David Molian, a Visiting Fellow at Cranfield School of Management, takes another look at building value in your business.
When I served as Director of the Business Growth Programme at Cranfield, I was asked occasionally by colleagues how I would describe the job. My standard reply was “Chief Herder of Cats”, on the grounds that that was what I seemed to spend an awful lot of my time doing.
I meant no disrespect to my customers. Something I’ve always admired about cats is their fierce independence and reluctance to compromise except on their own terms. Any cat owner will know at once what I mean. These qualities are what attract many people to own cats, but they do have a downside. Marshalling a moggy to get it to do what you want, often in the creature’s best interests, is an exasperating task, requiring much patience and no small amount of guile.
One of my main tasks as Chief Herder of Cats was to convince business founders of the merits of sticking to the knitting. All our research confirmed that most ambitious businesses, most of the time, grow by finding a niche in their market and consolidating their position in that niche. In simple terms, they succeed by selling more of what they’re good at to their existing customers and to others like them.
Put like this, it sounds deceptively simple. In fact, following this strategy requires considerable discipline and focus, and the ability to resist the constant temptations of distraction. Entrepreneurs tend to be instinctively curious and alert to opportunity, which is why they are in business for themselves in the first place. The grass in the other field always seems to be greener and the world presents an endless stream of bright shiny objects to divert their attention. But here are four good reasons why these temptations should be resisted:
Diversification, especially too early in a business’s life, is inherently risky. The danger is that you can’t effectively and profitably provide your new customers with products and services you don’t fully understand, and by taking your eye off the ball you neglect your existing customers. You lose both ways. If you’re in a declining business in a sunset industry, maybe there’s a case for seeking pastures new. But in my experience, these are exceptions, not the rule.
Managing a business needs constant attention. Unless you’re very lucky, nothing goes exactly according to plan and the unexpected happens. If your attention and energies are otherwise engaged, you have limited capacity to respond.
It takes time to figure out your sustainable place in the market, and develop a value proposition. Research suggests it’s around seven years of trading before a typical business really understands where it sits in the ecosystem of customers and suppliers. It was four years before Pret à Manger opened their second outlet, and the business that is today Hotel Chocolat started life as the Mint Marketing Company. High-profile media coverage of fast-growth tech firms conveys a misleading impression. Very few owner-managed businesses that grow conform to this model. Most are in unglamorous, everyday walks of life. One of the most impressive businesses I’ve encountered supplies plumbing equipment to the trade and delivers high-teen net margins year in, year out. It’s a west midlands metal-basher, and a very good one.
Finally, you will drive your staff nuts. It’s taking them away from the day job and every time you walk into the office with the bright new idea of the month, they groan inwardly. At best, they will humour you. At worst, they will pack their bags and vote with their feet.
There are other reasons for sticking to the knitting, but I think these are enough to be going on with!
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David Molian is a Visiting Fellow at Cranfield School of Management and former Director of Cranfield’s renowned Business Growth Programme
This column is taking a summer break and will resume in September.