A great story in yesterday’s Sunday Times…

One Jamie True, who is 35 and nauseatingly good looking, and his 24 year old CEO Alistair Crane, are set to sell their company, Grapple Mobile, for more than £15m. They have received many unsolicited bids. The company was set up 7 months ago. They make Apps (mobile device applications) for smartphones, made by the likes of Apple and Blackberry.

A number of things struck me as salient about Grapple’s story -

1. Grapple Mobile have proprietary software to allow them to make the apps in “days”. This looks like a USP to me – why a customer should choose them over other apps designers. It’s why Boeing made 50% return-on-sales for decades with their 747 – no one else could make a plane so big (read “efficient”). They dominated the market. They had a monopoly (which is not illegal).

2. Grapple work with big advertising and marketing agencies to develop apps for the agencies’ clients. This is a great route to market – offer your USP not directly to your customers, do it through a third party (in this case the agencies) who already have access to your target market, yet cannot offer what you can. But how do you get into big advertising and marketing agencies? Read on…

3.  Grapple Mobile is chaired by Jon Claydon, a “veteran advertising executive”. That’s the icing on the cake.

A great USP, a clever route to market and an insider to make it all work.

I hope Jamie True and Alistair Crane get their £15m.

They deserve it.

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I read the Economist and in August it gets noticeably lighter…I mean in weight, not tone. And so it is with Pearls. You will find that the next few Pearls will  be shorter than normal. I like to think of them as leaner and firmer, but still approachable.

Here goes…

Jim Collins says, in Good to Great: Why Some Companies Make the Leap – And Others Don’t, that you must ask some tough questions about your business if you are going to achieve your goals.

So here’s 9 tough questions I’m going to ask myself over the forthcoming lazy, hazy days…

1. How do I make money (cashflow)? What do I sell and to whom? Why do they buy? How do I gain new customers? Those that don’t buy – why not? What do I sell that isn’t worth the effort? What’s my gross margin, operating margin, profitability and cashflow on everything I do? This is about gaining absolute clarity on my current position – no fuzzyness, no supposition.

2. Which relationships in business, both inside and outside my company, are critical to my success. Am I nurturing them accordingly?

3. Which relationships in business, both inside and outside my company, are holding me back sufficiently that I should terminate them?

4. Does my company routinely generate positive cashflow? There was a guy on Radio 4 the other day bemoaning the fact that he could no longer meet payroll because the overdraft he routinely used to fill his cashflow “gaps” had been withdrawn by his bank. He felt hard done to. Wrong. You’re bust pal. No cash flow = dead. It was only a matter of time.

5. What are my major avenues for gaining new customers? Are they fully costed? Remember, my time is my greatest asset. I meet lots of people who don’t value their time. That’s not true. They do value their time…they actually value it at zero. Time certainly has no cost (there is lost opportunity cost of course). But it does have a value. You should value your time at no less than £400/day (£100K pa) as an absolute minimum and probably much more. You might not earn that but you’re worth it, right?

6. What’s the average lifetime value of my customers? This tells me how much I can spend to find a new customer. How can I market without knowing this?

7. What’s the acquisition cost of a new customer? Once I have this answer, combined with the previous answer, the size of my opportunity is defined by the number of potential customers I have and my ability to generate cash from one existing customer to turn the next potential customer into a real one…and so it goes on.

8. If I was filmed 24/7 for a week by a BBC film crew what would I do more of, and less of, than normal. Self-management is critical. Am I taking positive steps to improve myself – read more, learn more, do more, take time to think, reflect and make changes? Am I productive, not just busy. Am I purposeful, focused and thoughtful at all times? Am I getting better (almost) every day? Do I invest in myself?

And, finally, the toughest question…

9. Do I find these questions positively challenging and exciting…or simply tedious?

I was in the supermarket the other day having been sent there for sushi by my six-year old when, not for the first time, I was amazed by the sheer variety of magazines on display. One that jumped out at me was Total Carp – that’s not a misspelling; it’s apparently “The UK’s Biggest Selling Carp Magazine”. It looked familiar. I am sure Total Carp has been around since I first realised I had no interest in carp. My children use the phrase euphemistically i.e. “that’s total carp” to mean something else of course, and to annoy their Mother.

There are people who only fish for carp. No other fish. They do not want a broad-based fishing magazine. They want one on carp.

This is a dream for marketers. Because the greater precision with which you can define your target market, the more precisely you can meet their needs. And you know what they say – “the easiest way to get rich is to find out what people want, and give it to them.”

People have always had niche interests. But the ability to identify these niches and fulfil their immediate needs and wants, and ones they never knew they had, drives demand. It creates demand.

The critical tool for a lot of this niche identification and exploitation (that’s not a bad word…people are not forced to buy Total Carp) is the internet. On the internet, people tell you what they need. They put it into Google. And Yahoo and Bing.

What this means is you can access the long tail – the part of the curve that represents wants and needs that relatively few people have. The key word is relatively. I’ll take as my market 0.01% of the English speaking world any day.

These niches, or non-mass market, were too difficult to get to with any scale in the old days when marketing was expensive – adverts, direct mail etc, etc. Now that marketing is cheap, you can measure your return-on-investment quickly and accurately. Once you identify a niche, you have a real opportunity.

You don’t have to go head-to-head with International Megacorp in the mass market – you can get to the places that International Megacorp cannot get to, because they need markets of a minimum sizes to justify their expensive entry strategies.

You can avoid the mass markets. In fact, you should avoid the mass markets.

Type Google keywords tool into Google, click on the top link, and have a play. If your passion is cocker spaniel grooming you can see how many people are searching for this (today, the stats are 1,000 per month in the UK and 6,600 per month globally). Now I dare say no one is going to travel much more than 20 miles to get their cocker spaniel groomed at your fancy salon. So, for those that are further away, maybe you can offer something of value. A guide; a book; a video; a newsletter. Whatever cocker spaniel owners want – if this is your thing you probably know. Or you could do some market research. Reach out to them. Give them some real value, for free. Start a relationship. There’s 80,000 of them declaring their interest per year. And that’s just for cocker spaniel grooming. Never mind training, breeding, showing, food supplements….

Maybe in time you will have the biggest cocker spaniel-related mail order business on earth. Why not? Someone has to do it. 80,000 people are looking for you to make the move. And then there’s borzoi, afghan, pug…

You can find out what these people want and you can give it to them and they will make you rich. They say money isn’t everything, but as Sophie Tucker said “I’ve been rich and I’ve been poor. Believe me, honey, rich is better.” If you don’t like the word rich, try replacing it with free to do as I choose with my time. How does that sound?

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There’s two guys. Each is standing on a box and holding one end of the same rope. The rope is ten feet off the ground. Your mission, should you choose to accept it, is to get over the rope.

How do you do it? (You cannot tickle them to get them to lower the rope.)

Well, you could get a big step ladder, climb up and jump over. Or you could use a trampoline. Or, if you have the technique, you could pole vault. Or Fosbury Flop yourself over the rope.

Each of these approaches has their pros and cons. They will have their own relative success rates. Some need equipment – a trampoline, a pole. Some do not. But the point is they all work.

So far so good.

Now, the rope is one hundred feet in the air.  Don’t ask me how the guys did this, but they did.

How do you get over it? Trampoline? Step ladder? No. You need a new approach. Maybe a helicopter; or you could build a staircase; or fire yourself out of a cannon; or use a jet pack.

The point is the approaches that get you over the ten foot high rope don’t work with the one hundred foot high rope. They may work with a fifteen foot high rope, or maybe even a twenty foot high rope, but there will come a time when they are not up to the job. The current processes, technologies and approaches only get you so far. To hit the heights – the one hundred foot high rope –  you need new means.

It’s the same in business. Whatever it is you do now…your marketing; your strategising; your productivity; your product and service development; how you deliver your value; your logistics; your systems and processes; everything that makes up your business, or department:  each is either -

a) Inadequate

It can hardly get you over a one foot rope, never mind a ten foot rope. Your trampoline has lost its spring. Your Fosbury is more of a Fop than a Flop. Or,

b) Adequate

Adequate for your needs. Not over-engineered, or creaking at the seams. Sufficient. It does the job. It is reliable. Fit for purpose. Or,

c) Over-engineered.

It can get you over the one hundred foot rope. Even although you can see only the ten foot rope. This may be a good thing as you are prepared for the future. Or it may just be a cost, because helicopters are more expensive than trampolines.

You will probably have a mix of a, b and c in your business/organisation.

Here are some critical questions –

Q1 What do you do today to generate sales?

Q2 Can these activities generate a five-fold increase in sales?

Q3 If not, what changes do you have to make to these activities, or what new activities do you have to adopt to generate a five-fold increase in sales?

Q4 If you imagine increasing your sales five-fold over the next 2 to 5 years, what supporting systems and processes in your business will become inadequate and in what order?

Q5 How will you deal with the answer to Q4?

If you take the time to answer these five questions thoughtfully you will end up with the bones of a good growth strategy. You will be getting ready for the one hundred foot rope.

This week’s Pearl of Leadership Wisdom is on Growth.

Igor Ansoff was a Russian-American who is lauded as the father of Strategic Management.

His most famous contribution is his eponymous matrix, which helps firms decide what their product and market growth strategy will be.

It comes to my mind because I’ve spoken to a number of leaders recently who want to do very different things to what they are doing now. This may be right for them. But the grass is always greener on the other side of the fence. And the fence is often topped with razor wire. And the field beyond is a minefield.

The Ansoff Matrix looks at products and markets – both existing and potential new ones.

Stick to the knitting…Market Penetration

Growing by selling your existing products into your existing markets is called market penetration.

Market penetration can seem boring – the same old stuff. But wait – you know what you’re doing. You already make these products (or services). You already understand the markets. You’re already there. You can do more of what you’re already doing. You know you can. You can make things more difficult for your competitors. You can sell more, more often, to more people, for more money. Importantly, it’s low risk.

Some managers want to move away from market penetration because there are environmental issues looming that will make their existing market much tougher. But remember – markets don’t disappear, competitors do. Someone will win – you can make sure it’s you, in this lowest risk growth area.

Examples of market penetration? They are legion. Nokia, Ericsson etc – all the telecoms companies.

Risk rating – low. No bullets to dodge here.

Now with wings…Product Development

Growing by selling new products into your existing markets is called product development.

You’ve got some fabby new products and you want to sell them to your existing markets. The key issue here is how expensive is it to develop new products. If you can knock these out inexpensively, this is a great strategy and is not much riskier than market penetration. If your new products take time to develop, and money, and then fulfil some critical role in your customers business, like maybe a new aero engine, then there’s a real risk.

Example – most healthy companies most of the time. Supermarkets selling, eh, everything…insurance, banking. What does it look like when it goes wrong? – Toyota Prius.

Risk rating – low to medium. Death unlikely, but possible.

Just arrived from the UK…Market Development

Growing by selling your existing products into markets that are new for you is called market development.

OK, so you decide to sell your widgets into a new market. Lots and lots of lovely new customers. What could be better. The new market is huge. If we get 2% we’ll be rich. Yes, but that 2% already belongs to someone. And they want to keep it. You’ll have to fight. And they know the territory.

This is a higher risk strategy. It might be the right thing to do. But you better make sure you’ve done your market research, and you have a USP that’s watertight, airtight and extremely shiny.

Example – Lucozade – I remember my Gran drinking it when she was ill. Now it’s a sports drink!

Risk rating – low to medium. Death unlikely, but more likely that with market development.

All change…Diversification

And finally, growing by selling new products into markets that are new to you is called diversification.

I’ve got a great idea. I’ve spotted this great new market that’s growing like topsy. We can buy loads of new products and make a killing! We’ll all be rich. What could possibly go wrong? How difficult can it be to understand this new market? We’re smart guys.

This strategy has all the other risk factors combined, and some. To make it work you need to get an awful lot of stuff right. In order to speed the process of getting into new markets with new products,  companies often go on an acquisition spree…

Example – GEC/Marconi. Was in defence, diversified into telecoms. Total car crash. Value of £34 billion reduced to £66 million. Board members last seen skulking around the US, hoping nobody Googles their names).

Risk factor – running with scissors, with your shoe laces tied together. In the dark.

No risk, no reward…

It’s all about managing the risk in your growth strategy. Risks are not to be avoided. They are to be understood and managed.

But remember, the greatest risk is having no growth strategy.

Example – a lot of wee companies.

Risk rating – Russian Roulette.

This week’s Pearls of Leadership Wisdom is on Marketing.

“Insanity: doing the same thing over and over again and expecting a different result.” – Albert Einstein.

Small businesses do marketing poorly. It’s one of the main reasons they’re small businesses.

Here’s a thought experiment –

In 2009 you had 20 customers (or 50, or 400, it doesn’t matter). Your marketing was ad hoc. You had no real marketing strategy. You did a lot of networking. Your market share is less than 10%.

In 2010, you decide to:

1. Develop and hone your products and services until they are so shiny you can see yourself in them. You do the same marketing as you did in 2009. How many customers do you have?

Well, I think you will get an incremental increase in your customer numbers. All you have really done is increase your conversion rate of prospects into customers. Everything else is the same. So let’s say you will end up with 25 customers in 2010. A 25% increase. Not bad. Not bad.

Or…

2. You do NOT develop your products and services further. Your products and services are good enough (after all, you have the customers you have). Instead, you spend your time in 2010 constructing and executing a targeted marketing strategy to get to more of the kinds of prospects you know you can convert into customers because you did it in 2009. How many customers do you have?

Well, once you have identified your target market, clarified your value proposition and why you’re different, and you have decided it might be good to actually tell as many members of your target market what your value and difference actually is (because you’ve given up being bashful for lent), I think you can readily expect to get your message to twice as many people, generating twice as many prospects, and, as your products and services are unchanged, convert them at the same rate as in 2009 to get 40 customers.

You’ve just doubled your business.

Hurrah!

Reasons why marketing will not double your business –

• You have a huge market share and there’s nowhere to go (and you’re bored with your exec lifestyle and read these Pearls because you like to reminisce about the way it was before you did marketing.)
• You do nothing because you have a lifestyle business and you don’t want to grow. (This is the only good reason.)
• You are cynical and jaundiced about marketing, have spent money before to no end and are once bitten twice shy. (And don’t understand what conditioning means).
• Marketing doesn’t work for you (your current customers bought from you by accident.)
• You are your business and people buy you. Yup. (God was having a laugh when he endowed you with such talents but decided you could only ever show them to a handful of customers. You must have done something bad in a previous life.)

Reasons why marketing will double your business –

• You realise that tinkering with product and service development is something you do because it is comfortable, not because it is right.

• You may not know how to put a coherent, low-cost marketing programme together, but you are not deterred – you get some help, like the big guys do. And you are a demanding outsourcer.

• You do what is right, not what you know.

• You have a passion for your value and to not deliver it to those who would want it if only they knew of you is a crying shame and a crime against humanity. (I only half jest about the crime against humanity bit – if you are helping seriously disadvantaged kids, for example, and you have a proven benefit, and you don’t take the steps you need to get that help to as many as possible, what would you call that?)

Double or quits…

Marketing, to me, is about getting more customers. If you have 20, you can get 40. Incremental change shows poverty of ambition and bank balance.

This is the case for marketing. I rest my case.

Mark