“Salesmanship starts when…

“Salesmanship starts when the customer says ‘no’.” – Mike Herning

Whether you are in sales yourself or managing a sales team, sometimes it’s easy to get frustrated when customers aren’t lining up at your door saying yes on every call. I use the following quote to remind myself that anyone can take orders but true sales is about overcoming objections and winning a reluctant prospect over.

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The Law of Red Flags in Management

The Law of Red Flags in ManagementManaging people can be one of the most difficult, challenging and frustrating aspects of running a business or advancing in your career. It can also be one of the most rewarding. How do you get more of the latter and less of the former? It’s a not only a complex topic and challenging in and of itself, but critical to the success of any business.

After managing – hiring, firing, hopefully inspiring – people of varying backgrounds and levels for more than 13 years as I’ve built a company, I’ve found it really comes down to retaining the good people and most importantly avoiding those that don’t fit. Numerous books and articles explore topic of hiring and retaining the right people. ‘Hire slow and fire fast’ is as good advice as any. This article focuses on the ‘fire fast’ side of the equation – knowing when to move on.

One principal that’s helped me throughout the years has been applying the ‘Law of Red Flags’ to personnel management. Red flags have come to symbolize potential problems or danger since the 18th century and can denote various attention and awareness indicators and signals that something is wrong.

For the first several years after starting my business, I approached management with the view that I have an obligation to work with people I hire and to turn the bad to mediocre and the mediocre to good. And why not? Shouldn’t you develop the people who work for you? And as entrepreneurs, don’t we believe that we’re omnipotent in our ability to fix problems and make things work?

Unfortunately time and time again, I’ve spent good time after bad on people who for whatever reason just didn’t fit. Trying to change someone will curse a personal relationship. It’s just as bad in the work world. Hire slow, fire fast is easier said than done.

So how do you decide when to cut bait and when ‘life’s just too short’? It’s probably sooner than you think. I’ve had the difficult task of letting many people go over the past 13 years and although each was difficult in its own way, there isn’t one that I look back on as too soon. In fact, in most cases, I waited too long.

Why is this? Psychologically, it takes a lot to decide and then to fire someone. We put it off and rationalize away issues because it’s human nature to want to avoid a painful termination process. Also, employment law and the litigious nature of our society means we need to be careful, document behavior and in many states, give people the chance to fix whatever problems exist.

I’ve heard experts suggest that if you think about firing someone even once, then it’s an indicator that you should move on. I have 60 people in my company and most, I’ve never thought of firing. However, good people can get off track. Personal issues can crop up. Sometimes you have the right person in the wrong role.

The Law of Red Flags helps and here is how I apply it: If you are managing an employee and red flags pop up, then there is likely 2 or 3 and possibly up to 10 times that number out there. Of course, people have bad weeks or months, and you could argue that chance or randomness might bring a disproportionate number of red flags to the surface at any given time. I agree. It’s possible and fair to explain away up to 2 or 3 red flags in any given period. But I’ve found that if you are a busy person and managing a lot of people, you should to get concerned with a couple of red flags and really get concerned if 4 or 5 red flags appear.

For example, I had a situation with one of my team leads earlier in my career that really brought home the Law of Red Flags. They tried to sneak expenses through. Reports were sloppy. There were rumors of inappropriate behavior. They bordered on being disrespectful to colleagues, yet their work performance seemed strong and it was easy to explain away each individual occurrence as an anomaly or not meaningful.

However, when enough was enough and we let them go, it turned out that there were nearly 10 red flags out there for every one that had come to my attention. It was a real eye opener.

Since then, I have used the law of red flags to counter the tendency to explain away issues and postpone tough decisions relating to personnel. I’ve even used it to kill a potential business development deal or two. In general, the principle has saved me time and allowed me to put a concrete thought process behind accelerating decisions I would have otherwise made further down the road saving time, irritation and hassle.

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“No one ever got very smart from talking”

“No one ever got very smart from talking” – Mike Herning

As Mike Herning, Chairman of my company and my mentor often says you can never learn unless you shut your mouth and listen. It’s something I frequently have to remind myself. As a case in point, I switched the channel to a rerun of The Apprentice the other day and was struck by how the above quote applies.  If you are called into the boardroom (perhaps any boardroom), it is best to keep quiet and speak when spoken to. No good can come from popping off. Speak when spoken to and learn from listening.

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Management Training from ‘The Corner Office’ Courtesy of the NY Times

I’m always interested in refining my leadership and management skills. It’s easy to forget the basics or become set in your ways. Each Sunday the New York Times publishes a column titled the Corner Office by Adam Bryant – http://projects.nytimes.com/corner-office – consisting of an interview with a business leader about how they have developed as a manager.

Corner Office - New York Times

Whether you are looking to become a better leader, improve your hiring or motivate your team, I find it always has several valuable and immediately applicable lessons for improving my management skills. It’s a good section to bookmark and read weekly. Or just read through some of the past columns as a training exercise. Perhaps one day I’ll be profiled…

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The Importance of ‘Customer Lifetime Value’ in B2B Online Advertising

As advertising options online proliferate, B2B marketing continues to evolve into a significantly more sophisticated and complex endeavor.  What’s the value of an impression?  An audience?  A click?  A lead?

If you – like me – run a website or work with advertisers, you know that calculating ROI is becoming increasingly important in the eyes of many advertisers, yet tracking and demonstrating that ROI is challenging at best.  Although the Internet offers much more robust tracking and an immediacy of results than traditional media, it’s no holy grail when it comes to reliably providing identifiable ROI.

On the flip side, as a company advertising online, you are looking for immediate results and validation of your marketing spend.  Who can blame you?  The economy is struggling and advertising dollars are being scrutinized at the highest level.  From Google and Yahoo CPC ads to social media to industry portals, how do you best measure the success of online as a channel in acquiring long-term customers?

Publishers, whether online or print, provide an audience and offer the opportunity for customer acquisition.  They give companies the opportunity to seed and then grow a long-term relationship with key decision makers in their industry.  Yet connecting impressions and clicks with tangible results for advertisers is difficult due to the use of multiple tools and elements in ad campaigns, from video to custom content to social media, along with less-than-precise tracking software, long sales cycles and company websites that may not be ideally optimized to maximize conversions.

Missing from the Discussion

There are multiple facets to the ROI discussion, but one critical element that is often left out is the concept of  Customer Lifetime Value (CLV).  As an online publisher, CLV is an important concept in differentiating between buying a click and creating a customer relationship.  For instance, in our market – public safety (comprised of law enforcement, fire, EMS and corrections) – customers are highly brand loyal.  If you attract them, create a relationship, provide them with value and attentively service their account, they are yours for years.  As an advertiser, CLV is an important tool in maximizing custom acquisition and evaluating marketing spend.

In layman’s terms, Customer Lifetime Value is very simply a way to understand how much you should be willing to invest in a new customer taking into consideration how much that customer will spend on average over the term of their ‘customer life cycle’.  Depending on your product, lifetime value could reflect months or years of business and includes renewals, replacement purchases, repeat purchases and other fees or revenue streams a company might collect from a customer.

Formal definition:  In marketing, customer lifetime value (CLV), lifetime customer value (LCV), or lifetime value (LTV) is the net present value of the cash flows attributed to the relationship with a customer. The use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.

For example, I have an exceptional customer relationship with Amazon and as a single guy, it’s lasted far longer then any of my dating relationships.  My first Amazon purchase was through a promotion 8 years ago.  Amazon probably paid $20-30 in marketing cost to “acquire” me through an online marketing campaign associated with my American Express card.  Since then, I have spent $50-200 per QUARTER from Amazon.  That’s $6,400 in value from that one acquisition, which is quite a return.

Within our industry, one of the companies we work closely with is in the firearms segment of law enforcement.  One of their recent campaigns generated several thousand dollars of immediate sales and a couple dozen new customers.  As we analyzed the results, we realized that most of our clients who sell direct tend to measure results only on the immediate return from those initial sales.  However, for this company, we highlighted that each sale would generate several different purchases or revenue streams from activation fees to new cartridges to replacement parts and accessories over the course of the customer’s lifetime.  When taking those calculations into consideration the campaign went from “successful” to “highly successful”.

Tracking Customer Lifetime Value

Although relevant for any marketer, CLV is particularly relevant for companies who sell direct to consumers or who are distributors.  If you measure online advertising through direct sales post advertising, make sure that you are considering the long term value a customer provides.

While companies can calculate CLV by doing customer surveys and keeping track of the average customer’s spend over time, that can be difficult and time consuming and most companies don’t do it – particularly those in our market.  If you are an online publisher, make sure to always ask advertisers how they value a customer over the long term – it will make your job that much easier in establishing ROI.  Even if they have not calculated CLV, making sure they understand the concept is a good first step.

If you are an advertiser, it’s not difficult to generate and test hypotheses of how much customers will spend over time.  Oftentimes, much of this data can be extracted from your CRM software.  I recommend advertisers at minimum account for potential lifetime spend in assessing their marketing campaigns even if it is with only a general sense of what that spend might look like over time.  A full calculation can be complex and time consuming, but here are 5 steps to quickly eyeball your CLV and tie it back to your marketing strategy:

1.  Estimate the total amount of money that your average customer will spend on your products per year.

2.  Estimate the average lifespan of a customer, meaning how long the average customer continues to purchase products from your company.

3.  Multiply the two numbers in #1 and #2 above to get the average total value of each customer over time.

4.  Apply a discount rate to that value to account for the present value of that future stream of income. I recommend using a discount rate of 5 to 10% and a net present value calculator to determine how much that future stream of revenue is worth to you today.

5.  Figure out how much you’d spend in marketing dollars to acquire a customer based on that calculation, taking into account the gross margin of the products that customer is purchasing and any other strategic factors applicable.

If you’d like to do a more thorough calculation of CLV, here are two useful online tools that guide you through the process:

How to calculate CLV:  http://www.dbmarketing.com/articles/Art251a.htm

HBS CLV Tool:  http://hbsp.harvard.edu/multimedia/flashtools/cltv/

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Book Review: The power of little bets

As an entrepreneur, I’ve used ‘little bets’ throughout my career and would credit the strategy as one of the key factors driving the success of the Praetorian Group. Peter Sims, a longtime business contact and friend, recently published a book – Little Bets: How Breakthrough Ideas Emerge from Small Discoveries – that explores the concept in depth. Peter does an exceptional job articulating not only how to use little bets but more importantly explores the mindset that needs to be in place to maximize their impact for both individuals and organizations. I found the book to be quite relevant for anyone in marketing and online media which is why I’m including my review on ThinkOnlineNow.

From my experience, the message of the book rings true. Over the past 10 years, I’ve probably made hundreds, if not thousands, of little bets and can testify to the importance of the concept, having used them to navigate the dotcom crash, the recent recession and a rapidly changing media landscape. In the process, my company has become the leading online media company in our market and has helped drive the adoption of online tools and content for first responders worldwide.

‘Little Bets’ is not just about how to try a lot of things in the hope that something sticks, but provides a thorough roadmap for how successful entrepreneurs think about business opportunities and execute on new ideas. Sims also explains the broader context that needs to be in place to cultivate little bets, such as the importance of a growth mindset and building a learning organization that isn’t afraid to try new things and fail. In the process, he does a great job weaving in the psychology and science behind his concepts, citing a wide range of relevant research.

Although I would have liked to have seen a few additional examples beyond the ones cited and perhaps more a more in-depth discussion of tactics for making little bets successfully, there’s no doubt it’s an excellent resource and a must read for any entrepreneur, marketer or business manager. Check it out – www.PeterSims.com.

Alex Ford
CEO and Founder
Praetorian Group

Originally posted at: http://www.thinkonlinenow.com/2011/04/book-review-power-of-little-bets.html

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Silicon Valley and Failure

I forwarded the following article to one of my entrepreneur friends:
http://www.siliconvalleywatcher.com/mt/archives/2009/06/vinod_khosla_to.php

She asked:

Does the Valley really have that much of a cushion for failing? It’s not apparent to me that it’s any different than the rest of the world!

Here is my response:

It is and it isn’t.

On one hand, the VC model is based on failure. They invest in 10 companies, 2 make it 7 don’t and one is a home run. So generally VCs are ok with entrepreneurs that have failed a couple of times and believe that builds experience. Some entrepreneurs even see failures as a badge of honor. Its not much of a problem to have failures under your belt.

At the same time, VCs are pretty unforgiving of the entrepreneurs who run their portfolio companies. The stakes are high and they don’t have a lot of patience for entrepreneurs who need to learn along the way. The aggressive ramp in personnel and company size as well as the narrow timeline they have to exit doesn’t leave a lot of room for entrepreneurs to grow as managers and business professionals. Often they are replaced, particularly if the business looks to be a success and is ramping quickly.

I’ve been lucky because although I’ve had VC funding, they haven’t controlled the company. Mike Herning, my angel investor and Chairman has been flexible in letting me bumble around long enough to figure out a business model. Most VCs don’t have that patience. And you can’t beat board meetings over a glass of wine.

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