How (this) is your key out of the commodity trap
Family businesses often find themselves very fragmented in what they do and unclear whom they do it for. Trying to be too much for too many leads to mediocre results at best and can spiral into the commodity trap.
If you do not define a specialty and/or narrow your audience (down from everyone) your service or product will be seen as a commodity and your company will struggle to grow. See those “Valleys of Death” between growth points? This is the place where good companies get stuck if they lack the key to differentiate themselves.
What is the culprit that leads so many companies into the commodity trap and these “valleys of death”? No strategy!
Strategy is the key to sustainable business growth and value. Yet too often strategy lives in the owner’s head. Or it is scattered throughout the company, like puzzle pieces, written on sticky notes and napkins stashed in different desk drawers. I’ve also encountered strategic plans that were the size of a novel – so big that no one will ever take the time to read it, much less implement.
No plan means no alignment and no focus. Just frustration.
How to know if you have a poorly defined strategy (or the sheer absence of one):
1. The business has not defined its core customer. A core customer, as defined by Bob Blume in his book, The Inside Advantage, is that customer most likely to buy your product or service in the quantity required for optimal profit. Bloom further notes that this is a REAL person with wants, fears, and desires – AND they currently exist IN your database. If there are not there, you have work to do.
2. The business has different market segments, but only one customer demographic. A business can have multiple market segments but those segments rarely have the same customer. Different segments mean a different conversation. Think about cars… BMW owns Mini Cooper and Rolls Royce, but the buyer of a BMW is not the same person as the buyer of a Mini or a Rolls. This doesn’t make one better than another, just different. If you created multiple market segments, take the time to create the strategy that will deliver to each audience as well.
3. The business has no unique position. Michael Porter, Harvard Business School, states, “Strategy is the creation of a unique and valuable position that includes a different set of activities from competitors.” If you don’t figure this out and execute on your unique and valuable position, then you give your customers only one criterion from which to choose you – PRICE. Competing on price is the epitome of the commodity trap. It’s a vicious cycle of “you lower your price, I’ll lower mine”. When that slippery slope appears the game is over! It’s only a matter of time until your profit margins erode to the point that you can’t cover costs.
4. You haven’t evaluated your services/products on a regular basis. I have witnessed teams describe all their services as contributing equally to the companies revenue. Then under further scrutiny, we discover that not all services are created equal, with some no longer aligned to the core business. The hardest part about strategy isn’t figuring out what to do, but rather what NOT to do.
5. Your team is struggling to meet goals. A lack of strategy will also lead to a very frustrated workforce because no one really understands what the company is focused on. Without a clear plan, there is no way to define their roles, performance metrics and hold them accountable. All this confusion and chaos will ultimately find its way to the bottom line and profitability takes a beating.
Getting it right. Strategy does not need to be complicated. In fact, if it is perceived as complicated, then it’s probably wrong. Using a 1-Page Strategic Plan is an excellent framework for creating clarity, accountability, and execution because it forces you and your team to be concise and intentional.
So get your leadership team together, get a facilitator to help guide the process and hammer out your 1-Page Plan! This exercise will bring the team closer together, give you the roadmap to grow your business profitably and help the company avoid the commodity trap.
Need help getting started? Reach out to me.
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Tom Garrity is managing partner at Compass Point Consulting, based in Bethlehem, PA, a business consulting firm specializing in family-owned companies, primarily in the manufacturing, construction & professional service industries. Compass Point provides hands-on consulting & coaching to help businesses close performance gaps; give owners practical, actionable tools that drive growth; deliver training to develop leaders and position the business for successful ownership transition - all on their terms.
Learn more at: https://www.compasspt.com