This was originally posted on LinkedIn.com/in/chipn
When I had my own company our focus was on providing the absolute best services in a few niche areas. Our goal was to succeed in the spaces that were important yet underserved. We identified those areas, validated the need, evaluated the competition and our competitive positioning, determined the market potential, and then made an informed decision based on that data.
But, this was not a plan for winning. It was a roadmap to places that we could win, but nothing more.What would our strategy be? What specific problems would we solve? How would we create awareness around the potential impact of those problems? And, how would we position ourselves as being the best candidates to address those business needs? In short, what was our real purpose or raison d’etre?
Recognizing that void led to a couple of powerful revelations –
1. It is great to have a goal of being the best at something, but don’t use that as an excuse to procrastinate. Learning and improving is an iterative process, so that goal by itself was not good enough.
2. Adopting an “Attitude of Better” turned out to be a game-changer. We set our focus on continuous improvement and winning. We became customer-obsessed, driven to provide a better service and better results for each and every customer. We gauged our success by customer satisfaction, repeat engagements, and referrals.
3. But, it wasn’t until we adopted an intentional Growth Mindset that our business really started to evolve and improve.
· We leveraged each and every win to help us find and create the next win.
· Our team was constantly pushing each other to raise the bar of knowledge, expertise, and performance.
· Just as important was what occurred next. They became a safety net for each other. Failure for one meant failure for all and nobody wanted that. They became a high-performance team.
· We created standard processes and procedures to ensure consistency and maintain the highest levels of quality. This applied to everything we did – from working on a task to writing trip reports, status reports, and proposals. It also reduced our risks when we chose an outsourcing partner to help us take on more concurrent projects.
· Whenever possible we automated processes to maintain consistency while increasing efficiency, repeatability, scalability, and profitability.
· We measured and tracked everything, analyzed that data, captured lessons learned, and continuously worked on improving (and documenting) every aspect of the business.
· A byproduct of this approach was that we could offer leaner pricing based on accurate estimates having very small margins of error. Our pricing was competitive, we could fix price much of what we did, and our profit margins were very good. This allowed us to invest in further growth.
Our “attitude of better” also came across as confidence when selling to and working with new customers. Not only could we tell them stories of our success that included tangible metrics, most of our customers became references willing to talk about the value we added. Their stories included discussions about how much better things became as a result of our work.
Better became the foundation of what we did as well as the basis of those customer success stories.
Over the years I have helped both successful companies and start-ups improve and strengthen their Channel and Strategic Alliances programs. Those companies do a great job closing deals but usually have concerns about not generating or receiving enough new business leads. Or, they develop strong relationships with one or two vendors, only to find later that a key vendor has been sending deals to a competitor. You may not have experienced this yourself, but if you have please read on.
Most traditional channel models support Distributors, Resellers, OEMs, and ISVs. Business mainly flows upwards to the main vendor. If that vendor has popular and widely used products then business can be good because there is sufficient demand. But when that is not the case your sales pipeline usually suffers.
Doing something the same way as everyone else may not be a bad approach when there is enough business for everyone and your growth goals and aspirations are aligned with your competition.
Sales Channel business is usually not the main source of revenue for most companies, but it does have the potential to become the largest and most scalable revenue source for nearly any business. Just think about the money that is being left on the table by not adopting a growth mindset and executing a new and better strategy.
In the summer of 2016 I attended the “Sage Summit” in Chicago. It was impressive to see the Sage Group’s efforts to build, strengthen, and protect their community of Customers and Channel Partners. They made the effort to foster higher levels of collaboration between the various types of partners – implementation services, consulting and staff augmentation services, complementary product vendors, etc. They had created their own highly successful Business Ecosystem, which is an excellent proof point.
When designing a channel partner program my personal focus has always been on finding the balance between promoting and protecting the business of partners with helping ensure that the end customers have the best experience possible (and have some recourse when things do not work out as expected). There are a variety of methods I have used to accomplish those goals, but the missing component has always been the inclusion of a systematic approach to seed relationships between those partners and facilitate an even greater amount of business activity.
Nearly a year ago I began working with a management consultancy run by Robert Kim Wilson, which has a business vision based on his book, “They Will Be Giants.” I will provide links at the bottom of the post for this book and other relevant resources. Kim asserts that Entrepreneurs with a Purpose-Driven Business Ecosystem (PDBE) are more successful than those without one and provides examples to prove his point. Having experienced Kim’s own PDBE I see how purpose fosters trust and collaboration.
As I did more research I have found that, especially over the past two years, there has been a lot of focus placed on Business Ecosystems and Business Ecosystem Organizers (such as Sage in the earlier example). Those findings reinforced the PDBE approach, and external validation is always a good thing.
Just as important from my perspective is that this concept applies to businesses of any size, and it is especially helpful to small to midsize businesses. The fun part for me is exploring a specific business, analyzing what they do today, and quantifying the benefits of adopting this new strategy.
So, how does this new type of Business Ecosystem work?
- The Business Ecosystem Organizer expands the overall network, vets new “Business Ecopartners,” and provides a framework or infrastructure for the various Business Ecopartners to get to know one another, exchange ideas, and discuss opportunities.
- This can become an incredible source of sustainable revenue for companies willing to invest in the necessary components to grow and support their own Business Ecosystem.
- Business Ecopartners will have access to trusted resources that can augment existing business and take-on new, bigger projects by leveraging the available expertise.
- Suppose that you have products or services that work with commercial CRM (Customer Relationship Management), ERP (Enterprise Resource Planning), or SCM (Supply Chain Management).
- You have seen a growing demand for functionality that relies on highly specialized technologies like:
- Cryptocurrency support.
- Blockchain for both financial transactions and things like traceability in your supply chain or IoT data.
- AI (artificial intelligence), ML (machine learning) to detect patterns and anomalies – such as with fraud detection, Deep Learning/Neural Networks for image recognition or other complex pattern recognition.
- Graph databases to better understand a business and infer new ways to improve it.
- Knowledge Graph/Semantic databases to assist with Transfer Learning and deeper understanding.
- It would not be practical or cost-effective for most businesses to build these practices in-house so partnering becomes very attractive to your company.
- This type of business can also be very attractive to a Business Ecopartner because someone else is handling sales, billings, account management, etc.
- Other Business Ecopartners could leverage your products or services for their projects and engagements, thus becoming another source of revenue.
- By leveraging this network your business can essentially compete on imagination and innovation – something that could become a huge source of differentiation from your competition.
Value realized from this New Business Ecosystem model:
- These new sources of business and talent can become a real competitive advantages for your business.
- This becomes the source for Sales Amplification because your business is extending its reach and expanding its growth potential – directly and indirectly.
- The weighted (based on capabilities, capacity, responsiveness, and Ecopartner feedback) Business Ecopartner network model could lead to exponential business growth over time – and that is a winning strategy for any business.
When I owned a consulting company we viewed innovation as an imperative. It was the main thing that created differentiation, credibility, and opportunity. We had an innovation budget, solicited ideas from the team, and evaluated those ideas quarterly.
Almost as important to me was that this was fun. It gave everyone on the team the chance to suggest ideas and participate in the process. That was meaningful and supported the collaborative, high-performance culture that had developed. The team was inspired and empowered to make a difference, and that led to an ever-increasing sense of ownership for each employee.
The team also had a vested interest in having the process work, as quarterly bonuses were paid based on their contributions to the company’s profitability. There was a direct cause and effect correlation with tangible benefits for every member of the team.
We developed the following 10 questions qualify & quantify the potential of new ideas:
- What will this new thing do?
- It is important to be very detailed as this was used to create a common vision of success based on the idea being presented.
- What problem(s) does this solve and how so?
- This seems obvious, but if you are not solving a problem (which could be something like “lack of organic expansion”) or addressing a pain point then selling this new product will be an uphill challenge.
- What type of organizations have those problems and why?
- This was fundamental to understanding if a fix was possible from a practical perspective, what the value of that fix might be for the target buyer, and how much market potential existed to scale this new offering.
- What other companies have created solutions or are working on solutions to this problem?
- The lack of competition today does not mean that you are the first one to attack this problem. Due diligence can help avoid repeating the failure of others, and potentially provide lessons learned by others and help you avoid similar pitfalls.
- Will this expand our existing business, or does it have the potential to open up a new market for us?
- There are upsides and downsides to each answer, but breaking into a new market can take more time and be more difficult, time-consuming, and expensive to achieve.
- Is this Strategic, Tactical, or Opportunistic?
- An idea may fall into multiple categories. When Sarbanes-Oxley (SOX) Act became law we viewed a new service offering as both a tactical means to protect our managed services business as well as an opportunistic means to acquire new customers and grow the business.
- What are the Cost, Time, and Skill estimates for developing a Minimally Viable Product (MVP) or Service?
- What are the Financial Projections for the first year?
- Cost to develop and go-to-market.
- Target selling price, factoring-in early adopter discounts.
- Estimated Contribution Margin Ratio (for comparison with other ideas being considered).
- Break-even point.
- Would we be able to get an existing customer to pre-purchase this?
- A company that is willing to provide a PO that commits to making a purchase of that MVP within a specific timeframe increased our confidence in the viability of the idea.
- What are the specific Critical Success Factors to be used for evaluation purposes?
- This was an important lesson learned over time that helped minimize emotional attachment to the idea or project, as well as providing objective milestones for critical go / no-go decision making.
This process was purposeful, agile, lean, and somewhat aggressive. We believed it gave our company a competitive advantage over larger companies that tended to respond slower to new opportunities and smaller competitors that did not want to venture outside their wheelhouse.
With each project, we learned and became more efficient and effective, and made better investment decisions that positively impacted our success. We monitored progress on an ongoing basis relative to our defined success criteria, and adjusted or sunset an offering if it stopped providing the required value.
The process was not perfect…
For example, we passed on a couple of leading-edge ideas such as a “Support Robot” in 2003 that was essentially an interactive program that used a machine-learning algorithm. It was to be trained using historical log files, could quickly and safely be tested in a production environment, refined as needed and ultimately validated.
This automation could have been used with our existing managed services and Remote DBA customers to further mitigate the risk of unplanned outages. Most importantly, it would have provided leverage to take-on new business without jeopardizing quality or adding staff – thereby increasing revenue and profit margin.
At the time we believed this would be too difficult to sell to prospective customers (“pipe dream” and “snake oil” were some of the adjectives we envisioned), so it appeared to lack a few items required by the process. Live and learn.
In summary, having a defined approach for something as important as business needs innovation to grow and prosper, as best demonstrated by market leaders like Amazon and Google (read the 10-K Annual Reports to gain a better understanding of their competitive growth strategies that are largely based on innovation).
Implementing this type of approach within a larger organization requires additional steps, such as getting the buy-in from a variety of stakeholders and aligning with existing product roadmaps, but is still the key to scalable growth for most businesses.
Pricing is one of those things that can make or break a company. Doing it right takes an understanding of your business (cost structure and growth / profitability goals), the market, your competition, and more. Doing it wrong can mean the death of your business (fast or slow), the inability to attract and retain the best talent, as well as creating a situation where you will no longer have the opportunity to reach your full potential.
These problems apply to companies of all sizes – although large organizations are often in a better position to absorb the impact of bad pricing decisions or sustain an unprofitable business unit. Understanding all possible outcomes is an important aspect of pricing as it related to risk and risk tolerance.
When I started my consulting company in 1999 the plan was to win business by pricing our services 10%-15% lower than the competition. It was a bad plan that didn’t work. Unfortunately, this approach is something you see all too often in businesses today.
In our case we only began to grow once we increased our prices (about 10% more than the competition) and focused on justifying that with our expertise and the value provided. We were (correctly) perceived as being a premium alternative, and that positioning helped us grow.
Several years ago I had a management consulting engagement with a small software company. The business owner told me that they were, “an overnight success that was 10 years in the making.” His concern was that they might not be able to capitalize on recent success so he was looking for an outside opinion.
I analyzed his business, product, customers, and competition. His largest competitor is the industry leader in this space, and products from both companies were evenly matched from a feature perspective. My client’s product even had a few key features that better for management and compliance in Healthcare and Union environments that his larger and more popular competitor lacked. So, why weren’t they growing faster?
What I found is that competition was priced 400% higher for the base product. When I asked the owner, he told me their goal was to be priced 75% – 80% less than the competition. He could not explain why he did this, other than to state that he believed that his customers would be unwilling to pay any more than that. His lack of confidence with his own product became evident to companies interested in his solution.
In many cases he lost head-to-head competition against that competitor, but almost never on features. Areas of concern were generally on the size and profitability of the company, and the risk created by each for prospects considering his product.
I shared the graph (below) with this person, explaining how proper pricing would increase their profitability and annual revenue, and how both of those items would help provide customers and prospects with confidence. Moreover, this would allow the company to grow, eliminate single points of failure in key areas (Engineering and Customer Support), add features, and even spend money on marketing. Success breeds success!
In another example I worked with the Product Manager of a large software company who was responsible for producing quarterly product package distributions. This work was outsourced and each build cost approximately $50K. I asked a simple question, “What is the break-even point for each distribution?” That person replied, “There really isn’t a good way to tell.”
By the end of the day I provided a Cost-Volume-Profit (CVP) analysis spreadsheet that showed the break-even point. Even more important, it showed the contribution margin and demonstrated there was very little operating leverage provided these products (i.e., they weren’t very profitable even if you sold a lot of them).
My recommendations included increasing prices (which could negatively impact sales), invest in fewer releases per year, or find a more cost-effective way of releasing those products. Without this analysis their “business as usual” approach would have likely continued for several years.
Companies are in business to make money – pure and simple. Everything you do as a business owner or leader needs to be focused on growth. Growth is the result of a combination of factors, such as uniqueness of product or services provided, quality, reputation, efficiency and repeatability. Many of these are the same factors that also drive profitability. Proper pricing can help drive profitability, and having excess profits to invest can significantly impact growth.
Some customers and prospects will do everything possible to whittle your profit margins down to nothing. They are focused on their own short-term gain, and not on the long-term risk created for their suppliers. Those same “frugal” companies expect to make a profit on their own business, so it is unreasonable to expect anything less from own suppliers.
My feeling is that, “Not all business is good business” so it is better to walk away from bad business in order to focus on the business that helps your company grow and be successful.
One of the best books on pricing that I’ve ever found is, “The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making” by Thomas T. Nagle and Reed K. Holden. This is an extremely comprehensive and practical book that I recommend to anyone responsible for pricing or who has P&L responsibility within an organization. It addresses the many complexities of pricing and is truly an invaluable reference.
In a future posts I will write about the metrics that I use to understand efficiency and profitability. Metrics can be your best friend when it comes to finding ways to optimize pricing and maximizing profitability. This can help you create a systematic approach to business that increases efficiency, consistency, and quality.
At my company we developed a system where we know how long common tasks would take to complete, and had efficiency factors for each consultant. This allowed us to create estimates based on the type of work and the people most likely to work on the task, and fix bid the work. Our bids were competitive, and even when we were the highest priced bid we often won because we would be the only (or one of the few) companies to guarantee prices and results. Our level of effort estimates were +/- 4%, and that helped us maintain a 40%+ minimum gross margin for every project. This analytical approach helped our business double in revenue without doubling in size.
There are many causes of poor pricing, including: Lack of understanding of cost structure; Lack of understanding of the value provided by a product or service; Lack of understanding of the level of effort to create, maintain, deliver, and improve a product or service; and Lack of concern for profitability (e.g., salespeople who are paid on the size of the deal, and not on margins or profitability).
But, with a little understanding and effort you can make small adjustments to your pricing approach and models that can have a huge impact to the bottom line of your business.
One of the biggest changes to my professional perspective on business came during the time that I was running my own consulting business. Prior to that, I had worked as an employee for midsize to large companies for ten years, and as one of the first hires at a start-up technology company. I felt that the combination of doing hands-on work, managing, selling, and helping establish a start-up (where I did not have an equity stake) provided everything needed to start my own business.
Well, guess what? I was only partially correct. I was prepared for the activities of running the business but really was not prepared for the responsibility of running a business. While this seems like it should be obvious, what I’ve seen many times is those business owners usually focus the majority of their efforts on growth/upside. That type of optimism is important for entrepreneurs – without it, they would not bother putting so much at risk.
People tend to adopt a different perspective when making decisions once they realize that every action and decision can impact the money moving into and out of their own wallet.
Even in a large business, you can typically spot the people who have taken these risks and run their own business. I was responsible for a Global Business Unit with $50+ million in annual sales and ran it like a “business within a business” because I had P&L responsibilities and the decisions I made mattered to the success of my business unit
It’s more than just striking out on your own as a contractor or sole proprietor. I’m talking about the people who have had employees, invested in capital equipment, and went all-in. These are the people thinking about the big picture.
What do these people do differently than people who have not had this type of experience?
One of the biggest things is they view business in terms of “good business” and “bad business.” Not all business is good business, and not all customers are good customers. There needs to be a fair commercial exchange where both sides receive value, mutual respect, and open communication. You know this is working when your customers treat you like a true partner (a real trusted advisor) instead of just a vendor, or at least do not try to take advantage of you (and vice-versa).
A business is in business to make money, so if your work is not profitable it is very likely that you should not be doing it. And, if you are not delivering value to an organization it is very likely that you would be better off spending your time elsewhere – building your reputation and reference base within an organization that was a better fit. That is true for employees at all levels.
“Bad” salespeople (who may very well regularly exceed their quota) only care about the sale and their commission – not the fit, the customer’s satisfaction, or the effort required to support that customer. Selling products and services that people don’t need, charging too little or too much, and making promises that you know will not be met are typical signs of a person who is not thinking like an owner. Their focus is on the short-term as they are not focused on growing accounts and their compensation plans generally only reward net new business and first-time sales.
How you view and treat employees is another big difference. Unfortunately, even business owners do not always get this. I believe that employees are either viewed as Assets (to be managed for growth and long-term value) or Commodities (to be used up and replaced as needed – usually viewed as fungible and treated as if they are easily replaceable). Your business is usually only as good as your employees, so treating them well and with respect creates loyalty and results in higher customer satisfaction.
Successful business owners usually look for the best person out there, and not just the most affordable person who is “good enough” to do the job. The flipside is that you need to weed out the people who are not a good fit quickly. Making good decisions quickly and decisively is often a hallmark of a successful business owner.
Successful business owners are generally more innovative. They are willing to experiment and take risks. They reward that behavior. They understand the need to find a niche where they can win and provide goods and/or services that are tailored to those specific needs.
Sometimes this means specialization and customization, and sometimes this means more attention and better support. Regardless of what is different, these people are observant of the small details, understand their target market, and are good at defining a message that articulates that difference. These are the people that seem to be able to see around corners and anticipate both problems and opportunities. They do this out of necessity.
Former business owners are usually more conscientious about money, taking a “my money” perspective on sales and expenses. Every dollar in the business provides safety and opportunity for growth. These usually are not the people who routinely spend hundreds or thousands of dollars on business meals, or who take unnecessary or questionable trips to nice places. Money saved on things like unnecessary travel or unnecessary training expenses can be invested in new products, features, or marketing for an organization.
While these are common traits found in successful business owners, it is possible to develop them even if you have never owned a business. Do you understand the big picture vision and mission of the company that you work at? What do you value and what is your culture? Who is your competition and how are they different? How is their messaging different? Does your management style reflect this aspirational vision?
When selling, are you focused on delivering value, developing a positive reputation within that organization, and profiting on the long-term relationship? When delivering services, is your focus on delivering what has been contracted – and doing so on time and within budget? Are your projects used as examples of how things should be done within other organizations? Are you spending money on the right things – not wasteful or extravagant?
These are all things that employees at all levels can do. They will make a difference and will help you stand out. That opens the door to career growth and change. And, it may get you thinking about starting that business you have always dreamed of. Awareness and understanding are the first steps towards change and improvement.