Find your unique proposition

> The Flaw With Being The Best

Porter began by addressing the flaws in setting the goal of being the best. This was a notion championed by former General Electric Co. CEO Jack Welch, whose dictum was to exit any business in which GE couldn’t be No. 1 or No. 2 in market share.

Porter presented a different view. The idea that you have to be the best comes from the world of sports and war, he says, in which there is only one winner. The problem with that “winner take all” mindset is that the field is littered with the losers, with only one winner emerging. The battle to be the best also leads to a focus on operational excellence, in which businesses strive to out-execute each other — doing the same things as their competitors, but only better.

There are two big downsides to this approach. First, given the growing focus on industry best practices, this can be a difficult strategy to sustain over time. And, second, focus on operational efficiency alone can lead to a downward spiral of price competition as firms try to squeeze out other market entrants by capitalizing on their lower-cost structure

In Porter’s view, a better analogy comes from the performing arts, in which you can have many outstanding entertainers and actors, each building his or her own distinct audience. And by having multiple performers thriving, they expand the total audience as a result.

Porter also pointed to retailing, for which it’s possible to have successful companies as different as Wal-Mart Stores Inc. and Costco Wholesale Corp. on the one hand and Tiffany & Co. and Coach Inc. on the other. The thing that all successful retailers have in common: they each have homed in on a distinct audience.

> Focus On Your Target Market

Porter used IKEA as an example, a company on everyone’s list of retail success stories. However, Porter hates IKEA. In particular, he hates the long drive to get to its stores; the huge parking lots; the unending winding trek inside the stores, with no ability to cut it short; the lineups to pay; the trek to get the furniture home; and then the hassle of assembling it. If it was up to him, he would never set foot in IKEA again.

But when Porter’s daughter was a university student in Washington, D.C., she loved IKEA. In fact, whenever he visited her, she would ask him to rent an SUV so that they could make an IKEA run for her apartment.

Porter’s point: IKEA isn’t concerned in the slightest that he hates shopping there because he’s not its target consumer. What IKEA cares about is that it has put together a unique value proposition that appeals intensely to Porter’s daughter and her friends because they’re the audience IKEA is targeting.

 

> “Are You Sears Or Are You Target?”

The advantages of having a narrowly targeted audience are indisputable. When you think of successful retailers, it’s the unique, niche players that are the first to come to mind: Apple Inc., H&M, Lululemon Athetica Inc. and Zara. Even within the realm of mass retailers, look at the success stories of upscale entrants such as Bloomingdale’s, Nordstrom Inc., Target Corp. and Neiman Marcus at one extreme and the lower-end retailers such as Winners and dollar-store leader Dollarama Inc. at the other.

Each of these retailers deliver a unique value proposition to a targeted audience and present a dramatic contrast to the struggles of Sears and JCPenney in the U.S. and the Bay in Canada, which cater to everyone and have strong appeal to no one.

The problem is that most advisors look much more like Sears than Target. In fact, the failure to be unique is arguably the biggest thing holding most advisors back. Indeed, when I ask advisors how they’d respond to a prospect’s question about what sets them apart, here are the most common answers: “communication”; “service”; “our people”; “our focus on planning”; “putting clients first”; “a disciplined investment approach”; and “our conservative philosophy.”

Although all of these traits are important, the difficulty is that they fail to be differentiating. If everyone uses the same words to describe how they work, nobody stands out.

 

> What You Do, Or For Whom You Do It

Note that all the answers above focus on what advisors do rather than for whom they do it. Most advisors are generalists, dealing with business owners in the morning, clients planning retirement at lunch and retirees in the afternoon. That’s because this is how most advisors began in the business — trying to appeal to as broad a market as possible and indiscriminately working with any client who’d have them.

That may have made sense when you were starting out, but all too many advi-sors have failed to evolve, continuing to use the same approach as when they began. In fact, the primary basis on which most successful advisors target new clients today is based on minimum assets and price sensitivity; almost never by need. And by trying to serve everyone, advisors are unable to fine-tune their practices to the specific needs of any one unique group.

Three things happen as a result:

1. Advisors fail to develop specialized expertise and operational efficiencies that come from focus and that would allow them and their team to develop a unique, targeted value proposition in their marketplace.

2. Consequently, they fail to serve anyone exceptionally well — and fail to end up with clear competitive differentiation.

3. The outcome is that advisors struggle to charge a premium price and are unable to build a strong reputation and get word of mouth going for them — the most powerful form of marketing there is.

 

> Getting There From Here

The challenge with a focused, unique value proposition is that it entails making trade-offs: to serve one group exceptionally well, you have to decide to de-emphasize other groups. And Porter pointed out that people resist making trade-offs: “People hate to choose because, in choosing, they focus on what they give up rather than on what they gain.”

Porter finished by summarizing the essence of a successful strategy that results in superior performance:

1. By narrowly defining whom you work with and the needs you address, you can achieve competitive advantage within the group on which you’ve chosen to focus.

2. As a result, you create superior value for your target customers.

3. And you capture some of that value for yourself.

After Porter’s talk, I spoke to a Chairman’s Club producer at a bank-owned brokerage firm who has a traditional, generalist client base but who especially enjoys dealing with successful entrepreneurs and their multiple holding companies as well as complex succession issues. That’s also where he feels that he provides the clearest, most concrete value.

This advisor has no plans to abandon the hard-won clients that currently pay the bills. What he is looking at, however, is a three-year plan to shift the focus of the new clients he attracts to concentrate on entrepreneurs. That decision will shape the expertise he builds on with his team, how he organizes his practice and where he focuses his networking efforts and marketing investments.

You don’t get to hear Porter every day; his talk was the keynote at an Alumni Day sponsored by the master’s of business administration (MBA) program at the University of Toronto, at which I’ve taught for 20 years. Indeed, one of the other attendees told me he’d graduated from Harvard Business School 15 years ago — and learned more from Porter’s 90-minute talk than he had in the entire two years doing his MBA.

The limited opportunities to hear from today’s No. 1 thinker on strategy makes it all the more important that you pay serious attention to his message. If you’re frustrated by your business’s failure to excel, consider whether your problem may be that you’ve fallen into the trap of putting too much focus on operational efficiency and being the best — and whether you need to focus on being truly unique instead.

That’s the advice Porter provides to the large multinational firms that pay his million-dollar consulting fees — and chances are that’s the advice he’d give you as well. IE

 

Dan Richards is CEO of Clientinsights
(www.clientinsights.ca) in Toronto. For more of Dan’s columns and information videos, visit www.investmentexecutive.com.