How much do you spend on R&D? Is it enough?

Why do profitable, mature businesses die away?

One of the most obvious reasons mature businesses die away – when we look in the rear view mirror – is that they did not spend to renew their product or service when newer entrants into the business arrived with better products and services built upon newer technology.

Should be an easy fix for companies making annual net profit. Right?  Not so much, as our rear view mirror makes obvious.

The life cycle of any product

There is a life cycle for any product, and it is much shorter on average today than five years ago, especially in the technology world.

Companies that are successful with their first product must begin thinking about the costs of additional products or of that product’s replacement well before any evidence of a peak in sales is noticed.

The R&D “tax”

[Email readers, continue here…]   There are rules of thumb for various industries in creating a reserve for research and development.  To attempt to find an average number, companies should “tax” themselves by reserving some percentage – say ten percent of their net revenues or two percent of sales – for research and new product development.

Obsolete yourself!

Wouldn’t you rather obsolete yourself than watch helplessly as someone else does that for you?

It is a certainty that even with patent protection, a successful product will be challenged, duplicated, even exceeded by competitors, and within increasingly shortened time periods.  It is a difficult concept, but a necessity of the modern age, to plan to obsolete your own successful products before someone else does that for you.

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Posted in General, Hedging against downturns, Protecting the business | 1 Comment

Should a leader support constant change?

The worrying that always precedes a change

When a new CEO or manager is hired into a company, for a while lots of energy flows from the top and new ideas seem to be generated daily.  It is one reason not to fear the unknown when upper level management long in place turns over, often leaving most everyone worrying over how they’ll ever do without their lost leader.

Reversion to the mean: Momentum lost?

The problem seems to come after everyone settles back into some sort of normalcy and the new senior manager becomes comfortable in his or her position.  There is a natural momentum in most companies, one that is usually slow and deliberate.  New ideas are vetted carefully, run by a number of departments, considered from many angles and implemented with deliberation. The temporary enthusiasm for cutting through the old way of doing things calms employees into an acceptance that little has changed over time.

New leadership in a well-oiled machine

The real opportunity for a leader to raise the bar is in the consistency of his or her vision and willingness to accept change for the benefit of the organization.  This is true especially when the company is making its numbers and problems are few.  There is nothing wrong with consistency. It brings a normalcy to everyone’s jobs that most people welcome.  But that normalcy often comes inside a creative vacuum.  Competitors often jump into holes created by slowing innovation.

Story about a leader unwilling to accept complacency

[Email readers, continue here…]   I’ve told the story about Bill Conlin before, but it is worth repeating.  Bill was the CEO of CalComp, a Lockheed company.  Most every Monday morning as he drove to work, he’d force himself to think: “What if this was my first day on the job, and I could make changes without worrying over the past?”  Bill’s managers feared those Mondays they say, because that hard-driving enthusiasm for change, for excellence, was like a lightning bolt upsetting the old way on occasion and bringing fresh ideas to the front for consideration and execution.

The comfort of routine – a management trap

How many of us fall into the comfortable routines of management, thinking that we have this job down to a science, with the operation running smoothly and without need for much intervention?  How many of us have fallen a few notches on the excellence scale over time, accepting our environment as of the last change, happy with ourselves for past achievements toward upping the enterprise?

Accept the “Conlin” challenge: Disrupt yourself

What would you do if you were new at the job and had no restriction upon the changes you could make for the good of the company?  Is there redundancy in levels of management that you’ve tolerated too long?  Has the product or service not gained ground against its competitors of late?  Are you sure of your marketing and pricing positioning? What about the training and competency of your operational staff?

Want to reinvigorate yourself in your job?  Make next Monday morning’s drive a creative thinking exercise in upping your game in your personal fight for excellence.

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Reinvent your business!

Businesses that forgot to reinvent

If only newspaper publishers, book publishers, record companies, and movie producers would have had the vision to see their future as we now see it, we might have become a digital society with much less disruption and loss of jobs than we have experienced these past years – and continue to experience.

Seeing the future of frictionless commerce

Did the proprietor of the neighborhood bookstore or national rental chain not see this coming?  Frictionless distribution through moving bits of information is so much cheaper for all but those making their living in the middle of the supply chain.  Money always flows to the most inexpensive solution that meets the needs of a buyer.

It should have been obvious to all in those niches and others like it that digital distribution would supplant product manufacture, inventories, physical distribution systems, warehouses, and limited retail shelf space, as soon as the infrastructure allowed it to do so.

It is human nature to avoid change

And yet, as we have explored in past insights, it is human nature to protect the business, the existing product and the existing revenue stream – and against human nature to displace one’s own product when it is still generating good income.

Some thoughts on how to reinvent a product-based business

[Email readers, continue here…]   There are many ways businesses can reinvent themselves, even if a product must be manufactured and put into the hands of the user in physical form.  Product marketing materials, user manuals, service manuals, sales guides, and catalogs all must migrate to the web to cut the use of paper and make them more accessible over time and distance.

Reinvent the core of your business

But even more important to the future of your company is the deliberate reinvention of how the essence of the company’s core is delivered.

Can a consultant be as effective when half or more of the meetings held are using Skype or telepresence?   Can a software product be delivered as a service “on demand,” saving hardware and human error in updates?   Is there a way to speed to the user a product, such as a new music release, to gain instant gratification and lesser cost at the same time?

Disrupting the supply chain with or without you

Everywhere we look the supply chain is being disrupted by companies finding ways to deliver bits of information or entertainment instead of atoms of paper, DVDs or hardware.

Strategic thinking about the digital transformation

In your strategic planning, do you consider ways to obsolete one or more of your products or services by delivering it in bits not atoms? Digitally rather than with any form of “hardware” product?  Recurring service rather than single sale?  Lease rather than sell?  There are a million ways to disrupt yourself before someone else does.  Are you thinking of this as a top of mind strategic opportunity?  Or are you just protecting the status quo because it is making money now and there seems no reason to change?

 

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Can you create a great customer case study?

Attention spans are growing shorter by the second

Studies have shown that attention spans for engaging a reader or listener have fallen from eleven seconds to eight seconds on average.  Eight seconds to reach someone in most any medium.  Ouch!

Growing weary of paid advertisements

We have grown more than a bit weary of most advertising, no matter in what form.  We are constantly bombarded by ads in multiple types of media, to the extent that we most often tune them out unless particularly entertaining from the first moment (eight seconds.)

Entering the “age of recommendation.”

In my keynotes on trends in technology, I often lead into one of the trends with the proposition that we have left the information age and are solidly within the age of recommendation, pointing to the fact that 69 percent of us research major purchases online before buying; 62 percent look at online peer reviews and 39 percent of us compare prices across outlets.  I make the point that this is good for consumers, because it creates an environment where there is much more consumer pull – and less producer push – in our new world of connectivity and transparency.

How do you reach this hyper -conscious audience?

[Email readers, continue here…]  How do you reach an audience that pays less attention to advertising then at any time in the past one hundred years?  Given the statistics quoted above, you must find ways to have your consumers endorse your product publicly, and in a form that is divorced from looking like an advertisement.

Using new tools in a social age

There are several ways to do this effectively, including the use of social networks to create buzz, seeding product acceptance through early adopters or celebrities, or by creating a small niche market that shows unusual acceptance and more.  People are more trusting of unknown third parties endorsing your product that they are of direct ads touting the benefits of the product in large, clear type.

The case study: the best way to reach your target

And the best way to do this is with the placement of a case study, a story told about and by a satisfied customer with something to say about how your product solved their problem or pain. That story can be in print or in multimedia form.  But it must be told about and by the customer, with your product as the tool of solution, not the focus of the story.  A good case study quickly lays out the pain, the players, the search, the solution, and the pain-reliving effect after implementing the solution.

All of us can identify with a successful solution to a painful problem. And some number of readers will identify directly with the problem as their own and be moved to act.  The only named solution will have been yours.  And that’s delivering power at the right moment to the right recipient.

Advertising money moves to the most rewarding media

Over the years, advertising money is being moved from display ads in magazines and newspapers to social network sites where people with eyeballs have migrated.  But people still read, hear and see stories they can identify with, and content providers still need content.  Where content providers or publishers push back when seeing a press release, many will embrace a good story demonstrating a painful problem and a happy ending.  And as a result, more money is flowing into story-telling.

Particularly for companies with limited marketing budgets, case studies are perhaps the most effective marketing tool available for the cost – other than just lucky or skillfully-ignited buzz.

 

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What’s your story? Did someone else create it?

It is an old warning in the entertainment industry.  Define your persona the way you want others to view you – before someone else defines you by comparing you to someone not as flattering as you would like.

Sometimes you win when others define your story

I have a friend in the music business who worked hard to gain introductions to, and become mentored by, several known names in the business.  One well known informal mentor called him the “Stevie Wonder of Hip Hop.”  That description stuck, and it is helping the young artist to define himself through instant branding and a positive image.

Sometimes it is best that you do it first

If you are proud of the fact that you were first to market with a product or service, you might define yourself as the “first and best”. If you are the largest company in your niche, you might want to define yourself by relative size, which connotes success and staying power.  If you are the quirkiest of suppliers in your niche, you could create a campaign around your company’s counterculture.

Use a word picture or mantra to make it memorable

[Email readers, continue here…]  One great way to define your story is with a word picture in which you associate yourself with a person or company that is recognized in a positive way and helps you tell your story more easily.  For example, if you have a bicycle courier service that you want to be known as speedy and reliable, define yourself as “the FedEx of urban couriers.”   (See “Manage Your Mantra” two weeks earlier in this blog.)  Your failure to do this early in the life of the company may come back to haunt you when others refer to you as just another street currier.

Sometimes you reduce your market to increase your positioning

How do you define yourself?  A mantra, tag line, motto, or logo with your unique brand definition is a good start.  Press releases and PowerPoint presentations with a uniform use of the mantra or phrase will reinforce your effort.  Back your story up with a statistic if possible. “There may be forty companies that do what we do, but we’re the first, largest and used by more Fortune 500 companies in our area than all the others combined.” (You can tell that story by limiting your market to the lower east side of town, where you are all those things.)

Create the story and spread it so you define yourself

Teaching your associates and employees to use the phrase each time they introduce the company to another social or business contact helps spread the word.  There is no one who will ever be as passionate about telling your story as you.  It is worth the time and effort to work on telling it well and in a memorable way.

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Five ways to make your company stand out.

There must be at least several companies out there right now positioning to compete with you.  If you’re large enough, you may be the target, and if smaller, you are the minnow not the shark – and need to be agile and creative.

The five strategies:  Picking one to emphasize

So, how do you position yourself to be a stand out? There are five  strategic positioning areas for you to consider. That’s our subject this week. There are five niches you can chose when defining your positioning strategy:  price, quality, service, innovation, and elegance.

And although many positioning efforts cross the lines between these, great companies play to the strength of just one.  And within that slice of differentiation, to make any sort of impact and lasting company, the difference between you and your competitor cannot be incremental.  “Me too” positioning is lost in the noise of today’s targeted marketing and corporate reach through inexpensive, but effective, use of Internet marketing.

Pricing strategies differentiate your business

First, and easiest to understand, is creating differentiation by price. Certainly Walmart, Target and others have gotten the attention of their potential customers using price as the primary leader to drive sales.  Walmart succeeds because it has changed the game with its suppliers, actually partnering with them to help drive costs down so that prices can truly be lower at the store level.  Since that capability is far beyond most every other retailer, there is great risk in competing by price alone.  Most anyone else can meet or beat your price any time they wish.  And their motive may have little to do with short term profit, a most frustrating finding when you finally realize that it is impossible to compete with such driven opposites.

Using price creatively

[Email readers, continue here…]   Price can become a competitive tool by creative companies where they can change the game, reducing the number of parts for example to lower manufacturing costs, or reducing the time to install a product, lowering after-sale costs.  But, for the most part, competing on price alone is not a good strategy for the long run.  Success is not rewarded appropriately by continued dominance of a niche when price alone built that niche.

Quality can be, and is, an important differentiation.

Ford recently returned from the land of the nearly-dead to become not only profitable but a desirable alternative to the dominant Japanese cars by emphasizing quality at competitive prices.  And some brands are built principally upon quality even at increased price, including Mercedes, Tesla and Audi, to name a few auto brands that have successfully been able to charge more for quality than just the added features above their lower-priced competitors.

Service is a remarkable differentiation.

Those who shop constantly at Nordstrom’s are knowingly paying more for personalized service that has proved endearing and able to withstand the competition for decades of continued high standards, not compromised by the need for profit first, service second.  Internet hosting providers, ISPs, are often distinguished by their potential customers by the level of up-time which equates to quality of service, even at incrementally higher hosting cost.

Innovation, technology, and early adapters

Innovation certainly defines a number of companies catering to early adopters and the mass audiences that follow.  Apple stands out as the first name on most minds when thinking of innovation, even though Apple originated none of its dominant product lines, choosing instead to come to market with innovative adaptations of existing products.  The iPad created an entirely new market segment from what was for over a decade a sleepy niche computer tablet market dominated by a few small-selling products aimed at niche markets.

And finally, elegance

Elegance serves as a major differentiation for those who are willing to add quality and service into a brand that is priced well above reach of the masses.  Coach, Bentley, Patek Philippe, and Chanel are brands defined by elegance, not feature-functionality and certainly not by being the low-priced competitor.  The great benefit of reaching for differentiation outside of low price is that the public you court is the public loyal to you over time because of your brand and your brand recognition, and the least likely to abandon you for another when their price is lower by increments.

Increase your margins and brand awareness

Branding, price strategy, and positioning are related as differentiation’s that help you to increase margins and drive profits when competitors fail with inferior strategies.

So, consider your core competencies and pick one or two of these positioning strategies to drive your company’s growth and profitability.  You’ll be ahead of many of your competitors who often don’t think strategically when positioning their companies in your niche.

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Everyone needs to manage their mantra or move on.

Ever stand with someone you’ve never met when at a party, a trade show or just meet someone in the hallway?

We all have.

And then that person opens his or her mouth and spends a boring two minutes describing their business to you?  Leaving you wondering how much of that you got and how much you might retain?

We all have. So, here’s the antidote to prevent you from becoming “that” person.

Describe the business in ten words or less.

I am constantly surprised when speaking with entrepreneurs and CEO’s who act puzzled and a bit flustered when I ask, “So what is your mantra?  Tell me about your company in ten words or less.”  Almost everyone begins a long explanation of their business that is nearly impossible to follow, let alone recall a few moments later.

The easy way to lose an opportunity

And each lost an opportunity to tell their story in a memorable way that has power and boosts their enterprise value in the minds of the listener.  I recently spent fifteen minutes in front of a table-top display, attempting to coach an entrepreneur who repeatedly tried to state why his business was better than a competitor (one I didn’t recognize) and never explaining what it was that he did.

You only have seconds to do it or lose

[Email readers, continue here…]   In explaining what you do, and what you do better than the other company, you have seconds – and only seconds – to get your image across into the minds of your listener.  The best way to do this with a young company without name recognition is to appropriate the image of another, known company, to invoke the quick mental understanding of what you do.

Some examples of excellent mantra

“We are the Skype of moderated Internet broadcasting,” evokes immediately the mental picture of a company that provides a platform for broadcasting town hall meetings or large group gatherings over the Internet, much as Skype does with one-to-one video connectivity.

Yet, if you took the time to describe the company with that longer description after the quotes above, you’d lose many of your listeners with too much detail and too many words.  With the short description evoking the image of a known company, the listener immediately grasps enough to engage in a discussion – or at least walk away and be able to repeat to another the main thrust of the business.

So, that’s a mantra?

That’s a mantra: a short, quickly understood picture of your business in just a few words, often using the name of a well-known company or process to complete the picture-story.

Count the seconds

You have only seconds to make a first impression.  Your mantra is the ticket to entrance into a longer conversation.  It is often the most powerful but inexpensive marketing tool a young company has to offer.   And it is often extremely difficult to craft effectively in just a few words.  So, what is your mantra?

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How much time do you spend “outside the box?”

So, you’re managing all that work, all those interruptions, all those texts and pesky emails.  You get home at some reasonable hour, kind of tired, and needing a recharge.  Sound familiar?

Well, that’s probably because you’ve “wasted” a significant portion of your time on tasks others could have done effectively.  So, where do you get those sparks of genius that could change your company and change the world?

How most entrepreneurs work today

Creative entrepreneurs find niches for their business that are not full of competitors fighting over the last dollar of margin, or niches that are mature and shrinking in size.  They search for areas unexplored, or those covered by companies with less of a vision for quality, service or innovation.

Outside the box? Think of the Titanic tragedy.

Even creative entrepreneurs are often trapped inside the box of their experience.  Recently in a discussion of this very subject in a roundtable of CEO’s, one CEO reminded us of the Titanic tragedy.  She stated that those in charge during the last hours aboard had options probably never considered that could have saved many more lives, given the limited number of life boats available.  She listed several, including pulling up the teak floorboards and throwing them overboard along with the deck chairs and dining tables, all to be used for floatation.  It made us all think that we had never considered such solutions when contemplating that disaster after the fact.

So, how can you create a culture of creative thinking?

[Email readers, continue here…]   With that challenge, we turned as a group to discuss how CEO’s could make a culture of thinking outside of that restrictive box of experience.  We considered adding questions to the interview process that could bring surprising answers from a job candidate, pointing to a creative thinker that might complement the team.

We challenged ourselves as a group to think of answers to problems that a writer of fiction might create, unconstrained by conventional thinking.  We worried over the fact that we may have hired people in the past that fit our image of the proper addition to our core staffs, people with similar experiences and training, constrained by the same experiential thinking as ourselves.

The result could change your life

Our CEO group we left that meeting each more willing to search for talent to help us and our enterprise find creative alternatives that would challenge us, expand our product, marketing, sales and process abilities beyond the constraints of our present definition of our company and its core.

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Your core competency and why not to stray

Consider your core.  It is the one skill, process or advantage you have over your competition.  Then think of all the things you do to surround that core with people and assets that complete your company and allow you to release your product or perform your service.

Which of your IP assets is your core?

Now consider how many of those surrounding assets and services are really necessary for you to perform in order to protect and grow your core.  For most small and medium-sized businesses, there are lots of wheels spinning around the core that take up the attention and resources of management but add little or no value to the core of the business.

Why this is a tricky question

These are new times, enhanced by our global ability to find resources anywhere on earth to complement the core of our business.  And most often, the companies supplying those services are much more efficient at doing so than we could be because of their experience and advantages of scale, and the cost to us of such services is lower than performing them ourselves.

So – what is your core offering?  Are you building it more slowly because your resources and attention are focused around many processes not critical to that core?

How about non-core resources?

[Email readers continue here…]   It is a rule that early stage managers should find, protect and grow the core business, finding resources wherever possible to service that core in the form of variable expense, to be added to or shed at will as the company finds its niche and establishes a pattern of growth.

What kind of resources are not in your core business?

From administrative services supplied by personal assistants located in India, to designers and producers of prototypes in China, to call centers managed and located in the Philippines, there are efficient, well organized solutions for virtually every process needed by a company to surround its core.

The core we abandoned in this new generation

In earlier college business administration courses, professors often touted the advantages of “vertical integration,” the process of bringing all production from raw materials through the finished product under one roof.  With the advent of worldwide seamless communication and cheaper skilled labor available through virtual relationships, that old school thinking no longer holds, even for the largest corporations capable of performing all operations in house.

Henry Ford located his auto plant near the river so that his steel mill could cool the raw product and feed the plant across the property.

The disadvantage of doing it all – a personal story

And in the 1960’s, I created a vertically integrated record manufacturing plant where raw materials came in one door and finished record albums out the door of the same building.  It was considered the most efficient possible organization at that time.  But it proved impossible to shed overhead during downturns.  Labor and downturn cash flow issues and management distractions contributed to offsetting the positive effects of such a practice.  I doubt Ford would organize his plant that way today, and neither would I.  There are far too many alternatives that serve to protect the business during downturns, give management alternatives and provide superior results when not at the core of the company’s offering.

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The four “P’s” to help you build a great business

How do you manage a great business, as opposed to be a survivor?  Well, here are the four areas you should focus upon every day.

Now, some of us remember things better when given a catchy phrase or rhyme. So, here’s one to help you with squeezing the most out of your own available resources.  In this new reality in our business world, there is certainly little room for mistakes and no room for bloat within our companies. Preventing them is our responsibility.

The first “P” stands for people.  The wrong person in most any job causes everyone below or above that person in the production system that depend upon that person to operate at a reduced rate or quality of output.  And if there are people depending upon the output of that wrongly-placed individual, they too will suffer from reduced resources to complete their jobs.  The cost of a bad or failed placement in any position in a company’s critical chain is enormous and goes far beyond the salary paid to that individual.  Enough said.

The second “P” is for productivity.  But if a good person is failing at their job, it may be because you have not provided the resources necessary for that person to do the job expected.  For example: Hire a great sales person then fail to support him or her with a good marketing effort or a properly priced quality product, and that person will be set up to fail, and for reasons you might have fixed.

[Email readers, continue here…]   Then there is the third “P” – performance.  Like a great orchestra, it takes a skilled conductor (you) to bring the best out of the collective members of the group.  You are responsible for the quality of performance that defines an excellent enterprise and assures long life for the company as competition becomes more aggressive and geographically extended.

The fourth “P” is for process.  How do you efficiently get your offering from development to market?  How do you stage and tune a production line for maximum quality and output?  How do you penetrate an established market with a groundbreaking new product, but on a limited budget?  All these are process questions, often faced by management (you) when seeking success.

Kids Wooden Number Block As Symbol For Numeracy Or Counting

Now, all of us have limited resources and must deploy them effectively to gain the most possible ground in the marketplace.  Like a chain with four links, no one of these listed here can be weak or we frustrate our opportunity for success.  We’ve got to focus and pay attention to each to each of these four areas to strengthen the chain.

Future look: Over time we will explore these issues more deeply using the “theory of constraints” (TOC) method of looking into your physical and financial roadblocks.

The four “P’s”:  People, productivity, performance and process.

Ask yourself: which of these four P’s is your weakest link?  What can you do to rethink, reinforce and redirect resources and remove roadblocks to the success of that link and enhance your whole organization?

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