Things an Old Man Knows

Ten days ago, at the annual meeting of the most innovative and successful small business owners in America,* I was handed a series of questions to answer during the problem-solving session. Most of the questions had to do with recurrent frustrations in business.

When I saw the group excitedly taking notes, I was a little bit surprised. Then it hit me, “I’m a lot older than most of these people, so they haven’t learned these things yet.”

If they were glad to hear those solutions, maybe you will be, too.

Here are a few of the things I told them:

Your work doesn’t always speak for itself.

Explain what you did and why you did it. Talk about a couple of ideas you considered, but rejected, and explain why you rejected those solutions. Only then will your client understand the thought and planning and effort you put into what you are delivering to them.

You have maximum credibility when you put the sale at risk.

Agreements established before money changes hands are the agreements that will forever guide the relationship. The time to explain what will not be included is when the sale hasn’t yet been made. Clearly and memorably emphasize anything you need your customer to remember in the future. To gloss over a possible disappointment during your presentation – or to bury it in the fine print – is to deceive your customer and poison their future trust in you. So say the difficult thing up-front. Don’t wait until later.

When your customer rejects the solution you have prepared, don’t argue with them, even when they are clearly wrong.

Just do the extra work. Only after they have approved your second solution will you have the credibility to convince them not to use it. To debate with them earlier will only make it look like you’re trying to avoid doing the extra work. But don’t be surprised if your second solution is every bit as good as your first. When that happens, just go with the second solution. Remember: it’s not about “winning.” It’s about making your customer happy.

Never be afraid to charge more than anyone else in your category.

And never be afraid to pay the highest price, either. The only company that can fund a customer’s hoped-for experience is the company with a fat profit margin. The services you get for half-price aren’t the same services you get for full price.

It’s harder to get attention in larger cities because there is so much more happening.

Ad campaigns take longer to get established in large cities due to the customer distraction caused by marketplace noise. The upside of large cities, however, is that the market potential is so much higher. Businesses in smaller towns often take off quicker, only to later face a sharply limited market potential due to the smaller population.

Growing a local business from 2 or 3 percent of the market potential to 20 percent of the market potential is easier (and more fun) than lifting it the next 5 points, (from 20% to 25%.)

The reason for this is because you will have picked all the low-hanging fruit by the time you are making 20 percent of all the sales in your category. In other words, you’ll be selling everyone who likes to buy the way you like to sell. Growing the 8 points between 25 and 33 percent of market potential will likely require you to make some changes you have long been reluctant to make. And growing a business beyond 33 percent of market potential is virtually impossible. The only exception to this is when the category has a shortage of committed competitors.

Here are a few different ways to calculate market potential for any business:

(Try to do it three different ways and see if the numbers agree. In my experience, they usually fall within a 10 percent window of variation. The two most reliable numbers are (1) the educated guesses of the sales volumes of each client in the category, and (2.) the NAICS totals, which are based on taxation data.)

1. List every competitor in your category and attach to their name your best guess regarding their sales volume. Total these, and be sure to include your own volume. This is your market potential.
2. Extract the total U.S. sales for your category from the NAICS data at www.census.gov. Divide this number by the population of the U.S. to get a per-capita average. Multiply that average times the population of your trade area. This is your market potential. NAICS data is clunky and hard to isolate, but it’s there and it’s reliable. Just keep digging.
3. Most trade magazines will publish the annual U.S. volume for the category they cover. Divide this number by the population of the U.S. to get a per-capita average. Multiply that average times the population of your trade area. This is your market potential.
4. Ask Google for the national and/or state sales per-capita in your category. Calculate a per-capita average, then multiply that average times the population of your trade area. This is your market potential.

NOTE: The weakness of methods 2 through 4 are the assumption that the population of every city behaves roughly the same as the population of every other city. This is why state data is better than national data, but your local store-by-store estimate (#1) will likely be the most accurate of all.

Here’s how to determine whether a service category is populated with strong competitors:

Compile the total number of Google reviews for the entire category in the trade area. What percentage of that total number of reviews belong to the company with the largest number? If the leader has only 6 to 10 percent, your category is begging for a leader to step in and bloody everyone’s nose. If the leader owns 20-or-more percent of all reviews, look to see if the second, third, and fourth-place finishers are close behind. If they are, this is going to be a tougher-than-average marketplace in which to compete in that category. If you see a leader that owns 30+ percent of all the Google reviews, these people are a force with which to be reckoned. The exception, of course, is if you’re in a small town without a full complement of competitors.

NOTE: This methodology assumes that a company’s percentage of the total reviews for their category will reflect (1.) the size of that company’s customer base, or (2.) that the company has a high degree of customer engagement. Either way, these percentages are an indicator of the relative strength and weakness of competitors in that category.

Hopefully, you’ll find some of these tools to be useful.

Have a great week.

Roy H. Williams