The Secret to One Superstore’s Success

By Michael Masterson
There’s an old axiom about business that every successful entrepreneur comes to appreciate: “If it ain’t broke, don’t fix it.” Why, then, is Brad Anderson, CEO of Best Buy [from 2002-2009], fiddling [in 2006] with his $30 billion a year machine?

Anderson believes that if your company ain’t broke, you should fix it anyway. Despite the fact that Best Buy is the most successful consumer electronics retailer in history, he believes that unless it is constantly getting better, it is going to get worse.

Anderson joined the business as a salesman in 1973, and worked his way up to being founder Dick Schulze’s right-hand man in 1981. In the decade that followed, Schulze and Anderson built Best Buy into a regional retail success story … while continuously tinkering with its working model.

Best Buy’s innovation strategy has been a combination of doing the obvious things (like aggressively opening up new stores), thinking ahead (getting into the computer service business), and challenging convention (getting rid of employee commissions).

Today, they continue to innovate by opening up superstores in China , peppering U.S. cities with technology boutiques, and radically expanding their “Geek Squad” computer service business. In addition, Anderson is challenging the company’s traditional marketing program by implementing a new business model popularized by Columbia Business School professor Larry Selden: “centricity.”

In a nutshell, “customer-centric marketing” goes like this: Not all customers are alike. Some cost a lot to acquire and then spend very little. ( Selden calls them “demon” customers.) Then there are those who, however expensive they are to acquire, end up spending a lot. If you can segment your buyers, and cater to the big spenders, you will increase your profits considerably.

When Anderson applied this model to Best Buy, he realized that the company had five kinds of buyers: the busy suburban mom, the price-conscious family guy, the gadget fiend, the affluent tech enthusiast, and the small-business owner. So he asks his stores to figure out which type of customer is delivering more to their bottom line. Once it figures that out, the store changes itself. It changes its inventory, its advertising, even the way it stocks its shelves – all to focus on that key demographic.

Anderson tested the idea on about 50 stores, and it seemed to make a big difference. He then pushed to have another 154 stores quickly centricize – but, with those, saw little return on the investment. (A typical conversion can cost a store $600,000.)

He and Schulze are not giving up on the new model. The company has billions in cash, so they’re not worried about temporary setbacks. They are convinced that the long-term success of the company depends on centricizing and on other innovations that they haven’t yet thought of.

I think there is a great deal of good sense in the old “If it ain’t broke, don’t fix it” approach. But it’s the kind of business truth that is best followed in some circumstances and ignored in others.

In my own business career, I can recall several times when I changed something – some product or pricing or marketing formula – only to see results go south. But most of the time, the great businesses I’ve been involved in have succeeded due to constant evolution.

Point is, you can’t be afraid to change things just because they are working. All businesses operate in vital, ever-changing markets. Competitors change. Circumstances change. And the needs and interests of customers change too.

If you don’t keep up with the changes your market is going through, you will gradually lose your share of it. If you maintain a consistency in what you do, the decline will be so gradual that you will likely attribute it to a weakening of the market. And that’s the problem with the “Don’t fix it” philosophy: If you keep doing everything like you used to, your business will slowly but surely deteriorate. And you’ll never understand how and why it is falling apart. (I’ve warned about this process of “incremental degradation.”)

If you have a growing business – and you want it to keep growing – change it. Don’t change it radically (if it’s not broken). Change it in small degrees. Push it. Prod it. Ask challenging questions. Work always with this mantra: “If it’s good, then good. But how can we make it better?”

These are the three key areas to focus on:

1. Management Structure

Your business won’t grow quickly if your key employees aren’t willing to change their roles on a regular basis. Everyone should understand that flexibility and speed are essential components of success. If the business as a whole is to grow, the important people involved in that business must be willing to change their roles as often as is needed.

2. Marketing

What worked last year might not work this year. Growing companies need to be alert to new marketing practices, both within their industry and without, and to test out those new practices whenever possible. By testing new product concepts, marketing schemes, pricing structures, and media, advertising departments can keep up with (and possibly jump ahead of) the market.

3. Operations and Customer Service

The objective here is simple: to always, always improve. Company growth naturally and inevitably creates problems that reduce the quality of the customer experience. Only by having a staff of people who are dedicated to making things better can you hope to at least keep them as good as they were.

Smaller businesses move faster and must change more. In the start-to-$20 million phase of business development, you must be prepared to “re-invent” your business frequently – maybe as often as twice a year.

Everything needn’t change at once and not all changes will take place quickly. But if you want to keep pace with your growing company’s potential and keep it growing, you will have to teach your management team to accept (more than that, to desire) change.
__________________________________________________
This article appears courtesy of Early to Rise [Issue #1717, 05-01-06], the Internet's most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com/.