4 questions every business owner should ask themselves. Now.

4 questions every business owner should ask themselves. Now.

Jul 25, 2016 | Change, Governance, Leadership, Strategy

In principal, business is simple, sell something for more than it costs you too produce it. After that it gets more complicated, but is always tangled up with the word “Value”

It is a word with many meanings to different people in different contexts.

How do we create value?

Value, like beauty in the eye of the beholder, is in the eye of the user. Value means different things to different people in different circumstances, and figuring out how to add value to that customer under those circumstances is the secret sauce of success. The key to value identification is always to be able to see the offer you are making through the eyes of the customer.

How do we deliver value?

‘Value’ is only valuable when it delivers a benefit. If you have the only part in town that will fix a problem, that part only has value installed, it is no good in your toolbox.

The means by which you deliver value varies, and the business models available have exploded. Supermarkets have an entirely different model to a grocery home delivery service. While the products may be the same, and from time to time the customers the same, the circumstances under which they are used will never be he same.  AirbnB would not have been possible 10 years ago, two sided markets were simply too cumbersome except in capital intensive applications like a stock exchange. Similarly, the availability of digital versions of books, along with the spoken and traditional print versions deliver the value of a book in different ways.

How do we capture value?

Business is about getting paid for  the value delivery more than it cost you to provide it. Again, digital changed the game, just ask anyone in the newspaper business. Deep consideration of the most appropriate business model is required if you are to capture all the available value, and leave your customers happy enough  to go again.

Will it be the same tomorrow?

Almost certainly not.

And the day after tomorrow, there will have been substantial change. How you react to or better, anticipate the change will be the measure of how commercially sustainable your business really is.

One more really important thing to remember.

Businesses are inanimate collections of assets and processes that can do nothing by themselves. They need people to make them work, to create the environment that accommodates the four factors above. The old cliche of people being our most important asset has never been truer than in this current environment of accelerating change.

Is technology killing advertising, and ruining our lives?

Is technology killing advertising, and ruining our lives?

Jul 20, 2016 | Governance, Leadership, Marketing

A while ago I asked the question ‘Is the net killing marketing creativity‘ and came to the conclusion that the instant gratification now apparently demanded in all phases of our lives has indeed killed creativity.

Perhaps tritely I put it down to the not so bright amongst the marketing fraternity taking the easy way out, because it was the only one they could see.

However, the question does require some greater consideration.

That technology has overtaken us is indisputable, giving us the potential for focus and reach in addition to great  performance metrics, but creativity requires more than just speed. It requires subtlety, deep understanding of those with whom you are communicating, a capacity to see yourself through the eyes of others, and a willingness to be different and take risks.

It is in these latter areas that advertising is failing, badly.

For the uninitiated, ‘Martech’ seems to have caught on as the phrase of the moment, very intelligently pushed by my colleague Scott Brinker on the Chief Martech blog.

A subset of the Martech environment is the ‘Adtech’ tools, which have automated advertising, the most obvious but far from the only manifestation of creativity. Whether it  be on line or in an analogue environment, only the means of delivery has changed, not the need to engage, entice, intrigue and advise readers.

The ad industry has certainly been damaged, although great swathes of it have just got what they deserved, being mediocre purveyors of wasted investment, and unwilling to see the writing on the wall, although it was their wall.

The technology has been abused, and consumers have turned off it all, and the evidence for  that is everywhere.

Over 400 million people, 22% of smart phone owners use ad blockers to insulate themselves from advertising, and the number is currently higher on desk-top devices.

Web advertising has evolved quickly into the digital version of the crap that fills your letterbox, direct response, discount coupons, price promos, untargeted rubbish. Where is the recognition that advertising has a higher purpose, it is an investment in the long term, things called ‘brands’.

Remember them?

And as for advertisers, they are slowly waking up to the fact that up to 40% of their ads are being seen only by robots, and last I looked they do not buy much. In addition, the media placement is now often done by so called ‘programmatic buying’ which is a way of removing the insight and intuition of people from the process, saving money and pocketing the difference. While sellers tout the value of programmatic buying, and in some circumstances it does have merit, the major benefit is their pockets, not the advertisers marketing outcomes.

More fool the marketers I guess, they are getting what they deserve.

I will show my colors here, as little investigative reporting as we have come to know it being done in the digital space. Where would Australians be without people like Kate McClymont of Sydney’s SMH who almost single handedly, and against great odds provided the impetus that led to the conviction of Eddie Obeid for fraud, and exposed the predation of members of the Catholic church clergy in Newcastle that led to the current Royal Commission. Google and Facebook have no interest in this sort of journalism, paid for by advertising, and benefiting the society we live in.

As for consumers, we have had our privacy thrown against the digital wall. My kids seem less concerned than me, but nevertheless, I am bothered by the implications, as well as those bloody ads for stuff I do not want that follow me wherever I digitally go.

And as for the digital security of us all, when hackers find 138 holes in the pentagon web sites, good luck with the security of your google account.

9 point plan to create your business model

9 point plan to create your business model

Jul 18, 2016 | Governance, Management, Small business

One of the major things most small and medium businesses give little thought to, and which can have a major impact on their financial outcomes is their business model.

There has been much written over the years, huge volumes of academic and consultant driven tomes , full of jargon and long words. Mostly, the owners of small and medium sized businesses,  starved of time as they are, have not read or absorbed this stuff, and even if they have, the day to day struggle has taken over.

The options open to construct a business model vary with every business, and every set of circumstances. Trying to copy what somebody ese is doing will only go so far, the great value is in tailoring the elements to best suit your objectives,  resources and competitive circumstances.

Thinking about it in this business model framework can be enormously valuable.

Most recently, Alexander Osterwalder wrote a book called ‘Business Model Generation‘ that outlined a framework that simplifies all thing you  need to think about, without the jargon.

That framework has 9 elements

Business model canvas

Customer segments. Any successful marketing is dependent on defining your primary customer segments. These days you can go further, and in my view need to go further for SME’s, to having a detailed customer persona, perhaps several of them, to better enable the direction of marketing communication directly to the needs of very finely defined customers.

Value proposition. Defining the value you add to your target market is fundamentally important. If you cannot articulate the value, why would you reasonably expect anybody else to understand it? Value comes in many forms, simplicity, performance, design, degree of customisation, risk reduction, and many more, including the default, Price. However, if you define your value proposition in terms of price, you have already lost.

Channels. How do you communicate with your customers and potential customers, and then deliver on your value proposition? This item is a combination of the logistics and operational side of the business,  with the marketing and sales sides.

Customer relationships. What type of relationship do you have, or want to have with customers, and how might they want to deal with you. Are they intimate and personal, or automated over the web, collaborative or purely transactional? The choices will be driven by the alignment with your value proposition and customers.

Revenue streams. No business can survive without revenue, it is perhaps the only constant of business as well as the public and non profit sectors. Determining the best way for you to be paid for the successful delivery of your value proposition to your customers is a major item in the model construction. Is it purely cash, or licencing, franchising, what sort of trading terms will apply, are you seeking recurrent income as for membership?. Obviously the price you charge is a major decision, but prices should be driven by the model, and your competitive profile, not by costs, or a guess.

Key resources.  Every business requires resources of many types to grease the wheels of the business model. Defining what they are and how they interact is really fundamental, as they are the enabler of the value proposition, and without alignment to the value proposition you will have sub optimal performance. The key resources can be physical, human, intellectual, financial, whatever is required to deliver on the value proposition.

Key activities. There will also be a few key activities. Things that simply have to be done to make the business model work. Production operations if you are a manufacturing business, problem solving if you are a consulting business, and stock management if you are a retailer. They make the rest possible.

Key partnerships. These are the networks of suppliers that make the business model work. Who they are, what they contribute to the value proposition, how they how yoou choose to interact with them all make a significant difference to the manner of business model performance.

Cost structures. Finally, what are the costs incurred to operate and sustain the business model, those that are fixed, those that are variable, and how they might swing between these two. What are the economies of scale and scope that may apply under different circumstances?

 

I have used this canvas, and some of the iterations that have evolved in workshops with medium sized businesses with considerable success.

What you realise  very quickly  is that there is no right answer, and no  easy path. There are cause and effect chains that operate across the board, changing one thing always has a string of impacts. The best way to manage all this and come to some actionable conclusions is with a directed brainstorm that records the ideas and cause and effect chains, followed  by an experiment or research of some type that involves real customers.

What I call “getting out of the building”

 

 

The 4 dimensions of project planning.

The 4 dimensions of project planning.

Jul 8, 2016 | Collaboration, Governance, Operations

Lessons in project management are hard won, and stumbles can be very expensive.

My hard won experience supports the contention of that great management thinker Albert Einstein, noted above.  In every project that I have done that delivered sub par outcomes, at least some of the cause has been inadequate planning in one way or another, for one reason or another. Einstein may have been well known for things other than management, but that did not stop him mumbling things that should be on every managers wall as a reminder.

That experience has led me to the view that every project has four dimensions. For success you need to get them all right, 3/4 is simply not good enough, but of critical importance is the overall planning.

  1. Project Objectives. Having a set of objectives, expectations of the outcomes is why projects are developed, planned, funded, and executed. Being explicit about the objectives, and having everyone involved, and who may be affected, is essential.
  2. Project Scope. The scope describes what will and will not be done as a part of the project. Failing to have an explicit scope encourages ‘project creep’ and lessens the accountability. In the ERP implementations I have been involved in, project creep is an ever present cancer on the project, and those that failed to be absolutely explicit about the scope, and enforced it ruthlessly, failed to meet expectations in numerous ways.
  3. Project Budget. How much the project is expected to cost. Pretty basic,  but ignored often, and subject to blow-out as the scope creeps out of control. The only ones who benefit are the consultants who either fix the problems (often they are a part of the problem) and your competitors.
  4. Project Timetable. Every project needs a timetable, with milestones connected to the scope and costs, as well as performance.

Project planning stepsNo project can reasonably be deemed successful unless it meets or exceeds the requirements imposed by all four parameters. Anything less will deliver sub-optimal outcomes.

7 things business leaders can learn from this election campaign

7 things business leaders can learn from this election campaign

Jun 27, 2016 | Governance, Leadership, Personal Rant

Over the weekend I was talking to my 32 year old son about the coming election.

I thought I was  the quintessential cynical old buggar, while being politically engaged, but I had nothing on my formerly optimistic son.

He is not just a cynical young buggar, he is so disengaged that in the long term, it can only be bad for our economic and social life if he is any way representative of his demographic cohort, and I fear he is.

As he said ‘Problem is that the gap between what the pollies say, and what they do is so wide, they have lost any sort of credibility and moral authority’.

Sadly I agree with his analysis, but the core of the problem seems to me that they claim control over things they cannot control, while ignoring, misrepresenting or pork-barrelling the things they can.

It is the same in business.

Those that promise the world do not have any credibility at all, while those that demonstrate the performance and value of what they can control earn our loyalty and respect.

There is a lot those in businesses can control, and should strive to improve.

You can control the way you spend your time. Every job, even those on a manufacturing line has some level of flexibility in the way the time is spent. In management roles of any type, the discretion is significant. You can choose to do what may be apparently urgent, but is unimportant, or those things that may  not be urgent, but are important. It is those who elect the latter route that will prosper in the long run.

You control the way you  behave. Those who say one thing and do another, or worse, demand behaviour of others  they are unwilling to demand of themselves will be judged failed leaders.

You control your attitude. An optimistic person has an effect on those around them, infecting them with your optimism and enthusiasm

You control your leadership style. Dictatorial, aggressively demanding results without consideration of the personal toll that may take, or you can be a coach and mentor, seeking to improve the results by improving those around you.

You control the way you see opportunities. Often opportunities are in the problems being faced, but if all you see are the problems, the opportunities will pass on by.

You can choose where credit/recriminations are levelled. The best leaders I have seen have a common characteristic: they give credit to others, even when the credit is largely due to themselves, and they take absolute responsibility for the performance within their span of control, never seeking to allocate blame elsewhere.

You can choose to have a clear and unambiguous moral compass, or purpose in your life. Having a purpose, and living to that purpose is empowering for individuals and the groups they interact with. Even when others disagree with you the simple presence of a foundation of beliefs that drive your behaviour will get you considerable credit, loyalty and an ability to get things done.

When you think about it, politicians have exactly the same choices we in business have.

Perhaps it is their collective failure to adhere to the basic tenets of leadership that has us so disillusioned with them all.

I predict that come next Sunday, there will be a narrow Coalition win, but the outstanding feature will be the percentage of the first preference votes that go to other than the two major parties, particularly amongst those under 30 whose expectations have been shaped by different factors to those that shaped their parents. This group will also exercise their compulsory obligation to vote by deliberately voting informal. This will not be a ‘donkey’ vote, it will be a vote against what these youngsters see as the irrelevance, hubris and self interest of the political class. It will be fascinating to watch the spin  the major parties put on this disaffection, assuming that both, somebody does the analysis and I am right.

How to calculate a Return on Marketing Investment

How to calculate a Return on Marketing Investment

Jun 20, 2016 | Governance, Management, Marketing, Strategy

 

Marketers being belted around the ears to produce a marketing budget before  June 30 is disturbingly common.

It is a clear sign that the marketing group is acting as a co-ordinator of ad hoc activities, rather than being a disciplined, repeatable, and continuously improving process of revenue generation over the longer term.

Nevertheless, it is happening everywhere as you read this, as June 30, and a new financial year is looming.

A common approach to alleviate the belting is last year + 1.5%.

Not much use if last year was a bummer, especially if you are not sure why.

The other way is  that the ‘boss’ starts at the bottom right hand corner of the P&L and works backwards

Revenue  = X, Market share = Y, Therefore marketing budget = z.

Alternatively, some arbitrary percentage can be applied to projected sales as a marketing budget.

What a load of crap!!

The reality for a marketing budget is that to be productive, marketing needs to be way ahead of the tactical implementation that generates immediate revenue.

Marketing needs to be considering and implementing the strategies to generate revenue tomorrow and the next day, determining where that revenue is going to come from, which products, customers, geographies, and channels, and giving customers reasons to be committing their scarce dollars to whatever it is  that  you are selling.

Constructing a budget without all that strategic information clear and agreed is like taking off on a journey without deciding the destination: any road will get you there, and most of the time and money spent will be wasted.

As an alternative, start to see marketing as an investment.

That discipline of seeing marketing expenditure as an investment requires a longer term view. It also requires an acknowledgement that not everything works as expected, a capacity to learn from experience, and driving the processes is a cultural recognition that the organisation requires a return in its investments in marketing activity.

Calculating a return on marketing investment is not easy, and has rarely been attempted until recently, as the numbers were simply so rubbery (a technical accounting term for crappy and just plain unreliable). However, that is changing rapidly, so the best time to start developing a regime and capability of measuring and optimising the return on marketing investment is now, the beginning of the year, while in ‘budget mode’

It is a six step process driven by the four stages of strategy development:

  1. Have in place a ‘planning rhythm’ strategic cascadethat starts with the long term strategic and cultural challenges and progressively becomes more detailed and tactical.
  2. Recognise the connection between marketing and the long term financial returns from the enterprise.
  3. Collect data on a routine basis that delivers the insights necessary to measure both efficiency and productivity of the investments, and the cause and effect chains that link an activity to an outcome.
  4. Develop the analytical means to generate the insights.
  5. Make the enterprise sufficiently agile to adjust in the light of the insights generated.
  6. Report marketing ROI as the operational people report the ROI on the investments made in equipment, so that the activities have the credibility and weight in the boardroom that the expenditure deserves.

 

Calculating the return on investment is essentially a simple equation.

Cost divided by value derived.

The challenge has always been to attach a value to the various outcomes of marketing expenditure, including the organisational costs and overheads. That task is becoming progressively easier with the digital and data analysis tools now available, and there is no longer any excuse not to at least start the process, and with time and effort improve it so that it is a reliable indicator and tool to determine the value of future investments.

As with any calculation, the result is determined by the input assumptions, parameters and values, so there is considerable opportunity for judgement and change.

Following are a few of the obvious ones;

  • Time frame over which the return will be measured. Budgets are annual, while marketing investments tend to be cumulative over a long period, sometimes decades.
  • The means by which you judge the revenue to be a result of marketing activity. The demarcation between marketing and sales is often an entertaining debate, which I tend to finish by removing all direct sales costs, particularly price discounting activity which is generally brand destructive, and counting everything else,  but allocating a weighting.
  • The components of the cost equation, such as product development costs, customer service, and logistics that are included, and their weighting, which is also a challenging debate. Standard accounting packages are poor at collecting and consolidating this information, it usually takes a tailored process to gather and record the data in an easily reportable format.

Reporting requires metrics that build a picture of the processes to which the activities all contribute.  Every business will be different, but a few of the metrics that have served well for my clients are:

  • Sales of new products across timeframes, 1,2 & 3 years, with some calculation of the losses from cannibalisation, although it is absolutely wrong to use this as an argument to not take an action. Better you cannibalise your sales than a competitor eat them for you.
  • Value and number of prospects at each stage of the sales pipeline
  • Velocity through the sales pipeline
  • Conversion measures at each point in the sales pipeline
  • Share of wallet, for individual customers, and various groups of customers
  • Customer longevity and churn
  • Market share
  • Geographic measures
  • Gross margin and GM ratios
  • Sensitivity to competitive price promotion
  • Customer satisfaction scores
  • Net promoter scores
  • Various social media measures (not likes)

It is also a mistake to measure everything, you will just drown in reports and minutiae. Report on the items that can be demonstrated to move the performance needle, where there is a demonstrable cause and effect chain in place that is connected to strategy as well as revenue.

Finally, make ROMI a core performance measure of the enterprise, everyone in an organisation has some influence on the outcomes that can be connected to marketing success. Expose those connections at every level and make people responsible and accountable.

Need some help with all this, find someone with the experience and wisdom to deliver.