Big Picture, Behavior and Behind the Scenes

Big Picture: There is no more pressing issue in our financial lives than Health Care.  If we continue on the current path, we will be spending more than 40% of our GDP on health care issues with no better outcomes than the average country. An indepth article in the New Yorker by Atul Gawande talks about the medical services provided in a high cost county and a low cost county.  The differences may surprise you.

Behavior: Micah muses about the greatest time of your life.  It is interesting to think that you might live your life one way if you think that you have already had your greatest time of your life and another entirely if you are waiting for it.

Behind the Scenes: Here is a story of the New York Times Economics reporter who is on track for foreclosure on his house and the story of how he got there.  An eye-opening view of the loan practices (and unwise spending habits) of our times.

Sales Differentiation

Normally, this blog wouldn’t be the first place to go for sales advice.  But, Jeff Leitner wrote this a while back and I have been thinking about it recently as I work with one of my consulting companies.  It is a classic.

Step 1 in sales, determine the prospect’s stomach for change.
No matter what he says, there’s a significant cost to changing.
Even if what he’s changing is no product/service.
Figure out what the financial cost, the psychic cost, the emotional cost of change.
And only then do you turn your attention to step 2.

Step 2 is to change the game.
If you’re competing against an existing product/service, there’s little chance he’s changing vendors.
Instead, you have to craft and then sell something very different than the incumbent sells.
You can’t sell better or more or enhanced or even cheaper (commodities aside).
You have to sell something substantively different, that solves a qualitatively different problem than the incumbent is solving.

Men don’t leave their wives for prettier girls.
Men leave their wives for substantively different, qualitatively different things that they can’t get from their wives.
Prospects are the same.

If you can’t put together a substantively different offer, you can’t win.
Even if you’re competing against no product/service.
Or an ugly wife.

Who is your Customer?

Jeff Leitner writes about the questions that you should be asking when you start your business. They include: What is the pain that you are trying to relieve? and What one thing are you trying to sell?.  Both of these are great questions, but I would like to add another to your list.  It is, at once more basic and for some of us, it is a no brainer.  But be careful, the answers might surprise you.

The question is Who is your customer?  Yes, who are you trying to make your products or services for. The reason it is important is that if you truly know who your customer is, you can design the company’s products and processes to support that customer to the best extent. Let’s take a look at some examples to see where this could go.

Pharmaceutical companies – The customer is the patient who needs the medication, right?  Well, if that is the case then why do they sell to the doctors, who do not buy the product, but authorize (through prescriptions) others to purchase the drugs.  I’d have to say that the doctors are the customers.  They pharmaceutical companies do everything they can to influence the doctors and dabble in consumer education, hoping that the patient will be able to demand a certain drug from the doctor.  But the doctor is still the customer, because the buying power remains with them.

Physicians – While we are on the topic of medicine, who are your typical physician’s customers?  It seems you have two choices, either the patient or the insurance companies.  Based upon the way that most doctor’s offices are run, it is obvious that the insurance companies are their main customer.  Everything that the physicians do is designed to make sure that the insurance company gets what it needs.  The patient is the one who allows the doctor to get paid, but the gatekeeper is the insurance company. Concierge care (I love that description) has started to catch on in wealthy areas.  Basically, the doctor does not take insurance and charges an annual membership fee to his or her patient base.  Does this exclude people who must use insurance to cover their health needs?  Yes, of course.  But it allows the doctor to change the customer relationship from the insurance carriers to the patient.

Google – Who is Google’s customer?  Good question.  Google sold over $22 Billion worth of services in the last 12 months.  Most of that came from advertising.  So, of course, Google’s customer would be the advertisers who pay for the services.  Not so fast. I would venture that the users, not the advertisers are Google’s customers.  Most of the new things that Google rolls out are enhancements to the user experience and they are focused on making the world’s information available to everyone.  If they added an additional advertising service, they might increase revenues a little, but if they stopped providing excellent search (and other) services, the advertising would dry up very quickly.

This is all critical as you are building your business.  If you design your business around the wrong customer, you will never see the full benefits that you could be getting.  Think through this question (and Jeff’s above) as you start to build your business plan.  There are significant benefits for not taking the easy road and just picking the customer that everyone expects.  You may be able to garner a much more substantial or lucrative (see physicians above) customer base from a group of folks who are not supported by other organizations.

I would love to hear about more cases where you believe that the customer is not exactly the end user.  Contribute in the comments.

Data Edition: Behind the Scenes, Strategy, Behavior

Lots of talk lately about data.

Behind the Scenes: The credit card industry has changed a lot in the past 25 years. The amount of data that the credit card companies know about you and use to predict the future is astonishing. The psychology of getting late payers to get current based on that data bank is also amazing.

Strategy: How do we keep track of the right metrics when determining future plans?  Eric Reis says scientific methods can help determine the best ways to dig deeper into the metrics that we collect.  Simple things like using a split A/B test will provide you with more data to make better decisions.  Eric goes into a lot more detail about tests in his article on the FourHourWorkWeek blog.

Behavior: Google probably collects more data about us than we can imagine.  They are now using this data on their own employees to try to determine who will be the next to leave the company.

Entrepreneurship, Strategy, Behavior and Turkey Fun

Entrepreneurship: Think the inner city can’t be a place to start a new business?  Think again.  Given that there is a whole lot more real estate out there available, albeit some with bank branches and auto dealerships.  Smart entrepreneurs are going to be looking for ways to make a business around these sites.

Strategy: Another Seth Godin gem. Knowing how to ask is more important than the ask itself.

Behavior: Dan Ariely, author of the terrific book Predictably Irrational: The Hidden Forces That Shape Our Decisions, spoke at a recent EG conference. EG is an offshoot of the TED conference. Dan’s topic was about how we make decisions. Besides the usual visual games, he discusses some of the reasons that we make decisions and how options that have absolutely no value often distract us in our decision-making process.  Marketers are using this information today to get you to move on their buying process.  In fact, as Dan describes, it could be a matter of life and death in a medical setting.

Fun: I was one of the unnamed friends at Kristin’s turkey (and other assorted goodies) fry-off last weekend.  Pictures and recipes are included in her blog. I admit that I was unsure about the whole deep frying bit, but man, these treats were wonderful.

Go Big or Go Home

Go Big or Go Home.  In entrepreneurial circles you hear that statement a lot.  It means that in order to get noticed you need to be extravagant.  Don’t lie, cheat or steal, but find a way to make the most of your assets.  It may mean that you have to increase your assets in order to be able to sell them in a big way.

Recently, I have had the opportunity to see this in action in a couple of venues.  I wrote last week about the DePaul e-Motion event.  One of the new ideas that the Coleman Center staff cooked up this year was an opportunity for some of the fledgling companies that they mentor to have a table to showcase their company to the guests.  These guests, presumably had an interest in supporting entrepreneurial ventures and had an opportunity to vote using play money on the best presentations.  There were about 15 companies in the exhibition area.  Each had an earnest young pitch person behind the table ready to talk about their venture.

It was obvious which teams came prepared to Go Big.  One had her entire table covered with pictures of the events that she produced, in full color.  She was dressed in business attire and handled questions from the audience like a pro.  Another had various samples of her products on the tables for people to touch and examine.  She was able to easily describe her company and the benefits she was able to bring to both her customers as well as her vendors.  A third had a sample of his product on his table and could clearly talk about his customer, their drivers and how his service differed from the competition.  These folks came prepared to do business and make a splash to an audience that was already predisposed to hear the message. The best presenters received significantly more play “venture capital” than the less prepared companies.

Others looked like they had not planned for this event or worse, had spent the previous night pulling an all-nighter to get the minimum amount done.  Most did not have materials to hand out or samples or even table decorations. This is basic blocking and tackling. Entrepreneurs need to be able to understand how to display impressively at these types of events in order to be successful.

It is not only the entrepreneurs who need this lesson.  This week I was able to go to the National Restaurant Association Show.  I like going to this show.  It is not just the samples (although there sure were a lot of them). It is an opportunity to see what is important to companies in the restaurant industry —  both to the companies who display at these types of trade shows and the restaurant owners who attend.

A couple of lessons from this show.

There were several times that we took samples from food vendors and the food was awful.  Not just ok, but truly awful, face crunching awful.  It might have been due to sitting out for a while or lack of proper attention from cooking in a non-traditional setting.  It actually doesn’t matter.  OK food at this show was table stakes — the price of being at the show.  You at least had to have ok food.  The best purveyors had taken the time to show off their best and they were able to get customers to pay attention.  They went big.  The others just showed up and spent a ton of money just to say that they were there.  The result was marketing dollars poorly spent.

The big guys are not immune, either. You can’t get bigger than Coke and Pepsi.  It was amazing to see the difference in their booths. Coke’s booth was huge, colorful, full of product and showing off new dispensing systems and flavors.  People were carrying around large shopping bags with Coke on them. Pepsi’s booth was about the same size. There were few people around.  They had a small dispenser station for the carbonated beverages.  Their iced tea was on a small uncovered table in two stainless steel dispensers. A very different vision for the visitor.

Pepsi probably spent 80% of what Coke spent.  They both had to have staff there, both had to have product shipped in, both had to deal with the unions in Chicago, both had to rent space.  The difference in the spending of the additional 20% was huge. Given the sizes of Coke and Pepsi, the 20% is a rounding error, even in these difficult financial times.

Moral: If you are not going to go in with your A game, it probably is better not even to show up.  There are 3 potential outcomes.  First, you don’t show up.  Nobody knows about you, but then nobody has made a value judgment about you.  Second, you go all out and bring your best.  Everybody knows about you and hopefully talks about you.  Third, you limp in.  People know about you and don’t like what they know.  You spend the money and people come away not liking what they now know.  There is even a good case to be made that if you aren’t going to Go Big, then don’t go at all.  At least people don’t know anything about you and may be willing to take a chance on you and your product or service.

Photos courtesy of Howard Bender

Customer Retention

I have previously written about my reading  The Knack: How Street-Smart Entrepreneurs Learn to Handle Whatever Comes Up by Norm Brodsky. I keep going back to it to find different takes on small business. Here is another lesson by Norm and some ways that current companies just don’t get it.

Norm’s Lesson

The name of the game is customer retention.  Growing a business is much harder if you are constantly having to replace customers you’ve lost. Which would you prefer, after all — making fifty sales in a year and having a 100 percent customer retention rate, or making 100 sales a year and having a 50 percent retention rate?  I’ll take the former any day of the week.  Yes, you’ll have more sales during the year and you’ll wind up with the same number of customers at the end, but, if you lose one account for every two you land, you’ll spend twice as much time, energy and money to get them as you would if you made half as many sales but were able to hold on to all the customers you signed up.

Real Life Example

It is always amazing to me that companies will offer huge discounts to people to get them to change to their service.  I’m talking to you, cell phone companies and cable companies.  In most cases, they are just cannibalizing their base by offering these discounts.  Why?  Most of the consumers who change, do so from a competing product.  They are not just new to the marketplace.  By offering these discounts to new users only, they encourage the churn in customer base.  I know that when my introductory rate with Company X expires, I will look to change my service, since my rates will go up and Competitor Y will offer me a better deal.  It is a short term fix that does nothing to encourage customer loyalty.  Shouldn’t Company X look for ways to keep me on their books, since they “spent” a significant amount of money to acquire me as a customer?  Yes, but since I joined up on the basis of a deal, others will too.  Over the long haul, you will certainly not engender the type of customer relationship that you really want because your customers do not view you as a trusted partner.  And in our connected world, being able to be trusted is one thing that will take your company to the next level.

DePaul, Business Strategy, Behind the Scenes and Fun

DePaul: Thursday was a long day and thus no blog post.  DePaul University’s Coleman Entrepreneurship Center had their gala event and gave out several awards.  Congrats to Chris Campbell of Lakeshore Branding and Greenwerks, Jen Moran of Greenola and Ben Meader of CareerHook.  Also congratulations are in order to my friend Bruce Leech of evolve who was named the Coleman Foundation Catalyst Award Recipient.

Business Strategy: Tim Ferriss talks about a book by his friend, Alan Webber, called Rules of Thumb: 52 Truths for Winning at Business Without Losing Your Self. In the article, he has an excerpt of the book, RULE #24 – If you want to change the game, change the economics of how the game is played. After reading this, I need to read the entire book.

Behind the Scenes: We all remember the heroism of Captain Chesley Sullenberger in the saving of US Air Flight 1594 on the Hudson River.  What we have never seen until now are the pictures of the plane as it was recovered from the chilly waters of the Hudson.  Photographer Stephen Mallon was there and photographed the scenes for Wired.

Fun: A fun new toy to play with, but one that has significant potential to be a solid research tool is Wolfram|Alpha.  Gina Trapani played with it and wrote a multi-faceted review.

Innovation, Chicago and Entrepreneurship Education

Innovation: Allan Young writes a great article on the virtues of the Pareto Principle as it relates to your career.  You probably remember the Pareto Principle as the 80-20 rule.  In this article he also talks about the venture capitalist’s issue with the Pareto Principle.

Chicago: I have been thinking about the Chicago Entrepreneurial environment lately for a new idea and one of the big issues is that we, here in Chicago, have this notion that the financing folks (angels, VC, private equity) are socially conditioned to be risk averse and thus new start-ups don’t start or prosper here at the same rate as on the coasts. This post by Micah titled competitive cooperation, after you get past his illness description, talks about how the tech community in Boulder works to support each other, while striving for personal success. It would be great to get some of this thinking going in Chicago.

Entrepreneurship: For some reason, I am in a teaching mood today.  Here is a long post by Mark Cuban about success and motivation.

What’s Your Niche?

Way back in the good old days (circa 1984), when I was just a young whippersnapper, my wife and I started our business.  Well, actually to be correct, she started it and I joined in after about a year.  We were a small (4 person) company focused on developing solutions for IBM minicomputers.  We had an expertise in an ERP product on that platform and we were looking to grow. An opportunity came along from IBM to join a Marketing Assistance (or Partner) Program. We joined up and dutifully went to the first few meetings.  We had the requisite skill set on their hardware and operating systems.  The IBM partner coordinators asked us, what is your specialty?  How can we determine who to send to you?  Being the smart marketers that some of you know us to be (NOT!), we said “We can work with any customer.  We know the programming language and the operating system.”  Of course, for the next 6 months, the only sound not coming from our office was the ringing of the phone from our partners at IBM.  There was, however,  wailing and crying and asking “What is wrong with us?”, mostly from me.

We went back to our IBM partner advocates and told them about our prowess with Distribution Systems, including a product that they sold. We talked about our technological expertise and then about some success stories helping customers solve distribution issues.  From that point on, we finally got some leads from IBM.  Over the course of the next 13 years, I would venture that this distinction allowed us to book over $3M of revenue.

We had a common problem.  Our problem was not that we weren’t good at what we did.  We were and we had revenue paying clients to prove it. Our problem was that we had to get over the fact that we couldn’t be all things to all people.  We needed to put a line in the sand and proclaim to all that solving distribution software problems for companies were what we were best at.  Once people (clients, partners, recommenders) have a hook, they can then help you get to the next step.

Most young companies don’t want to skinny down the possibilities, afraid of closing doors. My recommendation is not to worry about closed doors. Worry instead about making your open doors a clear priority, with an easy to understand differentiator and a clear value proposition.  Oh, yeah, it helps if you are really good at that niche.  But to paraphrase Seth Godin, Be Remarkable.  You can’t be remarkable if you say you can do everything for everybody.