Jun 18 2008
The Star Principle
I finished reading The Star Principle by Richard Koch at the weekend. It is a good, quick journey through the “Star” quadrant of the BCG Growth/Share matrix and points out how to find and develop “Star” businesses.
While this area will be old hat for anybody who has studied basic competitive strategy, the book is a fun read and has some insights from the author’s own experience finding, creating, working in and investing in star businesses:
- Six criteria a new niche must meet to be the basis for a star venture:
- grow fast (>10% per annum);
- be targeted at a unique set of customers or customer preferences;
- provide a different set of benefits from the main market, or by doing something the main market doesn’t and by not doing some of the things the main market does;
- exhibit ‘profitable variation’;
- have a clear niche name; and
- have a strong brand name that complements the niche name.
- Four formulas must be mastered for a star venture to take off:
- the customer attraction formula: a proven way to get more and more loyal customers;
- the commercial formula: the way to lock in fat margins;
- the delivery formula: making a machine to deliver consistent, high-quality product on a large scale; and
- the innovation formula: making innovation a way of life so your product is always miles ahead of those of rivals
- Thirty-two triggers for creating star ventures:
- Your ideal product doesn’t exist - similar to Guy Kawasaki’s “Make a meaning” point in Art of the Start - increase the quality of life, right a wrong or prevent the end of something good;
- Go upmarket or downmarket;
- Affordable luxuries;
- Mass market vs niche - rephrased: democratise something currently only for the elite or create an elite version of something used by the masses (a variation of #2);
- Bigger vs smaller;
- Emotional vs functional (think MacBook Air vs Lenovo);
- Healthier vs tempting;
- Safe vs racy;
- Convenience vs purity;
- Saving time vs extending time;
- Fixed vs mobile;
- Unisex vs single sex;
- Masculine vs feminine;
- Gay;
- Grey;
- Green;
- Low vs high service - and different service;
- DIY vs professional service;
- Personalised vs standardised;
- Bundled vs focus and subtraction;
- Expert vs inexpert users;
- Centralised vs decentralised use;
- Total cost vs initial price;
- First place vs third place - first place is home, second place is work and third place is the place to relax and meet people;
- Second place vs third place;
- Owned vs rented vs fractionally owned;
- Narrowed expertise vs added expertise;
- Orchestrating a supplier alliance;
- Online vs offline, or a different distribution channel;
- Entrepreneurial judo - catch leading players off-balance by turning their strength into a weakness;
- Ideas from other industries; and
- Ideas from other geographies.
It is worth noting some limitations to the model include:
- Market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage.
- Doesn’t take into account cross-subsidization between business units (e.g., a “dog” helping others gain competitive advantage).
- Is heavily dependent on the market/niche definition.
Even with these caveats, the book is worth spending the couple of bus/ferry trips it would take to read the book, but don’t expect any groundbreaking work.
Also, check out a post on Guy Kawasaki’s blog by Scott Shane regarding the Top Ten Myths of Entrepreneurship, especially points:
6. Most entrepreneurs start businesses in attractive industries.
Sadly, the opposite is true. Most entrepreneurs head right for the worst industries for start-ups. The correlation between the number of entrepreneurs starting businesses in an industry and the number of companies failing in the industry is 0.77. That means that most entrepreneurs are picking industries in which they are mostlikely to fail.
7. The growth of a start-up depends more on an entrepreneur’s talent than on the business he chooses.
Sorry to deflate some egos here, but the industry you choose to start your company has a huge effect on the odds that it will grow. Over the past twenty years or so, about 4.2 percent of all start-ups in the computer and office equipment industry made the Inc 500 list of the fastest growing private companies in the U.S. 0.005 percent of start-ups in the hotel and motel industry and 0.007 percent of start-up eating and drinking establishments made the Inc. 500. That means the odds that you will make the Inc 500 are 840 times higher if you start a computer company than if you start a hotel or motel. There is nothing anyone has discovered about the effects of entrepreneurial talent that has a similar magnitude effect on the growth of new businesses.
