Stuck in the Middle
Stuck in the Middle With You - Reservoir Dogs
Do you not know why your business is here tonight? Do you have the feeling that something ain't right? Does the competition have you scared and falling out of your chair?
You may not know this, but the famous song by Steelers Wheel was inspired by Michael Porter and his theory of a business becoming "Stuck in the Middle". (ok, not really, but it's a good song to get stuck in your head as you read this article)
As a business owner, you know how difficult it can be to stand out in the marketplace. It’s hard to break away from the pack and do something that makes your product or service unique. But while standing out is important, so is staying competitive in terms of pricing. This is where Michael Porter’s theory of competition comes in. Let’s take a look at what this theory means and how you can use it to gain an edge in the marketplace.
What Is Strategy?
At its core, strategy is about making choices about what you will do and won't do with respect to your competitors and customers. According to Michael E. Porter's Harvard Business Review article, “What Is Strategy?” (1996), strategy consists of three main elements: cost leadership, differentiation, and focus. The goal of any successful strategy is to find a way to balance these three elements without sacrificing one for another.
Cost Leadership vs Differentiation
Cost leadership means offering products or services at lower prices than those offered by competitors. It means that your prices undercut all those in the market. How? Maybe you have better relationships with your suppliers. Maybe you have secret channels that allow you to get your products at a cheaper rate. Maybe your processes and systems are so dialed in that you can get away with hiring a less expensive workforce. If this is your strategy, there's something you can do that others can't easily replicate to keep your costs and prices down.
On the other hand, differentiation involves creating products or services that are perceived as unique compared to what’s already on the market. Unique is the operative word here. The more unique you are, the better differentiated you are. Unique is something you offer, or a mixture of what you offer, that no one else can do.
Which of these are you? In what ways is this your strategy? Is it sustainable? How easy would it be for a competitor to do that too??
Stuck in the Middle
Unfortunately, many businesses become stuck in the middle because they try to offer both low-cost products/services and differentiated solutions but end up doing neither well enough for either approach to be successful. As Porter argues in his book "Competitive Advantage", “doing everything means doing nothing well". To avoid being stuck in the middle, businesses must make deliberate choices about which type of competitive advantage they wish to pursue—low cost or differentiation—and focus their efforts accordingly.
Stuck in the Middle
Focus on Your Strategy
Sometimes, a company starts off with one strategy, but looses focus after several years and tries to grab more market share by doing both. Other times, a company just gets complacent. That special thing they had isn't so special anymore and wasn't replaced or improved. Get stuck in the middle too long and you'll get cut out of market share entirely!
Choose Wisely
Avoid getting stuck in a situation where your company is neither inexpensive nor differentiated—a situation that leads nowhere fast!
Creating a Sustainable Competitive Advantage
However your company is positioned to be successful, you need to make sure that you can sustain that success. Yeah, you've been doing fine up to now. But how will you cut your prices even more? How will you differentiate more? How will you make sure that whatever you're doing now, you'll continue to do it better than your competitors?
I've been working with a client for several months now that sells a very specific product for a very specific sport. If you know sports enthusiasts, you know that they can be very particular about what they use. You can't just wear any shoe. You can't just pop into Academy and grab a golf club. And you can't just throw together any type of ski poles.
What has this client done? They've focused on creating a sustainable competitive advantage. They've figured out how to make their product better than what their competitors have by offering their supplies with distinctive features. It's not so drastic that it makes them much more expensive than the competition, but they are different enough that they stand out and can demand a slightly higher price. It's rocketed them to 10x revenue, but they can't stay there forever.
In the past few months, we have been working on making their internal processes rock solid. Where they may have lived with the chaos before, flying day to day by the seat of their pants, they are now mastering their production, procurement, warehousing, and even accounting and product tracking process so that they can make more of their unique product quicker than the competition and serve their clients better. This means that even if a competitor tries to undercut them on price, they will still have an advantage when it comes to quality and delivery time.
The key is finding what works best for your business and keeping up the effort to make sure you stay ahead of the competition. That's how you create a sustainable competitive advantage and NEVER get stuck in the middle.
Frameworks Strategy Session
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