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INNOVATE

Find Your Breakaway Strategy: The Massive Value Creation Strategy That Private Equity Ignores

Before you decide to give up on growing your business, try this instead. It works.

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BY Jeff Haden - 02 Jun 2017

Opportunity, rise and improvement concept

PHOTO CREDIT: Getty Images

Your company's growth has stalled. Expenses keep rising, revenue is flat, and cash flow is tight.

What should you do?

For starters, ask someone who knows.

The following is from Dave Hersh, the founding CEO of Jive, where he grew the company from its inception as a small open source project with no revenue to a $60M business. He's also been a Board Partner at Andreessen Horowitz. Now he's the owner and CEO of the Portland-based e-commerce firm Monsoon. (With the startup market nearly saturated, Hersh said it's more appealing to revive an existing business than try to build and fund a new one from scratch.)

Here's Dave:

"Should we just give up and sell the company? Or is there something we can do to get growth going again?"

That was the question my partner and I got from the board when we took on the turnaround strategy for a $70M customer service outsourcing company last summer. After numerous CEOs, failed strategies, the divestiture of half of the business and loss of key team members, growth had stalled and the processes, systems, and strategies had calcified.

Cash was tight, and even if they could free up more, it wasn't clear where it could be invested to see a return. In short, they were keeping the wheels on the car, but had no destination and little gas to get there.

This is not uncommon. Mid-market companies in mature categories get risk-averse and routine-driven as the market becomes commoditized and the players compete on a long list of features. The investors who embrace innovation prefer sexy startups to mature companies, so instead you find private equity firms who bring in "hired gun" CEOs to roll companies up, split them up and/or clean them up for sale.

Breakaway strategies -- finding a market-validated, original move that highlights the other players as commoditized -- can feel incredibly daunting; the realm of early stage companies and well-financed divisions of larger enterprises. But in my experience, it can be done in stalled companies as well.

And it can create massive value by igniting growth, firing up employees, and reframing the conversation with customers. It also doesn't need to break the bank. The trick is -- just like people reinventing themselves when they hit middle age -- companies need to connect to their past while embracing the future.

Thanks to groundbreaking work like Kim and Mauborgne's Blue Ocean Strategy and Youngme Moon's Different (and her article Break Free from the Product Life Cycle), we have a better sense of what it means to carve out new, uncontested market space in a highly competitive environment.

But how do you do that in a stagnated, mature company without much cash? And how do you reignite employees to drive that change?

The steps below are common in strategic planning, but for each step I have listed the not-so-obvious information you want to collect.

1. Review internal operations

Meet with key employees in a candid one-on-one setting to understand roles and organizational improvements.

Look for: What strategy would make make employees run full speed again? How do they connect to the company's history? What is the shared motivation and belief system that could be the rocket fuel for company performance? Is the PTSD of failed organizational moves and/or the cultural toxicity too high to make an innovation play work?

Or is there dormant faith and excitement to be tapped?

2. Create a market map

Research key competitors through analyst reports, industry experts, press, customers and, if possible, competitors.

Look for: What vectors are other players competing on, and what are the sacred, immovable parts of those strategies? How nimble is each player? How many investors are involved and what is their typical approach? And how do those competitors view your company in the market?

3. Analyze the company's core

Review the company's current offering and its biggest advantages, both real and perceived.

Look for: What assets and offerings directly support its core strength, history and market perception? What do customers believe is the company's true strength? Where might the historical differentiators and market position play a role in future strategy?

4. Understand industry and technology trends

Analyze the 3 - 7 key trends that have the potential to reshape the category.

Look for: What trends are competitors all blindly following? What topics are beaten-to-death at trade shows? What trends are closest to your core and would best enable your strategy? Are there analog companies building market share by following certain new ideas?

5. Build a customer perception model

Interview potential buyers of the service, attend sales conversations, review RFPs, surveys and any other customer communications.

Look for: What do buyers consistently say they most want? Is it really what they most need or are they asking for "faster horses"? What company commitment could transform that need?

Synthesizing

The goal of these steps is to create a bold, market-shifting strategy that ideally meets the following criteria:

  1. Builds on the company's history and core strengths.
  2. Centers on one key insight or idea.
  3. Supports the customer's #1 pain point or desire in a profoundly valuable way.
  4. Depositions the competitors through a difficult to copy move.
  5. Excites and aligns executives, board members and employees.
  6. Capitalizes on an important demographic and/or technology trend.

In our customer service company example, the customers we spoke to all cared most about the quality of the agents on the phone, and were frustrated with high turnover and apathetic agents.

Instead of competing on price while striving for a baseline service level like the other companies, we looked at ways to transform satisfaction levels. We realized the strategic move had to go to the source: outsource to the happiest, most motivated people.

Where to find that level of motivation in contractors? When their livelihood depends on it.

Instead of using 9-to-5 employees in one location, use friendly, independent contractors with relevant experience who are highly motivated to succeed and for whom this work supports their ideal life balance.

This move capitalized on the company's history of using work-at-home contractors but changed it from a structural decision into transformative pillar of differentiation by finding and keeping the top 5-10% of people. The processes, metrics, technology, recruiting, people and ultimately the positioning, needed to be built around happy, motivated entrepreneurs instead of bored 9-to-5'ers.

This move would crush satisfaction levels and avoid the race-to-the-bottom pricing game. And competitors couldn't replicate it without changing their entire operation.

While it's too early to claim victory, in the brief period since implementation of this strategy, the company has seen a 100% increase in pipeline and expects a 400% increase by end of year. Employee engagement has skyrocketed and last year was the first growth year in a long time.

Companies have more untapped innovation and motivation inside them than investors and Board members typically understand.

With renewed purpose, a bold strategy, and a roadmap to get there, a faltering company doesn't have to be split up, rolled up, or squeezed for cash, but can be truly reinvented.

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