Posted in Future, General, Productivity, Strategy

Just get out my $%#ng# way

The Wollongong and Shellharbour councils had been disbanded a few years ago due to gross incompetence and the first elections in some time to create newly elected councils are in the ‘promise-the-world-until-you-are-in-power’ phase. Occasionally I catch a bit of this dribble on the local ABC radio and the papers.

Coincidentally, BlueScope has recently announced the retrenchment of 1000 workers.

The result is predictable. Every candidate is promising job-creation for the Illawarra. There is plenty of rhetoric about how every candidate will lobby, cajole, convince, and empower the AAA, the BBB, the ZYX Federation, Council, Association, Alliance et al to create jobs in the Illawarra.

I never swear (badly) on this blog. But if there is anything that would make me break that rule then it is this topic.

The ONLY people who can actually create jobs are ENTREPRENEURS.

All of the aforementioned and most other organisations know how to spend money researching and talking about it, but they cannot ACTUALLY create jobs.

Just entrepreneurs can.

(On a side note: It is this kind of delusional thinking that led Governments to bail out failing companies by transferring their debt to the citizens. They are playing God in the economic sphere instead of just getting out of the way.)

Whilst the BlueScope retrenchments will create heartbreak on the individual level, and I do not want to diminish their pain, there are a few other perspectives to consider:

  • I do wonder if the unions, who have insisted on 5% increases year on year on year on year take any responsibility for making BlueSope internationally uncompetitive?
  • I wonder if the proponents of a minimum wage accept any responsibility for making Australia uncompetitive?
  • I wonder if the ‘workers’ who seem to focus on their ‘entitlements’ have thought about their obligations?
  • I wonder if politicians and workers have ever thought about the PAIN and the RESPONSIBILITY that the entrepreneur feels when they go about creating those jobs that everyone seems to demand – until they have them; only to then complain how it is not good enough.

In the business climate that exists in Australia, I certainly don’t want to be an employer. I find it hard to stomach the culture of entitlement from workers and the oppressive legislative regime.

The argument that we won’t allow slave labour in Australia is a furphy rolled out by anti-capitalist, anti-entrepreneurial sorts as a scare tactic. I am willing to put a lot of money on the fact that the market-rate for wages would be not very dissimilar to what it is now. The difference is that the current regime adds additional responsibilities of the employer that significantly increases the cost of employment. And in addition, the death kiss is the concomitant, increasing inflexibility that becomes part of your business with every additional employee.

I realise it may hard for people to imagine the alternative if you are raised in the current regime, but consider a few examples:

  • What is the rationale for a government legislate that the EMPLOYER (in my case the individual ME) should pay a nominated superannuation fee and NOT put that obligation on the individual? Why must the employer be responsible for the prudent financial management of your retirement – and not the employee?
  • Why must the employer pay the taxes and not the employee?
  • Why can’t the employee be expected to insure themselves against accidents?

I think the point is made.

FIXING this problem is important.

There are two considerations:

Firstly, climate change proponents are probably prone to exaggeration (who really knows) – but if they are even half-right, we will be living in a shit-hole in a few decades.

The bottom-line of the climate change debate is this: GROWTH as we know it is over. The world cannot support growth at the rate that it has grown in the past. (Jeff Jarvis wrote an interesting post on the “jobless future”.)

Secondly, I believe we are migrating to a new economic structure. I don’t (and no one really does) know what it will look like.

I think that will be an environment where only the nimble and flexible will survive.

I think companies will be smaller – with many more solo businesses.

But what I know is that Australian business environment is not future-proof. And THAT will be the single biggest factor limiting Australia’ survival and our place in the world economic-pecking order.

The culture we have harks back to an industrial era where ‘industrial relations’ were probably necessary. But in the world we live in now, the same principles don’t apply. Workers in that era were different. The modern era means:

  • Workers can communicate instantly with each other and establish what is fair and what is unfair.
  • Workers are mobile and can move their skills anywhere at anytime.
  • The balance of power (in the age of Intellectual Property) lies with the employee – not the employer.
  • Employees can and do take responsibility for their own training because the skills required for economic success are not dictated (or resourced and controlled) by employers.

It just does not make sense to punish entrepreneurs with a restrictive employment regime when exploitation is not viable or available anyway.

If wannabe councillors/ politicians want to really help, they should get out of the way. I am not advocating anarchy or that businesses or entrepreneur are above the law.

What I AM asking governments/councils to do is change their attitudes. The prevailing approach (apparently entrenched in the culture of these organisations) is to look at every business, at every attempt to develop or grow something from the perspective of ‘what is wrong with this proposal.’

If they could change their approach to ‘how can we help make it happen’ then the entrepreneurs have all the help they need. Real entrepreneurs can make anything happen (e.g. raising capital when rates are not favourable) but they can’t break the law and these politicians ARE the law.

Such an attitude shift would be a big challenge in itself, but that is all we require.

Thank you. Sorry for the rant. Let’s save Australia.

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Posted in Finance

If the man comes knocking, can you pay?

Your financial accounts will reveal your history – but not your future.  But since you can’t separate the past from the future, it is the best place to start. There is one magic, simple ratio that will tell you instantly how the decisions you have made in the past have positioned you for the future. 

There are three different types of ratios that are typically considered (by banks and analysts):

Efficiency Ratios – measure the quality of the firm’s receivables and how efficiently it uses and controls its assets and so forth. (E.g. Stock turns)

Profitability Ratios obviously measure how well a company performs based on how profit was earned relative to sales, total assets and net worth. (E.g. Net Profit Margin.)

Solvency Ratios measure the financial soundness of a business and how well the company can satisfy its short- and long-term obligations.

One of the key solvency ratios analysts are fond of is the ‘quick ratio’ – also referred to as the ‘acid test ratio’.

This is an important ratio because it really is the ‘acid test’ for a business’s liquidity. It is similar to the current ratio (which compares current assets and current liabilities) – except that it basically strips out inventory because it is often difficult to liquidate.

The formula is: [Cash + Accounts Receivable] / Current Liabilities

I always look at this ratio as a quick sanity check because even if you don’t have an accurate or up-to-date balance sheet, most SME owners will have a reasonably good idea of cash and receivables – and also of their debt. (Even if your figures are estimates, it is still worthwhile running a quick check.)

A ratio of 1 (or more) is healthy – and this is what a bank will look for before they will add to the liabilities column.

Most people intuitively understand the underlying principle: your ‘liquid assets’ should be equal or greater than your ‘short term debt’.

Put differently: if the man comes knocking on the door, can you pay?

Posted in Merchandising, Productivity, Retail Operations

Back to Basics Visual Merchandising

Everything you need to know about visual merchandising is in this one picture.

 

 

Photo credit: Marcus Gibson. The photo was taken up in the mountains, near an extinct volcano and an artisan village Batur, Indonesia. I saw it on hois Facebook page, and he was kind enough to allow me to use it.

  • It tells a STORY: we are in the fresh fruit business.
  • Each product (category) is distinguishable – no visual noise.
  • The product is ‘framed’ by blue material cover – without unnecessary signage or lifestyle imagery that would just create visual clutter.
  • Every display has a focal point.
  • The displays are neat and tidy.
  • The products are displayed as it would be used/ consumed.
  • The products are hygienic – as well as the environment – especially considering the location.
  • They use lines (pyramidal shapes) to lead your visual inspection and give your eye an easy entry point.
  • They use colour to contrast adjacencies – and colour-coordination of the pots in the front row.
  • They use rhythm (pineapple basket +4 others in a row, as well colours repeating)
  • There is balance (6-5-6). And simply ‘join the dots’ by drawing an imaginary line from the blue pot in the middle row left to the other blue pots.
  • Best use of available light.
  • Accessible and convenient to shop. Most items on the top shelf (less accessible) are back-up stock, which add to the presentation, but still allows efficient service – and nothing on the floor.

Of course I am taking artistic license to say ‘everything’ you need to know. But I am sure you ‘get the picture’ (pun intended) and I would even go so far as to say that NOT having the price points there, gives the owner of the stall an opportunity to engage with customers because there wouldn’t be much else to discuss.

Good merchandising is not hard. Despite what some experts may say, it ONLY has to make sense for the customer – and move your stock. You can use your instincts and common sense to achieve this- just like this peasant in a remote Balinese village simply get these basics right.

There is a critical role that a designer plays in translating a business model into a retail experience. But keeping your merchandise organised and clean (= shoppable) isn’t that role.

Most retailers simply get lazy and allow ‘merchandise creep’ to overpower the original design by allowing a plethora of spinners, and dump-bins to be progressively bastardise any attempt at effective visual communication.

PS: To get some confidence and an insight into smart, pragmatic approach to visual merchandising, GO HERE.

 

 

 

Posted in Finance, General

It boggles the mind

You may or may not have heard of Wolfram Alpha.

It is a search engine. But unlike anything you know.

This little widget below gives you a feel for what it does. Enter any two countries to get a comparison of the mobile phone (cell phone) subscriptions.

Just like that.

Fun as that may be – and there are many others – what is worth thinking about is where and how we interact with knowledge, what we need to learn and what we need to access.

What are the possibilities for commerce?

 

It boggles the mind.

Posted in Management, People, Productivity

Fiddle

When I say to people that it does not matter what you do, but that you do, they look at me as if I have broccoli in my teeth.

Every entrepreneur must go through the stage where they have to step up to managing people as part of their growth curve. Usually this causes some discomfort to all but the most natural people managers.

When it comes to people management, there is a lot of advice around. The problem is that it is usually contradictory as you find out when you dig deep enough or have been around long enough.

Not to worry; the reality is that it does not matter what you do, just that you do.

Just fiddle, that is.

The ‘Hawthorne Effect’ is what happens when people improve or modify an aspect of their behaviour simply in response to the fact that they are being studied. That is, they change because they are being studied.

The term was coined in 1950 by Henry Landsberger when reviewing experiments conducted earlier at the Hawthorne Works by Elton Mayo (image) to see if its workers would become more productive in higher or lower levels of light. The workers’ productivity seemed to improve when changes were made and slumped when the study was concluded. It did not matter whether the lighting was better or worse, their productivity went up.

So it is with managing people. As long as you are showing them some love – fiddle with the structure, fiddle with the benefits, fiddle with the staff uniforms – any kind of fiddling really, they feel happy – or at least happier.

Companies go through natural cycles; centralisation, decentralisation or diversification and then focus on the core business. (See what I mean by contradictions?) There is always an argument to be had for the opposite of the status quo, so companies use this to effect changes – which will usually work – at least in the short term.

Switch on the lights, switch off the lights.

Just show that you care.

That is the basic rule of management.

Posted in Finance, Management, Research, Strategy

Price vs Point of Difference: The numbers are in

If sales are slow, how do you respond?

The favoured ‘marketing’ tactic of all retailers is discounting; and that includes top-end brands. I can say this without fear of contradiction.

Consultants often suggest that this is a short-term ‘strategy’ that does not address the underlying issue, yet retail operators persist.

I found some good research that addresses this question quite definitively. Unlike many studies, this was not a ‘survey of opinion’, but rather based on a modified Du Pont analysis, including all the fancy statistical safeguards on a large sample of retail businesses. (The only question mark may be whether the American market place is comparable to the Australian one, but I will leave that for you to decide.)

Conventional wisdom is that companies can devise successful competitive strategies around either profit margin or asset turnover. That is; you are either a high margin/low volume business or high volume/low margin business.

Cost leadership strategy attempts to achieve organisational goals by delivering a product or service comparable to competitors’ at a lower cost to the customer.

A differentiation strategy, attempts to deliver to consumers some characteristic of product or service that will command a premium price.

In this research, a modified Du Pont model of financial ratio analysis was used to evaluate a large sample of retailers using a metric termed RONOA – return on Net Operating Assets.

The results were interesting to say the least.

Differentiation strategy

The RONOA ranged from 13.5% to about 58 % with a mean of about 29 %.

Cost leadership strategy

The RONOA ranged from -46 % to about 24 % with a mean of about 7 %.

What to make of this?

The results of this study suggest that retail firms that pursue a differentiation strategy outperform those retail firms that use a cost leadership strategy. By a long shot.

In fact, the best performing cost leader is still worse off than the ‘average’ differentiator.

But that does not mean that you can’t pursue a low-cost. You COULD be the one with a 24% return. Just recently JB Hi Fi announced their stellar results.

But the key point is that, when it comes to trying to be a cost leader, is that there can only be one leader (winner). And unless you are going to be that leader, it seems like a race to the bottom.

The better alternative (less risky and more rewarding) is to develop your point of difference. I have written previously about developing your proposition. (With extensive supporting templates – search for ‘mojo’ on this website.)

Sure it is harder than knee-jerk discounting. And it may take longer to get right. But eventually you will be the king of the hill, even if you have to build your own hill.



Posted in Management, Marketing, Productivity

The Masterchef Performance Equation

Business is simple. The process is clear and hasn’t changed for a long time – if ever.

But business is hard too. Or maybe we are just stupid – it seems that we have to keep learning the same lessons over and over.

 

 

Where we seem to go wrong is our focus on the outcome or the output. I like using the analogy of a cake. If you can imagine that producing a cake is the same process as producing any other outcome. By the same token, if that particular piece of cake tastes like s*#t, then you know you can’t fix it.

But if you produce an acceptable ‘outcome’ in your business (e.g. poor profits that also taste like s….) then managers obsess about the profit.

How often have you heard a CEO proclaim that they have some major issues/challenges such as low profits or small market shares?

Compare this to the Oracle of Omaha… Warren Buffett.

Mary Buffett (wife) spoke to Forbes.com about Warren Buffett’s and was asked:

What’s the most important lesson you’ve learned from Warren Buffett? 

Mary Buffett answered: “Patience and discipline. And doing something you love. So many people–and Warren has said this–are doing it for the money. That’s really not the right reason. If you’re doing something you love, you’re more likely to put your all into it, and that generally equates to making money.”

He is not the first to say it. I am not the first to say it. Neither of us are the only ones to say it. YOU may have even said. And even believed it.

But the question is: Have you acted on it?

You see, Warren Buffett identified the processes (patience/discipline/doing your love) as the key; not the output (money).

Managers are fond of claiming how ‘results-orientated’ they are. It makes me shudder. Whilst I believe you should measure the results, systematically so, the focus then needs to move on to the processes.

When we discuss mystery shopping services with clients, they often focus excessively on the ‘results’ and how the results can be used to incentivise or punish employees. And often they don’t want to put the time into designing the customer experience (the ingredients) and skilling the people to be able to deliver that experience.

Others get excited about the process, initially, but when it comes to the doing bit, they run out steam.

Measuring your customer service, you market share, or your brand awareness is of very limited value unless you go back and bake a different cake. Which is not much fun if you have to do it over and over an over.

But if you believe Warren Buffett, that is the only way. And since you are going to do it over and over and over; best to make sure you like, really like, it a lot.

 

 

 

Posted in Customer Service, Design & Display, Productivity, Shopper Marketing

Invisible dollars: Or the Art of Retailing

Where the material ends, art begins. 


This is a quote by Etienne Hajdu, and it reflects his view on sculpting. Retail too, is an art, and we are inclined to forget that sometimes.

Sometimes it is what is NOT there that makes a retail experience memorable. In fact maybe, as alluded in the title, that is really what retail is all about.

In retail we focus on getting the offer right, on getting the prices right and so forth. We focus on the ‘what IS’ to the exclusion of ‘what is NOT’.

By this I mean we consider all the variables of retail and we attempt to manipulate that into something that is unique.

When people buy a product or a service, they do not only pay with money, they pay with many ‘invisible dollars’:

  • ·        They invest their very precious time
  • ·        They risk their reputation
  • ·        The opportunity cost of not pursuing a different product/outcome

Forgetting these invisible payments can cost us dearly.

Similarly, the retailer pays with those same invisible dollars (i.e. indirect costs) for the products. We don’t factor the opportunity cost of the working capital, the risk of obsolescence and damage into our cost of sales.

Forgetting these ‘invisible costs’ can cost us dearly.

But more importantly, how can you improve the customer experience by taking things away rather than adding it? It is human nature to want to add/grow/improve and it does not come naturally to prune or backburn.

We have found that we have to build these checkpoints into our Customer Experience Design initiatives by conscious effort to make sure we keep things simple and that we remember the value of the unseen.

Because, more often than we would care to admit, getting out the way of the customer is more valuable than the alternative.

 

Posted in Finance, Management, Strategy

How Retailers and Landlords can resolve ‘critical’ tenancies

There are several proactive solutions going back to sourcing and qualifying the prospective retailer, ongoing support and training, as well as good marketing initiatives. But occasionally, despite these proactive strategies (our preference) some retail tenants underperform and/or fail.

It is this issue that concerns me.

 

And, truth be told; by the time the rescue squad is called in, it is too late because the tenant has exhausted all resources and even goodwill to effect the recommended changes.

 

(I am writing this not to antagonise or criticise retail consultants. I don’t know anyone’s business well enough to do so. I am however proposing a departure from an approach that is very common in the industry, for this particular type of engagement.)

 

It is a catch 22 because until it goes so badly that it is obvious to all, it is too late. Even if there are early warning signs, the requisite investment in consulting services are prohibitive.

 

In essence, I believe landlords have to find a way to get specialist resources involved before the retail business becomes terminal and the only way to do that is to make those resources more accessible.

 

The cost of a tenancy failure can easily run into $100k – with vacancies, make-good, subsequent fitout period, leasing fees and possibly even a fitout contribution – with no guarantee that the replacement tenancy will succeed.

 

Is there a way to (a) add more value and (b) to improve the success of these projects and (c) be more cost-effective. All admirable objectives I am sure you will agree?

 

Whilst our own methodology has been different in the past, I propose that a new approach may make more sense in the current climate. A more equitable outcome is possible if:

  • The consultant is there to help solve the problem, not to make the client dependent on their IP
  • You can eliminate the paperwork (which only gets glanced at anyway)
  • Ensuring commitment from the retailer/tenant before we proceed to the following stage
  •  Adopt a brutal approach: if they won’t cut it or won’t cooperate, we cut our losses and move on…

This is the approach we recommend:

 

 

Stage 1: Diagnosis

This initial assessment can be done ‘on the fly’, without excessive documentation and in a consultative manner between landlord, tenant and consultant.

  • Initial visit and store assessment
  • Immediate feedback on the potential and possibilities of stage 2.

The feedback includes outlines of the expected costs/benefits of two types of strategies:

 

Category A actions:

  • Free or very cheap to implement
  • Immediate impact

Category B Actions:

  • The scope of the long-term actions and strategies

This should be an important decision point.

 

Typically a proper analysis is included in the initial assessment, and this is what I propose to change.

An experienced consultant will ‘know’ with a high level of certainty what the key issues are. Many obfuscate at this stage because all the tools and models and proprietary frameworks make everyone feel comfortable with the structure – and it is a way to pad the bill.

 

These models and frameworks may be necessary, but the point is that they should be applied after the retailer has committed to the probable solutions and understands the costs, the nature of the process and the likelihood of the outcomes.

 

Centre and tenant enters into an agreement about whether stage 2 should be pursued. If the tenant refuses or is unable, an exit strategy for that retailer should be put in place. (Brutal, but necessary.)

 

Stage 2: Strategies


Should the decision about the viability of stage 2 be positive, proceed on the condition of the agreement reached.

 

The consultant conducts a more detailed assessment and this stage would include the feedback which can be structured as:

  • Verbal feedback (keeps the cost down)
  • Written feedback (depending on the complexity of the issues), and
  • Metric analysis (if the data is available – which it often is not if it is a new retailer or one with inadequate systems, or they are simply unwilling.)

By providing the above options, costs can be kept down and the consulting resources can be spread wider – to the retailers who may not yet be critical.

 

Another decision point is reached.

The landlord and tenant negotiate the recommendations and determine if the resources are available, and whether continuation to Stage 3 is viable.

Stage 3: Actions & Implementation

 

Detailed plans and concepts and proposals and quotes are generated detailing HOW the issues are remediated.

 

The consultant commits to the process and in fact should (in my view) charge a success fee. There is an ongoing relationship over several months.

 

During this process, IP is transferred to the centre teams and (often) the retailer. The project should be scoped properly, with a finite involvement from the consultant.

 

What do you think?