Cash Free Ideas to Beat Competition

Competition for customers in most industries is extremely intense. This is exacerbated if the customer is a large one and your product is not particularly unique or patent protected. Your customers are also in a high pitched battle with their competitors. This can be seen in your everyday life. Look at the competition in cars, retail stores, food stores, homes, computers, music, etc., for your dollar. This extends into the industrial sector and personal services.

Here are some non-cash ideas to help  your small business better compete.

Exclusives. If you have any type of new or unique product and no money to promote it, think of offering a key/large customer an exclusive. The exclusive can be for 30 days to a year with a performance clause for a time specified renewal. When we were in the game business, we would introduce a new game to the leading department store in each major city. We sold them on an exclusive basis for 30 to 60 days in return for their running an ad for our product at their expense. Your exclusive could be narrowed down to a particular channel. For instance, I  know of companies that gave Amazon.com an exclusive for all internet selling in return for them giving special promotional pushes for the product. Examples are running 2-day sales or pop-up ads when customers look at a related product (i.e., a wine game when a customer searches for one of their 9,000 wine books).

You could simply give an exclusive to a large retailer for buying it and putting it in all their stores: Radio Shack with 6,000 plus stores, Costco with 400+ stores, Wal-Mart with 3,000+ stores, etc. Exclusives can get you immediate orders, free ads, better position, earlier pay terms, earlier orders, etc. The result is more credibility, more cash, and brand building at no cost.

Better Service. Contrary to popular opinion, most purchasing is not based on the lowest price. Service is a key component in many buying decisions and can take many forms: shorter turnaround in shipping than competitors, customer training on your product features and how to use or sell it, friendly and knowledgeable people manning your phones, customer friendly website, dealing with problems quickly and fairly, admitting, correcting, and paying for mistakes.

One of the key factors of our success in the watch business was our service and special offers. The business was mature, highly competitive, and a me-too industry. We entered the industry with a unique novelty approach that featured artwork on the face and a rotating disk with art as the second hand. For instance, our most successful watch was a cute cat with a rotating mouse going around the dial that the cat always just missed catching. These watches were easy for competitors to copy. However, we copyrighted each design and consistently earned money from infringers. We offered two elements that propelled our success.

  1. Special exclusive designs for a low minimum of 200 watches with no premium cost to the buyer. This was in contrast to large watch manufacturers who asked for a minimum of 10,000 watches. We accomplished our low minimum by working closely with a small Chinese factory, by using standardized parts, and by our willingness to break even on these orders. We knew the profit would come on the re-orders. Our low minimum allowed us to break into the world of Disney, selling to their retail stores, theme parks, and catalog division. All three wanted exclusive merchandise that could only be bought through them. Our small minimums allowed them to test all their ideas without paying a price for mistakes. We were rewarded with large quantity orders for the watches that tested well. We also rewarded small customers who supported our line with periodic exclusive designs. The result was loyalty and increased business.
  2. Quick turnaround. This was and is increasingly a key component for small business success and survival. It reduces your cash commitment to inventory and likewise for your customer. It also reduces risk. You need to give a lot of attention and thought on how to realize quick turnaround. We analyzed every component used in a watch and the delivery or manufacturing time of each. We discovered the bottleneck in time replenishment was the unique printed dial on each watch. Every other component was easily available and in stock from many suppliers in China. Fortunately for us, the printed dial was a very low cost component. So we took chances and built up inventories of dials on watches we projected would sell well. The dials cost $.05 each; but in our pricing, we figured it at a $ .20 cost. This gave us the cushion for discarding unused dials.

We shipped all our watches from China to a public warehouse in Long Island without boxes, which were printed in the U.S. Air freight is a widely competitive business, particularly between UPS and FedEx. Therefore, we eventually flew watches in for $.17 each. We also discovered that the processing of shipments through customs varied greatly by which city they entered. The net result was that we could get watch reorders within two weeks of the order while our competitors’ lead time was generally two months. This was a tremendous plus for us with our customers and reduced our cash needs.

Special Terms. Cash strapped businesses with high profit margins should seriously consider additional discounts for immediate or quick payment.

Toy manufacturers usually ship most of their products in the fall. To plan production, particularly with overseas manufacturing, they need orders early in the year. So they successfully offer a special early buy discount to their customers.

Many companies offer volume discounts or rebates. They spell out the discount earned at various volume levels. These discounts can be achieved as you reach the level or can be rebated at the end of the year. This encourages your customers to place more of their business with you rather than sharing with other suppliers.

Private Label. Many products lend themselves to be made under the

customer’s label rather than your brand. The disadvantage to you is you don’t build your brand, and margins are usually lower. The advantages are you don’t need to maintain back up inventory, your order lead times are better, and you should get your payments quicker.

Your entire business should always be customer oriented. Special offers are particularly effective in building your relationship with a customer and does not drain your cash.

 

This blog is an excerpt from my book, Bootstrapping 101.

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No Can Become a Yes in Selling

Would you believe NO can get you a good Yes? Yes, it’s true; sometimes NO is the keyword for successful selling.

In all negotiations and selling which falls into that category, you need to understand the other person’s needs, job responsibility, and goals. One of the major responsibilities of a buyer is to get the best deal they can for their company.

So, when you, the seller, get pushed, cajoled, and threatened for a lower price or more concessions, do not take it personally. It is the buyer’s job to do so. Your job is to get an order that is profitable for you and at the same time maintains your integrity. Although I believe a company’s major focus is on finding and retaining customers, there are times you must say no to a customer when their demands are out of line. There are a number of reasons why a no to a customer is the right thing to do.

Take these instances into consideration: If you just drop your price or give major concessions because a large buyer pushes you, they will never accept your deal the next time around as you’ve taught them to never accept the first offer.

You need to protect your other customers and make sure they are not penalized for not pushing you as hard. You cannot put them at a competitive disadvantage.

Your integrity is at stake. There are times when you need a particular customer or order. However, you should not succumb to the pressure of giving a better deal unless you get something in return, like a bigger order, better payment terms, free advertising, etc.

Buyers might not admit it, but they will respect you more when you stand up to them. If your value proposition is good, your no will eventually become an order on your terms. 
 
Successful salespeople understand the value of a no. No is also a good word to employ in parenting.

WHEN to SAY NO to a CUSTOMER

They’re your business’s lifeblood, but that doesn’t mean you have to be a push over.

All customers, especially buyers in business-to-business transactions, have a responsibility to their pocketbook, which you, as the provider of services or goods, need to understand. The customer’s goal is to get the best deal they can. In pursuing their agenda, customers may cajole push or even demand the best deal possible. Sellers shouldn’t take this personally. The customer is only doing his job.

But, as important as it is to satisfy your customers, there are times when the right thing to do is to say no. Here are some examples:

1.    When a Customer Wants an Unreasonable Discount 
– If you drop your price or give major concessions just because a large buyer pushes you, they will not accept your deal the next time around as you’ve taught them to never accept the first offer. Also, you have a duty to protect your other customers, and make sure they are not penalized for not pushing you as hard.

 There are times when you need a particular customer or order. However, you should not succumb to the pressure of giving a better deal unless you get something in return, like a bigger order, better payment terms, free advertising, etc. If you don’t, then no is in order.

2.    When a Customer Wants Inside Info on Competitors — 
When a big customer presses you for proprietary information about another one of your accounts, you must decline this trap. Try saying something like, “it’s not the right thing to do, just as I wouldn’t tell them about my dealings with you.” It can be difficult to say no to an important customer; but this is important because if you spill the beans on his competitor, he won’t trust you to keep his dealings with you confidential. If trust is broken, growth will be inhibited

3.    When a Customer is Rude 
– When a customer is nasty and rude to any of your employees, it can be a problem for you. The nastiness may take the form of unwanted sexual advances, screaming, cursing or belittling; whatever the circumstances, I believe managers need to confront this type of customer and explain that they must modify their behavior. If this doesn’t work, drop that customer. It will do wonders for the spirit, pride and productivity of your employees.

4.    When a Customer Asks for Payoff in Kind — 
When a buyer asks for a payoff in cash or kind, this is over the line in my opinion. Many like to justify this by saying “everyone else is doing it.” Aside from it being wrong, think of the consequences if it ever became public knowledge that you were a briber, or open to bribes. There goes your reputation with family, employees, friends, investors, customers, et al.

5.    When a Customer Breaks an Agreement 
– When a customer breaks an agreement, you need to hold them to it unless they have a good reason. One broken agreement will lead to others, and the result is an unprofitable client on your books. This is not to suggest you shouldn’t help a deserving customer with a problem. If they have a good history with you, if they explain their problem and ask (no demands) for your help, and if it’s within your ability to do so, I say don’t hesitate. We’ve all had occasion to work out payment plans for good customers who are experiencing cash shortages. I’ve let clients set up a schedule of repayments, most of the time it has worked well, and I wound up with a long-time loyal customer. But if you’re losing money and you can’t revise price, servicing, or other costs to make this a profitable account, or if there is not a strategic reason to keep the customer, you should just say no.

Most of the time, customers know that your no was the right thing, even if they didn’t get their way, and they will respect you for it. There is value in saying no to customers.     (It’s also a good word in parenting.)

This is my August column in Entrepreneur.

Don’t Overlook Your Suppliers

Don’t overlook your suppliers–they are hidden assets and can help your business grow.

Your approach to suppliers needs to be part of your strategic plan since almost every company, whether product- or service-oriented, is dependent on suppliers. Many business owners seem to get this supplier issue backwards. They think that because they write the order, they’re in the dominant position and can exploit it with unreasonable demands, including personal perks.

Let’s get this right–you need good and reliable suppliers. When you find them, treat them like gold. Work as hard on building a good supplier relationship as you do building a relationship with your customers.

And be loyal to your good suppliers. They are essential to your business’s good health and growth. They are a nuanced bootstrapping strategy.

Let’s briefly look at all the ways suppliers can impact your company.

  • Quality: Supplier components can positively or negatively affect the quality of your product. Higher quality increases customer satisfaction and decreases returns, which adds cash to your bottom line.
  • Timeliness: Their timely deliveries are crucial to how customers view your reliability. A quick turnaround can become the key to minimizing your inventory, which in turn translates to less risk of inventory obsolescence and lower cash needs.
  • Competitiveness: They can give you the one-up on your competition based on their pricing, quality, reliability, technological breakthroughs and knowledge of industry trends.
  • Innovation: Suppliers can make major contributions to your new product development. Remember, they live their product more than you do; they’re working to be on the cutting edge of innovation for their product. The good ones will understand your company, its industry and needs, and can help you tweak your new idea.
  • Finance: If you’ve proven to be a considerate, loyal and paying customer, you may be able to tap into your suppliers for additional financing once you hit growth mode–or if you run into a cash crunch. That financing may take the form of postponed debt, extended terms on new purchases, a loan, or an investment in your company.
    All of these improve your cash position.

It’s OK to Be a Demanding Customer
Having said how valuable and important a supplier can be to you, I’ll now say that you should not be a patsy. You can be a demanding customer–just be fair. State your quality and time needs clearly. Hold your suppliers to their agreements. Make sure they stay competitive. Tell them you never expect to pay higher prices than other purchasers.

There are times you need to replace a supplier because you have outgrown them and they can’t perform to your new expectations. Before dropping them, however, you might try to help them change to keep up with you.

It’s not prudent to rely on one supplier. If that supplier has a strike or a fire, you don’t want to be in a position where you’d be shut down too. So keep a second or multiple suppliers on hand, and don’t be embarrassed to tell your key supplier that you’re doing so. They will appreciate your honesty. If your supplier is savvy, they’ll also know that you need backup suppliers on key products and services if you ever plan on raising money (lenders are sure to ask that question).

How to Be a Valued Customer
These ideas assume, of course, that you are a customer that somebody out there wants. In order to be a valued customer to your suppliers, here are a few things you should do:

  1. Always pay on time. For the sake of emphasis, I’ll repeat this one: Pay your bills on time! You can negotiate for favorable payment terms before you place an order, but once the order is placed, don’t renege or attempt to change the rules. If you can’t, call up your suppliers and tell them why and when you will pay. Don’t play games with suppliers’ cash. You’ll be absolutely amazed at the goodwill and benefits you will earn by observing this simple rule.
  2. Provide adequate lead times. Try to give suppliers as much lead time as possible on your orders. Unless there’s a good competitive reason not to, share with them an honest projection of your needs, and keep them abreast of any significant changes in that estimation. When developing your lead times, it helps to be knowledgeable about your suppliers’ production methods and needs.
  3. Personalize the relationship. Visit suppliers’ offices. While you’re at it, include them in some of your strategy meetings. Invite them to break bread and invite them to your office parties and picnics.
  4. Share information. Keep the good suppliers aware of what’s going on in your company. Tell them about changes in key personnel, new products, special promotions and so on. Many times, you’ll find that good suppliers can be help you find new customers.

Developing good relationships with suppliers is not a complicated process. Be communicative, tell them of your needs and standards, treat them fairly, be demanding, be loyal, and pay them on time. It’s that easy.

This article was written for entrepreneur.com April 6, 2010

FACTORS: How They Can Help Your Cash Flow and More

Factors finance $120 billion in receivables, yet most small and start-up businesses are not aware of them. Business schools rarely acknowledge them. However, they can alleviate your cash flow problems. They can loan you or advance you money against your receivables and in some cases against your inventory. In other words, your receivables are an asset that the lender (Factor) purchases.

The Advantages of Using Factors:

  • You get payment for your invoices within days. This allows you to pay your suppliers on time, to build trust  with them, and to take advantage of their cash discounts. It is a financial tool that speeds your business’ cash flow. Factors do not lend money on purchase orders.
  • All your costs are variable.
  • Factors check the credit of all your customers and would-be ones. Thus, you get more accurate and current information than if you performed this function on your own. More money is saved by eliminating the need to hire a credit checker.
  • Factors collect all your receivables. In today’s world, the majority of customers like to stall the payment of their bills. Some will not pay until someone calls them for payment. The Factors have more leverage than you as an individual have. They may represent 50 suppliers of one customer.
  • Factors act as insurers of the receivable. If after you ship a customer and the customer goes bankrupt, the Factor may be stuck, depending on your contract, not  you. This feature can help you sleep better as well as eliminate your bad debts.
  • The Factor can take over some of your administrative functions and save you the resultant labor costs. On one of our game companies that was created around a licensed product, the Factor supplied us with data on monthly shipments which acted as our Royalty statement. They also provided us with total shipments by territory or account which we used as our Sales Rep commission statements.
  • You can get money even though you don’t have a good credit rating. The Factor is only interested in your customers’ credit ratings.

The disadvantages of using Factors are the costs, which can be high in some cases, and they may alienate some of your customers with their collection techniques. You need to read and understand their contract carefully.

You can locate an appropriate factor by going to the website of the International Factoring Association or ask your local banker, SCORE, or SBDC office.

(This post is excerpted from Chapter 11 of Bootstrapping 101.)

Never Forget Your Customers

Customers are the key to business growth. Meet or exceed their expectations and prosper.

The No. 1 need for business success is a customer. That’s pretty obvious, so why am I telling you this?

It may be obvious but most companies seem to quickly forget this essential fact. Small and startup companies desperately need customers to begin their journey to profits and sustainability. Many large Fortune 1000 companies forget the customers who made them successful.

Just look at all your daily life experiences in dealing with a phone company, an airline, a utility, your cable provider, a government provider, etc. In an effort to develop systems to deal with their size, they become impersonal and forget about the one constituency that propelled their success. In turn, the customers become increasingly frustrated with their treatment and become open to changes in their buying behavior.

You might posit that orders are most important, but, orders do not create more orders. Only satisfied customers do that. Happy customers whose expectations are met or exceeded become your best salespeople and effectively promote your wares by word-of-mouth, at no cost to you. You can’t buy more effective advertising than that.

Satisfied customers are likely to become long-term customers who will look forward to buying your new offerings. It is much easier to increase revenues through existing customers than to find new ones and much less costly. The bonus is that these satisfied customers get you new ones through singing the praises of your company, its products and/or services to their friends, family, and acquaintances.

Unlike other forms of media advertising, there is no cash outlay for this. There is, however, an investment in maintaining the quality, service, need fulfillment, value, timelines and warranty of your offering. If you deliver on these actions, positive word-of-mouth will enable you continued growth and sustainability. Likewise, if you fall short, you’ll have to deal with negative word of mouth, which can rapidly lead to your decline and is difficult and costly to reverse.

Your orders from products or services will eventually yield revenues which can be used for payroll, expenses, taxes, innovation. Most importantly, continued sales leads to profits.

So if we were to simply chart what we’ve said above, it would look like this:
CUSTOMER + ORDER = MONEY

Add the sales element to this equation and we have what I call the “Anatomy of a Business.”
SELLING + CUSTOMER + ORDER = MONEY

Sales is often demeaned and downplayed by academia, students, ordinary people and even some business people. However, sales is a profession and key to any organization’s success. As we see above, the customer is also a key element because they make purchases, which creates cash flow–the lifeblood of a business. Selling is the process of persuading customers to initiate these orders. It can be a simple quick one-on-one encounter or a complex long-term process. Without sales, you will not get orders.

These basic principles are easy to forget but it would benefit all entrepreneurs to remember the anatomy of a business in their hectic schedules. Of course, it gets more complicated when competition is added to the mix. When you add in dealing with other issues like having the right resources to accomplish your goals and creating a culture of integrity and innovation, remembering customer satisfaction can fall by the way-side.

So, amid all the chaos, problems, uncertainties, new opportunities and setbacks, don’t forget for a moment how all your decisions and actions affect your customers. Neglect them and be prepared to pay a high price. Satisfy them and prosper.

This article first appeared on entrepreneur.com.

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