The psychology of bundling - Why I’m happy to pay for Cable TV, but I hate renting movies

I am feeling traumatised right now. Recently, in order to save on costs when I moved home, I let my all in one telephone, data and cable TV package lapse.  In my new house I went with a Naked DSL plan meaning that I have data only.

This means I use Skype for my phone calls, Apple TV for movie rentals, and when I am bored I go adventuring on YouTube. Hey, it fills the time – and there is an amazing array of content from talented people on YouTube if you go looking.

What is really getting to me is having to pay for movie rentals.

Don’t get me wrong, the rational part of me recognises that renting movies and buying TV series is actually cheaper than my old cable TV package, but somehow it feels painful. Every time I press the button to pay I wince – I can’t explain why, but it just feels awful. I am rethinking my purchase decision every time I buy something. This has me thinking about bundling services again, and what works, and what doesn’t.

I like Google Apps – pay $5 per user per month, and you have great functionality for a small business.

I like Vimeo - $199 a year for unlimited corporate video services.

I think whoever came up with ESRI’s payment system for using online GIS services needs a stern talking to for being an idiot. I do not want to buy a bunch of credits for a long list of services I don’t understand and spend them in ways I don’t understand. If ESRI were to give a packaged price (e.g. $50 per user per month, plus a bit more for really data intensive work) then I’d go for it. In the world of Big Data they are trying to serve, their pricing model is guaranteed to drive people away.

There’s a lesson in all this for our businesses. Customers like to know how much they are going to pay. Bundle your services and give fixed price packages, no more than two or three packages, and let your customer choose.

If Apple TV allowed me to pay $50 a month for a certain number of movies or TV shows, I’d feel fine.

Think of your bundling in terms of ease of use and certainty of pricing, rather than pricing up each individual service and offering completely flexible usage. The bundled package will fit their opportunity cost for accessing your service. You may be offering a cheaper product with completely flexible services, but you are forcing your clients to confront the buy decision each time they use your product, and that’s a major psychological barrier.

Support structure for entrepreneurs

Surrounding yourself with the right people is vital for anyone starting up a company. I can hear you all saying that this is patently obvious, tell us something new.

What I’d like to share are some generalised observations on exactly whom the right people based on my experience and what I see and hear from others.

Family

Let’s start with family. The best we can hope for from our partners is that they understand we need emotional support and encouragement to keep going.

I learned early on with my former and current partners that if I actually shared my day to day pressures that they just about imploded from the stress of it all. It’s bad enough that one of you goes into meltdown, but if the person supporting you also melts down then you have no support.

What has worked well for me is to share the dilemmas I am facing and ask for a common sense view on the situation. E.g. what should I do in this situation with a supplier, investor or employee.

If your partner can’t stand the idea of not having regular income and hates that you are taking risks that put their future plans, or plans of your children in peril, then to be brutally honest there is a fairly high chance that you are going to lose your marriage. You have a stark choice between your own ambitions and keeping the stability your partner craves. Good luck.

Friends

Friends are at the same time best and the worst supporters you can have.

When you first start out a lot of friends will be giving you unasked for advice on things.

You might get told that the finished product you are already selling after a large and expensive production run is crap and that it needs to be redone.

You might be told that you’ll never make it – the market is terrible, there’s no money in it, you have no ability to manage, etc.

Please forgive your friends. What they are really talking about are their own fears. They are projecting all the reasons they’d never start a business on to you. Just pat them on the back and tell them that it’ll be all right, and avoid talking about your business with them.

You might also get some friends who admire what you are doing and offer you moral support. Best of all, some of your friends will act like nothing has changed and catch up as per normal.

What many of us find is that your closest friends change over time, and those who can’t get over the negativity end up moving out of your inner circle.

Seasoned veterans

When it comes to obtaining mentorship/advisors to help guide the business then the well trodden path of contacting respected senior managers or retired executives with the experience and connections to help.

I have seen this both work well and go horribly wrong.

The nub of the issue is that you are bringing on board a bunch of grey hairs who have been managing others rather than doing the work themselves for years if not decades.

In other words, they are likely out of touch with the current market and how things have changed (and trading conditions, marketing, etc. always change). As generalist advisors they are great, but on specific matters they may not be the godsend you thought they were. They may in fact be giving you advice that worked in the mid-90s but is completely ineffective now.

The worst mistake I have seen is to put these seasoned businesspeople on the Board, in which case they can ending up becoming armchair generals of the most pernicious variety. Sure give them some shares, but keep them in a separate advisory panel for your own sake.

Professionals

Accountants, lawyers and professional business advisors are an interesting breed. There are good and bad in here.

The plus side is that they have seen the inside of a lot of businesses and can help you navigate the pitfalls of your particular industry and increase your chance of lasting a few years.

The limitation of any professionals as advisors is that they do not have any startup/entrepreneurial DNA.

The worst will tell you to have a BHAG (Big Hairy Audacious Goal) or to buy low, sell high and stick to your strategy. This is just like saying you should eat a good breakfast and exercise three to five times a week – absolutely correct and of no actual use.

For example, let’s say you are down to your last few dollars, you have 3 big customers who are delaying payment by a couple of weeks, your payroll is due in 2 days and your staff have indicated they will resign en masse if you miss another payroll. In this case the above professional advice is absolutely useless.

Your focus is on the day to day matters, hopefully all working to a bigger strategy. You’d love to work on the business and not in the business – but that is a luxury, not a day to day reality for most.

In fact, if you ever meet a CEO who tells you that their company is running smoothly and that they have plenty of time to work on strategic matters you know they are heading for trouble.

Fellow Entrepreneurs

I think that I have learned more from my relationships with other entrepreneurs than all the others, including my university studies.

I finally crossed the line into starting up a business by being mentored by entrepreneurs. What I learned was how to see the world in terms of the opportunities available, how much effort would be involved and what the margins might be to make it work. Not even the best MBA in the world can give you what spending hours talking to experienced entrepreneurs can give.

Seasoned entrepreneurs can teach you how to think, and can point you in the right direction on what you need to do.

However, as an entrepreneur myself I  know my own time is limited and that I can’t share everything with those who want it. Nowadays I often find myself in the position of meeting a bright, passionate and amazing younger entrepreneur, but I can’t give them too much time as they have so much to learn that I’d have no time left  to run my own business if I did. They are going to have to learn a lot of things the hard way, just like the rest of us do. This is especially true of those who won’t listen to advice but keep coming back to ask how to make their business model work.

The best situation is to find a group of fellow entrepreneurs who are at about the same point in company development as you. You are dealing with roughly the same issues at the same time and by pooling your experiences you will learn an enormous amount.

The Perils of Overdesigning your Product

It is starting to become painfully obvious that car and appliance manufacturers are going to have to relearn the hard way some of the lessons from the world of design from the 20^th century.

For example, between the 1930’s and 1960’s there were a number of attempts to design the perfect kitchen.  The premise was simple – a specific place for everything you had. There was a place to put the cereal box, the sugar jar, the flour jar, the pots, the pans, the kettle, the bread and so on.

I know what you are thinking “But that’s what I have in my kitchen now isn’t it?”  Not quite. You see, what the designers did was to find out the dimensions of the average item in each category and design a specific storage space just to fit that item.

What this meant was that for a year or two the kitchen was paradise and everything fitted where it belonged. However, things change. New appliances are invented and introduced to the kitchen. Packaging for products change. The type of products change. Old appliances need to be replaced and the replacement doesn’t fit in the space of the old one.

Do you get it yet? They designed the kitchen to match a static point of time – no allowance was given for change and after a few years people found their perfect kitchen was annoying and restrictive. Which is why your current kitchen has cupboards, big drawers for pots and pans, smaller drawers for cutlery and big benchtop space. Basically they provide storage spaces which you can put whatever you like in to suit yourself as needed.

Another example of overdesign would be the massive corner TV cabinets that many people bought at the end of the cathode ray tube era and still haven’t replaced. They take up too much room in the house and now you can get a flat screen TV that is too big for the TV cabinet for only a couple of hundred dollars. I see educational institutions and corporates making the same mistake again by building casing for wall mounted screens for sizes that are no longer even available 18 months later.

Which brings us back to car and appliance manufacturers.

Let’s start with appliances and my favourite example which seems to resurrect itself every couple of years – smart fridges. I am incredibly wary about having a touchscreen computer in my fridge.  What’s it going to run on - Android? How do I update it. How do I buy Apps for it? How do I get it fixed if it doesn’t work anymore. How do I update the software? Does the fridge work fully without it? (as in do I still have manual controls?) 

The simple answer for me is that if you really want a touchscreen for your fridge, can somebody please invent a fridge mount for my iPad or other tablet computer – that way I never worry about obsolescence.

Likewise cars. Somewhere in the last few decade the IT guys have been let loose in car design. The traditional designers who understand the driver and their family needs very well gave a nice looking spot on the dashboard for the screen, and somehow all adult supervision ended at that point. BMW and a couple of the other early adopters were infamous for how bad their systems were. The in-car systems were so flexible and had so many options you almost needed a computer degree to turn on your air conditioning.

I actually met a member of the BMW interface IT team – he moved to Australia and became a pipeline welding inspector working in remote areas in his early 30’s. Perhaps it was to escape any potential awkward conversations with irate BMW drivers.

One of the key design features for a car is that the driver should be able to find a knob or switch on the dashboard by touch and from the feel of it know what function it has. For the core car controls this should always remain the case. Having to look at, navigate and select functions on screen is a fundamental safety hazard as the driver takes their eyes off the screen. Even having a screen next to the speedometer with controls on the steering wheel doesn’t improve things very much.

Then we get to in-car GPS systems. Put it this way, a new standalone GPS system with Bluetooth voice for your phone is only about $100 to $200. That is a fraction of the cost of the manufacturer’s system and allows you to put in the latest and greatest every couple of years. If I own a car for 5 to 10 years, the last thing I want is a really old computer system in my car that I have to interact with.

In our corporate lives we also experience the overdesign and overcustomisation phenomenon with ERP other major pieces of software.

My key advice would be to produce a product that allows the customer to decide how and where to use it in their lives. You take care of usability and functionality and leave the rest to them. 

Less is more

You’ve heard the saying all your life, but the truth of it comes home to you in the oddest of times. For me, that was when I started online dating after divorce and it was a brutal and unforgiving lesson that less truly is more. There is nothing more personal than marketing yourself!

To put it simply, the more detail provided in a lady’s profile, the more likely I was to reject the person. What was happening?

What I found was that as I read through the detail I was actually going through what in any other context would be called the buying process. You look at a person’s likes, dislikes, favourite TV shows, etc. and see if you match up. The more specific they were, the more likely I was to rule them out.

Let me give you a couple of example profile– totally made up, based on the many I saw of course – so you can see what I mean.

Female 35, never married, no children. Non-smoker, social drinker.

I am looking for the love of my life. I look forward to spending our evenings and weekends together, going hiking, skiing and to add a bit of spice to a relationship for the occasional burlesque show.

I enjoy travel, and have been to 32 countries so far. My favourite places to visit are Bangkok and Paris. I could spend several weeks each year taking in the lifestyle in the Loire Valley or at Lake Como.

I speak four foreign languages (French, Italian, Spanish and Swahili) as well as playing the guitar and the piano.

I like going to art galleries when it is raining, and will always be found in the sun when it isn’t raining. Do you like extreme sports? I do.

I like catching up with friends, and having pets as a part of my life is a must. You have to like cats to be part of my life.

I go to the gym several times a week, and am considered an awesome aunt by my 15 nephews and nieces.

I look forward to meeting you soon.

See what I mean with this one. The ‘hypothetical’ lady in question is putting up information that relates to her lifestyle as a single, things she did when she was younger that she might no longer do, and several contradictory messages. She may be even putting up things she has tried once or likes the idea of but which aren’t part of her life. I am sure the male equivalents were doing the same.

While it is pretty easy to screen this person out, however, they may in fact be quite different to their profile and highly compatible with you.

Try this one instead.

Female 35, never married, no children. Non-smoker, social drinker.

I’m looking for a companion for life. Someone to be there when I come home from a hard day at work. Someone to care for me and someone for me to care for no matter what comes.

I am interested in starting a family if I can and am looking for the same in a partner. I would be pleased to hear from you if you have children.

I look forward to hearing from you

This could be the same person, but without all the verbiage. What this gets right is the core values and wishes, and recognises that the detail is something you will work out when you meet the person. Compatibility isn’t reduced to a list of attributes.

Simply put, when there is less of a description, you imagine the rest, and are a bit intrigued to know more.

The same applies to business and marketing.

I am fascinated by the websites of top cloud services such as Dropbox and Asana. They have a simple splash page, very little description, and a few FAQ, plus pricing. Basically they want you to try it, so give you enough detail to think that their product might be good for your purposes, but not so much that you don’t try it out.

Your customers are also looking at you in the same way. They will look for certain categories of service or products, but then if you provide too much detail they will go to an alternate vendor.

What you want your client to do is to get in touch and initiate the sales and negotiation process. You might well be able to fulfill their needs, but if your website or promo literature has specific lists and you don’t mention what they want they are more likely to dismiss your company.

When the customer gets in touch you can have more technical details or information available to suit their questions. But, don’t give that all upfront. Make it implicit in the fact that your company offers services or products in that category.

A good example I know from a highly experienced architecture and construction company is that they never put concept drawings or any form of visualisation into the tender package for any bid they enter. The reason is simple, the client may hate the building concept, and then reject a perfectly good bid.

Another trick is to bundling services and only providing a few choices for your customers. Web developers do this. They bundle graphic design and web hosting as a compulsory component, then base the pricing on the level of graphic design and feature sets. By limiting choices you make things simple and may elicit a buy response in the face of confusing offerings from competitors.

For service companies, I’d recommend online profiles of your people be limited to a description of one paragraph at most, and consider eliminating profiles altogether as it makes you look like a small company. That plus customers may read your profile and decide they don’t like you.

Make your marketing about the product or service and what it means for the client. You are not important except that you will need to deliver and may need to prove your ability and bona fides later in the buying process.

The three key outcomes you achieve with the less is more approach are:

• You retain the flexibility to offer solutions that match their needs by not being prescriptive.
• You don’t ‘talk back the sale’ through excessive detail, and you keep choices simple.
• It can funnel customers into engaging with you in the sales process rather than making up their minds without getting in touch.

Destined to learn things the hard way

The longer I am in business and working with many different companies, the more I am convinced that most of us are destined to learn things the hard way – from our own mistakes and those of others.

Text books are full of the wisdom and knowledge of those who have learned the hard way, but it seems that despite all our studies those lessons aren’t fully taken on board. It is one thing to say how something works in principle, but it is much harder to apply that to your day to day working life.

Likewise, by instituting best practice systems and processes you are assuming that all the knowledge of what works and what doesn’t is in the system. However, if your people don’t understand this, then their motivation becomes gaming the system to get the outcomes they see as best, rather than using the system to achieve the best outcomes for the company.

Have a look around and you too will recognise learning by doing is one of the fundamental paths to becoming good at what you do. That’s all good and well I can hear you say, but how can we take this approach and put it into practice.

The fundamental step is to recognise that when we start our careers we see parts of the job, but not the whole, and we definitely don’t understand how it all comes together. I know one international construction firm that explicitly recognises this.

This firm puts its new staff in at the deep end. They use these new staff to provide all the disciplines required for a job, but they put them on a small job worth a few million dollars as opposed to the hundreds of millions to billions for a major role. By being given responsibility, accountability and support/mentoring these junior staff rapidly learn how to, and how not to do things. They mature faster and understand how everything fits together faster.

By giving such trust to your people you are also encouraging them to be high performers. You also have the added benefit of creating a team who can progress together through the organisation.

The key lesson from this is that to help your people develop mastery of their profession provide a safe way for them to learn – a sandpit to play in if you like.

This lesson is lost when there is a lot of work on. This is particularly evident in Australia right now where a variant of learning by doing is in place – survival of the fittest.

Given the large amount of resource industry projects happening in Australia at the moment and the shortage in skilled and professional workers, there is a tendency to grab anyone who looks competent and throw them straight in the deep end by putting them in charge of a job. All too often these well-meaning people are performing to the best of their ability, but they have limited skills in management, budgeting, project controls, legals, commercials and all the other skills they need. Such skillsets are acquired through learning and practice and are often far outside the experiences of most people. Universities are manifestly failing to produce graduates with such skillsets.

In such situations you get bad commercial outcomes, poor project delivery, cost and time blowouts, and a failure to recognise your own commercial rights and claim them. The human capital damage is pretty high too. I have seen good people have breakdowns at being given responsibility. The higher the budget they are responsible for, the worse their anxiety and performance becomes. Even worse, those who tend to fearlessly thrive in such an environment are sociopathic by inclination which may not work out well for your company as such characters tend to ruthlessly overwork their own team and destroy relations with contractors and the client.

Survival of the fittest can work to a degree, but it ignores the fact that if you train people up over time, then you can have a lot more competent people available in the workforce than if you just throw people into major jobs in a situation that is beyond their capability.

If you really can’t afford to take the time to train your own people up, then I recommend that if you have critical role then hire for people who have a proven record in that area. Enthusiasm, qualifications and a can do attitude are manifestly inadequate.

Further steps would also include the following.

Mini-startups - Be brave, consider setting up a mini-startup in your company. Give the vision, budget and resources to a group to try something new, or to deliver a project. They will learn more from that process than all the procedure manuals in the world.

Strong leadership is vital - Make sure your team pulls together instead of going off in their own directions. High performing teams tend to be full of strong minded individuals. You need strong leadership in place to keep them going in the same direction and keep them from taking an axe to each other.

Provide optimism and hope - There is not a project or product development in the world that doesn’t hit rough patches. You may know from experience that you can get through it, however, less experienced staff may look at the amount of work to be done before a deadline and simply give up, or go off on a tangent. Destructive mentalities and gossip can start. Even worse, the blame game can commence. You should provide that overarching calming effect rather than engaging in a “Lord of the Flies” type experiment.

Vocational training is important - University education is good, however, vocational training is every bit as important. Competencies in job roles, software usage or other areas important for productivity and job mastery need to be learned through vocational training. Universities don’t teach this stuff, and you shouldn’t rely on people teaching themselves these skills.  As part of your training and development plan I would highly recommend the inclusion of vocational training providers.

Recognising that our working lives involve constantly acquiring new skills in order to be productive and implementing training and initiatives to allow learning by doing is an important first step for your company’s growth.

Start planning for the futility of planning

Planning is essential for the survival of companies. It helps set the course for the company and provides a template for how to retain customers and hopefully grow the business. Unfortunately, a lot of planning is around resource allocation and communication, which is fine in itself, but doesn’t take into account the most important issues in long term survival, which are mostly beyond the control of the company.

The things we don’t talk about are exemplified by the following.

Technical obsolescence - a new technology or process is available that undercuts your company’s products.

Change in competitor landscape - unforseen competition from larger competitors – domestic or international.

For example, during times of economic downturn many large consulting and professional services firms start taking on the jobs that small firms would normally do at the cost of keeping their staff employed. This effectively kills many small firms.

Alternatively, a well established player from another market (e.g. China, India, Brazil, etc.) can come in to your market and upset things.

Slump in demand – e.g. demand is weak due to the state of the economy, or customers saving rather than spending due to a fear of losing their jobs in a recession.

Political risk - Regulatory interference is another killer. Projects take longer to be approved. More administration is required for compliance leading to higher costs. Your industry sector could be specifically targeted by government. Legal rulings can have a similar effect.

Unknown unknowns - totally unforeseen and non-predictable events can also kill a company. For example, with the recent revelations that the US NSA is effectively spying on a lot of global internet traffic, many non-US users of US cloud based services are rethinking their patronage of such services. In this case a sudden drop in customer numbers could kill a good company almost overnight.

Mixed in with all the above is a decent amount of research which tends to show that the survival of a company over a 10 year period is a random outcome so long as the company has passed through the formative years of startup.

To put that in its starkest form, it is the factors beyond your control that will make or break your company in most circumstances. All the systems and the process you have in place are about delivering what products and services you already have profitably. Research shows that better systems and processes are really about fiddling the edges. You may achieve slightly better results than your competitors but it isn’t a major factor in the longevity of your company.

So, having said all that, what can we do? How do we plan for things we can’t plan for.

Establishing resilience is the recent terminology being used. Obviously it consists of simple things like having enough savings to push on through a downturn and having a broad enough customer base to lose some and keep going.

Less obviously, resilience also means evolution – adapting to a change in environment. Plan for obsolescence. Set up a group of thirty somethings with the task of working out how to put your current business out of business. Then when they work it out, make that your new business strategy, and consider putting them in charge.

Work your senior management and Board hard. They have learned how to do business based on the conditions that occurred in the past. Many will have little ability to deal with the rapid changes in technology and marketplace occurring now and could insist on staying the course when they shouldn’t. A good example here in Australia was the utter failure of the Fairfax media group to come to grips with internet based competition.

While business common sense is hard won over many years, your leadership team may no longer understand the business and economic environment they are applying that common sense to.

You will need to educate them, and dare I say it, you will need to plan to replace them as the business changes. If they don’t get it they shouldn’t stay in the role. Having grey haired figures on the Board may make bankers and pension fund investors happy, but it may also be the seed that kills your company.

Scenario planning is another good option. Have a think about what would happen if things dramatically changed for your market or your business. What could you do about it? Can you plan for some of those things now? Work out where you are most fragile and look to fix that if you can.

There are no easy answers and much of the above goes against human nature- which is to not admit anything is wrong until it has happened, but it is worth at least planning for some time to think about that which can’t be planned for.

Time is NOT money

It’s official – I am now sick of the phrase ‘time is money’. And, yes I am as guilty of saying it as anyone else.

Everyone seems to say it but as far as I can tell it seems to be mostly used as an excuse for being lazy rather than for good management practices.

When you are starting a company the one thing that you have that doesn’t cost you money is your time.

The fallacy in the ‘Time is money’ phrase is that if you are not specifically earning money for your company in any given hour, then your time is not worth money. But it could be spent doing things that will help the company earn money in the future – and saving cash by not paying someone else.

Let’s go back a step. When you still working in a corporate role you are used to having service providers for pretty much everything you need and can go through a process of getting a budget to pay for your resources.

This all changes when you have a startup. Here are some examples.

• Why spend $1000 on a website design when you can plug and play with Wordpress, Weebly or Wix. Just go check out websites you like, including competitors, take the time to learn the basics about layout and go ahead.
• Use a simple spreadsheet for most processes, tracking inventory and keeping your books for the first while.
• Need to fit out your office – assemble the flatpack furniture yourself.
• Do your bookkeeping entries in the evenings and save on fees.
• I know many professionals who pay for cleaners, gardeners, people to wash and iron their clothes. This all makes sense for a lawyer who is billing 10 hours a day, but for the rest of us it is just an expense.
• I know a lot of entrepreneurs who manage to talk experts into giving them a day or two pro bono on issues that are important to them. That’s a good use of time too.

To be a business owner is to realise that the one thing you can give a company is your time. This is one of the key differences between an employee and an owner. An employee works the hours they are required to, and doesn’t want to do anything more. That’s fine, that’s the contract.

An owner, or even a manager has to go above and beyond that. If you have a share in the profits then you have to earn that. Simply doing the normal 40 hour week is unlikely to suffice.

So, stop waiting to have the money to pay for someone else to come and fix your problems. Learn how to do things yourself. Sure you will make mistakes, but you’ll also learn what works and what is important.

Also, if you want to use your time better, you need to learn to stop being busy for the sake of being busy. Learn to prioritise and work on the things that are most likely to help the business make a sale, improve its products or services, or learn something to make yourself more productive and effective at your role.

Pricing to recover high development costs

When you have a new product with no easy comparables it is vexing to price. This is the source of many a nervous breakdown.

The typical questions are:

• Do we price at a high level assuming only a limited number of customers?
• Do we price at a low level assuming a rapidly growing customer base?
• Do we charge once off up front or do we have an ongoing/trailing fee?
• Can we offer leasing arrangements and charge the customers a fixed price per month?
• Do we simply write off some of our R&D costs to reduce the amount we need to recover?
• Do we include the costs of developing failed products in the total we are trying to recover or are we strictly limiting the charges to the direct costs of the product?
• What kind of marketing/logistics costs do we need to recover as well?

Not a short list.

Just to be controversial – lets pick Monsanto the global biotech/agritech company as an example.

Monsanto spend billions developing new products. They do research on a very wide range of ideas, hitting blind alleys on many of them I am sure. Then for the promising products they have to run the gauntlet of approvals required for genetically modified organisms. That is, years of greenhouse and field based trials on growing the crop and then proving the safety of the product for consumption by animals and humans.

It is likely that only a small percentage of their promising new products come onto the market.

For example, Monsanto developed a soy bean variety that is resistant to glycophosphate based weed killers (e.g. Roundup). That’s great for farmers as they can plant the crop and then simply spray glycophosphate onto the crop to kill all other plants except their crop. That’s a pretty major advance.

I am sure Monsanto would have loved to have charged a once off upfront fee to farmers. “Yes, it’s $1.50 a seed, but you will save hundreds of thousands over the next 10 years.” I am sure farmers told them to get knotted when they can already buy seeds in bulk pretty cheaply. That plus I am sure farmers were thinking that they could buy seeds from other farmers in the future.

So what could Monsanto do?  They came up with pricing that allowed the farmer to be able to afford the crop. There was an upfront seed cost, but that came with a contract saying they couldn’t onsell seeds, and they had to hand over a royalty of about 2% or so for future crops. 

That way, Monsanto’s IP is protected, it can recover costs over time at an upfront price that farmers could accept and it can protect its market.

All in all, this is pretty innovative thinking that is taking care of their customers and their own business.  The only problem is that this goes against thousands of years of farming tradition in which farmers buy seed, grow crop, keep some seed aside for the next year, and also sell seed to other farmers too. So the current debate is how many generations (seasons) can Monsanto charge for. The backlash against Monsanto is pretty big right now, especially in developing countries.

As the Monsanto example shows you can be pretty innovative in your pricing. Customers often are more worried about the upfront cost coming out of their wallets now rather than the ongoing costs.

For your first few major customers you may even try pricing based on the customer’s ability to pay (if I remember my undergraduate economics courses correctly, this is called a third degree pricing policy).

Many high tech startups selling into the corporate sector have tried exactly this to set their ultimate pricing point.

Have fun, and most of all don’t sell your product too cheap just to guarantee sales.

Your GPS thinks you are stupid

I have a confession to make, I am not longer enamoured with my GPS. 

 

It started off as a passionate relationship where I used it every chance I could to revel in amazement at its technological mastery, then I went through a phase of trying different voices (male, female, Australian, US, Canadian or English), and even trying the different languages so I could learn some basics of French and German as I drove to work every day.

However, like all former favourite toys, my GPS has been sitting in a drawer in the house for a year or so now.

When I think about what tore our relationship apart it was the way my GPS always considered me to be an idiot. Every time I started it up it gave me directions on how to get out of my own street.

Well, I have a fix. Imagine the following dialogue with your GPS instead.

Good morning, please state your destination.

54 Mallabar Road on the Gold Coast please.

Okay, do you know how to get to the M1 southbound to the Gold Coast.

Yes

Alright, please head there and when we get close to exit 63 I will reactivate to take you from there

Imagine your GPS giving you the following instructions.

Do you know the big Westfield at Carindale?

Yes

Well go past it on Creek road southbound till you can see the McDonalds sign. Turn right at the lights just before McDonalds, keep going till you get to the roundabout and then turn left.

Imagine your GPS remembers your friends place or places you regularly go to.

Do you remember how to get to the Indian restaurant you went to last Saturday?

Yes.

Please head there and I will reactivate to give you precise directions when you are close.

Or, how about the following.

Do you know how to get to Kedron?

No.

In that case, do you know how to get to Enoggera.

Yes.

Please head towards Enoggera and I will give you precise directions from there.

Wouldn't that be fantastic. Let's face it we know our way around the city, even unfamiliar parts of it to some extent or another.

We can navigate by street names, major intersections, suburbs, shopping centres, petrol (gas) stations, places we go to regularly, sports grounds, golf courses, etc.

An obvious problem with the ideas is that these places change over time. Well, yes, and that also raises the question of who keeps the data up to date. So lets start with suburb names, major road names, major shopping centres and major intersections. Those don't change too often.

Ultimately, it would be nice to have this all through your smartphone, possibly only a voice based system with visual maps only if and when you need it.

This makes sense to me as it is how I and most people I know navigate. Once you have familiarity with an area, you look up a map to see if there are any landmarks or waypoints near your destination that you are familiar with and then map out your route from there. What we never do is work out how to go the whole way.

So, here's to a revolution in GPS to make it match us humans.

Strategic consulting for beginners

A lot of new businesses I see are related to providing strategic consulting services or advisory services. These businesses are set up with good intent and a lot of enthusiasm for the topic, but almost all fail, so I thought I’d share some of my observations from the industry over the last ten years.

Experience

You need to have recognised industry experience to be successful in this game. This can be senior management (C-suite) experience at a big company, or well known smaller company, or it can be deep technical/subject mastery.

In other words not only do you know your stuff, you need to show you know your stuff.

Put yourself in your customer’s shoes for a moment. If you are a senior manager at a company you are going to want to tell your colleagues and Board that you found someone who can really make a difference as they have demonstrated experience and/or knowledge. You aren’t going to hire a nobody.

Branding

The major established advisory and consulting firms have built a reputation for providing their service over many years, if not decades. Yes, you can probably do as good, if not a better job for less, but you don’t have the brand recognition that goes with it.

Brand can be an antidote to lack of experience. Larger consulting firms can show their organisation’s experience, good systems and processes, and experience partners/lead consultants.

Having experience at a well known consulting company certainly helps when setting up a consulting company, however, many learn the hard way that the former clients they got on so well with no longer wish to know them.

If you are totally new to the business then you only have any brand recognition with people who you have worked with before.

Loss of face

One of the more subtle problems with providing strategic consulting and advisory services is that you need your clients to admit they are doing things incorrectly.

Not many people make it to senior management roles by admitting mistakes readily. So when you walk in to an organisation saying that you will help fix up or prevent the problems at that organisation, what they are hearing is “you are idiots and I have come to save you.”

More than anything, I think this is one of the largest barriers to success in the business.

An ounce of prevention may be worth a pound of cure, but nobody wants to know you until things have gone horribly wrong, then they’ll get you to fix it up.

I know quite a few experienced and capable consultants who would love to prevent the problems they see cropping up everywhere, but they keep on getting called in to sweep up the mess and staunch the bleeding.

Trust

A lot of quite senior people set up their own consulting company when they leave a permanent role. They then try to sell themselves as providing that same role as a freelancer.

In their prior place of employment these people held a lot of influence and controlled quite a lot of resources. To put it simply, they built up trust through their performance at their previous employers.

With the exception of major project delivery, it is very rare for a consultant or contractor to be trusted with a senior management role.

Scalability

By definition strategic advisory firms are difficult to scale up in size. Let me give you a simple analogy to explain why.

In a given business or profession there are three general levels of competency. There are those who follow the recipes given to them, there are those who have the recipe book and then there are those who can write recipes.

To be a strategic advisor in its purest form means that you can write recipes. That is, you can go into an organisation, understand their business, their market, their culture and also where they need to be and what they need to do. This means that there will be you and maybe a couple of others with complementary skill sets who will work on a problem together. You cannot just duplicate your skillset and grow the company.

Many of the larger management consulting firms actually have a recipe book based on studying companies and industries, so they are providing you with recipes which were written by others. These firms can scale up based on having years of research and a good brand name. This is going to be difficult for any small consulting firm unless you have a strong academic background.

The Answer

Strategic consulting is about telling companies what to do. However, companies only want you to write the recipe, they don’t want you to cook as well.

So, if you want to succeed you also need to provide a team of lower priced and competent people who can actually deliver on the processes and change management required for the company.

Start off with people who know what you can do as strangers won’t trust you in the beginning. Your brand will grow over time and you will be able to scale up considerably, but probably not until somewhere between years five and 15.