KNOW YOUR BUSINESS AND BRAND DNA – A Key Fundamental Business Tenant

Ask the following questions of yourself, your business, your organization:

At the absolute core….

     What is the reason you do what you do and what are you trying to accomplish?

     What is the need you are trying to fulfill?

     Why do your clients / customers purchase your products and services?

The answers to these (and other) questions determine the DNA of your organization. Why it exists, why customers buy the product / services, why employees work there (why the good ones stay), and why you will be successful over the long term (assuming you have a viable business model).

You should be asking yourself these questions when you are formulating your idea, in Year 1 when you are frantically accumulating customers and refining the product / service, when you are raising private or public money, when you are the largest in the market and others are copying you. While this might seem obvious, I believe most organizations focus on this only when starting up, or when compelled by new management, owners, or a change in brand strategy.

As a leader / founder, it is critical that you decide what parts of your original vision and mission for the business are “sacred” and what others can and should evolve as the market changes, as your consumer’s tastes and needs change, and as your business matures. In that way, your organizational DNA lives and grows yet stays true to a fundamental vision or ideal. The successful company must observe what its customers and employees are doing through the lens of its core mission and goals. You should then evaluate whether your current practices or any major project you are considering are consistent with and therefore reinforce your core DNA, or confuse people as to what you really are.

If you are not constantly evaluating how your messaging and business practice reinforces your DNA, you run the risk of gradually losing focus on the core reasons you exist. As mentioned in the Focus posting, the biggest challenge to most growing organizations is not finding ways to grow, but managing a myriad of opportunities that present themselves. This isn’t just the “Don’t go international yet”, or “Don’t launch that new product yet” lesson, it gets to the basics of your core product / service. You need to be intimate with your DNA and stay disciplined to know exactly how to describe your core product / service, how to position your product with your customers, how to communicate your competitive differentiation, and how to build corporate culture with your employees. 

Let me highlight an example of a great company that I believe has lost sight of one part of its DNA as a result of extraordinary growth:

Starbucks: I needn’t highlight the meteoric growth of Starbucks as a business. In short, the company was started in 1971 when three academics opened the first café in the touristy Pikes Place market in Seattle. The goal then was to give consumers (i) the best cup of coffee possible at the store, and (ii) supply them with beans so that they could brew excellent coffee at home. By 2009, Starbucks had grown to over 17,000 stores in 49 countries and almost $10 billion in revenues.

Clearly, moving from an artisan coffee shop to 17,000 stores around the world requires superhuman vision, discipline and flexibility. To his credit, Howard Schultz (who joined in 1982 and ultimately became the CEO that drove its growth) was intensely focused on maintaining quality, culture and mission as well as being a remarkable visionary. (The Founders originally only wanted to sell beans – Schultz pushed to get into the beverage business.) But even with his focus and commitment, meeting customer expectations of (i) super premium quality and (ii) not having to wait more than 3 minutes for a cup of coffee and investor expectations of constant double digit profit growth, proved very difficult. I will not review the various machinations of Starbuck’s growth strategy – selling music, expanded food menu, ice cream, etc. there are others that have done far more work on that. What I will ask is “What is Starbuck’s DNA?” and “Are its current mission, strategy, and actions in line with its DNA?”.

Starbuck’s DNA: How would you answer the three questions at the top if you were on the Starbucks’ Board of Directors? Here is how I would answer them:

What is the reason you do what you do and what are you trying to accomplish? Starbuck’s goal is to improve people’s lives and benefit communities by providing the highest quality products (mainly coffee) and a retail environment that facilitates community and business interaction. (Note that these are actually two very related but different business ideas.)

What is the need you are trying to fulfill? Consumers desire a high quality coffee beverage as part of their daily routine and enjoy having a quiet place to interact with friends and business acquaintances. Other options are either lower quality or non-existent.

Why do your clients / customers purchase your products and services? Thanks in large part to Starbucks, consumers now appreciate a high quality cup of coffee and are willing to pay premium prices for it. That said, at $3-$4 per cup, quality is everything. There is clearly a convenience factor and certain consumers will trade off quality for speed & convenience. These needs (quality vs. convenience) can conflict. Additionally, Starbucks is a great place to meet because there is always one close, it is relatively inexpensive space (only requires a small purchase) and the atmosphere is highly conducive to interaction.

Starbucks’ original mission (ca. 1982): "To establish Starbucks as the premier purveyor of the finest coffees in the world while maintaining our uncompromising principles as we grow." One interesting quote from Founder Jerry Baldwin: "We don't manage the business to maximize anything other than the quality of the coffee." In 1991, the Los Angeles Times named Starbucks as the best coffee in America.

Starbuck’s new mission as of 2008: "To inspire and nurture the human spirit - One person, One cup, and One Neighborhood at a time." The mission then sets forth how the company pursues this mission through its Coffee, Partners, Customers, Stores, Neighborhood, and Shareholders.  (See the links below.)

My thoughts: Both missions are admirable and aspirational. In my view though, I believe the demands of meteoric growth have forced Starbucks to sacrifice the quality of its product (the DNA expressed in the original mission ) for speed and convenience. Recall, if you can, back in the early 1990’s when Starbucks actually was the best coffee one could reasonably find without a trip to Italy. Whether it was drip coffee or a fancy espresso drink, quality was everything. Again, at $3-$4 dollars a cup, it had to be. Quality takes time, patience, attention to detail, training and costs money. Over the years, convenience, speed and efficiency took precedent over taking the time to brew the coffee perfectly every time, get the foam just right, or really understand the difference between the various coffees in the store. What is interesting is that due to the pressures of growth (opening more locations, driving more volume through the store, etc.) Starbucks trained the consumer to value convenience and speed over quality. When one used to require a perfect cup of coffee for $3-$4 dollars and was willing to wait, one is now willing to pay the premium to know that there is a store within 300 yards and one can get a caffeine hit in less than 3 minutes.

Starbucks now competes based on convenience and speed (and price) rather than quality. The result is companies that also specialize in convenience, speed and price soon become competitors – See McDonalds, 7-Eleven, Dunkin Donuts, etc. Obviously this is a massive “red ocean” of competition (in marketing parlance) that I believe puts Starbucks in a vulnerable position long term. That said, this opens the door for other more nimble companies to grab the quality positioning and steal consumers – See Blue Bottle, Espresso Vivace, Gorilla, and Ninth Street (frankly, Nespresso makes an infinitely better coffee and it is owned by Nestle).

So… Decide which components of your vision / mission are “sacred” and listen to the market, your consumers and your employees – get intimate with your DNA. Then make sure all activities from sales and marketing to new product development and employee hiring reinforce that DNA. If you do that, you might sacrifice some near term growth opportunities, but consumers will know what you stand for and you will build a healthier organization and stronger brand over the long term. Otherwise, your long term future may be at risk.

-Bob

Some interesting Starbucks reference documents:
http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html
http://en.wikipedia.org/wiki/Starbucks  

FOCUS - A Key Fundamental Business Tenant

Situation: The Vice President of Sales for a young snack food company runs into the Founder’s office and says “I just had lunch with an importer who has done a ton of business in Asia. We were talking about how well our main product would do there and he said the only thing we would have to do is translate the label! What is really great is that he said he would be willing to buy a container so we would not be on the hook if it didn’t sell. If we sold a container of product, that would really make up for our being behind plan in our main US business this quarter.”

The Founder contemplates this idea. “I don’t know…. I am concerned about throwing a package change at Jim in marketing who is already overloaded with our new local marketing campaign. That campaign is focused on our core midwest consumers so that we can stop the high level of discounting we are doing to move product in that region. I agree our product would kill it in the international markets, our largest shareholder mentions it every time I see him. A full container would be the largest single order in company history and boy we could use that volume.”

What should they do?

FOCUS

One of the biggest challenges for most companies, particularly small to medium size ones, is managing the myriad of opportunities for growth that arise. Unfortunately, more often than not companies launch that new product, open that new region, hire that new executive, close that acquisition in the euphoric spirit of growth but sacrifice essential focus on the core competencies of the company or team, or the benefits its key products provide to its core consumers / clients. Maintaining focus is difficult for companies of all sizes, but small to medium size companies tend to lose focus due to abundance of opportunity and passion where larger companies often lose focus as they strive to bring growth back into the business. (I will focus on smaller companies in this post.)

One of the main reasons small to medium size companies have difficulty maintaining focus is that they are constantly bombarded with new ways to grow: new products, new markets, new territories, new customers, new technologies, new market trends, etc. Typically these companies have unique or innovative products and services that attract opportunity. They gain increased awareness in the industry, the media begins to notice them, vendors or customers pass along new ideas, friends and family enthusiastically forward ways to help out and the phone starts to ring. Additionally, one of the strengths of a smaller organization (ie. that decisions can be made quickly and the company can be nimble when attacking opportunities) can be a weakness in that new directions can get set without thorough analysis. Combine all of that with the intense passion and spirit that are required to make a young company successful, and the temptation to follow and act on every lead, market and product idea is great.

While this passion, hunt for opportunity and desire to find new ways to fill society’s needs are the essential engine of progress and innovation, the manager of a young company needs to balance that with a steely eyed focus on the mission of the company, the core market and consumers, and the key product benefits. Without that focus the direction of the company can shift frequently, the team can get demotivated, the organization can become highly inefficient, the customer can get confused and leave, and the cash balance can dwindle quickly. Here is just a sample of the repercussions:

- You will dilute your already scarce resources – money, people, time.

- The company will launch new products or enter new markets without sufficient research into the full implications to the business model, financials, organization, brand and long term strategy.

- Customers will become confused as to what the company truly stands for and what its products / services truly deliver. They will migrate away from you. This is death for a “brand”.

- The team will feel like the company direction shifts constantly, the place will feel unstable, even passionate employees will lose their desire to go the extra mile (because the work they did last month is not helping this month’s strategy.) The best people will leave.

- Corporate culture will be virtually impossible to build and maintain.

- Revenue growth and profitability will suffer as money spent on prior initiatives is lost as new initiatives become priority.

How do you not lose sight of organizational focus?

- Know the company’s core mission and soul. Why does it exist in the first place?

- Understand exactly the core customer need you are filling. Get granular with this. You may think your product or service has a dozen uses. That may be, but you need to focus your energies on the key one that sits at the core customer need.

- Know your customer and market cold. This is related to the prior bullet, but in addition to understanding the need, you need to understand the key customer and market you serve intimately and you need to target them with unwavering focus.

-Understand your true competitive differentiation - why your product / service fills the customer need better than the other alternatives in the market.

- Concentrate on doing these core things really really well in one market first. If you do this, you will get well known in your key market, build a core customer group of fanatics, and have a solid base upon which to expand. This means you don’t launch in Asia if you have not yet “owned” your key customers and markets.

- Communicate the core competencies and strategy with abandon. Communicate to everyone all the time. To your staff, your investors, your customers, your clients, the media. Do it all the time, in staff meetings, company meetings, sales calls, on company fliers, on the walls in the office, in marketing material. Be consistent. This defines you and helps you build a brand rather than just sell a service or product.

When considering new avenues of growth (products, markets, etc.) stay focused and be an incredibly good listener. Trust your team and let unfiltered debate take place. If you and the team are focused on your core competencies, then the company will make the right decisions about new growth opportunities and all members of the team will know that their tireless efforts are a part of a grand and well defined strategy.

-Bob

Click here for unbelievable video footage of what happens when you don't focus