One thing this recession can provide executives is more time. Typically the pace of business slows during a recession so it creates opportunity for dialogue and reflection. This gives business leaders an opportunity to adopt a "fresh take."
Adopting a fresh take is what John Chambers, CEO of Cisco Systems, is seeking to do. Since its founding in 1984, Cisco has endured six recessions (including the current global downturn). As Chambers told BBC News, the dotcom bust of 2001 was a very serious threat. "[Customers] were gone," said Chambers. "We went from 70% annual growth to minus 45%."
As before, Chambers is working to ensure that his company will emerge stronger from this recession than before. Cisco's recent purchase of Pure Digital Technologies (maker of the Flip camera) opens the personal digital video market. Cisco is also offering a new videoconference application, Telepresence. In short, Cisco is looking for new opportunities in new places, a process that requires a fresh outlook.
Having such an outlook does not happen by accident. You need to discipline yourself to adopt new and different perspectives. First, you need to assess where you stand now and in the short term. With acknowledgment to the 4Ps offered by the marketing thought leader, Philip Kotler, I propose three questions framed around three words each beginning with the letter P:
Do our products continue to meet customer needs? Product development for most businesses is a continuum. You never stop developing and refining your offerings. But as Cisco has done, you need to ask yourself what other businesses you might enter or exit. Reducing the number of products in order to focus on core products is a strategy, as is doing the opposite. Talk to your customers about how you might serve them better. But don't take their word as the final one. After all, as Henry Ford famously opined, "If I had asked my customers what they wanted, they would have said a faster horse." You need to lead the development process.
Do our processes ensure that we can meet those needs? Now is the time to turn your creative types loose to optimize design, development, operations and customer service. Give them the opportunity to streamline processes. Look to take out the steps that may satisfy internal requirements but add nothing to product or service value.
Do we have the right people in place to fulfill those needs? Look for opportunities to put up-and-comers in positions of greater responsibility. Give them the authority they need to develop new products or redesign new processes. Managers stay awake nights worrying if they have right people in place — so take this opportunity to find out.
Looking at your business in new ways will not necessarily save it. If you are on the wrong side of the business cycle, as some manufacturers, newspapers and television stations have found themselves, your business will not survive as is. It will need to be redesigned completely. And even then there are no guarantees.
Even businesses that will survive must find new ways to meet customer needs. That is why adopting a fresh take approach is vital to emerging from this severe recession. Now is an opportunity to refocus yourself and your business on what you do well — and could do better.
Monday, October 12, 2009
Has Obama Built a Strong Foundation?
President Obama's first stretch in office, focusing on a second key dimension: laying a foundation. Has he laid a solid foundation for accomplishing his A-item priorities during the remainder of his first year in office?
Early wins - the first dimension - help new leaders get off to a good start, but they are not sufficient for continued success. Like all newly-appointed executives, President Obama should also have begun to lay a foundation for the deeper changes he plans to make. The process is not unlike the launching of a multi-stage rocket into orbit; securing early wins (or avoiding early losses) lifts a new leader off the ground, and efforts at foundation-building provide the thrust necessary to achieve orbit and avoid falling back to earth.
In evaluating President Obama's effectiveness on this dimension, the first question concerns whether he has appointed a strong team of officials to develop his policies and press for their implementation. My assessment is a qualified "yes." He got off to a record-setting start before the inauguration with appointment of key officials that virtually everyone acknowledged were highly qualified, including the critical hold-over of Robert Gates at Defense. Then the President hit some turbulence when several senior appointees withdrew due to tax troubles. There also was some early criticism of the performance of Timothy Geithner, and the glacial pace at which sub-cabinet appointments at Treasury were made; ironically this was partially the result of the very strict vetting process the President put in place. (The recent Swine flu outbreak has also highlighted similar staffing weaknesses at the Department of Health and Human Services).
At this point, however, Geithner appears to have recovered from his early stumbles. The appointment of Gates is looking inspired as he uses his credibility to push through a reform agenda at Defense. Hilary Clinton is proving to be both a very solid choice on the substance and a big political asset in laying the foundation for the President's international agenda. No other senior officials have yet found themselves in really hot water. While negative surprises are of course possible, at this point everything seems on track with the team.
Less good has been the President's approach to the other key element of foundation building: creating supportive alliances to push forward his legislative agenda in this session of Congress. The stimulus package is a case in point. President Obama won passage of the stimulus bill and advanced his budget largely on the strength of Democratic control of the Congress. But by ceding control of the drafting of the stimulus bill to Democratic law makers and by pushing the resulting bill through the Senate with the minimum possible support for Republicans, he immediately positioned himself as a partisan-in-sheeps-clothing. The bloat associated with the bill also opened him up for attack from fiscal conservatives who rightly paint it as a sign that Democrats have not forsaken their high-spending ways.
Given the ambition of his policy agenda, especially in areas such as health-care and energy, Obama cannot hope to move things forward without building a stronger coalition of the center. This will mean a combination of more inclusive and politically moderate policy development combined with continued outreach and bridge-building.
Given this, my assessment is a solid "B+" for laying a foundation for achieving key goals by the end of his first year.
Early wins - the first dimension - help new leaders get off to a good start, but they are not sufficient for continued success. Like all newly-appointed executives, President Obama should also have begun to lay a foundation for the deeper changes he plans to make. The process is not unlike the launching of a multi-stage rocket into orbit; securing early wins (or avoiding early losses) lifts a new leader off the ground, and efforts at foundation-building provide the thrust necessary to achieve orbit and avoid falling back to earth.
In evaluating President Obama's effectiveness on this dimension, the first question concerns whether he has appointed a strong team of officials to develop his policies and press for their implementation. My assessment is a qualified "yes." He got off to a record-setting start before the inauguration with appointment of key officials that virtually everyone acknowledged were highly qualified, including the critical hold-over of Robert Gates at Defense. Then the President hit some turbulence when several senior appointees withdrew due to tax troubles. There also was some early criticism of the performance of Timothy Geithner, and the glacial pace at which sub-cabinet appointments at Treasury were made; ironically this was partially the result of the very strict vetting process the President put in place. (The recent Swine flu outbreak has also highlighted similar staffing weaknesses at the Department of Health and Human Services).
At this point, however, Geithner appears to have recovered from his early stumbles. The appointment of Gates is looking inspired as he uses his credibility to push through a reform agenda at Defense. Hilary Clinton is proving to be both a very solid choice on the substance and a big political asset in laying the foundation for the President's international agenda. No other senior officials have yet found themselves in really hot water. While negative surprises are of course possible, at this point everything seems on track with the team.
Less good has been the President's approach to the other key element of foundation building: creating supportive alliances to push forward his legislative agenda in this session of Congress. The stimulus package is a case in point. President Obama won passage of the stimulus bill and advanced his budget largely on the strength of Democratic control of the Congress. But by ceding control of the drafting of the stimulus bill to Democratic law makers and by pushing the resulting bill through the Senate with the minimum possible support for Republicans, he immediately positioned himself as a partisan-in-sheeps-clothing. The bloat associated with the bill also opened him up for attack from fiscal conservatives who rightly paint it as a sign that Democrats have not forsaken their high-spending ways.
Given the ambition of his policy agenda, especially in areas such as health-care and energy, Obama cannot hope to move things forward without building a stronger coalition of the center. This will mean a combination of more inclusive and politically moderate policy development combined with continued outreach and bridge-building.
Given this, my assessment is a solid "B+" for laying a foundation for achieving key goals by the end of his first year.
MBAs vs. Entrepreneurs: Who Has the Right Stuff for Tough Times?
The one growth business in this shrinking economy is speculation about where MBAs and other elite students will flock now that Wall Street is a vast wasteland. "What will new map of talent flow look like?" wondered a piece last month in the New York Times. The tentative answer: towards government, the sciences, and teaching, "while fewer shiny young minds are embarking on careers in finance and business consulting."
Just five days after that article, the Times was at it again, chronicling the difficult career choices for business students, including one former Goldman Sachs intern who started her own shoe-importing company, and a Wharton grad contemplating rabbinical studies. (He wound up in real estate.)
Now, I understand the use of students from elite business schools as a proxy for "talent" in the business world. But as the economy experiences the most deep-seated changes in decades, maybe it's time to change our minds about what kinds of people are best-equipped to become business leaders. Is our fascination with the comings and goings of MBAs as obsolete as our lionization of investment bankers and hedge-fund managers? Is it time to look elsewhere for the "best and the brightest" of what business has to offer?
One place to look for answers is the fascinating research of Professor Saras Sarasvathy, who teaches entrepreneurship at the Darden Graduate School of Business at the University of Virginia. It's been a long time since I've encountered academic research as original, relevant, and fascinating as what Professor Sarasvathy has done, in a series of essays, white papers, and a book. Her work revolves around one big question: What makes entrepreneurs "entrepreneurial?" Specifically, is there such as thing as "entrepreneurial thinking" — and does it differ in important ways from, say, how MBAs think about problems and seize opportunities?
The answer, Sarasvathy concludes, is an emphatic yes — and the differences boil down to the "causal" reasoning used by MBAs versus the "effectual" reasoning used by entrepreneurs. Causal reasoning, she explains, "begins with a pre-determined goal and a given set of means, and seeks to identify the optimal — fastest, cheapest, most efficient, etc. — alternative to achieve that goal." This is the world of exhaustive business plans, microscopic ROI calculations, and portfolio diversification.
Effectual reasoning, on the other hand, "does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with." This is the world of bootstrapping, rapid prototyping, and guerilla marketing.
The more Sarasvathy explains the differences in the two styles of thinking, the more obvious it becomes which style matches the times. Causal reasoning is about how much you expect to gain; effectual reasoning is about how much you can afford to lose. Causal reasoning revolves around competitive analysis and zero-sum logic; effectual reasoning embraces networks and partnerships. Causal reasoning "urges the exploitation of pre-existing knowledge"; effectual reasoning stresses the inevitability of surprises and the leveraging of options.
The difference in mindset, Sarasvathy concludes, boils down to a different take on the future. "Causal reasoning is based on the logic, To the extent that we can predict the future, we can control it," she writes. That's why MBAs and big companies spend so much time on focus groups, market research, and statistical models. "Effectual reasoning, however, is based on the logic, To the extent that we can control the future, we do not need to predict it." How do you control the future? By inventing it yourself — marshalling scarce resources, understanding that surprises are to be expected rather than avoided, reacting to them fast.
Ultimately, she says, entrepreneurs begin with three simple sets of resources: "Who they are" — their values, skills, and tastes; "What they know" — their education, expertise, and experience; and "Whom they know" — their friends, allies, and networks. "Using these means, the entrepreneurs begin to imagine and implement possible effects that can be created with them...Plans are made and unmade and revised and recast through action and interactions with others on a daily basis."
Sounds like a plan to me! So the next time you read an article about what MBAs are doing, don't forget to think about what entrepreneurs are doing as well. They're the ones with the right stuff for tough times.
Just five days after that article, the Times was at it again, chronicling the difficult career choices for business students, including one former Goldman Sachs intern who started her own shoe-importing company, and a Wharton grad contemplating rabbinical studies. (He wound up in real estate.)
Now, I understand the use of students from elite business schools as a proxy for "talent" in the business world. But as the economy experiences the most deep-seated changes in decades, maybe it's time to change our minds about what kinds of people are best-equipped to become business leaders. Is our fascination with the comings and goings of MBAs as obsolete as our lionization of investment bankers and hedge-fund managers? Is it time to look elsewhere for the "best and the brightest" of what business has to offer?
One place to look for answers is the fascinating research of Professor Saras Sarasvathy, who teaches entrepreneurship at the Darden Graduate School of Business at the University of Virginia. It's been a long time since I've encountered academic research as original, relevant, and fascinating as what Professor Sarasvathy has done, in a series of essays, white papers, and a book. Her work revolves around one big question: What makes entrepreneurs "entrepreneurial?" Specifically, is there such as thing as "entrepreneurial thinking" — and does it differ in important ways from, say, how MBAs think about problems and seize opportunities?
The answer, Sarasvathy concludes, is an emphatic yes — and the differences boil down to the "causal" reasoning used by MBAs versus the "effectual" reasoning used by entrepreneurs. Causal reasoning, she explains, "begins with a pre-determined goal and a given set of means, and seeks to identify the optimal — fastest, cheapest, most efficient, etc. — alternative to achieve that goal." This is the world of exhaustive business plans, microscopic ROI calculations, and portfolio diversification.
Effectual reasoning, on the other hand, "does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with." This is the world of bootstrapping, rapid prototyping, and guerilla marketing.
The more Sarasvathy explains the differences in the two styles of thinking, the more obvious it becomes which style matches the times. Causal reasoning is about how much you expect to gain; effectual reasoning is about how much you can afford to lose. Causal reasoning revolves around competitive analysis and zero-sum logic; effectual reasoning embraces networks and partnerships. Causal reasoning "urges the exploitation of pre-existing knowledge"; effectual reasoning stresses the inevitability of surprises and the leveraging of options.
The difference in mindset, Sarasvathy concludes, boils down to a different take on the future. "Causal reasoning is based on the logic, To the extent that we can predict the future, we can control it," she writes. That's why MBAs and big companies spend so much time on focus groups, market research, and statistical models. "Effectual reasoning, however, is based on the logic, To the extent that we can control the future, we do not need to predict it." How do you control the future? By inventing it yourself — marshalling scarce resources, understanding that surprises are to be expected rather than avoided, reacting to them fast.
Ultimately, she says, entrepreneurs begin with three simple sets of resources: "Who they are" — their values, skills, and tastes; "What they know" — their education, expertise, and experience; and "Whom they know" — their friends, allies, and networks. "Using these means, the entrepreneurs begin to imagine and implement possible effects that can be created with them...Plans are made and unmade and revised and recast through action and interactions with others on a daily basis."
Sounds like a plan to me! So the next time you read an article about what MBAs are doing, don't forget to think about what entrepreneurs are doing as well. They're the ones with the right stuff for tough times.
India's Informal Economy and the Global Recession
There are four distinct characteristics of the Indian economy that soften the impact of today's conditions: demographics, regulation, exports, and the informal economy.
First, India's demographics are favorable to growth. It's a young country with low dependency ratios. Millions of Indians under the age of 30 are slowly receiving better access to healthcare and education, which enables younger Indians to drive the economy by virtue of middle class growth. They will become consumers, spend discretionary income, and enjoy the associated status. This growing middle class will continue to create large levels of domestic customer demand for goods and services.
Second, the fall of Satyam may turn out to be a blessing in disguise for India. The scandal has intensified calls in the country for greater financial transparency, corporate governance, and shareholder activism. Furthermore, the swift and strong response by the country's regulatory agencies has provided global investors with a positive signal that the Indian government, while not perfect, is dead serious about smart financial regulations and accountability.
Third, the Indian parliament is on the verge of passing a bill that would create hundreds of special economic zones (SEZs) around the coastal perimeter of the country. These zones provide the Indian government a vehicle with which to attract significant foreign direct investment (FDI) from overseas and indigenous multinational corporations (MNCs). The SEZs, while not without controversy, are attractive to global investors for their favorable land policies and generous tax incentives. In the global race for FDI, India's SEZs could afford it an unmatched competitive advantage among other emerging economies.
Finally, and most critically, the country's vibrant informal economy, in which goods and services have been traded in the absence of official markets for hundreds of years, affords India's overall economy an invaluable -- and unique -- layer of protection. While traditional development and financial statistics estimate Indian market segments for the global business community, these analyses rarely capture the true weight of this economic activity, which by nature is difficult to approximate.
As the global recession affects its foreign direct investment inflows and exports, India's informal economy acts as a piece of elastic, connective tissue that picks up slack in the system and provides markets for goods and services that may not have been otherwise traded given the circumstances. The existence of this informal economy combined with an emerging middle class, a growing financial regulatory environment, and the creation of more SEZs makes India uniquely situated to survive the current economic storm, no matter if it is a roaring tiger or a slowly moving elephant.
Semil Shah is a principal at India Strategy Consulting, a boutique services firm that advises small and medium enterprises and global universities on how to approach India strategically. Semil is also a principal at de Novo Labs, which takes equity positions in clients' start-up ventures relating to India.
First, India's demographics are favorable to growth. It's a young country with low dependency ratios. Millions of Indians under the age of 30 are slowly receiving better access to healthcare and education, which enables younger Indians to drive the economy by virtue of middle class growth. They will become consumers, spend discretionary income, and enjoy the associated status. This growing middle class will continue to create large levels of domestic customer demand for goods and services.
Second, the fall of Satyam may turn out to be a blessing in disguise for India. The scandal has intensified calls in the country for greater financial transparency, corporate governance, and shareholder activism. Furthermore, the swift and strong response by the country's regulatory agencies has provided global investors with a positive signal that the Indian government, while not perfect, is dead serious about smart financial regulations and accountability.
Third, the Indian parliament is on the verge of passing a bill that would create hundreds of special economic zones (SEZs) around the coastal perimeter of the country. These zones provide the Indian government a vehicle with which to attract significant foreign direct investment (FDI) from overseas and indigenous multinational corporations (MNCs). The SEZs, while not without controversy, are attractive to global investors for their favorable land policies and generous tax incentives. In the global race for FDI, India's SEZs could afford it an unmatched competitive advantage among other emerging economies.
Finally, and most critically, the country's vibrant informal economy, in which goods and services have been traded in the absence of official markets for hundreds of years, affords India's overall economy an invaluable -- and unique -- layer of protection. While traditional development and financial statistics estimate Indian market segments for the global business community, these analyses rarely capture the true weight of this economic activity, which by nature is difficult to approximate.
As the global recession affects its foreign direct investment inflows and exports, India's informal economy acts as a piece of elastic, connective tissue that picks up slack in the system and provides markets for goods and services that may not have been otherwise traded given the circumstances. The existence of this informal economy combined with an emerging middle class, a growing financial regulatory environment, and the creation of more SEZs makes India uniquely situated to survive the current economic storm, no matter if it is a roaring tiger or a slowly moving elephant.
Semil Shah is a principal at India Strategy Consulting, a boutique services firm that advises small and medium enterprises and global universities on how to approach India strategically. Semil is also a principal at de Novo Labs, which takes equity positions in clients' start-up ventures relating to India.
Recession Leadership: On Sinking the Boat, Missing the Boat, and Rocking the Boat
ames Surowiecki reminded us of the bold strategic moves that repositioned companies and redefined industries during periods of turmoil. He told the story of how Kellogg, during the Great Depression, "doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies." As a result, Kellogg became (and remains) the industry's dominant player. It's also worth remembering, he points out, that Texas Instruments introduced the revolutionary transistor radio during a recession in 1954, and that Apple launched the iPod six weeks after the September 11 terrorist attacks — hardly the best time to start a pop-culture phenomenon.
So why, Surowiecki wonders, given all the evidence of the chance to gain ground during periods of economic upheaval, "are companies so quick to cut back when trouble hits?" One answer involves a distinction made by two business professors nearly 25 years ago. In a paper published by the Journal of Marketing, Peter Dickson and Joseph Giglierano argue that executives and entrepreneurs face two very different sorts of risks. One is that their organization will make a bold move that fails — a risk they call "sinking the boat." The other is that their organization will fail to make a bold move that would have succeeded — a risk they call "missing the boat."
Naturally, most executives worry more about sinking the boat than missing the boat, which is why so many organizations, even in flush times, are so cautious and conservative. To me, though, the opportunity for executives and entrepreneurs is to recognize the power of rocking the boat — searching for big ideas and small wrinkles, inside and outside the organization, that help you make waves and change course.
You don't have to be as bold as Kellogg or as daring as Steve Jobs. But don't use the long shadow of the economic crisis as an excuse to downsize your dreams or stop taking chances. The challenge for leaders in every field is to emerge from turbulent times with closer connections to their customers, with more energy and creativity from their people, and with greater distance between them and their rivals. The organizations that I admire are determined to offer a compelling alternative to a demoralizing status quo — as the only way to create a compelling future for themselves.
So why, Surowiecki wonders, given all the evidence of the chance to gain ground during periods of economic upheaval, "are companies so quick to cut back when trouble hits?" One answer involves a distinction made by two business professors nearly 25 years ago. In a paper published by the Journal of Marketing, Peter Dickson and Joseph Giglierano argue that executives and entrepreneurs face two very different sorts of risks. One is that their organization will make a bold move that fails — a risk they call "sinking the boat." The other is that their organization will fail to make a bold move that would have succeeded — a risk they call "missing the boat."
Naturally, most executives worry more about sinking the boat than missing the boat, which is why so many organizations, even in flush times, are so cautious and conservative. To me, though, the opportunity for executives and entrepreneurs is to recognize the power of rocking the boat — searching for big ideas and small wrinkles, inside and outside the organization, that help you make waves and change course.
You don't have to be as bold as Kellogg or as daring as Steve Jobs. But don't use the long shadow of the economic crisis as an excuse to downsize your dreams or stop taking chances. The challenge for leaders in every field is to emerge from turbulent times with closer connections to their customers, with more energy and creativity from their people, and with greater distance between them and their rivals. The organizations that I admire are determined to offer a compelling alternative to a demoralizing status quo — as the only way to create a compelling future for themselves.
When Customer Loyalty Is a Bad Thing
The economic crisis has jolted companies into the need to redouble efforts to foster customer loyalty. Numerous articles now tout the increased importance of giving customers premium service in troubled times to ensure customer retention. The underlying reasoning is simple — loyal customers help a company to weather the storm through their continued patronage.Without question, there is some truth to this logic. No firm can survive for long without loyal customers. The problem, however, is that success through loyalty isn't nearly so simple. Like most "big" ideas, there are conditions where it is unarguably correct and less popular but equally true conditions where it is wrong.
Loyalty is a big idea. At its most basic level, it is a feeling of attachment that causes someone to be willing to continue a relationship. And while exclusive loyalty has been replaced in customers' hearts and minds with multiple loyalties for many if not most product categories, often greater than 50% of a company's customers would classify themselves as holding some level of loyalty to a particular company. Even if we narrow our classification of loyalty to customers who feel loyal and give the majority of their purchases in a category to the firm, typically we find this to represent one-third of a firm's customers.
The fly in the ointment is that typically only 20% of a firm's customers are actually profitable. And many — often most — of a company's profitable customers are not loyal.
This presents managers with a loyalty problem, although not one that they expect. If typically most loyal customers in a firm aren't profitable, how exactly does a customer loyalty strategy ever generate a positive return on investment? Instead asking whether you have enough loyal customers in your customer base, you need to ask yourself three more complex questions: 1) which loyal customers are good for the business, 2) how do we hang onto them, and 3) how do we get more customers like them.
In this down economy, customers in both B-to-B and B-to-C settings are naturally much more sensitive to economic issues. Furthermore, companies in B-to-B relationships are often more reliant on their vendor partners to help them shoulder this burden. There is nothing inherently wrong with this, and we as managers need to recognize that our job is to meet our customers' needs if we are to deserve their loyalty.
But the simple solution to improving customer loyalty in a down market is to offer price deals. In fact, firms that track their customer loyalty can be guaranteed that loyalty scores will increase with each substantial decrease in price all things being equal.
But that's a bad loyalty strategy. No, this doesn't mean we should not find ways to be more efficient so that we can pass cost savings on to our customers. But price-driven loyalty is always the lowest form of loyalty. It means that we aren't offering differentiated value to our customers.
The place to begin any loyalty strategy is to determine which loyal customers are profitable and which are not. A closer examination of these two types of customers always reveals very different reasons for their loyalty. Unprofitable loyal customers tend to be loyal for one of two reasons: 1) they are driven by unprofitable pricing or exchange policies, or 2) they demand an excessive amount of service that they are not willing to pay fairly to receive.
Profitable loyal customers on the other hand are almost always driven by differentiating aspects of our product or service offering. The key to a successful loyalty strategy is to become crystal clear as to what these are, and to focus on tangibly improving these elements. It is also imperative that we actively let customers and prospective customers know that these are the things the company stands for and that the firm is committed to being best at. By doing this, our best customers will have the necessary information to clearly articulate why our organizations deserve their loyalty in good times and in bad.
Timothy Keiningham is global chief strategy officer at Ipsos Loyalty. Lerzan Aksoy is associate professor of marketing at Fordham University. Tim and Lerzan are authors of the book Why Loyalty Matters, forthcoming in July 2009.
What You Can Learn from Small-Town Auto Dealers
Until recently, one of the less-reported aspects of the crisis in the automotive industry is the effect that its radical downsizing is having on auto dealers. Now that General Motors and Chrysler have axed roughly 1,100 and 800 dealers respectively, stories of dealerships closing are front page news. While cuts have come largely at the expense of urban dealers, some smaller rural stores are surviving — at least for now.
Many of these smaller dealerships are family enterprises; three and even four generations old. Their longevity is a testament less to Detroit's products and more to their smart and sharp business practices. And now that some of their competitors are closing they may do even better. Let's consider what business leaders can learn from these small-town auto dealers.
Know your customers. Small-town auto dealers know what vehicles their customers prefer. This comes from having long-lasting ties to individual families, selling new cars and trucks to grandparents and parents, and putting the children into affordably priced used cars. Part of knowing your customers means considering their changing tastes. Decades ago many of smaller dealers signed franchise agreements with Asian and European manufacturers like Honda, Nissan, Toyota and VW to provide their customers with even more makes and models from which to choose.
Service matters. Dealers will tell you they make more servicing cars than selling them. Manufacturers pay for warranty repairs but good dealers, particularly those in small towns, will keep their customers returning after the warranty expires because they provide reliable servicing. They also have a reputation for honesty, a word that is not often associated with automotive retailing. Local dealers have no alternative to treating their customers right; they live in the community, and word gets around.
Invest in the community. In many areas, car dealers are the soft touch for youth sports teams as well as school musicals and church raffles. True, it is good visibility to have your store's name on scores of soccer uniforms and and church bulletins, but something more is at work. Car dealers are part of the life of these towns; their philanthropy supports causes and activities that add texture to the community.
Maximize opportunity. Dealers are entrepreneurs. Those who are not closed will get aggressive. As reported in the Wall Street Journal, surviving dealers will buy up inventory at a good price, add salespeople (some from former competitors), and expand their sales reach. One Dodge dealer in Jackson, Michigan — right in the heart of "downturn valley" — said, "I'm going to buy every car I can find with every dollar I have until I run out of money." While that attitude may have led investment bankers to run Wall Street into the ground, hearing it from a dealer sounds more optimistic. He has faith in himself, his business, and his community.
Not every dealer is worthy of imitation. Just as there are poor businessmen in every field, there are less-than-reliable automotive retailers, especially ones who cheated their customers, not to mention their own employees. But these smaller, successful dealerships can teach us a lesson or two that may help us grow our own businesses.
As a youngster I recall the dealer showroom windows that were papered over every September in anticipation of the sparkling new models that would soon be introduced. I still remember drooling along with my chums at the brand-new 1963 Corvette parked at the corner of Carl Schmidt's Chevrolet in Perrysburg, Ohio. We ran our fingers over the radical new lines of the first Stingray. No salesman shooed us away; our ogling and awing was a kind of third-party endorsement.
Maybe that's another lesson; let the kids touch the merchandise and one day, he'll tell his friends about you.
Many of these smaller dealerships are family enterprises; three and even four generations old. Their longevity is a testament less to Detroit's products and more to their smart and sharp business practices. And now that some of their competitors are closing they may do even better. Let's consider what business leaders can learn from these small-town auto dealers.
Know your customers. Small-town auto dealers know what vehicles their customers prefer. This comes from having long-lasting ties to individual families, selling new cars and trucks to grandparents and parents, and putting the children into affordably priced used cars. Part of knowing your customers means considering their changing tastes. Decades ago many of smaller dealers signed franchise agreements with Asian and European manufacturers like Honda, Nissan, Toyota and VW to provide their customers with even more makes and models from which to choose.
Service matters. Dealers will tell you they make more servicing cars than selling them. Manufacturers pay for warranty repairs but good dealers, particularly those in small towns, will keep their customers returning after the warranty expires because they provide reliable servicing. They also have a reputation for honesty, a word that is not often associated with automotive retailing. Local dealers have no alternative to treating their customers right; they live in the community, and word gets around.
Invest in the community. In many areas, car dealers are the soft touch for youth sports teams as well as school musicals and church raffles. True, it is good visibility to have your store's name on scores of soccer uniforms and and church bulletins, but something more is at work. Car dealers are part of the life of these towns; their philanthropy supports causes and activities that add texture to the community.
Maximize opportunity. Dealers are entrepreneurs. Those who are not closed will get aggressive. As reported in the Wall Street Journal, surviving dealers will buy up inventory at a good price, add salespeople (some from former competitors), and expand their sales reach. One Dodge dealer in Jackson, Michigan — right in the heart of "downturn valley" — said, "I'm going to buy every car I can find with every dollar I have until I run out of money." While that attitude may have led investment bankers to run Wall Street into the ground, hearing it from a dealer sounds more optimistic. He has faith in himself, his business, and his community.
Not every dealer is worthy of imitation. Just as there are poor businessmen in every field, there are less-than-reliable automotive retailers, especially ones who cheated their customers, not to mention their own employees. But these smaller, successful dealerships can teach us a lesson or two that may help us grow our own businesses.
As a youngster I recall the dealer showroom windows that were papered over every September in anticipation of the sparkling new models that would soon be introduced. I still remember drooling along with my chums at the brand-new 1963 Corvette parked at the corner of Carl Schmidt's Chevrolet in Perrysburg, Ohio. We ran our fingers over the radical new lines of the first Stingray. No salesman shooed us away; our ogling and awing was a kind of third-party endorsement.
Maybe that's another lesson; let the kids touch the merchandise and one day, he'll tell his friends about you.
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