Be Number 1, Or Number 2, Or Perish

Following on from my post yesterday …

John Keating of Com Dev noted that any plan for success must involve being number one or two in your particular market niche. We’ve all seen business plans that say the market is $10B and we’re going to ensure we get at least 5% of that market. A sure recipe for failure! If you’re bit player in a market, eventually you will annoy your much larger rivals, and they’ll squeeze you out. They’ll have far more sales over which to amortize their overhead, and much deeper pockets to withstand any temporary price squeeze.

It’s simple economics.

This meshes nicely with Blue Ocean Strategies, which I’ve blogged on before. The Blue Ocean theory calls upon companies to adjust their resource allocation as a method of differentiation. Many companies increase spending in a particular area – delivery time guarantees perhaps – but do not generate corresponding savings elsewhere. Thus, they drive up their cost structure.

The Blue Ocean approach emphasizes the need to reduce expenses in areas that do not differentiate you from others in your overall industry. Indeed, you may be dedicating resources to aspects of your product or service that matter very little to your customers.

In our business, a prime example is customer service versus selling services and products. If we dedicate more resources to service, we will increase sales via retention, referrals, more frequent customer interactions, etc. If we dedicate more resources to selling, customer service will lag, and we’ll likely have to dedicate even MORE resources to selling. The point is, you have to find the right balance.

In a Blue Ocean, in a true Blue Ocean Strategy approach, there is no other competition. You’re out there on your own. (Of course, we’ve also all seen business plans that ridiculously assert that the business has no competition, but that’s another story, another post …)