Cash Caws And Wild Cats

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The author – Claudio Erba Degree in Marketing and company communication at Catholic University of the Sacred Heart in Milan (Texts about E-Learning and Open Source Business Models) and “Marketing Communication” certify by Internet Advertising Association (http://www.iaaglobal.org). Since 1994, he has supervised, in Italy and abroad (China, Germany, USA), web oriented projects by coordinating software development activities for companies and public bodies of big and very big dimensions. Until 2006 he was teacher of “CMS Systems” at the University of Florence (Master’s degree in Multimedia and Internet Engineering University of Florence/RAI), Co Owner and CEO of Docebo “The open source e-learning company”, a company developing E-Learning open source software for big companies, the Civil services and Ministry of Health. The Blog: http://claudioerba-eng.blogspot.com The company: http://www.docebo.com Dr. Claudio Erba is available for speech around the world in this topics:

 Strategic marketing and management in de-structured companies  Strategic marketing and management focused on teaching to Asian companies in how to compete in complex marketing environment

 Strategies and business model for Open Source software  E-Learning and E-Learning 2.0  The web 2.0 Marketing Contact: [email protected]

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PART 1 – BACKGROUND AND BASE THEORIES Introduction • Handbook aims, consultation tips • Improvisation, a damage to root out Background • Working background • Parallelism, “virtual district” • Parallelism, “gold rush and frying pans” • Opportunities to seize • Specialization Basic knowledge • Introduction • Maslow’s hierarchy of needs • Products life-cycle • Hyper Cycle graphic • Boston Consulting Group matrix PART 2 – MARKETING Marketing • Marketing definition • 4P theory Strategies: define, analyze and understand you own market • Customer typology • Competitors • Actions systematic manner Define your own products and marketing Mix • Products and services for IT professional • Buy, re-buy and fidelization

• • • • • • • • • •

Pricing and different type of fees Pricing, strategies and objectives Types of fees, work by the hour, project work, mixed work Calculation method suggestion Communication Soul searching Total communication Personal selling Advertising Public relation How to create a marketing plan Marketing plan Marketing plan prospect PART 3 – BUDGETING Budget, costs, proceeds, cash flow 3

• • • • •

Introduction Cash flow Other costs and financial planning Break even point Costs structure

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Handbook aims, consultation advice Objective 1. to provide the IT professional, who generally has a more technical than economical training, with information about strategic and operative marketing in order to facilitate customers acquisition. This little book does not pretend to illustrate marketing new trends (relation marketing, electronic marketing, permission marketing, lateral marketing, …), which often depend on still green fashionable intuitions; the author wants to illustrate, in a practical way, a simple system based on Professor Kotler 4P classical theory. See bibliography to deepen your knowledge about this topic. Objective 2. to provide IT professional with some basic concepts about economical theories that can be useful in order to understand better the environment, the figures and the organizations the professional has to deal with. Objective 3. to illustrate a working method to follow as regards activities with direct or indirect business aims in order to plan and realize effective marketing strategies. Objective 4. to provide a complete bibliography to study the illustrated theories in depth. Font used in the text: Italic bold: relevant in the context Italics: quotations or author’s consideration at the and of the chapter.

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Improvisation, a damage to root out An IT professional is not just a person who works in the computer world; anybody, who has something to do with PC, generally has an insane passion in the interaction human being-machine, in founding and solving problems they face while programming, realizing a 3D film clip, or building a web page. Computer scientists are lovers of electronic who build their own PC by choosing the components alone; they have a genetic predisposition and, strange fact, they are proud of that. In addition, entrance barriers are very law and anybody can turn IT professional or define as so and offer to the market with more or less refined techniques. There is a “Bad news” and a “Good news” to summarize this background. Bad news: computer market is full pf competitors, anybody can be a rival of us, also a talented 18-year-old boy. Good news: computer technicians are not prepared about marketing and communication themes; after reading this book you will have a competitive advantage compared to them. “A training in the field of marketing and economics will allow you to approach problems as a manager of yourself, you will be your company marketing responsible, you will be able to plan your activities and to dialogue with the top management of your customers-company, but most of all you will be able to communicate.”

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BACKGROUND Acting background Labour market structural changes have taken a direction that (unfortunately) can’t be question; the increased competition both at European and worldwide level offers to companies the excuse to manage in a different way human resources by outsourcing not only non-critical activities but also the main ones, those considered central for the future of the company. Economic situation has diminished alternation periods between positive and negative phases; companies have been forced to reduce or extend quickly their labour by dismissing when resources exceed and by flexible agreement when demand increases. One the most relevant result of massive unemployment is the progressive youth alienation. According to recent surveys, young people still want a job, despite the difficulties to obtain one; they still hope to make a satisfying career. In general terms, there is the danger that in the next decade society not only will be marked by an increasing division between “we” and “they” (that is, managers and labour), but also rifts among the most important groups will rise, because the young and people without a social protection will be in conflict with more protected and more experienced workers. OCSE general secretary (“Investing”, 1998, p. 15) In this kind of background the 20 years ago employee certainties (regular job, lump sum, a relatively early pension, …) are crumbling. In addition, the pension situation rests on young people shoulders, who have to cope with system structural uncertainties problems and they also have to pay for pensions of old people (often with high amount of perpetuity benefits). IT professional market is very dynamic, competitive and cruel; there is an excess supply and a worldwide competition, a difficulty in distinguishing a real professional from an improvised one (no register exists) and lots of few trained customers who pretend to fix rates and modus operandi. Such a situation is typical of this job. Lawyer, doctors, notaries and many other figures have a register, in addition, their activity is well defined thanks to different specializations: a doctor treats diseases, a lawyer (should) solve problems and a notary certifies notarial deeds. What does an IT professional do? Under this definition lies jobs as programmers c++, Java programmers, Web graphic designers, Linux systems analysts, Security Manager, Web accessibility consultants; the only thing they have in common is an uncertainty about their future. “If sellers know their products quality level and consumers do not, there are two possible consequences: there is no business or low quality products are sold. Akerloff “swindle market” model demonstrates that consumers are not able to distinguish high quality products from low quality ones, so they accept to pay an average price that satisfies only poor quality products makers. Despite these extremes, there is no doubt that an incomplete information leads to a market qualitative level reduction. Consumers are not able to recognize and evaluate products correctly, that’s why makers are not stimulated to realize high quality products. The solution for this situation is a peer information between parties.” Another element to consider is that nobody starts from nothing to realize a web project, a CMS, a CMR, … because lots of tools exist (open source and closed source) that shorten delivery time and increase margins.

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Parallelisms, “virtual district” The so called “district” is a typical instance of Italy, California and many Asian countries. How does a district start and why? To answer this question it is necessary to come back in the past when, during the post-war economic boom, engineering small concerns supplanted enormous companies. What was the Killer Application of this phenomenon? In that period a simple tool was found out that allowed to produce metal small parts at a lower price than using a tool called “numerical control lathe”. Anyone who was able to use a numerical control lathe, could become an entrepreneur. You just needed to have it or the money to buy one. (It is quite little and you can equip the workshop in a garage). With that tool you could compete with the biggest company and win, too. Everybody knows how the story ended: big engineering companies closed and many specialized industrial districts grew. What is the analogy between the lathe and an open source software? It is easy, anyone who could program a numerical control lathe, was a potential competitor of the big company; now, anyone who could program, can compete with very big software houses that produce half million dollars CMS or very expensive ecommerce systems. Engineering small concerns phenomenon is one of the most studied from the countries aiming to have a flexible “business system” that can cope with economical situation without too many big mistakes. The mentioned occurrence is that of “business district”; a “business district” is a great number of companies, placed in a specific geographic zone, producing similar products or services or accessorizes one to each other, that constitutes a group. It is important to explain how a district grows: an entrepreneur recruits some helpers (blue-collar workers, subordinates, or employee, as you prefer), chooses among them the more talented ones and provide them with knowledge. When these people think to be trained enough, they strike out on their own helped by their previous boss who uses them as third party. They both take advantage: the boss outsources part of the production by giving it to a reliable company and the neo-entrepreneur starts his activity with the help of his previous boss who assure the work. The virtual district has the same characteristics of a geographic district, despite the bare geographic connotation. A IT consultant needs helpers in a specific domain, he assumes or gives consultancies to another professional who: 1) gets the trust of the team leader 2) gains experience about a specific issue. At this point a vicious circle is created that, thanks to information circulation and mutual cooperation, creates an experts team specialized about a specific topic.

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Parallelisms, “gold rush and frying pans” “Gold rush” means any phenomenon with this characteristics: • News • Good profit perspectives or other advantages • Little knowledge of the actual background • Risk propensity from people who try to take this opportunity • High number of people who try to take these opportunities. At these conditions we can speak about “gold rush”, in computer science this phenomenon is known as “New Economy” and it has led to the outcomes everybody knows. In computer domain there are lots of little “gold rush”, IT professional can take advantage of these opportunities by turning into a “pans seller”. The fact is, when American settlers run in order to award the licence to extract gold, they should equip of course with a horse, a coach and a pan, too. In the end, only the pans sellers really gained a profit from the “gold rush”; they did not run the risk of not finding a gold deposit and of remaining with nothing. Why do people call “gold rush” the phenomenon simply known in other domain as “trend”? For two reasons:

• •

Computer science is an “increasing” phenomenon; it always grows as any new discovery leads to other discoveries with a greater speed compared to other fields. Computer science welcomes even more ill-informed converts ready to take rash decisions whenever they can take advantage of the opportunity.

[N.B. how do you think this kind of unreliable investments occur? Of course, sysadmin does not make this kind of choice able to make any IT professional’s flesh crawl and make their hair stand on end. Managers, who read about an innovative trendy solution on the first magazine they found, made this kind of choice. In this way gold rushes start…] Here is an example of gold rushes where you can go and sell pans; of course, some of these winning phenomenon will strengthen (e.g. e-learning, wifi) but others will go up in smoke: E-Learning Wifi Accessibility I-mode CRM Net Semilogy Mobile Learning Mobile Commerce Usability You can go on with the list and decide which gold rush take part in … as pans sellers, of course!!! Misinformation and consequent myths can also come from the IT professionals (in such a case, they are the cause of his trouble), this syndrome is known as “lover syndrome” : you hear, often from unqualified sources, about particularly fascinating issues able to arouse your curiosity and restrain your objectivity. In this case, an economical assumptions analysis (cost/profit) is useful in order to come back to reality.

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Opportunities to seize In the first pages of this handbook I underlined that independent consultants flexibility allows them to fit in changeable environments; this paragraph is going to underline only opportunities you can seize. For each fact you will be provided with the strategies to turn it into an advantage. Labour market reformation, flexibility, outsourcing: in few words, it means that companies recruit no more programmers or IT consultants, they do not necessary ask to foreign programmers, they generally outsource activities to professionals. You could be these professionals. Economical crises, budget reduction: budget reductions generally involve big companies, budget reducing does not mean “give up a project”, it means “do the same project at a lower price”. Independent programmer or a consortium has a cost structure that allow to be aggressive and to make lower estimates compared to a structured company. It is necessary to seize the opportunity, it is always useful to have big companies among your clients. Provisions, regulations: computer market too is subjected to even more detailed rules, a coming into effect law or standard forces a company to regularize its position. It is important to be attentive in order to know immediately next normative background; this knowledge will allow us to prepare a commercial and communication strategy…………………………………….. Open source software: many people look at open source software as a way to steal money, this tool is instead a way to reduce development times, to increase programmer’s margins and to diminish customer’s costs.

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Specialization In the high fragmented and confused computer market, where everybody do everything, a good strategy is that of specialization. It is a winning strategy as regards:

• • • • • • •

Work quality Interlocutors quality Work management Savings Communication strategy optimization Visibility Updating

Many IT professionals make the mistake of saying “I go it alone” just not to loose a order; there are system analysts who build web sites, graphic designers who manage Linux server in order to resell hosting, too. These choices effect is always a poor quality of part of the work made for the customer, this poor quality belittle the well done work, too. Let’s take for instance a web designer with XHTML and CSS competencies who wants to take a web hosting without any intermediary. ACME Ltd customer orders to this web designer the web site realization, the web designer suggests to the client also a hosting with a total order 10% overprice, ACME Ltd accepts. Here is what will happen: • The web site will be well done; • Linux server entails a system activity that a web designer is not able to do: o First consequence: the web designer will necessary acquire information about systemic activity; he consequently neglects his main activity; o Second consequence: the web designer will necessary monitor server software revisions and install them; • ACME Ltd. will often call in order to know how to depict e-mail: o Third consequence: the web designer will have to give technical support to his customer, neglecting his main activity; • ACME Ltd. will be dissatisfied of the whole service because of the down due to a non-professional worker; the customer will not consider two separated service but a unique one because of the web designer wrong strategy. In addition, specialization allows to optimize the communication strategy, let’s take for instance the comparison between:

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A PHP programmer who specialised in help desk software realization and personalization.

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A PHP programmer who realizes anything.

In communication terms, the “specialised” programmer has a easier work to do, target is well defined and communication effort will be focused on well defined aspects. On the other hand, the second programmer will search for different job opportunities; even if his target market will be broader (in this case, Market = anybody who needs a PHP programmer) and in a theoretical sense, he could gain more customers; practically, he has to face different types of problems like:

• • • •

Hard identification of the activity done; Difficulty to present a good case-history to future customers; Competition with improvised programmers; Too disorganized communication.

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The last topic of this paragraph regards how to protect themselves from excessive specialization. If a programmer invests all his knowledge and investments on a single activity, how will he be able to be modernized and to invest on new products before the existing ones will get old? Answers to this question comes in part from the common sense and in part from two theories explained in the following paragraphs (production cycle and Boston Consulting Group matrix). As regards common sense, a skilled programmer:

• •

Specializes on one or few activities but he does not isolate from the market, he should always be ready to seize new opportunities but he should mind crazy ideas, he should also be able to manage changes from a specialization to another. Widens his goods and services domain, he minds in particular domains similar to his own sector (for example, a system analyst who manage Linux server could think of a screening specific service about security on other companies server, or Linux training, …)

A skilled programmer should also create a network with other specialists. The objective is to work together and create working procedures, simplifying interactions and optimizing mutual advantages.

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BASIC THEORIES This paragraph explains some interesting theories to use as a base in order to understand what follows. This list is not complete but it just offers some hints for a possible close-examination, different philosophers and experts from different school of thought are quoted. Each theory can be applied to IT professional context and it can be used to explain some phenomenon. Maslow’s hierarchy of needs Maslow grouped human needs in a hierarchical scale, the more human beings meet their primary needs the more their needs change and they seek to satisfy higher needs. Needs do no concern a specific part of a human being but the whole individual; needs are common to the entire world but they can be satisfied in different ways according to the context and the culture.

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Basic physiological needs: fundamental needs such as feeding, sleeping, eating, they are the first to be satisfied in order to survive.

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Safety and security needs: belonging, stability, protection, dependence come directly after physiological needs.

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Love, belonging, social needs: if these needs are satisfied, they allow to be loved from the others, to create satisfying affective and love relationships.

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Self -esteem and status needs: they concern the need to be appreciated and esteemed by the others; other people perception can differ from reality: we could be over- or underestimate.

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Self-actualization and fulfilment needs: they concern every individual desire to became what they want to be.

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Porter’s product life cycle When the market sets a new product/service, it generally has well defined development dynamics and specified customers typologies for every phase. Demand point of view: Introduction: Development: Maturity: Decline:

reduced sales, restrained market penetration rate, buyers are known as “pioneers”. market penetration rate increases thanks to mass product. overstocked market, mostly substitution demand. demand dries up because the product is replaced by other products.

Supply point of view: Introduction: Development: Maturity: Decline:

not much known technology, makers poor experience. price drop, market fee increase. price competitions production capacity rationalization, market leaving by lots of people, reorganization.

Dynamics is explained in the graphic below:

The following table represents how some of the variables listed by Porter’s theory behaves ( only the most relevant for an IT professional are considered).

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Introduction - Tester - High profits

Development - Base widens - Accept everything

Maturità - Mass market - Glut in the market

- Sophisticated buyes

Product

- Low quality - Design Critical factor - product modification

- Product gets better

- Qulaity gets better - Standardization

- Little difference - Uneven quality

Competitors

- Few companies

- New entries - Many competitors - Merging

- Price competition - Selection - MKT exit

- Exits - Few competitors

Strategy

- MKT quota increase - important R&D

- Price change - Imagine change - Quality change

- No quota increase - MKTG fondament.

- Costs control

Margins

- High margins - Low profits - Flexible prices

- High profits - High prices (-) - Recession resist. - Acquisition

- Prices fall - Low prices - Low margins

- Prices fall

Risks

- High risks

- Cyclic nature

Marketing

- Adv./sells relation - Other MKTG costs

- Development covers risks - Invest. Advertising

Customer

- MKT fragmentation - Range widens - Reduction relation Pub/Sell

Decline

- Low relation Adv./Sell

According to the phase your products/services are in, you face one of these backgrounds. Following Porter’s theory help you to plan actions according to theory. It is important to differentiate services so that they are placed in different phases. In the decline phase, it is important trying to “re-launch” product by placing it in a different way (e.g. Diet Coke), so that you can re-create a new development phase with consequent benefits.

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Gartner Group and Hyper Cycle

“Sometimes even the Gartner group guesses right”. Here is Hyper Cycle graphic, a good representation of technological trends changes as regards visibility in different life-cycle phases (it would be interesting to superimpose this graphic on the product life-cycle graphic, but I am not sure it has any sense…). The graphic is very clear and it does not need many explanations, anyway a technology visibility is at highest level at the beginning, it is “trendy”; it follows a disillusion phase that leads to an enlightenment phase. If expectations were excessive, now “disillusionment” is too pessimistic. Slope of enlightenment leads to a more conscious growth and then to a relatively stable situation. Human brain and crowds work in such a way: great enthusiasm for a technology at the beginning, then scorn and consequent slope and market consolidation. New economy Boom/Sboom went that way like many stock exchange cycles about Hi-tech, biotechnologies, …

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Boston Consulting Group matrix BCG matrix is a representation of different business areas position, these areas are categorized following two criteria. The first criterion is “Market development race”, that is how the market will increase/is increasing from year to year; the second criterion is market share held by the considered company. According to the position filled in the matrix, the considered product/service will have the following characteristics: DOGS: market with low growth rate and low market quota. It indicates products and services to be abandoned because they do not cause any profit and do not have significant market quota. WILD CATS (or Question marks): market with high growth rate and low market quota. It indicates services with a low market quota, but you can find them in high growth rate markets: you need to work in order to turn them into STARS. STARS: market with high growth rate and high market quota. It represent the best position, do not stay calm! According to the product life-cycle theory, market will stop growing sooner or later. you need to prepare this product/service to become a CASH CAW. CASH COW: market with low growth rate and high market quota. It indicates products/services that, when mature, still produce profits, thanks to a high market quota. It is useful using these profits in order to launch new products you want to turn into STARS. In a medium/long term strategy, it is important to know what place your products occupy in order to choose which invest in as regard money, communication, research and development.

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Marketing definitions and slogans *

Marketing aim is to get selling needless (Drucker).

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Marketing is the science and art of acquiring, maintain and develop customers able to assure profits.

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Marketing is the technical function of choosing who sell to, what to sell and how to sell; it is also planning consequent actions and making profits through customers needs satisfaction (Corigliano).

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Marketing are the whole activities carried out by a company in order to turn its ability in producing ideas, goods and services according to potential and real customers needs and desires (Scott).

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Marketing is the analysis, planning, realization and carefully carried out programs control in order to promote voluntary exchange of values with markets you want to reach. That way, you fulfil company aims. Marketing implies supply definition as regards potential markets needs and desires, and effective systems use for pricing, communication and distribution in order to inform, motivate and serve markets (Kotler, Bloom).

All the definitions reported before aim to the realize a systematic company procedures in order to fulfil the central objective, that is profit. They all demythologize marketing imagine as “creativity” or “selling”; Kotler precisely says: *

Marketing has been vilified and misunderstood for long: according to many people, marketing exploits, it is expensive, interfering and not much professional. On the other hand, other people equate marketing with advertising and selling. These prejudices interfere with marketing diffusion beyond business world boundaries in a traditional sense. (Kotler, Bloom – Marketing for professional, UTET ).

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4P theory Marketing basic theory uses the 4P metaphor. This metaphor tries to identify what elements a professional have to work on in order to realize a complete marketing strategy. 4P mean: Product Price Place Publicity Let analyze each of these words: Product: it means the product/service the company sells; work on the product means: understand what products/services market needs and will need in the future, understand market needs (real and hidden needs) and satisfy them by realizing new products and services. The classical diatribe is about the opposition between research/development and marketing areas, both want to decide what to produce. Marketing should not think the “product”, it should underline future trends and report market feelings about product/service or area. Price: this element is very important for IT professionals, you often do not know what is the value of the product/service you sell because you do not know precisely what is your aim. Price defining strategies are very different. Here is the most important:

• • • • •

Cost based pricing: given a cost structure, you define profit % margins to obtain on hypothetical sales. (For example: this year you expect to have a €100.000 turnover and you want a 40% profit, given n. customers that will buy your product, the service price is 100.000/n.) Taken time pricing: this method is used by professionals who work in a close market or already have fixed rates according to register/associations etc… a working hour corresponds to a certain fee. Competition based pricing: for their fees or products, professionals make reference to prices applied from their rivals in order to define a pricing policy (sell at the same price, at a higher or lower price). Increasing market quota strategies pricing: professionals decide to give all their products/service a lower price compared to the real value in order to increase their market quota or to acquire certain customers. Customers selection strategies pricing: even it seems to be a paradox, professional can choose to increase prices in order to get rid of customers that, for the same spent time, yield less. So they decide to concentrate on more profitable clients.

Place: it regards sale channels though which you allocate your services; IT professional can’t sell their products in a supermarket! Let consider the following sale channel: • Internet • Software house • Consulting firms • Sellers/agents • Other channels (category association, other intermediates …) Publicity: it regards how to promote your products through a communication activity that use different channels. In particular, we can identify three types of communication: • Basic communication (you speak about you and you company); • Business communication (you promote your products); • Public relations (you relate to publics you consider interesting for your business).

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Strategy, define, analyze, and understand your own market Customers typology It is difficult to create customers cataloguing models, here is four different approaches: three of these are classical while the fourth is more complicated. Customers typology Inexperienced customer: this kind of customer knows little about the offered product/service and they need detailed explanations of what they are buying. They can easily be influenced from price and external factors (e.g. magazine articles …) Medium customers: this kind of customer is the most dangerous, they pretend to know technical problems and interfere in the solutions development and implementation procedure. It is necessary a procedural approach that impose some rules. Evolved customers: this kind of customer has already experimented similar services and solutions, these customers request an accurate approach and a great professionalism and quality in the supplied services. Interlocutors typology According to the position occupied by your interlocutor in the company that you hope becoming your client, it is important to use a suitable approach and understand the company operational manners. For example, purchase office will speak about budget to allocate, IT office about platforms and security, legal office about normative, etc… as a rule, during negotiation, you have mixed interlocutors. Reference company dimension According to the company dimension, there are different approaches, different time to take decision and different budget. You need to negotiate with interlocutors with power to decide, starting from lower levels would mean re-negotiate everything whenever the interlocutor gets a upper level. Market typology See “product life-cycle theory” for suitable strategies. Area Private area: based on efficiency dynamics, tendency to bad economies if the company is big. Public area: it pays great attention to laws and instructions from legislator and other institutions able to issue circulars.

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Competitors You often consider as your rivals only professionals or companies who sell products/services similar to what you sell, actually “danger” comes from areas or service that differ from what you sell, but they reveal similar…when you realize this fact, it is too late. Let see both scenery. Competitors selling similar products/services are people who can be added to your aim-clients. In IT world there are three kind of situation: • Independent consultants: they have two possible behaviour when facing the market: o I didn’t find a job, therefore I play the professional. o I have a very good training and I manage, by myself, to obtain more than working as subordinate in terms of perspectives and life quality. Consultant is a common figure in all companies and his rate is usually proportional to his training and fame (an IT professional lacks a bit of marketing training … and this book aims to supply this lack).

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Little companies or independent professionals associations: o these structures generally have cost covering problems because they don’t have a great amount of work but they have a staff structure with a well defined cost structure. Big companies are generally suspicious of little suppliers for two reason:  they don’t have a known brand  they don’t guarantee a sound company able to allow a lasting relationship.

Burgeoning little companies are an exception.

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Medium companies: o These companies have a well defined cost structure, they often do body rental activity or work in niche markets.

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Big companies: o These structures can allow a great branding and lobbying activity towards big players (both managing directors go golfing together), they are often chosen because they represent a guarantee in problems terms (an IT professional can say “the supplier is wrong, not me in choosing him”; he can’t say that if he had chosen an unknown company). They can guarantee a sound relationship.

Concerning competitors who don’t sell similar products, there are market analysis dynamics that allow to define and analyze products or services able to substitute yours, for example standard software custom development activity could be substituted by open source software personalization, server systems activity could be substituted by an installation and configuration service plus an efficient help desk ( e.g. Dell).

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Why you can’t predict your turnover (prelude to actions systematic theory) Market is influenced by an infinite numbers of variables, for example:

• • • •

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Cycling floats Legislative norms Competitors entrance/exit Technological development …

All these variables are independent from your management, despite their influence on your company turnover course. In new economy times, a lot of companies created business plan in order to predict future introits, actually you can’t predict future introits, in particular Start Up future introits. Concerning started activities, you can do previsions based of past turnover and started activities efficacy. This method is very poor, too. The only objectives you can be sure to pursue are those depending on your own actions, you can surely contact almost 20 possible clients a week, send a handout every three months, … It is not easy to be able to pursuit this aim.

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Action systematic manner It could be banal, but the central development factor in marketing is respect for the established rules. Here is a very simple example: Your next six-month period marketing strategy entails a market expansion as regards “computer security”; in order to approach new customers, you decided to sent an informative brochure to target companies IT responsible with a telephone follow up a week after sending. A previous test revealed that such an action regarding “companies offering accounts service”, leads to one meeting every twenty calls. In addition, previous experiences concerning similar areas revealed that generally one meeting in three give concrete form to a new contract. That means, three potential clients every 300 contacted prospects, you can contact 600 prospects by dividing them in 100 every month. As you can see, the acquisition of three new clients is not so difficult, you just have to sent 600 brochure and to make 600 calls. As 600 calls are not a very cheap way to acquire three clients, you need to understand why such intentions often remain intentions. The reason is simple: you don’t follow rules you established, that is you don’t make 600 calls. It could be trivial, but that’s so. Let make things more difficult, let imagine your market expansion strategy for next year entails:

• • •

Greater visibility of your web site Reinforcement of your imagine in two niche areas Contact personally 10% of those niche leader companies (by chance, 600!)

Strategy: Web site visibility is reached by six article publications speaking about you in three online specialized reviews. (12 handouts about 12 different initiatives) Reinforced imagine: it is reached by publishing two articles on the press in order to increase your file (6 handouts about 6 important initiatives) Sales promotion: direct action on 600 clients (see above). In order to pursuit your aims, you have to: 1) co-ordinate actions; 2) carry out all actions respecting the established times. Most of the failures in marketing actions are due to “suspension” of planned activities and enthusiasm loss coming from lack of results (as you can see, it is a vicious circle). You need a plan of action to realize a planning (see following chapters).

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Products and services offered from an IT professional In this paragraph you don’t find a list of what a professional can sell, you’ll find the strategy able to design “product” area of your marketing plan. IT products/services are correlated and consultancy is part of value-added services, as regards an IT professional, consultancy can be a main product or a service/product fulfilment. We can divide products and services offered from an IT professional in three categories:

• • • •

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Personalized solutions development activity: project software programming and development. Software selling activity: distribution of programs developed by professional or structure and sold as “package solutions” Systemic and assistance activity Training activity Consultancy, audit and help activity: these clients support activities add value, but they also concern web marketing activities, SEO, … TLC related activities: web hosting activities, sms service …

If you want to estimate the real value of a service, you have to understand what are the accessory services. These services have different aims:

• • • •

Competition differentiation Add of value to the product/service Customer fidelization Service quality increase

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Customer fidelization & Customer retention Sellers use to say that it’s easier holding a customer than acquiring a new one. In this context, fidelization policy are fundamental. In a very pragmatic way, customer acquisition policy define customer a person who buy again; it often occurs that the first buy aims to test the supplier, if the product/service has the expected characteristics, it would probably re-bought. In marketing terms, reference market composes of the following figures: Prospect: companies that can be part of target market you address to and potentially interested in IT professional product/service. Qualified prospect: customer that are interested in your product/service but haven’t bought, yet. Customer: customers who did at least a buy. Qualified customer: reliable and satisfied customers who did at least a re-buy. If accessory service entails a renewal policy, you can try to create an expectations model when your have company a great number of customers. You have to consider acquired customers exit rate, then you can predict financial incomes deriving from acquired customers. Previous paragraphs underline how important is creating renewable services from year to year in order to enhance at the very most acquired customers. You can pursuit this aim by:

• • •

Allowing customers to renew main services. Allowing customers to renew accessory services (training, maintenance, upgrade, …). Trying to guard similar companies (that is, you can sell the same product to other areas or you can extent the range of offered products exploiting direct contact you have created with your customers).

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Pricing, strategies and objectives “How can I quantify my professional services?” this is the second most asked question in IT professional addressed NG (the first question is “How can I get more customer?”). The question is not easy but let try to answer it by analyzing “price” influencing variables. Before doing that, it is important to clarify some points: 1) a price list does not exist, so you can refer to it; 2) market is very confused, it comprehends very keen boys, professionals, companies, … 3) the more you specialized, the more customer can’t compare prices. The following principles will help you to decide the price of your product/service. Profitability: if you sell a product to a certain price, multiply this price by the number of customers who buy it in a year and subtract costs, you have to obtain an acceptable profit. Competition: the price should allow you to compete with rivals who sell similar products and services. If one of this element is not present, you can’t face market. Price is fundamental in order to make profits and prove to be successful, price is also a way to introduce you to the client: price communicate!!! There are different price strategies according to your aims. Analyze them: Profits optimization strategy: in this case you sell your product to the most profitable price for your company. This strategy has two main advantages: - it makes your company solid and profitable from a financial point of view - it allows to make investments without getting into debts. Market quota acquisition strategy: in this case you decide to sell products/services at a lower price in comparison to your rivals. You aim to acquire more customers in less time. It is important to reach customers break even point in order to make profits even if you sell at a low price. Here is the advantages: - a great number of customers in a few time - competition defeat, unable to conform to your market policy. Elite market placing strategy: in this case you apply very high prices and you decide to offer your services only to reach structures. This strategy permits to be profitable with an efficient cost structure. Advantages are: - high margins - less customers, more little company structure, less costs.

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Types of rate, work by the hour, project work, mixed work It exists different types of price list you can apply to the customer, some of them are related to the product, others are related to the strategy you have chosen, others, unfortunately, are related to the customer (try to imagine a customer who goes on asking for not agreed alterations, in this case you are forced to apply a work by hour rate as “deterrent” for your enthusiast customer). Let’s analyze the four types of rate: List or “packet” rate: this tariff is suitable for products like hosting, sms or “pre-packed” products. In communication terms, a good idea is realizing a price list also for services that not provide for one (e.g. software product realization + assistance + training)… in this way, you communicate to your client clearly without making him doubt that you fix prices according to interlocutors. In a “packet approach”, usually, when quantity increase the unit price decreases. Work by hour rate: it exists activities where you can’t quantify before the time it takes you to carry them out. In this case, you decide to fix a hourly rate to be quantified at the end. In order to be clear, it is important to quantify in a realistic way time it takes you to accomplish an activity and possible advances. It is also important to bring client up to date in a systematic and punctual way about hours/days you have done and about the activity you have done in that period. Project rate: it is very difficult to quantify an activity before doing it, but the client appreciate this attitude a lot: in such a way he is certain about how much to invest in a project. Project working means analyzing deeply the activities so that you can quantify time and activities not included in the offer. Mixed rate: it often occurred that in list or project products/services new activities step in, these activities can’t be quantified before and are presented to client at the end (e.g. product personalization not agreed before), in the same way in hourly activities you can offer services with a pre-fixed price (e.g. software development and web hosting packet selling).

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Calculation method suggestion This paragraph analyzes different ways you can use to pricing your products/services, all these strategies are based on capital remuneration principle and on professional profit expectations. Let’s start from profit expectations, we are going to face two different sceneries: the first one regards a professional who sell “packet services”, the second one is about a professional who works using a “project” or “work by hour” approach. “Packet” approach Profit annual expectation: Taxes: Costs:

€ 20.000 € 11.500 € 15.000

If you sum these three cost element (costs are both fixed costs like renting, business consultant, etc… and costs directly related to your activity like hosting price, other consultants, etc…), you obtain an estimate of the turnover to reach in order to satisfy your expectation (€ 46.500). As second step you have to divide turnover into products/services you offer, for example: A Hotels management Web hosting service Training Assistance

€ 23.000 € 3.000 € 2.000 € 2.000

B House renting management Web hosting service Training Assistance

€ 12.000 € 1.500 € 1.000 € 1.000

In order to determine the value of your product/service, you have to understand how many products/services you will be able to sell, let’s suppose you’ ll sell 10 for service A and 8 for service B and that services are comprises in a unique price including software: Product A:

€ 30.000/10 = 3.000

Product B:

€ 15.500/8 = 1.940

Once you define pricing following this method, you can complicate calculation by considering two variable: Variable 1: you notice that your rivals sell product A to same price but they are much more expensive (€ 2.500) as regards product B. You can try to bring product A price down and increase a little price of product B, this way you increase product A sales without loosing product B sales … Variable 2: during the year you have sold more product A and product B sales are regular, now you can decrease product A price in order to acquire market quota, your profit expectations will be satisfied in any case. Maintain price stationary and make better profits These are standard principles you have to adapt to your reality, but it is important you have understood the meaning of profit expectations and costs structure. Project or work by hour approach By maintaining profit expectations and taxes stationary, you can decrease costs. People assume that a professional who just sells his time, has less costs. Annual profit expectations: Taxes: Costs:

€ 20.000 € 11.500 € 8.000 2

In order to determine your ideal daily cost, you have to consider how many days you can really give over productive activity. According to this schema, you have to consider the following elements: Days in a year: Saturdays and Sundays: Holidays and feast day: Sickness days: Not paid work (selling, relationships, …): Not paid work (training and auto-training):

365 105 30 10 60 20

Real workdays:

140

Calculation is ready done: 39.500/140 =€ 283 a day You can expect that some workdays (20%) could be missing and part of your work (20%) could be unpaid, so you have: Real workday: Unpaid days: Missing days:

140 28 28

Real workdays: 39.500/84 =

84 € 470 a day

Two things are to be specified: • days are approximate, calculate them according to your experience; • outsourcing risk is that you have not your own clients; therefore, after 60 workdays, you could be jobless because the supplier asks others for the same service. In this case 60 workdays could be considered a “good exit”.

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Soul searching Before thinking of a communication campaign or of what to communicate, it is important to make a “soul analysis” of your activity in order to create a communication campaign sound with your company identity. There are three simple questions you have to answer in no more than 20 words each.

• • •

Who I am (company)? What is my role? What are my purposes?

In marketing field, Peter Drucker extended this introspective analysis to other marketing elements and made a five question list that every company should try to answer:

• • • • •

What is your business? Who is your customer? What is important for the customer? What should be future characteristics of your business? What should be your business?

Once you answered these questions, it will be easier for you to identify what elements are better to communicate.

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Total communication This paragraph is based on professor Brioschi theory about total communication. Among the different elements he analyzed, let’s consider only the three ones related to marketing external communication: •

• •

Personal selling Advertising Public relation

For each of this method you are provided with a brief explanation and related help tools. Personal selling: it regards the activity of selling power, that is actions directed to create orders through direct or indirect meeting with the client. Selling power approach can be free (each seller behaves as he prefers) or leaded (seller follows guide lines common to all direct or indirect company sellers). The company can provide customers with the following tools: • Paper and multimedia documents • Demo areas of products or software solutions • Case history Advertising: it regards indirect and impersonal communication activity, it is directed to a wide public and it aims to inform interlocutors about the existence of your services, to convince them of your services good quality and to persuade them to buy your services. Communication can be direct (it produces immediate feedbacks) or indirect (effects come later). IT professionals useful advertising channels are: • Telephone Direct Marketing • Direct Mailing • Promotional newsletter • Banner Public relation: communication activity directed to create a relationship and support network without immediate effect on short term sales. Public relations activities are:

• • • • •

Handout Articles and interviews publications Meetings and workshops participation Forum and newsgroup participation Virtual community creation

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HOW TO CREATE A MARKETING PLAN Mini marketing plan Before defining a structured strategy to put later into practice, you need to do an exercise that will makes easier a detailed plan writing out. The exercise consists in a step by step reflection about some elements that constitute or influence the marketing policy you are going to embark on. We are going to consider the following elements: • Products and services offered by your rivals • Analysis of your price policy sustainability • Analysis of your own products/services and marketing mix definition • Definition of a plan of action. Let’s analyze single elements in detail: Products and services offered by your rivals: it consists in analyzing products offered by rivals, markets they turn to and prices they apply for their products/services. In the following example, it is also illustrated the case when a product is sold at different prices in different markets. Analysis of your price policy sustainability: by comparing markets and prices you apply/are going to apply, you manage, broadly, to define price policy sustainability and possible product differentiation techniques. Analysis of your own products/services and marketing mix definition: choice of the products you want to sell and communication strategy definition for each product/service. Definition of a plan of action: reflection you have done, tools you have analyzed, data you have taken, should be inserted in a plan of action that: • Will provide guidelines for future actions • Will let to manage a first testing phase • Will monitor actions constancy and will confront results obtained with efforts you have made. Operative plan is realized thanks to a working out activity, planning, data reporting and actions to do.

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Marketing plan prospect Step 1: Competitors analysis: through this plan, you create a map about your main rivals working method. To do: • Competitors identification • Market where they work identification o Supplied products/services identification o Price identification o Communication channels identification. Competitor Competitor 1

Market Market 1

Product Product 1

100

Price

Competitor 2

Market 2 Market 1

Product 2 Product 1

50 98

Communication Banner Direct Mailing Personal Selling Direct Mailing Web Community

Step 2: price policy sustainability analysis: once you have defined the working background and products you want to compete for, you can analyse what areas you are good at or not. Competitor Competitor 1

Market Market 1

Product Product 1

Price 100

Yr Price 99

Communication Banner Direct Mailing

Competitor 2

Market 2 Market 1

Product 2 Product 1

50 98

60 99

Personal Selling Direct Mailing Web Community

Step 3: marketing mix definition: you choose products you want to apply your price policy, including products you intend to introduce in the market. Product Product 1

Product 3

Market

Price

Market 1

98

Market 2

99

Market 2

120

Market 3

120

Communication Direct marketing Web Community Paper Adv Direct Marketing Web Community Paper Adv Direct mailing Web Community Direct mailing Web Community

Afterwards, you have to integrate product communication campaign with institutional communication (that is, directed to the company itself and not to the product). Institutional communication comprehends tools like: • Institutional website • Company leaflet • Offline presentation and seminars

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Step 4: Once you defined tools, markets and channels, you can plan a marketing campaign based on objectives you want to reach. If you choose step lasting a month, you’ll have a wide overlook and, at the same time, margins in order to counterbalance possible delays and actions shiftings. Product 1

Market 1

Month 1 Paper Adv

Market 2 Product 3 Institutional

Market 2 Market 3

Month 2 Direct Mktg Paper Adv

Month 3 Paper Adv Direct Mktg

Month 4 Direct Mktg Paper Adv

… …

Direct Mktg

…

Direct Mail Direct Mail Seminar

Seminar

Web community activity is ongoing, product leaflet are support tools as institutional leaflet are.

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…

…

BUDGET, COSTS, PROCEEDS, CASH FLOW Cash flow Even if the IT professional isn’t an economist or an accountant, he daily has to do with costs, proceeds and debit/credit cash flow. It is important to define operative rules in order to avoid surprises when you have to pay for taxes, VAT at the end of the month or when you have an investment to do. Cash flow analysis and monitoring is an important element both from a provisional and financial point of view. When you sign a contract or hand in your work, you may not receive an immediate payment (positive cash flow), generally recurrent costs produce an immediate expenditure (negative cash flow). This kind of costs monitoring and planning allows to control your liquid assets condition in the following months (liquidity = cash on hand). In the following example we are going to consider a professional who has graduated in computer science at the age of 25 and has been working for a year in a web agency compound of five people, he then has been working for two years in a consultancy multinational. Before striking out on his own, he has been working for a year as IT responsible in a “Food and Beverage” big company. This is the our professional financial situation for the next five months: COSTS Recurrent costs: Telephone costs Company car instalment Other costs (fuel, writing material, etc…)

€ 200 every two months € 350 every month € 100 every month

Non recurrent costs Housing sever annual renewal Project B travelling expenses

€ 1500 per annum € 450

Investments 1 new portable PC 4 books

€ 1500 € 120

External costs Customer A project graphic Customer B flash consultant

€ 600 € 800

PROCEEDS Project A deposit Project B deposit Project B balance Project A second instalment Project A balance

€ 1500 € 1500 € 1500 € 1500 € 1500

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At the beginning of January, the professional has liquid assets of € 2000. Let’s see how liquid assets situation will evolve in the next five months.

Jan

Feb

Mar

Apr

May

Type

Costs

Car instalment Server renewal Project A deposit Project B deposit B transfer costs Car instalment Phone costs Project A graphic Project A second instalment Car instalment New Laptop Books Car instalment Phone costs Project A flasher Project B balance Car instalment Project A balance

350 1500

Profits

1500 1500

Liquidity 2000 1650 150 1650 3150 2700 2350 2150 1550

1500

3050

450 350 200 600

350 1500 120 350 200 800 1500 350 2000

2700 1200 1080 730 530 -270 1230 880 2880 2880

In the example, our programmer, even if he has a positive situation (liquidity increase = € 880 in five months), had liquidity problems in April. The fact is due to an excess of investments, all concentrated in the previous month and not counterbalanced by takings. Liquidity management is very important in order to avoid the overdrawn bank account and deriving costs (interest payable).

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Other costs and financial planning In the previous schema, we analyzed PROG activity costs without including any remuneration or any fund for taxes you have to pay in the following financial year. The first element to consider is a PROG remuneration. Two system exist: the first consists in “mixing” your family personal current account; this system is muddling enough and it doesn’t give a clear picture of costs structure (What costs are to attribute to the family and what to the company?), it also can create wrong optimistic expectations when cash is positive. The only advantage deriving form this modus operandi is that you have to do with one current account by saving on management costs. The most coherent system consists in managing professional account separately form the private one with a salary at the end of every month. There are other two elements to consider: taxes you have to pay at the end of the year and allocation for the pension. Also in this case, a separated management of allocation is the best solution: long term investments for pension allocation and very short/short term investment for taxes allocation. These physical divisions on different current accounts can seem difficult, but they avoid using money apparently at your disposal actually not (taxes) or money you have to allocate for activities not related to IT professional job (pension fund allocation …). We can summarized what said, on monthly base, in the following schema: End of the month result - salary allocation - taxes allocation - pension allocation In order to define these three voices quotas, it is necessary to consider: - how much activity is profitable - how much you want to reinvest in the activity If activity is profitable, you can assign to you a greater salary; on the other hand, if you want to reinvest in technologies, communications etc … division calculation will be different. You can also apply a mixed policy consisting in salary attribution and profits distribution at the end of the year. It is useful to save an amount for taxes so that you don’t have the illusion to have at your disposal money that isn’t yours. Allocation calculation isn’t to do according to results you obtained at the end of the month (results can be distorted by cash flow); it is to do according to each invoice value. Percentage is defined by the professional according to activity cost structure. Example: if € 800 costs correspond to a € 1000 invoice, calculation for taxes to allocate is based on the margin (€ 1000 – 800 = 200). Percentage of taxes to allocate on € 200 could be , for example, 30%.

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The example is mere theory and difficult to estimate because activity costs are not simply due to a single performance, it is useful to estimate percentages according to the past and to previous month/year business volume. If the previous year, you invoice € 20.000 and costs (apart from salary that professional award to himself) were € 10.000, then profits are equal to € 10.000. If taxes paid on this € 10.000 were € 4.000, it means that the amount to allocate is 20% of given services total (rough calculation). To each invoice you detract 20% of the amount to allocate. This system is the same if customer pays part of the taxes through invoice; if you refer to amounts considered, you will have a different situation as regards numbers (e.g. 4.000 could become 1.000 because others 3.000 have been paid by customers) but the method is the same. Where do you allocate money for taxes? The suggestion is to allocate it in the same current account where you allocate money for pension; but investments are different: for taxes, you could keep them liquid or, if you have a considerable amount, you could invest them very short period shares (.e.g. three months state bonds). The last topic to treat regards how to allocate money in order to benefit from a pension in the future. Let’s start from the (very pessimistic) assumption that state won’t contribute nowise to your pension. Let’s consider three cases: • this fund management will be done from the professional himself • this fund management will be delegated to a pension fund • your register still entails a pension fund. In the first case, it is difficult to establish the amount to allocate, the fact is you don’t know how much this amount will revalue and what inflation rate will be in the period. You should also consider how to divide allocated money among different investments. You can also delegate these allocation management to a consultant. In second and third case, you don’t have to worry about how to invest allocated money because funds will do it for you, you just have to deposit the monthly amount that will return to you in a prearranged time. It is very important that you establish iron rules for each of these investments and that you absolutely respect them. These “duties” will give you the determination you need in order to reach objectives you have fixed.

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Break even point Break even point is a calculation method to determine production or profit level you have to obtain so that professional or company get positive proceeds margins; from another point of view, once you have determined cost structure, break even point allows to calculate the lowest profit you have to obtain in order to avoid financial losses. In this context you can create a second break even point, that is the lowest income a professional have to obtain in a year. This second method doesn’t exists, but anyway you can include “profits” in this calculation, since professional or company working environment is more simple than a multinational or a big production company. Before going on with theory, we must show two different types of costs, that is fixed costs and fluctuating costs. Fixed costs (FC) are the costs that a company always has to face, regardless quantity of products/services it offers. These costs concern the existence of the company itself; fixed costs are also different according to the company dimension (directly proportional to number of services offered), so you have incremental fixed costs according to services you offer. For example: web hosting company: 10 – 100 Websites 100 – 200 Websites 200 – 300 Websites

FC FC FC

100 Euro 200 Euro 300 Euro

Fixed costs we considered are related to technological infrastructure, staff, rent costs. Fluctuating costs (FLC) are the costs directly related to product/services you offer. For example, a web hosting starting up entails: Registration activity Billing account activity Web hosting reselling

5 Euro 3 Euro 23 Euro

If you sell a web hosting packet at 55 Euro and if your cost structure range is 10 – 100 web sites, here is your proceeds and your break even point: Host number 10 20 30 40 50 60 70 80 90 100

FC 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000

FLC 310 620 930 1240 1550 1860 2170 2480 2790 3100

FC+FLC 1310 1620 1930 2240 2550 2860 3170 3480 3790 4100

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Incomes 550 1100 1650 2200 2750 3300 3850 4400 4950 5500

Profits -760 -520 -280 -40 200 440 680 920 1160 1400

Break Even Point 6000 5500 5000

Incomes

4500 4000 3500

FC

3000

FLC

2500

FC+FLC

2000

Incomes

1500 1000 500 0 10

20

30

40

50

60

70

80

90

100

Host numbers As you can see from the table and the graphic, primary break even point is between 40 and 59; after this quantity your company starts to make profits. Second break even point depends on your profit expectation: if you want to make a annual profit of 1000 Euro, you have to sell from 80 to 90 Web Hosting.

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Costs structure If you consider an economical account standard balance, you can see what is a professional/company costs structure. The following example starts from an hypothetical income of 55.000 Euro and it removes gradually some hypothetical amounts that represent different types of costs. Production value (turnover) Production area (typical management) Production area (support management) Financial area Extraordinary profits/expenses

55.000 Euro 20.000 Euro 5.000 Euro -500 Euro 0 Euro

Profit before taxes Taxes Running profit/loss

29.500 Euro 8.850 Euro 20.650 Euro

Production value (turnover): it regards invoicing ( as regards a professional, it is the sum of invoices already collected). Production area (typical management): it regards costs directly connected with products/services you offer; for example: Other consultants, travelling expenses, accessory services, etc… Production area (support management): it regards costs not directly connected with the products/services you offer and not directly related with production activity (e.g. rent costs, sellers, secretary, …) Financial area: in this case, it is not relevant because the professional doesn’t get into debt; anyway, it regards interests and payable interest, received or given to banks. Extraordinary profits/expenses: they are expenditure or income not related to standard activity (e.g. selling of a building belonging to the company). Profit before taxes: it is the profit you consider in order to calculate taxes to pay (after having rectified costs you can’t completely deduct). Taxes: …anyone knows what taxes are!... Running profit/loss: what remains after paying taxes.

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Bibliography and suggested books: ● ● ● ●

Marketing Professional Services: Forward-Thinking Strategies for Boosting Your Business, Your Image, and Your Profits, T. Hayes, P. N. Bloom, P. Kotler. Prentice Hall. Marketing Management, Philip Kotler In Search of Stupidity: Over 20 Years of High-Tech Marketing Disasters The popcorn report: Faith Popcorn

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