CFOWise

A Mug, Dry Cleaning, and Customer Loyalty

This is the tale of a mug, dry cleaning, and customer loyalty…

The Problem is…

As I sat trying to explain the deal points of a transaction for one of my clients to a business attorney, I was amazed at how he began every sentence with: “The problem is…”  He spent my entire time with him explaining all the problems with the deal, so I invited him to share some solutions.  He offered none.   I’ll share how this story ends, but first I want to address the challenges that professionals who only focus on problems create for themselves.

Have you ever had an experience like this with a professional service provider like a CPA, attorney, insurance agent, banker, etc?  Were you as frustrated as me?  Please know that I have a lot of respect for all of the professionals I know and with whom I associate, but my philosophy on hiring a professional is more than just to define problems.

Sure I want them to use all their expertise, experience, and wisdom to help me identify existing and potential problems, but I am also looking to them to solve those problems.  The more people focus only on problems and not on solutions the less value they bring and the less we want to work with them.  I was once asked by someone unfamiliar with our CFO services if we were like all the consulting companies that come in and tell you how bad you are at everything but don’t ever really help you get any better.  I quickly explained a few of our drastic differences with this negative philosophy, but I was amazed at the bad taste this person had from their prior experiences.

My point is that only focusing on the problem leaves everyone with a bad taste in their mouth.  If a professional in any field dares to point out a problem, then they need to be ready and willing to design and implement the solution to that problem.  If not, then they will slowly lose their influence and they will have fewer and fewer opportunities to discover any problems at all, let alone solve them.

So, how did my experience at the beginning of this post end?  The attorney had done some work for the company before, but he was clearly not experienced in transactions.  After a brief discussion with the client, I approached another attorney with a lot of background in our type of deal.  After just 30 seconds with him he said he knew exactly how to draft the document and would have it done for us in a few days.  Did he think there might be some problems with structuring the deal correctly?  I’m sure he did.  But is he going to focus on solving all of them so this transaction can close by the end of next week.  You bet he is, and he’s going to get more business from us as a result!

How to Spend $195 instead of $30,000 to Fill a Need

We (meaning my family) had a need.  We just added a sixth child to our family and our faithful minivan, with a total of seven seats, was no longer sufficient to safely hold our entire crew.  Without too many 8-seaters on the market, we started looking for a new vehicle to purchase.  We found a very nice lightly-used suburban for $30,000, and it filled our need and then some. 

However, something stopped us from actually making the purchase.  Sure, all the bells and whistles of the new vehicle were nice, I just could not get comfortable with spending $30,000 for another seat.  The suburban was certainly worth $30,000, but when cast in the light of our actual need, it was quite excessive.

We received a referral to a qualified company that does seat covers and installations.  For $195 we had an additional seat retro-fitted and installed between the two captain chairs in the middle row.  We did not need a new suburban because our minivan had everything else we needed, except for an eighth seat.

So, what is my point?  Too many companies focus too much on selling their product or service rather than meeting the needs of their customers.  Most customers do not know exactly what they need – they suffer from information overload.  They want an expert to get to know them and their situation, and then recommend exactly what will best fill their needs and bring them the most value. 

I failed to mention our good friend who helped us through the experience.  He wholesales cars and, as an expert, helped us find the best value to fill our need.  He earned NOTHING on this transaction, but he has earned our business for life because he took time to learn about us and then, without trying to force one of his cars or other services upon us, helped us find the best deal for us.

The marketing and sales process often fails to identify the core needs of the customer.  Whether we are selling too much or too little, our best long-term proposition is to know the needs of our customers and fill them.  Up-selling is OK as long as we do not overlook the needs of our customers.  Our firm that offers part-time CFO services invests heavily up-front into a prospective client so that we can clearly understand their needs and create the most value for them, which almost always affords an opportunity to build a long-term relationship.  Those relationships make all the difference in terms of both profitability and knowing we are doing the right thing.

Why Measuring Social Media ROI is so Difficult

If you want to open up a can of worms, ask a group of internet marketers and CMO’s how to measure the ROI on social media investment and participation.  There is and will continue to be a heated debate on this topic until we all realize one thing: Social Media is about branding, not advertising.

Traditional advertising defines a specific spend and generally has measurable results. A return on investment is easy to calculate.  Building a brand requires a significant investment, but does not generate track-able results.  The reason a person at the grocery store chooses Pepsi over Coke is a summation of a lifetime of branding messages (sometimes in overwhelming quantity).  How do you measure that?  It is very difficult, although there are many options for understanding the overall value of branding (referred to as goodwill for the accountant types).

We have the same problem with social media.  Social media is about building a brand, with the cumulative efforts assisting to generate sales.  But branding is less directly involved with the final transaction as traditional, measurable mediums.  How much did the direct mail piece I receive influence my decision to call the home security company in comparison to the branding I have been exposed to for the last five years at sporting events, parades, etc?  Hard to say, and even more difficult to quantify.

In its truest form, social media is a venue to add value to the the market in general in the form of free advice, expertise, networking, and communication.  All of this leads to relationship building with a more targeted market that gravitates towards your content and brand.  I am all for measuring ROI, but I also think there is often a lot more at play than a simple ROI calculation will capture.

Social media is here to stay (just watch this video), and businesses need to get involved.  A great example of this is the professional services industry.  The most effective methods for marketing in professional services have long been referrals and networking, but these survey results indicate that more of the networking efforts in the next 6-18 months will concentrate on social media (LinkedIn, FaceBook, etc.).

So, are you still itching to track the ROI of your social media?  Consider a change of perspective from ROI to the overall value of your brand. Then you’ll be getting closer to overall value generation than transactionally-based (and often incorrect) attempts to attach an ROI to social media, or branding, activities.

Some may take issue with my business finance consultant background and wonder why I am not hard-nosed about tracking ROI on social media efforts.  I believe it is my CFO career that actually gives me credibility to say that ROI on social media is not about ROI, but it is about building a brand.  The brand of a firm should have legitimate and palatable value, and that is what I care about.  Ultimately, the value of the brand becomes a long-term and often sustainable competitive advantage that commands premium pricing, better margins, and maximal cash flow!

Twitter Can Help and Hurt Entrepreneurs

When used correctly, Twitter can help entrepreneurs.  Here is a great example: TWITTER HELPS 1-YEAR OLD COMPANY FIND CUSTOMERS.

Twitter, as with most social media tools, can either be a tremendous waste of time and resources, or it can be an effective, value-added activity for your business.  Twitter is not THE answer.  It is part of a solution called social media, and social media can be a powerful tool for helping entrepreneurs grow their businesses.

I have learned during my brief experience on Twitter (created an account under the name CFOwise – you can follow me at http://twitter.com/cfowise - the day after Christmas) some of the ways Twitter can add value.  For example, I try to write in this blog everyday, and as soon as I post this blog it will show up on Twitter.  All of my updates on Twitter flow right into FaceBook.  With over 300 friends in FaceBook and over 1,000 followers on Twitter, I am allowed to exponentially increase my blog’s exposure.  For our overall marketing strategy, this will have far-reaching effects for our company.  And we have barely scratched the surface of this powerful tool.

With all of the adding of followers and following that happens on Twitter, not everything is relevant or value-added to the objectives of the entrepreneur.  Many have described Twitter like a virtual social event where we briefly connect with lots of different people with varying interests.  Ultimately we gravitate towards those who interest us, and this is the logical conclusion for how Twitter works.  If you are interesting and create content to which people gravitate, then this tool will add value to your business. This value is free and can offer financial help for small businesses through fre marketing.

Critical Online Marketing Trends

http://www.hubspot.com released their predictions for developments in online marketing in 2009 and 2010 – See Article.

Here are a few of my thoughts on this list:

Business Blogs – I agree that more and more will be converted to the need to have a business blog. Will the blog be as important as the website? Maybe not yet, but we are certainly headed that direction.

SEO Business Consultants - Their market will get more competitive and the slowing economy will put more pressure on them to be able to validate the ROI they offer.  Marketing Software will become as critical as Accounting Software – this is a very bold statement, but I see where it is going. An accounting department would be lost without a good software program to enter their information and then produce reports about the results the business is generating.  Effective marketers need to be able to produce similar reports and information and track their progress.

Pay Sales Staff for Gross Profit, Not Sales

Top-line sales are much less important than gross profit – so pay your sales staff accordingly. Most businesses struggle with how to structure the compensation for sales reps. We don’t want it to be so complicated that no one can understand it. But we also need it to incent the behaviors that will most help the business achieve its objectives. If a sales rep is paid just to bring business in the door with no other qualifying criteria in place, the sales rep will eventually bring in a lot of unprofitable business. In fact, I watch an entire company drop into insolvency and then permanently close its doors because one sales rep was paid very well to bring in very unprofitable business. We are in business to generate sales, from which we subtract our direct costs (also referred to as cost of goods sold and cost of sales). The amount left over is called gross profit. Our gross profit needs to exceed our fixed and overhead costs, or we will be in trouble in a hurry. So, we need sales reps who create gross profit for the company, not sales. Start changing the focus of the sales reps now. The competing theme to this is the desire to bring in more sales. A good sales manager and CEO will define the parameters within which sales reps may work to get business, and they will give the largest rewards to sales rep who help the company achieve its desired gross margin and provide financial help for small business.

Repeat Customers are More Valuable than New Customers

Research teaches us that the better we treat our customers the more likely they are to continue to do business with us. Intuition tells us that the longer a customer is with us, the more profitable the relationship will become – for both parties. Research supports this assumption.

Take a look at the article below for more information and contact one of our Part-Time CFO’s for more assistance: http://www.allbusiness.com/company-activities-management/operations-customer/11480240-1.html

Make the Promise, Keep the Promise, Track the Promise

Issue: # 2008-04 July/Aug 2008

Make the Promise, Keep the Promise, Track the Promise
 

As business complexity and economic turmoil increase, we will visit some of the basic principles that drive our ability to build, sustain, and improve our businesses.  We call it: “Make the promise.  Keep the Promise.  Track the Promise.”  Each in its role as an integral contributor to the whole, these interdependent elements of the business cycle are equally critical to the performance of your business.

Regardless of the product or service you provide, your customers must decide if you will keep the promise of benefits and value you propose to deliver.  Ultimately, customers buy because they believe they will receive more value from your product or service than they spend to access it.  Value may not always be quantifiable in dollars since value can be achieved, or at least perceived, through time and quality of life.  McDonalds has long since given up selling food – it focuses on the value of improving its customers’ quality of life with the slogan: “I’m lovin’ it.”

MAKE THE PROMISE

First we need to find potential customers to whom we can make our promises.  This is called marketing, which exits for one reason – to generate qualified leads.  The strategies and techniques for accomplishing this differ by industry.  Some companies combine the sales, marketing, and operations into the same department.  An example is professional service firms – they rely on their professionals to market, sell, and serve clients.  This can work so long as each discipline is separately accountable and receives an adequate amount of focus.  Ultimately, every organization needs qualified leads.

Once you have the qualified leads, it’s time to make the promises.  We live in an information-rich society where our sales success is dependent on our ability to tailor our promises to the needs of our prospective customers.  If you sell computers, the needs of each of your customers will vary significantly.  Some need a computer to communicate with their tech-savvy grandchildren.  Others have a home-based business to run on the computer.  While others want to play games and watch streaming videos all day.  The point is this – first discover the needs of your customers, then make them promises if you can fill their needs.

KEEP THE PROMISE

The “keep the promise” department is often called operations, client service, or customer service.  They must keep the promises made by the sales team.  Has your operations staff ever complained that sales over-promised on what should be delivered?  If you answered yes, you are not alone.  The silos of sales and operations can often feel worlds apart.  When I was part of a company that grew to over $100 million in sales in just four years, this divide was often overwhelming.  The main issue was that each silo tended to slip back into a mode of self-interest.  We solved the problem each time by rallying the silos around the one thing they had in common – a desire to help our customers enjoy the most value possible from our services.

Bridging the customer from the hope that their needs will be met to the actual fulfillment of their needs is never enough – you want to build highly satisfied customers who become loyal to your brand.  Not only is it cheaper to keep an existing customer than find a new one, but research also says that employee retention and productivity are correlated to a firm’s ability to keep its promises (www.babyboomers.com/news/0705c.htm).

TRACK THE PROMISE

The philosophy that measurement improves performance is true.  When we suspected a lack of productivity in a firm which our part-time CFO,/a>’s were hired to help, we began measuring performance.  The department’s productivity improved several fold within days!  The disciplines required to track the promise include accounting, finance, IT, HR, and other administrative functions. 

We are pleased to announce the addition of two new CFOS to our team.  You may learn about this expansion at NEW CFOs.  Please visit our website to learn about our CFOs, our locations, and our growing firm at ABOUT US.

In July we received the “Top 25 Under Five” award from UVEF for our rapid growth and entrepreneurial accomplishments.  This award was received under our previous name of “Kaufman Enterprise Solutions”. You may read more about this at TOP 25 UNDER FIVE.

Visit our website at www.cfowise.com

The Value Proposition of Blogging

At CFOwise, we have decided to start a blog for two reasons: We hope the content we write will, in some way, add value to our clients and to start-up, emerging, and medium-sized businesses around the world, and Experts in Internet marketing have told us that by publishing this content on the web, the opportunity for our influence as CFO consultants in the capacity of part-time CFO jobs in our market space to grow will be enhanced.  Hopefully it is fitting that we try to define the value that blogging can bring in our first blog.

So, here it goes (please note that our comments on blogging refer only to professional content used for commercial purposes): Blogging helps position you and your firm as an expert in your field of expertise. It is like a newsletter, but is typically more informal, allows others to make comments, and is often more frequent than a monthly newsletter. For those who are interested, it could give them reason to come back and visit you often. In essence, you can establish a faithful and even an extremely loyal following who are hungry for your content.

I’ll share a personal example: A good friend of mine has fought a horrible disease for the last several years of his life. He grew weary of continually repeating the updates on his condition to the dozens of people who cared about him and his family. There were those that cared about him that purposefully kept themselves in the dark on his situation just to avoid him expending his energy re-telling his story dozens of times. He began keeping a blog in which he gave updates. Interestingly, his absolutely hilarious sense of humor came through perfectly on his blog, and everyone was able to remain a part of his life without overwhelming him. He still updates his blog and my wife and I visit it often – we have become very loyal followers. In fact, if he forgets to update the blog for a week or two, we are disappointed and become anxious to hear how he is doing. That example has many applications to business. With a small effort, a business can reach a large audience through blogging. If you need to reach people on the web, you can optimize your blog based on your Search Engine Optimization (SEO) strategy. I have been told that the more content you have, the more likely you are to be picked up in keyword searches on the major search engines. If you want to accomplish this, then I definitely recommend you meet with an expert in this field and receive their assistance.

How do you determine the value that blogging can bring to your firm? Let’s suppose someone in your organization spends 2 hours per week on your blog, or about 100 hours per year, representing about 5% of a person’s time with a regular 40 hour work week. Assuming the person writing your blog receives annual compensation, including payroll burden and benefits, of $75,000, you are committing almost $4,000 towards this activity. Using the perception that the compensation is a sunk cost with no opportunity cost, we can conclude that you should make the commitment to blog so long as it will add at least $13,000 ($4,000 desired gross profit divided by assumed 30% gross margin) in new business (either from new or existing customers). Starting the blog is easy. Committing to and delivering the content regularly is usually the hardest part. If you make the commitment, blogging will certainly increase the value of your brand, and you will probably be able to justify the expense by the business it stimulates.

Be the High Price Leader

“Business is a game of margins, not volume” (How to Sell at Margins Higher Than Your Competitors,” Steinmetz and Brooks).

If you are tempted to cut your prices by just 10%, you might think that you can make up for it by increasing your sales volume by 10%. This is NOT true! Assuming you earn a gross margin of 30% (after all directly related costs are considered), you would have to increase your sales volume by 50% just to return to your previous gross margin. In other words, a 10% price reduction means you have to do 50% more work just to recover from the price reduction.

In down markets, your competitors will often drop their prices to try and gain a competitive advantage. You will be tempted to follow suit if your business has slowed and you are worried about covering your overhead and other fixed costs. You should deal with a slowdown in business by reducing your overhead and fixed costs, not by cutting prices.

According to a recent survey, only 13% of consumers feel price is the biggest influence on their loyalty to a company’s product or service. 85% derive their loyalty from service and quality (Survey conducted by Genesys Telecommunications Labs – Printed in USA TODAY, May 2007).

Improvements in your customer service and quality will typically pay dividends for years to come, mainly because you can keep your prices higher than most, if not all, of your competitors. If you can successfully be the high-price leader, your bottom-line will be your reward.

Our part-time CFOs offer financial help for small business, and we specialize in hellping our clients charge the right prices. Visit our website at www.cfowise.com.

The Best way to Grow your Business

Although every business wants to grow, some types of growth are certainly better than others. Consider the Following 2 options:

OPTION 1: Grow Sales by 20%, and net income increases 50%.

OPTION 2: Grow Sales by 50% (a lot more work and risk than Option 1), and net income only increases 20%.

The best way to grow is when net income growth out-paces sales revenue growth. For every additional unit of sales, we want to generate more profit, not less. How can we accomplish this?

Jim Collins, the author of Good to Great, found that the more an organization sticks to its core competency, the more opportunities the company would have for the best kind of growth – the growth where net income increases faster than sales!

What is your core competency? It’s what you do well and, when you do it, you’ve proven that it can make money. If you are a trade contractor, then it is your trade. If you are an attorney, then it is the law. If you are a widget manufacturer, then – I think you get the point.

I have experienced many occasions when, in its desire to grow, a company strays from its core competency and involves itself in a business and industry it doesn’t know very well. Sadly, these new ventures begin to drain time and resources (most importantly, CASH!) from the main business. In essence, the core competency of the firm subsidizes the less successful venture.

Sticking to your competency requires a great deal of discipline, but it is the best way to grow your company. By sticking to your core, you will find the most profitability and enduring growth opportunities! In our role as CFO advisor, we help our clients harness the discipline to grow their companies the right way.