by Adam Hartung | Sep 23, 2010 | Current Affairs, In the Rapids, Leadership, Openness, Travel
Summary:
- Most people misunderstand the way toward building a valuable company
- Richard Branson has developed massive wealth by finding and entering growth markets
- Success comes from developing new solutions that fulfill unmet needs – not maximizing performance of core capabilities
- Virgin is now moving into luxury hotels, a market being ignored by most investors, with new products that fit still unmet needs
Very few people are as wealthy as Richard Branson. But few people can manage like he does.
Branson started out selling records via mail-order in Britain. Over the years he got into retailing, international airlines, domestic airlines, mobile telephony, international lending (amongst other businesses) – and now his company is investing $500milion in hotels and hotel management. According to Bloomberg.com “Branson’s Virgin Group to Invest $500million in Hotels.”
Despite all we hear about how impossible it is to be an entrepreneur in Europe, Sir Branson has done quite well, building a wildly successful, profitable company. Although he didn’t follow conventional wisdom. Instead of “sticking to his core” Sir Branson has built a company that invests in opportunities which are highly profitable – regardless of the industry or market. He doesn’t grow by doing more of the same better, faster or cheaper. Instead, he takes advantage of shifting markets – getting into businesses with opportunities and exiting those that don’t earn high rates of return.
During last decade’s building boom there were a lot of high-end hotels built. Now, with the economy not growing, excess capacity has made it difficult for these to cover the mortgage. Bankers don’t want to refinance – they want out of the buildings. Occupancy has been so low that many traditional name brands, such as Ritz Carlton or Intercontinental, have been forced to abandon properties. As a result, several hotels have closed, and the property offered for sale at a fraction of original construction cost. With most investors shying away from all things real estate, prices have plummeted. Some hotels, nearly new, have sold for the value of underlying land.
And now Virgin enters the market. Although Virgin has no background in real estate or hotel management, it is clear that there is demand for luxury goods and luxury travel — if someone can make it attractive and affordable. By purchasing premier properties at a fraction (literally 10-25% of their initial cost) Virgin will be able to offer hotel guests a superior experience at an attractive price! Management sees an unmet need by high-income, well educated “creative class” customers. By getting into the market Virgin will learn, just as it did in airlines, how to meet customer expectations in a way that allows for highly profitable delivery when meeting a currently unmet need.
While some would say that if the current competitors, steeped in experience and tradition, can’t succeed Virgin should not think it can. But a Virgin executive rightly says “If you look at Virgin’s history, we have come into markets with big powerful players, where customers are generally satisfied but not in love, and we have been able to cut through that.” Well said. Virgin doesn’t do what competitors do – it develops a solution that locks competitors into their position while positioning Virgin to meet the untapped market.
Even though this opportunity is available to everyone, almost no companies are interested in buying these undervalued hotels. “It’s not our business.” “We don’t know how to operate hotels.” “We don’t invest in real estate.” “I’m too busy taking care of my current business to consider something new.” “What if we’re wrong?” These are all things people say to stop themselves from taking action to enter new opportunities with high rates of return. The magic of Virgin is its willingness to overcome Lock-in to its existing business, look for market opportunities, and then (as Nike advertises) Do It!
by Adam Hartung | Jul 31, 2010 | In the Rapids, Innovation, Leadership, Openness
I’m pleased today to post another guest blog – written by Charles Searight of Vector Growth Partners. Charles offers a great viewpoint on a common issue – how to balance the needs of running a good business with implementing innovation. I hope you enjoy his point of view as much as I do:
Efficiency is a good thing, taken in moderation. The same with focus. It is good management hygiene to pay
attention to what you’re doing and try to do it efficiently. This helps build a competitive cost
structure and a results-based culture. From an operations standpoint that means that the use
of an occasional stopwatch or its modern day equivalents in order to eliminate
wasted effort and speed workflows makes perfect sense. Frederick Taylor made the great
contribution in 1911 of helping companies recognize that labor is a
controllable cost that can be managed, but he taught that a narrow focus on the
optimization of each operation and repetition of the “best practice” was the
key to success. He missed the
point (among others) that it is really the improvement of the process as a
whole that changes the game. It took Toyota and Yamaha and other
Japanese companies to teach the world that lesson 70 years later – leading to
today’s six sigma, lean, and time compression concepts.
We find the same phenomenon happening with most companies today
– they are so focused on optimizing their operations and replicating “best
practices” that they have totally lost sight of the process as a whole. The pursuit (often obsession) of
operational excellence becomes an end unto itself and gets disconnected from
the mission of generating growth and creating value. The end game is not to get lean and agile, but rather to get
lean and agile so that you can compete more effectively – leveraging these
capabilities to go to market in innovative new ways, to compete in new markets,
and ultimately to create new markets.
Companies that stay locked-in to being the most efficient
company at making widgets quickly find that low cost widgets have become a
commodity and wonder how they suddenly got into trouble. Being an efficient widget maker gets them
into the game, but not for long. In
order to survive and thrive they must immediately begin planning new markets
for widgets, innovations that will replace widgets, parallel markets targeted
at widget users, new markets for widget-user data, markets unrelated to widgets
that have been identified in conversations with customers, and so on, because
there is always a competitor that will figure out how to make widgets just as
efficiently as they can and undercut their price.
The companies that generate the most value, like Apple in
recent years, are the ones who focus on trends and where the market will be,
not where it has been. They use their
operational excellence as a competitive weapon not as a marketing message or
something to put in the trophy case.
Instead of bragging about how agile they are, they just beat the
daylights out of would-be competitors by launching new products and creating
new businesses at a pace that leaves others in the dust. They do this by planning from the
future and focusing on new ways to leverage their capabilities (or build new
ones) to satisfy tomorrow’s unmet market needs – not by focusing on optimizing the
core competencies of yesterday and today.
They combine the yin of operational excellence with the yang of market
innovation.
Charles Searight is the Managing Partner of Vector Growth Partners headquartered in McClean, VA. His firm helps companies of all sizes and industries, public or privately held, and many with external funding from private equity pools, develop and implement growth strategies. Feel free to comment on Charles input right here, or contact him directly. If you could use help developing a growth plan you can contact Charles at CSearight@VectorGrowth.com. Website www.VectorGrowth.com
If you enjoy ThePhoenixPrinciple.com and would like to submit a guest blog please contact me. I am very pleased to offer up the input of others who have insight or case studies you’d like share about innovation, strategy, growth, lock-in, defend & extend management, scenario planning, competitor analysis/insight, disruptions or white space!
