The excruciating paradox for the innovator.

The excruciating paradox for the innovator.

Aug 17, 2017 | Innovation

Successful innovation generally comes from being small, with little baggage, no institutional ‘downside’ and few inhibitors to the ability to be truly agile in response to weak feedback signals from customers. Innovation is also a consumer of cash, rather than a generator, although that fact of history is being rewritten by the plummeting cost of tech. Usually the innovators have the will, but do not have the cash, the big companies have that.

So, to be successful, as a rule, you at least have to be able to think and act like a small enterprise, but have the resources of a big one.

Back in my early corporate days I worked for Cerebos Australia, then a modest sized, but hugely profitable offshoot of a British multinational . When I joined, Cerebos marketed Cerola Muesli , with considerable success, but margin was hard to get. In the process of creating new products, we created a muesli bar, a mobile, healthy snack that could go into  a lunchbox, and being made of muesli ingredients, was guilt free, or at least, less guilty than a candy bar.

We cobbled together a  bit of gear to add to the production muesli line, and successfully trialled the products to modest outcomes in market research. With the great benefit of hindsight, the encouraging but modest research outcomes were the result of asking people about something they had not seen, so had no context or frame of reference. Nobody to that time had seen a muesli bar, and did not really understand what it was, or more importantly, the value it could deliver.

I did the work, produced a business plan, and was committed to the launch, but the top end of the volume projections I was comfortable to put my name against were below those required to generate the rate of return demanded by Cerebos, and given the perceived risk,  setting out to create a totally new category, was too large, the project was binned before birth.

Then, several years later, when Uncle Toby’s launched their version, which was a close match to the products we had developed, the volumes they achieved in the first 6 months bettered my most optimistic 3 year projections  by a considerable margin.

Creating a sales forecast for an entirely new product, is a function of research, insight, optimism, wishful thinking, and plain lies, all mixed up into a set of projections. Often the most important ingredient is the insight and domain knowledge , but the only thing you know for sure is that the forecasts will be wildly inaccurate. Mostly those inaccuracies reflect the optimism which fails to materialise, but from time to time, great projects are left in the dust, and it is only with hindsight that we wonder why they could not see what now seems obvious.

Innovation inside a large company is challenging. They became big and successful by doing a few things well,  time after time. By improving operational efficiency, they leverage the mathematics of scale and scope. By contrast, anything innovative is messy, risky, and not subject  to rigorous quantitative analysis: there are no hard numbers, just instinct, dodgy projections, and belief.

Perhaps that is why the successful VC’s around do not, as is commonly believed, fund the true start-ups at start-up. Those are funded by the ‘Trinity of F’:  Friends, Family and Fools. The VC comes in when the proof of concept is at least partly there, and they do not invest in the business plan, weighed down by mindless excel projections, wishful thinking, and desperation to snag some money to keep up the car payments, they invest in the people.

 

The one rule to ensure you attract attention.

The one rule to ensure you attract attention.

Aug 15, 2017 | Communication, Marketing, Sales

The real fight out there, the one that is for most businesses ‘make or break,’  is not for  likes, or new friends, or how many social media feeds you showed up in, it is for attention.

The problem with attention, is that it is transient, hard to get, and there is  no saving it up for later.

Use it or lose it.

To win that fight for attention, or at least have a shot at the title, there is one rule to remember and implement.

Nobody cares about you and what you care about.

There it is, in 9 words, could be better at 7 if you cut out ‘you and’ .

Perhaps your Mum cares,  and your partner, maybe your few really close mates, nobody else.

They are all too  busy caring about what they care about to be worried about you, someone they do not know, or occasionally may know superficially.

Why is it then that we spend so much time telling others what we care about on our landing pages, brochures, advertising platforms, marketing collateral, and websites?

Usually in my experience that mistake comes from one of two places, often both:

  • You do not know who you really need to talk to well enough to communicate with absolute clarity why they should give you some of their valuable attention.
  • You are covering your arse in case someone higher up in the place asks ‘what about….’

Both are short sighted, and revenue destroying tactics.

All forms of marketing activity and material have one purpose only: to contribute to the generation of revenue.

Nothing else. Nada. Zilch. Generate revenue or go home.

What contributes most to generating revenue?

Easy: someone has a problem, and  in the first glance, on your website, or brochure, or whatever it may be, if the answer to their problem, in 10 words or less is there, they may stop. Even 10 may be too wordy, some with the problem will have skimmed over it and moved on to someone who expresses their solution to their problem with greater clarity.

Outside your family, and close circles, nobody cares. Until they need you: then they care, and occasionally when you get your marketing ducks in a row, offer you the opportunity to gain their attention.

 

Cartoon credit: Hugh McLeod at gaping void

9 questions for a ‘quick and dirty’ StrategyAudit.

9 questions for a ‘quick and dirty’ StrategyAudit.

Aug 9, 2017 | Small business, Strategy

In 1712 the British government started taxing newspapers by the number of pages they printed. The predictable response was that newspapers started printing on what became known as ‘Broadsheet’ paper to minimise their tax. A rational commercial response, but by the time the tax was abolished in  1855, people had forgotten why they needed these huge, unwieldy pages, and somehow they became  a sign of a ‘serious’ newspaper.

Had the Sydney Morning Herald asked any commuter who still bought their broadsheet paper before March 2013,  would they prefer a smaller format, they would have answered with one word: Please.  Common sense caught up with them and the change was finally made, it only took 170 years.

This is just one example of thousands of a key strategic question that should always be asked, ‘Why do it that way”. When I get an answer to the question that sounds anything like, ‘because that is the way it has always been,’ I shudder, and when that say ‘customers prefer it that way’ I ask to see the research, which in most cases has been chewed by the dog.

There are 8 more common questions I work into conversations early on that give me a rough idea of the problems they face, and the ‘shape’ of  an assignment, should it eventuate.

  • What would a VC investor do? Those who put up capital with a view to an exit at a profit at an early date look for the 20% of every business that produces the 80% of profits, and having found it, tend to remove as much of the 80% of activity as they can in order to generate their return. It can be a bloody exercise when done by an outsider, but turning a managements mind to the question almost always opens up their minds to a far more critical analysis of their current business that had otherwise been done.

 

  • Are the organisation structure and capabilities capable of delivering the strategic outcomes planned?. There is a trick in the question, as many businesses do  not have a clear idea of their strategy, so are unable to articulate how the organisation can deliver on it. The correct sequence is to have a robust strategy based on the “why” or values of the business, however you choose to express it, followed by an analysis of  the structure and capabilities required to deliver. Which is the cart and which is the horse should be very clear.

 

  • Which pieces do not fit? To some degree, this is a similar question to the one about what a VC would do, just a bit less intimidating, and more sensitive to the cultural and operational shape of the business, and its capabilities. There are always bits that do not fit, that do not carry their own weight. Each part of a  business should add to the whole in a manner that is greater than just the sum of the parts. If a part does not add to the greater sum, either get rid of it, or  improve its performance very quickly so that it does.

 

  • What does the long term look like? I ask this question at all levels, hoping to find consistent answers, which is a great sign, but unfortunately as rare as hens teeth. Assessing every major decision against the framework of the desired long term objective ensures at least some degree of alignment and consistency in decision making.

 

  • Why do customers do business with you? It always surprises how often the answer to that question is either “price” or “they always come back”. Neither is a sufficient answer. If you are the cheapest around, that is a good way to go broke eventually, and if you cannot articulate why someone does business with you, in other words, repeat back to you your value proposition, you are equally in trouble.

 

  • How much business comes from repeat customers, and what is your share of their wallet? Servicing an existing customer in any market is cheaper than finding a new one, so cherish the ones you have. Similarly, if you have a 10% share of wallet, the most effective way to increase sales is to increase your share of their wallet. When there is no credible answer, to either question, it is a danger neon sign.

 

  • Who are your major and potential competitors? Knowing your current major competitors and their capabilities is essential to survival in competitive markets, and in many, being able to see over the horizon sufficiently to see who the potential competitors may be is a great sign of strategic awareness.

 

  • What is the exit strategy? In most cases, public companies do not have one, and it is really not necessary for them, what they really need is a comprehensive succession plan, with the associated capability development activities. For everyone else, the lack of an exit strategy signals a lack of focus on outcomes. Even when the owners, who are generally also the managers in most of my clients, intend to work ‘forever,’ there needs to be an exit strategy as part of the strategic planning exercise, and often the succession planning is how to bring along young ‘Georgie’ the son/daughter of the owner, who might not make it in a meritocracy.

When you would like to have a conversation that goes a bit deeper, give me a call.

Image via Pinterest

 

 

The real measure of marketing effectiveness, and how to deliver it.

The real measure of marketing effectiveness, and how to deliver it.

Aug 7, 2017 | Governance, Leadership, Marketing

Marketing is a functional silo on an organisation chart, as is Sales, Operations, Finance, HR, but unlike the others, marketing deals with unknowns, the future, whereas all the other functions deal with the past, or what is immediately in front of them.

Marketing is about the future, long term commercial sustainability, and its effectiveness is really hard to measure, other than in hindsight. There are lots of measures for things that have happened, which are the result of often many combinations of actions taken some time ago, so the measures are unable to change anything, just give insights to what worked and what did not.

As the senior marketing person in a very large business 30 years ago, I found myself often talking about advertising, segmentation, positioning, graphic design, and all the rest, around the board table, which either put others to sleep, or elicited opinions, usually uninformed, about the detail. However, when I talked revenue I had their attention.

Marketing is all about revenue, particularly future revenue. The other stuff is the paddling under the surface that enables the generation of the revenue, but the real measure of marketing effectiveness is revenue and margins over time.

In every business I have ever had anything to do with, marketing expenditure is treated as an item in the P&L. By definition, items in the P&L are expenses or past sales revenue. This is inconsistent with the notion of marketing being about building the foundations of future revenue.

The closest analogy is a piece of capital equipment, they are always purchased to fill one of two roles, sometimes both:

  • To increase the volumes too be sold, or,
  • Increase the productivity of the processes.

Those purchases are recorded in the cash flow statements, and the balance sheet, not the P&L. The greater irony is that capital items are depreciating assets, whereas marketing  investments, when done well are appreciating assets, unrecorded anywhere until the business is sold, then the accountants start talking about ‘Goodwill’ being the difference between the realisable value of the physical assets, and the liabilities on the books.

There is a structural paradox here. We treat a potentially appreciating asset differently to one that can only depreciate, just because it is hard to measure.

This challenge of measurement is the biggest one marketing people have to hurdle. The turnover of marketers in senior roles is the fastest amongst the functional heads in large corporations because we generally do not recognise the essential long term business building nature of marketing investments. We treat it as an expense to be cut at the slightest cloud on the profitability horizon, and the marketing people with it.

One of the challenges here is that to achieve these long term outcomes, marketing requires the co-operation and  collaboration of all the other functions, without the organisational authority to direct. The CMO has to be a leader across functions. He/she has to build the respect and co-operation of other functional leaders, often at odds with their short term function specific performance measures.

25 years ago, I and my marketing team, failed to convince the board of the then Dairy Farmers Co-Operative to invest the required capital in new equipment to launch a new brand of flavoured milk. It was to be packaged in plastic bottles, with a screw cap, to be sold at a very considerable premium to the products then only available in the gable top cartons, and we proposed to sell it to different consumers. Nobody had done this before, we were banking on tapping into a market completely under-serviced by existing packaging and branding. The Operations Manager at the time believed in the project, and put his neck on the line by committing  his R&M budget to refurbish some older gear in the absence of capital approval, and I ‘stole’ the required advertising funds from another brand.  We launched Dare Flavoured milk, and it delivered the fastest return on investment I have ever seen, and 25 years later, it is still going strong, delivering revenue and margins to the now overseas owners of the business.

If marketers started talking about revenue generation, rather than the more common ‘marketing-speak’ like positioning, segmentation, and all the insider jargon generated by digital, they will be taken much more seriously around the board table. Building support amongst other functions to acknowledge the long term impacts of intelligent marketing, is necessary for long term prosperity, and the only real measure of marketing effectiveness.

 

3 foundations that will enable Amazon to disrupt supermarkets.

3 foundations that will enable Amazon to disrupt supermarkets.

Aug 4, 2017 | Change, Marketing, retail

Shopping is a physical and sensory experience, humans evolved doing some sort of physical ‘shopping’ even if for most of our history, the similarity of that activity to a trip to the supermarket has been fleeting. Much as we might hate the queues at the checkout, difficult parking, reducing range as the retail gorillas replace our habitual brands with their own house-branded, and increasingly ‘Bandit branded’  (retailer owned ‘brands’ masquerading as proprietary) Sku’s, there is still an emotional and social element to the experience.

It applies even more in more specialist retailers, the more specialist, the greater the degree of sensory engagement necessary.

This is all breaking down, and quickly, as even high fashion, and highly personalised fashion like Shoes Of Prey, which can designed and bought on line.

So what can we expect from Amazon that would justify $US13.6 billion for Whole Foods?

 Virtual supermarket.

Virtual and Augmented Reality is coming at us like a train. Just as shoes of Prey allows you to design your own shoes, Warby Parker  has become a billion dollar company in 6 years by helping you to choose your glasses on line,   Amazon (surprise surprise) is playing with Prime Wardrobe , and Ikea is experimenting with a virtual furniture app.  it seems a short step to using Virtual reality from your couch to ‘walk’ through, select, place and order and schedule delivery from a grocery ‘store’.

Almost a year ago my second son bought a VR set for a few hundred dollars, and when I fiddled with it, thought I had seen the future of market research. Even so recently my imagination did not take me that next small step to an actual ordering and delivery management system, but why not?

Crowd sourced logistics.

The biggest stumbling block to digital grocery growth has been the logistics, both timing and cost. Fresh and frozen produce where timing and cold chain integrity is paramount, requires a different set of logistic standards to shelf stable commodity categories. Shoppers are very price sensitive across homogenised commodity categories of temperature agnostic products, and it does not matter much if they remain on the front step for a while, diametrically opposed on both counts to produce.

Timing of delivery has been particularly problematic in multiple income homes, and building delivery certainty creates considerable cost.

Both have been solved by the sort of technology Uber uses. Pretty simple to have a crowd sourced delivery service where the vehicles just have a refrigerated unit in the boot hooked into a power source in the car, combined with the delivery scheduling Uber has amply demonstrated works.

 Payment security.

Payment security while it should be a problem, as the level of fraud increases rapidly in Australia, from 16.2cents/$1,000 in 2013 to 24.5 cents/$1,000 in 2015, (according to the Australian Payments Clearing association), it seems not to be for most of us. However, It will be very soon. Blockchain technology will remove much of the risk, and in the early stages of development, seems to be ‘fraud-proof’. Amazon has been experimenting extensively with Blockchain , collaborating with many large financial and digital innovators to better facilitate and secure web based financial transactions.

It seems to me that these are the three building blocks Amazon needs to make a huge dent in the traditional supermarket business, struggling to identify the sustainable sources of growth and profitability. Whole Foods is only the stalking horse, as there is a lot of expertise in procuring quality fresh produce in predictable volumes, and Whole Foods is already an expert in this. Amazon will add the Whole Foods expertise onto what they are doing already, and bingo, another disruption coming your way.