Specialize Your Business To Increase Profitability

specialization-business-value
What does your business do really well? What does it do that’s so great, customers are prepared to pay for it – and happy that they did?

Now think about what your business doesn’t do particularly well. Perhaps it’s a product or service that you offer that, in all honesty, isn’t that great. But for whatever reason you’re still holding on to it as part of your value proposition.

Most organizations are good at some things, and lousy at others. Take Apple as an example. Apple are often quoted as being a model company for businesses to emulate and, yes, they do some pretty cool things.

But they’ve also screwed-up big time. Think of the G4 Cube, eWorld, or (more recently) Apple’s failed attempt at a social network.

I’m not singling-out Apple, here. Any company you can think of has tried to do stuff that they’re not very good at (Zune, anyone?)

No one, whether a business or an individual, can be good at everything. Jack of all trades means a master of none, right? Even multi-billion dollar companies like Apple, Google or Sony have learned that while they do some things well, there are plenty of other things that others can do better.

Of course, this clearly doesn’t mean that such companies couldn’t do these things. It’s just that they’d rather focus their efforts at doing other stuff. And you know what? That’s OK.

That’s OK because that’s how specialization develops. Apple doesn’t actually make the iPhone, iPad or any of its computers (even though it could if it wanted to). It contracts the manufacture of its gizmos to third-party specialists. Most clothing and footwear is made in various Asian and East European countries. Companies like Delphi, Getrag and Bosch make components that end up into cars from Audi, Ford, GM – and even Aston Martin.

In economic terms it’s the theory of comparative advantage: Increase efficiency, quality and productivity by doing the things that you’re good at doing, and getting others to do the things that you’re not so good at (or just don’t like).

Just Because You Can, Doesn’t Mean You Should

Here’s where you can say that your business is just like Kraft Foods, or Microsoft, or WallMart: Like them, you can’t be good at everything.

Many startups and small businesses fall into the trap of taking on whatever opportunity comes their way. A customer comes to you for something that, strictly speaking, your business doesn’t specialize in (and, in truth, doesn’t do particularly well). You decide to take on the gig. After all, business is business – right?

If you’ve ever accepted opportunities like that (and I think just about everyone has at some time) you’ll know that these are the jobs that turn around and bite you. These are the ones where, no matter what you do, there doesn’t seem to be a way to please the customer. Now, however, you’re so far into it that you can’t extract yourself out of the deal, so you’re throwing time / money / resources at the problem to make it go away. Whatever you do, you know that the best you can hope for is that the customer doesn’t actually bad-mouth you to anyone else. They’re certainly not going to recommend your business to anyone else, even if they’re judging you on something that you don’t really do…

Specialization

Stop trying to be all things to all people. Be brave enough to say ‘no’. The more peripheral work you accept, the harder to be known for your core value offering. By concentrating your efforts around your particular specialization, you increase your business branding in that market. Better to be a big fish in a small pond.

Not all customers are created equal. Yes, their business may help your cashflow in the short term. But if your business (in order to keep afloat) is being pushed into directions where it is ill-prepared to thrive, then something’s got to change. Just say ‘no’.

Of course, if the ONLY work you can get is outside of the specialization that you’re focused on, then you have a very different – and more serious – problem…

At KEXINO, we probably turn down 2-3 potential clients per month. Yes – per month. Why? There are a variety of reasons, but most are centered around what the client needs isn’t work that we think we’re particularly great at. We also don’t accept to work with people who we don’t like, or don’t have similar attitudes to ours regarding doing business (but that’s another story).

Depending on your business, being selective with your customers isn’t just a velvet rope “your name’s not on the list, you’re not coming in” kind of thing. It’s a way to ensure the best possible client fit for your value offering. These days any company, but especially start-ups and small businesses, cannot afford to take on the wrong sort of customers. Find the customer need that you can service well, that can be sold at a sustainable profit margin, where the client gets (at least) the value they were looking for – and everyone wins.

Of course, I’m making some generalizations here. There are many other influences to factor into account – the type of business specialization, the market, the type of customer and so on. But in the current economic climate, can you really afford not to look at your business to see if there are things that you’re doing just because you can, rather than because you’re good at them?

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