Monthly Archives: March 2011

March 30, 2011 · 8:15 pm

Conscious Selling – Part Three, The Value of Applied Behavioral Economics

Traditional, neo-classical economics is built upon the assumption that human beings are rational actors.  The standard economic models (which failed to foresee the most recent financial crisis) are based upon a belief that as rational actors, humans will make decisions that maximize their utility.  Market forces will find the correct price based upon supply and demand and act as a great leveling factor in commerce.

Applied Behavioral Economics, on the other hand, studies how the actual decision making process influences the decisions that we make.  Leading research in the field indicates that in reality, 70% of our economic decision making process is driven by emotions with the remaining 30% rooted in rational thought.

You may be asking the question, “Why should this effect our approach to conscious selling?”  Behavioral Economics explains why highly experienced, smart people, with good intentions often make bad decisions.  Gaining an understanding into the constructs of Behavioral Economics simply makes good business sense.  Especially for the entrepreneur.  In fact, a recent Gallup® study of ten companies that applied these concepts outperformed their peers by 85% in sales growth and by more than 25% in gross margin in a single year.

Seeing your prospects through the lens of Applied Behavioral Economics will help you gain insights into how to price, position, communicate, and negotiate with your customers.  Here are some fundamental concepts and how they can help you in your sales process:

The Endowment Effect ~ People that own something place a higher value on the item than those who don’t own it.  Dr. Dan Ariely demonstrated this effect in his experiment with Duke University students.  Those students that had been lucky enough to secure tickets to the school’s upcoming basketball game were asked what price they would accept to sell their ticket.  Students that didn’t have a ticket were asked how much they would pay to buy a ticket.  The students that owned the ticket stated, on average, that they wanted $2,700 for the ticket.  Students that didn’t have a ticket were willing to pay upwards of $280 for the ticket.  The emotional attachment the students that owned the tickets had to seeing the game in person had a dramatic effect on their perceived value of the ticket.

How this affects your selling process ~ If you are offering an alternative to an embedded product, technology, or service you’re going to have to build an exceptional value proposition.  Research indicates you need to communicate twice the perceived value of the incumbent in order to dislodge its use.  Anticipating this will help you understand your sales cycle and potential adoption rates.

Anchors ~ People are effected by how they perceive themselves and their world and are anchored in that perspective.  This explains why repeat Mercedes Benz owners pay, on average, $9,000 more for the same vehicle than do first time buyers of the exact same model.

How this affects your selling process ~ This especially comes into play if you’re marketing a disruptive technology; something that unmoors the anchors to dogma.  Trying to shift someone’s perspective can be a win-lose situation.  You may get them to see things your way, but you will most likely cultivate some resentment along the way.  Try to understand each prospect’s perspective, sense of self worth, and self-image.  Tailor your approach to the prospect’s particular style (roll with their ego) and listen for what they’re not saying as much as what they are saying.

Reference Dependence ~ People judge the probabilities of future events based on how easy the possible events are to imagine or retrieve from memory.  Sales reps that are accustomed to closing deals easily visualize the next close while less successful sales people struggle to break out of the rut.

How this affects your selling process ~ Have you ever walked into an account where a  recently adopted new product or service didn’t go well?  Then you understand reference dependence!  When things are fresh in our mind they seem larger and more likely to happen again.  This contributes to the endowment effect as the status quo is easy to predict and introduces fewer perceived risks than making a change.  Try to position your solution in reference to a positive outcome they’ve experienced.

Priors ~ People miscalculate the probability of events based upon prior experience.  We see this in sports all the time.  When a .300 hitter is 0-4 in a game and comes up to bat in the ninth inning we think he’s “due” for a hit.  Not necessarily.  This also infers the Law of Small Numbers, where we tend to miscalculate probability based upon a small sample size.

How this affects your selling process ~ This is where building a dependable track record of being a resource for your customers pays off over time.  If prior experiences with you, your products, and your company are positive for your customer, they expect things to be positive next time.  Of course, this cuts both ways.  Also, be resilient yourself.  Sales is a numbers game.  Don’t judge your success or failure on too small a sample size.

Framing ~ Our frame of mind often influences how we interpret information.  How often have we been in a bad mood and misinterpreted an email as hostile or overly aggressive?

How this affects your selling process ~ Know when to disengage.  Be aware of what’s going on in your prospect’s environment and be sensitive to their circumstances.  You’d be amazed how far a little empathy can go with a prospect having a bad day.

Heuristics ~ When people are faced with complex decisions they tend to fall towards “rules of thumb” to make the decision.  While these heuristics can be helpful when a quick decision is critical, they can also effect our behavior.  Another experiment conducted by Dr. Dan Ariely involved a simple supermarket sampling booth for jams.  His team set up two displays in the same store on two separate days.  One booth had 24 samples available for tasting, the next one only had 3 samples available.  If a customer took the time to sample the jams, they received a coupon that was good for any jam in the store.  The booth with 24 samples drew 60% more tasters than the one with only 3 samples.  On average, the shoppers faced with 24 choices sampled 1.5 jams while the one’s faced with three samples tried 1.4 jams.  Here’s the interesting result:  Of the shoppers that had the opportunity to sample 24 jams, only 3% purchased jam that day.  Of the shoppers faced with only 3 sample options, 83% purchased jam that day!  When we are faced with too many options, we often choose not to choose, even with something as simple as purchasing jam.  Imagine the effect on deciding on health insurance, retirement planning, or complex business decisions?

How this affects your selling process ~ Keep your options and message simple.  People are bombarded with sales pitches and marketing today.  Too much noise and we simply shut down, decide not to decide, or delay our decision.  Adding complexity rarely adds value.

Most importantly, look for the secondary, emotional gain a prospect may have attached to their purchasing decision.  There’s an old saying, “No one ever got fired for buying an IBM”.  There was no risk in deciding to purchase an IBM mainframe to your career path.  You want to eventually be that IBM!  Understanding what your prospects have to gain or lose, both personally and professionally, by working with you will help you understand how to connect, engage, and motivate their decision process.  All without using manipulative or coercive sales methodologies.

Next, we’ll explore how cultivating your emotional intelligence can help accelerate sales and profitable growth.

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March 29, 2011 · 6:31 pm

Conscious Selling – Part Two, Perspective and Prospecting

Lots of things need to be taken into consideration when preparing your sales strategy, but here’s the most important thing non-sales professionals should keep in mind when gearing up to sell; take the perspective of discovery into the process.  Approaching your sales tasks with the idea that you’re looking for information, that it is all part of your learning process, will greatly alleviate much of the stress associated with sales.  Asking for somebody’s professional feedback on a product or service is a lot easier to do than asking for an order.  It also opens up a conversational approach to exploring your value proposition without the prospect feeling pressured to buy.  It communicates respect for their expertise as well.  But where do you begin?

One of the most challenging facets of selling, especially for those of us that are not naturally drawn to the discipline, is accurately targeting prospects.  The best case scenario is your company worked very closely with the end-users of your product or service during the development and commercialization process.  I highly recommend developing a User Requirement Specification, a formal document that is built around the end-user’s applications.  This document drives the technical and/or engineering specifications for your product or service and helps ensure the close alignment of your value proposition with your prospect’s buying criteria.  The better the match, the shorter the adoption rate in the marketplace.  If you haven’t taken this route, you’ll need to clearly identify your prospects from your buying influencers and do so quickly and accurately.

What’s the difference between an influencer and a prospect?  A prospect has purchasing authority, can afford your product, and has the ability to understand its value.  An influencer has input on the decision but does not have the authority to make the purchase.  The more significant the price point or the more critical the nature of the product or service, chances are the more influencers will be involved.  I often think this is meant to help spread the risk of accountability, but it is a reality of the sales landscape.  Influencers can include end-users, quality assurance professionals, purchasing agents, or other professionals involved in the application of your product.  Your prospect, on the other hand, has the final authority to sign off on the purchase.  The challenge for the entrepreneur is to efficiently connect and engage each influencer to build support while honing in on the actual prospect.

The next point you need to validate is whether or not your target prospect has the ability to embrace your value proposition.  I’ll give you an example.  My firm has a program called, “The Emotionally Resilient Nurse” that builds emotional and social intelligence skills in nurses, both for patient care and self-care.  The program is built upon more than two dozen peer-reviewed, published research papers that identify the value of emotional intelligence in nursing.  Emotional intelligence in the nursing profession directly contributes to positive patient outcomes, reductions in nurse burnout and corresponding turnover, the lowering of adverse events and medical errors, lower cost at discharge, and positive patient perceptions of care.  The program has an exceptional return on investment that helps hospitals address many of the challenges we face in health care today.  Sounds great, right?  Well, the program never really took off because the target prospect, the hospital CEOs, COOs, or CNOs, are grappling with so many issues that they’re just not ready to sit down and look at how training their nurses in emotional resiliency contributes to their mission.  Will they come around to this perspective?  I think so, eventually, but the timing of this professional development service is leading the market rather than meeting it.  So while these targets have the authority to make the purchase, they’re not true prospects at the present time because they cannot embrace our value proposition.

The last criteria for targeting prospects is discerning whether or not they can afford your product or service.  Sounds pretty basic, I know, but you’d be surprised how often I see small organizations gloss over this key point.  All prospects are buying influencers, but not all buying influencers are prospects.  Keeping this in mind as you prepare your targets will save misspent time, energy, and resources.

Each influencer and prospect will have buying criteria molded by their professional interest in the product.  Traditionally, we were taught that in industrial or business-to-business settings, each influencer will have a minimal quality threshold.  We were taught to meet their criteria and move on quickly to the next influencer, eventually closing on the prospect.  But there’s something more at play than quality specs, price sensitivity, and features and benefits that can greatly affect your performance.

Looking at the sales landscape through the lens of Applied Behavioral Economics (an integration of psychology and economics that examines why people make the economic decisions they do) provides the entrepreneur with several advantages.  Recent research indicates upwards of 70% of economic decisions are emotionally driven with the remaining 30% cognitively based.  If this is accurate (and most behavioral economists believe it is) then spending all of one’s time building the rational case for purchasing your product may not be time well spent.  One needs to look beyond the surface and try to discern the emotional, secondary gain the prospect may achieve through their decision process.  What do I mean by that?  If the prospect decides to purchase your solution and it fails they may find their prestige, opportunities, and perceptions of their abilities questioned within their company.  That fear will motivate the level of scrutiny the prospect invests in the purchasing decision, and more importantly, the relationship they have with you.

Our human nature has roots in what is known as our mammalian core emotional system.  It is part of our basic survival mechanism (the fight, flight, or freeze response) and our brain is pre-wired to act and react according to emotional information triggered by our environment.  It turns out, how a prospect or influencer feels about you, your company, and products is as important, if not more important, than what they may think.

This is what we will explore next.  How to authentically connect and engage your prospect in a way that truly differentiates you from your competition.  I’ll discuss how a set of easy-to-use tools from Applied Behavioral Economics, competencies in social intelligence, and lessons from performance psychology can help accelerate your success!

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March 24, 2011 · 4:30 pm

Conscious Selling – Part One

Let’s face it, for entrepreneurs that don’t have a field sales background, getting out there and selling their products or services doesn’t necessarily stoke the creative fires.  It is, however, a mission-critical activity for our success.  A slight shift in perspective can help alleviate many of the anxieties small business owners have towards the sales process.  The next few blogs will focus on how to approach selling in a way that aligns with the consciously aware entrepreneur, lowering internal barriers and energizing your sales process.

I’ve worked as a coach/consultant with a custom sales solutions company since 2002.  I furnish the role of Executive Strategist, both within the firm and with many of its clients looking to outsource the sales engine for their companies.  During this time, I’ve worked with literally dozens of startup companies seeking to secure initial market traction as quickly and affordably as possible.  While all companies go to market for the first time once, this role exposed me to going to market for the first time multiple times every year.  This unique perspective has helped me hone the effective methods and strategies for securing rapid growth for companies with constrained resources.

Before we get into the nuts and bolts of selling, let’s reflect a bit on our attitude and perspective towards selling.  Our aversion to selling is most likely based in the annoying experiences we’ve had with sales people in our own lives.  The dreaded car dealership, the clinging clerk at a store, and the constant up-selling that occurs whenever we have to call our phone or cable company is enough to turn off Zig Ziglar.  Right up front, it doesn’t have to be like these experiences.  It can be a supportive, valuable experience if we approach it with the appropriate attitude.

First of all, unless you’re selling a low-price, transactional item (think of the display racks at every check out stand), you’re probably not going to close your sale the first time you meet with a prospect (we’ll define what a prospect should be in the next blog).  I mentioned in my last blog that I was not a high pressure salesman when I was in the field.  It just didn’t feel right to me.  I focused on differentiating myself and my company as a resource for my customers.  This takes some time, but it is highly effective.  Why?  It is all about relationships.

Let me use my own firm, Performance Transformation, LLC, as an example.  We conduct leadership development, sales training, and team building workshops and programs for small to mid-sized companies.  We do so through our proprietary Accretive Coaching Process™ which incorporates Equine Facilitated Learning (yes, experiential learning with horses) with constructs from Emotional Intelligence, Applied Behavioral Economics, performance psychology, research from neurophysiology, and two decades of real-world, executive experience.

My initial sales approach to my targeted prospects was very low key.  I positioned our services as a highly viable and fresh alternative to traditional workshops that have been around for twenty years (i.e. ropes courses, competitive, war-like games, etc.).  That was it.  Basically, I said if you’re interested in something that is new, evidence-based, and will really affect your performance, we may be worth a closer look.  We had invested three years developing the programs, so I was very confident that if a prospect did a side-by-side comparison between us and what is generally available in the market, we would capture our share of the $54 billion annual corporate training and education market.  That’s it.  We’re a resource and if we can be of any assistance in helping you choose your next developmental program or workshop, please give us a call.

Instead of focusing on our benefits right out of the gate, I ask about their environment.

What are your plans for professional development this year?

What have you done in the past?  What did you like/dislike about the experience?  How was the ROI?

How does your firm choose what program to invest in?

What do you see as your greatest challenge organizationally at this time?  Is it sales?  Leadership development?  Team work?

Are you familiar with Equine Facilitated Learning?  Can I show you a video?

Get conversational.  Use the sales process as a way to gather critical customer information.  Find a few areas where you can connect on a personal level.  Don’t be cloying, but be open, friendly and energetic.

What we focus on in our sales training programs is how to cultivate emotional engagement in your customer base.  This is the differentiating key to driving breakthrough sales performance.  The Gallup Company has conducted extensive research into the subject.  What they found was that companies that engage both their associates and customers on a cognitive and emotional level enjoy a 240% improvement in financial performance.  Emotionally engaged customers display greater loyalty, wallet share, and expenditures than customers that are only cognitively engaged.  Just look at Apple to see this in action on a masterful level.  Their customers have passion for their products and technology, enough so that they’ll line up around the block to buy their next gadget!

Apple follows their own path.  They don’t even exhibit at the annual electronics show held in Las Vegas.  Think about that.  The biggest trade-show event in their industry and they choose not to be there!  Rather than focus maniacally on the competition, Apple chooses to expend their energy on focusing on their customers’ experience with their technology.  Every aspect of that experience.  In doing so, they’ve created the best-in-class experience with their technology.  It is delightful to use their products.  This focus has endeared them with their customers.  While Microsoft was dumping sub par products on their installed base, Apple was perfecting every touch point in the Apple Experience.  The results speak for themselves.

This is the initial step in igniting breakthrough sales.  Choose to be a resource that delights its customers at every touch point of their experience and you will cultivate lasting, profitable relationships!  This simple step will make picking up the phone to make that introductory cold-call that much more palatable.

Quick Tips for Lasting Results ~

Using the telephone to make a sales call?  Stand up!  More than 90% of communication is non-verbal.  While this may be constrained over the phone, standing actually changes the way you speak.  It helps convey purpose, energy, and authority about your subject matter.  Try it and see if it changes the responses you get on the phone.

Trying to reach someone by phone?  Don’t leave a voicemail message on the first call.  Try to catch them live a few times first.  After three or four attempts, go ahead and leave a voice message.  Be careful, persistence can easily be construed as annoyance.

Prepare a script, especially for leaving a message.  Keep it short and focused.  After a few calls you wont need it any longer, but it will help keep you on message and build confidence.

Even if the person you reach isn’t the prospect you’re seeking, don’t hesitate to ask for help.  “I’m new and I was wondering if you could help point me in the right direction…” is one of the most powerful statements a sales person can make.  People like to be helpful, so let them help you out!

Visualize your entire customer fulfillment process.  Take an order and walk it through your entire life cycle of fulfilling the order with your customer.  Map the process and look for any snags or disconnects that could erode the customer experience and address these issues with your customers’ and staff’s input.

Use the sales process to calibrate your value proposition.  The more closely you align your solution with a prospect’s challenges and opportunities, the greater the value you create.

Envision the emotional investment your prospect may have in an issue that affects the adoption of your solution.  What is the emotional driver that may be just beneath the surface?  Addressing this engages the prospect on an emotional level.

Set aside time everyday for customer cultivation.  Commit to making five calls a day to start.  Then move it to ten, then to twenty.  Even at the upper end, we’re probably talking about less than two hours of effort per day on this critical activity.

If you’re still uncomfortable with this approach, send out a mailer or introductory email (be sure to comply with CAN SPAM laws) first.  Now you have a reason to follow up!      “I sent you an introductory letter/email and I wanted to touch base with you to see if you had any questions about our company?”  Then get conversational.

Be polite.  I always ask if this is a good time to talk when I happen to catch someone live.  This creates a respectful first impression.

Have fun with the process!  Let the prospect see your passion for your company’s solutions.  Be authentic and helpful even if your firm will not immediately benefit from the process.  Helping someone out through an altruistic intention is truly differentiating!

I’ll discuss how to target and identify true prospects in my next blog.

Here’s a video on our Igniting Breakthrough Sales workshops.

More information is also available at Igniting Breakthrough Sales.

As always, your thoughts, comments and questions are always welcome!

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March 22, 2011 · 4:28 pm

Transformational Traction

I’m continuously impressed with the people I’ve been meeting that are making a conscious decision to pursue their vision at what would traditionally be considered the latter stage of their professional lives.  Either by choice or circumstance, or a combination of the two, Baby Boomers are about to put their indelible, cultural stamp on self-employment and entrepreneurship in America.  I suppose it is to be expected, as we (yes, I must admit I was born at the tail end of the boom) have pretty much redefined much of the American Experience.

A recent report I read indicated more than 14.4 million Baby Boomers plan to start a business in retirement.  In addition, the Kaufmann Index of Entrepreneurial Activity, 1996-2010, reports that the oldest demographic they measure (55 – 64) has shown the second highest rate of entrepreneurial activity in the past two years (just behind people age 35 – 44).  The Kaufmann report goes on to indicate a high percentage of new business starts can be defined as “jobless entrepreneurship”.  What you and I would call sole proprietorships or individually owned and operated LLCs.  The report expresses concern over this, but I think it is just part of our contemporary landscape, and inevitable considering corporate hiring patterns of seasoned professionals.

What’s interesting to me is my observation of how many of these mature entrepreneurs are driven by a vision, often a life long vision, of doing something that reaches beyond themselves.  Talented professionals embarking on their journey, leveraging their skills and experiences through innovative business models to deliver greater meaning, freedom, and independence in their lives.  Some are even seeking interdependence, of working to build vibrant communities.  It is truly refreshing, fore these are Transformational Entrepreneurs, transforming their lives and those they touch through their endeavors.  Consciously choosing to do it better, to move things forward.

It is my intention to use this blog to provide guidance and information that accelerates small business growth and success.  One of the biggest challenges I see in my practice is that of sales and establishing sales traction in a well targeted marketplace.  I’ve spent some time reflecting on this and I believe it is one of those compound, adaptive challenges we face in today’s markets.  The fact is, selling in today’s environment can be pretty tough and it has changed markedly over the years.

I was a field sales representative for six years.  Beginning in the late 1980s, I sold life science research products in the biotechnology labs in and around Cambridge, MA.  Yeah, I know, nearly prehistoric times compared to today.  Things were wide open.  I could physically speak with twenty customers and prospects a day.  Leather-bound Day-Timer® in hand, I wandered around the laboratories of M.I.T. and Harvard, dropping in on the fledgling startups popping up around the city.

I was never a high pressure salesman.  Just didn’t feel right to me, but what I did do is build relationships.  I became a resource for my customers.  If I was there I had something to share with them, and if I called I could get an appointment in any account in the city.  Ah yes, the good ole‘ days.  We had access to prospects!  People would actually take the time to sit down and have coffee and talk about their work.

I’m not saying this doesn’t happen today, but there are greater barriers to navigate.  Even multi-national corporations are struggling with shifts in the purchasing landscape.  Prospects have less time, are deluged with emails, voicemails, and an incessant barrage of marketing messages (more than 5,000 per day).  So, setting out on your own can be daunting, especially when it comes to commercializing your activities.  Even if you have years of field sales experience, if it was more than a decade ago, jumping back into this critical aspect of your small business will require a fresh approach.

The next few blogs will focus on the challenge of sales.  We’re going to move beyond talking about techniques and traditional, manipulative methods.  We’ll go through a set of tools you can begin to use everyday to improve your ability to connect, engage, and motivate your prospects.  Most importantly, we’ll explore how you can do it from the heart with authenticity and genuine enthusiasm.  Of building relationships and becoming a resource.  And of how technology affects how we go to market and engage customers both cognitively and emotionally.

As always, I welcome your comments and questions!

 

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March 17, 2011 · 5:13 pm

The Evidence For Embracing The Human Element in Business

Over years of conducting market research I’ve identified some useful resources.  Various trade and professional associations have proven to be exceptional sources of market data and information.  The American Psychological Association (APA) has proven its value once again with their recent release of their survey, “Stress In The Workplace”, March, 2011.

The survey, conducted earlier this year, highlighted many issues that are all too familiar to many U.S. workers.  Many workers feel overworked (43%), stressed out (36%), and under-appreciated (54%).  Employees also pointed to a lack of professional growth and advancement opportunities (43%), unrealistic job expectations (40%), and a lack of feeling valued on the job (48%) added to their stress levels.  Nearly a third report they will be looking for a new position in the next twelve months.

These findings aren’t surprising and they jibe with the existing research into associate engagement levels and its impact on productivity, profitability and growth.  Thankfully, the big consulting firms have begun embracing the human element as the differentiating factor in productivity and performance.  Even IBM’s CEO Survey from last year pointed to creativity in leadership as the single most important attribute necessary for future success.  While disconnects may still exist, I hope all of this is moving business to an inflection point.  A point where they will begin to connect the dots.

Why is this important to entrepreneurs?  Whether you’re leading a business of a hundred people or working solo, how we choose to show up matters.  How we choose to see associates, prospects, clients and vendors will influence our endeavor.

I write a lot about the human element and success.  How it is the creative aspect of human beings that drives value creation in today’s markets.  I’m willing to bet that’s the source of your value proposition in your company.  So, even in the smallest of settings, your creativity, your source, if you will, needs to be engaged, inspired and focused on building value.

Stress on the job is no stranger to those of us that have stepped out on our own.  It takes courage to take the leap from the W-2 mindset to the ambiguity of living by one’s own wits and industry.  At times, it is hard to stay centered and mindful, focused on the task at hand.  I know, I’m guilty of that myself at times.  But that’s where the Transformational Entrepreneur begins…by choosing to be mindful towards his or her own self first, and in doing so, become the leader their company and clients need.

The research keeps coming in to support this perspective.  Recognizing that human emotions matter in business, that engaging both customers and associates requires connecting on an emotional as well as cognitive level and that creativity is critical to success all supports a transformational philosophy.  Engaging the mind, heart, and spirit of human beings has never been more important.  Companies and entrepreneurs that embrace this perspective stand to benefit, as does society on a whole.

Over the coming weeks we’ll explore how to instill and sustain this perspective in your own business.  How, through the alignment of strategy, leadership, and culture, your business will connect, engage, and motivate the prospects and constituents your firm needs for success.

Stayed tuned!

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March 10, 2011 · 5:12 pm

The Value of Strategic Planning in Startup Businesses

I was browsing through a local bookstore the other day and picked up a book on business and success written by a young internet millionaire. The author was a programmer in his mid-twenties that, to his credit, had found a niche algorithm that, in rather short order, caught the eye and interest of Google. With this success under his belt and plenty of money in the bank, the author felt compelled to share his method of success with the rest of us. I’m sure his intentions were good, but his lack of any broad experience in multiple environments quickly jumped off the pages.

As I thumbed through the book I came across his thoughts on strategic planning. Much to my chagrin, his advice on this mission critical topic was startlingly simple; don’t bother to plan, just do it. The author felt things move too fast to take the trouble and time of planning. Just look at me, he said, I didn’t plan and I’m worth millions!

Now, to me, that’s the equivalent of comparing Jed Clampett’s oil exploration methodologies to that of Exxon/Mobile and stating, unequivocally, that Jed’s approach is the superior way to discover oil. This author isn’t alone in his perspective. I’ve come across dozens of hucksters on the internet that promise to teach you how to “crush it” and make tens of thousands of dollars a day simply by following their “so simple, anyone can do it” process of internet marketing. What they fail to tell you is they’re basically selling you on the process that they’re selling you, and nothing more. Their product is the sales process they’re employing to get your money. Many brag about how unsuccessful they were until they discovered this amazing approach to “content marketing”, “affiliate marketing”, “product launches” and the like. In many ways, what they are hawking is the technological equivalent of network pyramid marketing without tangible products. The first ones in make a killing and most everybody else is out several hundred dollars and left scratching their heads.

The fact of the matter is, strategic planning is the single most important step an aspiring entrepreneur should take before they do anything else. Granted, lightning does strike occasionally, and some people are lucky enough to stumble upon the right idea at the right time. That is, however, one hell of a crap shoot when you’re betting your livelihood and future on the success or failure of your venture.

You see, your strategy is your roadmap to success. It is a living, management document that elevates your awareness. Awareness of yourself, key market drivers, possible barriers to entry, potential risks, various opportunities, and the competitive landscape you’re about to enter. Diving into a business without a well thought out strategic plan is about as prudent as invading a foreign country without maps, no local language skills, no understanding of the local culture, and without any objectives other than wanting to win.

I read a blog not too long ago that emphasizes my point, albeit indirectly. The blog was written by a serial entrepreneur turned venture capitalist that has enjoyed remarkable success over the past three decades. He wrote about the five major reasons why startup businesses fail. Having spent the past decade working with startups myself, I thought he made some interesting points.

The top five reasons businesses fail are (in no particular order):

1.) Market Problems
2.) Business Model Failure
3.) Poor Management Team
4.) Running Out of Cash
5.) Product Problems

Each one of these factors can, and should be, addressed through a comprehensive strategic planning process. Here’s why:

Market problems can be anticipated and, for the most part, avoided by conducting a thorough market assessment. Market problems include poor timing, a poorly expressed value proposition, and/or the market simply being too small or expensive to access. Wouldn’t you want to know these things prior to going to market?

Business model failure has to do with not understanding how one will attract, secure, and service customers. One’s business model should be examined and “stress-tested” from a variety of perspectives prior to launch. Worst case scenarios should be explored to assess the potential impact these situations could have on one’s burn rate of cash. So you see here, how this risk factor can fuel another risk factor; running out of cash. One thing I’ve learned over the years is things are going to take longer than you initially think. Delays to market cost money. You need to plan for this possibility.

In my experience, poor management is, in fact, the single most significant reason why startups fail. In all my years of working with entrepreneurs and investor-driven startups I’ve never seen a company fail because the product or technology failed. Disaster usually lies at the feet of management. One recent research study I read indicated that more than two thirds of startups fail due to weak management. Weak management tends to replicate itself…weak managers build weak organizations. Weak organizations create weak strategic plans and fail to execute.

Running out of cash is typically a result of poor planning as well. This is especially true in investor-driven startups where missteps regarding product development, poor customer targeting, poor assumptions on product adoption rates, and the like can burn through one’s reserves. Scaling up too quickly, adding unnecessary overhead, and poor management hires can also contribute to this risk.

Product problems occur when the development process is too far removed from the target customer. Granted, some adjustments almost always need to be made once a product is launched, but a keen understanding of the customer’s needs, desires, and environment will help mitigate your risk of dropping a dud into the marketplace.

All of these factors are addressed through the strategic planning process. Your plan should be a living document and not set in stone as well. As you engage the market you’re going to learn things that will enable you to fine-tune your strategy and accelerate your success. Your plan will also enable you to set success gates (or milestones) and identify early indicators of issues that require your attention. Catching issues early on, before they burn through your cash, erode your name in the marketplace, or help you identify a personnel issue can be the difference between success and failure.

In their 2008 report, “The Small Business Economy, A Report To The President”, the Small Business Administration identified the fact that the average, aspiring entrepreneur will invest 1,471 hours (the equivalent of nine months of 40 hour work weeks) and $10,734 of their own money during their pre-launch period. Embracing a well defined strategic planning process would shave seventy to eighty percent off from both of these investments, greatly accelerate market entry, and mitigate an enormous amount of risk to the endeavor.

My advice is to just be careful. Look to the seasoned experts, the ones that have a couple of decades of startup battle scars from learning things through experience. Leverage their expertise to accelerate your own learning curve. Listening too closely to the guy claiming he can teach you how to “crush it” without the need for strategic planning may just crush you and your dreams for success.

© 2011, Terry Murray. All Rights Reserved.

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March 7, 2011 · 5:04 pm

Welcome to The Transformational Entrepreneur

If you’ve been dreaming of starting your own business, you’re not alone. According to the Small Business Administration, Office of Advocacy, there are an estimated 12.6 million “nascent entrepreneurs” in the United States. In their 2008 report, “The Small Business Economy, A Report To The President”, the Small Business Administration defines a nascent entrepreneur as someone that is seriously contemplating starting a business. This incubation period for nascent entrepreneurs will typically last five years, at which time a third will have launched a business, a third will have disengaged from the pursuit, and a third will continue to think about it. This isn’t a period of idle daydreaming. The report goes on to identify the average nascent entrepreneur will invest 1,471 hours (the equivalent of nine months of 40 hour work weeks) and $10,734 of their own money during this pre-launch period. Cumulatively, a total of $60 billion in informal, financial contributions are expended every year by individuals that, for the most part, will not personally benefit from these investments. That’s truly putting your money where your mouth is!

Entrepreneurs are the lifeblood of the U.S. economy and continue to kindle the flames of the American Dream. Small businesses employ half of all private sector employees, produce half of the country’s non-farm Gross Domestic Product, and create roughly 75% of new private sector jobs. Perhaps more importantly, small firms produce 50% of new innovations and are a major source of significant market changes. Entrepreneurs built the United States, and it is the entrepreneurial spirit that is pulling our nation out of the Great Recession.

Entrepreneurs move us all forward, yet they face tremendous headwinds in the pursuit of their dreams. Government regulations disproportionately burden small businesses as compared to large corporations and their wealth of resources. Large corporate concerns spend vast amounts of money lobbying our state and federal governments, entrenching their interests, often at the expense of individuals and small businesses. Often, the mere size of corporations can dominate entire market segments, creating barriers to entry for innovative, nimble competitors capable of shifting entire value propositions. Yet the entrepreneurial spirit continues to thrive.

That’s what this blog site is all about…helping nascent entrepreneurs accelerate their journey to the achievement of their goals through the application of evidence-based practices that work. This blog isn’t going to talk about “crushing it” or making hundreds of thousands of dollars online, overnight. There are no shortcuts, especially if you’re looking to create a sustainable, thriving business. But there are concrete ways of accelerating your journey, saving you thousands of dollars, while avoiding the frustration of lost time and opportunity.

So, if you’re ready, let’s get started!

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