I just finished up reading The Star Principle by Richard Koch. It’s not a typical business book that I would read, but I heard good things about it. And I wanted to be exposed to the ideas and teachings of Mr. Koch because he clearly thinks much bigger than I do.
The main idea behind the book is how to created a thriving “star” business…or how to identify one so you can either try to get a job with them or invest in them. So, in other words, how to make a lot of money either starting, investing or working in a business that is very far above average.
Example: Google is a star business. There has been a lot of wealth created for the owners…but also for early investors…and early employees with stock options.
What is a star business?
The definition is simple, but creating or finding a business that meets the cut is very difficult. Mr. Koch says that only 1 in 20 companies are star businesses. The book was written in 2008 so maybe the odds are a bit better right now with all the creative startups popping up, but I don’t know.
So a star business is:
1. The leader in their niche. Meaning, #1.
2. Their niche is growing at a minimum rate of 10% per year.
If your business is not a star, it’s either a question mark, cash cow or dog.
Question mark: your niche is growing at least 10% every year, but you’re not the leader.
Cash cow: you’re the leader in your niche, but the niche is growing less than 10% every year.
Dog: you’re not the leader in your niche and the niche is growing less than 10% every year.
Got me thinking…
So clearly my side business is not a star and I’m not sure I’ll be able to turn it into a star for various reasons, but I’m OK with that. It pumps out 5 figures per year and I’m happy with that. But my day job is another story. We’re in the marketing industry and definitely not the leader…but a niche is developing of direct mail companies that now offer digital marketing services.
I think we could definitely become the leader of this niche because there’s not many companies that do both services really well. I’m not sure what the growth percentage of this niche is, but worse case, we’re a cash cow. I think I can deal with that.
What I liked about this book
I went into reading this book knowing it wouldn’t be a great fit in terms of what I could learn and apply. It did get me thinking a bit differently, however, because Mr. Koch did a deep dive into several businesses that he started or invested in that were stars. It was interesting to read their stories because, in some cases, the businesses didn’t start out as a star…or almost lost their star status.
There were also 2 sections of the book that I thought were really helpful…
Triggers
The Star Principle has a whole chapter devoted to coming up with ideas — i.e. triggers — for starting a star business to get your creative juices flowing. While I’m not looking to start a new business right now, I thought the content was excellent for those that are.
For example, one of the triggers was a common reason new companies are created: ” Your ideal product doesn’t exist”. Keeping with this example, that’s why the Entrepreneur on Fire podcast exists…because John Lee Dumas wanted a 7 day per week business podcast, but couldn’t find one. So he created one and now he’s wildly successful.
Formulas
Another part of the book that I thought was valuable information was when Mr. Koch spoke about the 4 formulas that a business needs to master to be very successful. It got me thinking and re-evaluting my career and side business. Am I OK in all 4 areas? What could I be doing better?
- Customer-attractive formula – i.e. getting clients
- Commercial formula – i.e. maintaining healthy margins
- Delivery formula – i.e. having a consistent product or service
- Innovation formula – i.e. always improving your product or service
Best for…
To wrap this up, I think this book is best for someone looking to start a business because, if you’re in the early stages of starting a business, might as well try to make it a star. I also think it’s for struggling companies that want to turn themselves around because there’s a whole chapter about how to turn established businesses into stars…so you might pick up some valuable advice from Mr. Koch that you can use to improve things. And lastly, this book is best for investors i.e. people that are looking to improve their “radar” on which companies to invest in.
