HBS Working Knowledge this week challenges small business owners - Are You Ready to Fight a Giant? It is Clayton Christensen's disruptive approach and the art of finding and exploiting niches that Big Co. can't afford to pursue. The analysis conducted by Bain and Company partners Chris Harrop and Barney Hamilton reveals the magic bullet is simply focus on the customer.
Occasionally, companies can invent a better mousetrap and challenge an incumbent head-on for its most profitable customers. But most succeed by first devising cheaper, more convenient ways to serve targeted customer niches that are below an incumbent's radar. This allows the entrant to mine profits in ways that are not cost-effective for incumbent companies, which have higher cost structures and broader focus. Over time, that strategy can migrate to other segments until the challenger's approach becomes the new status quo.
But how do innovators create disruption? Bain's experience and analysis suggest that customer focus holds the key. Successful challengers target specific segments and design propositions that address customers' unique concerns in ways incumbents don't—and very often can't. Challengers deliver a powerful customer experience by coordinating efforts across business functions, and they punch above their weight by investing selectively in what matters most to their target segments. Then they succeed over the long haul by systematically renewing their edge with customers.
For small business size can be as much as an advantage with customers as an inhibitor. Many larger organizations have to abandon tactics that smaller companies can exploit. Large companies need to move their customers to higher valued products, pursue larger markets where economy of scales matter and focus more on being efficient than effective. Small companies can find those underserved customers ignored or unrecognized by larger firms and offer less capable products that satisfy most of the customer's needs. The small business can operate without much competitive pressure brought on by notoriety and success and they can provide service and contact in manners that larger organizations won't. Focus is the key to winning in these arenas where leaders fight for market share rather than on meeting a customer's needs.