This article is part 4 of an 8 part series. Read Part 3 for more information about how to gain market power.
Geoffrey Moore is the founder of The Chasm Group. The Chasm Group helps companies who are seeking to optimize their market development and acquire market strategies that will help them achieve their growth goals. In this section, Geoffrey Moore describes how small businesses can gain market power.
Curt-Are you aware of any small companies that are doing a great job of [initiating market power]?
Geoffrey-We have a tiny little company but we've made it a focus for 20 years to get very well known in technology and Silicon Valley. In looking at gaining market power across different industries, almost all venture firms gain market power easily. Law firms are able to specialize in intellectual property or whatever their region's primary interests are. In industries like construction, gaining market power becomes tricky because construction contractors go from job to job. They try to maintain great references and hope that people think well of their work.
If a small company doesn't have any market power, it's really hard to make marketing activities work. Small companies are usually fabulous at delivery, particularly owner/operated companies because typically, the owner's ego and experience are involved. People love to work with an owner/operator because they are very experienced, knowledgeable and trustworthy. But an owner/operators' marketing knowledge usually doesn't keep up with them. Most successful owner/operators exploit the relationship capital they gained early on in their business. But they get to a certain point where they can't expand their markets because they aren't doing any marketing. They will often do advertising or promotions but the world is very suspicious of marketing and advertising. It's just the opposite if a customer advocates on the company's behalf. The world is very inclined to trust the customer. In a B-to-B world, word of mouth is really important. Businesses need to expand the community where they feel comfortable talking about their services. That's the kind of marketing that will create more market power.
The other tip for small businesses to increase their market power is to accentuate their offer. The natural tendency for a small business is to just do whatever they can find, particularly when times are tight and the company is scrambling for revenue. We sometimes call it picking up dimes in front of a steamroller because you need a bunch of money and you just do whatever is available. But what a small business really needs to do, particularly after the worst of the recession is over, is take a portion of their core offer and refurbish it in an exciting way -- make the refurbishment really exciting for the customer.
For example, my company encourages businesses to sell first to the customer instead of waiting for a product to be perfect. Instead of selling first, many companies go off to a garage for six months, trying to figure out how to create the next new thing. Then, they take that product and hope they can sell it to someone, instead of knowing that the product is actually desired in the market. A small business will find more success by selling before developing a new product. Normally, companies develop and then sell. But when trying to change directions by developing a new, accentuated and risky idea, it's better to sell first and then develop. View that first customer as a project where your goal is to make enough money to break even and get your research and development done.
Curt-This sounds like what Christensen calls sustaining innovations versus disruptive innovations.
Geoffrey-Sustaining innovations exists when the current business model is invested in keeping the innovation going. What I'm describing is more like disruptive innovation. It may not be disruptive to the world (since someone else in the world has developed a product in this way), but it is disruptive from the viewpoint of an owner/operator because they've never done business like this before. Businesses need to have something in their offer that's next generation. Some part of their offering should be new. Maybe it's putting the offering online for the very first time in your industry, or putting the offering on customers' mobile phones before anyone else. Do something to make the offering novel.
Stay tuned for the next blog post, where Geoffrey Moore describes the relationship between core and context (part 5).