Posts Tagged ‘product’

Pilot, Perfect, Scale Up

Tuesday, February 26th, 2013

You have to change what you’re doing now in order to grow your company.Change what you're doing to grow your business

That’s unavoidable – and it means taking risks.

But some changes are less risky than others.

For example, how much risk do you take selling a well-proven product or service to new customers? And how does that compare to, for example, investing in a new promotional campaign?

Let’s talk about that promotional campaign for a moment because lots of business owners have had a bad experience with one.

The challenge is that you have to spend money getting someone to create a new message which will get your prospective customers to do something you want.

The risk lies in the fact that the business owner has to pay for the new message and for getting it out there before they know if it will have the desired result.

But this is not entirely true.

You don’t have to pay for a full promotional campaign before you know if it will work. At the very least you can narrow the odds of failure and limit your investment.

How? By following a process called “pilot, perfect, scale up”.

For example, you can test as many variations of the message as it takes, on a small group of customers, until they see and hear what you want them to see and hear. That’s the piloting part.

Then, instead of emailing the message to everyone, you first send it to part of your database and check they are getting the message and, if necessary, make further changes. That’s the perfecting part.

Only when you’ve done that do you scale up and launch the campaign to everyone.

The same technique can be used for developing (or adding) new products. Pilot them by testing the concept and then the prototype with a few potential customers. Use their feedback to modify and develop your original idea.

Then roll it out locally. If there are unforeseen problems, you can perfect the new product/service by either shipping them back or getting support people out to customers relatively quickly and inexpensively.

Scale up by going for a regional or national launch only after managing the risks by taking the first 2 steps.

You can apply this process to almost any change or risk you have to take to grow. For example, want to:

•    Grow your retail business? Get one outlet running profitably by perfecting the systems and documenting the processes there. Then transfer them to other, remote locations. (Not exactly my idea, see Michael Gerber’s “The E-Myth”.)
•    Add new markets? Do it in increments rather than by put everything on the line by overstretching.
•    Hire a consultant? Give them a small project and see how they do with that before giving them the big one.

This seems so simple, so fundamental you may wonder why I’m even writing about it.

It’s because we continue to see situations where “pilot, perfect and scale up” should have been used and wasn’t.

 

If you enjoyed this post you’ll also enjoy Cop Out Or Common Sense?

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Ask 5 Questions To Find Out What Customers Want To Pay

Tuesday, September 18th, 2012

I’m a Scotsman and happy to admit that I fit the “cost-conscious” stereotype that sticks to people from the country of my birth. In fact my friends call me “the canny Scotsman”.

While I’d hardly say that pricing strategy is my favourite part of what we do, I keep an eye open for anything that will give us – and our clients – an edge in that area.

That’s why a blog post about how to find out what customers will pay caught my eye.

The author, Rafi Mohammed, is a pricing consultant and he says that it’s as simple as asking your customers. My first reaction was that they won’t tell the truth. Human nature being what it is, it would be only natural for them to give a “low ball” answer.

But, as with so many things in life, it turns out that it’s not so much what you ask, it’s how you ask it.

Rafi suggests that, rather than ask the question directly, say that you’re carrying out a customer satisfaction survey. Tell your customers that you’re trying to understand what they like about your product or service so that you can serve them better in the future.

Then include these 5 questions in a series that probes general customer satisfaction.

1. “What competitive products did you consider buying?” If the answer is “none” then the customer is not price sensitive and you may have room to increase price. I think that, at worst, the answer will tell you who else your customers are looking at – a valuable piece of intelligence in itself. But, in this economic climate, I don’t think there are many companies that don’t consider alternatives.

2. “What do you think of our prices – are they too high or too low?” The logic is that some customers will clam up when asked this question – but that others will give a lengthy answer. Listen to the second group carefully, without probing any further, and then move on.

3. “What other features would you like added to the product/service?” I really like this question. The information you gather can be used to offer different versions of your service e.g. Silver, Gold and Platinum. It will also tell you what your customers would be willing to pay a premium for – fuel for the development of your next version of the product or service.

4. “What do you like and what don’t you like about our pricing strategy?” I like open ended questions like this. Everyone can find something to say, so the question gets people talking. And lays the groundwork for more probing.

5. “Are there other ways you would like – or even prefer – to buy our products?” This is the kind of question that – 9 times out of 10 – will produce an unsurprising answer. But that lone surprising answer, when it does come, could shake your current assumptions to their core.

If you want to read more, the blog post is called How to Find Out What Customers Will Pay.

By the way I’m not at all bothered being lumped into the Scottish stereotype. In fact I think being called “canny” – a term we Scotsman invented – is a compliment. The Pocket Oxford Dictionary defines it as “shrewd and cautious; worldly-wise; thrifty.” How can that be bad?

If you enjoyed this post you’ll also enjoy Prices – 6 Reasons To Keep Them Up.

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The More Things Change……

Thursday, July 5th, 2012

….the more they stay the same. I was reminded of that old adage twice last week.

The first time was when I caught myself saying something my father used to say. The second was when I read a blog post about growth strategies.

And the same thought occurred to me on both occasions. My father’s saying and the piece on growth strategies are as true today as they were when I first encountered them.

My dad, a grizzled fisherman and survivor of the Atlantic convoys in World War 2, had a number of sayings. One of his favourites was “Rules are for the guidance of wise men and the blind obedience of fools”.

Substitute “people” for “men” and I believe it’s every bit as wise and useful today as it was in his day. I use it all the time – ask anyone who works with me.

The piece on growth strategies talked about Ansoff’s 3 intensive growth strategies – which were first published in 1951. They are:

  • Market penetration – when a company increases its share of its existing markets by – getting current  users  to buy more; users of competitive products to switch; and non-users to start purchasing.
  • Market development – selling existing products into new markets. There are 3 ways to do that – identify new groups (markets) in the current geographic area; use new distribution channels to reach more users also located in the current area; or start selling in new locations e.g. into the U.S., Europe or Asia.
  • Product development – developing new products or services for existing markets. A company could add new features to existing products; offer different versions at different price points – silver, gold or platinum variants; or introducing a new technology which offers more benefits to the user.

Diversification, which was also included in the article or blog post, is a fourth strategy which, to be fair, was added later.

A company can use its core business strengths to diversify in 3 ways. Add new products which are related in some way to its existing ones. Or, add new services, unrelated to its current offering but which appeal to its current customers. Finally, it can move (perhaps by acquisition) into a new business which is unrelated to what it has been doing.

While they were first defined and described 61 years ago, these strategies have been around for much longer than that. And yet, despite what we hear and read about none of the old rules being useful in this age of rapid change and uncertainty, they are still being used.

For example, could Apple’s (and Android’s) gains at Blackberry’s expense have been the result of a penetration strategy; was Facebook’s acquisition of Instagram a product development or diversification play?

Are these strategies being used in the same industries and in the same way as they were 60 years ago? Clearly the answer is no. But that doesn’t mean they can’t be adapted and applied today.

If rules are used for guidance by wise people then some things, for instance growth strategies, can stay the same, even while other things change.

 

If you enjoyed this post you’ll also enjoy 5 Tips for Fast Growth in a Slow Economy.

3 Times When You May Need To Change Your Strategy

Thursday, February 2nd, 2012

We all do things that are crazy.

One of my things is telling people that they shouldn’t be changing their strategy.

I do it when business owners – or CEOs – say things like “It’s time for our annual strategy meeting”. The implication – for me at any rate – is that they change their strategy every year.

But that would be just plain wrong.

Changes to a well thought-out, well-crafted strategy shouldn’t be driven simply because it’s been in place 1, 3 or 5 years.

A strategy shouldn’t necessarily be changed even if it isn’t producing results. In this situation I always look at how well (or badly) the strategy is being executed before I look at the strategy itself.

So when should a company review its strategy? And what makes that review and any subsequent adaptation, revision or recreation necessary?

Here are three occasions.

1.    When the company has outgrown its strategy.

There’s research which suggests that companies can “plateau” when they achieve certain levels of revenue. Depending on the industry those levels are around $5 million, approx. $10 -12 million, somewhere between $18 – 30 million and so on.

Typical symptoms of “plateauing” are upward spikes in revenue which can’t be maintained, increasing lead times delivering the product or service, decreasing levels of customer satisfaction and higher employee turnover.

The plateauing occurs because the things – e.g. strategy, processes – the company has done up to that point in its life can’t support any more growth. It’s like expecting a teenager to fit into the clothes they wore when they were eight.

To rekindle growth the owner either has to change the strategy, the way it’s executed – or both.

2.    Significant internal change.

This occurs when, for example, a company develops a game changing new product or service or finds a new way of doing its existing business. This gives it an edge over its competitors by e.g. reducing costs or increasing efficiencies.

To reap maximum benefit from this new competitive advantage the owner will have to adapt or change the existing strategy.

3.    Significant external change.

In this case the owner or CEO has to react to e.g.:

  • A competitor who is taking advantage of a significant internal change.
  • The industry “maturing”. In other words the business has been around long enough for a number of competitors to have become large enough to e.g.:
    • Reduce their costs and pass this on as reductions in the selling price or,
    • Buy up smaller players who introduce game changing technology or process improvements. This is also known as industry consolidation.
  • Major changes in e.g. the economy, labour pool, legislation governing the industry, or all of the above.

Continuing with a “business as usual” approach under any of these situations is clearly not going to be effective.

To be fair, when business owners and CEOs say “It’s time for our annual strategy meeting” they usually mean that it’s time to start the annual business planning process. That is something that must be done every year.

And, since we have services which can make the annual business planning process more effective, perhaps I’m not as crazy as I look – I mean sound…….

If you enjoyed this you will also enjoy 2 Things That Cause Bad Strategy

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Being Profitable and Strong Increases Valuation

Wednesday, November 9th, 2011

In my last post I talked about 4 things every owner of a successful business must think about. They are the 6 reasons a company is sold, the 2 factors which apply to each of those situations and what being “profitable” and “strong” mean.

I promised then that I’d talk about how to make a company profitable and strong. So here we go.

1. How do you achieve consistent profitability? Here are 6 things every business owner can do to increase the odds that her/his company will produce consistent, industry beating profits:
a. Develop a strong product line – not only having width and depth in current products but also always having new products under development.
b. Build a great reputation – and recognizable identity or brand – in your target market(s) by delivering quality products and services, on time, that meet your customers’ needs.
c. Be in more than one market (which ideally do well in different phases of the economic cycle).
d. Have a broad customer base built on strong companies or affluent consumers.
e. Generate a stream of recurring revenue rather than working solely on projects which have to be replaced when complete.
f. Innovate – and create some intellectual property, products or processes, which can be protected, creating a sustainable advantage or a barrier to lock out competitors.

2. How do you make a company strong? Here are 6 things an owner can do to survive the loss of key people and keep his/her company’s balance sheet ratios looking good:
a. Document all processes. Especially the sales process which can be mapped, then managed, using a CRM system.
b. Involve all of the key people in a formal, annual business planning (and budgeting) process, which is completed 2 months before the start of a fiscal year and which includes formal, quarterly reviews.
c. Maintain strong internal financial controls, including cash flow forecasting, and insist on timely, monthly reporting.
d. If the management team doesn’t know and understand the drivers of the key balance sheet ratios have your accountant run a training program for them.
e. Always put leases and contracts – for everything and everyone – in writing.
f. Make Human Resources management a key part of your strategy and culture by e.g. driving accountability and responsibility through job descriptions; making decision making independent of the owner; identifying talent and training people for growth.

A company which is profitable and strong can survive the prolonged absence of the current owner as a result of injury or illness because it will continue to: 
• Execute its proven strategy.
• Be innovative, building barriers against competitors.
• Operate day-to-day without missing a beat.
• Produce revenues and profits at, or above, previous levels.
• Keep and attract good people.
• Attract financing should it be required.
• Survive any unexpected crises in the industry or economy.

The ability to do that also makes this type of company very attractive to a potential buyer – because the risk of the company failing in the short term is reduced significantly. And that means the valuation of the company – which determines the selling price – will be at the high end of the scale.

So by doing the 12 things I mentioned (and, in all fairness, some others like them) a business owner wins in 3 ways.

She or he makes great money while they run the company. They build security for themselves and their families in the event they are injured, fall ill or even die. And they maximize the return on the long hours, missed vacations and risks they’ve taken by getting a great price for the company if it’s sold.

How good is that?

If you enjoyed this you will also enjoy The 2 Truths Every Business Owner Has To Face and The Future Of Your Business: Succession or Exit

2 Key Questions Every New Product Must Answer

Friday, June 10th, 2011

1. It Failed!

Everyone can think of companies – large and small – that have committed resources and spent money on new products/services only to fail.

Does anyone remember Sony’s Mini-Disc or the Apple Newton? Then there are those high profile classics New Coke and Crystal Pepsi.

How do large, credible organizations make mistakes like these?  And if they can do it, what chance do smaller, owner managed companies, with significantly less resources, stand?

2. Here’s A Reason Why.

One reason for these lapses is that the team members making the key decisions (who often spend most of their time in the company’s offices not in the field) believe passionately that the idea is going to work. That’s because, when you’re close to something it’s easy to become convinced you’re right. And when you feel that way you tend to push on regardless.

Maybe their research was faulty, or maybe they just didn’t do any.

Or maybe they didn’t take the time to take a step back and ask the question “What role can our product/service play in the market?” before committing resources to the initiative.

That’s not just a marketing strategy question – it’s a business strategy question. Because if it’s a bad idea and it fails, money and other resources that could have been deployed elsewhere are wasted. And the reputation of the company as a whole – and the people backing the project – is damaged.

3. Products Have To Earn The Right To Exist.

A company’s new products have to earn the right to exist. They do that when the answers to the following 2 questions are “Yes!”
• Do the products provide value that is perceived to be unique compared current offerings?
• Can they generate sufficient revenue, profit and cash to be sustainable?

As a business owner you can find the answers to the questions in a couple of different ways.

The first is by posing them in the early discussions about the products. Finding the answers will generate a lot of the information that will be required to assess the target market, develop a marketing mix, complete financial forecasts and weave them all together in a business case. So it’s hardly a waste of time!

The second is to wait and look for the answers when the business case has been completed.

4. The Important Thing Is………

Both approaches have their advantages and disadvantages. The important thing is to choose one and use it.

If you proceed without answering the 2 questions then you are taking unnecessary risk with your money and other resources – and your reputation.

Physician Heal Thyself

Monday, September 13th, 2010

We’ve just finished the business planning session for our fiscal year which started 1 Jul 10, using the same tools and processes we use with our clients. But it’s so much easier when you’re telling someone else what to do.

The first thing was that we were late getting started. So we immediately broke one of our own cardinal rules – get next year’s plan in place before the end of the current fiscal year. This is something we preach relentlessly to the business owners we work with.

We had done all of the regular quarterly reviews of last year’s plan giving us, under some circumstances, a pretty good starting point for this year. For about a nano second I was tempted just to roll things forward.

But last year was our best year ever and the business had grown in some interesting new directions. Also, we hadn’t taken a look at our 5 year goals during the quarterly reviews. Rather than break another rule, we decided to do a full analysis and went through the lot – target market; competitive evaluation; product and service offering; pricing strategy etc.

So we set some dates on which we’d work through the steps – and then proceeded to change them, pushing them out. Well, I heard myself say, we can’t let day-to-day operations slip, there’s client work to be done; we can’t miss those deadlines. And a little voice asked “Hmmm, where have you heard that before?”

While we were figuring out where we had to be in 3 years’ time that voice in my head was back. At first I couldn’t believe it – that can’t be me. But it was – I’d slipped from consultant into business owner mode. I had to have a stern talk to myself – “Come on Jim, be realistic, where’s your objectivity?”

Going through the gap analysis and figuring out what had to be done was relatively easy. But when we got to prioritization and looking at the investments we had to make I actually broke into a cold sweat at one point.

Then I thought – I’ve done this dozens of times, what’s the problem; this isn’t nearly as difficult when we do it for other companies! The answer was really simple – it was my baby (I mean company); it was my future (I mean retirement plan); it was my money we were risking (for those nasty investments).

To make a long story short, we finished the planning process and identified 5 strategic initiatives I am convinced will take us to the next level. The action plans are in place and being worked on even as I write this. We made some minor adjustments but we confirmed again, from our own experience, that the process we use with other companies works.

And I promise to be more understanding with other business owners in the future!

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

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