Winning Moves for your Business. When developing a strategy for a business, one of the questions you need to answer is: “where will we play?”, By this, you need to define: what customer segments to focus on; what products or services to sell; what geographic markets to serve and what distribution channels to use to reach those markets, or collectively what we call your Sandbox. On the face of it this question seems easy to answer. Everyone in management should be able to define what are the current customer segments, products and services, geographic footprint, and distribution channels of their business. However, the question of where to play in the future needs careful consideration before answering.
Chris Zook, in his Harvard Business Review Article – Growth Outside the Core, shows that companies that successfully expand out of their existing Sandbox, do so by making one move at a time. This allows them to successfully bed down the move before making a second adjacent move. He uses the example of Nike as a company that has done this very well. When Nike moved into a new sporting category, for example basketball, tennis or golf, they only moved into one new sporting category at a time. They didn’t move into basketball, tennis and golf all at one go. Rather, they started with basketball and then tennis followed by golf. When Nike moved into a new sport, they started by first only selling footwear and apparel then later added sporting goods such as balls, clubs, and rackets. By consistently making these small adjacent moves, Nike’s been able to build a very extensive business across multiple sporting codes, products, customer segments and geographies. Chris Zook thus encourages you to make only one adjacent move at a time. In addition to this, his philosophy is to only make an adjacent move where you will play in the top three of that market. If you can’t be competitive in that market don’t make an adjacent move.
Many entrepreneurial businesses start by a founder seeing an opportunity in the marketplace and grabbing it, often without much detailed analysis as to the appropriateness or viability of the opportunity. Detailed analysis when starting a business often would stifle or stop an entrepreneur from starting. An analysis of the prospects of a start-up business are unlikely to be particularly appealing.
Whilst this a valuable attribute of an entrepreneur, it can be detrimental where a business takes advantage of various opportunities to expand its operations without the necessary resources, diluting its focus on its existing market and products. The business is stretched too thin, resulting in a company that is mediocre in the areas in which it operates.
This principle is supported by the research of Jim Collins in his book, Great by Choice, where he identified that companies that performed better in fast changing and turbulent times were not companies that seized opportunities when they presented themselves, but rather those companies that proceeded with caution, first testing a new market opportunity or product before committing to a new course of action. He highlighted that when Steve jobs returned to Apple in 1997, he didn’t try turn Apple around by innovating new products or entering new markets. He focussed on getting maximum value from the Apple Mac personal computer. He made the most of the best product they had.
Apple entered the market for MP3 players by launching the iPod, but only for Apply Mac users as an add on to the computer. By 2001 it only represented 3% of Apple sales. People loved the iPod and iTunes for the Mac and from this, Apple learned people were prepared to pay for music at a reasonable price rather than pirating it. When people started clammering for iTunes for Windows based computers, Apple then aggressively entered the market with iPod and iTunes for non-Mac users.
Jim Collins recommends that first you fire bullets which are “low cost, low risk, low distraction experiments to figure out what will work, calibrating your line of site by taking small shots. Then once you have empirical validation, you fire a cannonball by concentrating resources on a “big bet” to take advantage of the opportunity.
How do you determine the best place for your business to play?
The starting point is to define which markets, products, geographies, and distribution channels you currently operate in and how well are you performing in each of these areas. Often the best move is to double down on what you are already doing well or to exit non-performing areas rather than expanding into new areas. Analysing revenue and profit by product, market segment, geography and distribution channel are a good way to determine what of your existing Sandbox is working. You can also use the Boston Consulting Group Matrix to evaluate which products or market segments represent your “star” opportunities requiring focus and investment or which are “cash cows” and need to be maintained. It will also highlight which are your “questions marks” or “dogs” that may need to be exited.
If you already have a dominant and profitable position in your existing market, then looking for new areas to expand into would be appropriate. There may be opportunities that are apparent, or you could use the Ansoff matrix to identify opportunities for selling new products into existing markets, or selling existing products into new markets, or diversifying by selling new products into new markets.
Once you have identified potential opportunities for your business you need to test these opportunities by comparing their potential against the likely challenge to successfully enter a new market or launch a new product. As Jim Collin’s says, you should test these opportunities by empirical evidence through firing small shots.
Once you have identified the best opportunities, take Chris Zook’s wisdom and make only one adjacent move into the opportunity that is best for your business and don’t make another adjacent move until you have successfully established your position in the new market. These are how you can turn new plays into winning moves for your business.
