How to Apply Cumulative Advantage and Social Agents to Scale Your Business

As business owners, we often focus on meeting the desires of a specific prospect so we can make the sale, but that is like being an employee in the cash flow quadrant where you only get paid when you make a sale.

This approach to sales is very labor intensive and therefore not very scalable. To succeed in most businesses, you have to be scalable and that means creating a word of mouth epidemic. Therefore, you must locate, attract, and nurture what are called “social agents” to help spread the word about your product or service.

Social agents, sometimes called social influences, are people that share your message with others. While a social agent may actually never do business with you, they love recommending you to others.

While working with a prospect one-on-one has the opportunity to make a single sale, attracting a social agent creates the opportunity for a business to make many sales. As related in the story “My Greatest Source of Business Was Right Under My Nose” by Andrew Griffiths the author shares how simply befriending his delivery man yielded a social agent that translated into significantly higher sales.

By engaging one or many social agents, you will not only keep your sales pipeline full, but through a principle known as cumulative advantage, also known as the “Matthew Effect,” it will enable your business to scale over time.

The principle of cumulative advantage states that once a business gains a small advantage over others in its industry, that advantage will compound over time into an increasingly larger advantage. The effect is well known and is embodied in the catchphrase, “The rich get richer while the poor get poorer.”

To demonstrate this principle, think back to the last time you played Monopoly. Each player starts out with an equal sum of money and on a level playing field. As the game progresses, one player (through a combination of luck or through skill) begins to amass a few more income generating properties than the other players. The additional income allows the player to invest in even more income generating properties in comparison to the other players. While there may be some ups and downs during the game, there is a snowballing or amplifying effect that acts as a tailwind for this player. Most often, this advantage continues to multiply and grow as the game progresses. What started out as only a slight advantage ultimately results in this one player owning  the entire game board. The advantage is small at first, but by the end, one player dominates all the rest.

As an entrepreneur, your business may be seemingly just moving along sideways for an extended period of time. Then one day, you attract the right social agent who begins to promote your business message and you get that seemingly invisible boost in sales.

Over time, this advantage continues to grow through the principle of cumulative advantage. It occurs slowly at first, perhaps even inconspicuously, but gains momentum over time. This momentum creates a kind of gravity, making more and more people aware of you and your business. Once your customers perceive you have an advantage, the gains begin to accumulate at a much faster rate as you begin to dominate your competition.

Do you focus on finding, attracting, and nurturing social agents in an effort to employ the principle of cumulative advantage to scale your business?

This post originally appeared March 31, 2017 at www.SteveBizBlog.com.

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

Process Mistakes that Reduce Busines Value During a Sale

Between the time when a business owner puts his company on the market and the closing date, there are two events that can occur which either kill the deal outright or negatively affect the final sale – the inadvertent disclosure of the sale and the accidental disclosure of proprietary information to competitors and customers.

The most common is the inadvertent disclosure of the impending sale. When the sale is unexpected and word leaks out in an uncontrolled manner, it has the very real potential to sink the deal in a variety of ways. For one, when employees discover that the company is for sale, they wonder what else they don’t know and become concerned that they may be on a sinking ship. They may put out feelers and begin to look at other employment options. As key employees leave, the value of the business is negatively affected. The entire sale may die if enough people leave. Moreover, employees that feel blindsided may lose respect for the company and management, affecting their performance even if they stay.

The inadvertent disclosure of the sale may also cause customers to question the reason why the owner is selling. They may begin to look for alternatives, fearing that unwelcome changes may occur after the sale. Competitors can use the news of the sale to pirate your best customers and employees. Even your suppliers may start selling to your competitors because they are uneasy about the future.

In addition to the inadvertent disclosure of the sale and all the negative things that snowball out of it, sometimes during the due diligence process the seller will discloses proprietary information to competitors and customers. Generally, the potential buyer is covered by a confidentiality agreement. However, the due diligence process performed by the buyer sometimes creates enough confusion that proprietary information is mistakenly disclosed. Someone somewhere makes the incorrect assumption that what they are discussing isn’t consider proprietary and word leaks out. Once the bullet has left the gun, there is no getting it back.

How will you protect your business value against inadvertent disclosures?

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Note: This post originally appeared April 6, 2016 at SteveBizBlog.com

 

Business Buyers

Types of Business Buyers

When it comes to the buyer of a business, buyers fall into one of two basic categories: financial buyers and strategic buyers.

Financial Buyers
Financial buyers value a business based on its past earnings, but decide to buy a particular business based upon its future earning potential. While small lifestyle businesses are often bought by individuals, larger businesses are primarily bought by investment groups and high net worth investors.

Strategic Buyers
Strategic buyers, also called synergistic buyers, may value a business based on its past earnings, but decide to buy a business based on its intangible assets. Often strategic buyers are buying things you never anticipated.

In one case, I recall a struggling lumber yard was bought on the cheap. The sell just assumed that it was going to sell its business to a financial buyer. Because its sales were declining they thought that the business could not command a premium price. In reality, the buyer was a strategic buyer who had no intention of operating the lumber yard after the purchase. The strategic buyer was actually purchasing a deep water dock on the property of lumber yard.

Strategic buyers are often competitors who want your intangible assets, market share, or location. They could even be customers that want to expand their business downstream or vendors looking to expand upstream.

Can you tell the difference between a financial and strategic buyer?

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