Strategic Planning Analogy #331: Heal Thyself

THE STORY
I have a large number of friends who have left the big corporate world and set up small consulting businesses. I know it can be difficult for a small start-up to get established. After all, there are a ton of small business consulting firms. The joke is that “small consulting firm” = “unemployed executive between jobs.”

Therefore, I’m curious to see how these friends of mine position their business to succeed. I go to their web pages to see how they present themselves to the world. Quite often (but not always), these web sites are a real mess.

Many of these web sites are bland and generic. From reading the site, I cannot discern their consulting point of view or style. Others are so packed with jargon that I have no idea what they are talking about or what services they provide. Rather than being customer-centric, they tend to be consultant-centric. Worse yet, they do not convince me why anyone should prefer hiring them over the competition.

Other than the page that shows a picture of the actual consultant, you could pretty much swop pages between sites and not be able to tell the difference.

So here’s my question: Why should I write a big check to a consultant who claims they can make my company a huge success (better positioned, bigger, stronger, more professional) if the consultant’s own business looks like a bland, unpositioned, unprofessional mess?

Physician, heal thyself.

THE ANALOGY
Although there are some advantages to being a small firm (more flexibility, less overhead so you can charge less), there are also quite a few disadvantages. The bigger firms have bigger promotional budgets, economies of scale, well-known reputations, and other such benefits.

On top of that, there is typically more personal risk for an executive to recommend to his boss to hire the services of a small firm. As the old saying used to go back in the heyday of mainframe computing, “nobody ever lost their job because they recommended that their company use IBM.” IBM was the “safe” choice, because they were big and well-established leaders in the field. If the deal later turned out to be bad, rarely would you be in deep trouble for recommending the safe choice. However, if you had recommended a small firm and the deal went bad, you could easily lose your job for making such a poor recommendation.

Therefore, if you are a small business and want to succeed, you need to work extra hard at building a winning reputation. Unfortunately, it seems like many of my friends wanted to skip this step when setting up their consulting businesses. Many of these friends were so focused on being able to “do the work” that they did not spend sufficient time creating a compelling reason why they deserve to “get the work”. They had not branded their business.

THE PRINCIPLE
The principle here is that small businesses are not immune to strategic planning. They need a plan to win as much as the big companies—maybe even more so. And since most small businesses are predominantly in service industries, what you are selling is not an isolated product, but rather a relationship between the service provider and the customer. Therefore, it is essential to take the time to brand your business, the entity you want your customers to form and keep a relationship with.

A business brand should answer the following questions:

1) Why should someone do business with me?
2) Why am I a superior choice over the competition?
3) What is my area of specialty…what do I provide better than the big guys?
4) If you had to describe your benefit in the marketplace in one or two words, what would those words be?
5) Who am I targeting for business? What problem am I trying to solve for that customer? How is my solution superior for that customer? If it is not superior, should I change my business model or change my targeted customer?
6) How do I present myself and sell myself to my customers so that they can quickly understand my brand and why it is the best solution for their problem?

Trying to be all things to all people is hard enough if you are a large firm. If you are a small firm, that is next to impossible. Even if it were possible, your potential customers would not believe such a claim—you would be seen as too small to have that capability to offer so much with any degree of quality.

Therefore, you have to make choices and tradeoffs. You need to focus on being better at doing less. The trick is deciding what and who to focus on (and what not to focus on), and how to create a business model which exploits that niche. This focus becomes the nucleus of your brand.

Some small businesses resist the idea of spending time to brand their company. I will look at two common points of resistance and show the weakness in their argument.

1) I Have Connections (The full silo fallacy)
A lot of times, people who leave the world of big corporations to start a small business think that those connections to the big business world are all they need. They claim that their Rolodex is full and their old contacts and clients love them. Therefore, there is no need to brand and sell their business—all they have to do is get their old contacts to follow them to their new, small business.

There is some truth to that line of reasoning. I had a friend who left a big corporation and took several of that corporation’s key clients with him to his new, small business. That worked quite well…for a short period of time. The problem was that after a couple of years, he had successfully met most of their needs. Suddenly, the business from those old clients stopped. Because he had not spent time branding his business and selling that brand, no new business was coming in. So when the old business stopped, he had no business at all, so he had to shut down his small firm and go back to being an employee in the big business world.

I call this the “full silo fallacy.” It would be like a farmer saying, “I have a large silo full of grain, so I can stop farming.” The problem is that eventually, either the farmer will use up all the grain in the silo or the grain in the silo will go bad. Either way, if the farmer stops farming, eventually he will run out of resources and go broke. Just as a farmer needs to keep farming to replenish the silo, a small business needs to brand itself and sell that brand in order to keep replenishing its sales.

A silo full of great connections from the big business world will not provide business forever. Here are some of the factors that can deplete that silo faster than you think. First, some of those friends who seemed to love you when you worked for that big company in reality may have only spent time with you as a way to get closer to that large company. Once you leave that big company, you become less valuable to them and they de-friend you. I saw this very thing happen to another friend of mine. A lot of his so-called friends were less likely to return his phone calls after he left the big firm. They only liked him for his connection to the big firm. Many did not follow him to his small firm.

Second, just as we saw before, it can be personally risky for an executive to recommend a small firm. Even if these contacts love you and want you to have the business, they may not feel they can take the personal risk. And even if they want to take the risk, they may not be able to convince their bosses to take the risk (even if they did not mind working with you when you were at the large company). And if you have not developed a strong brand to counteract this risk, you are even less likely to get this business.

Third, contacts don’t sit still. Many of them retire, switch industries, leave your area, or in other ways are no longer in a position to help you. If you have not developed any branding to transcend that personal friendship, you business with that company can evaporate when the contact leaves.

Fourth, many large businesses make their employees sign contracts preventing them from taking away clients when they leave. So even if the contacts want to move with you, you may be prevented from taking them by contract. And even if there is not a contract, the old company is going to fight back to keep those clients. They have a lot of resources at their disposal to keep a client from switching.

Finally, as we saw earlier, some relationships have natural endings. Your type of services may no longer be needed because: a) you finished the project; or b) the customer has evolved to the point where your type of services are no longer needed. Perhaps they became large enough to hire someone to do that work in-house. Perhaps they changed their strategic focus so that work is no longer necessary. In any case, the work can end, even if you were on very good terms with your contact.

Therefore, don’t put your hopes on a full silo. It may not be as full as you think and it may get depleted faster than you think. It is better to brand yourself, so that you are better able to replenish the silo.

2) I Just Have to get my Name out There (The push marketing fallacy)
In the old days, small business branding was little more than putting your name in the Yellow Pages of the phone book. The idea was that if I just get my name out there in the one place where people look for small businesses, I will be found.

Unfortunately, the internet has destroyed that old world. Customers get their information from a wide multitude of sources, including customer rating sites and company hate blogs. The power of the customer is making the old push marketing approach of “just getting your name out there” obsolete. It is now the world of pull marketing where you need to brand yourself so the customer will want to pull you into their world.

If you do not proactively create a positive brand for yourself in cyberspace, the people using the internet will create their own brand for you in the way they talk about you—and you might not like what they say. This is one reason why I was so disappointed with many of the web sites my friends had put up for their small businesses. They were not trying to control the conversation around how they were becoming branded.

SUMMARY
Just because you are a small company does not mean you can skip the tasks of strategic planning and branding for your company. In many ways, you need it more than the big guys, because your size makes you more vulnerable. And if you want to be a strategic planning consultant, it is even more important that you prove that you have done strategic planning for your own firm. If you cannot plan for yourself, why should I believe you can plan for me?

FINAL THOUGHTS
I was inspired to write this blog based on a suggestion from one of my readers. If you have some topics you would like me to cover, let me know.

A Divine Right to Perpetual Success

THE STORY
Back in the 1980’s, Donald Katz wrote a book about the history of the Sears retail company. The book was titled The Big Store. In this book, Mr. Katz went into great detail about all of the successes and failures Sears has had throughout the years.

Katz tells a story in the book about one of the low points, when Sears was losing customers and having financial difficulties. A group of Sears executives got together to try to diagnose the problem and find a solution. One of the executives exclaimed that he knew what the problem was. I lost my copy of this book a long time ago, so I cannot quote it exactly, but what that executive said went something like this:

“The problem is that people have forgotten that we are Sears. If we can just remind them that we are Sears, then they will come back and shop us again. Sears represents Americana. Sears is a part of our American heritage. If people could just remember how great Sears is, they would come back.”

Apparently, to this executive, the problem with Sears was the stupidity of the customers. These customers had forgotten that Sears is a successful brand who deserved their patronage simply because it was Sears. People had forgotten that Americans are supposed to shop Sears because that is what Americans do.

Contrast this to the response to a blog called Brand Autopsy by John Moore. On March 21, 2007 John posed the question: If Sears went out of business tomorrow, would anybody care? Some of the responses were as follows:

“Miss Sears? I can't remember the last time I was in one of their stores. Sears was a regular stop for my parents while I was growing up in the 60's.”

“Going to Sears is like a trip to the museum. You get to experience the past permanently.”

“I gave up on Sears years ago.”

“Did anyone miss Roebuck all that much?”

THE ANALOGY
The Sears executive in the story assumed that for some reason Sears deserved perpetual success. It was as if there had been a decree from heaven that people were supposed to always love Sears. If people stopped loving Sears, it was because they forgot that Sears had a divine right to always be successful. If people would only remember that Sears is a successful brand, then it would be successful again.

This executive made the fatal mistake of taking success for granted. He assumed that once a brand attains success, that success cannot be taken away—once successful, always successful.

Unfortunately, brands have to win their loyalty every day. Past victories do not ensure future victories. When developing strategies, do not take success for granted. Do not take your customers for granted. Future strategies need to incorporate tactics designed to continually make the brand relevant and desirable.

The second fatal mistake this executive made was to blame any failure on the customer, rather than the business or the executives. Remember, the customer is the one with the money. If they don’t like you, they will spend the money elsewhere. It is your responsibility to get them to spend it with you. If they spend it elsewhere, you have to take the blame. If you take the approach to failure as “My strategy was perfect, it was the customer who was flawed,” then you are doomed to repeat that failure.

THE PRINCIPLE
The principle here is that reputations are perishable. Just because you have a great reputation today does not mean that you will have a great reputation tomorrow. There are several ways that one can lose a great reputation:

1) You stop doing the things which gave you the great reputation in the first place, like great service or great prices.

2) The marketplace changes and customers start valuing something different. If you do not change with the times, your prior benefits can become less desirable or even obsolete.

3) A scandal or crisis causes people to lose faith in you.

4) You are providing the same level of benefits as before, which used to be the best available. But now someone has found a way to do the same thing better than you.

Because reputations are perishable, one can never take them for granted. Every strategy needs to deal with the question of how to ensure that customers continue to love you, in spite of all the changes in the environment. If you assume that customers will love you pretty much regardless of what you do, then your strategy can fall into the trap of “customer exploitation.”

Of course, you would never refer to a strategy as being rooted in customer exploitation, but many strategies end up being that way. Here’s how the process tends to go.

If you assume customers as a given, then your focus shifts to profits. The strategic question then becomes: How can you squeeze a little bit more profitability out of those customers? The answer tends to be through a combination of small modifications: raising prices, cutting service, cutting quality, etc. The subtle thinking in the back of the mind is that customers love us, so they will put up with a small about of these reductions to the overall value of the offering. In fact, we can even come up with a fancy name for it, called “brand premium.” In other words, our brand is so strong, that we can charge a premium. Or to say it another way, if the brand is strong enough, we can exploit our customers more.

Yes, there is some truth to the power of a brand. But that power can evaporate if we exploit the customer too much. Back in the 1960s and 1970s, Schlitz was one of the top selling beers in the United States. Even as late as 1976, it was the #2 brand in the country. But the Schlitz company started taking its success and its customers for granted. Instead of worrying about its customers, it looked for ways to squeeze more profits out of what they assumed to be a guaranteed perpetual flow of business forever.

To improve profitability, Schlitz found a less expensive way to make beer. Unfortunately, this process had the negative side effect of making the beer taste less desirable. Although people had loved the Schlitz brand in the past, they did not care for the inferior taste of the new beer made with the cheaper process. The love was lost. They abandoned the beer in droves. Today, Schlitz is a minor factor in the industry, made in small quantities by Pabst.

So what do I think was the principle factor behind the decline of the Sears brand? Back at the height of the Sears success (in the 1950s and 1960s), the US had Fair Trade laws. These laws made it illegal for a retailer to sell a product below the retail price suggested by the manufacturer of the product. If you were a retailer selling name brand products, you could never really get a price advantage over the competition. By law, you were constrained to price parity.

This is where the genius of Sears came in. Sears developed its own lines of products under its own brand names, like Kenmore and Craftsman. They positioned them to be every bit as good as the brand name products. However, because Sears owned the brands, it could charge whatever price it wanted. It was not restricted by the Fair Trade laws. Therefore, it priced its brands to always be below the fair trade price on the equivalent brand named goods.

In essence, Sears was the Wal-Mart of the 1950s and 1960s. It owned the reputation for “always low prices.” The laws of the United States almost guaranteed that Sears would be lowest priced alternative.

However, the Fair Trade laws started being abolished in the late 1960s/early 1970s. Suddenly, Sears was no longer guaranteed to have the lowest prices. Department Stores and Big-box specialty stores could now underprice the Sears private label with the often more desirable brand names. In fact, the repeal of the Fair Trade laws helped spur the rapid growth of discount department stores, like K Mart and Wal-Mart.

The reason people had loved Sears (lowest prices) vaporized. Sears was no longer the “Wal-Mart” of their time. Now Wal-Mart was the Wal-Mart of their time. Because Sears did not understand why people used to love them, they had no idea why people stopped loving them when the environment changed.

When Sears lost its original reason for success, it needed to do one of two things with its strategy. Either it needed reinvent itself so that it could hold onto its lowest price reputation (in other words, morph into a discount store like Wal-Mart), or find a new position as desirable as the old one (which they have never found).

It is not the customer’s fault that Sears is not doing well. The customer did not forget what made Sears great. Sears failed to understand the impact that Fair Trade laws had on their success, and so it misread the impact when those laws were lifted. The Sears strategy never found a new reason for customers to love them, because the company was apparently not aware that it even needed a new reason for people to love them. They thought “Americana” was enough. Sadly, it was not.

SUMMARY
There is no such thing as a perpetual divine right to success. Customers love you for a reason. Things can change, causing that reason to no longer apply. Therefore, strategic processes must always have at their core a reassessment to ensure that the company continues to have a desirable and winnable position in the hearts of their customers. Otherwise, you can take the customer for granted and increase your exploitation of them until they eventually leave.

FINAL THOUGHTS
During this same time period (the 1960s/70s), Kresge could see what was going on in the environment and morphed itself from being a variety store chain (S.S. Kresge) into being the leading discount store chain (K Mart). Sears could have done the same. It is their own fault that they did not.