Group-Buying's Retail Math...

... & your long term business health !...
by David Bookout

Related Post: to-discount-or-not-to-discount.

Since the last post I've been talking, listening, reading and percolating on the "group buy" phenomenon as it relates to long term business financial health. In general there seems to be a void of conversation relative to how long it actually takes for a business to "make up" for the customer acquisition cost they take on when embarking on the group-buying path. To illustrate the retail side financial mechanics of group-buy I've created a few examples. This first one illustrates a high level income statement for what I would call a healthy transaction.

40 North is key ~ Business health is critical and just like physical health, understanding some basic principles can go a long way in keeping your business viable long term. To me, THE King ( or, THE Queen, if you'd prefer ) of these principles on the business side is "Gross Margin". Gross Margin is hands down the key factor to watch for each and every transaction. As a rough rule, businesses that are NOT generating a minimum of 40% at the gross margin level will have a difficult time sustaining long term Business Profitability. In short, the lack of healthy vital signs in these areas make for a short lived business existence.

But what if your business doesn't have enough customers ?

To Market We Go... Retail businesses need to sell their products and services, right ? To successfully do that the business must make a clear offer to a customer, and that customer needs to able to hear that offer, and be wiling to accept it in a way that provides for long term business financial health for the retailer. In short, a customer is NOT a customer until they pay for products and services. This is especially true for entrepreneurs and while there can be many reasons for a venture to be compelling, there is no better test of a business model than cash flow.

Our second example illustrates why, from a retailer's perspective, executing a Group-Buy offer may not be a good choice. Note the Net Profit LOSS of $65. Some might say "I'm not worried about that, that's just the first purchase, we'll make it up over time."

But what really happens ?

Well, let's take a closer look... it may be a very, very long time before you turn a profit... First, let's look at the customers second purchase, which in this case we've said will be without further discounting. But we still need to account for the $65 loss from the first visit, so that goes back into the equation. Note that the second purchase, at full retail, still only allows us to compensate $10 towards the previous loss. So, at the end of two transactions the retailer has lost $55 ~ remember, I said the customer must pay ~ so, it looks like the wrong entity is paying to provide the offer. Right ?

And, here's where people might say "Wait a minute, you've already accounted for the loss." But have we ? True, we've accounted for the original $65 loss, but we've only been able to reduce that loss to $55 after the second visit. So, we need to carry that same $55 loss into the next transaction.

Then again and again... in visits 3 thru 7 ~ If we are not including a second group-buy discount in any of these transactions why can't we move from the red ink of loss into the black ink of profitability ? The answer lies in the -$30 "below the line" expenses that are generated from a whole list of non-direct expenses such as phone, insurance, equipment leases, etc., etc. With $40 generated at the gross margin line we need to pay others $30 for those expenses leaving $10. Had we not carried the transactional loss into the equation we would be making money. But we can't just dismiss the loss and expect to maintain a healthy perspective.

Note that after 8 transactions we've made $5 !

Big Box Confusion ~ Entrepreneurs frequently work with the false interpretation that losses can be made up over time, or within volume. BUT NOT in most SMB situations, time and volume is pure fantasy. Why ? Because the Big Box Model ( read WalMart, Costco, etc. ) relies on an economy of scale that most small to medium businesses don't have access to. These big stores have sophisticated systems for understanding blended gross margin. They also the benefit of hundreds of thousands, if not millions of transactions per hour. They've also driven the below the line expenses of each store to the smallest percent they can ~ that's why they are called big boxes. Group-buy does NOT magically emulate these conditions, and as we've just seen, the group-buy model doesn't deliver quick profits.

So, who benefits from group-buy ? ~ Consumers, the group-buy company, and, perhaps, a very small fraction of small to medium businesses that have a healthy pricing model and a high transaction rate ~ but, why would such businesses then need group-buy ?... Thanks for reading, would love to hear your thoughts !! - db

To Discount, or NOT To Discount ?...

...that IS the ?...
by David Bookout

THAT IS THE QUESTION !...

Discounting seems to be a popular concept in today's economic times, and a topic that a number of clients are working with as they navigate their respective markets. So, I thought I would share a few public thoughts relative to discounting and the pricing strategies behind them:

First, discounting is an announcement that the provider has lost faith in the originally advertised ( I use the A word loosely ) price. They are saying, in effect... hey, we didn't think that you; Mr., Mrs., or Ms. customer "really" believed the value proposition we ( or, the manufacturer ) offered, so here's what we are going to do...

At this point the prospective purchaser says "Now you've got my attention ~ go on..."

But, is this really what they're saying ? It could be argued that they are REALLY now saying "Ah, I've got you where I want you...doubting the value of your own product / service, AND I'm going to wait to see how desperate you're going to get before I take advantage of you."

So, let's talk strategy.

Let's consider that discounting is a slippery slope, and once mounted, a difficult slope to gain traction on, let alone allow the climb to the heights of healthy, business building profitability.

From here we need to establish perceptual value and answer the question of exactly what pain the product, or service takes care of. The lower the pain ( read "concern" ) the lower the willingness to part with valuable cash. Especially when there is a question of where the replenishment cash is going to come from. Particularly true today.

So, strategically, and economically, we need to keep value high and remember that "recession" is where people don't have enough money, and "deflation" is where people wait until tomorrow to buy what they were going to buy today because it's probably going to be cheaper ~ upps, I meant to say "less expensive", tomorrow.

So, how do we keep value high ?

First and foremost by not folding to our own fear that what we're offering isn't valuable. The "market" ( a group of people ) ultimately decides what's valuable. BUT, the important thing to remember is that it takes actual declines ( no, thank you, not today ) that determines a price point. Effective price points don't get set arbitrarily, it's a two sided process, a two sided "conversation".

Second, if WE don't value the offers we're making who else is going to ? We alone know the "cost" that went into, or goes into making the offer we make. Discounting allows someone else to make this assessment. Just try and discount your cable bill, your phone bill, or the price you're going to pay for a dinner out this evening. Who do you encounter should you be so bold as to go here ? There's a difference between an employe who is unable to make a discounting decision and an owner who is willing to make a discounting decision.

Be an owner !

Choice ~ Actually, and I'm not advocating this as a strategy for everyone, but, some studies show that by removing price, and allowing the customer to pay "what they want" that the customer actually pays MORE for the product, or service provided !!!...

Some may argue that this is discounting to the max, but is it really ! ?

The effect is merely transferring the value decision to the consumer, a MUCH different strategy than discounting. Don't you think ?

In closing, here are five actionable steps:

1) Think about the brand identity that you want in the market place, and particularly the fact that the brand identity that you want may not be the brand identity that you're generating from the actions you and the rest of your company are taking. Brand consistency needs to be across ALL touch-points with your desired audience.

2) Think about the long term effects of any discounting strategy you're considering...

3) Spend just a little more time discovering the "true" value that your clients perceive in your product, or service offer...

4) Hold firm. Each transaction is a "conversation", even in today's world where you might not even get a chance to actually "talk" to a prospective customer. AND, most importantly, remember how you feel when you really want something ~ do you forget about it ? ~ no, you just keep going back until one of two things happen: (a) your situation changes such that you can "afford" to get what you want, or (b) the person selling reduces the price and brings what you can afford to a lower level.

5) Remember that it ( actually everything ) is a numbers game. So, if your only talking to a few people to base your product / service pricing decision, talk to more. There is a BIG difference between qualitative and quantitative study, particularly on price points.

Google Instant

Tickling the thinker in all of us, Google, today announced "Instant", their new predictive logic search feature that enables users to see real time results faster than ever before. To illustrate the time savings there were two side screens ticking off the number of hours saved ( approaching 50,000 ) by people using instant thus far. An amazing fact considering the increased horse power needed to deliver about 20x the results at the speed of light.

Silly me, I thought this feature had been available for some time, but, maybe that just wasn't in the full manifestation that was presented today by a team of Googlers that included Sergey Brin who was donning a pair of Vibram Five Finger shoes.

Amidst the questions in the Q&A of concern that the new feature had somehow altered results and crippled SEO I was personally impressed by the elegant UI / UX refinements that the development team, which included a cast of hundreds, had effectively designed into a box and a button ~ bravo !!!...

On the SEO front, I've always wondered why I've had difficulty optimizing this site to show up better in Googles rankings. After all Blogger is a Google property. After lunch I approached a member of the support team with my question. There weren't exactly sure, but, advised me to read the instructive literature available on the topic ~ { test } myquestionapparentlyabittoopedestrianforthepowersathand { end test }.

Of particular interest was the expansion of the new Instant feature to mobile and other languages, which were both promised to be coming in the next month. So, stay tuned.

Bob Dylan also lent a hand in a video the team put together to illustrate how they were inspired by the challenges of delivering on the project ~ search on !!

Micro Branding...

a Must Have Innovation, or Marketing Fad ??...
by David Bookout

See Updates { 3 } & Comments below:

As Micro Lending becomes a more popular alternative to entrepreneurial funding, a concept, and a term that I'm calling "Micro Branding", is just getting started within the Social Media Management Systems ( SMMS ) sector.

For years I've drudgingly researched the boring, unimaginative, and downright frightfully designed "offers" that hawkers have been promoting in the Social Media space. During that time I've landed on and reviewed hundreds, if not thousands, of "capture" and "squeeze" pages designed to separate me from my money. The ultimate test, right ~ transaction with a paying customer ? ! As I said, most of these "offers" were boring, un-differentiated, un-compelling non-starters.

Executive Summary: Technical innovation, message, including value proposition, clearly delivered in print and video, good tech support structure utilizing Zend, a rocking affiliate program, and the personal touch of Tammy as the persona behind the brand. Nice !!!!! ~ Update 1 ~ I still like it... ~ Update 2 ~ The lack of branding capability on the FB side of MarketMeTweets is disappointing, but liveable, if I first post to Twitter, which is then linked to FaceBook.

More recently, however, I came across "Micro Branding", which appears to be a new niche creatively identified by Tammy Kahn Fennell and Alan Hamlyn. And, as good niche identifiers do, they built a tool that they call MarketMeTweet, which is a downloadable application that enables the brands you manage to own precious real estate on Twitter and facebook and much, much more. In total the tool helps you manage Social Media communications for a number of different accounts from within a common dashboard. Nice.

Here's how it works on the Twitter Platform: Normally, your Tweets carry someone else's brand in the real estate below your 140 character wisdom, just like "...by twitterfeed" in this example:


But, with MarketMeTweet you're able to brand build for the brand of your choice, like we have used "EFFETTI" in this example:


For those of you that haven't already said, cool, and clicked on one of the MarketMeTweet links above to find out more, or just sign up ~ then, you discerning folks might be asking questions like: (a) How does this benefit from an SEO perspective, or (b) How does this work if I'm an iPad, or mobile user ?? ~ Good points !! ~ Should we get those answers we'll be sure to update this post...

Update 3: August 7th ~ MarketMeTweet's FB limitation seems blurry on the marketing side...

MarketMeTweet's Tammy says; "The reason the facebook one is not the easiest too is notice - when you click on it it must go to an actual application - whereas with twitter it goes directly to a website ;)"


So, we did more testing and found the MarketMeTweet Micro Brand Link actually goes to a FB landing page for MarketMeTweet { Looks like a "website" to me ;-}, where another click IS REQUIRED via the ( Go To Application ) button, to go to the actual application page itself, which is here ( http://apps.facebook.com/marketmetweet/ ). Keep working on it Tammy, we understand corporate sales, and still like the product ( v.2.2.9 ).

Update 2: August 6th ~ MarketMeTweet's Tammy responds to their tool's lack of "Brand" capability on the FaceBook side as "...we're working on it". With a work around, I still like it, and wonder about a cloud based version !?...

Update 1: August 6th ~ MarketMeTweet's FaceBook beta ~ I must be doing something wrong ?...


After quickly configuring the FB account within the MarketMeTweet application the first post above exhibits a MarketMeTweet brand, so I need to check the settings. Perhaps, you have to add ( duplicate for me because I already did this on the Twitter side ) the brands you will be managing ? Nope, it looks like the Micro Branding is currently, only available from the Twitter side of the application, which I hope is high on the list of upgrades for the FaceBook beta, please...

WE Badge Test

Grooming your identity on the World Wild Web...

In real estate it's location, location, location ~ in cyberspace it's identity, identity, identity.

For those of you that employ the strategy of commenting on other people's blogs to increase the number of link backs to your website, or blog ~ here is a bit of history and tip on upgrading the look of your Gravatar.

Read the whole story at Soulati – 'TUDE!

Ubisoft's Tony Key on game marketing...

Marketing challenges ? As you can see from this article you're not alone in the "World Wild Web". Entrepreneurs may find this quick read interesting from a strategy perspective ~ but, don't get too carried away unless you've got budget...

Read the whole story at Games.VentureBeat

Why you should NOT write a Business Plan...

... & 10 better things to do to ensure success !!...
by David Bookout

Perhaps, you too have seen the recent ads for a new business plan template ? The ads seemed to be on every website I looked at yesterday morning, which prompted this post. The are a number of problems with the whole BPlan concept as I will outline briefly below, but the biggest problem is that business plan writing, for the most part, is a complete waste of time. Really, come on, how many business plans have you ever comprehensively read ? More importantly, how many business plans have you regularly reviewed, let alone followed in your day to day activities within a business ? Be honest.

Business plans are simply a business 1.0 tradition, relics that need to be replaced. What is needed are "Thinking Platforms" like the one we invented here that provides for derivative tools that facilitate business unique effective action on a daily basis.

Here are five reasons why the current business plan thinking is flawed:

A) Lack of differentiation ~ Template plans don't differentiate business concepts. Instead they foster a lumping of your business into a ho-hum pot of business similarity.

B) Lack of thinking ~ Template plans don't generate thinking. Instead they foster "go to the freezer, get the box" list checking, cutting and pasting.

C) Time ~ Custom plans take too much time. While you're in writing your plan, someone else is out validating and selling.

D) Change ~ Change, the biggest flaw factor occurs faster and faster. Technology, demographics and competition are all changing faster than people actually take the time to document in a business plan.

E) A Plan Is NOT Planning ~ Planning is a recurrent process. A plan, in this context, is something typically done once.

F) No one cares ~ Most active entrepreneurs seeking funding will tell you that they invariably NEVER get asked for a BPlan. Instead they get asked for Elevator Pitches, Executive Summaries, and Pitch Decks.

And, as promised, here are 10 things that you would be better off doing:

1) Talk ~ Talking with your desired audience. Call them on the phone. Go see them. Speculate with them, and most importantly LISTEN CAREFULLY to what they have to say.

2) Segment ~ Define specific user groups by their specific concerns. Refrain from staying too general in your work. Specific, valuable solutions drive the highest revenues.

3) Rank ~ Make assessments regarding user concern importance. This is the beginning of your value proposition work. It is also the basis of your design work, and should be revisited and revised often during the initial process.

4) Design ~ Sketch out solutions that address specific user groups and their specific concerns. Beware of committing too much too soon. This is where the costs are that drive business extinction.

5) Validate ~ Again, go talk to your desired audience segments. Use your ranking work to determine where to focus. Again, LISTEN CAREFULLY to what they have to say. Don't defend. Speculate. The right conversations at this stage of business offer development can lead to your customers literally designing your solution for you. Nice, if you can get it.

6) Re-Rank ~ Revisit your ranking work and change accordingly.

7) Refine ~ Shift your design sketches to more comprehensive solution sets. This is where your product roadmap comes in. If you don't have a product roadmap, you don't have enough information. Don't forget that this is another level of detail in the design of your offer, and your chances of having everything all figured out is slim to none.

8) Re-Validate ~ Again, go talk to your desired audience segments. Follow the re-ranking work. Make sure you are getting recurrent feedback from the same people. Avoid weighting one off feedback too heavily. Still LISTEN CAREFULLY to what these people have to say. Again, don't defend and speculate. Test trial closes.

Gather your information, it's critical decision and commitment time.

9) Build ~ Produce the simplest, easy to use, most compelling solution at the lowest total "cost". This doesn't mean the lowest "price". Sometimes things that seem inexpensive are extraordinarily expensive over the long haul. Build in flexibility. Things will change. Avoid feature creep.

10) Go Sell ~ The ultimate validation is a paying customer that would gladly repeat the process tomorrow. Not that they necessarily would, this is about satisfaction and the dreaded buyer's remorse. Repeat, repeat, repeat...

When you've done this list, in this order, and still think you need a business plan, let me know.

© Copyright 2010 - Effetti, Inc. All rights reserved worldwide.

The "Wasting Time" image may be © Copyright to and was found @ PinkForSure.com

6 critical tips for launching a startup...

For those of you interested in launching a startup while keeping your day job this article is a good, fun read !!

Read more at Entrepreneur.VentureBeat

Note: Originally posted here

Does your business have a Social Media Strategy ?

... & why you should take a closer look !...
by David Bookout

A friend and colleague recently sent out a message that they had made a career change to an up and coming company in a hot sector. So, I visited the company's website and in quick review saw that the company didn't have a clear Social Media Strategy. So, I sent a short email to my friend to inquire and received a quick, unexpected reply - "We have a social media focus and strategy. Our Director of Marketing is out of that world." - that got me thinking about what I may have missed. A few more eMails in the exchange produced the name of the director and a suggestion to search one of the most popular Social Media sites for a recent campaign, the note went on to say "That is a rather innovative use of social media that he came up with.", which intrigued me even more.

Now that I had some specifics, I searched four of the top Social Media sites and found just the use of the director's name and a small range of connections. In each instance there just wasn't enough evidence to lead me to believe that the company had either an effective focus or an effective strategy. In contrast, the individual was on the map, but I kept thinking "what's wrong with this picture ?"...

Brand is the key and companies delving into this new space should be much more brand aware when it comes to what they're doing. Here are two top level things to consider:

First, what brand are you building ? Care should be taken to determine if it is the company brand, the product / service brand, or the personal brand of the individual running the campaign, and the inter relation of each.

From this perspective you will get some clarity on the Social Media Venues and Account Names that you will need, as well as a linking strategy for the different sites you will be using for the campaign.

Second, what is success ? Stakeholder(s) should discuss and design the specifics of the stage they are in ( building awareness, generating interest, facilitating trial sales, or driving recurrent transactions ) and most importantly define the key metrics that they will use to tweak the campaign to ultimate success.

© Copyright 2010 - Effetti, Inc. All rights reserved worldwide.

The "Social Media Landscape" image may be © Copyright to Fred Cavazza

SMMS, Social Media Management Systems...

You've gotta love the internet and the fact that people are always either inventing new tools, or new tools that enable users to better manage other tools.

Jeremiah Owyang has an interesting article this morning on Social Media Management Systems, a recent phenomena that I'm sure you'll be hearing, and seeing more about in the near future.

Read more at Web Strategy

VCs are people too, honest...

While I don't recommend that entrepreneurs seek funding before they have completed idea validation and have successfully built a focused, profitable and scaleable revenue engine ~ David Homik's recent post about an email mistake, and why it’s always a good idea to remember your manners, is worth another click...

Read more at VentureBlog

Bootstrapping, Investors...

... & Why Entrepreneurs Should Refine Terms !!!...
by David Bookout

Like moths to a flame, an entrepreneur's chances of real success in a singular venture are slim. Yet, for the most part, they seem perilously attracted to equity financing. Why? It certainly isn't because the model is wildly successful in a general sense. Amongst Angels, VCs and others close to deal making some say that the a new venture's chances for success ( liquidity to shareholders ) are just a mere 1 in 10,000, but that doesn't seem to stop a steady flow of entrepreneurs and new ventures...

Meanwhile, a lively discussion has been taking place over on Sramana Mitra's blog about venture capital ( read as capitalizing your venture ) and why bootstrapping, in particular, is especially critical today for success as an entrepreneur. I should also say that Sramana's views on business building are solid, pragmatic, and refreshingly reinforced in the free Strategy Roundtable discussions that she holds every Thursday morning, where the first 5 entrepreneurs to sign up get to pitch their idea via a Dimdim webinar. More on this later...

This article is an offer to refine the terms bootstrapping and investor and augment the current, broad, and somewhat useless interpretations that can and often do short circuit healthy business growth. Particularly in the start up phase. Sadly, the majority of entrepreneurs still seem intoxicated by the cruel hoax of "getting funded", while ignoring the fact that the days are long gone when cash could be raised on an idea alone.

So, let's take a renewed look at bootstrapping. And, let's take that look while connecting squarely with the essential grounding and proof of concept work that every business and business offer needs to do to become a success. Overnight successes are Hollywood themes, and business magazine fodder that have just plain given people the wrong idea. Many think that bootstrapping is either too painful, or should be considered a form of failure. Instead bootstrapping should be thought of as an essential component of concept testing any new business. The premise being that if people won't pay for a product / service today, there is little chance that an equity based cash injection is going to facilitate payments tomorrow. The sector you're planning to serve doesn't matter. Payment is the only true test of value.

On the investor side, if we also take a renewed look, and move away from the traditional, predominately financial definition of investor, then entrepreneurs are free to adopt a more powerful interpretation that embraces the most precious resource they could receive in launching a new venture. People's time, and commitment. If you have people helping you, they are indeed investing. Investing in you, your idea, and your collective futures. Again, if you, and your investors are unable, or unwilling to ask people to pay for the products and services you're offering, then a big slug of cash isn't going to help.

Additional, and significantly larger, long term benefits of looking at bootstrapping and investors in this renewed way are the cash planning skills, and retained equity positions found amongst the successful owners of Small, Medium Enterprise. Unlike the 9,999 moths that get burned by the flame, the lions share of U.S. GDP comes from the SME sector and entrepreneurs that successfully bootstrap their ventures into those ranks have cause for celebration, as well as the added enjoyment of the improved negotiating power they will have should they so choose.

© Copyright 2010 - Effetti, Inc. All rights reserved worldwide.

The "Moths to a flame" image title and image may be © Copyright to Photo.net and / or Ken Williams.