“In business, there are two ways to make money. You can bundle, or you can unbundle.” –Jim Barksdale, Former CEO, Netscape
For shrewd readers of the business cycle arc, there are opportunities coming forward that deserve some serious consideration. The drivers of these opportunities are there in plain site, yet many firms I talk to haven’t done a systematic scan for them. These drivers are forcing the hand of larger, more complex firms to unbundle and leave some interesting market niches.
So what’s bringing these opportunities forward? Two primary things and a closely related third:
- The first primary driver is talent. My primary consulting space is complex firms that are assembled to deliver multiple lines of business to multiple geographies. Firm after firm that I work with has a full-on talent shortage, and due to that, has gotten significantly more choosy about taking on new growth outside their core. This plays into what I call the “plus one” strategy. As the larger firms pass on opportunities, these then go to the next firm in the industry cluster and so forth. There is a cycle of each firm in the food chain stepping up one level – hence the plus one.
- The second driver is that debt is once again a factor. Money has been so inexpensive for the last decade that any slightly positive rate of return has been acceptable to firms. We are now seeing credit and debt costs start to increase, which will add payback hurdles to capacity expansions, new products and services and team hiring. Ops teams will be looking carefully at the rate of return on investments this fall as they lay out their forecasts.
- The third driver is a bit more subtle, but every bit as powerful. Tech tools have become much less expensive and available. The major cloud players are offering unheard of computational power for voice tools, modeling, augmented reality and the like. This unprecedented availability is going to grow some serious mid-sized competition. Two reasons for this are as follows: first, mid-sized firms with good CIO talent are more focused and have less legacy systems to integrate with, speeding the implementation of new tools. Second, with thinner product portfolios, it is easier for a mid-sized firm to adopt and roll out new tech without disrupting their client base. It can take years to requality large companies on new processes.
Put these three factors together and you can see how a niche play can work out.
How do you get ready? The short answer is to run when everyone else is walking, specifically:
- Review your own book of business by product, customer and technology. Have an objective team (usually someone from manufacturing, accounting and a product manager) do a deep dive. During this process, put everything on the table and look at the P&L’s in multiple directions. Then set a firm cutoff point and get to work on thinning your own shop. Have conversations with your clients to assure zero disruption by having a strong recommendation for a new supplier and be willing to cover the time overlap as needed.
- Look carefully at the real costs of shared services. Many times it appears to be less expensive to keep things in house and integrate vertically (end to end). When things tighten up, it’s a great time to be sure that those functions we are doing internally are really carrying you forward efficiently. Benchmarking is a good tool here, and a great use of objective outside talent.
- Get your best team of hunter sales members together and look upstream (and laterally) in your industry. Be very strategic about the people you want to do business with and do a multi-level strategic account plan. This needs to include the C-Suite to the planning staff becoming open to gaining new business and having the discussions. Put together a short list by culture, business and geography.
- Get your ops team together and look at internal efficiency. Set a tough, but reachable goal. When things are priced for perfection, like they are now, operational efficiency can save the day quarter after quarter. You can have top line ups and downs that are forgivable if the margins keep pace.
- Then get to work on some options, with your corporate development team and some trusted strategy resources.
The key to coming out of this cycle with a more resilient and stronger business is taking action now, while others are busy overestimating their organic growth rates. It is easy to get complacent when the tide is raising all boats. We have seen this story before – and it always rewards those who make strong positional choices and optimize.
By taking control of your strategy earlier than the (complacent) herd, you can carve out some very strong positions. The shortage of talent and cost of credit will resolve and when that happens you want to have the right portfolio of the next leg of your journey.
To get a diagnostic look at how to take advantage of these nice producing effects, just give me a call at 847-651-1014 or use this link to set up a 20-minute, (no-strings-attached) consult.
