Author Archives: Aron Brajtman

Managing Through a Financial Crisis

Posted on by

When faced by a financial crisis a business owner must focus on the following three important areas:

  1. Reassessing the business model
  2. Changing operations to reflect the new environment
  3. Ensuring that enough cash is available

The Business Model

A business model does several things:

  1. It explains why customers buy from your company. It’s seldom because you do the best work. Other dentists, builders, accountants etc. are just as competent. It’s not because you have the best team, as others also have great players. The reason your customers prefer your company vs. your competitors may be for a variety of reasons, such as price, convenience, location, inertia (too lazy to change), trust, or other intangible factors. For example, perhaps you provide 24/7 service and the competition does not.
  2. It explains how you are able to charge prices that provide a profit, and how you provide enough value that customers will pay for what they receive from you.

The importance of a business model cannot be taken for granted. Environments change quickly, and the value you once provided may no longer be so special. In fact, your company’s added value may have become mainstream, and now all players in the industry are providing a similar service (remember when banks closed early and stores were closed on Sundays?).

Consequently, when faced with a crisis business owners must immediately examine their business model to ensure that it has remained relevant and valuable. In fact, the savvy owner will have a clear understanding of how valuable their business model is, and if it is protected from or threatened by the competition. When the environment changes, a weak business model will lead to a loss in gross margins and overall profitability and market share.

Next month we will examine the changes that need to be made to business operations when a crisis looms on the horizon.

Growing Your Business – No Longer Just a One Man Show

Posted on by

What is the difference between a CEO that operates a one man show, vs. a CEO that leads a real team?

Too many of us create a business consisting only of ourselves and two to three workers, and there it stays. In too many cases there is a lack of a business plan and sense of mission for the enterprise, and other more personal challenges such as limiting mind sets. We can refer to this type of business as a “one man show”.

What are the other attributes of a one man show?

First, the CEO owns the whole company. The owner’s view rules. The owner makes the decisions and the workers are only there to carry them out. Because of the small structure, the owner doesn’t do much planning, and may not even be aware of the importance and value of a business plan.

These owners compete on price and have a small number of customers. They care about their product but often don’t consider their staff worthy of further development. They have difficulty raising money and managing cash flow; work long hours, and at best make a living.

CEOS that break out from this level have a product that has taken off. New lines are being developed and new customers are flocking to their doorstep. They have a steady customer base, so instead of competing on low prices, value that is important to their customers is being added to their product. At this point the expansion creates complexity and demands a new management structure. The CEO begins to delegate and searches for staff that can bring value and further growth.

We all start small. However, those businesses that move from a one man show to a growing business usually do so within five years. Within five years their billings can reach one million dollars. The right CEOS will make it happen. They will create the right team as well as the right value proposition for their customers.

Customer Relationship Management

Posted on by

Customer Relationship Management

Customer Relationship Management, or CRM, is an integration of philosophy and software that caters to customers’ needs. CRM creates a relationship with a customer and ensures that your business is on the top of their mind when the time comes for a purchase. CRM also allows businesses to track their customers. The system calculates their value, their contribution to the bottom line, and ranks them as a desirable, mediocre or undesirable customer.

Some personal examples; my florist has a record of my earlier purchases and the occasion of the purchase. They have my e-mail, and so I receive reminders to send flowers for t holidays and birthdays.  They offer me a choice of selections, and continue to send me reminders up until the last minute, when   I can simply select an item and know that they will take care of delivery. They already have my credit card; so the whole process is seamless. I have never met my florist, but we have a relationship and I don’t even look elsewhere for another florist.

Much of my shopping for home furnishings is done at Bed Bath and Beyond. Each month they send me a voucher for 20% off any one purchase. They also have a no hassle return policy. Why would I go elsewhere?

In the following example, a bicycle retailer in a small American town grew his sales from $50,000 to five million during the time that  Wal Mart, the world’s largest bicycle retailer, arrived in town. Studies have shown that when Wal Mart comes to town, sales for other retailers drop significantly. However, from his CRM system our bicycle retailer learnt that 30% of his customers buy because of price, 30% buy   because of the service and 40% are a bit of both. Knowing that Wal Mart is not known for their great service, this retailer decided to offer exceptional service to those willing to pay for it. In fact, he did not even want to attract customers only willing to pay a low price. He offered a free lifetime service policy, which showed his loyalty and commitment to his customers and of course made them his for life.. His free lifetime service led to the development of a sophisticated customer database, which for example, allowed him to offer children’s bikes when a child reached a specific riding age. Such direct mail marketing had a return of 50%, which is highly unusual.

The issue of loyalty is important and relevant, as corporations on average lose half their customers in five years. Loyalty is actually the absence of a better value alternative (Jim Harris in Blindsided p. 180). We remain loyal to those that provide value. Over time customers become more profitable because they place fewer burdens on the support team. Thus their net worth increases.

 

Questions:

  1. Who are your loyal customers? What is keeping them loyal?
  2. Do you treat your most important customers differently from your average customers?>
  3. Do you know the value of your customers, and which ones should be considered   the best and the worst?
  4. Can you offer a cheaper alternative to your worst customers?
  5. What keeps your customers from leaving? What are the costs involved in their leaving?
  6. How can you improve your treatment of your customers   so that they won’t consider leaving i.e. develop their loyalty to your business?

 

 

Attaining Competitive Advantage

Posted on by

A business owner who wants more than just a job for life must design the business to attain some form of competitive advantage.

Your competitive advantage is what drives your customers to call you first instead of going elsewhere.

Competitive advantage leads to above average performance in one’s industry. Lack of competitive advantage implies at best an average performance, or being the same as the rest of the industry. I often hear from business owners that “business is slow, but it’s the same for all of us”.  As a result, they all tend towards the average profitability for the industry.   Actually, this means that business is slow for all who do not have a competitive advantage. Those with a competitive advantage do better in good times and in bad.

All businesses have their unique strengths and weaknesses, but there are two types of competitive advantage available to every business; low cost and differentiation.

Low cost means the ability to generate a service or product at lower cost than others because of some cost advantage. Selling at lower prices without a cost advantage will fail in the long term. Others will lower their prices as well and everyone will go broke.

Cost advantage may be achieved through economies of scale, proprietary technology, etc. Cost advantage is of benefit in commoditized industries such as chiropractors, accountants, lawyers, window installers, car dealerships and basically anyone selling a product or service that has many competitors selling the same thing. Instead of claiming you are the best, offer the same value at a lower price.

In a differentiation advantage, the vendor provides some value or attribute valued by the consumer that is unique and not elsewhere available. For that unique value a buyer will pay more. As opposed to low cost advantage, there may be several differentiation strategies available to all industry participants. For instance, lawyers may specialize in specific crimes; accountants may specialize in wineries, etc.

Achieving a differentiation competitive advantage means deliberately focusing on serving well defined, specific markets and rejecting those that will not see value in the differentiation.  We all can choose our competitive advantage, assuming we have one.  Not having one compels us to be an average performer financially, and   our business will remain stuck like its many competitors, with everyone waiting for better times.

Small Companies and Dangers of Growth

Posted on by

Small Companies and Dangers of Growth

In general, the owners of small businesses that I meet with believe that growth of sales is the solution to all problems. On the surface this makes sense. We sell more and our bottom line is improved.

What is not usually understood is that overhead grows along with sales, and that too goes to the bottom line. Growth requires additional sales and administrative staff, capital investments in machinery and buildings, and working capital that requires larger lines of credit. Growth also introduces complexities not considered previously, such as a larger and stronger management team. Our exposure to competitive forces is also increased as we are taking business away from our competitors. They will retaliate by lowering their prices, and so will we if we want to retain our customers.

As much as we desire growth, it needs to be part of an overall strategy that insures the growth will be well managed and ultimately successful.

Industry Profitability

Posted on by

Industry Profitability

 

What determines the profitability in an industry?

 

Michael Porter provides several answers to this important question.  Today we will deal with one of the answers, the threat of entry.

 

Threat of entry

 

When examining the threats of entry into an existing or potentially new market, the following questions need to be raised:

 

  • How easy is it for newcomers to break in?

Can anybody enter?

Think of the example of another pizza parlour opening up in your neighbourhood. All of a sudden the market has more vendors than before, with everyone fighting for the same size of the pie .

 

  • Do  newcomers need to fear sharp retaliation from incumbents? Can the incumbents drive the newcomers out?

 

  • Is a minimum size required for entry? Does this provide the incumbents with a cost advantage that the newcomers cannot match?

 

  • Do incumbents possess  a strong brand identification? Have they created powerful customer loyalty, or will the newcomers have no difficulty taking customers away?

 

 

Whether you are already in an industry or contemplating entry, consider the above, and evaluate the threats.

 

You may need to re-examine your business model.

 

Considering New Markets?

Posted on by

Considering New Markets?

 

 

When considering new markets answer the following questions:

 

Does the market have high potential?

Is the market dominated by strong competitors or is it fractured among many small businesses?

Is the market easy to enter or are there strong barriers to entry? Will fresh competition find it easy to attack you ?

What is the profitability in the market? Is  it dependent on raw material costs that you have no control over and that cannot be passed on to the customer ?

 

Right  answers to the above will greatly enhance a successful entry into a new market.

 

Competing Today: Part 2

Posted on by

Competing Today: Part 2

In last month’s blog  I wrote that competing today means having the ability to provide the goods or services faster, helping buyers achieve their needs by providing new benefits, and building a mutually profitable long term relationship. This month I’m providing current examples of strategies used by various providers.

 

Strategy Details of strategy Applied by
Be cheaper than the competition Be more efficient than the competition Food Basics,IKEA,DollaramaCostco
Provide a higher quality product or service than the competition  Provide a no hassle refund policy Bed Bath and Beyond
Appeal to the social conscience of the target market Fair trade products Starbucks,Body Shop
Provide a unique experience for the customer Enjoy the visit, know what you get, always find something new Costco
Create a new business model Appeal to customers’ unstated needs Amazon,Apple,Charles Schwab
Discover and appeal to a niche Eliminate the middleman Property Guys

What can you do in your industry? Which strategy may work for you?

Have You Been Blindsided and Now the Business is Stuck?

Posted on by

Does this sound familiar?

In the past the business had been doing OK. The results were not spectacular but it provided a living  and there was hope for better things.

Suddenly things have changed. For some years now there has been no growth, maybe even a decline.

At best the future looks no better than the present. At worst the business is on its way to closing.

You may have been blindsided

Being blindsided may mean a total destruction of your business. Suddenly a new technology, a new service, and/or a new product make your business model redundant. And you are gone. For example, we all know how digital music has impacted the music business, and how digital news has affected newspapers. More recently how on line shopping has decimated retail stores.

Jim Harris, in his book “Blindsided”, talks about blind spots that organizations have that makes them susceptible to being blindsided. He claims that we as managers are too concerned with problem solving, and not enough with problem seeing. It’s problem seeing and opportunity perceiving that will separate the market leaders from the losers.

Why do companies get blindsided? Some of the answers are:

  1. Reluctance to change. Much has been invested in the status quo. Our business model, our skill set, our organizational structures have developed over time and reflect our comfort zone.  A new innovation is a threat  and the tendency is to ignore it.
  2. Inability to distinguish noise from signal. There are thousands of potential trends out there. New technologies, shifts in consumer behaviour, new products, new competitors. How can we tell what is a real threatening signal and what is merely noise?
  3. Focus on our immediate tasks.  The busier we are with day to day problems the less time and energy we have to scan the horizon. Often we are stretched to the hilt, we work long hours and have no time to investigate, brainstorm, or assess what’s going on beyond our immediate horizon.
  4. Situations are complex. But we have a bias for action. As a result we treat symptoms, and not root causes. We think that a solution to the presenting problems provides the answer, but problems are interdependent. We search for simple solutions because we think there’s only one problem, but more likely there is a  set of  problems.

 

It’s natural to put the fires out, to service the existing customers, to market your products and services to new markets. These things are essential to business survival but they are not enough. Somewhere now, somebody is working on an idea that may kill your industry.

The key to security for our business is acknowledging that there is no security. However, we can prevent being blindsided through faster recognition and response to changes in our environment.

Learn how to deal with challenges such as being stuck by downloading our    diagnostics and see why your business is stuck.

 

Have You Identified Your Key Success Factors?

Posted on by

Running a business appears complex. However, did you know that for most businesses, no more than five key factors need to be properly managed?  Here are some examples of industry and business key success factors.

  • Banking  requires:

○     the ability to obtain money cheaply

○    investing the money  at a profit.

  • The beer industry needs to have: :

○     full utilization of brewing capacity;

○     a strong network of wholesale distributors;

○     clever advertising

  • Apparel manufacturing demands:

○     appealing designs to attract the target market;

○      low-cost manufacturing efficiency to achieve  those high profit margins

  • An airline performs well when it has:

○      efficient routes;

○      excellent customer service;

○     ability to sell-out  seats;

○     forward contracts to weather the rising cost of fuel;

○     standardized airplane models for cheaper maintenance

  • A  hotel must have:

○     a good location

○     global appeal to attract world travelers

○     quality management. One hotel employee  can make the difference between a delighted customer or a customer who goes online and writes a bad review about their experience.

○     flexibility to meet the varying needs and expectations of customers.

  •  A   coffee business requires:

○      loyal customers

○     sufficient customer traffic in the neighbourhood;

○     satisfied and skilled employees. They have a huge role in determining the culture of the business;

  • A restaurant requires:

○       location with  easy access

○      ambiance to set the mood

○      good Chef -no need to explain

○      a menu that caters to the  strengths of the restaurant

In all of the above examples there are no more than 5 key success factors, and often less. Achieving  excellence in these factors may not be simple, but knowing that only 3 or 4 factors are required helps to focus the mind on the essentials.  Manage them well and they may be the key to your success.