Business Diagnostics Blog

A key element to a successful marketing and sales strategy is the identification of the key market segments where you plan to deliver your product or services.

A market segment can be defined as … groups of customers and potential customers who have similar needs and desires, which are distinct from other segments and can be targeted as a group by adopting unique marketing strategies.

Here are 3 steps required to develop an effective segmentation strategy:

1) Definition

Market segments can be defined in many ways and can include:

• Geographical
• Industry
• Demographic
• Procurement based
• Operational needs

2) Measurement

The size of your market segments would normally be measured in terms of dollars and/or units and should also include their estimated growth rates over the next year.

Your percentage share of each market segment should also be estimated

3) Assessment

You will also need to carefully assess:

• Future trends for each segment and the respective customer needs and wants?
• The presence of primary, secondary, or even tertiary segments? In other words, who is the real customer?
• How or where do segment customers purchase your products or services and what is the profit potential of each segment?

For four days in September, Mike Thompson, associate professor of business at Royal Roads University and along with Richard Mimick, co-author of Business Diagnostics, answered questions from business owners in a forum hosted by Douglas Magazine, Victoria`s leading business publication.

Mike and Richard have now moved the discussion and forum to Business Diagnostics Blog. Feel free to ask Mike and Richard business development, planning, financing and `size-up` related questions in the new Questions forum.

Below is the second sampling of the some of the questions and insights during the highly successful September forum. Be sure to check back for further highlights from the Douglas Magazine forum:

Q Hi Mike,
We are an established company and are in the fortunate position of having retained earnings on our books. My question is what are your thoughts on taking them out verses investing them in other assets.
We do like not having to use our credit lines with our healthy cash position that we are in.
Nigel

A Hi Nigel,
Thanks for the question – the key concept here is that your company’s Retained Earnings are really derived by taking your total year end Assets (fixed + current) and deducting your Liabilities (current + fixed). So to ‘reduce’ your Retained Earnings, usually by dividends, you need to ascertain how much cash is sitting on your Balance Sheet.
If there is no offsetting cash to withdraw, then you would need to draw down on lines of credit.
Which brings us to the next issue – maintaining a reasonable balance of debt to equity on the Balance Sheet. Reducing the Retained Earnings is a depletion of your company’s equity base and would be frowned upon by your bank if you have credit facilities with them.In my experience, the sound way to build a company is to build the retained earnings year over year and take funds out by way of dividends from the current year’s earnings.
Hope this helps – I am attaching a link to my blog and the Business Insight section where there is a small side presentation that covers Bank Financing and touches on the issues of equity versus debt.
Best wishes!
Mike

Q Hello Mike,
A number of us have had discussions recently about the frequency of updating strategic plans for our businesses. Some suggest that once a plan is in place that minor tweaking is required while others take a contrary view and are adamant that strategic updates should be comprehensive and regularly scheduled. In light of recent economic turmoil what does your experience say?

A My answer lies ‘somewhere in the middle’
If a comprehensive strategic plan has been crafted, the last thing you want to do is to complete a laborious update or rewrite a year later.
That said, give the exceptionally challenging and ever changing times that we are experiencing, an annual ‘tweaking’ or fine tuning exercise is not enough.
My recommendation is that an ‘annual strategic review’ be conducted by the management team, ideally at an off site location, for one day if time permits.
Five key areas should be covered:

• Present Position – using an external and internal size up process
• Strategic Direction – review and assess the present pathway and an emerging alternatives
• Required Resources – internal and external
• Risks (Mitigation) – uncontrollable and controllable
• Future Success Indicators – where the organization will be in two years

This process has enough depth to be effective yet is time and resource sensitive,

Best wishes,
Mike

A If I can add one more comment here, when it comes to maintaining a strategic plan, I use frequently in my consulting work the S.M.A.R.T. tool, recommended in the book you co-authored Mike: the 2nd Edition of the “Business Diagnostics” (Trafford Publishing 2006).
So when it comes to conducting the ‘annual strategic review’ Mike was referring to in his earlier post, having Specific, Measurable, Achievable, Realistic, Time-framed articulated strategies makes the review process easier to track and monitor.Another tool I use quite frequently that has proven time and time again to be an effective tool to conduct a “quick strategic temperature check” is the Strategy Canvas by W. Chan Kim and Renée Mauborgne. The Factors of Competition used in crafting a company strategy provide a very concise picture to assess what is working and what is not.
Just my two cents.
Betina Albornoz
Argenta Business Solutions
Strategic Business & Marketing Management

For four days in September, Mike Thompson, associate professor of business at Royal Roads University and along with Richard Mimick, co-author of Business Diagnostics, answered questions from business owners in a forum hosted by Douglas Magazine, Victoria`s leading business publication.

Mike and Richard have now moved the discussion and forum to Business Diagnostics Blog. Feel free to ask Mike and Richard business development, planning, financing and `size-up` related questions in the new Questions forum.

Below is the first of a sampling of the some of the questions and insights during the highly successful September forum. Be sure to check back for further highlights from the Douglas Magazine forum:

Q Hey Mike,
As a management consultant and coach, I notice that a lot of companies could benefit from giving their employees more management training opportunities, however, they often put it off to save money. Do you have any advice or tips for companies who are facing this decision?
Thanks
Bert Zethof
The Surge Strategies Group

A Thanks Bert – the investment in management and leadership training is crucial to an organization’s success yet, often such expenditures are one of the first budget items to be cut as you recognize in your question.
In the perfect world the organization would send employees away to take high impact degree programs at a university and/or have a customized program designed, developed and delivered for them.
In today’s recessionary environment, a more incremental approach needs to be taken whereby having key employees test drive a series of one day workshops may be a good solution. Such workshops are offered by either private training companies or by established universities with a proven track record in meeting the learning and development needs of mid career professionals.

This approach is a good way to ‘test the waters’ and can lead to the hopeful decision to build a more formalized training strategy around sort but intense workshop/seminar offerings.
Best wishes!
Mike

Q Hi Mike,
For an established business they will usually have several years of experience in dealing with a particular bank or if they are really fortunate a banker who has able to look after them for some time and thus know and understand their particluar business and forge a relationship. What advice could you offer for a newer or even a start up business that has no banking relationship as to what to look for in finding the right banker for them, and what might they expect a banker to ask them in return.

A Thanks for the question!
In finding the right banker, here are some key questions to ask:

• What are your qualifications and length of business lending experience?
• Do you have a team approach to business banking relationships? Who provides ongoing support to you and to whom do you report?
• Provide an overview of your business/commercial loan portfolio. Which industries do you specialize in and where have you had the most success?
• How important is business/commercial banking to your bank?

Remember, if you are seeking a new bank; remember that the key to an enduring relationship will be the individual business banker.
The banker in turn, will want comprehensive personal and business financial information from you, which is provided in a timely and consistent manner.

Bankers also dislike surprises (the unpleasant variety) and so, if you are experiencing any set backs with your business, make sure that you meet with banker promptly to figure out the best, mutually advantageous, solution.
Best wishes,
Mike

Q We are about to hire our first salesperson who is expected to be ’on the road’ most of the time. What is your recommended compensation method e.g. salary, part salary with commission, full commission. We provide a light industrial product typically around 100 per month.

A Many companies fall into the trap of hiring a sales person on a heavily weighted commission basis and then wonder why that person burns out and quits after a short time on the job.
Your product offering will likely involve a somewhat complex sales process and so it is important to recognize that you have to make an investment in an individual who will be charged with executing this sales strategy.
The individual also needs to know that an investment is being made in their future success.
So, rather than jumping on the commission band-wagon, you may want to consider hiring the selected candidate on a salary (+ potential bonus) for the first year with the intent that they understand that they have a finite time frame (maximum twelve months) to develop their own sales and marketing plan and then implement it.
In most cases, the empowered sales person will generate the required first year’s revenue and margin targets and then will be amenable to moving to a limited commission split.
If they do not make headway, then it will be time for both parties to move on.
A key caveat here is the time and due diligence that has to be taken to ensure a strong and enduring candidate is selected.
Best wishes,
Mike

Q I recently attended a Royal Roads University sponsored seminar featuring Peter Robinson (CEO of the David Suzuki Foundation). The topic was: “What Does Real Sustainability Look Like for Business”
We often associate Sustainability these days with renewable energy and environmentally friendly initiatives. From my perspective, proper Succession Planning is a key component towards making a business “Sustainable” in the long run.
In addition to retirement age, Peter Robinson articulated this so well, leaders have “an expiration date”. Knowing and preparing for that “Best Before” date is crucial to the long term sustainability process of an organization.
I personally do not know any company that has a Succession Plan in place, certainly none of my clients, yet! While this is not an area I specialize in, I do encourage my clients to create and maintain systems that give the organization a certain degree of independence of who is at the top or at any level, really. When you have systems in place, (and maintain them) this gives continuity and consistency to a business operational strategy, not only internally but also externally, and this is key from customers’ perspective.
Mike: Can you recommend a couple of good resources on this subject i.e. internet sites, publications, companies that specilize in providing Succession Planning or even success stories of companies that have succeeded at putting Succession Plans in place?
Betina Albornoz
Argenta Business Solutions
Strategic Business & Marketing Management

A Hi Betina,
I am currently researching the whole field of succession planning and building senior management and executive capacity and capability and will post some useful resources as I seek them out – in the meantime, the Harvard Business Review just posted a very interesting article on Succession Development at the following link:
blogs.harvardbusiness.org/goldsmith/2009…-SEP_2009-_-MTOD0911
Best wishes,
Mike

Canada’s job market brightened in August.
A gain of 27,100 jobs was a major reversal from July’s big loss of 44,500 jobs.
Is this a blip or the emergence of a lasting trend?
It depends on who you ask.
Yanick Desnoyers of the National Bank has declared that the rebound in August represents the emergence of a lasting trend (even though the majority of the new jobs are part-time ones).
Douglas Porter, deputy chief economist at BMO Capital Markets says the most encouraging element in the August statistics was the addition of 49,200 new private-sector jobs. According to Porter, this surge represents the first gain in hiring among private firms in 11 months – a powerful signal that employers see better times ahead.
As well, employment increases are not limited to a narrow scope of industries: job growth was reported in a diverse range sectors, including finance, retailing and construction. Six of ten provinces also reported higher employment.
Many small and medium sized business owners are now faced with the decision to hire and invest now, or wait for greater certitude that the recession is behind us in Canada.
The answer may lie in a performing an internal and external Business Diagnostic ‘size-up.’
Contained in Business Diagnostic’s book, business owners are provided a step-by-step process on how to size-up their internal business operation and assess its relative strengths and weaknesses. The internal size-up drills down into the company’s performance, evaluating its relative health from different viewpoints – financial, marketing, operations, human resources, and technology.
Business Diagnostic’s external size-up examines the business environment (political, economic, societal and technological factors) along with prevailing industry conditions.
Timing is crucial.
Business owners need to properly time their hiring and investment to ensure they are on the leading edge – not the bleeding edge – of the economic recovery.

Business Diagnostics co-author Mike Thompson is hosting a live forum September 7-11 on the website of Douglas, Victoria’s leading business magazine.
Fielding questions from business people, business owners and managers, entrepreneurs and aspiring business owners, Douglas’ online, real time forum gives business people the opportunity to ask specific questions — and get the right answers — on issues that concern most small and medium sized business owners.
“Time is a rare commodity,” says Thompson, associate professor of business at Victoria’s Royal Roads University. “Attending business courses and seminars on acquiring and developing management skills is something few business owners have time for. Douglas’ online forum gives you the opportunity to ask specific questions on issues that concern you and your business.”
Business owners and aspiring business owners are encouraged to visit Douglas join the discussion and pose a question.
Once the Douglas forum ends, business people can keep the discussion going by visiting Business Diagnostic’s own discussion forum – click here.
Co-authors Thompson and Richard Mimick will do their best to answer your business-related questions.

The Business Diagnostics concept was developed by Mike Thompson and Rich Mimick to address a serious gap in the provision of practical strategic advice and guidance to the Small and Medium Size (SME) business sector in Canada and around the globe.