All entrepreneurs want to disrupt their industries, but few ever succeed in doing so. Disruption—if done right—is the great differentiator, and the source of deep and lasting competitive advantage. B2B company owners are more likely to gain this advantage by implementing five basic steps, which may be easier read than done.
Note: Any one of the five steps discussed in this article can be helpful individually, but no one of them will get you to disruption. Two or three won’t do it. It’s all or nothing, and that’s what makes this seemingly simple list so challenging.
Examples are always helpful, and I have been following a B2B entrepreneur team whose strategic recipe integrates the full list of ingredients necessary for disruption. In 2008, Andrew K. Smith (CEO) and Shauna K. Smith (CMO) founded Four Foods Group (FFG), a restaurant investment, operations and management company that has reached annual sales of over $150M with five brands, 124 restaurants and 3,400 employees. Shauna explains, “Our approach has been both simple and difficult at the same time. And it took us a few years to dial in the right combination of factors, but now we are enjoying a number of sustainable competitive advantages in our industry.”
Here’s how the Smiths have built a disruptive company. Can you apply these five steps in your industry?
Step 1—Identify the unsolvable problem(s) your prospects keep bumping up against
The Smith’s first venture in the restaurant arena was with local Utah-based brand, Kneaders Bakery & Cafe. This fast-casual restaurant had only four locations at the time. By partnering with FFG, Kneaders has grown to 58 locations with seven under construction to be opened in 2018. The challenge of taking a restaurant brand from four to 58 stores in a relatively short period of time has been a harrowing and educational experience. “We quickly learned how difficult it is to grow a brand in this industry,” Andrew remembers. “But we also were able to identify and address the pain points that every growing brand experiences.”
The unsolvable problems quickly came into focus. Restaurant owners hit a wall at three to six stores. At that point, an owner’s attention shifts from food quality and consistency to logistical concerns of hiring, training, payroll, processes, procedures, management, fund raising, site selection, construction, distribution and countless other functions that distract from core ‘stirring-the-sauce’ activities. Restaurant owners typically lack interest and expertise in growth-related responsibilities. This is why even great brands with fanatical followings find it difficult to break out in this industry.
Step 2—Combine technologies, processes and products to form compelling solutions
Finding no comprehensive solution to the unsolvable problems of small restaurant owners, Four Foods Group’s leadership team decided to create one from scratch. The goal was to give small brands the ability to grow without the common distractions and limitations of growth. The overall solution has taken a few years and several million dollars to produce, but FFG now has a robust platform that can support broad logistical functions for as many as 100 stores per brand. This enabled the team to move their strategy to the next level by bringing more brands into the FFG fold.
Step 3—Break the business model mold
In any industry there are predominant business models that have been around for a while. Those models have served their respective industries well enough until now, or they wouldn’t still be there. But if you follow steps 1 and 2 above you know where they fall short, and you have better solutions. Now it’s time to convert those solutions into a new model that shatters the old.
“In the food industry, owners either buy into a franchise or build a chain one store at a time,” notes Andrew K. Smith. “The franchise model comes with a lot of infrastructure support, but is expensive. The go-it-alone method eliminates upfront and ongoing franchise fees, but brings the problems we’ve already mentioned. We had to find the sweet spot that had all of the good, with much less of the bad in the minds of brand owners and store partners. It was obvious that we had landed on the killer business model when we started attracting funding, best-in-class brands, and store-owner partners into our ecosystem.”
Step 4—Make the pie bigger by producing net value
All disruptive B2B models have one thing in common—the math works. The financial opportunity has an at-a-glance appeal for buyers. Example: Airbnb hosts can get more income through a short-term rental model than through a standard one-year lease. This opportunity has given rise to successful small business startups in the rental space.
In the case of FFG, a joint venture partner can run a restaurant and have actual ownership (not just profit sharing or phantom stock). This comes without franchise fees, but with all of the support that FFG has developed. A brand owner faced with the challenges of growing alone can scale a business in partnership with FFG, which handles the headaches of growth. In both cases—store partner and brand owner—participants receive profit distributions from their respective store or brand, as well as dividend checks from profits generated by the entire FFG system, thus minimizing risks and maximizing rewards. An additional perk for an operating partner is learning how to run a business effectively, with a financial education they can’t find at a local university.
“The critical value proposition that makes our business model work is simple: Our partners make more money with us than without us,” says Shauna Smith.
Step 5—Scale the business by multiplying the efforts of like-minded partners
The future success of any company hoping to disrupt an industry is directly proportional to the number and quality of people it can attract, train and retain. This is the most common driver of growth, profitability and an amazing customer experience. To maintain future growth, FFG must constantly search out the best emerging restaurant concepts, management partners and corporate employees. Their message and model will resonate with certain candidates more than with others. This is true with funding partners, as well.
“It comes down to the right people,” declares Andrew K. Smith. “We have been fortunate so far to work with the best brands, partners and team members to create a transformative business with an exciting culture. Now, our most pressing question is, where will we find the next wave of superstars who can help us get to the next level?”
Larry Myler: CEO By Monday, Inc., adjunct professor in the Rollins Center for Entrepreneurship & Technology at BYU, author of Indispensable By Monday.
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