One of the most promising functional areas to move online, even for small businesses, is internal administrative and informational processes. Online HR and payroll systems are already widely adopted by businesses of all sizes, yet many companies still maintain their own internal staff or contract with a professional services organization. However, with minimal training, many such functions can be handled in a few hours per week with the support of online tools, providing the low cost and full service that each of the other options can only deliver in tandem. Customer and supplier contact lists have evolved from written ledgers to local CRM (customer relationship management) software purchased and stored on company-owned hardware to cloud services that are delivered as a service on an as-needed basis.

Similarly, office productivity suites that traditionally cost several hundred dollars for each computer installation, and often mismatch the needs of the individual user, have many online equivalents that can be purchased on an as-needed basis. Heavy spreadsheet users that don’t often develop presentations and technical writers that don’t need database access can get what they need and nothing more. Having software applications delivered via the internet from a central location also simplifies technical support and upgrade issues that otherwise have to be managed on a computer-by-computer basis.

The easiest sale for many businesses regarding moving online, and a step that many have taken already, is banking services. Whether as a replacement or an augmentation of continued visits to the local banking branch, having account information and transactional capability at your finger tips can save much time and money. Electronic downloads of account information can also be linked to accounting, bookkeeping and tax packages, eliminating the need to manually translate information from one place to another.

There are hundreds of other examples of everyday business activities that can be improved in terms of quality and cost, by adopting virtual and web-based services. Fleet-intensive business can provide drivers GPS information rather than expensive and obsolescence-prone map books. Equipment and component purchases and offerings can migrate to Craigslist versus ads in local publications. MagnaVaria is not endorsing a particular service or vendor. We are endorsing the power of online resources to reduce costs and improve the quality of the internal processes that make your business go. Contact us and let us help you.

However, the availability of credit is dependent on the source under consideration. Clearly, traditional bank financing has retrenched. If such an option is available to your business, then by all means pursue it. Many have tried and do not view that once familiar channel as a realistic path toward significant loans or lines of credit in the near term. For those businesses, the search should not stop there. Although the term “alternative” can carry a stigma within the context of finance these days, it is important to pursue “alternative” avenues in the dictionary sense of the word.

It is not easy to find the right financing option when moving outside of traditional banking, but other options do exist. For instance, do you need a specific piece of equipment as part of your business expansion efforts? Does that equipment vendor have financing of their own? This is an even more viable option if there is a long-standing relationship with the vendor. Similarly, does your business opportunity spring from a deep-pocketed and successful customer that needs more of your product or service to support their own rapid business growth? A cash-rich customer with whom you have an established track record can be willing to pay forward or secure a certain volume with cash ahead of time. A product discount can be a method to entice such a customer to pay now and receive later. In some industries this is actually quite common. Also, public money aimed at providing incentives to locate a facility in a distressed area, hire workers from a certain program or source, or expand a manufacturing presence that has long been depleted are also alternatives to consider. Finally, a truly innovative business idea, especially one that can be patented or otherwise protected as intellectual property, can garner the interest of angel investors, venture investors and others looking to invest in the next big thing before it becomes the next big thing.

Look, it is simply the case that traditional banks are closing more doors on business owners in the current climate. Whether that is fair or justified is beyond the point. Understanding and pursuing other viable financing options is what matters to you and your business. MagnaVaria will be right there with you. Contact us to find out more.

When raising the importance of sensitivity analyses within this context, we are not speaking of the statistically rigorous discipline of calculating correlations and numerical relationships between different input and output values. While those quantitative methodologies have their place, we are speaking more generally about understanding where your assumptions of the future have their largest impacts on business outcomes. The goal is to focus your efforts where they will have the biggest impact.

For instance, you might have a cost assumption for your annual picnic, largely driven by the experience of years past. But what if the cost of deviled eggs or frankfurters dramatically increases between now and the picnic? Your assumed cost might be well off. But does such an outcome matter much to your business? Unlikely, so you won’t spend much time watching egg futures. Conversely, if you are making a huge investment in a new process or piece of machinery to expand into a new market, assumptions about the growth and viability of that market are quite important. For instance, the emergence of shale gas drilling has significantly reduced the market price for natural gas. Companies that sell natural gas have seen their revenues take a significant hit. So if your theoretical investment is into the market for gas producers, you are effectively making a bet on moderate to high natural gas prices. Understanding that will not empower you to influence the market price for gas, but it will help you realize that very low gas prices put your investment at risk. And you would be wise to have a back-up plan, such as to leverage that same investment into a market segment not dependent on higher gas prices.

Why are you paying attention to that possibility and not egg futures? For two reasons: 1) the value of your investment is very sensitive to natural gas prices and 2) the value of your investment is important to your business results.  In this example, that is sensitivity analysis in a nutshell: Understanding that natural gas prices are important to your business performance. Now you have taken the first step toward understanding that small changes in natural gas prices could have a large impact on your business. Your reaction could vary from diversifying into market segments that benefit from lower gas prices to shorting gas futures to taking no action at all. Understanding the connections enough to realize that such options should be weighed is what is important.

At MagnaVaria, we know how to connect the dots and help clients do the same. We have done it in the past and we can do it for you too.

For instance, let’s say that you always buy equipment based solely on the lowest acquisition cost. Because different vendors have different sweet spots in different parts of the value chain, you could end up with a hodgepodge of makes and models.  Now maintenance, spare part inventory, personnel training and other factors might suffer and off-set the acquisition cost savings that supported the individual decisions. Think Southwest Airlines and (until recently) their sole use of Boeing 737 aircraft. We are not aviation experts, but we are sure that, while it is likely a fine aircraft, the Boeing 737 is not likely ideal for every route and situation in Southwest’s extensive network of flights. However, the company has historically derived significant benefits from a simplified fleet with consistent seating arrangements, cockpit controls, maintenance and parts needs, volume discounts from a single supplier and so on. There might be better options for particular routes (say, a non-stop that spans 175 miles and typically has demand for 75 passengers). So the decision to fly a 737 in that case might appear less than ideal in the absence of portfolio factors. But if the total incremental costs of introducing additional aircraft models into the fleet is considered, the conclusion on an individual route might be quite different.

A smaller business might not possess a fleet of vehicles such as the example above, but there are still portfolio level decisions faced regularly. Consider margins on a particular product. Supermarkets are infamous for stocking large volumes of low margin or even loss leading items, such as milk. Why not stop carrying milk if the profits do not justify milk shelf space versus other higher margin items? Because consumers expect milk, make specific trips to the store to buy it often, and often pick other higher margin items in the process. Milk, bread, eggs and other staples bring consumers in on a regular basis. A market that does not carry them and price them aggressively takes the risk that customers’ visits will be less frequent and the market will not get the opportunity for those other higher margin transactions that are often thrown in with staples. In this view, the utility of staples to the overall profitability of the enterprise should not be viewed in isolation by product. It should be viewed as an input to a wider set of goods that it facilitates. That is a portfolio view in a nutshell. How do entry level or staple products facilitate or provide opportunities for other higher margin products and services in your business? Before you discontinue offering such baseline products or raise the price to protect their margins in isolation, put in the work and analysis to understand if such products should be contemplated as part of a larger portfolio of customer interactions. Do customers drop by often to buy your “milk” and leave with other additional items in their baskets that you are eager to sell?

There are many other portfolio level considerations faced by businesses everyday. It is important to know when to employ this technique and when it can be misapplied (sometimes a product is just a dog and it needs to be put down). MagnaVaria has the expertise and experience to help you decide when a portfolio view can drive superior business results. Let us help you.

Take a front line employee for instance. Which is more costly: a $10 per hour employee or a $13 per hour employee? Seems clear that it is the latter, right? What if quality is lower and turnover higher when you pay someone $10 per hour versus $13 per hour? If $10 employees often seek and find alternative work for $10.50 or $11.25, then you are constantly disrupting production and training new workers to get up to speed. During these learning curves, your scrap rate could be higher and your productivity lower. Meanwhile, by paying above market rate for unskilled work, you could have much greater retention and productivity from $13 staff, as they have fewer incentives to look elsewhere, are less likely to find something more lucrative when they do, and work hard to maintain what they have. This argument is not a ploy to get you to pay your employees more. It is an example to show how the concept of cost often extends far beyond surface level considerations. The costs and benefits of the two pay scales go beyond the $3 per hour difference that is easily quantified. The determination of “cost” should extend beyond those two figures ($10 and $13) and include additional factors that are just as real in terms of top line and bottom line impacts. That is the point of the exercise.

So why is this relevant? It is relevant because you as a business person should not view the difference between $10 and $13 employees as a $3 per hour difference. You should view it in terms of all costs and benefits, wages and otherwise, to make an informed and sound decision. The decision might still be to keep wages at $10, as the disruptive effects of constant turnover are less costly than the wage difference. Or you could decide to pay $13 or find a happy medium. Most importantly, the decision should be made in full view of the relevant facts and not on a myopic basis of wages alone.

This is just one example of cost decisions we make everyday. Choosing a facility/office, deciding on a vendor and investing in a piece of equipment are others. The key is considering costs and benefits expansively to arrive at better conclusions and decisions. MagnaVaria can help. Let us show you how to consider whole costs when making important business decisions.

Like the answer to many questions, it depends. Certainly as more and more time continues to pass without the expected benefits, it becomes more likely that those benefits will not come to fruition. If you continue to believe that success is right around the corner, but you have already been around several corners while assuming the same thing, then the writing might be on the wall. In our experience, emotional attachment and/or organizational inertia are the forces that tend to give enduring life to bad performers. Emotional attachments, especially to pet projects or people that have a special place in your heart, can mask the objective analytical basis on which sound business decisions are typically made. Similarly, organizational inertia (“We’re already on this path, so let’s see it through.”) as a basis for continuing down a path will undermine reasonable and proven information to the contrary. Certainly, many business people have employed gut feel and intuition to great success, so not every decision is data-driven. But not many good business decisions are marked by emotional attachment and/or organizational inertia as the only arguments in their favor.

We’ve all heard the arguments:

• “He’s been with us a long time and is a loyal worker.”
• “I know that we haven’t met our sales goals in 10 years, but our approach is sound. We just have to execute it better.”
• “The abysmal sales we have seen don’t mean the product is not good. We just have to find the right market segment.”
• “We have always done it this way.”

During the many years that we have advised businesses, we have encouraged one particularly effective approach to avoiding an undue influence of emotion or inertia on business decisions – it is unrealistic to expect you can eliminate their influence entirely – and that is setting goals. By setting goals and providing clarity regarding what you expect to get out of a marketing campaign, employee, new piece of equipment, vendor, etc., you form a basis for measuring success and failure. To the degree that goals are clearly communicated, tangible, achievable and measurable, then a failure to reach said goals should prompt a challenge to the status quo in a healthy organization.

Setting, measuring and being guided by the right sets of goals is in itself an expertise that a business should nurture and embrace. MagnaVaria has helped businesses do so for many years and we can help you too.

The first step is the right mindset. Change is not bad unless you resist or do not anticipate it. On the contrary, it can be a good thing for you and your business if you can harness its power. While changes of all types impact businesses, we are speaking here specifically about those that relate to information technology. Remember, at one time the concept of e-commerce and web-based transactions was new and disruptive. Many foresaw the end of brick-and-mortar retail as we knew it. Such apocalyptic prophesies proved overblown. Sure, e-commerce is a big part of our economy, but many successful retailers have merely incorporated e-commerce into their business and have both online and offline interactions with customers that are vibrant and healthy. They turned what could have been detrimental to their business into an asset, enjoying the supply chain, inventory and self-service benefits that online sales offer while still offering the in-store experience to customers with that preference.

Maybe you believe that your product or service is largely insulated from such developments. If you are a landscaper, plumber or lawyer, how does this stuff matter to you? Even when it is not obvious, it is likely that you are living with IT-related competitive impacts everyday. Let’s start with the mundane. What type of software do you use to run your business, such as an office suite or accounting software? Do you purchase individual software packages or licenses, or have you moved to the much-hyped “cloud”? Hype aside, there are important cost, support and functionality differences with the options you choose. Are you at an advantage or disadvantage with a competitor that has chosen the other option? What about mobile IT and efficient routing if you have a field service staff? Do your people have the right information? Is your equipment appropriately utilized or can you squeeze more revenue out of the same vehicles and people if you could deploy them more intelligently? Sophisticated algorithms and logic that used to be the sole purview of large organizations are now a click away even for smaller enterprises. Does your business barter mainly in information? As movie production companies, music rec0rding studios, publishers and news outlets have learned the hard way, as information is digitized, it has drastically changed consumption patterns and revenue streams in all those industries and others. What is your plan for keeping the market value of your revenue-producing information (e.g. stock tips, legal advice) protected as such information is increasingly democratized?

The point is that you don’t have to be a giant company in a high-tech industry to feel the impact of continuing advances in information technology. The good news is that you also don’t have to be afraid of such trends if you are properly prepared. Let MagnaVaria help.

How do astronomers find black holes? They look for the absence of phenomena that are usually present, such as light and gravity. It is a different way of discerning the world. What is missing that should be there? Business leaders can benefit from thinking this way. You learn as much from non-events, inaction and the absence of an experience as you can from their converse.

Still not sold? Some of the biggest business and product successes filled needs that were not apparent prior to their arrival. The Sony Walkman wasn’t a response to widespread protest over the inconvenience of boom boxes. More recently, many persons were highly skeptical of the need for computer tablets, reasoning that smart phones and laptops offer similar form factors on either side of what the tablet offers. However, the iPad has taken the world by storm and created a new category. No existing and tangible market data point argued for these innovations. Instead, discerning and exploiting what was absent was the basis for these successes.

Bringing this argument back to a more practical place, how can business leverage this approach? There are many everyday examples: Do you offer multiple levels of service and have a complete absence of upgrade requests from existing customers to move from one level of service to another? Why do customers stick where they start? What does this imply about avenues to move customers up the revenue ladder? Consider customer complaints. Companies rightly focus upon customer complaints and look for trends. But what do customers never complain about and willingly pay to get? Is there an opportunity to charge more for those product features? What about commodity costs? If almost all of your suppliers approach you through the years with price increases, but one or two never do so, what might this mean? Supplier price increases get your attention and might even cause you to competitively shop for a better deal. A supplier that you don’t hear from might encourage you to inaction. However, that supplier might be overcharging you or their industry might have a prevailing price that is is going down (think computer hardware). By not asking for an increase and not drawing attention to themselves, they might be maintaining an unreasonably high margin or increasing their margin by holding your price steady. The absence of a reason to investigate (a price increase request) could have you paying more than necessary. However, reacting to the absence of an expected event (periodic price increases) could result in a lower cost of goods sold for your business.

So, open your eyes to what isn’t there. Listen to what cannot be heard. Contact MagnaVaria today and we will show you how.

There are many methods to get hard observations and data to compare against the “facts” that we hold dear. Have you observed your product being used in the field? Is the output of the workforce traceable back to individual contributors? When is the last time you conducted a formal survey of employees, customers or other constituents of your business? What assumptions do you take for granted that might be debunked by such exercises?

One relatively easy exercise is to trace the actions of a user of your website. If you have a brick and mortar store and a website, you can have customers that visit your store use the website as they normally would while being observed on an in-store computer. If you are not comfortable asking customers to participate, you can develop basic tasks that are often performed on your website and recruit non-customers not familiar with your site to perform the tasks and comment on the experience. Videotaping the experience can also lend insights regarding where the user’s eyes are drawn, how long they spend on pages, where they run into hurdles or have to backtrack, and other pieces of information. The point with this example and the others is that the decisions we all make are often based on perceptions of reality and inferred “facts” that might not be entirely accurate. The good news is that getting real world information to confirm or refute our assumptions is often inexpensive and can be accomplished quickly.

Ask MagnaVaria to help you move from inference to real facts today.

Many businesses face this kind of situation. Small businesses especially might not be in a position to offer a range of differentiated products to match the needs of all segments within their market. So how can such a business, with limited resources, maximize the segments it serves? Sometimes, it simply can’t. There are fundamental feature and performance differences between a Ferrari and a Kia that cannot be bridged with creative marketing. Kia would not be well served by wasting time and energy pursuing the luxury sports car demographic with its current model line-up. Other businesses should also avoid chasing segments for which its products clearly are not designed to attract. However, there are methods to position the same product across multiple different segments with a bit of marketing slight-of-hand.

One obvious lever is price. Sometimes that is the only differentiation point between multiple segments, with the underlying product characteristics largely the same. A business can often charge a different price for the same or similar service to different market segments. A discount for a customer that commits to a large, regular volume versus a higher price for one-off orders is one example. Warranties and higher touch customer service can target a commercial segment with the same product that appeals to a residential segment more interested in a lower price than those additional inducements.  A mail order catalog could appeal to a different demographic than one who values an in-store experience, even if the widgets involved are the same. The list goes on. The method that the product is marketed, priced and delivered can allow market segmentation without the expense of product segmentation.

Are you serving every segment that you can with your product? Want to serve more? Ask MagnaVaria how.