Boost Profits By Selling To The Right Customers

In 1991, Michael Ehman's company, Ehman, Inc., climbed to number 13 on Inc. Magazine's list of the top 500 fastest growing private companies in the U.S. In 1992, Ehman's company, which supplied storage peripherals to thousands of Apple users, was out of business. That same year, Ehman began to build anew. His new company, Cutting Edge, would try to avoid the pitfalls that led to the demise of Ehman, Inc.

Cutting Edge spent almost four years trying to regain its foothold in the Apple storage market. "We were in the 'Apple Ocean' where all boats rose and fell with the fortunes of Apple," recalls Ehman. In 1996, Cutting Edge redesigned its business model to sell network storage products. The move capitalized on the company's core competency and also allowed it to sell products that were platform-independent.

In addition to selling across platforms, the 11-employee company also scrapped its horizontal approach in favor of three vertical markets (military, k-12 education, Fortune 500). The company has also learned to handle its customer base more effectively than it did in years past. Based in La Mesa, CA, Cutting Edge increased gross sales by 30% to $2.2 million in 1998. And, the company expects that number to double in 1999.

Profit From Niche Markets
Ehman's first company mainly sold consumer storage through mail-order catalogs. Ehman, Inc. was based on: creating a product people would want, producing the product in a profitable manner, and creating demand through advertising and marketing. "This model doesn't work with business-to-business sales, and network storage is a business-to-business sale," comments Ehman. "We had to sit down and think about what we could do differently."

The result was focusing his sales efforts on several niches. After combing through its customer database, Cutting Edge classified all its customers according to a niche. The company then looked at the sales history of each niche it identified. "We decided to take our most profitable markets and make each salesperson a specialist in one of those markets," explains Ehman. One salesperson was appointed to head each niche, and that salesperson was given independence on how best to market to their particular market. Additional salespeople were then assigned to one of the vertical markets that Cutting Edge had identified.

"Large companies can build products and then try to sell them," says Ehman. "But, when you are a smaller company, it is a little bit harder to do that. When we changed our business model, it really enhanced our success and prospects."

Are Your Salespeople A Resource For Customers?
Getting employees to change is usually a daunting proposition. And, it was no different when Ehman tried to convince his salespeople to sell into niches. He admits that his salespeople were "a little scared" by the company's new direction. However, Ehman continued to press his new vertical-market initiative. "It was frustrating for the salespeople for the first few months. But, then they started to learn the needs of each niche and who were the best people to contact in each market. The salespeople figured out how to sell to each niche and the momentum began to build," states Ehman.

When assigned to a particular market, each salesperson can be a resource for their particular customers. Ehman's first job was selling to companies drilling for oil. "If I came to customers' rigs and knew what their problems were and how I could help solve them, they would respect me and call me," recounts Ehman. "This is the reason that I try to get my salespeople to be a resource for their customers. Customers will take a salesperson's call if that salesperson is competent and can provide good information. Salespeople that just try to sell by being friendly are only burning up a customer's time."

Backing Away From A Sale
Managing sales to customers has also been a recent focus for Cutting Edge. Of course, every company wants customers who pay bills on time. But small integrators are also vulnerable to customers who abuse the tech support which accompanies most product sales. By prequalifying customers before each sale, Cutting Edge has been able to reduce tech support and make its support contracts more profitable.

Cutting Edge salespeople are trained on the technology they sell. As a result, salespeople know what level of technical expertise is required by a customer to install or maintain a Cutting Edge product. If a sale is more complex, the company's engineers will work with salespeople to determine a customer's technical qualifications. "If we see that a customer does not have the personnel to handle the product we are selling, we will back away from the deal," says Ehman.

Solid Data Leads To Decisive Action
Prequalifying customers has not eliminated technical support calls. However, Cutting Edge now has a database which contains every support call. Every support call is logged, as is the resolution of the call. When Cutting Edge contacts customers, the company calls, faxes, and e-mails with each attempt logged into the database. "Knowing the history of the sale and technical support allows you to take decisive action in resolving a problem. When you don't have reliable data, you tend to do nothing," states Ehman.

Occasionally, a customer will slip through Cutting Edge's pre-qualification system by overstating technical expertise. For example, Cutting Edge configured a complex server for a customer and shipped it to the customer site. The phone calls began almost immediately. Currently, Cutting Edge has spent 52 hours on tech support with the customer. "We are training them on how to be a certified Microsoft engineer over the phone line," comments Ehman. The database is updated with every contact. By logging every call, Cutting Edge instantly knows the technical problems, if any, encountered by every customer. The database can then aid in qualifying current customers for future sales.

Assessing Your Company's Current Problem
All the technical support calls that come into Cutting Edge are categorized. Every month, reports are generated which list the number of support calls and what types of calls were received. By identifying each type of call, Cutting Edge may be able to eliminate an entire category of problems through slight modifications. "It is the Demming model. You create a process, then you measure it. You have to have feedback to see how accurate the process is," states Ehman.

He cites the example of a pilot flying from San Diego to New York. After 500 miles, the pilot determines the plane is off course. The pilot assesses the error and corrects it. The alternative to assessing and correcting would be to point the plane in one direction and simply hope that it gets there. "If that was how pilots flew, no one would get anywhere. But, in business, we do that," says Ehman. "We set up a process and forget it. Then when it crashes, we wonder what happened."

Take Time To Manage Your Company
Cutting Edge has benefited from the experience Ehman gained from running Ehman, Inc. While his previous company invested heavily in marketing to consumers, Ehman realized this model would not work for Cutting Edge. However, he says several of his competitors have not yet reached this conclusion.

"Some companies put a lot into marketing to create hype, but they have an unbalanced investment. They are trying to build a name and pushing hard to drive sales. But, they are not making the investment in managing their company properly," says Ehman. "A lot of companies, especially the small ones, will not change until the screams get loud enough. At that point, they start to put out fires. It's tempting to operate this way when all you're thinking about is selling. But, in the long run, your company will not be successful."