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Billboards and plumber’s pants

Drive around long enough and you’ll see a billboard that says “If you’re looking, it’s working”.

I see the same slogan on electronic advertising displays, which can be found everywhere from restaurant restrooms and gyms to billboards.

Is it “working” when you accidentally glance at the back of a plumber’s pants when he’s on his knees with his head buried under your sink? Or when you stare at an auto accident?

A definition

“My ad is working” means “people take action as a result of the ad”. It does not mean “someone with a heartbeat saw the ad”.

“Working” doesn’t always equal spending money, but it does always mean taking action.

After you glance over at that auto accident, if you put on your seat belt…. that’s action. Cause and effect. Taking action.

That’s what “working” means when it comes to an ad.

“But, you can’t track billboard response”

Yes, you can.

I’ve yet to see a media whose usage cannot be tracked.

To be sure, you can’t track how many people read your ad on a billboard or in the newspaper, though you can estimate numbers based on drive-by traffic statistics published by governmental agencies (for billboards) and subscription + newsstand buys + online page views (for newspapers).

The number *reading* your ad isn’t the important number. Sure, if you have a general consumer product, you want to tell as many people as you can, but you don’t go to the bank with “eyeballs”, page views, newsstand copies or cars-per-day.

You go with sales revenue.

What you really want to be paying attention to is how many people took action as a result of your ad, no matter where it is.

You can absolutely track what happens if readers take action, but many businesses don’t. As a result, they’re operating on gut feel, guesswork or a seat of the pants idea of what their ads are doing.

Look at the advertising you’re doing. Are you tracking any of it? If not, how do you know which ads work and which don’t? How do you know which media work (for you) and which don’t? (or don’t work as well)

Just because an ad or media is “free” doesn’t mean you shouldn’t be tracking results.

Start tracking and you’ll start knowing what’s working and what isn’t.

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One way to create sustainable jobs

Recently, the Flathead Beacon published a story about a global tech-oriented business that continues to grow right here in rural Montana.

This business started from scratch and achieved critical mass…

  • Without tax breaks that often encourage unsustainable business models.
  • Without specially crafted laws that treat their industry or part of their industry “more fairly” than others. Rhetorical sidebar: What exactly is “more fairly”?
  • Without the work of half a dozen lobbyists in Helena or Washington.

In other words, they started just like your business likely did, probably using the same methods most small business owners use – the same thing that I suggested when we talked about the fitness center just a few days ago.

They found a need and they filled it.

Several years back, I remember sitting in a coffee shop next to someone interviewing a candidate for a job with what was then the startup roots of the company discussed in the article.

The discussion and the numbers I overheard told me they were serious, sustainable and positioned well. I’m really glad to see this business continue to grow.

In good economies and bad, your business model has to make sense on its own, no matter what’s going on in the state capitol and DC, and no matter who is in the White House.

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If I owned a fitness center

In the process of elliptical-ing across some wide open (virtual) spaces recently, I thought to myself, “What would I change if I owned this place?”

I might warm up the pool a couple of degrees, but that really isn’t the kind of change I meant.

The things that came to mind were in the spirit of “Be indispensable“.

So what would make that place the ONLY place to be a member?

When I have these conversations with a client, the first thing we often talk about are their clients.

We start simple. Who are they? What do they need?

A Day in the Life

To answer the “Who are they?” question, let’s look around at a day in the life of a fitness center and see how we can segment the members (customers) into groups based on gender, age, level of fitness, “Why they are there”, and so on.

I don’t mean a group like “People who need/want to work out.” Obviously, most people who join qualify for either need to or want to.

I’m thinking about a list like this, and I’m sure it’s far from complete:

  • Professional or semi-pro athletes, such as people who regularly marathon, triathlon and/or Ironman. You might include players for the local semi-pro teams. Around here, the Glacier Twins and/or Glacier Knights would be included.
  • Bodybuilders.
  • Post-partum moms who want to get their “pre-pregnancy body” back.
  • Pregnant women.
  • Men recovering from heart surgery.
  • Anyone newly diagnosed with diabetes.
  • People who are new to working out.
  • “Formerly disciplined workout people” who haven’t worked out in five, ten or more years.
  • People recovering from an injury, possibly under the direction of a physical therapist.

Within these groups, you’ll find breakdowns for gender and/or age group. Don’t underestimate those.

Everyone should be considering the sizable wave of Baby Boomers heading into their 60s-70s-80s might impact their business and what opportunities they suggest. Likewise, research has repeatedly shown that women control or influence 80% or more of household spending.

Is your business catering to these groups? If not, is your business even passingly friendly to these groups?

I Have Needs

The second question on my list was “What do they need?”

Until you create the list above, your needs list might be simpler than it should be because you might just be thinking “What do my members need?”.

Once we’ve gone through the customer (and prospect) identification and segmentation process, we’ll find more needs.

That’s why we go through this probably tedious, sometimes eye-rolling process that almost always helps you find new things that your customers need. The result should be obvious.

What do they need?

Now look back at that list of customer types from a “wants and needs” perspective. Consider the needs of body builders, post-partum moms, heart patients, and semi-pro athletes, for example. In some ways, they’re similar. In others, they have wildly different expectations.

They all need machines/weights, steam room, hot tub, pool, showers, restrooms and so on.

After that, the needs among the groups vary quite a bit:

  • Some would benefit most from instruction and/or working in groups.
  • Some prefer private facilities.
  • Some prefer gender-specific workout times/rooms.
  • Some prefer age-specific.
  • Some work evening or night shift.
  • Some would prefer to find a workout partner for motivation, spotting weights and/or accountability.
  • Some would like to be gently nagged if they don’t show up 3 times a week.

One example of many obvious ones: You wouldn’t necessarily have 20-somethings in a Yoga class with 60-somethings. Not because they can’t enjoy each other’s company, but because the instruction and goals for one group probably don’t parallel the other. That might drive you to have separate Yoga classes for singles, post-partums, “retirees”, physical therapy patients and so on. In each case, the instructor could be matched with attendees.

“What about me?”

If you don’t own a fitness center, you might be thinking this discussion isn’t much help.

Use what you can after adjusting it for your business. Can you take any idea here and make it work for you?

Finally, take a hard look at the thought process itself (“Who are my customers, what are their unique needs”) and see what you can come up with for your business. Even if you’ve done this five, ten or fifteen years back, I suggest doing it again. You might find yourself in new markets, focusing on a particular type of customer that you’d previously ignored, etc.

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Business Ethics Business model Customer relationships customer retention Recurring Revenue Small Business Strategy

The New Math aka Economics 101

A friend told me recently that his family filed a homeowner’s insurance claim for slightly under $600.

After filing no claims in over 20 years of keeping their insurance with this company, this was the 3rd claim in 5 years.

During that 5 years, their annual insurance rate went from $1300 a year to $4000.

After the 3rd claim was paid, their insurance was cancelled without warning.

Do the math

Somewhere, a bad piece of software or a misguided underwriter just killed a 20+ year customer relationship.

That aside, let’s do the math.

Even if a family had no other insurance with this agent/company (highly unusual, I suspect), they’ve been worth well over $20,000 to this insurance company.

In this case, ALL their insurance is at that company. Think they’ll move it? If they fired this customer over a $600 claim against a $4000 per year policy, it wouldn’t surprise me to see the family move their coverage elsewhere. All of it.

At $4000 a year, the recent claim is nothing.

Yet because they didn’t really look at the math the right way, they just discarded a customer with 20 years of loyalty over $600.

If this family keeps their home another ten years, that’s a loss of $40,000 in premium revenue, not counting the other insurance policies they have.

Who does the math at *your* business?

Are you throwing away thousands of dollars by not paying attention to the Lifetime Customer Value generated by recurring revenue?

Please do the math.

 

 

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Business model Creativity Entrepreneurs Leadership planning Small Business strategic planning

Transparency. Real transparency.

Hildy and Dimitri’s efforts have always been pretty transparent.

But a few months ago, they made a big decision to basically reboot their entire business.

Many business owners have done that. But not like this.

Instead of doing it all in the cones of silence, they decided that every step of the way, they would make this transition in full view of their friends, family, competition, clients, prospects and anyone else willing to look.

It’s much more interesting than anything Charlie Sheen’s doing.

But the discussion there really isn’t why I mention this. Sure, it’s instructive because they listen as well as anyone I’ve ever worked with.

That’s not the takeaway. What you should take away from the process they’re going through is the idea of being willing to completely redesign your business – even if it doesn’t need it right this minute.

I suspect there are some in the nuclear energy business who are mulling that over right now.

You don’t have to do it in full view of the public like Hildy and Dimitri have, but everyone ought to do it once in a while.

Like Harvey Mackay says, “Dig the well before you’re thirsty.”

 

 

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Advertising Business model Competition Customer relationships customer retention Improvement Leadership Recurring Revenue Small Business Software business strategic planning Strategy

Make an offer that makes sense

zipper
Creative Commons License photo credit: gagilas

Yesterday, an email from WinZip arrived in my inbox.

I’ve used and liked WinZip for at least a decade. Not many pieces of software can make that claim.

Lately, they’ve been emailing me pretty frequently. This particular email offered a free copy of the latest WinZip if I used their affiliate link to sign up for a free trial with Netflix’s online movie service.

Whaaaa?

Ok, maybe that’s not such a bad deal if I’m not already a Netflix user, but the offer may not make sense depending on what kind of WinZip customer I am.

When I got the email, I wondered “Why Netflix?”

It might make perfect sense if WinZip knows their customer base well. Perhaps they’re sure that a majority of their users are home users, student/teacher users or small business/corporate users. If that were so, it would’ve been best to segment their email list and mail this offer only to their home users. And perhaps I’m somehow on that home list, rather than on their “business customer” list.

Even if all that is true, is this a service that most WinZip users can take advantage of? Does it help their users get more out of their WinZip? Or did they send it because Netflix is a really good affiliate deal for the makers of WinZip?

The offer just doesn’t make sense from a “How can we help you get more out of our software?” perspective – something you should *always* be thinking about, whether you sell software or transmission oil coolers.

In fact, some will see that message – especially at multi-per-week frequencies – as spam.

I’m not convinced that WinZip segmented their email list before sending this out. If they had, it might make sense.

Leverage

In your case, it’s essential to avoid being “one of those people” and eventually ending up on a spam blacklist.

If you’re going to send 3rd party offers to your customers, make absolutely sure they make sense by giving your customer an opportunity to leverage the investment they’ve already made in your products and services.

Whaaaa? Part 2

When you build a commodity (mostly) utility, even one as good as WinZip as been, at some point your business model is going to flatten out. With no recurring revenue, you start doing things like emailing your customers offers to purchase a movie service. Even your business customers.

Think deep and long about that business model. What happens after 100 customers? What happens after 500 or 50,000? What happens 10 years from now?

The more thought you invest in that stuff now, even while building the next-big-thing, the less likely you’ll need to make choices that would never cross your mind otherwise.

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Be indispensable

Sossusvlei Landscape
Are you indispensable to your customers?

The question that you have to ask yourself – daily, rather than once – is “What can you do to make yourself indispensable to your customers?”

A few examples to get the juices flowing:

  • If you sell coffee, how can you help your customers wade through the coffee buzzword maze and enjoy *better* coffee? What’s fair trade? Is it really fair trade, or is it just another marketing buzzword?
  • If you sell cars, how can you help your customers make better decisions, get more from their investment, and save time and money on repairs? How can you help them remember to perform the regular maintenance that allows them to depend on their vehicle regardless of the weather?
  • If you repair lawn mowers, how can you help your customers get a better looking yard, without injury, cheaper, safer and faster? How can you save them time and money on upkeep and repairs? How can you help them remember to change their oil, sharpen their blades and make their mower perform better and longer?
  • If you help people deal with (and prevent) legal problems, how can you help your customers avoid rushing into your office with a problem that has to be solved NOW? Ounce of prevention, pound of cure kinda stuff. Be their lawyer every day or every week, just a little vs. being their rescue squad every 5 years.
  • If you treat people’s injuries and diseases, how can you help them be safer at home and at work? How can you help them by advising them on nutrition and other preventative care, without becoming a nag? Knowing that these things require lifestyle / habit changes, how can you help your customers/patients make that happen? How can you help your patients make sense of the constant flow of health, nutrition and prescription information placed in front of them each day? How can you help them prevent injuries and disease, rather than waiting until they occur so you can treat them?
  • If you sell building materials to professional contractors, how can you help them find more business so they can buy more building materials? Can you help keep them informed about industry promos, tax incentives and other things to help them be more competitive?
  • If you sell advertising (better sit down), how can you help your clients track the effectiveness of all their advertising? How can you help them calculate the ROI on the advertising? Not guesswork, but real numbers based on the foot/internet traffic, revenue and profit each advertising source generates. Who is indispensable, the ad salesperson or the ad salesperson who is also a partner in profitability?
  • If you sell computers, ANSWER YOUR PHONE. Those people on the other end of the phone who don’t know as much as you’ve forgotten about a computer are the ones with all the money. They’d like to give it to you, if only you’ll help them. Yes, to be indispensable in the computer business, quite often it’s as simple as answering your phone and helping them with their problem without being arrogant. In fact, just answering your phone will be a huge first step.

If I didn’t mention the business you’re in, use these things as inspiration to do what makes your business indispensable to your customers. Please don’t make the mistake of thinking that because your specific type of business wasn’t mentioned, it won’t work for you. Likewise, if you’re thinking to yourself that “my business is different, it won’t work for me”, you’re right. If you don’t do these things – they won’t work for you.

The goal in doing all of these things is to position yourself and your business as the only place that your clients will consider doing business. Arrive at that position by doing this kind of stuff and both your checkbook and your customers will thank you.

Take care of them like no one else is willing to.

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Box stores Business model Buy Local Competition Corporate America customer retention Economic Development Employees Retail Small Business Wal-Mart

Is the lack of Wal-Mart actually a tax?

K_Day-09.09.2005_163136
Creative Commons License photo credit: Lordcolus

A lot of thoughts come to mind both ways about Wal-Mart‘s effect on local businesses and consumers.

No shortage of them are provoked by this Forbes op/ed saying that the lack of access to Wal-Mart in NYC is actually a tax, and continues by stating that building a WalMart in NYC is economic stimulus.

For example, the author ignores the local sourcing that WalMart used to do during its “Buy American” phase. He also fails to discuss that when left enough time in a competitive market devoid of Wal-Mart, poorly run local businesses tend to fail anyway.

What do you think?

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Business model Buy Local Competition customer retention Entrepreneurs Management Marketing planning Pricing Restaurants Retail Sales service Small Business strategic planning Strategy tracking

A number you’d care about

Last time, we talked about those 10 things that cause small businesses to fail, and zeroed in on the business model as most important of all.

There’s usually a reason you got into the business you’re in, but whether you love it or just chose it for the money, the math that makes the business work…actually has to work.

It’s more complicated than how much you spend and how much you make.

How’d you come up with the prices for your stuff?

If you’re a retailer, you probably had someone tell you about keystone. Or maybe you’re using manufacturer’s suggested retail pricing (MSRP). Or maybe you’re 3 cents under your competition because that’s what you felt you needed to do to get the sale.

Ever sit down and figure out how much it costs to open the doors every day – even if you don’t have a door?

Ever think about taxes, licenses, shipping, insurance, and yes…some money for you to take home?

35 prospects

How much does it cost to get 35 people to call you? How much does it cost to get 35 people to visit your store? How much does it cost to get 35 people to visit your website and opt-in to your email newsletter, subscribe to your blog, your YouTube feed or “Like” your Facebook page (or whatever)?

In fact, each of those ways of getting a new prospective customer (often called a “lead”) have differing costs because the advertising (or whatever it took) to motivate them to buy has different pricing and each one convinces different numbers of people to become a prospect.

Note that I said nothing about how many people that advertising reaches. It doesn’t matter if it reaches 35 or 35 million. What matters is how many people raise their hand and say “Hmm, I might be interested. Tell me more.” and show that by calling, stopping in, going to your website and so on for every dollar you spend.

Those things have a cost. In fact, it’d better be an investment. If it isn’t, you’re doing something wrong. Divided by the number of people who said “Hmm”, you know what a prospective customer costs. Most people have no idea what the number is.

Seems like a number you’d care about.

10 customers

Now let’s say 35 of those prospects turn into customers. They buy something.

Each one probably has a different “buying profile”. In other words, customers you meet online might buy different things than walk-in/phone customers do, or they might spend more or less, or they might buy more or less often.

If you don’t pay attention to these things, you won’t know how to deal with them.

You also won’t know which source of buyers purchases the most profitable items, which source returns the most items, and so on. Seems kind of important, doesn’t it?

If you know how much it cost to get those 35 prospects to call you, stop in or what not, AND 10 of them bought something, then you can also figure out how much it costs you (per media, per ad campaign and overall) to get a new customer.

Seems like a number you’d care about.

42 orders

If over the course of a year, these customers place 42 orders or make 42 purchases, you have another important number: cost per sale.

Not cost OF sale. Cost PER sale…to get the sale.

What’d you have to do to get those folks to order or purchase? Nothing? I hope not, because you’re depending on random behavior.

What if that random behavior changes?

If you do expend any time, effort and/or money on marketing, you ought to know which efforts/expenses are working and which aren’t. If one is working, you keep using it and try to improve it’s performance. If one isn’t, you either stop doing it or tinker with it a little and see what you can do to make it work.

Either way, those efforts have a price tag.

Seems like a number you’d care about.

Groundhog Day

In the movie Groundhog Day, Bill Murray’s character relives the same day repeatedly. He goes to the same places and buys breakfast (etc) day after day.

What are you doing to encourage that from your customers?

Recurring revenue is a critical part of every (YES EVERY) business model. Maybe not the same person every day, but definitely on a regular basis.

What if you woke up every morning and knew that you’d make 7 sales today, based on some prior effort, history or activity?

What if you knew how much of that effort, history or activity was needed to keep making that happen?

Seems like a number you’d care about.

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Business model Business Resources Competition Entrepreneurs Management Pricing Small Business Software business strategic planning Strategy

How’s your soup?

A few weeks ago, the NY Times’ “You’re the Boss” blog (which discusses small business topics) had a piece from Chicago entrepreneur Jay Goltz about the 10 reasons small businesses fail.

It’s a laundry list of pretty fundamental stuff, much of which we regularly talk about here:

  • a business model whose math doesn’t work,
  • owners who can’t get out of their own way
  • out-of-control growth
  • poor accounting
  • insufficient cash cushion
  • operational mediocrity
  • operational inefficiencies
  • dysfunctional management
  • lack of a succession plan
  • a declining market

Several of the items on this list are things that I encounter not only as a customer, but as someone who helps businesses improve their performance and profitability. Some of them are more frustrating than others. I’ll bet you see them as well.

Jay summed up his comments with this:

In life, you may have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people donâ??t like the soup, employees stop working for you, and customers stop doing business with you. And that is why businesses fail.

Unforgiving

We recently talked about the market’s lack of forgiveness. If you missed that piece, I noted that I can be as nice as you like when discussing examples I’ve seen that you can learn from, but the market…well, it just won’t be nice or fair about it. It doesn’t benefit you (or the folks I write about) to whitewash things.

So how can you, the head chef of your business, keep these 10 things out of your soup?

Relentless focus and accountability.

I warned my clients at the first of the year that I would be holding them more accountable for their efforts. Not one has rebelled. Those who have been pressed the hardest have responded with the most results. Accountability works.

First things first

If you have a business model whose math doesn’t work, NONE of the other stuff really matters.

The “If there’s plenty of gross there has to be some net around here somewhere” thing is more prevalent than you’d think. People start businesses for all kinds of reasons, but it’s pretty shocking how few pay attention to the math of the business model.

They start out with a price that they THINK makes sense (it might, it might not) and that initial pricing often drives the rest of the business, their marketing (ie: how many sales they need to make) and their operations (how costs are defrayed).

The other nine items on this list are pretty important, but it doesn’t matter AT ALL how well you’re doing at these things if the basic math of your business doesn’t work.

Cash flow is king

Back in my photo software days, many of our competitors (we had eight at one time) offered “free lifetime support”.

I refused to offer that because I knew it would either kill our business or prevent us from providing the kind of support we felt we had to offer.

Prospective customers would ask me why they should buy our stuff instead of a competitor’s when that competitor didn’t charge annually for software upgrades and support.

All I had to do was ask them: “Whose lifetime are we talking about? How free, unlimited and lifetime is that support when they go out of business because their business model doesn’t work?” Two years later, only two competitors remained.

If the math for your business model doesn’t work, nothing else matters. Once it does, the other nine things are pretty important.

Next time, we’ll get into detail about the math of your business.