And herein lies the secret of true power. Learn, by constant practice, how to husband your resources, and concentrate them, at any given moment, upon a given point.
—JAMES ALLEN
Almost every business begins with a single idea for a single product or service in the minds of one or two people. Over time, with experience, this core product changes and crystallizes. If the product and the market are right, the company turns the corner and begins to grow in sales and profitability. It does more and more of what it does well and eventually pulls ahead of its competition.
This is your core business. This is what you do best. This is what your customers like the most and what is most profitable for you. This product or service is the foundation of your enterprise. It is what you are known for and what you are most capable of delivering in an excellent fashion.
What is your core business? If everything else were stripped away, what would be left at your core? What is the last product or service you would stop producing or offering?
Whatever it is, the natural tendency of most people is to take their core business, their critical products or services, for granted. Because you are good in that area, because it is a cash cow for you, you begin to assume it will always be there. You then turn your attention to other products or services where you may have limited experience, where you may not be very good at all. This happens to almost every company, more often during periods of growth and profitability in your core business. It can be a real danger.
The more you get away from your core business, the more time and energy you will invest in things that are “non-core.” You will use your core business to generate the funds that you then invest in areas that turn out to be less and less profitable. If you are not careful, someone can come along and steal your core business away from you. Then you will be in serious trouble.
Never let your core business out of your sight. In Profit from the Core, Chris Zook and James Allen explain the nature and importance of the core business in detail. After working with hundreds of corporations, Zook and Allen concluded that the best and smartest strategy for a company in the face of competitive pressures or shrinking markets is to get back to its core and stay there.
Apply the 80/20 Rule continuously to every part of your business. Discipline yourself to identify and focus on the 20 percent of your products or services that account for 80 percent of your sales and profits.
Determine the 20 percent of your products and services that account for 80 percent of your sales volume. Determine the 20 percent of your customers that purchase 80 percent of your products and services. Determine the 20 percent of people in your business who generate 80 percent of your results.
Identify the 20 percent of opportunities available to you today that can be responsible for 80 percent of your sales and revenues in the years ahead. These will almost always be extensions of your current business, your core competencies, and your areas of excellence. Your choice of the opportunities available to you largely determines the future of your business. What are they?
What are the 20 percent of your work activities that account for 80 percent of your personal value and your contribution to your company? If you just doubled the amount of time you spend on the 20 percent of your high-value tasks, and discontinued the 80 percent of low-value/no-value tasks that you do, you could become one of the most productive people in your company. These are your core tasks.
What are the 20 percent of problems, aggravations, and irritations that account for 80 percent of your headaches in your work? Who are the most difficult people, customers, or situations that you have to deal with each day? What can you do today to minimize or eliminate them?
Based on this 80/20 analysis, what steps can you take immediately to improve, increase, and strengthen your core products, services, customers, and activities? What should you do first?
In what areas of your products and services are you, or could you be, better than 95 percent of your competition? This is where your greatest opportunities for sales, growth, and profitability will lie. This is where you should dedicate most of your energies and attention.
The biggest mistake you can make in business is to deviate too far from your core business, from what you do really well. As my friend Charlie Jones says, “Side roads are slide roads.”
Whenever you experience problems with sales or profitability, you should get back to your core business. You should do more of what you do best and do it better. Keep focused on those products, services, and activities that generate the highest and most predictable profits. Only when you have fully developed and exploited every possible opportunity to expand your core business should you expand or digress into untested business areas.
In ancient times, walled cities were built to protect the citizens against marauding tribes and armies. As the city grew, additional concentric circles of defensive walls were built to enclose and protect ever-greater numbers of citizens. The cities came to resemble dartboards with rings surrounding a bull’s-eye.
If the city was attacked by an enemy army, the citizenry withdrew behind the outer ring of walls and defended themselves. If the outer wall was breached, the defenders withdrew to the next wall. If that wall was breached, they withdrew to the next wall, and so on, until they were forced back into the most heavily defended part of the city, the citadel. The citadel was the key to the survival of the kingdom. As long as it held, the city could be saved. The enemy could be beaten back and the kingdom rebuilt.
The citadel contained all the treasures of the city and was designed to accommodate the king, the top army officers, the leading citizens, and sufficient soldiers to sustain a prolonged siege. With adequate reserves, the city could survive until a neighboring kingdom sent an army to relieve the defenders.
In your business, you have products, services, and activities that are peripheral to your business—the outer walls of sales and revenues—and you have products and services that are central—your citadel business activities that represent the major sources of your profits.
Your core business can be thought of as your “citadel.” It represents the product or service lines that are vital for your survival. They must be protected at all costs. As long as you remain strong in these areas, you can withstand market fluctuations and sales declines. You must therefore guard and protect them against all competitors.
As a matter of business policy, you should develop a “citadel strategy” for your business, especially in times of contracting markets, reduced profitability, and declining cash flow. This strategy should include the setting aside of reserves to carry you over, based on a “worst-case” scenario.
You should always have a citadel strategy on hand. You should analyze and determine your most valuable, important, and profitable products and guard them carefully. When your business takes a dip and you have to defend and protect your ability to survive, be prepared to withdraw to your citadel of key products and services.
In times of turbulence, rapid change, slowing sales, or disrupted markets, you must develop such a strategy in advance, to assure the survival and long-term success of your business. This is a fallback strategy that you have fully prepared in the event of unexpected reverses in the marketplace. Never rely on luck or on an early turnaround to a market trend. Prepare for the worst.
This citadel is your core business. What is it? Whatever it is, practice “scenario planning” on a regular basis. Ask yourself, “What is the worst thing that could possibly happen in my market today?”
Whatever your answer is to that question, begin making provisions today to assure that you will be able to survive should the worst occur.
The very best leaders think several moves ahead on the chessboard of business and attempt to anticipate the various moves that might be made against them. They then make provisions in terms of cash reserves, alternate strategies, secured customers and markets, and new product or service offerings to make sure that the worst never occurs. You should do the same.
Develop a citadel strategy for your business today. Be like Napoleon, who was once asked if he believed in luck. He said, “Yes, I believe in luck. And I believe that it will always be bad luck and that I will be the victim of it. I therefore plan accordingly.”
As an individual, you must be clear about your personal core competencies as well. How could you improve in each one of them? What core competencies will you need to lead your field in the years ahead? What is your plan to acquire the core competencies of tomorrow?