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Tenders – timewaster or business generator?

2014_SeptemberThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in September 2014 and is posted here by their kind permission

 

Should you tender or stay away? Some basic rules

 

 

 

Tenders are used by all levels of government and many companies to buy goods and services and issue contracts. The total value of tender business is enormous, so an immediate reaction is to get involved. There is a downside as many small businesses and start-ups have experienced. It is entirely possible to submit many, many tenders without success. The direct cost of preparing a tender is high, but the opportunity cost of conventional sales you could have made instead is higher.

Me too

I call these ‘me too’ tender submissions, where you have nothing special to offer, and the company never heard of you. Among the bidders will be existing suppliers, those having specialist skills in the area and those bidding the lowest price because they can. Your chances of success are almost zero. Instead of wasting your time, develop a specific niche expertise or technology then tell potential buyers about it. Your chances of winning subsequent tenders increases dramatically.

Before you even get to tender stage you may have to register as a potential supplier. Government departments, municipalities and corporates frequently publish invitations for suppliers to list their companies in particular categories. If you have a highly competitive attribute or niche and are listed you may become one of a handful, or the only company invited to bid when the company needs your speciality. Continue reading

Competitive strategy

2014_AugustThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in August 2014 and is posted here by their kind permission

 

Is this only for the big corporates?

 

 

Large IT companies spend millions on market research to see how they stack up against their competitors and use this information to figure out how to be different and better than them. Automotive manufacturers and importers watch every move competitors make, being first-to-market with a new fashion trend can mean the difference between a clothing brand outselling its competitors or disappearing. Even cities position themselves against other cities to attract tourists and businesses. Why should competitive strategy, a vital part of marketing strategy only be relevant to very large organisations? Why not your business?

Being competitive is a core requirement for all businesses irrespective of size. Not-for-profit organisations like charities, schools and religious organisations compete for funds, members and media attention. Very small business and start-ups must wrench business away from competitors or alternatives just to survive. Without a compelling message about what advantages they offer over others many of these organisations will fail as consumers take the easy route of buying the most popular, the most accessible or the most familiar.

Competitive

More than 30 years ago Michael Porter defined competitive strategy as “The plan for how a firm will compete, formulated after evaluating how its strengths and weaknesses compare to those of its competitors”. This plan should be focused on getting a sustainable advantage over competitors so it is much more than simply reducing price or having a special offer. Continue reading

Getting better margins

2014_AugustThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in July 2014 and is posted here by their kind permission

 

Are you paying enough attention to this profit generator?

 

 

The difference between turnover and cost of sales is the starting point of profitability. Entrepreneurs drive their sales aggressively and manage operational costs tightly, but seldom pay as much attention to the crucial issue of margin. This is missing an opportunity to increase profit substantially with a little additional work.

Margin (or gross profit) is the difference between turnover and cost of sales, and it often comes from a simple percentage mark-up on all cost prices. This is a lazy way of setting the amount of gross profit your business will secure, and ultimately the net profit. You can do a lot better than that.

There are at least four opportunities to increase the total gross profit: More sales, higher prices, lower cost of sales and changing the product mix to increase the percentage of high margin products or services sold. Naturally this last one only works if you do not have a one-margin-fits-all lazy margin strategy. A tip to sell more is to increase the average number of items sold per order. Even a tiny percentage increase can make a significant difference to total margin. Look at the example of burger franchises which invite you to add a slice of cheese to the burger. If just 10% of all customers buy that very high margin slice of cheese they make significant extra profit with minimal effort, and it is so simple. What can you do to increase the items per order? Extended warranties, service contracts and training all offer opportunities. Continue reading

SME sales force

2014_JulyThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in June 2014 and is posted here by their kind permission

 

Managing a small sales force is challenging

 

 

In start-up small businesses the entrepreneur will usually make all the sales. As the business grows a sales team is often recruited. The entrepreneur may retain important customers and may keep responsibility for some product lines.

Some arrangements like this work very well, but if your sales force is underperforming and you still have to bring in the bulk of the income you need to take action. A typical result of this situation is a deteriorating relationship between demotivated salespeople and the frustrated entrepreneur. Do not automatically blame the toxic situation exclusively on the salespeople – your own actions and omissions may be causing the problem.

The right people

Finding the right salespeople is a challenge; you need strong enthusiastic people who see sales as a desirable career, not just a place to earn some money until they get a ‘real job’. Your company probably does not yet have well-known brands or comprehensive sales support, so recruit those who can work in this environment. Ask the right questions. They must enjoy learning on their own, be self-reliant and work hard with little supervision. They must also fit the culture of your company.

You may unconsciously assume that new salespeople share your product knowledge, work ethic, and feelings of being responsible for the business succeeding. You will need to build these characteristics with training, motivation, communication, mentoring and rewards. The investment of even large amounts of money and time in these aspects pays dividends. Continue reading

Customer information

2014_AprilThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in April 2014 and is posted here by their kind permission

 

A seriously valuable marketing tool – and it is free

 

 

Good customer information held in a structured system will tell you whether customers are growing with you or reducing purchases. It will have a record of every meeting, sales order, complaint, compliment, reference given, products purchased, payment history, budget cycle, nature of their business, basic credit information and key contacts. All of these are stored somewhere in your company records anyway, but are they accessible in an effective customer information system?

If you have a good system you can research target markets, make individualised tempting offers to customers, cross sell products and plan campaigns in target market niches with a high likelihood of success. What a great marketing tool, and its free.

Using the information

One way of using this information would be to list of all customers in a particular line of business, and list which products all or most of them are buying. Now you could do a survey among them to find out how they are using the products, their degree of satisfaction with those products, and any needs which are not being fully satisfied by the products. With this information you can: Continue reading

The dreaded top of the “S” curve

2014_March This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in March 2014 and is posted here by their kind permission

 

A threat or a real opportunity?

 

 

Successful start-ups normally begin slowly, then grow rapidly. Growth is not usually a straight line, but can be compared to an elongated “s” curve, with a slow start then strong growth until it levels off. Think about a flat topped mountain – the lower slopes are quite gentle then the sides steepen until the plateau on top, where the business becomes static with little or no growth. Arriving there can be a problem where the company depends on growth to pay the bills, and if nothing changes then like the mountain example the only way from there is down. How can you avoid this trap?

Many S curve books focus on large corporates, getting to the plateau when they reach market saturation, but the slowdown can occur in businesses with less than ten employees, and in as little as two years from start-up. This is often attributed to running out of the friends and family the business relied on as customers in the early stages, or running out of working capital.

Running out of time

In my experience a frequent reason for getting to the top of the S curve is the management style of you, the entrepreneur. You often run everything, and do it very well. You learned this when the company launched and you had to manage everything – from sales to logistics. As the business grew you got better at them than anyone else, so there was no sense in delegating to others. One day you run out of capacity to do more work and the business stalls, limited by your available time. Continue reading

Moving from the core business

14 Feb coverThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in February 2014 and is posted here by their kind permission

 

Think positively to diversify your small business

 

 

 

Entrepreneurs are creative by nature. That is a core value and advantage. So it is not unusual for an entrepreneur to think of new business ideas that could be additions or diversifications for the existing business. Some of these ides will differ radically from their core business. Should they be implemented? If they should, how should they be put into practice? What are the things to look out for when you move away from your core business?

Entrepreneurial businesses thrive and grow by innovation; by adding new products, by fresh approaches to old problems and by creative development of new markets. This is one of the attributes that allows them to compete with large corporates. Diversifying is generally a great way to grow the business. Sadly it can also be a way of reducing existing business to shells. The difference is how the entrepreneur manages the diversification.

New ideas can arise out of boredom. Many entrepreneurs are enthralled by the activity and challenge of starting something new but are not happy with routine management. I call them the ‘firestarters’. The disadvantage of firestarters is that they get bored doing all the hard and repetitive work of growing a business after it has developed a toehold in the market. Their business can fail as the entrepreneur neglects it or strips it of resources to build a business based on the new idea. If you recognise yourself in this category then either become a serial entrepreneur, building and selling businesses as they mature, or find a partner or series of partners you can hand the core concept to when your mind starts to wander. This is a great way to build a huge business empire or personal fortune.

 

Things to watch for

Often a new idea looks attractive only because the core business is not succeeding. The entrepreneur will be thinking of ways to make the business survive and prosper. Adding synergistic opportunities to a business which is not producing expected results can be a great way to inject life and success into that business. Doing something radically different to cover up the failure of the current business to deliver on expectations can kill it. If the core business is not performing then either fix the business or close it, and create a new business with the new idea. Continue reading

Quality checks for your business plan

image_thumb2This article was published as the Sanlam Business Market, Business Tips: December 2013 newsletter. The Sanlam Business Tips is an incredibly useful and free resource for entrepreneurs. If you have not yet subscribed you should.

 

Many business plans lead businesses into disastrous situations

 

We all know we should check our cars before travelling. Equally important is the need to check your business plan for faults and potential failures before making it the core of your business, or using it to ask for finance. Here is a 6 point check:

  • Can YOU execute? Failure to convince financiers of this aspect is probably the number one reason for rejection. More critically, it is probably the number one reason for early start up failure. Points to check: Do you have enough knowledge to run the business? The entrepreneur of a business which markets services needs to understand marketing as well as the service. Do you have any experience in this field? Hobbies are often a help in this regard, for instance enthusiastic cooks setting up catering companies. Do you have the time to execute the planned actions, and will your family support that? Entrepreneurship is not for the faint hearted, there will be many late nights and early mornings. Can you take risk? If you are uncomfortable with being daring at times you should plan for safer businesses. Can you lead? You will need to tell people what to do and learn to make uncomfortable, even agonising decisions.

Continue reading

Marketing on a tiny budget

13 Nov CoverThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in November 2013 and is posted here by their kind permission

 

 

You have to tell potential customers what you offer – even with no money

 

 

It is almost a caricature. A new business is launched. The entrepreneur has used all the available funds to perfect products. There is no marketing and consequently no customers and all the technologically wonderful products remain unsold. The world does not beat a path to the door of the person who has the better mousetrap; it continues to buy whatever it has done in the past.

The message is clear – you have to tell people who could buy from you that you exist and why they should consider you. You can do this with little or no money for marketing promotions, but there are some rules.

The first one is to realise that with limited funds you needs to reach the people likely to buy from you as efficiently as possible; you cannot afford to market to people who will never be your customers. It is amazing that this simple piece of logic is so often ignored. Identify who your most likely customers are, and then to figure out the best way to get a marketing message to them with as little wastage as possible.

The right media

Another rule is that you have to use the right media. It does not make sense to advertise wedding dresses by flyers in business post boxes. Instead you must be on the internet – unless you can afford to be at bridal exhibitions or to advertise in specialist magazines. Find out which information sources are used by your target market and then use the most cost effective ones. A useful cost saver is to form an alliance with a non-competitive supplier to the target market. The allies agree to share exhibition or other marketing costs, but they also introduce each other to their customers.

Barter is an ancient and honourable way of saving cost – you print my brochure and I will plan your conference for example. Community service by you and your staff can attract the attention and goodwill of community minded businesses and individuals and it is free. Continue reading

Lessons from the beginning

2014_OctoberThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in October 2013 and is posted here by their kind permission

 

 

Remember how fanatical you were when you opened your doors?

 

 

 

The plateau phase can happen when a business stabilises after the initial survival struggle, and growth becomes static. The company may be at break even or making a small profit; it falls short of its sales forecast and cash is tight. The entrepreneur is frustrated, customers pay late and suppliers are demanding. All of this has a bad effect on the staff.

If you are in this position or have been there you will know about searching for ways to solve the problem. How-to books, mentors, motivating speakers and training will be considered. Salespeople will come under pressure and some will succumb and leave. Some entrepreneurs will blame the economy, the government, the banks, trade unions or suppliers, and become helpless.

Simple answer

There is a simple answer to the problem. Cast your mind back to when the business launched, when making the next sale was a life and death issue for the business. You would have walked on hot coals to satisfy a potential customer, you would have tried desperately to anticipate their needs. Carelessness or laziness affecting a prospective customer would see the perpetrator in real trouble. A mistake in an order or a telephone that was not answered promptly would have been cause for a tantrum. You would celebrate with the entire company when you got orders that today seem trivial, and the enthusiasm would have spread. Continue reading

Start-up sales

13 Sept CoverThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in September 2013 and is posted here by their kind permission

 

Early sales are vital for start-ups, early bad sales are dangerous

 

 

 

When you open the doors of a new business your immediate thoughts are likely to be about income producing sales. If it is a retail business you will be watching anxiously for the first people to enter the store, restaurant, hairdresser or filling station. If you sell business to business (B2B) you must build new prospects to develop early sales. Expenses mount up, and insufficient sales income means your business could run out of cash and be forced to close before it really got started. Making early sales is that important.

Low hanging fruit

Everyone has heard about ‘low hanging fruit’ and you, the new entrepreneur, should look for those sales which you can most readily close. ‘Low hanging fruit’ is usually understood to mean potential customers which are easy to start selling to, but there is a problem in trying to sell to anybody who will listen. If the prospect is obvious to you it is also obvious to competitors, and they are more established, have customer references and will be more assured than you. They will also be eager to shut out a new competitor.

To really be ‘low hanging fruit’ the prospects should be those which your new business can easily close. This means retail customers who buy rather than browse, and a high ‘strike rate’ – the ratio between sales cycles begun and closed – in B2B organisations. Continue reading

Choosing the right sales opportunity

Image courtesy of Foto 76 at FreeDigitalPhotos.net

Image courtesy of Foto 76 at FreeDigitalPhotos.net

When to sell and when to walk away

 

You’ve got to know when to hold ’em, Know when to fold ’em, Know when to walk away, And know when to run                  The Gambler, Kenny Rogers

 

 

Kenny Rogers was not referring to selling when he sang those famous words many years ago, but he could well have been. Whether you are an individual salesman, an entrepreneur building your business or an organisation intent on improving profits you should consider the words of the old gambler.

There are certainly sales that you should stick to, even though they do not close easily. There are others where you should realise that you have no realistic chance of success and yet others where the effort to close them is not worth the return you will get. There are definitely sales opportunities you should run from as fast as you can. As the old gambler advised in the song, the difficulty is in knowing which sales opportunity is which. Continue reading

Which business should I open?

13 August CoverThis article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in August 2013 and is posted here by their kind permission

 

 

What is the right type of a new business for young people?

 

 

A young relative asked me: “If you were 23 what sort of business would you open?” I realised what an interesting question this is. Imagine being 23, with the experience to know what to consider and where the opportunities lie. Thanks for the great question entrepreneur-to-be Jean!

The first answer is that if you want to be business owner you should become one. Starting a business is nowhere near as difficult as people suggest. Even desperately poor and illiterate people open sustainable businesses all over the world without business advice, bank loans or advertising. It is more difficult to launch and develop a business that can grow out of the survival phase to provide employment and value or wealth to the entrepreneur, and if that is your dream choose a business that can grow, as opposed to lifestyle entrepreneur businesses like a photographer.

Be capable of running it

You should be capable of operating the business. At 23 you may lack business experience but business owners need to be able to handle finances, marketing, sales, HR and administration. Don’t choose a very complicated business or one in a highly regulated sector, like food or medical supplies. Choose an area you know or have a passion about. Continue reading

Why should they buy?

13 July CoverThis article was written by Ed Hatton, the Start Up Coach for the South African edition of Entrepreneur magazine, as the My Mentor column published in July 2013 and is posted here by their kind permission

 

 

What makes your business the supplier of choice for your customers?

 

 

I occasionally ask groups of entrepreneurs why they think their customers buy from them. After an awkward silence some in the group will give answers about product uniqueness, price advantage or better location, or easily copied ones like good quality and better service. At least some entrepreneurs in the group will really not know.

Entrepreneurs who do not know why customers buy take a huge risk of customers drifting away for unknown reasons. The question is even more important for start ups. Anyone who plans to open a business and does not identify clear reasons why customers would buy risks opening a business which will make no sales.

Why customers buy

There is a huge body of research about buyer motivations which is good to study. In my view the most important business differentiators are uniqueness or competitiveness

Uniqueness may mean innovative products or services, but can also be the uniqueness of the business principal. Products like trousers, perfumes, sporting equipment and coffee bars have thrived from being driven by a famous sports or entertainment star. For the average entrepreneur who is not famous or an inventor there are still options to be unique. Businesses which use a unique pricing model will rent when others sell, offer last minute sales at incredible discounts, or develop other pricing innovations. They will not simply sell at lower prices. Continue reading

Getting the numbers right

13 June Cover

This article was written by Ed Hatton, the Start Up Coach for the South African edition of Entrepreneur magazine, as the My Mentor column published in June 2013 and is posted here by their kind permission

 

 

Entrepreneur optimism in sales forecasting

 

 

Entrepreneurs are natural optimists; they have great belief in themselves and their products, they see even ordinary products as being irresistible to potential customers. There is nothing wrong with self-belief; without that we would see few new businesses being launched.

Optimism in sales forecasting is much more serious. There could be disastrous consequences if the venture fails to make unreasonable sales targets.

Before forecasting

Before the entrepreneur even thinks about forecasting the sales volume he or she must define the target markets; groups of people or businesses most likely to become customers. These groups must see a good reason to buy from the new venture rather than their existing suppliers, and be able to learn about the goods and be motivated to buy. The entrepreneur must identify the processes to achieve these requirements. Please do not skip these steps. The belief that ‘everyone will want this product and my website will bring enquiries’ has produced many poorer and embittered ex-entrepreneurs. Continue reading