Jack Trout's book title says it all, Differentiate or Die.
The title may seem overly dramatic to some, but in reality, death of a business might actually be welcome compared to the torture of presiding over a struggling business. These struggling business owners often face years of agonizing stress compounded by unreasonable work hours to merely keep the business alive. This can cause strain on family relations and can destroy any joy related to owning the business. It's like the debate over capital punishment, "Is the death penalty really harsher than life in prison?" For many contractors, the death of the business would actually be more humane.
The most successful businesses have both a winning strategy and are operationally efficient. Strategy is about what the business should be doing. Operational efficiency is about how to do it. I often ask my seminar attendees, "Is it better to do things right? Or is it better to do the right thing?" For those that think it's more important to do things right, consider the following: "Does it matter how well you do something that doesn't need to be done?" Of course, the goal is doing the right thing correctly, but to achieve this, contractors must start with the "right thing." Unfortunately, Michel Roberts, CEO of the consulting firm Decision Processes International, reports that most businesses only focus on operational issues.
Doing the "right thing" builds a defensible competitive advantage over your competitors. A defensible competitive advantage creates value for the client that your competitors can't duplicate. This is critical because unless a contractor provides added value, why should the client pay one nickel more?
Have you ever wondered why some contractors are more profitable, while others struggle? A typical answer is, "They are better managed." There's always room for operational improvement, but it's really difficult to create a significant performance gap in operations alone. Significant performance improvements occur when a business does something totally different-changing the "what."
Despite the evidence, there are those that still believe that customers only care about price. It is easy to understand how that perception is created, but it's not true. When I ask my seminar attendees to raise their hand if they think gasoline at $3 dollars a gallon is over-priced, a majority of the audience raises their hand. I then say, "Let me rephrase the question. How many of you are willing to walk twenty miles to save three dollars?" The hands go down. The first question focused on price while the second question focused on value. The reality is that the price is always too high, which is why differentiation focuses on value.
Tom Winninger in his book Price Wars reports that 17 percent of consumers only care about value-they want the best. Another 27 percent only care about price. This leave 56 percent in the middle-they will buy based on price or value. The problem is that unless the middle group understands the value, they default to price. This situation can lead to a flawed perception.
Most contractors never see the 17 percent of consumers that buy exclusively based on value because those clients are already committed to a particular contractor. Therefore, it appears these consumers don't exist. If you don't educate the middle group on the value and they therefore buy based on price, it appears that everyone buys based on price. When the middle group recognizes the value, they are certainly inclined to buy based on value. Combining the middle group with the top 17 percent forms a group of about 73 percent of consumers that buy based on value-quite a contrast to the previous perception of zero.
It doesn't matter whether you bid work or negotiate work, you can still improve your profit margins by differentiating your company. Obviously, negotiated work offers greater flexibility and more options, but this doesn't mean the hard bid contractor can't find ways to differentiate
