Why small businesses rarely scale and big ones die-off.

Lyfe kitchen

Soda stream

 

 

At Scion Advisors, we have worked with over 130 private business owners to drive profitable growth. Through this article, we address: what can we learn from businesses that grow and thrive, sustainably?

When things don’t work out, we discover a combination of ‘misses’ in core business disciplines – mainly: poorly defined or understood customer needs, unclear business strategies, and insufficient and poorly aligned resources.  During this soft economy, core business disciplines need to combine even more artfully, to ensure new business launches don’t fail; small businesses can scale and large ones don’t die off (see box below – ‘When growth is hard – sustaining growth only gets harder’). Despite unpredictable global economic and competitive pressures, numerous companies are growing and many of these have a ‘secret sauce’ that enables them to sustain growth beyond their category.

Five essential competencies drive businesses growth. This is what these ten smaller and larger top performers have in common: Amazon, Apple, Applebee’s, Choicelunch, Lyfe Kitchen, Prairie Berry, SodaStream, Starbucks, Stonyfield Farm and Urban Outfitters.

  1. Embrace customer centricity in all your decisions  – Having a solution that is solving a real need, matters.  Well-constructed customer feedback channels, either formal or informal, increase the probability of attaining relevance through your value proposition.
    • “Many more innovators are applying discipline to understanding their customers, building unique positioning, meaningful value propositions and sustainable competitive advantage with more success”, says Managing Director of Urban Outfitters Direct and Marketing, Steve Hartman. 
    • Witness the highly convenient and stress-free, online ordering system developed by Choicelunch for their target cusScreen Shot 2013-05-22 at 10.43.02 AMtomers: very busy parents.  They have cornered the market for healthy, nutritious lunches being delivered to kids in private and public schools throughout California – by making it super easy for customers to manage their kids’ lunch program.
  2. Test concepts relentlessly from a customer vantage point – Disruptive innovations are rarely the only reason new launches succeed, small businesses are able to scale and big ones don’t die-off. Simple, well-tested concepts generally have faster customer adoption cycles. 
    • We find companies that have a culture of experimentation, such as Amazon, with constant customer feedback loops and metrics, are generally more successful at evolving product and service concepts that have stickiness.   ‘Spend 20% of time experimenting before you launch new features. If you make it easy, they will come’, confirms David Risher (former EVP Retail, Amazon.com).  Spend time with intention.’
    • Israeli company, Soda Stream entered the US market by playing to American’s love of convenience by producing single-serving flavored capsules.  As a result of market testing, which taught them that Americans love familiar brands – they partnered with Kraft to create flavors with Crystal Light, among others and are releasing a redesigned chassis with a diverse range of retailers, from Walmart to William Sonoma.
    • Starbucks’ recent revitalization of their brand pivoted on generating new revenue streams – by coining “Ready Brew”, rather than “instant coffee”, critical insights generated through customer focus groups. (link to article)Nespresso
  3. Understand real profitability drivers – Find out what is at the core of your company’s economics and focus energy on drivers of contribution margin. Companies that develop distribution or Cost of Goods (COGS) advantages over their competition – usually have a more sustainable engine.
    • Prairie Berry Winery in S. Dakota leverages an efficient strategic customer aquisition/retention machine by attracting target customers from over one million Mount Rushmore visitors that drive past their tasting room each year, achieving repeat customers of over 50% – double industry standard.
    • Stonyfield Farms introduced ecofriendly innovations in transportation, lightweight packaging and waste reduction that cut their costs by $24 million. Now they are helping their suppliers do the same.
    • Lyfe Kitchen, applying fast food secrets to sell healthy food on a mass-market scale, launched their first outlet in Palo Alto, CA with revenues of $2.4 mm in it first year (same as an average McDonald’s), beating estimates by 20%. 
  4. Focus on your true competitive advantage – Ask: What makes your company exceptional? Disruptions to competitive positions are occurring twice as frequently as they used to. With technologies lifecycles becoming mainstream at a faster pace, you need to focus on your ‘flywheel’: what you do better than anyone else that builds barriers to entry. 
    • For Amazon, their flywheel is customer service-centricity; for Stonyfield Farm, it is a more sustainable supply chain.
    • For Applebee’s it was about developing a new branding advantage: a sense of humor about their brand that drove two year of same-store growth. They hired Saturday Night Live star Jason Dueeikis to voice its latest ad campaign, ‘See you Tomorrow.’
  5. Align the whole team on execution and revenue generation – This is about leadership as much as a focused agenda. You’re better off focusing your team’s energy (times 10) on things that ARE working. 
    • Amazon learned that in times of growth it’s very tempting to spend energy on fixing things that are broken. They found that they spend less and get higher productivity when teams are focused on initiatives that have the highest probability of success. 
    • Starbucks founder Howard Schultz’s ‘transformation agenda’ included the appointment of Michelle Gass to restructure the operation and reinvigorate 137,000 employees in 17,000 stores. It took someone like Michelle Gass to see the Ready Brew opportunity and then bring an entire organization through the curve of believing. Sales hit $100 million just ten months after the nationwide launch. They shuttered 900 stores worldwide, cut almost $600 million in costs and closed every single cafe for three hours to retrain baristas while tightening operations to improve coffee quality. 

ADDITIONAL NOTE

When growth is hard – sustaining growth only gets harder

Screen Shot 2015-08-06 at 6.13.31 AM

 

1. Sources: Boston Consulting Group and Sloan Management Review

 

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ABOUT THE AUTHOR. Deborah Steinthal is Founder and Managing Director of Scion Advisors, a leading boutique, strategy consulting firm serving the U.S. wine industry. With a proven approach enabling business owners to position for profitable growth or for exit, she has worked alongside over 130 winery owners and CEOs; and has moderated over 80 Winery CEO Roundtables involving more than 50 top wine industry CEOs for over a decade. Deborah’s expertise is in the area of business growth strategy, family business transformation, and board and leadership development.

Based out of McMinnville, OR; born in Lima, Peru; raised in Belgium and Germany; Deborah has lived, worked and travelled globally. She is broadly published in the national business press, an invited speaker, panelist and widely quoted for research on key practices, such as such as How to Build a Pull Brand, Digital Commerce and Family Business Transition.

For more information call Deborah Steinthal at 707.246.6830.

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Among her clients: Cristom Vineyards, Adelsheim Vineyard, Willakenzie, Elizabeth Chambers Cellar, Patz & Hall Winery, Benziger Family Vineyards, Calera Wine Company, Delicato Family VIneyards, Cakebread, Spottswoode, Gundlach Bundschu, Luna Vineyards, Clos Du Val, Quail’s Gate Winery, Wente, J. Lohr, Choice Lunch,
 Cowgirl Creamery, 
Easton Malloy 
(producers of Peppermint Bark for Williams-Sonoma)
, and McEvoy Ranch.

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