December 22, 2005

How David Can Beat Goliath- Summary of Strategies

Posted in culture, customer service, David vs. Goliath, Economic Model, finance, management, marketing, Metrics, Product Development, Sales at 11:50 am by scottmaxwell

This post is an overall summary of the David vs. Goliath Series and meant to act as a pointer to all of the posts in the series. There are three overarching points for the series:

  1. Emerging growth companies have several natural advantages over larger companies that they can amplify,
  2. Large companies have several advantages that emerging growth companies can minimize, and
  3. Emerging growth companies can (and should) take a series of specific short-term actions that over time will accumulate into a long-term defensible competitive advantage (by amplifying their advantages and minimizing the large company advantages)

I can’t emphasize enough how important it is for emerging growth companies to think through these issues and develop a clear point of view on what they are trying to achieve. Regardless of the long-term goal (a sale of the company or remaining independent), building a defensible advantage will make life much better for you (easier time in the product markets, better growth, better bottom line, higher valuation, etc.). Of course, once you know what you want to achieve, you need to execute against it!

The Nine Major Themes:

  1. Create an Information Advantage. The emerging growth company has the natural advantage of being closer to the customer that the large company. You can truly capitalize on this advantage by taking steps to increase the information flow into your company even more.
  2. Create the Time Advantage. The large company has a disadvantage as it grows, as solid communication between employees gets much much more difficult as companies grow. This communication difficulty turns into a time advantage for emerging growth companies, as larger companies have difficulty doing anything quickly, while emerging growth companies, with their smaller staffs, can turn on a dime. The emerging growth company can take several steps to capitalize on this natural advantage.
  3. Create the Scope Advantage. The emerging growth company has the ability to focus on one product market. The larger companies naturally need to increase their scope in order to sustain growth. The emerging growth company can exploit this natural advantage by staying focused and continuously improving “ownership? of its product market.
  4. Create the Scale Advantage. Large companies have difficulty seeing and/or addressing small markets, even if they are very high growth. This gives the emerging growth company time to establish a foothold in the market as well as create some level of defensibility before the large company enters the market.
  5. Create the Innovation Advantage. Large companies have difficulty executing against certain types of innovation (for example, innovations that cross department boundaries, such as new products with new channels of distribution and new customer service approaches). If emerging growth companies innovate against these natural advantages, they can create an edge against the large companies.
  6. Set Your Operating Point Closer to the Funnel Singularity. This is the strategy of allocating your resources against nailing the customer experience at low price points to the customer instead of allocating significant resources against sales and marketing activities. If you do this well in the right markets, you can create a large, profitable business that is very difficult for the large companies to compete against. This is a classic strategy, but the internet-based sales and marketing approaches now allows the strategy to be executed more aggressively.
  7. Attenuate Goliath’s Strengths. The large company does have some natural advantages itself. The posts below address each of the large company advantages as well as what the emerging growth company can do to minimize the large company strengths (and in many of the cases, create an edge):
  8. Defend Against Goliath’s Attack. No matter what you do, if you are successful then Goliath will eventually attack. These posts address the nature of Goliath’s attacks as well as how the emerging growth company can set up in advance to defend against the attack. I point out that the results of the attack will be determined well in advance of the attack! The two posts are:
  9. Execute Against Execution. All of the prior posts are about what the emerging growth company can do to create a strategic advantage. This post is about how to maximize the pace of your company toward the series of goals that you have set for your company. The higher your pace toward your goals, the faster your company will develop into a large profitable company with a defensible competitive advantage.

I am going to take a breather from this series for now, but I do intend to put together the implications for each department so that some of the more esoteric points will be made more tangible for each functional group. When I post each of the functional implications, I will place a link on this post below so that this post will act as the index of the major strategies in addition to the specific implications for each function.

Advertisements

8 Comments »

  1. Dan Cornish said,

    Hi Scott,

    This is the best series about business I have read in a LONG time. The main points here are now hanging on my wall as a a reminder of what-to-do. I will say that focusing on execution can take the focus off of the strategic goals you lay out here. Your terrific series is a great roadmap and I for one will try to stay on the right road. Bravo!

    If I can ask a question. Lots of small companies become prisoners of their large customers. To execute against your roadmap here, you sometimes have to do things which run counter to the interests of your largest customers. This can impact both cash flow from your customer if they decide to leave and your investors who want you to execute against your business plan they invested in. Perhaps the best example of this is when Andy Grove changed course for Intel and stopped making memory and went to microprocessors. Andy Grove was forced into the change, he was losing business rapidly. Being nimble must be balanced with multiple interests, but sometimes you must bet the company. How do you council your Companies when they want to make a “bet-the-company decision?

  2. scottmaxwell said,

    Dan,
    thanks for the comments! On your question, it reminds me of something that one of my advisors once told me “if the horse you are riding dies, it is time to find a new horse!” If I remember the situation correctly, Andy Grove realized that the offshore manufacturers were going to kill his horse, so he jumped on a new horse by betting on the higher ROI business.

    That said, you raise an unbelievably difficult question which involves both economics and values. As a starting point, it seems to me that you always need to meet your commitments to your customers…they have long memories and it is just the right thing to do (this is especially important if they are relying on your product and/or your product is difficult to switch off of). Most customers will recognize that products have lifecycles and will not be supported forever, so perhaps this is just a short- to medium-term issue (seems like the Intel customers could have switched relatively easily to chips from others, but my memory is sketchy on this particular situation).

    Setting commitments to your customers aside (and assuming the answer above acceptably addresses your issue), my view is to try to build as much optionality as possible into “bet the company” decisions. What I mean by optionality is that you consider the possible outcomes that your initiative will have and try to have a back-up plan for each of the possible outcomes. if you have a situation where you are truly betting the company without the ability to recover from a bad outcome (i.e., no back-up options are possible) then you need to be unbelievably focused on making sure that you anticipate mitigate as many possible problems as possible and make even more certain that you are focused on execution in all parts of your company (the idea is similar to betting on as many numbers as possible before spinning the roulette wheel…even better, prevent the ball from stopping on as many numbers as possible and then bet on the remaining numbers!)

    In terms of investors wanting to stick to an original plan in the face of market and company changes, it seems to me that some level of eduction and open conversation around facts and options might help everyone get aligned on the appropriate action plan. Perhaps they are stuck in an old world or perhaps you are ready to do something new even though the old plan is still viable…hard for me to tell, but open conversation around facts and risks always seems to create progress. Also, you may end up discovering some ideas that have not yet been thought of!

    I hope this helps. Situations like this are very difficult to address broadly, but sketching out the probability of different outcomes as well as the result of the outcome, working on adding optionality, and working on changing the propabilities in your favor will at least maximize your expected value.

    Good luck and Merry Christmas!

    Scott

  3. This has been really useful thoughts from my perspective as a founder of a company. It inspired me to write a view from my founder standpoint of some of the things that us “Davids” often do that hurt our chances to beat Goliath: http://venturefounder.typepad.com/a_venturebacked_startup_f/2005/12/wasting_time_at.html

  4. […] Strategy Focus- Create 1-3 initiatives from this list, make considerable progress on implementing by the end of Q1 to help increase your competitive advantage. […]

  5. Roman Rytov said,

    Very impressive almost academic reading! To add a drop of emotions to this ocean of pragmatic vision look at my analogy I brought similar to David vs. Goliath – Mossad, French Legion or Taliban (link above)

  6. Julie Jacobus said,

    Dear Scott –

    Thank you for your time! Tell me more about the little guy and how he can succeed! especially when the big guy is so daunting. I thank you for writing an article about Clint Curtis and Feeney, regardless that it was devoid of facts. Who is the little guy in this equation? Again, thank you for your time.

  7. Julie Jacobus said,

    Too funny. Wrong Scott Maxwell. Beg pardon, y’all.
    ;o)

  8. […] is not new information. I wrote a blog series about 5 years ago detailing how small companies have the natural advantage against the large companies as it relates to innovative technologies, business models, etc. and in my mind the benefits to the […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: