One of the first Harvard Business Review articles that I ever read was a feature piece entitled Why Should Anyone Be Led By You? When the article came out I had just become a manager for the first time and I was responsible for leading a small team of consultants. I was grappling with how to be an effective leader and the simple question in the title of the article fuelled hours of introspection and caused me to make decisions and confront issues that I believe made me a better leader in the end.
To give customers a compelling reason to buy, you need to be distinctly different. We live in an age of hyper competition. Customers are bombarded with endless choices. There are more products and services available now than ever before. To be successful you need to cut through the clutter and stand out from the crowd. Failing to distinguish your offering from the plethora of products and services out there is a recipe for entrepreneurial disaster.
Opportunities for Differentiation: The Customer Consumption Chain
A useful method of identifying valuable opportunities for differentiation is to map the customer consumption chain for your product or service. A customer consumption chain is the chain of events that customers go through when learning about, selecting, buying and using your product or service. The consumption chain forces you to see things from a customer’s perspective and will enable you to identify customer pain points – areas where customers experience a level of difficulty sufficient to motivate them to seek an alternative solution.
Wherever there is a pain point within the consumption cycle there is an opportunity for distinctive differentiation. To be successful entrepreneurs need to attack the pain points within a customer consumption chain with innovative and effective new solutions.
Not all pain points in the customer consumption chain are going to apply to all businesses. You need to figure out which items in the chain are most relevant and most painful for your customers and then come up with differentiated solutions for addressing the pain points pertaining to those items.
How do people become aware of your offering?
In order to be in the game you need to make target customers aware of what you do. There are multiple ways of doing this but the key is to build awareness in a way that appeals to your target customer base and to stand out from the crowd in the process. When Gary Erickson launched Cliff Bar he built awareness of his sports bars by giving them away at endurance events and by sponsoring mediocre but passionate local athletes. By creating a presence at local sporting events and being part of the community, the company soon became top of mind for grassroots athletes and Erickson effectively cracked into a tightly held sports nutrition market.
Checklist: building awareness
- Does your company appear on the first page of search results when people search for your product or service on the web?
- Do you connect directly with customers on a regular basis reminding them of what your product can do?
- Do you track how new customers learn about your product or service so that you know where and how you are effectively building awarenes
- Do you provide compelling stories to the media (online and offline) about the interesting work your company
- is engaged in?
How do people select from a number of different alternatives when choosing your product or service?
After learning about your product or service in the awareness phase, customers narrow their choice and make a selection. Can you make the selection process more comfortable, less irritating or more convenient? Can you allay fears and clearly communicate a value proposition at the right moment. It is critical to develop a clear understanding of the criteria that people use to select products or services in your sector and then develop a differentiated proposition around those criteria.
Checklist: aiding selection
- Do you clearly understand the criteria on which different groups of customers make choices at the point of purchase in your industry?
- Do you provide tools, information or services that enable potential customers to understand how your company meets their needs on important selection criteria
- Do you provide opportunities for past or current customers to share their good experiences and provide positive feedback to future customers?
3. Order & Buy
How do customers order or buy your product or service when they have made their final decision?
I am drawn to shop on Amazon.com, Audible.com or iTunes because they make it so easy to complete the transaction – within three clicks I can be done. Part of being different is making it easy to transact. When customers are faced with a choice, the ordering process that puts up the least barriers will almost always be the one that wins out. Research has shown that at a subconscious level customers are put off by complex ordering processes.
Although they may not consciously decide never to buy from the company again, subconsciously they eliminate that company from their choice of options. It is also important to align the ordering process with the customer profile you are targeting. Early online grocery companies failed to recognise that although a large number of households in the USA had computers, the people using those computers at the time (late 1990s) were not the same people buying groceries. There was thus a fundamental disconnect between the target customer and the ordering process that contributed to the demise of most of these businesses.
Checklist: differentiating the ordering & buying process
- Do you minimise data gathering and form-filling in the ordering process, especially for repeat customers?
- Are you keeping up with changes in customer preferences and aligning your ordering and buying process with their emerging preferences?
How is your product or service delivered?
A number of different aspects of delivery can be a differentiator – speed, customer experience or accessibility. A good friend of mine built up a highly profitable business by being willing to deliver industrial bearings at any time of the day or night. He charged a huge premium for this service because he realised that when a machine in an industrial plant went down due to faulty bearing, no price was too high and if he could develop the infrastructure to get a new set of bearings to clients as soon as possible, he would be distinctly different within the industry.
Other companies differentiate themselves through the experience they provide when they deliver their product or service. When Primi Piatti first opened up in Cape Town I remember feeling encouraged to eat there because of the upbeat, off-the-wall attitude of the waiters. They provided an experience that brought the place to life.
Checklist: differentiating on delivery
- Are you getting your product or service to your customers exactly when they need it in a hassle-free way?
- Are you providing the best possible experience for your customers? Is it memorable? Is it appropriate?
- Is it different? Are you giving them a reason to tell others about the experience?
How is your product assembled and/or installed?
The assembly and installation element of the customer consumption chain is a much-ignored opportunity for differentiation. Yet it is distinctive differentiation in this area that is at the core of the world’s largest furniture business. Ikea sells quality designer furniture at a reasonable price in a broken down format. This makes it easy for customers to transport the furniture; you can buy a piece of furniture and take it home right away.
By providing clear and simple instructions, with pictures, on how to assemble each piece of furniture, Ikea hands over a critical piece of the value chain to customers and this has been a recipe for unbridled success. Best Buy also recognised an opportunity for differentiation in the installation link of the consumption chain. As home theatre systems became more complex they began providing an expert to help customers set up their big screen TV and surround sound in their living room, thereby eliminating hours of pain and frustration. This caused many technologically anxious shoppers to choose Best Buy as their point of purchase.
Checklist: differentiating assembly & installation
- Have you eliminated the pain of assembly and installation
- Have you considered how alternative modes of packaging, installation or assembly may create extra value for clients – doing it for them, getting them to do it for themselves, or providing easy access to others who will do it?
How is your product or service paid for?
The payment process may not seem like an obvious place for differentiation but many customers will make critical, and often impulsive decisions based on payment options. If your company offers options that are distinctive and attractive, you may be surprised by the leverage this element provides for winning over new clients. Pay-as-you-go revolutionised the cell phone industry in South Africa, opening up markets that others thought never existed.
Checklist: differentiated payment options
- Have you considered all the payment alternatives and assessed whether each option will appeal to clients? Alternative payment options include upfront payments, month-to-month payments, barter arrangements or adjusting installation, delivery or service fees to create differentiated payment arrangements.
7. Assistance & Repair
What do customers do when they need assistance with your product or service?
Over time your ability to assist a customer when they have a problem with your product or service may serve as a key differentiator. The customer service policy and the attitude that relates to that policy will always be a key factor when I choose an email or web hosting provider for personal or business use. If I have a problem I want to be able to talk to a competent person (not a machine) at any time of the day or night and I am willing to pay for that privilege. On the other side of the coin, there is a cell phone provider in South Africa with whom I will never again do business because of the frustration I have had when trying to resolve customer service queries with them. After-sales service can therefore be either a selling point or a repulsion point, depending on how you treat customers.
Checklist: for differentiating assistance & repair
- Do you make it simple for customers to get assistance when they have problems with your products or servic
- Are they able to speak to someone about their issues
- Does that person care?
- Do you follow up when people have had a problem to ensure that their issue has been resolved?
How easy is it for products to be returned?
My wife will only ever buy clothes from a store that has a liberal return policy. Although she makes an effort to select clothes in the store, she says that they always look different when you get home. If a retail clothing store does not do returns they lose her as a customer. Certain companies have distinguished themselves with their no questions asked return policy – the most famous example being Nordstrom, the US department store, which, because of this policy, has developed an iconic reputation for customer service. Although this policy is expensive to implement, Nordstrom management believes that it has paid for itself multiple times over because of the loyalty and reputation benefits it has offered.
Checklist: differentiating your returns policy
- Do you make it easy to return products or get money back for faulty services?
Systematically working through the customer consumption chain and analysing each element within the chain is an intensive process. But, by going though this process you will be able to identify the customer pain points in the process and put solutions in place to directly address those pain points, thereby creating a unique and clearly differentiated product or service offering. People sometimes assume that unique business solutions come from moments of ingenuity, yet those moments of ingenuity are often brought on by systematic and rigorous processes such as the one described here.
Many managers and entrepreneurs will be too lazy or busy to invest time and energy in assessing their customer consumption chain and they will continue to do the same old things in the same old way, hoping for better outcomes. They will have no compelling answers to the question: Why should anyone buy from you? and they will probably be overcome with the sameness syndrome.
It is those who are willing to invest the time and energy in going through this process who will identify where and how they need to change to deliberately build a business that gives customers a compelling reason to buy from them. They will definitively defeat the sameness syndrome and set themselves on a trajectory of success.
When Do You Know It’s Time To Sell Your Business
Five telling signs.
Even though running your own business gives you many freedoms, everyone still has those days or even weeks of wondering, “Shall I stay or shall I go?” Sometimes this thought becomes persistent instead of a passing phase – and for your own financial future and that of your business, you need to be able to recognise signals that mean the right moment has come to consider selling your business.
This is never an easy decision, especially as the amount of stress and constant pressure that a business owner contends with will play havoc with the decision-making process.
Having engaged with hundreds of business owners over the years, we see the five most solid signals that prompt them to sell are:
This is the single most common factor influencing the decision to sell a business. Whatever age you have chosen as your retirement goal, if you are approaching this then give yourself an opportunity to assess both the benefits and challenges of having your own business.
Have you considered an exit strategy, such as hiring someone else to run the business instead of you? Or, as in many cases, does your business represents your most valuable asset? In this case, it would need to be cashed out at some stage as this would represent your pension. Selling your business successfully and fetching maximum value could well be critical to ensure that your retirement is well supported by financial surplus.
2. Lifestyle Change
Growing a business can be an infinite journey. Have you reached your goals with this business and do you have the appetite for the ‘next chapter’? Or do you want to move off into a completely new business direction? Perhaps you would prefer to follow a passion of yours or spend extra time with your family, investing more time in yourself and them to counter the massive investment of time and energy that you have made over the years.
3. You are ‘gatvol’
We often underestimate what it takes to live life as an entrepreneur and the amount of compounded pressure we ‘on-board’ over the years. Whether it is customers, suppliers, staff or the banks, you know this stress has reached a decisive, even destructive level if you can’t shrug it off and instead you find yourself repeatedly saying, ‘Enough is enough!’
4. Building a business versus running a business
Go back to the beginning of when you started your business. Do you remember the passion, fire and motivation that drove you to achieving your first sale? How about that sense of achievement as you hit the subsequent milestones? All that represented the very DNA that you have as an entrepreneur – but as your business grew, so did everyone and everything you need manage on a daily basis. Do you find yourself being more of a human resources manager than that entrepreneur with that fire in your belly? Is running a business enough to motivate you and drive your core DNA?
Perhaps this is the signal for you to sell the larger business that you have developed to someone with the skills and interest in the administration it requires. Selling your business would free you up to apply your entrepreneurial skills in a new context.
5. You can’t do it on your own
In many cases you may still have time and energy to keep growing your business – but you may recognise that you are not willing and able to do this yourself. Sometimes you would appreciate a ‘big brother’ who can share the load. This could equate to a partner injecting money into your business, taking on some of your risk or opening up new opportunities for you and your business. This has become more and more prevalent in South Africa with the BEE codes and pressure on certain industries. Bringing on the right strategic partner to help you navigate uncharted waters is a critical step to take in your eventual exit strategy.
Decoding the signals that suggest it might be time to sell all or part of your business means that you will make the right decisions to stay or go based on sound reasoning. Remember that this is one of the few times in your life that you truly get ‘one shot’ to get it right.
Selling Your Business? How To Exit In Style
Gary Palmer, CEO of Paragon Lending Solutions runs through some practical requirements to realise the best value possible when selling all, or part of your business.
Preparing to sell a business you have put years of work into, or even built from scratch, can a be a daunting prospect. Aligning the disconnect between what you think it’s worth versus what a buyer is prepared to pay is just one of the challenges.
Act like you’re on the market – all the time
Like the Scout’s motto says: Be Prepared. A business owner needs to make sure their business is sale-ready at all times. Not only will this save a heap of administration when you do want to sell, but also means that, should an excellent offer land on your desk, your business financials and compliance issues are well in hand.
A business must be able to show a clean set of audited financials as well as up-to-date management accounts. Your accountant will be able to help get these in order if they aren’t already.
Make sure you aren’t running personal expenses through your business. This can be a challenge for some small businesses. Despite the allure of minimising taxes by running private expenses through the company books, it poses significant risk when preparing clean financials.
Prepare a due diligence pack. This can be provided by your auditor or financier and will include a list of your current contracts, VAT and SARS clearance certificates and defendable cashflow projections. Having all the documents required for a due diligence in one place that is easily accessible will go a long way to cutting down on the time it will take your prospective buyer to assess the company’s value and future potential.
It’s also important to remember that assembling all the necessary documentation takes time. It’s better to begin the process well ahead of when it will be needed. It’s also quite possible that a potential buyer may put a premium on the buying price if they know they are walking into a business which is clean, up to date and has no unexpected auditing or compliance skeletons in the closet.
Consider all the angles
Business owners opt to sell their business, or part of their business, for any number of reasons. This could be in order to retire and live off the proceeds, or because they want to raise money for another business opportunity. It’s important for owners to remember that there are associated expenses and even delays that they should plan for.
Before any negotiation begins, a business owner will need to find the right buyer. There are a number of brokers and financial service companies who can help source qualified potential buyers and, unless you have an offer on the table, it is a good idea to work with a third party to get line up a few credible potential buyers.
Once the deal has been negotiated and you have settled on the price, you must factor in Capital Gains tax. It is sensible to have a good idea of this before negotiations begin and to work out your asking price accordingly. Other expenses may also impact what you walk away with, including professional fees for your lawyer, auditor and other consultants with whom you have worked during the sale. You should also plan for delays due to valuation debates and requests for supporting documentation which may take time.
Finally, it is always a good idea to consider whether you want to walk away immediately after the sale. Many business owners choose to stay on in operations, and by doing so can negotiate a more favourable price with earn-outs attached to the sale price. After all, you are the person who knows the business best and has a relationship with your clients – and this insight comes with a value attached.
Most importantly, if you are planning to sell your business, it’s a good idea to have advisors and partners who have been through the process many times and are able to help you navigate what may be unchartered waters for the first-time seller.
When Is The Right Time To Sell Your Business?
Of the 6 most common questions I get asked on a regular basis, when is the right time to sell is by far the most common. The mergers and acquisitions game is part art, part science and a whole lot of elbow grease.
Your personal context
- How old are you?
- How much energy do you have left in your tank?
- Have you extracted value out of the business already?
- Have you managed to de-risk yourself by investing in equivalent assets outside of your business?
Only you can answer these questions, but they will go a long way in providing clarity for you and your ability to take the first step to selling your business?
Is your business ready to sell?
If I had R100 for every time someone had said to me that they want to wait another twelve months before they sell, I would have accumulated a substantial amount of money. Despite what the majority of advisors say, there is very often no real need to ‘dress up’ your business for sale.
Don’t get me wrong. You need a going concern that delivers solid returns to catch the eye of the right acquirer. However, who are you dressing your business up for?
If you do this properly, you will have more than one buyer at the table. Chances are, what is attractive to one buyer won’t necessarily be attractive to someone else. It is impossible to be all things to all acquirers.
You say you are just 12 months away….
12 Months is a magical number. Business owners always seem to be 12 months away from being ready to sell their business. Maybe it’s that big contract you are hoping to land. Perhaps you want to put in a new IT system. There will always be something.
Speaking from experience, I had a client that was going to wait, but instead committed to the process. Had they waited 12 months they would have been hit with ‘Nene-gate’, Brexit and Trump all in a 12-month period! There is no way that anyone could have anticipated a trifecta like that. I had another client that put in a new SAP system in those 12 months and the acquirer used Oracle!
You will reach the 12 month point anyway…
With the time that it takes to complete a successful transaction there is a good chance that you will cross that threshold of that big contract that you were hoping to land, putting that succession plan in or whatever the reason was that you wanted to delay the process for.
Something else that generally ruffles a few feathers, is that selling the (proven) potential generally fetches a far greater value than the past. This in itself is a whole other topic, but in the context of when is the right time to go to market, always keep this factor front of mind.
What is happening in the economy and your industry?
We are fortunate to have seen an increased sentiment in, and around, the South African economy in 2018. There is an uptick in international interest, but you know what the reality is, it never really took a major dive. The reason being that irrespective of the economy or your industry, good businesses sell. Some of my best deals happened in 2016 when the economy was under severe pressure.
Remember that when times are tough, acquirers need to buy good businesses to grow, as their own profit and be under pressure. When the economy and your industry is doing well, acquires will buy as they have excess cash to invest and will have a more bullish outlook on taking risk in their investments.
Truth is….there is no perfect time
The one thing that I have learnt over the past few years is that one can theorise for months trying to think of endless ways to increase the value of your business. Without climbing into the market and actually determining what your reality is, you will keep delaying your decision to take your business to market.
There is only one real hurdle that needs to be overcome, and that is you. If it is any consolation you will never be 100% ready. What have you got to lose? If you go to market and, worst case scenario, you don’t sell, you still have a great business to run and grow.