Saturday, June 30, 2007

Heaven Fresh Distribution Startup Strategy for a New Country

Heaven Fresh is in the business of marketing and distribution of air and water purifiers. Just like any other marketing and distribution company, the biggest challenges for us in a new county are:

1) Finding "the perfect" partners

2) Reaching out to potential customers

3) Expanding the distribution network

Finding the right people

If people are the biggest asset of any business then the right people can be the difference between the survival and death of a micro-multinational in a brand new market within weeks of starting the operation. With limited capital and time, there are various challenges to face. Anyone managing the new office must be very well aware of that and must be ready (both physically and mentally) to take on this challenge. 

We believe that the kind of commitment that a new Heaven Fresh office needs can not be expected from an employee. For each new office/distribution center, we need a partner with entrepreneurial spirit,  who wants much more than a regular job. Therefore, instead of seeking employees we seek "partners" who get personally vested in the business and have a sense of ownership. These partners share the Heaven Fresh vision and are prepared to take on a difficult task.

When selecting a new partner, we try to make sure that this new partner will not only be able to handle the new office but will also be able to contribute his/her skills and talents for other HF offices as well.  The new partner can be someone who's already involved in similar business and wants to join a global team or he/she could be a fresh graduate from a college/university  and is willing to give whatever it takes to make things happen. For example, our partner in Germany, who is managing the Heaven Fresh Germany office,  was already involved in air purification business when he decided to work under Heaven Fresh umbrella.  He had years of engineering experience under his belt and had quit his job to start the business. On the other hand a young graduate with Master's degree in computer science took on the responsibility for the UK office realizing that his duties will not only be limited to software development and IT work but will also include shipping & handling of the daily orders, loading & unloading of the containers, accounting, customer services as well as the management of the every day business affairs.

Immediate reach to potential customers:

Reaching the targeted retail customers as soon as possible after setting up the office in a new country is extremely crucial for a micro-multinational company like Heaven Fresh.  If we are to achieve our goal of breaking even in just 3 months,  we must be able to reach out to the customers who are already prepared to buy our products.  This immediate cash flow is the life line for a new Heaven Fresh office. 

There is no better media than the Internet search engines and an e-commerce web site to get that much needed cash flow to sustain the new office. If a web surfer is searching for the words like 'air purifier', 'air cleaner' and  'air ionizer'  etc.,  it simply means that he/she is already thinking about purchasing such a device. The simple fact that the generic key words are being used to search for an air purifier also suggests that the potential buyer is not interested in a particular brand.  So, if we can just manage to steer the web surfers to our web site, we have a huge chance of closing that sale. 

With four of our web sites (US, Canada, Germany & UK), the first sale came in within 48 hours of launching each web site.  Each sale from the newly launched web site puts more money in the company's account to be spent on pay-per-click advertisement to direct more potential customers to the website. While pay-per-click programs such as Google Adwords, Yahoo Search Marketing, Shopzilla and shopping.com are great to get the sales cycle started with just a few bucks, the real value is to get the new web site ranking high in natural search (the non paid search results of Google, Yahoo, MSN and other engines).  Out of all the search engines, Google is my favorite as it rewards us for our hard work in other countries. Just to give an example,  our first web site for Heaven Fresh USA (http://www.heavenfresh.com) ranks high for key words like 'ionic air purifier'.  When we launched our UK web site http://www.heavenfresh.co.uk in November of 2006,  Google automatically associated the UK site to the US site as both share the domain name, the company name, the slogan, the products, the site keywords, the site structure and the cross links  on all the Heaven Fresh web sites. On the other hand Google is smart enough to know that the new site is geared towards the UK market from the company phone numbers, the physical address and the sales currency etc.  The Heaven Fresh US web site might not be much of an interest to a web surfer in the UK as there is Trans-Atlantic shipping involved there. Therefore, the new UK web site http://www.heavenfresh.co.uk automatically gets the weight of the established Google rank of the US site http://www.heavenfresh.com.  This visibility in the search engines (paid & non paid) not only helps us get the retail customers but also attracts distributors who are looking to resell air and water purifiers in that market.

Our rule of thumb is that the online sales must stop the initial bleed of the company bank account within first 12 weeks. Beyond that any further investment in the business must be reserved for the growth activities instead of the working capital.

Expansion of the Distribution Network

As a consumer products marketing company, expanding the Heaven Fresh product distribution network and using all the possible sales channels are the key factors to grabbing a significant market share in the new country.

Establishing a distribution network can be an expensive and time consuming undertaking for any company. Anyone involved in consumer products marketing knows it very well that each product has a limited life cycle. Depending on the stage a product is at during its lifecycle, different strategies and sales channels can be adopted for distribution.  In a micro-multinational company, it is very important to identify the life cycle stage of the products  in a particular country as this stage can vary from country to country. Taking an approach that a particular market is not ready to entertain or spending the time and money on experimenting with the wrong sales channels can spell disaster for a small company. We learned this the hard way in Heaven Fresh Middle East offices (United Arab Emirates & Saudi Arabia) where we made certain assumptions that were only valid for relatively mature European or North American countries. The good thing is that we recovered from our mistakes and managed to turn those offices profitable. 

Depending on the resources available and the market conditions, we either use direct sales approach, establish a network of small distributors, put the products on the shelf in the big box chain stores or sell through home shopping TV networks.  This is a simplified version of our efforts to expand the distribution network of Heaven Fresh. An entire book can be dedicated to the consumer product distribution in 21st century as well as the most effective ways to do it in a micro-multinational environment. I will write more in bits and pieces on this topic.

At the end, I have to say that we are very excited about our latest endeavor to run the 30 minute Heaven Fresh infomercial to sell products on TV. The infomercial will debut in Canada on 7th of July on Shop TV and will start on Best Direct TV in the UK on 30th of July, 2007.

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Sunday, June 24, 2007

The characteristics of MMNCs

In his reply to my June 19, 2007 post Cedric puts it in nice words that the uniqueness of a micro multinational  "is the venture capacity to build a strong brand equity in a narrowly defined market with very limited resources, using the most efficient tools".

As I see it, following are the characteristics of a Micro Multinational Company.

  1. Operates in several countries.
  2. Normally a small group of people runs it.
  3. People are scattered around the globe.
  4. Resources are limited.
  5. Many people wear several hats.
  6. Financing available for growth is not sufficient.
  7. Usually can be categorized as a small business.
  8. Adopts the new technologies very quickly.
  9. Heavily leverages the Internet for expansion.
  10. Uses resources very efficiently.
  11. Mostly managed by entrepreneurs with extensive technical backgrounds.
  12. Most of the people in the company are stake holders instead of employees on salary.
  13. Routine daily tasks are outsourced to countries with low cost technical labor.
  14. Yearly combined budget of the growth and management tools is only a fraction of the annual sales.

The last point in the above list needs special attention. I'm glad that Cedric mentioned this characteristic in his reply because ideally it should be true.

It was true for Heaven Fresh for the first three years. When we started the business, we used open source software tools and low cost services to manage every thing. For example, osCommerce as shopping cart, mySQL for databases, shared Linux servers for a low monthly fee, Google/Yahoo pay-per-click advertisement, Quick Books for accounting,  self-managed computer network, open source e-mail clients, in-house developed scripts/programs for various automation tasks and so on and so forth.

First of all I myself have software development background and I also got lucky to find people to work with who are quite technically adept.  We kept our overheads low by using any tool available for growth and management of the business. But eventually, it became increasingly difficult to use all the bits and pieces in an integrated fashion. We simply do not have enough time to manage the growing business and in parallel develop the technical infrastructure as well. Instead of trying to use bits and pieces we went on a hunt for a comprehensive low cost /open source business management software that could keep up with all the technological advancements without us having to spend way too much time or hire expensive IT guys.  After spending 10 months and a few thousand dollars on experiments with various software packages, to our astonishment, we could not find a single system that could meet our needs. 

At last, against our own wishes, we ended up biting the bullet to invest in a commercial software management service called NetSuite. NetSuite, in my opinion is the best of the worst situation for us. Any other solution is simply not viable at this point in time.  Being a software developer myself, I feel painful to acknowledge that we are spending about 15% of our annual revenues on the IT infrastructure to manage the growth of Heaven Fresh.  The surge of our IT costs from fraction of the the sales to consuming almost all of our profits overnight is a bitter fact that we have to live with. This difficult reality made us believe that the 21st century businesses (the micro multinationals) need a radically different approach to stay competitive and take advantage of the opportunities provided by the Internet. We also realized that a monstrous opportunity exists for any one to provide business management software and tools to this new breed of entrepreneurs and companies across the globe. Therefore, we decided to develop it.

Wikipedia Definition of MNC

Wikipedia defines a Multi National corporation (MNC) as "a corporation or enterprise that manages production establishments or delivers services in at least two countries. Very large multinationals have budgets that exceed those of many countries. Multinational corporations can have a powerful influence in international relations and local economies."

The article mostly talks about large corporations and also goes on to describe the International power of the large MNCs, "large multinational corporations can have a powerful influence in international relations, given their large economic influence in politicians' representative districts, as well as their extensive financial resources available for public relations and political lobbying."

A Micro Multi National Company (MMNC) also operates in multiple countries and that is pretty much where the similarities between MMNC and a typical large MNC end. While a large MNC has the lobbying power and the financial muscle to influence the governments or the local markets, MMNCs, on the other hand, make the best use of the resources available to them at any given point in time to establish themselves in a particular country.

Saturday, June 23, 2007

Open Software Platforms

I'm using Windows Live Writer, a desktop product from Microsoft, to post this message on Blogger(a Google service).  Surprisingly, I found out about the Live Writer on the Blogger web site. The message even called Joe Cheng, developer of Windows Live Writer and a Microsoft employee, "a friend of Blogger".

Live Writer seems to have some good features but partly due to its not-trivial configuration with Blogger, I am a bit skeptical of a Microsoft product working well with a Google service.

Many software visionaries have predicted this long time ago that closed platforms will spell nothing but disaster for the software vendors. The consumer must be free to choose the bits and pieces at will to create the best possible experience for himself instead of getting stuck with just one system that is not interoperable with systems from other companies.  With the software getting more and more complex, it is just natural that some companies will excel in certain areas and others will be better in different functions. Consumers and businesses looking to be more efficient will be able to pick the pieces and create a superior system that a single software vendor might not be able to provide in one comprehensive package.

Well, let's see if this marriage of a Microsoft product and a Google service will work. I'll keep my fingers crossed.

Tuesday, June 19, 2007

A different kind of Multinational

Dear YS

Thank you for your reply to my June 10th post. I agree with you that "micro" in "micro-multinational" is just a state of mind. I believe that whoever used this term first time probably just wanted to reduce the typical scope or the conventional grand image of the word "multinational" that comes to mind when thinking of a "multinational company". Before getting involved with Heaven Fresh, I always thought of a multinational company to be a gigantic business with extensive resources, abundance of money, enormous influence and vast market share. A few examples could be, Procter & Gamble, Coca Cola, Pepsi, Microsoft, Toyota, Sony, Pfizer and Siemens etc. etc.

A company like Heaven Fresh is still far from reaching the mass and power of the above mentioned companies (Not that it will always be, but right now it is :). There is no question that it is a multinational company and the revenues are in millions but still it is a "small business" at this point in time. Before the Internet era, a company like Heaven Fresh could not even think about becoming multinational before getting out of the "small business" realm. Now the question is that what makes Heaven Fresh a small business. It is the fact that as a company we still do not have the luxury of taking all the expansion steps that we want to take at our will. The resources are inadequate, the capital is very limited, market share is extremely small and many people in each of the Heaven Fresh offices still wear several hats (a characteristics of a small business).

So when you look at Heaven Fresh from a perspective of insufficient resource to make aggressive growth moves, you can only classify it as a small business. On the other hand when you consider the fact that it is multinational and revenues are in millions it looks anything but a small business.

Probably "Micro-Multinational" is not the correct term but in my opinion it conveys the message that something is fundamentally different about Heaven Fresh from a typical "Multinational Company" of a 20th century. Whether we use the term "Micro-Multinational" or "Small multinational business" or "XYZ", the distinction between Heaven Fresh and let's say Proctor & Gamble is very important and the key factor here.

Why is it important? That has to be left for another post. It's almost midnight now and I have to go to bed soon. Someone's waiting for me :)

Good Night.

Sunday, June 10, 2007

Is Heaven Fresh still "Micro"?

After my first blog entry I presented it to my dear friend, Celal Okur, for his feedback. His immediate reaction was that I should not post the total number of Heaven Fresh employees as it makes the company look much smaller than its image. I do agree with him and honestly speaking, under normal circumstances, I always try to portray an image of the company that is somewhat bigger than the reality (After all this is my baby). My reason for going against my own normal bragging behavior about HF was that I wanted a new reader to have a feeling that Heaven Fresh is actually a micro-multinational even though the company revenues are in millions and its products are sold in several different countries. The question is, when a micro-multinational will not be 'micro' anymore? Any comments? Suggestions?

I do believe that Heaven Fresh is a micro-multinational as the challenges that each one of company's offices faces are of a small company trying to make its mark in a particular market. The 'big' image of Heaven Fresh comes from the collective efforts of all the autonomous offices/distribution centers of the company. Just to make things simple, Heaven Fresh can be thought of as 6 different companies in various countries working under one name and sharing their resources to reduce the overheads thus maximize their visibility, negotiation power and the profitability. Coincidently, I am reading an interesting book called Wikinomics. The book covers the subject of the power of mass collaboration and its roll in 21st century businesses. Once I finish the book, I will post my thoughts on collaboration of many small companies to form a micro-multinational.

Friday, June 8, 2007

Just do it !

Today is June 8, 2007. It's been a few months that I wanted to start a blog to share my experiences of running a micro-multinational distribution company. Well, with all the day to day affairs of managing Heaven Fresh along with the expansion work, there is not much time left to do anything else. So, I decided to treat the blog just like another expansion project for Heaven Fresh i.e. Just Do It. Just get started, motivate myself, build a hype, get others excited and the stream line every thing as time passes by.

I came to know the term 'Micro-Multinational' at the end of 2006 when I read an article in Business 2.0 magazine. As of today, if someone googles for 'Micro Multinational' , most of the examples of micro-multinational businesses are the software companies with employees in many countries. I consider Heaven Fresh a micro-multinational not only because Heaven Fresh employees are scattered around the world but also Heaven Fresh is operating distribution centers and sales offices in several countries. They include, the United States, Canada, Germany, United Kingdom, United Arab Emirates (UAE) and Saudi Arabia. Until a few years ago, it would have been impossible to operate a product distribution company in all these countries unless one had millions of dollars to invest in all these global offices. Heaven Fresh has a total of 12 full time employees world wide and 6 part timers. Yet, the Heaven Fresh revenues have grown into millions (exact number of millions is a mystry :) in just 4 years. We are planning to open offices in China and Australia very soon. The exciting part of all this is that we have started all these offices / distribution centers with very small (in just thousands of dollars) working capital. This has only been possible due to our ability to share our resources among various Heaven Fresh offices in an extremly efficient manner thus reducing the business overheads to an unbelieveably low levels. We have achieved our goal of breaking even within 3 months of starting each office with an exception of UAE office where it took about a 1 1/2 year to break even.

Here, I did it. My first blog entry. I intend to write more on micro-multionals in general and Heaven Fresh in particular in subsequent posts.

Adios.