Too many people treat defining what their business does as an afterthought far too often. This problem often has its roots in the history of a business early in its start up. Many people choose to define themselves based on the customer base they first pursue or the product they first make, instead of on their company’s capabilities. Although in good times this does not result in a major problem, when the economy goes down the results can be disastrous to your future. The reality is that even in good times, miss defining your business will severely limit its growth potential.
This occurs for two very different reasons. When you focus strictly on a product or customer definition for your business, you stop looking at alternate uses for your business’s resources. Additionally how you define your company ends up becoming common public knowledge very quickly. Potential customers see how you defined yourself, and assume that you would not be interested in doing business with them, and since there is a vast sea of potential suppliers why would they even waste their valuable time contacting you.
Because human nature is to align itself with what you decide to achieve the narrow customer or product definition, results in your efforts being entirely focused on just those customers or products you define yourself on. Your people will not see any value or put in any effort, in trying to find alternate customers or products, because it does not align with what the company’s goals are.
In good times it is often hard to see how this limits your growth, because you are doing well. Most likely you are gaining volume over time and winning additional business. But despite that your additional business may not be quite as profitable as it could be. Why? To understand why, you need to realize that your business has only a given amount of resources at its disposal. Then by holding to a narrower market, you further limit your options to put those resources to use.
An Example
Let’s look at two extreme examples, which are based on two real businesses I knew well. Although they are both contractors, the same situation occurs in every industry.
Company A is totally focused on serving one customer X, while Company B focuses entirely on their capability. During their first few years A and B served the exact same customer bidding for the same jobs against each other and numerous other competitors. Because both companies where well managed and had highly skilled employees they won more than enough work to keep them busy from that one customer. Company B spent time and effort trying to find additional work with other customers, while A just focused on their prime customer X. So during those first few years A’s owner was happily making slightly more than B’s owner.
Then things started to change, B started getting work from other sources in other industries. Additionally customer X was experiencing a slight market decline, so business was down, and fewer jobs where being handed out. This resulted in lower bids coming in for the work that remained with this customer. A had room to tighten their belts, and did just that so they took a larger share of customer X’s business than ever before. B instead decided not to cut their bids, so they often lost out on some of the contracts, they would have won before, however their reason for not cutting their bids was simple, they had other work that was paying better than what the work for customer X paid. They only had the ability to handle so much work, so they decided to take the work that made the most money.
A few years later the bottom drop out of the industry in which customer X was in, bids on contracts became increasing competitive, A found that some of the newer competitors which were smaller could now easily undercut their bids. B stopped bidding on work with X because of what they felt was mindless low bidding by competitors focused on serving X, they had all the work they could handle serving an increasing variety of other customers. Surprisingly X occasionally came to B to perform certain jobs, without having to bid, because X felt they were the only contractor capable of doing the work. A was stuck watching their business model collapse. By the time they tried finding other customers their company had already lost several key employees, which limited their capability even more, most of the work they managed to get from new customers was the least profitable work being offered. At the same time B was constantly getting better work, often without having to bid, because their major customers trusted B’s ability to perform, critical jobs.
Another of B’s advantages was their network of satisfied customers recommending them to other businesses; a mere 10 years after starting their business, 90% of their new customers came to them. It is very common that business managers talk to each other, the wider your range of contacts the more contacts you get.
The Tip
Take the time to redevelop your company’s definition, vision and description to one based on your capabilities. If you are already capability focused, take a look to see if your capabilities have changed, or if you can better state them to potential customers, to help drive more growth.
Look at how your company presents that information about it on your website, in your sales materials, in your directory listings, and in your financial reports. The internet has made information instantly accessible; buyers can search for potential suppliers with greater ease than ever before, so even if they are across the street from you they will not bother to ask you if you are interested if everything they see about you says you are not. If that potential customer does not know even know you exist, do you think they will care if they do not find you?.
If you do not have a website get one, anyone who is anyone has one, is the new assumption, by not having one you are screaming at potential customers you do not want to do business with them. Make sure that website clearly tells potential customers what you are capable of, and be honest, exaggeration will backfire.
Once you reposition yourself, use Lean Tools to help free up resources to take advantage of the new opportunities you develop. For help learning how, contact ELSE Inc.
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