Wednesday 29 October 2014

David and Goliath - A Quick Date or a Long-Term Relationship?


Much as these days many corporate Goliaths are actively looking for entrepreneurial partner Davids, it’s often the case that entrepreneurs have to make the first move in developing a strategic relationship.
The right kind of relationship with a Goliath and its customer base can be transformational for a David, providing the rapid growth at predictable margin that other early-stage companies can only hope to achieve by other means.

It’s worth the effort too because well-managed Goliath relationships provide the credibility and experience that assures organic business growth outside of the engagement. But like all relationships, they should be entered into with eyes wide open and that starts with understanding the nature and motivations of both parties.
The difference between customer and partner

Despite the deliberate conflation of the terms customer and partner in `marketing speak` there is a profound difference between `customer` and `partner` and this needs to be recognised. Essentially, it’s the difference between a quick date and a long-term commitment.

Certainly, the process of identifying and selecting potential customers or partners is pretty much the same: find out what it is that they need; identify how a product or service will meet it and target businesses accordingly.  It’s the context that makes the difference and that needs to be understood.
 
Common interests and goals

A successful tactical sale to a customer involves engaging an individual or team who are trying to address a particular challenge in their department or deliver on their responsibility in the business.

Creating a partner, however, requires the supplier to become part of the target company’s customer engagement and retention strategy. This means that opportunities to partner are usually much more difficult to find and require more resources to be successful, particularly given the significant differences that usually exist between corporate and entrepreneurial businesses.

To succeed, the two parties have to be aligned in many different ways.  Most particularly they must have common interests and goals or they will quickly diverge. The process requires Davids to deal with the existing and complex Goliath partnership structures, licensing and financial deals that are designed to execute successfully strategic decisions made at board level.

They involve many people of different disciplines because they go to the heart of the organisation’s purpose and, as such, have a greater impact of they fail.  As with most big deals, the level of risk increases with the level of opportunity.  And that means the bureaucracy around risk management also increases to a level that Davids may find tiresome and intimidating in equal measure.

The upside of this is that this process shines a light on what life will be like as Goliath’s partner and underlines the reality that Davids need to fully comprehend to ensure that there's both a cultural fit as well as a commercial one.  As ever, the devil is in the detail.

Proper preparation
Thus, when engaging with Goliath, proper preparation by Davids is vital.

A large organisation can absorb more failure that a small one, so, as a David, it’s more important to get things right up front. Davids should also remember that they may only be one of a number of strategic partnerships that a Goliath will be negotiating at any one time. So unless the partnership is going to save Goliath from oblivion it may be paying less attention to the deal than the David might be. 
Not being overwhelmed by the potential opportunity and knowing exactly how its product or service fits within the strategic plans of the target organisation is fundamental if any deal is going to succeed.

At a corporate level David and Goliath might share the same business goals and provide a perfect financial fit for each other. However, if the teams don’t get on, for whatever reason, or the David fails to get the right kind of buy-in around the deal champion then the relationship could be doomed and the benefits lost.
The human factor cannot be underestimated and the personal risk, imagined or otherwise, that the Goliath team may be taking needs to be appreciated.  Personal agendas vary. Doing a deal with a David might be viewed internally as an admission of failure to innovate from within.  At all times, Davids should seek to make Goliath look good and that requires a bit of ego control.

Play the long game
In all of this it’s important for Davids to realise when business growth planning, that working with Goliath partners is never going to be easy. Large corporates have established processes and structures that move slowly, are naturally very political and employ many people who are disconnected from other parts of the organisation, let alone the customer. And so Davids may have to get used to pitching their proposition over and over again.

For Davids, this can be frustrating as it clashes with their agility, quick decision processes and the need to maintain cash flow. But it’s vital that Davids have the confidence not to try and force the pace. In a strategic relationship the long game should be planned for and played from the start.

 

 

Wednesday 15 October 2014

You Can Fool Some of the People Some of the Time...


During my childhood Monopoly was omnipresent, I was fascinated by the board game.  Rainy Northern days, of which there were plenty, would see me indoors gleefully piling plastic property onto the blue strips of Mayfair and Park Lane.  Usually mortgaged up to the hilt, the idea was nevertheless to speedily deliver a fatal financial coup de grace to whoever was unlucky enough to be playing my self-styled proto property magnate.
The other monopolies of my youth were even less fun to experience. The commanding heights of UK economy were at the time nationalised. This ensured that choice in everything from to telecoms to travel was scant, poor quality and expensive. The subsequent process of privatisation and the introduction of competition gradually ensured a much more effective - if still far from perfect - market economy came into play. 

So, thankfully, these days a monopoly of supply is a comparatively rare or transient thing of which ambitious legislators and the forces of digitally-enabled capitalism eventually take care.
Differentiate or die

That means to be a successful entrepreneur and generate decent profits then you do need to develop something to make your product or service stand out.  You need to be able to articulate a compelling reason why customers might continue to hand over their moolah to use your products or services.  If you don’t you are selling a mere commodity.  And probably not for long

Clearly differentiate or die applies because in commodity businesses the only real point of difference is price.  And pricing usually goes only one way – downward.  So if you want your entrepreneurial business to stay around, let alone attract further investment or even IPO, you need to have something that no one else has, that the market perceives to be different. And be able to sustain it, or quickly move on to plan B, C or D. 
Beards, brogues, bicycles

It’s easy to forget that in the economic good times these basic rules may not apply entirely as the investment market starts to resemble the antics of drunken punters at a casino.  A quick scan of recent investments in London’s Tech City makes me wonder about some of the criteria by which investors parted with their money.  Is the mere presence of beards, brogues, bicycles and haircuts last seen in the Great Depression now somehow a sure sign of superior returns to come?
The IPO market too certainly looks gung-ho both here and in the US.  Although proceeds from European IPOs in the traditionally quieter third quarter shrunk to €6.6bn (£5.2bn), they were still more than double those of Q3 2013. In fact, 2014 IPO activity has almost quadrupled compared to last year. In the nine months to September 2014, £31.8bn has been raised.

That’s pretty frothy.  In such rising markets the herd moves together and the fundamentals may get forgotten in the search for rapid returns.  But, all is not lost.  Some in the US and UK that have previously signalled their intent to raise funds publically seem to have rapidly got over the sudden rush of blood to the head.

Making a necessity out of Virtu

In the US earlier this year, high frequency trading firm Virtu Financial suddenly `delayed indefinitely` its IPO. Blaming regulatory approval for disrupting its intended float turned into a wholesale retreat in the face of journalistic expose of some of the less savoury but fundamental aspects of its business that would have seen potential investors run a mile.

In the UK conventional `bricks and clicks` fashion clothing retailers Fat Face and BlueInc pulled their UK IPOs blaming `market difficulties`  and have recently been joined by challenger bank Aldermore which, despite its modern digital platform, AnaCap, is still a bank established at a time when the mere word has become toxic to many firms requiring finance.

Back in the US Square and Box, on the other hand, have not used the word `indefinitely` but are dragging their heels having been re-scheduling their IPOs for most of this year. 
 
The ‘market volatility` or `weak demand for technology stocks`  excuses have, of course,  been rolled out by these two to a response of equally rolling eyeballs in the market.  But it strikes me as pretty obvious that the real reason is that the IPO process has highlighted to these comparatively early stage companies is that they have very little to differentiate them from better positioned competitors and they are frantically playing for time whilst they and their investors figure out what might save their blushes, if not their bacon. In contrast, most of the other firms had already worked out they had nothing and quit.

To reiterate, without a monopoly restricting choice customers need to be persuaded that there's something special for which it’s worth paying more. In the absence of obvious and fundamental difference expensive branding, marketing, sales and distribution have to deliver that in the mind of the customer.  Just look at the money mobile network operators spend on trying to convince you that you care about their brand, rather than the best value airtime package, so they can continue to trade on wafer thin margins.  

Queue-loving slavering sycophants

In direct contrast to the networks Apple’s marketing chops, that have reduced so many of its customers to queue-loving slavering sycophants, means it can make 40-odd percent margin on every phone it ships.  And a distinctive design aesthetic, rapid obsolescence and model cycle keeps the tills ringing.  Apple has other ways to ensure its super profits, of course.  Witness its voraciousness in its use of patenting innovation and patent infringement litigation to limit competition.  That’s how you become, and remain, the world’s most valuable public company.
The Holy Grail though, in digital age marketing is to profit from the network effect.  After all people join Facebook, LinkedIn, Twitter, Instagram et al because people join Facebook, LinkedIn, Twitter, Instagram et al and they sell that idea to themselves and each other. The same is true of Apple and apparently of Harley Davidson motorcycles. Although despite being one of a prime demographic for the message that hanging out with other owners of laughably crude yet eye-wateringly expensive motorcycles thrown together from obsolescent parts is an essential middle-aged male lifestyle choice it’s something I’ve never, ever understood.  

Anyway, I digress.  Back to will-they-won’t-they Square and Box. What is it that they're doing, can do or will do, that prevents them from being viewed as just yet another small supplier of a standard commodity?

If I squint enough at financial services, merchant services aggregator and mobile payments company Square, I could convince myself that if they spend the vast sums necessary to get their readers everywhere, then the possible numbers could start making the small transaction charges mount up to something significant.
Massive ecosystems, resources and customer reach

And, of course, to get to that situation you have to overcome very high barriers to entry. But if your business is essentially a point of sale app aimed at replacing traditional credit card terminals and cash registers you are up against the big merchant services and consumer specialists – Visa, MasterCard, Amex.  These have massive ecosystems, resources and customer reach and could start to squeeze you very quickly if they wanted before any significant disruption could be possible.

But with Box any advantage is a lot more difficult to see. It provides cloud services, specifically online storage. The problem is that it is already in a mature commodity game. A different set of big consumer specialists with similarly massive ecosystems, resources and customer reach – Amazon, Google, Microsoft - now dominate it and, naturally, prices are being driven down by the day.
In neither case also would that other route to big profits – that of being the lowest cost producer - apply. That’s a game that's already been fought out by the established behemoths of the industry.  And as for the network effect, that just ain’t gonna happen.

So, the fundamental entrepreneurial challenge remains what is it that your company, or even your idea, can do that's different, cheaper, more convenient or simply better than anyone else?  And that’s a question too for any potential IPO audience, the VCs that have sunk their money into such companies and the management that sold the dream in the first place.
As the old saying starts, `You can fool some of the people some of the time...

 

Saturday 4 October 2014

Are You Sitting Comfortably? Now You’re Talking.

Ever been in a situation where you have met someone for the first time in a business meeting and you just can’t warm to them? But they’ve said, or done, nothing unpleasant yet you are left feeling uncomfortable and fighting with yourself to play nice?

I suspect we all have. And the reason is we were tuning into the wrong things.  It’s not what the person said, or even how they looked, it was how they acted on our unconscious.  Up to 90 percent of our communication with others is non-verbal, which means that most of the time it’s our body language that’s doing all the talking. As human beings we’re programmed to pick up those messages loud and clear.
Entrepreneurs are driven to get things done and to get things done fast.  That means it’s important to get off to a good start and get the best out of every encounter. Why? Because your own experience will tell you that within the first few minutes of meeting someone, you are already making decisions about that person.  You are quickly deciding whether you think they are credible, trustworthy and what are their true intentions. In short are they someone you may or may not want to do business with?  And, of course, they are thinking the same things about you.
The negative and the contradictory
This can give you a gut feel about an individual which it’s very difficult to rise above at a later date.  People give themselves away with their body language but also unchecked it can even send out not just unintended negative but very contradictory signals too.  But the reality is people are much more likely to engage you in future conversations if you professionally observe and act on their body language cues and manage your own actions accordingly.

Assuming you want to use your body language to communicate the credibility and good intentions that make for great relationships here’s some things to remember.  For reasons too many to list here, no one likes a slacker, so begin by considering your posture.  You should sit upright but not appear stiff, shoulders relaxed so you don't look uptight or have just escaped from an Army square-bashing session. Align your body with the person you're talking, showing you're engaged and `not talking out of the side of your face` or anywhere else for that matter.
Don’t cross your legs or lock your knees together. Keep your legs slightly apart to indicate that you're relaxed and ready to receive information. Lean in a bit too, it shows focus and that you really are listening to what is being said.  Also by entering your interlocutor’s space it invests you with power in the conversation.

As well as being aligned try to reflect the body language you are observing, showing you are in agreement and that you like - or at least are trying to get on with - the person you are with.  If you genuinely like someone, you’ll notice that you do this unthinkingly anyway.  But, of course, you’re always going to be aware in future, aren’t you?
Fore armed is forewarned
What to do with your arms can be a bit of a problem and different cultures employ huge variations in arm signals but at least initially keep your arms relaxed at your sides.  This creates no barrier between you and your opposite number and shows, again, that you open to what someone else is trying to get across.  And, as with your legs, keeping your arms uncrossed helps you absorb more of what's going on.

Once the conversation has warmed up use your hands to gesture when you speak - this improves your credibility, your impact and is believed to improve your thinking - if only because it’s a signal that you are relaxed and confident in the situation.

In Europe many meeting protocols are in flux.  For instance hugging and multiple kisses are now firmly on the menu in follow up business meetings.  But, at least for the first encounter, a little more formality will serve you well.  So it’s a good idea to remember to greet others with a straight forward, traditional firm handshake - but not a bone crusher or one that is held for so long that it gets physically and emotionally uncomfortable.
Limp and flabby
Those of you that can remember the mass of negative messages transmitted by your experience of various outstandingly limp mostly dextrous but occasionally sinister encounters will concur a firm handshake is probably one of the most important bits of body language, not least because it sets the tone for the entire conversation. You can bet it’s pretty much certain that a limp handshake will be followed by an equally flabby conversation.

No matter how senior or serious, everyone likes to be encouraged.  Appropriate head movements and genuine smiles will show you understand, agree, and are listening to the opinions of the speaker.  But don’t overdo it or you’ll look like a nodding donkey.  Done well this’ll make them feel more at ease with what they are saying and you are likely to get more out of the meeting.  Laughter too will lighten the mood and picking up on humorous points can show you're paying attention.
Look the person in the eye when they are communicating, but don’t stare otherwise you’ll come across as aggressive. Keep eye contact going when you speak, but feel free to look away when you are thinking - it forms a natural break.  Beware of looking too wide-eyed in your enthusiasm too and be conscious of blinking too much. Rapid blinking could signal that you are feeling uncomfortable or in the case of a one-time colleague of mine, telling big fat lies.
Squeaking rarely adds gravitas
Work with the other person's facial expressions. Smile when they smile, frown when they frown and so on because once again, this demonstrates that you are in agreement and like - or are making an effort to like - the other person.
Monitor your voice, its tone is key giveaway to your stress levels.  Breathe easily and regularly, keep the pitch low and the delivery slow and clear. Make sure you have a drink handy if the atmosphere is dry, or you have spent your day talking, as squeaking rarely adds gravitas.  

Don't end every sentence as if it's a question unless, of course, you are an Australian where it’s well-nigh compulsory and is likely to be graciously ignored by those who speak other forms of English.
Final notes 
During your meeting, take notes, particularly when you have asked questions. It’s not rude, it’s almost rude not to.  It demonstrates that you are engaged and care about what the other person is saying. But remember to make eye contact regularly so the speaker knows you haven’t drifted off into your own thoughts.  Watch their body language for shuffling in the seat and other signs of distraction. It may be time to wrap up the meeting with a wish to meet again and that good, firm eye contact assuring handshake.

Watch your body language too until you are well out of sight of the building it can been read at a distance long after the sound of your voice has faded.