Let me explain. In my years of running a photography business with multiple locations, each time we cut out a market segment, and got more focused on the segments that we were best suited to, my business got bigger and more profitable. For instance, everyone thinks photographers do weddings and we did: 135 of them a year. I made a decision in one year to eliminate all weddings. We took a significant hit on our gross revenue in that year, but within a year we were more profitable and growing again in our new focus on school photography. We became much better known for what we did and we were able to focus and grow our skills a lot faster.
This seems counterintuitive to many of my coaching clients. Many of them say “I can’t stop doing business with that client, I need that business.” And as a result they don’t focus their business and become something special. They also miss a big chance to easily increase their profits.
So how do you figure out what—and who—to focus on?
The Product Market Grid
Take a piece of paper and on it you’ll draw a grid, kind of like a little Excel spreadsheet. Across the top of the grid you’ll list the kinds of markets you do business with. If you’re a dentist, for instance, you could be doing business with children or elderly people. You could be doing business with upscale people who care more about their looks, or your business might be mostly driven by referrals from other dentists. On the left side of the grid list the products you offer: teeth drilling, general hygiene, teeth whitening, braces, oral surgery, dentures and so forth. Now, look at the different intersections of product and market on the grid and evaluate them using the following criterion.
1st Criterion: What market are you most suited to do business with? Children? Older adults? Do you enjoy doing general tooth care more or do you prefer cosmetic dentistry? Where is your skill and your passion?
2nd Criterion: In your community, what would be the business opportunity? Is there a big enough market for you to produce a gross income in that market segment?
3rd Criterion: Can you charge enough to have it be a profitable market? It may be a big market in terms of gross dollars, but is it a profitable market?
4th Criterion: Is it a growing or a declining market?
The ideal focus of your business would be an intersection that includes what you’ve got passion and skill to do, a big enough market to produce revenue dollars at profit, and it’s a growing market.
The sensibility to focus your business into one or two, at the most 3, of those opportunities builds and makes your business stronger. It’s much like the reason why a general dentist who opens up a storefront in the community makes an average living for a dentist, and why an orthodontist who limits his practice strictly to orthodontia and opens up in a community where there are lots of pre-teens makes three times the income of the general dentist. It’s the specialty that makes all the difference.
All I need to do is ask any of my clients when they don’t quite get this is, “If you’re having a heart attack right now, would you want a friend to drive you the 100 yards down the street to the internal medicine doctor or would you rather have them drive you the half a mile down the street to the cardiologist?” Without exception they all want to go to the cardiologist.
Using the Product Market Grid will serve you well in your strategic planning as you work to answer the question, “What are we designing our company to produce?” You can also use it for marketing planning as you think about how you will position your business and communicate it to potential clients. It’s sort of a subset of Dan Kennedy’s “Magnetic Marketing”: If you can become known for something that a group of clients care about, then the clients will generally seek you out as opposed to you having to find every client.
Sometimes people get this concept only after they’ve been in business for ten years. It’s about repurposing the business and cutting things out. I know it’s a tough call to give up a significant piece of business, but here’s the thing: People want to get rid of the little stuff that doesn’t matter when sometimes it’s the big stuff that gets in their way. Don’t let fear of cutting out the big stuff keep you from earning the big profits.
David Hilton, CEO USA, FREEDOM Business Coaching