Tuesday, December 20, 2005

Why You Need to Expand the Market Size by Twenty Times

Good morning, Billion Dollar Business Creators!

Are you feeling motivated this morning? I certainly hope so. I know that I am!

I have been sharing my plans for The Billionaire Entrepreneurs' Master Mind with prospective members who are well versed in 2,000 percent solution making.

One veteran entrepreneur shared with me a question:

Why focus on expanding the market by twenty times rather than on growing your business by twenty times?

It occurred to me that many other people may have the same or a similar question.

I'm always glad to receive such a fine question.

Let's begin by looking at billion dollar businesses. There aren't very many of them. Since creating a billion dollar business is our goal, we should be sure to study what we are trying to achieve.

I've been studying this question of creating billion dollar businesses since 1972. Here are some things that I've learned in the process of meeting with the entrepreneurs who founded many of these businesses:

1. Most revenue gains came from adding customers who hadn't been participating in the market before.

Consider Paychex. That payroll and human resources data processor began serving small employers which had been doing their own payroll and human resources administration. Virtually none of the company's growth came at the expense of the industry leader Automatic Data Processing which was serving larger employers in similar ways.

2. It's been easier to create new benefits and lower prices for potential customers than it is to wrestle away customers from existing, competent suppliers.

Consider the airline industry in the United States. For decades companies followed one of two business models: Hub and spoke connections with full fare prices for business people and discount prices for individuals who booked in advance; or low prices for everyone with hub and spoke connections. The effect was for airlines to regularly go bankrupt as they competed brutally through price wars. Gaining market share by doing more of the same was a loser's game.

Southwest Airlines began to change all that with a third business model: Friendly service on frequent, short flights at rock bottom prices from low-cost airports while operating as simply and inexpensively as possible. When Southwest entered a new airport, it wasn't unusual for volume at that airport to expand by several hundred percent. Southwest liked its approach so much it didn't look elsewhere.

In Europe, Ryanair realized that the Southwest business model with some tweaks could be an even bigger success because flights in Europe cost a lot more per mile flown than those in the United States. Ryanair is now in the process of greatly expanding those local flight markets all over Europe.

3. Continuing to focus on gaining market share and operating in traditional ways drains resources and attention needed to develop and expand innovations required to add customers more rapidly.

Growth is a difficult mistress. You have to run hard just to keep from having your offerings deteriorate in quality. An organization knows that if it can simply get its offerings into the market, they can sell all they want. Given the choice between squeezing out a little more growth of the old sort and doing some innovating, almost everyone will focus on the old business model.

You see this effect when old business model companies attempt to innovate by putting in place new business model operations alongside of the old business model. Pretty soon the new business model operations will either be shut down or converted to the old business model. As an example of the former, consider the fate of "low cost" airlines run by traditional airlines. As an example of the latter, consider how Saturn is now run as part of General Motors. Only the dealer network innovations seem to have stuck while design and production now pretty much follow the GM traditional model.

I hope you will share your questions by e-mail about my suggested approach to helping you create a billion dollar business. I will create a FAQ section to answer those questions after I have a better sense of what aspects are of most interest. Send your question by e-mail to ultimatecompetitiveadvantage@yahoo.com and label it "I Have a Question about Building a Billion Dollar Business" in the subject line.

If you would like to learn more about how you can build a billion dollar business, send me an e-mail at ultimatecompetitiveadvantage@yahoo.com and label it "I Want to Build a Billion Dollar Business" in the subject line. I offer a variety of services that can help.

Read the December 19, 2005 blog post to learn more about
The Billionaire Entrepreneurs' Master Mind.

May God bless you. Merry Christmas!

Donald W. Mitchell

Mitchell and Company

Copyright 2005 Donald W. Mitchell