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The Business Death Spiral & the Lazarus Moment January 15, 2012

Posted by David Dirks in business strategy.
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First, the Death Spiral

While much is being made of the pending bankruptcy of Kodak, some fail to remember just how long Kodak has been around.  Kodak might be bleeding badly but it took 131 years to get to this place.  That’s a long cycle time from start to failure.  So while younger & sometimes techie companies might snicker at this venerable, once-great company’s slow death spiral, their potential cycle time  from start to failure is much shorter and more abrupt.

The list of once great companies now teetering on the brink of oblivion or at least in the struggle for survival on some level, is memorable:  AOL, Motorola, Sears, Dell, Blockbuster, Yahoo, Barnes & Noble, and more than a few others.

With the exception of Sears and Motorola, all the others were once high flying companies that lost their edge in a relatively short period of time.  Sears was started in 1886, so even though they’ve struggled in the last 20 years, they’ve had a good long run.  Motorola was started in 1928.

AOL, Dell, Blockbuster, and Yahoo are all relatively recent companies who started, rose, and fell (although not quite dead yet either) in a short cycle time compared to the Kodak’s of the world.  And that’s the funny thing about business failure these days: it seems to move faster in a more compressed time period than ever before.

Groupon is my personal favorite poster child for the shortest cycle time of rise and fall ever…even though they are still in business today.  Groupon had the expectation it would rise forever (and sell lot’s of shares at its initial IPO) but that isn’t to be so far.

I think you’ll see more companies going through what Groupon is experiencing: rise fast, rise big then fall fast, fall big.  While Groupon isn’t dead, it’s not a sure thing either.

In today’s fast moving business cycle environment – especially in tech but not exclusively – you need to build scale fast (lot’s of potential eyeballs or prospects) and then you have to have a business model that is not easily replicated after you’ve achieved scale…if you achieve scale.

Of course, it is possible for those falling to rise again.

The Lazarus Moment

Apple and IBM are obviously technology companies but that isn’t the history that brings these two corporate stories together.  Before Steve Jobs came back to the company in his second act, Apple was only months from bankruptcy.  IBM at it’s lowest point was near death until a new CEO (with no tech experience!) nursed IBM back to live in the early 1990’s.  Both Apple and IBM had a “Lazarus Moment” of coming back from the dead with new life and vigor.

But let’s be clear about this:  The Lazarus moment of both Apple and IBM are the exception to the rule.  They had the good fortune of being nurtured back to health by leaders who came in the right moment and the right time.  They made mostly the right decisions in terms of how to move those two companies from bad to great again.

Perhaps AOL or Groupon will prove everyone wrong and will rise again.  Or perhaps not.

High flier today.  Dead bird tomorrow.  The only difference between Kodak and AOL is that it took Kodak 131 years to fall from grace and only 29 for AOL.



The Greatest Lie in Sales January 11, 2012

Posted by David Dirks in Sales Management.
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The biggest lie in sales?  It’s the answer from a sales person to this question:

Did you close business from this (print ad, direct mail piece, radio ad, TV ad, etc.) we ran?  

Now, the savvy salesperson who’s been around awhile will probably (not in all cases but most) say a resounding “YES” to that question…even though it’s probably not true.  Yup.  Happens more often than you think.

Case in point.  Many years ago when I arrived at JPMorgan Chase, I took inventory of the kinds of marketing efforts that were underway when I arrived.  The print ad spend was very high and sales managers went out of their way to tell me how highly effective the print campaign was.  The results were so good that they needed more of it.

My first question of course was centered on how they were tracking the results from the ads.  Tracking?  What tracking?  We know the ads are working because our guys say so, would be the common response.  The phone numbers in the ads were the sales branch phone numbers.  There was no way to electronically track the ads.  And asking the branch office to track the calls manually from the ads was in my experience giving the fox the keys to the hen house.  Manual tracking never works.

I’m always willing to give anyone the benefit of the doubt the first time out.  However, I recall my favorite Ronald Reagan line during his presidency: Trust But Verify.

I wanted to believe that the current advertising campaign was working too.  All I did was create tracking so that we could see just how many times the phone would ring at any branch office due to an ad.

Guess what?  The phone was not ringing much at all.  In fact, the ad campaign I was evaluating was bust.  The senior sales managers were surprised.  “How could this be?  Such a wide variance between what our sales guys were telling us?”

How does this happen?  It’s simple really.  There are more than a few sales professionals who have learned never turned down marketing support – even when it isn’t effective.  There’s a fear that if they told the truth, the valuable marketing investment on them would go away.

So next time you hear a sales person tell you that the marketing campaign is “working” or “we’re closing business with it”, trust but verify.

Fields of Failure: Build it and They Will Come January 1, 2012

Posted by David Dirks in business strategy, Uncategorized.
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Here’s a scenario I see played out more often than not:

Local business owner decides it’s time to make a capital investment into their business and expand it one one fashion or another.  The banker is called in and they evaluate the loan package.  The banker’s first pass: will they be able to pay us back for the loan?  Of course, this is a good question for any loan.  All the ratio’s are calculated and analyzed in depth.  Cash flow calculations are made and discussed throughly.  The numbers are crunched and the loan is deemed approved by the higher powers at the bank.  All’s good right?

In most cases the answer is no, things are not good.  Why?  I can’t tell you how many businesses have been loaned money only to see the expansion fail and the loan gone defunct.  What could go wrong when all the right ratio’s where calculated and the cash flows necessary to pay the loan back deemed appropriate?

Plenty.  First and foremost, how much of the loan was set aside for marketing and promotion for the new expansion?  In too many cases that I’ve observed, there was little or no appropriation for marketing and promotional expenses.

Build it and they will come?  Not.

You spend time, effort and money on expanding your capacity to conduct more business and no one will know about it.  So focused and intense was the effort to make sure the expansion gets built right that marketing and promotion is pretty much an afterthought.

If your banker isn’t hounding you about what your marketing and promotional plan is for your great expansion, they aren’t doing their job.  If you don’t dedicate a healthy amount of your loan proceeds for marketing, then you aren’t doing your job.

Here are two takeaways:

1.  Every project, expansion or new build, takes longer to build and usually costs more than we plan for.  We end up with a finished project but with little or no money for marketing and promoting it.

2.  As a  rule of thumb, look to allocate and reserve at least 15 to 20% of your capital investment for marketing and promotional expenses.  If you end up spending that allocation because of cost overruns, you’d better figure out how to get the promotion done on a shoe string.

3.  Develop your marketing and promotional plan before the project work for the expansion begins.