By David Molian, Director of the Business Growth and Development Programme (BGP) at Cranfield School of Management
In the last ten years of working with independent businesses I’ve learned the value of lemon-squeezing. Does that make this a cookery show or a business blog? Well, I guess a bit of both. I use “lemon-squeezing” to describe getting more value out of your existing business and existing customer base. And, yes, it’s based on a cooking observation. Most people, when they add lemon juice to a dish, will tend to do the following:
Take a lemon. Slice it. Squeeze one half – partially. Discard. Take second, unsqueezed half, wrap in clingfilm (this is optional), and place in back of fridge. Open fridge two weeks later to discover mouldering piece of lemon and discard, unsqueezed.
Well, that’s how it works when I’m in the kitchen.
My observation is that this is also how it works for a lot of businesses. You extract a certain amount of business from your customers, just enough for present purposes. Then you put them in cold storage and when you go back to them, they’ve gone mouldy on you. Sounds familiar?
All the evidence suggests that most successful independently-owned and managed businesses grow through business development: they sell more of their existing products and services to their existing customers, and others who are like them. In other words, they become better and better at squeezing lemons.
Over the years I’ve been assembling hint and tips, based on anecdotes from entrepreneurs I’ve worked with. Here are a few choice ones for you to share:
1. Assign responsibility for lemon-squeezing as a priority to one person, who can look at opportunities across the organisation and across the customer base. One participant in a 2004 Cranfield Programme described his experience of putting this into place even before the programme was finished:
"I know from analysis in the MIRC [market research database] that our competition claim to get at least 60% of their income from existing customers. We get about 35%. We are missing a trick!
"We’ve taken two key initiatives:
"1) Moved a key member of staff into a role specifically aimed at squeezing lemons. He will work as a 'Consultant', offering to help customers do a health check on their systems. The objective is to make them feel looked after and not feel pressurised by a salesman. Already the customers are beginning to buy additional services.
"2) Cross sell. With very minor modifications our essentially vertical market products can be adapted to provide benefits to the other market sectors: e.g. our charity customers can benefit from our document management product. Our engineering customers will welcome our CRM solutions once we change the terminology in the software."
Subsequently he told me that they’d generated at least £100k net extra from these two exercises.
2. Move towards a key account management (KAM) structure, with a plan for growing major individual accounts. Here’s what happened at market research business Cobalt-Sky (Cranfield BGP 2002):
"I got our sales director to set up the KAM. He identified our key clients, bought some consultancy time from a sales person, and now spends most of his time working with our main clients building relationships. We've stopped looking at competing on price and are working with a core group of people who are happy to pay our fees in return for great service. We've got the whole company behind this, as it's the work they do that proves the sales offering is "what it says on the tin".
"The nice thing is that everyone is involved. We had an instance where a customer asked one of our people for a set of data in a specific format. Our chap queried this and it turned out he was looking for a certain type of software, and we actually did something similar, albeit in a different department. Our guy then convinced him to look at our product - it's still ongoing, but the main lesson is that our people are now awake to potential sales, outside of their normal work.
"We are also getting a lot of good feedback from our clients about how they enjoy the contact outside of project-specific meetings, and it's quite unique in our industry.
"It's very hard to pin down how much work has resulted from this, but since BGP (which obviously takes the credit!) our sales have grown by 34% and profits by 134%."
3. Make it easy to buy through creating options. Peter Wood, a Cranfield BGPer from the Jan 2005 programme, contacted me with a great example of this approach. His firm, Wychwood Water Systems, specialises in water treatment. Peter took an enquiry from someone who was thinking of buying a second-hand water purification system, maintained and serviced by Wychwood. The enquirer had been to view the system, saw Wychwood’s contact details on the equipment, and phoned for a chat.
Peter takes over the story: “Having listened to him I advised him that the equipment was too large for his needs and at the price asked was too expensive. He also told me that they had limited capital funds and, if possible, would prefer to rent a solution.
Our preferred option is always to sell new equipment. So I made an appointment to visit him, look at the application and meet his MD.”
Peter also spoke to fellow BGPer Saul Pitaluga, a director of capital equipment finance house Tower Leasing. In the Wychwood quotation for the system were the terms from Tower for three and five year leasing arrangements.
“The end result,” says Peter, ”was a happy client, an order worth almost £20k for Wychwood and a leasing agreement for Tower. This is the first time we have ever actively promoted leasing. But obviously we will not hesitate to do so again.
“The lesson seems to be that, when offered leasing terms, the client is no longer focussed on the capital cost of the project. The capital value of this project actually came in at nearly double what we thought it would be!”
4. Test your pre-conceived ideas about customer price-resistance. Forward Press produce bespoke books of children’s poetry, aimed at the schools’ market. MD Ian Walton described how he suggested squeezing the lemon by adding an uplift to the postage charged on each order. His fellow-director was unsure that this would work, but suggested instead that they increased the cover price by £1/per copy. This has been done and encountered no price-resistance at all, netting the business an immediate uplift in net profit of £35k/month, recurring.
David Molian is director of the Business Growth Programme at Cranfield School of Management (BGP). Designed specifically for the development of owner-managers, the BGP helps you create the future you want for your business and for yourself. This programme provides a unique opportunity for you to step back from the day-to-day demands of running your business. By the end of the programme you will have developed a comprehensive and robust strategy and plan for the future. Find out more, and attend a special briefing event, by visiting www.som.cranfield.ac.uk