The 6 Best Business Strategies
by Tom Wright
I previously wrote an article about why so many strategies fail. Here though, I want to focus on the flip-side of that coin. I want to share with you my personal top 6 picks for the best business strategies of all time. Enjoy and more importantly, add your own examples in the comments below!
Best Business Strategies #1: Tesla
Playing the Long Game
Conventional business logic is that when you’re starting something new, you create a ‘Minimal Viable Product’ or MVP. Essentially that means that you create a version of your product that is very light in terms of functionality, but just about ‘gets the job done’. It also means that the first version of your product usually has to be sold at a fairly low starting price, both to compensate for its lack of features, and to generate interest in a new launch.
Some organizations (including many tech startups) take this concept even further and launch the first version of their product completely free of charge, with a plan to ‘monetize’ later on once they’ve added more features and feel confident that people will be willing to pay money for what they’re offering.
Tesla on the other hand, did things completely the other way around. It’s been known for a long time that Tesla’s long-term goal is to be the biggest car company in the world. They know that in order to become the biggest by volume, they’re going to have to kill in the lower-end consumer car space – that is cars costing less than around US$30,000 to buy.
Rather than start with this market though, and create a cheap low-featured version of their electric car to achieve scale quickly (and therefore benefit from economies of scale in addition to reaching their growth goals) – Tesla instead created the absolute most luxurious, expensive, fully-featured sports car that they could muster. That car was the Tesla Roadster, and for context, the newest generation of the Roadster will retail from upwards of US$200,000 for the base model. And this was the first car that they ever produced – knowing that they couldn’t achieve the necessary scale or efficiency to turn a profit (even at such a high price).
Fast-forward to today, Tesla just recently beat General Motors in becoming the most valuable car company in the world. So their unconventional strategy certainly seems to be working, but why?
What can we learn from Tesla?
The first thing to note is that Tesla have in-fact made incredible progress towards their goal of mass-produced affordable electric cars. They’ve even made a genuine annual profit for the first time in their history. The second thing to note is that much of Tesla’s business strategy was actually forced upon it. In reality there was no way that they could have created a cost-effective mass-market electric car without economies of scale. And as a startup, they weren’t even close to having those economies of scale. Furthermore, because what they were building was so unique they couldn’t rely on outsourcing or partnerships to gain those economies of scale.
Actually, Tesla’s supply chain strategy is one of the most brilliant moves they’ve made. They knew early on that batteries would present not only the biggest technological hurdle to their car, but also the biggest bottleneck to production. Rather than let this derail them however, they took complete control of their supply chain by investing in factories that made batteries themselves. This had the additional benefit of allowing them to use those same batteries in parallel business ventures such as their Powerwall.
Of course, all of these strategies required vast quantities of capital and outside fundraising (Elon is rich, but not quite rich enough to fund it all himself!). And that’s where the marketing genius of Tesla kicks in. Except that for the most part, their marketing efforts are only partially about the cars themselves. It’s Elon Musk’s personal brand that had more sway on whether or not they got the investment they needed. He’s smart, divisive, wild and ambitious. But whatever you think about Elon Musk, you’d be hard pressed to traverse more than a couple of consecutive news cycles without seeing him on the front page. And that’s a fantastic recipe for getting the attention of investors.
Best Business Strategies #2: AirBnb
Forgetting all about Scalability
I love the story of Airbnb. We know them today as one of the fastest-growing tech companies, valued at over US$38bn, who have changed the way we travel probably forever. But did you know that they started out about as low tech as you can get?
The first Airbnb rental that ever took place, was the renting out of 3 air mattresses on the floor of co-founders Brian and Joe’s apartment. They made $80 per guest. It seemed like a great idea for a startup, so they put up a website and started inviting other people to list their own mattresses for hire.
They got a few bookings here and there – but for the most part, things didn’t go well. So much so, that in 2008, they resorted to selling cereal to make some extra cash.
They had plenty of listings on the site, and plenty of site traffic – but too few people were actually making bookings. They were frustrated about the lack of effort they perceived in the listings people were making. So they took matters into their own hands.
The co-founders grabbed their camera, and went to knock on the doors of each and every one of their NYC listings. When someone answered the door, they would persuade the owner to let them in, and then take a ton of photographs of the inside. They touched up the photos a bit and uploaded them to the website in place of the old photos the owners had taken. Within a month of starting this strategy – sales doubled. Then tripled. Then….well, the rest is history.
What can we learn from Airbnb?
The thing I love the most about this story, is that it confounds one of the most commonly stated principles of building a tech startup – that you must make everything scalable. What Brian & Joe did was anything but scalable. But it got them enough traction to prove that their concept could work. Later, they did find a way to make this solution scalable, by hiring young photographers in major locations and paying them to take professional photos of owner’s listings (at no charge to the owner).
Best Business Strategies #3: Toyota
Humility can be the Best Business Strategy
In the year 1973, the ‘Big Three’ car makers in the USA had over 82% of the market share. Today they have less than 50%. The main reason for this, is the aggressive (and unexpected) entry of Japanese car-makers, led by Toyota into the US market in the 1970’s.
Cars are big, heavy and expensive to move around. That’s one of the reasons why the US market was so surprised when Toyota started selling Japanese-made cars in the US, at prices far lower than they could match. The car industry was a huge contributor to the US economy, so one of the first reactions from the government was to implement protectionist taxes on all imports of cars – thus making Japanese cars as expensive as locally made cars.
But the tactic failed. Within a few years, Toyota (and by now others too) had managed to establish production plants on US soil, thus eliminating the need to pay any of the hefty new import taxes. At first, US car makers weren’t all that worried. Surely by having to move production to the US, the production costs for the Japanese car makers would rise up to be roughly the same as those of the local car makers. But that didn’t happen. Toyota continued to output cars (now made locally on US soil) for significantly cheaper than US companies could.
Their finely honed production processes were so efficient and lean that they were able to beat US car makers at their own game. You’ve probably heard of the notion of ‘continuous improvement‘. In the world of manufacturing, Toyota are pretty much the grandfather of exactly this.
What can we learn from Toyota?
Most business success stories that you read – especially in the western world, involve bold moves and against-all-odds tales of bravery. Which is what makes this particular story so unique. Toyota spent years studying the production lines of American car makers such as Ford. They knew that the US car industry was more advanced and more efficient than the Japanese one. So they waited. They studied their competitors and tried to copy what the Americans did so well. They blended these processes with the strengths of their own, and came up with something even better.
Toyota proved that knowing their own weaknesses can be the key to success – and be one of the best business strategies you can ever deploy.
Not just that. Can you name a single famous executive at Toyota? I can’t. And one of the reasons is that Toyota’s number one corporate value is humility. Not even the most senior plant executives have named car spaces of their own. The humility that helped them to crack the US market runs deep in the organization, from the executives to the assembly workers.
Best Business Strategies #4: HubSpot
Creating an Industry then Dominating it
HubSpot aren’t as famous as Airbnb or Toyota. But, they’re worth over US$2bn, and more impressively, they’ve achieved that valuation in an industry that didn’t even exist before they invented it themselves. That industry is known as ‘inbound marketing’.
Most of the marketing that we experience is known as ‘interruption’ marketing. This is where adverts are pushed out to you whether you like it or not. Think tv adverts, billboards, Google Adwords, etc. In 2004, HubSpot created a software platform that aimed to turn this concept of marketing on its head. The HubSpot marketing platform helped companies to write blog posts, create eBooks and share their content on social media. The theory was that if you could produce enough good quality content to pull people to your website, then just enough of them might stick around to take a look at the product you’re actually selling (behind the blog).
This was a big deal. I can tell you from personal experience, that ‘interruption marketing’ is really really expensive. We pay Google around $10 each time someone clicks onto one of our AdWords adverts. Remember, that’s $10 per click not per sale. That adds up pretty fast. On the other hand, this blog receives approaching one million clicks per year – at a cost of zero. I’ve written before about how inbound marketing basically saved our business – so it’s fair to say that this example is pretty close to my heart!
They coined the term ‘inbound marketing’ – and long story short, they’re now one of the biggest SaaS companies in the world. But that’s not the interesting part of the story.
What can we learn from HubSpot?
The interesting part of the story is this: HubSpot created a new type of marketing. They then used that type of marketing to market their own company, who’s sole purpose was to sell a platform that created that new type of marketing. Head hurting yet? Mine too.
In a nut-shell, HubSpot had an idea for a cool new way of marketing. Most companies would have taken that new way of marketing, and applied it to something that they were already selling. But instead, the HubSpot guys decided to monetize the marketing strategy itself. They took a whole bunch of concepts that already existed (blogging, eBooks, etc) and packaged them into a ‘new way of doing things’. Not only that, but they created an awesome narrative, and then proved how powerful this new way of marketing could be, by building a $2bn business from it. They smoked their own dope, and made themselves very very rich in the process.
Best Business Strategies #5: Apple
iPhone Launch Shows Tremendous Restraint
Ok I hear you – this is such an obvious inclusion for the ‘best business strategies’. But as one of the first people to adopt smartphones when they came out in the 1990’s this is something else that’s pretty close to my heart. I remember using Windows Mobile (the original version) on a touchscreen phone with a stylus – and it was horrible. I loved the fact that I had access to my email and my calendar on my phone. But I hated the fact that my phone was the size of a house, and required you to press the screen with ox-like strength before any kind of input would register.
Thankfully, a few years later, BlackBerry came along and started to release phones that were not only smart, but much more usable. Sony Ericsson, Nokia, HTC and a whole host of other manufacturers all came out with reasonably solid smartphones, all well before 2007 when Apple finally released the iPhone.
I remember arriving at the office one day and my boss had somehow gotten his hands on one of the first iPhones to be sold in the UK. I was shocked. Normally I was the early adopter. I was the one showing people what the future looked like. And yet, here was this guy in his mid 50’s, with his thick glasses, showing off a bit of technology that I’d never even seen before.
And that is the masterstroke that is the iPhone. The reason why every single smartphone I’d ever owned had sucked in comparison to the iPhone, is because there’s no real market in selling phones to geeks like me. We’re too few and far between – and either too poor or too stingy to drop any real cash on new tech. Apple could easily have created a phone much earlier than it did and sold it to me. But it didn’t. Instead it waited until the technology was mature enough to be able to sell to my boss. Someone who is far less tech savvy than me. But also far more financially equipped.
What can we learn from Apple?
The big learning here is that first mover advantage is often not an advantage. A well executed ‘follower’ strategy will outperform a less well executed ‘first mover’ strategy every single time. One of the most common misconceptions in the startup world is the concept that it’s the ‘idea’ that matters the most. The truth is, the world’s most successful companies were rarely the first ones to innovate. I’m looking at you Nokia. At you Kodak. And at you too, Yahoo.
In fact, being first is probably a disadvantage more often than it’s an advantage. Why?
- Your market isn’t well defined and doesn’t even know your product type exists
- If you have a market, it’s probably the early adopters – by definition, that’s a niche market
- The technology will hold you back rather than power you to success
- Every single person that comes after you will have the advantage of learning from your mistakes
People, and especially tech companies, get carried away with being first. But you need to think very seriously about whether ‘first mover’ or ‘smart follower’ are the best business strategies for you.
Best Business Strategies #6: PayPal
Daring to Challenge the Status Quo
There are certain industries that you just don’t mess with. Industries like Aerospace, big Supermarkets, Semi Conductors, and Banking. Actually, banking is probably the hardest industry of all to try to disrupt, because the barriers to entry are huge. You need mountains of capital, a ton of regulatory approval, and years of building trust with your customers around their most important asset – their cash.
Banks are old. Their business models are largely unchanged in hundreds of years, and they make huge amounts of profit, without actually making a single thing. They’re insanely powerful and almost impossible to displace. But for some stupid crazy reason – PayPal didn’t seem to care. I can tell you from personal experience (I worked for a bank), that the name that strikes the most fear into the executives of the banks is PayPal.
- PayPal spends less money on technology than even a medium sized bank does. Yet its technology platform is far superior.
- Consumers trust PayPal as much if not more than they trust their bank. Even though PayPal has been around for a fraction of the time.
- When a customer buys with their PayPal account, the bank has no clue what the customer actually bought. The transaction appears on the bank statement as merely ‘PayPal’.That gives PayPal all the power when it comes to data mining.
- PayPal is quicker to market with just about any kind of payment innovation going.
- PayPal refuses to partner directly with banks – instead opting to partner with retailers directly.
In a very small space of time, PayPal has managed to insert itself as a whole new method of payment on the internet (and offline) – giving a very real alternative to your trusty debit or credit card. But how the heck did it manage to do it? Let’s take a look at why PayPal had one of the best business strategies ever.
What can we learn from PayPal?
There are two huge pillars of success to PayPal’s story. The first is simple – stone-cold balls. They got a fairly lucky break when they accidentally became the favored payment provider for eBay transactions. This was followed a few years later by their US$1.5bn acquisition by eBay themselves. eBay were smart enough to mostly leave them alone, and their newfound sense of boldness saw them strike a series of deals with other online retailers to try and replicate the success they’d had with eBay.
This is where the second pillar of their success comes in. Partnerships. Banks had always been wary about forming partnerships directly with retailers – instead they relied on their scheme partners (Visa / MasterCard) to do that for them. They didn’t want the hassle of managing so many different relationships, and were extremely confident about the fact that credit and debit cards would always be at the heart of the financial payment system. But the problem was that MasterCard themselves were already working on a partnership with PayPal. Leaving the banks out in the cold. Today, PayPal commends an amazing 20% market share of online payments in the US – and 62.7% of the eWallet space. Almost all of that growth has come from their direct relationships with merchants large and small.
What are the Best Business Strategies You’ve Ever Seen?
Ok, so that’s my top 6. Now it’s your turn. Tell me about the best business strategies you’ve come across. The ones that made you smile and say ‘damn they were smart’. Add you own to the comments below, or share them with me via social media.