We often tell clients that pricing  their products and services is as much art, as it is science.  The delicate balance between pricing based on a company’s costs versus pricing based on markets and the competition is complicated, and it’s extremely important to get it right.  I had three interesting experiences recently that made me realize that it’s also critical to understand how pricing decisions make your customers and clients feel and how that impacts your brand.

I made the plunge and bought a cellular broadband device (a Sprint MiFi  - it’s awesome!) for on-the-road internet access and office internet back-up.  This means I can finally get rid of my dial-up service subscription which I’ve used for internet back-up purposes.  When I called to cancel the service, they offered me progressively better deals to keep the dial-up – to the point where I could have kept the service for less than $2 each month…”forever”!  It’s obvious how difficult the dial-up business must be these days and the progressively reduced pricing made them sound very desperate.  At $2 bucks a month, how long can “forever” really be?

In the second example, I decided to let one of my gym memberships lapse (I need as many trips, to as many gyms as I can get!)  as I was put off by the crazy price increase they slapped on for the upcoming year.  Within two days of the expiration, I received an email offering a membership renewal… at my old rate.  How did this make me feel? …. like good standing members are being duped at renewal time, and that made me pretty angry.  What kind of message does that send about the organization and how it feels about its customers?

The third example is as much about branding, as it is about pricing.  I am a car guy, and a lover of all things Ferrari.  Ferrari is a manufacturer of amazing automobiles that evoke an image and feeling like no other car in the world.  Lately, however, Ferrari has also become a global brand icon, and the famous prancing horse logo has found its way on thousands of products including  baby clothes  , bicycles, Barbie dolls , cigars, legos, and other products… ad nauseum.  Ferrari also has exclusive licensing deals with top clothing manufacturers who create high end and very expensive shoes, shirts, jackets, etc.  I stopped at an outlet mall a few weeks ago and wondered into one of these clothing manufacturer’s stores to find a “bargain bin” of officially licensed Ferrari clothing.  I suppose Ferrari has little control of the pricing and distribution once the product is out in the market, but does a discount bin in an outlet mall full of once-very-expensive branded merchandise make sense for a company that sells $300,000 cars? 

It’s hard enough to come up with a pricing strategy that balances the need to make a profit with what the market will embrace.  When a business is making that critical decision, they also cannot forget about how the customers will feel about the way in which the products and services are priced, and ultimately how that impacts the brand.  It’s more important than you might think.

I am sometimes embarrassed to admit that I have a large bookcase in my office completely filled with nothing but business related books.  I tell myself it’s ok because I consult with companies for a living – but I can’t be sure it doesn’t make me a little too one-dimensional at parties.  A large number of these books are focused on great companies, and the lessons we can learn from them.  Unfortunately, when viewed in retrospect, a lot of these books come to the same conclusions, and many of the companies profiled have fleeting success.

What got me thinking about this was my attendance at an event a few weeks ago where  the authors of two recently published books made presentations and discussed the methodology they used to learn about great companies.  I bought both books (… of course) and have finished one of them – “Driven” (it is really good).  In both presentations, the authors ”gently” trashed Jim Collins’s huge bestselling book “Good to Great” (it is really good too).  Both authors talked about Collins’s flawed performance criteria and the fact that so many of the companies he profiled in the book are now struggling.  Their pointed criticism seemed funny and ironic to me, because I can almost guarantee that the books they just published will appear flawed in a similar way when scrutinized a few years from now. 

Long-term, sustained success for a large publically traded companies is not just difficult, but almost impossible. (Public companies are almost always used in these books, because their performance is measured consistently and it’s readily available).  Markets change - technology changes - management changes - and macro-economic forces impact companies and industries differently over time.  Companies come and go – just look at the history of the Dow Jones Industrial Average over the years.  Of course, the failure rates for private companies is even more dramatic – particularly when you include small businesses. The truth is, sustained business success is just incredibly difficult, and any point-in-time snapshot of today’s great companies is bound to look silly in retrospect.

Can we learn from the currently successful companies? Absolutely.  Are those companies and the lessons learned from them timeless? No way.  Just keep that in mind when reading one of the continuous stream of these books.   

____________________

A little bonus….. Because of the vast number of these books that I have accumulated (and given away) over the years, I have learned the secret to writing a business book focused on great companies. So with my tongue planted firmly in my cheek,  I am about to share the recipe right here on the Pebble Creek Partners’ blog! :

Start with multiple authors – including an academic from a prestigious business school and a seasoned business consultant plus a business journalist from a major newspaper or magazine (someone has to actually write the book).

Using free graduate student talent from the B-school, develop a database of the performance of thousands of companies over the past decade – more if you want to sound really authoritative.  Be sure to select a few unique performance metrics to differentiate your results from all the other formulaic books.

Select the top performing companies and “study” them to determine why they are better than the others. Interviews and visits make things sound much more legitimate. Use “strategy”, “execution”, and “management talent” as this makes for good reading and advice.  Always avoid “a great market”, “favorable economic factors”, “lousy competitors”, and “luck” to explain success.

Develop a list of between 8 and 12 characteristics (the chapters of the book) and expound on them. It always helps to close each chapter with a summary list or two so readers of your book can copy it and pass it around at management meetings to impress their peers.

Come up with a catchy title; get a few quotes for the back cover; and publish.  Then go on a brief book tour to business meetings around the country; trash the prior books; and wait for the checks to roll in.

 …. You’re welcome!!!

Innovation is one of those terms that consultants and business journalists throw around with abandon. It seems to have a magic property that starts revolutionary organizations and transforms mundane companies into market leaders.  There are countless books, seminars, web sites, and advisors holding out the promise of growth and success if companies can become innovative with their products or in their markets. 

Unfortunately, innovation will not lead to business success without focused execution, and a market ready for the new and improved product or service. 

Today, there are countless organizations developing innovative products, processes, and business models, but they languish because of poor planning, a lack of resources, and/or a market not ready, or willing to buy the product or service.   It’s scary to think how many great ideas have been squashed by the economic meltdown we have been experiencing.  The people that put on the seminars may disagree, but great ideas will not ensure commercial success.  It is people, processes, resources, and a willing market - combined with a great idea - that will bring commercial success.

I was reminded of this fact this past weekend while attending the Auburn Cord Duesenberg Festival in Auburn, Indiana.  Errett Lobban “E. L.” Cord was one of the most fascinating industrialists of the 20th century.  He founded the Cord Corporation in 1929 as a holding company for over 150 companies he controlled, including the Auburn Automobile Company, which built the Auburn, Cord and Duesenberg Automobiles.  

Cord’s greatest legacy may be for the brief two year run of the Cord 810/812 in 1936 and 1937.  Today it is considered one of the most beautiful and innovative cars ever built and those that remain are treasured around the world.  It introduced many technical innovations considered commonplace today.  Unfortunately, because of a lack of money and a time constraint to show the car at the 1935 New York Auto Show, the car was rushed into production and suffered numerous mechanical difficulties.  (Classic car restorers have fixed the flaws in most of the remaining  cars and many now run better than when they came out of the factory).  The car was wildly popular with the show-going public and the press, but in the end, a lack of execution and a leery market conspired against the success of the Cord.  Production of the amazing Cord ceased after just 2 years and only about 3,000 were produced.

The lesson: as the economy slowly recovers and businesses get back to innovating, it’s important to not get caught up in all the hype.  In the end, it’s not just innovation that leads to success – it’s great execution and a market that will pay for what you are selling.

My good friends over at the Ephor Group in Houston - Garry Meier and Charles Bedard – recently sent out a newsletter with a great perspective on ”Using Consultants and Advisors“.  They point out that Private Equity groups often use this “operating partner” model to help their portfolio companies - but their points are just as relevant to small to midsized companies. 

In my last blog post, I talked about how the improvement in the economy will present a challenge to companies that have spent the last 12 months rationalizing their headcount in response to declining sales.  As the business comes back, these lean organizations will need to add resources incrementally, or risk eating up all the profits from this new business, at the time they can least afford to.  This is a perfect opportunity for the judicious use of consultants until the business can support full-time employees again.

More important, however, is the need to continue to address issues that plagued many companies before the recession – and still need attention today.  As the Ephor guys point out:

“While not the first thought, especially when a business is cash constrained, outside advice and counsel is often required to combat root-cause issues that are multi-pronged across an organization”.

Most businesses spent the last 12 months in survival mode, but many know that there are still some fundamental issues to address regarding their revenue models, compensations schemes, marketing strategies…. the list goes on.  

Fall is the traditional time of year when companies plan for the next year often through budgeting and strategic planning efforts.  If you are a small to mid-sized business owner, now is the time to spend some time considering how to use proven, experienced, and unbiased assistance through the use of consultants and trusted advisors as the economy – and your business – picks up again.

If you own or run a small business you can surely relate to the character in Greek mythology – Sisyphus.  As a punishment from the gods, Sisyphus was compelled to roll a huge rock up a steep hill - but before he could reach the top of the hill, the rock would always roll back down again, forcing him to begin again.

The last 12 months have been hell for small businesses.   Sales started to drop last fall as it seemed like everyone panicked about the economy at the same time.  Most organizations have been forced to slash costs, including eliminating employees and reducing salaries and benefits for those remaining.  Credit has been hard to come by the past year, and existing relationships with lenders have often been strained.  Growth plans have been shelved and some companies have even changed their business model as they fight to survive.  Compounding the stress has been the talk of higher taxes and benefit costs in the future.  It’s not hard for small business owners to sympathize with our ancient friend.

But wait! don’t go reaching for that DVD version of “The Secret” in order to gin up some positive thoughts. (no… I’m not putting up a link to “The Secret”… you would be better served reading ancient mythology).  If you believe the experts, the worst of the storm is over, and  my un-scientific conversations with small business owners would point to the same conclusion.

If it’s true, it means a whole new set of concerns – and opportunities – for small businesses that have cut staff to the bone and now need to get ready for the rebound.  As I talked about in a prior post, those remaining employees are weary and getting them to work harder as the business picks up again is not an option.  Small business owners need to be as resourceful on the rebound as they were when things were at the worst.

Here are a few of the things we are telling small business clients about the challenges ahead:

• Make sure you are taking care of your existing employees.  If you cut hours, pay, and benefits in the past months to survive - reinstate them before adding any new resources.
• Use consultants initially before adding permanent staff.  You can pay as you go, and get the expertise/horsepower you need quickly.
• Understand how your customers/clients needs are changing - they are going through these same issues.
• Stay focused on what is important to grow the business again.  Some of the projects you ended when cutting back should stay dead. 

Sisyphus was destined to roll that rock up the hill for eternity.  Small business owners have the opportunity to get focused and get out from under it.  Start planning now.

For several days each August, the beautiful seaside town of Monterey in California becomes mecca for those obsessed with everything to do with cars.  The week’s activities include no less than 7 classic car auctions, historic racing at Laguna Seca, and several concours events culminating on Sunday with the incomparable Pebble Beach Concours d’Elegance.  Golfers talk with reverence about their walk up the famed 18th hole at Pebble Beach at the end of a once-in-a-lifetime day of golf.  I will never forget standing on that same fairway a few years ago looking at a line of 20 (!) magnificent pre-war Duesenbergs.

This week’s events in Monterey got me thinking about the similarities and differences between the classic car market and other forms of investing.  The past 5 years saw the collectible car market  going through a bubble, fueled by the same cheap credit that drove the stock market, vc/pe, and real estate bubbles.  Once the credit markets dried up and the recession took hold, the classic car collector market tanked like other investments.  In the last 12 months the average collector car values have plunged 30% – 40%.  

Unlike the real estate market, however, these cars have continued to sell – just at lower prices, and there isn’t six months of inventory waiting to be sold.   Most of the auctions the past year have seen sales dollar volumes drop, but not the number of cars actually selling.  Like all forms of investing, some classes have been hit harder than others, but it seems that car collectors don’t give up their hobby – they just get smarter about their purchases. 

The top of the market is a lot like the current situation in equity investing.  The best cars/companies are still getting top dollar.  At least a dozen cars will sell this week for over $1 million, and some record prices will be eclipsed.  At this level, investors in both the equity and collector car worlds are looking for “no stories” cars/(companies);  those with a unique niche or are one-of-a-kind;  that have a well documented history; and a virtually flawless presentation.  The advice from the experts on buying a collector car is the same I’ve heard from investment bankers…. you can never spend too little for a bad car/(company), and it’s hard to over pay for an excellent example with no stories or questions. 

Perhaps the most important difference between the collector car world and other forms of investing – you can’t take those other investments out for a drive or park them on the 18th fairway at Pebble Beach.

(To keep up with everything related to the Classic Car Market, check out Keith Martin’s Sports Car Market: http://www.sportscarmarket.com/)

My friend Liz Kelly runs a communications consulting business in San Francisco called Brilliant Ink.  Liz and her team do a great job helping organizations communicate more effectively.  She sent out a message from her Twitter account recently that asked:

Yes Liz, they still issue corporate memos.  

The link in her “Tweet” is to an article  that discusses all the reasons that memos are the poster-child for rampant corporate bureaucracy.  It offers some good suggestions for making them better.

I’m sensitive to this issue because I’m a long-time “offender” - I have had to write lots of them in my career.  It’s really a no-win situation.  Employees complain that management does not communicate often enough - yet most of them hate the company-wide meetings, conference calls, and dreaded corporate memos that organizations need to use to get out a timely and consistent message.  

I think most authors have good intentions – they just can’t stop from being long-winded or  sounding condescending.  I always argue against sending out the memos that proclaim something that seems to be common sense  -  like what “business casual” means.  I lose the argument when summer rolls around and employees show up to the office in flip-flops, cut-offs, and tank tops.  Maybe companies need to adopt new technology and send out podcasts to make the message more personal.  Perhaps they could adopt a “Twitter approach”: all corporate memos need to be 140 characters or less.  

We’ll probably always be stuck with corporate memos, so here’s my advice:  if you have to write the memos, use common sense, follow the advice in the article, or call someone like Liz Kelly to help you write them.  If you have to read the memos, don’t be too harsh on the corporate weenie that wrote it – it might be someone like me.

“To do two things at once is to do neither” is a famous quote from Publilius Syrus – a Latin writer who flourished in the 1st century BC.  I was reminded of the folly of multitasking recently, as I narrowly avoided an accident with a car that drifted into my lane on the highway.  I drove past the car and looked over to see a guy fumbling with his Blackberry.  Unfortunately, this seems to happen every day.  Between cell phone conversations, texting, and navigation systems, drivers are spending a lot more time doing these activities instead of the one they got into the car for in the first place – driving !!  A graphic U.K. public service announcement is making it’s way around the globe via the internet and television news outlets warning teens. It’s not in dispute:  there are very real dangers when texting while driving.   

It’s a similar problem that so many of us have at work.  Despite real intentions to get day-to-day tasks accomplished, we get distracted by a myriad of issues.  They often seem important at the moment, but like the texting in the car, these are tasks that could have been done at a different time.  People are proud of their perceived ability to multitask, and new tools like the iPhone and recently introduced Palm Pre are touting their ability to bring multitasking to a simple-to-use mobile device.  Unfortunately, productive multitasking is a myth.  Numerous studies  have proven that multitasking is actually less efficient and less productive.  If you don’t want to read the studies…. you can observe it just by driving around!

A library of books have been written on how to better manage work time, and be more effective.  Everyone has heard the tips for improving effectiveness: take control of the technology; schedule time to read emails and news feeds;  plan more effective meetings; keep lists, etc, etc.  “The Myth of Multitasking” is a great book by Dave Crenshaw that provides a whole host of ideas for getting past our love affair with multitasking.  In fact, if you spend enough time searching the internet, and reading blogs like this, you can be distracted for hours learning how to be more productive.         

With apologies to all the experts, I really don’t think you need a book to figure it out:  Focus on one task at a time.

….. Now get back to work.

I spend a lot of  time in conversations with business executives and professionals.  I’m starting to sense a change coming and I think it’s going to have a big impact on organizations when the economy finally turns around, and finding and keeping talent will be a critical issue again.

I know it’s a generalization, but during the past 25+ years I’ve been working, it seems to me that professionals got out of school and initially went “big company” or “small company”.  Over time, a certain number of people opted out of their initial choice and migrated the towards the other - more often from big companies to smaller ones. It felt like a cascading waterfall of talent into smaller pools – and that was the natural order of things. 

It doesn’t feel like that anymore.

This economic malaise we are in has created so much consternation in the workplace that I’m not sure anyone is happy – and I know they don’t feel safe.  A lot of big company people are telling me that the “loyalty thing” is dead once and for all.  They are tired of the mass layoffs and an impersonal approach to the issues.  They are angry about executive compensation at their firms, and the evaporation of their pensions and 401k plans filled with company stock.  On the other side of the coin, many small company people have had it with the uncertainty of life in an often underfunded company that literally survives on a month to month basis.  Many small companies have cut salaries and eliminated benefits and yet they are still on life support and struggling to survive.  Much like the way my parents’ attitudes were shaped after going through the depression, these experiences will alter behavior for this generation for decades to come. 

So what does it all mean?  Nothing today – it’s still too scary in the job market right now.  But once there is some stability back in the workforce – and there will be eventually -  I think there will be a substantial shuffling of bodies across organizations, industries, and geography.  The old rules of thumb - the safety net and the virtue of resources in big companies, or the benefits of being “a big fish in a small pond” in a smaller organization - will be out the window.  I think people will focus on what makes them happy… am I doing what I want, with people that I like, in a place I want to live? 

If no one can really offer “security” anymore, it has no value - and it eliminates a lot of the reasons people make choices between big companies and small companies in the first place.  I think it will change the way companies attract and retain talent.  That’s probably a good thing.

I’ve spent the better part of the last two weekends working on a project to organize my garage.  I’ve had to repair the walls, build some storage units, and paint.  I would not even pass as a weekend warrior when it comes to home projects, so my tool collection is pretty sparse.  The result: I’ve recently spent more time inside something with a big Lowe’s sign on it than Jimmy Johnson.  Now that I have all the right tools to do the job, all kinds of other distractions have caused my project to be delayed.  Ultimately, I’ve slimmed down my ”ambitious” goals so I can finish it and get the cars back in the garage before the leaves fall!!

The analogy for businesses is too obvious.  Most organizations have made significant investments in facilities, equipment, IT hardware and software, etc.  The bigger issue is the commitment to use them.

Customer Relationship Management (CRM) tools are  a perfect example. Salesforce.com is probably the biggest and best known provider in this space. The company has grown from scratch to $1.1 billion in sales and almost 60,000 customers in less than 10 years.  I’ve used Salesforce.com, and the power of their platform and their tools is incredible. Unfortunately, many organizations that have implemented Salesforce.com and programs just like it, are either not using the capabilities to the fullest, or have essentially abandoned them altogether.

The reasons for this, of course, vary from company to company but there are common threads: 

• No clearly defined strategic or tactical need 
• Poor implementations
• and most important: Lack of ongoing support, training, and “encouragement” (read: requirement) from the organization once implemented

In the end, it always comes down to priorities. A company acquires a shiny new CRM tool and assumes that the staff will figure out how to use it and become more productive.  But do you tell the sales staff to spend time learning how to use the system to the fullest…. or get out and sell?  How many other new systems are these users dealing with?  How many other corporate initiatives and projects suck up their time?

Companies need to have the right tools in order to increase productivity and stay competitive -  but they need to be realistic and ask the right questions before jumping in.  Do we really need this right now? Are we willing to make the commitment to implement it the right way? Will we stick to the plan in the face of all the other projects and priorities floating around the organization?

 As to my garage….. maybe the cars are ok in the driveway until the snow flies.