Leadership Comes in Three Forms

I read a good book recently.

Actually, I've read several good books recently, but only a few have any bearing on the subject of this blog: Small Business Marketing Strategy. One that does, and has some trenchant philosophy to offer (translation: the author agrees with me), is:

The Discipline of Market Leaders
       Choose your customers, Narrow your focus, Dominate your market.
        by Michael Treacy and Fred Wiersema.

My reading list is eclectic. I don't spend a lot of time on “Just Released Best Sellers”. I do look for solid, non-fad ideas that can be translated easily into the small business environment. Although this book takes its examples from the world of well-known corporations, the strategies still apply on the smaller scale.

The book was written about 15 years ago, and many things have changed. In fact, some of the corporate examples used in the book have fallen from favor. However, their replacements as market leaders have succeeded by using the same strategies, which is an excellent validation.

The authors cover a lot of ground, but one key element is this:

All market leaders lead in one of three ways:

1. Operational Excellence
2. Long-term Product Innovation
3. Customer Intimacy

Lets look at these one-at-a time, and go through some examples.

1. Operational Excellence

These market leaders have a well-defined target audience, they offer only a limited numbers of products or services, and they use their intense focus to squeeze out costs throughout their organization and supply chain. This allows them to offer customers a very predictable and highly reliable buying experience at a low cost.

Typical examples would be McDonalds, Costco, Dell Computers, and Southwest Airlines. These companies have brands built around their operational consistency and the low pricing that it allows. In most every industry, you can name a low cost, tightly focused, operationally excellent company that is seen as a leader, and has significant market share.


2. Long-Term Product Innovation

These market leaders are often at the other end of the pricing scale, but they succeed because of their product reputation. A prime factor here is the words “Long Term”. This isn't the company with the latest, greatest product. Its the company with a tradition of innovation that has been earned over several generations of new products.

Some examples here would include, Johnson & Johnson, Apple, Nike, and Disney. One example used in the book was Sony, which was certainly a product leader for many years, but may have fallen by the wayside now. Then new leader in TV's might be Panasonic, and Virgin Atlantic might fit in this bracket in the airline industry.

Once you have a reputation for product excellence and innovation, the market rewards you with the ability to charge higher prices and earn higher margins. Its the long term performance that develops the brand, and its the brand that allows customers to feel justified in paying a higher price.

3. Customer Intimacy

With the advent of liberalize TV advertising standards, this term has taken on a new meaning. In this context, however, it means the ability of a company to truly understand all of the buying needs of the customer, and to offer customized solutions. In some sense, this is the opposite of the highly focused, “operational excellence” company.

Not that these companies aren't good at what they do. Rather, they offer a variety of products and services in an effort to create a unique solution for each customer. And, they charge for it. This type of market leader is going after the customer that can’t find exactly what they want off-the-shelf and are willing to pay more to get a precise solution to their problem. Some examples here would include IBM and Johnson Controls.

In this scenario, the company looks to create a long-term relationship with the customer, and seeks a deep insight into their needs. They also study how they customer benefits from the products / services offered. This deep knowledge allows the company to tailor solutions that fit the situation. The relationship has value to the customer, and is reflected in a higher pricing structure.

Applying these models to small business

In the Operational Excellence model, the secret is limiting your offerings and finding ways to squeeze costs out of your operations and supply chain. It is these cost reductions that allow for low prices while maintaining reasonable margins. I have some service-provider clients who have increased their use of automation, allowing them to offer faster results at lower cost than their local competition.

The Product Leadership model is harder to implement as a small business, because few of them actually create the products they sell. An exception, obviously, is the restaurant business, where many small operations have been successful by offering unique products and presentations to their customers. Another approach is to associate your business with a national product leader, such as offering specialized training and add-ons to Apple products, or becoming a local service outlet for a manufacturer with a major reputation.

Due to the close relationship between most small businesses and their customers, the Customer Intimacy approach may well have the most potential. I don't recommend trying to offer everything to everybody. Rather, you should pick a niche you want to specialize in, and then carry a combination of products and services that let your customers feel like they are getting a customized solution. You should also look for ways to make your business an integral part of their business success.

And now, the really hard part!

For each of these three models to succeed, they must be fully integrated into every aspect of your business operations. These are not simplistic “marketing veneers” that can be slapped on top of your existing business plan. They must be engineered into everything you do, and must be the focus of every customer interaction you have.

It took years for IBM to leave behind its Big Iron business and to get into services and consulting. It took even more time for the buying public to see how they had changed, and for them to once-again regain their leadership position.

The same can be said for most of the examples mentioned above. This isn't a quick solution to the problems of a mediocre brand, but it is an effective one.


Wiersema and Treacy have updated this great book. The new edition is entitled:

        The New Market Leaders: Who is winning and how in the battle for customers.

Fred Wiersema has written several other books about superior customer service. More information,  click here