Mar 7, 2025 | Customers, Innovation, Marketing, Small business
I have started seven businesses, so I have some entrepreneurial form.
One I sold, one delivered profits over a 5-year period, but circumstances led to its closure, several did the dead cat bounce, and a few more struggled a bit before common sense cut in, and one, StrategyAudit has been going for 30 years. On top of my own gigs, I have been involved, engaged, and accountable for many, many more as a consultant, interim manager, and contractor.
After all that effort, sweat, broken dreams, conflict, disillusionment, and frustration, mixed in with some ‘I told you so’s’ what have I learnt?
Timing is crucial. Two of my dead cats were just timing: I was too early, and others since have done similar stuff and made a killing, proving that a good idea is rarely yours alone. Connected to this, but not in a causal way, is that it always takes longer than you think. Take your worst case time-frame, the one that cannot happen, then double it. If successful, that impossibly long time frame might be close. We never hear of this from the start-up porn inhabiting the web.
You are never too old. Ray Kroc was a 52 year old appliance salesman when he had the brainwave that led to McDonalds. In Australia, the age group most likely to start a business is 35-39 years old, comprising 19% of start-ups. The likelihood of extreme success keeps rising until the mid to late 50’s, so Ray Kroc is not an outlier. This is contrary to the common perception of the hoodie wearing entrepreneur who only needs to shave once a week. In my case, all my efforts except StrategyAudit were born before I was 40, the earliest, not counting my efforts to make a bob while still at school and University, was when I was 22. StrategyAudit was born from necessity when I was 44.
Focus and commitment are mandatory. Entrepreneurs by their nature are curious, perceptive, and usually see things from an uncommon perspective. As a result, they are easily distracted by the new shiny thing, or great idea to bolt onto their baby. Sometimes these great bolt-on ideas come from early users, whose opinions carry considerable weight because they are so important to you. The internal struggle with this fragmented attention and less than absolute commitment is often a real problem. In my case, it probably cost me at least two potentially extremely successful businesses. I have often wondered at the role of ‘necessity’ in the game of unicorn chasing.
Boot-strap or take equity partners. Every start-up is short of two things: cash and capability. It is enormously tempting to address one of both or these by taking in partners by one of the many avenues open. Often this is the right thing to do, it usually makes scaling quicker and easier. The downside is the loss of control. Most entrepreneurs have some level of ‘control-freak’ in their DNA, and struggle when they go from having the final word, and having to take on board the views of others.
Capability shortfall. No entrepreneur can cover all the capability bases required for a successful business. That leave the choice of how, when, and sometimes if, you fill the gaps. Getting this wrong causes all sorts of terminal events. Often these are around cash flow shortages, particularly when the enterprise appears to be rapidly gaining ground and being successful. However, all the other functions that must be executed by a growing business are equally vulnerable. These days it is sometimes little more than finding and keeping the right people who operate at whatever ‘coalface’ you service.
Solve a problem felt by others. Solving a problem only you have will not lead to a business unless others have the same one. Equally solving a problem you think others have, when they do not feel the impact of it, or your solution costs more than the problem costs them, is not useful.
Round pegs and square holes. In most SMEs seeking to scale, or even just survive, the choice of personnel, and the jobs they do is critical. Make a mistake and it can be terminal, as SME’s do not have the cushion of scale to absorb those mistakes. The adage of ‘hire slowly, fire fast’ is especially important for SME’s.
Too little marketing. Marketing is an investment in future cash flow. Often this is really, really hard when current cash flow is in the toilet. It is profoundly different to the conversion to a transaction, usually called sales, which is just the end point of the process. When you just have the end point, with too little or misdirected effort at the wider functions of ‘marketing’ in the revenue generation process, you will have a mix of productivity suck-holes and opportunity costs that will not show up in any standard set of accounts.
Too little attention to the numbers. The ‘numbers’ critically include the financial numbers, but they are not the only ones that should be monitored, managed, and leveraged. While I obsess about cash with those I work with, cash in the bank is an outcome of a wide range of other things that have gone as anticipated, or if the bank is empty, not as expected. The most critical ones fall into two categories:
- Internal numbers. These are the numbers over which you have direct management control. They range from the costs of manufacturing and service input, to the overheads resulting from the costs associated with keeping the doors open every day. Inventories, cash conversion cycle time, capex and the timing and quantum of expected returns, personnel productivity, and many more consume cash and importantly for an SME, time.
- External numbers. Critically, these are the numbers around the behaviour of customers. They will vary depending on the product you are selling, but customer acquisition costs, referral rates, lifetime value, and repeat purchase rates will all directly impact on the cash in your bank account. They also should include some consideration of the market context, trends, competitor assessments, and regulatory considerations.
Importantly, and often overlooked until too late is the most fundamental number of all: Sales revenue. None of the above is the slightest bit relevant un the absence of revenue. Go after it early and hard!!
There you go, 50 years of hard-won wisdom in a 5 minute read. Call me when you need more.
Mar 5, 2025 | AI, Leadership
AI is the latest corporate cure-all. Just sprinkle some over your business, and inefficiencies vanish. At least, that’s the pitch.
Everyone from academics and government bureaucrats to consultants, seasoned practitioners, casual observers, and the local conspiracy theorist has an opinion on its transformative power. Digital transformation discussions obsess over AI, treating it as a magic elixir capable of solving all operational woes.
The advice is often generic, but sound: define objectives, assemble teams, allocate resources, identify use cases, research the best tools, establish a process to scale successful experiments, and so on. Logical steps, but there’s a crucial caveat beyond the difficulty of execution: the false assumption that ‘business as usual’ can be improved with a few AI tools.
The gravitational pull of the status quo is underestimated. Many assume that AI’s elegance and utility will naturally override entrenched habits and outdated processes.
It won’t.
Change doesn’t happen because of technology; it happens because there’s an undeniable, compelling reason to shift. That reason must be powerful enough to overcome the inevitable resistance. The benefits of change are often broad and enterprise-wide, but the costs, both real and perceived, tend to be personal, creating the very resistance that stalls progress.
No matter the size or urgency of the change, the Theory of Constraints applies.
The speed of any process, including transformation, is determined by its biggest bottleneck. Identify the constraint, remove it, and then tackle the next biggest friction point. When the constraint is culture, the weight of the status quo, and the psychological safety of individuals, change demands a different approach. To be successful, it must be driven by empathy, engagement, and a keen understanding of what’s really at stake for the individuals at the ‘coalface’ of the change.
The compounding effect of small but continuous improvements is what drives real progress. Rinse and repeat, again, and again.
Used tactically, AI is enormously valuable now and will only accelerate in importance.
I have a three-part mantra for tackling bottlenecks: Automate, Delegate, Eliminate.
AI excels at all three. It automates processes, enables and manages delegation (sometimes through outsourcing), and eliminates inefficiencies by delivering transparency and reducing waste.
However, AI alone is not enough. Re-engineering a process is not about throwing technology at a problem. It requires leadership, a deep understanding of why bottlenecks exist in the first place, and the willingness to take decisive, sometimes radical, action.
The brutal truth: AI doesn’t make bad decisions good, lazy leadership effective, or broken cultures functional. It just automates the mess faster. If organizations don’t adapt, if people, workflows, and mindsets don’t shift, then AI will be nothing more than an expensive distraction.
To truly reap its benefits, businesses must not just implement AI but also create an environment where it can thrive. And that demands real leadership. AI does not lead, it can only go where directed, led to the situations where its ability can be leveraged. If leadership is missing, all AI does is magnify and accelerate the impact of the problems, creating uncertainty on the way.
Feb 28, 2025 | Marketing, Strategy
‘Find a niche and own it’ has been a mantra of mine for years.
SME’s who have done this can do very well.
What it implies is that you have gone out and found those few people who overvalue what you do very well.
Defining what you do better than anyone else is the start.
You do not have to be the best in the world, you just have to be the best available to your ideal customer. For many SME’s that is a geographic market, for others, it may be personal service, or a particular blend of coffee beans the delivers a specific flavour, every time when made by Tony the barista.
When you excel at something that a potential customer overvalues, that is a recipe for success. Price will become a secondary consideration.
My eldest son paid his way through university buying and selling guitars, and valves for amps. He knew guitars and their value, so was able to make a few bucks on the arbitrage. However, he knew valves to an extraordinary level of detail. His market was highly specialised Blues guitarists in Sydney, those few insisted on valve amps rather than the modern electronic units. They came to him explaining the sound they wanted from their amp, and Geoff would assemble a valve set that delivered. It was a very narrow, deep, and specialised market and price was never a determining factor.
As University neared completion, he had to ask himself if there was a market in the niche, rather than just a niche in the market. His conclusion, yes there was a market in the niche, but the infrastructure and investment necessary to make a real commercial go at it, rather than just be a side gig for a uni student was more than he was able to make. As a result, he wound it down, and got a ‘proper job’ after graduation.
Briggs and Stratton is one business that years ago identified, leveraged, and now owns a global niche for mobile, small capacity internal combustion engines designed for outdoor use. Lawn mowers, outboard motors, pumps, and mobile generators all use B&S motors, often supplied and branded with the end product. For example, Victor lawn mowers in Australia is a venerable brand. The motor is branded Victor, the engine is actually supplied by B&S.
As their markets ‘electrify’ power systems (engines and batteries) for mobile machinery, it remains to be seen if they can retain their position.
When you are the only solution to a burning problem, even when only a few have it, price becomes increasingly less relevant as the urgency of the problem increases.
The marketing challenge is to identify and highlight the problem to which your solution is the only one possible.
Header drawing by DALL-E
Feb 24, 2025 | Analytics, Strategy
The ‘Power law of Distribution’ or ‘Zipf’ distribution, can be used as an adjunct to the much better understood Pareto principle.
There is a consistency to the structure of mature markets. There is a dominating leader, followed by a long tail of smaller competitors. The size rank of an enterprise inversely correlates with its market share.
This is the Zipf distribution at work.
Zipf comes from the study of linguistics, where the probabilities of the frequency of words occurring in a written piece was identified by American Linguist George Zipf in 1935. In summary, the characteristic of a Zipf distribution is that the most common item appears approximately twice as often as the second most common, and three times more often than the third most common, and so on.
For example, the most common word appearing in an English text is ‘the’ which appears twice as often as the second most common word ‘of’, and three times as often as the subsequent word. This relationship has been validated across languages and the sophistication of language use via the free Gutenberg Project, a free database of 30,000 works. The obvious use is in the statistical probability calculations used to generate the tokens that deliver us output from AI platforms. It also powers the language translation capabilities of digital tools.
Zipf distributions occur across many domains beyond language. Income distribution, population sizes, numbers tuning in to TV shows, and followers of so called ‘influencers’.
So, how do you use this when thinking strategically about how to break into a market where you are somewhere in the long tail of a Pareto chart?
It is a problem faced by most businesses in competitive markets. The big players get all the attention, leaving little for the small players to fight over.
The answer: Identify an existing niche and own it, or better still, create your own niche, and be the dominating player in a Zipf distribution for that market segment.
Fragmented markets with a wide range of competitive offers tend to consolidate over time into a small number of players that dominate. Typically, the number one competitor evolves to be double the market share of the next.
This occurred when ‘Meadow Lea’ emerged from the crowd of margarine brands in the late seventies. It became the dominant brand with a market share over 20% (at a premium price) with the next brand in line, ‘Flora’, having a share from memory that never climbed over 8%. Then came ‘Miracle’ margarine maxing out at about 5% before going down the gurgler.
‘Apple’ created the smartphone niche, which then became the whole mobile phone market. They led the emerging market in volume until Google released Android, and allowed anyone to use it. Apple no longer holds market volume leadership, currently they are around 15% volume share, but still hold profitability leadership at about 80% of mobile phone profit share, a clear example of a Zipf distribution.
Which would you rather have?
These ‘Zipf dominators’ do not happen by accident.
They are created by a combination of the identification of unmet demand, creation and/or leveraging of a market niche, and an emotional connection compounded by long term brand building.
When you are the second brand, chasing a Zipf dominator, life is tough. It will take strategic insight, investment, time, and perseverance to prevail. Critically, it also requires a deeply strategic analysis of customer behavior and needs to be able to see the ‘white space’ than becomes ‘Zipfable’
Header George Zipf courtesy Wikipedia
Feb 18, 2025 | Marketing
In a world of homogeneity, marketers that focus on delivering customer value via the ‘product P’ in the four P’s’ will win in the end.
The age of cost cutting the minutiae to drop a fraction more to the bottom line is over. As Zig Ziglar once said ‘when the crowd is zigging, you should zag’.
Years ago, as product manager for Fountain tomato sauce Management constantly pressured me to reduce costs. At the time Fountain was runaway market leader at premium prices In New South Wales and had solid share in Queensland and Victoria. The challenge to reduce costs came down to replacing the tomato content with something else that was cheaper. To reach the arbitrary reduction goals, we had to skip on tomatoes which represented about 60% of the ingredient cost, and 35% of Cost of Gods Sold.
We were skimming those tomato ingredient costs, compromising the product quality for what amounted to a few cents.
Over the years, cost-cutting had reduced Fountain to the point that it was no better and little different to the alternative products on the market. Fountain had maintained the ‘Rich Red Fountain Tomato sauce’ advertising position for 40 years, although it had become progressively untrue.
No ‘richer’, no more ‘red’ than any other tomato sauce on the market.
It had seemed to cost-cutters over the years that a slice off a cut loaf was never missed. Until, suddenly, the loaf was no longer of any differentiated value.
In frustration I asked the lab to make up a sample from the original recipe and put it into the latest taste-testing. The difference between the original recipe and the current one, before any further cuts, was dramatic. The panel, which included the MD chose the old recipe as being by far the best option.
While the planned round of cuts was shelved, no further move was made to restore the original recipe, and for being a smart-arse, my career opportunities were suddenly limited. Subsequently the combination of an ordinary product, and an eroding brand position resulted in Fountain becoming just another commodity product in a market it used to dominate.
That erosion of market position and long-term profitability could have been avoided by a very modest reinvestment in the product, and associated brand equity.
