As business owners first, more than simply technicians fulfilling a job responsibility or putting in our time, small business entrepreneurs are driven to succeed and embark on the journey to “make their company great.”
Harvard Business Review conducted some rigorous research with tens of thousands of companies to see what common aspects allowed companies to build greatness over many years. The authors concluded with three foundational concepts for great companies:
- Better before cheaper – in order words, compete on differentiators other than price.
- Revenue before cost – that is, prioritize increasing revenue over reducing costs.
- There are no other rules – change anything you must in order to follow Rules 1 and 2.
Better before cheaper
This conclusion resulted by emphasizing how the companies thought, rather than what the companies did. These non-price differentiators include a great brand, an exciting style, and excellent functionality, durability, or convenience. Short-run companies choose to appeal to the Average Joe who is looking at price as the single greatest measure in decision making. The Long-run companies stay true to their non-price differentiators when the competitive landscapes demands lowering prices.
Revenue before cost
Here, cost leadership rarely showed up as a driver of superior profitability. Even for large big box discounters, their success showed in higher prices because of it superior locations, convenience and selection. Staying true to higher prices or higher volume are true marks of exceptional companies.
There are no other rules
More than operational excellence, talent development, leadership style, corporate culture, reward systems – the idea of no other rules beyond better than cheaper and revenue before cost helps to focus the efforts of great companies. By following the first two rules of non-price differentiators, great companies also find higher prices and higher volume and greater profitability.
Strategy for companies looking to put these rules in operation: think about which competing initiative will more closely contribute to your non-price differentiators, which in turn will help to address your higher price and/or higher volume efforts. Many times our efficiency based operational improvement programs emphasize cost reductions, however innovation efforts are largely focused on increasing revenues – go with the innovation efforts.
Let us know if we can help you think through putting these ideas into work in your business.