The Single Best Strategic Question For Almost Every Company
Over my 28 years in private equity, I’ve served as a board member, colleague, coach, and cheerleader to dozens of companies and individuals in industries including software, HVAC, label printing, slot machines, athletic shoes, pet treats, home healthcare, plumbing, education, and many more. Although these companies have different businesses, margin structures, go-to market capabilities, and business models, there is one question which I have found to be the single greatest question to help them determine their strategy and crystalize their priorities.
Uncovering the greatest question
In 2009, in the heart of the Great Recession, we—like many other private equity firms—struggled to raise our fund. We used the extra time afforded to us to reflect on our prior performance. One of the things we noticed was that when we made two or more add-on acquisitions, those investments significantly outperformed investments in which we did not make add-ons. We noticed similarly positive correlations to performance when we invested in companies with recurring and re-occurring revenue and in investments in which we had placed our own CEOs. We began increasing the energy we poured into these investment strategies, which ultimately crowded out the other, less productive investing strategies.
Using vernacular from Dan and Chip Heath’s bestselling book, “Switch: How to Change Things When Change is Hard,” we began to call findings like these “bright spots.” We asked ourselves a question which would ultimately change the trajectory of Alpine as well as many of our future portfolio companies: What are the bright spots that we can scale?
“What are the bright spots that we can scale?”
Scaling bright spots
Studies have shown that people are much more attuned to avoiding negative outcomes than gaining positive rewards [dive deeper into how Bad is Stronger Than Good in this study]. Our minds are wired to focus on what’s going wrong, what is not working, and what we need to fix. Executives thus spend most of their time putting out fires and fixing things.
However, it is far more powerful to do exactly the opposite—namely, it is far better to focus on what is going well. Your goal should be to find what is working and to do more of that. This concept is so simple that it’s often overlooked. If your business has achieved some level of success, you are likely doing some things extraordinarily well. And your most productive use of resources will be to scale the things you’re doing well.
For example, who are your customers that use the broadest suite of your products or services, and how do you find more of them? Which of your existing marketing channels have the highest return, and how can you add money to those? Which recruiting channels have been most productive in finding great talent? What are your fastest growing product lines, markets, or service offerings? Which acquisitions have been most profitable? Who are your best people, and how do you give them more responsibility? How do you allocate more resources and capital to your best markets and ideas?
Conclusion
Doing more of what is already working is a lot easier and more energizing than putting out fires. The simple act of increasing focus on those successful efforts allows you to allocate your resources to your highest-returning activities, projects, and people. When you lean into the things that make your company special, you amplify your strengths and increase the chances of distancing yourself from the competition. Simplify your strategy: Find what is working and do more of that!