As you read “Marketing Through Value Based Outcomes”, you’ll run across a term I use to create clarity. It’s mutual exclusivity. The goal really is to focus the entrepreneur on his or her strategic vision and understand the keys in directing the business.
Entrepreneurs, by nature, are aggressive and agile. We see opportunities and we act. Sometimes those ‘opportunities’ work out or they become like an albatross hanging around our necks. The point is that so many don’t have vision of the longer term impact these decision have on a small business. Yet, they act and that aggressiveness becomes a huge negative.
That’s why a VBO embraces mutual exclusivity. Here’s a scenario. Your business is growing. Your companies performance is right on track. But, you’ve uncovered an opportunity while visiting your largest customer. It’ll take you to a whole new level. So what do you do?
In the book I use the example of my former gear business. The opportunity presented was selling to Dick Sports, Sports Authority, Target and Walmart. The point of mutual exclusivity, set up in our business plan, was that we would only sell to a ‘dealer’ network of gyms, wholesale companies, members of national associations, military contracts and grow our online with the consumer.
Many would ask “why not sell the Big Boxes and Mass Merchandisers? That’s where the big bucks are”. The answer, based on the VBO Framework, looked like this;
- There was little synergy. It was a 180 degree departure from the way I had set up the business. The only areas of commonality were our premium – high end products. We’ll talk more of that below.
- Alignment – See #1 – Northing in sales and operations were built to the scale necessary to manage these customers.
- Resources I – PrimeTimeEFG was an import business – we sourced all our products offshore. The added investment simply to increase the product pipeline, based on 90 day turnarounds, were huge. I would have also had to make significant infrastructure investments to warehouse and ship.
- Resources II – As a B2B and online business we really didn’t need much for packaging and didn’t concern ourselves with merchandising, self fees and other retail requirements.
- Resources III – Meeting Customer Demands – During my time as a Fortune 500 marketer, I’ll never forget authorizing an overnight air shipment for packaging to a superstore customer. The cost? How about $30,000. Yes, $30,000 to ship cardboard and paper. To put that into perspective, that was more than my gear business’ first years marketing budget.
- Operational Issues – Sounds simple, till you screw up. A great example is bar codes. Ever wonder what happens at Walmart, Target, Sears et.al. when a bar code doesn’t scan? It’s very expensive – not only is your product pulled off the shelf, but the costs to repackage is brutal. Not to mention the penalties. Chronic violators are charged a penalty for each failed scan and are forced by the buyer to negotiate these costs before you can ‘pitch’ new products
- Brand – Our brand and reputation was high performance, high quality designed for professionals and serious recreational athletes. Guess where these products are bought? Online and Gyms. Guess who doesn’t sell high end products to small segments – Superstores and Mass Market. They wanted my brand and commodity (read low end) product. Totally opposite of the brand and reputation I had built.
- Cash – Small business must always consider cash flow. These behemoths routinely hold invoices 90 – 120 days. More if there are shipping or receiving issues. No way could I afford to subsidize their profit.
In this real life example you can see how a decision, based solely on opportunity, would have literally killed a thriving small business. I was very happy and extremely profitable working military contracts, gyms and our growing online consumer business. Making this move would have been like stepping in front of a freight train.
In fact, for Under Armour that’s exactly what happened and this underscores why mutual exclusivity is so important. Under Armour incurred over $120MM in revenue losses and 40% hit on their stock price when Sports Authority declared bankruptcy. Can you imagine what would happen to a small business under those circumstances? You can almost hear the train whistles just thinking about it!
My point is that as a VBO entrepreneur, I understood the risk/reward factors involved. I followed my plan. I had been proactive in defining my business, my brand and had created an organization devoted to providing high level customer service to my target audience. Most of all, I had first identified my personal and professional outcomes and had articulated my reasons for being in business. This VBO foundation was adjusted many times along the way, but served as my baseline for 15 years. Not bad, eh?