The Blueprint

Bits or Atoms?

Think about this.  What is the breakdown of your business by "bits" or "atoms"?  What was it 5 years ago?  What will it be 5 years from now?

An Abundance of Downloads

I heard recently that some reprographers are allowing free downloads of drawings.  I'm sorry, but I don't get it.  What if Apple made downloads from iTunes free so they could sell more CD's?  The explanation I got was reprographers were giving away downloads to get the printing business.  Okay, but that is not where the value is.  If you are in the business of aggregating, preparing and distribution "construction media" how you deliver it is simply a preference of the customer. All of the hard work is before it is printed or downloaded.  That is ultimately what you are getting paid for.

Downloads are an abundance-based model where printing is a scarcity-based business model.  There are only so many prints that you can make on a printer, but the amount of downloads you can sell is infinite.

I know of a midsize international reprographics company that had an intense internal debate whether they should allow downloads on their site.  The argument was it would affect their printing business.  In the end the download proponents won the battle they allowed downloads for roughly one euro a sheet (about $1 at the time).  At the end of the year someone asked how much money they made on this.  The answer was about one million euros ($1M).  Did this affect their printing business?  No one was sure.  It didn't appear to.  But here's the real kicker.  Their margin on downloads were close to 100%.  The marginal cost of a download is zero.

If you were to print a 36" by 42" sheet at a price of $.05 a sqft and a cost of $.03 a sqft.  Your gross profit per sheet is $.21 (excluding labor, rent, etc.).  You would have to print 4,761,905 sqft per year to make the same profit as $1M in downloads.  That is a printer printing 396,825 sqft per month every month for 12 months.

It’s much easier to grow your business by promoting more downloads than adding more printers.  You may loose some printing, but gain some profits and gain some customers.  I'm certainly not promoting getting rid of printers, but there is a lot of money to be made outside the printing.

The Long Tail...

I am reading a  thought provoking book The Long Tail.  The author also has a blog.  It is fascinating!  I am still trying to crystallize what the impact will be on the AEC document management industry.  I have some theories but need to think through them.  The author describes how the Internet is transforming our world in some profound ways.  The book has a heavy emphasis on entertainment media, but if you were to replace "entertainment" with "construction" (i.e. "Construction Media") there are some interesting insights.

One of his deductions is industry has been focused on how to bring the "one" [movie hit or product] to "millions" [of consumers].  In the new economy there is a larger emphasis on how to bring "millions" to "one".  Think about iTunes, Amazon, Netflix, etc.  The amount of choice and selection we have is unprecedented.  Choice, ease of distribution, and ease of production, and is creating new opportunities where they didn't exist before.  This creates abundance where there used to be scarcity. 

Stay tuned...

Affinity Groups and Commoditization

Evidently some people thought my last post was anti-affinity groups and encouraging companies to sell out to ARC.  I'm sorry if it came across that way.  Here are the points I was trying to make:

• Buying power is important, but no longer the MOST important benefit of affinity groups.  I believe it is joint selling, education and experience sharing.
• I do believe all of the affinity groups are trying to offer these components (in addition to buying power)
• If you are a smaller shop and you are not actively working on developing value added services and escaping commoditization you should be thinking about an exit strategy.  There is value, but the value of your business is not increasing with time.  It is decreasing.
• If you want to exit your business, selling to ARC is not the only option.  There are plenty of companies who are buying.
• The affinity groups, the IRgA, and the regional associations are a great place to get education on how to escape commoditization.
• Doing something with that knowledge and bringing about change in your organization is up to you!

Scarcity versus Abundance

I have heard several people over the last two weeks talk about "buying power".  They mentioned how joining an organization like ReproMAX, RSA, or the PEIR group gave them "buying power". 
I am not convinced that is as valuable as some think it is.  The reason for this is:

1. To be successful in the today's market you either need to be:
   • Focused on delivering value added services, or;
   • Selling high volumes of a commodity
2. If you are selling high volumes of a commodity you probably already have "buying power"
3. If you are focused on selling value added services you  need "partnerships" with strategic vendors.
4. If you are not sure which camp you are in, you had better figure it out quickly.
5. If you don't believe your company can sell value added services you should consider joining forces with a larger company that has the buying power and the economies of scale.

Commodity businesses tend to focus on scarcity because it is a "zero sum game".  Everybody is fighting over scarce revenue and scarce profits.  There is only so much printing business in a geography.  The only way to grow your business is to take the business away from your competitors, or to buy your competitors.  The way to maximize your profits is to take profits from your suppliers.  In this type of market the Walmarts or the ARC's of the world get bigger and squeeze more out of their suppliers.  The problem with this is, in commoditized markets over time the profits move closer and closer to zero.

There are markets which have an abundance of opportunity.  There is enough opportunity for many companies.  I believe that many reprographers are so focused on fighting the zero sum game that they overlook areas where there is an abundance of opportunity.  To seize the opportunity will require some significant changes in a company's business model.  It requires a more consultative business model.  It doesn't have to happen overnight. This can be done overtime. 

The Deep Dive (part 2)

In a previous post I recommended ordering from ABC Nightline the a broadcast on "The Deep Dive".  At the end of the post I said you'd be surprised at "who steals shopping carts".  After talking to people that took my recommendation and ordered the DVD, I realized the segment they show on the DVD is not the whole segment I saw.  Those who ordered it agreed that it was very enlightening, but I believe ABC left out one of the most powerful pieces of the broadcast.  Who steal shopping carts is eluded to in the DVD version, but it is not explained.  The reason I believe this piece is so powerful is because it reveals what appears on the surface is often very different when you dive deeper.

Here is what was missing from the DVD.

• One of the biggest problems with shopping carts is theft.
• When the Ideo team asked who steals shopping carts the logical answer is ..... homeless people.
• When they asked supermarket employees why homeless people stole shopping carts the answer was ... to carry their belongings.
• Sound's logical but there's a problem with this!
• There are many more shopping carts stolen than there are homeless people.
• Do they loose them?  Do they break often?  Do they upgrade??
• The Ideo team looked deeper and found that there were scores of burnt shopping carts down by the river.
• They found that homeless people used shopping carts as grills!!!
• They didn't last long so they had to be replenished often.
• The number one reason that shopping carts were stolen was to make grills!

Who would have thought this?  I wouldn't have.  When the designed the new shopping cart they made it of plastic.  It can no longer be used as a grill!  I thought that was brilliant and a great example of how we need to probe deeper into what the real issues are facing our customers.  When we get answers we should take them as merely suggestions.  Even if those delivering the answers should be the experts.  Sometimes those we gather market requirements from are so entrenched in their day to day work that they make broad assumptions.  We need to do "deep dives" to understand what the real problems and solutions are.  We need to validate or challenge every statement no matter how obvious the answer seems.

Business Inertia

Newton's First Law of Motion  states "Objects in motion tend to stay in motion, and objects at rest tend to stay at rest unless an unbalanced force acts upon them."

What if we were to change the term "object" to "a business"?  Business inertia provides stability.  A business that can distill customer engagements and internal processes down to easy to execute and repeatable procedures will see their market share and/or profits grow.  There is a danger with this.  It only works for a period of time.  At some point the world changes around you and that inertia starts to work against you.  The same processes that helped you grow your business start resisting change.  An unbalanced force (some refer to as "Mr. Market") starts to work against your company.  This requires an unbalance force inside your company to offset it.

Seth Godin has an interesting take on this.  He refers to it as reflexology.

The best companies find methods of establishing sound "reflexes", but also embrace change.  The other extreme to a company stuck in its own inertia is a company that is always changing.  This company can not establish the necessary reflexes to scale and take advantage of the market opportunity.  Finding the right balance between inertia and change is a key to success.

Godzilla Interviews King Kong (of Marketing)

Here is a post of one of marketing's prominent thinkers (Guy Kawasaki) interviewing another marketing luminary (Seth Godin).  Both Guy's and Seth's blogs are must reads for anyone who wants to successfully market their companies in today's ever changing business climate.

Here is a link to the interview

Here are their blogs:
Guy Kawasaki
Seth Godin

Ultimate Brand

You know you have a good brand when it becomes a VERB.  For example:

• I will FedEx you the package.
• Make a Xerox of the document.
• I Google'd your company.
• I'll Skype you.

Sales Renaissance

I just read one of the articles from the Harvard Business Review (“The Sales Learning Curve”) and had an epiphany.  I find that the best books or articles are those that add simplicity and clarity to a complex topic that I have been pondering.  The issue I have been pondering is why have sales reps with a successful track record failed at selling innovative solutions while other sales reps (sometimes with less experience) are successful selling the same solution to similar customers.  At Digital Paper we had a couple sales reps that were consistent performers for several years.  These sales reps had helped us double our sales every year.  We decided to ramp up our sales force to capture the large market opportunity in front of us.  We decided to bring in sales “heavy hitters”.  We hired several sales reps with a proven track record selling enterprise technology solutions.  Unfortunately, many of them were not successful at Digital Paper and were terminated due to poor performance.  Most of these reps went on to be successful in other endeavors.  Some were very successful soon after leaving the company.  Through the turmoil of hiring and firing, the most successful reps continued to be the original sales reps.

I have tried to make sense of this phenomenon and developed some of my own opinions.  This HBR article crystallized it for me.  The authors describe how an organization goes through a learning curve much like an individual goes through a learning curve.  The mistake that many companies make (as we did at Digital Paper) is to hire too many sales reps before the organization had reached the point where it is ready to scale.  It is not about the sales reps learning or even the sales force, it is about the whole organization learning and tweaking the offering.  The article argues that in the early stages of launching an innovation to the market you need fewer reps.  The reps that you need are unique.  These are what the article referred to as “renaissance reps”.  These reps do not need sales training, sales materials or sales strategies.  They are self starters.  They will figure it out themselves.  They will build the sales materials and the sales strategies that the company needs.  If something isn’t working with the product or the sales strategy they will fix it themselves or they will work their relationships within the company to make the appropriate change.   They make it happen.  Once these issues get worked out, the sales reps are consistently successful, and the organization has institutionalized the learning, then it is time to bring on more “mainstream reps”.  Please don’t confuse mainstream reps and renaissance reps with transactional reps and consultative reps.  Mainstream reps and renaissance reps are consultative, but they go about things differently.  A mainstream rep expects most of the details to be worked out and their specialty is efficient sales execution.  Conversely a renaissance rep may not be as good at execution as a mainstream rep, because they enjoy and thrive on creating and building.  They may be less interested with an execution oriented approach.

The reason we struggled at Digital Paper was because we hadn’t institutionalized the knowledge and experience that the renaissance reps had.  We hired new reps and divided up territories between existing renaissance reps and the new mainstream reps.  The mainstream reps were expected to perform as well as the renaissance reps, but the strategies and sales materials weren’t effectively institutionalized and transferred.  The renaissance reps tried to help the other reps.  They cared more about the success of the company and seeing their success replicated, but they were held to high standards.  They found it difficult to find the time to transfer this knowledge and still hit their goals.  Had we established processes to transfer this knowledge from the renaissance reps to the mainstream reps and also brought on mainstream reps at a more measured pace we might have had more success.

For those of you trying to change your organization and your sales force.  Here are some thoughts:
Make sure you have renaissance reps (this may be a principal in the company)

1. Your existing reps may or may not be renaissance reps.  If they have stuck with the company for a long time selling transactional services they are probably not.  A renaissance rep would get board and leave the company.
2. Understand that it will take time for your organization to adapt.  It is not just about the sales rep adapting.
3. You can do things to help the process, but you can not MAKE IT happen.
4. It will take many iterations to get it right.  Don’t throw the baby out with the bathwater because it doesn’t work the first time.
5. You can hire more mainstream consultative sales reps once the model starts to scale.
6. Make sure you put in place methods of institutionalizing what your renaissance reps learn and develop.  This is critical to transferring skills and knowledge to mainstream reps.