#7: Find Your Hedgehog

From The 30 Best Business Practices of All Time, published by PROFITguide.com: Canada's trusted resource for entrepreneurs and innovative executives

Written by PROFIT staff

It took Razor Suleman 18 months to complete the exhaustive process of finding his company’s hedgehog. Once he did, the chairman of Toronto-based Achievers Inc. made a breathtaking decision: to sell his firm’s highly profitable promotional- products division, which generated more than 90% of revenue, and focus solely on its money-losing rewards and recognition division.

“The hedgehog process makes you be really honest about your business,” says Suleman. “I realized that I hate promotional products, which are a waste of time as a motivational tool for employees. But I’m really passionate about rewards and recognition.” Suleman calls focusing on the latter “the single smartest business move I ever made.” He says sales for the rewards business exploded from less than $500,000 after selling the division in 2007 “to 100 times as much four years later.”

But what do hedgehogs have to do with business? The idea is the linchpin of a 2001 work widely considered the most influential business book of the 21st century—Good to Great: Why Some Companies Make the Leap€¦ And Others Don’t. Author Jim Collins draws on a Greek parable that contrasts the fox, who sees the world in all its complexity, with the hedgehog, who knows one great thing. Companies achieve greatness, argues Collins, by focusing on “a single organizing idea, a basic principle or concept that unifies and guides everything.”

Greatness isn’t some woolly concept. Collins defines it as “sustained financial performance several multiples better than the market average.” He argues that the key to taking your business from good to great is focusing your firm’s resources single mindedly on its field of competence. To identify that field, ask yourself these three questions: What can you be best in the world at? What are you deeply passionate about? And what drives your economic engine?

For that last question, you need to focus on maximizing a single financial metric, “profit per X,” once you’ve figured out the right “X” for your firm. This denominator might be profit per client, brand, employee, customer visit or something else. Identifying the right “X” isn’t easy. But every company Collins profiles that made the leap from good to great had shifted to a new “X,” then driven relentlessly to maximize profit per this new denominator.

Originally appeared on PROFITguide.com