In an earlier One Year, Thirty Minute Challenge, I encouraged you to survey your industry landscape using Porter’s Five Forces plus one more (you can read that here). It’s a valuable exercise because it requires you to zoom out and look at the environment in which you compete from 10,000 feet. For this week’s One Year, Thirty Minute Challenge, we’re again going to survey the environment in which you compete, but this time, it won’t be from 10,000 feet. Instead, we’ll be in the trenches looking at specific competitors, vendors, and distributors with specific actions in mind.
This differs from other challenges where the endgame was evolutionary – changes in the attitudes and actions of leadership, a change in processes, or a change in a specific discipline in the organization. The changes emerging from this challenge can be revolutionary. Executed well, they can return 3x, 5x, or 10x growth. Executed poorly, they can decimate the organization’s reputation and finances. In other words – big risk and big rewards.
Let’s jump in –
- Identify competitors that you admire. They might be local, regional, national, or online. Why do you admire them? Do they have a fanatical customer base that keeps buying and singing their praises while they do it? Do they have robust processes for delivering their products and services? Is their messaging engaging? Do they have a readily recognizable brand? Do they have a uniquely talented staff that is driving their organization ahead?
- With that competitor in mind –
- Can you emulate any of the things you admire? Strategists discuss “absorptive capacity” – the ability to observe the value drivers in a competitor’s product or delivery, internalize them, remake them (taking into account your company’s unique personality), and redeploy them to eradicate the other company’s advantage. Is this a possibility for any of the things you admire in your competitors? Keep in mind, if you do this, it must make economic sense and any imitation must still be consistent with your brand, values, and culture.
- Would it make any sense to pursue a merger or acquisition? You never know what might be going on inside that organization. You might have an owner eager to sell his/her company or one that’s looking to acquire a company like yours. Horizontal integration immediately increases market share (by eliminating a competitor and capturing their customers as your own) and cuts unit costs (by spreading fixed costs over more sales volume). Typically in a merger or acquisition, the new enterprise eliminates redundancy (you don’t need two finance departments, two HR departments, etc), while retaining newly acquired product or service offerings. Be warned however, integrating two organizations is extremely difficult. It must be done well to realize the full financial benefit of the merger or acquisition. Read more about mergers and acquisitions here.
- Would it make any sense to pursue a strategic alliance or joint venture? Collaboration among competitors can make sense when each one has unique products, delivery methodologies, or competencies from which the other could benefit. You can offer your customers additional products or services (originating from the competitor) and still keep them in the fold. Your strategic alliance partner can offer their customers products and services provided by you. Additionally, both of you can learn from the other. Neither party is likely to expose or unfairly leverage newly learned trade secrets since the other party could do likewise in retaliation. Read more about alliances here.
- Are there any suppliers that it might make sense to acquire? Moving upstream in the value creation chain sometimes makes sense. Could you more effectively create value for customers if you had complete control over a particular supplier? Could you benefit from the additional margin now taken by the supplier or could you benefit from prioritizing your own delivery of their product or service? While these are certainly two benefits you could derive from acquiring an upstream supplier, there are plenty of potential downsides to consider –
- Do you have sufficient knowledge to operate in that industry?
- Are you comfortable selling to your competitors? (It’s unlikely that you consume all of the product coming from that supplier. The supplier probably sells to your competitors also.)
- If you were to buy the company, are your competitors OK with buying from you?
- If a new technology emerges that makes the products you purchase from that supplier available at a greatly reduced price, you can easily switch to the new, cheaper supplier. However, if you’ve purchased that current supplier and the new technology emerges, you’re stuck with a company whose customer base is fleeing to the new, cheaper supplier – and, depending on the circumstances, you might be stuck using your own more expensive supply while your competitors cut their cost of goods sold. Plus, you might be stuck with a company whose value is plummeting as their product falls out of favor with the market.
- Are there any distributors that it might make sense to acquire? Moving downstream in the value creation chain can make sense also. It gets you closer to the customer and allows you to capture the margin now going to the downstream distributor. This interaction with downstream parties can help you become more innovative as you more intimately understand problems that you can solve with new products and delivery mechanisms. You might up your “creative destruction” game significantly. You also have the ability to exercise more control over the customer’s experience with your product or service. However, just like moving upstream, moving downstream has some risk. More interaction requires more resources – people, communication infrastructure, and customer facing tech just to name a few.
Many of the One Year, Thirty Minute Challenges have much shorter runways and yield their fruit quickly – even days or weeks. This one is decidedly different. You won’t see the full financial impact of these initiatives for years. Confer with trusted advisors and make haste slowly. If you forge ahead with one or more of these, do it well. Get help if you need to. Stakes are high, screw ups are expensive, but rewards are huge.