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Recovering From & Living with COVID-19 – Restructure Your Business!
Why should you even listen to me? Well, my ‘day job’ is in private equity support. I develop high-performing people and teams in corporate environments. I am brought in by banks, investors, and shareholders to turn around failing businesses, acquire and merge synergistic businesses and to develop people and strategy for fast growers. I own and run South West Technical Diving (www.swt.ie) and am a full Tx CCR and OC tech and Full Cave Instructor. So, I have expertise, business experience and specific diving business experience.
Diving is a professional occupation.
You go through training and pass exams to qualify. You deliver services to consumers that carry higher risk than selling a pair of jeans. A professional approach should be taken to the business offering.
The beauty of the diving business is that it attracts passionate and enthusiastic people with expertise. The problem is that they are mostly passionate and enthusiastic about diving and do not have the business skills and experience at the same level. Sadly, most of them don’t know this. This is an indisputable fact, as otherwise we would not see the acceptance of typical dive store retail margins plus the course pricing and wage structures that we do. In addition, we see dive centre businesses selling for multiples of turnover, overvaluing them at either an E.B.I.T.D.A. (earnings before interest, tax, depreciation and amortisation) or cash basis valuation. So, people buy in high, trade low, and hope to sell high in the future. I’ve never seen a dive business track R.O.C.E. (return on capital employed), be conscious of R.O.I. (return on investment) for capital items (try and justify ROI on a compressor and gas facility!), or understand about how to build shareholder value, even if the shareholder is just one person – you.
Value and “big brands”
Trading challenges are most often met through discounting, a crude tool that devalues the industry, your professionalism, and the huge time and money investment made in your professional development as a Dive Pro. Discounting is, unless selling high volume items such as washing powder, a race to the bottom of the market. The concept of loss leaders used to be a way of moving a customer base to you from a competitor. It’s now a dead-end approach. Nowadays consumers are well-informed and will cherry pick from multiple sources to get the expected value.
Therein lies the keyword to business success. Value. I ban the words cheap and expensive from being used in any business I am connected to. Cheap – you are paying less than the value; Expensive – you are paying more than the value. A Range rover is not expensive; it is a lot of money, but for what you get, it’s great value. A Kia is not cheap; it is priced to represent the value of the build, design and technology in that car.
Contrary to the populist nonsense and ‘business lite’ approaches promoted in diving agency’s business academies, you are not a volume retailer or a major brand. Not even the largest scuba diving brand is a major brand (most aren’t even a big business in commercial terms). For example, everyone knows Nike, Coca Cola, Mercedes, but unless you know diving…. PADI who? It’s not about branding and marketing. That just puts cash into second rate graphic and web designers’ pockets. It’s about customers and sales.
You are a niche business, with an identity usually focused on the person owning the business, not a brand. Your customer base has specific segments. Your location is likely to be the most unique aspect of your business. You are undercharging because you do not communicate a value offering. COVID-19 has taken away the trade that you did have, and you now have to rebuild and assume that your rebuild will have covid as a constant. It will beat you if you wait for it to go away.
Getting customers in the door
Firstly, you need to be able to give consumers confidence regarding COVID-19. There are local and national guidance on minimums, so I won’t waste space on the specifics or generalizations. My suggestion is to exceed the minimum and make a virtue of it. The key, though, is not what you have done – that must be high quality and compliant – it is how you communicate what you have done to give customers, new and returning, absolute confidence in your protection of their health. Something we should be good at, considering how we manage risk in what we do!
A Few Must Do’s
Be able to articulate your value offering.
Why do you charge what you do? As L’Oreal says, because you are worth it – OK, how and why?
Why should customers use you if you are more money than the competitor down the road? If your answer is because they are bad or we are better, then you might as well close up and go home. You need real substance behind that answer. Stella Artois used to market – ‘reassuringly expensive.’ Well, we won’t use expensive, but customers paying extra expect and deserve high quality.
Understand your customer’s decision-making pathway and criteria.
Do you have segmented profiles of your existing and desired customer base?
What is their point of contact to you? More importantly for potentials and existing customers: what is your point of contact to them?
Do you know their decision-making criteria? You will be amazed to learn that ‘price’ is not actually in the top 5. For adventure/leisure, it’s more likely to be fun, safe, new experience, excitement, new places to go, new things to see, then value.
Control your cost base and understand your margins.
Reduce fixed costs, but stop where further reductions will impinge on quality and/or safety
Variable costs should be linked directly to product and service (courses/guiding) margins. If they are not, then you are not running the business, it is running you.
Reduce stock. Your stock should turn at least 3-4 times a year; good retailers turn 7-8 times plus. Any items that do not sell at this rate should go into ‘order in’ and not be held on the shelves.
Rationalise your product range.
Make it fit the customer base you have or aspire to.
Sell one or max two brands of each item. Most brands have good item range.
Sell brands with the best multiple of good margin and excellent retailer support. High margins can be wiped out if the brand does not support their products or honour warranties
Share your passion and enthusiasm on all your communications points.
Speak to people, suppliers, customers, prospective customers. Do so often, via video or vox.
Social media is not speaking to people.
Emails are not speaking to people.
Text / WhatsApp is not speaking to people.
A Few Don’t’s
Don’t risk your reputation, it is worth more than overly profiting from a customer. You will survive not selling an item or not teaching a course, you won’t survive a social media/review site attack.
Don’t offer discounts or deals that hide costs or extras.
Don’t sell what the customer will not benefit from.
Don’t over-promise / bullshit.
Don’t Discount – Ever
RETAIL – typical retail margins in diving are 25%-30%. For retail, this sucks. 40%-60% would be a normal minimum (excluding sales tax/vat). By the time you factor your supplier shipping stuff to you, that can reduce margins even further. Generally, consumers will pay for shipping to them, not to you!
Push back regularly at your suppliers. It may not change day one, but if we all do it, then things will have to change.
Don’t discount rrp’s. Highlight to your suppliers the competitors selling and advertising below rrp if not part of a supplier endorsed promotion. If you had 60% margin, you could afford to discount. 20% margin and then discounting — you are just a busy fool.
Loss Leaders are losses. Stop. They don’t work.
If you give package deals, calculate the per item margin, not just a dollar/euro figure. We made 200 euro sounds good till it was a 2000 euro package and the average margin was 10%. We give deals on course and equipment packages because we can maintain margin.
TRAINING – so many dive businesses discount training and to no good purpose. It seems obvious, as its all cash for time right – No.
What’s your profit on an open water or a CCR MOD3?
What’s your target margin?
How many courses a month are needed to cover fixed costs?
Low cost to consumers always means low quality. I saw an ad today on Facebook for discounted cave training. Only idiots would think a discounted cave course was a good idea. Something has to give — time, effort, attitude, detail — in order to cover this. Not on any cave courses I run. Nothing can be cut or skimmed over.
Don’t talk down the competition – customers and prospective customers view this as a sign of desperation and bitterness. You may well succeed in putting them off using the competition, but they then won’t use you either. You’ll never know, because they will never come to you.
Don’t be provocative, political or pursue socialagendas – it is highly entertaining on social media, but if you are positing religious, political or other posts, even if personally, you will divide your customer base, existing and prospective, instantly. You want to be inclusive and welcome all to your business, so why piss off any of them? No-one cares if you are right, by the way.
5 Key things to do
Have an operational plan for how you will deliver service and retail assuming COVID-19 is here for the next three years – it’s all a bonus if it goes away, but do not wait, thinking it’s going away. It isn’t.
Create customer profiles and segment them by revenues.
Know your margins on products and services, adjust prices until you are profitable accounting for fixed costs allocated against those margins at current turnover. Don’t rely on ‘jam tomorrow.’
Create a match between your customer segments (by profile) and your best margin products and services. Sell into this channel through personal and relevant communication. Use social media and web sparingly in this; it supports, not replaces, personal communication.
Communicate your value offering and as a result you will not need to discount.
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