Category: Markets

What To Do In a Down Market

“I was taking home $50k in profit annually from that one customer and -poof- it’s gone,” a friend named Jack told me. Last week he lost his largest customer to his main contractor, who went behind his back to cut him out of the arrangement.

We’ve lost customers in the last six months too and many businesses in the agency and professional services industries had a tough 2023. The market is contracting. Companies, ours included, have been reevaluating their costs and leaning out their expenses to adjust for inflation and the ever-increasing competition. The catalyst for the situation with Jack losing his customer was actually a forensic accountant visiting his customer’s company to audit their expenses.

So what do you do in a bear market? When the winter returns again?

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On Sunday morning, I dropped down to 60 feet beneath the Sea of Cortez and swam around a rocky point into a sandy bottomed bay. The dive master leading our group, stopped and pointed off into the distance. I saw a large shadow drift through the haze. Then suddenly a seven foot bull shark glided over the bottom on a slow cruise around our group. Another joined him and a larger bull shark circled overhead. Somewhere between five and ten sharks came to inspect our little group, but fortunately no one was eaten.

Back on the boat, between dives, I talked with another diver who is a co-founder in a drone software company (side bar: if you want to meet interesting entrepreneurs, go diving, sailing, etc. when no one else is). I was curious about his business journey and he told me the broad outlines. He said that they were eventually able to establish the business by focusing on a niche.

Then he told me that he was responsible for growth and felt like his self-funded software company needed to spend $20 – 30k a month on marketing in order to grow to the next level. This made me curious, because it’s an arbitrary investment. I asked him, “Why? Why $20-30k?”

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Around The Mountain

What would you do if you couldn’t grow the number of customers your business serves?

For many businesses, new customer growth is how the business grows. Demand determines the size of the business and its concurrent impact.

However, a reality that every business faces is that demand is limited. Even Amazon, a corporate leviathan that sells everything to everyone, has a limited number of customers that they can acquire.

Yesterday, I did market estimates for a new enterprise that I’m partnering on. My partner had thrown out some pricing numbers for a service we’re developing and I wanted to identify what the impact would be for different price points.

The formula looks like:

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When to Chase Shiny Objects

“I started a side business,” a friend told me over a glass of wine a few weeks ago. “And it’s sort of crazy: this thing is taking off like a rocket.”

I’ve talked with and been in entrepreneur communities long enough that I’ve seen lots of similar trajectories. Most new businesses fail and of the ones that survive, the majority have a long trajectory to thriving. But a few just burst out of the gate with the entrepreneur holding the reins as best they can.

When you don’t understand why some businesses are break out successes, you ascribe it to luck. But really it’s market demand coupled with a few good decisions (which can be luck or skill or both).

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The Courage to Not Be a Rabbit

Harvard business strategist, Michael Porter, saw the primary challenge of a business to be escaping competition. Businesses in a market tend to converge in their offerings because improvements easily disseminate among them. They’re all running the same kind of race and whenever something new makes someone a little faster, others quickly copy it.

As an example, I remember when Rob Walling’s email marketing platform, Drip, pioneered visual workflows for email sequences. It was a superior approach that initially gave Drip an advantage. But it was soon copied by all his competitors and he was back in the race.

Porter believed that the only way to escape this dynamic is to run a different kind of race. It can’t just look different, like taking a market position, it has to be different.

If you’re a rabbit in a field of rabbits, it’s choosing to be a turtle instead. You have to sacrifice your speed and lightness for armor. What makes you successful is fundamentally different than what the rabbits are trying to achieve. If they try to copy you by putting a little shell on their fur, it just slows them down and makes them less fit for their purpose.

The ramification for your business is that the only way you can give yourself persistent protection from competitive pressure is to innovate in your business model. Not only must you innovate, but you must be willing to sacrifice what other businesses find essential. And because innovation rarely works initially, you must have resources or an approach that helps you survive all the failures.

It’s a challenge that requires courage, sensitivity, and resilience. But it’s worth considering Porter’s challenge, because limiting competition makes business and growth much easier.

Time on the Frontier

Yesterday, after a Toastmaster’s meeting, I had brunch with a few other club members. One of them, Mario, shared a story about the second business he operated.

In the early 2000’s, the market was in a recession and Mario needed funding for his first business but he couldn’t get it because banks weren’t lending. He sought out alternatives and discovered an association of non-traditional lenders. He was able to find a company in that group who gave him a loan and resolved his cash flow crunch.

As he navigated around his funding obstacle though, he realized that lots of other businesses were facing the same problem. He formed a partnership with one of the lenders in that association and became a capital broker. His role was to “sell” the loans, but it was little more than lead generation. Because of the demand and limited alternatives, he and his partner quickly developed revenue without much work. In 2007, he sold his share of the business just ahead of the next financial recession.

Because Mario explored beyond his own networks, he was able to discover a solution to his problem. Rather than just stopping there though, he was able to envision what could be possible if he used his discovery to help others.

This is a classic entrepreneurship story: opportunity emerging from problem solving on the frontier and realized by leading others to better outcomes.

Are you spending time on the frontier? Are you leading others to the solutions you discover?

Getting Lucky

There’s a lot of luck in business. One of the practical ideas concerning how to work with luck is Jason Roberts’, “luck surface area.” His idea is that your luck increases by pursuing a passion, developing an expertise, and talking about it with lots of people. The key being that you talk with lots of people.

Another perspective on luck aligns with the quote by Thomas Jefferson, “I’m a greater believer in luck, and I find the harder I work the more I have of it.”

Hard work doesn’t create luck, but hard work that results in many different work products, especially in different domains, can create opportunity.

Western philosophy originated in harbor cities of the Aegean. Merchants traded all around the Meditarranean and came into contact with art, science, and ideas from more isolated societies. They acted as connectors and filling that role created the ground for insight and innovation.

Diversity of networks and experience is a practical strategy to create “lucky” opportunities.

As a simple example, this weekend, I worked on a project. During the course of the work, I realized that I was applying a tactic that I learned at a software developer conference four years ago. A little bit later, I realized that I was applying an idea I learned from a lifestyle business conference last year. In the moments when I learned those tactics, I had no expectation that I would actually use them because I had other goals that I was focused on.

As entrepreneurs, we often make decisions through the lens of efficiency. You could make an argument that I shouldn’t have spent time at a software conference when I wasn’t actively developing a software product and shouldn’t have been at a lifestyle business conference because I don’t operate a lifestyle business.

However, there’s an extremely valuable place in business for inefficiency.  In big businesses, they call it research and development, for investors it’s venture capital, and for your small business it might mean “wasting” a weekend in an adjacent network.

Network Building at Events

I’ve been quiet this week because I’ve been out of town at a conference in Fort Worth, Texas. The conference was for the Texas Society of Association Executives (TSAE), who are a large pool of potential association customers for our agency.  I was there to execute a component of our referral marketing plan. Today, I’ll share with you a debrief of what worked, what didn’t, and what I’d recommend to you if you’re executing a similar referral focused strategy.

My plan going into the conference was to focus on introducing myself to well connected people while gathering information on the market. I targeted three groups of people:

  • Certain board members and volunteer leaders
  • Suppliers in the exhibit hall with similar services
  • TSAE staff

I was there for two days and had some success with all three, but didn’t reach everyone I planned with volunteer leaders or TSAE staff.

 What Worked Well  

I picked up lots of incremental intelligence at the conference. I learned things that weren’t game changers, but still advanced what I knew and grew a little smarter.

Additionally, in talking with the suppliers, I learned what worked for them in landing clients, what didn’t, and what they were trying. I’m not a direct competitor but I share their challenges and, because of that, they were open about their experiences. I learned where to gather better email lists, what marketing tactics had failed, and traps in responding to certain kinds of leads. As a bonus, my company might be able to partner with one of theirs to deliver the custom web programming needed on their projects (we’ll see).

I only connected with one of the staff- the events manager. However, they shared a handful of tricks to improve the odds my speech submissions would be selected for similar events (more on that below). They also divulged some inside baseball on network building opportunities that similar companies aren’t taking advantage of.

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Your Challenge in Established Markets

In new and expanding markets, it’s often enough to just show up. You don’t need a strategy because market demand exceeds supply. Customers are more concerned about access and availability than anything else.

But in more competitive environments, like established markets, it’s difficult to grow by being a run-of-the-mill entrant. Now the shoe is on the other foot. Customers have lots of options and are much more selective. If your offer is similar to competitors in this market:

  • You’ll likely have weak or inconsistent sales.
  • There’s pressure to compete on price.
  • Leaders become cemented in their position and difficult to un-seat.
  • Small differences become important as customers look for reasons to buy from you rather than competitors (distance, personality, appearance).

The problem is that most markets are established and many of the new ones don’t last.

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The Current

I had some beers with a few other entrepreneurs last week. One of them split with his business partner four months ago. He re-partnered with another person from the industry and started over. In four months, they’re just under $20,000 a month in revenue.

“It’s a bit crazy,” he told me, “I remember working for years and trying all sorts of things, first with my e-commerce business and then the last company. This new business is easy. Things just flow. Every sales conversation is positive. It’s like everything in the business is aligned.”

“What’s the difference?” I asked him.

“Selling people what they want,” he said, “I was always looking for a wave of demand. Interest. A trend. This feels like that wave.”

Your execution can be tight, your strategy sound, your culture connected. But none of those has near the same impact on the business as your relationship to the market.

You can’t swim faster than the current.