Entrepreneurs often fail to grasp the importance of moving up the food chain with their customers. This concept is crucial to the smaller company that will always struggle to survive competing with the commodity level pricing set by the big players in any mature market.
Let's look at what I mean by the food chain.
At the bottom of the food chain in your customer organization are purchasing agents. I'm sure that as human beings go, purchasing agents follow a normal distribution from saints at one end of the spectrum to jerks at the other with the majority being somewhere in the middle. That's not the problem with purchasing agents. The problem is they are genetically engineered to spend as little of their company's money as humanly possible. If they are successful at all in their careers it's because they are very good at minimizing costs. The are compensated and rewarded for cutting costs. They are not value oriented. By in large companies don't want their purchasing people concerned with value. Their job is to focus on reducing cost of materials, labor, subcontracts, inventory, office supplies, computers and everything else the company buys. That includes whatever you have to sell.
These are not people you want to be doing business with if you can possibly help it.
The reason is that the 800 and 600 pound gorillas in your market have the economies of scale to compete on price. If you are a smaller company, you don't. Your ticket to prosperity is selling value, becoming important to your customer, finding ways to make his/her pain go away, to take work off their desks and make them look like heros and heroines to their bosses. That's the real business you are in.
The interesting phenomenon is that as you move up the organization ladder, you will find the people you are dealing with are decreasingly focused on costs and increasingly focused on value. They define value as anything that helps them accomplish their strategic objectives and frees up bandwidth for them.
Most business people love their own products and services and assume their customers do as well.
They don't.
They will however if you can broaden the context of what you do. If you run a janitorial service, you are a necessary evil to your customer. If you sell office supplies, you are a necessary evil to your customer. If you sell computers, you are a necessary evil to your customer. If you manufacture subassemblies, you are a necessary evil to your customer.
Supposing however, as CEO of your janitorial company, you approached the CEO of your customer and offered to take over all facilities management. You would set up an online trouble ticket system. You would have inspectors walk the facilities every week looking for paint that needed touching up, furniture that needed reupholstering, light fixtures with burned out bulbs. You would inspect all the HVAC equipment once a quarter, the roof once a year. You would provide monthly reports. You would establish a budget into which all routine maintenance (clearly defined) would fall. Anything in excess or that required bringing in a licensed electrician or mechanical contractor would be extra and billed on a cost plus basis. Would it take some work to retool your janitorial business to move up the food chain like this? Sure, but not very much and the rewards make the effort exceedingly worthwhile.
So what have we accomplished with such a proposal?
We have gotten out of our own reality framework and gotten into our customer's reality framework. Facilities management is a headache for every business person. Take that chore off my plate and the bandwidth you free up means I and my people can do more of what we get paid for (and make money doing) and spend less time doing stuff that has no intrinsic benefit. As your customer, I'm happy to pay you well for taking this off my plate because you are helping me make more money.
The key questions to ask are:
- Where does my product or service fit into the systems and processes of my customer?
- Instead of providing just a component product or service, how can I provide the whole system of which my product or service is a part?
I met a fellow once who built a very successful office supply company by putting a cabinet full of office supplies at no cost in the offices of hundreds of companies. Every week he sent a rep around with a truckload of the most commonly used supplies and restocked the cabinet and sent the company a bill for what they had used.
Tracking and ordering and restocking office supplies is a necessary evil. No consumer of office supplies makes money doing this. It takes money away from them. Take that chore off someone's plate and they won't care if you're 10% more expensive than Office Depot. You are freeing up resources that can be put to use helping them take care of their customers.
Will everyone buy this kind of value added service? Of course not. But if you subscribe to the Pareto Principle (20% of your customers provide 80% of your profit), all you have to do is sell those 20% and your business will leap to a whole new level of profitability and professionalism. As you add more of those kinds of customers, you can start firing those customers who only want your commodity service. You can do much better redeploying those resources where you are getting your premium margins.
One point to consider.
Going back to our example of the janitorial service moving up the food chain, if you approach a company's facilities manager with such a proposal, you will fail. He or she is very likely to see you as a threat to his or her job, rather than someone who can free up their bandwidth so they can become more important to their company and advance their careers. (Employees don't always get the food chain thing either.) Better to go to the person who manages the person who manages the system or process you want to take over. Better yet, go right to the top.
Also, do not be intimidated by taking on work that you haven't done before. You can partner with someone who does know how to do it until you have learned how. To quote 19th century Prime Minister of Great Britain Benjamin Disraeli, "Audacity is the foundation of all great achievement."
