Why market in a tight economy?
This article was written by Ed Hatton for Entrepreneur Magazine (South African edition), as the My Mentor column published in September 2016 and is posted here by their kind permission
Times are tough, sales are down, is marketing the best way to spend scarce cash?
The economy is limping along and lower sales means having to save costs. The marketing budget is a tempting target for cuts. Developing the company and product brands is a long term investment, and it is difficult to show returns on expenditure. Even lead generating marketing has a time lag between spending marketing funds and bringing in cash from sales. Cost cutting is usually driven by accountants who may have little understanding of customer needs or branding.
Should you cut marketing expenditure? Only as a last resort to ensure survival and then for a defined time, otherwise emphatically no. There are better ways to cut costs. See the July 2016 My Mentor column in Entrepreneur “Cutting Costs”
There is plenty of evidence to suggest that cutting marketing spend in a recession is a seriously bad idea. A Wall Street Journal study of the last recession showed that companies which cut back on marketing lost sales and market share, while those that held their marketing increased profits compared to those which reduced marketing. Repeated studies going as far back as the Great Depression have shown the same results. Savings you make from reduced marketing may be more than wiped out by lower sales. You need every sale and every customer you can get in these times. Some studies have shown that it even pays to increase marketing in bad times. Recessions can be a great time to go on the offensive, to grab customers and market share from competitors. Continue reading
How important is your brand?
This article was written by Ed Hatton for Entrepreneur Magazine (South African edition), as the My Mentor column published in May 2016 and is posted here by their kind permission
What does brand really mean to SMEs?
Brands and branding have become the focus of much marketing attention and some hype. Hands up all who recognise all or most of these brands: PrivateProperty™; Sorbet™; Rocking the Daisies™; Turrito Networks™; GetSmarter™; The Creative Counsel™; MiX Telematics™ and Paycorp™? These are all highly successful fast growing businesses which have featured as success stories in Entrepreneur in the past twelve months. Their chosen markets must have valued their brand for them to have achieved such remarkable successes, and yet they are far from household names. So just how important is your brand to your entrepreneurial business? Who should be familiar with it? What values should it portray?
Back to basics
A brand derives from the brand mark burned on livestock to mark ownership. Technically it is a trademark for a company or product, but in the modern sense it is the value which consumers place on the advantages or qualities of the person, company or product. There are many definitions of brand and branding and this adds to the confusion about what to do about branding your business and products. This is a good one: “Brand is the image people have of your company or product. It’s who people think you are.” Anne Handley with CC Chapman. Continue reading
Strategic competitive positioning
This article was written by Ed Hatton for Entrepreneur Magazine (South African edition), as the My Mentor column published in April 2016 and is posted here by their kind permission
Attack, defend, innovate or do nothing
We know that 2016 will continue to be a difficult year. Entrepreneurs I speak to believe competitive pressures are increasing as businesses chase shrinking markets. Price cutting is common as competitors do anything they can to get a slice of the limited business available. Some entrepreneurs may respond to this situation by assuming there will be less income and cutting costs to remain at least marginally profitable. Others will look for new markets or slash prices, and some will simply hope things do not become catastrophic. The problem with all these plans is that almost all competitors will to do similar things, so competitive pressures will be unchanged.
This is a good time to think strategically about positioning your business to get through bad times while increasing your competitive advantage. I suggest you take a deliberate competitive position and I have listed three possible strategies for your consideration, and a fourth which you could fall into if you do nothing. Continue reading
Are you driving your business or is it driving you?
This article was written by Ed Hatton for Entrepreneur Magazine (South African edition), as the My Mentor column published in February 2016 and is posted here by their kind permission
Why so many strategies fail to deliver and what can be done about it
It is almost a caricature. The executives go away on a strategy planning weekend. They have a successful think tank and come back fired up with great strategies and enormous enthusiasm. Then the day-to-day tasks demand attention and three months later nothing has changed. The idea may still be discussed in management meetings but this is becoming embarrassing. Why did it all go wrong?
It is a lot easier to think about how to grasp opportunities and solve problems than it is to implement the plans. A central problem of implementing new strategy is that it usually relies on people who already have busy jobs with little time or energy to execute additional demanding tasks. The planning session seldom takes this factor into account so strategy implementation remains project-based and dependant on spare time availability within the busy management team. Nothing changes and the company drifts on as it always has.
Entrepreneur style
The style of many entrepreneurs may also be the root cause behind failure to implement strategy. The phrase ‘working in your business instead of on your business’ is almost universal. Entrepreneurs naturally fix problems, manage people on a daily basis, sell, manage the finances, pacify irate customers and liaise with suppliers because they have always done so, and are now very good at these tasks. They work long hours doing things that others would be less effective at doing. Working in the business becomes a comfort zone, and the area they gravitate to when the business faces problems. Continue reading
The power of focus
This article was written by Ed Hatton for Entrepreneur Magazine (South African edition), as the My Mentor column published in October 2015 and is posted here by their kind permission
Concentrate your resources on the target to improve performance
It seems logical to spread your net as wide as possible, to develop all available sales opportunities and markets if you want to grow. This makes sense if you are the dominant player in the market with an abundance of resources, one who can afford to waste resources on loss making sales simply to deny them to competitors. For everyone else it is a bad idea. Military strategist von Clausewitz wrote “Where absolute superiority is not obtainable, you must produce a relative one at the decisive point by making skilful use of what you have”, echoing the much earlier Sun Tzu maxim of concentrating your forces where the enemy is weak.
This military strategy applies equally to business. If you concentrate your resources and focus on a particular target, you gain many advantages: Sales costs reduce, sales become easier through customer referrals. Salespeople become expert in the area and competitors recognise your expertise and go elsewhere, so your strike rate increases. Customer support and administration costs fall and service levels increase. Your company becomes the go to company in that market.
Alternative choices
By contrast trying to hit everything that moves is costly; implementation and procurement complexity increases, as does the risk of cancelled sales. Your people become frustrated because they continually need to learn new industries and seldom re-use their expertise. Poor customer service is frequently an outcome and you lose the power of relevant reference customers. Continue reading
The unique product or service
This article was written by Ed Hatton for Entrepreneur Magazine (South African edition), as the My Mentor column published in June 2015 and is posted here by their kind permission
Does unique mean it will make millions for you?
You have created an innovation; congratulations. It may be a unique product, a brand new service, a new way of distributing things, a unique business model or a combination of these – but will it fly? Hopefully it will be a success and reward you, but just because it is unique is no guarantee of commercial success. The great innovations are generally those where potential customers immediately see the value, and perceive the value to be higher than the cost. Think of prepaid airtime which opened cell phone use to those who could not afford a contract.
Innovations which struggle to get off the ground are often those where the entrepreneur is passionate about it and believes potential customers should share his or her passion. This is a good way to learn that even great and creative products must be sold. Many wonderful innovations have never been launched or failed when they were introduced.
Preparing to launch
Ask yourself: Is this innovation is in response to a real market need, does the market recognise this need or are they not aware of it yet. If you are in the second category be prepared to spend a lot of time and money convincing people they really have this need.
There are two key requirements for a successful launch of a unique product; reasonable certainty that customers will buy at the proposed price and sufficient money to develop and market the innovation. Please do not ignore the marketing costs. Commercial failure of many innovations stemmed from entrepreneurs who spent all their money on perfecting the product and had nothing left to tell the market about it. Marketing innovations is expensive; the market must be convinced that the innovation works, is cost effective and gives advantages over old ways of doing things. Do not underestimate marketing costs. Continue reading
Breakout
This article was written by Ed Hatton for Entrepreneur Magazine (South African edition), as the My Mentor column published in February 2015 and is posted here by their kind permission
Planning and executing real growth strategies
The year 2015 stretches ahead, and many entrepreneurs I speak to are still cautious. This is understandable, 2014 was a horror year of violent strikes, power cuts, limited postal service, slow economic growth and uncertainty. The temptation to proceed with caution into 2015 is very strong.
Beware though, caution can become a habit, business plans showing a modest growth on last year can become the norm. The company does not invest in new products, markets or channels, research, marketing and training are put on hold and the company develops a culture where innovation becomes too risky “for now”.
Breaking out from the limited growth habit can be a challenge, but a very worthwhile challenge, if only as a defensive move to stop competitors getting bigger and threatening you. Continue reading
You have a business plan – what now?
You have spent time putting together a great business plan, don’t waste it
It takes time thought and money to put together a credible business plan. You may have needed one to get finance, or to get suppliers to support you, or because you believe that planning your business is the right way to go, which is the best reason. Now the plan is complete, it has goals, targets and projections, mission and vision, marketing promotions, organograms, staff recruitment and training plans, financial projections and all the other characteristics of a great business plan – so what now?
Sadly in even the best intentioned businesses the day to day activities of running the business, and as all that great work fades from memory the plan document remains in a file, never to be looked at aside from out of nostalgia. If this is done deliberately it can be a good strategy, especially if you follow Eisenhower’s motto that “Plans are nothing, planning is everything.” In this strategy the business recognises that merely developing a plan drives the business to more focused and effective actions, but the entrepreneur wants freedom to react to situations on the ground, rather than stringently following the plan. If this is so in your business I have no problem at all.
However if your business is like the majority, the great ideas and lofty goals set down in the plan will slowly be submerged in the sea of day to day tactical management, and very few of the goals of the plan will be met. If this is you, or if you are in a planning cycle and fear this very widespread problem then read on… Continue reading
Cashing in
This article was written by Ed Hatton and first published by Entrepreneur Magazine as a part of the Selling your Business feature in August 2014 see copyright statement at the end of this article
When is the right time to start thinking about selling your business?
The best time to think about selling your business is when you first draft the business plan. This sounds bizarre; entrepreneurs planning a new business are filled with visions of growing the businesses, employing more and more people, branching out. However a key part of business planning should be to record your objective in starting or buying the business. This could be the need to be your own boss, wealth accumulation, social good, desire for power or others. Many entrepreneurs open or buy business with the sole intent of improving its value so that it can be sold at a large profit. Contrast this with others who build businesses in fields that interest them, and the business becomes the sole passion of the entrepreneur. If this business is sold the entrepreneur will have lost their primary interest in life. Restraint of trade is usually applicable to business sales, so the entrepreneur will not be able to start again in the same field.
What happens after?
What happens after the sale? Will you retire, go into a different field, work for charity or mentor young entrepreneurs? Or will you become bored, restless and depressed, with nothing to fill your empty days? You will probably have been working intensely, travelling a lot, taking tough decisions, overcoming difficult problems and suddenly all that goes away. If you have nothing to replace that lifestyle you will need to adjust. Continue reading
Selling to big business
This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in October 2014 and is posted here by their kind permission
Sales to huge organisations can be wonderful, but there are risks
Making a breakthrough into a giant corporate or a part of government is like finding the pot of gold for many entrepreneurs. If you have secured a contract rather than a single sale the excitement is even greater; the long-term profit generated allows the business to fund growth and regulates the cash flow. Beware though, this kind of business comes with some risks, and entrepreneurs should be aware that such contracts have destroyed businesses, and cost entrepreneurs everything they owned.
Making the sale
Large organisations, from government departments to mines are required to buy from small businesses, especially black empowered ones. We expect them to seek out entrepreneurial companies as suppliers, but it does not work that way. Little businesses have to fight hard to become suppliers. Large organisations are driven by budgets and the key performance objectives (KPIs) of the business unit which needs the product or service, so they will buy the products that fit the specification they prepared to suit those needs. This may not be the best product offered to them. Giants are risk averse and bureaucratic.
To win their trust you need to be aware of their style and needs and prepare your company and products to meet those. Pitch your sale in a way that will help the end users to do their job better. If there is ever a case of selling to the customer needs then this is it – you want to stand out from competitors and show why your company should become the supplier. Once you make the sale you must execute flawlessly all the time, and be instantly available to them at all hours. Continue reading
Competitive strategy
This 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
This 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
The dreaded top of the “S” curve
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
Staring at failure
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 May 2013 and is posted here by their kind permission.
That terrible time when it looks like the business cannot continue
There comes a time in almost every business’ life when failure seems inevitable, and the entrepreneur fears that they are unable to continue. His or her self confidence nose dives. Prospects for success or even survival appear to be extremely limited and a sense of hopelessness sets in. It is a terrible time, and often happens within the first year of operations, sometimes near the launch.
There is a real basis to this fear. Businesses frequently fail and start-up businesses are especially vulnerable, with many never getting beyond the first year of operations. Entrepreneurs may not have the skills, knowledge, risk taking ability or drive to manage their businesses profitably.
Rational thinking
The key to managing through this stage is to decide rationally whether the business is really doomed or whether the entrepreneur has just hit that painful wall that left so many others bruised and shaken but stronger and thriving. Many business owners quit in despair at this stage when with the right tactics they could have succeeded. Decisions have to be made only on facts and stripped of emotions, pessimism, and blame. This is extremely difficult for an entrepreneur to do alone at a time when they are swamped by doubt about the whole business concept, their own abilities and their fears of the consequences of failure including catastrophic financial loss and shame. This is a great time to have a mentor to turn to.
An old business saying suggests that the best loss is the one taken early. If a rational analysis of the state of the business shows that there really is no likelihood of the business succeeding then plans must immediately be made to close the business with as little damage as possible. It is not smart to continue to ride a failure into yet more debt and broken promises.
Finding out why
An assessment of the current situation is vital, write down cash resources, sales prospects, market reaction, product and service quality and fitness for purpose and all the things a buyer would look at it he were thinking of buying the business.. These must be compared to the business plan to see what has changed. Why were the expected returns not made? Are the causes fundamental or can they be reversed? Be certain that the real causes have been identified; this is not a place for rose tinted spectacles. Once the causes of the distress are identified it is a whole lot easier to make a close or survive decision. Often the crisis is brought about by something as simple and reversible as the failure of marketing promotions to attract potential customers, deviating from plans to satisfy unreasonable demands by early customers, trying to attack too many markets or spending too much time on product development and not enough on selling. This is where a mentor can bring an impersonal outsiders view, especially if the mentor has experience in managing similar situations. Continue reading
Tough times
Image courtesy of Paul FreeDigitalPhotos.net
How to negotiate difficult market conditions
“It’s tough out there” a veteran entrepreneur said to me recently, “this is the worst I have seen in 30 years of trading in this market”. Many businesses are really feeling the pinch as the long lasting effects of the global economic downturn slash budgets and postpone new developments. The phrase about tough conditions is heard frequently.
In the local marketplace labour unrest which often turns violent, energy cost and availability concerns, high inflation, increasing red tape and low labour productivity add to the problem. During the good times competition increased with more companies being launched or expanded. This means a shrunken market is being contested by too many suppliers with high and increasing costs. Buyers become more demanding because they can – there is always someone who will shave the margins to the bone just to keep the factory ticking over and some staff employed.
Effective action
Good entrepreneurs react to situations like this; they do not simply accept that times are tough and that their businesses will underperform. The business needs to win more of the scarce business, effectively denying this slice to competitors, and it needs to compensate for increased costs by increasing efficiencies. Continue reading
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