How to Beat Your Competition by Innovating in Ways They Can't Copy 03-29

How to Beat Your Competition by Innovating in Ways They Can't Copy

by Kaihan Krippendorff

Urban Outfitters on Powell Street in San Francisco (Photo credit: Wikipedia)

The national retailer Urban Outfitters has increased its revenues by 500% in the last 10 years, expanding to nearly $3 billion today from less than $500 million a decade ago. Not only does the company grow faster than its peers, it is also more profitable, averaging 21% profit margins[1] for the past five years, versus an industry average of 14%. It is tempting to credit the standard retailing virtues of good execution and a deeper understanding of the customer for this success, but the truth is far more enlightening.

Urban Outfitters keeps winning because it was built by two people who, in co-founder Dick Hayne’s words, “knew nothing about the retailing business” when they started. The naiveté of the company’s founders 40 years ago, when they were just college students, freed them to make counterintuitive decisions that traditional retailers still resist copying today.

For example, Urban Outfitters hires artists, rather than analytical business people, to manage its stores. Because it hires people with strong aesthetic sensibilities (Hayne calls them “sensory merchandisers”), the company can give them unusual freedom in how they shape the interiors of the stores. If a manager sees an old wooden crate on his way to work and thinks it would look good in the men’s section, he can bring it to work and put it on display.

By making these seemingly innocuous and naive human resource decisions, Urban Outfitters created a powerful, disruptive force. Traditional clothing retailers won’t give their managers such freedom, because they hire analytical business school students, not quirky design and art school graduates. As a result, every Urban Outfitters store looks a little different, while every competitor’s store looks the same. And this difference—that the Urban Outfitters store near New York University looks different from the one near Boston University—really matters to Urban Outfitter’s core customers, college students. Traditional retailers will resist copying this element of Urban Outfitter’s strategy, because doing so would require firing their managers and hiring new ones.

Dissect the success of any fast-growing, innovative company, and you will see the same pattern at work. Innovators make choices the competition won’t follow.

After studying about 300 such companies and interviewing many of their CEOs, I’ve come to believe that innovators who make unorthodox decisions adopt five habits. If you and I adopt these habits, we too can start outthinking our competition—every day.

Habit 1: Imagine. Leland Stanford, the founder of Stanford University, wrote that “man cannot create what he cannot imagine.” To innovate, we must begin with a compelling vision of the future that is different from what others are imagining. Urban Outfitters’ co-founders, for example, imagined a store not only serving college students but also run by college students (after all, they were college student themselves when they started).

Habit 2: Dissect. Innovators then break apart the problem and find a leverage point others don’t see. For example, most retailers hoping to create a cool, college-student-friendly environment would likely start by hiring an interior design firm. Urban Outfitters, by contrast, focused on a different point of leverage: the store manager.

Habit 3: Expand. Innovators shift their perspective on the problem many times, generating more potential strategies than their competitors. Because they choose from a longer list, they have a better chance of finding the winning move, the strategy customers will love and competitors won’t copy. I drive my clients to expand their options to at least 50 potential strategies, versus the three or four their competitors are likely considering. For example, in a recent session with a financial services company I asked, “What is uncoordinated that we can coordinate?,” and they thought about creating a network of independent advisers. I then asked “where is the next battleground?,” which led them to distribution through mobile apps and investing heavily in Africa. Some of these strategies are complimentary (mobile apps in Africa), and some force you to choose (independent advisers might view mobile apps as a threat). The key is to expand your option set by generating 10 times as many potential strategies as your peers.

Habit 4: Analyze using a disruptive mindset. Because great innovators choose from larger sets of options, they can be more selective. They can sort through the ideas they think customers will love and  choose only those that competitors won’t copy. There are innumerable ways Urban Outfitters could have customized each store, but it happened to choose the one that was too complicated for traditional retailers to copy. Competitors would need to replace all their managers.

Habit 5: Sell. Innovative ideas are always inconsistent with prevailing logic and beliefs. Therefore to innovate you must change others’ logic and beliefs. Said Nobel Peace prize winner Muhammad Yunus, the creator of microfinance, “My greatest challenge has been to change the mindsets of people.” That is why Dick Hayne and other innovators like him are always selling, to investors, employees, recruits, and customers.

Practice these habits every day. Before you make a decision, think IDEAS—Imagine, Dissect, Expand, Analyze, Sell—and you will start making more innovative choices. You start zigging where others mindlessly zag, keeping your competition off balance and building your competitive advantage at every turn.