Jan 1, 2025 | Change
Have you noticed that today, New Year’s Day 2025, marks the halfway point of the 2020s?
So what you ask? Fair question.
We tend to see halfway points as representing a significant choice, a catalysts for change, the point of no return.
Is today such a point?
What should we be considering as we step into the latter half of the decade?
Continuous Improvement is a Game of compounding 1%.
Small improvements, made consistently, compound into massive progress over time. This “game of 1%” is simple to understand but challenging to execute. It requires discipline, alignment, and a commitment to consistent action. The key lies in identifying obstacles and either eliminating or outsourcing them to free up your time and energy, both finite resources.
Often, these obstacles are subtle sources of friction you may not notice until you actively search for them.
The early stages of 1% improvements are straightforward. You can achieve them by working a bit harder, smarter, or longer, and removing obvious friction in the processes you run. However, as you progress, the gains become harder to realise, demanding cultural and operational change to unlock the next level. Continuous improvement is not just about short-term wins; it’s about laying the groundwork for sustained success.
Start with the Hard Stuff
Traditional New Year’s resolutions often fizzle out because they lack structure and focus. A mentor once taught me the power of tackling the hardest tasks first thing in the morning. This approach, though difficult, transformed my productivity and continues to serve me well.
In my corporate life, I prioritized difficult decisions, conversations, and analytical tasks early in the day. Now, working for myself without the external pressures of a corporate environment, this habit is even more critical. When you are accountable only to yourself, it is easy to fall into procrastination. Starting with the hard stuff sets the tone for a productive day and a successful year.
Be Contrarian
We are told to set goals, pursue our mission, and stay the course. However, in a world evolving at the speed of an F1 race, flexibility and adaptability within a solid strategic framework are essential survival skills. The challenge is to marry these two conflicting forces, and zig into less contested spaces, when everyone else is zagging.
It requires that you see the commercial and strategic environment through perspectives that usually make others uncomfortable.
Flexibility and adaptability, while often used as synonyms, are very different. Flexibility implies you bend with the wind, then revert back to the previous shape when the wind stops. By contrast, adaptability is the ability to adjust tactically as circumstances change, while maintaining the strategic direction.
Once a strategic direction and priorities are agreed, I encourage my clients to plan in cycles of five quarters in preference to an annual budget. That offers a horizon that is close enough to allow real-time adaptability but far enough to maintain and strengthen strategic direction.
AI is the Game-Changer
Artificial intelligence is no longer the future; it is the present. The release of ChatGPT-3 in late 2022 sparked a wave of innovation in the tools enabling enterprise planning and operations.
Businesses can no longer afford to ignore AI. Those who embrace it will widen the gap between themselves and those who hesitate. AI is not just about efficiency; it’s about transformation. If you have been hesitant to dive in, now is the time. The water is warm and deep, and the potential rewards are immense.
The Ultimate Differentiator is curiosity.
In a world where change is the only constant, curiosity has become a superpower. Those who remain curious will continue to learn, adapt, and evolve. Those who do not will fall behind at a negative compounding rate.
Curiosity drives exploration, creativity, and innovation. It’s what keeps us engaged with the new frontiers of thought and action.
Make 2025 the year you lean into your curiosity, seeking out opportunities to learn and grow.
Dec 23, 2024 | Change, Leadership
Yesterday was the summer solstice here down under. The longest day of the year. While it is a long slide into the modest chills of winter, it has begun, again.
It is also just two sleeps until my grandchildren can rip away the wrapping paper and play for a short time with their new stuff, mysteriously left by a bloke with a beard (and tatts?) before they get back to being endlessly curious about everything around them.
Wonderful thing having grandchildren. As American writer and commentator Paul Harvey said, ‘Nobody should have children, but everybody should have grandchildren”. I’m not too sure how that would work, but am fully on board.
What a year.
Our American allies voted in, again, a convicted felon as President. Nobody I know understands the dynamics of this choice, we just hope it works out better than we think it will.
World economies are struggling, and while Australia’s economy is in a per capita recession, and we have all sorts of challenges, the government seems to be delivering the promised ‘soft landing’. However, if you are renting in Sydney or Melbourne, you probably do not see anything soft about it. It also seems to me they have squibbed on several important (to some) questions. Gambling advertising will continue, we do not have any transparency on political donations, the federal ICAC has been shown to have no teeth, no regulatory progress on promised measures to mitigate carbon emissions, and housing affordability. That last one will hurt the government, as they will carry the blame for 40 years of underinvestment, and tax breaks given by both sides of politics to buy votes, which has led to the current ‘crisis’.
Investment in infrastructure generally has been lacking for years, but 2024 saw a surge in big ticket items like roads and suburban rail, showing massive cost blowouts. Snowy 2 point whatever is good in theory, and perhaps history will be kinder than me, but what a cock-up! Add AUKUS and a few others and you have the seeds to common disbelief in the ability of public bodies to get out of their own way.
Private investment in productive assets is also lacking, reflecting both a lack of long-term confidence, the incentives favouring non-productive assets, and the lack of depth in our own company’s ability to compete on the world stage. Beyond digging stuff up and shipping it off for value adding elsewhere, we are diminishing as a viable competitor in the world economy. This is a structural failure over a very long period. Donald Horne observed in 1964 that we were the ‘lucky country’. Most misunderstood the sarcasm of the statement at the time, and still do. However, we continue to sail along as if there was nothing to be fixed.
Our politics is stressed, superficial, divisive, and utterly short term, and over the first few months of 2025, will only become more so as the election approaches.
ChatGPT, launched into the wild on November 30, 2022 has led to a frenzy of innovation that will be seen by history as being as momentous as the printing press, and electricity. When I first stumbled across it in mid-December 2022, I thought it was astonishing but had little idea of the impact over the following months, and now two years. The initial thought was ‘will it take my job? I have concluded that AI will not take peoples jobs, although every job will change, and some disappear being replaced by ones we have not thought of yet. However, people who use AI will take the jobs of those who do not. No use hiding, the world has changed, again.
2024 also saw increased ferocity in the Ukraine and Gaza. Many have noted that War is the logical result of the failure of diplomacy. In both these current cases, you could add massive ego and fanaticism to the failure of diplomacy over centuries. From the comfort of a Sydney home, it seems a long way away, until a synagogue in Melbourne is torched, and there are riots in Sydney.
This is my last post for 2024.
I will sit back and wait for Santa, have a drink, see if the Boxing Day test has given us an opener who can withstand the wiles of Bumrah, and contemplate my expanding naval until early in 2025. Thanks to those few regular readers, I hope I have added to your menu of possibilities over the year.
Unlike many, every word I write is mine. Nothing artificial, inorganic or transcribed from elsewhere, although from time to time, I have asked for help in writing a headline that grabs attention. The tsunami of so called content spewing out of the AI tools makes the fight for attention more aggressive, vicious and destructive than ever.
Hug your kids, love your partner, value your friends, and stay safe and well.
Merry Christmas, and I will ‘see’ you next year.
Dec 18, 2024 | Change, Innovation, Strategy
In a world where technological generations now live and die within months, can another government review truly capture the lightning-fast pace of innovation? Two years after ChatGPT’s launch transformed our understanding of artificial intelligence, we’re facing a critical question: Are our innovation assessment methods becoming obsolete before the ink on the report has dried?
Australia’s innovation landscape tells a stark story. We’ve plummeted from 55th to 102nd in the Harvard Economic Complexity Index, a precipitous decline that demands more than traditional bureaucratic soul-searching. The challenge isn’t just about understanding our innovation ecosystem—it’s about reimagining how we nurture and accelerate technological breakthroughs in an era of unprecedented change.
Consider the breathtaking velocity of recent technological transformations. The journey from the ENIAC computer in 1945 to today’s AI-driven technologies has compressed decades of innovation into mere years. When I first encountered computing via punch cards in the early ’70s, the idea of conversational AI or neural interfaces would have seemed like pure science fiction. Now, these technologies are not just possible—they’re rapidly becoming commonplace.
The transformer mechanism described by Google researchers in 2017 didn’t just advance machine learning—it rewrote the entire rulebook of technological innovation. ChatGPT and its successors have demonstrated how quickly breakthrough technologies can move from theoretical concept to global phenomenon. The time between laboratory conception and widespread adoption is now measured in months, not decades.
Our current innovation review approach risks becoming a retrospective exercise—an autopsy of technological opportunities already lost. By the time a high-powered government board completes its comprehensive examination of the R&D ecosystem, the technological landscape will have shifted. We need a more dynamic, real-time approach to understanding and supporting innovation.
What might this look like? Instead of traditional lengthy reviews, we need:
– Rapid, continuous assessment mechanisms that can track innovation in near-real-time
– Flexible funding models that can quickly pivot to emerging technological frontiers
– Direct channels between researchers, entrepreneurs, and government decision-makers
– International collaboration frameworks that transcend bureaucratic boundaries
Countries like Israel and Singapore offer compelling alternative models. They’ve created innovation ecosystems that are less about rigid planning and more about creating adaptive, responsive environments where breakthrough ideas can flourish.
The stakes are too high for business-as-usual. Our global competitiveness depends on our ability to not just track innovation, but to actively cultivate an environment where breakthrough ideas can emerge and scale at unprecedented speeds.
Another government review won’t solve our innovation challenges. What we need is a fundamental reimagining of how we support, measure, and accelerate technological progress.
The future of Australian innovation isn’t waiting for a committee to finish its report. It’s happening right now—and we need to be ready to catch it.
Dec 4, 2024 | Change, Strategy
Too few people running manufacturing SME’s understand in sufficient detail the value of understanding and managing their product portfolio with one eye (at least) on their break-even point and burn rate. To my mind these are critical measures that should be reviewed and interrogated as a standard part of being a responsible manager.
The break even point in a multi-product manufacturing operation will vary depending on the gross margin from the differing mix of sales. This has been to date a challenging calculation, dependent as it is on a variety of variables, particularly the forecast of sales volumes of the product portfolio. However, it is a perfect use case for AI to be deployed, so there is no longer an excuse.
The ‘brother’ of break-even is your burn rate.
Every business has a burn rate, the ratio of cash in to cash out. It is a critical calculation, particularly in a start-up environment.
It tells you when you will run out of cash.
When seeking a capital injection, your burn rate will be one of the first numbers isolated by a potential funder.
A potential investor or lender will always ask two critical questions:
- How are you going to spend the money?
- How long will it last?
The general use of the term is in relation to startups, but it is just as important, albeit not as top of mind, in an ongoing business.
It is really a simple calculation. The ratio of cash you are spending every period, to the cash you are collecting, divided by the cash in reserve. In a crisis, that period may be daily, or weekly, but it is most often monthly.
Startups are inhabited by optimists. Nobody but an optimist would put themselves through the wringer of creating a start up. As a result, it is almost inevitable that revenue forecasts will be inflated, and costs receive too little critical thought. That is until almost too late, at which point the hatchet comes out, and potential funders run for the hills.
Nov 25, 2024 | Change, Governance, Strategy
Should the ACCC have approved the $8.8 billion reverse takeover of Sigma pharmaceuticals by Chemist Warehouse?
Chemist Warehouse is by far the largest competitor in the $17 Billion retail pharmacy market. Sigma pharmaceuticals is a wholesaler serving all pharmacies, and holding a major share. On the surface the reworked Chemist Warehouse/Sigma pharmaceuticals company could exert undue competitive pressure on retail pharmacy competitors. They would be in a position to dictate price and terms by virtue of their scale. Surely not a good outcome for retail prices.
On that basis when recently asked my view I asserted that the ACCC had made a mistake in allowing this transaction. It seemed on the surface that the power of the combined group would logically result in higher barriers to entry, less innovation, the lessening of competition logically leading to higher prices.
However, on the flip side, is it the role of anti-competitive legislation to protect competitive enterprises in a vertical?
Retail pharmacies make anywhere between 25% and 65% of their revenue from non-prescription sales. The latter number being Chemist Warehouse share, the former being the bottom end of all other retail pharmacies. In effect, pharmacies operate as competitors to Woolworths and Coles for a big chunk of their revenue.
We have a paradox here reflected elsewhere in the economy, most particularly in the retailing of food and groceries. Should regulatory authorities be required to interrogate just the horizontal market for competitive pressure, or should they also reflect on the verticals in operation that serve as the supply chains?
Coles and Woolworths over the last 40 years have effectively created what was 20 years ago an oligopoly. They had swallowed up in one way or another almost all of the competitive retail chains, and the power of the wholesaler serving independent retailers was significantly diminished. To facilitate their own supply chains, they built and continue to innovate through the supply and logistics chain to squeeze costs out, in any way they can, while maintaining a good return to shareholders.
Aldi launched into the Australian market in the mid 90’s. They deployed a different business model offering a limited range of house branded products at discount prices in low rent locations. As the number of ALDI stores increased driving market share, so did their competitive impact on the market increase. Currently it would be wrong to consider Coles and Woolworths an oligopoly, as Aldi is a growing, and apparently financially viable competitor.
After consideration, I concluded that the ACCC had in fact made the right choice in allowing the Chemist Warehouse Sigma pharmaceuticals reverse takeover.
At the other end of the scale, we have the privatisation of natural monopolies where competition is next to impossible. The obvious example is Sydney airport, a privatised public monopoly that has conducted innovative programmes to gouge the travelling public. Such a natural monopoly should never be privatised.
It is stupid and naive in the extreme to think that a private corporation would not leverage their pricing power to the benefit of their shareholders when customers had no option, and no alternative was likely to emerge. Promises of regulatory profit limitation have proven to be a politically useful mirage, its true nature only apparent just after the ink has dried.
Aug 12, 2024 | Change, Strategy
2024 is very challenging for SME’s.
It is proving to be a time of an unusually high rate of SME mortality. This is driven by the problems that emerged with the Corona virus, followed by a period of historically low cost of capital, then a burst of inflation now being wrung out by aggressive rises in interest rates, the wars in Ukraine and Gaza, uncertainty of supply chains, and a host of other items.
It makes sense for every business owner to consider the value of their business. While having an exit plan is always a good idea, few are proactive in creating one.
While you may not be considering selling any time soon, (or going broke) it remains a valuable exercise to uncover the drivers of value, and double down on them.
Following is my list of value drivers, in a rough order, which will vary with circumstances and conditions in any specific market.
Cash flow.
Managing cash is the single most important thing every business can do to ensure survival, after looking after your customers. Cash is not subject to accounting rules, conventions, or differential tax treatment, as are the P&L and Balance sheet. You either have it or you do not.
Calculating free cash flow, the cash left over after capital expenditure over time, gives an extremely sensitive view of the health of a business.
Happy and committed customers.
You can make customers happy by giving discounts, but that is not a good measure of value. A committed customer will be prepared to pay at least the going rate for your products, and will not be moved by short term incentives from a competitor. Two of the best measures are Share of wallet and customer churn.
How much of a customer’s spend on a category you could supply, do you supply, and what is the ratio of customer loss and gain that is occurring. Committed customers will also be happy to refer you to others, simply the best form of marketing there is.
Customer & supply chain diversity.
‘Don’t have all your eggs in the one basket’ is a dictum that has proved true time and time again. Businesses that allow one customer to become more than about 25% of their revenue are dicing with trouble. In the event that customer goes broke, changes personnel at the top, gets taken over, or a myriad of other things that can happen in commercial life, you can find yourself out in the cold. This is the structural problem facing Australian suppliers to FMCG.
It is the same in your supply chains, but in reverse. Every business wants to be a dominating force in their supply chains, to be able to exercise some level of control. The pandemic has shown us how fragile our supply chains are, so resilience has become a key KPI for many who were previously reliant on single sourcing and JIT supply.
Differentiated in ways hard to duplicate that customers value.
Charlie Munger often spoke about building ‘Moats’ around his businesses. We all understand that a moat is a structure that repels invaders, in a commercial case, competitors. It is a lovely metaphor, and works irrespective of the scale and type of your business.
You build moats by being able to create customer value that competitors cannot or choose not to match, and if they try, their resources are consumed by the power of the Moat. This sort of protection is rarely a function of just one element, in the metaphor, the height of the moat wall and depth of the water. It is always a combination of many contributing strategic and tactical measures.
‘Tide’ detergent in the US retains 50% market share of the washing products market. Any quick look would indicate it to be a commodity market. Anyone with the right gear can make a detergent that does a good job, so how has P&G retained this share? It is a combination of time, disciplined brand building tactics, consistently very good advertising, continuous innovation, and an ability to ‘shape’ the market by being strategically smarter than everyone else. These have delivered first mover advantage continuously to P&G as the ways Tide delivers value to consumers have evolved.
Defined Process maps subjected to continuous improvement.
Imagine a potential buyer comes into your business with a serious intent to consider purchase. Anything you can do that reduces the level of uncertainty that they will feel about the value of your business to them is worth doing. If a buyer sees that business processes are mapped, consistently applied, and the subject of continuous improvement, it will be immensely reassuring. Such an environment will remove a significant source of uncertainty and risk.
Revenue Predictability
Revenue predictability is gold. Forecast accuracy drives not only sales up, but operational costs down, and revenue generation activity more directly connected to results, and therefore accountability.
Over the last 20 years, the nature of revenue has changed from one driven by sales, to one driven by subscription. Once you have a customer ‘signed up’ to some sort of process that delivers revenue automatically, they are both more likely to spend more, as they have a sunk cost to recover, and less likely to leave.
Amazon Prime is the most effective subscription model ever seen. Currently Amazon prime has 170 million subscribers in the US. For $14.99 monthly or annual subscription of $139, subscribers benefit from a range of ‘free’ services from across the Amazon ecosystem. Numbers vary, but solid research puts prime subscribers buying up to 4 times as much on Amazon as the average non subscribing Amazon buyer, up from around $500/year to over $4,000. Not bad when you can also manage the margins they are buying at, and have already banked $11 billion in advance.
My local coffee shop has a loyalty program, the 11th coffee free, so I tend to buy from them when it is convenient to do so. If the situation were reversed, and I had paid a membership up front in order to get a discount, the incentive to go there would be significantly stronger. Amazon Prime has harnessed this basic psychological driver to generate billions of dollars.
Having a clear set of robust leading indicators of revenues, margins and profit, offers certainty to any buyer of your business, as well as to you. They also offer the explicit platform for improvement.
Focus
To optimise your business, and thus enhance its value, it will pay to focus aggressively on the areas where you have some sort of competitive advantage that can be leveraged. This always come down to trimming product ranges, brands, geographies, technology bases, and market segments aggressively. While the analysis is tough, and the choices even tougher, you will inevitably find that the pareto rule applies, and aggressive application drives profitability. A mantra I use with clients is ‘Pareto the Pareto’, suggesting that this optimisation is a continuous process.
Clean books
Using the business as an ‘ATM’ for the owner is a danger sign for any buyer. When preparing your books for the inevitable Due Diligence examination by a potential purchasers accountant, the less items that are up for deeper examination the better. Ensure you have a ‘normalised‘ P&L available for scrutiny that identifies and explains or excludes all the items that may draw a question. Similarly, many SME’s claim to have some component of cash transaction in their business. Expect those claimed transactions and resultant cash to be completely discounted by a potential buyer as a source of value.
Steady growth history
Any potential purchaser is only looking at what you have done in the past, as an indicator of what might be possible in the future. They are only interested in understanding the future return on an investment they might make in your business. Therefore, a history of growth will be an indicator that all things being equal, there is evidence that the growth that will benefit them will continue. Growth that is relatively smooth is always better than growth experienced in fits and starts in the eyes of a buyer.
This applies equally to all financial and non-financial measures.
A strong management bench
Across functions, you need people willing and able to step up as you expand. A balanced and robust bench with solid succession planning through all levels is a hedge against the uncertainty that accompanies an acquisition, and benefits the value of the business.
An obvious culture.
Every business has some sort of culture, the ‘way we do things around here’. A consistent, explicit, and aligned culture that is aimed at delivering a well understood strategy is like cheese to a mouse: irresistible.
None of these are easy to address. If they were, the mortality rate of SME’s would be less than it is.
