When to pivot from your original plan?

Plans do not often work as devised. 

We are not always smart about the market or the product.  We may miss the context of the times and come to market too soon or too late. We might not have researched the market diligently or used a focus group or other market research.  Well, the good news is that 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.

How do investors usually react to a pivot?

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

My story of a great pivot

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 entrepreneur in the year 2001 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.

Early market experience can cause a need to pivot

[Email readers, continue here…]   Over the years, the original 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 current 100,000 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 the original vision and plan might have restricted the then-small company to a tiny 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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Posted in Finding your ideal niche, Growth!, Positioning | 1 Comment

Switching costs: A competitive advantage?

We know that one of the ways we hold onto our customers is if there are high switching costs to move away to a competitor.  But how about the other side of the coin?  Do you have an estimate of the cost for a potential customer to switch to your side?  And are you prepared to help with concessions if needed?

Here’s important homework for your marketing effort.

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 costs of replacing a lost customer

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.

Consider increasing the cost of your customer’s switching

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.

A personal story to illustrate the point

[Email readers, continue here…]   Recently, I received a hand-written letter from two co-CEOs of a company I had helped 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 to 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.

The lesson from extraordinary effort

And that is 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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Posted in Growth!, Positioning | 1 Comment

Entrepreneurism is all about personal risk.

Well, of course it is.  So, let’s dig a bit deeper. Sometimes, you can reduce your personal risk by taking in other people’s money in various ways, perhaps starting with a consulting contract with a customer, purchasing a going business where profit or loss is known, or spinning off an existing revenue-generating portion of an existing business.

But the risks don’t stop there

Even using one of the strategies just mentioned, 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.

Here’s the ultimate thing about entrepreneurism

If you don’t choose to enter the fight, it is impossible to win it.   And entering the fight without the proper resources usually assures 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.

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?

Then there is the risk of underestimating time and money

[Email readers, continue here…]  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.

Research the market before allocating resources

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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Posted in General | 3 Comments

Your “drop dead” question for a customer survey

Here’s the question:

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,” then 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.

Why it’s a great question

What 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.

Other question for a great survey

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 along our R&D and production efforts?

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 the closing question for your survey

[Email readers, continue here…]   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 many responses.  But do include at least one specific question about your product to be sure the respondent is an actual customer.

A final word: Other kinds of surveys

Most of us know of the “net promoter score” which is the ultimate survey.  One question. “On a scale of zero to ten, how likely are you to recommend our business to a friend or colleague?”  You’ll find more about this with a simple search.

Then there are the long surveys where you could attempt to find more about satisfaction with service, delivery time, quality of product, packaging and more.  You’ll soon find that the more questions you ask, the fewer responses you receive. The fact is that most of us will jump out of such a survey after seeing more than three or four short questions.

Which brings us back to the “drop dead” question and short survey we’ve outlines above. Be careful, short and focus only upon the most important question(s) to get the most responses and best answers.  Good luck!

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Posted in Positioning | Leave a comment

Do you really want to be the first to market?

My stories of missing the context of the times

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.

Artificial intelligence thirty-four years ago

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. 

Changing the rules to fit the market

 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.

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.

“Do you have the resources to evangelize?”

[Email readers, continue here…] 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.

Apple as a surprising example

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 (iTunes) that previously required early adapters to manually download songs to their devices.  For argument’s sake, let’s credit the iPhone with igniting an entire product class.

My unexpected advantages of being first

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.

Set your expectations if you still want to be first

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.

Remembering a massive first-to-market failure

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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Posted in Finding your ideal niche, Positioning | 1 Comment

“LALA” – A short lesson in marketing

Focus upon you as marketing genius

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.

Memorize your use of “LALA”

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!

[Email readers, continue here…]   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.Facebooktwitterlinkedinyoutubemail

Posted in Positioning | 1 Comment

Four ways to create marketing excellence

First, let’s recall the four “P’s” of marketing

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.

More we are taught in marketing classes

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 IDCL model, just to fit into the scheme of the conversation.

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 limited supply.  Or, with or without limits on supply, higher demand results in greater revenues, satisfying the “I” in the formula.

[Email readers, continue here…]   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.

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.

And finally, L=Low touch-no touch.   The world has turned upside down with COVID-induced worries about touching any kind of surfaces, and for good reason, even after we exit from the pandemic period.  How can you differentiate yourself from others with a no touch product, if you are a producer of a product that must be pushed, handled or driven to make it produce results?  Are you behind others or ahead in thinking of ways to market a unique experience that fits into this new era?

Increase revenues, decrease costs, better serve customers, and think low touch-no touch.  IDCL:  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.Facebooktwitterlinkedinyoutubemail

Posted in General, Positioning | 6 Comments

Could you achieve ten percent net income each month?

How planning is done today

Most entrepreneurs and managers, when modeling 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.

One way to think for tomorrow

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.

Something new emerges

Compare that with the operating profit as calculated, which surely will be 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.

Why this is different and powerful

[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 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 and growth.   The longer the time it takes to break even or get to that magic ten percent net, 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.

The ultimate reminder

And sometimes, this exercise is just a reminder that we are all in business to make money, not to just 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.Facebooktwitterlinkedinyoutubemail

Posted in Growth!, Protecting the business | 1 Comment

Can you defend your plan without being defensive?

When meeting with investors or even your board, 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.

Are you the plan’s salesperson?

You are in a vulnerable position in that room, the salesperson looking for money or approval to proceed with your plan 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.

The right way to defend

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.

Learning from the experience

[Email readers, continue here…]    If you are looking for investors or need to present to ever-higher levels for approval, sometimes, you will have an opportunity to present to several levels of the organization. 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.

And gaining insight from feedback

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.Facebooktwitterlinkedinyoutubemail

Posted in General, Growth!, Raising money, Surrounding yourself with talent | Leave a comment

Don’t get hung up on early stage valuation.

Here’s the “what.”

I can’t tell you how many times I’ve walked away from deals where the entrepreneur insists on a start-up pre-money valuation that is so high, no angel could expect to make a return upon the investment, even with a reasonable sales price for the company down the road.

And here’s the “why.”

There is always another attractive deal at the ready, and most have reasonable expectations of valuation.  Why fight about valuation, or disappoint the founder at the outset?  The real focus should be on smart planning, finding ways to launch and build the business with smart but frugal use of money.

More of my stories

Let me tell you two stories that are linked.  The first is of a 2004 startup that I cofounded and led the investment group for several early rounds, then VC rounds. The company had grown to forty employees and a healthy eight figure gross revenue run rate but has absorbed over $36 million of angel and VC money to do so, and without yet reaching breakeven.

[Email readers, continue here…]   The second story involves the same founder.  This one is using outsourced development, support, outsourced customer relations and more.  The total capital raise was under $600,000, and the founder retains majority control of his baby through this and even one optional future round.

Lessons founders learned

For the first, company, the founder’s remaining portion is under 4% after all the subsequent rounds, and not yet at breakeven. The second company, with the same founder, finds him with majority control even if the original raise is not enough.  For the founder to see any return at all in the first company, the ultimate selling price must be above $40 million.  In the second company, better planned, the founder would be made pleasantly wealthy at a selling price of $10 million.  The chances of the latter occurring are much greater than the former.  This founder was not hung up on valuation for the second company, just upon efficient use of capital.Facebooktwitterlinkedinyoutubemail

Posted in General, Ignition! Starting up, Raising money | 1 Comment