I'm Sorry, This Movie is Late. That will be $400 Million Please!

I'm Sorry, This Movie is Late. That will be $400 Million Please!

In the old movie rental days I always knew my family was paying a lot in late fees. Apparently, we weren't alone. Netflix, highlighted in Businessweek as number 29 on their Hot Growth list, changed all of that. Here's another great story about an innovative company not only competing with the big boys, but completely changing the rules.

How well is it working? Last year Netflix's profits doubled to $41 million while Blockbuster and Movie Gallery lost a combined $1 Billion! Now get this, $400 million of that billion was due to late fees that Blockbuster had to give up in order to compete with Netflix. Netflix is getting close to 5 million customers and is expected to do nearly a billion in revenue this year. Not bad for a company that many thought would never succeed because we all want "instant gratification" when we rent movies. Apparently, some of us are willing to plan ahead a little.

Perhaps even more important than dropping late fees, Netflix competes by understanding its customers and their tastes and building customer loyalty. Seventy percent of Blockbuster's rentals are new releases. For Netflix the number is only 30 percent. Instead of pushing whatever Hollywood's latest offering is, Netflix actively looks for films that it's customers want (what a concept). The average user on Netflix rates over 200 films (talk about customer feedback). Combine that with rental history and Netflix can predict pretty well what will rent and what won't. This information allows it to actively pursue films from independents that others won't take a chance on.

Of course the future of movie rental is sure to change. While there is plenty of debate on the timing, it is almost certain that web distribution of movies will grow. Netflix plans to be there and will bring along its 5 million loyal customers...

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A Better Mousetrap?

A Better Mousetrap?

The Wall Street Journal recently reported on a couple of entrepreneurs that apparently came up with a better mousetrap--make that pen. For how many hundreds of years have we as human kind been using writing utensils that are straight like a stick? Been a few at least and before that the quill. Then in 1987 Colin Roche, a high school student at the time, gets sent to detention and dreams up a new design for a pen to relieve his writer's cramp (any guesses as to what he was writing 500 times?).

The first prototype was built in his dad's garage (see picture-first prototype on far left) and the company, called PenAgain, did nearly $2 million in sales last year. Now, according to the article, they've been given a shot at the big time--thirty days to prove it will sell in Wal-Mart. If 85% of the 48,000 pens ordered by Wal-Mart and placed in 500 test stores sell during the first thirty days, they are in. If not, they may stay on in some of the trial stores or be completely dropped.

Getting into Wal-Mart is a big deal. They have 138 million customers every week! Competition to get a product into that channel is stiff. According to the chain they see about 10,000 new suppliers every year. Of those only about 2% make it to the trial run stage and that is just the beginning. Suppliers to Wal-Mart have to adhere to strict packaging and shipping requirements, monitor the sales of the product in each store, and drive customers into Wal-Mart to buy the product.

So what is PenAgain planning to do to drive customers into Wal-Mart to buy their pen? Unable to afford print or TV ads they plan to do viral marketing. Over the past several years they have collected an email list of 10,000 customers who regularly buy their pens. Mr. Roche describes them as "people who really want to know what the heck is going on with us."

I hope they succeed. Next time I'm in Wal-Mart I'll look for one of their end caps and drop $3.76 to see how it works both because I'm curious but also because I learned a few things from them:

  1. It is possible to improve everyday things that we take for granted. I'll never look at a pen again the same way. A good paradigm shift.
  2. Though it would be easy to summarize this story by saying, "A kid came up with a new kind of pen while in high school detention and now it is selling in Wal-Mart," the fact is a lot more than just a better mousetrap has gone into their success so far. The article doesn't say how many small retailers they work with, but $2 million in sales is a lot of pens and I'm betting a lot of retailers. That's a lot of selling to get to this point.
  3. It doesn't matter what kind of business you are in, building a database or list of customers that want to know "what the heck is going on" with your business is vitally important. The world may not beat a path to your door if you build a better mousetrap, but your loyal customers will if you have a way to let them know. I checked out PenAgain's website, you can join their mailing list right on their front page.
  4. Public relations efforts do work. PenAgain is doing something right as far as PR goes. I was impressed they were in the Wall Street Journal, then I took a look at their site. They've been in Newsweek, Wired, Entrepreneur, and San Jose Mercury News just to name a few. Whatever they are doing, it works and their odds of selling 48,000 in the next 30 days is going up.
Unhappy customers tell on average 22 other people. If you ticket price is $50 that is $1100 in revenue. How would you like to know before they tell 22 others? Learn more

Best Post of the Week, Anywhere!

Best Post of the Week, Anywhere!

One of our posts from last week got some recognition and we couldn't resist tooting our horn a little.

Innovation 101, an entry posted on May 22nd was selected from multiple small business and entrepreneurship blogs to be included in the Carnival of Entrepreneurship hosted by Pam Slim's Escape from Cubicle Nation. Pam selected seven posts from all those submitted. Of our post she said, "The lead picture is worth the visit!" Check out the lead picture and rest of the post here here.

In addition, the same post was selected as the "The Best Post of the Week, Anywhere!™". This is from a blog called Political Calculations that does a review of the 10 business blog carnivals each week. Here is what they had to say:

"Dave Free shows off the process of innovation in a home drywalling project he took on with his son. The engineer, economist and entrepreneur in me all agree that this is, hands down, The Best Post of the Week, Anywhere!"

Like I said--tooting our horn just a little. You can visit the Political Calculations blog here.

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5 Steps to a Sales-Doubling Buzz Force!

5 Steps to a Sales-Doubling Buzz Force!

Interested in doubling your sales? That is exactly what Proctor & Gamble did with their Dawn Direct Foam dish detergent. How did they do it? With a word-of-mouth marketing program called Vocalpoint. According to a recent article in BusinessWeek, this is how it works:

Procter and Gamble looks for customers that match their target criteria, in this case moms and particularly those with large social networks. They find most of them by advertising online and through referrals. Participants are asked to talk to their friends about new products. In return, P&G promises a stream of new product samples, "a voice that is going to be heard," and specific messages to share. So far 600,000 moms are participating.

According to Steve Knox, the CEO of Vocalpoint, the most difficult challenge with word-of-mouth marketing is making it predictable. His solution: find a strong reason why a person would want to share product information with a friend. The article goes on to say--and this is very important--that the message given to the participants is always different from the one P&G uses in traditional media.

For example on the Dawn campaign, traditional ads stressed the grease-cutting power, But the message sent to the Vocalpoint mom's focused on how fun the foam was for kids to use--so fun they would be asking to help wash the dishes. They also received a sponge shaped like a foot and a dozen $1.50 coupons. The result: sales in the three test markets were double those in markets where Vocalpoint was not used.

Sound expensive and difficult to manage? I don't think it has to be. Here are five simple steps to get your Buzz Force going and your sales increasing:

  1. Make it worth their while. Proctor and Gamble offers two things: product samples/discounts and a sense of empowerment. Both make their participants feel like a VIP or an "insider." That is your goal. Price the coupons such that you will be happy to see your "buzz force" using them and remember the pay-off is not just your participant coming back in with the coupon but the friends they are talking to and the feedback they are giving you.
  2. Invite your customers. The need to invite is obvious, the method can vary. Proctor & Gamble places ads to attract those interested. That can be expensive. Why not just invite your customers as you complete your transaction with them? There are several ways to do it. You can start by asking for feedback and then follow that up with an invitation to stay in touch. Another option is to invite them to join a birthday or some other kind of club and then develop the relationship from there. Finally, is the direct approach. "Interested in joining our fan club? You get discounts and sneak previews you can pass along to your friends."
  3. Give them a message worth telling. Hopefully your business is so remarkable that your customers will be anxious to tell their friends about you, but don't leave it to chance. Remember Proctor and Gamble always gives their buzz agents a specific message that is easy to share with friends. Put yourselves in your customers' shoes--what would be an easy way for them to tell their friends about you? Maybe it is "privileged" information: "Did you hear Subway is coming out with a new sandwich?" Maybe it is a great deal. "Hey, next time you need a hair cut let me know, Sport Clips gives me great coupons." Or maybe it is something just plain remarkable, "I got two movie tickets today from my insurance guy!"
  4. Give them another message worth telling. This shouldn't be a one time campaign. Stay in touch regularly. Those who have "opted-in" want to hear from you. The more ideas you give them to talk to their friends, the more likely one will work for them and you'll start seeing their friends.
  5. Listen and Learn. Perhaps this one should have been first rather than last, because it is very important. Those who join your buzz force can become your best source of market intelligence. They know and like your product, they know how people react to your product, and they are willing to put some effort into your product. Ask them what they think and listen carefully. Look to their feedback for message ideas and ways to improve your offering. How do you think the Proctor and Gamble folks figured out kids like the foam? It didn't happen in a board room.

Still sound like a lot of work? There are tools that can be used to greatly streamline the time and effort required to manage a word-of-mouth marketing program (Caution: shameless plug approaching). PromoterZ is one such tool. In simple terms, it gives users a quick and inexpensive way to invite participants, gather feedback, send messages (including online coupons), and even includes an easy online way for the buzz force to pass the word to their friends. It handles the logistics so that you can focus on the message. Check it out at www.promoterz.com.

Get customer feedback, generate referrals, and increase repeat sales for as little as $150 a month. Learn more

Innovation 101

Innovation 101

I've been doing some house repairs lately and faced one particular challenge that I think illustrates how the innovation process works, see what you think.

The Problem: Figure out a way to reduce the dust storms generated when sanding drywall "mud." This problem is especially frustrating when the mud guy (that would be me) lacks any recognizable skill, resulting in a process that must be repeated several times before arriving at an acceptable level of quality.

Constraints: This is strictly a do-it-yourself, teach-your-sons-how-to-work, project. Hiring professionals is not an option.

Any ideas? Here is what we came up with.

Idea #1: Contain the dust. Plastic sheeting is pretty cheap and we reasoned we could use it for a ground cover on future camping trips, so we bought plastic and hung it from the ceiling around the area we were preparing to sand. Remember the movie ET after the government guys moved into the house? It looked something like that.

Results: A whole lot of dust trapped in a very small space. Because the space was limited but the dust generated was not, it very quickly became impossible to even see the surface to be worked on. This, of course, added to our quality problems. Also, despite the use of breathing masks, our lungs are probably still coated with white stuff.

Idea #2: Instead of using an electric sander which generates a lot of dust and tends to "launch" the dust into the air, return to the old fashioned way and do it by hand. In theory, at least, the dust would gently fall to the ground and not coat surrounding areas.

Results: Depending on how you look at it, this is either a "wimp out" solution or a "muscle building" exercise. Either way, time commitment went way up and son involvement tended to drop off. Also, it didn't really solve the problem. Dust still settled everywhere just not at the volume or rate that the electric sander generated.

Idea #3: This idea came in the shower while attempting to wash the white dust from my hair. I tell you that only because that is where the best ideas seem to come. Here is the thought: what if you could connect the output of the electric sander to the hose of a shop vac? The dust would be whisked away before it could float or settle on anything.

Results: With the concept of attaching the sander to the shop vac in mind, the next challenge became figuring out how to hook the two together. It turns out the hose of the vacuum was of a much wider diameter than the output of the sander. We also wanted the attachment to be flexible enough so that it could handle various angles, but strong enough to keep the two firmly joined throughout the back and forth motion of sanding. Duct tape immediately came to mind. Unfortunately, my sons had recently made wallets out of duct tape and none could be found. So we settled for a masking tape prototype.

The masking tape prototype worked admirably and proved the concept. We did have to use two hands to keep the two together because the tape wasn't strong enough on its own, but the dust was immediately whisked away completely solving the original problem.

As we waited for yet another layer of mud to dry, we hit upon the idea of using an old bicycle tube to join the two together. What if we cut off a piece of the tube, attached one end to the vacuum hose and the other to the sander? Initially, we left the tube long for added reach and flexibility. But we quickly discovered that the inner tube kinked easily and blocked the air flow. We solved that problem by shortening the tube so that it was just long enough to go over the end of the vacuum hose and the output of the sander.

Eureka! The thing works like a dream. No dust launched in the air, no dust settling on the counter top. Everything goes straight in the vacuum.

Did we invent something new? Depends on how you look at it. After we got our sanding done we did a quick search and discovered several dust free sanders on the market. Everything from a hand sander that attaches to your vacuum for $17.89 to professional "systems" that cost up to $1,000. One thing we haven't found is anything that let's you hook up the electric sander you already have in your garage to the vacuum cleaner in your closet.

So how does this apply to your business? Innovation is an absolute necessity for growing a successful business, but it can be difficult to turn into a repeatable process. Here are some principles of innovation that, if applied consistently, will deliver breakthrough innovations:

  1. Identify the need clearly and in a specific way. Defining the problem may seem like a no-brainer, but it is in fact the most important step. It is best if you and the others working on the problem can experience it yourself. For example, be your own customer. See what it feels like.
  2. Identify and question your constraints. No sense wasting your time and resources on solutions that aren't an option. Having said that, don't allow assumptions to become constraints. List what you think are your constraints and then question every one of them to make sure they are real.
  3. Find as many perspectives as you can. If you think you, or anyone else in your organization, is the only source of all ideas worth pursuing you are doomed for failure. Involve everyone you can in your problem solving/brainstorming sessions and listen to what they have to say. Different perspectives combined is where the creative fireworks start.
  4. Prototype, prototype, prototype. The quicker you can try things out, the quicker you will learn and get on the right path. Many grand solutions have been planned and worked on for months or years only to find out that they will never work. The quicker you can test, the more likely you will get to a real solution quickly.
  5. Think about something different. Once you have identified the problem and spent some time trying to solve, don't be afraid to take a break. In fact, make it a point to take a break and think about something different. Our brains are amazing things. Some of the best ideas come when we're not focused directly on a problem but have thought about it and then stored it away for consideration. So go play with some toys, go for a run, take a shower, wash the dishes, mow the lawn, go for a drive. I've found routine activities that don't require my full attention provide the most fertile ground for new ideas.
  6. Have fun. As humans we do our most creative work when we are happy. Buy some toys, use crayons to doodle, do what ever it takes to remind yourself to relax and let the right side of your brain do it's work.

Oh, I almost forgot. To get your Amazing Dust-Free Sanding Coupler, send a check for $9.99 made out to Dave Free to P.O. Box....

If you are not regularly staying in touch with your customers someone else will. How do you stay in touch? Learn more
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Seeds from the blogworld
We search the business blog world looking for posts that illustrate principles, or "Seeds", that if followed, or "planted", will help small businesses grow. We list them here for your convenience. Enjoy.