We’ll conclude this series on the “3 P’s That = Success” by focusing on PRODUCT, having already discussed the first two principles of People and Process.
PRODUCT
While People and Processes define a company internally, a company’s product or service is what defines them externally. Again, I like to start with asking a few questions. Does your company’s product have a competitive advantage? Does it own any Intellectual Property? What are the product differentiators to the competition? What is your brand and how do you market that brand? How does your customer rate you on service, primarily quality and delivery?
Companies with Intellectual Property often times don’t have to worry as much about competition or customer-forced price reductions. They may achieve very attractive profit margins initially but as patents expire, etc. and competition comes into play, a culture of continuous improvement will solidify their long-term success. Most often, companies with the highest margin products have the worst processes and systems. Huge margins are a great thing for any business but they can also lure a non-continuous improvement company into complacency. Why do we need to improve our product or do things differently when we are making a ton of EBITA? This is a dangerous mindset to get accustomed to because customers, owners, environment, government, etc. all change at some point, and so do businesses. The owner of that privately held Aerospace Company I mentioned earlier had a great saying, “When we are at our worst we are at our best and when we are at are best we are at our worst.” This saying speaks volumes with regards to complacency and not changing or growing with the times. A great little read I recommend is “Who Moved My Cheese,” by Spencer Johnson, M.D. The story conveys an amazing way to deal with change at work and in your life.
So what if our company does not have any Intellectual Property but is a build-to-print or job shop? Your primary product then becomes “Operational Excellence.” A firm must have as its goal to exceed customer expectations with regards to quality and delivery. Again, what I learned from my previous experience is that the ultimate goal is to turn short run jobs into long-term 3-7 year contracts. The more Long Term Contracts a firm has the more predictable and valuable they become for a future liquidity event, even if they do not own any Intellectual Property. One thing to look for in your Long Term Contract language is the phrase “Termination for Convenience.” I recommend to my clients to strike this from any of their contracts because with that sneaky little lawyer verbiage, you, in essence, do not have an LTA. The customer can terminate at any time, especially if they find a better price. Termination of your product or agreement should only be for performance, and if you are focused on your processes, systems and operational excellence, you should never fear termination of a Long Term Contract.
SUMMING IT UP!
In summary, the key to maximizing your profit potential is to hire the right People, placing them in the right positions working within a continuous improvement culture. Successful leaders and business owners should be able to be to go on vacation without the company faltering because they own a Process or system, not a job. Your company is viewed by the outside world primarily by your product. Focus on what differentiates your Product from the competition’s and keep continuous improvement and operational excellence at the forefront!
Blog Series Links:
3 P’s That = Success
PEOPLE – First of 3 P’s That = Success
PROCESS – Second of 3 P’s That = Success