Market Selection Tip: Finding the Pot of Gold

If you want to ultimately become a Go-To for higher margins and growth, it helps to pick the right markets and positioning from the get go.

One of my clients is the Go-To in a particular dimension of the telecommunications industry, but you don’t have to look very far on the horizon to see that this market will mature soon. It’s time to pivot. So we are in the midst of a market analysis to figure out where to play next. Here is a simple diagram that’s guiding our efforts. On one hand, it seems really obvious. On the other hand, you’d be surprised at how few people use these three simple criteria as a way to evaluate potential market opportunities. The intersection of all three is, of course, the sweet spot – where you’ll find the pot of gold.

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Your Strengths

Always start with what the company is good at, especially what it’s uniquely good at. Go ahead and do your usual SWOT analysis, but put a special emphasis on strengths that differentiate you and will give you competitive advantage. These will give you a running start and help you smoothly migrate from your current markets and offerings to the new ones you choose. They also help to keep you honest as you get tempted to jump into exciting emerging markets that just don’t make sense for your company.

Growth Markets With Active Spending

I could write a book on this topic alone, and many people have, but here is the two-paragraph version: Look past fads and analyze emerging, enduring trends. Look at growth markets related to the market you currently play in. What’s happening in those markets? What are their business imperatives and problems? What will help them succeed? Imagine the market segments as a map of countries and pick ones that share a border with your current market. Eliminate those that don’t value your areas of strength. Look for markets and opportunities where the barriers to entry are reasonably high, especially for companies without your particular strengths.

Be sure to zero in on ones where companies are actively spending, or at least will be spending by the time you are ready to go to market. This is key. It doesn’t matter how great your offering is if companies aren’t allocating budgets in that area. You’re just setting yourself up for a major uphill battle. (I’ve made this mistake myself and have the scars to prove it.) In fact, as you go out to the market to have conversations and bounce your strategy and prospective offerings off of potential customers, ask them outright if this is something they would have budget for during this fiscal year (or whenever you’d get to market). Where are the intersections between business needs/problems in these growth markets and your company’s strengths?

Competitive White Space

Now look at the competitive landscape. Where is no one else is playing? Which business problems in these markets is no one else addressing? Where are the gaps? Which companies out there are good complements to your company and potential offerings – who are the good potential partners?

Find the Intersection

Now look at where all three circles come together – a growth market with active spending and healthy barriers to entry that plays to your strengths and where there is little or no competition. That’s where you are going to find a nice pot of gold waiting for you. All you have to do now is craft products, solutions or other offerings that solve specific business problems and have a strong value/cost ratio.

Where Are You on the Commodity Curve?

One quick way to gauge the health of your long-term prospects as a business is to determine where you sit on the Commodity Curve.  This is a little model I developed over a decade ago to illustrate what happens when you fail to adequately differentiate in an increasingly competitive market. It’s not rocket science – Econ 101 and business strategy courses cover this in depth. But after watching clients and other companies conveniently forget this basic tenet, I developed an illustration specific to the situation.  Consider this just a little reminder.

It’s very simple: If competition is increasing and you don’t adequately differentiate yourself, margins drop.  The red line below is the typical scenario when there are a lot of look-alikes in the market.  The blue line is the company that stands apart from the competition by offering something unique that’s in high demand.  By being unique, there is little or no direct competition. The company can name its prices and actually increase margins while others are lowering their prices.

How unique are you? Your margins will give you the answer.

Commodity Curve for blog post

Commoditization: Who’s At Risk?

Much of what I espouse about strategic marketing, market dominance and differentiation applies to many types of B2B companies, but the sector I’ve studied most closely and with which I’ve had the most direct experience is the business solutions ecosystem selling to large and medium-sized enterprises. In information technology sectors alone, this is more than a $3 trillion ecosystem employing over 20 million people worldwide (sources: Gartner, Software Magazine, IDC – probably a conservative estimate that excludes many emerging companies and subsectors).  It includes:

  • IT services and technology service providers
  • Systems integrators
  • Enterprise software companies
  • Enterprise cloud/software-as-a-service (Saas) providers
  • Computing and telecommunications hardware and equipment providers
  • Telecommunications service providers selling to businesses
  • Business solution providers
  • Management consulting firms
  • Business process outsourcing providers (e.g., payroll processing, accounts receivable)

What they have in common is that they sell intangibles. Customers can’t see, touch or experience these companies’ offerings. Customers have to buy on faith. They can only evaluate whether they got what they wanted and whether it was worth the price after they’ve bought and implemented the offering. Customers are evaluating promises and reputations during the buying process as opposed to evaluating tangible products.

There is another $1 trillion+ market with a similar issue.  It includes:

  • Advertising, public relations, marketing and market research firms
  • Non-technology professional services firms, such as law, architecture, construction, engineering, and other types of management consulting
  • Other business services

In addition, there is an emerging population of companies in cleantech/energy and life sciences that sell business-to-business services and solutions, as opposed to straight products.

Every company in existence needs to differentiate itself in the face of competition, but the invisible nature of services and solutions makes differentiation exceptionally challenging.  The good news is that there is a relatively straightforward way to clearly differentiate one’s offerings in a crowded services market – I’ll be covering that soon. However, first it’s useful to understand what “differentiation” really means for a services company: Be truly unique. Don’t just take my word for it. See what leading management gurus have to say.

Be the Leopard, Not the Coyote

Be the LeopardMy inspiration for this post occurred on a flight from Sao Paulo to Lima a few months ago during a conversation with the fascinating entrepreneur sitting next to me. His name was Joe Atick, founder of Jaacx, which distributes digital imaging products. He’s a true citizen of the world, with businesses and homes in eight countries, logging about a million miles a year. He is a genuine rags-to-riches story and the consummate salesman. He has tremendous energy and charisma, and he also clearly loves what he does for a living.  He shared all kinds of wonderful business, marketing and sales wisdom during the flight and regaled me with entertaining stories of his selling exploits.  One nugget that is especially pertinent to service providers was his advice on focus.

He explained to me that, while technically he’s a distributor, he sees himself as a service provider. He excels, because he is an expert at matching retailers with products that will sell in their markets; he also boosts their efforts with his own investments in marketing and outreach on their behalf. His success comes from understanding their customers even better than they do.  He makes it his mission to understand his buyers’ problems and solve them. This is where focus comes in.

He said that when a lone leopard sees a herd of gazelle and intends to get his next meal, he knows he can only catch one animal. He doesn’t look at the whole herd; he eyes one specific gazelle and studies it through the crowd to the point where he can anticipate its movements.  When he charges the herd, he is after that one animal.  And usually he catches it.

Meanwhile, coyotes are scavengers and opportunists. They take whatever they can get. As a result, they don’t get the best pickings.

“It’s very important to be focused: Pick your market and get to know it better than anyone else.  You can only take on so much at a time, like the leopard can only catch one animal.”  Shaking his finger at me, he said, “Be the leopard, not the coyote.”