Apr 13, 2015 | Collaboration, Small business
Collaboration
Small businesses have 10 strategies I have previously summarised, that they can deploy in various ways to build success with the retail gorillas. Collaboration is the 7th, and often the most challenging, as the other parties to the collaboration are not by definition, under your control.
Successful collaboration relies, when all the jargon is scraped away, on both parties recognising at all levels where the collaboration ‘touches’ each other, that their individual best interests are best served by serving the best interests of the collaboration.
Having just claimed to have scraped away the jargon, that is a mouthful. However, the idea of the ‘commons‘ must be central to any collaborative exercise.
A key component of supermarkets business model is the reduction of transaction costs. They only want to deal with large suppliers, as it reduces their supply chain costs per transaction, delivering substantial efficiencies. It therefore follows that suppliers collaborating to generate the economies of scale to enable them to play by the supermarket rules, makes sense.
The flip side of course is that supermarkets use their power to get the best deal for themselves, subjecting suppliers to an ongoing game best described by the prisoners dilemma. In effect, if you do not give them what they are currently demanding, they will find a supplier who will.
Small suppliers to supermarkets have to find ways to apply some leverage to their opportunities. Collaborating to reduce various forms of transaction and supply chain costs , and marketing, as well as pooling data and data capabilities are logical if challenging tasks.
Many produce suppliers have found ways to collaborate, but their produce is unbranded, and commoditised by retailers, so they lack the consumer leverage that is enabled by a brand.
Branded packaged goods may have some consumer leverage, but collaborating with their competitors for shelf space if not for the consumers dollar is enormously challenging, but nevertheless possible.
Digital tools now make the communication component of a collaboration, which is profoundly important, relatively easy if the will is there.
Opportunities fall in three main areas:
- Supply chain. Collaboration to buy common inputs like boxes, freight, and commodity ingredient purchases like sugar, are increasingly common, particularly in regional areas where you have a number of small suppliers close by, all subjected to distance loadings of some sort. Contract packing a complete product is increasingly being used as it removes the need for investment by the marketer, and utilises unused capacity for the packer.
- Data acquisition, management and analysis. Lots of variations here, but everyone needs data to participate, even in the most basic of category and performance reviews. Scan data acquisition is challenging as there are revenues and margins attached to both the retailers and their data wholesalers that will be protected. However, when that hurdle is run, managing data is an activity that responds well to scale as the costs are in the overheads, the marginal costs of data management are very small, and can all be outsourced. Data analysis is more challenging, but interpretations of data can be very specific. Turning data into useable market intelligence is the end game, and is not necessarily compromised by collaboration on the basic components, acquisition of raw scan data, storage and distribution of the data, and even generic information like market sizes, share movements, category drivers, and the like.
- Marketing. Collaboration in marketing efforts need to explicitly exclude any hint of price collaboration, collusion, which of course is illegal. However, there are numerous ways small businesses can collaborate in their marketing programs to compete, not only reducing their costs but also increasing their opportunity to appeal to customers. Complementary products, joint promotions of various types and locations, collaborative and complementary media placement, the list of possibilities is limited only by imagination. There are complications of packaging, product numbers, and the rest, but they can be relatively easily overcome.
The real challenge is to visualise the future, see industries and their structures in new and different ways, and to recognise the opportunities that are there, and find collaborative ways to leverage them.
Apr 10, 2015 | Management, Small business
It is interesting to consider the notion of ‘knowledge’ and how experts are given that label.
Often it just means that someone who is seen as an ‘expert’ may have just a little bit more knowledge that those who are listening.
Consider the primary school teacher, teaching maths to 10 year olds. To them, the teacher is an expert, knows it all, but could that same teacher teach maths at high school, graduate, or post graduate level? Probably not.
In primary school they are a relative expert, but the depth of knowledge required to teach maths at a post graduate level is far higher than primary school. On the other hand, could the teacher of post graduate maths teach 10 year olds?
Often not, as they do not relate to the level of knowledge that exists, and the way these kids will think and learn. The Uni professor may have all the maths skills, but often no skill at relating to their 10 year old audience, often simply because of the assumed level of expertise .
“How could they not know that?”
This post evolved out of a series I am doing, teaching basic software skills to small businesses by relating them to the things they need to do in their business every day, cash flow, P&L, and the other basic stuff that are absolutely essential to a business, but ignored by many small businesses simply because they do not understand what is being said.
There are legions of free “how to” videos, manuals, and the rest, readily available, but still I see small businesses every day who do not understand the importance of actively managing cash flow, or if they do, how to go about it.
Accountants know this, but they have generally failed dismally to communicate it to their small business client base. Generally it is not because they do not want to, but rather because they fail to communicate at the really basic level many small businesses require. On the other hand, owners of small businesses are often loathe to engage their accountants in this sort of conversation at $200/hour when they know they will not understand a thing.
Clearly the assumed level of knowledge is too high they get confused, and do not relate, but that is not their problem, it is that those setting out to teach the stuff have failed to understand their audience.
Mar 19, 2015 | Customers, Governance, Lean, Management, Small business
Image courtesy of ddpavumba at FreeDigitalPhotos.net
This post is the sixth in the series that sets out the means by which small businesses can take advantage of their small scale, and be successful competing against the industry giants for expensive supermarket shelf space.
Remove transaction costs. Easy to say, hard to do.
The concept of transactions costs is generally attributed to British Nobel prize winning economist Ronald Coase, and the publication of his 1937 paper “The nature of the firm”
Transaction costs will always be present, they are the enablers of an organisation. The challenge is squeezing the maximum productivity out of the transaction costs you will inevitably incur.
Like all costs, transaction costs fall into three categories:
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- Those that are necessary for the sale, and that add value to the customer, so they would be willing, if you asked them (and this is the big test) to pay for it. Things like delivery of physical products fall here, and we all know there is no such thing as “cost free delivery”. ,
- Those that are necessary, but do not add value to the customer. Costs associated with compliance, your training and innovation programs, taxes and charges all fall here .
- Those costs incurred that do not add value in any way, just consume time and money, such as rework, picking up wrong deliveries, or correcting wrong invoices. You generally do not need an activity costing initiative to know that this third category is usually uncomfortably large, and should be eliminated.
The bloating of transaction costs has three basic causes:
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- Not getting “it right first time” requiring rework to correct the mistake. For small businesses, the costs of mistakes are relatively much harder to absorb than they are for a large enterprise.
- The penalty of small scale, expressed in the variable operational costs incurred, and the productivity per dollar of overhead spent. The flip side is that small operations can be far more agile than large ones, as the distance between a decision being made and actually getting something done, is much shorter.
- Less than optimum processes, or the ways that businesses manage the things that need to be done to support and document a transaction.
If you chose to take a deeper look at these three causes, they are all rooted in the way people go about doing their jobs on a daily basis, and for small businesses, with less people, and far easier personal communication, this is where the leverage can be applied by continuous improvement.
It costs the same to raise and process an invoice of $1,000 as it does for an invoice of $100,000. Therefore the transaction cost % of the invoice value is far greater for the smaller invoice. This relationship is reflected throughout the supply and distribution chain, and even minor improvements can deliver substantial savings. Technology offers the opportunity to reduce the absolute cost of processing to almost nothing, making the transaction cost irrelevant either way, but once people are added to manage the exceptions that cannot be handled automatically, the costs soar.
The source of Woolworths superior performance over the last decade compared to Coles has been the impact of their reductions in transaction costs that have dropped straight to the profit line. Wal-Mart became the biggest retailer in the world by focusing on the reduction of transaction costs of all types, and passing the savings on to consumers as lower prices to attract the volume creating a virtuous circle. Less obviously, they passed many costs back to suppliers, then continued to insist on and successfully extract cost reductions from those same suppliers in spite of increasing their costs, simply because of the scale of their sales potential for suppliers.
It seems to me there are two parameters to transaction costs:
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- The absolute amount of the costs in a whole process
- The productivity of the costs in the process.
Most systems just look at the quantum, and set out to cut corners, work the current system harder, but by looking at the detail of the things that generate the costs, you can eliminate those that do not add value. However, moving a transaction cost on to another link in the supply chain does little to eliminate the cost, it just moves it. Retailers generally have been expert at this moving of transaction costs, while often creating them as a source of revenue. Practices such as making minor claims on a supplier, and holding up payment of a complete invoice until the claim is dealt with, then making the dealing with the claim a minefield for small suppliers abound. A source of the success of Aldi in Australia has been their focus on the reduction of transaction costs, but in return they get their “pounds worth” at the invoiced price point.
In dealing with supermarket retailers over many years, a number of transaction cost types have become evident:
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- Cost of searching, storing, processing & managing information. Category management is a prime suspect here. Suppliers engage in a costly, data intensive exercise in the expectation (hope in most cases) that there will be returns from the collaboration that is hoped to occur, and from the opportunities good category management can unearth. While the costs of the data transactions themselves may have dropped precipitously over the last 20 years, the costs of the overheads to manage them have not.
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- Cost of negotiation. In almost any negotiation where one party has the power, and is happy to use it, the outcome is virtually pre-ordained, it is just the quantum of the cost that is in question. Knowing, and sticking to your “Walk away” point is an absolute must.
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- Cost of time. A vastly under measured cost in most businesses. We tend to have people on staff because there is a job to be done, and we pay them competitive rates to ensure we get the best people we can for the job, but we tend not to measure the value delivered by the doing of the job, its cost is just a part of the fixed overhead. Every minute spent costs a business, but apart from VC operators who use “burn rate” as a key measure, we tend to ignore it.
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- Cost of certification. The range of certifications that are supposedly “needed” from HACCP to OH&S, to quality verification of components in a product to various religious and quality standards are legion. Each costs time, money, effort, and carry heavy opportunity costs. A bit of effort to isolate those that are really needed, and to manage those that are with automated or at least consistent processes can save a significant amount of time and money
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- Cost of influence. People deal with people, not corporations, no matter how automated and impersonal our communications systems become. Getting to know people , building relationships and trust takes time and effort. It is time and effort well spent, to a point, and finding the point at which the costs outweigh the benefits is a management challenge most fail.
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- Costs of cock-ups and rework. This is probably the biggest, most pervasive source of transaction costs. From the wrong invoice to a truckload pf product turning up to be rejected, and turned around dumped or put into rework. It is not just the cost of the product, but the added time, lost sales, loss of reputation, and needless consumption of capacity that really hurts. “Lean” processes target waste, and this one is the biggest waste that occurs, and is often made up of a lot of low hanging fruit if you go looking for it, and know where and how to look.
Small businesses are in a great position to reduce their transaction costs, simply by being good at everything they do, and being “close to the action” can make the wrinkles that can be ironed out that more obvious.
The original post that started the series is here, followed by the more detailed posts, 1, 2, 3, 4, 5.
Mar 17, 2015 | Customers, Marketing, Sales, Small business
marketing funnel
Creating a marketing funnel is the basis of all digital marketing initiatives. If you put the term into google, you get back 3 million plus responses, many of them having nice illustrations attached that in one way or another, look like a funnel, with stages and various names attached.
However, there are very few places with useful advice on how you create and manage a funnel, perhaps it is easier than I have found it.
Every situation is different, and every prospect needs to be addressed personally in some way, nevertheless, there are a number of generalised stages I have seen, which drive the manner in which you deploy the digital tools.
Step 1. Create a “Hook”. A “Hook” is something that arrests the attention of someone in the target market. This implies, accurately, that you have defined your target market in considerable detail. I am working with someone who is an expert at setting up self managed superannuation funds. His target market is the owners of small businesses that rely on the owners presence, often they are tradesmen, who are over 55, and have not put enough money away enough for retirement. The “Hook” we have evolved is “If you are over 55, and behind in savings for your retirement, you have the opportunity to use a tax effective self managed super fund which delivers a doubling of your net worth in 7 years”.
This statement is in 4 parts:
It identifies the prospect very clearly,
It is very specific about the situation the prospect finds themselves in
It tells them of a solution to the situation
It makes a big promise.
Without the very specific definition of a target market, the Hook is less effective, as it does not speak to anything specific to which a reader will relate, it becomes too general.
Step 2. Generate traffic. This can be done by a variety of means, using both paid and organic means. Organic is slower, and is centred around personal networking, blog posts, articles, and other content that gets shared on social platforms. It is a passive approach. By contrast, paid traffic generation can be very effective with the great degree of target definition that can now be generated by all the social platforms. For my self managed superannuation (SMSF) client, we are targeting the small business owners with a very specific and targeted Google Adwords campaign, coupled with an extensive organic program.
Step 3. Customer capture. Having driven traffic to a website, you need to do something with them to progress them through the steps towards a transaction. Usually this involves the download of something of value for free in exchange for a name and email address. The lead is then followed up with a staged set of automated emails that are responsive to the actions of the potential customer, often offering further “freebies”. This tactic is now so widely used that it is losing its effect, so increasingly it is being supplemented with the further offer of something of greater value still for a minimal amount, $3-7. This does two things:
It qualifies the lead as a real lead, not just a freebie follower,
It gets leads used to using their cards to purchase from you.
Step 4. Transaction development. This process can take many forms, from the gentle prompting towards a transaction that can be a highly iterative and lengthy process, to the maximisation of a sale by adding value to the original offer. By way of example, it takes me ages to come to the conclusion that I need to buy a new suit, it is a substantial cost, and occasional purchase. However, once in a shop, the opportunity to also sell me a tie, belt, shirts, and perhaps another pair of shoes is real. The upsell stage, or as McDonalds have perfected, “would you like fries with that?”
Step 5. Remarketing. Once you have a customer who has bought and hopefully had a good experience, it is easier to sell them again, and again, and over time you can build a very good picture of what they like and what they do not by their interactions with your database. Again, by way of example, I still buy a lot of books, real books from one of the few remaining bookshop chains. I have a card that gives me a discount based on purchases, yet they insist on sending me emails with offers that bear no resemblance to the purchase habits exhibited on their database via the card. Utterly stupid, and exactly the reason they will go out of business eventually. Amazon will never make that mistake, their offers are very specific and targeted to behaviour, not just of the individual, but of the cohort of individuals with similar behaviours that can be ascribed to the individual. In addition, once someone subscribes to your database, you have their permission to market to them, so irrespective of where they may be in the funnel, there should be processes in place to periodically “re-tweak” their interest.
Funnel management Toolbox. There are a range of tools, digital and otherwise, for each step in the sequence, and their relative performance is the subject of much very effective review, so I will not repeat it. Suffice to say several specific tools are necessary for any effective automation.
- Registration page . To attract the registration and manage the delivery of the “freebie” and of the leads details to the auto responder software. There are many around, but Leadpages seems to have the game pretty well sewn up. Recently both Facebook and Twitter have added “one click opt-in” capabilities to their sites that leads people directly to your autoresponder.
- Autoresponder software. Absolutely necessary, and there are a host of suppliers, from those with simple tools to those fully integrated with CRM systems with more bells and whistles than even the most sophisticated and technically savvy medium sized business will struggle with, so my advice for the small businesses where I operate, is to keep it simple. Mailchimp and Aweber are the most popular around my patch, and both work well.
- Creativity and originality. Unfortunately, or perhaps fortunately for some of us this does not yet come in a box, or made available for download, it resides between the ears of real people.
- Customer centric copywriting skills. As with the above, not available via download. It is one thing to get all the digital tools right, but someone still has to be able to make them work to optimum levels, and the copy writing skills and experience needed are significant.
- Technology implementation . Again, somebody who knows what they are doing with this technology. It is one thing to know how it works, it is another entirely to actually make it work. Implementation simply is not as simple as all the vendors would have you believe, for most small businesses, implementation sucks.
PS. The illustration at the top of the post is confusing, hard to understand, and not at all like the last one you saw. Just like in life!!
Mar 11, 2015 | Change, Marketing, Small business, Social Media
Designing websites requires the skill of a master juggler
Often I find myself working with a small business to specify a website and digital strategy, and sometimes I am actually taking a brief for a website design. Either way, the same questions keep popping up, so I thought it sensible to list them down.
For some unknown reason, I stopped at 69, although I am sure you can add a number more that have been missed.
Background information.
- What is the purpose of the site?
- What is it about your current digital marketing that needs to be changed, and why?
- Who are your most aggressive competitors?
- Where are the new competitors going to come from?
- If you were to start in business again today, what would you do differently to what you are doing currently?
- How has digital technology changed your competitive environment, and what impact do you think it will have in the next few years?
Your strategy
- What are your corporate values, mission, purpose, however you choose to articulate the reasons you are in business?
- What problems do you solve for your customers?
- What makes you different to your competitors?
- What do you do better that your competitors?
- Why should people do business with you rather than others?
- What are the things you will not do to attract or keep a customer?
Customers
- Describe your most valuable customer.
- Describe the customer journey, how do they typically end up with you?
- What are your levels of customer churn and retention?
- From initial contact, what are your conversion rates?
- What is your conversion cost?
- How do customers find you initially?
- How much is a good customer worth to you over a period of time?
- How long is the sales cycle?
- Do you have a good database of current, past and potential customers, and how is it managed and refreshed?
- Do you know why former customers stopped buying from you?
- Do you have a referral system that captures benefits for the referrer?
Competitors
- What elements of your competitors sites do you like/want?
- What elements of competitors sites do you want to avoid?
- What are your competitors doing to attract your customers and potential customers?
Technical considerations
- Do you have a site architecture or is it part of the design exercise?
- Do you have hosting, domain, email management services to be continued?
- Are the current arrangements if any, compatible with the needs of the new site?
- Are there any specific mobile requirements needed? It is assumed that “mobile friendly” rather than just “mobile compatible” is required.
- What analytics do you want?
- Do you have preferences about the CMS system used?
- How will the content management/ approval system work?
- Do you require log in and chat features, and will they be password protected?
- How will user names and access to the site CMS be managed?
- Are there content on demand requirements, i.e. hidden content becomes visible after a series of actions.
- Are there digital commerce and shopping carts to be managed?
- How will inventory and fulfillment be managed?
- Are there any general functionality requirements you need, such as data bases, and data base interrogation processes, site search facilities, calendars, maps, et al?
- What other digital systems are needed to be integrated, CRM, MRP, order/invoice?
- How will you manage SEO?
- What sort of content download requirements are there?
- What levels of skill are there in the business to apply to the site maintenance?
- Are these compatible with the requirements of the site or is training and outsourcing required?
Design elements.
- What are the most important three things in the design?
- What content and design elements of a current site are required to be carried over?
- What information will go where?
- What corporate logos, colours, designs and style elements must be present?
- How do you want the inclusions that are required, such as calendars & maps to work?
- Will different parts of the site have a different look and feel?
- Are there taglines, market positioning statements or other such marketing elements that need to be incorporated?
- Do you have the original artwork files of elements you want incorporated?
- Do you have photos, video, or other material you want incorporated, and if “yes” do you hold or have paid for the copyright use of them?
- What font sizes and styles are preferred?
- What contact information and automated functions do you want, and where do you want it?
Marketing strategies.
- How are you going to create the content for the site initially, and on an ongoing basis?
- Who is going to maintain the site?
- How does the site integrate into other marketing activities?
- When someone is on the site, what do you want them to do?
- What sites of any type do you like, and why?
- What are the pages you require?
- What social platforms do you want connected, how prominent should the connections be, and which pages do you want them on?
- How are visitors to the site going to be converted?
Project management considerations
- When do you want it? (oh crap)
- Who in your organisation is going to provide the content agreed?
- What content will the contractor provide, and at what cost?
- How will the approval process work as the project progresses?
- How much do you expect all this to cost?
- What are you now prepared to do without?
When you need someone who has successfully juggled in the three ring circus, and knows how to deliver you a great performance without stealing your shirt, give me a call.
Mar 9, 2015 | Change, Governance, Management, Small business
Three core factors of success
Over 20 years of working with mostly small and medium businesses, I have found there are three common factors that are almost always are pre-requisites to a successful business, generally in this order:
- Cash. Cash is the lifeblood of business, and too often small businesses do not manage their cash well enough. Simple tools and techniques are not used that could make a huge difference in the success and often avert the demise of small businesses. Businesses have absolute control of the manner in which they manage their cash, it is entirely up to them.
- Leverage. Most small and medium sized businesses are run by people who are functionally extremely competent, really good at the thing that led them into businesses in the first place, rather than being an employee. However, the flip side is that they often do not let go of their functional control, and they let other things outside their competence slide. The net result is that they work ridiculously long hours to take home less than their employees, and have no life outside the businesses which grinds to a halt if they take a week off. They must find ways to leverage their time, to get more done in less time. Most business people have the opportunity to leverage their time far better than they do, the choice not to do so is usually in their hands, weather or not they know it.
- Simplicity. Simple is good, simple makes life easier, more productive, and more profitable, but ironically simple is really hard to achieve. Unlike cash and leverage, simplicity is to a significant extent out of the hands of the business owners. The really good ones have simplified their processes, ensured their activities are aligned with their strategies, and built a culture that engages employees to minimise rework and maximise the amount of autonomy and innovation that happens, but then they have to deal with the world outside their premises. Customers, suppliers, competitors all complicate life, as does the public sector, unable as it is to even begin to realise the benefit of simplicity and the costs their own complexity imposes on small businesses.
Nevertheless, setting out to do better on all three parameters will most certainly deliver dividends. The first step is to form a quantitative picture of the current situation, plan the improvements, then measure the improvements as the changes bite.
Then “Rinse and repeat”!
