Time to Polish Up Your Value Proposition?

In a recession or downturn customers cut back - if you don't believe me, read the headlines of major firms 'Hitting The Wall' and making severe cuts - most companies will be watching cost far more carefully. So now is not the time to have a nebulous argument about your products and/or services having a Return on Investment, it needs to be real, clear and provable or else you may find your sales start to fall or dry up. Crucial to your success in proving the worth of your product or service is the Value Proposition - the short, snappy, realistic and demonstrable argument that it will make an instant, positive bottom line impact to your customer.

What is The Difference Between Value and Cost

In a rather famous if pathetic demonstration worthy of David Brent, I once showed the difference between cost and value. At a company I worked at I had instigated a quarterly award for the top ranked salesperson. At an all-hands sales meeting we used to highlight that person's performance and hand out a genuine glass award complete with the person's name lavishly etched onto the glass.


I argued to the salesteam that the cost of the award plus engraving was no more than £30. Yet the Value was potentially hundreds of thousands of pounds. In a complex, mathematical proof, I calculated that in the right hands and expertly presented, the person who receives one or more of these awards could highlight it in their CV and job interviews for the future and demonstrably prove they were better than all other salespeople at that company. This, I argued, could put an extra value on their next sales compensation package anywhere from zero to say £10,000 per annum. Multiply that over 20 years as it will reset their earnings capacity from the moment they argue this and get their next job, and QED we have £200,000 extra earnings.

I proved an object which COST no more than £30 had a VALUE of £200,000.

Smoke, Mirrors & Targeting

It can work both ways and it's very much about the skill of a presenter, strength of argument and where you pitch it as equally I have argued that if you take a £100,000 Porsche to a disease infested, arid land it's value is no more then an object to sleep in. Take it to Wall Street and at bonus time it could be worth double its cost as it is instantly deliverable whereas most of the traders will have to wait for their toys.

The Value Proposition of anything has a specific and distinct meaning depending on where and to who you apply it.

So when working on your Value Proposition you need to be absolutely clear about how it is applied and works with every different type of customer. And in recessionary times, I would argue that means you need to apply it to the customers who a) are most likely to get the MOST benefit from your product or service and b) those customers who are more likely to AGREE with you.

There is a strong message here. In tough times, choose your target customers very carefully as diluting your sales effort will only decrease your chances of sales. Make sure you focus on the targets most likely to buy your wares.

Constructing Your Value Proposition

Your products/services mean a lot to you and so your perception of their value is potentially very different from what a customer may think or perceive - so the first step is to take off your rose-tinted glasses and put yourself in your customers' shoes.

Step 1 - understand your target customers' businesses.

Step2 - make sure your product/service is applicable

Now is not the time to be selling 'nice to haves' or non-essential things - make sure there is a clear need within the business you are selling too.

Step 3 - profile your target customer

By understanding your customers' businesses and comparing them to those you had success in, you can more accurately describe or profile not only the type of customer you are likely to be more successful selling too but even home in on the job function of the person most likely to be swayed by your argument. This is very critical to avoid wasted time being fanciful about your prospects. These are tough times, maximise the use of your resources and make sure you minimise the cost of customer acquisition - cash is king, remember.

Step 3 - review your current pipeline in detail and compare the current prospects with your target customer profile. Be ruthless, those that do not match discard and make very few exceptions. Salespeople are optimists by nature and guilty of wishful think - you don't have the luxury to indulge them in tough times.

Step 4 - Create your Value Proposition

• Ask - what does my product/service do for companies/people?
• What difference does it make?
• What would happen if a customer chose not implement my product/service - would it have a detrimental effect?
• What is the tangible benefit my customer receives from my product/service?
• Quantify that tangible benefit in terms of actual perceived benefit like cost saving or boost in profits. Remember a boost in profit might be reclaiming lost revenue or profit as well as finding new revenue or profit.
• Avoid Return on Investment arguments as they can often lead to long periods over which the return is realised. In recessions and downturns, companies are focused on the short term - weathering the storm. Only things that Return on Cost will really attract attention.
• Is the argument on benefit real and clear? Make sure you are not picking on contentious areas where the customer may question your assumptions - make sure you understand their business and how they account for costs to be sure.
• Research each customer before you call or visit - make sure you are hitting topical notes as business conditions are changing fast.
• Use references - make sure you can back up your benefit claims by referencing names of customers where you have already provided these benefits and where the customer is happy to either substantiate your claims or allow you to use their name and the quantified benefit. Try to get references n exactly your target customer areas to provide greater credibility.
• Try not to make general claims - using a general benefit statement like 'Use my service and I can save you 60% on your Opex' is contentious as a) how do you know that 60% saving is achievable and b) do you know exactly what is included in every customer's Opex? Be specific and avoid losing credibility early. Try things like 'By using my service Bloggs & Co who in your industry saved 60% on their IT maintenance Opex, I believe I can do the same for you' and have one of more ready for use.
• If you can, create a Compelling Event. This is really hard and what maybe a compelling event for you may not be the same in the customer's mind. It's about creating a point in time beyond which by not using your product/service a customer may actually quantifiably lose out. It could be specific legislation has been passed, a compliance or governance issue, a cost impact comes into effect (everyone uses a price rise, try something creative).
• Your biggest competitor is no change - remember the strength of your Value Proposition must address this.
• Be able to articulate the Value Proposition in a short paragraph or long sentence. Either by email, phone or face to face you will have very little time to gain impact and get someone's attention. The American 'Elevator Pitch' where you have less than the time it takes a lift to go up a few floors in which to grab the attention of senior people. If you cannot articulate the Value Proposition and the key benefit in that short period of time, you are highly likely not to get the attention of the individual you are selling to. In writing, it must b short, sharp and full of impact as most new emails are discarded before the first sentence is finished.
• Make sure the 'Elevator Pitch' is known by heart by EVERYONE in your team or company. There is zero point in not having consistency or not sharing the belief. Everyone must be both bought in and be able to articulate it at will. Everyone is responsible for the delivery of the Value Proposition.
• Test your Value Proposition - make sure you 'road test' your value by bouncing the Value Proposition off existing customers or external contacts. Adjust it if it does not resonate.
• Follow up - back up your short, sharp Elevator Pitch' with succinct material that explains the Value Proposition fully, graphically if you can and fully referenced to corroborate it.
• Pitch this Value Proposition to as many people as you can - make it a company mantra.

Your Value Proposition is your unique difference and your ability to articulate it is your passport to sales in a recession. Now is the time to make sure it is succinct, clear, quantifiable and proven.

Turning Negatives Into Positives To Beat The Downturn

There are a lot of executives, managers and businesses out there who don't quite understand what a slowdown or recession actually means or how the beats works. When it hits, your business can quite literally 'Hit The Wall' and stop in its tracks.

In a single 24 hours of reporting, 12,000 job cuts were announced between the UK and the US in such recession-proof companies as DHL, Nortel and even DairyCrest - after all we all have to keep sending things, make phone calls and drink milk. Don't we?


Tell that to Starbucks whose profits collapsed in the fourth quarter amidst a sales slowdown that may herald the end of the coffee shop culture that has thrived in the boom time.

Hitting The Wall

The pattern is this - one quarter business is fine, the next business has smashed into an immovable object. In less than 3 months, new car sales dropped 21% and immediately Pendragon lay off 2,500 staff while mega-companies like GM and Ford are financially in danger. In the US Circuit City went from solid High Street business to Chapter 11 and a potential 43,000 job casualties.

Today the UK unemployment figures will be announced and everyone is expecting the figure to rise above 1.8m for the first time since 1998. As the effects of the bail out after the Credit Crunch we are still unsure of the effects on the financial markets as companies like AIG go for a third top up of an additional $40bn, so do not be surprised if bank lending habits will not change too rapidly even if the base rate drops - remember most banks lend against the LIBOR rate not base rate and LIBOR remains substantially higher than bank base.

Beating The Recession


I have blogged before on this. While your business may look good or even vibrant right now, the biggest mistake you can make is to believe it cannot change. Recessions are like that - they hit and hurt - and fast. As headline companies take a pelting, the effects ripple outwards and hit at frightening speed. Even countries, take China for example - one minute growth capital of the world hosting a spectacular Olympics and its GDP enjoying the boom as 70% of it was reliant on manufacturing and the booming export markets. As recession bites, exports fall (freight prices have collapsed by over 90%) China is hammered having to lay off workers - all within a 3 month timeframe.

So plan for change - whether you think a recession is good or bad, just plan.

My Advice is:

• Make sure you take a long hard look at your forecasted sales and the individual pipeline deals and test their validity. Be specific and look at every one.


• Amend your assumptions - test all that you thought before and apply 'what ifs'.


• Look at who your major customers today and try to understand what the recession means for them and how that could affect you. Recessions are all about knock on effects.


• Take a long hard look at your costs - make sure you are not spending money as if it is a boom time - make sure very item of spend has instant return associated with it. The mantra is to spend every penny as it it was your last. Look at all general expenses like travel and get hard on policy now - stop first or business class travel, high quality hotels and expensive meals - make people aware and savvy. Use alternative technologies like confereing when you can to reduce travel.


• Take a look at your cash requirements as a business. Firstly, make sure you are maximising your cashflow - collect cash more voraciously and hang onto payments longer. Save what you can and build up your reserves. Talk to your bank early about your facilities - don't wait until your desperate as no-one will lend you cash for expenses.


• Take a look at your staffing requirements. Rather than just filling holes in the headcount, why not think about contracting in skills when and where you need them to do specific tasks which have immediate ROI. Try not to take on any further employment liabilities, use a 'Pay as You Go' mentality as there is a vast and experienced pool of people out there willing to contract.


• Think about modifying bonus structures to get the right staff behaviour. Don't just carry on as usual but gear highly for results and behaviour which support your goals in a downturn.


• Talk to your customer base - show them how you are thinking about them. Make sure you are putting a blanket of value and service around them to justify the business they give to you at the price they pay. Things will get competitive as everyone gets a little desperate - make sure you sell on value not price and that the customer understands, acknowledges and accepts it.


• Don't embark on massive customer acquisition programs and high marketing spend. What companies want to hear in tough times is what you can do to help them survive, reduce costs or increase profits. Make sure your value proposition is strong, clear and quantifiable for every customer you sell to and that all customer facing staff can articulate it.


• Choose your new customers very carefully - don't end up with your best deal being Lehman Bros days before they collapse. Profile who you want to do business with, research the companies that fit and direct your sales people with strong value propositions and messages directly at them.


• Network more - the world of networking has changed dramatically. With cheap tools like LinkedIn and Zoominfo you can pin point names and people you may want to connect with to help your business. Be disciplined and network for a specific period EVERYDAY and increase your reach. Get active in discussion groups, ask and answer questions and show your expertise, and reference your company whenever you can. You will attract more enquiries.


• Talk about yourself more. If you have insight or positive things happening, get press releases and out and talk to journalists - they will be desperate for good news and stories. Make case studies and get customer statements - make your own positive vibe, just don't sound smug about it.

People Can Make The Difference

Above all, join your staff into the plans. Communicate your thoughts and ideas with them and let them join in. There was a marvelous story recently how Caterpillar staff came up with more flexible working times to ensure 300 jobs were saved. If the staff feel they are also accountable for success or failure, they will help deliver. They want to survive as much as you do.

The biggest disservice you can do to shareholders, staff and investors is to stick your head in the sand and think the recession cannot hit you, then 3 months later or less your business 'Hits The Wall' and you are left with having to make drastic cuts and changes just to survive. That is when people turn on you and the drag on the company due to ill feeling, lack of trust and fear just increases the inertia. As you try to push the business forward, it just slips further backward as if in its own spiral of despair.

If you plan early, weather the storm and make sure your business is well prepared for downturns then when the upswing comes, as surely it will, you will be better prepared and placed to take advantage of the opportunities at hand and be able to watch all those companies who are still making cuts and lagging be left behind.

Just don't ignore it. In the next year unemployment may rise to 3m and possibly 30,000 businesses will fail - recessions are real and they bite.

Why? It's Just Not Cricket, You Know.

Have I gone mad? What has boring old, stuffy cricket got to do with business strategy?

The Test match cricket I grew up on in the 70s was turgid ‘absorbing’ stuff as commentators described. As the West Indies bombarded England stout fellows put their body on the line and scored at the rate of two runs per over barely. Fast forward to 2005 and ‘Ashes Fever’ gripped Britain as England duelled with the best team possibly in the history of the game, Australia, and Test match cricket had then doubled its scoring rate and pretty young girls in my gym discussed if Simon Jones would achieve ‘reverse swing’ after 22 overs the next day – I think it was the properties of the cricket ball they were talking about.

Cricket has been slow to re-invent itself and gain wider audiences and the game at its highest level has not progressed a massive amount since the days of WG Grace when the bearded giant became possibly the world’s first sporting superstar.

Phase One

It was in the 70s when the concept of a shorter game at the top level gained credence and we saw Sunday League 40 over cricket and International One Day games of around 50 overs per innings. In a single day rather than 3 or 5, a match could be concluded and it represented a pleasant and sometimes exciting day out. It was very popular amongst more than just cricket fans.

Phase Two

Then at the turn of the millennium came the major innovation, Twenty-Twenty. Avid club cricketers like I could relate to this. You leave the office at 5.30pm and get a game started by 6pm and it’s over by just after 8pm. The first class game adopted it and it became an instant success. With floodlights and razzmatazz teams could ‘biff, bang and wallop’ for a couple of hours and produce a great spectacle. It meant in a Summer’s evening, sports fan of all varieties could have an exciting night out and have great entertainment.

Phase Three

It took businessmen in the cricketing mad nation of India to really take the concept of Twenty-Twenty and revolutionise it. This is where business and sport converged. In the theory that talks of businesses swimming in the crowded, turgid Red Ocean, cricket re-invented itself and took to the warm, inviting and competitor-free Blue Ocean.

You see, the issue with all the innovations in cricket as it stood was that they generally embraced the status quo. If you shortened the game, the same teams, with often the same players participated and competed amongst themselves maybe with different shorts. It was tweaking formula to get a bit more out of the fans.

In inventing the Indian premier League (IPL), the rule book was literally torn up. Taking a leaf out of the highly successful model of the UK’s Premier Football League, businessmen packaged a league and sold its rights as a franchise to new clubs who could participate. Those new clubs were given direct access to cash from the media bonanza and they did not just pick the same-olds, they went out and attracting the best players in the world to play in their teams. With a few English exceptions, the IPL kicked off this year with the cream of world cricket. In the inaugural game, New Zealander Brendon McCullum smashed 158 not out including 13 sixes in the very first innings and we knew we had a different sport.

The first tournament was won by the Jaipur Rajasthan Royals captained by the great Shane Warne and for just 8 weeks work many of the cricketers had pocketed a cool £300k.

Blue Ocean and Your Business

The IPL is a very good example of a ‘business’ moving out its comfort zone or Red Ocean where it has limited market growth opportunities, sensitive margins, low differentiation and lots of competition and moving into a much richer Blue Ocean where competitors have not staked out a plot, customers see the value and there are profitable growth opportunities. Some people like Sir Allen Stanford, the philanthropist Texan Billionaire, believe the new Twenty-Twenty game could attract a whole new swathe of players and nations and even – now hold on a minute – even the USA. A fast moving, similar format to Baseball – OK we may have to be realistic here but I see what he’s saying. It could be a whole new world for cricket, and a whole set of new players as the new game is so very different.

As we all view the effects of the recession loom, it is a good time to reconsider your own business plans. Are there warmer, more tranquil waters full of opportunity and few competitors that you can take advantage of? If so, how do you do it?

One thing is for sure, the Red Ocean will indeed run red and turbulent in the next year. Now is the time to take a long hard look at your plans, positioning, cost base, value proposition and think long and hard how you can adapt and clear a patch in your market to not just survive but thrive.

Well, it's a rainy day. Now What?

A Lot Can Happen In A Week.

The 'Deripsaka Affair' momentarily took our eyes off the bad news. Today's Times tells us UK borrowing will rise to £60bn as Tax Revenues are predicted to collapse. Why do the laymen fraternising bars know more about the economy than Chancellors, reporters and City financiers? Pick a random pub in Britain 2 years ago and the sage sipping his pint would have told you a) house prices had risen way beyond all means to pay as had credit card credit which would end in tears and b) a recession will hit soon enough which will mean high unemployment, a higher burden on the state, less corporate profits and therefore less tax collected - so a hole in tax revenues would occur. And mine's a lager.

Doom and gloom is suddenly upon us now that 'Mr. Prudent Brown' has finally succumbed and uttered the 'R' word - Recession. In the last quarter UK GDP shrank by 0.5% and worse is predicted to come, indicating a technical recession. I almost sighed a relief that at least we can now prepare for it having admitted it, like a drunk facing their addiction at last.

But just a week ago, most people I met suggested their business was still doing well, and no downturn had been seen.

This week, one of my own clients failed to secure their next tranche of VC Funding mainly as the pot was empty as the VC was Hedge Fund-fuelled. Almost like an avalanche, bad news kept coming in.

The Bad News Keeps Coming

Mervyn King, Governor of the Bank of England, delivered his annual Financial Stability Report, you know that stability Mr. Brown talks of for the last 10 years. Well it went a bit wobbly. Last week, King announced the banking system came the closest to collapse since World War I and that it was due to 'Systemic Failure' - advice he could have got in any of the last 5 years in my household but he's only paid to do his job. He estimated the total loss in the Banking System is around £1.8 trillion and so far globally Governments have consumed £750 bn in bail outs (I think his sums are wrong personally). The litany of failed banks is long - RBoS, HBoS, Lloyds TSB, Northern Rock, Bradford & Bingley, and Barnsley Building Society in the UK have old gone into partial or total public ownership exposing the tax payer to hundreds of billions of potential liability. In Iceland, there was a total failure of the country's banks as credit was denied them - pushing them to meltdown while they held over £1bn of UK public money plus private savings - the country itself almost went bankrupt. In the US we saw mortgage giants Fannie Mae and Freddie Mac go public while Lehmans popped its clogs, Merrills got bought, AIG was rescued twice.........oh I am depressing myself.

The UK housing market according to Nationwide will lose more than 25% of its value and reading different reports it will mean between 1.2 and 2.5 million mortgage holders going into negative equity. The market, it's predicted, will not recover until 2013. A little factoid for you, as the UK house builders quite literally hit a wall, less bricks were made for the UK market this year than at any time since 1945.

Unemployment is fast approaching 2 million and estimates say that it will reach 3 million before it gets better putting another huge burden on the State - it is now higher than when 'Prudence' Brown took over, as indeed is inflation which at its highest for 16 years, so much for puny targets.

As we contemplate the interest payments on the £400bn bank bailouts and cheer Mr. Brown for ensuring that not a UK deposit of savings was lost, he tells us that borrowing more to pay for all this and increasing public spending is actually the right way, as his well-worn Keynes book tells him. The borrowing that independent bodies like Ernst & Young, the IMF and OECD have told him was way too high 5 years ago, that is. This year's Government target, which will be 'robustly' broken like all their fiscal make-believe, was £38bn. If the predictions are right, very shortly it will not far off be double that and it goes way beyond 50% of our GDP.

Britain is being mortgaged in a major way. If our debts were called in, each taxpayer would approximately owe the Government around £50,000 whether you were able to pay or not - around the same for the US.

And the Banking issue is not yet resolved as the Stock Markets indicate. The FTSE 100 is now down at around 3800 and still shows signs of frailty while the pound is at a 5 year low against the dollar - a sharp fall in less than a year of around 42 cents. It is estimated around $535 trillion of open derivative positions, those nasty money-making vehicles at the root of our problems, exist and to put that into perspective that's a mere 35 times the US GDP. Oh and there's a further associated $400 trillion of insurance positions to account for.

China, that bastion of emerging economies, is also slowing as demand for their cheap goods which account for over 70% of their GDP, slows dramatically. Retail sales, which have held up remarkably well, dropped by 0.4% in September and shops predict the worst Christmas buying period for years. The pound drop means a hop to New York for Xmas shopping in the Thanksgiving Sales simply is no longer worth it, while cheap French booze is no longer that.

The good times really are over.

It poses all sorts of questions about how we should have avoided this and that all this 'Global Crisis' affecting the UK as if we were not part of the problem being hokum - but that really doesn't help the small businessperson, trying a) grow or b) survive recession now that we have it.

Any Good News?

Today BP announced $10bn PBT for the last quarter and oil prices have shot down from a peak of $147 to $62 per barrel which at least makes fuel cheaper at last.

And that's about it.

How To Survive

Enough with the gloom - we have all seen the Sequoia Presentation on the web which it presented at its All Hands CEO Meeting for its protege companies, well there was some sound advice for us all, if most of it was simply presenting the financial predicaments graphically for those who couldn't read.

Last week I made a presentation to a group of Entrepreneurs and while I focused on some common business weaknesses for small or emerging businesses, gave some tips on how to expand their networking (which I have blogged on before), I also gave my tips on how to survive a recession. So here goes - it isn't exhaustive and it's deliberately simple:

• Common Areas of Business Weakness

1. Wishful thinking - most businesses see their future they way they would like it and a lot is rose-tinted. Recession hits most businesses in some way or another and its best to acknowledge it will hit and have some impact. Plan for it and don't deny it.
2. Understanding the Sales Cycle - most emerging businesses think that sales will occur naturally and that once the light bulb goes on, companies buy. The fact is, the bigger the company you sell to, the more lights need to go on and usually that means more people resort to process to buy. If you think your sales cycle is likely to be 3 months, double it for larger companies and then don't be surprised if it's longer. Further, if your product or service is synonymous with the 'Good Times' so is a nice to have not essential, it is highly likely that in recessionary times companies will simply not buy. Think about how your product impacts the bottom line and reassess your 'Value Proposition' to customers - I will address this separately. Remember, sales is a game of numbers - the more people you meet, the more likley you are to increase sales. Similarly, don't rely on a few large customers, spread the risk. If one customer suffers a downturn then you are more likley to survive unless you wholly dependent on them.
3. Spending Money in The Wrong Areas - many small businesses don't think through the impact of cost or capital spend on their bottom line. In recessionary times Sequoia tell us 'To spend every dollar as if it was your last' which is pretty scary but the maxim works. Think about every detail of spend and then test it against the benefit it directly produces. If it does not stack up, don't spend. Reassess all current spend and look to see where savings can be gained as cash is absolute king - the last thing you should be doing in a recession is increasing borrowing for working capital, and banks will not support it.
4. Assumptions - 'are the mother of all evil' - well that was my invention. At any time, we all make assumptions, particularly in forecasts. Recessions are horrible beasts, they actually ruin forecasts because one minute all the numbers and graphs look great and the next they all go red and point down. Gordon Brown made a whole lot of assumptions and his continual denial to himself that the growth in the country was unsustainable cost us all an enormous amount of money and liability to pay for his damage. We are his lifeline, his collateral or assets to save his neck and the country. It doesn't work like that for small businesses - you get your assumptions wrong and there is no-one to bail you out. So acknowledge recession, think about its consequences in your market and start thinking about whether your assumptions and forecasts actually reflect what could happen. Remember should you 'hit the wall', no one is going to believe you if you predict for a few pounds more, the graphs will again go up and figures go black - reality is really a swine.

It's all about balancing Optimism with Objectivity

The Value Proposition

Picking up on my theme above, companies in recession will buy only against certain criteria. Like you they will not buy products or services which do not impact the bottom line and they will be rigorous on this.

All sorts of reality bites. As a for instance, if you are in recruitment, as unemployment goes up and open headcount goes down, the competition for every open position increases dramatically and once again we will see what on earth value is there is charging 30%+ of salary as fees for searching keywords on CV database? Differentiation is critical and track record is worth not a jot in a desperate market. Cost is king.

The Value Proposition in a situation like this is critical. How can you deliver more value versus your competition and so justify your cost? Remember it has to have a direct effect on the bottom line. For those who want an answer to that question, I have a free download on my website www.calxeurope.com which gives some ideas entitled 'The Cost of Bad Recruitment' - the Value Proposition for customers and recruiters alike is highlighted in there.

And so for all other businesses, think about what extra you are directly delivering to someones bottom line and why - quantify it. At this point, my thought is do not get hung up on the competition, but focus on each customer and tailor the Value to them specifically. Give examples of those successes and ask existing customers to talk on your behalf or give testimonials. Think about what impact does the customer have if they do not buy from you? Quantify that and think about a specific timescale when that benefit is either lost or gained - a 'Compelling Event' if you like, the D-Day of increased cost for not using you.

In a recession, your biggest competitor is 'No Change' - make sure you tailor your Value Proposition to answer that specific situation and remember customers will buy but only demonstrable value.

Keep Flexible - Put The Workforce Where It Is Needed

• It's usual to contract out payroll, cleaning, accounting, even manual labour but what about sales and marketing?
• There is a huge, experienced labour market already out there - guns for hire.
• They can be used at short and long notice to augment your efforts.
• These people are not employees and they live by their results and reputation, so they always go that extra yard to succeed and deliver.
• They can be paid more inventively, highly geared to results and even made part-time. It's a 'Pay as you go' culture.
• More importantly your needs change constantly, one week you may need telesales, the next face to face experience - pay for what you need, when you need it. Similarly in marketing, one month you need copywriters, the next web maintainers or designers - pick and choose the expertise and apply it when and where you need it.
• Negate onerous employee obligations and costs. While daily rates may seem higher, you only pay for what you need, when you need it.
• Be adaptable - pay for the skills you need as you go.
• Pay for experience as you need it.
• Pay for geographic reach as and when.

Pay for what you need, when you need it - be flexible, lean and mean.

Recession Beating Thoughts

The Sequoia Presentation highlights some key thoughts for small and emerging businesses and here's my take:

• Focus on costs - evaluate 'return on every cost'. Don't keep spending just because it's in the budget. Review, reforecast and adjust spends in all areas. And do it now.
• Be Realistic - Make the tough calls now. Recession is ugly and forecasting and adjusting is vital. That will inevitably mean review of major investments, projects and even people. Make the tough calls now. When the recession as at its hardest or even beginning to ease, it is not the time to be making tough decisions on cost because it is very unlikely that your finances will be strong enough to take advantage of the upswing. Of the last 6 major downturns, the markets have recovered - so make sure you are thinking about weathering the storm and the upswing and that means make tough decisions beforehand rather than after.
• Budget to Survive - There is no point thinking the position you are in now is going to last. Everyone will get affected in some way, there will be even some who benefit. Sit back, reforecast and budget to make sure you survive rather than being hopelessly optimistic in the face of the obvious. Now is not the time to be embarking on major programs of investments or new projects which do not have immediate returns.
• Pay for Results Not Failure - Make sure all staff are joined into the position. Recently Caterpillar saved 300 jobs by the workforce going onto flexible working. People will be reasonable and help if you are communicative and sensible - and lead by example. Banks who fly executives to Spa resorts at the time of crisis don't win favours so think about your own largess in front of employees. They will respect your decisions if you also live by the same credo. Link any new payments to results - make sure all new costs are covered only by the profit created rather than paying in advance.
• Choose Your Customers Very Carefully - remember, it costs around 5 times as much to find new customers than keep existing ones. Throw a blanket of value around your existing customers and go that extra yard to make sure service never degrades. Pick new customer acquisition very carefully. Keep away from competition and price sensitivity - some business can really be bad business. Assess their worth, the cost it might take to acquire them and your capability given your existing resources in servicing the business.
• Keep Reviewing Your Pipeline - In a recession customer buying moods change like the wind. Make sure you constantly review the pipeline of deals to ensure they are realistic and reforecast and adjust accordingly.
• Conserve Cash - above all make sure you collect cash voraciously and hang onto it as long as possible. Remember nobody will lend you cash for Working Capital like salaries or possibly even to buy stock. Banks are more risk averse than ever and if there is one major consequence of all that avarice at the top end it is that the small customer and consumer pays the price, because we simply have no choice but to do so.
• Funding - getting new funding specifically from VCs in 2009 in particular is going to be tough as their own sources of funds are drying up but they will certainly be calling the shots on any deals. Don't put yourself in that situation if you can avoid it. If you are starting up, pick a market where your products and services will be bought no matter what the economy is doing, build a proof of concept in terms of getting early sales and then ask for money to grow rather than really start up.

All this may seem a little excessive before the real party begins. Well things can change very quickly. As mortgages dried up, Estate Agents saw their average house sales drop to 1 sale per week in no time, Savills reported an 80% drop in high house sales in a single quarter. The recession will cause a sharp and very hard fall in confidence and it will affect you. Plan now to avoid its consequences.

If you need further advice on any or all this, please call me on +44(2) 207 193 2356 or mail to info@calxeurope.com.

International or European Expansion - How do you go about it?

My ‘If Only’ Story

A long time ago, I was offered a job as the UK Sales Manager of a US Company entering into the European market. It had a natty name but they were simultaneously changing the name to the founder’s name and adopting an innovative ‘direct only’ sales model, almost unheard of in the industry at the time. Stock options, salary rise and all, my then employer persuaded me this would never catch on and I actually turned the job down.

The Company launched in the UK and changed its name to Dell. The rest, as they say, is history.

Some Companies are Different – Why?

Dell is joined by other Companies like Symantec, Autodesk, Microsoft, HP, Oracle, Apple, IBM, and SAP in that they all have very strong international businesses so much so that all of them have significantly more revenue coming from their combined international operations than from their domestic markets. And it isn’t a coincidence.

It’s a fact that rapidly growing, early-stage companies have to focus on domestic markets initially to build credibility with reference customers and that pleases the VC and banks they partner with no end. But to be a dominant force in future years, companies must also make plans for business development internationally, and in reality this should be undertaken as early as possible.

Some Companies Missed Their Opportunity

After the boom and bust of Web 1.0 where so much money was wasted on futile ideas, VCs and therefore fledgling Companies became very reticent about international expansion. In fact, US Companies began to view European trade as not cost effective because of the multitude of languages, cultural differences, business rules, accounting issues, potential duplication of resources and shear size that they adopted a ‘suck it and see’ approach. Local agents were appointed or persuasive Channel Companies given exclusives or single-man-in territories were set up as a ‘shoestring’ method was adopted to cultivate markets. Yet they knew full well that to be successful, they needed to extend their tried and tested domestic model to the international markets. It was doomed to fail and it did. I can’t remember how many Companies I spoke to post-web 1.0 who wanted to take that approach and failed.

We could all name one or two of those that failed to take advantage of their domestic leadership to become serious global companies but it is just history now. Web 2.0 and newer thinking in terms of VC money is helping drive a fresher approach.


It’s all in the Timing

The timing conundrum is a two question issue:

1. When should a Company start planning to expand internationally?

The first question is relatively easy to answer as those who haven’t had an inkling or a vision of international business expansion at the very outset are probably never going to succeed in being a global player or indeed they may be happy with a domestic market only. So the trick is to start planning as early as possible. Having this international expansion vision early sets the expectation early in management and cascades through the organisation from the start. This poses an interesting question of its own – ‘Do I have management who are sufficiently bought into international expansion?’

As a quick anecdote on this, when I first met the management at PlaceWare, the VP Marketing felt very strongly that Europeans and Brits in particular were not capable of working at the pace required to be in synch with the US parent – and he referred to working at ‘Internet speed’ (no doubt he had read some Bill Gates throwaway comment). Some months later, the VP Sales joined me on a sales tour. The first day started badly when I had him check out of the hotel he bad booked into for 3 days as I pointed out that the agenda I had sent mentioned visits outside of London – he was not amused having little idea of European geography. We visited a large Enterprise customer in London, travelled to West London to visit a major Telecoms Company and then got on a plane to Paris. The next day we visited several customers in Paris before flying to Nice and having a day visiting Companies in Sophia Antipolis. At one point he very nearly fired me because he had not had time to get his morning injection of coffee. He later regaled to the story to our annual Sales Conference in California highlighting to never, ever underestimate the work ethic of the Europeans.

But it was illustrative of a type of US management character that tree-hugged domestic sales even when talking a good game about international business. The VP of Marketing in question had a degree from Trinity College, Dublin and that might have explained a slight misconception about European work ethic!

Planning early is about being committed to grow internationally from the start and this means understanding the implications of decisions made on future international business early. Having that thought process in planning growth early is a vital part of building a platform for international success in the future, even if it is not to do something on an international basis immediately.

There are an awful lot of things to consider – have no doubt. Local accounting practices, tax, legal contracts, terms and conditions, pricing, cash collection, product development, languages etc but these really kick in on implementation.

2. When should the Company start implementing an international strategy?

In reality, while there are other key issues as I have mentioned above, to consider, implementation is mostly about sales and marketing and their execution. Classically, if the decision is made to implement international expansion too early, there may not be enough dollars to do the job properly.

When at PlaceWare, management foresight brought them to set up a European business very early. In doing so, I was able to build a small team and actually out-sell PlaceWare’s domestic nemesis, WebEx, and become the European market leader within a year. But PlaceWare had extended itself too far on US expansion and ploughed a lot of money into product development – not enough was left to drive sales and marketing in Europe. Consequently, a year later, WebEx made its move and set up in Amsterdam. It put a whole lot of funds in to drive marketing and sales. A year later, the status quo was achieved and WebEx became the worldwide market leader. PlaceWare got bought by Microsoft for a song; WebEx has been sold for billions to Cisco.
It was all about sales and marketing execution.

Taking the Right Approach

I have seen it so many times. The first move by a US Company is to either buy plane tickets or to believe in the smiling chap who has alighted on their offices and told them they are the most successful sales agent or Distributor in Europe. A year later either there has been some sporadic success in named customers or the Distributor won’t take your calls because they don’t have the time.

Getting the focus required to succeed isn’t easy and it comes from the planning.

The daft thing is that nobody would adopt the same approach in trying to extend their reach domestically, so what on earth possesses people to make such leaps of faith is mystifying.
My free advice and it’s worth every penny, is save yourself that airline ticket and save the cup of coffee for the grinning foreign Rep. Do some planning and research instead – there is no real substitute for this. It may cost a little time and even money but believe me it is small fry compared to the cost of plane trips to nowhere.

Ask Yourself Questions

It may seem obvious, but every Company needs to ask itself: ‘Why do I want or need to address international markets at all?’

As I mentioned earlier, some Companies may be happy that they can only be successful in their domestic market – and that’s actually a good strategy if it fits into their financial goals. You don’t have to be an international player to be a successful Company in many instances so don’t be afraid to answer the question in the negative.

If you have answered negatively but in your business plan to the VC you promised you had access to a global market worth $3 billion, don’t be surprised if there may be some repercussions!


It is fair to say that this would be unusual in the high-tech arena, in any case there are some questions which need to be answered:

Going back to the VC business plan -

• What are the overall goals of our various stakeholders, and does international market penetration feature as a requirement in those plans?


• What are the individual international market dynamics and requirements?


• What is the competition doing?


• Why are they doing it that way – is it being successful?


• Is international market entry more of a defensive measure because the competition is there or you have one or two customer subsidiaries who want product or is it for a genuine market leadership move?


• What are the costs involved?


• How do these costs compare with doing more of the same in domestic markets?

Get Expert Advice

It is important to get advice – and expert advice rather than barstool anecdotes. There is plentiful research available on the web about demographics, industry trends and they can be very targeted on the specific markets you wish to address.
And there are experts who have been there and done it before – who bear the scars and the success stories.

People like me have had experience of working with and for US Companies who want to get into Europe. Knowledge and know-how is vital but does cost money. It’s as well you know that up front but it’s worth it in avoiding issues and mistakes later, and getting traction and sales much, much earlier.

Also, commit internally and externally to the resources required early. In developing a plan for international expansion, have someone whose role and responsibility encompasses this and is not swamped by their day job. That or employ or contract to some one who can do just that.
More importantly, the company needs to be able to articulate the reason for international business development to the stakeholders, and to justify the resources necessary to make it a success.

The Differences You Can Expect

Once you have decided that international expansion is a strategic goal, and via a considered research and planning phase you have identified the key markets to attack by assessing the proposition and size of market opportunity, then you have to consider some of the nuances and complexities that, quite literally, go with the territory. I always describe Europe to any prospective client as being like the United States – a single large geography with individual state boundaries. Sadly, each speak a different language and have different cultures and ethics – unlike the USA which has 50 states adopting the same currency and language largely watching the same TV shows. So watch out for just a few of the issues:

• Language


• Culture and ethics


• Business methodology


• Finance and tax regulations


• Employment Law

Try not to second guess how people buy in each territory because chances are they are different.
Equally, things are changing – many EU countries have adopted a single currency and many of their contractual laws are similar. But it is fair to say that a different approach will be required in many territories and you need to assess the viability of each beforehand.

Obvious ideas on market entry are:

• To set up a wholly owned subsidiary


• Build a channel contracted distributors, sales agents, OEMs or resellers


• Have a local joint venture with an exclusive partner.

There are several ways of doing it but this is where the Expert Advice becomes invaluable as this is where the largest, long term error can be made.

Crisis? What Crisis?

It is not quite the same parallel to the famous period in the 70s when the then Labour Prime Minister went on holiday as the country literally disintegrated around him with rubbish piling high and uncollected in the streets and blackouts started in the evening as energy strikes bit. However, I can't help raising an eyebrow when people insist we are in a 'Credit Crunch' or 'Economic Slowdown' and not a recession.

What does 'Economic Slowdown' mean?

The technical definitions by economists are a few quarters of successive lack of growth and recession is the same but with negative growth. That's a pretty simple definition but of course to the average person in the street, we see the signs of such monsters a little earlier.

Inflation is the first thing to hit us. I struggle with Government definitions but I only have to look at petrol prices, the average weekly shop and energy prices (it now costs me over £1,800 per year to power and heat my home - a semi-detached 4 bedder) to know that inflation is rising. House prices are coming down and the market is stagnating - I know people who have had their property on the market for over a year, yet it was the sort of house that would have sold very quickly before that.

And then there is business.

How are you feeling the Business Pinch?

At a recent event, a good friend of mine who runs his own Hi Tech Recruitment Business, said he had not experienced any slowdown. In some respects I agree. My business is dependent on outside companies wanting to expand and grow in the European Market and I have certainly seen greater reticence by US companies wanting to expand but equally I found Israeli and Indian companies to take up the slack.

However, his comments did intrigue me. We all know that one of the direct outcomes of a recession is lower corporate profitability, moves to cost cutting and inevitably, job losses and higher unemployment. I read recent newspaper articles which show that the number of new headcount positions across industry generally peaked some months ago and is now falling dramatically, while the same articles predict unemployment in the UK to rise to over 2 million.

It may be that some sectors, like Hi Tech, do not see such effects so rapidly. Much of their revenue comes from capital spend rather than operating costs and so maybe that is still healthy? It shouldn't be - as capital raising and availability is one of the major consequences of the credit crunch. In fact borrowing in general for overhead funding should be harder. So why is the Hi Tech market apparently bullet-proof as we experience marked slow down factors like rising fuel and energy prices which affect the cost of manufacturing and transportation of Hi Tech goods?

Head in the Sand Management

One of the prevailing factors that led us to the Credit Crunch was 'Head in the Sand' management at banks and finance companies. No Black Swans in the system were required, it was common sense that all the assets could not rise harmoniously and endlessly - there had to be a debit somewhere, and we certainly got it. The same management will survive and talk of new financial models as if they learnt a lesson but ultimately it will be people like us who pay the cost of it through mortgages, loans and general lending products.

And so in the Hi Tech sector. Perhaps the apparent buoyancy of the Hi Tech recruitment market suggests a 'Head in the Sand' syndrome within management of these firms - a belief that they have not yet experienced a slowdown in revenues and so they may believe they will be immune to its effects? It would be interesting to see what such managers think and understand their logic.

Certainly, as the dollar-pound-euro exchange rates ease, US companies are going to feel a little more bullish about Europe and its possibilities. There has been a strange logic prevailing for the last year that says while the dollar rate is high, such companies did not want to employ local European staff as their salaries in dollar terms were often far in excess of equivalent jobs in the US or even of the hiring managers. Yet the same firms seem to be equally happy to pay agencies fairly huge sums to do some 'Market Testing', which usually involves a short term project at quite a substantial premium to the market rates. It has certainly been a curious time.

If you judge the general market for jobs as shrinking due to the almost non-existent Recruitment Supplements in the quality papers, the Hi Tech market seems to be getting stronger and stronger as new adverts appear on Linked In and Job Boards by the minute, new email alerts and now even text alerts. It seems business is not slowing down in the Hi Tech market - on the contrary, it appears to be booming. And recruitment is at the forefront as only a week or so ago Michael Page rejected a £1.3bn bid for its business, clearly reasoning its price will rise in the current market rather than shrink.

So is this a 'Credit Crunch', 'Economic Slowdown' or 'Recession'?

Between all the doom-mongering, reactionary talk, and alarmist commentary then laissez-faire management, Black Swan random event theories and economic cycles there must lie the answers to the questions of what is it we are experiencing, how far will affect us and for how long? It would be helpful to business planning for most of us although I would advocate a policy of Prudence. Some questions on LinkedIn recently have asked what should you do in slowdowns or recessions - gear up or cut cost? Knowing what we are in would help answer that question because the two schools of thought have merit but I would suggest the art of execution is all in the timing.

For those companies who cut their cloth, pull in the reins or chop out unprofitable business to focus on core, may well be in the middle of these activities when the upturn arrives and so they actually magnify the effect of the slowdown and often irreparably damage some of their future earnings by missing opportunities. While those companies who carry on gearing up suddenly find a massive whole in their finances and jeopardise the entire business - rather like the banks have done.

Common Sense Prevails

The most sensible route is to try and gauge the market. If you are going to gear up - think about what areas of product, service or expertise are actually more needed in recessionary times and put more effort in those areas. If you are going to cost cut, be sensible about which areas you damage and try to do it one action rather than instigating a 'death by a thousand cuts' which you see so often as management misread the situation and thought a few cuts here and there suffice. It ends up in demotivating those who stay and that produces inertia and inefficiency of its own accord.

For those companies wishing to expand into Europe from outside, I would definitely avoid talking to recruiters - they do not care whether your business survives or not. Ultimately, in my business my aim is to work with my clients so as to make my services redundant to them at the earliest opportunity. This means testing the market is not about putting a toe in the water it's about achieving results against which you can make sound investment decisions for the future. So define those milestones carefully so that achieving them will tell you what you want to know and above all, work with a professional company that has a track record of understanding what emerging businesses need in order to be successful in Europe. It isn't about just getting a few sales, it's about selling in the professional image of the parent, attracting good business, representing the company in the press, at events, seminars, workshops and driving the KPIs to achieve the results. You want it exactly as if you were doing it yourself and that requires the most important element - trust.

If this appeals - we should be talking.

Who Tracks Quality of Recruitment in Your Company?

According to research by US firm Manchester Partners, 40% of executive hires fail in the first 18 months.

I have to say my experience puts the figure closer to 50% but it is still a staggering proportion. Recruitment costs vary but if you took a rough average of 30% of the executive's first year salary you would not be far out. Then multiply it by the remuneration you have wasted on a poor recruitment decision over the 18 months and you will start to understand why bad recruitment is costly. Then add on the opportunity loss for not finding the right hire in terms of the profit not obtained because the hire failed to achieve finding it, suddenly you get an inkling of the true cost to the business in both cost and missed profit opportunity.

Accountability for Poor Hiring

Going back to my article on responsibility vs accountability, is there a person in your company or organisation who is specifically accountable for making poor hiring decisions? I am sure there is not. The last CFO at Lehmans took the blame for the company's massive losses - incredibly she had only been in the role for 6 months. Why was the person who made the appointment similarly not fired?

The fact is that there are few executives who are held accountable for poor hiring decisions - and therefore the same mistakes will be repeated, year after year. The same staggering costs will be associated with the poor decisions and the loss of opportunity will drag on the profit performance.

The cost of bad recruitment is one of the largest underlying drags on corporate profitability and it continues every year while executives are not held accountable for their poor hiring decisions.

I have written a free downloadable document on the subject, I hope it will illustrate the issue more clearly.

Where Does the Fault Lie?

It would be convenient to blame recruiters for the whole problem. After all, beyond a period of 3 months they usually have zero accountability for poor hires. Given most executives are on an initial guarantee and given it would be an amazingly poor hire that gets found out in 3 months or less, the recruiters are virtually guaranteed their money once the candidate starts work. They have zero incentive to help the client or candidate succeed - in fact it may pay to see the candidate fired after say 6-12 months as they more than likely will get engaged to replace the hire. That's 30% on average of the first year remuneration for a few actual days of work and a couple of meals maybe. Contingent or retained, neither have skin in the game to work long term with clients in a real sense, they see recruitment as filling slots in the main and pretty much easy money.

But recruiters are not all the problem. HR Depts are looking to drive down costs in the face of poor recruiting and so they exacerbate the problem. Larger companies even outsource the whole shebang, abdicating even the responsibility for recruitment let alone accountability - just to hit the cost line. Reverse auctions and outsourcing are becoming rife in the industry - I mean, how can an Eastern European based call centre add value to the recruitment process? Am I really missing something here?

Then there are the hiring executives. Under pressure to hit targets and manage their staff, they hardly have the bandwidth to do a good job on recruiting - they need to offload the issue as much as they can. Again they are happy to abdicate the accountability to some other area, yet the new hires will be crucial to their future performance - why would you take that chance?

So much of modern day recruiting is about vast quantities of cheap advertising and jon boards to generate quantities of CVs and then match as many words as possible to produce enough warm bodies to statistically satisfy the requirements. It is a numbers game - throw enough manure at the wall and at least some will stick.

In general, the quality of hiring is fast becoming a process-driven, box ticking exercise which no one is really accountable for in the true sense. It is small wonder why such a huge percentage of executives fail within 18 months in such an environment.

Turning The Tide

As we enter more uncertain and recessionary times, costs to the business come under the magnifying glass and the cost of bad recruitment becomes an even bigger issue in times of less profitability. Recruitment processes and techniques become far more important to companies in such times.

When you think about it, if an executive is recruited and lasts say 5 years in the role but cost 100% of the first year salary to recruit, then most CEOs would cough at the cost but take the equation given the extra time they had the executive performing to plan or better - with all that incremental profit gained over a poor executive lasting only 18 months. The actual cost of recruitment then is not really the issue - it is simply the quality.

Quality is derived from thought and planning. It is absolutely pointless starting a recruitment process after headcount is signed off as there is minimum lag of 3 months required to find a candidate, which means the impact on performance in any given 12 months is at best 9 months but more realistically 6 months given ramp up time. Recruitment planning should be done BEFORE the headcount is signed off.

Recruitment viewed as slot or headcount filling will inevitably lead to a high proportion of poor hires as managers hit time constraints to get people onboard and therefore take second best or worse still compromise too far on requirements vs candidates returned. Contingent recruiting where the recruiter is engaged only when the headcount is signed off offers little value to organisations in my opinion and certainly does not justify he very high fees associated with it. Fully retained recruiters have absolutely no incentive to find the right fit - there is little accountability on guaranteed, non-committal advice so expensively given.

In reality recruitment should be viewed as a constant process because it is the company's investment in the ability to attain its future goals.

A Novel Approach

I am not a recruiter but as part of my engagement with clients expanding internationally I do find them exceptional talent to man their subsidiaries. Just like any other part of my business and services it is performance-related and is all about results - anything less is of no value to my clients. So while I may take retention fees for my time invested with my client, my upside is all earned on the performance of their international business. If I find and place a candidate for a client, I am paid my upside in direct proportion to that candidate's performance in the role against pre-agreed targets over a pre-agreed time. It is my skin in the game and it is all about results and accountability.

I think it is time executives were penalised for bad hiring decisions, I think HR should be incentivised not on fill rates and driving down fees but increasing quality while CEOs should have full visibility on the actual cost of bad hires and have it as a constantly reviewed metric in their business.

As we approach tougher times, there is an urgency to get this right. I do not have all the answers but I would stand accountable alongside any client if I had contributed to poor hiring decisions, so I challenge any hiring executive to try my services and I will help them put money straight back on their bottom line. I am really looking forward to your calls.

Tel: +44 207 193 2356
email: nigel.dunn@calxeurope.com
web: www.calxeurope.com

Failure - Crucial Factor in Success?

I recently asked a small audience of pretty powerful business types, one of whom had recently received over £1m of bonus while his employer had written off billions, if anyone had ever failed at anything. Not one hand went up. I prodded them asking surely they failed at something - still negative. So I volunteered and said, I fail at something almost daily - often simple things like failing a loved one by devoting just a little too much time to work, or avoiding a potential sale because I was reading the news on the internet. I had also failed at much bigger things. A previous business of mine had failed because I arrogantly assumed a number of things which transpired to be untrue. Failure hit me very hard because I had planned without failure and its consequences in mind.

With the help of a few colleagues at Ecademy.com, notably Rosemary Slosek, Laury Burr, Robert Zarywacz and Nick Bush with whom I debated the subject and by listening to the profound and stimulating recent address by JK Rowling to the Harvard Alumni, I believe recognising and embracing failure can help you succeed.

Understanding the Importance of Failure

So had my audience been denying they failed at things or were they honest they simply have never failed at anything? And why was the question important? I often ask would-be candidates for jobs if they have ever failed at anything and most lapse into interview-speak and say no. They have hit every sales target, achieved every challenge and went on every Chairman's Club etc. I usually avoid such people because they clearly do not understand what I'm asking and at best are fooling themselves if they do and at worst outright lying. The fact is failing at things is very common. The clear learning point is achieved by recognising the failure and modifying your approach or behaviour in order to avoid repeating the failure. I am very suspicious of those who say they have never failed in case they have and just deny it or worse still they don't know they fail at certain things and so will probably fail spectacularly when it all catches up with them.

And that's why failure is important. Many highly successful people like JK Rowling understood when they failed they needed to learn from it and applied themselves in a different way in order to be successful. In her Harvard address, Rowling says:

"So why do I talk about the benefits of failure? Simply because failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me. Had I really succeeded at anything else, I might never have found the determination to succeed in the one arena I believed I truly belonged. I was set free, because my greatest fear had already been realised, and I was still alive, and I still had a daughter whom I adored, and I had an old typewriter and a big idea. And so rock bottom became the solid foundation on which I rebuilt my life.

You might never fail on the scale I did, but some failure in life is inevitable. It is impossible to live without failing at something, unless you live so cautiously that you might as well not have lived at all - in which case, you fail by default.

Failure gave me an inner security that I had never attained by passing examinations. Failure taught me things about myself that I could have learned no other way. I discovered that I had a strong will, and more discipline than I had suspected; I also found out that I had friends whose value was truly above rubies.

The knowledge that you have emerged wiser and stronger from setbacks means that you are, ever after, secure in your ability to survive. You will never truly know yourself, or the strength of your relationships, until both have been tested by adversity. Such knowledge is a true gift, for all that it is painfully won, and it has been worth more to me than any qualification I ever earned."

This is a strong statement. Failure allowed Rowling to 'stop pretending that she was anything else other than what she was', and it helped 'strip away the inessential'. JK Rowling insists she failed cataclysmically but she does point out we all need to define what constitutes failure to us. And that's the essential learning point - understanding when you have failed, accepting you have done so and then making the conscious effort to change and modify your approach will help plot a path closer to success.

Further, failing has a powerful benefit. It makes you truly understand what success really is, help you be able to define it better and it will make it that much sweeter when you attain it.

Failing and Making Mistakes

My illustrious audience insisted that my minor failings in forgetting a birthday or coming home late from work are just minor errors or mistakes with no real consequence. My response was 'Not so'. I believe strongly that my personal foibles are symptomatic of a poor attention to detail on seemingly minor matters which fundamentally affect much more important things. My consideration that these matters are less important is a behaviour pattern that will ultimately bring a catastrophic failure if not dealt with. Should I continue to value work more important than my relationship with my wife there is no doubt it will have an impact on my marriage. This was the gist of my argument. My audience were quick in response that you can easily recover - a nice meal, a bunch of flowers or some perfume will soon rectify the situation.

At that point, I drew their attention to the fact that BA and BAA conspired to bring about the dreadful Terminal 5 saga at Heathrow. In the same quarter as CEO Willie Walsh being named an Executive of the Year by a newspaper and guiding BA to powerful profits, thousands of passengers languished at T5 as 'teething problems' failed to deal with their needs or their baggage. While it was fine to fire a couple of executives, issue platitudes and fob off the press, the failure was of an immense proportion. What is more, the whole plan to commission T5 was almost totally conceived with that level of failure built in because of the symptomatic laissez faire attitude of the executives involved. While the T5 fiasco was a big failure, when married with the high profits, many would argue that BA have weathered the storm and that it was just a blip in progress. My assertion is that if BA do not accept and embrace the failure it will ultimately permeate into everything they do. As long as the numbers are ok, failing the passengers is fine. If left unchecked, the problems could spill over not just onto profitability but, heaven forbid, on safety.

There is a thin line between failing and making mistakes. It may be a genuine error to forget an anniversary or important meeting but that is what planning tools are for. Failure is acceptable in the short term and considered a mistake. Forgetting more than once starts to indicate a trend in behaviour that is beyond a mistake. It is better, in the long run, to consider mistakes as failures and plan not to repeat them.

The Butterfly Effect

I wrote in an earlier blog article on single random events or Black Swans as Nassim Nicholas Taleb would describe them, destroying well ordered systems like the financial market. The interesting thing is that senior people like Stuart Green of HSBC have now come out and said that the business model which led to the credit crunch was fundamentally flawed and 'bankrupt'. Yet in nearly every answer to my blog and Linked In question, people have asserted that the warning signs were there, that the economy had built itself on high gearing and history showed that the model was flawed already. So what compelled the banking executives to pursue that strategy knowing that at some point or another, Black Swan event or not, the market would catastrophically fail causing losses which make Third World Debt look trivial? And even as they speak, the UK Prime Minister pumps £50bn into the asset backed security market to restart it knowing full well it was the finance system which failed us the first time around.

Comparatively small failures compound and start to magnify their potential outcome like the butterfly effect as in each cycle they are overlooked. In the competitive world of free market enterprise it would have taken a brave bank to have stepped back and not participated in the boom. But the self same bank would not be in the financial mess that the likes of Northern Rock, Bear Stearns at the extreme end and RBS, Citigroup, UBS, HSBC et al got themselves into.

Failing while Succeeding

I sometimes read with interest how highly successful people, who have all the visible signs of amazing success like money, image, and great careers are often those who court massive personal or business failure. It comes as no surprise that many a great relationship has been destroyed as a cost of success, both on a personal and business level. Again, I wrote a blog article about Denial and there is a link here. It is the successful person's ability to deny failure that allows them to concentrate on success. As an example, how could Willie Walsh feel successful after the T5 fiasco? Easy, his success is based on the numbers which were fine. By simply denying the failures at T5, he can continue to drive his profits. My assertion would be that if BA continue to ride rough-shod over its customers in such a way, ultimately the business will start to fail at the profit level. Perhaps more sadly, how many successful business people like possibly Roman Abramovich who owns Chelsea FC have had a failed marriage while at the pinnacle of their business success? Denying failure, may lead to short term success but long term it adds fuel to a potential catastrophic failure in the business.

Your own Failings Affect the Success of Others

The problem about not being able to recognise, deal with and learn from your own failures will ultimately start to affect the performance of others and potentially lead to failure for them. A good example of this is relationships. Little failings can build up over time and contribute to failure of the partnership. While it takes two to tango as they say, failing and recognising it is a personal thing. As Rowling points out, defining what is failure yourself is personal, but recognising and dealing with it may not be. From a business perspective, failure by an executive or staff member may ultimately lead to failure of another person or part of the business. An argument could be put that failures by say Nick Leeson brought down Barings Bank. It's why it is critical in business to be honest with yourself and recognise when you have failed and do something about it - because it will not only be yourself that's affected.

Recognising and Dealing with Failure in Others

The Nick Leeson example was wrong. Leeson was part of an organisation and industry that continually ignores failures. Self regulation in business is always a danger and in the financial industry where greed pervades more than anywhere, it's like the cat being asked to guard the cream. Leeson was guilty of deception no doubt but those around also failed to recognise the failings because their motivation to make money outweighed their ability to make judgement calls. How history repeats itself - in identical ways the derivative-led business of the banking industry has pretty much caused the current economic climate. Comparatively small failures combining and compounding to produce catastrophic failure and losses. The failure of managers and executives to intervene and recognise failures ultimately caused catastrophic failure.

The problem the financial industry has is that it has shown repeatedly that even when spectacular failure has been attained, they simply point a few fingers, mumble platitudes, make a few cuts, blame the customers for demanding too much service for too little spend and then plan the next frenzied boom. If Taleb has got one thing pretty close to right is that strip away the derivatives, mortgage books, loan syndications and such like and you might have a profitable business ongoing, all the rest just boosts the salaries of a swathe of upwardly mobile gamblers. The inability of the financial industry to recognise failure in itself and others and inaction against the power of greed will continually lead to boom-bust cycles and I believe at some point will lead to a financial disaster that would make the 1930's look like a holiday. No one knows for sure but the combined positions of the world wide derivative book is upward of $516 trillion according to a post on my blog by Eric Leibowitz. Just one butterfly not even a Black Swan and the whole lot could collapse like a house of cards. At every conjoin of the cards, failure stalks.

Back to The Real World

So when I ask if people have failed I am looking for people who recognise what failure is and I am looking for how they dealt with it and did things differently. I am not necessarily looking for whether they became super-successful because of it as people like JK Rowling are rare, although it's worth noting Steve Jobs dropped out of a Stanford degree course, Bill Gates was unsuccessful first time out, and Anthony Hopkins faced all the demons at his lowest ebb before rising to be the superstar he is today. The fact is we fail and recover at some level every day - failing big is not fun but it can become a profound positive force when it is dealt with the right way.

So when I asked earlier in my blog whether people felt degrees or MBAs mattered or made a difference, the answer is yes they can make a difference. But of more relevance is understanding how people deal with failure - this builds a more compelling picture. That someone elects not to go to University to 'experience life' is fine but how they deal with that experience is the critical issue. You can learn all you like or experience as much as you can but if don't act differently because of it then none of it is of great relevance.

Failing is important - in science some of the greatest innovations were by-products (euphemisms for failure to find what they were looking for) of research or as I like to call it 'trial and error'. Acknowledging, accepting and dealing with failure is arguably the driving force that differentiates human beings from any other organism on this planet. Recognise it, embrace it, learn from it and apply the new knowledge and ultimately you will be far more successful in life.