A Simple Path to a Winning Strategy—That Most Companies Get Wrong
Most leaders take on too much, initiate too many priorities, and never really win decisively in any market. But it is possible to be one of the winners. First narrow your focus, learn to say no, and then scale your bright spots to determine where best to spend your energy.
In 1958, a charismatic, aspiring entrepreneur started a rural discount department store to bring low prices to rural, main street America. The company focused on underserved markets, fostered a fun, energetic culture, and offered everyday low prices to the masses.
That company went bankrupt. Twice.
Four years later, another energetic entrepreneur started a discount store also offering everyday low prices to rural main street America.
That company is one of the largest on the planet.
Though Ames and Walmart pursued the same market, served the same customer, and operated similar stores, they followed very different strategies.
Why strategy matters
Ames and Walmart served their respective markets around the same time starting in the late 50s and early 60s respectively. Ames expanded quickly, growing through acquisition, endeavoring to turn around failed retailers, adding its own variety stores, and by 1981, operating 115 discount stores in a chain from Maine to Maryland and 20 variety stores—mostly in Florida. Ames operated stores with a range of footprint sizes, price points, and customer demographics.
Ames buckled under the weight of its ambitions. After failing to turn around several of its acquisitions, they went bankrupt in 1990 and would go bankrupt again several years later.
Walmart built its first 24 stores in northwest Arkansas, creating a store density that allowed the company to build efficient distribution centers that served clusters of locations, thus lowering costs. Walmart operated a single type of store and sold to an Arkansas-based, middle-income customer. It would be six years before Walmart expanded outside the state of Arkansas and 29 years until they expanded internationally.
As of January 2020, Walmart had nearly $524 billion in revenue, over 2.2 million employees around the world, and a market cap of over $340 billion, making it one of the largest and most valuable companies on the planet and the largest employer in the world.
The concept of a narrow focus was best summarized by legendary martial artist Bruce Lee:
"I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick, 10,000 times."
Ames practiced 10,000 kicks once. Walmart practiced a single kick 10,000 times.
We are trained to want to play in large total addressable markets (TAMs). The size of the TAM is a key criterion for investors and entrepreneurs when considering a potential venture. But most entrepreneurs and investors miss a key point: Winning is very, very hard.
Competition is tough; incumbent companies have vast resources; customers have entrenched buying patterns; customer acquisition is costly; fighting for users’ attention is a tough game; and even when companies show early signs of success, very few ever win decisively.
If you truly want to be great, you need your entire organization to relentlessly focus on a few simple kicks to become world class and win decisively before expanding and learning others.
Focus: Dominate, then expand
When Steve Jobs took over as CEO of Apple Computer in 1997, the company had lost more than $700 million the year before. As Apple's original co-founder and one of the most innovative minds on the planet, what was Jobs' first move?
He reduced the number of products by 70 percent and decided to make one laptop for personal use and one for professional, one desktop for personal and one for professional. “If we can’t make one good computer, we certainly can’t make 23,” he said.
Jobs realized that in the wildly competitive PC market, making mediocre products wouldn’t cut it. Only by narrowing his focus to four products did Apple have the chance to create even one successful product.
Like Apple and Walmart, Southwest, Amazon, and Facebook began by dominating a small market first, then expanding. Here are their stories:
● Southwest stayed predominantly in Texas for its first 20 years while its competitors expanded quickly across the U.S. By flying simple point-to-point routes in Texas for so long, Southwest became experts in quick changeover of flights at each point, keeping their planes in the air significantly longer than any other airline. In the early days, approximately 85 percent of all Southwest planes could turn around in 15 minutes or less. As of 2019, Southwest was the largest domestic airline in the U.S.
● Amazon sold only books for its first three years compared with competitors like Buy.com or eBay who expanded in all categories. By 1997, Amazon.com carried over 2.5 million titles and had 1.5 million customers in more than 150 countries. They created an online experience that made book buying significantly easier than shopping at a bookstore. The internet was new at the time and many customers who bought a book from Amazon had never purchased anything online before. By offering a great user experience, Amazon acquired customers at attractive prices and turned them into recurring users, laying the groundwork for the more than 353 million products they sell today.
● Facebook started serving only Harvard undergraduates, then expanded methodically to college campuses. Their narrow focus enabled Facebook to focus on a core set of users, thus creating strong networks and a valuable experience tailored to college-aged students. Facebook expanded its demographic base slowly. Today, 17 years after launch, about eight in 10 Americans between 18 and 29 use Facebook—consistent with that early focus on college-aged users.
Learn to say no
The examples above seem straightforward. Start with a small market. Win. Expand. Simple enough. So why do most leaders try to do everything at once?
Ironically, the attributes that enable individuals to become leaders—ambition, big goals, and vision—keep these same leaders from formulating winning strategies. Imagine them saying, "This is a land grab, we need to get out ahead of our competition." But a winning strategy is about focus and discipline; it’s about doing less and curtailing a massive list of initiatives in favor of a narrow focus on a winnable game.
As Steve Jobs said, "…it comes from saying no to 1,000 things to make sure we don't get on the wrong track or try to do too much. We're always thinking about new markets we could enter, but it's only by saying no that you can concentrate on the things that are really important."
So how do we know when to say “yes” and when to say “no”?
Find and scale your bright spots
In their best-selling book, “Switch,” Dan and Chip Heath lay out a simple rule for change, four of the most important words ever written about developing a winning strategy: Scale your bright spots.
Most of us make lists of things we need to improve, we tend to unhappy customers, we fix things that are broken, and we deal with under-performing employees.
Dan and Chip Heath would say that the money is made by scaling bright spots. In other words, find what’s working and do more of that.
Prior to 2013, Alpine did deals in retail, business services, consumer services, software, and healthcare; and Alpine backed founders and CEOs-in-Residence. During 2013, we evaluated our strategy and found three variables to be our most consistent “bright spots:”
Investing in companies that had recurring or re-occuring revenue, even if we had to pay more for them;
Backing our own CEOs-in-Residence (CIRs) and CEOs-in-Training (CITs) in deals requiring management transitions; and
Completing two or more add-on acquisitions in each investment.
We narrowed our focus to investments that prioritized the three bright spots above. Our team’s initial worry was that by reducing the universe of available deals to ones that conformed to these three bright spots, our volume of closed deals would suffer. But the opposite happened. Since 2013, the number of deals we close annually has increased by nearly seven-fold.
Narrowing your focus will enable you to harness the energy of your entire firm on a much narrower set of priorities, thus iterating faster, learning more quickly, and getting more repetitions in each of these three core bright spots. In short, scaling your bright spots will set you up to win decisively.
What are your bright spots?
What are you willing to say “no” to?
Which one kick will you master?
Reach out to share how you found simplicity, clarity, and focus at grahamweaverblog@gmail.com.
