Profit Income of Market Strategy (PIMS) research programme analysed performance and key success factors of thousands of business including performance of tart-ups in their first 5 years of life.
What are the key learning points for profitability and growth of start-ups from this research?
Rule #1 – Profitability is not a useful success metric for start-ups, as PIMS research shows that these start-ups which made money in 1st or 2nd year of operating performed worse later
Rule #2 – The key success metric of start-up success should change as the start-up progresses. It should vary from customer value in 1stand 2nd year to market share in 3rd and 4thyear to human resources and capital productivity later on
Rule #3 – Successful start-ups are aggressive on nearly everything. In increasing market share, which is single most important metric for start-ups –aggressiveness in marketing, business development, external support or consulting is essential and pays off
Rule #4 – Successful start-ups are clever on price, and what’s proved the best is aggressively huge product or service discount that competitors cannot adverse
Rule #5 – Start-up where the environment favors you and look for segments with few competitors
Rule #6 – Rule: Use customer value as a key driver of your choices – reason for existence of start-up is to deliver superior value to customers
So are you waiting on a lightning strike?
Have you ever wondered which drivers explain profitability of organizations?
Profit Impact of Market Strategies (PIMS) Programme analyzed thousands of case studies to conclude that there is a clear set of drivers, which greatly determine whether the way you do business will generate you the profit or not. Non-regarding which sector you operate of course.
PIMS Programme proved that there are 15 drivers, which explain 75% of variation in profitability.
The most important, which explain 50% of this are:
1) “Market share” – you’ll find here why it’s so important to increase it,
2) “Productivity” – which is about following the experience curve, also known as The Boston Curve, as it was developed in 1960’s by Boston Consulting Group,
3) “Relative quality”, which is about how customers perceive what you offer it compared to competitors,
4) “Investment intensity”, which is about what you do with the profit you earn.
The “golden rule” toward including these drivers in your growth strategies is “get max” for market share, productivity and relative quality” with “get minimum” in investment intensity at the same time.
You can find more on other PIMS drivers in The PIMS Principles: Linking Strategy to Performance by R. Buzzel and B. Gale. They include among others rate of innovation and the way you protect your unique differentiators from competitors or simplicity of logistics of your offer to customer.
So, what’s the driver of your strategy ?