has to be designed from end-to-end in order to ensure that the experience is engineered from the time they enter your online or offline store/office to the time they leave. End-to-end.
- Layout your customer experience on paper. You need to be able to describe what positive emotions & attributes you want the customer to get impacted by. You have to design a flow of experience that incorporates an impression that can be implanted into the customers brain.
- People within your business provide the most critical impact on a customer. Make sure that everyone is trained to provide the kind of customer experience that will delight. If you’ve been to a place like Disney World, you know what I mean.
- Be flexible and able to adjust your customer experience as you see/hear the reactions from customers. Be willing to test new ways to improve the customer experience. Look for examples of excellent customer experiences outside of your industry.
Creating an exceptional customer experience is not easy. If it was, everyone would be doing it and it’s pretty clear most businesses don’t. A positive customer experience can create customers that stick with you and competitors who can’t follow you.
The Costs of Strategy March 6, 2012Posted by David Dirks in business strategy, Strategy.
Tags: best practices, business growth, business strategy, David Dirks, differentiation, dirks on strategy, marketing strategy, small business strategy, strategy
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It’s funny. Not a day goes by when someone tells me they need some “strategy” to help them in their business. Strategy? Today the word “strategy” is used like a cheap, $2 dollar bill. It must just sound good to say the work “strategy” in a sentence. So what’s so funny about that? Well, everybody wants a strategy until they find out that implementing it might actually cost them some money. Perhaps having a “strategy” might mean you have to upgrade a system or process to gain a clear competitive edge. Or it might mean investing in additional people resources to help you exploit a new marketing opportunity. As soon as the “strategy” requires an investment of some kind, the next stage is, “How can we do this on a shoe string budget?” Well, you can’t. So, business owners and managers will pick off the parts of the strategy that call for more investment than they are willing to make. That usually means that what’s left are one or two tactics that are weakened greatly because they were part of an overall “strategy” that now only has a few pieces of structure to hold it up.
The result: Strategy failure.
Couple of observations here:
- Strategy may require investment in resources whether it be money, people, and time or any combination thereof.
- “Strategy on the Cheap” is not a strategy. That’s hoping that you’ll find enough “cheap” or “free” ways to implement the strategy to make it work.
- Strategy is not a cure for a bad business model. If your business model is broke, no amount of strategy will help you unless you are willing to make great changes and most likely a reallocation of resources.
- Strategy is not designed to make you feel good. Strategy and the implementation of it may require you and great parts of you business to change.
- Strategy is not easy. If it was, everyone would be doing it and doing with great competitive and business results. Everyone in business isn’t.
- Strategy without action is dead-on-arrival. Nice to have but useless unless implemented.
- Strategy changes the moment the bullets fly. When the competition and markets keep moving forward, change is inevitable. When the competitive battle begins, be ready to modify your strategy as conditions warrant.
- Strategy cannot fix things tomorrow. Impatience is the killer of many “strategies”.
- Strategy development must be shared. You cannot develop a strategy by sitting yourself in a room and hoping something comes out of your head. Or perhaps what comes out of your head is not that good. Share your ideas and challenges with others and let the vetting process begin.
You get the point.
Just How Much Variety Do We Need? March 26, 2011Posted by David Dirks in business strategy.
Tags: beating a recession, best practices, business growth, business strategy, David Dirks, differentiation, dirks on strategy, marketing strategy, small business strategy, strategy
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In the toothpaste product world:
- There were 69 new toothpaste varieties introduced in 2010
- There are 352 distinct types of toothpaste sold today
That was enough to stop me right there. The context the WSJ story was this: Can brands confuse consumers? If you look at the above data, you’d have to say ‘probably’. But interestingly enough, brand loyalty to toothpaste is fierce. I buy only Colgate toothpaste with baking soda (of one flavor or another) whenever I shop. If I don’t find it, I find it somewhere else. And that’s why many retailers are reluctant to winnow out the ones that don’t sell as well and focus on keeping the shelves stocked with those that do.
Both Colgate and Crest have long known how inelastic consumers are when it comes to trying another brand of toothpaste. So, they merrily create the latest version of their branded toothpastes and keep them coming through product development and onto the shelves of retailers.
How much variety do we need? As much as it takes to keep us brand-loyal. In the meantime, retailers have little choice but to stock up on as many brands and sub-brands of toothpaste in the market as they can afford. Confusing for us consumers? Yes but a necessary evil.
About Business Incubators… November 29, 2010Posted by David Dirks in business strategy, Solving Business Problems.
Tags: business growth, business strategy, David Dirks, differentiation, dirks on strategy, innovation, market differentiation, marketing strategy, small business strategy
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Do business incubators really create jobs in a substantive way? According to the National Business Incubation Association, the answer is a resounding ‘yes’. According to the NBIA, nearly 87% of small businesses using a business incubator survive to their fifth year in business versus only 44% of small businesses who didn’t use an incubator. Business incubators are once again a hot topic in economic development circles around the country. According to the NBIA, there are about 1,200 active business incubators in the U.S. today. Conceptually, small business incubators make all the sense in the world. By providing low operational costs during the early stages of business development, incubators are placing a bet that by subsidizing some of the operational costs of doing business, these start-ups will have a better chance for survival.
Recently, Syracuse University published an extensive research project that focused on the performance of incubators. Their research tells a different story.
“The findings reveal that the effects of incubation are potentially deleterious to the long-term survival and performance of new ventures. Incubated firms outperform their peers in terms of employment and sales growth but fail sooner…claims that incubators are highly successful and serve a significant number of businesses are overstated. The comprehensive process used in this study to identify the largest possible sample of incubated firms uncovered a fraction of the number of incubated ventures that supporters of incubation claim exist. While improvements are likely possible to the methods used in this study, this study roundly refutes the poorly documented and unpublished studies that cite much larger numbers of incubated firms and much higher levels of performance. The methods and findings of this study showcase that more research is necessary to fully understand the effectiveness of incubation programs. Until then, these findings are instructive in helping and motivating business incubators to improve their past performance.”
The truth is, there isn’t a lot of substantive and unbiased research on the long term results of small business incubators. If you don’t believe me, just look for yourself. Lots of claims of success from the likes of the NBIA, which has an obviously biased interested in promoting the concept of incubation and others.
Are incubators important to economic development (since it’s reported that nearly 94% of them are non-profit and sponsored for local economic development)? The short answer is yes. There are certainly success stories of small businesses who have survived the early years and have grown out of incubation. And we know that small business is the engine of job creation in the U.S.
Is public/private subsidized incubation an good long term investment? Here are my thoughts on this based on my own research so far.
1. Tighter vetting of potential applicants for an incubation program is a must. There is no amount of incubation that can fix a badly designed business model. The failure rate of small business is high mostly because people start a business that has an inherent flaw. Like starting a cash-intensive business without proper funding for the first 3-5 years or starting a business because it sounds like a neat idea until we found out that few people are willing to purchase the goods or services. Having a business plan in hand means little if it isn’t vetted against the same kind of tough questioning and criteria a venture capitalist would use. You don’t just let any business who can show you that they can pay for the incubation services in unless their business plan and model have been deeply vetted. Many incubators are funded with public money and what I’m proposing helps insure that taxpayer dollars are invested in only the best of the start-ups.
2. Even after vetting the best small business opportunities, failure is part of the process. You have to expect to fail to some degree in order to succeed in the long run. If you study the vetting process used by venture capitalists, you find that despite their best efforts, a percentage of their investments will fail. That doesn’t mean you should run from the idea of either using or creating a incubator. This just means that failure is an expectation in the early start-up phase.
The key question is: what have we learned from the failures that we can successfully transfer to new participants?
3. Targeted versus generic incubator? Most incubators are general purpose in focus, which means they will entertain any type of start-up for admission into their programs after meeting their criteria. My business sense is that a focused, industry-specific incubator program has the best chance of impacting economic development. For example, if an area was focusing on solar power panels, then creating an incubator program to attract and retain those kinds of firms would be inherently a powerful way to have real impact in business attraction. A industry-focused incubator program would operate on a triad of providing 1) specifically designed space suited to that industry, 2) Access to research & development available in that industry, and 3) access to investment capital be it private angel networks or other investment programs.
For an area that wants to put a stake in the ground that targets a specific industry, having an incubator program that has industry-specific expertise is a winning differentiator.
4. Intellectual capital is just as important as investment capital. The incubator subsidy is surely helpful to a start-up but I believe the quality of the intellectual capital that is made available to these incubator start-ups is even more vital. There is no substitute, especially in the early stages, for providing seasoned and unbiased business professionals who can ask the right questions in their field of expertise. Asking the right questions leads to helping the business owner/manager in their own learning process and education. I believe an incubator has to have only the best available expert talent available to its participants. Those that serve as the intellectual base for an incubator need to be vetted as well.
5. Regular and intensive business reviews of all participants is required. Incubation participants should be prepared to go through an intensive business review process based on performance benchmarks that have been set up as a part of the business plan/model. If a business wants to participate and receive subsidized business services (especially from public money), it should be prepared to undergo a rigorous business review process that does a deep dive on current business performance. This process allows the incubator leadership to assess and help identify resources for areas that need immediate attention…and before they become a real threat to long term success.
6. An incubation program takes long-term vision. Community leadership, both public and private have to have a clear vision for the long-term effort required to create enough success stories to offset the public and/or private investment required for organic business growth.
7. Equity in participating start-ups should be explored. Today, most incubators look to break-even on the services they subsidize to start-up companies in return for the potential for new job creation and tax base expansion. However, I would argue that to qualify for access to a powerful incubator program, start-ups would be required to give a percentage of equity to the incubator. It might be a small percentage (perhaps between 5-10%) but it would at least provide an additional possibility of the incubator program generating more capital to invest back into the program when their equity position was sold. The incubator equity would be in exchange for the subsidy received by the business. In this scenario, incubators would not have to provide any additional funding other than their current program offerings to receive an equity slice. I think that’s a fair proposition, especially for incubators that receive funding from public tax dollars.
8. Organic business growth is a key differentiator for economic development. Traditional economic development relies primarily on new business acquisition and current business expansion as a measurement of performance. Developing the infrastructure for becoming a magnet for new start-up business is a way for regions or counties to differentiate themselves from their competitors. A high-performing, fully funded, and well-equipped start-up program tells other potential businesses looking to relocate that the area is truly committed to business expansion and job growth.
Business incubators I believe can play a critical role in long-term organic business growth. The key to incubator success starts with engineering the program to run itself like a for-profit business. An incubator with a strong, well vetted intake process along with a substantive and ongoing business performance/review process, and the best business support resources stands the best chance of creating lasting jobs for any region.
Digital Strategy: Publisher Makes a Move August 14, 2010Posted by David Dirks in Strategy.
Tags: business strategy, David Dirks, digital publishing, Digital Strategy, dirks on strategy, small business strategy, strategy
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Not long ago I reported that the publishing industry was undergoing a traumatic change in business strategy. Shocking right? Not really, since the publishing industry is the talk of the town in business strategy circles. Rather than embracing the digital realm or rather, the inevitable outcome, publishers of most paper-based media have been running away from it. With the popularity of the iPad and other electronic devices growing stronger by the month, publishers have been slow to figure out ways to survive and adapt to a new revenue model.
Right before our eyes however, already there are a few publishers who are now embracing the transformation from paper to digital format. Dorchester Publishing, Inc. is one of the first to really move into the digital arena in a big way. Dorchester publishes mass-market paperback books, of which the majority are of the romance variety. The publisher recently announced that it would no longer offer print editions of those books. Move over Guttenberg, the rise of the e-book is here. Dorchester’s story was first reported by Publishers Weekly and of late, the Wall Street Journal.
Is this the start of a publishing stampede into digital book publishing? I believe we are witnessing just that. More publishers will follow once they get over their belief that a book just has to be printed on paper to be a book. Publishers need to grasp that it’s the IDEAS and STORIES that books contain that are the critical parts, not whether it is distributed via digital or paper formats.
Apparently Dorchester has sat down and calmly figured out a new revenue model that will allow them to continue to develop and sell mass-market ‘paperbacks’ in a digital format. I guess there is something to be said for saving considerable expense from not having to print on paper.
As the e-reader and pad-based computer technology advances and advances quickly, the day of the printed anything is toast. You can thank Apple for making that happen when it launched the iPad…which this blog posting is being written from.
A few publishers are still clinging to the printed book strategy because they still can’t figure out how to create a new business model from the digital age. Eventually though, smarter and cooler heads will prevail and they’ll lumber along playing catch up all the way.
Like life itself, business strategy is always in motion. Failing to recognize that has doomed many a company. Remember Polaroid? The old Kodak? Corporate creatures from an earlier age that failed to grasp the impact of the digital market for cameras. Hey, they still sell digital cameras for a profit, right? Right.
What’s Your Profit Strategy? November 27, 2009Posted by David Dirks in business strategy, Management, Solving Business Problems.
Tags: business strategy, David E Dirks, dirks on strategy, Management, managing expenses, profit strategy, profitability, small business strategy
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The headline from a recent article in the Wall Street Journal: “PSA Chief Unviels Profit Strategy”. It seems that PSA Peugeot (the car maker), reeling from the car industry woes, is about six percentage points below the average operating margins of five of its best competitors. The new CEO has declared that 55% of his project increase in profits over his 3 year plan will come from general cost cutting. The balance of his estimated increase in profits will be generated by increased sales in high growth markets and better sales performance in Europe.
I noted a couple of simple things. When a business is in dire trouble from a profit point of view, the 911 is on creating a ‘profit strategy’ that is designed to get a business back on the right track.
How does that profit strategy take shape? If you study profit strategies of companies seeking to climb out of losses and into the green of profitability, you begin to see a few basic ideas:
1. Wringing excess out of the overall cost structure of a business wherever possible. This is typically where the bulk of profit improvement generally comes from. The responses to this strategy run the gamut. Some businesses undertake a slash and burn process without much thought to the what, why, when, where, and how of cost cutting. That results in sometimes creating more weakness in the business by cutting out things that are critical to operational effectiveness the real excess.
The other side of the equation are those businesses that are slow to make the needed cuts that gives them the ability to redirect resources to other key areas of their business. That slow response to incrementally reducing costs over time can lead to a sudden rush to implement draconian cost-cutting measures of all shapes and sizes.
There is no easy answer to how to approach cost cutting as a strategy for managing a business. If you think about it, shouldn’t we always be looking for opportunities to wring the waste from our businesses wherever possible? Companies like Walmart have created a culture of making sure that expenses are always measured and alternatives can be generated to reduce them.
Unfortunately, that’s not how many businesses operate. I was once told that profitability can cover a lot of mistakes. True enough, when times are good and cash flow is everywhere (the good old days!), we can be much more liberal in our overall spend. Sometimes, our businesses can suffer from ‘cost structure creep’. One day you wake up and wonder how you ended up with such bloated pockets of expenses.
If there are any redeeming values for an economic downturn is that it creates an opportunity to manage expenses like we should have done anyway.
2. Selling assets to pay down debt & refinancing short term debt. AB InBev, the firm that bought the mega American beer maker Anheuser-Busch did just that after the merger and the economy created a drag on profits. That strategy lead to a healthy increase in overall profitability despite a decline in overall sales of about 10% worldwide. Getting rid of assets that are not essential and/or central to the core business you are in is always a great way to reduce expenses and, most importantly, re-direct resources to those areas of the business that need it most. In the case of AB InBev, the need to increase sales volume and protect its most valuable brands, like Becks, Bud, and Stella Artois is going to take some additional investment…investment that will come from the increase in profits that can be redeployed for those efforts.
3. Cost cutting is never a substitute for investing in your core business. AB InBev has opportunities to sell more of its Budweiser branded beers in different markets where they have an already well-established marketing and distribution platform. They are also introducing some new beer products like Bud Select 55 and Bud Light Golden Wheat. Those are key strategies and initiatives that require investment in their core business and brands.
Another example would be Chrysler. There is a company that could probably cut costs all day long and never approach profitability. Aside from their auto industry and economy woes, Chrysler forgot (or perhaps it’s last owners, Mercerdes Benz, ‘forgot’) to invest in new products to help it stabilize and maintain market share. Instead, Chrysler now has the least amount of product coming through its business compared to just about any other competitor. Cutting investment in their core business and reducing the percentage of their car line that they replace over time with newer models was clearly not an effective cost cutting tool for them. The result is continual bleeding of profits and loss of market share in an already troubled industry.
4. In times of peace, prepare for war. In times of war, prepare for peace. I’m not sure who said this statement but I didn’t create it. However, it does have immense implications for how we deal with economic upturns and downturns. In times of robust economic growth, particular focus needs to be paid to how we manage our expense structure and how we allocate investments in our core business. When the economy turns sour and if we have been diligent in managing our costs, we’ll have the ability to invest in our core business (creating new products, expanding into new or emerging markets, buying additional market share through acquisition, etc.) when everybody else is scurrying to cut out or drastically reduce costs and investments into the core business.
We’re quick to focus a lot of our energies on the usual suspects of strategy: product, competitive, marketing, sales, and operation. I would also include making an investment in a ‘profit strategy’ as well as an overall guiding influence over all other strategies. A profit strategy should answer to basic questions:
- Where are we going to wring out excess in our business and why?
- What areas of our business deserve additional investment to help us meet our profitability targets?
Both of these questions have implications for the short, intermediate, and long term health of our business.
Shifting Your Business Strategy – 4 September 4, 2009Posted by David Dirks in business strategy.
Tags: business strategy, market strategy, small business strategy, strategy
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There is a point when the definition of shifting business strategies gets a bit muddled. In general, there are two types of business strategy shifts. The first is when you make adjustments or shifts within your core business. For example, a local dry cleaner may want to expand revenues by adding a pick-up & delivery service. That adjustment is relevant to their core business of providing dry cleaning services to the public. It’s a shift from relying on just the brick & mortar building where people bring their garments to them.
The second shift is when you make an adjustment to your business strategy that is outside the core business. Using our dry cleaning example, if the dry cleaner decided to utilize some extra space and open a cafe within his/her shop, that would be considered an out-of-core strategy.
In our current economic times, not a day goes by without another large corporation declaring that it is shedding ‘non-core’ operations and ‘re-focusing efforts on our core business of (you fill in the blank)’. This is all neatly packaged as a ‘retrenchment’. It’s more aptly called a ‘retreat’.
Why is that? The answer is rather simple. In a roaring economy, it’s far easier to justify shifting business strategy outside of your core business in the name of more revenues and profitability. That old cliche, ‘a rising tide floats all boats’ comes to mind.
When the economic tide finally goes out something bad happens. Those non-core business strategy shifts can sometimes become sink holes for cash or they require greater and greater internal investment to keep them moving forward…all at a time when capital is scarce. Or capital is all of a sudden guarded like Fort Knox (unlike the free wheeling days of the booming economy).
When this happens, everyone heads for the hills. The golden geese of last year suddenly have no supporters that want to keep them. One of the main issues is that when a non-core business hits the skids, it’s much tougher to nurse it back to health. Why? Mostly because the intellectual capital of the company is not well invested in the non-core strategies. There’s another saying is appropriate here: Times of high profitability and growth can hide a lot of mistakes. When the music stops, all of a sudden things are much more complicated and there isn’t enough talent available to fix it. Again, it’s outside their core knowledge base.
A lot of times these non-core strategies get sold off to the companies that should have had them in the first place. Now they can pick these assets up for song because the seller can’t get rid of them fast enough.
I know what you’re thinking. Isn’t Berkshire Hathaway, Warren Buffets conglomerate, an example of shifting business strategy out of your core business? In a word, no. While Buffet buys and owns many different kinds of businesses, each runs independently and sticks to its core business strategy. Geico, for example, was primarily known for car insurance but has expanded it’s core strategy to include other insurance lines like homeowners insurance. Geico doesn’t own anything outside of that core business strategy of providing insurance.
So for now, we’ll continue to hear about businesses of all sizes and shapes starting to declare that they’re going back to their core business once again. In many cases, refocusing on the core strategies makes sense. However, when the next economic boom hits, they’ll be a migration once again to chasing profits by adding non-core business strategies to the mix.
The relentless drive for increasing shareholder value and profits will once again find executives scrambling to acquire or develop cash cows outside of their core business strategy.