10 TPE Part II - Chapter 4-converted

The main idea of this information is the importance of focus in business. It highlights the concept of doing less to achieve more. The example of Hewlett-Packard is used to illustrate the benefits of having a tight focus on a specific product. The information also discusses how successful companies, such as Microsoft and Google, initially focused on one product or service before expanding their offerings. The importance of maintaining quality and avoiding being a "jack of all trades" is emphasized. The analogy of driving a fast car is used to explain the power of focus in achieving success. The concept of the "focus five" is introduced as a strategy for finding the right balance between a narrow focus and generating substantial revenue. Chapter four, getting down to business. Make everything as simple as possible, but not simpler. Albert Einstein. How come we've all heard the phrase less is more, yet still behave as if more is more? So many aspiring entrepreneurs believe that the broader the variety of products and services they offer, the more successful they will be. The problem with this is that the more you do, the less effective you are at any one thing. The less likely you are to be exploiting your strengths. The less likely you are to be exceptional. Broad strokes are for ordinary folks. A tight focus allows you to quickly determine if the path you are following is bearing any fruit or not. Since the path is narrow, when you hit a problem or a roadblock, you will catch it right away. With this knowledge, you can adjust speedily and often with few consequences. Bill Hewlett and David Packard took focus to heart, but only after a few years of initial startup struggle. On January 1st, 1939, they kicked off their partnership with a $538 investment and a beat-up drill press. At first, the company was generally unfocused and worked on a variety of electronic and agricultural products. Hewlett-Packard hit its stride in the early 1940s with spiked market demand for an HP invention called the Model 200A audio oscillator. The invention introduced a level of quality the market had never seen before and was at a price point that couldn't be touched by the competition. Because they were focused tightly on the Model 200A, Bill and David were able to determine how to use technology from light bulbs to make and sell a far more reliable product for a quarter of the competitor's price. The result of HP's laser-sharp focus? Possibly the longest-selling simple electronic design in history. Fast forward a mere decade and revenues were well into the millions. And that's 1950s money! Hewlett-Packard was a huge success for a couple of guys who used a coin toss to determine the company's name. When David Packard won the toss, he had the option to select between Hewlett-Packard and Packard-Hewlett. He went with Hewlett-Packard. David Packard and Bill Hewlett are toilet paper entrepreneurs. Focus small to get big. Name a company that launched to superstardom without a narrow focus. Can't think of one? That's because it's never happened. Look at Microsoft. It skyrocketed to success on DOS, a simple program that made a computer more functional. Today, it's a different animal, making software, video games, and computer hardware. But when it took off, it was due to the focus on DOS. Google launched on a search engine. Now look at all the crap they do. Intel did it on processors. Cirque du Soleil did it on circuits acrobatics. Ford did it on the Model T. Procter & Gamble struggled with candles and then launched when it focused on soap. I challenge you to find any company that grew exponentially by selling a large, varying mix of offerings from the get-go. Only after they have saturated the market with their focus do they introduce a mixed offering. But I can't think of one company that launched that way. Walmart, too, had an absolute focus in its offering. It was lots of stuff, but all at cheap prices. Everything it carried had to be absolutely the cheapest price anywhere, or they did not carry it. The lesson here is that your focus does not need to be one product per se, but it needs to be one consistent method of being way different from everyone else. It seems common sense would dictate that the more products and services a business can offer to a wider variety of consumers, the more revenue it could generate. The proverbial one-stop shop. If you can lock a customer into one service, she will likely buy more things from you because she trusts you. The only problem is that the more you do, the harder it is to maintain quality. The old saying goes, jack of all trades and master of none. My version goes, jackass of all trades or master of one. Jackass is appropriate since that's what your customer will think of you when you try to be everything to everyone. No focus, and your products, your services, and your customers suffer. To be a market leader, your company must excel in one laser-beamed focus area, be better than anyone else, and continue to focus on improvement in that area, or you will be left behind. As you examine your business, can you imagine how less variety in what you offer will result in greater ability to do what you do well? If so, it is time to start doing less. If you can't see your business improving with greater focus, congratulations. You must already be the world leader in your area of expertise. Focus, like many things in life, is a double-edged sword. When applied appropriately, focus will result in rewards beyond your imagination. Conversely, focusing on the wrong thing will result in a dangerous downward spiral. You are doomed if you focus on the reasons for your problems as opposed to focusing on a resolution. Focus on achieving success and exploiting strengths rather than avoiding problems and resolving weaknesses. Focus on the wrong thing, and you get burned. How to drive dangerously fast safely. The power of focus may be best explained through an experience I had driving a powerful car ridiculously fast. For a second, imagine the TV subtitle scrolling by, Do Not Drive This at Home, Close Course, Very Unprofessional Driver. I had the good fortune of being trained at Skip Barber's Racing School, where they taught me how to navigate a hairpin turn track driving a 550-horsepower Dodge Viper. Back then, they trained people to race on those beasts. Now they train on lowly 325-horsepower Porsche 911s. What they taught me at Skip Barber was all about focus. In order to navigate the course at top speeds, I was trained to focus exclusively on the next turn while the car was still piloting the current one. The trainers taught me to focus on where I wanted to go, not where I was, since my peripheral vision was already taking care of that. To go the fastest, I was trained to continually focus on the next turn, not the current one, nothing beyond the next one, just the next turn. I also learned what to do should the Viper start spinning out. Again, it was all about focus. I had to focus on where I wanted the car to go and not focus on the wall I was trying to avoid. Sure enough, during my first spin, I panicked, looked straight at the wall I was heading into and steered right into it. But after a few spins and some potentially expensive near misses, I learned to focus on where I wanted to go. When times were at their worst, meaning a crash was imminent, a successful outcome was achieved solely by my intense focus on where I wanted to be, not on what was currently happening. The same is true for your business. Narrow your focus on the best products and services you have to offer. Make those few things extraordinary. Focus on and exploit your strengths. Look at where your business is headed, not where it is at the moment. Is your business in a spin? Give your attention to where you want to go, not on what you're trying to avoid. There is no question about it. You get what you focus on, either good or bad. Concentrate on where you want to be, and your chances of successfully getting there are far greater than if you focus on what you're trying to avoid. The focus five. Can you be too narrowly focused? Absolutely. Let's say your passion is in making fresh, delicious pizza and delivering it in 15 minutes, guaranteed. You could advertise to the entire world if you like, but it would be nearly impossible. Remember, nothing's impossible. To launch a business delivering fresh pizza in 15 minutes to any location in the world. So what is the right thing to do? Narrow your focus. You could pick an area that you can easily deliver pizza to in 15 minutes. The problem may be that there are 10 competitors in the same area, all with great pizza and loyal customers. Getting a foothold would be difficult. What if you focused really tightly so to ensure a market? You could service only the second floor of residence in the Park Avenue building. With a tight and specific customer base, you could quickly enhance your services to cater to these customers, destroying every competitor with a broader market. For instance, you can install a dedicated pizza phone in every apartment on the second floor or hand deliver a pizza sample every day. You could do a million things that your competition would not have the resources to match. A tighter focus would allow you to overwhelm the competition in service, customer intimacy and speed. There's one glaring problem though. You won't make crap for a living. The focus in our example is way too narrow. While you could outservice other pizza places, you wouldn't have enough prospects to keep business rolling. That is, unless you were selling pizzas for $10,000 each. When you focus too narrowly, it becomes difficult to generate a substantial income. Focus five is a strategy I developed that allows you to focus narrowly enough to dominate a niche, yet broadly enough to make substantial revenue. The goal of the focus five is to find the sweet spot for as little direct competition as possible with the greatest market potential. To find the sweet spot, you need to keep narrowing your focus until you have the confidence and research to support an achievement of $5 million in annual revenue within five years of being in business with less than five direct competitors. Use the following equations to evaluate the trade-offs and find the balance in your business focus. One, narrower focus equals increased ability to be the best. And two, narrower focus equals reduced competition, but three, narrower focus equals small customer base, plus narrower focus equals lower potential revenue. And also, point number five, narrower focus equals slower growth. The idea behind the focus five is that you need to be aware of the gains and losses that a narrow focus provides. Looking at the equations, for example, you'll notice that as you focus more narrowly, you will increase your ability to be the best and reduce the number of direct competitors. You will also have a smaller customer base, less potential for earning revenue, and ultimately your business will grow at a slower pace. If you can't realistically achieve $5 million in the next five years, your focus is way too narrow to grow a scalable business. Without the ability to achieve at least 5 million in revenue you will spend your efforts in the day-to-day operations of your business, doing work, and or servicing customers. What you want is a business that is positioned to scale to the point where you are managing people and constantly improving internal systems, not working to serve customers. You want to build a business that you will continually work on, not in. The other variable is competition. If there are five or more direct competitors already operating in your niche, you will be in for a serious fight. But if there are only a few competitors, or none, you can gain a foothold much faster. When you hone in on a niche that is narrow, but not too narrow, and when you use the $5 million marker as a goal, you position your business so that it is safe from big players that can, but don't, buy into the market. A company grossing 5 million a year is small potatoes compared to an industry giant. The giants will wait until you have mastered your business and dominated your niche before they make an offer to buy your company. And that, my friends, is a happy, happy day. Maybe your aspirations are different. You may aspire to make $1 million in five years, which will change the formula to succeed. Hint, it makes it easier. Or you may have other numbers. The important thing is to find the balance of focus with potential to achieve your goals. If you're going to err on one side or the other, it is far better to blunder on the side of being too focused. You can always broaden what you do without losing your current customers. The other way around just doesn't work so well. You gotta do better. Conventional wisdom indicates that people are motivated by the desire to increase pleasure and the need to avoid pain. I think that is too complicated. The fact is, everyone is out to feel better, and the sole purpose of your business should be to make the customer feel better. That's it, game over. All the bull crap aside, feeling better is all that matters. An entrepreneur launches a business that makes someone else feel better. The toilet paper entrepreneur ensures that he is always better at providing better than any of his competitors. Here are some better examples. An insurance provider makes his client feel better because they feel there's a safety net. Ah, yes, less worries equals feels better. Two, a client selects a vendor because she feels he is nicer, more trustworthy, better looking, smarter, more courteous, or any of a million variables. The net effect is that the client feels better working with this vendor, and she selected him based on that feeling. Three, a doctor makes you feel better. At least she is supposed to, and when she doesn't, you are less desirous of maintaining the relationship and vow to go elsewhere. But it is time-consuming to go elsewhere, and that doesn't make you feel better, so you stay with your lousy doctor because that does feel better. Four, we put others down because it puts us up. We feel better, temporarily. Five, a taxman does not make you feel better, so you seek out an accountant or H&R Block, and that makes you feel better. Not much better, but better nonetheless, until you get their bill. Six, a garbage man takes away your rotting garbage. We all feel better. Seven, you go to a restaurant and order your favorite hamburger. You feel better. They serve it undercooked, not good, so you consider complaining and ask me for a new one. That would make you feel better, but you fear the cook will spit a phlegm bomb dead center on your patty. That would be horrible. So chewing down on raw meat and not saying anything makes you feel better. It's gross, but you avoid confrontation, so you're feeling fine. Eight, even this stinking book was purchased in order to feel better. You will only keep reading it if it continues to make you feel better. If the book doesn't make you feel better, you put it down and stop reading. Again, you feel better. To launch and maintain a successful business, you need to always make your clients feel better than your competitor does, always. Your area of innovation, quality, price, or convenience. If there can be only one thing, what are you going to be known for? Inevitably, to lead an industry or even to have a single sale for that matter, you need to be better, faster, or cheaper. You need to have a unique, desirable attribute that no one else offers. This attribute will always be a perceived differentiator of quality, price, or convenience. Where in your business can you offer quality, convenience, or price that is far better than the competition? Once you find it, pick just one and stick with it for the life of the company. Hint, you must pick the category that fits seamlessly with your beliefs and your immutable laws. Then do everything in your power to be the best at it, always, always improve on it. By selecting your key differentiator, you have determined your area of innovation, the way to consistently ensure you're the one making your customer feel better. Customers will return to you again and again in search of that feeling. If you are Walmart, your area of innovation is price. To continue to dominate the industry, Walmart must have an unrelenting focus on providing the best price. If it gets off the price track, it's in trouble. Could you imagine Walmart offering, for example, a convenient movie rental service that could compete with Blockbuster or Netflix without offering an amazing price advantage? Oh, wait a second, Walmart did do that and it failed miserably. Walmart's movie download service launched in February of 2007, and by December of that same year, it was toast, a total failure caused by Walmart's focus on convenience rather than price. Walmart has grown explosively because it's all about the lowest price first. Everything else, including quality and convenience, comes second. Even the mighty Walmart could fail if a company loses focus and compromises price in an effort to improve in another area of innovation. Of course, if it increases quality while first ensuring a lead on price, it wins. McDonald's leads on convenience. The day they start offering burgers that are cooked-to-order quality, they're in trouble because you have to wait longer and convenience will be compromised. But if they can knock out a cooked-to-order burger faster than they prepare their current burgers, then they really have a win. How would you like yours in five seconds flat? Mercedes leads on quality. Can you imagine Mercedes coming out with a competitor to the Toyota Corolla? It would lose, so it doesn't. Dick's Last Resort Restaurant in South Carolina also leads on quality, but it sure isn't the quality of food. Instead, it is the quality of the experience. The waitstaff insults guests, mocks their food orders, and forces them to wear goofy hats. It's definitely not for people without a good sense of self-deprecating humor. But if you like that type of atmosphere, Dick's is the highest quality experience you can find anywhere. How many restaurants regularly get five-star ratings on service and atmosphere when their waiters inevitably say, is that all you're gonna give me as a tip, you cheap bastard? The area of innovation is where you need to put all of your energy and inventiveness. If your company leads on quality, for example, you need to constantly focus on how to improve quality. Should you ever ignore or compromise quality in an effort to save money or reduce the price point or make things more convenient, or for any reason, you're screwed. The consumer who has been buying on quality will notice it immediately, feel compromised, and typically leave or start to search for an alternative. Encyclopedia Britannica had a miserable collapse, particularly since it was a beloved American icon. Believe it or not, those giant books were once considered a convenient way to find information. Britannica's area of innovation was convenience, even going so far as to sell door to door and deliver right to your living room. But when the customers could benefit from improved convenience by getting their encyclopedias on CD-ROM, Britannica just kept printing books. Britannica failed to stay true to and continually raised the bar in its area of innovation. The company was quickly surpassed by Microsoft's Encarta CD-ROM, which was later made obsolete by Wikipedia, all in the name of the same area of innovation, convenience. Wikipedia raised the bar so high on convenience, instantaneous and unlimited information, that Encarta didn't have a chance. It also raised the bar ridiculously high on price, and quality. It's a living file that constantly updates and improves. I can't wait to see who kicks Wiki's ass. And trust me, someone will. Maybe it will be you. What is your area of innovation? Is it in keeping with your immutable laws, your internal rules? Does it ring true? Commit to leading in quality, price or convenience, and make sure you pick just one to focus your attention on. Stay in the ballpark with the other two areas, but never, ever compromise your area of innovation in an effort to excel in all three. When you diligently and consistently work to raise the bar in your area of innovation, effectively competing with yourself, you stay out of your competition's reach. Who's your ideal customer? You are deep into the book now, and it's the first time that we're going to start really digging into identifying your customer. Traditional business training and common logic says this is your starting point of launching a company. They couldn't be more dead wrong. Starting a company is all about servicing your needs, your beliefs and your values first. By this point, you should have a strong knowledge of yourself and a clear vision for what you want. That is, if you follow the action steps at the end of each chapter. You are now ready to identify your ideal customer. Market demographics, trends analysis and other statistical measures are important, but they only scratch the surface. They surely don't position you to launch successfully. As with everything else in business, you need to start by knowing your destination first. In this case, you need to define your customer so well that you can pick him or her out of a crowded room of thousands of people. Paul Scheider can pick a perfect customer out of a crowd in seconds flat. The founder of Hedgehog Leatherworks, the leading provider of leather survival products, talk about a tight niche. Paul defined his ideal customer early on in his business and experienced phenomenal growth just by knowing his customer like the back of his hand. After launching his company from his college dorm room, Paul soon realized that his sporadic sales were coming from a wide mix of customers. Some were in the military, some were hunters, others were survivalists, a few were collectors and some more were totally undefined. Paul knew he couldn't cater to so many different types of customers. So he compiled a list of 100 adjectives and descriptive phrases that defined his perfect customer. He identified his customer's values, specifically those he held in common with them, as well as how they looked, acted and reacted. Paul even knew his customer's favorite movies. With these details documented, Paul simply kept his eye open and whenever he noticed someone that fit his description of an ideal Hedgehog Leatherworks customer, he struck up a dialogue with them. Sure enough, knowing exactly what he was looking for, Paul quickly met many people with similar interests and values, a few of whom were very influential within his niche. These people became his friends, made introductions and brought in more people with similar interests and values. Paul's business took off and has grown explosively ever since. Within two years of his launch, Hedgehog Leatherworks is recognized as the world's leader in high-end performance leather sheets. Paul has a loyal customer base that floods him with unsolicited testimonials and thank you notes. Handling all of his testimonials has actually become a challenge for Paul. Now that's a problem to aspire to, wouldn't you say? Paul Scheider is a toilet paper entrepreneur. You too need to know your customer with this level of detail because simply put, it makes it much easier to locate, market to and sell to them. Consider the tickler questions below when defining your ideal customer. The goal here is to start broad and systematically funnel down to the exact customer who will most appreciate, connect with and benefit from what you have to offer. Trust me, the ideal customer will share your mutable loss, tremendously value your area of innovation and be a raving fan of your product or service. This list of questions is far from complete and is simply a starting point. You need to ask an exhaustive series of questions. You will have completed the task of identifying an ideal customer when you are able to walk through a crowd and identify him by the way he looks, behaves, talks, smells, et cetera. If everyone in the crowd is your potential customer, you are way too broad. But if one out of 1000 is clearly an ideal customer, you may have found your perfect niche. Where do they live and why? What do they cherish? Why? What do they hate? Why? What is their favorite TV show? Why? Do they even watch TV? Why not? What would they not be caught dead doing? What is the most important part of their daily routine? Do they own a car? And if so, what is the make and model? If they own a car, how aggressively do they drive it? What pisses them off over and over again about your industry? Are they married? Are they single? Are they gay? Are they straight? How old are they? How old do they look? How old do they act? Know your prospects better than any of your competitors and you'll have an easier time finding them. When they become customers, you'll be able to relate to them better. They'll come to you easily and stay happily. As a final thought, recognize that by knowing one group so well, you will not know other groups at all. You may actually upset some people. This is okay. It's actually desirable. You want to polarize people. You want clients who love you and others who don't. If you get the love-hate reaction, you know you are onto something since your focus is causing exclusion and discomfort with some. Better yet, the people who love you now will have a reason to defend you, further entrenching their adoration because you share a common enemy. Serve a narrow niche and facilitate growth by exclusion. You are really, really good at very, very little. Many entrepreneurs get in the habit of saying, I can do it to everything and everyone. I call this the I can syndrome. While it is true you can do many things, you suck at most of them. All of us are naturally talented at only a few things and are mediocre or bad at everything else. Entrepreneurial mastery requires that you learn what your strengths are, few as they may be, and exploit them to the fullest. All the other areas where you are not strong need to be handled by other people who are super talented in those areas. I recognize that this is easier said than done. During the early stages of launching your company, you do, in fact, need to do everything. In addition to stretching every penny you have, you also need to learn the requirements of your business. Over time, as you start to generate cash flow, you need to introduce other experts. As you can afford it, bring on extraordinary staff and or services that can replace you in the areas that consume a majority of your time where your talents are weakest. For example, if you have a poor attention to detail, which most entrepreneurs do, you'll probably want to hire an excellent part-time bookkeeper. Maybe contract with a personal assistant service to help you with scheduling and small tasks. Discover the areas where you are naturally talented. This requires stepping away from the moment and looking at your abilities and experiences objectively. Consider your answers to these questions to discover your strengths. One, what do you do that you look forward to? If you consistently enjoy doing something, it may be one of your strengths. Two, what activity do you push off to do last? When you routinely avoid a certain task, there's a good chance it may be one of your weaknesses. Three, in what area do you pick up knowledge very easily? If you catch on to something quickly, it's probably one of your strengths. Four, in what areas do you struggle? These are almost definitely weaknesses. Five, what activities give you satisfaction, a sense of worth, and just make you feel good? These are probably strengths. Six, when a mere three sheets are dangling, what is your instinctive approach? Do you joke your way out of it? Do you work with atypical resources? Do you scream for help? Do you dive into the shower? Or do you say, screw it, and just stand up and walk out? The way you handle crisis is also one of your strengths. In every situation in life, our natural tendency is to lean toward our strengths. But this is typically at a subconscious level. Often, we let our logic redirect our course and do what is not natural. We actually hamper ourselves by trying to improve our weaknesses, because our mind is telling us this is what we must do. Listen to your internal guidance, your emotions. If it feels good, if it feels natural, if it feels right, it almost definitely is. Your emotions constantly point you toward your strengths. Build on them. Know that you have a super strength that no one else will ever match. You care more about your business than anyone else. Your company is your baby, your mission, and your passion. For some of your colleagues, it may just be a job. They may admire and respect you. But at the end of the day, it may still just be a job. You alone have the responsibility of ensuring everyone and everything are well cared for and moving forward. Take action now. These next action steps are huge, unbelievably huge, huge and crucial to your success. You may even need some extra time to complete them. And your answers may change as you discover more about yourself and your business. Just dig in and see what you can get done in half an hour. If you've got more time, by all means, work it out. One, skip back to the section on the focus five and play it again. Figure out your focus five. Work the equation until you come up with a niche you can dominate, but in which you still earn at least five million annually after no more than five years in business. Do not skip this step. Two, building on your immutable laws, choose an area of innovation. Consider all of the options before you commit. Three, how well do you know your ideal customer? Write a list of characteristics that describe your ideal customer in detail. Write down to his or her underwear. Go with your gut and try not to judge your list. You might be surprised at how many attributes you can come up with right off the bat.