Written by Jay Turo on Monday, August 12, 2013
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Last week, I talked about the communication breakdowns that occur when investors and entrepreneurs talk about risk.
Well, in most forms of angel and early-stage private equity investing, these breakdowns flow from a misunderstanding of the power and nature of outliers.
The concept of outliers and how they apply to early stage private equity investment was best described by the Lebanese thinker and writer Nicolas Taleb, in his best-selling books "Fooled by Randomness" and "The Black Swan."
In the Black Swan especially, Taleb described the nature and importance of outliers in a modern, inter-connected economy:
“What we call here a Black Swan is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable."
Taleb continues, "I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives."
Less famous, but more helpful when it comes to designing an effective private equity investing strategy is Taleb's theorizing on how technological interconnectedness vastly intensifies Black Swan impacts.
This idea of technological interconnectedness is related - though not exactly the same – as that of the much ballyhooed Network Effect that is so much at the heart of many of the biggest technological and investment success stories of the last 15 years, Facebook, Twitter, and LinkedIN, being first and foremost amongst them.
In its simplest form, the Network Effect posits that the value of a network increases exponentially with each new user on it.
Or, in other words, the primary reason why folks use Facebook, Twitter, and LinkedIN is because there are a lot of other folks that use Facebook, Twitter and LinkedIN too.
And, as more users join, such the value for others to join grows that much greater.
And so on and so on.
Thus, one of the first screens that the intelligent early stage investor should utilize is the degree to which a network effect is present in a company's business model.
Now, let’s get to the rub of the matter as to how Taleb’s interconnectedness concept both informs and signals danger for the thoughtful investor.
Simply put, global technological inter-connectedness drives the winning business models to heights never seen before …
…and because of this, there are a lot fewer of them.
Simply put, the winners are bigger and happen faster than ever - Facebook's IPO was bigger and faster than that of Google’s which was bigger and faster than that of Microsoft’s, which was bigger and faster than that of Apple’s.
And because the winners are bigger, there are less of them.
So that giant sucking sound you hear is the consuming of so much of the energy and return in the deal economy into fewer, bigger and more lucrative deals.
To put it another way, turning $500,000 into $1.8 billion in seven years as Peter Thiel did as a small minority investor in Facebook is just not beyond extraordinary - it is also unprecedented.
And, correspondingly, returns of this scale crowd out and widely skew the distribution to fewer, higher returning deals.
Now, how should we respond to this brave new and highly challenging investing and entrepreneurial world?
Well, one obvious response is to proceed extremely carefully.
Investing in early stage private companies can be great fun and you can make money beyond your wildest dreams if the stars are aligned right doing it….
…but the probabilities of doing so in any one company or deal are low…and getting lower.
And unfortunately, this is true no matter how enthusiastic, how passionate, how hardworking, how brilliant the entrepreneur that is pitching his or her deal happens to be.
So does this mean that early stage private equity investing is for the birds? And that we all should just stay away?
Of course not.
You just have to do it right.
Next week, we’ll share how today’s most successful investors and entrepreneurs do just that.
Written by Jay Turo on Sunday, July 21, 2013
My column last week, where I praised leaders that channeled legendary Green Bay Packers football coach Vince Lombardi’s “tough love” leadership approach, prompted a lot of responses - some nice, some not so nice (and not just from the Minnesota Vikings fans out there!).
The most thoughtful ones came back and said, “well that style maybe all well and good if you are running a factory in China, but when it comes to managing younger people (i.e. Millenials - those born after 1982) in modern service businesses, to be effective a "softer" touch is needed.
Points well-taken, so do let me offer here five "Managing Milllenials" best practices:
#5. Revel in the Importance of Company Culture. In a world where everything can and is easily and quickly borrowed, copied, and sometimes just plain old stolen - the only sustainable competitive advantage is how a company organizes and aligns, inspires and challenges its people.
Or, in a word, its company culture.
Taking it further, the modern manager is doubly vexed by the unsettling (yet exciting) reality that the plan today will almost certainly not be the plan tomorrow, and as the plan changes, so must change both individual roles and team dynamics.
And thereby so must the culture change.
Please let’s not jump over this point too quickly. It is all too easy for the ambitious, hard-working, and often older manager to just throw up his or her hands and lament over “these kids” and how “if they only knew how things were like when I was starting out” that they would think and act differently.
And how they should be just happy to have a job and not just be so – well young and self-absorbed.
Well, that is dead-end talk.
Building high-performing 21st century teams requires winning hearts and minds and doing so each day anew. The best managers REVEL in this challenge as opposed to shirking from it or whining about it.
#4. Empowering and Coddling are NOT The Same Thing. Some may read the above and shake their heads and think that this is a “coddling mindset” or entitlement culture and is exactly what has gotten us in America in trouble in the first place and a big part of why China is kicking our you know what every which way.
This is where leadership and administrative creativity are of such importance in building win-win work structures that both inspire and challenge the younger worker to work harder and get better faster.
AND allow for balance and acknowledge those aspects of work that are not so “goal-driven.”
What are these? Well, that sense of community and common cause and healthy friendship and competition that make the best workplaces, for lack of a better word, fun.
And fun, as high-performing cultures like Southwest and Richard Branson’s Virgin have demonstrated so inspirationally is - surprise, surprise - very good for the bottom line.
#3. Understand that Entrepreneurship and Youth Go Hand-in-Hand. Most ambitious young people today don’t grow up dreaming about getting that “good state job” or to work for the same company for 30 years.
Rather, and following up on that overriding sense of “specialness” with which we now raise our children, young people want their star to shine. They want to come up with the new, great ideas, and to be acknowledged and rewarded for it.
They, in essence, want all of the recognition and empowerment and self-definition and financial opportunity that attract people of all ages to become entrepreneurs.
This is a great and good thing, and is at the heart of why we live in golden, global age as young people the world over are being raised with the right kind of high self-esteems to dream and act BIG.
BUT many of even the best of them on balance do not want the headaches and heartaches and vexing, painful choices and compromises that are just as much part and parcel of the real entrepreneurial “lifestyle.”
So how do you work with this? The deep desire and burning ambition that all companies desperately want in their people on the one hand, and a wariness and even a distaste for all of the prosaic, “not fun” stuff on the other?
Well surprise, surprise, this is tough.
A general rule here is as opposed to fighting this energy, go with it and reframe the “tough stuff” as opportunities for personal and professional growth and then profusely recognize and acknowledge these “less fun” challenges are taken on.
Not easy to do for sure, but it is this leadership that both modern organizations and younger workers desperately need and want.
#2. Recognition is Key. Having 2 young sons has helped me immeasurably in understanding the sometimes gentle psyches of younger employees. Long gone are those days of fear and punishment-based parenting and schooling. Rather, understanding that a recognition-based milieu is how most high-performing young people have been raised and schooled is a key to effective organization-building.
The best guidance I have seen on effective “recognition-based” leadership comes from authors Chester Elton and Adrian Gostick in their awesome book “The Carrot Principle.”
They describe recognition done right as being “positive, immediate, close, specific, and shared:”
Positive - managers sometimes mistakenly use a recognition presentation as a time to talk about how far someone has come, or how they could have done even better. This is not the time or place. Comments must be positive and upbeat.
Immediate - too often by the time a worker is recognized for a job well done, weeks if not months have passed. The closer the recognition to the actual performance the better.
Close - recognition is best presented in the employee’s work environment among peers. Invite team members and work friends to attend.
Specific - a great presentation is a time to point out specific behaviors that reinforces key values.
Shared - typically, recognition comes from the top down; however, recognition that means the most often comes from peers who best understand the circumstances surrounding the employee’s performance. Peers, as well as managers and supervisors, should be able to comment during the presentation.
#1. Embrace Fluidity. This is perhaps the hardest reality and where the rubber really hits the road with building 21st century, knowledge-based entrepreneurial organizations dependent on younger people.
They just get up and leave.
On a moment’s notice and often for the simple and defensible reason of valuing experience and variety over the often hum-drum and slow career - building that is part of staying and growing with one organization over time.
Again, as opposed to fighting this energy, go with it. Work to design the organization and refine the business model based on relatively short tenures - say 3 years or less - and with the ability to plug new people in and have them produce quickly.
To accomplish this requires strong and well-defined training styles and processes, clearly defined and “bounded” roles and responsibilities, and a knowledge management system that captures and processes the intelligence of the organization so that it doesn’t walk out the door when that “year overseas” calls.
How About Investors?
As for investors looking for emerging companies to back, my strong suggestion is to evaluate these softer “above the line” qualities in a corporate culture and a leadership team as much as the below line technology and balance sheet factors that are usually at the forefront of an investment evaluation.
For it is the right company culture - one that gets the best out of people of all ages - that both endures and provides for success for the long term.
Written by Jay Turo on Monday, July 15, 2013
Green Bay Packer tackle Henry Jordan once famously described legendary football Coach Vince Lombardi’s coaching style as “He’s Fair. He treats us all the same – like dogs.”
Well, with the Big Data, “Moneyball” and “Freakonomics” management and investment revolutions, where it is a matter of high faith that you get the behaviors that you reward and that you measure, we are seeing a clear and strong movement back toward high accountability, no excuses “get it done or get out” management practices and cultures.
For entrepreneurs looking for organization structures to model and for investors looking for companies to back, here are four trends to watch:
1. Look for Companies That Harness the Power and Avoid the Danger of “Corporations of One.” Never before in human history has the world afforded more opportunities for talented individuals to work for themselves, by themselves.
The amazing tools of modern, virtual collaboration – text, email, video conferencing and every cloud-based business productivity application that you could ever dream of (and ever use) available in the palm of your hand - have eliminated most of the collaboration advantages of the traditional corporate form.
The smart, modern company understands when to marshal their power - in the form of utilizing contractors to fulfill bite and mid-sized projects - and when to resist it.
How? By focusing vigilantly on building distinct and equity - filled brands, strong barriers around their customers, and company cultures and management styles that demand and reward high performance and results.
2. And Ones That Let Virtuality Touch Them, but not Kill Them. With the now universal business adoption of “everything and more that was once only on your desktop is now in your pocket” mobile phones and apps, all of us worldwide are truly on line 24/7.
Books like Jason Fried’s “Rework,” Tony Schwarz’ “The Way We’re Working Isn’t Working,” and John Freeman’s “The Tyranny of E-mail” address from various angles the promises and drawbacks of virtual work.
A common theme is almost universal doubt regarding email and other tools of instant communication and the “react versus respond” culture they foster.
What to do about it? Well, continue to look for “end of email” company movements and cultures to continue to gain steam and social currency, and for social networking mainstays like Facebook, Twitter, and LinkedIN to slowly but surely lose their business luster.
Companies that embrace this re-emerging “culture of the deliberate” will have the leg up where it really counts – in more thoughtful strategic positioning and consequently, more sustainable profits.
3. And Ones That Are Learning Organizations. The pressing need for organizations to innovate or perish, and of young workers equating quality work environments with ones offering intense personal and professional development almost makes the definition of a successful company as one that propels its people forward.
This company as a learning organization motif is an old one, but never before have the reductionist pressures of virtuality combined with young worker expectations made it so paramount for companies to either grow their people or see their businesses shrink.
4. And Finally, Look for Leaders that Channel Coach Lombardi. There is a fine line between an encouraging company culture and a permissive one. Inspired by the success of high accountability cultures like Amazon, Apple, and FedEx, smart investors are backing leaders that give BOTH pats and kicks on the backside.
In a paradoxical way, the typical, high encouragement environment in which most young people (i.e. the Millennials) were raised and educated has created in them a deep desire for structure, to be told exactly what is expected of them and the consequences for poor performance.
Leading “tough” like this is hard, draining work, but is a key and easy-to-identify quality in a company poised to breakout.
Find, back, and grow with companies that embody the above and winning will be more of an everyday thing for your business and your investments.
Written by Dave Lavinsky on Sunday, June 30, 2013
July 1 is a critical day in your business. Because it's the day that officially starts the second half of 2013. That's right, the year is already half-way over.
So right now is the PERFECT time to take an honest look at your business, see how much progress you've made so far this year, and develop your plan for the rest of 2013.
There are three things I strongly suggest you do on July 1 as follows:
1. Give Thanks
I hate to sound too righteous, but I recently watched 'Girl Rising' on CNN. The show "documents extraordinary girls and the power of education to change the world." While this description seems and is uplifting, some of the struggles of the girls profiled seemed unbearable.
In particular, the segment detailing the lives of most girls in Afghanistan left me crying.
So, please take a moment to understand how lucky you are. Lucky that you are even able to run a company and control your destiny.
2. Assess Your Results from the First Half of the Year
You must assess your results from the first half of 2013. Start by looking at your goals and plans for the first half of the year. And then look at your results.
- Were your revenues as high as you had planned?
- Did your profits exceed expectations?
- Did you build as many new products/services as you had planned for the first half of the year?
In assessing your performance, the key question to answer is "why?" For instance, if you didn't achieve your revenues goals, what obstacles prevented your success? And, how can you overcome those obstacles going forward.
3. Create Your Goals & Plans for the Second Half of the Year
Now it's time to detail your goals and plans for the second half of 2013. Hopefully if you over-estimated your goals for the first half of the year, you can now do a better job of understanding what is more realistic to achieve in a 6-month period.
Think about this question: what must I accomplish in the next 6 months to make 2013 a great year?
Use this question as a guide in documenting your goals for the next 6 months and detailing your plans for how you will achieve them.
Remember, you still have half the year left. So even if you didn't achieve enough in the first six months, there's plenty of time left to make 2013 a banner year.
But importantly, make sure you set goals for the rest of the year, and have a way to measure your progress on them. If you don't, as some of you unfortunately just learned over the last six months, you won't achieve the success you desire.
Written by Dave Lavinsky on Tuesday, June 25, 2013
If you don't know Peter Drucker, you should: he's known as the man who invented modern business management. He wrote 39 books on the subject and is widely regarded as the greatest management thinker of all time.
And Peter Drucker is credited with two of the most important quotes in business management.
Here's the first: "If you can't measure it, you can't improve it."
When you think about this quote, it should immediately become apparent how true it is. Because, if you can't measure something, and know the results, you can't possibly get better at it. For example, it's nearly impossible to lose weight without stepping on a scale once in a while to measure your results - if you don't, you have no idea if you are succeeding or not.
Or it's like trying to improve your golf game, but never keeping score, so you don't know if you're actually getting better or not. Makes sense, right?
Now, in business, Drucker's quote is particularly true. If you can't measure every part of your business, you can't manage or grow it.
- Do you know the number of new website visitors you received in the last 30 days?
- And do you know what percentage of them turned into new paying customers?
- And do you know how the level of satisfaction among your customers has fluctuated over time?
- And do you know the precise average lifetime value of your customers?
There are nearly 50 questions such as these that measure each aspect of your business.
And if you don't know the answers, if you can't measure them, then you can't possibly manage or improve them.
And that's why your sales are too low, profits are too low, employee performance isn't high enough, and you need to work too hard and can't take enough time off.
Now, let's move on to Peter Drucker's second famous quote: "Management is doing things right; leadership is doing the right things."
Let's start with the first piece of this critical quote. "Management is doing things right." Well, as we learned from Drucker's first quote, you can't manage and you can't do things right in your business if you're not measuring it. So that's not happening and it's hurting your business.
And now the second piece: "leadership is doing the right things." So, my question for you is this: are you doing the right things in your business? Now before you answer this, let me ask you this: do you know exactly what you should be doing, every single day, to generate the most value from your time?
- Do you know when you should focus on improving your website?
- Do you know when you need to spend time on improving customer satisfaction?
- Do you know how much attention you need to give to securing new clients?
- And do you know when you should focus your time on better training your team?
Unfortunately, most entrepreneurs and business owners don't. Or their businesses would be much more successful than they currently are.
I give you these two Peter Drucker quotes along with their interpretation to help you figure out the answer to the question, what is the #1 Business Mistake you are making.
Which for most entrepreneurs and business owners is this: Your #1 business mistake is that you're running your business blind!
You're not measuring your performance throughout your business, so you can't improve. And worse yet, you don't really know what you should even be focusing on
It's like running around in a maze, and you haven't kept track of where you've been, and you're not sure what to do to get out.
But don't take it personally, virtually all entrepreneurs and business owners operate like this. And that's why business failure statistics are so terrible. As you might know, according to Dun & Bradstreet, 91% of businesses fail within 10 years. And according to United States Census, only 3.9% of businesses make it to $1 million in sales. And only 0.6% of businesses make it to $5 million. And less than 0.1% make it to $10 million and above.
The reason for this lack of success is that these entrepreneurs and business owners are running their businesses blindly. They are not measuring performance, so they can't improve. And they are focusing their time on the wrong areas of their business.
Now the good news is that there is a solution to this common problem of running blind. And it's called BI or Business Intelligence. Business intelligence or BI refers to computer-based techniques used to spot, dig-out, and analyze business data, such as sales, marketing and production in order to make significant improvements.
Importantly Business Intelligence uses the data you already collect in your business. For example, if you have a website, you probably have Google Analytics or another program installed that captures key information like the number of visitors you have to your website each day, where they are coming from, and what pages of your website they are visiting.
And you're probably using an accounting software like Quickbooks that includes information about your revenues, expenses and cash balances. And you might be using a customer relationship management or CRM system like Salesforce.com that identifies the number of leads and sales you generate.
And you might be using an email management system like Constant Contact or MailChimp that shows how many email subscribers you have and how often they open or click on your emails.
With the right Business Intelligence system, all the information from these applications and programs you already use automatically and in real-time is entered and analyzed. So you can quickly see, manage and improve your performance.
Importantly, you not only measure performance so you can improve it, but you instantly spot weaknesses in your company. And those are the areas you should focus your attention on. Remember, "leadership is doing the right things" - now you'll know exactly what you should be doing.
Ready to stop operating blindly? If so, check out Growthink's Business Intelligence solution, The Growthink Dashboard, by clicking here and start expertly managing and growing your business.
Written by Dave Lavinsky on Thursday, June 20, 2013
Lead generation is critical for all entrepreneurs. And once you master it, your business will thrive.
To help you with lead generation, below I have answered the most common questions entrepreneurs. However, let me start with some definitions.
Your "leads" are simply your pool of prospective buyers who might be interested in your product or service.
For physical stores, your lead list can be residents in a certain zip code or a list of shoppers with certain demographic characteristics. For online or virtual businesses, your lead list is often defined as the list of prospects that subscribe or "opt-in" to your email list or otherwise contact you so you have their contact information.
Whether online or in a physical store, communicating with your lead list is a primary marketing strategy for generating new and repeat customers. A general rule in marketing is: the bigger your list of leads, the more opportunities you have to generate new clients and sales. This is why lead generation is so important. Sound lead generation tactics grow your lead list. Great lead generation strategies grow your list with prospects that are most likely to buy.
Below are answers to the most common lead generation questions I get:
1. How Do I Create a Lead List?
There are many ways to start building your lead list. The easiest is to put an opt-in box on pages of your website where visitors can register their email addresses - typically in exchange for content or freebies. Most websites offer free guides, e-books, tools or a newsletter.
You can also offer free samples of a one-time discount coupon. Make sure the freebies are enticing. Once the website visitor opts-in to receive the freebie, he or she now becomes part of your email list.
2. Does My Target Audience Matter?
Yes. Know your niche and determine the people you want to target. This important element should be clear to you from the beginning. You will likely fail if you do not understand what type of customer best appreciates your product or service.
Once you truly know your target audience, you can do a better job of "talking" to them on your website. For example, you will use different verbiage to convince a 20 year old, single, suburban woman to buy your product than you would to convince a 60 year old, married, rural man to buy it, since each has different wants and needs.
3. How Will My Audience Find Me?
In order for your prospective customers to find you, you should be promoting your website in places where your targeted audience already frequents. For example. Let's say your business sells electronic gadgets. If so, make sure customers find you on other websites that discuss electronic gadgets. You can advertise on these sites or submit guest blog posts and articles to them. You can do the same with social networking groups that discuss this topic. In many cases you can also pay the other websites to send an email promoting your company to all their subscribers.
Likewise there are other tactics to reach these customers such a direct mail, door hangers, radio spots of TV ads. Naturally, you must align your strategy to your specific product or service, and to your budget.
4. What Should I Put On My Site To Attract Visitors To Opt-In Or Buy From Me?
Content is key. When your visitors find your site helpful and informative, it will be easier for you to get them to opt-in or buy. They will see you as the expert and be hungry for more information from you. The key is to provide quality content that gives solutions to your audience's problems.
Also, the more quality content you have on your website, the more other websites will link to you and thus drive new visitors. Likewise, these links will boost your search engine rankings, so you'll get more organic search traffic.
5. How Do I Maximize Social Media In Getting More Opt-Ins?
Most of your customers are using social networking sites (event if you're in the B2B space). Build your reputation as an expert in your niche when you are creating your social media presence. Become the "guru" of your circle of influence and continuously expand that sphere of influence.
Even brick and mortar businesses have a huge opportunity to build genuine, trustworthy relationships with clients and prospects on social networking sites. Offer tips, publish sales offers, share today's menu, teach a skill, publish testimonials and so forth. These steps create opportunities to get followers and convert sales.
It's All About The Relationship
A growing email and/or lead list is crucial for business growth, especially for businesses that operate online. You can publish a website or open an online store and HOPE that customers come. Or you can build top-notch content and opt-in system that allow you to communicate and build relationships with your prospective customers.
It's a common phrase that "people do business with people they know, like, and trust." Using social networks and content generation strategies (like newsletters and quality emails) you can develop strong bonds with people who you will never meet in person.
The strategies detailed herein will deliver prospects to your business that are interested, ready, and able to buy your products and services. It will take some time to implement these strategies, so get started now!
Written by Jay Turo on Monday, June 17, 2013
Holding constant for socioeconomic factors, the typical entrepreneur makes less money, works more hours and suffers more work-related stress than their employed counterparts.
And when we combine these statistics with those that show a very low percentage of businesses ever attaining meaningful profitability, it is remarkable that people ever even dream to be entrepreneurs and start businesses at all.
But start them they do!
Quite possibly the most amazing and inspiring number in all of American business is 550,000.
That is the approximate number of new businesses that are started in American each and every year.
Now these opposing statistics beg the question, “Why?”
Why would 550,000 people - who statistically are far better educated and wealthier than the population as a whole - engage in behavior that on the surface clearly seems contrary to their self-interest and dare I say, delusional?
Well, on the cynical side, many of these brave folks probably think the odds of economic success are greater than they really are.
And even if they know the odds, they think that they don’t apply to them.
On the slightly less cynical but still not totally inspiring side, one could argue that businesses are started out of boredom - out of the need for that “action rush” that in the realm of business often only an entrepreneurial endeavor can truly provide.
Inspirationally, many believe like I do that entrepreneurship is the greatest force for positive change in the world today, and they start and grow businesses to be positive change agents, on levels big and small.
They start restaurants to create and share beautiful food, service, and atmosphere.
They open day care facilities to provide quality, spirited child care for working families.
They start creative agencies - graphic design, publish relation, web development firms, and the like to leverage their business and creative talent to its most effective end.
And they start drug development and medical device companies to help people live longer, healthier lives.
And thousands of types and forms and sizes of business in between, led by entrepreneurs with aspirations big and small, driven by motivations both pedestrian and soaring.
But at the heart of all of their reasons for starting businesses, at least of the ones that survive, is that often begrudged but really most inspiring motivation of them all.
They start businesses to make a lot of money.
Now the key word in that sentence is make - as in bringing into existence through creativity, effort, and as often as not more than a little serendipity and luck, something that did not exist beforehand.
Now often, for the entrepreneur and those that back them, the touching of this money often takes many years, even decades, of under-paid, hard, and often thankless work, before a cash windfall in the form of a business sale or a public offering.
But that is a story for another day.
For now, find those entrepreneurs and businesses that can truly make money, encourage and back them, and you and the world will get to a better place.
Written by Dave Lavinsky on Sunday, June 16, 2013
Astute entrepreneurs and marketers understand that as much as 80% of their revenues come from repeat customers. Because once you transform a prospective customer into an actual customer and then give them a great experience, getting that customer to buy again is much easier. In fact, many times the next sale will be initiated by the customer; you won't have to do anything.
So the best way to get more sales from repeat customers is to get more first-time customers (and then really satisfy them of course).
For instance, if your initial sale to a customer is $40, but the average customer will purchase four more times within the first year, then a new customer is actually worth $200 in the first year. Much more than the initial $40! So, clearly, you want to attract as many new customers as possible (and take care of them so they keep purchasing from you).
To help you achieve this I have detailed below three key tips for attracting new customers.
New Customer Strategy #1: Give Them a Deal
Some companies go as far as to lose money on their first sale (known as a loss-leader), knowing they'll make it back with an immediate upsell, monthly service plan, or future sales. Your goal is NOT to make as much money as you can on the first sale. It's to make a first sale!
But of course, it's better if the first sale naturally leads to selling your next item or service. For example, I know a pressure washing company who will clean your house's exterior at cost the first time. But then it upsells 80% of these customers to their "twice yearly" plan -- this is where it derives massive profits.
Restaurants offer specials, phone companies offer you deals if you switch providers, etc. - I'm sure you've seen this. You need to give customers a powerful offer either in the form of a low price or incredible value for their money. When you do, they'll be much more likely to buy from you.
You've also probably seen coupon offers and deal-of-the-day sites like Groupon offering $20 massages and other great deals all the time. This works in getting tons of new customers. However, be careful. A lot of businesses have reported "The Groupon Effect," in which they will post a special, get a herd of penny-pinchers in the door that take advantage of the offer and then disappear to find the next deal at whoever's cheapest tomorrow. In other words, it can attract the wrong crowd and may not produce repeat business-which is the whole point of making a first sale.
So use these special offers carefully. One idea is to use direct mail. Doing so allows you to target the specific customers you want with your special offer; the ones who are most likely to keep buying from you.
New Customer Strategy #2: Incentivize Your Sales Force
If you have a sales force, give them great incentives to close new sales. Particularly in the case where you know you have significant lifetime customer value (i.e., customers will purchase from you many more times in the future), be more generous with your commissions.
In fact, I've heard of companies giving 100% commissions to salespeople who secure new customers. While the company clearly loses money in the short term, such a strategy really motivates the sales team to get new customers. And over time, the company's revenues and profits grow much faster since they have so many new customers that keep buying from it.
New Customer Strategy #3: Give Them an Experience
Think about how much money people spend on vacations, sports, dining, and entertainment. What do these all have in common? They're experiences that people want and for which they are willing to pay.
Try positioning your service as a personal experience. It's one thing to offer a massage, it's another to offer a "spa experience" with music, lights, nails, and a free facial.
You can also plan and offer group experiences like luncheons, parties, open houses, or tours. Or find a way to piggyback on existing events going on in your community, like parades, festivals, expos, etc.
These will take a little creativity, but remember that people are naturally drawn to fun times. Make it memorable and do it a few times per year.
Look to Zappos.com for inspiration. Even though it sells a commodity (shoes), the company provides a great experience through exceptional customer service. For many other businesses, providing a great experience is much easier than this.
New Customer Strategy #4: Give Them Information
Every business needs to educate its customers, whether you charge for that education or not. I love it when my mechanic, Vinny, explains to me my car's problem, what caused it, how to fix it, and what it will cost. Sometimes we even go through options together, and I couldn't make a decision on the right one without getting the facts first.
Providing education demonstrates that you're an expert, increases your trust, and gives you higher credibility in the customers' mind. It also gives you an easy segue into showing the benefits of what you're offering and how it will help.
Some lead generation methods tie in very well with education. For example, if you're trying to get blog posts ranked in the search engines, you'll need to write articles on topics of interest to your readers; like how to do something, the pros and cons of different products or services, etc. These posts will show your expertise and educate the reader.
You can do the same with videos. Simple, informative videos can get the attention and interest of prospective customers. End each video with a special offer or a "call to action" that encourages the prospect to contact you.
To summarize, figure out how you can give new customers a great deal, an experience, and the information they need. And consider giving better incentives to your sales team. Use these 4 tips to get new customers. And then once you secure them, deliver high quality products and/or services. When you do, you'll start building a strong book of repeat business that helps your sales and profits soar!
Suggested Resource: Download Growthink's Ultimate Marketing Plan Template today in order to quickly and expertly complete your marketing plan. Among other things, your marketing plan will give you multiple strategies for gaining new customers.
Written by Dave Lavinsky on Thursday, June 13, 2013
In the United States, there are many laws that protect investors. One of them prohibits entrepreneurs from mass-marketing investments in their businesses. For example, you can't solicit investors on your website nor via social media sites like Facebook.
However, if you set up a crowdfunding campaign, you can (and should) market that campaign and drive traffic to it using social media.
This article will help you do just that.
A Little Knowledge Will Strengthen Your Efforts
You can't use social media websites without understanding how the different ones work. Here are four of the biggest:
- Twitter. This platform offers short broadcasts or tweets, and members actively seek the latest news in real-time. The network has more than 500 million users.
- Facebook. This forum reaches 995 million active users, making it the largest social network. Members have vested interests in making connections with family members, people with similar interests, high school or college classmates, or people committed to certain social or environmental issues.
- Pinterest. This rapidly growing network features pinboards where members can organize recipes, tips, photographs and other materials such as blogs and how-to videos.
- LinkedIn. This network concentrates on business and professional people, and businesses need to maintain active profiles on this network to demonstrate to investors and donors that you're legitimate.
Benefits of Building Network Connections
You should try to build a group of supporters before starting your crowdfunding campaign. Support need not always be financial because favorably disposed members could recommend your project to their friends and associates. Fans love to take part, so you should listen to what they say and adopt suggestions to foster loyalty. Basically, you're looking for your advocates and cheerleaders. Find them and connect with them on the social networks.
Set up Your Crowdfunding Project
There are many crowdfunding platforms (e.g., Kickstarter, IndieGogo, etc.) where you can set up your crowdfunding project.
Importantly, when you do, make your project pitch clear and concise, so people "get" it right away. Also, in the ideal case, you pull on people emotionally, so they really want to see you succeed. The key is to try to bond with people, which you can effectively do via a video you create showing why people should fund you and your venture.
But also keep it real. Show funders how you will spend the money and over what period of time.
Start the Conversation About Your Project
Once your crowdfunding project is set up, use your social media presence to promote it. Post out to your network to tell them to visit your crowdfunding page and to tell others about it.
Also, feel free to go beyond social media. You can use email, creative Youtube videos, a blog, and/or discussion forums to boost your efforts.
Crowdfunding is a great new way to raise funding for your business. However, once you set up your crowdfunding page, don't expect people to just show up and fund you. Rather, you need to market your crowdfunding project. And social media is a great way to do just that!
Written by Dave Lavinsky on Sunday, June 9, 2013
I periodically read research reports about business failures. I always find them interesting, although often they are depressing.
Such as what I recently read. Which was research from Bradley University in Peoria, IL. This research found that 70% to 80% of new businesses fail within their first year.
And while this was frustrating enough to read, the research further stated that half of those companies which do survive the first year will fail within the next four years.
Now, let's turn to the cause of this failure. According to Dun & Bradstreet, the number one cause of this failure is lack of business planning.
What this essentially means is this: entrepreneurs and business owners don't plan to fail; rather, they fail to plan (which causes them to fail).
In my view, there are two types of business plans. The first is the business plan you must create when you start your company. The purpose of this plan is to ensure you have fully thought through your venture.
Among other things, this plan includes significant market research. It assesses your market size to ensure the opportunity is big enough. It analyzes customer segments to confirm that customer needs match your company's proposed product and/or service offerings. And it analyzes the competition to determine how your company will position itself and how you will most effectively compete.
From a strategic standpoint, the business plan must document your marketing plan (how you will secure customers), your human resources plan (who you will hire) and your operations plan (what key milestones you will accomplish and when).
When you're done, your business plan will confirm your market opportunity and give you a roadmap to follow. It will also be required should you wish to gain funding from investors and lenders.
Now, once your business is up-and-running, you still need a business plan in order to succeed. I refer to this type of business plan as a "strategic plan." I term it as such because this type of plan requires much less research (since you already know who your customers are, the market fundamentals, and lots of information about your competitors). Rather, the focus of this plan is strategy.
Specifically, this plan needs to identify precisely:
1. Where you want your company to be in five years
2. What you need to accomplish within the next year to progress you to that point, and
3. What your strategy is to complete your key milestones in the next 12 months
In determining the optimal strategies, you need to consider your company's strengths, and opportunities that can best leverage them. If you don't take time to do this, you become too tactical. That is, you continue to use the same tactics that have gotten you to the point you are at. And oftentimes, the strategy and tactics that got you where you are today are NOT the strategy and tactics that will get you to the next level.
So, spend time figuring out the best strategies to follow. The good news is that you've already proven you can execute on strategies (which is what got you to where you are now).
After you figure out the big picture opportunities to go after (which often fall into the categories of further penetrating your existing market, going after a new market, or creating new products/services for existing and/or new markets), you need to revisit the three core strategies you developed in your initial business plan.
To start, you need to modify your marketing plan. Importantly, your marketing plan should always be adding new marketing channels (e.g., direct mail, print, radio, search engine optimization, etc.) as the more channels you have, the more customers you will get and the less risk you have of one channel losing effectiveness (think about businesses who used to get all their customers from the yellow pages).
Next, consider your human resources strategy. What new people will you need to hire to accomplish your key goals in the coming years? And finally, you need to develop your operations strategy. Figure out what key tasks and milestones you need to accomplish over the next year and break them down into smaller projects that you and your team must accomplish. And then create a master schedule showing who, how and when these projects will be completed (I like using a Gantt chart to do this).
To achieve maximum success in your business, create a business plan when you start your company, and annually create a strategic plan to grow your company.
The planning process will force you to focus on accomplishing the right things in your business. Since even if you execute flawlessly, if you are executing on the wrong strategies and opportunities, success will elude you.
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