WHAT I LEARNED IN CHINA.

china 1I will never be an expert on China. It is just too big, too complex and too old with layers of history and meaning that would take several lifetimes to unravel. As I said to my hosts, China, driven by it huge population builds big – Big airports, Big train terminals. Big road systems. Big apartment blocks. And yet you drink tea from cups the size of thimbles.

Because of the gigantic size of their market, many companies can specialise. I drove down 15 miles of road entirely devoted to furniture stores. We crossed over to the shoe district and then to the leather district. We visited a factory producing water based ink on his 10 acre site and a factory devoted only to embossing paper. On my last day, I found myself in a square mile of narrow alleyways devoted to wedding dresses and tuxedos in a quest for that right little number for my wife. In driving around, however, I was most shocked by the sight of a small shop of perhaps 500 sq. feet that sold only electric drills. In our micro market, where everyone has to be everything, all the time, it was refreshing to see a different and profitable business approach.

It reminded me of research on the US I did years ago where I found an obscure town in Nevada, I think, that produced most of the rubber pipe used in the US. The United States has a gigantic market and efficient distribution system (read road, rail and air) whereby it is possible to dominate a market and yet not be at the centre of it. Think of what we could do better with NAFTA which is in explicably underexploited by us.

How could we emulate the success of China? We have cheap power, high labour costs and some cheap raw materials. We are shipping raw goods to China. The successful Chinese manufacturers in turn buy German and Japanese equipment to operate lights out facilities and then ship back to us.  Is there a model there? Do we need ore entrepreneurs and highly skilled labour?

But China has entered a sluggish period and that is forcing a change that will have long term benefits. The old style entrepreneurs sold on price alone. Many have not found a way to break that mould. But a few have gone to the quality end of the spectrum. This is especially valuable in meeting the demands from BC over the next 10 years for the rapid development of the energy and minerals sector. I visited 2 vocational schools there that churn out 3000 CNC machine operators a year, that train 300 baristas a year – for the skyrocketing coffee culture in China. And the emphasis was on a quality product, customer service and cleanliness that would put to shame huge swathes of business in British Columbia.

China has lessons and opportunities for us. We need just to listen and pay attention – then act.

How Small Business Handle Their Money

Canada’s SMEs prefer to manage their finances in-house, according to our survey of 727 companies

Canadian business owners have a do-it-yourself approach to financial management, according to the latest instalment of the American Express Small Business Monitor.

Fully 92% of the 727 owners surveyed (each of whom employs fewer than 100 people) believed they could speak adequately to their businesses’ finances. While 71% said they handle their own bookkeeping, 95% deal with budgeting and forecasting in-house, and 79% handle their own payroll work.

Managing finances internally is not necessarily a drain on employees’ time, with 50% of respondents saying they spend less than five hours a week on it and only 9% taking more than 15 hours weekly.

The one area that remains tricky for many Canadian firms is taxation—only 55% of the businesses polled do their own taxes in-house. At the same time, taxes were ranked the most challenging aspect of business finance by nearly one-fifth of respondents, with the same number rating cash-flow management as most difficult.

Technology is key to respondents’ financial management: 33% use software that makes the process simple; 11% turn to websites to learn the basics.

Small businesses are remaining positive, despite the slow economic recovery. Sixty-three percent are “hopeful” about their firms’ financial future, and 52% said they saw a slight or significant improvement during the last quarter. However, companies are continuing to take a cautious approach, with 66% willing to take only moderate risks, versus just 6% prepared to attempt significant risks.

Here are other key findings of the AMEX Monitor, co-produced by PROFIT and Canadian Business.

with thanks to Canadian Business and Profit

 

TURNING ON THE PROFIT TAP

tap

We should lament the passing of the Yellow Pages. Two decades ago, they were the only show in town and every small business had advertising in them. Every home had a copy. Every manager’s desk was within reach of a copy. Once a year, you spent 60 minutes deciding on the budget and the look of the advertising for the next entire year. Then you forgot about it and let the Yellow pages do the work.

It is less simple now. There are SO.. many avenues of advertising to your customer base. My marketing colleagues tell me you need to make contact 7 times, using as many types of contact as possible. And there are many possible points of contact; from LinkedIn, Facebook and instagram, to email blasts, newsletters, flyers, radio and TV.

But in the choice lies the problem for many small businesses. The choice requires that small business owners now find the time each week to devote to advertising and marketing. And we all know what happens when you get busy, right?

When a small business is finding it slow, the marketing taps get turned on – FULL. When they get busy the taps are quickly shut off. And the result is that sales rocket and then collapse –  rocket and collapse. And the impact of this cataclysmic cycle is that profits suffer. At the bottom of the cycle, we drop prices to get work in the door. At the top of the cycle, we never increase prices to recoup lost profit.

But what would happen if the marketing taps were ON, full time? Well, sales would increase. And at the top of the cycle the order books would be full. And when the workload becomes overwhelming and the orders are coming in thick and fast, what to do? We could hire more people, buy more resources. Or you could simply increase prices and make a lot more money.

So the question is: is it profitable to hire a permanent, if part time, marketing person to keep your company always in the face of your potential customers. Is there any choice?

Want to know more about how small businesses can cope with the social media octopus? Check out “5 Reasons Social Media is Easier For Small Business”  from Frithjof Petscheleit  http://tweet4ok.com/5-reasons-social-media-easier-small-business/.

 

 

At the Core: Lessons in Pricing from Apple.

apple

Apple has taught many entrepreneurs the importance of design, how to create buzz when introducing new products to the marketplace, how to pioneer new technology and the importance of superior quality.

But Apple also has wily pricing experts who have used pricing strategies to create extra profits.

The most recent example is the Apple response to Samsung’s huge presence in the India market. Apple’s products are too pricey for the average Indian, where many people still survive on $2 per day. Smart phones make sense in countries where electricity supplies and telecoms infrastructure is weak and prone to frequent blackouts. Phones add value to people’s lives by bringing them close to the markets. This has already happened in some poor fishing communities that dot the coastline. When heading back with the catch of the day, they can check the spot prices at various ports within reach and choose the best paying one. Clearly smart phones are an economic accelerator. So, how to get more smart phones into Indian hands?

Apple has used a price skimming strategy for the consumer market. Early adopters pay greatly for the newest and brightest toys. But Apple also knows that competitors can enter the market easily and quickly after Apple has pioneered the technology. So constant innovation is a hallmark of Apple products.

But that means the earliest smart phones are soon obsolete. Apple could NOT “dump” the old phones on the American or early adopter market, for fear of cannibalising its own consumer segment. So Apple took the older phones to India, effectively buying market share with a great if outdated product that has already generated all the profits Apple expected.

But not all of us have the luxury of dumping our old products on a foreign market. How can Apple’s leadership in this pricing gambit be put to use in a Canadian small business?

If your pricing model demands a profit margin on each and every inventory item you sell, you will not be able to sell the end of season or dust covered items for a dollar. You will lose money.

But Apple has a simple idea. Not all inventory moves equally. If you sell seasonal or fashion products, some product will be left over after the majority has sold. If your pricing model allowed for this hangover – check your records in prior years -, then you could sell the leftovers for $1 and make a profit.  See my prior articles on how the big box stores price this way or take a look at my book , Pricing Strategies for Small Business. If you sell strategically, you can gain new clientele. By contacting your customer list and advising of a tremendous sale, you move inventory that would otherwise gather dust and gain loyal customers at the same time.

Contact Andrew Gregson for your next convention, conference or workshop.

 

Why Canadian Retailers are Slashing Prices

price tagA new survey suggests that nearly half of storeowners plan to lower prices this year in order to retain customers. Michelle DiPardo for Marketing || June 4, 2014

Nearly half of Canadian retailers (48%), plan on dropping prices this year to retain customers, according to the Canadian Retail Insights Report, released Tuesday by American Express Canada.

The findings represent a dramatic increase from the original study conducted two years ago, which found that only 35% of those surveyed would reduce prices to promote loyalty.

The report—which surveyed 375 Canadian businesses in the gas, grocery, pharmacy, restaurant, fast food, apparel and general retail sectors—focuses on what’s top of mind for Canadian merchants, including their industry and business outlook, challenges, growth strategy, and customer loyalty and acquisition.

“Canadian merchants are clearly serious about cultivating and maintaining customer loyalty, and they’re reducing prices to get them in the door,” said Jennifer Hawkins, vice-president and general manager of merchant services, American Express Canada, in a release. “As a result, I expect we’ll see increased competition among retailers across all verticals as they fight to retain and reach new customers.”

Across verticals, the report revealed that beyond simply slashing prices, 83% of Canadian businesses will offer sales, promotions or discounts as the top strategy to promote customer loyalty, with general retail, apparel and grocery ranking highest.

Canadian businesses are split when it comes to focusing on either acquisition or retention as their key business strategy. Gas, fast food, and general retail are all working on reaching new customers, and pharmacy and grocery are putting their efforts into retaining current customers.

Customer service continues to be of vital importance for all sectors, with 89% of retailers agreeing they need to put more attention into customer service.

The acceptance and use of new technologies in retail continues to grow with 72% of Canadian businesses agreeing that e-commerce is helping their company attract a new type of customer, with the general retail and apparel sector driving growth, ranking it a top priority for the year ahead.

Commissioned by American Express Canada and conducted by Nielsen, the survey was conducted between March 17 and April 3, 2014.

This article originally appeared at MarketingMag.ca.and re-printed by Profit Magazine

WHY DON’T SCHOOLS TEACH BUSINESS HOPEFULS TO USE CASH FLOW TOOLS?

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Imagine a business, if you would, that shows decent margins, low debt, and slowly growing sales. Bankers examine the financial statements declare that the company is in good shape. “Carry on and keep up the good work,” they say. But … Continue reading

Results Based Pricing for Professionals

I have just read an article from November of 2013 (Managing Partner, published in New Zealand) about pricing for professionals. When surveyed about how they charge, most professionals shrug and admit that they charge what everyone else charges. It has reminded me to put value and choice at the very top of the list of how to devise winning pricing strategy that will increase profits.

shrugPricing professional services is a big problem for lawyers, accountants and anyone selling services. Professionals deal in results, but they charge for effort. The easy route is to charge by the hour but that makes it easy for a potential client to compare apples to apples. AB charges $125 per hour. BC charges $250 per hour. Therefore, AB is the best buy. But is that true?

So, would you buy a house based solely on price? House F is small, rundown, needs a roof and is in the middle of a rough neighborhood. It is listed for $229,000. House G is much larger and in a nice neighbourhood. It is occupancy ready and most importantly, your wife likes it. But its list price is $400,000. Which house has value?

In order to place value on a service for hire, the trick is to comprehend that the customer does not care about the amount of time, effort and sweat you expend. They want results. And what is the result they want? Do you ever ask? Where will the customer place the most value? Speed of service? Accuracy? No jail time? Or will  they respect the weekends you spent on their file, the late nights and the cost of years of schooling?

So we establish, state and then highlight the value on the table, first, right? But now what?

In order to get your price, though, you must offer choice. Like Goldilocks , the choices must be few- not too high, not too low and just right. Choice in pricing will allow you to take clients and customers with all kinds of budgets and thickness of wallet, without discounting. The platinum package will have the largest assortment of bells and whistles. The gold package has fewer bells and only one whistle but has a lower price tag. The workmanship is still present, but the results are fewer. The bronze package is the budget offering with the lowest price and the fewest bells and no whistles at all.

Want to be more profitable? Be brave and get a better pricing strategy.

IBM predicts the return of local brick-and-mortar retail to prominence over e-retailers

IBM’s “5 in 5″ series presents ideas about how life will be affected by technology over the next half decade. A video series provides the highlights, including this one that predicts the return of local brick-and-mortar retail to prominence over e-retailers that have been “spanking” them for years.

watch video at http://www.profitguide.com/industry-focus/retail/will-brick-and-mortar-retail-prevail-in-the-end-60600?

IBM’s release says:

“This year’s 5 in 5 explores the idea that smart machines will learn, reason and engage with us in more natural ways–helping to amplify human abilities, assist us in making good choices–big and small, and help us navigate through life.

Within five years, we predict buying local will beat online. Savvy retailers will use the immediacy of the physical store to create experiences that simply can’t be replicated by online-only retail. Watson-like technologies and augmented reality will allow physical stores to turn the tables and magnify the digital experience by bringing the web right to where the shopper can physically touch it.

Brick-and-mortar retailers may still drive a significant majority of retail sales, but online sales are growing faster. Physical stores, once seen as a negative, will become a big positive. Their proximity to the customer will give them the advantage of integrating the immediacy of physical shopping with a magnified digital experience inside the store.”

It’s true that Watson’s offspring could drastically change a physical store’s shopping experience, but presumably any digital tool that a sales associate could use in-store could also be used by the shoppers themselves while they’re sitting on their couch. IBM says augmented reality, for example, could enhance the retail experience. Why not put that tool online and make it accessible from home? Virtual tools aren’t tied to physical locations.

For every company like IBM that offers tools to draw you back to the store, there will be a dozen online startups using the same tools (plus a few innovations of their own) to drive their own business that isn’t hampered by overhead costs like staff, rent and building insurance.

Originally appeared at marketingmag.ca

6 easy steps to emptying your business wallet

In the early 1980’s, when I began operational work with businesses, there was a conventional attitude to inventory control. This wisdom measured inventory control by looking at the relative cost of money and the interest charged against having that inventory on the shelf. That attitude saw the creation of robust ERP systems to help managers like me.

Because the recent price of money is so cheap, that business calculation has taken a knock; but the curtain is now drawn back revealing another way to measure the effectiveness of inventory control.

Consider that you have $10,000 per year with which to purchase housewares inventory. And let us suppose that 90% of that inventory sells during the year. At the end of the year 10% of the original $10,000 is still on the shelf. $1000. Theoretically, that means that in the coming year, only $9000 is available to purchase inventory. At the end of that year, assuming 90% sells, the will be $1900 worth of unsold inventory on the shelves. It does not take long to realise that all the cash will shortly be locked up in unsold inventory. The table and chart show how that works.

The result will be, of course, that the company finds itself less and less able to purchase new goods. There may not even be the room on the shelves or in the warehouse to store more purchases. From the customer point of view, the company will be stuffed with dust covered inventory. The company has ground to a halt.

If the dead inventory is converted to cash at even 20 cents on the dollar, you can use that cash to buy goods that will sell and buildup the cash available for further purchases.

Does this ever happen in real life? Yes is the simple answer. A decade ago, the company I managed had $600,000 of inventory of which 30% had no sales in 6 years. This strapped the company for cash. There were items on the shelf due to ordering errors and for which there was not even a market for more than 150 miles.

Recently, an office furniture company called me about their cash problems. They badly needed $100,000. But in their showroom and warehouse they had inventory totalling almost double that. The solution was to have a huge sale and convert everything to cash.

Remember that cash is king and being without it leaves you at the mercy of creditors, suppliers, and landlords. With cash, you have a chance. Even selling goods below cost and converting those goods to cash is better than sitting on mountains of unsold inventory. 

Written by Andrew Gregson, Senior Partner at Floodlight Business Solutions and author of Pricing Strategies for Small Business (2008).  1-888-959-0752  www.floodlight.ca. Floodlight Business Solutions, where we help you drive profits.

 

Exiting your Business with a Barrelful of Money

 

How to Super-Size the Cheque the Buyer will give you.

With the baby boomers reaching retirement age, a large number of companies will likely change hands in the coming years. Right now, 20% of small businesses are for sale. Within 10 years that percentage will double to 40% and within 15 years that number will rise again to 70%. Kelowna and the Okanagan, being an older demographic are at least 5 years ahead of that supply curve.

soldWhat will be the fate of small businesses when the owners retire?

According to TD Waterhouse’s early October Business Succession Poll of 609 small business owners, only 24 per cent of small business owners surveyed said they had a succession plan worked out for retirement.

Of those polled, whether they had a formal plan or not, 23 per cent said they would simply close their business when it came time to retire; 20 per cent planned to sell their business to a third party; 18 per cent expected to transfer it to a family member; 12 per cent said they’d sell to a partner or employee; and 27 per cent said they were not yet sure what they’d do with their business.

td waterhouse survey

 

 

 

 

And what will be the likely impact on personal wealth?

When you sell to a family member or employee, there are typically fewer dollars on the table, because the company will be heavily discounted.

Closing the doors means zero return for years of business building.

The people answering “not sure” are likely faced with a Freedom 85 Plan, wherein the owner works until he/she can no longer work- and not by choice.

Of course, if the owners salted money away and used the cash flow diligently to build personal assets, then the owners may have enough for a comfortable retirement, allowing them simply to close the doors.

This article, however, is about those who are relying on the sale of their business to fund their retirement and how to find the retirement money they need.

Simple economics dictate that in forthcoming years, supply will exceed demand and many companies will just be left on the shelf as buyers cherry pick the best. But since the beginning of the recession in 2008 many businesses have faced falling sales and increasing debt. This situation has eroded value in many businesses.

So how can an owner stand out from the rest in a crowded bidding war for a buyer? What will buyers pay top dollar for? Investors look for a return on their investment and will not buy indebted companies with falling market share and paper thin margins. Most of all, they will not buy a business that depends entirely upon the owner to make it work.

  1. Is there good return on equity – today, not some hypothetical future?
  2. Does the company have high profit margins?
  3. What fixable factors mean that the business will be purchased at a significant discount to its value?
  4. Are there systems in place for the owner not to have to work 12 hours per day?
  5. What factors will help a buyer get financing from his financial Institution?

If an owner answers NO to any of these questions, then something needs to be done, starting today.

What to do?

  1. Pay for a third party valuation and ask what factors are holding back the value.
  2. Pay down debt, starting with the most dangerous debts
  3. Build tangible assets that hold their value and are essential to the business
  4. Increase profits and cash flow with a better pricing strategy
  5. Increase sales with a modern marketing plan
  6. Create a credible exit plan that identifies to whom you will sell the company and at what price and when.
  7. Talk to a good accountant about the tax implications of your plan
  8. Build a solid 3 year plan to make this happen
  9. Work the plan
  10. Do something, do anything. Remember that even a dead fish can float downstream.

By Andrew Gregson, Senior Partner at Floodlight Business Solutions LLP, a consultancy focusing on rebuilding sales, rebuilding finances and creating value. call today if you need a guest speaker on this topic www.floodlight.ca.

Email: agregson@floodlight.ca                        Ph: 888-959-0752