In his book Good to Great, Jim Collins refers to an old parable of the fox and the hedgehog. The fox in the parable knew many things, but the hedgehog knew one big thing. Each time the fox tries to attack the hedgehog it tries a different tactic, after the last one he tried failed.
The other side of the story is — the hedgehog knew just one tactic — to curl up in a spiky ball. It didn’t matter how much effort the fox made coming up with new tactics, the hedgehog would simply retaliate by curling up and showing it’s spike.
The premise of the story is that organisations that go from good to great focus on their hedgehog concept — their one big thing.
And to identify what your hedgehog concept is, Collins suggest you look for what is at the intersection of the following three elements of your organisation:
1. what you can be the best in the world at
2. what drives your economic engine or for ‘more than profits’ your social impact engine or a combination of the two
3. what you are deeply passionate about
As an organisation, once you identify your hedgehog concept and if an opportunity comes up that doesn’t fit the concept you say thank you and you move on. In other words, everything is tested against your hedgehog concept – so that you don’t get distracted and stay laser like focused.
But despite this great advice, too many organizations fall into the trap of product line extensions or brand equity extension (some may call it “diversification”). IBM fell for it. So did GM.
IBM in their heydays were known for one thing — mainframe computers. And then they entered the PC market soon followed by other electronics and computer peripherals. Still then, when anyone would say “I want to buy an IBM” definitely meant “I want to buy a computer.” Now we see IBM logos everywhere over desktops, laptops, mini-computers, mainframes, microwave ovens, refrigerators, etc, etc. Today, IBM is known for everything. Therefore, they are known for nothing.
Same happened with GM. GM was known for muscle cars and heavy-duty vehicles. But they couldn’t resist the temptation to extend their brand equity. As a result, GM started making cars for the up-market, niche market, middle market and for every market that is out there. Soon GM ended up with boatloads of products that were almost identical [except for the looks and pricing] with little differentiation or no differentiation at all. And we all know the result of that…
[Fast fact: Today, GM only manufactures 4 brands — Chevy, Buick, GMC and Cadillac. Out of 12 brands they used to prior to new GM re-organization on July 10, ‘09 ]
On the other side of the spectrum, startups are known for their laser like focus and execution. But they too fall for the “produce more” trap. Which typically unfolds with the latest funding stream and trying to spend time building a new line of product extension or see how they could fit what they want to do in the other market segments. While others have a misconception that their hedgehog concept is some kind of a goal to be best in everything they do. It’s not. As Collins explains:
A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at. The distinction is absolutely crucial.
A great example of hedgehog concept applied in an organisation business model is Airbnb — an online marketplace to find and rent accommodations around the world. Airbnb took one category of craiglist’s line extension and build a billion dollar company around it. The thing to note about Airbnb — is their vertical and focused approach to creating online marketplace. When the rest of the world was all praise about Craiglist’s and Amazon’s horizontal approach to building online marketplaces. Airbnb’s vertical and focused approach has proven to be more successful regardless of how amazing Amazon’s horizontal approach to online marketplace is.
i) you can create a dramatically better user experience when it’s tailored to a specific use.
ii) you can do unscalable hacks when starting out (e.g. AirBnb paying photographers to take pictures of apartments)
iii) you need far fewer users to get to minimum viable liquidity and
iv) brand building is easier when you solve a straightforward, narrow problem (e.g. “I need a place to stay this weekend”).
To me, the whole premise of hedgehog concept is that you got to be strong somewhere instead of weak everywhere. And if you want to be successful, you have to reduce your product line, not expand it. Less is the new more.