The next three chapters deal with opportunities: how to originate them and how to prosecute them.

But, as you’ll notice from this chapter heading, we’re not navigating these big subjects in what would appear to be the logical order.

There are two (very) important reasons why we’ll be talking about prosecuting opportunities before we talk about originating them:

1. Assuming that your business exists right now, the first set of opportunities you’ll encounter are those that already exist – meaning that the content of this chapter is immediately applicable
2. Counter to popular opinion, there is typically (but not always) more upside in improving the management of your existing opportunity flow than there is in investing the same effort in the generation of new opportunities

In this chapter we’ll define what we mean by opportunity and then we’ll figure out how to convert opportunities into sales.

Suspects, prospects and opportunities

The definition of sales opportunity would appear to be self-evident: it’s an opportunity to sell something. This definition, however, is a little imprecise.

After all, anyone who has been around sales for a while knows that there’s a number of other commonly-used terms that reference the probabilistic nature of the sales engagement (e.g. suspects, prospects, leads and potentials).

Let’s start our little quest for precision by recognizing the requirement for different terms. It’s meaningful to differentiate potential sales from one another on two dimensions:

1. Probability (what are the odds of this potential sale becoming an actual sale?)
2. Incremental effort expended (do we process these potential sales individually or in batches?)

Probability

We can use this first dimension to distinguish between suspects, prospects, non-prospects and accounts (sales):

1. A suspect is a name in a telephone book. It’s the term used to refer to an individual (or organization) in the universe of individuals (and organizations) that exist out there somewhere. A suspect has no probability – which, by the way, is not the same as saying that a suspect has zero probability. The thing is, we use the term suspect specifically to refer to the greater population of unclassified (or unrated) individuals and organizations.
2. A prospect is an individual (or organization) with non-zero sales probability. To be more specific, it’s an individual (or organization) with some likelihood of purchasing during a sensible time horizon.
3. Like a suspect, an account has no probability because this opportunity has already been won!

So, where the probability dimension is concerned, I’m suggesting that the distinction is binary: prospects have some probability; everyone else doesn’t.

Incremental effort

The second dimension yields a binary result too. As mentioned, potential sales can either be processed individually or in batches. Salespeople interact with potential clients one at a time – and your marketing department processes them in batches.

This distinction is critical because personal interaction consumes finite resources. Unless there’s something terribly wrong with your technology, your marketing department can process one more click on a landing page or add one more person to an event with negligible incremental effort. Where your salespeople are concerned, however, there’s a hard limit on how many potential clients they can engage with simultaneously.

We use the term sales opportunity (or just opportunity) to refer to those prospects with whom you engage one-on-one.

The other terms we encountered are synonyms for those we’ve already defined. Potential and opportunity mean the same thing, as do lead and prospect.

We now have clarity. A suspect is an unclassified (or unrated) individual (or organization). A prospect is an individual (or organization) with non-zero sales potential. And an opportunity is a prospect in which you are investing incremental sales resources.

Implications for technology (CRM)

It’s useful to consider how these terms relate (or should relate) to modules in your CRM.

Generally speaking, suspects don’t belong in your CRM. Prospects do, and you’ll manage these using your Lead Management and Campaign modules. Opportunities will be managed using (predictably) the Opportunity Management module.

For most organizations, this represents a radical shift in how opportunity-management is done. If, according to our definition, an opportunity is any prospect with whom you are interacting one-on-one, this means that an opportunity should be created in CRM the instant that the sales coordinator engages with the prospect and not when a salesperson deems them to be qualified (or when a proposal is requested)!

Inactive prospects

If you’re on the ball, you’ll have spotted a hole in my definitions! What do we call individuals (or organizations) that have been assessed: but that have been assessed as having zero probability? This is more than an exercise in semantics as the following scenario will illustrate.

Let’s imagine we are a managed fund that promotes itself to large financial-planning firms.

And, let’s assume that we promote ourselves exclusively by purchasing lists and running direct mail campaigns (heaven forbid this is the case in this day and age!)

It would make sense for us to delineate suspects and prospects based on data that is readily available. So if we consider the universe of lists (suspects), we can readily identify the nature and size of most organizations (this information is in the public domain).

So, in our case, we’ll deem all financial-planning firms with greater than (say) 50 employees to be prospects. And, we’ll aim, over time, to ensure that all of these prospects end up in our CRM.

Now, as our salespeople prosecute opportunities that we have generated against these prospects, they may discover that some prospects are committed to certain investment platforms – and that these platforms prohibit them from recommending non-platform funds. With this additional information at our disposal, we’ll now likely conclude that these firms are actually non-prospects. It is impossible – during any sensible time-horizon for them to purchase from us.

But, this does not mean that we’ll reclassify these prospects as suspects and delete them from the CRM! If we were to do this, we’d almost certainly end-up adding them again, in future, when they appear on another list we purchase. What’s more, we’ll probably recognize that their zero-probability status is a transitory thing. It’s possible that these firms will change platforms at some point. It’s also possible that their current platforms will reassess their position on exclusivity – or even that our fund will get picked-up by those platforms!

The solution is to:

1. Make the prospect classification based only upon readily-available information (i.e. avoid stipulating a requirement for omniscience)
2. As more information becomes available, assign a status of inactive to those prospects that have zero probability

Converting prospects to opportunities

You may be surprised that the definitions I’m suggesting are not based on probability thresholds. I’m not suggesting, for example, that a prospect be reclassified as an opportunity when its probability is assessed as being greater than (say) 80%.

While it’s true that you should consider percentages when you are analyzing historical data, it makes no sense to use them as a guide to management (resource-allocation) decisions. When considering where to invest your resources, the question should not be which prospect has the greatest probability of purchasing? Rather, you should be asking, which prospect is likely to generate the greatest yield on the organizational constraint?

Obviously, the likelihood of that prospect purchasing has some bearing on that answer, but there are other factors that should probably receive equal (if not greater) attention:

1. What product or service is this prospect likely to purchase?
2. What margin are we likely to be able to charge that prospect for that product?
3. What is the likely term of our relationship with that prospect?
4. How many units of our organizational constraint are likely to be consumed servicing this prospect?

Of course, there is a high degree of uncertainty associated with all of these factors. The practical solution to this uncertainty problem is to design a sales environment that allows a healthy opportunity flow (volume, not crystal-ball-gazing is the antidote to uncertainty!).

You convert a prospect to an opportunity simply by determining that you will allocate finite sales resources to it. The conversion may be triggered by a prospect’s action (e.g. they may attend a webinar and request a consultation) or it might be triggered internally (e.g. your promotions coordinator sends a pre-approach package to 20 prospects and tags them all for follow-up by a salesperson’s sales coordinator).

If we assume that sales is your organization’s constraint, your primary focus will be keeping your salespeople fully utilized (four appointments a day, five days a week).

Which prospects to convert to sales opportunities is a secondary consideration. You may choose to engineer your sales environment so that the conversion of all opportunities is triggered by prospect actions or (more likely) you will have a mix of externally and internally triggered conversions.

Where the latter is concerned, you can use the factors above to implement a (quick-and-dirty) prospect scoring algorithm (with prospects sorted in descending order). However, you must recognize – as discussed earlier – that such approaches are helplessly inexact (hence, my quick-and-dirty reference).

The (grisly) end of qualification

Now, it’s important to note that I’m not advocating any half-way step in between prospect and opportunity. A prospect is either in play or it isn’t – and if it is, it’s an opportunity.

Of course, if you listen to salespeople talk, you’d be convinced there is an intermediate step where prospects must be either qualified or disqualified. In fact, it’s widely believed, in sales environments, that qualification is a necessary and value-adding activity.

Nothing could be further from the truth!

Let’s consider qualification, as it’s typically practiced:

Lenny, the CEO of a mobile-application-development firm returns from a business-leaders’ mixer with a handful of business cards.

Each business card has been given to him by a senior executive from a mid-sized organization.

Excited, he hands the 20 business cards to David, one of his salespeople – who agrees to follow them up.

Two weeks passes and Lenny has received no feedback so he button-holes David at the local cafeteria. “What’s happened with those 20 opportunities I gave you,” he asks.

“Well,” David explains, “only 2 of them are real opportunities … and I’m still working on them.”

Lenny is incredulous: “what do you mean; only two of them are real opportunities?” “All of those people are senior executives of decent sized businesses – and all decent-sized businesses have cause to at least consider web applications.”

David shrugs and returns to his lunch.

We can only make sense of David’s position if we consider the environment in which he operates (the traditional model). Because of the multitude of competing demands for David’s time, David has no choice but to prioritize. And, because many of these demands are urgent (e.g. helping production to interpret client requests, solving customer-service problems and so on), David has very little capacity remaining to invest in speculative business-development activities.

When Lenny hands him 20 business cards, he recognizes that he simply doesn’t have time to prosecute 20 opportunities concurrently. His solution is to make a quick (qualification) call to each contact to determine how interested they are in a mobile application.

Not surprisingly, he discovers that only 2 of the 20 have any concrete interest (none of the others has even made a budgetary allocation!)

Sadly, this scenario plays out every day, in almost every organization, in every country of the developed world.

Qualification is NOT selling: it’s actually the opposite (the avoidance) of selling. Of course, the core problem here is the design of the traditional sales environment. However, when we reengineer that environment we cannot simply assume that all the practices that made sense in the old environment will simply disappear in the new one. Some won’t – meaning that they need to be actively eliminated.

Qualification is a particularly insidious – and remarkably persistent – practice. You will need to hunt it down and drive a stake through its ugly heart whenever it makes an appearance.

If a salesperson has an unutilized unit of capacity and there’s a prospect available, that salesperson should be selling them, not qualifying them.

As discussed, it does make sense to distinguish between suspects and prospects but, I’d suggest you avoid using the term qualification for this purpose. Qualification is so destructive that you’re better off exorcising both the practice and the word from your organization!

Now it is true that not all prospects are equal but, as we’ve already discussed we can allow for this by:

1. Sorting (or indexing) prospects using our quick-and-dirty scoring algorithm
2. Maintaining a surplus, so as to ensure that salespeople are occupied with (probabilistically, at least) the higher caliber prospects

It’s also true that salespeople will, from time to time, encounter what we’ve resolved to call inactive prospects: individuals (or companies) who – for reasons that aren’t readily apparent – are not in a position to purchase. Doesn’t it make sense for salespeople to filter these out before they start selling?

The answer is no!

The thing is; if this information is not readily available, salespeople will have to dig for it. And, digging for this data is antagonistic to selling. A better approach is to accept that some prospects won’t purchase (that’s why we call them prospects in the first place!); but to treat them all as if they will (until they advise us otherwise).

It’s important that management helps salespeople to remember that theirs is a low-probability environment: that’s simply the nature of (true) selling.

The opportunity-management process

Now that we have opportunities, we need a process to prosecute them. This process must consist of:

1. A standard workflow that dictates:
   1. The sequence of steps (activities) each opportunity follows
   2. The resource responsible for each step
2. Critical stages (milestones)
3. Centralized scheduling
4. Management information and procedures

A standard workflow

Each of the words in the heading above is significant.

A implies one. You should only have one workflow for each product and service. In fact, similar products should share the same workflow. If you receive opportunities from multiple promotional campaigns, those campaigns should all be designed to feed into the same workflow.

Standard means that the path each opportunity follows through your organization is essentially the same as the path followed by the opportunity before it. Certainly, there is no reason for variation between salespeople. But even where clients are concerned, it is usually possible to adopt a standard workflow, for two reasons:

1. In a mature market, competitive pressures will cause your clients to structure their businesses similarly and adopt similar procurement procedures
2. In an immature market, clients will not have developed fixed procurement procedures – meaning that your salespeople have the opportunity to sell whatever you have determined is the ideal workflow (or engagement model)

And workflow, of course is significant because that’s what we’re here to discuss.

We’ve already discussed, at length, the resourcing component of the standard model. We know that, where opportunity-management is concerned, you have the following resource pool (assuming a complex-sales environment):

1. Sales coordinator
2. Salesperson
3. Project leader

Let’s now consider the activities (steps) that will be required to convert opportunities into sales. We can start by grouping them by general activity type:

1. Face-to-face appointments of various types (including workshops, demonstrations and so on)
2. Conference calls (voice and video)
3. Solution design, estimating and quoting
4. Scheduling activities (via phone, email, etc)
5. Various de-briefing conversations between different parties (particularly the salesperson and the sales coordinator)

To enable the collection of meaningful management information we need to identify milestones (stages) too. The ideal milestones are those locations in the workflow where your client has just agreed to proceed to the next meaningful activity:

1. Scheduled an initial appointment
2. Scheduled a proposal-review meeting (obviously agreeing to a proposal-review meeting is more meaningful that simply agreeing to receive a proposal)
3. Scheduled a management workshop
4. Scheduled a contract-review meeting

Now we have all the pieces, it’s time to assemble the puzzle – to draw our first draft of your standard workflow. I say first draft because this initial diagram will, almost certainly, be redrawn multiple times before its deemed fit for purpose!

For this you’ll need either a sheet of graph paper and a pencil or, better still, a copy of a charting program (my preference is Microsoft Visio.)

Step 1: let’s go swimming

Start by drawing a set of swimlanes (so named, because, collectively, they resemble a swimming pool). It’s standard-practice to delineate resources on the horizontal and stages on the vertical.

You can then name the workflow and each of the resources.

Step 2: a simple, linear flow

You can now start to add entities and connectors.

My recommendation is that you force yourself to map your entire workflow using only two entities: states and activities. (States are inputs to – and outputs from – activities). This restraint will prevent you from mapping the workflow at too granular a level.

In case you’re wondering, the ideal level of granularity is the one where (for most opportunities):

1. All activities are essential
2. All pairs of activities are non-commutative (their sequence can’t be reversed)

If we examine the first few steps in this workflow, we can make some interesting observations:

1. In this instance, we’re assuming the opportunity is triggered by an inbound enquiry, rather than an outbound campaign
2. The meetings have names – as opposed to being described by their location in the sequence (first meeting, second meeting, etc). This is because:
   1. It’s the content of the meeting that’s of primary importance. For example, a second meeting might be a repeat of the first meeting or it may be a materially different event.
   2. The meeting name communicates the purpose of the meeting (and sometimes its intended outcome) to all parties
3. We map a single path with no loop-backs and no trivial activities (e.g. update CRM). We do map the points where the salesperson debriefs their sales coordinator, because these activities are critical and should be tracked.
4. Stage names reference the outcome of that subset of the process and conclude with the word pending. This focuses team members on the concrete outcome, rather than on the activities being performed.
5. The Sales Coordinator is the process owner. For this reason, most states will appear in their swimlane.

Step 3: complexity, be gone

As we get deeper into this workflow (and get more comfortable with the mapping method) we can turn our attention to the structure of the opportunity-management process.

Specifically we need to consider the difference between a workflow for a simple sale and one for a complex sale. Interestingly, there isn’t much of a difference! (Or, at least, there shouldn’t be.)

Consider the continuation of our (complex-sale) workflow, above.

To date, we’ve performed a couple of appointments: the first with our initial contact and the second with the team of decision makers. As a consequence, we’ve secured a request for proposal. If this were a simple sale, we’d be proposing our ultimate offering at this point; however, because it’s a complex sale, we’re proposing an intermediate offering: a solution-design workshop.

You’ll soon see that the solution-design workshop consists of a couple of appointments and terminates in the presentation of another proposal: in this case, for the final offering.

However, if this sales opportunity were more complex still, the solution-design workshop might terminate in a proposal for a pilot, which – you guessed it – would be an engagement that leads to yet another proposal!

It should now be clear that a complex sale does not necessitate a complex opportunity-management process. Just as a centipede with 191 trunk segments is no more complex than a fly (with only 12), the complexity of an opportunity-management process does not increase as we accumulate multiple iterations of an inherently simple sub-process.

In summary, then, we prosecute a simple opportunity with a simple process (consisting of just a handful of activities). We prosecute a complex opportunity, with the same simple process – repeated multiple times.

We’ve just stumbled across the secret of what’s typically referred to as major-account selling. If you read books on this subject you’ll learn that the key to prosecuting complex deals is to get inside of – and attempt to manage – this complexity.

Again, nothing could be further from the truth. By definition, complexity is that which cannot be managed.

The key to prosecuting complex deals is actually to engineer the complexity out of the engagement process. Of course, both you and your clients will benefit from the simplification of an otherwise unproductive workflow.

Step 4: Solution design

We can now go ahead and complete the mapping of our representative opportunity-management process. (And, with this done, I think you’ve earned yourself a cup of tea!)

The solution-design workshop

A solution-design workshop is an invaluable addition to your opportunity-management workflow whenever you are selling a custom-engineered product (or service).

Such a workshop (they are often called feasibility studies, envisioning workshops and similar) provides the following benefits:

1. It enables you to take control of your client’s decision-making processes (which, absent your involvement, is often entirely unstructured and ineffective)
2. It turns solution-design into a collaborative process – which results in potential-clients assuming ownership of the solution long before they are asked to purchase and slashes the duration of the solution-design process
3. It enables you to socialize the new direction with a larger number of stakeholders (client-side) than would otherwise be possible

The solution-design workshop should be facilitated either by a project leader or by a dedicated facilitator. In either case your salesperson and nominated project leader must be present (and actively involved). You should design your workshop so that the greater proportion of the content that will ultimately populate your outcomes document (and accompanying proposal) is actually generated during the workshop (excluding content that is standard to all documents, of course).

Ideally, the workshop should consist of a series of tightly-choreographed exercises. You can conduct these exercises on a whiteboard, but my preference is to use a word processor and a charting application (in conjunction with a data projector) as a virtual whiteboard.

The exercises are likely to include the following:

1. (Very) brief introduction from the workshop sponsor (client side) and the project leader – including a summary of the scope of the workshop
2. Discovery of the sets of symptoms (undesirable effects) that have given cause to the workshop (I say sets of symptoms because you want to record the perspectives of multiple participants)
3. Reasoning from the undesirable effects to the root cause (or causes) of these effects
4. Determination of the direction of the solution
5. High-level design of the solution (ideally using diagrams)
6. Resolution of key lower-level design issues
7. Risk analysis (including a review of possible unintended consequences of the proposed solution)
8. High-level economic feasibility review (how will the organization justify the likely expenditure of money and other resources)

After the workshop, the project leader should convert the outcomes into a formal presentation of findings document and review this document with the salesperson prior to the scheduled presentation of findings meeting. My preference is to create this document in a PowerPoint (or similar) format.

Proposals, estimates and quotations

Where proposals and other similar documentation are concerned, it’s worth reviewing who should do what.

We know, already, that we do not want the salesperson involved in the creation of any documentation. And we should also have a good idea about who will be responsible for proposals for simple transactions (the customer-service team) and complex transactions (the project leader).

There are, however, some proposals that resist being squeezed into these two categories!

The solution-design workshop proposal

Take, for example, the solution-design workshop proposal: who should prepare that?

This proposal should be a stock-standard document – simply because all your solution-design workshops should use the same basic structure. Obviously the duration of the event will vary from client to client – as will the name of the client! – but all such variability can, and should, be accommodated with a simple automated Word document like the following.

With a basic knowledge of scripting an advanced user of any
word-processing application can create a master document
that prompts the user for variable data upon opening

Proposals for complicated (but not complex) products

We’ve resolved, already, that a complex sale is one where a perfect hand-off between sales and production is impossible. This definition leaves room for situations where the quote is still pretty complicated because of either the technical or the commercial requirements.

In these situations you need to ensure that the salesperson captures all of the information required to generate the proposal in the sales meeting. In other words, the salesperson should be able to submit all the data required to generate the proposal to their sales coordinator at the conclusion of the meeting (this might involve emailing a PowerPoint or Excel file or simply pressing submit within a custom tablet application).

Salespeople are likely to object that they need to need to customize the sales preamble at the start of the proposal and that this cannot be done in front of the client.

This is simply not true.

The reality is that clients, if they have invested the time required to meet with a salesperson, would rather receive a proposal that accurately captures both the commercial and technical realities of their situation.

Furthermore, in many cases, clients will be intending to take the proposal and use it to influence others in the organization who aren’t present in the meeting – meaning that they will particularly value the salesmanship contained in the document.

Demonstrations

Demonstrations are the cause of much value-destruction in complex sales environments (particularly among technology companies).

As is evidenced by the pitch-doctors who sell nifty potato peelers in shopping centers, nothing sells like a good demonstration.

Sometimes, however, the demonstration is a distraction from that which you are trying to sell. Here’s a scenario.

Imagine you’re the financial controller of a business that does $100m a year in sales. And, you’re considering purchasing a new ERP system.

Ask yourself, what are you really buying? Are you buying a piece of software? Or are you buying a better approach to governance, to management decision-making and to operational performance that will (hopefully) be facilitated by a software application?

It’s the latter, isn’t it?

Now, ask yourself this, if you stare long and hard at the software, is there any likelihood that the business outcomes you’re looking for will suddenly appear?

Of course not: the software is a distraction from what you’re buying. A smart ERP vender will not show it to you. Rather than demoing software, this vendor will talk to you about the assumptions, theories and methodologies that are baked-in to their software. They’ll understand that if they can sell the theoretical underpinnings of their software, then you will lose interest in examining the application itself.

They’ll assume that, if you’re one of the very few software vendors who’re capable of having a high-level discussion about the realities of business management, then you’ve probably also figured out how to build software that works.

One of our silent revolutionaries (a particularly successful enterprise software producer) has discovered that it makes sense to postpone demonstrations as long as possible and then to finally show the software in the form of a training session for users – with decision-makers looking on.

Continuous improvement

We’re about to turn our attention to the generation of sales opportunities – a big and exciting subject!

However, before we do, I must reiterate my exhortation that you first pay attention to the prosecution of your existing opportunity flow.

I hope this chapter has made it clear what a big subject opportunity-management is – and provided you numerous ideas for improvement. Please be sure to exploit all of these ideas before you shift your attention to promotion.

Whenever we work in a technical-sales environment, this – bar none – is the most valuable idea we bring to the table.

Here’s the most obvious symptom of the problem:

When salespeople make a technical sale, they inevitably become entangled with production. Their involvement in production cannibalizes their (already limited) business-development capacity – leading to the boom-and-bust problem that plagues so many businesses.

To explore the source of this problem – and to uncover its solution – let’s consider these three scenarios.

Scenario 1: simple sales environment

In a simple sales environment, the relationship between sales and production is, well, simple!

The Coca Cola rep assesses a mom-and-pop store’s requirements and dispatches an order to production from her handheld computer. Production can fulfill that order without any recourse to sales.

That means that sales and production can be situated end-to-end with a perfect hand-off of information between them (per example 1, above).

So far, so good.

Scenario 2: complex sales environment (typical)

So, what happens when we’re dealing with complex sales (in a technical environment)? Can we adopt the same structure?

The software company salesperson discusses his client’s unusual problem, conceptualizes a solution and successfully pitches a custom application. He then carefully completes and submits the specification document provided to him by production.

The $64 question is: can production complete and deliver the application without recourse to the salesperson? Intuitively, the answer is no. Production will definitely need to consult with the salesperson during the production process – and it’s likely that the client will need to do likewise.

Imagine what happens if production attempts to resolve this problem (as they often will) by providing salespeople with a more detailed specifications document to complete. If this document grows from 2 pages to 5 – or from 5 to 50 – do you think the problem will be resolved?

You’re right: it won’t. But to make progress here, it’s critical we understand why.

Complexity versus hand-off difficulty

We’ve already discussed that, in a simple environment (like the Coca Cola one), hand-offs are easy. What happens when environments become more complex?

The thing is that, the relationship between complexity and hand-off difficulty happens to be non-linear.

Specifically, as complexity increases past what I call the complexity threshold, hand-off difficulty goes to infinity! In other words there’s a point beyond which hand-offs are not just difficult; they’re impossible.

I’m not aware of a method to calculate the exact location of this threshold, but here’s a rough rule of thumb:

1.   Make-to-stock environment: EASY

2.   Make-to-order environment: HARD

3.   Engineer-to-order environment: IMPOSSIBLE

So, where our software company is concerned, if perfect hand-offs are impossible, salespeople have no choice but to maintain an involvement in production after the sale is won (example 2, above).

Production needs the salesperson involved to resolve the numerous ambiguities in the specifications. And the client needs the salesperson involved too because they don’t feel comfortable that production truly understands their needs.

The good news is that salespeople’s continuing involvement in production resolves the worst of the hand-off problems. The bad news is that this model has two serious shortcomings:

1. Because salespeople tend to be busy, time spent in production is time that can’t be spent on business development. Of course, this results in a smaller opportunity pipeline; but the really bad news is that salespeople’s limited capacity tends to cause them to engage later in clients’ buying cycles – at the expense of both margin and deal size (read more about this problem here).
2. The resolution of the inevitable tension between sales and production occurs after the sale is made (you promised the client what!!). Of course, this tends not to have positive implications for customer satisfaction (or profitability).

Scenario 3: complex sales environment (optimal)

In identifying the real reason for salespeople’s entanglement in production, at least the direction of the solution to this problem starts to come into focus.

If perfect hand-offs are impossible, the key is not to try and fix them but, rather, to engineer the requirement for them out of the workflow. The third example in the diagram above shows how this can be done. This model introduces a new resource: the project leader.

The project leader is a technical person who is comfortable in the sales environment. This person belongs to neither the sales or the production team. This is because their reason for existence is to manage the interface between these two functions.

The project leader’s primary responsibilities are to:

1. Pre-sale: discover the clients’ requirements and design the solution
2. Post-sale; oversee (but not manage) production to ensure that the project stays true to the client’s (commercial) expectations

The value of the project leader, becomes more apparent when we track a client engagement from start to finish:

Because the salesperson has been disentangled from production, she now has the capacity to engage early in the client’s buying cycle.

This early engagement results in the first one or two meetings being conceptual in nature.

When the client is ready to brief the vendor on it’s requirements, the salesperson introduces the project leader?

The project leader discovers the client’s requirements, designs a solution and generates a proposal.

The salesperson and the project leader negotiate a resolution to the tension between sales and production (the project leader wants a solution that is deliverable: the salesperson wants one that is saleable). They may even involve the client in this discussion.

Once the client is happy with the solution proposed, the salesperson is responsible for negotiating commercial terms and getting the contract signed.

As soon as the contract is signed, the salesperson exists this engagement (although ideally she will continue to engage with the client on other opportunities).

During the production process, the project leader will chair periodic project-leadership meetings. These meetings will be attended by the client, the production team leader and the project leader. The purpose of each meeting is to maintain the fit between the project plan and the client’s commercial requirements. Major projects tend to drift off-track because (a) some assumptions made during solution-design turn out to be incorrect, (b) the client’s business environment changes during delivery and, (c) the client fails to dedicated the expected resources to the project.

Once the project has been delivered, the project leader will chair a formal debriefing meeting to (a) ensure that the client appreciates that the project was successfully delivered and, (b) create an ideal environment for the salesperson to prospect for new opportunities

In summary, then, this new model delivers the following benefits:

1. Salespeople engage earlier with (more) potential clients (as opposed to engaging only when opportunities have degenerated into bidding wars) – which impacts positively on margin and deal size
2. The trade-offs between features and price are negotiated prior to the deal being won – which impacts positively on customer satisfaction and profitability
3. The project leader takes an active role in maintaining the commercial integrity of the project – which also impacts satisfaction and profitability

Cost justification

When we present this (optimal) model to clients, most are excited. The greatest concern, however, is the impact on cost. There are two reasons why cost tends not to be an issue in reality.

1. Most of the activities performed by the project leader in this new model are being performed currently – it’s just that they are shared between sales and production. This means that, in many cases, you can transition to the new model by simply restructuring – without adding personnel. The most common way to achieve this is to convert your more technical salespeople into project leaders – and have your remaining salespeople focus exclusively on business development.
2. If you do choose to add new personnel in order to transition to this new model, you must contrast any increase in operating expense with the current opportunity cost of your salespeople’s lack of business-development activity. The bottom line is that, if your salespeople are not worth more to the firm when they are selling than they are when they are performing production-related activities, then they should not be salespeople in the first place.

In practice, when we are helping our clients to make this transition, we take a hard line on the issue of costs. Specifically, our policy is to never propose a transition plan that causes operating expenses to increase in the short term (you’re welcome to use the comments section to ask why!).

In most cases, we achieve this by dramatically reducing the size of the sales team and converting most of the existing salespeople into project leaders. Because SPE always increases the volume of business-development meetings performed by the remaining salespeople by an order of magnitude, 20% of the sales team will perform 200% of the current volume of business-development meetings.

As I mentioned at the outset, this is the most valuable idea we bring to the table whenever we work in a technical (engineer-to-order) environment. In fact, for many firms, fixing the interface between sales and production represents perhaps the most exciting short-term opportunity to develop a competitive advantage.

And this is an advantage that can be sustained for at least as long as competitors insist in maintaining the traditional approach to the structure of the sales environment (where salespeople operate as autonomous agents).

It seems so obvious.

If that team member has a Blackberry and a company car; if they call on customers and help resolve their problems; then they must be a salesperson, right?

Well, maybe not!

Sure, that’s the way things have traditionally been done: the person in the field is automatically the salesperson. But, in many cases, today, this assumption needs to be challenged.

To understand why, let’s walk in our customer’s shoes for a moment.

Historically, a salesperson would come calling (in person). They’d develop an understanding of your situation. They’d diagnose your problems and propose solutions. And they’d be your single point of contact with the firm they represented.

Today, however, it’s unlikely that your needs are adequately served by the traditional salesperson (in spite of the nostalgic appeal of that concept).

Two things have changed:

1. The market has become more efficient — which means that:

   1. stuff happens faster, and

   2. most of the products you purchase are (essentially) commodities

2. Technology has provided numerous alternatives to face-to-face communication

In today’s environment, then, the traditional salesperson relationship may be less than ideal for a few reasons:

1. The salesperson visits infrequently — meaning that you, either need to carry more inventory, or purchase from multiple vendors

2. Because of the faster pace of enterprise, the salesperson is ill-equipped to serve as your single point of contact with the vendor (they simply don’t know what’s become of the item missing from this morning’s shipment!)

3. It often takes more time to transact with the salesperson face-to-face than it does to communicate via alternate channels

It’s for these reasons, then, that I’d like to propose that, in many environments, the salesperson should not be the person in the field — rather it should be a person on the phone.

Inside Sales becomes the new front line

That’s right; I’m suggesting that the front-line (to use a military metaphor) should move from the field to the phone, meaning that, in future, the salesperson is not the person with the Blackberry and company car.

Tomorrow’s salesperson is office based (situated close to operations). They can be recognized by their casual clothing and their ever-present wireless headset. They earn less than a field representative but they have comparable product knowledge and communication skills. Where a field representative can, at best, perform four to five meetings a day with customers, tomorrow’s salesperson can perform 30 to 40!

Now, at this point, I’ll forgive you for being a little skeptical. After all, isn’t it true that I’m describing Inside Sales — a function you likely already have installed in your firm.

Actually, I’m not. My vision of Inside Sales differs from standard practice in a few critical areas:

1. Inside Sales owns ALL sales opportunities. They do not help field reps prosecute sales opportunities (in fact, the opposite is true but we’ll get to that shortly)

2. Inside Sales owns ALL accounts. Your customers no longer have a single point of contact but they do have a primary contact — and this is a person in Inside Sales, not a field representative

3. Inside Sales makes outbound calls to both existing and potential accounts

Before we discuss what is to become of your field representatives (and yes, there’s a cunning plan!), let’s consider how our customer benefits from their relationship transitioning from the field representative to a person in Inside Sales.

1. The contact frequency increases. If it makes sense to interact twice daily with the vendor (as is the case in pharmaceutical retail, for example), this is possible.

2. The inside salesperson is a more capable primary point of contact. Because they are plugged-in to the ERP (your operations technology), they can answer most questions and process most transactions on the spot. On the occasion that an issue arises that the inside salesperson can’t personally resolve, they will route a task to the appropriate party, while still maintaining ownership of (and responsibility for) the issue.

3. Because the inside salesperson is office-based, your customer is not forced to choose a single communications channel. In fact, within the course of a single transaction, it’s possible for your inside salesperson and your customer to communicate using a mixture of telephone, e-mail, and instant messaging.

Field representatives subordinate to Inside Sales

So, what is to become of field representatives?

In most situations, you will still have a requirement for field representation:

1. Some sales may be significant enough to warrant face-to-face customer contact. For example, a client of ours in Kentucky sells packaging supplies. Individual transactions do not require face-to-face contact. However, this company is migrating its customers from a standard supply relationship to vendor-managed inventory. The transition is a large and complex transaction and definitely does benefit from face-to-face visitation.

2. Field representation may be required for technical reasons. In order to diagnose a problem and propose a solution (for either potential or existing accounts) it may be necessary that a vendor’s representative performs one or more site visits.

My argument, then, is not that field representatives aren’t required. They clearly are.

I’m proposing that, in many (certainly not all) environments, field representatives should not be regarded as the salesperson.

In such environments, it makes more sense for field representatives to subordinate to Inside Sales. What this means is that:

1. Sales opportunities are originated and prosecuted by Inside Sales

2. On those occasions that field representation is necessary, field representatives are dispatched to perform a discrete activity

The words discrete activity are important here because they suggest that field representatives do not take ownership of the workflows (sales or customer service) that contain the activities they are dispatched to perform. For example, if a field representative visits a customer to perform a needs analysis as part of the prosecution of a sales opportunity, the field representative will perform the site survey and report the results to the inside salesperson. It will be clear to all parties (including the customer) that the inside salesperson is running the show.

While this is counter-intuitive, there are many parallels in other fields. Consider an operating (surgical) theatre. The surgeon may well be the most valuable team member but it does not follow that the surgeon runs the operation. This is generally the responsibility of a senior nurse. In fact, in most cases, the surgeon is not even present for the entire operation!

A practical example

We are currently implementing this model for a client of ours, headquartered in Washington DC. They manufacture consumable parts for big industry. An average transaction is somewhere in the five-figure range.

Here’s how the model operates in practice:

1. Marketing (promotions) generates sales opportunities for Inside Sales

2. Where possible, Inside Sales attempts to prosecute those opportunities without the assistance of field representatives

3. Inside sales also fields customer service issues

4. Inside salespeople have clerical and technical support resources — enabling them to spend all of their available time on the telephone

5. Field representatives’ calendars are managed by a small team of sales coordinators

6. When Inside Sales has a requirement for a field visit (of either a customer-service or sales nature) they liaise with the sales coordinator responsible for the appropriate region to schedule this visit

7. Field representatives’ travel is determined primarily by these visit requests from Inside Sales. However, if field representatives have spare (not protective) capacity, sales coordinator will work with promotions to fill this capacity with opportunistic sales or support field activities

This model benefits all parties because:

1. It enables a high contact frequency (which improves customer service and shortens opportunity cycle time)

2. It reduces the effective distance between the customer and operations (improving the quality of both sales and customer service processes)

3. It enables field representation when (and only when) it is actually required

4. It reduces costs (and, of course, some of those cost savings can be passed — directly or indirectly — back to customers)

We don’t want salespeople writing proposals, simple as that!

However, freeing them from proposal generation can be more difficult than it initially appears.  The problem is not with minor or major opportunities — there’s an obvious approach for each.  It’s the ones in the middle that are the issue!

Let’s consider the extremes first.

Minor opportunity

If the opportunity is a minor one (perhaps you’re selling a standard stock item), the proposal can be prepared by the salesperson’s sales coordinator.

The salesperson simply provides the necessary information to his sales coordinator during the post-appointment update call.  The sales coordinator enters the critical variables into user-defined fields in the CRM and presses the appropriate button to launch the final document.

Major opportunity

In the case of a major opportunity, the salesperson does not take the client’s brief and, accordingly, is not responsible for the design of the solution or the generation of proposals, bids or similar documentation.  As you know, this is the responsibility of the project leader.  Obviously, the salesperson and the project leader consult during this process to ensure that the solution specifications (including price and fulfillment lead-time) are acceptable to both delivery and the potential client.

Mid-sized opportunities

So what happens when a proposal requires a degree of customization (or technical input) that is beyond the sales coordinator — but when the opportunity is not significant enough to warrant the involvement of a project leader.

First, let’s stop thinking about the proposal as a single entity.  In most cases, proposals can be broken into the following components:

1. Solution specifications (including price and lead-time)
2. The selling argument (the case for the potential client to purchase — often an executive summary)
3. Support material

Even if your standard proposal is a four-page letter, you’ll probably discover that it contains these three elements (and, if it doesn’t, it probably should!).

Let’s now consider how we should prepare each of these components.

Solution specifications

Our policy is that the salesperson should never take a brief for a solution that is not a standard stock item.  In those cases where the opportunity is not significant enough to warrant a project leader accompanying the salesperson on his visit, the resolution of this dilemma is devastating simple.  The trick is to have a member of your customer service (semi-technical) team conference-in to the appropriate section of the sales meeting.

In other words, rather than taking the brief himself, the salesperson calls a member of your customer service team, switches his cell phone to speaker-phone mode and then helps your customer service person to take the brief.

Once your customer-service person has the brief it is this person’s responsibility to specify the solution and provide it (perhaps in Excel form) to the salesperson’s sales coordinator.

Selling argument

Here, you have two options. 

You can build an intelligent Word document that enables options to be specified on start-up.  For example, if potential clients tend to have one of three standard buying motives, the document can prompt the user to specify the appropriate one — and then insert text (or paragraphs, charts etc) that are relevant to the particular client’s buying motive.  (To learn how to build intelligent Word documents, Google: "Word Fields".)

If a greater degree of customization is required, the temptation is to have your salesperson spend his evenings writing executive summaries.  As well as being unnecessary (and irritating for your salesperson), this approach fails to exploit a particularly effective selling technique.

If we assume that (given this is not a minor opportunity) multiple appointments will be performed during the opportunity-management workflow, the trick is to position the appropriate appointment in the sequence as a workshop of some kind (Solution Design Workshop, perhaps).  The salesperson should attend this appointment with a PowerPoint template containing the basic structure of your selling argument (a slide for each section of your executive summary, perhaps).

The salesperson should then facilitate the workshop — the content of which is the population of the PowerPoint template with the potential client’s business case.  The salesperson then provides the completed PowerPoint to his sales coordinator (who will convert it into an executive summary).

Obviously, the most powerful selling argument is the one that your potential client has devised for himself (under the skillful tutelage of your salesperson, of course!).

Support material

Our preference is to produce one standard set of support material and reference the relevant passages in the body of the proposal.  The support material can appear in one or more appendices.)

Document compilation

Once the three components of the proposal are in existence, the sales coordinator can compile and submit the final document.

Obviously, it’s the responsibility of the sales coordinator to negotiate a due-date for the proposal with your potential client —and to keep an eye on customer service to ensure that their contribution is provided on time.

The result of this approach is that salespeople can focus on selling (and stay out of the office).  Another consequence is likely to be a dramatic improvement in the quality of the documentation provided to clients.  You’ll probably discover that this approach actually yields a greater degree of proposal customization than you had previously when —notionally, at least — every proposal was a custom document!

We have disbelievers in our midst!

Among our loyal flock of AdVerb subscribers there are those who profess to embrace our principles but who flout at least one of them conspicuously.

I’m referring to those executives who claim to be Relationship-centric Marketing aficionados but who, nonetheless, invest their scarce promotional dollars in golf days, boxes at sporting events, lunches with no formal business agendas, directionless client visits and — horror of all horrors — birthday and Christmas cards.

Worse still, I’m periodically confronted by executives who hold up such activities as evidence that theirs are Relationship-centric sales processes!

"Look," is the common declaration, "I agree that business is all about relationships; that’s why I insist that all of our salespeople memorise the names of their clients’ partners, children, and favourite pets."

This article identifies the principle that is being violated in the scenarios above. More importantly, it explores the longer-range implications of this violation and — as a consequence — provides deeper insight into the Relationship-centric sales process.

The significance of relationships

As you know, the essential attribute of the Relationship-centric approach to sales process design is the recognition of relationships as the most lucrative source of sales opportunities.

The reasoning goes like this.

A (pre-existing) relationship is the most significant influencer of the probability of a given individual transacting with your organisation.

This is evidenced by the following observations:

1. Clients are most organisations’ greatest (and lowest cost) source of sales opportunities.
2. Referrals (from either clients or centres of influence) are typically the second-most lucrative source of sales opportunities.
3. An organisation’s reputation has tremendous potential to influence a potential customer’s purchasing decision, for better or worse. (Of course, the word reputation infers a relationship.)

Although few would question these observations, it is rare for an organisation to formalise the acquisition and management of anything other than client relationships.

To put it another way, most organisations regard clients and relationships as one and the same.

Of course, we argue that this is a logical flaw. Specifically, we argue that client is a sub-set of relationship. In other words, all clients are relationships but not all relationships necessarily have to be clients.

This realisation allows us to:

1. Acquire relationships with individuals other than clients (in other words, to acquire a relationship with someone without selling him anything).
2. Manage relationships with clients and non-clients alike.

As a consequence, Relationship-centric Marketing holds that, in order to generate sales opportunities, an organisation should deliberately acquire relationships with (non-client) members of its target market and then manage these relationships alongside client relationships.

An organisation’s target market is comprised of three categories of individual:

1. Existing clients.
2. Potential clients.
3. Centres of influence (individuals who may never transact, but who are in a position to influence those who may).

The methodical acquisition and management of relationships represents the first two components of our Relationship-centric sales process, as pictured below.

While it is possible to invest promotional resources directly in the acquisition of sales opportunities, our experience is that, in most industries, our indirect approach is more effective.

This is particularly appropriate in situations where a client’s decision whether or not to transact in the first instance is influenced by their estimation of the quality of a future relationship. (If there’s a pre-existing relationship, the requirement for guesswork is eliminated.)

Our experience is that the recognition of the relationship as the most lucrative source of sales opportunities impacts positively on both promotional activities and on the opportunity management process.

Where promotion is concerned, our clients discover that it is significantly less expensive to acquire a relationship than it is to acquire a sales opportunity. (We typically achieve the former by giving away some kind of packaged information.)

Where the opportunity management process is concerned, our clients find that a pre-existing relationship reduces significantly the resources required to close an opportunity.

Such is the power of relationships.

The silent ‘$’

If relationships are so valuable, why then am I suggesting that initiatives such as golf days, informal client visits and birthday cards are incompatible with Relationship-centric Marketing?

What is the purpose of such initiatives if it isn’t to build relationships?

Might I begin by suggesting that the word relationship has different inferences depending upon the context in which it is used?

If we consider just human relations, it’s obvious that there are many kinds of relationships.

We have relationships between doctors and patients, between friends, lovers, employers and employees, politicians and constituents and, of course, relationships between traders (commercial relationships).

For each relationship type there is behaviour that is compatible — as well as behaviour that is incompatible — with that relationship.

It does not follow, therefore, that the behaviour that is compatible with one type of relationship is necessarily compatible with another type.

To choose an extreme example, behaviour appropriate for lovers is not necessarily compatible with a doctor-patient relationship.

Now, the reason I am unimpressed by executives who present golf days and the like as evidence of the fact that their sales processes are Relationship-centric is that they are exhibiting behaviour inappropriate for the context in question.

Specifically, they are assuming that the behaviour that is appropriate for friends is also appropriate for a commercial relationship.

This assumption, as we’ll discuss shortly, is a non sequitur (it does not follow).

The executives who make this mistake are dropping the context in which the word relationship is used.

It should be obvious that, because Relationship-centric Marketing is a commercial methodology, the word relationship refers specifically to commercial relationships.

Hence my assertion that there is a silent ‘$’ in relationship.

Personal friendship is not a pre-condition of a commercial relationship

This point was driven home to me years ago when I was struggling to make it as a life insurance salesperson.

My sales manager at the timeregularly stressed that, prior to launching into a sales presentation, it was essential to build rapport with the prospect.

The technique he offered to accomplish this involved the salesperson gazing around the prospect’s home, looking for anything that indicated an interest shared by both parties.

Once the salesperson had identified a common interest, the trick was to steer the conversation towards this subject area and, as a consequence, for the salesperson to demonstrate empathy with the prospect.

My experience with this technique was that it served only to annoy prospective customers. Most displayed reluctance to engage in a conversation of a personal nature when the meeting had been scheduled for commercial purposes.

Even in cases where there was an obvious common interest, the resulting discussion seemed to do little empower the prospect with faith in me — at least in my capacity as an insurance professional.

Counter to my manager’s protestations, I discovered that the most effective approach was to dispense with the preliminaries all together and launch directly into the commercial agenda.

In retrospect, I realise that my sales manager was half right. He had recognised that, in many cases, rapport is a necessary condition for a commercial transaction.

However, he had assumed that you would use the same method to build rapport in a commercial context as you would if you were getting acquainted with your host at a dinner party.

My discovery was that, in a commercial context, the selling process itself was a more appropriate medium for the development of rapport.

It rarely makes commercial sense to invest in personal relationships

Let me make clear at this point that I am not claiming that personal relationships are a commercial liability.

While, admittedly, in some instances, they can be (e.g. conflicts of interest), this is more the exception than the rule.

Rather, my position is that the investment of scarce resources in the development of personal relationships can rarely be justified on commercial grounds.

This is because, when resources are scarce, the real cost of investing resources in one activity is the opportunity cost of investing those same resources elsewhere.

Or, in practical terms, when promotional dollars are limited, every dollar that is invested in golf days, informal client visits, Christmas parties and the like, is a dollar that cannot be invested in the development of commercial relationships.

Of course, this raises a critical question.

What is a commercial relationship and how do you develop one?

The term commercial relationship obviously refers to the relationship between two (or more) parties who conduct commercial transactions.

It follows, therefore, that if you wish to enter into a commercial relationship with an individual, you must transact with him.

Herein lies a dilemma:

I am suggesting that you invest in the development of commercial relationships with potential clients. If a potential client is a person who does not transact with you — and a commercial relationship presupposes transactions — how could it be possible to develop a commercial relationship with a potential client?

The solution to this dilemma is one of the key principals upon which Relationship-centric Marketing is based:

A commercial relationship presupposes commercial transactions. However, where potential clients are concerned, these transactions are zero-dollar transactions.

This principle is significant because it provides the loophole we need to build relationships with potential clients without dropping the commercial context.

Specifically, Relationship-centric Marketing stipulates that commercial transactions with potential clients consist of the exchange of a service of some kind for the increased probability of future real-dollar transactions.

In most cases, the service provided (at no charge) to potential clients consists of packaged information — delivered either in the form of a periodical (think AdVerb) or via events (seminars and workshops).

Obviously, the advantage of using information as the transactional commodity is that (packaged) information is a scalable resource (the incremental cost of servicing an additional e-mail periodical subscriber is negligible).

That said, where the value of a client is significant enough, it may be justifiable to deploy more expensive relationship-management resources (e.g. consulting services).

Transactions build relationships

You may have already detected an inversion of conventional wisdom with regard to the role of relationships in the sales process.

Conventional wisdom supposes that relationships precede transactions. Our method recognises that transactions precede relationships:

You acquire a (commercial) relationship with an initial transaction.

You then increase the value of that relationship with ongoing transactions.

Of course these two activities map back to the first two components of the Relationship-centric sales process:

Relationship acquisition. The initial transaction typically consists or the offer (and provision) of a document of some kind. (A white paper or a manifesto.)

Relationship management. Ongoing transactions typically consist of the provision of an e-mail periodical and events (seminars and workshops).

As you know, when making the claim that transactions build relationships, we don’t differentiate between zero-dollar and real-dollar transactions: both build relationships.

It’s reasonable to assume, however, that real-dollar transactions add more value to relationships than zero-dollar transactions and, accordingly, that larger real-dollar transactions add more value than smaller ones.

This realisation can be expressed as an unashamedly simplistic maxim:

If you want a relationship: sell someone something. If you want a stronger relationship: sell him more, more often!

Valuing relationships

A moment ago, I reminded you of the importance of recognising the opportunity cost associated with the investment of promotional resources in one activity, as opposed to another.

Considering that all promotional investment is (should be) intended to either acquire or add value to relationships, it is necessary to calculate the value of the relationships under our custodianship.

Because we’re discussing commercial relationships, the metric (measure of value) must be dollars.

Because a commercial relationship is an annuity (an income stream), the value of this relationship is simply the net-present-value (NPV) of that annuity.

This income stream has two components.

There’s the income stream related to current transactions and then there’s the income stream related to possible future transactions.

Accordingly, the value of a relationship can be calculated by adding the NPV of current transactions to the NPV of future transactions, discounted for probability.

It’s beneficial to consider a Relationship-centric sales process as a conveyor belt, designed to migrate low value relationships into high value ones.

This approach is depicted in the table below. Each row represents a milestone in the development of client relationships. The dotted line marks the point at which a potential client converts into an actual client.

This approach makes it obvious that promotional dollars should be invested in the activity most likely to induce the greatest positive change in the value of relationships under management.

If you apply this test to the allocation of your scarce promotional resources, you are unlikely to conclude that it is justified to devote many of those resources to social activities with no formal commercial objective.

You’re also likely to conclude that it doesn’t make sense to devote many promotional resources to clients who are already fully utilising your range of services: the relationship cannot become any more valuable. (It is more appropriate to view client retention as a responsibility of your research-and-development and operational functions.)

What if mine is a commodity product?

Those who object to our stand on personal relationships generally have one last objection.

"Mine," they argue, "is a commodity product. [Personal] relationships are all I have to differentiate me from my competitors."

The attempt to differentiate a commodity product with a personal relationship is simply a fool’s errand.

The resources invested in this endeavour will produce a greater return if they are either passed on to the customer in the form of a lower price or invested in product development (with a view to developing a more meaningful point of difference).

The reality is, if personal relationships are all that differentiate you from your competitors, your business’s outlook is questionable!

Nice, but not necessary

The fact that personal and commercial relationships share many common attributes makes it easy to fall into the trap of assuming that the two are interchangeable.

This issue is made even more confusing by the tendency of commercial relationships to migrate into personal relationships. (It’s only too easy to mistake effect for cause.)

However, as this article demonstrates, the application of this seemingly harmless assumption to sales process design can have harmful consequences.

If the inevitable scarcity of promotional resources makes it impossible to treat all commercial relationships as if they are equal, then the assumption that commercial and personal relationships are equivalent is reckless in the extreme.

Wastepaper baskets, the world over, are full of them.

In fact, if there were ever a competition to judge the most self-indulgent of all business communications, the newsletter would have serious competition from only the corporate video for first place!

A tragedy, when you consider that newsletters have the potential to be by far the most valuable communications tool any company can invest in.

Certainly, for most JRMA clients, newsletters are the backbone of their marketing programs.

Our newsletters generate a steady flow of new customers, unlock the ‘lifetime value’ of existing customers and position our clients as leaders in their fields.

This article explains both why and how you should establish a newsletter as the backbone of your marketing program. It all starts with a little marketing theory – an introduction to our ‘relationship-centric’ marketing model.

A ‘relationship-centric’ marketing program

We like to say that there are two types of customer in the world.

One type of customer buys a product. (They focus on product attributes and price.)

And the other type of customer buys a relationship. (They are less interested in a transaction, and more interested in a longer-term relationship.)

Most small- to medium-sized business would be wise to focus on this latter type of customer. Certainly, small businesses have a natural advantage when it comes to ‘customer intimacy’. Furthermore, relationship-focused customers are prepared to pay a premium for these relationships – insulating smaller businesses from the inevitable ‘margin shrinkage’ that efficient markets (read: their larger competitors) inflict upon them.

Smaller businesses tend to recognise this. But few have any idea how to attract, to service, or to profit from relationship-focused customers.

The solution is to turn traditional marketing methodology on its ear and build a relationship- rather than a product-centric marketing program.

Selling a relationship

If you’ve decided you’d rather be in the business of selling relationships than (keenly priced) products, here’s a three-step introduction to our ‘relationship-centric’ marketing model (click to enlarge):

• Take your focus off sales. If your customers aren’t transaction-focused – you certainly shouldn’t be.

• Create an automated communications program. Because a key ingredient in any relationship is ‘communication’, this system should provide your customers with regular (and meaningful) points of contact with you. Your automated communications program should be designed to exploit the value resident in the relationships under your management. However, rather than designing this program to optimise the value of individual transactions, you should design it to maximise customers’ ‘lifetime value’. ‘Lifetime value’ is a measure of the gross profit earned over the life of a typical customer relationship.

• Identify potential customers and introduce them to your automated communications program. Rather than establishing a relationship with people after they make their first purchase (as is normally the case) you should establish a relationship in advance. If your potential customers are those who will buy on the basis of a relationship, doesn’t it make sense to deliver this relationship in advance? (You’ll discover, in a moment, just how inexpensive it can be to introduce potential customers to your automated communications program.)

Enter the humble newsletter!

Well, that’s the theory out of the way – and the stage set nicely for the newsletter!

Step two of our ‘relationship-centric’ model involved building an automated communications program. And, as you already know, your newsletter should be the backbone of this program.

The purpose of your newsletter should be to provide those regular and meaningful points of contact we mentioned previously. Of course, your newsletter can be augmented with other types of customer contact (outbound calls, face-to-face visits, workshops, and so on), but your newsletter is likely to remain the most important component of your automated communications program. This is because a newsletter allows you to provide your customers with a considerable amount of value, for a fraction of the cost of face-to-face (or even telephone) communications.

Think ‘mini-magazine’

Now, for your newsletter to make an effective contribution to the quality of your customer relationships, it must be genuinely meaningful. Remember, if you emulate the self-indulgent style of the half-dozen newsletters that are currently providing ballast for your wastepaper basket, yours is likely to suffer a similar fate.

The best model for the editorial style of your newsletter is a magazine. The competitive nature of the publishing industry has resulted in magazine editors becoming particularly adept at producing publications that their readers want to read. (In fact, it’s worth noting that Australia has the highest per-capita readership of magazines in the world.)

You would, no doubt, have noticed the rapid fragmentation (specialisation) of magazine titles over the last few years. We suggest that your newsletter should be a ‘mini-magazine’ designed to appeal to a finely targeted group of individuals – your customers (and potential customers).

The key is to emulate the editorial style (and the look and feel) of a publication your customers are already likely to read. Your newsletter’s articles can then provide readers with more specialised, and perhaps more current, information. The test of the quality of your newsletter is to ask yourself: Would my customers be prepared to pay for this? If your answer is yes, you have a powerful communications tool.

Compelling content: four components

Once you’ve settled on the editorial style of your newsletter, your next challenge is to decide what you’ll write about. Each of our newsletters typically contains the following four components:

• Feature story (or stories). To write a feature story, pick a subject of interest to your customers from within your field of expertise, and ‘empower’ your readers with a clear understanding of it. (As Queensland’s Noel Whittaker has demonstrated with his best-selling books on money, a great way to take ownership of a category is to freely share your expertise.)

• Editorial comment. Typically, editorial columns are used to share company news (new employees, etc). If I were you, I’d bump this exciting stuff to your ‘news in brief’ column below, and use this space to deliver a thought-provoking (and preferably controversial) opinion piece. Where other articles in your newsletter may be written in third person, your editorial comment should definitely be written in first person – preferably by your company’s designated spokesperson.

• News in brief. Here’s the spot for industry (and yes) company news.

• A case study. One of the challenges you face selling relationships is that your ‘product’ is intangible. Consultants often tend to find it difficult to dimentionalise the benefits of their services. Obviously, one of the benefits of your newsletter is that it enables potential customers to experience a relationship with you prior to making a purchasing decision. Another particularly effective way to demonstrate the benefits of a relationship is to allow your potential customers to ‘walk in the shoes’ of existing customers.

A case study should introduce a customer, outline a problem they were facing, walk the reader through the steps your company took to solve that problem, and then paint a picture of the end result.

… just add people!

Once you have a newsletter that communicates meaningfully with its readers, you have your ‘automated communications program’ – the backbone of our relationship-centric marketing model.

Your next step is to introduce people to this communications program. These people should come from three sources:

• Customers. Obviously, your customers have a higher propensity to spend money with you than strangers do (that is, unless you’re doing something dreadfully wrong!)

• Prospects. These are people who have both the reason and the ability to become customers of yours. More importantly, they are people you feel are likely to be relationship- rather than product-focused. We’ll talk more about identifying prospects in a moment.

• Centres of influence. A centre of influence is a person who is in a position to refer customers to you. He or she may not actually be a prospect. A typical example of a centre of influence is a journalist from your trade publication.

Introducing people to your communications program is as simple as adding their details to a database. You could manage this database in-house. However, our advice is to outsource it to a specialist. Most capital cities have mail bureaus that provide database management, as well as mail processing (and often list rental and telemarketing) services.

We do not recommend creating a fanfare when you introduce prospects to your communications program. A simple letter of welcome will do.

Identifying prospects

The great thing about dealing with relationship-focused customers is that you don’t have to ‘make a sale’ to have a relationship with them. In other words, initiate a relationship first, then leave the selling (or should we say ‘buying’) up to them.

But how do you identify prospects?

Well, if you sell to businesses, it could be easier than you think. You might just find that the names and contact details of your prospects are available from a list broker. For example, if your target prospect is a ‘human resource manager working in a company with 100 or more employees’, this list is available from all good list brokers. Simply buy the list and add the records to your database.

If your prospects need to be better targeted than this, it might be worth commissioning some telephone research to filter these records. For example, if you want to identify those human resource managers who operate a particular software application, it’s still cheaper to have someone ring and ask, than it is to try and strike up a relationship with advertising!

If you cannot purchase (or otherwise acquire) a list of suitably targeted prospects, you may have to resort to less direct forms of ‘lead-generation’.

Now, because you’re looking for relationship-focused prospects, the trick with lead-generation is to promote a relationship – rather than your product or service. The obvious way to do this is to offer prospects a free 12-month subscription to your newsletter. Remembering that your newsletter has been designed to be truly valuable to prospects – this is an offer that’s likely to be eagerly accepted. (About 20 people a month request free 12-month subscriptions to AdVerb via our Website.)

We recommend the following promotional mediums for your lead generation-campaign (listed in typical order of effectiveness):

• Strategic alliances. Your prospects are already other business’s customers. Identify businesses that serve your prospects, and convince them to offer a free 12-month subscription to your newsletter to their customers.

• Direct mail. If the lists that you can obtain from your list broker are not qualified enough to warrant the cost of telephone research, you can identify qualified prospects by offering a newsletter subscription to this list. Respondents are likely to have both an interest in your services, and a bias towards relationships.

• Advertising. A successful lead-generation advertisement is little more than a good direct mail letter, reformatted for the media in which you’re advertising. Of course, your offer is still a free 12-month subscription to your newsletter. (You’ll find a couple of articles on advertising on our Website.)

Not just a newsletter. A total marketing solution.

Once you’ve navigated our three-step process, developed a relationship-focus, built an automated communications program and introduced prospects to this program, you’ve successfully converted your newsletter into a total marketing solution.

Your newsletter is now the backbone of a coordinated program that identifies potential customers, develops a relationship with them – perhaps even before they need your services – and then manages that relationship to exploit their lifetime value.

The good news is that the management of your relationship-centric marketing program shouldn’t consume a lot of resources – financial or otherwise. Key functions, including the research, writing, production and distribution of your newsletter, the management of your database, and the creation of your lead-generation campaigns, can all be outsourced.

And even if you do choose to outsource all of these functions, once it’s established, your newsletter should cost you around $4.50 per contact. That’s less than the cost of a face-to-face (and probably even a telephone) contact.

The theory is simple and, in most cases, its application is easily affordable.

Now might be the time to dust off your newsletter and see if it’s really living up to its true potential.

At best, most marketing communications are irrelevant to most of their recipients, most of the time.

At worst, these communications run the risk of damaging the very relationships they are supposed to be cultivating.

The problem is, from a marketing department’s perspective; every relationship looks like a sales opportunity.

Accordingly, marketing (and sales) people tend to design communications based upon the assumption that every recipient is in the process of making a purchasing decision.

Few potential clients are sales opportunities

Unfortunately, as the diagram below illustrates, nothing could be further from the truth.

This diagram portrays a marketplace consisting of six potential customers. Each makes a buying decision every 25 days. The duration of each decision-making process is two days.

If a marketing person (‘you’ in the diagram) were to view this marketplace for a total of eight days, only two sales opportunities would come into view.

Of course, if the marketer were to notice these two sales opportunities and assume that they were representative of the market as a whole, he would be sorely mistaken.

In the real world, the odds of a marketing communication striking a potential customer within her decision-making process are nowhere near as generous as those illustrated in this diagram.

If you’re selling a service or a ‘major’ product, your customers’ buying cycle (time between sales opportunities) is likely to be three or more years. The duration of a sales opportunity may be one or two months. And the persistence of your marketing communication (how long it stays top-of-mind) may be less than a week. (In this more realistic scenario, only one out of every 144 recipients of your communication would be in the process of making a purchasing decision.)

The real cost of irrelevant communication

In other words, the odds of your communication striking any given customer at just the right time is comparable to the odds of your being able to spear a particular fish in a pond, while wearing a blindfold!

Marketers traditionally compensate for these lousy odds by broadcasting their sales communications to large numbers of potential customers simultaneously.

Now, this approach is like electrifying the pond. You’ll get your fish, but the pond will sustain a lot of collateral damage in the process!

Obviously, repeated exposure to irrelevant communications (perhaps for a period of many years) is likely to damage your relationships with potential clients. If these communications are delivered by e-mail, many recipients will eventually unsubscribe themselves from your list — cutting-off your future access to them.

You could argue that this collateral damage is likely to be minor, because those individuals for whom your communications are irrelevant are more likely to simply treat them with indifference.

This is a valid argument. However it ignores the opportunity cost of this promotional approach.

What if, instead of deliberately creating and distributing communications that will be treated with indifference by the greater majority of your marketplace, you were to create communications that were relevant to recipients, at any stage of their buying cycles?

If this were possible, each communication would make a positive contribution to a developing relationship with your potential customers.

Well it is possible.

Invest in relationships, not sales opportunities

All you have to do, is identify a basis for communication that transcends your quest for sales opportunities. Our article entitled The importance of getting religion explains that this basis for communication should consist of the intersection between your market’s interests and your expertise (and credibility).

These relationship-building communications may be less effective at inciting action from that small percentage of recipients who are in the midst of their decision-making processes — but that’s okay.

The effectiveness of your communication should not be measured on an individual-to-individual basis; it should be measured across the marketplace as a whole.

Remember, when you broadcast a communication to your marketplace, those potential customers who are ready to buy today are a tiny minority. You’ll enjoy a significantly greater return on investment if you design your communications to be relevant to those individuals who are not currently sales opportunities!

How to use the virtual world of the Internet to multiply the effectiveness of your real-world marketing activities.

I don’t know about you, but sometimes I feel that managing a traditional ‘bricks and mortar’ business is downright unsexy!

Particularly when stories abound of Web entrepreneurs who have reinvented business as we know it (and become billionaires in the process) – seemingly without being slowed by any of the trials and tribulations of ‘real-world’ business.

The good news is that you don’t need to start an online enterprise to benefit from the power of the Internet. With the right approach, you can use this exciting virtual world to multiply the effectiveness of your real-world marketing activities.

This article will show you how.

Know your model

In the last issue of AdVerb, we introduced you to our Relationship-centric Marketing Model.

We explained that this model is appropriate for those businesses that sell a product with an essential service component – in other words, a product that isn’t a pure commodity. (I’m guessing that’s you!)

You’ll remember we explained that our Relationship-centric Marketing Model consists of two components:

• An automated communications program. A system of pre-programmed communications, designed to nurture relationships with customers, prospects and centres of influence. (Your ideal customers are likely to make a buying decision based on relationship first; price and features second.)

• A relationship-acquisition program. Once you have a system that deftly converts prospects into customers, you need a program that provides you with a constant stream of new prospects.

If you’re comfortable with our Relationship-centric Marketing Model, you should be excited about the Internet. This is because the Internet provides you with both a low cost communication channel and a lucrative source of new relationships.

Furthermore, the Internet provides you with the ability to hand control of your sales process to your customers – conserving your resources and often improving your conversion ratios. (We’ve been encouraging our clients to relinquish control of their sales processes for years!)

A low-cost communications channel

E-mail is already like the fax machine. Yesterday it didn’t exist, but today we can hardly live without it!

E-mail is exciting for the Relationship-centric marketer for three reasons:

1. It is an extremely low-cost communication channel. It costs no more to send ten thousand e-mails than it does to send one.
2. It is immediate. Within minutes of pressing ‘send’ your recipients are clicking ‘yes’ and reading their messages.
3. It is intimate. Think about it: are you most likely to communicate with a close friend by letter, fax or e-mail? E-mail wins because an e-mail is less formal than a fax, and much less formal than a letter.

The Relationship-centric marketer understands that the more frequently he communicates (in a meaningful, value-added way) with his customers, the more intimate a relationship he will build.

The problem is, until now, higher frequency has equalled higher cost. (Even with postal discounts, it’s difficult to mail anything to anyone for less than a dollar.)

E-mail makes frequency affordable. Because it costs virtually nothing to send an e-mail, the only limit to your frequency of communication is your ability to come up with interesting things to say!

How does e-mail fit into your automated communications program?

Once our clients grasp the implications of the low cost of e-mail, many ask if they should replace all of their existing points of contact with e-mail.

The answer’s no. The problem is, e-mail is nowhere near as potent as other (more costly) communication mediums. (In fact, when it comes to communication channels, there seems to be an inverse relationship between potency and cost.)

What you should do is design a communications mix relative to the lifetime value of each of your categories of relationships. (The table below illustrates a possible communications mix.)

You must genuinely add value

Planning to e-mail your customers is one thing. Coming up with something meaningful to say is another! (Remember, each point of contact must genuinely add value to the relationships under your management.)

As I’ve often stressed in the past, the best way to add value to these relationships is to give the gift of information. As well as inspiring the same tendency for reciprocity as any gift, the gift of information is special because it positions the giver as an expert – making future gifts appear all the more valuable!

You can deliver value to your customers via e-mail in two ways:

• You can include the information of value within the e-mail itself (e.g. snippets of industry news).

• Or you can use an e-mail message to point to information of value (usually with hypertext links to content on your Website).

We like to use our monthly ‘eBulletin’ primarily to advise our clients of additions to our Website (i.e. new books we’ve added to our reading list, new marketing tools in our download zone, or the addition of articles from the current edition of AdVerb).

You might be starting to realise that you can get enormous benefit from the Internet, without even building a Website. Such is the power of e-mail.

If you don’t already have your customers’ e-mail addresses, now is the time to start asking for them – and you should ask at every point of contact.

Acquiring new relationships

Most organisations ‘go online’ hoping that their Websites will somehow attract more customers. Sadly, most don’t!

Of course, most Websites don’t ‘work’ for exactly the same reasons that most advertisements don’t. They provide no incentive to visit in the first instance; they deliver little value once you’re there; and they contain no compelling reason to initiate further correspondence.

It should come as no surprise that we suggest that your Website (like your advertisements) should not suffer from these performance impediments.

It all starts with an offer

Before you start work on your Website, you need an offer. This offer will provide your visitors with both a reason to visit and a reason to initiate further correspondence.

Fortunately, because you are a Relationship-centric marketer, you already have such an offer. It’s called your ‘automated communications program’. Think about it. You designed your communications program specifically to add genuine value to your relationships with customers. Doesn’t it make sense that potential customers will jump at an opportunity to ‘subscribe’ to this program?

It does. And they will!

Typically, we recommend that our clients use the offer of either a free 12-month subscription to a newsletter, or a free ticket to a workshop. (Of course, you can also use these offers in your real-world promotional activities.)

Your offer should be featured prominently on your Website (to get your visitors to volunteer their e-mail addresses) and on other people’s Websites (to convince their visitors to click-through to yours).

Fishing for e-mail addresses

We suggest that, in most cases, the primary objective of your Website should be to convince visitors to surrender their e-mail addresses.

This means that your offer should be:

• Prominent. It should be your home page’s most noticeable element.

• Desirable. The benefits of subscribing need to be ‘dimensionalised’ for the visitor.

• Accessible. Ideally, your visitor should be able to enter his e-mail address and click ‘submit’ right there on your home page. (Certainly, the form that captures his e-mail address should be no more than one click away.)

• Affordable. The number of e-mail addresses you collect is inversely proportional to both the cost of your offer and the amount of information you request from your visitors.

This last point is an important one. Many marketers attempt to ‘qualify’ visitors by insisting that they part with either money or information in order to receive the offer. This is counter productive for two reasons:

• If a visitor wasn’t already reasonably well qualified, he probably wouldn’t be on your Website in the first instance. For example, if a property developer ran a banner advertisement featuring the headline: How to use the equity in your home to build a million-dollar property portfolio, it is likely that the visitors to his site will be home owners with an interest in investment property.

• If you are going to deliver your offer by e-mail or via your Website, the incremental cost of acquiring an unqualified name is absolutely nothing. You’re better off making it as easy as possible for your visitors to respond.

Once you have an e-mail address, it’s relatively easy to convince its owner to volunteer additional information. (We acquire the details of close to 90% of our e-mail subscribers by offering an invitation to a forthcoming workshop in return for a name, address and telephone number.)

Site promotion

Once you’ve built your Website, the next step is to convince someone to visit it.

In the early days of the Web (three years ago), it was possible to generate an instant traffic flow by registering your site with the various search engines and online directories. Today, as a result of the exponential growth of the Web, search engine registration has become a science in itself – with no guarantee of immediate results.

While you should obviously register your Website with search engines, there are more immediate ways of driving site traffic:

• Real-world promotion. One low-cost way to generate site traffic is to feature your site address prominently on your corporate stationary and on all of your communications (including the signature on your e-mail messages).

• Reciprocal links. Your next step is to encourage those non-competitive organisations that share your client profile to put links to your site on theirs – in exchange for your doing the same for them. This is a highly effective (and often overlooked) form of site promotion.

• Banner ads. In spite of their regular poor publicity, we have found banner advertisements to be remarkably cost effective. As a rough rule of thumb, we typically find that we can generate a response from a banner advertisement for around 20% of the cost of a response to an advertisement in a metropolitan newspaper.

As mentioned previously, the trick with banner ads is to use them to promote your offer (rather than your Website). Because banner ads are so small, they should consist of little more than a headline. The essential selling copy should appear on the page that the viewer clicks-through to.

Our current banner advertisement provides us with a constant stream of new subscribers to this publication. It reads as follows: Turn your business into a finely-tuned marketing machine … subscribe to AdVerb free … Marketing tips! … Advertising tricks! … And strategies to fast-track the growth of your business! (Because our banner ad is animated, each ellipse denotes a new frame.)

Putting your customers in control

The great thing about a well-designed Website is that, if you let potential customers loose inside it, they tend to sell themselves!

This is nice because it conserves your valuable promotional resources. But it is also significant because your Website can provide an environment that’s less threatening to a potential client – meaning that they tend to stay longer (and explore more) than they would if they visited your real-world business.

An introduction to a well-designed Website

While Web design could easily be the subject of another AdVerb feature, here are three tips to get you started:

• Make your site’s content readily accessible. Try and minimise the clicks required to travel from one area of your site to another. If your site attracts non-technical, as well as technical, visitors, be sure to provide a secondary jargon-free navigation bar.

• Provide resources of value to your visitors. Such resources could include articles from past editions of your newsletter, transcripts of lectures, a self-analysis questionnaire, software-based tools and a reading list. Perhaps some of these resources can be provided by your suppliers and business partners.

• Remember, this is a marketing, not a technical exercise. Your Website should be designed to communicate, to educate and to transact – not to show off!

If the media hype surrounding the ‘dot coms’ had you convinced that the Internet and traditional ‘bricks and mortar’ business were mutually exclusive, I hope I’ve changed your mind. The fact is, clicks and mortar can coexist quite happily!

I spent a couple of hours with a Sydney-based insolvency practitioner last week. He visited to request assistance with his marketing. (Yes it’s okay, Ballistix is still solvent!) Because this was my first meeting with a potential client I waited a full 10 minutes before challenging the viability of his business model. Fortunately, my guest’s profession had equipped him to take my combative approach in his stride. Accordingly, I’m happy to report that our meeting was fruitful for both parties. My guest gained a growth strategy for his practice. And I gained a new technique I can use to assist our clients in the formulation of their sustainable competitive advantages (not to mention, material for this bulletin). My guest opened our meeting by explaining that he had a boutique insolvency practice. Now, when I think of the word ’boutique’, three attributes spring immediately to mind: ’small’, ’specialised’ and ’expensive’. However, my questioning uncovered that my guest’s practice was endowed with only one of these attributes. He admitted that while he was small, he wasn’t particularly specialised, and that his fees were pretty much on a par with those of his larger competitors. I discovered that my guest’s clients were those people who enjoyed the opportunity to work with him personally (rather than having their work shared among less skilled associates). I also discovered that, because he did a good deal of the work himself, his margins were quite high. That’s when I pounced! I explained that while his business model didn’t prevent his practice from being profitable (and it is profitable) the absence of those two missing attributes (’specialised’ and ’expensive’) would impose a ceiling on his growth.

The importance of specialisation

As I’ve explained many times in the past, if you’re small, it’s better to be different than it is to be better. It’s almost impossible to convince the market that you have a service that’s better than those of your larger competitors. Even if your claim is true, it isn’t believable. The market naturally associates ’big’ with ’better’. If you’re small, it’s a lot easier to convince the market that you’re different. Being different is about being a specialist – and the market naturally associates ’small’ with ’specialist’. You get to be a specialist by focusing on serving a niche market. A niche market is a group of customers whose needs are not adequately met by the cookie-cutter solutions served up by your larger competitors. Now there are three types of niche markets on which you can focus. You can focus on a vertical niche, which is defined by market (a range of services for a specific market). You can focus on a horizontal niche, which is defined by service (a specific service for a range of markets). And, just in case neither a vertical nor a horizontal niche provides the degree of focus you are looking for, you can have both a vertical and a horizontal focus (a specific service for a specific market). Of course, the million-dollar question is: ’upon which niche market should you focus?’

The importance of being expensive

Now, traditionally, in order to answer this question, a team of MBAs will scrutinise your business, your market and your industry, and then prepare a SWOT analysis (SWOT stands for ’strengths’, ’weaknesses’, ’opportunities’ and ’threats’). This SWOT analysis will (hopefully) provide you with a map that will lead you to the buried treasure – your ideal niche market. Unfortunately, my guest and I had just a couple of hours to consider this question (and there were no MBAs anywhere in sight). I suggested we address the problem with a kind of baptism by fire! We agreed that the niche we chose would have to allow my guest to charge a premium for his services. (Because he doesn’t have his larger competitors’ economies of scale, unless he charges a premium, his growth will result in margin shrinkage). So, rather than identifying a niche market, designing a custom service offering for this niche and then setting a price, I suggested we work backwards. I challenged my guest to take the hourly rate charged by a partner in one of his competitor’s firms, add 50%, and *then* go looking for a niche market that would be prepared to pay this higher fee to work with a specialist. Interestingly, it wasn’t until we attacked his problem from this perspective that the question became easier to address. Immediately we were able to disregard some markets that would not be prepared to pay this premium. We eliminated others that were not large enough to provide the growth potential that my guest was looking for. And we identified a couple of niche markets (one vertical and one horizontal) that were worthy of further investigation.

A challenge for you!

My appointment with this insolvency practitioner was just one of 15 appointments I’ve had with owners of small- to medium-sized businesses in the last three days. Over those three days, I discovered nine organisations that are faced with exactly the same challenge. Almost all of these organisations had the good sense to preface their descriptions with the ’boutique’ adjective. But none of them had actually targeted a niche market. None of them was a specialist. And, as a result, none of them was in a position where they could charge enough of a premium for their services to fund ongoing (profitable) growth. Here’s my challenge for you. If you are charging prices that are on a par with those of your larger competitors, program a significant price rise to occur in exactly one month’s time. Over the next 30 days, identify a niche market that will be prepared to pay a premium for a customised service, and then go about designing a service package to serve the unique needs of this market. My guess is, when the pressure’s on, you’ll identify your ideal niche market! It’s easy to defer making this tough decision – particularly if your business is profitable. But if you want to grow your business – and because you’re an AdVerb subscriber, I’m guessing you do – you need a business model that’s scalable. That means, if you can use the word ’small’ to describe your business, you must also be able to add the words ’specialised’ and ’expensive’.

My first piece of advice is simple: treat the Internet as an opportunity for your business — rather than as a business opportunity, in and of itself.

The fact is, there’s more mileage in using the Internet to better execute your existing strategy than there is in treating it as an entirely new business model.

The Internet as a business opportunity

We don’t need to look far to find examples of businesses for which the medium *is* the business.

Yahoo!, eBay, e*trade and Amazon.com are obvious examples. Here in Australia we have dStore, Travel.com.au and Wine Planet. These businesses use the Internet as the source of both their value proposition and their competitive advantage. (Obviously, without the Internet, none of these businesses would exist.)

Now this isn’t the first time in history that businesses have sprung into existence around a distribution channel. Catalogue companies owe their existence to the postal system. And, for multi-level marketing (MLM) companies, the distribution channel (direct sales) is certainly the business.

The Internet as an opportunity for your business

So do traditional businesses have to emulate the business models of the dot coms in order to exploit the obvious potential of the Internet?

Definitely not! Just think, your business probably benefits from the postal system — even though you’re not a catalogue company — and from direct sales — even though you’re not a multi-level marketer.

The trick is to find ways to use the Internet to better deliver on your existing value proposition — and to strengthen your existing competitive advantage.

If the relationship you have with your clients (and potential clients) is the source of your competitive advantage (and if you are not a cost or technology leader, it should be) the Internet provides you with a number of opportunities to develop greater market intimacy.

E-mail, which is surely the Internet’s most powerful capability, enables you to communicate with clients and potential clients as often as you can think of something relevant to say — absolutely free of charge!

And the Web enables you to give clients and potential clients remote access to your organisation’s valuable knowledge base (articles, case studies, FAQs, etc) — without requiring you to incur any distribution costs.

Getting it wrong!

You should avoid using the Internet to commoditise your service offering. Or, in other words, to marginalise the importance or your client relationships.

The danger is that the commoditisation of your service will damage your existing competitive advantage — and open you to direct competition from organisations that can compete more effectively in a commoditised marketplace (e.g. the dot coms).

For example, I think that it would be a mistake for a boutique recruitment agency to attempt to create an online employment market (and quite a few have done this). The dot coms (Monster.com.au and Seek.com.au) — as well as News Ltd’s CareerOne — have an unassailable lead in the online recruitment market. In teaching its clients to shop for recruits online, our hypothetical recruitment agency would be delivering its clients into the jaws of hungry lions.

This agency would be better off using the Internet to provide its clients with a steady supply of information on how to best recruit, train, manage and retain employees. It could also make resources available online for clients (e.g. customised employment contracts, letters of engagement, performance appraisal documentation, and so on).

These services would help clients to appreciate and value the experience and the skills of recruitment consultants. And to place value in an enduring relationship with this recruitment agency.