Dot com donuts: learning from past mistakes

In these times of economic woe, it's worth casting our minds back just ten years. The Spice Girls were slogging their unstoppable industry around an unsuspecting world, to the joy of soft drink and doll manufacturers everywhere. James Cameron's Titanic well and truly dodged the iceberg at the Academy Awards, sweeping up a staggering eleven Oscars. And in the business world, it seemed everyone was falling over each other for a piece of the 'dot com' pie.

The story was a simple one. The explosion of the Internet from the mid-1990's onwards heralded a new platform for business. Start-ups were straightforward; attract a nice sum of investor cash, buy your dot com domain, splash out on extravagant headquarters full of colourful iMacs and space age furniture, then launch yourself with a fanfare and lay the marketing on thick. 'Growth over profits' was the philosophy – revenue may trickle in slowly, but once the brand and customer base expanded, the money would come flooding in.

It seemed that anybody with a little entrepreneurial flair and a brilliant idea joined the race to take the web by storm. Obviously, hindsight is a wonderful thing, and today it is easy to understand why the bubble burst. By 2001, businesses were tumbling in a sea of anti-monopolisation lawsuits, lavish excess, dubious bookkeeping, unemployment and a more realistic re-assessment of the markets.

Even if business is tough in the current financial conditions, it's highly unlikely to get much worse than any of these web disasters...

Boo.com
This site is commonly touted as the biggest web flop of all time, collapsing after the failure of the dot com boom. Set up in 1998, the company was set up to sell branded fashion to the masses. The owners managed to get through £125 million in just six months, and the company continued to haemorrhage money until its inevitable liquidation in May 2000. Boo was an early warning sign for the pitfalls of web business.

Flooz.com
One thing's for certain, this idea had plenty of flawz. The website aimed to market a new, universal online currency that would take the hassle out of online transactions. It seemed like a good idea at the time, but the wheels quickly came off, leaving websites like PayPal to acknowledge its failings and create a more viable alternative.

Kibu.com
They say patience is a virtue, and how the makers of this particular website must now look at their lack of foresight in not keeping this community website for teenage girls going. Long before the days of Facebook, Bebo and MySpace was Kibu, but before it was ever given the opportunity to realise its potential, the owners got cold feet and pulled the plug after just two months. The biggest mistake since Gerald Ratner's infamous speech?

Kosmo.com
If something seems a little too good to be true, it probably is, and that was certainly the case with this snack home delivery service. You can't fault the ambition of this project – to deliver everything from food to videos to your door within one hour – but the scale of the plans just proved too arduous for this business, and after getting through £150 million with little market impact, the delivery vans slowed to a halt.

Furniture.com
The aim of online stores is to minimise fixed costs, so it's anyone's guess as to what went through the minds of the developers of this website. After spending £40 million on marketing, it seems clear someone forgot to 'do the maths' – as up to half of all revenue was spent on shipping costs. Flawed from the start, it's a great example of how not to go about online retail.

E-commerce has blossomed since the start of the decade, with the UK online retail market valued at £4.8bn by this July. Web-based small businesses starting out today benefit from the lessons of the dot com boom and bust. Investors demand strong, realistic business plans instead of just a good idea; whilst online marketing and commerce tools are more ubiquitous, cheaper and easier to use than ever in reaching out to potential customers, something we will cover in a future article...

Do you own a successful web-based business? How has the web helped you to attract custom from the local area and beyond? As ever, please get in touch with your stories and thoughts by using the comments function below, or e-mailing businessblog@friday-ad.co.uk.

Word of mouth - an oldie but a goodie

Last year, Marketing Week claimed that just 14% of regular (print, radio, television) advertising campaigns had any effect on consumers who are now too savvy to fall for the sales pitch. Whilst many household names have immersed themselves in high-profile web and mobile-based campaigns, it's no surprise that some have gone back to good old human verbal interaction.

Global brands such as Sony, Nestle and Volkswagen have all focussed on generating a buzz from the bottom up in recent years, sending samples of their latest products to 'agents', ordinary citizens who have signed up as guinea pigs through services such as BzzAgent. This particular matchmaking organisation is becoming an emerging force in modern day advertising, boasting just under 500,000 agents participating in 430 product programmes both here and in North America.

The theory behind BzzAgent is straightforward. Agents are randomly assigned samples to road test (usually theirs to keep) on the condition that they provide feedback to the manufacturer, and more importantly, discuss the product with friends, family, and anyone else who will listen. It's a fairly transparent form of marketing; agents are asked to make it clear that they are participating in a campaign, and no money changes hands. The aim is to put the fledging product into social circulation, and while the manufacturers anticipate glowing reports from their guinea pigs, agents are more than welcome to speak negatively if the product was less than impressive.

Cynics would say that standard human conversation is not the place for commercial gain, but a study amongst BzzAgent's users showed that 75% of people spoken to by an agent didn't mind the association with big business, as they trusted the agent's opinion. Theoretically, once the product has hit the stores, a buzz will have already spread among consumers, complimenting the simultaneous print/television/web-based campaigns.

Baffled small business owners around the Sussex region are probably wondering how any of this conglomerate talk applies to their modest marketing budgets. Admittedly, few local firms are likely to branch outside of their immediate environment and give away their precious stock all the time that maximising income is the main priority, and this is something that BzzAgent themselves recognise.

However, what the scheme does demonstrate to the small business world is the benefit of applying the growing word of mouth marketing (WOMM) movement to your firm, arming your existing and potential customers with something exciting to talk about.

At a time when our minds are a mush of slogans and jingles, interesting messages from reliable sources that rise above the average daily bombardment of rubbish do travel on a word of mouth level – and shaping those messages to contain all of your key information can be the difference between merely existing, and expanding your customer reach. Done correctly, WOMM offers small businesses a cheap, effective and generally more fun and fulfilling version of advertising.

So how does it work? Fortunately, WOMM has something of a guru in Andy Sernovitz, who has even written a book all about it. According to Sernovitz, successful WOMM boils down to a two-part philosophy: giving the people a reason to talk about you, and making that conversation easy to take place.

Are you remarkable?
'Giving the people a reason to talk about you' can be translated as 'showing customers why your business is a cut above the rest'. In today's world, people are conditioned to expect professional and efficient customer service, regardless of whether you are a national name or a local enterprise. As a result, it's natural for consumers to vocalise their frustrations when their experience wasn't so enjoyable, but the more positive dealings tend to be forgotten because they are simply expected. So the challenge for small business owners is to create a customer experience that moves from mere satisfaction to something remarkable, which ultimately stays in the brain and is worthy of being passed on to others.

Andy Sernovitz goes on to describe WOMM as "great customer service that earns customer respect… and fantastic products that get customers talking about you". I experienced WOMM first-hand a year or so back when a friend recommended Firebox to me. My friend was impressed with their distinctive product range of goofy toys and gadgets, how that range was presented on their web site, and the considerate nature of an e-mail exchange that she had with their customer service team. Her experiences with Firebox had placed them as the leader of their niche field in her mind, and in turn, she was inspired to pass on their name to me.

Firebox have made it easy for their customers (existing and new) to enjoy shopping with them by creating a memorable identity. They stand out because of the quirky tone used consistently on their web site and printed promotional material – a tone which is the perfect extension of their playful product range and personal touch in customer service. If people love the identity, they will spread the word – for free. Small businesses should look at how their services come across to prospective clients, and how putting some individuality in the sales pitch can get carried from one person to another.

Get the ball rolling
So with the identity in place, how do you generate the platform for discussion? The second part of Andy Sernovitz's philosophy involves making conversations easy to take place. The word 'making' can be read as 'forcing' or 'creating' – be aware that WOMM is potentially damaging if it doesn't appear to be organic, a key point made by Womma, the trade association for word of mouth marketers.

That man Andy provides a useful five-point plan for 'putting out the feelers' to let your message spread. It starts with identifying the people who are most likely to spread the word of your business, and providing your service was up to scratch, this is going to be your happy customers! These people then need something to talk about – simple messages that are quick and easy to transmit. It's more important that your area of business and location (physically or online) are spread – the best messages need impact.

Sernovitz also suggests that the best way to keep these conversations going is to take part in them yourself. It seems that everyone and their dog has a 'blog' these days, but they are still a useful tool for creating that identity I mentioned earlier. Blogs are time consuming and need constant care and attention, but they can be an excellent way of assessing both positive and negative customer feedback which shapes how you use word of mouth in the future, not to mention being a fun, individual place to demonstrate your latest products.

Whether you are ready to plunge into a world of web communication tools, or prefer to keep things offline, Andy Sernovitz's final point is to ensure that you always ask for referrals. Blogs allow your customers to leave comments at a click of a button, but in the offline world it's important to ask your customers for success stories along with their permission to share them.

If you have employees, they will play a vital role in building your company identity, receiving and acting on customer feedback, and ultimately distribute those messages. This article features some of the benefits of employee interaction, whilst this article suggests some incentives to promote genuine enthusiasm for WOMM amongst your staff. If you're interested in digging deeper into online networking tools, then this article is worth a read too.

The verdict
It's important to remember that word of mouth is not a wholesale alternative to traditional marketing techniques, especially for aspiring firms. However this piece on WOMM should hopefully highlight some of the advantages of having a strong, individual image that travels. Good resources worth looking at include the previously mentioned Womma, as well as the Society For Word Of Mouth.

As ever with our postings, we really want to hear from local business owners. Do you regularly attract new custom through word of mouth recommendations? How have you reacted to customer criticism? Have you used any online tools such as blogs, and if so, how successful have they been? If you'd like to get involved, please leave us a comment, or drop us an e-mail to businessblog@friday-ad.co.uk, and we will hopefully re-visit this topic later on.

Coping with the credit crunch

As if the prospect of being sucked into a black hole wasn't bad enough, it seems not a day goes by without talk of an impending recession and how it's affecting global banking, house prices, the price of fuel, turbulence in the airline industry; in fact, pretty much anything and everything in capitalist society… with the notable exceptions of football and the dead-animal-in-tank market.

Naturally, the doom and gloom reaches small business, with owners facing tough financial conditions in the battle to establish and expand their enterprises. Credit firm Experian released figures earlier this year showing that 4,798 businesses had folded in the first quarter of 2008 alone.

The 'domino effect' of the economic downturn has made borrowing a nervy process, with banks already toughening their overdraft facilities. In 2004, the average start-up business requested £82k in loans, but by last year this amount had leapt to a staggering £450k, with an 85% success rate for those borrowing through loans and mortgages. This increase reflects the pessimistic outlook for short-term revenue, as well as rising running costs ranging from fuel price hikes to higher interest repayment rates.

Traditionally, capital-hungry small businesses have borrowed with their property as security. However, falling house prices reduces the amount of net equity at the owners' disposal. A loan of £100k secured against a £300k house provides £200k of net equity, a cash buffer that smoothes many problems should a business not last the first six months. With some predicting house prices to fall as much as 25% over the next two years, significant amounts of property value are wiped off, leaving borrowers facing smaller or even negative equity. With a 48% rise in home repossessions in the last year, the pitfalls of borrowing more than you can repay have never been so blunt.

Still reading? We salute you for your strong stomach! While there's no doubt that small business owners are feeling the pinch, the fact is that they are not alone. Sure, businesses have been forced into longer working hours and overhead cutbacks, but aspiring owners should take comfort from the backlash emanating from certain rather more positive corners of the online business community.

Financial adviser Gill Millington describes the pitfalls facing small businesses today as a "vicious circle":

"What often happens when the economy takes a dip is you find you're trading well with business still coming through the door, but your customers start dragging their feet as they don't have the cash readily available to pay you.

And then suppliers need paying on time to keep your accounts with them running, so the knock-on effect begins to get uncomfortable for your own cash flow. It's a vicious circle that, if not dealt with, will drag you down."

It’s a harsh reality that businesses need to be more proactive and forward-thinking than ever before to reach to customers old and new, and to keep that precious cashflow moving along nicely. In other words, now is the time to look at how your services are marketed to maximise interest at a time when disposable income is at its tightest.

This article by Steve McKee for Business Week promotes a fairly conservative approach to marketing in the difficult economic climate, avoiding any adverse effects on your budget. McKee argues that there are some key rules to stay noticed and move away from the doom and gloom.

Firstly, in the immortal words of Corporal Jones, don't panic! Sure, some commentators have suggested that the credit crunch will be with us "for years to come", but the economic woe will eventually pass. Be thrifty and careful, you still have to get your marketing across – so don't sacrifice it simply to save costs. McKee states that your competitors may well be falling by the way side, providing you with an excellent opportunity to mop up their customers. This will require a promotional push but may just increase your market share in the long term.

Continuing the panicking theme, don't start targeting businesses you wouldn’t normally chase – it’s more than likely this will be a waste of time and resources. They didn't form a part of your business plan before, so why would they necessarily be interested in you now? It's sensible to focus on your existing customer base, encouraging loyalty and potentially attracting new custom through word of mouth recommendations. Similarly, now probably isn't the moment to divert your already-stretched marketing budget towards any radical business overhauls – save that full web site redesign for sunnier times.

Discounting is a murky area, and McKee discourages reckless price slashing that could also discredit your product in the long run. Price cuts look/sound great and might seal the deal with potential buyers, but how will your patrons feel about paying 'full' price again after you return to your original margins? A more effective idea would be to embrace the art of the special offer, taking principles from mass-market retail and applying them to your business. Offer deals for multiple product bundles, encourage a quick sale with a time-limited discount, or try and generate popularity around certain items to promote a mad rush at your checkout!

McKee's final golden rule is quite simple – apply some humility, positivity and the truth. You'd have to be living in a cave to avoid hearing economic news on a day-to-day basis. Yes, we are knee deep in a tough economic climate but this doesn't end the need for goods and services. People respond well to honesty (stating the obvious, we know) so keeping your customers well informed with how you intend the ride the storm should strengthen your relationship with them. Likewise, apply a good dose of transparency and a clear plan to any employees you might have on the books to banish any nerves amongst the workforce.

The economy may be struggling, but there is no reason for small businesses not to make the most of a bad situation. Hopefully our advice will spark some creative thinking on the way to surviving and even prospering in these awkward times.

We will be looking to post a follow-up piece later in the year, so we would really like to hear the experiences of small business owners affected by the credit crunch. How have you kept your existing customer base happy? If you have picked up more business, which particular tactics worked best? Please leave your comments or e-mail us at businessblog@friday-ad.co.uk – we need your input!