Situation: Revenue for a product and craft business has been slipping. At the same time, their competition has been disappearing. It is clear to the CEO that demand is and will continue to be present because of the market that the company serves. The question is how to maintain the profitability to survive long-term. How do you build in a declining market?
Advice from the CEOs:
The keys to recovery in a business like this will be in two areas: improving sales and increasing margins.
To increase sales the choices are more aggressive marketing and selling to existing customers or creating new markets like previous generations did when they started the business. Consider services that you could bundle with your products to augment the ways that customers use them. It will be the responsibility of your sales and marketing teams to demonstrate these product/service bundles to increase sales both to new and existing customers. This will help to solve the revenue slippage.
The other side is ongoing efforts to reduce cost which will, in turn, improve your margins. Costs can be reduced in creative ways that are not obvious. These include improvements in purchasing, reduction of waste, recycling of component materials, and inventory controls. It will be the responsibility of your production, purchasing and inventory management teams to develop these solutions. Assure that these teams are recognized and rewarded for their solutions.
Look at the segments of your product offering. Are they declining at the same rate or are there differences? This will help you to focus your efforts, as a company, to grow market share even if the overall market is declining.
Other suggestions for increasing sales:
Take advantage of the craft trends. Do this with NEW talent – not tired talent.
Consider partnerships and collaborations.
Set up contests and craft classes.
Look at how other industries promote to the craft industry and follow their lead.
Situation: A company’s sales are bumpy. The CEO thinks that this may be due to a mismatch between products that they offer and their customers’ needs. They currently use online surveys to capture customer needs and input. How do you determine customer needs? How do you find your sweet spot?
Advice from the CEOs:
The most important first step for a smaller and growing company is to clearly identify the customer niche that they serve. This must be a niche where the company can out-serve their competition.
There are two types of niches to consider:
A product/service niche focused on a specific set of products and services – one where you can offer a differential advantage over your competition and become known for this, or
A customer niche – a specific set of customers that you dedicate yourself to serve in a way that provides a differential advantage.
An example of the product model is an individual who started an e-commerce site for lacrosse equipment – products not commonly stocked in sports stores. They offered a wide range of lacrosse products, built an online community, shared articles, etc. and became THE place for lacrosse players to get their equipment.
An example of the customer niche model is to focus on a population and build a concierge or member-only service. The niche here is the buying group. This can be employees of specific companies or government workers as examples. Costco grew using this model.
For an early-stage company, survival is about single pointed focus on that niche where you can provide better products/services or better serve your customers than anyone else. As you grow you can diversify based on the reputation and loyalty that you gained early on.
Look at competitors – how are they gathering customer preference information?
Look at your passion – is it products or people? Choose a niche that fits your passion.
Situation: A company is rapidly ramping sales of standard products. However, the rep network that sells the company’s products has had more difficulty selling higher dollar / higher margin custom products. How do you sell both standard and custom products?
Advice from the CEOs:
Make the custom products look more like spec products with adaptability. Create a grid that allows the customer to easily spec the specific product that they need and quickly determine the price of the product. This price can be overestimated at first blush, or scaled depending on the number of units wanted. Consider using a laptop or PDA spreadsheet.
Consider the combination specialist / generalist approach that companies have used successfully for highly technical sales. Put a significantly higher commission on the higher price / margin custom product, and have your own “specialist” reps do joint calls with the distributor reps who have relationships with the customer. With the incentive of higher commissions, a percentage of the distributor reps will take the initiative to learn from your inside reps how to sell the custom product to boost their sales and commission income.
For your distributor reps, separate and optimize lead generation and deal closing from a compensation standpoint to encourage both.
Reps with consultative sales experience, for example selling intangibles such as insurance, may be the best candidates to sell your custom offering.
Offer quarterly training of your reps and distributors to encourage them to sell the custom products.
Consider telemarketing. Support your telemarketers with a well-prepared script to assist them in qualifying prospects and setting appointments for your own reps.
Situation: A company wants to improve the efficiency of its supply chain. The company produces a custom product, for which there are few qualified materials suppliers. From the CEO’s standpoint, this presents challenges, particularly when there are delays in materials and parts supply. How do you optimize your supply chain?
Advice from the CEOs:
In supplier negotiations, know your BATNA – Best Alternative To No Agreement. Put this in dollars and cents so that you know your negotiating limits.
A recessionary or slow growth environment is the perfect time to negotiate! This gives you the opportunity to work with an outstanding order on terms that either your supplier or customer needs. For example, if you are experiencing delays in shipments from your supplier, offer a purchase commitment of “x” terms for “y” years at “z” price in exchange for higher priority on their production schedule. You can work the same way with your customers.
If you supply a custom product, especially on a sole-source basis, tie yourself to the hip of the engineering organizations of both your supplier and your customer. This gives you leverage when either the purchasing department or a contract manufacturer intermediary tries to push you on price and terms.
Be a squeaky wheel on shipments or payments due – but not in an irritating way with too much pressure.
Europe Union RoHS and REACH regulations make it imperative that manufacturers and service companies be aware of hazardous substances in products that they design and manufacture. The list of hazardous substances being monitored and/or restricted is expected to grow to 3,000 in coming years.
Contracts serve two purposes: a legal tool, and a way to drive behavior. They are an opportunity to assure that both parties are on the same page and under the best circumstances serve as process documents.
Special thanks to Bijan Dastmalchi of Symphony Consulting for his contribution to this discussion.
Situation: A company was launched on a single product with variations. Their R&D team has now developed several additional products which they are planning to launch. This will involve new product names and new customer segments. Having not done this before, the CEO seeks advice on managing multiple products, brands and market segments. How do you manage multiple products and segments?
Advice from the CEOs:
The most important element is the plan – write it carefully and build from a solid base.
When working with multiple products or market segments, match your segment strategy for each segment to your product strategy for that segment.
Build a grid that shows all products and all segments where you wish to sell them. In each cell, determine both the decision maker(s) and their top purchasing priorities. This will help you to build your Product/Segment strategy and optimize resource allocation while increasing sales and marketing effectiveness.
It may also help you to fire problem customers who cost you money and attention and reallocate these resources to more promising opportunities.
Analyze the customer’s decision-making process for each product and segment. Make sure that your marketing and sales effort makes sense within their decision process and focus on what is workable.
When introducing a new product or idea, focus first on smaller segments and test the fit of your product or idea. This is low risk if you fail, and you can leverage what you have learned if you win.
Build a one-page strategic plan that covers your full company strategy. Each department compliments the company strategy with its own departmental strategy to support the company strategy.
Special thanks to John Maver of Maver Management Group for his contribution to this discussion.
Situation: A company has been approached by a foreign company that is interested in their expertise. The foreign firm says that they are only interested in their own domestic market, and want the company’s help developing new products for their existing domestic clients. How do you develop products with a foreign firm?
Advice from the CEOs:
There is great variability between companies in different locales and on different continents. Before proceeding with negotiations, get references from the company and check them carefully. Research the company and its local market.
Relationship will be critical. You want to meet with their CEO. This is an important factor working with any company. Watch the commitment level of the CEO and top staff. Take an expert with you – someone knowledgeable about local mannerisms who can read the body language in meetings. Position this individual as someone who is assisting you in the negotiation.
If you proceed with negotiations toward an agreement, make your enforcement jurisdiction either the US or a neutral country with a western judicial system. For example, if the company is Chinese, make the enforcement jurisdiction either Hong Kong or Macao.
Will intellectual property be a factor? If so, get an IP attorney knowledgeable about both the market of the other company as well as your preferred enforcement jurisdiction.
Could this help you to augment or fund your own development? If so, ask for rights to produce and distribute products developed through the collaboration in the US and other markets outside of partner’s domestic market.
Situation: An early principal of a company has done a lot of work on a product that no longer fits the company’s business strategy and focus. The CEO wants to reward this individual for past work. An arrangement could include equity plus a big chunk of whatever this individual can make marketing the product that he created. What is the best way to handle this side project?
Advice from the CEOs:
There may be benefits to working with this individual as proposed. Letting the individual play in his own sub-market gives you an additional customer and may lead to interesting but yet unknown opportunities. Take care that this does not impact critical timelines for the company’s principal strategy.
A set of guidelines for this arrangement may include:
o No grant of additional stock in the company – the opportunity to pursue the project should be sufficient incentive.
o Keep this side project as company property.
o Give the individual a sizable chunk of any revenue that he can gain from the product.
o Task the individual to manage and solve technical challenges so that this does not impact company priorities.
o Retain control of timelines and quality sign-off so that this project does not conflict with your higher priorities.
o Give the individual sufficient support so that he is more likely to succeed.
Are there concerns regarding brand risk?
o Draft an agreement to allow this project to operate cleanly and treat the principal an early small customer. Define the requirements of the project, release timelines, and branding options so that they do not interfere with the company’s larger goals.
Situation: A company wants to effectively position itself for a recovery. The CEO believes that it is time to sit down with his team and focus on those areas which will help them to emerge during the recovery not only stronger than they were when the recession started, but ahead of their competition. How do you create a value proposition?
Advice from the CEOs:
Creating your Value Proposition starts by analyzing and understanding your most important strength. Is it Product Leadership, Operational Excellence, or Customer Intimacy?
No company can succeed today trying to be all things to all people. Choosing one discipline as your most important strength is the choice of winners.
To set your Value Agenda, ask your team “How do we compete and win in our marketplace?” This is not a single discussion, but requires three rounds – best done as three different sessions.
o Round 1 focuses on understanding where you stand in your marketplace.
o Round 2 focuses on understanding what your customers perceive as your “unmatched value.”
o Round 3 focuses on building an operating model that enhances your unmatched value and helps to consistently communicate this to your clientele.
Once the three rounds are completed, formulate the top findings of each round into your Value Agenda for the company.
o A Value-Driven Operating Model gives your company the ability to deliver on your Value Proposition.
o Your Value Discipline is the combination of operating model and value proposition that will allow you to be the best in your market.
Situation: A company was challenged by a client to design a product to demonstrate the capabilities of the client’s processor. The result was a wonderful success, and has received very positive press. The client does not care about the product, only about their processor. How does the company test the appeal and potential marketability of the new product?
Advice from the CEOs:
Go to a local arcade, for example one operated by Golfland USA or a multiplex theater. Show them your product and ask whether you can test it for appeal with their customers. This will enable you to measure coin-drop numbers and generate demand and market appeal data. With these data you can assess the value of either selling or licensing the product. The objective is to see whether the product generates sustainable demand, or whether it is just a short-lived curiosity.
The big issue with a product like this is very simple – is it addictive?
If your initial tests show that the product generates sustained interest and revenue it is similar to a console game. There are a number of avenues to pursue, including:
Early exclusives use agreements with casino or theater chains – it will have value if it helps them to drive traffic to their venues.
Novelty markets – corporate events, etc.
Evaluate a lease model for target venues.
Consider selling the product to air table companies as a demo unit.
Situation: A company has a successful product, but the market is changing. Previous customers were savvy, but the market is shifting to more naïve customers who don’t understand how to use the product. How so you respond when the market for your product changes?
What you are seeing is a typical market evolution. (See Clayton Christensen’s book Crossing the Chasm.)
When a new product is introduced, early adopters are typically savvy users who quickly grasp the utility of the product. They don’t mind some inconvenience provided the product is useful.
As the market matures and starts to attract mainstream customers, new users will not be as sophisticated and expect the product to be easy to use.
If you don’t adapt to these new customers your product will languish as new competitors enter the market with user-friendly adaptations.
The path is clear. Figure out how to make your product easy to use. If you use a GUI (graphic user interface) make the GUI intuitive. Allow customers to get what they need with as few choices or clicks as possible.
These changes may alienate more sophisticated customers, but they usually only represent a small segment of your potential market.
Add a customer-friendly service component. This builds a service income base around the product. You have different options.
Align the customer with appropriate level of resource – you may not require high level resources to assist the customer, particularly if the product is one where the service consultant only needs to be one page ahead of the user.
Outsource the service component to a partner or use independent contractors.
Consider a remote monitor system:
A dashboard interface with easy to read visuals or messages that tell the customer when service is needed. This will enable them to perform simple maintenance using your tools, or alert them when they need to contact you for service.
An example is Norton’s evolving system of products that enables an unsophisticated home computer user to either use Norton tools to perform routine maintenance, or directs them to the Norton web site for assistance or more sophisticated solutions.