Focus on What’s Core
Posted on March 17th, 2010 by Paul McArdle – 4 CommentsStephen sent me a link to this presentation by Geoffrey Moore at the “Business of Software” conference in 2009. Thanks for that!
We were going to attend this conference in 2009, but it clashed with the commencement of our Autopsy 2 process, and as such we had to give it a miss. Geoffrey Moore is a well-known author that I was particularly looking forward to hearing present, and I am happy that this teaser was made available online. Perhaps the 2010 conference (October 4th, 5th and 6th in Boston)?!
The following is a rough summary of the presentation that has been mainly put together for our future reference – it is particularly topical with the strategic work we are doing at present in mapping out our vision for the next 10 years or so.
I would strongly suggest you view the whole presentation (approx 1 hour) to gain the full context.
Any observations I make particularly with respect to our business I try to write in blue, as I have tried to do in other posts.
(A) Alignment Required
We have had some previous discussions internally about the nature of innovation, with the ambition being transitioning ourselves:
from being a collection of individuals of varying degrees of innovative ability
towards being a truly innovative, integrated company (with every person playing a part in understanding the customer, generating and delivering ideas for how to serve them better).
For us, this will be very necessary if we to are achieve our ambitious vision for the company.
Geoffrey provides a note of caution with efforts such as ours, in that the innovative efforts of all team members need to be aligned in a common direction, lest they add up to virtually nothing.
This is a useful reminder for us.
The work we have done recently in enunciating our mission and core values will go some way to achieving this alignment – but there is more that needs to be done through 2010.
(B) Three Reasons to Innovate
Geoffrey identifies three mutually-exclusive reasons that companies innovate.
Geoffrey makes a number of telling points, including that:
1) Each method has its place, however
2) Every company needs to ensure it is crystal clear what is the focus of any particular innovation effort – it cannot be more than one.
3) Each method is more applicable at different points along the adoption curve for that particular product offering:
1) To Differentiate
Differentiation is “how you make money”.
Geoffrey advocates that it is almost impossible to over-invest in a company’s “chosen vector of competitive separation”, if this is going to be one that truly differentiates it from the competition.
This is because focus works, which he explains in these terms:
“if you focus enough, you will do things that your competitors cannot, or will not, do”
The big assumption in all of this, of course, is that the company chooses an aspect to differentiate on that both:
(a) Customers really care about; and
(b) That is large enough to sustain the company, or at least the initiative.
Putting this to one side, for a moment, the argument reduces to one that is along the lines of = for a chosen point of focus, it is better to go double-or-nothing on that focus area (i.e. to achieve true differentiation) than to only do it in a half-hearted way.
Geoffrey defines CORE as:
“processes that enable and amplify your chosen vector of competitive differentiation”
Geoffrey proceeds then to define everything that’s NON-CORE as “context” (however as this represents a semantic clash to how Shirlaws use the term “context”, I will continue by calling it NON-CORE in this post).
Geoffrey makes the very strong recommendation for people to wake up each morning with the focus of “CORE before NON-CORE” to ensure we at least make a small step, each day, to focus on what really makes us different.
2) To Neutralise
Neutralisation is “how you stay in the game”.
This becomes necessary when the market has shifted, and we have not moved with it. We need to get back into the market in order that our customers will continue to use us for other reasons (i.e. for our original point of differentiation).
Geoffrey very strongly states that customers, when in this situation should not try to “catch up” to the market leader. What companies need to do in this situation is to do just enough to ensure that they can be considered again.
Within our product suite we have found that our NEM-Review product is now trailing (with a few potential customers) because it does not offer clients the ability to analyse bidding data.
Does this mean that we should be specifically focusing on being just “good enough” with the bid analysis, when we introduce this in future? This is a discussion we still have to hold.
3) Optimising for Productivity
When a company’s product becomes a commodity, they are forced to compete on a cost-basis.
At this point in time, innovating for cost reduction becomes critical – focusing on the cost across the whole value chain, not just within the company’s walls.
One suggestion Geoffrey makes is worthwhile us considering – he talks about whether we can include social networking into our software support processes.
(C) Eliminate Waste
Geoffrey notes that “waste should drive us nuts!”.
In Geoffrey’s paradigm, waste comes in three main forms:
1) Differentiation efforts that don’t go far enough;
2) Neutralisation efforts that do go too far – because “once you’re ‘good enough’, you’re good enough!”
3) Unaligned innovation – hence no amplification of innovative efforts. If the goal is to do something that competitors cannot or will not do, this means that we need to go a long way outside of the current circle that defines a “typical” product.
(D) Three Value Disciplines
Geoffrey references the book “The Discipline of Market Leaders” to illustrate how companies have been found to focus on only one of three core ways in which to secure sustained competitive advantage:
1) Product Leadership
2) Customer Intimacy
3) Operational Excellence (which most commonly translates to lowest cost, lowest price)
In the following slide, Geoffrey maps the product development life-cycle initially promoted in his books:
1) The initial grey shape, identifying the “technology adoption lifecycle” was dealt with in “Crossing the Chasm”;
2) The first bright-green “Growth” phase was dealt with in “Inside the Tornado” (which I also read some time ago – at that time I did not see it as so applicable to our case, unless we broaden our focus into B2C opportunities such as those emerging with Smart Grids);
3) The mature stage was apparently dealt with in “Dealing with Darwin” (which Paul Klaptocz reviewed in a restricted post).
In the diagram above, Geoffrey also maps the three value disciplines onto the life-cycle.
This highlights the importance of us answering this question “where are we as a category, in this model”. Answering this question will help us identify what our primary innovation focus should be for that particular product, or the company as a whole.
Now that we have our new “General Manager for Discerning, Developing and Delivering what the Customer Wants” onboard, we will be having some detailed discussions about this in the next few months, informed by many meetings with a wide range of our clients.
(E) 3 becomes 12
Geoffrey goes on to state that these three options were really to coarse for most companies (especially SME software companies like ours) to effectively focus on.
Hence he extended the logic by expanding the choice framework to highlight 12 choices:
Geoffrey has provided (image saved above for ease of reference) an example of companies who, he thinks, have focused on one of each of the 12 core focus areas. The slide is a little difficult to read, so watch the video above for the full commentary.
I see there is much logic to this frame of thinking.
This material was initially presented in his book “Dealing with Darwin”, which Paul Klaptocz reviewed here (he chose to make his post restricted because of the content of the discussion).
(F) Focus on “Solution Innovation”
Geoffrey notes that 90% of small software firms (such as those at the conference) should choose to differentiate based on a focus on “Solution Innovation”.
Geoffrey frames this choice as “you want to be a big fish in a small pond”. He also calls this “targeting a group of customers that is as big as we can handle, who have a problem that is as unique as we need it to be”.
He claims that this choice would enable us to grow our revenues to $30M, or $40M (or even up to $300M, with spanning horizontally across several vertical market niches).
This is a choice we have implicitly made over the past 10 years.
Much of what I have focused our company on, over this time, has been through ways in which we can make the electricity market more understandable – whether that be through free services (such as WattClarity ®) or our paid software licences (for packages such as NEM-Watch).
However, as part of the planning process we’ll be working through over the next few months, we will be explicitly re-confirming that this should continue to be our focus, moving forwards. We will be consulting widely with many of our clients as a core input into this decision process.
(G) Selecting the right Niche
Geoffrey presents the following decision matrix that companies (like ours) can work through to select the right market niche.
As shown above, it comes down to answering the following three questions:
1) Is the niche big enough to matter (i.e. to support us)?
2) Is the niche small enough to allow us to lead?
3) Is the niche a good fit with our crown jewels?
Geoffrey notes that half our revenue will not come from our core market. This is ok – but we need to recognise that a dollar earned within the focus area is worth much more to us than a dollar earned outside, as everything our company does should be set up to amplify the benefits.
(H) Delight the pragmatist buyers
Geoffrey provides this checklist for companies (like ours) to work through in identifying which niche market to target.
In the “Bowling Alley”, we want to win the customers that are pragmatists – because “pragmatists do what other pragmatists do”.
For us, this means a number of things, including:
1) Our product must solve a real problem (not just be “the new black”) – and preferably #1 or #2 problem in that niche. This is because pragmatists really just want to solve problems.
2) Because word of mouth is the most compelling sales message between pragmatists, our software actually has to create a successful user experience (for instance, it needs to be easy to install – no excuses).
The way I look at it, our product needs to clearly deliver on the implicit promise (without caveats).
3) We need to be able to put ourselves in the shoes of the pragmatist buyer (not the enthusiasts or the visionaries) in order to be able to really understand what keeps them awake at night, that pain that we can fix for them – Geoffrey calls this “the compelling reason to buy…”.
4) Geoffrey comes back to one of the major points that we have struggled with in the past – we need to test the whole product, end-to-end (not just the bit we ship, but the entire solution at the client end).
For instance, our software needs to work properly on MSDE (or SQL Express) as we know some clients use this (install of a full-blown copy of MS SQL) for their deployment.
5) These solutions are sold based on focus on the customer’s problem, not the widget (something that took me too long to learn, so we need to ensure any salespeople we hire start from this, as a starting point).
(I) Tilt towards what’s CORE
As a final word, Geoffrey talks about taking EVERY function in the company and “go the extra mile” to ensure we get an additional 5% input towards the chosen core focus for the company.
What does this mean for us? We have still to work through this, but it may mean ensuring that every single person working in the company has at least a working knowledge of the way the electricity market works – in order that everyone can deliver value to our customer (or potential customer) when they call us up.
Coupled with this, Geoffrey advocates a ruthless focus on optimising everything that is non-core (including consideration of outsourcing, and the like).
(J) “Go Ugly Early”
You will have to listen to the questions at the end of the presentation for this one, but this is a key learning – in my mind.
Basically, Geoffrey talks about the benefits of going to market early with a Project, as opposed to a Product (i.e. finding a sponsor that will pay some cash for early development – plus be a guinea pig in providing feedback). Get a customer as soon as possible.
This is one of the core reasons we’re in the process of “going Agile” (much as I dislike this term).
This is one of the core reasons why we’re in the process of “going Agile” – much as I dislike this term.
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