Thread: Victor Cheng-Seeing opportunity where others see none

The two most common complaints I get from CEO's are:
1) I'm in a commodity business, and 2) There aren't any
opportunities to grow in my market.

I'll argue that what the person really means when they say
this is, 1) I can't figure out how to differentiate my
business enough to earn anything above commodity profit
margins (e.g., razor thin margins), 2) I don't see any
opportunities in my market to grow.

One of the double-edge sword liabilities in this economy is
too much experience in one industry.

When you're in an industry that's being doing the same thing
for 30 years and you've personally have not spent much time
outside of your industry, it is very hard to notice new
opportunities.

One of the values I often provide in my consulting work is
to be not only the outsider, but the outsider who has worked
across dozens of industries and routinely follows innovative
companies across close to 100 industries.

My best ideas are really nothing more than taking an idea
that is common in one industry and moving it to another
where it's considered radically innovative.

Here's an example.

One of the industries I follow is the insurance. During my
McKinsey days I worked in both auto insurance (on pricing &
underwriting) and in re-insurance (the insurance company for
insurance companies).

One of the challenges is the insurance business is mature,
competitive, and some would argue a commodity business where
people just want the lowest price. (Does this sound
familiar?)

I came across a very interesting company offering an
entirely new kind of insurance.... for an very unusual kind
of risk.

Now before I let you in on the big secret, lets think about
this situation from an insurance company's point of view.

The business of insurance is about taking a low probability,
high loss event and smoothing out the cash flow. So the
chances of your home burning down due to a fire is very low,
but if it does happen for most people they lose their single
largest asset.

The cash flow pattern on a situation like this is very
volatile. No loss today, massive wipeout tomorrow.

So homeowners insurance was developed to smooth out the
cash flow curve... pay a little every month, eliminate the risk
of a financial wipeout.

Now from an insurance company's point of view, every major
risk has been covered already.

You have medical insurance, life insurance, long term
disability insurance, unemployment insurance, long term care
insurance, auto insurance, liability insurance, etc...

So if you're in the "product development" group of an
insurance company, you're basically racking your brain
trying to figure out what kind of new risk is occurring in
society that doesn't already have insurance policies
available for it.

So, pop quiz:

Does any opportunity come to mind?

Think for a moment.... a situation where when the worst case
scenario happens there is a huge financial cost for which
currently there is no insurance available to cover that risk.

One last try...

Any ideas?

Give up?

No problem, here's the latest innovation out of the
insurance industry:

It's DIVORCE Insurance.

At the point of being literal, a divorce is the dissolution
of a marriage typically involving some party to the marriage
losing 50% of their net worth.

Does this qualify as a major financial cost by most people's
definition? I'd say so.

Does competition exist for divorce insurance? Nope.

There's only one company that offers it currently and they
have the entire market to themselves... yes they have dibs
on the ENTIRE U.S Divorce market.

Here's more info on them in case you are curious
Divorce Insurance (Yes, Divorce Insurance) - NYTimes.com


So now let me point out a few things worth noting:

1) In hindsight, the opportunity seems SO OBVIOUS - duh,
divorce = unexpected financial wipeout... on the order of
magnitude of a major medical problem, a home fire, etc...

People have insurance for the latter, but why not the
former? The dollar amounts are probably comparable.

2) I'm shocked more companies haven't figured it out. I
mean common, everybody knows that half of marriages end in
divorce. I mean 30 years ago, you probably didn't know too
many people who were divorced, these days I've personally
have lost count.

So it's not like this societal change has been a big secret.

(And in terms of underwriting, an insurance policy can be
created for ANY kind of risk as long as there is sufficient
statistical data on how often the worst case scenario
happens... so it's not like insurance companies can't figure
out how to write such a policy profitably).

3) Many of the opportunities I see in today's economy are
just like this divorce insurance example -- hiding in plain
site, totally obvious to customers, and yet totally hidden
from vendors.

4) I guarantee you that there are meetings taking place at
major insurance carriers asking two questions: a) Lets watch
this company carefully to see how they do... and to see
there demand for this, and b) Why the heck didn't we even
notice this opportunity?

I mean its one thing for a CEO of a major insurance company
to notice this opportunity, do the homework, and decide it's
not a good fit for them.

It's an entirely different problem to not even NOTICE the
opportunity at all. I'm pretty sure someone is kicking
themselves over this... and probably giving their staff a
hard time as well.


Will the divorce insurance category be a profitable one? I
don't know. I haven't seen the actuarial data or the sales
data to form an opinion.

BUT, my point is this is an example of a kind of a "problem"
most companies do not have enough of today -- being first to
market, in a potentially huge sector of the industry, with
no competitors, the chance for both huge margins, and rapid
growth... but with clearly more work to figure out how to
"crack the code" to growing in such a green field opportunity.

Will it work? Who knows.

But is this kind of "problem" better than focusing on a
market segment where sales are on the decline, margins have
gotten wiped out, and all the competitors basically copycat
each other to the point where customers can't tell them apart?

The latter is a definite dead end. With the former, at least
you have a fighting chance and if you get it right, the
upside is enormous.

So here's my question for you.

In your 2011 Strategic Plan, do you have any "game changing"
opportunity as part of your plan? Something you can
experiment with, innovate with, or run a pilot program with?

If not, why not?

I'd argue that most company's strategic plans are not really
strategic at all.

Here's the acid test.

It's only a strategic plan if you've got SOMETHING in your
plan that is DRAMATICALLY different than your competitors.
Recently, I've been using the phrase "Extreme
Differentiation" to characterize this point.

If you don't, then you don't really have a strategic plan.
All you really got is a budget.

There's nothing wrong with a budget, it's necessary, but its
not the same thing.

So which category do you fall in?

Is your 2011 plan a budget or a strategic plan?

That's my thought of the day.

To Your Profits,
-Victor Cheng

America's Business Coach(r)


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Victor Cheng is revenue growth adviser to owners of professional services
and online business within $1 million - $25 million in sales.

As a former McKinsey consultant and the author of four books, he has
been featured as an expert commentator by Fox, Time magazine,
Inc magazine, Fortune Small Business, and The Wall Street Journal.

Nice article on taking a different business perspective. Although there is no new concept here, it's a common theme for businesses to overlook product / service differentiation over time.

On the divorce insurance example, that's pretty wild idea. Never heard or thought of it. Make good sense though. But what's to prevent insurance fraud? What are the chances that insurance company deny your claim?

I'm sure insurance companies have thought of divorce insurance. When a couple gets married, do you honestly want your significant other telling you that we (the married couple) should pay for divorce coverage?

I fully understand why a couple would get divorce coverage, but I'm not sure how much of a market there really is for that. I'm not saying it is a bad idea, but telling your significant other you want divorce coverage may not be healthy for the average marriage. I think the market for this type of insurance is well suited for people who earn over $100k a year (or more when combining incomes).

small world. I used to intern for Victor when I went to Santa Clara University. If you're subscribed to his newsletter which it seems you are, last week's post was about me (copied below). Here's an old post I had promoting his book which he offered for free: The New Small Business Bailout Program

here's last week's post about me and the company i recently started.

I received an email from one of my student interns from a
year or two ago, who has since become an entrepreneur.

The kid is 1 year into his working career which was
launched in the midst of the "Great Recession".

And while most new graduates are unemployed, or stuck
in low paying jobs, this guy is closing his first $10+ million
deal. (Rock on!)

Now keep in mind this guy did not come from a family with
money.

His electricity and cell phone keeps getting turned off due
to non-payment of bills (Hey this is real world
entrepreneurship, not that stuff you see in movies).

So he writes me a little update and describes the path he
took to get to this big deal of his.

And it starts like this...

*** His email to me ***

(The email starts by something he notices while working
for someone else at his first job out of school... details
excluded to protect his privacy)

"...and it got me thinking, that this whole industry is heading
in a totally new direction (and my boss is trying his best to
resist it)"

So he decided to get ahead of the curve, learn the skills
needed to take advantage of where his industry WILL be in 6
months (ignoring where it USED to be).

**** Here's an excerpt of my reply to him ****

Nice job anticipating where the market will be, rather than
falling in love with where it used to be.

If I may make one suggestion. You have a lot going on and I
think you are at risk of Entrepreneurial ADD - Entrepreneurial
Attention Deficit Disorder.

Pursue your opportunities SERIALLY (one after another),
rather than in PARALLEL (at the same time).

So do 1 thing at a time, get that 1 thing ALL the way
successful, before doing the next thing.

The big difference between entrepreneurial starters, vs
entrepreneurial FINISHERS is the ability of the latter to
decide what NOT to do.

Anyone can come up with ideas, even fewer can actually get
them done, and a true minority are able to get rid of all
the bad ideas, all the mediocre ideas, all the good ideas,
and even all the great ideas... and just execute the single
BEST idea.

It is hard to say no, but picking and choosing what you say
no to, is even MORE important than choosing what you say
"yes" to.

Best of luck and I do appreciate the update.

***** End of My Reply *****

A few things to point out.

First, in my research on what separates the companies that
thrived in the past 12 recessions vs those that failed or
merely survived, I noticed that a surprising number of the
"winners" were started by very young entrepreneurs.

My theory for why this happens (which reminds me of my
intern) is that the young entrepreneurs have no memory of
what the economy (or industry) USED to be like.

He is not handcuffed to the past, so he can freely pursue
the future.

And in contrast, the experienced business owner has an
extremely vivid memory of what the economy / industry used
to be like (often mistaken to be the memory of what the
economy/industry is SUPPOSED to be like which
increasingly is in conflict with the current reality)

If you fall in love with your past, you risk your future.

For my former intern, and other young entrepreneurs like him,
he doesn't have a past to fall in love with.

Without this emotional baggage holding him back, he's free to
pursue the EMERGING opportunities caused by where his industry
is heading in the future, rather than weep over the SHRINKING
opportunities that were built on where his industry USED TO BE
in the past.

Can you say the same?

To Your Profits,
-Victor Cheng

America's Business Coach(r)

*****
You have permission to re-publish this article electronically as
long as the following is included:

Victor Cheng is revenue growth adviser to owners of professional services
and online business within $1 million - $25 million in sales.

As a former McKinsey consultant and the author of four books, he has
been featured as an expert commentator by Fox, Time magazine,
Inc magazine, Fortune Small Business, and The Wall Street Journal.

Wow, congrats on your success dirago.

I signed up for the book.

Originally Posted by lifeoftheparty.

Wow, congrats on your success dirago.

I signed up for the book.

thank you. we're hoping for a solid end to 4th quarter. I wouldn't have taken the entrepreneurial plunge as early had I not been exposed to people like Victor and others.

Makes sense!

My parents are small business owners so I've been lucky to have been exposed. But it's places like L4P that have me working towards a much larger goal.

Exciting to hear about grinders who succeed. Once again, congrats!

You are always SPOT ON!!

Originally Posted by yardboy

You are always SPOT ON!!

thanks i just find the good stuff and pass it on.

Originally Posted by dirago

small world. I used to intern for Victor when I went to Santa Clara University. If you're subscribed to his newsletter which it seems you are, last week's post was about me (copied below). Here's an old post I had promoting his book which he offered for free: The New Small Business Bailout Program

here's last week's post about me and the company i recently started.


America's Business Coach(r)

*****
You have permission to re-publish this article electronically as
long as the following is included:

Victor Cheng is revenue growth adviser to owners of professional services
and online business within $1 million - $25 million in sales.

As a former McKinsey consultant and the author of four books, he has
been featured as an expert commentator by Fox, Time magazine,
Inc magazine, Fortune Small Business, and The Wall Street Journal.

I was hoping u would post up dirago. Your the one who got me signed up with him and interested in victor. Its funny i read last weeks post and thought it was someone on l4p... just had a feeling.

Much appreciate dirago's first post regarding Victor's book.

Since then I have recieved tons of excellent emails from him.

Edit: Can't believe that well over a year ago now.