by Bill McBean
Understanding marketing will help you recognize the need to revisit Level 1 to look for new opportunities in the market or expand old ones by feeding off your competitors.
Understanding marketing will help you become more competitive internally by revisiting Level 2 and developing new and more effective process.
Understanding marketing will enable you to recognize that some of the employees who helped you become successful at Level 3 may not be the right ones to help you remain that way at Level 4.
Attracting the Customer at Level 4
The overall challenge of attracting customers at Level 4 is essentially the same as at Level 3—you have to get your customers’ attention and then deliver a message that moves them to action. The process is also essentially the same, meaning you start by identifying the low-hanging fruit that, at Level 4, will more than likely be the customers you have lost. To accomplish this you may have to reconfigure your internal processes in order to define exactly what constitutes a lost customer, such as someone who hasn’t purchased anything within a specific amount of time, and then identify those who fit the criteria.
These customers are not necessarily easy to attract, but they are easier than others because you know who they are, and can target them individually through the Internet, mailers, or personal follow-up. Of course, simply contacting them is not enough. You also have to give them a reason to come back, such as a special offer, an event, or some new personal service. Regardless of how you contact this group, what you promise them, or how you identify them after they’ve indicated renewed interest in your products or services, it’s important to remember that reacquiring former customers is an important first step in reestablishing your marketing preeminence and, ultimately, in maintaining your success.
Another way of attracting customers and increasing your market share at Level 4 is focusing on new customers. Most markets have a finite number of customers, which means any new customers will have to come from a competitor. One particularly effective strategy at Level 4 is cannibalizing, or feeding off, some of your new or weaker competitors. Since your business is one of the more successful ones, you can offer amenities that your newer or less successful competitors can’t afford to offer. For example, you can provide additional customer service such as e-mail alerts about new products or services, updates on the status of items customers have already ordered, or expert advice on questions they may have about your products or services. The point is that if you can do something your competitors can’t because of your strong financial position, you have a good chance of taking customers away from them.
Another effective way to get a Level 4 company back on track is niche marketing. The positive aspect of niche marketing is that these kinds of markets are usually smaller in size and therefore easier to control and “own.” The negative aspect, however, is that, because these markets are small, the cost of catering to them is usually higher, and the profit potential usually lower, when compared to other market opportunities. This is why niche marketing isn’t particularly advantageous at Level 3. At Level 4, however, any incremental business usually means added profits because the company’s cost per customer is lower since it can spread costs over a much larger customer base. If your Level 4 company picks the right niche, then, you will have the ability to own the market, and owning a market others have given up on opens the door to eventual added gross profit, which can make the niche financially attractive.
Reacquiring old customers and getting customers away from your competitors, as well as niche marketing, are time-tested ways Level 4 businesses can get back in the game, or stay in it by pushing past the goals they’ve already achieved and working toward becoming even more successful. But Level 4 owners shouldn’t ignore the power of attracting customers, both old and new, through social media. If, like most of today’s Level 4 owners, you attained your success before the various social media were even invented, much less being used for marketing purposes, you are probably not very familiar with them or their potential. Marketing is, though, about going where your customers are, and social media is where your customers are today and where they’re going to be in the future. And since they can present enormous opportunities to attract customers and deliver a message, it is essential that you learn how use them, and sooner rather than later.
Selling the Customer at Level 4
Since the goal at Level 4 is to make your business a more successful and financially stable company than at Level Three, marketing in general, and sales in particular, clearly have a major part to play. At the same time, it’s important to remember that while improvements can always be made, significant improvements in your selling process may be difficult. The good news, though, is that it’s not just one thing that propels your business forward. It is, rather, a series of marketing improvements that, when added together, have a strong impact on your company’s bottom line. For example, if you were to improve your closing ratio slightly, sales would go up, but probably not enough to give you a substantially larger market share or significantly higher profits. If, however, you could improve your closing ratio and at the same time attract more customers, you would probably see a considerably larger increase in both market share and profits. And if you were to add a new niche market, the impact of all of these things added together could be very significant. In other words, when improvements in your external marketing are supplemented by improvements in your internal marketing, the difference can be dramatic.
These are all, of course, traditional means of improving sales. But as is the case with attracting customers, in order to successfully sell customers today it is essential that you make use of the new technologies. The Internet has given selling a new twist over the past 10 years, and there is more change to come, so unless you stay ahead of this new surge you will risk taking a step backward. In most industries, if you are not on the Web, don’t have employees who are comfortable communicating and selling over it, or aren’t using new technologies as an aid to selling, you’re already behind the curve. But you’re likely to fall even farther behind if you don’t recognize the impact the Internet will have on sales in the future. There is a generation growing up that has never known a world without the Internet, and this is just the beginning.
So if you want to prosper in this environment, your company will have to be flexible, fast, and smart. In fact, it’s companies within striking distance of Level 4, and those that have already attained it, that could be the most vulnerable to the coming changes. This is because as a business becomes more successful, the company’s structure becomes more cumbersome compared to a new, aggressive, flexible business that can adapt quickly when it recognizes an opportunity. This will be one of the bigger challenges successful businesses will face in the coming years, and if you want to continue to be a leader at Level 4, you will have to become as flexible to change as you were in the past.
Keeping the Customer at Level 4
If a company has reached Level 4, it is in all likelihood because its owner and his or her staff are already concentrating on their customer base and understand the value of their customers. So it’s probable that by the time your company has attained this level, you will have long since defined what customer retention means to you, and are already maintaining some control over the customer experience, as well as some form of continuous contact with your customers. However, because at Level 4 the goal is not just to keep your customers coming back when they need to, but to get them to return on a more controlled basis, it is necessary for you to rethink exactly what customer retention means. In other words, while keeping customers is still a philosophy that starts with first contact and continues beyond the purchase, the goal now is a more aggressive and sophisticated one, requiring you to think outside the box to find ways of increasing your company’s revenues.
A good example of this is the automotive market. For decades, the car business took a backseat to Christmas shopping every December, making it one of the slowest months of the year. Tod
ay, it’s one of the better—if not best—selling seasons for cars and trucks. What changed it was, about 30 years ago, the automotive companies began making almost unbelievable offers of low interest rates, no payments for 90 days, and large customer rebates, and sometimes all of them combined. The net result was that customers jumped all over the offers, and now, because buyers recognize it’s one of the best times of the year to buy new vehicles, they wait for Christmas.
Programs like these can be established in service industries as well. For example, air conditioners are, not surprisingly, a tough sell in the winter, as is servicing them. In order to remedy this, some aggressive air conditioning companies have begun offering their customers specials on maintenance and checking overall air conditioning systems during the winter months. These specials help customers because they save money on something they know they will need soon anyway, and it helps the air conditioning companies because it provides them with needed work and the opportunity to replace air conditioners that didn’t work well during the previous summer.
Creating business in the slower or offseason has proven successful for other industries as well as for many astute business owners. And the fact is that if you want to keep operating successfully at Level 4, it’s something you really need to do. This is because the way to maintain success at this level is to be aggressive in the market and increase profits, which is something you will find hard to do if you don’t visualize or create opportunities throughout the year. There’s an old saying that “you go fishing when the fish are biting.” That may or may not be true when it comes to fishing, but in business, at Level 4, you have to market whatever you sell during your traditional busy time as well as at those times that the fish aren’t necessarily biting. That is, you have to create and/or find ways to attract them to your hook.
Level 5: Moving On When It’s Time to Go
When your business gets to Level 5, that is, when you have decided for whatever reason that you’re ready to move on, you have to choose whether you want to close the business down, turn it over to a family member, or sell it. If you decide to close it down, from a marketing perspective there is obviously nothing to be done. If you want to turn it over to a family member, the most important thing to do is continue what you’ve been doing all along, that is, market, lead, control, plan, and implement all the other Facts of Business Life, so the company you turn over to your successor will be in the best shape possible. If selling the business is your preferred option, you also have to continue operating it as you have in order to maximize your return. In that case, though, from a marketing perspective, there is a new dynamic you have to understand, which is that at this point the business itself becomes your product. That means that until the sale is concluded, you will effectively have two different—and potentially conflicting—jobs to do.
Marketing at Level 5 takes a bit of courage. Not only are you moving your life in a new direction, you’re also putting your business on display for your peers or family to judge you by showing them your financial secrets and statements, and that can be unnerving. Not surprisingly, some owners falter or procrastinate at this point, and some even become paralyzed and unable to do anything. But the hard reality is that the longer you hold off taking this step, the less time you will have to fix any issues that may be problematic for buyers, family members, or yourself. And the fact is that it takes a fair amount of time to dress up the product and get your personal and business affairs in order.
However, even though the business itself has become your product at this point, your marketing mind-set shouldn’t be all that different than it’s been all along. Since the marketing process is essentially the same, you have to keep doing exactly what you’ve always done. That is, you have to research the market, price the product, identify your target audience, create value in the product, attract promising buyers, and sell it. The fact that it’s your business you are selling can be daunting, but if you’ve gotten to this point you already know how to sell a product successfully, and there’s no reason for you to stop doing it now.
Of course, a business is a different kind of product, so you have to package it differently.
That means you have to decide exactly what it is that’s for sale, the terms of selling (such as selling your assets and goodwill but leasing the facility), the preferred time frame for the sale, how much time you’ll give prospective buyers to decide if they are interested, and what kind of assurances you are willing to offer potential buyers. In other words, just as with any other product, you have to demonstrate how it works, why it will continue to work, list the ingredients (in this case the assets), and wrap it up in an attention-getting package in order to maximize your business’s value and attract the best buyers.
The Benefits of Marketing Research at Level 5
Marketing research provides you with the information you need to identify your best buyers and the value of businesses like yours.
Marketing research enables you to determine the competitive environment in terms of supply and demand, the number of buyers vs. sellers, and other factors.
Marketing research helps you determine how to present your company’s operations and facilities in the way that will be most appealing to potential buyers.
Marketing research enables you to recognize a problem or an opportunity that may not have been apparent before and to take action on it.
Marketing research helps you determine which buyers will be able to pay the most and which can benefit the most from buying what you have.
Marketing research enables you to find past sales of businesses in general, and in your industry in particular, and uncover facts on which to make marketing decisions (e.g., pricing, terms if facility is bought or leased, industry multiples, equipment pricing).
Marketing research allows you to discover, approach, and market to buyers who may not have realized the significance of buying your business.
Attracting the Customer at Level 5
The fact is that if you have a good business, people will want to buy it. Actually, even if you don’t have much of a business, someone might be willing to buy it, depending on the price and terms. In other words, at any given time there are likely to be a number of people who might be interested in buying what you have to sell. The problem, then, is finding and attracting them. However, the last thing you want is for every prospect, be they rich or poor, experienced or inexperienced, to come banging on your door. If you have a less-than-successful business or are asking too much money, it may come down to that, but this is not how you begin attracting customers for your business. You begin by drawing up a list of potential buyers based on three criteria:
Who can afford to buy my business?
Which of my competitors would benefit most from buying my business and will therefore be willing to pay the most?
Who will be put at a market disadvantage by my selling the business to someone else?
Putting together a list based on who can afford to buy your business is an essential first step. Of course, when you’re selling a business, you want to find, or create, more than one buyer, but you don’t want to waste time with those who can’t afford your price or terms of sale. Paradoxically, your most motivated buyer, someone who desperately wants what you have, might be someone who can’t afford your business, and there’s no benefit to you in pursuing such a prospect. The best way to determine what companies are likely to have the kind of money you’re looking for is to use common sense. New owners are likely to be highly leveraged, while owners who have had successful businesses for a number of years probably have substantial net worth, such as Level 4 owners or owners at the success end of Level 3. In considering possible buyers, though, you should not limit yourself to your local market, because there may be an owner in a neighboring market who wants to expand, or an owner in the supply chain who would be interested in your business, such as a distributor who wants to buy an end-users’ business, or vice versa.
When you’re considering who w
ould benefit most from buying your business, it’s a good idea to try thinking a bit outside the box. For example, there may be a candidate for your business in another city who has children ready to take over a company and is looking for an opportunity to put one of them into business. There may also be a competitor who would automatically gain a significant share of the market by buying your company, and through economies of scale create a competitive advantage for his or her business. In both of these cases, as well as in others, your company can have value beyond the pure, financial mathematics of a business purchase, and that additional value can motivate those potential buyers to pay more for your company than others might. If you are considering selling to other companies like this, however, it’s up to you to make sure they know your business is for sale.
As noted earlier, it’s also important to take into consideration those potential buyers who might be disadvantaged by your selling to someone else. For example, some of them might not be overjoyed at the prospect of buying your company at the moment, but believe they can’t afford to have you sell to a competitor because it would give the acquiring owner too much of a market advantage. Others might feel compelled to buy your company because they feel that allowing you to sell to someone else would result in their losing the opportunity to have a broader product line. The bottom line, so to speak, is that any company that can’t afford to let a competitor acquire what you have is a willing and motivated buyer. And it would be to your advantage to determine, as best you can, which companies these might be.
Regardless of the circumstances, you will invariably have a better group of buyer candidates if you become proactive and pick out and plan who you want to attract as buyers. Your most willing buyers will be easier to recognize once you have taken the time to understand your specific exit goals, the market for businesses, and the rules of engagement, as well as defined your business well enough to give buyers a clear understanding of what they’re buying and what a great opportunity you are presenting them.
