The Star Principle in Action in eCommerce - a podcast by Michael Veazey

In this episode, we cover an important principle in the growth of your ecommerce business and the importance of the star principle, as detailed in the book by Richard Koch. I think this book is so important to everyone who is serious about building a business. So important, in fact, that I purchased a copy for each member of the 10K Collective.







For a more detailed look into the book, we covered it in episode 24. For today, I will be giving concrete examples of how to apply that to the ecommerce space. This principle is very powerful in assessing whether a product line, or business as a while, is really worth investing in, and if it will give you substantial wealth or

Sales Growth Matrix

At the center of this principle is a sales growth matrix created by the Boston Consulting Group:







On one axis of the matrix, you can see that it measures annual growth of a market as a whole. The other axis is the percentage of the sales of the revenue that any particular company has of that market. Within this matrix are four categories of businesses:



Star Businesses

Question Marks

Cash Cows

Dogs



Star Business

These are businesses that are the leader in a given market, as defined by making more revenue than anyone else, and it needs to be in a market that is growing at least 10% per year. This is absolutely the core in selecting markets to go into and choosing product lines.

There are important benefits of being a star business:



Massive growth of your business

Profit levels are strong and defensible

Success breeds success.



People see something being the biggest seller and it has the most reviews, it has the most social proof, and people are more likely to buy it, and you may even then be able to increase your price, leading to more profit.

If you are a massive customer for a supplier, you may even then be able to go back and demand better and better payment terms







The star principle was just a theory, but we can see examples of this, and I have seen results in my own business as well.



Examples:



When smartphones first entered the market, the dominant player was Apple. They had a large market share, in a market that grew at about 25-30% per year, which is how we determine a leader

Richard Koch retired from his consultant business and because he followed the star principle when making investments, he went from being worth a few million to a quarter billion pounds within a few years. Out of the 16 investments he made, he has seen returns on eight of them, which is unheard of.







To become a star business:



Seek out markets which are growing fast and you believe you can dominate. It is important to dominate the market because you economies of scale. The fixed costs for you will be spread over more units, thereby reducing your cost price.

This is also a key factor when it comes to marketing and keywords for the Amazon and Google algorithms. If you want to be visible, you have to work very hard to become visible for the right keywords in that niche.

Definition of niche, as defined by 10K collective member Ashley Pearce, https://amazingfba.

Further episodes of Amazing FBA Amazon and ECommerce Podcast, for Amazon Private Label Sellers, Shopify, Magento or Woocommerce business owners, and other e-commerce sellers and digital entrepreneurs.

Further podcasts by Michael Veazey

Website of Michael Veazey