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.

 

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.

 

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

Don’t Let Your Sales Tail Wag My Marketing Dog

The age old battle of chicken and egg takes shape in companies around the world as debates rage on the importance of marketing versus sales. Late 20th century management leaders, including Peter Drucker, felt that selling would become unnecessary in favor of marketing. ideas such as “frictionless markets” advocated for a day wherein buyers would deal directly with vendors via the internet. Now, folks like Geoffrey James, who writes the Sales Source column for Inc. magazine online, question whether there is a future for marketing and feel that sales is king. 

James argues that online definitions of marketing make it sound like a weak link in company management that seems to be high on shifting responsibility to other departments and avoiding accountability. Instead, he posits that 

“Marketing consists of specific activities that make it measurably easier for selling to take place.”

Tail wagging dogThen, because he’s a sales guy and sees marketing as a support function for marketing, James continues–

The advantages of such a no-nonsense definition are that:

  1. It throws the emphasis on what the marketing group actually does (and spends) rather than allowing marketing take credit for tasks actually performed by other groups.
  2. It emphasizes that Marketing activities must lead to a specific financial benefit in order to be consider useful and justifiable expenses.
  3. It turns amorphous activities like “setting strategies” and “providing requirements” into organizational overhead rather than a reason for existence.

Under this definition, the following activities (among others not listed) qualifies as “real” marketing:

  • Generating leads that the current sales group (rather than an ideal sales group as defined by the marketing group) finds it easy to close.

  • Running advertisements that, when shown in geography “A,” increase sales faster than in a similar geography “B” where those advertisements were not shown.

  • Providing sales tools that measurably help a salesperson close more business than a similarly-skilled salesperson who did not use those tools.

  • Building a sales channel that allows a company to sell profitably to a set of customers not currently being reached by existing sales channels.

James goes on to quote studies from research groups like CSO Insights that show that only 23 percent of 600 sales and marketing groups surveyed feel like the marketing team supplies fully qualified leads to the sales team. (As though the highest priority of marketing is to feed sales!) Also dismissed are marketing collateral pieces meant to assist sales efforts. James mentions CMO Council, American Marketing Association and Booz Allen Hamilton research indicates that sales staff are almost as likely to prepare their own collateral as to use what marketing has created. Channel development responsibility on the part of marketing is also questioned, citing an additional study be the CMO Council, claiming that vendor marketing campaigns are generally ineffective. 

(James, cont..):

The problem, according to sales guru and bestselling author Neil Rackham, is that as companies grow, Marketing tends to get disconnected from the selling function. Most companies begin with a sales function but without a marketing function but as they expand, they add marketing as a sales support function. Over time, however, marketing groups lose focus and become “atmospheric” and increasingly irrelevant to actually generating revenue.

 

I like reading columns by James because he is a good sales guy. However, my marketing bias would argue that marketing is the large concentric circle inside of which sales is a smaller circle.  When he quotes Rackham, he does so to prooftext his point rather than question the assumption. I think companies should begin with a marketing function, because marketing is all about setting direction via identification of what markets and buyers to pursue. Furthermore, the marketing function is the one that tests assumptions, makes strategic recommendations, and determines what channels need to be pursued with what messages by the sales team. When Sales drives the bus, it’s like a tail wagging a dog!