Sage Summit Sessions

A few Sage business partners have inquired as to what sessions I am doing at the upcoming Sage Summit customer conference in Atlanta next week.

Without further ado, here they are:

Tuesday, November 10, 2009

Time

Session

8:30 AM – 9:30 AM

GEN02 – Altruism, Profit, and the Basics of the 7S Model

11:00 AM – 12:00 PM

GEN03 – Creating Shared Vision

2:15 PM – 3:15 PM

GEN04 Creating Strategy in a Small Business

 

Wednesday, November 11, 2009

Time

Session

8:30 AM – 9:30 AM

GEN05 – Initiating Projects in a Small Business or Small Team

11:00 AM – 12:00 PM

GEN06 – Building Community: A New Paradigm

2:15 PM – 3:15 PM

GEN07 – Fundamentals of Strategic Pricing

 

It would be my honor to meet your customers, so bring them by if you can.

Ed’s Top Ten Business Myths

While going through some old notes I found this list I developed of the top ten myths in or about business. Without further ado, they are:

1. Business is a zero-sum game

2. Price is based on cost

3. Excessive profits must be because the company is doing something evil

4. Increasing market share leads to increased profitability

5. Any focus on efficiency

6. Leadership is about changing others

7. Strategy is about analyzing, planning and doing

8. Business is science, and requires data to back up decisions

9. The customer is always right

10. Differentiation can be achieved by saying you are customer focused

Do you agree or disagree with any or all of these? If so, please comment.

“Not for the Sake of Ambition” – Oh, Please!

One parenthetical phrase from President Barack Obama’s eulogy for Ted Kennedy made me cringe – “Not for the sake of ambition or vanity; not for wealth or power; but only for the people and the country that he loved.”

I write this not as a criticism of the President or the deceased Senator, but of the attitude it conveys. First, it is blatantly false. No one without any ambition runs for the Senate or Presidency. Second, it raises an idea that I find disturbing, namely that political or governmental service is somehow more noble than economic service.

This idea is a derivative of zero-sum thinking about wealth. It encapsulates the idea that those in business are somehow stealing wealth from others and that those in government are there to prevent any massive accumulation of wealth by one person or a small group of people. What they miss is that while governments do not create wealth, businesses and individual do. Governments are instituted to allow for wealth to be created by protecting those that create it from the masses who would try to take it from them.

In short, they have hopelessly and irrevocable confused cause and effect.

A Review of The Israel Test

Even the thought of summarizing the premise of George Gilder’s new book, The Israel Test, causes my mind to reel.

To attempt: The cause of the conflict between Israel and the neighboring Arab countries is not religion (although there are certainly elements) nor racism (although there are certainly elements), but rather it is caused by envy. Israel, in the 60 plus years of its existence, has been extraordinarily successful and the perception is that it has done so by taking from the Palestinians. In short, the conflict is about the zero-sum thinking of demand economics versus positive-sum thinking of supply-side economics. It is about the jealousy felt against people who have attained success and the belief that the only way they could have attained that success is by taking from others.

“The real issue is between the rule of law and the rule of leveler egalitarianism, between creative excellence and covetous ‘fairness’,’ between admiration of achievement versus envy and resentment of it,” Gilder says.

In Part One, Zerizus, Gilder, in his best and most brilliant prose since Wealth & Poverty, develops this premise and destroys any and all arguments against it. He posits his Golden Rule of Capitalism – The good fortune of others is also one’s own. One of the troubles with government, indeed with even democracy, is that government (transfers of wealth) and democracy (elections)  are zero-sum, while the economic system, capitalism is positive-sum. This influences the thinking of all leaders in democracies that they need to create an equity of outcomes, not just an equality of opportunity. He terms these people, “handi-capitalists!”

In Part Two, Israel Inside, Gilder introduces us to Jewish and Israel scientists and entrepreneurs who have had a profound influence on the world as we know it and a few, who he believes, are about to have even great influence. Intel’s latest microprocessors, they are coming from Israel; Petaflop networking, from Israel; Wireless high-definition interface standards, from Israel; Algorithms which map the human genome, Israel.

In Part Three, The Paradox of Peace, Gilder puts forth his by far most controversial and thought provoking  postulate – the Peace Now movement inside and outside  Israel, condemn themselves to Peace Never. Gilder quotes Nobel Laureate Robert Aumann, “If you want peace now, you may well never get peace. But if you have time – if you can wait – that changes the whole picture; then you might get peace now.” Gilder states, “Peace requires the imposition of penalties on aggression.”

Simply said, The Israel Test is not a easy read, but it is absolutely a must-read.

Thinking About My Dentist

What if you would refuse to accept any new customers unless they were referred to you but another customer? Would your leads dry up? If so, your new business problem is not marketing related, it is your service. FIX IT!

The lesson here is that if you are not getting active referrals from customers, your service ain’t great. The only thing more customers is going to do is put you out of business faster.

Imagine if your new customers, like my dentists, come from 100 percent referral sources. Do you think you could charge a premium? Do you at least think that discounting would go away?

It is time to take some stock and ask – Are we really as good as we think we are? If not, it is time to fix your service.

Praise for the Accounting Profession

One thing I have always been impressed with from accounting firms, specifically the larger ones I have had contact with, has been their ability to create alumni networks that drive real value for them. Now, it certainly is true that this practice has caused some challenges by creating some possible personal conflicts of interest. However, I think for the most part, this is a great idea.

Too many businesses I have encountered tend to blame the person who has last left the organization for everything that has gone wrong at the firm from the creation of the world (a literary flourish, I believe in the Big Bang) to date. This is especially true if the person is fired, but it occurs with all too much frequency when the employee is leaving of the own volition.

“Oh, that Fred (I always use Fred), I am glad he left. In retrospect, he caused more problems than he solved.” Blah, blah, blah. To me this kind of trash talk is indicative of leadership. If this person sucked fowl ova so badly, why didn’t you get rid of them long ago. I think that what the person is really saying is, “Damn that, Fred, how dare he leave us. We are a great place to work.” Really? Do some soul searching.

Anyway, back to the praise.

Accountant do an outstanding job of placing people with their customers and even to some degree encouraging these types of moves. After all, if the person is unhappy, for whatever reason with your company, isn’t better to have them as a ally in the future.

If you are someone who has been critical of former employees, why not turn over a new leaf and plan an alumni BBQ at your house over the summer.

Thoughts on Pricing with Confidence

Executive summary (and Amazon.com review)

image Reed Holden and Mark Burton’s Pricing with Confidence makes the complex topic of pricing strategy understandable and usable to businesses of all industries and sizes. Many of the examples are easily transferrable from one industry to the next. Their approach is logical and rational and can be adapted to a sole proprietor with an entrepreneurial idea to the largest of companies. The only thing, I severely disliked about the book was the poker analogy which runs throughout the book. Business, unlike poker, is not a zero-sum game. I understand the analogy they are trying to make, but, in my opinion, it detracts from the overall value of the ideas presented.

Important ideas in the book

Develop and offer options. Having at least three options with different value propositions positions the organization to make fewer concessions during negotiation. When a prospect balks at price you can always direct them to a lower cost, but lower value (to them) option. Companies should establish a “walk-away” price for your lowest priced option. This assists in making sure you do not take on a bad customer.

Create a good “fence” between options. A fence is the way to protect one option from the other by providing a clear trade-off of price and value between the options. Well developed fences will make sense for both the customer and provider. The most utilized fence strategy is bundling. When you bundle, if a customer asks for a break down, you should explain that while you could provide that for them, the overall price will be higher.

Setting price is one of the most difficult decisions leaders and managers can make. The strange thing is they often delegate it to others including allowing competitors to be a large influence on price. Price competition (price war) can only work during the high growth phase of a business’ life cycle. At any other time, price competition is never a sustainable business model. Lowering price is the least sustainable competitive advantage.

If you discount to meet the numbers, you will inevitably kill your long-term profitability. It should not come as a surprise that few businesses (if any) have ever created a long-term profit strategy around discounts. Discounting demolishes the self-esteem of the sales force to the point that they themselves begin to question the value of the very products and services that they are selling. This is poison to an organization.

Business must focus on creating greater value for customers. Companies that focus on value, in dollars, delivered to customers are more profitable. Talking about anything other than real financial value is just noise.

Great new term: discount creep – the propensity of a company to begin discounting for good reasons and having it then become systemic. If you must discount by all means measure it. Holden and Burton suggest creating a “discount bucket” that is only allowed to be emptied over a certain predetermined time period.

Pervasive discounting is usually a function of poor customer selection. The authors cite a study which says that 79 percent of business-to-business companies respond in some way to all prospective customers. Going further they posit that there is not just an 80/20 rule for customers but a “20-225 rule.” 20 percent of customers account for 225 percent of the profit. Yes, kids, this means that 80 percent of customers account for a 125 percent loss.

There are only three, count ‘em, three, pricing strategies: skim, neutral and penetration. Skim only applies when you are clearly differentiated from your competition. Chances are, unless you are Apple, you are not clearly differentiated. Neutral pricing is used when you want to compete on something other than price. Penetration pricing is used when you want to establish a dominant position in a new market place.

There are four, count ‘em, four, buyer types: price, value, relationship and unknown (OK, they call these guys poker players, but I dismiss the analogy). Aside from the poor term, the book is worth reading just for this deeply developed idea.

Most companies think they sell to price buyers, they are sadly mistaken. The following sentence clearly excludes all professional knowledge firms from thinking they deal with price buyers – “Price buyers are very careful not to let themselves get committed to any particular supplier by making sure they have no switching costs.” Emphasis added. This is clearly not the case for professional knowledge firms. If all of your customers look like they are price buyers, it is because your sales force is not establishing trust during the sales process.

You need to be paid for your high value knowledge as soon as you begin providing it. The trouble is usually some demonstration of knowledge is needed to get you in the door. Their suggestion is to set a minimum price for knowledge.

A great strategic question for a company to mull is “What can will do (other than discount) that would force our competition to react?” Answering this question is not easy, but it does get to the very heart of innovation.

In conclusion

I thoroughly enjoyed this book and looking back on it has made me realize what an impact it made on me. Many of the ideas listed above have come to the forefront in my coaching conversations with Sage partners. It is clear that this book will continue to influence my thinking for years to come.