Monthly Archives: March 2010

Experience vs Wisdom

I noticed a pattern…

This morning a colleague of mine, complained to me that he was confused by the fact that the builder who was doing his renovation, had 30 years experience but it appeared, was completely useless.

Last week during the Churchill Club function on Clarity of Thought, the homicide detective on the panel mentioned how he likes to develop a culture in his teams where people are regularly challenged, own up to mistakes quickly and easily and the move on.

Last week I was at a meeting of a community group I am involved in and praise was heaped upon a departing member, because it was considered the polite thing to do, not because they were any good – in fact quite the reverse.

So what’s the common thread here?

Its understanding that experiences don’t provide wisdom unless you learn lessons around what works, what doesn’t and what can be done better.

Endlessly I meet people that:

  • Think its helpful to only provide positive feedback rather than honest. This is a terrible shame because it means the target of their feedback can never learn from their mistakes. eg. It would be horrible to get told you stink in an job interview, but much worse to go through life thinking it was just bad luck you didn’t get the job.
  • Never acknowledge a mistake is theirs. They think its so important that their personal brand is associated with being right or winning that they will never ever, even to themselves, acknowledge their part in failure. They tend to say things like “the market wasn’t ready for us” or “it was the idiots that handled the execution, as my strategy was spot on”.

People who don’t learn from mistakes are incredibly dangerous. Never take their advice as their “wisdom” is non-existent and their intuition is faulty. Unfortunately though they are normally very good at bragging about their extensive successful experience.

Some call intelligence the ability to make finer distinctions. I say that when you have a job candidate that represents to you that they have 15 years experience on the job, don’t assume anything other than that’s how they spent their time. Find out what they failed at and what they learned from their failure.

I’d also recommend, as our homicide squad detective did, create a culture within your organisation where mistakes and failures are recognised early and easily – and are learnt from.

Social Media undermines Sports Sponsorship

Its not news that Social Media is big business at the moment, and rightly so, because its a game changer.  Consider this:  If I am interested in raising awareness of my product with the type of person I who barracks for Melbourne Football Club I could take the traditional route and become a club sponsor.   Big bucks and a low level transparency on the impact.

Alternatively for say 1% of the price I could run a campaign on Facebook, targeting people who’s profile includes being a fan of the Melbourne Football Club.  And with Facebook I know exactly how many times my advertisement has been viewed and clicked though.

A quick look on Facebook shows the following fan bases for Australian Rules Football Clubs. These are people I can touch without having to pay a premium to the AFL or the club.

Team Facebook Fans *
Melbourne Demons 3,960
Western Bulldogs 4,254
Port Adelaide Football Club 7,408
North Melbourne Football Club 9,502
Brisbane Lions 10,207
Richmond Tigers 11,284
Carlton FC 12,010
Fremantle Dockers 12,617
Hawthorn Football Club 13,915
Geelong FC 15,532
Sydney Swans 17,677
StKilda FC 20,750
Collingwood Football Club 25,601
West Coast Eagles 32,845
Essendon FC 38,338
Adelaide FC 39,136
AFL 86,463
 * Note the number of fans changes everyday, plus in some cases
there is more than one fan group. In that case I have taken the higher number.

The same type of thing is also happening in other sports such as motor racing, Cricket, rugby and soccer.

Social Media platforms such as Facebook also allow you to be dynamic, trialling dozen of messages per day to optimise click through rates.  And the price is cheap.  I recently ran a campaign that was viewed by 5,400 graduates of a particular university one day.  The cost?  $130.

By the way, if I ran a business that made its dollars raising sponsorship funds, or was highly dependent on sponsorship for revenue, I would be very concerned about now.

Does Commission Only sales actually work?

Quite regularly I get offered  commission only sales work.  Rarely though its ever phrased that way.  Normally its a discussion about how exciting and lucrative the opportunity is with a statement at the end like “we don’t pay retainers though”.  Instead there is a discussion around “spotters fees”, “trailing revenues”, “your margin” or being “looked after”.

For me its not normally just  products or multi-level marketing schemes, its about larger transactions eg “sell my business” or “can you get some serious money involved”.

Commission only has been around for along time, however I believe it has gained transaction in the last  decade or so the rise of business schools has communicated the message that its a cheap, low risk way of gaining sales.  In some cases it has been highly successful, for instance selling Encyclopaedia’s.  But like most things in life the multitude of failures are hidden from us as we celebrate the lone success.

So When does it work?

There are three situations, or combination of situations where Commission Only sales seems to work well.

  1. When the product is easy to sell, commission only provides a way for the salesman to maximise his earnings.      I have a friends that sells advertising on a commission only basis, when his peers have a base combined with a much lower commission.  He chooses commission only as he spends his day working lists of old customers, which have a very high percentage of people that are ready to make a buying decision.
  2. When the “salesperson” is already selling to the target audience and your “product” would simply be layering  on additional revenue with perceived minimal effort.  This option also covers selling though an ad hoc opportunity.  eg I sat next to this guy at lunch and ….
  3. Commission only also seems to work best when their are short sales cycles measured in hours or days.  Long sales cycles cause two issues, first the time investment increases requiring a much greater ROI for the salesperson.  The second issue is the risk  the sale “undermined” by a competition, a member of the same sales team or even the vendor also increases dramatically.

When does it not work

  1. Obviously its not going to work when you get the reverse of the above.  When your product is difficult to sell, when your salespeople have to find brand new customers and when there are long sales cycles.
  2. However it also doesn’t work  when its an excuse to not invest in your  sales activity.  I don’t mean just pay retainers, I mean not even providing adequate training, management and follow up.  All to often Commission only is perceived as a “I’ve got nothing to lose” solution as it costs the vendor almost nothing.  The reality is that it can lull you into a false sense of activity, or worse you can have your brand completely trashed.
  3. It doesn’t work when the agreement is informal, or the audit trail is poor quality.  Both which normally translate into perceived breaches of the agreement, a lack of trust, and sales coming to a standstill.  All to often I see merchant banker types fighting over who was owed the commission on a deal that mutated and had mutltiple parties involved along the route to a transaction.
  4. And finally, it doesn’t work when what each party brings to the table isn’t valued properly by the other party.  For instance I am endlessly approached by people who wish to access my network for free (the one I slaved long and hard to build) and only wish to pay me if they can conclude a transaction – an activity I have no control over.  Another regular theme is that I can have a website built for them at no cost and then make margins from their brilliant product.

A couple of other points to consider:

  • A Commission Only sales force has little interest in providing customer service beyond the sale.
  • The hiring and management of Commission Only staff can can be a huge drain on the management team, as these people are all independent operators.

My point of view is that Commission Only is a great tool and the right tool when used properly.  Mostly though its an ill thought through strategy that is doomed to failure by the “I’ve got nothing to lose” mindset of the vendor.   Am I wrong?

Selling Services for A Fixed Price

Recently I had a look at Billing  Time and Materials for your services.   This time around I thought I would have a look at packaging your offering and selling it at a Fixed Price.

Packaging up your offering is not for the faint hearted though, you need to think carefully about which of your services are “standard enough” to be packaged up as well as where you can derive benefits from the packaging.  Will the automating, creating standard process and delegating that naturally occur under packaged services increase your profitability?  Can you develop standard marketing collateral and will this save you time and make the sales process easier?  Finally and most importantly though, how will your customers feel about a fixed price billing?

As mentioned before to, it doesn’t have to be all one way.  You can have a fixed price base service, that your clients can then extend with either further packaged up services, or time & materials billing.

Consider the average web developer:
Hosting & Domain Name :           Fixed Price
Core Functionality :                      Fixed Price
Extended Functionality :            Time & Material
Design :                                               Time & Materials
Maintenance :                                  Time & Materials

I note that Accountants & Lawyers have traditionally  used fixed price billing for small standardised offerings such as registering a new Pty Ltd company.  Almost every service provider has a fixed fee for this.  However there is a trend for fixed price billing to be offered for large expensive services to the big end of town as well.  Try searching Google for “fixed price audit“.

Pros

  • It offers you the ability to increase profit margins and grow your business beyond the 112 hours a week you are awake for.
  • You don’t have to spend your time on things such as explaining bills.
  • Its much harder to “shop you around” as your product can be easily differentiated.  You are no longer offering an hourly rate, but an outcome of your own definition.
  • The processes, automation and delegation that blooms under a fixed price model means that you get to make money whilst you sleep and you can even take a holiday and still get paid.
  • Customers are easier to sell to, and happier under fixed price billing as it means:
    • you wear the risk on the job,
    • they have certainty around their budget,
    • outcomes tend to be more clearly articulated,
    • they don’t need to spend as much time, effort or stress monitoring your effort,
    • they don’t particular get upset when you outsource effort to cheaper resources, and
    • they see you as motivated to finishing the job with speed and quality.
  • Investors are more likely to be interested in fixed price billing as it means your business model can be scaled, without relying on hideously expensive, unreliable, fickle resources (i.e. you).

Cons

  • Fixed price billing requires a lot of thinking through around which services can and should be packaged up?   Picking services that are too individualised can mean a loss on the job.
  • If you want to improve profitability by automating, building process and collateral  or delegating – you need to understand what your ROI will be.
  • It increases your risk on the job, as you get will get paid a set amount, no matter how long it takes you.
  • It makes it more difficult to be dynamic, which may be exactly why the client wants to engage you – their concepts could evolve or they maybe want to stay ahead of the market place by outsourcing innovation to you.
  • You will need to spend energy trapping and managing potential clients variations (and expectations) for billing purposes.

It Suitable for

  • If your offering is reasonably fixed or has a lot of “same” components for every customer, Fixed Price billing is a way to create scalability and increased profitability in your business.
  • Its suits areas where routine processes are the major component of the job.
  • It suits projects where there is low danger of the job dragging out because of unknown factors such as technical risk.
  • It suits projects where there is likely to be only a small amount of scope creep.
  • It suits more mature organisations who understand the value proposition of their customer offerings and their niche in the market.
  • It suits young organisations that feel that they have earned the right to grow.

Top Tips

  • You don’t need to introduce fixed price billing in one go, in fact I would highly encourage you to dip your toe in the water with one type of standard service
  • Experiment with the pricing and components of the offering. However never ever change prices without changing the offering (as value must change when prices change).
  • Make sure you control any milestones that your billing is connected to.  I have agreed to charge customers the first invoice on the first milestone which was them selecting an option for options we researched.  Consequently they never picked and option and we never got paid.
  • As part of negotiations, include as much of the  “pre-sale” discussions or early design work into the fixed price service so that you can have them paid for.
  • Trade more invoices for lower value invoices as customers generally prefer this.  The car leasing  industry knows that every Australian will package metallic paint in for an extra couple of payments but would never consider an increase in the payments.
  • Segment your invoices into fixed price lines where possible.  Fixed price means that standard line items such as “Travel Fee” will be paid without blinking.
  • If multiple invoices -Match your invoice to your risks.  Never have a client “owe” you for WIP as these are always the people that will fight a bill.
  • Put effort into building marketing collateral for the fixed price service.  Every client at some stage will let you know the value to them and this should be included.
  • Think outside the box about automating, creating processes or delegation to dramatically reduce your costs.  I recommend you read up on Lean Manufacturing to understand about reducing waste.
  • Don’t be lured into offering a fixed price on a service when you haven’t thought it through.  Just because a customer wants it and you offer fixed pricing on some of your other offerings doesn’t mean you always should.

To sum things up, Time & Materials Billing allows you to innovate and explore, Fixed Price Billing allows you to grow.   But you need to be sure you are ready for Fixed Price Billing, not just react to a customer demand.

Good blocking technique

I met with “John” at a coffee ship where we were to discuss his business idea that involved sports sponsorship and the internet.  John put down his crisp manila folder down on the table and we introduced ourselves as we ordered coffee.  John spent probably 10 minutes explaining his idea and I spent another 20 minutes asking him questions.  Finally I asked him what was in the manila folder.

Embarrassingly, it was empty.

It turned out that John’s idea was no more than that.  He hadn’t actually conducted any researched or validated anything he had said.  He just thought it was a really good idea and hoped I would make it happen for him. I tried really hard  not to be angry with John for wasting my time (not completely successfully) as I like to be responsible for myself.  I was the one who let him waste my time.

This coffee with John occurred about 7 years ago and I vowed I would never have my time wasted like that gain.  And I haven’t since developing a really simple technique.  I have shared this technique with others on occasion who have enjoyed it and I got reminded of it the other day, so I though I would write it down.

The Lesson – If someone wants you to do something for them, get them to do something first.

It almost doesn’t matter how small the task is.  The world is full of wannabees who aren’t prepared to step over the smallest barrier to make their “dream” come true.

eg.  Email me a one page briefing note first.  I will then get my assistant to tee up the meeting.

eg. Can you email me names of the two businesses that people are currently spending money with to solve the problem today?

eg. Can you register the business name, and send me the registration number?

It doesn’t matter how good their idea is, if they are fail at the first hurdle, you can never do business with them.

My experience to date is around 90% of people that want to catch up for a coffee to discuss their idea cannot cross the first hurdle.  My pay off is that I remain calm and simply don’t waste time with dreamers.

John’s killer idea never made it to the one page brief.