08/ 20/ 2002
Looking for tactics to vault your small business off a plateau, fight sluggish sales or recharge a stagnant company?
Here are seven ways smart small companies are succeeding today. Unlike new fads destined to disappear as soon as they arise, these seven trends are ones you’ve probably heard before, and they've got staying power. All seven tap your inherent advantage as a small business owner to get closer to your customer, your employees and success, however you define it.
They include: mentoring, e-mail marketing, focusing on the customer, customization, sharing the pie, tapping growth markets and affordable automation.
The good news is that as a small business owner, you've already got what it takes to tap these seven strategic trends.
1. Mentoring
No matter how hard you work yourself, if you don't have capable employees, your small business won't be successful. To handle the difficult task of finding good help, many small business owners are using mentor programs to keep current employees.
Though labor shortages aren't a threat in the current economy, the Census Bureau projects that by 2010 there will be at least 5 million fewer workers in the 30 to 44 age group than there are now. Because small businesses suffer the most during hiring crunches, now is the time to focus on keeping employees by keeping them happy.
Patricia Thorp hasn't lost an "A" player from her 15-person staff in five years. She credits her public relations firm's low turnover rate to its internal training and mentoring programs.
"If you want to be in the top 5 percent of your profession, you had better promote from within," says Thorp, who started Miami-based Thorp and Company (www.thorpco.com) in 1986. "It's a much more profitable way to grow your business than by constantly turning over new employees."
New hires are assigned more seasoned "buddies," who are available for support and advice until the new employees get their "sea legs."
Kenneth Anders stopped waiting for cosmetology schools to turn out employees for his six hair salons and day spas in Columbus, Ohio. Instead, the 25-year industry veteran started a program to groom the type of employee he couldn't find elsewhere.
Anders pays for students to attend a 10-month training program at a local school, if the employees agree to work at a Kenneth Salon and Day Spa, online at www.kenneths.com for at least two years.
"My business means nothing if I don't have the right people," says Anders. He's put 120 people through school in the last five years.
New apprentices work with a salon staff member who is devoted entirely to mentoring new employees. Besides this educational director, Anders' salons also have senior stylists and colorists who assist newer staff members.
2. Email Marketing
It offers broader reach, higher measurability and quicker delivery at less cost than most any other marketing medium--no surprise that the market for e-mail marketing is expected to swell to $1.5 billion this year, up from $948 million last year, according to GartnerG2 research group.
It's a trend that appeals to small business' strength too, as email marketing more closely mimics the one-on-one relationship you develop with your customers. Using email to notify customers of sales, update them on new features or services, or just remind them of your name is cheaper than direct mail--email costs range from $5 to $7 per thousand, compared to direct mail costs of $500 to $700 per thousand. Email also gets a more immediate and measurable response, says Denise Garcia, GartnerG2's research director.
Ease of use and price were the main reasons Lauri Michel started using email to spread the word on her historic Hillsborough House Inn. "It's more convenient to just press a button than actually print up a newsletter," Michel says of the quarterly email that includes room specials and events going on in Hillsborough, N.C.
Former and prospective customers sign up at the Inn's Web site, www.hillsborough-inn.com to get the emails. To be effective--and not unwelcome spam--Michel says she knew the emails had to be requested and not sent to a purchased list of email addresses. Be sure to follow and post privacy guidelines, such as those suggested by the Direct Marketing Association, at www.the-dma.org.
The nature of the email Michel sends mirrors the personalized relationship she builds with customers of her six-room bed and breakfast, which she and her husband, Kirk, bought in 1998.
Email also lets you quickly send out news about special offers to your best customers. Immediacy is the reason El Cerrito, Calif.-based Mountain Travel-Sobek sends out a weekly email newsletter to alert its more than 77,000 subscribers of the latest happenings in Africa or how the current political situation is affecting trekking in Iran.
"Can you imagine if we tried to mail this out every week?" says Richard Bangs, founding partner of the 40-employee adventure-travel company, found at www.mtsobek.com.
3. Focusing on the Customer
Customer-focused service is vital to future business success, because buyers today have more choices than ever before. With the Internet and the ability to buy from so many businesses, customers demand more than a decent price on a quality product or service--they want to be entertained, to have a positive experience and to have their specific needs met. Otherwise, they can take their business elsewhere.
How does customer focus affect your bottom line? Satisfied customers spend up to 2.6 times as much at a company as those who are somewhat satisfied and 17 times as much as those somewhat dissatisfied, according to research firm InfoQuest.
Small businesses are well positioned to take advantage of this trend because you already have more one-on-one contact with your customers than the big chains. This allows you to develop closer relationships and give customers just what they want.
Customer focus is how Zane's Cycles (www.zanes.com) thrives in an industry dominated by low-cost chains. The 17-year-old bike shop in Branford, Conn., forges relationships with customers with free lifetime service, a lifetime parts warranty, an in-store espresso bar and a play area for kids. Owner Chris Zane's innovative tactics look expensive, but usually cost him little.
"Products are products; bikes are bikes. If you're going to buy at a business, there's got to be a point of difference," says Zane, whose 8,000-square-foot store is one of the top-selling bike stores in the nation. "Our passion is benefiting the customer."
Focusing on service often means sacrificing elsewhere. Zane doesn't try to compete on price with low-cost sellers like Wal-Mart, choosing instead to win those customers who base their buying decisions on service.
Dorothy Lane Markets in Dayton, Ohio, also plays to its strength by focusing on customer service. Since 1995, the three-store grocery (www.dorothylane.com) hasn't advertised in newspapers or through mailbox stuffers, a strategy that competed head-to-head with the larger chain stores.
Instead, CEO Norman Mayne focuses on the 30 percent of his customers who make up 83 percent of Dorothy Lane's sales. Mayne uses those advertising dollars to treat his top customers like royalty, with price reductions, gifts and invitations to exclusive concerts.
"It's relationship marketing, and it's increased our sales, our customer satisfaction and the number of people who come in our store," says Mayne, whose father started the company 54 years ago.
4. Customization
Today's consumers want personalized products and services. Small businesses can cater to those demands more easily than large corporations, because they work more closely with customers on a smaller scale. Delivering custom-made goods and services is what sets them apart.
The payoff is more business. Seventy-five percent of adults in the United States say they wish there were more products and services customized to their needs and tastes, according to American Demographics magazine.
San Francisco-based Timbuk2 (www.Timbuk2.com) doesn't make a messenger-style bag until a customer orders it. Then the 40-employee company manufactures and ships the custom product within 24 hours.
"Consumers enjoy being part of the creative process," says Timbuk2's Vice President Jordan Reiss. "And we save by not having to deal with mass quantities that are prevalent in the apparel industry."
Every aspect of a Timbuk2 bag is open to personal taste, including size, fabric, color and special options. At an average of $95, the bags are more expensive than most, but customers are willing to pay because they know the bags are being made just for them, says Reiss.
That's what Stefani Toonkel, owner of Priorities Inc. (www.prioritiesnyc.com), has found with her New York City-based embroidered T-shirt company, which lets customers choose the color and style of their monogrammed T-shirts.
"People don't want a store owner to decide which shirt they're going to wear," says Toonkel, who started the business out of her apartment last October. "They want to be in on the design from start to finish. This way it's all about you."
Big companies recognize the customization trend. In addition to Web site sales, both Timbuk2 and Priorities Inc. sell through national retail chains that let customers place orders from their stores.
"It's only a matter of time before large companies embrace customization," says Reiss. "But smaller companies have the flexibility to get there first."
5. Sharing the Pie
Employee Stock Ownership Plans, or ESOPs, are an increasingly popular way for small companies to empower employees by giving them a stake in the company, while also providing a tax-deductible tool to fund expansion or capital investment.
In the last 20 years, the number of ESOPs has more than quadrupled, with an estimated 11,500 in existence. The majority of these, 11,400, are at privately held companies, according to the ESOP Association.
As a tax-qualified, defined-contribution employee benefit plan, an ESOP invests primarily in the stock of a company on behalf of its employees, who then become shareholders. As such, ESOPs have proven effective at motivating employees, according to a study by Rutgers University. Researchers there found that ESOPs increase sales per employee by about 2.4 percent per year over what would have been expected at a company without an ESOP.
An uptick in employee retention, performance and morale has been evident at L.A. Studios, which does post-production work for commercials and movies. The 22-year-old company, at www.lastudios.com started an ESOP seven years ago.
"Our clients feel that everyone they meet here, from the receptionist to top managers, doesn't behave as if this is just a job," says Jesse Meli, president of the 60-employee company. "They are all part owners and work to improve the performance of the company."
ESOPs aren't easy, and require additional work and costs to start and maintain. And as a business owner, you do have to cede control and allow independent advisors in. But the tax and morale benefits make it worth it for many.
The reasons to share ownership vary--as an owner exit strategy, to raise capital, for tax benefits or a combination of these benefits. Start by examining what you want to get out of an ESOP, then develop a plan to best serve those interests.
6. Tapping Growth Markets
No matter what you sell, chances are there's a buying audience you haven't targeted. Consider these growth markets:
- Aging baby boomers. The 50-plus market accounts for more than $2 trillion in income and wields over 50 percent of the discretionary spending power, according to research company Age Wave.
- Ethnic groups. The Hispanic, African-American, Asian and other non-white consumer populations are growing twice as fast as the overall population. Minorities now control nearly $900 billion in annual spending, an increase of more than $420 billion since 1990, according to the Selig Center for Economic Growth.
- Homebodies. There's a growing tendency for Americans to stay at one address longer, according to American Demographics magazine.
- Teens. Spending by the under-20 age group has grown from a $125 billion market to $187 billion in the last 10 years, according to American Demographics magazine.
"We leveraged something we already had, relatively inexpensively, to open a new market," says President Rob Stewart.
Vicki Sullivan, owner of Sullivan Speaker Services Inc., has found that speaking before ethnic groups--such as the local Hispanic Chamber of Commerce--can give your business credibility, especially if you're a service provider.
"If you're an accountant, you can speak on five ways to avoid an audit," says Sullivan. "Then you offer a free consultation to anyone who gives you a business card after your talk."
The key is not to deliver a sales pitch, but to provide useful information and follow-up, says Sullivan, whose business is at www.sullivanspeaker.com.
7. Automation
Though technology will never replace personal service, it can help small businesses be more efficient and cost-effective. By automating everything from manufacturing processes to phone systems, small business owners are finding more time and money to spend on growing their companies.
The luxury of automation may become a necessity. The Bureau of Labor Statistics predicts that during the next decade there will be 3 million more job openings than laborers to fill them. Automated processes can help fill the human gap.
David Ferkinhoff of East Side Glass Company saw a significant drop in workers comp claims after he purchased a certain machine for his 80-employee window manufacturing company.
"Employees used to clean the window corners with a hammer and chisel," says Ferkinhoff, who runs the St.Cloud, Minn.-based business with his two brothers. "We really cut down on cuts and bruises now that the machine does the job."
Not only does the machine produce a higher quality product, it's allowed the 40-year-old company to cut back on labor costs too.
"Though the initial cost was high, there's no question that it's been a good investment," says Ferkinhoff. "We're now looking at other ways to bring automation into the plant."
Manufacturing plants aren't the only ones who can benefit from affordable automation. Thanks to software advances, most small businesses can find ways to improve efficiency.
This article originally appeared in the August/September 2002 issue of MyBusiness magazine.
