There is no shortage of theories and articles on how to grow a business, but one I recently saw — What Netflix and House of Cards can teach us about why most companies fail by Harish Abbott — does a great job of showing the key to survival and success. Abbott starts with a statement that most experienced entrepreneurs know all too well but those who have gotten their business experience from television do not grasp, “most companies fail.” These failures, however, do not come from poor ideas or even lack of demand. The key cause of failure is not focusing on your core offering.
Focus on your core offering
To not only avoid failure but also sport significant growth, you need to identify what is your core offering and build off of that knowledge. Abbott uses the example of Netflix. Netflix, once it moved from sending DVDs to streaming, realized its key value and differentiator was content. Although it needed to deliver this content in a seamless manner, the quality of the content was what would be key to its success.
Conversely, customers did not care how they received the content, as long as it was a good experience that did not actually interfere with consuming the content. As Abbott wrote, Customers don’t care how House of Cards gets to them, so long as they can watch it anytime, anywhere. For Netflix, the realization was that the streaming technology itself was not Core to their business, but still Critical. Instead of enduring a costly and distracting build out of proprietary streaming infrastructure, Netlfix turned to Amazon Web Services (“AWS”). Netflix realized that AWS was already fast, stable, and secure.”
By outsourcing elements of its offering that were not core, they could then focus on the actual core offering. Initially, that meant securing more content than any of its competitors, the content its customers wanted. Then it meant creating new content that competitors could never access, from House of Cards to Orange is the New Black to Narcos to Stranger Things. By focusing on the core offering, Netflix now enjoys a valuation of over $40 billion.
Outsource what is not primary
The corollary to focusing on your core offering is outsourcing what is not core. As I just mentioned, although streaming is critical to its users experience, Netflix did not try to build a superior streaming technology. Instead, it leveraged AWS to give its users an optimal streaming experience. Marketing is core to Coke’s business, so it focuses on doing marketing internally and using external companies for bottling even though bottling is critical in the user experience (nobody wants a flat glass of coke). Apple is great at design but let’s third parties do the bulk of manufacturing.
The key is that these great, huge companies know their core strength, build on that and use others to provide everything else. The companies that fail try to do everything themselves and then cannot leverage their true advantages.
The key to success
To succeed, you first need to identify what is the core value you are providing. You then need to figure out how to focus on leveraging this core offering while using partners and products to ensure the other parts of your product still create a great customer experience.
- The key to success, and survival, is understanding your business’s core offering, why your customers will consume your product.
- Then focus your efforts on leveraging this core offering, making it better for your customers and more difficult for competitors to copy.
- Find good third parties to provide the other key elements of your business, but not core elements, that are necessary for a great customer experience but are not your company’s strength.