The Power of Word Of Mouth

December 30, 2010

In 1989 fresh out of university I started a  business with a college buddy.  I remember those early days fondly.  Our business only had a handful of employees.  We worked long hours for very little but we had a great time.  We started out recycling / remanufacturing toner cartridges for laser printers but soon found ourselves selling computer hardware.  Our business grew from 90K in revenue in 1989 to just over 12M in revenue at close of year 1994. We ended up selling our business in 1994 and started all over again in 1995.  We did it again. We built a computer retail business from scratch to just under 15M in revenue by 1999.

I often think back and wonder what could we have done, or not done, in the Social Internet environment of today?  When we started in ‘89 the Internet was just beginning to show it’s potential via newsgroups and bulletin boards (bbs’s for those in the know), we leveraged it to get at the real geeks but only in the most informal of ways.

In the early 90’s everyone felt they needed a computer to “move ahead” or to “make sure their children were not left out” of the coming age of information. The problem was that brand name computers (IBM and Compaq at that time) were out of the price range of most.  Clone computers and computers built from parts were cheaper but the options and configurations were scary for consumers.  People simply didn’t know what to do.   I remember when we sold some of our first computers people would come back and visit and say “what do I do with it now?”  The C:> dos prompt just didn’t do it for them.

We did a couple of things that made us successful.  We installed a software menu with a ton of shareware/freeware  Games, recipes, spreadsheet, word processor, graphics program – some 200 programs in all that we preloaded on every system.  We defined three “packages”, with only a few add on options (printers, mouse, monitor), that would satisfy users. Most importantly we explained why you needed a computer and what it would do for you.

We had a room, maybe 20 X 30, with white boards on three of the four walls.  We had stacks of spec sheets for each of our packages with check boxes for the options.  Customers would come in and we would ask them a few qualifying  questions  and then we would start writing on those white boards explaining the solutions and giving them advice as to what they should purchase.

I remember some days standing  and  talking and writing on the white boards with a couple or a family and by the time I was done presenting I had  an audience of three, four or five groups.  Our little room would be packed like sardines. When the presentation was over one of the groups would place their order and invariably the rest would follow suit.  My business partner and  I would sell 25 systems each at at $3000 dollars a pop every Saturday and week days weren’t too shabby either.

How did that happen.  Was it location? Nope we were impossible to find, hidden away in an industrial area of Saskatoon.  In fact the main reason we hired a receptionist was to answer the phone and give directions. Was it advertising?  Nope. In those early days we didn’t do any. The extent of our advertising was a “highlighted” telephone number in the directory and a small yellow page ad.

Our marketing started as simple, cheap and effective as it gets – word of mouth. We helped people, we became their friends,  and in turn they told their friends.  Even today 20,  years later, walking down the street or sitting in a restaurant, someone will say “Hi Brendan, remember me? I bought my first computer from you.”  Sometimes I remember, sometimes I don’t. One thing I will never forget or underestimate is the power of word of mouth and referrals generated by really helping people and giving them value.

So sometimes I think back, what could we have done given the megaphone of the “social graph”?  How many more people could we have crammed into that little room if people could have used Facebook and Twitter to tell their friends and family?  I know that the opportunity we had selling computers couldn’t co-exist with ubiquitousness of  Facebook and Twitter but it’s fun to think about it.


Exploring the question: “Is Groupon the New Yellow Pages”.

December 29, 2010

Greg Sterling asked the question, “Is Groupon the new Yellow Pages”, and then went on to make compelling argument as to why Groupon could indeed be seen as the “new” yellow pages.  Basically the analogy is that in the glory days YP owned all the content, sales and distribution. Today they no longer have exclusivity to these things and it is possible that Groupon, within their model, owns these in deep and meaningful ways.

Greg’s post got me thinking about the  sales, content and distribution aspects of Groupon.

  • Sales.  Groupon has spent considerable effort developing a sales force. Direct feedback from SMB’s I have spoken with indicate Groupon’s sales people are pushy, but they are certainly effective. Also, at least in our neck of the woods, sales are done via telephone and not in person. This is a big advantage for Groupon both in cost and in scale. The more successful they are the more effective this strategy becomes. There is no question that Groupon controls their own sales channel.
  • Content.  What exactly is the content?  Well it is mostly the deal itself but is is also the innovative description of the business and the wacky stories them make up and associate to businesses.  The deal content is clearly owned by Groupon.
  • Distribution. This, in my opinion, is the key to Groupon.  They have perfected the art of building, and working/selling, an email list. Groupon uses the deal content, which is extremely valuable to consumers, to build an email list. They leverage the idea of group buying and referral fees to get consumers to recruit subscribers for them.  Then, they take the email list and pimp it out to businesses guaranteeing them a certain amount of business in exchange for a great deal for consumers.  The great deal in turn brings them subscribers.  Wash, rinse, repeat.  Their success allows them to own the list exclusively.  The do not share the list including the deal buyers with the businesses.

So if owning sales, content and distribution defines the new Yellow Pages then Groupon could certainly be it. My question is simply, does it have to be this way?  I think there are many entities out there that could give Groupon a run for their money, if not in the near term, certainly over the long haul. Many companies have broader distribution they just have to figure out how to harness it and share it with SMB’s.

 


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