Andrew Birol

Thursday, 18 July 2002 13:08

Sell what your market will bear

The economic slowdown is clearly upon us.

Middle managers are reacting to presidential mandates to cut expenses, while presidents scramble to hit the results they have promised. For those whose job it is to sell and market, the consequences have been clear -- prospects and customers are taking much longer to make and keep commitments.

And when they buy, they are most likely to buy only those products and services that reduce immediate and unavoidable pain.

Businesses are preoccupied with cutting back, saving money and preserving the status quo. Until the initial shock of the slowdown wears off (and for younger professionals, their first time may take longer), fewer buyers will have the will to invest in the future. While more aggressive and confident businesses are already seeing opportunities at the expense of their more timid competition, how do you sell to the anxious buyer or customer who is preoccupied with the present?

Simple. Repackage and reposition your product or service to deliver reduced costs and greater efficiency. Promote the cost savings and business preservation aspects of your business instead of promising increased sales.

Many businesses directly or indirectly help their target markets increase sales. They include e-businesses, direct marketing, printing and advertising firms; professional services including legal, training and accounting; transportation, distribution and wholesaling; and motivational and incentive products, programs and services.

If your business fits into one of those categories or is in another that helps businesses grow, it's time to take a look at how you go to market.

Preserve market share, stop revenue erosion

Just as owners and presidents are asking their staffs to cut costs, they are worried about protecting their own revenue forecasts. In spite of the contraction, it is harder to reduce a sales goal than it is to cut expenses. Every business has too much riding on hitting sales numbers. Results have been promised to partners, investors and bankers.

This represents an opportunity. Pull out the list of features, advantages and benefits you have developed for your product or service and revise it. Make your product or service more compelling.

Describe how practical its features are. Discuss how cost effective its advantages are. And promote how beneficial it is in retaining customers and revenue.

Refocus on customer retention

If all sales and marketing efforts are designed to find, keep or grow customers, now is the time to emphasize customer retention. Keeping the customers you and your clients have is essential, because they are more profitable and obtainable than new ones.

Your competitors may start aggressively targeting them. Above all, your reputation with them should translate into their loyalty.

If your customers agree that keeping existing business is paramount, modify and emphasize what you sell in terms of helping your them to:

  • Streamline their reordering process

  • Take cost out of how they serve existing customers

  • Improve the buying experience of their current customers.

  • Increase profit margins and sales to reordering customers.

  • Construct barriers that reduce their customers' desires or ability to switch suppliers.

Now more than ever, your customers are focused on reducing risk. If you are in the business of helping companies to grow their sales, start by helping them to keep what they already have. As your customers feel more confident, they will become optimistic about growing their business.

Andy Birol (abirol@pacerassociates.com) is president of PACER Associates Inc., a Solon-based firm that provides expert advice to owners and leaders who need to grow their businesses. He can be reached at (440) 349-1970 or at www.pacerassociates.com.

Friday, 28 June 2002 05:48

Chasing venture capital

As the economy improves, your business is poised for growth, but you need more money.

Unfortunately, with your earnings history, no banker, investor or traditional lender is interested. Friends, family and angel investors are tapped out, so venture capitalists could be your best option. Or are they?

VCs will risk their money, advice and resources when your business needs them most. Their cost, owning part of your business, seems minimal in light of what they say it will be worth.

The problem with using VCs is that their need to earn quick, big returns conflicts with your goal of building your business. To sell your company, the VC must find shortcuts to creating customer value.

VCs fund one out of 1,000 business plans they see. They need two of 10 portfolio companies to succeed to earn the 100 to 1 payoffs their investors expect. Therefore, VCs only stay committed to healthy businesses because problem companies are cheaper to close than fix.

Another challenge is dilution. After successive rounds of equity financing, you can end up with neither ownership nor a big payday. And every minute you spend writing business plans for investors is time you could spend building a customer base.

If your company must create a completely new business process before it can sell anything to anyone, you're probably well-suited for venture financing. But, you should still be cautious.

Pay more for less money if it comes with fewer strings. Realize that venture capitalists exist to make their partners wealthy.

The more customers you grow, the more of a real business you have and the less equity you have to give away to get funding. If you plan on building and managing your business for the long run, focus on finding, keeping and growing customers. No business survives without a strong and well-developed ability to get new customers. Put all your efforts into creating salespeople, channels and proposals.

Reinvest the money from your early sales into customer services, benefits and products. And remember, customers get you money better than money gets you customers.

If you focus on this, you will be in the driver's seat and will live and retire to tell about it. Andy Birol (abirol@birolgrowthconsulting.com) is president of Birol Growth Consulting, a Solon-based firm that helps grow businesses by growing their best and highest uses. He can be reached at (440) 349-1970 or at www.birolgrowthconsulting.com.

Tuesday, 30 April 2002 05:36

Strategic failure

It is getting late; do you know where your company's strategy is?

In spite of all your meetings, strategic planning efforts and company groupthink, are you sure your company has a clear business strategy? If not, it is squandering its resources on the wrong efforts and missing opportunities to grow.

But if your strategy is focused, efforts are much more likely to be successful. Here are 10 ways to tell if your company's strategy is off track.

10. Your brochure makes no sense, not even to you. After showing it to a potential client, you find yourself chattering away to explain it.

9. Your Web site is confusing and few people click past your home page or e-mail you. Clients give you a blank look when asked how they like your new site.

8. Your compensation plan doesn't reward your executives for achieving your company's strategy. Instead spending their bonuses on a trip to Hawaii, they're booking a weekend in Sandusky.

7. When a reporter interviews you, he or she leaves unclear about what your company does. When you read the story, you're not sure the reporter was even interviewing you or writing about your firm.

6. Your closest friends cannot give you good referrals. At a family get-together, your friend tells you about meeting three of your five hottest prospects. Not once does he connect their needs to your services.

5. Your spouse cannot explain what you do. When asked, about your business, he or she turns to you to explain it. When you encourage your spouse to do it alone, you constantly interrupt to correct mistakes.

4. Your customers don't know you're better than the competition. In response to you describing the new features your competitors don't offer, your customers don't react at all.

3. You don't give the same answer twice when asked what your company does. You sound like a politician moving from one special interest fund-raiser to the next: "Just tell me who I'm speaking to and I'll tell them what they want to hear."

2. When your employees are asked what your company does, no two give the same answer. Depending on their department, they answer in terms of what their group does. Often, it is framed in terms of how much better they would be if everyone else worked as hard.

1. The reasons your customers say they buy from you don't match the reasons your sales force says it sells the customers. People don't buy shovels, they buy holes. But worse yet, your customers are asking for building foundations and your sales reps are selling swimming pools.

While the war stories of companies implementing programs based on confused strategies are hilarious, the collateral damage to profits is not. Given that the No. 1 reason people change jobs is the stress of having no control, it's no wonder the underlying problem is a lack of a company strategy.

Simply put, set a straight course for your company's ship and everyone on board can row in the same direction. Andrew J. Birol (abirol@birolgrowthconsulting.com) is president of Birol Growth Consulting, which helps business owners grow their companies. He can be reached at (440) 349-1970 or through his Web site, www.birolgrowthconsulting.com.

Thursday, 26 July 2001 20:00

Slingshots or clubs?

When pricing your products and services, does your business look to larger competitors for guidance and direction?

More important, like David in his battle against Goliath, are you choosing a slingshot or a club? Too often, small- to mid-sized businesses choose a club instead of a slingshot.

A machine shop and an advertising agency feel pressure to match the hourly rates of their largest adversaries. Invariably, this is a mistake because the smaller firms' costs of production and service differ from those of larger competitors. When customers and prospects choose smaller companies over larger firms, it is almost always for nonprice factors.

There are countless examples of missed profit opportunities, lost margin dollars and unnecessary pricing concessions. Invariably, owners of smaller companies leave money on the table for three reasons:

  • They don't focus on their best and highest use. (See last month's column for more on this.)
  • They have too little confidence in the value they provide. Smaller firms don't always respect their own products and services enough to ask customers to pay for them.
  • They don't understand their own marketplace. Too often, companies price their goods and services without sufficiently understanding their customers, prospects and competitors.

To ensure your business prices its products correctly, here are five rules:

  1. Never base prices on costs. Too often, business owners link their prices to their costs. What something costs a small business is rarely related to what the market will pay. Lawyers learned this long ago. They pay less costly staff to complete routine work but still bill the client at the firm's standard rates.
  2. Price products and services based on the value to the customer. Customers buy holes, not shovels. Restaurants do not price their meals by adding up the cost of food and service. Instead, they create an experience customers will pay more for.
  3. Price your product to fully cover the cost of selling and servicing the customer. Too often, smaller business owners forget to include all the hours involved in developing proposals, creating trial orders or samples during the sale and after-the-sale-service. Your product's price must reflect the total value of selling and service.
  4. Only compete on price when the customer and the opportunity are right. If an opportunity offers your business a chance to pick up new skills, publicity or economies, you can price more aggressively. But there are times when customers are not worth the price they cost, particularly those that require (and don't value) additional services.
  5. Price your products and services differently to prospects, reordering customers and multibuyers. When attracting new customers, create trial size or simple, low-risk products and services designed to attract a skeptical buyer. Price these aggressively to close new business fast. Price reorderable products and services for maximum profitability, as these are the backbone of your company's earnings. Customers will pay more for your innovation and value than prospects, but your new offers won't be as profitable as your reorders.

Just as David's slingshot ultimately felled Goliath, your pricing weapons can have the same impact in your marketplace. The key is to stop trying to use pricing clubs and start learning how to use your slingshots.

Andy Birol is president of PACER Associates Inc., a Solon-based firm that provides expert advice to owners and leaders who need to grow their businesses. He can be reached at (440) 349-1970.

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