The strategy of one of my business units* is in conflict with the strategy in one of my other business units and creating a major cultural problem. Weird insight, but I think I’m relieved. I’ve certainly learned something new.

Perhaps you have read Treacy and Wiersema’s 1995 book, “The Discipline of Market Leaders,” in which they introduced the concept of choosing a primary value proposition and sticking to it. The three value propositions are Customer Intimacy, Product/Process Superiority, and Operational Efficiency. Anyway, the theory is that you have to deliver on all three at a minimum standard necessary to compete, but then you have to select one – and only one – to excel in.

Following Treacy and Wiersema’s instruction (with a lot of Michael Porter and Balanced Scorecard thrown in for focus and tracking), I have kept a very steady hand on the Customer Intimacy throttle the past 10 years. And it’s worked. Our customers reflect our brand back to us as a Customer Intimacy brand. But we have one equipment division that never manages to get out of the chute. It’s fraught with tension and misalignment at every turn. And I haven’t been able to figure out why.

Finally Alan, one of the brothers who owns the company I run brought back some materials from a speaker he’d listened to named Edgar Papke from CDG. CDG’s premise is that for each value proposition there is actually a cultural proposition, and that if you inappropriately align culture and value proposition you’ll end up with lack of effectiveness. The culture for Customer Intimacy is Collaboration – and that’s what our company has. A strong team-based culture that demonstrates and benefits from extensive collaboration. The culture for Operational Efficiency is Control, and the culture for Product Superiority is Competency/Competitiveness. Alan said that it seemed to him that there was value proposition misalignment – and when we started evaluating it, there was. His brother (who is the engineering lead for the troubled division) definitely has a Product/Process Superiority value proposition in mind for that division. Their sister, the Product Manager for the division, has a Customer Intimacy bias. And of course the division shares nearly all its resources with the greater corporation (the division represents about 5% of total revenues), and the management style and philosophy of the corporation is Collaboration, supporting a highly dominant value proposition of Customer Intimacy.

It’s so simple, really, and should have been clear sooner. But of course, it wasn’t. I kept chalking the frustrations up to difficult personalities and perhaps bad product ideas, and therefore didn’t follow my own dictum of “first you solve the process, then you solve the people.”

Anyway, I’m now on a rousing mission to figure out how to achieve two different value propositions while fully cognizant that we can’t expect people to function in two different cultures. Knowing that this is the problem is highly instructive, and while I don’t have the answer yet, at least I’m working on something likely to yield results. I guess it’s time to be conscious about all my business tools. Given that this is a business conflict in the true meaning of the word, maybe I should give Eli Goldratt a nod, dust off my Evaporating Cloud skills, and see if there’s a simple solution in here somewhere.

Are You Competitive?

One of the most important elements of business success is competitiveness. Business thinkers write about it, business owners talk about it, and entrepreneurs worry about it. I have received more than one phone call from new business owners worried that they are not competitive enough to launch a successful business. Which is simply confirmation that, despite all the discussion about competitiveness, very few people really understand what it means.

For most people, our exposure to competitiveness is related to childhood sports or academics. We grow up thinking that the people who train the most or study the hardest or are the most relentless are the most competitive. While there's no doubt that drive is a part of competition, the true definition of competitiveness is the differentiation. The person who can run the fastest is the most competitive in a footrace - whether she trained for years, or just slipped out of her high heels on a whim and took off.  While drive, discipline, or even aggression can sometimes be contributors to success, these attributes only matter if your end result delivers the desired prize.

Plan Your Race Carefully

Runners self-select into different aspects of the sport. Some are sprinters, some are jumpers, and some are long-distance. Most will excel at a few of these, but rarely are the sprinters also the cross-country warriors. You don't have to be competitive in every type of running to win a Gold Medal - you just have to be competitive in your chosen heats. The same is true with business competitiveness.

To be competitive in business, you must match your talents (services, products, identity) to your potential markets. If your talent is to create extremely high-end, scrumptious, gold and diamond jewelry, you know that your market will not be high school girls. But your target is not the "32 to 48-year-old female self-purchaser with a professional career" demographic either.  Even though that category is likely a closer match to your offering, it's still very broad, and made up of many many different types of women with different aspirations, values, and purchasing behaviors. You have to figure out which heat is yours to win.

And what does winning the race look like in this example? The Gold Medal is to achieve your sales and profitability objectives and to create a sustainable business with tangible market value. To be competitive, you have to identify the group of people to whom your product or service matters, and give them a reason to buy from you instead of from someone else. This is the heart of competitiveness.

Train Train Train

Here's where the discipline and determination that are powerful contributors to competitiveness come in. You can't just set your market target and then forget about it. Being competitive - i.e., winning the results you want - requires constant attention, correction, refinement, and practice.

I was speaking with a potential new client today, a luxury retailer in a very high rent market. I asked a lot of questions about his business performance, and he was able to answer each one with accuracy and confidence. When I asked about his customer profile he said, "That's where I think we need your help. Our customer profile feels less focused than it used to." This is an example of someone who is in it to win it. He is so aware of his own business that he can feel when he's off. He approaches every day as full-on training.

Your Race is Your Own - Don't Copy Anyone Else's

Another competitive mis-step is to copy what other businesses are doing. If another business in your competitive space is already doing something, the market doesn't need you to do it too. You have to do something else. Just remember, when you're playing follow-the-leader, the leader will always cross the finish line before you.

You Can't Win a Race Looking Over Your Shoulder

Some business-owners are so terrified that a competitor is gaining on them that they can't stop looking over their own shoulder. They vigilantly patrol their market space for copy-cats and encroachers, and they waste precious energy and business focus looking at the wrong things. Of course, if someone egregiously infringes on your business, you need to deal with it, but in most cases these caboose-fixated folks are trolling for the mere threat of competition. If you try to run while looking backward you're bound to fall on your face, and that's virtually what happens to business owners with this competitive problem.

If You're Not Having Fun, You're Not Doing it Right

The best athletes in the world compete for the love of their sport. No amount of money or prestige can make all that practice and sacrifice worth it. They may not feel like practicing every single day, but nine out of ten days they are doing what they love to do.  When I tell people they need to have more fun at work, a common impulse is to start doing Friday pot lucks or monthly pizza parties. Hey, food is fun, but that's not really what I mean. You need to love what you do to show up every day in your game clothes.

So to all of you out there who aren't particularly competitive (in the generally accepted sense), who don't feel the thrill of cutting throat, who are more likely to shed tears than shake your fists at defeat, worry not. Being competitive is about differentiating, practicing practicing practicing, and never looking over your shoulder. It's OK if you still let your older sister win at Monopoly. Follow these concepts, and you can still win at the competition of business.

I'm having a lot of fun again. For a little while I had stopped following my own advice - the advice I always give about staying true to and clear about your business strategy and your own path. Oh, I was having fun at first when I went off my path. I was indulging my personal passion for learning new things and learning them very deeply. When I stumble onto something that requires deep, deep investigation to learn, I find that very stimulating.

In this particular case, I was able to (sort of) rationalize that it was beneficial to my customers and my business to dig into it.

But the whole adventure was (very) peripheral to my own business strategy. This happens fairly often to entrepreneurs. We are interested in many things, and we can get a little ADHD about our varied interests and passions. We can fall off our path. Often, falling off our path involves falling onto - or in the way of - someone else's path. For instance, a designer may change her design aesthetic to satisfy the pricing concerns of the 'wrong' group of customers. At first, coming up with new designs is a lot of fun, until you realize that you're gradually not appealing to the customers that really matter to you. A jewelry retailer may get caught up in the fun and excitement of event planning or social media, only to realize months later that she stopped paying the kind of attention needed to her nuts-and-bolts merchandising strategy.

Luckily, we do get clues that we are off track. For me, the clue is when the fun of the diversion is no longer fun. You see, my long-term path and strategy are based on my deepest convictions and life-time goals. Your strategy should be based on those things as well. Whether you want to sell your business for a lot of money, build a brilliant brand with staying power, or create a business that your family can inherit and run, matching your life goals to your business strategy will keep the business satisfying - fun - for you.

Diversions from your strategy are like vacations. It's fun to go new places and see new things, but typically the vacations we take are a refreshing break from what should be a deeply satisfying life. When we lose sight of that and move to the beach and start sleeping in a tent, we quickly realize that the vacation is not the real thing.

Are You Having Fun?

Sometimes the clue is that you realize you are engaged daily with people you don't want to be working with, or you find your ethics compromised or at risk of being compromised. Sometimes the clue is that whatever you are off-track on is not working, or the initial excitement of it can't be sustained and now it's a slog, or you suddenly find yourself with customers who don't get you, that you wouldn't have chosen if you hadn't gotten off track.

Some people argue with my idea that work is supposed to be fun. But this isn't some fluffy girl thing, an emotional thing. It's a real thing. We do our best work when we're having fun. We blow our competitors out of the water when we are having fun. When we are having fun, we are fun to work with, and that means our customer relationships are infused with our energy and our customers have fun. I have always found the money just flows when I am having fun. So the question "are you having fun" is a strategic question. I am dead serious about having fun.

Once I realized I was off-track, I did take some time to review my original strategy and make sure I was still happy with it. I recommend that anyone who has experienced a temporary diversion do the same, just in case there is an opportunity waiting in the wings that you hadn't considered.  I asked:

1. Is my original strategy still the key to my lifetime goals?
2. Do I see more potential in this diversion than I see in my strategy?
3. Do I want to serve the customers I would serve if I pursued this diversion?
4. Do I want to do the work I would have to do - long term - if I pursued this diversion?

In some cases, you may realize that you want to go a new direction. You'll know it when you see it. In most cases - and at least this time, in my case - you can use the diversion as a powerful reminder of how important your own strategy is to you, and you get back on track.

One of the keys to staying on your strategy is to keep it front-and-center in your daily business life. My visual strategic plan (goals, objectives, timelines, all on one page) is once again taped to the top of my desk, reminding me every step of the way of what I want to accomplish in the long term. But the emotional cue is definitely most powerful. I am having a lot of fun again, and it feels right. That is a good place to be.

Everywhere I travel the talk is of the coming recession. In terms ranging from laconic to histrionic, the nation is coming to grip with an economic adjustment. Though the range of response from person to person is not surprising, the range of response from industry to industry is perplexing.

My work is divided among the apparel, consumer electronics, entertainment, and jewelry industries. All four industries are experiencing similar consumer withdrawal, as customers who once shopped like Lindsay Lohan thanks to their home equity loans are now cutting up their credit cards and rediscovering what it's like to live on their $45,000 annual salary.

There are similarities. The smart companies across industries are evaluating means to reduce their costs, maintain brand, marketing and sales focus, and increase customer value. Savvy operators have switched from a quarterly/monthly financial evaluation strategy to a monthly/weekly financial evaluation strategy. Even the folks who don't care much for reading are watching the financial and business news every day.

But one difference stands out, and it's mystifying to me. In the apparel industry, retailers and design labels alike are aware that tough times are ahead, but most assume they will weather the storm. In consumer electronics everyone is aware that they will no longer benefit from a buyer for absolutely anything that gets thrown on the shelf, but most assume they will weather the storm. And in the entertainment industry all levels are aware that the models will continue to change rapidly and somewhat confusedly, though most all assume they will weather the storm. The jewelry industry, however, seems to be convinced – sometimes seemingly committed to – its own demise.

Why do I say this? Because everywhere I go, everyone I talk to in the jewelry industry asks me "are we going to survive this? What's going to happen to the jewelry industry?" At first I thought this reaction was isolated to a few struggling players. But that's not the case. There seems to be no profile for the jewelry industry death-watcher.

The bottom line is that the jewelry industry is going to be fine. The jewelry industry is simply going through challenges that have affected every other mature industry, including each of the industries I currently serve.

Less expensive imports have threatened nearly every type of industry over the past 50 years. But the apparel and textile manufacturing business in the US is now larger than it was in both shipments and dollars in the mid-80s, when the end of American textile and apparel manufacturing was prophesied. Yes, jobs in those industries have decreased by nearly half. Was it due to cheap imports, outsourcing of jobs, or relocating plants to markets with lower labor costs? While all of those things played a part, their part was arguably small. Textile and apparel industry watchers estimate that 80% of the reduction in jobs was due to the creation of efficiencies, allowing the manufacturing operations to work with less labor.

For the past 50 years Ma-and-Pa retailers have been swallowed up by mass merchants. Yet small business accounts for 50% of total US private sector employment, pays more than 45% of total US private payroll, has generated 70%-80% of net new jobs annually for the past decade, and accounted for over 650,000 start-ups in 2006. As I travel I seek out innovative apparel boutiques, jewelry stores, and independent music/book/video retailers, and I have been delighted to find thriving independent retailers in nearly every community.

So back to my initial question. Why are jewelry retailers so much gloomier about their prospects than business owners in other industries? It's not a rhetorical question – I don't have the answer to that and I'm hoping that some of you do.

I do have an observation about what will set apart the winners from the losers. Actually, it's a question raised by Heraclitus regarding when an object that persists through time transitions into a different object. The story that was told to illustrate Heraclitus' question was this:

“The ship wherein Theseus and the youth of Athens returned had thirty oars, and was preserved by the Athenians down even to the time of Demetrius Phalereus, for they took away the old planks as they decayed, putting in new and stronger timber in their place, insomuch that this ship became a standing example among the philosophers, for the logical question of things that grow; one side holding that the ship remained the same, and the other contending that it was not the same. (Vita Thesei, 22-23)

Businesses that survive over the years take away old planks that are decayed and replace them with newer, stronger timber. One of my favorite retail stores in the world is on Howard Street in Chicago. It has been owned by the same woman for at least 30 years. At times it has been a jewelry store, a clothing store, a costume store, and an antique store. In fact, at all times it has held all of those things, but during different times it has emphasized those things differently. And always that store has been a place that has welcomed its neighborhood, known its shoppers, and offered amusement and conversation to anyone who entered the premise. That seems to be the best recipe for long-term retail success – a formula that has found adherents in nearly every community.

Retailers and small manufacturers need to ask of themselves a few vital questions.

1. Why do my customers buy my products?
2. How do my products stand out in my customers' minds?
3. How do my services stand out in my customers' minds?
4. What are the biggest hassles my customers encounter when buying from me, and what could I do to eliminate them? (the hassles, not the customers)
5. Are there any specific barriers to being my customer, and if so, how can I remove them?
6. Which of my customers require substantially more or less sales attention than the others? Why? What insights can I glean from this?
7. If my store were shuttered, to whom would it matter, and why?
8. Which of my customers would miss me most, and why?
9. How long would it take another company to fill the void?
10. If I were just starting my business today, would I do the things I am doing now? What would be different?

The asking and answering of these questions will lead to vital insights that can help any business owner figure out which planks are decayed and need to be replaced. Not all businesses will survive the test of time, but some will. Might as well be yours.

(c) 2008. Andrea M. Hill

Ask the average management consultant about organizational change, and he’ll tell you that more organizations need to do a better job of embracing more change. Ask the average CFO about organizational change, and she’ll likely tell you that organizations need to do a better job of maintaining and improving the things they are already doing.

The change/don’t change conflict has existed as long as fathers have had sons, children have taken over family businesses, and marriages have reached 25^th anniversaries. If you had to choose one option over the other, the only option that would carry you into the future would be to choose change. But change is always disruptive, and it can be quite dangerous if not applied with deep knowledge and finesse.

Some elements of a business should be fairly unchanging. The core values of a business should change very little over time, though they may evolve a bit as the business owners and participants deepen their understanding of them. One of the primary reasons for merger and acquisition disasters is the failure to consider differences in core values governing the cultures and brands of the organizations involved. Reconciling conflicting value systems is much more difficult than integrating computer systems (though systems migration is a bear). Business culture and business proposition are related to values, and should be similarly unchanging. 

Other elements of a business should be reviewed annually but changed far less often. Strategy is an example. Any business that adopts a new strategy each year has not embraced strategy at all – they are just pursuing serial tactics. Effective strategic planning looks out 7-10 years and creates ambitious multi-year plans and goals to achieve the strategy. Strategy should be monitored monthly and reviewed annually – but it should not be changed unless compelling market reasons to do so are present.

Brand is another element that should be constantly monitored but which should change rarely, and brand change should be subtle and incremental. Customers do not like the shock of adapting to new brand messages. Brand loyalty is based on trust, and trust is shaken when a friend you thought you knew suddenly changes.

Everything a company does to fulfill the promise of its brand and to achieve its strategy should be considered as viable candidates for change. But change should be considered carefully. For instance, if a company decides to implement a new sales strategy to achieve their long-term revenue and margin goals, they should conduct research to find out how long it typically takes for a business to benefit from such a change. If they expect to see immediate benefits, but case studies show that results typically require 18 months, it would be good to know that in advance. Too many companies abandon viable change efforts because they do not have realistic expectations.

Why am I speaking of change when the only news anyone wants to talk about is the economy? That’s why.

Too many companies are abandoning their values, their brands, and their strategies in an attempt to weather the storm – a storm which by all comparisons is bad but not tragic and is certainly precedented and survivable.

Too many companies are cutting loose important (strategic) talent, eliminating their advertising budgets, changing their marketing strategies, and reducing their operations to customer-unfriendly shells in an effort to survive a bad tornado season that’s been billed as an earth-bound meteor. 

If your business values, strategy, and brand were sound before the recession, they probably still are. Evaluate them, yes – particularly to see if the irrational reaction of your competitors is creating market opportunity for you. In a recessionary economy the tactics you deploy to achieve your strategy and brand may need to be tweaked, adjusted, and redirected. If you keep your eye on your established strategy and brand, you can modify your approach to take current market conditions into account, and find success. 

The types of changes you should – and should not – make during a recession are the same types of change you should consider during a strong economy. Don’t let the economy dictate how you will run your business. To do so would be the last type of change you want to make. A terrible change in leadership.

© 2009. Andrea M. Hill

I was just on a conference call with three experts in digital design. We are preparing for a panel discussion at the Gold Conference in New York at the end of April (you really should join us! Here’s a link to learn more about the conference). We were discussing the transformative aspect of digital design and manufacture, and whether or not the jewelry industry has actually embraced that yet.

Many of us are talking about the struggles in the jewelry industry.  Here are just a few of the more comprehensive writings on this topic:

• What Will Become of Jewelry Retail Stores? Peter Smith (4/12/2016)
• Everything You Know About Luxury Has Changed. Andrea Hill (5/27/2015)
• The Jewelry Industry and Millennials: What do they want? Rob Bates (5/18/2015)
• Past Time for Change: A Post to the Jewelry Industry. Andrea Hill (6/2/2014)
• You Need to Attract the New Consumer.  Andrea Hill (3/17/2014)

And yet, the store closures (~750 last year) keep happening, specialty retail stores are stagnating, and the industry mood is a bit grim.

Digital Design has Already Transformed Industries

So let’s look at what’s happening elsewhere. One of the guys on my call this morning (Harry Abramson, Direct Dimensions) shared a story about his brother (brother-in-law?) who is in the custom t-shirt business. Whereas at one time, if you wanted a custom t-shirt, you had to produce or select a design, then order and stock it by the dozens in each size and color; today you can order one custom t-shirt at a time with virtually the same delivery time. The individual t-shirt may cost a bit more than the cost of each t-shirt in bulk, but there’s nowhere near the risk or inventory cost associated with the old way of doing things. To a certain extent this type of design customization is available today in jewelry stores using Stuller's Gemvision system.

I experience this in my own business as well. Often I receive calls from people asking if we sell any of my business quotes (the benefits of social media, I guess) on mugs, mousepads, desk art, etc. We can and do, one piece at a time, to order.

In the fashion industry, the CFDA has embarked on a significant mission to study how to remain relevant in the age of fast-fashion. In the “old” way of doing things, the fashion industry produced big shows in the spring and fall, showing fashions that will be available for sale at retail six months later. Today, consumers are snapping up those same design concepts at retail almost as soon as the shows are done. How? Fast fashion operations are producing their own versions of what’s hot during Fashion Week very quickly, delivering to demanding consumers the style concepts they saw almost immediately after they saw them.

Paint manufacturers figured out the benefits of fast, digital design long before the rest of us. Instead of stocking 100 colors of paint, your local hardware store stocks a few base colors, and dozens — even hundreds —of colors, all of which can be mixed on demand for each customer.

Publishing, music, printing, television, automobiles, vacation packages, the list goes on-and-on — all have been transformed by incorporating consumer-driven digital design into the process. And by “consumer-driven” I don’t mean consumers doing the design (though in some cases that has happened). By consumer-driven I mean taking into account the real needs and desires of consumers – expressed and yet-to-be expressed – and designing to meet those needs.

There's a difference between "embracing CAD" and  "using digital design for transformation"

I’ve written and spoken at length about how the industry needs to embrace the digital world and incorporate it comprehensively into the bricks-and-mortar world. This is still true. But internet marketing and selling aren't the only digital transformations we need to embrace. How can we bring to consumers the jewelry designs that turn them on — designs that are extremely well conceived, vibrant, contemporary — at retail? How can we achieve what the luxury automobile manufacturers are doing, bringing forward impeccable design and consumer-focused innovation at lower production and marketing costs than in the past?

The tools are there. CAD, 3D growers and digital manufacturing on the design and inventory production side; and advanced CRM systems on the sales and promotion side. But what we’ve focused on in CAD for the past 10-15 years is just getting people to pick up the tools and learn them.

Now that time has passed. It’s no longer sufficient to use the digital tools available to us to simply do the things we are already doing, only faster and cheaper. We need to be innovating new ways, more ways to apply digital tools in our businesses. We need to be so adept at using the digital tools available to us that we start coming up with big new ideas. It’s time to use the digital tools to transform our businesses and our industry. Either that, or let the new world of design, production, and retailing move on without us.

PS. There is still a very important place for hand craft. There always will be. And there should be more hand craft - not less - in jewelry stores. But hand craft alone will not solve the problems the industry is facing. Digital design must also be a big part of the equation.

When Jackson Pollack was alive and painting, the art/critic world divided in two camps: those who thought his work was beautiful but couldn’t understand it, and those who thought his work was not art. There wasn’t much room for discussion because nobody could explain, really, why Pollack’s paintings were so noteworthy. How does one argue with “I know what I like when I see it?” Only with “you don’t know diddly.”

In 1975, 19 years after Pollack’s death, Benoit Mandelbrot coined the word fractal, which is an irregular geometric pattern that repeats itself at many degrees of magnification. A snowflake is a fractal – its smallest element is roughly the same shape as the finished snowflake. It turns out that nature’s patterns are largely fractals and that the human eye is finely tuned to fractal patterns. This idea was – and continues to be – tested heavily by Richard Taylor, a physicist at the University of Oregon. In 1995 Taylor produced a painting using wind, rain, and tree limbs, which unexpectedly led to something that looked remarkably like a Pollack painting. Intrigued, he scanned Pollack prints into his computer and analyzed the patterns. It turns out that Pollack was painting within nature’s most common fractal range (this story and much more can be found in Matthew E. May’s In Pursuit of Elegance: Why the Best Ideas Have Something Missing).

It took nearly 40 years for someone to articulate the reason that Pollack’s work is so gripping, but the patterns were there all along.

The Internet presents a similar problem today. It feels like a lot of noise. It’s difficult to sort the valuable information from the muck. At the low end of participation, small business owners and corporate communications staff monitor Internet conversations about their companies, celebrating the endorsements and dreading the oh-so-public complaints. At the broad-sourcing end of the spectrum, companies collect customer feedback on social media sites, ask the masses to participate in product naming and design, and put software development bids out to the public.

What are businesses doing with all that data? Data isn’t information. As a high school debater, I quickly learned that one could find a fact – complete with citations – to support any position one wished to argue. Later I worked with a woman who would regularly mobilize entire corporate departments to make sweeping changes because of a single customer complaint. “Ah,” you say, “but we’re turning that data into information.” But as I’ve mentioned before, if indeed information is power, librarians should be the most powerful people in the world.

Never before have so many conversations taken place in one forum. So much information is startlingly present at our fingertips, and there is significant temptation to read too shallowly, give credence too readily, and draw conclusions too quickly.

The actual value of all that data, the beneficial information that could be gleaned from it, is presenting itself to a select few individuals and companies who examine the conversations on the Internet in the way Taylor examined Pollack’s paintings.

Perhaps we would all be wise to view the Internet as a new kind of fractal. Step very close and observe only an inch of it. Back across the room and take in again. Business must develop the ability to recognize complex patterns in broad conversations, to comprehend their meaning, and to develop appropriate responses. The value is in the patterns.

People who know to look for the common threads, who have trained themselves to read a little deeper, listen a little harder, who have honed a skill for seeing patterns, these are the people who are figuring out why the Internet is beautiful. Do you know who these people are? Probably not the guy with the degree in statistics or the young lady with a PhD in computer science. Not unless they also spent considerable time learning to interpret literature and poetry, studying art and art history, or have deep knowledge about history, anthropology, or psychology. In this new renaissance that is the Internet, only the richest collaboration of arts and science will yield its ultimate benefit.

Do you know it when you see it? Only time will tell I guess.

© 2010, Andrea M. Hill

Four years ago I attended a Chamber of Commerce luncheon in Albuquerque honoring new and expanding area businesses. The honorees were generally represented by their chief executive and the head of human resources. They sat together at a table in the center of the room, and as the MC shared each honoree’s accomplishments, they would stand and receive applause. This all seems fairly reasonable, until you consider what each honoree was being honored for. Their accomplishments were related to how many people they had hired and how many people they planned to hire in the coming year. To make things a little more surreal, at some point each of the honorees took the mic to say a personal thank-you, and it turned into a jousting match to see which honoree company could get the most people in the room to apply to them for a job – because at that time Albuquerque’s unemployment rate was near 4%, and none of us were able to find as many candidates as we needed to staff our businesses.

What’s wrong with hiring, you might be wondering. Nothing, if the business is growing revenue and profits at a reasonable rate, a rate higher than the rate of increasing employment. In the ballroom that day were a number of companies who had not produced a dime of revenue – let alone profit – yet. At the time I was particularly concerned about a company called Eclipse, a light jet manufacturer who had acquired a lot of venture capital and state inducements, who had a neat but unproven product concept, and who was building their reputation on hype, hype, and more hype. Their business model seemed unsustainable to me, and they were jacking up local employment costs and enticing employees with high pay and excitement (we lost quite a few to them). Eclipse is just one example of the companies in the room that day – but they were all behaving the same way. They were treating number of people hired as if that were a viable business metric.

When an organization focuses on the wrong metrics bad things happen. This is complicated by the reality that what is a bad metric for one organization may be a good metric for another. For instance, a very good metric for municipalities is the measurement – and increase - of overall employment. So when they want to attract business to the area, municipalities focus on the overall hiring potential of the business and frequently attach financial incentives to hiring performance. However, this is a bad metric for the business to try to increase. Business needs to track employment relative to other important factors, and the goal is to achieve optimum employment to make customers happy while decreasing employment cost as a percentage of operating cost. When businesses do the metric dance with municipalities, they must take great care not to get confused about their primary objective, which is to make money.

Many years prior to that lunch I was the president of another firm, and the owners of that company had approached the state for IRBs (industrial revenue bonds). The IRBs were granted based on the company’s commitment to training adult workers. For each worker the company would receive a certain amount of money from the state, given that we proved each worker had received valuable training. That doesn’t sound so bad, right? But here is how that metric conflict played out:

Owner:      “How many people have we trained this month?”

Me:            “35.”

Owner:      “Only 35? We get paid just for training them! Why aren’t we training more?”

Me:           “Because we only needed 28 people and on average we would have lost only 7, so we trained 35.”

Owner:      “Gee, let me help you do the math. We pay trainees $6.50/hour. The state pays us $7.25. We have a full-time trainer either way. Get it? Why don’t you train a lot more people and keep only the ones we need?”

Um, well, yeah. I didn’t really have a math challenge. But I didn’t want to run a training mill either. Beyond the ethical problems inherent in that proposal (I did leave that company a few months later, when I realized that everything they wanted to do would have ethical problems), there were a number of business problems. The constant advertising, interviewing, training, and turnover would take a financial, focus, and psychological toll on the company that would prevent it from focusing on its main task, which was to increase sales and profits doing legitimate business. Two-and-a-half years after I left, the company went bankrupt, putting over 1,000 people out of jobs and giving the state a sucker-punch in the gut.

These are big examples of metric conflict, but there are lots of little metric conflicts that could be interfering with your business success.

• If a company wants to promote teamwork, but rewards incentive pay strictly on the merit of individual performance, competitive individuals quickly see there is no value in sharing information with a team.
• If a company wants to promote productivity, but rewards annual raises based on how many training classes an employee has taken, employees quickly learn to focus their energy on getting to class.
• If a company wants to increase average order value per customer, but increases shipping costs significantly as the order gets larger, customers will not be motivated to order more than they absolutely need.
• If a company wants to increase loyalty among existing customers, but does not measure and encourage the behaviors and promotions that create customer loyalty, employees will focus on a lot of other things.
• If a company wants to increase customer satisfaction, but measures their sales people on how fast they complete each call . . . well, you see my point.

Do two things for your company right away. First, make a list of the three or four things you absolutely must accomplish in the next year. Next to each one, list the primary measurement you are monitoring to ensure you stay on track. These are your most important strategic measurements. Second, on a separate piece of paper make a list of all the things you monitor and measure or that you ask your employees to monitor and measure. This second list should include the full range of business concerns, such as how you decide how much you pay each person, customer response times, order processing times, growth rates, customer acquisition rates – the list could be extensive. If you have an ongoing relationship with your banker or with investors, it should include the measurements they ask you to provide. This second list can also include ad hoc measurements, such as how often the bathroom gets cleaned (though if you have a lot of customer traffic, this should not be a casual measurement!).

Once you have completed both lists, place them side by side and consider, for each item on the first list, if any of the items on the second list directly undermine, steal resources from, or otherwise divert focus from the strategic measurements. If they do, figure out how to correct that.

Finally, using only your first list, make a new list (this is starting to feel like Dr. Suess – let’s call this List 3) of all the things you could be monitoring and measuring that would directly lead to achieving the items on the first list. Once List 3 is complete, rank the ideas from strongest to weakest. Take the 3 - 5 strongest ideas, and begin monitoring them immediately.

If this seems like busy-work to you, remember that the best executives in the world have been known to lose sight of their primary objectives and responsibilities. The difference between small and large business is a difference of scale. All the same things need to be done, from sales to service, from information management to product development, from ordering supplies to cleaning the bathroom. And don’t forget the taxman. It is no surprise that business owners find themselves far far from the activities that drive revenue and profits – and they don’t know how they got there. This small exercise could mean the difference between a day well spent, and a day sent down the well. 

PS. Last week Eclipse laid off their entire workforce, telling them that unless they could successfully negotiate a deal with a buyer, they had no more work for their employees to do. 

© 2009. Andrea M. Hill

If you’ve been waiting for the US luxury buyer to return to pre-2008 levels, it’s time for you to move on.

What has happened to the luxury buyer is more than a business cycle; it’s a long-term change.

Let’s quickly do the math. Affluents as a whole are twice as important to any marketer that sells consumer goods and services, regardless of price. When it comes to selling luxury goods, Affluents are four to five times as important. So statistics about Affluents really matter to the jewelry industry.

Luxury industry data shows that younger Affluents (24-44 years old) spend twice as much on luxury items as older Affluents (45 – 70 years old). Back in 2008, the younger Affluents were 17 – 37 years old, which means that a significant percentage of them (half?) hadn’t yet reached their spending power. In the meantime, older Affluents are nearly 8 years older than they were the last time they were big luxury spenders.

Who are these younger Affluents? The older portion are Generation X (35-50 year olds), and the younger are Millennials (18-34 year olds). In sheer numbers there are now more Millennials; ~81 million in 2015, compared to ~50 million GenX (of which many are part of the older Affluents group). So, your new luxury consumer is a Millennial. No surprise there – we’ve all been talking about this for a few years now.

Two social factors make these statistics very important to luxury goods companies:

1. During the recession we witnessed changing attitudes toward consumption and wealth. Those with wealth became less likely to spend it, felt less wealthy in general (even if they were very wealthy compared to the average American), and became highly conscious of how they are viewed in society (i.e., the 1%). Outside of the richest of the rich financial markets, elitism is out (keep in mind that in much of the country, elitism was never in).
2. Millenials (and Generation Z – the next consumer frontier) have entirely different attitudes toward luxury than the generations that shored up the luxury industry before them.

If you’re a luxury retailer in the US, that’s about all you need to know. But what if you’re a luxury brand? Is the news just as bad everywhere? Actually, it’s worse.

While elitism and status still play well in most international markets, conflict, social unrest, and weak economic systems are inhibiting consumer spending across the globe. In addition, it’s not a coincidence that strong demand for US luxury goods in Russia, China, India, and Europe coincided with years of a weak US dollar.

So. What do you do with this information if you’re a jewelry retail store owner, designer, or brand? You revitalize, and you start doing it now, because this trend is going to continue. Even if older luxury buyers bounce back a little, it won’t be enough to return us to former spending patterns, because younger luxury buyers are quickly becoming the dominant market.

What’s that you say? Your business model has endured multiple cycles over the past 50-80 years? That may be true, but it’s not relevant, A) because this isn’t just another cycle, and B) because the last 80 years saw the largest era of consumer empowerment the country (and world) had ever seen, empowerment that expressed itself as acquisition. But we’re on the cusp of a new era, an era in which consumer empowerment expresses itself as something else.

Many of the things I’m about to suggest are old news – I’ve suggested them before in my writing and speeches, and you’ve heard them from industry journalists willing to challenge the status quo (Rob Bates is at the top of that list).

So I’ll recap (and reference) the things that have been addressed sufficiently already, then focus more attention on bringing a few important issues to the surface; business concerns that are still not getting adequate attention in our industry.

You Need to Make Changes in Product and in Presentation

Everywhere you look there’s a new article, a new blog, a new interview that talks about how Millennials and Generation Z want something unique, something custom, something special, they want stories, they have problems with diamonds, they don’t care about precious metals. They want quality, it’s about the experience, brand reputation matters, and ownership holds less importance for them. These things matter to them in general, so how high do you think Millennial expectations are regarding luxury? If you want to read more about Millennial expectations of jewelry, here are some terrific articles.

Rethinking Open to Buy: (Matthew Perosi’s jWAG blog from yesterday, 5/26/2015)
Understanding Millennials: How to Sell Lasting Luxury in a Disposable Culture (The Centurion: Hedda Schupak)
Fashion Designers, automakers top millenials’ list of luxury brands (Luxury Daily)

There are 8,162 people on Twitter with “jewelry designer” in their bio (and that’s just the English filter). I know many of them, and there’s a lot of genuine design talent out there. Much of that talent comes with a story, social awareness, trunk shows, and energized social media. But independent jewelry designers can’t get their foot in the door at traditional jewelry retailers. So they sell at art fairs and craft fairs and online, and many of them are learning to do very well selling directly to (your) consumers. Clearly, we have ample information on what matters now, yet not enough people in this industry are reacting to this demand.

Making and Designing are Not the Same Thing

In 2013 Fast Company said, “For Millennials, design is not a differentiator. It’s the cost of entry.” Millennials care about design on two levels: the design of the product, and the design of the experience.

One of the effects of growing up with the internet is that Millennials have seen more art and been influenced by more graphic design than any generation before them. They are intensely visual. They report they will turn down a job rather than work in an ugly or uninspiring environment. They care about beauty, architecture, and public spaces. They won’t spend their hard-earned money on products that are average. Even their kitchen utensils demonstrate good design principles. A solitaire diamond in a setting with a few flourishes may not offend, but it doesn’t excite either.

If you aren’t sure you know the difference between excellent design and meh, enlist some help, because Millennials do.

Now. Here’s the stuff not enough people are talking about

The Jewelry Experience

Everyone is throwing about the word experience in retail, saying experience is the key to consumer loyalty. But what does experience really mean?

Consumers would rather get wine at a wine & cheese bar, coffee at an organic coffee shop or Starbucks, and baked goods at a café. All those places are better at offering food, coffee, and wine than you are. So what do they want from you?

A better buying experience, which is not just about your product offering. It’s also about your store design and your processes.

Experience design is very important to Millennials. They have grown up in a world where they can assemble (on their own) the organizational, communication, and information tools to make their lives easier. It’s second nature to them. They are used to being able to find and purchase any product they desire and can afford, no matter how esoteric. They are used to collaborating over distance and across languages. Studies have shown that Millennials find outdated and cumbersome systems like opening bank accounts, buying a house, and buying a car to be not only distasteful, but enraging.

So how do you think they feel about your current engagement ring sales process? Does the next generation jewelry buyer really want to be led through your store to the bridal area, sit at a counter, and suffer through the diamond-buying experience?  They did the research before they arrived. If your selection is six different cases of the same thing followed by a two-week wait, they’re probably not impressed. Jewelers who find a way to reinvent the process of selling engagement rings will really be on to something.

When I walk into my local Verizon store, the sales reps are either actively helping other customers or they are . . . sitting in lounge chairs in the middle of the store, apparently just hanging out. They wave you over warmly, and you go sit with them (there are always empty seats). They pull you into their conversation, which is usually about what’s the latest cool thing in phones. Instant collegiality. You engage in a conversation with them instead of being sold to. They whip out their tablets and talk with you about options – before they ever walk you to a wall display. Ten years ago I preferred a root canal to a visit to the cell phone store. Today, I look forward to checking in with my phone buddies. How does the experience of walking into your store, being greeted, and exchanging information feel? Does it inspire the same feeling of collegiality? Does it stir interest and excitement? Or is it intimidating, cool, and separated by a case and a gate?

The experience of the Apple store is so fantastic that people are writing books about it (check out The Apple Experience, by Carmine Gallo). The average store generates $5,600 per square foot, which makes it the most profitable retail store on the planet. There are a lot of facets to the Apple experience, but let’s focus on the store design for a moment. Steve Jobs was adamant that their stores be more than four walls with stuff to sell inside; Apple stores are a stage. Apple didn’t build every store, but they did the absolute most with the locations they chose. Architectural and design beauty are highlighted, and where possible they integrate into their surroundings as part of the experience (you can’t really tell where the Grand Central Apple Store ends and the Station begins). Apple took products that are typically in the box, behind-the-glass, and put them front and center. They made it clear that people are supposed to come in, play, experiment, and even hang out with one another in the store. The customer who comes, stays, and leaves without a purchase is treated with as much warmth and attention as the person who walks in and presents a credit card. They offer immersive training experiences to build customer attachment to and comfort with their products. And finally, the stores are devoid of anything that is irrelevant to the experience of Apple products. They’re streamlined, purposeful, and immaculate. What is the visual experience of your store? Is it inspiring to approach and enter? Is there junk behind the counter? Tape on the front of a case? Three-year-old posters or signs? Are there elements in play that have nothing to do with the simple goal of telling your compelling story, connecting with your customer, and selling your exciting products? Millennials notice these things.

I’m a knitter, and for me, knitting is all about fiber. If you buy skein of yarn at Michael’s or Walmart, it will cost you anywhere from $2 - $15. A typical skein of yarn for me is upwards of $50. I shop at a very special little fiber shop that knows its customers are buying luxuries. The shop is definitely knitty and not high-endy. The shop owner does a dozen things worth mentioning, but let’s talk about the checkout experience for a moment. She doesn’t have a cash register. She has a few comfy chairs around a coffee table, and on the coffee table is a tablet. When you’re done with your purchases, you sit in one of the chairs and you drop all your balls of yarn on the table. While you chat with the store owner, she rings up your purchases on her tablet, but it all feels like you’re just drinking coffee and knitting together. She’s so good at scanning and ringing up the sale that she remains present with me and our conversation the entire time. Something else of interest; I often find myself giving knitting advice and tips to the women in the other chairs, because I’m the oldest one there. Michael’s and the craft section at Walmart aren't exactly Millennial or Generation Z hangouts, but this shop attracts them every day.

The one interactive process you have that likely elicits a certain amount of excitement is custom design. But even then, most jewelers aren’t prepared to collaborate with Millennial customers the way they want to be collaborated with. The process itself must be seamless – from initial discussion to jewelry delivery. If it’s not, Millennials will scoff at your organizational clumsiness. And what tools are you using? Do you make them come back to the store to review design options? Do you have an endless stream of email going back and forth (Millennials would rather not deal with email unless at work). If you’re not prepared to have your seamless process either available through a phone app or at least through a shared folder in something like Evernote, your process needs improvement.

If you’re a retailer, you have all these processes in your store. People enter, they browse, they have questions, they may need to finance something, they may want to do a custom design, and they have a check-out experience. If you’re not actively experimenting with updating the processes in your store to meet the demands of a very different generation of consumers, you’re going to watch your current customer base slowly die off until you go out of business.

Embrace Technology

The fashion industry is going after technology-as-experience in a big way after falling behind consumer expectations (though not as behind as the jewelry industry). Live-streaming of fashion shows, virtual stores, wearable technology, and other types of digital innovation are now at the forefront of fashion thinking. Fashion brand Rebecca Minkoff has dressing rooms that make suggestions about complementary items to try. Even Fabergé has enabled ecommerce, after years of insisting that ecommerce would tarnish their brand.

The consumer currency of the future is information information information. The kind of information that helps consumers make buying decisions. The kind of information that tells an interesting story. The kind of information that holds their attention for longer than 20 seconds. The kind of information that helps them satisfy concerns about the provenance or manufacture or sustainability or morality of the things they buy. In addition, they want much of that information before they ever make time in their busy schedules to come to your store. It takes technology to do that.

Delivering that information doesn’t start with your website. That’s like hiking the Pacific Trail for weeks with no shower and then putting on lipstick (yes, Wild reference there). Your management of the information that fuels your business must start much deeper in your business processes.

Think about how you approach technology in your business. If you’re like most people, you probably have a pretty current smart phone. But how old is your computer? How often do you explore new software to make your job more efficient? Are you using cloud services or still trying to figure out where the cloud is? Do you and your staff use technology to make you more communicative, more efficient, and more relevant to your customers? Is social media just an extension of your break room, or are you using it for serious marketing insight? Can you make fast, effective decisions about your inventory; decisions that enable you to innovate and respond to a changing market? How is your product database? Do you use all the bells and whistles for product detail and descriptions? Do you collect all the customer information you can collect? Most important of all, do you use all this data to help you run a better business?

There are technology tools that can help you with every single operational and marketing need. Everything I’ve discussed in this article can be enhanced with technology. And even if you’re way behind the curve on your technical skills, you need to start developing them now, because business is going to keep changing faster and faster, and if you think the Millennials have high expectations of your competence, wait until you start serving Generation Z.

Get Fast. Get Diversified. Get Lean.

Getting Lean is the process of streamlining, automating, and de-cluttering your business processes, from manufacturing to stocking, from hiring to sales. Many business owners think that getting lean is for the purpose of reducing prices. While it can certainly be used for that purpose, there’s another major reason to do so. It’s to get fast and to get diversified.

Think back to the late ‘90s and early 2000s when the US jewelry manufacturing base outsourced itself to Asia. Why did that happen? Because reducing the cost of labor was the quickest way to reduce the cost per piece. Of course, that had its downsides. The economics only held if you produced a minimum of hundreds of those pieces. Hindsight being 20/20, we can see that we were selling off our manufacturing expertise at the same time a new generation was being born – a generation that doesn’t want to wear or own the same things everyone else has.

Beyond the excellence of their design, there is a reason that designer brands like Todd Reed, Omi Prive, Just Jules and Pamela Froman have such consumer appeal. There is an element of customization to many (or even most) of the pieces they produce - something you simply can't do if you're manufacturing in China. To accomplish a steady flow of product customization, brands must constantly attend to the operational efficiency of their workshops, because customization gets harder to manage the farther it gets from home.

The other advantage to lean, local(ish) operations is that you can keep your inventory of finished goods to a minimum, which allows you to respond more quickly to changing consumer demand. Yes, yes, jewelry is more expensive to produce than fashion, so it’s harder to change it. But the consumers don’t really care about that difficulty, so the retailers, designers, and brands who figure out the keys to keeping inventory fresh and exciting will win this game.

Retailers need to buy less product more often to keep the store fresh and consumers interested (hint – doing all your buying once each year in Vegas is not going to cut it – inventory needs to change more often than annually). Designers and wholesalers need to create policies that will support smaller, more frequent purchases, and they must migrate to release schedules that satisfy consumer desire for diversity and change. But as you can imagine, if designers and wholesalers are only receiving new orders once each year – with a small number of reorders occurring during the holidays – they simply won’t be able to invest in the merchandising strategies that consumers want.

Each of the concepts in this article could, itself, be a very long blog (and we didn’t even touch on how to market to Millennials. Maybe later). But it’s a good overview of where your head needs to be if you want your retail store, designer label, shop, or brand to become and remain relevant to the next generations of luxury buyers.

A dentist in Albuquerque is named Ken Hurt, and his tag line is it’s a name, not an intention. I’ve heard he’s a good dentist with a successful practice, but I never considered him when searching for a family practitioner. I recently visited an appealing coffee shop in a small town near our home, and though the coffee tasted fine, the price was right, and the shop was clean, the experience was inexplicably unsatisfying. Finally I figured out why – the shop didn’t smell like coffee. Driving home I was struck by a glaring anomaly in an antique-store window along a quaint main street – the 42” flat screen TVs on sale for $2,200 each.

More attention should be paid to the importance of being consistent with customer and prospect expectations.

Consider how many daily decisions you make, particularly in light of our rate of evolution. Your great-grandfather likely woke up each day to a choice between two pairs of trousers and three shirts, had the same breakfast, proceeded to do the same work (very likely work he learned from his father), ate the same things for lunch and dinner – varying by season – repaired things, read, whittled, played music or conversed until dark, and went to bed. In contrast, you wake up to a choice among dozens of clothing items and your day escalates in complexity from there. So it should not be surprising that most decisions are based on snap judgments, fleeting impressions, and assumptions.

Take a decision-overloaded consumer into a mall and they stop thinking entirely. They gravitate to the stores they know and understand, go straight to the racks they’ve been to before, and buy similar items to the ones they already own – varying by season, of course. Offer an overburdened executive a new service that can’t be compared easily to an existing service offering, and he’s likely to dismiss the idea without considering it for more than two seconds.

How do you penetrate the attention of the unthinking individuals who happen to be your prospects? By being familiar even if you’re not known.

If you are a new business, you must have a positioning argument that is instantly clear and comparable to other known offerings. Does this mean you must be just like the competition? Not at all. But you do have to be directly comparable, which makes you immediately understandable. How many of us would give our complete attention to a salesperson who says “We’re just like your current cell phone provider in network and pricing, but we don’t require contracts. You can join us or leave us just as you can your home phone service.” Or imagine how many people would convert to organic diets if someone advertised “we’re priced just like your neighborhood Kroger store only everything we offer is organic.”

Yes, those are my two dream pitches. But this works on more likely offerings as well. A friend owned an art gallery that she pitched as fine art for the middle class income. I feared it would be perceived as condescending, but in fact, it worked very well for her. If I opened a clothing store I would develop one that billed itself as off-the-rack clothing for your custom body.

Consistency is also important in your presentation. If you open a retail bakery, but the outside of your store looks like the dollar store it was before you, you risk alienating the customers who are most likely to pay retail bakery prices. You would think a marketing firm would make sure it demonstrated the very best marketing practices in its own promotion, but I am amazed at how many marketing companies have embarrassingly weak web sites.

Once you have created an initial image with your customers, you must maintain the image. This reinforces the importance of knowing what image you intend to portray in the first place. I often comment on me-too businesses, but what I mean is without conscious image. If you start out by offering a home-town bakery – like the one you grew up with, and a few weeks later you introduce home-delivery pizza, you’ll lose the audience you initially attracted. There’s nothing superior about bakery goods versus pizza, but they don’t attract the same people. Give careful thought to the business you are starting and the directions in which you might wish to grow it so you can evolve along a path that is comfortable to the customers you acquire.

The more subtle aspects of consistency show up in your operations and business policies. If you want to sell high-priced products which earn good margins, but you offer sale prices to attract new customers, you end up with customers who expect you to be on sale - all the time. If your competitive niche is to offer the best customer service in your industry, but you offer the lowest pay in town, guess where the best employees in town are not going to work.

To develop a business with clear differentiation is a talent. To position that business so the familiarity appeals to the rapid decision-maker long enough for the difference to capture their imagination – that is finesse. To do all these things as part of a carefully considered image that is consistent from your strategy to your customer service behavior? That’s branding. 

© 2009. Andrea M. Hill

Our son was insanely bored in high school and we didn’t have better education options where we lived at the time. So we let him get his GED and finish early rather than ruining education for him forever. When he entered the University environment we discovered something very quickly. He had not developed the writing skills he needed to express his ideas effectively and at the level of a university student. He worked extra-hard his first semester and caught up, but it was an important lesson: building blocks and foundations should never be underestimated.

I encounter a similar situation with small business owners on an almost-daily basis. The building blocks of profitability are clear and they even have a required sequence to them. But without knowledge of the building blocks – or awareness that these building blocks even exist! – business owners suffer for years (or decades) trying to turn the corner and achieve true profitability.

What Happens When You’re Out-of-Order

Many years ago I joined a company that had not been profitable in some time. I attended a trade event where I had the opportunity to meet customers, and I asked the same two questions of each of them:

• How do you feel about this company?
• Are we your primary supplier?

To the first question I received raves: “We love you!” “You have the best salespeople!” and “You are the nicest people” were among the most common responses. But the answer to the second question was consistently a firm “No.” How could that be? The answers were varied but all shared the same theme:

“You’re always late.”

“You’re constantly out-of-stock.”

“You make a lot of mistakes.”

“I often have to wait for you to figure out what’s going on with my orders.”

“Your prices are too high.”

“The quality of your products isn’t consistent.”

In that company we were paying premium dollar for the best salespeople we could find and training them extremely well. We also had a strong emphasis on treating customers very well. On the one hand, it’s a darn good thing that we did, because that seemed to be the only thing keeping the customers coming back. But do you think that the money we spent on sales staff – very likely more per person than our competitors were spending on their sales staff – was yielding better bottom line? No, it wasn’t. Because we were undermining all that terrific customer value with terrible operations.

Value Comes in Waves

Wave 1: Operations

If you want to see bottom line profits, the very first thing you must focus on is your operations. To achieve strong operations you must achieve the following things:

• Efficiency in everything you do and touch
• Tight control over product costs and purchasing behaviors
• Excellent inventory management at all levels – from finished goods to components and raw materials.
• Well-defined processes that ensure your staff works with efficiency and consistency
• Well-defined roles and responsibilities
• Quality built into all production processes (and not just policed at the end)
• Metrics in place to monitor your performance in all operational areas (sales, manufacturing/production, product development, marketing, purchasing/inventory control)

If you have terrific customer service and terrific products – but your operations are weak – you risk throwing away all that extra value on the customer dissatisfaction, bloated costs and bloated inventories that come with poor operational controls. If you want to see your profit picture turn rosy, focus on operations.

Wave 2: Customer Experience

Once your operations are in strong working order, then next Value Wave comes from Customer Experience. To deliver the kind of customer service that turns happy customers into profitable customers, you must focus on the following things:

• Face your customers with sales staff and service staff of the highest quality – in personalities, positive energy, professionalism, training, effectiveness, and warmth.
• Achieve maximum dependability – orders on time, at quality expectations, call-backs when promised, prices within expectations for your market, the right products available, and strong inter-dependent relationships established.
• Improve your product and service offerings in a strategic way to turn occasional customers into regular customers
• Include customers in your product selection and development. Ask their opinions and invite them to offer ideas. Letting customers behind the veil of your organization is a fantastic way to help them feel integral to your business (which, of course, they are!).

When you compare the lists of what you must do to achieve operational value and what you must do to achieve customer value, clearly it is next-to-impossible to achieve the customer portion without first accomplishing the operations portion. And that’s the point of the value waves – each wave of value commitment lays the groundwork for the wave that follows.

Wave 3: Product Offering

Once you can deliver operational and customer experience excellence, your products will yield greater profitability and customer enthusiasm. Many retailers to lean hard on product offering at the expense of the other two waves, but that just doesn’t work. Of course, you can’t coast on products once you get to this point either. Strong merchandising strategies include:

• Offering the right products and price points for your target market
• Constantly introducing new products (that’s right – not just once or twice a year!) to keep customer enthusiasm and interest high
• Moving aged, tired products out of the store (customers tune out when they see the same old things over and over)
• Moving merchandise around to create a fresh look and new interest

This week, take some time to analyze your operations, customer experience, and product offering. Consider the improvements you would like to make in each area, and then look at how improvements in a “prior” wave could make the difference. You may find that improvements you have tried to make for a long time are finally within your reach.

When you run a business, your job is to produce and sell value. It is both as simple and as complicated as that. When I see businesses getting value wrong, I have a physical reaction to it – it’s like watching a starving person eat cardboard. So that’s what we’re going to focus on today: Getting value right. Because if you can do that, you can make money.

Let’s start with a few examples.

Getting Value Wrong

I was recently in a family-owned jewelry store, consulting with them about how to make improvements to their business. Their traffic is down to almost nothing, sales have declined for five years in a row, and the staff morale is abysmal. When I asked the buyer and store owner to explain their merchandising strategy to me, they focused entirely on price. Or, specifically, low prices.

“The big boxes and online retailers are kicking our behinds on jewelry prices,” they said. We’ve done everything we can do to lower our prices, but we just can’t compete at that level. They’re obviously buying a lot better than us.”

Of course, when you drop prices and your traffic drops, the only predictable result is that your revenue goes down. Even if your traffic stays the same, if you drop prices and do nothing to increase the number of purchases, your revenue goes down.

In this store, the merchandise looked very similar to what the merchandise would have looked like 15, 20, even 30 years ago. Lots of classics, lots of bread-and-butter. Nothing new, nothing exciting.

This is a classic example of getting value wrong. The assumption this store owner made was that the only “value” his buyers wanted was low prices. He didn't ask the customers. He was reluctant to invest in new products that are more exciting, fresher, and unlike what is offered at the discount jewelry outlets. Low prices aren’t the only value customers want, and had he discovered a different value proposition to offer, he could actually grow his business. So we’ll work on that now.

Getting Value Right

One of my very first jobs was at a major advertising agency, and I’m pretty sure this was the experience that taught me about value. I was in a meeting with my project team discussing an unhappy customer. The project manager was leading the meeting, and our VP was attending. The project manager kept talking about how to “showcase the numbers.” He spoke of using the most positive data, reflecting the highest possible viewer statistics, and painting the rosiest picture we could to help the customer see how much impact we were having.

The VP – a guy who never spoke very much – finally asked, “What does this customer really want?”

The project manager said, “Great service and great advertising!”

“No,” the VP said. “He wants sales. And all the inflated statistics in the world won’t make sales happen. What we need to do is give him a campaign that drives sales. Then he will be happy.”

It’s easy to get lost in the details of our businesses, but value comes down to a few simple things:

1. Know what your customers actually want and need from you.
2. Give it to them - in the right way and at the right (which isn't necessarily low) price.

Of course, these two concepts are simple, but their execution is not. What people want and how to deliver it can be very nuanced, and it is ever-changing. But if you keep these two points top-of-mind at all times, you will find they guide your work in new – and possibly unexpected – ways.

Shopping on sale in the midst of a recession is akin to indulging in a delicious vice. You know you want to do it, indeed, you’re going to do it. But you also know it’s wrong.

OK, maybe you don’t think that shopping on sale is wrong. But from my perspective, it’s like smoking a cigarette or having an affair. Why? Because every business that drops its prices to get customers in the door is doing so at the expense of their business safety and future. Who among us would decide to go into the sugar, flour, facial tissue, or copy paper business? Yet that’s what we do when we reduce our business premise to offering the best price. Price sensitivity is the nature of a commodity business.

Margin is essential to survival. Without margin you can’t pay the vendors, pay the rent, pay the taxes, pay your employees, or pay yourself. Every sale price you mark comes at the expense of margin. This is not to say that there’s never a good reason to have a sale. To score big wins, business owners must take regular measured risks, and those risks frequently result in excess inventory. Eliminating such inventory while making customers happy is smart, and sales based on those conditions are wise.

But the sale prices we see today are the desperation moves of companies that have run out of ideas for getting customers in the door. Margins are essential to survival. Always.

There are two ways to maintain margin. If a company wishes to compete on price and still maintain margin (note: if a company wishes to compete on price and NOT maintain margin, that company is out of business), it must reduce costs sufficiently to protect margin while reducing the selling price. Make sure you know how to reduce those costs before you reduce the selling price! One of the most common business mistakes is to assume that once a company has additional volume, the costs will come down accordingly. They drop the selling price to build the volume. Voila! They shrink the business. Make sure you have purchase commitments from customers and cost reduction commitments from suppliers prior to making that move. Even if you have figured out a failsafe way to play the price-reduction-with-margins-game, learn what Wal-Mart already knows: cost reduction is ultimately a zero-sum game.

The second way to maintain margin is to (drumroll here) maintain your prices. What? Not reduce them? But everybody’s reducing prices! How are we supposed to compete if we can’t get the customers to consider us because we’re not as cheap as everyone else. 

The only way to maintain prices is to offer something that makes not only your products, but your business, worth more to your customers. The phrase, “you cost more, but you’re worth it” has always been music to my ears. It is the ultimate compliment, an endorsement of a company’s value and a commitment to help the company stay in business.

The biggest impediment to achieving that valuable customer endorsement is the ubiquitous industry trend. Actually, the trends aren’t the problem. If all your competitors get caught up in the trends – and you successfully avoid them – it would be good. For you. Which industry trends are a problem? All of them. Product trends and service trends represent ideas that are being offered simultaneously by everyone in the industry, and when something is offered simultaneously by everybody, it leads to price trends. Instant commoditization.

Bucking industry trends is not easy. It requires an understanding of the concept minimum standard necessary to compete. As each industry develops, standards evolve over time. These standards relate to customer service levels, speed and quality of delivery, and quality of products. Every business must operate at the minimum standard necessary to compete. A good example of this is shipping times. In the early 1980s it was common for direct marketing businesses to offer 6-8 weeks for delivery. Within a few short years, same week delivery was the standard, and any company that could not offer the new standard lost market share. 

Every company must honor its industry’s minimum standards necessary to compete. To buck the trends and maintain margin, it is essential to offer something unique, something beyond the minimum standards. Each business must analyze its strengths, consider unmet or poorly met customer needs, theorize on emerging market conditions, and find a way to set itself apart. At one time, product differentiation was synonymous with corporate differentiation. Today, differentiation depends increasingly upon creative ways of building relationship value with customers.

The biggest danger to a business owner is lack of originality – generally demonstrated by virtue of getting trapped in his or her industry’s trends. Industry trend following simply turns your business into a commodity business. Avoid the trap and maintain your margins. When you do it well, your customers will gladly trade the guilty pleasures of sales prices for a superior offering.

© 2009. Andrea M. Hill

People often confuse strategic planning with business planning. They also are unsure of where marketing strategy, sales strategy, sales forecasting, and branding fit in the mix. This podcast tells you how these elements fit together, and in what order (written transcript below). 

Transcript

[00:00:01.210]
I have another podcast for you today. It's taken from a speech I recently did to a large group of small business owners, and the speeches purpose is to teach what a strategic process is from beginning to end. It's an overview of strategy and business planning. What I've discovered is that a lot of people know the words strategy, marketing plan, business plan, but they often confuse those words with one another or perceive more overlap than there is and consequently don't understand what the individual pieces are and how they fit together to serve as a comprehensive approach to business.

[00:00:44.140]
So in 16, OK, maybe 17 minutes, this podcast walks you through strategic planning, through business planning and marketing planning and lets you picture the whole thing. Now I will apologize in advance. The sound has some weird sound artifacts in it. It was very echoey in the original recording. We pulled some of it out, but we couldn't really make it clean. Here is the presentation and I hope it gives you some important clarifications.

[00:01:17.170]
In my experience, people are very confused about business strategy. Just recently, I encountered a new client who had spent a ton of money with another organization creating what she thought was a business strategy, what they told her was a business strategy. But really what it was, was a sort of convoluted and not very productive competitive analysis. Competitive analysis is not strategy. In other cases, people confuse business strategy with business planning. Business planning is very important, but it's the next step.

[00:01:49.150]
After creating a strategy and without a good strategy, it's almost impossible to create a decent business plan. Sometimes people think that business strategy is just for large corporations and large corporations certainly need a solid strategy to run their business and to keep all of the various parts off and far flung from one another in alignment. A small business needs a business strategy even more. Why? Because a small business has far fewer resources to work with. So they have to make sure that every single resource is producing more than twice its own value because they're competing with these big businesses that have a lot more resources than they do.

[00:02:30.400]
So what is a business strategy anyway? Business strategy is a way of establishing your competitive advantage and your differentiation. And once you have those pieces firmly in place, then you can expand those pieces out into a good business plan, a good marketing strategy, a good sales strategy, and then that turns into an operating plan, et cetera. And I'll actually talk you through some of those connections toward the end of this conversation to start with a business strategy.

[00:03:04.270]
You start asking the question, why am I in business? Why did I decide to do this business? What is it I'm selling? What is it I believe in? What is it I want to get out of it. If you don't understand those pieces really well, then you can end up in a situation lots of business owners find themselves in at some point down the road where you're not having fun anymore or where the business isn't delivering what you once thought it would.

[00:03:30.040]
If you're not careful to lay a roadmap and have a clear vision of where you're going, you could end up driving just about anywhere with your business. So the starting point is to establish why you want to be in business. What do you want to get out of it? What is your long term goal for the business? Those things may change over time, but they tend to not change regularly.

[00:03:50.830]
So you start with a clear starting point. You start with a clear view of what your finish point looks like and you start driving down that road. And if those things do evolve or change over time, then you evolve and change your strategic plan. But it's a very intentional process, not an accidental meandering. Meant to end up in Florida, somehow ended up in Maryland sort of issue. So that's your starting point for a business strategy. Once you figure out what you want out of the business and what your long term goals are for the business.

[00:04:30.320]
You identify what things are about that vision for you that can matter to other people. So if your goal if your goal is just to make money, which, by the way, is rarely just the goal, if your goal is just to make money, then the thing that's going to matter to your customers is providing value.

[00:04:53.680]
And it may be just as simple as that. You want to make money, so you're going to provide a lot of value to your customers so you can make money. If your goal is something different, though, making a difference in some way, affecting the world in some way or providing something that nobody else provides or providing in a way that nobody else provides it, that is going to appeal to some customers as well. And remember, you don't need all the customers.

[00:05:19.830]
You just need the right customers. Nobody, not even Wal-Mart has all the customers. So by identifying how your vision and vision for your business relate to certain types of customers and how they will find that vision resonates with them. That's your next step to really contemplate how you connect your view with the needs of others. And that's the starting point of customer attachment or customer relevance. The next thing you do in a strategic plan is you think about all the things you're going to offer.

[00:06:00.080]
It's not just your products. You're offering products, you're offering price points, you're offering certain values. For instance, you may be offering eco friendly products, which is a huge value these days or something that's healthy. Or you may be offering something that's cutting edge in terms of style, or you may be offering something that represents a culture or a group of cultures. All of these things matter to certain groups of people.

[00:06:28.070]
What you offer also has to do with how you sell to people. Where are you available? Some people love to go shopping in boutiques. Other people don't want to walk into them and they only want to shop online. Some people don't really want to have a shopping experience. They want to have an experience that ends up delivering some kind of a product to them. So how you sell and where you sell are part of your competitive offering, how you take care of your customers before, during and after the sale and the ways in which you make yourself available are also part of that offer.

[00:07:01.880]
Some people only want to deal with you face to face. Other people are very comfortable with using technology and reaching across distances. So you're competitive. Analysis begins with identifying all of the attributes about your business that you envision offering and how those attributes will matter to a specific group of people. There is a product for everybody and there is somebody for your product. So if you think about your product, not just in terms of the product itself, but in terms of all the things that you wrap around selling service, meaning availability, price.

[00:07:46.730]
That is the group of attributes that becomes your competitive offering. Once you understand what your competitive offering is, then you do it even deeper work of saying, OK, now I've had an idea of who this customer is, but now I'm going to get real specific. Who is this group of people that are really going to care that I offer one, two, three, four and five in this way? And you do some search, that's your competitive research, it's not so much about comparing yourself to competitors.

[00:08:18.010]
In fact, it's very little about comparing yourself to competitors. It's very much about figuring out how you matter to customers, because when you're selling to customers, you're not really selling against whoever you perceive to be your direct competitors. You're selling against that customer's perceptions of what else they'd rather do with their money. And that's a much, much bigger world than just selling against a particular competitor in your market. So how do you get a customer to decide to part with their money by mattering to them and what matters to customers is that whole list of attributes that we just talked about.

[00:09:00.250]
So that is the bulk of your competitive analysis now in the strategic planning process. There is a point where you do pay attention to the prices. Other things are sold out because you want to understand what's out there in the world and what feels relative to customers, what things look like from the customer's perspective. So you do do a survey of what's out there and what the customers perceive as available. But for the most part, your competitive analysis is about being competitive from the customer's viewpoint for their dollars, given all the other things they could choose to do with them.

[00:09:42.060]
Once you've completed that part of the strategic planning. Then it's time to start putting those pieces together into this compelling argument that talks about who you are, what you make or what you offer that makes you different and why that matters. And you explore through the strategic planning process how you're going to make those statements not only in the products that you make, but in the materials that you use to make them, or if you buy and sell products in the vendors that you buy from.

[00:10:15.100]
What are those relationships about? What are the things you expect from them? You look at how you're going to apply, who you are, what you make or what you do and what makes you different and why that matters. You're going to apply that to. The actual product specifications, the way you sell, the way you reach out and find customers and you create this really compelling, it's not so much a story, it's more like a guidebook for how you're going to run your business to be consistent at every single point with this set of attributes that matters to a particular set of customers.

[00:10:58.200]
From there, in your strategic planning, you identify how you're going to find more of those customers, what that customer strategy looks like, what your product strategy looks like, and then you tie it all back together with some measurements that say these are the things that we have to accomplish. And if we accomplish that, if we achieve these measurements, then we will know we're being successful in our strategy. That's what a strategic process is all about. And when you do it well, you literally end up with a handbook for running your business.

[00:11:37.850]
And that handbook will inform not only you, but anyone else that you bring in to work with you or any contractors that you work with. It's a really compelling tool for keeping you focused on what's important and for learning to set aside the things that are interesting but are not particularly relevant to what you've decided to accomplish because you don't have unlimited resources if you had unlimited resources and you could just hire new people all the time and go after all these ideas that you have, but you don't have unlimited resources.

[00:12:11.860]
So you have to get really focused on doing your strategy really well. And that's how you make money. So now you've got this strategy book and it says who you are, what you make or what you do that makes you different and why that matters and identifies which customers you're going to be going after. And it also identifies which types of products you will and will not make and which types of services you will offer and the way you're going to sell to people and the brand presence.

[00:12:44.890]
It's the beginning of your brand presence in the market. That's your strategic plan. So now what do you do with it? Well, now you make a business plan and that business plan starts with a sales forecast. It says, OK, based on this strategy, what do we think we can sell in year one, year two in years three through five? Now, your one should be a pretty good estimate of what's possible. Year two, three, five and up a little fuzzier, but again, the kind of a road map for you that keep you focused on the future so you don't get too far off track.

[00:13:18.660]
Once you create that sales plan, you can create a business plan. And the business plan says, OK, now what kinds of costs am I going to incur in my business to pull off this strategy? And while you're making your business plan, you're going to say, oh, wait a minute, I have to decide how much I'm spending on marketing dollars. And at that point, you can decide I'm either going to set a hard budget for my marketing dollars and learn how to work within it, or I better stop for a minute and make my marketing strategy and then I'll come back and finish the business plan with good marketing dollars place.

[00:13:54.840]
I kind of like that approach because when you do a marketing strategy, it helps you rethink your sales forecast, it helps you identify both opportunities and risks that you weren't thinking about before. So you step aside and you make a marketing strategy and your marketing strategy. You say, what kinds of things must I do to achieve the sales numbers that are in my sales forecast in order to achieve my strategic vision? And how will I bring across from my strategy who we are, what we do or what we make that makes us different and why we matter, how are we going to get that message across if every single marketing thing we do, whether it's social media or television advertising or signage or a brochure.

[00:14:49.480]
So you make your marketing strategy and you tested and say, do I really think this is the right marketing plan and strategy to achieve the sales forecast that I need to achieve my strategy? And at that point, you can go back to your business plan and say, OK, my marketing strategy has me spending this many dollars each month in the first year and this many dollars total in the second, third or fourth year. And now you have a business plan with solid numbers informed by a sales plan and a marketing plan because the sales plan tells you how much revenue you're going to have to pay for things in the business plan.

[00:15:26.000]
And the marketing plan tells you how much money you're going to spend to get those sales because nobody gets sales without spending some money. And also in your business plan is your human resources plan. And your human resources plan identifies when you're going to need to hire people and how much you're probably going to need to spend to get them. That's your business plan. And the one thing we haven't talked about is your brand and your brand really is the element that should be developed right after you're finished with the strategy, because the brand is.

[00:16:04.190]
Sort of the outward communication of the strategy, it's the pieces of your strategy that you pull forward to communicate to the world, to help them recognize who you are, what you make or what you do that makes you different and why you matter.

[00:16:21.500]
And the brand has to be that close to the strategy because a brand has to be very authentic to matter to your audience. So the brand should never be done without a strategy and it should always be the first thing you do after you finish your strategy and then picture this when you do your marketing plan, you already have you already have your brand established. You know how you're going to deploy that brand across every part of your business, because the brand isn't just about your marketing materials.

[00:16:52.160]
The brand is about how you talk to customers and the service policies that you offer your customers and what your packages look like when they go out the door and what your post sales service is like. So your brand flows out of strategy. In fact, everything flows out of the strategy. You start with your strategy, then you make your brand book and from there you are able to make a business plan and a marketing plan.

[00:17:20.390]
And now you have all of the guidelines you need to run your business intelligently with good cash planning and with an eye constantly on the future so that you make sure that your day to day decisions don't knock you off course and send you off to the wrong place.

[00:17:40.350]
So that's what the strategy is, it's the process of identifying who you are, what you do or what you make that makes you different and why you matter and helping you attach those ideas to a set of customers and a set of products and services that will be compelling to those customers. And then that strategy is used to create the other elements of your business.

[00:18:03.670]
And if you're not doing all of those pieces, you're probably spending more money than you need to be running your business while at the same time selling less of what you need to fund your business.

[00:18:18.120]
And of course, that's the last thing anyone wants to be spending more on their business while selling less. So there you have it, an overview of the strategic process as it relates to the other business planning processes. And if you don't have all of those pieces in place or if you have even none of those pieces in place yet, don't worry about it. Just get started. You can run your business while improving your planning and trim the sail along the way.

[00:18:50.010]
You might as well, because the time's going to go by anyway. Right. And at the end of that time, wouldn't you rather have made tremendous progress toward great business planning and a refinement of your business operations? So this has been the works blog as a podcast for today, thank you very much for joining me. I'm Andrea Hill.

You'd pretty much have to live in a burrow to have missed that Apple was suing Samsung, or that they won a billion-dollar judgment for their efforts (pending appeal, of course). I have a lot of reservations about our 18th century intellectual property laws and their ability to serve today's technology community well, but that's a subject we won't dig into right now. Rather, this whole experience does offer important insight into the disciplines of innovation and differentiation.

This weekend Cassidy James wrote an excellent article in The Verge on how Google avoided Apple's trade dress in its Android devices (read the article here). What struck me most about the article (other than the fun and well-written history therein) is the important lesson for strategy that serves all of us, whether or not we are interested in technology.

Google is so knowledgeable about Apple's patents that they were able to willfully, creatively, innovatively avoid imitating Apple's products, and in the process, they created interesting, different, highly useful devices for the community of tech users for whom Apple just doesn't do it.

This is what all product developers are challenged to accomplish. To know the competition so well that they know what not to do, and then to bring so much creativity and intelligence to the table that they are able to create something entirely different. Whether your product is a designer good, a service, a retail store experience,  a taste or scent, or a software product, this is the work of differentiation.

Remember - you don't need all the customers, you need the right customers. And genuine innovation is one sure way to reach an audience that is currently not being well-served.

As the jewelry industry heads into its biggest American show of the year, designers are questioning the best way to price their lines. What follows is a reflection on some important considerations when establishing a pricing strategy for a designer jewelry label.

Designer and brand jewelry lines must be very careful to avoid commoditization. Whereas non-differentiated manufacturing concerns price based on the current precious metal market, to do so as a brand or designer will reduce the design aspect of the jewelry to the equivalent of ‘labor’, which can only precipitate a race to the bottom. This is tantamount to saying that two paintings that required 22 hours, oil paints, and 17 brushes to produce hold the same value, though one was painted by Gustav Klimt and the other by a technically competent reproducer of others’ original works.

Designer and brand jewelry executives must consider a number of concerns – some of them conflicting – when establishing pricing strategy. This topic can hardly be covered in the space of a blog, but I will address the high points in the hopes of launching a meaningful discussion within the jewelry design community.

On Avoiding Commoditization

The only defense against price competition is differentiation. Though it is difficult to differentiate on design – and I strongly encourage designers to include elements of differentiation in addition to design – differentiate you must. Let Cindy Edelstein’s be the voice in your head on this point: Cindy preaches that all the designers in an aisle at a tradeshow should be able to commingle their jewelry in the aisle, and she should be able to tell from design characteristics alone to which designer each item belongs. Without a distinctive voice the buyer will ultimately force you to differentiate on price because you will have given them nothing else to work with.

At the risk of seeming like I am downplaying the difficulty of finding good retail accounts, remember that you don’t need all the customers, you need the right customers. A retailer who only focuses on the price of your product based on the metal and gemstone content is not an ideal target. If he can’t see the design value for himself, what is the likelihood he has trained store staff to see and sell design to jewelry consumers? But once you are pulled into the retailer’s non-design-focused pricing strategy, it is nearly impossible to charge the right price when you encounter the right sort of retailer. You will do better working your tail off to find designer-focused retailers than to try to convince generic jewelry retailers to pay the right price. Sound difficult? It most certainly is. But that is the challenge of going into a designer business. If you had decided to be a high-volume producing manufacturing business, your big need would be the capital to invest in the production techniques and technologies necessary to produce in volume. The challenge for a designer business is the creative strategy, brand identity, intensive marketing research and analysis, promotion, and sales activities necessary to find the right customers.

On Variable Costs

You must know your variable costs to protect your margins. Variable costs include the raw materials and labor to produce each piece. Obviously, the first time you produce an item will take longer than subsequent production efforts, so you want base the labor on standard production. Estimating variable costs is, well, a big no-no. If your estimates are off and you negotiate a large order at the wrong price, you may run completely out of cash before you discover your error. Know your exact variable costs.

Metals are the big worry right now. Should you price gold at a $1300 market or $1500? Everyone has heard a horror story of $2000 or worse. Here are a few thoughts to consider when deciding what market to base your pricing strategy on:

• Investment demand for gold continues to hold at fairly high levels, bolstered by concerns about inflation and investor worries about the European economy. On 5/17/10 Kitco projected that gold could go up to $1700 this year, and most forecasts are eyeing the $1350 - $1500 range.
• Johnson Matthey is projecting platinum prices in the $1600 - $2000 range for the balance of the year.
• Silver has been experiencing market resistance in the $19 range, but if it manages to break through that resistance it could track up sharply and take many people by surprise.
• You must be aware of how other designers are pricing their lines. If you are at an $1800 gold market and everyone else is at $1300, you’ll likely be priced out of the market. Watch Cindy Edelstein’s blog this week for her report regarding current designer market bets.

Some will argue that it is better to be safe than sorry, and will price their lines at a specific market and tell retailers that orders will ship at the actual metal market the day of shipment. This may be fine for commodity-level manufacturers and distributors, but I advise against it for designers. As I said before, once you train the retailer to think about your line as a commodity + labor offering, you have thrown your design value out the window. I recommend a harder – but ultimately more sustainable – road for brands and designer lines.

Pricing for Margin and Value

So what’s a non-financial-analyst designer to do? Start by considering what price your target consumer is willing to pay for your line, and what margin your target (i.e., ideal) retailer wants to get. This involves market research. Trade shows are a terrible place to do consumer market research, because you can’t assume your competitors have done their consumer research. Pay attention to what your competitors are doing, but don’t fool yourself into thinking this is a replacement for consumer awareness. Listen to actual consumers, study what they are buying, find comparable items to your designer line, and learn what consumers are willing to support with their debit cards. This is where the real value of social media exists by the way. At any given moment hundreds of thousands of conversations are taking place, and many of those people are talking about what they buy, how much they spent, and where they bought it. These conversations are yours for the eavesdropping. Learn to listen in and you’ll begin to understand what consumers really think.

Once you have a sense of what consumers are willing to pay for jewelry like yours, subtract the target margin of the retailer. Now cost your line at a $1350, $1500, and $1700 gold market. Answer the following questions:

1. Can you meet your financial obligations and generate organic cash flow to cover your growth requirements at each of those margins?
2. If the answer to #1 is ‘no’, do you have outside financing available (already committed) to you?
3. If the answer to #2 is ‘no’, how will you fund the metal purchases, labor, and operational costs necessary to keep filling orders?

To generate organic cash flow, you must have margin. If you give up significant margin, you must generate so much additional volume that you can produce the number of dollars necessary to fund growth. If you can’t support the demand operationally once you get those additional orders – or if the number of dollars you need remains persistently out of reach - you’re out of business. Landing a few choice accounts won’t keep you in business. The key to remaining in business is producing more dollars. So giving up margin to snag a few choice accounts is rarely the road to success.

Look, if you’re going to put yourself out of business anyway, it’s probably worth your time and effort to get on the phone and call every retailer in the country yourself, just to find the 15 or 20 retailers who get it about designer jewelry and understand that it is not a commodity. There are more than 20,000 retail doors in this country, and most of them (sadly) are treating jewelry as a commodity these days. But not all.

Enlightened retailers exist. There are (dare I say it) more than 15 or 20 of them. There are at least several hundred retailers who understand that the key to turning consumers on about jewelry is being turned on about jewelry themselves, and training their sales and purchasing staff to be turned on about jewelry. They are using this advantage (yes, differentiation) to put their retail competition out of business, and because they understand love-of-margin, they are charging the right prices and doing the hard work necessary to find the right customers and encourage those customers to pay those prices.

Does this mean that when you find those retailers you will automatically solve your price problems? No, it doesn’t. You still must have tremendous control over your production, you need to know – not estimate – your variable costs, and you need to do everything in your control to keep your costs down so you can enjoy healthy margins after some reasonable negotiation with your retail partners.

You already know being in business for yourself is hard work. But working this hard for no money? That’s just not worth it. So don’t take your need for margin off the table. Differentiate. Do your variable cost homework. Do your consumer research. Price according to consumer demand and make sure you turn a profit. Strategize, brand, market, promote. Find the right retail partners. Sell your intrinsic value and differentiation (not your materials + labor!).

Make some money. You’re worth it.

(c) 2010. Andrea M. Hill

I spend a lot of time thinking about the balance between cultivating customers and customer profitability – both for my own business, and for my clients. For every type of B-to-B business – whether you sell products or services – it is critical to understand if your clients are actually worth it. And for jewelry designers faced with the constant request to provide memo goods, it’s business life-or-death.

I have long taken issue with the statement the customer is always right. It was stupid when it first came out, and it’s still stupid today. I understand that someone was trying to make a point about how we are supposed to treat others with dignity and respect, but the real intention was distorted the moment those words were strung together in a sentence.

Small businesses, micro-businesses, and solo-preneurs tend to think that a new customer – any new customer – is the point. They get so excited about the prospect of cash and exposure that they fail to analyze the potential profitability of the source of that cash and exposure. I can personally attest to the fact that invoices paid do not necessarily equate to client profitability. I have learned walk away from accounts that seem like a big deal, because they steal focus, money, energy, creativity, or even brand reputation from my own organization. Even a big client can be not worth it. But this is a difficult business truth to accept for a small business that is trying desperately to cultivate sales.

Let's take a brief look at whether or not to take on memo accounts, and then I'll show you how to analyze any type of customer for potential profitability.

Should I Open Memo Accounts?

I am often asked by jewelry designers if they should take on memo accounts. And my answer is pretty consistent: Mostly no, with rare exceptions. The exceptions are easy to list: It’s reasonable to take on a memo account if it will deliver on four out of five of the following points:

1. Provide you with genuine credibility and brand exposure (i.e., “So-and-so carries my work,” which leads to other retailers saying WOW and buying in). The ideal memo account should be a door-opener.
2. Is an account that is known to do a terrific job of promoting and selling designer work – even if it’s on memo.
3. Is an account that is known to pay its bills promptly.
4. If you can afford to stock that account with the amount of inventory they need without going into debt in the process.
5. If you can afford to service that account without it creating costs (in you and your staff’s time and attention) that take you away from other more profitable opportunities.

There. That’s the checklist to use when considering whether or not to take on memo accounts. If a potential memo account can’t be a hit on 4 out of 5 of the points above (pick any 4, but no less than 4), then it probably isn’t worth your investment.

Why do I say this? Because everything you do as a small business (or micro-business, or solo-preneur) must turn a profit. When you self-fund a business, the only money you have to fund growth is the money you put back into the business. You can’t afford to spend the time, attention, or investment-in-inventory on accounts that aren’t putting profit back into the business – and by that I mean profit sufficient to help you continue your self-funding.

I can already hear some of you thinking, “But I can’t get into any accounts without memo!” And I know that’s true. Jewelry retailers are notoriously hard to get into – the majority of them want jewelry designers to pay to play. If this ultimately turned into a profit-generator for most jewelry designers, I wouldn’t be writing this blog. But it doesn’t. So we’re going to spend a few minutes talking about how to analyze the profitability of a client.

Now Let’s Analyze Your Client Profitability

When you take on a new account, it’s imperative that you calculate the costs, time (which is, of course, a cost), investment (inventory, up-front development work, shipping, etc.), financial return, and amount of time it will take to achieve that financial return. This is easier than you might think.

I’m going to explain all of this below.

Start by Understanding Your Fixed Costs

To complete this section, start by inputting your PROJECTED  REVENUE in the “Anticipated Revenue” tab of the workbook. Then go to the “Fixed Costs” tab in the workbook.

For every project you do, you have Fixed Costs. The most obvious Fixed Costs to a product seller are the cost of the inventory the client wants you to sell them – or “loan” them if it’s memo they’re asking for. If you are required by the client to pay shipping, those costs will be fixed as well. Fixed Costs would also include any unreimbursed travel you are required to make to get the client set up or to provide training, and would also include any displays, packaging, or marketing materials that you will provide.

For service providers, Fixed Costs can include the cost of the bidding process, the cost of setting up communications tools, training for both the service provider team and for the client, travel, and support materials. All the time, fees, and expenses incurred in the winning of a client and in launching them –whether it’s to sell your goods or use your services – are Fixed Costs.

Formula: Cost of your time + cost of employee and contractor time + cost of inventory (one year) + cost of unreimbursed travel + cost of unreimbursed shipping + cost of marketing, training, and marketing materials + any other required initial expenses = Fixed Costs.

Analyze Variable Costs

To complete this section, go to the “Variable Costs” tab in the workbook.

Variable Costs are the costs of managing a customer after start-up. For your analysis, you need to figure out the Variable Costs of the new client in the course of the first year.

The first variable cost you should calculate is the amount of non-production time you and your employees will likely spend managing the client. This includes time spent managing orders, special orders and special requests, in meetings, dealing with revisions and redirections, swapping out inventory, reconciling memos, invoicing, and the amount of time you spend calling them to collect overdue invoices. You should start by analyzing what the average client costs you in time to do these things, then use any market or peer information you have to determine if the client is likely to be lower-maintenance or higher-maintenance than an average client.

If the client requires you to participate in promotions throughout the year, such as trunk shows, annual client catalogs or calendars, the expenses and time associated with these projects are also Variable Costs. Coop advertising should also be included, and you should calculate the amount of coop based on the amount of Projected Revenue.

Some computer software will result in added Variable Costs, such as a CRM that charges you by the client, or an image management system or project management software that you pay additional fees for adding new users or clients. Make sure you figure the incremental cost of all your business management tools, because those costs can add up fast, and you want to make sure you understand the costs relative to your clients. Otherwise, you risk overestimating how much each client is worth.

Formula: Cost of your time to manage this customer over first year + cost of your employee time to manage customer over first year + incremental costs to any business software tools + unreimbursed service costs + coop advertising costs + any other Variable Costs not listed here = total Variable Costs to manage client.

Figure Out the Break-Even Point

To complete this section, go to the “Break-Even Point” tab in the workbook.

Your Break-Even Point is the point at which the client has paid for itself. It is not the same as profit. Profit is what comes after the Break-Even Point. To calculate the Break-Even Point, you add up the total Fixed Costs of start-up, the total inventory costs for the first year, and the total Variable Costs per year. That is the cost you must recover in order to start turning a profit.

What if it’s negative? Then increase your Projected Revenue amount – in increments – to see at what level of sales that client would have to perform in order to be profitable. If the amount of sales required is unreasonable for that client, they’re not a good risk – with one exception: If you can demonstrate that they will produce significant profits in year two and beyond, and if your business can handle the strain of investing in that client for a full year before getting a return, the client may make sense. However, if you go into any level of debt in order to finance the customer, make sure you include the costs of that debt (credit card or loan fees and interest) in your Variable Costs for the customer for however many years you carry the debt.

Formula: Projected Revenue – non-inventory Fixed Costs – inventory costs – Variable Costs = Break-Even Point.

Determine the Contribution Martin

To complete this section, go to the “Contribution Margin” tab in the workbook.

While most small business owners are reasonably good at calculating costs of inventory and whether or not the sales of products are creating a profit, relatively few small business owners know whether or not a client is profitable. That’s because they don’t calculate the Contribution Margin.

It’s tempting, when you think about taking on a new client, to get excited about every sale. Emotionally, sales are fun. But rationally, we know we incur many additional costs in our effort to close the sale. Contribution Margin is how much money you have to cover your Fixed Costs once the Variable Costs have been taken into account. To get this amount, you subtract your total Variable Costs from the expected revenue for the client. By analyzing the Contribution Margin of each client, you gain insight into whether or not the client is producing a profit beyond the profit margin of the goods or services you sell them. This is essential insight, because a high-maintenance client may produce acceptable – or even very good – sales, but still be a money-loser.

Formulas:
Contribution Margin:   Projected Revenue – total Variable Costs = Contribution Margin.
Profit:   Contribution Margin – First Year Inventory costs – First Year Non-Inventory Fixed Costs = Profit.

Ongoing Profit Analysis

Use the “Contribution Margin” tab in the workbook. The section is “Subsequent Year Contribution Margin.”

Finally, you must ensure that each customer is returning a reasonable amount of profit after the first year. Many businesses will perform strongly for a few years, then drop off in subsequent years. This is particularly true when selling to retail establishments that have a style or fashion component, but it’s also true for service businesses that work with clients who eventually will develop some of those services in-house. Once client revenue drops below a certain level, they will stop being a productive client for you. When that happens, your time will be better spent elsewhere.

Formula: Projected Revenue – Total Variable Costs = Contribution Margin. Contribution Margin – Projected Inventory Cost = Profit.

While you may love what you do, you’re not in business purely for fun. You need to turn a profit, and if you’re not turning a profit, then either A) you’re in such a financial position that you can afford to do your hobby full time, or B) you’re going to eventually burn out (both personally and as a business). Invest the hour or two that it may take you to completely understand this concept. Use the spreadsheet I provided to see how easy it is to calculate these numbers. And learn to identify which clients are worth serving and which are not.

Don’t be afraid to face the truth about client profitability

If you have a preponderance of clients who aren’t worth it, you need to know that. That knowledge will give you the impetus you need to find other ways of selling and other types of clients to sell to. A  business only dies when its owner stops feeling the motivation to find new ways of selling and new clients to serve. The time is going to go by either way. Wouldn’t you prefer to be earning a comfortable living at the other end of that passage of time?

I've been doing something for the past year that is really working for me. Like you, I run a business. And like you, I often get caught up in the details of that business. So I have to be very intentional about maintaining my focus on the bigger picture.

Of course, I have my big picture established. I have a strategic plan, a clearly defined brand, and the operating plans (marketing strategy, sales & marketing plan, operating plan, budgets & cash flow plans) for each of my business divisions. And I review each of those plans monthly to make sure we are staying on track, achieving our goals.

But still. It's that daily focus that makes or breaks you. Without even noticing it, several days can slip away without any strategic focus at all! I don't know about you, but that makes me crazy. I like ending each day feeling like I did the things that matter. Achieving goals motivates me.

So here’s what I did. During my monthly review of my strategic and operating plans, I started selecting the most important goals to achieve that month from each plan – I usually end up with between four and six significant monthly goals. Just doing this brought my long-term goals into clearer focus. Then, I memorized them. Why? So I could write them down each morning.

That’s right — every day, before I open a single email (but after retrieving my cup of coffee), I write down those goals. I happen to use a business journal for all my notes during the day, but it doesn’t really matter where you write them, as long as you write them. Every single day I take the time to write my business goals for the month, pen to paper, completely focused, fully intentional.

And something interesting has happened. The most important thing is that my achievement of goals has significantly improved. But you mostly see that in retrospect. What I’ve noticed in real time is that when I write my monthly goals each day, my thoughts are more likely to turn to the specific daily activities that I must accomplish to achieve those goals. Before I get sucked into customer questions, writing proposals, helping employees solve problems, or mindless administrative work, before I go off on a tangent doing something that feels rewarding but isn’t in alignment with my goals, before all of that — I visualize my day in terms of important accomplishments. And when I do that, the next 8-12 hours is infused with awareness of the big picture. Sure, I still fight some fires and do some administrative work. But I also get big picture things done. The number of days that slip away without strategic accomplishment has dwindled down to almost none.

I am sure this daily focus is what improved my business goals achievement. And now that I’ve been doing this for a year with good results, I am wholeheartedly recommending this approach to you. Start today! It’s never too soon to start a good thing.

Clear Expectations Help You Release Control

One of the things I like to write about is how to get out of our own way, and how most people get in their own way by fearing change and trying new things. But what if you like change, you embrace learning new things, and you’re still stuck? Then it’s possible you’re suffering from one or both of the other two reasons we get in our own way: a need to control everything, or sacrificing good for the perfect.

I know a business owner who is quite the Renaissance Man. His ability to come up with w ideas, to imagine how things could be made, and to create innovative manufacturing techniques to make them is inspiring. Unfortunately, his need to control everything stands in his way of success. The business is too big to be run by one person, yet he won’t let the employees he has contribute in meaningful ways. He manages their activities to such a degree that the entire company is in a state of rigor mortis – unable to move until the owner puts his stamp of approval on the tiniest of details. Whatever creativity and intelligence the employees did or could bring to the table has been undermined, because the organization has been trained not to think or make decisions without the boss.

I can tell stories of dozens of business owners who are one-person shops long past the point when they should have expanded, simply because they don’t want to let go of the control they enjoy when they do everything themselves.

If you’re a small business and you’re making the amount of money you want to make and getting the amount of free time you need to be a balanced human, you’re just fine the way you are. But if you’re feeling stuck, needing to grow but afraid to trust anyone else with your details, here are a few tips for getting out of your own way.

Assess Yourself

Start by making a brutally honest list of your skills. This list must be based entirely on the here-and-now. No “If I took a day and really worked on it I could be great at it” thinking. Just hard, cold facts. Take a piece of paper, and make three columns. At the top of the columns write the headings “Fantastic Skills,” “Average Skills,” and “I stink at this.”  It looks like this:

A genuine control freak will look at this list and immediately make plans for perfecting everything in the Average Skills and I Stink at This columns. But that’s not rational. Don’t get me wrong – self-improvement is one of the most exciting parts of living. But here’s a business fact that you must accept:

No business has unlimited resources. Your resources will always fall short of being sufficient to accomplish everything your business needs and wants to do.

This is true whether you are a one-person operation or General Electric. Attempts to become the master of every possible business skill will only steal time and attention from doing the things that are already your strengths. So what you must do is learn to set clear expectations - of yourself and others - and learn to delegate (which could include outsourcing).

Which Skills are Strategic?

Once you have completed your personal skills list, take out a red pen. Circle the elements that are the most important to your business strategic success. Everything on our example list is important for a business to do well, but which are the most strategic? The most tied with your special value to your customers, your secret-sauce of strategic differentiation? Imagine for a moment that the example business is a design firm that:

• Offers jewelry with a very unique metal finish
• Uses unique and difficult-to-set gemstones
• Works closely with retailers to attract customers and sell through event-based marketing.

The essential strategic skills for that company might look like this:

Unless you happen to have a lot of free time on your hands, you could probably choose to perfect one of the three things you aren’t fantastic at. But what about the other two?

Here’s an interesting little paradox. Many times, the tasks and responsibilities we won’t let go of are the ones that we don’t do well ourselves. Why? I’m not sure it’s ever been studied, but I have my guesses based on decades of observation. I think the reason is that it’s hard to delegate – and even harder to manage – something that we are not good at ourselves. We’d rather muddle through in an attempt to control the mistakes. But by setting clear expectations, it's possible to eliminate the mistakes and hand off the things you're not good at and/or which are not strategic.

But controlling for mistakes is a zero-sum game. You can’t soar when you’re spending all your time trying not to fall. So here is a method you can use to get control – and then let go of it.

1. If you feel the need to move one of your strategic skills into your “fantastic” column, choose it and commit to it. You only get one, so choose wisely based on your innate capabilities and talents and your level of interest.
2. For each of the remaining strategic skills, make a list of the required outcomes, the things that absolutely must be accomplished to satisfy the business need from that element. Let’s use “Planning Production” for our example

What must be accomplished in the area of Planning Production?

• All initial orders from retailers must be completed in 4 weeks
• All reorders from retailers must be completed in 1 week
• We must know the status of every order at all times
• We must maintain a quality approval rate (final quality) of 99% or higher

This simple act of defining outcomes for an aspect of your business places the control where it should be – at the beginning, at the level of expectations. Once you have established these expectations, you will feel freer to trust someone else to do the work, whether it is an employee or an outsource partner.

In fact, this is the key to success in all business functions. If you take the time to define precisely what you want from each function in your business, you can manage to expectations rather than micromanaging the work itself.

This is ultimately the work of a business owner. To define what is important in every area of your business, make those expectations clear to all employees and service providers, then monitor the results. Doing this work will provide tremendous clarity. It will also free you to focus on the things you are really really good at, which are most likely also the things you love to do.

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So you've done the work of coming up with a business strategy, a minimum viable product or service, and a business plan. Now what? Well, for a company to achieve its strategy and operate effectively, it must have goals, measurable objectives, and a method of monitoring and managing results; in other words, a Management Framework. 

What is a Management Framework?

Management Frameworks are the tools used by the most competitive companies to turbo-charge innovation, harness energy, and align people, teams, and divisions. Without a management framework, companies function at a tactical level at best. Think of them as systems that facilitate setting and managing measurable goals and objectives that are linked to an organization's strategy. The best frameworks make it possible for a large group of people to see the strategic vision of a company in a similar way, orient themselves and their work to achieve the strategic vision, remain in alignment with one another even when working independently, and consistently improve their performance and renew their focus relative to strategy.

There is no perfect management framework, but there are several excellent ones. It’s important to understand how each system works, and which framework to apply to specific companies, cultures, or situations. Some of these systems also work well in tandem, offsetting each other’s weaknesses with complementary strengths.

The two most frequently used systems for performance measurement are SMART goals and KPIs. Unfortunately, these are also the two weakest measurement approaches, best used as the tactical component of a more holistic strategic framework.

The two most used management frameworks are Balanced Scorecard (BSC) and Objectives & Key Results (OKR). Two other frameworks, 4DX and EFQM, also merit consideration when determining which management framework to adopt.

Let’s start with a comparison table, then look at the basics of each metric system and management framework.

Now let's do a high-level overview of each system.

KPI - A Measurement Approach

The most well-known metrics strategy, KPI is also the narrowest. KPI stands for Key Performance Indicator, which can be any performance metric for any business outcome or activity. A KPI can be a Lag indicator (an outcome measure — an indicator of past performance that measures the result), a Lead indicator (a performance driver — something you monitor or measure to determine if you are making progress toward a goal), or a Tactical measure (a short range, operational, or immediate metric, like a machine temperature or daily staffing level). It can measure success, output, quantity, quality, or time.

KPIs are most effective when used within a management framework, such as Balanced Scorecard, OKR, EFQM, or 4DX. On their own, KPIs can be useful, but they can also be suboptimizing and create conflicting focus between teams and departments.

SMART Goals - A Goal-Setting Method

Like KPIs, SMART Goals are a measurement type, not a management framework. Smart Goals are a popular goal-setting technique that focus on creating effective goals. There are no mechanisms within SMART Goals to drive alignment within an organization, and no guarantee that any particular goal will lead to innovation. SMART goals are a criteria, not a framework or system.

SMART Goals can be Lag or Lead indicators, and can be created at any level of an organization.

According to SMART criteria, there are five things that a goal must be:

• Specific
• Measurable
• Achievable
• Relevant
• Time-bound

4DX - A Prioritization and Measurement Method

Created by Stephen Covey and Chris McChesney, this is system is a hybrid; part measurement method, part management framework. It is designed to create:

• Focus
• Leverage
• Engagement
• Accountability

This system proposes to help managers and employees cut through the constant flurry of tasks and shifting priorities, and focus on the key goals for each area. Key concepts of this system include:

• The more goals a person has to achieve, the less likely they are to focus enough to achieve any of them effectively.
• Competing priorities and goals suboptimize the organization.
• Everyone should be working on two big goals (called WIGs, or Wildly Important Goals in 4DX) at any time.

Rules of this system include:

• No team can focus on more than two WIGs at the same time.
• The battles you choose must win the war (strategic alignment).
• Senior leaders can veto, but not dictate, goals (bottom-up goal development).
• All WIGs must have date gates, in the form of “X to Y by Date” to provide clear scope.

OKR - An Agile Management Framework

Now let's start looking at true management frameworks. The first is OKR, which stands for Objective & Key Results. The OKR and Balanced Scorecard systems share a lot of DNA, and the choice between them often comes down to pace and agility. These two systems can also be used together to gain the greatest benefits of both systems.

Objectives in OKR

According to the OKR definition, an OKR consists of 1–5 Objectives which, by their nature, are qualitative concepts (characterized by their quality and difficult to measure). They provide direction, typically posed in question form:

• What do I want to accomplish?
• Where do I want to go?

The purpose of objectives is to provide the definition for the goal(s) you want to pursue. These are most often Lag, or Outcome measures.

The characteristics of OKRs should be:

• Directed
• Aligned
• High in impact power
• Easy to understand
• A means of inspiration

Key Results in OKR

Each of the 1–5 Objectives should have from 3 to 5 Key Results (these need to be quantitative concepts and must be measurable). If it’s not measurable, it’s not a key result.

The purpose of Key Results is to define the measurements that will determine if the organization (team, individual) is progressing toward the objective. Key results are milestones, and answer the questions:

• How will we know when we get there?
• How will we accomplish that?

Key Results can  be a combination of Lag (Outcome) and Lead (Performance Driver) metrics, and should be:

• Easily measurable
• Specific
• Bound to a specific time frame

Initiatives in OKR

Each of the 3 to 5 Key Results may also be linked to specific initiatives meant to define the work needed to maintain progress on the Key Results. They are specific actions and activities. There is a minimum of 1 Initiative related to a specific OKR.

Initiatives answer the question:

• What must we do in order to get there?

Initiatives are almost always Lead (Performance Driver) measurements, and should be:

• Easily measurable
• Specific
• Controllable
• Bound to a specific time frame

Want to learn more? Buy the definitive guide on OKR and support an independent bookseller! Order "Measure What Matters" here.

Balanced Scorecard - A Holistic Management Framework

The Balanced Scorecard is a management framework developed by Robert Kaplan and David Norton. It is a strategic method designed to align all areas of an organization with corporate strategy, and to drive awareness of what a business must do for customers, excel at internally, and invest and develop in order to achieve its strategic goals.

It is the strongest framework for eliminating competing goals, mitigating suboptimization between departments or functions, and ensuring holistic business goal-setting. It is also one of the best frameworks for driving innovation, due to the unique framework of the Four Perspectives.

Four Perspectives Framework

The framework of the Balanced Scorecard is built on four perspectives:

• Financial Perspective: What must we do for our stakeholders in order to be successful? These are Lag measures.
• Customer Perspective: What must we do for our customers, in order to achieve our financial goals? These are generally Lag measures, but can include Lead measures as well.
• Internal Perspective: What must we excel at, internally, in order to achieve our customer goals? These are typically Lead measures.
• Learning & Development Perspective: What must we learn, invest in, develop, or acquire in order to achieve our Internal goals? These are typically Lead measures.

Balanced Scorecard implementations are often complex, but it can be implemented in a very lean manner. If complexity is the one reason you’re concerned about using a Balanced Scorecard in your business, dig a little deeper. Small businesses can implement Balanced Scorecards successfully using a lean approach (I call it a “Skinny Scorecard”). One of the best ways to reduce the complexity of the Balanced Scorecard is to combine it with an OKR approach, which keeps the richness of the Balanced Scorecard perspectives while benefitting from the agility of the OKR method.

Learn all about the Balanced Scorecard and support an independent bookseller! Order The Balanced Scorecard here.

EFQM - The Broadest Management Framework

Of all the management frameworks, EFQM (European Foundation for Quality Management) is the broadest. EFQM was founded by a consortium of European business leaders with a goal of creating a formalized management framework to help organizations become more effective, which in turn would drive overall effectiveness of the European economy. As a result, this framework reaches beyond individual organization boundaries and has a strong social component. The idea is that using the EFQM Excellence Model helps organizations understand where they are on a “path to excellence,” while giving them tools and techniques to measure improvement over time.

In the EFQM model there are “enablers” and “results.” It is sometimes thought that Enablers are similar to Lead measures, and Results are similar to Lag measures, but the model is a bit more nuanced than that.

Here is how the model is most often illustrated:

EFQM Concepts

Enablers include:

• Leadership
• People
• Strategy
• Partnerships and Resources
• Processes, Products, and Services

The idea is that by changing what any of these enablers do, you can change the results of the organization.

Results are the goal, with specific principles in mind:

• People Results
  • Principle: Leading to inspiration and integrity.
  • Principle: Succeeding through the talent of people.
• Customer Results
  • Principle: Adding value for customers.
• Society Results
  • Principle: Creating a sustainable future.
• Business Results
  • Principle: Developing organizational capability.
  • Principle: Harnessing creativity and innovation.
  • Principle: Managing with agility.
• Overarching principle: Sustaining outstanding results.

Managing Results

EFQM’s RADAR function is similar to Balanced Scorecard and OKR in so far as it requires the planning and development of “approaches” to describe how each “result” will be achieved. Once you know what the approach will be for each goal, there is a “deployment” step that determines how, where, and when each approach will be implemented. The “Assess and Refine” element of RADAR ensures that progress is continuously monitored, learnings are captured, and the group comes to consensus on whether or not the “approach” to the “result” is working. If it is not, it is refined.

Summary

Like shoes and swimming suits, there's no such thing as a Management Framework that fits everyone perfectly. It's valuable to select the framework that fits your organizational culture, business proposition, and strategy. However, if you're choosing between spending a year to get to the right framework, or spending the year with a management framework that's not perfect, I'd definitely choose the latter. Your management framework is one of the building blocks of business success. No business is too small to have one, and no small business can become a larger, more profitable business without one.

Last night my Motorola smartphone crapped out. Well, specifically the camera quit and could not be revived. As a person with a 3-day old grandson, no camera-phone was a no-go. So off I headed to the Verizon store.

Let me go on the record and say that I have always liked our Verizon store. A lot. Not the one in the next town over, not the ones I've tried in Milwaukee, not the ones I've run into in Chicago. Ours.  In smallish West Bend, Wisconsin. The people there have always been knowledgeable and helpful and fun.

So when I walked into the store today I got nervous. It was clear that something had changed. The stacks of inventory in the center of the store were gone, and in their place were comfy leather seating groupings and little tables. Fewer phones were on display, the massive Verizon electronic pay-station was gone. But I saw a few familiar faces, so I was encouraged.

I asked right away about the changes, and the staff members were more than enthusiastic about sharing them. Here is the bulleted list of changes, in the order they were shared:

1. The group that had been running the store bought the store from Verizon in order to run it as a franchise.
   
   
2. They wanted to offer only the excellent phones, the phones they knew the customers would be entirely satisfied to own. So they slimmed down the inventory to include only the phones they felt good about offering.  They are still happy to order anything a customer wants from Verizon, but what they are willing to promote and endorse is far more limited.
   
   
3. They took all their salespeople off commission and put them on salary (this is salespeople enthusiastically telling me this detail). This allows them to focus on selling the right phones to their customers for the right reasons, not because they get a SPIFF or higher commissions on otherwise less worthy models. This also allows them to spend the time each customer needs.

My phone selection process was easy, because I already knew what I wanted (HTC One M8 - I'm already in love with it). But the checkout process had changed. Paperwork had been dramatically reduced, the salesperson prepared my rebate for me - right down to a stamped, addressed envelope - and the transaction took less than half the time it had taken in the past.

I don't know how they reduced the transaction time, but clearly that was an objective as they took over the store. Whatever their solution was, it certainly worked for me. The fact that I left with a few pieces of paper and not reams of it made me - and the environment - very happy. And preparing my rebate for me? That's just a big wow. It makes sense, because as a franchise they can focus on their objective of making customers happy, and not feel torn by a Verizon corporate marketing perspective that counts on a certain percentage of customers finding the rebate process too complicated to complete.

The last thing that happened paid for my phone today and the next few upgrades too. My company has 10 devices and over 30 gigs of data per month on our Verizon plan. That's expensive. My sales rep asked me if I had a little time to review and possibly reduce my bill. I was skeptical. Several months ago I went into that store with that very request, a promotion for reduced Verizon plans in my hand. After 45 minutes of looking at the Verizon system, trying to find a way to make that plan work for me, the sales rep and I both gave up.

Because my experience today had so far been excellent, I told her sure, give it a try. In less than 10 minutes she had reduced my bill by $260.00 per month. She saved me $3,120/year in 10 minutes. I am still smiling.

This store, now called Wireless Zone, teaches several important lessons to small business owners everywhere:

• Know what's important to you. In the case of Wireless Zone, the answer is clearly customer satisfaction and quality. It's so clear that I, as a customer, can speak to their values. Can your customers speak to your values as clearly?
  
  
• Align your merchandise strategy with your core business values. To do this they eliminated junk phones and a broad range of wireless toys, enabling them to focus on the core, quality products that would be sure to keep customers happy and loyal.
  
  
• Align your human resource strategy with your service goals. Wireless Zone put sales staff on salary instead of on commission. If their management approach is good, this should reduce turnover significantly, which will in turn ensure that the sales staff becomes increasingly knowledgeable and develops personal relationships.

I'm very impressed by The Wireless Zone in Wisconsin. Their business values and strategy are so transparent that we as customers can see what matters to them and why they should matter to us. That's a successful approach to small business. Let's all aspire to the same.

Your Marketing Strategy Will Be as Good as Your Insights

The best time to create your marketing strategy for the following year is in September and October,  so the marketing plans can be included in the company budgets. But invariably I get a dozen or more frantic calls in December from companies that want to make marketing plans in a hurry. I don't judge - I can procrastinate with the best of them.

Rather, my concern is that most of these professionals want to decide what to do without first analyzing what they have done. Failure to analyze past marketing data will lead to weak marketing decisions in the future.

For today, let's look at the following questions and how to answer them:

Who is buying your stuff, how often do they buy it, and how much do they spend?

If you don't understand your current buyer behavior you can't determine how to improve it. The issue I see most is that customers do not return for repeat purchase. If you spend your time and money finding customers but never see them after the initial purchase, your marketing strategy is pouring money down the drain.  You can't guess at this number - you have to do the math.

• Figure out how many customers from 2011 bought from you again in 2012. How many times did they buy in 2012?
• Figure out how many new customers bought from you in 2012.
• Figure out how many bought 1X, 2X, 3 or more times.
• See if you can determine any important differences between the 1X and the 2-3X (this is in a year, not in a lifetime) purchasers. Look for similarities/differences in gender, income bracket, zip code, types of things they purchase - examine every clue at your disposal to come up with patterns.
• Try to determine why the 1X purchasers did not come back (a phone call to ask why is a really direct way to do this, and is often quite well received if it's framed as an I want to improve my business call and not a sales call).

Next, figure out the average transaction size of your customers. This is a simple number:  Total revenue over a specific period of time divided by the total purchases. The lower that number is, the harder you'll have to work to make a profit.  Now break it down further: What is the average transaction size of 1X customers versus 2X and 3X?

Once you have asked and answered these questions you'll be armed with a lot of new insights, insights that are valuable to creating a strong marketing strategy for the year to come.

Oracles speak in riddles, their messages intended for those curious and diligent enough to solve them. So it’s no wonder that an intellectual cottage industry has formed around deciphering Warren Buffett’s investment choices. I’m not immune.

I think Berkshire Hathaway’s investment choices in the third quarter have two important messages for the jewelry industry, apropos for this final marketing column of 2012.

Long Live Local Advertising

At a time when jewelry makers are hyper-conscious of competing with labor costs and product development from around the world, it’s interesting to consider that your marketing efforts should be more locally focused. Berkshire’s continued investment growth in local newspapers, entertainment, and Internet businesses supports this notion.

First, take a look at what Buffett has to say about his increasing investment position in strong local newspapers: “Berkshire will probably purchase more papers in the next few years. We will favor towns and cities with a strong sense of community, comparable to the 26 in which we will soon operate. If a citizenry cares little about its community, it will eventually care little about its newspaper. In a very general way, strong interest in community affairs varies inversely with population size and directly with the number of years a community’s population has been in residence. Therefore, we will focus on small and mid-sized papers in long-established communities.”

To Buffett, community cohesion offers an economic benefit.

Now consider that idea as it relates to social media, which is not a replacement for a well-thought-out marketing campaign. It doesn’t matter how many people “like” you on Facebook if that doesn’t turn into purchases of your product. So what should you be doing?

For designers and manufacturers, it is important to become a partner in marketing to communities in which your retailers’ stores reside. That may mean designing a co-op ad for the local newspaper (which is remarkably inexpensive), creating a Facebook contest that you share with a retailer and its local Facebook community, taking time to post not only on your own Facebook page but as a participant in your retail stores’ Facebook pages, and looking for all manner of ways to connect with the consumers in communities where your line is available. For retailers it means creating a strong store brand image and imbuing that image with a sense that you are part of the fabric of the community, and then building a community (yours) within the community. This can be done through events, outreach, and local advertising and promotion.

Keep Hi-Tech Accessible and Fun

Go stand in a line somewhere and see what people are doing. Almost without exception they are buried in smartphones, communicating, playing games, trying to figure out where to go and what to do next. Berkshire has increased investments in IBM (heavily focused on providing “content on every device”), DirecTV, Liberty Media (Discovery Channel, USA, QVC, Encore, STARZ), and Viacom. These investment positions indicate just how bullish Buffett is on the economic powerhouse of portable communications technology and its ability to combine and deliver entertainment and information to thumb-twitching consumers.

So how are you using portable communications technology for your business? Forget on-the-street text messaging: The jury is still out on that. But is your website automatically scalable on tablets and smartphones? Are you giving your client base (and their client base, where applicable) fun things to look at or do on their smartphones? These are the two most important things you must do right now to ensure your marketing efforts are relevant—and accessible—to today’s consumers.

The jewelry industry as a whole is way behind the curve in our use of technology, but the consumers aren’t sitting around worrying about that. They just spend their expendable luxury dollars on other fun things that catch their attention.

Follow these two suggestions and you should set yourself on the right track for 2013—and be in step with the Oracle of Omaha.

 Transcript for this video is not available yet.

Where costs + branding effort = margins

The zeitgeist issue of the week is pricing strategy, and how to price products for acceptance in the market. This is an issue all my clients confront. For software clients, pricing strategy differs depending on the platform of the offering (packaged software versus downloadable media). For publishing clients, digital publishing has turned all content delivery theory on its head. And for jewelry clients, there is a constant struggle between the inherent value of the materials (gold, diamonds) and the artistry with which those materials are assembled.

In fact, pricing strategy is the bane of most entrepreneurs. It's never just about how much things cost. It's much more about how much added value is perceived through your offering, and the values of the buyer/company perceiving your products' value.

Here are a few important concepts relative to pricing:

1. How you market and brand will largely determine how much you can get for your products. I know products that get 20X markup and others that struggle with 2X, and the only significant difference between the two extremes is the brand perception of the lines and the people to whom they market. Brand perception is in the presentation you make, the story it comes with, and the confidence with which you pitch the price.

2. Buyers who perceive your product is a commodity will never step up to a higher price point. The person who buys gold jewelry after looking at the day's gold market, the car buyer who could care less about the model they purchase "as long as it runs," and the ambivalent software buyer who believes all software is created by $1/day Chinese programmers will simply not see value in a more expensive alternative. You simply can't change the mindset.  So unless you are equipped like Wal-Mart to strip all possible costs out of your production and pay yourself and your workers nothing or next-to-nothing, don't go after commodity buyers. It's not worth it.

3. Buyers often purchase goods not according to their desires but according to their risk tolerance. In the case of retailers (if you are wholesaling your product), this also translates into the type of clientele they have cultivated as a result. Whatever you do, do not let the cost-conscious, risk-averse clients influence your pricing strategy. They are not capable of perceiving the product at its ideal value. Make sure that your pricing strategy is related to the proper target customer and not to the convenient customer.

4. Only reduce your asking price if you firmly believe you have pursued the ideal customer as hard as you can and that dropping your price is your only option. It's not just a matter of whether or not you can make enough on a lower markup. The question is, do you want to run a business where you settle for just making enough. You can bring your prices down, but it is extremely different to bring them back up again. So be sure if you reduce your prices that it's for the right reasons.

5. Which competitive products are you comparing yourself to? Be sure to compare your offering to high end comparable producers to see the relative prices.  If you find you are priced higher than your high end competition, then the prices probably should be adjusted. If that is the case, then I suggest making a new price list/catalog rather than offering discounts to those who have complained you are high. This way you can explain your ability to do so by explaining that better volumes and efficiency are giving you margin benefits that you are passing along to them, but you hold your ability to sell off your price sheets without discounting. However, if you find you are priced comparably and you are experiencing price resistance, my guess is that you haven't pursued the right clients hard enough.

Ultimately, selling and promoting are the key to having high margins; selling to the right retailers who service the right consumers and promoting your brand in such a way that your perceived value is very high. If all is well on the selling and promotion front, pricing sort of falls in line (assuming your production/acquisition costs aren't out of control). There's no doubt that we live in a world where we can get much of what we want for practically nothing. But the consumers you are targeting are aware that they get what they pay for. So tell them that story, and help them make choices they feel good about.

I tend to have very vivid dreams, and when I wake up they’re still with me. But have you ever had a dream and tried to explain it to someone else? It’s difficult to do, because dreams rarely have a clear beginning, middle, or end, and the storylines tend to be chaotic. No matter how much vivid detail you recall from your dreams, it is extremely difficult to explain them in waking life.

I have noticed that many small business owners have more of a dream for their business than a story.

That dream may be something that is clear in their own minds, but it’s very difficult to convey to anyone else. Even if you are a solopreneur, your business vision needs to be more story and less dream. Why? Because business strategy depends on a clear business vision, and you cannot create a vision without a well articulated brand story.

For 2016, resolve to figure out your business story. Unlike a dream, a story always has a destination – an end result that is clear to you (the storyteller) from the beginning. Every step of your story is a building block leading to that conclusion. Your story should include interesting, unique elements that draw in the listener and make them want to know what happens next. Perhaps most important of all, your story should be so exciting and motivating to you, that during those times when the action in your story feels like it’s lagging, you can step back and remember where you’re going with it and remain enthusiastic and committed.

If you know your story, you have a vision. If you have a vision, you can create a strategy. Resolve to wrap your mind around your story now, so you can spend the rest of the year telling it.

Two of my grandchildren are under the age of two. Active little boys, they give me such delight as I watch them develop and grow. They also make me gasp in fear on a regular basis.

Just the other day, I looked up and saw the 21-month-old carefully walking down the stairs from the 2^nd floor, holding a fairly large (for him) wooden box in his hands, and therefore not holding on to the railings. We’ve been teaching him stair safety, which involves sitting on his little bottom and scooting safely down the steps. But apparently this box (absconded from his older sister’s bedroom) was just too absorbing. He forgot about scooting entirely.

I managed to keep my cool, walked up the steps, and hovered in front of him while he successfully navigated the stairs one foot at a time. At the end of his trip down the stairs, he was very proud of himself and I was sweating.

But I realized that he was ready for the steps. He has been practicing walking up and down our miniature dachshund’s stairs (yes, she’s 14 years old and needs them to get on the couch) for weeks. Before that, he had mastered running. Before that, walking. And before that, he crawled.

This biological and intellectual advancement follows a very set pattern. We’re watching his 7-month-old brother go through the same developmental steps now. As they get older, they will do some things earlier, some things later than each other, but the pattern of human development is pretty well set.

As it is with business development.

Unfortunately, many people who start and run small businesses don’t understand that there’s a sit-crawl-walk-run-stairs progression to business. They jump in wherever they are most comfortable –usually making or selling something – and just go from there. It’s no wonder so many of them fall down the stairs.

The strategic process was probably not as important to a grocer opening a store in a small town with no competition 70 years ago. But with each passing decade and the associated improvements in technology, the disciplines of strategy, establishing competitive advantage, branding, marketing, and operations have become more and more important. Today it doesn’t matter if you are a very small business or a very large one – these skills are critical to sustainability and profitability.

The Strategic Process Flow

The good news is, if you follow a logical, tested, practical process, you can implement all the strategic building blocks your company requires. Explaining all of those building blocks in one blog post – or even one book! – would be ambitious. Today, I just want to share with you the crawl-walk-run-stairs order of business.

1. Every business success starts with a strategic plan; a plan that lays the groundwork for a company’s competitive advantage and differentiation. Without this plan, a business is just spinning its wheels on ice — it burns lots of energy and wears down the tires, but goes nowhere.
2. The strategic plan actually provides all the information needed to create a brand identity. That’s right – brand comes directly from strategy. The strategy is more than numbers; it is the expression of the businesses most fundamental purpose, goals, and objectives. These are the things that inform your brand.
3. Once the strategic plan and brand strategy are done, the business process forks into two roads that run parallel to one another and can be driven at the same time. On the outside track are the external business elements:
   1. Sales Plan: sets goals for sales numbers and rate of sales growth.
   2. Marketing Strategy: establishes the direction, goals and objectives for achieving the sales plan.
   3. Marketing Plan: the monthly/daily/weekly implementation elements of the marketing strategy.
4. On the inside track are the internal elements:
   1. Business Plan: the strategic plan covered the why and what of your business - the big picture. The business plan covers the who, when, where and how. It always looks out 2-3 years.
   2. Operating Plan: The operating plan is your annual plan to achieve the business plan.
   3. Cash Flow Plan and Budget: These are the tools that will keep you in control of your cash and resource allocation.

Each step informs the next step. The sales plan must come after the brand (which came after the overall strategy), and you need the numbers from the sales plan to complete the business plan (which is running roughly parallel to it). Staying with the external track, once you know your sales plan, you can create marketing strategy to achieve the sales goals, and the marketing plan is the month-to-month playbook to achieve the marketing strategy.

The inside track has the same sit-crawl-walk-run-stairs progression to it. Once you complete the business plan, you can make your operating plan, and once you have your operating plan, you can create a cash flow plan and budget.

But what if your business is already in full gear and you realize that some of these pieces are missing? Back up to the first missing element and start filling in the blanks. You will gain new insights, correct business problems, and come up with new ideas along the way.

or Inventory, Brazil Nuts, and Bottom Feeders . . .

My favorite afternoon snack is mixed nuts and seeds. There’s a special mix I buy that is perfect except . . . it contains Brazil nuts. I really don’t like Brazil nuts.

The good news is that my wife loves them. So every two or three weeks I bring her a canister containing all the remaining Brazil nuts. In fact, she likes them so much that I suggested that we buy a bag of Brazil nuts so she wouldn't have to wait for my leftovers. Interestingly, she declined.

Who is Your Brazil Nut Eater?

There are a lot of business management myths in the jewelry industry (a lot. A ridiculous lot). The one I’m tackling today is the one that says Designers Should Never Be on Sale.

Jewelry Lore has it that if you make high-end jewelry you should never be on sale, and that if you’re an eponymous designer, you should definitely never be on sale. But the truth is more nuanced than that.

On the one hand, the only reason people pay high prices (which ideally deliver high margins) is because your jewelry seems worth it. That is a troublesome phrase, worth it. It begs to be followed with the next two words, to whom. And the answer to to whom is what you need to get at.

But first, let’s do a quiz (answers follow. Do try not to cheat). Respond to each of these statements with True or False:

1. If you acquire a buyer on sale, they will always expect to buy on sale.
2. If you have regularly scheduled sales, people will wait for those sales to buy.
3. You should never advertise a sale online or anywhere outside the store.
4. You should never let retailers mark down your designs.
5. You should never put your own work on sale.

Now let’s see how you did.

1. If you acquire a buyer on sale, they will always expect to buy on sale.

This statement is mostly true. There are some fundamental differences between full-price and on-sale buyers, and the point of first brand encounter seems to be a meaningful in terms of how they buy going forward. What do I mean by that? Well, most of us are wired to look at certain products in certain ways. For example, I don’t buy used cars, but I would certainly buy a used boat. I don’t wait for technology or shoes to go on sale, but I do wait for home goods and kitchen items to go on sale.

It’s a myth that people are either “on-sale” buyers or “full-price” buyers. While there are definitely people at both ends of the spectrum, most of us fall somewhere in-between, and we’re product-dependent at that.

So let’s talk jewelry. Some folks are on-sale jewelry buyers; some are opportunistic, grabbing sales when they can but not waiting for a sale if they can’t; and some folks are full-price jewelry buyers. When you acquire a new customer with an on-sale item, their long-term response has more to do with their individual behavior related sale prices and jewelry than the fact that you were on sale when you found them.

So why is this statement mostly true? Because of this one detail: Our first impression of a brand not only sets our perception of the brand itself, it also sets our value thermometer. So the risk of acquiring a customer on sale is that you might establish a value perception for your jewelry that is lower than the regular price of your jewelry.

So what do you do about this? First, be prudent about where you advertise and market being on sale. For example, if your core customer is a Town & Country reader who has proven to be a full-priced buyer, don’t advertise your sales in Town & Country. Sure, you can tell your current customers about your sale items, but use a different medium — like email — to share the information. That way you don’t risk attracting new, potentially full-price buyers, and turning them into on-sale buyers.

On the other hand, if you’ve tried a different magazine and failed to find the right kind of new customers with it, but did find a few customers for your lowest priced items, perhaps you should advertise your sale in that magazine. At that point you’re not looking for a new full-price buyer: You’re looking for a Brazil Nut eater.

2. If you have regularly scheduled sales, people will wait for those sales to buy.

OK, this is a bit of a trick question. Your Brazil nut eaters will wait for sales, because that’s the only way they’re going to buy your jewelry. Your full-price buyer will buy whenever she is moved to. She’ll definitely take advantage of a sale when she can, but won’t wait for a sale if there’s something she needs or wants.

It’s your indifferent buyers that will learn to wait for sales. So the big question here is, how many indifferent buyers do you have?

If you have a strong core of brand loyalists willing to buy at full-prices, then you can probably get away with having a regular sale once or twice a year. But if your following is mostly indifferent, then having regular sales could lead to a very negative selling cycle in which everyone waits for your annual or biannual sale and your margins go down the drain.

The most important thing is to know your customer. You must understand when she buys, why she buys, and what motivates her to buy. In the meantime, while you’re learning all this, you may want to schedule sporadic sales. When you offer an occasional spur-of-the-moment sale, a just-because-we-thought-of-it sale, or isn’t-it-a-beautiful-weekend sale, you teach your customers that sales aren’t something they can count on. Again — this doesn’t change the behavior of your Brazil Nut eaters (let’s start calling them BNEs, shall we?) or your full-price buyers. It does, however, hedge against your indifferent buyers swinging the overall business into a sale-only mode.

3. You should never advertise a sale online or anywhere outside the store.

This is true only if you’re a designer/brand and you’ve committed to your retailers that you will not ever put your own products on sale. Otherwise, it’s false, but with caveats.

If you do both wholesale and retail sales of your line, then you must be very thoughtful of your retailers when you go on sale. I don’t recommend ever putting current designs on sale on your own site if you still have them out in the stores.

However, if you have a lot of dead inventory collecting dust at your retailers, and if you offer a 2::1 or 3::1 buyback of inventory (which you should), then you can certainly pull back that dead inventory and put it on sale. Sigh. More caveats now follow.

If your new work looks so much like your previous work that consumers won’t know the difference, then the retailers may still hate you for going on sale with your old work. If you and I were chatting right now, this would lead us into an in-depth discussion of the strategies involved in collection development. But since I’m writing a blog and not a novel, we’re not going down that path at this time. Suffice it to say that it’s on you to make sure that consumers can see a clear difference between work that is no longer available at retail and the new, presumably more desirable work currently available.

So. If your collections are truly distinct, then by all means – host a when they’re gone they’re gone sale and let scarcity drive interest. Heck, you probably won’t even have to mark your prices down very far.

For the rest of the answer to this question, go back and review my answer to Question #1.

4. You should never let retailers mark down your designs.

Definitely false. In fact, retail is the very best place to eliminate unsold goods. Think about all the luxury shopping you’ve done. Isn’t there a sale rack in every Neiman Marcus, Saks, and upscale shoe department? Even Mercedes and BMW clear out year-end models to make room for new models. Cruise lines go on sale during the slow season. Every single industry – excluding only the very highest of high end – needs its BNEs. Smart retailers cultivate this subgroup of customers in order to move out old inventory to make way for new. If you don’t have smart retailers doing this work already, then you probably have retailers who are refusing to buy now because they’re still sitting on your old styles (and everyone else’s).

By the way - every bit of advice I’ve given so far also applies to retailers. What you don’t want is a retailer who is constantly on sale, living on the knife-edge of margin and bringing your brand value down with them. You also don’t want retailers who run sloppy businesses and therefore must go on sale regularly to get a little cash flowing. But savvy retailers who know how to bring in inventory and sell it quickly to their full-price buyers, who cultivate more full-price buyers than indifferent buyers, and who actively cultivate the right amount of BNEs so they can quickly sell out their slow-moving stock on sale — these are excellent partners to have.

5. You should never put your own work on sale

This is mostly true. But perhaps not for the reason you think.

Not all your work is going to sell through. It’s. Just. Not. If you have a healthy retail distribution network selling stocked goods, you are going to create products that don’t sell through. If you’re doing your job right, you are cultivating relationships with retailers who know what they’re doing. The reason you give a wholesale price to a retailer is because you expect them to do the retail job. The whole retail job. That means marketing, smart buying, selling, and eliminating styles that don’t sell — and in the process making enough cash to do it all again. Yes, you should support the tail end of that effort with rational buy-back programs, but the retailer should be doing the bulk of the work. Otherwise they are not worth the full wholesale discount.

Yes, the retailer has taken a risk in terms of real-estate and built-in traffic, but if that’s all they’re bringing to the table, you need to figure out if that’s enough.

OK, so back to the point. The reason you should aim to never have to put your own work on sale is that your retailers should be eliminating those dead products for you, and you should be controlling your production sufficiently that the goods you bring back in a buy-back can be circulated to other retailers who can still move it (that means staying on top of your buy-backs!).

The fact that it’s taken me 1,786 words to get to this point bolsters the notion that the question of “to be on sale or not to be on sale” is a loaded one. But there’s one thing you can count on to be absolutely true.

Unless you only make one-of-a-kind, pre-paid, custom-ordered jewelry, you will always have some inventory that needs to be eliminated. Putting inventory on sale is a tried-and-true solution to this problem. That’s why you must study and perfect the art of the sale for your own business.

If it were true that the only thing consumers care about is price, then the arrival of a Wal-Mart would automatically kill every other business in a town. And though popular opinion suggests that this is the effect of Wal-Mart, studies (Artz & Stone 2006; AAEA 2006) have found that although the introduction of a Wal-Mart Super Store has a negative effect on rural retail initially, after two years the Wal-Mart effect dissipates. One of the lasting results of the Wal-Mart effect seems to be generally lower prices in a market, but it is difficult to discern to what extent lower prices are driven by Wal-Mart versus by a trend toward lower prices in general.

Of course, consumers do care about price. Ask them what influences their buying behavior, and they’ll tell you that price is the thing they care about most. Follow them around and study what they do, however, and you’ll discover that price is just one decision-driver, and generally not the most important. Why do consumers say price matters most when their buying behavior does not support this? No one is quite sure, but market research professionals suspect two factors: 1) consumers feel guilty about the amount of money they spend, and so report heightened virtuousness relative to price consciousness; and 2) faced with a sea of sameness across all consumer product categories, the only differentiator consumers experience in most cases is price, so price stands out.

I won’t even attempt to address consumer guilt, but I find the second issue to be of significant importance to small business owners – particularly those competing in luxury markets.

When a company fails to establish compelling reasons to buy its products, it is reduced to competing on price. This is market reactivity as a form of strategy, and it’s an excellent formula for going out of business. The only time competing on price is effective occurs when competing on price is the strategy. Wal-Mart’s strategy is price. Part 1 of the price game looks at all product competitors within a particular market and prices against them. That’s the easy part. Part 2 of the price game develops strategies for reducing the costs of operations and products to protect margins once prices are dropped. To build an organization that can successfully compete on price, a company must focus all energy, resources, and capital on creating systems and supply chains with maximum efficiency – all costs must be rigorously controlled and the rate at which products and cash move through the system must be very high. This strategy is out of reach for most – if not all – small business owners. Unfortunately, most small business owners play Part 1 of the price game, but lack knowledge or capital to play Part 2. The result is reduced cash flow and a fight for survival. So what’s a small business owner to do?

Consider playing a new game, a game that also has two parts.

Part 1: Develop a strategy that does not depend on price to attract customers. A good strategy considers multiple elements. Most business owners focus on the what I have to sell element exclusively, but that element is too limiting. What other compelling reasons to buy can you offer?

• Do you have specific knowledge of your customers, knowledge that significantly improves the customer experience?
• Do you eliminate any undesirable effects, making your company or product perform better than competitors?
• Does your product or shopping experience save your customer time, improve his or her ability to make a decision, reduce your customer’s risk, or contribute positively to his or her self-image?
• Can you sell your product in a way that solves a problem, creates new opportunities, or improves the shopping experience for your customers?
• Can you offer any exclusive benefits?
• Do you offer complementary products or services that enhance your overall value?

The process of determining three or four distinct strategic elements around which you will build your brand, on which you will base your selling and marketing strategy, and through which you will differentiate your company in the mind of your customer is the process of strategy. Good strategy is the first defense against mindless price competition.

Part 2: Look beyond the usual competitors. Business owners tend to assume that consumers are choosing between two similar products from two direct competitors. Let’s meddle with the sacred cow of the jewelry industry for a moment – the diamond engagement ring. When a young man prices a diamond engagement ring at Blue Nile, JC Penney, and the local independent jewelry store, is he creating a competitive space among diamond engagement ring sellers? Yes, he is. But are Blue Nile, JC Penney, and the independent retailer the only competitors in the arena? Definitely not. The other competitors are the florist, the cake baker, the wedding dress maker, the travel agent, the tourism promoters of a variety of potentially interesting honeymoon destinations, and (perhaps most important) the buyer’s self-image.

But wait! That’s not all! The diamond engagement ring seller is also competing against the restaurants the young man may choose not to eat at, the movies he may choose not to go to, the stereo equipment he will defer, the real estate agent showing him apartments or houses, and the iPad he wanted for his birthday. Most independent jewelers accept that selling on service is the alternative to selling on price, but after that, they run out of creative ideas for how to sell that idea. Part 2 of this game is NOT about trying to compete against all of these interests with every sale because that will just drive you crazy. Part 2 is about recognizing the full range of potential competitors, then crafting a compelling offer and image that sets your business apart in the mind of your potential customers.

This new game requires creative thinking, knowledge of strategic planning, the ability to project how various ideas will play out in the market, and ultimately, the willingness to make a choice about strategy and brand and then stick with it. The reward for a well-managed strategic process is the ability to run a business that is largely impervious to price competition. You’ll still have to price for value because consumers will always care about whether or not they are getting good value for their money. But pricing for value is a game you can win. And ultimately, that’s the only kind of game you really want to play.

© 2010. Andrea M. Hill

I am of a split mind when it comes to  comparison between the jewelry industry and the fashion industry. On the one hand, jewelry is definitely part of a woman’s wardrobe and it plays an important role in her expression of her fashion sense (this is true for men too, but to a lesser extent). On the other hand, jewelry is more enduring than fashion, lasting far longer than for one or a few seasons.

Of course, there is the whole category of fashion jewelry, which is more trend oriented and typically at lower price points than fine jewelry.  Fashion jewelry should be getting a lot of our attention, as social and economic trends show that consumers (outside the 1%) are spending less money less often on luxury goods. In fact, fashion jewelry is where department stores, internet sellers, and boutiques are stealing the independent retail jeweler’s lunch.

These observations cause me to ask two questions:

1. Why do the independent retail jewelers not focus more attention on well-made, well-designed fashion jewelry?
2. Why does the jewelry industry not have more industry-sponsored consumer-focused promotion, similar to the fashion industry’s various fashion weeks and design councils?

I suspect the answer to the first question lies in two issues: First, the jewelry industry tends to be very inwardly focused, which has resulted in it becoming further and further detached from the consumer. Second, the independent retail jewelers are still sitting on far too much inventory - and much of the reason for that could be due to the first issue.  So let's talk about the fact that the industry is not sufficiently consumer-focused.

The Jewelry Industry Isn't Focused on the Consumer

To be fair, there is one organization in the industry that is focused on taking-it-to-the consumer: JA’s Jewelry Information Center (JIC). In my observation, that group, led by Amanda Gizzi, does way more with paltry resources than one would think possible, and does more to keep the industry’s interests on the radar of consumer editors than any other organization or even combination of organizations. Without JIC, the consumer press would form its perspectives of jewelry entirely outside the influence of the jewelry industry. Think about that for a moment. Think about how much sway the fashion industry itself has on fashion publications. Consumers form their opinions of fashion based on what the fashion industry tells them to think, through fashion shows, fashion editorial, and what shows up in retail store windows.

But with all due respect to what JIC can accomplish with its limited resources, it’s not enough. Why? One concern is that the industry sends out information to the consumer world in the form of editorial, but it doesn’t receive any feedback, or certainly not feedback that is consolidated enough to consider the implications. Another concern is that consumer-focused promotion is not addressed adequately (in fact, barely at all) at the manufacturer and industry levels.

We Must Learn from Other Industries

Fashion shows not only provide information to the marketplace, they deliver almost immediate feedback from the marketplace. Not only do the buyers for all the major department stores show up, but so does the press and a large contingent of influential consumers. At, during, and after each fashion show, there is immediate feedback. The fashions are dissected in the fashion press, the fashion press and business press publish both business and consumer reactions to the styles, and the buying behavior of the department store buyers (well-informed by constant and aggressive consumer research) is a direct line of feedback regarding what will be hot-or-not for that season.

This is also how the Consumer Electronics Shows work for the gadgets industry, how Cannes and Sundance work for the film industry, and how the Tokyo Motor Show and the North American International Auto Show work for the automobile industry.

Of course, these industries are significantly larger in dollars than the jewelry industry.*

But jewelry requires more early and ongoing feedback from consumers than other relatively sized industries such as cosmetics or footwear, where lower price points make experimentation at retail more palatable and in which sports stars, movie stars, and the fashion industry have significant influence. Consolidation of retail in footwear and cosmetics means that individual retail companies have larger advertising and promotion budgets, and it’s noteworthy that the manufacturers of those products speak directly to the consumer in major, ongoing promotional campaigns.

Perhaps a better comparison of a similar-sized industry would be the leisure products industry, which sells high-priced goods like RVs, camping equipment, boats, and 4-wheelers. Through publications aimed at enthusiasts and regional sporting goods shows, the leisure products industry introduces consumers to new features and styles. This gets consumers excited about heading out to retail to buy new toys. Large retailers like Cabelas may have significant advertising budgets, but smaller retailers also benefit from the shows and the promotional support of manufacturers.

What got me thinking about this? An article in today’s Luxury Daily that talks about how the Council of Fashion Designers of America (CFDA) is looking for ways to improve New York’s Fashion Week. According to Steven Kolb, president and CEO of CFDA, “Fashion Week has evolved over the years with the influence of technology, but the format and function of fashion week have stayed the same.” CFDA has commissioned a study to discover how they can “use technology to its fullest advantage, and how designers can best maximize their resources to engage the customer.”

I think the jewelry industry should take this advice to heart as well. A tremendous amount of energy has gone into demanding that DeBeers support the industry (again) with a(nother) consumer advertising campaign, and DeBeers has responded with a half-hearted re-do of its former A Diamond is Forever message. Not only do I suspect this message’s time has come and gone, I also believe that our expectation that DeBeers bail out the industry is misplaced.

Closed Systems Do Not Evolve

The jewelry industry has become a closed system. The majority of its energy is focused on generating income within the industry, with little attention paid to the consumers we require to keep us in business. What is the answer? I’m not exactly sure, though I have some ideas. But here’s what I do know: As an industry, we must talk about this problem. It’s bigger than sustainability, it’s bigger than sourcing, it’s bigger than low-cost manufacturing from other countries, or Blue Nile or Sam’s Club or Costco. In fact, if the industry doesn’t resolve this major disconnect between the consumer and those of us who make and sell jewelry, we could solve all those other problems and still become entirely irrelevant in the next 10 years.

Let’s discuss.

* (US Film Industry: $679 billion; US Automotive Industry: $524 billion; US Fashion Industry: $225 billion; US Consumer Electronics Industry: $208 billion; US Jewelry Industry: $63.3 billion)

We live in a world that tries to ignore the relationships of cause and effect. Ignore, because while we know that eating the wrong diet can damage our hearts, many do it anyway. Ignore, because while it’s only common sense that buying a house you can’t afford will lead to financial distress, many did it anyway. Ignore, because though it seems fairly obvious that failing to invest in education will ultimately damage our country, so many are willing to do it anyway.

We ignore connections, even when they are obvious.

But sometimes we don’t understand the connections in the first place. For instance, until recently the average medical doctor only received the equivalent of two hours of instruction in nutrition during his entire medical training, even though our bodies are chemical factories that are completely at the mercy of the chemicals (food) we put in them. Without deep knowledge of the basic chemistry and mechanics of food production and nutrition, most doctors do not understand the connections to health and prevention. Does this make them stupid? Of course not. Uninformed, leading to reduced ability to problem-solve, yes. But stupid? No.

This failure to make connections is not isolated to the medical community. Business owners regularly fail to make the connections necessary to ensure the health of their businesses. The problem is that most business education does a pretty decent job of teaching each of the elements – disciplines – of business, but does not do such a good job of teaching the connections.

Inputs and Outputs

But it’s quite simple really. And once you start thinking about business in the way I’m about to describe, you won’t be able to stop. How easy? Well, consider this.

We all know that the desired output of a lamp is light. If I asked you which element provided the actual light, you would say it was the light bulb. And then you could elaborate and say that the electronics inside the lamp provide energy to the light bulb, that the power cord is what delivers energy to the electronics, and that the power cord must be plugged into the power grid of the house through a power outlet.

The only output in that analogy is the light from the light bulb. Every other element is an input. Business is the same.

Outputs are the things your customers experience as a direct result of their awareness of, or relationship with, your company: The products and services you offer, the environments within which the products and services are delivered, the messages the company conveys, the discussions consumers have about the company either face-to-face or through social media, and the reactions they get – both good and bad – to the products and services they have purchased from you.

Inputs are all the things you do to deliver those products, services, messages, and post-sales support and to influence or respond to consumer-driven communication about your products and services.

Have you ever wondered which elements of your business you should prioritize for investment and development? I just gave you the answer. Well OK, maybe there’s a little more to it than that.

Imagine that you own a business that designs shoes. No, that’s too broad. Imagine that you have a business that designs orthotic shoes. Your desired output is a shoe that a podiatrist can recommend, and that a consumer is willing to wear, both because it performs as expected and because it looks like an attractive shoe and not a medical device. Your target consumer is a woman who works full time on her feet in an indoor, non-industrial profession – like a nurse, medical technician, or retail sales professional. Everything else you do must enhance and protect these outputs.

So what are your inputs? To figure that out, work backward from the ‘light bulbs’.

In this diagram, the outputs are the products, marketing, sales, service, and public discussion as perceived by the customer. Everything below the red line is an input. Each input necessary to achieve a desired output represents an important investment. You make your decisions from the top down.

• If you decide that your customer is female, that dictates which type of shoe designers you will hire.
• If you decide that your sales method will be through orthopedic and podiatric offices, that determines which type of sales people you will hire.
• If you decide that your sales effort will be using the internet, that dictates which types of technology you will invest in.

Failure to invest in your critical inputs will guarantee failure of your outputs.

So here’s where we return to the concept of cause and effect. Because if your business strategy is built on weak inputs, it’s just a house of cards, and the lowest layers must be built and strengthened before the upper layers can produce economic value.

Simple, right? Now if I could just get that stupid song out of my head.

The shin bone’s connected to the . . . knee bone. The knee bone’s connected to the . . .

© 2010. Andrea M. Hill

Remember a time when different jewelry producers could place their collections in retail stores, and rely on retail stores to bring in traffic? The numbers game back then was one of local customers. Retailers who were on a busy street, in a mall with good traffic, or who had achieved destination retailer status could bring in the numbers.

So what happens when the foot traffic isn’t there and most malls are ghosts of their former selves?

The destination retailer route is still alive and well, and retailers who do a good job promoting themselves to an ample consumer population – either by being located in an area with sufficient population density or by being savvy online retailers – are still a good bet. Unfortunately, that retailer is the exception in the specialty jewelry retailer world at this time. It could change, but if it’s going to, it needs to happen quickly.

That leaves designers with the option of selling direct, and the numbers game becomes an entirely different animal. Let’s look at two different types of numbers games:

The All-in-One Numbers Game

If you’re a company like Stuller or Rio Grande, you stock 30,000 – 35,000 different products from hundreds of different vendors. The mere fact that they do this means that a relatively small population – people who make jewelry – will end up at their doorstep for the things they can’t find from smaller wholesalers in their local market. The numbers game they are playing is basically a product numbers game, and they compete for the same roughly 20,000 – 30,000 customers. One can make a nice business out of that.

But what if you’re a designer that carries 50 – 200 products, or a retailer who carries 500 – 1,800 products? Without “superstore” status, what do you have to offer? Even if you sell your products in a dense population area, you can’t be sure you’ll sell those products in sufficient quantities to make a profit. Not when you’re competing with other people who do the same thing you do all over the country and even around the world.

No, your numbers game becomes the consumer numbers game, and for that you need the internet.

The Find-the-Consumers-and-Help-Them-Find-You Numbers Game

How many sales would you need each year to create the profits you want? 300? 3,000? There are probably 300-3,000 people who would be willing to buy your products at your prices, but you have to find them and you have to make it easy for them to find you. To do this, you must learn how to do digital marketing.

Are you excited about your 1,800 Twitter followers? You probably need closer to 20,000 to generate meaningful web traffic. And your 3,000 Facebook followers? You’ll need to at least triple that. Social Media is about far more than talking to an audience and hoping they talk back. It’s about finding new prospects, of the right attributes to ensure interest in your products, in significant enough numbers to generate sales traffic.

Do you make prudent use of the social media advertising opportunities available to you? Do you know when to boost a post, how to target your potential audience, how to write compelling headlines and which images to show? Social media advertising is not an art nor a hobby – it’s a discipline with plenty of data behind it. It should be approached with the same seriousness and intention that you use when buying television or radio time.

Are you sending email to your customer base? Weekly? Sending a quarterly email is entirely insufficient to generate the kind of top-of-mind awareness your business requires. And how many new email addresses are you adding to your email list? If you’re only collecting the email addresses of people who actually purchase, you’re missing an entire prospecting universe. Your digital marketing strategy must include active pursuit of the email addresses of people likely to be interested in buying from you. Your email marketing strategy should feel like a serial novel, thoughtfully telling the story of your brand through a selection of product offers, interesting information, events, reflections, and images.

Do you have a website that not only tells your story, but actively lists all your products and provides excellent descriptions of each product – complete with the search terms consumers are likely to use when looking for something just like that? Search is one of the most compelling ways to find consumers today, and maximizing the value of your website and product descriptions can bring you consumers you would never have known to target. Once the searching consumer finds your product, does your website inspire the confidence needed to make an online purchase?

These are just some of the things your business must do well in order to find the 300 – 3,000 consumers who will buy your goods this year, and next, and the one after. And here’s the good news: digital marketing isn’t rocket science. You can learn it yourself, or you can hire someone to do it for you. Either way, you need to find those consumers. And you need to help them find you.

Sometimes I listen to parents complain bitterly about things their toddlers – or teenagers – are doing; things which are totally age-appropriate. If you’re like me, you think to yourself, “as long as you're a parent, you would have a better time if you learned about the developmental stages of children.”

I had a friend who once decided to ride his bike from Albuquerque to Santa Fe – a 65-mile trip. Half way through his journey – and in the middle of nowhere – his bike broke down and he didn’t know how to fix it. If you’re just riding your bike around the neighborhood, you can get away with not knowing any repair skills. But if you’re going to start making long treks in sparsely populated areas, you need to learn how to fix your bike and own the proper tools.

There are probably many things you wouldn’t do without learning a lot about them and practicing first: true wilderness camping without survival skills, throwing a huge self-cooked dinner party without cooking skills, sailing a boat in the ocean without navigational and boating skills.

Are you running a small business without small business success skills? If you are, it’s going to cost you.

As a small business – or even a micro-business – owner, you must do all the things the CEO of any company does; decide what to sell and how to sell it, whether and when to hire help, manage customer service, operations, and finances, make decisions. Even if you don’t have formal investors, you are managing a huge investment – your own. Your investment is the time you spend, the money you put in, and the profits you roll back in. You are responsible for all the same things as any CEO, but without the qualified support staff to fill in the gaps in your knowledge.

I was the CEO/President of several corporations over the past 30 years, from a $2million/year marketing agency to a $100million+ jewelry company and a $600million+ apparel company, and now I own a multi-brand consulting agency. The skills I needed between the $2 million level and the $600+million level were remarkably similar. I didn’t need to “be” an accountant, but I had to know how to discuss finances intelligently with my accountants. I didn’t need to “be” a production manager, but I needed to understand what my production managers were doing and how to help them be more successful. I didn’t need to “be” the computer network manager, but I needed to be competent enough to weigh the suggestions my network managers made and make good decisions.

When I first took over the apparel company, I realized that my accounting skills were lacking to do the analysis at that level. Did I go back to school to become an accountant? Absolutely not. But I did go take a class called “Financial Management for Non-Financial Managers” offered at a local community college. That, plus a lot of attention and practice, turned me into a strong financial manager capable of not driving my accounting staff crazy, and more importantly, of being the CEO my company deserved. Every year of my career I have added more business skills to my portfolio, and I continue to do so today. You must do this too.

You probably already know how to make and/or acquire the products and services you sell. This is the starting point for most entrepreneurs. But there are several business skills you must cultivate in order to ensure the survival and profitability of your company. These small business success skills include:

• Basic understanding of financials and financial management. You don’t need to become an accountant (in fact, paying a good accountant is one of the most important things any small business owner can do). But you must understand your role in financial matters, how to work with your accountant, and how to steer your company in the right direction.
• How to not just make a strategic business plan, but use it for ongoing business development and improvement.
• How to express your business strategy as a Brand, and how to imbue your whole organization – from product idea to post-sales satisfaction – with Brand elements that stick with customers and keep them coming back for more.
• How to hire, train, discipline, fire, and motivate employees. Even if you have only one employee, you need these skills. Otherwise, you risk paying someone to work for you without getting the full value of that pay.
• How to set up the necessary business systems to manage your customers, sales, inventory, marketing, operations, and accounting. By systems I don’t necessarily mean expensive computer software – the solutions can be anything from KanBan cards to computers. But you need to know which systems you need and how to set them up.
• How to manage your inventory to ensure high service levels, solid margins, happy customers, and no excess taxes. Inventory is about way more than just buying goods and making them. You must understand the role inventory plays in your company, and how to manage that role carefully.
• How to create and manage a sales and marketing plan.
• How to set up sales and customer service programs that drive volume and profits, whether you’re selling to business clients, through retail stores, or directly to end consumers (or any combination thereof).
• How to not only create and sell products, but manage product and product line profitability.
• How to prospect for new customers –from finding new potential sources for sales to keeping them interested, and learning how long it takes to convert a prospect to a loyal customer.
• How to decide which operations to keep in-house, which to outsource, and how to manage both types.

Being a business owner is a big task, and I’m not going to pretend that list is a quick or easy thing to master. But if you start learning these skills right away and keep picking them off one-by-one, you’ll become a better CEO from the moment you start . . . and the time is going to go by either way.

This is a link to a chart of these skills. It is structured as a pledge; a pledge to yourself to pursue and cultivate the skills you need to succeed. I encourage you to print it out, post it in a highly (and daily) visible spot, and check each one off as you tackle it. And here’s to you, on the road to becoming a highly competent – and vastly more satisfied – CEO.

You find yourself with an extra half hour at your desk and you know you should spend some quality time getting the view from above the forest, thinking about your business. But you don’t know where to start. You sit there, thinking about thinking, and a feeling of dread hits you.

Don’t despair, you're quite capable of strategic thinking. You just don't know how to get started. That’s when it’s time to make a list.

Oh, now you’re excited! You know how to make a list. But before you start, listen up. This is not a to-do list. If you write a to-do list, you’ll be back among the trees. Use your list-making skills to create new things to think about.

Start with Big Questions

This type of list starts with a question. Here are some really good ones (there are dozens more):

1. Why do my customers buy from me?
2. Where else do my customers spend their money?
3. If I could do anything at all with my business, what would I do?
4. What questions do I have about running a business (that are still unanswered)?
5. What mistakes have we made in the past six months?
6. What questions do our customers regularly ask us?
7. What would I like our website to do that it isn’t doing yet?
8. What do I wish my employees knew or could do better?
9. Why do my customers buy from my competitors?

When you ask yourself a question, you immediately engage your brain. It will leap at the opportunity to go into solution mode. Instant strategic thinking! In this brainstorming phase, just write answers to your question as fast as they come to you. Don’t question or challenge any of the things you think of – just go with the flow until you find yourself slowing down.

Next, review each item on your list and think about whether or not it suggests an additional item or two. This takes you to a deeper level of thinking and will yield a few more items to put on your list.

Examine Each Item Closely

Now concentrate on each item on the list. Think carefully about what you could do to better understand, solve, improve, address, or build upon each of the items. This type of thinking is also strategic, taking you out of brainstorming and into problem solving. You don’t have to have all the answers to each item yet; you just need to identify what you can do to get answers, or what steps you must take to better understand something.

Prioritize

Last, prioritize your list. Some of the answers from your initial brainstorming will be much more important than others, so they should go at the top of your priority list. You may even find a few that have little or no value, so feel free to erase them entirely.

What do you have now? A to-do list. But it’s a strategic to-do list, designed to help you focus on things that have real impact on your business success. Spend the next several days, weeks, or even months working through the items on your strategic list.

And next time, don’t wait for a surprise opening in your schedule. Schedule time in your calendar to think strategically about your business at least once each month (I prefer weekly). Now that you know what to do with that time, you’re bound to come up with some exciting plans and changes that will take your business to the next level.

At the 1904 World’s Fair in St. Louis, Missouri, an ice cream vendor was doing so well that he repeatedly ran out of bowls. The neighboring booth, selling Zalabia (a Persian, wafer-thin waffle), wasn’t doing well at all. Capitalizing on the neighboring booth’s success, the Zalabia vendor rolled his wafers into cones and offered them as an alternative to dishes for serving ice cream, and the ice cream cone was born.

It happens fairly often that we have something customers wish to buy, but it’s not the thing we think we have to sell. If you have paid a small fortune in trade show fees to make relatively undesirable waffles, and you are lusting after the success of the ice cream booth next door, you might just be jolted into a fit of creativity. But most of the time, we’re simply stuck in our offices, studios, or ideas, wishing things weren’t as difficult as they are, instead of imagining how successful we might be.

We find it very difficult to get past our acceptance of reality.

 Of course, we’re supposed to deal in reality, aren’t we? We’re supposed to accept the way things are, deal with the facts, lie in the beds we’ve made, and make silk purses out of unseemly materials. But from that mired state of thinking comes a host of assumptions about why things are the way they are, which ideas we should be committed to, how we should be doing business, what activities constitute the correct activities, and for whom we should be doing all this work. We make annoying little speeches to our eye-rolling teenagers about what it means to ass-u-me, but then we turn around and invest the majority of our energy into validating our own assumptions. Asinine? Yes. But my, we’ve been trained. 

Or rather, we haven’t been trained. We’ve been indoctrinated. From the dawn of our individual existences we have had experiences, become familiar with results, and drawn conclusions about how things work – even if the experience was that of a 2-year-old, or presided over by an elder 8-year-old sibling. Even if the experience was taught by an uneducated parent, a miserable or bored teacher, or simply stumbled into alone (I am already rethinking my offer of only paying half of any therapy my children may require . . . ), we have taken each experience and cataloged it in our subconscious as an answer to something. And even now, at an age at which you can run your own business, your hyper-efficient brain goes surfing through all those conclusions – the 2-year-old ones as well as the college-age ones – to help you resolve any puzzle you may stumble upon. This, dear reader, is the foundation of your reality. And it’s why your reality is different from mine, and each of our realities are different from everyone else’s.

So what does this have to do with what you have to sell? Only this. When you are confronted with a situation in which you are selling less than you would like to sell, capturing less profit than you require to maintain your desired lifestyle, or encountering less opportunity than you would like to achieve that desired lifestyle, you are confronted with a puzzle.  Your brain flips through the catalog of solutions you have developed for the past however-many years, and it comes up with solutions that are part of your present reality. The obvious solution is to toss aside reality and come at the puzzle from, what, unreality? Someone else’s reality? Virtual reality? Hey – as long as it’s different from your operating paradigms, it’s probably good. So how do you do it?

Any activity you choose that forces you to question and challenge your assumptions can work. It can be as straightforward as standing at a whiteboard or easel and making a list of every single “fact” you know about your business. Once the list is complete, return to the top of the list and indicate if each item is a fact, or an assumption. After you complete that pass, return to the top and challenge each item marked as an assumption. I have seen this process yield remarkable insights.

If you wish to make that exercise more powerful, invite someone with greater or very different knowledge than your own to participate with you. Such a person will likely challenge ideas you are less inclined to challenge and ask questions that cause you to think about things in a different way.

 Another activity is to create a list of each of the functions of your business (for instance, design, production, sales, marketing, accounting, inventory management). For each function, ask and answer the following questions:

• What is the purpose of this function
• How does that purpose align with my corporate strategy
• How does this function serve that purpose
• What are all the ways a different company, selling different products or services, might fulfill the purpose of this function?
• If I were to consider this function strictly through the eyes of my customers, what would I think the purpose of this function was?
• How might my customers wish I would change/improve this function?

As with the first exercise, inviting a person with greater or different knowledge than yours can lead to creative conversations you may not have had otherwise.

Some games are already enshrined in business management process. From Lean Manufacturing we get the “5 Whys,” a game in which we take a problem, ask why the problem exists, then ask why for each subsequent answer, drilling down to the core reason for the problem. In nearly all cases five whys are all it takes to get to the bottom of things.

I like any problem-solving or assumption-challenging approach that turns the effort into a game. At the very least games are fun, and fun is creative. Taking a problem and turning it into a game also helps us think about the problem from different angles. 

Whatever you do, try to remember that the way you have always thought about things (solved problems, earned kudos, even made fortunes) is reality, and reality isn’t the future – it’s the present, and it’s the past. To achieve a future that looks a lot like the present, keep thinking about things the way you already do. To imagine a future that is wildly, creatively, excitingly different? Toss reality to the side. You’ve already extracted what reality has to offer.

© 2009. Andrea M. Hill

Are you showing up to work energized each morning? Are you excited about the work you plan to do that day? Do you feel intellectually stimulated and emotionally satisfied by your work?

If you can't answer yes! to these questions at least seven days out of ten, then you're not having as much fun at work as you shouldbe.  No, I'm not joking. I'm not even blue-skying. Not everyone has the privilege of work they can enjoy — I do get that. But if you're reading this blog, chances are very good that you own a business. And if that's the case, you can do something about this rut you're in. You not only can, you must.

So how do you do that? By stretching, innovating, and growing. Reams of psychological research support that people who are growing and learning are happier than average. Stacks of business case studies show that people who continuously learn and innovate have more successful businesses. And I don't have to provide you with any supporting data to state that businesses that are paying the bills have at least more relaxed - if not happier - owners.

Where do you start? I'd suggest starting with the core premise of your business: your business vision. Your business vision answers the questions:

1. Who do we serve?
2. What do we provide that makes us different?
3. Why do we matter?

When you return to your business vision, you may notice several things. You may notice that you do not have a clear answer for one or more of those three very important questions. You may notice that your answers have migrated or even changed completely since the last time you pondered them. You may realize that you had never asked them in the first place.

Related Post: I Will Figure Out My Brand Story

As you work on your answers to these questions, you will gain insights about your business. You will see that you are sometimes spending your time in the wrong ways or on the wrong things. You will realize that your prospecting efforts are not targeted enough. You may see that what once differentiated you has now been copied, and that it's time for you to jump out ahead again.

From these insights, it's a very short leap to discovering new ways to improve your business, feeling like you accomplished something at the end of each day, and waking up energized.

Related Post: Sit. Crawl. Walk. Run. Stairs. The Strategic Process

So stop fighting the same old battles and doing the same old things! If that's what you're doing, it means you've stopped reinventing yourself. Take hold of your business vision and give it a good shake. You'll be surprised at the new ideas that will fall out.

Nobody walks into a Walmart and thinks she is in Target. She may be looking for the same brand of paper towel or hair color, but she knows which mass merchant's store she's in the second those sliding doors glide open. You might think this is about layout and lighting (and it is), but mostly it's about Merchandise Point of View.

If you were blindfolded and led into a Yonkers, deep between the clothing racks, once you took off the blindfold you may not know immediately where you were, but you would definitely know that you weren't in Neiman Marcus.  The two department stores have a very different Merchandise Point of View.

Both Radio Shack and Best Buy sell computer cables, but despite certain product similarities, the Merchandise Point of View is decidedly different.

Behind every successful retailer is a clearly defined Merchandise Point of View. Struggling retailers may struggle for many reasons, but nearly all of them have failed to define their Merchandising Point of View.

So what is a Merchandising Point of View?

Your Merchandising Point of View is your declaration of identity to the world of consumers, it is what your store is all about, it screams come in if you like these things and move along if you value those other things because that's just not what we're into here. A Merchandising Point of View both includes and excludes - because you don't need every customer to be successful. You just need the right customers.

The Merchandising Point of View often starts with what the owner of the retail store loves and values, but if it doesn't expand quickly to determine which customers those things matter to and whether or not there are enough of those customers, the  Merchandise Point of View is not sustainable.

Strong merchants (retailers) define their best customers - they know what their customers wear, how their customers spend their time, how their customers spend their money, how they align themselves within society, and what matters to them. Strong retailers know how to keep their customers engaged, and they do this with many elements, including excellent sales staff, desirable environment, promotion and marketing. But the most powerful way to keep customers engaged is to keep bringing them new and interesting products that appeal to them. The best way to do this is through a crystal clear Merchandise Point of View.

So how do you develop a Merchandise Point of View? You ask and answer these questions:

1. Which customers do we want?
2. Which types of products matter to the customers we want?
3. How do I want my customers to feel when they walk into my store?
4. Which adjectives do I want customers to associate with my store?
5. What is the unique story or experience of our store, and how do we express it - through words, colors, lighting, communications, customer relationships, design features . . .

Once you ask and answer those questions, you can select merchandise that not only fits with but also advances your store's unique story. This marriage of merchandise, experience, and physical (or graphical) space is the Merchandise Point of View, and like all marriages, it requires constant nurturing and attention to blossom and to be sustained.

What's your Merchandise Point of View? If you can't answer this question, it's time to get cracking! The profession of retailing changes daily, and you can't afford to get even one step behind.

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I've been thinking a lot recently about how hard it is to play the long game in business. It requires several things. Most people lack: Trust in the future, confidence about their choices and patience. The requirement for a long game is true in many areas of your business, but nowhere is it more stark than in the area of creating a meaningful online marketing presence. When social media first hit the scene in 2007 and 2008, we were all struck by the instant-ness of it all.

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I think of an idea. I write it. I publish it. I come up with an idea for a visual. I turn it into a graphic. I post it. Fast, fast, fast. Right? The problem is that the ability to produce and post things quickly has absolutely nothing to do with creating customer awareness or becoming a fixture of their consciousness. That is slow work, tedious work, and it takes a long time to see results.

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Because in today's marketing environment, success isn't measured by how many messages you can blast out to the public, but by how many meaningful links you can create that will bring a searching public back to you. Let me say that again, because what I just described to you is the most basic understanding of search engine optimization or SEO. Success isn't measured by how many messages you can blast out to the public, but by how many meaningful links you can create that will bring a searching public back to you.

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When we talk about telling stories online, when we talk about creating rich content, what we're talking about is all the words and phrases you bake into your website that will help a searching person find a product or a service you offer. And that takes time. Time isn't the only thing. It also requires a strong CMS website. That means content management system, not just eCom. It requires the creation of lots of good content — across articles and products and promotions on your Web site.

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And it requires patience, as you build out that content over time and that content gets turned into links by search engines. But time. Time is the thing most small business owners underestimate. After all, in the past, you could run a radio ad and a few people would come off the street as a result of it. Or you could run a TV ad or a newspaper ad and you could see pretty quickly if there was a response. You can run those same ads today and you might even have a few people respond.

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The problem is that today's consumers are completely distracted by whatever is happening on their smartphone and they're inundated with marketing messages everywhere they look and listen. Also, they aren't shopping around for products like they did in the past. They do their shopping online. And then if they like what they see, they come into a store to buy. And yes, 90 percent of all purchases are still happening in a store. In a recent report on retail, the NRF or National Retail Federation reminded its membership that it's not about "online versus retail" at all.

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It's about retail dependence on online. Today's consumers see online marketing as a seamless part of their retail experience as they search for online products and knowledge and references. And then they seek products out in stores and in-person. And how do those customers find your business, so you can be the store they walk into? Using search. They search for what they seek. They drill into the links that show the most promise. They check out the ratings and the reviews of the seller and the individual products, and then they decide where to go to buy.  The creation of that website content — leading to meaningful links —takes time. The creation of a strong system of references and reviews and ratings, which is what we call social proof, that takes time and patience and more time. But here's the interesting thing. In the first two or three months, it feels like you're doing a lot of work for absolutely no results. Then in the four to six month range, you start to see tiny benefits, but it's hard to trust them because they're small.

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Then if you've been super disciplined and you continue to develop content, despite the fear and frustration at around one year, you really start to see results. They begin to build slowly and then steadily. When I first started my blog in 2006, I had a grand total of three readers and I was related to all three of them. Now, 13 years later, my blog drives thousands of visitors per day to my websites. All those blog posts over all those years serve as links to my online presence. I don't pay for any advertising beyond my blog, because the rich content that I've put on the Internet is all the marketing I need. Of course, 13 years is a long time. You don't have to and you shouldn't have to wait that long to see results. And if you're selling jewelry or other luxury goods, you will need other marketing tools besides a blog. I just use this as an example of the exponential power of rich content.

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What you need to remember is that a year or two is not very much time at all. You also need to remember that this is the way marketing and selling work now. So if you haven't already, you need to commit to a long game of content creation so that a year from now you've already made significant progress. After all, the time is going to go by either way. What do you want to have to show for your business's marketing presence when next year rolls around?