Two (new) places on the construction marketing spectrum

I've just posted a couple of worthy permalinks, representing two places on the spectrum in this blog's readership.

In the first, Chicago-based Anne Scarlett of Scarlett Consulting reports in her Scarlett Letter blog on some intriguing and high level AEC Marketing issues. Consider, for example, her recent posting where she offers some thoughts on what professional firms measure in assessing bonuses and achievements.

Earlier this year, I delivered a session to the SMPS Southern Regional Conference. I met a gentleman (Greg) in the audience that works for a large, multi-disciplined engineering firm (XYZ Engineering). I don’t have their exact revenue figures, but they have multiple offices across the U.S. and abroad. We discussed how the firm is structured from a financial accountability standpoint. Apparently–rather than individual offices serving as profit centers, and rather than one big profit center for the whole firm–this firm has opted to group their profit centers according to regions.

We all know there’s no ‘one size fits all’ magic to a firm’s financial and organizational structure. We also know that it largely depends on these factors: client type and location; design and delivery philosophy; shared resource preferences; long-term business goals; etc.

Circling back around to my conversation with Greg at XYZ Engineering. He shared that there are two layers of bonuses offered at their firm on an annual basis. OK, makes sense. I’ve seen firms with up to three layers of bonuses. But this was what surprised me: Greg told me that rather than measure actual profits, these regions consider two things to measure their success: billability and net revenue. Nope, not profit. They figure if the other things are there, the profit will be as well.

Now, I can think of all sorts of reasons why good billability factors and net revenue figures might not lead to a truly profitable business. So I found it curious that this large, highly reputable firm would measure it this way.

Months later, I’m still curious, and am taking this opportunity to reach out to you, dear readers, to hear your own perspectives on this topic. If you are willing to share (anonymous is fine; feel free to send a direct message if you prefer), then I’d love to learn more about how your organization is structured financially, and how that structure is helping–or hindering–your firm in this current economy. Any collection of data will be shared in future blogs for consideration.

I wish I had read Scarlett's blog before contributing my article on Metrics for the upcoming SMPS Marketer issue. I looks like Greg's company, in measuring "billability" and "net revenue" is seeking to establish Key Performance Indicators which may be within the capability of individual employees to influence and change. On the other hand, I 'm wary of complex, two-level bonus structures; how effective are these benefits, really, and how much do they actually influence behaviour rather than become seen as entitlements.

On a different level, Paul Lesieur of Silvertree Remodeling in Minneapolis called me about three weeks ago to tell me he had partnered with Rory Swann of Servicez Unlimited in Washington D.C. to establish a new site/forum for remodelers, Remodelcrazy.com. The site is now in operation; it is early going, but a true grassroots community is developing. Here is Paul's explanation of how the remodelcrazy.com idea developed.

I'm driving around last year thinking "What a crazy business and what a crazy remodel I'm doing for this couple".

Ding, Ding I grab a flat carpenters pencil three inches long and write down Remodel Crazy.

I get back and put the paper away and four months later I'm talking to Ridgewalker from CT (editor: CT is Contractortalk.com) who I don't even know and he tells me to get an open domain name for that was available that would help promote my business.

I get my domain and remember Remodel Crazy and buy and register RC.com.

Months go by and now I'm friends with some nutcase from Washington DC and we start talking and I tell him about Remodel Crazy.com and my dream is to build a great place for all the people in our industry. One thing leads to another and we get Len involved and here it is. It was just a little dream for a guy who feels like the best people in the world, its builders, don't get the proper credit and respect. The painters, carpenters, electricians, designers, and the solid vendors and associates who make it all click. All of us, this is for you. And I mean it.

Its new, and its gonna take some work, but nobody is more ready to tackle this than the Remodel Crazy crew.

So lets kick it!

White collar, blue collar, years of formal education, or the practical experience in the schools of hard knocks and success -- this industry creates opportunities and working relationships for everyone, and the two new hyperlinks here reflect its diversity.

The challenges of measuring

How do you really measure marketing success? Cost per lead? Client satisfaction? What Key Performance Indicators work for you? I'm still looking for the answers here.

Yesterday, as I reviewed some draft writing on measuring performance and metrics, I had a sinking feeling: Have you ever run into situations where you preach not what you practice?

Here, in advocating concepts like "Key Performance Indicators" and the use of the Net Promoter Score to measure client relationships, I realized we have never bothered with these potentially important concepts and approaches to assessing business performance. I've reported earlier how client surveys are sometimes gamed, providing distorted and meaningless results.

But where are our real measures of success, and how can we implement a proper measurement program?

Like most businesses, of course, we have some regular reports -- receivables (volume, delay to payment and so on), bank balances, debt levels, and our balance sheets and income statements. These are shared freely with all employees -- no secrets here. But the raw financial data, while useful, doesn't capture any one's imagination (including mine).

How can we solve this problem? Here I am turning a problem (okay, a challenge) into a marketing and relationship-building opportunity. Yesterday, I asked my network for their own insights, and proposed an article on metrics and marketing/business performance measurement to Randy Pollock, editor of the SMPS Marketer. He responded by asking me to write a series on the topic. (Well, I can think of few better ways to solve a problem than to use my abilities/strengths to research some answers.)

On a more immediate level, I asked my sales team to compile a list of their leads, their quality, and their total expenses for the recent Construct Canada show. Hard to believe, but we've never actually measured the cost per lead and actual revenue generated from participation at previous shows. Time to change our ways, I think.

What lead sources are working? (3) -- The power of focus

Further email exchange with Marc Sylvain of Sylvain Contracting in Salem, NH.

Me: Marc, thanks for these observations. I will post the remarks. An interesting question is whether you can add strategic product lines compatible with your core business, which can then be effectively sold to your existing client base. It seems if you could maintain your overall volume AND bring the referral/repeat business more in line with the industry norms your business would be beyond incredible!

Marc: We are actually doing the opposite of that. In the last 10 years we have slowly phased out remodeling, additions, garages, roofing, etc.

After reading a book by Jim Collins called "Good to Great" (Good to Great: Why Some Companies Make the Leap...and Others Don't) he says to ask a couple of questions to yourself.......What can I be the best in the world at? And what drives your economic engine?

That is why we now specialize in Replacement Windows (Not new construction windows) Vinyl Siding (Not wood siding or fiber cement) and pre-fab sunrooms (Not stick build rooms or additions).

We have added decks back in our mix because if you build a sunroom you probably want a deck off of it. We also do about 5- 10 roofs per year for past customers. We only do easy, straight forward roofs.

Jim Collins also talks about having a Hedge Hog concept. A Hedge Hog worries only about the essentials and ignores the rest.

Marc Sylvain
Sylvain Contracting
http://www.sylvaincontracting.com/

I am not going to argue with Marc's success. With a clear focus, well-defined business operating systems, and a business that sells largely once-in-a-lifetime services, the marketing and sales systems he uses with a diversity of lead sources but relying far less on repeat/referral business than the industry norms obviously makes sense for him. His depth of analytical understanding of what works and what doesn't and his willingness to share his numbers with others shows that he understands what is important in business to succeed. And of course lead development from home shows is certainly a lot less offensive to me than the intrusive yet in many cases highly effective canvassing business model common in his industry niches.

I will stretch myself on a limb, however, to suggest that with his very well defined measuring resources and Key Performance Indicators tools that if he set his priorities to increase the ratio of repeat/referral business while also increasing his overall sales volume, his profitability and business satisfaction could skyrocket. Strategically implementing communications/client service measures to improve his overall client experience (which I'm sure is generally quite satisfactory now) may yield results far in excess of the actual costs. Maybe, for example, instead of pouring money into home shows, he can set up project completion parties with his recent clients, with food and refreshments for the neighbours. I sense that actively engaging his current and former clients in the marketing process -- beyond the obvious use of street signs and conventional proximity marketing resources -- might produce some surprisingly rewarding results.

He may of course have tried these client involvement suggestions and found they don't work nearly as well as the home shows and other resources (or he is using them effectively and this explains his level of repeat/referral business.) Regardless, he is far ahead of most contractors in knowing his numbers, and sticking to his principals, and accordingly his business methodologies are worthy of respect and recognition.

Which numbers really matter?

"Drew's Marketing Minute." Here's my 'give' for today -- a link to Drew McClellan's blog, Drew's Marketing Minute. This is his book, 99.3 Random Acts of Marketing. I haven't read it (yet) but you don't need to pay anything to read his blog.

Our sales deadline for June has just passed, and the tentative final numbers are in. We've broken even, just. On one level this is good -- the business isn't sinking -- but on another, it is disturbing, because the final results are significantly below projections set and reported by our team in the weeks before deadline.

"So what do we need to change here?" I ask. Logically, and commonly, businesses set sales quotas and sales reps make projections on request -- and they give numbers either through wishful thinking, hope ("If I say it will be, it will.") or, if the sales representative wants to prove exceptional talent, lower than reality. ("Now, I've gone ahead of projections, again.") So while the final numbers have some meaning -- we need as a business to know if we have sold enough to make a profit -- the numbers we are hearing on the way to the goal don't do us much good.

One 'solution' is to discount or enhance the numbers based on subjective credibility perspectives. "OK, salesperson A always under-projects so we can add something to the calculations; and salesperson B over projects, so lets discount." But again, does this really help the business -- or trust -- between the manager and the sales team.

Maybe the solution is to break the final number into components, based on our understanding of the business and previous experience. If X number of calls leads to Y number of appointments and Z number of sales, we could ask the sales people for call reports. But again does this measure anything useful. I fear the possibility of wasted calls to people who don't really matter -- or pestering and irritating calls to those who do -- so the sales rep can meet the number or quota.

"We could do nothing, just trust the sales team to do their work?" might be an answer -- and it could be -- but here, the problem is blind faith often results in blind results.

Then something dawned on me as I woke up this morning. Why not try measuring something unconventional, somewhat fun, and maybe habit forming. Maybe it won't work, but maybe it will provide something useful. It is this. "What good (business) deed did you do today?

The argument goes that sales come from sharing, from respecting, from giving, rather than hoping people will purchase something -- so the steps we take to provide a little extra value, some worthy assistance and support, and some contribution to others within our market community really matter far more than how many people we call, how many appointments we set, and how many orders we write (though the latter is the final number we need to achieve).

Will this strategy work? I don't know. It is a morning thought and needs to be tested in the crucible of real work and real relationships. And maybe I am trying to force quantification of something that cannot be so easily structured. But at least it is measurable, tangible, and real. And it can be reported daily, in a brief huddle meeting or email (I tend to like the huddle idea). Could this be our Key Performance Indicator (KPI)?

Key Performance Indicators -- unintended consequences

It took some searching (because link backs aren't obvious from the blog), but I traced Jerry's Blog to Jerry Tice (see his linkedin.com page) and The Appalachian Group of Companies.

Ford Harding graciously sent me a link to this posting "Is accountability a performance management issue: Unintended Consequences" in Jerry's Blog -- Striving for Organizational Excellence. The writer addresses the problem that setting measurable targets can distort business practices and result in dangerous excesses; sometimes serious ethical breaches, or possibly seeking short term gain at the expense of long-term viability.

As everyone in business knows – if you don’t measure it, you can’t manage it. But what happens if you are measuring the wrong thing? Well obviously it can drive the wrong result. Worse still is that it may drive exactly the result you hoped it would, but it drives it way too far or drives other undesirable results along with it that are not seen until something hits the fan. In nearly every one of our consulting engagements we work with our clients to set up a set of metrics that can be measured directly on the floor in very short intervals, typically 1 to 2 hours. We do this to enable front line managers to drive barriers to performance to the surface so that they can be resolved on the fly instead of building up to unrecoverable levels. Often, probably more times than not, we discover after a few days that the measure that the client told us was the one to watch turns out to be the wrong metric. Either its focus is too narrow and other important metrics suffered (the old production vs. quality dilemma for example) or the focus of the metric is way too broad and we never achieve the intended result. I see the same thing on the verge of happening on a grand scale with a trend that is developing in the talent and performance management fields.

Ford Harding, in comment, writes:

Jerry
This is a serious issue for professional firms pushing for growth. As the incentives to sell go up, so must the controls to avoid both selling something the firm shouldn’t and providing advice to a client more geared at selling more work than looking after the client’s best interests. Note that in Andersen’s case the partner in charge of the Enron account successfully challenged the firm’s controls.

Firm management may exhort its partners to sell, sell, sell, but it seldom balances that message with a reminder of the need to use good judgement, behave ethically and abide by controls while doing so. They take it for granted that the partners remember and care about such things. Unfortunately, not all partners do.

Good post,
Ford Harding

Jerry's initial solution -- that is to make sure the measurement cycle is short and fast enough to quickly determine if something wrong is happening, is a good approach, of course, for production-line or fast acting situations, but our business (I think) operates on a longer cycle and in any case, our staff are highly decentralized, often working from home offices with much autonomy. So how do you determine an appropriate fast acting and quickly repaired measurement cycle?

However, I shudder to fear when we get down to setting out our KPIs that we mess this up -- and fall into the traps described here. This is a problem that needs attention; but I am (alas) still at a loss for a good solution. Hopefully, our short term internal KPI (something I don't think should rightfully be broadcast outside our organization) is valid, and we can review/implement it without damage pending our full-scale planning meeting in the fall.

The KPI challenge

The Lawrence Group in St. Louis, MO, is cited by Verne Harnish in Mastering The Rockefeller Habits as successfully applying many key business development/marketing principals. But some of the ideas outlined in the book -- even though they would have been relevant only five or six years ago -- now seem dated, indeed.

I continue to grapple with the question of the right Key Performance Indicators for our business. You may have the same challenge. The concept is to find an easy-to-understand, totally quantifiable,and truly 'fast' measurement of performance; one which relates to all of your employees and (by understanding its impact on your business) can lead to extremely enhanced performance. KPIs, my reading shows, are generally best if they are proprietary -- that is unique to the business -- and have extreme 'buy in' from senior management/the CEO as well as employees throughout the organization.

The other challenge, I see from the examples I've been reading, is that success in one KPI might come at the cost of resolving another issue -- or might be outside your business control.

And things can become dated, very quickly. And the second challenge is measuring a meaningful KPI when relationships are small in number, multi-dimensional across large numbers of people within client organizations, and subject to change as technology and client practices evolve. Theoretically, these challenges are addressed by focusing KPIs within short term (quarterly) goals within the framework of a truly long range vision and highly ambitious goals, but the reality is finding a way to implement invites distortion and 'gaming' if you are not careful.

As an example of the challenges here, consider the example of an AEC firm cited in Verne Harnish's Mastering The Rockefeller Habits. He describes the success of the Lawrence Group in St. Louis, MO, in attracting and retaining clients -- and points out the company's success in developing intensive client-focused websites to help manage projects. The concept, I suspect, might have been a true marketing advantage at the beginning of the decade, but I doubt many AEC firms would find much advantage in 'showing' clients how to set up a website these days.

Nevertheless, Harnish observes that the AEC firm found the website development business so effective that it set up a special division to provide these services to others, with the domain name reactone.com.

If you check that domain today, you'll find it is a site for the repossession industry. And the Lawrence Group has merged with Austin Tao & Associates.

Key Performance Indicators

This image is from The Dashboard Zone, a site offering "Free Dashboards, Examples, Screenshots, Tutorials, KPIs and Downloads"

Late this afternoon, I'll be at Ottawa' airport to greet Bob Kruhm from North Carolina, Chase from St. Catharines and Leslie Greenwood from Sault Ste Marie. They are all arriving on separate flights to land here between 5 and 6 pm. I'll take them to dinner at a restaurant near the airport (with Daniel Smith and my family) before dropping them off at their hotel.

They are here for the bi-annual company review/planning meeting. We have two key meetings a year; in the spring to look at where we are going overall, and in the fall, to define next year's goals and projections. These meetings of course are not inexpensive to co-ordinate. Travel and facilitation fees (Caswell Corporate Coaching Company are our facilitators) will reach close to $5,000 -- a not insignificant sum of money for our still relatively small business.

But I know these meetings are vital for the business, to help draw together the company around goals, enhance relationships, and address problems and opportunities in a timely and systematic manner.

With local employees and contractors, we'll have some 12 people in the room for three hours tomorrow -- followed by a two hour sales meeting/review. I'm going to bare the business soul; sharing its actual financial data. We'll also define our mission statement, and priorities. I will introduce the employees to the Open Book Management concept, and (I hope) we will start the process of defining some Key Performance Indicators -- the key measures we need to observe/follow to ensure business success and viability.

A few years ago, I would have thought this type of meeting to be a waste of time and money; a corporate junket using cliches and 'standard practices" that employees attended as an expense account lark. No need to sell anything; no need to do any real work; just sitting around a room thinking we are something important!

I now realize that without an organized business model and regular meetings, we fail to capture the essence of the business and its potential for success. We need cohesion coupled with individuality; rational rules of process without excessive and stifling structure. And we need the employees to work together creatively and effectively.

Do you have these types of processes for your own business? You probably should, as soon as your company reaches the point where it has a few employees (right now, the company has six employees on the payroll, along with core relationships with three key independent contractors).

Am I an expert on setting and defining the Key Performance Indicators we need to follow? Not yet -- and I want to be careful in implementing these systems, because nothing is more frustrating and wasteful in my opinion than gathering reams of data to measure something that really cannot help our business.

Here are some resources I've found on the web relating to KPI:

Sales and Marketing -- KPI Library

Dashboard Zone -- Marketing KPIs, Sales KPIs