Differentiate Your Small Business
I recently attended a presentation by one of the former owners of the Penda Bedliner Company. Now, in order for you to understand his story you need to understand the meaning that the name Penda once had to pick-up truck owners. Personally, I used to think a car was just a car, a means of transportation, and that people who went on and on about their vehicle were just, well, silly.
At least I thought that until I bought my first pick-up truck. It was a lipstick red, Dodge Ram. It was not a girly vehicle, but then I’ve never been a girly, girl. I bought it the day I was promoted from Credit Analyst to Ag Lender. It symbolized my making a leap into a job which few women held and which I’d worked very hard to obtain. To my customers it symbolized that I was willing to work hard for them and get my boots dirty. Oh, and it was lots of fun to drive. (Do you know the big trucks rule? Big trucks rule!)
Once you make that emotional commitment to your pick-up truck the next thing you need to do is figure out how to trick her out. I spent hours poring over the accessories catalogs trying to decide whether I needed the practicality of sure grip running boards or the flair of ovals. It was next to impossible to pick between the tri-fold or the snap down tonneau cover. But, there was no question I had to have a Penda Bedliner. Penda’s were the best, and I wanted only the best for Alice. (Oh, yes, I named my pick-up truck).
Toby and Buckaroo Banzai in the Twenty-First Century
When The Best Isn’t Good Enough
In 2006 pick-up truck sales hit a peak. They were not only being purchased by hard-working contractors and farmers, they had also become a recreational vehicle of choice. Accessories for working trucks needed to be practical, but most accessories for recreational trucks were for show. Dozens of new accessory makers entered the market and a funny thing started happening to the sales of Penda Bedliners.
New entrants to a market often try to gain market share based on price, and all the new producers deeply undercut Penda. Penda management expected sales to come back when people found out that the quality was not comparable. But, sales of Penda Bedliners never regained their former levels. Penda had run into a truism of consumer sales – sometimes the best cannot compete with good enough. The lowest price point did not capture the greatest market share. Consumers did want quality, but after a certain level of quality they were not willing to pay a premium.
The first question I ask companies is “What differentiates you from your competition?” If they answer “quality” I try to not visibly cringe. Customers have a minimum expectation of quality. Under that minimum they will not buy no matter how low the price. But, the range from the minimum to good enough is generally fairly narrow. Competition in that narrow band is fierce. True differentiation is something that you do that your competitors don’t, and that it would be very difficult for them to copy. What your differentiator is today may not be the same as it is tomorrow. It often needs to change if you want to stay ahead of your competition.
The team who owned and managed Penda at the height of market dominance, eventually sold out their shares of the company. The company still exists and if you do a Google search you find that they are repositioning themselves on their skill at custom heavy-gauge thermoforming. People still do buy Penda Bedliners, but the company is pursuing market share based on all of their strengths, and finding new ways to differentiate itself.
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How I Invented “The Cloud”
Image via Wikipedia
Science Fiction Writers are often asked where they get their ideas. Almost all of them hate this question. One SF writer even famously quipped, “They get mailed to me by a gentleman who lives in Schenectady.” The truth is, ideas are easy. It is implementation that is hard. At the same time there are a couple of obstacles to an entrepreneur’s ability to implement a great idea, which at first blush seem out of the entrepreneur’s control – timing and connections.
To illustrate let me tell you how I invented “the cloud”, “the cloud” that now ubiquitous ability to work collaboratively across the internet, and to store documents where they can be easily accessed by multiple users across multiple platforms.
In 1988 I was working as a credit analyst in a regional bank. Our department had recently installed desktop computers for all of the analysts. At $4,000 a pop, having a desktop at home was something lowly credit analysts could only dream of. I was working on a loan presentation for a small publisher that had branched out into educational software. Their target market was the home user and they had failed to meet projections for three quarters running.
“Well”, I thought, “no wonder. They are trying to sell this stuff to young families who can’t afford the hardware.”
A large part of the price of the hardware was the cost of computer memory. Another large component was the cost of buying and upgrading software. The software and files at the bank were stored on central servers. It was not a big leap to think that software companies could offer to store files on their central servers and hardware companies could sell bare bones machines at a much reduced cost.
In hindsight, “the cloud” became ubiquitous after the cost of hardware came down and after the Great Recession, when many down-sized and laid off workers started their own businesses and a new market for cloud computing emerged.
I would bet dollars to donuts that people in the industry had the same thoughts about cloud computing that I did in 1988. Maybe, they even thought it would solve precisely the same problem, although in the end it solves a different business problem. Rather than helping to bring down hardware cost, it makes file sharing easier.
Ideas often come before their time and it is not always easy to see which steps will be necessary to implement the idea. Many ideas are dismissed out of hand because the path to implementation is not clear. Companies that succeed can’t afford to do this. Successful companies have a culture that fosters innovation, that allows people to make mistakes and that is flexible enough to hold onto their great ideas until technology catches up.
One of the things that distinguishes true entrepreneurs from other business owners, is that entrepreneurs have the ability to dream products and services out of their ideas. Barriers to implementation are not seen as reasons to trash the idea but problems waiting for a solution. Implementation becomes the process of working through these problems to become first on the market with a new idea. So, it’s all in the timing, but more of the timing is in your control than you might think.
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Strategic Thinking or The Garage Door Problem
Dan, my husband is what you’d call a detail person and I’m more of a big picture thinker. I usually get home from work before he does and a couple of years ago I listened as he pulled into the driveway. I heard the garage door go up and then a big Thunk. I waited a few minutes and then heard a string of language coming from the garage that I am not accustomed to hearing. At that point I went out into the garage to see what the heck was going on.
The motor for the garage door was hanging from the electrical cable, the fixture holding it in place pulled out of the ceiling. Dan came home from work and all he wanted to do was put the car away and close the garage door. Instead, he had one hand stretched over his head holding up the sagging rigging while he was reaching for an out of reach step ladder with the other. I pulled the ladder over for him and while he scrambled up it went in search of the duct tape.
A little later he scrambled down the ladder and while I yelled “No, no, no,” he went to close the garage door. What he hadn’t taken into account was the way the motor connected to the door itself. As soon as the door moved, it would move the whole system and the motor would no longer be stabilized.
Sometimes events are not made up of their parts, but are dependent upon the way the parts are interconnected. It is the same in business. The very skills that you need to deal with the day to day issues of running a business, both stand in the way of seeing potential long-term problems and impact those very problems in hard to predict ways. Not only that, the people who are the very best at the detail level are often hard-wired to be the worst at the big picture or system level.
Business management needs to be able to think sharply in a number of directions. They need to be able to put out the day to day fires of customer service, quality control, supply chain emergencies, what have you, all of this while being aware how these small decisions are impacting short and long term strategies and goals. Sometimes this is accomplished by making sure you have a good mix of personality types on your management team. Sometimes it is accomplished by making review of your goals and procedures a frequent recurrence.
Biologists like to say that change happens at the edge of chaos. That doesn’t mean that we as business owners can’t control those changes. It means we have to be ready to see the implications of all of our decision making at a moment’s notice, right when we are reaching over to close the garage door.
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How Steve Jobs Made Geeks Cool
I was a geek before there was a word for geeks. I got my high school letter in forensics, not
the cool kind of forensics made popular by the CSI TV shows, but the kind that trained you for public speaking. I was president of the Latin Club. While other girls were trying out for the cheerleading squad I was translating the love letters of Abelard and Heloise. The odd girl with glasses. That was me. In the summer of 1962 I took a trip to the Museum of Science and Industry in Chicago and was mesmerized (does anybody but geeks even say mesmerized? just wondering) by the AT&T exhibit of the future phone where you could actually see the speaker on the other end. I was in love with computers when they were all as big as houses, although I never did get the hang of punch cards. I was a geek.
One of my early jobs in banking was to take part in a feasibility study for a regional bank that determined what kind of desktop computers to put in front of the loan documentation clerks. Up until then loan docs were produced on typewriters and there was one desktop computer for the whole department. We came up with two recommendations – IBM or NCR. These were the workhorses of business computing. The banking industry was heavily reliant on IBM mainframe processors and NCR provided the machines that read bank processed payment and credit card slips. We would never have considered a MacIntosh.
Although Apple is certainly innovative in product design, it’s real brilliance was that it sold cool to geeks. The geeks who bought Apple products were tech savvy, they were early adopters, they were in the know. The geeks bought ipods first and the cool kids followed them. Brilliant. The much promoted (by Apple) rivalry between Apple and PCs is built on an emotional appeal. What you pay a premium for when you buy Apple is the cool. Rebels, creative types, risk takers are the early adopters. What a way to protect a margin.
When I am out talking to companies and ask them “What do you do that is unique?” I often hear about customer service and quality. These are the attributes that customers expect at a minimum. I want companies to think about the things that they do that really differentiate them. Sometimes it can be hard to verbalize those things because they are so endemic to the owner’s vision and the company culture. Take a minute to think about it. What do you do that is unique to your business?
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Small Business Financing in the New Economy
Some things change. Some things stay the same. Banks have traditionally asked for 20% down on real estate financing and as much as 50% down on receivables, inventory and fixtures. Prior to the 2008 recession it was easier for small business owners to come up with that 20% or more down. The chief asset small business owners have, outside of the business itself, is the equity in their homes. Since 2008 home values have plummeted wiping out that equity source for many.
An additional hurdle that small business owners have to overcome is the cash flow coverage ratio (CFC, the ratio of cash available for debt service to total debt). Banks calculate cash flow by averaging the 2 or 3 most recent year-end financial statements or tax returns. A bad year pulls that number down for the 1 or 2 years surrounding it.
Five Things You Need to Know to Secure Bank Financing Today
1. Cash Flow Coverage
Find out how your bank calculates Cash Flow Coverage (CFC). If they average three years of statements, ask what it would take to get CFC calculated on two years, instead. Usually, whether the bank asks for two or three years of statements depends on the amount of financing requested. If you can get by with a smaller loan amount, you may be able to show better CFC.
Some banks are now calculating based on a rolling year, rather than a fiscal year. This means that they will calculate CFC backwards from the date you apply for a loan, rather than the last fiscal year-end. This can work to your advantage, particularly if 2009 was your worst year and you’ve improved since. It may be worth the expense to get accountant prepared interim statements.
If you have a family business or multiple businesses, the bank may be able to add in other income sources when calculating CFC. Make sure you are giving your banker complete information.
2. Collateral Coverage.
The collateral value of your business property may have fallen, as well as the collateral value of your personal property. In the New Economy you may have to cross-collateralize some assets that you had been able to keep separate in the past. You may have to pledge personal assets that you haven’t pledged in the past. This is not likely to change any time soon.
3. Cash flow vs equity lending.
In the past, community banks often relied more heavily on equity and overlooked problems in cash flow. This contributed to small business failures when asset values plummeted. All banks are taking a harder look at CFC now. If you can show improving cash flow, your bank may be able to help you with a guarantee program that compensates for other weaknesses.
4. Nobody likes surprises.
If you have problems that show on your personal credit bureau, let the banker know before credit bureaus are pulled. If the circumstances that caused the problem were outside your control or have changed significantly, you may still be a good credit risk from the bank’s point of view. Commercial underwriting is not tied to personal credit scores the way personal underwriting is and special circumstances can be taken into account. If the banker sees an adverse condition or warning on your credit bureau that she wasn’t warned about, she may wonder if you are trying to hide something.
5. Some things remain outside your control a/k/a the regulatory environment.
Different banks have different regulatory constraints. In Wisconsin there are at least three different agencies that might govern your bank: Comptroller of the Currency, FDIC or State Department of Financial Institutions. Even when governed by the same agency, banks are subject to different rules depending on asset size and capitalization. If you are told you don’t qualify for funding because of changes in bank regulations, you may not get the same answer from the next bank down the road. You can check out bank ratings from numerous sources on the internet. The more sound the bank, the less likely they are to be under certain lending constraints.
Feel free to share your questions and experiences in the comments.
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The New Business Research vs The Old Business Research
With a researcher trained in the new methods and with access to global data, projects can be completed for a tenth the cost and turned around in a matter of weeks.
Four Ways to Use The New Business Research
- To increase market share
- To expand into new markets
- To better understand your competitors strengths and weaknesses
- To better understand local and regional economic trends. These may be very different from the national trends that make the news.
The Three kinds of Business Research
The New Business Research
1. The New Business Research is internet driven, from a simple Google search on a Competitor to free Government Census Data. In addition to free resources, there are a number of large research companies that collect and sell consumer, demographic and psychographic data. The cost for paid data continues to come down.
The Old Business Research
2. Traditional Marketing Research is consumer focused. Research projects include customer surveys and focus groups.
3. Traditional Business Intelligence is internal analysis of company controlled data. Billion dollar companies take customer data at the point of sale. Every time a customer appreciation card is swiped at a Big Box Store data is collected. The Big Box knows what sells, to whom and where.
A July 2011 study by the consulting firm McKinsey&Company puts the global value of internet search at $780 billion.
The reasons small to mid-size businesses do not take advantage of the New Business Research are:
- It is costly to have an internal person dedicated to search
- It takes training to understand where the data is and what it means for your business
- Companies may be unaware that the cost of The New Business Research is considerably less than the cost of traditional methods. Traditional market research and business intelligence projects cost upwards of $20 – 30 thousand and take months to complete.
- Consultants familiar with The New Business Research methods and databases may be hard to find.
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Entrepreneurs Focus on Results Take Two
We want great business results but where and how do we start?
The Nielsen Wire has a great blogpost on launching a new product. Their 12 steps to consumer adoption is based on actual data collected from tracking 600 product launches. Following these steps increases the probability of a successful product launch to 75%. Step One is to develop a distinct proposition that offers true innovation.
Adapting These Steps to non-Consumer Businesses
I talked about Entrepreneurial Focus in an earlier post. My mantra is that Entrepreneurs Focus on Results. The ultimate result is the success of your business, the sale of your product or service. It can be difficult to define the product when the product is not a thing. When I began my consulting business I really missed the bi-weekly paycheck and was willing to take any consulting job that came along. After capturing the low-hanging fruit of working with people who knew my style and my expertise I found it difficult to leverage my experience into consulting jobs in the wider market. I quickly found myself competing on price. Luckily years of sales training kicked in. I knew that leading with price is the response if you are not really sure that you have value to offer. To increase sales and protect my price I needed to lead with value.
Develop a Value Proposition
To get to results focus on step one. Develop a distinct proposition and offer true innovation. A new product must occupy an innovative niche. It must be a product or service that the buyer needs. Service businesses in particular need to understand who their potential customers are and what value they provide those customers. What is unique about the offering? And it can’t be quality, customer service, or timeliness. These are minimum expections that clients have when they pay for a service provider.
My unique value proposition is that I use my cross-industry experience to help companies protect their margins and increase their sales. All of my services are designed to meet this value proposition. It took a great deal of focused work to come up with a value proposition and services that satisfy the distinct proposition of step one above. It meant taking a hard focused look at my unique strengths, talents and business experience. The idea is never enough. It’s all about execution. Execution demands focus.
Which step is your company on? What kind of focus did you need to get there?
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The Relation Between Business Growth and Job Growth
Sometimes it seems like a vicious cycle, we need job growth to increase consumer spending, to convince companies that growth will pay off, so they will add jobs, which will increase consumer spending, to….
Andy Grove the founder of Intel wrote an interesting piece for the Seattle Times recently, We Must Rebuild Structure to Create U. S. Jobs. You might think an icon of the high-tech industry would not be overly concerned about manufacturing off-shoring, but in the end it’s all about the stuff. Intel is a manufacturing company. Common wisdom says that the way to rebuild the U. S. Economic Engine is to promote high-tech start-ups. Many Economic Development Organizations focus on these efforts. The ubiquitous Business Plan Contest is one example. Trying to improve the market of start-up funding is another. This approach overlooks a number of issues.
Grove identifies them as scaling and innovation. His definition of scaling falls directly into work being done by the Edward Lowe Foundation at YourEconomy.org. They have been looking at company growth and job creation from a net perspective by region and have made some interesting findings across regions. It holds pretty true across regions that net growth in establishments and in jobs happens after companies reach a certain size and a certain longevity, which may vary by region. These are the companies that Grove identifies as companies that are scaling, going from prototype to mass production. The concept of scaling applies across industries, not just manufacturing companies. These are also the companies that are least likely to receive help from EDOs who focus on encouraging start-ups or retention and recruitment of large, mature companies. I’ve talked a great deal about innovation in some of my other posts.
When I am out calling on these high growth, second stage or mid-tier companies, I hear one major concern. They need to find more customers. The strategies vary. These are some of the things that these companies are involved in doing.
- Competitor research to identify competitor strengths and weaknesses and create competitive advantages
- Local trend analysis to discover where the potential growth is in their trade area. Surprisingly, this can often be counter the national trends
- GIS mapping to identify like customers outside their traditional trade area
These are the activities that I would like to see EDOs support. The cost of tools and data has come within reach of smaller companies within the last ten years, but they are still difficult for a company with sales under $10 million to access and interpret on their own.
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Productivity, Job Growth and Recovery
Graph of the Week
Mark Thoma at Economist’s View has an interesting post on where we are in the recovery and the impact of a jobless recovery on economic growth. We seem to be caught in a spiral where consumers aren’t spending, so companies aren’t adding workers, so workers have no money to spend. Although there is more variation by region than the national data reflects, it seems pretty clear that we need to solve the jobs problem as Job One, so to speak.
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Entrepreneurs Focus on Results
Part Two in an Ongoing Series on Entrepreneurship
Focus is the Key
I love the big idea. I love analyzing companies to see what makes them tick. You can tell a lot about a company by a simple drive-by. Location choice is very informative. They may be located in a cluster of like businesses. They may have made that choice because they are in an industry that benefits from clusters or they may be there because of local zoning rules. General area demographics and transportation patterns say a lot about both overhead costs and access to markets and suppliers. This is my passion. I’d do this for fun. I do do this for fun. Take a road trip with me someday. I love to take the long way through the industrial park and do snapshot analyses of companies that I might never do business with.
It makes sense to take my skills, my training and my passion and form my own business. And then comes the day to day. Now I have to get out there and start telling my story – over and over and over again, and pretty soon OMG I’m starting to bore me. I am not a detail person. So, what can I do as a sole proprietor to improve my implementation? Remember, ideas are easy it’s implementation that’s hard.
The 99 Percent
- I recently ran across a company that specializes in helping entrepreneurs make this breakthrough. Scott Belsky the Founder of Bëhance and The 99 Percent took to heart the Thomas Edison quote “Genius is 1% inspiration and 99% perspiration” and built his company on helping entrepreneurs get a handle on the 99% part of this equation. I’ve been having a good time working my way through all of the free tips and videos available on the site, but there is one in particular I want to share with you.
Building the Team You Need
Another thing that helps me to focus on both results and my personal strengths is to build the right collaborations. One of my partners Sue Gleason, uses Myers-Briggs® analysis and other tools to help companies form teams that use the strengths of differing personality types. A break-down Kiersey Sorter personality types is the following, which is provided by Dr. David M. Kiersey:
The Four Temperaments
- As Concrete Cooperators, Guardians speak mostly of their duties and responsibilities, of what they can keep an eye on and take good care of, and they’re careful to obey the laws, follow the rules, and respect the rights of others.
- As Abstract Cooperators, Idealists speak mostly of what they hope for and imagine might be possible for people, and they want to act in good conscience, always trying to reach their goals without compromising their personal code of ethics.
- As Concrete Utilitarians, Artisans speak mostly about what they see right in front of them, about what they can get their hands on, and they will do whatever works, whatever gives them a quick, effective payoff, even if they have to bend the rules.
- As Abstract Utilitarians, Rationals speak mostly of what new problems intrigue them and what new solutions they envision, and always pragmatic, they act as efficiently as possible to achieve their objectives, ignoring arbitrary rules and conventions if need be.
I am a rational and need to surround myself with collaborators who have the characteristics that I don’t have. That way I can concentrate on building on my strengths and let my collaborative partners bring their strengths to the table.
I have also been using some of the time management tips available at The 99 Percent, to break my tasks into small parts and stick with them. It is hard not to be distracted by the shiny and to accept small changes as a way to the big changes I see ahead.
What strategies do you use to keep yourself from being distracted and moving to your goal?
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