NAW Association Executives Council
Innovation In Association Business Models
The Fairmont Hotel
Grand Ballroom 1, Ballroom Level
Washington, D.C.
January 28, 2013
1:15 to 4:30 PM
Discussion Leaders
Mike Marks & Steve Deist
About IRCG
2
Mid size consulting firm founded in 1987 that
provides advisory services for manufacturers,
distributors, private equity and other ownership
groups
Our expertise is in market access which measures
how well a firm’s resources are aligned with their
real opportunities for growth
•
Services include strategy development and execution,
channel management, operational alignment,
incentive design, and sales force optimization
We are well recognized for our industry depth and
experience
•
Many completed industry research projects for NAW
and their member associations, and we are both
permanent faculty members at the University of
Industrial Distribution (UID)
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Agenda
3
1:15 to 2:45
The Short List Of Member Challenges
A Recap From Quebec On Business Models
2:45 to 3:00
Break
It’s not about what
we’re selling, it’s
about what they’re
buying
3:00 to 4:30
Group discussion:
Reenergizing An Association
Association Vitality Index
Addressing Capability Gaps
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Death of the Generalist
4
Segment #2
Segment #1
Critical
$$
Needs
$$$$
Critical
$$
Needs
“The specialization
trend has been unkind
to the association
incapable of serving an
increasingly diverse
membership”
A “one size fits all” model means spending more money but
providing less of the critical services
Targeting segments allows us to tailor our investment for
maximum effect
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Strategic Evolution
5
Market Data
Customer Insight
Value Added
Innovation
• No real market or
customer analysis
• Internal needs set
priorities and
opinions prevail
over facts
• Quantitative
information such as
market studies and
customer surveys
• Decisions supported
by basic profile data
• Ask customers what
they need and
actually listen to the
answers
• Priorities defined by
closing market gaps
• Live the life of
customers to predict
their needs
• Strategic decision
making to create true
“white space”
Ever been to France?
Spreadsheet strategy
Cure current pains
Wayne Gretzky
Internal View
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Key Future Forces
6
If we want to skate to where the puck is going to be, we need to
understand the fundamental forces affecting our members
1. The buffet of choice: customers are taking control of the sales
process and information flow
2. The search for growth: mature markets and a stagnant economy
drive consolidation, impersonation and invasion
3. Workforce issues: the imminent loss of tribal knowledge has now
become an emergency
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1.
1.
2.
3.
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#1 The Buffet of Choice: SoLoMo
7
Customers are no longer just
passive consumers of a
product or service. They
help to create it!
Information can
be accessed
from anywhere
at anytime
Solutions are
tailored based on
time and place
Some factoids from Grainger’s Geoff Robinson in emarketter.com, June 2012
Grainger’s mobile activity has increased 400% in the past 12 months
Over 50% of its users feel comfortable ordering over mobile devices.
Google reported that 1 in 7 searches are now done on mobile devices.
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Judo Moves
8
Your members largely know what the issues are. Their
challenge is how to approach and address them.
The following are the top techniques that have proven to be the
most powerful for IRCG clients who best reflect your
membership
1. Intentional selling
2. Tailored service levels
3. Customer centered innovation
4. Market driven priorities
5. The right tool for the job
6. Analytically led decision making
Judo is about working with the forces of nature rather than trying to
confront negative energy head on.
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Intentional Selling Example
9
% of Available Spend
100%
0%
Sales Channel
Prospect
Develop and Grow
Maintain
FSR or ISR
M
H
M
CSR
0
0
0
Specialist
0
0
0
Web
M
L
0
Marketing
M
L
0
Solution
development
potential =
candidate for
targeting
% of Available Spend
100%
0%
Sales Channel
Prospect
Develop
CSE*
FSR or ISR
M
H
H
CSR
L
L
Specialist
0
Web
M
Marketing
M
Deepen
Primary
Maintain
L
L
L Assignment
H
H
0
H
0
0
L
0
L
L
L
0
0
0
Critical selling
event =
opportunity
interception
(pipeline)
% of Available Spend
100%
0%
Sales Channel
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Prospect
Develop and Support
FSR or ISR
M
L
CSR
0
H
Specialist
0
0
Web
M
L
Marketing
M
0
Transactional
relationship =
candidate for
divestment
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Executive Insight
Roy Vallee, Executive Chairman, Avnet
10
What should keep distributor managers awake at night?
1. Finding pathways for continued profitable growth that in today’s
uncertain environment requires risk taking and innovation
2. Being able to attract and engage the new generation of workers
3. Being able to effectively allocate your resources (people and money) in
a changing environment (sometimes reallocating is the biggest
challenge)
Consultant takeaway: these issues represent a profound
and fundamental challenge to the risk averse, tactically
focused “owner operator” distributors that represent the
bulk of association membership
Source: MDM October 25, 2012. Full interview available at
www.mdm.com/ext/html/executivebriefing-7min-archive.html
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Building on the Foundation
Ideas from Quebec (and elsewhere)
11
We need to get closer to members and their customers (insight rather than
anecdote)
Stay away from competitive levers: focus on the size of the pie, not how it’s
sliced
•
Market strategy
• Best practices
Huge value in timely, relevant and credible data
•
Flash market reports
• True benchmarking based on consistent process metrics
Raise the profile of wholesale-distribution for Gen X and Y employees
Great value in network effects
•
Leverage by providing extra services or functional discounts for value added
participation
Offline association strategy development (conspiracy of effectiveness)
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Agenda
12
1:15 to 2:45
The Short List Of Member Challenges
A Recap From Quebec On Business Models
2:45 to 3:00
Break
3:00 to 4:30
Group discussion:
Reenergizing An Association
Association Vitality Index
We will draw heavily
from this book and it may
be challenging
Addressing Capability Gaps
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Business Models
13
A business model describes the rationale for how an organization
creates, delivers, and captures value
At the simplest level there are two parts; how you add value
to a market, and how you extract value (get paid)
If your model provides better value/cost ratio then you will
grow with those customers who choose you over other
alternatives
You will start to fail if you don’t provide a better value/cost
(time & money) ratio in the increasing range of alternatives
• At the time failure is described as being subject to the economy, rising
cost & time pressures, technology, and competitive alternatives
• Remember that your association started as a monopoly but your
members have many more choices today
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The Business Model Canvas
14
8. Some activities
are outsourced and
some resources are
acquired outside the
enterprise
7…by providing a
number of key
activities
6. Key resources are
the assets required
to offer and deliver
the previously
described
elements…
9. The business model
elements result in the cost
structure
Efficiency
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2. It seeks to
solve customer
problems and
satisfy customer
needs with value
propositions
4. Relationships are
established and
maintained with
each Customer
Segment
1. An organization
serves one or
several Customer
Segments
3. Value
propositions are
delivered to
customers through
communications,
distribution, and
sales channels
5. Revenue streams results
from value propositions
successfully offered to
customers
Value Creation
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Generic Trade Association Canvas
15
1. Third party
service providers
2. Buying &
marketing
groups
3. NAW/AEA/NAM
1.
2.
3.
4.
1. Group events in
multiple venues
2. Advocacy
3. Standards
promulgation
1. Intellectual
property
2. Owned patents
and standards
3. LMS or other
software
4. Talent
Staff
Marketing & sales
Event costs
Research investments
1. No next best
alternative
(monopoly)
2. Committee
engagement
1. Specialized
knowledge
that is hard to
obtain
2. Early warning
on specific
threats and
opportunities
3. Access to
trading
partners
4. Education
5. Affinity
meetings
1. Internet
2. Print
communication
3. Member
outreach
1.
2.
3.
4.
1. Categories of
distributors
2. Suppliers
3. Service
providers
(Aren’t there
discrete groups
within each
category?)
Trade shows/conventions
Member dues
Paid seminars and workshops
Licensing fees
The interesting part is in the specifics when looking at each customer segment
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The Apple i-Tunes Business Model
16
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The Multi-Sided Business Model
17
Multi-sided platforms bring together two or more distinct
but interdependent groups of customers
The platform is valuable to one group of customers only if
the other groups of customers are present
The platform creates value by facilitating interactions
between the different groups
• What specific interactions (not just activities)?
The platform grows in value to the extent that it attracts
more users, a phenomenon known as the network effect
• Growing numbers of members is the old measure
• The other measure is engagement (depth and numbers per
member) which measures largely unseen and unmet demands
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Multi-Sided Platforms
The Apple App Business Model
18
The spooling of the
turbocharger is called the
network effect
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Short Team Exercise (from Quebec)
19
Select the person who has traveled to the most exotic
location as your spokesperson
The network effect occurs when the needs of all customer
segments are met with balance- so compare notes with team
mates around:
• How are distributors treated as a favored class?
• How much association revenue is linked directly or indirectly to
supplier participation (imagine that they are gone)?
• What other constituencies or sub segments can be supported?
• How well are you being balanced in facilitating interactions?
Be prepared to share your answers
• You will need this insight for the group discussion after the break
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Agenda
20
1:15 to 2:45
The Short List Of Member Challenges
A Recap From Quebec On Business Models
2:45 to 3:00
Break
3:00 to 4:30
Group discussion:
Reenergizing An Association
Association Vitality Index
Addressing Capability Gaps
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Agenda
21
1:15 to 2:45
The Short List Of Member Challenges
A Recap From Quebec On Business Models
2:45 to 3:00
Break
The fundamental
principle is to find
unmet needs (pain
or frustration in a
few members) and
create a fulcrum to
leverage this
energy to scale into
the larger group
3:00 to 4:30
Group discussion:
Reenergizing An Association
Association Vitality Index
It is inherently
about a narrow
focus that is small
and bright
Addressing Capability Gaps
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From the 2004 AEC Meeting in Colorado
The Generalist Value Proposition
Consultants & Studies
Newsletters & spam
Tradition
Member surveys
22
Personal
member
agendas
Trade
show
New ideas
Trade Association
Education
Foundation
Since 2004 we have added Facebook, Twitter, and LinkedIn
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Factors Affecting Association Growth
23
1. Market Convergence (DHI)
As product silos evaporate nontraditional players begin competing with
your members. This is driven by “the grass is always greener” scenario
and customers’ desire to consolidate their supplier base (a zero sum game)
2. Industry Concentration (NAED)
Consolidation is really about concentration for the sake of market power. Is
the market share for the 10 largest suppliers or the 10 largest distributors
increasing or decreasing? Is it fast, slow, or accelerating?
3. Imminent Threat To Survival (HIDA’s medical device tax)
This is an external threat that disrupts the fundamental value propositions
of your members to their customers, most often created by changes in legal
frameworks. Advocacy may be the only viable solution.
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4. Value Proposition Erosion (OPEESA)
24
Remember that a value proposition is focused on a served customer
segment
• Generalist models erode the quickest
• All erode over time (Edgar Schein’s Adaptive Coping Cycle, e.g. John
Deere)
The real strategic question is what are your multiple value propositions and
which group do they serve?
Association membership is generally 1-10% of published NAICS
firm counts
• Members believe they are the elite and the other 90%+ is not
• We focus on meeting needs of the existing few, not the missing many
• Measures are around views of existing members
How does the other 90% view your 10%? Is asking the 10% the right way
to find out?
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5. Value Proposition Competition (SEDA)
25
Associations, as monopolies, were built on providing:
•
Networking among peers
•
Supplier access to their “customers”
•
Creation of specialized information
•
Education on common issues
•
Advocacy on common issues
Most distributor trade associations
offered a generic service package
and they were separated by the
vertical product silo defined by the
supplier base
How much are emerging value alternatives gaining traction in your
industry?
•
Buying and marketing groups, TEC and Vistage groups, major suppliers doing
their own distributor meetings and PAR Reports, the Internet, your distributor
member’s end user associations
•
If your association were hit by a bus tomorrow what would be the first critical
thing missed that isn’t provided elsewhere?
•
Are your core member needs becoming polarized by size, focus, globalization, or
ownership structure?
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Modified from the 2004 AEC Conference in Colorado
Association Vitality Score
26
Key Factors
Your Score
1. Market Convergence:
Score a 1 if you are losing industry revenue to alternative channels and score
10 if your channel is directly benefiting from erosion in another channel
2. Industry Concentration:
Score a 1 concentration is increasing and the large firms don’t support you
and score 10 if rising concentration is not even a minor issue
3. Imminent Threat To Survival:
Score a 1 if members are old and comfortable and score 10 if there is a
significant threat that members will welcome extra assessments to fight
4. Value Proposition Erosion:
Score a 1 if membership is declining and tradition is very important and score
10 if you reinvented yourself with a major redefinition of membership
5. Value Proposition Competition:
Score a 1 if you have strong marketing groups, powerful suppliers, or
competing associations and score 10 if you don’t
The maximum score is 50 (take a vacation)
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Total
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Creating A Fulcrum
27
Always relying on the big launch with lots of involvement is effectively
solving every problem with a hammer
Sometimes finding something small, bright, and resilient and setting it on
fire has a higher probability of becoming self sustaining over time
Don’t forget that you are not in a rush
http://sethgodin.typepad.com/seths_blog/2013/01/understanding-ideadiffusion.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+t
ypepad%2Fsethsmainblog+%28Seth%27s+Blog%29
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Group Activity
28
Pass in your five number scores and we will tabulate the groups responses
during your activity
The energy to start a brushfire is contained in three broad ideas
1.
Addressing members’ critical business needs (although they may not be widely
recognized yet), not ours
2.
Creating new value propositions for smaller segments of members that can be
isolated from the whole
3.
Letting go of some current activities where we are being held hostage to
history, so market forces become a wind at our back instead of in our face
The task for each table is to consider the factors and apply them to our
associations to identify a small and bright source of energy for change or
renewal
•
This is actually very difficult and it is not about making your members successful
(vitamins) rather finding anger and frustration (pain killers)
We will share our results starting at 4:10 so good luck!
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The Path Forward
29
We all need to develop and execute on a coherent strategy
The lodestar is understanding and meeting unmet or unrecognized
member needs (they don’t know so asking them is pointless and irritating)
•
20% of your members use 80% of what you actually provide
•
Significant resources are wasted trying to make members successful in spite of
themselves
“They shudda oughta wannna do it!”
•
When they don’t respond we raise our voice with more email, faxes, and phone
calls so they often avoid us
•
Sometimes the best strategy is to let everyone see a small group move ahead
and then they will act so they don’t fall behind
It is hard to kill a trade association quickly - they slowly fade away
• The last Senior Staff Executive with a strong comp package is the
easiest position to fill
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Your Personal Game Plan
30
Buy the book and do a business model canvas with your
own board
• Have them design a competitive trade association to help determine
what you can change (ask Nancy how to do it)
Start a dialog with your best and brightest members to:
• Start doing some segmentation to find some unmet needs or shared
pains
−
Because pain pills outsell vitamins
−
Examine future forces for key opportunities
• Start creating smaller group value propositions that involve non
executive members
Build a real strategy that starts with the external market and
then does tradeoffs
• Most important for most is finding stuff to STOP doing
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