Peanuts to Profits With Thor Schrock
Peanuts to Profits With Thor Schrock

I am very aware that I have been absent from writing here for many days. There has been a lot going on, so I thought I would mention a few of the things here briefly to tweak your curiosity and then come back with more detailed posts in the coming days.

Here’s a few of the things I have been up to:

1. Entertained a bid from a group of investors interested in buying Schrock Innovations (and turned them away)
2. Selling our current home and moving into a new 4500 square foot home in Papillion, NE (yes, right before Christmas)
3. Laying the groundwork for an announcement about our weekly radio show, Compute This – If you like the show now, just wait until you hear what is coming next
4. Closed down our Omaha, NE Service Center in preparation for building our new (and permanent) Omaha facility in 2010
5. Assisting in the development of a new Website Marketing Division at Three Eagles Communications
6. Preparing for the official launch of the Top IT Shop Consulting Website
7. Teaching my son Jake how to play Wii Boxing 🙂

Its a lot, but I wouldn’t have it any other way. More updates to come in the upcoming days!

Every day in the news you hear more bad news about the economy, but great news about your 401-k value. How does this contradiction translate into opportunity for your business?

Easy.

You can hire the best talent available in the marketplace on a contract basis because people are out of work and they will be for some time.

If you hire clearly overqualified people, they will simply take your position until something better comes along.

Instead, hire the people you need on a contract basis. The differences between contract employees and regular employees are subtle (but important).

Most importantly it opens up a door of opportunity that can help your small business get the talent it needs to grow. Eventually you might grow to a point where you can permanently hire your contract help!

How can the stock market keep going up if the economy is tanking?

Remember that stock values are based on company profits and activities. The economy on the other hand, is primarily driven by individual consumers.

Companies can generate huge profits by reducing the number of people they employ, as long as they can manage to somehow continue delivering their products and services with their remaining workforce.

Experts often cite recessions as times when employee productivity goes through the roof. Employee productivity goes up because a company’s remaining staff must pick up the workload of the laid-off employees or face the chopping block themselves.

Fewer people doing more than ever is a recipe for business profits, and hence the stock market does well. On the other hand there are tons of highly trained and qualified people who are stuck on the sidelines polishing their resumes.

Turning on the 1099 Tap

With so many people out of work for such a long period of time, the small business owner has a unique opportunity to leverage talent they otherwise could not afford.

When you hire someone to help your company you can bring them on as an employee or you can hire them as a temporary contractor. There are certain advantages and disadvantages to each:

Regular Employees:

1. Advantage – You control their every activity
2. Advantage – You invest in their training and development to make them more productive
3. Advantage – The employee relies on you as their main income source
4. Disadvantage – You are responsible for benefits, including unemployment payments if things don’t work out
5. Disadvantage – Over-qualified people might take your under-paying position to tide them over while their resume circulates in higher-paying circles
6. Disadvantage – Employees come with HR nightmares like paid time off, sick days, maternity leave, office politics, and government compliance regulations

Contract Employees

1. Advantage – You tell them what needs to be accomplished, and they make it happen
2. Advantage – Lack of a regimented management structure can sometimes lead to better results and new ideas
3. Advantage – Contract employees are less expensive because you don’t have to worry about benefit packages, overtime, or payroll taxes
4. Disadvantage – Contract employees are like for-hire mercenaries. They can work for anyone, including your competitors
5. Disadvantage – Contract employees are typically less committed to big-picture corporate goals
6. Disadvantage – You can’t control them. If you have control and direction of their activities you have to pay taxes on them as regular employees

Using Contractors to Grow

From time to time my company has used contractors as gateway labor when launching a new division, testing out a new product or service, or simply when we could not hire an employee at an agreeable rate.

Eventually, all contract relationships end – abruptly. Typically, the best you can hope for is a 30-day notice provision in your contract.

While that sounds better than a voluntary 2-weeks notice form a regular employee, it can be devastating to lose a key person in the infancy of a product.

Employees are typically more loyal to the corporate goals, so the odds of them seeing a project through to a transition point are typically better.

Once your product, division, or service is viable, transition your contractors to employee status, or replace them with qualified people. Whenever possible, have the new employees train under the contractor.

Opportunity is Everywhere – Even in Bad Times

No matter how you decide to find your people, know taht the “bad economy” has created a pool of very talented labor that can be a game-changer in your business strategy.

All you have to do is know how to tap it affordably and control its growth to cash in.

This afternoon I did some research for marketing a computer repair company resource website. I planned on directly marketing the website to computer repair companies, and to do that I needed a list to work from.

The first name that came to mind was InfoUSA, and I was thrilled to find that their lists can be purchased online through an automated system!

InfoUSA Sells BIG Lists But…

I entered SIC (Standard Industrial Classification) numbers 7378 and 7379 and their system returned just over 38,000 results. The price of the list was a WHOPPING $6,227.00!

For that price I might as well build a bot to harvest names and phone numbers from computer repair web searched on Google. The only down side to that is that harvested lists are rarely accurate, and can lead to wasted marketing dollars (unles you have a desire to become a mass spammer).

Holy Proofreading Batman!

InfoUSA had a cool feature where you could preview an entry from the list you are about to buy. I hovered my mouse over the option to see what my 6K was going to buy.

There is no excuse for a result like this to show up in a database search. I entered SPECIFIC SIC codes that should have returned computer repair companies.

They obviously had this listed in a database somewhere with an Automotive Repair SIC code because they listed it in the result. Why would I pay $.16 per name for a list of businesses that will have no interest in an IT shop website?

If InfoUSA can’t manage their results database, there is no way I am going to trust them to sell me a $6,000 targeted list for a marketing campaign. Anyone know a good coder who can build a bot for me?

Most computer repair companies are started by technicians or IT professionals. They are usually confident in their technology skills, have experience serving customers for others, and believe they can earn a significant income if they were only working for themselves instead.

When an IT professional takes the entrepreneurial leap, the immediate focus usually lands on how to acquire clients, customers, or jobs.

As the newly-born entrepreneur sets out to build a business, he or she finds that for some reason they are having a tough time making ends meet even though they are working twice as hard as they did in their previous job.

That single misstep is why many IT professionals will fail to find success within the first year of their entrepreneurial venture and will be pressured back into servitude as an independent contractor or employee.

What good does it do to ferociously hunt new clients and customers if you are not able to have profitable interactions with them when you do find them?

Before you leave your job, before you invest the first dollar in your future, and before you even attempt to get your first client, you need a revenue model.

What is a Revenue Model?

Simply put, a revenue model is how you plan on making money by satisfying your clients’ needs.

Take a moment to think about the businesses you have interacted with today. Why did you buy what you bought?

Gas stations will offer inexpensive fountain drinks, hoping you will grab a bag of chips or a candy bar to go with it. McDonald’s asks you to try their latest sandwich for free with the purchase of fries and a drink in the hope your come back for more. Even my plumber was using a revenue model when he tried sold me a “hydro-scrub” of my sewer line for $50.

The point of a revenue model is to have a basket of products and services available that your customers might need, and then moving them through those products and services in a way that maximizes the profitability of each interaction with those customers.

Components of a Sales Model

Revenue models have 9 basic components. No matter what mix of products and services you keep in your basket, you need to know exactly what they are and how they interact with each other in your revenue model.
Your revenue model needs to:

1. Have a client (A Customer Who Presents A Problem)
2. Have a solution that resolves your client’s problem
3. Bridge that Solution to Another Item in Your Basket of Products and Services
4. Provide an Opportunity to Investigate for Further Up-Sell Opportunities
5. Close the Sale With the Customer in a Compelling Way
6. Back-sell With Customer to Reaffirm Their Decision
7. Deliver the Products and Services that Were Promised
8. Back-sell Again in Person to Prevent any Buyer’s Remorse Feelings
9. Stand Behind Your Warranty With a SMILE if it is Called in

How to Build Your Revenue Model

Building a revenue model is not a daunting task. In recent years there has even been a counter-push against revenue models in light of hyper-successful companies like Google that did not have a revenue model when they started.

The truth is that for every Google there are hundreds of thousands of business failures that a good revenue model might have prevented.

It is easiest to think about your revenue model as the thread that links your products and services together. Just because you offer a Maintenance Checkup, or Anti-Virus software, or memory upgrades doesn’t mean that people will come to you looking for them.

You need to have a planned way to let your clients know what you have that they can use and give them compelling reasons why they should let you solve their problems.
Steps to creating your revenue model:

1. List all of the products and services you offer. It might be easier to list each one on a note card so you can literally line them up in the order they might happen.
2. Determine which of your products or services will satisfy the largest number of clients. I creat5ed the Maintenance Checkup because it has a little of everything. Every computer problem touches the Maintenance Checkup in some way. It was a great way for me to get my leads into my revenue model. This is called your gateway offering.
3. Starting from your gateway offering, develop lines of reason – based on specific problems – that would lead you to recommend each of your other products or services under certain circumstances. For example, if you offer data recovery services, a customer complaining of a blue screen of death may be suffering from a failing hard drive. When this happens what options will your customer have?
4. Take the model one step further into your product and service basket. Continuing from the example above, does that data recovery customer need a new hard drive? Did the hard drive die because it was being over-used for virtual memory because the computer does not have enough physical memory? Find one more thing that the customer needs (assuming they truly need anything additional) and figure out how you would offer it.
5. Rehearse your pitch. Nothing sounds worse than a person who sounds like they don’t believe what they are saying or know what they are talking about. Find someone who won’t think you are crazy and role play. Ask your partner to challenge you. This is best done with a non-technician because that is who your customer will be.
6. Make real-life adjustments. When you are implementing your revenue model there will be times when you have to make adjustments based on input from your client. For example, if your customer does not have $390, you are better off getting the $100 than having the customer just take the unit back home again. Use your model, and then back pedal if necessary. Never start with a rate lower than your model. People don’t buy what they can’t afford.

Up-Selling is Not Evil Unless You are Evil

Some technicians find the revenue model – or selling in general – to be distasteful. I even consulted with one business owner whose entire reason for going into business was because other repair shops i town were “always trying to sell something.”

A good revenue model does more than generate profits for the company that employs it. Businesses that are successful in the long-term rely on repeat customers and word of mouth.

A good revenue model is designed to extract as much profit from a customer interaction as possible while at the same time providing superior services that are deserving of a premium price.

Life Without a Sales Model

Consider for a moment how awful your experience as a consumer would be if the companies you visited today did not employ a good sales model.

If the gas station didn’t have the inexpensive fountain drinks, you may have never found what has become your favorite snack. If McDonald’s didn’t get you to try that new sandwich you might have eaten the same old thing every day. If my plumber didn’t sell me that hydro-scrub, the scent of old poop might be wafting up my drains right now.

Superior revenue models deliver good products and services at a price the customer is willing – and in most cases eager – to pay.

Failing to recognize the need for a systematized sales model is the single greatest factor in the failure of small businesses in general. Having a good revenue model will put you 10 steps ahead of most of the IT shops and consultants in your market. Ignore the need for a revenue model at your own peril.

My morning (and possibly most of my afternoon) today has been tied up in depositions in a case brought against Schrock Innovations by one of our local Lincoln competitors.

One of our local competitors is claiming that I have said things on this blog that have damaged their business. They are demanding $7,500 in unspecified damages.

We have offered a settlement, which was quickly declined. We have tried to move this case to trial, but have been thwarted by procedural tactics for almost 4 years by the plaintiff.

On one hand I am annoyed that I have to spend a half day on this, but on the other hand I am happy to finally start moving this thing to a conclusion.

Despite everything that has happened over the past four years between Schrock and this competitor, I hope that one day we can all sit down together peaceably and laugh about all of this.

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Just a few days ago I told you about an interesting meeting I had with Lynn Hinderaker, the man who invented the fast food value menu and literally transformed Taco Bell into what it is today.

Since that post, Lynn was also featured in the World Herald with some additional detail of what he did for Taco Bell, how he transformed a high-cost-low-profit company into a low-cost-high-profit national icon.

If you are loking for an inspiring story in a challenging economy give Lynn a call. I am know as an idea guy, and he found a few things for Schrock that were right in front of my face that I had not seen!

If you have ever eaten at Taco Bell, you have this man to thank. Without Lynn Hinderaker it is very possible that Taco Bell would not exist and that the concept of the fast food “value menu” may never have seen the light of day.

In the 1980’s Taco Bell was a struggling subdivision of PepsiCo and was about to be closed down completely. One struggling franchise owner contacted Lynn and said he wanted to make his restaurant’s last stand on an idea that surrounded a value menu. His idea was that if customers could buy their food through inexpensive small transactions, they would buy more of it and profits would follow.

Lynn helped design the concept, the marketing pieces, and then shepherded the franchise owner through the process. Success soon followed and as the word spread, other franchise owners asked Lynn for his help.

We have a bit of a lunch tradition at Schrock Innovations. Each day one of my employees asks, what are we getting for lunch? The chorus of “i don’t know” and “not Jimmy Johns again” normally echos through our 2,000 square foot service center.

After some discussion we all agree on a place and each employee takes a turn buying lunch for everyone else.

Scott suggested we try something new as a favor to him. He told us we would not be sorry. He asked if we could order lunch from White or Wheat Sandwich Shoppe.

Some of my friends have questioned the wisdom of expanding Schrock Innovations and hiring so many new people when the news on the economy is so dire.

I am by nature an optimist – often to a fault. But I believe that this recession is going to be the single greatest thing to ever happen to my company and here is why.