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Tag: Supplier Relationship Management

Antidotes to the Tyranny of Project Revenue Models

Antidotes to the Tyranny of Project Revenue Models

Running a business based on project revenue models can be a roller coaster ride. Money comes in only when a project lands, and business owners are sucked into high-risk projects that make it difficult to budget, plan, hold onto skills, stabilize suppliers, and scale. Every project feels like a game of roulette due to factors beyond your control, such as weather and the availability of resources.

To build an Asset of Value™ and escape the tyranny of project revenue models, some businesses have changed their approach. Let’s take a look at a few examples:

Construction Firm: This 2nd generation family construction business was hit hard by COVID-19 as big developments stalled. They responded by creating a designer-shack that was quick to erect, multi-functional, and aesthetically pleasing. It could be used for versatile spaces including a home gym, an office, a bar, a DIY workroom, garden shed or a kids’ playroom.

They found opportunities in multiple channels to market, such as website sales, retailers in hardware and building supplies, gym equipment distributors, realtors and estate agents, office furniture stores, architects, furniture stores selling bar-related furniture, liquor stores, and overseas markets for flat-pack, easy-to-erect versions of the product.

Software Developers: Two partners in a software development firm solved problems for big-brand corporate clients that the big-brand tech companies could not. They analysed all of their past projects and identified localsation trends, orienting their business around software solutions to manage complex SME value chains. .

Advertising Agency: Two partners in an advertising agency prided themselves on bespoke, thinking-outside-of-the-box solutions, but they struggled with a project-driven business model.
After positioning their service to zone in and focus on developing and producing brochures for vehicle manufacturers, their understanding as to how the brochures were used to promote, educate buyers and support the sales and marketing efforts of dealers allowed them to secure a consistent and reliable stream of projects. This flattened out their event based revenues into a steady stream of revenue, allowing them to hold onto talent, increase their return on marketing spend, build distinction and competence, and secure a capital buyout.

To get it right when changing your approach to building an Asset of Value™, you need to understand your purpose and intent, make a commitment to achieve that, create a path to exit, focus on a single goal, dedicate the first 90 minutes of every day and the last two hours of every Sunday to this goal. you may need to split responsibilities and fund one from the other, set milestones that shift time, attention, and resources, hire with the end in mind, and chase the transaction in the old business while building relationships in the new one.

Unfortunately, not every business gets it right. The construction firm sold two of their designer units and got sucked back into a new project, and nothing has changed. But for those who succeed, the rewards can be significant. The software firm has built a product that aligns with current trends and now generates approximately 85 million in annuity revenues across 350 clients. The advertising firm specialized in motor vehicle brochures and POS, created a repeatable, teachable process, built brand and reputation, and sold out in 2017 to a big agency for R23m.

In conclusion, by changing their approach and building an Asset of Value™, businesses can escape the tyranny of project revenue models.

However, it takes commitment, focus, and a willingness to take risks to make it happen.


Focusing on suppliers with an entrepreneurial mind-set pays dividends

Being entrepreneurial is a way of life. It’s not lived in moments and it’s not curated. It’s about being always ‘entrepreneurially-on’! Since a fact of life is that nothing remains as it is and change is always happening, being entrepreneurially-on allows you to be present in the change and find opportunity.
Customer Relationship Management (CRM) is a key business activity that occupies a large share of mind in any business. It leads to upselling, cross selling, inside selling and all the forward momentum that any business can hope for. Supplier Relationship Management (SRM), the yang of CRM’s ying, is seldom spoken about goes beyond quality and price. The supply-side of your business carries with it as much risk and reward as the demand-side and yet how much do we really know about our suppliers?

A case study

Pierre certainly is ‘entrepreneurially-on’. As a romantic and he loves his wife, his first love is concrete. On a trip to Paris, France a number of years ago he was photographing his wife with the Eiffel Tower in the background. Beyond the romantic sentiment of the occasion, through his camera lens, Pierre saw a shape that could innovate the retaining walls and structures for the mining, agricultural and materials handling sectors. His mind swirled with what this shape offered.
No sooner had he arrived home in South Africa, Pierre went on to develop a series of concrete retaining walls in the shape of the Eiffel Tower. Today his products stretch across all sectors and the industries within in them. From creating storage capabilities to erecting temporary material depot’s on construction sites, his products look over an abundant horizon of opportunity. With good margins offered by the uniqueness of his patented product, a solid understanding of his customer’s needs, Pierre has grown the business dramatically in the last few years. His order book continues to grow as does his cash in the bank!

A challenge or an opportunity?

A few years back, Gauteng experienced unprecedented rains. The highest rainfall in 14 years impacted many businesses. From a drop in productivity due to power outages, broken traffic lights and an inability to operate outdoors, the construction industry bore a major part of the economic drama. In particular, the materials suppliers to the construction industry forecasts dampened down in the wet weather. In a recent session with Pierre, I could sense that he was frustrated. Laying concrete structures such as materials handling cells, retaining walls, paving and the like is simply not possible in abundant rainfalls. The substrate upon which the concrete structures are laid keep on washing away. Orders were on hand and Pierre was on track to meet his first quarter forecast but sales where postponed for better weather.
To lift the cloud hanging over Pierre’s business meant that we had to look at an ‘entrepreneurially-on’ opportunity. Given the weather conditions that we had no control over, how could we turn this to our advantage? In addition, he had idle cash burning a hole in his pocket. I suggested we turn to SRM and see what was on offer.

Cement manufacturers in South Africa are large corporate businesses. Within these businesses, there are systems and procedures. With active shareholders always seeking returns, these businesses are governed by extensive revenue forecasts demanded by shareholders. Sure, one can blame an Act of God for non-achievement of a forecast but one cannot ever blame inaction and poor imagination. A deepening understanding of the challenges managers in these corporates faced the implications on production efficiencies, jobs, supplier contracts that they had in place and importantly their key-performance-indicators (KPI’s), lent a new insight on how to turn bad weather into sunshine for all.
KPI’s are made up of targets that govern performance in an organisation. Meeting them means you keep your job. Superseding them means a bonus and non-achievement of the KPI’s are frowned upon. In some cases it may mean the corporate manager losing his job! KPI’s are designed to keep any manager thinking about their performance day and night. As we unpacked our suppliers challenges further, we understood that further costs of storage were being incurred deepening the crisis on financial performance of these suppliers. Every occasion that we met with and spoke with the suppliers allowed us to develop a deeper understanding of their business processes and the individuals KPI’s. Our process of SRM was deepening.
Recently, a deal was struck with a supplier of cement. We ran our numbers. Confidence in our sales forecast, the most valuable negotiating aid in any supplier deal, allowed us to commit to big volumes for delivery in two batches. The prices agreed were unprecedented providing Pierre with a massive cost advantage that he had not enjoyed for years. The orders on hand would absorb close to 28% of the cement stockpile. The balance would be absorbed in the next 6 months. In addition, a long term supply agreement was negotiated with price increases based off the recently negotiated stockpile prices. The sun would certain shine on Pierre’s margins for a long while still.

How to apply it in your business:

Being ‘entrepreneurially-on’ and an invested understanding of suppliers through SRM placed Pierre in a position where he could secure a number of short and medium term benefits. These included:

• A smart place to invest spare cash – we learnt what drives our suppliers and through that, when and how the managers operating the supply relationship with us are performance managed. Through this we were able to have quality conversations on how we could help each other. In this instance, Pierre would invest his spare cash into stockpiling cement. His return was a splendid price point that yielded his business and invested cash a return way in excess of any other investment he could have made in the money-market, JSE or bonds. In return, the managers we worked with could move closer towards their targeted sales, reduce the pressure of costs by moving stockpiles from their warehouses and keep the production process going.

• Suppliers are people too and business is about people – even corporate suppliers. Whilst as an entrepreneur operating a business in a concentrated economy like SA where often we are abused by our large suppliers and large customers, there are people behind these functions and they have their fears and apprehensions about their responsibilities in their organisation too. Understanding these fears and apprehensions places you in a position where you can do deals like Pierre when the time is right.

• Think beyond your circumstances – SRM is a valuable tool to make sure that you buy right so that you can sell right. Whilst you may operate a business that sells to a local or regional market, large suppliers are often subject to global issues on a more profound level. Being aware the global issues impacting their business allows you the opportunity to interpret how you can help them whilst they help you.

• Turn combat into collaboration – bridging the formality of a supplier relationship with a corporate supplier means spending time to get to know the organisation, how it works, who impacts the life of your contact within the organisation and how you can make a difference to their performance in your own small way. Replacing the often combative relationship with suppliers which are price oriented into a collaborative relationship driven by understanding will pay dividends.

• Be ‘entrepreneurially-on’ – change is a given. It’s happening right now. Understanding how to capitalise on it and get the timing right is what entrepreneurship is about to a large degree. If you have idle assets in your business right now, think how to use it to secure a lasting advantage for your business.