To Avoid Average, Push the Boundaries
By Tim Williams
By definition, “average” means the center of the bell curve — the place where most people and companies live. Average isn’t always a bad thing, such as average life expectancy. But in the realm of business strategy, average can be lethal.
The interesting work in any field isn't happening in the middle, but at the edges. In science, in medicine, and in business, the groundbreaking developments are produced not by the generalists, but by the specialists. The COVID-19 vaccine was developed not by a broad swath of general practitioners but by a small group of brilliant biotechnologists with deep expertise in virology.
Scraping the barnacles
No firm aims to be average. Most professional service firms start out as focused businesses. But over time, they diversify themselves into irrelevance. When current or prospective clients request a service outside the organization's core competencies, the firm attempts to perform the service in exchange for a morsel of incremental revenue. Like barnacles attaching to a ship, these supplementary offerings cling to the core business model as unintended appendages, creating extra weight and reducing velocity. This is business strategy by default rather than by design.
The firms that stay focused on what they do best and resist the pull of fortune-seeking diversification take the leadership positions in every industry. Why did the Coca-Cola Company ultimately overtake PepsiCo in revenues and market capitalization? Because Coca-Cola decided to shed everything from its portfolio that’s not a beverage, while PepsiCo continues to sell a variety of snacks and food products. Just recently, Coke went a step further and trimmed 200 beverage brands from its portfolio. Coke understands the power of focus.
Playing where the profits live
Remember, revenue is not the goal — profit is. The business world is rife with companies obsessed with revenue growth. Many of them suffer from thin or nonexistent margins because of the costs of supporting a business model with too much variety. They literally pay a “complexity” tax.
Running a focused business requires committing to a model that pushes to the edges of the business strategy bell curve. That's also where the profits live, especially in professional services, because focused companies are able to command premium pricing.
Harvard business professors Ashish Nanda and Das Narayandas propose a compelling framework for analyzing the business strategy of professional service firms. At the far left of this spectrum are the firms that unintentionally operate as “Commodities,” reacting to client requests and providing routine, widely available services. At the far right extreme of this model is “Rocket Science” — firms that address “bet-the-company problems that require deep expertise and creative problem-solving.”
Not every dollar is a good dollar
Purposefully pushing your business strategy beyond the boundaries of average requires a great deal of mental fortitude. It’s much easier — and much more in line with human nature — to go with the flow and take whatever business comes along. Either consciously or unconsciously, the majority of professional firms fall prey to this behavior. They’re exhibiting a form of FOMO (Fear of Missing Out) — or at least fear they’re passing up a chance to make some money.
But not every dollar is a good dollar. As one of my colleagues observes, you could also sublet part of your office space to a meth lab. Not every project, client, or dollar will help take your company where it wants to go. The job of leadership is to evaluate every potential engagement through a filter of essential questions:
Is this opportunity related to our core competencies? Will we be solving a problem directly related to our areas of expertise?
Will this opportunity help build and reinforce our reputation as a best-in-class provider?
If not directly related to our core problem-solving abilities, does this opportunity have the potential to help us develop adjacent capabilities that complement our underlying positioning strategy?
As Jules Goddard and Tony Eccles observe in their excellent book Uncommon Sense, Common Nonsense, "Strategic solutions do not generalize." To play the role of a high-value business partner to your clients, you must offer inspirational thinking and insights that result from deep expertise, and this requires a commitment and aspiration to be the best in the world in something.
It’s the leading edge of an aircraft wing that produces the lift required to make the plane fly. Companies at the leading edge of their categories didn’t get there by modeling their offerings based on the “best practices” of other companies. Copying best practices doesn’t create the best companies.
