The E-commerce Leader

[00:00:00] Michael: The idea of small markets or big markets implies a sort of stasis. Like they’re just small or those big, and what interests me is the journey from one to the other. So even if you are Potential star market. I E you are a big fish in a small pond. The point is how quickly that pond is growing.
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[00:01:16] Michael: The star principle book by Richard Kosch is a business classic and it presents a very wise strategic framework. He learned while founding the Boston consulting firm today, we’ll say the framework debate the merits of the model and see if we can’t find some practical applications for e-commerce operators.
[00:01:31] Jason, you ready for this important topic?
[00:01:34] Jason: Yeah, I love the book. I did just listen to it on my road trip to Phoenix and back, and really enjoyed it. Got a lot out of it. And I think there’s a ton of value for e-commerce operators. And so for people who aren’t familiar with this book, and we’re going to go through the high level overview, and then we’ll also adapt it and apply it to our own situations a bit and to some examples, so that we’ve got a lot to bring forth.
[00:01:59] Practically from it. Yeah, I’m excited about this conversation. You want to give us sort of a top level overview of the book, and I know you’re a huge fan of it. You’ve podcasted about it before and blogged about it. So lead us in. Yeah.
[00:02:11] Michael: Even to the extent where I bought her a settle it and it was going to give it to my mastermind members, but most of them had bought it by then because I’d been talking about it so much for so long.
[00:02:19] Yeah. So my understanding of the Boston consulting group matrix, which is really the basis for the star principle, first of all, I think it’s been around for a long time. I think it was quite big in the sixties, even, so it’s not new, but the power of it’s been overlooked, I think, minus. You have two aspects that define a style business or the other aspects.
[00:02:37] One is the growth rates of the market they’re in, is it above or below 10% annually and online many markets are growing extremely fast. So that’s maybe not such a radical thing for us. The percentage of market share that the market has or the. Let me try that again. The percentage of market share of that market, which a particular company has, in other words, all your market leader or a follower is the other main criteria.
[00:02:59] And that I think is a lot harder for many of us online are part of growing markets, but not the market leader. So market need is really defined as having about twice as much revenue as a percentage of the market as your newest competition. That’s my understanding. So we’ve got four quadrants.
[00:03:13] So let’s summarize them and then we dive into.
[00:03:15] Jason: Yeah, sure. Let’s do it that way. Yeah. So basically those two dynamics of fast growing or slow growing and market leader high yes or no, or higher hi, or you aren’t, I guess a market leader or the other two, points of reference in that creates a four-quadrant grid.
[00:03:29] And that really is the heart of it. In the show notes. We’ll have a link to that four-quadrant grid, so you can see visually what, what we’re talking about here, but yeah, let’s go through the fourth. So
[00:03:40] Michael: starting the top left, which is the most valuable bits is when somebody’s got a hot in a high growth market.
[00:03:45] And there are the market leaders star business, which I think is Richard cautious. Addition to the Boston consultant group matrix quadrant two is a more interesting one where you go in a high growth market, but you’re a follower, which I think for, from my experience, a heck of a lot of people in e-commerce are in, and that’s what equals a question marks.
[00:04:01] It could become valuable if it can take marketing. Quadrant three is when, on a low growth market, but you’re the market leader and that’s what, which cost cause a cash cow. In other words, it will produce a lot of money for the owner, but it doesn’t necessarily have the future to be a hugely valuable business, maybe somewhat valuable.
[00:04:18] And then quadrant four is low growth and the follower and what he calls a dog’s. And basically his advice is obviously you sell out those product lines, all those businesses. So that’s my understanding of.
[00:04:28] Jason: Yeah. So it’s a pretty straightforward framework, really. And you’re the star, you’re the cash cow either where those are good or you’re that, or that your product is.
[00:04:38] I said, you should say, I guess you say, or your brand is, or you’re a dog, which is just a big trouble or it’s you’re in this position where you’re unsure what. Ah, I love that. That’s in very clean framework and I think most of us who sell for a while in a specific marketplace start to get a feel for who our major competitors are.
[00:04:57] And whether or not those competitors, are better than us, bigger than us, sell more than us or not. It’s sometimes hard to figure out when you’re first starting, but over time you start to see, their marketing and you start to see what they do and you begin to realize, oh, I’m not the only person in this marketplace.
[00:05:14] And sometimes it’s immediately visible other times. It’s not. And so why don’t we, why don’t we talk a little bit about, why we like this, this interesting model. You are passionate about this book. You referred me to it, and obviously you’ve made a reference to it in your mastermind group.
[00:05:30] And had you bought it for all your mastermind members? Why do you like it so much? What’s captivating to you.
[00:05:37] Michael: So couple of things. The first thing is obviously a two by two matrix is the sort of cliche of management consulting. And it’s very easy to dismiss something like that because it looks like everything else.
[00:05:47] And there are three reasons, why? I like this one. A great deal more than just a, some other neat little framework. Number one, Richard, Kosch his actual results. He was a management consultant. So I guess part of what I do and part of what you do. And, he retired with about three, 5 million pounds of, a a few million bucks paid off his house and he had some money left to invest.
[00:06:06] So pretty late in his life, unlike a sort of big, shall we say boastful entrepreneur type he quietly just got on with being an investor pure and simple, which is a mindset that I think helps, business owners in terms of standing back from the situation at the 50,000 foot view, which is, I think Richard cos has great skill.
[00:06:21] So first of all, 16 investments he’s made eight of them had a positive return. Your average venture capitalist, who was super sharp, people would get one in 10 after comparison sharks tank. I believe that the positive return rate of the investments on that as a dismal one in 33. So those are spectacular, unbelievable results.
[00:06:40] And if you’ve done it, 16 times a day positive, I don’t think that’s a coincidence. That means he’s really onto something powerful. Second thing is I’ve seen this kind of pattern. Emerging so strongly in e-commerce markets I’ve analyzed, participated in advised on over the years. So it really makes sense of what I see in a very simple and yet truthful way.
[00:06:59] And the third thing is that it really explains, I think the success of the biggest e-commerce blow ups, that I’ve been a part of with most of my members going from two, $2 million a year in pounds a year. So 3 million bucks maybe to on to about 30. In the course of four years. And I think a lot of it is explained by this principle, in my opinion.
[00:07:16] So that’s really why I’m passionate.
[00:07:19] Jason: Oh, man. You just piqued our interest with that example. You didn’t mention the name of details, but we might have to pick your brain about that one a little bit, but, yeah, I think that it is interesting.
[00:07:30] As I read this book, of course I was constantly, as it was listening to it, trying to apply it to my. Circumstance in my own, e-commerce operations. And then I was also at the same time trying to think about other clients that we work with, and the guests to, to your point, the recipe for their success and how they’ve, become either the star in their niche or industry or how they become a cashier.
[00:07:55] And or where they’re at in that journey. And I think that’s really the interesting point for me is apply this to your specific situation in your business. And I could do that for four or five things that I’m involved in, obviously, as an influencer brand for the happy guardian life has pixie Faire as a marketplace, as our Shopify consulting work that we do and, in e-commerce consulting.
[00:08:15] And then my. Work with my books. Every one of these is a competitive landscape, that, we could take these principles and apply to. And that’s kinda what I was trying to do. I think I, I like it for that reason because it gives you an understanding of orienting yourself to where you are. And then giving you a like a compass map, okay, if you were here, do this, if you were there, do that.
[00:08:40] And, and so his, I guess you could say a prescription for what to do where you’re at is interesting. And so maybe we should talk through that as well. And, I tried to share my screen and me, but I’ll have it in the show notes, but basically what his star principle recommendations are prescription. Is that if you’re in the star category on a high growth market near the market.
[00:09:03] You should only do one thing, invest in nest, invest in scaling. You’re at the top of the industry and you want to just pour, fuel onto that, effort. And so that’s the first thing to do if you’re in that position, that’s rarefied air and not everybody’s in that position, obviously, but if you’re not, then w what box are you in?
[00:09:23] In the second box? It’s still very positive. Is this low growth? Where you’re the leader. And so you’re the leader and it’s low growth market. Now I happen to be in one of those situations, for one of our brands and that’s a pixie fair. And so in that position, his number one piece of advice, his instruction to us is protect yourself, protect your brand, protect the, the March.
[00:09:49] Leadership that you own. And, and that resonates with me so clearly because Michael, you probably remember most of, or many of our podcasts. I talk about defensibility seven layers of defense, how to be Bulletproof, how to be tiger proof. I’ve named and labeled all of these ideas because that’s the position in the marketplace that I’m operating from.
[00:10:08] So it’s very top of mind for me to say to my. How do I, operate with a zone of protection and safety and a moat, if you will, like with Warren Buffet’s phrase. So those are the two super positive, categories you can find yourself in. I’d love your thoughts and ideas on those, Michael.
[00:10:24] And then we’ve talk about the bad op the kind of the worst scenarios. What are your thoughts? Yeah.
[00:10:30] Michael: A couple of things I’m in the cash kind of thing is interesting that you’re experiencing that, in a sense. A lot of the pitch for a lot of mastermind and not most, a lot of, e-commerce type businesses or internet marketing, BizOps generally, since that started in, I guess the early two thousands has been almost selling people, the idea of a cash cow and they use phrases like cash machine don’t they all the time.
[00:10:52] And. That’s probably quite disingenuous because that’s quite hard to get to. But if you are going to support your family and live your life based on the Castro that has you and cinema and have for years successfully, then a hundred percent protection is actually the focus you should be having. And, but before you get there, you’ve got to have some pretty strong growth.
[00:11:10] So I imagine that this brings in another element, which is things go through waves for. The smartphone or iPhone market was an absolute killer growth market. And any business that dominated that was a star mark. It was a star business or sec business segment for apple, for example, for a long time. Now that growth has slowed down and apple probably is the market leader, but they’re the cash cow business.
[00:11:33] Because it’s a slow growth market, which is one reason why apple is incredibly profitable. And so I guess things go through phases. I would presume in your case that pixie Faire did grow pretty rapidly at certain points in its history, as well, which is another aspect that, that, that
[00:11:46] Jason: brings up me.
[00:11:47] Yeah, this is really interesting because to your point, I think they, people do sell internet marketing with that idea of, find your niche and all, and to use the star framework and to say that you’re the market leader in a slow growing niche. Isn’t exactly. The only consideration because it’s not the growth of the market.
[00:12:09] It’s the overall total addressable market, which is afraid of Silicon valley, app makers and in software makers love to use, which is the Tam total addressable market. And so what you find yourself in is a situation where you can be the leader. In a slow growing small total addressable market niche.
[00:12:30] And that can be a wonderful place to operate. Now, you’re not going to be a big company. You’re going to be a leader in a small, but you’re going to have dominance and be the leader in a small niche is I think of it like a small house or a small castle. And even in e-commerce power. My book, I write in the foreword about, island, small island.
[00:12:51] That no one is occupying and you can go to the small island and be the king of the small island. And that framework is I think, directly relevant because that’s so much of what’s happening online is there are unserved, small markets where no one has. I guess to say, no one has said to themselves, this is the place I want to serve.
[00:13:14] And even though it’s a small market, I’m going to be, the leader in it. Most of the time, people, when they come into e-commerce operations or work, they try to take on, I’m going to make sneakers. I want to make mobile phones. I’m going to make a. I’m going to make an, a fashion brand and they come into markets without segmentation or niche thinking, and they come in way too big.
[00:13:37] And so this isn’t a wrinkle in the, the star model. That’s very interesting is it can be slow growth. You can be the leader, but you can also be very small. And that’s cool. And so I think that’s an interesting dynamic that we’ve lived out and, obviously the doll clothes patterns.
[00:13:52] Industry is not that big, but that’s the world in which we operate yeah. With one of our brands.
[00:13:59] Michael: So one thought one differentiation, or how can I put this? The idea of small markets or big markets implies a sort of stasis. Like they’re just small or those big, and what interests me is the journey from one to the other.
[00:14:10] So even if you are in at star, Potential star market. I E you are a big fish in a small pond. The point is how quickly that pond is growing. So that, that growth over time is the thing that defines, a star business. But then also, even if you’re at a smaller market, there’s less dramatically growing.
[00:14:26] It, whichever market you’re in, it’s going to have, A sort of life cycle, right? So mobile phones, they didn’t exist trying to sell one in 1988 meant you were selling to a tiny market of yuppies as we called them in none. And then it blew up and then it’s gradually taking off. So it’s probably growing a few percent a year.
[00:14:42] But it’s not a time to cash cow for apple, or if it’s something that dominates in five years time or whoever dominates it. So that, that dynamic is something that people miss, because I think too. Number one error that I see with people going into markets. And it’s not just beginners, although they’re particularly prone to this is going to big markets without, segmentation of the market into niche markets.
[00:15:00] But the other one that I see is. Going to already large markets to your point. I think that timing is it’s finding something that is at the moment small, but going to become big. And to my reference, to the word investment earlier, I think having an investment mentality, I’m not an investment.
[00:15:16] I don’t claim to have this down very well, but I think a small business owners, we can be very action oriented. I think. The decision of where to invest your time, money, sweat, equity, whatever your team’s time, if you have one is really critical. And I think that trying to read the future of a market is a part of that rather than worrying about where it’s at right now, which is the general obsession.
[00:15:36] And that’s when I think if you just use jungle scout, helium 10, even Google trends, you can get a bit of a false steer because they’re very present oriented. They don’t really give you a steer of where things are going,
[00:15:47] Jason: That’s totally right. And of course, fidget spinners were all the rage at one month.
[00:15:50] One week in the, in, in the history of the last decade, but you didn’t want to enter that market. And so it’s not just the velocity of growth. It’s also the durability of the market itself. And that’s the other, another wrinkle in this is you want to find a market to operate in that is very predictable for the longterm.
[00:16:08] And to your point, maybe it is fast growing. I’ll talk to that issue. When we get into the conversation a bit more, cause I have a different point of view on that, but what you’re looking for. Customer community that wants to continuously buy something that you know, that they need for a very long time that they’re not being served well.
[00:16:23] And, whether that market is fast-growing or not, if they’re ready, willing, and able to give you money for a good product that you can deliver, then you know, it’s something to consider. And it’ll either put you, if you can be the leader into the star category and. Richards is framework or to put you in a cash cow category.
[00:16:42] And so that’s interesting. Now, if you’re not in either of those categories, then in his diagram here, you were in the, follower position in terms of market leadership. And you’re in the low growth, situation in terms of the market that you’re operating in. And he calls that. And no disrespect.
[00:17:01] I own a few of those, we all do, so let’s be kind to our puppies. We love them. But his commentary advice is to exit, or. Or to run them for cash, meaning don’t go crazy investing, but get really efficient, really focused on profitability. And just realize you’re not the leader, it’s not a fast growth growing market, but if you can make, a profitable, outcome occur for yourself, then you know, you’re fine.
[00:17:25] Just realize you’re going to be always, the second or third or fourth. Entrant in the market space, but you know what crazy things happen. Sometimes the market leaders blow up and, they ruin their own business. Sometimes they exit markets. Sometimes they literally abandoned them. And you never know what happens.
[00:17:41] So sometimes just be in the second or third or fourth runner up. It doesn’t mean you don’t have an opportunity to do really well. So that’s the bottom right corner in the framework. Yeah.
[00:17:49] Michael: What are your thoughts about. In seeing response on that. I think what interests me the most is not just, a newbie type of focus would be, oh, how do I make sure I’m in a high growth, amazing market?
[00:17:58] There’s nuance to that. As you said, you don’t always have to be. I think being the dominant person in a small market is way more important than the market growing fast. Having a cash card business is still a wonderful thing. But the interesting thing for me is then dynamic the relationship between these things.
[00:18:13] If you have multiple products or multiple business lines, multiple sales channels, multiple anything, really each one of them can function as a star business or business segment or a dog or an anything else. And I think the interesting thing is to make sure, and this is the discipline that is very simple to say.
[00:18:28] And the clarity of this thinking, I think helps this, but hard to persuade yourself to. Which is a conversation I was having with somebody in the mastermind the other day, he’s got whatever, $4 million a year business wants to grow it, he’s done well recently he wants to grow at a lot more.
[00:18:41] Several thousand skews and several hundred on Amazon. And I said, okay, so really you’re going to have to go through and brutally carts or, run for cash. And then don’t restock the dogs and put the money into the stars. And I think that’s that dynamic and movement of cash from one part of your portfolio of products or of sales channels, if you will, to another is where some of the real magic lies, because then you’re not looking for a theoretical new possibility you’re shifting capital and focus within your own business.
[00:19:06] That’s exactly, really how
[00:19:08] Jason: things take off exactly.
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