The “Cheese” Has Been Moved!

There was a book published a few years ago entitled, “Who Moved My Cheese?” In this book, the author made observations about the employment market and how many who thought their jobs safe were laid off, unawares. The main reason these former employees were finding it rough to obtain rewarding (or any!) new work was that the recruiting and hiring world had changed since their last go around. Small businesses are having  a similar “wake up and smell the coffee” experience with regards to finding customers.Mouse carrying cheese

With the surge in social media and internet based marketing, many small companies are falling behind in their marketing and sales and don’t know how to catch up. Recently, I spent some time with a businessman who had built a business model around websites, online advertising, working the search engine algorithms, and investing his personal time in keeping it all working smoothly, despite being a millionaire. The irony? He was not in a high growth startup, the darling of the media and purported environment where people spend countless hours on such matters. He owns a number of residential facilities for people recovering from substance abuse challenges. Keeping his vacancy rate as low as possible is his primary metric. Though he is in a non-sexy industry niche, he and his team recognize that customer pipeline development begin s with an internet strategy.

The two of us were discussing his strategy and tactics with some others over a meal and the question arose as to what is the role of relationships and “boots on the street” in his model. Together, we explained that target clients are most likely to perform some internet research on your organization before a personal meeting ever occurs. Furthermore, we argued that relationships are being initiated and nurtured over the internet at a quickening pace. We were not saying that the interpersonal meeting away from all things digital was unimportant; what we were explaining was that, in a time compressed world with information at our fingertips, the small business owner must earn the right to have the personal conversation by having a strong online presence.

Some basics to creating that presence:

  1. Your website needs “rich,” updated content — videos, pictures, etc. that you keep current
  2. Making use of Google Local and other local business listing services like Yelp is key – do it!
  3. You should advertise online or simply use social media to drive traffic to your site
  4. Determining what information to share through business social media accounts begins with having a target
  5. Break your customer base down into segments, each of which you can target with messages that resonate
    • You may need additional, mini-websites (called “micro-sites”) for each segment
    • You definitely need wording that is unique to each segment
    • Your social media and/or advertising needs to be a priority!

If you want more and better customers, be purposeful about how you develop new business in a digital world!

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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.

 

Rethink What it Takes to Innovate

Innovation inside big businesses requires a culture in which people feel relaxed, fairly rewarded, and valued. The same applies to small businesses, right? Recently, Charles Day, the CEO of Lookinglass, wrote an article for Fastcocreate on this truism as it relates to creative talent. He observes that, “Many creative businesses limit their talent recruitment and retention strategies to money and flattery.”

Day recommends the following 8 means to attract and retain top creative talent. Consider how many of these practices may be good human resources concepts that would apply across the board!

upside down worker

1. BUILD AN EVANGELICAL BUSINESS

Creative people yearn to make one thing more than any other. A difference. They want to solve problems they believe are important. Ten years ago, Netflix and Blockbuster were in the same business. The difference lay in their respective visions of the future of movie rentals. Internet-supplied delivery at your convenience? Or rainy Thursday nights staring at an empty shelf in a store? Which set of problems would you rather solve? 

2. AVOID THE DEFLATIONARY VALUE OF MONEY

In Daniel Pink’s excellent book, Drive, he explains that many creative people are in fact demotivated by money. In some cases it makes them perform worse, because when a task becomes “work,” creative people tend to feel restricted. As a manager, focus whenever you can on highlighting the intrinsic value of solving a client’s problem. And when your company decides it must “do it for the money”–an economic reality in virtually every business–be mindful of the impact this has on your most creative people.

3. PAY FAIRLY

There is a time to spend money. Paying “below the market” shatters trust. Many companies ignore this truth, underpaying early on when the company can, then overpaying later in order to keep talent locked in place. This builds suspicion and destroys loyalty. Instead be relentlessly pro-active in maintaining market-parity compensation, with bonuses for extraordinary results.

4. MEASURE PROGRESS

At Rosetta, one of the industry’s fastest growing interactive agencies, the rigor of the employee review program stands in stark contrast to most creative businesses. Employees are measured on a set of four published benchmarks that encourage both personal initiative and collaboration. The system is transparent and consistent. At the end of the year, everyone is evaluated and rated against their own peer group at their own level. This ensures that every employee has a clear understanding of how much progress they have made. According to a recent Harvard Business Review study, nothing matters more to ambitious people.

5. ENGINEER ENGAGEMENT

Gallup Organization research has shown that most people become less engaged with an organization over time. Nothing dilutes loyalty more than a company’s willingness to support under-performers. Be relentless about improving or firing the weakest links and raising standards and expectations. It attracts and unlocks greatness. 

6. INVEST IN INDIVIDUALITY

Google famously attributes its growth to the investment it’s made in allowing 20 percent of engineers’ time to be used for anything they want, so long as it makes Google a better company. Creative companies that charge by the hour can’t match this level of investment. But when you decide to invest zero in the possibility that your talent can create value in unpredictable ways, it suggests you think they are not capable of doing so.

7. BE OPEN. BE HONEST

Transparency is essential to attracting and retaining great talent. We define transparency as this: telling what you can and explaining what you can’t. Sharing openly encourages your people to give you the benefit of the doubt. Critical to building loyalty.

8. SAY THANK YOU

The artist in all of us needs to be recognized. So does the human being. And yet most companies are slow to praise or even to thank. Which is strange since each of us makes a choice every day about where we work. It need not, after all, be here. Saying thank you at the end of every day has always seemed to me to be a small acknowledgement that you take neither their talent nor their choice for granted.

 

When and Why to Withdraw Money From a Start-up

Working with entrepreneurs all day every day produces a certain fixation with what is most important to their survival. Unfourtunately, what is best for the business may not (in the short run) be what is best for its founders. Constantly, with existing operating businesses, there is the challenge of how much to compensate the owners and be fair about it. With start-ups, the goal is to get to the place that one can get paid at all. 

Recently, I ran across the story of Vinyl Me, Please. This new business is seeking to capitalize on the revived appreciation of vinyl records. While the number of records sold nationally has increased each of the past five years andby over 17% in 2012, the co-founders are trying to realize the benefit of the trend in their own business and wallets. They still are not earning a living from their efforts, though the prospects of doing so are better than at any prior point.

Vinyl recordsJeff Cornwall at Belmont University writes that, “The niche that Vinyl Me, Please fills is to bring new and interesting music to a new generation of vinyl record enthusiasts.  Each month the subscribers to Vinyl Me, Please are sent a brand new, hand-wrapped vinyl album from a relatively undiscovered artist. In addition to the monthly vinyl record, subscribers are assigned a personal music consultant who gets to know their musical tastes and preferences.  Every month the consultant creates a personalized playlist specific to each subscriber. Vinyl Me, Please brings together in one service what today’s young music enthusiasts want.  Their customers love the sound of vinyl, they like to interact on social media with friends about new music to try, and they like the surprise factor they get from services like Pandora.”

As a daily user of Pandora (and demographic that grew up with LPs), I can truly appreciate this business concept. Interesting to every new venture is how to make the most of market trends to create customer experiences that are profitably delivered and fun to pursue. Cornwall observes of the Vinyl Me Please business model that, “although they have identified what their market wants, their model has proven to be a challenge to scale to a large enough size to pay the founders a consistent salary.  They need to grow to at least 700 subscribers to reach this important milestone.”

He goes on to provide an account of his interaction with one of the co-founders, Matt Fiedler, and what he feels needs to occur next in their business development:

“The biggest challenge we face is keeping the personal touch,” says Fiedler.  “We think this is what makes the experience unique to a lot of people and is something we’re going to have to fight through in order to achieve true scalability.  We need to find a way to maintain a personal touch but be able to bring a massive number of customers into the system without it straining the resources of the company.”

They have recognized that it will not be possible to continue to hand wrap the albums as the business grows.  They also are looking at ways to make the personal consulting more efficient.

“We have plans to set up an internal database that allows us to categorize and sort music to create a more efficient process around creating playlists,” explains Fiedler.  “We are also looking at rolling out a playlist-only offering that will help us capture more users and, at the same time, start paying our consultants without dipping into the revenue that comes in from standard, full-membership subscribers.”

This commentary demonstrates the need for business launches to be very iterative, flexible, and responsive. Finding some group who will purchase your product or services is not enough; sustainability comes with staying attuned to original and ensuing target market needs.

 

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.