Cutting Out to Climb Up
Strip Your Strategy to the Bone
“There is nothing so useless as doing efficiently that which should not be done at all.”
Peter Drucker
Could you intentionally stop selling your most profitable product tomorrow morning?
Sometimes, the best strategic decisions look like this.
Strip to the bone: Two stories
In September 1997, when Steve Jobs returned to Apple, its product lineup was a mess. The company tried to be what Samsung became a decade later.
It offered a wide range of computers, and customers saw little difference. It sold printers, peripherals, and Apple Newton MessagePads.
Steve Jobs stripped the company to its core. He cut all the desktop models back to one. He cut out all the printers and peripherals. He cut out distributors and most of the company's resellers.
He made a big spring cleaning and won. Apple has become a legend.
In September 2006, when Alan Mullaly joined Ford as a CEO, the company was deteriorating rapidly and losing money.
Mullaly also stripped the company to the core. He sold Aston Martin, Land Rover, Jaguar, and Volvo. He focused on profitable brands and models. He fixed all the problems Ford was facing at the time.
But did he turn Ford into a legend? No, Elon Musk did it with Tesla.
According to the statistics, Ford Motor Company is a profitable carmaker today, one of many. Its market share in the US is 13%, not too impressive.
Paraphrasing the old Porsche 911 ad, honestly now, did you spend your youth dreaming about someday owning a Ford?
Cutting back business to favor profitable products is investing in yesterday's wins.
Perfecting your business
“Perfection is achieved not when there is nothing more to add, but when there is nothing left to take away.”
Antoine de Saint-Exupéry
You may have heard Michael Porter's famous statement: "The essence of strategy is choosing what not to do."
But after conducting hundreds of strategic off-cites and workshops, I’ve come to think that if we start asking ourselves directly about what we should ditch, we’ll never succeed for two reasons.
Reason #1
It's tough to say no.
We tend to fall in love with projects or products we initiate or manage. We always want to give them a second chance.
Discontinuing a product may negatively affect someone’s status, budget, or promotion prospects.
So, if you ask your team to make a list of products or activities you should discontinue so that you can focus on the core, you'll get a concise list of insignificant items.
Reason 2 – profit
When Mullaly was cleaning up a mess in Ford, he sold some loss-making brands and focused on profitable products.
I believe it was the best short-term decision for the business that was bleeding cash. But concentrating on profitable products and units is a dangerous strategy.
iPhone is supposed to be Apple's most profitable product. Should the company place a strategic bet on it? I doubt that.
I don't think Apple should stop developing iPhones today. But there will come a day when the company will have to cease selling iPhone to allocate resources for more promising projects.
However, the decision to kill the goose laying the golden eggs is very hard.
Even if a product brings in as little as $1 per year, it still seems like much more than zero.
Saying no is difficult. Try to say yes instead.
Saying yes
When I conduct strategic off-cites, I never ask teams to make a chopping list of products and initiatives.
Instead, I help them devise a strategy and make a list of strategic priorities:
– Target customers
– Core products
– Key initiatives
– Focus Value Waves
Then, I insist that they discontinue every single product, business unit, activity, or initiative that doesn't help them implement the strategy.
We shouldn’t discuss whether we need to continue a project. The project team must prove it has the right to stay.
You need to strip your strategy to the bone. You must ditch everything that doesn’t contribute significantly to your success.
You have to 'fire' all the projects or products first and then 'hire' some of them back, but only if they prove to be indispensable.
Bonus tip
I include a small nice bonus at the end of each article. It is one business term translated into the most essential language in business — the language of needs and values.
Today’s term is gross margin.
In finance, gross margin is the difference between revenue and cost of goods sold divided by revenue.
However, for entrepreneurs, it is the ability to charge customers more by better satisfying their needs than competitors and creating exceptional customer value.
Marginal profit is not an intrinsic property of the product.
Read also: Strategy Isn't a Google Maps Route.
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Nice article. Thanks