What Goes Up Must Come Down

Sir Isaac Newton statue from Trinity Chapel. Photo by Harlequeen

Songwriter & singer Dame Shirley Bassey

How many ups and downs has your business experienced? Since we started our business, we have been through seven ups and downs – oil, banking, real estate, savings and loans, dot.com, Wall Street, and now real estate again. It has caused us to refine and redefine our business at least that many times.

If it’s a part life, it does not make sense just to try to survive this one because another wave is coming. If you own a business, the wave that could take you under could be something global like this “Great Recession” or something unique to you and your business. So be watchful; be prepared.

At the Business Success Center, we have identified five potential challenge areas that are always out there:

1. Economic

2. Environmental

3. Political

4. Social

5. Technological

What’s happening now? We are being hit by all of these all at once or so it seems.

What are people doing? Some are giving up and calling it quits. Some are digging in and just trying to survive  —  to just be able to “stay” in business. The successful ones are looking for ways to thrive.

What do you choose? Give up, give in, or stay in?

Keeping Your Head

Rudyard Kipling wrote his poem “If” in 1895 but it was not published until 1910. It’s a litany of actions to take to become a man (or woman). I think it’s also a useful guide on how to have a successful business no matter what is happening in the world outside or inside.

So how do you keep going when others are losing their way and people are blaming you?

It starts with confidence. This makes sense. After all, confidence in you (your product and service solutions, your staff, and how you do things) is the prime reason someone decides to buy something from you. No confidence, no sale — end of story.*

Step One: keep your head no matter what others are doing. Don’t just be confident you can survive, envision yourself as thriving. Pass on this confidence in your ability and skill to overcome any challenge that comes your way. Be confident in staff and customers, too. Confidence is contagious; spread it around.

Can you trust, wait, dream, think?

People buy from you because they trust you will provide them with the level of quality, service and selection they expect. Because you give them what they want not just what they need, they’re willing to pay your price and be glad it’s not more.

Owners who thrive in tough times are what authors Albert Bernstein and Sydney Rozen describe as “Believers” in one of my favorite books, Neanderthals at Work. It is an oldie but a goodie. (Buy it from your favorite local independent bookstore but they will have to order it.) This term does not have to do with a religious faith but in the thought that some people believe there is order, rules that matter and following those will make you successful and proud of it.

How do you demonstrate this?

You trust in yourself. You are willing to wait and see what happens. You think and plan ahead because the world turns and the best will rise again. You dream big and take actions that are counter intuitive to those who are quitters or just survivors.

What do you do, Little Red Hen? While Chicken Little** is saying the sky is falling, do you get out there and “Just Do It” ? Do you keep thinking how to work smarter not harder?

Here are some good “Thriver” choices. Dreaming, thinking and trusting are required.

1. You don’t cut prices or quality. You do contain your costs by setting up processes and systems that make you more effective and efficient. You may even raise your prices and get a better grade of customers.

2. You spend more on marketing. But you do it more efficiently. And, you do seek out alliances with other like-minded businesses and organizations.

3. You don’t cut back on staff. But you do get rid of the dead wood or at least rearrange that wood to light them up and get a roaring fire going instead of just fizzling out.

4. You become more selective in your customers. You go for the platinum and gold customers™ and dump the lead, concrete, and radio active waste customers™.

Risk Takers

“If you can make one heap of all your winnings
And risk it all on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breath a word about your loss;”
(From “If” by Rudyard Kipling)

Banks, the government and non business owners think those of us who own small businesses are too volatile, too much of a risk taker. Just plain crazy.

I can tell you in working with owners of product and service businesses from accounting firms to zoos, we are the most risk adverse group on the planet. Any risk we are willing to take only happens after we have examined the other options and trust we can take an “informed leap of faith”.

If we guess wrong, then we usually start again. You can do that relatively easily in the US and even easier in Texas that is famous for being a “boom and bust state”.

In many parts of the world you “lose face” or even your life if you close your doors. By the way, even in tough times, most small business do not “fail” (close due to nonpayment of bills). They close the doors because the owners give up. They lose their dream, their trust and confidence in themselves, and their will to go on.

In the end, it’s your choice

As Kipling says,

“If you can meet with Triumph and Disaster
And treat those two impostors just the same;”

And

“Or watch the things you gave your life to, broken,
And stoop and build’em up with worn-out tools;”

And

“If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: “Hold on!”

“Yours is the Earth and everything that’s in it,
And — which is more — you’ll be a Man, my son!”

You WILL always be a thriver, not just a survivor.

Author’s Notes:

*In experiments, researchers found they could influence the education outcome by telling the teacher ahead of time that a student was bad or good. Confidence does have consequences good and bad. We are talking here about honestly feeling positive about what you do for customers, your community, and others who count on you.

**If you are interested, the Chicken Licken or Chicken Little story comes from the Jataka Tales of Buddhist folklore not Aesop’s Fables and Little Red Hen is most likely a Russian folktale. I am confident that you will impress others with these bits of trivia and be well on your way to a more successful you.

Here’s to your long lasting success!

How do you thrive in tough times? Share your experiences. They could help the rest of us when we need a little inspiration.

Knowing where you're going is a great legacy. Image by TW Collins

There’s nothing wrong with Cost-plus or Value-based pricing when they are done right. Both are good strategies but incomplete in my opinion.

In the case of Cost-based pricing, basically you look at the costs and then add a percentage for profit on top of that number to arrive at a price.

In my experience, those who set the prices don’t know, forget, or leave out costs that they shouldn’t. Sometimes it is the cost of the salary of the principals or putting in enough for contingencies. Just as often they don’t include all the costs involved in being able to provide this product or service before and after getting customer #1. Then there are the true total costs to support and maintain this customer with this product or service.

Business owners who set or agree to the prices based on costs get overwhelmed and under-price. I have a client who is launching a new product and thought it had cost about $10,000. Once we did the numbers (we did not include lost opportunity costs but real numbers), it was closer to $55,000. It was not even launched yet.

I think Value-based pricing is a better strategy. It incorporates the costs and the value this product or service provides the customer. If all the true total costs are accounted for, then determining what the customer gets out of it, should be relatively simple. Market research, competitive analysis, and usability testing gives you a place to start.

It does depend on identifying the right value for the customer. What most people who use this technique to arrive at pricing don’t do  is spend enough time on identifying the best customer, the most loyal customer who brings the most value to the business.

However, a strategy that does more because it goes beyond both is a new concept, “Legacy Pricing”™.  It doesn’t just look at the past or the present, but really focuses on the future. The future of the company is its legacy and it’s too often forgotten or glossed over when it comes to pricing. Without a legacy, nothing goes beyond day-to-day and the value of the business is reduced even if it survives.

Legacy Pricing™ is a better choice for these times because it’s more complete. It includes cost and value. It includes profit and contingency. It deals with value identification, but it also takes pricing and relates it to a timeline in a meaningful way. The timeline for pricing should make sure the business shows it will maintain its value down the road for any subsequent transfer or expansion.

Using Legacy Pricing™ means using other best practices.

1. Price for your legacy customer, using what I call a Platinum Profile™ .
   The latest research suggests that about 15% of your customers account for 55-70% of your total sales. Price to keep loyal customers not just any customer and not just to get people calling or coming in the door. My platinum profile™ system lets you really know who to focus on and who to eliminate. It includes demographics, psychographics, risk tolerance, decision-making style, purchase behavior, and the “game” they play. Price for them and you won’t leave money on the table and you won’t exceed their “pricing flinch point”™. (The point at which you can see a physical reaction to the price you name.)
2. Price for positioning, now and in the future.
   Don’t forget where you’re going and who you want to go with you. One of the biggest dangers of discounts, coupons, etc. is that it ruins the positioning that you have established. No longer are your products and services the best, Why do customers feel like that? Because the best products provide the extra quality and value that takes time and effort. If there’s not enough time to provide this or enough quality staff, then your customers will see you as just “one of the group”. And, worse, not worth they loyalty to you. There is one universal truth: you can’t “steal” a happy customer. Loyalty and feeling special makes them feel like they belong and they will stay.
3. Make sure the right person does the pricing and determines any exceptions.
   If you have to do the pricing, have someone other than you review it. If you have partners or staff or hate dealing with pricing, have all those who work with the product or service give you input. Then do your market research based on that legacy customer and re-check your numbers. See if it will support the positioning you have and the positioning you want to maintain. Finally, it’s better to still get someone not connected with your business to review what you’ve done and ask the hard questions.

I am proud to be the inaugural speaker for the new San Antonio Business Owners Meetup sponsored by the Business Bank of Texas. I will be talking more about legacy pricing and how to make sure you have a future. The meeting will be held Thursday, July 20, at Pappadeaux Seafood Kitchen, 76 Northeast Loop 410, San Antonio, TX. For more information or to register to attend, please go to http://www.meetup.com/The-San-Antonio-Business-Group/. I hope to see you there and get your insights into the best practices you are using for pricing.

If you have questions about your pricing or comments about legacy pricing™, please comment below.

Sometimes big & small can work together. Photo by Daniel Voyager

My colleague, Dan Diener, was working with client who was re-negotiating an existing contract that was up for renewal. It ran into a snag because the contract was for a higher amount than the previous year in order to be in line with our client’s other contracts. This was crucial since our client provides personnel to others and significant benefits to his employees.

Our client, based in Austin, Texas, is a small business with a very large state client. Because of the nature of the industry and how these two organizations work together and share information, the decision was made to talk to the larger client about the situation. The result was a good rationale to stand firm on price by leveraging the larger client. Our client said no, he could not honor the same deal he had with the state client if he cut the price for this existing client. The contract was signed at the price our client proposed. Honor and ethics were well served as well.

This was an unusual situation. Frequently, a larger client wants a “discount” for the prestige of working with them. But, it can work in your favor when someone else wants the “discount”. Don’t feel you have to give in. Stand firm for your existing customers and leverage them when appropriate.

You can use this strategy also when dealing with Daily Deal coupon buyers who want more than they bought. You have negotiated a deal with an online coupon marketing company and you should stick to the deal. In a recent article Groupon Nightmares by Sarah Jacobson Purewal for Entrepreneur, she cites the case of Sound Roots, a music school in Oregon. When numerous people called to try to bend the rules and get more than the value of the LivingSocial coupon, owner Fara Heath, told her manager to say, “This is a very good deal, and take it for what it’s worth.”

It’s common wisdom that what people want is a solution. There is even a school of sales training and many books around the concept of “solution selling”.

I disagree. Not everyone wants a solution, i.e. something solved.

Your best customer wants something specific to happen when they use your product or service.

Sometimes they want and need something else. Not everything is a “problem” for a customer; sometimes, it’s a “gap” that needs to be filled. I talk to my clients about “gaps” not “problems”.

I referred to these five valued outcomes in my “Best Practices in Pricing” session at ProductCamp Austin. (My slides from the session are on Slideshare .)

In my 30 years experience, there are actually six different results a customer values. The one to stress as a benefit and to base your product or services features depends on the Platinum Customer Profile™ of your best customers.

Your Platinum customer may want:

1. Something solved.
2. A problem reduced.
3. A way to maintain the status quo.
4. A potential problem prevented.
5. An issue eliminated.
6. An opportunity created.

I call this Situational Outcomes™ because it puts the emphasis on the right thing: results from the customer’s point of view..

Your product or service should do that. Your benefits and features presented in your collateral and website should reflect that. Your pricing should reflect the value the customer gets — is it high value, low value, moderate?.

TAKE AWAY: Before you offer to “solve” something, make sure you are really giving them what they want and value. The outcome they need may be different than you imagined. Just saying you have a solution is too simplistic and second guesses your client — never a good idea.

How do you determine what they want?  You ask. You listen intently to what they say. You respond accordingly with a product or service that can do this.

On my "Worth Reading" list.

Asking can be tough. One resource to give you ideas on good questions for all kinds of situations is Smart Questions by Dorothy Leeds (lots of examples)  and  Smart Questions by Gerald Nadler (process focus). You will find them both in my “Worth Reading” section of my blog along with other books I recommend.

I will be doing a webinar on pricing for the Business Bank of Texas on February 10 at 10am that will deal with this in more detail. On February 11 at noon,  I will do a pricing session for Tech Ranch. On March 8 at 2:00pm at Chase Bank (Northcross & Burnet Road), I will do a free RISE Austin session on the topic and be providing a Pricing Glossary &  Concepts sheet with over 50 top terms. If you would like a copy of this, please send me an email (triplett@bscusa.com).

This is a good update of the earlier book which I also like a lot.

Another book I recommend is by Thomas Nagle, the Strategy & Tactics of Pricing. It has inspired me for many years in its earlier version by Nagle and Reed Holden. This is another of my “Worth Reading” books.

Finally, when pricing make sure it does not violate laws including the Deceptive Trade Practices Act  of the Business and Commerce Code and Clayton Act (Robinson-Patman Act amendment).

What does your best customer want? Does your experience match mine that they are looking for more than just a solution? I would be interested in your opinions. Do you have books that inspire and help you formulate questions or give you pricing ideas?

Price right & reap your reward. Cartoon by Roger Stewart, Porthole Productions

Although the session has sold out, there is a waiting list. I encourage you to get on it. For more information on Austin Product Camp, go to http://productcampaustin.org. For information on my session on Pricing and the 39 other great sessions, go to http://bit.ly/e6chc0.

If  you can’t come or can’t wait, I thought I would provide some things to think about to sharpen your pricing skills. At least this will get people to reconsider their pricing strategy — hopefully they have one.

3 Wrong Ways to Price

1. Blindly following the pricing of your competitors – they may or may not be right or right for you.
2. Not knowing your “true total costs” before you price.
3. Not including profit, contingency & hassle-factor in your price structure.

3 Right Ways to Price

1. Match price to preferred positioning.
2. Choose a price that does not exceed “flinch point” of your desired Platinum Profile customer. (See my earlier post on Platinum Profile customers at http://bit.ly/arxFwB
3. Use value- based pricing rather than just cost-based pricing.

If I do the presentation, I will be talking more about best practices that I use and giving some examples of pricing problems I have addressed with clients. It is a Town Hall session so I will also be asking for attendees examples, questions and best practices. My goal is for us to learn from each other. I hope you’ll be there to share your experiences.

Do you have pricing issues, questions or examples of good or bad pricing practices?  I want to hear from you. You don’t have to wait until Saturday.

If you are going to ProductCamp, I hope you’ll vote for my session. I really want to hear what experiences others have with pricing.

I love Upper Crust Bakery on Burnet Road in Austin. Great birthday cakes, eclairs and great service. They always know what I want and make me feel special. A few weeks ago, one of their terrific staff told me I was a great customer. Wow!

That got me thinking. What can customers do to give great “business service”? This would help businesses have better sales and create more Platinum Customers™. It’s just what our economy needs: all of us to play a positive role and take responsibility.

It takes time and effort but there’s a huge payback for everyone. You can be that Platinum Customer™.  Are you up to the challenge?

1. Be open with me. I am not the enemy. I won’t use the information to jerk you around. I view sales as an offer to a friend. The offer is that I have something that might prove to be a good opportunity for you. Tell me what I need to know so I can make you the best offer I can. That means BUDGET and timeline, too.
2. Be respectful of my time. Things happen; you have changes in your life and business. Respect me enough to let me know as far in advance as you can. Let me know that you can’t come, will be late, aren’t prepared, etc.
3. Don’t expect it tomorrow. If you want it tomorrow, give me what I need to do it right long enough in advance. If you can’t, understand why it costs more or it might need “tweaking” when there is more time. But more than that, I have put you ahead of other priorities so a “thank you” would be nice.
4. Tell me first if you are dissatisfied. You are my quality control. I value that highly. If you must tweet about it or tell your friends, give me the opportunity to address the problem first. This is a relationship not a war. My job is to truly listen and hear what you say; then act.
5. If you just want a price, don’t call me. Go to the web. My value to you as an independent business owner comes from my total solution and my experience in helping others successfully achieve their goals. Please remember that my price has to cover: wages, taxes that support our community, my overhead costs, reasonable profit to get through hard times, and contingency funds in case something goes wrong or you don’t or can’t pay. It’s not just about what it costs me out of pocket.
6. Fulfill your obligations. I expect my Platinum Customer™ to put in some effort because after all it’s their money and their business. Work with me to make my solution work for you.
7. If you come to me for advice, don’t brag about how much you know about the topic or try to prove I’m wrong.
8. Don’t use your cell phone if you are talking to me or use it quickly and get back to business. My time is valuable, too.
9. Ask me first. If you need something that I might be able to provide, see if I can. You are under no obligation to buy but I’ve invested time with you, so give me an opportunity to serve you.
10. Make referrals without my asking you to but know whom to refer to me. I chose you as my client but I don’t choose everyone. What I have to offer is not right for everyone. I appreciate the referral but please don’t give your sister who is hard to work with.

What do you do to help provide great “business service”?

If you are a business owner and want to know how to identify Platinum Customers™, read my suggestions about how to create aPlatinum Customer Profile ™and see my slide presentation that I have given for several organizations.

Proud to be green. Here’s my paperless slide presentation, “Does Your Business Need Glasses”,  from RISE Austin 2010 on a better way to get better sales by using niche marketing aimed at a platinum customer. It makes positioning, pricing, and sales procedures more approachable for independent businesses.

It also includes details on the Business Success Center’s sales process that customers go through: from their decision to look for something to meet their needs and desires to the point they buy and then rejoice or experience buyer’s remorse.

Small business owners and entrepreneurs will want to follow the prioritized action items  in order will help avoid mistakes and expand sales opportunities. This is primarily of value to those already in business although it has ideas that startups can incorporate.

Using these ideas result in better sales and lower costs. Collateral is more effective and the sales cycle is shorter.