This article is part three of an eight-part series. Read part two to learn about Geoffrey Moore's new book.
Along with being an excellent writer and speaker, Geoffrey Moore serves as a Venture Partner at Mohr Davidow Ventures. He is an advisor to many of the firm's portfolio companies. Moore gives these companies his best business practices, based on his extensive knowledge and research. Below, Moore discusses the number one way you can increase your power: tighten your market focus.
Curt: Many of my readers are technology CEOs of small companies with less than a couple hundred people ($20-million companies or less). What's your best, concise advice, the 80/20 rule, for small tech companies that are emerging from this recession? Most of them are cash strapped and facing relentless commoditization. What questions do they need to ask themselves? What do they need to be doing right now?
Geoffrey: All of my suggestions relate to the same issue which is: do you have enough power to achieve the performance you are seeking? For example, let's look at a company that seeks to grow its business. If they want to grow, they have to be more powerful than the other companies competing for that growth business. This business has to ask itself what it has done to become more powerful recently. And often the answer is, 'Well, we haven't done anything. We didn't hire anybody new. We haven't really brought over a new product line. We're just trying to work hard to hold on to what we've got.' That means the company is stuck in a performance trap since no investments have been made to gain power and instead all focus is on keeping what they currently have. An established enterprise has a bunch of inertial power but the problem is that it decays. It doesn't fall off or plummet, it decays. Therefore, companies get in this trap of saying, 'If I just work harder and squeeze my belt a little bit tighter, I can make the business work for this year.' Or, 'I can make my numbers this year, but I just have to be really tight-fisted.' Eventually, you get to a point where you can't keep doing that.
So, what are the classic ways small businesses can improve their power? The number one way is to tighten your market focus. But market focus means something very specific. It means to tighten your market focus specifically around a class of customers who reference each other when they make buying decisions in your category. You want to become the word-of-mouth favorite in that community. That will increase your power dramatically. If you become the word-of-mouth favorite in that community, 'The Bowling Pin' strategy can occur. The Bowling Pin strategy asks, 'Is there an adjacent community that can be affected by the word-of-mouth credibility that exists in our primary community?' Especially for a small company under $20 million, it's preferable to tighten your market focus geographically. Ask yourself, 'Why don't I just knock the cover off the ball right here in the city where my company is based?'
And if you do that, look at other large cities in your home state next. The problem with a lot of companies is that they are service companies and it's very hard for them to get outside the first city. Product companies can go further because products travel a little bit easier than services. The tricky part with electronic services is where do you find a word of mouth community on the Web? The Web feels so dispersed; it feels like this massive bulletin board.
Curt: The Web is global. That's the problem.
Geoffrey: Yes, the Web is global. But I need some of the Web's viral nature in my marketing mix or else I'm spending too much money acquiring new customers. At some point, I need my existing customers to evangelize on my behalf. This works best when your existing customers all have some communication channel in common with each other. Before the internet, businesses would go to trade shows to acquire a vertical market. For example, if you wanted to be in health care verticals, you'd go to the HEMS trade show to speak on a panel. There you would get to know people and physically develop a word of mouth community. What is the moral equivalent of that in our present world? Are there communities or associations that can be engaged virtually on the Web instead of face-to-face? The power in engaging these communities is called market power. It's basically when your customers help sell you. That's market power.
Learn more about gaining market power in the next blog post (part 4)!