What should you sell?
Who is your ideal customer?
This month I have been writing about strategic planning – focusing on the importance of answering these two strategic questions. As a business owner, answering these two strategic questions defines your target market. It is part of clearly stating your growth strategy, which is an important element of strategic planning.
Answering these two questions with clarity can result in greater efficiency, innovation, and profitability for your company. Communicating the answers throughout the company provides great focus to your sales team and the rest of your employees.
I introduced these two strategic questions in a recent blog post, and listed ten factors to guide you through the answers.
You can read about the “people factors” here. In short, these factors are:
- Investor expectations (if you do not own 100% of the business)
- Personal ambition, goals, and tolerance for risk
- Personal experiences, network, skills and abilities
- Your key employees’ experiences, networks, skills and abilities
In this post, I will discuss three factors to help keep you grounded in reality:
- The business’ current product or service offering
- Market growth in your target markets
- Competition in your target markets
The Reality Factors and Your Growth Strategy
Your Current Product / Service Offering
The first factor to help ground us in reality is a review of the company’s current product and service offering. Clearly, what you sell now and to whom you sell it should help you answer the two strategic questions. Hopefully, your company has clear definitions of what you sell and to whom you sell it. With this information in mind, you can determine the market size. If your market is big enough to reach your goals, then your answer to the two strategic questions above will be “more of the same” unless some of the other factors cause you to reconsider. Sizing your target market is one of the important steps for determining your growth strategy. You can read how to size your target market in this post.
What should your target be? In simple terms, less is more. Sell as little as possible to as targeted a customer group as possible provided that the market size will support the company. When you dominate that market, then you can expand. Here’s how Seth Godin stated it in a recent blog post:
“The solution is simple but counter-intuitive: Stake out the smallest market you can imagine, the smallest market that can sustain you, the smallest market you can adequately serve. This goes against everything you learned in capitalism school, but in fact, it’s the simplest way to matter. When you have your eyes firmly focused on the minimum viable audience, you will double down on all the changes you seek to make. Your quality, your story and your impact will all get better. And then, ironically enough, the word will spread.”
Real World Example
Here’s an example of how this approach can work well. In a commercial landscape business, there are many services that can be provided: lawn care, flower bed care, fertilization, weed control, irrigation, tree work, and construction of new landscapes to name a few. Many landscape business owners start with lawn care and flower bed care. These landscape businesses can focus on selling and performing these services efficiently. If customers need the other services, they provide those services through subcontractors. When a landscape business grows this core service, then it can begin providing one of those subcontracted services.
Why can’t a company do it all? In two words: complexity and cost. Performing many different service types efficiently takes different kinds of skills and processes. This complexity requires hiring more people than can be efficiently used. More complexity and more people can be a burden to a CEO, as well. It’s more profitable and enjoyable to follow Seth Godin’s advice.
Market Growth in Your Target Market
Markets grow at different rates. Sometimes markets shrink. For example, advertising on digital properties (e.g. Google, Facebook, YouTube) is growing quickly, while advertising in newspapers is declining rapidly.
What is happening in your target market?
Is the growth rate sufficient for your company to prosper?
Are other markets growing faster?
Considering the answers to these three questions will help you to evaluate what you should sell and to whom you should sell it – essential elements to any business plan.
Competition in Your Target Market
The competitive realities in your target market are another important consideration in strategic planning.
What is required to enter your target market? Are the barriers to entry low or high?
Do you see new companies entering your target market?
Do you see companies leaving your target market?
Are national companies moving into your geographic market?
Are competitors being acquired by larger companies?
How does technology development and innovation affect your target market? (Sometimes, new technology becomes the competition. For example, cell phones killed the mobile pager market.)
Considering the competitive realities of your target market helps you develop profitable answers to the two strategic questions: what should you sell and to whom should you sell it?
What’s Next in the Growth Strategy Series?
In my next post, I will discuss the three “cash factors” to answering the two strategic questions. As you think about the reality factors from this post and the people factors from the last post, remember that you are considering these factors at the current stage of development in your company. Your company’s answers to these two strategic questions will change as your company grows and your employees develop.
I am curious to hear from you. What is your reaction to Seth Godin’s advice to “think small” as you develop your growth strategy? Have you seen it work? Do you wish you had thought smaller when you started your company? You can drop me an email or reach out here.