Scaling Up: How a Few Companies Make It...and Why the Rest Don't (Rockefeller Habits 2.0)

by Verne Harnish

branding is all about: owning a small piece of the mind-space within a company’s targeted market, whether that’s in a local neighborhood, an industry segment, or the world. If you want to hurt a competitor, steal its word, as Google did with Yahoo, becoming the “search” engine of choice.

Since 87% of ALL customers (business, consumer, and government) search the Internet to find options for purchasing products and services, you need to dominate these search engines. The key is owning words that matter — the ones people think about and use to search ...

These search engines are useful tools for discerning your company’s or competitors’ success at owning a certain set of words. Take a moment to search the words or phrases you think you should own in the minds of your customers, and see how high your company ranks — or whether your lesser competitors are outranking you. Then go to the Google AdWords Keyword Planner to see how many times someone has searched for your target word or phrase. More important, this tool will show you what related wo...

The New Rules of Marketing & PR: How to Use Social Media, Online Video, Mobile Applications, Blogs, News Releases, and Viral Marketing to Reach Buyers Directly. As author David Meerman Scott

“You are what you publish.” Hire writers and videographers to create case studies, white papers, and videos that naturally catch the attention of the search engines (and media) and educate the customers about the words you want to own. Videos and images have dominated over text ever since Google purchased YouTube.

People don’t want to be sold; they want to be educated.

For more on how to use content to drive revenue, read Joe Pulizzi’s highly insightful Epic Content Marketing: How to Tell a Different Story, Break through the Clutter, and Win More Customers by Marketing Less.

Epic Content Marketing: How to Tell a Different Story, Break through the Clutter, and Win More Customers by Marketing Less.

If you focus on only one of the 7 Strata, this first one is the most important in driving revenue. The rest help you defend your niche, simplify executio...

NOTE: Owning a word or two also applies to your personal brand (e.g., Tim Ferriss owns the term “4-Hour.”) Here’s a link to a piece Verne wrote as a LinkedIn Influencer titled “Your Career Success Hinges on On...

The key is picking a niche and owning (or creating) the words in the minds of the people you want as your core customers.

Sandbox and Brand Promises KEY RESOURCES: Robert H. Bloom and Dave Conti’s book The Inside Advantage: The Strategy That Unlocks the Hidden Growth in Your Business, and Rick Kash and David Calhoun’s book How Companies Win: Profiting From Demand-Driven Business Models No Matter What Business You’re In There are four key decisions to make on stratum 2:

Robert H. Bloom and Dave Conti’s book The Inside Advantage: The Strategy That Unlocks the Hidden Growth in Your Business, and Rick Kash and David Calhoun’s book Ho...

1. Who/Where are your (juicy red) core customers? 2. What are you really selling them? 3. What are your three Brand Promises? 4. What methods do you use to measure whether you’re keeping those promises? (We call these the Kept Promise Indicators, a play on the standard definition of KPIs.)

Who/Where are your (juicy red) core customers? 2. What are you really selling them? 3. What are your three Brand Promises? 4. What methods do you use to measure whether you’re keeping those promises? (We call these the Kept Promise Indicators, a play on the standard definition of KPIs.)

implore companies to get crystal clear about Who and Where their juicy red core customer is — the customer from whom the business can mine the most profit over time. Their warning is to define customers beyond a pure demographic.

Kash and Calhoun, authors of How Companies Win, further suggest that there is a niche within any industry that represents no more than 10% of the total customers but holds a disproportionate percentage of the profit — what are termed profit pools. For instance, in the dog food industry, Kash’s team segmented the market based on the relationship between an owner and her dog (vs. the size of the dog) and found a group of owners they labeled “performance fuelers.” These are owners who are active — biking, hiking, jogging, and running — and want their dog with them. Though they represent only 7% of all dog owners, they account for more than 25% of the profitability in dog food purchases. The key is finding that same niche in your industry and owning it through a highly focused product or service offering.

Once you know more specifically Who they are, it’s much easier to know Where to find them. The performance fuelers can be reached locally on a few key trails and via a couple of popular news sites and blogs.

Brand Promises: Debby the Do-It-Yourselfer wants laminate flooring, and BuildDirect grabs her attention. So why should she buy from BuildDirect vs. its competitors? There have to be some compelling reasons that are evident from the moment she visits BuildDirect’s website. We call these reasons the Brand Promises. Most companies have three main Brand Promises, with one promise that leads the list.

The key is to define the company’s Brand Promises quantitatively so they can be measured and monitored.

WARNING: Refrain from using the words “quality,” “value,” or “service” as Brand Promises. They are too vague. Their definitions may vary, depending on the group of customers you’re facing. McDonald’s delivers what Verne considers high value and service if it’s noon on Saturday and he and his wife are looking for a place where they can grab a quick bite with their four children without standing in a long line, and get a few minutes of peace while their two youngest play in the indoor playground. However, as a place to go on a date night, McDonald’s has little value to them. McDonald’s has defined its three measurable brand (value) promises as speed, consistency, and fun for kids. Getting clear about this and then delivering on these promises (including sending specific updates on these KPIs to its franchise owners daily) helped it pull off one of the most respected modern business turnarounds.

KPIs (Kept Promise Indicators): A promise has no weight if you don’t keep it, resulting in lost customers and negative word-of-mouth publicity. Thus, it’s critical that you know how to measure daily whether you’re keeping your promises.

KEY RESOURCE: Jim Collins’ Harvard Business Review article “Turning Goals Into Results: The Power of Catalytic Mechanisms”

It needs to hurt to break a promise; otherwise, it’s too easy to let the moment pass. This is why Collins labeled what we call a Brand Promise Guarantee “a catalytic mechanism.” By promising to refund 100% of a RedBalloon gift voucher’s cost if the customer can find the experience for a cheaper price, the company’s guarantee puts heat on Simson’s team to keep their pricing promise.

The Brand Promise Guarantee also reduces customers’ fear of buying from you.

One-PHRASE Strategy (Key to Making Money) KEY RESOURCE: Frances Frei and Anne Morriss’ book Uncommon Service: How to Win by Putting Customers at the Core of Your Business

Uncommon Service: How to Win by Putting Customers at the Core of Your Business

Do you dare to be bad? Even risk alienating or upsetting a large segment of potential customers? This is precisely what highly profitable and successful companies do, according to Frances Frei, a leading strategy professor at Harvard Business School, and Anne Morriss.

The first three Strata — owning mindshare, making and keeping promises, and backing them up with a guarantee — are expensive to accomplish. Making matters worse, in trying to address ever-increasing customer demands, the marketplace ends up “want, want, wanting” your margins away as the competition ramps up the “feature set and added services” war. This is why it’s critical to identify your One-PHRASE Strategy. This phrase represents the key lever in your business model that drives profitability and helps you choose which customer desires to meet and which ones to ignore.

Frei and Morriss’ overarching point is that great brands don’t try to please everyone. They focus on being the absolute best at meeting the needs/wants of a small but fanatical group of customers, and then dare to be the absolute worst at everything else. In turn, competitors, in striving to be the best in everything for everyone, actually achieve greatness in nothing — and end up as just average players in the industry.

It takes real guts to ignore or even alienate 93% of customers, focusing instead on the 7% of the market that is fanatical about you and willing to put up with the trade-offs.

Differentiating Activities (3 to 5 Hows) KEY RESOURCE: Michael E. Porter’s classic 1996 Harvard Business Review article titled “What Is Strategy?”

NOTE: This is the first time the term “differentiation” has been used. Competitors can pursue owning the same words, make the same Brand Promises, and offer the same guarantees. However, it’s HOW you deliver on your promises where differentiation occurs. Adds Kevin Daum, author of ROAR! Get Heard in the Sales and Marketing Jungle: A Business Fable, “a true differentiator can only be defined as something your competitor won’t do or can’t do without great effort or expense. Often these can take years to develop since if it can be done cheaply, easily and quickly it provides little or no competitive advantage.”

This is the first time the term “differentiation” has been used. Competitors can pursue owning the same words, make the same Brand Promises, and offer the same guarantees. However, it’s HOW you deliver on your promises where differentiation occurs. Adds Kevin Daum, author of ROAR! Get Heard in the Sales and Marketing Jungle: A Business Fable, “a true differentiator can only be defined as something your competitor won’t do or can’t do without great effort or expense. Often these can take years to develop since if it can be done cheaply, easily and quickly it provides little or no competitive advantage.”

The key is to choose HOW you go about delivering your products and services in your industry in ways that are nearly impossible for your competition to copy.

establish a set of activities — “how” you run the business — that is different from the norms of the industry, helps you drive profitability, and blocks the competition.

“A company can outperform rivals only if it can establish a difference that it can preserve.”

KEY RESOURCE: Verne’s Fortune article titled “The X-Factor”: http://tiny.cc/the-X-Factor

Verne’s Fortune article titled “The X-Factor”: http://tiny.cc/the-X-Factor

So how do you figure out an X-Factor? Start by asking: What is the one thing I hate most about my industry? What is driving me nuts? What is the choke point constraining the company? It could be a massive cost factor. It could be a massive time factor. The challenge is that you’re often too close to the situation and as blind as everyone else to the real problems that have been accepted as industry norms.