Stage 2 companies must already have a clear and compelling value proposition if they’re successful enough to have grown out of start-up, right?
Well, yes and no. They do have enough traction in the marketplace to show that they have a value proposition that works. But it’s actually unlikely that the company has a systematic way to communicate the value proposition. And if that is the case, it will find that revenue growth is harder and harder to achieve – and in a competitive market, the company may start to lose ground to other companies who are communicating their message better.
What should a value proposition look like? When I started out in marketing, I worked with an excellent marketing agency, who explained that the “brand positioning statement” should follow a classic formula of, “For [market segment], Our Brand is the [product category] that [customer benefits] by [points of differentiation].”
So, for a clear and compelling value proposition, you need:
– A clearly defined target market segment or customer profile – is it marketing directors who work with global brands, or owners small businesses in cities, or…
– A definition of the product category – the marketing agency I worked with explained that orange juice could be defined as a breakfast drink or as a health drink, so picking the product category has a big impact on how the product itself is perceived
– A description of the customer benefits – what are the pains you alleviate (lost revenue, production downtime, etc.) and gains you enable (new revenue sources, talent retention, etc.)
– The points of differentiation – choosing from all the ways that your product works or the ways you deliver your service, what are the ways that set it apart from the competition?
Once you have your value proposition, make sure you reinforce it with everyone in your company, and you use it to focus your marketing and sales messages.
Confused by all the marketing options? Here’s a quick way to cut through the clutter…
Your marketing and sales occur in a funnel, with lots of unqualified suspects at the
top, fewer qualified prospects in the middle, and even fewer scoped proposals
to potential customers at the bottom.
Most of the “chatter” about marketing is focused on the Top of the Funnel (TOF). The
problem with TOF marketing, though, is that it’s a 2% game. Super Bowl ads,
Facebook ads, click-through rates – they’ll all have about a 2% response rate.
That’s why most people say, “Marketing doesn’t work.” They’re right – but they
really mean TOF marketing.
Middle of the Funnel (MOF) marketing is much more powerful – response rates of people
who know you and are interested in what you do are usually around 15-20% –
about 10 times the rate of the top of the funnel. That’s where most people
should focus their marketing – getting more out of the relationships you have.
How? Email, webinars, speeches and workshops – things like that.
Is 20% not good enough for you? Then focus on the Bottom of the Funnel (BOF). It’s
not marketing down there, it’s sales. And most companies have hit rates of
40-80% on the proposals they write – two to four times MOF rates, and 20 to 40
times TOF rates. What kinds of things should you invest in to improve sales?
Account plans, sales training, sales process improvement – things like that.
Where to Begin?
So, here’s the simple lesson in looking at the response rates at various points
in the funnel – start at the bottom of the funnel when you are starting to
upgrade your marketing and sales, and work your way up. BOF upgrades will get
you the most bang for your buck. Once you’ve optimized your sales, then move up
the funnel and upgrade your MOF marketing to people who already know you. Only
after you’ve got a good MOF system should you then wade up into the 2% world of
TOF marketing to make more people aware of what you do.
A friend of yours runs a successful Stage 2 business – but is also frustrated
that things aren’t going as well as he’d like. It’s your job to set him
on a new path.
How do you create that inflection point – that clarity of understanding and
focus that sets a new path and provides the basis for success?
Let’s look at how it works for Ebenezer Scrooge, because if ever there was a
tough customer for a strategy consultant to work with (cheap! close-minded!
domineering!), he is one. But Scrooge’s consultant (the ghost of his
former business partner) designs a great process that holds lessons for any
He starts with a look at the past (fond memories of Scrooge’s childhood).
What core principles show up then that Scrooge needs to reconnect with
today? What lessons does the past hold for Scrooge?
He then looks at today, from different perspectives than Scrooge usually sees
(a joy-filled market, a family feast, a miner’s cottage). What can
Scrooge learn from those people? What is happening outside of his normal
view that he can use? What does Scrooge have to offer those people?
And finally, he looks at the future to see where Scrooge will go if he
continues on his current path (a neglected grave!). What are the results
Scrooge will get from his present efforts? What results does Scrooge
want? Do the likely results line up with the desired ones – and if not,
what needs to change?
With a process like that, it’s no surprise that Scrooge emerged a new
man. Full of energy. Renewed with purpose.
The Wikipedia entry
about Scrooge’s transformation sums it up well, capturing both the immediate
impact and the long-term sustainability of Scrooge’s new thinking:
“Scrooge has become a different man overnight, and now treats his fellow men
with kindness, generosity, and compassion, gaining a reputation as a man who
embodies the spirit of Christmas. The story closes with the narrator confirming
the validity, completeness, and permanence of Scrooge’s transformation.”
So, as you do your annual planning, use the wisdom of Scrooge’s planning
process in your Stage 2 business, by tapping into the Ghosts of your
The Ghost of Business Past. What was at the heart of your success
in Stage 1? What was fun about the business? What made you
special? As you look to the future, you need to reconnect with that –
especially as your company has to change.
The Ghost of Business Present. Life in Stage 2 is more complex
because you are connected to so many more people and organizations, and because
you need to deal with broader markets rather than just isolated
customers. To come up with an effective plan, you need to take a more
holistic view. What are your customers thinking? Your
suppliers? Your competitors? Your employees? What is
important to them? What trends are happening in the market? You
need to see the world from other eyes, and use that perspective to come up with
The Ghost of Business Future. Stage 2 companies have reached a
point of sustainability, so now their leaders have to turn their attention to what
they are sustaining. What impact do you want your business to have on
the world? What results are you looking for from your business?
What does your business stand for? And what gaps and problems can you
identify today so that you can deal with them before they are urgent,
expensive, and entangled?
Successful Stage 2 leaders understand that it is not easy to design an effective
planning process, and so they put the time and effort into “planning the
When they do, the result is a business that is transformed overnight – with the
power to sustain that change over time.
What do you see when you go on a tour with your ghosts?
Enjoy the holidays, and best wishes for a good new year.
Annual planning is in full swing, and the Year in Review is a great place to start the planning process. But many companies stop there, and they miss out on a rich source of strategic insight when they do.
Looking at trends adds perspective that the Year in Review usually misses. The two sound similar, and there’s often some overlap, but most of the time there are many observations and issues that are raised only when you look at trends.
Why is that?
When we do Year in Review, we have our Doer hat on – so the question is, what did we do (or not)? When we look at trends, we have our Observer hat on – so the question is, what are we seeing? It’s remarkable what a difference that makes.
What specific questions do I like to ask to come up with a list of trends? I have about a dozen “thought-starter” questions I use that are designed to focus people on what’s important, and changing, in their environment.
Here are a few:
– What’s changing?
– What are you spending more time thinking about than you used to?
– What are your customers thinking about?
– What is your staff thinking about?
– What are the 3 most important forces impacting your market?
If you and your team ask those questions, you’ll open up a new set of opportunities that will stretch your thinking, your resources, and your purpose. And then the strategic planning can really begin!
So, you’re thinking about what life will be like at your company when you’re gone. Congratulations. Really. It’s a sign of maturity when a leader has the courage to imagine being out of the picture, and the foresight to care before it’s forced to happen.
Having worked with dozens of Stage 2 leaders, what recommendations do I have for you about succession? A few thoughts come to mind immediately when thinking about my clients.
First, those of you who are strong leaders… we love you, and it’s amazing what you have accomplished and do accomplish… but this may be the biggest challenge of your career. The strength that you have in your role means that your shoes are going to be hard to fill. And, strong personalities have a hard time handing things off, so it’s never going to feel like the right time, and your successor is probably going to seem far from ready when you start the transition.
Second, having a healthy company is important to managing a succession. You want a healthy company to retain or attract the best talent. And, successions take resources, because transitions always put a burden on an organization. (Think about how many coaches have a “transition year” when they start even if they’re good and have good players.)
Third, start as early as you can. Succession is best managed not as one big event (“OK, here’s the company…don’t screw it up”), but as a series of small hand-offs. Most of my work on succession is on choreographing the series of small hand-offs based on the departing CEO’s capabilities, the incoming CEO’s capabilities, the needs of the business, and the needs of the transition process itself.
Fourth, don’t look for another you. He or she is going to be too hard to find. Use this as a chance to build up your company’s strength in a new area. (You’ll need to do some strategic planning to think about what area that should be.) I had one client hire an experienced sales and marketing exec because they realized they were weak there. I had another hire someone strong in operations because they were going to need to tighten up that area if they were going to be able to grow. Was the new exec everything that they needed in a CEO? No. But neither are you! You have a whole eco-system around you that complements and supplements your strengths. You may have forgotten about it because it’s designed around you, but no CEO can be everything – and the search for another you is based on flawed thinking that one person can lead your company.
The good news is that, if you plan out and use a succession process, all of these issues are manageable.
My sons love Legos. They love building the kits based on the instructions that come with them – and they love building their own creations out of a bin of parts that is the resting place of all those well-made sets.
When my son is building a triple-winged rocket, or an army base, it’s very clear that the creation process is not connected at all to the sales process. Yet, for some reason, when we are working on an innovation in our business, for some reason it’s much easier to think that the creative process is inherently connected to the commercialization process.
But it isn’t.
Being a business owner, I sometimes think as I watch my son and his Legos, “What would it take to make this little hobby a business?” My mind first goes to customers – their feedback, engagement, and money. And then it goes to logistics – managing the schedules, inventory, work flow.
You need creativity, customers, and control to commercialize innovations. The creativity part comes easily for Stage 2 companies – but if you don’t have customers and control, you’re just playing with Legos. Which, I can tell you from watching my sons, is engrossing and rewarding…but is not a sustainable business model.
I wrote several years ago about how growing companies need to manage their shifting need for innovation talent, referring to Ted Prince’s work with the Perth Leadership Institute. I’d like to highlight a few ideas about innovative people now.
First, Prince’s research indicates that relatively few people have the skills to be innovators, and someone can only learn to be more innovative if they have a high degree of “leadership agility,” as Prince calls it. So the first problem with hiring innovative people for a growing company is that there just aren’t many out there.
Second, the way innovation happens in Stage 2 means that more innovation doesn’t necessarily mean more innovators. Why? Because much of the innovation process is not about invention and creativity. There are other skills that are needed – sales and management skills being the two most prominent. Sales skills ensure that the company’s innovations are connecting with customers. Management skills ensure that the company keeps control of innovation projects. Sales and management skills enable your true innovators to do more of what they do best, so you will actually get more out of innovators even if their number stays the same.
So, for you Stage 2 leaders, the bad news is that it’ll get harder and harder to find truly innovative people for your growing business – and the good news is that you won’t need them as much as you might think.
I hear Stage 2 leaders all the time say, “Creativity and flexibility is what made us great – we cannot change that.” It’s a “pound the table” statement for most.
I agree – but my “pound the table” statement back is, “You’re right – but creativity and flexibility look different in a growing company than they do in a start-up company.”
And this is especially important – and hard for Stage 2 leaders – when it comes to innovation.
Most start-up leaders invent and innovate with customers that they know very well, and so there is a very short leap between the innovation process and customer feedback.
In Stage 2, though, companies usually have the resources to start pursuing their own ideas – not just react to what customers ask them for.
This change is far more challenging than most leaders realize.
First, Stage 2 leaders think that their experience with a few customers extrapolates to larger markets – which is true sometimes, but oftentimes isn’t. Second, Stage 2 leaders often involve customers less in the development process (they can be a pain, after all), which makes it less likely that the customer will want it, and more likely that the sales process will take longer. Third, a Second Stage company has enough moving parts that need to work together, that creativity without boundaries will cause more harm than good.
We’re not talking about too many controls here. A monthly review meeting. A customer meeting once a quarter. A paragraph of milestones and expectations that progress can be assessed with.
The Futurist magazine had an article several months ago titled, “Innovating the Future: From Ideas to Adoption” by Peter Denning. In it, Mr. Denning described “the work of innovators,” which included 8 types of activities that need to take place for innovation to happen.
The article is interesting to consider when thinking about how small business innovation happens – especially for Second Stage companies.
Remember, growth companies are often led by very inventive and creative people – which is a huge asset in the start-up phase. But in Stage 2, that needs to be supplemented with structure and discipline. Denning’s 8 innovation practices offer a good model to show what’s going on in growth-company innovation.
Second Stage companies are good at these 4 of Denning’s innovation practices:
- Sensing new possibilities
- Envisioning a compelling story about the possibilities
- Leading and mobilizing people to adopt innovations
- Embodying the innovations in their own actions
On the other hand, Second Stage companies are typically weak at the other 4 of Denning’s innovation practices:
- Gaining preliminary customer buy-in to start innovating
- Overcoming resistance to change and creating customer commitment to try the innovation
- Helping customers integrate the innovation into the environment and stick with it
- Managing all commitments to completion
What’s the difference between those 2 lists? The first one – the things Stage 2 leaders do well – leverage inventors’ strengths of vision and passion. The second one – the things Stage 2 leaders struggle with – involve dealing with the complexity of customers, teams, cultures, markets, and projects.
As I say again and again, the only way to deal with all that complexity is to create some structure, process, and systems to handle it. Not a lot…but some.
All 8 of Denning’s innovation practices are important to commercializing new ideas. So, it’s no surprise that many Second Stage companies have a lot of great developments going, but struggle with making money from them.
As your company grows in Stage 2, you should use your sales process to drive more value – yes, for your company…but also for your customers. The only sustainable growth comes from win-win sales, so your sales process will benefit you and your customers.
One of the most important ways that your sales process can increase the value you bring to and get from your customers is by uncovering what the real need is. Oftentimes, customers don’t know what they don’t know, and by managing the sales process well, you can help them realize what they really need. In doing that, you also make sure that you’re paid for any premium value that you give them.
Price is a function of value, and the surprising fact that you need to know is that value is established when the need is defined, not when the solution is defined. If a customer comes to you and tells you what they need, then they have already set the price in their mind. On the other hand, if a customer comes to you and asks you to help define what they need, then you create the value together.
If you’re like most Second Stage companies, it’s hit or miss whether you’re talking to customers about the answer or the problem. It takes a clearly-defined market strategy, and a disciplined sales process, to ensure your conversations consistently focus on the need. That takes some work, but it’s also the best way to grow your small business in Stage 2.