Four strategic tasks for the owner of a successful SME.

Four strategic tasks for the owner of a successful SME.

 

 

Success of an SME means they have crossed that shark filled river where most SME’s fall over.

They have sufficient scale to employ functional personnel to address the day to day running of the business, and are returning the cost of capital and a bit more to the owner.

For some this is a level of comfort that is satisfactory, but to most who have strived to get across that river, it will not be enough, they are of a personality type that will be looking for the next challenge.

So where should they look?

Do yourself out of a job.

When you can go away for 3 months and wonder why nobody missed you, the business has reached the point where you are no longer needed daily. Accept that and get a life, or knuckle down to scale the business. For many that might mean becoming a non-executive chairman, staying engaged, but well away for the week-to-week challenges. You have created a manager system and ‘bench’ that does that. Leverage it.

Identify the industry constraints.

Every industry has a set of constrains that are rarely even noticed, they are just the edges of the status quo. Every useful innovation that has evolved, has done so by addressing a constraint that few, if any had even seen. The outcome of this insight is to deliver the opportunity for significant value addition.

The exempla was Steve Jobs. He saw the constraints in personal PC’s when he saw the work being done at Xerox Park developing a Graphical User Interface. When deployed in the Mac, the GUI changed Apple from a hobbyist into a leading PC. He repeated the magic with the original iPod, then the iPhone, and the App store. Each of them operated in an existing environment, with existing technology that could be deployed in ways that removed the accepted industry constraint, changing the face of that industry. You do not need to be a huge organisation to do this. In my local area there is a plumber who guarantees his work, and guarantees the time he will turn up to do it. Failure to address either means the client does not pay. He charges a significant premium, and now has a number of vans on the road, simply because he redefined an existing constraint in this local area.

Identify and remove internal constraints.

As with an industry, every business has a range of internal constraints that together become the culture and status quo in that enterprise. There are always opportunities to do things better, but are often overlooked, by simply not being seen, or miscategorised.

A former client removed an internal constraint and added 10% to his gross margin overnight by doing so. The business, a medium size in his industry had kept three suppliers of the core item in his manufacturing operations holding roughly equal share of his business, for roughly equivalent products. There was little to no internal competition, each of the suppliers did so from their price list, while maintaining very friendly relations with the MD and purchasing manager. We instituted a competitive bid for a guaranteed 80% of the purchases, with the remaining 20% to go to the runner up as a consolation prize, and ‘backup’ to the major supplier. The cost reduction that came from that relatively simple exercise dropped straight to the bottom line.

Currently the evolution of AI is creating huge opportunities for enterprises to deploy tools that will optimise existing processes and enable scaling at little or no added cost. There is a learning curve, an investment required, but not engaging means you will quickly fall behind competitors, while ignoring the opportunity to go quickly past them.

Build performance consistency.

For those with a view to one day selling the business they have built, there is no substitute for being able to show consistency of performance over time.

Even when an exit is not even contemplated, seeking ways to build consistency has the result of simplifying an enterprise which almost automatically adds margin and cash.

To build performance consistency takes time and effort. It requires a combination of being ‘in the weeds’ implementing processes that recognise and address tactical and operational improvements daily, and taking a ‘helicopter’ view that enables strategic positioning. This combination is easy to say, hard to do.

A buyer is buying two things, both of which are extremely valuable, irrespective of the inclination to exit the business:

  •  Optimise the existing business processes and infrastructure,
  • Map the path that best delivers future cash flow.

Demonstration of positive performance consistency on both these parameters will give you back time, and optimise the buying price if and when you exit.

 

Header credit: My thanks to Hugh McLeod at gapingvoid.com 

 

 

What is the ‘right’ price for your product?

What is the ‘right’ price for your product?

 

This is one of the most common questions asked, particularly when configuring a new product.

The ‘right ‘ price will be the pricing model that delivers superior value to customers while delivering optimal returns to the seller.

Developing a pricing model involves a series of strategic and market driven choices. Packaging, high Vs Low, the channels used, marketing collateral deployed, shape of your business model, identification of your ideal customer, and a host of other factors that make up the ‘marketing mix’.

However, despite most of us knowing these things, typically price is set on a cost-plus basis, mixed with what others are charging for the same or similar/substitute product.

For an entirely new product, it is a guessing game that has potentially serious consequences. At one end you kill the product, at the other, you leave money on the table.

Dutch economist Peter van Westendorp introduced a method that ended up being named for him in 1976. It has been used sparingly since, but not as widely as it should be.

It is a simple and reasonably reliable method to determine the ‘right’ price for a product or service.

There are four questions that will set your price ‘guidelines’:

  • At what price would it be so cheap that you would question quality?
  • At what price would you consider the product to be a bargain?
  • At what price would you start to think the product is getting expensive, but you still might consider buying it?
  • At what price would you consider the product to be too expensive, and you would not buy it?

Analysis of the responses will give you the point at which you are attracting the most customers who make the trade-off between buying intention, price, and quality perceptions. Putting this on a simple two-dimensional chart makes explanation easy.

Header courtesy Wikipedia

 

 

12 barriers to a successful grant application

12 barriers to a successful grant application

 

 

Recently at a meeting of SME’s, I found myself in a conversation about accessing government grants, initiated by a guest speaker. She was a very impressive woman with significant experience delivering grants from the Department of Industry.

The notable omission was, in my opinion, a view that reflected the experience of someone contemplating investing the time and energy into an application should consider.

Full disclosure: I ran a small grant funding business called Agri Chain Solutions as a contractor for almost 3 years from 1999 to 2002. It was a company limited by Guarantee, with a commercial board, and ranks as the only time I am aware of that a task has been outsourced by the federal Bureaucracy in this manner. The department concerned, then called Agriculture, Forestry, Fisheries Australia (AFFA) was implacably opposed to the exercise, and only complied after express instruction from John Howard, as the then new PM.

Following is a list of the irritations you can expect.

  • Ambiguous guidelines, and sometimes they appear to be on roller-skates as you seek clarification.
  • Unusable templates, seemingly designed to frustrate applicants.
  • Bureaucratic time and commercial time do not match. The process will always take longer and consume more resources than you think would be possible as you initiate the process.
  • The revolving door of ‘officials’ who will manage your application, through to the approval and then implementation. You will constantly be covering the same ground, again, and again, as departmental personnel rotate.
  • Commercial in confidence: it does not exist.
  • Rounds and the money has run out. For ease of management, most grant programs operate in ’rounds’, and when the money for that round has been allocated, bad luck. You could reapply in the next round. This system disregards overall merit, replacing it with merit in a particular round. The result is weak projects in less competitive rounds are sometimes approved, when in later more competitive rounds, highly meritorious projects miss out.
  • The effect of influence of competitive rent seekers. Who you know is always important.
  • The time taken to prepare without any indication of the probability of success usually challenges resources of SME’s. This leaves the field open to larger companies with the staff, who probably need the grants less.
  • Having inexperienced young bureaucrats believing they’re important, and can dictate to you particularly in grant implementation.
  • Recognise at the outset that an application will take a long time, consume significant resources, and you may not be successful. When you are not successful, the reasons for the failure may never be clear.
  • Grants are taken into account as revenue, and therefore if you make a profit, you pay tax on it.
  • Finally, what is important to you is usually absolutely irrelevant to those responsible for assessing and progressing your application for ‘their’ money. They are just people with their own baggage, ideas, perceptions, ambitions, and worries. Your application amongst all the others in the pile hardly rates on their radar.

 Header credit: Cartoon by Tom Gauld from New Scientist magazine.

 

 

 

 

 

 

 

4 crucial questions to unlock the power of your advertising.

4 crucial questions to unlock the power of your advertising.

 

 

Last week I provided a template for a Customer Value Proposition. The template works well, but ‘Customer Value Proposition’ is a piece of marketing jargon which just means making a promise to your customers.

This presupposes that you actually know who your ideal customers are, and what sort of promise would be attractive to them.

In the January February 2024 Harvard Business Review there is an article called ‘The right way to build your brand‘ written by Roger Martin and two Co-authors. The article sets out research that proves the hypothesis that making a specific promise to customers is more attractive than a generic claim of some level of excellence. The specific promise is about the benefit a customer will receive with use of the product. A generic claim to greatness is just about the product.

It does not surprise that the first is more powerful than the second.

‘Your promise is your strategy’ is a sub headline towards the end of the article. When you think about it, the observation must be right. Strategy is a process of influencing factors over which you have no control in such a way that the subsequent behaviour of the customers benefits your enterprise rather than an alternative. Making a promise of performance in delivering an outcome desired by a customer is about the strongest driver of short-term behaviour I can think of.

Delivering on the promise, will build trust.

Right at the end the authors ask four crucial but simple questions that can be used to determine if a proposed advertising campaign is worth investing in:

  • Is the campaign based on a clear unambiguous customer promise?
  • Were customer insights used to identify a promise the customers value?
  • Is the promise framed in a way that is truly memorable?
  • Were product marketing, sales, operations, and customer service involved to ensure the promise will be consistently fulfilled?

To me, this sounds like a comprehensive framework by which to decide if a proposed communication campaign is a worthwhile investment.

 

 

 

 

A simple template for a killer Value Proposition

A simple template for a killer Value Proposition

 

Almost everyone has trouble with this most basic of marketing jobs, articulating your ‘Value Proposition’. It is a simple statement of the benefit a customer gets from using your product, rather than an alternative.

Internally it also plays a role, in aligning staff and other stakeholders to a common purpose.

For …………….. (your ideal customer)

Who……………..(define the specific need, pain point)

Name……………(of the service or product)

Provides…..…. (The key benefit)

For example, the simplified Value Proposition for StrategyAudit might be:

For small to medium manufacturing business leaders,

Who do not have the resources to hire deeply experienced management,

Allen Roberts from StrategyAudit,

Provides that deep experience across all functional areas of your business on an ad hoc, part time, project, or on-call basis that is guaranteed to lift your profitability.

This simple template works well for just about any product or service.

It forces you to articulate why your ideal customer should deal with you rather than an alternative, and the value they will derive from that choice.

Generating the best possible value proposition is an iterative process. Rarely do I see the ‘perfect’ one emerge quickly. Often there are several that look OK, which can be tested and improved.