How to apply the Gap Test to your business strategy

Business strategy – especially when it involves case studies from business schools – is always written with the benefit of hindsight and often with a very broad brush. It’s like the plot of an old-fashioned thriller in which the good guys and the bad guys are sharply defined: the good guys always get stuck in terrible fixes, but they know what they are doing and somehow emerge victorious as the story races to its climax.

But business does not work like this. The good guys often don’t have a clue what they are doing. They try one approach, find it doesn’t work, then pivot to a different strategy, and another, and another, until they finally find one that works.

 Ask the right questions

Simplifying is a powerful but under-examined strategy to challenge existing competitors. Some companies that have successfully applied this strategy simplify on price – for example, Ryanair with their budget flights which still take you from A to B, but so cheaply that nearly everyone can afford them, multiplying the size of their market. Others simplify on proposition, such as Apple when they made the decision to cut down on the number of their product lines and focus on perfecting only a few devices, enhancing their design values and making them a joy to use. Taking the latter road often leads to unlocking a premium market for your product or service; the former creates huge mass markets at cut-rate prices.

Companies can save themselves a great deal of money and frustration if they ask a simple question from the outset: ‘Does a competent competitor already occupy the ground we plan to target?’ If the answer to that question is ‘Yes’, that is always a red flag. A necessary follow-up question is: ‘Can we simplify to provide a product that is better in terms of usefulness, ease of use and/or attractiveness?’ Unless the answer to that question is a clear ‘Yes’, too, it is better to scrap the whole project.

So which route should you take? Every firm should abide by two decision rules:

• If the market leader is competing on features and performance, do not try to muscle your way into its market unless and until you have simplified to provide a much superior product that is a joy to use.
• If there is a gap in the market and no firm is occupying the price-simplifying ground, and you can think of a way to cut prices in half, go for it.

Spot the gap

But what if there is already a mass market, yet no substantial premium market? If you can think of a new strategy and build a unique a new business system, occupy the vacant ground. If no firm is the clear leader in proposition-simplifying, and you can simplify to deliver a much better product or experience, go for it!

So, we can summarise the lesson in one rule: Go for the gap – and do the opposite from the market leader before anyone else does.

Adapted from Simplify by Richard Koch and Greg Lockwood