A recent article in the Harvard Business Review, “Three Rules for Making A Company Truly Great,” pointed to three elemental rules that were consistently followed by exceptional companies. There are a lot of hyperbole and clichés about how to create great companies, but the research by Michael Raynor and Mumtaz Ahmed (in the HRB article) shows that three fundamental principles are the keys to success. This finding was based on a statistical study of thousands of companies, so it is much more analytic than what business book happens to be at the top of the charts in a particular week. It is also apparent that these principles apply to social and mobile game companies.
- Better before cheaper. The first elementary rule to success is to compete on something other than price. Competitive positions built on greater differentiation through brand, style, or reliability are more likely to drive exceptional performance than positions built on lower prices. Given that it is hard to compete on price in the game industry, this rule drives home the importance of building your brand and reputation (largely through customer service).
- Revenue before cost. Prioritize increasing revenue over reducing costs. Companies must not only create value but also capture it in the form of profits. By an overwhelming margin, exceptional companies garner superior profits by achieving higher revenue than their rivals, through either higher prices or greater volume (or both). Very rarely is cost leadership a driver of superior profitability. This finding points to the importance of growth to a company’s success and why “growth hacking” is so in vogue (my post on growth). It was Facebook’s focus on growth that led to its multi-billion valuation, not a focus on cost containment.
- There are no other rules. Change anything in order to follow rules 1 and 2. This rule underscores the truth that in the pursuit of exceptional profitability, everything but the first two rules should be on the table. When considering all the other determinants of company performance (e.g., operational excellence, talent development, leadership style, corporate culture, reward systems), the article’s authors found wide variation among companies of all performance types.
What the rules do not do
These rules do not dictate specific behaviors. They also are not strategies. What they do is create foundational concepts for you to build a great company.