“Much of what it takes comes down to common sense and remembering to look from the outside in rather than from the inside out,” Nellemann claimed when asked how he'd gone about breaking into the telecom and office supplies markets.
For Christian, this specifically means doing extensive competitor research and taking time out to understand the prices and small print of your competitors. “In price driven markets, it nearly always boils down to the headline price you can put on your ad. But as we all know, if the headline figure is undermined by the small print, the consumer inevitably catches on and sooner or later feels ripped off. Therefore, be sure you can continue to deliver your product or service at prices significantly below those of your competitors before you even enter the market.”
With regards the role loss leaders have to play in this sector, Christian was equally frank. “Look, if you want to build a highly unprofitable business, then sure use loss leaders. But for us, it's always about delivering sustainable value to customers and profits to shareholders. So do your sums first and understand exactly how far you can go down the price cutting route before being drawn into an unprofitable and unsustainable price war.”
And for Christian's businesses this means having the systems in place to measure every aspect of each enterprise, “To be on top of your business you have to be able to measure every aspect of it – not just the big factors such as margins but the smaller issues as well. Often it's the combination of many small things not working in sync that leads to a single big problem.”
One of the benefits of Christian Nellemann’s approach is that it has allowed him to understand which overheads are essential and those which are not – outsourcing, off-shoring or axing the non-essential so that resources can be focused on the important issues. However, he would be the first to admit that the business does not always get it 100% right: “Like many businesses, we were drawn to the cost attractions of off-shoring our customer service centre to India – but given the needs of our customer base, it was totally the wrong decision. We needed a call-centre where the line quality was robust and representatives were sensitive to the nuances of the UK market.”
This pragmatic view pervades all areas of Christian Nellemann's business – not least marketing. Having always had to build businesses off tight budgets he has little time for marketeers who espouse the need to build a brand. “For a young business, high cost marketing activity such as advertising should be seen purely as a means of generating sales – if it is not producing sales and at the right customer acquisition cost – stop it immediately and try something new.”
But if a business does hit a winning formula – is it home and dry? “No two businesses are the same but from our experience finding a winning formula is down to experimentation. You have to kiss many frogs. Successfully scaling a good idea is another issue completely – especially when you are competing against established majors in a given field. There comes a time when your idea is no longer cost effective”.
In short, if you have discovered a winning formula – established businesses are not going to sit idly by as you take away their customers. “Remember, they have become big businesses as much by being able to defend their existing positions as by growing new ones – always be on the look-out.”