Cost Savings Actions in Isolation

I read a recent snippet by an academic, Mitchell Lee Marks of the San Francisco State University, who said of the vogue policy by US CEOs in the face of the recession to enforce pay cuts rather than redundancies on staff that, 'Initially, this sounds good to people because we're all chipping in. There's a sense of loyalty. But what if you don't win the war?'

It's a great point. It was illustrated recently by US giant, FedEx, who, in December, asked senior Executives to take a 7.5% pay reduction and US based salaried workers a 5% cut in salaries. It affected 36,000 staff in all and CEO, Fred Smith, promised that it would see them through the bad times. By April, things had got worse and sure enough, FedEx let go 1,000 staff this month.

Fred Smith was dutifully trying to save jobs by avoiding making redundancies. He stripped out a good portion of the payroll cost and still it was not enough to save the jobs. In fact, Mitchell Lee Marks would argue that this actually has a bigger destabilising and demoralising effect on the company. It leaves staff with the rightful feeling, 'Why did we make that sacrifice? What did it achieve? Do management know what they are doing?' Further, studies have shown that while salary cuts are termed as short term measures, too often the money is not given back at a later date.

Cost Cutting in Isolation

It's a noble thing to join staff into the problems that business face particularly in the recession. It is also a noble thing to avoid redundancies if at all possible and asking or even forcing staff to take a pay cut is better than losing jobs.

Or is it?

The problem here is what is trying to be achieved. When executives abdicate responsibility for their actions to accountants and cost-cutters, then only numbers hold any credence. The role of the cost cutter is to 'cut the cloth to fit' and that's exactly what they do. But there is a problem here. If all that you do is cut cost and do not adjust or re-align your business then you are only risking prolonging the inevitable - either you sink or you have to make bigger cost reductions or the dreaded 'death by a thousand cuts'.

What I mean is, if you do not change the goals of your business, then all you are doing is reducing your capabilities which becomes a self-fulfilling spiral downwards in terms of the business. There is a real risk that you bring on more bad news rather than avoid it.

Aligning Your Business in a Recession

There is a risk of repeating myself from past blogs but there is a lesson to be learned even from a clever giant like FedEx of how to do things poorly.

The very first step you need to make before you make decisions on costs is to know your business thoroughly and that means to have a handle on every deal, every customer and to properly understand how your market is performing, what the salespeople are doing, what the marketing effort is achieving and where it is targeting, and how the business is set up to support it. You need to be clearly aware of what your Value Proposition is to every client in a recession and why they should buy form you.

The biggest competitor to any sale in a recession is NO DECISION and this arrives when either your Value Proposition is weak or the way you articulate it is.

There is zero point in having a salesperson selling into a batch of clients where, say, over 50% of them are struggling in the face of recession and the Value Proposition does not deliver instant impact to their business, preferably to the bottom line. Think about it - if you are asking someone to pay incrementally for something it has to have a positive and instant impact to the business.

You would not try to sell a Ferrari to person laying off staff.

The very first thing that will come out of a detailed analysis of your business is that you can instantly see if the current forecast pipeline of customers are going to buy from you or not - you will see if they are open to the Value Proposition - talk to them personally to reassure yourself. You need to understand who is buying from you and when, then clone that success in more clients who match their profile. Make sure your salespeople are ACTIVELY changing their focus away from clients you have identified will not buy and refocus their efforts on the profile you know that will.

Make sure that your marketing effort is 100% aligned to the goal of the salespeople. The PR, collateral and lead generation engines need to be targeting the customers you believe are open to your Value Proposition so that there is a ready supply of warm leads - and shut down all ancillary marketing efforts which do not support these goals.

Changing Strategy

Sometimes a recession will smack you straight in the face and your realise that the good times are over.

'What we are selling is simply not what the market wants'.

I remember back in the late 90's a company that had made a fortune on the back of detecting issues relating to the mythed 'Millennium Bug' issue of embedded dates in software. They did extremely well. But after the date changed, they simply did not have a business. It seemed pretty obvious to me but they honestly thought that major problems would still exist and their clever software would continue to sell in the same volumes. The senior executives were really surprised when it didn't.

Kudos to them. They recalled all their key executive staff from all over the globe, they shut down their marketing machines and kept a skeleton salesforce and then sat in a building and quite literally re-invented the company with a new set of products, a new set of problems they could solve and an entirely new strategy. They had accrued enough reserves to get by while they did this but then they took their new plan to their VCs and because they had delivered previously, they got more money and started again. Utilising pretty much the same people with a few attritions from those not used to having to sacrifice commissions because of no sales, they not only started sales up again but they actually became a profitably, fast growing company again.

It's an extreme example but when markets change, there is no point in trying to keep doing what you have always done if it is no longer as compelling to clients. It's why many old businesses who fail to adapt to changing markets quite literally Hit the Wall and whither or get bought, if they are lucky.

As I blogged yesterday, recessions can be rewarding in that they can force change, make people think, cause innovation and creativity and can set a business on a new, more lucrative and sustainable pathway. That takes courage and determination and what many businesses will find in such times is that their management are simply not capable of thinking that way and taking those sorts of risks.

For them, cost cutting is simply the only option - batten down the hatches, survive the storm and all will be ok.

New Recession, New Opportunities

It comes as no surprise that many clever start ups arise in the middle of a recession - Facebook, Cisco and my own client, Theorem Inc, did so. Jay Kulkarni, CEO at Theorem, will tell you that the Value Proposition he trades on was honed during a recession. His business supports online marketing and guess what, it is one of the few areas of the Hi Tech market enjoying real growth during this recession. Theorem, because they were born with a recession in mind, are thriving because their Value Proposition resonates with every major business in their market right now.

There are plenty of examples of how companies have re-invented themselves in the rocky grounds of downturns and you do not have to look for to see Apple. Here was a company stuck in a war with Microsoft and Intel and had only a clique of marketshare at around 9% for arguably the best computers in the world. But they were addressing specific needs best and not the broad market where harmony of applications and cost were the vital selling factors. Steve Jobs, on his return to the company, set a new course and looked at how the whole market for mobile media was going to change and bet everything on it. The iPod and iPhone are now almost history but Apple could not be doing better as their strategy has changed to support the whole market.

Strong Message

So the message is clear - do not cut costs just for the sake of it whether that is just switching off lights to salary cuts to jobs. Make sure you are addressing your customers and that your Value Proposition stands the test with clients before you go down that path. If nothing else, you owe it to your employees.

If you do not have the internal creativity, innovation, skills, courage or appetite to do this then it should be your management that suffers first but get help in fast. All that I blog about depends on your understanding of your customers - how and why they buy, how they have changed and their new needs - then aligning your resources to servicing these needs or to find new clients where your products and services resonate.

For those with the courage and energy to do this, cuts will be the last resort while re-aligning your strategy and resources will set you fair for the future. Further, for those with the strength to do this, there is more than enough cash in the market to support you. You just have to know where to look.

Understanding Your Customers

At a talk I made before Christmas, I had an over-lunch conversation with a company director who revealed that not only had his business just had a record year but that his best customer, who had bought over £300,000 of services would never stop buying as his personal relationship with the key man was so strong; they boozy-lunched together regularly, went to football games, played golf, knew each other's spouses and children - the sorts of things that meant they were friends as well as business acquaintances.

Recently, I happened to bump into the same director and I asked how the business was going. He was pretty down about it. Sales had fallen off a cliff during the first quarter and he had made over 50% of his staff redundant and was now fighting several claims for grievances. When I asked about his top customer, he was even more downcast. Out of the blue, in January, his 'friend' had invited him out for a lunch and given him the bad news. Due to cut backs, the Board had decided that the sorts of services his firm provided were no longer required and that as of immediate effect, no more business would be placed for the forseeable future. Most of the work would be done in-house, as and when required.

The director was absolutely shell-shocked and could not understand how he had been let down by such a great customer and friend. We chatted a while on how this loss had affected his company profoundly before I asked why he thought that his customer would never have stopped buying and he replied simply, 'Because we had a superb relationship, we were doing a great job and I did not think he would let a mate down.'

I did not say it at the time but what my company director friend had done was confuse business logic with human logic. In tough times, numbers do the talking, not people - stark business facts are unavoidable and relationships are only an emotive issue that can get in the way of practical judgement.

No businessman WANTS to look into someone's eye and tell them they are redundant or do they want to tell a friend they can no longer buy from them. But I tell you what, I would rather do the latter with less of a tax on my conscience than the former. In a recession you often have to do both.

It also illustrates the lack of planning and understanding of how a recession can affect your business - this was a case of hubris in the face of stark facts. It was also a case of not understanding the worth or value of what my friend's company was delivering to their customer's business. These are not good business attributes at the best of times but in a recession - it can break a company.

Knowing Your Customer

The story above illustrates many powerful points in business - some of which only really come to light when the markets downturn. While my company director friend had a very strong personal relationship with the main purchasing contact who was very senior, the obvious thought was that his contact was clearly not senior enough. But there was another issue in play - while his customer's business was going well in good market conditions, his contact was effectively running the company. But now the markets had changed and the customer's business had decreased suddenly and fairly dramatically, the contact was no longer calling the shots. He had abdicated that responsibility to his Finance Director (FD), who had run a large knife through the business and cut out all but essential services, staff and suppliers.

My company director friend's company was not on the essential list - it was that simple.

The particular company director in question had not heeded the advice I had given in the talk when we had first met. I had basically said that in a recession, your current customers are the first people you think about - you need to throw a 'Blanket of Value' over them to ensure that you do not lose their custom. There's a lot that can be done but the first thing to do is to truly understand your customers and their business.

When I say know your customer, I mean a complete understanding. It happened that my company director's major customer was a networking supplier whose main customers were telecom companies - in the run up to Christmas many telecom firms had announced severe cutbacks and sure enough this had hit my friend's customer very hard. My company director friend had not looked beyond his order book and relationship to understand how his customer's market could affect his own business. If he had bothered to understand his customer's actual business and who they sold, where and how much, then he would have realised by just reading the business news that the moment the telecom market wobbled, his customer would wobble too. It happened that the biggest telecom wobbler was also my friend's customer's largest customer too - an unhappy coincidence along the chain of events.

An important lesson for my friend is that it is pointless getting super friendly with a single major contact if you ignore the rest of the decision making team. Again, all is fine in the good times, but when the going gets tough, decisions are made in different ways and for different reasons. Having a strong relationship with one person can actually play against you - it could be seen by the cost-cutting team as an unhealthy relationship not based on sound business value and in this case, this was indeed the logic used. Apparently, my compant director friend had suffered because the FD had always questioned the prices at which the particular services were being bought in at - they were clearly not benchmarked against others and he knew there was scope for savings. But my friend's contact, during the good times, effectively had his way. The recession changed that, and the FD immediately applied business logic and stopped the line of supply completely, naming an alternative supplier from a set of three quotes he had received for ad hoc work should they need it.

Company Politics

What clearly had been going on in this case was that the FD had a simmering resentment to his colleague and how he had effectively run purchasing certain services based on human rather than business logic. When recession had struck and the FD stepped up to take over the company reins, he had simply used business logic to kill the suppliers where human logic had been used. In some respects, the FD was also cutting off his nose to spite his face - old suppliers have plenty of experience in the servicing of specific needs, they can also be very flexible if need be. None of that entered the FD's mind - in fact, the FD had played a major political card. The FD had shown his colleague that all along, business logic should prevail and that's how it would be for the future.

Company politics are normally associated with your current employer but all companies have a political landscape. Knowing your customer well and how all the decision makers, influencers, coaches and ancillary staff play together helps understand how people will react to different conditions - who has pet hates or shows favouritism, who dislikes who and what they might do about it. It means that it is vital to make sure that in the selling process you do not put all your eggs in one basket but make sure there is a strong business relationship with every person involved in making decisions.

Often, if your main contact sits in middle management, it can be hard to go above the person and get to more senior people. This is when your own management becomes important - by arranging a peer-to-peer review of the business relationship periodically, you can ask for higher authorities to be involved to satisfy your own management's needs to have their ego stroked. It's a power thing and it works.

Recording What You Know

Much play is made of CRM systems but the reality is that you need to make sure you capture everything your customer does and says to help build your knowledge base. There are practical reasons for it, of course. It is not enough to be able to retrieve all order, invoice, payment histories but it is also important to have a central repository of all contracts, offers made, phone call conversations, important dates, company organisation charts, personal details - in fact anything.

It's not about being able to out-fox a customer by pulling up an old email and saying 'Ah, but you said on 11 January........', it is about having the ability to draw upon knowledge to help you win more business or keep the customer happy. It also helps augment your personal instincts - you may feel something is an opportunity but the detailed records may tell you the pitfalls or help you realise it.

Most importantly, it helps you to go that extra yard when it is required that may be the difference to keeping or losing a customer. Remember, in my example, my company director's company had supplied services to the customer for some time. In all that time, my friend had only used a CRM package in the last 6 months, beyond that it was tracing email tracks and many of these had been deleted in the interest of saving disk space.

All customer interaction is worth recording and it is worth spending the money to record it. It is also sound business practice and good governance to start when you are small and make it a cornerstone of the business ethic for the future because when you get large, you are going to HAVE to do it.

Good CRM wins more business - that's a fact. In a recession, it can keep you business.

Delivering Value

Perhaps the most fundamental mistake my company director friend made in losing his client is that he confused a strong relationship with delivering value. While he could rightly argue that all his services were well received, delivered well and paid for on time, he had not agreed what the value of the service was to the business generally or to specific areas. Certainly, even if everyone else was aware, the most important person, the FD, was not convinced. In a recession, very often most human logic goes out of the window - what in our eyes is an essential service in finance terms can be a nice-to-have at best and certianly non-essential to the survival of the business.

Every company needs to be absolutely clear what their Value Proposition is not just to new clients but to existing clients. Most companies will rightly believe that they provide valuable products or services to clients and many clients will go along with that in good market conditions. Some clients will drive for savings where they mistake shaving 10% off purchase price as being a saving but if the service then delivers less value then they may well have actually damaged the bottom line.

There is a big difference between value and cost and most purchasers don't get it - you have to make sure that the Value Proposition is sold to the business people as most purchasers buy mainly on price alone. I once did a demonstration on the difference between cost and value - at a company I worked with I showed that a worthless piece of plastic could be worth hundreds of thousands of pounds over a long period. The piece of plastic was the 'Salesperson of the Quarter' award, worth around £30 and for those that won it, they could use it in their CV to justify a better job and more pay, so net themself a great deal of money over time. While the object cost just £30, it's value was far, far greater.

Your products and servives need to address specific needs for customers, and in doing so provide specific and quantifiable value. In a recession, the value needs to be tangible, realisable in short order and be verified by your customer, i.e. not just wishful thinking on your part or based on your own assumptions. You need real data and corroboration from your customers. This Value Proposition needs to be amplified so that all the people involved in decision making clearly understand it and agree with it. Internal promotion of the message is vital and so the messaging has to be precise and easily understood - all your own staff need to be able to expound it flawlessly to be able to communicate the message as well as fundamentally believing in it and delivering on it. It cannot be make believe.

A good example is a service like real time conferencing. People meet all the time and travel costs money. But if you justify savings to the business on travel costs saved you may go up a rat hole because someone may argue that when they travel they can do 2 or 3 meetings at the same time so easily justifying the cost. So my Value Proposition would be to say, with conferencing you can do up to 8 one hour meetings in a different location in a single day, across continents if need be, with multiple people, never leave your desk and still be home to have dinner with your family. The Value Proposition is all about increased productivity and saving time - you can cost an executive's time and ability to be able to address more business issues in shorter time. Let the business put a figure on that rather than you and you will soon see the power of it. An old example was that a drug company could reduce the time to approve packaging of products by a 3 days by using conferencing - not much on a drug that may have taken a few years to develop. But 3 days of sales of a top drug could be worth millions. Ford cited the same on bringing the Mondeo to market as it was designed in several different locations and by using conferencing rather than face to face meetings, they collapsed the design times and got a car to market faster. It also was car of the year and so two or three extra months of sales that they had not catered for meant the car was profitable that much faster.

Your Value Proposition needs to deliver something similar - something of real value to companies that can be measured easily and flow to the bottom line, and in times of recession, fast. In recession, buying criteria change quickly and old logic can go by the wayside. Make sure your Value Proposition is up to date, addresses the the issues posed by the recession and delivers real, measurable value to your customers - and make sure they agree with you.

The Blanket of Value

Having your Value Proposition agreed is one major step. Now you have to remember that for many small firms a single big customer loss can mean the difference between profit and loss overall. In my example it was far bigger. Also, a rule of thumb says it costs roughly 5 times more to find and onboard a new customer than it does to retain an existing one, so losing a customer is a double whammy to profits.

It is easy to get complacent about value and service and make assumptions in good times, but recessions have a habit of posing hard questions. So my strong advice is to engage with your customers early - and I mean talk to them. Go ask them what it is that they value about your service but more importantly what MORE can you be doing. Don't just cut price, offer more value by asking what would make life easier. Ask them about their priorities, if there are any steps you can take away from them that will help reduce their cost because you can do it cheaper. If they are making redundancies, try to look at what tasks may fall down a chasm and that you can pick up for them. Try not charge extra but get agreement on the longevity of your contract as a negotiating point.

Make sure you meet more regularly - put peer-to-peer teams together to actively look for efficiencies in areas like order processing, shipments, logistics, support, invoicing - whatever. By putting teams together it is amazing what can be achieved. Document every new process and the saving that is produced, publicise it, make sure decision makers know and then look for more. It's not just about making courtesy calls this is about proactive teams solving business issues. The more issues you solve with real, tangible outcomes that either decrease costs or increase productivity, the more value you are providing, augmenting your Value Proposition. And of course, what is successful in one customer can be cloned in others.

In a recession, throw a blanket of value over your customers - try not just to be a supplier but a partner in their times of trouble.

Sharing The Pain

Everyone hates seeing business drop or prices go down and so why would you actively go out and try to achieve that same objective? It seems like business suicide.

It can be, but it can also be a powerful weapon in the long term. Imagine one of your suppliers coming to you and saying that they realise that your business is under pressure and there is a need for costs to be cut. Imagine if they said that they would accept a lower price or free shipping for 6 months in return for an extension of the contract for a year or more? Firstly, it may actually acheive what your finance people have just asked of you which is to cut costs, secondly it is one less problem to think about and thirdly, extending the contract costs nothing right now. Further, by accepting lower prices and bargaining for something in retrun, why not ask to pitch for other parts of their custom under the same principle?

Sharing the pain as a supplier is not as daft as it looks. It gets you closer to the client, you become a proactive adviser and trusted member of the team rather than just a supplier and again your value to the organisation rises. Most other suppliers will only decrease costs when asked and then they will try the negotiating tactics but the customer will be making all the running and so the reductions will come on their terms only.

One way to share the pain if you provide services is to defer the profit and base it on results. This is becoming vogue in some sectors like legal services or telephony savings like revenue assurance but you might want to take a part of your fees upfront then defer the rest to be earned quarterly over a period like a year against achieving certain goals which could be performance related like cost savings or increased productivity. If you are confident in your services then there is no fear and it also makes sure that both parties have 'skin in the game' and give you a revenue and profit profile to look forward to that you can take to the bank if required to get some short term borrowing against it.

The bold supplier that is proactive will take the customer by pleasant suprise and, long term, it will bring more profit.

Be Innovative

By knowing your cusromers's business and their pressure points, in times of recession, by being proactive you can also see different opportunities. For instance, if you are proactive in one area, you get exposed to new issues. By innovatively working your products and services you may be able to come up with a solution and create a new business opportunity. Once you are part of the 'trusted team', customers will be more open to tell you what the issues are and maybe even help you design a new service to address it - so confident they are that you are acting in their best interests.

Some banks are doing this now, even when they are largely vilified. NatWest are mobilising their salesforce to get out and meet individuals and talk about how they can help reshape their finances for the future. It's a clever way to win back hearts and minds but it aslo a long term profit winner if they can sell more insurance, savings options, loans and pension plans - it also augments the brand of the bank which has lost so much value via its parent, RBS. Innovation in a recession sows the seeds for the future and often the best new products, services and companies emerge from the worst of times.

Don't underestimate the fact that companies are looking for solutions to problems still - it isn't always about cost savings. Now is the time be creative.

Illustrating progress or value is a key example of how to be creative. Don't just send reports to people on how the business is being serviced, make them available online, offer a customer portal for accessing key indicator information, reports, account statements, shipment tracking, tracking of savings, make contact information available and, above all, make promotions and offers clearly and readily visible. Think about a way that the information can be prominent but not intrusive - ask what platforms your customer use or dashboards and then work out how you can provide relevant information to it as a feed.

Now is the time to think of automating services like ordering. The internet is so powerful to help and adding ecommerce services can be easier than you think. Adding catalogues and stock availability may be harder but many systems now support this. Make sure you take this opportunity to leverage the web in your favour, as well as the customer's.

The procative supplier always delivers more value.

Don't Hide Bad News

It is easy to think and, possibly sensible, that if you are struggling financially then you should keep that fact away from your customers. However, they are not stupid and will soon either see it via the service received, read it in the press or get it from the competition. In fact, should they not receive the news from yourselves but from elsewhere, it will only lessen their opinion of your company. Bad news is a fact of life - so deal with it. I am not a fan of Alistair Campbell-style spin or flannel - facts are the key.

The important thing is to have thought the whole thing through, what the issues may be, how that has affected your company, what have you done to remedy it and what that means to the customer, short and long term. There is no point in lying so if a person has been made redundant who deals in some way with the customer, make sure you have a clear plan as to who will pick up their reponsibilities and what the customer may have to do to help - like educating or similar. The key is to have thought it through and work out how to genuinely minimise the impact on the customer's perceived value while acknowledging there has to be some.

It pays to be proactive, honest and open with customers - they know the market situation and it can be 'There by the grace of God' that they are not having to do the same or, indeed, they are.

Segment Customers

You are clearly going to have big customers, worth more to you than others. In a recession, think in terms of profit and cash and don't get blinded by mere revenue. What may be a major account by revenue may not be in terms of profit or they may be a bad payer and an increasing credit risk.

Make the more profitable customers the target of your increased value activities while actively decrease services to the big but draining customers. Target to get more business from the more profitable ones and don't get too concerned if less profitbale ones go. 'Revenue is vanity and profit is sanity' they say and they are right, particularly now. Everyone is obsessed with growth - it's a consequence of the stock market. Right now the key is to survive and if that means standing still or going backwards in terms f revenue - do so, so long as the rate of decline in profit is not the same. By managing your customers by profitability, you will protect the best ones first and margins will actually improve as a result. This becomes a handy platform on which to build for the future.

I don't like losing any customers but some drain resources for little profit. Don't be afraid of losing that kind of customer - while it may hurt in the short term and even damage egos, you have to realise what is best for the business. It is business logic over human logic.

Review Your Prices and Charges

In the process of segmenting customers it is important to review charges across customers. Like most businesses you will find mistakes and anomalies. Question them, correct them and address them. If a customer has been charged too little, then work out if it is approriate to charge for the missing revenue while correcting the price. If you don't, tell them you have waived it but use it in negotiation and your value statements.

You will generally find that many customers are getting better prices than they should and some worse. You may not want to do anything about it but when looked from the customer segmentation data viewpoint, you may find that less profitable customers are getting the best prices and this can speed up the process of prioritising services and resources to the best customers. The important thing to be is aware of who is getting what and why. You never know, it could mean releasing vitally needed profit and cash in the business.

Profit and Cash

The two major issues faced by firms in a recession are the lack of profit and decrease in cashflow - this has the knock on effects on costs and borrowing. In being innovative with customers the one thing that would be most beneficial is to sell more things and get the cash in quicker.

So there is a challenge to design some services or products which address immediate and important needs but design them with a big incentive for cash payments. Obvious things would be to make more products available online with credit card payment facilities - this can easier than you think. If you have excess or slightly older stock in hand then you may want to turn to brokers and eBay to try and get a quick turn over even if you have to take a loss.

Target your customers who have the best facilities in terms of cash position to make the best offers - make the offers compelling and providing instant results in terms of bottom line impact. It's hard to design something that is applicable to all businesses but think what you have got in your armoury that can be used and be creative and aggressive.

Your Current Customers Are Your Lifeblood

Finding new business is a tough game and even harder in a recession. Money is tight and the world is competitive. The most important thing in tough times is to hang on to what you have with dear life. Protect your customers and make sure they know how much they mean to you and, more importantly, you mean to them. A recession brings into sharp focus whether products and services are delivering real, tangible value to businesses in the short term and so make sure you tailor your offerings to do just that and corroborate it with your customers.

Think creatively - don't stand still or get complacent. This recession is one of the worst experienced by most people and the speed at which it strikes is brutal. Make sure you throw your 'Blanket of Value' over your customers now - preserve and protect them, nurture them and keep them on your side. The relationship will only get stronger as the markets recover.

They will surely help you survive and thrive.

The Power of The Negative

Whilst sitting in the bath, I noticed two pieces of reading material we have side by side on the window sill are, '1,000 Places To See Before You Die' and Richard Wilson's 'Can't Be Arsed'. Essentially Wilson's book is a parody of the theme of the one next to it and is a torrid but funny series of reasons why not to do exciting things or see certain places before you expire. It struck me as odd that such a negative series of thoughts could be turned to profit.

It reminds me of the situation we are in right now in some ways. We are in the heart of a recession and every way we turn there is negative information, news, thoughts and people - it's enough to drive us to despair and sometimes it certainly makes me feel down. Strangely, it as at such times I get more creative, am able to channel more energy into things and get better results. Maybe that's what Richard Wilson (not of 'One foot in the grave' fame) used to be successful with his book - I don't know.

Thinking about the subject further, one of our most useful inventions uses the principle of creating negative energy - I am talking of the refrigerator. Sometimes negatives can be powerful sources for positive thoughts and energy - call it desperation, call it 'when all else fails', it doesn't matter, I like to think of it as inspiration.

Inspired By Negatives

If you want to hear one of the most inspiring talks, then sift through the Harvard Review online and find JK Rowling's address to the Graduation Ceremony last year. She talks to some of the most gifted and un-desperate people on earth to tell them how she found inspiration in her darkest hours. When she was virtually penniless, a single mum, and having lost her job she was as big a failure as she could be. What she talks of was how, at that lowest ebb, she was able to throw off all the inconsequential things in her life that had no bearing on her position and focus only on what was important - her child, her home and a big, big idea.

From this lowest point, Harry Potter was crafted, having already had the idea some time earlier, and it became the focus of all her energy, turning negative energy into an incredible, powerful positive.

I have also read some articles from a chap called Richard Fenton whose mantra is 'Go For No!' in sales and he advocates that you should up your failure rate in sales. His perverse logic is that you need to fail regularly to be successful in sales. I can understand the gist of what he means as the more you fail, the more your desire to succeed should compensate - but that is not common to all people in sales or business. Sometimes failure drags them down.

At this point, the recession looks very negative. Wishful thinking people who have not heeded warnings have literally Hit The Wall and gone from having a successful business one minute to abject failure the next - simply because they had not failed enough in the past to sense it careering up into their faces. When it strikes, they simply abdicate all responsibility to cost cutters and pretend that it is the only way forward - in fact, they have already ruined their business by that point.

So the point of my article today is how negatives can be turned into positives - and how to take the recession by the horns and turn it to your advantage making it something from which to survive and, indeed, to thrive.

Hitting The Wall

When companies Hit The Wall, as I call it, they actually find that, in a very short cycle, just about all of their key business indicators have turned negative on them. I used the example of Norwich Union/Aviva lately who consumed a £multi-million budget to advertise that they were changing their name - yet, with some of the adverts still running, they have reported heavy losses, seen 33% wiped off their share value and shedded 1,900 jobs. They ran straight into a recession while spending more money on advertising in a single period than a good share of the combined sum of the salaries of the staff they have just made redundant.

That's what I mean - it is the idea that one minute the garden is rosy, sales are buoyant, the forecast looks good and you believe that you have a recession-proof business as everyone needs things like insurance. Suddenly, you are in the depths of despair and the only way out is to hand the business across to professional numbers-people and hack the heart out of the business.

For small and medium sized (SMEs) businesses, this can be far more damaging. Too many SME firms have either a one-track business or have too many eggs in too few baskets. When the recession arrives it can be like an absolute bomb going off, literally wrecking the business overnight. I know a recruitment firm that in one quarter went from record sales to 50% drop and had to shed 50% of its workforce. They are not alone, even the mighty Dragon's Den hero, James Caan, has a latest venture which is suffering while Michael Page has seen its worth drop dramatically from the point at which it turned down a bid from a would-be suitor.

Recessions pay no respect to egos or reputations - they can ruin anyone.

Turning Negatives Into Positives

The most common issues faced by firms right now is dwindling order books and low or negative cashflows. The answer in most cases is to dramatically cut costs and try to eek out longer terms with suppliers while voraciously collecting cash. These are the answers from the numbers-people and they make sense. However, it would help if sales went up and cashflow became more positive - but that's the point of a recession, they go the opposite way.

Too often in the recession, the above action is the limit of the thinking. Batten down the hatches until the market gets more buoyant. The sales-driven executives have handed the reins to the finance guys and that's that. When the negatives get too much, too many executives are happy to 'walk away' from their pulpit of success, hand over the power to finance and snipe from their background position about the company's long term prospects.

It's a pity they don't mobilise that negative energy into a powerful force for the positive - if nothing else, the negative attitude will rub off on staff and things tend to spiral from that point.

Here's a thought. If cash is tight and sales are low - how can you find more sales that bring in cash quicker? The first step is to ensure you know enough about your current sales to make an intelligent decision. The decision needs to be about the product or service you want to sell, what its value proposition to the customer is, who would be interested and how you are going to get that message to enough people in a short time to make it successful.

The heart of the decision is to make an attractive incentive for cash payment for the proposition, but the most crucial part is the value proposition - it has to resonate with the customers you choose. Messaging is vitally important here and everyone in the organisation must be word-perfect on the message and spot on in execution.

Very often, the answers to tough questions can lie right in front of you - only the negative thoughts stop you from seeing them. If you have a product or service that is valuable, then make sure the value is realisable fast and compelling - then make sure you know who would be interested, why and make sure you get in front of as many of them as possible, with as many of their objections thought of as you can, and as fast as you can.

A recession will kill those companies who stand still - mobilise your thoughts and people with cohesive messages and actions to turn negatives into positives.

Blue Ocean Thinking

It is always a surprise to hear that many successful companies started during a recession. Dave Hewlett and Bill Packard (HP) started their business in a garage in 1939 building a device used by the Disney Corp. on the film Fantasia - it was not what you would call ideal conditions for a start up. Cisco claims to have started in a recession, as did Facebook. The key to success in a recession is to find a part of the market where there is less turbulence from competitors or is simply an unaddressed need.

In the teeth of this recession, car sales in the US and the UK have dropped dramatically and there is a real risk that many car makers will either not survive or not exist in the same way as before. While sales plummeted 30% in the UK over last year in the peak selling month of March, in Germany they rose by 40% and in France by 10%. In these countries, in conjunction with the Government, a scrappage incentive was offered direct to consumers and backed by a vigorous sales and marketing campaign by the vendors and their dealer networks. The results were spectacular while in the UK we are still considering what to do.

The fact is, there are an awful lot of old cars out there, the dealer network has switched to secondhand selling and the car makers are in too much trouble to see what to do. By the time we do something, it will be too late.

What has happened is that while most car models have dropped in sales, small cars have bucked the trend by selling up 80% on last year - the Ford Fiesta leading the sales charge for the fourth successive month. Here is the plan for the future right in front of people's faces - swap production skills and tooling into making more smaller cars with ultra high fuel economy or new eco fuels and cut mid and high end cars to a minimum and charge a huge premium for them. It is the ideal time for better, more environmentally sound, vehicles to be made and a chance to shape the industry for the future. By using the scrappage incentives in a targeted way, swap out the oldest cars for the new small ones now.

It calls for a concerted line of thought and actions - we have the chance to build a new, better car industry from the ashes of the old, and the opportunity is right here and now.

Blue Ocean Thinking is all about re-invention and in a recession there is no time like the present. The recruitment industry has been cruising for a bruising for some time. In the sustained boom, it grew fat on high fees, low value for money and has spawned a new, valueless level of service on the internet. Recruiters have been very hard hit as companies have cut back on headcount and not replaced those who leave voluntarily. For my example firm, with too few large customers, the effect has been crippling. Correspondingly, large companies have devalued the recruitment process, outsourced it to foreign shores and introduced reverse auctions for placement - how on earth can companies get good people in a recession by using such a valueless selection process? Now is the time to re-invent the whole industry.

I have long held the belief that recruiters should share the pain for poor recruitment. I believe there should be performance related incentives for recruiters so that fees are lower up front and are earned over time according to the success of the recruit and their clients, and I am not talking stock options here. Instead of having salespeople in the recruiters, have professionals who have recruited and managed the kinds of people they are trying to recruit for clients. It will bring back the value in the industry, reduce the costs due to bad recruitment, create more value for recruiting clients and, long term, more profit for recruiters.

The firm that breaks the mould today and offers this kind of model will take the high ground - I know, I have already worked it with clients like Theorem Inc of the USA, and we are both better off for it.

Channeling The Negative Energy

JK Rowling created the most successful series of books in modern times which have also produced a string of fabulous films and merchandising - so becoming incredibly wealthy in a matter of just 10 years. The whole concept was built out of failure and despair. Sometimes you have to fail to realise what its like to really succeed and certainly success tastes that much more sweeter after a failure.

Rowling's message is simple - when you are at the lowest point, you can shed all of the things which are not important and focus only on the things that mean most. It means you can channel all your energy on the things that will bring you most success - by having that single-mindedness you can increase your creativity and make something far more powerful than you could ever do if all you have is success. For many firms, the recession will mean a re-focus on something new or an innovative change to their norm.

If there is one message out of all of this, it is to prioritise. Sit down, think what is important and, quite literally, forget all that is unimportant so that all energy, investment and skills can be applied only to what is important. Don't do an Aviva - now is not the time to blow a lot of money on nice-to-haves. Make sure every penny brings a return.

Make the recession work for you.

Fighting Recession - Increasing Margins

Revenue is vanity, profit is sanity. Or something like that - that's the old business adage which was recently regurgitated by Duncan Ballantyne in his top tips on surviving a recession.

Well whoever said it is right. There used to be a massive emphasis on revenue in the IT industry in particular with the theory that big was beautiful and that every new piece of revenue could be served by only a marginal increase in cost. In the Internet boom this was the mantra - get revenue, profit will come later.

Of course, we are all older and wiser now and we have realised that there is such a thing as bad business. Even in times of low interest rates, taking revenue at low margin puts a strain on the business. Increasing the margin on as many transactions as possible is a huge priority as it can help you survive.

So here are few thoughts on the subject:

1) Purchase smartly

If your business relies on buying in and reselling goods, then now is the time to go back to suppliers and negotiate hard - getting a few extra percentage points which can either be retained or shared with customers is vital to the bottom line. If the products are available from multiple sources, shop around or start to spread your buying according to the deals on offer. In the IT business, Distributors are always making offers or bundles, make sure you have access to all the information in a timely fashion to take advantage.

Ask Distributors what stock they have which has aged more than 3 months - often this is still viable and they will be in the process of writing the value down or willing to take offers. Make sure you have access to such information.

Compare prices and barter. Everyone is vying for your money and remember that. If month or quarter end is coming up, much bigger discounts will be on offer and sometimes extra credit - make sure you are wise to timing your major purchases to get the best deals.

Look for rebates if they are offered for loyalty which can be taken to the bottom line.

2) Keep stock levels down

Even though the cost of money is lower, having stock on your shelves is using up credit lines and bank loans - you need to have as much cash available to you as quickly as you can to be nimble and ready to take advantage. If you have already used up a credit line and need stock to fulfill an order, there can be nothing more frustrating. Most Distributors and Vendors are far more efficient at delivering so make sure you profile your stock down, decrease stock of slow moving goods and focus on the fast moving ones but decrease your holding anyway.

Sales may go down in this period and so stock days may rise very quickly - profile your stock everyday and take actions immediately and regularly as each day the stock does not move is another opportunity missed.

3) Think about Sales Commissions

In recessionary times sales are harder and can decrease to go under target. At this point assumptions on sales costs will come under pressure. Think about how you can be creative with commissions to accelerate reward for going over target and penalise for failing to meet certain thresholds.

4) Delivery and Logistics

The cost of delivering can be a big underlying cost if it is not fully passed on and a warehouse space unused is a drain on finances. Get creative - shop around for delivery methods, think about the number, weight and dimensions of shipments and profile what suppliers are offering. Think about consolidating shipments to big customers or lengthening delivery cycles to decrease small shipment consignments which can be more costly.

If you have spare warehouse capacity, think about how you can attract other local companies or vendors who might need to bond their stock and charge a nominal amount which can be used to offset.

Even look at outsourcing logistics and warehousing - there are tons of firms that do this that can offer greater capacity through peaks and troughs while you pay for only what you consume.

5) Marketing

Everyone tries to decrease marketing spend in times of recession which can become self defeating, so try to innovate and spend more wisely. The web now offers fantastic opportunities to drive more sales with relatively low cost marketing which can be analysed far more easily and comprehensively. Think about getting contractors or outsourcers involved who can help manage your marketing and take away the burden of peaks and troughs by not having to directly employ people.

6) Use the Web

The web is often a far more efficient and a lower cost method of transacting business by using ecommerce. There are some fantastic, simple methods to add ecommerce to your website and link it to an online catalogue which can rapidly move sales away from manual input to automated which can provide scope for efficiencies and cost savings. Many IT companies now have significant portions of their business online so reducing the need for order processing staff.

7) Use Contract Sales

Apart from gross margin, Sales and General Administration costs can be a large portion of cost of sale. Look to operate lean and mean and put the power where and where you need to - contract sales can help do this by paying relatively small retainers and high commission - you only really pay on results.

8) Focus on People

People are the biggest asset anytime but during a recession they are more valuable because they can help. By communicating early and fully, polling for ideas and inputs, your staff can become part of the solution. Look to get buy in for higher productivity, maybe deferred pay rises or less bonuses in the short term and the promise of higher later. Get them to audit each of their departments and think of low cost incentive ideas to motivate teams to identify cost savings and make them realisable.

9) Rebudget

Most SME companies budget once every 3 months maximum, and many just once a year. In a recession, the moment you sniff trouble, get onto the planning tools and reassess costs. Make sure that major investment decisions are reviewed thoroughly and staff recruitment is held over or delayed so that only the essential are taken on. If people leave, think long and hard about delaying replacement hires until you can see better conditions.

10) Recruitment Costs

Oh I could blog for days on recruitment costs - so many firms think they are just a cost line while others think you can pay peanuts and get good people. The fact is, the cost of bad recruitment is a huge drain on profits and while the figures look good nobody worries - in a recession it can kill.

First, review your suppliers and cut out companies that do not deliver. Second look at companies that are providing a Value Proposition that is realisable in actual monetary benefits - they need to be taking the burden of recruiting off your manager's shoulders while providing quality candidates at a fair price.

Negotiate performance related fees where possible - make sure these companies have 'skin in the game' by earning their fees when salespeople have stayed beyond a certain point or better still performed to a minimum standard. Don't accept clawbacks as they are hard to implement, deny the money up front. If they baulk, offer exclusive rights to certain recruitment in return.

It will soon sort out the wheat from the chaff, increase quality of recruitment, decrease time consumed in recruiting and give a focus on the ROI.

11) Currency Fluctuations

Many companies may purchase in foreign currencies and sell in pounds, vice versa or various combinations of currencies. It is an ever increasing risk to the cost line and is getting more complex. It is a hard pill to swallow, but it may be better to bite the bullet and trade in as few currencies as possible during a recession to decrease the liabilities. You may lose on one side but gain on the other and some times it is not easy to tell - keeping it simple helps you understand more. Talk to your bank about foreign currency accounts or buying currency ahead to hedge if you make lots of sales or purchases in foreign currencies.

12) Keep Assessing The Market

Many competitors will struggle in a recession as most customers will be reviewing costs and making harder purchasing decisions. Be prepared to move quickly when competitors stumble and take advantage. Make speculative offers to customers you do not deal with to test the water and be prepared to honour the deals. Look for parts of the market where competitors are having a good run and making money, very often such deals will be lock-ins at higher prices but with clauses for 'world class pricing' or 'benchmarking' - again make unsolicited offers; you have all to gain and little to lose.

13) Keep Reviewing

Don't stop once you have assessed your markets and margins, keep looking to make incremental savings and increases to margins whenever possible. Check all your customers are being charged the right price, you can never tell when mistakes are being made.

14) Work Hard

Once again, recessions are not for the lazy. Mobilisation of resources are key and slackers should be identified and properly dealt with. Don't tolerate inactivity and lethargy, it will hold back the good guys.

15) Innovate

Selling the same old items in the same old way may not be as appealing to customers in tougher times, particularly if they can easily be bought elsewhere. Now is the time to get creative and innovate - try to look at how a product can be 're-presented', 'repackaged' or 'presented as a specific solution' for recessionary times. You may want to make special services available designed to beat the recession like free audits or assessments or special finance options or bundles. Now is the time to position yourself to be more attractive in the recession and that requires a little thought.

16) Reviewing Sales Expenses

The odd breakfast under subsistence is neither here nor there but when salespeople travel unnecessarily or make the wrong choice over train or car, travel Business or First Class when Economy would be adequate, stay overnight when not necessary or use too higher class hotel, the costs soon mount up. Petrol costs are variable and if you pay mileage make sure you reflect current prices. Use audio, video and webconferencing where possible instead of face to face internal meetings and cut down on internal freebies like extended sales meetings. It isn't rocket science.

These ideas are not meant to be exhaustive but a stimulus for thought on how to increase margins without resort to vast costcutting measures - keep innovative and keep assessing, there are always opportunities to be a bit smarter.

Deal, No Deal

OK, so this is another blog entry about the recession but, before you switch off, it isn't all gloom and doom.

One of the biggest competitors in sales generally is losing out to the 'No Decision' - the idea that your customer weighs up all the factors and competitors and decides whatever it already has will do for now. In a recession, this becomes ever more prevalent. You can sometimes present a cogent and compelling ROI case that even a mathematically challenged mouse could grasp and still your customer chooses to carry on using their old, tried and trusted methods even though they may actually cost more to do so.

You see, in a recession, when people's jobs are on the line, sometimes it pays not to be the guy who makes a bold decision and invites change because the simple reason is that it attracts attention and has the burden of accountability associated with it. It means that one slip up in the implementation, miscalculation in the ROI or delay could cost a lot - including the decision-maker's job. There is every good, but illogical reason to postpone decisions until the organisation is more confident and better off.

No Decision - Sound Business Acumen Or Stupidity?

Very often in recessions people mistake cutting costs and getting value for money. I have fallen into the daft trap many a time like when cutting a few hundred pounds on stopping staff end of month pizzas and sacrificing a piece of goodwill - I found out later that people do not forget and a simple, low cost thank you for their hard work went a long way. When a company goes into cost cutting mode, logic tends to fly out of the window and decisions get postponed or cancelled. After all, why would you increase cost when you are trying to save?

It's why I keep banging the drum about planning for a recession as if you don't plan ahead you put your company into the hands of cost cutters and at that point you rarely are looking beyond the short term. There is a thin line between making cost cuts to save a business to having not enough resources to take advantage for the future.

Compelling Factors

It means in times of recession when selling you have to be both pragmatic and innovative.

1) The first thing you need to do is to look at who you are trying to sell to and their current state. There is zero point wasting time trying to sell to companies who are in high cost cutting mode, look for others where you can achieve your success. A hard, cool-headed review of each salesperson's sales pipeline is the first starting point - make sure their forecast is realistic and that any customer in trouble is removed - don't chase shadows.

2) Take a long hard look at your Value Proposition and what it actually does to companies in terms of saving cost or producing a return. Do not be esoteric or have 'soft dollars' in there and don't make assumptions without foreknowledge - it has to be instantly measurable and applicable to that specific company you are selling to. If it cannot be easily understood then you are on to a losing battle and the essence of it has to be delivered in no more than a few sentences and must trip off the tongue of every employee not just salespeople.

3) Make your Value Proposition your mantra. Your Value Proposition may make sense to you but to customers in 'panic mode' it may just be 'noise'. Test it on people, kick it around, take feedback and adjust your thinking to accommodate. Make sure you cover off the obvious and not so obvious questions and rebuttals. Make sure everyone knows these almost verbatim. Practice delivering the Value Proposition message amongst yourselves until it comes as second nature.

4) Apply innovation. Inevitably customers may be reluctant even to hear common sense, so put yourself in their shoes - ask 'what would make me get off my seat and listen?' Inherently, the issue will be risk - if the customer makes the decision, are all the ROI expectations and assumptions real or just hopeful?

Think about how you can mitigate, alleviate or share the risk.

If your product or service has the capacity, make the cost dependent on the results in some way, perhaps in a performance related model, i.e. charge a certain price now and when the gains are delivered, then you get more of the price paid plus some extra. Get the idea of discount out of your head and think about 'sharing the pain and the gain' where possible.

5) Try to create a 'Compelling Event' as Target Account Selling call it. This is the concept of creating a point in time when there would be a detriment to the customer if they do not take your product or service - the price of inaction. It may be something as simple as for every day they do not implement they are paying £X thousand pounds in costs they should not have to. There are risks to this as there has to be a cost to your solution and the deliverables may not be instant but in many cases they are. If you can pin the Compelling Event as the next Board Meeting or similar you can accurately predict the cost of 'No Decision'. Be wary though, this can backfire if you do not have all the facts. If there are stakes in the ground like legislation coming into play it may be better.

6) Leave no stone unturned.

So often in sales, it is what you don't know rather than what you do know that determines whether you win the sale or not.

Politics, power bases, vested interests, agendas and timing can all play heavily. It is important to poll all the key players in the decision making process and in detail understand their agenda and ensure your solution hits their hot buttons. Leaving things to chance or in the hands of your champion alone may actually play against you if the politics are not right. In a recession, many things can happen quickly and the most obvious is that your coach or sponsor could actually leave through their own accord or by other means. It pays to get round all the stakeholders and sell your solution and its benefits high and wide.

7) Replicate success and analyse failure.

Failure can be your friend - you need to understand why you failed in order to create success.

Make sure you ask your customers for a detailed answer as to why you failed - price is a stupid response because price can be a small factor in an ROI equation so make sure you get the real facts. Then address the reasons for failure and incorporate the answers into your Value Proposition or indeed, if you feel you cannot address the concerns of that type of customer, make sure you do not try to sell to more of the same; keep away from repeating failure. When you find success, make sure you understand why you succeeded and then replicate the success in as many similar customers as you can.

8) Do not stand still.

The worst thing that can happen in a recession is that companies become complacent that things are going ok.

We have seen the frightening speed at which this recession can strike seemingly impregnable household names. All too often when you analyse your business you will find an approximation to an 80-20 rule defining how your current business is generated. If you really understand your business you will know that if 20% of your customers produce 80% of your revenue or profit then it is obvious that even the loss of one major customer could be the difference between surviving or not, and the smaller the company you are the harder such losses hit. It means you have to up your work rate to keep existing customers happier and find more and more new ones.

Recessions are not for the lazy.

9) Talk to people.

Make sure your existing customers know why they buy from you, check if they are happy and are getting enough from you.

If you can, solidify the relationship by getting agreements in concrete or even opening negotiations ahead of schedule. This may sound barmy if you are not far into a new contract but if you are inside 6 months to the contract renewal, you can bet your bottom dollar your customers will be actively looking to reduce costs and so if you are proactive in addressing this it can swing to your favour. Look early to find innovative ways of perhaps offering something for renewing the contract EARLY but in return for LONGER or a crack at more business within the customer. Think ahead.

10) Make sure all your staff are bought in.

Recessions are tough times and innovation and extra activity will mean uncertainty and worry.

Make sure your staff are part of the solution by getting them to contribute ideas and parts of the Value Proposition. If they know the score early, they will be that much more bought in. Your staff are your most precious assets at all times and never more so in a recession - only cost cutters see them as numbers on a spreadsheet, you need to see them as your weapons to survive and thrive.

Recessions are mean old beasts and customers do all sorts of irrational things. Think one step ahead, be innovative, work hard and above all sell smartly.

Catching A Dragon

TV's Dragons Den has announced the first failure of one of its investments. JPM EcoLogistics called in the administrators last week. Deborah Meaden and Theo Paphitis had put in £100,000 for a 40% stake and they put in a further £27,500 after an emergency cash call despite asking all the right questions.

No Guarantee of Success

While Duncan Bannatyne was swift to point out all his investments were doing fine, both he and James Caan supported Meaden's views that Investors tend to look at a portfolio of investments to spread their risk and increase chances of a success. Meaden is right in saying '....if you don't take risks you have no economy.'

Of course, this is cold comfort for the Directors of JPM, Jerry Mantalvanos and Paul Merker, who went on the show in 2007 to seek investment in their haulage firm which ran its fleet on bio-diesel. They must have thought, as many do, that having high-profile investors you have a greater chance of success. It is also a body blow to firms which Lord Mandelson has described as contributing to the longer term view of decreasing emissions which seems curious that he has not selectively moved to help save it. But I would have thought it was just another soundbite in the sea of them from the Government at the moment.

The Reality of Business

What JPM's demise shows is that programs like Dragons Den are for entertainment value only. The reality is that there is no substitute for investors who are going to pitch in and support you. Fair play to Ms. Meadon and Mr. Paphitis for responding to the emergency cash call but I suspect that the Directors probably rued the fact their choice of investors was more based around celebrity than hard business facts.

I have no formula of success to reveal here but sometimes in a business like that, it would be wiser to look for investors who are like-minded or in the business. Unless you have a patentable, new technology that is ground breaking, firms of that nature are just a new, green take on an existing model and success was highly likely to be dependent on a few factors - 1) the price of bio-diesel as compared to normal diesel, 2) the comparative cost of maintaining the vehicles as compared to traditional haulage vehicles, 3) the comparative fuel economy of the vehicles but most importantly 4) the response of the competition.

Assumptions are usually the things that conspire to kill a business and sometimes it is too easy for an entrepreneur to get seduced by their own subject or idea to see how the market may respond. The haulage business is very traditional and mature and in austere times when cargo rates have been dropping, it was not the time to introduce premium rates to help satisfy Corporate and individual consciences about the environment.

Cost is king at the moment and so it is not surprising that such noble thoughts fly out of the window.

Sympathetic Investors vs Practical

One way around such a problem of having a fresh approach to an old, established industry with no greater innovation than a green edge was to have sought a long term investment by another haulage or similar firm who may have a vested interest to start a more green business. The reasons for this may be several but the most obvious would be that the industry is going to be forced down that route at some point in the future by legislation, it may be possible to seek greater help from Government if an old-style firm is seen to be practically investing in the future even by shareholding, and finally, it may actually be a really good bet.

How this could have practically helped is by JPM having a more practical investor. For instance, more business might have been able to flow to JPM from its investor on a spill over basis or because it is premium or the investor might have been more amenable to running JPM as a loss making investment for longer for reasons of legislative moves as explained above and by supporting it through the profit of the main company. It also provides a ready 'exit strategy' for all parties.

The problem with Dragon style investors is that they are investing purely on the worth of the business opportunity as they see it and from portfolio of risk point of view. They are not looking at it from a long term compliment to their own business or portfolio of businesses which may have afforded better protection to JPM.

The Dragons have responded with James Caan suggesting in future Dragons will want a bigger stake for their investment and I think that is very indicative of why Dragons are not good investors for everyone, although Duncan Bannatyne has still said his decisions will be made on a case by case basis.

No Right Answer

From an entrepreneurs point of view, there is no real right answer. Investment money is investment money. But as a rule of thumb in my book, if you do not have a patentable idea just a new take on an existing business, then you are going to run at loggerheads with the existing market. For that reason you must, must, must get your assumptions right and test them to destruction before you start because the incumbents in the industry will see you as a threat and treat you accordingly. So your Value Proposition, marketing, service levels and cost base must be able to stand the test.

In JPM's case, clearly they became victim to the desperation within a tight haulage industry. The Value Proposition around green haulage depends on the buyer's belief in a greener future. Today, and very sadly, that is not a strong enough reason to prefer the service when every major firm is looking at its cost lines.

Together with that, and their choice of investors, JPM walked into a trap of their own making. If only they had a business centred around environmentally carrying bank executive bonuses or disposing of bail outs more effectively - that would be a good business to be in.