BUSINESS DEVELOPMENT SKILLS - LESSON 2
BDS Lesson 2 - Value Creation
BDS Lesson 2 - Value Creation
Every established business is successful at creating something of value. Business is really all about adding value to other people’s lives, that is to make their lives better in some way. Happy Window Cleaning does this by improving our clients' view. That is the result of a clean window. Without value creation, Happy Window Cleaning could not exist. You cannot exchange what you do not have. The most valuable transactions in the world are from businesses perceived to value the most value for other people. Can you guess what some of those are? Right at the top of the list are defense contractors. An aircraft carrier, for example, costs a few billion dollars. Those who build and sell them earn enormous sums because this equipment is considered necessary to maintain a dominant position among nations and therefore safety and defense for citizens. Some businesses survive by providing a little value to many (think of Wrigley 's Gum) and others, by a lot of value to a few (luxury homes). Regardless, the more value a business can create for others, the more a company will thrive.
So, it stands to reason that if one wishes to improve value as a business person the best place to begin is by improving skills directly related to the five parts of every business. Not every skill has an economic value. We do some things purely for enjoyment and that is all right, it is worth pursuing a thing that enrich our lives whether or not we can make money at it. However, when we take the leap and carefully devote more time away from recreation and invest it into things that will make us more valuable to others we find that others are willing to pay us for those skills.
Have you ever thrown a party where no one showed up? This happens in business all the time. Not every business has a ready market of prospects just waiting for it to open its doors. Remember the Segway PT (think Mall Cop). Dean Kamen is a world-renowned inventor, to his credit is the world’s first insulin pump and the sterling engine! Dean figured that there would be a huge demand for a very economical new form of transportation. At just five grand he believed the two-wheeled self-balancing scooter would revolutionize personal transportation. In 2002 the company did its IPO and make a public statement that it expected to sell fifty thousand units the first year. It only sold about ten percent of its target. The huge market simply did not exist.
Many great ideas even ones that make perfect sense and do create value miss their mark when it comes to how they are received by others. There are many reasons for this. We will explore those because market research is just as essential to the success of a new venture as is the value creation itself. In fact, the two go hand in hand. Even with great value, there can be insufficient revenue to sustain a business.
For many companies, they simply find that their local market is already saturated with the supplier of their particular form of value. Window cleaning and cleaning, in general, is in such high demand and good cleaners are so rare that there is typically room for a new company in most markets (although some segments of the market are harder to break into than others.) Fortunately for us, the demand for window cleaning is still greater than the existing companies’ ability to meet the demand in most markets.
Scott Britton has contracted for window cleaning all around West Michigan, Illinois, Northern California, Southern New Jersey (The Jersey Shore), Florida and Nevada. Scott has yet to find a place where he could not make money cleaning windows. In business, revenue is completely dependent on people actually wanting the value that you have to offer. Many businesses present more of a challenge than window cleaning. You have chosen window cleaning if you are reading this, so why would I tell you about other business opportunities. Well, it is like this, the grass can look greener on the other side of the fence. One can grow restless and tire of window cleaning. It is my advice that one be very careful when considering a change in direction. Be sure to diligently research the new form of value and the market conditions in your area. For example, photography is a very popular trade among communications arts majors. The thing is there are so many people going into the trade but the demand for photographers in many places is limited. This results in higher customer acquisition rates. So, if it costs more to get new customers there is less left over and the effort may not be worthwhile financially. Now if you have a real passion for photography you might still find a niche in the line and eventually break through, but you should have an idea going in at what cost this might be.
My advice is once you have a good business-like Window Cleaning, plan to stay the course and build a great book of business. Look toward the horizon long term and focus on making your business even better. You might find additional value creation by investing in real estate or other related things that you can focus on in the slow season. Markets are hard, cold and unforgiving. Take it from someone who has actually lost a fortune pursuing a legal document preparation business where the market was extremely saturated, customer acquisition costs were incredibly high, and regulations were impossible in the market I chose. In sum, my ill preparation specifically at marketing research led to a sunk business. One may be a talented artist, but opening a tattoo parlor, for example, involves more than just great art. It involves all five parts of every business and there has to be a sufficient market to make it work. Similarly, being able to paint signs does not mean that someone will succeed in a sign making business. Just as winning a Supreme Court case does not mean that a lawyer can run her own firm. After studying this course, however, you should be able to determine if a viable market exists for any business and many of the skills involved in running a business are transferable.
All value creation exists within the wheelhouse of what moves people. Knowing what people want is half the battle. Google the psychologist Abraham Maslow's: “Maslow's Hierarchy of Needs”. Maslow’s theory is that people are inwardly driven to progress through five stages in pursuit of meeting what they want - physiology (food and shelter), safety, belonging/love, esteem and finally self-actualization. The theory is progressive from lower needs to higher order needs. What happens is that as we achieve one level, the urge becomes stronger to compete for the next stage. So for instance, if you are not getting enough to eat you probably are not too worried about whether or not other people like you or not. We exist, we relate to others and we look to grow. Any business that helps us to enjoy our lives in the process or takes us closer to our goals has potential value.
Thinking about the needs of others is not academic in business, it is essential stuff. When we consider that whenever we go to clean someone's windows there is much more going on in the minds and hearts of our clients. How we do interact with them and perform our work is creating an experience for our customers. For some people, this can be a very important experience and we certainly do not want to muck that up.
Undeniably people enjoy the status they get from telling their friends and families about their window cleaner! They have worked hard for their stuff in most cases and it feels good to share a great experience with others. People feel important socially when they can afford to pamper themselves and their families with nice things and things that bolster what they already have like a window cleaning service. What we do as window cleaners provide the added benefit of social status for our clients. We're not referring to snootiness, most people are not negative. Social status is not in itself a negative, it is simply human nature at work. And it works to our benefit as well. That is why when we do our jobs well, (both the technical part and the interpersonal relations) we get many referrals. Human beings have a pecking order like other mammals. As service people, our humility helps to affirm the Alpha role of our customers. But humility is not bad. The customer only gets to play the Alpha role for a price! Just as in the wild the Alpha wolf of the pack is expected to stand between the others and danger. He pays a price for all of his privileges, the other wolves aren't stupid, they have certain expectations from the Alpha wolf. They understand that eating second might one day save their lives when danger arises, and they are willing to accept that contract.
In creating value, it pays to understand that people care intensely about what other people think about them. People look to increase their status and spend a significant time thinking of ways to do that. You are reading this now because you understand that education will increase your stature! When given alternatives people usually choose the thing that will give them the greatest immediate status. This is how a window cleaner might make more than a bank teller but the bank teller may feel superior because she gets to wear a business suit. Understanding human nature allows us to act in our best interest and get way ahead in life.
You might be thinking great but how can I apply this knowledge to my business right away? One way is in framing your Call to Action to enhance social signals in your offer. This will increase the appeal to your target audience. Here is an example:
You work hard and play hard. We want you to take a few moments in the coming weeks to reflect on everything that you have accomplished up to this point in your life. Call us to today we want to be the company to improve your views!
Happy Window Cleaning 616-914-0720.
Meticulous workmanship guaranteed
Do you see the social signals at work in the ad? There is a call to action. With some visual aids, like private boat dock on a lake house with a nice Boston Whaler, all signals, attractive and screaming success. And in the end, all we have done is to convince someone to use us to do something they already want to be done. They want to be able to see the boat parked at the dock on their private beach or the Japanese maple tree they planted on their son's first birthday. They want a clear view of their own success! People are willing to pay a premium to have our company take the hassle out of getting their windows cleaned. This is another approach, more frequently used device to create good advertising copy. Fortunately, as a Happy Window Cleaning Franchisee, you have a team of creative people helping to create fresh copy for your marketing efforts.
As you increase your skill as a business person it will pay to reflect on all the types of value that companies create and deliver including products, services, resale, lease, agency, loans, capital, the aggregate audience, subscriptions. insurance, and options. As an organization grows it discovers many opportunities to build in new forms of value creation. Think of a website which provides audience aggregation, that is a bunch of viewers that share similar characteristics, like an interest in sailing. This presents the opportunity to sell advertising to boating festival operators since the site has built an audience of people who might be interested in attending a boating event. Marine shops, a marina that lease space, storage facilitates, apparel and many others might be interested in tag into a well-trafficked site. In turn, the site may offer membership only in areas where members log in to get privileged information, discounts or more access. So, the website is earning a subscription as well. This is a carryover strategy from magazines and other print media. In a way, The franchiser is a central repository of valuable information that is in turn dispensed to franchises.
Movie theaters likewise combine movie showings (a shared resource) with tickets (options) and concessions (products). In most companies, offers are fashioned separately. The opportunity to up sale a gutter cleaning and/or bundle a power washing or soft house washing can mean additional revenue streams that will amplify profitability over time.
As the Franchise grows, more opportunities arise to leverage our mutual interests to create and deliver various forms of value.
The thing about value is it is always in the eye of the beholder. Many blue-collar people working for small wages will not find as much value in having the windows cleaned as someone whose income is much higher and whose responsibilities and time are in just a great of demand if not a greater demand. For those who are busy earning high returns on their own skill set, it becomes a matter of choosing a company that they trust to be ethical and who offers professional competency to get the job done.
Our job is to offer and foster the highest value and earn a well-regarded status from the market that we serve.
In deciding on whether or not to consider a new form of value a SWOT Analysis is a good place to start. Write down the Strengths, Weaknesses, Opportunities and Threats of your proposed new prototype or value proposition. The first two deal with the internal parts of the company and the second with the external factors of the market and competition.
The conventional wisdom with prototypes is that companies will shroud the new project in secrecy. Companies will spend years raising capital and improving their product before bringing it to market. Making everyone in the organization sign non-disclosures etc. This mentality often does more harm than good it has emptied many bank accounts. At Happy Window Cleaning, we are an open book and open-door type of organization. Ideas are largely worthless until they are tested and put to use. Our way is to ask our potential customers for feedback on our work in progress. We don't worry too much about anyone stealing our ideas. What really matters is the ability to translate ideas into a working system, and that takes skill and effort.
The process that we use to bring a prototype to fruition is called the iteration process and it works like this
Step one: What is going on? What works about the idea or model and what does not work?
Step two: What can be improved? What are the options?
Step three: Out of the options that you have discovered what do you think has the best chance of success or the greatest impact?
Step four: Choose the change (one single isolated change at a time)
Step five: Execute the change, take action
Step six: Measure the result. What happened? Is the change positive or negative? Should you keep the change or revert to the way things were before the iteration?
The process is a cycle. Once you have gone through the process you begin again and with many iterations, a simple system is improved dramatically. Ideally, you can move through the cycle quickly with a new offering. We keep what works and discard what doesn't. We revisit and improve. Over many years we learn a great number of things.
Feedback from customers is essential to well-functioning value creation. It is important that we get our feedback from real customers and not from family and each other. We need the perspective where there is no conflict of interest. It requires the skill of listening to understand as opposed to listening to respond.
Open-ended questions work best. Let the customer do most of the talking! Steady yourself and keep calm, not likes criticism, but hearing the truth is a huge advantage to improve. Try not to get offended or defensive if someone does not like what you have created. Listen to hear what might have changed their opinion and often it takes very little additional effort to go from a mediocre offering to an exceptional one. Working the process is all it takes to become a winner.
One method that works well when trying out a new add-on service or product line is giving your target prospect audience a chance to pre-order. This simply means that you are under no obligation to deliver if the program does not take wings, but on the other hand, if you do happen to meet some predetermined minimum you will have a bunch of waiting customers. It is a win/win situation. You know that you have a solid offering and you will have an immediate cash flow. If no one is willing to pre-order, do not despair, it just means there is more work to be done on your offer.
Note: The training above is for your overall education and not to be interpreted as a free pass to do whatever you want in business while having a fiduciary responsibility to Happy Window Cleaning. Happy Window Cleaning does prohibit its franchise owners from engaging in some types of add on services. A franchise owner is not allowed to work at another business concurrently either in the cleaning industry, or otherwise which would be deemed to preclude the franchisee from devoting the minimum requirement of fifty hours to his or her Happy Window Cleaning operation during the eight-month season. All customer feedback indicators must remain exceptionable and Happy Window Cleaning's reputation prudently cared for to avoid losing your franchise license and or incurring penalties.
When developing a value proposition there are many possible alternatives. Put yourself into the customer's shoes. Imagine it is Saturday night and you are hungry. What are your options? You could go to a fast food joint drive-thru. Order in a pizza, go out for either a buffet or fine dining. Now turn it around, all of those establishments have chosen an alternative way of creating and unique value. The fact is that for every value proposition that works there are many more that collapse on themselves. An example would be a restaurant that tries to capture the fine dining experience but also installs a drive-thru, or who puts a cheap buffet in the middle of a quiet candlelit dining room. These kinds of mistakes happen all the time, it is a lapse in understanding and respecting the experiential choices of their prospective guests. Unless someone is really hungry it is an either/or decision and providing the right experience is tantamount to one’s success.
Happy Window Cleaning is all about providing an experience that says to our client's that we genuinely care about our workmanship and strive to make the clients experience a Happy one. We have uniformed service technicians and we don't allow smoking on the work site. We teach proper etiquette from the time we greet the customer to the closure of the project.
Let's take the restaurant owner above. Let’s say we are advising a fast food hamburger joint owner about what he should focus on improving. The options are, to shorten the time it takes to serve customers (throughput), expand the menu offerings or remodels the restaurant. Which of those items will have the best outcome for the bottom line of the income statement? Now if life were perfect he could do all of those things, but liquidity and the need to a budget mean that there is only so much money to go around. He needs to do something, but it is not clear which improvement will make the cash register ring more often. It is best to write down your options and examine them with a SWOT analysis. Examining the choice that one has, and the customer's perspective will help one to make better decisions. Once the alternatives have been properly examined the restaurant owner can develop a good business expansion plan.
A tradeoff is a decision that places a higher importance on one option than some others. This is also called opportunity cost. We want it all in life, but we can't have it all. In fact, the more assets one owns the more one must necessarily make tradeoffs. Life gets more complicated as the balance sheet grows on the positive side, and the weight of the liabilities on the other side is a heavy burden. In making decisions about what to include in an offer, it pays to look for patterns. Simple statistical models can half to do this with the numbers, mean mode, median, all show patterns that emerge in the numbers that you can begin to question and make informed assumptions about. But many patterns are recognizable with just good record keeping and taking the time to reflect on what is happening with your business. Another technique that works well is called relative importance surveying. This is essentially a list of characteristics about the offer that you ask participants to rate on a scale of 1 to 10.
The thing about any business investment is that there are assumptions that one makes which must be true otherwise the business will eventually fail. The more knowledgeable the investor the more likely that he or she will understand all of the things which might potentially sink the business.
Now imagine that a tattoo artist is planning to open a new studio. The market looks good and he believes that he has identified the right neighborhood as a target market. He has found a location he can rent for about $3,500.00 per month. There are some lesser expensive locations but the tattoo artist understands that he needs to be where the money is to generate enough revenue to make the business worthwhile. There is good visibility, access, parking, foot, and drive-by traffic. People with money are not afraid to visit the neighborhood. He figures that he will need another $4,000.00 a month to pay for salaries and overhead. He also will need to spend another $5,000.00 on equipment and the build out to make the place presentable and carry out the operation.
The commercial real estate agent that he is working with is putting pressure on him to move quickly saying that space may be snatched up by another tenant. The entrepreneur’s life savings and a small loan from family are enough to get started and pay for three months of operating expenses. He is excited, but he wants to make sure he is making the right decision before signing the lease. Should he sign the lease? Stories like this are not unusual they happen all the time. Sometimes things work out. More often than not, within a few months, the owner is bankrupt and out of business. This happens because he made an error or possibly several errors in his assumptions. Critical assumptions are things that must be true in the real world for a business or offering to be successful. Every new business offering has a set of these and if one or more of them turn out to be false, the business will be less promising than one anticipates.
Some of these are the price point that people will be willing to pay for the work. If the artist already has a following and a portfolio that can certainly help.
How much revenue can the new business generate in the early months? Most people will pass by a new business for a long time before they change their habits and stop to check it out. That is just human nature and it is common for new business owners to overestimate the immediate demand for their products and services. However, once a prospect does stop in, and if they like what they experience it is very likely that they will come again.
Will the revenues exceed the expenses for the entire period of the lease? Are there slower times in the cycle? Probably, when are they and being prepared for them is key to being successful.
Now I can write a story about what will happen in the above story if the assumptions made turn out to be false, but we understand from childhood games of Monopoly what happens to a player when he runs out of money.
The best way to validate whether a critical assumption is true or false before taking the leap is to test them directly. You might set up a booth on the sidewalk with some flags and prompts and try to get people to sign up for a session with the proposed new artist. This is called shadow testing. By building up a demand prior to jumping in both feet first, one can make the likelihood of success much greater and thereby beat the odds.
A minimum viable business proposition is all about starting with a shoestring budget to test the waters. This is a great way to gain some experience and insight into the new market without leveraging your credit rating! For an example of how this is done in the real-world Google “Fitbit's Prototype.” This allows you to start collecting money form real customers right off the bat.
Now with the process of iteration as you continue with your value proposition you can make incremental improvements. Buy better equipment, furniture whatever is needed. Get into a better working capital situation to lease the space. A kiosk in the mall might be a great place to conduct some short-term shadow or field testing. The point is that by making changes quickly and incrementally, you can continually improve your offer without gambling the whole savings account.
The next lesson is marketing.