Market Share versus Profit Motivations

Techdirt recently ran a comment on an article critiquing an article called "Wharton Prof Debunks Market Share Myth." The comment and article got me thinking about the way different companies approach development and strategy of new products.

I think the focus of the article is more on the R&D side of the business as opposed to the marketing once the products were on the shelf. Nintendo went in with the intention of creating a system that was profitable Day 1 with no loss per device sold. Microsoft and Sony went into development trying to capture a % of the existing market through upgraded systems. It was the focus at this stage on profit vs. market that made the long-term difference.

One of the catches of innovation is that market share does not necessarily come with it. It was because Nintendo decided to be innovative that they also had to be profit focused. Similarly, when Apple first release the iPod it was an innovative product but priced for profit and not market share. Both companies, Nintendo and Apple, went in trying to make money off of an innovative product and wound up gaining market share as a by-product. The key third ingredient now becomes innovation.

Innovation alone does not guarantee success which is why the profit motive becomes so important. Any successful product now becomes a driver for more innovation because the profits can be reinvested to allow a company to overcome poor performances in other products. Microsoft and Sony have put themselves in a situation where they have no profit-center for their lines if failure occurs. Nintendo would have had the ability to start again since they were not invested in the inventory in the market with the Wii.

The question becomes how does your company approach new products or services? If you are the market leader are you simply creating products that will retain your position or are you out there striving to be bigger and better? If you aren't at the top of the pile are you simply trying to pick up market share or are you trying to thrive where you are and pick profit by doing things better than the big boys? There are important distinctions between the two though processes that can either help you succeed or cause you to fail.

The Joys of Risk

Taking risks is one of those things in life that can really get the adrenaline flowing and make big things happen. There is a surprisingly high number of people afraid of risks that like to follow the proven paths until they reach the end. The issue becomes that success takes risk. Anyone who avoids risk can never really find success.

Any large project will require decisions to be made without knowing all of the information. The risk avoidance method is to wait for more information before making a decision. Not making that decision is a decision in itself though. The opportunity cost of the decision timing is often the difference between success and mediocrity. A project that comes in two weeks ahead of schedule and 10% under-budget is a success. A project on-time and at budget is expected. Sure, the risk is that every assumption made for the early decision is incorrect resulting in more delays or costs but those can be mediated down the road to offset and get back to the expected result.

Decisions come down to statistics in the end. You can wait until you are 95% sure to make a decision or you can make it with only 70% certainty. The difference is an evaluation of the opportunity cost for development of the 25% separation. Strategy decisions usually will never even reach the 70% mark. Evaluating the alternatives and roads to success is a skill that certain people develop because they respect risk and are not afraid of it.

Innovation is a risk driven process. People afraid of risk will not be as innovative and creative. New ideas are always clouded with uncertainty. The margin for error can be quite small and the risk/reward ratios are daunting. However, every well respected management magazine, website or writer will tell anyone who listens the necessity to innovate and evolve as time goes along.

Growth is a risk decision. It is possible to grow without changing the business or branching out, but growth without change is a limiting alternative. With growth comes the need for expanded responsibility, complementary product/service lines, additional product variations or research and development.

Risk should be embraced as part of a business culture. Not blatant jump and guess risks, but the thoughtful decisions with an effective reward potential. If you are not taking risks as a company or individual, you are probably not reaching your potential.


Technorati Tags: risk, consulting, statistics

CAD Tech Turns 25

It was 25 years ago today that AutoCAD was first released upon the design world. That's 25 years of increased design productivity, 25 years of better design drawing quality and 25 years of computer frustrations. No one will ever get past aggravating computer issues, but just imagine going back to drawing everything out by hand. I think everyone will agree that we'd rather not.

There is barely an industry out there that doesn't use a CAD program. Most notably will be any engineering, architectural or manufacturing company but think of all the new ways that computers are aiding in design. Marketing comes to mind as the beneficiary of many new tech toys to assist in design. Why can't PowerPoint or Photoshop be considered a CAD program?

What will the next 25 years of design be like? What new programs and innovations will come around to make life simpler for us engineers? If I have my say it will probably be something like Google's SketchUp program which is already replacing much of the 3D CAD work I used to do in AutoCAD. Once programs make it as simple to work and design in three dimensions with color and texture as it is to draw in two dimensions now there will be a new design revolution. Most of the arguments against CAD programs are that they take the human element out of the project. It is difficult to envision and feel what is being designed.

Not many news rooms are running this anniversary but it is one that really has changed the world a little bit. How many buildings are currently built that don't use CAD? How many products are manufactured without an electronic design developed first? How many engineering companies (design or otherwise) haven't invested in at least one copy of a full CAD program? Why would anyone continue to design by hand when it can be designed faster, better and more accurately on a computer?

If you are working with a company that isn't employing these technologies you should really be asking them why they aren't using them. Sometimes there really are valid reasons not to use computer programs to assist in the design but they are few and very far between. For any real estate acquisition you should ask for the electronic site plan (and I do not mean in PDF). Too often clients come to us asking for design help with their facility and we learn that there are no electronic copies of the property. Recreating a CAD from a hardcopy is possible but it shouldn't be necessary anymore. Even simple office renovations require drawings to get permits completed. Having that electronic version is a requirement. It should accompany any lease or building purchase.

Welcome to the next quarter century. It should be a fun time.


Technorati Tags: autocad, cad, tech, computer, design

Power of Intellectual Capital

As a consulting company, the value that we provide our customers is the gathered intellectual knowledge we have in our company. The solutions that we are able to bring to the table are developed based on the tools our employees have picked up and developed over the years. Sometimes we come up with a truly unique idea that is able to bring something new to the table, but those are often developed out of simple modifications to existing ideas.

One of the reasons that we maintain and update this blog so regularly is to provide an output for some of the knowledge we have that others may be able to use as well. We try and advertise this site to our current and previous clients in case there is additional value hear that they can use. We advertise it to our internal clients and business partners as a way of keeping them up to date on the latest methods we have and to remind them of things we can do they may have forgotten about. The third reason is to help establish ourselves as thought leaders in the industry.

It would be nice to be the size of the CBRE Consulting group or FTI. We eventually hope to get there and we believe that we are at least as good as them and probably better at most things we do. Our goal is to drive the industry towards constant improvement and create not only a company that is innovative and continually increasing the value we bring to the table but also to create an industry that continues to innovate and improve. We look out at the software industry and see the stagnation that came around because market giants became comfortable with their position. New companies like Google and Yahoo came along and is slowly eliminating the software industry as we knew it. Software as a Service is becoming more and more accepted and popular.

The way we push the giants in our industry is by letting them know where we are and letting their customers know where we are. We'll get our business if we do a great job of helping out clients, we'll continue on our growth curve. We want the industry to be forced to react to us because their clients require them to provide what we are providing. We don't want to hide behind proprietary services that no one else has. Everyone should know what we have and what we offer because we are more than happy to offer our services even to CBRE or FTI when they can't do what we can and their client demands it. That's how you become the industry leader, that's how you grow your business and develop a solid reputation.

Toyota helped to create a legacy with their Toyota Production System. They developed a better way to manufacture cars and tighten up their supply chain. Response time improved, inventory carrying costs went down and they were noticed by everyone within the manufacturing industry. Not just by auto manufacturers or vehicle manufacturers but by anyone who produced anything in a manufacturing environment. Everyone did not put the system in place but everyone knew about it and its benefits. We want to be Toyota. We want to be the company that changes the way people look at our industry.

The Business Services sector has a lot of room to improve. We offer value to any business in America whether they realize it or not. Our job is to find that value we can bring and extract it for our clients. We work with outside service providers ourselves and understand as well as anyone that not everything can be kept inside. No company can gather every type of intellectual capital they need to run their business to its fullest potential.

The biggest reason that companies decide not to use consulting companies is not that they are running a great operation but that the cost of extracting value is high even if the Return on Investment is under a year. How much are you willing to spend to save $10 million every year if you are a $100 million dollar company? $1 million? $5 million? $15 million? What is that capital worth? Why wouldn't you spend $10 million to save $10 million on a repeating basis? This is exactly the situation that many companies find themselves in but instead of making the decision they stick to the status quo. They've lived with it so far, why not continue and not spend the money.

It won't be long before someone figures out the way to bring down the cost of extracting value. A venture capital company will eventually come along that invests in saving other companies money. We'll be there to help them lead the way.


Technorati Tags: consulting, intellectual capital, blogging

Green Marketing

When was the last time you evaluated your marketing budget and scope? If it was more than 5 years ago you are likely missing out on some of the latest methods for getting your companies name out in the market. The internet of course is the biggest driver of much of this, but there is another. Social consciousness is the latest way for bringing new customers into the fold. Showing that you are helping the environment through your business practices can do as much or more than showing a 5% lower cost than a competitor.

LEED has been the biggest driver of this trend. Whenever the latest company decides to make their buildings and space LEED Certified it makes quite a few major magazines and news reports. Writing off this additional cost to the marketing budget is the best way to justify these decisions. GE is the latest driver of the Green Marketing trend with their announcement of expanding investment of the ecomagination lines. Right now those lines don't have as good of a return as others, but the press they are getting for it is through the roof which bolsters sales of their other lines as well.

Any good marketing director will know how to push your initiatives into the public eye (or at least in front of your customers). Adding a marketing page to all of your brochures and presentations is the simplest way to let people know how you're helping. Marketing to the community is the next best way. Communities love to hold up the companies that are working to stay involved and be socially conscious. It could be a way to become a community sponsor and open up new lines of business.

Why can't changing out light bulbs, adding motion activated switches or using environmentally friendly products be marketing? Thinking in new ways is how companies become leading edge. With the cost of marketing being offset from cheaper ways of mass communication and replication, it is a simple matter to allocate some money to non-traditional marketing. Make sure you are still doing right by your business and investing in things that will still have a return on your investment, after all you are in charge of making good decisions. Doesn't a quantifiable return on your marketing expenses sound good to you?

Start looking down the road five to ten years from now and try and see where your market will be. Will they care about being environmentally friendly? More than likely they will and they will want to do business with like minded companies. You can either be a leader by making the small steps now and taking advantage while the time is still good or you can play catch-up when the change happens. It happens all the time with technology like this. First it was computers replacing typewriters. Then it was email replacing fax and letters. Next followed the internet replacing dictionaries and research books. The future will be clean technologies replacing wasteful technology.

Technology equipment will begin using less electricity, buildings will feature sustainable and intelligent systems and every product on the grocery store shelves will have some green aspect to it. Green beans in cans from recycled materials, cereal in recycled bags instead of boxes and cleaning products in higher concentrations (which has already started).

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Welcome to those visiting from the Carnival of the Capitalists. If you liked this post we have some other posts on Green design and thinking:

Green Design and LEED
Environmental Marketing Gone Crazy
Greening the Warehouse

Feel free to subscribe to the blog! Thanks for visiting!

Technorati Tags: green, marketing, technology

Employee Driven Change

Where does your company stand in the business pecking order? Businesses know their competition within their industry inside and out. They know who they compete with for customers and who they are consistently bidding with or against. An overlooked aspect of business is who the labor competition is or brand competition. Small businesses aren't just competing against their competitors for employees, but against related industries, large multi-focused companies and the potential of starting up a new business.

One of the ways that our company guards against these is by providing a way for new employees to maintain their own entrepreneurial interests and activities within the context of our business. I've mentioned our innovation process before and it is really the driving philosophy behind our success. We bring in the services of small businesses that we work with a lot to improve the capabilities of both parties. Our most successful employees are the ones that treat the business as if it is their own and tailor our offerings the way that works the best for them.

I work a lot with about four or five different sales people and not one of them uses my services the same way. Each one of them has their own version of our main presentations with their own flavors introduced. Each one has their own way of making sales presentations and their own version of proposals that are all written within the context of the overall business goals. This constantly drives each person to pull the best from each of their coworkers and create new service lines.

How does your business deal with alliances, partnerships and competition? Are your employees motivated to evolve their methods to improve the way your business is run?
Change always comes from within. It will happen naturally if the proper motivations and people are in place. Competition is the driver that shows you what you need to be doing, the direction you need to go. Do you embrace it and adapt or fight and try to do things the way that you have always done them? The answer to that question is the difference between a growing business and a dying one. Look at the RIAA and MPAA with their current business strategy. They are doing everything possible to protect the way they have done things.

Don't be like them. Embrace your competition, even the competitors that bring an entirely new model to the table that is seemingly makes yours out dated. Keep pushing forward and you will continue to succeed.


Technorati Tags: innovation, consulting, entrepreneur, riaa, consulting

Value Added Service

One of the keys to good customer service is exceeding your customer's expectations. By going above and beyond what they expected you to provide you place yourself in their mind as someone they'll want to come back to again in the future. This mornings post from Mike Myatt on Influence Quotient points out that customers avoid doing business with people that they do not like or trust. Similarly, they do business with people and companies they like and trust. Business is constantly evolving and expectations continue to change with that. Whenever Apple releases the new version of their products other companies are forced to release similar changes because customers suddenly expect those features as part of the package.

Unfortunately, exceeding customer expectations can be a tricky task. The key is not to give them something that they don't want and not to make the service to expensive. Every customer has a different set of desires and personalizing service can be a costly proposition. Don't think that every value added service has to be something elaborate. A value added service can be something as simple as easy to use packaging or a simple website. Maybe your value proposition is that you strip out the complexities that your competitors have begun adding to their services. You should always be talking to your customers to figure out what they want and need. Don't sit still and continue to offer the same thing month after month and year after year. Your competitors will quickly steal your market share if you do that.

The key to success is evolution. Last week we talked about the need for innovation, tie those innovative ideas into current lines. Use those as value added services to test if the idea works and gauge customer response to it. If you distinguish yourself by not just doing what you said you would people will notice. Remember that most customers only use 20% or so of any given product or service. This applies to consulting as well. Most clients will never realize all the potential you find within their company but they will remember if you made their life easier and provided them with something they can actually use.

Value added services are the lifeblood of growing businesses. Go that extra distance and people will notice.

Technorati Tags: value added service, vas, consulting, innovation

Scaling Innovation

Innovation is one of the fundamentals to making any business successful. It keeps a company on the leading edge of their industry and improves customer service, employee satisfaction, and profitability. Unfortunately, the current trend in innovation for most companies is to go for the long ball and try to come up with the idea that opens a brand new market or puts them 10 years ahead of their competitors.

I was reading a post over at Perspective 2.0 discussing what innovation is meant to be. Niti makes a good point about innovation and what value really is. Value in innovation is not about being big and flashy, it is about simplicity and functionality. Take a look at the common everyday toaster. For the longest time it was a two slice of bread product. Someone took a look at it and how they used it and decided that a four slice version would make their life easier. It took off and the four slice models are now more common than what used to be the norm. It wasn't a flashy change and it certainly wasn't sexy, but it made people's lives easier.

Our company recently rolled out an Innovation program to get everyone involved in improving the business. One of the focuses is on simple changes like changing the way files are organized on the network, making minor changes to invoices to make them clearer or easier to work with, or new ways to increase communication across departments. Those definitely aren't the things you think of when it comes to an innovation program, but shouldn't they be? These ideas are the ones that cost almost nothing to implement, are easy to put in place, make people's lives easier and make the company more effective and possibly more profitable. Home run ideas often have immediate capital cost, time investment, sales cycle and no guarantee of success. That's not saying don't go the the home runs, but don't forget about the little things you have to deal with everyday.