November 2010 Seminars Highlights. Here are a collection of key learnings, tools and ideas that emanated from Greg Fisher’s Recessionary Growth Seminar.
The Big Picture
- The idea behind “recessionary growth” is that although it may seem like a paradox, it is possible to use the recession as a platform for business growth.
- The current reality is harsh. For many of us, this is the worst we will ever know it.
- BUT, we need to slug it out for the next 18 months in order to be alive and benefit from what happens next.
- And what will happen next? The fly-by-nights and businesses that were just scraping by will have fallen by the wayside. What will be left are those who are serious. And it is those companies that will benefit from renewed economic growth.
- Example: Three years ago there were 77 000 registered estate agents in South Africa. Today there are 20 000. 57 000 businesses in that sector have closed. Why? Because they were not serious about their business, trade or quality offering.
The two critical questions you should be asking yourself are:
- How do I get through the next 12 – 18 months? AND
- How do I grow my business despite others closing down?
The thought patterns and logic of buyers has changed. The way consumers and procurement officers view your products and services and what they offer has changed. You therefore need to find new ways to appeal to those making buying decisions. The companies doing well are those who are tapping into this new reality.
Typical responses by business owners:
Response 1: Shouting
- Have not changed offering
- Have not realigned business or cost base
- Just shouting louder to secure business
Response 2: Begging more for business
Response 3: “Lipstick on the Pig Trick”
- The offering is not appropriate for what is happening in the world today, but it is trying to look appropriate.
- Example: Microsoft is falling into this trap by taking what everyone else is doing and trying to make it look different.
Response 4: “Deer in the Headlights”
- This is the most common reaction. Businesses are frozen and not reacting to present conditions at all. Instead they are thinking “Holy cow. What do we do?”
Response 5: “The Ostrich With its Head in The Sand”
- They say 97% of entrepreneurs don’t worry about improving their own skills set in order to improve their businesses. This is the group that is ignoring that there even is a problem.
- Across industries, companies are trying to be more competitive. In their quest for market share however they are actually emulating each other rather than finding ways to differentiate themselves. The result is that products and services are becoming more similar.
- “In category after category, companies have gotten so collectively locked into a particular cadence of competition that they appear to have lost sight of their mandate, which is to create meaningful grooves of separation from one another. Consequently, the harder they compete, the less differentiated they become.” Youngme Moon, Different.
- Capitalism and business was created to offer choice, but this is slowly being lost and the harsh reality is that businesses are closing down.
- Example: Greg’s three regular coffee shops in Pretoria that have all closed down – two of which were well known and popular brand names. The reality is that small business is feeling the pinch.
It’s not just time to tighten the belt – it’s time to change your business model. It’s time for Recession Reinvention.
- It’s time to reinvent, reshape the business model and change the way we do things.
- When things are doing well it’s difficult to implement changes – even if we recognise that we should. BUT, when things are bad we are given a “burning platform” – a perfect opportunity to implement change because it’s far easier to convince yourself and your organisation that change is necessary.
- Reinvention often takes experimentation and capacity. The “burning platform” provides the impetus for experimentation, and the fact that business is slower provides the capacity with which to experiment.
- A recession forces you as a business owner to re-evaluate your value offering – “value focus”. When things are booming we often lose touch with value, but a recession and falling sales brings value into stark clarity.
- Outside resources: This is the best time to access outside resources from a cost perspective. Accessing talent and resources is 40% cheaper today than it was three years ago. Harnessing that talent now will pay off in the future.
- Embrace this time of constraint, recession and challenges to inspire change. Doing exactly that has made some great companies over the years.
1933 – Kelloggs
- In the US, the notion of brands was slowly starting to take hold, although at this point there were still multiple small competitors in the food industry.
- In particular there were a number of producers of breakfast cereal.
- When the recession hit, most of these companies pulled back on their marketing.
- BUT, one company decided to do the opposite and actually spend more on marketing with the clear goal to get out there and be known.
- This went against what everyone else was doing, but it energised their brand, which became a household name. Today, Kelloggs still holds a place of leadership in breakfast cereals.
1981 – Harley Davidson
- The motorcycle market was going through big changes. Japanese bikes were entering the market and they beat their US competitors on price and fuel efficiency.
- Harley Davidson sales were dropping and the company was desperate. It couldn’t compete against the Japanese according to traditional dimensions.
- Management made a big decision: “We need to change our value proposition. We need to target a specific group and earn real loyalty from them.”
- Who did Harley Davidson target? It zeroed in on 40-something accountants and business men who either missed their rebellious youth or had missed out on a rebellious youth – and gave them an outlet.
- Harley Davidson was suddenly selling more than motorcycles – it was selling an dream, complete with leather jackets, tassels and a host of other paraphernalia.
- The manufacturer targeted a group of people that would embrace its product – and from there grew into an iconic brand.
1993 – IBM
- Throughout the 80s IBM was the leader and the standard in computers.
- BUT, in the late 80s things started changing. The idea of the personal computer (PC) was gaining momentum, and more and more companies, such as Apple and HP, were jumping on board with this trend.
- IBM however, had not even considered the importance of this movement, continuing to focus on its big clients and big computers.
- By the time IBM’s clients began turning to PCs as a solution to their office computing needs, IBM had great customers, great training and great knowledge – but no products.
- So they changed their business model. They no longer supplied hardware, but became a service-based organisation instead. “We will help you set up your PCs, configure your system and service it.” This model stood them in good stead for the next ten years.
1997 – Apple
- Between 1995 and 1997 Apple’s revenue was on a distinct downward trajectory. From $11 062 billion in 1995, the company’s revenue had dropped to $7 billion by 1997.
- In 1997 Steve Jobs approached Apple’s board and requested the appointment of ‘consultant’ CEO. The board agreed to give him a few months to see if he could turn things around.
- Steve’s focus areas:
- The problem – declining sales
- What steps to take?
- Where are we relevant?
- Figure out and focus on core assets
- Are there any relevant partnerships we should be pursuing?
- Design new product paradigms (enter the iconic iPod)
- Start at the top. Jobs replaced all but two directors. His new board included three mavericks and innovators and three stable, legitimate names that were well known. This gave the board legitimacy while the innovators were represented too. He sourced his talent from within the company, searching department after department for talented and committed individuals – Find and nurture those gems!
- Pick your segments (Focus where you are relevant). In which markets do you mean something and make a difference? Jobs realised that much of the Apple market was based on Adobe users buying Apples to run the programme – yet Apple had never approached Adobe. Now it did: “What can we do to our Macs to make them run better and faster for Adobe?” Apple could now leverage off this market too by enforcing the idea that Macs were the best machines to run Adobe off.
- Get rid of the “Crappy Stuff”. Stop trying to sell what people don’t buy. Jobs brought Apple’s product down from 64 products in 1997 to 8 products in 1998. Revenue initially dropped, but today the company offers 32 relevant products at $1.1 billion in revenue per product instead of $10.1 million per product in 1997. The lesson: it’s hard to differentiate yourself if your portfolio is too big.
- Touchpoint differentiation. Jobs believed that by 1997 Apple had completely lost touch with its customers, who received very poor service. Apple took over its own distribution, taking care of service and delivery through its iStores.
- Always ask these questions:
- How much are you doing?
- How much is necessary?
- And how much is not necessary?
- Today is a totally different story. In 2007 Apple enjoyed a revenue of $24 billion, which had grown to $36 billion by 2009.
HOW CAN YOU REINVENT YOUR BUSINESS?
9 Elements of Business Reinvention
- There are 27 tactics involved in these 9 elements.
- Note: Not every tactic is relevant to every business – use what is relevant to you.
- You don’t have to change everything – you need to highlight what needs to be changed and then target those areas.
- “Tighten up” to grow
- Using the Business Model Map for business reinvention: You need to know how the jigsaw puzzle fits together; why you have made the decisions you have in the various areas, and how you can use those areas and decisions to grow your business.
- Focus on the bundle of what you offer your customers – what do they want, need and value? Hopefully what you are offering aligns with the answers to these questions.
- Note: Don’t begin with your cost base. Yes, this is an important element, but start with your customer and come full circle to your cost base at the end.
1. Value Proposition
- Many of us frame our value proposition when we set up the business (in an up-cycle). The business is booming and revenue is growing and the VP is based on the logic of decisions made when things are going very well.
- Example: A customer buying paper from a printing company during an up-cycle bases its decisions on: how can I grow my market? Which paper is seen to be different? Which paper appeals to my customers? BUT, a contracting market brings new challenges. Now the customer’s focus is on a lower cost base and survival. Quality and distinction are no longer important. The printing company needs to find a new way to appeal to the customer based on these needs.
- Solve a problem. You have to become a part of your customers’ solutions rather than one of their problems. Problems during good and bad times differ. Recognise these and respond appropriately – as your customers’ focus switches, so too must yours.
- Buying modes switch between promotion mode and prevention mode. Promotion mode is based on decision-making that is motivated by expansion, innovation and opportunity. Prevention mode focuses on protection, loss aversion and risk management. Evaluate which modes your clients are in.
- In good times customers are basing decisions on “Will this help me get ahead of my competitors?” In bad times they are thinking “Is this essential or a nice-to-have? How will this save me money?”
- Problem: Most companies do not shift their sales message to respond to customer needs.
- Example: Yossi Hasson, founder of Synaq, an open source software company, built the company on the market’s need for managed Linux services. When the recession hit, instead of continuing to focus on this successful model, Synaq went back to all its clients with one simple pitch: “Things are changing. Do you want us to help you save costs and streamline your business software solutions?” Synaq has grown by 184% over the past three years simply by recognizing and responding to client needs.
- Simplify and eliminate. Often we just add, add, add to what we do and customers do not even care – they are with us because of the original product.
- Example: Yahoo vs Google. Yahoo wanted to be all things to all men, so instead of its core offering, Yahoo’s page became busier and busier, offering everything other competitors were offering, but losing sight of its core focus. Google on the other hand kept its page simple: it’s a search engine, end of story. And Google has reaped the rewards of market share as a result.
- Define a meaningful point of differentiation.
- Example: Ikea turned the world of furniture sales and the expectations associated with those sales on its head. Before Ikea, furniture marketing was based on the concept of a quality product that would last forever. It was preassembled and delivered. Furniture companies kept adding to their value propositions. Then Ikea came along and did the opposite: “This is temporary, it’s not very good quality, it will only last a few years, you need to assemble it, and we don’t deliver.” It was also much cheaper than other options, and the brand has done very well. Why? Because traditional furniture manufacturers were selling value-adds that customers did not care about: assembly, delivery and most of all something that lasted forever – most people don’t want to choose their furniture once for the rest of their lives. Plus, all these values had a price attached to them.
2. Customer Segment
- Customer orientation: Who are you selling to?
- Niche yourself. If you are weak in multiple areas your business will struggle. Rather focus on the area in which you are strong – focus on that first and then grow from a strong base.
- Know your niche. The “niche paradox” says that the more specific and focused you are, the broader your customer base will eventually be. (Remember Apple and Harley Davidson?)
- Foster fans. The more you know your niche, the more you affiliate with them and grow with them – which does two things, it fosters fans and it leads to word-of-mouth referrals.
3. Customer Channels
- Engineer a segment match. You need your channel and your segment to match. Ask yourself, “What is my niche? And what channel am I using to reach my customers?”
- Example: The 12 – 30 year old target market consume information in a completely different way to older generations. They like information to be presented in bits and pieces, and on a mobile platform. This is the best way to reach them – so, channel (mobile) and market (teens and early 20s) match.
- Create a customer experience. Use your channel to connect with your customer. If you use your channel correctly you can create a complete customer experience.
- Example: The Apple Store doesn’t just sell Apple products, it creates an entire customer experience, from shoppers to their children and people coming in for training on their Macs. Apple took control of customer experience through taking control of the retail side of its products.
- Make it cost effective and reliable. Always ask yourself this question: what is changing that I can use to make my channels more reliable and cost effective?
- Example: News stands and paper boys were a competitive advantage years ago. Today customers can be accessed directly online at a much lower cost and a far higher degree of reliability via smartphones, Kindles, iPads etc.
4. Customer Relationships
- Nurture a customer community. A customer base can become a community through interaction between you and your clients. Over time this interaction will lead to relationships, and then a community.
- Example: The Absa Cape Epic has created a phenomenal and profitable business based on the concept of community. Each year the event’s entrants create a community of riders who all share one common goal – to conquer the Cape Epic. These riders spend up to R60 000 preparing for and getting down to the race. The organiser of the event saw the business opening this created and he now sells the opportunity to market directly to his community to local B&Bs, hotel chains, cycling stores, massage chains and any other business who sees this community as a potential client.
- Engender two-way interaction. Interact with your clients – respond to their needs.
- Example: What we spend of our monthly wallet with Amazon has increased from 3% to 31% over the past two years. This is not because Amazon is cheaper, but because my wife trusts them. If she emails a query she knows she will not be ignored, but that they will have responded within four hours.
- Listen, listen, listen. Your customers are a great indication of what they need. Listen to what they are telling you.
5. Revenue Structure
- Generate money off of the base of the previous four channels.
- Get creative. See where your value lies and build revenue streams based on that.
- Example: The founders of BaseCamp created the product to help them manage projects. They soon discovered that their value lies in the programme they had designed. They now sell the programme instead of a service, and have since developed a number of additional programmes. They have also become backend developers, and realised that the companies who visit their site looking for their products will also be in the market to hire certain skilled individuals, so they created a job portal as well. Often you can generate a number of revenue streams based on the same customers.
- Experiment. Try things out, whether its for one month or three months. Use this information to shape future decisions, and remember that things don’t need to be fixed. What works now might not work in three years’ time – you don’t need to be locked into anything.
- Build annuities. Build revenue streams for the future based on less but with a high degree of consistency – don’t link them to uncertain events or people.
6. Key Resources
- Leverage your base. McKinsey evaluates what a company is doing well and tells them to do more of it. That’s the secret of success: to remember the few things that you do really well and then build on your strengths.
- Utilise capacity. When a recession hits all businesses will suddenly have some capacity because business will drop. The trick lies in what you do with this capacity.
- Example: Tesla (Designer of the electric sports car, a hit amongst the young “green” Hollywood elite) was doing good business until the recession hit. Electric cars are not a necessity when times are tough, so sales dropped and suddenly the car manufacturer had spare capacity. What did it do? “Let’s use this spare capacity to create our next car, a 7-seater sedan.” So while other companies were limiting development, Tesla was embracing it. As a result, the company was able to issue an IPO (initial public offering). An IPO is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In Tesla’s case, without the sedan the company would not have been allowed to take this next step.
- Build for the future. You can access resources now that will be valuable to you in the future at a much reduced rate. (For example, Tesla paid $42 million for a facility that Toyota originally wanted $1 billion for.
7. Key Activities
- Access (cheap) talent. Again, this is a time when you can access talent for 40% less than three years ago.
- Nurture people. Use this as a time to nurture your people. In other words, don’t send sales reps on training courses when they are extremely busy. It’s tempting to want to train your people when you are making money, but it makes more sense to use the quiet times to provide these opportunities. Make your people part of the solution and nurture them.
- Outsource. In other words, “Do what you do best and let others do the rest.” Eradicate the things in your business that other people could do better and cheaper.
- Define your dream list. Think of who you would like to partner with (in an ideal world).
- Then take a chance and actually approach the company/person.
- Build trust. Get to know your customers and suppliers. Use this time to build trust and relationships and you could find a great partner along the way.
9. Cost Structure
- We have come full circle to our cost base, which is usually where companies are tempted to start when they need to implement change. Based on the above 8 points and 24 tactics however, evaluate how you can strategically arrange your cost structure.
- Prune (but make it secondary). Don’t lose things you need. You still need to sustain the business – prune too much and you could end up killing what you are trying to save.
- Match value to cost. Make sure that the value you are delivering to your customer does not exceed your cash. You need to still be making money – your customers should not cost you money.
- Example: A US based company would deliver a bag of sweets that the customer paid $2.99 for, for free. The delivery would even come in a special package. The entire process would cost the company $15 dollars, and they would only make a percentage of the $2.99. The company’s branding and concept was great, but it wasn’t sustainable.
- Manage your customer base. Move away from unprofitable clients with few prospects for a turnaround and ensure that your customers cannot be the cause of your business dying. Ask yourself: “Where is there value? And where isn’t there value?” Don’t let customers bleed you dry.
Entrepreneur will host its next seminars in June 2011, subscribe to our weekly newsletters to receive regular updates.
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