Community Economic Development Fund

Management

All about people and processes.

It's the leader not the concept

The mythology of American entrepreneurship goes something like this. You research a problem that startlingly nobody has ever noticed. You contrive a solution that your testing demonstrates is attractive and you build a Minimum Viable Product, or MVP. Your value proposition makes your customers an offer they can't refuse, and in no time your swelling sales allow you to raise millions from venture capital, leading to personal fortune and a few magazine covers.

Dileep Rao, a business professor at Florida International University gathered some surprising facts that make it clear that this is, well, a myth. He points out that VCs fund very few ventures, only about 100 out of 100,000 prospective deals. And only 20 of the 100 prove a success, with just one spectacularly so. So, Dr. Rao concludes, venture capital doesn't help 99.98% of the companies. 

His thesis is that there's too much emphasis on product, whether on TV's Shark Tank or in pitch contests or in business schools. What's really important, he contends, is the not the MVP but the MPE, or Maximum Potential Entrepreneur. That is, someone with the right set of skills to be a better leader than his or her competitors. Most rocket-ship type companies succeed because of management not because their core product was so unique, he says. These crucial skills include product development, sales and financial acumen. And not many people have this combination of abilities.

So maybe the unicorns that investors famously hunt for are the founders not the business concepts.

Be ready to wrestle the bear

In recent months, this column has addressed competition with Amazon from a couple of different perspectives. While current statistics still show the majority of sales on the site are made by third party sellers (who might actually be a small business owner),there’s a conspicuous trend toward the giant taking over more and more of the pie.

This New York Times article detailed the challenges, frustrations and dependencies that come along with selling through the platform. I can think of two clients who have fought the bear and walked away after being bitten.

One client, selling a proprietary product directly to Amazon and on the site through approved dealers made the hard choice of cutting off the grizzly. You see, Amazon won’t agree to minimum advertised price (MAP) policies and instead it makes sure it “wins the box.” That is, by showing the lowest net price it places its own listing ahead of other sellers.

This results in the price of the merchandise spiraling downward, undercutting the dealer network. So, our client effectively walked away from millions in future Amazon purchase orders to protect the integrity of its primary distribution chain. Who can blame them? How can you justify betting it all on one outlet (even one named Amazon) when the dealer distribution chain that helped you grow your business would be at risk?

Another client who manufactured personal care products found his supply chain leaking. He suspected a distributor was selling merchandise to unauthorized dealers who were reselling on Amazon and undercutting the brick and mortar dealer network. While this diversion wasn’t Amazon’s fault, our client hit the Amazon brick wall trying to get help to control it. He worked for months to prove to the Amazon bureaucracy that he owned his own trademarks and was classified in the right merchandise category and therefore qualified to invoke an Amazon policy that would allow him to shut off those unauthorized sellers. Business is tough when you can’t get anybody on the phone to discuss your protests. Eventually, this client realized that even selling direct to Amazon was no dream. For every item purchased by one Amazon warehouse, another would ship back his unsold goods. The slow payments and return fees effectively canceled each other out.

Now, if you’re thinking of making a late entry for your business into e-commerce, don’t be discouraged just because Amazon seems to outsell the next seven largest competitors combined (yes, including Wal-Mart). And don’t think that just because your industry’s products are already on the site (and cheaper?) that there’s no response you can make.

Yes, commerce is shifting online. Yes, customers are beginning to expect to shop this way. Yes, Amazon is a formidable, perhaps even a predatory competitor. Remember, there’s more to selling on the internet than on the one dominant platform. Sure your sales volumes will be lower, but keep your eye on the long term and look for a way to satisfy customer needs beyond price and speed.  Emphasize service and experience and you’ll have a better chance to survive your walk through the woods.

-- Frederick Welk
CEDF Business Advisor

 

 

How to win when you’ve lost?

Show up, believe in yourself and be fearless. That’s the key.

By Dawn Reshen-Doty

A few weeks ago I attended my first Greater New England Minority Supplier Development Council conference on my first anniversary as a certified Minority Business Enterprise (MBE). When asked if I would also participate in “The Bears Den”, GNEMSDC’s version of TV’s Shark Tank, I immediately said yes. I then changed my pitch deck, tailoring it to the specs of the event and shared it with GNEMSDC ‘s tech staff.

Over the years I’ve pitched, promoted and presented the services that Benay Enterprise provides probably more than a thousand times. I even once did my elevator pitch while actually in an elevator! However, the Shark Tank-style event was a first, and despite being nervous about participating in such an event, I thought, “what have I got to lose?”

It was my first time pitching Benay’s services to a ballroom full of people -- what Benay does, our unique proposition value, and why people continue to use our services, year after year, decade after decade.
Was I prepared? Yes.
Was I nervous? Yes.
Most importantly: did I believe I could win and was I prepared to win? Yes and Yes!

All four contestants were grilled after each of our five- minute presentations by a panel of three judges who had many, many insightful and sometimes surprisingly incisive questions. I thought I successfully answered their questions with confidence and clarity. The people at my table all congratulated me as I returned to my seat. I gave myself at least a 50-50 chance of winning after all the presenters were done.

As the moderator took the mic, I breathlessly awaited the announcement of the winner – but it wasn’t me. My spirits momentarily sagged but my tablemates quickly congratulated me on a great effort and my mojo bounced right back.

I had no further opportunity for disappointment, and as the day progressed and I went from meeting to meeting, event to event, people continually approached me to say they’d heard my presentation and congratulated me on a great job. More importantly other attendees wanted to know more about Benay. And many said that they’d thought I’d given a winner’s presentation, which truly made my day.

As I mentally replayed my business pitch presentation, I realized that just having taken advantage of the chance to present my business to a ballroom of people and expand my speaking skills, was the winning event for me.

I’d won by taking the risk of losing.

In our business culture we often focus on the winner, the victor, the champion of a particular event. We often say that just showing up is half the battle, but I think giving it your best effort, testing yourself , taking on the challenge and then learning from it is  a winner’s position. From now on I welcome any opportunity that gives me the chance to lose while winning, and to anyone who wants to give me that opportunity again, I say bring it on!

Dawn Reshen-Doty, CEO of Benay Enterprises, received the Bookkeeper Partner of the Year Sage Circle of Excellence Award for 2019. She serves on CEDF’s Foundation Board of Directors and is a former CEDF client.

How to compete against Amazon

There has been so much hand-wringing over the difficulties caused to Main Street retailers by the rise of Amazon, but the reality remains that there's still plenty of angles on which to compete.

 

First let's examine the giant, which is not just one big opponent, but thousands of little soldiers in the Amazon army. In the latest survey I've read, 58% of the sales were handled by third party sellers. Uh, that would be other small merchants. Some have storefronts, some don't.

 

How are they competing? Price. But they don't all have the same price. The lowest net cost floats to the top of the list and "wins the box" as the lingo goes. A Main Street business might need to stay out of this fight.

 

Perhaps convenience? If you need something now, there's no beating the opportunity to drive down the road and get it. (Gee, I hope the store keeps it in stock.) Even two-day Prime or next day might not be good enough sometimes.

 

What about selection? The great river seems to offer nearly every SKU in the world. And thanks to decisions by national retailers to seek efficiencies that resulted in the streamlining of their merchandise mix and the homogenization of their stores, a lot of items one used to find around town are nowhere to be seen anymore. RIP Radio Shack.

 

This leads to one of two areas where a local retailer can still shine. One is experience. If shopping at your store creates an unmatched thrill, a shot of joy, excitement, discovery, pleasant feelings and that increasingly rare human connection, then that will beat rummaging through endless pages making guesses about the quality or utility of the online offerings. This might involve making an investment in wide selection. Or it might be the physical shopping environment (which is what national retailers do because they feel they can't afford selection). Or, more likely it might require finding the right people for the staff and adopting the right policies.

 

The other factor that can lead to a winning hand for a Main Street retailer is trust. This article gives a helpful discussion of the way this round can be won or lost. Note the study that gives small business a statistical edge over large operations in trust. But Amazon is right on top of this fight by being willing to guarantee the satisfaction and performance of all of their third party sellers. Just don't bother trying to get anyone from Amazon Customer Service on the phone.

 

 

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