Our event last week on supporting business communities online for Local Authorities was a great success. We are taking stock of the feedback we received and it’s interesting to note that none of the representatives of the 40 or so Local Authorities that attended are asking IF they should be adopting online communities and social media. They are simply asking “how?”. The panel discussion at the end of the day highlighted that they are wrestling with how on earth it fits with their existing processes.  For example, if someone asks for action in a community or via twitter, how do you prioritise that against the person coming via the call centre or council office.

Of course, it was not all about concerns. Whilst we all had a laugh at the idea of one delegate pursuing a local resident down the street as she dropped flyers criticising the councils business support, it quickly became evident that a voice in a online community can sometimes be much better heard than one using traditional methods.

Dominic Campbell of FutureGov made it clear that, of course, there is no going back and embracing the technology and the benefits it brings to community engagement is the only way forward. In his opening address Doug Richard made it clear that Local Authorities have an important role to play in delivering local support tailored to local needs.  We hope that with our Business Communities we are able to help with this process and bring the benefits of the local support Authorities can offer to start-ups and entrepreneurs.  

You can download some of the days presentations here.  There will be video of the day coming shortly. We’d love to get your thoughts on this subject both from government and from businesses.

I (Arthur, VentureNavigator Product Manager) often get asked to review other people’s product ideas, concepts and businesses. This blog post looks at the five areas which often get overlooked:

1. Getting the Job Done
2. Competitive Analysis
3. Supply Chain Analysis
4. Routes to Market and Market Entry
5. Sustainable Revenue

Let’s look at each one in turn, but quickly you’ll appreciate how they are all interrelated.

Getting the Job Done

Your Value Proposition is the offering that you make to your marketplace. Your value to the person that uses or pays for your product or service indicates the price you can charge. ALWAYS, the value of your product is based on the pain that your potential customer has.

I quote from Shakespeare’s Richard III, (Act 5. Scene IV). As Richard is fighting in the Battle of Bosworth, his horse is killed.

A horse! a horse! my kingdom for a horse!

Great value is placed on a solution to a great pain.

The best thinking in my opinion is from Clayton Christensen, a Harvard Business School professor and author of the Innovator’s Dilemma and the Innovator’s Solution(two excellent books which is why I have linked to them on Amazon!). An entrepreneur should evaluate their product or service from the perspective of a customer wanting to solve a problem: ‘What can I buy to get this job done for me?‘. These are the problems that customers need your solutions for. In analysing the pain, you frequently discover that the pain can be solved in a variety of ways (or the pain can be endured).

Question: is the pain significant enough for people to pay for it?.

Clayton Christensen’s thoughts on ‘getting the job done’ are available in an interview with a Gartner Fellow – look for his answer about ’segmentation’.

Competitive Analysis

Firstly, it is much, MUCH safer to assume that you have competitors: either you haven’t found them (yet) or the competition is just about to appear over the horizon.

Searching for competitors

I recommend you really look hard for your competitors:

1. Using the internet – not just the terms that you use to describe to your product or service, but for words that describe the problem that your potential customers might be enduring. See ‘Getting the Job Done‘ in the previous section.
2. Sniff out ‘players’ in your wider sector. By ‘players’, I don’t mean direct competitors, but participants in closely associated sectors.

Example of Players: You have developed a piece of wizardry that improves images displayed in Microsoft Word. Direct Competitors would be Microsoft itself and companies that provide 3rd party add-ons to Microsoft Word. Other ‘players in associated sectors’ might be companies that make printers (eg Hewlett Packard) or computer screen manufacturers (eg Dell). The key question to ask yourself is ‘Will my invention hurt or harm these ‘players’?’.

You may find it useful to review this article on Vertical Integration which discusses the concepts ‘upstream suppliers’ and ‘downstream buyers’.

Supply Chain Analysis

This leads nicely onto supply chain analysis.

If your new product or service is successful, then other ‘players’ in the supply chain will react to your success. Some will benefit, some will be negatively impacted. (Note: see this definition of Supply Chain.) By analysing all the participants that in the supply chain, you may well discover that:

1. there are other cracks in the market that your product/service may be better suited for
2. there are other potential partners or distributors who will benefit from your product/service and ’should’ support your product’s entrance into the market place.

 Route to Market

Supply Chain Analysis leads me onto Routes to Market and Market Entry.

Participating with a partner has a number of huge advantages:

1. You can use your partners’ or distributors’ marketing budge to tell them about your product / service.
2. Their endorsement provides credibility to your product / service and can both accelerate sales and shorten the sales cycle.
3. Route to revenue and ROI (Return On Investment) should be much faster.
4. There are additional financial advantages too: if you’re a very young company, your partners may be prepared to invest in your business, if they will significantly benefit from accelerating your product’s arrival at the marketplace.

However working with partners does have disadvantages:

1. They might steal your idea.
2. You may have to spend considerable amount of time ’selling’ your proposition to your partner/distributor. Their offering and how they present the combined offering to the market will have to be modified – all of which takes time. If your solution is any way competitive, these potential partners/distributors will be protective of their markets and customers.
3. You will lose some or all of the direct relationship with your end customer – this is a really important relationship with the customer in order to receive unadulterated feedback.
4. It will most probably take more time to receive the first revenues from your product or service as the revenue has to turn more cogs and gears in other organisations (which you can’t control) before money starts to flow into you.
5. General lack of control! Usually your partners are much bigger than you and their processes are much slower. It is likely that you are one of many partners with whom they operate and being new, you have to demonstrate ability and trustworthiness. 

Sustainable Revenue

Good news: by this stage you have done most of the hard work! Revenue MUST be sustainable: investors and partners need to have confidence that you and your product will be around years into the future. A really good analytical technique about profitability in an industry is to take VentureNavigator’s Five Forces Assessment, a concept devised originally by Michael Porter, a Harvard Business School Professor in the 1979. For more information about Porter’s Five Forces, please read this article on Macro and Micro Industry.

Porter’s Five Forces Analysis is not simple, but it is very worthwhile as it gives you a profound understanding of your market and its dynamics. I recommend that you undertake this analysis twice: once as your market / sector/ industry stands today and then a second time, as if in the future, once you have launched your product or service and it is successful.

Key Questions:

• How will your competitors react?
• How do you think the market will react?
• Who will own the largest slice of the revenue pie now – who will benefit and who won’t?

My own litmus test is to ask: are there any Goliaths in the industry who could simply roll over one morning and squash you? Phrases like ‘We’re gonna beat Google hands down’ fill me with fear!.

SWOT Analysis

Top Tip: In conjunction with your Five Forces Analysis, have scribble pad at hand divided into four quadrants: Strengths and Weaknesses (of your idea), Opportunities and Threats (in the competitive landscape). This is commonly known as a SWOT Analysis – here an explanation and template for a Business SWOT Analysis.

As you undertake the Five Forces Analysis, you’ll see other product opportunities or other partners that you haven’t thought of, but don’t deviate from your Five Forces Analysis, but return to these ideas later!

The Perfect Drug – an example of Sustainable Revenue

This might be a harsh example but my own platinum standard for sustainable revenue is the ideal drug with the following characteristics:

• has an immediate beneficial effect and insignificant side effects….
• … and the producers receive much public acclaim and publicity for their breakthrough
• is addictive – therefore users become dependent
• the human body builds up a tolerance to the drug. As the treatment program continues, users require more and more of the drug. However, the tolerance should be mild and builds up over time, otherwise it may attract too much attention from regulators.
• importantly, the drug doesn’t eradicate the illness, but prolongs life.
• surrounded by a ‘wall’ of patents – no-one else can copy the drug.

Can your product or service build in as many sustainable revenue features of the perfect drug??

Finally…

Keep iriterating through this process on a regular basis – the market changes: expectations fluctuate and new players enter the market, technology shifts occur which can reset the rules of business competition. Change is the only thing that is guaranteed!

About Arthur

Arthur has been in small software companies for over 15 years and loves helping early stage ventures and companies taking new technologies & concepts to market-ready solutions. He became fascinated with innovation and entrepreneurship whilst doing an MBA at Cambridge University, UK. He is the Product Manager for VentureNavigator.

Our guest blog this week comes courtesy Nick Braithwaite. Nick is Sales And Marketing Manager for Clearbooks, providers of  Small Business Accounting Software.

It is often said in the business world that cash is king; a saying that should become a motto for small businesses during hard times. A company may be profitable however if its cashflow is poor it could falter. Below is a list of pointers to help improve a small business’s cash flow. 

1. Extend Supplier Terms And Reduce Customer Terms 

Two ways to increase a small business’s cash flow; reducing customer terms and extending supplier terms. The longer a small business has to pay suppliers and the quicker it can get customers to pay the more cash it will have available. This can be achieved through offering incentives such as early settlement discounts.

2. Offer Early Settlement Discounts

Reducing the total amount a debtor has to pay in exchange for quicker payment will boost cash flow. A lot of businesses will jump at the opportunity to pay less. A typical example of this could be reducing the amount owed by 1-3% if a debtor pays within 10 days instead of 30. There is a downside in the fact that this will eat into revenue.

3.  Chase Late Payments Automatically

Using software either on or off line that can automatically chase payments will save money as less time will be spent completing administrative tasks such as checking which payments are due. It will also help cash flow because customers may well pay earlier as a result of a payment reminder. An ideal solution would be to have automatic e-mail reminders set up in place for each customer. If a small business does not use email then having software that alerts it to the fact that an invoice has not been paid should help to initiate a late payments process (see below) quicker. A point to add to this, which could have its own heading; a small business needs to make sure it invoices its customers on time in the first place.

TOP TIP: Use a Late Payments Process 

Having a system in place that can help a business reclaim money from late payers will get cash to where it belongs quicker. If business owners and employees understand how to go about getting cash from a late payer then the issue will be resolved quicker. An example could be; late payment noted, email sent, after no response: telephone conversation and then a written letter. 

4. Check Credit Worthiness Of Customers

One of the key ways a business can improve its cash flow is to check out new customers’ background information before commencing business. If a business takes on a customer that has a bad credit rating it is asking for trouble. There are various ways that you can check a company’s credit worthiness; checksure.biz and the Companies House website both allow you to check the credit status of potential customers. 

5. Debt Factoring

Debt factoring allows a business to receive payments for unpaid invoices quicker than it would from its customers. The debt factor gets a fee for paying the invoices and collecting the money owed from customers. Factors come in a variety of forms they may be independent or they can be part of a bank. Debt factoring is something to be considered when a business is in need of cash urgently rather than something that should be done regularly to help improve cash flow. 

6. Negotiate by Bartering

A small business maybe able to offer its services in exchange for decrease in amounts owed to a supplier. This could be a design company offering their services for free in exchange for a reduction in the money they owe to a printing company. If negotiated successfully this could provide a boost to a business’s cash flow. 

7. Diversify The Client Base 

If a small business relies on too few customers its cash flow will feel the impacts of one customer paying late. If a business has more clients, each with smaller accounts the risk of one paying late or in the worse case failing will be reduced. Diversifying the client base is a key way a small business can improve its cash flow. A small business should look for cost effective ways to expand its customer base; one way could be to offer an affiliate scheme.

8. Decrease A Business’s Offering

Some small businesses diversify too much during the good times and end up stuck with too many products that cannot be shifted during the bad times. If a small business holds stock, reducing the amount and types could prove beneficial. The quicker turnaround time as a result of a decrease in the stock holding period will increase cash flow. The worry for a lot of small businesses is that through doing this customers maybe lost, however in some cases this can countered this by improving the quality of the stock. 

9. Negotiate A Discount 

This may seem unlikely however if a business can show that it could be beneficial to the creditor to offer a discount they may agree. Ultimately if you don’t ask you don’t get. If a small business can come to an agreement, it will benefit its cash flow and potentially ITS profitability as well (depending on what the terms are agreed for the discount).

10. Consider Changing Loans 

If a small business has several loans for different sections it could benefit through consolidating these into one loan in return for a lower interest rate. The main thing here is for a business to have shopped around to see that it has the best loan available. By decreasing monthly repayments the business’s cash flow will increase. 

A small business should regularly review all aspects of its business to see where savings can be made with the overall goal of increasing cash flow.

Do you have any tips for improving your cash flow? Let us know about them in the comment box…