While some might argue that common sense was all that needed applying, this is exactly the asset that would have come with a good consultant for all too often what was common sense is clear in hindsight but, without the right consultant, not so clear in advance.
Like many small business owners, Reading baker Rachel Brown saw the potential in using Groupon to introduce her product to a larger market. It seemed a great way of attracting new customers to try her high quality cupcakes and by offering a 75% discount on a pack of 12 her assumption seemed reasonable. But, as so often asked on this blog, what of cause and effect? What requirements would servicing this offer place on her business? What impact might those requirements have?
Mrs Brown very quickly found out. 8500 new customers took her up on the offer and she ended up losing between £2.50 and £3.00 on each batch she sold and also had to pay a further £12,500 for extra staffing and to send the products out. In short, the incredible response to her Groupon offer might have introduced her cupcakes to a far wider audience but in doing so wiped out all of this year’s profits on her business.
Cause and effect? The simple version says offer the discount and more business will be generated. Indeed, it was but business is not the same thing as profitable business.
Real cause and effect would mean costing out the various scenarios and identifying the limits that should have been placed on the offer, for example first 200 only, possibly repeated monthly.
What would the likely fee have been for a strategy consultant to come into Mrs Brown’s business and plan a proper strategy out for attacking the opportunities Groupon presents to small businesses like hers? Possibly less than £1000, definitely far less than going it alone cost her.
There will be those who have laughed at Mrs Brown’s Groupon experience and those who shook their heads. But which of those doing the laughing and the head shaking have never made a mistake which, with hindsight, they realise should have been foreseen? Most, I will wager.
In the same way that Cowan Global are not a specialist cupcake maker and do not try to be, many small business owners should remember that they are not specialist strategists. They have their specialism as we have ours. But where our specialism varies from many others is that in utilising our skills in your business you will save yourself time and money – and not every strategy exercise is apparently as simple as the Need A Cake Bakery’s.
Please, don’t be the next Mrs Brown.
© Jim Cowan, Cowan Global Limited, November 2011