You Can Learn More from an Entrepreneur

I just started reading MarketBusters. The book summarizes a three-year study by Rita Gunther McGrath (from Columbia Business School) and Ian MacMillan (from Wharton) on strategic moves that create at least a 2% change in market share, or a 5% annual sales growth. (These may seem like to0-modest goals, but many of their research subjects aren't technology companies.) The two concepts that I've learned about so far are consumption chains and attribute maps.

A consumption chain is the process through which a customer becomes aware of his need, chooses a solution, and makes use of his purchase. Amazon, for instance, became a marketbuster by reconstructiong just about every link in the book buying experience: Its auto-recommendations generate demand. Its one-click payment system is less of a hassle than standing in line. Its free shipping service is cheaper than driving to the mall. And last but not least, customers can even end their consumption cycle by selling used books on Amazon's Marketplace.

Similarly, back in 2000, RackShack (now EV1Servers) created a new market by replacing links in the dedicated servers consumption chain. Instead of custom built equipment, it offered instant activation on standardized units. And instead of long-term contracts, its service was available on a month-to-month basis. Most importantly, its pricing was about 20-30% of what competitors charged.

More recently, RackSpace began offering a different hosting experience via its Mosso division. Instead of configuring, updating and securing their own servers, customers now have access to similar processing power, storage space and bandwidth through a vendor-managed cluster.

An attribute map sorts a product's features into several categories. Some positive features are non-negotiables; every competitor offers them. Others are differentiators. But best of all are exciters, which are so overwhelmingly appealing that their presence triggers purchases. And some negative attributes are tolerable while others dissatisfy. But worst of all are enragers, which lead not only to discontinued orders but bad PR.

Unfortunately, today's exciters too often become tomorrow's non-negotiables. For instance, the month-to-month server lease that RackShack pioneered is now industry standard. And yesterday's tolerables might soon be perceived as enragers. I'm thinking the hardware failure risk associated with running websites on individual servers might fall under this category. Clustered hosting environments haven't yet garnered enough public awareness to become an exciter, but they'll become non-negotiables before you know it!

The moral of the story, I think, is that nothing in business can be taken for granted. Tom Evslin makes a similar point in his post today. His advice is to

1. UNDERSTAND what the important ingredients of your success are;
2. Keep QUESTIONING whether the conditions that made these ingredients important still exits;
3. DON’T assume past results predict future results;
4. Make a new plan BEFORE the old plan fails.

And that pretty much sums up the 59 pages I've read.

Comments

[Jason Gulledge]

Mosso looks amazing. Applying something like this for the gaming industry (slot-based?) might have interesting results.

[Jason Gulledge]

Then again maybe not. Seems like a costly deal setting up a system like that for a very fickle market-segment.

Still, Mosso is a very interesting idea. Certainly blurs the lines between the idea of standard hosting, and 'software as a service'. Sure, they're selling hosting, but it all feels pretty virtual. Perception is 99% of reality.