Please, do not make this mistake

This happens to the best of us, and it has happened to the biggest amongst us. From solo freelancers to Small & Medium Enterprises and from Large companies to really, really large companies – everyone is known to make this mistake.

They forget to identify their space.

The price so many have paid of being unable to do that is, sadly, huge. Railroad companies of the 1800’s failed to realize that they were in the transport industry, and not the ‘railroad business’ – had they known their space, they would have been the first ones to invest in air travel.

Had Britannica Encyclopedia realized they were in the ‘information organization’ business, they probably would have either come up with or invested in Google in a big way.

In Pakistan, had PTCL (the behemoth telecom company) known that they were not in ‘phones’ but in the communications landscape, they would have been the first ones to introduce cell phone technology, been the first to introduce ISP’s for access to the Net and would have been the first to figure out ways to battle the VoIP battles of today. Surely, all telecommunication companies around the world are waking up to this practically free way of making a phone call. Had it not been for bad governance, there would have been no ‘law’ that prohibits usage of VoIP to make international phone calls, for example. The industry has already changed, and now the companies are trying, with hook or crook, to stay afloat. They won’t stay afloat for long.

Same is for newspapers. The Internet has changed the game completely. Intelligent companies adjust and adapt and change, therefore they survive.

As an entrepreneur, it may or may not be your space to look into new ideas and start new businesses based on them. If you are not doing that and letting ideas (read: opportunities) go for the sake of ‘managing’ what you have started, you are not being honest with your title. It is your job to find the people, find the businessmen and employees, who would manage and run the business.

When trying to figure out and tweak your definition of the industry you operate in, it is important to realize that in the ever-changing world, it is highly likely that your service or product is constantly getting old. Adjusting your product to the market demands is one thing, coming up with a new product or service to maintain or improve your position in your own industry can immediately throw you on the top of the food chain.

Spending some time on identifying your space can be a good start but I’d suggest that you always be on the lookout to upgrade and update your definition of the space you operate in. Who are you? And why are you doing whatever you are doing? These questions must be asked, especially when there is change in the air. Do read this relevant post by Seth Godin on how to go about adapting to change in one’s industry/space. The ‘why test’ is not excellent to find motivation and focus on one’s life, but also in one’s enterprising activities.

Good luck and God bless,

Space Operator.

The SAS System

For lack of a better name, it is called the SAS System.

Or ‘The Slow And Steady System’.

All the words are important.

The Problem Statement

You have a product, and it costs you USD X per unit to produce. You check the market, and the market price is say X+40%. To enter the market, you want to reduce the price, say something like X+35%. But there are inherent problems there, of course, ranging from the psychological (if it’s cheap, it must be worthless) to the economical (your competitor lowers the price  just enough so that you can’t survive for long). But look at this from another angle.

You have a product/service costing USD X. You keep the price on the very low side, i.e. USD X+15% and because you are offering it much below the competition, you get a lot of customers (IF you market it right, which is another post in itself, easy). Those large number of customers will be happy to get a product that is normally available at USD X+40%,  at a cheaper price. And more and more people will want to buy the product/service.  Pretty soon the large number of customers use up most of your resources – including the all-too-important customer service –  and this sucks pretty much all the inspiration out of you to keep at providing a top level service/product. So, how do you keep the number of customers low, yet just high enough to be comfortably in the green.

You filter customers.

This idea is of course not new. The really good product/service providers almost always choose their customers. Most of the companies do this by offering a product at a higher price. It is better to have 10 customers paying you USD 100 than 100 customers paying you USD 10, so the saying goes. It is a saying, so it must have some value, which it does. But again, look at it from another angle.

With 100 customers paying you 10 dollars, you get 100 customers who already trust you to pay you for your product/service. And another saying tells you that it is much, much cheaper and easier to sell to existing customers than to find new ones.

The Solution

Limit the number of customers – more like a club. Of course, this again is not a new concept and some of the big weights in the new business order have already suggested to follow a membership model rather than just a customer model (Seth Godin, for example).

I call it a system because it helps in getting the right attitude about business; a system is a set of processes that start long before the product/service reaches the eventual customer (member, in this case).

Let us take an example of an actual club to drive this point home. The Lahore Gymkhana charges about PKR 700,000 for new members. Compare that with The Royal Palm club (also in Lahore) that charges, I think, PKR 1,200,000 approximately. Whereas the Royal Palm does not make you wait that long, the Lahore Gymkhana, with its seemingly ‘cheap’ membership fees, has a waiting period of – now wait for it – a waiting period of 18 years. Yes, eighteen. So, if you want to become a member of the Lahore Gymkhana, you pay 700,000 in advance to start using the service after almost two decades. I think that is the SAS System at work. They are comfortable with the amount of money they are making currently (as it is a club, their concept of a ‘profit’ is automatically different than a for-profit business). So they limit/choose the members with even a more strict approach. With the money they make, they spend on improving their service to their existing customers, who end up spending more and more within the club (E.g. The discounted departmental store/bakery, the new and improved golf course, the swanky gym, all developments that took place within the last 7 years or so).

So what are the implications of this SAS system?

The implications are not entirely huge, but they are not as subtle either. Consider this: I am starting a small enterprise, selling blog hosting. I want it to be the best product in the market but I don’t want to price it that expensive; I want myself to be able to afford it and use it. At the same time, I don’t want it to come off as worthless, which it is not, and neither I want to be not-inspired to follow up with outclass service, which I am not. So I limit the number of customers per year that the business will take in. And I mention it to the customers, that you are part of, say a total of 50 or 60 customers that will be ‘allowed’ to be a member for the year 2009.

It is slow, but not in a bad way. It is slow so that it gives you, as the product/service provider to give it your all, and tweak and improve. It gives you as the provider to actually ‘filter’ clients, and it gives the clients a good, cheap deal to work with. As the slow bit makes you take in clients in small groups, you ‘can’ give it a premium price, but that will reduce the number of people who can benefit from your product and most importantly, it will make it harder for you to search for the premium customer. The customer stays comfortable with the product/service, you stay comfortable with the bottom line that keeps you afloat and the business going; slow and steady.

It is steady and in a good way. It gives you as the product/service provider a solid foundation to build your business on. After a certain time, the number of customers themselves will be large enough and your business will slowly grow into it rather than quickly become obese.

The only drawback – if you are too washed-up in the get-rich-quick idea of business – is that it is not, well, it is not get-rich-quick.

The SAS System is how business should work, how it should be made to work. The advantages are clear. The foremost advantage lies with the customer – and is usually the case, I am the first customer of my own enterprise, so if I like the product/service, then it is a good hint that others will too.

I will be posting here, how this little enterprise works out following the so-called SAS System.