A few weeks ago, in helping some C-suite executives rethink their corporate strategy, I asked, “What are your gross margins?” Crickets. I then asked, “What makes your company unique?” Crickets again.
They aren’t alone.
Through my work as an author, consultant and member of the teaching team for several leadership and strategy courses at the Stanford Graduate School of Business executive education program, I get unusually broad exposure to what’s happening inside companies around the world. Rarely do senior leaders responsible for a company’s or business unit’s strategic growth have clear answers to these questions or fixate upon them as keys to sustainable, profitable growth. But they should be obsessed. Here’s why.
Gross Margins Determine Your Future
Gross margins are the lifeblood of your company. Yes, you need revenue and growth that will fuel long-term return on equity. But you also need a sustainable business model that delivers healthy gross margins, so you can up your game over time – market expansion, product enhancement, nurturing top talent and a great culture, operational improvements, and the kind of expensive experimentation and innovation it takes to stay relevant.
Too many executives, however, fixate only on revenue, and this can be a trap. Many companies literally lose money for every dollar of additional revenue they generate – without even knowing it. In most cases, it’s because their offerings have become commoditized, and they are being forced to compete on price.
“But money is cheap,” you say, “It’s more important to accelerate growth and drive volume.” This is fine for a time, if your business model is solid. Perhaps healthy margins are built into the model, but you’re choosing at present to lower prices to drive adoption, for example. But if your business model is broken from the get-go – if there isn’t a path to healthy margins — you’ll eventually crumble under the weight of debt. Instead of spending that borrowed money to subsidize today’s offerings, you should be designing higher margins into your model and using borrowed money to fund your future.
“Fair enough. I’ll just cut costs,” you say. Yes, and you’ll likely see a decline in units sold, the price you can command, and/or quality. This will take you deeper into commodity territory, not get you out.
What do to?
The answer is to focus on strategies that will increase the market’s willingness to pay (i.e., position you to command higher prices over time, even if you intentionally choose to temporarily keep prices low to drive growth). And the most effective of these strategies is differentiation, achieved in a special way.
Be the Go-To, Not a Me, Too
Perhaps you see this problem more easily looking at other companies than at your own, but we all see it:
1) At a distance, where most of your market sits, you don’t look or sound any different from the me-too competition.
2) It’s not enough to be incrementally different from alternatives. In fact, to win in the long-run, you must be unique. Markets are simply too noisy and crowded for customers to see what makes you special and worth paying more to unless you really stand out.
But being unique isn’t enough either, it turns out.
In seeking to unravel the mystery of how certain companies achieve sustainable, profitable growth, I interviewed hundreds of senior executives, customers, analysts, market influencers and academics over a period of years; I conducted primary and secondary research into thousands of companies; I went inside and lived their problems; and I studied the business and academic literature.
The research revealed that they key is to be the Go-To in your market, and there are four phases companies execute in order to achieve this. I’ve codified this into a strategic framework called the Apollo Method for Market Dominance™, because as it happens, much of what got us to the moon will also turn your company into the Go-To.
First, what is a Go-To and what does this status do for a company? The Go-To is the first name to come to mind for a particular problem in a particular market. The Go-To provides such uniquely powerful results that customers seek it out and are willing to pay a premium. Its stellar reputation precedes it. It rarely has to compete for business. It sits out far ahead, and everyone else is a distant also-ran.
Tesla is the Go-To for luxury electric cars. Apple is the Go-To for elegantly simple and user-friendly technology design. Disney theme parks are the Go-To for “happy,” family-friendly escapism. Salesforce started twenty years ago as the Go-To for small-business salesforce automation but has now evolved into the Go-To for customer interaction technology across markets. If you have a rare heart problem, do you want a general practitioner or the Go-To medical specialist for your issue? This is exactly why customers in your market are craving a Go-To for their problem.
Do These Four Things to Become the Go-To
The Apollo Method for Market Dominance consists of four phases. You don’t have to execute these sequentially, but it is necessary to do all four in order to achieve sustainable profitable growth.
Launch: This is where you declare your moonshot – but it is a moonshot for the market to achieve, not just your company. Decide what common, critical and urgent market problem you are going to own, your point of view on what needs to be done about that problem, and your unique approach to solving it. Tight focus is key, so that you concentrate your resources on gaining traction in a particular market before broadening. Then put a stake in the ground by announcing that you intend to own and solve that problem on behalf of the market. Kennedy announced the US would put a man on the moon and bring him safely home as a symbol of freedom and peace in space for all. Tesla said we need to get off of fossil fuels by making electric cars mainstream – we’ll lead the charge on that. Marc Benioff, as founder of Salesforce.com, had a vision that said we need to kill installed enterprise software and put it in the cloud – heresy at the time.
Ignite: Next, lead a movement in the market around your point of view and approach. The goal is to rally the market around your vision for what it will take to solve this problem and build momentum around your unique approach. Become a pied piper. Drive the market conversation. The Apollo Space Program had to do this to sustain public support and funding over the many years it took to achieve the goal. The efforts were so extensive and masterful that David Meerman Scott and Richard Jurek wrote a book on the topic, Marketing the Moon: The Selling of the Apollo Space Program.
This isn’t a sales pitch for your offering. It’s about being a thought leader driving the market conversation around a bigger vision for solving a major problem. To do this, start by converting industry powerbrokers and influencers who can then become evangelists on your behalf. Apple had a revolutionary vision for how the music industry could finally profit from music streaming without losing control of its intellectual property. We take it for granted now, but at the time it was a tough sell. Steve Jobs drummed up support first by meeting with influential artists and record company executives, who then evangelized on his behalf.
Navigate: You can have a vision and get the market stoked, but you must also deliver on your promises. You have to provide radical, high-value impact that justifies premium pricing. The Navigate phase is where you walk your talk by developing and delivering a complete solution that delivers results. NASA had to do more than propel astronauts into space. What will they wear and eat? How will they use the bathroom in zero gravity? How do we get them back alive? And so on. Amazon doesn’t just provide commoditized fulfillment services to merchants. It provides a comprehensive platform (solution) that helps merchants reach more customers and make more money across the entire retail experience.
Accelerate: Once you’re the Go-To, me-toos will come after you. You must stay ahead of the competition, innovate, and broaden your market impact. Watch the horizon for trends and adjust your vision. Stay at the forefront of what’s happening. And then orbit back to cycle through the phases again as needed. NASA achieved the moonshot and then kept upping the ante with each new mission that followed. Blockbuster was the video rental Go-To, with 9,000 stores globally and 2004 revenue of $6 billion. But it underestimated the video streaming trend. As Netflix rose, 75% of Blockbuster’s market value evaporated in just two years, and it was out of business by 2013. Ironically, now Netflix faces its own challengers. By contrast, Amazon has sustained its Go-To position by constantly anticipating new trends and staying far out in front, with innovations that give it a market and profitability edge such as Amazon Prime, warehouse robotics, Kindle Direct Publishing, and more.
Even small actions in the above areas can dramatically differentiate you and increase the prices customers will happily pay, which will, in turn, dramatically increase your gross margins. The time to act is NOW. According to Innosight’s 2021 Corporate Longevity Forecast, the average tenure of an S&P 500 company in the late 1970s was 30-35 years. Today it’s 15-20 years. Help your company beat those odds. Use this framework to get everyone on the same page. Launch your moonshot. Ignite the market with your vision. Navigate customers along the journey. And Accelerate to stay out ahead. Let these four phases of market dominance guide you in taking a methodical approach to owning your market in order to achieve sustainable differentiation that sets you up for sustainable, profitable growth. Be the Go-To!
Written by Theresa M. Lina.
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