Way to Grow

What Does It Take to Keep Customers Loyal?

Most companies can potentially get repeat business from the same customer. If you sell a product that needs to be replaced with some frequency, your revenue stream benefits when customers come back and buy from you over and over. Even if your product has a long life, there's every reason to hope customers you have treated well may return and buy again. It all depends on whether you have earned customer loyalty.

I've had customer loyalty on my mind a lot lately, in part because a market researcher friend, Jennifer Berkley of The Insight Advantage is a a real customer loyalty advocate. (I even wrote a post on her blog on "Why Customers Defect" last fall.)

It costs a fraction in terms of marketing dollars to retain an existing customer compared to what it costs to land a new one. The relatively low retention cost is simply the cost of good customer service.

That's all easy to grasp. But what makes customers be happy, loyal customers? Turns out it may depend on gender! The American Marketing Association Journal (AMA) reports that:

"Female customers are more loyal than male customers to individuals, such as specific service providers (e.g., a hair dresser, a doctor, a salesperson). However, the difference is reversed for groups and grouplike entities, such as companies. That is, men tend to be more loyal than women to companies and organizations (e.g., a hair salon, a medical clinic, a store)."

Given those findings and depending on who your target customers are, think about tailoring your customer service and marketing efforts differently -- by gender. Specifically, the study concludes:

1)  Male consumers may be satisfied with an anonymous relationship with a store or chain, but female consumers demand more personal, one-to-one relationships.

2) If the company targets female rather than male customers, the power over the customer relationship should be more with individual employees and less with the company. For companies with a large share of male customers, strategies such as the rotation of employees or assigning a team rather than one employee to a customer may be more successful than for a company with predominantly female customers.

3)  For companies targeting men, advertising strategies stressing group themes should engender more loyalty. For companies targeting women, advertising themes focusing on personal relationships may be more suitable.

Be clear on who spends money with your business. If it is 50-50 male and female customers, be prepared to address both genders on their own terms for best customer retention.

Tip of the hat to Rohit Bhargava for pointing to the AMA Journal post.

Collected Wisdom on Entrepreneurship

There seems no end to lists of tips from entrepreneurs out there, but every now and then you find one that is so real and right you need to share it with others. I came across this list of 26 "random thoughts on being an entrepreneur" from Gaping Void, and felt the need to pass it on. As it turns out in the comments, different ones resonated with different people. Here are my favorites:

10. It’s better to be underfunded than overfunded.

14. Smart, young, artistic people are always asking me which is a better career path, “Creativity” or “Money”. I always answer that it doesn’t matter. What matters is “Effective” and/or “Ineffective”.

16. People will always, always be in the market for a story that resonates with them. Your product will either have this quality or it won’t. If your product fails this test, quit your job and go find something else. Just making the product incrementally cheaper or better won’t help you.

18. People remember the quality long after they’ve forgotten the price. Unless you try to rip them off.

Thanks, Hugh MacLeod, for your insights.

Need to Get Out More?

A potential vulnerability for entrepreneurs is to get so bogged down in running the business that they forget to look around and see what is happening with their market. Yesterday, I heard Burt Hamner, CEO of clean tech startup HydroVolts speak. Burt talked about the importance of "prairie-dogging." He was reminding his entrepreneur audience about not spending all their time underground and failing to pop their heads up out of the hole every once in a while to see what it's like outside.

You undoubtedly get a sense when business isn't flowing in quite the same way it did some months back. Maybe that's good. Maybe not. Either way, it is valuable to understand what is changing. Are there new competitors? Is there a potential new application for what you offer? Are market conditions shifting, and if so, what is causing that change?

Even if you are extremely busy, make some time to do some prairie-dogging! Attend business community and/or industry meetings. Get out and network. Read relevant articles, blogs and tweets. Consider it an investment of your time that can bring healthy returns.

Why Consider Your Exit When You Are Just Starting?

There are a myriad things to consider when you start a business. Just the details of getting the business off the ground can be daunting, but you also need a vision and a plan for how you're going to grow. So why on earth would you even think about an exit strategy when you're launching a business?  Marty Zwillig provided some important insights in a recent post Every Startup Needs a Positive Exit Strategy. Key word here is "positive".

Zwillig reminds us that if you have investors they will want, in due time, to see a return on their investment. So there is one exit point to keep in mind. Another is that it is somewhat less fun for many entrepreneurs to run a company after it gets past a certain size (he suggests 50 employees), and entrepreneurs start dreaming up new businesses to start. OK, so you're nowhere near that, but it will make your business decisions smarter as you grow, if you have some idea whether you will eventually:

• Merge or be acquired
• Go public
• Sell to an individual
• Hire someone to run your profitable business and move on to something else
• Close the doors

It's not a bad thing to have a plan to simply liquidate and close in the event of some dire unplanned circumstance. Of course you'd rather that never happen, but as Zwillig points out, people didn't plan for 9/11 or a collapsed real estate market either. The main thing is, simply have all these possibilities in mind, and plan how you'll do it when things go your way.

Decision-Making Time

I'm pondering decisions about how best to use my time in 2010, so I was struck by a recent post from Terri Lonier on her Working Solo Minute. It would not surprise me in the least if many entrepreneurs are thinking about what to do differently as they face yet another potentially difficult year. Lonier's advice isn't entirely the usual type of business analysis that people recommend. She goes another layer deeper:

Here are her thoughts (abbreviated a bit, but in her words):

1. Where's the energy?
We can draw up the pro-and-con lists, articulate rationalizations, and craft logical arguments. But we cannot deny another question, posed to me by a close colleague: "Which option gives you the biggest energy jolt?"

2. Where's the future?
Pull out a pencil or favorite marker, some blank paper, and chart out the possibilities...[create] a map of possibilities. If "a" happens, then what are the potential "b" futures? Or, if "x" is pursued, what "y" opportunities (or limitations) emerge?

3. Who's in charge here, anyway?
It's valuable to solicit feedback from multiple parties, particularly those who may have very different views than your own. Their insights bring new perspective to your thinking. It's crucial, however, to be clear on who makes the final evaluation. Only you? In concert with a spouse or life partner? Others?

All three are important to consider. But to my surprise, #1 keeps jumping out and influencing me. I believe the reason many people procrastinate about making decisions is their failure to come to terms with where their "energy" wants them to go. If it's your decision alone, you might want to listen to #1.

Be Up-Front about Bad News

First of all, let me say that I hope you never need the information I'm passing along. But when I read it, I realized that we are in times when the best of entrepreneurs may hit rough patches. So file away these excellent tips from Marketing Profs on delivering bad news to your customers -- should you ever have to do that.

1. Offer your gratitude
2. Rip off the Band-Aid
3. Explain the facts -- and your responses to them
4. Mitigate the damage (if possible)
5. Don't offer false hope
6. When you're down, hold your head high

When your "phoenix rises from the ashes", you'll be glad you followed this advice.

[Not sure, but registration may be required to read the Marketing Profs article. However the link is to a free article.]

2009 Tax Breaks: Time Running Out

There are a few notable federal income tax breaks that may apply to small business this year, but you need to take advantage of them before December 31. If you aren't already aware of them, there is a quick summary in a post from SmartMoney.

These incentives only apply if you buy equipment or software this year, but if you have the means and the need, it may be in your interest to make those purchases in 2009. Yes, SmartMoney's post is from August, so I'm late picking up on it, but there is still time. Be sure to read through the exceptions depending on your business' organization structure. And check with your accountant or tax preparer if you have questions.

Surviving Despite the Big Guys

This one is mainly for you retailers out there -- but the message applies to all businesses. Many shop owners dread hearing that a dominant retailer is invading their market -- either through proximity to their location or via online sales. Hardware stores dread the presence of Home Depot, booksellers worry about Amazon, grocers fret about Safeway (or whatever supermarket leads in your region).

Recently, the public radio station in my area was interviewing locals about the new Wal-Mart that was opening in a small but growing community. Of course, Wal-Mart wants to open there, because they don't have a store within many miles and figure the town will be eager to shop in one of their superstores. The local merchants who were least worried all were telling the same story -- differentiate your business by finding a profitable niche the big guys don't fill:

• A local jeweler called in to the show and made the point that if you want jewelry made in China, you could get it at Wal-Mart, but if you want jewelry made by artisans in their hometown, come see him. Wal-Mart can't do that. 
• A hardware store owner explained that you could get a dimmer switch at Wal-Mart or Home Depot, but if you wanted expert advise on how to install it, you'd go to his place because he gives his employees extra training so they can provide superior service to customers.

This week my local newspaper, The Oregonian, ran a feature on Powell's Books, a Portland business that bills itself as the largest independent bookstore in the world. I can believe it; the main store covers an entire city block. But owner Michael Powell, when asked about the major retailers' heavy discounting, says "Anytime someone gives a product away, there's going to be some impact. But popular best-sellers have never been our niche. That's more of the Costco phenomenon. We do more nonconventional fiction, and if they move into those, it could have some real impact...but so far it hasn't caused us to break out a sweat."

These business people are all surviving because they have found a niche that they can serve better than the big chains. What is your niche?

Focus: Listening to SCORE

Many people starting a business have been advised to pay a visit or make a call to SCORE*, which describes itself as "Counselors to America's Small Business"  SCORE is a non-profit partner of the U.S. Small Business Administration and is staffed by volunteers with extensive business backgrounds. One can get counseling online, via the phone, or in one of 364 SCORE offices throughout the United States. The advice is free to all comers.

I have heard quite a few people complain that SCORE volunteers discouraged them from proceeding with their businesses, and I confess I had similar feelings after my first visit to a SCORE office. The counselor asked me why anybody would hire me as a marketing consultant when there were so many other marketing consultants out there. (This was during the dot-com recession when many unemployed marketers were calling themselves "consultants".) I took it as a negative, but I realize now that he was asking me if I could differentiate myself from the pack. It was a fair question; I had broad marketing skills but hadn't figured out what niche I might fill.

One of the problems I see repeatedly with startups is lack of focus. Unless you have a strong patent on a product or process, chances are extremely high that there are others, perhaps many others, who are offering or will offer what you do if it shows any signs of being profitable. There is undoubtedly an equally broad field of people who are willing to buy that thing if it provides some sort of value, but how will they find you?

You simply can't hope to succeed unless you differentiate yourself in one or more ways, and that means you need to narrow your offering and positioning so potential buyers can recognize your value to them.  That means you must start out with a narrow focus. Only when you have grown and are profitable should you broaden into other markets or product lines.

Listen to the SCORE counselors. Give serious thought to the questions they ask you. If you don't understand the feedback you get, ask to hear more about it. If you're still in doubt, get a second opinion. Chances are, these business veterans can help you better define your business and help you to be successful from the start.

* SCORE used to stand for, as I remember it, Service Corps of Retired Executives, however they have abandoned that usage, and you cannot find the history of the acronym anywhere on their website.

Are You a "Born Entrepreneur"?

In interviews for my book, I have asked entrepreneurs about entrepreneurial role models in their lives, assuming that people who have watched someone start a business are more likely to start their own. I still believe that is a potent factor in a person becoming an entrepreneur, but now there is scientific evidence (not proof yet, but evidence) that there may be a genetic factor to entrepreneurship.

New York Times Small Business posted an article today about researchers at Kings College, London, and the University of Cyprus, who have been conducting behavioral genetics (twin) and molecular genetics (association) studies of entrepreneurship. Their conclusions are that there are heritable factors that contribute to entrepreneurship:

• The tendency to identify new business opportunities
• Willingness to be self-employed
• Personality traits that are compatible with entrepreneurship

Put together the inherited tendency and the role model, do you suppose the likelihood rises? I don't think anybody has looked into that. Anecdotally, though, I know a lot of entrepreneurs had an entrepreneurial parent or family member. My own father owned several businesses, and my sons are also entrepreneurs.

Just because nobody in your family ever started a business doesn't mean you can't. But you may have to work even harder at it.

Can Social Media Help You Grow Your Business?

Everyone has heard about social media, but the statistics say more adults are not using social networks than are. (Pew Internet says 35% of adult internet users have profiles on an online social network site. A Nielsen report say that 60% of people who opened Twitter accounts stopped using them.) But the pressure seems to be on for entrepreneurs to get involved and use social media to market their businesses. Which raises the question: Does it make sense to invest time in an approach that reaches, at most, 35% of adults?

Lets back up here. You need to know a bit about social media and a lot about who your target customers are. A better question to ask is: Would positive word-of-mouth about my business help me grow? Most of you would say Yes. So what you need to know about social media is that it is 21st century word-of-mouth, and it is becoming an important way people learn about new products and services. A recent USA Today article quotes Erik Qualman, author of Socialnomics: "Increasingly, consumers don't search for products and services. Rather, services come to their attention via social media."

OK, key word there is "increasingly". Is that enough? And that's where you need to know a lot about your target customers. Are you selling to businesses or to consumers? What age group are your target customers? (And if it is mixed, do you know what percentage of them are 18 to 24 and what percentage are over 65?) Because Pew says that "75% of adults 18-24 [are] using these networks, compared to just 7% of adults 65 and older.

If you are in the technology business, chances are that a higher percentage of your prospects use social networks than the population-wide statistics. If you distribute agricultural supplies, maybe not so much. It's time to find out what proportion of your target audience uses social networks, and if they do use them, which ones they use. How do you find out? Ask them! Send out a survey. Go to networking events and ask people you meet. Chat with customers who come in your door. Whatever works. Even if your results are anecdotal, you'll begin to get a feel for how soon you'll need to use social media to help grow your business.

Maybe now isn't the right time for you to market your business through social networks, but it's a smart time to learn more about them. Join one and see what goes on. And when the time is right for you to apply it to marketing your business, you'll have already climbed the learning curve.

What about Copyrights and Trademarks?

I'm behind on this one: Small Business Trends held a twitterchat yesterday with a couple of experts on the subject of copyrights and trademarks. BUT, even if you missed it as I did, you can go back and see what they said on their SMB Chat page -- and you don't even have to be a Twitter user to view it. It takes some scrolling and going to older pages, but if you do it soon enough you can still follow the thread (albeit in reverse if you're going front to back). This is worth checking out, because it's a topic that is not well understood by many small business owners.

It's Free to Ask

Why is it that so many people have an aversion to asking for something --- anything? People who know me well, and certainly my (now adult) kids, have heard me often say, "It's free to ask." If there's one gift I've given my children, it's that understanding.

What do you want to know?  Who knows the answer? Why don't you ask them?

Truth is, one of the things that distinguishes entrepreneurs from others is that they're not afraid to ask for what they want or need. I was reminded of this by Usha Sekar on The Startup Ethos. In a recent post, he told how amused his family was when he solved the problem of groceries for the weekend outing, when the convenience stores had closed in a small resort town, by asking to buy a few basics from a restaurateur who was open. Ballsy? If you're entrepreneurial, no.

Sekar reminds us:

For an entrepreneur the end result of growing a successful venture should overcome any qualms about getting turned down, ‘looking funny’ or, even more likely, the perception that you’re giving up power by asking for something. So it is imperative that s/he gets comfortable with the fact that asking is pretty much the surest way to getting. And a ‘no’ is not life-ending.

And it's free to ask, Oh, and yes, my adult children are now entrepreneurs.

Show Your Passion When You Need to Ask for Money

Few budding entrepreneurs have sufficient funds of their own to start a business. The more complex the business, the more money needs to be raised. Whether you go to friends and family, a banker, or an investor for startup money, you need to be able to explain clearly what your plan is and why you believe it will succeed. Martin Zwilling, founder of Startup Professionals, Inc., gives an excellent outline for an Executive Summary. Use it well and you're halfway there. His six-point outline for a killer executive summary:

1. The problem and your solution. These are your hooks, and they better be covered in the first paragraph. State your value proposition, and what specifically you are offering to whom. Skip the acronyms, history of the company, and the disruptive technology behind your solution.
2. Market size and growth opportunity. Investors are looking for a large and growing market. Spend a few sentences providing the basic market segmentation, size, growth and dynamics - how many people or companies, how many dollars, how fast the growth, and what is driving the segment. Skip the comment that you are conservatively estimating your penetration at 1%.
3. Your competitive advantage. Identify your sustainable competitive advantage, like unique benefits, cost savings, or industry ties. Don’t kill your credibility by saying you have no competition. At a minimum, you compete with the current way of doing business. Most likely, the investor has already seen multiple plans with similar solutions.
4. Business model. Who is your customer, what is the price, and how much does it cost you to build one? Do you now have real customers, are just starting development. Outline your sales and marketing strategy (direct marketing, sales channel, viral marketing, and lead generation). Identify key quantities, such as customers, licenses, units, and margin.
5. Executive team. Remember that investors fund people, more than ideas. Why is your team uniquely qualified to win, and what have they done before? Explain why the background of each team member fits, by naming roles and names of relevant companies. Include outside advisors if they have relevant experience.
6. Financial projections and funding. You need to show your summary revenue and expense projections for three to five years. Investors need to know the amount of funding you are asking for now, and what they get. This should generally be the minimum amount of equity you need to reach the next major milestone.

But you're not done yet. Zwilling goes on to remind the reader that, assuming you'll be sending your executive summary by email, what you say in that one-paragraph email is critical:  "Less is more here, so include the grabber, show your passion and commitment, and be sure and ask for something (like a follow-on meeting or specific feedback)."

You've Heard It Before: Make Lemons Out of Lemonade

In crises, there are opportunities, according to an old Chinese proverb. In a downturn, there can be ways to start your business at significantly lower cost than during boom times. During the dot-com bust in 2002, a chemist acquaintance of mine was laid off by a disk drive manufacturer. She was able to start her own chemicals analysis lab by buying test equipment at bankruptcy auctions at a fraction of their actual value. Starting that business would have been prohibitively expensive in a good economy, so the poor economy actually helped her get started.

A recent Wall Street Journal article on starting a business on a shoestring included a section on finding creative deals. It quotes Ken Yancey, chief executive of SCORE:  "With so many businesses suffering these days, many suppliers are willing to accept nontraditional deals to keep themselves afloat. For instance, if you have purchase contracts for your product, some suppliers are now willing to help with upfront capital needs if it means they’ll get your business."

The article goes on to discuss barter deals. Several young men I know are starting a microbrewery in the back of a cafe, rent-free in exchange for heavily discounted beer the cafe will resell to customers. They would be unable to get financing to start a business in this economy but have found a creative way to get started at relatively low cost. If you can devise a creative barter deal, make sure you have a detailed agreement that explains who gets what in exchange for what.

Each business is different. Think about ways you can make the most of the times we're in to equip your business.