Positioning - Cherchez le creneaux

I've just read the classic book on positioning by Al Ries and Jack Trout, Positioning: The Battle for your Mind. It is amazing to think that this was published in 1981. The 20th anniversary edition, 2001, has great new commentary from the authors. The key message of the book is the concept of finding the hole in the mind of your prospect or as the French say, Cherchez le creneaux. I believe recessions expose weak positioning. Downtimes really test your compelling story. The book highlights the importance of defining and dominating your unique market. Management teams today, desperately need to revisit the notional hole they are filling!

IBM didn't invent the computer. Sperry-Rand did. But IBM was the first company to build a computer position in the mind of the prospect. Michelob wasn't the first high-priced beer to get inside the beer-drinker's mind Heineken was. Michelob's strategy? Define yourself as the first high priced imported beer. Of course positioning requires years of reinforcement which in the author's view stopped happening at Michelob.

However the mind has no room for what's new and different unless it's related to the old eg the first car was called the horseless carriage, cleaner gas was called lead-free gas. So it's not just about nailing your category, it's also about positioning yourself against the existing players. Prospects need geography.

When I tell people that my hobby is competitive masters athletics, they say oh, do you do marathons! So I have to explain my events of 400m and 800m relative to marathons.

Even my new business, The Portfolio Partnership, only makes sense when I relate it to something people understand e.g. I prepare companies over a 5 year period to ensure they achieve huge premiums when Investments Banks sell them.

There are so many great examples in this book of repositioning strategies to drive growth in these tight economic times. We all need inspiration to find our niche, our reason to exist, so perhaps this book can inspire you to articulate a new compelling story.

Repositioning: Why IBM is buying Sun

Executing on positioning, establishing your unique identity is never easy however a well timed acquisition can hit the spot. Here are seven reasons why IBM might buy Sun:

Timing; Market value of Sun at the peak was $205 billion, purchase price today, around $8 billion.
Customer dollars; IBM gains higher market share in key sectors, government, telecoms, financial services.
New trends; IBM covers Cisco’s move into the server market and builds it’s own capacity to remain a dominant player in the fast emerging Cloud Computing Market (renting of software over the web in a SaaS model)
Services boost; IBM have the potential to do a Red Hat/Linux business model by applying IBM’s global service team to add value to Sun’s free software platforms.
Middleware Sales; Boosted by cross-selling to the new hardware customers it acquires.
Hardware business; Overnight it improves the economies of scale of its own struggling hardware business.
Competitive edge; Deal helps in the battle against Microsoft and Oracle in their relevant competitive segments.

Why Positioning Drives Growth

Firstly no one can argue with the proposition that cash stability for any business is essential. Cash losses need to be stopped. However it is vital that management quickly define their unique space. Stuck in the middle of the envelope with no clear definition of who you are is risky not safe. Carbonite are growing very fast because they have defined a clear identity in prospects heads. Automatic efficient back up of your hard drives - because your life is on your computer. The web, blogs, all social networks cry out for tags to describe yourself. The whole search engine industry is saying -- please define yourself very carefully because we can then send lots of pre-qualified prospects your way.

EBay, Pacific Sunwear, Abercrombie, American Eagle, News Corp, Sara Lee all announced repositioning actions last week. Defining your unique market allows you to consider strategies to dominate it. Play by your rules. Why play by a competitor's set of rules? Sales and marketing campaigns, speeches, white papers are all so much easier to execute when you know who you are! The acquisition of new talent and the motivation of existing talent is certainly easier with a clear compelling story. Product road maps have a driving vision. Best of all, sales conversations have greater traction.

The most compelling sales conversations that create action in a prospects head (yes even in this economy) are those that address one clear thing -- improved performance of your prospect's business. Think of it as your client's client. How will your product allow your client to perform better for their client. To even begin to think with that level of clarity requires management to define who they are. Of course when sales start to get traction please reinforce again and again who you are.

The next five years are a great opportunity for companies to stake out their unique market, claim their space and work tirelessly to open huge gaps on the competition and emerge out of this recession, a world class, high growth, remarkable business.

Biotech Companies - Potential solution

Recent articles in the WSJ and FT have turned the spotlight on an interesting set of issues for the drug industry and the world of public biotech companies.

Firstly the FT states, facing an estimated drop of $100bn in sales in the next five years as block-buster patents expire and drug pipelines come under threat from generic rivals means big pharma has little choice but to consolidate. But as the WSJ points out megadeals haven't cured the problem in the past.Pfizer paid $116 billion for Warner-Lambert in 2000 and an additional $54 billion for Pharmacia in 2003, yet still needed to acquire Wyeth this year to help replenish an anemic pipeline.

Enter the other issue,180, or 45% of public biotech companies have less than a year of cash on their balance sheet according to BIO, based in Washington.

Are smaller acquisitions the answer? Perhaps, however small acquisitions of biotechs have downsides - little opportunity for cost savings and founders and scientists might leave,basically the cultural fit is tricky.

There is a solution! These types of situations are exactly what earn out deals are very good at handling. A fair price is paid today to own the small biotech but the business is kept separate, with a clear, easily understood earnout formula wrapped around future sales success. Seller management get some reward on the way up but are highly incentivized to hang around and execute their dream. Alternatively a minority stake could be purchased with put & call options around the remaining shares based on a similar formula to the earn-out. Both achieve similar results, the difference is mainly psychological for sellers. In earn-outs you sell 100% of the company on day one. Just a thought.

Barnes & Noble Buys Top E-Book Retailer

I read today's article in the WSJ on Barnes & Noble's latest acquisition with great interest. Let me share with you my observations in bold and how it relates to Repositioning & Corporate Development.
Barnes & Noble purchased Fictionwise for $15.7 million - seems a reasonable price to take out a leading player in one of the fastest growing publishing categories.
Amid the industry downturn Borders on Thursday said it is laying off 742 employees -
i.e. not only is Barnes & Noble acquiring a high growth niche, one of its competitors is going in a different direction.
The vendors decided to sell because "the business is exploding and we needed to partner with a corporation that could provide us with necessary firepower" - Brilliant, it makes the buyer look great, it makes the seller look great and it's a credible reason for selling, brilliant compelling story.
and there's more.................
Fictionwise will operate as an independent subsidiary -
think of the seller's staff reading this, great motivating point
Barnes & Noble even admit they got it wrong first time - in September 2003 they closed the online arm down because of lack of public interest - again brilliant honesty
And just to ram home the economics of online books - the article highlights customers are able to download best sellers for $9.99 compared to $25 in the bookstores.

Lesson: audit the signals of your marketplace and continually check that your positioning and business models are still relevant.

Due Diligence

Why are we so bad at due diligence? Investment Funds, college choices, overpriced houses, buying companies. We just don't seem to have the ability to look beyond the emotion and pressure of the transaction, the event, the decision to buy, and ask some pretty basic questions. Here is a tip that works for most buying decisions. Whatever the event is, whether its choosing a college (helping your kid make the correct decision) or buying a company -- think about the first 100 days after the decision is made. Imagine that life post decision, in tiny details. How many acquirers really focus their due diligence around how they will run that company under their ownership. I mean a very detailed post acquisition plan, operational area by area, person by person. Until acquirers get better at post acquisition planning, due diligence will continue to be done badly. Until we force ourselves to imagine the implications of these material decisions in our lives, we will continue to make bad choices and the consequences are unreasonably important.

The Tipping Point Revisited

I've just finished re-reading the Tipping Point by Malcolm Gladwell.(the new book Outliers will be covered in a later blog) There is so much in this book to inspire entrepreneurs to think outside the box. The central thesis is that epidemics happen because they tip. They potter along, (Airwalk shoes, crime rates, Sesame Street, Winston cigarettes, suicide rates, hush puppies) at a pedestrian rate and then bang something changes and the volume (sales, viewing figures, crime rates) takes off. This book examines three reasons: Stickiness, the need for a compelling story, Contagiousness, why the messenger is unreasonably important and finally the importance of Context, how human beings are ultra sensitive to their environment.

Read it and let it inspire you to improve your compelling story, to gain traction, to reposition your company and build a remarkable business.