All businesses make choices. Arguably, it’s the most important thing they do. Certainly, it’s one of the riskiest things they do. But making choices isn’t optional. Doing nothing doesn’t remove risk, it just leaves you vulnerable to the “slings and arrows of outrageous fortune”, as Shakespeare so eloquently put it. Or “hope isn’t a fucking strategy”, as my old boss less eloquently put it.
Given that making decisions is essentially the job description of a manager, you need an approach to decision making that is logical, objective and consistent. This is handy, as it is the topic of this article. There is also a link below, to a free spreadsheet, complete with explainer videos, that will make the whole process a breeze.
There are, of course, many different decisions a business needs to make. The specific choice this article addresses is how to choose between the different product or customer markets available. Deciding where you should focus your time for maximum effect and invest your money for maximum return.
The Paradox of Choice
One of the challenges of choosing from a range of options is that in deciding what to do, you are also deciding what not to do. Which can lead to that bitter feeling of regret.
The sort of feeling you might encounter when you select off a restaurant menu only to subsequently notice that everybody else seems to have ordered something much tastier.
The inherent stress in choosing can compel you to take the safest option rather than, what would have turned out to be, the best option. The more options you have to choose from, the worse this anxiety can be. More choice can effectively mean less choice.
Many studies have addressed the issue of choice. Turns out that the most stress-free method is to have somebody else choose for you . This may reduce your anxiety levels but is too much of an abdication of responsibility for someone who is being paid to do more than toss a coin. Having said that, it does give us a clue as to how you can make decisions more confidently and with less worry.
Behold the Multi Factorial Analysis
Somewhere between ‘going with your gut’ (which shouldn’t be dismissed out of hand as a valid method) and ‘picking your choices out of a hat’ (which should). There is an analytical option, based on the GE McKinsey matrix. This option doesn’t exactly choose for you, but it follows a methodical approach that presents you with the most rational choice, by rating each option along two dimensions, as shown below.
Your position on the market attractiveness and competitive strength dimensions is derived by rating all of your potential choices against ten factors, five for each dimension.
This is where the tool gets its fancy, multi-factorial title. But before you get to the evaluation step, you need to pick a choice set.
Choosing what to choose from
In theory, you can prioritise a list of options as long as you want. In reality, most businesses will have fewer than ten options. These options will either be product markets or some form of end-use market.
Product markets are specific products or, more likely, product classes. Take the example of an animal health company. They could prioritise the markets for anti-infective, hormonal, neurological, parasiticide, or vaccine products, and so on.
End-use markets focus on the use the products are put to or the industry or markets that use them. Staying with our fictional animal health company, they could prioritise the markets for beef cattle, dairy cattle, sheep, pigs, poultry and so on.
Whether you prioritise products that can serve multiple markets or markets that consume multiple products the next steps are the same. You can approach them in isolation, but it is usually much more effective to work as a team.
Quantify attractiveness factors
This is the part of the process where the focus is on you. What is it about a product or end-use market that you find appealing? What makes one better than the other? Well, you could start this by listing the criteria that are uniquely attractive to you.
You could, but you probably shouldn’t. In my experience, the same ones crop up time and again, across multiple industries and sectors. I would start with the following five.
- Market growth rate – how fast is the market growing relative to your other options?
- Market size – How big is the market relative to your other options?
- Competitive intensity – How many competitors are making similar offers? How concentrated are the buyers?
- Market stability – Is this a long-standing market with a secure future?
- Demand for your product – What is the quantity and frequency of purchase of your product, within each market option?
Whether you make your own list or go with the suggestions above, you need to rate each option against each factor. All this is explained in the video that accompanies the free spreadsheet.
Your competitive strength factors
Now we switch to the customer’s perspective. How strong is your offer for each market? As above, you may have very specific factors in mind, but I would suggest the following list.
- Relative market share – what is your current share v the market leader or your nearest rival?
- Brand strength – how well known and how positive is the reputation of your brand in each market?
- Customer closeness – how well do you know the customers? How well do they know you?
- Relative product performance – How does your offer compare to your competition?
- Ability to serve – how well do you meet this market’s service needs?
Same as before, rate each option against each factor. And behold, the analysis phase is complete.
Interpreting the results.
The output of your efforts is the completed two-dimensional matrix we started with. Those options closest to the top left are the ones you should focus on. The ones at the bottom right should be ignored. The following chart shows a rough rule of thumb.
Zone 1 – focus and invest. These represent your best options
Zone 2 – The maybe zone. More work is normally needed to make a decision. Can you improve your offer? Do you see a way to move them into the top left? Do any of these opportunities have sufficient rewards to justify the effort required?
Zone 3 – ignore or at least don’t invest any more. Not usually worth much consideration.
Obviously, these are just guidelines. Your final decision will be based on more than is provided in this simple chart. But this is a pretty good steer. Not only that, it is methodical and, assuming you took a team approach to create it, it is collectively owned.
So, this tool doesn’t remove all the stress and anxiety by choosing for you. It does, however, make your decision better informed and more structured. The only choice you have now is whether or not to download the free spreadsheet, which you can do here.