JAMES SCHRAGER: The most important decisions in management teams I’ve worked with have always been around strategy, i.e., which mix of products, markets, and technologies to select. The key is that you don’t just need to know your own strategy, but that of your competitors as well.
For example, it is easy to think about discount retailers all in the same box, Kmart, Wal-Mart WMT -2.29%, Kohl’s, and Target. But although each began in 1962, they grew in startlingly different ways. Kmart was suburban and used full color advertising supplements in Sunday newspapers to drive traffic; Wal-Mart was rural and hardly advertised at all; Kohl’s specialized in ready-to-wear with higher margins but was subject to fashion risk; and Target developed an “upscale discount” approach that surprised buyers with stylish products at low-prices.
When we did a “roll-up” of automobile body shops, the most challenging decision was selecting which shops to buy. When we started, there were almost no shops on the market—so we went door-to-door, speaking with shop owners looking for the few that might be interested in selling.
Armed with that short list, the tough decision was then to figure out which ones to buy. What we found was by going door-to-door and visiting each shop in the area, we got a ground-level view of the capabilities and competencies of each competitor. This allowed us to select the very best shops among those for sale and exclude possible purchases when we discovered much better shops in the area that were not available for sale.
By intently studying your competition, you can see how to best find a need that isn’t already well served.
James Schrager is a clinical professor of entrepreneurship and strategic management at the University of Chicago Booth School of Business.