Success Bred From Culture

In a post today for Inc. magazine online, Scott Elser, who is the co-founder of Launchpad Advertising, discussed what he and the founding team consider to be the driving force in the company’s success: culture. Elser described how he and his partner left a big advertising agency to create their own. In typical fashion, they did tons of analysis, planning and revisions. However, by devoting precious time to define the work culture they wanted to have inside the agency, they successfully set the “DNA” for all who joined them in their dream.

The co-founders knew they had to combat the stereotypes of arrogance and poor attitudes that prevail in the industry. Elser writes, “While most people I’ve worked with at agencies are great, there are always a few that bring their own brand of “I am awesome and you are not.” That attitude can set the tone for an entire office. They make things miserable for everyone. We wanted to create something different–an agency that people actually wanted to work at–and started that effort on day one. Long before we had employees, we envisioned a day in the life at the Launchpad of the future. What would the culture be like? How would people feel about working at this agency? What would they say to their friends about the agency? “

Corporate culture diagramWord to the Wise (Founder)

While it is easy to become consumed with any of a number of details during start-up mode, one should not lose sight of the value of a strong company culture. Culture does not just happen; it must be created! Think through what you have enjoyed when working with others in the past and what you desire to avoid. Consider what intangibles create a great place to work versus those that create division, boredom, and low morale.

Launchpad created an objective that is paraphrased by Elser in his blog post as follows:

“Like any job, there are good days and not so good days. But we want to create an agency where each and every person who works there can come to work every day believing that today can be a great day.”

He goes on to offer the following observations:

From this strategic objective was born what has become our primary rule: the Launchpad No Jerks Policy. It’s born of the belief that there are talented people out there who are also nice people, so there’s no reason to hire someone with a negative attitude, huge ego or destructive personality. 

It was a year later we hired our first employee, and we’ve since staffed up to become a 50-plus person shop. From day one our No Jerks Policy has driven every hiring decision we’ve ever made. Even contractors and freelancers are held to this standard. The result is an agency that delivers a great creative product and is great to work at. There’s more collaboration, ideas really can come from anyone and the environment is more “drama free” than any company I’ve ever worked at before. We’re an agency where the owners hold themselves to the same standards as everyone else. 

How about your company–whether it employs 5 or 500, you must consider how many “jerks” are members of your staff. What are the implications to customers/clients, attracting new employees, retaining top performers, and being able to delegate as the business outgrows your ability to manage it all? 

Company culture is the result of best intentions mixed with a long term commitment. 

 

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Overcoming Price Objections in Small Business

Many the small business entrepreneur complains about not being able to charge enough to make good profits. Yet, in the business world around us, we all see businesses who seem to be doing very well and who charge the proverbial “arm and a leg” for what they do. Why is it that some niches seem more capable of avoiding price sensitivity than others? For instance, goods that carry with them a great customer experience command a luxury price. Mark Stiving took note of how the healthcare industry is a conundrum when it comes to pricing. In an article for All Business, he made the following observations:

“It’s something we all need. It’s an industry where there is huge pressure from major insurance companies, the media, governmental agencies, and even consumer groups to cut costs and prices. However, even with these factors prices have never been driven down to commodity levels or even to parity.”

Pricing

This is in sharp contrast with the experience of many small business owners. I hear all the time about being beat up on price, having to price services in competitive bid situations near the bottom, and many other such war stories. As you can imagine, I often am advising clients to compete on value versus price. Just how does one go about this?

Stiving continues in his piece, noting the following consumer behavior in healthcare:

“How is this possible? Like almost everything in pricing, human psychology is at the root. For example, when was the last time you used price to decide where you were going to have a medical procedure done? When was the last time you even knew the price of the service before going in?

Most people don’t pay attention to prices because their insurance company pays. Yet virtually everyone has co-pays, and therefore knows the general cost and has an incentive to ‘price shop’. Think about it. Even a 10% co-pay on $1,000 is $100. Isn’t it worth $100 to find the best deal for a procedure? So most people have financial incentives to shop for price, but don’t.”
Let’s focus on several key words and phrases from the quote.
  1. Human psychology. If you are sharp enough to have built a target market strategy, you have surely thought through who you want to serve. What is often overlooked, however, is how and why people buy. As is pointed out, consumers have habits. Observe the habits and then customize your approach to what you see.
  2. Insurance company pays. This fact is significant because it illustrates that many buying decisions are facilitated by removing the consumer from having to make a painful (excuse the pun) choice. Think of software as a service as another type of business wherein the monthly $9.99 or whatever you allow to be charged to your card on file is “out of sight, out of mind.” How can you make purchasing easier and less “thinky” for your customers so that the decision is almost automatic? Do you have something that could be billed on a recurring basis at a lower price point?
  3. But don’t. In describing how healthcare consumers do not look around for alternatives, Stiving makes a keen observation. Even when alternatives exist, they are often not sought out. Those who study consumer behavior far more than me would point out that the trouble associated with switching to something new holds many buyers back from changing to what may even be a better value. How can you use this behavioral paradigm to your advantage? Can you make it easier for others to but from you instead of the competition? How can you make it harder for existing customers to stop buying from you?

Finding a way to address these three issues in your own business will pay off. As you are able to make inroads, you will find that your pricing becomes justified and that you won’t have to fight as hard to maintain price integrity.

 

Stay Out of the Ditches of Entrepreneurial Growth

Having studied causes of business failure and what can be reversed versus what is usually fatal, I can assure that a leading problem for small businesses is unplanned growth. When the pace of advancement exceeds the ability of the infrastructure to keep up–in any category–there will be problems galore. Bankers, CPAs, and attorneys have all witnessed this phenomenon with their small business clients and wished they could have persuaded the founder to slow things down until growth became more manageable.

Jeff Cornwall, of Belmont University in Tennessee, writes a popular blog entitled The Entrepreneurial Mind. In a recent post, he says that, “The road to growth can be both narrow and treacherous.  There is not a lot of room for error, and when you make a mistake it can lead to serious or even fatal consequences for the business. There are two ditches alongside the road to growth.” Below, I have featured excerpts from his post on the subject of the two ditches:two ditches

  • One ditch is the one that catches those businesses that underestimate what they have to do to manage their growth.  This is the ditch that most people worry about with fast growing businesses.

Entrepreneurs who end up in this ditch spend too much time continuing to be involved in the day-to-day operations of the business and not enough time working on creating an organization that can support growth.

These entrepreneurs move too slowly to build a team to whom they can begin to delegate important functions and tasks.  As they add employees, they don’t create systems and procedures that make sure work gets done efficiently and effectively.  They don’t think about what organizational structure will best support their strategy and achieve their goals.  And they don’t take the time necessary to intentionally build the culture they want to have within their business.

Entrepreneurs who get caught in this ditch alienate customers with poor service and lose their best employees due to frustration with the constant internal chaos.

If failure is the ultimate result, it is not because of a poor product.  It is due to poorly managed growth.

  • The other ditch is the one that catches those entrepreneurs who actually over-prepare for growth.

These entrepreneurs hire too many managers too quickly, added overhead expenses that the business is not yet ready to support.

They also make systems and procedures that are much more complicated than necessary, also adding to cost and bogging down employees and customers in excess complexity and paperwork.

Eventually it can seem like employees are serving the system, rather than the system supporting them and making their jobs more manageable.  And even worse, customers can begin to feel like they are serving the company rather than the company serving them.

If failure is the ultimate result for entrepreneurs who end up in this ditch, it is due to over-managed growth that kills the innovation that made the business special and successful.

What, then, is the solution? Cornwall suggests (and I would concur!) balance. The choice to grow should be a conscious choice. Sure–everyone who begins a business hopes it will be successful. Note, however, that growth is not necessarily a sign of success, but can be like an albatross hung around one’s neck. Managed, sustainable growth is more likely to be a solid measurement of success in small business. 

Determine how you will handle the growth long before it arrives so that you neither allow the enterprise to flail out of control nor squelch its inertia with an overkill of “orbiting the giant hairball.”

Picking a Small Business Niche That Will Grow in 2013

Some business owners just started their enterprises since the 21st century “great recession.” Others have been in business considerably longer. Whether new or “seasoned,” most want to know what trends their businesses face. Knowing growth rates of a market sector can be very helpful–if for no other reason than benchmarking one’s own performance against the average of one’s peers. A company that compiles a lot of research data on small businesses in my own back yard of Raleigh, North Carolina is Sageworks. In an interview with Catherine Clifford of Entrepreneur.com, Libby Bierman of Sageworks said that a recent study by her company showed the average growth rate of small businesses across all industries was 8% in 2012.

While growth is a very good sign, there are winners and losers in every statistical average. Certain sectors, however, performed poorer than others. According to the research, the slowest growth industries for U.S. small businesses in 2012 were:

  1. Skilled nursing care facilities: -3.29 percent
  2. Printing and related support activities: 1.86 percent
  3. Automotive repair and maintenance: 2.81 percent
  4. Offices of physicians: 3.00 percent
  5. Highway, street, and bridge construction: 4.24 percent
  6. Insurance agencies, brokerages, and other insurance-related activities: 4.32 percent
  7. Lessors of real estate: 5.07 percent
  8. Other miscellaneous manufacturing including jewelry and silverware, sporting and athletic goods, dolls, toys, and games, office supplies other than paper, and signs: 5.55 percent
  9. Offices of health practitioners other than physicians and dentists, including chiropractors, optometrists, mental health practitioners, speech and occupational therapists: 5.98 percent
  10. Other amusement and recreation services including bowling centers, golf courses, and recreational centers: 6.03 percent

As I reviewed the list above earlier today, it occurs that personal services, low technology manufacturing and discretionary spending-based businesses have been it hard. Why would this be the case? In terms of  the personal services businesses, many of them are healthcare related. The Affordable Care Act may have a lot to do with this poorer performing sector, as many have shunned making decisions to invest capital in an arena that is in extreme flux. Many before me have written about the loss of manufacturing jobs to overseas competitors. In the United States, we have become less competitive in manufacturing that is not highly customized or based on a technology. Whether infrastructure projects or amusement, spending is down on items that don’t seem necessary. Take note if you have a business in any of the above sectors. While you may be able to outperform your sector, you may consider how your sector as a whole is not growing as quickly as others. How should you respond? This question should drive your strategic planning.

Professional officeHowever, the list of fastest growing sectors (below) identified by this research highlights some additional trends and opportunities. Many who have the flexibility to diversify or move their efforts to one of these sectors should seriously consider doing so.

Fastest-Growth Industries for U.S. Small Businesses in 2012

  1. Residential building construction: 14.77 percent

  2. Building custom software and servers for businesses: 14.29 percent

  3. Machinery, equipment, and supplies merchant wholesalers: 13.75 percent

  4. Management, scientific, and technical consulting services: 12.31 percent

  5. Architectural, engineering, and related services: 11.40 percent

  6. Foundation, structure, and building exterior contractors: 11.37 percent

  7. Building finishing contractors who make additions, alterations, maintenance and repairs: 11.32 percent

  8. General freight trucking: 10.41 percent

  9. Services to buildings and dwellings, including pest exterminators, janitorial services, and landscaping: 10.11 percent

  10. Other specialty trade contractors, including site preparation activities and other specialized trades: 10.04 percent

Most of these businesses, as Bierman mentions in her interview, require very little capital to get going. They do not require the purchase of expensive assets and can be successful based on the strength of human capital. As a result, business services firms are performing strongly and should continue to do well.

 

 

 

 

Do You Understand Which Customers You Want to Develop?

Whenever I have the opportunity to sit down with an entrepreneur to discuss how an idea is going to be commercialized, a hot topic is “who is your buyer, and how will you win them?” Amazingly, many who aspire to start businesses (even some who have been in business) have very little strategic insight into the answer to this question. By going after the universe, in a shotgun method, the business owner shortchanges the enterprise of the opportunity to develop authentic connections with targeted customers who become loyalists. We break the broad question down into tactical components such as how to listen to customer input and revise a product or service offering. Yesterday I read a LinkedIn article by Steve Blank, the author of The Startup Owner’s Manual. Blank wrote about an interaction with a former student who claimed that following Blank’s advice on customer development was causing his company to fail:

We Did Everything Customers Asked For
“We did every thing you said, we got out of the building and talked to potential customers. We surveyed a ton of them online, ran A/B tests, brought a segment of those who used the product in-house for face-to-face meetings. ” Yep, sounds good.

“Next, we built a minimum viable product.” OK, still sounds good.

“And then we built everything our prospective customers asked for.” That took me aback. Everything? I asked? “Yes, we added all their feature requests and we priced the product just like they requested. We had a ton of people come to our website and a healthy number actually activated. .  . everyone uses the product for awhile, but no one is upgrading to our paid product. We spent all this time building what customers asked for. And now most of the early users have stopped coming back.”

Customer developmentWhat’s your business model?
“Business model? I guess I was just trying to get as many people to my site as I could and make them happy. Then I thought I could charge them for something later and sell advertising based on the users I had.”

I pushed a bit harder and said, “Your strategy counted on a freemium-to-paid upgrade path. What experiments did you run that convinced you that this was the right pricing tactic? Your attrition numbers mean users weren’t engaged with the product. What did you do about it? Did you think you were trying to get large networks of engaged users that can disrupt big markets? Large is usually measured in millions of users. What experiments did you run that convinced you could get to that scale?”

I realized by the look in his eyes that none of this was making sense. “Well I got out of the building and listened to customers.”

The idea of the tests he ran wasn’t just to get data – it was to get insight. All of those activities – talking to customers, A/B testing, etc. needed to fit into his business model –how his company will find a repeatable and scalable business model and ultimately make money. And this is the step he had missed.

Customer Development = The pursuit of customer understanding
Part of Customer Development is understanding which customers make sense for your business. The goal of listening to customers is not please every one of them. It’s to figure out which customer segment served his needs – both short and long term. And giving your product away, as he was discovering, is often a going out of business strategy.

Blank then shared the lessons learned by his student:

  • Getting out of the building is a great first step
  • Listening to potential customers is even better
  • Getting users to visit your site and try your product feels great
  • Your job is not to make every possible customer happy
  • Pick the customer segments and pricing tactics that drive your business model