Growing the Smart (and Fun) Way

growth

Over the holidays, I read Jim Collins’ Good to Great for the first time.  Although it is on most business professionals’ “must read” lists, and it had been on mine for a couple of years now, it wasn’t until this past December that I decided it was time!

We’ve read numerous reports in recent months that say growth is the top priority for CEOs in 2016.  Yet, for many of our clients and prospects, the path to growth frequently looks different based on where you are in the organization.  For any organization, however, it should come down to customers, and developing good fit, loyal customer relationships.

One of the concepts central to Collins’ book is “The Hedgehog Concept.” He describes a famous Greek parable that includes hedgehogs and foxes.  The fox tries many different ways to snare the hedgehog, but each and every time the hedgehog rolls up in the same way to protect itself.  In business, the fox is an undisciplined, scattered strategy that leads the company in various directions (many of which waste resource and result in no growth), whereas the hedgehog is a single, organized strategy that guides the business and its growth.

We see “fox”-like tendencies in our current and prospective client organizations. Here are a few examples we have observed:

  • Spending significant amounts of employee time responding to “bad fit” customers. These customers likely have needs that your business model is unable to deliver on, which results in higher rates of problems, questions, and issues. This means your service and support teams are spending more time “putting out fires” than they are consulting with your best customers on what more you could be doing for them.
  • Developing products, resources, and services as they are requested (many times, one-off requests), without understanding the size of the market those assets could serve and if they would actually be valued (customers say they are important and would be nice to have, but ultimately they would not pay the price that you would demand).
  • Executing acquisition and retention pricing strategies that lead to high rates of churn, including introductory price structures that are out of line with the market, discounted rates to keep customers from defecting, and “all inclusive” marketing of services that in reality becomes “nickel and dime” pricing.

Instead, “hedgehog”-like tendencies in client organizations include:

  • Learning the needs and expectations of your “great fit” customers and using them to your advantage.
    • “Great fit” does not necessarily mean loyal – you can have (and undoubtedly do have) great fit customers whose needs you simply don’t deliver on consistently due to operational inefficiencies, production challenges, and/or staffing issues.
    • Yet these are the areas that if improved, would give your organization the greatest return on investment.
    • By focusing on those aspects which have the most impact on customer relationships, weaker relationships get stronger, and stronger relationships typically mean higher revenue, higher margins, and more referrals.
  • Identifying the products, resources, and services that can set your organization apart from your competitors and maximize the value of those select assets for your customer base.
    • While it is important to have a consultative relationship with your customers and drive innovation, there is a fine line between responding to requests and ending up in a trap of trying to “be all things to all customers.”
    • As Collins goes on to say about the Hedgehog Concept, “great” companies identify what they can be the best in the world at, and everything those companies do must directly relate to that simple, singular vision.
  • Understanding customer perceptions of value by comparing the quality of the products, services, and resources offered to the price being paid to receive them.
    • Our Overall Value benchmark evaluation for healthy organizations is 50% of customers describing as “Excellent” or “Very good.” That means that the other 50% describe the Value as “Good,” “Fair,” or “Poor.”
    • When Value ratings near 70% or even 80% “Excellent/Very good,” our experience tells us that customers see the products, resources, and services as cheap, comparatively speaking. In these instances, price increases would be warranted.
    • When Value ratings fall to the 20-30% “Excellent/Very good” range, we see product, resource, and service quality that is out of line either with the company’s pricing model or the competition. Nevertheless, we frequently say that in these situations, price reductions will not camouflage or resolve what are likely the same operational inefficiencies, production challenges, and/or staffing issues described earlier.
    • In other situations, organizations add components to their products, resources, or resources that add cost to the equation, but do not enhance the value to the customer. They could be executing superbly, just not with a package that is valued sufficiently to pay the higher price.

In addition to “great” companies identifying and leveraging what they can be best in the world at, Collins also lists two other factors that were common in the “great companies”:

  1. They are passionate about that one thing.
  2. They are economically successful doing that one thing (however the “economics” are defined).

In the “fox” examples provided above, you can imagine the stress and anxiety that comes with scratching and clawing, trying to make “bad fit” customers happy, constantly responding to one-off requests, and feeling that lowering your price is the only way to retain a customer.

The opposite is true in the “hedgehog” examples.  Rather than stress and anxiety, you have thrill, excitement, and motivation in sharing your story with new prospects and engaging with those “great fit” customers, spending your time doing (or selling) the things you are best at, and getting paid a fair price to do it.

We would all be quick to say that while 25%, 50%, even 100% growth is logical and attainable, there would be far different strategies and tactics for achieving the more aspirational targets.  The end result has to be a strategy and set of tactics that allow us, and you, to grow the smart (and fun) way.

Posted in Blog, Insights, LRC Blog.