Friday, February 17, 2012

Marketing as a Customer Driven Process

Kensington Company & Affiliates offers this marketing advice prepared by the New York State Small Business Development Center.
The American Marketing Association defines marketing as the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives. 

Marketing includes diverse disciplines like sales, public relations, pricing, packaging, and distribution. In order to distinguish marketing from other related professional services, S.H. Simmons, author and humorist, relates this anecdote, "If a young man tells his date she's intelligent, looks lovely, and is a great conversationalist, he's saying the right things to the right person and that's marketing. If the young man tells his date how handsome, smart and successful he is -- that's advertising. If someone else tells the young woman how handsome, smart and successful her date is -- that's public relations."

Marketing is all about the art of persuasion.  In business, there exist individuals who want to make money, and marketing is finding those people to persuade to purchase their good or service. Without identifying the right customers, a small business with the greatest product on Earth is destined for failure. 
The four P’s of marketing, product, price, place (distribution), and promotion are very much alive.  Though it may seem counter-intuitive, good marketing isn’t about finding the right product and to promote it at a good price at the right time.  Rather it is about finding those customers who will need or want your product and will go out and purchase it.  In terms of the four P’s then, it is the customers that should be the driving force behind them. 
What are your customers' needs? What do they expect to get when they buy your product or use your service? The right product is the one that best fits their requirements. People who eat in restaurants want more than a good meal. They might expect value, quick service, beer and alcohol, a vegetarian menu, a children's menu, entertainment, a drive through window, or to be identified with a trendy crowd.  It becomes a difficult and probably an unprofitable venture trying to satisfy everyone's needs.
Once the customers have been identified and listed their expectations, a small business can design its product or service around their requirements.  Too many small businesses owners are in love with their ideas, and they should be. After all, why would anyone commit their energy, life savings, and no small part of their sanity to anything less than a consuming passion. Because entrepreneurs are passionate about their idea, product, or service, they innocently assume other people will feel the same. Here's the bad news, it just doesn't work that way!
People have their own unique perceptions of the world based on their belief system. The most innovative ideas, the greatest products, or a superior service succeed only when you market within the context of people's perceptions.
Once you have identified your customer and listed their expectations, you can design your product or service around their requirements. The more you fulfill your customer's expectations, the better the quality of your product. Think of your product or service as more than just what the customers pays for. When you are planning your business consider how the whole transaction meets the customer's needs.
So what is a small business owner to do?  Plan, plan, plan. A good marketing plan can help you focus your energy and resources. But a plan created in a vacuum, based solely on your perceptions, does not advance the agenda. That's why market research, however simple or sophisticated, is important.   The Small Business Development Center can assist entrepreneur’s with creating an effective marketing plan in order to locate their customers to insure success. 

Prepared by Ritu S. Wackett, Senior Advisor
New York State Small Business Development Center
Farmingdale State College

Thursday, February 2, 2012

Financing in Today’s Economy, Beauty is in the Eyes of the Beholder!

Beauty is in the eyes of the Beholder!!!  What looks bad in the eyes of one institution may look good to other companies that have the flexibility to be more creative. 

Due to regulatory requirements banks must be conservative and generally do not lend to companies with consecutive years losses, capital deficiencies and those that are too highly leveraged.  The good news is that there are many non-traditional financing sources that are very creative and flexible and specialize in distressed and special situations.  These Beholders see beauty in a Company’s collateral.  These lenders include asset-based lenders, real estate lenders, inventory lenders and leasing companies.  Other Beholders see beauty in the credit worthiness of a Company’s customers.  These lenders include factors, and companies that specialize in purchase order financing, trade finance and inventory financing.  There are even finance companies that will advance funds against streams of periodic and balloon payments one expects to receive over time or in the distant future.  Examples of these payment streams include; lottery winnings, tax refunds, structured court or insurance settlements, inheritances, annuities and royalty payments.

There are also many Beholders that will make equity investments in a company.  Venture Capitalists (VC’s) like to invest in start-up companies with a new proven product or service that has demonstrated customer acceptance.  VC’s look for unique products/services with huge market potential.  They frown on “me too” products that lack barriers of entry and protection of intellectual property.  There is a group of Beholders often referred to as “Angel Investors”.  These Angels tend to be very wealthy individuals who seek to invest seed money in start-up companies often overlooked by VC’s.  Angels often like to invest in companies that are in industries in which they have experience.  Angels will generally invest less money than VC’s.

Other Beholders that make equity investments are groups that specialize in buying or investing in “troubled companies”.  To these Beholders or “Opportunistic Investors”, the more troubled and the more problems the better, as a small investment can result in a significant ownership percentage in this scenario.  A troubled company with few remaining problems may not be as attractive as a company that still has numerous problems as there is less upside potential after fixing the few problems that may still remain.

While Opportunistic Investors take risks with troubled companies, there are still other types of  Beholders that prefer successful companies that require additional assistance to get to the next level.  These Beholders are referred to as either “Equity” or “Buy-Out” groups.  These Groups seek companies that operate under constraints that often hamper their growth.  These constraints may include, lack of adequate capital for expansion and growth, limitations on managerial or operating resources, excessive financial leverage or poor capital structures, or neglect from parent companies that no longer deem a division or subsidiary important.
This Beholder’s goal is to identify these constraints, alleviate them, and fund the opportunity to unlock its potential value. Thus, the goals of these Groups is to take an already "good" company, limited by financial or operational constraints, and make it a "great" company. 

There is another group of Beholders called “Mezzanine” lenders.  Mezzanine lenders are riskier than commercial banks and asset based lenders as they are not the “senior” lender and therefore are not in the first position with respect to a company’s collateral.  In the case of a liquidation, a Mezzanine lender would only be entitled to collateral after the senior lender is made whole.  To compensate for this risk, these Beholders charge very high interest rates and are often given warrants to purchase equity in the companies they invest in.  Mezzanine lenders will give a company the right to buy back equity at a hefty price.  These Beholders are expensive due to the additional risks they take. 

The process of raising capital is very complex and time consuming.   When company personnel devote too much time to this process they often take their eyes off of running the business.  Companies should consider using financial consultants to assist in managing this process for their company from start to finish. Remember, Beauty is in the eyes of the Beholder!  An experienced financial consultant will know where to find the appropriate Beholders for the appropriate situation.

Kensington Company & Affiliates would like to thank Neil A. Seiden for contributing this informative article.

Neil A. Seiden, Managing Director, Asset Enhancement Solutions, LLC - 516-767-0100 –