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Funding New Markets from Existing
Businesses
By Peter Meyer - First printed in Business
Horizons, November 1999
Many businesses will pull focus, people,
and money from existing work to feed
growth and new markets. Many will fail.
Pulling resources from the existing
business to feed the future risks both the
past and the future. Both have to do well
for either to survive. Since that can be
difficult and dangerous it is better to
find more resources than to steal them
from existing operations. One way to do
this is by asking your organization to
change their focus on prospective
customers.
Most sales teams and distributors call on
prospects as demand generation programs
uncover them. Until recently, the best
practices have relied on entreating
prospects to respond using advertising,
trade shows, direct mail, and seminars.
The response is partial and comes in
without priority - only a few of the
prospective clients react at any one time.
You can only take them as they come.
Mediocre leads will get to the top of the
list ahead of the best leads if those do
not respond to your programs. There are
better ways to fund your future. With the
advent of faster computers you can
reasonably ask not just for 25,000
prospects but to know who each of the
25,000 are, their addresses, revenues,
contacts, and buying patterns. You can ask
your team to create an Opportunity
Database that can sort most of your
prospective customers at one time and rank
them by standards that you choose. It will
have considerable effect on product
development, pricing and margins,
marketing, sales, and sales management.
These effects help you get more resources
for growth in existing or new
markets1.
Freeing Resources For Growth
When you know in advance which prospects
are likely to pay more for your product
you can reduce discounting and raise the
average sales price. This incremental
revenue drops directly to the bottom line.
The effect is also felt in marketing. With
company by company information on your
prospects the marketing team can start to
tailor programs that will deliver more
results for less investment. And the
effect is felt in territory management. If
you know the addresses and business niches
of most of the likely prospects are for
the next twenty-four months, you can
allocate sales channels to make sure you
are calling on the best ones. All this
gives you more time, people, and money to
invest in business growth.
The Opportunity Database concept is
straightforward - you identify as many
prospects as you can and then market to
them in order, calling on the best ones
first. If you want to fund growth, this is
one of the best levers that you will ever
have to do that. (For more on how to do
this, please see the Sidebar - 8 Steps to
an Opportunity Database.)
For example, Aspect Telecommunications
competes in the market for call centers,
the kind of systems and software that help
answer when you call an airline or utility
for help. Aspect is justly proud of the
fact that they close well more than half
the deals they propose, averaging $500,000
per deal. In the United States there are
approximately 300 call center contracts
sold each calendar quarter. With the old
prospect management system Aspect knew
about a fraction of those, missing some
real opportunities. If the company knows
about just 10 more opportunities per
quarter in each territory, it could net an
additional $7.5M in revenue per territory
per quarter with little increase in
resources. With an Opportunity Database
the company can gain much more than
that.
For Aspect, and perhaps for your business,
that kind of market knowledge
would:
» Enable sales managers to quantify
the value of a given territory and assign
territories that are equal in opportunity,
optimizing profit per person/year.
» Show marketing exactly how to find
the niches with the highest potential so
they can closely target the right markets,
increasing profit per person/year.
» Give your e-commerce group
information to tailor your on-line
strategies to prospective customers with
the highest potential, maximizing revenue
per person-day and dollar spent on
e-commerce.
» Allow product marketing to aim
future products more carefully, augmenting
the chances of success in products for the
same investments, and
» Help financial analysts to price
your products to attract the portions of
the market that will be more likely to pay
for value. This maximizes return for the
same sales and marketing effort.
In other words, more revenue and profits
for the same sales, marketing, product,
and finance staff. It is an excellent way
to get the most resource in the least time
to help your business grow in a
sustainable manner.
Identifying Common Denominators
The strategy is to identify all the likely
prospects in a universe, and then assign
each prospect points according to the
value of the opportunity they represent.
The place to start is with common
denominators.
Common denominators happen both
intentionally and by accident. For
instance the sales teams of each phone
system vendor can tell you that there are
certain kinds of customers that are
"theirs" and some that "belong" to the
competition. When certain kinds of
customers are drawn to you by effective
marketing, you have some intentionally
created common denominators. However, this
can happen when your sales teams have
fallen into the habit of selling into
specific niches, an unconsciously created
common denominator.
Don't expend resources trying to change
either common denominator. Instead, use
them as strengths. For example Aspect
sells well to companies that have certain
common characteristics, both intentional
and accidental. These include specific
computer hardware and software plus
specific markets2. Aspect is
developing an Opportunity Database of
every company in the United States that is
likely to have the right combination of
market and installed systems. With this,
Aspect is tailoring its marketing. The
company directs the sales channels and
teams to specific accounts instead of to
general areas. This brings a quicker
return, offering more resource to help the
company move into new markets in less
time.
Another example is a leader in technology
products to improve meetings. They supply
audio and video conferencing equipment to
the Fortune 1,000. Who else might be a
customer? Looking at their installed base
lists outside that select group they are
exploring the universe of middle sized
companies with many branches. You'll have
tens of thousands of these companies - a
list that can be identified and then
stored on a laptop computer. By sorting
that list against other common
denominators the company can direct their
distributors to the prospects most likely
to buy today's products.
A third example is Dun and Bradstreet.
Like any other sales force the company
would prefer to have their sales teams
call on the best leads first. In an
experiment one D&B region found that
their best leads were companies that fit
into a very few specific four digit SIC
codes, a clear set of common denominators.
An outside service sorted the territory
lists for the region and assigned priority
to those common denominators. D&B not
only found that thousands of companies
that had not yet been on a suspect list,
they increased sales per rep by almost
50%.
Territory and Quota Integrity
A benefit of an Opportunity Database is
that you can use it scientifically to
spread opportunity among the components of
your channels and sales teams. Instead of
assigning quota according to history, you
can assign it by a logical point system.
However, you should plan on dealing with
other issues that this will bring to the
surface.
For example, one distributor for a
high-tech capital equipment has convinced
the manufacturer that their quota should
be based on how they did in recent years.
With no evidence to the contrary, the
manufacturer agreed to this. When the
manufacturer created the Opportunity
Database, it found that the distributor
had 18% of the national opportunity in
their territory but carried only 10% of
the quota every year. The manufacturer
asked the distributor to carry more quota,
and the distributor demurred. These
conversations were quite active.
Eventually the manufacturer realized that
they could do better with their own people
in the field. The distributor lost their
franchise. The result? More direct
customer contact and more fuel for the
manufacturer's growth. They could spend
about the same in time, people, and money
to get a higher return. That is fuel that
they are using for growth.
What is Required?
The object is simple. If you know the
common denominators of existing customers,
you can identify businesses you don't yet
know but which share the same common
denominators. This impacts sales
immediately. Instead of asking a sales
person to drive down a city street looking
for new businesses, identify the likely
prospects in advance and send the sales
people directly to them. Instead of
marketing to a large group, you can tailor
your marketing and save time, people, and
money while you improve effectiveness.
A requirement for success is involving the
correct disciplines. To increase sales
efficiency you need only involve the sales
or channel organizations. However, if you
want to gain time, people, and money
across the organization you will want to
involve support from pricing, product
development, marketing, field sales, and
channels. The Opportunity Database will
give each discipline information to
extract a little more fuel for growth from
the same products and markets.
This gives your business three incremental
forms of fuel for growth. One is that your
best people will be more focused in their
work, allowing them to avoid time
investments in marginal markets. That
extra time is fuel your business can use
to explore and open new markets.
The second fuel is people. When your
people get used to the idea of using
Opportunity Databases to target very
clearly, they can take that skill and
experience into new markets. Learning to
focus as with a rifle instead of a shotgun
helps identify key markets in less
time.
The third fuel is incremental profit from
sales. When you sell more and discount
less, that profit will be cash you can use
to create and dominate your next market
without stealing from this one.
Once you have assigned your internal team,
you will need:
» A fast desktop computer,
» A programmer who understands
databases, and
» A manager who understands how your
sales process works.
The work is not easy or fast. You can
develop the skills to do this internally
or call on two or three companies to do
this for you.
After the team delivers the opportunity
database, ask them to take an important
next step. If you have a 30% market share,
build common denominators for the 70% to
whom you do not sell and then build
products to support the second Opportunity
Database.
Quantifying your opportunity can give you
access to resources that will help grow
your business without robbing your
existing operations of vital resources.
You can harvest opportunity with the teams
you now have in place. An Opportunity
Database can affect your pricing,
marketing, product development, channel
strategy, and of course your sales
strategies. This allows your teams to save
time getting to these sales. If they can
get more revenue from the same products in
less time, your business has time to
invest in new products and markets. You
can use this do help existing markets fund
new ones. This can give a business the
resources to grow without necessarily
stripping away the resources you need to
maintain your core business. It can reduce
the risks of growth and fuel your
future.
Sidebar - 8 Steps to an Opportunity
Database
Step 1
The first step is to go back into the data
you have for your existing customers. You
want to find enough of them that you can
get a significant sample - at least 20% to
start. You'll need to have the data
cleaned to correct addresses and remove
duplications. If you do not have them, you
will need to add DUNS numbers or some
other common identifier.
Step 2
The second step is to sort the data for
common denominators that show up in a
structured sort. This could include common
four digit SIC codes, common geographic
tendencies, similar business family
structures, size ranges by people or
revenue, and so on. Direct your team to be
careful - you are not looking for what
marketing or sales wants to see. You want
to know what customers are actually
doing.
Step 3
The third step is to identify the key
common denominators for a purchasing
decision. Avoid looking for budget
information. The temptation of many sales
teams is to talk about budget and cost
savings. However you can look at your own
business to see that budgets and cost
savings do not drive major purchases.
Other business needs drive these.
For example, a large regional accounting
firm found that they were developing a
lucrative business in managing inventory
taxation issues. It was not intentional,
just one of those tendencies. The partners
decided to leverage that newly discovered
tendency and look for commonalities.
If they had looked for clients who had
budgeted inventory tax work, they would
have found no prospects. Instead, they
looked beyond budgets and discovered that
most of their clients bought special bar
code labels before they did inventories or
hired a specialist tax firm. The
accounting firm went to the major
inventory label companies and offered to
rent their customer lists and co-market.
What better way to get a view of future
customers than to be there when they
decide to do an inventory?
Since asking about budget is not the right
tack, you should encourage your team to
ask other questions. Four such questions
are:
» What do our customers buy just
before they buy from us?
» What markets do our customers use
us to enter?
» What markets will our customers be
entering over the next twenty-four
months?
» Why do our customer's customers buy
from them?
Don't ask your team - ask the customers.
Here again you will want to involve your
sales, marketing, and finance teams. As a
group they will uncover trends that
individual disciplines may miss. When done
they will have common denominators that
may show such things as:
» Four digit SIC codes (e.g.,
community colleges are some good markets
but Universities are not)
» Organization structures (multiple
division are a good or bad trait for your
customers)
» Revenue trends (growing customers
do/do not gravitate to your product)
» Product purchases (e.g., the
specialized bar code labels, Sales Force
Automation software, or certain computer
installations),
» Financial structures (perhaps your
customers are usually family owned),
» Organization structures (e.g., your
customers always have or never have a HR
department), and
» Common target markets for your
customers.
These will be facts, not assumptions.
Working from fact may settle some
arguments. It will make it easier to
increase margins at your future
customers.
Step 4
Once you have a sense of the commonalities
that you want, look for the same data for
your competition's customers. This does
not require buying their customer list -
it can and should be done other ways.
Several companies, such as ZD Market
Intelligence of San Diego and Dun &
Bradstreet, do extensive telephone surveys
of business customers. These companies
will sell you their lists sorted for such
data as customer size, decision makers,
names, phones, size of installations, and
so on. Since no vendors rigorously call
every company in the United States, this
will give you a small portion of the
marketplace. With this data you will have
a list of perhaps 25% of your prospective
customers.
Step 5
Now match the list against a standard
(such as DUNS numbers) for identifying
locations and buyers. This allows you to
keep your data clean - avoiding the usual
problem of having General Electric listed
as GE, G.E., Gen'l E, and so on.
You cannot place too much emphasis on the
value of having clean databases. Most
national database suppliers allow
inaccurate data - it is simply not worth
the cost to correct all errors as they
enter data. When you start sorting for
commonalities you can quickly multiply the
effect of bad data and drive the quality
of your results below acceptable levels.
The only answer is to clean the databases
before you use them. It almost never works
to let the data suppliers do it. You have
to assume that you will spend time and
money doing it yourself.
Step 6
The sixth step is to buy the information
you need from other databases that
highlight the commonalities you care
about. If the commonalities are focused on
computers and technology, you might call
ZD Market Intelligence. If the
commonalities are focused on SIC codes,
perhaps Dun & Bradstreet would be
appropriate. Consider the option of buying
from or trading with other suppliers.
Step 7
The seventh step is to create ranking
priorities for the common denominators.
Create a scale from one to ten with ten
being the most value to your sales force.
Then look at each common denominator and
assign a value on the scale. For example:
A customer who buys inventory labels might
be worth eight points. Has a client-server
based architecture might be worth four
points. More than four subsidiaries might
be worth six points. Some prospective
customers will have twenty-five points,
some two points. The actual scoring is up
to you.
It is a worthwhile exercise to randomly
select some existing customers to see how
they would rank. If your existing
customers rank low, you have missed the
target somehow. Most probably your team
has assigned points for what they wish the
customers would do, not what actually
happens.
Step 8
The eighth step is to sort all the
lists against the common denominators by
DUNS number and point value. The result
will be a list of potential customers,
ranked by relative value to you. In
Aspect's case, this was the 16,000 best
prospects in the country. Then you can
distribute the prospects in a way that
helps your direct or distribution team
focus on them. You have created an
Opportunity Database.
Copr 1999 by the Meyer Group, all rights
reserved.
1. For more, please see Creating and
Dominating Markets - The CEO's Role in
Business & Economic Review, April,
1999.
2. The exact profiles are considered
company confidential.
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