Maxims: Lose the Devils and keep the Angels.

Maxims: Lose the Devils and keep the Angels.

Anybody who’s read my maxims for any length of time knows that I am a fundamentalist on pricing and abusive customer relationships. Maxims that recommend leaving the unprofitable customers for the competitors are among them. I have an ally who has actually created a business theory around these concepts: Larry Selden of Columbia University’s Graduate School of Business. What professor Selden found was there is a direct correlation between a company’s stock price and its ability to develop a profitable customer portfolio (like … duh … isn’t this basic business theory that stock valuations are related to profits?). More importantly, he has developed a theory that a company should break its customer base up into quintiles based on their profitability. The top 20%, the angels, are to be developed; the middle 60% held; and the bottom 20%, the devils, dropped. He has another view that is interesting as well: a company should not view itself as a portfolio of products, but as a portfolio of customers. Now you’re probably thinking this is not new and it isn’t. Applied has successfully executed on this strategy for decades. What is new is that it is codified at the university level and it is a nicely packaged set of ideas.


You can charge for anything.

Always charge for anything that adds value. Even, if you find yourself with a customer who finds value in excessive negotiation, CHARGE THEM. They may want to exercise their legal department, but why should you run up legal fees at the expense of other customers who are less of a headache to keep happy. It will also force them to reevaluate the cost-benefit ratio of excessive negotiation. Few legal departments see their contracts as a feature-benefit. But it is! Whenever the customer wants something custom it is normally charged for. So why not charge extra for a custom contract? They pay for it anyway, because companies with excessive contracts/negotiation invariably pay more for their tools. If they really want your product because you have differentiated it they will buy anyway or go somewhere else to find an easier victim to play with. If you haven’t differentiated your product get down to the basics: price and delivery – and get on with it efficiently.

Slainte

Gordon

A trap we sometimes fall into as Entreprenurs

A trap we sometimes fall into as Entrepreneurs:

I was thinking this morning about all the things I "Know" about running a business and actually what I am using at present to build this company. As you build a company you go through different phases, you are active in different tasks, different skill sets are brought into use, and the edge comes off some of the other skills you have. I have found myself buried in the tactics off getting this project off the ground, financial modelling, forecasting revenue, design of factory layouts, etc ,etc, supply chain management, but you don't work on the high level planning and strategy as much as you should be, you miss the sutler nuances in communication, it is only afterwards that you pick out gems from the conversation, and you remember a skill that you hand once honed to world class, but has dulled slightly, as it has been stuffed in the back of the cabinet due to other skills being the focus. This is something that we need to stop happening, if we want to be on the top off our game once we get through the funding stage, you will need to quickly switch from financier to a world class business operator.

I need to get all these skills and knowledge brought into the conscious mind to help in the "Now" so they are ready for the "future". I remember once saying to a tutor why do I need to learn all this stuff about organic chemistry, I won't use it when I start to work, he replied that you will need it one of these days, I did very early on in my career in the semicon business, a lot, not so much the detail, but the process of how things reacted and there outcomes. The same applies to what we have already learned and experienced to date and and what we will learn in the future. I have started to list the gems of knowledge that I have gleaned over the last 23 or so years, in functions, S&M, Operations, Finance and HR, also communication, presentation, and the other soft skills. This has started to trigger my memory and has already shown me areas of how I can work better and smarter, utilizing what I have gleaned in the past.

Companies do this from time to time, it is called the fresh blood injection, as an organization becomes stale and they are grasping at how to move forward, there was this snap of genius, lets bring in some fresh blood to get us performing better, they miss the route cause of why there staff or themselves has gone stale and are in danger of getting on this treadmill of fresh blood every three years. I believe it is better to get the team to be fresh and engaged and develop a culture that will make this happen.

Slainte

Gordon