It is an unfortunate fact that small businesses fail at a higher rate than large businesses. While we've come to accept this, it somewhat flies in the face of logic. After all, small businesses are run by owners who can achieve entrepreneurial returns rather than managerial bonuses, so incentive is high. Conventional wisdom is that small businesses have fewer, and closer relationships to customers (think Ace Hardware franchisees vs. Home Depot.) And lacking layers of overhead and embedded management they should be more nimble.
Yet, they fail. From as high as 9 out of 10 for restaurants to 4 out of 10 in more asset intensive business-to-business ventures. That is far higher than large companies.
Why? Despite conventional wisdom most small businesses are run by leaders committed to a single, narrow success formula. Most are wedded to their core ideology, based on personal history, and unwilling to adapt until the business completely fails. Most reject new technologies and other emerging innovations as long as possible, trying to conserve cash and wait for "more proof" change will pay off. Additionally, most spend little time investing time, or money, in innovation at all as they pour everything into defending and extending their historical business approach.
Take for example the major trend to digital marketing. Everyone knows that digital is the only growing ad market, while print is fast dying: Chart republished with permission of Jay Yarow, Business Insider 3/19/2013
Digital marketing is one of the few places where ads can be purchased for as little as $100. Digital ads are targeted at users based upon their searches and pages viewed, thus delivered directly to likely buyers. And digital ads consistently demonstrate the highest rate of return. That's why it's growing at over 20%/year!
Yet, small businesses continue to put most of their money into local newspapers and direct mail circulars. The least targeted of all advertising, and increasingly the least read! While print ad spending has declined over 80% the last few years, to 1950 levels (adjusted for inflation,) smarter businesses have abandoned the media. At large companies in 2012 38% of advertising is on digital, second only to TV's 42% – and rapidly moving into first place!
A second major trend is the move to mobile and app usage. In the last 2 years mobile users have grown and shown a distinct preference for apps over mobile web sites. App use is growing while mobile web sites have stalled: Chart republished with permission of Alex Cocotas, Business Insider 3/20/13
Even though there are over 1million apps available for iPhone and Android users, the vast majority of small businesses have no apps aligned with their business and customers. Most small businesses, late to the game in digital marketing, are content to try and add mobile capability to their already existing web site – hoping that it will be sufficient for future growth. Meanwhile, customers are going directly for apps in accelerating numbers every month! Chart republished with permission of Alex Cocotas, Business Insider 1/8/13
Rather than act like market leaders, using customer intimacy and nimbleness to jump ahead of lumbering giants, small business leaders complain they are unsure of app value – and keep spending money on historical artifacts (like their web site) rather than invest in higher return innovation opportunities. Many small businesses are spending $20k+/year on printed brochures, coupons and newspaper or magazine PR when a like amount spent on an app could connect them much more tightly with customers, add higher value and expand their base more quickly and more profitably!
The trend to digital marketing – including the explosive growth in mobile app use – is proven. And due to very low relative up-front cost, as well as low variable cost, both trends are a wonderful boon for small businesses ready to adopt, adapt and grow. But, unfortunately, the vast majoritiy of small business leaders are behaving oppositely! They remain wedded to outdated marketing and customer relationship processes that are too expensive, with lower yield!
The opportunity is greater now than during most times for smaller competitors to be disruptive. They can seize new innovations faster, and leverage them before larger competitors. But as long as they cling to old practices and processes, and beliefs about historical markets, they will continue to fail, smashed under the heal of slower moving, bureaucratic large companies who have larger resources when they do finally take action.
Everyone hears about the growth at Apple. But far too few of us hear about great growth stories of start-up companies in non-tech industries that use today's sales tools to change the game and steal sales leadership from traditional competitors.
Jefferson Financial, which moved its headquarters from New York to Louisville, created dramatic, rapid growth using Twitter and Linked-in to take on industry giants like Schwab and B of A's Merrill Lynch. Readers should take this story to heart, because it shows the kind of success small and medium-sized businesses can have when they break out of traditional thinking and invest in new sales tools while stalwarts remain stuck doing the same old thing with diminishing results.
The Jefferson Financial Story – from Ron Volper, Ph.D
Companies that reduce their sales and marketing budgets in this tough economy—as most have– are doing exactly the wrong thing. While many are trying to cut their way out of the recession, the companies that are thriving in this economy are growing their way out by investing more in sales and marketing. And by capitalizing on new trends, such as social media and technology, to reach out to their customers.
That's what enabled Jefferson National Financial to grow its 2010 $180 million revenues to $280 million in 2011 (a 55% annual increase!) — and capture the dominant market share from much larger companies like Charles Schwab — selling financial products such as variable rate annuities to registered investment advisors and their clients throughout the US.
While most industry competitors cut their sales and customer service teams in the recessionary economy, Jefferson National tripled its sales team from 2010 to 2011. While competitors slashed advertising and marketing, Jefferson National substantially increased its advertising and marketing budget. Sound risky? Read on for the results.
Jefferson National combined hi-tech and hi-touch. For example, it used LinkedIn, Twitter, and YouTube to reach financial advisors (the intermediaries that recommend its products) and their clients (the investors). The company capitalized on a slew of tweets and re-tweets highlighting its relocation to Louisville and the creation of 95 new high paying management jobs. Social excitement induced both the mayor and the governor to attend a celebratory event, and encouraged the governor to designate a day as Jefferson National Day – creating a low cost media following of the company, its products and its success.
Successful viral marketing combined hi-tech social involvement with classic event marketing.
Lacking anything exciting to say, many of Jefferson's competitors reduced their fees (prices) for products and services to maintain revenues. Jefferson National was able to maintain its fees by successfully pitching its story directly to customers on-line, then following up with personal assistance, adding value and promoting a successful investor story. As a result, after only 5 years the company increased its fund offerings from 75 to 350.
Jefferson National leveraged its technology to help financial advisors grow their practices. By hosting financial advisor webinars on how to use Linked-in and other social media to gain referrals from existing clients it created a loyal, growing set of distributors and happy clients.
Additionally, Jefferson National used technology to give financial advisors “an end to end solution” demonstrating to investors on-line, regardless location, the power of tax deferred investment growth, regardless of whether the investor was conservative or aggressive.
According to the Ron Volper Group’s recent analysis of 125 companies (including Jefferson National), 80% of companies that were successful in the 2008-2010 down market (as measured by meeting and exceeding their revenue and earnings goals and capturing market share) recognized that customer buying behavior changed, and altered their sales and marketing approach while their less successful peers kept doing "more of the same."
Unfortunately, too many companies exacerbated failure by cutting advertising and marketing budgets. Today customers demand 8 touches (or contacts) to make a buying decision; whereas prior to 2008 they required only 5 touches. While competition has toughened, customers have simultaneously become MORE demanding! The winners, like Jefferson National, recognized that social media, such as Twitter, Facebook and LinkedIn are immediate and inexpensive ways to attract attention and have followers share their success messages with their networks. Simultaneously they continued to advertise and promote their products in traditional ways, appealing to the widest swath of prospects.
Most companies have not accepted the increased customer demand for increased touch, without higher prices. Most have not modified their marketing and sales approach to take account of changes in customer buying behavior. That’s why this is a perfect time for many small and mid-sized companies to adopt new technologies. These are the "slings" which can allow modern-day business Davids to attack lethargic Goliaths.
Thanks to my colleague Ron Volper for sending along this story. He is a believer that anyone can grow, even in this economy. RON VOLPER, Ph.D., is a leading authority on business development and author of Up Your Sales in a Down Market. As Managing Partner of the Ron Volper Group—Building Better Sales Teams,he has advised 90 Fortune 500 Companies and many mid-sized companies on how to increase sales in tough times and good times; and he has trained over 30,000 salespeople and executives over the past 25 years.
I hope your company can take this story to heart and find ways to incorporate new tools f0r creating growth as market shifts make old strategies less valuable, while creating new opportunities.
