12/10/2011 - 10:36

Narrow, deep focus, then you go global

12/10/2011 - 10:36

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JOHN Rauschkolb, founder and CEO of Panama-based La Hipotecaria, faced an ongoing dilemma. Should his mortgage company offer additional products to its existing customers, like personal and car loans, or stay focused on low-end mortgages and expand into other countries as a way to diversify risk.  

The answer to Mr Rauschkolb’s question revolves around an important concept from Geoffrey Moore, the Silicon Valley icon who first emphasised the need for a ‘whole-product’ in what are now classic books, Crossing the Chasm and Inside the Tornado. An obvious example is Apple’s iPod and iTunes combined offering. Without both, neither would have been complete. And because competitor Sony was unwilling to cannibalise its existing music label to provide a similar iTunes offering, its Walkman died as a partial solution.  

The failure of many growth firms is in not pushing through the pain to achieve this 100 per cent whole product solution. They work hard to provide a solution to a critical need, only to get about 80 per cent of the way before getting bored and moving onto another product line, distribution channel, or market segment. This leaves the door open for a much more focused competitor to sneak in and take away the business with a more complete solution.  

Before learning how La Hipotecaria rationalised its final decision, let’s dive into a specific example that highlights the power of Mr Moore’s ideas.

Winterhalter Gastronom

German commercial dishwashing systems manufacturer Winterhalter Gastronom provides the perfect example of a 100 per cent solution. First brought to my attention by Hermann Simon, author of Hidden Champions of the 21st Century, Winterhalter suffered from a lack of focus. Trying to serve various commercial segments, including hospitals, schools, restaurants, hotels, and business organisations, Winterhalter had achieved an unremarkable 5 per cent market share.  

The challenge is that each of these segments has unique requirements, though to the novice they might seem the same. So Winterhalter made a critical decision and jettisoned 80 per cent of the segments it was in and focused more narrowly on just the restaurant and hotel segments.

Going narrow and deep

To provide the kind of cleaning solutions these markets require, Winterhalter knew the quality of water coming into its machines was critical, as was the detergents being used. Round-the-clock service was also a must.

In response, Winterhalter added a proprietary line of water conditioners. It ramped up its maintenance and service offerings to a provide fast, 365-day global response. And it developed specialty detergents for various dishware requirements like low-temperature glassware cleaning situations. As a result, today Winterhalter commands more than 65 per cent global market share in this narrower, but large, segment it calls the ‘catering and hospitality’ industry. 

The Winterhalter lesson – focus narrow and deep, then go global.    

La Hipotecaria

Back to Mr Rauschkolb’s dilemma. His team tackled the question of focus versus a 100 per cent solution at its recent strategic planning session. A couple of his senior members were particularly keen to expand the offering of personal loans to anyone since they were already offering these loans to new mortgage customers and had the systems in place to handle it. Compounding the challenge was the fact that personal loans are more profitable than mortgages. 

Using the Winterhalter case study, they affirmed their desire to stay focused on providing low-end mortgages for homes less than $80,000 and not expanding into more expensive homes, which is a different clientele. And they nixed car loans since their systems aren’t geared for these types of transactions and the collateral can be more easily moved.

However, in many cases their clients have accumulated enough high-interest debt that it keeps them from qualifying for a mortgage. This is why they started offering personal loans in the first place, as a way to consolidate a bunch of smaller debts into a more reasonable monthly payment so the customer could then handle a mortgage payment. This was often the 100 per cent solution their customers needed.

In turn, providing personal loans to a customer who didn’t have a mortgage with La Hipotecaria increased Mr Rauschkolb’s risk and wasn’t critical to the business’s marketing approach. So in the end they decided to stick with their narrower segment of mortgage lending and expand more rapidly into other Latin American countries. As for personal loans, they are offered only when a person qualifies and it helps them obtain a La Hipotecaria mortgage.  

What is the narrowest focus you can achieve and still provide a 100 per cent solution?

 

Verne Harnish is CEO of Gazelles Inc, an executive education and coaching solutions provider, and author of Mastering the Rockefeller Habits: What You Must Do to Increase the Value of Your Fast-Growth Firm.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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