May 02, 2005

Yes, But, So

Recently, we've been doing a lot of analysis of the landscape, in venture, in technology, etc. We've also been seeing a lot of pitches of course. And in each one we keep coming back to this simple formula for both assesing the situation and making your case for the right action in the situation.

We've talked about the ABCs of situation analysis a lot already in this blog. But we have not walked through the analog formula we use all the time for translating this assessment into a compelling arguement or case - no matter what the topic. We call this method Yes, But, So, and boy have we been using this a lot lately.

So here it is "Yes, But, So" excerpted, paraphrased from Chapter 13 of our book...

For people to buy into what you are proposing, they need to understand the rationale behind it. The “Yes, But, So” approach offers a simple formula for making this clear in three sentences that acknowledge the situation, challenge the status quo, and propose an alternative.

To prevent yourself from getting lost and tangled up in the minutiae in doing all this complex analysis, you followed our simple ABCs method — With A representing the summary current situation, B representing the better way or possible future, and C, the gap or path from point A to point B.

For conveying your summary case (and, in fact, for holding people’s attention when you are making just about any argument you will ever need to make), there is an equally simple method to match the ABCs.
This wondrously magical technique is called… Yes, But, So.

The Yes lets your listeners know that you’ve heard their position and you understand. But announces that you know there can be a better way. So presents your idea for how to get there. These three little words are the only ones you really need to kick off any logical argument. And they will help you keep it down to three sentences.

Yes. Of course your case starts with “Yes.” However often it's actually used, “yes” has got to be one of the most popular words in the English language. It's what we all want to hear most. And there's a reason. Finding a way to empathize, to identify with someone, is the most important starting point to any interaction. That's the purpose of the Yes in our little Yes, But, So formula. Yes shows that you understand and acknowledge the facts of the situation—market situation, customer responses and desires, competitive strengths and responses, and the immediate feedback of your audience.

But. “Yes” is not enough. Nothing does, can, or should stay the same. That's where But comes in. Only when you understand the gap between the current situation and the desired or potential situations can you make any progress. The But statement forces you into a position of being open minded, critical, taking things from a different perspective. It is questioning, challenging; it’s what keeps things fresh. In this context, But drives you to recognize the opening, the potential break in the situation, the kernel of change.

So. What’s next? It’s pretty dissatisfying to leave a conversation on a negative note, focusing on just the problems. Once you know your limitations and challenges, you have to decide what to do about them. That's what So is all about—taking all this analysis and converting it into a call to action. It's about embracing the possible. It addresses the need to find some resolution, hope, goals, or motivation in a tough situation. So is your way of taking all this analysis and hypothesizing and converting it into recommended action, into resolve, commitment. So means, “Let’s go!”

Here’s an example. We started out the section on situation analysis with the story of Henry Ford and the Model T. Behind all the momentous business and technology dynamics and historic industry forces was a very simple three-sentence case:

• Yes, cars remain the domain of elites and aficionados, not regular people.
• But, the underlying auto technology and manufacturing techniques are becoming more efficient.
• So, we should now be able to make a reliable car that the mass market can afford.

Another example updates the Ford story with similar challenges and opportunities in the modern time—the Volkswagen approach, especially when the company first relaunched with its more daring line of cars like the Jetta and the new bug.

• Yes, there are terrific, German-engineered cars available on the market for driving enthusiasts.
• But, they are very expensive and appeal only to those who can afford them .
• So, let’s offer a high performance German car for normal enthusiasts.

Sounds simple, but frankly, we think it’s profound. Why? It’s the psychology of getting someone to agree with you.

By, the way, this works great as well with kids and spouses (say "yes" first to empathize, inject "but" to begin explaining the issues and provide a "so" to suggest something positive rather than just disagreeing).

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November 09, 2004

First Ever Podcast

I love audio books, listen to them in the car all the time. And now, I can listen to, well, myself?

Well still, it's pretty cool. We're the first ever podcast on 800CEORead. Check it out... 800-CEO-READ PODCASTS: The Marketing Playbook by John Zagula and Richard Tong

Will be interesting where this whole podcasting phenomenon goes. (Here's an Engadget overview, Fun to be a little part of it.

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October 21, 2004

From Chapter Nine: Your Customer Playing Field

How Does Anybody with a Business to Run Do All This Customer Analysis Without Spending Tons of Time and Money?

How do you do it? You can begin to learn a lot about your customers, playing field-both current customers and potential ones-without conducting expensive market research and without wasting tons of time in focus groups. You can integrate your research into your daily conduct of business. It's not hard.

First, keep it simple.

Start small. Talk to people you know. Talk to employees, sales people, colleagues in other companies, your family-whoever is the best representative of your customer. Find out what's up in their world; ask about their problems, their needs, their goals. Drill in on their product experience and their issues with it.

Find a group of individual customers you can talk to. Get more out of your existing sales efforts by making sure you use them as a chance to learn. If you aren't already, go on a few sales calls or man the phones. It's often best to do this with the most demanding customers or prospects. As Bill Gates once said, "Your most unhappy customers are your greatest source of learning." They will tell you the stuff you need to know. Ask tough questions; be prepared for tough answers. If they seem to be telling you only the good stuff that's nice to hear, don't be satisfied; ask again.

One company we work with targeted teens and found out that talking to them was a sure eye-opener. Adolescents aren't afraid to tell you what they think is cool and what isn't. But how about insurance agents? These guys were used to making sure they said the right thing-they didn't want to let down their listener and chance losing a sale. Trained to be polite and agreeable, they just kept smiling. The company folks really had to push to get them to open up about the problems they had with the company's products.

Second, keep it digestible.

As we've seen, your target customer base can be widely diverse. It really helps if you can narrow or break this discovery process into digestible chunks. There are many, many different ways to do this segmentation: competitive, demographic, psychographic, etc. But two ways seem to be most useful: segmenting by the customer's roles in the purchase process, and by their attitudes toward your category's products or technologies.

The Avogadro and American Express examples illustrate the first steps of segmentation by role in the purchase process. Taking this further, you want to know who is most interested, who holds the pocket book, whose approval is required, and so on. You're looking for the fulcrum or lever-the person whose approval is most important, whose voice on your topic carries the most weight. At Microsoft we broke this typically into four segments or targets -

• The general business user, or GBU, who, although belonging to the majority of users, tended to be a follower and had limited influence or none at all;
• The non-technical business decision maker, or BDM, who owned the budget, and whose approval was important;
• The technical decision maker, or TDM, who generally did not initiate interest in a new product but who often held a veto based on his/her judgment of whether or not it could be implemented;
• Finally, the influential end user, or IEU-the enthusiast or resident expert to whom the GBUs and BDMs turned and whose enthusiasm could often overcome or circumvent the objections of the TDM. When we were at Microsoft, we generally found that it was the influential end users who were the fulcrum.

In terms of segmentation by attitudes, one of the most useful approaches involves understanding how quickly and regularly different people or groups adopt new products-where they fit on the spectrum between bleeding edge and laggards. At Microsoft we called the segments regulars, seekers, doubters, and sleepers.

• Regulars were those who always bought.
• Seekers were those who needed sufficient information first to make a considered choice.
• Doubters were those who needed to see others adopt first before they even considered.
• And sleepers were those who only came along last, kicking and screaming all the way.

Each of these types of segmentation determines how you refine and even narrow the customer gap you are trying to fill, and when you should attempt to fill it. Those who spend more money become a higher priority. Those who are most receptive offer the easiest place to start.

Third, keep your customer analysis direct.

Doing market research and analysis is fine. But to really absorb the conclusion, you have to get your hands dirty. It's not just business, it has to get personal.

Of course, you need to meet customers up close and look them in the eye. But you can and should go beyond that. You should be one of them. You should make sure you are your own customer. It will keep you honest and it will teach you things you might not otherwise have found out.

For years we tried to understand and influence the purchasing of Office, Word, and Excel by small-business owners. We tried using the same approach with them as we did with large corporations. We tried including all kinds of fancy new products based on focus group and primary research. None of it worked. It wasn't until we really experienced for ourselves what the small business customers were experiencing that we realized where we were going wrong and changed our strategy.

While we were running all of our focus groups and surveys, a terrific summer intern, Tony Liano, who didn't know any better, went out and had business cards printed, and got a few of us to pretend to be small business people. We did our own "Secret Shopper" research. We'd go into a store, tell the salesperson we were setting ourselves up in business, and ask for his advice. And we'd make it clear that we were very budget-and time-constrained.

The salesperson would start by selling us a bunch of other things like office furniture, phones, faxes, etc. And even when he got around to selling computer technology, it would be all about the newest computer. When it came to software, he'd usually recommend a bookkeeping program and something like a simple contact manager. Office wouldn't even be mentioned. And when we asked, the sales rep would usually try to sell us something from a Microsoft competitor. Why? Because he made a better margin on them.

The same kinds of issues and priorities were confirmed in our direct discussions with other small business people-who now would talk to us as colleagues. They didn't think of themselves as running small businesses. They saw themselves foremost as contractors, or florists, or accountants.

What an eye opener. All along we had been doing "small business" campaigns and "small business products," when our target actually did not think of themselves this way. It took some hard turning but our response was to adapt to their characteristics. We made sure to target vertical industry-specific partners who provided software solutions to small businesses. And we targeted our packaging and presence to complement new PCs and grant incentives to the channels where small businesses bought their overall computing supplies.

How do your own customers think of themselves? Do they refer to themselves with the same kind of category labels you've been pasting on them?

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From Chapter Nine: Your Customer Playing Field

It's amazing what you learn when you actually talk to the people who are supposed to buy your stuff.

Sounds obvious. What's the point of deeply understanding your industry, its dynamics, its gaps, and its opportunities unless you can use that knowledge to sell something to somebody?

Moving from the macro-level analysis of your industry to the micro-level analysis of your target customers within that industry is the second element of choosing the right play. Doing your homework diligently can mean the difference between an academic exercise and a sustainable business.

The same simple ABC gap analysis process you applied to your industry as a whole can also tell you some other hot and valuable stuff about your customer landscape. Like who exactly to sell to. What problems to work on solving for them. How best to turn your solutions into a product or offer, or how best to adapt and adjust your existing product or offer to provide the solution to a customer need. And in general, how to have the best chance of actually selling it to them.

You have to know who your customers are. "What?" you say. "Of course, we know." Are you sure? You might be surprised how often smart, experienced businesspeople have incomplete information or hang on to false assumptions about the people they want to sell to.

So how can you be sure you really know what you think you know? Are you ready for this? You actually go out and personally meet with customers. Scary. They might do something awful, like talk to you.

And just watch what happens: you'll learn things you couldn't find out any other way.

We saw this simple tactic work for Intelligent Results, a company with founders who knew in depth the dynamics and the gaps of their technology and industry. They also had powerful and proprietary technology that promised to close those gaps. Their timing seemed spot-on, too. A shoo-in for success, right? Guess again. They had more homework to do to get the play and its execution right.

The ABCs of Customer Demand-Turning Compelling Vision into Solutions You Can Sell

Intelligent Results (IR) is a software company in a specialized area called customer relationship analytics (CRA); it's a start-up founded by world-class analytical scientists and engineers-people who were quite used to doing complex, thorough analysis. And, surprisingly enough, they were also practical.

In terms of product, they had already done a lot of their homework when they first came to see us at Ignition. They had done their industry ABCs. They understood the benefits and limitations of current statistical modeling methods of analysis, methods that had provided lots of insight but that the IR folks recognized made use of only a limited portion of corporate data. They also knew there should be a better, more complete way that would also take advantage of data types that current analysis methods couldn't handle. And they had a key insight on the technology that would take analytics from the point A of the current situation (where analysis was based only on limited information) to a much better, more complete point B.

This understanding of the industry gap had yielded the Intelligent Results vision. It was this: Companies ought to be able to use more than just the numbers at their disposal to do business analysis. They ought to be able to use all their sources of data-structured and unstructured, numbers and words-to gain the most complete intelligence and most accurate analysis. IR even had a true technology breakthrough, all their own, that could make this possible. Making it easy to integrate and usefully apply the combination of structured transaction data and unstructured textual data became the Intelligent Results mission.

We found all of this very exciting. IR was gaining the attention of the industry cognoscenti, in particular sophisticated analysts (people like them), who were intrigued by their product.

But, despite their thorough and accurate industry assessment, they were barely making traction in actually selling the stuff.

Highly motivated to get to the bottom of the problem and start making better traction, they went out and talked to all their current customers and prospects. They came back, compared notes, and realized that their understanding of the situation, the possibilities, and the gaps was incomplete.

So they took their gap analysis to the level of potential paying customers and found the real sweet spot, the point of market entry, and the most compelling story, offering and sale.

Here's what they did -

1) They dug into their target customers' priorities-their critical needs.

The founders' former boss, Jeff Bezos, CEO of Amazon, had given them the advice that "the key to success is intense understanding of the customer." And in this they found their answer. Intelligent Results, own clients' most relevant and critical need was to better understand their customers and to predict their future behaviors. Nowhere was this more true than with the banking customers.

They dug deeper into the needs of the banking customers and discovered that with the market and economic downturn, the priorities of consumer banks and other lending institutions had shifted. These companies were progressively less focused on acquiring new customers versus predicting and mitigating potential losses from existing customers. While the banks had been using statistical analysis for decades to help predict default, there was a new sense of urgency to find new tools to bear on the problem. And they were willing to spend real money to do so.

This observation identified Intelligent Results' best initial customer target and yielded its first truly concrete offering. They courted risk and credit officers in consumer financial institutions, offering new customer relationship analytic (CRA) software that would allow lenders to utilize much more information about their customers, from all the various sources, so they could more accurately predict and address potential defaults. And they began to find plenty of people willing to write a check for it.

To be sure you know what your customers want, you have to get answers to these questions:

• What are the priorities of your customers?
• Are they urgent?
• Are they willing to pay for a solution?
• Do you understand their critical needs?
• Are you prepared to address those needs?

2) The company chose the specific customers they wanted to target initially, and evaluated their obstacles and issues.

One of the great things about the banking target was their level of sophistication. The banks' own analysts and credit people had intuitively understood that there ought to be predictive value in the unstructured text they possessed from customer communications. But they had been frustrated in their efforts to make it useful.

So, even with all their urgency and with a no-brainer ROI promise, the company's target customers' constraints were limiting their options. They had existing processes and software that helped them manage collections. It was important that they be able to efficiently tap into this new source of data and make it usable quickly, without requiring a big change in behavior or a daunting infrastructure investment.

Understanding these constraints helped Intelligent Results refine their offering even more. To avoid barriers to customer adoption, they made sure their solutions integrated with the common banking software and did not interfere with existing systems. This made its unique value more immediate and useful by reducing the barriers of customer adoption.

For trying to reach your own customers, what are the issues and purchase constraints? Do you know how to overcome them?

3) They looked at other products and systems that their these customers and prospects had already bought.

They respected those decisions and they made sure to interoperate with those products easily.

4) They looked at how these customers went about buying.

Intelligent Results discovered that their clients' shift in priorities had also caused a shift in their purchase dynamics. The relative power of the credit or risk officer had increased inside the bank. But so had his/her accountability. The company recognized that selling to these folks would have to include real proof of the solutions' effectiveness using live data. This added some time to the process but eventually it significantly greased the way to making the sale.

How do your customers buy? What steps do they need to take before making decisions? What are their relative roles in the purchase process?

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From Chapter Eight: Mapping Overall Industry Gaps

One very important common element distinguishes companies that will become has-beens from those that will be their industry's heroes. Something big.

They pay attention. In many cases if not most, the biggest element that separates the players we remember from the players that came and disappeared is that the winners held a profound understanding of the dynamics of their industry. They found a hole, a gap in the market. The bigger the gap they filled, the bigger the company's success and legacy. They found this by, guess what...looking.

Picking the right play for any particular situation begins with discovering the gaps that represent the best opportunities in your overall industry. Doing homework on your industry will help you discern between a pothole, a challenging but manageable leap, and an insurmountable grand canyon. That homework can spell the difference between being lauded as a champion, being forgotten as an also-ran, or being scraped off the pavement as road kill.

An example: We all drive cars, but who do you think of as the biggest heroes of the enormous automotive industry? Car history buffs might name people like Nicolas Joseph Cugnot, Siegfried Marcus, Nikolaus August Otto.

But for the majority, the name of Henry Ford would first come to mind.

What Does Your Business Have in Common with the Model T?

Cugnot built the first automobile in 1769; it was steam powered and was a milestone even though it only managed 2-1/2 mph. In 1864, Marcus, figuring that gasoline might work better than steam, stuck a gas-powered engine on a cart and managed to drive a whole 500 feet. Three years later, Otto invented the four-stroke internal combustion engine.

All three were super-smart, pioneering guys who made tremendous contributions to our lives. Without them or others like them, we'd likely still be measuring horsepower in one-horse and two-horse units. So why don't we remember them? Why is it so much more likely (unless you're an auto industry historian) that you think of Henry Ford as the father of the modern automotive industry?

What makes the difference is that when Cugnot and Marcus and Otto were developing their important innovations, the other elements of the automotive industry just weren't there yet.

In contrast, Henry Ford found his industry gap, and it had nothing to do with engines or suspension or braking or any other automobile technology.

Whether you're setting your sights on shaking up your industry like Henry Ford, or your aspirations are more humble-say, just trying to make a lot of money-doing research on your industry and doing it right lays the groundwork for everything that follows. This research, which we call "doing your homework," helps in three ways.

• It helps you discover, define, or refine the vision that inspires you and the mission that motivates you;
• It helps you reach conclusions that define the boundaries and constraints for choosing your strategy and your operating philosophy;
• Finally, it can help define your investment priorities.

Fine. These sound like valuable goals. But what are the things you need to look at that will help you achieve them?

First, look at the developments that came before you and define the state of your industry today and the state of the other industries that support it. Ford saw scores of previous innovations that helped support the safe development and use of autos: improvements in roads, in tires, in engines, in steel.

Next, look for the openings in the dynamics of the industry. What should be happening that isn't yet? Ford saw that cars-despite all the innovations to date-were still the domain of elites or aficionados, not regular people.

Then, isolate the key economic and other levers in the industry that are required to exploit that opening. Ford recognized that reliability and cost were the key barriers and the key opportunities to reaching the mass market with automobiles.

Finally, focus all your energies, priorities and decisions on moving those levers. Ford became maniacally focused on cost and reliability and on everything needed to improve them. He made bets on scale and focused on standardization at the sacrifice of consumer choice. He focused on innovations like the conveyer belt, interchangeable parts, and mass marketing. And he delivered The Model T-the first mass produced, low cost/low price car.

Sounds like a tall order. Don't worry. Doing your own industry homework and drawing pointed observations that will inform your vision, mission, and strategy does not require you to take night school classes in economics or hire Paul Voelker or Alan Greenspan.

All you need are the few simple tools and methods outlined below.

The ABCs of Industry Opportunity

The most straightforward way of identifying the right industry challenges and opportunities or to verify those you're pursuing is to do a simple gap analysis. It will lay the groundwork for almost all the other strategic and tactical work you do. We've referred gap analysis in describing the best conditions for each play; now it's time to take a closer look at this valuable tool.

In the hundreds of companies and literally thousands of different situations we encounter, we follow a very simple three-part formula for doing a gap analysis.

The ABCs of Gap Analysis

We call this formula the ABCs. A represents the current situation, B represents the desired future, and C represents the gap you have to cross to get to that future. How you'll use this becomes clear quickly with an illustration; in this case it's from our familiar playing field, Microsoft.

This first step of the gap analysis is the A, or starting point-your current situation. In Microsoft's case in the early 1990s, the industry situation in question was what would come after the IBM PC. Back then, PCs were cheap but had significant limitations. They couldn't run big programs and they weren't easy to use.

This was frustrating for people in the computer industry. Especially when you considered the promise of the new Intel 386 chip that offered more memory, more performance, more multitasking, more programs running simultaneously, more everything. A better future was tantalizingly possible, but not yet there.

That's the next step: to define a desirable destination-a goal describing the position you want to reach. For this, we use the terminology devised by presentation expert Jerry Weissman, calling your desired destination "Point B" It's the answer to "There's gotta be a better way," an inspiring but still believable alternative for how the industry could operate.

By examining all the existing factors in the computer industry, Microsoft was able to pinpoint a spot on the map that no other company had yet chosen or been able to claim as their own: an inexpensive personal computer that would be as easy to use as a Mac. This point B was one where PCs would be so easy and accessible that in the future there would be "A Computer on Every Desktop and In Every Home."

The third step of your overall industry gap analysis is determining the C-the challenge that, if met, will allow you to bridge the gap you have identified. You have to understand the size and nature of the gap, and commit to crossing it.

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From Chapter Five: The Best-of-Both Play

Before 1989, the phrase Japanese luxury car was an oxymoron. The real choices were simple and extreme. On the one hand you could buy a very, very expensive luxury car from Europe-hand-crafted to near perfection, with no detail over looked, the result of a century of tradition. Or, on the other hand, you could buy an inexpensive, mass-produced, reliable, and fuel-efficient little car from Japan.

There was nothing wrong with either choice, but a vast gulf separated them. Everyone knew that never the twain would meet. That all changed thanks to Eiji Toyada, the chairman of Toyota, who saw the market differently.

Mr. Toyada was pleased to look at his business in 1983 and see that Toyota was selling Corollas, Tercels and other nice, reliable, small cars like hot cakes. But he also looked across that vast gulf between Toyota, Honda, other Japanese cars, and Mercedes, BMW and a host of other European luxury cars. He saw their tremendous margins. And he was not satisfied. Toyota had become too strong, too excellent an engineering company, and too successful a business, for him not to capture at least some of that high-end market.

So he called a top-level, top-secret meeting to plan how to create the first Japanese super luxury car, one with all the panache, performance, and fit and polish of the best that the Europeans were offering, combined with the reliability and value people had come to expect from Japan.

This was no easy task. They had to get it right. With the entry of Honda's Acura line in 1986 and Nissan's Infiniti shortly thereafter, the heat was on-and the ground was laid.

In 1989 the Lexus LS400 and ES250 hit the streets to much fanfare and admiration-supported by highly stylized branding, superb advertising, personalized service, and incredibly high-touch, low-pressure sales. By 1990, Lexus was raking in awards-including JD Powers Best Car Line and Motoring Press selection as Best Imported Car of the year. The awards kept rolling in and so did the sales. Within three years, in 1992, Lexus outpaced BMW and Mercedes-Benz to become the sales leader, number one among all luxury imports.

What seemed like the impossible has now become commonplace: the combined ideas of "Japanese" and "luxury" are now firmly established and totally natural in the car market. These days, as you may have noticed, all the players in this relatively new, highly attractive segment face off against each other continually in competition to establish or defend their dominance-using variations on the play we've labeled the Drag Race.

So it goes. That is the way of competition. The play that made so much sense originally and got you where you are makes a lot less sense once you're established there.

Of course, Lexus didn't get this extraordinary position overnight. And, of course, the original conditions had to be right for their run up the middle.

Just what were those conditions and how can you tell if you're facing similar ones in your market?

Indicated Conditions: When do You Run Up the Middle?

For one thing, there has to be a middle to run up through. Or at least, there has to be the possibility of creating one.

The middle represents a huge opportunity, but conditions really do have to be right for the play to have a chance of succeeding. To grab this juiciest of apples, it must be hanging low enough to reach, ripe enough to be worth eating, but well enough hidden that nobody has spotted it before. Where these conditions differ from the Stealth Play is that the gap has got to be big.

Where do you find this middle? Look to your playing field.

Finding that gap in the middle calls for a simple gap analysis (see Part II) for detailed tips on how to perform this in depth). The gap is the middle. Pretty simple really: The current situation involves the trade-off between two extremes. In the future, a combination of the best of these extremes could be made available. Something has to change to bring these two ends together, and you're just the folks to do it.

The playing field has to possess such a middle in all dimensions of the market landscape for you to be able to execute this Best of Both Play. Start by looking at the industry. Conditions need to be ripe at the highest level first.

Your industry has to be ready and ripe for change

Unlike the Stealth Play (where you bet on being able to continue finding small or moderate-sized gaps that you can fill peaceably), the Best of Both Play is all about finding and filling the one big gap that will really shake up the industry. But in order for you to be able to pull it off, a lot of things need to have already happened.

This play is all about change-change that may seem revolutionary, combining two ends of a trade-off that previously seemed impossible to combine. But in terms of the industry it affects, this play is actually evolutionary. As you'll see, it has to be. Otherwise such a combination would be impossible.

In order to combine two ends of an industry, look for situations where both ends have existed long =

enough for their contrast to be real and noticeable. Both ends of the trade-off have to be established and mature enough to be worth the effort to collapse them.

Take Lexus, for example: If the British and Germans hadn't developed the luxury category first, it would not have held much interest. Meanwhile, by the time that Eiji Toyada and his compatriots started dreaming of entering the luxury market, they had already put in decades of hard work to create and improve their position on the other end -moving the Japanese car beyond being just a cheap little import, to establish it as a reliable, economical, desirable alternative. Without the strong low-cost car on one end of the market, he wouldn't have dared enter the true luxury segment on the other.

Once these extremes and the trade-offs between the far points of the industry have been clarified, you face the job of figuring out how to fill the side of the trade-off that you don't already have a position in. You have to project the market into the future, beyond its current limitations. Companies that run the Best-of-Both Play are inspired by the chance to reinvigorate their market, and to reap the benefits.

Of course, it helps if there is some dynamic in the overall industry that's helping propel change-some fundamental shift that enables new things to happen in already established territory. Find that thread of forward momentum and underlying change. Grab on to it earlier and more firmly than anyone else and use it to pull yourself right up through the middle.

In his launching of the Lexus, Toyada-san followed a pattern in an industry that has seen variations of the Best-of-Both Play over and over again to segment and sub-segment its markets, allowing manufacturers the opportunity to sell more and more targeted vehicles both as replacements and as more specialized second or third family cars. The minivan, and then the whole progression of sports utility vehicles, from the originals to all their variants-the luxury SUV (Lexus, Mercedes, even Porsche), the compact SUV (the Toyota RAV4, Honda CR-V. Chevy Tracker, etc), the hybrid wagon-SUV (the Subaru Outback, Volvo XC90, Audi Allroad Crossover)-are all examples of Best-of-Both market segmentation and further subsegmentation. All are attempts to refine previous categories, increase penetration, and drive up margins by better targeting.

But these innovations didn't happen just because the manufacturers felt like doing some targeting, but because they were able to find the right combination of underlying conditions. Usually, long-term trends had to come together to favor all these variations. Otherwise we would still all still be choosing between Model Ts in black or in black. The Best-of-Both Play is all about being the first to recognize and exploit the trend. The whole point of this play is to break the mold. We've seen a few variations, but the vast majority of such change tends to focus on: change in process technology, change in regulatory environment, or some radical technology improvement.

Building model variation after model variation would seem to imply the opposite of the economies of scale generally needed to pay off all the long-term investment in R&D and capital equipment for manufacturing. But since the 1970s, manufacturing technology and methodology has gotten a lot more sophisticated. With massively improved supply chains, just-in-time production lines, standardized drive trains, and interchangeable parts, the "economic order quantity"-the minimum required number of a category's units sold to pay back the investment-has gotten smaller and smaller. This in turn has made variations off the same core components mor

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From Chapter Four: The Stealth Play

If you can't beat 'em... Join 'em or make sure to stay out of their way.

It can get downright discouraging when you find yourself confronting a competitor company that has everything going for them. Whether it's because they're ten times your size, or better positioned, or just the default incumbent, it's still a bummer when they just seem to keep holding on to their lead.

You try so hard, you know you have something really special. Why, oh why can't you win for a change? Well, nobody said business was going to be easy or fair. Don't get too depressed. Don't throw in the towel. When you see another drag racer pass you by or find a platform landing on your head, remember the loss of a single battle-or even a number of them-doesn't determine the outcome of the campaign. If you have enough fortitude, if you're nimble, truly determined, and you don't let foolish pride get in your way, you can accept your losses, climb into your tent, and take cover.

The Stealth Play is the one for just such situations. It's a play you turn to out of need rather than strength. It doesn't offer a speedy route to victory, and it's not as dramatic or heroic as the previous plays. When you're not in a position to win one of those, it's the Stealth Play to the rescue, one the most important to have in your repertoire. You can pull out Stealth and use it as an alternative to slipping into a Drag Race you don't want, or whenever you enter a market where you face tough opponents who have more clout than you. It will help you gain or regain your foothold. Then you can survive, thrive, and even find a way to come back and fight another day.

What Does Survival Look Like?

Survival does sound better than the alternative. But what does this play actually look like?

The Stealth Play is like a quarterback sneak. Rather than running a play where you try to outrace the other team to the goal line, or launch a brutal assault against their defenses, you find a way to slip through while they aren't noticing. Once into their backfield, you find a way to keep their attention diverted.

To switch metaphors for a moment, a cavalry charge may seem heroic, the gallant thing to do. But when facing an opponent too well armed or too securely ensconced behind their walls, it's suicide. There's not a lot of profit in self-destruction. The smarter course is to find other, safer ways to undermine their advantages, ways that won't draw too much attention to you.

So when you're not yet able to win a direct confrontation, you avoid it. If your opponent controls the central position, find another place to make inroads. If they are more popular than you, hitch your wagon to them. But you will always be on the lookout for their blind spots, for opportunities to fill the gaps they leave or to address the needs and desires they overlook. And whatever you do, you won't draw attention to your actions or allow them to feel threatened until you're good and ready for them.

This is the essence of the Stealth Play.

The story of Enterprise Rent-A-Car offers a very telling example of a company that found itself confronted by massive opponents. Rather than duke it out with the heavyweights, the company removed itself to more protected terrain. There it could safely watch the top dogs beat each to a pulp while it built a stronger and stronger business-only to reemerge as a head to head competitor and arguably the biggest in its class.

Enterprise was started back in 1957 by fighter pilot Jack Taylor as a small, local car-leasing company. Early on the company did very well because of local knowledge and good service. It eventually grew to become a national car rental business, offering, among other things, daily rentals to people whose cars were being repaired. It continued to grow nicely until, in the 1970s, it found itself embroiled in the airport car rental market, where a fierce battle raged between the big players like Avis and Hertz, with millions spent on national advertising and promotion.

The company took a step back and asked itself some tough questions. Were they ready to go "head to head to head" with the two biggest players in this market? Did they even want to? Was struggling to compete for the spot of third car in a very expensive version of what we label the Drag Race worth the trouble? Was something like "We try even harder" consistent with their strengths and their modus operandi? The answer in every case was no.

Enterprise looked back to its roots in local, hometown markets and decided to remove itself from the cutthroat playing field "at the edge of America's runways." Instead, it found plenty of remaining gaps in its own backyard. It continuously expanded its footprint in hometown locations that the big airport travelers neglected to address because they were too busy slugging out rates and location fees at airports.

Enterprise decided not to bother competing for your travel-related business. It left that bloody field completely to the "big boys." It focused on being your nearby source when you needed a temporary replacement. It enhanced its offering to include a "We'll pick you up" service, making its differentiation complete.

Under the cover of highly localized small rental agencies, Enterprise was able to build a very powerful alternative business model. And because they listened and were low to the ground, they found and filled one of the most boring gaps in the business. Boring, but one of the biggest.

Other than business travel, one of the major reasons for renting a car is as a temporary replacement after an accident. And who, in the end, is paying the bill? Insurance companies-making them huge potential customers.

The other major differentiation Enterprise came up with was based on the issue of, Who wants to have to find their way to the airport to pick up their rental after their car just got totaled? Hertz and Avis would like you to. Instead, with Enterprise's multiple in-city locations and its "We'll pick you up" service, the choice for the carless car owner was obvious. On top of this natural grass roots advantage, Enterprise also made sure that it built its business to target the insurers-who rent tons of cars every year and whose checks don't bounce.

The result? Enterprise now owns the vast majority of the insurance temporary replacement market. And they captured this share right under Hertz's and Avis' noses without ever having to Drag Race either one of them directly.

Lo and behold, after biding its time and sticking to its knitting for so long, Enterprise reemerged in the mid-1990s as a huge player, with over 500,000 vehicles, and over 5,000 locations. Now they were ready to start opening rental offices at airports again. Is another Drag Race about to begin? Wonder who's in the best position this time around.

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