We have all heard the phrase “risk and reward”. It helps us quantify and balance the upside (reward) and downside (risk) of all that we do.
When most of us start out in business we have not accumulated much in the way of position, title or responsibility. We have not so much to risk (lose) as a result of our actions. We tend to make our decisions based on how we can improve our situation or the situation of the business. If we make good decisions we and the business prosper.
As we progress up the ladder, we begin to accumulate responsibility. We begin to have more to “lose” as a result of an incorrect decision. You have heard it and seen it. In general people start to get a little more conservative in their approach. They begin to focus more on the risk associated with the action and not so much on the reward to the business. The status quo and management by existing directional momentum set in.
No one makes the right decision every time. The key is to recognize if a direction needs to be changed and quickly adjusting. The reason for the action must however remain constant. It should not be solely or predominantly to avoid the downside or risk. The action should be taken as a step toward the goal. It should be due to the focus on achievement. Keep the positive reinforcement in place for decisions versus the negative. It keeps you and the business moving forward.
Years ago I had the pleasure of listening to General Norman Schwarzkopf address an audience after his successful Desert Storm campaign in Iraq. He talked about the qualities that he looked for in leaders. He made the comment that people wanted good leaders, not good managers. That one and a couple of his other comments have stuck with me and have served me well over time. His others were:
Rule 1: When put in charge, take command. When put in the leadership position, lead. Listen to the team. Learn the situation. Build the consensus and respect that a healthy organization needs. But when it comes time to make the call, the hard decisions that every organization faces, it’s your responsibility to make it. Don’t delay, shirk or waffle.
Rule 2: When put in charge, do the right thing. There are always many forces acting upon leaders. There are always stakeholders that would prefer the status quo. There are usually easier ways or paths of lesser resistance that may not take you to the objective you have set. The leader should always do the right thing. Not the easy, nice or expedient thing. They must choose that action that moves the organization forward toward the goal.
These were pretty simple rules coming from a then 4-star general, but as I learned to apply them it became evident that they didn’t need to be any more complicated than that. Take command. Do the right thing. I think we would all be a lot better off if everybody had a couple of simple rules like this.
Having great technology for your product is a given. The new product needs to be faster-better-cheaper that the competitions. Identifying your target customer set and matching their needs is a requirement. All set, right?
How do you plan to get the product from you to them? Increasingly in the technology market you will probably use some sort of intermediary or distribution arrangement. They can be called distributors, dealers, resellers or retailers, but they will probably be the path of choice to market for a technology based product. Now the question becomes how to target, attract and recruit these channels, and once you have them, how do you retain them and help keep the competition out of them.
The creation of a strong and vital Dealer/Distributor “Advisory Board” can be a solution. Utilize the advisory board to help you solve the issues of problem identification, prioritization and resolution. However expect not only “product” issues, but also “process” issues to be identified. One of the goals for this group should be to help identify how this indirect sales force wants to do business, and be dealt with.As with internal business teams, where you listen to and work with all business disciplines to create a cohesive solution, the advisory board enables you to extend this “teaming” arrangement outward to the indirect sales channel. Their involvement creates ownership and buy-in on issue identification, prioritization and resolution. As the business responds and adapts to their requests and requirements, their commitment to the business should also strengthen and grow, as should their orders on it. It is essential that the appropriate resources and management commitments are provided to see the process through to conclusion. If your sales channels are going to commit their time and resources to work with you they will need to see the same level of commitment from you, or they will look for other suppliers who will provide the commitment they are expecting.
Targeting the proper indirect sales channels can be the most important decision that you can make. There are several factors that need to be taken into consideration:
Who are the products’ target customers and who do they buy them from? Consumers usually buy from retail outlets. Small and Medium Businesses (SMBs) usually buy from a variety of sources (web, small dealers, value added resellers (VARs), etc.). Enterprises and large business usually buy from large distributors and dealers.
What size business are you? Normally equipment providers and distribution channels have a tendency to “peer”. That means larger product providers tend to work with larger dealers and distributors, and smaller product providers work with smaller dealers and VARs.
What is the status and age of the product market? If it is a mature market that is being addressed it will mean competing against existing products for mind share and shelf space with entrenched channels. There will be barriers and expenses associated with displacing the existing product suppliers from the channels. If it is a new or developing market there should be no entrenched products or channels and lower expenses and barriers to channel acquisition.
These are just a few of the topics to consider when looking a selecting specific paths and channels to market. There are obviously many more. What it does point out is that there are relationships between the product and the market that are not related to its technology that will have an effect on its success.
Communicating with customers is a key to their satisfaction and to increasing sales. It is well known that it is almost 5 times easier to sell to existing customers than it is to sell to new customers. This doesn’t mean that you should ignore obtaining new customers. You must continue to add new customers to sustain and grow the business. It means that you need to have a separate focus on each customer set.
In focusing on existing customers, one of the best ways to communicate with, and eventually sell more to them is through the creation of a “Users Group”. Creating a users group enables your customers to communicate their product and service needs, wants and desires directly to you and to other customers. If they are dissatisfied with aspects of the product, you can learn the application and desired solution. This helps build the bond with your customer and strengthens the product by identifying (and hopefully fixing) product gaps. You must be prepared to commit the necessary resources to correct any identified product issues, or this approach will not succeed.
As with internal business teams, where you listen to and work with all business disciplines to create a cohesive solution, the users group enables you to extend this “teaming” arrangement outward to the customer. Their involvement creates ownership and buy-in on issue identification, prioritization and resolution. Their ownership and buy-in can also eventually lead to additional sales of product expansions and systems as well as references and recommendations to new customers that they should purchase your products as well.
Do not expect immediate sales increases and relationship improvements with the creation of a users group. You must be prepared to deal with any and all relationship and product issues, even those you were unaware of. However, once you get started and demonstrate your commitment to the group and their requests and product needs, they should be won over and both your sales and their satisfaction should increase.
All businesses are becoming global in nature. The emerging (and in some cases emerged) markets in Asia cannot be ignored or neglected from either a supplier or customer basis. This means you will have to go there, sometime, for the good of your business.
You will have a ball.
It is a long ways, and it takes a long time to get there, but once you do, you will enjoy it. The places and the things to see are amazing. However the best part is the people. The opportunity to spend time with the people should not be missed. The culture and the food are amazing. Be adventuresome and sample them all.
If you want to go a long ways toward either entertaining, or amazing your associates in Asia, use chopsticks. If you are poor with them you will be entertaining. If you are reasonably good with chopsticks they will be very interested in you.
I enjoy sushi as well as most other Asian cuisine, and as such have learned to use chopsticks relatively well. During dinners I was usually presented with a “western” fork, but always opted for chopsticks. My choice and dexterity were always a great ice breaker and opening subject for dinner conversation.
While there, enjoy the local food. You can get hamburgers and steaks anywhere, but eating the local dishes with the local dining implements should be part of the agenda. It will also help in establishing business relationships with your associates in Asia.
It seems too many times we end up asking our finance teams to total up the score for our businesses, after the fact. We make all our plans, execute them and modify them when they come in contact with reality. We move. We react. At the end of the month, the quarter or the year, finance tells us how we did.
This management structure breeds an adversarial relationship with finance, and casts them in the role of being the “money police”. The oversight check-and-balance needs to be there, but it needs to be there at the front end of the process. Finance needs to be an integral part of the planning process, the sales process and execution team from the beginning.
Understanding the financial ramifications of each move before you make it is critical. It will help avoid mistakes and missteps. It also builds finance into the team, instead of casting them in an external watch-dog role.
And the truth be known, finance would like to be involved earlier in the running of the business as well. Invariably finance is also compensated on the performance of the business as well, and they would like to have input into the process. Aligning your resources, either direct report or corporate finance, is key to creating a sound business team, and good business performance.
Mark Twain said “There are lies, damned lies,…and then there are statistics.” In some instances he could have just as easily been talking about metrics.
We all understand the need for metrics when it comes to running a business. If you can’t keep score, how do you know if you are winning or losing? Just remember when you start basing compensation on these metrics that it is changing the game that is being played.
Here is a good case in point. A business I knew was running in the red. A look at the product prices (and costs) showed that it was almost 20% more expensive than the competition on a cost basis. However, based on the operational metrics they were running at the peak of efficiency (99+% on the production yield targets). How could this be?
A deeper dive into the metrics showed that over time the production yield targets had been lowered (to an 86% yield target!) so that the operational team could maximize their goal attainment and incentive compensation. They were actually achieving 99+% of an 86% target. The rest of the market was attaining true 99+% production yields. The incremental 14% disadvantage in production efficiency was the root cause of the product cost differential in the market.
Over time it had become easier for the operation to change the metric that it was measured (and paid) on, than it was to improve the process. This is obviously an extreme case, and it was a metric “creep” that had occurred over many years. But it does point out how a metric can affect how you look at a business’s performance. You can go from looking seriously at exiting a business because it is thought that it could not effectively compete, to looking at the root cause of the issue: how do you make the business more efficient and continue to compete.
When we run businesses we all walk in assuming that everyone in the business is on the same page and that everyone is pursuing the same goals – namely the success of the business. My experience has shown me that this is not usually the case.
Here is a quick test to prove my point: Does everyone in the business have the same compensation and incentive structures? Most likely not. Therefore it pays to review each disciplines (Sales, Marketing, Operations, etc.) incentive structure and make sure their goals are aligned.
A case in point: The sales team is normally provided incentives (commissions) based on revenue attainment. This is good. You need to have someone responsible for attaining the business’s the top line. However, this may not be enough. In a volume only incentive plan, price becomes the sales team’s primary differentiator. The sales team will now create friction within the business trying to drive the selling price down to make it easier for them to sell. If you have a sales team that is pressing that prices are too high, you might want to look at their compensation plan as one of the possible causes for this friction. (On the other hand you also need to make sure that you are not overpriced verses the rest of the market, and if you are how you quantify the incremental product value you claim to have. I’ll look at this in later blogs.)
A solution can be to make sure that the sales team has both revenue and gross margin target goals (sales cannot affect other costs of the business as directly as price and hence should have gross margin, not earnings targets) as their objectives. Provide compensation accelerators for business above target margins (this is business that is good for everyone and should be encouraged) and compensation decelerators for business below target margins (just because it is lower margin business doesn’t mean you don’t want it, it just means it is not as valuable to the business – and hence not as valuable to the salesperson, as higher margin business).
Targeting and attaining higher margin business will help exceed earnings targets for a target revenue amount. This is a very good situation and the sales team needs to be rewarded for their part in it. Taking lower margin business means you will need more revenue to meet your earnings dollar commitments. Your sales team needs to participate in this with you as well.
Welcome to my blog. I have often thought of writing about some of my experiences in the business world. I have decided that it is time to do it. Please let me know what you think. Please check back soon for new entries.