Simplify: The Way to Transform Your Business
Management consultant and entrepreneur Richard Koch and venture capitalist Greg Lockwood have written a book entitled Simplify on the advantages of simplifying business strategy. In it they propose simplifying both your business and the market it operates in.
How Do You Simplify a Business?
The key question is: how do you do this? As the authors explain, simplifying your business may sound easy, yet it’s anything but. It requires a truly radical idea – a product or service that is dramatically simpler than what is already on the market: something that is much simpler to make (and therefore much cheaper) or a joy to use.
Simplifying also means going global with your new product or service and building a new business ecosystem around it. It involves both being creative and being extremely practical. And those two skills are hard to combine. Yet, economics and customer psychology clearly favour the simplifier. So maybe you should consider simplifying your business.
Simplifying on price
The main benefit here is a radical price reduction. Successful simplifiers such as Henry Ford, Ingvar Kamprad (founder of IKEA) and the McDonald brothers also tried, where possible, to improve user friendliness, usefulness, and aesthetic appeal – but only if this did not conflict with their primary aim of achieving a very low price.
This approach requires cutting the price of a product or service at least by half. Sometimes, within a few years, prices can be cut by up to 90 percent. The new, much cheaper, product or service is not identical to the old product, but it still fulfils the basic function. For example, budget airlines are not as pleasant to travel on as a full-service airline, but they get you from A to B quickly and safely.
The way to cut prices dramatically is not to provide an inferior product, but to eliminate what we call ‘expensive utility’ – anything customers can do without. Notable examples include Henry Ford’s elimination of variety in car models (today cars are often built to a million customer specifications), features and, even colour ("You can have any colour as long as it's black"), as well as the McDonald brothers’ restricted menu options and introduction of self service.
In a nutshell, price simplifying works because markets tend to respond to dramatic price cuts by multiplying exponentially. If the price is halved, demand does not double. It goes up 5, 10, 100, 1,000 times or more. If prices are reduced to a fifth or a tenth of what they were before, demand may multiply by 10,000 or 100,000 times, and occasionally, millions of times – just look at what McDonald’s achieved.
Yet price simplifying only makes financial sense if you can make the product simpler to manufacture. And that’s not easy. But there is a reliable template for doing it, which is similar whichever industry or country you are working in. Price simplifying involves a radical redesign of the product and of the way that the industry is organized – in the jargon business system redesign.
Simplifying your business proposition
With proposition simplifiers, most products and services sell at a premium to those of their rivals. You have to make your offer not just a little better, but a whole order of magnitude better, regardless of cost, so that it’s no longer the same proposition. With the Macintosh, the iPod and the iPad, with the internet, and with many other examples, the proposition was either a great improvement on what went before or a totally new creation.
At least one of the dimensions specified as optional extras for price simplifiers – ease of use, usefulness, and aesthetics – must be present in the new product or service – and usually two or three of these benefits. But most important, companies must totally transform their business proposition.
You need to design a product that is extremely useful, highly appealing, and very easy to use, such as any Apple device, the Vespa scooter, the Tesla electric car or services such as the Google search engine and the Uber taxi app. Proposition-simplified products are usually also aesthetically pleasing.
This approach creates a large market that didn’t exist before. For example, there was no market for computer tablets before the iPad. Such products multiply value for money and therefore market size – by making the product or service much easier to use, more useful or more beautiful. Proposition simplifying works when the product becomes a joy to use. Making a product a joy to use can mean changing the original product across a multitude of dimensions in terms of intuitiveness, aesthetics, personalisation and many others.