The essential 70/20/10 rule for business optimisation.

The essential 70/20/10 rule for business optimisation.

Nov 10, 2016 | Governance, Leadership, Management

Most of my time is devoted to improving SME manufacturing businesses. I do it for a living, mine and theirs, and I have an ulterior motive.

I want my grandchildren to have a better life than me, and while I have had a great life, the pace of  improvement has faltered noticeably over the last 25 years as the productivity of our economy has floundered, and the flow through benefit to living standards has reduced to a trickle.

I put it down to the decline of manufacturing.

We have taken the easy way out, as an economy and society, and taken the benefits before they were able to be sustained.

Short term gain, long term pain.

The evidence is everywhere, from the short termism of the stock market to the supposed microscopic attention span of millennials, self indulgence of baby boomers,  and the politics of who gets what of the tax take ripped out by the three levels of government and their acolytes.

I believe that without manufacturing, the process by which we gain leverage, the decline will continue. There are only so many baristas and hairdressers we need, and they offer no leverage, as you can only make one coffee at a time.

To the rule in the header.

Almost all small and medium sized manufacturers I work with, from those resilient few remaining who supply into FMCG markets, to those in engineering and service manufacturing (like printing) the formula for optimisation is reasonably consistent.

70/20/10.

70% of the time, effort and investment needs to be devoted to the foundations of the business. The numbers, financial and otherwise that deliver meaningful measurable and actionable planning and feedback loops on the allocation of their resources to their core business. In effect it is improving on the things that made you successful in the first place, but which have not evolved as quickly as the competitive  environment around them, so they are being squeezed.

20% of the effort and investment into adjacent areas. These are the places that will in all probability spawn the new product category, class of competitor,  demanding but value driven customer, and the emerging niche market that technology has enabled. This adjacency leverages some of the capability developed in your core market in a different way, stimulates capability development, and delivers you asset productivity.

10% of the effort is playtime. This is the messy, risky, scary, and significantly disconnected from your core, innovation and change initiatives. it is from this effort that the product and business model disruption that will change everything can emerge. Way better to be on top of the changes, anticipating and planning for them, rather than being taken by surprise and belted by them.

The numbers vary, and the nature of the resources allocated varies, but in rough form, 70/20/10 seems to hold across business sizes, models and market types.

 

What is Intellectual Osmosis?

What is Intellectual Osmosis?

Oct 27, 2016 | Management, Marketing

Definition: ‘The process by which a great product is conceived and  ‘launched’ to the market, with the developer believing that its greatness will be so obvious that the world will beat a path to his door’.

Never happens.

That bloke with the better mousetrap is still waiting.

 Nobody will become aware, understand, and be motivated to take some action if they know nothing about your great idea, and the solution to their specific problem that it can deliver, by some form of Intellectual Osmosis.

At some point you have to undertake the hard graft of developing a strategy, and translating it into the necessary marketing, sales, operational and commercial processes in order to turn the great idea into a business.

Most stop at the idea stage, as that is the easy bit. They then sit back and get disappointed and even angry when they see ‘their’ idea turned into a successful venture by someone else.

Intellectual Osmosis simply does not work, but does feel seductively good, as it is totally risk free.

6 Questions that keep business owners awake at night

6 Questions that keep business owners awake at night

Oct 24, 2016 | Customers, Management

Every business is different, but the foundations of every business are very similar. Answering these 6 seemingly simple questions should expose any weaknesses in the foundations of your business.

  • Why should customers buy from me rather than my competitors? If you cannot answer this question from the perspective of your customers, is it any wonder you are awake? When your product is the same as everyone else’s, price is the only discriminator. So you need to find a combination of a market niche of some kind and a value proposition that your product delivers. The combination is sales fuel. Be different distinctive, remarkable.
  • How do potential customers find me? Most marketers ask themselves, how do I find new customers, but the question is better asked as how do new customers find me, reverse engineer the journey a potential new customer goes through in their journey to find a product then insert yourself into the process. Again, another false assumption made by marketers is that the poor customer, when they see the ad, or read the social feed,  will rush out to buy the product. Nonsense. Even the hottest of prospect has a process they go through that ends up at a point in time when they are ready to buy, and usually the marketer has little ability to influence them at that time, consumers make up their own minds, particularly now as they have access to all the information they need. Customers do not need marketers to give them the necessary information in the way they used to in the past. To be successful, you must have  a process that brings in a consistent flow of good leads that can be converted into sales in a predictable manner.
  • How am I spending my time? Time is the one non- renewable resource we all have, and it is limited. Every person on earth has the same  1,440 minutes available to them every day, it is how we use them that counts. Reviewing the expenditure of this time against your personal, professional  and commercial objectives is a precondition to success in any of the three areas. Remember the old urgent but not important, important buy not urgent equation.
  • How is what I am doing adding value? Adding value to someone, even if it is yourself when reading a book is what life is about.  Are you expending enough effort during the time you spend on various activities, or are you just coasting. My daughter was an elite gymnast, one of the best few in the country, in an unforgiving sport. Part of what became her modus operandi is the capacity to concentrate with absolute intensity for periods, then relax, stretch and go again. I watched her while studying for her several degrees, her concentration would be absolute for 15 minutes, followed by 30 seconds of a lift of her head, stretch, then another 15 minutes, and this would go for 2 or three hours at a stretch then she would walk around, read a book, and really relax for a while before moving into the next thing.
  • Are my stakeholders aligned? This question is usually limited to employees, but these days, you also have to consider contractors, financiers and suppliers. These latter stakeholders are as important as employees, and harder to align simply because you do not hold the power of ”employment’ over them, you usually need them more than they need you.
  • How is my cash?  Cash is business lifeblood, run out and you are dead. Make sure you do not run out, by forecasting the flow of your cash and managing operations appropriately.

When you can answer all these questions easily, you should be able to sleep well at night.

Classic marketing strategy: Before & After

Classic marketing strategy: Before & After

Sep 16, 2016 | Management, Strategy

The classic ad for weight loss products is to show a before and after. It also works for make-up, home decoration and renovation, and a myriad of other products,

What about yourself, your personal branding?

Works there too, and it is a pretty important product.

Digital media suddenly requires that we become ‘public’ in a way that was unthinkable just a generation ago. We have become our own products, and yet so many of us are reluctant to spend a few bucks to get the best out of what we have.

I have been no different.

For the past decade or so I have been active on various digital platforms and have used the same photo, taken with a good camera, but nevertheless an amateur photo. While it conveyed (at least I thought it did) the sort of ‘gravitas’ that my long career and deep domain knowledge has developed, it was less than optimum.

So, I took my own advice to my clients, and lashed out and had Sam Affridi  take some shots. Sam spent a considerable time with me in conversation, so that when he broke out his gear, he had a clear idea in his mind what would deliver the best result. Of the many shots he took, he selected a small number, all different, that all convey a subtly different message underpinned with the foundation conveying the wisdom that comes from long experience.

You judge for yourself if it was worth a couple of hours and a few dollars.

hero_shot_sydney_strategy_audit-5

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The most important question to ask yourself

The most important question to ask yourself

Aug 31, 2016 | Management, Small business

Working with clients to develop a sustainable, robust and commercially viable strategy is usually not just a walk in the park that leverages my 40 years of doing this stuff.

The technique I usually employ in conversation is what I call hindsight planning, a process that develops a picture of what success looks like, then works backwards to examine and understand the drivers of that ‘success’. A common affliction of those in business for themselves is that they have too much to do, and too little time. Finding a way to easily enable them to leverage their time to get the best return possible is a core part of the business improvement process.

During the prioritisation and optimisation process I find myself consistently asking the same question;

‘Why does that matter’

Asking this simple question often serves to stop the flow of words, and brings the conversation back to the things that will really add value, and lead to business success while giving back the owner some of their life.

As a result, it can also be very confronting.

Some time ago I worked with a book-keeper on his sales pitch. He is a bloke who is very good at keeping the books of his range of SME clients, but struggled to get new ones in a pretty competitive market.

The conversation when I asked him how he added value to his clients went something like this;

Him. ‘I make sure all the entries are made, and bank recs are done’

Me. ‘Why does that matter?

Him. ‘So they always have a clear view of their financial position’

Me. ‘Why does that matter?

Him. It removes a source of great worry, and frees up a lot of time

Me. Why does that matter?

Him. It means that my clients have  more time to do things that are important to them

Me. Why does that matter

Him. My clients all want to work to live, to enjoy their lives, but keeping the books is a huge barrier to that outcome.

I ran into him recently, and he has refined his elevator pitch. Even further to: ‘Would more sex be a nice idea…… get your book-keeping  done to free up the time to enjoy your life.

He told me the uptake was ‘enthusiastic’

 

 

Has Woolworths done enough?

Has Woolworths done enough?

Jul 29, 2016 | Governance, Leadership, Management

I have been around long enough to see Coles and Woolworths swap places a couple of times. It seems that just like most blood sports, there is room only for one at a time at the top. This is understandable given that between them they have 70% plus of grocery sales, depending on whose numbers you use.

While Woolworths are still on top by most measures, Coles are rising like a phoenix from the ashes, and Woolies are desperately trying to halt the slide they embarked on several years ago.

Mondays announcement of job cuts, store closures, and a $967 million write-down has been a while coming, and must be a bitter pill following on the heels of the decision to exit the Masters hardware business after  incurring significant losses.

They have been progressively winding down the Thomas Dux, business, which in my view will prove to be a short sighted decision, symptomatic of the strategic malaise that has haunted Woolies after a decade of stellar performance.

The announcement also indicated 4 of the ‘Metro’ branded stores will close, presumably because they do not deliver the required return. While those stores, like Thomas Dux, might not be performing to expectations, they should both be seen as experiments at the edge, in anticipation of the acknowledged trends slowly transforming our lifestyle. In the case of Dux, a desire by a small but growing number of consumers for the unusual, products of superior quality, with clear provenance, and for Metro, the convenience for commuters, and CBD dwellers.   The potential strategic research value of both, assuming they were well managed (which Dux was not towards the end) would be well worth the slightly less than benchmark returns, as in reality the absolute numbers would be tiny.

Nipping on everyone’s heels is Aldi, whose success over the last 15 years or so has been substantial. There are now 423 stores, and Aldi is currently opening 4 or 5 new ones a month. The Aldi business model is hard for Woolies and Coles to beat with their current set-up, so they probably should stop trying, and find another way. 1000 Aldi Sku’s vs 12-20,000 in Woolies and Coles keeps Aldi  transaction costs low, as does the uncomplicated trading terms with suppliers. In store, Aldi pay far fewer staff very well by comparison, and by observation lead and motivate them very well, benefiting from the resultant productivity. Meanwhile they generate store traffic with the low prices, and quirky weekly specials that promise to be sold out quickly, creating a sense of shopper urgency. In addition, their fixed overheads on stores would be much lower than the two gorillas due to the smaller floor space, and less expensive locations.

After all the financial engineering is done, I trust that Woolworths management and more importantly the front line staff will remember that it is the little things in the stores  that really counts to their customers as they spend their money. They could  not care less about the head office  shenanigans, they can always go down the road when they see better value for their ‘hard-earned’.