Various strategic ideas used to launch successful Inc. 500 companies.
What many booming businesses have in common isn't sorcery, it's a simple strategic idea -- an idea, in fact, that's as applicable to start-ups and strugglers as it is to fast-track money-makers
Business fantasies? Try these on for size:
Dennis and Ann Pence leave high-powered careers in New York City for the wilds of northern Idaho. They start a catalog company selling nature-oriented gifts. Its success is startling: $11 million in revenues last year, an estimated $20 million this year. Profits hover around 16%.
Gary Gagliardi, a Seattle software consultant, begins to create and sell accounting programs for businesses. The marketplace is teeming with competitors, but Gagliardi's new company shoots to the top, displacing the industry leader. Before long, big customers such as Marriott Corp. are placing orders. Sales for fiscal 1991: $5 million, with profits in the 6%-to-10% range.
Max Duncan loses his job as a drilling engineer; he is one more casualty of the mid-1980s slump in South Texas oil. Duncan gives the energy business one last shot, starting a company to make specialty chemicals for drillers. Incredibly -- because better-established companies are scrambling to get out of this market -- he strikes pay dirt. Last year Duncan's company topped $6 million in sales.
At times, we realize, such stories can be the curse of an entrepreneur's life. There they are, lionized in the local newspaper or the chamber-of-commerce quarterly or Inc., men and women with the Midas touch, magically creating gilt-edged companies and effortlessly slaying competitors. You can almost hear the envious reaction from less favored CEOs. What wizardry do they know that I don't? Or maybe just: How did they get so lucky? When you're mired in the muck of last month's ledgers and next month's projections, the gap between fantasy and reality can loom large.
And yet the plain fact about many booming businesses is that they aren't magical at all. What they have in common isn't sorcery, it's a simple strategic idea -- an idea, moreover, that's as applicable to start-ups and strugglers as it is to fast-track money-makers.
The idea begins with a simpleminded observation. Every company faces competition. Other businesses, some of them larger and better financed than yours, can always duplicate or imitate your offerings, can match you dollar for dollar in marketing, can hire as many people.
But successful CEOs invariably choose something, one key element of the business, that can provide their companies with an edge no competitor can easily match. Management theorist Michel Robert calls it the organization's "strategic heartbeat"; in simplest terms, it's the skills and systems that the company is built around, and that it knows better than anyone else. Robert's book The Strategist CEO mentions several big-company examples. At Johnson & Johnson, the strategic heartbeat is the company's single-minded focus on four -- and only four -- sets of consumers (doctors, nurses, patients, and mothers). At Sony, it's the company's unparalleled proficiency at research and development, which provides a constant stream of new products. Whatever that strategic center may be, says Robert, the most successful enterprises set their priorities around it and pour resources into it, thereby developing knowledge and capabilities competitors simply don't have. That's how they stay ahead of the pack.
As several examples culled from this year's Inc. 500 show, that is a lesson not limited to corporate giants. On the contrary: a lot of small companies have learned it so well that their success can seem truly fantastic.
Competitive Edge: Making Buying Easy
When they left New York City to set up Coldwater Creek Inc. (#71), in Sandpoint, Idaho, Dennis and Ann Pence began developing a network of small crafts manufacturers that could provide them with unusual gift items, such as tiny jade wolves howling at the moon. They placed a few ads; they designed their catalog; they began compiling a list of mail-order customers. So far, nothing any other savvy marketer with a good eye for crafts couldn't do.
But in the Pences' minds there was one key to a mail-order company's success. Call it the place where customer meets company: it includes everything from the day someone gets Coldwater Creek's catalog to the day she (most customers are women) receives an item she ordered. Carry out every step in the process better than anyone else does, the founders figured, and the buying decision will be so pleasant and simple that customers will keep coming back for more.
Today that strategic focus is visible in how the company directs its resources and develops its skills.
The catalog uses top-of-the-line photography, color separation, and paper: "We spend much more money than any cataloger our size I know," says Dennis. Result: colors are more accurately rendered, the items more precisely portrayed. Thanks in part to this authenticity, Coldwater Creek's merchandise returns are about 3.5%, a little more than half the gift-industry average.
Incoming calls are answered in an average of three seconds. The company makes sure there are always enough operators on duty to meet that standard, even if some are sitting around waiting for the phone to ring. The carefully tracked abandoned-call rate runs from 0.2% to 0.3%, compared with an industry average of 3% to 5%. Says Dennis: "We're saying, 'You're going to let one out of 20 potential customers walk? It's insane.' "
