Each Monday I post the next section of my 2001 book, which was originally called (by the publisher) Hoover’s Vision but which I have now retitled The Art of Enterprise. I have posted over half of it already; click on the “Monday” column to see all the prior sections. The entire book can be downloaded as a PDF for $10 at http://www.scribd.com/doc/25085990/The-Art-of-Enterprise-by-Gary-Hoover-January-2010
While I often speak with startup or early stage entrepreneurs, I even more often consult for and speak to more established businesses and non-profit organizations. Many times they do not have a clear vision, or their old one is inadequate. In addition to the basics of clarity, consistency, service, and the ever-evasive uniqueness, here are two ideas that may be helpful: (1) Streamlining and (2) Redefining and Subdividing.
Perhaps the most common challenge in today’s enterprises is their effort to do too much. Clarity of vision is tantamount to simplicity of vision. Great enterprises usually do one thing, and do it very, very well. Over and over again. But as companies are driven to grow by managers and stockholders, they sometimes grow into strange dimensions, losing focus. Ask yourself and your organization these questions:
Ø How many key priorities are on your to-do list? (I mean things like open stores and offices or introduce products, not pick up the bread!)
Ø What structural changes could we make in the organization to reduce this list? (Should we be selling operations rather than looking for acquisitions?).
Ø What do we do well?
Ø What are we known for?
Ø What does that mean we don’t do as well, or what we aren’t known for?
Ø Is our heart fully into every task on our organizational to-do list?
Ø How much time do we spend in meetings?
Ø In working on deals?
Ø How could we reorganize to reduce these activities and increase time spent with customers or serving customers?
Ø Have we really milked our basic business in every possible way before heading off into new directions?
Ø What share of our energy goes into our basic business?
Ø How sad would we all be if we lost our market position in that basic business?
I was speaking to entrepreneurs in Asia, where almost every company is in at least a dozen industries. While this might not be the crowd to respond to my message of “focus pays off,” I told them, “if you have 10 businesses, try to get it down to 8; if you have 8, aim for 5. Any step toward simplicity is worth taking.” Always seek opportunities to streamline your enterprise.
Redefining and Subdividing
Step with me back to the mid-60s. Look at two industries. Start with retailing in midtown Manhattan, then (as now) the highest volume retail district on earth. The industry was led by a number of middle-market department stores: Gimbel’s, Altman’s, Ohrbach’s, Saks 34th Street, Macy’s, and Stern’s. Or look at the computer business, where the list of largest competitors included RCA, GE, Honeywell, Burroughs, NCR, Control Data, Sperry Rand, and IBM. Like the department stores, all of these companies competed for the same market – they targeted dead center in a huge and growing market.
Now step forward to today. In both cases, retailing in Manhattan and computer sales, the business has grown dramatically. But, in each case, only one or two of the old “everything for everybody” companies is still in the business. And those are usually the companies (Macy’s and IBM) that started out being the largest. This pattern could be found in many other industries. Number one and sometimes number two have survived. But fate has not been kind to #3, #4, #5, and #6. The question is, “if this industry grew so much, why did most of the companies fail?”
From a strategic viewpoint, we find that the surviving companies, including new companies that came along and took market share (Barnes & Noble, Gap Stores, Sephora, Amazon, Dell, Hewlett-Packard), followed “redefining and subdividing” strategies. They either picked niches or they developed different technologies, including distribution technologies (such as Dell’s direct sales and Amazon’s Internet usage). In fact we can make the case that the growth of the industry in itself allowed for this finer fragmentation and specialization in the industry, reducing the relative appeal of mainstream, dead-center products and services. If I now have the option of buying 100 small computers instead of just one big computer, if I can now shop for books at B&N, Borders and Amazon, then the mainframe makers and the department stores lose share. Market growth gives rise to opportunity to boutiques, boutiques provide alternatives to mainstream producers, and mainstream producers do not get the lions share of the growth as customers move outward from the center.
Some of the ways in which competitors move away from center include:
Ø Changing the cost structure, in conjunction with the pricing structure (Wal-Mart, Dell lowered their prices but also their rent and distribution costs).
Ø Changing the service and price structure (Saks Fifth Avenue, Lexus spent more and charged more).
Ø Pioneering or adopting new technologies (the superstore, Amazon).
Ø New attitudes (Apple, Nike).
Ø Specialization (Home Depot, Best Buy, Jeep). Finding “niches,” some of which are enormous, is perhaps the main form of subdividing.
Many times the redefining involves revisiting the entire economic process, from producer to consumer. Let’s use a forward-looking example. Perhaps today’s bookstores should consider themselves not as booksellers, but as merchants of entertainment (novels and stories) and information (nonfiction). Customers may move away from paper-and-ink books toward new technologies like downloadable books (which they are likely to do in some categories while not in others). If so, the bookstores may better weather the changes if they redefine their industry and themselves. If you came in wanting a story, the bookseller-turned-storyseller might say, “we have old rare first editions, we have a library, we have new books for sale, we have books on floppy disk, we have fiction on audio cassette, and we have videos for rent.” Some bookstores could choose the entertainment business while others chose the information business, rather than trying to be all things to all people (department stores of books). I believe the demand for entertainment and information will grow dramatically in coming years. But companies like booksellers and book publishers may have to become “format agnostic” in order to maximize the opportunity. At the same time, their focus may be most laser-like if they limit their scope to a narrower piece of the pie than “everything for everyone.”
If your business is struggling to see a clear future, take a look at the way you define your industry and the way you define your role within it. Look at what customers really want, and what they are likely to want in the future. Along such paths great opportunities often lie. Now lets turn to the industries and companies around us, and think about what to look for when we observe those companies. Maybe we will find some opportunities there as well.