Oren Harari: Avoiding the perils of the 'copycat economy'

What's riskier? Staying in the pack or venturing cautiously out on a limb? Management professor and author Oren Harari showed the audience at a recent conference hosted by the National Association of Women Business Owners the perils of the "copycat economy," then showed them how to rise above commodity hell.

The market served Starbucks a cup of strong black coffee recently. In the face of slumping margins and dipping same-store sales, the company whose coffee shops are beloved to millions as their "third place" announced plans to close 600 stores and cut 12,000 jobs.

What happened? "Starbucks forgot who 'brung' them to the dance," said Oren Harari in a speech to the annual conference of the National Association of Women Business Owners. "When Starbucks began it was a unique and cool proposition. They assumed if they took a snapshot of this experience that basically the market would not change and all they would have to do is grow it — to an intermediate goal of 40,000 stores around the world."

It was a grand plan, except others saw the value and began imitating it. Now you can get fancy coffee drinks at gas stations, and MacDonald's has baristas. Starbucks, which aspired to be its customers' home away from home, watched its business become a commodity. It's a recurring pattern in what Harari calls the copycat economy: the increasingly deregulated, global, technologically advanced market that's populated with lots and lots of competitors who look for successful formulas and then copy them.

Harari, who teaches at the University of San Francisco, describes it in his latest book, "Break from the Pack: How to Compete in a Copycat Economy." In this environment, remaining distinct is essential, Harari said. "Especially for a small or mid-sized business, the most critical thing you must ask yourself every day is what am I doing to remain unique, not as I define it but as defined by the marketplace."

Markings of the copycat economy

The copycat economy has broken the old assumptions, Harari began, and companies that don't know this will struggle. For example, low price used to mean low quality. Not so any more. Five years ago Columbia Forest Products owned the U.S. market for hardwood and plywood, Harari said. "When they did their competitive analysis, they did not even have Chinese firms on their radar scope," he said.

Today, Chinese firms have taken over 50 percent of the market. Using technology to locate supply and deliver it to the U.S. rapidly and cost effectively, China has dropped prices 30 to 40 percent while maintaining quality. "It used to be if you charged a lower price the customer would say, I know I'm getting crap but it's all right," he said. "You can't survive that way any more. You have to get it right … "

"Value add" is another ingredient in the old recipe for success, but don't count on that anymore either. Real estate agents consider the 6 percent commission to be virtually guaranteed by the U.S. Constitution, Harari joked. But, the value-add services that used to be the province of the broker have "become commoditized by you," he said, pointing to the audience.

"You can be in your pajamas on Sunday morning on your laptop and get the same lists, the same walk-throughs, the same 3D projections. What you're saying to the realtors, in effect, is, 'Why should I give you six percent? We're gonna start at five, we're gonna start at four — if I use you at all.'"

The question for the real estate industry, he said, is how to capitalize on the new technologies and offer new services. In the copycat economy, high quality, fast turnaround and great customer service are assumed. The deciding factor is now price. "If you're doing what everybody else does, you ultimately have a commodity business," he warned. You are in what some have called "commodity hell."

Charting the way out of "commodity hell"

The way to survive and thrive in the copycat economy is to define and lead your industry, Harari said. "Don't tell me that you've got to be big to do that," he added. "The business data indicates that it's small and medium size businesses that are not shackled with old legacies and old habits who are the ones that come and do the job." Google and Whole Foods are examples of leader companies that started out small. What to do? Look for "uncharted value."

"Generic value," Harari said, is simply what your firm does, and in the copycat economy there will be lots of competition in your field. "Expected value" is what your customers assume a business in your field will provide. This is being commoditized too, he said. Even "augmented value" — everything you do to continuously improve — cannot distinguish you any longer. It merely keeps you from falling behind.

"Uncharted value," on the other hand, is what sets businesses apart, Harari said. Rather than simply responding to the customer's or market's current desire, these businesses lead customers to the next wondrous thing. These companies provide what customers did not yet know to demand. And these companies are not aspiring to satisfy customers.

"Satisfaction is a commodity response to a commodity transaction," Harari said. "What you want is the 'wow!' approach." "A large business can tackle satisfaction, scale it up and survive and even moderately thrive on satisfaction through volume," he said. "You [however] want to be successful and grow as a small business; you've got to raise the bar before the market raises it on you."

The challenge

Harari offered guidelines to business owners looking for ways to set the agenda. First, he advised, realize that you can't set the agenda on everything. Discriminate and dominate: "Focus on only being involved in things you are prepared to dominate," he said. That might mean learning how to identify bad business and turning it away. "Price hunters are commodity customers," he warned. "They'll bleed you and walk away."

Second, understand that being nimble is more than just being fast. Harari's book "Beep! Beep!: Competing in the age of the Road Runner" draws business lessons from the cartoon bird that famously eluded Wile E. Coyote. "By any logic this bird should be caught," Harari quipped, but the Road Runner is not only fast, he's nimble.

It's not enough to be first to market; you must be able to capitalize on what's out there. For example, the CD industry's struggles with music piracy turned its own customers into enemies. Meantime, Apple created the iTunes platform. Last, he advised business owners to "aim for a legacy."

"Excellent companies have a higher cause they are striving for," he said. Whole Foods wants to change the way people eat; Starbucks seeks to create a refuge from the world; Harley-Davidson offers a safe environment in which customers can feel rebellious and adventurous. It takes optimism to get out ahead of the pack, Harari said, but the NAWBO audience has what it takes to do it. "You already have the spirit — that's why you started your businesses."

Bottom Line:

Tips on finding your way out of commodity hell:

• Make your employees your internal partners, who will raise the bar and make customer interactions moments of truth.
• Hire for talent, not just skills, for the job.
• At review time ask employees to what extent they have changed their jobs since their last review, then reward accordingly.
• If your customers answer yes to these questions then you are setting the agenda:
  • Is it easy, fun, hassle-free to work with this business?
  • Does this business really listen to me and seek my input?
  • Does this business understand me, my business, my life, my constraints?
  • Does this business know me so well that it anticipates what I want before I do?
  • Does this business devise creative solutions to my real problems?
  • Can I count on this business to continue to come up with great ideas?
  • Does this business make my life better?