Building an effective compete strategy

Building an effective competitive strategy is not an entirely intuitive undertaking, and one which can often yield unsatisfying results if it’s not done well.?There is a wealth of content, in scholarly articles, books, and on the internet, about how to think about competitive strategy.?But, there’s a difference between thinking through an idea, and executing on it.? I'm going to show you how to approach building a compete strategy that you can execute on to expand your share – of a market, for a product, or to gain share against your key competitors.?I'm going to tell you how, and why, you need to be thoughtful and deliberate about your compete strategy.?And I'm going to provide you with a plan to analyze, build, and operationalize compete.?That’s going to help you increase your revenues, improve your relationships with your customers and your channel partners, and as an added benefit, help you to understand your strengths and weaknesses, bring out your creativity, and delight your customers.

What is a Compete Strategy, and Why Do It?

When you say the word “strategy” in a business context, there’s a lot about it that can seem mysterious and unapproachable to average mortals.??A powerful strategy, one which is flexible enough to adjust to rapidly changing market dynamics, rapid product development cycles, and changing customer requirements, is difficult to formulate, and to evolve as conditions change.?Marketing strategy, sales strategy, go-to-market strategy – really, any functional strategy – flows from and supports the overall corporate strategy.?A well thought out approach to competition is an inherent part of all of these, and sometimes can be a standalone undertaking.

“Why compete?” is a bit of an obvious question.?No matter what business you’re in, you’re always competing, whether you’re creating a new business where there are no other established players, or in a thoroughly saturated market, where you are just one of many companies offering solutions to the same or similar business problems.?And sometimes, you’re competing with complacency – customers who are comfortable with their current environment, and don’t see a compelling reason to change or enhance what they’re doing.?An effective competitive strategy is ultimately about shifting the status quo and creating new or increased demand for whatever it is you’re selling.

Compete strategy is a special flavor of go-to-market strategy.?Marketing strategy is about determining who you will go after, and what you will offer them.?GTM strategy is all about how you will make it happen, from the cradle to the grave.?Competing effectively entails identifying a particular set of market dynamics and your position within the market and addresses how you will leverage those dynamics to your advantage to create a more favorable (read: profitable) outcome for your organization.

Like any other GTM strategy, compete touches nearly every function in the organization, from sales and sales operations, to partners, to enablement (for sales, partners, and customers), to press and analyst relations, to legal, finance, engineering, and support.?It’s easy to overlook or ignore the inherent complexity in building an effective competitive strategy, and far too many companies get energized by the idea of competing, without attending to the work that goes into doing it well.?It’s also easy to overdo the complexity, to get so focused on a formula-driven approach, that you miss that competitive strategy is a journey, and a fluid, dynamic, and messy one at that.?Covering the essential elements of a solid competitive strategy without giving market and customer dynamics their due often means missing important threats and opportunities, or creating a strategy that looks great on paper, but fails in practice.

Building a Compete Strategy

As with any strategy, getting started involves a lot of analysis.?

·??????Why are you doing it, and why this instead of something else??

·??????What’s your objective, and how do you define success?

·??????How will you measure success?

·??????What’s your plan if you don’t succeed??How will you know when to pull the plug?

·??????What’s your target market??And, equally importantly, what’s not?

·??????Who’s your target customer, and who’s not?

·??????And, since nothing happens in a vacuum, how will the overall market and your competitors respond?

The first thing to do is to understand where you are.?A useful tool for conducting this analysis at a high level is SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis.

·??????Strengths are internal attributes (of your company, your product, your people, …) that are helpful to achieving your objectives. ?Examples of strengths can be your customer relationships, or your product or service offering, or your highly talented sales force, or your partner ecosystem – in short, things that you control that advantage you in the market.

·??????Conversely, Weaknesses are internal attributes that are harmful to achieving your objectives.?Some examples here could include poor product strategy, inability to deliver to the market as quickly as other vendors, poor customer satisfaction, or limited reach in the market.

·??????Opportunities are attributes external to your company that are helpful to achieving your objectives.?Opportunities can come in many forms, from a fundamental change in the market (for example, downloading music to a mobile device, instead of buying CDs, or buying books online instead of in a bricks and mortar store), to an entirely new market dynamic (like building apps for mobile devices).?

·??????Threats are external attributes that are harmful to achieving your objectives.?Threats, like opportunities, can come in many forms.?A strong startup offering a new approach to solving the business problems that your product or service addresses, a competitor deciding to attack your position, a change in government regulations that impacts your existing product or service (for example, HIPAA or GDPR)…all of these can constitute threats to your existing business model.

Building a SWOT analysis is a good first step, but as noted above, it’s a high-level exercise.?The next level of analysis involves diving deeper on the things you surface in SWOT, and answering the first three questions above:

·??????Why are you doing this, and why this instead of something else??

There are four desired outcomes that can motivate the development of a competitive strategy:

o??Increase Penetration.?You want to sell more of what you sell in an existing market.?This is, generally speaking, the lowest risk driver of compete.

o??Expand Target Market.?You want to sell your existing product or service into a new market.

o??Innovate.?You have a new product or service that you want to sell into your existing market.

o??Aggressive.?You want to sell a new product or service into new markets.?This is the driver that carries the highest risk.

There’s another dimension to overlay on these drivers, and that is whether you are attacking an existing competitor or defending your existing share from a competitor.?Your goal with respect to any of these four drivers will be influenced by whether you’re attacking or defending.

·??????What’s your objective, and how do you define success?

Defining the objective of your competitive strategy should flow naturally from your choice of outcome above and will inform your selection of key performance indicators (KPIs) and metrics.?If you want to increase your penetration in an existing market, the most likely goal is probably related to increased revenues, and KPIs like lead conversion rates and sales velocity can track progress toward the revenue goal.?If you’re seeking to expand into new markets, revenues may be less important in the short term than some metric around market share.

Microsoft had a perennial problem with customers skipping one or more upgrade cycles of Office, seeing no need to consume new versions with each Enterprise Agreement renewal.?As a result, the vast majority of Office customers were running an n-1 or older version.?With Office 365, Microsoft was able to increase penetration of Office to near 100% by changing the licensing model from standalone to cloud-based subscription.?Effectively, they increased their penetration in an existing market by increasing customers’ uptake and usage of the latest versions of Office as delivered through the O365 subscription.[1]

How you define success is a function of the outcome you are trying to drive with your competitive strategy.?If you are trying to increase penetration in an existing market, metrics like revenue growth, market share percentage, or share of customer may be the objectives you want to achieve.?If your desired outcome is to expand your target market, you may have a short- to medium-term goal to gain customers at the expense of increasing revenues.

·??????How will you measure success?

Accurately tracking success is not binary.?In other words, looking at your core metric(s) at the end of some period and deciding if you succeeded or not is a little like closing the barn doors after the horses have left.?Having a well-defined set of key performance indicators is like having GPS – at any point along the journey you can check your progress and see if you’re still headed in the right direction, or have to change your route to get where you’re going.?KPIs are exactly what the name implies – indicators that show you clearly whether you’re on track to your objective.?Start with your objective, and then derive the indicators that will enable you to track progress as you go.

·??????What’s your plan if you don’t succeed??How will you know if you need to pull the plug, and when?

Even with the best laid plans and strategy, you may not reach your objectives.?A well-defined set of KPIs will show you where you’re falling short, and give you opportunities along the way to change your strategy, adjust your goal, or in the worst case, show you that you are unlikely to come close to achieving your goal, and should either set a new goal, or decide to pull the plug altogether.

Setting Targets

Setting targets is not just about defining the end objective of your competitive strategy, but it is also about defining who you’re going after, what things you need to do to get there, and having a clear picture of what gaps you have to fill to reach your objective.?No matter what your objective, you should always be able to tie it to revenues.?You may have a competitive strategy that is intentional about growing share at the short-term expense of revenue growth, for example, to capture 20% of your competitor’s customers, you want to make some investments in incenting customers to move from your competitor to you, or investing in partners to incent them to sell your product to those customers, or provide migration services from your competitor’s product to yours.?There’s no simple, straightforward formula for setting targets…it depends on what you want to accomplish, and what is the most likely strategy for success.

·??????If you know that there are gaps in your product that you can’t build in a timeframe that matches your competitive initiative, are there companies you can partner with to fill those gaps??Are there companies you can acquire who have complementary technology that can fill those gaps?

·??????What customers are you going to pursue??Customers of a certain size??In a particular industry??Are there customers you want to reach who, at least initially, won’t effectively drive the results you’re looking for, but may be targets at a later stage in the initiative, once you’ve proven your strategy in the market with larger “marquee” customer wins?

·??????What market are you going to go after??For example, if the offering you’re bringing to the market is relevant to the manufacturing industry, but not relevant to banking and finance, then you’ll want to set targets that are focused on manufacturing customers, and not waste time targeting industries who have less (or no) need for your offering.

Revenue, Market Share, Growth?

Your success metrics need to be relevant to the outcome you want to drive.?

·??????If your strategy is a penetration strategy, where you want to grow your presence in an existing market with existing products or services, your success metric is likely directly tied to revenue.?If you are generating $100M of revenue in an addressable market that is worth $150M, your metric might be to grow your revenues by 20%, so your success metric would be $120M in total revenue.?Or, you may choose a metric that measures your share of customer.?For example, if you typically have a 60% penetration for your product in your customer set (meaning that, on average, 60% of the employees in your customer companies are using your product), you might set a target to grow that penetration to 80%.?This is not a revenue target, but you can tie your share of customer target to a revenue number, for example, growing your share of customer by 30% might result in a similar growth rate in revenue.?In this case, share of customer could be a KPI for a targeted revenue growth number.

·??????If your strategy is to expand your target market, your metrics may have to do with number of net new customers, with a revenue projection that reflects your target customer growth.

·??????With an innovation strategy, selling a new product or service into an existing customer base, your success metric will be directly tied to increased revenues, with KPIs to measure share of customer with your new offering.

·??????Finally, if you are selling a new product or service into a new market, you may want to focus on net new customers, with a revenue target for the new offering, as well as a revenue growth target to reflect the impact on overall company revenues.

Creativity Matters!

Now that you’ve figured out your approach, done your research, and set your targets, it’s time to operationalize your strategy.?As with any other go-to-market strategy, you have to bring multiple functions of your business to bear.?Will you sell direct, through partners, or both??How will you incent your sellers??How will you price your offering?

When Microsoft wanted to win customers of IBM’s Lotus Notes and Domino product over to Microsoft Exchange Server, and the rest of Microsoft’s collaboration platform, they needed to understand which customers they would target, and how.?So, the company did a year-long exercise to get a clear picture of what those enterprise customers looked like as Microsoft customers.?The vast majority, it turned out, were purchasing Microsoft Office on Select licensing agreements, rather than the more lucrative Enterprise Agreement.?At that same time, Microsoft sellers were being incented to sell more Enterprise Agreements.?It was decided to offer Notes customers better pricing for Office on an Enterprise Agreement and made it part of the deal that those customers would also take Exchange Server, and commit to migrating their email from Notes to Exchange.?An additional part of the strategy was to incent a few of the largest customers in specific industries with investment funds to aid in analysis of their Notes-based application environment, and migration of key applications.?The idea was that if they could win over the top two or three customers in particular industries, other companies in those industries would naturally follow suit.?By sacrificing some profitability on early movers to secure marquee wins (what Microsoft called “Lighthouse” customers), other customers, seeing the leaders in their industry making the move to Microsoft, decided to move without Microsoft needing to invest additional incentive funds.

Creative pricing and targeted investment weren’t the only things that enabled Microsoft’s success.?With any competitive initiative, good press and analyst relations can bolster your chances of success.?Industry analysts can vet your ideas and share research and market insights that may be helpful, and customers often will consult with analysts before making major technology decisions.?And, as with many other things in life, having good press can help you get your message out more easily and more broadly than you can with just good marketing.

Go it alone, or partner up?

In a competitive initiative, unless you are the first mover with a product or service, you are going to be taking share away from someone else.?It’s probably true that just selling your product is not going to be enough to get the shift you’re looking for.?And unless you have people on your team with a thorough technical understanding of your competitor’s product, and enough of them to help all the customers you win to migrate to your solution, you’re going to need partners.?Partners can also help you reach new customers who don’t have a relationship with you but have a trusted relationship with those partners.?So, it’s not enough to know that you need help from partners.?You also need to think through what kinds of partners you’ll need – selling partners, implementation partners, partners who have a thorough understanding of your competitor’s product, and so on.

Finally, don’t overlook the need for help from parts of your organization that you might not think need to be involved.?If you’re going to do special pricing for competitive customers, you’ll need help from your finance department.?And you might also need your legal department to sign off on your plans to ensure that you’re not doing anything as part of your initiative that exposes your company to potential legal action.

Summing It All Up

Building an effective compete strategy is not a simple undertaking, but it is easy to overlook the complexity required to be successful.?Like any go-to-market strategy, competing successfully will involve all parts of your organization, from sales to operations to finance to legal to marketing.?If you do your homework – from analysis to planning to the right partner strategy, to realistic target setting, you will substantially increase your likelihood of achieving your objectives.

[1] Microsoft’s move from selling Office standalone to Office 365 fits most closely to a penetration strategy.?Office 365 did not represent a brand-new product (which would speak to an innovation strategy), but a new licensing and delivery model for an existing product.