Is Margin Erosion Good Enough?
by Todd McCandless
The world of “Good Enough” has certainly set up shop and is determined to roost in our industry for years to come. The notion is simple: buyers aren’t looking for the ultimate “perfect” when ”good enough” will work just fine and fit an economic strategy or budget. This model is driven by production, manufacturing, economic, and social design, to name a few.
The selling process was countered by the procurement process when all of the created value our companies have spent decades acquiring through education, hiring, and superior design/solutions was systematically bled from the acquisition process. The buyer/procurement role has reclaimed its glamour, importance, and charming demeanor in the corporate world. Anheuser Busch and Pepsi have their own joint supply chain process now, such is the re-invigorated role of the procurement department.
What was once a value-add for our clients and offered at a cost is now expected in the procurement process at no additional fee. In fact, clients have unleashed their procurement departments with the understanding that they will simply ask for a contractor’s cost and negotiate out all but a modest stipend they deem worthy for a contractor to survive on. This means the contractor’s SGA and profit margin is exposed and often eliminated in the procurement process should the contractor decide to engage the client on a particular project while acquiescing to procurement’s new model. I guess they weren’t too successful with that “Reverse Auction” thing huh?
Procurement’s mission is to drive as much cost from a project as possible and we have to appreciate their role, but what explicitly does that mean to those of us trying to sell in this new world? Procurement betrays no bias, they reveal very little about the internal decision matrix, and they justify their impact on an organization by reducing a supplier’s quote by 10-20 percent if possible. That’s a tough world to live in when your go-to answer was to offer all the value-add your company provides to justify your margins.
Have the halcyon days of double-digit margins and adequate SGA coverage gone? The short answer is… maybe. It depends on how you will approach the changing consumer model and how you do one thing: Make business relevant to your client and realistic for you.
We live and breathe in a world of technology but that hasn’t confined this issue to the AV or IT world. The rise of the construction manager and procurement officer is just as real to the technology side of the equation as it is for facilities, raw materials, or anything else an organization acquires.
The IT world has centered on the rapid advancement of technology and the intimate relationship end-users have with their devices. They have accurately determined that a cloud-based solution will win the day and see rising sales and margins, creating a new world of cloud-based solutions with services and programs never before seen—they succeeded in reinventing themselves.
What have you done to create a new service or product that is beneficial to your client and that has no long history of margin erosion or a well-documented cost structure readily available by most procurement departments “Googling” it? It is not yet easy for procurement to know the real costs of cloud-based solutions, as it is a new technology (relatively speaking) and therefore, IT companies have the ability to claw back margin and sales. Does AV have a silver bullet?
It is important to view the situation in its available light. Are your products high-quality and high-design? Are they expensive and rank above “good enough”? Then what can those product sets represent to your client? Are they worth paying more for due to their design and quality?
The Answer: If you’ve remained steadfast in your commitment to value-add, high-quality products and services, superior execution, operational excellence, and customer commitment, then I say good for you. Let’s call that entire list of goodies your biz milieu. Those are all earmarks of a good business, but guess what? You may not have changed your biz milieu but your customer changed. They became the Digital Generation or “millennials” or the Digital Natives (as Marc Prensky would call them).
So how do you reconcile with a changed consumer by offering the same biz milieu that Baby Boomers resonated with? Baby Boomers have been called digital immigrants and in a lot of ways, that’s exactly what they are. They’ve immigrated to the digital land and attempted to set up a tent in the camp and sit by the OLED fire. Imagine the Pilgrims teaching the Native American Indians how to grow corn. That is what your Baby Boomer Biz milieu is trying to do for the Digital Natives. The immigrants teaching the natives... that just doesn’t work well if the natives know a lot more about the subject matter than the immigrants.
I am a firm believer in teaching your way to success and in the digital world. It works. Having created one of the largest independent websites in the world on a particular subject, I tend to get in the weeds about building communities and engaging them. I focus on influence, teaching, social media, thought leaders, blogs, vlogs, and all other manner of digital infrastructure waiting to be used to create the next value-add.
If you are an AV integration company and you Google your city and the words AV, are you on top of the list? No? Ditch the biz milieu and start a new one tailored to the Digital Native. How do you do that? Here are three ways:
As an executive at a company that also defines, designs, and delivers commercial furniture, I’ve seen the rapid change in the consumer and the workplace. Low-walled collaborative workstations, benching, and other means of getting people to engage are de rigueur now. How about creating collaboration space and working with your clients via digital and collaborative components?
Create a teaming area for your discovery phase and formal RFI phases. Sit with your client and whiteboard, doodle ideas, solutions and teach them how your company approaches such things as IDF closet management, tactical video strategies, and Unified Communication evolution and efficiency.
Sure, iPads are great and so is email but sitting in a teaming area with your client and whiteboarding doodles that pictorially describe a process or product you are pitching is far better and quicker. Nothing can render as fast as the hand attached to the brain... no offense Apple, but the iPad has limitations that a whiteboard doesn’t. Desktop sharing is fine but brain sharing is better.
Having a website is fine but so 1995. Facebook and Twitter exist for one reason, to drive traffic to your site. Never send your hard-earned website traffic to Mark Zuckerberg’s world where they’ll get bombarded by competing companies and products. Create a video series and teach! Teach your clients!
I know the argument. Nobody wants to watch a video on how to hang a flat panel. Really? They do if they are trying to hang one and if they have to buy one or integrate it in a challenging boardroom situation. Make your Twitter, Facebook, and website presence constantly changing and use content as marketing to achieve results and value.
Remember that every day your company generates content that is relevant to your customer. The website, Twitter, Facebook, and Google+ are there to be vehicles for your content. Use it.
We live in a rapidly changing world where technology is often seen as the means to an end but that’s not quite right. In business, you have to teach, communicate, socialize, and engage the Digital Native that “good enough” is merely a commodity. Change is a commodity. It’s not relevant to their long-term mission and technology is not the end, although it may be your clients’ means to reaching their ends.
Everyone is looking for change and disruption. If you feel you need to disrupt a sales opportunity, you clearly haven’t made yourself relevant to your client. Apple created category killers because why? The Cupertino-based computer maker wasn't as relevant to their clients (the Digital Native consumer) as they wanted to be. Apple changed that haven’t they?
Remember that “good enough” is a default position born from a host of factors. Many companies have made fortunes out of being “good enough” but they’ve pared their operations down to handle that model. Your company needs to redefine why “good enough” isn’t “good enough” and how, through making yourself more relevant to your customer, high quality and high design is far superior and worth 10 percent more than a commodity like “good enough”.
Is the consumer model in a revolution? Absolutely! Does it impact you? It most certainly does. Are Digital Natives fine with products and services that are “good enough” in their mind’s own austerity program? Maybe, but the world wasn’t built on “good enough”. When the opposition’s army was “good enough”, it was decimated by an awesome, superior force. When your competition was “good enough”, you ran them out of town on a rail with superior design, quality, and engagement. You can do it again, but it takes a revolution and there are no rules in revolutions, and rarely leaders either. Be the leader, be the revolution, and be better than good. Be great.
For over 25 years, Todd McCandless has been providing business technology solutions for small, middle market, and enterprise organizations with sales, marketing, strategy, operations, applications, and infrastructure. He is currently the general manager for the technology division of CI Select in St. Louis Missouri.