How to do Business

Well that’s been an interesting start to the year -with all the snow the gutters on the glasshouses bowed and the glass broke. When it melted the gutters sorted themselves out – but the glass was still broken – around 200 panes. So as you might imagine we’ve been a bit distracted here – however, normal service is now resumed.

In the last post before Christmas I was telling you about setting up a Facebook fan page for The Intelligent Garden. As it turned out I got 100 fans quite quickly from my chums but I’ve now got another 20 people that I don’t know who have signed up. Which is quite exciting.

The site itself is selling product at the rate of over £300 a week – lots of pH meters, soil testing kit and wireless weather stations.

So so far so good. This bears out the traditional How to do Business approach about getting a good set of products, finding a voice and telling the story consistently often enough to get the results you want. I conceived The Intelligent Garden as a vehicle to demonstrate the principles of the Punch Above Your Weight Programme for internet marketing which I devised with Lisa Harris of Brunel and now of Southampton Universities. I’ll keep you posted of results.

I’ve building the Story by creating the site as a blog site so that I can add something which I think the customers will find worth knowing regularly. I’m aiming at 3 times a week and the content will be a mixture of product reviews, topical tips and a science in the garden course which will build organically.

You can check out the site here and I’m also adding it to the blogroll on this site so you can keep up with developments.

More Soon. Happy New Year to you all

Alan

It seems to be an unwritten law that markets consolidate and we end up with mighty few and the small but nimble many. In his book “Inside the Tornado”, Geoffrey Moore describes the protagonists as The Gorilla – who owns the Market (think Oracle) the chimps who are the runners up (think Sybase and Informix) and all the rest of us who are merely monkeys. If you’re a monkey life can be ok – you can capture territory but not hold on to it but you can earn a decent living on your own terms by trading with other monkeys and ignoring the world of the Gorilla.  The distribution of power in a market tends to follow a power law in which the market leader has twice the share of the number 1 chimp and 3 times the market share of the number 2 chimp. That means that if the Gorilla owns 45% of the market then there’s 17.5% left for everyone else after the number 2 chimp – about what you find in the the fruit and Vegetable market in the UK vis a vis the Multiples. And if the Gorilla gets to 60% – there’s 5% left.

I have 2 main research projects going on at the moment – one about how small companies in the aerospace supply chain can use social media and the other about how best to build a sustainable workforce for the horticultural industry.  What’s fascinating is that in both areas I keep coming back to the market distribution and the key issue for strategy about whether you want to play by the Gorilla’s rules and get into the supply chain – or whether you can find a niche where you can live your life on your own terms as a monkey trading with other monkeys. And of course the obvious corollary – how big and successful can I get while still remaining a monkey.

I’ve started to see it in terms of a power curve with a discontinuity – to the right we’re in monkey territory. To the left we’re in the Gorilla’s World

In the Gorilla’s world this is what happens

• Supply chain heads dictate the terms
• E-procurement cuts costs
• You have to dance to their tune
• Progressively the hurdles get higher
  and the money gets less
• Firms go out of business
• The industry consolidates

In the Monkey’s world by contrast the rules of networking with which we should all be familiar hold sway

• Collaboration is the name of the game
• Being known for what you do is critical
  • Having a clear story
  • Being able to Deliver
  • Doing what you say
  • Getting back quickly

Gets the results you want.

In the world of horticulture – for instance – we are talking about edibles (as the industry describes it) the supermarkets run most of the market. There is only a small amount left at the right hand end.

In our business – because we’re based in the “alternative crescent” where lots of people think local organic Veg. is important – we can play by the monkey’s rules and trade with other small businesses. We wouldn’t have to be much bigger to be forced into the Gorilla’s zone. In the “ornamentals” sector the boundary is much further to the left as Messrs Homebase and B&Q don’t seem to own the market in quite the same way and there’s lots of scope for companies in the monkey zone to get bigger.

What this means for your business strategy is you have to look at the market you’re in – what your profit targets are and whose rules you need to play under. And of course what’s going on in the market. I’ve said before that markets are more like weather systems than anything else and sometimes water flows up hill. Customers revolt against the big battalions sometimes. But what would this mean really. In organic vegetables could the tide go out from 5% to 10%  – probably. Could it go to 25% – probably not.

So you need to know where you are – what’s likely to happen – and how big you can grow with your current business model.

Food for thought – what do you think?

Well here we are – the last excerpt from 20 business stories.

One thing I have learned is that you should START with the exit strategy. Because it determines how you set the thing up in the first place. 2 of the people that small business owners read a lot are Michael Gerber of the E-Myth and Robert Kiyosaki aka Rich Dad. However in all the wishful thinking and dreaming the core messages get lost.

Gerber’s is that you should be building a sausage machine to deliver whatever it is you want to produce. Work on the business not in it means that you need to build systems. This is not to everyone’s taste but as I’ve said before – if you haven’t got someone on board at senior level who likes doing this – you’re going nowhere. Kiyosaki’s main insight is that you grow by getting enough capital gains under your belt to buy an income stream.

Businesses are income streams – so if you want to be successful you need to think about what you’re doing in those terms. Just to remind us here is a diagram we looked at earlier. Businesses produce income which after you’ve taken off the expenses give you profits you can spend or invest.

So if you want to sell your business on or get additional investors you will need to get it into a condition where it is a self running income stream. We talked about how to track the growth of value in the business earlier on. However where you go with it depends on what you want do with it.

Basically do you want a capital gain or do you want a pension?

When we set this business current business up, our view was that we wanted to set up a system that we could carry on running indefinitely as we get older and feebler. We called it pro-tirement. We arranged our affairs so that we had some money in the stock market, some property, a business to sell and a business to hang on to for the pension.

In our 6^th year it looks slightly different. The expansion of http://www.plants4presents.co.uk has meant that not only have we acquired a 2 acre glass nursery (currently growing organic veg) but our daughter and my sister are now shareholders and members of the board. Getting the bank loan to buy the place was as dependent on us having a strong team with continuity as it was with the figures in the plan. So indenturing the kids turns out to be an additional exit strategy to add to the others.

Along the way we bought a business that  sells biological controls (ladybird larvae to eat aphids and nematodes to eat slugs) mail order. We were offered it by one of our suppliers and after a bit of haggling we acquired it for 3 times the net annual profit – a fairly widespread rule of thumb for buying or selling businesses.

So if you want to sell your business for cash – you need to demonstrate it’s sustainably profitable. Chances you will have to earn out – continue working for some time – 6 months to 2 years is usual – to ensure you haven’t left any nasty surprises in the woodwork.

Just remember businesses have a finite life-span – taking the money when it’s offered may give you the chance to move on. I had some-one interested in Ai Systems once – but I knew better and ignored it. A real entrepreneur will always be looking for opportunities to cash out.

Finally if you are seriously going for growth you can take the business public. This will however eat a lot of your life and probably involve 2 or 3 rounds of venture finance. It can’t be done organically. However once you get into the swing of it it’s possible to make serious money.

There is no right or wrong. It depends on who you are, your attitude to money, security and status and what you value in life.

It also depends on where you are in your life. As a couple around 60 with our kids through University our attitudes to what we want to do are different from someone of 40 with kids they need to put through private education. We can afford to be more experimental in our approach.

The joy of business is you can use it as a vehicle to live your life on your own terms. Sometimes of course you may have to work harder than you planned. And it may not work – the customers might not want what you have to offer.

But as long as you stay afloat you can always start again next week and have another crack at getting it right – or at least fine tune the model.

I’ve been exploring some new ways of telling our story over the last couple of months. The most impactful has probably been the use of Music to illustrate some marketing issues that was carried out for the Brand Network this week. The video was shot with a standard sony camcorder and then edited in Windows movie maker which comes with most PCs these days. It was rendered in Camtasia which gives a lot of flexiblity in the output format whether you need to get it into 10 minutes to fit on YouTube or the 500 Mb limit that Viddler imposes on you. Here’s the 10 minutes in which we were discussing what the evolution of the Stones can teach us about personal branding.

The editing was a piece of cake compared to learning to sing and play the piano at the same time

The other approach is useful for giving a quick context for complex ideas. I had wanted to get the ideas in “Just 12 Hours” to a wider audience so I came up with the idea of doing the workshop as 90 tweets. However they are a little bald and needed some context. So what I did was use I-Mindmap from Tony Buzan to create a context for a group of tweets. This will output the mindmap as a Powerpoint slide that builds as you click through. I then used Camtasia as means of putting on the voice and the talking head – it sits inside PowerPoint and uses the webcam in the laptop to do the video insert. The editing capabilities are pretty powerful too – I’ve only scratched the surface to create this one.

I’m intending to use these tools on a couple of new projects which we’ll be running in the winter – so I’ll let you know how we get on.

In the “Paradox of Choice“, Barry Schwartz describes research that clearly demonstrates that too much choice is counterproductive if you are trying to get someone to buy something.

Our nervous systems evolved to make binary choices – stay or go – fight or flight – do or not do (there is no try).

We can (if we have to) get the scientific method out of the cupboard and make a rational choice – but we won’t thank you for it. We’ll put off the decision if you force us into rational mode – and if we do decide – then the buyer’s remorse will be terrible. So don’t make us think.

That’s why copywriters through the ages focus on getting us to stay with the gut and create something that feels familiar and innocently enticing if they want us to buy.

Schwartz quotes some evidence from a project carried out on people buying Sony and Aiwa sound systems. It turns out that if you make

• I good offer – 66% of the sample bought
  2 alternative good offers – 53% bought
  1 good and 1 unattractive offer – 73% bought

So provide an offer and a benchmark. This could be a highly priced all inclusive offer as well as the one you actually want them to buy.
If you provide someone with an all inclusive bundle and then offer them a reduction for each item they take out, you’ll do better than if you offer a base price + supplementary prices for add-ins. Because psychologically the pain of giving something up is greater than the gain of adding something to a basic specification

He concludes that people want to have choices made easy for them.
Complexity forces them to trade off which makes them put off deciding.
Conflict reduces mental well-being and so reduces decisiveness.

Schwartz also describes some interesting findings about HOW people choose. They’ll forgo an uncertain large gain in favour of a certain small gain and conversely they’ll risk a complete disaster that’s not certain to avoid a small reverse that will certainly happen.

One other factor that’s counter intuitive is that people also buy to avoid post purchase regret. Some people – Schwartz calls them Maximisers – spend a long time to make sure that they get the best possible available deal. Others labelled Satisficers, are more relaxed.
If you believe that you are writing for Maximisers then you will need to try and make the offer appear the obvious, safe and logical choice. All the research points to the view that decisions taken by gut feeling lead to less buyer’s remorse than decisions taken with a great degree of analytic input.

So if you are dealing with people who need evidence, present it so that the case is unanswerable. And bear in mind how they’ll react if the don’t get what they think you offered them.

I think this book is well worth a read so check it out – it’s currently about £5.99 on Amazon. This article is taken from my latest book – Just 12 Hours.

Alan