Wisdoms of The Pricing Man


 

“It is not the business that earns a profit adequate to its genuine costs of capital, to the risks of tomorrow and to the needs of tomorrow’s worker and pensioner, that “rips off” society. It is the business that fails to do so.”


                                                                             - Peter Drucker, The Delusion of ‘Profits,’ Wall Street Journal, 1975


I was recently recommended a great book, Confessions of the Pricing Man How Price: Affects Everything by Hermann Simon, widely considered the leading expert on business pricing of all time.

Doubt this? Well, Mr. Simon is so renowned and respected as THE pricing guru that he has built a $300 million+, 32 offices (in 22 countries), 860 employee consulting firm focused exclusively on advising many of the biggest and most profitable companies in the world (including  American Express, BMW, Coca-Cola, Goldman Sachs,Grainger, LinkedIN, Skype, among very many others) advice on pricing strategies that maximize profitability and the customer purchase and consumption experience.

This "Win-Win" duality - that yes we can charge a profitable price for our products and services and that our clients and customers can feel good about it, is a simple but incredibly profound wisdom that the vast majority of businesses just don't get.

And not doing so costs them dearly.

Because in this Internet Age of ours - with no matter what businesses we are in or what we sell - there are thousands of competitors offering similar, comparable wares, far too often we are all seduced by the siren song that if we just lowered our prices...

...sales would increase and with greater volume “eventually” we would figure out how to reduce costs to make up for the lost margin.

Unfortunately, as Mr. Simon explains in his book, lowering prices is almost never the right strategic choice, and referencing the Peter Drucker quote above, makes the profound point that as business owners maintaining sustainable is not only a business imperative, but a moral one too,

To achieve and maintain high prices, Simon advises that as sellers we must 1) shun from our minds forever the "Engineer's Fallacy” that if we just build a good product “they will come" - i.e. that marketing and branding do not really matter and 2) to truly “get” that the buyer's pricing experience is decidedly not a one-time event at the moment of purchase, but an "experience over time."

And as that experience is a high quality one where our product / service delivers on its promises and confers emotional, psychological and social benefits that are important to buyers, then the price charged - no matter how high - will be experienced as a fair one for almost all buyers.

Let’s put this all into three quick ways to put these pricing insights to work right away:

#1. Buy and Read Simon's book.  It will change forever for the better how you think and act about pricing in your business.

#2. No time for that?  Then start thinking less about the features of your product and services (technical specs, input costs, delivery time, etc.)  and far more about its benefits (safety, prestige, sex appeal, contributing to the greater good, etc.). “Benefits Thinking” like this will immediately get us focused more on marketing and branding and less on operational costs and considerations.

(For a brilliant illustration on the power of Benefits Thinking, watch this video of arguably the greatest business strategist of all time announce and explain the launch of one of the most famous and successful marketing campaigns of all time).

#3.  No time for #1 or #2? Then just raise your prices! Reference my “Using the 20% Rule to Double Business Results” logic and challenge oneself to raise prices 20% this year, consequences be darned.

My strong bet, and Mr. Simon would most concur, that doing so will create a virtuous circle - happier customers at the moment of purchase and throughout their consumption experience, and more profits too.

Categories:
 

Resolving Buyer - Seller Tensions to Get Deals Done


 

For conversations around business financings and sales, there are natural tensions, of time, credibility, and trust, between entrepreneurs seeking to be financed/sold (“Sellers”) and the investors/acquirers that approached for $$ (“Buyers”).

And if these tensions are not resolved, a deal cannot get done.

Time Tension is the idea that our entrepreneur seller almost always seeks to have their business valued based on its future potential, while our investor / acquirer buyer seeks to price it based on past results.

Note that time tension is present no matter the stage or size of a business, from the startup raising its first round of capital to the multi-billion dollar public company explaining its quarterly earnings and giving guidance for the period to come.

Very importantly, it is almost always the sellers responsibility to proactively resolve time tension to move a deal forward.

First, this involves having clean, concise, and easy to access financial and company records (no matter how unimpressive they might be) available for buyer review, along with the ability to coherently explain why the results were what they were.

Secondly, it involves the Seller telling a Great Story of how results will improve in the future.

This great story must be both "Top Down" and "Bottom Up."  The Top Down story is a firm point of view on what one's industry and marketplace will look and behave like in the future (say in 3-to-5 years time), and then how our business is well-positioned to profit from this evolving reality.

A great example of this is Travis Kalanick, Founder and CEO of Uber, who communicates with amazing eloquence his view on the future of transportation and mobility, and then how Uber's growth plan is being evolved and executed upon to benefit from this evolution.

And our great story must also be Bottom Up, detailing as specifically as possible how people, technology and financial assets will be brought together in a cost-conscious and hard-to-duplicate way to execute upon our growth plan.

Yes, creating both great Top Down and Bottom Up stories is hard and doing so requires the expenditure of a LOT of brain juice by smart and dedicated people.

But doing so at a high level can be worth a LOT MORE in accretive value (like $62.5 billion more, as in the case of Uber) and as importantly is the only way to...

Bridge the Credibility Gap. As a default, Buyers believe nothing that Sellers give and tell them.

For past financial results, they ask who prepared them.

For financial projections, they ask where is the proof that its assumptions will come to pass.

For our “Top Down” opinion on where our market is heading, they ask based on what.

And for our “Bottom Up” operational plan, they ask us to show them evidence from our past that we can execute upon it.

And as we provide this evidence, they ask if we are still motivated and young enough to do so again.

Sellers must put their pride aside and really hear and empathize with these buyer doubts, and then patiently overcome via attention to detail and via extremely high quality thought and business presentation...

...and via a Pig-Headed Determination to repeat that business presentation over and over again until some buyer (and it often just takes one!) says yes.

Yes, Webster defines determination as "Willfulness infused with discipline."

Willful, determined entrepreneurs, who through their work ethic and discipline produce high quality business stories, and then repeat those stories over and over again...

...well they are the ones that the resolve the Buyer - Seller tensions of time and credibility, and build trust so deep that only a handshake is needed to get a deal done.

Categories:
 

Modern Selling: Challenge Yourself to be Great (4 Things to Do)


 

The stereotypes of what makes a great salesperson - a "silky charmer," a “smiler and dialer,” a “closer” etc. - are really not characteristics of top sales performers anymore.

In fact, it probably makes sense to retire the term "salesperson" altogether, as it has become too corrupted with negative connotation to be useful to describe the kinds of professionals companies need to represent their products and services and drive top line results.

A term I prefer (which I partially borrow from Brent Adamson’s excellent piece on the topic) is “Challenger Rainmaker.”

Challenger Rainmakers challenge everyone in their orbit - customers, prospects, colleagues, their managers, and above all else themselves to be their absolute best selves every day in every way by focusing on these Four Things:

#4. Relationship. Our Challenger Rainmaker comes to each and every interaction - whether it be in person, on the phone, via email / text / social media - from a profound place of empathy and respect for their prospects and clients.

While of course upbringing has the most pronounced impact on this personal characteristic (is there anything we more fundamentally learn from our parents?), company leaders and managers that model these values greatly influence the likelihood of their importance being stressed at the level of prospect and client interaction.

And with authentic relationships arrived at from a place of integrity and respect, our Challenger Rainmaker then focuses on...

#3. Process. Directing a decision-making process that moves, in the words of legendary UCLA basketball coach John Wooden, at a “quick, but unhurried speed.

This means that every communication is concluded with the “What are the Next Action Steps?” questions, along with elegantly but firmly insisting that the answers to those questions be given in a timely and complete manner.

Those answers can be as simple as agreeing to the time for the next call, and as complex as organizing multiple parties to move with velocity through the complex process of getting from a meeting of the minds to a signed agreement.

While empathy may be the guiding emotive state for the relationship mindset of our Challenger Rainmaker, when it comes to process "Tough Love" is.

Our Challenger Rainmaker is relentless, both because he or she cares, and because they believe in the value of what they are doing, which leads to their next characteristic...

2. Our Challenger Rainmaker gives Consultative Value-Add in each and every conversation.

This is a commitment made on many levels - of the genre that “There is No Tomorrow" and so with everything we do and say our goal is to be an Additive Force for all who we meet.

And it is a commitment to work and study long and hard to Know Our Stuff, and thus be able to actually add value.

Knowing our stuff, in our intensely competitive modern environment, is both a lifelong and an “after hours” commitment - i.e. we always should be learning and doing so beyond our “Nine to Five” job descriptions.

And when Our Challenger Rainmaker combines a deep commitment to relationship, with professional process, with being of the mindset to add value always and to learn and grow well beyond the 40 hour work week, what naturally follows is...

1. A Burning Desire to Win. To win for a lot of reasons, because we believe in the value of our products and services and the mission of our organization, to win because we deserve to for all of our hard work and to win because winning is a lot more fun than losing.

Winning, from a place of relationship and hard work, and accomplished through professional process that has real value-add in and of itself...

...heck is there anything in business sweeter than that?

Categories:
 

Business Lessons from Trump, Sanders et al


 

With the Iowa Caucuses this coming Monday and the New Hampshire Primary a week later, this is crunch time in both the Democratic and Republican Presidential Nomination Races.

And whatever your politics, as business people we can learn a lot in these next two weeks from how the leading candidates sprint and compete hard for votes and momentum.

So as you are watching the election coverage, don’t just get upset by all of the rhetoric but also learn from these winning political strategies and mindsets that can be put to great business use right away:

5. Nothing is Immutable to Hard Work. As voting days approach, watch for the vastly increased personal effort of the candidates, with “Dawn to Dusk and Beyond” full throttle campaigning the expectation and norm. Yes, whatever you think of their motivations, politicians right before elections, like coaches preparing for a big game, are excellent role models in “lengthening the day” and cranking up the energy in pursuit of victory.

4. Simple Messaging is Effective Messaging. Whether or not you agree with their styles and policies, note that the favorites to win in Iowa and New Hampshire are Bernie Sanders and Donald Trump, who in turn have by far the simplest and most emotionally visceral campaign messaging.

For Sanders, it is the always popular theme of income inequality, and for Trump the equally time tested one of cultural identity and fear of "the other." For our business purposes let’s not focus on the rightness of these positions and instead reflect on how our customer and prospect messaging can be simplified and better aimed at "the gut" versus the analytical mind.

3. Repeat, Repeat, Repeat. As responsible businesspeople, we often feel the need to "change up" what we're saying because a) We feel that if we have already told someone something, that it is rude to repeat ourselves and b) especially for the creative entrepreneurs among us, saying the same thing over and over again is boring.

Politicians feel no such constraint. Coming back to Sanders and Trump, not only do they keep their messages simple and visceral, but they repeat these messages over and over again. (Heck, Bernie Sanders has been saying pretty much the same thing for over 50 years!)

The old marketing adage that a message needs to be heard seven times before it starts to stick probably underestimates the needed touch points in our massively distracted, low attention span technological age. So when in doubt, have faith that more frequency almost always trumps less.

2. Cater to Your Niche. While in a general election, the candidates are tasked with crafting messaging that appeals to a broad and diverse electorate, in primaries the winning strategy is as often as not to cater to the more “extreme” voters, who also are usually the most animated and engaged, and thus command a disproportionate influence on the result.

Similarly, in business, the value of our most enthusiastic customers - the Harley Davidson riders that tattoo themselves with the company's name, the Apple enthusiasts who sleep in line outside of a store to be first up for a new product release - should never be overlooked.

These kinds of customers do something far more important than buy our products and services, they validate us and the value we bring with a level of authenticity and credibility that we as “conflicted agents” can’t ever match.

1. Re-Frame Everything as a Positive. Yes, it is partly an act, but no matter their poll numbers or how little money they have in the bank, between now and the voting all of the candidates will project a positive and winning air.

And if they lose, in their concession speeches they quickly “spin” the defeat into a positive - i.e. they did better than expectations, they made an important contribution to the debate, etc.

Yes, it is only natural to be discouraged by setbacks, but being effective means moving with velocity through those setbacks and quickly pivoting to that next challenge, that next race, that next sale.

So let's put the cynicism aside and no matter our politics both commend and learn from the effort, messaging, and resilience of the various candidates in this their truly “Crowded Hour.

Categories:
 

That Quality of Certainty


 

Perhaps the most underrated of Steve Jobs' many talents was his maniacal ability to be totally convinced that whatever business position, opinion, or strategy that he was holding at a particular moment was the 100% right and righteous one, that all who disagreed with him were fools and/or ill-intentioned, and that everyone at Apple had to right away rally around (and do so 24/7!) his suggested course of action.

And Steve Jobs could, would, and did regularly change his mind on these opinions, strategies, and suggested courses of action, often to diametrically opposed positions in just a few days time and every time he did...

...he then held that new view with the exact same if not more fervor than the point of view so recently discarded.

While some would call this lacking in solid beliefs, chameleon-like, and just all around not to be admired, This “Quality of Certainty,” when arrived at without guile and from an authentic place, is a powerful executive management and leadership trait.

Words to describe folks like this: Charismatic, Enthusiastic, Persuasive, Change Agents.

And resilient too, possessing of that inspirational knack of re-framing obstacles and rejections as the fault not of themselves but of the “other,” and thus both able to bounce back quickly from adversity and be energized and not drained by setbacks and difficulties.

So how does an executive develop more of this Certainty and put it to use in his or her business?

Well, first by accepting, as with all personal qualities, that some people are more naturally possessive of it than others, but equally so that it can be developed through practice, focus, and modeling of those with the quality in abundance.

Secondly, by repeatedly taking the time too convince and "sell oneself” as to the righteousness and value of our business proposition. And when we just can’t bring ourselves to do it for our current line of work, then to know it is time to find it for something we can.

And, finally, by being careful to not equate a general energy drain with lack of business conviction.

This is true now more than ever, as the technology of our modern life that requires us to be “always-on” inevitably dents our spirit and dampens our spark.

So take time for downtime, off the grid, and away from the maddening crowd. And be pleasantly surprised by the certainty that will naturally bubble up for what we are doing, saying, and offering right now, right here.

Categories:
 

Breakdowns Leading to Breakthroughs!


 

In my work I often get to lead strategic and business planning sessions and retreats with some amazingly dynamic and thoughtful entrepreneurs and executives.

These past seven days have been particularly rich in this regard.

Last week, I led a retreat day for the executive management team of one of California's and fastest - growing construction management firms, and on Monday did so for one of the oldest receivable management agencies in the world.

These sessions follow a common pattern: A company’s leaders set growth goals, for sales, profits, company value, and/or on a company, division, product/service basis…

…and then together they grapple with both their realism and the marketing, sales, operational, and financial challenges to be overcome to achieve them.

Through this process, the original goals are revisited, adjusted up or down (or completely rethought!), and almost always brought into plain daylight is the need for profound change - organizationally and at the individual level - for there to be any reasonable probability of their achievement.

There is a common energy dynamic to these sessions that was best described at a famous (or infamous!) empowerment seminar I attended many years ago:

Breakdowns Lead to Breakthroughs.

No matter the industry, the age or level of success or sophistication of the executive group, inevitably the course of a serious strategic discussion follows a “peak to valley to peak” flow like this:

The Opening. The session starts, the group is fresh, full of enthusiasm, energized by being together and by the yet to be discovered business possibilities.

The Breakdown. The first blush recedes, the discussion turns to considerations (of time, money, talent) and of obstacles - competition, market/customer apathy, operational inefficiencies.

Energy drains from the room, creases of doubt and worry spread.

The Breakthrough. When hope is about gone, someone suggests something…

…an idea, a strategy, a new way of approaching/defining/verbalizing the opportunity, the selling proposition, the competitive advantage.

The suggestion is taken up by the group, augmented, permutated, solidified. Heads nod, eyes lock, adrenaline surges.

The group arrives, miraculously, to another place. Different from what had been anticipated for sure but usually far more actionable.

Let me say it again: this emotional “roller coaster" is common to almost all strategic gatherings, and I would venture to say that without it the ability of a group to define and commit to the business action plans that flow from the discussion is limited.

A common question asked is, "How long must we be in breakdown until we get to breakthrough?"

The answer of course, is it depends. Sometimes the breakdown is only a matter of minutes, other times it lasts months.

However, a good measurement of an executive’s effectiveness is his or her ability to get to and move through breakdowns rapidly.

Is it better to have strategic sessions led by an outside facilitator or done in-house?

Well, just like all Olympic gold medalists that have great coaches, so do great business leaders have advisors that help them move through breakdowns and to breakthroughs faster.

So do strategic retreat and planning sessions often and right, more breakthroughs will be had and your business will soar.

Getting to all this is worth a breakdown every now and then, isn't it?

Categories:
 

Using the 20% Rule to Double Business Results


 

In last week's post, I described The 20% Rule, where by improving four key business processesby just 20% each leads to results doubling. 

What I love most about The 20% Rule is how it allows us to set big Stretch Goals, and then focus all our business energy on incremental, ongoing improvements to reach them. 

So what does process improvement at a 20% clip look like? It is even easier than it sounds, requiring a mere 2% monthly improvement over the course of a year to more than exceed it.

So why do most of us fall short? I would point to three main reasons:

1. We Don’t Know What to Fix. Thoreau once famously said that “The unexamined life is not worth living."

Likewise, the unexamined business is not worth having - and nicely, those businesses that stay unexamined won't stick around for long anyway!

So before even figuring out what to fix, let’s just make a firm commitment to connect all of our important business processes (marketing, sales, operational, financial, etc.) too easy to measure Data Points and Metrics.

My experience is that doing just this gets us more than halfway to any process improvement goal.

2. Become a Better Fixer. Business, like sports, is a highly competitive undertaking, with many talented players and teams, reaching for the same, brass ring.

And just like athletes must constantly train and practice, so do entrepreneurs and executives need always to work on maintaining and improving their “Business Games,” with skills to rigorously develop and be great at for the 20% rule including:

●    The ability to collect data (see above)
●    The ability to interpret data - i.e. understanding what data represents in “Three Dimensional” business terms
●   From these interpretations, the business “creativity” to arrive at plans and solutions to improve results
●    The Will to Act (enough said)

3. No Egos Allowed! The 20% Rule requires us to check our egos at the door and accept which of the above we aren't great at and ask for help.  Help, with an authentic desire for it coupled with an inspirational mission and persona, is easy to attract and get.

This is a well-known secret of all successful people, to understand and stay within one’s Circle of Competence.  John Paul DeJoria, billionaire co-founder of the Patrón Spirits Company explained it best:

"Do what you do best and try to find others who can fill in by doing the things you are not good at. For instance, I am terrible at details — accounting especially, so I hire accountants to help me. This frees me up to focus on the things I do excel at and I can run a more efficient operation."

So let’s set big Stretch Goals, break them into 20% Attainable Goals, and then incrementally reach and exceed them via measuring what needs fixing, becoming great fixers, and getting help when, where, and as we can.

[Click Here for a complimentary consultation on how to identify and improve your four key business processes by 20% each to double results in 2016]

Categories:
 

In Business, Winning through Losing


 

This weekend, the youth soccer team I coach suffered a heart-breaking loss in our league’s championship game. In addition to losing the game in its final moments, to add insult to injury, we did so on an incorrectly called penalty kick!

The loss was emotionally hard on our players, parents, and on me as the coach, as we all played back in our minds and in conversation how things could and should have gone differently and of the unfairness of sports where luck and circumstance often play outsized roles.

And while we all of course prefer winning to losing, losses - especially emotionally impactful ones and ones after we have practiced and played our absolute best and came up a bit short…

…well these kinds losses can be transformative.

Some of the reasons why are cliché, but real nonetheless – we learn that we are way more resilient than we think and that we can get "Off the mat and back into the ring" no matter how hard we have been knocked down.

But the “lesson from losing” that I like best is how it puts a cold and harsh spotlight on those areas where we need to improve if we are to win the next time out.

And boy-oh-boy, does this lesson apply to business or what?

Because in business, the losses always outnumber the wins.

In marketing, no matter the channel, the vast majority of our target audience doesn't respond (For e-mail, a 97% non-response rate is considered excellent).

The best salespeople lose two out of three of the deals they pitch and in some industries losing nine times out of ten is considered world-beating.

And once clients are secured, when the standard is as it should be of making them "raving fans" and "evangelists" of and for us, how often do most businesses win at that?

How about winning financially? How many business grow at a rate and profit to an amount as defined by plan? And sorry folks, if we we’re not doing this, then that’s called losing.

Yes, in business, losing is our constant companion.

Now, the most successful and effective entrepreneurs and executives I know are by no means so talented and brilliant that they just win all the time, as much as they are far better than their competition at learning from their losses.

They only take losing personally when it serves them to do so - to be so peeved by it that they commit to work more energetically and creatively to win the next time.

They “inspect” their losing - critically and analytically parsing it to its smallest detail, and then making the technical corrections to incrementally decrease its likelihood of doing so the next time out.

And they recognize the overriding importance of that next time.

Because businesses, like athletes, are not valued on the basis of their past performances - no matter how glorious they might have been - but on their future prospects.

And so yes, we should hate to lose. And grieve over it when we do.

But we should also laugh at it for what it really is: An irrelevant relic when it comes to pursuing and achieving our future success.

So the next time the breaks of the game and/or of the Board Room don't go your way, shed a tear or two for sure because it is normal and healthy to care.

But only shed a few and do it fast, because the next game, the next opportunity, the next pitch is just waiting for you to step up and hit out of the park.

Categories:
 

For Your Business, 7 Ways to Make It an Awesome Holiday Season


 

The most inspirational entrepreneurs and executives truly “have it all,” throughout their years and especially so during the holiday season.

They enjoy the blessings of the season that those that work hard in building and leading businesses so richly deserve….

while developing a steely resolve and a solid plan to profit from the awesome opportunities and possibilities that the New Year is sure to bring.

Here are seven ideas on how to really have our cake and eat it too these next few weeks.

#7. Complete 2015. Before the New Year can truly be started, the old one needs to be closed out.

For sure, this often involves administrative, accounting, and other practical matters.

But it also means appreciating the accomplishments and the victories of the past 12 months, and fully mourning the things not done and the defeats.

Celebrations, in the form of holiday parties and travel and technology “sabbaticals” (Getting off the grid!) are great ways to do both. Quite simply, the benefits of taking the time to "sharpen the saw" through closure should not be underestimated.

#6. Stop the Beeps! Every year it gets more difficult to find the "Signals in the Noise" and distinguish frenetic activity from actual accomplishment.

The sometime melancholic end-of-year energy is tailor-made for taking stock, reconnecting with the mission and vision of one’s enterprise, and reflecting on where we wish to go in the New Year.

So like they say now at the movie theater before the start of every film, this holiday season when those never ending texts and e-mails hit, respond with a deep breath and say "It Can Wait."

5. Get Data. Reflection and a mission-focused mindset are great, but when combined with accurate business metrics and data-driven decision making, magic happens.

Proof of this will come to many of us in the next few weeks in the form of a little (or hopefully big!) brown box. From Amazon.com. 

A company that has built an ecommerce empire nonpareil by combining an overriding mission on the needs and wants of the customer with an otherworldly command of its business data and analytics.

Be like them.

#4. Get Help. This is a golden age of advisory firms that help organizations of all types and sizes find and follow their best and most profitable paths.

The best advisors now combine the complementary aspects of the “CEO Whisperer” approach with the technology - enhanced strategic planning disciplines of traditional management consulting (McKinsey, Bain, BCG, et al).

Just like the best coaches help the best athletes run faster, so do great advisors help organizations succeed more and better than the competition.

#3. No False Choices! False choices are “logical fallacies that involve situations in which only two alternatives are considered, when in fact there are additional options.”

And for many entrepreneurs and executives around the holiday season, false choices abound.

Like business or family - very many of the most successful entrepreneurs and executives have more than enough time and energy for both.

Like ethics or winning - in this completely transparent Yelp, Reseller Ratings, BBB online world world of ours in the short term some folks may “get away with it” but in the long run only the ethical survive and win.

#2. Think Big!

"Make no little plans; they have no magic to stir men's blood and probably themselves will not be realized. Make big plans; aim high in hope and work."

-       Daniel Hudson Burnham

 A fresh, open and inviting year is about to be left in all of our care.

 Why not do something big and grand and great with it?

In so many ways, all great breakthroughs have, as their original seed, a childhood imagining.

Let's use this time of year to re-connect with the sense of awe and wonder of our youth.

And to dream about doing and being something far bigger than we have ever before.

#1. Focus on Opportunities NOT Problems. My favorite of Peter Drucker's Eight Practices of highly effective executives is one of the greatest gifts we can give ourselves.

Focusing less on what we don't have and what we can't do, and more on what we can and will.

We live in the most magical, global business opportunities – filled time in human history.

Let's go out and grab them!

To an Awesome Holiday Season for You and Yours!

Categories:
 

Selling Services Overseas: A Happening Gold Mine for U.S. Small Businesses


 

Shrouded in the drumbeat of negativity that passes as international business reporting these days has been the bursting growth in U.S. Service Exports – increasingly from U.S. startups and small businesses.

Contrary to the image of imports and exports being only “stuff” flowing in and out of places like the Port of Long Beach, last month the Census Bureau noted that services accounted for 32%, or $60.3 billion of total U.S. exports in August.  And unlike our huge “hard goods” trade deficit, in the value of U.S. service exports is 47% greater than that of imports, and growing.

Business, professional, and technical services are now the fourth largest U.S. export category, and represent close to 15% of global commercial service exports, making America hands-down the world’s dominant service exporter.

Of many, let me flag three main drivers:

1.    Purchasing Power Parity. Purchasing Power Parity (PPP) posits that with free-flowing markets wages and prices worldwide approach parity.

Protectionist types interpret this to mean that “our wages will get pushed down to “their” levels – or more viscerally, “if this keeps up we’ll all soon be making $2 dollars per hour.”

Well, let’s leave for now the huge economic fallacy of this thinking and concentrate on the fact that the narrowing of the relative wealth differential between the U.S. and the rest of the world has allowed for phenomena like a Ukranian manufacturing company hiring U.S. advisors to help them define strategic growth opportunities in Poland and Eastern Europe

Why? Because on a dollar-for-dollar (or better yet, hrvnia-to-zloty) basis, it was a better value for them to import services like these from the U.S. then to purchase them locally.

2.    U.S. Services are Increasingly Exportable. The drumbeat always goes on how “we here in the U.S. don’t “make anything.” Well, beyond the fact, that as I note in my “Made In China” post that very few Americans dream that their children will grow-up and work in a factory, we here in America “make” the most important stuff that has ever existed and we do it better than any society has ever done so.

That stuff? Ideas and Innovations. Strategies. Or more prosaically, Brands. Websites. Entertainments in all their wondrous forms – Movies, Video Games, Social Networks.

Even our favorite whipping boy industry – financial services – continues to bring us world-bettering innovations like Venture Philanthropy (i.e. applying market principles to solve the world’s humanitarian challenges), Super Angel Funds (overcoming the “outlier” or “Black Swan” conundrum of startup investing) and Crowdfunding (democratizing fund-raising and investing in ways never before even dreamed possible.)

3.    We are all Transparent. Perhaps my favorite, namely that business best practices worldwide are visible and replicable to and for all.  And the corollary, the really screwed-up and ineffective ways of doing things are totally transparent too.

From lists like the “Most Business Friendly” countries to California now having a portal where parents can see teacher’s ratings to the U.S. Senate studying Chinese Technocrats to the simple reality that the Internet makes it crystal-clear to all who is winning and losing in the world (see North Korea, Iran, etc.), transparency breeds competition which breeds innovation which breeds the cream rising.

And who, when it comes down to doing business right, is the richest cream, the sweetest soup?

It is, of course, U.S. startups and smaller and emerging companies.

And as they, like the U.S. economy as a whole, continue to become increasingly services-focused, the best of them will continue to profit handsomely from the world of selling opportunities growing all around them.

Categories:
 
Syndicate content

Get a Free Consultation
with a Growthink Expert

Click Here