Sustainable Business/Industry sector influences

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Each industry has its unique characteristics. This chapter will help you identify the critical success factors for your industry type. A better understanding of these influences will help you focus on what is most important to your success. Each section concludes with a summary and suggests some key performance indicators that will help you benchmark your performance and set improvement goals.

Industries covered in this chapter include, service, retail and manufacturing, tourism and specialist businesses.

Service businesses

Service businesses make up by far the largest category of businesses in New Zealand.

Here some are of the key success factors for service businesses.

Credibility and risk reduction are critical

If you plan a service business, you need to do as much as possible to build up your credibility and reduce the customer’s perceived risk in doing business with you. This means building your reputation as quickly as possible through sound work practices, always acting with integrity and exceeding the customer’s expectations.

Steps you can take to enhance your credibility include keeping a record or ‘brag file’ of all the work you have completed and collecting customer feedback to display in your promotional material and your website.

You can also offer a guarantee and try to ‘become the expert’ in your line of work. This is also why a good website can be important for your service business. You can feature samples of your work, customer feedback and projects completed.

Tangibility is critical

Unlike retail or manufacturing businesses, service businesses often have little tangible (touchable) evidence to show prospective customers until the job is done or the results are in.

They can’t come into your business and physically inspect one of your products as they can with a retailer.

Because tangibility is so important, it can be a mistake to choose cheap stationery and promotional material (including your website). Your brochure is the equivalent of customers handling a product in a shop, so make sure that all your promotional material is high quality and professionally designed so it builds confidence in your business.

People will judge you on it.

Outstanding service is critical

Word of mouth referrals can be critical to start-up service businesses, and these are likely to come as a result of excellent service. Focus on:

quality and reliability
delivering on time and within budget
keeping your promises
communicating well with customers.

Networking is critical

Combating isolation can be a challenge for start-up businesses, particularly those that start from a home office. Consider investing time in establishing effective business networks.

Join your industry or professional association
Locate and join local business networks (locate the nearest Economic Development Agency through www.edanz.org.nz for information)
Consider community organisations as well such as Rotary, Lions, and Zonta

In addition to helping you combat isolation, these organisations can also be a source of business contacts and allow you to build your business networks.

Connectivity can be critical

Because you are in a service business, customers or clients will expect you give good service.

This means being available to your customers as much as possible. Make sure that you have efficient communication lines.

Speak to your communications provider to ensure you have sufficient phone and fax lines and good internet connectivity
Ensure you can distance work efficiently if necessary (stay in touch with people via mobile phone or laptop)
Ensure customers can find information (such as in a FAQ section) on your website.

Time management is critical

All service business owners essentially sell their time, so the potential revenues of the business are theoretically limited by the chargeable number of hours each year. The way you manage your time is therefore critical because you need to maximise the number of hours you charge out.

The (realistic) number of chargeable hours in a year is a natural ceiling on the turnover of your business unless you can:

increase prices by adding more value to your services
employ others so you can leverage off their time
franchise your business concept when it is a proven success.

It clearly makes sense to get someone in, or at least subcontract some of the work (such as the bookkeeping) to specialists and give yourself more time to market your business properly and earn what you’re really worth.

Environmental indicators may include:

Transport fuel efficiency e.g. fleet, driver fuel efficiency, air miles/staff member
Office related energy use (e.g. kWh/m2).

Try to benchmark your performance against the industry average (your accountant or bank manager may be able to supply these) as well as against your previous performance. Set improvement targets for the next period (month or quarter).

Summary

A service business is built on customer satisfaction and your personality.
Guard your reputation carefully and support it through customer feedback and testimonials. Keep a brag book of accomplishments (on your website too).
Give high priority to establishing your credibility and reducing risk for your customer.

Key Performance Indicators

For each sector, sample indicators are provided. For more information on sustainability KPIs, see the Global Reporting Initiative (http://www.globalreporting.org)

Service business Key Performance Indicators (KPIs)

Consult your accountant or financial advisor about the key performance indicators (KPI s) you need to monitor in your service business, including key resource related performance indicators.

The following KPIs can be important:

chargeable hours (number of hours billed out each month)
monthly sales per employee (including yourself)
number of new customer contacts made each month
referral rate (how many new customers you gain through word of mouth referrals is an excellent measure of customer satisfaction)
conversion rate of enquiries into sales
gross profit percentage (helps you monitor your profit margins)
net profit percentage (helps you monitor office overheads (running costs).

Environmental indicators may include:

Transport fuel efficiency e.g. fleet, driver fuel efficiency, air miles/staff member
Office related energy use (e.g. kWh/m2).

Try to benchmark your performance against the industry average (your accountant or bank manager may be able to supply these) as well as against your previous performance.

Set improvement targets for the next period (month or quarter).

Retail businesses

Location is critical

For most retailers, location is the single most important factor, so it can be worth spending the extra money to be in a good location. Do your homework thoroughly.

Are you in a prime area for your particular target markets?
Is your business dependent on passing trade (such as a coffee shop) or can you exist as a destination business (a specialist business that people will travel to)?
How convenient is it for passing motorists to stop near your shop?

Check out the foot and vehicle traffic very carefully before you sign a lease for your premises.

Ask other retailers in the area as well as two or three estate agents the following types of questions:

Are you in an area with a growing population?
Is your part of town going ahead and becoming trendy, or is it becoming unfashionable?
What new roading or zoning proposals are there for the area?
How will these affect the area? (Have you spoken to the local council or regional authority about area plans?)

A lease can be critical

Be careful about committing yourself to a long-term lease before you fully understand the retail potential of your site. If you really can’t afford to be in a prime location (such as in a mall), then to attract people to your shop you’ll have to be a lot smarter in your marketing. Before you sign up for a location in a mall, speak to retailers to learn the pros and cons of mall trading.

Remember also to consult your lawyer and accountant before you sign any documents.

Street appeal is critical

Street appeal is important in attracting customers. People prefer to shop in modern, well-lit premises because they feel good in attractive surroundings. If necessary call in specialist shop designers to give your shop and signage the image you want to project.

What image do you want your store to portray? How do you plan to match your store image to your target markets?

For example, a bank should be quiet, solid and peaceful; a nightclub should be buzzing, loud and vibrant. The whole point of image and atmosphere is to create an environment for the shopper where they feel comfortable parting with their money.

Merchandising success factors

Merchandising is about attention to detail and making it easy and appealing for consumers to buy the goods you want to sell. Think what you expect to find or see when you walk into a particular type of store. What encourages you to buy? What discourages you from buying?

Locating your products

Every store has a physical layout that makes moving around in it either easy or hard. Work towards a layout that combines ease of shopping with maximum exposure to all product lines.

If you find certain products are slow movers, consider changing the way they are presented, or change the position in the shop. Group complementary products beside one another.

Staff training is critical

Your staff should:

wear name badges, dress professionally and be welcoming
be empowered to make decisions without having to consult you all the time
be trained to cross sell and upsell and be knowledgeable about your products.

Customer lifetime value is critical

Make sure staff understand customer lifetime value, which includes the referrals that customers can provide. Emphasise the importance of cultivating long-term relationships with customers to enhance lifetime value.

Service is critical

Service is one of the few areas where the small business can out-compete the larger business.

Advertise your shopper conveniences such as free delivery, gift wrapping, guarantees, etc. Make sure customers see and understand these benefits. Unless you’re a discounter, focus on the value you offer, not the price.

What can you do for your customers that larger retailers can’t be bothered to do? For example, deliver, install, train and fix what you sell.

Summary

For many retailers location is the single most important factor.

Do your homework thoroughly before choosing your location
Get outside help on revamping your external street appeal: does it pull people in?
Atmosphere, image and effective layout can greatly enhance your store appeal
Attention to detail and customer circulation are important
Make it as easy and pleasant as possible for the customer to do business with you
Compete against the bigger retailers on your own terms, not theirs. They do have weaknesses, particularly in the area of service
Make a list of all the things you can do better than large retailers and start implementing them.

Retail business Key Performance Indicators (KPIs)

Consult your accountant or financial advisor about the key performance indicators (KPI s) you need to monitor in your retail business remembering to include some key resource related performance indicators.

These KPIs can be important:

Customer visits (foot traffic in store)
Conversion rate of enquiries into sales
Average sale value per employee (sales skills and efficient cross selling or upselling can lift the average sale value)
Sales analysed by product lines
Gross profit percentage (helps you monitor your profit margins)
Net profit percentage (helps you monitor business running costs).

Environmental indicators may include:

Shop related energy use (kWh/m2)
Weight of waste disposed to landfill costs (weekly or monthly).

Try to benchmark your performance against the industry average (your accountant or bank manager may be able to supply these) as well as against your previous performance. Set improvement targets for the next period (month or quarter).

Manufacturing businesses

Distribution channels are critical

How will you get your products to market? Few manufacturers sell their products directly to the consumer. As a manufacturer, you usually have little contact with the final user—you are more likely to on-sell to a middle person who distributes or retails to the end user. So marketing your business is very different from normal retail operations.

This means you need to spend time developing and nurturing your distribution channels.

For example, will you distribute through:

agents or distributors
wholesalers
online sales on your website
your own factory shop
opening a branch office (perhaps overseas)?

Consider how much control each method will give you, and also how effective the distribution channel will be. For example, you usually have more control over the activities of an agent, and less over a distributor (who may also sell other products and prefer to focus on the higher margin products). Consult your business advisors about the best options for your business.

Transport and logistics are critical

It is also important to consider how you will get the products to these distribution channels and consider the timing and costs of this process. If you intend to export your product then read again Chapter 8 – Exporting

Production is critical

Efficient control of production is central to any manufacturing business. This includes your ability to negotiate well with suppliers of raw material and locate alternative or backup suppliers if necessary.

Quality control is critical

Quality and reliability establish your credibility and reduce risk in the eyes of customers. You may also need a quality certification to gain business. For example, some city councils or overseas businesses might insist on ISO 9000 (or similar) certification before they will buy from you.

Show customers that you have some quality control and efficiency systems in place. This means (at minimum) having documented systems in place that record quality processes and standards. An added spin-off for your business is that these systems make it easier and faster to train new staff and help ensure quality is sustained at high levels.

Personal selling ability is critical

Personal selling is vital in manufacturing businesses, or for anyone who does not deal with the final consumer. Most of your time will likely be spent in trying to find good distributors (both here and overseas) or effective retailers who will hold your product and on-sell it. These contacts can make or break your business, and it can take time to establish a good relationship.

Advertising is less important

Advertising plays only a small part in the marketing of most manufacturing businesses. This is because you might only have 10 customers who buy off you in bulk so there’s little point in advertising to mass media such as newspapers and radio, unless you have the funds to support a brand-building exercise—and that excludes most small manufacturers.

The only time you would consider mass media advertising is if you wanted to make the end user aware of your product—but that is really up to the distributor or retailer to do for you (that’s why you sell to them at trade prices!).

To find new distributors you might advertise in the specialised trade or industry magazines and journals, but many manufacturers will be able to hunt down and identify potential new distributors through other means that cost very little (such as Yellow™ book or online or internet searches). You can then direct mail these distributors or potential customers and then follow up the direct mailout with a phone call.

Strategic alliances are critical

All manufacturers can benefit from strategic alliances and joint ventures, for example:

With other manufacturers: allowing you to pool expensive resources and share development or R & D costs on new products.
With suppliers: to lock in your supply chain.
To build your credibility with customers (‘Our strategic partners include...’).
To allow you to pitch or tender for work you would be unlikely or less likely to secure on your own.

Being visible is critical

It’s important to make yourself visible to others, and also to know how to find other businesses you can sell to.

Can others find your website? Test how easily and quickly it can be found, and if the results are unsatisfactory, make improvements.
Ensure you’re in the business directories where other businesses go looking for supplies, for example, the Yellow Pages (printed and online), plus other business directories such as UBD or any industry-specific directories.
Get listed on regional and national business-to-business (B2B) databases and also international online B2B web search directories and databases (search Google to find them and also check the Resources section at the end of this book).
Search all these databases to locate businesses you can sell to.
Join the Manufacturers’ Association and/or your local Chamber of Commerce. These organisations often lead trade missions overseas, and also host overseas missions. Find out the latest calendar of events.
When you travel overseas, search local directories and try to visit Chambers of Commerce.

Summary

Developing and nurturing an effective distribution chain is critical to success
In marketing a manufacturing business, you rely on personal, relationship selling and sales promotions, so get some training if necessary
Advertising typically plays a relatively small part unless you sell direct to the public
Keep on identifying, developing and grooming your distribution chain
A good website is a great asset for a manufacturer. Make sure you can be found
Concentrate on developing effective sales promotions and incentives
All manufacturers can benefit from developing strategic alliances
Get as much free publicity as you can and develop positive PR with your customers
Quality control is an important part of establishing your credibility and reducing risk for the buyer.

Manufacturing business Key Performance Indicators (KPIs)

Consult your accountant or financial advisor about the key performance indicators (KPI s) you need to monitor in your manufacturing business, including some key resource related performance indicators.

These KPIs can be important:

Productivity levels (identify and remove productivity constraints)
Quality improvements (rework costs and reject or returns rate)
Cost of raw materials
Sales analysed by product lines
Sales activity though each distribution channel distributor, retailer, online, etc.)
Gross profit percentage (helps you monitor your profit margins)
Net profit percentage (helps you monitor office overheads (running costs).

Environmental Indicators may include:

Weight of waste disposed to landfill costs (weekly or monthly)
Weight of waste recycled

Try to benchmark your performance against the industry average (your accountant or bank manager may be able to supply these) as well as against your previous performance. Set improvement targets for the next period (month or quarter).

Tourism businesses

All types of tourism businesses need to understand the key drivers behind the tourism sector.

This means understanding both the domestic and inbound (international visitor) markets and monitoring the growth of each.

Understanding your target market is critical

Research how travellers arrive in your area.

Do they come in tour groups or as independent travellers? Are they mainly local or international travellers?
How long do they stay in your area and what do they choose to do?
Who sells them their tourism packages and what or when are their decision points?

The answers to these questions will help you design your products and services to meet customer expectations.

Understanding the distribution chain is critical

Make sure you understand how the industry works. Here’s an example of a typical tourism distribution chain:

So the sequence is:

The customer consults a retail travel agent about their holiday and gets a catalogue of products such as tours and accommodation packaged for travel agencies by an overseas tourism wholesaler.
The customer arrives in New Zealand to follow a local itinerary organised by a local inbound tour operator on behalf of the overseas wholesaler.
The inbound tour operator subcontracts buses, planes and trains to deliver the customer to you to experience the product you supply.

The internet is more direct

Compare this to the increasingly popular option of internet booking:

a better version of this image will be loaded March 2010

The internet model cuts out all the intermediary stages (and commissions), providing a compelling reason for you to consider an attractive website with good rankings and links from key portal sites so you can be found easily and conveniently.

Once you understand the distribution channels, you can start making some plans to get included in travel catalogues and local activity brochures. Do some market research to find out what reference guides tourists prefer who are looking for what you offer, for instance, New Zealand Bed & Breakfast Book, AA Guide book or other guides such as Jasons, Lonely Planet, Let’s Go or the Rough Guide series.

The influence of time is critical

It is important to identify and communicate regularly with the key travel wholesalers, inbound tour operators and travel agents who can influence tourists to buy your product. Aim to be featured in as many brochures, books or websites as possible, but bear in mind that few start-up tourism businesses can achieve this immediately.

Your new tourism businesses must build credibility and reduce risk in the eyes of the customer and also the other organisations in the distribution chain.

For example, if you’re starting an adventure tourism business such as kayaking, abseiling, or white water rafting, travel agents and other ‘connectors’ will be wary of recommending you to their customers until you’ve established a track record as a safe, experienced operator who offers value for money. This will not happen quickly!

A quality brochure is critical

A brochure can be the single most effective means of selling your business, so don’t skimp on the cost of developing a really effective brochure. Go to a tourist information centre and look at how the brochures are displayed.

How much of each brochure or flier can you see on the racks? If it’s only the top third then concentrate on this portion.
Would yours stand out? How can you make it stand out?

Summary

The key success factors in the tourism industry are to understand where your customers come from, what they want and how they find you (the distribution chain).

Be aware of commission structures when you set your prices and don’t undercut your distributors if tourists want to deal directly with you.
Regard other people and organisations in the distribution chain as your sales force and treat them well. Make it easy for them to deal with you.
Tourism is a networking industry: join your regional tourism organisation and develop relationships vigorously.
There are many opportunities for joint ventures and strategic alliances. Look for ways to share costs, develop convenient packages for tourists and work cooperatively with others.
Develop quality promotional material, including a website and feature feedback from satisfied customers.
Be an excellent host and ensure your staff also deliver an outstanding experience.
Look after all your markets: domestic as well as international. Look for innovative ways (such as attracting special interest groups) to combat seasonality.

Tourism business Key Performance Indicators (KPIs)

Consult your accountant or financial advisor about the key performance indicators (KPIs) you need to monitor in your tourism business, including some key resource related performance indicators.

These KPIs can be important:

Bed occupancy rate (for accommodation type businesses)
Enquiry and sales sources (internet, brochures, travel agents, etc.)
Conversion rate of enquiries into sales
Average sale value per employee (sales skills and efficient cross selling or upselling can lift the average sale value)
Sales analysed by product lines
Gross profit percentage (helps you monitor your profit margins)
Net profit percentage (helps you monitor office overheads (running costs).
Water use per customer (e.g. litres/bed-night etc)

Environmental Indicators may include:

Energy use per building area (kWh/m2)
Energy use per customer (e.g. kWh/bed-night)

Try to benchmark your performance against the industry average (your accountant or bank manager may be able to supply these) as well as against your previous performance. Set improvement targets for the next period (month or quarter).

Specialist industries

In addition to these businesses there are numerous other specialist industries. This chapter concludes with a brief look at some of the critical success factors that influence these industries.

If your particular industry is not amongst them, based on what you have read in this chapter,

identify and focus on the success factors for your business
list the key performance indicators (KPI s) for your particular business. Get help from your accountant or financial advisor if necessary

These steps apply to most businesses:

join relevant industry or professional associations
subscribe to magazines both printed and online
attend industry-related events and fairs to keep up to date and extend your networks
take advantage of any government or local cluster groups. Belonging to a cluster group can be a stimulating way to extend your business contacts and grow your business. Contact New Zealand Trade and Enterprise (www.nzte.govt.nz) or the nearest Economic Development Agency (www.edanz.org.nz) for details.

Critical factors for IT businesses

A real point of difference (competitive advantage)
Speed to market
Joining cluster groups or forming strategic alliances to gain resources, skills and promote rapid development
Intellectual property protection
Ability to scale up the product to larger markets
Awareness of competitive emerging technologies
Better access to markets, particularly overseas markets
Ability to attract investment capital and identify investors who have the right marketing expertise, connections and international networks (see Chapter 7)
Latest technology and keeping up to date with IT developments.

Critical factors for biotechnology businesses

Long and complex development process to market-ready (product can become obsolete through competing technology)
Investment capital for R & D productivity and funding years of development
High cash burn rates (can require up to four or five times more cash than other businesses)
Intellectual property protection
Overcoming approval processes and regulatory issues
Social issues (for example, acceptance of controversial research areas such as stem cell research)
Business acumen, not just scientific brilliance
Strong entrepreneurial environment
Ability to turn science into a commercial product
Alliances are critical, as are clear agreements on funding, resources and skills, IP ownership and expected outcomes
Location in/near cluster groups or close to leading research institutes or universities for access to ideas and cross-fertilisation.

Critical factors for nutraceutical businesses

All the factors above, plus:

Quality standards and scientific credibility
Clear and compelling benefit for the product
Unquestionable efficacy and safety
Awareness of health trends, concerns and issues (such as eating patterns)

Critical factors for agricultural or horticultural business

Sustainability of operation, including environmental impact.
Awareness of location, climate and soil (for example, ‘terroir’ for winemaking)
Crop or cultivar selection
Knowledge of markets and distribution channels
Export requirements and logistics: packaging, refrigeration, logistics, marketing
Benchmarking to industry KPIs, for example:

Dairy: kilograms of milk solids
Beef and sheep: number of stock units, pasture management

Critical factors for marine farms

Sustainability and environmental impact
Resource management consent
Location and climate (exposure to storms and high seas)
Nutrient quality and water temperatures
Knowledge of industry
Growth cycles
Biosecurity issues (contamination from sewer overflows, foreign invaders and marine biotoxins such as paralytic shellfish poisoning)

Critical factors for forestry businesses

Sustainability and environment impact
Factors affecting crop growth (rainfall, soil and climate)
Selection of tree species and planting stock
Growth rate and quality of timber
Accessibility to markets (truck and rail transport, distance to export harbour)
Awareness and practise of latest forest management skills
Financial projections over life of forest
Discounted cash flow analysis for investors (key financial factors include the cost of the management regime, the revenue generated and the length of time between when expenditures are made and when the revenues are generated).