Lesson #316: Decision Making Only as Good as Quality of Data Studied

Over the years, I have become a “data hound”, looking for every morsel of wisdom I can get about my business, to help make smarter decisions.  The good news here:  data is king.  You can’t effectively manage your business without it.  But, using accurate data is critical, and getting that is not always easy.  And, if you don’t have accurate data, you may be making the wrong business decisions that could end up hurting your business, when you thought you were helping it.  Allow me to explain.

CASE STUDY #1:  MANAGING SALES PIPELINE

In most B2B businesses that have a long sales cycle, the only way assess the effectiveness of your sales team and predict future revenues is based on data your sales team enters into your CRM.  Here you would be looking to see a salesperson’s number of accounts growing, see how those leads are working their way through the sales funnel from qualified lead to closed sales and the total dollar value of the pipeline being managed.

But, think about what I just said: you are valuing the success of your sales team based on the data that they themselves are entering (or not entering) in the CRM system.  That creates multiple problems.  First, I have seen situations where salespeople will actually enter false information, to make it look like their efforts are more successful than they really are, trying to save their jobs.  And, second, any time you are reliant on humans for data, there is plenty of room for error.

For example, did the salesperson remember to enter a new lead into the CRM?  Did they remember to update the status of a lead (e.g., from active to dead)?  Did they update the dollar value of that lead from $20,000 to $10,000 after they learned the client didn’t need as many products as they first thought?  Did they update the expected close date from April to June, after they learned the project has been delayed?  You get the point.  Most businesses are making mission critical decisions based on future expected revenues from this data.  And, more often than not, the data in the system is not very accurate, updated or reliable.

If your CRM suggests you are working with over $1,000,000 of potential leads, and your normal conversion rate is 20%.  You would think there is a reasonable chance to close $200,000 in sales.  Monies you would be running the business with and paying your bills and payroll.  If that $200,000 doesn’t show up on time, as predicted, and you don’t have cash in the bank in reserve, bad data could put you in an illiquid position and potentially take you out of business.

So, when managing sales pipelines like this, you need to do to your best to scrub the data.  Every week, remind your salespeople to update their data in the system for any changes?  In your one-on-one meetings with the team, talk through their list, line by line, to ensure what the system data is telling you, is actually the reality.  And, where you can, build automated systems that updates data for any actions made (e.g., as new email leads come into business, they automatically get entered in CRM).  This includes building in automated tasks and reminders for each lead, to make sure the leads are actually being moved forward and the salespeople are getting system-triggered actions they need to take for each lead.  Most good CRMs or sales enablement tools can help you here.

CASE STUDY #2:  MANAGING MARKETING SPEND

The quality of your marketing efforts is also dependent on the quality of the data being managed and studied.  Here are the two most-typical problems: (1) is your marketing team managing towards the right data metrics in the first place; and (2) is the appropriate credit being given to the marketing channel that actually drove the lead, in a multi-device world where getting the proper attribution is not always easy (e.g., first learned about you through Google paid advertising on their office PC, but came to you direct from the mobile phone where you lost the Google tracking).

Let me talk through a recent example I lived through.  We recently hired an ad agency to manage our paid search campaign.  We told them immediate return on ad spend (ROAS), defined as clearly attributed revenues from the campaign divided by marketing cost of campaign, as the key metric to drive.  A strange thing started to happen in our business:  our low ticket, online ecommerce transactions started to take off, but our desired high ticket, offline B2B transactions were not growing at all.  By telling our agency to focus on “immediate” ROAS, the only way they could hit the desired target was by focusing on smaller orders that were immediately ready to book online.  That excluded the desired longer sales cycle leads we really wanted to be growing.

So, after six months of these learnings, we switched directions.  We told the agency immediate ROAS was no longer the goal.  We would be happy waiting our three month sales cycle, before studying our ROAS.  Instead, the leading indicator of future desired B2B sales, was immediate B2B leads that came in from that marketing effort.  That would be the key metric to manage for.  And, as soon as we made that change, our quick, low ticket sales started to fall back to more normal levels, and our desired B2B leads started to reach record heights.  We were thrilled, thinking we had finally “cracked the code” to scaling our business.

But, did we?  A B2B lead is only valuable, if they ultimately convert into B2B transactions and revenues.  So, in April, we did a retroactive cohort analysis of all B2B leads that came into the business in January (our normal three month booking window).  And, what we learned was concerning:  the B2B leads were coming into the business in record numbers, but very few of them were actually converting into sales, at levels far lower than our typical conversion rates.  And, after researching this further with our sales team, we learned the leads that were coming in, were very price sensitive, shopping many websites at once looking for the lowest price, and were often looking for last minute deliveries that were impossible to get the products to them in time.

So, now we are back to the drawing board, trying to figure out the right metric to be managing to?  Or, if the same B2B lead metric, how to optimize the campaign trying to find leads we can actually work with.  And, making sure we are giving proper attribution to all the leads coming into the business, to ensure we are not missing anything important in our look at the data.  We also want to be careful not to “throw the baby out with the bath water”.  Maybe there is something going on operationally, that is getting in the way of sales not converting, and the marketing agency is actually doing a great job.  Time well tell.

CONCLUDING THOUGHTS

So, any you can see, data is critical to managing your business.  I gave you examples in sales and marketing.  But, I easily could have given you data-driven examples in other areas of your business, like operations, finance, human resources or technology.  So, make sure you are living in a world where data is king.  But, more importantly, accurate data is king with the business being driven by metrics that are the most important and reliable for predicting and driving future success and desired outcomes.  The data is only as good as the effort you put into it!!

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #315: Why We Turned Down a Chance to Double Sales

As you may remember, back in 2018, we acquired Restaurant Furniture Plus, a B2B ecommerce business that sells foodservice furniture to restaurants and other hospitality companies.  We recently received a request for proposal from one of the most-recognized restaurant brands in the world.  If secured, the project would have doubled our sales overnight.  We walked from the opportunity, which may sound silly to you.  But, here’s why.

OUR CORE BUSINESS

First a little background on our business.  To date, our core business has revolved around two key things.  First, we are marketing company first and foremost.  Which means we resell the products of others and don’t typically take part in product design, manufacturing, importing or warehousing.  And, second, our average B2B transactions are typically in the $5K-$200K range, sold most typically to up-and-coming chains that have yet to build in-house procurement departments like the national brands.  In no year has any one of our customers comprised more than 10% of our sales.

THE NEW CLIENT OPPORTUNITY

The proposal we received is summarized as follows.  First, it was a huge order for over 1,000 franchise locations of the chain, which meant it would have been a huge multi-million dollar order, around 25x bigger than any other order we have ever closed.  Second, it was a complex order that involved custom manufacturing new designs exactly to the customers’ exact specifications, where the customer required us to build prototypes upfront at our own cost.  And, third, it was not an ideal contract, where the customer was not buying from us, their individual franchisees were (one at a time), and the contract included a 10 year product warranty.

WHY THE PROJECT SIZE WAS A PROBLEM

If we had closed this sale, yes, we would have loved doubling our sales.  But, all of a sudden, we now have a customer that comprised more than 50% of our sales.  Which is a really high concentration of sales in one customer, especially since the nature of the transaction was a “one and done” project.  Those sales would have evaporated in the following year.  So, instead of showing nice growth in 2020, we would most likely have shown sales declining in that year.  Which was not an optic we wanted to share with banks or other investors down the road.

And, when you have a client as large as this one, it is really easy for that project to become “all-consuming”, at the expense of all of our other long-term clients.  We didn’t want to risk mis-serving our loyal base of customers, by investing the vast majority of our energy into this one big project.  Which is what this project would have required.

WHY THE COMPLEX PRODUCT WAS A PROBLEM

If we had been selling “off the shelf” products from our typical vendors, this project would have been a layup.  There would have been no new product to design or warehouse.  But, the fact we needed to custom manufacturer a specific solution meant we needed to go around $50,000 out of pocket to build the required prototypes for the customer to approve, as they would not fund prototype development.  To us, that was a big number to swallow without any guarantee of a sale on the backend.  And, this particular product had to be manufactured with required components only available from one overseas manufacturer, which would have made assembling the product with other U.S. or China based components a logistical challenge.

WHY THE CONTRACT WAS A PROBLEM

This $5,000,000 project wasn’t going to be funded in one check from the customer.  It was coming in $5,000 at a time from 1,000 individual global franchisees over the course of a year.  Which meant going out of pocket on around $3,500,000 worth of inventory day one to get the best-priced manufacturing terms, without any financial support or guarantees from the customer, and then, crossing our fingers all the franchisees actually buy the product over time as there were supposed to.

Then, there was the issue of having to send the orders individually to 5,000 locations across the globe; it wasn’t simply going to one customer warehouse.  So, the warehousing of the items and the shipping logistics for heavy furniture going overseas, would have certainly created its challenges, operationally and financially, as that was not part of our core competency of selling only to U.S. based customers to date.

And, the final deal breaker was the 10 year warranty.  How many products have you purchased come with a product warranty of 10 years.  And, this was for outdoor patio furniture getting baked in the sun, and being used in a commercial setting where things could naturally go wrong.  The last thing we needed, were warranty claims showing up in years eight, nine and ten, that could have bankrupted the company down the road.

WHY WE PASSED THE DEAL

So, as you can see, there were a lot of reasons we decided to pass on this opportunity.  It would have been so tempting to close the sale, and pat ourselves on the back for doubling sales.  But, the downside risks here were way too high to swallow:  the upfront prototype costs, the upfront inventory financing, the global warehousing and logistics, the 10 year warranty, etc. were all potential pitfalls that we were unwilling to take that risk.

CONCLUDING THOUGHTS

So, the lesson here:  be careful what you ask for, because it could be your undoing.  Don’t get so romanced by the idea of driving revenues, that you don’t think through the operational or financial challenges it is going to result in.  Only bite off what you can easily chew, otherwise your business will “choke”.   Know what your core competencies are, and stay firmly focused on what you can do best.  It is perfectly acceptable and prudent to say no to a sale, if there is a high odds it will end up capsizing your boat.  For more insights here, be sure to read this companion article:  Pitfalls to Avoid When “Reeling in the Whale”.


For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] George Deeb Discusses 'Pain Killer vs. Vitamin' Business Models

I was recently interviewed by the Atlanta Small Business Network (ASBN), an online "television network" serving the small business community, about how to make your business a "need to have" painkiller and not a "nice to have" vitamin.  I thought this video turned out great, and I wanted to share it with all of you, to help with your product strategy needs.  I hope you like!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above, or feel free to watch it on the ASBN website.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

The Best Employees Have These '31 Flavors'

Having good employees will make or break a company’s success. I have previously written about how best to read resumes and screen employee candidates, but that is before they are actually working for the company and you get a chance to see their “true colors” when they are not “on show” during the interview process.  This post is designed to help you identify the best traits that most successful employees share, so you can “double down” on those best employees and “weed out” the rest, as nothing can take down a company faster than a bunch of toxic employees that don’t beat to the company’s drum.  The best employees have these “31 Flavors” blended into one.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #314: The Only Winners in Ecommerce? Amazon, Google and Facebook!

I have been a long-time fan of the ecommerce industry.  As offline retailers were struggling to compete with online retailers, many large chains went out of business, and an increasing amount of consumer buying moved online.  For a long time, ecommerce startups were printing money, in what felt like a “can’t lose” industry over the last couple decades.  But, like with any “gold rush”, empowered by ecommerce platforms like Shopify that made it quick and inexpensive to get your online store up and running, ecommerce attracted a bunch of competitors trying to get their products discovered online.

But, what happens when millions of ecommerce stores are fighting to get discovered on only three primary websites (Amazong, Google and Facebook) where consumers are looking for potential shopping solutions?  All hell breaks loose, wreaking havoc on your cost of customer acquisition and your bottom line profits.  Which means the only long term winners in ecommerce are going to be Amazon, Google and Facebook (“The Big Three”), who keep raking in all the highly-profitable advertising dollars, while the ecommerce businesses themselves are starting to struggle to make a profit.  Allow me to explain.

THE GROWING ECOMMERCE INDUSTRY

The ecommerce industry in the U.S. was approximately $500BN in size in 2018, and has been one of the fastest growing areas of the economy.  This big market has been attracting tons of large retail corporations and startup entrepreneurs that have been trying to capture their piece of the pie.  What started off as a handful of ecommerce sites in the infancy of the internet has grown to over one million ecommerce businesses in the U.S. alone (and growing daily), each competing for consumer attention.

THE RISING COSTS OF GETTING DISCOVERED

But, how to do you get consumer attention?  In today’s market, that largely means The Big Three websites.  But, there is a limited supply of positions on the first page of The Big Three’s website search results.  Which means with limited supply and growing demand, the price of getting discovered keeps going up and up.  Which means the cost of acquiring a new ecommerce customer is quickly increasing, eating into the profitability margins of those ecommerce businesses.

To me, it is quickly becoming a race to the bottom for the ecommerce businesses, many of which can no longer drive a profit on their first sale.  They now must cross their fingers that they have a quick and frequent repeat sale cycle, to make their profits from the second and third transactions down the road.  Which may work well for a consumable vitamin business, but doesn’t work so well for a non-consumable mattress business, as an example.

GOOGLE, FACEBOOK AND AMAZON CAPTURING ALL THE PROFITS

As costs keep going up and up for the ecommerce businesses, that means advertising revenues keep going up and up for The Big Three.  Which means the only true long term winners in ecommerce will be The Big Three!!  Said another way, if advertisers are willing to invest up to one third of their revenues into consumer marketing efforts, that is over $150BN of largely free and clear profits for The Big Three to share between themselves.  While at the same time, all the ecommerce businesses will simply struggle to break even as their marketing costs continue to soar to higher and higher levels.  Pretty picture for The Big Three; ugly picture for the ecommerce businesses.

AN IEXPLORE CASE STUDY—COSTS UP 10X

Let me provide an example here.  When I was running iExplore in the year 2000, I could buy a Google “adventure travel” search click for $0.25, competing against a handful of competitors.  Those clicks would net me around a $200 cost of acquisition per new customer, or around 20% of my $1,000 gross profit margin.  Resulting in a very healthy bottom line profit margin.  Fast forward to today, that same click may cost $2.50 (10x more), as hundreds of competitors are now fighting for the top positions on those keywords.  Which means my cost of customer acquisition has grown to $2,000 today.  And, instead of driving an $800 profit on the first sale, I am now losing $1,000 on the first sale.  A pretty grim reality, to say the least.

MAKING A DEAL WITH THE DEVIL (AMAZON)

Google and Facebook clearly present their marketing challenges, but Amazon is even worse.  Over half of all shopping searches start at Amazon.  But, there is a price to pay for that distribution.  Amazon charges around a 15% revenue share to get promoted on their website, assuming you do your own fulfillment (the fee rises to around 25% if you need Amazon to do the fulfillment).  And, that is before Amazon has fully exploited their ambition of building a Google-like advertising marketplace to ensure your products get discovered on their platform.  When you layer marketing costs on top of the distribution and fulfillment fees, there is going to be no profits left for anyone except Amazon.  And, if you were hoping for repeat sales to drive your long term profits, good luck, as Amazon does not allow you to share in any of the customer records created.  They are Amazon’s customers, not yours, and you are not allowed to repeat market to them anywhere except on Amazon.  All in all, a great win for Amazon, and a strong kick in the gut for the ecommerce businesses.

CONCLUDING THOUGHTS

Even if you are one of the lucky ecommerce businesses that are driving a healthy profit today.  Enjoy it while it lasts.  It is only a matter of time before new competitors learn of your success on The Big Three websites, and try to enter your market.  We’ll see what your profits look like in a couple years, after the flock of competitors start fighting for position around your keywords.  And, this will be the case in nearly every category of ecommerce, so it doesn’t really matter what products you sell.

So, for all you ecommerce lovers out there (myself included), I have these cautionary words of wisdom for you:  think twice before getting into the ecommerce business.  If you want to win long term in ecommerce, stop thinking about what products you are trying to sell, and think more about how you can profitability grow your business without relying on The Big Three websites (e.g., viral word of mouth, direct mail, smaller websites) with proprietary or patented products only found on your website.  Or, better yet, think about how you are going to build a new fourth competitor to The Big Three, as that is where the real profits are long term, without having to deal with all the merchandising, warehousing, markdowns and other headaches that come with running an ecommerce business.

For future posts, please follow me on Twitter at: @georgedeeb.

[VIDEO] George Deeb Discusses Recruitment Strategies on ASBN

I was recently interviewed by the Atlanta Small Business Network (ASBN), an online "television network" serving the small business community, about recruitment strategies for startups.  I thought this video turned out great, and I wanted to share it with all of you, to help with your recruitment needs.  I hope you like!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above, or feel free to watch it on the ASBN website.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.