- S.W.O.T. Is Not The Answer The traditional method for developing a strategy to grow a business is the S.W.O.T. (strengths, weaknesses, opportunities, threats) analysis. It rarely works because competitors feel they are strong in the same areas, so they all have similar growth strategies. Plus, the S.W.O.T. analysis has too many opinions and too few facts.There is a better way.
Scientists use the scientific method to develop the correct view of their world. It has four steps — observe, hypothesize, predict, and test. When it comes to allocating resources to produce growth, businesses can also use this method to develop the correct view of their own world. However, they first need a framework to perform the four steps.
It is true that, over time, strong companies will win market share from weak companies. However, there are few objective measures of corporate strength in business-to-business markets. Without these measures, a business does not have the framework for using the scientific method. To develop a framework for measuring and comparing strengths, three numbers are required.
- Current market share. The purpose of a strategy is to become number one in the market segments the business has decided to serve and win. Accordingly, the business needs to define the segments in such a way that they can leverage their strengths against weaker competitors to achieve this result. Businesses that have the number-one market share position are simply more profitable than their weaker competitors. So the first number is the business’ current market-share position. The business with the highest market share is the strongest in this measure.
- Touch. Business-to-Business (B2B) markets require salespeople to grow. These can be salespeople employed by the business or they can be indirect channels to the market, such as distributors, agents, and reps. Since salespeople are needed to cause growth, the second number is a “touch.” A touch is a face-to- face or voice-to-voice contact on any account in the targeted market by anyone representing your business. This includes many people beyond just the sales force, but the key is to concentrate more touches than the competition on the growable accounts in the targeted market. This means the sales force must spend more time with more people in fewer accounts. The business with the most touches today is the strongest in this measure.
- Offerings. The third number is tied up in the products and services the business sells to the market. These are called “offerings,” and they include everything the market considers when making a buying decision. The measure of offering strength is driven by a simple premise — businesses buy products and services to produce better business results. Every dollar in every budget in every for-profit business was put there under the assumption that results would be produced. Therefore, the objective measure of the relative strengths of competing offerings is the business results that the targeted market is producing with them. The offerings that produce the best business results are the strongest in this measure.
- Framework for Analysis Now we have a framework to analyze the growth strategy. Five questions determine the soundness of the strategy. Questions that can’t be answered provide guidance on how to improve.
- What is the size of the market (in spending) for your offerings, and how did you determine the number? The launch of the strategy must alter the touch pattern of the sales force, whether they are direct employees or an indirect channel to the market. The strategy must be “sold” to these people. The answers to the five questions will help you make the sale. Here you are selling that you understand the targeted market and they can use these same numbers to determine the potential in their own regions.
- What criteria define the types of accounts in the targeted market segment? Since every business has limited resources, few businesses can afford to simultaneously go after all markets for all of their offerings. A growth strategy focuses the business’ limited resources on the markets where they have the best chance of winning. The essence of strategy involves knowing which accounts to say “no” to with the touches of the sales force and the research and development efforts of your development teams. These criteria are used by sales to target accounts where they can produce the quickest and most profitable growth.
- What business results are existing customers producing with your offerings? Most B2B products and services are perceived by the markets to be relatively equal from qualified suppliers. However, if your offerings can produce better business results, those results trump the other two measures of strength, and can generate rapid growth. This answer determines if your offerings really are better.
- What business results are prospective customers producing with your competitors’ offerings? If you have a real edge in business results, the answers to questions three and four will tell you how valuable it is to the market. This is the business case that justifies switching to your offerings. You must have actual numbers from a range of accounts to truly prove that your offering produces better results. Better capabilities such as accuracy, speed, and durability don’t count unless you can point to actual results being produced.
- How many touches can the business concentrate on the targeted accounts? The most common edge in strength is touches. The strategy deploys those touches on the right accounts. The goal is to have two to three times more touches on the growable accounts (ones where you can gain share because of your strength in touches and/or offerings and/or business results) than all competitors. Even with equal offerings, more touches will eventually lead to gains in share.
- Scientific Approach Summary As previously mentioned, the scientific approach involves observe, hypothesize, predict and test. When planning for B2B growth, this translates into the following actions:
- Observe. This means to learn. Begin by learning the current size of and your relative share in all potential markets where you want to compete and win.
- Hypothesize. Start segmenting markets based on your observations to determine which ones you think you can win. This is your hypothesis.
- Predict. Answer the five questions for each segment. If the answers look good, then your prediction is that you can gain share in the short term by concentrating the touches of your sales force. You also predict that you can gain share in the long term by developing better offerings. The only valid measure of a better offering is that the targeted market can produce better results with it.
- Test. Use the five answers to sell the sales force on reallocating their touches. Manage the sales force to insure they are learning the current and desired business results in all sales pursuits. The test of the soundness of the strategy is that your business is gaining share in the targeted accounts.Every growth strategy can be improved by using this scientific approach. Try it on your current strategy and see what the answers to the five questions reveal on how to produce more growth in the future. Vistage speaker Bill Hodgdon is head of Hodgdon Consulting Services, which specializes in helping companies improve their top-line performance.