28 September, 2016

Donovan's 70-word guide to building and operating a great business

A great business requires:
  • a purpose: what you offer the world, to whom (customers, shareholders, staff, communities, business partners), and why they'd want it;
  • a clear, coherent, consistent and elegant design of how you will make and fulfil that offer - core principles, processes, people, products, promotion, etc.;
  • doing what should be done to build that business (and not doing what shouldn't);
  • thinking, planning and acting for greatness.
First published 27 May 2013

12 September, 2016

Sell to those who see your value

I bemoan buyers who confuse cheapness with value. As a director, I want to see project proposals based on best value outcomes, which is not the same as lowest input costs. But, as I also pointed out, it’s my role as a seller to demonstrate value that’s relevant to the buyer. As Greg remarked in a comment on my earlier post:
“… the problem is more often the sellers inability to convey the value they offer to the buyer. They don’t really understand the customer’s problem and why their product is a unique solution to it. People don’t want to buy an inferior solution, they just don’t want to pay extra for a solution that doesn’t look much different from the cheaper version”.
Let’s put that another way:
  • Do you understand the customer’s need? (That needn’t necessarily be what the customer originally said it was).
  • Does the customer agree with your perception of that need?
  • Does your proposition offer superior value for the customer’s need?
  • Can you clearly explain your superior value proposition?
  • Does your customer accept that proposition?
If the answer to that last question is no, it can mean one or more things:
  • You need to improve your prospecting, qualification and selling process.
  • The customer needs to improve their need definition/buying process.
  • Your market offer needs to be improved in some way so that it does represent superior value.
  • Your basis of superiority is irrelevant to this customer.
  • You’re in the wrong business.
Only one of these is a fault on the customer’s part. The rest are down to you. And remember, unless you are aiming to be a monopoly, you shouldn’t expect to win every opportunity. But you can choose customers in the same way that customers chose suppliers. Focus on customers for whom your market offer superiority is relevant, and avoid customers for whom it isn’t. It will save both sides a lot of wasted time, effort and angst.

First published 3 August 2009

08 September, 2016

Buying cheap versus buying results

Why do corporate (and especially government) buyers keep confusing cheapness with value? Time and again I’ve seen the best vendors lose on price because the buyer could “get it much cheaper elsewhere”. The classic example is professional services charged by the hour. Any good manager of people knows that you pay your better staff more because they are more than worth it to you. For example, a good IT designer/developer will work out many times cheaper in the long run. They understand the business need quicker, design quicker, design better, write code quicker, write better code with faster performance and fewer bugs, and their software is cheaper to maintain. That can equate to a 10-30 fold lifetime cost difference - the saving more than outweighing any hourly rate difference. And that’s before you factor in the risk of non-delivery - much lower with better suppliers.

But many corporate buyers persist in penny-wise, pound-foolish buying practices. I have interests in several firms who sell products and services to other businesses, and my attitude is clear. I put a lot of emphasis on getting the price/value/cost proposition right, but if I can’t persuade you of the value for our prices, I’ll walk away before discounting. I’m not in business to subsidise anyone else’s business.

As a board member, I often see proposals for approval brought forward by managers proudly telling me that they’ve got the lowest input costs. All too often, I send them away to redo the basis of purchase and decision. Get me the best price and the best people to deliver the best outcome, not just the lowest cost of the inputs. If it has to be input-based, hire the best you can (while avoiding bloated suppliers and being sensible on price). It may cost more theoretically on paper, but I’ve rarely seen it cost more in actuality. On the contrary, the lowest input cost approach usually blows out on time, cost, reliability and efficacy.

Managers and buying teams - take note: top executives and boards much prefer effectiveness over cheapness.  But that's not a reason to buy only from big-name suppliers.  A small agile supplier can often be an innovative, effective and low-cost option.

First posted 29 July 2009