Category Archives: Business

Good Revenues

“What makes for good revenues?” You ask.

good revenues from shaversWould you rather own Dollar Shave Club or the Gillette Corporation? Probably the answer is Gillette, because its worth a hell of a lot more. But, the answer could be different tomorrow because of Dollar Shave Club’s good revenues.

Gillette was founded in 1904, has 750M customers and is valued at USD$19B. Dollar Shave Club was founded in 2011, has around 2M members and was valued on sale recently at USD$1B. This means that Gillette’s customers are valued at USD$25 each, whereas Dollar Shave Club’s Members are valued at USD$500 each. They both sell razors! Startling, isn’t it?

Lets have another look, say Engineering firms. I have held commercial and leadership roles in engineering businesses (Avionics, Telecommunications, Machine Tool Engineering, IT ) for half my adult life, so I reckon I have some insight into how they operate.

Your standard engineering business offers design services, and may also offer a bit of hardware, software and installation. Perhaps they also offer maintenance services for the hardware and software. Commercially, their revenue is generated from a customer that they win a big project with, then they may pick up a trickle of maintenance work. If they’re lucky, the customer uses them again for another project in another area.

So what’s wrong with the traditional revenue model?

readitional business has difficult revenuesFirstly the future is always hard to plan on. Forecasting sales is really difficult as your confidence in invoicing dates is low. All to often future forecasts are based on last years data, without any insight on which customers the sales will come from.

Secondly this means they will be generally less profitable as they need to endlessly spend more on acquiring new customers, plus their operational people are expensive but regularly benched.

Thirdly It’s always going to be feast or famine when it comes to cashflow. Times of famine also mean you lose good people!

Perhaps some innovative thinking is required?

When designing an offering to the market, a large number of requirements need to be addressed:

  • Corporate strategy alignment
  • Customer problems that need solving and their demands for a specific bundle of features  and benefits
  • Your own operational capability and supplier capabilities
  • Legislative, environmental and community requirements
  • Internal requirements from marketing, operations, finance, IT and human resources etc, etc

But what I’ve noticed over the last 30 years or so though, is that there is one area which gets very little attention – the underlying commercial arrangements, or commercial packaging of an offer. Everyone tends to use industry norms instead.  So that’s what I want to address with this article, and answer the question “What makes for good revenue?”.

Commercial Packaging is the Key to Good Revenues

Experience indicates there are 3 principles of good commercial packaging, that should be considered.

  1. Low Barriers to Entry
  2. Maximise your Profitability
  3. High Barriers to Exit

Pretty simple, yes? So let’s dive a little deeper.

Low Barriers to Entry

So on top of creating products and services your customers value,  you want to make it as easy as possible for the customer to buy.  So how do you do this?  Well, lots of ways (and I’m sure my list isn’t exclusive).

lower your drawbirdge to make selling easierHave a Trusted Brand – Consumers still insist on buying pharmaceuticals from name brands that are chemically identical to the generic brands, but three times the price.

Lower Entry Cost – Large upfront costs can be turned into “one low monthly payment” with financing leases. Mobile phones are costed into contracts rather than having an upfront payment. Colour printers are discounted to make them easy to buy and profits are made from the ink. Some features can be removed and sold back later as “accessories”. Perhaps the type of revenue model (sell, rent, subscribe, licence, usage, brokerage etc) should be altered to lower the cost.

Lower Ongoing Cost – Consumers have a much higher propensity to buy a product with lower ongoing costs but a longer contract, than a higher costing short contract that has the same total value. Lower ongoing costs doesn’t mean you earn less! $100 a week for 10 weeks, isn’t nearly as valuable to you as $50 a week for a year! Its why adding the metallic paint option to your new car costs you another month or two of repayments, rather than increasing the monthly cost. Its why the first service of a new car, appears to be free.

Reduce Risk – “Try before you Buy”, “30 days Free Access”, “Freemium” & the “Money Back Guarantee” are common ways of reducing risk. Some of these cross over as  tactical marketing solutions, not underlying commercial packaging, but they are worth considering.  Another method can be to change the business model and offer a rental of plant & equipment first, for clients who are not sure they will get good use out of a product.

Maximise your profitability

So once you have got the customers, you want to make as much money from them as you can, for as long as reasonable. Right? This translates to:

jump as high as you can to Maximize profitabiltySeek Annuity Income – Wouldn’t it be better if one sale led to months or years of revenue, rather than a couple of milestone payments then you’re done?  Annuity income means getting ongoing regular payments from just one sale.  It can come from a business model that charges a regular fee, such as rentals, subscriptions and licensing. It can come from selling consumables such as printer ink. It can come from selling consumable products or bigger items with built in obsolescence such as smart phones. It can come from selling product extensions such further musical albums. It can be supported by supply contracts and automatic resupply.

Lower Costs – Profitability increases as you lower your costs. Review your value chain and eliminate waste. Automate the routine as much as you can. Substitute cheaper resources whenever possible. It could mean having a graduate trainee program, it could mean FAQs and technical manuals written and published online, it could mean investing in systems to support your customers!

Higher Prices – Don’t leave money on the table, use research to understand how your customers value your solutions! Understand how they will pay a premium for a better solution! Jon Manning, the pricing expert behind Pricing Prophets once said to me, “best practice is always having some price experiments going on”.

Automate the Cycle – once you have sold to a customer, you don’t want to put a decision in front of them every month to continue buying. Automate the delivery, invoicing and payments wherever you can!

High Barriers to Exit

When you have a profitable customer, you don’t want to lose them as new customers are much more expensive to acquire.

A Better Customer Solution & Experience – generates more loyal customers than a loyalty program marketing comes up with. A cancelled flight is far more damaging thpenalities for exitan expired frequent flyer points, and I don’t care that Telstra is more expensive, if you want to check your email in regional Australia, they’re the only choice. Beware unethical behaviour, it appears lucrative in the short term, but will cost you in the long run.

Requires a Loss to Exit – Nobody wants to lose their email address which traditionally keeps most people with their ISP, long after they start to think about leaving. If you live in the Apple ecosystem, you don’t want to lose all your apps (covers, in car holders, chargers etc) when you move to Android, and vice a versa.

Requires Effort to Exit – Nobody wants to lose their mobile phone number when changing phone companies, which is why the Government had to force number portability onto Optus, Telstra etc. But despite it being a reasonably easy process, the Telco’s will still make you jump through alot of hoops to exit. It’s a pain, and its deliberate. However it’s nowhere near as painful as changing Banks!

Requires Penalties to Exit – Minimum contract lengths and exit penalties have found their way into an enormous number of industries, despite having no relationship to the underlying costs that customer churn causes. If you are renting anything or subscribing for access to a service, expect to be locked in with alot of pain if you try to break the contract. See Smartphone and ISP contracts!

So what would happen when you re-engineer your business for good revenues?

  • Perhaps engineering businesses would see themselves as sellers of more lucrative maintenance contracts, with the initial design project just the gateway? The service teams would no longer be the poor cousins of the project teams!
  • Perhaps expensive suit manufacturers, could package in drycleaning services to the monthly fee you pay for accessing their clothing line.
  • Perhaps Pharmacies could help you reorder your drugs as you need them, rather than waiting for you to come in.
  • Perhaps Real Estate Agents would provide services around building value in your house over the long term, rather than just  appraising it and selling it.

And perhaps the business that you launch and grow, will become a valuable commodity. Looking at Dollar Shave Club again, their revenues per customer are valued at a massive  20x higher than a competitor selling the same product in a traditional way! Dollar Shave Club clearly has the “good revenues”.

Who wants to actually slaughter a cow?

The Butcher and the Value Proposition

Every time I hear people working in digital in Australia complaining about potential clients not wanting to pay for their services, or not truly valuing their services, I sigh…. They somewhat viciously call these people, the non payers, the Parasite Economy.   But instead;  rather than blaming others,  perhaps they should be thinking about their own value proposition!

Because I strongly disagree with them.  In my argument I like to use the analogy of the Butcher. Because A. I reckon the Butcher is a great analogy and B. It tends to upset the intellectual elite who embrace innovation and reject without thinking the “patently absurd notion” that they could learn anything from Butchers.

Evolving the Butchers Value Proposition and Business Model

But here’s the thing, the Butcher’s value proposition and business model is mature, clear and valued.

The value proposition is simple; people want to get some meat locally, but they don’t want to actually butcher a cow (yuck!) or have to store an entire dead cow (difficult).

The winning business model is to put a shop on the high street without competitors, front load your cabinets to look bountiful and be hygienic.

But when you pick at the surface, things get a bit interesting. Butchers have evolved their business model over thousands of years. You can be sure that along the way entrepreneurs have tried out different variations on the offering, and found they failed to deliver as much value as selling meat in a butchers shop. Do any of the below ring a bell?

  • Selling you cows for slaughter – checkthe value proposition of the butcher
  • Slaughtering you cow at your request – check
  • Providing you a slaughtering room to do the deed yourself – ?
  • Providing and sharpening butchers knives – check
  • Providing a large cool room for you to store your dead cow – check
  • Bringing meat cuts to you to buy, door to door – check

You see almost all these offerings are plucked from different parts of the value chain, but the local butcher operates the part where his value is maximised and easy to understand. He converts larger pieces of meat into a variety of meal size portions makes them available for you locally. It sounds simple, but it took thousands of years to evolve to this.

How can you not learn from this evolution of a business, or find it fascinating?
Its quite apparent that when people complain of potential customers not valuing their service, the truth is not that there is no value, but the market hasn’t yet determined where the simplest and greatest value is.

Perhaps if you look at your offering through this lens, you can evolve your offering to something that’s easier and more lucrative. Note – nobody asks the Butcher for free food as it will be good exposure for them as there is no Parasite Economy for Butchers!

And when he innovates?

Butchers know that when competing, you get the greatest acceptance and valuing of innovation when it is a small referenceable change rather than a complete paradigm shift. Which is why you see new and different sausage mixes being on sale – rather than lab grown meat in the cabinets!

manage sales

Manage sales activities, not just outcomes

What do you think is going to happen if you think the way to manage your sales function,  is  simply double last year’s sales to create this year’s targets?

  1. Your sales will double?
    or
  2. Your sales staff will start looking for new jobs?

I’d vote for B every time. As you can’t just double sales without a plan, and only checking in on a sales teams performances at the end of a year is a disaster.

See there is a couple of things wrong with just setting bigger targets.

  1. Targets require resources to get you there.sales activities
  2. Targets are designed to tell story at moment in time, not help you with the journey to get there.

Manage Sales Activities

Most people are aware that sales require activities to generate them, and that series of activities is normally called a pipeline or funnel. Perhaps 10 leads give you one prospect, and 10 prospects generate you one sale. In that example, 100 leads generate 1 sale. So to double your sales, at the simplest level, you need to double the number of leads you generate. If your average sale is $50K and your business turns over $1M a year, you need another 20 sales to get you to your two million, or another 2,000 leads require generation per year.

(Note you can also focus on multiple funnels, changing the ratio’s and the size of the sale!, but Im not talking about this today).

So to specifically address point 1, to double your sales you need to invest in doubling all the activities in your pipeline. I.e. how are you going to generate another 2,000 leads? Spend more money on SEO?, Spend money on PR?, Spend money on a content strategy? Spend money on advertising?

Hopefully I make my point. A sales target without a supporting plan and resources allocated to achieving it will fail. Sales staff know this and will start looking for a new job before they get blamed for managements lack of planning and execution.

The second thing wrong with just setting a bigger target is its focussed on measuring performance at the end, not along the journey. Making it much tougher to manage sales staff.

Set Activity Targets

I’m a big fan of two types of targets – sales outcomes and the end of a big period (monthly, quarterly yearly) and activity targets for your regular meetings (daily, weekly, fortnightly).

By your performance, you will be able to generate indicative ratio’s of how your sales funnel works. For example (for normal week):

• 10 leads from the website.
• 20 leads from advertisements in industry magazines.
• 10 leads from attending two events.

We may also discover that roughly 10 leads generate us 1 prospect, and 10 meetings with prospects generate us 1 sale. Therefore, our baseline operational cadence per week is:
• 30 leads generated from Marketing Activities
• 2 events attended
• 10 leads generated from events, and
• 10 prospect meetings conducted by sales people
However the average week has no sales, as our $50K sales occurs every 2.5 weeks!

Therefore a weekly sales meeting focused on sales outcomes only would be less than useful as even though we are supposed to generate sales averaging $20K per week, sales occur only once ever 2.5 weeks and are that the $50K per sale level. Hard to tweak your activities, when you are guessing on outcomes.

But a sales meeting focused on our activities and whether we have the required operational cadence is vastly more useful.
For example if out week generated (with suggested decisions in brackets)
• 30 Leads – from the website (Big Week!, is this a trend that means our ratio’s need revision?)
• 0 Leads – from advertisements (better investigate what’s happening)
• One Event – attended by sales staff (need to lift our game and identify some events to attend)
• 20 Leads : from the one event (can we discuss what made this event such a high performer so we can replicate it?)
• 5 Meetings – Attended with prospects (That’s too low, what’ss preventing us from getting out the door?)

You see focusing on your sales activity or your sales cadence allows you to make small changes to improve performance as they suggest themselves. Focusing on outcomes only makes staff either happy or sad.  Manage sales activities!

Vision and Coffee

coffee and visionI like coffee. The drink sure, but also the doing. The concept that we can exchange information, ideas and insights much more naturally over a drink, than if we were sitting in a meeting room. For instance, yesterday I had a coffee with a woman who was having difficulty growing her marketing business. There were a number of reasons for her challenges but one specific reason caught my eye.

She had the commonly held belief that you should envision a better world, and work towards changing things to your vision. In her case she felt that too many of her potential clients were failing because they didn’t have a strategic marketing plan. She wanted to change that. Unfortunately, the vast majority of potential clients just didn’t care.

Now there is absolutely nothing wrong with having a vision of how you want to change the world, but can I suggest that its better if it’s a big vision, rather than a small one for personal gain. Everyone loves what Elon Musk is trying to achieve with Tesla, Space X and Solar City. Everyone loves what Job s did bringing design to the forefront. Everyone loves the fact that Ghandi chose peace as the method to effect change. These are all big visions. No one loves a small vision except for you.

If your vision is small, perhaps it’s better to start with viewing the reality of a situation clearly and take advantage of it, rather than struggle to implement a vision no one else cares for. In her case it turns out she was also extraordinarily good at acquiring sponsors for events. There is clearly massive demand for assistance in this and its easy to sell. The sponsor acquisition service can also be a gateway product to selling services such as developing strategic marketing plans once you are trusted and clearly cash flow positive for the client.

I would package up the sponsor acquisition service with something like a small kickoff fee, then a commission payable on the value of the sponsorship. So from the client point of view the risk is very low and the value is black and white. There is little need for others to “believe” in your vision.

Its hard to embrace this “realist” approach though. Perhaps the coffee tastes a bit too bitter. Although Im sure you will get used to it.

Strategy, the Accounting Equation and the failure of Arrium

If I remember rightly, the very first thing you learn in Accounting in first Year Uni is the Accounting Equation.  The fundamental framework that underlies the recording of a business’s activities.

Assets = Liabilities + Shareholder Funds

It means that for everything a company has, there is a claim on it by either the owners of the company, or by those that the company has a liability to (i.e. its suppliers of labour, inventory, cash etc).

But its actually more than this.  Bear with me, its actually the basis of strategy!

Everyone’s heard the lie line “the purpose of the company is to increase the wealth of the shareholders”.  So the Board of Directors can believe they are acting correctly and ethically when they pay out dividends, even if this slowly compromises the company’s ability to survive.   Almost certainly this will also shaft the suppliers to the company.  So when a Board ignores warnings and continues to give cash to shareholders, Administrators need to step in to start looking after suppliers.  i.e.  Looking back to our Accounting Equation, the shift in strategy becomes obvious – the emphasis moves from looking after shareholders, to looking after those with the Liability  (the Shareholders).

This isn’t abstract, it translates directly into the real world.  Have a look at Arrium.  Since One Steel became Arrium in 2012, it paid out a large percentage (41%+) of its profits as Dividends.   Despite plenty of warnings that trading conditions were deteriorating, despite profitability diminishing, and having to maintain crushing debt levels.  It still looked after the shareholders.  Only in 2015 did it have to call a halt to the Dividends.  There was no building a war chest to make the company more resilient.   Consequently, the Administrators have taken over and will now look after the Creditors, to the detriment of the Shareholders.

So the fundamental strategy of a company isn’t the value proposition of a company that it takes to a market segment,  it’s how it balances the competing needs of owners and suppliers so that it can survive!

see the forrest and the trees

My catch phrase this week has been “Think like a Marketer, Act like a Salesperson”

A colleague went to raise $16M with a cunning plan. Two investors told him his plan was stupid, not cunning, and he pretty much threw his pitch in the bin.

See the forrest and the treesAnother colleague deployed some new infrastructure, based on market research for the demand. He blew his dough as it turned the research wasn’t nuanced enough. There was no demand for the new version of offering.

Now I have been a marketer and a salesperson, and what I have noticed is that most people have a tendency to think like a salesperson, and act like a marketer. However, success in business development tends to come from operating the other way round. What do I mean?

Sales people operate at the coal face, consequently their intuition and insight into how customers feel is excellent  – they are constantly altering their behavior based on feedback. However they tend to wear their hearts on their sleeve. If three customers in a row hate a new product, they will give up on selling it.  They don’t see the market, they only see the prospects. (Just see the trees, but can’t see the forrest)

Marketers have a much more dispassionate view of market places. They may estimate, as in the case of Encyclopaedia Britannica, that only one person in a hundred has demand for their product. Therefore logically, 100 people need to be approached to make one sale. However, they are always abstracted from customers, relying on research rather experience. After a while their gut feel becomes so disconnected, that they can be convinced that jumping into the fire is a good idea, if the data supports it.  (just see the forrest, but not the trees)

So, if you think like a marketer “I will have to speak to 25 investors to get one interested (a 4% response rate) then act like a sales person “I notice they wince every time I suggest it will only take 12 months” you end up doing the hard slog, but learning and refining every step of the way.  A winning strategy.

I think its an handy mental framework when trying to develop new business around new products and markets.

disruptive innovation and food

Today at lunch my father announced that some industries are doomed due to disruptive innovations but some are safe. I of course reacted emotionally at first telling him he was talking complete rubbish, but then after pausing to draw breath, I like to think I rationally pointed out why no sector is safe from disruptive innovations.

Ziferblat CafeWhen talking about innovation I like to talk about Butchers and Restaurants.

The basic value proposition for a butcher is quite simple and has been the same for a thousand years. Nobody wants to slaughter a cow, and its pretty hard to store a whole cow to eat at your lesiure. Much easier to get some one else to do the dirty work, then take a tiny share. There is not much innovation going on in the sector and the heuristics for running a successful butcher shop are fairly simple – put it on the high street, front load your cabinets with delicious offerings, look hygenic.

However old and mature the standard business model is, don’t think you’re safe from disruption.  Consider restaurants.

The value  proposition of a restaurant is also pretty simple – pay a third party to give you food that you can’t or wont prepare for yourself.   But when you talk about innovation in restaurants, things start to get weird when you pick at the surface.   At most restaurants you pay for the food you order, with each dish a separate price.

Sometimes the food is in the kitchen for you to order, and sometimes its brought to your table for you to select (love yum cha!). Sometimes you pay a set price and get a set menu. Things can get much more innovative though. In South America, kilo restaurants are not uncommon. Restaurants that advertise a price per kg. You then load up your plate with whatever you like from the bain-marie, weigh it then bay the kg price.  And now there is a new innovation I find quite fascinating – as it approaches the monetisation problem from a completely different angle and throws out the original value proposition effortlessly.  A pay per minute cafe has just opened in London. Basically everything is free, you just pay for how long you stay at a rate of 3p per minute.. The catch is that for many things you may like, you may have to cook yourself. Eg there are eggs and bread in the pantry and frypans and toasters available.

The key here is that disruptive innovation can come to any sector, simply by having a good look at the value proposition that underlies all the other activity.

The butchers value proposition is just started to get looked at – which is why we are seeing franchises of poultry specialists, direct to the public wholesalers and champagne served with tastings!  Plenty more innovation to come I think.

So, do you know a good Sales Manager?

Over the last 9 years of running the Churchill Club I noticed that every time we have an event with a sales and marketing focus, someone asks me that question afterwards. They sidle up beside me and pretty much use these exact words every time “So, do you know any good sales managers?”

Sales ManagerThe person asking the question is normally the founder / CEO of a small but growing innovative business. They wanted to grow faster by professionalising their sales and marketing activity or address at plateauing of sales. First stop is that they employ a Sales Manager who is very impressive. Around 6 months later they fire them for having no impact. They then repeat this cycle a couple of times hiring and firing, until they eventually ask me the questions “So…..”

So why does this pattern repeat itself? Lets set the scene……

  1. The CEO has traditionally generated business out of his/her own networks. Normally they have a strong background on the tools (whether it be tech, science, serving ice cream whatever)…They are well respected for being good at their job and consequently get plenty of business referred.
  2. Its easy for them to sell, because they are “the man” the person who can make a decision immediately, answer any question and fix a price or discount on the spot.
  3. They don’t particularly need professionalism of their sales and marketing activity, because new business effortlessly and regularly  arrives.
  4. Their business booms for a while (normally for around two years) before they start to run out of opportunity in their own network, which is when they decide to employ a Sales Manager.

Here’s what happens next…

  1. The Sales Manager gets the job because he or she is good at selling (themeslves to you). They have probably worked in the industry before and somehow connect with the CEO. They have previously held roles as a “Sales Manager” which you don’t yet realize is meaningless, because pretty much every salesman in existence has held the title “Sales Manager” but not done the job.  The difference between selling and managing sales is vast, but its confused by the fact that Sales Managers are usually a senior salesperson as well.
  2. Turns out that they are also poor pick for the job – because of you.  You don’t know what should be in their job description other than “sell stuff”, so you can’t recruit effectively.  Secondly if they are currently working for a competitor or similar business, you probably don’t uncover the real reason they want to join your business (which won’t be a payrise for them).   Hint – they are probably about to get fired!
  3. The new Sales Manager is not completely incompetent though – but then they find there is pretty much no sales and marketing infrastructure in place and your “hundreds of customers” is usually just a debtors ledger listing of 50 businesses that may or may not exist anymore.  Lots of hard work ahead for them.
  4. The Sales Manager is out of their depth because they just know how to sell but the job requires more.  There is no guidance from you, because it’s the blind leading the blind. They then spend a lot of their time out of the office “building a pipeline”. You don’t have formal sales meeting because you don’t know what to do and what to measure. You just occasionally ask “What’s going on?”
  5. You gradually become more and more nervous that you have picked badly. You barely see the Sales Manager because they are always out and your suspicion is that they may be going to Job interviews.
  6. You start undermining them by handling incoming requests yourself, as you no longer trust them to build your business.
  7. They then quit just before you sack them and blame you, bad mouthing your company as being “about to fail”.
  8. The cycle then repeats a couple of times because you think the problem was caused by you recruiting badly.

You then whisper in my ear “So……………”.

The real question you should ask though “is how do I get out of this cycle?”

Firstly you need to accept you don’t need to recruit a Sales Manager yet because you are it and will be it for a while  (don’t abdicate this role).  You do however  need a system, then a salesman you can manage, then replace yourself as sales manager when you validate your arrangements work. The system for selling could include:

A simple Strategic Marketing Plan – i.e. What you selling, who do you sell to, and why do they buy it? You will also know the way to find, sell and deliver (channels) to these people and what the market looks like you operate in. This however can start as a single paragraph that you improve and expand every time you revisit it.  It is your compass.

A simple Tactical Marketing plan. – ie. How you will generate leads, generate prospects, close customers, fulfill orders and account manage each of your solutions listed in the Strategic Marketing plan. This will hopefully have some nice measurable metrics and a budget attached (even if the budget is simply an apportioning of someone’s time ).  Its the framework for managing salesperson activity to deliver sales (the core of sales management).

Some Sales & Marketing Infrastructure should be put in place– Sales Collateral, contracts, website, reports, perhaps even a CRM system that actually has customer information.  The tools your sales people use to do their job.

A simple Job Description for a Salesperson  detailing what you want the Salesperson  to do. You should combine this with the metrics you will measure and judge them on. Eg. Perhaps they need to do 10 new business meetings a week.

You are then ready to recruit your first salesperson. Once you have a sales person, setup a weekly meeting with them because you are “The Sales Manager”. Don’t abdicate this role. You need to manage your sales person by gaining regular insight their performance (against the metrics), problem solve and innovate to ensure their success. When the sales person is successful, split the work and employ another.

Write up what you are doing as the Sales Manager as a Job Description.  You will need it for when you are ready to employ your replacement Sales Manager. The one that will be a highly effective and valued member of the team because; they know what to do, they are the right person for the job, and have the right resources.

Not that hard I think, but not much fun to learn the hard way.  If you can’t do it, help from someone who can.

The DNA of Great Businesses

I am incredibly fortunate in that over a number of sessions this week, I have been judging the finalists in the Telstra National Business Awards.  I say fortunate because its extremely rare that you get a warts and all look inside someone else’s small business; through face-to-face interviews, financial reports and written submissions.  Let alone 8 of them in a row that you can compare and contrast!  I also say fortunate because some of the people that I met were so awesome I felt like a fraud judging them.
Great Businesses win AwardsImagine starting a local community café and being ISO 9000 accredited within 9 months and then doing a food supply deal with a national retailer.  Imagine starting a niche eCommerce site and be turning over tens of millions by year 3.  Imagine completely re-imagining a sector such as pharmacy, on not one but multiple levels simultaneously.  No need to imagine!

Now having been gently hassled by some of the finalists after the awards presentation – about what they could do better with their business.  I felt the urge to put together a composite picture of the businesses I looked at – to create a “perfect winner” and reference point.  I reckon the founder of this business has 7 key attributes.

1.  They set out to do something extraordinary

The pharmacy didn’t setup to be “an average” pharmacy, the café didn’t  just try to survive, the recruitment agency didn’t launch into a shrinking market.  I also spoke to a distiller in another segment who got the first licence to make whiskey in 153 years and started an industry that now has 40 players.  Great businesses set out to do something extraordinary, they don’t evolve into it.

2. They have a formal plan that they are executing

All the high performing businesses had a formal planning process, a large business plan and a one page cheat sheet that was reviewed according to a regular schedule.  Having a plan wasn’t good enough.  It had to be written down and executed well.

3. They build processes

Every high performer built their business as a series of processes  even when they were a one man band.  This allowed them to grow quickly, employing the cheaper, process orientated roles first and leveraging themselves up.  If you want to build massive scale, building processes from day is vastly more important than just relying on  natural talent .

4. They measure everything that matters

The retailers knew how long customers were waiting,  the online retailers knew what percentage of shopping carts were being abandoned, the IT companies had details project plans with hours being applied to them.  Everyone performing well has lots of metrics on their business and plenty had real time dashboards.  But they weren’t metrics for the sake of metrics, they were well thought out and reviewed every single day so early/cheaper interventions could be applied.

5. They surround themselves with great people

The great businesses aren’t scared of asking anyone to get involved in their business.  They have specialist advisers and general advisers who they meet regularly with in a no-holds bar environment.  They headhunt extraordinary people to be employees.  The founders don’t pretend to be perfect – they acknowledge their own weaknesses, mitigate them with people that fill the gaps and move on.

6. They’re passionate

Their passion is usually based in dedicating themselves to doing something extraordinary.  Their passion also means they can attract the best people, work the long hours without their enthusiasms flagging, overcome the endless setbacks and happily ignore the long queues naysayers who tell them ”You’ll be bankrupt in 6 months”.  This was a theme common to every finalist.

7. They lead

Whether they want to or not, have a flare for it or not, they are all leaders, not just managers.  They inspire their team to do something extraordinary with them.  They inspire financiers to back them.  They convince high profile Australian’s to join their boards.  The media is hungry for their stories.  I also note they are usually leaders in more than one forum – giving back wherever they can.

 

Not one of the founders I looked had all these attributes.  But they all had enough of them to make them quickly stand out from any crowd.  I was simply inspired.

Event Report – Member Value Management 28-04-11

With

Justin Reeves – General Manager Supporter Services, Collingwood Football Club
Kelly O’Shanassy – CEO, Environment Victoria
Sarah Adams – Marketing Manager, Artshub

Moderator

Brendan Lewis – Chairman, The Churchill Club

Who were the panellists and what were they doing?

Justin Reeves is the General Manager Supporter Services, Collingwood Football Club.  It is the largest football club (all codes) by membership in Australia history, with 70,000 members.  They also believe they engage around 400,000 through their website and other facilities and believe about 1.2M Australian’s would respond “they barrack for Collingwood” if asked.  At this size the club is no longer just a  social club .  It doesn’t allow player access any more, has replaced volunteers with professionals at every level.  It is looking the club and league to understand how it can grow.

Kelly O’Shanassy is the  CEO of Environment Victoria  a state based not-for-proft group that advocates for a better environment.  It was formed 40 years ago, by 18 different environment groups that came together.  In 1994 it opened itself up to individual memberships.  It now has around 20,000 members who keep their membership for 3-5 years.

Sarah Adams – who is the Marketing Manager of Artshub an international, for-profit Arts community that is based in Melbourne with around 7,000 members.

The difference about members based businesses

Subscriber is just a  revenue model for customers, regularly used by membership organisations, and  normally called “membership fees”.  Simply having subscribers doesn’t make you a membership based organisation.
Members have a sense of team,  they dress up or show their allegiance and have a sense of shared purpose or passion and ownership.  Membership organisations allow their members to become involved.  This is why Foxtel, although it has hundreds of thousands of subscribers, wouldn’t be considered a membership based organisation.

Interestingly the Arts industry has a very high level of unemployment.  One of the reasons that Artshub is successful is that it allows its members to be engaged in their industry, even when they are unemployed.

Most members feel a very strong sense of ownership, however this generally doesn’t translate to a desire for a governance role.  This is why there is traditionally almost no one at Annual General Meetings.

Successful Membership based organisations:

  • Provide members a clear understanding of their entitlements, even in times of change due to exponential growth.
  • Have lots of ways their members can become engaged ( the ultimate engagement where members get to choose what they can do, but this is difficult, if not impossible to achieve).
  • Have lots of different offerings, dependent on members desires and provide value at each offering along the membership path.

Professional Membership today is no longer about a community or social club, that provides access access to talent and is run by volunteers.  Its an Organisations that employs professionals to become great at what it does and constant seeks insights from members on how to provide value.

Revenue Sources

Member based businesses generate revenues in many ways,  however membership fees are usually only a minor part.
Collingwood – Membership Revenue is only round 25%, but that’s still up from 13% where it was 4 years ago,
Environment Victoria – Membership Revenue is only around 1%, whereas donations make up around 13%.
Artshub – Membership Revenue is only a tiny percentage most, revenues are from advertising sales and services.

There are plenty of ways you can derive revenue in member based organisations:

  • Donations.
  • Grants – to support your group.
  • Membership Fees – Lot of packages, to meet lots of different types of member needs.
  • Event or activity fees.
  • Services such as training & accreditation.
  • Branded Product  – T-shirts, Caps etc.
  • Support Products – Soft drinks etc.
  • Sponsorships.
  • Advertising.
  • Alliances – Football clubs also get fees from the venue and the AFL.

You can also achieve cost saving s through volunteers doing work.

Its not ok to sell membership lists though, as privacy laws may prevent it, its generally immoral and when it has occurred in the past, it didn’t have a happy ending as it upsets members.  It is okay to sell advertising space, in your newsletters though.

Sponsorships are becoming harder to achieve, which is why more energy is being put into membership by the football clubs.

Dynamic pricing (each person gets a different price) for games is becoming popular in the USA.  They AFL is currently doing a study into this locally, however the Clubs and the AFL don’t own the stadiums, so its primary a venue revenue issue.

Can you pick up members with free or cheap offerings and then up-sell them?  Not really.  There are no entry level products and membership path, just different value offerings for different  demographics and desires amongst members and potential members.  Free services, such as Twitter feeds are in many ways more of a marketing offering than a membership offering.  However for every organisation it is different.  Environment Victoria sees its free knowledge sharing as its entry level product.

Designing Membership Packages

There is no membership path that starts with a free or introductory offer in a true membership based organisations.  There are just lots of different ways members want to engage.  Clever organisations design lots of membership packages so members can engage in the way that best suits them.

Regular professional research leading to insight around current and future member demands is what sets Collingwood apart from other clubs.  They know all the ways members want to engage, and design a package for everyone.  Collingwood does not make decisions around membership by gut feel.  Value has to be there for all offerings.

Remember that offerings can be very organisation specific.  E.g. a membership offering by Collingwood, wouldn’t necessarily work for other clubs –   In fact other clubs have looked at the Collingwood offerings, and rather than do their own research, they made emotional decisions, introduced packages and failed.

Environment Victoria can’t afford market research, but knows from profiling that’s its members are skewed to the richest and poorest in society.  Therefore, it pushes donations (tax deductible of course) as a way to achieve outcomes as an offering to its affluent members and volunteering to the less affluent members.

Even when an organisation has explosive growth, members should be able to access a variety of different offerings, and clearly understand their entitlements,  therefore design cannot be random and you need to know your limits.  E.g. the Legends offering is capped at 9,000 members – not to make it exclusive, but that’s all the club can cater for.  Arbitrary exclusivity for marketing purposes doesn’t go down well with members.

Offering a free knowledge or education product is a great offering for all organisations to have as it provides value to those that currently want a light level of engagement, and it tests where interests may lie.

The key though is to make it easy for people to get engaged.  Getup has done this and now boasts 400,000 members.

Artshub (7,000 members) has:

  1. Free Mini Membership
  2. Professional Membership
  3. Company Membership

Environment Victoria (20,000 members) has:

  1. Affiliate Groups
  2. Individual Membership
  3. Donors
  4. Free Newsletter
  5. Volunteers

Collingwood Football Club (70,000 members) has:

  1. Club 5 membership
  2. ANZAC Day Membership
  3. Legends Membership
  4. Captains Membership
  5. Social Club Membership
  6. Season Ticket Membership
  7. 3 Game General Admission
  8. 3 Game Reserved Seat
  9. Country, Interstate and International Membership
  10. Thommo’s Team 13 Membership
  11. Reserved Seating
  12. AFL and MCC Member Upgrades
  13. Magpie Nest
  14. Community Bay Membership
  15. Player Sponsorship

New Member Acquisition

Many traditional organisations are slowly dying, e.g.

  • Catholic Church
  • Political Parties.
  • Unions

The problem was asserted as they haven’t determined how to continue to provide value to a changing demographic or potential members and adapted.  This is the key to attracting membership both now and in the future.

Youth are always seen as exiting as and valuable as they provide a future to organisations.  Other State Environment groups, are generally only available to environment groups, mostly full of old people.  This is seen as dangerous.

Differentiating and focussing is also important.  For instance the Age Online is a competitor to Artshub, however its not focussed just on the art scene, has too much tabloid journalism, to many adds and appears to be shouting at you all the time.

But at the end of the day, getting members is all about asking people to join, its the only thing that works, however you must do this in sophisticated ways.

You should also have a very clear of the average lifespan of membership and the average value, so that you can look at the true ROI of your membership campaigns.  Always design your campaigns to be measurable and asses their performance.  The Football industry has traditionally is terrible at measurement of activities, and feels it is only now catching up.

Member get Member campaigns are always useful as your members will always know others who are passionate about the same topic, but they must be carefully constructed not to alienate members.

The radio station Triple R has successfully used guilt to turn listeners into subscribers.  Which is play on the amount of social capital you can derive from being a member.

Alliances

Most member based organisations need to form alliances to grow and have influence, but this can be very difficult.  Consider:
Supporters won’t change clubs but the AFL is now effectively a competitor as well as a clubs biggest partner.  There are now 47,000 AFL members.
Its difficult to run an organisation of highly passionate supports.  Lots of agendas and very loud people.  If you want to take a leadership role, be prepared to take flack.

So how do you form effective alliances?  It appears that the answer generally is to form short term partnerships, to address specific campaigns or agendas   e.g. Vic Farmers Federation and Environment Victoria come together to address a water issue.  In this case an unusual partnership between normally arch enemies, gives credibility to agendas.

Social Media

Social Media is a fantastic tool for growing and retaining membership, especially for resource constrained organisations.    It provides an easy and accessible  membership offering for those that are only comfortable with a very light level of engagement and in many cases it provides the initial engagement with an organisation.

Most organisations now announce new editorial content on Twitter and have Facebook fan pages.  Facebook is also heavily used for running competitions and announcing give aways.

Social Media is a great driver of new visits to an organisations website.   Environment Victoria’s visit increased by 8,000 unique visitors a month when they added social media as a communications channel.

Footy generally has been a late starter with Social Media, which means its a great opportunity for the sport.

– end of report –