Murray Kenneth's Catalogue & e-Commerce Blog

Raising finance for your catalogue & e-commerce business

This article was written for the Small Business Spotlight section of January's Catalogue & e-Business Magazine

The theory goes that direct commerce is a cash-generative business. Our customers generally pay up front, and we in turn negotiate credit terms with our suppliers. So why is cash flow and funding so often cited by niche merchants as the factor that most inhibits their growth?

No prizes for providing the answers. Most businesses start life underfunded. Things very often take longer than anticipated. Not everything works to plan (some mistakes being more costly than others). We need more and better people. Ultimately, having tasted some success, we become impatient for growth and need to invest so that the momentum can be maintained.

For these reasons and others, it’s not unusual for direct commerce businesses to need an injection of cash. Take care! Raising finance for your business should not be undertaken lightly. At best, securing funding is a time-consuming diversion from the core business. At worst, it can be a stressful, expensive, and often needless denouement for a promising brand. You could end up diluting your ownership and increasing your personal liability.

If you’re investing in premises or equipment, consider the leasing options. If you’re facing a short-term cash-flow blip, think creatively and work through the usual list of cash-saving and cash-generating measures. If you’re certain an injection of finance is what the business needs, steel yourself for the task ahead, and don’t delay with getting started.

Preparation

The financing paradigm works like this: The more desperate you are to raise cash, the harder it is and the longer it will take. Don’t leave it too late, or you’re at risk of gravely compromising your negotiating position and reducing your options. Figure out your strategy and have a plan in place before you need it. You’ll be grateful later on.

Often businesses struggle to raise funds in times of distress purely because they’re so busy fire-fighting the symptoms of their funding problems that they can’t spare the time to start planning their way out. Never has it been more important to have a firm grip. If you’re on top of your business planning, can point to a recent set of key performance indicators, and are up to date with your financial reporting, you’re more than halfway there.

Develop a good pitch—two sides of A4 or approximately 10 slides. Avoid too much detail, but don’t leave out the key information (how much money you need, why you need it, and what you’ll give in return). Don’t write it as a speech; make it an outline that you can talk around and expand on. 

Separately, have ready a good written business plan including your financials. You’ll need a standard nondisclosure agreement if you’re going to be sharing it with someone with whom you don’t already have a confidentiality understanding.
Think of potential investors as customers: They’ll certainly exhibit similar behavioural traits as part of their decision-making, and you need to accommodate them all. In the same way that your prospects make an instant decision on whether to engage further with your brand based on the look and feel of your catalogue or website, potential investors will quickly form an initial decision based on what they think of you as much as your business. You can’t beat having the facts and figures at your fingertips to support any questions you may have to respond to, but at the end of the day, it’s the sizzle that sells the steak in your business. You’ll need to demonstrate passion, belief, and management capabilities as well as a firm grasp of details.

Your options

The amount of funding you’re seeking will, to a certain degree, dictate the most appropriate source. For smaller amounts (perhaps up to £50,000), your bank will probably be your first port of call. An extended overdraft facility secured against the assets of the business is likely to be your best outcome. In today’s climate, however, the bank is likely to take the opportunity to secure any liability with a personal guarantee or a charge over your house—not something to rush in to without proper consideration. Many entrepreneurs are willing to go there, but all breathe a huge sigh of relief when they are finally released from such a guarantee.

The government’s Enterprise Finance Guarantee is designed to encourage banks to provide small and midsize businesses with funding of up to £1 million. The anecdotal evidence is that lenders will still seek personal guarantees (although they are not permitted to take a charge over a principal private residence) and are fairly picky when it comes to businesses with few assets on their balance sheet other than stock. Talk to your bank or consult the Business Link website for a list of participating lenders.

Most venture capital companies are uninterested in making investments of less than £1 million and anyway usually require a level of professional due diligence and legal work that would knock it into touch as an option for most smaller businesses.

Friends and family can fill a gap at the lower end of the spectrum with either a loan or an equity investment. Mixing personal affairs with business can sometimes be difficult, particularly if a dispassionate outlook is required. Each party needs to know what he’s letting himself in for, and some expense on an appropriate agreement is certainly worthwhile.

An angel at the table

Finally, and usually most appealing for small businesses, are independent investors, more commonly known as business angels. Such individuals can make ideal partners. To start, a quick deal is often possible, minimising the disruption to your business. They will usually have solid general business acumen and broad experience, providing you with a useful and interested sounding board. Occasionally, if you’re lucky, they will have direct relevant expertise of your product or your business model and will be enthusiastic about contributing some of their time at a strategic level on a regular basis—something that can be incredibly valuable to your business. As a stakeholder in your business, an angel will be highly motivated to safeguard his investment and deliver a significant return. This can often mean that he will assist you with securing additional funding further down the road.

To improve the odds of partnering with the right angel, you need to do some homework. How do you define the ideal investor? Do you want a back-seat investor or an active one? Is his network important to you? Are there particular areas where your angel investor could usefully focus? Are you ready and willing to listen and learn from the investor? When you meet potential angels, take the opportunity to interview them and to make sure they really do understand the dynamics of your business model.

Angel investors do not usually want control of your business, but they’ll expect a significant equity stake, usually between 20 percent and 40 percent, to provide them with the upside they are looking for. They tend to be highly motivated to participate to some degree. They won’t want to run your business (that’s your job), but they will expect certain management controls to be put in place. It’s definitely worth dealing with these principles early on, to avoid surprises or misunderstandings later. Make sure that they are incorporated into your shareholder agreement.

Many entrepreneurs baulk at the prospect of angel financing because of the implications for their own shareholding. If your balance sheet is weak, it can be hard to justify a bullish valuation of your business, even though you believe in its potential. The outcome can be an unpalatable offer in terms of the equity you need to hand over for the investor’s cash. This is a good time to start thinking creatively. Some equity will strengthen your balance sheet, but so long as your investor feels he is being offered enough of an upside, consider a hybrid deal that includes some loan stock. Very often the prospect of extracting a proportion of his investment at an early stage is an attractive way of reducing his risk. It leaves more equity for the business owner, some of which could be offered as options to incentivise key staff.

Raising finance can be a tough exercise, and you’ll need to wear your thick skin. But finding the right sort of partner can be a tremendously revitalising experience for you and your business. Many of the most successful brands in the sector today have been through the process several times. It’s part of running a business, and the ambitious entrepreneur will treat it as an opportunity rather than a chore.

Red flags to an angel investor

Seven signals to avoid when pitching to a potential investor:

• The creditor black hole. Don’t imply that you’re raising funds to pay off creditors—focus instead on how the cash will add value or unlock potential.
• Silly salaries. Never mind what you think you’re worth; investors want to see you sharing the pain, investing some sweat. None will begrudge you an attractive bonus linked to performance, however.
• Wobbly morale. Your team can easily and unwittingly betray any cracks in morale. Work hard to unify your staff 
and bolster morale before introducing 
an investor.
• A flawless business. Your proposition becomes less plausible if it fails to acknowledge any weaknesses. After all, a canny investor will treat them as opportunities.
• Unrealistic valuation. Of course you want to hang on to equity, but don’t let that drive an overoptimistic valuation of your (cash-strapped) business.
• Risk blindness.Risk-free businesses are fantasies. Make sure you demonstrate awareness of the risks your company faces with some basic sensitivity analysis.
• Arrogance.You may think you know everything there is to know about your business, but afford potential investors some credit. There may be plenty you can learn from them, even if you don’t make a deal.

Resources for finding potential angels

• 
Angel Investment Network
• 
Angels Den
• 
British Business Angel Network
• 

Business Link
• 
Cmypitch

Article licensed for publication with Creative Commons “Attribution” terms.

First published in Catalogue & e-Business Magazine, January 2010

Art by Bubbo-Tubbo

A course for ecommerce success

Many niche multi-channel retailers don't have an organisation big enough to support the in-house marketing expertise they need to grow their business at the pace they'd like. Often, the owner/manager will be working with limited resources, trying to navigate through an array of online tip-sheets and free advice to discover a strategy that's effective, economical and sustainable.  I know, because that was me.

I'd make the annual pilgrimage to events like ECMOD and listen in awe to the quality of expertise on offer, wishing I could afford to bring my whole team, or even better, bring the experts into my own business and 'internalise' the learning.

So you can imagine how excited I was to get involved, through Gramar Investments, with the development and launch of an innovative online training program for ecommerce merchants.  The course mixes advice from many of the real-life experts I might encounter at ECMOD or equivalent events in the US, with the fictional story of a young, glamorous entrepreneur and her blossoming online cosmetics business. 

 The story is told through the eyes of Frank, a private investigator working for an undisclosed jealous rival.  His files, consisting of audio, email correspondence and notes, make up the course materials that are used to reinforce the key learning points of the program in a compelling, memorable and fun way.

Delivered online and on-demand, Frankly eCommerce enables your whole team to participate by working through the course materials collaboratively: tagging, sharing and commenting on lessons in a way that works best for your company.

The course is released to limited number of users in March 2010 however we're currently inviting e-commerce retailers to sign up for free beta access in February, qualifying them for priority access when the full course is released.  Please register your interest for the free trial at www.franklyecommerce.com.

Follow Frankly eCommerce on Twitter

Why independent retailers are worth the effort

Between Tesco and Amazon, I could buy everything I need this Christmas.  I'd be confident about having huge choice, paying reasonable prices, and getting decent service.  It sounds like a no-brainer - so why would I rather sell my soul to the devil than make my holiday shopping so simple?

The answer is that I'm passionate about independent retailers.  Whether that's local bricks and mortar or niche online specialists, I believe they're the grass roots of our retail economy and the lifeblood of many local communities.

It's easy to see this in our high streets and town centres.  Independent retailers are part of our national fabric, making each town distinct from the next, supporting the local economy, and absorbing the money we spend into the local community rather than syphoning it off to institutional shareholders. 

And when you think about it, it's no different online.  Specialist independent online retailers don't inhabit cyberspace - they're based in local communities too; providing employment, spending money, supporting local causes.  In fact, for many small communities that were previously 'geographically challenged' for retailing, the internet has provided a new lease of life for the local economy.

Good independent retailers - whether online, on the high street, or both - very often offer surprisingly competitive prices, excellent service, and plenty of choice.  What makes them different is the selection they make on your behalf of what to sell, the guidance of personal recommendation, the feeling that you're really valued as a customer, and the knowledge that you're supporting the sort of independent business that you'd never want to disappear.  For me, that's a no-brainer.

Happy shopping!

Building a successful online brand with content

 
How a retailer of adventure luggage attracts high-converting traffic with search-friendly content (and has a lot of fun in the process)

When I met him in June at the Internet Retailer conference in Boston, he’d just spe nt a week on a 500-mile off-road expedition putting a brand new Land Rover LR3 through its paces in C olorado, courtesy of Land Rover Lifestyle magazine.  By the time you read this, he’ll have just arrived back from a three-week expedition to a remote corner of Namibia.  All this, while running a successf ul and growing retail brand back home in Montana.  How does he get away with it?  Well, put sim ply, Jim’s business is Adventure.Like his father before him, Jim Markell was a parachute rigger in the marines.  Day in, day out, paratroopers quite literally put their lives in his hands every time they jumped out of a plane.   Today, he applies the same perfectionist’s appreciation of quality materials and attention to detail to manufacturing and retailing the Red Oxx range of premium adventure luggage.  Needless to say, every piece has an unconditional lifetime guarantee.
 

Building a content-rich landscape

I was already a fan of his product range thanks to an introduction from a colleague in the US, but now I’m an admirer of his marketing strategy too.  Why? Because Red Oxx uses content not only as the cornerstone of a successful, long-term, sustainable search strategy, but it positions this content at the heart of a wider marketing strategy in a manner that leverages its effectiveness exponentially. More on this “holistic” approach later, but first a summary of the tactic.
 

Over several years, Red Oxx has been publishing informative articles of around 800 words, framed around particular keyword phrases developed using tools such as Wordtracker or Keyword Discovery.  Importantly, the focus is deliberately on longer keyword phrases of three or four words, thus avoiding the most popular and competitive phrases.  They’ve found that the fourth word in a keyword phrase can add the extra degree of specificity that results in significantly higher click-through and conversion rates.
 
For example, when the airlines changed the rules for carry-on luggage post 9/11, there was a surge of interest in the subject from travellers worldwide.  It was also a subject of particular interest to Red Oxx, who make a range of bags based around these regulations.  Keywords phrases were researched and informational content was crafted, generating a surge of traffic to the site and a very short payback on the effort employed.  So successful was this particular campaign that it still generates top 10 organic rankings for certain keyword phrases and a steady stream of high-converting traffic more than six years later.
 

Swimming with sharks as a marketing strategy?

Where the example above was a somewhat opportunistic tactic straight out of the guerilla-marketing handbook, the next example epitomizes a slow burn and sustainable content strategy that has become the mainstay of the Red Oxx approach to generating qualified traffic from search.    It’s based simply on understanding their customers - what sort of people they are, and perhaps more importantly, what sort of people would they like to be.  By tapping into these aspirations with content that allows the merchant to interweave their brand and product, there is an opportunity to create the content-rich landscape that the search engine robots really appreciate.
 
Take swimming with sharks.  Hammerhead sharks to be specific – on Cocos Island, 300 miles off the Pacific coast of Costa Rica.  Yes, it really exists (I spent five eventful days there once, but that’s another story), and it’s one of the world’s top Scuba destinations where you’re guaranteed to see more varieties of shark in greater quantities than you might previously have thought advisable or even possible.
 
So Jim and his cousin Shawn took a trip there a couple of years ago with a company specializing in live-aboard diving trips.  They came home with some nice pictures, a bit of video, and enough words to create a series of four 800 word articles for the Adventure Journals section of the Red Oxx website.  Of course, no detail is spared when it comes to describing the choice of kit bags to take along for the ride – but the content is nevertheless compelling: detailed, well written, keyword rich, and supported by some visually appealing pictures and video.
 
The articles were all written in-house, and then optimized for search by an agency at a cost of around £250 each.  The cost of adding the supporting video content was probably less than £1,000.  The articles rank more highly than the website of the dive company that took them there.  Even with the cost of the trip factored in, it paid for itself within a year and, two years on, continues to pull in a steady stream of traffic with those high-ranking four word phrases (try “costa rica cocos sharks” and you’ll no longer be surprised to see a retailer of adventure luggage at number 3 on the first page).  The expectation is that it will continue for many years to send qualified prospects to the Red Oxx website at no additional cost – but this is not the only benefit.
 

Realising the holistic benefits

As I hinted earlier, the real benefits start to kick-in when your content becomes part of a wider strategy for your website. Dovetail with your email marketing in a way that reinforces your brand and supports your merchandise offering.  Allow your content to intertwine with your product pages and vice versa.  Your overall site search visibility will improve as people link to your content or click through from search results pages.
 
For Red Oxx, this strategy has delivered consistent and profitable double-digit organic growth.  It does no paid search.   It never sacrifices margin by discounting products in order to generate sales.  It no longer needs to tour the circuit of specialist consumer exhibitions (although they still do, mainly to gather ideas for fresh content).  Customers themselves generate a significant amount of content in the form of product reviews and travel diaries.  Jim even boasts of impatient email subscribers demanding to know when the next bulletin is being broadcast so they can read up on the latest Adventure Journals!
 
Of course, where merchants selling commodity products may struggle to achieve similar success, Red Oxx is a brand that is made for this strategy.  They make a unique range of products with a great story, and sell them to a booming market niche made up of voraciously inquisitive customers with money to spend. Notwithstanding the caveats, the Red Oxx story provides food for thought for any small online business, not least being this: if your brand is your passion, creating lots of keyword rich content can be not only fun, but perhaps the best long term investment you can make in your website.
 

Take-away points

• If your brand has a good story – tell it
• Write for the person you customer would like to be
• Research the long keyword phrases that will provide the sweet spot
• Create a content-rich landscape to boost overall site visibility
• Think holistically about your content

 Article licensed for publication with Creative Commons “Attribution” terms.

First published in Catalogue & e-Business, September 2009

A bluffer’s guide to incisive IT supplier evaluations

How to cut through geek-speak to unmask a supplier’s viability.

Ask the right question and a prospective technology supplier will reveal wonderfully useful information to help you in your evaluation. While merchant’s can feel intimidated by acronyms and jargon, you *can* talk tech about the product you're thinking about buying. The secret is to ask qualitative questions, then follow the scent of evasion and pride. That's because it's often not just about the technology.

Most importantly, reflect on the fact that the more critical the supplier's role in your operations, the greater the scrutiny you need to apply to the supplier itself -  the actual company. Products matter, software features matter, technology "stacks" sort of matter -- but they evolve at a pace few of us are likely to totally understand. Trust your supplier to *really* understand. Through evaluating its technology, you can lead your supplier to demonstrate whether the company itself deserves your trust and investment.

Here's an example:
A multi-channel merchant in search of a new ecommerce platform asked our evaluation of the search engine friendliness of a supplier's URL's or links. "They end in .asp. Is that OK?" Our question in reply, having nothing to do with SEO, sought to reveal the product's technology foundations: "Why not end URL's with .aspx?"  The intent of asking this is not to make a value judgement on the technology per se, but to give us an opening to explore the product's evolution and infer the company's health.

(We also answered the SEO question, too: Yes, .asp URL's can assist your SEO efforts providing they resemble an English sentence, containing relevant keywords separated by hyphens, and in a “readable” style.

Let's explore this example further: If a supplier's product still relies on Microsoft's old-style Active Server Pages, which a .asp file extension implies, then its notable that the product isn't yet upgraded to the .NET framework. That matters because .NET is integral to Microsoft's technology strategy -- released circa 2002.

Seven years ago? Ah, so there's a legacy flavor to this supplier's product! There may be a perfectly good explanation for the supplier holding back. Ask for it. Maybe they're not profitable enough to make the necessary investment. Or don't think they have to bother given past success and present busyness. Or they won't explain either way, being evasive. And maybe that's because the founding partners split, and the remaining partner lacks expertise in managing technical operations and so he outsources its "maintenance" to India, and the software hardly evolves anymore.

All very interesting. But what, if you don't know the difference between .asp and .aspx! How would you ever spot a vulnerability like that?

Even if tech acronyms are like Greek to you; still you can learn from this exchange. Ask leading questions, appealing to the supplier's aspirations for its own product. People love to talk about their ‘babies’. Ask for qualitative descriptions. Prompt the supplier to describe what they're proud of; they do have something to be proud of, yes? Pride's important.

Suppliers also know what's old and crusty about their product; give them a chance to describe all the great improvements they have planned. Ask why it matters to them. Sniff for evasion. Then read between the lines. Listen. Sometimes say nothing. Grunt and nod a bit.

Regardless of your comfort level with technology, remember that any question you ask will be more useful if it can’t be answered with a yes or a no. Your most effective questions will be those that can’t be answered with a definitive, factual response. Factual questions are less useful because we're assuming you don't know enough to evaluate the technical decision-making that drives a product's evolution. "What's the technology behind your product?" might serve to open the conversation, but does it mean anything to you if the answer is .php or .asp or .jsp?

Probably not. But you can learn to follow a scent. What sounds evasive? When do you hear pride? Explore this with multiple points of contact within the supplier's company. Trust where it leads you, and keep asking why. In the end, you'll be better informed when it comes to the biggest decision:  can you trust the company?

Cheat Sheet

Qualitative, leading questions you can ask a prospective supplier about its technology product without speaking geek:

1. Why is that important?
2. How does that help you serve me better?
3. What's exciting about that to you?
4. Which part of it are you proud of?
5. How would you improve / upgrade that if you could?
6. Why haven't you done it already?
9. When did you last do something like that?
7. What part draws the most support questions?
8. Why do you think that is?
10. What else?

About the authors:
Patrick Pitman, CEO of E-business Coach, implemented his first ecommerce site in 1996. Murray Kenneth has been a multi-channel merchant since 1998 and currently offers advice and investment to growing merchants. Both love to ask "Why?"

Article licensed for publication with Creative Commons “Attribution” terms.

First published in Catalogue & e-Business, June 2009

Funding & recovery

Having been through a "recovery" myself, I understand the challenges faced by businesses in the multi-channel retail sector facing a distress situation.  I've therefore assembled a consortium of investors willing to provide recovery finance, management input and board level advice to small and medium sized multi-channel retailers.  If this is of interest to you, please contact me.

2009 looks set to be challenging year for multi-channel retailers of all sizes.  Inevitably, the combined pressures on cash flow of a squeeze in margins and a drop in consumer spending will be more than some companies can bear, given a heavy reliance on cash from sales to keep up with creditor payments.  Fixed overheads are often not easy to slash and the very nature of a multi-channel business that relies on direct mail as a significant generator of sales means that investment in printing and mailing can require additional funding.

In 2004 my own business reached a stage where, despite healthy sales growth, it became virtually impossible to raise further funding for recruitment due to the level of creditor liabilities in the business.  A costly outsourcing error compounded the problems and took the business to the brink.  The ensuing insolvency proceedings and rescue package were possibly the most challenging period in my career.  However, the brand was saved along with the jobs of the team and, freed of the crippling burden of its liabilities, the new business structure took the brand to profitability in its first 18 months of trading.

Of course it's always easier the second time round.  Costly mistakes can be avoided and the optimum business model can be adopted from the outset.  High level advisory input will help the management team remain focussed on the important strategic levers and targets within the business.  In short, a business recovery can unshackle you and your team from the burden of financial stress and help your brand realise it's true potential.

For a discrete and no-obligation preliminary conversation, please contact me.

The 'SEND' button can be a fickle friend during a downturn

Measure email 'success' with care or risk squandering your list

When a merchant struggles to meet it's sales plan, resisting the 'send' button on another email broadcast can be devilishly hard to do. Relatively fast and cheap compared to catalogues, where’s the harm with frequent email offers? Let's explore the answer with one merchant's true story from December that should give you cause for reflection.  Watching the sales roll in, they overlooked costly consequences.

But before I begin the case study, let's jump ahead to the key learning points:

1. Be careful what you measure when evaluating your email marketing programme. If you only measure aggregate sales driven by email to determine effectiveness, the 'send' button can be a tempting but fickle friend. Pressure to achieve sales targets or maximize a seasonal opportunity drives up the frequency of email offers. But remember: an "It's working, keep sending!" mentality has consequences that must also be measured.

2. Measure email results with an eye towards maximizing the lifetime (i.e., long-term) value of each address. That presupposes that you'll have a *relationship* via email, which in turn assumes you'll even be able to get your emails delivered to that person in the future. If you're not regularly measuring deliverability and assessing receptivity (both explained below), with a similar kind of attention that you give to measuring sales, then watch out for a painful surprise.

Now back to the case study:

A multi-channel retailer with a bit over £1M in website sales conceived of a 'deal of the day' promotion to be delivered via email in the run up to Christmas. Their list consisted of customers or opt-in subscribers who had historically received 1 to 2 email offers per month. As usual, those email addresses received two offers at the start of the month. Then over the next 22 days, an additional 12 email offers arrived.

Each offer featured a product or category prominently, with a special price that expired at midnight or within the week. Each offer's details appeared both as text (HTML) and again as a tasteful graphic, with the text version present in case the recipients' email settings blocked images from being displayed. Subject lines conveyed urgency and opportunity. Sometimes two or three additional items received secondary placement. All in all, a professionally planned and executed campaign.

Near the top of every message appeared an invitation to opt-out of email offers with a red "click here" text link. While this always appeared at the bottom of every message, the additional placement at the top demonstrated the retailer’s concern about the potential frequency overload.

Let's check results:

* Email was the merchant's only 'source' of e-commerce traffic and sales that showed a gain over the prior year (other sources being organic search, catalogue direct referrals, etc. as measured by Google Analytics). On the way to a +30% gain over the prior December's sales driven by email meant smiles all around the office and a continuing confidence in hitting the "send" button.

* In fact, sales from email helped the company grow year-on-year sales by 10%. Exclude the major contribution from email and sales would have contracted by nearly an equal amount.

By these measures, the email programme showed brilliance in conception and delivery during a very tough retail period. And that's where the retailer was focussed:  on a measure of aggregate sales driven by email offers.

So let's look closer and identify other consequences:

* Click through rates (meaning the # of human clicks on links within each email offer) declined from 7% to 5% to 3% to 1.5%.  This demonstrates a decline in interest or unwillingness to really "open" the message.  (By the way, conventional measures of "open rates" are rubbish since the advent of the message preview window. Clicks are what matter.)

* Subscriber list size declined 5% as a result of unsubscribes. People were taking up the offer at the top of the message to 'click here' and end the bombardment.

* The list contracted another 5% due to 'bounces'. This can mean that 'soft' bounces due to full mailboxes turned into 'hard' or permanent bounces due to sufficient frequency of re-sends during a certain window of time. 

* ISP's noticed an increase in the rate at which recipients (the ISP's customers) flagged the messages as spam. Combined with the higher than normal bounce rates, some ISP's took action. One, the 4th most important ISP on the retailer’s list, temporarily blacklisted the merchant. This meant all messages were sent to junk mail and not delivered to recipients. Another ISP, Gmail, flagged the retailer with a "watch" status, meaning it was on the verge of being blacklisted, a fate from which it's hard to recover with that particular ISP. And those are just the ISP's the merchant knows about.

With hindsight, a seemingly successful programme may have weakened the brand’s ability to market effectively by email over the long-term. In my opinion, I would never wish to see a decline in the size of a list.  I would prioritise a focus on maintaining click-through rates that are above average.  As a result, I believe that sales growth will naturally follow.

Put yourself in your customer’s shoes.  She’s probably signed up to 10 or 20 email lists, depending on how prodigious a shopper she is.  We’re all vying for her attention, and a share in her discretional spending.  Unless she’s an ultimate fan of your brand (yes - they do exist, and you should make the most of them), surely it’s common sense that her attention span will diminish in inverse proportion to the number of messages you send her – until eventually she doesn’t even notice what they’re emailing about?  The tragedy of this scattergun strategy is that when you finally email your customer with something she genuinely is interested in, she may well have hit the delete button before she even noticed.

The risk of too frequent *broadcasts* is email list fatigue and contraction. And you won't know what too frequent is for your customers unless you can really measure it. Moreover, you risk the reputation of your server and business, should ISP's decide not to deliver your messages. So you'd do well to measure 'deliverability', too.

Since 2006, my companies have relied on an email marketing platform from E-business Coach that measures the health of my programme in these ways. See the list nearby for important questions to ask your email service provider, or to ask when evaluating a new one.

Here's one way in which I would have handled the campaign detailed above differently.  After the 2nd in the flurry of email offers, I would have filtered the list according to the actions of the recipients themselves. Did they click on a link, giving a true measure of whether they opened the message and paid attention? If yes, send them a subsequent offer. Measure. Repeat.

This kind of email campaign becomes an exercise in "narrowcasting" as compared with universal "broadcasting" to the whole list. An email campaign sustains and strengthens a retailer when it encourages customer relationships by narrowcasting relevant offers at an "appropriate" frequency. The current retail climate is the perfect time to use such a strategy, given that there are many retailers who will find it difficult to resist the send button over the coming year, and tax our patience in the process.

What do you think? Please write in to share your assessment or suggestion for handling this retailer’s email campaign. What would you do differently given the chance?

*********************************************************************************
Can you measure these essential aspects of your email programme?

Ask your email service provider, or the next one you evaluate:

1. Can I measure the rate at which my messages are delivered to the top (50, 100, or more) ISP's?

2. Can I test that deliverability before I send the final version of my message.  In other words, can I test deliverability without sending to my own list?

3. Can I measure click-through rates, or the number of times a link in the message was clicked?

4. Can I identify specifically which link each recipient of the message clicked?

5. Can I easily develop a follow-up recipient list tailored to those email addresses that show having clicked on a certain link?

If you’re capable of running an email campaign with those capabilities above, you're well on your way to making email a sustainable driver of web sales, come good times or bad.

*********************************************************************************

© Murray Kenneth 2009
First published in Catalogue & e-Business

Building an effective team in a growing business

“Your team is your greatest asset, and its overall value to your business is much greater than the cumulative value of the individuals within it.”

The sentiment behind this well-worn maxim is one that is impossible to resist, and many owner-operators of growing catalogue businesses yearn for that “dream team” of sparky, committed and hard-working devotees that will propel their enterprise forward towards success.  But in the cruel light of a frantic Monday morning spent fire-fighting the latest unforeseen challenge, your “dream team” of multi-channel superstars can feel more like a distant pipe-dream than a realistic goal.

Just how does an under-funded, under-resourced and over-stretched catalogue entrepreneur maximise the opportunity to build the best team his business can afford? Salary and recruitment costs can be significant barriers when you’re mindful of ensuring that overheads don’t grow faster than turnover.  In a buoyant sector such as ours, suitably qualified and experienced individuals can be hard to find – particularly if you are based in the provinces.  On top of all this, the time required to plan, recruit and train a new member of your team is often very substantial indeed.  Mistakes can be costly!

Here are some practical, common sense considerations to take into account when considering an increase to the headcount in your business:

Plan for your needs
Business planning and budgeting exist for good reason.  A proper annual strategic review provides direction and prioritisation, giving you plenty of time to plan for the team you need to drive growth.  If you’ve tried to recruit in a tearing hurry, you’ll appreciate the huge benefits of such planning. 

Stay focussed on what you need and what you can afford – rather than what you would simply “like” to have.  A good reality-check is to share your plans with someone outside the day-to-day running of the business.  Use a trusted consultant or accountant.  If you have a board, use their knowledge and experience.  In the past I’ve created small “advisory groups” of shareholders, willing to contribute at a high level, three or four times a year, and free-of-charge too!  Such feedback and strategic input can provide tremendous comfort and encouragement for an owner-operator in what can often feel like a very isolated position at the helm of the business.

Consider all your options
My personal view is that small, growing, owner-managed businesses invariably need more good soldiers rather than more good generals.  We are engaged in a heavily process-driven working environment where the complex machinery of an effective multi-channel business needs to be well oiled and efficiently operated.  Achieve this, and you’ll have created more time for you to plan the route your business is going to take, and retain close control over operations and costs.

A simple skills audit of your existing team will help you think more creatively about the options available to you.  It’s quite likely that your planning will have identified a rather hybrid job spec, so some lateral thinking may be appropriate.  Internal re-organisation is often a great way to meet the changing needs of the business while at the same time enabling members of your team to progress their careers and broaden their personal skills set.  Furthermore, it will often mean that you can recruit for “safer” positions where you have retained experience (and training potential) within the organisation.  This is a great way to help build a “backbone” of key individuals who have broad experience across your organisation as well as a desire to progress their own careers in parallel with the success of the business.

Don’t forget to look externally too, particularly if you have identified a requirement for some specialised input.  Consultants can be great value for money when used effectively, bringing experience from other businesses and a quality of input that you are probably unable to afford on a full time basis.  For me, effective use of a consultant means regular but sparing input within the constraints of a tight remit.  Not only will you be filling a skill requirement on a short-term basis, but you will be adding value to the business by broadening your own knowledge and experience in the process.

Prepare for recruitment
When you’ve decided what you’re looking for, prepare a detailed written job specification in a format that clearly differentiates between the scope and responsibilities of the role, the skills or experience sought, and the personal characteristics of the ideal candidate.  Use your marketing skills to write a great job advert (making sure you don’t fall foul of any relevant legislation) and plan the interview process making sure you consider whether any practical testing is required.

The next challenge for the business on a budget is to find the most economical and effective means of reaching potential candidates.  This will, of course, depend on the type and level of position you are recruiting for but the traditional options include the local press, recruitment agencies, or generic online recruitment sites like fish4jobs.  Of course, our venerable trade publications, both offline and online, are likely to get your vacancy in front of suitable candidates who may not even be actively looking for a new role.  Many vacancies are taking advantage of social networking sites like LinkedIn and Facebook to promote their vacancy.  One enterprising business owner recently offered a “bounty” for a referral that led to a high level appointment in his business!  It’s worth remembering to create a “situations vacant” page on your website or even send a speculative email to customers within a certain radius of your base.  After all, a candidate who already knows your brand is at an immediate advantage!

Interview effectively
OK – we all tend to get on a roll when we start talking about our business so it’s important to plan the interview well and stick to the schedule.  A first interview should probably take around 40-60 minutes – plenty of time for you to present a brief overview of the business and the role your seeking to fill, then ask lot’s of open, leading questions that will explore the candidates relevant skills and experience.  Ever since I interviewed a prospective buyer who didn’t know how to calculate a gross margin, I’ve always liked to ask a few technical questions relevant to the role in question.  Take notes or use a pre-prepared “score sheet” with spaces for certain comments – it makes it much easier to compare candidates later.  I like to take a photo (not always a popular move!) and interview with a colleague so that between us we can make sure nothing is missed and we remember later who we are talking about.

Make it a good induction
Once the decision is made, allow the time to make a really good plan of how your precious employee will spend their first days in your business.  It’s amazing how quickly a new member of the team can contribute in a positive way given the proper guidance.  Ensure you team makes them feel welcome and that they get the opportunity to spend some time in every department.  Be prompt to provide a contract and a company handbook, and spend time agreeing objectives and how progress against them will be measured.  Show them you care – careful nurturing and support will pay dividends in the long run!

Be prepared to take a risk
It’s all very well having a fantastic plan and an efficient, systematic process but any true entrepreneur should be prepared to rip it up and throw it out the window at the sniff of a good opportunity.  I’ve heard some of the great leaders in this business express their regrets at not hiring the right calibre of person sooner, but I’ve never heard anyone lament the fact that they employed a really good person too soon!  Recruiting someone with contrasting style, better earning power, and quite simply superior skills or experience to yourself can be a daunting prospect – but the sooner you come to terms with it the better for the long term future of your business!  Similarly, you wouldn’t want to miss out on the maverick candidate if he could bring some X-Factor to the business, or the rough diamond that just needs a little polishing in order to shine at the heart of your business for years to come.  You’ll never know until you try.

Get creative when growing your team:
•    Plan very well
•    Look hard within the business
•    Recruit creatively
•    Use external expertise to save cost
•    Build a solid backbone for your business

Recruit staff as cleverly as you recruit customers:
•    Use word of mouth
•    Work all the channels
•    Offer incentives for recommendations
•    Be targeted with advertising
•    Make your retention good

 

© Murray Kenneth 2009
First published in Catalogue & e-Business

Benchmarking Fulfilment Cost & Quality

I don’t think I was the first naïve owner of a fledgling multi-channel brand to think that fulfillment was not a core part of my business.  Surely it was the clever creative, the inspired range selection and the hard-nosed marketing that would make or break my company – rather than a straightforward commodity service like fulfillment? 

Of course it’s blindingly obvious now, with the benefit of 20:20 hindsight and a career strewn with the wreckage of lessons learned the hard way.  Fulfillment is as fundamental as your product range.  Get it wrong at your peril.  At worst, your hard-won customers will hemorrhage away at a rate at which you’d give your eyeteeth to recruit them.  At best, your inefficiencies will erode your bottom line leaving you scratching your head and contemplating how you are ever going to make a decent profit.

So if fulfillment is so critical, why do we afford it so little management time and strategic input?  Few MD’s park their desks in the distribution centre, and most would admit to spending less time there than they know they should.  After all, it can be cold, a bit dusty, and the tea invariably leaves a nasty tannin aftertaste! Perhaps this all contributes to what the process analysts would call “paradigm blindness” – a self-assured view that “the way we do it here is the best way because we’re unique and it’s the way we have always done it”.  How many times do you hear people say that “if it ain’t broke – don’t fix it”?  It’s not generally a good answer – and too much laissez-faire can result in too little savoir-faire at the top of your organisation.

This same “paradigm blindness” is quite possibly the impetus that the business analysts needed to invent the notion of benchmarking back in the early 1990’s.  Benchmarking is a business tool that is at once a common understanding of performance and a stimulus to change existing practices or adopt new ones in order to improve that performance.  In simple terms, it’s the creation of standards (KPI’s) against which performance can be measured.  Extend the notion to collaborative benchmarking and you might attain a measure of a specific competitor’s performance or even industry-wide performance – against which you can measure the relative performance of your own company.  More on collaborative benchmarking later!

At this point it’s worth reiterating the position from which I write this.  My experience is not that of a business analyst or a logistics expert, but merely that of the generalist owner-manager of a B2C multi-channel SME: if you like a Jack-of-all-trades who is focused merely on the daily challenge of planning and prioritising the efforts of the business.  My focus is on the internal benchmarking of performance to assist with this business planning and prioritisation. 

So who else can benefit from performance benchmarking in the distribution centre?  The rest of my team will have varying priorities which all need to be considered as part of the benchmarking process.  For example, the Marketing Director will be concerned with measuring performance against the service claims he liberally dispenses in an effort to win and keep those precious customers.  How quickly do we deliver?  How accurately do we pick orders?  How well do we package a parcel and how long do we take to process a return? 

On the other hand, the Finance Director will be pre-occupied with ensuring costs are constrained with predetermined budgets, identifying opportunities to increase efficiency, and generating enough empirical evidence to support his budget for next year.  The Fulfillment Manager will be interested in measuring the cost and efficiency of his team, and planning properly for the peaks and troughs in his workflow.  The Contact Centre need to accurately set customers’ expectations in terms of delivery and returns processing, and take comfort in a downward trend in those little mistakes that can cause big customer service headaches.

In a large business, the infrastructure and systems is likely to already exist to provide the business data required to benchmark your fulfillment operation.  However, if you’re a fast-growing SME like so many of the niche businesses in the multi-channel sector, you’ve probably had to make it up on the hoof, or rely on your 3rd party provider to crunch the numbers in a reliable and consistent manner.  And this consistency really is crucial when it comes to the measurement of your KPI’s.  In my view, if you can’t define exactly how a KPI is measured, you shouldn’t be taking it at face value.  Furthermore, if your distribution centre KPI’s take more than 30 minutes a week to produce, they’re either too complicated for your business, or you need to invest in some means of easily producing the data.

So what really matters?  You can ask a roomful of multi-channel experts and you’ll almost certainly get a handful of common answers as well as a clutch of interesting ideas that stem from different businesses having different needs.  Here’s a short selection of favourites from various sources:

1.    Total fulfillment costs as a % of invoiced sales.
It’s about as basic a measure of fulfillment efficiency as you can get – but could you say what’s included in your calculation (returns, fixed costs, management costs?) and are you measuring consistently? 

2.    Returns processing time.
For me this is a great indicator of an efficient operation.  Measure the average time in days that it takes to process a return.  If your organisation prides itself on service, you won’t find a heap of returns hidden in a dark corner of the warehouse awaiting processing.

3.    Average cost to pick, pack and despatch an order.
A fundamental measure that everyone in your team should be aware of – and a number that highlights painfully the horrible impact on the bottom line of backorders.

4.    Average delivery cost per despatch.
It’s the number that tells you whether you’re using the right combination of delivery options, and how much your free delivery promotions are costing the company.

5.    Average time to pick an order.
This is really about where you keep your fastest moving items and how good you are at monitoring it.  It’s common for 80% of orders to be picked from 20% of locations – and incredibly, your team can spend up to 50% of their time traveling to and from picking locations.  That can add up to a lot of time.

6.    Orders awaiting despatch.
It’s simple, easy to measure consistently, and an invaluable reflection on your demand forecasting and resource planning.  It’s also interesting to express this measure as a % of total orders and aggregate it over a week.

7.    Employee turnover
Some studies have indicated that 40% of employees are considering changing job and many would do so for only a marginal increase in their hourly rate.  Recruitment costs money and it can take months to bring a new team member up to full speed.  There’s certainly more than a little truth in the saying that “employees don’t leave bad companies, they leave bad managers”.

There are some obvious measures that I’ve not mentioned such as Fill Rate, Backorder Rate, Despatches per Order and so on.  There’s not doubt that they are also crucial metrics but I’ve not included them in this shortlist as they do not solely reflect on the performance of the distribution centre.

Internal benchmarking of your fulfillment operation can provide universally understood measurements of performance and indicate important trends that enable your team to identify areas and opportunities for saving money, adding value, planning resources or evaluating 3rd party outsourcing options.  Don’t underestimate the importance of anecdotal evidence too, but the numbers don’t lie providing the methodology is understood and the measurement is consistent.

Finally, I mentioned that I would return to the notion of collaborative benchmarking and here’s a gauntlet I’d like to throw down for the Catalogue Exchange.  The multi-channel retail sector is an unusually co-operative place to work and we are fortunate enough to finally have a truly representative trade association that is committed to sharing information and supporting new and growing businesses.  How about some true collaborative benchmarking across the sector, not solely restricted to fulfillment but across the board, supported and managed by the Catalogue Exchange?  Such data would provide a priceless resource that would not only help new businesses focus on developing in the right direction, but perhaps save a few of the many casualties our sector seems to suffer.

 

© Murray Kenneth 2009
First published in Catalogue & e-Business

Managing your bank manager

Hard-working entrepreneur WLTM generous, sharing M or F banker for LTR – deep pockets & GSOH essential. Box 3428.

Is our dream bank manager really out there?  Someone who’ll always be there to support us when the going gets tough, encourage and nurture us, share our risks as well as our profits? 

It’s a touching notion, but one that’s probably an anathema to many business managers as they struggle with their “virtual” banking relationship and an attitude to the sharing of risk that’s based on the philosophy of “me first”.  It’s no wonder that two thirds of us are apparently dissatisfied with our banks, especially given the stream of news stories featuring record profits, sub-prime jitters, and Northern Rock.  Merchant bankers, eh?  Is that just Cockney-rhyming slang?

Frivolity aside, our bank is a usually a key stakeholder in our business - and successful stakeholder relationships often pay dividends at the end of the day.  So what’s the secret?  How do we extract the best from the relationship?  How do we become more than just an account number to our bank manager, and what is there to gain from making the effort?

The benefits of a good relationship

1.    Save on costs

Benefit from low or even free rates for standard banking services such as monthly fees, transaction costs and overdraft charges.

2.    Borrow better

Enjoy preferential borrowing rates, gain access to loan products that may not be generally available, and the minimise corporate and personal security you may need to put up.

3.    Stay informed

Get the heads-up on new products and services that can help you save money or streamline your business processes.

4.    Be prepared

A manager that knows and understands your business is better prepared to act quickly for your benefit in times of opportunity or crisis.

All these benefits are real, tangible and translate directly to the bottom line.  In certain cases, they can make the difference between the success and failure of your business.

Fostering a productive relationship

In order to foster a positive relationship with our bank, the first thing we need is a bank manager.  If yours disappeared into the ether to join your Royal Mail account manager, if you never had one in the first place, or if your existing manager is not a business specialist – then now’s the time get a new one!  If your bank can’t provide you with a commercial relationship manager, you’re probably with the wrong bank.

It’s so important that we meet our bank manager in person, and meet him regularly – especially if we are intending to cultivate a long term and mutually beneficial relationship.  It may seem like a chore when there’s little to report, but consider it an investment in time – we never know when we’ll need him.  Get to know him (or her) a little bit: find out a bit about him and see what common ground you have on a personal level.  Not only does it strengthen the relationship, but it makes business that much more interesting when you’re dealing with “real” people!

Next, it’s down to business.  Make sure your manager understands your business – not necessarily every intricacy, but the basic principles of your industry, your sector, its cash-flow dynamics and its risks.  Provide a copy of your latest business plan and highlight any important changes.  Bring along some catalogues or other marketing collateral to bring the business to life.  Finally, and most importantly, provide enough in the way of basic financial reporting to satisfy your bank manager that your business has effective and efficient financial control arrangements in place and remains financially viable.  Ask for guidance on what your manager would like to see, and solicit general feedback on your plans and performance, and the ways in which the bank can assist you.

Banks don’t tend to like nasty surprises.  If the business is experiencing difficulties it’s important that you forewarn your bank manager in advance of any likely ramifications for your obligations to the bank, or the general health of your balance sheet.  Come clean by explaining the cause of the problem, and detail the plans that are in place for getting the business back on track.  As in all relationships, poor communication can often cause frustrations and exacerbate your difficulties.  Understand your bank manager’s situation and avoid putting him in a difficult situation.

Many of us place great value on the longevity of a business relationship, particularly in a constantly changing commercial environment that seems designed to encourage anything but.  It’s certainly possible to build a good rapport with your bank manager in a short space of time, but add in some longevity and you will establish a powerful relationship that may prove invaluable to the success of your business.

It may not last forever!

As your business evolves, don’t forget to keep on top of the relationship.  Periodically review the products and services you use, and in particular keep an eye on their terms and conditions – it’s quite possible that they will need some adapting as you grow.

It’s often the case that as circumstances change, compelling reasons may arise for changing your banking arrangements – however good your relationship may be with your bank manager.  In such situations, remember to make a proper evaluation of the whole package of products and services on offer.  Will the service justify the cost?  Will you have access to the most suitable and best value funding?  Will you have a bank manager who is able and has the time to understand your business?  Will you be providing a fair level of security on your borrowing?

Of course, it’s always possible to mix and match your banking products and services from more than one provider – but there will be a trade off in terms of your value to each provider and the lack of single point of contact.

In this age of the internet, it’s as easy to make a superficial comparison of banking products and charges as it is to, well…, as it is to scan the Lonely Hearts ads.  Make sure that someone in your financial team is shopping around for the best deals so that you have the ammunition to capitalise on the strength of your relationship with the bank manager and squeeze out the very best deals possible from your existing bank without having to up sticks and leave.

Banking comparison websites
Compare charges and offers at the British Bankers Association website:
Or the Simply Business website.

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Managing your bank manager – takeaway tips
•    Understand the benefits of a good relationship – it could make or break your business
•    Put the effort in – meet regularly, share information, get to know him
•    Keep on top – know what it costs, understand your options, use the strength of your relationship to put profit on the bottom line

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© Murray Kenneth 2009
First published in Catalogue & e-Business