Tuesday, August 18, 2009

Volume 63 - Street Smart Strategy - Vol 1

I probably should have started my 'Street Smart Strategy' segments with the last edition with "What Lessons I've Learned At i.2;" but, considering the fact that I seem to learn something, good or bad, everyday it won't be difficult to update Volume 62 to fit into this new 'Street Smart Strategy' series. So I'll open up this new series with knowledge about 'average data' and more insight into that 'data' with reference the 'customer,' Sales' personnel intertwined with 'cost cutting' measures during a downturn.

We find ourselves living more and more in a society where business can draw on more data than ever before about its typical customer, industry segment, and buying habits of that average group within that particular industry. We receive constant requests from Industry Associations and others for this 'confidential' information. Without a doubt we can know the average age, education, income, and even the profitability of 'everything' average. As useful as this information may be, and the importance of the associated technology to obtain such information, I maintain it can be extremely dangerous.

Never forget that there is no such thing as an "average" customer, and there is no excuse for delivering average service to either your best or your worst customers. Treat your customers not as the average of their differences, but as people who have very different needs, and who make widely different contributions to your profits. Your best customer, who adds the most to your profits, and your worst customer, who adds the least to revenues, balance out to an average value to your business. But it is a huge mistake to treat them both the same. Similarly, customers in different markets may have totally opposite needs. Instead of one all-purpose strategy for every market, we at Independence2, LLC believe that businesses have to tailor their strategies to win sales according to the needs of that particular customer.

It is no different than analyzing the strengths and weaknesses of a particular business and adding value added results to the analysis, something that I did during my last couple years with WWH. Just as one would collect data from 100 Bakery shops and then 'rack and stack' the results gives you an 'average' business without taking into account the specific nuances of the business. What we do know with certainty, however, is that whether you are the 'customer' or the 'business,' we know that 20 % of the customers will bring in 80% of the business (profits) and this has nothing to do with average.

The real key is really the QUESTIONS that I've learned from what I call the 'Street Smart Strategy' that asks: What would happen if you knew how to use your resources to deliver the right sales, with the right service to the right customer, at the right cost? Obviously, your profits should jump higher than ever before; yet we know that one approach doesn't fit all customers. We (Independence2, LLC) do know that sales, service, quality and cost fits all the target groups to one degree or another. The 'mix' is the recipe that makes it work.

When one takes the categories of sales, service, quality and cost and begin to 'peel back the onion skin' of each is when you realize the complexity of the matter at hand. Lets take, for example, the arena of Sales representation; and in our particular world it evolves around 'Manufacturer Representatives' rather than 'direct' employees, the difference obviously is that the 'Rep' is a 1099 employee working off of an agreed upon commission based on collection. A self-employed entrepreneur versus an employee who picks up a 'pay-check' on a regular basis not necessarily based on that employee's production. As you can see, this simple category of Sales (representation) starts to break apart on its own with types, management oversee, culture, costs, etc. This, however, is not about the Pros and Cons of whether a Direct Sales Force is better than Manufacturer Reps or vice versa, it is about the 'Street Smart Strategy' that one learns through years of working, observing and being part of identifying and selling to each individual customer. It is however important to bring out the above described differences between the two Sales Forces for it directly effects the strategy in managing either one.

I will have to admit that I haven't been extremely successful with 'Reps' over the years, for they either come in one of two categories; those that are aggressive and overcome obstacles or else those that have a 'million excuses' for not succeeding, sort of a 'take on society' as a whole. I was fortunate enough years ago to be introduced to and work with one of the very best 'Reps' within our industry, my friend and buddy, Tom Maxwell. Tom probably taught me more about the 'Sales' game than anyone, thus my start of the 'Street Smart Strategy' at least from the Sales representation perspective.

Tom taught me that although you need a quality product and competitive pricing you need more the 'unequivocal service' that is associated with that product. This service means 'On-Time' and 'Complete' 100% of the time. It means that you build a relationship with a customer through sustained quality, fair pricing and absolute honesty. It means that not all customers are going to be 'good' customers. It means (again) the shoe doesn't fit everyone. It means that you remove obstacles from the customer's decision to purchase. It means you take risks; but, it also means that you penetrate a market. It means you customize your approach. It means you target customers and 'rack and stack' customers based on the profits they bring in. To the credit of the good 'Reps,' they know which customers are worth going after for they know what that customer wants. They also know that good service and sales depend on assessing the market, choosing the targets, and then crafting an approach to fit their needs.

The worth of the Salesperson within a given territory is of high value to the 'Street Smart' owner (corporation or small business) but, believe it or not, this value diminishes the higher up the hierarchy (organizational chain) of larger companies. There are people who actually question the value of a commission salesperson after hundreds of thousands of dollars are captured and the 'hierarchy' has to write out the 5 or 6% commission check. I've actually sat in meetings where this subject was discussed and debated; somehow forgetting that the money now received would be zero without the precision type work of the aggressive and knowledgeable 'Rep.' I actually had a conversation with Tom concerning this matter, and he, with his wisdom of years, related the following story:

"This is a story of the boiler repairman who was hired to fix an enormous boiler system on a steamship. He spent a few minutes studying the miles of twisting pipes in the boiler room. Then he pulled a hammer from his pocket and tapped a valve. The entire system started working perfectly, and the next day the repairman sent a bill for $1,000. The steamship owner, outraged that the repairman had charged so much after spending only 15 minutes to fix the problem, demanded an itemized invoice. The repairman sent a new bill that read: 'For tapping with hammer, 50 cents. For knowing where to tap, $999.50.' Tapping a boiler is simple. But knowing where to do it is not easy. The same is true of Manufacturer Reps and the marketplace. You have to know which segments and which customers of the market to tap." The good "Reps" know that......of course, the other side of the picture are the 'Reps' who will give a million reasons why they aren't successful with the product and none of the reasons have to do with them; those aren't worth the 50 cent hammer blow.

The next segment of the 'Street Smart Strategy' and the final one for this edition is very pertinent in today's market, and maybe more so than Sales Strategy for it has a direct bearing on the Sales numbers. Cost-Cutting during poor economic times is the subject matter as we continue to see on the evening news company after company laying off hourly and salaried personnel by the thousands. As I had mentioned in previous blogs, it's amazing to me that companies can lay-off thousands of workers over such a short period of time. A larger question begs answering and that is - "were these people that important six months ago? " It may seem as a harden type question but one that must be answered, for in poor economic times costs certainly must be contained and reduced; but doesn't that also apply to 'good' times especially if you understand profitability? The problem is that most cost-cutting programs fail anyway because 'someone' sets a predetermined goal of say, a 20 % reduction, and then the pain is spread evenly around the business. But what these individuals have missed for years is that running a company at 80 percent of its previous cost is not the same as becoming the market leader by being the high-profit, low-cost provider. Instead of cutting costs everywhere, squeeze costs out of your service to C-customers, and keep service level high for your A-customers where the returns will more than pay for the expense in addition to always looking a costs even during the 'good' times.

Cost Cutting is a Volume by itself, so we'll be hearing more about this very difficult subject in future editions. In the meantime, simply understand that taking percentages from every department simply to meet some arbitrary number is a formula for failure.