1.1Opportunity for Everyone
Top-down thinking increases costs and slows time-to-money, especially for new ventures.
Business strategies must be built to support a differentiating tactic and not the other way around.
Launching good products is not enough for success. Create superior products that make copmetitors irrelevant.
Me-too products are not allowed. Following competitors is a sure way to fail. Chasing customers is a sure way to succeed.
An astounding number of new products flood into the market. Experts estimate about 100,000 new food and beverage products and 80,000 non-food products are launched worldwide each year; and that number is growing. Even in the US, around 30,000 new Consumer Products are launched every year. The failure rate is high. Still, each year, about 1500 consumer products succeed in the US and earn millions of dollars.
Josh James, cofounder of Omniture, admits he doesn’t have a special flair for Technology. He started out with a product called the Brush’s Groom which removed hair from hairbrushes and didn’t make a dime. Yet he moved on to obtain tens of millions in venture capital, built Omniture into a successful Web analytics and online marketing company, and then sold it to Adobe for $1.8 billion.
Another young entrepreneur, Jonathan Coon, saw an ad for a contact lens retailer and decided he could do something similar. Working from his dorm room and hand-delivering orders late into the night, he was pocketing several hundred dollars a week. His dorm room business has now grown into one of the USA’s biggest contact lens retailers: 1-800 Contacts, with sales topping $100 million every year.
Reed Quinn spent several years developing, manufacturing, and distributing consumer products for a startup company. Now he runs KT Tape, a self-funded venture he launched which has grown to an international success story. KT Tape is sold at over 100,000 US retail stores and distributed in over 40 countries. It is the best-selling sports medicine product at many of our top sporting goods retailers.
Some sources report that up to 50 percent of business school graduates try entrepreneurship at some point in their careers. Josh James, Jonathan Coon, Reed Quinn, and many others have looked around and said to themselves I am smart enough to do this; I just need to take the risk. They discovered that venture funding is available to launch products that people want to buy and that people want to buy products with strong competitive angles. If you are more excited by the prospects of success then the possibility of failure, then perhaps you have an entrepreneurial mindset!
Because of their smallness, startups must cultivate a bottom-up rather than a top-down mindset. In their book Bottom-up Marketing, Al Ries and Jack Trout suggest letting a pain-point bubble-up from Customer and/or employee feedback, addressing it with a differentiating tactic, and then building a business strategy around the tactic. Bottom-up marketing and a bottom-up mindset are exactly opposite from the Big Business mindset usually taught in college courses. The bottom-up mindset is a must for startups because they lack everything Big Businesses have, that is, established relationships in the marketplace, a well-known image or position in consumers’ minds, a successful track record, and ample financial resources. Ries and Trout use Little Caesar’s Pizza as an example of bottom-up mindset. For Little Caesar’s, first there was the differentiating tactic, i.e., two pizzas for the price of one. Then the business strategy grew around the tactic. Little Caesar’s limits the pizza ingredients and variety, asks customers to pick up their own pizzas, occupies low rent storefronts with limited seating, uses cheesy ads reminding viewers of their two-for-one pricing tactic, markets to customers wanting a quick meal not a gourmet meal, etc. From the bottom-up, Little Caesar’s is designed to make a profit by selling two pizzas for the price of one.
Having a bottom-up mindset, which centers on inventing a differentiating tactic and then building a business around it, is different than just adding on a “differentiating tactic” as an afterthought. Lets explain what we mean. Strategy guru, Michael Porter was invited to present his thoughts on competitive advantage to a large, multinational chemical company. After the presentation, company executives challenged business leaders to follow Michael Porter’s advice and start building competitive advantages into their businesses. The company’s Crop Protection business quickly stepped up with an idea. They would offer a free respray program in the event the company’s herbicides and pesticides did not perform as promised. The business leaders, strategy group, and executive committee signed off on the respray program as competitive advantage. The Crop Protection business moved forward with the plan. The differentiating tactic served as a differentiator for less than a month. Within that time all the other major competitors introduced their own respray programs. Okay, no harm done. The customers are all getting greater Value for money. But then the weather took a turn for the worse. Weather conditions determine the efficacy of any Crop Protection plan. Soon all the companies were respraying fields and losing a great deal of money. When weather conditions didn’t improve for several years, the Crop Protection business cancelled the respray program. Business leaders reasoned that the business would go broke if they continued the program or go broke if all the competitors continued their own respray program; so they took a chance. Apparently all of the Competitiors were hurting because, in turn, each competitor quickly cancelled their respray program.
Adding a respray program as an afterthought to an ongoing business strategy is not bottom-up thinking. It is just more of the same Big Business top-down thinking. If the Crop Protection business built their entire business strategy around a crop-respray tactic then it would be bottom-up. But what would this look like? If the business strategy was built around a respray differentiating tactic, then the business would (1) need to be the low-cost manufacturer, (2) charging average or above average prices, and (3) operate a low-cost respray network. None of this was true. The Crop Protection business had average to above average manufacturing costs with above average Fixed Costs. They didn’t have a respray network. The cost of hiring a contractor to respray a field was the same for them as every other competitor. And as a topper, herbicide and pesticide efficacy is more influenced by weather than by chemistry. Top-down strategies usually don’t work, particularly for startups, because it is very expensive to change the revenue model for an entire business to fit a Johnny-come-lately differentiating tactic.
With startup marketing essentials, we stress bottom-up, tactic-driven marketing and product development from the get-go. A top-down approach increases costs and slows product development down to a snail’s pace. For startups, S-L-O-W is a four-letter-word. Ries and Trout tell the story of a 3M chemist who was developing a super-strong adhesive, but instead accidentally creates a "low-tack", reusable, pressure-sensitive adhesive. For years, the chemist promoted his invention within 3M, both informally and through seminars, but without much success. Six years after the discovery, a colleague who had attended one of the product seminars came up with the idea of using the adhesive to “stick” his bookmark in his hymnbook. He then made efforts to develop the idea by taking advantage of 3M's bootlegging policy. 3M launched the product in four cities under the name "Press 'n Peel", but sales were poor. Potential customers must have been confused. Just exactly what would a “Press ‘n Peel” be used for? 3M went back to the drawing board, got more consumer feedback, and renamed the product “Post-It Notes.” By-the-way, the yellow color used for Post-it Notes was chosen by accident; a lab next-door to the development team just happened to have yellow paper. Twelve years after its discovery, the “low tack” adhesive finally was launched in stores throughout the US creating a competitive distinction for Post-It Notes. One year later, it was launched in Canada and Europe. Post-It Notes now generate over $1 billion in annual sales and dominate the self-stick note market. A great success, but startups rarely have the funding to wait twelve years before they start earning. Startups must find ways to accelerate time-to-money.
A bottom-up mindset (1) focuses on making the most of what you have, (2) goes where the money is and quickly adjusts the competitive angle in a way that makes the competition irrelevant, and (3) transforms a winning marketing tactic into a successful long-term business strategy.
Consider another example of a bottom-up mindset described by Ries and Trout. In this example, the marketing managers acted more like entrepreneurs than like business-school-clones. Researchers at Procter & Gamble discovered a new liquid cold remedy that soothed and cured scratchy throats and runny eyes, with one "negative" side effect; it also put people to sleep. Rather than call the project a failure and start over, the team moved quickly. It featured the “negative” side effect and launched NyQuil, "The Nighttime, Sniffling, Sneezing, Coughing, Aching, Stuffyhead, Fever, So-You-Can-Rest Medicine." A bottom-up mindset says, “If you can’t fix it, feature it.” Nyquil is a good example of building an entire strategy around a marketing tactic; a cold medicine that puts people to sleep. The “negative” side effect gave NyQuil an element of differentness that solved a problem and sparked a personal connection. That is, it helped people with colds sleep and recover which in turn quickly transformed them back into the productive, happy people.
Chase Customers, not Competitors
To achieve breakthrough success, marketers must carve out new space in the market, redraw the competitive map, and perhaps even rethink what they think they know about marketing. To be specific, chasing customers and not competitors is at the core of achieving success. Marketers often face a David and Goliath competitive environment. Established competitors have more of everything: more money, more marketplace experience, more name recognition, more distribution, and more customers. The Goliath wields so much power as to even set the benchmark for what customers believe they need and want in terms of product features and benefits. Goliath defines the competitive landscape, chooses the weapons, and picks the battles in a way that plays to their strength. In such a world, how is David supposed to compete, much less win? Certainly, David will not succeed by playing the same game as Goliath. David needs to play up his own unique set of strengths, even if the casual onlooker is initially unimpressed. To win, David chases customers and not competitors. That is, David addresses unaddressed customer pain rather than benchmarking and copying bigger, more successful competitors.
Consider the case study of Xerox, a true Goliath, and Canon, the upstart David. Xerox dominated business copying. Perhaps you remember going into the centralized copy room before a big meeting needing some copies of your presentation, waiting in line, and then having the big Xerox copy machine break down halfway through the project. To anyone caring to notice, it seemed like there was some vulnerability to exploit, and companies such as IBM and Kodak tried to do it. They built Xerox-style big copiers of their own and went toe-to-toe with Xerox. But Xerox was, after all, the Goliath, and easily handled everything IBM and Kodak sent their way. IBM and Kodak just couldn’t beat Xerox at their own, centralized copier, game. If someone was going to defeat Goliath, they needed to find something new and different to offer. They needed to identify a copier innovation that addressed unaddressed pain.
Along came Canon, just a little David in the copier market with little toy-like copiers. Xerox executives and engineers laughed at Canon’s pathetic product offerings. After all, Canon was not even competing for the centralized copier business. Canon was promoting something called distributed copying. That is, small copiers distributed to individual offices and departments that were highly reliable and available for making copies when you really needed them...just before the big meeting. Sure, in the early days the copy speed and quality produced by Canon wasn’t as good as the big Xerox, but the speed and quality were more than adequate for the frontline user. Canon educated office managers and frontline users on the advantages of their little copiers, bypassing the traditional purchasing department selling channel that was locked up by Xerox. Frontline users educated their bosses and the bosses authorized purchases. People stopped using the big Xerox, except when quality really mattered and time really didn’t. The sales of Xerox consumables like paper, toner, and service declined dramatically. Canon changed the rules of the game, and Xerox was brought to its knees, taking a decade to recover. Xerox, as the Goliath, had many advantages, but one deadly disadvantage. Like all well-known brands, Xerox had a well-defined way of doing business that it could not walk away from. Xerox was trapped by its own success. Marketers with new products don’t carry baggage. They have the freedom to compete and win by following their own path to success and building on their own set of unique customer-must-have qualities.