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4 Pricing Strategies That Work for Small Companies

Eric_Rudolf — Mon, 14 Feb 2011 18:07:52 +0000

As many of you know, this article is Part 2 in a two-part series on product and service pricing. And I am happy to say that so far, Part 1 (4 Pricing Mistakes You Need to Stop Making) has generated a surprising number of comments and spurred some interesting debates among Marketing people. One of the more heated Twitter conversations compared and contrasted the pricing strategies of big companies versus small ones; and as I was following their discussion, one comment in particular—from a marketing executive within a multi-billion dollar firm—caught my attention:

“When it comes to pricing, big companies use hard data and statistics. Small companies just wing it.”

Not only did this comment completely reinforce the reason I started this blog in the first place, but it strengthened my resolve to never, EVER work for a member of The Fortune 1000 again. The fact is, coming up with a price for a product or service is EXPONENTIALLY more complicated at a small company, for the exact reason stated above. Small companies and startups not only lack the historical data often necessary for pricing analysis (FYI—companies like Ford have been collecting data since 1903), but many of them operate in niche industries where the majority of competitors are privately held, and offer no visibility into their pricing models.

So with all of the above in mind, are there a few product and service pricing strategies that small companies can use without ‘winging it,’ even in the absence of mathematical models and 100 years of economic trend analysis? Absolutely. And they are outlined below, along with two bonuses: real-world examples!

Pricing Strategy #1: Set Your Price Relative to Value or Quality

Overview: In its simplest form, this pricing strategy involves setting your price in direct proportion to the value or quality level you wish to project in relation to competitors—a higher price being indicative of a more valuable (or higher quality) product than a lower price.

Reasons for Use: Like the other pricing methods presented here, setting your price relative to value or quality is easy—and involves nothing more than a quick glance at the competitive landscape. Obviously this pricing strategy is most effective in industries where there is a significant difference in the value of each competitor’s product or service. But in some cases, this pricing strategy has worked extremely well in industries where the difference in value between competitive products is only perceived.

Bonus! Real-World Example: By definition (and by law) vodka is to be odorless, tasteless and colorless. In fact, Section 5.22 of the U.S. Government’s Standards of Identity for Distilled Spirits defines vodka as follows:

“. . . neutral spirits so distilled, or so treated after distillation with charcoal or other materials, as to be without distinctive character, aroma, taste, or color.”

Yet, despite the fact it is illegal for drinkers of Vodka to be able to tell the difference between brands, consumers can pay anywhere from $9 to $60 or more for a 750ml bottle. And as martini snobs are painfully aware, there is a $6 to $9 per-martini difference between a rail drink and one made from booze found on the ‘premium’ shelf.

Pricing Strategy #2: Set Your Price Based on Relative Features and Benefits (Competition-Based Pricing)

Overview: This method involves setting your price using similar competitive products as a baseline, then raising or lowering your price based on the presence (or absence) of specific features and benefits. Using an over-simplified example: if the market leader’s product has ten primary features and your similar product has only eight, you might set your price at 80% of the market leader’s price.

Reasons for Use: Not only is this method extremely intuitive, but it mirrors the decision-making process that most customers use when deciding among different brands (i.e. “Should I pay for more features, or save money and settle for less?”). It also makes the lives of your Sales and Marketing people easier, by giving them tangible differences to point to when potential customers ask why your price is different than a competitor’s. And finally, if you are marketing in an industry where regular improvements are expected, this method makes the pricing of newly released products and services extremely easy as well.

Pricing Strategy #3: Set Your Price to Compensate for a Reseller Discount, and Possibly a Discounted Reseller Price

Overview: This strategy involves setting the List Price of your product or service higher than you normally would, knowing that your reseller channel will demand a heavy discount—and possibly sell the product or service at a discount as well.

Reasons for Use: Primarily applicable in industries where a significant portion of a company’s products or services are not sold direct, this strategy allows a company to maintain a certain level of margin on sales, while still giving its reseller channel a standard percentage discount AND giving the reseller the room to sell at a discount as well.

Bonus! Real-World Example: In the mid-2000s I did some Marketing for a high-end independent publisher. One of the company’s business titles was a perennial category leader, outselling competing books by a margin of over 10 to 1. Because of this, the publisher only sold the book direct through its own e-commerce site, and NEVER discounted the book from its $39 List Price.

As the book became more popular worldwide, demand for translated versions increased. Although the publishing company sold the English version exclusively through its own store, it was decided—due to the inherent complications with International shipping and customs—that the primary sales channel for translations would be Amazon.com. However, a pricing issue soon arose. In exchange for reselling the books worldwide, Amazon.com demanded a 55% discount from the book’s projected List Price of $39 per copy. At a printing cost of only $3 per copy, the publisher had been enjoying $36 of margin on the English version of the book by selling direct, but the pending deal with Amazon.com for translations was much less attractive—under $18 of margin per copy. And to make matters worse, Amazon.com was planning to sell the books at 37% off of List Price—a move that flew directly in the face of the publisher’s desire to be the ‘premium price leader.’

So what did we do? We raised the List Price of all translations to $69. This allowed the publisher to sell books in bulk to Amazon.com at a price of $31.05 each (only $8 less than a direct sale) and still enjoy a $28+ margin per book. Additionally, the new List Price caused Amazon.com to sell the books at just over $43, thus retaining the publisher’s premium price within the marketplace.

Pricing Strategy #4: Set Your Price Based on Convenience

Overview: This pricing method is relatively simple: if your product is more convenient to buy, easier to use, or comes with an upgraded level of service than competitive offerings, charge more than everyone else does.

Reasons for Use: This pricing method is second nature in service-related industries, where customers are regularly presented with the option of paying more for upgrades or a wider variety of services. But it is also used extensively on the consumer product side. At some point in the last few months everyone reading this book has paid a premium for something because of convenience—a wireless router (no cords), a kinetic watch (no batteries), pre-cooked chicken wings (no grilling), a self-inflating raft (no pumping), a pre-assembled kids meal (no lunch box needed), pre-measured sugar or coffee packets (no thinking) or a jar of good old-fashioned pre-mixed peanut butter and jelly (for the truly lazy at heart).

Wrapping it All Up

When it comes down to it, the question “How do I effectively price my small company’s products and services?” can rarely be answered with math, formulas, and complex calculations. If it could, coming up with a price would be easy—we would simply feed a few numbers into an economic model, click the mouse, and wait for our over-used laptops to spit out a number. But the inherent lack of data at small companies forces us to price our products and services based on things like perception, convenience, and competitive offerings; which, in reality, is much more complicated . . . and nowhere close to ‘winging it.’

Comments? Questions? Feel free to reply to this post. Otherwise a Retweet, Facebook Share, LinkedIn Share or other type of social share (handy buttons provided) would be greatly appreciated. Thank you!

4 Pricing Mistakes You Need to Stop Making

Eric_Rudolf — Tue, 11 Jan 2011 15:48:04 +0000

Of all the things I was asked to do early in my career as a marketer, one of the most intimidating was determining the price of my company’s products and services. To this day I still remember the first time I was asked to come up with a go-to-market pricing strategy, and will never forget the stress I felt and the questions rattling through my brain. Am I taking all of the relevant factors into consideration? If my price is wrong, could this negatively affect the perception of the product? Is my job at risk if I screw this up?

But after pricing nearly 400 products and services over the last 18 years, I realize now I was completely over-thinking the entire process. Although my first instinct was to start crunching math equations and digging out my Economics textbooks from college, it is clear now that simplicity—and a little bit of common sense—can go a long way when it comes to determining the price of a product or service.

This article is Part 1 in a 2-Part posting on pricing strategies, and will focus on four commonly used pricing methods—as well as their fatal flaws. Part Two, tentatively titled 4 Great Ways to Price Your Products and Services, will be published and available within about two to three weeks of the date of this post.

Pricing Strategy #1: The “I Want to Make X Number of Dollars” Method (a.k.a. Cost-Plus Pricing)

Overview: This is the typical manufacturing-driven pricing model, whereby Executive Management calculates how much something costs to make or deliver, then adds a percentage or dollar figure on top of the calculated cost to come up with a final sale price.

Reason for Use: Cost-Plus Pricing is used in many situations because it is easy to calculate and easy to administer. Many also believe that it is the easiest way to ‘guarantee’ their company at least some level of profit on every sale.

The Mistake: When one of your competitors figures out how to manufacture a product or deliver a service more cost-effectively than you do, you will be forced to sell at a loss until you can figure out how to be more efficient. Cost-Plus Pricing also has a second fatal flaw: it completely ignores both the customer AND the market—as well as a little thing called “The Supply and Demand Curve.”

Pricing Strategy #2: The “Let’s Ask People What They Would Be Willing to Pay” Method (a.k.a. Market-Oriented Pricing)

Overview: This method centers around researching or actually communicating with the target market of the product or service directly, then using the collected data to come up with an ideal price point.

Reason for Use: It is relatively easy and inexpensive to ask someone what they might be willing to pay for something, or what your product or service might be worth to them. Unlike other methods, this one also involves the potential customer in the pricing decision. And for the numerically challenged, this pricing method requires no math.

The Mistake: Asking potential customers what they would be willing to pay might seem like a wonderful idea on the surface, but it completely underestimates the intelligence of the target audience. No matter how far you go to hide the intentions of your survey, most respondents will figure out exactly what you are doing (trying to come up with a price) and will tell you what they WANT to pay—which is obviously much less than what your product or service is actually WORTH.

Pricing Strategy #3: The “Let’s Come in Low and Raise the Price Later” Method (a.k.a. Penetration Pricing)

Overview: Not to be confused with Loss Leader Pricing (selling below cost in an attempt to move other goods or services) or Predatory Pricing (selling below cost with the intention of driving out competitors), Penetration Pricing is the practice of setting a low initial entry price, with the intent of raising the price once market acceptance has taken place.

Reason for Use: From a pure economic standpoint, Penetration Pricing will result in more sales, and therefore an increase in market share. Penetration Pricing is also used by many marketers to tear people away from existing brands, and give new ones a try.

The Mistake: Although companies might have had good success with this pricing method 20 years ago, the mere existence of the Internet—and the increased speed of information flow—now means that customers are only one or two clicks away from someone willing to make the same sale for a few dollars less, or in some cases a few pennies less, than you are. A second problem: if a competitor lowers their price to match yours, what is your next move?

Pricing Strategy #4: The “Which Group Are You In?” Method (a.k.a. Third Degree Discrimination Pricing)

Overview: In a nutshell, this particular pricing method involves dividing your target market into discrete groups—by age, gender, organization size, geographic region, non-profit status, etc.—and publishing a specific price (or discount) for each group. For the academics in the audience, you will note that I specified “Third Degree” when referring to the Price Discrimination; specifically excluding First Degree (an ability-to-bear model) and Second Degree (where price varies according to quantity sold).

Reasons for Use: Third Degree Discrimination Pricing is a great way for companies to spread out their risk and revenue streams, and extract money from a variety of low-end vertical markets that might not otherwise make a purchase. Many companies also use this method to work their way into large government and non-profit agencies, where contracts are larger and more long-term.

The Mistake: Although an effective strategy in service industries (senior discounts on movie tickets, ladies’ night at the local hangout) companies who practice Discrimination Pricing on the Retail or Industrial side open themselves up to having their products resold for a profit by people with the right connections (read: an EBay account). Also, contrary to popular belief, a company’s membership in one of your pricing groups does not necessarily discourage them from demanding additional discounts if they believe their order volume or visibility warrants an extra few pennies off . . . which those of you who have dealt with Walmart already know.

Conclusion

Discussing a few examples of pricing traps is certainly a good first step, but the larger question still remains: “How do I effectively price my company’s products and services?” The fact is, determining an optimal price for the things you company sells has little to do with math, formulas and complex calculations, and is based more on perception, convenience and competitive positioning—a point I intend to prove in the recently-released second half of this article, titled 4 Pricing Strategies That Work for Small Companies.

6 Critical Mistakes All Small Company Managers Must Avoid

Eric_Rudolf — Tue, 14 Dec 2010 02:37:35 +0000

Before I get too far into this article, I need to point something out. Like hundreds of people before me, I could have used the 1,000 words that follow to declare that running a successful small company is about things like taking risks, accepting failure, multi-tasking, finding creative solutions to problems, and never accepting ‘no’ for an answer. But anyone who regularly visits this blog knows that 1) these things are implied, and 2) running an entrepreneurial company is as much about avoiding big mistakes as it is about being some kind of Mark Zuckerberg prodigy. In order for you to get some value from this article, it is important you understand this.

With the above in mind, the Ying and Yang of small business is this: for every skill or tendency a small company manager SHOULD have, there is one critical mistake he or she must avoid. In my close to 20 years of small company experience, I have seen six mistakes regularly made by managers—all of which have slowed the growth of the organization, and a few of which have brought the organization to its knees. If you have one you would like to add to the list, please feel free to enter it into the ‘Comment’ field at the bottom of the article . . . because the only thing I love more than a Retweet is a great piece of feedback.

Mistake #1: Having (or Attending) too Many Meetings

Anyone who works in the public sector has seen first-hand that a “culture of meetings” is rapidly taking over big corporate America. Among my close-knit group of colleagues, many will admit that meetings fill all but 30 minutes of each work day—and most agree that their “organizational value” is directly tied to the number of meetings they are involved in. Not surprisingly, these same colleagues complain about their organizations being slow to move, slow to react, and short on resources for new initiatives. It’s tough for a company to be quick or productive when employees’ butts are glued to conference room chairs all day, and meetings are one area where small companies NEVER want to emulate their larger competitors.

Mistake #2: Not Dealing with Difficult Employees

When it comes to management strategy, avoidance is a technique practiced by far too many managers these days—even experienced ones who happen to run the company. And nowhere is avoidance more damaging to an organization than when the issue being avoided relates to a difficult or under-performing employee. We’ve all worked for (or with) someone who transfers tasks to overworked employees, allows negative situations to persist, or absorbs work themselves . . . simply to avoid an uncomfortable conversation with a difficult subordinate. But the fact is, good managers and entrepreneurs don’t work around difficult employees—they either fix them, or replace them.

Mistake #3: Turning into Someone Who Only ‘Manages’ Things

I am, and have always been, a firm believer in the “hire smart people, and get the hell out of their way” management philosophy. That said, I also believe that managers at small companies need to understand what their employees do AND how they do it. After the dot com bust in the early 2000s, progressive companies finally realized that loading growing organizations with people who ‘just manage’ can be a recipe for disaster. When it comes to management, the line between “tactical” and “strategic” isn’t nearly as defined as it used to be—and managers who want to develop high-growth companies have to know how to get things done on their own if they need to.

Mistake #4: Being a Poor Project Manager

Although coming up with great ideas is a key piece of leading an entrepreneurial organization, the ability to bring ideas to life requires a little something called ‘project management’—and the fact is, the vast majority of managers are horrible at it. Executives who expect to successfully execute their company’s vision need to be well-versed in things like budgeting, communication, acquiring resources, defining requirements, and scheduling. That said, over two-thirds of the world’s projects don’t come in on time, are over budget, and have less than a coin flip’s chance of ever being completed . . . much less completed successfully. Hundreds of thousands of people participate in formal project management training each year, and people who manage small businesses should be sitting at the front of the room when project management classes are delivered.

Mistake #5: Making Emotional Financial Decisions

True story . . . a few years back, I worked with a managing CEO who insisted his relatively small organization needed a top-tier CRM system, because he learned at an industry event that all of his larger competitors were using one to manage their customer databases. After nearly a year of development, implementation and integration, the system was up and running. Unfortunately, the implementation costs—not to mention the seat licenses and ongoing maintenance fees—were so high that the company was essentially paying $10 every time an employee accessed a customer record. The manager in question should have known the cost of the system would amount to nearly 6% of every transaction going forward (the average customer spent just $180), but was blinded by his desire to “keep up” with competitors he perceived were running better organizations than him. The lesson? When it comes to business, gut feelings and envy are no substitute for a thorough Cost-Benefit Analysis.

Mistake #6: Motivating by Fear or Intimidation

In a perfect world, all managers would motivate their employees with things like autonomy, promotions, raises, bonuses, and positive feedback. But unfortunately, there are still plenty of managers and business owners who use things like layoffs, wage freezes and massive decreases in benefits to get people to work hard. Managing by threat of negative outcome is a great strategy for most executives . . . if their goal is to encourage their best employees to look elsewhere for employment. The secret to motivating employees is really not much of a secret anymore—communicate the company vision, build a sense of team, and put rewards in place when company-wide goals are met.

The Most Alarming Trend in Small Business

Eric_Rudolf — Tue, 25 May 2010 17:37:45 +0000

As regular visitors to my blog know, I typically don’t give lectures or tell small company owners what to do. Most of my articles are written under the assumption that a) good or bad, adults can make their own decisions, and b) small business people will almost always do what is best for their organizations. But as of late, I have been witness to a trend among entrepreneurs—a trend so alarming, I have no choice but to grab them by the collars and scream directly into their greedy, oblivious little faces. And what is the trend in question?

Successful small company owners “moonlighting” for
personal profit, at the expense of their existing businesses.

Now obviously this is going to require some explaining, so please allow me to clarify. I’m not talking about the struggling coffee shop owner who does landscaping on the weekends, or the upstart web designer who works as a Realtor for extra income. The person I am referring to here is the entrepreneur who uses the resources, employees and reputation of their existing and profitable business to start a second venture “just for themselves.”

For example, in my industry alone (training and professional development) no less than three owners of privately-held competitors have all but abandoned their once-profitable firms to pursue individual careers as authors, speakers and consultants. I also have a very good friend who now gives more time to her multiple Board of Directors appointments than her growing IT services business. And just last month, I spoke to the owner of a thriving marketing services firm who is working over 20 hours per week assembling a Social Media Marketing strategy for a friend’s company . . . at an hourly rate that would make an attorney jealous. In each case, the small company owner in question is essentially “moonlighting” for personal profit—at the expense of their existing business.

For those of you still looking for reasons why taking a second job or starting a side business might negatively affect an existing business venture, I would like to offer the following six:

Reason #1: An owner losing focus on his or her core business is NEVER a good thing.

Reason #2: Spending time on a new business shows employees of the original firm that you are no longer interested.

Reason #3: Whether or not it is intentional, starting a new business venture will ALWAYS rob your existing business of investment capital—and less capital equals less long-term growth.

Reason #4: Key employees in your existing business will feel left out, left behind, or both.

Reason #5: It sets a bad example for employees, who will eventually come to the conclusion that it is OK to give less than 100%. Because you are.

Reason #6: No one REALLY does it alone. More often than not, the people you are leaving behind are the ones who made you successful in the first place.

After almost 20 years of working with small business owners, I have a relatively good understanding of how their minds work. I realize entrepreneurs are some of the most driven, creative, and innovative people on the planet. But that said, these same characteristics can often allow them to turn even the most profitable business into just another statistic on the “8 out of 10 small businesses fail” list. Above all else, growing a company over time requires one thing: focus. And without it, ANY entrepreneur—regardless of talent level—is dooming ALL of his or her businesses to failure.

Do you work for a business owner who is distracted by other ventures? Are you one? Please feel free to share your story below. Otherwise a Retweet, Facebook Share, LinkedIn Share or other type of social share (handy buttons provided) would be greatly appreciated. Thank you!

5 Ways to Immediately Improve Your Small Company Operation

Robert_Rogers — Tue, 27 Apr 2010 15:39:25 +0000

Regardless of why it was initially founded, the goal of any small company is to generate more money. But once our businesses are off and running, most of us become too preoccupied with running them to make the constant improvements necessary for increased efficiency, increased sales, and ultimately more money in our pockets. But there are some operational ways we can make an immediate impact on our companies’ bottom lines—if we take a few minutes to actually implement them.

Improvement #1: Research the Rest of the Industry

I understand most of you already have a pretty good handle on what your company is doing . . . but do you know what your competitors are up to? What are they doing to be successful under current business conditions? Why are they doing it? And most importantly, is it working? Also, be sure to take a good hard look at businesses in your industry that have recently failed. Do you understand why failure occurred? Were there any red flags or strategic moves that lead to failure? Does what the company did prior to failure match in any way what your company is doing now? A little strategic introspection can go a very long way.

Improvement #2: Re-evaluate Your Original Intentions

Back when you first started your small company, there were very likely a few things you wanted to accomplish. Looking back now, are those goals still in place, or has your motivation or reason for running this business changed? Taking the time to revisit your original business plan can be extremely helpful in trying to figure out which circumstances have changed, what you can do to improve, what is working, and what parts of your original plan need to be discontinued. Being willing to make adjustments and improve your business on the fly is the sign of a real entrepreneur—as long as the changes you make have a legitimate reason behind them The fact is, after a period as short as six months, small businesses can look markedly different than what you intended . . . and this can be a good thing.

Improvement #3: Delegate the Things You’re Not Good At

One of the biggest mistakes small company owners make is believing they are good at EVERYTHING the company does—even though this is never the case. As much as it is practical within your business, always work to make sure the person assigned to each important task is also the best resource for the job. Managing in this way requires a strong knowledge of the individual talents of your employees, as well as the vision to (on occasion) give an employee a task or role he or she might not know they’re good at. The point is this: the more you can maximize everyone’s efforts by matching strengths with roles, the better your operation will be for it.

Improvement #4: Establish a Plan—in Writing

Once you perform the first three tasks, the key to actually making any any sort of real and measurable improvement is to lay out a plan—the kind of plan that a) is in writing, and b) clearly spells out the improvements you wish to make. A plan can be as short as one page or as long as an entire magazine, but the point is you need to have SOMETHING to look at for guidance.

Improvement #5: Measure Everything You Do

For any plan to truly be deemed “successful,” there must be a way to measure success. With this in mind, step #4 above cannot really be complete without also including information on EXACTLY how you plan to measure success. Which metrics are most important for tracking progress? How will these metrics be collected? Who will be collecting them? What will be done if certain metrics are hit or missed? Any plan that does not include a method of measurement is not a plan—it’s an idea.

15 Signs You Might Lose Your Small Company Job

Eric_Rudolf — Tue, 06 Apr 2010 15:09:02 +0000

Over the course of my 18-year career, I have spent a great deal of time on both sides of some messy employment situations. In addition to terminations, corporate reorganizations, company mergers and hostile acquisitions, I have been part of several multi-round company-wide layoffs . . . one of which resulted in me exiting the building with my personal belongings in a cardboard box.

Although these experiences have all been stressful in their own way, I learned a great deal during each—not only about myself, but about the numerous (and often obvious) signs that present themselves when termination is about to occur. If you suspect your small company job might be in jeopardy, take a moment to review the following 15 signs of a pending termination—and please feel free to add your own to the list!

Scenario A: Signs Your Company is In Financial Trouble (or possibly for sale)

For those who work in industries where market instability is the norm versus the exception (technology, for example) you need to be aware of something: your small company is never more than one bad month away from being in trouble, and it’s ALWAYS for sale. And because financial problems and changes in ownership often come with sweeping changes in employment, be sure to watch for these five termination warning signs.

1. Your CFO or Head Accountant is Replaced – When it comes to turning around a company in trouble, Step 1 always involves putting a financial wizard in place—someone with previous experience doing the exact same thing somewhere else. Why? Because this process takes a skill, an experience level, and a sheer ruthlessness that your regular CFO doesn’t have.

2. The End-of-Year Revenue Push is More Intense than Usual – If you ask a financial expert what attributes make a successful small company, you’ll no doubt be forced to endure an extended conversation full of math, analytics, and financial acronyms. But the simple fact is, successful companies are identified by one thing: year-over-year increases in revenue. If your Marketing and Sales people are suddenly putting in 70-hour weeks, start paying attention.

3. Key Executive Positions Are Filled with Internal Candidates – When small companies are in financial trouble, their focus (after increasing corporate revenues) is on lowering expenses. One way to save money is by replacing high-paid executives with less-qualified middle managers. Not only does this lower overhead, but it manufactures instant loyalty among those being promoted—loyalty that will be critical when it comes time to make some REALLY tough decisions down the road.

4. Your Board of Directors Suddenly Includes Ex Competitors – In addition to a good product and a great business model, the key to turning around a small company is . . . insider information. No one has a better perspective on what your company needs to improve than the former Execs who spent decades trying to steal your customers. If the longtime CEO of an arch competitor shows up at the next all-company meeting, don’t fool yourself. Something is happening.

5. Salary Increases Are Frozen – Earlier this decade, I managed a Marketing Department at a small company that grew from $18 million to $40 million in three years’ time. In lieu of an annual raise, I was offered stock options and one additional week of vacation. Within 10 months, my company was owned by a member of the Fortune 100, and I was working somewhere else. The lesson? When a company is struggling, salary freezes are common. But when companies are growing, they can be a death sentence.

Scenario B: Signs Your Small Company Will Begin to Lay People Off

Unlike corporate mergers and acquisitions which can sometimes play out in your favor, company layoffs are never good for anybody. For those of you who are worried your job might be on the line, be sure to watch for these five warning signs.

6. Management Stops Caring About Your Role – If you suddenly find your status reports are going unread, and your manager would rather text message his teenage daughter than listen to you speak, there may be trouble ahead. As a general rule, Management indifference is rarely a good thing.

7. People Around You Disappear Without Warning – Is turnover common at companies of all sizes? Sure. But people never quit their jobs without telling at least one co-worker first. A sudden and unexpected office disappearance is usually a clear sign of more doom to come.

8. Owners and Execs at Your Company Become Extra Encouraging – Unless your company is going completely out of business, a significant number of people will be retained . . . so they can be ridden like rented mules until the economy turns around. Owners and Execs know this, and will do their best to put on a smiling face for the people who are left to clean up the mess.

9. You Receive at Least One Copy of a Book on Organizational Change – A true story: between 1999 and 2004 I receive not one, but two (2) copies of the book Who Moved My Cheese?. Three weeks after receiving my first copy, I was laid off. Less than four months after receiving my second, the company I worked for was sold. I believe no further elaboration is required.

10. Everyone Talks About Layoffs – No matter how cunning your HR Department might be, when it comes to layoffs NO ONE can keep a secret at a small company. At a small company there are too many leaks, political relationships and information back-channels to keep something like layoffs under wraps. This, by the way, is a great reason to eat in the company lunch room once in awhile.

Scenario C: Signs Your Small Company is Planning on Terminating YOU Specifically

Even if your small company isn’t in financial trouble and has no plans to pursue a round of layoffs, your job could still be in jeopardy. Going for a third Martini at the company party was risky, and the two-hour lunch you take to run errands every Thursday doesn’t always go unnoticed. If you fear you might be walking around with a target on your back, be sure to watch for these unsettling signs.

11. You are asked to document pieces of your job “‘In case you get hit by a bus.”

12. The due date for every project you are working on becomes “Yesterday.”

13. You are asked to transition pieces of your job to other people and receive no additional work in exchange, to the point where you run out of things to do.

14. Your boss starts avoiding one-on-one contact with you, and/or insists on having all communication in writing.

15. Other managers begin to treat you differently as well (because they know what’s going on).

Do you know of a sure-fire sign you might be losing your job, small company or otherwise? Please reply to this post! Otherwise a Retweet, Facebook Share, LinkedIn Share or other type of social share (handy buttons provided) would be greatly appreciated. Thank you!

33 Changes for the Small Company Manager

Eric_Rudolf — Wed, 06 Jan 2010 19:41:12 +0000

Looking back on this past year as a manager in a small company, I see a mix of both good and bad. Sure, my company was one of the few in its industry to NOT lose ground over the last 12 months (as my buddy Mike says, ”Flat is the new hypergrowth—right?”), but my performance, my decision-making and my execution were definitely far from perfect.

In an effort to help my company continue the double-digit annual revenue growth it became accustomed to earlier in the century, I need to make some fundamental changes in the way I act, the way I work, and the way I manage. With this in mind, during the upcoming year I resolve to do as many of the following as I possibly can:

Not worry about what my competitors are doing.
Hire smart people who care.
Measure everything I do.
Look for new customers for my products and services.
Regularly share my goals with my team.
Reward employees who deserve it.
Take a multi-vitamin.
Become an industry expert.
Lead by example.
Take advantage of mobile technology.
Get more out of people who work for me.
Attend fewer trade shows.
Come up withe new product and service ideas.
Buy a more versatile cell phone.
Stop accepting mediocre work from my peers.
Work smarter.
Use more vacation days.
Try a few things that seem impossible.
Use fewer curse words.
Run a leaner department.
Talk to more customers.
Get up from my desk once in awhile.
Diversify my marketing dollars.
Take walks over lunch.
Attend fewer meetings.
Schedule fewer meetings.
Say what I think, exactly when I think it.
Buy a nicer pen . . . and hang onto it.
Waste less time arguing with people who are wrong.
Keep a tidier desk.
Maintain a list of good ideas.
Bring more functions in-house.
Think bigger.

Would you like to add your own change or resolution? Please feel free to reply to this post, and be sure to include a link back to your own website or blog (linkbacks are SEO gold, people). Otherwise a Retweet, Facebook Share, LinkedIn Share or other type of social share (handy buttons provided) would be greatly appreciated. Thank you!

Why Customer Input Doesn’t Always Matter

Eric_Rudolf — Wed, 16 Dec 2009 17:28:14 +0000

Over the years I have worked for several small companies that were firm believers in customer surveys. In the eyes of these particular businesses, there was nothing a company could not ask a customer. Whether it was an idea for a new product, an improvement to an existing product, a search for marketing advice or a simple customer satisfaction exercise, these firms would not hesitate to commission a survey to dozens—or in some cases thousands—of people.

Although I happily complied with each and every request, I was always conflicted as to whether or not the process truly provided any value. Obviously any feedback you can get from someone qualified to give it is valuable. But does this feedback come with a price? And are there caveats to look out for—caveats that could call into question the validity and value of the data you receive? The answer in this situation is ‘Yes’ in both cases. The fact is, customer satisfaction surveys often result in few major changes to the way a company does business, for the three critical reasons:

1) Writing Good Survey Questions is Not as Easy As it Looks – Because there are entire books and semester-long MBA courses dedicated to the topic, I will mention only at a high level that it takes a trained and experienced marketing professional to write a valuable, properly structured and non-leading customer survey. Most small companies grossly under-estimate the effect a few poorly written questions can have on the outcome of a survey, and pass off question-writing duties to marketing people who do not have the training or the experience to handle it. The result? Wasting both time and money reacting to problems that don’t really exist.

2) These Days, Nobody Goes Out of their Way to Tell You They’re Happy – Excluding any pre-arranged incentive for participation (i.e. free or discounted products, special coupons, and so on) the primary motivator for people who actually complete customer satisfaction surveys is, ironically, dis-satisfaction. No matter how much work a researcher puts in trying to make surveys fun, shorter and easier to complete, the fact remains that a customer who is satisfied will rarely tell you as much, for one simple reason: customers do not feel obligated to offer feedback when your product, service or company does exactly what they expected it to do.

Let’s take a simple example from Sales. When a sales person is delivering his or her sales pitch, there are three emotional states a prospect can be in: 1) impressed and receptive, 2) unimpressed and confrontational, or 3) indifferent. The emotional state most conducive to closing the deal is impressed and receptive, but every great sales person knows the worst-case scenario is actually . . . indifferent. Why? Because a sale cannot be made to someone who genuinely does not care. In many ways, the same principle applies to return rates for customer satisfaction surveys: people who have no emotional response one way or the other (those who are truly ‘satisfied’) will simply not participate.

3) People are Smart Enough to Know You Will Use Their Feedback to Make More Money – Although you might tell customers that completing your survey is in their best interest through things like ‘increased quality’ and ‘improved service,’ today’s customer is savvy enough to know your only objective is to increase the profitability of your company. No matter how you spin it, most customers understand that what you are asking them to do is donate their time so you can earn a bigger paycheck.

I’ve spent a lot of time over the last few paragraphs explaining all of the reasons why customer satisfaction surveys do not work or are not completed. But despite the title of this post, I do believe there are some things you can do as a marketer to improve your results:

Get Professional Help – To avoid collecting bad information or the wrong information, give serious consideration to either hiring a consultant to assist, or contracting out the customer satisfaction surveys to a professional market research firm. Most small companies can’t afford to have a full-time Marketing Researcher on staff, and hiring outside help is an acceptable alternative.
Offer Tangible Incentives for Completion – To increase your completion rate, offer participants something they actually want—free services or merchandise, discounts on their next purchase, access to a special package, or something similar. No one is going to get excited about being entered into a drawing with thousands of other people for yet another iPod Nano or a $50 gift card to your company store (see the definition of ‘Expected Value’ for more information), but a double-digit discount percentage off of their next order? Much more tangible . . . and easier to calculate.
Know Who Your Respondents will Be . . . and Embrace Them – As mentioned above, it is likely with any Customer Satisfaction Survey that most of your responses will come from people who are on either side of the emotional pendulum—either extremely happy or extremely angry. Why not use this emotion to your advantage? Actively seek feedback from these groups by writing questions that spur them to respond. Cater to dissatisfied customers by admitting your company or product’s faults, and opening the door for them to help you address specific issues. For happy customers, encourage them to explain exactly why their experience with your company has been so positive, and ask for advice on how to communicate their story to others. Admitting to yourself who your real respondents will be is the first step in getting data that you can actually use.

Being an amateur Economist, I have always been a firm believer that the largest measure of customer satisfaction—and the only one that really matters—is bottom-line Revenue. If the market is pleased with what you are doing and how you are doing it, they will purchase more of what you offer. Conversely, if the market is unhappy with your product, your service or your approach, they will purchase less of what you offer. The point is, when you’re running a for-profit business there is no vote or opinion that matters more than that of the economy.

The Five Hidden Ways Small Companies Waste Money

Eric_Rudolf — Tue, 22 Sep 2009 13:26:33 +0000

At some point in our lives we have all heard the saying “if you count the pennies, the dollars will take care of themselves.” Although this advice might have helped your grandparents survive The Great Depression, this kind of small-minded thinking carries no weight when it comes to running and attempting to grow a business. This is not to say carefully watching expenses is not important. But business-related expenses should be treated no differently than sales opportunities, where dealing with the big ones first is almost always the wiser choice.

In many cases, however, the biggest expenses of all are also the ones completely hidden from the naked eye of management. Any manager with a second grade-level grasp of mathematics can figure out that the difference between a $300 flight to Chicago and a $200 flight to Chicago is a hundred bucks. But sophisticated managers also realize that a $100 savings on a business trip is almost never the company’s top financial concern . . . nor is it even in the top 10.

There are a number of ways in which money is sucked out of a small company each year, literally undetected. Five of the most common are outlined below.

Money-Waster #1: Under-Utilizing Employees

At a Fortune 100 company with 75,000 employees worldwide, one or two under-utilized employees can be easily overcome . . . if someone even bothers to notice. But at a small company, just one employee who is not being maximized—in terms of workload, skill set or effort—can mean the difference between a department’s profitability and loss. The number once concern of every small company manager should be to make sure that each employee is not only productive, but also being pushed in terms of the LEVEL of tasks and projects they are given.

Look around your company: does your Event Coordinator have a Masters Degree? Did one of your Customer Service people oversee 25 direct reports at a previous position? Is your Office Manager a published freelance writer in her spare time? All small companies have employees with under-utilized or ignored skills—skills which could be used to improve the bottom line by saving the company money AND generating new revenue streams. It is your job as a manager to find them.

Money-Waster #2: Contracting Out Functions that Could be Brought In House

Does your company spend $40,000 per year with a graphic design firm? $50,000 per year on an Accounting and HR consultant? $60,000 per year on outsourced IT services? If so, there is a good chance your company can save money, or at least break even, by bringing these functions in-house.

As a general rule, small companies should consider bringing a function in-house whenever the annual expenditure reaches about $20,000. At this point a company may realistically begin to weigh the pros and cons of either hiring a part-time employee to cover the function, or hiring a full-time employee who can absorb this responsibility and one or more others. If there is one universal truth at small companies, it is this: there is ALWAYS more work to be done than you think. Although hiring a new, salaried employee is one of the larger risks a small company can take, a lack of labor resources is easily the number one barrier to small company growth. More often than not a new employee will pay for him or herself many times over, even in the first year of employment.

Money-Waster #3: Re-Investing in Ineffective Marketing Campaigns

Given the limited amount of time and resources (and in some cases skills) small company marketing departments possess, it is not uncommon for them to re-book and re-execute the same initiatives over and over again, with no consideration of how they are actually performing. Do you know how many sales were generated by the trade show you attend each year? Are you measuring response to the full-page ad your company places in the main industry rag every month? When was the last time someone reviewed—much less changed—your Google Pay-per-Click ads?

If you have come to the realization your company purchases the same ad space, uses the same messaging or exhibits at the same trade shows year after year, it is time to demand measurement of these initiatives. Simple metrics like inquiries, leads, downloads, clicks, names collected or even sales can be assigned to almost any kind of marketing campaign. Once metrics are assigned, repeated instances of the same campaign can be tracked and compared over time—allowing adjustments to be made in messaging, frequency and budget.

Money-Waster #4: Adding Friends and Relatives to the Payroll

Whether your small company has 10 employees or 100, odds are good that someone on the Executive Team has championed the employment of least one friend or relative. Small companies are littered with spouses, siblings, in-laws, children and friends from college, to a degree that would make an HR Director at a Fortune 500 company seek therapy.

In situations where the employee has specific skills that could not otherwise be acquired, this move can be extremely valuable. But in most cases, hiring friends or relatives does a company much more harm than good. In addition to the risk of wasting money directly (these employees can be overpaid and/or under-qualified for their positions) they can be a significant de-motivator to other employees; especially when they are brought in as management. And even when these types of employees are not brought in at a high level, the person who made the hire does not always have the objectivity to manage them . . . or the foresight to allow someone else to do it.

Also, when personnel issues arise—and they absolutely will—the issues are seldom resolved. Instead, the non-relative or non-friend employees are forced to suffer in silence, eventually leaving the company for less stressful work environments. As tempting as it is to do so, hiring friends and relatives to work is not always a good idea, unless your company goals include de-motivating employees and increasing the company’s turnover rate—neither of which make a positive impact on the bottom line.

Money-Waster #5: Tolerating Under-Performing and Negative Employees

With as much focus as small company executives put on concepts like Excellence, Dedication and Teamwork, the reality of working for a small company is often equivalent to ‘employment for life,’ meaning even employees who put forth a minimal level of effort can have their jobs as long as they want them. Every small company has at least one: the employee who refuses to work one minute more than published hours, is completely void of any sense of urgency, and snaps whenever asked to do something not specifically listed in their job description. At times they can be amusing, and often they make for great conversation at Happy Hour. But they are also hurting your company in ways too numerous to count.

Although many have tried, the fact is you can’t grow a small company by filling the employee roster with people who contribute the absolute minimum—and complain while doing it. Even if these employees have been around since the beginning, as a manager you need to understand that your company is changing; and if growth is the goal, there is no room for unmotivated, perpetually grumpy ands short-sighted employees.

Conclusion

Wasted money at a small company doesn’t always identify itself with a bright red bow and a blinking card that says “look here.” In fact, more often than not a company can come out farther ahead in the end by better utilizing its existing resources than it can by cutting costs and expenditures. There are a number of non-traditional ways that small companies under-use or mis-use its resources, and although this document has outlined five, there are obviously many, many more. If you have identified a different hidden way that small companies waste money, please feel free to reply to this post.

Also, a Retweet, Facebook Share, LinkedIn Share or other type of social share (handy buttons provided) would be greatly appreciated. Thank you!

3 Traps to Avoid When Starting Your Own Small Business

Eric_Rudolf — Sat, 05 Sep 2009 14:14:51 +0000

At some point, we’ve all been there. Over the last few years each of us—at least one time—has become fed up enough with our jobs to consider starting a small business. The process always starts the same way: we do some research on the Internet, make a few phone calls, and run a set of rough financial projections. Then, when we believe our idea is solid enough to begin discussing it with others, we lay out our high-level plans to friends, relatives and co-workers . . . only to be brought crashing back to earth when someone asks the following question:

“But 8 out of 10 small businesses fail, don’t they?”

And while these fateful words are still ringing in our ears, we gather up our research and financial calculations, and toss them in the back of a rarely-used drawer.

The fact that your small business dream has an 80% chance of forcing you into personal bankruptcy is scary. But this singular statistic does not tell the entire story. When you have a chance, grab a piece of paper and write down 10 people at random from your friend, relative and peer network. Once you have 10 names on your paper, go back through the list and make an ‘X’ next to the people you believe have the knowledge, motivation and passion to start a small business and keep it going. How many ‘X’s do you have? Odds are, you have no more than three marks on your paper.

Do you see where I’m going with this? The fact is, 8 out of 10 small businesses fail because 8 out of 10 people who start them have no business doing so. And why do these companies fail? Because their newly-minted business owners continue to fall into the same three traps their predecessors did. If you’re tired of making money for someone else and considering starting your own company, be sure to avoid these VERY common new business pitfalls.

Trap #1: The “I’m Good At This–I Should Do it for a Living” Trap

When I’m not working 50 hours per week at my real job or spending my nights blogging, I’m learning the art and science of barbecue. I love barbecue, and happen to think my slow-smoked pulled pork and St. Louis-style ribs are good enough to be on the menu at any restaurant in the three-state area. With this belief in mind I recently cleared an entire weekend to do nothing but slow-roast various meats in a 225-degree hickory pit, and realized something: I hate doing the work. After two days of preparing, smoking, slicing and serving nearly 100 pounds of barbecue to my friends and neighbors, something finally occurred to me: hovering over a fire all day and constantly smelling like Hickory wasn’t what I wanted to do with my life. The lesson here is simple: to avoid the most common small business trap, you need to have the foresight to test-drive your business idea BEFORE you invest your life savings in it.

Trap #2: The “I’m Going to Pursue my Passion” Trap

Although the phrase “Do what you love, and the money will follow” makes a great opening line for a commencement speech (and one hell of a bumper sticker), there is a very important fact that most business owners ignore: your ‘passion’ may or may not actually pay a living wage. The whole point of starting a small business is to gain employment and financial independence—not to help you spend every waking moment in love with what you’re doing. In the real-world, having fun is what hobbies are for; and successful business owners understand the difference between doing something they love, and doing something they don’t hate that also pays extremely well.

Trap #3: The “I Can Start by Selling to My Friends and Relatives” Trap

The idea of sucking money out of friends, neighbors and relatives is no longer exclusive to pyramid schemers and MLM participants. People who are looking to start real businesses often use social networks as a marketing ‘crutch,’ and rarely look beyond their personal contacts when planning the growth of their business. But every budding entrepreneur needs to ask him or herself a very simple question: when my friends and relatives stop buying, how will I reach people who don’t know me yet? The answer to this question is called a Marketing Plan, and if you don’t have one, you might as well start sending resumes to Fortune 500 companies again.

4 Reasons Your New Business Will Thrive in a Bad Economy

Eric_Rudolf — Wed, 19 Aug 2009 17:16:15 +0000

Over the past six months or so, all of us have spoken to at least one friend or relative who is considering starting a business. Some have been laid off, others have experienced cutbacks or pay cuts, and the rest are simply unhappy with their current situations. But regardless of the circumstances, the person looking to start a business always ends the conversation with the same sentence:

“But with the economy, it’s probably not a good time to start thinking about starting my own business.”

With the above in mind, I would like to collectively make all of the budding busines owners out there aware of one thing: you are absolutely, one-hundred percent WRONG. The fact is, a bad economy is by far the LEAST risky time to start your own business, and below are four reasons why.

Reason #1: Great Employees are Easier to Find—and Much Less Expensive

During thriving economic periods where nearly all types of businesses are expanding, qualified and experienced people are hard to find. In the mid-1990s, software development firms were hiring $40,000 per year, self-taught programmers right out of high school. In the early 2000s, anyone who knew what the letters ‘HTML’ stood for was working as a webmaster or e-commerce expert. But today, people with 20+ years of experience and multiple advanced degrees are fighting over part-time Barista jobs. If you’re hoping to start a business that requires employees, the talent pool is full to the rim with people who want to work for your new venture.

Reason #2: Equipment and Services are Cheaper

In slow economic periods there are always great deals to be found, both in hard-line items like equipment, and soft-line items like professional services. Within a five-mile radius of my home I have watched no less than seven (7) food service businesses close their doors this year. At one point or another, each of these places made a significant investment in equipment. But now their brand new counter units, refrigerators, cash registers, dishwashers and commercial-grade ovens are owned by the bank—collecting dust while waiting for someone like YOU to buy them . . . at pennies on the dollar. Also, the rash of recent business closings has left contractors who cater to small businesses (IT services, cleaning, general construction, etc.) scrambling for customers, and looking to make great deals to acquire your business. From personal experience, I can tell you that contracting rates have dropped by over 20% in my region, compared to rates just one year ago.

Reason #3: Existing Competitors Won’t See You Coming

During questionable economic times, market leaders have a tendency to curl up in the fetal position and wait for the bad news to pass. But where there is chaos there is ALWAYS money to be made—and while your competitors are too busy trying to stay in business to do anything innovative, they are leaving you an opening to swoop in and offer their products and services better, faster, and cheaper. If you truly believe you can enter a market and improve upon what is already being offered, starting a business in the middle of a rough economy is the ultimate surprise attack.

Reason #4: Customers are More Open-Minded to the Prospect of Change

When consumers see friends and relatives lose things like jobs, houses and retirement funds, they tend to become more accustomed to the fact that maybe—just maybe—there is a better way to do what they’ve been doing. With this in mind, any customer who was formerly locked into a competitor of yours is very likely looking for a better, faster or cheaper way (see above) to live their work and personal lives. Choppy economies force even the most loyal people to rethink their buying decisions; and if a startup business can truly offer something better, consumers will ALWAYS be willing to give the new guy a shot.

The REAL Reason Banks Won’t Lend Any Money

Eric_Rudolf — Wed, 08 Jul 2009 14:46:34 +0000

If you were looking for a sure-fire way into an argument, your most likely adversary these days would not be a neighbor, or an in-law, or even a customer service person at your local mega-retail establishment. More likely, your difference of opinion would lie with a banker. Utter the words “banks aren’t lending any money” around someone who works for a financial institution, and the next 20 minutes will be filled with phrases like “unfair claim,” “media bias” and “completely untrue.” But where there is smoke there is almost always fire; and the fact is, when it comes to lending money to individuals and small businesses, banks are walking a VERY thin line between keeping the country liquid and hoarding the nation’s capital. To make my case, I offer the following true story.

My Story

Back in mid-March of this year, I began to pursue the idea of borrowing a small amount of money for business purposes. I contacted the local branch of what has been my bank for the past 18 years, and eventually two more branches in the surrounding area, until I finally received a call back 30 days later (a sign of things to come?).

My meeting at the bank was scheduled for the end of April, and by all accounts the meeting went very well. I have a stable job, no credit card debt, money in the bank, equity in my home, and a credit score in the 800s. I was told by the loan officer that these were all very good signs, and if anyone should be able to get a loan, it was me. The next steps included appraisal of my assets, a check of my financial history, and a few levels of approval. When I was reviewing the papers to start the process, the loan officer penciled in a loan closing date of June 18th, but assured me things would need to go ‘horribly wrong’ for the process to take that long. With this in mind I signed the paperwork, locked in an interest rate, and handed over a $500 check to get the ball rolling.

Fast-forward to today, and you might be surprised to know that I still have not seen a dime. The last 12 weeks have been an absolute comedy of errors, delays, and oversights on behalf of my banker and the institution he works for. Although this is not an all-inclusive list, some of the more notable issues included the following:

During the review of my assets the appraiser pulled the incorrect map for my primary residence, and noted that my house was in a flood zone. Based on this information, the bank attached a requirement to my loan that I immediately acquire a VERY expensive flood insurance rider. After making my banker aware of this obvious mistake, it took him 13 days to return my call, and another five to tell me there was nothing he could do to fix it.
When I requested (multiple times) to see the closing summary in advance, I received the papers less than one hour before the scheduled closing. I quickly printed the papers and reviewed them in the car on the way, only to discover the loan amount—the whole reason I went to the bank in the first place—was off by 92.5%.
After already being scheduled for the ”worst case” closing date, I was forced to wait yet again and apply for an extension on my locked in rate, because my banker took a last-minute week of vacation.
Regarding the previous bullet . . . when I contacted my banker’s manager and asked if he would kindly sit in on my closing so I could keep the original date, the manager quite literally laughed in my face. Then he told me my loan was “not quite that high on his bank’s list of priorities.”

At this point, it is important to note something: I don’t bank at Pawn America. My bank is one of the largest, healthiest, and longest-standing financial institutions in the country. In fact, this particular bank sleepwalked through the recent “stress tests,” and has never been in serious financial trouble in its long and storied history. So this begs the question: why can’t I (or anyone else) get any money? Based on my recent experience, and a number of conversations with employees and customers within the financial industry, I believe the answer is threefold:

Reason #1: Banks are Finally Doing All of the Things They Should Have Been Doing 15 Years Ago. Gone are the days of loan officers encouraging people to push for 80/20 loans, sign variable-rate ARMs, and use their homes as cash machines . . . while encouraging them fudge their loan applications. Today, asset appraisals are being double-checked, employment histories are being triple-checked, and good credit ratings are no longer optional. The downside to the consumer? All of these checks take TIME.

Reason #2: Banks are Choosing to Remain Understaffed. At this point in time, there are statistically more people and businesses trying to get money than in any other period. Between historically low interest rates, unheard of home buyer credits and re-fi requests from struggling families looking to rework existing loans, there are nearly THREE TIMES as many customers in the banking pipeline. Yet for some reason, banks are not looking to hire additional staff. Why? To keep overhead down and stock prices up.

Reason #3: Lenders are Making Even More Stupid Mistakes than They Were Before. The lack of qualified people mentioned in #2 is causing bank employees to rush, which in turn results in an incredible number of mistakes during the loan application and approval process. This year, among my smaller group of friends and colleagues I have seen everything from typos to gross miscalculations—some of which caused loans to completely fall apart. The worst story? A couple who was 9 months pregnant showed up to close on their first home and was turned away, because their banker forgot to lock in an interest rate. Three weeks, $2,000 (unexpected) dollars and one baby later, the home is finally theirs.

It might not be fair, and it certainly isn’t right, but until interest rates move higher and the majority of foreclosure homes clear the market, you and your business must unfortunately expect slow, inaccurate and uncaring service from your lender. And the worst part is, they will continue to collect the same outrageous fees they’ve always been collecting.

The 4 Critical Differences Between Large and Small Companies

Eric_Rudolf — Fri, 05 Jun 2009 14:58:11 +0000

Over the last three years writing about small companies, many of my friends, colleagues and fellow bloggers have questioned my decision to draw such a hard distinction between small companies and their larger counterparts. I regularly receive emails like “Is working for a small company really that different?” and “Aren’t good management techniques the same for all companies?” but have not bothered to prepare a response. Until today.

With the above in mind, the following post will outline the four (4) most critical differences between big companies and small ones. Please be warned: this article not based on any sort of worldwide study or market survey. It is based on more than 17 years of first-hand experience working for companies from $2 million in annual revenue to $25 billion (that’s billion with a ‘b‘). No matter what size of company you work for or hope to work for some day, I believe you will find some value here.

Difference #1: The People

Far and away, the most significant difference between a small company and a large one lies within the mix and variety of people who work there. At a small company, the employee mix is both diverse and inconsistent. Small companies are home to people who are always happy, people who are always mad, and people who ride the emotional roller coaster. There are people who never talk, people who always talk, and people who spend most of the day with at least one foot firmly planted in their mouth. Small companies are loaded with unattached twenty-somethings, divorced grandparents, and middle-aged people with kids—all with unique needs, unique motivations and personal lives that ultimately spill over into work.

Contrast this to the employee mix at a larger firm. As an organization grows, employees begin to homogenize to the point where any outward ‘personality’ that exists among individuals is eventually eliminated. Cultural expectations are set, groups begin to form, and people who no longer fit the big company ‘mold’ are forced out. In fact, by the time a company breaks the billion dollar revenue mark, it actually becomes difficult to tell people apart as individuality is replaced with company-enforced conformity. Employees buy the same clothes at the same stores, watch the same TV shows, and play in the same company-sponsored sports leagues as the people they work with.

Difference #2: The Environment

When you hear the phrase “big company,” the one word that immediately comes to mind is structure. Structure in the form of policy manuals, comprehensive job descriptions, HR handbooks, management hierarchies and jam-packed meeting schedules. By the same token, hearing the phrase “small company” almost always invokes the opposite impression: a complete lack of structure.

In contrast to a large firm, at a small company it is rare that a new employee will start on Day 1 with an accurate job description; and if they do, the description is almost always outdated after the first month. There are a distinct lack of policy manuals and work instructions, and formal meetings are only held in emergencies or for issues related to long-term planning. Also at small companies, the most effective employees are the ones who take risks, and learn to circumvent the management hierarchy to get things done; whereas at a larger firm, more value is given to employees who complete their tasks within the rules and without exposing the company to unnecessary risks.

Difference #3: The Money

To cut right to the chase, the critical difference in the way money is treated at big companies versus small ones can be summed up in one sentence:

***Spending money that comes directly out of someone else’s pocket changes* *everything. And not in a good way.***

Big companies might have stockholders, but small companies have OWNERS. Owners, by the way, who have no problem chastising an employee for spending an extra $10 per night on a hotel during their last business trip. Knowing that every dollar you spend comes out of an owner’s bank account makes working at a small company unnecessarily stressful—especially for departments like Marketing and Sales. Also, small companies are full of opportunities for employees to become upset and disillusioned about finances. Have you ever been asked to tell your employees about a company-wide wage freeze, only to have the owner drive to work a few weeks later in a new Mercedes? Small company managers have.

Difference #4: The Politics

At a big company, you usually don’t have to worry about working for multiple bosses or married couples. You are also rarely forced to deal with relatives of the CEO, ownership teams who have been friends since college, and spouses of executives who ask for your help with a side business. But at small companies, these things are both commonplace and expected. The relationships, social circles and histories at small companies often make them a nightmare to navigate politically—making the shelf-life of even the best managers a mere four or five years at the most.

Dirty Negotiating: Yet Another Walmart Corporate Standard

Eric_Rudolf — Fri, 17 Apr 2009 13:49:51 +0000

Over my 17 years working for small companies, I have had the opportunity to negotiate and eventually do business with the corporate offices of dozens of members of the Fortune 100. As much as I dislike the way these large firms are run as a whole, I must admit companies like Ford, AT&T, Verizon, Home Depot, Target, Cisco, 3M and Washington Mutual have always treated my companies fairly, and negotiated with honesty and integrity. The one exception, as the title of this posting indicates, is Walmart—a company that not only plays dirty, but whose tactics blur the line between negotiation and mafia-style shakedown.

Below are six (6) dirty negotiation tactics my small company was recently forced to endure when attempting to sell a package of services to the Walmart corporate offices in Bentonville, Arkansas. I feel obligated to tell you in advance that this deal eventually fell through, but only after my company refused to deliver our services for the 70% discount Walmart was demanding. If you work for a small company, and you have an opportunity to either sell something to Walmart Corporate or get your product on the shelf in a Walmart store, I sincerely hope you can turn my experience into something a bit more positive.

Walmart Negotiation Tactic #1: Gain Your Trust

In most situations, your first contact at Walmart will be someone on the business side: a director, a mid-level department head, a product manager, or someone acting in a similar capacity. This person will be friendly, open-minded, and presumably an advocate for your company’s best interests. But make no mistake—much like the guy in the Mickey Mouse costume in the lobby of a Disneyland hotel, this person is part of the show which is about to unfold.

Walmart Negotiation Tactic #2: Send in the Muscle

At some point, the business person mentioned above will ask you for your ‘best price,’ which you will happily turn over. He or she will then tell you the price looks very good, and lead you to believe (without actually lying to you) the deal is almost done. The final hurdle, as your contact will explain, is for you to work out a few minor details with the Walmart Purchasing Department. What your contact will fail to mention, however, is that Walmart Purchasing people are known for two very special talents: intimidation, and making grown men and women cry.

Walmart Negotiation Tactic #3: Use ‘Research’ to Justify a Lower Price

If you thought your company’s contract with Walmart was as good as signed, you are about to learn a hard lesson in the art of Walmart-style vendor-beating. Your assigned Purchasing contact will not only attempt to slash the already negotiated price in half, but will claim he or she is in possession of actual market research that indicates your price is out of line with the current market. Research, of course, they will not offer to share with you.

Walmart Negotiation Tactic #4: Imply That a Better Discount Will Benefit Your Company in the Long Run

I can’t say for certain that Tactic #3 and Tactic #4 appear in a specific order, but rest assured they will both be used. And there is an important distinction that must be made here: a Walmart Purchasing person will not offer your company more business in exchange for a better discount. They will LEAD YOU TO BELIEVE offering a discount is in your company’s long-term best interest. At this point in the negotiation process it is critical that you as a small company ask three very important questions:

Will a lower price guarantee me a larger initial sale?
Will a lower price guarantee me additional future business with Walmart?
If I give you this lower price, will I be able to avoid negotiating with you next time?

The response to each of these questions, assuming you don’t hear an outright “no,” will likely be stunned silence. Either way, you now know exactly what kind of ‘deal’ you’re getting—a one-off committment with no guarantees of future business, and the prospect of having to endure this all over again next time Walmart comes calling.

Walmart Negotiation Tactic #5: Purchaser Escalation

Those of you who have ever tried to cancel a cell phone plan know exactly how this part of the game is played. When you call your current cell provider to discontinue service, the representative will always transfer you to a special ‘department’ designed to process cancellations. Of course, this ‘department’ is full of sales people who get paid to make sure you DON’T cancel your service. The Purchasing system at Walmart is no different. If the entry-level Purchaser can’t bring your price down, your case will be transferred to someone much more direct, aggressive, experienced, and impatient.

Dirty Negotiation Tactic #6: Branching Up

‘Branching Up’ is an unofficial term I will use to describe how Walmart works its way up your company org chart when they don’t get the price they demand. Walmart Purchasing people have no problem going over the heads of those who are standing between them and a better discount. In my particular case the Purchasing person attempted to jump from our Sales Department to the Founder and CEO of the company, with the intent (presumably) of casting the sales person in a negative light. Our sales person was given no warning or other indication this was part of the Purchasing process, and no explanation as to why this was done once she found out about it.

All of what is presented above sounds rotten, icky and unethical . . . because it is. But at the same time, I should have expected it from a company who has been sued by 1.6 million women for sexual discrimination AND by nearly 87,000 employees in 40 U.S. states for cheating them out of overtime pay. Compared to these offenses, the manner in which Walmart’s Purchasing Department negotiates is literally child’s play. As a result of my experience, I vow to never make a purchase from Walmart as long as I live. Neither will my kids, my extended family, or my friends if I can figure out a way to stop them. And many years from now, when my business skills have left me and a job at a Walmart store is the only thing preventing me from being homeless, I will sleep on the street in a cardboard box—with a smile on my face.

Small Company Survey: 5 Signs of a Healthy Organization

Eric_Rudolf — Fri, 10 Apr 2009 13:34:51 +0000

Whether you are an employee, manager, or owner of a small company, the question ”How is my company REALLY doing?” is often asked, but rarely answered. Sure, there are basic metrics like Total Revenue, Profit Margin and Employee Turnover which can paint at least part of the picture. However, all of these measures have one inherent flaw: they measure things which have already happened. So is there a way to measure the real-time ’health’ of a small company? This five-question survey should provide you with a good start.

Question #1: Does Your Company Have a Diverse Product Line?

Most small companies get their start by offering a single product or service, and increasing the sales of that product or service over time. Companies that have long-term success eventually branch out into related areas, while the rest stand pat and leave themselves exposed to things like climate changes, economic downturns, and attacks by aggressive competitors. Why do bike shops sell skiing equipment, health clubs host their own triathlons, and Universities offer mini-MBAs for working adults? Because if their primary business slows down, these organizations will have a revenue stream to fall back on. Do you have a backup plan if demand for your company’s core product or service declines by 50% next year?

Question #2: Does Your Company Have a Diverse Customer Base?

Much like having a diverse product line, it is critical that small companies have a diverse customer base as well. Are a significant portion of your company’s marketing dollars targeting the same customer demographic? Healthy small companies market their products and services to a wide range of ages, races, income levels, job functions and geographic locations. In the IT training area, I have seen first-hand the impact a change in demographics (a rapid influx of female customers into a traditionally male-dominated market) can have on an industry. Companies who had previously ignored this demographic in their marketing are now years behind those who have been marketing directly to women since early in the decade.

Question #3: Are Your Middle Managers Happy?

I am in the minority of business writers that believes employees leave small companies not because of things like ownership or benefits or pay. Rather, I believe employees leave small companies because of the effectiveness (or lack thereof) of the company’s middle managers. Middle managers are the rarely-noticed ‘go to’ people within the organization that can always be counted on to make something happen when a quick decision needs to be made. And good middle managers know EVERYTHING about their organization—the inter-personal relationships among staff, the information back-channels, the political ramifications of executive decisions, and the job satisfaction level of every employee in the building. If your middle managers are not happy with their jobs, it is likely that no one is.

Question #4: Does Your Company Have Low ‘Drama’ Levels?

Well-run small companies are conspicuously void of petty bitching and moaning—employee in-fighting, constant complaining to HR, minor power struggles and various other items that can only be classified as office ‘drama.’ Employees working in healthy small companies are always willing to jump across a departmental line to help out, and are given freedom by their managers to work outside the chain of command when the best interest of the organization is behind served. If your managers spend more than 15 minutes per day putting out employee-related fires, something needs to change.

Question #5: Do Your Employees Have a High Company IQ?

Unlike their big company counterparts, successful executives at small companies understand one key principle: the more employees know about your company, the more successful your company will be. As I discussed at length in a previous post titled Small Company Mistake #3: Not Building a Shared Corporate Vision, employees need to know not only what they are doing, but WHY they are doing it. If small company executives make the best decisions when they can determine the impact of their decisions on the organization as a whole, why can’t this same philosophy be applied to Shipping or Customer Service or at the Reception Desk? The most progressive and successful small companies are willing to share strategy, performance, and financial-related information with any employee who will listen.

Tips for a Tough Economy: Marketing on a Small(er) Budget

Eric_Rudolf — Tue, 17 Feb 2009 18:06:36 +0000

When the economy worsens and the term “401″ more accurately describes my account balance than the retirement vehicle itself, marketing services firms across the nation try to get their finger on the “our method is most cost-effective” scale. If you read their self-promoting white papers and newsletters, you will find that nearly every sector of the marketing services world is claiming their method is tailor-made for tough economies. But which marketing methods REALLY give you the most return for your marketing investment? Pay-per-Click? Direct email? Web ads? Database marketing? Webinars? Direct mail? The answer is, IT DOESN’T MATTER. Because as long as you keep making these five marketing mistakes, you’re going to lose money no matter what you do.

Marketing Mistake #1: Using Shotgun-Style Approaches. If your company spends $10,000 to get its new print advertisement in front of 1 million readers of a magazine (only a penny per thousand people) is it a good investment? Not if only 2,000 of the magazine’s readers are in your target market. If you don’t know how many legitimate potential customers are in a group you’re marketing to, you have no business booking the campaign—especially in a shaky economy. Do your homework in advance of booking your campaigns, and calculate the REAL cost of reaching your target audience.

Mistake #2: Spending Money on Marketing Campaigns You Can’t Measure. Once you make a conscious decision to weed out shotgun-style marketing approaches, the next step is to eliminate any campaigns that don’t have measurable performance metrics. How much money is your company making from its trade shows, print ads and pay-per-click placements? If your marketing department doesn’t have a way to answer the question, don’t write the check.

Mistake #3: Not Moving Your Money Around. Marketing is different than the 401(k) I mentioned in my intro. When I don’t get my money out of the stock market in time, I’m pretty much stuck re-buying the same stocks, in hopes that someday they all rebound and the principle of Dollar Cost Averaging finally works in my favor. But small companies are not under the same obligation. Don’t make the mistake of continually re-investing in certain campaigns because of some unwarranted need for marketing ‘variety.’ If certain campaign types work better than others, increase your focus in those areas.

Mistake #4: Not Negotiating with Vendors. When the economy is slow, your marketing budget will shrink . . . but so will the list of people wanting to advertise in the same places you do. Here’s a tip: if your current marketing budget is smaller than last year, tell your vendors. Less than three weeks ago I explained to an ad rep I had been working with for four years that my marketing budget shrunk by 20%. Within a half-hour she rewrote my quarterly Insertion Order and sent it back to me–with a 20% discount reflected. Available advertising inventory ( both print and web) has grown SIGNIFICANTLY over the last year. There is no reason you can’t take advantage.

Mistake #5: Not Marketing. If you really sat down and gave it some thought, you’d probably realize you’ve completely lost track of a few competitors recently. In an effort to hang on for dear life, these companies have more than likely stopped spending money on marketing. But unless your company sells luxury boats in Detroit, there are still customers out there! By cutting off your marketing efforts completely, you are assuming the risk that your business can live off of its existing customers indefinitely. Are you willing to take this chance?

Why Do I Work for a Small Company?

Eric_Rudolf — Wed, 12 Nov 2008 18:54:14 +0000

For those of you who are regular visitors to this blog, you no doubt have noticed two points I often go out of my way to make: 1) that the keys to success in a small company are markedly different than in a large one; and 2) that working at a small company is more fun, more challenging, and ultimately more financially lucrative than working for a Fortune 1000 firm. By now, the first point should require no further elaboration or commentary. But I still get dozens of emails in debate of the second point (specifically the part about the money), so in response to all of you who disagree, I offer the following true story.

A few years back I worked with a guy named Chris. While Chris was in college, he landed a job as a marketing intern at a small, three-owner software company, and parlayed his internship into a full-time marketing job after graduation. Over the course of the next 13 years or so, Chris worked his way through the ranks and eventually became Vice-President of Marketing.

Then one day, the owners of the company stepped aside and decided to make Chris the CEO—at the ripe old age of 37. Over the next five years Chris was instrumental in transforming the company from a sub-$10 million per year entity into a $40 million industry powerhouse, which caught the attention of a multi-billion dollar Fortune 500 company. The Fortune 500 firm eventually purchased the software company for what was rumored to be $85 million and change, and at the age of 42 Chris and his employers retired, and rode off into the sunset with multi-million dollar bankrolls and absolutely nothing to do with their time.

Although the owners have remained out of the spotlight, about every three months or so I see Chris’ face on the front page of the Business Section, in an article featuring his new venture capital firm and their acquisition of yet another local technology company. Predictably, he is always smiling.

This is a great story—not only because it actually happened, but because as small company managers and owners we now have proof there are options to grinding out a middle-management career at a multi-billion dollar firm. With risk and unpredictability come great rewards for some; rewards that include millions of dollars, financial independence and early retirement. How many mid-level managers at Intel, Oracle and Walmart can realistically look forward to that?

THEsmallCOMPANYBLOG » Strategy and Mistakes

4 Pricing Strategies That Work for Small Companies

“When it comes to pricing, big companies use hard data and statistics. Small companies just wing it.”

Pricing Strategy #1: Set Your Price Relative to Value or Quality

Pricing Strategy #2: Set Your Price Based on Relative Features and Benefits (Competition-Based Pricing)

Pricing Strategy #3: Set Your Price to Compensate for a Reseller Discount, and Possibly a Discounted Reseller Price

Pricing Strategy #4: Set Your Price Based on Convenience

Wrapping it All Up

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Pricing Strategy #1: The “I Want to Make X Number of Dollars” Method (a.k.a. Cost-Plus Pricing)

Pricing Strategy #2: The “Let’s Ask People What They Would Be Willing to Pay” Method (a.k.a. Market-Oriented Pricing)

Pricing Strategy #3: The “Let’s Come in Low and Raise the Price Later” Method (a.k.a. Penetration Pricing)

Pricing Strategy #4: The “Which Group Are You In?” Method (a.k.a. Third Degree Discrimination Pricing)

Conclusion

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Mistake #1: Having (or Attending) too Many Meetings

Mistake #2: Not Dealing with Difficult Employees

Mistake #3: Turning into Someone Who Only ‘Manages’ Things

Mistake #4: Being a Poor Project Manager

Mistake #5: Making Emotional Financial Decisions

Mistake #6: Motivating by Fear or Intimidation

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Successful small company owners “moonlighting” for personal profit, at the expense of their existing businesses.

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5 Ways to Immediately Improve Your Small Company Operation

Improvement #1: Research the Rest of the Industry

Improvement #2: Re-evaluate Your Original Intentions

Improvement #3: Delegate the Things You’re Not Good At

Improvement #4: Establish a Plan—in Writing

Improvement #5: Measure Everything You Do

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“But 8 out of 10 small businesses fail, don’t they?”

Trap #1: The “I’m Good At This–I Should Do it for a Living” Trap

Trap #2: The “I’m Going to Pursue my Passion” Trap

Trap #3: The “I Can Start by Selling to My Friends and Relatives” Trap

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The 4 Critical Differences Between Large and Small Companies

Difference #1: The People

Difference #2: The Environment

Difference #3: The Money

Spending money that comes directly out of someone else’s pocket changes everything. And not in a good way.

Difference #4: The Politics

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Small Company Survey: 5 Signs of a Healthy Organization

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Why Do I Work for a Small Company?

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Successful small company owners “moonlighting” for
personal profit, at the expense of their existing businesses.

***Spending money that comes directly out of someone else’s pocket changes* *everything. And not in a good way.***