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It’s has been a fair while since my last post, as I’ve been grappling with some interesting strategy issues for a client project.

However, I’ve been having a few conversations with friends and colleagues about the likely impact of the recent economic crisis on the ‘Web 2.0′ scene. These conversations reminded me of a paper that strategy guru Michael Porter wrote around the time of the first dot.com bubble, which was fairly prescient then, and remains so for the current environment:

It is hard to come to any firm understanding of the impact of the Internet on business by looking at the results to date. But two broad conclusions can be drawn. First, many businesses active on the Internet are artificial businesses competing by artificial means and propped up by capital that until recently had been readily available. Second, in periods of transition such as the one we have been going through, it often appears as if there are new rules of competition. But as market forces play out, as they are now, the old rules regain their currency. The creation of true economic value once again becomes the final arbiter of business success.

(From Strategy and The Internet, Harvard Business Review, March 2001)

We will undoubtedly see considerable carnage among so-called Web 2.0 start-ups (and even some more established entities) as private equity dries out. While that will be painful for those concerned, it will - over the medium term - be good for the industry, as it will weed out businesses with poorly conceived revenue models and customer propositions, and unsustainable business models.

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I’ve been invited to sit on a judging panel at a pitch session being held on Friday by the Mobile Enterprise Growth Alliance (MEGA).

Over the past 4 months, 10 teams of entrepreneurs have been mentored through the process of fine tuning their business concepts, and the pitch session is designed as a dress rehearsal before these entrepreneurs unleash their ideas on potential investors.

As I prepare for the judging process, I thought I would share some of my thoughts and experiences of the ’startup scene’:

• The average startup is launched by a ’specialist’ - someone with deep skills in a specific area (be it coding, marketing, product development etc.) but shallow/no skills in other ‘must have’ areas (business planning, marketing strategy, customer orientation, financial discipline etc.).
• Startup founders tend to play to their strengths - founders with a coding background get stuck into the code, and give little attention to defining the market, developing a robust business model etc. People with a business background do the exact opposite - they write reams of pages about the market, business opportunity, revenue potential etc., but do very little prototyping and market validation.
• Startup founders are, by definition, optimists - they underestimate how long it will take or how much it will cost to secure their first customer, break even etc.
• Startups have little cash, but, equally, can ill-afford not to seek assistance. The corollary is that getting advice can actually reduce time to market, which conserves cash and is thus capital positive.
• Australia is a very ordinary market for early stage startups - the sooner you can progress your start-up through ‘Death Valley’ and gain the size/momentum needed to interest VCs, the more likely you are to survive (even if you opt not to accept VC money).
• There is never a shortage of money. Money will always find good investments. The problem is that most investment opportunities are rarely well refined and usually poorly presented.
• Most startups, being run by ’specialists’, have very poorly developed investment propositions. The business plan + pitch documents tend to steer to the founder’s strengths. Tech types talk all about the technology, and don’t drill into the market + the business case for the investor. Business types talk all about the business, but don’t drill down into how the product will be developed and brought market.
• A key contributor to some of these problems is the type of people start-up founders typically turn to for guidance - accountants and lawyers. In the main, accountants think start-up planning is all about mapping and monitoring cashflow, and lawyers think it is all about legal protection of ideas, IP and contractual rights. While undoubtedly important aspects of new businesses, there are larger issues that need to be addressed in most startups as they take their first steps to market.

Of course, simply articulating these problems doesn’t solve them. I’m currently working on a side project with several colleagues aimed at just that: helping entrepreneurs (and would-be entrepreneurs) to help themselves in overcoming these and other challenges that crop up in the first years of life in a start-up.

Hopefully I’ll be in a position to announce something more formally soon.

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One of the traps that some business owners fall into is thinking that if they announce their underlying vision for their business repeatedly, it will somehow come to be, without any further action on their part.

It is often difficult to ensure that your company is able to ‘walk the talk’ – to be precisely the company you claim it is, or want it to be. A good example of this is in the approach most businesses take to innovation.

In the 2006 IBM Global CEO Study, over two thirds of 765 CEOs interviewed stated that they needed to make fundamental changes to the way they do business in the next two years. This is not surprising. Thanks to a range of factors, including low cost competitors based in emerging markets and the ease with which competitors can replicate product and service features, companies are increasingly aware of the need to innovate just to maintain market parity.

Clearly, the CEOs interviewed placed a great deal of emphasis on the need to embrace innovation within their organisation. In fact, 40% indicated their primary focus was product and service innovation, 30% saw a need for innovation in the way they ran operations and just under 30% believed they needed to innovate at the business model level.

No doubt, many of these CEOs have, or will equip their organisation to follow through on this agenda for change. I suspect, however, most will not. Why? Because they have lost sight of a business truism: you are your headcount.

While almost all CEOs will tell you that innovation is their No.1 or No.2 business priority, very few will actually put real headcount behind the process. If you run a company with 1000 employees, and there is only a team of, say, 5 people working on innovation projects, how can you really claim to have a focus on innovation?

This pattern repeats itself across a number of business drivers.

The current public statements by bank CEOs, for example, are almost uniform in proclaiming a new, customer-centric focus. Understanding consumer needs, delivering what the consumer wants at the right time and with superior customer service is the dominant strategy within the banking sector. Yet, if you were to analyse the headcount of each major bank, and compare the number of staff in customer-service roles, the numbers would probably tell you a different story.

Regardless of the objectives you have outlined for your business in its vision and mission statements, or the culture it aspires to in its values and corporate culture statements, your company is what your people do.

If your objective is to deliver superior customer service, how many employees have you dedicated to attaining this? If you company claims to embrace industry ‘best practice’, how many employees are devoted to ensuring this is so?

If a key aspect of your business strategy is having superior customer insight, product design, after-sales service, or distribution, how many people in your organisation have you devoted to execute your strategy in these areas?

Of course, adequate headcount is a necessary condition, but not of itself sufficient to achieve these goals.

Additional issues come into play. These include resourcing (what percentage of your revenues are allocated against your innovation objectives?), authority (do the staff responsible for implementing industry best practice have the necessary authority to drive this change agenda?), and the decision-making process (do the people required to sign-off on key decisions surrounding customer service share your understanding of its importance to business success?).

You may remember the popular ‘food pyramid’ chart in use in many schools throughout much of last century, which told us “we are what we eat.” If you ate fish, vegetables, fruit etc., you were a lean, efficient, hyper-healthy individual. If you ate hamburgers, cola, and chocolate, you were an overweight, unhealthy individual.

Of course, that chart only told half the story. Even if we all ate the same healthy foodstuffs, our bodies would not respond equally. That is because we each have different body types and metabolisms.

To extend this analogy, your company needs to have the right headcount to become the type of business you wish it to be. However, headcount alone will not achieve this. Your company’s type – its culture – and its metabolism – how individuals share power and resources, and make decisions – will have a large impact on the outcome.

Just as a good metabolism can overcome a bad diet for only a limited time, equally, even eating the healthiest of foods can offer little help if your body type and metabolism conspires against you.

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I recently released a free eBook - Creating Compelling Customer Value Propositions (click here to access the PDF) - designed to help you improve the way in which you communicate the value of your products and services to customers.

As I write in the introduction:

Among the many challenges you face as a business owner in today’s crowded market, perhaps the most difficult is effectively communicating our “story”: What value does your business and its products and services deliver? Who is it delivered to, and how?

The key to winning business, selling more, and earning higher margins is developing clear, easily articulated customer-focused value propositions,
and communicating them convincingly to your customers.

In the eBook, I explain how to critically assess your current customer communication tools - brochures, sales proposals etc. - to ensure you are positioning your business, products and services optimally in the eyes of your customers, and provide a series of checklists and prompts to help you overcome any problems with your value proposition statement.

As always, I strongly encourage you to contact me with any feedback or questions.

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Several academics recently published an interesting paper with a wicked title: Chameleons bake bigger pies and take bigger pieces: Strategic behavioral mimicry facilitates negotiation outcomes (available as a PDF).

The paper concerns two experiments they undertook to investigate the effectiveness of mimicry. It has long been believed that, in business and social contexts, when you mimic the postures and gestures of the person with whom you are speaking, it improves the process of building rapport and trust, which leads to more effective interpersonal interactions, with positive overall effects on negotiations.

From the abstract:

Two experiments investigated the hypothesis that strategic behavioral mimicry can facilitate negotiation outcomes. Study 1 used an employment negotiation with multiple issues, and demonstrated that strategic behavioral mimicry facilitated outcomes at both the individual and dyadic levels: Negotiators who mimicked the mannerisms of their opponents both secured better individual outcomes, and their dyads as a whole also performed better when mimicking occurred compared to when it did not. Thus, mimickers created more value and then claimed most of that additional value for themselves, though not at the expense of their opponents. In Study 2, mimicry facilitated negotiators’ ability to uncover underlying compatible interests and increased the likelihood of obtaining a deal in a negotiation where a prima facie solution was not possible. Results from Study 2 also demonstrated that interpersonal trust mediated the relationship between mimicry and deal-making. Implications for our understanding of negotiation dynamics and interpersonal coordination are discussed.

In my experience, mimicry does indeed work - but only when it is not obvious!

As the authors noted:

It is important to point out that across both studies, none of the participants who were mimicked noticed that their opponents were copying their behaviors, suggesting that the effects of being mimicked occurred automatically and unconsciously.

The flip side is that if the participants who were mimicked realised what was occurring, it may have had a negative impact; that is, it may have made them mistrust the person/process, for fear of being manipulated.

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Mastering time management and priority setting processes are fundamental to achieving personal and business productivity. These skills are even more crucial in startup environments, where management is regularly confronted with conflicting demand for their time and attention.

At the commencement of any large undertaking, it is rare that there will be a logical or apparent path forward. This is especially so in the case of a typical startup environment where there are competing priorities, including product development, staffing issues, customer briefings, cash-flow management, fundraising and meeting with advisors.

Deciding how to allocate management resources can be tricky, but there are some guiding principles that may assist you in setting priorities.

An important starting point is to recognise that not all priorities are equal. In business, according to the Juran Principle (so named for its coiner, Dr J. M. Juran), it is important to distinguish between the "vital few" and the "useful many"; that is, business has yet another 80/20 rule: 20 percent of efforts are responsible for 80 percent of the results.

The key, then, is to make sure you identify and focus your efforts first on doing those 20 percent of activities that will produce the most results. This is an important concept to grasp, as different individuals will have different definitions as to what constitutes a priority.

For some it is the issue that is causing them the most stress or anxiety. For others, it is the task they are most behind on or that they are most embarrassed about not finishing. Not all of these factors are relevant to determining the true priority of a task in a business context (the squeaky wheel shouldn’t always be the first oiled!).

There are any number of different approaches to time management and task prioritisation, but all of them seem to adhere to a universal process:

1. Collect - Create a list of each task or activity you need to monitor, initiate or act upon; from short-term issues, like returning emails, to long term issues, like planning the next round of product development.

2. Process - Deal with those tasks or issues that can be handled immediately and quickly (e.g. within five minutes). For the remainder, either delegate to an appropriate person or defer it for later action.

3. Organise - Compile a list of deferred tasks that can be used to keep track of items awaiting attention or action.

4. Review - Determine the priority of each item. It is useful to perform what is called an ‘ABC analysis’: categorise each task into groups marked A, B and C, with A being for those items with the highest priority and C for those with the lowest.

A variation of this analysis is to use the categories to divide tasks that must be completed within a day, week or month.

Consider the time, resources and effort each activity will require, and rework the priorities (if necessary) to optimise the requirements of each task with the resources (time, financial, attention, etc.) available at that point in time.

5. Act - Having created your prioritised task list, put it into action.

There are, of course, some caveats with respect to any process for time management or priority setting.

The first invokes the laws of diminishing returns. Some people prone to procrastination invest too much time in managing and restructuring their lists (according to some estimates, up to 30 percent of list-makers spend more time managing their task list than they spend on tasks!). Others clutter their lists with mundane or routine activities that should be excluded, or merely incorporated into every day activities.

It is equally important that you do not allow your schedule to become overly rigid. Startup environments are inherently dynamic - important or unexpected events may arise at any time, and you will need to be flexible in your approach so as to allow adaptation and rescheduling.

Finally, it is important that your prioritisation approach adequately cater for both long-term and short-term goals. It is easy to fall into the trap of managing for day-to-day requirements, and not devote enough time to long-term goals. Depending on the timescale you adopt in your prioritisation process, it may be useful to conduct regular (weekly, monthly, bi-annually etc.) reviews of the system to ensure that time is being used efficiently and that the business is still headed in the right direction.

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At some point in the small business growth cycle, many business owners toy with the idea of developing export markets for their products and services.

There are many valid reasons for deciding to pursue the ‘growth via exporting’ route, including:

• Securing first-mover advantage in an emerging market;
• Achieving pricing advantages by scaling up your production capacity to meet new market demand; and
• Exploiting currency exchange differences to enhance profit margins;

The decision to enter the export market should not be taken lightly. While there is clear scope for growing your business and enhancing profitability, there are a number of potential downside risks associated with exporting, such as:

• Costs associated with establishing a presence in each overseas market (new staff, premises etc.);
• Compliance issues and similar ‘red tape’ that must be navigated to ensure you meet all the criteria for transacting in each offshore market;
• Cashflow stress resulting from unanticipated costs and other outlays associated with servicing offshore customers.

Before you take the plunge, you should undertake rigorous and exhaustive planning, to ensure that your new market entry strategy has the best chance of success.

As a minimum, you should take the following steps:

1. Choose your new market wisely - Identify which market(s) are of potential interest to you, and why. Avoid jumping on the ‘flavour of the month’ export bandwagon, and conduct your own investigation into which markets are the most promising. Do not allow your thinking to become clouded by the sheer numbers involved. It is not relevant that a specific market has, say, 100 million consumers. What is more relevant is understanding how many of them are potential customers of your business. For instance, India may have a population of just over 1.1 Billion people, but approximately 25% of the population lives below the poverty line, and its average per capita income is less than $US1000 per annum - an important consideration for vendors of most Western goods.
2. Understand your new market - There are a number of reputable sources of solid economic, legal, political and regulatory information about the various export markets open to you. It is important that you take the time to digest this information, and understand how it impacts upon your proposed export strategy. Beyond these tangible issues, however, it is also important to understand the cultural and other social factors that may affect the business environment for your products and services.
3. Grow relationships - Many potential overseas business partners will prefer to invest time to grow a trusting business relationship, and will be reluctant to commit to any form of commerce until they are satisfied with the strength of the relationship. For this reason, it is important to start building relationships with business representatives (both partners and potential customers) as soon as possible after you have chosen the market(s) of interest. You should be prepared to make several trips for face-to-face meetings as part of the rapport-building process.
4. Learn from others - In any given market, there will be hundreds, if not thousands of expatriate workers whom you could tap for both local knowledge and assistance in helping your business gain its first customers. There are a range of expatriate networking organisations with an online presence, which should simplify the process of identifying suitable contacts.
5. Document your plans - The discipline involved in not only assessing but also committing to writing the various aspects of your export planning is very useful. It will often help you to identify gaps in your knowledge as well as flaws in your assumptions. More importantly, it creates a set of documents that you can ask a trusted 3rd party to review. At the end of your investigation, you should have documents covering the following issues:
• Export readiness analysis - Assessment of how your business is placed to commence exporting.
• Market Research - High-level summary of key characteristics of your target markets, including current and potential competitors.
• Trade Barriers Assessment - List of issues that may impact your export activities, and plans for overcoming them.
• Export Strategy - A detailed, step-by-step of how you plan to successfully enter new markets.
• Pricing - Your proposed local market pricing (and the reasoning underlying the chosen pricing points).
• Terms of trade - The basis upon which you plan to trade with offshore partners (including details of how you plan to enforce these terms).
• Logistics plan - How you plan to make your products or services available in offshore markets (e.g. shipping physical products etc.).
• Financing - The anticipated costs associated with entering offshore markets, and how you plan to finance it.
• Implementation plan - An overarching plan and timeline for successfully entering each new market.
6. Find a translator - Even in markets where there is a high level of English speaking individuals, it pays to find a translator with experience in working with export-oriented businesses. In the early days of your rapport building with potential customers and partners, even minor slights and misunderstandings can be catastrophic. Equally, it is during these early stages that you often find yourself negotiating (formally or informally) the terms of your proposed business relationship, and it is crucial that you take every step possible to ensure a common understanding among all concerned.

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Most business owners recognise that every interaction they have with others is an opportunity to market themselves and their business.

Yet they often overlook some of the most powerful forms of one-to-one marketing. There is no better example of this than the humble business card.

For many years, like most business owners, I used titles like Principal or Founder or CEO on my business card. Then I came to the realisation that those sorts of titles are inwards-looking - they talk about who you are in relation to your business. Customers have a different perspective - they want to know who you are in relation to their business.

So I dropped those kinds of titles. Now I describe who I am relative to the customer.

On my business card for my corporate-focused consulting firm, Infolution Pty Ltd, I describe myself as ‘Master Strategist’.

I chose this title for 2 reasons:

1. To distinguish my approach to strategy development and execution from the myriad others who think strategy is a linear process that you undertake once a year using nothing more than a spreadsheet (note - it’s not, and if you’re curious as to why it’s not, ask me).

2. To force people to have a reaction.

On the latter point, the worst thing that can happen when you hand someone your business card is that they read it, pocket it and forget it. Most cards have this kind of effect. They look the same, sound the same, and convey the same information we’ve seen a gazillion times, so we’re numb to it (in the same way that we never really notice banner ads any more).

By using a more edgy style of business card design, and a more customer-centric title, I hope to force a reaction.

Using the specific title of Master Strategist, I expect recipients of my business cards to think one of two things: either (a) What a self-important idiot!, or (b) What does that mean?

9 times out of 10, people comment that I’ve called myself Master Strategist, and ask why. I then have an opportunity to explain what I do and how it is different. Regardless of the outcome, I’ve made an impression - usually a positive one.

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James Surowiecki  (author of The Wisdom of Crowds) had an excellent essay in The New Yorker magazine titled A Buyer’s Christmas.

While the focus of the article is retailer’s changing strategies for inducing customers to shop during the Christmas and end of year periods - with a particular look at the eroding power of retailers and their consequent adoption of price cutting strategies - it provides some great insight into the psychology of how consumers make buying decisions, with lessons for all businesses.

Some key observations by Surowiecki:

• "[H]ow much we want something and how much we’re willing to spend on it is often a matter of context, successful selling is about controlling the context in which people shop."
• "Fostering a sense of time pressure, however artificial, makes shoppers more willing to buy."
• "Economists have found that shoppers try to establish a “reference price” for a product by looking to outside cues like list prices, so Christmas circulars include manufacturers’ “suggested retail prices” along with the stores’ “discounted” prices, making everything look like a bargain."

Importantly, Surowiecki points to the levelling effect of the Internet:

Retailers are undeniably good at the tricks of their trade. So why has retailing gotten so hard? In part, it’s because of imitation: when one store hits on a useful gimmick, competitors copy it. But it’s the Internet that’s made the biggest difference, albeit not in the ways we often think. People once believed that the Net was going to transform where we shopped—that it was going to make physical stores obsolete. It hasn’t: even today, online sales are roughly three per cent of total retail sales in the U.S. What it has changed is how we shop, for a simple reason: it has created informed shoppers. In the past, retailers could make profits from what economists call “information asymmetry”: sellers knew much more about prices, quality, and value than consumers did, in large part because good information for consumers was either hard to obtain or just not available at all. Today, it’s easy to research and comparison-shop, and most consumers do it for at least some of their purchases.

Takeaways:

• Assume potential customers know as much about your product - and your competitor’s products -  including pricing as you do…probably more.
• Unless you can successfully compete as the cheapest vendor, you will need to differentiate your offering with something other than price.

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There are few industries that are immune from the potential impact that accelerating change, cyclical volatility and emerging technologies can have on even the most well-researched business plan. The growing connectivity of people, business, information flows and markets is dramatically accelerating the pace of change – trends emerge faster and their impacts are felt sooner. The market volatility generated by these changes is also greater. The net effect is that even the smallest changes or trends can have disproportionately larger effects in no time at all.

This reality represents a challenge for all businesses: to survive, companies must adapt at the same pace as their environment. Decisions (and changes) must be made in real-time, often with imprecise or incomplete information.

If the challenge is difficult for large firms (which often have resources, including multiple layers of management, at their disposal to monitor and respond), it poses significant challenges when you’re responsible for leading a small or start-up business.

Every time something changes in your immediate business environment, say, a new technology, a new gap in the market, a new competitor, there is an opportunity to make a change in your business to benefit from the opportunity presented. But how do you decide when - or IF - to make that change?

Business management traditionally focuses on stability and control, which is the antithesis of change. How can you structure your business, processes, culture and capabilities when you require maximum flexibility? As the owner of an ‘adaptive enterprise’, you must embrace ambiguity and chaos. This, in turn, requires some new thinking on how best to structure and run your business:

• Self-organisation – It is impossible to plan or devise guidelines for all eventualities. Instead of entrenching rules for employee behaviour, develop rule sets to guide individual choices and empower employees to respond to specific circumstances.
• Open Systems – Do not succumb to the ‘Not Invented Here’ complex. Look outside your business (and industry) for ideas, innovations etc. that, when combined with your existing thinking, creates new value.
• Sense and Respond – In biological terms, organisms are “sense-and-respond” systems that detect and respond to important events in their environments. Responding to non-events wastes energy. Failing to detect and respond to threats often means death. Becoming a sense-and-respond business requires real-time access to data about your market, customers, competitors etc., and, importantly, highly tuned filtering processes to differentiate between “important” and non-important events.
• Feedback loops – Each time you detect and respond to a market event, you must also examine the effectiveness of your detection and response mechanisms, as well as the outcomes, and re-integrate this learning into your adaptation processes.
• Iteration – Regardless of your current status quo, you should continually be testing and examining alternative approaches and options for potential improvements or benefits.
• Challenging culture – From day one, you will be competing with companies who are bent on destroying your business model. Assemble a cross-functional team that is charged with evaluating your business through the eyes of competitors, and to come up with strategies for destroying your business. Only when you understand your weaknesses, and how others might exploit them, can you develop defences and alternative strategies.

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