Vision and Coffee

coffee and visionI like coffee. The drink sure, but also the doing. The concept that we can exchange information, ideas and insights much more naturally over a drink, than if we were sitting in a meeting room. For instance, yesterday I had a coffee with a woman who was having difficulty growing her marketing business. There were a number of reasons for her challenges but one specific reason caught my eye.

She had the commonly held belief that you should envision a better world, and work towards changing things to your vision. In her case she felt that too many of her potential clients were failing because they didn’t have a strategic marketing plan. She wanted to change that. Unfortunately, the vast majority of potential clients just didn’t care.

Now there is absolutely nothing wrong with having a vision of how you want to change the world, but can I suggest that its better if it’s a big vision, rather than a small one for personal gain. Everyone loves what Elon Musk is trying to achieve with Tesla, Space X and Solar City. Everyone loves what Job s did bringing design to the forefront. Everyone loves the fact that Ghandi chose peace as the method to effect change. These are all big visions. No one loves a small vision except for you.

If your vision is small, perhaps it’s better to start with viewing the reality of a situation clearly and take advantage of it, rather than struggle to implement a vision no one else cares for. In her case it turns out she was also extraordinarily good at acquiring sponsors for events. There is clearly massive demand for assistance in this and its easy to sell. The sponsor acquisition service can also be a gateway product to selling services such as developing strategic marketing plans once you are trusted and clearly cash flow positive for the client.

I would package up the sponsor acquisition service with something like a small kickoff fee, then a commission payable on the value of the sponsorship. So from the client point of view the risk is very low and the value is black and white. There is little need for others to “believe” in your vision.

Its hard to embrace this “realist” approach though. Perhaps the coffee tastes a bit too bitter. Although Im sure you will get used to it.

Strategy, the Accounting Equation and the failure of Arrium

If I remember rightly, the very first thing you learn in Accounting in first Year Uni is the Accounting Equation.  The fundamental framework that underlies the recording of a business’s activities.

Assets = Liabilities + Shareholder Funds

It means that for everything a company has, there is a claim on it by either the owners of the company, or by those that the company has a liability to (i.e. its suppliers of labour, inventory, cash etc).

But its actually more than this.  Bear with me, its actually the basis of strategy!

Everyone’s heard the lie line “the purpose of the company is to increase the wealth of the shareholders”.  So the Board of Directors can believe they are acting correctly and ethically when they pay out dividends, even if this slowly compromises the company’s ability to survive.   Almost certainly this will also shaft the suppliers to the company.  So when a Board ignores warnings and continues to give cash to shareholders, Administrators need to step in to start looking after suppliers.  i.e.  Looking back to our Accounting Equation, the shift in strategy becomes obvious – the emphasis moves from looking after shareholders, to looking after those with the Liability  (the Shareholders).

This isn’t abstract, it translates directly into the real world.  Have a look at Arrium.  Since One Steel became Arrium in 2012, it paid out a large percentage (41%+) of its profits as Dividends.   Despite plenty of warnings that trading conditions were deteriorating, despite profitability diminishing, and having to maintain crushing debt levels.  It still looked after the shareholders.  Only in 2015 did it have to call a halt to the Dividends.  There was no building a war chest to make the company more resilient.   Consequently, the Administrators have taken over and will now look after the Creditors, to the detriment of the Shareholders.

So the fundamental strategy of a company isn’t the value proposition of a company that it takes to a market segment,  it’s how it balances the competing needs of owners and suppliers so that it can survive!

see the forrest and the trees

My catch phrase this week has been “Think like a Marketer, Act like a Salesperson”

A colleague went to raise $16M with a cunning plan. Two investors told him his plan was stupid, not cunning, and he pretty much threw his pitch in the bin.

See the forrest and the treesAnother colleague deployed some new infrastructure, based on market research for the demand. He blew his dough as it turned the research wasn’t nuanced enough. There was no demand for the new version of offering.

Now I have been a marketer and a salesperson, and what I have noticed is that most people have a tendency to think like a salesperson, and act like a marketer. However, success in business development tends to come from operating the other way round. What do I mean?

Sales people operate at the coal face, consequently their intuition and insight into how customers feel is excellent  – they are constantly altering their behavior based on feedback. However they tend to wear their hearts on their sleeve. If three customers in a row hate a new product, they will give up on selling it.  They don’t see the market, they only see the prospects. (Just see the trees, but can’t see the forrest)

Marketers have a much more dispassionate view of market places. They may estimate, as in the case of Encyclopaedia Britannica, that only one person in a hundred has demand for their product. Therefore logically, 100 people need to be approached to make one sale. However, they are always abstracted from customers, relying on research rather experience. After a while their gut feel becomes so disconnected, that they can be convinced that jumping into the fire is a good idea, if the data supports it.  (just see the forrest, but not the trees)

So, if you think like a marketer “I will have to speak to 25 investors to get one interested (a 4% response rate) then act like a sales person “I notice they wince every time I suggest it will only take 12 months” you end up doing the hard slog, but learning and refining every step of the way.  A winning strategy.

I think its an handy mental framework when trying to develop new business around new products and markets.

When you compare yourself to others

There is a line from the poem Desiderata that I find myself quoting quite often to founders of small innovative businesses.

If you compare yourself with others, you may become vain or bitter, for always there will be greater and lesser persons than yourself.

DesiderataBut like most quotes that sound worthy, I like to dig deeper to the algorithm beneath.  My starting point for this was the Johari Window  a tool for gathering insight about yourself and your  relationships.    But I have tweaked it a bit to specifically deal with making comparisons.

Information about you

I would assert that there is three types of information about you that friends, colleagues, strangers may come across.  Basically:

  1. The Good stuff – eg you are a skilled cartoonist
  2. The Bad stuff – eg. you were once charged for being in a drunken brawl.
  3. The indifferent stuff – Information about you that is neither good nor bad eg. you prefer spaghetti bolognaise to spaghetti carbonara.

There is also three levels of intimacy of information about you.

  1. The Public stuff – Everybody can discover it .  eg. You live in Melbourne.
  2. The Private stuff – Only people close to you know – eg. You have a sensational pair of leopard skin pyjamas.
  3. The Secret stuff –  Only you know this. eg. You once saw  a  car being robbed,  but didn’t intervene or tell anyone.

 

  Secret Private Public
Good eg.  You have a sensational pair of leopard skin pyjamas  eg. Skilled Cartoonist
Indifferent eg. you prefer spaghetti bolognaise  eg. You live in Melbourne.
Bad  eg. You once saw  a  car being robbed,  but didn’t intervene or tell anyone.  eg. You were conce charged for being in a Drunken Brawl

Now we are generally pretty happy for the good stuff to be public, in fact most artists employ publicists, to get the good word out and to make sure the message is right.  Conversely, we try to keep the bad stuff secret.

The problem is of course, when we compare ourselves to others, we are brutally unfair.  You see most of what we know about others is the public stuff, and occasionally the private stuff.  And as we had just seen, this is much more like to be the good stuff.  However when we compare ourselves, we compare the complete picture of who we are, including very much our weaknesses and failings.  This of course leads to misplaced feelings of despair, jealousy, failure etc.

On occasion we also witness bad stuff hat would normally be private or secret about others.  This then leads to us feeling superior and vain.

We are terrible and childish in the way we do it, but once you realise whats actually happening, it can ease the pain and make us a bit more humble.

The next paragraph is Desiderata helps me keep perspective.

Enjoy your achievements as well as your plans. Keep interested in your own career, however humble; it is a real possession in the changing fortunes of time.

 



disruptive innovation and food

Today at lunch my father announced that some industries are doomed due to disruptive innovations but some are safe. I of course reacted emotionally at first telling him he was talking complete rubbish, but then after pausing to draw breath, I like to think I rationally pointed out why no sector is safe from disruptive innovations.

Ziferblat CafeWhen talking about innovation I like to talk about Butchers and Restaurants.

The basic value proposition for a butcher is quite simple and has been the same for a thousand years. Nobody wants to slaughter a cow, and its pretty hard to store a whole cow to eat at your lesiure. Much easier to get some one else to do the dirty work, then take a tiny share. There is not much innovation going on in the sector and the heuristics for running a successful butcher shop are fairly simple – put it on the high street, front load your cabinets with delicious offerings, look hygenic.

However old and mature the standard business model is, don’t think you’re safe from disruption.  Consider restaurants.

The value  proposition of a restaurant is also pretty simple – pay a third party to give you food that you can’t or wont prepare for yourself.   But when you talk about innovation in restaurants, things start to get weird when you pick at the surface.   At most restaurants you pay for the food you order, with each dish a separate price.

Sometimes the food is in the kitchen for you to order, and sometimes its brought to your table for you to select (love yum cha!). Sometimes you pay a set price and get a set menu. Things can get much more innovative though. In South America, kilo restaurants are not uncommon. Restaurants that advertise a price per kg. You then load up your plate with whatever you like from the bain-marie, weigh it then bay the kg price.  And now there is a new innovation I find quite fascinating – as it approaches the monetisation problem from a completely different angle and throws out the original value proposition effortlessly.  A pay per minute cafe has just opened in London. Basically everything is free, you just pay for how long you stay at a rate of 3p per minute.. The catch is that for many things you may like, you may have to cook yourself. Eg there are eggs and bread in the pantry and frypans and toasters available.

The key here is that disruptive innovation can come to any sector, simply by having a good look at the value proposition that underlies all the other activity.

The butchers value proposition is just started to get looked at – which is why we are seeing franchises of poultry specialists, direct to the public wholesalers and champagne served with tastings!  Plenty more innovation to come I think.

So, do you know a good Sales Manager?

Over the last 9 years of running the Churchill Club I noticed that every time we have an event with a sales and marketing focus, someone asks me that question afterwards. They sidle up beside me and pretty much use these exact words every time “So, do you know any good sales managers?”

Sales ManagerThe person asking the question is normally the founder / CEO of a small but growing innovative business. They wanted to grow faster by professionalising their sales and marketing activity or address at plateauing of sales. First stop is that they employ a Sales Manager who is very impressive. Around 6 months later they fire them for having no impact. They then repeat this cycle a couple of times hiring and firing, until they eventually ask me the questions “So…..”

So why does this pattern repeat itself? Lets set the scene……

  1. The CEO has traditionally generated business out of his/her own networks. Normally they have a strong background on the tools (whether it be tech, science, serving ice cream whatever)…They are well respected for being good at their job and consequently get plenty of business referred.
  2. Its easy for them to sell, because they are “the man” the person who can make a decision immediately, answer any question and fix a price or discount on the spot.
  3. They don’t particularly need professionalism of their sales and marketing activity, because new business effortlessly and regularly  arrives.
  4. Their business booms for a while (normally for around two years) before they start to run out of opportunity in their own network, which is when they decide to employ a Sales Manager.

Here’s what happens next…

  1. The Sales Manager gets the job because he or she is good at selling (themeslves to you). They have probably worked in the industry before and somehow connect with the CEO. They have previously held roles as a “Sales Manager” which you don’t yet realize is meaningless, because pretty much every salesman in existence has held the title “Sales Manager” but not done the job.  The difference between selling and managing sales is vast, but its confused by the fact that Sales Managers are usually a senior salesperson as well.
  2. Turns out that they are also poor pick for the job – because of you.  You don’t know what should be in their job description other than “sell stuff”, so you can’t recruit effectively.  Secondly if they are currently working for a competitor or similar business, you probably don’t uncover the real reason they want to join your business (which won’t be a payrise for them).   Hint – they are probably about to get fired!
  3. The new Sales Manager is not completely incompetent though – but then they find there is pretty much no sales and marketing infrastructure in place and your “hundreds of customers” is usually just a debtors ledger listing of 50 businesses that may or may not exist anymore.  Lots of hard work ahead for them.
  4. The Sales Manager is out of their depth because they just know how to sell but the job requires more.  There is no guidance from you, because it’s the blind leading the blind. They then spend a lot of their time out of the office “building a pipeline”. You don’t have formal sales meeting because you don’t know what to do and what to measure. You just occasionally ask “What’s going on?”
  5. You gradually become more and more nervous that you have picked badly. You barely see the Sales Manager because they are always out and your suspicion is that they may be going to Job interviews.
  6. You start undermining them by handling incoming requests yourself, as you no longer trust them to build your business.
  7. They then quit just before you sack them and blame you, bad mouthing your company as being “about to fail”.
  8. The cycle then repeats a couple of times because you think the problem was caused by you recruiting badly.

You then whisper in my ear “So……………”.

The real question you should ask though “is how do I get out of this cycle?”

Firstly you need to accept you don’t need to recruit a Sales Manager yet because you are it and will be it for a while  (don’t abdicate this role).  You do however  need a system, then a salesman you can manage, then replace yourself as sales manager when you validate your arrangements work. The system for selling could include:

A simple Strategic Marketing Plan – i.e. What you selling, who do you sell to, and why do they buy it? You will also know the way to find, sell and deliver (channels) to these people and what the market looks like you operate in. This however can start as a single paragraph that you improve and expand every time you revisit it.  It is your compass.

A simple Tactical Marketing plan. – ie. How you will generate leads, generate prospects, close customers, fulfill orders and account manage each of your solutions listed in the Strategic Marketing plan. This will hopefully have some nice measurable metrics and a budget attached (even if the budget is simply an apportioning of someone’s time ).  Its the framework for managing salesperson activity to deliver sales (the core of sales management).

Some Sales & Marketing Infrastructure should be put in place– Sales Collateral, contracts, website, reports, perhaps even a CRM system that actually has customer information.  The tools your sales people use to do their job.

A simple Job Description for a Salesperson  detailing what you want the Salesperson  to do. You should combine this with the metrics you will measure and judge them on. Eg. Perhaps they need to do 10 new business meetings a week.

You are then ready to recruit your first salesperson. Once you have a sales person, setup a weekly meeting with them because you are “The Sales Manager”. Don’t abdicate this role. You need to manage your sales person by gaining regular insight their performance (against the metrics), problem solve and innovate to ensure their success. When the sales person is successful, split the work and employ another.

Write up what you are doing as the Sales Manager as a Job Description.  You will need it for when you are ready to employ your replacement Sales Manager. The one that will be a highly effective and valued member of the team because; they know what to do, they are the right person for the job, and have the right resources.

Not that hard I think, but not much fun to learn the hard way.  If you can’t do it, help from someone who can.

The DNA of Great Businesses

I am incredibly fortunate in that over a number of sessions this week, I have been judging the finalists in the Telstra National Business Awards.  I say fortunate because its extremely rare that you get a warts and all look inside someone else’s small business; through face-to-face interviews, financial reports and written submissions.  Let alone 8 of them in a row that you can compare and contrast!  I also say fortunate because some of the people that I met were so awesome I felt like a fraud judging them.
Great Businesses win AwardsImagine starting a local community café and being ISO 9000 accredited within 9 months and then doing a food supply deal with a national retailer.  Imagine starting a niche eCommerce site and be turning over tens of millions by year 3.  Imagine completely re-imagining a sector such as pharmacy, on not one but multiple levels simultaneously.  No need to imagine!

Now having been gently hassled by some of the finalists after the awards presentation – about what they could do better with their business.  I felt the urge to put together a composite picture of the businesses I looked at – to create a “perfect winner” and reference point.  I reckon the founder of this business has 7 key attributes.

1.  They set out to do something extraordinary

The pharmacy didn’t setup to be “an average” pharmacy, the café didn’t  just try to survive, the recruitment agency didn’t launch into a shrinking market.  I also spoke to a distiller in another segment who got the first licence to make whiskey in 153 years and started an industry that now has 40 players.  Great businesses set out to do something extraordinary, they don’t evolve into it.

2. They have a formal plan that they are executing

All the high performing businesses had a formal planning process, a large business plan and a one page cheat sheet that was reviewed according to a regular schedule.  Having a plan wasn’t good enough.  It had to be written down and executed well.

3. They build processes

Every high performer built their business as a series of processes  even when they were a one man band.  This allowed them to grow quickly, employing the cheaper, process orientated roles first and leveraging themselves up.  If you want to build massive scale, building processes from day is vastly more important than just relying on  natural talent .

4. They measure everything that matters

The retailers knew how long customers were waiting,  the online retailers knew what percentage of shopping carts were being abandoned, the IT companies had details project plans with hours being applied to them.  Everyone performing well has lots of metrics on their business and plenty had real time dashboards.  But they weren’t metrics for the sake of metrics, they were well thought out and reviewed every single day so early/cheaper interventions could be applied.

5. They surround themselves with great people

The great businesses aren’t scared of asking anyone to get involved in their business.  They have specialist advisers and general advisers who they meet regularly with in a no-holds bar environment.  They headhunt extraordinary people to be employees.  The founders don’t pretend to be perfect – they acknowledge their own weaknesses, mitigate them with people that fill the gaps and move on.

6. They’re passionate

Their passion is usually based in dedicating themselves to doing something extraordinary.  Their passion also means they can attract the best people, work the long hours without their enthusiasms flagging, overcome the endless setbacks and happily ignore the long queues naysayers who tell them ”You’ll be bankrupt in 6 months”.  This was a theme common to every finalist.

7. They lead

Whether they want to or not, have a flare for it or not, they are all leaders, not just managers.  They inspire their team to do something extraordinary with them.  They inspire financiers to back them.  They convince high profile Australian’s to join their boards.  The media is hungry for their stories.  I also note they are usually leaders in more than one forum – giving back wherever they can.

 

Not one of the founders I looked had all these attributes.  But they all had enough of them to make them quickly stand out from any crowd.  I was simply inspired.

Validating Assumptions

In 2010 I was asked to give a quick presentation to MEGA program participants,.  MEGA could be described was an early accelerator program in Australia. The title of my quick speech was “Is your idea commercially viable?”. But the thrust of the speech was really on understanding the difference between facts, assumptions, hypothesis and weasel words – and the importance of validating any assumptions on your journey.

I remembered this yesterday when in a Churchill Club meeting, Community Indicators Victoriawas mentioned – an organisation I knew nothing about. It appears they have masses of free datasets and visualisation tools on different aspects of wellbeing amongst communities in Victoria. A fantastic tool for understanding where pain or pleasure can be felt the most amongst our communities. Eg Which communities have the shortest and longest average distances to Public transport stops.

Then there is the Australian National Data Service which is making all of Australia’s Research data discoverable and accessible. Its an absolute treasure trove that is available under the open access and licensing framework of creative commons.

And finally there is the Australian Bureau of Statistics, the mother load of census and economic data, provided under free and commercial models.

Validating Assumptions has never been easier :)

Thinking different about suppliers and customers

Furthering the discussion about innovating from my last post, here another upshot of a conversation I had with office mate Peter Tunjic, which I want to extend a little.

Perhaps the traditional concepts of customer and supplier lead you to bad thinking and behaviour. Perhaps a better way of thinking is that there is just the business, and everyone else is a trading partner.

Thinking differently about trading partnersOutrageous you say! Heretical you say! Well consider this. Business need cash to survive, your trading partners either provide you cash, or resources that you utilize for an eventual transformation into cash.

So who can give your business cash?

  • Investors give you cash for shares – so you can start to operate.
  • “Customers” give you cash for products or services – so you can continue to operate.
  • Benefactors give you cash for good behaviour – so you can grow
  • Government grants give you cash for research – so you can grow
  • Banks give you cash in return for a promise to repay it in the future – so you can grow
  • Perhaps there are more?

So who do you give cash to?

  • “Suppliers” take your cash – in return for products and services you use to operate
  • Employees take your cash – in return for labour that you use to operate
  • Governments take your cash in return for the right to trade.

Now why this is important is that sometimes :

  • Its not obvious where to place the traditional of supplier and customer .
  • By labeling our trading partners in this way we mask opportunities.
  • By labeling our trading partners in this way, we poorly allocate resources to manage them.

Consider the two sided market place such as 99 Designs. They have designers competing to win projects (and perhaps get paid cash for their work, but perhaps not) and businesses logging design jobs and eventually receiving a design for the money they pay. Both are critical trading partners for 99 Designs to survive. The designers won’t come to the site if there are no customers supplying design jobs, and the businesses won’t come if there are no designers to do the work. In a two sided market place you need two groups to interact. But who is the customer here?

Consider the online business that generates content, wrapped in advertising, that is read by people who also pay a small fee to read content behind a paywall. The people supply eyeballs that the business sells, but they also provides cash for content.  The journalists supply content in exchange for cash but they also receive profile which they may trade on, and the advertisers supply content and cash. Again, clear demarcation of customers and suppliers is impossible.

So an innovative company may look at all the trading partners it traditionally calls suppliers and ask the question “what are they prepared to give me cash for?” It may also look at the trading partners it traditionally calls customers and ask “what are they supplying that I can sell for cash?”

Thinking this way gives rise to management of relationships based on their importance in the supply chain, not just sales people managing customers and purchasing officers managing suppliers. Which is why we start to see job titles such as community manager, engagement manager and supply chain specialist!

So to reiterate the point of my last post – if you want to innovate successfully, question the basics of everything you do.

So you want to innovate like Steve Jobs?

This week I had an interesting conversation with my office mate, Peter Tunjic, about innovation. Peter likes to point out that most management theories are like the Emperors new clothes – and there is usually a competitive advantage in questioning and rejecting the theories.

Steve JobsSo this weeks conversation was on how Steve Jobs innovated.

Apple became the words most valuable public company by innovating in design and products, by innovating at the business model level and by innovating at the corporate level. Plenty has been written about Apple’s products & design and the impact of disruptive models such as the App Store and iTunes. but very little has ever been said about Apple innovating at the corporate level.

So lets set the scene with some facts – Apple paid a minor dividend until 1995 at around 10-12c a share, then discontinued the plan. The dividend plan was only restarted in 2012 after Steve had stepped down as CEO, and was then run at $10-$12.  Peculiar no?

So what happened?  You could argue that the answer is hundreds of years old, so some history first.  When chartered companies first started to appear in around 1,600 they were formed with a specific monopoly or charter, given by a royal family or parliament. Fast forward to around 1844 and legislation appeared in Britain around forming companies, so that anyone could do it and have their own agenda. When a company was formed, it was called “incorporation”. ie it was considered a body in its own right (corporal form). Early companies couldn’t own other companies because of course that would be considered slavery!  Shareholders, were simply the people that gave the company money so that it could operate, and they did so hoping to get a return. The company was pre-eminent, not the suppliers of cash.

Fast forward to 1970 and a peculiar management theory started to take hold that went along the lines of “the purpose of the company is to increase the wealth of the shareholders”. This position was obviously highly popular amongst the masses who were investing, as they were now perceived as being more important than the company. Executives also loved it because no one would complain how much they earned, if the shareholders were making a good return. Even if the dividend was sucking badly need resources out of the company.

Today the concept of investors first, is gospel. Even if it regularly doesn’t make sense. i.e. how can you have strategy to increase the wealth of shareholders (not some but all), when under modern trading conditions some can be on the shareholders register for a tenth of a second and others for a decade.? Why also should a company weaken itself, giving away hard won cash to people who usually  aren’t the initial investors and therefore haven’t added value to the company?

So Steve Jobs rejected this investor first gospel and embraced the older company first idea. He repaid the cash of initial investors through dividends, but once done he ceased paying dividends as giving away cash made Apple weaker, not stronger. This strategy helped build the biggest publicly traded company in the world, with cash reserves larger than the UK treasury.

So if you want to innovate like Steve Jobs, question the basics of everything you do.