Do Business Well

The best benefits are those that favorably affect either people’sfeelings or their pocketbooks. Entrepreneurs who can express the market impact of their business in those terms usually have an advantage. For example, I read a local newspaper article about two women who had started a highly successful mail-order business selling clothing for overweight children. The children were thrilled with the product because of the difficulties—and the humiliation—they encountered shopping for clothes at traditional retail outlets. As one of the women observed, “What we’re really selling is dignity for these children.”

And so this company was. Sure, their clothing was of high quality and they delivered in a timely way. But the real reason for their success was they made children feel better. That pleased both the children and their parents.

Ironically, even businesses seemingly geared toward providing bargains are as much or more geared toward making people feel good. Retail discounters increasingly play on the feelings of satisfaction that people get when they save money on purchases. Thus, Filene’s Basement stores use carrying bags that say in huge letters, “I JUST GOT A BARGAIN!”

In today’s fast-paced environment, one of the critical benefits has come to be convenience. Products and services that save people time are often able to charge premium prices. We’ve seen the emergence of restaurant-delivery, home-cleaning, and party-planning services, not to mention the availability of just about anything through mail order, including stationery products, fresh flowers, and custom clothing.

Another way to view the idea of benefits—and to explain them in your business plan—is through the notion of adding value. What are you doing to the product or service you are selling that the customer couldn’t easily do and that the customer values? Restaurants that offer delivery services are adding value by saving customers the time and energy associated with going out and picking up their take-out orders. One of the reasons that the concept of interactive television is so exciting to so many people during the mid-1990s is that it similarly offers some important values not available through existing businesses—either video rental stores or traditional cable television. By instantly calling up the movies of their choice on television, consumers could avoid trips to the video stores. Equally important, they could avoid the disappointment and frustration of discovering, after arriving at the video store, that the movie they wanted was unavailable.

Adding value has become important for every business, no matter how seemingly mundane its product or service. Indeed, it can be argued that the more mundane the product or service you are trying to sell, the more essential it is to figure out ways to add value. Thus, a small rock quarry in California has succeeded by continually finding ways to add value. It sorts the highest-quality crushed stone for customers. It is open for pickup of materials 24 hours a day—and fills the orders so the trucks are on their way in ten minutes. It responds immediately to customer problems and complaints. It also charges 5% to 10% more for its product than competitors do.

For business products, there’s no better benefit to the customer than making or saving money. One of the reasons fax machines have become so popular is they became cost-effective. Once their cost was in the range of $500 to $1,000 or so, businesses could send many kinds of written communications faster than was possible using overnight delivery services, which cost from $10 to $20 each. People quickly calculated that they could pay for the fax machines after as little as 50 messages (allowing for the cost of the telephone calls, which for a typical long-distance fax message of two to four pages might be $1 to $3 each).

For a business that sent 20 messages monthly, the fax machine could pay for itself in less than three months. Thus, the machine could be portrayed as having a payback period for businesses of just under three months, and even less time by the mid-1990s. Similarly, if a $10,000 computer system enables you to do without a $20,000 per year employee, it pays for itself in six months. The sooner a client can pay for your service, the better—ideally within a year or else within two years.

The payback period approach can be applied to services as well. An interior designer specializing in working with businesses can offer these benefits:

• Space. Business designers can save their corporate clients 10% to 15% in space requirements through efficient design. Suppose, for instance, that an office building rents 10,000 square feet to a corporation at $35 a square foot. That 10,000 square feet costs $350,000. A 10% savings comes to $35,000.

If the designer charges a fee of $25,000, based on $2.50 a square foot, the payback period is in the neighborhood of eight to nine months.

• Productivity. If employees produce more because of improved lighting, furnishings, and decorations, the benefits canbe calculated in dollars and cents. If productivity is assumed to increase by 5%, then take 5% of labor costs as the user benefit. Five percent of a $1-million payroll comes to $50,000 of labor savings, or $50,000 in productivity. If the design fee is $25,000, the payback period in this case is six months.

• Savings on equipment and furnishings If a designer can obtain such items at lower prices than the competition because of his or her connections, then those savings can be quantified. The savings may equal or surpass the design fee.

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