A few decades ago, Michael Porter presented a way to analyse an industry sector…ie, a marketplace.
He recommended “Five Forces Industry Analysis”...see Michael Porter, ‘Competitive Strategy: Techniques for Analyzing Industries and Competitors’, [1980].
Porter’s Five Forces are:
- threat of new entrants
- bargaining power of suppliers
- bargaining power of buyers
- threat of substitute products or services
- degree of rivalry among existing competitors
It is wise to consider the Five Forces described by Procter…[perhaps after almost 30 years that’s now considered common sense].
It also makes sense to look at your choice of business sector from different perspectives.
This note is about a different way to think about your market niche…the sector where you are doing or will do business.
Last year, Fernando Trías de Bes presented some different thinking in his book ‘The Little Black Book of Entrepreneurship – A Contrarian’s Guide To Succeeding Where Others Have Failed’ [2008].
The book focuses on why businesses fail. Rather than talking about only KSFs [Key Success Factors] it recommends we consider KFFs [Key Failure Factors]. The author answers the question – “Why?”…”Because in order to apply the success factors, you need to clear the terrain of failure factors.”
Is that contrarian? [What about the W and the T of SWOT?]
According to the author, one reason entrepreneurs fail is poor choices of market sectors. The author believes the root of the problem is many entrepreneurs do not consider the market sector to be a decision. Rather, they consider it to be a consequence of a random idea.
The chapter on market sector is titled ‘ROUND NINE - No Novice Ever Won a Nobel Prize’.
An example is given: a vacationer sees a new type of shoe while visiting a foreign land. The vacationer – the entrepreneur – knows that shoe is not available at home. The entrepreneur’s random idea is: we could sell that shoe at home. And the consequence of that random idea is: we will go into business in the shoe sector.
Another example is given: a fellow became enthralled with a particular fast-food outlet. He spent six months studying the business of that fast-food outlet but failed to ask himself if he had a real interest in being in the fast-food sector.
The author believes entrepreneurs often fail because they ‘back into’ the market sector because they are convinced they have a good idea for a product or have a good idea for a specific business.
The way I’m looking at it, Fernando Trías de Bes tells us what we better think about before we follow the ‘process-analytics’ advice provided by folks like Michael Porter.
Fernando Trías de Bes provides the following advice:
“The choice of the market sector for your business venture must be the result of a considered decision.
Choose your sector or product because it appeals to you.Go into a sector you know.
If you don’t know the sector, either take time to learn it or surround yourself with people who do know it.
You must bring something new into the market sector you choose to do business in.
Innovate by knowing the rules so you can break them.”
***
Some Additional Thoughts:
Fernando Trías de Bes at the cover of his book describes himself as a contrarian. It is sometimes difficult to tell the traditional from the contrarian.
One section of the Introduction of The Little Black Book of Entrepreneurship – A Contrarian’s Guide To Succeeding Where Others Have Failed’ caught my attention. At page 3 of the Introduction the author describes an on-line exercise he did using the words ‘key success factors’ and ‘key failure factors’. The author states,”Out of curiosity, I typed ”key success factors” into a search engine and found 636,000 pages; a search engine for “key failure factors” yielded only 119 pages.”
Last December, I performed an exercise using a few combinations of words like “Why Businesses Fail” and “Why Businesses Succeed”. My results, at least , my views about my results, are certainly contrary to those of the author. I feel I obtained the opposite result. For my search, I was not interested in the number of pages search engines found. I was interested in what the first 10 pages [using Google] contained for each search [see www.google.com]. My goal was to find 10 lists where writers provided their views about “Why Businesses Fail” and 10 lists where writers provided their views about “Why Businesses Succeed”. I was astonished to find a huge amount of free on-line articles and summaries covering the topic of “Why Businesses Fail”…it was easy to find free-information and compile numerous lists of “Why Businesses Fail”. Going from memory, I believe the first 12 websites contained 10 lists…so, my task of generating the 10 ‘failure lists’ was done quickly. Conversely, I had to read through almost 100 websites to find 10 ‘success lists’…and, I had to cheat a bit to get that done. I had to cull the ‘success’ verbiage to create lists while the ‘success’ writers volunteered simple lists…some numbered, some with bullet points.
After performing the above free-information-search exercise, I reached two conclusions:
- People who write about “Why Businesses Succeed” want to be paid for their opinions…so, they don’t write them out the way others write about “Why Businesses Fail”. Rather, when you search those business-success words you end up at sites that sell books…and
- People who do express free advice about “Why Businesses Succeed” make far more subjective claims than do people who write about “Why Businesses Fail”. For example, they state things like business success is linked to long-distance running, meditiation, etc whereas the people who write about failure focus almost entirely on business reasons such as poor marketing, inadequate finance, etc.
My December 2008 exercise coupled with the author’s differing view about on-line searches cause me to think two things:
- Many people think other people will pay for business-success education, so business-success information is not offered as freely as is business-failure information. There’s a good argument to be made this is all about packaging… and
- I’m not sure Fernando Trías de Bes is a contrarian. His search-engine test...I struggle with that.