Start with the customer

The original posting of this article is here.
Be sure to check on the current issue of Explode Your Paradigm here.

In my role as a business consultant I have the opportunity to review numerous business plans. What I enjoy is getting an in-depth look into a wide variety of businesses and meeting some fantastic people in the process. A common denominator is that most owners are extremely passionate about their ideas, they are often technical experts in their field and they are developing a new product or service that they claim is better than all or most of the competition. As part of the plan they often describe how their product or service is better, how they will promote and sell it, how they will price it and what level of market share they will achieve over the first few years on the market. Many plans then dig deeply into specific tactics such as which publications to advertise in, how often ads will be run, when the sales force or outside contractors will be hired to sell their product, how will they be trained, and how much everyone will be paid. They do a good job in describing the marketing mix of product, place, price and promotion but they miss a critical piece.

Many never answer the question who is the target customer and why will they buy your product or service?

“If you build it, he will come” a line from Field of Dreams is often misquoted as “If you build it, they will come.” In real life if you want to develop a product and/or start a business you cannot assume the customer will come. Your customer must be placed in the center of your plan and everything must be built around them.

The GREAT business plans I have reviewed talk about the target customer FIRST!
Who is the customer?
How do you define the customer (age, sex, demographic, income level, likes/dislikes, family status etc)?
What are their needs?
What is a particularly painful need that they need to solve now? Why?
What are they currently using to solve it? Is it working? Why or why not?
Are they willing to pay for something new to solve their problem?
Is the end customer the decision maker or are there other players that make the ultimate “buy” decision. (I.e. if Medicaid (or other third party payer) does not cover your product will the customer buy it?)
How many of them are there? (I.e. how big is the market?)
Where are they located? (I.e. how concentrated is the market?)

Only after a need is established is a solution offered.
What is your product?
What benefit(s) does your product or service deliver that will fulfill your customer’s need(s)?
How do you know it will work?
How do you know your customer will buy or use it? (I.e. have you asked them?)
Who else is critical to the purchase decision? (I.e. your customer may trust their stockbroker to recommend a particular mutual fund to purchase)
How do you inform and influence all customers that are critical to the purchase decision?

Now learn how your customer acquires information, thinks and acts.
How does your customer or customers get their information to support a buying decision?
(I.e. Newspaper, mail, magazines, TV, radio, conversation with a representative of the company, Internet, word of mouth from friends/family)
How does your customer rank the various sources?
How does your customer use the various sources?
(I.e. does your customer use search engines on the Internet to find information or do they go directly to a website? Do they perform their own searches or are searches done by others?)
How much information does a customer need to make a buying decision?
Does your customer want to communicate with you before or after the sale? If yes how will they like to communicate? (Phone, email, online chat etc)
Is your customer willing to tell others about a product/service they find meets their needs? Will they become advocates for your product?
How do they do that? Where will they do that?

Now construct the “story.”
What critical customer needs does your product/service solve?
Why should the customer care?
What is your brand “promise” to the customer?
What things are keeping you from delivering on your brand promise?
How will you overcome these obstacles?

Now write the plan!
Tie the marketing mix (product, place, price and promotion) into what you know about the customer.
What is your message?
How will you deliver your message to the customer?
What tools will you use?
How do you define success?
What metrics other than sales will tell you that you are on target?
What obstacles are you most concerned about? What is your plan for overcoming the obstacles?
What resources do you need to insure success?
What is your plan for acquiring these resources?

Make your plan a great one by starting with the customer. If you don’t know how your customer will respond then take the time and ask. In many cases a small amount of qualitative research should give you the ammunition to justify or modify your assumptions. A solid story will attract the resources and set the stage you need to be successful.

Until next time – all the best!

RolandB

Your CMO and CFO need to talk the same language

The original posting of this article is here.
Be sure to check on the current issue of Explode Your Paradigm here.

The CFO (Chief Financial Officer) has a difficult but rather straightforward job. In most cases they need to recommend to their senior management how to best allocate resources across the business. Unless you can print money these resources are limited. The highest priority projects/tactics get funded, the rest are left on the table for another day when business conditions improve. The difficult and in many cases political process is how to prioritize one project over another.

The CMO (Chief Marketing Officer) is in charge of building the brands that will generate awareness, interest and sales of the company’s products and/or services. The CMO and marketing team put a plan together and then go through the process of convincing the CFO, the CEO and others in management to fund it.

The rest of management put together similar plans for the components they are responsible for. The CFO often asks that each requestor compute an ROI (return on investment) for each tactic. This analysis of dollars returned for each dollar invested provides a scale in which one project can be compared to another. A business development project with a 400% rate of return may be rated higher than a capital improvement project with a 200% ROI. There are many other factors that need to be considered such as the projected level of risk involved with each project and the time horizon to get to a payback however this is a way for dissimilar projects for be compared in a similar language.

A problem is that this method of evaluation works well for an “exact” science. If a company is considering a capital expansion the construction cost is known, the expected savings are estimated and an ROI can be calculated. If the company is considering developing a new product the research and development costs, development timing and the projected sales are estimated and an ROI computed. The same can be said for increasing the number of sales representatives, replacing a fleet of cars with newer ones, or lease vs. buy decisions on equipment or property. But how do you determine the value of a brand? How does increasing advertising spend or increasing the size of a sponsorship compare with the tactics mentioned above?

What many marketers will argue is that marketing is an “inexact” science. A quote often used “Half the money I spend on advertising is wasted, and the problem is I do not know which half” (Lord Leverhulme, British founder of Unilever and philanthropist). We all know that marketing is needed but many marketers are unable to compute the return on their marketing spend and communicate it to the decision makers in the company in a simple way. As a result others in the company may look at marketing spend as a cost of doing business rather than an investment in the growth of the company. When budgets need to be cut marketing initiatives may be at a disadvantage because the CMO has no way to document effect on sales.

I hear leaders of marketing organizations complain the CFO just doesn’t get it. It is not that simple. How do you quantify a relationship? We need to build our brand. They just need to trust me.

I hear CFOs complaining about marketing. What do we get for all the dollars we are spending? How do I know their programs are working? I’m supposed to believe that most of the sales will come in the last 25% of the sales cycle, how do I know it will happen? Are we on target? Why should I increase the budget?

It is like Mars and Venus. We need the CMO and the CFO to speak a common language.

So where do we start? Lewis Carroll wrote “If you don’t know where you are going any road will get you there.”

My suggestion is before you look at next year take a good look at the sales that you currently have. Ask yourself where are these sales coming from? Reorders from existing customers, referrals to others from existing customers (without you having to ask for them), direct sales from your sales force, calls into your customer service group, advertising campaigns (TV/radio/Internet), email, your website, trade shows and others? In many cases it could be a combination as leads may come in as a result of a one tactic, the lead is processed and nurtured by others, which after a period of time results in a sale.

Put a value on everything you do. If a sale was made for $50,000 that resulted in a $25,000 profit after the cost of manufacturing how much was spent by sales and marketing to get that sale. Where did the lead come from, how was it processed, how long did it take?

There will be a number of assumptions that need to be made. Marketing is not an exact science. The result will be all of your sales broken out by tactics used to acquire, nurture, close and service the business. My hunch is that you will see that some of the tactics are extremely profitable. A relationship with an existing client while relatively low in cost to service may result in huge gains in sales. On the flip side cold calling by sales representatives can be extremely expensive while sales uptake is slow.

Make a list top to bottom of all of your sales and marketing tactics and rank by return on investment. What tactics are working for you? What tactics are not? If you can shift some funds from the less effective tactics to the more effective ones how will that effect sales?
A quote attributed to Lord Kelvin is “If you can’t measure it, you can’t improve it.” Measure everything you do. Your method of measurement will improve as members of your team realize the new rules under which projects are evaluated and approved.

A story comes to mind of a man that asks a woman for a dollar. The woman hands the man a dollar and man gives the woman two dollars back. The man asks the woman for another dollar and the process continues for a while the women making a 200% return on her investment each time. Finally the woman says how much money can you make for me and the man replies how many dollars do you have? It is obviously not that easy but the man (in this case the CMO) did not have a hard time getting money from the woman (the CFO) as long as they both knew, understood and were comfortable with the expectation.

The man and the woman were talking the same language.

Now how does all the effect your business going forward? I’ll discuss this in a future post. I’ll leave you with two points:

1) The advance in technology including Web 2.0 tools allows you the freedom to track in real time how successful your marketing tactics are, where your leads are coming from and how they are nurtured. Lord Leverhulme’s comment that half your advertising dollars are wasted is no longer the case! This means that throughout a campaign you have the tools to measure and take actions to expand what is working and change what is not. I will discuss what some are doing and how they are using it for their advantage.
2) Steven Covey says “Begin with the end in mind.” Once you know where your sales are coming from now plan for them by tactic in the future. How many leads will you need at the front end of the sales funnel to guarantee an outcome? How many leads will each tactic be expected to generate? That allows you to manage your sales at every part of the sales funnel rather than just at the end when you see the revenue. Another data point the CMO can use to help the CFO understand what he or she is doing.

More later.

Until next time – all the best!

RolandB

The World Changed!

The original posting of this article is here.
Be sure to check on the current issue of Explode Your Paradigm here.

I had lunch with a friend from my “Spinning” class recently. He had worked as an engineer for RCA Records in the late 60’s / early 70’s. RCA paid for him to go to law school at night. He received a law degree from Indiana University in 1974 and went to work as a patent counsel for RCA & GE Consumer Electronics. In 1987 GE sold the consumer electronics division and the RCA brand to Thomson Consumer Electronics. He eventually rose to become the General Counsel at Thomson and had the opportunity to live and work at their Paris headquarters for 4 years. He left Thomson in 1997 and worked for a private law firm for 10 years retiring in 1998.

What a career and story. At one point in his career my friend was in charge of managing and licensing to others hundreds of RCA patents. I remember as a child there were few companies that could hold a candle to the innovative power of RCA. I can still remember the picture of Nipper the dog staring at the gramophone with the inscription “His Master’s Voice.”

As many of us know RCA is now a shell of what it once was. Under Thomson the brand faltered, quality suffered, and competition increased.

I asked my friend, “What happened. How could a brand and a company that defined innovation fall from grace?” He explained that during the late 80’s and throughout the 90’s the company invested heavily in videodisk technology that did not pan out. It also built a lot of me-too products. Sony, Panasonic and others were developing better products at a lower price point. Brand loyalty decreased. Market share decreased. The brand (and the consumer electronics department) entered a death spiral that it could not recover. A few years ago Thomson sold the brand and products to a Chinese company.

My friend said the world changed and RCA could not keep up.

A quote that is one of my favorites is “The only thing that is constant is change.” About the only thing we can guarantee is that the world will be a different place in 5 years. In some markets it may be totally different next year or next month. It is a given the world will change and we need to keep up or we’ll found ourselves on the outside looking in like RCA.

So what should we do? What can you do now to keep your company competitive?

My advice to many clients and potential clients is to ask how do you compete? Are you (or your company) known for innovation and innovative products and services or are you a fast follower competing on price? If your company is known for innovation you need to be constantly thinking of how you can improve your products and services. You need to ask what will happen if your competition can sell their product for 50% of your price and/or the key technology that you are using to differentiate our products becomes worthless. What would happen if your customers were able to buy from you (or your competition) in a totally different way (think shopping on-line vs. going to brick and mortar stores, or think automatic downloading of movies instead of going to a video store to rent them)? How would this affect your business? How would you compete? You need to brainstorm solutions. You need to plan for change.

Sometimes the more successful we are today that harder it is to plan for change. A common argument is why spend valuable resources to improve or replace something that is working? How can you fault an executive team that is growing sales and profit?

In many cases the best time to plan for change is when things are going well.

I can guarantee that the world will change. I also guarantee that innovators in your marketplace are planning for that change. How you respond is up to you. If you are or want to be known for innovation how much of your time and budget are you spending on defining and leading your market?

Will someone say in a few years that the world changed and you could not keep up?

Until next time - all the best!

RolandB

Look at it from a different perspective

The original posting of this article is here.
Be sure to check on the current issue of Explode Your Paradigm here

I did something last night I had never done before. My wife and I participated in the NITE Ride, a 20 mile ride through Indianapolis that began at 11:00 PM at night. Wew were joined by about 3000 others many of whom have been participating in the ride, conducted annually by CIBA (Central Indiana Biking Association), for years. I rode through streets and through places that were very familiar to me and that I had ridden around and through for years. What was amazing was I did it at night, with the assist of a small headlamp (until it broke half way through the ride) and a blinking tail light. The surroundings were the same but everything was different. There were policemen on every corner holding up traffic allowing us to pass. Volunteers pointed out potholes and other obstructions and where to turn. Looking ahead was a ribbon of a hundred or so blinking red lights. Looking back, well you didn’t want to look back too often, you may run into a pothole. I came away with a new appreciation for the city of Indianapolis, our police department, and the volunteers that made the event possible. I learned that something very familiar can become even more exciting when looked at from a different perspective.

In a scene from Dead Poets Society John Keating (played by Robin Williams) has his students eat with their non dominant hand. He asks what is different? What challenges does this create. How do you see the world differently?

So what can we learn? What was reinforced to me last night is to look at obstacles, opportunities, and basic responsibilities from a different perspective. You may come up with insights and ideas that you never thought possible.

Until next time – all the best!

RolandB

Prepare for the Unknown

The original posting of this article is here
Be sure to check on the current issue of Explode Your Paradigm here

What would you do if you knew there would be a major earthquake in China sometime during 2012? Before you say “I would not travel to China in 2012” let me tell you that you are currently in charge of operations of a global trading company that has a large distribution hub in Beijing.

What would you do today or in the next 6 months if you knew that this earthquake could cripple your Asian business? That was the question Dr. Mahender Singh from MIT asked a number of us attending a supply chain conference recently.

After we got through the “how do you know?” questions Dr. Singh asked us to push the I believe button and move on with the exercise. The group decided to get all of our experts together, analyze the problem, suggest alternatives and recommend a solution. We built another distribution center in Australia to handle the load in case the China facility was knocked out.

Well January 1, 2013 came and the predicted earthquake had not happened. You get a call from your CEO stating that your efforts cost the company millions of dollars without a return. Never again would you be trusted. Not a good day ……………

6 months later in July 2013 H1N1 flu pandemic hits China. The entire county is quarantined shutting down trade in and out of the area. Your facility in Beijing is shut down. The distribution center in Australia is not affected however and is able to handle the increased volume. Your company survives and in fact grows by selling to your competitor’s customers that cannot get shipments from China.

Your CEO takes you out to dinner and you get a promotion. If you had not planned for the expected earthquake that never happened you would have not been ready for the unexpected pandemic that did.

Dr. Singh said we need to plan for the known and prepare for the unknown. We are reasonably good at planning for the known. The issue is in many cases we don’t spend the time and the energy to prepare honestly for the unknown. Who would have known that an oil well would explode in the Gulf of Mexico and the resulting spill would foul hundreds of miles of beach and thousand of square miles of fishing grounds. How do you get yourself ready for the future?

The secret according to Dr. Singh is to start with the future, such as the earthquake in China, and bring it back to today. If we know the future what will we do about it today to help get our business ready? As part of your strategic planning exercise create a number of catastrophic scenarios and seriously figure out what you would do.

This was standard practice when I was in the Navy as an officer on a submarine. We would start with the “what ifs” and work backwards to determine the “what do you do”? It took a lot of time and we had many things to do that we thought were much more important. Not doing the exercise was not an option. First we were in the military and we had to do what we were ordered to do. Second we were driving a US warship that was powered with a nuclear reactor. If something happened we had to be perfect. The exercise was successful. We made mistakes, we learned from each other, we were prepared and if any of those unexpected scenarios happened we were ready.

So what can you do to get ready for the future? First, block out time for the exercise. Get away from the hectic day-to-day (i.e. turn off the cell phone) and get your leadership team off site. Dr. Singh asked three questions to help get the discussion started:

1. What are your forks in the road (major decisions that need to be made, short, medium and long term)
2. What are your hidden assumptions? (what are the sacred cows that no one discusses but should in order to fairly evaluate the future?)
3. What are your sensors in the ground? (Facts & trends that may be favorable or unfavorable to your business model)

One last thing. Have fun. Use your innovation and creativity skills. Get to know how your leadership team thinks. Participate fully – it is OK to make mistakes. Think differently – stretch your imagination. Celebrate success.

When the unexpected happens, and it will, you and your team will be ready!

Until next time – all the best!

RolandB

A new website - the blog is moving!!

Over the past few days I finally have had time to get out the textbooks, arrange my thoughts and publish the website for EYP Advisors LLC. Now the blog, my biography and the story about what I and my team of networked professionals are trying to do is all in one place at http://www.eypadvisors.com/!!

This blog has been copied and renamed Explode Your Paradigm. All future posts can be found at http://eypadvisors.com/?page_id=12

I would very much like to thank my good friend and website guru Carol van Almelo for helping me upload my database and pictures and create my logo. Her willingness to help me is greatly appreciated. More information about Carol can be found on her website at http://www.rock-away.com/

Please check out the new site and let me know your thoughts. I look forward to your comments.

Until next time - all the best!

RolandB

Believe what they do, not what they say. Is Eli Lilly really committed to innovation?

I had lunch with Bernard Munoz recently. Bernard has worked at Eli Lilly for over 29 years. Over his career he helped run Lilly affiliates in Portugal, Austria and France while with the Elanco Animal Health group. More recently he is working as an advisor in the corporate strategy area at Lilly Corporate Center in Indianapolis.

We met at a business function a couple of weeks ago. Bernard introduced himself as a consultant in “disruptive innovation.” I worked at Lilly for over 10 years. I learned a lot about pharmaceuticals, about marketing, about how to build a business in places like Japan and Eastern Europe and about the value of a robust process. What I also learned from Lilly was that change happens slowly in a large company. The fact that Lilly now had an internal consultant tasked with to bringing change to the organization was invigorating. We agreed to meet again to discuss.

Over a plate of Greek food I learned a ton about the current happenings in the pharmaceutical industry.

Bernard has been intrigued with innovation his whole life. His passion is beginning to be noticed by others. In December 2009 he published a paper in Nature Review titled “Lessons from 60 years of pharmaceutical innovation.” He followed the number of new molecular entities (NMEs) that have been approved since 1950 and looked at the changes year to year both in the number of new entities approved and the expense to make it happen. From 1950 to 2008 the FDA has approved 1,222 new drugs. On average the number of new drugs approved each year over this period is roughly the same. In 2008 21 NMEs were approved.

He documents that over the same period the cost of developing new drugs is rising at the exponential rate of 13.5% per year. Same number of products out each year, costs rising exponentially. If nothing changes this is an unsustainable situation.

Many large pharmaceutical companies estimate they need to produce an average of 2–3 NMEs per year to meet their growth objectives. The paper states that none of them has ever approached this level of output. The historical level is close to 1 per year. Bernard’s research points out that statistically the chance to getting to this level with the current pharmaceutical industry’s business model is very low.

There have been a few spikes and troughs over the years. Bernard’s conclusion is that this may have been more a function with the number of companies with applications outstanding. The more companies, the more applications, the more approved NMEs. His paper goes on to demonstrate that M&A activity in the pharmaceutical industry actually negatively affected the number of NMEs approved. In his words 1+1=1.

Bernard argues that we need to increase the number of companies developing NMEs. A larger number of companies accelerate the acquisition of knowledge creating what economists call a spillover – an industry wide benefit that enables all companies to be more effective. He also argues that the pharmaceutical industry needs to fundamentally change the way they develop new products.

Bernard and William Chin, formerly a colleague at Lilly and now at Harvard Medical School published a paper in Science Translational Medicine also in December 2009 titled “A Call for Sharing: Adapting Pharmaceutical Research to New Realities” that points out that today’s innovation increasingly stems from the aggregation of numerous small contributions. The authors argue that companies should compete in areas that offer a viable return on investment, and share where pre-competitive collaboration helps all of us discover new therapies more efficiently and effectively. The authors issue a call for the pharmaceutical industry and governmental agencies to “join hands and intensify sharing in order to help repower pharmaceutical innovation.”

To summarize the pharmaceutical business model is broken and it needs to be fixed. This is something many of us in the industry have been discussing for years. Costs are increasing, pricing pressure is increasing causing sales revenue per NME to decline and the number of new products being developed is not keeping pace with what is required. How much longer will investors continue to support pharmaceutical research? How can we keep the engine that is driving a large section of the economy alive and well?

Bernard told me he has been getting calls from groups in industry and in government requesting information about his ideas. Momentum is growing for change.

Great news - don't you think? Well here is the rest of the story

A senior executive at Lilly told Bernard Munoz this week that his job was being eliminated as of September 7, 2010!!

It is no secret that Lilly is facing patent expirations on a number of their most popular products. The company is cutting jobs. I have friends who have left the company and others who are looking over their shoulder not knowing if their job will be there tomorrow. What concerns me is that it appears Lilly has eliminated the position of a successful executive that has made and is making a name for himself discussing how to move the pharmaceutical industry forward. Lilly could have a voice at the table and they are choosing to turn it down.

Why? I think it is much better to participate in the discussion and be a part of potential solutions rather than wonder what will happen.

John Lechleiter, the CEO of Eli Lilly and Company, in an editorial published in the Wall St. Journal on May 14, 2009 wrote “U.S.-based private industry is the heart and soul of this innovation drama, investing $58 billion in research and development for new medicines in 2007 alone…. Biomedical innovation is not incompatible with the health-care reform goals of universal access, quality improvement and cost control. On the contrary, without new, more effective medicines -- along with new devices and diagnostic tools, and better treatments and surgical techniques -- it will be impossible for larger numbers of Americans to obtain better health care at a manageable cost.”

I think Lechleiter gets the message that Munoz and Chin are preaching that industry, universities and government need to come up with creative solutions to get better medical solutions to the marketplace. I don't know if the message is flowing down to his staff. I wonder if the bureaucracy at Lilly will wise up and get it before more innovators like Bernard Munoz are forced to do their work outside of the company.

Is Lilly committed to innovation?? The proof is in what they do - not what they say.

If you would like to read either of the papers referenced above please follow the links or send me an email at rjbydlon@earthlink.net.

I am interested in your thoughts. Please comment below.

Until next time – all the best!

RolandB