Do Business Well

Market strategy number two is a logical outgrowth of the concept of core competencies, which is the idea that, in a world where specialists increasingly outperform generalists, a business should focus on what it does best and what is essential to its success. All other tasks should be farmed out to people who perform them better. Consistent with that credo, more companies are having components assembled by someone else, as well as delegating chores that include payroll, bookkeeping, manufacturing, even research and development, to specialists who have the scale of operations to perform them efficiently. Allocating as much of what you aren’t good at to someone who is better will free your own time and capital to devote to myriad other tasks.

For small businesses, the ideal chore to outsource is the payroll. It is labyrinthine, tedious, and entangled with constantly changing regulations, but it’s also a vital part of the operation in which errors could be disastrous. More than 320,000 companies, most of them employing fewer than one hundred workers, rely on Paychex, Inc., to handle their regular payrolls. Many of them also

hire Paychex to keep track of their tax payments, pensions, and 401(k) plans, and their workers’ compensation insurance.

Paychex, started in 1971 on a shoestring investment of $3,000, has made its founder, Thomas Golisano, a billionaire. In addition, the company has achieved eight straight years of growth rates of 36 percent or more. Golisano claims he was lucky to find a potentially huge and all but untapped market, but in fact, his company’s success reflects operating principles shared by most companies that successfully cater to delegators. They are:

Focus on doing one thing supremely well. Golisano decided early on that he would concentrate on the small payroll market and not branch into general accounting of receivables, inventories, and the like. He understood where his clients were in pain and what they really needed. If this seems to be an obvious point, keep in mind that I continuously see companies trying to expand their fields when their customers really need them to maintain their unequaled competence at one thing.

Nurture trust. People who own small businesses tend to be secretive and reluctant to yield control, particularly regarding data and processes in which a mistake could be fatal. Yet Paychex has built a reputation for honesty and reliability, and has persuaded thousands of clients that they could very safely and easily relinquish a complex administrative chore. “It’s just one less thing to worry about,” says Gene Polisseni, senior vice president for marketing. Even though many clients have never had trouble doing their own payrolls, “it’s amazing how many just want the peace of mind.”

Build a niche and lock customers in. Golisano believes that his company’s tight focus, stress on quality, and competitive pricing are what keep clients on board; and since Paychex performs an essential service, it becomes integral to its customers‘ lives. Like all delegators, Paychex’s clients have little inclination or incentive to change, and in fact, encounter a good deal of bother if they decide to. These factors, plus the formidable software it has accumulated over thirty years, ensure that new rivals will face serious obstacles if they enter this market. For the most part, Paychex and its only national competitor, Automatic Data Processing, have this field to themselves.

Exercise caution in innovating. Customers in the bottom quadrants of our matrix—streamliners and delegators—are far more interested in reliable performance than in having the latest fad. Thus, Paychex has been slow to adapt its operations to electronic cash transfers and posting data on Web sites. “Initially, as a marketing person, I thought, There’s a great opportunity here,” according to Polisseni. “But it’s not the cure-all for everybody. There are security issues, for instance. I don’t think companies are ready yet to have that kind of stuff floating around the Internet.”

All told, it has been a textbook perfect strategic approach: Along with its steady 36 percent growth rate, Paychex has a profit margin of 22 percent. And since its 320,000 clients make up less than 6 percent of the 5 million employers in the United States, there’s plenty of room for expansion.

Depending on their industries, other companies serving delegators use a variety of tactics. In electronics, for instance, the speed of innovation and the brief shelf life of products place a premium on the supplier’s flexibility of operations and ability to ramp up output as fast as possible. In the electronics, telephone, and Internet industries, scalability is also a critical issue.

Companies enjoying rapid growth may have their own needs to delegate certain jobs. Amazon.com, for instance, has grown in two or three years to the point that Wal-Mart reached in twenty. If you’re Amazon, how do you scale your business rapidly enough to do everything properly? It may be impossible to do that your-

self. You need a company that can scale up faster than you; in this case, Amazon delegates its shipping to others. A shortage of capital will also constrain growth. If you are an e-tailer, you would prefer to delegate rather than use the little money you have to build a distribution center or a manufacturing plant. Companies serving delegators make sure they have efficient, scalable operations that work extremely fast and don’t require their clients to stake a major capital investment. All this comes as one package.

Possibly related posts: (automatically generated)
Enthrall your Customers with what you do best

• Dealing with Crisis
• Collection Procedures part 1
• Business Financial Thumb Up rules, don’t Break the Bank
• Managing Managers
• Should you go into network marketing? continue...
• Why Businesses Succeed
• Look for Business Everywhere
• Technology/ Information Assessment
• Managing Stakeholder Relationship
• What All Plans Must Cover

5 Comments »