“Faced with economic headwinds, many global corporations are struggling to grow their businesses profitably.
“Meanwhile, many business leaders continue to seek growth by extending their existing product lines and brands, as well as by entering new geographic regions. After all, growth is supposed to be about ‘MORE’ — more products on the shelf, more categories, more brands, and more markets.
“However, this approach is EXACTLY THE OPPOSITE of what business leaders should do to drive increased revenues and profits.”
“Growth through Focus: A Blueprint for Driving Profitable Expansion”
Strategy+Business, August 2010
It may sound strange, but regular CEO Challenge readers will easily agree with authors Sanjay Khosla (Kraft Foods) and Mohanbir Sawhney (Kellogg School of Management). It’s true: In the science of revenue generation, FOCUS & ALIGNMENT are always the answer for consistent, profitable growth.
Yet KNOWING something isn’t the same as DOING it. So let’s make the first steps clear as a bell. Over the months ahead, we’re publishing a series of articles about the most important tool in the “revenue generation” practice bag – THE BELL CURVE.
The Bell Curve
In 1991, Geoffrey Moore reminded the business world about the power of the Bell Curve in his classic “Crossing the Chasm,” and we’ve built on the model to provide clarity on the strategies and tactics companies should use at different points.
The Bell Curve represents the lifecycle and profits of a successful product or service (“offer”). An offer is born on the left and generates minimal profits early in life, but one day it finally experiences a long-awaited growth spurt. High growth rates naturally slow as the offer reaches its full market potential at the top of the curve. Time passes … the offer matures … profits begin to decline ever so slowly, then more rapidly. Finally, the offer dies when it reaches the right.
Depending on the industry, some curves are wider or steeper, but the concept is the same: birth, growth, death.
What does this have to do with focus? Think of the Bell Curve as a bell on a buoy during a foggy night. The bell alerts a sleepy ship’s crew to change course while the buoy guides the captain through the fog to safety.
And there’s another key: It doesn’t matter where you think your offer is on the curve. Only your customers’ opinions count. They’re the ones who are ringing the bell.
Step one: Understand your buyers
To improve your focus, place each of your offers on the Bell Curve. This is much harder than it sounds because you need to take your customers’ point of view about what they’re buying from you, not what you think you’re selling. Do you REALLY know why they buy, what they think and expect, and how long the relationship will continue? Have you honestly asked that question to them or your team lately? Guessing doesn’t count — like the ship’s captain in a foggy channel, you need to know exactly where you are. Reality is unforgiving.
Here’s your mission: Find out what your customers are truly 1) buying and 2) paying you for. Their answers will place your offer on the curve.
On the left, they pay for your brain
When a new offer is born, buyers have never seen one just like it. They may have no clue why they need or want it, and if given one, they probably won’t understand how to extract value from it.
To sell this baby, you’ll need to really hunt for prospects who are highly likely to need it. They ALSO need to be willing to invest time and money to explore something new and daring. That means they’ll need a VERY LARGE upside (personally and for their company) from your offer.
Your fates are now intertwined: this young, inexperienced offer must deliver tremendous value, so you need to partner with customers, guide implementation and ensure your mutual success. In the process, you’ll also discover and resolve problems with your offer that could hamper your expansion.
This partnering requires a lot of time on both sides, and good buyers will make sure you stick around to deliver the upside. So if your offer doesn’t carry a premium price tag, a good buyer will think 1) your brainpower isn’t worth much, 2) you have no motivation to make sure the offer succeeds, and 3) the promise of huge upside can’t possibly be true. Good buyers – the ones that you’re most likely to succeed with – will understand why you’re expensive. In fact, they WANT you to be expensive because they NEED and VALUE you.
That’s why these customers are 1) buying your offer and 2) paying for your brain. On its own, the offer isn’t viable. It’s your brain that delivers the value and success.
On the right, they pay for “stuff”
On the other side of the bell, buyers believe they know everything they need to know about your offer — in fact, they frequently think they know more about it than you do. After all, your offer is a commodity and it’s in decline. Don’t bother trying to sell your brain – they will only buy and pay for your stuff.
In the middle, it’s a mix
Then there’s the happy medium. At the top of the Bell Curve, buyers have some knowledge about the business and/or technical elements of your offer, but they also need some of your brain to maximize its value. Buyers can clearly state a problem, but they need your help with the solution. At this stage, you can win customers by using your stuff, your brain, AND the buyer’s brain to create a solution to the buyer’s problem.
Once you understand what your buyers are truly buying, you can place those offers into one of five “tracks” on the Bell Curve. Each track represents the strategy, structure and executional plan you’ll need to drive profitable revenue through that lifecycle stage.
So where’s your company?
Your company probably has offers at different points on the curve, and now you can envision how different the strategies, structure and execution must be to support those various offers.
Here’s where the concept of focus comes in: Where would you put the essence of your COMPANY on the Bell Curve?
> Are you a company that sells stuff (Commodity Track)? Stuff has low margins but makes up for it with high volume, straightforward transactions. Customers who buy stuff care about product and price, so you have a big marketing and promotions budget to reach this audience. You may sell through retail, distributors, channels, the web, call centers. And since you’re competing on price, this track requires excellent tactical, operational organizations that can tightly control costs.
> If your company brings your products and brains to solve problems alongside your customers, you’re in the middle of the curve (Solution Track). Your customers and competitors understand the problems to be solved, so the market is competitive. Yet with a market this large, there’s a lot of business to go around, so margins are good. Your revenue comes from direct selling and some channel effort supported by solid marketing initiatives. To win in this track, you need to be very good at 1) your skill area and 2) working collaboratively with your prospects/customers.
> Now let’s say you and your employees get up every morning and think about how your offer changes the status quo (Proactive Partnering Track). There isn’t a recognized market for your offers, but you suspect a very large opportunity to create huge upside for customers who have major problems. You also have to find buyers who seek out new ideas, will shoulder the risk without worrying about your short track record, and are willing (almost eager) to pay through the nose, so you’d better be proactively selling your brain. At this stage you have to be good at doing everything simultaneously – developing your market, message, niche, brand and offers – and hope you’ll create a predictable revenue stream from some of it.
Remember: Growth through Focus!
Now you can really start to focus. Your Bell Curve location drives your value proposition, go-to-market approach, customer profile, pricing model, core competencies, competitive strategy, cost structure, messaging and much more. It also highlights which offers are closely aligned with the company’s spot on the curve and could represent the greatest potential for sustainable, profitable growth.
***COMING SOON TO THE CEO CHALLENGE***
In the months ahead, we’ll explore how to use the clarity of the Bell Curve to develop your strategies, invest in the right structures, and successfully execute your strategies in the right markets.
Since there’s a lot to talk about, we’re expanding our publishing schedule. Soon you’ll see periodic “2 minute drills” that focus on one key idea (and perhaps huge ROI on your time!). They’ll be catalogued here on our site so you can review them any time.
To encourage conversation, you’ll notice subtle changes in our blog, too. Now you can comment on posts through Facebook and submit questions privately through the question page. We’re also going to publish occasional guest posts by colleagues who share our passion for the science of revenue generation.
What do you think? Please share your thoughts and experiences with us here!