PETER, LIKE many entrepreneurs, is an optimist. This is a great characteristic when building a business but it should not blind him to realities. Peter should not fall into the trap that this recession will pass soon and the market will be like it was. The reality is the recession will pass but the world, and particularly the commercial world, will be a different place.
For instance, Peter’s three customers that did not reopen after Christmas may never reopen. The “reset” button has been set for all of us. Our house values have been reset, our wages have been reset, and some jobs will never return. Peter, too, must press the reset button on his company. He needs to get back to basics, ie offering “competitively priced IT support”.
His customer services manager is the one who seems to understand the need for this reset action. His idea of outsourcing expertise is a good one. He could of course offer this opportunity to his current staff, giving them an opportunity.
Either way, Peter urgently needs to motivate his staff. These are the people who built the business with him. One of the best ways to motivate staff is to set up an incentives scheme incorporating recognition awards. This is the carrot principle and is basically a tangible pat on the back that works. Staff will respond better to an award well-earned than to cash alone.
Peter also needs to engage better with his customers. If customers are opting out, they obviously see him as dispensable. He says he made his reputation on providing a fast, personal, 24/7 service but his customers don’t seem to understand or appreciate that. He needs them to understand that he is an integral part of their business. One way of achieving this is to speak to a promotional product consultant who will tailor a package to engage his customers and try to ensure their loyalty.
Peter says he is “toying” with the idea of a marketing plan. This should be his number one priority. He needs to create a written marketing plan and a written sales plan (with budgets) making sure they are complementary. The plans should be clear and targeted. A good marketing initiative will make money not cost it.
Peter needs to identify categories of opportunity. This could mean expanding the business beyond the SME sector. He could look at other sectors such as healthcare and education. His own experience of having gained an MBA and having spent time in executive education will give him an immediate understanding of the sector.
Buying an existing business can be a great way of acquiring extra turnover and expertise. This is a buyer’s market and thus the cost of purchase can be spread over time with a clause linking the purchase price with customer loyalty and turnover. Peter’s key to success is to understand what has changed and to modify his company accordingly.
– Bernard Flynn
PETER O’SHEA’S dilemma will be familiar to many SMEs. Growth is gone; customers are cutting back on orders and taking longer to pay; costs have been cut but more cutting is clearly needed; and the next round will really hurt. And yet there’s a firm belief that, if only the company can hang in there for another year, things will improve.
There’s a temptation to put off action, in the hope things will right themselves. O’Shea hasn’t fallen prey to this, having already acted decisively, not once, but twice. And yet, he and his company are far from out of the woods yet.
Surveying customers is an essential first step. It’s cheap and fast, and opens dialogue that may lead to the potential for new business. At the very least, it will tell O’Shea where he and his company stand.
While marketing is a sine qua non, extensive marketing campaigns of the type under consideration may not be the right move. They burn up cash, with no guarantee of increased business. Before spending money on any campaign, O’Shea needs to do some basic market research – in particular, to find out what potential customers want, what they are prepared to pay for it and what will make them leave their current suppliers for O’Shea’s company.
Next, O’Shea is still interested in the two potential acquisitions he had identified before the boom ended. Certainly, he’ll buy them more cheaply now – but what will he be buying? He needs to look at both carefully, for their immediate cash-generating capacity (if any) and their longer-term strategic fit, balancing these two aspects. Then he needs to look at his company’s ability to integrate the acquisitions – how much time does he have to make sure the acquisitions deliver their promised value?
If he proceeds, it’s not just the price of the acquisitions that’s important – the manner of payment of the purchase price is at least as important. But, if he’s realistic about the value they can add, sensible about the price he pays, and can link that price to performance to be delivered by an existing competent management team, he could be onto a long-term winner.
Lastly, should he sacrifice new product development? It’s certainly tempting but the decision should be driven by a number of factors: the customer survey; the contribution new product development is likely to make in the immediate future; and the steps he needs to take to ensure a fair departure for the development team, especially its long-time manager, that will avoid expensive and time-consuming litigation afterwards.
– Patricia Callan
WHILE THE temptation for Peter to survive the recession by increasing marketing spend and acquiring low-cost competitors is quite strong and has some merits, a decision to stabilise the business by creating a solid financial position would be a more prudent approach.
Given the customer base is quite small, a survey may not be the most effective method of generating useful customer feedback. Peter should identify five different types of customers and take each of them out to lunch individually, somewhere near to the customer’s premises. This environment is much more relaxed than dinner in a restaurant or a meeting in their office and the customer is more likely to talk openly about how Peter can improve his service to them.
Peter also needs to sack his product development manager immediately. This person is contributing little and is costing a lot, so the tough decision must be taken and acted upon. The money saved from this person’s salary would make a significant contribution to the purchase of the new technology, which in turn would offer the firm’s customers an additional service option at a lower cost.
The desire to maintain the reputation of the company for providing a fast, personal, 24/7 service is to be welcomed. However, Peter should view positively the opportunity to introduce the new technology that allows the company to service its customer remotely. This technology will enable the company to offer a broader range of service options the customer can select from, within the price range they can best afford. Peter should also explore any additional payment options available to the customer, given the firm already offers preferential terms for early payment.
My final recommendation might be considered somewhat radical. Staff wages have been cut by 5 per cent but given the economic climate and the levels wages are being reduced by in both the private and public sector, Peter should seek an additional 5 per cent cut in pay. This might cause some people to leave but that might also be a way of creating “voluntary” redundancies. To improve staff morale and to demonstrate Peter’s desire to build a strong team spirit, he should offer the remaining staff some equity in the company which would commit people to the long-term viability of the firm and ensure everyone would eventually benefit financially from its success.
– Thomas Cooney
