Two Out of Three Ain’t Bad

By Scott Bushkie

We’re doing our strategic planning and talking about our brand at Cornerstone. As our facilitator pointed out, there are three ways to compete as a business: price, quality, and service. Good companies compete on one. Great companies choose two. But you can’t do all three on a sustainable basis.

Quality: Does your product do what you say it will? Is it durable? Is it more technically advanced? Some people are willing to pay more for quality, and others aren’t.

Service: What is the experience the buyer goes through? Does service make the buying event simpler or less stressful? I don’t think I’ve ever set foot in a Nordstrom’s, but I’m told they sell the same merchandise as other high-end department stores. But their service is far above their competitors.

They put more knowledgeable people on the sales floor, make the return process easy, and otherwise go out of their way to make sure the shopping experience is positive. They make you feel special at the end of the day.

Price: With price, the lowest cost provider wins. Coming out of college, I worked at Aldi Food. Their number one strategy is price, and on average, you can save 30 to 40 percent on your grocery bill.

Locally, you can compare their strategy to Festival Foods, which has done an outstanding job in our market and has high quality products and unbelievable service. Obviously their prices still have to be competitive, but their brand is more about quality and service. Aldi and Festival Foods appeal to different shoppers, and both are very successful.

Where the problem comes into play, particularly with smaller businesses, is when people try to be all three. They try to be the best, with the highest service, but they don’t trust the market will pay for those services. So they discount their fees down to the low cost provider. In most cases, this cannot be sustained long term. Creating that “boomerang effect,” like Festival Foods, takes extra investment.

If you’re going to brand yourself on quality and service, especially if you’re a service company, you want metrics to back that up. For instance, with Cornerstone, we’ve identified our closing ratio as a key quality measure our potential clients care about. When we represented companies with $2 million of revenue or more, and went through our full Cornerstone process, our closing ratio was 86 percent in 2014 and 100 percent in 2015.

We’re working on other metrics, including average letters of intent per engagement and the rate at which we obtain a price above the seller’s benchmark. That way, when we talk to a client about why they should choose us over a low cost competitor, we can point to our results.

If you’re not competing on price, what kind of metrics can you track? Look for ways to capture and communicate that tangible value to your customers. 

By Scott Bushkie

With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers.

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