There Is No Prize for Originality

Earlier today, I was reading a reddit.com post about a young man ready to graduate college this summer who was desperately looking to start his own business. He didn’t have a business idea and was looking to the readership to help him come up with one. I often suggest to clients with a desire to start a business, but who lack an credible idea, to simply find something that works in one place and considering bringing it to another.

For instance, Elliot and Ruth Handler went to Switzerland with their kids, Ken and Barbie. While there, they saw an adult doll dressed in work cloths. The doll was not a kid’s toy, but was marketed to adults. Up to that time, all dolls in the U.S. were marketed to young girls and were babies so that the girls could pretend that they were the doll’s mommy. As their daughter Barbie handled the doll, the Handlers got an idea. They replicated the doll in the U.S. and named them after their kids, Ken and Barbie. This new toy helped launch their company Mattel.

Learn more about how the Barbie doll helped launch Mattel.

In another example, I was watching a current affairs show on T.V. the other day. The story featured a bar in Tokyo that featured a show made up of robots. That bar is crazy popular in Tokyo. I asked myself why wouldn’t the same idea make sense here in the U.S.?

A number of years ago, I was opening an office to support a contract we had with HP in Stuttgart, German. As I sat in a lawyer’s office, discussing Germany’s employment laws, an automated window shade called a “Rollladen” began to come down. Fascinated by the idea of an automated shade, I asked the lawyer what that was all about. He explained that when it gets hot outside, the shades automatically close to reduce the load on the air conditioner and save energy. I asked myself why wouldn’t the same idea make sense here?

Finally, as a child in the 1960’s, I traveled to Germany for the summer to stay with my Aunt and Uncle who spoke very little English in what I call “my total German immersion vacation.” I made some friends over the summer, as all kids do, and was offered a milk box by one of my new friend’s parents one day. I had never see a drink in a box before, but it made incredible sense. Juice boxes were not introduced into the U.S. market until the 1980’s, some 20 years later, and they became an instant success. Again, why did it take so long for ideas like the juice box that was successful in one part of the world to make its debut here in the U.S.?

There is no prize for originality. Like my old boss, Debbie Sagen, once told me, “R&D stands for Ripoff and Duplicate.” So, if you are still looking for that one thing to start your next great business venture, look at what is popular somewhere else and consider bringing it to a new market.

Where will you find the next great product marketing idea?

This post was originally published March 3, 2017 at SteveBizblog.com. Follow Steve on Twitter @SteveImke

Changing your business and its culture

Probably the hardest thing to do at a business is to change its culture.

How did Genghis Khan and other medieval rulers change the culture of their acquisitions? Eliminate every male over a certain age or they rounded-up all the nobility and professionals then eliminated them. Another step communist rulers like Mao Tse-tung of China used to change culture, in addition to eliminating critics and sending people to work camps; he eliminated historical and cultural icons, books… Harsh, and unnecessary, with time and good leadership culture can change, especially if it’s for the better.

I have led the change at a few organizations; with change came cultural change. The U.S. military was pulling out of Iraq in late 2011 and I leading the replacement organization for the Department of State (DOS). DOS was taking over the airport operations in Baghdad from the US Air Force (USAF). I was also an USAF reserve officer so the transition started out fine; I was working with peers to change from a USAF operation to DOS. My DOS operation had less than 10% of the USAF workforce so we were taking a different approach to how we were going to run things. The USAF began to resist our new operation, they made it hard for us to train, limited our access to facilities, they wrote letters to HQ to complain that our operation would not be able to do the USAF mission… They were correct; we were going to run a new DOS operation with different procedures and a different culture. It was sad to see; we were all on the same team, we all had the same goals but some of the USAF leaders could not accept the change. The date for the US military withdrawal from Iraq was set in stone, so the day came and out went the USAF, the new DOS operation stood up and worked smoothly. The new culture was less hierarchy and more collaborative; we trained workers in multiple tasks and made a much flatter organization.

In another organization, I helped lead the transition to save a failing manufacturer. We established a plan before we showed up at the manufacturer; we planned to fire the President and his closest advisors. The culture wasn’t team oriented, power resided in a few and little information on the business flowed to the owner, the President was secretive. When we arrived, we implemented our new processes and reorganized the staff. We improved morale by making the organization more inclusive, giving everyone a voice in the success of the business. The management team led by being very open to the workers and we established open door policies to get everyone’s input. However, despite recommendations from the management team, the new President did not eliminate the next level of leadership. She allowed the Chief of Operations to stay. My consulting team completed our reorg and left. 6 months later, I got a call from the owner of the company, he had to fire the new President because the manufacturer still wasn’t profitable, it turned out they had reverted to the old processes and they had the same problems with completing projects on time. Lack of leadership allowed the company to fall back to its small circle of power; it did not provide progress updates and failed.

If you lucky enough to start a new business you set the standards, you set the culture. Take the time to think about the culture that will work best for your type a business. A collaborative culture is great for a creative organization; a more authoritarian culture may be better for inflexible manufacturing processes with lower skilled workers.

I’ve found that changing an organization is difficult but doable. Changing the culture is also difficult and often goes together with organizational change. Ensure you have a culture that is positive and works for your business.

Sometimes during a reorganization or planned cultural change, you must make difficult decisions. There may be a time you must let some people go to make room for the change. You may need to let someone go after the change if they are resisting it or reverting to old practices.

Establishing a new culture takes LEADERSHIP. It also takes deliberate planning and action. State your values, vision and mission; post positive information on your work place culture. Talk about what you expect within your organization, what is expected of your team. Bring in trainers if required. You may need to change the layout of your office to improve communications or the work floor to improve workflow. Then most importantly, live the new culture! Be the example!

Yes, that is all you need to do to change the culture but it is harder than you think because you cannot take a day off, you must hold everyone accountable. Most important, you as the leader must live the culture, be the example and hammer if necessary.

Buying a Business

Are you ready to break those corporate chains and own a business?

So you want to own a business.

The market looks great; it is a great time to buy a business or to start a new business. Before you venture off and buy or start a business you need to evaluate yourself. Is this right for you? Will you be able to withstand the stress of being self-reliant? To run your own business you need to have an entrepreneurial spirit.

As you think about controlling your own destiny with a small business, consider the options out there. You could buy a successful existing business, startup a new business or buy a franchise. Each option has its own plus and minuses, so take some time and find the right option for you.

As the baby boomer generation prepares for retirement, opportunities to scoop up a successful business from a retiring owner are possible. What do you enjoy doing? Picking a business that you have a passion for will make it easier for you to be excited to go to work. However don’t shy away from a business that you are not an expert in, why, work with the owner to learn the business. Owning a business, whatever it is, is something to be passionate about!

When looking for a business to buy don’t rush, take the time to understand the market. Find a successful business, something that has been around for 10 plus years. Review the books; make sure its making money. If you decide to buy, consider keeping the current owner on for 3 to 6 months so, they can teach you how to run the business. Don’t rush to make huge changes with the business, learn your business first. Be wary of business that need a turn around, there may be a reason beyond your control to why it needs a turnaround.

Startup a new business, sound fun… and risky. Don’t let the risks keep you from trying; an entrepreneur must accept some risk. Before you start your business, take some time to create a plan and analyze the market. At CBM we use the Business Planning Framework to analyze and plan a new venture. To learn more about CBM’s Business Planning Framework click here. I cannot emphasis enough you must create a plan and you must have a business model. The model is how you plan to make money, how you will sell to your customers. CBM has tools and the know how to help you create the business plan and model.

Another option is to buy a franchise. The great thing about a franchise is that you can buy a business with a successful model. A franchise can be expensive to buy and have never ending royalties to pay, but the great thing is risks have been reduce because you have a plan and model, you know what your profits should be. With a franchise, you will have a support system to help and a team that wants you to be successful.

CBM will continue to blog about starting your new business whether it’s a existing business, startup or franchise. If you are ready to break those corporate chains and get out there and be your own boss. CBM can help your business succeed. I wish you luck.

Business Valuation

Factors that Effect a Business Valuation

There are several factors that can positively and negatively affect a business valuation from the point of view of the buyer. Some common factors that add value to a business valuation include:

  • The organization, including its employees and internal processes
  • Its reputation in the industry
  • How well the business fits with the acquiring business, including the culture
  • Terms of the final deal
  • How “hot” the industry is and if it’s getting hotter
  • Overall market conditions
  • Other intangibles
  • Timing of the offer
  • Number of competing offers

Click here  to see a video of Ron Chernak, a business broker talking about intangible assets that add value to a business valuation.

When I sold my first business, the payment was to be made in the acquiring company’s public stock. Since it was during the dot com era, stock prices reflected the good market conditions and were on the rise. Also, the acquiring company had a hard deadline for the transaction since it needed to complete the transaction prior to its year end close. This deadline added value to my business so I began to increase my demands as the closing date got closer. Therefore, I was able to leverage several factors that enhanced the value of my business from the prospective of the buyer.

On the flip side, there are factors that can discount a business valuation from the prospective of the buyer, including:

  • Employment-related liabilities
  • Environmental liabilities
  • Litigation liabilities
  • Tax liabilities
  • Product warranty liabilities
  • Contract liabilities
  • Duress by seller such as health or monetary issues
  • Lack of time to complete the deal on the part of the seller
  • Not using an intermediary to remove emotions
  • Coming to an agreement too quickly/easily
  • Only one offer
  • Overall seller naïvety since a buyer may buy many businesses while a seller often only sells a business once

Click here to see a video of Ron Chernak and John Zayac two owners of large M&A brokerage houses, explaining ways to enhance or detract from a company’s business valuation.

How to Value an Existing Lifestyle or Micro Business

When it comes to buying a business, size does matters. Most lifestyle or micro businesses have under 1 million in annual sales. When it comes to lifestyle and micro businesses, the owner is also the top manager.

For business valuation purposes, a good rule of thumb for a marketable lifestyle or micro business is that the owner should generally earn about 10 to 20% of the gross sales.

Therefore, a lifestyle or micro business that does $400k in revenue should have an owner that earns between $40k to $80k per year from owning and working in the business.

Often when the million dollar gross sales per year threshold is eclipsed, the owner’s income drops to 10% or less. This drop is mostly due to the need to increase management,which leads to thinner margins, and higher inventory or carrying costs.

In summary, the important issue for you as a buyer is how much can you expect to earn?

When it comes to lifestyle and micro businesses where the owner is responsible for managing employees, taking care of customers, and other day-to-day activities, the owner likely views bookkeeping as a low priority. If anything, he relies on compiled financial reports and is far less inclined to use these reports to run their business. Therefore any financial records provided by the seller may be less accurate and require more due diligence on the part of the buyer.

From the prospective of an accountant or a banker, the value of a business is purely based on historical financial statements, which can be an incomplete view of a company’s real value.

Other factors that drive the value of a business valuation is its location, equipment, inventory, employees, patents, existing customer base, industry, vendor supplier relations, completion, and what you plan to do with the business after a sale. Therefore, you cannot rely on your accountant or banker to define a quantitative value of a business you are looking to buy.

Other value drivers aside, another rule of thumb is that businesses often sell for a little more than two times discretionary earnings.

To understand discretionary earnings, you must first understand that a small business is an economic entity that provides a product or service that customers buy in sufficient quantities to allow the owner to pay all costs and operating expenses, including the owner’s salary.

Let’s say that water represents revenue and a bucket represents the volume of all non-discretionary costs and operating expenses such as rent, employ salary (including a fair wage for the owner), marketing, insurance utilities, etc.

The lip of the bucket represents the breaking even point of discretionary income. The water or revenue that overflows the bucket is considered discretionary income.

Let me be clear– discretionary income is not yet profit since the surplus revenue can be used in a variety of ways. The owner can use the surplus to buy more inventory, increase his promotional expenses, pay off debt, or pay himself more money.

It is the discretionary income that is most often used in a business valuation. According to a business broker’s friend, with over 15-year experience selling businesses, the average selling price for lifestyle and micro business was 2.3 times the business’s discretionary earnings.

5 Reasons for a Business Valuation

There are many reasons to conduct a business valuation. Some business valuations are pretty straight forward while others can be quite complicated. If there is a good possibility that the valuation will be challenged on legal grounds or by the IRS, it is often best to have the business valuation performed by a qualified appraiser.

That said, I have counseled scores of clients on business valuation issues and I have come to the conclusion that there are five primary reasons for conducting a business valuation.

  1. The first and clearly the most popular reason for conducting a business valuation is related to some form of merger & acquisition (M&A) activity. Most of the time, it is the buyer that is attempting to value the business they are considering buying.
  2. Another reason to conduct a business valuation is related to estate planning. When a family owned business is passed on, there may be estate and gift taxes involved. The American Tax Relief Act of 2012 set the exclusion of estate and gift taxes at $5 million with a maximum of 40% estate tax above this threshold.
  3. As new members enter and exit a closely held business, there is often a need to establish shareholder or membership values for some form of buy/sell arrangement.
  4. Intergenerational transfers of ownership often involve transferring a mix of assets to several parties. Allocating them among the parties requires an understanding of the value of the asset.
  5. Finally, some owners choose to covey their ownership to their employees through an Employee Stock Ownership Program (ESOP), which requires credible evidence of the value of the business.

 


This post originally appeared in SteveBizBlog.com and was derived from content from just one chapter in the book “Buying or Selling a Small Business”.  Buy the compete book at Amazon.com.

When you buy the book you get links to exclusive streaming videos from experts in the Merger and Acquisition (M&A) space as they comment on key aspects and provide valuable insight based on their professional experiences with buyers and sellers.

Strategic Partnership

Strategic Partnership Principle – The Truth about Competitive Analysis

Manager entrepreneurs use their causal reasoning skills to conduct a competitive analysis to help them define a unique niche for their business. This is demonstrated by the blue ocean strategy postulated by W. Chan Kim and Renée Mauborgne. In contrast, founder entrepreneurs use their effectual reasoning skills to build strategic partnerships with customers.

Founder entrepreneurs do not start with a pre-determined target market or niche in mind nor do they conduct a competitive analysis to see who else is offering similar solutions since they are not sure of their ultimate solution yet. Instead, they target a single customer and conduct a dive deep analysis on their very specific needs. This analysis helps them understand and then design a custom solution to meet that customer’s specific needs with a “one size fits one” solution. They pick the brain of their single target customer and do not focus on their competitors. They strive to develop a product or service that is so well aligned with the customer’s desires that it dislodges any incumbents that are operated by manager entrepreneurs with a “one size fits many” solution. Once the solution is established, the founder entrepreneur looks for ways to re-purpose the solution for other potential customers.

By engaging the customer in designing the solution, founder entrepreneurs invite their clients to be strategic partners as opposed to simply someone to sell to.

When I started Horizon Interactive, an infrastructure business, my first customer was Digital Equipment Corporation. As a former employee, I worked with their divisions to design our deliverables and processes based on their specific needs. Rather than performing any upfront competitive analysis, we engaged the client directly to help us design our service offering. We even educated the client to possibilities they were not aware were of based on our technical domain experience using the three T’s of challenging sales.

Having the client participate in the design was more effective than speculating on what a potential customer might want, building it, and then trying to sell it to them. Furthermore, our customer has ownership in the solution since they helped design it and were much less likely to switch to competitors in the future.

Moreover, founder entrepreneurs often secure development funds before even committing resources to a solution by having a strategic partnership with their client. In this way, the founder entrepreneur has a low level of capital outlay when developing their offering.

One of my business mentors, Ron Muns, used the strategic partnership principle very effectively when he started his company Bendata. With the personal desktop computer just making inroads into businesses, companies needed a way to track the location of all their computer related assets since they were no longer all located in a central computer lab. Ron developed a strategic partnership with three clients to develop a software application to track all their computer related assets across their businesses. Each strategic partner contributed technical specifications for the application and provided a portion of the capital needed to develop the the first product.

In the end, Muns owned the rights to the underlining software while the strategic partners got their application for a fraction of the cost of doing it alone. The software Bendata initially developed morphed several times as he added new features to the application for new customers and to achieve a better Product Market Fit (PMF). Ultimately, the product went on to become the wildly successful GoldMine Customer Relationship Management (CRM) application and spun off several other successful businesses, including the Help Desk Institute, along the way.

As a variant of the strategic partnership principle, some founder entrepreneurs leave their employer and develop a business based on their extensive industry knowledge and relationship with their former employer’s vendors and customers. This was the case with Sam Walton who parted ways with his former employer, Ben Franklin Five and Dime, and created Walmart. Another example is Arthur Blank and Bernie Marcus who left their former employer, Handy Dan Home Improvement Center, and started Home Depot.

All too often conventional business advice discourages founder entrepreneurs from practicing the strategic partnership principle of making the customer part of the design process, fearing that exposing them to a less than perfect product will diminish their brand. Instead, they advise new businesses to identify the most profitable customer segment, perform a detailed market and competitive analysis, and define and build a unique product where there is limited competition before ever getting any real customer feedback.

Is your product or service based on defining a unique product for an untapped customer segment through the use of a competitive analysis or is it based on working directly with a customer and getting them to not only bring real world requirements to your design, but getting them to perhaps even pay for some or all of it’s development as well?


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Note: this post originally appeared January 20, 2017 at www.SteveBizBlog.com.

 

Business Model

What goes into a business model?

In 1904, King Gillette, the founder of Gillette Razors, not only invented, through patents, the razor, the blade and the combination of the two but King Gillette invented a new business model. The business model, known today as the razor-blade model, has been taught in business schools and implemented in almost every industry worldwide. In this particular model, companies sell a one-time product at a substantial discount that is complemented by another higher margin product that requires repetitive purchases – DVR, DVD, Keurig, razors, etc. Thus, King Gillette built a business model that has acquired customers for over 100 years.

Peter Drucker thought, in his theory of business, the sole purpose of a business model was to create a customer. Johan Magretta describes business models as a system that fits the pieces of the business together that tell a story of how the enterprise works. In today’s competitive environment, it’s vital that businesses know and understand their particular model and how they create customers. In a 2016 PwC survey, 74% of CEOS believed there are more threats to business growth than there were three years ago. However, 69% think there are more growth opportunities today. To capitalize on these opportunities, companies need to reevaluate their model to ensure it still fits their market. If not, then the company needs to innovate because they’re likely to be disrupted by competition.

Webster-Merriam’s definition of a business model is a design for the successful operation of a business, identifying revenue sources, customer base, products, and details financing.

If you follow Clayton Christensen and Mark Johnson, you know that they define business models as “four interlocking, interdependent elements that, taken together, create and deliver value,” The four components of a business model are the customer value proposition (CVP), profit formula, key resources, and key processes.

Customer Value Proposition

Companies that can solve a client’s problem or help them accomplish a job will be successful because it’s able to add value. A CVP comprises of a target customer, product or service offering, and the problem it solves.The CVP needs to be precise, and being precise is often the most challenging to define. Without precision, the CVP will be too broad and thus, creating too much competition. A company can focus on precision by helping to address four common barriers that keep customers from finding solutions to their needs: access, skill, insufficient wealth, or time.

Four questions to ask:

1. What is the company’s target market?

2. What solution is the business able to create?

3. Does the offering bring enough value to define its precision?

4. Does the CVP address the four customer barriers?

Profit Formula

The profit formula refers to the methodology the company uses to create value for itself while creating value for its customer. The profit formula consists of:

  • Revenue model: price x volume
  • Cost structure: economies of scale, direct costs, indirect costs
  • Margin model: understanding desired revenue volume and cost structure, the business will be able to calculate the contribution needed to meet expected profits
  • Resource velocity: how fast does fixed assets, inventory, and other assets turn over, and how well does the company utilize resources to support the margin model

Key questions to ask when determining your profit formula:

1. What is the desired revenue and desired profit?

2. Does the target market support the volume?

3. What fixed and variable cost will have the biggest impact on the company’s overall cost structure?

4. How does the company measure resource velocity?

Key Resources

The key resources for a company are the people, skills, products, technology, equipment, facilities, and brand. These resources are required to deliver the CVP to its target market.

When evaluating key resources, ask the following:

1. What are the company’s core competencies?

2. Does the company have the necessary technology, equipment, and facilities in place to align with the CVP?

3. How well is the brand position in the market?

 

Key Processes

Successful companies have managerial and operational procedures in place that will allow them to scale not only the enterprise but also the value delivered. These processes may include development, manufacturing, training, planning, sales, budgeting, delivery, and service.

 

Questions to consider:

1. What process(es) does the company do that is different from the market?

2. How does the dynamics of each process affect the relationship with one another?

3. What, if any, process is proprietary, or can be leveraged, that gives the business a competitive advantage?

A business model is simple but yet complex in its functionality due to its dependency on each element. In a synopsis, the CVP and profit formula define how the customer and company will receive value, and the key resources and key process will identify how that value will be delivered. In order to determine if the company’s business model is working or not, the enterprise will need to be patient and have an ongoing evaluation of the P&L.

Matthew Feltner

 Matthew Feltner is an accomplished businessman turned strategist, consultant, and entrepreneur.

______________________________________________________________________

1.   Magretta, Johan. “Why Business Models Matter” Harvard Business Review 80, no. 5 (May 2002): 86-92

2.   PwC “2016 US CEO Survey: Top Findings,” n.d., www.pwc.com.

3.   Christensen, Clayton M., and Mark W. Johnson. “What Are Business Models, and How Are They Built?” Harvard Business School Module Note 610-019, (August 2009).

4.   Christensen, Clayton M., Johnson, Mark W., and Kagermann, Henning. “Reinventing Your Business Model.” Harvard Business Review 86, no. 12 (Dec 2008): n/a.

Business Gtowth

Mastering the Three Engines of Growth

When it comes to growing your business, there are three essential engines of growth:

1. Paid Engine of Growth: Most entrepreneurs consider this the only engine of growth. Often this takes the form of paid ads on websites or advertising on T.V. to attract lots of eyeballs to your product or service. The more targeted the service is to your market segment, the higher the cost of the ad. The paid engine of growth could also include paying others to get customers. Paying for outside sales functions or commissioned sales are examples of paying others to get customers. Other times, the paid engine of growth is paying higher rent for locations with larger and more targeted traffic.

2. Viral Engine of Growth: The viral engine of growth is based on increasing awareness of your product or service by using your existing customers. The viral engine includes engaging customers as affiliates to help sell to their friends and associates. Pampered Chef is an example of a company that encourages its customers to host a party to help sell their products to their friends in exchange for free or discounted products.

Another version of the viral engine comes in the form of apps that are pointless without others in your network adopting them. Venmo, Voxer, and Facebook are examples where the more friends you get to use the app, the better it is for you.

When it comes to viral engines of growth you need to make their adoption free of worry or friction. Demonstrating a product to make it clear how to use it properly or making an app free and easy to download aid in the adoption process. See my previous post ”The Secret to Viral Product and Services” for more information.

3. Sticky Engine of Growth: Since it is cheaper to keep a customer than it is to acquire a new one, this engine is focused on maintaining low customer attrition so you only need to acquire a few new customers to continue to grow. Once you have a customer, it is necessary to keep them by making your product or service sticky based on its high switching cost.

Remember the days when your cell phone provider owned your phone number? Changing carriers made switching costs painful since you would have to contact everyone in your contact list to provide them with your new number.

Another example is chip manufacturers. Chip manufacturers help their customers design their chip’s functionality into their customer’s product, making it very difficult to simply go with another supplier. Employing the sticky engine of growth often means you can ask for higher margins since switching costs are paid for by the customer.

Which engine of growth do you employ and are there opportunities to employ one of the others more effectively?

Note: this article originally appeared at www.SteveBizBlog.com.

Target Market

What Is Your Real Market Potential?

When counseling clients or judging startup completions, one of the biggest swag figures I see is related to the size of the market they expect to hit. These numbers are often extremely large which too often causes startups to overspend pre-launch based on the overly inflated prospect of future sales.

In an effort to determine your product or services real market potential, it is advisable to follow the three step process many venture capitalists use to determine a product or service’s real market potential.

tam_sam_som

1. The first step in determining your real market potential is to ascertain the size of the Total Addressable Market (TAM). For example, if you were the Dollar Shave Club, your TAM in the United States would be the total male population less males under 17 that do not yet shave.

2. However, your TAM is an unrealistic target since you would never capture the entire market with no competition. Therefore, you have to also determine the portion of TAM that is the Serviceable Available Market (SAM), in other words, the market portion that you can more realistically reach with your anticipated sales channels such as direct sales, affiliates, or dealer networks.

To understand SAM, let’s look at ROHO Inc., the developer of a medical device for patients seeking relief from pressure sores we talked about in a previous post called “Four Business Lessons from the Sturgis Motorcycle Rally.”

ROHO Inc. knew their product could be extended to other markets, such as relieving sores from motorcycle seats. However, its established sales channels for medical devices was not a good fit for extending its product line to these new markets. Rather than invest heavily in establishing a new sales channel to expand into a potentiality lucrative new market segment of motorcycles, ROHO Inc. decided to sell their technology to HESS LLC. HESS LLC already had a sales channel in place in the motorcycle industry with its Danny Gray Seat Design Division.

Therefore, your SAM is a more realistic target than your TAM. However, the SAM is still an unrealistic real target since you will never have a total monopoly on your SAM.

3. Finally, you have to estimate the percentage of the SAM that you can realistically reach and stimulate to buy from you. This is known as the Serviceable Obtainable Market (SOM) or your realistic target market. Your SOM is the the most realistic fraction of SAM you can hope to gain based on your customer acquisition strategy.

In conclusion, it is not advisable to determine your TAM and then immediately assume you can capture a percentage, such as 1%, without doing further research to determine your SAM and ultimately your SOM.

Are you guilty of just guessing your market potential?

Business Planning

Business Planning Foundation – Begin With Strategy

Strategic Plan Sets the Foundation Annual Business Planning

Your company’s strategic plan creates a shared vision of what’s important to the organization and translates into a simple story about your organization’s future.

In a McKinsey Global Survey of more than 2,000 global executives, only one-third agreed that their corporate strategy approach represented “a distinct exercise that specifically addresses corporate-level strategy, portfolio composition issues.”

Increasing the time spent on strategy and involving more senior leaders in strategic dialogue makes it easier to stay ahead of emerging opportunities, respond quickly to unexpected threats and make timely decisions. An integrated PB&F framework links top-down, strategic targets to financial and operational bottom-up forecasts.

Key Questions To Answer When Preparing Your Strategic Plan
Mission –           

What is our purpose?

What do we do?

Vision –              

What is our picture of the future in three to five years?

Strategic Themes & Perspectives –        

What performance lenses should we use to evaluate results?

What are our focus areas?

What do we do better than anyone else?

What results do we need to achieve?

Objectives –     

What continuous improvement activities are needed to get results?

Strategy Map –

How do we create and improve value to customers and stakeholders?

Performance Measures and Targets –   

How will we know if we’re achieving the results we want?

Strategic Initiatives –    

What projects and programs will contribute to the desired results?

Note: this article was originally published at http://www.poewolfpartners.com. Follow Renita on Twitter: @RenitaWolf.

 

statistics

The Danger of False Marketing and Sales Statistics

Mark Twain made the following observation, which he attributed to Benjamin Disraeli, “There are three kinds of lies: lies, damned lies and statistics.” Let’s talk about the third type of lie, statistics, and how misleading statistics impact B2B marketing and sales.

According to truthpizza.org, “an obvious problem with statistics is that they can be simply be fabricated. Of course this could be true with any claim, but because statistics use specific numbers, they have a quality of authority about them, and we may be a little less suspicious than we would be for a more descriptive argument. Saying “83% of high school students admit cheating on tests” just sounds more authoritative than “most high school students admit they cheat on tests.”

Take for instance, the below chart which has been widely disseminated and quoted. It supposedly shows how a seemingly reputable organization called the National Sales Executive Association compiled data on how multiple contacts impacts sales close rates. The first time I saw this chart, I had a feeling that the stats are bogus – the data totally conflicts with our team’s experience with lead-to-revenue programs and metrics.

Misleading Statistics

Let’s dig into one of these statistics – 2% of sales are made on the first contact. Are you kidding me? There are many industries where making the sales on the first call is the norm so where does this 2% figure come from?

Of course it is important to follow-up on sales leads and be persistent, which is the point of this graphic. However, these statistics are made up and not based on any credible study. Adam Honing published a very good article about these false claims on Customer Think and an internet search will quickly show you that the purported organization called National Sales Executives doesn’t even exist. The problem is that people who are basing any of their marketing and sales initiatives on these lies pay a price when the reality turns out to be different than what the so-called stats indicated.

As another example, a business/life coach posted the following on her LinkedIn update: “Nine out of 10 people would rather die than change”. Really? Go ask the next 10 people you meet whether they would rather die than change. But I won’t be surprised to find other people quoting this fabricated statistic.

In regards to B2B sales, I’ve had two senior sales executives tell me that their teams close 50% or more of all qualified leads. Really?  Between my client-side and provider-side experience, I’ve probably run and measured several dozen lead-to-revenue programs and have never seen this level of proficiency. And in both of these instances the actual data showed that the close rate was below 20 percent.

And don’t even get me started on the companies that publish misleading data to sell their products – e.g. “According to an independent study, 92 percent of the people who take our weight-loss supplement lose 20 or more pounds their first month.” These fraudulent marketers know that gullible prospects hear what they want to hear and will discard common sense to buy the magic pill.

The following story, from a blog called Talk Money Café, shows how statistics can be manipulated: A mathematician and an accountant are in the same room for a job interview. The interviewer’s first question to the mathematician is:  “How much is $500 plus $500?” The mathematician replies:  “$1,000, of course.” The interviewer then turns to the accountant and asks the same question: “How much is $500 plus $500?” The accountant replies:  “Whatever you want it to be.” The interviewer then tells the accountant: “You’re hired!”

The moral of this story is to be skeptical of statistics – especially those that defy common sense and make your marketing goals harder to accomplish.

Note: this post first appeared at www.FusionMarketingPartners.com October 17, 2016.