The data are surely wrong

Now I don't want to get into a debate about climate change but I do want to look at a little business lesson from the somewhat infamous leaked emails from the UK's Hadley Climate Research Unit that were splashed around the media and blogsphere last week.

In one email, Kevin Trenberth, a climatologist at the US Centre for Atmospheric Research, who supports the theory of man-made climate change, says: "The fact is that we can't account for the lack of warming at the moment, and it is a travesty that we can't."

Dr Trenberth says data published last August "shows there should be even more warming . . . the data are surely wrong."  In effect he allowed his beliefs to affect his judgement of the data, rather than the other way around.

The lesson we can take from this relates to the use of data in business to make business decisions.  Put simply, better information leads to better decisions.

Dr. Bob Smith in his book "Blind Spots - How to End Everyday Business Mistakes" shows that the more deliberate the thinking, and the wider the range of information we use and process then the decisions we make as a result are good decisions 85-90% of the time.  The likelihood of a good decision being made when making the decision in the moment or under stress, i.e. without consideration and information, drops to 25-50%.

In other words having good data and considering all the issues before making a decision is more likely to lead to a good decision.  

When it is your money at risk this could be important.

Professor Fred Hilmer, former Dean of the Australian Graduate School of Management also had something useful to say about having good information to make decisions.  "If textbooks underestimated the time pressures faced by chief executives, they completely understated the problem of incomplete and misleading information.  Accounts may be soporific but poor accounting makes it extremely difficult to make good decisions."

You must have the facts before you can solve a problem or make an informed decision, and in business you are asked to make decisions all the time.  

Unless of course you are in government and not in small business.  As John Maynard Keynes observed "There is nothing a government hates more than to be well informed; for it makes the process of arriving at decisions more complicated and difficult."

There is of course a further facet to this. Bad decisions are not always made because people don't have all the facts. Bad decisions are sometimes made because people ignore the facts, do not understand the facts, or do not give the facts enough importance.

So where does that leave decisions made by people who understand the facts, but ignore them because they don't suit their views.  In business you can't afford to do that.

© Copyright 2009 Adam Gordon, Profits Leak Detective

In my Rugby playing days we used to refer to a lazy sidestep as that practiced by someone large, usually a Kiwi, who would drop a shoulder and go straight through you, rather than take the slightly longer way around.  And very painful it could be too.

Lazy dollars can be just as damaging for your bottom line.  They are dollars that you are investing in your business that are not giving you the return that they should.  Can you invest them elsewhere into dollars that work for you?

First you have to identify them.  The problem is that lazy dollars can be found hiding away anywhere in your business.   

Lazy dollars can lurk in all sorts of areas, such as:

Stock - In 2006 Australian retailer Myers had 40% of its stock stacked in warehouses where customers could not see it, growing older and accumulating storage charges. Today, in 2009, that figure has been reduced to 10%.

If they can't see it, they won't buy it.  If your products are sitting on the shelf, out of sight and out of mind, customers won't buy them.  Dollars sitting down on the job and going nowhere.

How much of your hidden stock is saleable.

With one client we tracked a process that took 15 steps to deliver a result over 30 days on average. With a bit of work that was reduced to 8 steps and 2 days. The dollars tied up in the process were working much harder.

Don't get knocked down by lazy dollars.  Lazy dollars damage your bottom line by leaking your profits and reducing your Return on Investment.  They need to be identified and made to work harder to earn their keep.

© Copyright 2009 Adam Gordon, Profits Leak Detective

What should people be doing in marketing and management NOW

Sometimes something crosses my desk that strikes me as being particularly useful and relevant to small businesses owners and managers.  This question, asked recently of one of the top writers of sales material in the world, the very old and worldly Drayton Bird, was the trigger.

But it wasn't the question, but his answer that I thought you would find useful.  So my challenge to you is - how well do you measure up to the 5 points Drayton makes?

The question he was asked was: what new things he thought people should be doing in marketing or management because of the present misery.

He replied:

"There is absolutely NOTHING new in management or marketing to be learned from the current crisis. But there are many OLD things that people have NEVER learnt.

1. In Marketing

a) Always measure, not gamble on what you or your boss or your wife likes.

b) Never spend without testing on small numbers before wasting money on large numbers.

2. In Management

a) Look outside at customers, not inside at your own organisation - "There is only one profit centre in business. It is your customer" - Peter Drucker.

b) Ask constantly about every person in your business: "What is this person doing to make or save money for the business?"

3. And, in marketing and management:

Never have a meeting unless it has a purpose that you are SURE is aimed at improving profits and that any decision will be acted on.

I am rather depressed that I decided these things made sense about 40 years ago. I have learned nothing much since, which is no surprise. But nor has anybody else, which is.  Or am I wrong?

Thanks Drayton.

So there are your challenges; now answer honestly - of the five OLD things that Drayton identifies in how many would you score?

Of course, having been assisting small business owners and managers improve their profitability for more than 20 years I have my own view and what most answers should be.

By the way Drayton's web site is www.draytonbird.co.uk.

Why your competition can be your best friend

Are you like most small businesses?  Do you see your competition as the enemy, the biggest threat to your business?  Someone to be resisted and held at bay at all times.

Have you ever been limited in taking advantage of an opportunity because you didn't have sufficient capacity to meet the requirements called for?  You may have all the required skills but can't meet the volumes required.

Or maybe an opportunity may call for a range of skills, products, or services beyond the capability of your business.  You may be able to meet some of the requirement, but not all.  

In both these situations you can be faced with a dilemma: do you forgo the opportunity or do you find some means of adding to your capacity or capabilities.  Partnering or collaborating with other businesses, either formally or informally is one solution.  

The dilemma arises because the businesses most likely to have the required capacity or additional capability may well be your competitors.  And most small businesses are extremely distrustful of their competitors.

Partnering is taking advantage of an opportunity presently out of reach of individual businesses operating in their own right.  Advantages include:

• Learning from each other and sharing the knowledge
• Developing closer working relationships with suppliers
• Undertaking joint research, marketing and development
• Improving opportunities to meet customer demand for products/services
• Strengthening negotiating and purchasing
• Access to new expertise & experience

We call partnering or collaborating with your competition - co-opetition.

So what is the basis of co-opetition?

Co-opetition can be developed in a number of ways.  They can be in the form of:

• a formal joint venture for a particular project or opportunity;
• an on-going formal relationship looking for a variety of opportunities, where a new business is formed to provide the vehicle for the co-operation;
• an on-going formal relationship looking for a variety of opportunities, where one business agrees to be the lead vehicle for the co-operation;
• an on-going informal relationship looking for a variety of opportunities.

Where three or more businesses become involved the partnership can be regarded as a business network.  

Successful co-opetition has five characteristics which must be met:

• Each business needs to stand to benefit, and so to have the motivation to join the partnership or network;
• Members of the partnership need to have a good relationship with each other and develop commitment to each other and the business project;
• Each firm needs to have something to offer;
• There needs to be 'domain overlap' between the firms.
• The business climate needs to be right

And how to avoid the problems?
Co-opetition depends on frankness and trust.  This can take a long time to build, and a very short term to destroy.  Trust is destroyed when:

• Partnership members moving into competition with one another when there is a partnership opportunity;
• Deviation from the core business of the partnership;
• Lack of a self-starting, motivated, seller
• Business opportunities are not shared by partnership members
• Lack of commitment to a group effort
• One business behaves entrepreneurially at the expense of the others.

So to succeed partners need to do the reverse of this.

Committed co-opetition with your competitors can reap rich returns. Give it a try.

What do you think?  You can comment by clicking on the button below.

© Copyright 2009 Adam Gordon, Profits Leak Detective

4 ways to keep existing clients

Many years ago, in a different job, I was involved in letting a reasonably large contract.  There were a couple of serious contenders.  After awhile, with the aid of some background checking and our interaction with both it became apparent that one was more intent on winning the job than what they did with the contract afterwards.

Their A-team was tasked with winning the job.  What the B-team did with it afterwards didn't seem to be as important.  Needless to say they didn't win the contract.  We were much more comfortable with the other company's more customer-centered approach

You will have often heard of sayings like:

• The lifetime value of the customer;
• The real cost of acquiring a customer is greater than the return from the first sale;
• We're not here primarily to make a sale; we're here to get a customer.
• The name of the game is repeat sales rather than one-shots. And to have that, you need a customer

And what does it do to your business?

Way back in 1973, four hostages were taken in a botched bank robbery at Kreditbanken in Stockholm, Sweden.  By the end of their captivity, six days later, they actively resisted rescue and afterwards refused to testify against their captors. Allegedly they even raised money for their captor's legal defence.

It is thought that captives begin to identify with their captors initially as a defensive mechanism, out of fear of violence.  Small acts of kindness by the captor are magnified, since finding perspective in a hostage situation is by definition impossible.  Rescue attempts are also seen as a threat, since it's likely the captive would be injured during such attempts.

The behaviour is considered a common survival strategy for victims.  It became known as the Stockholm Syndrome.

Industries can become like that, with individual businesses expecting that they need to conform to an "acceptable" pattern, not to step out of line or be different in any way, trapped by their environment.  

And if times are tough, and a business is in survival mode the tendency to do so is reinforced: small businesses tend to pull in their horns, to hunker down, to survive.  And in doing so, lose any chance of being different.

Have a look at the industry you are in.  Do businesses operate in a common pattern and conform in everything from the way they advertise, the package of services or products they offer to how they promote and price their products and services?

All very well, but what does it do to your business? You do compete, don't you?  
If you do compete, but are not different in any way, then ultimately the only way you can compete is on price.  And if you compete on price, there is only one way prices can go, and that is down.

What does that do to your margins, and to your profits?

Competing on price alone is nothing but a giant profit leak.

You can get more for your product or service if you are different, if you are unique.  

If you set yourself a target of being significantly more expensive than your competitors, what could you offer to your customer that gave them every reason to choose you rather than your competitors?

Before you say it can't be done, let's look at a few examples:

• Bottled water - putting aside that you pay more for this than you would for an equivalent amount of petrol there are so many different brands on the market, from those in a simple plastic bottle to Perrier with its attractive packaging and social cachet. Yet it is only water. Why would you pay so much more?
• Butchers - you can go to your local supermarket and take your choice from the shelf, pre-packaged and ready to go. Or you can go to your local butcher and pay a lot more for your meat. What makes your butcher different is the level of service, the fact that they will cut exactly what you require, the value-added gourmet cuts they have available.

• Flash drives - you know, those little USB thumb sticks you can use to store and transfer data on your computer. They used to be comparatively expensive, now they're ridiculously cheap, but you can still get some that cost $200 or more. And those expensive ones are on back order, and come with a loooot more capability. For which you pay.

• Cars - cars are about transport or are they? You can pay (I think) around $3,000 for Tata's new car in India to anywhere from about $50,000 to $1 million plus. Once you get above about $50,000 the price starts to jump in increments of $20,000. Once you get up to the $500,000 level it seems to jump in increments of $100,000. Why? Niche markets willing to pay a price.

Just to rub it in, the best and most expensive products don't discount and usually have a waiting list.

Coming down from the stratosphere of exotic cars how could you define your uniqueness?  What makes you different?  If you were to double or quadruple your prices, what would be the reason to choose you?

Is it the level of service, speed, ease of use, cost reduction, simplicity, appearance, emotional benefit, freedom from pain, attractiveness to others?  You can find, or create, something - "Because we're number two, we try harder" (Avis Rentacar).

So throw off the Stockholm Syndrome, break free from your captivity, and compete by being different, by being unique.  And charge a price accordingly.

© Copyright 2009 Adam Gordon, Profits Leak Detective