Maslow’s Hierarchy of Needs and small business

Abraham Maslow published his theory in 1943 and it has been influential ever since. He believed a lot of psychological theory had been based on people with significant problems, so he studied people who were not clearly in difficulties, and came to a different perspective on motivation in particular. The theory is represnted as a pyramid with 5 layers, and suggests that, until the lower layers are satisfied, it is not possible to focus on the higher ones.

The lowest layer is PHYSIOLOGICAL needs: to breathe, food, water, shelter, sleep, sex. When these are satisfied, the next motivational level is SECURITY whether that is personal safety, security of employment or health. Above this are SOCIAL needs, which are about belonging to a social unit or group: family, team etc. Above this are ESTEEM needs, which are about how the individual sees themself against their society and hence the view they believe society, their peers etc have of them - the need to be valued. And at the top of the hierarchy is SELF-ACTUALISATION, which is about self-fulfillment rather than the perception of others. This may come from the satisfaction of growing as a human being, in knowledge or wisdom or spiritual growth. It probably applies to only a few per cent of the population.

Some people have argued with the rigid concept of the hierarchy (if it were so, then no one would buy a fast car before they had full pension provision and that clearly is not the case!) but at the same time, you would not try to sell a drowning man a new car, so the hierarchy has some validity of precedence. Herzberg’s motivators and hygiene factors (see previous blogs) are based on the hierarchy.

Organisational thinking often looks at the hierarchy concept both from the point of view of staff and of customers. But what of the small business?

Well first look at your own motivation. Assuming you have a roof over your head, are you in business for security reasons (perhaps several times redundant and see this as a greater guarantee of future income) or for social reasons, to be part of the business community or your workplace team? Or for reasons of esteem, to be seen as the Managing Director, the leader of your own business, a pillar of the business community, or perhaps to earn lots of money and be visibly successful? Or are you one of the small group who find running a business a learning process, a source of personal development, and a great source of personal satisfaction in itself? Whichever is true for you, it is possible to see how, depending on your motivation, you would behave differently in certain circumstances.

And of course the same is true of your customers and your staff and all other stakeholders. For example, you may have a person marked out for a great promotion which will involve more responsibility, time and perhaps travel. But if that person is motivated more by the desire to spend time with family or perhaps sports commitments (social needs) than by money of status (self-esteem) then they are unlikley to respond in the way you would hope. And they may even then be tempted to move in if they believe that they are now poorly regarded by you.

So Maslow’s hierarchy can be used to focus on what motivates your clients (or at  least the majority or best ones) for your marketing, and what your key staff. It serves as a good discipline in both your marketing activities and personnel activities to do the appropriate research, because if you cannot answer that question, then you are going to be less effective than you could be – but it is often relatively easy to get feed back from customers and, in the case of small businesses, from individual staff to avoid getting it wrong. So what have you got to lose?

Frederick Herzberg and executive pay – and MPs expenses!

My last post on Frederick Herzberg’s theory of motivation has given rise to a few thoughts in relation to the recent hot topics of pay and expenses. Just to remind you, Herzberg’s research identified that pay is what he called a ‘hygeine’ factor: if it is not adequate it will cause dissatisfaction but it is not a factor which will motivate to improved performance. Motivating factors are usually associated with the satisfaction of the work itself, achievement, recognition, responsibility, advancement and the individual’s personal growth.

In this context it was interesting listening to the Chief Executive of Network Rail  on Radio 4 recently agreeing to forgo his bonus this year, but justifying the need to pay high bonuses to his staff, and presumably himself, on the grounds of the need to motivate. So has he not heard of Herzberg, or does he disagree with what is recognised as a generally validated motivational theory?

Of course, he may be working on an alternative theory that, although itself not a motivator, money in very large quantities (with a little natural greed thrown in) and associated with specific targets will focus an individual’s activities on those very specific targets at the expense of everything else. They will tend to get them achieved. However, the corrollary of this is that the overall responsibility of the job, the interests of all stakeholders, the long-term interests that should be the focus of all senior management, will be neglected in the interests of a few short-term goals. (Do I hear the words ’cause of the banking crisis’ whispered here?)

The fact is that these bonuses are nothing to do with motivation, but have become VERY expensive hygiene factors – no senior manager in a large corporation will consider himself valued if he does not have access to this ‘gravy-train’. And this culture has spread to the public sector, and is in danger of percolating further down- to the extent that a news bulletin recently reported a school Head as suspended for arranging to pay himself a bonus to which, of course, he had no entitlement. This could possibly be regarded as fraud.

This brings us to our MPs! Allegedly the activities of some amount to blatant fraud. Others are exploiting the letter but not the (written and instructed) spirit of the rules. But some have come out of this as incredibly moral people who have resisted the temptation spread before them. We should value these people dearly and not forget them in the focus on the worst.

I am disgusted as many are at what has happened, but also have some sympathy with them, working in a system which has been corrupted. Faced with the choice of keeping to the principles which they may have had, but at the expense of ‘losing out’ and being ‘taken for an idiot’ – they have compromised those principles and become lesser people – richer financially but poorer personally for it.

MPs have difficult job, but not one that carries individually a great deal of responsibility. But they tend to mix with the wealthy, the powerful and the highly paid. They can feel that they are undervalued by comparison, and is that a factor in the readiness of many to try to exploit the expenses system? Sometimes it is difficult to resist this insidious temptation. (By the way, why so much heartache over who should now ensure that the new rules are policed – what is wrong with HMRC which does the job for the rest of us?).

So what’s today’s lessons for small businesses?

1. Beware of setting up schemes which encourage corruption – if staff do not think they are treated fairly they can feel justified in helping themselves. 
2. Beware of the law of unintended consequences of any incentive scheme
3. Be aware of what hygiene factors you need to address to attract and keep good people but also be aware of what really motivates when you want to get your people working with you to achieve the best long-term result for your business
4. Be aware of your own motivation and how others and yourself can easily become poorer people in the pursuit of greater wealth! If you run a good business, hopefully the wealth will follow.

Frederick Herzberg and motivation for small business

A while since I added a post, so I thought it might be time to consider some gurus on the people side of business. Herzberg’s 1959 book, The Motivation to Work, has had a great influence – and if you do not employ anyone, please do not stop reading now as this is just as relevant to your own motivation. He introduced the matched concept of ‘motivation and hygeine factors’ which are now well accepted as basic truths, partly as a result of Herzberg’s research and that of many researchers since.

The premise states that factors which drive dissatisfaction are not that the same as - or opposite to – those that drive positive motivation. The ‘hygeine factors’ are about salary and work conditions, relationships of all sorts, status etc. But the motivators are about the satisfaction of work itself, recognition, achievement, responsibility and personal growth.

If the hygeine factors are not adequate, effort will be directed to trying to change this, but if these needs are met, this will not of itself generate any positive motivation; this comes from the higher factors. For some it is surprising that salary is not a positive motivator: how do we explain those enormous senior bonuses. Alfred Sloane at GM improved output figures by simply chalking numbers on the floor beside the production lines. The chalk meant recognition. Unfortunately for shareholders, taxpayers etc at the head of large organisations we have allowed it to be accepted that achievement is recognised by money. This was not the case as little as 30 years ago when senior managers did not generally get rewarded with astronomical salaries and the gap between top executive remuneration and the average employee was much smaller.

The implications of this for employers are clear: to keep your workforce happy and focussed you cannot ignore the hygeine factors. But once you have a good base, higher performance will not be delivered by more of the same. You need to move on to addressing the higher ambitions for advancement, responsibility, recognition, achievement and the satisfaction of a job well done. This can be an even more necessary process in a recession when it is more difficult to give recognition by financial means – and in truth this has often been a lazy response. To the extent that not paying an inflated salary is a dissatisfying hygeine factor not because of a restriction of the receiver’s lifestyle but because it implies lower status (See premiership football teams if you want to find obvious examples).

And for the one-man band? Well the same factors apply to your own motivation. You might be driven to slave at a boring function to make sure you can pay the mortgage, but once you are past the hygeine problems, what will raise the higher levels of performance? It will be achievement of goals, the recognition that comes with a successful business, and the pleasure of satisfied customers. So if you are running a business with a product or service that you believe in, you are likley to be more motivated and get more satisfaction than if your business has just become a chore to deliver the hygeine factors.

Money has tended to become the modern Western culture’s surrogate for the badge of achievement and to that extent it does motivate, but it is the achievement not the badge which is important. There are many more powerful motivators to performance so use them for your team and for yourself.

Corporate Strategy and Igor Ansoff for small business (part 2)

 Ansoff working on how corporates grew considered a number of important concepts taken up later by other writers, including the core capabilities of the organisation, its product and market scope (or marketing focus) and competitive advantage. The strategy for growth could exploit these factors and consider the options for development which Ansoff defined in his Product-market growth matrix.  

      

The matrix looks at the product and market growth options open to any business: these are to sell more of its existing products into existing markets (market penetration), to sell existing products into new markets (market development), to sell new products to existing markets (product development) and finally to sell new products into new markets (diversification).

As a business moves from market penetration into product and market development, the level of risk increases and is at its greatest when going furthest into the unknown – into diversification.

But surely all this is only relevant to corporates? Not so. Many small businesses seek to develop into new markets and new product areas before they have fully exploited their core market – sometimes before they have proved they can make a profit in the core business. And tough economic times sometimes encourage businesses to look into other products and markets. Of course, this can be a productive strategy, but it has a higher risk of failure than developing the core market – and it is likely to cost more, as penetrating new markets usually involves marketing expenditure, especially as the existing competitors in that market are likley to react to a new threat.

There is a tendency – at both small business and corporate level – to believe that ‘the grass is greener’ over the hill in that new market. But once there it often looks remarkably like the other side of the hill! And with the added disadvantage of being an outsider. Also whilst doing this, are you leaving gaps in your core market for a new competitor to enter? Ansoff understood the risk and also that such decisions were strategic and not short-term reponses to situations. Certainly for most businesses it is sensible to make sure that they are operating most effectively in the core market with existing products before pursuing any of the other options.

And as for diversification, the difficulty and risk is even greater to grow organically – and probably equally so by merger or acquisition. Small companies can grow in this way too, but the track record in corporate life is that most mergers or acquisitions do not achieve their objectives. For Ansoff synergy is the key where 1+1 = >2; thus merged sales forces may be able to maintain the same level of calling with smaller sales areas, less travelling and less sales numbers than separately: but will all the products get as much focus? This is where sometimes synergies exist in theory but prove elusive in practice.

Sometimes, if the core market is changing rapidly and there is no way forward for the business, diversification is the only way of surviving. And there are rewards to be achieved by diversification - but they are rarely as great as supposed and often the downside risk is very significant. So any such decisions require very careful analysis of both the potential reward and the potential risk.

But synergy can be sought in other ways without such large risks; for instance co-operative working with related companies. Tough times sometimes require drastic solutions, but often these are closer to home rather than in diversification. Look very carefully before you leap!

Corporate Strategy and Igor Ansoff for small business (part 1)

Igor Ansoff (1918-2002) pretty much invented the concept of corporate strategy – all of course based on large corporate organisations (he worked with Rand Corp and Lockheed). But small businesses also have to make strategic decisions so what he had to say can be relevant. Ansoff drew a qualitative line between strategic decisions which were fundamental to where the business was going and had always to be taken at the highest level and those decisions which could be delegated because they were covered by policies or operating procedures. He came up with the 3S classification of decisons: Strategic-Structure-Systems, which might be interpreted for small business into deciding where we are going, how we are organising and resourcing to get there, and what we are actually going to do to make it happen.

Small businesses often struggle with each of these issues – and often get them in the wrong order! Building systems that cannot support what the business will require to move forward is not unusual; establishing a financial base that cannot support the growth that the business plans to have is equally common. And so often unfortunately the business has no strategy – no clear idea of where it is trying to go and how it will get there.

Without these elements and in the right order any business, whether small or large, is likely to lose its way or perform a long way below its capability. And when times are tougher the need for clear direction, adequate organisation and resource, and efficient operating systems are more critical than ever.

Management by Walking Around for small business

Bill Hewlett and Dave Packard are not just famous for their computer company – they named the concept of Management by Walking Around, which had a period of popularity and prominence some decades ago - and perhaps its a bit of a shame that it has been somewhat forgotten these days. In large corporates its easy for management to get out of touch with the workforce, and with suppliers and customers. But surely this is irrelevant to small companies?

Well, not in my experience. Although it should NOT be the case, those running small companies can also disappear. And the tougher times are, the more likley this is to happen. There are business owners who do not like being asked for discounts, so they stop talking to customers, or do not like to be asked about how well the company is doing, so they stop talking to their own people, and who do not want to be chased for payment, so they stop talking to suppliers.

Will any of these behaviours help solve any issue? No. What behaviour is most likley to identify solutions? Discussing problems and facing issues constructively. Interchanging possibilities with other parties is more likley to lead to 1) identifying what options there in fact are and 2) better understanding the implications of the options. This in turn leads to better decisions, and ones with a better chance of being successfully implemented.

So first lesson of challenging times: get out there with customers and suppliers and staff; be seen and be heard – and even more importantly, be seen to listen. The majority of world leaders have understood that in economic turmoil they have to act in some degree in unison if solutions are to be found and to be effective. The same is true at the micro level: solutions will be found when staff pull together, when suppliers and their customers identify that they have common aims, and when customers see their suppliers have a genuine interest in them.

There is much doubt and uncertainty; business is first and foremost about people and ideas – the numbers support and explain but they are a result not a cause; getting out there where business happens can change things. Difficult times are also times of opportunity, when people will alter their patterns of bahaviour more readily. So more than ever it is time to be visible in your market at all levels.

Michael Porter and Competitive Advantage for Small Business (part 8)

Having looked at the five forces Michael Porter identifies in Competitive Advantage, Porter goes on to develop a theory of  what he calls the Value Chain in business. This looks at the elements in any business (some of which will not be very applicable to certain types of business) including processes:  inbound logistics, operations, marketing and sales, services and outbound logistics. In addition there are infrastructure elements and costs for the business including facilities, IT, finance  etc. These have costs associated with them, and the business process should add value for the customer.  Some of Porter’s thinking has very much affected the trend for outsourcing – Porter’s view was to outsource wherever there was no real value added in that operation in the business and to focus the business activities on where it added the greatest value.

Some of the key ideas that are associated with Porter’s concept are those of “drivers” of the business including “cost drivers”. Thus in the mobile phone business there is a high degree of ‘churn’ – people change provider and equipment frequently so this is a heavily sales & marketing driven market and these both drive competitive position and costs: the need for heavy advertising, an expensive high street presence etc. Looking at how these drivers work and understanding what value they add for the business and for its customer become critical.

Is this all about giant corporations then? well, not necessarily. Understanding the customer and the cost drivers can lead to new solutions and these often come from small businesses. The High Street retailers have a strong presence to add value for their customers. If you are a clothes shop then that added value might be enabling customers to see and feel your product – and to try it on.  But if you are selling DVDs or insurance, then perhaps this value added is not very great. Thus in these areas internet businesses have been able to change the Value Chain for a large proportion of customers in the market to deliver better added value for the customer in the form of a better deal.

Small businesses can often take advantage of the structural situation in a market to develop an alternative Value Chain which better delivers for some customers at least.

And if a business does not add value, what is its purpose – and its long-term chances of survival? In today’s climate particularly, those businesses not adding enough value are likley not to survive. Make sure you enhance your chances of surviving and prospering: look at maximising the value you create for your customer and minimising the costs to create it; drive costs down, cut out processes that do not add value. Now is the best time to have a good hard look at your business.

Michael Porter and Competitive Advantage for Small Business (Part 7)

Michael Porter’s third generic strategy in Competitive Advantage is focus. In some ways, differentiation (see the last post) and focus go hand in hand. They are both ways of setting yourself apart from the competition and appealing most strongly to a segment, but differentiation is focused on the product or service and looks to modify that – or its presentation - so that those for whom this difference has a positive meaning  will be attracted, wheras focus is about selecting a target group and developing or adapting your product or service specifically for them.

 In order to address a niche it is not essential for your product to be only suitable for that niche; similarly what started as a niche product may develop well beyond it. For instance,  Levi Root’s Reggae Reggae Sauce started life as a speciality food product targeted at the ethnic Caribbean group in the UK, but soon got taken up by the supermarkets and started to find a wider audience. So what was originally a niche product starts to find a broader market. But the start point and initial target is clear – a very specific group of people with perceived differences of taste and cooking tradition who will be drawn to the product. A perfect example of a small business start-up targeting a niche.

On a local level also a specific group may be targeted to find a niche: let’s take as a theoritical example of a bus driver who decides on a new career in self employment offering massage, having completed a course of training and achieved an accredited level of competence. Now any look at a local directory will find a large number of legitimate massage businesses – some claiming 10 years of satisfied customers and others offering a wide variety of treatments: Indian head massage, hot rock massage etc. What chance has our newly qualified person with limited experience and a limited service to offer against this competition? How can this business be first choice for anyone?

Now let’s survey what our business does have to offer: what experience can be used to find an advantage. Well, our person understands about driving buses – and do bus drivers suffer from aches and pains as a result of their driving for which massage can provide help and relief? Many do. Are there enough bus drivers locally to keep the business going long term? That might be difficult. But are there enough people who drive for a living? Almost certainly yes.

And our business already has contacts with many bus drivers and can easily put the word out, may even get support from the company to help meet their duty of care to their staff.

And if you are a driver suffering from aches and pains that you attribute to driving, which massage service will you contact? The one that offers the widest variety of massages, or the one with the longest track record, the cheapest one or the one that specialises in helping aches and pains from driving for long periods? So from having probably the weakest proposition for all of the potential market this business now has the strongest proposition for a minority (but a large enough) segment of the market.

And as a ‘one-man band’ business, the need is for only a limited number of clients, so what is the point of worrying about appealing to everybody as long as you can appeal very strongly to enough people? But so often small businesses make everything they do bland in a desire to say something which will be acceptable to anyone who could buy their services rather than appealing very strongly to a few people who WILL buy them. All things to all people means nothing very special to anyone.

To whom is your business special? It can be even more true in a recession that with overall business levels declining there is a temptation to widen your appeal by becoming less focused. This can have the reverse effect: you fail to appeal to your core audience rather than attracting a new one. So stay focused – or become focused – and if you need to address a wider market, target another niche with a message totally appropriate to that niche.

 Do you look for the niche? Do you focus on the customers in that niche and make yourself their first choice? And when you want to broaden from there, do you ensure you continue to keep your appeal to your existing group of customers and find a strong enough appeal to any new group? There’s the challenge.

Michael Porter and Competitive Advantage for Small Business (Part 6)

Michael Porter’s second generic strategy in Competitive Advantage is Product Differentiation.

Product Differentiation is about your product being perceived as different from other competitive offerings. It may be that the difference is real – your product or service is faster, healthier, safer, more reliable, bigger, smaller etc. (If so, it is only relevant if these real differences are also perceived to be the case). Or it may be a matter of  pure perception – your product or service is considered to be sportier, more elegant, more fashionable, funkier, healthier, gentler, friendlier, more effective, more aggressive etc even when the actual physical differences are not noticeable. (It is interesting how the actual differences and perceived differences can be very different from each other).

Products can be differentiated on a national scale: even commodities such as soap powders and washing up liquids, especially in the peak period of brands in this market, have been significantly differentiated: one will pitch on gentleness, such as Fairy Liquid whilst another will highlight technical superiority and effectiveness, as all those ads featuring wonder ingredient x and consumer comparisons did. Another may differentiate itself by linking with a manufacturer recommendation as it helps extend the life of the machine. By creating this differentiation the brands appealed to different individuals or groups of individuals within the market and created a segmentation for what had been a pure commodity product: the same for all.

At a local level or in a specialised market the differentiation can be just as significant. One accountant can differentiate himself from another by technical capabilities – for instance, as a tax specialist – or by personality – whether that be the nice person you like to work with or the ‘tough cookie’ who its good to have on your side, or effectiveness: the person who will deliver you the biggest savings, the greatest efficiencies or added services: e.g. the accountant who also provides advice to help you make the most of your business. Or they may differentiate themselves by type of customer: business or personal, or at a more detailed level, as particularly appropriate if you are a retailer etc. This also starts to take us towards the third generic strategy: focus. But we will save that for the next post. 

Why should the smaller business consider differentiation? Putting it simply, if there is nothing remarkable about your business, then why would it be anybody’s first choice as supplier of your product or service? If there are those out there who stand out in some way or another then they will be the first choice for those for whom that differentiation appeals. For others, you are almost taking ‘pot luck’. Look at the Yellow Pages for businesses who choose names beginning with A or even AA to be first on the list. Often there is nothing else to differentiate them from competitors, so they aim to get a little more than the average number of ‘pot luck’ calls by being first in the directory.

As there are no prizes for coming second in business, you need to be first choice for enough prospects to achieve your business targets, so do give some attention to how you can become or are special to your clients (it always amazes me how many businesses ARE special to their clients but do not really know how, so they cannot promote it!). One good way is to do some research with a range of clients and find out the truth – or at least a customer’s view of it.

It never hurts to talk to your clients more – especially in these tough times when everyone wants to poach them!

Michael Porter and Competitive Advantage for Small Business (Part 5)

In Competitive Advantage, Michael Porter identified the five forces affecting market attractiveness and profitability which have been outlined in more detail in previous posts. These were Power of Customers, Power of Suppliers, Industry existing competition, the Threat of New Entrants and the Threat of Substitutes. From this analysis, Poter reasoned that there were only three viable and profitable generic strategies: Cost Leadership, Product Differentiation and Focus. Any other position in the market would be difficult to sustain profitably.

By Cost Leadership, Porter meant being the ‘lowest cost producer’ of the product or service. Porter is very clear that this does NOT mean the lowest priced. The lowest-cost producer could just as easily hold the highest price position in the market but use that advantage to spend more than competitors on promoting the brand.

Is a small  business ever likely to be the lowest-cost producer? Well, in manufacturing, probably not, unless of a very low volume specialised product. But in services the small company often has much lower overheads and can be lowest cost. And of course, lowest costs applies to your specific target market. So if it is only one small geographic area or market segment, then lowest cost refers to the comparison with  the local/segment competition.

If you are in this position in your market, you then need to decide how you can best take advantage. This might be doing as everyone else does but taking more profit; it may be by being the cheapest supplier of your product or service (which can put some people off as well as attracting others) and thius often taking the biggest volume (which may in turn help you keep your costs as the lowest in your market); or you might choose to advertise much more than competitors and dominate the minds of your potential customers. Which you should choose will depend on the nature of your market and your competitors. The ideas are simple but the application more difficult.

Some small businesses do have this position in their market place. Perhaps because of a particularly favourable relationship they can take advantage of deals usually only available to bigger companies. Or they have managed to operate effectively with no or less premises or other overhead costs than their competitors, perhaps by using better technology. For most small businesses, however, the lowest cost strategy will not be open. They will generally not have a significant cost advantage over all other suppliers. 

If this is you, you should consider the other two generic strategies – the alternative is likely to be failure or a struggle to survive, but is very unlikely to be a comfortable market position or dynamic growth – unless your market is one in which demand is always stretching the available supply. This is sometimes the case in professional services and some trades. But a recession is likely to take that comfort away unless your market position is very strong. Then weaknesses which have existed for some time but which have not had an obvious adverse effect become apparent.

So all businesses should take a long hard look at the strength of their strategic position in their market.