History Favors the Rule Breakers, Even in Business

Rules are meant to be broken.  We hear that so often it almost sounds like, well, a rule.  But is it always true?  There’s the golden rule, should we break that?  There are banking rules?  Are those breakable?  Probably not all rules are meant to be broken. 

The trick is to know which rule to break, and when.  I’ve given that some thought and there are three specific times when rules really are meant to be broken.

Rules About What Not to Do

Where do you put high-end retail properties, such as sophisticated theater complexes or a Starbucks?  According to well-honed rules developed over decades of experience, you look for affluent suburban areas where the residents have lots of discretionary spending power.  You would certainly pass over under-privileged neighborhoods with poor residents.

That’s a rule former Los Angeles Lakers great Magic Johnson knew was ripe to be broken.  While other developers steered clear of urban neighborhoods, Magic saw a strong market just waiting to be unlocked—poor, middle class and rich families spend similar shares of their budgets on clothing, entertainment, and on food outside the home.  When Magic looked at inner-city neighborhoods he saw consumers ready to spend but with nowhere to go.  The fact that real estate prices in these underserved neighborhoods were a fraction of prices in more upscale locations was simply a bonus.

Instead of following his competitors into the affluent suburbs Johnson focused on underprivileged neighborhoods, leading to fast growth and high profits.  Today, Beverly Hills-based Magic Johnson Enterprises now owns or operates gyms, Starbucks coffee shops, Burger Kings, movie theaters and other businesses in 85 cities across 21 states. His Canyon-Johnson Investment Fund has been behind nearly $4 billion in urban revitalization projects that resulted in the creation of 4.5 million square feet of retail and commercial space.

The old real estate axiom “location, location, location” was supposedly an unbreakable rule, but Johnson has proven otherwise. You may think the best spot for your bricks-and-mortar store is as close to your biggest competitors as you can get, and that may be correct. But the primary factor in your decision should relate directly to your business plan and market research: who are your target customers, what are their wants or needs, and where are they in relation to your store or restaurant? If you are able to find an area that your competitors mistakenly ignore, you will be ahead of the game.

Rules That Benefit Businesses, Not Customers

For years, the primary weapon in the fierce battle among cell phone services providers AT&T, Sprint, T-Mobile and Verizon was to secure the exclusive rights to the newest devices. But when it came to customers’ contracts, there was little variation among the four carriers.

Customers who did not want to pay hundreds of dollars up front for their new phones were locked into two-year contracts that carried stiff financial penalties for breaking. That meant that as device manufacturers introduced new faster and more powerful models every year, customers had to wait another full year before they could trade in their current, outdated phones. T-Mobile was the first to break that industry rule, and in the process is turning itself from a fading also-ran into an industry powerhouse.

You may remember when Steve Jobs unveiled the first iPhone back in January 2007, it was only available on AT&T (formerly Cingular). The first Motorola Droid smartphone was at first only available on Verizon. T-Mobile became caught in a vicious circle: it was unable to secure the exclusive rights to the newest models, so customers left for its competitors. That dwindling customer base in turn continued to make T-Mobile less and less attractive product launch partner for manufacturers.

When T-Mobile appointed John Legere as its new CEO September 2012, he turned the company’s focus from the competition for new phone models to his “Uncarrier” campaign that broke the two-year customer contract rule.

Customers can now trade in their current phones every six months for a new model with no financial penalty. If they want to leave T-Mobile for another carrier, they only pay the remaining balance they owe on the device, there are no early termination fees. T-Mobile even pays new customers up to $500 to offset any early termination fees their current service providers require.

As T-Mobile’s competitors introduce similar programs, T-Mobile continues to look for other rules to break, such as eliminating data usage overage fees, and excluding streaming music services like Pandora and Spotify from counting against high speed data usage caps.

Has Legere’s strategy worked? The headlines the company’s most recent earnings report generated, including “T-Mobile shares jump off earnings,” and “T-Mobile went on an absolute rampage in 2014” sum up the results nicely.

The splashy headlines, rising stock price and millions of new customers all validate Legere’s decision to break the industry rule that the best way to keep customers is to lock them into inescapable two-year contracts.

The lesson for any small business is to do your research to identify what needs and/or pain points your current and prospective customers may share, and work to address them. Worry less about building revenue and more about improving customer satisfaction, because there’s no more valuable marketing tool than happy customers advocating for your brand across their social media tools. Legere knew the costs of tearing up two-year contracts and paying off new customers’ fees imposed by their former carriers would be a drag on T-Mobile’s bottom line initially. He also knew it would continue to draw customers and the revenue would follow.

Obvious Rules

Certain rules are so obvious there is no point in challenging them.  These are precisely the kinds of rules you need to challenge.

As Facebook has grown so enormous in terms of the number of users, businesses are constantly trying new ways to catch the attention of those users and sell to them. In the face of some high-profile failed attempts, a new retail industry rule has emerged: do not try to open a virtual store on Facebook. But a full-time mom working out of her home broke this rule and has succeeded where so many others have failed.

JCPenney in 2010 became the first major retailer to open a Facebook store, creating an entirely separate e-commerce tab on its Facebook page, and many other retailers followed suit. The tactic was labeled “F-commerce.”  Are you familiar with that term? If not, I’m not surprised. By the end of 2011, all of those Facebook stores closed their virtual doors. Analyst firm Forrester told Inc. Magazine “it was like trying to sell stuff to people while they're hanging out with their friends at the bar."

That’s what makes the story of Lolly Wolly Doodle (LWD) so remarkable. Brandi Temple, a mother of four, started sewing clothes for her two girls as a hobby because she could not find anything in stores she thought were “tasteful and fun.”

She had some leftover fabric and decided to make some additional dresses and put them up for sale on eBay. She tells her own story better than I can, but to summarize, she decided to also put some remnant garments on Facebook and offered them first-come-first-serve to anyone who commented on the posts. The response was so overwhelming that in less than a month she had moved her entire eBay store over to Facebook.

Today LWD reportedly does more sales on Facebook than any other brand in the world. The company brought in about 11 million in 2013, and has roughly doubled its revenue every year since its inception in 2009.

How do your customers want to communicate with you? JCPenney and the other big brands that tried to create official storefronts on Facebook were not able to capture the attention and dollars LWD was by simply posting updates and offers right in the newsfeed. This more relaxed, informal approach clearly resonated with Facebook users while the former approach did not. Social media has become an invaluable marketing tool, but not all platforms may be appropriate for your business. Do your research to determine how your customers are communicating with one another and recommending their favorite brands and products, and follow their lead.

Not all business rules are meant to be broken, but sometimes doing so can help any company – from the smallest start-up to the large enterprise trying to unseat its industry leaders – not just compete, but grow. The keys are to figure out which rule to break, and after you’ve done so, identify the next one you can take your hammer to. 

Gabie is excited to attend Sage Summit 2015 this July in New Orleans. Sage Summit brings together subject matter experts and top business leaders to inspire small and medium-sized businesses with the energy, insights and guidance to achieve their own visions of success. Register with the code SCORE.

Gabrielle Boko
<p> Gabrielle Boko is Executive Vice President of marketing for <a href="http://na.sage.com/us/promos/c" target="_blank">Sage North America</a>. Born and raised in Alaska, Gabie has innovation in her blood, and has built her career in marketing, sales, and channel development with leading technology innovators. She brings that passion for growth companies to her role at Sage, a company focused on helping small and medium sized companies realize their ambitions and achieve success. <br /> <a href="http://na.sage.com/us/promos/c" target="_blank">na.Sage.com</a> | <a href="https://www.facebook.com/Sage" target="_blank">Facebook</a> | <a href="https://twitter.com/gabieboko" target="_blank">@GabieBoko</a> | <a href="https://www.score.org/author/gabrielle-boko/all-posts">More from Sage</a></p>


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