Making a business more stable

A small business that I know set up a new offer in my area about a year ago. From a standing start this offering has generated new revenues of about $400k in the last 12 months. That indicates that there is a genuine need for the service and the pricing must be relatively attractive, particularly since this growth has been achieved without anything other than poster advertising.

It wants to grow the revenues from this new offer further since its core business has been cyclical and the new service is significantly more predictable, limited by the capacity of its facilities and the availability of suitably qualified staff. The supply side is complex with both national and local suppliers, all competing for the same kinds of staff and not differing much in the pay and benefits on offer. It looks as though recruitment may well be the key process in helping the business to grow.

Just a spike

For the past 6 weeks or so I have been working in an organisation with about 400 managers and staff. Although I have been there every day and I have met a number of people, I can’t normally claim to know what everyone there is thinking about at any one time.

Last Thursday and Friday there was no doubt in my mind what they were thinking about. They were thinking about business continuity. The local power supply became intermittent and a couple of power spikes disabled a number of their central servers. E-mail, printing, internet access and their main database system were all down for most of the 2 days. The interesting point of the story is that, in an attempt to ensure that their IT infrastructure was well managed, they had contracted out its strategy and management to Very Well Known in the IT Industry Ltd who is easily big and experienced enough to carry out effective risk assessments.

There a couple of reasons why an effective contingency plan might not be in place for this kind of risk:

• the probability of occurrence was thought to be vanishingly small
• the impact was expected be minutes rather than hours (this organisation has its own power generation for extended power cuts)

Whatever the reasons, I’m pretty sure that they have been visited at some length over the last few days and that there will be a serious attempt to make the network much more resilient to this kind of incident in the future. It also reminds everyone that even when you have contracted out the activity to a 3rd party, the quality of the service will depend on your being an informed client.

Another food outlet

Many UK golf clubs have had a thin time over the last few years. Some of them have decided that they should do something positive to increase their attendance and bar sales, so they have made a real effort to develop their restaurant's offering at evenings and week-ends.

Last week-end I was a guest at a club who were running with this idea. The quality of the meal was excellent, the prices in the menu appeared to be from an earlier age, and the bar prices were low, too. The good news for the club is that the restaurant is full and bar income has increased substantially so there are real benefits to the club. That isn't to say that it would be a successful tactic for all golf clubs - it requires a well-equipped kitchen and a capable chef supported by sufficient support staff. For some clubs however, it can make substantial difference to trading income.

What does a product recall cost?

At the beginning of July, I noted that finding a low cost supplier in a far off country wasn't guaranteed to keep input costs low. Maintaining quality over long supply chains is difficult.

Mattel is a business that is learning the lesson the hard way. Here the problem is not simply the cost of the recalls themselves, but also the damage to Mattel's brand - reputational risk is often talked about, but the real costs are very difficult to estimate, particularly since it can take a long period for the full impact to emerge.

Extending a supply chain doesn't just mean finding a low cost supplier

Many European organisations have been shifting their focus from local manufacture to import and distribution from an increasingly long supply chain, all in the name of reducing the cost to serve.

I found this article today which describes the quality problems with some products sourced in China. The article refers to US importers and distributors, but the same issues face European importers and distributors.

Now, I'm not making the case that European good, Chinese bad. That wouldn't be accurate, but I have little doubt that the importers and distributors mentioned in this link thought that they were dealing with good products which met the appropriate safety standards. Apparently that assumption isn't enough to guarantee that delivered quality meets local requirements.

It also means that additional activities may need to be built into these long supply chains to make sure that quality standards are maintained. That will have the impact of increasing the cost to serve although it is unlikely to make these sources uncompetitive until their wage rates increase substantially.

Cutting costs

A good pal of mine says that "Any fool can cut costs, it's reducing the cost base without reducing organisational capability that's the tricky part." That's been brought home to me during the last few weeks as I've been doing an operational review for a fairly large sized organisation which has been through a series of cost reduction exercises over the last 5 years.

What I have been doing is to establish the organisation's current capability in a number of dimensions and the answers have been occasionally bleak. Some of these cost reduction exercises have limited the organisation's ability to create value which has created a rather damaging spiral of decline.

The moral: think hard and make sure that it's just costs that you are cutting.

Link building

Everyone wants to build their site traffic. There are a variety of ways of building traffic, but organic search results offers lower cost traffic than pay per click advertisements. Pay per click advertising offers other benefits, but that is a post for another day.

People understand that links are important in building their organic search traffic, but they tend not do much to actively manage their links. The very best type of links are one-way inbound links, but the quality of the site providing the link is important too.

Actively managing links takes time and it relies on a series of activities. Many sites don't tend to do these things but they are vital unless you believe that link building should be left to chance or that the investment is a diversion which gets in the way of the day to day business.

These activities include:

• research, which sites do you want to target?
• classifying possible links, can you use any facts to help you decide which of these target sites deserves special attention?
• developing an outline link request letter for webmasters which should be personalised to their site and describing why a link will benefit both them and you
• testing the letter on some sites which are less important to you
• developing an escalation process, in case they don't respond to your initial offer

I'll be developing these ideas over the next six weeks or so.

Copywriting thoughts

Read, read and read again!

Don't just keep a swipe file of advertisements or PR copy to raid when you have to create a new piece of copy, read the material to try to understand what works and what doesn't. If you use the swipe file simply to provide you with crude templates then it is almost inevitable that your resulting copy won't perform quite the way you expect.

Good copy relies on you being truthful about the product or service to the target audience that you want to keep, it doesn't rely on using psychological trickery or deception in order to force people to make a purchase from you. Writing to an audience that you want to keep will help you keep the writing more focused and readers will qualify themselves better, too. Then, when the product or service lives up to the descriptions in your copy, you can expect that you will benefit from word of mouth and referrals to support your campaign.

Marketing Business Services

The big word in marketing Business Services has always been reciprocity. Business Services firms work with intermediaries to put them in touch with work and the reciprocity principle - you scratch my back and I'll scratch yours - has been a major feature of the partner relationships that have developed over time.

Sometimes this was driven by professional ethics, when a particular group of professionals felt that they should not accept commissions for introducing work to another firm or give commissions on work that was introduced to them.

What has kept reciprocity alive is probably something much more Darwinian. Organisations work more positively with a small group of intermediaries where they understand the obligations clearly. Trying to develop similar relationships with all intermediaries would be counter-productive because of the amount of energy that would be required to support all the relationships. Broader partnership marketing has to be financially based. Where reciprocity gains over broader based partner relationships is in the more detailed understanding and trust which can be conveyed to clients.

What will 3-D Secure Enabled actually change?

I suspect that the major change in this experiment will be to business models based on capturing card details for subsequent processing by a Virtual Terminal. 3-D Secure Enabled requires transactions to be live and for the cardholders to key their pin numbers into the Bank's system as part of the checkout process.

That will mean some changes in the online eCommerce world where a surprising number of transactions are handled indirectly, rather than in real-time. The good news for etailers is that it should reduce the level of fraud and charge-backs, but it may mean some ingenuity on the part of existing partners to ensure that everyone is happy in the new environment.

It's got great distribution

My wife likes to drink tea in the morning at breakfast and when she stays at hotels outside the UK they very often bring hot water to the table and a selection of Lipton's tea bags. She doesn't enjoy it much. Her description of Lipton's tea bags is that they are designed for people who don't enjoy drinking tea.

As a brand though, it's well-known, and it must have great distribution. They claim that their teas are drunk in 180 countries. Hotels obviously buy it because they want their guests to enjoy the authentic flavour of a quality tea in the morning. All that well-meaning effort and they buy Lipton.

What Lipton has done very succesfully is to provide Hotels with a short-cut. They can buy the (admittedly extensive) range as an easy choice. That makes it hard for a new entrant - unless they used a cherry-picking strategy to develop volume and then use the volume to justify the distribution required to deliver greater penetration. That's quite an uphill struggle and not many competitors are going to want to adopt that as a strategy.

Who thought this one up?

I went on a site yesterday aimed at an SME audience. The site has the highest pedigree. It has been developed by Famous Name Inc. and is sponsored by several well-heeled companies. They claim that the site has been running at a rate of 200,000 visitors per month since the beginning of January.

I hope they have a strategy here, because Famous Name Inc. notwithstanding, the site is tosh. I can't imagine why any SME would visit more than once - the content isn't strong enough. It is reassuring that a business with all their resources can still get something so badly wrong. They need to have a complete re-think about what they are offering their visitors.

Just another specialist

At the week-end I was in Maplin, looking for an interconnect between a standard USB and my phone. Maplin is small, but rather intense - rather like the geeky guy in the corner at a party. People can see that he is there, but they aren't entirely sure if they want to go over and risk a conversation. Is Maplin a well-kept secret or a highly sophisticated strategy play?

Maplin isn't exactly elitist, but it has a techie aura which is both a benefit and a curse. Many of their lines are available more generally, but the shop isn't exactly a pop in and browse kind of place. If you want to buy a 'cool to the touch' soldering iron then you have found the right place. Having seen one on sale, I'm consumed by curiosity - how does it work? I feel like writing to New Scientist - how can a soldering iron which is cool enough for me to touch, melt solder in a few seconds? It's like the inverse of the penguin question - do their feet need anti-freeze?

The business seems to be based around a mail order catalogue which has a significant 'thud factor'. As well as interconnects, they have plenty of components for the DIY computer builder and my younger son bought quite a lot of stuff in there as part of his latest games machine project.

It isn't quite clear to me who the shop is aimed at but perhaps I would get a clearer idea if I spent any time looking through the catalogue. One of the problems with having a network of relatively small retail stores is that no store can hope to carry all their active lines. I think that the business is designed to cater for DIY hobbyist electronics and electrical browsers who are nudged into purchases by being reminded of something by seeing it on sale. Because it is based on a small sample I couldn't claim that this is a thorough survey. It would be interesting to know what their customers thought about them and what they think about their customers.

The interconnect? Yes, they had it.

Now would be a good time to plan

Today is our planning day. Standing back from the business to take a more strategic view of what we have done over the past 12 months, the extent to which we have achieved the targets we set ourselves, the areas where we have failed to achieve targets and what we plan to do going forward. The good news is that this year has been great groundwork and we start next year pretty close to capacity.

We plan because we believe that the investment pays back during the year. Outside the planning cycle, we don't waste time considering whether an idea is on strategy or not because each of us is in close agreement about what our strategy should be during the year. Many small businesses complain that they 'never have time to plan' - they never will have unless they make the time available.

We think through what it is that we want to do, whether we need to adapt our positioning statement to reflect what that new vision is and how we are going to resource it. Of these, the overall strategy and the positioning statement are the most important. A positioning statement is never going to be used in customer facing situations, but it underpins almost all sales and marketing activity. Who are you targeting? What is the nature of the product or service? What is the value proposition of the product or service? What are the real benefits that clients and customers will enjoy as a result of buying your product or service? What makes you different from other suppliers of similar offerings?

Thinking through benefits is non-trivial. Benefit selling is a subject in itself – there’s only room for a brief caveat here: don't assume that the benefits that attract you will attract all buyers, and don’t assume that all buyers want the same benefits. In B2B selling, you often sell to a group (a committee or the board), each member will (possibly secretly) be looking for different benefits. The secret of successful selling is to discover the benefits desired by each individual. In positioning we have to bet on the most likely benefits desired by our target audience, but that’s not what you do in one-to-one selling.

What's your positioning? If I asked your colleagues and customers, would they be able to construct a positioning statement about your business, based on what they know about you or could find out about you? With that thought I should stop writing and give you time to think through what your plans are for next year.

Are you Price Competitive?

The key for any successful product or professional service firm is to create a sales environment where the prospect's perceived value of your offering is higher than the selling price of your product or service and that's true whether you are selling or delivering.

This process of value positioning requires consistency throughout the commercial process include strategy, sales and marketing. Value positioning is an active tactical approach that will help your sales team sell at a higher sales price.

To sell value, never market your firm's product or service as "Price Competitive" or by stating "We have a price advantage." Instead, always use the term "Value Competitive." By focusing on value and reducing the impact of price, you have positioned yourself differently from your competitors

All your marketing and sales messages must reflect this positioning. Never say "price competitive" in your marketing, website or press releases. It is a huge liability for prospects to see your corporate marketing with the "price competitive" term displayed. It tells them immediately that you are willing to match price, so the target will apply pressure for you to prove this statement over and over again - regardless of how competitive your sales price already is.

When cold calling or giving your elevator pitch to a prospect for the first time, communicate your uniqueness based on some element other than price. Customers don't buy your product or service; they buy pain management. What makes you different? What is your value proposition?

If your firm is selling horizontally into several markets, you are putting this strategy at risk, so horizontal sales should be attempted only if you are confident that the commercial messages can be controlled. Target businesses may regard your offer as non-specialist if they see evidence of horizontal sales activity and will expect you to be more price competitive despite what your value positioning may say. The first defence is that you are a specialist - in the management of a specific type of pain which is shared by a number of industry sectors.