The day we went broke being successful.

The day we went broke being successful.

Nov 29, 2021 | Customers, retail

 

On Friday last week, I had to go into the city. About 10.00am I turned up at Town hall station, and the shopping precinct around it was crowded, people lining up to get into shops that a few days previously were deserted.

It took me a while to realise that it was ‘Black Friday’.

Retailers were making extreme offers to generate a sale, and seemed to be succeeding. When I got back to my home office and opened my computer, it was deluged with digital ‘Black Friday’ specials from everyone to whom I had deliberately or inadvertently given my email address since 2010. ‘90% off Black Friday Special’ was not an uncommon header.

‘Black Friday’ is the wrong description, coming as it does from the US where it joined Mother’s Day and Father’s Day created by Hallmark cards, as a marketing construct. In contrast, Black Friday should be called ‘Stupid Discount Day’ or ‘The day we went broke’.

The attraction of deep discounts does a few things to a retailer’s sales numbers:

  • Generates volume, (hopefully) sometimes at a loss on the discounted item, so retailers are hoping you buy something else at the same time to recover margin. This volume comes, if it comes, with the advertising costs. For a small retailer, these costs might be just a few banners in the window, and someone outside the store spruiking, but are more likely to  include some email marketing, and social media posts, and usually some of which are paid to generate reach.
  • Rewards non-customers who buy once, try, and you hope come back. Rarely happens, especially in the madness of a mass discount.
  • Attracts the worst customers, those who never buy anything at full price, who only chase discounts. It is often these same customers who create most customer service costs.
  • Rewards existing customers who would have bought anyway at full price This usually results in a ‘pantry stock’ that kills sales and margin in subsequent periods.
  • Erodes brand positioning, sometimes built up over years, establishing a new ‘base price’ for their products and brands.

Most of the offers in my computer were for digital products, where the marginal cost is zero, so they can give away 90% price and not go into the red. Bricks and Mortar retailers, the ones with queues outside them in the QVB, Town Hall station underground mall, and the giant Westfield next door do not have the luxury of zero marginal cost.

I suspect many of these retailers are desperate after 2 years of struggle, and desperation often leads to very poor decision making.

Hopes that deep discounting will increase volumes sufficiently to recover margin are almost always in vain. When you do the numbers, depending on the gross margin, and additional promotional expenses, volumes have to increase by a factor of at least 3 or 4 in order to break even. The more frequent outcome is a very nasty shock when the P&L is done at the end of the month.

Anyone can sell anything at a deep discount. It does not make you successful, just thoughtless, desperate, stupid, or a bit of all three. The lesson should be, not to go broke being successful.

 

 

When is a price ‘guesstimate’ good enough?

When is a price ‘guesstimate’ good enough?

Nov 8, 2021 | Customers, Marketing

Many small businesses operate a job-shop business model for some or all of their revenue.

They do not produce products, then sell from inventory, they sell a product as specified by the buyer, which in the detail will be unique. However, from a higher perspective, there will be great similarity to many other jobs they have done, the experience from which is valuable.

This extends from engineering workshops, toolmakers, smash repairs, printers, and many others. Many SME’s I have seen deploy fancy estimating software that can and does cost the individual jobs down to the last fraction of a cent. The downside of this otherwise admirable level of detail is fourfold:

  • It is too easy to make a mistake telling the software what to cost, and what comes out of the computer is rarely adequately questioned. This trust in the output of software can lead to significant blunders.
  • The time it often takes from the initial request, to estimate production costs, price approval, and communication to the potential customer
  • The customer does not give a toss about your costs, they only want the price so they can make a choice, almost always on a set of factors of which price is only one. Often a major one, but still only one of several.
  • The conversion rate from request to sale is often very low, particularly in commoditised industries like printing, so many resources are wasted, or margins are cut to secure a job because the operational equipment may be otherwise idle.

In these circumstances, a guesstimate based on industry knowledge and intimate understanding of the operational costs that comes from long association may be enough. It may not be as accurate in the detail, but will be close, and may meet one of the increasingly potent drives of customer behaviour:

Immediacy.

Take printing for example, an industry where I have had some exposure.

At the ‘small’ end, much of the volume has been taken by local instant print shops. They all operate with the same equipment, same material costs, at standard machine costs per piece printed. The total cost therefore becomes a function of set-up time, wastage, and overheads. In these cases, the conversion rate is more a function of turnaround time and convenience for the customer than anything else.

At the ‘bigger’ end, multicolour offset, and even more bespoke letterpress, price does become a larger factor, but still only one of a number: quality, service relationships, value add services such as storage and part delivery, artwork services, and turnaround times. In these cases, the profitability is obviously impacted by price to the customer, but also very heavily by the flow of jobs through the factory and machine utilisation achieved, to which customers are oblivious and uncaring.

The impact of increasing the flow of jobs that have the costings ‘roughly’ right, but delivered ‘on the spot’ to potential customers is huge. The resultant machine utilisation, combined with the conversion attraction of the quick turnaround sought by customers dwarfs the job profitability added by taking time to accurately estimate the last few percentage points of cost.

In one case, a printer I was working guaranteed a firm price and turnaround time within four working hours of receipt of the request. This often required judgements to be made based on deep knowledge of costs from experience, and a high level of control of the workflow. Early on, some mistakes were made, but the ‘guestimates’ became increasingly accurate when measured against the detailed software estimations, to the point where we needed only a small number of basic job parameters to be crunched by the software to get what proved to be a very accurate costing. Meanwhile, the immediacy of quoting increased the conversion rate substantially, which flowed into greater machine utilisation, which together delivered big increases in profit in an industry suffering poor profitability.

Sometimes informed guestimates of costs are the best way to build profit.

Header photo courtesy Wiki Media.

Set objectives by deciding what not to do.

Set objectives by deciding what not to do.

Oct 5, 2021 | Customers, Marketing, Small business

 

We usually look at objectives and goals as the things we want to achieve. We then set about figuring out the path towards achievement.

There are always hundreds of ways to achieve a goal. Often we find ourselves bewildered by the options, and procrastinating or picking a fuzzy path as a result.

Try drawing a line through the things you will not do to achieve the goal, rather than struggling to pick what you will do.

This will help focus on a path quickly that removes ambiguity and the many opportunities to be distracted.

Over the years I have worked with a number of SME’s in the food industry. In almost every case, the seductive promise of the volumes delivering profitability to be extracted from the two supermarket gorillas is there somewhere. This always confuses the focus on delivering value and building brands for those who care about quality and differentiation before price. In addition, the resources for mass marketing and promotion that are necessary for success beyond an initial flurry in supermarket chains are usually absent in SME’s.

Failing to Recognise the mechanics of the supermarket business model, and the resultant infrastructure necessary to service this model, is a major source of financial and strategic failure of many SME’s in this space.

In those cases, I encourage people to set their goals, by excluding the option of supermarket distribution. Instead, focus their minds on the many opportunities outside supermarkets that better suit the capabilities and resources available.

 

 

 

The three inevitable stages of successful entrepreneurial activity

The three inevitable stages of successful entrepreneurial activity

Sep 27, 2021 | Customers, Innovation, Small business

Every business starts small. The biggest on the planet all started somewhere, in a garage, dorm room, lab, somewhere between the ears of the entrepreneur.

Most fail, or at best deliver a return that would have been dwarfed by the interest on the same investment in a bank account.

Some however, do succeed, occasionally in spectacular fashion.

We all see the ones that do, they are shoved down our throats all the time as the heroes, the ones who made it, and we are asked the question, if they can, why can’t you?

There seems to me to be a pretty consistent sequence of growth, a sequence that holds true across all sorts of products and services, geographies, technologies, and circumstances.

Cheering.

This is the first stage, it is all enthusiasm, cheering from the sidelines, jumping up and down, wishing for stuff to happen. What it is about when you are in the midst of it all is hard grind, chaos, and cash.

At the beginning, you work your arse off, seemingly 24/7, with no letup. Everything that gets done depends on you doing it, you do not do it, it does not get done. Simple. It is messy, usually chaotic, as pressures come from every direction, your attention is demanded by each, which is why the 24/7, and still there is little forward progress.

Then there is cash. As you start, nothing is more important than cash. More start-ups go broke for lack of cash than every other reason combined. Managing your cash is simply the most important thing you must do.

Planning & doing.

Assuming you survive the cheering stage, you will have come to the point where you have a little more head time to be used considering ‘what next’. You probably have a small number of employees, and perhaps some outsourced services, like accounting and IT.

Answering the ‘what next’ question will be eating at your guts, as for sure you do not want to continue as you have been. Your kids are growing up without you, your family seem to be strangers, you have not had a weekend with your mates for ages.

So, you look forward to a different future and stumble into some planning. It is never as easy as filling in some generic template, of which there are plenty making alluring promises. It is more about the graft of figuring out how to accumulate and allocate the resources necessary to grow. While the game is still about cash, it has also become about profit, what is left for reinvestment at the end of the month, quarter, and year.

You plan your products and services, the foundation stuff you need to get right, like the legal and regulatory things that must be done, understand the financial and strategic pressures that are present, and settle for the moment on a business model that guides how you will turn your chaos into sustainable profitability.

However, a plan, no matter how good it may be at telling the future, envisioning new products, markets, and customers, needs one further ingredient.

It needs to be implemented.

Plans that do not get implemented are usually called dreams. You will also recognise the realty of the muttering of generals throughput the ages that while planning is essential, nothing ever goes exactly to plan, so you must be ready to be agile tactically, while consistent strategically.

Building & growing.

The essential ingredients to building and growing an enterprise, on top of the financial resources that enable that growth are threefold:

  • People to do the work,
  • Processes for people to follow, and over time, optimise,
  • Retention of the hunger and freedom that enables innovation.

The great paradox, and downfall of many if not most successful businesses is that they get the last one wrong, as they optimise risk out of their processes in favour of certainty and continuity of the status quo.

The task of being the entrepreneur has changed from one of management, to one of leadership. You are no longer engaged in tactical activity, which is being done by others in a manner that is transparent to overview, and with KPI’s based on outcomes. The tasks now are about the people doing the work, from the daily tactical stuff to the functional management. Your role is to lead all these people and ensure that the processes being deployed deliver on the plan. It is all about the productivity of resources deployed, people and financial, that is delivered via the processes that evolve.

Anyone who thinks this is easy has never done it.

Anyone who stands on the sidelines and cheers for you might be a cheerleader, supporter, and beneficiary, but they are not a coach. A coach delivers the models and means by which the success is generated, which is much more than cheering, as it involves getting dirty from time to time, being always challenging, and ensuring you are looking beyond the tactical that threatens to always consume you.

At each point in this growth pattern, there is a single question that you can ask that will give you an answer to the question of growth potential contained in any tactical decision:

‘Does this scale?’

Many small business owners do not ask this question, so end up selling their time for money, and there is only a limited time in any day. Therefore, if you are about to invest in tactical activity of any type, ask that simple question. If the answer is yes, fine. If it is no, think again.

When you are looking for a coach with the scars to prove experience, browse through the posts on this StrategyAudit site, and then you might want to give me a call.

Is a QR code the ultimate sales tool?

Is a QR code the ultimate sales tool?

Aug 25, 2021 | Communication, Customers, Marketing, Strategy

The first QR code I remember seeing was in the early 2000’s, I think. It was a  video taken in New York Zoo that showed people clicking on what looked like a square of code in front of an enclosure, and getting way more than the usual summarised information about the animal typically printed on boards. It gave detailed and varied information, linking to videos of the animals in the wild, anatomy, physiology, and the lines from which they had descended, all of which could be selected and viewed as you stood there, watching the animals in the enclosure.

This will change the world I thought. Then, almost nothing, for years.

Until Covid struck.

QR codes were invented by Toyota subsidiary Denso Wave in 1994 as a means to keep track of inventory. The problem was that a barcode could only be read one way, and carried limited information, whereas a two-dimensional QR code can carry 31,329 datapoints arranged in rows of up to 177 X 177. As a result, they can carry a huge range of information, the QR code acting as both gatekeeper and curator of the information.

The combination of the availability of QR code readers on smartphones and Covid has resulted in all sorts of creative ways people are using them to register, and engage in a whole range of information delivery processes.

This level of detail is highly applicable to B2B selling. Send a prospect an engaging letter via ‘Snail mail’ which has an almost 100% open rate, that had a QR code providing access to all the information a potential customer may want. Who would not click on it, even if just for curiosity?

I am nearly 70, so not looking for a job. However, if I was, a personal QR code would be all I would need.

Such a resume could include video of me speaking to a group, engaging in group activity, coaching a team member, playing sport, as well as giving the details of various achievements, spoken by referees. It would be a customisable digital asset that could be tailored to the job for which I was applying. Even better, it might serve to create a new job in an organisation for whom I had decided I would like to work. It would take a bit more work than the standard written resume, but would carry geometrically more weight.

If I was back in my FMCG days, I would be putting QR codes on all products offering information on ingredients and their sources, recipes, supply chains, video that enhanced the authenticity of the end product. At some point, the two retail gorillas will demand it, so you may as well get in front of the game.

Toyota has given the world a bank of manufacturing and process management capabilities through their wide publication of the tools and techniques of the Toyota Production System. To that bank you can add the QR code. They elected to make the technology freely available, rather than enforcing their patent rights. As a result, we have at our disposal what has become a vital tool for the management of Covid.

Imagine the revenue they have foregone in the public good, even if they had extracted a royalty of fractions of a cent every time someone clicked on a QR code.

 

 

 

Five questions to transform your unique value proposition into revenue

Five questions to transform your unique value proposition into revenue

Aug 18, 2021 | Customers, Marketing

 

 

Your unique value proposition is the reason people will consider engaging with you, and when there is a choice, you, rather than the other options.

The clearer you are about the focus of your expertise, and the value it delivers, the easier it will be to attract customers/clients, and therefore, monetise it.

What single thing do you deliver to customers for which they will pay?

Complete this sentence: I use my expertise to assist people to ……………………………….

This forces you to distil your expertise down into one simple sentence that defines your value proposition.

You must be specific, avoid cliches and generalities such as ‘improve performance’, ‘be better’ and ‘deliver value’

In my case, the sentence is not ‘I use my expertise to improve business performance’. Instead, my sentence is; ‘I use my expertise to help people grow and build profitability.’ Depending on who I am talking to, I substitute the word ‘people’ with ‘SME manufacturers’ or even more specifically ‘suppliers of widgets’.

What differentiates you from other experts in the field?

What you deliver, and the manner of delivery must be different in some way from alternatives. The differentiator is what engages potential customers to you rather than to someone else. Therefore, ‘Better’ or ‘Bigger’ is not sufficient, they are generic claims that anyone can make.

These points of difference do not make you the right choice for everybody, it makes you the perfect choice for a very few, or at any point in time, just one person. When you are their only choice, where else will they go?

In my case, the differentiator is long experience, and success across corporate, government, and SME businesses. I have an unusual combination of expertise across strategy development and implementation, marketing, accounting, and operations management. While I am primarily a strategic marketer, having run manufacturing businesses, and having deep knowledge of ‘the numbers’ and how to interpret and use them, makes me unusual. This can be valuable to modest sized businesses that tend to have areas of weakness in management expertise outside their core skill.

Who needs what you deliver?

Those that are actively seeking it. There are often many people who might need what you deliver, but those who are actively seeking it are the only ones who will see it when it is presented to them. For example, a tax accountant can help anyone who needs an accountant, but their ideal customer is someone actively seeking advice on tax, today.

How will your expertise benefit your customers?

When you buy something, you expect a beneficial outcome, something that eases the pain, scratches the itch, solves a problem, or just makes you feel better.

Another sentence to be completed from the perspective of the ideal customer.

Those who use my expertise go from ……  to…..

Again, in my case, the sentence is ‘Those who use my expertise go from frenetic activity that seems to go nowhere, to developing and deploying strategies that deliver sustainable profitability’

How do you best connect with, and deliver value to your potential customers?

This is the million-dollar question, and one that should be always left until all the above has been done, at least in some sort of draft. The answer to the question is hiding in the answers to the previous ones you have asked yourself, and the choices you have made as a result.

The choices about how you do this are myriad, which is what makes it so tough. There are many ways to set about communicating and engaging with potential customers. You must make choices, which will miss many potential customers, but will optimise the expenditure of your resources of time and money in connecting with those who are most likely to value and pay for your expertise.