Learn, adapt or steal a strategy for growth

Crit­ics call it whack-a-mole, after the fair­ground game where you hit pop-up fur­ry crit­ters with a giant rub­ber ham­mer. Facebook’s strat­e­gy to stay the world’s num­ber-one social net­work is based on buy­ing up rivals, no mat­ter what the cost.

Insta­gram cost $1 bil­lion to whack. A high fee for a firm with zero rev­enue and 12 employ­ees? With 30 mil­lion users, Face­book couldn’t take the chance of it devel­op­ing. What­sApp cost Face­book $18 bil­lion. Again, this was a pre-rev­enue firm. With 450 mil­lion users it was even more of a threat than Insta­gram, so it got whacked. Light­box, Glancee and Ocu­lus Rift have been whacked. A $3‑billion bid for Snapchat was turned down.

The strat­e­gy is work­ing. Face­book is val­ued at $73 bil­lion and hasn’t been chal­lenged, yet. That’s the gold­en rule of strat­e­gy. If it works, it is a great strat­e­gy.

Strat­e­gy is the fun part of busi­ness – it’s when the com­pa­ny sets out where it is going and how it is going to get there. Exe­cu­tion is about sweat, dri­ve and get­ting up at six in the morn­ing, or as the wild­ly suc­cess­ful and recent­ly depart­ed boss of Thomas Cook trav­el agent, Har­ri­et Green, pre­ferred 3.30am. Strat­e­gy is about grand visions.

The online gam­bling indus­try was orig­i­nal­ly dom­i­nat­ed by one man with a strat­e­gy to under­cut his rivals. Gam­blers are numer­ate folk, often obsess­ing about a small per­cent­age advan­tage. Vic­tor Chan­dler realised he could con­trol the mar­ket by mov­ing his bet­ting firm to Gibral­tar and avoid­ing the 9 per cent bet­ting tax in the UK. Gam­blers flocked to him. Chan­dler is now worth £150 mil­lion. Not a bad reward for such a sly move.

Devi­ous­ness can play a role. Star­bucks boss Howard Schultz uses a “clus­ter­ing” strat­e­gy: open­ing stores so close togeth­er they crush rivals. The strat­e­gy became so effec­tive a satir­i­cal head­line ran “New Star­bucks opens in rest room of exist­ing Star­bucks”. Ana­lysts wor­ried the clus­ter­ing would not work long term. The stores would can­ni­balise each other’s sales. Mr Schultz respond­ed: “Those who talk about sat­u­ra­tion obvi­ous­ly don’t under­stand our busi­ness strat­e­gy.”

The low-cost air­line indus­try is a gold­mine of inge­nious strate­gies. Ryanair became Europe’s largest air­line by slash­ing fares, and recoup­ing rev­enue via car­go, traf­fic vol­umes, surge pric­ing (high­er prices when demand increas­es) and unex­pect­ed extras (for­got­ten to print your tick­et? There’s a sur­charge, thank you). Then rival air­line easy­Jet went for busi­ness trav­ellers, boomed, and Ryanair is start­ing to fol­low the same up-mar­ket path. The surge pric­ing pio­neered by Ryanair is now a sta­ple across mul­ti­ple indus­tries.

FREEMIUM MODEL

The mod­el of the inter­net age is “freemi­um”. Give away most of the prod­uct, but charge for extra ser­vices. The Finan­cial Times and The Econ­o­mist both use freemi­um, and both are now mak­ing mon­ey online. In con­trast The Guardian, which has no charg­ing strat­e­gy, lost £30 mil­lion last year and £34 mil­lion the year before.

Strat­e­gy is the fun part of busi­ness – it’s when the com­pa­ny sets out where it is going and how it is going to get there

Effec­tive strat­e­gy need not always be com­plex. Swal­low­field is a Som­er­set-based sup­pli­er of beau­ty prod­ucts for high street brands. It worked with Unilever to cre­ate the Toni & Guy pre­mi­um hair spray range, and cre­at­ed the bot­tle, car­ton and caps for actor Richard E. Grant’s sig­na­ture per­fume Jack.

Found­ed in 1876, it has a strong rep­u­ta­tion in the indus­try, proven by the num­ber of awards it reg­u­lar­ly picks up. But when the reces­sion hit in 2008, Swal­low­field faced stag­nant growth. The solu­tion? A new export-led strat­e­gy. The firm dou­bled-up, using local dis­trib­u­tors and open­ing offices in Paris and New York.

Chief exec­u­tive Chris How says: “Where cus­tomers require devel­op­ment and inno­va­tion, par­tic­u­lar­ly in mature mar­kets, the direct sales route works much bet­ter. How­ev­er, where cus­tomers demand a com­modi­tised prod­uct, dis­trib­u­tors can be a use­ful option. The lat­ter has proved very use­ful in emerg­ing African mar­kets.”

Exports now account for 36 per cent of the £50-mil­lion turnover. In May the firm announced a deal with Shang­hai firm Jah­wa Unit­ed to sell to Chi­nese mid­dle-class con­sumers. Swal­low­field is now using its war chest to launch its own brand range for the first time. All of this suc­cess has come from sim­ple changes to the strat­e­gy.

The great thing about these lessons is that you can learn, adapt or steal. Why not price like Ryanair? Uber mini­cabs pric­ing mod­el owes a lot to the airline’s pol­i­cy. Or maybe acquire rivals in the same way as Face­book. It has worked for the leg­en­dar­i­ly acquis­i­tive Chess Tele­com, which has bought 80 rivals in the last eight years, build­ing turnover to £44 mil­lion and pre-tax prof­its of £11 mil­lion last year, a rise of 49 per cent.

As these firms prove, a bold strat­e­gy can be the trig­ger for explo­sive growth.