The Star Principle Book Insights

Arguably not a book for the many, but a book for the few, Richard Koch’s The Star Principle introduces a structured way to think about success in business.

He leaves you with the realisation that there’s business success and then there’s BUSINESS SUCCESS.

This is defined by the fact that 10% compound growth for 10 years takes a £1m business and turns it into a £3.2m business. 50% growth turns it into a £72m business in the same time period.

5 X the growth rate yields, 20 X the return

But this books’ about more than the simple, but often overlooked compound effect.

Cash Cows are to be left in the field when you see the bright lights of a Star

A “Cash Cow” is great – it keeps yielding cash, but it won’t yield a return in exit.

Stars grow at a tremendous rate and yield a massive valuation in a short period of time. Great for VC exits.

But Koch emphasises that this isn’t just for VCs. If you’re an employee, life is SO MUCH better in a Star business. Cash flows enabling creative risk and associated reward. You’ll get more opportunity to take responsibility as the business grows – responsibility beyond your experience level.

Profitable Variation not USP

This is a very different way of helping entrepreneurs think about the conventional “USP” question.

A profitable variation is how you differ from the main market.

Are you offering more, but also charging disproportionately more?

Are you offering less, but maintaining main market pricing?

Are you offering the same, but at a lower cost?

How will your profit margin be better than the main market within your “new niche”?

If you haven’t got profitable variation, you haven’t got a star.

Hang on, New Niche? What about brand names?

Yes. New niche.

If you’ve got a star, you’re defining a new niche – it could just be a slight variation on the main market, but if the niche can’t be defined separately in and of itself from the main market – you’ve not got a star business.

This was a really key point.

So many people think VERY hard about their brand name, but don’t give a second thought about their niche name.

Betfair being the Star of the “Betting Exchange” niche (which was a term of their making) is the perfect example of how niche name and brand name work together.

The niche clearly says what it is: a place where bets can be exchanged as opposed to placed with “book keepers” or “betting shops”.

The brand name clearly articulates the benefits of the new niche. Bet – Fair. A place to bet in a fairer fashion.

The really tough bit. Being the leader

Koch really bangs on about being the market leader. If you’re not the leader, you’re not the star.

On the other hand if you’ve defined the niche, you could be the only one in your market. But that won’t stay the same for long.

Koch emphasises the need to therefore invest, invest, invest in a star to keep it in the leadership position.

Leadership gives you growth way over and above the competition. It will also mean you’ll have higher margins and economies of scale.

This is the challenging aspect that potentially makes the concept for the few and not the many. Not everyone will be able to know whether they’re on to a “star venture” or whether their business is just in a good growth patch.

Spotting the difference demands an understanding of the Star principle which can only be gained by studying the book.

Too early and it could be a “false star”, too late and you’re competitors have realised the “star potential” of the niche and are on their way to, or may have already taken leadership from you.

Stargazing in the business world has made Koch an extremely rich man.

I can see the simplicity and genius all at the same time. He’s raised the bar in terms of the definition of success.

A stark reminder that it’s a great thing to have unrealistic expectations about business growth. It’s a surefire way of demanding the brightest light from your business – maybe even creating your own supernova…

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