Acclaro Growth Partners' M&A and Strategy Weblog

Uncertainty and Customers’ Product Life Cycles

It is often difficult to forecast customer demand.  And when your company is a component supplier for your customers’ end product platform, you must plan for your next few years of production capacity and top line revenue growth without a clear understanding of where your customers’ plans and businesses are going.

Your customers may not know or be willing to share the current lifespan of their platforms, the replacement / update schedule, and whether they intend to source from the same vendors in the next product cycle.  Often, the feedback you get from your customers can be misleading, overly optimistic, or may not take into consideration the competitive products or technologies that could overtake or replace their products earlier than expected.

When it is time to develop and replace a product platform, customers often put out RFPs and look for additional vendors.  There is always a risk that you, the incumbent supplier, will be replaced by another supplier – for cost or capability/service reasons.  Mitigate some of the risk associated with losing a contract renewal. The more information you have coming into the RFP process – and the more feedback and expert guidance you give your customers even before the RFP process – the better positioned you will be to be “spec’ed in” to the next proposal process.  Remember, you have the expertise in the components your customers are looking for, not them.  An understanding of how your customers’ needs will change from one cycle to the next, an understanding of competitive suppliers’ offerings, and an awareness of competing products or technologies that may challenge your customers’ products will put you in a better position to make a competitive, insightful, and best-fit proposal response.

To gain an accurate picture with the best possible forecast available, you have to tap the knowledge and expectations of multiple groups of organizations.  Customers, themselves, should be the starting point in solving the puzzle.  Other key component suppliers may have additional insights as to raw material shortages or early notification about production or technology changes.  Your customers’ competitors may be aware of market externalities that may affect demand and production levels, or they may be planning game-changing moves that your customers may not be privy to.

Those companies with a well-rounded understanding of how their customers use their products and how those products are situated in their respective markets will be able to react to market changes faster than those simply supplying product.  By understanding your customers’ processes and their product landscape, you can remain ahead of the curve, better plan your own production capacities, play an integral role in upcoming generation designs, and become more of a manufacturing partner than simply a commoditized supplier.

Prime-sourced, third-party research can shed light on the critical questions surrounding product life cycles:

p What is the typical life cycle of a product in this industry?  How often is it updated?  How frequently do radical improvements occur?

p What happens to older product generations?  Are they replaced immediately, or can they be counted for a period of continued revenue?

p How quickly will demand pick up or scale back throughout the product’s life cycle? 

pWhat are the triggers – both within your customers and external to the market – that will affect demand and supply?

To understand product life cycles, and therefore make production and development plans accordingly, you must be able to answer the questions above.  No single point of contact in the marketplace will have all the answers; instead, these issues for a puzzle for which the pieces are held by customers, competitors, suppliers, and channel partners.

Acclaro Growth Partners’ role is to gather the data, analyze it, and offer recommendations for your management team.  Our unique value involves our ability to conduct primary research objectively, quickly, and with actionable results.  Visit our website.

Portfolio Company Market Research to Support Actionable Planning

Portfolio Company CEOs who cannot articulate a clear, step-by-step path to growth over the next twelve to eighteen months are not being fired.  They are not being criticized.  They are not even evoking disappointment in the eyes of their board.  In fact, in this economy they are being supported, handed resources, and allowed time – time to conduct the fact-based research necessary to identify pockets of opportunity. 

 

The pockets of opportunity are out there – unmet needs of customers, prospects and even lost accounts speak volumes about opportunities, particularly when consistent themes emerge across customer segments.  And competitors who are asleep at the switch are missing out on market or customer opportunities – which presents opportunities for your portfolio company.  Moreover, competitors who are getting it right, who see a clear opportunity and are developing strategies and tactics to seize them, can be emulated.  Market trends and dynamics, constantly evolving, create opportunities for those who see the trends first and capitalize on them. 

 

While the opportunities are there for the taking, seeing them, gathering enough pieces of the mosaic-like puzzle to enable a clear picture to emerge, requires expert resources.  Look for research-based strategy consulting firms experienced in gathering detailed insights about obscure, niche sectors.  There are five critical criteria that should be evaluated when selecting a research-based strategy consulting firm to work with management to identify growth opportunities.

 

They should be able to gather plenty of data in segments where research may have never been conducted before.  And these research firms  should also be comfortable analyzing, developing options and presenting clear recommendations. 

 

These recommendations for management should be as actionable as possible.  Establishing rapport with management early, often, and with plenty of humility is a critical component of actionability.  If management does not feel comfortable with the messenger, it is unlikely to accept the message.  The analysis and recommendations should enable management to make a clear, simple decision based on plenty of supporting facts. 

 

The research should be designed, in other words, to test a hypothesis (do we enter this new market or not; do we develop this new channel or not; do we enter this new geographic market or not; etc.). 

In conclusion, there are five critical criteria to evaluate in selecting a research-based strategy consulting firmto work with your portfolio company:

 

 

 

1. Ability to design the project to test an hypothesis or hypotheses

2. Competence in developing rapport with management

3. Proven skills in conducting deep-dive research in obscure, niche markets

4. Delivery beyond research -- to analysis, options, and recommendations

5. Segue directly to a tangible, tactical roadmap to growth developed in concert with management, for management to execute

 

 

 

 

For more information about our processes, visit our website

Clues About Competitor Intentions to Contract, Divest, or Decrease Capacity

A competitor's decision to divest a business unit, decrease production capacity or simply to cut a product area, channel, customer segment, or geographic region could have a major impact on your business.  It makes sense to be aware of the signs that your competitor is implementing such a plan.

Some of the clues will be apparent from casual observation; others require some form of active competitive intelligence research.  First, the more obvious indicators, which may be revealed through secondary literature searches, salesperson conversations with customers and prospects, and even the company's own announcements:

• Operational changes on the production floor.  Outward signs may include the hiring of a consulting firm, laying off of employees, or sale of equipment.
• Layoffs.  Beyond the production employees, there may be a cross-section of employees who are let go.  Be alert for increased volumes of unsolicited resumes hitting your hiring officers' desks.
• Reduced commitments with suppliers.  Casual conversations with suppliers may reveal a planned major reduction in purchase volumes from one of their other customers (a competitor of yours).
• Abandoned customers.  Salespeople may report increased call-ins from customers, who may suddenly be feeling abandoned.

There are also some less obvious clues that a competitor has waning interest in a business unit, product line, or segment.  In-depth research may be required to gather the insights needed to confirm or refute these indicators:

• Shifting corporate strategy and intent.  Conversations with various levels and departments within the organization can reveal the corporation's key strategic tenets.  A sudden change in strategy is a clue that they are placing less emphasis on a particular aspect of their business.
• R&D focus changing.  Professional researchers can develop conversations with R&D personnel to learn about their focal areas.  A change in focus may be an indicator of a strategic shift.
• Brand changes.  Announcements that a Company is hiring an ad agency or brand strategy consulting firm may warrant more in-depth conversations with marketing and branding personnel to learn if a particular product, business unit, or segment is being cut in some way.
• Acquisition intent.  Professional researchers can inquire to the board level about the parent company's commitment to the business.  By asking if the board would consider a sale of the business, or by asking about their interest in pursuing their own acquisition, researchers may learn the rationale behind a positive or negative response to the acquisition question.

• Cancellations of permitting requests.  For some business units or products, ongoing public permits are required to purchase or transport hazardous materials.  Or they may have intended to extend a rail line, add a major water line, electrical capacity, etc.  If the permits for these projects are suddenly cancelled, the Company may have decided to cancel a major project.

While some of the above indicators are obvious, others require some real sleuthing on the part of professional research firms.  Acclaro Growth Partners has experience in conducting competitive research and analysis.  We understand the motivations behind specific tactical actions that can be revealed.  For more information, visit our website.

Issues to Consider When Conducting Competitive Intelligence for the Sales Department

Market research, customer analysis, and competitive intelligence take different forms depending on the overriding issue that needs to be addressed, answered, or decided upon.  And the identity of the client greatly influences the core issue.  In other words, the varying responsibilities of marketing, operations, finance, and sales means widely varying competitive intelligence assignments for each departmental entity.  This blog post will focus on the needs of the sales department.

 

Purpose.  The sales department often uses CI to determine specifically how to win against specific competitors in competitive bidding situations.  They want to understand competitors’ strengths and weaknesses, as well as customer opportunities.

 

Customer knowledge

·         What are the customers’ perceptions of competitors’ strengths and weaknesses?

·         Why did customers choose a particular supplier?

·         What are the criteria they use in selecting a vendor.  How much weight do they place on each factor?

·         What are their unmet needs?

·         What is each major customer’s level of interest in switching or adding suppliers?

 

Competitor knowledge  

·         Who are the top customers of each competitor organization?

·         What are competitors’ perceptions of their own and their competitors’ strengths and weaknesses?

·         Where do competitors believe their greatest opportunities lie (product, geography, customer segment, etc.)?

·         What is the competitor’s growth goal?

·         What is the strategy it will use to achieve this goal?

·         What is the product strategy, pricing strategy, distribution strategy, and promotions strategy of each competitor?

·         What is the value proposition to customers?

·         Estimate revenue and gross profit in each of the major business units or functional areas that are relevant.

·         Describe the sales organization, to include territory definitions, level of experience and reporting structure.

·         How do each of the competitors perceive the breakdown of market shares, and how are market shares changing?

·         What are the core competencies that drive each player’s actions?

·         What are the best areas to compete against each competitor, given your internal competencies.

Use the above list of questions as a starting point in developing your own customized list of issues that should be addressed.  Answering these questions will help your sales department improve its winning percentage against competitors.

Six Questions to Provoke Thinking About Customer Growth Opportunities

In the midst of the current recession, business unit managers are looking for some clear direction in terms of where the opportunity for growth lies.  The answer is not “do more of the same, and just work harder.”  We have six questions for you to consider.  They may provoke some ideas for one or more of your businesses.

1. What are the unmet needs of existing customers?  What would it take to sell more to them?  Can we change our value proposition slightly to better meet our customers’ purchase decision criteria in terms of service or quality levels?
2. Is there an opportunity to adjust the price/value offering?  During the recession, customers may be willing to sacrifice volume purchased  or the longevity/durability of the product or service in order to receive a lower up-front price.
3. How are we accessing and servicing customers?  There may be a new channel that does not conflict with existing channels that could enable us to sell more with little additional effort.
4. Which customer segments are we ignoring?  There may be additional segments of customers whom we have ignored in the past, who may need our products or services.
5. Where are additional customers located?  Can we access them and serve them well?  There may be international or other geographic opportunities that we have been ignoring.
6. What else are customers purchasing?  Can we bundle our products or services with some additional products or services that the customer also consumes in order to simplify life for the customer? 

It is one thing to answer these questions based on past experience, guesswork, and wishful thinking.  It is something else entirely to have cold, hard, quantitative facts demonstrating precisely where the real opportunities lie.  Our job is to gather the data, analyze it, and offer recommendations for management.  And  this work is faster, easier, and cheaper than you might think!  For more background, visit our website.  Click here

Understanding Revenue Risk from the Vantage Point of Your Customers

As you embark on the process of predicting your next quarter’s or year’s revenue, getting inside the heads of your customers and prospects can be a tremendous help.

 

How’s their business?

The greatest influencer of their purchasing ability involves their success in their own market.  Ask your customers and prospects two questions.  1.)  How rapidly is your market growing (or declining)?  2.)  How is your share changing, or how fast are you growing in your market?  If the customer is growing faster than its market, it is oviously gaining share.  This is good news for your business.  Customers that are gaining share in their own markets are good customers to have.

 

What are their buying expectations?

Rather than being presumptuous and assuming they will purchase more than last year if their business is growing (or less than last year if their growth rate is negative), just ask.  “What volume of purchasing do you expect this next quarter (or year)?"  The answer may surprise you.  They may have found ways to get by with lower purchase volumes.  They may have inventory remaining from last quarter.  They may have decided to do away with the product-line that your company sold into.  Or, they may be purchasing the same volume, but they may have decided to purchase less with your organization.

 

What are their loyalties to existing suppliers?

In some circumstances, customers are loyal to existing suppliers because the costs of switching are high.  In other cases, they rely on one vendor to produce a critical component that they cannot purchase efficiently from other vendors.  Or the customer may have a vested interest in seeing your organization succeed because they rely on your production of some other product or service.  

 

However, they may decide to change their purchase decision criteria this year.  In other words, perhaps they valued service in the past, but suddenly price becomes their most important purchase decision factor.

  

Will they be purchasing differently this year – what are their purchase decision criteria?

Asking your customer for the factors they use in making purchase decisions will help you to assess which customers are in your sweet spot and which are vulnerable.  It will also prove tremendously helpful in going after prospects.  Ranking prospects according to how well their purchase decision criteria match your skills and competencies can be a tremendously valuable exercise.  Business development professionals can spend appropriate amounts of time on the high target prospects, and less time with those whose needs are not a fit with your capabilities. 

 

How do we gather these customer insights?

The most objective, and straightforward, method is to use a strategic research firm that is skilled in qualitative, primary research.  Their benefit is their ability to gather the insights “blind,” without revealing the identity of the client, presumably as part of a broader industry-wide study.  Conducting this work internally is certainly a possibility, but should probably be undertaken by an account manager as opposed to a market research person in your company.  The difficulty for the account manager, though, is getting objective, honest feedback from prospects and customers whose best interests may be served by withholding some of this information.

Re-Diligence for Corporate Owners

Corporate owners of “cleavable” businesses should conduct a strategic “Re-Diligence” exercise at least once every three years.  Regardless of how well the business is performing from a financial standpoint, owners should look for actionable next steps and consider carefully whether the time is right to re-invest in the business, milk it, or sell it.  The formal process involves strategic research and analysis, and reveals the action steps the owners and managers would take if they were acquiring the business for the first time today.

Below is a list of considerations owners and management take into account during a “re-diligence” exercise:

Go/No Go. 

·         If given the opportunity to buy the business today would we do the deal? 

·         If not, is now an appropriate time to sell? 

·         What should we do to improve upon the attractiveness of the business today, to make it more attractive for a prospective acquirer?

Strategy. 

·         Does the strategic direction of the business make sense, given internal competencies, and external market trends, customer needs and competitor capabilities and intentions? 

·         If not, how much of a realignment would be prudent at this time?

The Market. 

·         Are we competing in the most attractive segments of the market, where growth is more rapid, customer needs are more discreet, and competition is less intense? 

·         If not, what are the steps to serve the more attractive segments?

·         What changes to our market positioning would we make, if we were acquiring the business today?

Customers. 

·         Given the evolving purchase decision criteria of customers and prospects, and their unmet needs, are our capabilities still aligned with their needs and interests? 

·         Are we serving the most appropriate and attractive segment of customers, given our skills and preferences?

·         If not, how much of a change should we be making? 

·         Which customer/prospect needs should we be addressing first?

·         What changes to our customer positioning would we make, if we were acquiring the business today?

Competition. 

·         Are we at least as well positioned in the market vs. competitors as we were when we acquired the business? 

·         How have competitor capabilities evolved? 

·         What are competitor intentions in the market? 

·         Is there anything to learn from these competitors’ strategies? 

·         Should we be emulating them or carving our own path?

·         What changes to our competitive positioning would we make, if we were acquiring the business today?

Human Resources. 

·         Given the size and stage of our business, do we have the right people in the right places doing the right things to accomplish our goals? 

·         Are the incentivized and motivated? 

·         Are they communicating appropriately? 

·         What HR changes would we want made if we were acquiring the business today?

Operational Efficiency. 

·         Across the process steps that must be carried out in order for the company to receive revenue, has anything occurred to make these processes less efficient? 

·         Are the steps being carried out in the most logical order?  Can some steps be consolidated or eliminated? 

·         Are there more efficient means of executing these steps?  If so, what are the costs and benefits of changes?

·         What changes to our operations would we make, if we were acquiring the business today?

Summary.

Consider which of the above actions would rise to the top and need to be carried out. 

·         In terms of difficulty, how would they be prioritized? 

·         In terms of impact on addressing the strategic goals of the business, how would they be carried out? 

·         Who is responsible for executing each of these actions? 

·         What is the timeframe for carrying them out?

Executing this list of “re-diligence” action items on at least a three year cycle ensures that your business remains focused on the highest priorities.  And it is also likely to improve performance, which may have a direct impact on the bottom line in the near term, as well.

Re-Diligence for Private Equity Owners

Private equity investors should conduct a strategic “Re-Diligence” exercise at least once every three years for each portfolio company.  Regardless of how well the company is performing from a financial standpoint, private equity owners should look for actionable next steps and consider carefully whether the time is right to re-invest in the business, milk it, or sell it.  The process involves strategic research and analysis, and reveals the action steps the owners and managers would take if they were acquiring the business for the first time today.

 

Below is a list of considerations owners and management take into account during a “re-diligence” exercise:

 

Go/No Go. 

·         If given the opportunity to buy the business today would we do the deal? 

·         If not, is now an appropriate time to sell? 

·         What should we do to improve upon the attractiveness of the business today, to make it more attractive for a prospective acquirer?

 

Strategy. 

·         Does the strategic direction of the company make sense, given internal competencies, and external market trends, customer needs and competitor capabilities and intentions? 

·         If not, how much of a realignment would be prudent at this time?

 

The Market. 

·         Are we competing in the most attractive segments of the market, where growth is more rapid, customer needs are more discreet, and competition is less intense? 

·         If not, what are the steps to serve this ancillary segment?

 

Customers. 

·         Given the evolving purchase decision criteria of customers and prospects, and their unmet needs, are our capabilities still aligned with their needs and interests? 

·         If not, how much of a change should we be making? 

·         Which customer/prospect needs should we be addressing first?

 

Competition. 

·         Are we at least as well positioned in the market vs. competitors as we were when we acquired the business? 

·         How have competitor capabilities evolved? 

·         What are competitor intentions in the market? 

·         Is there anything to learn from these competitors’ strategies? 

·         Should we be emulating them or carving our own path?

 

Human Resources. 

·         Given the size and stage of our business, do we have the right people in the right places doing the right things to accomplish our goals? 

·         Are the incentivized and motivated? 

·         Are they communicating appropriately? 

·         What HR changes would we want made if we were acquiring the business today?

 

Operational Efficiency. 

·         Across the process steps that must be carried out in order for the company to receive revenue, has anything occurred to make these processes less efficient? 

·         Are the steps being carried out in the most logical order?  Can some steps be consolidated or eliminated? 

·         Are there more efficient means of executing these steps?  If so, what are the costs and benefits of changes?

 

Summary.

Consider which of the above actions would rise to the top and need to be carried out. 

·         In terms of difficulty, how would they be prioritized? 

·         In terms of impact on addressing the strategic goals of the business, how would they be carried out? 

·         Who is responsible for executing each of these actions? 

·         What is the timeframe for carrying them out?

 

Executing this list of “re-diligence” action items on at least a three year cycle ensures that your investment remains attractive to potential acquirers.  And it is also likely to improve performance, which may have a direct impact on the bottom line in the near term, as well.

 

Discovering Pockets of Opportunity for Revenue Enhancement -- Customer Analysis

During a period of economic distress, top-line revenue growth is unlikely to happen without a focused plan in place to target areas of customer opportunity.  Insights about such opportunities (an unmet need or an awareness of a competitive advantage, for example) result from disciplined research of customers, yours as well as your competitors’.   Conducting this research in a thoughtful, organized fashion leads to the analysis and introspection that should be a pre-requisite for strategic decisions to bring about revenue growth.

‘Voice of the Customer’ involves qualitative and quantitative research to generate an understanding of customer wants and needs, prioritized in terms of their relative importance.  What Voice of the Customer research often fails to deliver, however, is  the kind of actionable detail on an account-by-account basis that enable business developers to make real decisions.  Moreover, the typical tools of Voice of the Customer research (surveys and focus groups) are difficult to establish and often result in biased data. Respondents often provide the answers they believe the interviewer wants to hear, as opposed to their actual purchase decision opinions.  

The only way to gather detailed, account-level insights that are unbiased, objective, reliable, and actionable is to conduct blind (the contact does not know who the interviewer represents) conversations (not surveys or interviews, per se) with the purchase decision-maker at high-priority prospects and vulnerable accounts.

The research should be conducted by an objective third-party who can gather candid feedback and insights.  More than a simple check of the pulse, the process should include an assessment of the customer’s purchase decision process, loyalty, goals, needs, and how well your firm is supporting the customer in these regards.

Some of the issues that your management team should be considering are:

      Is your company targeting the appropriate customers or customer segments, given its core competencies, selling process, distribution channels, etc?  Are we positioning ourselves with the most attractive customers for our business capabilities?

      Does the company have the right mix of strengths for its target customers, or does it need to develop new competencies?

      How do our strengths compare with competitors’?

      Why do we offer the mix of products and services that it does?

      What will we need to be doing differently in five or ten years to ensure that we maintain this account?

Top-line revenue growth during this recession may depend on specific, actionable customer intelligence.  Ultimately, customer insight ties more directly to revenue gains than any other kind of business intelligence.  Understanding, and acting on, the implications of this intelligence is critical.

For more information, visit our website, www.acclaropartners.com.

 

The Frantic Search for Market Share Numbers During a Recession

Are we losing share?  Revenues are down.  Future prospects are gloomy.  Is the market down as much (or more) than we are?  If we could actually gain share during this recession, it could have exponential benefits when the economy turns around.

Unfortunately, senior-decision-makers often place too much emphasis on the simple market share number.  Suppose your market share slips from 34% to 31% in a year.  Now what?  What is the actionable step your company will take to rectify the situation? 

Unless you have a solid understanding of where the pockets of unhappy customers are, and what their unmet needs are, it will be difficult to take action.  And, unless you know where the competitors are heading, and why, you won't know if you are fighting an uphill battle against a better-equipped enemy or seeing opportunities to take share from a clueless competitor that is driving itself off of a cliff.

While it is important to detemine market share, the exercise should take place in a broader context.  At the same time you hire a consulting or research firm to establish market share breakdowns, consider the following issues, as well:

• Market trends and dynamics
• Market opportunities and threats
• Market size and growth
• Market segmentation
• Customer unmet needs
• Customer (and competitors' customer) loyalty
• Customer purchase decision behaviors
• Competitor capabilities and changing competencies
• Competitor perceptions of opportunities and threats
• Competitor intentions to seize these opportunities (or not)

By gathering all of these insights, you will be much better-equipped to make rational decisions on concrete actions to take, given your changing market share numbers.