Posted by andy Mon, 21 Nov 2005 16:53:00 GMT

How can we design a business that will be it’s competitor’s worst nightmare, if not unbeatable, at least unbreakable. Put another way, how can you design a business that would be your worst nightmare if it became a competitor?

This business would be pareto-optimal, in the sense that you could not beat it on critical measures such as innovation, market awareness, cost of sales, service response cycles, and fixed costs.

Such a business will use global talent, instant service, open source, and user innovation. It will use these tools in all aspects of its business, to make the product, support the product, and sell the product.

The unbreakable competitor probably will have some of the following attributes:

Very low fixed costs
Modern startups use contract labor, rented servers, and the bare minimum of office leases. That makes them hard to break, and easy to scale. If 80% of your costs are incurred month-to-month, you are probably at a Pareto-optimal point.

Global talent base
If you can get, and keep, the best available contributor from anywhere in the globe on two weeks notice, you are probably at a pareto-optimal point.

Rapid Innovation
The optimal competitor will innovate rapidly, tirelessly, and ruthlessly. Ray Kroc is alleged to have said “if your competitor is drowning, stick a hose in his mouth”, and that’s visual picture of what a relentless innovator does. Under the right circumstances, innovation comes naturally because any given customer base applies pressure for innovation, the world changes, and people respond. Unfortunately, there are also many, many self-made barriers to innovation. On examination, it is usually possible to find and remove many unnecessary barriers to innovation – in architecture, delivery, budgeting, licensing, and other areas. Can any one of your employees get an idea implemented and tested? Can any one of your customers get exactly what they want? Do you immediately make innovations available to other customers? It’s possible if you share the responsibility. Open and democratic in this case means letting innovators go around your planning process if they need to. An optimal competitor combines strong and democratic internal innovation with an open product that customers can mold to their own needs.

Improving Product Quality
It’s possible to beat the “unbreakable” software business on product features and quality, by spending a lot more money, by having a lot more product maturity, or by having some patent advantage. However, if the business is unbreakable, it will eventually fight back with potent weapons: releasing early and often, and an open development process. That will ensure that the product rapidly improves along the dimensions of quality that are important to the users.

High Volume Marketing and Lead Generation
The market leader has the optimal marketing and lead generation position, because a prospect will always give some consideration to the market leader. I would count as the leader the product with the most new adoptions, rather than the biggest installed base. The product has to be really easy to adopt. If it is by nature not easy to adopt, because it involves system change, maybe it needs to be packaged as a component of some outsourced service that is easy to adopt. The optimal competitor is the best in your category on cost of adoption.

When people adopt, they talk. The unbreakable competitor will engage customers immediately in a community of sharing, peer advice, and innovation.

Low Cost of Sales
You want people to call you when they are ready to buy, or as late in the sales cycle as possible. This reduces the cost of sales. The unbreakable competitor only engages the sales team after a customer approaches with the intention of actually buying something.

How to make this happen is the trick. One popular method is to provide free software and services. Declining technology costs mean that in many cases it is cheaper to support a bunch of users who are not ready to buy a product, than it is to sell a product to prospects who are not ready to buy.

There are other method that rely on having the right product presented at the right time. The unbreakable competitor will find the demand.

Immediate Customer Service
Customers should get immediate service, or at least service that is more immediate than any competitor can provide. This can be accomplished by having the right escalation structure, going straight to senior management for requests that aren’t satisfied on a short timeline. In a software business, having a shorter release cycle makes the time to satisfy customer requests much shorter. One ASP that I know does daily production releases. It’s possible, and it’s probably the pareto optimal point. Customers should ideally have lots of ways to get service, from a thriving community.