Planning, Startups, Stories

For Great ROI, Sell More to Existing Customers

That -- the title to this post -- might seem obvious, but we forget so easily, as we struggle to grow the business, and especially as we contemplate an economic downturn (free-fall?). The best ROI is selling more per customer to existing customers.

I think I learned this first back 15-20 years ago when I was working a lot with U.S. computer dealers, before the Internet took off, when many of the smaller home-grown resellers were getting squeezed by the growth of the office superstores.

It turned out, as we studied the situation, that they were leaving lots of money on the table, not taking care of existing customers. For example, one of the best promotions I ever saw was a smaller store getting back to all of its customers and offering them memory upgrades and hard disk upgrades as a special sale. It was an instant bottom line boost.

I was reminded of this last week by a post on Seth Godin's blog, The magic of low-hanging fruit. Here's a quote:

Simple example: It's way more profitable to encourage each of your existing customers to spend $3 than it is to get a stranger to spend $300. It's also more effective to get the 80% of your customer service people that are average to be a little better than it is to get the amazing ones to be better still.

Yes. And, particularly in a recession, it's really good business.

Reminder: Good Retailing Still Works

We were walking around Granada last week, enjoying some free time, waiting an hour or so for it to be supper time, when we came across a store selling beautifully wrapped and packaged and classified and marketed and displayed chocolates. Here's an iPhone picture:

And I apologize, it's not a great picture but it was a bit on the sly since the owner (I can't image why) was nervous about this strange man taking pictures with his cellphone. I'm not adding name or address or much detail, out of respect for his wishes.

It was a reminder to me about how important design and presentation are in retail sales. You wanted to grab and hold the very well wrapped and categorized packages. The chocolates were segmented very well into types, styles, tastes, and, in a way that seemed to work very well, gift and occasion types.

Well done!

5 Ways to Generate Healthy Change

In a thoughtful post on Duct Tape Marketing today, John Jantsch offers an answer to an important question: "How do I grow my business?" He titles that "The Ultimate Secret to Business Growth."

I talk to business owners every day that want to take their businesses to the next level, but are puzzled as to why its so hard. They push and work and expand and contract only to find themselves right back where they found themselves last year.

This leads him to recommend change.

Change is the ultimate secret to business growth. Actually change isn't that hard, but we seem wired to find ways to make it so.

It is sort of a paradox in business too. To get to some level of growth, you've got to be consistent long enough to develop some positive brand awareness, to move past that level, you've got to change what got you there.

The first change that may be necessary for growth is to start looking at change as a positive element of your success.

Which takes him to a list of five recommendations:

1. Get Uncomfortable on Purpose! - Your wealth, your success, will correspond directly with the size of your mindset. Get in front of an audience and speak, write for an industry publication, start blogging, network with prospects, write personal thank you notes.
2. Get and Give New Skills - Read everything you put your hands on. Become known in your industry for some specific expertise and show others how to do it. Teaching something is the fastest way to get better at it yourself.
3. Get Bigger Ideas - Tear your products and services apart. Look for ways to approach an industry problem like no one else can or will. Your ideas don't have to really be that big as long as they are world altering. Come up with one idea this year that makes someone say you are nuts - and then go do it.
4. Get Value - No matter what you offer, it can be better. Heap more and more on your products and services, give stuff that no one expected you to give. Add services over and above what was agreed upon. Force people to talk about how incredible you are.
5. Get What You're Worth - If you do any of the steps above, you will be more able to do this. Raise your prices. Choose to work with fewer clients at much higher rates. Sell based on value, not on time.

He finishes that piece with a question: "How do you systematically embrace change?"

Two Essentials for Kick-starting a Planning Process

Last week I met with two smart people looking to kick-start a better planning process for an existing organization. The question at hand was what to do first. My answer was:

1. First, start  by scheduling plan reviews and course corrections. Figure out who's participating how and when. Assume this means a 90-minute monthly meeting for the key management team, and a 2-3 hour thrice yearly meeting for upper management and board of directors. Modify that as needed to accommodate the unique characteristics of your organization. Put the meetings on the calendar. 

2. Second, develop metrics. The planning needs metrics to drive it, so people can track how they're doing and refer back to the plan as the performance guideline.

Notice that my two key points are not about the plan: not about its content, its format, its framework, or facilitation, or how long it is or isn't.

These are actually the planning equivalent to the gardening concept of preparing the soil before you plant. Don't waste seeds if they aren't going to grow. And, regardless of what will be the content of the plan, eventually, with these two points you work first to make sure, at least as much as you can, that there will be following up so the plan will make a difference.

It's a reminder to me how much of the success of planning is about the people rather than the plan. People love to work with metrics to show their performance. And people care more about following up on plans when they know that somebody will be reviewing the results.

This Startup Story is 10 Years Old This Week

This is a true story. It's about how doing one thing well and sticking with it worked. Over 10 years, the Small Business Advocate radio show has grown from Jim Blasingame's own certainty, in the beginning, that it was needed and that he could do it, to an established personal brand.

My first experience with Jim Blasingame was at 5:30 in a very cold dark and rainy morning in January of 1998. The Small Business Advocate show was barely two months old. Jim made a radio interview fun, easy, and worth doing.  I decided right then that Jim is a natural interviewer. He's friendly, he's smart, he knows his stuff and he knows your stuff, and he knows the world of small business and the people in it.

So I started regular early morning radio visits. A natural interviewer makes an easy radio session. We always covered topics I cared about, mostly business planning, but also starting a business, growing a business, and working with family members in small business. He invited me to join his group of experts (he calls it brain trust). He also archives a lot of his shows, meaning tons of good content, and also several interviews with me.

Palo Alto Software became a sponsor soon afterwards. I told my marketing people that "this guy" is good, and he works hard, and he's going to make it. We put our money behind that and decided to sponsor the show. We were the first sponsor, but hardly the most important. As Jim continued to do a good show five days a week and 52 weeks a year, he grew. Fortune Small Business named put him on a short list of the most influential journalists in U.S. small business. The SBA named him journalist of the year. IBM became a sponsor, and several other larger companies followed. Last September the national Association of Small Business Development Centers (ASBDC) asked him to introduce keynote speaker Stephen Covey.

This week Jim celebrates the 10th anniversary of the Small Business Advocate show, and his story and my congratulations belong here at Planning Startups Stories. Jim's is a great story and a successful startup. He saw a need and he jumped into it. I've kept up with him about every month over these 10 years and I know that his steady rise has been a matter of a whole lot of hard work for a long time. Step by step he managed to first break even, then, slowly, build the revenue stream to the point he is now, making a comfortable living for himself and three other employees, and still growing.

Well done!

The Planning Process 10%

Picture yourself in front of a group of 20-30 business owners. They are computer or software resellers, dealers of Progress Software, Autodesk, SolidWorks, or a personal computer manufacturer. They are mostly men in their 40s and 50s. Most of them have been in business for themselves for 10-20 years. Most of them have three or more employees, a few have 25, 50, and one or two 100.

If you ask this group how many of them regularly review their business plans and revise them as needed, roughly 10% of them will raise their hands.

You can explore the details in front of the group. The ones who regularly review their business plans will be the stronger and healthier businesses in the group. If they've been around for a while, they'll be the ones with more employees and more market share. If they're younger and newer companies, they'll be the ones with more growth.

You want actual data, numbers, and better yet, names? Yeah, me too. I wish I'd done that but it was enough to run full-day planning seminars, each one took a lot of energy, and there just wasn't enough bandwidth for me to be managing the seminars and populating a database at the same time.

What I will give you, though, is accumulated experience. When I run one of these seminars I can count on my 10% number enough to take the risk of setting myself up in front of the group, at the beginning of the day, with those people as leaders. Throughout the day I can call on them confidently for comments and details and anecdotes, and they'll have the right kind of useful responses.

These people are my stars. They don't all plan the same way, they don't all have the same process, but they do have process. I can count on them. They get it.

Here's a concrete example: during part of the seminar I want to illustrate the paradoxes of planning, say "business plans are always wrong." I have my two or three stars in the room and I can be sure of getting a useful response from one of them when I deal with this issue for the group. I'll ask, "Ralph, Mabel, Mary ... what do you say? Why do I say that?" And I'll get back a response about how they're wrong because assumptions change, which is why plans need to be kept alive and managed. Or they'll say something like that.

I don't like to blithely take risks when I'm in front of a group. This 10% rule, however, has worked consistently for me for years. Now, I realize having a set of numbers to display would be stronger than my anecdotal evidence, but then, so many sets of numbers are flawed anyhow, and give the wrong impression. My people in the seminar aren't a random sample by any means, so the numbers wouldn't be statistically valid anyhow.

So who are these people? Starting in the 1980s I did some seminars for Apple Computer dealers in Latin America, and then in the 90s in Japan and Singapore, then HP dealers in different places, then Data General, UNISYS, and more recently for dealers of Autodesk, SolidWorks, and Progress Software.

Does this same 10% apply for other industries? I can't be sure that my anecdotal data applies; but I'll bet it does.

-- Tim

Put Your Video Pitch Online

What do religious conviction and the awareness of liabilities have to do with entrepreneurship? They're key to being a successful entrepreneur, according to Vinod Khosla, formerly a General Partner at Kleiner Perkins, and founder of Sun Microsystems.

I've been browsing through the entrepreneurship channel at vator.tv, a very interesting new site offering a collection of video pitches and a forum for posting your own pitch.

Take a couple of minutes (literally, two minutes) to watch Khosla's summary of entrepreneurship success, or Bob Grady's two minutes. Then browse through the video pitches. Vator is running contests for several categories.

 

I've been looking forward to a site like this. It was just a matter of time.

-- Tim

Business Self Help: You Can't be an Original by Copying

Very nice post last week by Brian McCann at Management R&D: Business for Boneheads.  He makes a very good point.  You can't really interview a bunch of successful companies and reach useful conclusions that a reader can take to his or her own situation.

My take on this, slightly different angle from Brian's but in complete agreement, is that as soon as you adopt something that worked for somebody else, you are already changing it and so it is no longer original, and neither are you.  I don't think he means that studying other businesses is bad, but simply that you can't just extrapolate to a different situation.

This makes good sense.

-- Tim

The Magic of Metrics

I love metrics.  Metrics in business means some specific set of numbers you measure and get measured by, ideally numbers that anybody can understand.  You know you have metrics when you find yourself checking the metrics every morning, every day, or every hour.

I think it's a good thing.  It makes a game of it. You get a score.  I'm a person who times myself when I run, and I run very slow, but I still note whether it takes me more or less time on the days I do it.  I like scores.  I like to compete.  I usually compete against myself and my past, but still, I like to compete. 

When I was with United Press International in Mexico City, many years ago, every day when we came into the office we had "the logs" as a metric.  The logs were a scoring of how many newspapers used our story and how many used the competition (Associated Press) story.  When it was a story I'd written, the logs were like a football score.  If more newspapers used my story than the AP story, I'd won.  Scores were like 12-7, 4-3, 20-1, etc.  I still remember the one I won 23-1, a story about a mudslide.  My lead was people "buried in a tomb of mud" and the newspapers liked it.

Fast forward to business today.  Ideally, every person in the company has his or her own metric to watch.  The CEO watches a bunch of them, of course, but the bunch is composed of lots of separate metrics.  The customer service rep counts calls taken, or orders.  The tech support rep counts issues resolved every day.  The product development people watch returns, tech support issues per capita, and issue flow.  The finance people watch balances, interest income, and margins.  The online Web people watch visits, pages, pay-per-click yield, orders, sales volume, and search placements.

My vision of a company working well is people checking and sharing their metrics.  They are accountable for metrics, and proud when they do well.  The goals are built into the plan, and the actual results are compared against the plan, regularly.  The plan is reviewed and revised and the course is corrected based on, among other things, the metrics.

Of course the metrics have to be the right metrics.  Don't track somebody on things they can't control, and don't accidentally use metrics to push the wrong buttons.  For example, years ago I had a sales manager tracked on  sales dollars alone, who also controlled expenses and pricing.  Sales went up but margins went way down.  That was predictable.  Track a customer service agent on call volume alone, or a tech support rep on issues handled, and customer satisfaction will suffer.

The metrics should also be built around a reasonable plan.  They need to be aligned with the plan, so they tie directly into strategy. 

And metrics have to be tracked.  They are part of a larger planning process in which plans are kept alive and reviewed and courses are corrected as assumptions change.

These days I am particularly happy with the flow of the metrics in my particular job.  Until recently I was responsible for the entire company, the CEO.  My metrics were all over the map.  Sales, profits, cash flow, unit sales, payroll, health, wealth, and the pursuit of happiness, all of which was pretty vague and hard to track.  Today I'm still president, but my job is about teaching, writing, speaking,  and blogging.  And blogging gives me a single set of metrics (traffic, page views, subscribers, etc.) I can watch and enjoy, or suffer, every day.  Like back in the old days, at UPI. That's cool.

-- Tim

Yes, Happy Employees Make Good Companies

Do  happy employees make good companies? Rob May asked this question on his businesspundit blog maybe six weeks ago. He cited research. The results were inconclusive. There seemed to be correlation between happy employees and good financial performance, but it wasn't clear which caused which. He had a couple posts on that in May, and in a comment on the second post, UCLA Law Professor Stephen Bainbridge agrees and cites additional research along the same lines. 

I like BusinessPundit; I read every post and usually agree with it. On this case I'd disagree, except that I'm not sure whether author Rob May is buying the implied conclusion, or not. He seems to be interested in the research more because it's surprising than because it's useful. Research that seemingly contradicts common knowledge is always more interesting.

As far as I'm concerned, that question might or might not merit research in the context of large companies, but in the real world, your business and mine, there is no question. Until you get big enough (God help you) to ignore people because there are so many in so many different locations, or so many different cubes, having happy employees is vital.

As a business owner or operator  you're going to walk into your office every morning greeting the people who work there. You're going to work with them shoulder to shoulder, as a teammate. You'll get coffee with them, have lunch, sit at meetings going over plans and presentations and problems and solutions. You're going to know their spouses and children, and eventually you'll meet the parents of the younger ones and the children of the older ones. If they aren't happy, then your life in the office is hell. Who among us is thick-skinned enough to not feel the heavy air of an unhappy company? Do you want to live with that? Can that possibly be good for business?

People have to believe in what they're doing. Working at something you don't believe in causes intolerable stress over the long term. For them to believe in it, it has to be something of value, and they have to be treated fairly. I call that common knowledge. I don't think it's particularly surprising. You already knew that.

Part of the problem is that a healthy community and teamwork are necessary but not sufficient conditions for good business. In the long term, without a good relationship with employees, your company won't prosper. Having a good relationship with employees, however, isn't enough to guarantee success. There are so many other factors. Necessary but not sufficient is hard to pinpoint.

So what's with the research here? I don't want to critique PhD-level studies, that's hardly my charter with this blog; but this collection is more interesting to me as examples of the problems in research than for their findings. In trying to answer a pretty obvious question they generate -- in my mind at least -- more questions about research than useful answers. And, after dealing with the questions, I'd like to jump past the research and comment on the question itself.

First question is how do you measure happiness in the happy employees? Is it that they say they're happy, or that they don't leave the company, or perhaps you measure their stress levels and vitals. To be fair, the studies themselves are thorough and rigorous on this point, but still, this is hard to measure. It reminds me of the work (I posted on it yesterday) Dr. Robert Sapolsky at Stanford University does to study ape populations; the scientists shoot the apes with a dart to put them to sleep and then measure indicators of stress in the body. They have to shoot the apes when they're not looking, though, because otherwise the researchers are measuring the ape's stress of walking around the jungle with researchers shooting darts at them. 

The second question is how you decide which companies are good companies. Analysts usually use standard financial indicators or the all-time-favorite - stock prices, even though stock prices are only available for public companies and they are a few large companies at the top of the pyramid. What about the other 25 million companies? And if profits or stock prices are the barometer, is that for the long term, short term, or what? I've posted before about problems measuring things by stock prices, which are generally influenced by short-term performance, not long-term strategic positioning.

So am I developing an anti-research theme in this blog? I hope not. Still, some of these studies show how hard it is to do good research on some topics, and how much you have to trust your instinct. Now that -- trust your instinct too, maybe with some research to educate your guesses -- could be a theme.

-- Tim