What is Your Slowest Gear?

When you are building a transaction-based services business where volume of consumers is a critical success factor, there are four things to worry about.  They are:

1. Acquisition
2. Engagement
3. Monetization
4. Enlistment

The last of these four may not be as obvious a success factor as the other three, so let me say a few more words about it.  Enlistment is the ability to get participants in your ecosystem to voluntarily and at their own expense recruit new members.  Typically these are consumers whose engagement experience has been so delightful, they simply want to spread the joy.  Importantly, they are not motivated by monetization, and attempts to monetize their activity are often counter-productive. 

So, to put the four gears together, a volume-oriented services business wants to acquire new consumers at a high rate, engage them in an experience that causes them to support their being monetized, monetize them in a way that does not degrade the experience, and enlist a subset of them (the “super-fans”) to help acquire the next cohort of consumers.  Each gear in this system helps drive the next gear, with the exception of the monetization gear, which is a necessary tax on the system, albeit one that can be deferred during the gestation period.

When all the gears are spinning in synch, you get what we call a tornado market, and life can be very good indeed.  But what happens when one or more gears fail?  Here are the consequences:

1. When acquisition fails, you lose market share.  And if it falls below your churn rate, you actually lose your existing customer base.
2. When engagement fails, you lose brand power.  That is, consumers withdraw their permission to monetize them.
3. When monetization fails, you lose revenue.  Enough said.
4. When enlistment fails, you lose profit.  Your cost of sales is too high because you are having to pay for every new consumer you acquire.

So, if you are invested in or running one of these businesses, the key question to ask each and every quarter is, What is our slowest gear, and what are we doing to speed it up?

Which of these four, that is, is the gating element in accelerating your growth and performance at present?  That is the one you want management and the team to focus on, and continue to do so, until it is no longer the slowest gear.  At that point, you rinse and repeat, going back to Which one now is our slowest gear?

The point of this model is that there is not a fifth gear.  Now, truth be known, there is always something outside the model that can impinge, but nonetheless the claim of any good model is to be what the McKinsey folks like to call MECE—that is, each element within it is mutually exclusive of every other element, and taken together the full set of elements is collectively exhaustive. 

So I am making the MECE claim for the Four Gears.  That is, I am saying if you follow this model rigorously, it will lead to a successful outcome in your transaction-based, volume-oriented services business.  Big claim.

So now the game shifts to King of the Hill.  I am claiming the king spot, your job is to pull me down.  What am I missing?

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That's what I think. What do you think?

Geoffrey Moore

Escape Velocity

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(Photo: Gears, c-f-m.com)