If you’re business model is designed to compete in an overcrowded industry or sector, where “innovations” are mostly line extensions to existing products or service, then you’re probably going to hit a plateau or even run out of steam in the not to distant future, if you haven’t already. Unless of course you can easily stand out from the crowd.
In more and more industries, supply is actually overtaking demand causing the inevitable commoditising of products and services and the eventual profit erosion and even downfall of businesses who rely predominantly on “direct competition” for their business.
Sustainable growth will only come when businesses find those spaces where little to no competition exists. Easier said than done.
What’s “new” though is often closer to home than many of us would think.
From a geological perspective new oceans form (rather slowly, and within the space-time continuum in no time at all) when barriers or boundaries break down allowing water to run into new territory. This could be dry land or sometimes it forces land to part and allows two different water fronts to come together.
The same is true about geological business development, where the boundaries of a market are redefined. The first question you might be asking though is all that effort worth the return ?
In a study of 108 business launches by Harvard Business Review, it found that 86% were mainly line extensions, while the other 14% actually created new markets or industries. Line extensions accounted for 62% of revenue, and generated 39% of profits. By contrast, 38% in total revenue was generated where new markets and industries were created and staggeringly they delivered over 61% of total profits.
Looking at it another way;
This is also a classic example of the 80/20 rule in action, where 80% of returns comes from just 20% of effort.
All too often businesses focus on ramping up sales revenue at the expense of profitability, until the business is balanced on a precarious edge where either the banks burst, forcing new rivers to form or they just collapse and eventually dry up.
Business development is like the evolution of our planet where species have survived and thrived where the competition for food has not been great or where one species has an overwhelming advantage over the rest.
Our planets millions of years of evolution was mostly at the hands of significant forces of “nature” and chaos theory. In recent times though the human race has learned to create some order to improve and stabilise living conditions. We have learned a survival strategy which has allowed us to firstly adapt and secondly redefine our environment.
Business development is part strategy, part action and a blend of principles including sales and marketing. Most business strategy over the years has been influenced by the military, from company “officers” to being active on the “front line” and “attacking” the competition head on. This is a limiting strategy and there is usually only one, or maybe a few winners, as Sun Tzu demonstrates in the book “The Art Of War”.
The basic premise of the book is to avoid fighting a head on war in the first place. If a fight is unavoidable, your next move is to make sure that you do not fight the obvious fight, on their terms. Unsurprisingly Sun Tzu was, and still is, thought of as a master of strategy and the book has more to teach than just warfare.
You next question is now what strategy. To define that we must first lose the conventional meaning of competition and look at the reasons that new business eco-systems form.
Whilst many would believe that technology is the defining “force” or “weapon” which causes these markets to form, research from the Harvard Business School presents evidence to the contrary.
In fact across three representative industries new eco-systems were seldom the direct result of technological innovation, as underlying technologies were already present in every case. An obvious example is Henry Fords revolutionary assembly line which can be traced back the meat-packing industry.
Another belief is that established businesses are often disadvantaged (becoming disconnected from the market) and so it takes companies outside the established market to define these new eco systems. Once again research from Harvard Business School showed that many of these new eco systems were created from within established companies.
It’s really about linking technology to what buyers valued.
The key to all this is making the right strategic moves.
As well as creating more value and reducing the companies cost base there is one other significant advantage that both strategic thinking and strategic action in this way can achieve and that is a considerable barrier to entry for other would be imitators.
Companies like eBay, Cirque De Soleil and The Body Shop are classic examples of models that other companies found impossible to imitate because it would have meant a complete U-turn on their core beliefs, in turn invalidating their customers.
Instead of trying to beat the competition and steal a share of existing demand, these companies reconstructed the boundaries of conventional market wisdom, in just the same way that Henry Ford made a more reliable and durable car more cost effectively.
What strategic moves have you made that contributed towards reshaping the boundaries of your market and creating new eco-systems ?