Lesson #98: Securing a Government Contract

The U.S. government is the largest buyer of products and services in the world.  In 2009, the federal government set aside $422BN to spend with small businesses.  But, only $96BN (22%) was actually awarded to small businesses (the rest going to large corporations), given the lack of properly registered and qualified small businesses to work with.  So, if your product or service can be sold into the government channel, it only makes sense to properly register your business to do work with the government.  Especially, given how large government contracts can be, in terms of driving material revenues for your business.

In order to qualify as a small business to do work with the government, you need to: (i) have done at least $25,000 in annual revenues in the last two years; (ii) not employ any W2 government workers; and (iii) not source any of your products or services outside of the U.S., unless such countries are listed on the approved U.S. trade partners list. 

If you qualify, then you need to file a U.S. Federal Contractor Registration (CRR) and negotiate preferred, 5-year government pricing with the U.S. General Services Administration to get on its GSA schedule.  The government typically does not work with any vendor that is not on a GSA schedule.  And, unless you pay up to expedite the process, it can take months or years to get through the entire approval process.  So, the sooner you start, the better.  You can learn more about the GSA approval process from this useful tutorial from Contracting Services Group, a third party consulting firm that can assist you through the process.  There is also useful government contracting information on the Small Business Association website.  For CRR registration consulting assistance, check out US Federal Contract Registration.

Once you are approved, you will be added to the GSA Advantage website, an easily searchable database of all GSA approved vendors, that government employees use to find vendors by product or service.

But, you don't want to be reactively waiting around for government leads to come in.  Given the heavy competition to get these contracts, you need to proactively go after these government leads.  One place to look for such government contract leads is at the Federal Buying Opportunities website, which has a database of over 40,000 active federal contracts, easily searchable by product or service.  There are also independent websites, like B2Gmarket.com, Bloomberg Government and GovDirections.com, that may be helpful to you here.

So, now that you better understand the government contracting process, you can hopefully tap into this huge market.

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Lesson #97: Securing a Small Business Grant

Grants can often be an effective vehicle to finance your business, just as venture capital can be. And, the upside of a grant is, oftentimes, it does not need to be repaid or come with any long term hooks, like investors bring. That said, grants are not easy to secure. So, if you can get one, more power to you. Today's lesson will summarize a few basics around securing a small business grant.

Grants are basically funds distributed by governments, corporations, foundations, universities or trusts to fund some specific project that is important to their cause. According to Wikipedia, there are over 88,000 grants issued each year, totaling over $40BN in size (a sizable chunk of money). These monies are usually granted to non-for-profit businesses to use in their specific research or development, that relates to the desired cause. But, sometimes, grants can be made to for-profit businesses where interests are aligned. So, for example, if a startup biotech business is working on a new cure for cancer, they could get a grant from the American Cancer Society to help accelerate their efforts. Or, as another example, let's say the Elvis Presley Foundation is trying to preserve rare old video footage of Elvis Presley, they could make a grant to a video preservation company.

As I mentioned, grants are not easy to secure, given the high level of competition looking for the same monies. But, if you: (i) know where to look for available grants, (ii) engage the services of a professional grant writer, and (iii) submit a proposal in the correct format, you have as good a chance as anybody to secure such funds. I wouldn't invest a ton of time here, given the low odds of closure, but it is definitely worth a little high level research to see if there are any low-hanging-fruit opportunities which you can easily pursue.

In terms of finding grants, there really isn't one centralized place that spans all the various entities that have grants available. So, it will require a lot of digging via Google, using the word "grant" and the relevant keywords for your industry. As in the examples above, that could include searches like "cancer research grants" or "video preservation grants". That said, the federal government has done a nice job of centralizing all federal government grants at Grants.gov. There, you can easily search over 1,000 annual grants offered from 26 different federal government agencies, across a wide range of categories (including small business grant opportunities). So, I would start your search there.

The next step could be to engage the services of a professional grant writer, who has expertise or relationships in the space and knows the "tricks of the trade." There is a good tutorial on how to hire a grant writer on the American Grant Writers Association website. And, there are many professional grant writers and grant researching companies that I found from a "grant writer" keyword search at Google. So, research a few, to see who has expertise within your industry or the organization you are trying to approach. Expect to pay $50-$100 per hour for the assistance of a service like this.

You can also try to write the grant proposal yourself, to save some money. The elements of a good grant proposal can be found on this grant writing page on Wikipedia. So, follow the standard format, and make sure you address all the detailed requirements that are being asked for by the granting organization.

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Lesson #96: Vertical vs. Horizontal Growth Options

For most startups, I give them the clear message to focus on building one business at a time, like we learned back in Lesson #40.  But, what happens when you are huge success in that business and need to look for additional growth options?  Those decisions typically revolve around vertical vs. horizontal growth strategies.  Vertical growth is getting deeper in your current line of business.  Horizontal growth is getting into new product areas that are not directly associated with your current line of business.  We are going to discuss assessing these options, and a few variations to this theme, below.

VERTICAL GROWTH--DOMESTIC

I am going to use iExplore as the example company looking at options to grow its business throughout this lesson.  iExplore was a tour operator for adventure travel in 100 countries, serving an affluent demographic.  Domestic vertical growth options for iExplore could include things like: (i) launching high-end tours in additional countries; (ii) launching a line of more affordable trips to appeal to the middle-market; or (iii) launching a line of tours that are less "active" (e.g., hiking, biking, diving) and more "experiential" (e.g., culinary, wildlife watching, expedition cruise).  In each of these examples, iExplore's growth is around their core business of running adventure tours.  This is usually the first place startups will look for growth, in their core business.  The only things to be sensitive about here are things like: (i) will any changes to your product or price impact your current brand positioning (e.g., less expensive trips could tarnish a high-end brand name); and (ii) is there really enough demand for the new products under consideration (e.g., do enough people really want to travel to South Sudan to justify building a tour?).

VERTICAL GROWTH--INTERNATIONAL

International vertical growth options for iExplore would mean taking its core trips today and marketing them to people who live in countries outside of their U.S. home.  There would be many things to consider here: (i) is there a demand for your product overseas (e.g., do people in Europe buy adventure travel, or do they prefer cruises); and (ii) what will you need to do to localize the product (e.g., designing tours with native language tour guides, brochures, websites, call centers, etc.).  Please re-read Lesson #81 for Considerations for Global Expansion for more detailed thoughts here, as you assess your options around international growth.

SEMI-VERTICAL GROWTH

Continuing on with iExplore's growth options, maybe they have tapped out all their growth options in their core adventure travel category.  In a category I call semi-vertical growth, iExplore may want to remain being a seller of travel as its core business, but is considering: (i) vertical integration within adventure travel; or (ii) new travel verticals altogether.  Vertical integration would be iExplore wanting to acquire its on-site suppliers, hotels or sub-contractors that it uses to fulfill its tour service, to get a higher margin or to better control their inventory position.  The problem with this route is running a hotel is very different than running a tour operator marketing business, with a huge capital expense for acquiring and maintaining properties, staffing the hotel and keeping it at full occupancy.  As for new travel verticals, iExplore may want to start selling cruises, spas, lodges, vacation rentals, ski trips, golfing vacations or other travel categories beyond adventure travel.  The question here:  is there demand for such verticals from iExplore's existing customers (lowest hanging fruit for marketing such new services), and how will getting into those businesses impact its brand positioning (e.g., adventure travelers wouldn't be caught dead on a Carnival cruise ship).

HORIZONTAL GROWTH--ENDEMIC

I split horizontal growth into two categories, endemic to your industry and non-endemic to your industry.  Endemic horizontal growth for iExplore, would be extending their travel brand into new travel related businesses.  That could include:  (i) launching a line of iExplore branded tour books; (ii) launching an iExplore travel show on Discovery Channel; or (iii) starting an iExplore branded travel insurance company.  All of these businesses require completely different skills than being a tour operator (e.g., book publishing, TV programming, insurance underwriting), but all can easily be sold to the same iExplore demographics and customers (e.g., buy a trip and we'll sell you the travel insurance, read our books while on your trip, watch our TV programming while not on vacation).  Just make sure you have the appropriate management skills required for each of these distinct businesses, before drifting too far from your core strengths.

HORIZONTAL GROWTH--NON-ENDEMIC

Non-endemic horizontal growth for iExplore, would largely revolve around turning iExplore into a "lifestyle" brand, and selling those iExplore travel customers, everything else they need for their high-end lifestyle.  For an affluent lifestyle, that could include selling iExplore customers opportunities around fashion, automobiles, boats, homes, restaurants, event tickets, etc.  As you can imagine, the skills for selling fashion is pretty far removed from the skills for selling adventure tours.  So, I would highly advise tapping out all other logical growth options, before taking it this far.

Hopefully, you have a better sense to the various vertical or horizontal growth options you can consider for your business.  I have roughly put them in the order I would prioritize such efforts.  That said, sometimes markets will let you take your time and grow them in a sequential process.  And, other times you don't have that luxury.  As an example, look how quickly Google evolved from a search engine, to also being an email, calendar, social networking, news, maps, web browsing, content, mobile, etc. business in their attempt to take over anything and everything internet related.  But, that took a lot of venture capital and management bench strength to pull off growth like that.  And, not all of us have that luxury.  So, don't bite off more than you can easily digest.

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Lesson #95: The Basics of Telemarketing

Depending on the nature of your business, telemarketing can be a useful tool to cost-effectively drive targeted leads and sales for your business.  There are two types of telemarketing strategies, outbound and inbound, that we will cover in this lesson.

OUTBOUND TELEMARKETING

Outbound telemarketing is often referred to as "cold calling".  This tactic is most used by B2B businesses looking to sell their product or services, B2C companies that are selling home-based services or other organizations looking to raise funds or awareness for their cause (e.g., donate your clothes, support our candidate, police fundraiser).  I much prefer cold calling for B2B, as that is the expected normal way of doing business in the industry.  For B2C companies, traditional marketing is a much better way to reach a lot of people faster.  However, for local service companies (e.g., window washers, landscapers, chimney sweeps, cable TV upgrades), that can logically open a dialog with a target (e.g., doing work next door for your neighbor, did work for you before), cold calling (or in this case warm calling), can be a very effective tool.  But, just be sensitive to how much consumers hate receiving unexpected cold calls to their homes from businesses they don't know or for services they have no interest, so research accordingly and craft your pitch around those hurdles.

A successful outbound telemarketing campaign is determined by: (i) quality of the list; (ii) the pitch; (iii) the process; and (iv) the conversions.  For quality, you want to make sure you are calling on people that are actually interested in your product or service, and preferably the decision maker who can pull the trigger on the order.  So, for example, maybe that is using a service like Hoovers or D&B, to pull a list of phone numbers of nationwide CFO's for small and medium sized businesses that may be interested in learning more about your state-of-the-art financial software system.  Or, in another example, you can work with AT&T to pull a list of phone numbers in the 60093 zip code, a ritzy Chicago suburb, to market your handyman services business.

In terms of the pitch, the more relevant it is to the listener, and the more trusted you come across to the listener, the better it will be for your efforts.  So, for example, mentioning mutual colleagues or references can go a long way to warming up the client to listen more closely.  Intros like "I was referred to your by John Doe, one of your CFO colleagues" or "I am doing work next door for Mrs. Smith" starts to build trust of you already doing business for people they know and trust.  The other key part of the pitch is getting it out as quickly and sweetly as you can, in one sentence, not one paragraph.  Just as if you were pitching a VC, the listener has a very short attention span and is trying to get you off the phone as quickly as possible.  So, an opening pitch like "we are an award-winning insurance agency that can save you 80% on your healthcare costs using your current providers" will get their attention.

As for the process, where you can, avoid wasting the time of your best salespeople on cold calling.  Use an administrative sales assistant to carry the heavy workload of "dialing for dollars" in mass, as an "appointment setter" for your key salesperson to swoop in can close the hot lead.  But, in many startups, for budgetary constraints, you may have no other choice than having your salesperson do their own cold calling.   There are also many professional appointment setting services you can use here, but I find their costs are typically 2x-3x the cost of you hiring your own admin and doing the calls yourself.

Finally, in terms of tracking expected conversions, here are the historical metrics I have experienced, which you can use as a benchmark.  You will need to make 100 phone calls to get 5-10 serious leads, and of those leads, you can expect around 20% to close.  Obviously, these metrics may vary based on the appeal of your core service and the price point of such service.  But, as you can see, on average, it takes a lot of work to get the sale (1 sale in 50 tries), so make sure you are covering the labor and phone costs of your cold calling, with a large enough margin from your service.  For example, if the labor for 50 calls at three minutes each costs $40 and the phone bill for those 50 calls cost $10, make sure your gross margin from successful sales is at least double the $50 investment.  The economics get wildly better from cold calling, the more expensive your product.  But, that also requires a much more educated/expensive sales person and a longer lead time to close the sale.


INBOUND TELEMARKETING

Inbound telemarketing is built around supporting a 1-800 number in your marketing materials and on your website.  It is much easier to close an inbound sales lead, since the clients have pre-selected themselves as initially interested in what they have read about your product or service.  So, unlike cold calling, you should typically have a receptive listener on the other end of the phone.

A successful inbound telemarketing campaign is determined by: (i) the pitch; (ii) the process; and (iii) the conversions.   For the pitch, it is listening to the needs of the consumer, and giving them the exact thing they are looking for and reasons why they need to buy that product from you.  So, for example, in a competitive space like travel, with a high $5,000 luxury price point like we had at iExplore, we would differentiate ourselves with competitive advantages like: (a) building your dream itinerary to spec--you pick the dates/sites; (b) privately guided trips without the "herd" of other travelers; (c) exclusive professionally-trained naturalist guides; (d) five star hotels at three star prices; (e) unique experiences only available at iExplore; and (f) a list of happy past traveler references. You get the point and can tailor this strategy for your business.

Equally important as the pitch, is the creative opportunity to upsell the client, to increase your average ticket and drive a higher ROI from the sale.  So, continuing with the iExplore example, this could include things like: (i) while you are all the way in South Africa, it is a quick extension to take in "must see" Victoria Falls while you are there; or (ii) while at Machu Picchu, I would recommend you paying a little bit more for the Sanctuary Lodge, it is the only hotel right at the ruins site and you will have the ruins entirely to yourself after the busloads of tourists leave.
 
As for the process, most inbound call centers are organized around key product specialties.  So, for example, when you call Comcast, dial one for cable TV, dial two for internet and dial three for phone, is sending you to different product experts on the back end, most qualified to answer those questions.  Continuing with iExplore, we organized our inbound sales team based on geographies of the world (e.g., Africa sales to Marlyn, Europe sales to Rosemary).  So, figure out how to most-efficientaly organize your inbound sales efforts and make sure the team is highly trained in educating, closing and upselling clients.

The converstion metrics are much better in inbound call centers than outbound call centers.  So, expect 10-20% of the inbound calls to close (5-10 of 50 is 5x-10x better than the outbound telemarketing metrics we discussed above).  And, once again this will vary based on your price point and the ease and availability of competitive products.

Underlying all of the above is the necessity for great salespeople that will ultimately make or break your telemarketing efforts.  So, make sure you are hiring the best talent you can afford, with experience in your industry, that you can highly train and incentivize to succeed.  Be sure to re-read Lesson #25 on how best to structure your sales team and Lesson #26 on how best to incentivize your sales team.

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Lesson #94: Netflix--A User Experience Meltdown

This morning, I received an announcement from Reed Hastings, the CEO of Netflix that they were splitting their business into two divisions, Netflix for streaming movies and a newly created Qwikster for DVD movies by mail, including a long apology for not communicating better with their customers regarding the rationale around key decisions.  Hastings obviously didn't practice what he just preached, as Netflix obviously didn't first test the potential impact of such action with their users (as we learned to do back in Lesson #73).  The consumer reaction, including my own, has been pretty negative based on today's posts on the Netflix Users' Blog.  So, based on this, I thought Netflix would make an interesting case study on what to do (or more importantly, what not to do) from a user experience perspective.

But, first, a little history about Netflix's mounting woes over the last few months: (i) they announced a separation of their DVD services from their streaming services (which resulted in me paying 25% more than before for both services); (ii) they lost their major content deal with Starz, one of their only premium providers of high-quality current movies in their offering;  (iii) their forecasted users for this year are 1MM less (5% less)  than they estimated they would be at the beginning of the year, based on these actions; (iv) their stock price has cut in half (from around $300 per share to $150 per share), as a result of the above; and (v) now, we have this splitting of the business into two divisions, which is going to require users to maintain activity, ratings and queues at two separate websites, one for online streaming activity and the other for offline DVD rentals.  I just don't think consumers will ultimately play that game, and Qwikster (or Netflix's DVD rental business) will most likely suffer a "Qwik" death.  This is probably Netflix's long term goal anyway, but what a very strange business decision for Netflix to make given the company still has the majority of its customers still using the DVD rental services today.

So, what has Netflix done to its consumers in the last couple months: (i) they are making them pay 25% more for bundled online and offline services (or forcing them to pick one or the other); (ii) they are losing current high-quality movie titles, which is particularly evident on the streaming side of their business which they desire to promote long term; and (iii) now, they are forcing customers to maintain two different websites, instead of one, which is a big ask of 12MM people (the 50% of their total business which desires both online and offline services).  Obviously, consumers are not responding well to these actions, given the 1MM lower members than estimated this year.  And, the financial markets haven't responded well, with the 50% decline in Netflix's stock price in the last few months. 

So, how did Reed Hastings get himself and Netflix into such a mess?  The answer is really quite simple:  they put their business goals in front of their customer goals.  And, sometimes you need to do that if your underlying business economics are flawed, like Netflix's were  (e.g., the need for a price increase to cover the cost of licensing the content--which would have been fine if communicated that way as a better option than going out of business).  But, this most recent move may ultimately get the whole house of cards to fall in on itself, when and if 50% of Netflix's customers decide to unsubscribe from all or part of the service.  Let me explain further.

At the end of the day, what are the challenges with Netflix's business: (i) it is much more expensive to fulfill mailing DVDs to home, than simply streaming them over the internet; (ii) high quality current content is very expensive to license from the major film studios, especially within the first 28 days of the home release; (iii) the studios get a lot less revenues from DVD rentals, than they do from cable on-demand or internet streaming (e.g., former simply requires Netflix to buy DVDs, and the latter charges Netflix on a per-subcriber basis for the service); and (iv) the markets are very bearish on the DVD business long-term, and Netflix doesn't want that albatross around its neck in the financial markets (in business practice or in name).  So, when you look at Netflix's business this way, it is very easy to see how Netflix has ended up where it did.

I have been a huge fan of Reed Hastings, who has lead meteoric growth at Netflix and a real change in the way consumers watch movies (including the demise of former retail titans like Blockbuster).  And, I have been a loyal Netflix customer for years, despite the ups and downs of their business.  But, this most recent move does not sit well with me, hence the post. 

I sure hope they figure out a winning long term business model, one that puts the customer first with (i) high quality current movies; (ii) that I can watch within the first 28 days of home release; (iii) via online streaming (or offline, if needed); and (iv) at a price that makes sense to Netflix's business (and is affordable to me).  Because, I am sure the major studios are trying to figure out how to offer this service directly themselves (to cut Netflix as middleman out of the way), or in partnership with the major cable companies via on-demand services.  But, the last thing I want to do is be forced to re-rate 1,691 movies watched on a different service, so they know what movies I have seen and which ones I haven't seen, in order to get their recommendation engines correctly working  (where Netflix is the pro and clear first mover).

So, the key lesson here:  put your customers' user experience first when making key business decisions.  You should always be aspiring to give your customers more and more (and make your user experience easier and easier) over time, not less and less (and harder and harder).

I am curious what you think. Add your thoughts in the comments section.

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Lesson #93: Make Your Employees Feel Appreciated

Too often in startups, we are so busy executing on our visions that we forget to lift up our head, take a breath and celebrate our successes with our staff.  The more your reward your employees for desired results (or just because you want to be nice), the more appreciated they will feel, and the more invested they will be in your mutual success. 

Below are a few examples are employee rewards that have had success with in my past:

1.  Gift certificate to the sales team leader each month, to the store of their choice

2.  Employee features in the company newsletter and "shout-outs" at weekly team meetings

3.  Celebrate all birthdays with a cake; celebrate all holidays with a party

4.  "Lunch with CEO" program for one-on-one time, regardless of position within the company

5.  Monthly all-staff event (e.g,. bowling night, happy hour, ball game)

6.  Early office departures and mandatory time off around big holiday weekends

7.  Employee discounts on the products or services you sell (e.g., "at cost")

8. Open door policy--to walk in with any idea they have, or problem needing solving

9.  Free company-paid trip a year for each of the travel agents I had at iExplore--they liked the trip, and I liked the fact they would better sell the destination when they came home

10.  Get to know your employees--what do they like, what drives them--and and wrap incentives around such personalized interests

This list could go on and on.  The point here is:  employees are not simply cogs in the wheel of the day-to-day grind.  They are people with interests, emotions, and desires and they deserve the appropriate respect and recognition for a job well done.  And, the more you invest in your team, the higher return they will invest back into the company.

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