HappyNational Small Business Week in the US! We recommend small businesses invest in some social business, informationmanagement and customer experience management tools to keep new customers coming in, and keep current ones happy.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.
The country has transformed its once decrepit economy but must now undertake profound reforms to foster an ecosystem of more innovativebusinesses Financial Times – Entrepreneurship
President Obama is trying to get off the tech community’s shit list.
The President issued a memorandum today to expand the availability of spectrum and bolster America’s leadership in wireless innovation. He mandated that federal agencies free up a significant portion of wireless spectrum so that it can be used by individuals and businesses, and he also announced that the government will invest $ 100 million in research and development of spectrum-sharing technology.
The initiatives are in an effort to fuel American innovation and maintain the country’s position as a “global leader in wireless broadband technologies.”
“These new initiatives are the latest in a series of actions the administration has taken over the past four years to ensure Americanbusinesses and workers have the infrastructure they need to compete in the 21st-century economy,” said a fact sheet the administration issued this morning.
The President issued a memorandum in 2010 called “Unleashing the Wireless Broadband Revolution,” which required that 500 MHz of spectrum be made available for commercial use within the next 10 years. However, the percentage of American homes reached by high-speed broadband networks has more than quadrupled since 2009 and is now at 80 percent. Use of mobile devices has exploded in the past few years, putting greater strains on available spectrum and making the need to increase access more urgent.
The military, government agencies, and law enforcement currently use a significant portion of available spectrum (which is a finite resource) for national security and public safety. In July 2012, the President’s Council of Advisors on Science and Technology presented a report that said “it is imperative we make enough wireless spectrum available to meet the needs of rapidly expanding and innovative sector of the economy.” Increased access will not only spur domestic economic growth but also help keep the U.S. on top of the technological hierarchy.
President Obama has been a vocal advocate for technical innovation and emphasized over and over the important role that entrepreneurship plays in driving the U.S. economy. Last week, he announced an ambitious plan to get 99 percent of American students connected to lightning-fast Internet within five years. He said that American schools, where only 20 percent of students have access to high-speed Wi-Fi, are falling behind nations like South Korea, where 100 percent of students are wired. Furthermore, the President has made a major push for STEM (science, technology, engineering, math) education. Americanstudents’ test scores in this areas lag far behind those of other countries, and there are far more open STEM jobs than qualified people to fill them.
The spectrum initiative is part of the overall mission to grow the U.S. economy through technology. The announcement comes a week after news broke about the FBI and NSA’s top secret data-mining project, PRISM. The snowball of privacy invasion keeps on growing, and today Bloomberg came out with a report that found that thousands of technology, finance, and manufacturing firms are sharing customer data with the government.
The government may be spying on your Internet activity, but it also wants you to have better access to that Internet.
While the expansion of access to spectrum and the improvement of Internet in schools are crucial steps toward supporting technical innovation and the economy, so is establishing an environment where businesses, entrepreneurs, and individuals are not indiscriminately being spied on.
Kiva Zip is a new innovation from Kivapoised to dramatically expand access to small business microloans in the U.S. by leveraging new technologies and the power of crowdfunding. Kiva Zip aims to reach entrepreneurs who are locked out of traditional loan programs and entrepreneurs using their smallbusinesses to advance social good in their communities.
Ethan Stock lived the Silicon Valley dream. He had recently sold his company to eBay and emanated the tanned skin and relaxed composure you’d expect of someone who just cashed a big corporate check. But as we sat across from one another in a Palo Alto coffee shop, I was surprised by what he said next. “Mediocrity is worse than failure, you know?” For seven years before the acquisition, Stock served as the founding CEO of Zvents, an online guide for local events. Though he was successful by anyone’s standards, I could tell he was a guy who, like me, had learned some hard lessons.
“Zvents grew incredibly well,” Stock told me. “We were the largest events site of its kind, providing local listing in hundreds of markets and attracting over 14 million monthly unique visitors.” Zvents had done what so many tech companies dream of doing, they cracked the network effect and built a business that increased in value with each new user. The more event organizers posted to the site, the more useful the site became to people looking for things to do. Both parties loved the site and Stock’s company was in the middle, connecting visitors to events they otherwise wouldn’t find.
“But I learned the network effect isn’t everything. In fact, it became a liability.” Stock’s words confused me. How could being in such an enviable position of creating a valuable marketplace be a bad thing? “Getting paid was a bitch,” Stock said, and he began to unravel how certain marketplacebusinesses like Zvents can succeed themselves to death.
The Expectation of Completeness
Marketplace businesses exist to connect two or more parties, typically the buyers and the sellers. Investors love these businesses because they tend to grow quickly and spawn winner-take-all companies. A long line of successful Silicon Valley startups have found success providing a place for people to connect and transact. Examples of these kinds of companies include industry titans like eBay and LinkedIn but also include some of today’s web darlings like Uber and Airbnb. “Marketplace businesses are great,” Stock told me. “But there is a fatal flaw in some businesses that can hogtie their ability to make money — the expectation of completeness.”
Stock explained how Zvents had planned to charge event organizers to list on their site. “Once we reached critical mass and it was clear we were becoming the market leader, we expected event organisers would start paying.” Unfortunately, reality fell short of expectations.
Like many marketplacebusinesses, Zvents was catering to users who expected to find a comprehensive listing of all local happenings. To keep users coming back, Zvents had to ensure it was displaying everyone’s events — an incomplete list would send visitors looking elsewhere.
“When we asked event organisers to pay up, they said ‘what for?’,” Stock said. But threatening to remove a listing was not possible, Zvents needed them all to keep site visitors happy.
So Stock’s team offered event organizers better ways to reach users like sponsored placements, which displayed the listing more prominently on the site. But the attempt to finally get paid largely fell flat. “We certainly created value for them.” Stock said. “We were sending people to their events. We just couldn’t capture very much of that value. I guess it’s the old saying, ‘why buy the cow, when you can get the milk for free?’”
Just Like Google
“Google is similar if you think about it.” Stock told me. The comment surprised me given the tremendous success of the search giant juxtaposed with the Zvents story. “They also create much more value than they capture.”
He was right. When searching on Google, users also have an expectation of completeness. They come to the site to find all relevant results, every time. If Google decided to only display listings from paying advertisers, we’d all switch to Bing.
When considering the collective value of all the clicks on un-sponsored links, the company does give away the vast majority of the value it creates. Indeed, Google appears to be “giving away the milk for free.” The difference is that Google’s market is not limited to local happenings as was the case for Zvents. Google’s market is much, much bigger. In fact, it’s everything.
By organizing “the world’s information,” Google skims a proportionally tiny amount of value from a tremendously huge marketplace. The absolute number of people who buy a sponsored placement is large enough to keep the company humming, even though it only monetizes a tiny proportion of the value created.
Implications
The Zvents story should give pause to marketplacebusinesses going after niches. The expectation of completeness, and the resulting inability to monetize, may help explain the challenges faced by companies like Foursquare, RedBeacon, and many industry-specific job listing sites.
One way around the problem of completeness is to facilitate the transaction itself. Companies like oDesk, Etsy and Uber, ensure they are in the middle of the money by processing the flow of cash. It’s much easier to justify taking a cut when you hold the gold, particularly when doing so adds convenience and security to the transaction.
Without the ability to collect a share of each transaction, marketplaces serving users who expect completeness face a difficult challenge. Two options remain: either cater to a very large market, a la Google, or monetize a large share of the value created. The network effect alone just isn’t good enough.
TL:DR
Network effects are great but they don’t ensure a viable business model.
Though they may prove successful from a growth and engagement perspective, certain marketplaces can be very difficult to monetize.
Marketplaces where either the buyer or seller expects to choose from an exhaustive listing – so-called “complete” marketplaces – typically give-up far more value than they are able to capture.
Unless they facilitate the transaction itself, these businesses often find themselves in a bind.
Complete marketplaces must either cater to a very large market, à laGoogle, or position themselves to monetize a large share of the value they create.
Finally! As many of you know, this week Facebook announced that hashtags (#) are clickable. Similar to the hashtag capabilities of Instagram, Twitter, Tumblr, or Pinterest, you can now add context to a post or indicate that it is part of a larger discussion.
When you click on a hashtag in Facebook, you’ll see a feed of what other people and Pages are saying about that event or topic,” according to a Facebook blog post.
For those that are unfamiliar, a hashtag — a word or a phrase prefixed with the # symbol — added to your content (ideally optimized with relevant keywords) is simply a way for you to search for tweets (and now Facebook posts) that have a common topic.
As Facebook explains in their recent announcement:
“Now you can:
• Search for a specific hashtag from your search bar. For example, #NBAFinals.
• Click on hashtags that originate on other services, such as Instagram.
• Compose posts directly from the hashtag feed and search results.
As always, you control the audience for your posts, including those with hashtags.
Hashtags are just the first step to help people more easily discover what others are saying about a specific topic and participate in public conversations.Hashtags are just the first step to help people more easily discover what others are saying about a specific topic and participate in public conversations. We’ll continue to roll out more features in the coming weeks and months, including trending hashtags and deeper insights, that help people discover more of the world’s conversations.”
The potential use of hashtags for your small business could be endless. Here are three quick ways to start optimizing your company’s Facebook posts with hashtags for maximum impact:
1. Take a page from the SEO playbook and focus your keyword strategy.
Develop a short list of the most common terms that people search for pertaining to your products and services. For example, when conducting keyword research you may want to “find a phrase that meets these criteria: many people are searching for it (high search volume), and you have a realistic chance of ranking relative to other sites (low competition),” according to Orbit Media Solutions. If you haven’t already, create a keyword list using tools like Overture Keyword Tool or Keyword Discovery.
2. Use hashtags sparingly and in a targeted fashion.
Don’t forget how to coherently communicate on social networks and go “hashtag” crazy. Follow Internet marketing conventional wisdom and as Hubspot recommends “You really want to boil it down to a list of the 3-5 most important individual words,” and when you’re ready to post use them consistently to avoid appearing “spammy”.
3. Keep hashtags consistent across social networks.
If you already use specific hashtags on Twitter or Instagram, simply keep doing what works and include them in your Facebook conversations as well. It’s really important to manage your messages across platforms so online users won’t become easily confused about who you are and what you do.
Silverpop writer Philo Howard attests to how important message consistency really is: “If there’s one thing I’ve learned during my 15 years in sales (mostly selling software), it’s that a lot of businesses don’t deliver a consistent, cohesive message when communicating with buyers. This can confuse prospects and customers, which may open the door to your competitor. Bottom line: When your marketing message is jumbled, you hurt your … well … bottom line.”
Keep this in mind before you add twenty hashtags to one Facebook post.
Bonus: Remember hashtag is a search.
As ReadWriteWeb explains, “remember that a hashtag is a search. They’re meant to label a topic or filter a conversation.” So ensure that your hashtags are actually relevant to your business or you could potentially alienate and annoy online users.
Startups are often in a rush: bigger, better, faster. I see it all the time: businesses striving to scale, to accelerate the growth of their business as quickly as possible — consequences be damned! Scaling is certainly a goal for businesses at some point, but scaling as soon as possible isn’t the answer. Scaling will require your company to use more resources. If you’re not prepared, scaling too quickly can be dangerous — leading to failure instead of success.
If you haven’t yet found a viable business model that will allow you to acquire customers at a lower cost than the lifetime value of that customer, you simply are not ready to scale. But you can ready your company by focusing on your finances first. Consider the following suggestions to help you to refocus your company development in a thoughtful and calculated way:
Understand how growth will impact your cash burn. Your burn rate is simply how much capital you go through every month. Staying on top of your burn rate is essential all the time, and, perhaps, even more so when you’re considering scaling. When you scale, your cash burn will be amplified. Any issues you have with your working capital requirements will be magnified exponentially. So keep a close watch on your cash-flow statement and a tight rein on your expenses. Bootstrap as much as possible to keep your business lean.
Hire only as needed. When you scale, you will need to expand your staff to support your acceleration. But before you scale, it’s a good practice to get into the habit of only hiring when absolutely necessary. Hiring is a significant cost — not only payroll, but the costs of recruiting, training, retention, etc. To cut costs, outsource as much as possible, especially non-core functions like accounting, finance, and human resources.
Create milestones for your company. Identify target milestones, create a realistic timeline, and then manage your cash to those milestones. In some cases, this may mean that you need to raise the cash to match and support these milestones. If you’ve already raised cash or are bootstrapping, you’ll need to reduce your burn rate so you can achieve the milestone before your cash is gone. Once your milestones are set, don’t let them slip. Your main focus must be executing to these milestones.
Get systems in place. Before scaling, make sure you have a solid infrastructure for managing financial processes. How will you manage billing and invoicing on a larger scale? Or, the bigger potential headache of payment collection? If your customer base and earned revenue are still small, that’s when you need to find and establish successful systems and processes.
Plan for cash-flow positive. If you have revenue, create a plan to help you understand how and when you’ll be able to get cash-flow positive. Scaling requires an increase in cash flow. You need to be prepared to match this with earned revenue.
If you think you’re ready to scale, you may be right. But before you press on that gas pedal, ask yourself: are you sure you have a viable business model, your processes are repeatable, and the market is ready? Once you scale, you’ll be entrenched much more deeply in your processes and making changes will be much more difficult. So take these early days to establish your company model and processes, and gain an understanding of — and control over — your finances, before rushing to scale.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firmproviding a complete suite of financial services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businessesfocus on what they do best. FollowDavid @EarlyGrowthFS.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.
Leading experts recommend that businesses spend 75% of their marketing budget to retaining existing customers (and re-engage them). Yet surprisingly, most companies do the exact opposite. Even larger corporations like Max Factor cosmetics and Target (not just the little SMBs) make the mistake of spending too much money chasing new customers (or ones that have left) and often ignore their existing ones.
Several years ago, I held a senior commercial role at one of the largest retail businesses in Australia and I can confirm that they spent <20% of their budget to retain existing customers. They, like 95% of businesses out there, spend the bulk of their marketing budget chasing new customers or attempting to re-engage those that have left and gone to the competition.
And therein lies the biggest mistake you can make as a small business owner.
Retaining Existing Customers
Every dollar spent on direct marketing to retain existing customers is actually worth fifty times the equivalent amount spent chasing new customers. With above the line advertising (traditional mass media advertising: newspapers, television, radio, outdoor, Internet), is very hard to capture the attention of new customers, embed your message in their mind and compel them to act.
It is much easier (and cheaper) to reinforce your message with an existing customer and encourage repeat visits.
So, if everyone knows it is easier and cheaper, why don’t most businesses focus the majority of their marketing strategies and budgets on their existing customer base?
The answer to that question is unclear. But what is clear is that there are four simple strategies you can use today to boost sales and retain existing customers:
1. Spend 75% of your Marketing Budget on Existing Customers
The bulk of your sales and marketing efforts should be focused on direct communications and not on social media, public relations, print (magazines and newspapers) or pay-per-click (PPC) advertising. For those of you who are established and have been in business for a few years, this is going to free up a lot of time that has been wasted on chasing new customers.
2. Prepare to Maximize Return on Investment (ROI)
I recommend that you take the time today to analyse your existing customer data. Find out the following things:
How can you drive purchase frequency (website traffic, visits, etc.)?
3. Realize that Frequency Lifts Sales by 75% More Than Upselling
It is much more effective and profitable, to focus on getting customers to return to your website or business, as opposed to trying to sell them one more thing while they are there.
4. Brick and Mortar? Focus on Customers Within a 6-mile radius
Customers who have moved outside a 6-mile radius of your brick and mortar business can be particularly tricky to re-engage. In research conducted at one of the largest retailers in the country, we discovered that 82% of the revenues were attributable to customers that lived within a 6-mile radius.
In my experience working with hundreds of small and mid-sized businesses, this statistic still holds true. If your customer has moved outside of this radius, it does not make sense to waste any of your budget trying to reactivate them.
Even though it’s important to appeal to and attract new customers, it’s absolutely crucial to your company’s survival to retain and nurture the customers that have supported and shopped with you to-date.
Everyone knows that is cheaper and easier to garner incremental business from existing customers but what separates the truly successful entrepreneurs from the pack is the ability to put this knowledge into practice by allocating a large portion of their marketing budget to focus on existing customers.
Happy National Small Business Week in the US! We recommend small businesses invest in some social business, information management and customer experience management tools to keep new customers coming in, and keep current ones happy.
