I joined Scientific Time Sharing Corporation in 1969 to participate in the lucrative mainframe computer timesharing market. By 1978 the market for timesharing had grown, we dominated our market niche, and our customer base was providing sustained profitability and growth. We had a successful IPO and life was sweet.
In 1981 we had another successful public offering, having renamed ourselves STSC. While we were busy doing the 1980’s version of high-fiving, the market turned on us.
But we didn’t notice. Why? Because revenue continued to grow.
That revenue growth caused us to overlook that we were no longer acquiring new customers. Our continued growth was coming from our current customer’s legacy applications.
With most products, winning a new customer is achieving a design win. The new customer has identified your technology or product as the best current solution available. The customer then incorporates your product into their operation. As time goes on, your product gets embedded. The customer’s employees gain experience with your product. Customer-specific reports and subsystems get developed and it becomes relatively expensive for them to switch to a different vendor. As the customer grows, their utilization of the systems incorporating your product grows, and your revenue grows.
Consider new applications, however, where the prospect, or existing customer, doesn’t have the sunk investment. They will again look to adopt the best solution available. If that is your product, you will gain new customers. If not, you won’t.
STSC stopped obtaining a significant number of “design wins,” i.e. new customers and new applications. This was hidden from view since revenue continued to grow, fueled by existing customers and their applications. It wasn’t until existing customers started to decommission applications that it became obvious we had a significant problem.
I drew two lessons from my experience with this phenomenon.
You need to track “design wins” – i.e., new customers and applications. When the trend turns down, it’s time to act.
If your product is no longer the “best solution,” you need to resist the effort to double down on sales and marketing. Invest instead in making your product the “best solution” or transitioning to a new product. Doubling salesmen’s commissions won’t make prospects think you have a better solution.
One final thought. Organizations have two customer bases. One is the folks who pay you for providing solutions to their problems – i.e., your customers. Second is the folks who invest their careers – i.e., your employees. Inability to recruit new employees, even while retaining your current ones, is as important a warning sign as the inability to obtain new customers.
To recognize signs of “sliding,” senior management needs to review and adjust direction, focus, and their product/market strategy on an ongoing basis. The best way to do this is through a well structured strategic planning process, including effective implementation. (For more on strategic planning, review the first two chapters I wrote in the Business Expert Guide to Small Business Success.)
If you’re interested in having a facilitated strategic planning meeting that sets your strategy and launches its implementation, give us a call.
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