Chapter 8: Adjusting to Market Realities

The Art of ‘Ware [version 2.0] by Bruce F. Webster

[Copyright (c) 1995, 2008 by Bruce F. Webster. All rights reserved. Last update: 04/30/08]

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Once you get your product out in the marketplace, you will need to adjust to the realities you find there. Your product may not be accepted as well as you like. Your actual customers may be different from those you originally targeted. There may be some critical features or benefits missing. The market you aimed at may transform or disappear. And so on. Survival will depend upon recognizing these problems and reacting to them.

The eighth chapter of Suntzu pingfa talks about tactical variations and adjusting to the realities of the battle. Sun Tzu notes that it is how the general adapts to the advantages and disadvantages of the moment that often determines victory or defeat.

Don’t waste time establishing yourself in vulnerable markets.

It makes little sense to spend time and money to enter a market in which you cannot defend your market share. You may be lured in by apparent short-term profits, but unless you can get in quickly then get out quickly with little cost to your reputation, it’s just not worth it.

In vertical markets, establish alliances with other firms.

A vertical market is typically one focused on a given industry: legal, financial services, medical, government. These markets have higher needs for special features, customized applications, and integrated solutions. Leverage your technology with the experience and technology of other firms — developers, VARs, and systems integrators.

Don’t seek or expect quick revenues from markets with little cash flow.

Chances are you won’t make money quickly by aiming products at, say, elementary school teachers. There may be other reasons for going into such a market, but revenue isn’t one of them.

Likewise, you may find yourself in markets with long sales cycles (six months to several years). Those may ultimately prove to be lucrative, but you need to be sure you can support yourself in the meantime.

When market expansion is constrained, plan your moves wisely.

Current cash flow is not enough on which to base your decisions; you need to look at how long you can sustain that cash flow. This also means you need to pay close attention to your current customer base, since you may not be able to gain many new customers.

Battle fiercely for markets essential to your existence.

This may appear obvious, but many firms, large and small, have made the mistake at one point or another of taking their core markets for granted: WordStar, Lotus, WordPerfect, Apple, IBM, AT&T, Xerox — the list goes on, and most of the firms are now gone or have retreated from their original core markets. A fierce defense will not only help preserve your market, it will discourage competitors and build confidence among your customers.

There are products that you shouldn’t develop, companies you shouldn’t challenge, customers you shouldn’t win, markets you shouldn’t enter, recommendations from the board of directors you shouldn’t follow.

Just because you can develop a given product, compete against a given company, win customers, penetrate markets, and/or fulfill the wishes of the board of directors doesn’t mean you should. It is possible to succeed in doing these things and to damage the company in the process, or at least divert yourself from more significant opportunities.

If you understand all these factors, you can successfully direct the company and capture market share.

You must know what not to do, as well as what to do.

If you don’t understand these factors, you won’t be able to establish market position, even if you’re familiar with the market.

Knowing the market isn’t enough if you don’t know how to direct product development and marketing.

If you understand the factors, but you don’t understand how and when to apply them, you won’t be able you effectively direct the company.

Knowing the factors isn’t enough; you have to know how and when to use them. This is the difference between having knowledge and having skill in applying that knowledge.

To be effective, consider both positive and negative factors. By considering the positive factors, you construct a plan that can succeed. By considering the negative factors, you anticipate problems and avoid pitfalls.

Both sides are essential. A CEO who looks only at positive factors will guide the company over the cliff’s edge; one who looks only at the negative factors will never create the products and attitudes that are necessary for success.

Intimidate competitors by taking market and profit away from them.

When you succeed in capturing market share and cutting into the competition’s profits, you discourage them and make them think twice about continuing to compete with you.

Wear out competitors by creating new problems and challenges for them.

By introducing a series of actions to which the competition must respond, you keep them off-balance and cause them to expend resources that could otherwise use for their own plans.

Distract competitors by enticing them with possible profit.

If you can draw the competition into markets that you don’t want or in which they are unlikely to succeed, then they will spend resources in those markets that they would otherwise spend competing with you.

Don’t rely on the competition not entering a given market; instead, have a plan for dealing with them if they do.

If you plan for them entering the market and they don’t, then you have lost a little. If you don’t plan for it and they do, then you have lost much.

Don’t count on the competition not attacking a given product; instead, make that product strong and unassailable.

If you assume that a product won’t have serious competition, you won’t be as thorough in making it excellent and compelling. This will make your customers dissatisfied; it will also invite the competition to supply products of its own.

There are five traits in a CEO that can lead to company failure:

If overly reckless, the CEO may lead the company to an exposed position.

Reckless means not paying attention to negative factors, assuming everything will go well for your products, and/or assuming the competition isn’t as good and as smart as you.

If overly timid, the CEO may miss opportunities and lose market share.

Timid means not paying attention to the positive factors, not being willing to take risks when the rewards are significant, and not responding aggressively to competitors.

If overly proud, the CEO may be prodded into rash actions.

The technology industry is led by people with strong personalities and large egos. Many business decisions have been made out of pride or anger; any number of back issues of Forbes, Fortune and the Wall Street Journal will confirm that.

If overly sensitive, the CEO may be manipulated through accusations and innuendo.

Again, many significant decisions have been made because the CEO wanted to maintain or disprove a certain image, rather that for sound business reasons.

If overly compassionate, the CEO may not make the hard choices about the personnel to keep the company going, and thus may endanger the jobs of all.

I’m not sure there’s a big problem in this industry with being overly compassionate; too often, the opposite is the rule. But there are cases, such as Compaq, WordPerfect, and Kodak, of CEOs who have stepped down or been forced out because they were unwilling to may necessary payroll cuts.

Consider this: when development fails, sales and profits decline, and the CEO is replaced, it is usually because one or more of these traits.

Make your own list of departed CEOs and see how many into these categories. Then ask yourself if you fit in — and where.

Here’s a positive summary: know the factors given at the start of the chapter and understand how to respond to them; create plans from a position of wisdom and skill; be willing to make the hard decisions when faced with the realities of the marketplace.