The Myth of the "Foot in the Door"

Given our average deal size we used to think we needed to have a scaled down offer to get a foot in the door. Once in, we could then grow the account. We were wrong.

Considering the current economic situation, I know that many companies may be tempted to come up with a “door opener.” A subscale and/or entry level product/service intended to get a foot in the door with a new client and/or a new business division. You’re also probably thinking about going down market into smaller accounts. Although this shift may help satisfy short term revenue needs it will do little to nothing in helping grow your business. Most likely those accounts will not expand and/or even be retained next year.



Here’s how I know. Looking back at the new accounts acquired over the last four years we found some interesting trends and confirmed some things that we knew intuitively (click on the image). When we measured the value of customers in their first year against the average time spent engaged with the client a few key insights emerged. First, three “clusters” of accounts emerged;

1. Customer that grew to beyond $800K in their first year
2. Customer who had first year revenues between $350-$600K
3. Customers who represented under $250K in total billings from the year.

Let’s start with the bottom and work our way up. Customers in cluster 3 had an average value of $150K. Accounts on the lowest end of the spectrum in the “One and Done" zone” (under $10K for example) were “workshop”…our “foot in the door” offer. Guess what, of the 8 that fit that description zero, zippy, nada, grew beyond the initial workshop. The other bad news…only 2 accounts led to follow on work and no company in that grouping was retained the following year.
I was speaking with Larry Emond, CMO of the Gallup Organization the other day and he mentioned that they saw a similar trend; “We found that only 4% of customers who were acquired under a certain price point grew to be substantial customers.”

On the other end of the spectrum are the occasional customers who are big right out of the gate. The “Rare Birds” zone in cluster 1 includes those few customers who start big and for the most part remain large customers YOY. The key to success with this cluster is that they had/have a tendency to have a need for multiple service lines and/or desire a complex solution. This group was looking for a strategic partner versus a vendor for an immediate need. Year over year retention was also good at over 50% and if they used multiple services lines it was almost a sure thing they be retained….and grow.

As Larry also mentioned; “Our big customers today came in as big customers…”. We’ve had the same experience and have grown our top 5 largest accounts by an average of 90% over the last two years.

Customers in cluster 2, the “Sweet Spot” represented the best of both worlds. Although their value was not as high as the “Rare Birds” they were more plentiful. They also had higher price points, high percent of follow on work and YOY retention than the “One & Dones.” Retention rates although not as high as the "Rare Birds" was good (a little over 33%). Bottom line – they represent the model that we need to build our coverage and services bundle against. We have also realigned our resources to help account development/retention activities against this group.

Why do low price point and short engagement acquisitions perform so poorly? We discovered five main reasons for this;

• Length of the engagement – too short to learn business/issues/meet folks/create a relationship, etc.
• They get the “B” team - the "A" team is on existing accounts, as a professional services firm that measure FTE productivity this will always be the case.
• Short term need vs long term problem - we were successful in building a relationship with target buyers within targeted accounts. So much so that they decided to “give us a try.” The problem with that is that it was usually a piece of work that wasn’t strategic.
• Size matters – our win rate and retention rate dropped dramatically on companies that had under $1B in revenues. The only exceptions were situations we were able to sell a solution as the first engagement.
• Culture/Attitude – some companies just don’t have a culture of working with outsiders. This very difficult to know until you’re in the door.

So as you are thinking about 2009 focus on aligning resources and efforts on;

1. Retaining and expanding your biggest customers with new lines of business.
2. Find your "sweetspot” based on this type of analysis…what is the right mix of services and price.
3. Targeting big companies with big needs…there are many out there now just make sure you have the right offer.

Because at the end of the first engagement…a foot in the door just isn’t enough.

Insurance Companies...turn down the TV!

Why? Why do insurance companies insist on spending so much of their advertising on TV (over 60% of their total ad spend as I mentioned in the Video post below)? I’ll know more in early 2009 based on our current research effort on the Commercial Insurance industry so check back with me to see how well I do. Until then here’s a possible explanation.

My guess is the industry is at a similar point in its advertising thinking as Hi-Tech was 10 years ago. Because the Insurance business operates in a “sell thru” model using captive and/or independent agents they focus their advertising spend in mass market vehicles like Network TV. This is similar to how companies, like IBM and HP spent their money ten to twelve years ago to support business partners. Spread the “Brand” as far and wide as possible so partners can sell under it. The reason they did this…feedback from partners consistently beat up manufacturers on their lack of Brand support. Partners also told them to stay out of demand gen and selling, mostly because it threatened the partner.

That was until hi-tech companies starting paying attention to partner performance. In the past, revenue from the partner channel was collected and not driven. Manufacturers did brand advertising and tossed some marketing development funds (MDF) at the channel and hoped for the best. Today, it’s a whole different world…at least for some. The channel is now a valuable and increasingly important source of revenue, especially for new customers and solutions. As a result of this new focus, manufacturers now want greater control over those investments and better returns…not to mention tracking required by Sarbox.

Companies, like HP have now become much more involved in driving channel sales through their channels. To a point of creating collaborative demand generation campaigns on behalf of partners...telling them what campaigns to run against which customers with what budget. As a result, the internet has become a much more important vehicle. My point, HP’s B2B internet advertising spend in 07’ was 22% of the total spend (TV total was only 25%, with a little over a half going to Network). Insurance companies average spend on the internet...2%.

Insurance companies have the opportunity and need to start thinking the same way. We’ve heard from Carriers that they have a difficult time getting captive agents to grow their book of business and sell new service lines. We also heard that when it comes to non-captive agents that they would like them to better target “profitable” customers. Both needs can be addressed by getting more involved in generating and/or directing business development at the agent/customer level.

To get started companies should:

• Begin directing the TV audience they’re targeting to internet sites with real offers just like the big boys of Fin Serv do…like CapOne.
• Start using Web 2.0 tools to drive demand to agents, even better start helping them undersand how to use the tools.
• If you have to spend on TV, reallocate the budget to Cable so it can be better targeted.
• Finally, approach agents with a value proposition built on helping them build their business don’t just push products to them and hope for the best.

Again, this is just my opinion, but I’ve seen the movie before...or in this case, the TV commercial. Check back next year and see if I’m right.

Results of the 2007 B2B Advertising Spend in Financial Services Assessment

By Scott Gillum
We just finished our annual assessment of B2B Advertising spend in the Financial Services industry (for high resolution video click here and select watch in high quality). Results for 2007 showed that as an industry, Financial Services firms reduced their B2B advertising spend by close to 15% over the prior year.

• The mix of the total advertising spend was similar to the prior year with a slight increase in internet spend (9%, similar to what we saw in our Digital Marketing in FS research) and radio.
• The mix of print advertising as a percent of total spend (typical 30% of total spend) shifted to magazine (up to 14% from 7%) at the expense of newspapers (12% down from 21% in '06).

In sub-segments, the Retail Banks sector, already feeling the effects of the downturn, dramatically cut back advertising spend last year by over 20%.

• Local newspapers were the hardest hit, with only half of the advertising dollars from the previous year. Consumer magazines picking up much that spend, one of the few bright spots from last year.
• The internet continues its streak of growing as a percent of total spend up to 14% from 13%. A milestone was reached by CapOne, which invested more advertising dollars on the Internet than in Network TV which is the first time ever we've seen that. Could this be a trend…yea, I think so.

In the Insurance industry no real change…unfortunately. Overall spend was only down slightly from $48M to $46M with no real change in the mix.

• Local newspapers lost ground (14% of total spend compared to 19% the previous year) with magazines picking up that shift similar to what we saw in Retail Banking, but for the most part all other categories remained the same.
• Advertising spend on the internet was a pathetic 2%...the same as 2006. While the rest of the Financial Services industry is shifting dollars out of TV and into the Internet, the Insurance industry continues to buck the trend, in fact, TV as a percent of total spend increased last year from 60 to 62% of the budget.

I’ll try to provide a reason for this (if i can) in my next blog.

Lines of Businesses, Verticals and Services…Oh, Boy

by Scott Gillum

Why can’t we all get along? On my flight home the other night I sat beside a woman who headed a line of business at an Environmental Waste compnay. She mentioned how they recently realigned the organization to a Verticals, LOB’s and Services model and that they are struggling with the transition…it sounded like I was talking to myself.

We made the same decision this year. After advising and helping companies tranisition their organization to this structure for years, it is only now that we are beginning to feel their pain. And boy, are we feeling it.

Here are some of the common challenges:

• Everybody will be in Everybody’s business – early on in the transition you’ll experience the “blob.” Everyone involved in the reorg will pretty much be stuck in the same place. Vertical guys will want to define products, LOB’s will want to do their own sales and marketing, etc. It will take time for the “blob” to spread out. Give it time.
• Lane Violations – as the “blob” starts to spread out people will begin to find their lane. The challenge will be those who refuse to stay in their lanes. Lane owners will need to be protective of their space and tell others to "get out"…easier said than done.
• I think there for I am – just because you’re the new head of a Vertical or LOB doesn’t mean you know how to do the job. You’ll find that it will take time for folks to truly understand what they are supposed to do…try 6 to 12 months. And for some…never.
• Marketing, Selling, Scoping Work, Pricing, etc. – yep, all these functions will be debated over and over...where they best fit, who should do what, at what point in the process, etc.
• Compensation – OMG, the elephant in the room. Yes, it will look easy on paper…Verticals = revenue…LOB’s = profit and/or contribution...Services = customer loyalty/satisfaction, but boy does it get messy. It should create a healthy tension in the organization as long as its managed with an iron fist that is covered with kid gloves. This one will take time to sort out and all those lane violators will want to make up their own rules and/or change the ones that exist. At the end of the day, err on the side of the customer and/or what makes best sense for the organization.

Tips on how to survive...and maybe thrive in this new world:

• Clear Definitions on the Role…and how to do the job – almost everyone will get the logic and/or rationale for the change and intuitively understand what they are suppose to do. The challenge is they may not, or most likely will not, know how to do it. I've seen this story a dozen times....create the org chart, make the announcement to the company; lay out some targets…now go. The missing piece? No one has given anyone instructions on how to do their job. Invest the time to be crystal clear on what and how you want the job to be done. It will go a long way in keeping the “lane violation” from causing problems.
• Hiring from the outside – it’s taken me a while to come to this but I think you may be better off hiring new blood to run the Verticals, especially if they are new. If your business is product focused and has been aimed at one or two specific industries consider hiring in talent from the industry you want to penetrate.
• Verticals go forward – the role of the vertical should be to understand the needs of the industry/customers (market sensing), the positioning of competitors, manage pipeline, and position the organization/product/services value proposition to be successful. They may also own account management activities. If they do, a line should be established on how big an account should be to warrant that type of coverage (more on that later). Notice I didn’t say develop products and/or services because they shouldn’t! Vertical folks will be invaluable resources for informing new products/services and adapting existing, but they should not drift into the LOB lane…they own products. If done right they should have an idea of what customers will be 2-3 years out and should challenge the organization to catch up with offers (click below).
  
  
• LOB’s go deep – the role of the LOB should be to develop a standard set of products and services that fit common needs of customers across industry and meet a defined profit target. They may or may not own the P&L, it depends on the industry but they should control PRICING. Enabling the sales organization (the Vertical) with good content to support their business development efforts and informing the services/solution organization on their needs is core to their role. LOB’s should also understand which channels support what products/services and provide them with the right funding/incentive model.
• Services and/or solutions go long - this group may often feel like the orphan in this new model but don’t neglect their needs, voice or insight. Most likely, they know the needs of the clients as well or better than the verticals, and how well products/services/solutions actually work. This group should focus on serving the needs of existing customers and finding ways to improve, strengthen and expand that relationship.
• Create a “Practice” – a “practice” is a cross organizational group that is focused on supporting a Vertical. It should include representatives from the Vertical, LOB and Service/Solutions groups. The purpose of this group is to decide on how to go to market. What segments/sub-segments to target, what to sell to whom by when, and to align and/or optimize resources against revenues. This gets the three groups talking, listening and focused on running the business effectively and efficiently and it can go a long way in helping define roles and responsibilities (see graphic above).
• Not every ‘customer’ needs to be in a Vertical – small and some medium customers don’t need and/or fit into a Vertical. Their needs may not be that unique and/or warrant the type of coverage of other larger customers. Additionally, if you’re deploying a geographic vertical coverage model it just doesn’t make sense in some areas. A dense concentration of customers like the Northeast can support a vertically aligned sales force but in the upper Mid-West…forgettaboutit. Run the territory models on what makes sense.

Good luck and godspeed.

From Webcast to VODcast

In July 2001 our cost per attendee for a public or private event skyrocketed to $589 per attendee from previous year average of $70. Attendance at our events dropped like a bag of wet cement… from an average of 125 to 25. The change happened almost overnight and we knew that the recession was ”ON”… as you probably and painfully know travel budgets and event spending are one the first things to be cut.

As a professional services firm that sells services through the dissemination of intellectual property we couldn’t just turn off speaking at events. Seminars and events drove close to 40% of our leads so we made the decision to shift almost everything online. Typically, we would do at least 30 plus events a year. In the second half of 2001, we ran 14 web events and 2 live events. It turned out to perfect timing because 9/11 put a nail in the coffin of live events. By the end of the year we were able to double our average attendance and our cost came back down to $100 per attendee plus…we add 700 names to our “opt-in” list.

Fast forward to 2008, we haven’t done a webcast in the last three years. Why? Because the format became overused and the effectiveness of reaching our key audience has been severely limited. Also, business has been good…we didn’t need to.

Yesterday we did our first VODcast and more are planned. Why? Because what is old is new again but this time you can see the presenter. A bad economy means the business slows, pipelines begin to get thin and business development using events is uneconomical…see above. But here’s something else we have noticed, people are going back online looking for free advice that they used to get from “experts” when they had budgets to pay for it.

We also learned during the last down turn that when you use a new technology there is the “novelty” factor. People will tune in just because they’re curious which boost your registration/attendance rate but it doesn’t last long…you have maybe 6-8 months before the novelty wears off.

So I happened to be the lucky guy (if you want to call it that) that got to go first. I found the experience to be very challenging… much harder than doing a live event and/or traditional webcast. Here are a few things I learned from the experience…starting with the basics.

• What is a VODcast – it stands for “video on demand” and it’s a pre-record video that may or may not have other assets integrated into it.


• Shorter is better – the VODcast came in at a little over18 minutes, for a 45 minute presentation I did live at a conference…and it’s still too long. If I had to do it over again, I’d chop it up into 2 minute segments and make it a series…still might.


• Personality/Sizzle – you need it, and I obviously had none. I get energy from the audience…the camera gave me nothing and it shows. Got to work on that, rehearsing into a mirror sounds hokey but I think it will help. Open to suggestions here…


• Color and lighting matter – we used a conference room with bright lights and burnt sienna colored walls…not good. Learned that lesson the hard way.


• Bandwidth matters - depending on the length of the video and the number of viewers you may need to check with the IT folks on the impact on your IT infrastructure. We had to move the video to a host server to handle to the load.


• Communicate the format – because this is a new format you have to explain how it works…a lot. We had calls from folks asking for the dial-in number. Communicate instructions often and on everything (email, registration page, under the event listing on your website, etc.).

All in all, this is the future, so you might as well try it. I’m convinced that it will soon replace traditional web and podcast. Additionally, it provides the viewer with a much better experience…there is no call-in number, no applet to download, it eliminates many of the technical issues of the past. In fact, I’m doing a webcast today for client. I’ve already received three emails asking for the call-in number….it was sent to them days ago. Bring on the Video!