Being Smarter

Happy New Year to all of our Being Smarter readers.

I wanted to start the year by resurrecting a post from December last year – which seems very appropriate for the start of the working year for most people…

At a recent conference, a now colleague of mine, Ed Dale did four separate sessions on a topic which I am calling “How to do business in 2010“… he had a different title, but my take on it was simple – it was a message to all corporate management… to all the folks who’ve sadly been made redundant recently from that world… and to all smaller businesses who are paralysed by indecision. The message was something along the lines of

“Wake up and smell the coffee… the world has totally changed (not just by the Internet.) If you carry on doing business as it was done ten years ago, or do you know what, perhaps even a year ago… then you are dead in the water.”

There were 86 separate provacative statements, here’s my top 10:

1.) Whatever you do, make sure you’re in a business or market place that you are completely unpassionate about. Make sure that it leaves you feeling cold, empty and completely drained at the end of the day. The great news is that if you’ve found a marketplace you particularly have no interest in, it will help you to be average at best when it comes to selling to and supporting your customers – and they will love you for it.

2.)If you are in a small business, ensure you try to run it like a corporate entitiy. Make sure you absolutely do not in any way try to differentiate yourself from these bigger companies. Treat your customers like numbers and be completely devoid of any business personality.

3.) When developing products or services, it’s imperative that you don’t start to build anything without examining every ounce of detail at the early stage. Take as long as you like to write specs and make sure you start with the small picture and buld it up. You’ll never get anything launched if you don’t spend many weeks and months getting the finer detail argued about, before talking to customers about the concept – they won’t thank you.

4.) When your service is launched – for goodness sake try to sell it to everyone that moves… ignore segmentation and playing in niche markets – it’s a complete waste of time. If the product is good enough, everyone will want it.

5.) If you’re in the online game, think very carefully about building giant server or data centre infrastructures the minute your product is out the door. There’s literally no one else out there that does this kind of thing… and they certainly wouldn’t be able to scale it up to your demands.Your data is important to you, and so you should keep it under your control at all times.

6.) When designing your next product, ensure you get every feature that your customers will need into the very first release. Don’t design it so that it could be released in stages, or people just won’t buy it. They need everything on day one.

7.) Decision making – this is key. Involve everyone at all times. Ensure you plan as many meetings as possible – all day ones if necessary to reach a consensus. If you aren’t able to make a decision with the whole team after a huge amount of analysis and delay, then play safe and don’t make one.

8.) When it comes to recruitment, make sure you hire experts in their field, irrespective of whether they are difficult to work with. It’s much better to have a team of experts who don’t communicate than a team of generalists who gel as a team and work for the common good. Oh – and don’t work with them as affiliates or freelancers first to test them out – that just isn’t the done thing.

9.) Customers don’t mind being slightly misled about what they are about to receive as a service… as long as you hook them in, they’ll generally soon get over it. It also helps to provide a very detailed contract, which is difficult to break out of, for your protection.

10.) And finally, the Internet is just a fad. Stick with the old rules of marketing – direct mail and cold calling has worked for years. Your customer base has no idea what a twoot or a blag is, and they’re still on 56k modems, so video will never work on their pcs – you will just need to invest in a support department.

If you like my take on Ed’s wisdom, check out this post 5 Days with Ed Dale.

We are pleased to announce today on Being Smarter another guest blogger, Ian Mash of Yeoman Consulting here in the UK. Ian helps us to continue the theme of ‘practical ways to help your business life” by sharing some of his experiences of working at the coalface as a senior manager in one of the UK’s largest companies – BT.

He starts today with a top tip on trend spotting.

Assimilating data quickly is a true management skill. Some managers can look at a page of figures (in for example a business case) and start asking deeply searching questions immediately. They can see anomalies and trends just from looking at the figures. However, not many of us can do this naturally and we have to rely on tools and techniques to guide us through.

Prior to working my education was science based but I didn’t have any business training per se until I did my MBA and that gave me a few tools to use.

But, the most useful everyday financial tool to me, is just a simple hand drawn graph to spot the trends.

You can do a very quick graph on excel if your drafting skills are poor.

It’s amazing how just say 4 data points drawn can show the anomalies in the trend that don’t immediately jump out of a financial analysis on the page and give you the leverage to start asking searching questions. Why does profit drop in year 3? Why is there a disproportionate capital spend in year 4? Etc.

It won’t give you the answers, but will start sensible digging with you and your team.

Ian Mash will be back with more pearls of wisdom in the next couple of weeks and can be contacted on +44 7860 621976 and via email at ian dot mash1 at btinternet.com

Related articles

• Why Do We Ignore “Best Practices”? (blogs.harvardbusiness.org)
• Exploiting Chaos – 150 ways to spark innovation (beadinggem.com)
• Is Microblogging A Trend? (butterflymedia.ro)

We are delighted to announce today our very first guest blog post from Jake Willott, a smart business owner who wanted to contribute to the Being Smarter community… Take it away Jake.

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Mark-up and Gross Margin are two different beasts

A clear understanding and application of the two within your pricing model will have a drastic impact on the bottom line.

Mark-up is the percentage difference between the actual cost and the selling price

£90 x 25% = £112.25

Gross margin (or gross margin) is the percentage difference between the selling price and the profit. Profit/Sales Price.

£22.50/£112.50 = 20%

These two definitions are extremely important because gross margin directly tells us how many of our £’s from sales are profit.

It is easy to make the mistake in thinking that if a product is marked up by 25%, the result will be a 25% gross margin on the income statement. However, a 25% mark-up rate produces a gross margin percentage of only 20%. By targeting the gross margin percentage vs the mark-up percentage, businesses in general can add an additional 5% profit to the bottom line.

A worked example:

If you increased the selling price of a product by 5% the figures then look like:

Buy at £90 sell at £120. £30 profit (or 25% gross margin)

Increase sale price by 5%. £120 x 1.05 = £126

The cost to us remains the same so the gross profit is now £36 and gross margin is 28.5%.

So the gross margin has gone up by 3.5%, which as a percentage of the starting 25% is an increase of 14%

So for a 5% increase on the selling price we’ve gained a 14% increase in gross margin.

Even better, let’s look at the cash profit. You were making £30 on the sale, now you’re making £36 – an extra £6. As a proportion of our initial £30, that’s a 20% increase.

A 20% increase in cash for a 5% increase in sale price.

The reason this happens (if you’re still here) is that any improvement in gross margin % is multiplied by the turnover.

In summary:

Figure out who your most profitable customers are, and we can only know that if we measure using the correct metrics.

And a small change in selling price has a large effect on increasing profit.

Jake Willott is the MD of Computer Medicine
The computer people who come to you
www.computermedicine.co.uk