Growing Your Business

Sanjyot P. Dunung

• Publisher: Business Expert Press
• Year: 2010
• Print ISBN: 9781606491331
• eBook ISBN: 9781606491348
• Topic: Business
• Subtopic: Small Business
• Index: Business

In the hard-fought business world, only one new business in 20 lives to see its fifth anniversary. Typical management books do not address the unique nuances of early stage companies. Most entrepreneurial books often profile successful entrepreneurs or companies who are better known, which usually includes only the small percentage that achieve stratospheric success. Growing Your Own Business shares the secrets of long-term survival and success, detailing practical guidelines and relevant 'tales from the trenches' to help entrepreneurs tackle common concerns and obstacles. A welcome combination of first-person how-to advice and peer mentoring support, this comprehensive, essential resource book provides sound, battle-proven advice for developing effective sales and marketing strategies, managing employees, and navigating business cycles. Growing Your Own Business continues after the first book, Starting Your Own Business. This resource is designed to work as independent resource or integrate into business curriculums.

Chapter 1

Marketing and Sales

Marketing and sales are the life source of your company. You can make the best product or provide the optimal service, but it’s irrelevant if you can’t sell or your customer won’t buy. Like business plans, marketing plans evolve with an organization. In this chapter, I’ll review the core components of marketing and sales and give you things to think about as your company grows.

Marketing and sales are often mistakenly considered one and the same, even at the largest and oldest of companies. Marketing designs strategy and sales implements, but in reality, salespeople gather very valuable information that helps fine-tune the strategy, forming a delicate balance between the two departments. In many organizations, there’s a struggle between marketing and sales as to which directs which. If you work to coordinate these areas in a complementary way, you’re likely to have a more successful strategy, and more importantly, you’ll be able to adjust your strategy quickly in response to market conditions.

Many entrepreneurs are actually quite good at some aspects of marketing and sales, usually as early promoters of the venture, as it takes a bit of sales to get a company off the ground. It’s the sales vocabulary that sometimes confuses people. As with most industries, the marketing, sales, and advertising world has its own lingo. Don’t let the lingo trip you up. Focus instead on the concepts’ objectives.

Many companies err because they don’t fine-tune their marketing strategy enough. Plan to visit your strategy at least quarterly. Monitor sales, customer feedback, and industry trends. If you do this frequently enough, you’re less likely to be surprised by any industry changes and more likely to be able to incorporate new information steadily.

Integrated Growth Strategies

Before you develop your marketing and sales plan, you need to be sure there really is a market for what you are making and selling. Companies of all sizes routinely forget to verify the market before they launch marketing campaigns. When sales are below expectations, they reassess the plan, not whether their product or service actually has a market. Once you have market verification, you can begin to develop an appropriate marketing and sales plan.

The most fundamental question to answer is “What problem am I solving with this service/product?” If you cannot answer that question in a way that compels customers to say “I’ll buy it,” friends to say “cool,” or investors to say “tell me more,” then perhaps rethinking the concept is in order.

Assuming you have studied the opportunity and believe you have something unique, market size becomes another consideration. Are there enough buyers in your market? How big is your industry category, and how much potential overall money is available to buy products or services like yours? If you’re offering a very niche product, you may need to take into account that you will only be able to grow to a certain size, even if all the stars and moons line up.

Market Research

Today, the Internet provides a rich and free source of market research. It should be one of the first places you go to find industry data, competitive information, corporate name availability, and marketing opportunities such as trade show listings.

An essential part of any marketing or sales plan is the research phase. A lot of entrepreneurs use the media to follow trends. The media can be a useful source—to an extent. Don’t let your use of the media replace more specialized research. Try to find out as much as possible about the writer or lead researcher. Most are professional writers and might not necessarily have enough experience in your industry to interpret market-specific information accurately. Further, there are very few writers or reporters who have formal business training or experience. This doesn’t mean that you should dismiss traditional business publications and newspapers, but rather that you should utilize the facts to make your own conclusions rather than blindly adopt the reasoning of the published word.

Gathering information from these types of sources is called secondary research. It’s critical to take the time to find out about the competitive landscape and market potential before spending a lot of time, energy, and money chasing the wrong idea. You can access a wide base of resources, publications, and potential customers. Verify and evaluate the credibility of lesser-known sources. Otherwise, you may get incorrect information. It helps if you can verify information obtained online with an off-line source, such as an industry expert.

Despite the utility of secondary research, you will still need primary research to help build out your offering and to set the course for how you’re going to market your product. Primary research’s fundamental role is to provide feedback specific to your product or service. It can be as informal as interviewing people familiar with the industry or as formal as hiring a professional research firm to conduct sophisticated studies with quantifiable results.

More structured interviews with potential customers can also be useful. It’s amazing how many companies do not take this critical step. Understanding the pain, buying preference, and motivational behavior of this audience makes all the difference in knowing whether your product meets their needs.

Companies that need direct customer input find focus groups useful. Utilizing focus groups is part of an overall marketing strategy, and you need to be clear on the profile of the participants as well as the objectives for each group. You should use experienced focus group leaders to facilitate these meetings.

Developing a Marketing and Sales Plan

Going through the marketing and sales planning process enables you to focus on how you’ll reach your customer and complete the sale. If appropriate, you’ll be able to prepare for a repeat sale—preparation that is critical for ongoing sustainability.

The plan is simply the document that will state the strategy and allow you to track it. In the business plan, you’ll include macro-level parts of your marketing and sales strategy. In the marketing plan, you add the details. Both marketing and sales have several key factors to focus on. We’ll start by looking at marketing first.

Marketing

There are several key areas that you’ll need to focus on as you plan your marketing strategy:

• Product or service
• Target market
• Pricing
• Distribution
• Building a brand
• Advertising and promotions

Product or Service

Your business plan will include an in-depth description of your product or service. Use your marketing plan to expand the description to include uniqueness, service options, warranties, and other features and benefits. By understanding your core target market, you’ll be able to refine your description even further.

What’s Your Unique Selling Position?

It’s essential to have a unique selling position (USP). For some companies, it’s the uniqueness of their product. For others, it’s their low price, and for others, it might be their distribution. By distribution, I am referring to how a customer can obtain the product or service. Where or how can they buy it? Is it exclusively or readily available? Often a USP is a combination of factors, as markets do not remain static but are constantly changing. A product that is new and unique today may have many competitors within 6 to 24 months, especially if it’s successful. Its USP may initially be that it is new and unique. Over time, the USP may evolve to be new product versions or price or both.

The importance of articulating a USP cannot be understated. It is the most important sentence you say about your company. Some call it the “elevator pitch,” based on the concept that if someone on an elevator asks you what your company does, you have only the time between the tenth floor and ground floor to say something compelling, so that by the time you get off, the rider is saying “tell me more.”

Putting your pitch down on paper is critical to the process of developing a compelling USP. Your pitch should be no more than two sentences and should capture the imagination of the listener while explaining the need you are meeting in your particular market. Working with your team on this can be a very enlightening experience. Don’t be surprised to find it a very difficult task. However, once you have reached consensus, you’ll find you’ve created a clear vision for the company that others can now execute.

Features and Benefits

You’ll need to be clear not only about how your product will work or how a service will be delivered, but if you intend to provide additional features and benefits. There’s an added cost to such things as providing warranties and customer service, and you’ll need to account for those in your budget.

You’ll also need to think about when you need to have a new product version, based on industry standards. Your product or service will continue to evolve over time, particularly as you respond to competitive pressures and market demand. You may offer new features or service features, like warranties and customer support. All of these help determine the value for your product or service.

If your core offering is based on price value, you need to be confident that your competitors can’t (not just won’t, but actually can’t) match you while you grow to critical mass. Your competitors won’t be able to match you if you have a new technology that allows you to build more cheaply. You need to plan for how much time it will take to build that critical market share. You’re best off if you can add to the lowest cost feature by adding a nonmonetary value such as a service feature.

Target Market

Knowing your target market is critical. Many businesspeople confuse buyers with users and market to the user and not the buyer. Who is your customer and who’s your user? In some cases, they are one and the same, but other times they’re different. You’ll need to know the demographics of both of them.

Understand how your buyers decide to “buy.” What influences their decision? Are they motivated by low cost, high quality, easy access, or the prestige of a brand? Often, they are motivated by a combination of these factors. It’s important to monitor all these influences, because they are likely to change over time in order of importance.

Talk to your customer and your potential customer as early as you can. Create informal focus groups to test and use your products. If you can, reach out to potential competitors, partners, industry experts, and so on. Their input is essential in growing a company. It’s also helpful to talk to potential advisors and even venture capitalists (VCs), as everyone has a piece of wisdom to share, much of which could be quite valuable.

Trade Shows

A trade show offers a great opportunity to learn more about your target market as well as the market in general. You’ll be able to see how your likely competition “speaks” to your target customer. You can also learn a great deal about the nuances of the industry. You do not need to exhibit to attend a trade show. Many offer a day’s pass for a fee and occasionally require some proof of industry activity. In many cases, that proof is as simple as a business card with the company name, address, and Web site.

Industry association Web sites are a great way to find potential competitors. Lists of trade show exhibitors can also direct you to the same type of information.

In these days of trade show overkill, the best way to find the most productive trade shows is to find out which ones competitors and customers attend. One or two key shows are all that you need. You can search online by your market or industry association. You can also find trade shows by searching on the Web site of your city’s or another major city’s convention center. The bigger the trade show, the more expansive its range of exhibitors and customers. However, keep in mind that trade shows are an industry and business in themselves. Be wary of hard sells to exhibit or attend.

Many trade shows also provide a forum for continuing education or training for professionals. If you’re looking to influence doctors, then attending a conference or trade show on medicine will likely put you near your target market. If you’re interested in selling companywide solutions, you need to be sure that decision makers attend the show and not just junior staff who may be doing course work.

Price

Pricing your product or service is always tricky. If you have established competitors, then there are some industry benchmarks. But your USP may suggest that there is the opportunity to challenge the industry pricing, either at higher or lower levels. Make sure to account for customer service and related expenses when determining your price. Many entrepreneurs don’t realize the cost of these features and then are faced with cash flow challenges.

There are many books and articles on how to approach pricing—some theoretical and some practical. While pricing is industry and market specific, there are two basic ways to approach pricing. You may want to read a marketing reference book or access resources, particularly if you don’t have a business background. Business educations, no matter how stellar, are rarely enough to navigate the world of entrepreneurship—you need the real-world experience to completely understand how to apply your education.

The first pricing approach is based on cost plus a margin. This basically determines your cost per unit and then adds a margin that is appropriate for your industry. Obviously, you want to maximize sales revenue, but you should focus on profitability or margins, which refers to the revenues or sales minus the actual or direct cost of making your product or providing your service. For your reference, indirect costs are all the expenses you incur that are not directly related to actually making the product or providing the service. Indirect expenses include all overhead costs such as office rent, office administrative costs, and professional expenses for lawyers and accountants.

The risk for new companies in using cost-based pricing is underestimating their costs. Just about all entrepreneurial ventures underestimate their costs. Even the most established and largest companies routinely under budget for product development. One option is to provide a margin for unanticipated costs, but realistically, your figures may not take everything into account. It’s not uncommon to be over budget by more than 50%.

The second approach prices according to what the market will pay for your product or service. Take a look at competitors’ pricing. If you believe that your product’s USP puts it in a new pricing category, take a look at some possible comparables and estimate what mark up you think the market will pay for the unique new features.

The first step in the market-based pricing approach is to make sure you can profitably make the product for that price. You need to not just break even, but to be profitable with a clear and healthy margin. This is where it’s important to understand industry benchmarks. Some industries have margins less than 50% and others have margins around 90%. Larger margins provide more room for indirect costs and a solid net income. Service-related businesses where labor costs are high tend to have lower margins.

Your customers will not pay more for a product or service unless they clearly understand the perceived benefit or extra feature. Also, pricing yourself too far below the market may call into question issues of quality or service. If a lower price is part of your USP, you need to clearly communicate that in your marketing efforts. When you do your budgeting, look at your margins to make sure they are competitive with your industry. Your long-term viability depends on this factor, especially if your competitors are more profitable and will have more to invest in marketing or product development.

If your product or service is completely new to market, you may want to look at similar products or services, although not necessarily competitors. For example, for a new drink with no perceived direct competitors, you will do well to research pricing and margins of other soft drinks and fruit drinks. You may be able to charge more, as Starbucks has demonstrated, but your customer must clearly understand and value the perceived features and benefits. In Starbucks’ case, the taste and variety of the coffee, along with the comfortable ambiance, allowed the company to charge more for a cup of coffee and led the company to success.

In practice, most companies will use both approaches, cost plus a margin and market-based pricing, to come up with one or more price points. You can then use industry benchmarks and market feedback to finalize the price. Always aim for the highest price the market can bear. It’s relatively easier to lower your price than to increase it for the same product or service. Companies that are able to increase their pricing beyond the basic inflation percentages usually have to offer new features or benefits. You don’t usually have to justify a price decrease.

Some companies also conduct price tests before finalizing a particular price. You may want to use this option if the industry benchmarks and market demand are not clear. You can do a “limited run” and offer your product at select price points. You can even try different price points to test small market samples. This test-pricing approach has been used successfully for products offered through catalogs or direct mail. Companies print limited catalogs or direct mailers with different prices and mail them to different target audiences. This method is increasingly less common as a result of the Internet, where it’s much harder to control which target audiences have access to which price points.

If you decide to test pricing, have a clear strategy in place and be in direct communication with your customers. This is, of course, easier to do with smaller groups of customers. Sales may vary for a variety of reasons aside from pricing, and you need to be in touch with your customers to understand what is impacting their buying decisions.

For service firms or custom projects, many firms use a cost multiple to determine the price they should charge a customer. To obtain the multiple, companies look at the indirect costs and spread them over the projected revenues for the year. Many firms use cost multiples of between two and three times.

For example, if a project will cost $1,000 in direct costs, most likely labor related, it would be multiplied by a cost factor of, say, 2.5 to determine the final fee that the customer should be charged; $2,500 in this case. The cost multiple ensures that the indirect costs are spread over all the projects. Some service industries can get away with higher multiples by increasing the gross margin. If you’re faced with lower multiples, you may want to assess the pricing and analyze your venture and the industry overall, as you’re in a low-margin business.

Distribution

Determining the optimal distribution strategy will help you determine your sales strategy. Will you sell to your customer directly or through resellers or both? Learning what is typical for your industry will help you understand your customers’ expectations. You don’t want to spend unnecessary and extra marketing expense to educate your customers on how to find your products or service if they already know where to look for your competitors.

You may also have more than one market for your product or service, and each market may be accessed by a different distribution channel. For example, you may sell through retail stores as well as through value-added resellers who will sell your products along with their...

Table of contents

• Growing Your Business
• Acknowledgments
• Author’s Note
• Introduction
• Chapter 1: Marketing and Sales
• Chapter 2: Managing, Governance, and Advisory
• Chapter 3: Entrepreneurship on the Fly
• Chapter 4: Keeping the Faith
• Glossary