Posts Tagged ‘competitor’

Don’t Let The Summer Heat Cause A Winter Chill

Thursday, July 21st, 2011

It’s almost the end of July, it’s hot and it’s vacation season. The heat saps your energy and getting ready for; switching off during; and scrambling to catch up after vacations takes most of your attention.

Together they make it easy for business owners to lose sight of fact that it’s the end of the second quarter and planning, budgeting, whatever you call it, for 2012 will be starting soon.

So what, you ask? Here’s what – your annual business planning/ budgeting/ whatever you call it process is the engine that drives your growth. If you don’t approach it with that in mind you’re setting yourself up to underachieve in 2012.

Based on mistakes we’ve seen made repeatedly in 10 years of strategy consulting there are several things you need to think about now. Here are a couple to get you started……

1. Don’t postpone the second quarter/mid-year review. Hold it ASAP.

Quarterly reviews are a reality check. What’s really happening in the industry, to our customers and with our competitors? How does that compare to our assumptions and how has it affected our forecasts? What can we do to leverage this reality in the next 2 quarters?

How many of the programs we planned have we actually put in place? Are they yielding the results we wanted? What has worked well that can be we build on? Which programs are behind time and how do we adjust for that?

The answers to these questions and others like them, asked in the quarterly review, will allow you to put form around what the situation will be at year end and give you a jumping off point for forecasting sales and bottom line in 2012 and beyond.

If you haven’t been doing quarterly reviews, or have let them slip, this is the time to start or re-start them.

Don’t let vacations be an excuse for postponing them.

2. Waiting until the week before the annual business planning session to start thinking about next year isn’t nearly good enough.

You’re going to make as accurate a guess about what the future holds as possible. To do that you’re going to have to make assumptions which will underpin your financial forecasts, priorities and action plans.

On what information will you base the assumptions? Something you read in an economic outlook from a bank or industry association or in articles about your industry or competitors on the web?

Or are you going to get out and talk to your customers and suppliers about what is happening in their world and what that will mean for you? Why not put a simple but systematic process in place to ask the same, key questions from several sources?

But that will take time; it can’t be done in the week or two before the planning session. Who is going to see whom and ask them what has to be decided soon – using output from the second quarter review. And the meetings will have to be arranged – and everyone has a full, busy schedule.

If information is power – or at least confers power – why settle for anything less than the best information available? Decide what you need and how to get it now – then start collecting the information soon.

3. Quick tip.

Dealing with the summer heat and vacations, doing the things that are urgent, can take the focus off preparation for the thing – the annual business planning process – that is important. If that happens and business catches a chill next year, it will not be this summer’s heat that’s to blame.

More in future posts, but today is the hottest day so far this year – so I’m off to get a Frappuccino. Staying cool is hard work!

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Should I Sell Or Succeed?

Tuesday, April 26th, 2011

Suspend your first reaction – i.e. has Jim finally lost his mind – just for a moment. This is a question we are asked more often than you would think. It may not be posed in those exact words, but it’s always the fundamental, real question.

Let me tell you why it’s asked and then give you our answer.

Frustration and Unexpected Curve Balls.

Business owners like to think they’re superheroes, capable of absorbing unending stress and working mind numbing hours day after day after day. But they’re not, they’re human beings and so – occasionally and less frequently than most – even they get frustrated, tired or worn out.

It often happens when a new initiative or project takes longer, runs significantly over cost, or generally creates more headaches than anyone imagined – even in their wildest dreams.

Another trigger is a completely unexpected event. A competitor dramatically drops prices, a long term supplier goes out of business or a partner walks in and says they’ve decided to retire.

It could be a tough, slow market because of a recession. Or the owner could have reached an age where he/she is ready focus on other aspects of life.

It could be a combination of the above.

But the result is the same – the business owners say the equivalent of “You know what, I don’t have the desire/motivation to do this again. It would be easier just to sell.”

That’s when we hear the question.

You Can’t Do One Without Having Done The Other.

Consultants (it is said) always answer a question with a question. In this case we ask something like:

• “Can you be sure that a company – in the middle of a major project or facing major price competition or about to lose a key player/founder/owner or some combination of the above – will continue to be successful?” and
• “Would you pay top dollar for a company in any of those situations?”

Buyers want to minimize risk when purchasing a company. So the likely answer to both questions would be “No”.

Sellers want to maximize the selling price so the business owners pretty quickly figure out the answer to the “Should I Sell Or Should I Succeed” question for themselves.

A fresh mind can often quickly see a solution to the types of challenges that cause business owners to consider selling in the first place. And this is one situation where we – and other consultants like us – add value.

The Bottom Line.

As a rule, you can’t sell unless/until you succeed.

But, as with many rules, there’s an exception to this one. Want to guess what it is?

Focus On The Drivers And Get The Best Price!

Tuesday, January 11th, 2011

Last month I talked about increasing the value of a company being an output of executing a strategy/ running a company, well. (See Selling Price of Your Company – Goal or Output?)

This week I had the opportunity to speak to a group of accountants, lawyers and financial planners about how business owners view their companies as an asset for retirement. As it turned out, I couldn’t do the talk because I was sick (hopefully they’ll invite me back).

But here are some of the points I was going to cover.

In our experience getting entrepreneurs to focus on building value in their companies can be difficult. Many assume that they’ll only have to think about selling 6 or 9 months before they retire – ignoring several reasons why a sale may occur well before then.

For example, someone from a larger competitor could walk in one day and make the owner an offer. We see this in industries which are consolidating or when our client has intellectual property, or some other asset, the larger competitor considers to be strategic.

It’s also not unknown for one principal in a partnership to trigger a shotgun clause either in an effort to buy out the others or because he/she is ready to move on.

So, as service providers – consultants, accountants, lawyers, financial planners – it falls on us to make our clients aware of these potential surprises.

It’s purely an observation on our part but younger entrepreneurs appear more focused on the price for which they can ultimately sell their companies. As are those owners who have attracted angel or other investors.

The former want to fund another, more relaxed lifestyle and have a relatively short time frame before cashing out. The latter realize that a liquidity event is a certainty at some point in the not too distant future.

The value of most companies – including those purchased for so called strategic reasons – is a function of the size and continuity of the future stream of operating income they will generate.

To get the best price for the company the seller has to demonstrate, particularly during due diligence, that;

  • The drivers of great operating profits are in place and that
  • They will continue to produce those profits after the current owner rides off into the sunset either immediately or after a transition period. 

I talked in my earlier post about those drivers falling into 2 categories – the ones the owner can control and the ones he/she can’t.

Many service providers know from training, experience or both what those drivers are. And they share them with their clients, particularly if the accountant, lawyer or other professional believes there’s room for improvement.

But that advice/input may not be taken.

Why? There are 3 reasons.

First, the service provider may not be able to tell their client/the owner how to put the drivers in place. Second, if the owner knew how to put them in place he/she would have done so already. And third, there may not be enough time to get all of them fully implemented.

There is a solution for the first two. Consultants with the relevant knowledge and experience will work with owner to put the missing links in place. We’re certainly not the only firm who can do this but, if you want to know how it would be done, give me a call and I’ll be happy to give you some examples.

But the solution to the third lies solely in the hands of the owners – including younger entrepreneurs (investors tend to take care of their own). It can take as much as 2 or 3 years to prepare/optimize a company for sale. But it needn’t. The things that will bring the best price are the same things that will optimize operating profits this year and next year. 

If they aren’t in place now why wouldn’t they be put in place – now?

5 Tips To Improve Margins and the Bottom Line……

Wednesday, May 5th, 2010

Sometimes the old truths are the most important ones. A conversation with a client the other day got me thinking about these simple tips that can pay major dividends.

There are really only 4 ways to increase profits – sell more, improve margins, cut costs or do all three. Costs always have a habit of creeping upwards over time. So, particularly in these economic times, it pays to take a hard look at them and then eliminate the things we can live without. But there’s a limit to the extent to which we can cut costs before we hurt the company’s long term growth potential. To get steady, incremental increases in profit we have to sell more and improve margins.

There are only 2 ways to sell more – add new customers or increase sales to existing customers. In my experience, when we talk about selling more we tend to put the focus on adding new customers. But we know that it costs at least 6 times more to sell to a new customer than to an existing client. That’s not hard to understand when we consider the “acquisition” costs – e.g. advertising, telemarketing, etc.

Tip # 1. Don’t lose your least expensive prospects – existing customers. They must be convinced that we do a great job; otherwise they wouldn’t buy from us. Every business loses some customers over time, but when customers leak away, replacing them with new ones cuts into profits. The key is to focus on our “retention rate”. We need to have a process that alerts us when a customer stops purchasing from us. And we must find out why exactly they’re leaving – not simply make assumptions. Keeping customers satisfied is better for your bottom line than replacing them.

Tip # 2. Remember not all customers are created equal when it comes to profitability. Pareto’s rule tells us that 80% of our profits will come from 20% of our customers. But, how many of us slip into the situation, over time, of treating all customers as equally important? That actually hurts our profits because we waste money using the same marketing and selling techniques on everyone and treat them the same way when they contact us.

So, how do we recognize the 20% of customers who give us 80% of our profits? They are the companies who buy from us regularly and understand the value of what we do for their business. They focus on quality and reliability rather than price and they pay on time. Because they are successful in their field, they have the potential to grow, allowing us to grow with them. They may even refer potential clients to us. These are our “A” customers. Can you identify yours?

Tip # 3. It makes good business sense to treat “A” customers differently than the others. Everyone in the organization should know who they are. So, when they talk to them on the phone or face-to-face, answer their email, make product for them or pick their orders, these “A” clients get the most prompt, attentive, efficient service we can give. We should market differently to them too. Stay closely in touch personally and via email, e.g. send them our newsletters, and develop the relationship by figuring out how we can help them respond to the changes in their industry.

Tip #4. Watch the customers who offer some, but not all, of the benefits of our “A’s” very closely. They still focus on quality and reliability but may not have been around as long as “A’s” and so may not buy as regularly and/or as much. These are our “B” customers, and apart from what they do for our bottom line today, they have the potential to be the “A’s” of the future. Identify them and build a strong relationship with them. They may get fewer face-to-face visits than the “A’s” but they do get regular calls from our internal sales staff – a very effective but much less costly method of maintaining contact. They are also on our email database.

Then there are customers who buy smaller amounts consistently but who have very little potential for further development. These customers – our “C’s” – are solid contributors to the remaining 20% of our profits but the ones who may be most likely to drift away. Our sales and marketing strategies are designed to maintain these relationships in a cost effective way. Primary contact is via regular (but less frequent than for “B” clients) calls from internal sales and email contact about the products or services they buy.

The final group is easy to recognize – they complain most and buy small quantities of our products irregularly. That’s because they are focused on price and discounts. They buy from us only when we’re cheaper than our competitors – they have no loyalty. When they do buy from us, they are abrupt, demanding, they always need delivery immediately and people hate dealing with them. Processing their orders requires our staff to drop everything else and get them to the front of the line. They are our “D” accounts. Dealing with “D’s” can be so disruptive that occasionally they even cause us to make mistakes with the orders for the profitable customers.

Tip # 5. The final tip is to “fire” your “D” accounts. That’s correct, if orders from “D” customers are profitable they’re at the bottom end of the margin scale and the amount of resource required to get them out the door wipes out anything we were going to make. Yet we all have “D” accounts – why don’t we just get rid of them? We don’t have to be rude, simply play them at their own game – quote high prices or long lead times. They’ll make the decision not to deal with us. Do it often enough and they’ll stop calling.

Focus on your “A” and “B” customers and you’ll improve your margins. Match your sales and marketing resources to customer type and get rid of your “D’s” and you’ll improve the bottom line. Make retaining “C’” customers a priority; work hard at turning your “B” accounts into “A’s” and get your sales staff focused on understanding your “A” accounts’ business – then you’ll not only sell more but you’ll make more profitable sales.

Some “oldies” but truly “goldies” in these very difficult times!

Prices – 6 Reasons To Keep Them Up

Monday, November 23rd, 2009

Some of the questions which I get when I finish a seminar, workshop or webinar inevitably involve price strategy. It’s a topic close to my heart (I am a Scotsman after all) and one that provokes strong emotion amongst most business owners. And that’s interesting really, because most buyers typically rank price around 4th in their list of buying criteria.

Price is important only when the product or service being sold is a commodity and very few products actually are true commodities (can you think of one right now)? Large consumer goods companies spend millions on advertising to convince us that some products which are commodities, really aren’t. (Does it really make a difference if you buy gas from PetroCanada or Shell?)

But it probably isn’t necessary for the average business owner to cut prices, offer discounts or to spend a lot of money on advertising to get customers to pay a price which enables them to make an acceptable profit. In fact here are 6 reasons why you shouldn’t be discounting or cutting prices.

Reason # 1. There is no business that doesn’t have the potential to command an acceptable price for its products or services if it is able to market those products or services in such a way that the customer perceives added value. If you don’t believe me just think about the difference in price between a Lexus and a Hyundai – they’re both just a means of transportation. Tip Top tailors and Harry Rosen both sell men’s clothes – but don’t wait for Harry to have a $199 sale before buying your next suit!

Reason # 2. As business owners it’s our job to create the perception that our products and services offer superior value and to back that up with superb service. How do we do that? One way to begin is to figure out who your best customers are (they buy regularly and never complain about price) and ask them why they buy from you rather than from someone else. But don’t ask them to rate the reasons you think they buy from you, ask them to tell you what they consider is important and then ask them to rate your performance on those. Then you can figure out what makes you unique in their eyes.

Reason # 3. Two easy ways to add value are to really understand what’s going on in your customers’ business and how your products impact their success; then pass this information on to your staff and train them to provide what your customer will see as great customer service. (Of course maintaining the quality of your products, and doing regular customer satisfaction surveys won’t hurt either.)

Reason # 4. Remember if your gross margin is 30% and you reduce price by 10%, sales volumes must increase by 50% to maintain your initial profit level. For some reason we’ve come to believe that offering price discounts is a good long term strategy. If you still believe that consider the problems that the North American car manufacturers have created for themselves with, for example, “Employee Pricing” campaigns. Or think about how hard it was for the Bay to get away from “Bay Days” or Sears to stop their “Scratch and Win” promotions. You’re right, despite saying they were going to stop them they’re both still doing them. Once you’ve dropped your prices it is very difficult to get them back up to previous levels.

Reason # 5. Price discounting works in only two situations – where you have a definite cost advantage over your competitors and/or your product or service is one where customers are genuinely, truly, price-sensitive. We’ve already dealt with the price sensitive case and if you have a cost advantage why would you pass the entire extra margin on to consumers rather than investing some of it maintaining your technological or other advantage? Let’s face it, you aren’t in business to simply match the price your competitors set, you are here to serve your customers well and make a profit.

Reason # 6. Remember, if your gross margin is 30% and you increase your prices by 10%, you can sustain a 25% reduction in sales volumes before your profit is reduced to the previous level. Research shows that roughly only 15% of customers think in terms of price. They are better left to your competitors because they will never be satisfied and will always be looking for a better ‘deal.’ Their loyalty is impossible to achieve and they’ll never recommend you to anyone else. Focusing resources on servicing this ‘low’ end of the market won’t sustain the future growth of your business through either your turnover or profitability. It’s far better to work with those people who are happy to pay for value.

If you don’t believe my math or that customer surveys don’t have don’t have to be expensive or if you just want to know the date and location of my next seminar drop me an email

4 Tips to Make Sales Forecasting Easier……………

Monday, September 7th, 2009

If we could forecast the future accurately, most of us would spend our lives at a racetrack or casino rather than at work. But forecasting the future is something we all have to do as business owners – either to set internal goals, to obtain additional financing and for other reasons. Forecasting is, however, one of the most difficult and frustrating things that we have to do and few things cause as much anguish and soul searching as sales forecasts.

Tip # 1. Forget trying to predict the future and focus on using “informed judgment”. Many attempts at forecasting fail because those involved, from sales reps. to business owners, don’t have the detailed knowledge of their market, their competitors, their customers and potential customers that is essential for making good estimates. They are less than fully informed when they make their judgment of what will happen – and that’s a failure of work and effort, not of technique.

Tip # 2. Remember that we can only control some of the things that have an impact on our forecasts, for example, the number of dealers we approach, the effectiveness of our promotional tools and our price strategy. There are others factors which directly affect the odds of our success but which are beyond our control. Some are known and can be reflected in the assumptions on which are forecasts are based, for example the price of crude oil, low pay scales for offshore labour. But there are others to which we can only react, for example an unexpected outbreak of SARS.

Tip # 3. The most common mistakes, in my experience, are that we overestimate how much we can sell and how quickly we can sell it. Avoiding those mistakes is hard enough when estimating how much more our existing customers will buy of the products they currently use. Adding any “new” dimension just adds complexity.

Forecasting increased sales to current customers should be easy. We either increase the volume of existing products, start selling them products they don’t currently buy and/or increase prices. But if the account managers don’t have the skill – or don’t make the effort – to get as much information about, for example, what is happening in the customer’s own business and how that affects our offering to them, we will be trying to forecast with less than detailed knowledge. So, we can’t make informed judgments – fertile ground for overestimating what can be sold.

What happens if, for example, we’re going to start selling an existing product in a new geographic market? If our competitors already offer a product in that region/province/country, how much of our sales will come from the market share we’ll take away from them and how much will come from the continuing growth of the market? To begin, we must understand how our product quality, lead times and prices compare with our competitor’s and how much it will cost to get our message heard over their promotional “noise”. We can do some simple, inexpensive research to gain the detailed knowledge required to answer those questions.

When it comes to taking market share away from competitors, we have to make 2 sales. Firstly convince the customer to stop buying from our competitors and then convince them to buy our product – which is untested in this marketplace. But for most business owners, who are natural optimists and driven, type ‘A” personalities, it is not difficult to underestimate how long this will take!

Estimating the sales that will come just from market growth may seem easy by comparison. All we have to do is to convince the remaining distribution channels to sell our widget – make 1 sale instead of two (always assuming our competitors have left some distributors for us). But estimating how long our new distributors will need to ramp up requires information to help us assess how effective the distributors will be. We also want our share of the market to grow at least as quickly as the market itself. The future market growth rate can be forecast using the actual growth rate for the last 2 or 3 years (either as is, or adjusted upwards or downwards). The rate at which we grow depends on how good a Marketing plan we have. Developing an effective Marketing plan requires informed judgment. Anything less, combined with that optimistic approach of the entrepreneur, will, once again, result in overestimates.

Tip # 4. Even if you’ve worked hard and spent time gathering detailed knowledge which you used to make informed judgments, don’t stop when you develop a “final” set of numbers. Unless you’ve been unusually pragmatic in arriving at this first forecast, call it your best case. Now think of the things that are most likely to go wrong, assume that they will, change your spread sheets accordingly – and call that your worst case. Finally, it’s unlikely that everything will go against you but it’s equally unlikely that everything will go your way so take a third approach, which avoids either of the extremes, run the numbers again – and call that your most likely case.

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