Andrei Arno: evaluate your business from your customer’s point of view
How to survive in a decaying and even in a falling market? How to find new growth areas and how to elaborate a correct break through strategy? These are the questions being pondered over by our resident expert Andrei Arno, Head of the Arno Business Consulting Company.
- Today all manufacturers and distributors are looking for new areas of business growth, the break through zones. In your opinion, where are they now? What should business pay attention to?
The more complicated the market situation is, the more often entrepreneurs start looking for untapped reserves. The words “areas of growth” and “break through zones” sound just fine. But the bottom line is that one has to look for opportunities to optimize the business and its effective growth. The classic goal of every distribution channel is to maximize the reach of the targeted group of customers providing the maximal margin. This means that everyone tries to sell the maximum quantity of products to the maximum number of customers for a maximum price. At the same time one has to keep the expenses on the minimal level. Thus, we can emphasize two basic principles for the business improvement: the sales growth and the minimization of expenses. The sales growth means to match exactly the consumer needs of the targeted group of customers. The difference of a small business from a large business is that it works with a relatively narrower targeted group of customers. For a retail shop this means 500 to 800 key customers, for a distributor it means 50 to 100 dealers, for a manufacturer this means 20 to 50 key partners. This means that it is necessary to maximize the sales to them in the first turn. For this purpose it is just necessary to find out what exactly product and for what price they need. After that, it is necessary to find such product. After that one has to inform everyone that it is available. This is a very simple technology of finding the “growth area” and of the “brake through zone”. Think – search – prepare an offer – inform about the offer – make the sales. And there’s nothing more to invent.
The second zone of business development is related to costs and expenses. When I optimize this area, I – sometimes literally – make my client look at his own business from the point of view of his or her own customer. All that is done in business should be done with one purpose: to facilitate the purchasing process for the customer and to make it the as comfortable as possible. When you look at your business process from the point of view of your customer, you’ll be surprised how many costs can be cut with no damage to your business. And every saved ruble automatically goes to the profit. In my practice, such optimization helped to cut the expenses not just by 5 to 6%, but up to 30-35%. Isn’t it a break through? Isn’t it a growth area?
So in a small business there’s no need to invent complicated schemes. It is just necessary to start from the targeted customer group, to form your offers targeting their needs, and to modify your business processes to make the optimal sales.
- Your customers are manufacturers, distributors, and retailers. How do they find a common ground? How start-up companies can get to shop shelves of retail chains?
Owners of small companies who want to reach a new level in business often come to me. If this is a small foreign manufacturer, the goal is to secure a foothold in the Russian market. But practically all of them dream to see their products on shelves of a large federal retail chain. For many it is a dream of a happy life in paradise. They think that once they are there, they’ll be happy. However, it is absolutely not so. There are retail chains among my customers. What do they need? The large retailers need a steady low price providing a steady margin. The large retailers need stable logistics in order to be able to supply as many goods as their retail outlets need. They can have 100, or 500, or 1,000 or even 5,000 retail outlets. The large retailers need a stable quality, so that every lot of goods had an equal quality, and the quality was the same at all of their stores. The large retailers need continuous advertising and marketing support providing that there are enough products and accessories at all of their retail outlets. And, finally, the large retail chains need a stable and positive brand image. If you can provide all of the above, you can start negotiating and use techniques of an effective negotiator. There are clear criteria to select suppliers. You just need to conform.
There is one subtlety which I encounter when I prepare my clients for negotiations: a small business owner will have to negotiate with a line manager. That means a business owner has to deal with a hired manager of a rather low rank. This is the second obstacle but it is not less serious. Even if the small business owner is 100% sure that the retail chain needs his product badly, and he is sure that he has everything necessary to start a long lasting and mutually profitable cooperation, he, at the first stage, has to sell his company to a simple category manager of the retailer. And here the most difficult thing comes. The business owner is not always ready to see the situation from the point of view of this category manager. And no business meeting can be successful in this case. Over the years of my practice, the biggest, the major, the number one reason that a business owner didn’t manage to enter the retail chain was the fear of that category manager to make a mistake and become responsible for it. Tons of approvals, gigabytes of e-mails, tons of used paper and thousands of printer cartridges might be necessary to break the resistance but not to break the fear the category manager in front of his boss. Therefore the small business owner should be a much more experienced negotiator and to possess a much more developed empathy than his counterpart. Meanwhile, the business owners are quite proud of themselves and do not like to bow to anyone. And sometimes I have to give a number of consultations in order to form a correct strategy of business negotiation which helps turn the category manager into your product supporter instead of a problem maker.
Therefore, I can give two simple pieces of advice. Firstly, make sure that you really have everything the retail chain needs, and you are ready to provide it, and, if necessary, to adopt your offer to their requirements. Secondly, make sure you are prepared for a “negotiation siege” of a line manager, and that won’t stop until you make him or her your ally using all necessary instruments of business “seduction”.
- Many companies are now making an optimization which in fact means a simple reduction of the number of personnel. What would you recommend to the managers who start this process?
Reduction is such a terrible word. Every time when we together with the client start to shake up the organization structure of his or her business, it turns out that one of departments of the business has too many staff. The excessive personnel are a problem for every business, especially for a small business. They occupy space and receive salary. The company buys computers for them, and accessories, and furniture, and so on and so forth. Besides, almost all business heads to a greater or lesser degree understand that the job can be done by fewer people. How to understand if there’s a reserve? I have noticed over a number of projects that 20% of the hardest working and qualified personnel do 80% of the job in their departments. The salaries of these hard workers are sometimes the same as of those who are lazy. The conclusion is evident: you have to kick out the lazy ones. But how can you do it in real life? Firstly, you need an adequate system of work effectiveness evaluation. You need exactly a system, not just a number of unclear KPI’s. There are not too many personnel in small business; so the boss can always formulate his or her expectations for a specific manager in a specific job position. The boss can make up the necessary KPI suiting these expectations. Secondly, it is necessary to implement personal responsibility of the staff for the result of their work and to link the salary to this responsibility. Thirdly, it is necessary to set tasks and plan the work volume according to professionalism and discipline of the staff.
- You’ll be holding two seminars at the exhibition. For whom will it be useful to take part in them, and on what will you put an accent in your speech? What educational programs and services does your company provide?
We have been cooperating with this exhibition since 2012. Over this period we have told everything we know about the secrets of a successful business. This year we will have two practical seminars:
• Price and product range management under high competition between sales managers and when customers have money shortage
• Customers Psychology: how to manage customer behavior, and how to persuade them to spend money in your shop?
These seminars are mainly targeted at directors of retail shops and retail chains. The point is that since the start of our activity in 2006, we have been annually making 10 to 15 consulting projects for retailers. We are aware of practically all hidden rocks in the retail business. We know the best ways to avoid them. We know how to find and use the opportunities. Of course we know how to locate and extinguish perils. We have been conducting research on customers’ behavior. We make serious and true conclusions on today’s changes of this behavior. We’ll be sharing these secrets at our practical seminars. We’ll be speaking about the working methods and instruments, and necessary practical steps. We are not doing this just out of curiosity. We want the market to get up from stagnation because it would be easier to work in a growing market than in a falling one. In the very beginning of our activity we chose the slogan for our educational sector “Real Knowledge for Successful Business!” And we are proud that our seminars are based on the real cases and are engineered for real entrepreneurs who want to achieve better results!