NAW Association Executives Council Innovation In Association Business Models

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

WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

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

http://www.naw.org/publications/pubs_item_view.php?pubs_itemid=156


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


4

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”


5

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


6

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.


7

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.


8

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.


9

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


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


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


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





http://www.amazon.com/Business-Model-Generation-Visionaries-Challengers/dp/0470876417/ref=sr_1_1?ie=UTF8&qid=1340043154&sr=8-1&keywords=business+model+genration


13

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


14

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


15

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


16

The Apple i-Tunes Business Model


17

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


18The Apple App Business ModelMulti-Sided Platforms

The spooling of the turbocharger is called

the network effect


19

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


20Agenda1:15 to 2:45The Short List Of Member Challenges


2:45 to 3:00Break






21Agenda1:15 to 2:45The Short List Of Member Challenges


2:45 to 3:00Break





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


22

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


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.


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?


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


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


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


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!


29

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


30

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

Documents

NAW Association Executives Council Innovation In Association Business Models