I love niche businesses. Companies pursuing a niche strategy serve narrow target markets with a product or service uniquely designed for that market. Most start-ups are niche businesses, like Exact Sciences. It brought one noninvasive cancer test (for colon cancer) to the market. The company disrupted the invasive colonoscopy market and opened testing to younger patients and those reticent to have a colonoscopy. The only problem with a niche strategy is that there’s no guarantee today’s non-competitors will stay in their swim lanes. If they move into yours, you may not be able to defend your market position. Let’s look at some examples. The New York Times’ coverage of Amazon’s cloud computing business, A.W.S. (for Amazon Web Services) offers one case study. A.W.S. now packages software as part of its web-hosting offering. A.W.S. users find it easier to get their software needs…
Disruption is great, but make sure you answer five key questions correctly before investing.
2019 is the first year in a long time when IPOs are generating lower returns than existing stocks. Has the era of disruption come to an end? Not for a minute, if you ask me. Finding ways to disrupt a market to deliver more value to a group of customers will always be at the heart of strategic, market, and economic success. The renowned economist Schumpeter taught us this fact decades ago. The generation of wealth since WWII in free markets versus planned markets was proof of his thesis. So, of course, the market loves disruption and awards start-ups, some with “Unicorn” (i.e., > one billion dollars) valuations. But some disruptions are duds. WeWork, the shared office space company, is one example. WeWork recently withdrew its IPO as potential investors raised questions about its underlying financials. Others are not all they are hyped…
When your Cadillac is no longer a cadillac brand: 5 lessons for fixing a failing brand
Cadillac was once so strong as a brand that it became an adjective for best-in-class. Today it has a brand problem. Too many of its drivers are old and will soon age out of the car-buying market. Over recent decades, German brands have trumped Cadillac on prestige in the traditional engine market, and Tesla is winning the electric market. (Audi is fast following into electric cars.) Cadillac tried a reboot in the past, through advertising and moving the headquarters to Soho, NYC. However, that did little in an age of transparency when actions define a brand, not spin. The top-of-the-line GM brand began a more genuine reboot in 2018 when it moved headquarters back to its roots, Detroit, and appointed a veteran engineer as president of the brand. The brand is building for the long term, according to a recent NYT article, but let…
Customer-centricity may lead you astray
Fed Ex recently dropped Amazon, the #1 e-commerce retailer, as a customer. Shocking, perhaps. Foolish? Not in the least bit. An era of “customer-centricity,” “customer experience,” and, “the customer can do no wrong” has led many leadership teams astray. They have forgotten that not all customers matter and some customers are not even worth keeping. FedEx’s move to drop Amazon was smart for several reasons. First, it was dropping a customer who likely demanded extra attention for under-market margins. Second, Amazon is investing to become independent of FedEx. Third, the move placed some stones in Amazon’s path forward. Finally, the step allows … or maybe forces … Fed Ex to focus on serving other e-commerce companies better to replace the lost revenue. Since Amazon’s business represented less than 2% of Fed Ex’s revenue, exiting Amazon was not that painful. But the move would…
Where Facebook took the wrong turn
Every organization has what I call a strategic customer. It’s the target market that, if lost, creates peril for the business. For an advertising agency, it’s the businesses that consider the agency their agency-of-record, as these customers cover fixed costs. Many companies, like Amazon, have dual-sided business models: it has two customer groups, buyers of products from its platform and suppliers of those products. Is one more strategic? At Amazon’s start, providers of products and services ranked higher. Why? If publishers and authors had refused to sell their books through Amazon, we’d still enjoy visiting Borders stores. Over time, as Amazon became a required channel for most manufacturers, the company wisely changed its strategic customer to the consumer. Local stores, Prime, same-day delivery, Alexa, and other solutions to better serve us are proof points of the strategic shift. Facebook, like Amazon, has a…
Lessons from a retail chain winner and loser
It was the best of times for Best Buy and the worst of times for Toys “R” Us in the news this week. Years ago, analysts expected Best Buy to go the way of Borders, a bookseller disrupted by Amazon’s online magic. Instead, Best Buy has held up well against Amazon. It not only avoided the fate of electronics chains that did go bankrupt (e.g., Radio Shack and Circuit City) it’s a stock we all should have purchased. Toys “R” Us, on the other hand, announced its bankruptcy this week. Economists love natural experiments, and the Best Buy versus Toys “R” Us comparison offers one for retail markets. Why did Best Buy succeed where Toys “R” Us failed? What lessons can we glean? The key takeaway: You cannot beat Amazon at its own retail game. You must win at a different game. Toys…
How to Expand Without Exploding
“Brands Expand Into New Niches With Care, but Not Without Risk,” a recent NYT article, was full compelling brand extension stories. It also contained examples in which I found myself saying, “What were they thinking?” Here are some examples from the article of both ends of the spectrum. The tagline of British luxury sports car brand Aston Martin (if you have to ask the price, you cannot afford it) is “The Art of Living.” Its recent extension into exclusive Miami Beach condos makes sense, following the tracks of its luxury speedboats, menswear, and jewelry. Aston Martin is selling exclusivity. Appreciate its designers, and you will enjoy Aston Martin’s world. Harley Davidson did the same thing, extending into clothing, home furnishings, and experiences, albeit for a different target market. But as to lighter fluid manufacturer Zippo moving into women’s fragrances, what were they thinking?…
The steep costs of misperceptions
The breakthrough financial success of the new Wonder Woman film contains an important lesson. For years, women super-heroes were outside the scope of movie producers’ considerations. Why? A 2004 film, Catwoman, also starring a female superhero, had failed to achieve its commercial aims. An assumption – female superheroes do not fill seats – became a belief that shaped future investment decisions. No river is ever the same at any one point on the shore. The analogy holds true in the business world. An idea that failed in the past does not necessarily mean the idea has no merit today. And winning ideas that won in the past may lead, today, to your business’ disruption. Beliefs born from assumptions are shortcuts that make our world faster to navigate. Brushing our teeth is good for our health and social life. But beliefs can shrink our…
What do Whole Foods, Netflix, and oxygen monitors have in common?
Whole Foods Market, once the darling of the grocery industry, is facing a whole lot of problems. Poor shareholder performance threatens founder and CEO John Mackey’s position. New directors have been added to deter activist investors and improve relationships with major institutional investors. Some argue that for all its previous success, Whole Foods has not mastered Retail 101 and that is why it is failing. Perhaps – no retailer gets away with poor service and unnecessarily high prices these days. From my perch, however, the core issue facing Whole Foods is its business model. Organic and healthy was once a unique niche within the grocery industry, warranting a separate store. Now, fresh and organic are mainstream. Niches are alcoves — protected places. They exist in our natural world. In our economy, they’re specialized markets. By serving a narrower target market (Four Seasons versus…
Be prepared for transformative change as the Next Revolution in Information Technology spreads
Mark McDonald, a year-after-year favorite WTN Fusion speaker, created a compelling case for Information Technology’s next revolution at the recent Fusion 2017 conference. Mainframe computers, the first innovation, made Information Technology (IT) a specialty that enabled organizations to scale their operations. Client Servers, the next innovation, and the software they deployed allowed processes to be dramatically improved and automated – think ERP systems, on-line purchasing, and Human Resource systems. Next came mobile computing and the digital transformation of businesses that greatly enhanced customer experience. All of these stages were ones of mechanization, with hardware and software replacing previously manual activities. The next wave of IT-related change brings widespread adoption of Artificial Intelligence (AI), transforming IT’s focus from managing processes and experiences to managing outcomes. Large database tools, cloud computing, machine learning, interpreting text, and affordable storage and computational power have collectively moved AI…