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John Warrillow

An antidote to shrinking profit margins Add to ...

If your profit margins are getting squeezed, it could be a sign you haven’t done enough to differentiate your company.

It’s a problem that the Gnu Group faced – and overcame.

The company, based in Lafayette, Calif., designs the signs that people use to find their way inside a building. But when a billion-dollar hospital is getting built, the signs that direct you to your doctor’s office can represent under 1 per cent of overall construction costs, so they are often a low priority and assigned to the cheapest bidder.

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The more that GNU’s chief executive officer, Phil Murphy, participated in requests for proposals, the lower his company’s margins sunk.

Wanting to get out of the business of competing on price, Mr. Murphy decided to differentiate his offering by documenting his unique approach for creating signs in a seven- step system. Then he branded the system and sold it like a product.

The “ Sign System Navigator” is the proprietary result for designing and implementing signage programs. Each step in GNU’s process is itself branded and described in the marketing materials that Mr. Murphy and his team use to pitch their services.

The first step of GNU’s process is something called the “sign profile analysis” where GNU “establishes the needs, strategy, hierarchy, messages, locations, quantities of a signage program…”

Most service businesses would do all of those things as part of the process of writing a proposal, but Mr. Murphy has gone out of his way to differentiate every step of his system – including getting the job in the first place.

The seventh step is called the “improvement profile” which, among other things, promises “post installation follow-up services including maintenance procedures, on-going maintenance and ordering additional program elements…”

Again, most of Mr. Murphy’s competitors would offer some follow-up service after the job is done but he positions it as part of a rigorous, seven-step process.

The payoff? Mr. Murphy has gone from competing on price in a commoditized business to the point where most of the jobs GNU now gets are never even put through a competitive bid process.

Instead, clients are buying the seven-step process that he markets like a product, not a service.

Codifying your approach to doing business has a number of benefits:

1. When you’re selling your system, instead of simply competing in a generic category, your differentiated approach allows you to win back control over your pricing. The buyer no longer has an “apples to apples” way to compare your offering with other proposals.

2. Similarly, you can reduce or eliminate the need to respond to requests for proposal, and, therefore, avoid grinding down your margin. Instead of asking GNU to participate in what amounts to a reverse auction, most clients now come directly to the company because they have had good experience using Mr. Murphy’s seven-step system.

3. With a packaged process, you can charge a larger portion of the job upfront. Unlike billing for time, where you typically have to spend the time to know how much to charge, when you’re selling a system, you can charge a larger portion of that “product” upfront.

4. Your customers gain confidence that you’ve handled similar projects before and have a rigorous approach to your work.

5. Your employees learn the steps faster, with fewer mistakes, and new employees become productive more quickly.

To help articulate and differentiate your approach, hire a journalist (easy to do on www.elance.com) to interview you for a few hours about your process for doing business. Then have him or her summarize your system for serving customers in a number of steps.

Just being interviewed will make you realize that you do have a system, and that you’re probably just following it subconsciously.

When you get the journalist’s report back, you’ll have the beginnings of a system that can help you differentiate your company and win back control over your margins.

Special to The Globe and Mail

John Warrillow is a writer, speaker and angel investor in a number of start-up companies. You can download a free chapter of his new book, Built to Sell: Creating a Business That Can Thrive Without You.

Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT

Follow on Twitter: @JohnWarrillow

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