Rainmaking Secrets

In Islands of Profit in a Sea of Red Ink, Jonathan Byrnes shows 40% of most business is unprofitable. Byrnes argues that before businesses start costly new initiatives they should look at way of extracting more profits from the 40% of customers who lose money.

Byrnes shows you don’t need to engage in costly activity-based costing to discover the roots of most losses. Most of the unprofitable and marginal business can be turned around using a few selective techniques.

We agree we have embraced Byrnes thinking and developed a 7-step process which we call The Customer Pyramid Forensic Analysis Process. Here is an overview.

The Customer Pyramid Forensic Analysis Process:

Step 1: Construct a profitability database using representative sets of transactions.

Step 2: Project the impact of changing your account and product/service mix.

Step 3: Develop a profitability profile for representative groups of customers.

Step 4: Identify the key profit levers that will make the business profitable.

Step 5: Project your findings onto the whole of the business.

Step 6: Create an action plan.

Step 7: Refine the sales strategy and offer that you take goes to the market.

Popularity: 1% [?]

Business is dominated by Pareto. The 80/20 rule has become a management mindset.

However, our research suggests the Pareto mindset is getting in the way of sound business judgement. Even worse, it results in businesses tolerating what should be intolerable levels of unprofitably in their customer base.

Let me explain, when you segment a customer base by fees the Pareto principle invariably holds true 20% of the customers generate 80% of the fees.

Yet, when you analyse profits, Pareto no longer applies.

As Kaplan and Anderson showed in their insightful 2007 book, Time Based Activity Costing.

• The most profitable 20% of customers generate 150-300% of total profits.

• The middle 70% of customers are breakeven

• The least profitable 10% can lose 50-200% of total profits.

In short, business tolerate high levels of unprofitability.

In his book Islands of Profits in a Sea of Red Ink, MIT lecturer Jonathan Byrnes explains why companies tolerate sucj high levels of what he calls “embedded unprofitability.”

Byrnes claims:

• The 20% to 30% of the business that is  superprofitable masks the problem.

• Finance and management control information is not structured to surface the problem or opportunity areas.

• Even if all departments make budget, a company can still be 30-40% unprofitable.

Popularity: 4% [?]

David Burrus is one of the world’s leading forecasters, corporate strategists and visionaries. Over the last decade he has established a reputation based on his exceptional record of predicting the future of technological change.

In his new book, Flash Foresight: How to see the invisible and do the impossible, he shows readers how to understand and take advantage of the accelerating pace of technological transformation.

Burrus reminds us technological change has been driven and accelerated by what he calls the Three Digital Accelerators.

Digital Accelerator 1: Processing Power

Way back in 1965, Gordon Moore observed that the number of transistors on an integrated circuit seems to be doubling about every twenty-four months. His, then tiny, company was called Intel and his observation came to be known as Moore’s Law.

Moore’s Law says computer processing power doubles every eighteen months.

Digital Accelerator 2: Bandwidth

The second digital accelerator is the growth of bandwidth - that is the amount of information that can travel over a given bandwidth.

Burrus tells us, “Digital bandwidth increases at an even faster rate than the accelerated growth of digital processing power.”

Today, bandwidth is superfast - and it is continuing to accelerate.

Digital Accelerator 3: Storage

Yet, as processing power and bandwidth climb at ever increasing rates, it’s the increase in our tools capacity to store all the information from that increasing processing and bandwidth is going through an even steeper, more dramatically escalating curve.

Today data storage is virtually unlimited - and so cheap it’s virtually free.

How will these three digital accelerators impact on your business? Will they make your current business model obsolete?

If you want to make sense of how technology is transforming the business world, read Daniel Burrus’Flash Foresight: How to see the invisible and do the impossible (Harper Collins, 2011).

Popularity: 4% [?]

Western companies struggle to cope with contradictions. Our language is typically bipolar: right and wrong, true and false, black and white.

By contrast, Eastern cultures see opposites not as contradictions but as complementary. Edward de Bono talks about a Western stone culture and an Eastern water culture. Physician Barry Johnson talks about similar issues in his book ‘Polarity Management‘.

Hermann Simon, in his book Hidden Champions of the 21^st Century talks about how hidden champion Gore, the world leader in Teflon based products has included specific polarities in its company’s philosophy.

The principle of freedom allows each employee to do what he or she considers is right. This freedom has limits. It is restricted by the “waterline” principle.

As soon as a decision could hit the corporate ship below the waterline, a colleague must be consulted to share the responsibility.

As Simon puts it, “while the freedom principle encourages all employees to make use of their full potential, the waterline principle is intended to guarantee that the company does not suffer any serious damage.”

Profound advice!

Popularity: 10% [?]

“Those who continue to live by the sword will get killed by a guy with a gun,” says William Watkins, chief executive of Seagate.

Watkins manages a $11.4 billion disk-drive industry which is commoditizing at breakneck speeds. Seagate has no choice. It has to change or face oblivion. Just recently Seagate lost Apple’s iPod business to flash competitors in 2006.

Watkins can see the writing on the wall. Consumers don’t give a damn where their storage comes from - flash or a disk drive.

Seagate is now producing new look backup drives packaged in sleek aluminum cases called Free Agents. These spunky new Free Agent drives come with up to 750 gigabytes– big enough to store 200 movies.

Will Seagate transform itself into a content solution company?

Will Seagate’s die-hard scientists and suits be prepared to make a seismic shift in their thinking?

Popularity: 4% [?]

This is the title of Kevin Clancy and Peter Krieg’s latest book.

The subtitle “How disciplined fact -based marketing can drive extraordinary growth and profits” says it all.

Clancy and Krieg paint a compelling case for treating marketing as a science. The authors show case-study after case-study that instinctive gut-based marketing more often than not leads to dumb decisions. No wonder most CMO’s hold onto their jobs for just 23 months.

All professional marketers should own this book.

My only reservation is most of the examples apply to consumer goods and brands rather than services.

Popularity: 4% [?]

Dominic Dodd and Ken Favaro in their book The Three Tensions tell us about the daily pressure managers have to produce short-term earnings. To meet short-term targets some 81% of managers surveyed said;

“they would cut back on R&D, marketing or IT if necessary to meet a short-term earnings goal.”

More frighteningly;

“77% said they would often, or sometimes delay a project to meet a short-term earnings goal, even if the project would be profitable.”

Dodd and Favaro show the excuse most mangers offer for focusing on the short-term - that capital markets are biased towards short-term earnings - is largely a myth.

Managers create their own problems by projecting unrealistic short-term targets. They would be better off setting realistic goals based on sustainable earnings.

The trick is;

“to manage the long term by managing how the short-term is produced.”

Popularity: 4% [?]

Read this extract from the introduction of a must-read new book The Three Tensions by Dominic Dodd and Ken Favaro.

“A manager argued that he could either increase his business unit’s margins or its sales, but not both.

His chief executive reminded him of the time when people lived in mud huts and faced the start choice between light and heat: punch a hole in the side of your hut and let the daylight in, but also the cold; block up all the openings and you stay warm, but sit in the darkness.

The invention of glass made it possible to overcome the dilemma — to let in the light, but not the cold.

How then, he asked the sales manager, will you resolve your dilemma between no sales growth and no margin improvement?

Where is the glass?”

The challenge for marketers is not to become more profitable or to find new sources of revenue. The challenge is how to do both at the same time.

Popularity: 5% [?]