June 2009        •       www.visionsmc.com       •        410-849-8095   

 Editor's Note

I've started a new blog as a place to capture ideas that don't fit into this newsletter. In an entry entitled, "Discomfort Leads to Better Decisions," I wrote about how the diversity of a group can help the group use more critical thinking and rely less on assumptions, eventually coming to better conclusions.

When the car I was driving, a Volvo wagon, was recently totaled (with no one being hurt, thank you), my husband and I did not assume it had to be replaced with a comparable car. Thanks heavens! I now drive a Mini Cooper, and I love it. Not assuming we had to have a certain type of car allowed us to turn lemons into lemonade, and I'm actually grateful that wagon was totaled. I now get better gas mileage, pay less in insurance, and have a lot more fun driving.

In the last newsletter article, we explored how to develop breakthrough value propositions with out of the box thinking. In this article, we're going to explore how to think out of the box by not relying on assumptions.

Molly Hughes Wilmer   

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 Feature

We All Know What Assuming Can Do

Developing a breakthrough value proposition requires thinking differently than your competition. It requires solving your customer's pain points in ways that your competition hasn't yet identified. One way to do this is to question the assumptions that your business is based upon.

There are two key ways to rely less on assumptions. The first is to be able to identify assumptions. Anyone who has studied philosophy and logic will be familiar with the breakdown of assumptive thinking, but a full understanding of that isn't necessary here.

Another way to rely less on assumptions is to recognize when we are facing a choice. This is an approach that is used by many dependency recovery programs in helping people identify crossroads. However, we can all use some basic self-awareness to understand when we or our companies are at an intersection or traveling down a one-way road.

One of the easiest places to break down assumptions is in the business model of most companies and industries. The "business model breakers" that result are essential components of absolutely phenomenal value propositions. Here are several examples (some of whom, I'm proud to say, have been or are clients of mine):

• Furniture companies are known for their long lead times. Many customers mistakenly assume this is production time. However, for most companies, the time is consumed in delivery—centralized manufacturing and decentralized delivery leads furniture companies to delay sending a shipment across country, or even across state, until they have a full truck load of furniture, known in the trucking industry as TL. And, they usually want to send as large a truck as possible to reduce shipping costs per piece, which meant even more delays. Over a decade ago, one furniture company decided that they wanted to accelerate shipping, improve client satisfaction, and decrease inventories in the distribution chain, speeding up their return on investment and improving their cash flow. They decided to ship their furniture on trucks with a mixed load of freight, know as LTL. For both retail stores and end consumers, this quicker delivery gave the manufacturer a decisive edge, while reaping better profits at the same time. This method of shipping is still not the norm for the furniture industry—still giving an edge to those companies "innovative" enough to try this after more than ten years of success!
• A much newer furniture company, Russell & Mackenna, has brought timely customization to an industry (still) known for long lead times. For Russell & Mackenna, customization doesn't simply mean finish color or fabric choice—it can be different finials, headboard, drawer styles or more—multiple options on the same piece of furniture. New to the furniture industry, the founders of Russell & Mackenna weren't hampered by assumptions, and took what they could from other companies, but not everything. They developed their design, manufacturing and finishing process around their end goal, rather than tailoring their offering around their process. Their very distinctive designs, which already set them apart, are further differentiated by the customer's ability to personalize each piece of furniture.
• Equestrian Services offers a full complement of specialized equestrian feasibility, planning, design, programming and management services. When they were getting started, Equestrian Services felt they had to tie their pricing to the construction industry standard—cost plus—since they were working with contractors to build what they designed. Therefore, their fees were tied to the price of the facilities that were built, rather than to the intellectual ideas they were bringing to the table. Eventually, they switched to fees based more on consultancy models—fees that were tied to the intellectual business value of their services. This model allowed Equestrian Services to charge higher fees, to be perceived as a more sophisticated vendor, and to be perceived as the client's partner in bringing value to the project. This model gives Equestrian Services an incentive to find project cost savings, and gives them the stature to advise their clients on the best equestrian program and business plan for their project. Their business has taken off as they have taken the intellectual lead in providing equestrian services, and clients know that they are getting expert advice on all aspects of their project.
• A Maryland law firm is led by two very entrepreneurial partners who enjoy working for companies that understand the value of proactive legal advice. These partners have savvy business mindsets that have been of great value to their clients in structuring business deals, relationships and offerings. However, the firm had been stifled somewhat by the traditional hourly billing practices of the legal profession. The firm is staying within the ethical bounds of their profession, but expanding their business consultation services using set fees and offering ancillary business services through outsourced professionals. The firm will be able to capture a higher percentage of traditional corporate legal work and be seen as an advocate for their client's best interests, while developing more collaborative relationships and realize more profit through their set fees.
• The traditional consumer retail model has very high overhead expenses. Centralized manufacturing with resellers in the middle of the distribution chain eat up a lot of cost. Resellers are segmented by geographic region and/or type of retail outlet—i.e. grocery stores, convenience store, and drug stores. Each reseller has individual warehousing, transportation, logistics, personnel, and other overhead costs. Each retailer has rent, utilities, staff, insurance, and additional overhead costs. Tack on national sales and advertising campaigns, shelf promotions, in-store and point-of-purchase displays, end cap spiffs, eye-level up-charges, and it's easy to see where the difference between the manufacturing cost and the retail price is spent. Network marketing puts this retail model on its head by eliminating all costs other than manufacturing and packaging. A much greater percent of the difference between retail price and manufacturing cost is profit, allowing more people to make money off each individual sale, and people to shop from people they trust—their network.

Whatever your business model, there is probably an assumption you can turn on its head to give you an edge.

What Can I Do? How can you identify the assumptions in your business model? Where do you really have choices about how to do business? Start by identifying some of the "golden rules" of your business. Are these really things that can't be tampered with? Which of your industry's business practices set up barriers with your clients/customers? Does hourly billing make your customers reluctant to call you? Do billing practices give you a disincentive to find project cost savings? Do you have to cross-sell them when they call to ask for help? Do you have an incentive to offer your clients your very best ideas that might help them make millions of dollars? What is the biggest pain point in your client's relationships with you and your competition? Are scope changes painful? Is your process more technical than most customers can easily understand? What is the most profitable business model in your industry? What can you adopt from them?

Ask the Expert Question How can I say I'm in a certain industry if I don't do business the way everyone else does? Answer Isn't the goal of a value proposition to set yourself apart? Great value propositions often need education. Doing business differently than everyone else is a good thing if you are doing it for the right reason—because it's better for your client. Eventually, you may find that you are starting a new subset of your industry which eventually transforms the industry or stays as a niche offering. Either way, don't be afraid to be different. The value is in the difference. Submit your questions to the editor: molly@visionsmc.com

 Want to Know More?

Check out the new blog Visionary Thinking. Mostly marketing and a bit less structured than the newsletter, it offers additional insights on navigating the marketing world.

© Molly Hughes Wilmer, Vision Strategic Marketing & Communications, 2009. All rights reserved.

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