This amazingly simple formula drives virtually every successful
business. Unfortunately, many entrepreneurs and investors lose sight of
these basic principles.
Success in business, especially in growing businesses, does not
require an ingeniously complex solution. Often, success comes from
mastering the basic fundamentals.
In short, success is about addressing a customer need better than you
or your competitors currently address it. In many cases, the "new and
improved" solution is surprisingly incremental, rather than
revolutionary. Examples abound:
Google, one of the most valuable companies in the world, began as a slightly better search engine.
The Toyota Camry was the best-selling car in America for many years
because it had better gas mileage, was fun to drive, didn't break down,
and was less expensive than other sedans.
Oprah Winfrey dominated daytime TV by tapping into topics for women
in more interesting ways than Phil Donahue and others had done for
years.
Starbucks reinvented the concept of the coffee shop-something that
had been around for generations-by consistently serving good coffee in a
pleasant environment.
As we analyze the drivers of success in these and virtually all other
entrepreneurial successes, we find that there is an extremely basic,
and in hindsight, glaringly obvious, four-step formula common to each.
1. Develop an understanding of customer value.
What's the value equation from the customer perspective? This is
defined, most simply, as benefit minus cost. Many businesses and
entrepreneurs simply don't understand what would make a customer happier
or better off. Often they are trying to fit their product to the
customer rather than identify what product would fit the customer
2. Create a better product or solution for a specific customer.
Because each customer is different, identifying the specific customer
or segment you are targeting is critical. Attempting to be all things
to all people typically results in an indistinct product that benefits
no one.
3. Determine how to scale the product from one customer to many customers.
Once you've mastered the value equation for one customer, you can
focus on finding many customers that think and act alike. Most
management teams try to scale the business before they've created a
valuable product with one customer. It's similar to launching a rocket
to the moon without mastering the aerodynamics. It might have the power
to get there, but it's not going to make it.
4. Develop a business model that allows you to build scale while generating incremental return on Investment.
In the end, you'll need to build a business case for investing
capital to grow the business. If the customer value equation is still in
flux, no amount of growth capital will fix the problem. We like Alex
Osterwalder's business model canvas
as a template for building a solid business model. But, it's important
to calculate how the investment will create a return on capital.
Of course, execution is everything. If business success was as easy
as following a few steps, everyone would be a mega-billionaire. But it's
surprising how many competent entrepreneurs, corporations, and even
experienced strategists develop business models that omit one or more of
these basic steps.
No comments:
Post a Comment