In search of ‘Rundle’

Apr 28, 2020 | Change, Customers, Strategy

In search of ‘Rundle’

Subscription revenue is the new normal
What you may ask, is a ‘Rundle’?

 

A new word, made up to represent a ‘Recurring Revenue Bundle‘, an idea whose infancy was spent in software, but that is now reaching puberty in other markets.

 

The result of this pubescence is that business models are in the midst of  radical change from ‘Ownership’ to ‘Usership’. The revenue and marketing models of software have moved from purchase to  subscription, and following will be, almost everything that can be bundled as a service.

 

This is not a new idea, it is the foundation of the success of Xerox, charging by the copy, rather than selling copying machines, and Gillette in its early days, giving away the razors in order to sell the blades.

 

Given the boldness of that forecast, there is another thing that will emerge:  Control of distribution will  be essential. If you have a recurring revenue model, and no control of your distribution, you will be screwed.

 

Let’s consider cars, personal transport. Are we beginning to see the trend now, as differing companies place cars for ‘digi-rent’ in heavily populated neighbourhoods around the inner city. If you are going to digi-rent a car, it will not usually matter what the car is, beyond a functional definition: takes four kids, has a bike rack, and so on. So, the power of the brand of car will move towards the platforms that rent them out. If you are running Ford, or Mercedes, you need control of the platform from which the cars will be Digi-rented, in order to keep being able to move cars off the end of the production line.

 

What then will differentiate the Ford platform from the Mercedes platform? 

 

Distribution.

 

You can see the beginnings of the battle to come in the subscription entertainment services. Netflix Vs HBO Vs Stan, and all the rest, now including the newly launched Apple TV and Disney. There is not room for them all, so there will be billions thrown at content, and most will end up  in the hands of the few who control the distribution, building arithmetically on the recurring revenue.

 

My prediction is that Disney will be one of the last standing. They have a great brand, huge back catalogue, the cash reserves to churn out more great stuff, but their most important asset is the extension of the subscription services into other revenue sources. Licencing, Disney world, holidays, games, and all the other areas where the Disney brand has an existing or expandable position. The other winner will be Amazon, who have a platform, including Prime, that is in 55% of US homes, and rapidly taking over in other geographies. Distribution is automatic and bundled. The current leader, Netflix, is out on its own, great first mover advantage, but lacking the broad competitive base of Disney and Amazon.

 

The rest, beyond the very specific, super focussed services that will inevitably emerge, are toast.

 

Instead of products, you will be seeking to create ‘Rundles’ or Bundles of a value proposition to keep people coming back for more, rather than marketing to convince people to buy again.

 

The strategic task: Build barriers to churn.

How to insulate your business from the inevitable recession

Mar 30, 2020 | Change, Leadership, Strategy

How to insulate your business from the inevitable recession

 

The inevitability of a bad deterioration in the economy is now absolute. No more fluffing around with nice, reassuring words, the  consequences of this Corona pandemic will be an economic and social clusterf**k.

So, in these circumstances, how do you insulate your business from the effect, and even make some competitive and strategic headway?

Five things I have learned over my 45 years in business, the last 25 of them helping SME’s improve, and from time to time, survive, often in adverse circumstances. Over the course of that 45 years, I have lived through a number of events that caused significant distress at the time, and resulted in massive changes to the way we live and work. However, none I suspect will be as cataclysmic as this current crisis. Nevertheless, the lessons from the past can be applied to the present, so long as we do so recognising they will not be just copies, they will have their own characteristics, and some nasty traps for the unwary. 

 

Have a strong balance sheet.

This means having cash reserves. In tough times, nothing is as valuable as cash, it delivers flexibility and options, without which you are at the mercy of others. In days of low interest rates as we have, many have been seduced by the siren song of leverage. It is the ‘ make your assets work harder‘ pitch of those in the financial leverage game. Leverage however, works both ways, and in a downturn, accelerates the rate at which you go broke.

If you are leveraged, deleverage as hard and fast as possible, and hoard your cash.

 

Have a plan

While plans are made to be broken, at least you are able to track where the divergence happens, figure out why, and how to do it better next time. Planning effectively requires that you have a common strategic objective, broken down into ‘nested’ tactical objectives. This cascading of objectives ensures that priorities are clear, that the required resources and capabilities are delivered to the points they are needed to achieve the objectives, and deliver the best return.

 

Have a spring clean

Every enterprise carries the imprint of its past, often deeply buried. Many should be jettisoned  during the bad times, when it is easier, which has the effect of delivering a leaner more responsive enterprise as things improve. Apply the Pareto principal to everything you have and do: customers, processes, product lines, employees, inventories, fixed assets,  and suppliers. Clean out the ones that do not deliver value in excess of cost, and that are inconsistent with the more focussed strategy you will have developed. Hidden deep in most businesses are transaction costs, which are almost always a source of significant cost reductions  and ‘no-cost’ capacity increases. Eliminating the friction that generates these costs, will save time and money, deliver ‘no added cost’ capacity, and make customers very happy.

A question I ask my clients at some point is: ‘What would a VC do if they bought this business? Everyone understands a VC investment is always on the basis of a fast profit. Invest, optimise, sell. The question and subsequent conversation focusses the mind on what actually generates the value customers are prepared to pay for. Sometimes there are regulatory costs, and there will be a core of necessary cost that enables operations, but the rest is on the block. 

 

Focus on getting money in, not just cutting costs

Cost cutting is the reflexive response to a cash crisis, and short term it works, but not in the longer term. To use a sporting analogy, you cannot win a game by being defensive, the very best you can do is have a draw. Having a draw in these circumstances means you go down the gurgler with all  the others. No, you have to find a way to expand, get new money in the door.

 

Let the inmates run the asylum.

Post this Corona crisis, the world will not just go back to the way it was. Many of the changes necessary to beat this thing will be baked into the way we interact with each other. Work and the expectations of our institutions will be forever altered. Setting out to manage these changed dynamics without the appropriate level of change in management processes and behaviour will lead to inevitable failure. Following are a few thoughts on the pivotal changes necessary

  • Remote work. The most obvious is that we will all be more attuned to working remotely. While it was an increasing trend prior to the bug, it has become a tsunami in the past few weeks and it will not go into reverse. Therefore, the management  task is how to harness and leverage the capabilities of a remote workforce. Most senior managers are of the vintage that did  not grow up with digital as an automatic and natural part of their lives, and for many this is a scary prospect. Most have accommodated the digital revolution in some way, but the institutional cultural barriers that remain in their hands, need to be dismembered.  
  • KPI’s need to be set on outcomes, not activity. No longer will presence at a desk, and seemingly adequate levels of activity be enough, it is the outcomes that will dominate. This change requires a whole rethink of the manner in which performance is measured in most organisations.
  • Management behaviour has to change. The best leaders and managers BB (Before Bug) spent a significant part of their time ‘walking around’, and communicating face to face. Time spent understanding the problems and opportunities for individuals, and groups of individuals at every level paid dividends. This face to face, personal interaction will no longer be practical. Leaders need to develop processes that deliver that sense of personal interaction to employees and contractors operating remotely. This means they have to have in place systems that deliver emotional security and stability while focussing individual and group effort on achieving a common goal.
  • Transparency creates accountability. Instinctively, we all know this, but for so long, information has provided power, so it has become the default to hang onto it. No longer will this be the case. Leaders will create accountability by being transparent themselves, and forcing that transparency through the organisation structures to the lowest levels. This change will be very uncomfortable for many, and will lead to a wholesale turnover in older managers who simply cannot make the changes necessary. This will lead to a social challenge for us all. However, those managers will be replaced by younger ones who are more attuned to accountability based on outcomes rather than presence. All those who have not read Ray Dalio’s book ‘Principles’, should use this downtime to do so. It lays out a comprehensive and compelling argument for what Dalio calls ‘radical transparency’. This will become, I think, the emerging  default.
  • Communicate, communicate, communicate. The options for communication have exploded, in the post bug world leaders will be using all of them, continuously. The communication is an essential ingredient in the mix of creating transparency, accountability, and focus on a common objective. It will require entirely new processes and habits to be developed, replacing old ones, and a radical reordering of the priorities of many managers.
  • Creativity will flourish, if you let it. Crises always lead to creative solutions to existing problems, and innovation to create opportunities in areas not previously recognised. The two world wars last century led to an explosion of technology, Microsoft was launched during the 1970’s oil crisis, the iPod launched in the aftermath of the dot com bust, and the 2008 meltdown led to Uber and Airbnb. All of these were spawned outside any corporate boundaries, except perhaps the iPod, but Apple was as good as broke at the time, so had little to lose. 

When you need the wisdom of having lived through it all before, and learnt from the experience, give me a call.

 

 

Has ‘The Bug’ created an organisational crossroad?

Mar 16, 2020 | Change, Strategy

 

 

My eldest son has been talking to his employer for some time about remote working.

He and his family wanted to get out of Sydney, with its attendant challenges, and have a simpler lifestyle.

Problem has been, the simpler lifestyle also limits the job opportunities, particularly in the relatively narrow field where he has developed experience  and expertise.

He conducted an experiment, both for himself and his employer, by working remotely for 6 weeks, from Tasmania. His boss was happy, as was he, and so the idea flourished to the point where he sold his unit a couple of weeks ago, just after his boss’s boss informed them that remote working was not on the agenda, and not acceptable.

This was all before the great dunney paper rush motivated by ‘The bug’ over the past few weeks.

I wonder if the attitude has changed? I know Geoff and his family are committed, and in the absence of a job, will move anyway and try their luck, cashed up as they are.

What does Geoff’s employer have to do to make remote working a part of the way they work?

They have to undergo a digital transformation,  supported by a cultural one. In a global company in a regulated market, this is not easy. In fact, the only easy thing about it is to kick the can down the road, so it is someone else’s problem to solve.

However, Millennials are not the same as us baby boomers. They are looking for something more, and are very mobile, risk takers, and unlikely to stay with an employer who does not meet, or even try to  meet their needs.

I have prepared a list of the elements  Geoff’s employer needs to think about, if they are to transform, and have the chance at retaining the training, commitment and intelligence Geoff, and his cohort bring to the table.

  • Change of this nature requires leadership and overt commitment from the very top, cascaded through the organisation. This means that there is a mandate to change from the top, and the necessary resources and leadership are made available. When change is slow, or not forthcoming, the leadership needs to remove the roadblocks, ensuring the ball keeps rolling, building momentum.
  • All stakeholders need to understand the reasons for  the change, and the value that is created by the outcome. In the absence of an articulated reason for the change, it will stutter.
  • Organisation structures need to change from vertical siloes to cross functional collaboration. While this is organisationally and operationally difficult, it is logical, as the customer does  not care which part of the organisation addresses their needs, they just care that it is done in a timely, reliable and efficient manner. Organisation structures have to evolve to reflect the customer journey, they can no longer dictate how that journey will be fulfilled. Siloed organisation structures generate ‘transactional friction’ for customers, and the millennials amongst them generally will no longer tolerate it, so they will go  elsewhere.
  • These changes are not a digital transformation, they are an organisational transformation that uses the evolving digital tools to add value to customers. Too many become obsesses with the tools, when it is the outcome that counts.
  • Transformation of any type ultimately boils down to the people, it is them who will engage and push the cultural transformation needed, it just requires the permission and tools to do so.
  • Somebody, somewhere, has to build and approve the business case for all this. Change is risky and potentially expensive, but is a necessary part of commercial sustainability. In the absence of a business case that finds a way to articulate the desired outcome, in a manner that everyone understands, the change process will grind to a halt under the weight of the status quo.

The bug may be the catalyst that kick starts remote working. If I was a share market punter, I would be tumbling all my spare cash into businesses whose product was enabling this move. Zoom,  for example, as well as the integrated cloud systems, Microsoft, Cisco, Zoho, et al. My son is well down in the pecking order of a very large corporation, and seemingly irrelevant to the success or otherwise of the organisation, but losing him, and others like him, will slowly rot the business from the core.

 

 Header cartoon courtesy Mike Luckovitch

How to make better decisions, more often.

Feb 13, 2020 | Governance, Management, Strategy

 

 

A decision is a choice, made in the face of a problem.

Problems, at their core, have only two sources:

Uncontrollable events.

Flawed processes and their application.

These two sources have entirely different paths to a solution.

Flawed processes need to be subjected  to some sort of continuous improvement program, resulting in a clearly articulated process that can be taught. This improvement process can become a normal part of activity, given the appropriate leadership and focus. A key part of the improvement process is the application of critical and creative thinking. Having a highly optimised process is not the same as having a truly effective one.

Uncontrollable events are entirely different, by their nature, are very difficult to unable to be forecast. They emerge with little if any warning, generally from the outside of an enterprise, so the solutions need to be arrived at in an entirely different manner.

Two factors contribute to the options facing us as we set out to address these random events:

  1. People put far more weight on the problem directly facing them, than even a much more serious problem that has little short term impact. It is also true that most people have a better idea of the dimensions of a problem that directly impacts on them, than others that may carry more corporate clout, but are do not directly affect them.
  2. We can only deal with a very few problems at once, we simply do not have the cognitive bandwidth to deal effectively with a number at the same time.

Therefore, considering these two factors, it makes sense to democratise the manner in which we deal with problems. In other words, enable those who face the problems to deal with them by giving them the resources and responsibility to do so, within clearly understood boundaries.

Two mental models to consider.

The first is a pyramid, full of problems. If the only person who has the power to address the problem, is the one or two at the top, only a few will be addressed at all. Democratising the power to address them enables others at lower levels to address those problems they directly face, so it follows that many more will be addressed. There may be some stuff ups on the way through, but overall the outcome will be beneficial. However, most corporate cultures make this very challenging, built as they are on a hierarchical structure.

The second is also a pyramid, but turned on its head. In this case, the base of the pyramid is facing outwards, towards the customer and various elements in the supply chain with whom the operating personnel have contact. This is where most of the operational problems occur, so give them the resources and power to fix them.

Do these seemingly simple things, and those usually seen as the bottom of the hierarchy have the opportunity to address the emerging problems as they are molehills, before they turn into mountains. It does however necessitate the devolution of power from the top of the organisations structure, and all the way down through and across the functional silos. This may be a scary prospect for most, but it enables the enterprise to be agile and efficient.

The impact of this sort of culture shift cannot be underestimated. It does however take a special and unusual strength of leadership to enable the change to evolve.

US general Stanley McCrystal achieved  stunning results in Iraq with one of the most rigidly hierarchical of organisations, the military, so you should be able to do it. General McCrystal’s experience is recorded in his book ‘Team of Teams’ which is a compelling account of a culture being turned on its head.

 

How do you reconcile conflicting statements by geniuses?

Feb 10, 2020 | Governance, Strategy

 

‘If you cannot measure it, you cannot manage it.’ Peter Drucker.

‘Not everything that can be counted counts, and not everything that counts can be counted.’  Albert Einstein.

How can both be true?

The first is half true, the second is absolutely true, which leaves us with a problem, if it is not measured, how can we manage it?

A lot of things cannot be measured, good parenting, the enjoyment you get from watching a great game of football, business culture, the likelihood of a new product succeeding in a non-existent market.

Take that game of football, the statistics tell one story, the game as watched may tell another entirely. The stats do not reflect the quality of the game.

What about the future, how do you measure that?

Tough call.

You cannot measure what has not happened, but you can draw inferences from all sorts of variables, quantitative and qualitative.

Digital has driven a bias towards quantitative, all we hear about is A/B testing to the point where we feel diminished if we do not do it. However, this mad reliance on the quantitative is a nasty illusion,  a mirage, leading many astray. Qualitative has a huge place in telling the future,  it is a way to fill in the behavioural blanks, to imagine what may happen  in a given situation.

Qualitative research can be an aid to the intuition born of experience, and domain knowledge, factors not able to be quantified. It is also a great way to surface the questions that need to be asked in a following quantitative process, which is useless without the questions that go to the heart of the drivers of the behaviours being quantified.

Qualitative research when done well, and unfortunately I have seen it done poorly more often than well, digs into  the psychological and motivational aspects of behaviour. Not just what we do, but why we do it, and what might we do in the future.

The missing ingredient in most ‘future-telling’ exercises, usually called ‘forecasting,’ is the wisdom born of experience. Frederico Fellini once quipped that ‘experience is what you get while looking for  something else’.

It seems to me that wisdom, and the insights that emerge from that wisdom, come from a lot of experience.

 

Mistaking growth for optimisation can be terminal

Feb 5, 2020 | Change, Strategy

 

Generating rapid growth in a business entails a constant choice that simply must be made, but is usually missed.

It is the choice between ‘growth’ and ‘optimisation’.

They require different skills, strategies, and resources.

Let me explain.

‘Growth’ implies something less than a double digit year on year increase. While that may stretch resources, it is often  ‘Doable’, while very challenging. ‘Rapid growth’ is much harder,  requiring the acquisition of many new customers, assets, movement into new markets, product or geographic areas, and a higher risk profile. It is often aspired to, even budgeted, but is relatively rare.

‘Rapid growth’ is also usually very scrappy, you are fixing things on the run, adding resources, are short of cash, and so it requires people comfortable with ambiguity, uncertainty, and a drive to do new stuff.

By contrast, optimisation is taking what is currently done, and improving it, bit by bit, on a continuous basis. The scrappy, seemingly undisciplined and almost random frenetic activity of a rapid growth enterprise makes them uncomfortable.

Think about Olivetti, the king of the typewriter market.

They made wonderful typewriters, best in the business, optimised continuously for 75 years. Into this mix comes a scrappy unreliable substitute, the word processor and attached printer, that costs more than an Olivetti, and does not deliver the same quality of output.

To Olivetti management, it was less than a threat, more of a nuisance, that would soon go away, so they continued to optimise their machines, rather than recognising that the scrappy, word processor would rapidly steal not only their market, which was typing pools, but destroy them, and create new ones. The word processor was an entirely different  tool, one that gave everyone the ability to type and print from their desk, a much quicker, more flexible, and hugely democratising change in organisational life. Olivetti was obsessed with their machine, not seeing the customers as anything more than users. Word processors gave everyone a power that had been concentrated in the executive suite, creating a terminal strategic change that Olivetti failed to see.

Is your strategy clearly making the distinction between optimisation and growth, as they are different beasts, requiring different capabilities.

 

Header photo courtesy Paolo Bpnassin via Flikr