NAW Association Executives Council Innovation In Association Business Models Discussion Leaders Mike Marks & Steve Deist The Fairmont Hotel Grand Ballroom 1, Ballroom Level Washington, D.C. January 28, 2013 1:15 to 4:30 PM
Feb 14, 2016
NAW Association Executives CouncilInnovation In Association Business Models
Discussion Leaders
Mike Marks & Steve Deist
The Fairmont HotelGrand Ballroom 1, Ballroom Level
Washington, D.C.January 28, 20131:15 to 4:30 PM
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2Mid 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)
About IRCG
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3Agenda1:15 to 2:45The Short List Of Member ChallengesA Recap From Quebec On Business Models
2:45 to 3:00Break
3:00 to 4:30Group discussion:
Reenergizing An Association
Association Vitality Index
Addressing Capability Gaps
It’s not about what we’re selling, it’s
about what they’re buying
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Don’t
Care
Nice to
Have
CriticalNeeds
Segment #1
Don’t
Care
Nice to
Have
CriticalNeeds
Segment #2
$$$$
A “one size fits all” model means spending more money but providing less of the critical services
$$
$$
Targeting segments allows us to tailor our investment for maximum effect
Death of the Generalist
“The specialization trend has been unkind
to the association incapable of serving an
increasingly diverse membership”
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Internal View 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
Strategic Evolution
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Key Future ForcesIf 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
3.
1.
2.
1.
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Customers are no longer just passive consumers of a product or service. They
help to create it!
Solutions are tailored based on
time and place
Information can be accessed from anywhere at anytime
#1 The Buffet of Choice: SoLoMo
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 MovesYour 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 ExampleSolution
development potential = candidate
for targeting
Critical selling event
= opportunity interception
(pipeline)
Transactional relationship = candidate
for divestment
100%
% o
f Ava
ilabl
e S
pend
0%
Sales Channel Prospect Develop and SupportFSR or ISR M L
CSR 0 HSpecialist 0 0
Web M L
Marketing M 0
100%
% o
f Ava
ilabl
e S
pend
0%
Sales Channel Prospect Develop CSE* Deepen MaintainFSR or ISR M H H L L
CSR L L L H HSpecialist 0 0 H 0 0
Web M L 0 L L
Marketing M L 0 0 0
Primary
Assignment
100%
% o
f Ava
ilabl
e S
pend
0%
Sales Channel Prospect Develop and Grow MaintainFSR or ISR M H MCSR 0 0 0
Specialist 0 0 0
Web M L 0
Marketing M L 0
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10Roy Vallee, Executive Chairman, Avnet
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)
Source: MDM October 25, 2012. Full interview available at www.mdm.com/ext/html/executivebriefing-7min-archive.html
Executive Insight
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
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11Ideas from Quebec (and elsewhere)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)
Building on the Foundation
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12Agenda
We will draw heavily from this book and it may
be challenging
1:15 to 2:45The Short List Of Member Challenges
A Recap From Quebec On Business Models
2:45 to 3:00Break
3:00 to 4:30Group discussion:
Reenergizing An Association
Association Vitality Index
Addressing Capability Gaps
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Business ModelsA 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
1. An organization serves one or
several Customer Segments
2. It seeks to solve
customer problems and
satisfy customer
needs with value
propositions
3. Value propositions are
delivered to customers
through communications, distribution, and sales channels
4. Relationships are established and maintained
with each Customer Segment
5. Revenue streams results from value
propositions successfully offered to
customers
6. Key resources are the assets
required to offer and deliver the
previously described
elements…
7…by providing a
number of key activities
8. Some activities are
outsourced and some resources
are acquired outside the enterprise
9. The business model elements result in the
cost structure
Value CreationEfficiency
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Generic Trade Association Canvas
1. Categories of distributors
2. Suppliers3. Service
providers
(Aren’t there discrete
groups within each
category?)
1. Specialized knowledge that is hard to obtain
2. Early warning on specific threats and opportunities
3. Access to trading partners
4. Education5. Affinity
meetings
1. Internet2. Print
communication
3. Member outreach
1. No next best alternative (monopoly)
2. Committee engagement
1. Trade shows/conventions2. Member dues3. Paid seminars and
workshops4. Licensing fees
1. Intellectual property
2. Owned patents and standards
3. LMS or other software
4. Talent
1. Group events in multiple venues
2. Advocacy3. Standards
promulgation1. Third party
service providers
2. Buying & marketing groups
3. NAW/AEA/NAM
1. Staff2. Marketing & sales3. Event costs4. Research
investments
The interesting part is in the specifics when looking at each customer segment
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The Apple i-Tunes Business Model
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The Multi-Sided Business ModelMulti-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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18The Apple App Business ModelMulti-Sided Platforms
The spooling of the turbocharger is called
the network effect
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Short Team Exercise (from Quebec)
Select the person who has traveled to the most exotic location as your spokespersonThe 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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20Agenda1:15 to 2:45The Short List Of Member Challenges
A Recap From Quebec On Business Models
2:45 to 3:00Break
3:00 to 4:30Group discussion:
Reenergizing An Association
Association Vitality Index
Addressing Capability Gaps
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21Agenda1:15 to 2:45The Short List Of Member Challenges
A Recap From Quebec On Business Models
2:45 to 3:00Break
3:00 to 4:30Group discussion:
Reenergizing An Association
Association Vitality Index
Addressing Capability Gaps
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
It is inherently about a narrow
focus that is small and bright
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From the 2004 AEC Meeting in Colorado
The Generalist Value Proposition
Trade AssociationEducation
Foundation
Consultants & Studies
Newsletters & spam Member surveysTradition
Personal member agendas
New ideas
Trade show
Since 2004 we have added Facebook, Twitter, and LinkedIn
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23Factors Affecting Association Growth1. 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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244. Value Proposition Erosion (OPEESA)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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255. Value Proposition Competition (SEDA)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
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?
Most distributor trade associations offered a generic service package and they were separated by the
vertical product silo defined by the supplier base
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26Association Vitality Score
Key Factors Your Score1. 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)Total
Modified from the 2004 AEC Conference in Colorado
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27Creating A Fulcrum
http://sethgodin.typepad.com/seths_blog/2013/01/understanding-idea-diffusion.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad
%2Fsethsmainblog+%28Seth%27s+Blog%29
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
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28Group ActivityPass 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 ForwardWe 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 PlanBuy 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