Wednesday, April 30, 2008

Global Economy

Regular readers of these rantings (and I'm pretty sure there are some) have heard me going on about the Global Economy, and how no matter how isolationist you might happen to be, you still ignore Globalism at your own risk. Or, as I have said at least twice in this space, "It doesn't really matter if you believe in the Global Economy or not; the Global Economy believes in you!" Well, today in the news online, there was a story that proves that point once and for all.

BBC News is reporting that a factory mass-producing those "Free Tibet" flags you keep seeing all over the world on the news has been uncovered operating in Southern China. That's right, folks; the same people who are going to bad-movie parody lengths to squash the "Free Tibet" movement and anyone who might support it are also making money off of the movement. In fact, since doing business in China automatically includes making "gifts" to local officials to get things to happen, it is a virtual certainty that actual members of the Chinese government have been receiving money in exchange for making this happen.

Now, from a business standpoint, this seems only logical. Since crushing a popular rebellion is dirty, expensive work, it would only make sense to make as much money off the by-products of the situation as you can. In fact, it seems a shame that the U.S. Government has never made anything off the sales of all of the "Che" t-shirts and posters that stupid people who don't actually know anything about Ernesto “Che” Guevara buy, considering the amount of money our government has spent fighting everything Guevara stood for (and trying to prevent or counter the revolutions he was trying to start). It’s an irony that Guevara himself would have considered grotesque, although probably no more so than the fall of Soviet Communism and the rise of a free-market economy in China…

But whether or not this strategy has any utility from a government/revolutionary/counter-revolutionary standpoint is irrelevant. From a leadership standpoint, or simply from the standpoint of trying not to look like a clueless jerk, it would probably be a good idea to avoid manufacturing the banners of protest that the enemies of your government are waving...

Why does he tell us this? I hear some of you asking. You know you'd never accidentally do anything that would cause the Department of Homeland Security to pay YOU a visit, right? You know the complete details of every part of every product that your company manufactures, and there's nothing there that could possibly give aid or comfort to an enemy, make you look like a drooling idiot, or destroy your company simply because you didn't read what it was you were going to be manufacturing before you signed the contract, right?

Right?

Sure, I'll wait…

Tuesday, April 29, 2008

We Sure Hope Not...

A television station in Florida is reporting that about a week ago, Royal Caribbean Cruise Lines removed a family of five from one of their cruise ships because their 7-month-old baby was exhibiting the symptoms of the Norwalk virus. As always, the facts are in dispute, and we should note that you shouldn't believe everything you read online, but the story goes that the crew of the ship woke the family up at 11:00 at night and gave them ten minutes to get their stuff together, then booted the family off the ship, leaving them on the dock in Nassau (in the Bahamas) in their pajamas, without clothing, shoes, their luggage or their passports. By the time the family had located a hospital, taken the baby to the ER, gotten a doctor to certify that it was only a cold, and not the Norwalk virus, and returned to the dock, the ship was long gone. They were able to get the U.S. Consulate to issue them replacement passports (at $455) and then managed to fly home.

Now the family is saying that they want their money back, and they want the company to compensate them for what they lost on plane tickets and replacement passports and such. According to the online story, however, Royal Caribbean is offering them a credit to use on another cruise, and is refusing to pay for the plane tickets or passports because the family did not take out traveler's insurance. The company is also saying that they didn't want to take any chances with a child that young who appeared to be that sick; an emergency medivac flight at sea takes time (and isn't the safest thing in the world), and if the child was actually stricken they didn't want to be responsible for her not being taken to the hospital. They haven't actually pointed out that if you have a single passenger who appears to have a highly contagious disease aboard ship, it generally makes sense to take her off and send her to a hospital before everyone else on board gets sick, too, but this is the case.

Needless to say, the whole situation can be 'spun' however you'd like to. Are the family idiots who refuse to limit themselves to age-appropriate situations because they can't be bothered to plan a vacation around their children’s needs, and would rather endanger their child's life (by staying aboard ship) than cut their trip short? Or is Royal Caribbean being horrible to them, booting them off the ship in the dead of night, marooning them in a foreign country with a sick baby and no assistance (or clothing), and refusing to refund the money for what appears to have been a nightmare excuse for a vacation?

Well, to paraphrase Frank Zappa, 'Boy, we sure hope not!' If the online story is accurately describing the Company's actions, then this is possibly the worst example of customer service I have ever seen. Even if the company really tried their best; even if the family was asked politely to take the child to the hospital and refused to cooperate, staged some kind of sit-down protest in their rooms, and had to be persuaded by the authorities to actually go to the ER, this is still some of the worst PR work I've ever seen. If any of the family's allegations are proven true in court (they might be) it could cost the company millions in lost revenue, and even if they are proven to have been lying through their teeth about the whole affair, Royal Caribbean is still going to suffer.

This is where the concept of good customer service as preventative medicine comes into the picture. If the company could stand up in court (and in front of the press) and demonstrate that they pleaded with the family to do the right thing, gave them plenty of time to get ready, helped them pack up their stuff and disembark, provided a driver to take them to the hospital, and assisted them in finding their way home, they could quite legitimately ask the court (and the court of public opinion) 'We did everything we possibly could to help; what do you want from us?' And personally, I hope it turns out that they did (or at least attempted) all of those things; that this all turns out to be some colossal attempt to scam money off yet another unsuspecting business; that it's really a tempest in a teapot and it all just blows away.

Because I'd really hate to find out that another large company did something this stupid...

Saturday, April 26, 2008

Non-Office Space

I spent most of today in a meeting in one of the hotels near LAX – I won’t specify which one, partly because I’m not that into being sued, and mostly because I’ve been in a lot of hotel conference facilities in my time, and there isn’t a lot to choose between them in the first place. More to the point, perhaps, I’ve rented such facilities before, when we were setting up training programs during my days with the consulting firm, and they don’t vary all that much. One specifies the number of people expected, the audio/visual equipment needed, refreshments and/or meals required, and the number of days, and the hotel’s Conferences and Events manager runs the numbers together and tells you how much it’s all going to cost.

It sounds simple, doesn’t it? Unfortunately, as so often happens, there are intangibles that can change everything. Today’s event, for example, was held at a hotel that uses its huge open-air parking lot as an Airport parking lot (since the airport is on the other side of the highway). So you pull up to this ornate fa├žade, are greeted by the uniformed doormen, ask for the self-parking area, and are directed to… Well, frankly, to one of the largest open plains I have ever seen, completely covered with cars. It’s hot, it’s constantly bathed in jet exhaust, there are no spaces anywhere near the hotel itself, and while there’s a parking lot shuttle, it goes to the airport, not to the hotel.

Of course, a real VIP would just use the valet parking up front, and put it all on the expense account, but in many ways this can make matters even worse; you’re telling all of the lower-ranking people attending your meeting that you don’t care if they have to walk half a mile under constantly landing airplanes on a hot day, so long as the important people are taken care of. One hotel I worked at in Phoenix didn’t even have parking for their conference center; you could try to get one of the regular guest spaces (if there was an empty room somewhere in the hotel), or park elsewhere and take a cab.

Then there’s food. If you’re planning to serve food during the conference anyway, you can usually get it as part of the package. The problem is that a lot of conference facilities use the room to draw in business for their catering operation, and not only charge a lot for the meals but jack up the room rate if you DON’T purchase food for your participants. This can be a real problem if the food is overpriced, inferior in quality, or just not what your participants would want to eat in the first place. This got so bad in one place in the Midwest that we wound up going with the competition across the street, just because we didn’t want to pay that much for Swedish meatballs that could gag a goat.

Then there’s furnishings, heating and cool, signage, restrooms, and a dozen other items that don’t appear on the rate sheet, but can change the entire atmosphere of your conference. If the stacking chairs are too uncomfortable, if the air conditioning is out of order (or up so high that you could hang meat in the conference room), if the restrooms are on the other side of the building or locked, if the projector doesn’t work or you can’t get Internet access as promised, or if the meeting room has the wrong sign on the door and no one can figure out where your meeting is (two of these things happened today, in fact), it won’t matter how good the rate you got on the room happened to be; the conference is still going to be a bust.

And this doesn’t even consider the inherent problem of having your participants try to stay awake during the actual sessions…

Friday, April 25, 2008

Inventory Issues

You’ve all heard me going on about inventory control issues before (at least the handful of you who are actually reading this blog have, anyway), but over the past few days I’ve discovered some new examples of inventory control mistakes that are so stupid they bear repeating. I’m not implying that inventory control is simple or easy; on the contrary, knowing how much of which products to order how far in advance is never simple, and when you are trying to run a general merchandise store with literally tens of thousands of items for sale, it’s all but impossible to get it exactly right every time.

That doesn’t mean that we as managers shouldn’t try to get it right, however, since any time you fail to have the product that a customer wants to purchase in stock, not only are you in violation of the First and Second Laws of Business (“When somebody comes to you and says, ‘Hello, I would like to give you a lot of money now,’ you say, ‘YES!’” and “Don’t annoy the customer!” respectively), but you have also lost a sale (and whatever margin you might have made on that sale). If you do this too many times, your company WILL fail, no matter how sound it might be in every other respect.

Consider the case of a purchase we needed to make this week: a decorative screen, to hide the part of our basement where the washer and dryer live from the nicer part of the room. I checked a few places online, and Plummer’s had just the thing: a five-panel folding-style screen of just about the right length. The price was a bit higher than I wanted to pay, but the item looked nice and would fill need we had at the moment. The only problem was, Plummer’s didn’t have any in stock. Not in either of their locations in the area. They could order one for us, and have it in five or six days, maybe, but we needed it for the following day. They lost the sale…

In the end, we found a similar product on clearance at the Expo Design Center near our house, at less than half the price Plummer’s wanted, too. It worked out well for us, and for the Expo Design Center, but Plummer’s just saw a large purchase wing its way out the door. Even worse, however, was tonight’s trip to the market to get some toilet bowl cleaner tablets and a package of the special meal replacement bars for diabetics called Glucerna Bars. These can be extremely helpful in getting through the day, particularly if the food available to you is unpalatable or loaded with sugar (in which case a diabetic can’t eat it but also can’t afford not to). I’ve purchased both of these products for years at the supermarket around the corner from us, a part of the Albertson’s chain. Only this time, I was not able to…

When I looked for our brand and style of bowl cleaner, I discovered that this location no longer carries the ones I wanted; only the “blue” variety that my wife can’t stand (and which make me sick to my stomach). This would have annoyed me, but they had also eliminated the entire section of meal-replacement, zero sugar and modified carbohydrate products for diabetics. Now, I know some clown at their corporate office was looking at the store diagram and decided to go with more shelf-feet of bottled water and powdered soup than these very specialized food items; the same clever fellow probably figured that if we had the “blue” cleaning tablets, why did we also need the white ones?

Unfortunately, in doing so he is not only eliminating the products I want to buy; he’s also telling me that my needs are less important to his company than those of the group(s) he imagines will by the replacement products. I didn’t choose to have diabetes anymore than I chose to be nauseated by the blue toilet bowl tablets, but the local Albertson’s has decided that my business is less important to them than somebody else’s. It’s hard not to take that sort of thing personally…

I mention all of this, again, not to criticize the people who made this decision (although it was stupid) or to belittle the people at Plummer’s who decided not to carry the inventory I needed (although it cost them a large sale, and was, ultimately, stupid). I call these things to your attention because sooner or later you are probably going to be faced with similar choices.

Chose wisely…

Wednesday, April 23, 2008

Buying Time

Everyone always says that you can't buy time; that no matter how obscenely wealthy you become, the day still has just 24 hours (or 86,400 seconds) in it, and you can't hoard them, save them or give them away. And in the literal sense, of course, this is true; time is passing for all of us at a constant rate of one second each second, and the first person who manages to do something about that is either going to die very rich or be burned at the stake by reputable scientists (or possibly both, but that's a different pop-culture reference). Yet from a business standpoint, this traditional view is almost exactly incorrect, which is to say, it is stating the opposite of the truth. Which is to say, everyone buys time, and most of us purchase it almost constantly...

Consider, for example, my day so far. I'll leave out things like our water heater (saved me the effort of building a fire and heating water), indoor plumbing (saved me the time of carrying the water upstairs) and the traffic report (I don't even want to think about that one) and just jump straight to the car, which carried me 16 miles to work in just over 25 minutes. Walking would have taken most of the day, and the 32 mile round trip certainly would have eaten any available time to do my job. Then we went to our favorite breakfast place, where we paid people to cook our food and bring it to us, and clean up afterwards -- another major time savings. Later on, we will pay to use the car to get home (transportation), pay people to cook our dinner (food), pay people to heat and light our house, and pay people to entertain us (television)...

Yesterday, to take an even better example, we paid people to clean our house, including the windows. We've also paid people to pressure-wash the outside of the building, repair some things that were broken, and unclog the drain in our shower - all things that would have soaked up huge amounts of our time, assuming we could have done all of the work in the first place. A few years ago we paid some men to build us a new picket fence (ours was being eaten by termites), then we paid some other fellows to come and poison all of the termites (including the ones that were starting to eat our house). The next time we move, we're going to pay some people to come over and pack up all of our stuff, and then load it into a truck and carry it to wherever we move, and then unload it into the new house.

Now, I realize I've beaten a very simple concept firmly into the ground here; most of you already realize that time is money, and that most service-based businesses are in fact, selling you time - in the sense of doing work so that you don't have to. I call it to your attention because any number of small business owners I have met (teaching, consulting or doing business with them) don't seem to be aware of this distinction. I've met people who actually believe that they unclog pipes with a grace and artistry that no one else can match, or that they have a "special relationship" with motor oil and air filters that no other being can equal...

Ultimately, if your business does anything that people can do for themselves, what you are really selling them is time. It's a completely sound business model - given the choice, most people would rather spend the extra $10 than spend the whole afternoon changing their own oil, and I have in fact used that exact concept to sell people on grant writing services. And by the same token, if you can do something for your customers that is better than they can do for themselves, even if it's only brewing better coffee or scrambling better eggs, then you are also offering them added value for sale. But if time is your main product (as it so often is) then it's important to keep that in mind...

Or your customers are likely to take their business to someone who does...

Sunday, April 20, 2008

Retail is Burning

I noted with great interest an AOL Money survey, where they asked AOL subscribers to tell them which retail chains they felt were in danger of going under, and why. The editors chose 5,000 replies at random, tabulated the results, and then listed the 32 most common replies on the website. It's not the most scientific poll ever taken, but it is interesting to see which stores turned up on the list, and the complaints that repeat over and over again -- especially if you have spent any time in Retail, because most of the "errors" being highlighted are all things that any sales clerk making minimum wage could explain must never be made. And while I don't believe the participants are correct on all of the chains listed (Starbuck's isn't going anywhere unless McDonald's manages to do them in - and I don't see that happening any time soon), it's still worth taking a closer look at the most common problems.

First of, there's customer service. Almost half of the examples given are being hammered for poor service, insulting service, or just plain lack of customer service. This is the heart of the Retail industry; it's a truism in retail that if you don't take care of your customers, somebody else will, and most companies spent the bulk of their training programs on customer service standards and how to meet them. Yet, anybody who has tried to summon help in a department store, or for that matter, purchase anything, knows that too many companies are ignoring this simple rule...

Nearly as common are complaints about the condition of the stores themselves; whether dirty, poorly lit, badly set, disorganized, without air conditioning or badly stocked. People are not going to go to a place if they don't feel comfortable there, and they're certainly not likely to spend money in a place that looks like Beirut on a bad day. Nobody really wants to feel as if they are shopping in a war zone somewhere in the Third World, and the merchandise found under these conditions is likely to be perceived as dirty, broken or old, even when it isn't.

Which brings me to the third common problem: the merchandise. If you collect together complaints about stores selling junk, stores selling merchandise for too much, and stores without enough inventory to sell anything in the first place, these complaints are actually more common than either of the other two types. You might think it would be elementary that you can't make sales if you don't have anything people want to buy, and it's almost as hard if you don't have any prices that people want to pay. Apparently, you would be wrong.

Now, what's important about this issue is actually twofold: first, keep in mind that nobody SETS OUT to create an inferior retail experience. These types of problems - core incompetencies, if you will - develop over time as the result of widespread institutional failure. Merchandise costs are cut to save money; supervisory personnel are kept to a bare minimum; hourly personnel are given as little training as possible and paid the minimum wage (or sometimes less, if on commission); store maintenance and decoration are left to the local staff, and sometimes not even supported with funding, let alone materials. Simple erosion will cause all of these problems over time, unless the management team is constantly vigilant, and even then standardization issues (as mentioned in my last post) are still going to come up.

Second, and possibly even more important, is that if you are in retail you WILL eventually face one or more of these issues -- and if you're not, you will eventually face your industry's equivalent. Are these problems catching up with your business? Don't you think you ought to go and check?

Saturday, April 19, 2008

Weasels on Parade

Did you ever notice how some advertising -- and product labeling -- plays a bit fast and loose with the definitions? The classic example is probably fruit juice products, where you might see phrases such as "Made With" and "Made From" real fruit juice. These may sound good, but unfortunately neither one is actually defined under the law. In the actual product, "Made With" can indicate that something has 10% fruit juice in it, the rest being water, artificial flavors and colors, chemically altered high-fructose corn syrup, and so on. "Made From" sounds better, but something can still be made FROM 10% fruit juice -- along with 60% water, 25% corn syrup, and 5% artificial flavors and colors added to the mixture. It really isn't until you get to "Made From 100% fruit juice and nothing else" that you can say for sure what's in the package.

Of course, recent years have seen changes in the packaging laws that require food to be labeled with the exact ingredients, how much sugar and fat they contain, and so on, which means that if you aren't sure how much actually produce is in a fruit drink, for example, you can just look it up. Still, a lot of people make a lot of money by putting sales slogans like "Made with REAL FRUIT JUICE!" on their label and hoping that the consumer is too lazy and/or too stupid to read the ingredients and call them on it.

But what about claims that aren't even about nutritional content? There was a good article on MSN on the subject of "Green" products that aren't really, which points out that some of these claims would be impossible to verify standing there in the supermarket. "Natural," for example, has no legal definition. Most people would think twice before putting it on a product containing compounds not found in nature, but that takes in a surprisingly small amount of ground, especially in terms of flavorings and colorings. "Cruelty-free" is another good one; vegans and PETA supporters (to the extent that there's any difference) would tell you that any use of animals for food or other commercial purpose is cruel, while some hunters I have known maintain that as long as you don't actually torture the animal before you eat it, everything is fine. Farmers I have met don't even understand that distinction; to them, for the most part, animals are food, and they don't worry about them any more than you worry how a can of soda feels about being drunk.

Probably the best example is "Non-Toxic." Decades ago, this just meant that if you got some of the product in your mouth, it wouldn't kill you. But then came public interest law, consumer protection acts, and some very messy product liability suits, and today the "Non-Toxic" label usually means that if you eat it, it will taste bad, but nothing untoward will happen to you as a result. Likewise, claims that a product will not harm the environment are an open invitation to environmental groups and their lawyers, and consequently most companies either won't put this on the label or will make very sure they can back it up in court.

Of course, the claims that a product is actually environmentally friendly are even harder to disprove, and have resulted in a variety of official certifications, like Energy Star (which is backed by the EPA and Department of Energy), which really does indicate that it uses less energy, USDA Organic (which really is backed by the US Department of Agriculture), which indicates that the product contains at least 95% organic content, or FSC Certified (backed by an independent non-profit group), on wood or paper products made from trees harvested using sustainable methods. Products with these certifications are much easier to market, and there is some indication that manufacturing companies are attempting to find ways to conform to these standards without adding to the production costs, in order to increase profitability at minimal investment...

But it still pays to read the label...

Thursday, April 17, 2008

Standardization

There was another story today sermonizing about the destruction of small local bookstores by Borders and Barnes & Noble, with help from Costco and Wal-Mart. This is hardly a new story; it's been everything from a repeating MSN Money page to a movie with Tom Hanks and Meg Ryan. What's interesting is that recent iterations of the tale are discussing how the two "big-box" bookstores are running out of smaller fish to feed on, and have started battling each other instead. It seems that their over-emphasis on homogeny is interfering with their ability to differentiate themselves from each other, and their focus on the so-called "blockbuster" books (splashy, high-profile releases) means that not only do they lack unique products to sell, but Wal-Mart and Costco can sell all of their key products at even lower prices than the giant booksellers do.

What I find amazing about these woes is that any frequent customer could have told them this was going to happen -- and I include in that the frequent customers who are 5 years old and just learning how to read. If you are not a frequent customer, just go by any Borders store at random - and you can select any store at random, that's just the problem. Now go around the corner or down the street and check out a Barnes & Noble. You will almost certainly find exactly the same books for sale, at exactly the same prices. The accessories, impulse buy items, home furnishings and whatnot will be different, but not the core of their business, the books (and CDs, DVDs and so on). There is no real reason to prefer one chain over the other, or any given location of either chain over another.

Even the size of the store is irrelevant. Try going to two Borders stores of different sizes (or two B&N locations; makes no difference). You will still find the same titles. The larger store may have more copies, or more "remaindered" books to sell, but even that is unusual; you are far more likely to find exactly the same merchandise distributed over a larger area. They still offer more selection than a Wal-Mart, for example, but trying to find anything other than mainstream, blockbuster titles is usually a futile undertaking. If you want anything specialized, not even obscure but just off the mainstream path a short way, you will need to have it special ordered -- or visit Amazon.com, the other reason the "big-box" bookstores are in trouble.

In fairness, this same problem occurs in almost every large chain store -- a drug store that has twice the square footage is no more (or less) likely to carry the specific product you want than any other unit in the same chain, for example. This is because purchasing and inventory control are generally handled by Corporate or Regional headquarters personnel, who are doing all of the buying (and most of the store display design work) for several hundred stores at a time. This allows the big chains to get their deep discounts for buying in bulk, but it also means that every unit in the chain will have to carry the same merchandise, give or take a few linear feet of shelving.

This is not to suggest that your former independent neighborhood bookstore was any better about this, or that a resurrected version of it would be able to complete with these "big-box" giants and win. The fact is that with the rise of the electronic media fewer and fewer people read books for recreation each year, and the emphasis on mainstream and "blockbuster" publishing means that the people who do read are mostly reading the same things. The number of people who are going to want to walk in off the street and purchase an obscure title in a specialty merchandise category was never very large, and it too has been eroded by the current trends in retailing and literacy. Still, it does make you wonder if the remaining bookstores might get a new lease on life.

Or if e-books will be the product that finally does them all in…

Wednesday, April 16, 2008

Getting Clipped

Ever clip coupons out of the Sunday paper and take them to the grocery store? Ever decide that there aren't enough coupons for anything you want to buy to make it worth your time and just give up on them? Well, if you fall into that second category, you're not alone. According to an article on MSN Money News today, only about .5% of the 285 billion coupons printed last year were ever actually redeemed, and the number is continuing to drop. I call this to the reader's attention because if nothing else, these events are noteworthy from a historical standpoint. Discount coupons have been in common use (primarily as an advertising method) for nearly a century now, and have formed the heart of too many marketing plans to count -- and in a few years they may be completely gone...

If you wonder, as I did, how effective these things were in the first place, consider that the redemption rate on printed coupons was, up until recently, pegged at about 1%, or something on the order of 2,850,000,000 coupons redeemed each year -- rather a lot, really, especially when you consider the difficulties inherent in getting anyone to use them in the first place. Placing too small a discount onto each coupon will degrade their effectiveness to the point where no one is going to bother cashing them in; placing too large an amount on each coupon will turn the item into an instant loss-leader. It isn't usually possible to overcome brand loyalty with a small discount; in order to convince consumers to try a different brand name it is usually necessary to offer a rather substantial savings, and even that may not be effective. And even if a coupon is being redeemed, you must still subtract the cost of printing and emplacing the coupons from the increased profit margin.

A major factor contributing to the decline of print coupons is believed to be those in-store loyalty club cards that most markets now use to offer lower prices in exchange for demographic purchasing information. True, the decline in newspaper readership is definitely a factor, but the fact that people believe (correctly or not) that they can save more money just by swiping their card than they can by clipping out coupons has had a significant impact in recent years. The impact of warehouse stores like Costco and Food 4 Less on this type of marketing is harder to gauge (these stores often issues their own coupons), but is also believed to have had some influence on the industry.

Interestingly enough, the e-commerce people have come up with a new wrinkle that may bring the discount coupon back -- in a way. Some markets that have their own loyalty club cards had taken to offering "coupons" on their websites, available to anyone with a club card number and a printer. Customers could go online, select only those coupons they actually wanted to use, print them, and take them to the store, without the bother of clipping them out with scissors. This met with some success, but wasn't exactly a runaway success; the demographic of tech geeks who go online looking for bargains does not overlap all that much with the demographic of people who clip coupons. But then some bright person got the idea of eliminating the printing. Some chains are now testing a system where their club cardholders can go online, highlight the "electronic coupons" they want to use, and then have those discounts appear at the register when they make the purchases.

It's an interesting idea which takes care of all three functions of tradition coupon advertising: it gets the customer to read (or at least look at) more product advertising; it brings the customer into the store to make the purchase, and it lowers the total purchase price for those items, thus serving the needs of the advertiser, the retailer, and the customer. Of course, there have been many other online efforts to boost retail store performance, but I believe this is the first one to address the needs of all of the stakeholders involved. It will be interesting to see if these schemes actually work to boost sales -- and if the manufacturers and retailers who participate are successful as a result...

Sunday, April 13, 2008

More Management Aphorisms

Here are a few more of the sayings, quips and rules of thumb I’ve collected over my years as a manager, consultant and compulsive reader:

“When all you've got in your toolbox is a hammer, everything starts to look like a nail” – a commentary on letting your frustrations get the better of you, as well as the more common warning against relying on a single core competency. I don't care how good you are at your specialty; don't allow that expertise to blind you to other possibilities that might be available. And no matter how much you might want to just hammer away at a problem (e.g. keep smashing it with the hammer), no amount of brute force will ever replace a proper analysis of the situation.

“Just because something doesn't do what you expected it to do, that doesn't mean it's useless” – often attributed to Thomas Edison, who made a number of his famous discoveries by accident. In a management context, it's important not to lose sight of what you have actually accomplished, even if you have not achieved the results you were expecting. You, too, might discover something of value that was not originally on the agenda, but you won't if you automatically discard anything other than the results you were expecting. This aphorism also serves as a warning against taking action (in this case discarding and/or starting over) before you completely understand the situation.

“Once the pin has been pulled, Mr. Grenade is no longer our friend” – actually more of an Internet joke than an aphorism, but I included it because I think it's funny. It’s still a serious warning that there are certain actions that will change our current operating paradigm as suddenly (and completely) as a nearby grenade blast would, and that some of them may be relatively innocuous compared to the outcomes they create.

“The three most useless things to a pilot are the runway behind him, the sky above him, and whatever happened a tenth of a second ago” – until somebody invents a practical time machine, it really doesn't matter how many resources you've squandered (the runway), how much potential/market you have yet to tap (the sky), or how badly you've screwed things up to this point (whatever it was that happened). You have got to focus on the resources you still have and what you can still do to salvage or rectify the situation. Semantically, of course, it has a meaning similar to "don't cry over spilled milk," but I've always felt this one lends itself better to the manager's role.

“Anybody who uses the expression ‘easy as taking candy from a baby’ has never actually TRIED taking candy from a baby” – a reminder that just because everybody thinks something is easy does not mean that it actually is. In fact, one of the worst management issues I’ve encountered in my travels are “managers” who believe that anything they don’t understand must be easy – or must not be important. Let’s all try not to be that manager…

“There is a time for quiet, reasoned discourse; for give and take; for negotiation; for the settling of conflicts in a civilized fashion by reasonable adults. There is also a time for kicking ass and taking names. And the truly successful leader is usually the one who knows when to do which” – pretty much self-explanatory, although you’d be surprised at the number of people who have never heard it before. Many people believe that conflict is bad, and should be avoided at all costs, particularly in business settings, where time spent fighting with each other is time you can’t spend running your business. And to some extent this may be true; but the fact remains that sometimes you’ve just got to stand up for yourself, your people, your agenda, or whatever else some obstructionist bastard is trying to attack…

Friday, April 11, 2008

Noise

Ever see a guy standing on the side of the road at a freeway onramp with a sign that says "Hungry, Need Food" or something like that? Probably you see them all the time, and pay no attention. This sort of visual/roadside panhandling has become part of the scenery in a lot of American cities, particularly in warm-weather climates. But what about a panhandler with a different message? You may have seen people holding signs that say "Why Lie? I Need A Beer!" and possibly even been amused by them, at least the first time. Colleagues of mine have reported seeing a man in a business suit whose sign said "I Need A Job" and directed the reader to his website, where his (very impressive) resume was posted. There's also a man who works various locations in L.A. with a sign that reads "Wife Wanted. Must Be Rich, Pretty, And Obedient" -- setting his sights fairly high, considering that he looks like something the wolf dragged in (and smells even worse), but I'd be willing to bet he gets more attention than the people with the generic signs.

In electronic engineering you will find references to a "Signal to Noise" ratio -- which compares the level of a desired transmission of information (say, music) to everything else being received by the observer (such as background noise). If the ratio is too low, the receiver will not be able to pick the signal out of the background noise, and the message (whatever it is) will be lost. This same principle is applied to Communications science, with the signal being whatever message the sender is trying to communicate, and the noise being whatever else is going on that will interfere with it. In the case of our panhandlers, the message they want to communicate is "I need money; please give me some" -- but they generally can't, because the noise (in the form of thousands of other panhandlers, as well as other demands on our attention) drowns them out. The guy with the "Wife Wanted" is so different from all of his competitors that he stands out when you see him -- effectively "boosting" his signal and cutting through the noise.

Marketing and Advertising specialists spend years learning how to achieve this effect using different media, and I won't attempt to explain how they do it in this space; I'm just pointing out that like the fundamentals of many other business functions, we as managers need to be aware of these basic concepts when approaching the marketing function. If every company in your industry is advertising in the same channels, you probably need to get your ad there as well (that's where the customers will be looking for you) but you also need to consider how you will cut through the clutter and get your specific message heard. If everybody in your industry is doing sweepstakes campaigns or buy one get one free sales, it will not be enough to just copy these programs. You need to find some way of making your ad different from all of the others.

In the classic Robert Heinlein short story "We Also Walk Dogs" a character is asked to write a new kind of ad for a large company called General Services that does all manner of odd jobs for people too busy to handle them, from shopping and cleaning to walking your dog (hence the title; it's the fictional company's sales slogan). It's interesting to note that when Mr. Heinlein wrote the story this was merely science fiction, but today you can look up such services in the yellow pages. In the story, the company's traditional ads are falling a bit flat, and it's starting to impact their market share. The manager put on the spot thinks about it for a moment, and then writes: "Do you want somebody murdered? (Then don't call General Services!) But for any other personal or household chores done at a reasonable price, call..."

I'm not sure this sort of tongue-in-cheek humor would fly in the post-911 world, where you probably CAN find contract killers advertising on Craig's List (or the equivalent) if you know where to look, but you have to admit that if you saw that ad in the paper (or even online) it would probably get your attention...

What's in a Name?

I noted with interest this week that Pabst Brewing Company is re-introducing the classic "Schlitz" brand of beer to the public. I can remember back in the 1970s when Schlitz was a top-selling beer, complete with its own advertising jingle, television commercials, print ads, and gallons of sales all over the U.S. Then the company started tinkering with the formula, presumably to improve the beer's taste and increase market share. This effort backfired on the brewing company, Schlitz sales plummeted, and within a few years the produce was relegated to the scrap heap of history.

Now, I don't drink beer, and if I did I suspect I wouldn't drink Schlitz beer; beer drinkers of my acquaintance rarely had anything nice to say about the product when it was available. But I find the re-introduction of an extinct product line to be an interesting strategic approach to gaining market share, and therefore within the scope of this blog...

Basically, this whole strategy turns on the concept of brand identity, and in particular, of a brand existing separately from the products that carry it. If I tell you that a new product is made by Sony, for example, you will expect it to be an extremely high-quality example of whatever it is, or possibly a brand-new design or technology altogether; it may or may not have some sleek, ultra-modern design elements and it will almost certainly be overpriced. This is what the Sony brand name has come to mean to the consumer. Any given Sony product might completely fail to conform to these beliefs; in fact, the company has almost certainly produced inferior products from time to time, but they have not done so often enough to affect the general perception of the brand name. The consuming public continues to believe in the quality (and qualities) of a Sony.

The process of establishing a specific set of values as the ones associated with a specific company or product name is called Branding, and companies invest huge amounts of time and money in both establishing and defending their brand names. You've probably observed examples of both activities, such as focus groups and product give-aways (to develop stronger brand awareness) and lawsuits seeking to have movies or television shows stop portraying a given product in a bad light. In many ways, a brand name can take on a "life" or identity of its own, just as a corporation does. Certainly, that product's "good name" has a value, and companies have an interest in increasing (and protecting) that value.

In the case of a beer, a brand name that the consumer associates with something positive (e.g. winning athletes, social acceptance or romantic success) will increase the product's appeal; a beer that consumers associate with "craft-brewing" or unusually good taste will be perceived as tasting better even if it doesn't. Resurrecting a beer brand that died off decades ago after people started to complain that it didn't taste good anymore is a much more vague approach. It's possible that the beer-drinking public includes people who have fond memories of drinking Schlitz in the 1970s and will want to again. It's also possible that the name and/or tie-in marketing will work again in 2008 the way they did in 1978. But if neither of these things happen, it's also possible that the brand will die off a second time...

Tuesday, April 8, 2008

The Empire Strikes Back!

Today's paper contained an unusual insert: a card offering a free cup of Starbuck's new "everyday" coffee product to anyone who wants to come in tomorrow and ask for one. If tomorrow doesn't work for you, they'll let you use it any Wednesday between now and the end of May, just so you will come in and try the new product. It seems like an odd move for a company whose retail stores are so numerous that almost the only place you can't find a Starbucks is inside another coffee house (and I wouldn't be all that surprised even there!) -- until you realize that the coffee giant has been under attack lately from a most unlikely quarter...

According to reports posted on MSN.com, Starbucks has been losing some significant market share over the past couple of years to the new McDonald's "McCafe" products, which were themselves launched to try to regain market share lost to Starbucks. Years ago, if you wanted a coffee on the way to work, you went by the McDonald's and got one, along with whatever artery-clogging food items struck your fancy. It tasted bad and was bad for you, but it was hot, caffeinated, and ready to go quickly without having to clean out your coffee maker. Then the rise of Starbucks (and the collateral effect of the companies that rose to compete with them) took a huge piece out of the McDonald's breakfast market. Attempts to upgrade or upsell their food were largely futile (anyone willing to eat McDonald's breakfast food already did -- and part of Starbuck's appeal was that their food was supposedly healthier), nor were attempts to tinker with the price point any real use.

To compete with the coffee house operations, McDonald's needed a competitive product; something that would appeal to coffee house customers while retaining the traditional McDonald's advantages of lower cost and greater convenience. The result was the McCafe products, and a significant upgrade to the quality of the chain's regular coffee for those who prefer "drip" style brew. Neither menu change was all that significant, but the combination appears to have worked, gradually drawing away (or in some cases, taking back) the customers lost to Starbucks.

Starbucks was not about to just roll over and die, however, and they fought back with their own breakfast products: an increased variety of baked goods and a line of microwaved breakfast sandwiches. This had limited effect, however; most of the people who actually want to eat a sandwich for breakfast already go somewhere else, and it's hard to differentiate one handful of hastily-prepared eggs from another anyway. The core competency of the Starbucks chain was their ability to brew better coffee, but they couldn't simply lower the price of their existing coffee products without implying that these drinks were never worth their original price to begin with. They'd have lost battalions of customers -- and never sold another $3 cup of product again. So instead, they invented a new product; an "everyday coffee" which they are calling the "Pike Place Roast" after the great public market in Seattle where Starbucks had its first shop.

So far, no one seems to know for sure if Starbucks will actually sell the new product for a lower price (attempting to compete solely on cost), but most observers appear to believe that the campaign with combine speed/convenience, improved flavor, and lower price to produce something that will genuinely be a superior product to anything you can get at a fast-food restaurant. If this is correct, it could be a devastating blow in the ongoing battle for the loyalty of the coffee-drinking public, and put Starbucks back into the lead for control of the market.

Until McDonald's comes up with ITS next product, of course…

Overnight Shipping

In my post about Comfort Levels I mentioned that, like most people who have conducted business using e-commerce, I have had some very bad experiences with private shipping companies. Dropping packages is only to be expected, of course; this is why you pack things carefully before sending them off. Dropping them from more than 10 feet onto hard surfaces is a little less tolerable, and dropping them out of moving vehicles (I've always wondered if that one fell off of a baggage truck on the way to or from an airplane; it certainly had tire marks and smelled of jet gas) is exceptionally bad, but the one that really left the lasting impression on me was the infamous "pond water" episode. I'm not making any of this up, folks; when I opened that package, the inside of the envelope was still wet, and it smelled like stagnant pond water. Which would not have been so bad, but the overnight package in question contained my airline tickets for an upcoming trip...

For some reason I am reminded of a table in the old Advanced Dungeons and Dragons books, which explained how the game simulated the vulnerability of inanimate objects to various types of attack. So "Immersion in Water" was a deadly attack to paper, and would be bad some kinds of delicate fabric, but would not damage glass or metal artifacts; while "Crushing Blow" would destroy glass and would be really bad for delicate metal objects, but would not harm most fabric or paper items...

"Why does he tell me this?" I hear some of you asking. Because there is nothing the average business owner is going to be able to do about shipping companies paying someone minimum wage to handle packages; even major operations like Amtrak and Amazon don't appear to be having any luck getting FedEx not to drop packages or UPS not to immerse them in pond water. This does not mean we should concede the battle and just put up with our shipping company annoying our customers, however. It means that we need to adapt to the new business conditions. For example, if the item being shipped can be damaged by water, dirt, dirty water or similar contaminants, we could use one of the new sealable plastic mailing envelopes/bags to pack our packages in. To avoid impact damage it's hard to beat the old Styrofoam packing kernels, and on occasion I have packed an object tightly into a small box, then packed the small box into a larger box filled with packing kernels. In extreme cases one could use several such layers of boxes packed in foam within boxes, or even make the outermost box a wooden crate instead.

Of course, all of this will drive up the price of your shipment, but it's surprising how cheap some of these materials are if you buy them in bulk. More to the point, if your shipments arrive intact, even when battered beyond recognition by the shipping company, you customers will generally notice -- and more to the point, even if they don't notice they won't be complaining. A much bigger issue, encountered by several people I know as well as my household, are shipping company personnel who will fail to make their deliveries altogether. Apparently, since they get paid the same amount for making 30 deliveries as they do for making 70, some route drivers will just mark some packages "No Such Address" and take them back to their distribution point, thus ending their day earlier. As bad as this is, the occasions when I've had other people's packages land on my doorstep often makes me wonder if any of my neighbors have received MY missing packages -- and just decided to keep them.

Fortunately, for this problem there is a remedy available to the business owner: refuse to pay for any package that does not get delivered when and where promised. Don't procrastinate, and don't let it slide; demand your money back for any occasion when they fail to provide the service for which you are paying. And if they "lose" or "damage" a package, demand that they replace the missing merchandise. If this requires paying the extra $2.40 for Insurance, go ahead; it's worth it just to see the clerk's face when he realizes he can't just blow off this request. If you follow through every time with this strategy, you may or may not start getting better shipping service -- although I've heard of companies getting special upgraded service just because management at the shipping company's local office is tired of having to pay for their mistakes (literally and figuratively). You will, however, save yourself and YOUR customers time, aggravation and money if you follow these simple rules. And that's the point, isn't it?

Sunday, April 6, 2008

Artie and Walt

There was a story in today’s Los Angeles Times that struck me as a perfect example of someone doing it right. The story has not been confirmed by the principals involved, so we will have to treat it as a tall story or “shaggy dog” tale for the moment, but it still bears repeating…

According to a short item in the paper, last Friday night after the ballgame there were 30 or so fans hanging around the lobby of Anaheim Stadium when the owner of the Angels, Arte Moreno and his wife came down from their seats and started chatting with the fans. Acting on the spur of the moment, Mr. Moreno unlocked the nearby souvenir shop and had the staff provide every one of the group of fans a free tee shirt and a hat (which he signed for himself). Needless to say, it made a big impression on the fans, at least one of whom apparently knows someone in the news media, because less than 36 hours later we were reading about these events in the local paper.

Now, as public relations gestures go, this wasn’t a very involved one. The total cost to the Angels organization can’t be more than a dollar or two per fan involved, and Mr. Moreno could probably write that off on his taxes as a business development expense – we will assume that somebody that astute would have kept the receipt – assuming that a man of his means would even bother to do so. The impact on the fans in this little group, however, should last for years and even extend to some of those reading about this story second or third hand. It’s an excellent example of how to build a good relationship with your customers, and it demonstrates how important it is for every member of the organization to think in those terms. Even if those thirty to seventy dollars are not recoverable, the cost of two additional tickets on the field level will recoup the loss – and I would bet money that the Angels will realize more than two additional ticket sales as a result of this gesture.

It’s worth noting that one of the other major entertainment venues in Anaheim is in the middle of a promotion making use of the same principles – although in a much more formal way. For the past nine months or so, Disneyland has been celebrating a special anniversary year with small, random giveaways at the park, punctuated by the occasional much larger prize. Typical small examples would be the free Mickey Mouse ears they were giving away when we went last summer, with larger awards being a free night’s stay in the park or the chance to ride in one of the park’s various parades as “Grand Marshall.” Here again, nothing that would actually cost the company very much in absolute terms, but things that could have a lasting impact on the “winners” (imagine a small child getting to ride in the parade or getting their own pair of ears).

Of course, for Disneyland, this program is a part of their regular marketing efforts, and the centerpiece of their current television advertising, while Mr. Moreno and the Angels do not have pockets deep enough to make this type of gesture on a regular basis. Nor would it be wise to try; the demographics of a rowdy pack of sports fans at a baseball game is by definition completely different from those found at the family-friendly theme park, and there would almost inevitably be trouble. Still, it does not take much imagination to believe that somewhere, somehow, Walt Disney might have heard this same story this morning and smiled…

Saturday, April 5, 2008

A Growing Problem

Since today is Saturday we went to our favorite weekend breakfast joint instead of our weekday breakfast joint. Probably our favorite place to catch breakfast on the weekends is the Manhattan Bread & Bagel shop, on Sepulveda not that far from our house in Redondo. They’ve got the best bagels in the Los Angeles area; the old-school kind that are actually boiled before final baking, as well as absolutely excellent breads, cookies, sandwiches, and other products. They were also one of the first businesses I saw offering free wi-fi service to their customers – which is brilliant, as it adds value without actually costing anything. I’d advise anyone passing through the Beach Cities who really wants a great bagel experience to try them, and if you’re there on a Saturday, tell Lynn (the day manager) that I said “hi.”

Today, however, Lynn and her crew were facing one of the most difficult challenges to afflict any small business (and particularly those serving the public directly) in our lifetime. I refer, of course, to parents who insist on bringing their children to completely inappropriate destinations and then refusing to discipline them. The unfortunate fact is that while a bagel shop is a fine place to have some breakfast, read the paper, and watch the world go by, it doesn’t offer much that will keep a small child entertained. As I was trying to get in line to place my order, two small boys (about 7 and about 4, I’d guess) were running in circles in front of the counter, with the larger child holding something away from his brother, while their pre-teen sister yelled at them to stop. Their parents, seated less than ten feet away, were ignoring the entire spectacle.

Now this space is dedicated to business and management issues, so I’m not going to start sermonizing about the decay of our civilization; I’m not even going to point out that some very good historical analysts have pointed out that the elimination of common civility has been the beginning of the end for every major civilization so afflicted. Nor will I start ranting about what a disservice these idiots are doing their children, how the complete lack of discipline is destroying our workforce and contributing to the destruction of our industry, or even about the long-term costs to our society.

Instead, I’m going to pose the question of what, exactly, you are supposed to do when you are the shift manager and your customers (and their children) are behaving in this manner. Asking the children to stop this behavior may not work, and may bring the wrath of the parents down on you; it will definitely leave you looking foolish if the kids ignore you or their parents tell them they can. You can appeal directly to the parents, but some folks will be offended that you would even suggest that they prevent their precious snowflakes from expressing their exuberance, and some may cause trouble in addition to leaving and never bringing you any more business. It’s probably illegal to have someone “accidentally” trip over one of the kids and drop a large pot of boiling water on the offending parents, but if I’m on the jury I’d never vote to convict, and if I’m on the jury at the civil trial I’d refuse to hold the business liable for anything – the idiot parents knew that letting the kids run amok in a public place was dangerous.

Ultimately, this question goes back to one of our early posts where I suggested that people who want you to destroy your business for their amusement aren’t really your customers. You can revisit that post here if you want to, but in general, what I’m suggesting in this case is that people who are really your customers will understand that your other customers and employees need to be able to walk without tripping over kids running amok, and will at least attempt to cooperate with you when you ask them to maintain some order over their brood. And the people who insist on annoying the rest of your customers, creating a huge mess (thus costing you money in both lost sales and increased maintenance) and driving your insurance premiums through the roof, all purely for their own amusement, aren’t really customers…

They Teach Leadership in Business School - Don't They?

Way back at the start of this blog I defined Leadership for anyone who might actually be reading it out there. For the record, no one actually complained about that post, and I later wrote another one about a manager I worked for once who appeared to have no grasp of leadership whatsoever, but was otherwise competent. Reaction to that story was a bit less subdued; I've had more than one person tell me that if a manager's duties include supervision of other personnel, then failing to lead them is as miserable a dereliction of duty as any other.

Part of the problem is that not enough of the people serving in management roles have ever received any formal training in management, and fewer still have studied the arcane art of leadership. The sad fact is that most business school programs do not emphasize managerial skills (e.g. MBA majors in Finance, Marketing, Information Technology, Economics, and so on), and even those students who major in Management will spent less than half of their time learning about this discipline -- and almost no time learning how to lead people. Too many experts in the field continue to underestimate the importance of leadership, simply because they feel that it's merely an "art" with no set rules or factors that can be quantified and mathematically modeled.

This is not quite true, however...

Leadership can be graphed as the compromise or balance between two competing drives: the need to be liked, and the need to accomplish work. A leader's style (and to some extent effectiveness) depends greatly on the balance struck between these two imperatives; so does their approach to conflict resolution. For example, a manager who places very little importance on either the effectiveness of his/her work group or on how well his subordinates like him is often called a "turtle" because of his or her habit of resolving conflicts by going into his or her office and pretending he or she isn't there. A manager who is committed to high performance but does not care about being liked (or even tolerated) by the workers will sometimes be called a "shark," while someone with the opposite priorities (obsessed with being liked to the extent of ignoring performance) will usually be called a "teddy bear."

A leader who attempts to maximize both concerns is usually called an "owl," although this term has drifted a bit from its original meaning. The name was originally applied because of the folklore that owls are highly intelligent (and would therefore be concerned with maximizing anything that can be maximized), but in recent times these people are called "owls" because you'll never see one (e.g. they work much too hard). The leader who instead finds the perfect balance between these two concerns is usually called a "fox" (in the sense of being clever or sly, not crazy).

It should probably be noted that none of these leadership types is necessarily better than the others, although the fox is probably the most often successful. I've worked for sharks, and generally have no problem with them; they are results-oriented people who don't care if you like them or not, so long as you do your job well. Teddy bears can be hard to work with, since they will generally let everything else slide while they try to be everyone's friend, but in an industry where customer relations are critical (e.g. almost any service-sector company) they can be quite useful in the right role. I like working with owls (everyone does), although I've seen too many of them burn out much too young from working too hard. Even the humble turtle can be effective, if the work group can manage itself while the turtle gets out of the way and lets everyone else get on with things.

As you approach your own leadership challenges, you may want to consider what sort of animal you are -- and how that might be affecting your style (and your workgroup). If you're a shark, try to have a bit more consideration for people's feelings, and if you're a teddy bear, keep in mind that there's nothing wrong with asking people to actually do the work you're paying them to do. If you're a turtle, try coming out of your shell a little more often -- maybe there's a fox around who can help you to be a bit more effective. And if you're an owl please, for the sake of whatever's actually holy, GET SOME SLEEP ONCE IN A WHILE!

Friday, April 4, 2008

Got a Plan, Part II

So you’ve figured out your mission, or at least your new company’s mission, and the reason you’ve chosen this risky and usually nerve-wracking way of making a living, and you’ve managed to get your Mission Statement and Company Philosophy down on paper. It’s a good start; you’re well on your way to creating an actual business plan.

Next, you probably want to consider what it will take to get your company off the ground. How much will each dog biscuit cost to produce? How much can you reasonably expect to sell one for? If you subtract all of the costs from the sale price (don't forget the sales tax!) you should get the gross revenue from each biscuit; how many of them will you need to produce in order to make a living? Can you bake that many in your kitchen, or will you have to invest money in a bakery (incurring the additional costs of rent, utilities, equipment, and so on)? Can you produce enough product by yourself, or will you need to hire staff to help you? How will you sell the product, and to whom? And if you are busy selling dog biscuits, either to retailers who want to carry your product or directly to dog owners, who is going to be baking the biscuits?

Collectively, these questions will drive the operational design of your company. Once you have your costs and production volumes worked out, the next question is probably if there are enough people who will be willing to pay $1.50 per biscuit for your product when Milkbone will sell them a box of them for $2.99? Determining how many potential customers there are and figuring out how to tell them about your new product will become the core of your marketing plan. You will probably also want to know how many other companies make such products, and how they market their products; this will be the basis for your competitor analysis.

A close look at the market will also help you to determine who your customers will be, and what demographic groups they will fall into. In the case of the gourmet dog biscuit bakery, it seems clear that two defining factors will be #1. Dog Owners and #2. People who can afford to feed their dogs biscuits at $1.50 a piece. Where do especially well-healed dog owners look for information on their purchasing decisions? I don’t know, but one way to find out would be to follow your competition and see where they advertise. Another possibility would be to identify people who fall into your key market segment and see where they get information for their other purchasing decisions. This will enable you to select the advertising channels that go into your marketing plan, and explain how you are going to offer greater appeal than the competition in your competitor analysis.

Now, I will be the first to admit that it takes a bit of practice to write all of this up in the correct format, with the proper language and pretty graphs that show what you are planning to do, charts and tables that prove you can make money doing it, and a budget that proves that you will make money in the process. After all, I have made my living teaching people how to do these things, and occasionally by doing it for them. And perhaps that's why I find the idea of someone with no training, no experience, no guidance, no forethought, in fact no clue whatsoever attempting this process on the spur of the moment so completely appalling.

Because I do know what it takes to launch a new business – and how many otherwise worthwhile ventures will fail because they never had a plan, and never thought to write one…

Thursday, April 3, 2008

Got a Plan?

It's been said that when the only thing in your toolbox is a hammer, everything starts to look like a nail -- and perhaps we can go over that one in the next Aphorisms post. This particular saying definitely has a grain of truth to it, and I was reminded of it when I came across an "article" on the Onion website about someone trying to start a small business venture without anything resembling a business plan. Now everyone knows that I'm a planner; that I compulsively generate contingency plans for every occasion; that I deal with uncertainty and other stressors by working out what to do in advance. So perhaps it isn't all that surprising that I took one look at this piece and thought "What a cretin! Everyone needs a plan!" Or that I consider it relatively easy to begin writing one...

The first step in writing a business plan for a new start-up venture is to determine what, exactly, you are trying to do. In the example given in the Onion's fiction news story, the protagonist wants to launch her own line of gourmet dog biscuits. These will be better than existing products in both taste and nutritional content, and are intended to appeal to both dogs and their owners on this basis. In business terms, this is called a Mission Statement. It's really the answer to a question, and the question is, simply, "What are we doing?" In this case, the answer might be "We are making dog biscuits that are superior in taste and nutritional content." Some of you will have encountered much longer and more elaborate Mission Statements, particularly if you've spent time in an industry that has been overrun by high-priced management consultants who need to justify their large fees. But a mission statement does not need to be several pages of jargon, and it fact will probably work best if you can quickly and clearly articulate it.

The next logical question is probably "Why are we doing this?" Or, if you prefer, "Why, out of all of the millions of pursuits to which we could dedicate our lives and our fortunes, are we attempting to produce a better snack food for animals that will cheerfully eat decaying roadkill?" The answer to this question should probably cover the fact that dog biscuits contain ash, preservatives, and chemicals that are not good for the animals' health, and at least suggest that just because dogs will eat garbage that doesn't mean they should have to. It might also explain why the founder or founders of the company want to produce a better product, and what they hope to accomplish by starting the company. These comments, collectively, make up what is usually called an "Operating Philosophy" or "Business Concept" statement. These should also be easy to understand and quick to write; if you are not clear on what you are trying to do, and why you intend to do it, you probably need to think things through a little better before you go borrowing money or committing time and resources to the project...

Now, I know it might seem obvious that you would need to consider what you want to do and why you want to do it before launching any project, let alone a new business venture into which you are going to pour your hopes, your dreams, and quite probably your life’s savings. Yet one of the most common questions I was asked while I was teaching business plan writing was “Do I really have to write a Mission Statement (and an Operating Philosophy) for my business plan?”

To which I would always reply, “You don’t have to put any of this in the business plan, if you don’t want to. But you do need to know what the answers are before you go any further…

Wednesday, April 2, 2008

April Fool's Day

I suppose I like a good joke as much as the next guy, unless the next guy is one of those hyper-cheery, totally off-the-wall types who appears to be on uppers even when attending a funeral under heavy sedation. Those of you who have stuck with me through all of these posts already know that I write humor whenever possible, and perhaps a bit more often than that besides. But I must say that upon reading through some of the "Top 100 April Fool’s Hoaxes" list from the Museum of Hoaxes I found myself wondering: "Just what sort of an idiot plays April Fools jokes on paying customers?"

I'm not referring to the completely harmless here, like the "Left-Handed Whopper" joke in 1998, or the "Taco Liberty Bell" hoax in 1996 that may have inspired the Whopper joke. Anybody who can't figure out that the Liberty Bell is part of a National Historical Park and could not be sold to a private company without several Acts of Congress and the attendant media coverage is probably also dumb enough to fail to grasp that a hamburger like the Whopper is ROUND (and therefore inherently symmetrical), and can't have its components "rotated" 180 degrees in either direction (or indeed, at all). I have to believe that anyone who could actually believe in the existence of a special "Left-handed Whopper" probably spends a lot of their time being fooled by various things, and is unlikely to be seriously inconvenienced by one more occasion.

Some of these "jokes" have real consequences, however. For example, the 1972 stunt by the London Times claiming that a well-known travel agency was selling a trip around the world package for only 210 pounds (about $575 US at the time) because that's how much the trip cost in the book "Around the World in 80 Days" and 1972 was the 100th anniversary of the publication resulted in legal action by the travel agency, thousands of angry customers who waited in line for the limited tickets, and the firing of the reporter who wrote the story. Trouble also came when a San Diego (CA) radio station reported that the Space Shuttle was going to be diverted to (and land at) a small local general aviation airport. Despite the fact that there wasn't even a shuttle in orbit at the time, thousands of people drove out to have a look, and the resulting traffic jam tied up half of the local police force and much of the available Highway Patrol as well. The station was fined heavily and the DJ who read the announcement was fired.

I've got to ask why nobody realizes that these stunts are almost always going to constitute massive violations of the Second Law, annoying your customers and possibly many other people taken in by the hoax -- or just inconvenienced by the hoards of people who have been! Then there's the case of Esquire magazine, which in 2000 inadvertently published an April Fools story (about a company giving away free automobiles that functioned as mobile billboards) which almost exactly duplicated the actual business models of not one, but several companies then in the development or launch phases. It was all a joke, of course, but the company that owns the magazine was lucky to avoid ruining any number of investors, throwing dozens of people out of work, and worst of all, being sued down to their undershorts.

I've actually seen even stupider things done at a local level, including some stunts that have cost anything from a day's worth of receipts to several years of lawsuits. What continues to confound me is not that people do these things (people are inherent practical jokers and will do incredibly stupid things for a laugh), but that they fail to grasp that the potential consequences may go right on being fun long after April Fool's Day has slid beneath the horizon for another year. Which leads me to urge any readers who are still reading this post to think very carefully before they decide to stage that wonderful prank which will hazard their job, their company, their livelihood, or their lives.

Because we've still got nine more months filled with life-threatening holiday traditions left in this year alone...

Tuesday, April 1, 2008

The Ethics of Spam

We should probably begin by conceding that a perfectly innocent (if rather dull) potted meat product does not actually entail a great amount of ethical uncertainty, although I suppose one might find the inherent health issues (e.g. excessive sodium, use of preservatives, high fat content) of Spam a bit controversial, and a Vegan might condemn it on the grounds that it represents food harvested from the murdered bodies of our fellow living creatures. Those extremist positions notwithstanding, the title of this post refers to the Internet slang usage of the term "Spam": unsolicited advertising emails, often considered the scourge of all free email systems...

All sarcasm aside, these email messages can be quite annoying, and probably would be even if the majority of them weren't attempts to steal the identity (or at least the money) of the recipient through various forms of Internet fraud. That most of them actually are actively criminal, as well as insulting the recipient's intelligence, just makes the whole thing worse. Most large companies and institutions now use dedicated software to intercept and destroy such emails, and even people on unmonitored email systems will often set their preferences to divert these messages to a "Spam folder" or destroy them outright. Meanwhile, many Internet providers will terminate the contract of anyone they even suspect is using them to generate these emails.

Clearly, no one like getting Spam. The ethical issue arises when you are the one sending it...

There is little doubt that email is the cheapest advertising method ever developed. For no effective cost beyond the salary of the person sending it, one can send form letters (or even personalized messages!) to millions of people at the touch of a button. Even if you are unwilling to spend the money on dedicated Spam software and mailing lists, you can easily develop your own lists from public directories, and create quite nice advertising pieces to send to them using your word processing software. Any email system will probably allow you to send large volumes of email out each day, particularly if you have your own domain and a high bandwidth connection to the Internet. For a small company without a lot of working capital, this may well be your only feasible way to reach a wide audience...

Moreover, the products or services you are offering through your Spam broadcasts might be quite worthwhile, even praiseworthy enterprises. Perhaps you are offering a service that will enable other companies to get the capital they need, or a product that will improve the health of millions of people, or courses that will enable people to obtain better jobs with better salaries and dramatically improve their standard of living. However much people hate receiving unsolicited advertising over their email, surely THESE messages will be an exception to that?

Which, unfortunately, is nothing more than a slippery slope argument. If people hate getting Spam, but your particular Spam is valuable or useful, then it begs the question of just HOW valuable or useful does a piece of Spam have to be before it is okay to send it? Does the advantage realized by society as a whole (e.g. increased sales, resulting in a stronger economy, and whatever business and/or personal advantage is realized by people or companies responding to the Spam, resulting in better living conditions AND a stronger economy) outweigh the inconvenience experience by the rest of the people who get the Spam? And who should be empowered to make that decision? And who's even mentioned Freedom of Speech vs. Privacy issues yet?

It's worth thinking about...