The PT Challenge

Bose’s approach to research is unreasonable, and it is not the right solution for every company. But many companies look to control costs and find ways to reduce budget expenditures. Common sense says that you need to watch your expenses, and companies like Bose do just that, but not in the important areas.

It makes sense to control your spending in every area that cannot produce a return on your investment, and it is up to you to understand your company’s expense structure well enough to know what will and will not produce a positive ROI. Will that fancy new office façade or super-luxury private jet bring in more, higher-paying clients? It may not. Will those high-end hotels padding the travel budget improve profits? What about your ego-building television campaign?

Think of it this way: there are three types of expenses in every company. First, there are those that are neither essential nor productive, such as nonperforming television advertising; these should be cut completely. Second, there are those that do not produce a return but that are essential to the company’s survival, such as rent and health insurance for employees. These are clearly costs that need to be managed, and reduced, wherever possible. Last, there are those expenses that are actually investments. In other words, they produce a positive return over time—every dollar spent can be related to more than a dollar of  revenue.

This is where the leverage in your business is—put one unit in, get more than one unit out. Marketing, sales, R&D, and less common areas like systemization and staff development all have the potential to produce enormous positive returns. This should be obvious to anybody who has looked at the numbers and the results, but it typically is not.

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To the untrained ear, or any ear abused by decades of loud music, most brands of audio speakers sound similar. But not Bose. Founded by Amar G. Bose, an MIT professor of electrical engineering, to create a speaker that sounded “natural,” the company pioneered research in psychoacoustics (the study of how humans perceive sound), and its speakers were so distinct that Bose salespeople were able to sell their speaker systems door to door demonstrating their rich sound. Bose consistently ranks as the most trusted brand among top technology companies, and in 2006 it ranked second only to Sony in what marketers call “repurchase intent.”

How does Bose do it? It’s simple—the company spends a lot of money making its products great. While most companies apportion a limited percentage of revenues to research and development, Bose invests 100 percent of the company’s profits in developing new products. Bose invested tens of million of dollars over 19 years in developing its headset technology. Now those headsets are a major part of the business; you see them on the heads of well-heeled flyers every time you step on an airplane. Bose speakers are also found in many high-end automobiles. Speaking of the company’s legendary research budget, President Bob Maresca says, “We are not in it strictly to make money.” But, of course, all that investment generates a lot of cash indeed. Bose sales have risen more than 38 percent in the last year alone, and it controls 20 percent of the home audio market.

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What’s worse is that word can spread to your competitors, making them feel as if they have to lower their own prices. Suddenly, you’re in a price war, which will drop your profit margin even lower. Before you use price cutting as a sales tactic with people who are hesitating over money, try some other approach to close the deal. Here are four such approaches:

1. Make trade-offs. When prospects say, “I can’t pay what you’re asking,” you say, “What part of my offer would you like me to remove so that we can drop the price?” In other words, you’ll take less money, but the value you’re giving will be commensurately less.
2. Stretch payment periods. Sometimes prospects think that your price is fair but still can’t afford it. If so, ask for half your money up front and half on the back end. Or if you feel strongly enough about your product, get the entire amount on the back end. Or, arrange lease payments that your prospects make for 24 months. Be creative.
3. Offer extras. Rather than lowering your price, throw in extras, such as free installation, an extended warranty, tickets to a workshop, or a printed manual. Ideally, the items you offer should cost you next to nothing, but they should have a high perceived value to your prospects.

4. Make the beginning free. Offer your prospects free initial periods of service if they sign long-term deals.

Here’s an example of this last tactic. A software company client of mine had a customer who bought its big-ticket software, but who balked at paying the extra 18 percent the company wanted for an ongoing software maintenance agreement. Doesn’t sound like a big problem, right? Wrong.

In the software business, a customer without a maintenance contract is likely to turn mean. Why? Since the customer knows it’ll cost him every time he picks up the phone for technical support, he tries to wing it when he has a question or a problem. The result? The customer doesn’t know how to use the product, doesn’t get the right level of service, and doesn’t get as much productivity out of the product as he had hoped. Even though it’s his fault for skimping, he’ll point the finger at you and bad-mouthyour company. never lowered its publicized yearly fee, the customer got the break, and the company wasn’t seen as a price cutter. The company benefited in other ways, too: the agreement locked up the customer for longer than the usual time period and gave the company opportunities to sell the customer additional products and services. Do the unreasonable: don’t cut your prices. Figure out ways of keeping them high while giving customers excellent value.

As you can see, unreasonable pricing tactics can easily double your gross margin, and in many cases add a lot more than that. The next group of tactics revolves around how you make investment and budgeting decisions.

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The first unreasonable tactic has to do with pricing. Cutting price is one of the oldest, most often used, most reasonable sales strategies in the book. It seems like plain old common sense. After all, everyone does it, but that doesn’t mean that you should. When you cut your prices, you may make the sale, but your profits will sink like a rock in water. Winning dollars becomes worse than losing them. Take a look.

Suppose your product costs you $70 to manufacture, and you sell it for $100. For each sale, you earn $30, a profit margin of 30 percent. Now a tough customer walks in. He tells you that he was on the Internet and saw an overseas company that sells a product similar to yours for cheap. He haggles. He whines. You decide that a reduced price beats no sale, so you take $20 off and offer to sell the product for $80. Now, $80 might still seem like a good payday, until you do the math. The 20 bucks you lopped off didn’t come from your costs (after all, you paid your jobbers full price for their materials and services). The 20 evaporated dollars came out of your gross profits, which pay for your time and everything else that your company provides.

You’ve just made your time and your company less valuable. Instead of earning a profit of 30 percent, you’ve reduced it to 13 percent. Your 20 percent price reduction has cost you 67 percent of your profits. You now earn less than one-half of what you were earning previously. Do you want to run a business where you make only one-half of what you should be making?

You might argue that $13 beats $0 hands down. But price reductions tend to have a downward spiral effect on a business. The lower price often becomes the new price, and stays low. In our example, that $100 product you just sold is, sorry to say, now an $80 product. Why? Other customers will find out about your price concession and demand the same for themselves.

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While a list of core business strategies is going to be limited, a similar list of business tactics is literally endless. Tactics are the specific maneuvers or procedures you will employ to actually accomplish something. For instance, your strategy may be to employ broadcast media and reach a broad, hard-to-identify audience; the specific tactic might be late-night direct-response television infomercials. This chapter is not going to be an encyclopedia of business tactics. Far from it. Instead of a catalog that would span several library shelves, this chapter contains a handful of unreasonable tactics that are meant to illustrate approaches that violate the norms most of us embrace. These tactics may fit your business and be immediately useful, or they may not. In either case, they are intended to give you a jumping-off point to energize your unreasonable thinking.

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PO provocations are not presupposed to be right or wrong; they simply exist, and they generate movement from which you can go forward toward new ideas. The PO formalism helps people avoid judging either the provocation or the responses; this lack of judgment—quite unreasonable for a group of people of any size—is well known to enhance the creative process. This method is so effective that during a recent workshop Dr. de Bono held at a steel factory in South Africa, 20 people generated 21,000 new ideas in an afternoon. PO provocations themselves are always unreasonable—breaking with the past, breaking with the norms— because they are always ideas that have never been tried, and perhaps have never even been heard of, like “cars have square wheels” or “robots raising children.”

The purpose of this book is not to tell you how to think; that would be creating yet more rules to follow, which, of course, you’d eventually have to break. Instead, see these ideas as opportunities to think differently. Try them on, starting anywhere you like; each one will take you someplace different. Apply the rules for breaking rules, or PO-tential thinking. Maybe you need to break the compromises you’ve previously accepted, or perhaps you should take a look at other industries. Sometimes the lever you need to create a breakthrough idea is simply to take Friday off, get out of the office, and give your brain trust a call. It helps to let go of your prejudices. Unreasonable ideas are just a flight of fancy away.

Now that you’ve chosen an unreasonable strategy and opened up a new approach to thinking about your business, it’s time to select the tactics that will help you reach your goals. These will not be marketing tactics or sales tactics, but unreasonable tactics. At least, some opening ones.

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“PO!” says Edward de Bono.

PO?

Yes, PO, a word that de Bono says stands somewhere between yes and no but that has a meaning quite distinct from both. It’s a word designed to generate movement, while suspending judgment about the value of that movement. PO stands for provocative operation, and de Bono suggests that many thorny problems can be solved by “destabilizing the mind,” shaking it loose from its preconceptions, and driving it outside the rut of timeworn patterns. It’s like annealing metal. Steel crystals form a lattice that, although stable, is not very strong. Heating it to a high enough temperature destabilizes the crystals’ arrangement, causing them to re-form into another pattern that is much stronger.

PO destabilizes the crystal lattice of your mind, yielding possibly stronger ideas. How does it work? De Bono offers this example: there aren’t enough licensed taxi drivers in the City of London. Instead of advancing a particular solution that is most likely based on previous conceptions, you advance a provocation, something that is designed not to offer a solution but to make people think about things differently from the way they have previously thought about them.

PO is used to begin a sentence, such as, “PO, the taxi driver does not know his way around.” This does not imply that you support such an idea, just that the idea exists. Now people start to think. “Well, what if taxi drivers didn’t know their way around? Then what? Well, then these cabs wouldn’t be much good, except . . . except that they could be used only by residents, because residents can tell the driver the way to go. They could have a question mark on top of them. They could be cheaper. They could be used as “training cabs,” where the drivers learn and get paid at the same time. Also, because they could be used only by residents, it would relieve the competition from tourists for cabs. All of these ideas flow from the PO provocation, and they actually start to make sense, crystallizing into a potentially powerful solution.

Or take this example. PO, planes land upside down. Stemming from this provocation is the idea of the negative lift that would come from having upside-down wings. From this idea comes the idea of adding negative lift to planes by using small upsidedown wings. In an emergency, pilots need some extra lift very quickly, which is quite hard to engineer. By adding upside-down winglets to a plane, there would always be a bit of negative lift, which could be immediately canceled (by rotating the wings or using ailerons), giving pilots a ready source of much-needed positive lift.

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LifeWings, whose CEO Steve Harden was a U.S. Navy Top Gun instructor, teaches something called Crew Resource Management to surgical teams in hospitals. This unique method of structuring communication and systemizing procedures makes it much harder to make mistakes and ends up eliminating what the medical community terms “wrong surgeries.” The sales process for persuading hospitals to use this wonderful tool is what is called a complex sale, which means that many people are involved in making the purchase decision, and the process can take a long time. Harden observed that unless the hospital’s CEO or chief medical officer was involved, the likelihood of closing the sale was slim to none. But although the CEO or CMO was the ultimate decision maker, he or she usually was not part of the sales process itself. MDs are traditionally shielded from salespeople, preferring to be buffered by mediators like vice presidents, CFOs, and risk managers. Harden changed the rules of the game by taking a cue from the software industry’s playbook, an industry that shares the problems LifeWings faced concerning access to decision makers. In fact, the typical scenario is almost identical, but in the software industry, they’d already figured out a solution. Simply, gently, but strongly tell your prospect: no access to the CEO, no sales presentation. This way, if the prospect thinks your solution is a good one, she has to grant you access. Talk about unreasonable! Imagine telling the prospect that you’re unwilling to speak with her further unless she sets up a meeting.

“Be reasonable,” they say. “We can’t have that meeting. Dr. X simply won’t fit it into his schedule.” The norm is that doctors are able to stand apart, and all reasonable people respect that. Yet that’s exactly what LifeWings didn’t do. Instead, it took a stand and pressed the point. You can do this when your product is better than what the other guys have. “If you want our solution,” Harden told prospects, “you have to set up the meeting. That’s the only way we’re going to be able to help you get what you want.” The great news for everyone—the hospital, the patients, and LifeWings—was that it worked. Sales cycle time is down and sales are way up.

Seek ideas from other industries when the reasonable approaches in your industry aren’t working as well as you’d like. How do you figure out what to do? Look for businesses that are structured similarly to yours in some way and that have problems similar to yours. Read their trade publications and newsletters, attend their conferences, even hire their consultants. Find out how they solve those problems. Are those processes adaptable to your situation? If so, try them on and make them fit.

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Each industry has its own biases and methods of doing business. What is commonplace in one industry may seem radical in another. A great method of stepping outside of the constrictions of your business and generating breakthroughs is to examine industries unrelated to yours and find ways to adopt their methods to your situation.

This works because as different as one business may be from another, there are a surprisingly small number of core strategies. Most of them are derived from military strategies and are based in armed conflict. The following list, taken from an anonymous ancient text, is quite comprehensive: you can attack your enemies
from the front; attack from behind; attack their flank or encircle them; concentrate your forces or spread them thinly; become nimble and harry your enemies like a small dog; use misdirection and appear to be where you are not; use superior forces or superior weapons or superior speed; announce your presence or surprise them or hide in plain sight; attack them on the battlefield or lay waste their homeland; interdict their supply lines; attack their neighbors and allies; attack them politically; or lay siege to their fortresses.

Every one of these military strategies has an analogue in business, either in conflicts with your competitors or—to the distress of many—in your relationships with your clients and stakeholders. There are specific adaptations in manufacturing, supply, logistics, distribution, financing, sales, and marketing. The total list is not long, and its limited nature means that people in other industries have addressed the same problems you are now facing, although they’ve often dealt with them in different ways.

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Steady thinking is hard work, and people who are engaged in unreasonable business behavior are often working very hard indeed. That’s because they are trying to accomplish something important, and that takes time. It is not unusual for people to work 40, 50, 60, maybe even 80 hours a week, which—over time—can create some pretty stale thinking. At some point, creative juices just stop flowing, and time at work will become counterproductive. As you keep putting in more and more time you become less and less effective, with the result that each task takes longer and longer. When that happens, take Fridays off.

Get out of the office and let your mind go. Do whatever it is you need to do to re-create yourself. Golf. Tennis. Lying by the pool. Hiking in the woods. Reading a novel in your library. Mowing the lawn. Taking a long drive. Riding your bike. Playing chess. Going to the movies. Anything that will get your mind off your work so that you can power down and recharge your creative batteries.

Taking time off to get more done is counterintuitive (good ideas often are) and may be frowned upon in your organization. No matter—call it a mental health day and consider taking a tax deduction for your day’s expenses because they are work-related. Often, taking time off is necessary for being unreasonable. Weekend time doesn’t count; that time is usually already spoken for. It’s weekday time you need—playing hooky when you are supposed to be hard at work has its own restorative properties. Cutting your workweek by 8 or 10 hours won’t lessen your workload, but it won’t increase it, either—you’ll simply have to be more effective the rest of the time at work.

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