Knowing when to shift your  company's focus is a requirement when the economy moves so quickly. Companies must constantly decide which areas of the business (customer service, manufacturing, sales, etc.) to make the top priority and invest heavily in, and which activities should be moved off the balance sheet

It can be a traumatic and dramatic shift, particularly when it relates to what has historically been your company's core. Bombardier shifting away from snowmobiles, Uber adding taxis, and GE selling off its power generation business: all of these are examples of companies undergoing a paradigm shift in their business model. Crocs is another.   

Crocs were created in 2002 by Scott Seamans, Lyndon Hanson, and George Boedecker, Jr. and have since become the shoes we all love to hate. By 2009, they'd been condemned by many as a fad, and to make matters worse, over-expansion and the 2008 recession were pushing the company toward bankruptcy. "The company's toast," Damon Vickers, a former investment fund manager in Seattle, told the Washington Post in 2009. "They're zombie-ish. They're dead and they don't know it."

Crocs has largely treaded water ever since--until 2018, when its stock suddenly became one of the most virile on the market. 2018 turned out to be Crocs' best year. The turnaround is the result of six years of strategic changes, following a $200 million investment by private-equity giant Blackstone Group. Since then, Crocs has closed hundreds of underperforming stores, done away with unpopular styles, and shifted its focus back to its classic foam clog, which accounts for nearly 50 percent of the company's sales. In 2018, Crocs' clog revenue grew by 12.7 percent, exceeding all expectations.

But last August, in move that shocked some, the company confirmed it was shifting away from internal production, and "shifting production to third parties to increase manufacturing capacity."

Here is what all entrepreneurs can learn from Crocs' strategic decision. 

1. Reallocate your resources.

In Good to Great, author Jim Collins talks about the "six or nine" theory used by Jack Welch, CEO of GE. Welch had managers rank staff as either a six or a nine out of 10. Then he fired all the sixes and reallocated their budgets to the remaining nines. Welch shot GE to the top spot on the Fortune 500. The next year, he used the same rule on a corporate level, selling off business units that could not get to the first or second spot in their target market.

For businesses, this means dropping anything that you can't be the best at, and focusing your resources and effort on only those areas that you can be the best at. 

2. Partner with influencers.

Post Malone and Chinatown Market both teamed up with Crocs to launch sold-out special editions of the shoes (the former was a taxicab-yellow style, and the latter a grass-green shoe covered in actual AstroTurf). The lesson here is to leverage your partner's strengths. Not every business can land a superstar influencer endorsement, but you can strategically decide where in the business model to focus to generate the greatest impact.

3. Outsource non-core competencies.

Legendary economist Adam Smith said it best in Wealth of Nations, published in 1776: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." 

Firms should focus only on what they do best, and let other firms take on all other tasks. Try breaking large jobs into smaller jobs and assigning those jobs to workers, and outsource anything your employees currently can't handle.

After selling 300 million pairs of shoes, Crocs is no longer manufacturing shoes, and it is a brilliant strategy move. By focusing on only the parts of the business model that it could master, and outsourcing the rest, Crocs completed a legendary turnaround and had its best year yet.

So what are doing in-house that isn't at the core of your business? It's time to decide what you can outsource--then you can focus on your core competencies and rocket to the top spot in the market.

Published on: Mar 9, 2019
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.