Growing your business in the niche – Part VI – identifying your constraints

differentiation, Marketing, Positioning, Product Management, Sales

In part V we spoke about identifying different channels to reach your prospects.

To grow any business you need to identify the one key constraint which could hold you back.

In professional services its your time, in manufactured products its the time of the slowest machine, products which are dependent on natural capacity like farm produce or eggs are dependent on the the capacity of the farm or number of hens respectively.

If you can plan your business based on the constraint – highly recommend reading the Theory of Constraints by Eli Goldiratt and his second book The Goal – then you can take better decisions.

So if you are in professional services, and you can only work 8 hours a day, you need to figure out which is the niche which can help maximize the return on your time. If you’re a property / real estate agent then you need to focus on the segment where you can get a higher value for your listing as in designer homes versus condos.

Or you build partnerships so that your constraint can be a leverage to someone else.

Till next time.

Carpe Diem!!!

Growing the business in a niche – Part V – Identifying channels

differentiation, Marketing, Positioning, Product Management, Sales

You would have noticed, I have not spoken about advertising as part of product management launch or sustenance. That is because I believe that broad level brand level advertising is a big waste of money. Especially when you are a startup or a small company or a company launching a new product.

It is always better to utilise the funds that you have to keep improving the product based on incremental customer feedback. My agenda would be to operate on a shoe string budget and let your marketing and sales fund your business

This situation could however be different, if you have Venture Capital funding and the agenda is to create awareness even if you lose money on every transaction. Some products which follow the so called “network effect” could definitely make use of this kind of product launch.

Which brings me to todays rant for growing your business in a niche, using different types of channels/partnerships or media to reach out to your customers based on your acceptable cost of acquisition.

Yesterday we identified that if you can sell 10 deals at a gross margin of $10000 per sale you make $100000/- as the first time GM on every first deal with a customer in the first 12 months.

The next piece of arithmetic – after all, all business is arithmetic – you need to be aware of is – to get 10 deals in the first 12 months how many prospects will you need to reach and how many times to be able to get 10 of them to do business with you for the first time.

Which brings us to the next concept of what Dean Jackson calls “invisible” or “visible” prospects. Like the picture above if you know in which forest you will get the tree, the forest is visible, the specific tree has to be found. If you have chosen banks as your prospects to whom you would like to sell your product or service, then they are semi visible. You can identify the banks but within that, the exact person is a little difficult to ascertain. On the other hand if you are selling eggs in a locality, then you know the 2000 houses in the locality (visible prospects), you need to just reach out to them.

On the other hand anyone could be a customer for paintings (invisible) and finding them from within a large population could be very tough.

For visible and semi-visible prospects I would suggest finding partners who are selling to those same customers already and figure out a way to share the margins with them. The number of partners you can and should build will be a function of the number you get from your Life Time value calculations.

One word of caution – partners take a long time to actually start giving you business – so you should see how you can get them business first,.so as part of what Robert Cialdini calls the principle of reciprocity, they feel obliged to start giving you business.

Tomorrow we will look at what other mechanisms you could look at for getting both visible and invisible prospects.

Till next time…

Carpe Diem!!!

Growing the business in a niche – Part IV – funds for customer acquisition

differentiation, Marketing, Positioning, Product Management, Sales

Yesterday we spoke about the life time value of a customer. The LTV helps identify 2 things

What is the amount of money you can spend to acquire a customer
What activities do you need to do to ensure that the customer can do business with you as long as physically possible and keep referring customers like themselves to you.

Now that you know the above 2 things because you calculated the LTV, our next item is how much can you spend to acquire a customer and therefore what channels/mechanisms can you use to spend that money

Suppose the lifetime value you define is $60000 and the font end first sale gross margin is $10000/-, on a revenue of $100000/- then theoretically you can spend $10000/- up front to acquire the customer. However you have to be sure that your product or service is so good that the customer will keep coming back for more and also gives you referrals. Otherwise this same strategy which can catapult your business to the top can also bring it to a grinding halt in a matter of time.

As a product management person, you have come out with your first version of the product, you have identified the most economically viable, smallest niche from which you can start and then you have identified the possibility of spending $10000/- to get a customer.

Within the most economically viable market niche, your next step is to understand how many customers can you handle at a time. If you are in a service business, like a coach or a consulting professional or a video editor then your physical constraint is the amount of time you have in a day. if you have a product then your production capacity is your constraint. if you are selling eggs then the number of hens/ducks that you have is the constraint. On the other hand if your selling an ebook then there is virtually no constraint.

So going ahead with the earlier example of $100000/- order value, lets assume you can sell only 12 of these in a year or $1.2 million. The upfront gross margin that you make is $100000/-.

So when you make your plans for your marketing and selling activities you can look at this possible pool of money which is theoretically available for you to use to acquire the first set of customers in the first year.

Which will lead us to issues –

Now you look at finding the options of how you could spend the $100000/- to acquire these customers
How to scale by identifying the constraints.

We will pick up on each of these in the future posts

Till next time then.

Carpe Diem!!!

Growing the business in a niche – Part III – Life Time Value

differentiation, Marketing, Positioning, Product Management, Sales

In my post yesterday I spoke about how you could go about partnering with inflencers and other merchants / companies who sell to the same niche.

There are 2 decisions to make the above successful.

First is the fact that you will need to hustle and connect with people. No one is going to find you. You have to make yourself found.

The second is the arithmetic behind the number of people you can partner with.

Which brings me to the concept of Life Time Value. This concept is explained very well by Jay Abraham and then Joe Polish and Dean Jackson

Most people, including people working in large companies don’t understand this concept, due to which they take short term decisions in accepting the first order.

Let’s say you have an average deal size of $100,000. In this you have a gross margin of $10000/-. This customer can buy from you the same product or service maybe 2 more times over the next 5 years. Which means over the next 5 years this one customer can give you a gross margin of $30000/-

Now if you have given this customer exceptional service then she may also refer one more customer like herself to you who could also give you another $ 30000/-

Which is a total of $60000/-. However you won’t make this if you don’t get the customer in the first place. The longer you can keep your customers to keep coming back for mere the higher this value becomes. As Joe Polish says, it also helps you to stop thinking in episodic nature and start thinking of very long term relationships with your customers.

Which brings us to the next point, how much are you willing to spend to get the customer first. This could be in terms of giving your partner all the first year margin or giving added value of $10000 to the customer. I am generally not in the favor of giving a discount because it becomes very difficult to raise prices once customers get used to one price point. Like I mentioned in my post yesterday, you could go on the ilovemarketing podcast or the morecheeselesswhiskers podcast and get a lot of examples how businesses of all sizes have used this.

The more you can afford to spend to get a client upfront and the longer you can be at it, the more successful you will be in getting your product or service to take over the market.

Till next time

Carpe Diem!!!