BERKONOMICS – Business insights from Dave Berkus

Embrace the right to pivot!

by on Sep.18, 2014, under Finding your ideal niche, Positioning

Plans don’t often work as devised. We are not always smart about the market or the product. Great teams are not bound by their original product or marketing plan. Greatness finds one definition in management’s ability to “pivot,” or change the plan in reaction to its early response from the marketplace.

Investors celebrate teams that quickly find the flaws in the original plan and reallocate resources in another direction before more wasted effort. Even the term, pivot, seems to call up images of a light-footed dancer able to move so very quickly in any direction.

My favorite example of a world class pivot comes from the CEO and board of one of my most successful investments. Green Dot Corporation was formed by an DB Concordia2entrepreneur in the year 2000 to create a product to permit those without credit cards to purchase items on the Internet. Think of it: to shop on the web, you must have a card, not a nine digit routing and bank account number. The young, inexperienced entrepreneur had two assets that attracted me – rights to use the MasterCard name on this new product, and a laser focus to make this work in any form possible.

[Email readers, continue here...]  Over the years, that vision changed dramatically several times as the world’s first debit cards were invented by the firm, positioning the card to be used by the un-bankable, those unable to obtain credit cards or in some cases even checking accounts. The firm grew to dominate its new field, create an infrastructure to allow any of its 70,000 retail stores to simple activate or load the card with money from any cash register. It replaced Western Union as the preferred way to send money across great distances. And it built a billion dollar market and then some – where it might have been restricted to a small percentage of that.

And we who held early stock celebrated together the ringing of the NYSE opening bell the day that often pivoting company went public.

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Use “switching costs” to your marketing advantage.

by on Sep.11, 2014, under Growth!, Positioning

Know the cost to move from your existing platform, and estimate the switching costs for moving from a competitor’s product or service to yours. Offer incentives to existing customers to stay, and for competitor’s customers to switch. Protect your base with incentives to stay that are intangible – such as membership in an insider’s club, access to special deals not available to others, and attention from the executives at the top.

The momentum from an old decision that took lots of effort to implement is worth something to a marketing professional. To keep an existing customer, even if by offering discounts, is much less expensive than the cost of attracting a new one. To reduce switching cost from a competitor is to lower the barriers to a quick decision that might have been otherwise much harder to make.

From Basic Berkonomics: Available Amazon, B&N,  berkus.com and booksellers everywhere.

From Basic Berkonomics: Available Amazon, B&N, berkus.com and booksellers everywhere.

Increase the barriers to your customer’s switching, not just with excellent service, but with some form of personal touch. Recognizing a longstanding customer with an appropriate gesture from the top is best of all.

[Email readers, continue here...]  Recently, I received a hand-written letter from two co-CEOs of a company I had helped out with a few hours of time. They accompanied the letter with a customized gift of their product that contained the logo and name of the college where they knew I was a trustee.

First, I have not received a hand-written letter other than a greeting card from any business associate in what feels like decades. I was in such shock, I did not respond in kind. What should I do? Pull out a piece of stationery that had been sitting unused for over a decade and write in longhand? You aren’t supposed to respond using a less personal vehicle than the original one. So email was out. A phone call might have done it, but not with the elegance of the original correspondence. Now, every time I turn from my desk to the credenza behind, I see that letter and gift. I am not willing to just file the letter or put the gift on the shelf. That’s the power of a great outreach from the top.

And that’s a lesson for all of us in marketing. Find the right way to reach existing customers that stands out from the usual. Find an offer that makes switching easy for others. Pay attention to opportunities to differentiate yourself from the rest.

Someday I will file the letter and put away the customized gift. In the meantime, those two guys got many more miles from a relatively simple gesture than I would have thought possible.

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Only those in the fight can win.

by on Sep.04, 2014, under Positioning

By Dave Berkus

Entrepreneurism is all about risk. Sometimes, you can reduce your personal risk by taking in other people’s money, starting with a contract from a customer, purchasing a going business, or spinning off an existing revenue-generating portion of an existing business.

Even then, the risks of having enough cash to fund daily operations or growth can be daunting. The same is true about marketing. If you don’t directly engage the potential customer at the right time, place and mood, you are at a disadvantage from the start. There are too many competitors for a customer’s time and money to make an error in your approach and offer.

But the truth is in the headline. If you don’t chose to enter the fight, it is impossible to win it.   And entering the fight without the proper resources usually 376687_416014868434477_303445418_nassures defeat. Resources such as money, experience, statistics about your target, experienced marketing and sales talent, and especially a compelling need and attractive product are all important to the ultimate success of an enterprise.

[Email readers, continue here...]  So ask yourself: Are you ready to enter the fight? Do you have the resources necessary to at least give you a chance to win? If not, what do you need to do so, and how can you get those resources?

I am often surprised at the inexperienced executive’s estimates of time to breakeven for a product or a company, about the time and cost to market, about the expense in overhead needed to stay in the game.   Most of all, I am surprised at that typical person’s inexperience in the marketing arena, and understanding of the importance of marketing to the success of the product.

You may have all the other ingredients. But without an excellent marketing plan and a way to execute upon that plan, the best product and the most cash reserves won’t bring in the customers. Since great marketing means addressing the wants and needs of the customer, about distancing the product from any competitor, about getting the message out to the most people possible, you’ve got to commit resources and energy to the fight in order to have a chance to win it.

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Use video whenever possible.

by on Aug.28, 2014, under Growth!, Positioning

Ninety percent of all traffic on the Internet is in video form. Yes, most of that is from NetFlix and YouTube and others delivering entertainment content. But an increasing amount is now coming from web sites and YouTube videos created by companies looking for an edge in their marketing efforts. The average time spent on a static website, one without videos linked to the home page, is under a minute. That time more than triples when videos are positioned to be delivered with just a home page click.

Dave’s Top Ten Trends workshop promo video   Check this example by clicking on the link to the left – from my www.berkus.com site.

Videos are no longer expensive to produce, even though a poor amateur effort may be much worse than none at all.   One way to create great company videos inexpensively is to contact your local college or university and ask if there are interns signed up for such work with local companies. Another is to combine clips you’ve accumulated into a professionally edited video without creating any new shots.

[Email readers, continue here...]  Each video, especially those on the front page of a site, must be compelling, to the point, and short. If you are selling a product, a one to two minute demo that is well edited will work wonders for viewer retention. If you are promoting the corporation as opposed to the product, short clips of the company’s previous projects with comments from enthusiastic customers would be appropriate. Finally, content does not last forever.

Videos should be replaced or rotated at least annually to be effective over time. No matter how many videos you have to offer on your site and on your YouTube channel, videos will increase your marketing awareness.

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The “drop dead” question for a customer survey

by on Aug.21, 2014, under Growth!, Positioning

Sean Ellis, the marketing guru behind DropBox and other successes, advises clients that “The most important question on a survey is, ‘How would you feel if you could no longer use this product?’” He goes on to quantify the response. If more than forty percent of the respondents say they would be “very disappointed,” the product should go viral and be a great success. Conversely, if less than ten percent say this, those companies or products would have a hard time getting traction in the marketplace.

2014-0329_OxyTEDx-0276What a great test. It reminds us that our customers, especially early adapters, must want to continue to use our products to the extent that they “would be very disappointed” if unable to do so in the future.

What other questions could we wrap around this critical one to form a great survey that is both short enough and powerful enough to be relevant to our marketing effort, let alone our R&D and production efforts?

[Email readers, continue here...]  Using Sean again as a source, we might ask: “How did you discover our company?” and provide several checkbox answers, including ‘friend or colleague.’ Again, it is a sign of a viral marketing effort to get more than forty percent checking that box. Then “Have you recommended our company to anyone?” Use just ‘yes’ and ‘no’ as possible answers, and look for more than fifty percent ‘yes’ responses.

And there is always the great open door question: “Would it be OK if we followed up by email to request a clarification to one or more of your responses?” If more than fifty percent say “yes” you have a real hit on your hands. It means you can use this respondent as a resource for case studies and marketing quotes in the future.

Keep your survey very short to insure a large number of responses. But do include at least one specific question about your product to be sure the respondent is an actual customer.

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Do you really want to be the first to market?

by on Aug.14, 2014, under Positioning

Over the years, as I managed my several computer companies as CEO or executive chairman, I made the decision to go to market with a brand new product that had never before been exposed to my customer’s marketplace. In each case, after overwhelming publicity, certainly noticed by a great number of potential decision makers, and after record-breaking sessions at industry trade shows to introduce these to the potential buyers, the products failed in the marketplace.

I recall the introduction of artificial intelligence into the hotel reservation process, a “one-up” on the airline method of yield managing the price of airplane seats. With the cover story in the industry trade journal, record-breaking overflow education sessions at the international trade show, and even glowing reports from the first hotel user’s management, the product failed to attract more than two customers and had to be withdrawn from the market, even though it was an unqualified success for the first users.   As a side note, we returned to market with the application as a software-only product without artificial intelligence and without some features, reduced the price from $150,000 to $8,000, and had a subsequent hit on our hands.

[Email readers, continue here...]  In another instance, we introduced the first kiosks for hotel lobby check-in. They were large, a bit clumsy looking, and gathered cobwebs in the lobbies of some great hotels.

Cover story for industry magazine.  Best possible press: too early to market.

Cover story for industry magazine. Best possible press: too early to market.

These and other efforts to be first over the years have led me to ask my current crop of CEOs as I serve on various boards, “Do you have the resources to evangelize the market, educate your potential customers, AND sell your product?” The answer is invariably ‘no,’ because the cost of evangelizing a new product is completely unknown. A marketing professional or the marketing department certainly can work to obtain good press, appealing to curious journalists and early adapters. Early meetings with potential customers will yield enthusiasm for a “free test” of the new product. But if it is a radical departure from the comfort zone, the cost of promoting and marketing the new product will be beyond the capability of most small or medium sized companies.

Even Apple rarely attempts this, with all its resources. Apple is well known for building upon the work of early adapters. After failing with its early Newton tablet, Apple waited for fifteen years before reinventing and repositioning the tablet as a much friendlier consumer device. The same occurred with the iPod. Apple was not first or second. They just added the infrastructure needed to seamlessly purchase and download content to their offering, and produced a friendly way to use a product that previously required early adapters to manually download songs to their devices.

I will readily admit that the half million I spent on the artificial intelligence system that failed generated the greatest positive press we ever had. As a corporate promotion, it was a hit. As a product marketing effort, it was a failure.

If you are going to be first in a market, plan on a very long time from introduction to acceptance. Triple the time you estimate for the effort, and add four times the cost you estimated for marketing.

Does anyone know how much Toshiba lost with its HD DVD format marketing effort? First to market over blue ray with what some say was a better product, Toshiba dropped over a billion dollars into that one and lost it all. There are numerous examples like that one.

You might be an exception. Chances are that you’d do much better by inventing a better mouse trap, and marketing it for its advantages over a product that the consumer already understands. But there is always a winner at a table with the odds stacked against the player. It just doesn’t happen often enough to expect success.

 

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The LALA School of marketing

by on Aug.07, 2014, under Positioning

Let’s focus not upon the process of marketing and positioning, but on you. How should you become the best marketer you can be, even if you are a first time entrepreneur or a seasoned CEO?

There’s an answer for that. The title of this insight helps us find a formula: LALA.

Berkonomics books available at www.berkus.com

Berkonomics books available at www.berkus.com

Listen! The first rule of marketing and positioning is to listen to the marketplace. Interview potential customers, hold focus groups, meet with existing customers. Hire consultants. Attend trade show education sessions. Ask you field representatives to debrief you about what they are hearing. But listen!

Adapt! Create, change, throw out, tweak or put more resources behind those efforts or campaigns that are working. Listening does no good without action. And the first thing in marketing is to adapt your product or service to the needs of the marketplace.

Learn! Measure the results of your changed program in as many ways as possible. Create metrics for customer acquisition, retention, conversion, reach, or anything that helps you to better understand the effects of your changes to the program.

Adapt (again)!   It’s not unfair to reinforce the cycle by again adapting to the market after learning from your changes. Start the cycle all over again, and never stop.

LALA: Listen, adapt, learn, adapt.

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The three legged stool of marketing excellence

by on Jul.31, 2014, under Positioning

Marketing is a science devised to help drive customers to your door. There are lots of ways to define how to market well, including the four P’s of marketing (1): product, price, promotion and place. This is considered to be the producer-oriented model. These are still the driving focus behind most marketing courses, and deserve to be so.

Then there is the four C’s, the consumer-oriented marketing model (2). The four Cs: Consumer, cost, communication and convenience. This makes sense too, and surely deserves time.

Oh boy. Then there’s the compass or cardinal definitions model for marketers:  N=needs, W=wants, S=security, and E=education. We can go on forever. But I have my own model that is even simpler.

I’ll call it my IDC model, just to fit into the scheme of the conversation.

[Email readers, continue here...]  I= increase revenues. Find a way to position the company and the product to be wanted so much that it moves into the needs column for the consumer. Use all the techniques you learn in marketing classes to drive demand. Higher demand results in higher prices – if there is EA-9817limited supply. Or, with or without limits on supply, higher demand results in greater revenues, satisfying the “I” in the formula.

D=Decrease costs. With greater demand comes the option to increase production and gain efficiencies of scale, driving costs down in the process. Even without higher demand, reducing costs should always be a focus for management to provide breathing room for increased profits.

And finally: C=Customers, and more customers. Marketing should provide a pool of ready to listen customers, no matter what the price or complexity of the product. More importantly for management, finding a way to focus on extreme customer service will be the most inexpensive, effective marketing tool of all. Existing customers have low acquisition costs, addressing the “D” in the equation. Extremely happy existing customers are the greatest marketers you will ever have.

Increase revenues, decrease costs, and better serve customers. IDC: that could be a motto or even a manifesto for any good management team. And it’s a good place to start a focus upon positioning.

(1) First proposed by Jerome McCarthy in 1960

(2) Robert Lauterborn, 1993

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Create a ten percent profit model.

by on Jul.24, 2014, under Growth!, Protecting the business

Most entrepreneurs, when starting to model their business operations using a spreadsheet, start with expected revenue by month. Then they calculate cost of sales, and then project their expenses, to find the bottom line profit or loss each projected month.

There is a rarely-used twist that makes lots of sense. Add a new row at the bottom of the spreadsheet. Project your revenues and costs as in the original exercise. Then consider that an operating entity should be able to generate a ten percent operating profit based upon revenues, and add a row to your spreadsheet immediately below “operating profit” that calculates 10% profit from sales each month. Compare that with the operating profit as calculated, which surely will be

From Basic Berkonomics: Available Amazon, B&N,  berkus.com and booksellers everywhere.

From Basic Berkonomics: Available Amazon, B&N, berkus.com and booksellers everywhere.

lower, probably negative, for months or even years. The difference is something new – a target for reduction of expenses or addition to revenue for each month in which the calculated number is lower than 10% of revenues.

[Email readers, continue here...]  We are not taught to think this way, but rather to find the month in which we break even in our plan, then calculate the accumulated losses to that point, add all the cash needed for investment in fixed assets, and end up with the amount needed to finance the business to breakeven through equity or debt financing. This new tool gives you that number plus the amount needed to make the business a viable entity with a chance of long term survival.   The longer the time it takes to break even, the higher the number of dollars needed. Sometimes, the difference is a reminder to consider a reduction of expenses, if revenues cannot be raised from projected levels.

And sometimes, it is just a reminder that we are all in business to make money, not to break even. Just like assuring that your own at-market salary is included in a forecast even if not drawn in cash during the earliest periods, the 10% target reminds us all that the target must be higher than merely breaking even, even if that means reassessing all expenses until the target is met or exceeded.

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Don’t be defensive, but defend.

by on Jul.17, 2014, under Raising money, Surrounding yourself with talent

When meeting with investors, during the period devoted to feedback after your presentation, you will hear comments and recommendations that don’t resonate with you. Some will be from a misunderstanding of your explanation. Some listeners will challenge your assumptions. Some will seem to ask just plain show-off questions, in which the questioner wants you and others in the room to know that s/he knows more than you do.

You are in a vulnerable position in that room, the salesperson looking for money before individuals who have nothing to lose but risky profits far in the future. You cannot appear to be standoffish, or above responding to some of these inappropriate questions.

Berkonomics books available at www.berkus.com

Berkonomics books available at www.berkus.com

Defend your position when appropriate. But listen carefully.   Although you may be completely right, the questioner’s comment may indicate that you are not getting your points across. That’s just as valuable for feedback as hearing a good, new idea.

[Email readers, continue here...] Sometimes, you will have an opportunity to present to several levels of an investor organization, from first prescreening, to a screening session with many present, to the final meeting of the members or partners. Plan to incorporate the appropriate responses to earlier questions in the presentation to avoid those being repeated. Show that you are both humble and adaptable.

Investment groups including venture capital fund managers will tell you that the very process of defending your plan will help you better think through the rough spots, better launch the business with fewer holes in reasoning, and better connect with resources that can be used to accelerate your growth to breakeven and beyond. The process is always time-consuming and grueling. But approached correctly, the time is well spent and the results almost always positive, even if money doesn’t come from the present effort.

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