Your Strategy Needs a Business Model That Can Deliver It

A new edition of the Simon Dudley archive, pairing an original article with a present-day follow-up.

Then: Amateurs Sweat Strategy, Experts Sweat Logistics

Originally published on LinkedIn on 2017-03-28. The historical text below is preserved as written, including its contemporary claims and author information.

Military commanders are obsessed with logistics. They know that without the backup of a logistical plan, their most daring and clever strategy will come to nothing. Every famous military commander in history from General George S Patton, to Sun Tzu spends most of their time looking at and planning the logistics. It’s the difference between planning something, and doing something.

Many people in business spend more time formulating a strategy than they do in the boring logistical part of actually implementing it. This is a serious mistake.

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For many organizations the business strategy comes after the product strategy. This is completely wrong. If there is a serious disconnect between the sales strategy, the business model and the company culture then the results are typically catastrophic.

Business models can to a large extent be broken into three major buckets. Sells led, Marketing led and Brand led.

Sales Led (The killer whales)

Sales led organizations sell high value, high margin things to a relatively small, contained, market. They know their clients well, do a lot of repeat business and have long term relationships.

Think of them as killer whales. They hunt big, juicy prey, like seals or large fish. It might take them a while to hunt down a deal, but the payoff is substantial when it happens. By it’s nature the business is somewhat lumpy, but the profit margins and revenue are worth it.

Examples include: Boeing;

Marketing Led (The blue whales)

Marketing led organizations sell mid value, mid margin things to a large market. They know something of their clients, typically more as a type than as an individual. They build a relationship with repeat business, and often have long term relationships even if they don’t actually meet their clients very often, or even at all.

Think of them as blue whales. They look for shoals of smaller deals, like krill, and swim through the middle sieving the ocean. Their prey are individually smaller than the large fish of the sales led types, but they more than make up for this with an efficient, lower margin, lower cost, higher value solution. The business is linear, and the margins lower, but lower value per deal are more than compensated for by their ability to service very large numbers of clients.

Examples include: Salesforce;

Brand led (The jellyfish)

Brand led organizations supply low cost, low margin products to everyone. They don’t know their clients, blindly waiting for them to come to them. Clients build a relationship with the brand, rather than the company with the customer. Brand led businesses know nothing about individual clients, but know a great deal about the market. Their business model is simply to be there when their clients decide they want to buy the product.

Think of them as jellyfish. They have no senses, they simply float through the ocean, their tendrils floating behind them ready to sting any passing creature. They are incredibly efficient, able to sell low margin, low revenue solutions on a massive scale. They are masters of logistics.

Example include: Coca Cola;

Crossing the barrier

Most companies live inside one of those three models. Innovation pushes them up the value chain, and competition moves them back down. Most companies and their competitors swirl in an ongoing and perpetual dance in their own world. Until someone comes along and disrupts the business model. Companies that enter a market using a different basic model to their competitors have the ability to utterly disrupt the market.

For example the dedicated telephony providers selling hardware telephony solutions to businesses, and who lived in the Sales led world are being massively disrupted by players entering the market with Market led solutions. It is interesting to note that the telecoms equipment suppliers were stable businesses, even in a competitive environment for 20, 30 even 40 years, but were completely discombobulated by new competitors selling a solution in a completely new way. Their strategy collapsed because their logistics couldn’t cope with a new business model.

In almost all sectors today businesses are being disrupted not by a better mousetrap, but by a better way of supplying the mousetraps.

Does your product fit the market and your business model?

Too often the requirements of the market, and the requirements of the business model are unaligned, this is a recipe for disaster. Sales led businesses want high value, high margin products to sell, but if the market is screaming for a lower cost, higher availability solution, then a huge tension is generated.

The Killer whaler sales organisation either hunts for large prey that becomes ever more scarce or it tries to out work the problem by hunting individual krill. Neither of these is a winning solution.

Management, often obsessed with strategy, then see the sales team as failing as they work themselves to death trying to keep up. The sales team then fails, while it was the strategy and logistics that failed.

The SaaS revolution has moved huge numbers of business decisions for clients from a Sales led, high value, high touch, personal relationship, to a service they can switch on or off, or swap to another supplier at will. The consequences for the sales led suppliers has been catastrophic as a result.

Equally businesses in the marketing led world, have really struggled to cope with competitors living in the brand led world. Purveyors of professional services like booking keeping, tax accounting, legal documents, and other related services have been decimated by online tools like Legalzoom, Turbotax, Quickbooks and a mountain of others.

Change is REALLY hard

Companies find changing their products easy. It’s part of doing business that new products and services will be developed and launched. The very fabric of organizations is designed around the process.

Changing a business from a Sales led, to Marketing led to Brand led business is far far harder. Most organizations fail to even understand the idea exists. They have a business model, a culture, and that continues, even long after the culture has become the business problem most needing attention.

Company cultures are guarded ferociously by management and the employees. The people with the power are the ones with influence, and in a world turned upside down they may not sit at it’s top.

In the majority of cases it is actually easier to start a new business, than to attempt to change the culture of an existing one.

How to beat your competition

Most businesses believe the best way to beat their competition is to build a better product at a lower prices and let the clients buy it. That is the standard strategy. A far more effectively way to win is to change the business model, change the logistics of selling, to change the very culture of how to sell.

View the original LinkedIn article

Now: the follow-up

A company announces a bold new strategy. The slides are excellent. The market opportunity is enormous. Everyone is excited.

Then the company attempts to deliver it using the same sales process, incentives, support model and habits that served the old strategy.

Six months later, somebody decides the salespeople need to work harder.

In 2017, I wrote “Amateurs Sweat Strategy, Experts Sweat Logistics.” The commercial argument remains useful: a strategy has to fit the way a business acquires customers, serves them and gets paid.

It is worth revisiting because a business can change the price of its product in an afternoon. Changing the economics of selling and supporting it is considerably more awkward.

Three sea creatures, with some necessary qualifications

The original article used killer whales, blue whales and jellyfish to describe different commercial approaches.

The killer whale pursued a relatively small number of substantial opportunities. The blue whale processed a larger flow of smaller opportunities efficiently. The jellyfish represented an approach in which availability and recognition helped bring customers to the product.

They are metaphors. Real businesses can combine all three approaches, and neither margin nor customer knowledge follows automatically from a particular model. My original categories were more absolute than they should have been.

Their purpose is to expose a useful question: does the way you reach and serve customers fit the value of the business those customers generate?

If your organisation is equipped to chase large transactions, asking it to chase thousands of small ones may create a problem that enthusiasm cannot repair.

Try the arithmetic before the motivational speech

Consider a hypothetical supplier selling a £100,000 project with £40,000 of gross profit before the selling costs associated with winning it.

Suppose the supplier launches a £5,000 offer with £2,000 of gross profit on the same basis. It would need twenty such sales to generate the same £40,000.

That calculation is deliberately simple. It assumes comparable gross margin percentages and says nothing about revenue recognition, renewals, retention or cash timing. Its purpose is to make the workload visible.

If each smaller sale requires the same meetings, demonstrations, procurement discussions and support effort as the larger project, the commercial model has a problem.

The answer might involve a simpler offer, easier purchasing, a different route to market or a more repeatable service. It might also involve deciding that this particular opportunity does not suit the business.

“Work twenty times harder” deserves a fairly short meeting.

Incentives are part of the strategy

Imagine telling a salesperson to prioritise smaller recurring contracts while continuing to reward them mainly for large initial transactions.

Then imagine asking a channel partner to promote the new offer while leaving the partner’s installation effort unchanged and reducing the money available to pay for it.

These are hypothetical examples, but the contradiction should be easy to see. People are responding to the economics and responsibilities the organisation has given them.

A new strategy should therefore identify what changes in compensation, partner economics, onboarding and customer support. Otherwise the organisation may be asking for new behaviour while continuing to pay for the old behaviour.

Competitive intelligence should examine the buying process

When assessing a competitor, I would look beyond the product comparison.

How much effort does the customer spend buying? Which tasks does the supplier remove? Where does a partner add value? How quickly can a customer begin using the solution? What creates the obligation to return?

A competitor can become more attractive through a better commercial process even when its individual product features are familiar.

That possibility is particularly uncomfortable for a supplier whose explanation of every lost deal begins with the specification sheet.

Five questions to put in the next strategy meeting

1. Which customer and buying occasion are we designing for?
2. What does a completed sale contribute after delivery and selling costs?
3. How much human effort does winning and retaining it require?
4. Which incentives and processes must change to make the plan work?
5. What evidence would tell us that our commercial assumptions are wrong?

Those questions will not produce a complete strategy. They will expose some expensive gaps before a team spends a year trying to outwork them.

Which part of your organisation still operates on the assumptions of the business you used to be?

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