Verne Harnish presents a short talk (introduced by Joe Polish) arguing that the best business decision is to focus on a small, highly profitable segment (the '770 rule') and to prioritize demand-side work and strategic pricing over indiscriminate sales outreach and cost-cutting. He gives examples (IKEA revenue and market share, Apple's profit concentration, Walmart niche dominance, a Turkish wood carver specializing in church doors), recommends spending 80% of time on demand-side activities, and warns against letting salespeople call on anyone or name price.
Chapters
If you were asked what was the greatest business decision of all time, could you answer it? Anyone? Yes. We're not going to ask you. We're just going to wait till the. Verne Harnish. He will not only answer it, he's going to tell you the top greatest business decision that he feels was ever made. Inverne Chenaud. Since he founded in 1987 entrepreneurs organization. How many of you are part of EO? Awesome. Okay. That's why I first saw Vern actually give a presentation on a fantastic book he wrote, the Rockefeller habits. So today EO, as it's called, is in 48 countries with 144 chapters and over 10,000 CEOs or members. Vern hangs out with coaches and, and drives a lot of business in the world. He's doing great stuff. And so the title of his talk is the greatest business decision of all Time. Help me welcome my friend, Verne Harnish.
Joe, thank you so much. Good, Joe, thank you for having me here. By the way, Kevin, where are you? Kevin Harrington. Kevin was one of the 22 founding board members of EO. I think we've known each other for 27 years. And so great to have you here. I ran an executive program at MIT called the Birthing of Giants. And we moved about 1500 crazed folks through. And it was the Kevin Harrington case study where he went from 0 to 80 million in a year and then kind of sold his company for more. Anyway, the story is amazing. Great to have you here as part of it. What I want to do is get right on into the topic. By the way, there's a company, Gazelle's, I write for Fortune magazine. I'm their venture columnist. I wrote a couple of books. One we're going to talk about. I've got a new book coming out October 21, known as the Growth Guy. Here's what I want to focus on. There's actually two really bad non decisions that most business leaders make. And the first one is that you literally allow your sales channel, whatever that is that could be you, your distributors, your reps online, to go after any low hanging fruit you think that they can garner and that that will commoditize and destroy your margins faster than any other single non marketing decision I've seen entrepreneurs make. So I want to talk here, just in my few minutes about what I call the 770 rule. And I want you to realize that IKEA, the largest world, world's largest furniture distributor last year at 28.5 billion euros in revenue, has a Total combined market share of 6.8%. When Apple hit its highest market cap two months prior to Steve Jobs untimely death, their entire global market share was only 7%. Yet that 7% represented 50% of the entire profitability of the global industry, which meant that they were allowing the other 93% of the customers to go to their competition fighting over what was just the other 50% of the profitability. And so I want you to be crystal clear that you really only want a few percent of the marketplace. You don't want it all. But your key decision is you and you alone have to figure out what that list is. By the way, one of the guys that endorsed the greatest business decisions, a huge hero of mine is Sam Palmisano. Sam went on to be CEO of IBM, doubled its market cap in the seven years he ran it, and now is chairman. Sam was given this unbelievable division to turn around, and obviously his goal was, hey, we got to get revenue up. But rather than tell that to his sales channel, he said, look, I think our best next customer is those that are with EMC. Now, rather than say, let's just go after EMC's customers through Market intel, he found out the top 100 customers of EMC. And then literally using the most important management tool ever developed, the whiteboard right across from his desk, he wrote the names of those hundred customers. And then he got on a daily global sales call. And those who've read Rockefeller Habits know that we're big into this daily huddle. On a daily global sales call, he had one question to a sales channel. Who did you get on that list today? What was his question the next day? Who did you get on that list? And if some sales guy said, look, Sam, I got a hot one over here. Sam said, look, I don't think you heard me. We're going after those hundred. And so the first thing I want you to do is figure out what is that 7%. And then I want you to dominate that 7% by 70%. Walmart, today, the largest retail company in the world, has something just under 10% global market share, yet they own 63.6% within the niche that they're in, which are these big box warehouses. So that's where the 770 rule comes in, by the way. So, Robin Sharmer, where are you? He and I have been doing this roadshow. We were just in Bahrain. We're on our way to Kuwait here in a few weeks. And as I was heading there, I ran into this story about Ali and this is the guy that we want to emulate here is a guy that was carving wood since he was a kid in some southern province in Turkey. Yet at age 55, the age that I am, he decided I am going to specialize and all I want to do is carve wooden doors. But not just any wooden doors. He wants to carve wooden doors for churches? No, but not any church. Christian churches. And today this guy owns upward of 70% of a very, very narrow niche within the wood carving business. And if you've got a Christian church, this guy can carve a mean Jesus and Mother Mary out there. And this is the go to guy that you want. And you can imagine how nice it is to have customers stand in line waiting for you to serve them. And so really it comes down to something very simple. Supply and demand. And I want you to realize something weird happened in 2007. This switched from World War II to 2007. We had actually more demand than we had supply. I don't want to take anyone away from any of you in this room, but if you just hung up in shingle and said, I can do the business, you did well. But we have a billion four people moving into the middle class between now and the year 2020, and they are slightly hungrier than most of us in this room. And it's what keeps my wife and I awake about our four children. They are not, I don't think, as hungry as the children in these other countries coming up, which means through the Internet, everything you've been hearing, they can compete with you anywhere. And so you in this room have to make the most important pivot you've ever made in business history. And that is from obsessing on the supply side of the business. Let's do a better, faster, cheaper kind of chasing your supply chain around the world. So you're going to need to, and I'm going to be very precise, spend 80% of your week, your calendar on the demand side of the business. So I want to tell a story. This comes from my dear friend Rick Cash, vice chairman of Nielsen. Because of demographics, we now spend more money on our pets than we do our children in the United States. This is why one of the hottest franchises, Dogtopia, Peter Thomas, many of you know, just, just won franchise of the year. So you would think if you're in the dog food business, you could make a fortune. Yet the problem is that entire industry, anyone can make dog food, ship it anyway, even through Amazon has been commoditized. And so here's the Key thing you've got to do first. What is the question? It's never the answer. What is the question your industry's organized around? In that industry, it was the size of your dog, big, medium, small, or puppy. Instead, this one unnamed company said, I'm going to ask a different question. And they said, what is the relationship of the owner to its dog? And whenever you do this, you find a set of different segments in a way that no one else has looked at the market. And always, always there's a segment no more than 7 to 10% of the total market that represents an inordinate amount of the profitability in that industry. In this case, it happened to be a segment they call performance Fuelers. These are folks that are active. They like to bike, hike, run, jog, and they want their dog with them. Representing 7% of the entire dog ownership market, yet 25% of the profitability. Then formulate a 100% solution, which this company did. And when you know the Persona of this 7%, your marketing costs plummet. Now, the second worst decision you can make is get obsessed on the cost side. Look, I'm going to admit something. We just because we do a lot of printing, our workshops around the world, yada yada yada, it was a big decision now that we had to renew our big subscription with Xerox. And I got to tell you how I got sucked in as CEO of our global company into that decision trying to save just a few more cents per copy of these growth tools that, that we have passed out. Yet the reality is we spend all this time on the cost side of our business. How much time do you spend on this one critical marketing decision, which is price? Truth is, we kind of lick our finger and put it to the wind. I want to ask an important question here. How many of you have read a book, attended a course on strategic pricing? I do want to see a show of hands in here. Look, it's the one P of the four P's of marketing that makes you money now. And I have an mba. I never took a single course in pricing. An industry that it's lost its shirt for decades, has now been profitable, insanely profitable, for the last 36 months. The airline industry, because they finally got their pricing strategy right. And so if you want to combine the two worst decisions and ever made, it would be, number one, letting your salespeople call on anybody that they want to, and number two, letting them name price. You must take control of both of those decisions. Thanks, guys. Good luck out there. It.
