By Geoffrey Moore
(Harper Business, 213 pages, $31.99)
Businesses are always intent on moving ahead. But too often they are caught in the gravitational pull of the past. Venture capitalist Geoffrey Moore suggests that last year’s operational plan – and all the ideas in it – are a hidden force working against your best efforts by holding you back.
“The larger and more successful the enterprise, the greater the inertial mass, the harder it is to alter course and speed,” he writes in Escape Velocity.
He says the typical, unimaginative, routine way in which operational plans are built can work in an era of cyclical growth, when not much new is happening in the markets in which you operate. But you can squander a glorious opportunity if you follow that approach when “secular” growth occurs – a not-to-be-repeated expansion of the market following a shakeup as new customers become available.
That’s when you need escape velocity – a genuine change in course. You need to make tough choices about how you allocate resources, to escape your past. It requires vision and strategy, but since Mr. Moore acknowledges that nobody exactly knows what is meant by these terms, he offers instead a more concrete model called the “hierarchy of powers.”
It sizes up all economic competition in relation to five types of economic power, organized in descending order from most general to most specific:
The first decision investors make is which category to invest in. So to develop your escape velocity strategy, you must make sure you are operating in categories of high-profit margins. Being able to enter new categories and exit old ones is fundamental to freeing your company from the pull of the past. But it’s not easy. It’s hard to kill off products and services bringing in money, even if their future is dim.
Figure out which categories you need to divest, and which ones to enter so you can power ahead, since investors have found category performance is the No. 1 predictor of company performance. “No business can outperform its category over time,” Mr. Moore warns.
This reflects the status and prospects of an individual company within the given category, and it is reflected in market share. Some companies, such as General Motors, are Tier 1; others, such as Volvo, are Tier 2; while unbranded companies fall into Tier 3. Your goal should be to move up a tier (or two) by investing in the advantages open to you, notably what the author calls your “crown jewels” – the unique assets and capabilities under your direct control that can catapult your company forward.
This covers the ability of your company to have clout in a specific market segment – a certain set of customers who share common and unique needs and who reference each other, directly or indirectly, when making purchase decisions. It’s measured by word-of-mouth reputation within that community, and is confirmed by your market share within it.
Market power can be valuable when markets are in transition, customers fall loose from their moorings, and you can capture more customers before the situation stabilizes. Market power can also be transformative when your company stumbles, and you fall back to the middle of the pack; this allows you to rally your troops around a niche market that can help you turn around. The market segments you seek to dominate need to be big enough to matter, yet small enough for you to win decisively.
This relates to the demand for a given product or service compared with its competitors, be they direct or indirect. You want something that goes beyond bringing in revenue to something that reshapes a market.
“Apple’s iPhone has used offer power to achieve escape velocity in spades, leaving both Motorola and Nokia scrambling for an iPhone killer,” Mr. Moore explains. “Google search achieved escape velocity earlier in the decade, as did Facebook’s social network.”
This is your company’s ability to outperform competitors through a game-changing shift of operating priorities. You need to leave behind traditional execution processes, inventing and deploying a new approach.
The hierarchy of powers covers an enormous amount of ground, but can serve as a framework for dialogue about your strategic options. Mr. Moore explains clearly and in detail how to use the concept, introducing some handy models and techniques that can help you escape from your past.
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