Jun 26, 2015 | Customers, Small business, Social Media
Customer profile development
It often happens at events at which I speak, big or small, does not seem to matter.
Someone afterwards comes up to get some advice on their particular scheme to make a million from an online business.
It happened again last week, one very sensible business idea that has been road tested and while sort of working, is sputtering, and a second that is as likely as the second coming to deliver salvation.
The advice I give always starts at the same place, the 4 core questions that need to be asked before anything else:
Who is your ideal customer?
Where can you find them?
What is it that you can deliver to them that will attract them to you?
What result do you want to give them?
It is rare that anyone I speak to has really thought through all four, indeed rare that even the first is clear, but without that discipline, you may as well keep the money you would give away chasing the dream.
It is reasonable to start with a view, and after testing, alter it based on what you have learnt, but let’s take them one at a time.
Who is your ideal customer?.
In the pre digital age, all we could do was describe our ideal customers in very broad demographic and assumed behavioural terms, now we can be extraordinarily specific. We have also broken the bounds of geography, our customers can be anywhere in the world, and we can reach them. Bombarded as we all are with messages, unless a message speaks specifically to us, about something of immediate interest, we no longer see it, the auto spam filter between our ears screens it all out. In the event your million dollar idea has more than one ideal customer, do the exercise twice, be prepared to have two, or three, or four, sets of ideal customers and the messaging that is specifically relevant to them researched and prepared.
Where can you find them?
This question is not about geography, but about our digital lives. People with similar preferences tend to stick together, it was always so in the school yard, and it is the same in our digital lives. My eldest son is a specialist in old fashioned large format, black and white, architectural and landscape photography. His peer group around Sydney is pretty small, in Australia modest, but his global network of like minded specialists and hobbyists is substantial. You will find him in digital places that accommodate those particular specialists, and if you want to talk to them, the way to do so is to go there digitally, and say something of specific interest. Unless you can identify and deeply refine the profile, you will never find him, or anyone else who might buy your idea.
What can you deliver that is attractive to them?
Our range of choices of goods and services and their providers is vast, what is it about you and yours that is likely to be attractive to a prospective customer? To continue the analogy with my son, if you just knew he was a successful photographer, and you sold top end photographic equipment, you might think he was a prospect. No so. You need to be able to deliver him something specifically about his form of photography that is unavailable elsewhere, and that he is currently thinking about, or could be enticed to think about, before he will even notice a message from you.
What result do you want to give them?
Everyone to whom you try to sell something recognises that you are doing it for profit, not your health. While they may be happy to see you healthy, they will only buy from you if there is something in it for them beyond the warm feeling of making you successful. It is therefore essential that you define the result that your prospect will get from using your product. Again using my son, it would be attractive to him to find a large format camera and tripod setup that weighed less than the many kilos of his current setup, which he packs onto his back as he walks long distances to get just the right aspect and light, but any sacrifice of image quality, and his standards are extraordinarily high, would be absolutely unacceptable as a trade-off.
When, and only when you have thought through all this in detail, will you be ready to seriously contemplate an investment in the digital technology and content creation necessary bring your dream alive.
Jun 22, 2015 | Branding, Customers, Marketing, retail, Small business
retail crash test dummies abound
Watching the rather sloppy way Grant O’Brien was moved on by Woolworths last week, I got to thinking about all the converging things happening that will impact the FMCG landscape over the next few years. A superficial look would suggest that things are pretty set, and change that happens will be incremental, but a closer look would suggest there is a lot of paddling going on under the surface.
These are the things I see:
Coles resurgent.
In the 40 years I have been around, I have seen the pendulum swing a couple of times, and it looks like Westfarmers have pulled off another mighty swing with Coles. Across pretty much any parameter you choose to look at, they are catching or have caught Woolworths, and remain on the improve.
Woolworths momentum.
In this high fixed cost retailing game, momentum is a huge contributor, not just to the financial outcomes, but to the day to day operations and shop floor “feel”. The momentum seems to be all against Woolies now, after enjoying the benefits for a long period. Their failure to drain cash from Coles by putting pressure on Bunnings with Masters has not just crunched their financial results, but it seems to have knocked the wind out of their confidence at the sales face across all their formats except perhaps Dan Murphy’s, which seems to be bucking the trend. Woolworths do not have a player in the office supplies game, which must be hurting them, further draining competitive resources.
Discounters are winning.
Aldi is doing really well, opening stores and taking share hand over fist. I have not seen the figures that would substantiate the notion that woolies are losing more to Aldi than Coles, but it would not surprise me at all. On top of Aldi’s blitzkrieg, it seems that their German competitor Lidl is coming. Lidl is a potent long term competitor with substantial experience across many markets.
Costco is seemingly carving out a niche, although not as aggressively as was first forecast, but the crowds in the Costco store at Auburn in Sydney would suggest they are not going away any time soon.
The $A.
After a period well above US $ par, the Aussie is back to more like its long term position. However, the carnage wrought by those few years on the mid sized supplier base cannot be turned around. Retailers by going offshore when they could and leaving their local supplier base to contract will have a continuing impact, as now the dollar is sensible again, there are few suppliers left with the wherewithal to be reliable national suppliers. It is also clear that those who have survived are a pretty resilient bunch, and are disinclined to replace their eggs back in a basket they cannot control.
Housebrands.
Coupled with the carnage of the high $A, the retailers strategic decision to rationalise proprietary SKU’s and replace them with tiers of housebrands to capture the proprietary margin has further led to the rout of the mid sized suppliers. Those left who might be inclined to chance their arm are generally not large enough, and lack the sophistication to manage a business relationship with a major retailer, but some will probably go broke trying.
Margins.
Many FMCG suppliers lose money on most sales to supermarkets. The negotiating power of the retailers, resulting trading terms and promotional guarantees that enable retailers to never pay beyond the discounted price, while restraining top line price increases to compensate has led to the situation where only a madman or the financially illiterate would stake their house on success in FMCG.
Innovation avoidance.
Markets evolve with innovation, but the barriers against success are so large that risk avoidance is the priority. Suppliers trumpet a new pack colour scheme as an “innovation”, and retailers get serious by asking the few second tier suppliers left to copy the proprietary market leader for yet another housebrand “innovation” . Retailers think they are good at innovation, but the experience from around the world as well as locally is to the contrary.
Promotion as marketing.
Continual price promotion only erodes the value of a brand, but brand building is a long term proposition, while staying on shelf is an immediate priority. Guess which wins, and we are rapidly approaching a brandless future beyond the few global mega brands that have the grunt to stay on shelf while spending with consumers to brand-build. Marketing budgets have been consumed by promotion spend. We have a generation of marketing people who have never experienced or even seen real marketing in FMCG.
Wholesale death.
Metcash as pretty much the last man standing is being squeezed by overheads and competing access to consumers outside the major chain supermarkets. Their recent financial results demonstrate the challenge of being the middleman in an environment where it is increasingly easy, and there is increasing motivation to go around the middleman. They seem to be trying with IGA, and with some success, but the local positioning of IGA mitigates against the mass merchandise wholesale business model they operate. Nevertheless, I do see IIGA as a potential bright spot for smaller suppliers who are unwilling or unable to service Woolies and Coles.
Opportunity?
Amongst the doom and gloom, I see several bright points of opportunity.
- While the traditional marketing strategies no longer work, it remain a fact that it is consumers who actually put their hands in their pockets to buy something. Retailers are just a choke point in the system exercising control, and the emergence of digital marketing offers small businesses the opportunity to engage and motivate their consumers to ignore the predations of retailers and express their purchase preferences with their money.
- The shortage of retailer suppliers may lead to a loosening of the noose around those remaining, and open opportunities for them to focus on a niche to deliver a product offer that the retailers do want, but that is hard to copy effectively. Combined with digital marketing, there are opportunities to engage with consumers in ways not dominated by price promotion and generic substitution.
- Local suppliers with a following in a region do have an opportunity to build a business. Coles have been playing with this for a while, and it does work, although the model of local supply does not sit very comfortably alongside the national supplier mentality that exists. For retailers to really get behind this opportunity to nurture “local” they will have to wear an increase in transaction costs, as well as make exceptions to their trading patterns. The big blokes may not, but there are real opportunities in the independents and non chain retail segments.
- Niche retailing will boom, and suppliers have the opportunity to participate. Harris Farm in Sydney continues to rise and rise, and even Thomas Dux, owned by Woolworths but operated largely separately are harbingers of the future. Consumers are increasingly engaged in their retail food shopping, they want their concerns and individual tastes to be met, and that cannot happen in a mass retail outlet focussing on discounting and housebrands.
I am sure there are thoughts I have missed, and would welcome feedback on them as well as comment on those above.
Jun 18, 2015 | Customers, Leadership, Operations, Small business
courtesy www.myob.com.au
Most businesses want to grow, even just a bit, it is not only in the DNA, but some scale makes life in most areas easier. So how do small businesses go about it?
4 basic strategies.
1. Empower the team.
Make every front line person as well as the office realise that their input and customer service is essential. It can be done, and it works. Bunnings is king of the hardware space, delivering great outcomes for Coles, whereas Masters has been a disaster for Woolworths, yesterday claiming the scalp of the MD Grant O’Brien. I shop at Bunnings a lot, drives me nuts, but at least their people their have product knowledge useful to a casual renovator, share it with you and smile. My two attempts at Masters have been different, and there won’t be a third. Whilst these are both large businesses, it is no different for a small one. Make everyone aware of the 8 moments of truth, and committed to improving them on each interaction that occurs.
2. Critical processes need to be documented.
This is not just to pass the various audits haunting us, but so that employees and everyone else knows what is important and what to do. Documentation makes for robust repeatable processes. The challenge becomes one of continuous improvement, as once a process is documented, it sometimes takes on a persona as being “done”. Within continuous improvement lurks the obvious but often overlooked fact that to improve you first need a stable, measured processes as the starting point for improvement. Documentation provides that starting point.
3. Automate repetitive tasks.
If the same thing is done regularly, in the same way, automate it. Then you get accuracy, reliability and cost reductions, and who does not want those. Often there is a cost up front, but taken in the context of the potential savings and productivity improvements they are usually small. The most common automation target is customer service. It can be very successful at stripping out costs, but go too far and customers go somewhere else. A “learning” FAQ function makes great sense for many, and make sure you do not lose the opportunity for the personal touch.
4. Make everything searchable.
Documents, emails, social media posts, everything that gets done should be in a central repository searchable by anyone when it is needed. The waste of having documents in silos is enormous, unnecessary and just plain stupid in this day and age.
The technology is now such that it is possible for small businesses to be significant global players in a narrow and deep niche should that be their objective, but even for the local businesses without those grand aspirations, scaling operations is a key consideration in the quest to maximise that other most important resource, your time.
Jun 15, 2015 | Change, Innovation, Small business
Wheels still on?
There are lots of reasons, I have heard them all, and even used a couple myself, but blaming the retailers, engineers, competitors, lack of advertising, or the weather misses the essential truth.
The process is flawed.
We know the constraints of the retailers, they set the rules and suppliers have to live with them. We cannot control the competition, although mostly they are pretty predictable, and resources for advertising are never enough. Our engineers and designers are ours, so we can get the best out of them, if we are good enough, and we cannot predict the weather, let along control it.
The thing we do control, but rarely leverage well is the innovation management processes most of us use.
If 9/10 products fail, surely there must be something wrong with the logic and processes that allowed them to progress through the system to launch, consuming precious resources as they go.
They get spat out, launched, fail, and we blame everything but the stray dog around the corner, and our NPD&C process.
Silly really.
Why are the processes flawed?
There are standard operating procedures taught with minor variations almost everywhere, they are logical, sequential, and like economics assume knowledge and insight. Nothing like the real world really.
Following is a list of the failure-drivers I have seen over the years.
The ideas are narrow. Ask yourself where most ideas that get into the system come from.
- Customers. In many industries, solving a customer problem is a great source of ideas, but in FMCG, customers or as we should call them, buyers, have little idea beyond ways to save a few bob, or copy something else that is doing OK, but they have the shelf space to rent, so we bend over.
- Consumers. We spend millions asking consumers what they want, then trying to interpret the answers in some coherent way, when the truth is as it always was, consumers do not know what they do not know. Henry Fords quip that had he asked his customers what they wanted, they would have answered a faster horse, still holds.
- The bosses wife. Always a good source of ideas, mostly crap, but carrying considerable weight in the system.
- Your sales force. There can be the gem hidden amongst the dross, but usually they are responding to what their customers (read buyers) tell them, what the opposition has done to pinch a shelf facing, or just looking for reasons they are behind budget. Good sales people are usually pretty focussed on the things that make a difference now, not next year or next decade, so at best they may come up with a useful range extension.
The business case. I am in favor of rigorous planning and being held accountable for results, but when you think about it, our ability to tell the future is pretty limited to non-existent, but we persist with executing on a business plan because it is, well, the plan. Every business case I have ever seen has two common features:
- A positive forecast of outcomes. Profits, market share, volumes, whatever it is, the forecast is for great things.
- Detailed cost analysis. This includes the costs to manufacture, buy shelf space, promotional programs, advertising, research, and all the rest. Again, all if we are honest with ourselves, factors we can only really take a best guess at. The only thing we know for sure is that the forecasts will be wrong.
We believe our own bullshit. Because we have spent all that time, effort, and money creating a business case, we then use them to prioritise the options on the basis of the best returns.
We fail at articulating the product. Every successful product I have seen has some essential component that both makes it different to anything else around, and in the process adds value to sufficient lives for there to be an incremental source of new demand. If all we do is cut the existing cake differently, the only winner is the retailer. Somehow we need to make the cake bigger, find that new and elusive consumer demand.
We fail to brief designers. This follows the previous failure, we stumble at articulating the product specs against which the technologists, engineers and creatives have to execute. If we do not know, how can they? Besides, they are usually brought in too late in the design process, they respond to the performance specs marketing tells them the market wants, instead of being a proactive part of designing the specs. This usually ensures that few operational or technology innovations get a guernsey.
Momentum. Once a project starts to move along, it builds momentum, garners support in all sorts of places, and becomes a “project” to be completed, rather than an expression of new consumer demand.
The net result of all the above is that the biggest risk is at the end, when the sunk cost in resources and ego play against anything other than a gung ho launch.
So what is the solution to all this waste, apart from just getting better at fortune telling?
Take some lessons for the “lean” movement, the operational implementation of the scientific method.
Iterate in small steps, get a few consumers involved early in a hands on way to see of if your value proposition is sound, do a series of small experiments testing hypotheses, and be prepared to be wrong, and alter the approach. Deploy genuine cross functional teams from both inside and outside the organisation, engage in constructive “devils advocate” thinking, and most important of all, have a strategy for the business that drives the new product development process to contribute to the strategic outcomes, not just the forecast sales and financial ones.
None of this is easy, but that is why there is so much upside, the corporate clones cannot see the opportunities. It is also why increasingly, small and medium business has an advantage over the corporate behemoths that dominate the landscape. They are able to take quick decisions based in instinct, experience, discontinuities that emerge, and an intimacy with customers large businesses can only dream about.
Call me when I can help.
Jun 5, 2015 | Governance, Management, Small business
whoops!
Do I have enough cash to……………….?
This is one the 4 fundamental questions for small business survival, and is the one I hear far too often. It is all to do with how much cash is available at any given time to pay the bills.
It is almost inexplicable to me that many operators of small business do not understand their cash flow, how it works, how it can be managed, and how to leverage it. After all, it is their lifeblood.
The sad reality was brought home again a week or so ago talking to a tradie I met casually who was hurting badly because a developer he had subbied for over many ears was not paying him, and he in turn was not paying his bills, as he had used up his overdraft. He was in effect funding the developer, and ultimately the receiver, and seemed unlikely to get any of his money back.
A common occurrence and all too easy to address with a bit of planning.
There are some pretty simple things that can be done to assist in the management of cash, but like all things it takes a little bit of work up front, and a disciplined process
1. Routine.
The steps to a positive cash flow are simple, if you make them a part of your routine, you can follow them with little effort, although at first, it can be a bit confronting.
- Have robust, enforceable and explicit terms of trade. For anything that requires credit terms to be extended, make sure you have a signed agreement that specifics all aspects of the terms under which you agree to provide your goods and services. These terms are an enforceable contract, and in the event it is necessary, is actionable. There are templates available that can be personalised for your needs and used without cost or with just a small charge. Some service providers such as EC Credit Control will assist in the preparation, as will your bank, although your bank has a vested interest in lending you money, not making what you have work harder.
- Do credit checks. By giving credit, you are effectively lending someone your money. It makes sense to check if they have any history of fraud or default, which can be done easily for a modest fee. You pay for access to a database that is in effect a credit footprint of everyone who has applied for and been given credit, and the data includes their credit history, and any outstanding judgements. Veda is one of the agencies that provides this information as a service, there are several, most banks will provide the service for a fee, often they wholesale services like Veda. Often if you choose to outsource your debtor management in some way, these sorts of checks are a part of the service.
- Issue invoices immediately and follow up politely but persistently and in a highly predictable manner. Most businesses wait until they receive an invoice before they initiate any consideration of a credit period, let alone get around to paying, so the sooner you issue the invoice, the earlier you have a chance to be paid. A client of mine about two years ago instituted a process of sending a polite “thanks in advance” for payment on the invoice due in a couple of days. He thanks his clients for the expected payment, indicating being paid on time is one of the ways he manages to maintain the high value he is able to deliver. It had a significant impact on his debtor days, and served a marketing purpose to highlight the quality of the service he provided, and as it was highly automated. After the initial set-up and a few teething problems, the process became virtually automatic, and a boost to his business.
- Keep the credit period ASAP. In this case, the acronym is As Short As Possible. Generally the negotiation on credit terms will take place at the beginning of the relationship, and that is the best time. Make it as short as possible, I always advise starting with 7 days from invoice date, be very happy with 21, and if it is in your interests, give a bit more, but if you start with 30 days from the end of the month, watch your sales bunch into the beginning of the month, which effectively gives a customer up to 60 days to pay, before the invoice is overdue, and you can start chasing payment. This is a gap you are funding, bankrolling your customers, and generally people in business are not there to be a philanthropist, leave that to Bill Gates.
- Do a weekly rolling 13 week cash forecast. This is a simple exercise, but knowing what is coming at you offers the opportunity to manage it with the least pain, ignoring it can be terminal. Generally this cannot be automated, but most bookkeepers and service providers can do it simply, although most would say monthly is sufficient. I strongly recommend weekly for small businesses.
2. Automate.
One of the more innovative automations I have seen is the one noted above, but most of the basic bookkeeping routines are now highly automatable via mobile connections into software that can manage all the recording and invoicing processes. For a tradie, assembly and issue of an invoice via email against a signed and dated acceptance of the cost can be done on site the moment a job is complete. No paperwork to end a long day. Automating can cost a bit to set up, and ensure it all works, but the expense is well worth it.
3. Outsource.
Most parts of the process can be easily outsourced if you choose not to do it yourself. Think of this outsourcing cost as insurance, and the cost of buying back a bit of your own time and peace of mind.
- Book-keeping. There are many book-keeping services available, and whilst they may vary in quality and cost, it is pretty easy these days to find one you are comfortable with, who provide the mix of services you require.
- Debtor and debt management. There are many service combinations possible from the straight invoice financing where you in effect sell your invoices to a finance broker who then owns the debt, to more relationship sympathetic arrangements where a third party undertakes to be your accounts receivable function, and often do some of the risk assessment functions noted above. Selling your debt, or “factoring” still smells of desperation, but outsourcing accounts receivable is pretty sensible and often very cost effective.
4. Leverage.
Most understand the concept of leverage when it comes to moving a physically heavy object, but have never thought of it in relation to their business, and particularly their two most crucial resources, their time and their cash.
- Closely managing terms and collections so that your average debtors is shorter than your average creditors means you are collectively enjoying having your creditors fund your business. However, I recommend paying your bills as they come due, as a history of reliability can pay big dividends when things suddenly go pear-shaped.
- Inventory. In many businesses the greatest consumer of cash is inventory, and closely managing it can save considerable sums. For a retailer like a fruit and veggie market, they take most of their revenue by cash or credit card, for which they get paid within 24 hours, but often pay for their stock on 21 or 30 days, by which time they have turned the stock over several times. Lovely. Measuring stock turn is a great metric if you have inventory.
Finally, there is a further measure not usually recommended that I particularly favour, Net Cash Consumption or NCC. It is a simple measure you can apply over any period, simply the difference between cash in and cash out over a time period. For small businesses I usually exclude capital items, so it is a measure of trading cash generation, or destruction. If the measure is positive, that is a good start, if it is negative for any extended period, trouble. I usually recommend a rolling 3 month measure, short enough to be sensitive, long enough to accommodate the operational vagaries that occur like paying the receptionist long service leave. Adding it as a graph on the bottom of your cash flow forecast automates it. Easy.
If you would like more information, or the opportunity to discuss any of this, just give me a call.
May 29, 2015 | Branding, Marketing, Small business
Build to last
“Brand” is a widely misused and misunderstood term, often referring to a whole range of devices, symbols and expressions that are no more than single elements of the whole.
Building a brand in the digital age of speed, idea cloning and ubiquitous communication is a real challenge, but those who get it right, win big time.
Just look at Apple. When Steve Jobs came back, it was just about broke, now it is one of the largest, and most successful corporations the world has ever seen.
Do you need any more evidence that branding in the digital age works?
While Apple is not the corner store, the foundations of Apple can be applied to every brand, and every business, from the corner store right up to Apple, whose retailing operations in the Apple stores are setting new benchmarks for retail performance.
1. Start inside. No brand can exist in isolation of the internal values and culture of the business they represent. No amount of smart advertising and slick promotion can substitute for great customer experience and value generation, which starts inside.
2. Seduce, don’t sell. Today’s consumers are smart, advertising sensitive and cynical, they need to be seduced by the superior value your brand represents, the experience it delivers. Purchase decisions are not always rational, and when a successful brand is involved in the choice, the equation usually does not have much weight on the price component of the value equation.
3. Lead, don’t follow. Brands have the capacity to lead consumers towards a place they have not been before, or not considered, as they create new value propositions. They look for trends that have the potential to crash into each other at some point, and change behaviour, and then see them before anyone else. Then they build an offer at the point of intersection, often creating the disruption themselves. The great ice hockey player Wayne Gretsky said he did not skate to the puck, he skated to where the puck would be. Successful brands do the same thing, lead, they certainly do not follow or react fads and short term “opportunities”.
4. Sweat the small stuff. Every potential touch point a customer may have at some point with a brand is an opportunity to enhance the brand, or add to the depreciation. Jobs’ fanatical dedication to making even the things no consumer was ever likely to see perfect is legend, but provided a platform for consumers belief that Apple was simply “better”
5. Commitment and focus. Brands that succeed do so because over a considerable period that stay focused on their core “Why” as Simon Sinek would put it. They do not succumb to corporate politics, marketing “short-termism”, and distractions from the market, they hunker down for the long term and deliver what the brand stands for at every opportunity.
6. Broad appeal. Really successful brands have a set of values that cross normal product category lines, and they are able to deliver in differing categories. They are able to accommodate shifts in consumer behaviour because they are not defined by their product attributes, but by their values and relationships with customers.
7. Relish and learn from competition. Marketplaces are demanding places, and only the best survive and prosper. Watching the steps and missteps of competitors makes brands stronger, and when a strong brand has strong competition, they both get better. That is the nature of competition.
8. Design is crucial. A well designed and executed product, and peripheral material like adverting, packaging, and look and feel of the product itself can deliver a unique message to consumers about the values that their purchase choice is delivering to them. Unmistakable, and remarkable are terms that every brand owner should chase for their offering.
9. Defy conventional wisdom. Unless a brand is distinctive, memorable and creates value, it will go unnoticed, and the best way to be noticed is to defy conventional wisdom. Do not do what everyone else is doing, find a way to add value by being different.
10. Communicate facts that resonate. Today’s smart consumers are less likely to be seduced by flimsy claims their parents accepted, they want solid information, facts that are relevant to them on which to make what they see as rational purchase decisions. They recognise preferences are no longer formed by fancy and extensive advertising, but by the realities that their target customers believe.
11. Design for people. Successful brands are never for everyone, their do not squander scarce resources trying to be so. In contrast, the design the brand experience is designed for the specific people who are most likely to be their loyal and lifelong customers.
A brand is more than a collection of attributes and deliverables, it is a long term strategic platform for growth and profitability. Why would you not invest in that?
