Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Trade shows are for building relationships

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Given that we are embarking on the trade show season, I thought this would be a timely post. Last November, I was asked at a regional nursery meeting “Are trade shows still a viable marketing tool?” As a good economist, I answered the question “It depends.” If you are seeking to generate large amounts of sales leads from going to a trade show, then the answer is no. Let me explain.

The nature of trade shows has changed dramatically over time. It used to be folks went to trade shows to book sales and to generate leads. Not anymore. Today, trade shows now are business marketing opportunities. They are a place to close hot leads and meet prospective buyers you’ve had contact with but haven’t met face-to-face. They’re a place to set yourself apart, to market yourselves as industry leaders, and to reward your best customers.

The main reason to attend a trade show is build better relationships with existing, major customers and ready-to-close hot prospects. And to make this happen, you need to rethink the way that you spend on trade shows. If you’re buying into the “lead generation” myth, you’ll buy a big booth and man it with plenty of marketing staff, and then wait for the leads to roll in. Wrong, wrong, wrong! There are plenty of more cost-effective, efficient and more accurate methods of generating leads.

Instead, consider putting the bulk of your trade show spending into footing the bill to send (extremely hot and near to closing) prospects and your best existing customers to the show. Limit your own personnel to your top guns and the reps handling those key prospective accounts.

Let me sum up. Trade shows are NOT the most effective mechanism for generating leads. They are, however very good tools for building relationships with existing customers. Remember, nothing beats eyeball-to-eyeball marketing. Nothing. Keep focusing on that, and you may be able to get a positive ROI out of the trade show season.

Recessionary Planning For Small Businesses

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This short piece is from the “Industry Buzz” section of Lawn & Landscape’s December issue. A little longer than normal posts but worth it!

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If you’re a small business owner, your list of worries seems never-ending. For starters, consumer confidence is down and your sales are starting to reflect that reality. And as experts predict a deep recession, it’s doubtful things will start looking up anytime soon. Yes, you’ve been wringing your hands and obsessing over the financial news for months, while simultaneously scrambling to keep your customers happy and your business strong. But action is the best antidote for agonizing, says Ed Hess—and now is the perfect time to create a recession contingency plan that will help you guide your business through any future rough patches.

“Too often, when the economy goes south, a small business owner is paralyzed by anxiety and isn’t able to act quickly enough to save his or her company,” says Hess, Professor of Business Administration and Batten Executive-in-Residence at the Darden School of Business at the University of Virginia and coauthor (with Charles Goetz) of So, You Want to Start a Business? 8 Steps to Take Before Making the Leap. “Having a well conceived contingency plan in place gives you peace of mind when trouble hits and enables you to act quickly.”

For small business owners, Hess says, contingency planning is one of the best and most effective preventive actions you can take in a down economy. “Contingency planning will allow you to make the best possible decisions for your business if things continue to get worse before they get better,” says Hess. “Even if you are an eternal optimist—after all, many of us entrepreneurs are—you’ll be wise to have a contingency plan in place if, say, one of your biggest clients succumbs to the bad economy, or if you have to face the difficult decision of whether or not to lay off an employee.”

If you’re unsure where to start when it comes to crafting your contingency plan, Hess explains the critical elements you’ll want to include:

A People Plan. For small business owners, employees are often like family. That means the most difficult decisions you’ll have to make will probably pertain to them. That said, it’s important that you remain objective when creating the “People” section of your contingency plan:

  1. What people assets are critical for you to keep? Why?
  2. Who can “afford” a salary cut?
  3. Who could undertake more responsibility?
  4. Who are your definite keepers?
  5. If you had to cut 10 percent of your workforce, what would your severance policy be?
  6. How would you treat departing people so as to engender trust, respect, and loyalty of those remaining?
  7. How would you implement a people “cut”?

“By answering these questions truthfully and thoroughly, it will be much easier for you to make decisions concerning what to do with your workforce during the slow economy,” says Hess. “Sometimes cutting back on your workforce, at least temporarily, is a necessary evil. Knowing that when you do so you are simply following a plan will help you manage some of the guilt that will come if you have to let someone go or reduce employee pay.”

A Key Customer Plan. It’s likely that your customers are feeling just as much anxiety as you are right now, so it’s best to handle them with kid gloves. Fail to do so and you risk damaging a relationship that will not only help get you through these hard times but which could prove very profitable when things pick back up. Here are a few things to consider when developing the customer section of your contingency plan:

  1. Who are your most profitable customers?
  2. Who are the most loyal?
  3. Who must you keep long-term at all costs?
  4. How is the downturn affecting each of your customers?
  5. How can you get closer to them?
  6. Which customers have pressures of their own that will force them to ask you to cut prices? And how should you respond? Should you extend credit, put them on an agreed-upon payment plan, etc.?
  7. What can you do to attract new customers?

“You and your customers are in the same boat,” says Hess. “They face the same struggles as you. In your dealings with them, it’s important that you strike a safe balance between managing their best interests and managing your own. The contingency plan will help you do that and help you make decisions that will allow you to strengthen your customer relationships now. When things pick back up, your customers will remember the way you treated them and will want to do even more business with you.”

A Cost-Cutting Plan. When deciding where you could cut expenses, it’s important to consider what you could do to cut costs immediately by 10-15 percent. You should also go through your expenses line by line and consider which expenses are not necessary for your survival. Be sure to involve your employees when creating this section of the plan. Because they are on the front lines every day, they may have a better idea of what can be cut. For example, maybe they’ve noticed that you have an incoming paper supply that could be reduced. You should also include in your plan what to do if the amount you pay to lease office or warehouse space becomes unmanageable.

“Naturally the decision to cut certain expenses will be easier to make than others,” says Hess. “Just remember that now is the time to get back to the basics. You don’t need lots of bells and whistles to run a successful business, and taking a look at your expenses will help you separate the necessities from the frills.”

A Cash Flow Plan. Cash flow is key to running any small business, and managing yours is never more important than in a tough economic period. That’s why you should include cash flow management in your contingency plan. There are two specific groups to consider: your customers and your vendors. First, think about how you can get delinquent customers to pay up. Talk with your customers and help them set up a payment plan with you so that you know you will be getting paid when you need it most. Also, consider giving a discount to those customers who agree to pay in cash. You should also think about how you can defer your cash outflows such as payments to vendors. Ask if you can go to a 60- or 90-day payment cycle.

“Keeping up a healthy cash flow is vital during a slow economy,” says Hess. “You might have to have tough conversations with customers who need to pay up or a vendor who you’d like to defer a payment to, but if these conversations help you keep cash in your business when you need it most, they will be worth it.”

A Financial Safety Net Plan. So what do you do when all of your customers have paid up and you’ve extended your payments to vendors, and you are still having cash flow problems? Quite simply, you consider more drastic ways of putting cash into your business. It’s time to fall back on the financial safety net that you’ve created for your company. What will your safety net be? Will you draw on your home equity? Stop taking a salary? Ask friends or family for a cash infusion? Sell off some of the company’s assets? Reduce employee salaries? Apply for a small business loan?

“You don’t want to be making these decisions when you are already in desperate need of cash,” says Hess. “While you are still in good shape, plan out the first three ways you could immediately increase your cash flow. And do everything to ensure that you are protecting your credit so that if you do need a small business loan you can get o
ne. Make certain to pay your bills on time. Don’t let anything fall through the cracks. If you are having trouble making a payment, let the company or bank know why. If there is a dispute on a payment, get something in writing that says you aren’t to blame. Being turned in to a collection agency will tank your credit score. You absolutely can’t risk it.”

An Exit Plan. There are some situations you simply can’t plan for. You can’t know for sure how your industry will be affected by the down economy. It’s possible that no matter what you do the slow economy will make it too difficult for you to keep your doors open or too difficult for you to navigate on your own.

“The exit plan is the hardest for any small business owner to put together,” says Hess. “No entrepreneur wants to give up on a venture, but sometimes you have to face reality. So, think about what lengths you are willing to go to in order to keep your doors open. If you are open to taking on a partner, what kind of person is going to add the necessary skills to the business to help you keep the doors open? Or if you decide to sell the business, would you want to stay on and keep working for the company or would you want to go your separate ways?

“Of course, keep in mind how long these transitions will take to make,” he adds. “As a small business owner you naturally have a strong attachment to your business. When you put so much blood, sweat, and tears into your business, it can be difficult to pull the plug at the right time. If you decide what your exit strategy will be before you are experiencing serious problems, you can take your emotions out of the decision-making process and come up with a clear-headed solution that protects your best interests.”

Creating a contingency plan will help you minimize the risk of any surprises that pop up—and they will!—during a slow economy. But keep in mind there are some basic things that you absolutely can’t lose focus on during a recession.

“You should be aggressively going after new customers, marketing your business nonstop, and giving your customers world-class service,” says Hess. “Yes, these are trying times for small business owners, but the obstacles are not insurmountable. With the right plan in place, you can create strong, long-lasting relationships with your customers and a business that can weather any storm.”

About the Authors:
Ed Hess lives in Charlottesville, Va., and spent most of his business life advising entrepreneurs and financing their business ventures. His professional career was spent with firms like Atlantic Richfield Company, Warburg Paribus Becker, Boettcher and Company, The Robert M. Bass Group, and Andersen Corporate Finance, and he has built three service businesses. In 2007, Hess joined the Faculty of the Darden School of Business at the University of Virginia as a Professor of Business Administration and Batten Executive-in-Residence where he teaches courses on building small businesses and organic growth.

Charlie Goetz earned his college degree at Emory University and holds an MBA from the University of Texas. He built several successful businesses, which in total employed over 1,500 people. He sold most of his businesses and made substantial amounts of money their sales. Goetz then began teaching entrepreneurship at Emory University in the Goizueta Business School. He lives in Atlanta, Ga., and is an investor in several new businesses and consults with people starting businesses.

Michael Porter on Charlie Rose

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Michael Porter’s talk with Charlie Rose on the U.S. economy is getting a lot of buzz online right now. In the 25-minute interview, Porter restates his case from Business Week for why we need an economic strategy and talks about the systemic issues America faces, and its core strengths.

Some highlights: Porter says he’s excited by the potential for this administration to put together an overarching strategy that might address our problems in

  • Public k-12 education;
  • energy
  • high cost of doing business
  • lack of a safety net for workers during job transitions (healthcare security, training, pensions).

Porter says we have some strengths to reinvest in:

  • our science technology system. investment rate has slowed.
  • our belief in competition. We have in the last few years become more protectionist

The silver lining of the crisis is we might get an America:

  • that saves again
  • with a new sense of community responsibility
  • and prudence in business

Porter says this crisis will cause others to doubt this system. This is best system we know for creating economic opportunity. this does not help the cause of capitalism in Latin America.

All in all, a good lunch-time listen. Or better yet, read his piece in Business Week, linked above. It’s a more cohesive argument and it won’t take you 25 minutes. Plus you’ll see some of his underlying logic, and learn interesting facts.

Discounting can be dangerous!

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During tough economic times, companies often rush to reduce prices on their products and services. That seems like common sense: People can’t afford to spend as much, so charge less to keep them buying. But discounting has its perils.

To be sure, discounting is effective when done wisely and strategically. It can get consumers excited about a product, encourage them to buy more, and help your short-term bottom line. However, whether the purchase is a hot dog, a handbag, or a stay at a five-star hotel, customers want good value for their hard-earned money. The price of something is often an important determinant of its perceived value, as Dan Ariely points out in Predictably Irrational. Often, the more consumers pay, the more value they ascribe to a purchase. If you discount prices purely to boost sales, buyers may begin to question that value.

Consider Abercrombie & Fitch, which lowered prices by roughly 15% during the 2000–2002 downturn. When the dust cleared, the company realized that it had sacrificed much of its brand’s cachet and lost significant market share. A&F; didn’t recover until 2004—and then only after returning to higher prices. In August 2008, having learned its lesson, the company announced that it was considering another price increase, despite a decline in second-quarter profits. The goal: to enhance what the CEO called the “iconic status” of the brand.

But discounting is so easy that some companies simply can’t resist. Starbucks, which posted its first-ever earnings loss in July, has begun to offer lower-priced options, such as a cup of coffee for $1, with free refills. This strategy may boost sales in the short term, but we suspect that, as with A&F;, it will hurt the Starbucks brand in the long term.

Discounting is not always a bad idea, though—there are safe ways to lower prices. Earlier this year, Chrysler discounted something that does not affect its core brand: gasoline. It guaranteed to purchasers of new cars a price of no more than $2.99 per gallon of gas for three years. The idea was to subsidize the fuel that a new car uses, not the car itself. It’s similar to what GM did in 2001 by discounting its financing rather than its cars. Obviously, the auto industry has more problems than brand deterioration. Nonetheless, this is smart marketing during a downturn: It couples the appeal of a discount with an implicit message about the value of the core product.

So if you’re eyeing a simple, traditional discount strategy during the present slowdown, first consider the potential for damage to your brand and then evaluate the brand insurance that a more nuanced approach may offer. If you inadvertently shatter your brand’s mystique, reestablishing the value proposition to consumers may be tougher than you expect.

Jeffrey M. Stibel and Peter Delgrosso in the latest Harvard Business Review.

Keeping on track during tough times

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In times of economic uncertainty, it can be tempting to become protective, and to expend your energy speculating about what this means for your business, or whether in fact you can expect to grow at all during this time. Fear is a very real emotion, yet it can immobilize your business. It can help to acknowledge that nobody (including the experts) knows exactly what’s going to happen, so you are not alone. When the environment becomes challenging, it is actually an opportune time to think about ways to reinvent your business—to change what might have worked yesterday but may not work tomorrow.

Case in point: Psychologists tell us that when economic times get tough, people rein in spending but still splurge on the occasional luxury. What does this suggest for your business? If you sell to consumers, what might they be willing to give up, and what might they still need or desire that you can provide? If you sell to other businesses, what problems will they still have that you can resolve for them? What is most pressing to your clients, and what is less urgent? Such strategic prioritizing can go a long way to help you plan and manage the current crisis.

As you conserve your own resources, this approach will help you identify where you can focus your marketing and sales efforts for the next three to 12 months. Just as you want to avoid the do-nothing pitfall, avoid the crisis management trap of becoming a moving-target organization where panic dictates changing objectives every week. Instead, analyze as best you can with the limited information available today, pick a direction, and move forward—correcting as you go along and the feedback comes your way. As Will Rogers said, “Even if you get on the right track, you’ll get run over if you just sit there.”

Source: Today’s Tips from BusinessWeek.com

Yes, I'm still here…

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Given my perhaps-noticeable absence from pontificating frequently over the blogging biosphere this past week, you may have been wondering where in the world I was. I was in Gunnison, Colorado with my Dad catching up on some overdue water quality sampling, otherwise known as fly fishing (see photo below to see for yourself). Now that I’m back I am working on a MAJOR grant that will be submitted to the USDA as part of the Specialty Crops Research Initiative by August 14.

It was ironic, however, when I was checking my email upon my return that my friend Richard Scruggs who is Director of the Center for New Ventures and Entrepreneurship at TAMU, had an article in his latest newsletter that examined the parallels between fly fishing and business management. Click here if you’re interested in his comments.

Coping with a down economy

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As promised, here are a few strategies to consider for coping with a down economy. Some of these steps are radical, while others are a more milder form of defense. Implement them according to the conditions you experience in your market area.

  1. Conserve your cash. Don’t spend a dime on anything that isn’t absolutely necessary to your operation. Examine every personal expense you have to find alternatives to any spending patterns.
  2. Refinance anything and everything you can. Stretch out the payments because getting cash later on will be difficult as more people will apply for loans and banks will become very picky.
  3. Work out a worst-case scenario cash flow projection that projects your company having a decrease in sales. As part of this, determine what expenses will be unavoidable. Look through your cash disbursements. Pre-plan a less expensive alternative to any expense category that you can.
  4. Know your costs well because poor pricing can put you out of business faster. Assume that cost-side pressures caused by a recession will last about two years after a recession is over.
  5. Beef up your advertising/marketing. Everyone else is cutting back. Now is the time to gain “mind share.”
  6. Slowdowns mean layoffs. Therefore, new hires become available and are sometimes available at a lower rate of pay than your current rate. Take advantage of that fact.
  7. If part of your fleet is going to be idle for some time, try to store unused vehicles and get a reduced rate of insurance due to non-use.
  8. Selling off assets during a recession is difficult. Nevertheless, selling off unused equipment reduces insurance and registration costs and property taxes. Convert anything you don’t need into cash well ahead of any signals that your area will be hard hit.
  9. Apply for credit long before you need it. You may have to “borrow” your future, and banks will raise interest rates on high-risk loans as conditions worsen.
  10. Look deeper in your own markets. Can you offer your current customer base a more diversified line of products and/or services?
  11. Review your business insurance to make sure your premiums have been adjusted for the depreciated value of your vehicles and equipment.
  12. Take a look at your estimated tax payments made to the IRS. Decreased earnings call for decreased estimated tax payments.

Cash is “king” during economic slowdowns no matter how mild or severe. Expect your customers to also feel the effect, which means they will pay you at a much slower rate than during the good times. That’s precisely the reason that you’ll need additional working capital to finance your receivables if nothing else.

Run a cash flow working capital projection using 60 days, 90 days, 120 days and even up to six months to be paid from some of your customers. How much cash do you need to survive? Find the answer to that question. Prepare and save for that eventuality and you’ll be ready for a downturn.

Seeley Conference Delivers!

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Wow!

It’s been 48 hours since we closed to door on this year’s Seeley Conference and I am still chewing on some of the stellar presentations that were made.

Jim Marstiller kicked off the conference in good fashion. He is Senior Vice-President of Consulting Services for TNS Retail Forward, a leading management consulting and market research firm specializing in consumer behavior and its impact on retailers, those that supply retailers, and the economy. He is also the author of The Power to Innovate. Jim’s talk focused on growth strategies, category reinvention, brand development, and innovative merchandising solutions. For a publication that provides much of his discussion, click here.

I followed Jim on the program (not an easy task I might add) with a discussion I called Industry 2015, which focused on the driving forces and historical trends of the green industry. For an overview of that talk, click here.

That evening, Bill Lipinski, Chief Executive Officer, First Pioneer Farm Credit discussed the difficulties that many businesses had had in expanding while adjusting to the ever-changing business climate. Very few firms have done this successfully for several reasons: (1) the leap from hands-on management to delegating is difficult; (2) there is often a disconnect between strategy creation and strategy execution; (3) there is a hesitancy to change business strategy to the changes going on; (4) a lack of management systems and information; and (5) a lack of an ability to lead.

I opened the Monday morning session with a discussion of the economic drivers underlying differentiation strategies, particularly addressing the nature of perceived value on the part of our customers. Click here for more on this discussion. You can also click on the “differentiation” label on the right hand side of this blog page for more posts regarding this strategy.

The rest of the day highlighted a series of case studies illustrating firms who have been successful in differentiating themselves in the marketplace including Brian Minter of Country Garden and Minter Garden Center, who has one of the premier gardens & garden centers in the Northern hemisphere.

He was followed by Gary Mangum of Bell Nursery, who has been featured in several trade journals articles (click here). Gary discussed the Bell Nursery model and the unique and innovative ways they carry out their own differentiation strategy in servicing Home Depot.

Ball Publishing’s Jennifer Duffield White finished off the day by asking whether sustainability in floriculture is a tipping point for producers, retailers and consumers. The last morning of the conference, Peter Moran, Executive Vice President/CEO of the Society of American Florists (SAF), concluded the conference with a discussion of the draft sustainable standards for agriculture currently being proposed by SCS, the firm who is behind the Veriflora certification.

Needless to say, it was a busy 2.5 days but well worth it. If you missed the conference, the only respite you have is that your brain probably hurts less than mine right now.

On the Road Again

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After being out of the office at 5 different meetings over the last two weeks and talking to literally dozens of folks about their business performance this spring, I am convinced now, more than ever, that those who are successfully differentiating themselves from the competition are weathering this economic contraction better than those who aren’t.

Not that there isn’t some belt-tightening going on. There is plenty of that, but those who are focused on their marketing strategies [and even expanding them] are confident that they are gaining ground instead of losing it.