A Problem That Can’t Be Solved

Customers often have a problem that can’t be solved by current suppliers. These situations can provide your company with a valuable business opportunity.

To be clear, we need to look deeper than customer service problems. For example, when shopping for a computer you may become frustrated if the retail store clerk is uninformed, rude, and disinterested in helping. If poor service is limited to that employee, it can be addressed through training and coaching.

But if poor service is systemic in the company or industry, this indicates structural problems that are likely ingrained in the business model. They are so severe that customers may assume their problem is not solvable and may not search for other options. To the customer, this frustrating situation is just something they have to live with.

This inherent frustration is exactly the situation that faced the personal computer industry when mainstream consumers were first adopting computers. People found it intimidating, confusing, expensive and inconvenient to purchase from a retail store. In the 1980s and 1990s, Dell Computer identified this problem and was successful with a revolutionary direct-to-consumer model. Dell was able to charge competitive prices, but also provide the impression of a ‘customized’ product delivered directly to your door.

You have options

Owner-managed companies capitalize on similar opportunities every day. Imagine a situation where a small business has designed a software product that allows parents to coach their young adult children on managing their personal finances.

Assume one customer finds it difficult to teach the principles of finance and often contacts the help desk for suggestions. Friendly employees coach the customer, but she remains frustrated and believes this is a problem that can’t be solved by the software program.

If this customer’s experience is typical of a portion of the broader user base, there is a business opportunity to increase perceived value of the software. For example, the help desk could develop videos that explain how to teach finance in a fun and interesting way.  

Another potential change to strategy may point to a product solution, where the software compliments a parent’s effort by coaching the child using interactive games. These changes have potential to be expensive and difficult to implement. But either of them may provide a meaningful competitive advantage in the marketplace.

As a business owner, you have options for how you address the situation. The first step is acknowledging the problem from the customer’s point of view. This is the seed of opportunity.  

Know your customer

Where do we start in our effort to identify customer problems? It’s not always easy. Customer problems are frequent in all industries, but not all relate to broader strategy decisions. The types of situations we’re looking for take true insight. What is structurally wrong with how suppliers are managing customer needs?

It all starts with the customer. Just knowing your customer’s name is not enough. You have to know what makes them tick. You have to know what motivates them and the series of steps they follow when making a purchase. Interview them. Ask them why they made the decisions they have, what they find frustrating, what they would like changed in how suppliers work with them.

I can’t overstate the value of this research. When I develop a marketing and sales plan for a client, the first step is usually for me to interview my client’s customers. The insight gained will provide a foundation for strategic decisions.

Designing your strategy

At some point, you will know enough about your customers to begin making strategic decisions. At first you may or may not have the epiphany you need to create structural change. Eventually you’ll see what needs to be done, and be excited about how to build your business around this opportunity.

Once you see the customer’s problem, think about new ways of approaching the situation. What can you do differently? Is it a pricing solution? A distribution solution? Maybe you need a new product design. Your strategy will fall into place as you consider how to provide value to the customer.

Making it happen

Most established entrepreneurs have a solid, well-run business, and they have become used to maintaining the same course. But this type of change may require a dramatic shift in direction with a different level of risk than historical day-to-day business. When implementing your strategy, keep the following tips in mind.

Understand what your company is capable of accomplishing and the risk of failure. If you see a market opportunity that your company has not been capitalizing on, chances are you won’t have all the skills in house that you need to do the job right. For example, if your company does not have expertise to design new customer-focused systems in your help center then consider who to hire that has that expertise. Usually, the gaps can easily be filled once you are aware of them.

Be patient. Major, structural change often happens over a long period of time by taking small, incremental steps. Instead of shutting down your help centre one morning and rolling out an entire new system, test these changes on a small group of customers. Learn what works and what does not work. Make adjustments. You will de-risk your strategy by building off your knowledge gained from each test experience and creating a way forward that you know has a high likelihood of success.

Your company’s growth opportunities stem from your customer’s situation. Design your strategy around the customer, and build off your existing competencies as you roll out these changes.

Managing Implementation

Success requires both a practical strategy and effective implementation.  Once you develop your strategy, take steps to manage risk as you manage the various activities in your business that will drive a period of growth. 

Allocate appropriate time and budget to support an initiative. For example, most advertising campaigns need a certain level of consistency to build adequate exposure. Cutting a budget in half may eliminate all benefits from an otherwise appropriate campaign.  

Involve staff in developing the company strategy. Employees can provide wonderful information and insight in the earlier stages of the process before the final strategic decisions are made. You’ll get a better strategy out of the process, and people are more likely to buy in to the final plan.

Acknowledge progress toward completion of tasks. This is important if your company’s culture does not value accountability. For example, if managers are always late to meetings and work is never completed by the assigned deadline, the chances that your growth strategy will be implemented as planned are next to none. Post the to-do list, the deadlines, and the person’s name that is responsible for each task. Reward people for following through on promises. 

These suggestions are common sense, but few companies actually follow these principles. Take these to heart and your strategies will grow your bottom line. 

Managing Risk in Your Growth Strategy

As business owners, we buy insurance to mitigate the negative consequences of unexpected events such as a fire. But we cannot purchase insurance for all risks. For example, when launching a product we face the risk of lower than expected sales. Another common scenario is the need to safeguard against reputation risk in the age of social media. How do we deal with risk that we cannot insure against?

Uncertainty and risk

Uncertainty means a situation has multiple possible outcomes. We can assign a probability for each possible outcome. As a simple example, let’s assume that our construction company is submitting a bid on a large project. Based on our understanding of our competitive position in the marketplace, we might estimate that there is a 75% chance we will be unsuccessful and a 25% chance we’ll get the work.

Risk builds off this concept. It’s a state of uncertainty where at least one of the possible outcomes involves a loss. If our construction company mentioned above spends $20,000 in employee time and expenses to prepare the bid, then we can say the risk of bidding on this project is $20,000 if we don’t win the bid.

In general, higher risk scenarios should have potential to yield greater returns. For our example with our construction company, it’s possible the reward is a project with $2,000,0000 in gross margin. Larger projects with greater gross margin tend to require more time and expense to submit a bid.

So what makes a project risky? Generally, people consider situations risky where the chance of success is low or where the scope of loss is high. But one other consideration is ambiguity. When we have difficulty predicting the outcome of a situation or the scope of our loss, our perceived risk increases.

How do I stack the deck in my favor?

No, I’m not talking about doing anything unethical. My reference to stacking the deck means altering your situation to create a higher level of certainty in your outcome (avoiding risk) or lower the potential loss related to an undesirable outcome (mitigating risk). 

Reduce ambiguity. Information helps us understand the possible outcomes and the possible magnitude of loss. Most important, being informed helps us understand why a situation may occur. Knowing what causes situations to unfold gives us something to work with. We can use our skill, experience and judgment to adjust our approach. Our approach is our strategy. It might be how we structure our sales force, explain the value we offer customers, or set our price.

Let’s assume we’re expanding into a new market. The advertising campaign we use successfully in our home market promotes product features. But will that message resonate with our potential customers in this new market? Possibly not, if those customers want something different than our existing customers. Or maybe a competitor is already providing the same thing we plan to sell, and our message does not differentiate our product. Information about the customers and operating environment would provide insight that we can use when making strategic decisions. 

Adjusting how to manage risk

There are two things you can do.

1. Get the customer and industry information you need to make good decisions.

This typically involves talking to customers, suppliers, and peers. Don’t be a hermit. You need a lot of information to build a practical strategy. I see this often when a company develops a new product. An entrepreneur might see a product at a trade show and say ‘I can sell that!’ Maybe. But complement your instinct with customer feedback before making the investment.  

2. Build in process, policies and procedures to reduce uncertainty.

Entrepreneurs tend to push back against structure, but in this case don’t look at it as a pair of handcuffs. It’s a way of improving the odds that your desired outcome will materialize.

Let’s say our greatest perceived risk is the uncertainty of customer acceptance regarding a new piece of equipment we are launching into the mining industry. One way to address this involves adopting an iterative launch process, where we release a simple version of our product to a test market. We aim for success, but we also learn from this initial experience and use that information to build on what is working. We may adjust the product or service or aspects of our marketing strategy such as the price we charge.

Reputation risk is top of mind as social media continues to influence business. Our younger employees frequently post their opinions online about companies they buy from. What are they saying about you, their employer? A frustrated employee describing her workday on Facebook can leave a lasting impression with potential customers. There are ways to monitor your company’s reputation online. But many employers are also creating social media policies to guide behavior while respecting the rights of employees.

Managing risk involves increasing the probability of a positive outcome and decreasing the potential loss. You do this by informing yourself, and by implementing certain processes. It allows you to capture the upside of an opportunity while reducing the ‘riskiness’ of a situation.