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ISSUE NO. 1
RADIOACTIVE SUCCESS AND LIFESTYLE MAGAZINE
THERE IS NO LIFE JACKET IN BUSINESS. MONEY IS MONEY. HUSTLE AND WIN YOUR GAME. l
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CAPITALISM IS WAR. Calm and collected, send your Competitors to the Cemetery. PAGE 2
THE ART OF WINNING DON'T LOSE. WHETHER YOU ARE A LARGE CORPORATION OR A STARTUP, MAKE SURE YOU WIN.
SET A WINNING STRATEGY FOR YOUR VENTURE.
Strategy is the Art of winning. Don't lose. Whether you are a large corporation or a start-up, just make sure you win. Now that the context is set, let's work on how you win in business and even life. This article illustrates how to set a winning strategy for your start-up or venture. The framework used is the Competitive Strategy toolkit, from Micheal Porter, a well-known Harvard’s professor of corporate strategy. We focus on the competitive aspect of the strategy because, as we said, Capitalism is war. That's just the cold truth. COMPETITIVE STRATEGY
It's like marriage, know where you getting yourself into. The most important industry analysis tool used across the globe is the Porter’s Five Forces, from guess who, Professor Micheal Porter. We won't present the entire toolkit here but the take away is this:
There are players/threats surrounding the industry who have some level of bargaining power, and there are competitors/rivals within the industry. The questions you should ask is: who are the players and threats, and how strong they are. In other words, what are their bargaining power(high, medium, low). Make sure you understand the Forces surrounding the industry, and the competitors/players within it. If you don't do this well, you just increase your chances to lose. As the statistics show 80% of startups and venture fail. Don’t be one of them. In addition, perfectly analyzing your industry should also helps you define if it is a high margin/profit one or not, which is value in essence(profit is value). Your equity will come from whether you can capture value (profit margin) or not. So, make sure you win.
Business is war. Find who has the power in your industry, and take it.
WHO'S TAKING PROFIT MARGINS IN YOUR INDUSTRY? Profit margin is your equity. Control it.
Now, let's go a bit deeper. As previously mentioned, the players or threats are Buyers (your customers), Suppliers (who provide raw materials to the industry), Substitutes (replacements of the products offered by the industry), New Entrants (new fighters entering the industry to win), and finally your Rivals within the industry. Understand who has the bargaining power to capture value(profit) from the industry. In some industry, suppliers customers have it in others (not always though). KNOW WHO CAPTURES VALUE.
Yes, it is true, in previous years, customers didn't even have the choice to select their utilities providers (electricity, water…). These customers had zero bargaining power when buying utilities from the industry.
They were forced to lose. Make sure you perfectly see who captures the value/margin from and within the industry is critical to winning because you will know who/where to attack, and how hard. Do it very hard if the players have too much power or if your rivals are extremely strong in capturing value/profit. Few examples. Let's say your venture wants to get into the microprocessor manufacturing industry. Well, there are two main rivals; Intel and AMD. This is a duopoly, so no real fights. The Suppliers of parts or raw materials to build the microprocessors don't really have the power to capture high profit from Intel and AMD. The questions you should ask in analyzing the industry are: Do the Substitutes to microprocessors really have power if any? No. The reality is that there are not real substitutes to microprocessors.
COMPETE INTEL AND AMD Few examples. Let's say your venture wants to get into the microprocessor manufacturing industry. Well, there are two main rivals; Intel and AMD. This is a duopoly, so no real fights. The Suppliers of parts or raw materials to build the microprocessors don't really have the power to capture high profit from Intel and AMD. The questions you should ask in analyzing the industry are: Do the Substitutes to microprocessors really have power if any? No. The reality is that there are not real substitutes to microprocessors. Now, do you think Buyers (computers manufacturing companies such as Lenovo, Microsoft, HP…) have a high bargaining power to take value from Intel or AMD? Probably no. Not in a duopoly like this. Finally, are the potential new entrants really have power? We think no, because there are high barriers to entry. The capital required to build a facility and have the technology to manufacture microprocessors is extremely high. This barrier keeps new entrants out. So, Intel and AMD will continue to lead the industry for a while.
If you really want to win in this microprocessor manufacturing industry, you know where to focus your attack: Intel and AMD. Kill this duopoly. By attacking or killing we mean to offer a better value proposition (better price, more speed/quality, brand, business model), or just be a straight shooter and make sure customers (computer manufacturers)know they've been “abused” for many years by your current rivals (Intel, AMD). One strategy Free used in Europe. Free Telecom is one of the leading telecom operators who killed a duopoly formed by Orange and Bouygues Telecom. Xavier Neil, the co-founder of Free, simply explained to customers that their current mobile phone plans were just unfair. He even went further by alluding his rivals Orange and Bouygues were exploiting them for many years by offering ridiculously high prices for mobile and internet services. Free Telecom started offering a 5 euros plan to customers, which couldn't say know. That was a complete disruption that killed this duopoly. We took this example to show that winning is still possible even if a new entrant faces high barriers en entry such as the level of investment required to acquire the telecom infrastructures. We also mentioned the Brand as a key element in the value proposition you need to add in order to kill the competition. Free as a brand is really strong and is at the core of the value proposition of the company. Customers understood Free is offering them an escape from the trap, set by Bouygues Telecom and Orange, and now there are free from unfair prices.
FIND YOUR PLACE OR TAKE SOMEONE'S. Offer what is missing in the industry.
Understand what is missing in the industry, and make sure you can offer it. For Free, the answer was to offer mobile and data plans at lower price. The quality of service wasn't the main priority but cheaper prices. Free didn't even have a proper customer service in the beginning of their operations. Going back to the microprocessor manufacturing industry you want to enter, ask yourself where is the space you can play in and win. Free still dominates the price space today. Let's take another example. We understand the microprocessor industry might not be fun for you. We are happy to propose the luxury fashion industry. Fun right? Not really. At least it is fun to wear fashion apparel and look trendy. The business question is how do you make sure your luxury fashion venture dominate the industry. First, understand that Fashion is War.
There are more and more new entrants, and when they are really successful and big enough, well, they get acquired by one of the two main holdings in the space; LVMH(Louis Vuitton, Dior…) and Kering (Gucci, Yves Saint Laurent…). Now you know who are the main organizations/groups to fight if you really think big for your venture. Now, fighting these two rivals means you need to understand them and be able to play their game very well. The main business of these organizations is to acquire luxury brands and run them successfully. LVMH's owner Bernard Arnaud is a real wolf, and everybody knows it. Now that you have an idea of the type of mindset you should have, let's analyze the luxury fashion industry so you see where/if/how you can play.
LUXURY FASHION IS ALSO WAR We propose to navigate the overall industry and see what options you have. Buyers/Customers have power? We don't think so. Do you really have a choice to bargain the price when you buy a Louis Vuitton handbag? The answer is no. Unless you buy a fake one. Strictly speaking, Buyers always have the option not to buy a luxury good. The situation we are illustrating is whether the Buyer really has the power to bargain the price or has several options of prices when he decides to buy. The answer is certainly no. Moving forward in the analysis, the Suppliers of raw materials (fabric, leather, etc) have the power to capture more profit margin from the industry players? Not really. The New Entrants have power? Not at all. They are high barriers to enter this industry. Just to name few: Capital, Brand image, which comes from centuries of tradition in general; rapid growth capabilities (such as LVMH, Kering); and more. On the capability point of view, apparently, no other group couldn’t really duplicate what LVMH and Kering are doing to grow so rapidly. Acquire and integrate brands is not an easy task. We took this example of creating a venture as a luxury brand group instead of doing everything Greenfield because, in order to dominate this space and get close to the size of LMVH and Kering, you need to have a sniper mindset as Bernard Arnaud.
That's a fact. We have reason to believe he's on his way to control Hermes. The share price of Hermes is extremely high as a takeover defense strategy, but LVMH already has small equity stakes in Hermes, and they really know the family. The future will confirm everything. One take away is this: In the luxury fashion industry, there are multiple under-performing brands that are well-known globally, and should be acquired to be leaned. The art is to make them accept a deal, or forced them to do so. This is the art/key. We think Micheal Kores is on its way to becoming such a big fashion group. The recent acquisition of Versace is a good example. Now you have an idea how it is practically impossible to dominate the luxury fashion industry by simply building a designer brand. You will only become one of those brands/designers who will be acquired someday, assuming you even become successful. Many families/companies couldn't really grow significantly (on a scale and value sense) in the long run even after great success. Versace and Prada are some examples. So, we think the game and space to play in is the acquisition. The highlevel capabilities you need are intense capital (intense) and the power to make brands work with you. Offer them what LVMH and Kering couldn't.
BE FEARLESS. TAKE SOMEONE'S PLACE. If you can't find a place, match what your competitor is offering, and add a touch.
Our final point of discussion is to decide whether you can find your own space within the industry you target, or you want to take a competitor's place. You can become first, second, or nobody int he industry. It is really your choice. Either way, someone has to win. In our microprocessor industry, this means you decide to replace Intel as a leader by offering more processing speed and lower cost to customers (computer manufacturers). Or in the luxury fashion industry, you could decide to take LVMH's first position by killing the image of the group, this is in reference to the example we've presented earlier for Free, the french telecom company. The button line is; to take someone's position, you need to take him out first. To do this, you have to understand where the power is, as we've mentioned several times. Rivals such as Kering and LVMH have the power, nobody else has.
They are the real forces driving the luxury fashion industry. For a New Entrant, one point of entry could be to acquire an existing affordable luxury brand/group (i.e. Coach, Kate Spade; two public companies so potentially available if you make an excellent tender offer to the board), and build your growth (future acquisitions) on top of it (as Micheal Kors acquired Versace). with such a platform/infrastructure (capital, human resources…) you can build your growth. You could also do it via an investment group but the reality is that no private equity firm, even the biggest, could replicate what Kering and LVMH did. Your group as to be in the fashion universe. The dessert plate is this: In order to takes the first position in this industry, you need to start with Asia/China. We think you understand why.
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