Why You Should Build A Fortress Around Your Business

It's not a wall that protects your company. It's a strategy that competitors will not be able to steal.

Last week, my Outthinker colleagues and I enjoyed a fascinating lecture on fortifications, delivered not by a military scholar, but by a senior executive at the heart of shaping JetBlue’s strategy. In a JetBlue-modern meeting room, after giving us a brief tour of the company’s operations and sharing the new uniforms and seats, he outlined how JetBlue’s founder, serial entrepreneur David Neeleman, understood that every successful airline is built around a defendable core (a fortress) and how David picked a fortress for JetBlue that played against the competition.

I will discuss JetBlue’s fortress in another blog post. But the fortress principle is powerful, as I’ll explain by the success of working mother turned entrepreneur Jana Francis, cofounder and president of Steals.com.

First, consider what a fortress is not. A fortress is not a wall that surrounds your company. It is not the Great Wall of China or Hadrian’s Wall, a swath of stone piled high to keep out the competition. Such defenses are flawed because, once breached, they become ineffective.

A better option was introduced by Hadrian’s successor, Constantine I, who realized that rather than defend the entire frontier, it is better to establish a few strong points, a few fortresses, so that if the enemy enters, you have soldiers and ammunition to force them out.

What are your fortresses?

Jana was a media executive, leading the interactive efforts of a local news talk radio station. She was also a mother . . . and an entrepreneur at heart, looking for an idea worth pursuing. You can hear my entire interview with Jana here (click on “Interviews”).

She came up with the idea of helping mothers get “steals” on great products. A steal meant more than just a great price--it also meant great products with superior shipping and customer services. One night, she was awoken by the thought that her website should be called “babysteals.com.” She checked to see if the domain was available, and it was, so she registered it, along with kidsteals, scrapbooksteals, shesteals, and about 20 other names.

What separates Jana from others with ideas and domain names is that she identified and had the courage to seize a fortress: a strategy that competitors will not be able to take, or better yet, will choose not to take.

She formed the business in 2008, but building it moved more slowly than a Silicon Valley venture capitalist would have liked. "As long as I took a step forward every day, I felt okay,” she told me.

The pivotal moment, in my view, came when Jana and her cofounder, Rett Clevenger, decided on their business model. Common wisdom in ecommerce businesses is to avoid inventory. You pass an order onto a supplier, have them or UPS fulfill it, and take a commission. When I entered McKinsey during the dotcom bubble, all the talk was about the Internet allowing an almost unheard-of model: the zero-inventory business.

Whenever the majority suggests you go one way, it’s reason to consider going the other. And that is exactly what Jana and Rett chose to do. Steals.com (through its websites baby.steals.com, kid.steals.com, scrapbook.steals.com, and she.steals.com) picks two products every day and offers a “steal” on the product, one at 8 a.m. PST, and the other at 8 p.m. PST. But unlike most ecommerce businesses, Steals.com has already bought the item, owns it, and ships it from their own inventory. “We take a lot of risk” by buying “steals” ahead of time, Jana said, but the model creates several advantages, including the following.

  • Steals.com has become the natural platform for products that have not yet been tested online. If you want to start selling online, but don’t want to invest in enabling your website, Steals.com becomes a risk-free tryout.
  • This allows Steals.com to curate and offer products you can’t buy online in other places.
  • It forces Steals.com’s buyers (they have 12 now) to really think about what products Steals.com will offer, otherwise they are stuck with inventory. This helps ensure the products they offer are great.
  • It avoids the perception by other ecommerce companies that Steals.com is competing, since “steals” are available for a limited amount of inventory.
  • It makes Steals.com more valuable to vendors because vendors get guaranteed sales.
  • Most important, few other ecommerce players are willing to take the risk to pre-purchase products, which keeps the competition away. This choice, then, becomes Steals.com’s fortress.

Along the way, Steals.com has established other fortresses, like preferring word-of-mouth to advertising (this increases profits and avoids relying on one-time buyers). They have also ballooned from a mother with an idea into a $15 million-plus business with 1.5 million orders and more than 70 employees.

What is your fortress--the strategic choice your competition will choose not to copy?

[Image: Flickr user The Trial]

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