Players: Warren Bonheim and Frank Mullen
Richard Koch, best known for his ground-breaking 80/20 principle, recently posited yet another theory that promises to change the way we look at business. And like all great principles, it isn’t really new. The fundamentals of the principle have literally been in operation since the dawn of the industrial age, but they haven’t been made explicit until now.
The simplification principle
For an early example of the principle in action, we can look at Henry Ford and his Model T. In 1906, Ford sold two models:
A ‘cheap’ version for $1 000, and an expensive one for $2 000. The company sold 1 599 vehicles. Then Henry Ford decided to democratise the automobile by creating a vehicle that the average person could afford. He started building a single, simple vehicle on an assembly line.
When this strategy came into full swing in 1914, the company charged $540 for the vehicle and managed to sell 248 307. By 1917, the price had dropped to $360 and 785 432 were sold. In 1920 alone, 1,25 million Model Ts were bought. Compared to the 1906 period, 1920 sales were 781 times greater.
Koch calls this price-simplification, and he argues that a substantial drop in price results in a much bigger spike in sales than one would expect. Dropping the price of an item by 50%, for example, doesn’t double sales, but can cause sales to increase by a factor of ten or even 100.
Make something better not cheaper
But price-simplification can be a dangerous game, especially when you’re trying to compete with manufacturing operations in places like China and India. For many companies, slashing prices simply isn’t a viable option, since you generally need to reduce prices by at least 50% to make a real impact. So, Koch suggests something called proposition-simplification. Here the focus is not on trying to make something cheaper, but to make it better.
“The objective is to make the product a joy to use: First and foremost, easier to use; then, if possible, more useful and more aesthetically appealing,” states Koch in his book Simplify.
A great example is the Apple iPhone. The iPhone certainly isn’t cheap, but its simple, minimalist design and easy-to-use interface has made it the most desirable gadget on the planet.
“As with price-simplifying, there is a common proposition-simplifying formula. It involves hiding incredible complexity through extremely clever product design, and a relentless focus on making the product both more useful and simpler to use,” says Koch. “Whereas price-simplifying is all about making it simpler for the producer, proposition-simplifying is all about making it simpler for the customer.”
The telecoms industry
With the simplification principle in mind, let’s now turn to the local telecoms industry. Go back five or ten years, and price was a major issue. If a business wanted a 4 Mbps premium business Internet line, it could easily pay R40 000 a month. Over the last few years, prices have dropped considerably, but now complexity has become an issue.
There are so many products (wireless, fibre, voice, MPLS, PBX, etc.) to consider, and so many networks to choose from, that it can all feel a bit overwhelming. And what happens when the service goes down? Who is responsible for fixing the problem? Do you contact your ISP (Internet Service Provider) or the owner of the infrastructure? Then, of course, there are also multiple bills to pay…
Zinia, established in 2009, saw an opportunity to take advantage of the situation. By offering a simplified service, it could attract customers frustrated with the status quo.
“We realised that a lot of people were very dissatisfied with their service providers. They didn’t get the service and advice they needed,” says chief commercial officer and founder Warren Bonheim.
“We also decided to focus on the B2B market, which had very specific needs that weren’t being met. Business needed Internet access, voice, PBX’s, MPLS, firewalls and a way to manage connectivity, and there was no convenient one-stop shop to go to,” says Zinia CEO Frank Mullen.
“So, we came up with a concept of ‘business simplified’. Every customer has a single dedicated contact, one bill to deal with, and proactive monitoring and communication from our side. So, a customer would never have to wonder what was going on.”
Success in proposition-simplifying lies in being able to hide incredible complexity from the customer and provide a seemingly elegant and simple solution. This is certainly the case with Zinia. Making life easy for the customer demands a lot of complexity in the background.
“It’s all about efficiency,” says Bonheim. “You need to be able to get to the customer as quickly as possible. This requires a lot of systems and processes, and proactive monitoring is a big part of it. Any reactive service means that the customer has already experienced a problem and is suffering as a result.
“Zinia has invested in state-of-the-art live monitoring and management software, which allows us to monitor every client with exceptional reporting. The reporting proactively notifies us of any changes in service that may require our attention, and most of the time we change the outcome so the customer is unaffected.
“We have all these reports on screens in our network operating centre, being monitored by our entire team of service and technical staff. So, when our staff communicates with a customer, we are informed and able to provide service.”
This strategy has worked incredibly well for Zinia, resulting in more than 70% growth per annum.
“Customer satisfaction is very high, which is why we’ve been able to grow so successfully,” says Mullen. “People want a service that makes life easier, not harder.”
Growth results in added complexity. Unfortunately, it is often the customer who suffers because of this. It’s easy to keep ten customers happy, but what about 1 000, or 10 000? If you want to grow your company successfully, you need to put systems in place that hide complexity from the customer and provide a pleasant and painless experience.
Simplify: How the Best Businesses in the World Succeed
By Richard Koch and Greg Lockwood
Investor and successful entrepreneur Richard Koch and venture capitalist Greg Lockwood have spent years researching what makes successful companies—such as IKEA, Apple, Uber, and Airbnb—achieve game-changing status. The answer is simple: They simplify. Their book is filled with fascinating case studies, as well as practical advice on how to simplify your own operation.