BUSINESS START-UPS

Starting up Anyone starting up in business, either in self employment or as a new company, will immediately realise that customers

must be found and kept. This article addresses the problem, and gives some methods as to how this can be achieved, based on the author’s experience gained while working in a variety of

companies and, more recently, in self employment.

by Michael J. Newton

t the end of 1994, I was made redundant from a job I had held for some ten years. What, I asked myself, to do next? After

some 25 years of working for other people as an electrical and process control engineer and manager in sales and marketing, I decided to start up on my own. Surely, I reasoned, there is sufficient need for my wide engineering experi- ence; surely all these businesses that have been de-manning of late will need the occasional electrical engineering resource! There are the opportunities, but there must also be problems with a new business venture. Bad debts and bureaucracy are often mentioned, but before they can become a problem, the 1 Use an existing friend new start-up business needs customers, so Having targeted a particular here is my analysis of the customer and customer as one with whom how to win business. These thoughts are you would like to do business, particularly related to customers for identify an existing friend of the engineering services, and are only customer, and persuade the friend to partially applicable to the act as your agent, or similar type of supply of products. intermediary. If you (the venture)

Breaking into a new and the friend are both companies, customer or setting up a it may be best to combine by new business is only likely merging or purchase. This is an to be successful if certain example of the sort of symbiosis of conditions either apply merger much discussed in many naturally, or can be made texts on management. ‘Ask not to apply! By and large, what the merger can do for customers prefer to deal you, ask rather what you can with existing suppliers,

ENGINEERING MANAGEMENT JOURNAL JUNE 1996 137

people with whom they have already done business and who they consider to be ‘friends’. Clearly there must be exceptions to this rule, as new business ventures do succeed. I offer the following methods of escape from this particular version of Catch 22, mostly based on my personal experiences. Please remember that not all methods can apply to all new ventures; it is assumed that a proper analysis of the venture has already been carried out, in order to establish the characteristics of both the venture and its potential competition. So here are the

A BdsicdllJ’, how do you stand on the

competitive tender? ethics of

methods:

do for the merger.’

BUSINESS START- UPS

Equally, this method is the reason why so many politicians and ex-government and forces people join companies which wish to sell to government. At a more mundane level, since privatisation of the electricity supply industry, many engineers from that industry have joined companies supplying to the industry. You will have to assess the relevance of the friend’s friendship, the comparative strength of the competition and one’s own reputation with the customer before a realistic assessment of the likelihood of success can be made. If you have already upset the customer by pushing too hard against the closed door, any amount of friends may not help! If the customer is quite happy with the goods or services already being supplied from another source, the friend alone may not be enough to guarantee success. In this case, it may be necessary to combine this method with other methods.

2 Buy your way in by substantially undercutting the established supplier

This approach is used all the time, particu- larly in a mass-market environment, where ‘stack it high and sell it cheap’ has been a recipe for success from supermarkets to PCs! The method is not guaranteed, as customers (and

their purchasing managers) are very well aware of the pitfalls. Anyone looking for an excuse not to accept a low price can question the quality of the offer, they can question the capability of future support (particularly if the offered price seems so low as to leave no margin for ongoing service) and they can question future pricing policy. For technical goods and services, the customer can question compati- bility with existing goods and services. There is a particular problem for small enterprises, in that any perception on the part of the customer that the enterprise is too small for the proposed undertaking will be fatal to the proposed deal. This is where the new entrant needs negotiating skills, and where I have both succeeded and failed many times over many years!

3 Offer a genuine unique selling proposition The unique selling proposition (USP) is

much beloved of marketing specialists, and of course encompasses the whole of the business activity from design through presentation, sales method, costing and service. Some USPs are not so unique when seen from the customers’ perspective as the proposer might like to think! In the technical marketplace under considera- tion, a number of types of USP are possible:

138 ENGINEERING MANAGEMENT JOURNAL JUNE 1996

BUSINESS START- UPS

A genuine, properly packaged and presented USP for a well-established category of goods or service, typical of a ‘breakaway’ start-up (‘I can do this better than my boss can’). I know of four (excluding myself) small companies set up in this way from people leaving my erstwhile employer over the last ten years. To the best of my knowledge, three 4 Be lucky of them, Peel, Riverdale and KM, are still Find a customer who has a particular going strong, which is much better than the problem for which established suppliers cannot national average for new businesses. offer easy solutions. A customer may A new technical development of a offer the problem to anyone and

everyone who takes an interest, even going as far as advertising! Remember

brilliant (or just lucky!) invention. The initial application will probably have been carried out (for free) in that some categories of customer are collaboration with a member of obliged by EC regulations to advertise the prospective market for the their needs. Once this customer is

job (and hence the judgment criteria used by the boss) may well be to keep a plant running with no risks, whereas a project engineer may well be judged on an ability to find and successfully apply innovative and cost- effective solutions to perceived problems.

A I

convinced that you can supply the solution, you are established as a

invention, who will then be expected to speak UD on behalf of as f4jul@

thi developmint. 1n;he mid 1980s, the company for which I then worked developed and marketed a particular form of SCADA package which was sufficiently different to receive quick orders from such diverse people as Davy McKee, the UK Atomic Energy Authority and Irish Lights. A new application of an existing technique. The trick here is to persuade the customer of

supplier, and can then move onto other goods and services. Success!

As an example, I would cite my experience of selling a particularly small piece of computer software to British Steel Port Talbot. The initial contract, valued around fIOOO for an

obscure communications driver, led over three years to some eight separate contracts totalling f600 000.

the relevance of the existing application, of the ease of transfer to the proposed applica- tion, and of the advantages to be gained. I will never forget, if I may be allowed an anecdote of many years ago, the time when I was trying very hard to persuade the designers of a dredger of the advantages of D C drives. The only available application of comparable power was in the Thryburgh Steel Mill, so we all went along expecting an informative and enjoyable day. Just as we arrived, the mill suffered a major cobble, with red-hot steel bar looping up to the roof. We actually spent the day watching a demonstration of torch cutting!

Despite this experience, this method has been important to me for many years, with such examples as exporting control tech- niques from the National Coal Board to Eggborough Power Station and hence on to other power stations. An earlier technique was transferred from the NCB in S. York-

5 Be doubly lucky Be available at a time when an existing

supplier slips. No matter how efficient indi- viduals or companies are, sooner or later they will make a mistake: something will go wrong, a delivery will be late, the wrong part will get dispatched. Apart from the inevitability of this, the consequences are quite varied. Some mistakes are easier to forgive than others! I can give no rules, as consequences depend on personalities. However, two things are clear. If genuine attempts to correct the error are seen to be made, the consequences are always likely to be less severe on the supplier, and if a mistake embarrasses an individual customer in front of their ‘big boss’, the consequences are likely to be more severe.

From 1985 to 1995, I was a fascinated partici- pant in two full circles. A well-known steel producer in Sheffield apparently decided that a change of regular supplier was advisable; that company then placed, over a period of five

shire to British Steel in Scotland. The year;, ten furthe; contracts befoie they decided personality of the customer is important here, as some personalities are more easily persuaded than others. A plant engineer’s

that another change was necessary. Similarly, an animal feed producer in Ulster built a new plant in the late 1980s, and subsequently placed three

ENGINEERING MANAGEMENT JOURNAL JUNE 1996 139

BUSINESS START- UPS

more contracts before the supplier slipped up customer. Professional pride is and was late completing. vital, but it must be remembered

that E l profit derived from repeat lished supplier will be found business, from an existing to be vulnerable. When customer, is worth just as much as this happens, go for it as 4 E l profit derived from a new

customer, and will have cost a lot less out of the sales budget. New

Eventually, then, an estab-

tunity’ may be very small: a sensible estab- lished supplier will put A ‘

customers are, however, always - necessary, as old ones drop off for all sorts of reasons: customers’ investment

cles are particularly important. In the early 1980s I was

the real potential of the involved (with a large company) customer. Maybe the ex- for over three years in the re- supplier knows that the equipping of several production customer has no real potential, or facilities at Cadbury’s. At the end of

the Deriod, they had completed all the that they will not pay their bills on time!

6 Be famous A world-class company using massive

advertising cover can usually get onto any tender list that it wants out of sheerfume. That is not enough in itself to guarantee success, but it is an easy way past the first stage of the normal bid process (prequalify, bid, short-list, order). However, the average new consultant or small business does not have the benefit of a seven- figure advertising budget. By and large such people only receive inquiries that they ask for, and should very rarely need to return inquiries. They can become famous within an industry grouping, by personal recommendation within the grouping-not universal Hollywood adulation, but quite enough to get onto tender lists within that industry.

By far the most important type of fame for the new start-up, and probably the most important single method, is to be famous with an individual customer (or better still, many individual customers) through having worked to a high standard for that individual before starting the new business. The customer then knows of the high standard that can be expected in the future. You will already be a friend, all criticisms are refuted, and all you have to do is to deliver the service! This is why so many new start-ups get their first chances from their last employer, including myself. The natural and inevitable follow-on from this is to be referred on to other contacts of the customer, thus generating local fame.

7 Repeat business I have always derived much satisfaction from

clinching a contract with a completely new

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work tha;they had plinned, and Lad no further plans for the foreseeable future. The work had taken up most of the resources of the supplier’s department, which then had to find a complete new customer base. Because this takes time, most of the staff were reassigned and the expertise was effectively lost. The concept here is that of the marketing mix, a fascinating topic but a different one from the problems of the new start-up.

I suppose I cun give you fifteen minutes

Finally A final thought. All of these comments have

been written as though only three parties are involved, the customer, the established supplier and the prospective supplier. Very often a customer will have several suppliers for each category of goods or services. To break into such a clique is both easier and harder! The good news is that the customer is much more used to the concept of issuing a specification and buying competitively. However, the dis- inclination to go outside the clique remains, and it is very unlikely that the whole clique will be in the bad books at the same time! Technical advantage and a good USP become the best approaches under these circumstances.

So far, I think that the opportunities ”are worth the difficulties. Remember, it is not easy, and you always need a good, quick, confident answer to the question: ‘You want to talk about W H O ? Who on earth are they?’

0 IEE: 1996 Michael Newton currently works as a self-employed consultant electrical and process control engineer, and may be contacted at 69 Brook Street, Wymeswold, Leics. LE12 6TT, UK. He is an IEE Member.

ENGINEERING MANAGEMENT JOURNAL JUNE 1996