Author: fwadmin_chron

Your business offers a product or service. Regardless of how well your offer sells, you wonder whether or not you are leaving money on the table. In other words, are you charging the best price possible?

This question is often left to opinions, chance, or comparisons with competitors. These choices unfortunately indicate the lack of a defined philosophy.

Alex Hormozi’s book, $100m Offers, provides a simple way to think about the challenge of setting prices. If you have a sense that your company should reconsider its thinking, keep reading.

Your Business Should Charge As Much As Possible

Here in Jamaica, we equate high prices with robbery. Those who list exorbitant prices are disparaged as thieves. Unfair. Rapacious. Wicked.

However, part of being a successful leader means transcending such sentiments. A company is not a charity. It must do what it can to become sustainable so that customers, employees, shareholders, suppliers and even tax authorities can benefit in the long term.

As such, Hormozi argues that companies should charge whatever they can, subject to their customers’ willingness to say “Yes”. Unfortunately, only a few organisations perform this balancing act effectively.

In this context, being “fair” is beside the point. It’s definitely a juicy argument for verandah conversation, but not a strategic consideration. What matters more is customer behaviour, not popular sentiment.

For example, many think that the new Krispy Kreme donut craze is ridiculous. However, should the naysayers’ sentiments be considered in the pricing of the product? Or should the company pay more attention to those who drive by, wishing the line were shorter?

Hormozi argues that every enduring organization charges a big multiple of its unit costs. A company spends pennies to make a donut. But it’s not unusual. Internet service. Concert tickets. Hotel rooms. Restaurants. They all offer highly marked-up products or services.

Your company should be no different, he explains.

After setting guilty thoughts aside, he recommends you focus on “value” – the only thing an actual customer cares about.

Value is Primary

The author quickly establishes a fact we all know: customers exchange their hard earned money for value. But it’s not a fixed quantity of anything. Instead, they focus on *perceived* value.

For example, the volume of metal, rubber, glass and other materials in a Kia is about the same as a Porsche. Yet, the desirability of each could not be more different.

But that’s an everyday observation. More importantly, how does your company increase the value it offers customers? Hormozi’s book shines when it introduces a new formula.

Customer’s Perceived Value = Their Dream Outcome x Likelihood of Achievement / Waiting Time x Effort*Sacrifice

Above the line are the items most companies focus on, including your competitors. At first, they prioritize the dreams and aspirations your customers are trying to fulfil. It could be a pleasure they seek, or a pain to be avoided.

Unfortunately, you may be in a sector in which all the players are promising big things. So no-one is responding to hyperbole.

The other item above the line measures the confidence of your customers in accomplishing their outcome with your offer. In other words, a teacher who is famous for gaining government scholarships for PEP will provide more perceived value than a first-timer to the classroom.

These two items in the equation are taught in Marketing 101. However, the biggest differentiators in your niche are probably lying quietly below the line. They sit outside the control of marketers.

Focus Below the Line

As you see from the equation, maximising value means lowering the items underneath the line. The first, the time delay, is the gap between the moment when the customer pays and the moment when the first benefit is experienced. When you lower this interval, value increases.

To illustrate, back in 2001, cell service via Cable and Wireless took weeks to provide. Then came Digicel with its immediate availability, and it quickly became the market leader.

If your offer must take a while to deliver the final outcome, Hormozi recommends that you set up quick wins along the way. This helps customers see and feel progress.

The other item to be decreased below the line is the effort and sacrifice the customer needs to invest. In the book, the author lists liposuction as a means to lose weight, compared with the typical remedy of diet and exercise.

The personal changes required by the latter are considerable. Why? It’s hard to transform one’s habit patterns, attitudes, scheduling, grocery shopping and more. By comparison, for those who can afford it, liposuction only requires a week or two of soreness.

Increasing value for your customers means focusing on each item separately. Do this in your next strategic planning retreat and your prices could be transformed.

Your company has once again begun to look to the future. It’s shaken off the post-COVID blues and must now position itself in its industry with a fresh strategy. But all of your executives are not convinced that hard choices must be made. How can you persuade them?

A friend of mine was recently confronted with a golden opportunity. Her boss, the retiring owner of the company, offered to sell her a majority share.

But she wondered: “What am I really buying here?”

While it’s easy to think in terms of immediate dollars and cents, or the present value of future cash flows, this thinking is limited. While finance MBAs know how to do these calculations with their eyes closed, that was not the real point.

Instead, we decided that she was being offered a future outcome, the result of a possible company strategy.

In other words, she had to decide whether the organisation could craft a plan that was worth the offering price.

As you may imagine, this was a very difficult decision to make, especially as the company had no long-term strategic plan in place. She would have to create one as soon as possible and use it to determine the future value.

Given the number of assumptions and estimates to be embraced, this made the task a challenge. To illustrate, let’s look at the case study of Intel Corporation, the maker of electronic components for computers.

The company passed through three distinct phases in its lifetime. Let’s examine it from the perspective of a potential buyer in each phase.

Phase 1: Success and Ignorance

In 1974, Intel was dominant in its industry. With an 82.9% market share, DRAM (memory) chips made up around 90% of the company’s revenue.

At that point, it seemed that the firm could do no wrong. It had powerful leadership and a legendary founder, Gordon Moore.

Anyone who wanted to purchase a majority share would have concluded that the future was bright.

However, a deeper analysis a few years later would have revealed trouble. The competition (mostly Japanese manufacturers) was gaining ground for the first time. But historically, their products were an industry joke.

Phase 2: Disruption and a Decision

Jumping ahead to 1984, and Japanese companies were riding a tsunami of steadily accumulating advantages. In no particular order, they benefited from:

• lower costs of capital than Intel could attract
• the long-term investment horizons of Japanese stock traders
• steady investments in spite of an economic downturn
• far greater efficiency based on continuous process improvement

The result?

Intel’s market share plummeted to 1.3%.

At this point, someone thinking about buying shares would have asked CEO Andy Grove, “What is the short- and long-term strategic plan now?”

The fact is, Intel had no strategy to deal with the disaster unfolding. But a fateful meeting between the two leaders in 1985 changed everything.

Grove asked Moore: “If we got kicked out of this company and the board brought in a new CEO, what do you think he would do?”

Moore immediately replied, “He would get us out of memories (chips)”.

Andy, with a surprised look, responded, “Why shouldn’t you and I walk out the door, come back and do it ourselves?”

This conversation marked a turning point. The firm made a complete pivot to a different product altogether…microprocessors. Although they had a tiny operation in this niche, this was going to be a big bet. Almost at once, one billion dollars (US$) were shifted from further investments in memory chips to this new offering. In fact, they decided to phase out production of the old line.

Phase 3: The Strategy Pays Off

Today, in hindsight, the two are lauded for their brilliant decision.

Microprocessors became the number one business at Intel, driving annual revenues from $1.9b to $63.05b. The company’s market cap went from around $3b to $151.1b.

While this high-wire approach to strategic planning cannot be recommended, let’s tie that back to the decision my friend had to make.

In essence, she wanted to know: “Is the company in Phase 1, 2 or 3?” As you may imagine, the price she would have to pay would vary tremendously depending on the answer, and the strategic plan called for in each case.

But let’s forget about her. Take a look around your own organisation. If your leadership team has no consensus view on which phase it’s in, consider it to be in danger. While it may become a lucky winner like Intel, don’t count on it.

Instead of waiting for disaster to strike, create a forum to have the difficult conversations required. You’ll protect your stakeholders from potentially ruinous outcomes with a strategy that fits.

Francis Wade is the author of Perfect Time-Based Productivity, a keynote speaker and a management consultant. To search his prior columns on productivity, strategy, engagement and business processes, send email to columns@fwconsulting.com.

As a leader, you need to provide your organisation with a clear path for the future. But you also hate changing direction in mid-stream. Some say you shouldn’t bother to make any long-term plans in the first place, but is that the best solution?

It pains you to think of spending a lot of time and money to create extended plans which require updates when there is a disruption. Why? You know staff can feel disempowered when a rethink is needed.

However, you also realise that having a predetermined, “True North” steadies the ship. It keeps your team focused on the horizon, rather than on the next wave. Confident in the future, they aren’t distracted by their immediate fears. Or social media. Or their email inbox.

But if you stick to the old ways of doing strategic planning, you are likely to fail. Most still try to use a vague vision statement, what Dr. Richard Rumelt calls the “Statement Doctrine.” It’s easy to do, but few remember it.

Some organisations give up without even trying. They simply rename their 5-year list of tactics a “strategic plan” and keep going.

Fortunately, there are modern techniques which can be combined with group dynamics to provide you with the flexible plan you need. Here are a few of these elements.

1. Rapid Backcasting

Unlike forecasting, backcasting is known as a method of strategic planning in which a detailed future vision is defined first.

From this visionary description involving multiple Key Performance Indicators (KPIs), you step back in time to the present.

However, its originators in the academic social sciences have been accused of turning the approach into an exercise requiring months of effort. At high expense.

The end-result is a long report, usually unreadable by the average manager.

Fortunately, there’s an alternative in the form of rapid backcasting. In this adaptation, the output is a single matrix. This picture captures the timing of major decisions in your timeline, as shown in the vastly simplified diagram below.

For example, a company with a 27-year plan can record milestones such as the acquisition of another firm (Project 2 above).

But this is just the start. Overseas expansions, outsourcing, new technology implementation, product innovation, re-engineering, rapid process automation…these are all big decisions to be included in your timeline.

One immediate benefit is that the plan is rigorous and credible. By including major activities and their impact, you ensure the logic is sound. But the other plus is that when circumstances shift, it can be modified quickly.

When COVID arrived, for example, companies changed their backcasted diagrams. It only took a meeting or two. Why?

The fact is that their “True North” didn’t change by much. Only the tactics to get there. By contrast, if they had to deal with a 100-page report, they may have given up.

2. Powerful Group Dynamics

In the old, rigid approach mentioned above, organisations come to believe that their executives don’t have time for long-term thinking. In these circumstances, they may turn to outside consultants.

At great expense, these outsiders attempt to do the hard thinking required on behalf of the leadership team. Along the way, they present voluminous PowerPoint slides and reports. Usually, their thinking is logical, but it’s not enough. Why?

This approach fails to rely on the real experts – those managers who struggle with the challenges each day. Their inside knowledge is nuanced, and often under-estimated by outsiders.

A very different technique would be to teach them rapid backcasting, then set them loose to do it on their own. They can learn how to think from the future back to the present, and develop a complete matrix of results in hours.

Even though they may not have the big IQ’s of the consultants, collectively, they produce something better. After trading different points of view and conducting some hard negotiations, they have made the most difficult decisions. And now they have a credible plan.

I can say from experience I have witnessed teams making the most challenging choices imaginable under these circumstances. It’s inspiring. In an honest and truthful setting, executives actually step away from their personal interests to seek the best for their companies.

They just need to be given the chance to surprise the company with their courage and intellectual prowess.

As such, when the inevitable disruptions occur, the team can call a fresh huddle, confident in their ability to make the necessary changes. After all, they can unmake any original decisions, as they know how to use the tools.

The naysayers argue that such feats are impossible. “Don’t even try” they advise. But they are wrong. Modern approaches like backcasting can now be taught quickly, and doing so makes all the difference.

Francis Wade is the author of Perfect Time-Based Productivity, a keynote speaker and a management consultant. To search his prior columns on productivity, strategy, engagement and business processes, send email to columns@fwconsulting.com.

Your company is dealing with a significant challenge. Due to the complexity of the issue, it’s hard to determine the right path forward. This is an intellectual puzzle that needs the attention of analytic minds.

But is finding the optimal answer your only concern? After all, the management team has had implementation problems in the past. As such, you sense that the “soft side” warrants some consideration to succeed by the end.

You ask: “How do we balance intellectual and social perspectives so that we effectively tackle the complete problem?”

Now, you must design an event that accomplishes all your goals, not just some. Here are some suggested ways to shape your interventions, using the example of your company’s corporate strategic plan.

1. Determine acceptable outcomes.

Before the exercise starts, you need to create a clear picture of the final result. Rather than fixate on a single point, craft an array of acceptable outcomes. Here are some questions you can begin with.

How important is it to get to the exact right answer? How close do you have to come? What other soft-skills and communications targets need to be accomplished?

Will the team solving the problem also be in charge of implementing it?

To respond to these questions, consider the following: the purpose of a strategic planning exercise is not to craft the perfect document. The output is not at all like a book which could be written by an anonymous author.

Therefore, a consultant can’t be hired to do the thinking for your executive team. For similar reasons, your CEO shouldn’t do this task on his or her own either.

Consider the idea that it’s possible to capture the ideal language on paper, but do so in a way that ultimately fails.

So don’t fixate on the written words. Instead, concentrate on the decisions to be made. Think of ways to maximize the following:

• The participation of affected stakeholders.
• The inclusion of internal experts with unique insights.
• The engagement of executives who must implement the decision.

But understanding the end-result in this broad way is just the start.

2. A Social Activity

When you offer a maths problem to a student, even if the theory required is advanced, the general idea is that only a single solution exists.

But in our example, the process followed to derive the answers has everything to do with the chances of effective implementation. If you include the right people appropriately, you increase the odds that the final strategic plan will be embraced.

To illustrate, imagine locking a group of colleagues in a room. The only way they can escape is to solve a difficult puzzle.

Studies have shown that the bonding which may occur in such situations is transformative, even for a bunch of strangers.

This is especially true if the task is challenging and the activity is meant to accomplish an explicit, higher purpose.

Why is this important? It all means that to hit all your stated outcomes, you must address the “soft side” of the team’s activities. In your design, this aspect needs to be fostered, not left to chance.

Given this fact, scrutinize every step along the way with a social lens. Plan each activity to help the team make progress towards effective problem-solving and future implementation.

Fail to do so, and even the initial invitations sent out to ask team members to save the date can be unsuccesful. How? All of a sudden, calendars will become unavailable without explanation.

3. Unique, Interlocking Information 

Get the executive team working well together and you will find that its collective IQ is greater than that of any individual. As members bring different areas of expertise to bear, you’ll see where unique discussions emerge.

Once again, these are impossible for even McKinsey consultants to have. Only people with an in-depth understanding who trust each other’s knowledge can engage deeply. The collective decades of experience inform the analysis.

As a result of all these factors, the likelihood of successful implementation is much higher.

Furthermore, it’s sometimes unhelpful to compare an executive team in one company with another. But if the event is facilitated skillfully, the group will make practical commitments which match their ability to deliver results.

For example, a board member who serves multiple companies may refer to a bunch of leaders from another company as an exceptional case. Although the comparison may encourage creativity, every organization has to follow its own limitations.

Realistic planning means considering constraints before making new commitments.

As this occurs, resist the urge to draw comparisons. Instead, seek solutions which help you achieve social and intellectual outcomes at the same time that fit your unique circumstances.

Francis Wade is the author of Perfect Time-Based Productivity, a keynote speaker and a management consultant. To search his prior columns on productivity, strategy, engagement and business processes, send email to columns@fwconsulting.com.