by Rick McPartlin :: June 11th, 2013
These companies do great work and deserve to get paid for all that value they deliver to their customers, so why do these great companies tell their clients to keep much of the margin they have so richly earned?
High-value companies train their teams, design process, manage against quality metrics all in order to deliver those great benefits that make more money for their clients and hopefully for themselves. So where does this disconnect between doing great work that is unique and telling the client PLEASE PAY ME LESS THAN MY WORK IS WORTH!!!???
Regardless of the work delivered (after the sale is made and the contract is signed), there is that early stage of every relationship where expectations are set.
What is it that companies do to set the expectations day one and keep telling that story up to the day the contract is signed that results in this low margin result?
Let’s see what we can learn by looking at 3 technology companies’ websites:
- Gateway – “Just what you need for productivity, entertainment and mobility.”
- Dell – “The power to do more.”
- Apple – “Performance and design – taken right to the edge.”
Gateway builds computers, and they are happy to tell the world “WHAT” they do. Gateway computers are “Just “WHAT” you need for productivity, entertainment and mobility,” and they sell them to you at a very reasonable price.
Does Gateway believe no other computer company’s products help with productivity, or provide entertainment or can be mobile? They are describing themselves with same terms every other computer company in the world also claims.
When you tell people “WHAT” you do the prospect has to guess “why they care” (most won’t work that hard) and they hear you are a commodity player. When the buyer hears you are a commodity player you better be prepared to compete on price.
Dell gives you “The Power to do more,” and their website delivers the power for customers to make decisions about technology, financing technology, integrating the technology, maintaining that technology and evolving all of these things through a long-term relationship. Dell is in the “HOW” business. “HOW” allows the customer to manage a complex buying process with the confidence to acquire complex technology so you can be productive, entertained and mobile, plus Dell understands the buyers need for a simpler way to buy.
Dell gets more margin than Gateway since the world believes Dell’s “HOW” makes sure they get higher productivity, better entertainment options and greater mobility from Dell.
Apple believes - Performance and design matter, and it must be taken right to the edge in order to give the customer the greatest experience possible. When the customer wants productivity, entertainment and mobility for computers, IPads, IPods, IPhones, etc. they reach out to Apple because performance and design matter to the buyer.
Apple understands “WHY” people select brands as part of their life, and Apple becomes their choice for all forms of productivity, entertainment and mobility. In addition, the buyer wants to pay more to be able to say to the world they too believe in performance and design and will go as far as they need to (pay more, stand in line and change out all their old technology) to be part of the Apple community.
Near 100% of small and medium-sized businesses spend 100% their time and effort (before the sale) communicating about “WHAT” they do. They tell the world they write software, paint houses, do great printing or hundreds of the things that are exactly the same “WHAT” as their competitors. After they get the sale, they are surprised when the buyer doesn’t understand that they are really a high value partner worth additional margin. It is often only after the customer dumps the current high value vendor for a lower price that the customer experiences the difference in value. So they return to the high-value provider but they still want the original low-margin price.
Let’s do an experiment – first think like a customer and then go look at websites in an industry. What if the names were changed on the websites, would it be possible to tell the differences between the companies value based on their “WHAT”? When “WHAT” is all the website talks about how would you decide which “vendor” to negotiate price with?
If a website, an advertisement, a proposal, a trade show display all talk about “WHAT” you do, don’t be surprised when your customer pays you a commodity price and margin since they can’t tell the difference based on your “WHAT”.
Those small and mid-sized companies that really provide great value need to communicate with a buyer focused “WHY” because “WHY” tells the value story. At least talk about the “HOW” in every communication from sales presentations, to websites to PowerPoints to proposals. Compared to talking about “WHAT” your message about “WHY” and “HOW” will increase margins, wins, and repeat business. Most important the buyer will thank you for understanding what they value, and they will become your partner for a very long time.
by Rick McPartlin :: May 28th, 2013
From my experience with over 10,000 companies, everyone is “Over Paying” for the amount of revenue they are currently getting, and they are “Over Paying” by a LOT!
One way to think about “Over Paying” for revenue is what we call the "Cost of Chaos" for producing revenue. The "Cost of Chaos" is between 10 and 30% of a company’s topline. If you own a $20,000,000 dollar company you are both “Over Paying” between $2,000,000 and $6,000,000 each and every year, but in addition, those dollars you over pay are anchors that hold down the revenue growth that should be yours. So maybe you should be a $24,000,000 company, not a $20,000,000 company.
Nobody who runs a company gets up every morning and says I think I will increase my "Cost of Chaos,” decrease my EBITDA and hold down my revenue growth, but that is EXACTLY what they do.
Since this increased cost, decreased EBITDA and reduced growth happens every time it must be we don’t know we are doing it or we don’t know we have a choice or we don’t know what to do to be in control of growing more profitable revenue without spending more money.
As a matter of fact, the way you will grow more, profitable revenue faster requires you to SPEND LESS MONEY to get more predictable revenue.
Exactly how do you SPEND LESS MONEY to get more?
Get your “Revenue Generation” team (sales, marketing, customer service, proposal development, product development) and the leadership team (CEO, CFO, COO, etc.) in a room with lots of flip charts and pens. Now reintroduce them to the Revenue RoadMap http://tinyurl.com/3sy35z5).
You will notice that this is the Revenue RoadMap version with operating metrics. These operating metrics will open your eyes and close your wallet (at least for expenses going out).
The meeting goal for your revenue and leadership teams is to figure out who works on accomplishing these goals and what are the true costs the company pays to get the results required at each stage of the metrics (gold, blue and red).
The team will spend most of the day listing everyone, everything and every dollar that goes into accomplishing the Revenue RoadMap outcomes. In a perfect world, the teams will break out the cost in categories as similar to your Profit and Loss statement (we need the CFO as part of this effort) as possible.
Some of the costs will be based on time such as how much time does the CEO spend in the marketing function networking to find deals? Also how much time does the CEO spend in sales (coaching, selling, proposing, etc.) and lastly in delivery, customer support, firefighting and making sure current customers give us referrals? To do this (or each function), we also need the detail for hard costs including trade shows, training, equipment, software, and so on.
Set aside one hour to identify all of the current activities and resources that did not show up in the previous exercise. In other words - what things are you doing that do not create outcomes that drive revenue? Now consider stopping those activities and focusing on outcomes that drive profitable revenue.
In one day, you will not get it perfect, and you sure won’t get it all. You are creating a first draft of the measurement of the Revenue Resources Required to get the amount of revenue and profit you are achieving today.
Whoever functions as your CRO (Chief Revenue Officer) becomes the keeper of this draft and will be responsible for making it more complete and more accurate every week forever. In 3 years, you will be very accurate about your real Revenue Resources Required to achieve your specific levels of revenue and profit.
Near the end of the day it is time to focus on positive revenue leverage. Once you have a good feel for your current Revenue Resources Required, it is time to establish plans to remove at least some of the cost of the revenue chaos while continually producing more profitable revenue. This process will get you positive leverage on your Revenue Resources Required, similar to what manufacturing got from implementing Six Sigma and Lean.
Discard the notion that the Revenue Resources Required is a bunch of “fixed” costs. The VAST majority of revenue resources are variable, and as your business, your offers to the market (products or services), your market and the world changes, your go-to-market model MUST change along with your Revenue Resources Required to effectively execute the go-to-market model.
Now that you have draft numbers for the current Revenue Resources Required (that are creating today’s top and bottom line), start to develop some critical operating rations. In year one if you do nothing else, measure your Revenue Resources Required (RRR) as a percent of both top and bottom line.
You probably also want total Revenue Resources Required for critical functions (Gold, Blue and Red) as a percent of top and bottom line. Over time, these will change to drive growth and profits.
Once you have these rations measured, assign a small team with members from Gold, Blue, Red, and finance to take two weeks to make recommendations to reduce the % of total Revenue Resources Required by at least 5% with no negative impact on top or bottom line.
Then ask them to do the same thing but looking for a 10% reduction with no negative impact on top or bottom line.
Next bring the original large team together to review results, listen to recommendations, brainstorm options and to decide the best place to start the process of decreasing the total Revenue Resources Required with no negative impact on top or bottom line.
These groups need to meet at least every other week to track progress, present other costs that were not found before, make other suggestions for reducing the cost of Revenue Resources Required.
Finally, create another small team to continually review Revenue Science for points of chaos and leverage opportunities that will both reduce cost and increase the growth of profitable revenue. Also look for those predictable changes in the market that you should be considering to both take advantage of opportunities and avoid predictable problems.
So form your team and start to manage your Revenue Resources Required and STOP “Over Paying” and start SPENDING LESS to get more?
by Rick McPartlin :: May 10th, 2013
These two days at a resort, hotel or private club produce yet another version of Mission, Values, Vision, Goals and Objectives, which seem to be an annual necessity. The myth is if the right words are in the right order and shared with your team, partners and market, you will dominate like no one since Apple – if you just get the words right.
Domination requires lots of profitable revenue so you set a revenue goal that will fulfill your budget requirements and investor expectations. With this budget in place you start making work assignments to sales, marketing, manufacturing, and so on by wrapping those budget goals with those great words about Mission, Values, Vision, Goals and Objectives that you crafted at the offsite.
Now it is one year later, and it is again time for the required annual offsite. You will do yet another version of Mission, Values, Vision, Goals and Objectives, once again hoping for all the right words, in the right order, etc.
To prepare for this offsite, you look back at the past year and can seldom even remember last year’s words, let alone the right order or the degree of passion you must have felt when you created them. Some of those attending the offsite quietly ask themselves if all these smart people working on this have any impact, and if so, is the impact positive or negative – after all how do the required annual versions of Mission, Values, Vision, Goals and Objectives collecting dust on the third shelf create positive results?
The budget numbers from this effort also create problems. You either under budget, over budget, have the wrong forecast, over build a product no one wants or miss a great opportunity by being late to the market. The inaccurate budgets from these two days frustrate everyone, and as a result, you lose some good people and a lot of energy.
What if the Mission, Values, Vision, Goals and Objectives were not left on that third shelf, and you didn’t pretend that these five words were magic, but used them as direction, guides and the beliefs that drive every decision, action and person connected with your company?
Then what if you supported these words throughout the organization with strategies and plans aligned to your Mission, Values, Vision, Goals and Objectives?
What if the last thing at the offsite was the development of a “Revenue Strategy” that was in alignment with those five words and answered the following five questions?
That would be the first step of aligned and metriced deployment for making Mission, Values, Vision, Goals and Objectives real.
The five questions are:
- What is your brand promise?
- What’s the customer “problem” that you solve for the customer that NO ONE else solves?
- What niche/s do or will you dominate?
- Who is your ideal customer – the person that has the problem you solve that NO ONE else solves?
- Which are your key offers that will lead to the domination of those niches?
Question 1: “What is your brand promise” is the result of knowing what your Mission, Values, Vision, Goals and Objectives are and exactly how you will deliver them to your customers, partners and staff “EVERY TIME!”
The other 4 questions take the intent from your Mission, Values, Vision, Goals and Objectives and make that intent actionable, measurable, teachable, scalable and real to your staff, partners and the buyers.
Which Comes First?
Mission, Values, Vision, Goals and Objectives come first so the Revenue Strategy and Plan can be aligned and deployed in the real world based on their direction.
The Revenue Strategy is next. The Revenue Strategy is the first of the operational groups’ strategies. The operational groups (operations, HR, finance, etc.) have one purpose - “align their efforts to attain predictable profitable revenue.”
They are not the same. Mission, Values, Vision, Goals and Objectives are about “WHY” you are in business, and the Revenue Strategy is “HOW” you will realize your noble mission.
You need both, and once you have both, you will be on the path to being the company you always wanted to be – so go plan that annual offsite and finish the two days with the start of your Revenue Strategy.
by Rick McPartlin :: April 25th, 2013
I grew up at my Grandpa’s cabin in the middle of the Michigan woods and started shooting when I was about 4 years old. By 10, there was no grown-up I couldn’t out shoot. By the time I was in my mid-twenties with a shotgun, I could shoot 3 clay pigeons at the same time and was qualified by the Sheriff’s department as an expert with the first pistol I ever fired.
At 12 years old, I could legally hunt, and I did! As a target shooter, I was 9.5 out of 10, and as a hunter, I was 5.5 out of 10.
I could hit a beer can at 100 yards every time. Yet when a big buck stood less than 50 feet away, I could empty the gun before the deer would depart without a scratch.
If I got enough chances, I would get my deer. As a teenager, there were lots and lots of deer so I got enough chances, and I got my share of deer to be able to pretend to be a great hunter.
As I got older as a result of nature and a mass of hunters, there were less and less deer, which resulted in me seldom being able to pretend I was a great hunter.
Even though there were less deer, lots of my friends would get a deer every year. Sometimes they would pass on two or three deer waiting for a bigger one. I never saw one, and my friends passed on many.
There was a business lesson here. Hunting is a lot more than pointing a gun at a beer can or target. Just like in business, producing revenue is more than taking an order from a buyer who found you, told you what they wanted and handed you a credit card.
The business version of a Great Shot / Bad Hunter is a company in the right place at the right time with the right product or service just when the buyer community woke up and said I want one of those new Televisions, or G.I. Joes, or Time-shares or Nehru Jackets. With all those orders, you declare that you are a great company that knows how to produce revenue just like I declared that I was a great hunter.
During the Tech boom of the ‘90s, I watched sales people and technology companies (Great Shots / Bad Hunters) who on their best day could only hope to be a good company yet at least for a while they got rich because they were in the right place at the right time.
These same companies were out of business or in big trouble as soon as the economy went bad or good competitors showed up. Everyone around them was either surprised or pretended to be surprised when this company or that sales person failed.
Just like deer hunting with few deer, when the order bubble bursts and you have to know how to find and keep customers on a limited budget, the BOTW (Best of the Worst) companies are quickly separated from the BOTB (Best of the Best) companies who know how to have abundance all the time.
Over the years, I have learned key differences between BOTW and BOTB companies even though the deer are still completely safe.
BOTB companies focus and align starting in the market. They focus on the customer and align their business to solve customer problems. On top of that, the BOTB are all about controlling the cost, bringing great value to the customer and measuring most everything so they can manage and improve. One key difference between the BOTW and the BOTB is the BOTB aren’t afraid of knowing the truth and strive to learn it.
So my learnings are pretty basic:
- Great hunters know that you have to be able to hit your target, but that is just a place to start.
- Great hunting requires a lot of work to keep everything under control and learn about the game.
- Great hunting is a result of studying the field, having a strategy and then the focus to execute even when things are tough.
- BOTB companies know it is important to have something good to sell that the market will buy, which is just a place to start.
- BOTB know that success is not random – it requires process, metrics and management.
- BOTB companies know their customers, develop a deployable Revenue Strategy and are not afraid to learn from the market and change.
If you want to win with or without order bubbles, don’t settle for being a great shot or a BOTW company. Do whatever it takes to be a great hunter and a BOTB company. Have a deployable revenue strategy, measure all key outcomes, know the customer and create value before the buyer knows they need it (that is like knowing what the deer are going to do before the deer knows).
Last, even if you are in a bubble, do the work to become a BOTB company and stick around for a long time, and then you will live in the Happiest Place on Earth.