The Meyer Group - Blog
Friday, 16 June 2017 03:21

Creating a New Market:

A Problem, An Example, A Successful New Business

Do you want to create and dominate a new market? Are there still opportunities for you to do that? The good news is that as long as there are problems, you have an opportunity to create a new market. For an example let's look at a well established and even boring market that engendered a new high revenue business.

New markets are not reserved for emerging niches like the internet of things or cell phone handsets. They're available to businesses that have little romance. They can be started wherever there are important problems that customers really feel.

The successful new markets start with problems, not with solutions. The example? What might seem a prosaic business — selling transistors — and how a former purchasing specialist built a whole new market. His name is Mike Wood, and he started with a problem.

First: The Problem
Transistors and other semiconductor components are unexciting but they sell well. Most of them are very application specific. At any one time there are perhaps 100 million different semiconductors being manufactured. This generates around $300B (U.S.) in revenue.

"Once (an expensive manufacturing) facility gets up to capacity, the owners are wary of investing another $2 Billion to build another facility." This is Mike describing the dynamic. Most chip companies manage fluctuating demand by juggling lead times as orders come in.

Since the individual products are highly specialized and the fabrication facilities are expensive to build and run, manufacturers often juggle several customers at once. That juggling is hard on customers. Sometimes very hard.

The result is that some customers get the wrong kind of surprise — their expected delivery dates change dramatically. Mike's team will get a call saying: "I always buy it from (the same supplier) and they always deliver it 8 weeks after order. (Today) I call 'and say: 'here I am again, and I need 100,000 of these transistors in 8 weeks.' (The supplier) says: one 'small problem, this time the delivery is 20 weeks.'"

Suddenly adding 12 weeks to an order cycle is a big deal. It leaves the customer in trouble because these products are so specific that it is hard for other manufacturers to fill in. It's potentially a disaster for their customer.

For a company that makes something as simple as a toaster, delaying production is not an option. The appliance company cannot assume that Best Buy and Wal-Mart will cheerfully wait an additional three months while a transistor delivery problem gets sorted out. The retailers will order from someone else for this and probably future quarters. For most toaster companies, this is unacceptable.

This supply issue happens every day. Transistor manufacturers can't build room in their schedule for sudden requirements. Most distributors cannot afford to stock enough transistors to fill an unexpected spike. When this happens the toaster company cannot replace the components with something else. Then urgent calls go out to transistor suppliers: "Does anyone have access to the product I need in less than 20 weeks?" The answer is usually: 'No.'

If that wasn't complex enough, the trend to outsource manufacturing has added a second problem. The toaster has a brand name on the front, but that toaster may be made by a contract manufacturer. The contract manufacturer buys transistors and other components for dozens or hundreds of different products on their lines. To manage that business, the manufacturer keeps an inventory based on forecasts from the appliance company and many others. The contract manufacturer does not keep excess parts around.

You know how this falls apart. Sales frequently varies from forecast. The companies involved wind up with excess inventory that pools in unpredictable places around the world. These gaps or excesses are very challenging.

There are now two problems:
— 1 - A gap in inventory on one side and
— 2 - An excess in components sitting around somewhere else.
The stakes are high. Missing a delivery of kitchen appliances to Wal-Mart or Best Buy can be fatal to the supplier.

Ideally, this should never happen. We have predictive computer modeling and collect a lot of data. However, the world is dynamic. When someone in a small country in Europe makes a series of bad loans, consumer product sales across all of Europe might be dramatically lower. The threat of a terrorist attack may mean that communication product sales are no longer predictable in a major city. When a dry summer combines with lightning strikes a part of the California economy might change for months.

Any of those scenarios can disrupt a company that buys components month to month. Too few or too many of even an inexpensive chip is unacceptable.

In other words, the problem is real. To the consumer who buys the toaster, it may only be an inconvenience. For the companies involved, it can be fatal.

The solution seems obvious on the surface — use brokers who buy from companies with excess inventory and sell to companies with sudden need. This doesn't work. Person-to-person selling can't scale up to match the need. No one company can afford to buy a large chunk of the worldwide excess inventory on a speculative basis and post it on their web site.

Mike had been buying semiconductors for Siemens. He knew the imbalance problem and how serious companies found it to be. What Mike wanted to do was to build a solution that would actually solve the problem.

Next: Crafting The Solution
When Mike left Siemens he took a role working for what is now HPI AG, a speculative broker in Germany that buys and sells excess electronic components. As good as that company is, no speculative broker can handle enough volume to solve this problem. So he started to build a solution that would provide a way to directly connect the contract manufacturer with excess inventory to the toaster manufacturer with a sudden and urgent need.

As he did this, Mike was building an online chip exchange that would clearly compete with his employer's main business. Each transaction on the exchange might take revenue away from the parent company. Even with the obvious risk, HPI supported Mike. He developed a web site that would allow the owners of excess chips to connect to the companies with sudden needs. He named the new company Virtual Chip Exchange or VCE. It worked, and it worked in a big way.

It worked because the problem mattered. Mike had a solution, one that changed the game for the semiconductor industry. The VCE model works on a larger scale than any broker or distributor can support. VCE makes it much easier to solve supply and demand issues. Mike says that: "We have $2 Billion worth of excess inventory to sell on our site. The largest (stocking) distributors might have up to $1 Billion worth of inventory. The total available-to-sell inventory at (the largest worldwide distributor) is actually lower than the total available inventory at Virtual Chip." In other words, VCE has become an industry giant by solving a problem that customers feel intensely.

Summary: Start with the Problem
The problem? A series of expensive and time-critical mismatches between the supply and demand of transistor style chips. This means that products are not delivered when promised.

The solution? A new market where Mike and his team can dominate by solving a real problem.

The result? A new market where none existed before, a large company of which Mike is the CEO, solutions for sellers and customers, and profit for Virtual Chip Exchange's owners.

The lesson? Even in prosaic industries, new markets can be created with easily built technologies, and they can become dominant and profitable in a matter of months. They do it by finding a problem, sexy or not, that people will pay to solve. Because the problem is important to the customers, revenues can immediately grow and the solution can be profitable.

Can you create and then dominate a brand new market? Yes. You do it by starting with an old but important problem.

 

Friday, 09 June 2017 03:32

Hunker or Grow:

Is It Time to Hunker Down or To Enter the Revenue Stream?

The economy still seems challenging. If you own or manage a business that sells to other organizations, you have a choice.

- Do you opt to hunker down and ride out the difficulties?

- Or do you find ways to get proactive and create opportunities?

More than ever, our ability to know what to do is clouded. The lessons we so painfully gained in the past lessons don't seem quite as relevant. Yet, commerce is clearly still happening. People are still buying.

This is two blog articles. In the first, published this week, you’ll find suggestions about whether to hunker down or to seek opportunities and take advantage of them despite the current disruption in the economy.

In the second, to be published soon, you’ll find strategies to take quick advantage of disruption. You can make disruption your ally.

Hunker or Grow?
As a manager do you hunker down and ride out the current economic difficulties? Or do you choose to get proactive and find and make use of new opportunities?

Many managers are acting in shock. They are not taking the initiative because they cannot predict the immediate future. Your ability to know what to do based on past lessons is challenged. Doing nothing feels safe, acting feels risky.

With all that, it is easy to forget that commerce is still happening. Companies are looking to take steps to make as well as save money. Governments are continuing to invest in services. It is easy to forget that things are still being sold and that customers want to buy more of them.

If you own or manage a business, you have a choice. One option is to bide your time during the disruption. You can wait for the revenue to appear. Many managers will choose this.

Another option is to move into unknown areas to create revenue projects. The unknown is not the easy choice for many, but some will choose to try to create opportunity. The good news for the latter managers is that this disruption is creating opportunities that never existed before. This is a time when new products and services can take hold.

You face risks when you move into the unknown. Many projects you propose to customers may fail. However, if only a quarter of the new projects happen, that is a major opportunity that other companies may miss. You have an opportunity that your business will miss if you wait out the recession.

When you talk to your sales teams, remind them that there is a continuous river of spending. Although the rate of flow rises and falls, the river never stops. The economy changes and takes odd turns, but the river of spending never dries up.

Some times you stand on the side of the river of revenue opportunity. You point at it and discuss how much larger it was last spring. You watch it and wonder what next spring will bring. Perhaps you walk along, looking for the right place in which to dip a toe. Sometimes you step into the river of revenue and get thoroughly immersed in it. Right now that might be appealing.

Getting the Sales Team Into a
Revenue Stream

For your sales team to take advantage of the stream may require that they take a different view. You may want them to look at customers a bit differently. Consider:

- There are businesses to which you sell that are withdrawing and hiding and hunkering down, hoping to survive. They provide trickles of revenue.

- There are also customers who are looking to thrive and grow their own revenue. These businesses are part of a fuller and fast stream.

The key here is that your sales team may not realize that these trickle and fast stream customers are often people who work in the same company. In many businesses, managers hoping to survive are in staff roles like human resources (HR) and information technology (IT.) The ones planning to thrive and grow are in line positions on the revenue side of the same business. It is time to ask:

- Do your sales teams call on the staff or the line?

If not both, they may be missing the stream of revenue.

You can take real advantage of this in a competitive marketplace. This is because some of your competitors are in survival mode; so they appeal to the hunker-down folks in staff roles. This works to your advantage when you work both the staff and the line in your sales strategies.

Fewer of your rivals are stepping into proactive mode. They differentiate themselves by talking about revenue. They appeal to the managers and executives who want to grow their businesses. They are in the faster stream; you may want to join them in that stream. As late as it is in the calendar year, their are still new deals to be had in this stream.

Your fastest path to the quickly growing your revenue stream this year is going to be found with the line managers of customer companies, people who also need revenue this year. Every company has managers who want to find ways to get things done and are willing to break budgets to make revenue happen. At this time of year, they are more frustrated and more willing to work with a new supplier. That is an opportunity for you.

Approaching Your New Customer – Three Practical Considerations
The economy isn’t an object to which you are prey. The economy is an average, a line defined by mathematics. There are companies and people below that line, and companies and people above it. No one of us is average; each has a choice to be above or below that line. You control that choice.

Customers aren’t monolithic. Each company or municipality is a combination of buyers and decision makers with different agendas. This is a good time for your sales team to take advantage of the difference between those taking the survive path versus those looking to thrive.

For example, you might rely on the news to say that Cisco Systems is gathering cash to retire debt and buy businesses at a discount. You could say that General Motors (GM) is unable to spend money, a poor place for you to invest sales time this year.

But these generalizations hide important truths. Cisco is cutting back at the same time the company is investing in growth. Their non-revenue departments are looking to avoid spending. At the same time, GM is spending substantially in tools, consulting, and, of course, new technologies for cars.

Even saving money is expensive. Closing plants requires a substantial investment. GM will do it. On the revenue side, GM is building the cars of the future. That requires a substantial investment and creates a revenue stream. At GM, you will find top managers focused on revenue. There is a stream there for someone to tap.

To gain an advantage for your business, you need to ask your sales team a question:

- Do you call on cost control departments or revenue generating departments?

For most, it is cost departments. There is nothing wrong with doing that and building long-term relationships, but this may not grow your business this year. Your goal is long-term profitability, but can you also have the short term? Can you increase your market share today while your competitors hunker down? You can.

Start by designing sales strategies that bring value to the revenue oriented groups at your prospective business customers. That means adding value as the customer sees it, not as you want him or her to see it. Letting the customer define value can be uncomfortable. So is reaching high into executive offices that are not familiar to your sales team. On the other hand, if there was ever a time to get uncomfortable, it is now. This is a high leverage period because other companies are withdrawing from competition.

The good news about this being a blog is that if you want help you need only send over a note. I’m an author, I love it when you read what I write and ask questions. Drop me a note at Peter @ MeyerGrp.com

A practical step to locating your revenue stream is to segment each customer company into individual buyers, focusing on whether the individuals directly contribute revenue. Some of those buyers are on the cost side of the company. Some are on the revenue side. Don’t let your sales teams miss either side.

It is not just companies that have revenue-generating departments. So do governments, medical centers, and nonprofits. Governments have tax collection and economic development groups. They are quickly creating revenue streams this year. Have you allocated some of your sales resources in that stream?

The second practical answer? Make it easier than ever for the revenue managers at your new customer to make a decision to go ahead.

Ask:
- Can you make it easier to for your customers to buy in small bites?

- Can you make it lucrative for your sales teams to sell small deals to new customers?

- Can you help your new customer ease into the relationship with you?

- Are you compensating your sales people to prospect for this kind of business?

- Can you offer bonuses for new customers? Even if located within in companies you sell to?

As the economy rebounds and a customer grows, to whom will the revenue managers turn? It will be companies and people that focused on selling small and easy to absorb projects during the recession. Why not make your company the preferred source?

If your team is not used to talking to customers’ revenue generators, the third practical step to take is to take a leadership position. Show them by doing it. That requires time and attention, but it is likely to be the best investment you can make this year.


Conclusion
As you guide your business, you have the option to hunker down and let things get better. Or you can take advantage of the opportunity to get a larger market share and add new customers. The best way to focus your sales teams on obtaining new revenue is to recognize that potential new customers include individuals inside businesses. Point your teams toward managers who generate revenue for your prospect.

One of the key investments is your own energy. If you want your team to be proactive with customers, you will need to act that way. If you combine your leadership with the right product and service packaging, you are likely to get revenue for your company that others will miss. As Intel’s spokesman said when announcing the $7 billion building plan: "You never save your way out of recession. You invest your way." Will you invest in a revenue stream? Will you make it work for you?

This posting is from the upcoming book: Grow Your Revenue, Time, and People. It has appeared in a slightly different form in BusinessQuest, the journal for the Richards School of Business.

 

Can Offering the Customer Safety Increase Your Business' Revenue?

When you consider how to increase your revenue, start with your own buying preferences. Why might you choose to pay a premium for a product? Does that apply to others as well? Specifically, consider three questions:

1 - Would you pay more if you got a guarantee of satisfaction?
2 - Does guaranteeing your work say something about you?
3 - What is a guarantee's total cost compared to the revenue?

The first two of these questions are tightly interrelated. When I buy on line or in person, I tend to shop where returns are easy. Lands End and Boure Bicycle Clothing are great examples. Each company flatly guarantees that I can return purchases or gifts with no questions asked. Does this mean that their clothes or bags are automatically better? No, but their service is. Their guarantee makes my purchase safer. The guarantee is a statement of their values. I bring my business back to them because of that. For me, questions 1 and 2 are important reasons to choose my supplier.

You can use this to substantially boost your margins. Customers come to you with questions to resolve. Answering those questions in a way that makes you the safe choice can increase your sales price and reduce your risk at the same time.

Consider what you already do to differentiate your product. If you sell tires or roofing materials, do you want to just sell prepared chemicals? Or do you want to deliver safety on the road and in the building? Is your product a combination of ingredients that anyone can buy, or is your product the way that you deliver those materials to individual customers?

To command a higher price, make the offering you deliver a mixture of two things. First, start with your ability to get the problem and success criteria defined up front. When you do this with your customer before he or she buys, your customer is more likely to get the solution that they tell you they want.

That allows you to deliver the second part of the mix comfort. A guarantee is part of that sense of comfort. Combining your understanding with comfort for the customer will lead to increased margins. Negotiating success criteria in advance shows your customer that you value their uniqueness. It also allows you to know exactly what you should guarantee.

Increasing Margins by Doubling Your Price
Start by looking at what you value. Would you pay a premium to get a satisfaction guarantee for something important to you? How true is it for others? We asked over 100 executives if they would pay a premium for a guarantee, and how much. They said ‘yes.' The average increment that they were willing to pay was 100 percent.
Not only would they pay more for the safety of a guarantee, they would pay twice as much. It's a strong statement.
A guarantee is an expression of your values. That value is attractive. It is also a commitment to protecting the customer. That's also attractive! Those mean higher value to your customer. With that value, you can and should collect additional margin from every customer. It is worth it to you to be worth it to them.

The Satisfaction of Delivering Satisfaction
Increasing revenue is only part of the reason to offer a guarantee. Because you are going to do the work right, you get the privilege of your own satisfaction. Do you feel good about delivering quality and value in your business and personal life? One of the main reasons to deliver satisfaction is that this is how you want to perceive yourself. When you are working to your own greatest satisfaction, you are working from your internal compass, from what you are as essence. It feels good.

Satisfaction with your business starts within you. Your sense of quality comes from within you, not from an external source. You may measure the level of quality by comparisons, but your ability to recognize that you deliver quality comes from inside you.

When you deliver from there, it's clearly part of your product. You do what you would feel proud to do, and that shows. You want it to show, and you probably show it now.

To put this in perspective, consider:

If a customer is unhappy with what you have done, would you turn your back?
Or:
Would you work to craft a solution?

The answer seems obvious. Consider the statement you are making. “Yes” to that question is a statement that you deliver quality work, end of story. You want to do that, and you want to be known for that. You are working from your internal guidance, from your sense of what you want to be and how you want to see yourself.

That commitment to “Yes” is a key part of why your customer should buy from you. It is as much a part of your product as tires or roofing materials or billable hours.

Your guarantee that you will take care of the customer, that you are offering to guarantee their satisfaction, is the clear statement from within you to them. One of the best reasons to offer that statement is because you are telling them about what you and they both mean to you.

When you act from what you are, you will make an effort to find ways to make your customer happy. You'll get satisfaction from delivering satisfaction. You are going to do what is right.

Your customers value your focus on the problem as much as they value the hardware or software. When you focus on their problem, you are going to do what is right for them. If you give them that focus, and show you mean it, you will double your margins and more.

If you are going to do what is right, why not tell your customers that this is how you operate? Why not collect the additional margin that they will pay for that commitment to their satisfaction?

Reducing Your Risks
Can we afford this level of guarantee? It's a discussion of revenue versus cost. The revenue can be forecast, but the risk can seem enormous and incalculable. When you offer a satisfaction guarantee you run the risk of a customer telling you that you have failed, and then having to make it right. It raises questions.

The first question should be:
Do you want to know when you have failed in the customer's eyes?
For most of us, the answer is ‘Yes.'

The second question would be:
- Are you going to fix the problem anyway?
My guess is that when you look within yourself, you will find that you want to do what is right for the customer if you can. ‘Yes,' you'll find a way to make it right.

If so, why not ask to be paid for your commitment to excellence in every transaction? In several decades of consulting projects in our firm, we have gotten very good at asking for definitions of success criteria from large companies and small ones.

We've always been good at meeting our commitments. We deliver good work, and we guarantee it. How often do we have to pay out? In the 20 plus years, we've refunded money one time. Just as important, we have increased our sense of doing what is right for each customer.

You can manage your risk by ensuring success. The biggest tool to ensure customer success is how you communicate with the customer before the project is started. Success Criteria are your tool for margin, delivering value, and reducing risk.

Together you and your customer have the opportunity to define success for a project. If you want to make sure that you will both feel satisfied that you delivered satisfaction, make an opportunity to define success before you start.

Before you do price negotiations, ask for an understanding that you will be successful if X and Y are done, and that you have the ability to negotiate changes if both parties agree. It sounds pretty obvious, but how many projects do you start without a clear and common agreement on how you will know that you have finished? Success Criteria help you and they help your customer.

Once you agree on that definition, you know your targets to deliver satisfaction for you and the customer. You know what you can and will do to satisfy your own internal drive for quality. You know your capability to satisfy your commitments to the customer. And you know that you can ask a premium because you asked for the Success Criteria and then promised to meet them.

In other words, your risk goes down. Your margins go up.

The essence of the risk changes as well. Before you were concerned with issuing a refund. Now you are more concerned with making things right. Again, wouldn't you do that with or without a written guarantee? Isn't that what you stand for? If so, what is the risk of the guarantee? There is very little risk and a lot to gain.

Over the years we have clearly gotten revenue that might not have come to us. Why? We display the commitment to satisfaction. I know this because customers have told us.

What risk would be unacceptable to me as an owner? The risk that I would say no to supporting a paying customer, or the risk that I would not work to understand a customer's needs in advance. Working from my core, my internal compass, I won't accept the risk. I want to treat my client in a way that I enjoy being treated.

The biggest risk for me? Going home thinking that I did not do the right thing for the customer or myself. Since I won't accept that risk, this is the argument that keeps me offering a satisfaction guarantee. The additional revenue is the happy side effect.

Choosing to Guarantee
The arguments to offer a guarantee are:

- Increasing revenue to more than cover what you will pay in claims

- Keeping the focus of a transaction on the work that you are doing instead of the price of doing it

- Presenting the same sense of quality that you strive to be

- You are going to fix things that go wrong anyway. It is one of your strengths.

You might as well get paid for one of your best qualities. Peter Drucker put it well when he said: “The single most important thing to remember about any enterprise is that there are no results inside its four walls. The result of a business is a satisfied customer.”

A significant part of your product is your value, and the core of your value is what comes from within you, not from what you produce. That is good news; you can produce more value by focusing on that, and by generating more from your source. The benefits to you, your customers, and your business are great. You just have to figure out how to do it.

Remember that a guarantee is a contract with your customer, and both parties are involved. So start with asking to jointly define success before any important transaction that you will guarantee.

Do you want your customer to feel comfortable buying from your business? Do you want clients to respect how you do business? If the answer is yes, then guarantees can be a low cost way to help customers buy.

In the end, your guarantee of customer satisfaction is not about the hardware or software or service. It is about the statement that you are making to your customer and to yourself. The benefits include higher revenue, but the chief benefit may be how you and your customer see your value, and your values.

(This posting is based on the book: Growing Your Revenue, People, and Time which I am still writing. It has appeared in a similar form in the Business Quest, the journal of the Richards College of Business. If you have comments or suggestions, please let me know!)