Increasing User Buy-in of Financial Forecasts

Business HandshakeLet me begin with two assumptions: first, your primary modeling tool is Microsoft Excel; second, you share model projections with others. If both these assumptions are correct, I have two secrets of success for those new to financial forecasting.

The first is that everyone who sees your forecast assumes they know more about what the modeled results should be and better understand the impact of changes than you do. That you spent countless hours constructing the model, studying company and industry trends, back-testing formulas and validating every assumption will be quickly lost in their rush to point out what to them appears to be “obvious errors”.

I frequently develop complex models generating quarterly projections of full financial statements for a three to five year horizon. Models usually involve the consolidation of multiple entities and detailed ratio analysis. A typical model has 35 to 60 variables. Every variable is contained in named cells on an assumptions tab (immediately behind the title tab). All formulas utilize the appropriate variable name rather than a cell reference or hard coding.

For those not familiar with the use of named cells in Excel, go to the File Manager icon on the Formulas tab. Additional guidance is available online. One source is http://bit.ly/18tl7OP.

Typically, a client will zero in on one or two variables, insisting (as an example) that sales growth projected in year 3 is clearly wrong! He or she is so confident of their belief that the model has likely lost significant credibility with them.

Invariably, the impact of the user’s change is not as significant as they suppose. Sticking with the sales example, changing the growth rate has no impact on earlier years. Furthermore, the effect on future income is reduced by resultant increases in the cost of goods sold, inventory carrying costs, variable expenses such as commissions and shipping, borrowing costs and so on. Finally, income taxes further reduce the bottom line impact by another 35% to 40%.

Rational discussion and logic serve no purpose in this situation. You cannot change human nature! Your goal is merely to channel it in a productive direction.

I do this by simply asking what they think the number should be. I then take them to the assumptions tab and change the offending variable to their number. The model then recalculates, eliminating any guesswork on the impact of the proposed “correction”.

Seeing is believing.

The second “secret” complements the first. Without exception, even the most complex models come down to a mere handful of key variables. Since your goal is to redirect rather than change behavior, help users focus on those that drive projected results, rather than getting bogged down in immaterial detail.

You can accomplish this by highlighting which variables have an individually material impact on the cumulative results of your forecast. Begin by deciding what the appropriate base or dependant result is. I find it is most often one of three things depending on the primary use of the model: net income, stockholders equity or the internal rate of return.

I then test every variable in isolation with a 10% unfavorable change. For example, a 20% sales increase is reduced to 18%. I note the impact of each variable on the cumulative base result. I then typically use a materiality threshold of 2% for disclosure. The less attention drawn to non-critical variables the better!

Rarely will a variable have a high correlation to the measured result. A typical scenario might be that a 10% change in each of my 35 to 60 variables produces four to six with an impact greater than 2%, with none exceeding 8%.

This sensitivity analysis is the third tab, immediately behind the variables. By quantifying and clearly presenting the impact of changes in this manner, you are inviting needed input (and therefore user buy-in), without having to debate or justify the majority of variables that will have minimal or no impact on your forecast. Users can then concentrate on achieving a comfort level with a relative handful of model inputs, saving everyone time.

As a closing note, while the focus is on the cumulative impact of variable changes, there are times and circumstances when individual period results are also important, regardless of the dollar impact. For example, loan covenant compliance is a constant requirement. If a change in an otherwise insignificant variable creates an incidence of non-compliance, the change cannot be ignored.

How I handle that situation is the subject of a future article. Here is a hint: conditional formatting!

The Fractional CFO Concept (Part 2)

Earlier this week I introduced what may have been a new concept for some small business owners and managers; the idea of fractional or part time CFO. A vacation timeshare is a useful analogy to understand how and why a part-time financial expert may be the perfect solution for your needs.

I conclude this topic with a few frequently asked questions.

  • What exactly does a CFO do, and how does that change if I use a fractional CFO?

The chief financial officer or CFO is the person primarily responsible for managing the overall financial operations of an organization. This position is responsible for planning, cash flow management, record keeping, financial reporting, etc. The only difference between a traditional CFO and a fractional CFO is the nature of their relationship to the business. While a CFO is full time officer and employee, a fractional CFO is a part-time, independent contractor. However, their duties and responsibilities are virtually identical.

  • Will I retain a fractional CFO for a one-time assignment, or will they continue to provide on-going services?

Occasionally, a client will request that that their fractional CFO provides services for a one-time, special project. The CFO will likely endeavor to accommodate all client needs. However, their primary focus will be on providing on-going fractional CFO services, including the development, implementation and monitoring of a long-term business plan. While the time allotted to this process can be adjusted and even reduced as initial objectives are met over time, it is a continuous process that typically requires some effort at least monthly and probably weekly.

  • How much should I expect to pay for my fractional CFO?

The cost of fractional CFO services are primarily determined by only two things, the number of hours spent on an account, and the billing rate of individual providing client services. Barring temporary or emergency situations, a reputable fractional CFO firm will endeavor to staff assignments using associates with skill sets and experience levels appropriate to your needs. Ultimately, they will provide the level of service you determine based on your needs and within a budget determined by you. Your schedule can vary from just a few hours per month to several days per week, and can be adjusted as future needs require. Typical clients should expect to spend from $500 to $10,000 per month, depending on the two factors.

  © 2012 by Dale R. Schmeltzle

 

The Fractional CFO Concept

The idea of fractional or part time use of a valuable resource has been around for many years. A perfect example of this concept was pioneered by the vacation real estate industry. In the 1960s, a French ski resort owner recognized few people could afford, let alone needed a resort condominium for all 52 weeks of the year.

He addressed this challenge by dividing every room into 52 separate units of time. Using the slogan “stop renting a room, buy the hotel” he launched a worldwide marketing phenomenon we now know as the time-share industry. Units were sold to different owners, each of whom purchased the full use and enjoyment of the week that best suited their schedule, and at an affordable price. If a buyer needed more than one week a year, they bought as many units as they wanted.

Other “bells and whistles” have been added through the years. Today, over 4 million American families own at least one vacation timeshare.

The concept of a fractional CFO is no different.

Most business leaders recognize the need for trained, experienced financial expertise on their management team. Many simply do not need a full time CFO. Therefore, they cannot cost justify the investment of a full time salary. Even if an owner or manager has the required skill sets, a professional CFO can likely generate a superior work product in less time.

This in turn frees up the most valuable and scarcest resource of all, TIME!

No successful entrepreneur ever launched a business with the intent of spending all day analyzing balance sheets, determining marginal profit contribution, dealing with bankers and tax accountants or addressing regulatory inquires. They launch businesses to exploit competitive advantages in their chosen field by servicing customer needs. Any time spent “working on the books” is time away from their real mission and a costly distraction from their value proposition.

Retaining a fractional or part-time CFO presents a cost effective solution customized to a business’ exact needs, budget and life cycle. The key to a successful fractional CFO relationship is to design and staff that engagement with a professional who will understand your business and address your financial needs. They must also become an integral (if part-time) member of your management team. Your fractional CFO should meet with you to tailor an affordable program to address your specific business needs. Together, you will establish a regular schedule of dedicated time to service those needs. That schedule can vary from just a few hours per month to several days per week, and can be adjusted as future needs require. The client can typically terminate a fractional CFO at any time and for any reason without incurring additional costs, just as you would if you had hired a full time employee.

On Friday, I will conclude this subject with a few frequently asked questions. Until then, please enjoy a safe and joyous 4th of July, and let us all remember the true meaning of the holiday, and the sacrifices of those who made it possible.

© 2012 by Dale R. Schmeltzle

Too Foolish To Fail

The big buzz on Wall Street is today’s planned IPO of Facebook. I hope it will reverse the recent downward trend (11 of the 12 last trading days were losers). Several months ago, a partner and I were discussing Mark Zuckerberg in the context of starting a new business. That discussion lead to a two-part post, which in honor of his IPO, I repeat in its entirety today.

My partner and I concluded that Mark’s phenomenal success with Facebook is the direct result of three “rookie” mistakes, none of which we would have made.

Those mistakes were:

  1. He was not the first to arrive at the social networking party. Rather than come up with an original idea, he improved on other people’s ideas. That never works. Either get to the market first or stay home, right?
  2. He waited too long to “cash out.” He should have jumped at the first opportunity to raise some serious “beer money” like a normal college kid. If only he had, he would be a millionaire today!
  3. He failed to exercise basic common sense! Anyone smart enough to get into Harvard should know that a dream of launching a worldwide business to redefine a major facet of society is destined to break your heart. Homer Simpson said it best, “Trying is the first step toward failure!”

Let’s analyze each of his mistakes in more detail. It turns out there is historical precedence to support his seemingly illogical behavior in committing Mistake #1.

For example, historians credit German engineer Karl Benz with inventing the automobile. He patented the first gasoline engine powered vehicle in 1885. That was 11 years before a thirty-year-old “techie” at the Edison Illuminating Company began experimenting with his Ford Quadricycle.

Henry Ford’s primary contribution to the automotive industry was to apply “best practices” manufacturing processes including interchangeable parts and a moving assembly line. By combining cost saving efficiencies with a social philosophy that included paying factory workers $5 per day (double the going wage), he transformed the automobile from an expensive curio for the idle rich to an affordable source of transportation for the masses.

Ford put his vision into words. He said, “I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one – and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”

With the benefit of 115 years of hindsight, it is clear his value proposition actually created a market where none previously existed. He sold 15 million Model Ts over its nineteen-year production run.  At one point, half of the cars in the world were “Tin Lizzies.” True to his value statement, he was eventually able to reduce the selling price to $290, a 65% reduction from its introductory price.

O.K., Mark, I’ll concede your first mistake was not a mistake after all. Astute late comers can still profit by improving on an inventor’s ideas and capitalizing on missed opportunities.

What about waiting too long to cash out?

I am frequently surprised at the short-term vision baby boomers adopt in their business planning. I often encounter entrepreneurs who hope to build a successful business and “cash out” in five years or less.

This view is a distraction from your value proposition, the very reason you went into business in the first place. Think about it. Customers are at best indifferent to your retirement plans. Would you pick a new dentist if you knew she planned to sell her practice in two years?

It also introduces a bias that will slant business decisions in favor of maximizing short-term cash flows at the expense of building long-term value. For example, owners will forego investments in customer service and product design if payoffs extend beyond their timeline. This situation is analogous to watching a runner round the bases as you chase a fly ball. There are already plenty of opportunities to falter in business without unnecessary distractions. Do not take your eye off the ball!

It seems counterintuitive that a college student, given the opportunity to finance what would have been a carefree life style, would follow a business plan that extended beyond the next frat party. To his credit, now 27-year-old Mark Zuckerberg has resisted the temptation to monetize his 24% stake in Facebook for 7 years. Instead, he has continued to lead the company according to his vision.

It is hard to argue with his success. Earlier this year, Goldman Sachs valued the private company at $50 billion. Mark kept his eye on the ball, even when faced with what would have been an irresistible temptation for us mere mortals. Cashing out four or five years ago would have cost him billions.

You were right, Zuck. My partner and I were….we were….well any way, you were right. Gloating is so not cool, Mark!

That brings me to his third mistake. Mark should have listened to the voices in his head that are quick to point out all the reasons why his grand plans would surely fail.

Abraham Lincoln once described a general who was unwilling to make decisions under pressure as “acting like a duck that had been hit on the head.” Fear of failure is a powerful motivator. It causes some of us to avoid decision making altogether.

Decision making is a cognitive process involving logic, reasoning and problem solving skills. Unfortunately, each of us enters that process with certain preconceived biases. We are often quick to listen to any voice that supports them. It is normal to exhibit a reluctance to move off those biases, even if faced with new facts, circumstances or opportunities. Therefore, the safe decision (i.e., to spend our career as a corporate wage slave rather than launch a new venture) is often the default decision.

Samuel Clemmons once said, “It’s not what you don’t know that will get you in trouble. It’s what you know for sure that just ain’t so.”

To his credit, Mark Zuckerberg did not let what he did not know about launching a business get in the way of his success. His vision was inspiring; his execution was courageous.

In the final analysis, my partner and I could take a lesson from him. So can you!

You proved all of your distracters wrong! Good luck in your IPO Mark.

 © 2012 by Dale R. Schmeltzle

Curiosity was Framed, Ignorance Killed the Cat

My first job after public accounting was as Director of Internal Audit for a large regional insurance company. Given free range to determine my own assignments, I immediately launched a review of the claims processing operation. As Willie Sutton would say, “That’s where the money is.”

Back then, mainframe computers housed in cold rooms that took up an entire floor were the order of the day. Reports printed on large “green-bar” paper with perforated edges, bound together between heavy cardboard covers using bendable wires.

On my second day on the job, I was flipping through a report of claim payments. It listed basic information like policy and claim number, payee, amount, dates and so forth. The report probably had 50 to 60 claims per page, and was several hundred pages long.

I spotted something strange. About every 15 or 20 pages, a claim would show a negative payment. Based on my understanding of the system, there was no logical explanation for negative numbers. I started asking questions, lots of questions!

To make a long story short, I had stumbled across an internal control weakness that allowed certain claims to be paid twice. As best I can recall, I found about $125,000 of duplicates. That was not a lot of money to a billion dollar company, even in 1978 dollars. Still, with an annual salary of $22,000, I cost-justified my first five years’ compensation the second day on the job.

My point in recalling this story is not to take you with me on a boring stroll down memory lane. OK, that is part of it, but a very small part.

My point is that other people who had worked with the claim report every day had undoubtedly noticed negative amounts before, yet had failed to follow through with a few simple questions. If they had, they might have closed the control weakness years earlier. Why?

I offer two words: human nature.

People seem to have a natural tendency to accept most things as they are. Asking questions and challenging the status quo is actually considered rude in many cultures. Sadly, it is career limiting in many corporate environments. Relax and remember what happen to the mythical cat! I heard it was a mid-level manager in a Fortune 500 company somewhere on the east coast.

That is not to suggest people are by nature lazy, apathetic or any other negative adjective. It’s just how things are.

Contrast that to Thomas Edison, who said he rarely picked up an object without wondering how he could make it better. I call that the curiosity factor. Either you have the curiosity factor, or you don’t. It cannot be taught or learned, and is seldom spoken of. Yet in many professions (including internal auditing), it is probably the single best predictor of ultimate success.

Every business desperately needs someone who will leap headfirst into operations or finances with a dedication approaching a Pit bull on a pork chop. If that is not you, go hire someone with the curiosity factor.

You will be amazed at what valuable business opportunities are waiting to be discovered just below the surface.

 

© 2011 by Dale R. Schmeltzle

Resolve To Make a Decision

Abraham Lincoln once described a general who was unwilling to make decisions under pressure as “acting like a duck that had been hit on the head.” I have never actually observed the behavior of waterfowl suffering from cranial trauma, although I once accidentally hit a duck with a stone skimmed across a frozen pond. But that was long ago and involved an entirely different part of the duck’s anatomy.

I have observed the behavior of managers making (or not making) decisions enough to conclude that the majority of problems in business are not because someone made the wrong decision, but because no one made any decision. Will Rogers summarized the risk of indecision with this, “Even if you are on the right track, you will get run over if you just sit there.”

To be sure, there are “mission critical” decisions that have the long-term potential to make or break any organization. Nevertheless, unless you are a heart surgeon or an airline pilot, most mistakes are to some extent correctable, at least within limited timeframes.

Decision making is a cognitive process involving logic, reasoning and problem solving skills. Unfortunately, each of us enters the process with preconceived biases and exhibits some degree of “decision inertia” or a reluctance to move off those biases when faced with new facts or circumstances. Business decisions can be reduced to a four-step process as illustrated in the following diagram.

The first step is to analyze the problem and identify solutions. This is largely a fact gathering exercise involving input from multiple sources and considering alternative courses of action.

It is important to differentiate between problem analysis and decision making. Although it may sound redundant, success requires the decision maker to do just that, make a decision. Theodore Roosevelt said, “In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”

While the dreaded “paralysis of analysis” may be seen as the cause, the reality is many people, perhaps including Mr. Lincoln’s general, simply find it safer not to make decisions, even in obvious situations.

As an example, I was once responsible for opening three new offices and hiring several hundred employees, including managers with company cars. The fleet manager came to me in a panic one day. Company policy allowed employees to select their own cars. This meant they would be without cars for several weeks. I calmly asked what the choices were, and immediately ordered 15 identical cars. She asked how I knew they would like the cars. The truth was I neither knew nor cared! Since a decision was needed, I made it. The managers arrived on their first day to find a fleet of new cars waiting on the front row. As expected, no one died.

Investment professionals report there is a tendency to “sell winners too quickly and hold on to losers too long.” The reason we hold on to losers is primarily a subconscious reluctance to admit mistakes. Your focus should be on early detection of challenges and the identification and implementation of appropriate corrective action. American author Arnold H. Glasow put it this way, “One of the tests of leadership is the ability to recognize a problem before it becomes an emergency.” Be willing to make changes if indicated by the monitoring process, even at the risk of exposing your mistakes. Tony Robbins put it this way, “Stay committed to your decisions; but stay flexible in your approach.”

Accountability is paramount to a successful decision making process. If you want credit for your accomplishments, be willing to take responsibility for mistakes. Have enough confidence to say, “I was wrong, now let’s fix it.” Remember, your goal is not to avoid all mistakes. Simply doing nothing would accomplish that. Your goal is to minimize the impact of missteps and learn from them.

I end with this comment by Peter Drucker, management consultant and author of 39 books. He said, “Whenever you see a successful business, someone once made a courageous decision.”

P.S. My apologies to PETA for the whole duck by the frozen pond rock skimming long time ago hit in the anatomy thing.

© 2011 by Dale R. Schmeltzle

Reducing Fear and Uncertainty, Part 3

This week, I have been talking about the important marketing topic of decreasing consumer fear and uncertainty to increase sales. I conclude the series today with a discussion of introductory offers and giving away free service.

  1. Customers want to know approximately how much they should expect to spend in advance, without having to keep an anxious eye on the clock. This is often an issue for lawyers, CPAs and other highly compensated professionals who generally charge hourly rates. If this situation applies to your business, structure an introductory offer. For example, as an attorney with a billing rate of $250 per hour, you might offer to incorporate a new business, obtain all required permits and tax identification numbers and organize their corporate records for $499 including an initial consultation. If the project is completed within two hours, you earned your standard rate. If not, the introductory offer still works if you provide subsequent services using your regular fee schedule. You may also land full-price referrals because of your introductory offer.
  • As you complete assignments, you will likely find ways to reduce time and costs, lowering your breakeven point in the process.
  • The introductory price is independent of who performs the work. You can further reduce your costs if you can delegate portions of the assignment to your staff or outsource to lower-cost vendors.
  • For example, if you are a personal wealth manager, offer a free analysis of a prospect’s retirement investments. That is an important part of your main service. Your hope is obviously that some prospects will be so impressed with your knowledge and advice (or so unhappy with their current manager) that they will retain you to manage their portfolio. Other examples of providing a free service include a carpet cleaner who offers to clean one room free of charge, or an alarm company conducting a free home security analysis.
  • Jewelry stores illustrate an example of attracting customers with auxiliary services. They often provide free ring cleanings or replacement batteries for watches. With the highest gross profit margins in retail, very few prospects have to make additional full-price purchases in order to make the free service a successful strategy.
  1. My final suggestion under the topic of reducing fear and uncertainty to increase sales is an extension of the previous one. It is admittedly controversial. The idea is to provide free service in the hope of gaining new customers for full-price services. However, what you are giving away is neither the “2-cent sample” variety of the previous idea, nor the deluxe version of your service. It is somewhere in-between, probably closer to the former than the latter. Your free offering should be either a limited version of your primary service, or a less expensive auxiliary service.

I conclude the discussion of reducing fear and uncertainty to increase sales by reminding you of Monday’s quote by Mr. Ziglar. The next time you deal with an unhappy customer, take it as an opportunity to learn more about their needs while reducing their perception of risk. Remember also that helping them address their needs and concerns is critical to the ultimate success of every business.

Reducing Fear and Uncertainty, Part 2

On Monday, I introduced the topic of reducing consumer fear and uncertainty, and the distrust that often accompanies those emotions. I suggested that building a reputation for post-sale customer service and offering free samples might help overcome these marketing obstacles.

Today I will discuss offering satisfaction guarantees.

3. A self-described marketing expert once insisted I needed to offer a “100% money-back guarantee” to win new clients. It gets worse! He also suggested I guarantee savings of at least 10 times my fee. I had two major issues with the suggestion. First, in a profession where it was actually illegal to advertise only a few years ago, it sounded too much like an old-fashioned “snake oil” marketing approach. Secondly, all I do is counsel and advise clients. The value of that advice is ultimately dependent on their success in implementing recommendations in a timely fashion. I cannot guarantee the actions of others. Neither can you!

With that said, the concept of a money-back or satisfaction guarantee might have value to service providers within some narrowly defined parameters. Carefully consider the following matters:

  • At the risk of sounding like a cynic, get paid up front. Clients will be less likely to take advantage of your guarantee if they have to look you in the eye and lie about their dissatisfaction while asking for a refund.
  • Place clear and reasonable boundaries on what customers must do to qualify for a refund. Assume for example that I promise to develop your website and have it running within 60 days. That commitment must be contingent upon you providing a list of items like graphics and content, and on your timely approval of my work at various stages of completion. If your failure to perform those obligations is the primary cause of me missing the deadline, forget the money-back guarantee.
  • Consider offering a money-back guarantee on only part of your services. For example, weight loss centers advertise you will lose 20 pounds in 10 weeks for $20, or you get your money back. Since these centers cannot guarantee customers will follow the program, they cannot guarantee anyone will lose weight. They do not seem to fret much over that minor annoyance. Part of the weight loss program is that you eat their food for the entire 10 weeks. That will cost another $75 or more a week. No one can reasonably expect a refund for food they consumed, no matter how little weight was lost. Furthermore, some customers will simply be too embarrassed to admit their failure and ask for a refund. More importantly, for every customer who has their $20 fee returned, others will be so pleased with the initial results they will decide to lose 50 pounds. The extra 30 pounds are not at $1 per pound, and you still buy food from the center. This money-back guarantee is pure marketing genius.
  • Be aware that guarantees sometimes carry negative marketing connotations that can reflect poorly on your brand. That is largely due to all-too-common marketing promotions that border on deceptive advertising. I once had a client who previously developed a product marketed exclusively on late-night infomercials. You are no doubt familiar with the type of promotions to which I am referring. Everything is a huge value (whatever that is), yours for only $19.95 plus shipping and handling charges. The product always comes with a satisfaction guarantee. My client explained the rules of the game. The key phrase is “plus shipping and handling,” a greatly inflated sum that includes the actual cost of the product. That explains why infomercials frequently offer a second item “free” if customers pay separate shipping and handling fees. The $19.95 is pure gross profit! If a disgruntled consumer wants a refund, they must first return the product at their expense. The shipping and handling is not refunded. Therefore, the seller’s “worst-case scenario” is that the customer paid the full cost of the product and is now allowing them to resell it. Meanwhile, the refunded $19.95 was an interest free loan. I trust this deceptive practice is incompatible with your mission statement and value system. Do not risk long-term customer relations and reputation for the sake of short-term gains.

I will conclude this series with a discussion of introductory offers and giving free service. I look forward to meeting you here bright and early Friday morning.

Reducing Fear and Uncertainty

Let me give you a hypothetical illustration. You have a choice between two mutually exclusive investments. The first offers a guaranteed 3% return. The expected value of the second investment is 6.25%, more than double the first. It has 75% chance of returning 25%. However, it also has a 25% chance of losing 50% of your investment.

Which one do you choose?

If you picked the first one, you are in the majority. Physiologists tell us that the fear of losing what we already have is a powerful motivator. You picked a “sure thing” because the second investment’s higher expected value was not enough to overcome your fear of an uncertain outcome. In other words, you are risk adverse!

The same predisposition toward risk aversion applies to most consumers. Every business must recognize the fear of uncertainty, especially when marketing to new consumers or offering new products or services. Why, for example, would a prospect buy from you when they already have an existing relationship with your competitor?

You are the “uncertain outcome” in our investment example.

Uncertainties instill a level of customer distrust. Starbucks CEO Howard Schultz explained the reason for this distrust. “In the 1960s, if you introduced a new product to America, 90% of the people who viewed it for the first time believed in the corporate promise. Forty years later, if you performed the same exercise less than 10% of the public believed it was true. The fracturing of trust is based on the fact that the consumer has been let down.”

Your challenge is to overcome distrust and risk aversion. This week, I will discuss several ways to help you meet that challenge. Here are today’s suggestions.

1. Perhaps the ultimate way of overcoming customer perceptions of risk and uncertainty is simply by building a solid reputation for post-sale customer service. American author and motivational speaker Zig Ziglar said, “Statistics suggest that when customers complain, business owners and managers ought to get excited about it. The complaining customer represents a huge opportunity for more business.”

Statistics do indeed support Mr. Ziglar’s comment. The White House Office of Consumer Affairs reports that the average dissatisfied consumer will tell between 9 and 15 people about their experience. Approximately 13% will actually tell more than 20 people. Compare those prospects to the results of a survey by Lee Resources. They found that 70% of complaining customers would do business with you again if you resolve the complaint in their favor. Fully 95% will do business with you again if you resolve the complaint immediately.

2. We have all ventured out of our culinary shell from time to time and took a risk by ordering a new entree or dessert, only to discover we hated it. Ice cream shops have found a cheap yet completely effective way of eliminating this risk. They offer free samples on tiny plastic spoons. The sample (including the spoon) costs less than two cents. Supermarkets hand out free food samples in little plastic cups. Wine tastings accomplish the same objective.

Free samples, or alternatively a free trial period, may be the best way to encourage customers to try new products or services without the fear of having to pay for something that does not meet their needs or tastes.

On Wednesday, I will discuss money-back guarantees. Stay cool until then!

What to do When Life Hands You Lemmings

Apple introduced the Macintosh personal computer in a third quarter television commercial during Super Bowl XLIII in January 1984. Playing off a George Orwell 1984 theme, it featured rows of uniformed, colorless drones. They sat mesmerized, watching as Big Brother dribbled propaganda on a large movie screen. Suddenly, a female runner chased by storm troopers entered the room. She hurled a sledgehammer against the screen, which explodes. The commercial ended with the statement, “You’ll see why 1984 won’t be like 1984.”

That commercial has been voted the best Super Bowl commercial of all time. Always stick with what works, right?

The following year, Apple decided to use Super Bowl XIX to introduce Macintosh Office. This commercial featured a long line of blindfolded business people marching across a dusty, forbidding terrain. Their only source of guidance is their hand on the shoulder of the person in front of them. One-by-one, they walk off a cliff. It has been dubbed the “Lemmings commercial” and is widely considered the worse commercial in Super Bowl history. Apple did not advertise during the Super Bowl for the next 14 years.

Have you ever had a Lemmings-like marketing experience, one whose cost was exceeded only by its complete failure to accomplish its intended purpose? Sadly, I have! I spent $10,000 developing a traditional website in the hope it would soon have my phone “ringing off the hook” with eager prospects. The vendor guaranteed a “top 3” ranking for the phrase “fractional CFO.” While it accomplished that goal, I am still waiting for the phone to ring! Very few people search that phrase, largely because they do not know what it means.

I gained three things from my personal Lemmings experience. Allow me to now swallow my pride and share the lessons learned.

1. Cut your losses!

Ego has no place in rational business decisions. Admit your mistakes, save what is left of your limited marketing budget and move on! I compounded my mistake by continuing to pay the vendor $60 a month to host the site. They provided no marketing support, no analytical data or anything to justify an additional fee. I eventually moved the site to JustHost.com, a vendor that for a low annual fee provides unlimited email and website hosting. Since I already had an account, I saved $720 per year.

2. Reevaluate your marketing goals and the tactics to achieve them.

My initial hope (it was far too naive to qualify as a goal) was that if I simply created a website, my target market would flock to it and contact me. I now realize it is unlikely businesses will retain executive management consultants solely from online relationships. That is not to say that the website cannot serve a valuable role in my marketing strategy. However, it cannot serve as the primary strategy for new business production. One of my goals is now to move promising online relationships offline. In other words, to make personal connections over a cup of coffee or phone calls. I also learned the need to help educate the business community on the existence, purpose and value of fractional CFOs. My tactics include extensive networking and event-based marketing.

3. Salvage some value from your missteps.

I grew up playing in my family’s auto recycling business (o.k., junkyard if my brother is reading this). I learned the importance of salvaging maximum value from every opportunity. In the case of my misspent marketing funds, I have uploaded the site’s video (half of its cost) to YouTube, where it may increase my Internet footprint and contribute toward my goal of consumer education. As previously mentioned, I also transferred the website to another hosting service. While this may or may not help increase brand awareness and establish my expertise, it is now essentially free!

Let me close with some simple but very practical advice. To err is human. To learn from your mistakes is good business!

© 2011 by Dale R. Schmeltzle

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