Some niche companies enjoy long-term success with low public brand recognition, so how do they stay on track year after year? Ivo Matser outlines their characteristics and enablers.
What is the secret to the success of Koenig & Meyer (K&M), a German company established in 1949 and a manufacturer of music products all over the world? It might not be a household name, but it is a very strong brand within a niche market of musicians.
And what about the German company Arri, a niche manufacturer of professional cameras which is highly regarded by film makers and technical medical businesses? A market leader with an international focus, it provides excellent products with a clear emphasis on its customers and services, winning a selected slice of the global market.
It’s interesting to scrutinise companies that have low brand recognition but perform outstandingly. Often, they are not famous consumer brands in themselves. However, they may have a multi-brand strategy and own a portfolio of well-known consumer brands; for example, the multinational company Diageo, which produces alcoholic beverages.
In many cases, these companies are business-to-business (B2B) organisations (it is worth noting that there are many more small B2B markets than (bigger) business to consumer (B2C) markets) so what are their critical success factors?
To understand these factors, it is useful to consider their characteristics and to look at the enablers that underpin their success. In other words: what are these companies doing and what conditions do they create to remain successful? How do they stay on track year after year?
Achieving success once could be down to good luck or timing as much as smart planning and is no indicator of sustainability. Interestingly, strategies are often written up post-success, which is why many people believe certain achievements are based on a particular approach. So how do some of these lesser-known organisations manage to achieve over the long term, and how do their leaders run them successfully for decades? Is their success based purely on effective strategy development and the smart execution of business plans or do other factors come into play?
When studying some of these relatively unknown but high-performing companies, a few recurring characteristics can be noted; I have ascertained that they tend to do the following:
Most of these firms have a strong and clear focus, whether based around markets, products or technologies. Focusing means putting energy, resources and talent in a well-defined direction and providing a clear context, internally, for staff. Each of the companies highlighted in this article has a strong focus, defined in different ways and at different levels.
Successfully penetrating global markets means thinking big, no matter the size of your organisation. These companies think innovatively and evolve traditional business models.
Being different is the main driver for being competitive. Lesser-known niche companies rarely take on competitors head-to-head but strive to be different and to promote diversity within a niche market.
Foster customer intimacy
Achieving good relationships with customers is a key driver for these organisations. In many cases they are able to combine value strategies such as product leadership or operational excellence with customer intimacy, which means they have a strong external client-orientated focus.
Relationships and customer loyalty are very important to these firms. For example, Ten Cate Textile Technologies, a Dutch company established in 1896, moved (some decades ago) out of textile products and into textile technology and chemicals. Nowadays, it is manufacturers the frameworks of aircraft and satellites and produces protective clothing. Its ventures have combined fostering relationships with customers and use of sophisticated technology in order to succeed within niche markets.
In the case of K&M, it is interesting to note that the company describes itself as an organisation with creative ideas that cares about people, the environment and society. So what are the driving forces behind these characteristics? What are the enablers or what are the conditions created by these companies?
Financial conservatism. Financial conservatism is an essential to thinking and acting with a long-term perspective. We see this quite often in long-standing family businesses: a deep sense of heritage, which is valued as an important part of doing business. This attitude is not exclusive to family business, and is a good way of focusing on a customer-driven approach and value creation. Quite often companies withdraw themselves from the stock exchange to move away from the quarterly results focus and the danger of the hockey stick effect. For example, this happened with Ten Cate which was withdrawn from the stock exchange and bought by local investors.
Sensitivity to change. These companies are highly sensitive to external changes and developments. They are able to listen to the markets and to pick up on small signals; this is a key entrepreneurial attitude that comes with a high level of curiosity. It might sound very simple, but there remain many companies where ‘command and control’ is the norm: they tell people what to do and teach people to tell the market what to do. No one listens in these cases: managers to employees or companies to customers. The listening mentality is an important component when running a niche business, because niche markets have more specific needs and customers within these niche markets don’t usually speak out loudly.
A strong identity. A strong sense of identity, internally and externally, is often noted within these high-performing, lesser-known organisations. There is a consistency to how they behave within their marketplaces and within the company. Their people have a sense of ownership over the brand. This internal identity is likely to enhance the firm’s external identity, where content marketing and opinion leadership are key to the corporate branding.
A high-performance culture. High-performance characterises these companies. Mediocrity is not accepted as it undermines pride and trust. In many organisations, employees tend either to stay for a short period or remain with the organisation for the long term; with these companies, however, we see a different reality: loyal people, high retention rates and a wide remit for employees. This is real culture with shared values and attitudes.
Minimal red tape
A lack of bureaucracy, in terms of organisational structure and decision-making processes is also a feature (see the Bureaucracy Mass Index of companies, described by Gary Hamel). There is a high level of decentralisation and delegation close to the market; these are essential to acting upon market developments and change, improving the overall agility of the company.
Diversity and tolerance
Diversity aids innovation and critical thinking: looking for differences and how to incorporate them into strategy is key to creating competitive differentiators and adding value. An atmosphere of tolerance means that people are allowed, if not encouraged, to experiment, challenging boundaries and questioning the ‘business as usual’ mentality.
It is interesting to note that list of enablers is longer than the list of characteristics; it’s possible that the characteristics are, in fact, simply the end result of the enablers and the way these are navigated. Meanwhile, the following elements are often considered enablers but do not seem to be relevant to the success of the companies discussed here.
Fixed strategies. In these high-performing organisations, strategies are opportunistic, flexible and tactical rather than fully planned and set in stone. For example, K&M constantly generates new ideas, while Ten Cate’s people are always looking for dominant market positions in value chains for their existing technologies. These companies believe in listening and reacting quickly, fostering agility and a strong identity; they believe in stepping stones (learning and developing strategy continuously) rather than milestones (passing or failing as a result of a set strategy).
The best CEOs. The culture of the business is more important than the role of a CEO, whose role is to achieve tangible results. The CEOs of the companies mentioned in this article act mostly behind the scenes.
Business analysis has its part to play, but knowing is no guarantee of success. We should trust our intuition more. Intuition is built on our experiences and competences, and is a reliable resource. Companies such as Ten Cate could never have gone from being a low-tech cotton company to a high-tech textile company without intuition and vision. However, it is almost impossible to analyse this kind of turnaround. In this case, the organisation had faith in textile technology and its ability to enter new markets.
Ultimately, the niche companies discussed in this article have a very strong focus on people, a high-performing business culture and a strong sense of identity.
They are less focused on short-term financial results and are not bogged down by their strategies. Rather, they concentrate on evolving business models, listening to customers, responding flexibly to market changes and having the confidence and agility to grasp new opportunities. These essential characteristics, and a disposition for entrepreneurship, can often be more effective than long-term, well-defined strategic plans.
Ivo Matser is President of GISMA Business School