Want Brand Extension? Create New Products

from this past weekend’s edition of the Wall Street Journal

When it comes to brand extension, conventional wisdom states “don’t overextend.” Which is even more a maxim with startup companies. Coming out of the gate with too many product identities makes your business look unfocused and like it’s trying to hard to be a “me too!” company.

The problem with the don’t-overextend mind-set is that executives can easily fall into the trap of inbreeding: overwhelming customers with narrowly different new features and calling these items “new brands.” Paradoxically, in an attempt to not overextend the product line, managers do exactly that leading to “feature glut” and reduced usability for consumers.

Get a new perspective–
OLD THINKING: Product managers often limit their imaginations by trying to improve their goods incrementally, daring only to add new features that supplement the original product purpose.
WHAT YOU MISS: By cross-breeding, you can take completely dissimilar products and combine them in ways that inspire wholly new functions.
RESULTS: A shoe-and-iPod combination from Apple and Nike, for instance. This shoe enhances athlete training by turning the iPod into a step and pace counter as well as an entertainment source.

So, look at products in terms of their external attributes and how they are used. How well would your product play with others?

That’s Just How We Do It Here

Let me be clear. In business, I’m all for brand consistency so that your customers understand exactly who you are and what you do.

However,

Valuing Your "Free" Customers

Businesspeople understand that not all customers are created equal—the 80-20 rule suggests that over time a small percentage of a company’s customer base can generate a high percentage of its sales and profit. Models for calculating customer lifetime value (CLV) are built on just such a premise.

However, new research is starting to look at customers whose value is not as readily apparent and where CLV calculations break down. In a recent working paper, Harvard Business School professor Sunil Gupta calls them “free” customers—think of buyers at an auction. Traditionally, auction houses make most of their profit from fees paid by sellers; buyers don’t pay fees. So although buyers are a necessary ingredient to the deal—no buyers, no sellers—their value is more difficult to quantify. To the auction house, is one buyer worth four sellers? Is one buyer worth one seller? That answer is critical for the auction house, which must determine how to allocate marketing and other expenditures between buyers and sellers to attract new business.

Now consider a firm such as eBay that has two sets of customers—buyers and sellers. EBay generates almost all its profits from sellers through commissions and listing fees. Buyers do not provide any direct profit to the firm. However, without buyers, the firm would have no sellers and vice versa. This kind of situation, which is called a two-sided market, is common in many industries such as real estate and employment services. A traditional model of CLV will not be able to estimate the worth of a buyer. And, how about “indirect network effects” where more buyers potentially attract more sellers and vice versa?

Customer value changes over time. As a business owner you have to know that, in general, each individual customer value initially increases as the company grows and then later declines when the firm reaches a critical mass or maturity. And, you have to know that it is quite possible that some customers have low tangible value (i.e. they don’t buy anything), but high intangible value (i.e. they promote your company/ talk about your products to others in a positive way/ use their influence to encourage others to buy). Traditional models would label such customers as low value and would miss a huge opportunity for a firm.

THOUGHT FOR THE DAY Thursday

“Fairy tales do not tell children that dragons exist. Children already know dragons exist. Fairy tales tell children that dragons can be killed.”
G.K. Chesterton

Today, go forth and slay yours…

Problems or Opportunities?

It’s all in how you look at it. A typical day… you start out fresh, energized and focused on what you want to accomplish. Then, you get the impromptu request from a staff member to speak with you. Next comes the sit-down with your company’s other leadership team members. Then, the irate customer, the broken shipment, and the failed computer system. In short, problems.

Why can’t the everything flow like it’s supposed to? Why can’t everyone just do their job and get along? Is your first response that your defense mechanisms go off with a “what the #@&! is wrong with you people?!!??” Or, do you welcome these scenarios as an opportunity to stretch yourself and shine?

Relax. Merriam-Webster defines “problem” as an inquiry for consideration. A problem is merely a question awaiting a solution. Tricky part is being able to handle yourself while answering it and most of us are not equipped with a proven problem solving process. Get one… fast.

Networking Not Working? Here’s a Clue… It’s YOU!

I have two networking events to attend tonight, so I thought this subject quite relevant today.

from Jeffrey Gitomer and his AMAZING book, “Little Black Book of Connections”

11.5 Steps to Win Prospects and Contacts at a Networking Event:

1. Target the people you want to meet
2. Talk to them (wow! I actually have to write this!)
3. Get information from them that pertains to you
4. Get them interested in what you do
5. Categorize them (mentally) on the back of their biz card as soon as you get it– A. wants my product B. knows someone who may want my product C. valuable contact D. professional contact E. useless contact
6. Qualify the contact (if they’re a candidate to buy, are they likely to buy?)
7. Establish more rapport and find some common ground (make nice)
8. Remember the information they’ve given you (write it on the back of their card as soon as you finish the conversation)
9. Make the next appointment to meet (i.e. “We should get together and have a coffee some time.”
10. Write the commitment made on the back of YOUR card– the one you hand to the prospect. (write it also on the back of their card you keep)
11. (this is key!!!!) MOVE ON to the next person (no, you haven’t made a best friend for life and most sales people blow a sale by just being “there” too much)
11.5 Follow up in less than twenty-four hours after the event to confirm the next meeting

The BRILLIANCE of DUMB Ideas

It isn’t the Idea… It’s the Execution. Winning companies put together winning business systems around usually unoriginal ideas.

The hard work of marketing lies not in developing a ground-breaking, earth-shattering, jaw-dropping campaign, but in coordinating the efforts of R&D, manufacturing, finance, communications, and sales. Do this right the first time, and you’ve created a team that knows how to compete and win new business and new customers over and over again every time.

Getting the Upper Hand: Leverage

Startup Funding– A How-To Guide

Getting a startup funded isn’t easy. There’s lots of hype, “grip-n’-grin,” and tearing hair out along the way.

You might also think that everyone knows everything about startup funding, but that’s not the case. Recently, someone asked me about the differences between angel and venture financing. With that in mind, I’ve put together a few options for startup funding.

1. CAN YOU BOOTSTRAP IT? SHOULD YOU?: Bootstrapping means you fund the startup on your own. Scrimp, save, and squeeze by on the minimum that you can. The advantage of bootstrapping is simple: you retain control. You’re not diluted (by investors), there are no additional chiefs (read: board of directors, influencers, etc.), you can go at whatever pace you see fit and retain your vision. But, the disadvantage of bootstrapping is a lack of capital (unless you’re rich.) That lack of capital can be a significant constraint. If you can’t afford to keep the business moving forward, you’re in trouble. And first-time bootstrappers frequently under-estimate what things will cost.

2. LOVE MONEY: The money you get from friends and family. If you can get, go for it. The benefit is that it should be easier to get the money (vs. raising from outside sources), and you’ll gain some experience pitching in a friendly environment. The disadvantage is that you run the risk of ruining personal relationships. And, unless your friends and family are wealthy, $20-$25k won’t get you that far.

3. ANGEL FINANCING: Angel and seed financing comes into play before a business has launched its product, or shortly thereafter. It’s the money you need to make it happen out of the gate. Amounts range from $25,000-$1,000,000. Venture capitalists that play in this area will often look at the $250,000+ range, whereas individual investors will be (typically) less. The higher you go, the closer it gets to a Series A (described below), which means more effort and paperwork to close.

4. SERIES A FINANCING: Series A investments can happen at a fairly early stage - just after launch, for example - depending on how long the company has existed beforehand. In most cases, a Series A is used once the company has shown some traction and needs more money to expand. It’s the money that will take you to new heights, massive revenues, cash flow positivity and a huge payday via acquisition (or some other exit.) At least, we hope that’s the case!
Series A financing ranges a great deal (think $2 million to $10 million or more) and Series A typically comes from venture capitalists. At this stage, you’ll want to bring in the strongest partner possible; the VC firm with the most experience in your space, the highest pedigree and the most success stories.

FINAL THOUGHTS–
Be prepared to pitch… A LOT! Don’t get discouraged; you will get better at it.

Get organized. This sounds silly, perhaps, but the more organized and professional you look, the more comfortable investors will feel. This is especially true when it comes to presenting financials. Know your financial models.

Get help. Seek out the advice of mentors, advisers and lawyers. A good lawyer can really help with more complicated deals.

Do your own due diligence. You’re about to get into bed with someone, you might want to check what they have under the covers. Don’t be afraid to ask for references.

Never stop fundraising. I’m definitely not in love with the fundraising process, but there’s no point stopping. Keep building relationships with investors, keep nosing around for opportunities. You never know how markets will shift and opportunities need to be capitalized upon.

The Cycle of Greed

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