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

by Verne Harnish

The 4Ps of marketing (Product, Place, Price, and Promotion) is the other guiding framework. From our perspective, marketing strategy = strategy. For an update to the 4Ps, search the Internet for ad agency Ogilvy & Mather’s 4Es of marketing (Experience, Everyplace, Exchange, and Evangelism), and add these to your marketing meeting and strategic thinking agendas.

“the council.” Grab a copy of Collins’ Good to Great: Why Some Companies Make the Leap… And Others Don’t and read the three most important pages ever written in business — Pages 114 to 116

where he describes the 11 guidelines for structuring such a council.

The creation of the 7 Strata of Strategy framework was inspired by a book written by Walter Kiechel III, a former Fortune editor and Harvard Business Publishing editorial director. Titled Lords of Strategy: The Secret Intellectual History of the New Corporate World, it chronicles the relatively short 50-year history of corporate strategy and the four men who were the pioneers in the field.

Then take a page from the best-selling book 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 says, “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.

BuildDirect has built its search engine rankings for its chosen terms by publishing unbiased content — which includes these keywords — to help customers tackle their building projects. These articles, housed within the BuildDirect Learning Center, aren’t thinly disguised commercials for BuildDirect.com. They are useful, well-written articles that might otherwise appear in a home remodeling publication. One division is the Laminate Flooring Learning Center. This section is chockfull of useful information aimed at homeowners considering this flooring choice, such as a

description of laminate flooring, with its pros and cons, an explanation of the manufacturing process, a listing of the types of laminate flooring, cleaning and care information, and a buying guide.

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

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 One Word: Do You Know It?”: http://tiny.cc/success-one-word

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: 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.)

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. For BuildDirect, the Brand Promises are “Best price, best customer service, and product expertise.” “Best price” is the lead promise. The key is to define the company’s Brand Promises

quantitatively so they can be measured and monitored. Best price, in BuildDirect’s case, means 40% to 50% less than anyplace else where you can purchase a similar product. BuildDirect has teams monitoring prices daily to make sure that it can keep this promise, or that it exits certain products and categories when it can

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

Professional service firms might offer “short pay” guarantees,

giving the client an option to pay whatever he thinks reasonable if there are issues. Though 99% of clients won’t send less, the existence of the guarantee gives them the confidence to do business with the service firm and encourages customers to share their concerns.

RESOURCE: Frances Frei and Anne Morriss’ book Uncommon Service: How to Win by Putting Customers at the Core of Your Business

Take IKEA’s business model, based on “flat pack furniture.” Since IKEA doesn’t have to ship or warehouse air, its costs are considerably lower than competitors’, giving it a huge price advantage (its #1 Brand Promise). Add to this a flair for design and the best Swedish meatballs on the planet, and you have three Brand Promises that outweigh all the things people hate about IKEA — and it’s a long list!

Apple’s One-PHRASE Strategy has been its “closed architecture,” the source of its phenomenal profitability. It also serves as a powerful blocking strategy, since Google and Microsoft are beyond the point of no return and would never be able to close their open systems. Again, most of the consumers in the world don’t find the trade-offs worth it, but that hasn’t kept Apple from being the most valuable company in the world.

The book Uncommon Service will give you a myriad number of examples and walk you through how to both “be bad” the right and highly profitable way and “be great” via a few Brand Promises. 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.

KEY RESOURCE: Michael E. Porter’s classic 1996 Harvard Business Review article titled “What Is Strategy?

Adds Kevin Daum,

author of ROAR! Get Heard in the Sales and Marketing Jungle: A Business Fable,

Each layer of the 7 Strata of Strategy builds upon and reinforces the others.

Read Porter’s article, along with Uncommon Service, and 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. This is a lot for a handful of activities to accomplish, but this is the source of your differentiation. Do the work!

As Porter summarizes, “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

The key for Sullivan turned out to be an unusual compensation plan (think “differentiated activity”). Young people interested in becoming managers were asked to “invest” $25,000 in an Outback restaurant. Imagine one of your children coming home and sharing that they found a job managing a restaurant. After expressing your initial skepticism (“What, managing a steakhouse after obtaining a four-year degree?”), you get around to the all-important question: “So what does it pay?” Whereupon she explains that she actually needs to pay the company to get the job! Here was the deal Sullivan pioneered: New managers would invest $25,000 and commit to staying for five years. Outback would take the first three years to train them to run a restaurant, paying a competitive wage. During the last two years, the new managers would get to run a restaurant on their own. If they hit certain performance milestones by the fifth year, they would get a $100,000 bonus — a 4x return on their investment — which would vest over the next four years. If they signed on to stay at the same restaurant another five years, they would receive the $100,000 in one lump sum, plus $500,000 worth of stock that would vest over the next five years.

The company ended up turning a bunch of people in their 20s into millionaires; 90% of managers stayed in the same restaurant for five years; and 80% stayed for 10 years or more. Most important, Outback’s theory was correct. The longevity of management led to consistency in products and service, helping Outback become the third-largest restaurant chain in the US, and the most

profitable, before Sullivan stepped aside as CEO. (He’s now back turning around the company a...

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 b...

KEY RESOURCE: Jim Collins’ Hedgehog Concept in Good to Great: Why Some Companies Make the Leap… And Others Don

The final two decisions cap the strategy with a single overarching KPI that Jim Collins labels “Profit per X” and a measurable 10- to 25-year goal referred to as a BHAG®, a term that Collins and Jerry I. Porras introduced in their book Built to Last: Successful Habits of Visionary Companies. Both decisions round out Collins’ strategic framework that he calls the Hedgehog Concept in Good to Great.

The Profit per X metric represents the underlying economic engine of the business and provides the leaders with a single KPI they can track maniacally to monitor the progress of the business (a great luxury to have). Though the numerator can be any metric you like — profit, revenue, gross margin, pilots, routes, etc. — the denominator is fixed and represents your company’s unique approach to scaling the business.

At Gazelles, we used to obsess over profit per event; now it’s profit per long-term client.

To flesh out the vision, you need to answer seven basic questions: who, what, when, where, how, why, and the often challenging question, “But should we or shouldn’t we?” These questions anchor the seven columns of the OPSP. If you ever feel confused by the terminology that comes with strategic planning, always come back to these seven simple questions.

To summarize, the OPSP process provides the organization with: 1. A framework that details your corporate vision. 2. A common language with which to express that vision. 3. A well-developed routine for keeping the vision current.

Let’s walk through the seven columns of the OPSP:

Column 1 (Should/Shouldn’t): Lists a handful of rules defining the boundaries for decision-making — the Shoulds or Shouldn’ts represented by the Core Values.

Column 2 (Why): Expresses the impact the company wants to make in the world (or neighborhood), providing the meaning — the Why — behind everyone’s...

Purpose (often referred to as “mission”): the aspirational North Star or Southern Cross providi...

BHAG® (Big Hairy Audacious Goal): the measurable piece of the Purpose that the business can achie...

Column 3 (Where): Defines Where the company is headed in the next three to five years. Includes a description of the Sandbox in which the company wants to play (e.g., in terms of customers, geography, and product/service mix) and its measurable Brand Promises to those customers. It also summa...

Column 4 (What): Describes What results need to be achieved in the next 12 months. These are driven by a measurable #1 Priority (Critical Number) and...

Column 5 (How): Details How the company plans to achieve its vision, focused on a measurable “next step” 90-day #1 Priority (...

Column 6 (Finish Lines and Fun): Describes the theme, celebration, and rewards associated with the #1 Priority for the quarter or year. The theme celebrations give everyone a defi...

Column 7 (Who): Delineates Who is accountable for various aspects of the OPSP, detailing the KPIs, Rocks, and Critical Numbers for each employee or team. Last, the When ques...

*Rocks: This term honors the late Stephen R. Covey, author of The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change. He would demonstrate how, if you have a limited amount of time (a bucket) and put in a bunch of pebbles first (email, distractions, etc.), there’s not much room for the big important stuff (Rocks). But if you reverse the process — take care of the big things first — then there’s room for all of it. To see Covey demonstrate these concepts, go to YouTube and search “Covey Big Rocks”; then watch the six-minute video with your team.

Let’s look at the People side of the business. Track how the cash flows through the business with this equation: Customers: Cash from anyone who pays you minus (-) Employees: Cash to anyone you pay (“employ”), such as traditional employees, contractors, suppliers, partners, etc.