“Just as you should place more emphasis on the benefits of your offering than on the features, you should think about basing the price of your offer on the benefit – not the actual cost or the amount it takes to create, manufacture, or fulfill what your are selling.” Chris Guillebeau
Base price on benefits offered – not cost incurred.
Rationally we get this – but how many of us small business operators actually practice this principle?
When you do this be prepared to stand your ground, because there are always people who complain about the price being too high no matter what.
Only the market can decide if it is too cheap or expensive – never one individual.
The 2 goals when you invest in your/a company are Growth and Profitability. Both hard to achieve. And again we will see timing is everything.
Professor Amar Bhide showed in his Origin and Evolution of New Business that 93% of all companies that become successful had to abandon their initial strategy – because the original plan proved not to work out.
So successful companies do not succeed because they have the right strategy at the start; but rather, because they have money left over after the original strategy fails (learn fast), so that they can pivot and try another approach based on what they have learned. Those who fail, in contrast, spend all their money on their original strategy… which is usually wrong.
So the theory of Good Money and Bad Money based on Bhide´s work goes like this:
In the early stages of a new business (when the winning strategy is not yet clear or proven), good money from us as an investor needs to be patient for growth, but impatient for profit.
In this stage the company needs to figure out a viable strategy as fast and with as little investment as possible (so you do not spend a lot of capital chasing the wrong strategy). Remember the 93%…meaning small companies burn little and big companies burn huge amounts of cash.
This why capital that seeks growth before profits is bad capital.
Once a viable strategy has been found (proven), as an investor we need to change what we look for, we should become impatient for growth and patient for profit. Once a profitable strategy has been found, success now depends on scaling the model.
Note: Now it is also easier to see why companies that are financially constrained in the early days have a bigger chance of success. Their focus often is on profits.
You get what you focus on, so focus on what you want.
Choose wisely. 🖖
*From “Origin and Evolution of New Business“, Amar Bhide and “How Well you Measure Your Life“, Clayton M. Christensen
Real strategy is created through all the small decisions about where we spend our resources. To discover and understand strategy (company or person) check where the resources flow.
“To understand a company´s strategy, look at what they do rather than what they say the will do.“ Andy Grove.
Mapping the allocation flow of Time, Money, Passion will tell you more about the strategy than any powerpoint will.
Everything related to strategy is only intent until it gets to the allocation stage. Resource allocation is where the rubber hits the road.
And so every decision of how you spend your time, energy and money, you are making a statement. A statement about what really matters to you or your company.
In fact, how you allocate resources can make your company (or own life) to turn out to be exactly as you hope. Or very different from what you intend. In another post I wrote about how OKRs can be the hack you need to build this consistency between Objectives & Work (=resource allocation).
Common Mistake (this is true for companies as well as individuals): Often the decision-making process favours the most tangible and immediate results. This then results in a short-term focus and lack of resources for initiatives that are crucial to the long-term strategies. Strategy is about the long game.
So if you want to make sure you are implementing the strategy you truly want to implement: Control where the resources flow.
If not, you probably will end up in a very different place then you intend to end up. And that might be up shit creek…🚣🏻♂️.
It is so much more valuable to know how to think instead of what to think. That is why we need theories. Golden rules.
A good theory is like a power tool ⚙️.
Caution🔌: Todays management and strategy literature is often more popular because it is marketed like Coca-Cola instead of being truly useful or effective. (“hire A-players; have a good strategy;…🤷🏽♂️) note: Yes this is a clear reference to Jim Collins & company who seem to write the theories first to only afterwards pick the subjects for their “research”… causality is all backwards.
A good theory does not change its mind.
It doesn´t apply only to some companies or people and not to others. It is a general statement of what causes what, and why.**
So here is such a theory or 3 golden rules from Harvard Business Review* on how to build a great business. It is based on statistical solid research and we have applied it rigorously since with success.
3 golden rules to build a great business
Better before cheaper: don´t compete on price, compete on value.
Revenue before cost: don´t drive profitability by cutting costs, instead find ways to earn higher prices or higher volume.
there are no other rules: view all other choices through the lens of the first 2 rules.
So now you can go back to your pending strategic business decisions and apply the 3 golden rules…
figure out your product mix, growth, solutions strategy, pricing
decide which markets to enter or not, and how and when
make recruitment decisions, hire, develop, fire
marketing strategy, sales plan, service levels, customer satisfaction initiatives,…
The simplicity of these rules does not mean they are easy to follow through.
These rules simply drastically increase your probability of success…
“The secret to success is setting the right goals.”
Andy Grove, a hungarian refugee, became the greatest manager of his time. And most likely of all time. According to Andy the role of a manager is to either be teaching or coaching. He deeply believed in uncapping the potential of people and ambition.
Andy developed a simple and flexible system to reach ambitious goals. (At Google these are called 10X Goals). The system or tool is called OKR. I call it the powertool ⚙️ or cybersword ⚔️ you pack to climb the highest mountain tops in life 🏔 🏔.
OKR´s stand for Objectives & Key Results. It is a system that has driven many highly successful organisations and people since. From Google, to Bono´s ONE foundation, to many individuals like you and me aiming te reach ambitious goals.
It is important to see that OKRs are not the same as your Purpose, Values, Vision or Mission which are about why and the future we want to create. OKRs are about what you need to achieve to get there and how you are going to do it.
Objectives = What you need to get done. Key Results = How will you get it done?
The problem is that if we do not use a system to reach our goals (and there are many goal setting systems of course) we end up working very hard but with little progress and lots of frustration. Initiatives, efforts, individual progress leads to chaos. And great ideas stay just that…great ideas. The mountaintop remains in sight but we are not able to get closer.
As Steve Jobs once said “Great artists ship”.
This is the reason why to use OKR´s.
Execution. To achieve your ambitious goals. Because making dreams come true is not luck. It is hard work within a systematic approach.
The pay-offs of using OKR-system can by summarised in 5 points:
FOCUS (for the individual, the team, the company but also the world around).
ALIGNMENT (by being fully transparent everyone is aiming for the same North Star(S))
COMMITMENT (a type of social contract comes to life to say what you will do and do what you have said)
TRACKING (know where you are but even more importantly know how much progress you have made – OKRs can be part of Kaizen )
Create a Trello Board (contact me for a sample we use internally and personally) and get started to slay your goals.
⚡️ Important note ⚡️: choose your Objectives carefully and wisely. You may end up spending most of your energy and time trying to get there…and when you do it better be worth it.
