We increasingly live in an era of big platforms and big channels. In many businesses, there's no choice but to work, in part, through platforms and channels.
For example, health systems need to work in part through large payers to be able to access and care for patients and communities. If a business has a product, there's a good chance the company will sell the product directly but also needs to work through Amazon, Walmart or other online or retail channels or platforms. Media firms increasingly need to cultivate a direct audience and also work through channels like LinkedIn, Facebook and others.
A core concept in business today is as follows: How does one work through these channels yet not become fully dependent on them? Also, how does a firm still profit while paying the tolls or fees these platforms collect? How does one best use these channels?
This article discusses business strategy and ways to approach business strategy by focusing on three distinct areas: Defining your product, determining the method needed to go to market and assessing the team needed to succeed.
First, we address defining the product or service that a company is selling or developing and how that is intended to satisfy a need or want. Second, we focus on the system needed to reach customers and what that system looks like. Third, we examine the importance of having the right team and resources in place to develop the product and reach the market that you're trying to sell to. Finally, there's a concept of constantly improving the product, constantly improving how your firm goes to market and constantly improving your team. (See also Exhibit A '12 Key Thoughts on Business Strategy.')
1. The Product or Service — Defining the Market and Niche
When working in a channeled and platformed world, a great challenge is being so good at what one does or having such a dominant product that customers still need you and you don't become a commodity.
In the health system or services business, this may mean trying to have such a great group in an area or such a large system that payers need to work with you, and patients want to work with you or feel compelled to do so. In a product business, it might mean that one creates such a great product and buzz around that product that customers seek it out either directly or through the channels. In other areas, it may mean being such a niche product and niche leader that people want to work with you. Business starts with defining your product or service, which can be many different types of things. The assessment of product or service may include questions such as (1) Can we deliver that service? (2) Are we good at it? (3) Does the market want it? (For a list of assessment questions used with software as a service companies, please see Exhibit B.)
Here, for example, the product could be a game. One of the questions then is who is the target audience for it and how many potential target customers are there? What distinguishes the game from other games? The product or service could be healthcare services, which raises the question of what type of healthcare services? What do you need to stand out for specific healthcare services, and is there a specific reason why people need your services?
It can be legal services, which can be broken down into several categories. What kind of services are you rendering, and how are you specializing in it? For example, are you a white-collar criminal litigator, where your core business is providing services to companies or executives in trouble with the government for non-violent crime? In contrast, does your firm do transactions and does it focus on a certain type of industry niche, such as pharmaceutical companies or Fortune 100 companies? As another example, media companies face the question of what are you selling? Are you selling magazines, are you selling digital products, are you developing conferences? In those categories, are you meeting a market need? Are you a generalist media company, trying to reach any type of consumer, or are you a very specific business-to-business company trying to put two different markets together? I.e., are you a business-to-business media company where you have one group of businesses looking to sell products to another group of businesses? Here, your audience is one type of business while the advertisers are companies seeking to sell to that audience.
Business strategy begins with constantly looking at defining your product, service and who your firm is selling that product and service to.
The next question is one of need. Is there a need for those services and, if so, how deep is it? For example, if you are in the toy business, who wants that toy? Is it a certain age group? How distinct is the toy, how do you develop and sell the toy, and what channels do you sell the toy through? If it is legal services, who needs your distinct type of legal services? Are you a personal injury lawyer trying to distinguish yourself as the best at personal injury or trying to be the best in a particular neighborhood, thereby advertising online or over airwaves? In contrast, are you from a sophisticated large law firm where you are trying to sell a specific expertise in a specific area that not that many firms can do effectively and efficiently? In short, the question of need is about who you are selling to and what gives your service/product value and differentiates it. Does it lead a customer to make money, save money or become more efficient? Is it easy for a customer to use?
Clearly Defining the Market
A core concept in business strategy is specifically targeting who needs your service. Here, one can think of a few different factors when defining the market: Who wants that service, how big is the market that you're selling into, and how crowded is that market? Can you define very clearly who you are selling to, who you want to be read by, who your firm wants to make legal services available to, who you want to buy the game? Can you clarify distinctly what that market is and its size?
Who Are the Competitors?
How competitive is the market? Are there other competitors in the market and, if so, how big is that group? Typically, any market will have other competitors. However, you ideally want to find markets where there is not a substantial amount of competition and you are not competing with the largest and strongest that it is impossible to reach a footprint. Can you do it better than your competitors? How so?
2. The Sales and Distribution Process
As one figures out how to approach the market, there are two overriding thoughts. First is the recognition that in many businesses one must work closely with the channels and the platforms. For example, if you are a health system or a products business, it's very hard to be solely in the direct-to-consumer business. Second, there is the recognition that while working with the channels and platforms, one also wants to develop as strong a direct-to-consumer/customer approach as possible, if possible. Here, this may be reflected in health systems also doing direct-to-employer contracting and/or using multiple channels. In products, it may mean also having your own online or other retail stores and your own communication with customers.
We increasingly see brands attempt to develop as much of a direct-to-consumer model as possible while relying on the big media platforms to advertise and market their products. The ability to have a premium or at least great brand plus some direct-to-consumer sales seems to be an indication of probability. Brands like Canada Goose, Porsche, Tesla, Allbirds, Warby Parker, Athletic Greens, Bombas and more are all trying to increase or rely entirely on their direct-to-consumer sales. Here, they limit use of Amazon, Target and Walmart and/or traditional dealerships and often double down on using multiple types of media platforms for marketing.
The process for selling ultimately breaks down to either selling one customer at a time or selling with scale. What is your approach? Are there distinct channels through which to sell? For example, if it is legal services and you are selling sophisticated services most often associated with large firms, you are probably selling directly to a total of no more than 1,000 or so companies — and your target list is likely smaller than this. Even there, you are selling to a select group of decision-makers within those companies. You are probably not selling on TV or the neighborhood bus stop. Similarly, if you are in the toy business, you are probably selling to retailers or through Amazon and distribution channels where people go to buy toys. You can try and sell neighborhood to neighborhood and door to door, but it is hard to gain the number of sales that way. Who you are selling to, and what are your sales channels?
There are several considerations when developing a sales plan. For example, do you need a direct sales team, and how large does that team need to be? What is the size of the market you're selling to, and how will you reach that market? Is the sales process multi-tiered? For instance, if you are a health system, you need a contract with payers and you also need to sell directly to patients who typically have choices in which system they work with. If you have a product, you may need to get on the platform, such as Amazon or retail stores. Then you need to constantly support the sales effort.
In certain markets, the sales plan can grow even more complex. For example, if selling an application to health systems or payers, do you need systems or payers as strategic investors? Alternatively, can you expedite sales by teaming with a party that's already in systems or the market you need to reach?
3. The Team Needed — Product and Sales
The next concept is assessing the kind and size of team needed to develop, support and sell the product.
If you're a healthcare facility and your target for greatness is orthopedics, what strength of an orthopedic group do you need to have to be the sought-out magnet group for the specialty in your region? Do you need two orthopedic surgeons or 20? What specialties and subspecialties do you need? That will help you determine how deep a team you must have. If your firm is developing a business publication and the business you are selling to is narrow, you may only need a few writers and then people selling to potential advertisers for that field. For example, if someone has developed a brilliant niche newsletter and they can produce it with a few people by staying close to the niche, they may only need a couple writers. They may also only need a few sales associates if there are finite number of sales targets as advertisers. They may not need a huge team if they know what they're doing. In contrast, if you want to be the best private equity law firm, you're competing with firms that have dozens of lawyers who practice in that area. Here, you need sufficient resources and a serious number of specialty lawyers for private equity funds to do good work that is taken seriously.
Ultimately, you might distinguish the market in a more simple and systematic way to be the only private equity fund or services team to invest in or focus on a niche, such as energy and gas or healthcare services. There are different ways you might narrow the market. The plan for going after the market and what product and service you are selling and servicing can help determine the size and type of team you need to be successful in the market you are selling into. These factors will also drive the amount of funds you may need to successfully compete.
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In sum, there are three key thoughts: (1) Defining the product and service you are going to sell, (2) defining the approach you are going to take to sell that product or service and (3) developing the team you need to succeed in providing supporting and selling the product.
Exhibit A
12 Quick Thoughts on Business Strategy
1. Go deep and stay close with your clients and customers.
2. Go deep and stay close with your own team.
3. Maintain great clarity around your core goals.
4. Conduct backward mapping to get to your goal.
5. Expect and deliver high integrity to and from your customers and employees.
6. Sustain great passion and sincerity.
7. Less is more. Keep a few core goals versus many, many goals.
8. Understand your distinct place in the market.
9. To assess opportunity, pose three questions: Can we do it? Are we good at it? Does the market want it?
10. Speed and intimacy are critical.
11. Drill down fully on the business plan and case.
12. Use existing platforms. Don't reinvent everything.
Exhibit B
We have had the chance to meet with several companies and entrepreneurs developing different software as a service models and applications. Some of these companies have revenues already for the specific application, others are in beta testing with systems, and others have an idea.
In discussions, we have found a series of questions often helps guide their and our thinking.
Here are several of them:
1. Does the product solve a problem?
2. Do health systems or providers care about that problem, and if so, how much do they care?
3. Will it make an operation lower cost, more profitable, safer, more efficient?
4. Who are the core competitors?
5. How easy will it be to implement the solution?
6. How will you sell or distribute the product? Do you need health system partners? Can you start with smaller customers? What is the sales cycle? Who are channel partners you can sell through or with?
7. What team will you need to develop, implement, support and sell the product?
8. Can you bootstrap the effort with limited outside investors? Do you need outside money early on? How much money do you need?
9. How committed is your leadership and team? With many software as a service models, we have found that it takes a handful of adjustments to get a product to what the market actually wants, to fine-tune the product and to figure out the channels by which to sell it. This requires a high level of perseverance.