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July 26, 2018

7-70 Rule; Niche Finds You; 3 Brand Promises; Bradford Logistics

"…insights for scaleups"


7-70 Ruleif you want to make software-like margins in any industry (something like 70% gross, 20% net) you need to identify and dominate a narrow niche – what we call the 7-70 Rule. Find a niche no bigger than 10% within a broader industry then own 70% of that niche. For instance, IKEA, at 30 billion in revenue, only has 6.9% share of the furniture retail industry, yet they own 72% of the highly lucrative "flat packed" segment of the industry. What niche do you own within your industry? How do you describe it in a couple words (like "flat packed").

The Niche Finds Youso how do you find this lucrative niche within a broader industry? In most cases the niche finds you, as John Ratliff, head of our global coaching organization, teaches. You start serving customers in a broader industry and then if you study your own data (quantitative and qualitative) you'll see that there is a specific segment of customers, distribution channels, and products/services where both the sale is easier and the margins higher. The key is letting go of all the other segments and choosing to hyper focus where you seem to be making the most money the easiest. BTW, John generated software-like margins in his call center business doing this. What niche is finding you?

Brand Promises in parallel you want to determine your three brand promises. Again, it's a process of going around and talking to your best customers. I remember when Graham Westin and his team did this in the early days of Rackspace. What they discovered is that customers wanted three things:

  1. The servers to be "up" – so uptime
  2. The technical help lines to be answered by people – in three rings
  3. Not to be transferred to someone else

So, Graham had all the automated attendants ripped out and he staffed 24/7 the technical help lines with Level 2 techs so calls wouldn't need to be transferred. And internally their focus was making sure the servers remained up and if not, how to resolve the problem in 5 minutes. Rackspace ended up branding this "Fanatical Support" which really addressed the "job customers needed Rackspace to do" beyond just renting server time, which lots of companies do. He ultimately sold the firm for $7 billion.

Why 3 Brand Promises It's Robert Cialdini's research on Influence that found that if you want to convince someone to buy your product/service you give them three reasons – three outperforms two or four and especially ten. And it's supported by Frances Frei's book Uncommon Service. This is why Southwest Airlines has the 3 LFs – Low Fare, Lots of Flights, Lots of Fun. And yes, it's important to lead with the main one – Low Fare for Southwest – but they have the other two. There is something about the power of three (three branches of government) that allows teams to triangulate into a decision and provides enough creative tension to drive innovation.

Bradford Logistics' Brand Promises YPOer Ben Richter has two of his promises in the tagline for his firm Bradford Logistics – "When Security and Timing are Everything." This third is his culture. The same for Southwest Airlines. Herb Kelleher, the co-founder and former CEO, always said competition could copy Low Fare and Lots of Flights, but not the third Lots of Fun. What are your three brand promises – and which is the lead?

CEO-BOOTCAMP: spend 3.5 days with Verne, serial entrepreneur John Ratliff, and 6 other CEOs in a beautiful retreat setting, addressing the constraints holding back you, your business, and your industry. October 2 – 5; January 15 – 18, 2019.

EXITING: Thinking about selling the business for $40 million or more? Want to get 25% to 200% more than you thought? Request the whitepaper from the Exit Strategies Summit at Harvard from Denise Richmond at (610) 299-6466 or email at [email protected]


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Verne Harnish
Verne Harnish
Verne Harnish is founder of the world-renowned Entrepreneurs’ Organization (EO) and chaired for fifteen years EO’s premiere CEO program, the “Birthing of Giants” and WEO’s “Advanced Business” executive program both held at MIT. Founder and CEO of Gazelles, a global executive education and coaching company with over 150 coaching partners on six continents, Verne has spent the past three decades helping companies scale-up. The “Growth Guy” syndicated columnist, he’s also the Venture columnist for FORTUNE magazine. He’s the author of Scaling Up (Rockefeller Habits 2.0); Mastering the Rockefeller Habits; and along with the editors of Fortune, authored The Greatest Business Decisions of All Times," for which Jim Collins wrote the foreword. Verne also chairs FORTUNE Magazine’s annual Leadership and Growth Summits and serves on several boards including chairman of The Riordan Clinic and the newly launched Geoversity. He is an investor in many scale-ups. A father of four, he enjoys piano, tennis, and magic as a card-carrying member of the International Brotherhood of Magicians.