Sep 12, 2024 | Sales, Small business
Imagine the difference.
You go into a sales call and the first item on the agenda is the price. The potential buyer knows that the price stated is the price, without variation. The whole conversation therefore is about quality, delivery, and all the other things that make up value to the buyer. It may also save you time by quickly eliminating those for whom the price is beyond their budget or expectations.
On the other hand, when you go into a conversation with the other party believing that price is negotiable, the whole conversation then becomes about price, and not about all the other elements that create value for both parties.
What if we’re undercut by a competitor you cry?
Inevitably that will happen from time to time.
Get used to it.
Two strategic questions about price to ask yourself:
- Do I want this customer who is prepared to swap supplies for a few bob in the absence of the other services that we provide?
- Who is it that this competitive supplier is overcharging that we should be talking to?
Most sales conversations I have seen default to debates on price. This does no party any good, as price is only one element of value.
As Benjamin Franklin noted: The bitterness of poor quality remains long after the sweetness of low price is forgotten’.
Header cartoon credit: Tom Fishburne at Marketoonist.com. Thanks Tom!.
Aug 30, 2024 | Collaboration, Marketing, Small business, Strategy
Identifying, building, defending and leveraging competitive advantage has been, and will remain, the foundation of successful marketing.
It is also the essence of strategy: making choices with incomplete information that serve to shape the future to your benefit as it arrives.
The challenge is, the location of competitive advantage has moved, and many, if not most, have failed to pick the move.
Think about it.
Until the early 2020’s, competitive advantage was still all about brand, scale, control of supply chains, access to capital, and the ‘old boys network’. To use Charlie Mungers description, they constituted the ‘Moats’ around successful businesses. Kodak, Xerox, GE, GM, Exxon, IBM, Wal-Mart, P&G, and the banks and insurance companies ran the world on the basis of wide and deep moats built on these 5 factors.
Suddenly, the world moved on.
We watched as a raft of new businesses leveraging the capabilities of the internet took over. Along with the obvious Amazon, Facebook, Alibaba, Google, Uber, Air BnB, eBay, Netflix, Salesforce, and others that are pure internet plays, you had Apple, Microsoft, and more recently Tesla, combining the connectivity of the net with the ‘old school marketing moats’ in whole new ways.
What made the difference?
Each of the newbies benefitted from network effects.
Those that dropped out of sight did not.
Even some of the tech giants of the very early 2000’s, such as Yahoo and Alta Vista have dropped out of sight because they failed to recognise the potential value they had in their hands. They did not leverage the potential network effects.
Those network effects have two differing core types:
- An ecosystem of complementary, and often partially competitive enterprises that support each other’s efforts. This occurs particularly often in R&D, early-stage commercial development and in logistics and supply chain management.
- Double sided markets, such as eBay, Facebook, and Air BnB, where the value of the offering increases with the number of people connected to it.
The answer to the question posed in the header: in your networks!
On a simple scale you see it all the time in retail. The specialist shoe shop in the mall collaborating and cross promoting with the fashion dress shop.
Your networks will build as you create value for others greater than the cost of being a part of the network.
Mar 28, 2024 | Leadership, Small business, Strategy
Success of an SME means they have crossed that shark filled river where most SME’s fall over.
They have sufficient scale to employ functional personnel to address the day to day running of the business, and are returning the cost of capital and a bit more to the owner.
For some this is a level of comfort that is satisfactory, but to most who have strived to get across that river, it will not be enough, they are of a personality type that will be looking for the next challenge.
So where should they look?
Do yourself out of a job.
When you can go away for 3 months and wonder why nobody missed you, the business has reached the point where you are no longer needed daily. Accept that and get a life, or knuckle down to scale the business. For many that might mean becoming a non-executive chairman, staying engaged, but well away for the week-to-week challenges. You have created a manager system and ‘bench’ that does that. Leverage it.
Identify the industry constraints.
Every industry has a set of constrains that are rarely even noticed, they are just the edges of the status quo. Every useful innovation that has evolved, has done so by addressing a constraint that few, if any had even seen. The outcome of this insight is to deliver the opportunity for significant value addition.
The exempla was Steve Jobs. He saw the constraints in personal PC’s when he saw the work being done at Xerox Park developing a Graphical User Interface. When deployed in the Mac, the GUI changed Apple from a hobbyist into a leading PC. He repeated the magic with the original iPod, then the iPhone, and the App store. Each of them operated in an existing environment, with existing technology that could be deployed in ways that removed the accepted industry constraint, changing the face of that industry. You do not need to be a huge organisation to do this. In my local area there is a plumber who guarantees his work, and guarantees the time he will turn up to do it. Failure to address either means the client does not pay. He charges a significant premium, and now has a number of vans on the road, simply because he redefined an existing constraint in this local area.
Identify and remove internal constraints.
As with an industry, every business has a range of internal constraints that together become the culture and status quo in that enterprise. There are always opportunities to do things better, but are often overlooked, by simply not being seen, or miscategorised.
A former client removed an internal constraint and added 10% to his gross margin overnight by doing so. The business, a medium size in his industry had kept three suppliers of the core item in his manufacturing operations holding roughly equal share of his business, for roughly equivalent products. There was little to no internal competition, each of the suppliers did so from their price list, while maintaining very friendly relations with the MD and purchasing manager. We instituted a competitive bid for a guaranteed 80% of the purchases, with the remaining 20% to go to the runner up as a consolation prize, and ‘backup’ to the major supplier. The cost reduction that came from that relatively simple exercise dropped straight to the bottom line.
Currently the evolution of AI is creating huge opportunities for enterprises to deploy tools that will optimise existing processes and enable scaling at little or no added cost. There is a learning curve, an investment required, but not engaging means you will quickly fall behind competitors, while ignoring the opportunity to go quickly past them.
Build performance consistency.
For those with a view to one day selling the business they have built, there is no substitute for being able to show consistency of performance over time.
Even when an exit is not even contemplated, seeking ways to build consistency has the result of simplifying an enterprise which almost automatically adds margin and cash.
To build performance consistency takes time and effort. It requires a combination of being ‘in the weeds’ implementing processes that recognise and address tactical and operational improvements daily, and taking a ‘helicopter’ view that enables strategic positioning. This combination is easy to say, hard to do.
A buyer is buying two things, both of which are extremely valuable, irrespective of the inclination to exit the business:
- Optimise the existing business processes and infrastructure,
- Map the path that best delivers future cash flow.
Demonstration of positive performance consistency on both these parameters will give you back time, and optimise the buying price if and when you exit.
Header credit: My thanks to Hugh McLeod at gapingvoid.com
Mar 22, 2024 | Customers, retail, Small business
Anyone dealing with Australia’s two supermarket gorillas knows how hard it is.
You know the old adage:
Question: Where does a 400 kg gorilla sleep?
Answer: Anywhere they bloody like!
Over the 45 years I have rubbed up against them, beginning as a young bloke when there were a number of now disappeared alternative retailers, it has only become harder. However, the rules of dealing with them have not changed much, just become clearer and more cut-throat.
Some years ago I did a presentation to the CEO’s of the SME group of companies who were members of the food industry lobby group AFGC. Looking back on that presentation, republished in several places, it is clear little has changed, certainly not for the better for battling SME’s.
My advice to those I work with also has not changed much, and can be summarised as:
- Have a solid commercial foundation before you contemplate the challenges of distribution through supermarkets.
- Never forget that retailers might be your customers, but they are not your consumers. At best they are a massive barrier between you and your consumers.
- Be relentlessly focussed on your long- term strategy, while recognising retailers are only the means to that end, not the end itself.
- Unless you are clearly differentiated from others, particularly in the minds of consumers, you will be a retailers breakfast.
- Know your numbers intimately. This is the barrier upon which most are wrecked, they have insufficient control and understanding of all their costs, margins, risks, and cash flow.
- Be very willing to say ‘No’ and live with the consequences, as they will almost always be better than the consequences of saying ‘Yes’.
These basic rules, and several others were the topics of conversation in a podcast with Chelsea Ford, published yesterday. The links to the podcast on Spotify and Apple are below.
🎧 Spotify: https://lnkd.in/dWzMN5mN
🎧 Apple Podcasts: https://lnkd.in/dq7yWGJZ
Oct 24, 2023 | Governance, Management, Small business
Most SME’s I meet have at one time or another contemplated, and often invested considerable resources in the quest to obtain public grant funds.
Rarely do they approach this exercise with any understanding of the disconnect between the way the commercial world, and the bureaucratic one work. They assume that what to them is normal and obvious is reflected in the bureaucratic processes.
Wrong.
For context, 25 years ago I ran a small grant-funding outfit called Agri Chain Solutions that had been outsourced from the then Department of Forestry, Fisheries and Agriculture at the express direction of the then newly elected Prime Minister Howard. ACS was a Company, limited by guarantee with a largely commercial, board with two members from the senior ranks of AFFA and Austrade. The chairman had been a very successful MD of a very large business in the food industry. I was recruited as a senior manager with extensive experience in FMCG and agriculture.
Following are some relevant observations from that time about how the bureaucracies operate, which from what I can see, remain accurate.
- Departmental budgets are set annually in line with the governments policies and priorities. While program budgets are often spread over a number of years, they are reviewed and changed as necessary, or for a hundred other reasons, annually.
- Departments put in their ‘bids’ in the pre-budget preparation, which includes the costs of running the department, as well as the cost of the programs for which they are arguing.
-
-
- Departmental overheads have been progressively cut over years by shedding heads, which are then contracted back as an ‘off the books’ expenditure, usually netted off against program costs, or just classified as an unavoidable cost overrun.
- The status of public servants is measured by the number of reports, direct and indirect (i.e., reporting to someone who reports to them) they have, and the size of the budgets they manage. This leads to an ongoing turf war between departments, and sections within departments for status, and public service grades that determine pay and advancement.
- Public servants are typically held loosely accountable for the expenditure of money compared to the budget allocated. This has absolutely no relationship to the outcome generated by the programs they manage. To my mind, this mismatch of expenditure and accountability is at the core of much of the waste that occurs. It is also the factor that leads to the mad rush to ensure that budgets are all spent before June 30. An underspend will be seen as a sign that a cut is possible, while an overspend is seen as bad luck, with no recriminations, or understanding of the drivers of the overspend.
- Program reviews done by an ‘outside’ neutral agency are built into the program costs, but neutrality is a joke, as the current PWC fiasco demonstrates. In ACS’s case, the review was done by KPMG, who had to do three revisions to get to a program report AFFA was happy with, in order to get paid. As you might guess, draft 1 was OK by me, draft 2 was nonsense, and draft 3 was total bullshit that bore no relationship to the success, or otherwise of ACS expenditure. I was bitterly and noisily opposed to the final report submitted, but was advised that my disagreement while noted informally, was not relevant. I could not change the world, so I should just get on with life.
- Grant program budgets allow a percentage of the total program to be held back for ‘Administration’. In the case of ACS, that amount was 20%, a laughable amount, as the total expenditure on all ACS overheads and project management was around 6% of the program budget. All AFFA did was use the withheld amount as a slush fund.
- Program budgets are broken up to make keeping track easy, bearing no relationship to the way money should be spent to optimise the outcomes. In ACS’s case, we had $9 million over 3 years, minus the withheld admin cost. The department broke the total into 12 equal quarterly amounts and insisted that was the budget. Pointing out that it took 18 months to get good projects up and running, during which time little grant money would be allocated had little effect. In the last 18 months more than the quarterly ‘budget’ amount was to be allocated, which caused great angst in the department. I also pointed out that at the original sunset of 3 years, there would be projects that had not been completed, that ACS and AFFA had a moral if not contractual obligation to see through. After much discussion, we negotiated a 12-month extension for nominated projects that were then shuffled into the follow up program, the National Food Industry Strategy, with a contractor to administer them.
- Senior public servants speak about accrual accounting as being the base of their accounting processes. ‘Nonsense. It is cash accounting, there are no accruals involved, anywhere.
- There is a myriad of ‘allowances’ that foster rorting and destroy accountability. I came into contact mostly with those relating to travel. The intent is sensible: make the management simple. However, the effect is to enable officials travelling to rort the system. E.g. A level X official is allowed an amount/day for meals and accommodation, without any paperwork showing expenses incurred. Predictably, they travel as much as possible to places where they have friends and families, claim the whole amount, and pocket the lot, or stay in a cheap hotel, eat as cheaply as possible, and pocket the difference.
- Finally, for all the babbling about innovation that goes on, it represents the antithesis of the cultural abhorrence bureaucracies have with risk. Innovation is impossible without risk, and risk seen in hindsight is always weaponised as a mistake by those who oppose. As was once said to me by a senior bureaucrat in a well lubricated social setting “my job is to ensure my minister is never seen as stupid, and you know who my minister is, so you know how hard my job is’.
None of this is to denigrate public servants, quite the contrary. As individuals, they are generally a well-educated and potentially powerful force for good, frustrated by the constraints of the culture within which they work. The challenge is changing the culture that has been encouraged to grow around them, a task belonging to those with the power to do so, the politicians.
Aug 28, 2023 | Innovation, Marketing, Small business
Many of the impediments to starting a new business have been removed over the last 20 years.
You no longer have to hire an accountant to register the business, hunt around for premises, hire a bookkeeper, find an advertising agency, build a product prototype, spend days designing the letterhead, understanding the regulations and weaving your way through them, and doing the hundreds of other tasks necessary to start a business.
They can all be done with digital tools from your kitchen table, or outsourced to someone who has the specific expertise necessary, from their kitchen table.
What used to take time, money and most importantly the energy of budding entrepreneurs can no longer be used as an excuse for not moving forward.
The wheat has been sifted from the chaff by the digital winds.
That just leaves the toughest challenge, the one that in most cases motivated the thinking in the first place, the one that separates the dreamers from the ‘doers’.
How do you identify and generate traction with those prepared to part with their money to buy your product or service?
When they have bought from you once, how do you keep them coming back, or better still, turning your product into a subscription service?
This always was the hardest part of the entrepreneurial journey.
It always will be.
However, these days there are far less excuses not to have a go than there were 20 years ago.
