Meeting The Challenge Of Changing Times
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Meeting The Challenge Of Changing Times Document Transcript

  • 1. Meeting The Challenge of Changing Times: A Positioning System Tool for Business IMPORTANT INTRODUCTORY NOTES: This article consists of several sections, with a few pages in each section. The sections are independent of each other and do not have to be reviewed in order, so if, for example, you are only interested in the Fifteen Action Steps To Take, then feel free to go to page eight first. If you are only interested in the Eight Rules To Use, feel free to go to page twelve. Here are the pages on which the sections can be found: Section Page I. Introduction 2 II. Are the Times Challenging? How Do You Know? 4 III. Your Business Model and Value Proposition 5 IV. Diagnostic Tools 6 V. Basic Business Economics Principles for Becoming a Master Business Chef 7 VI. Fifteen Action Steps To Take 8 VII. Eight Rules to Use 12 VIII. Closing Thoughts 16 This article has two options for viewing so that you can select the one that fits your personal preference. Option “A” is for those who do not like to see detail and would find such detail distracting. Option “A” is the presentation in its present form, with richly packed supporting endnotes. Option “B”, is for those who like to see detail. Option “B” is the presentation with richly packed supporting footnotes, enabling you to “see a detailed whole picture” at a glance. To view the presentation in that format, simply download the presentation, save it, and then simply convert the endnotes to footnotes. © 2009 by Ronald W. Brown Page 1
  • 2. I. INTRODUCTION “If you don’t know where you are going in business…, … “any road will get you there” (Old New England proverb) …“you’ll end up someplace else” (Casey Stengel), … “you’re lost” (Yogi Berra), and …“you will soon be out of business.” (Ronald W. Brown) “ One way to get to where you want to be is to find a good map and a smart guide….. [We are] all explorers. We have to beware of waterfalls. Some will have a sense of how to navigate… Others will drift along placidly… Till the water gets rough and murky… And the bottom suddenly disappears. Those who approach waterfalls in canoes… With no map… Are unlikely to survive if the waterfall is really high.1 “It’s plenty tough out there. All the more so for small businesses, which run on gumption and grit during the best of times and must embrace any imaginative means just to survive in the worst.”2 “There are three fundamental decisions facing any business in good times and bad: where to play, how to deliver, and how to win.”3 “[We] have to be thinking more expansively about where we’re going and how we can encourage …innovation to get us there.”4 “Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether you are a lion or a gazelle. When the sun comes up, you’d better be running.”5 © 2009 by Ronald W. Brown Page 2
  • 3. In general, a Global Positioning Satellite System (“GPS”) tells you where you are on earth at a given time. A GPS is most commonly used in a car or truck. The following user’s experience may be typical: “I love GPS. Because I often talk on the cell phone when I’m driving, I can easily get lost, even in my hometown. When I’m out of town, it’s literally impossible for me to go anywhere without missing a number of critical exit ramps or turns. GPS has changed everything for me. I no longer have to look at a map, because a nice lady’s voice guides me to my destination quickly and efficiently. If I’m in the wrong lane and miss a turn or an exit, she instantly tells me that she’s ‘recalculating’ and directs me to my destination in spite of my mistake. How does the GPS work? Quite simply, the GPS satellites have a perfect bird’s-eye view of the car I’m driving, my current location, the destination I’m traveling to, and every street and turn along the way. It can calculate the best route for me to take. Because I have my own mind and will, I sometimes stray from the path (or forget to turn the GPS on). But when I’m lost or stuck in traffic, I turn it on; it picks up my signal and quickly directs me to an alternative route to my destination as efficiently as possible.”6 In addition to their use in cars and trucks, GPS are being used in a variety of new contexts, including being used to help look for shipwrecks, being used to assist in settling property disputes, and even being mounted on screens in golf carts, enabling the golfer to see the distance from tee to green.7 There are business tools that can function like a GPS and which, when employed correctly, can assist a business person in successfully navigating during challenging economic times. In traditional applications, a GPS simultaneously answers four questions8: (1) Where are you? (2) Where are you going? (3) What’s the best way for you to get there? (4) When will you get there? A functional Business Global Positioning System (BGPS) should provide quantitative answers for the questions of where you are, where you are going, and when you will get there. Moreover, your BGPS should answer the important question of the best way to get there. In addition, some of the functional information of a BGPS and the entrepreneurial economics it encapsulates may also be partially captured by proxy in an executive business dashboard9. If your business stays still and does nothing to respond to the challenge of changing times, you might find your business very much like the saber-toothed squirrel who refused to let go of the acorn in the Ice Age films or like one of the fossil occupants of the Rancho La Brea Tar Pits in Hancock Park near the Miracle Mile district of Los Angeles: stuck in a near or actual state of extinction. In order to know where your business should move, and how fast it “better be running”, you need a BGPS. Usually, when the terminology “business entrepreneur” is used, we think of someone who starts a new profit-making business venture. However, entrepreneurial talents are often devoted to accomplishing other worthwhile social goals. Hence, entrepreneurial skills may be examined in the context of the not for profit enterprise10, the for-benefit enterprise11, and the social business12. Indeed, the prominence of enterprises with societal betterment goals has resulted in the emerging specialty of venture philanthropy13. A venture philanthropy organization “funds and helps guide © 2009 by Ronald W. Brown Page 3
  • 4. nonprofit organizations in planning, launching, and managing new programs that are designed to provide ongoing funding for the organization”. In addition, efforts such as the Corporation 20/20 initiative14 are aimed at creating new corporate forms that combine social and financial purposes, and the development of social entrepreneurship15. Here are some examples of social entrepreneurship: “A social entrepreneur engages in the same tasks as an entrepreneur, but in the nonprofit arena…Being entrepreneurial about social issues can be accomplished in a variety of ways. The most obvious is to run a not-for-profit organization in innovative ways that create funding for their programs or create employment opportunities for their clients. Non-profits have added some fascinating innovative twists to this model. Some examples are homeless shelters that start businesses to train and employ their residents; the Women’s Bean Project that gives job training, GED tutoring, individual counseling, internships and job placement to ‘at-risk’ women while employing them in manufacturing and distributing bean soup and salsa mixes. The sales of the mixes cover 80% of job placement.” These other forms of entrepreneurship reinforce understanding and appreciation of the fact that “entrepreneurship is not only about hotshots taking companies public. A lot of entrepreneurial activity …is in the exercise of getting things done more efficiently and creatively in response to constraints that people find themselves in.”16 Though this article focuses on business entrepreneurs, many of the ideas, principles, thoughts, and suggestions can easily be applied to these other forms of entrepreneurship, and the challenges of changing times that those other forms of entrepreneurship face. For example, challenging economic times not only impact individual and institutional portfolios, but also the actual ability and psychological readiness of donors to provide financial support to eleemosynary endeavors that they have previously supported. II. Are the Times Challenging? How Do You Know? “A shoe factory sends two marketing scouts to a county to study the prospects for expanding business. One sends back a text message saying: ‘Situation hopeless. No one wears shoes.’ The other triumphantly sends a different text message: ’Glorious business opportunity. They have no shoes.’ “17 “Recognizing Pablo Picasso in a train compartment, a man inquired of the artist why he did not paint people ‘the way they really are.’ Picasso asked what he meant by that expression. The man opened his wallet and took out a snapshot of his wife, saying, ‘That’s my wife’. Picasso responded, ‘Isn’t she rather small and flat?’18 As the marketing scouts story and the Picasso story illustrate, how you see something, such as challenging times, depends on your perspective. Challenging times can be defined in several ways. A two word definition of challenging times might be “right now!” and a one word definition of challenging times might be ”recession”. Whether you lean toward the former or the latter definition, your business mantra might be simply to “survive19, and then to thrive.” One way to know if your business is in a challenging time is to look at your business ratios, value drivers20, and your key performance indicators in order to “survive and then to thrive”. Ratios are © 2009 by Ronald W. Brown Page 4
  • 5. tools to measure, and are indicators of, business performance. Ratios can be used to assess performance or as a diagnostic tool to analyze not only what is going on, but also can be used to identify areas for intervention to prevent small manageable problems from growing into major enterprise threatening large ones. They are thus an integral component of a GPS for business. The following business financial ratios are key indicators for taking the pulse of your business: • Liquidity Ratios (current ratio, acid-test ratio, operation cash flow ratio etc.)(indicates ability to meet short-term immediate obligations)(for example, current assets divided by current liabilities, current assets minus the sum of inventories plus prepayments divided by current liabilities, operation cash flow divided by total debts) • Profitability Ratios (gross profit margin, operating income margin, rate of return on assets, etc.) (indicates return on investment)( for example, gross revenue divided by net sales or net sales minus the cost of goods sold divided by net sales, operating income divided by net sales, net profit after tax divided by total assets, etc.) • Activity Ratios (asset turnover ratio, receivables turnover, inventory turnover, cash conversion cycle, etc.)(indicates the ability to convert non-cash assets into cash)( net sales divided by total assets, net credit sales divided by average net receivables, sales divided by inventory, inventory conversion period plus receivables conversion period minus payables conversion cycle) • Leverage Ratios (debt to total assets, times interest earned, etc.) (indicates the extent the enterprise is financed by debt)(for example, total debt divided by total assets) Just like periodically looking at a thermometer can tell you what is going on with the temperature, periodically reviewing your business ratios can tell you what is going on in different areas of your business. But remember: looking at the temperature or ratio doesn’t tell you what if anything you can or should do about it. After you understand what, why, when, and how---you must consider and evaluate your options. When brainstorming as to options, consider everything. There may be additional uses for your product or service. You may be able to enter into strategic alliances with others to broaden your customer base. Using these numbers and other parts of your business plan in your operational analysis should help you avoid the dangerous potholes and find the appropriate detours to stay the course in difficult and uncertain economic times. III. YOUR BUSINESS MODEL AND VALUE PROPOSITION The value proposition in a “business model” concept may be familiar to some and less familiar or not familiar at all to others. A business model “identifies a market segment, articulates the value of the proposed offering, focuses on the key attributes of the offering, creates a way for getting paid, and establishes the value network needed to sustain the mode.” 21 Here are some excellent illustrations of the value proposition concept: “The term business model is…closely related to innovation. As I mentioned, the business model concept is related to a whole new range of business design opportunities. The most obvious [example] is innovating the value proposition. When mobile phones appeared in the market they offered a different value proposition than fixed line phones. In the early days of the Internet popular indexes © 2009 by Ronald W. Brown Page 5
  • 6. like Yahoo! Helped people find information on the Web. Regarding target customer segments, low-cost airlines like EasyJet have brought flying to the masses. Dell became really successful by exploring the web as a distribution channel. Gillette has made a fortune by establishing a continuous relationship with customers based on its disposable razors. Apple resurged based on its core capacity of bringing design to computers and electronic gadgets. Cisco became famous for its capacity of configuring activities in new and innovative supply chains. Intel thrived for its capacity to get partners to build on its processing platform. Google tapped in an innovative revenue streams by linking highly specific search results and content with text ads. WalMart became dominant by its ability to slash cost throughout its business mode.”22 On his business model design blogspot, Alex Osterwalder posted a definition of a business model consisting of the following nine building blocks: (1) The value proposition of what is offered to the market; (2) The segment(s) of clients that are addressed by the value proposition; (3) The communication and distribution channels to reach clients and offer them the value proposition; (4) The relationships established with clients; (5) The key resources needed to make the business model possible; (6) The key activities necessary to implement the business model; (7) The key partners and their motivations to participate in the business model; (8) The revenue streams generated by the business model (constituting the revenue model); (9) The cost structure resulting from the business model.23 Your business operating plan should embody and reflect your business model, what you do and how you do it. In short, your business model is where you position yourself in the value chain of your industry to sustain yourself by generating revenue that is greater than your costs In Action Step #11 below, there is further discussion of the attention you will need to give to your business model. There you will find discussion of value proposition, “an overall view of… products and services that together represent value for a specific customer segment,” and which “describes the way a firm differentiates itself from its competitors and is the reason why customers buy from a certain firm and not from another.”24 IV. Diagnostic Tools “We know that what gets measured, gets managed. But what gets measured also defines a company’s culture. Why? Because it describes what is valued.”25 “If you can’t measure it, you can’t manage it”26 “If you don’t measure it, it won’t get done. If you don’t measure it right, it won’t get done right.”27 “If a performance measure is hard to understand, it's not a good one. Use ratios whenever possible in creating measures such as revenues per employee, staff resources compared to line resources and the like.” “The greatest enthusiasm in the world won’t make up for a business plan that doesn’t work.”28 © 2009 by Ronald W. Brown Page 6
  • 7. Diagnostic tools are important in many professions. Accountants and lawyers may both use compliance audits as a diagnostic tool. Doctors routinely take a patient’s blood pressure and blood samples as diagnostic tools. In a similar manner, a business should use a BGPS as a diagnostic tool to assess the business health of the enterprise. Knowing where to look, and what to do when you find something, is a valuable skill. But to do this, one needs to employ the right diagnostic tools. Your business ratios, value drivers, and key performance indicators are part of your business GPS diagnostic tool. A critical function in your business planning and operations is staying on top of the numbers. If you don’t stay on top of the numbers, you will be buried under them. Make sure that internal controls and critical numbers are on target. Monitor your numbers. They are like the blood pressure of your business. You have to know what they numbers are, and what the numbers mean in both absolute terms and in ratios (liquidity; leverage; activity; profitability). Look at your pricing, inventory, collections, selling expense, general and administrative expense, product lines---perform variance analysis on each and if there is a variance, determine whether the variance is positive or negative and why. Look at your current cash burn rates, your accounts receivable and accounts payable. Also look at the assumptions29 on which your plans rest. As part of your contingency planning component, you of course need to know what is happening in your market niche. Has the market demand30 for your product or service remained the same or has it changed? If it has changed, and especially if the change is negative, have you updated your marketing plan? As part of the process of developing an action plan, review and implement responsive action plans to address the three key principles of business economics. V. Basic Economic Principles for Becoming a “Master Business Chief” There are three key principles of business economics that apply with extra importance in order to meet the challenge of changing economic times. Here are those three principles and three questions related to each. 1. Selling Price Must Be Higher Than Your Cost a) Do you know what your costs are? b) How do you set your prices? c) Do you monitor your “gross profit margin”? 2. Funds Coming In Must Exceed Funds Going Out a) How do you know what your funds position is? When do you know? b) Do you confuse “profit” with cash? c) Do you manage cash? (To borrow a phrase from the popular movie Jerry Maguire, “Can you show me the Money!) 3. You Must Have Enough Funds To See Yourself Through. a) How do you know how much you need? b) What is your break-even? c) Can you “afford” to grow? In addition to understanding and applying these principles, you need to be able to answer the questions under each of the principles in order to begin becoming a master business chief who really knows “how to cook”! © 2009 by Ronald W. Brown Page 7
  • 8. Cooking programs such as Iron Chef contain some examples from which business entrepreneurs can learn useful lessons. Those examples include using given resources and coordinating team work to successfully produce a product under tight time constraints. But remember, no one becomes a master of anything overnight. A virtuoso master chef who produces results in Iron Chef’s Kitchen Stadium, a virtuoso such as Warren Buffett who produces consistent results in business, a virtuoso computer scientist and programmer such as Sun Microsystems cofounder Bill Joy, a virtuoso master musician such as Yo Yo Ma who produces results on stage, a virtuoso athlete who produces results on the field of competition, a virtuoso painter who produces a result on canvas, all have practiced developing their skills for sufficient time and intensity so as to have moved from technical mastery to artistry. 31 Just as a good cook knows that if you don’t watch the pot, you may burn what you are trying to cook, successful business entrepreneurs know that there are some things you have to keep an eye on. These are the red flags of business. If you use these red flags to measure and monitor performance, they will help you to succeed. If you ignore them, like someone who forgets something is in the oven, you will not know you have a problem until it is too late to do anything about it. One of the things you need to watch in business cooking is how your business ratios are doing. VI. FIFTEEN SPECIFIC ACTION STEPS IN MEETING THE CHALLENGE OF CHANGING TIMES A business can take the following action steps in challenging times: 1. Refocus on the nine “C’s”32 “C is for ‘customer”. Without a paying customer, your business will fail. C is for ‘cash’. Your must never run out of cash. C is for ‘collection.’ Collect the cash. C is for ‘credit’. Credit becomes cash. C is for ‘costs’. Don’t waste money. Keep costs down. Cut unnecessary costs. C is for ‘closing’, as in closing orders or closing sales. C is for ‘confidence’. Everyone likes winners. C is for ‘calm’. No matter how bad it gets; no matter how traumatic; no matter the trouble, tell yourself, ’Be calm’, and you will. C is for ‘commitment.’. You started the business—never quit!” 2. Reassess your “A, B, C, D” client mix and its the targets of opportunity, attention or concern33 “ ‘A” clients are clients you hope will develop into Key Clients that make referrals to others in you behalf, have strong potential for fee growth, are receptive to additional constructive service ideas, etc.; ‘B’ clients are your bread and butter clients, they pay their bills, don’t give you too much grief, but do not represent potential for good fee growth; ‘C’ clients seek discounts and additional free services and are frequently slow in paying your invoices; ‘D’ clients are the clients you wish you had never accepted in the fist place, who often operate on the margin of ethical performance and are not averse to pressuring you to compromise your personal and professional standards. “Targets of Opportunity are your Existing Mega clients —clients of such fee magnitude that you can’t afford to lose the relationship--, Key clients and ‘A’ clients; Targets of Attention are desirable clients with the potential of upgrading, © 2009 by Ronald W. Brown Page 8
  • 9. unknown clients who need to be classified, and undesirable ‘C’ clients that can be upgraded by reducing discounts or speeding up payment of invoices; Targets of concern who are desirable clients with warning signals or undesirable clients with warning signals.” 3. Aggressively increase your “Rate of Return On Customer”34 “To remain competitive, you must figure out how to keep customers longer, growth them into bigger customers, make them more profitable, and serve them more efficiently. And you want more of them. Unfortunately, the financial metrics you learned in business school are not easily adapted to account for the value companies generate from this scarce resource, with the right balance between current-period sales and customer lifetime value. But striking that balance is necessary if you want to know whether you’re better off investing in customer acquisition, or product development, or opening new stores, or plant efficiency, or better qualified personnel, or more service, or cost reduction. While you may believe in your heart that a particular decision creates shareholder value, there’s no financial metric currently available to tell you how much shareholder value you actually created, or even whether you created any at all. Return on Customer is a break-through financial metric that can quantify the actual shareholder value you are creating (or, possibly, destroying) with your various business actions and initiatives.” 4. Have customer conversations in a focused context35 For an example of excellent commitment to customer conversations, see United Water at http://www.unitedwater.com. The Company stays in touch with its customers through a dynamic program that includes Customer Advisory Panels, an ongoing outreach and education program, a 24/7 call center, its interactive web site, and other programs. Having a customer conversation in a focused context is not always easy. “In the proverbial 10 words or less, here is the key to customer service: Ask customers what they want, and give it to them.” However, “If Henry Ford had asked his customers what they wanted, it would have been a faster horse.” You have to ask the right questions in order to get something productive out of the conversation. 5. Refocus your entrepreneurial marketing36 in order t o turn potential into reward37 Review, and if necessary, redefine your market38. Answer critical entrepreneurial marketing questions and realign your strategy39. 6. Adapt your leadership and execute your strategy40. 7. Aggressively pursue strategic alliances 8. The mantra for one form of strategic joint venture alliance might be “Beat them if you can. If you can’t, then try to joint venture with them”.41 “Victoria Hale…is the founder of the Institute for Oneworld Health, a pharmaceutical company …set up not to make profits but to do good. She is doing something that the people who run ‘Big Pharma’, the world’s leading drug companies, cannot imagine ever © 2009 by Ronald W. Brown Page 9
  • 10. succeeding….by trying to create new medicines to treat illnesses common among poor people in places such as Africa. And where does a not-for profit pharmaceutical company find its new drugs? Simple, she says on the shelves of Big Pharma. Her message to the big companies is: let us have your drugs that for some reason failed to dazzle the first time around, drugs stuck in the company vaults. And they do: the big companies are the ones who are making the Institute possible. They have discovered and identified hundreds if not thousands of new compounds which failed: not effective at the task they were produced for, unsuitable side effects, too small a market place for the huge costs the international giants have seen become a norm in their particular big lab, blockbuster drug model of business”) A second example is a social entrepreneur in India (“The Said Business School in Oxford, Skoll Centre for Social Entrepreneurship…is producing its own ex student social entrepreneurs, such as Clean Start Energy making bio-diesel fuel in India …from a weed which was taking over the land of poor farmers.” 9. Obtain the use of Other People’s Assets (“OPA”), such as unused technologies42 In BusinessWeek, November 28, 2009, Henry Chesbrough, University of California, Berkeley, Haas School of Business, suggests that companies license their unused technologies and provides this rationale: “There are usually lots of products within most large companies that are stuck, bottled up, or on the shelf. Some of those ideas can become more viable if licensed or sold to an outside company. Another tactic for companies who want to try new, open business models is to create experimental or spin-off brands that, if they fail, won’t damage the main brand…. If a company has a lot of internal R&D, I can guarantee they’ll have unutilized tech. This type of business is a natural for an ‘inside-out’ open business model.” Chesbrough also suggests that “innovation in the business model is one of the most profound ways to differentiate a business and turn the tables on the competition.”43 Chesbrough observes: “Innovation used to be synonymous with invention. It was the realms of R&D exclusively. In the new model, it’s about commercialization. It’s about business model as much as product. Which is more important: better technology or a better model? Engineers favor technology. MBAs favor business model. The ability to profit, scale, acquire external technology favors the business model as the more valuable.”44 “In the motion picture industry, Edison faced numerous patent challenges to his movie projector. In 1909, in an arrangement that ended a long battle of legal challenges to patents and a period of ruinous competition, Edison, as inventor of the motion picture projector, joined forces with his legal adversary, the inventor of the motion picture camera, forming a 50/50 deal by placing both patents into a joint venture. In the deal, Edison’s ally, Eastman Kodak, received exclusive rights to manufacture film. George Eastman, Kodak’s founder, had a long-standing supplier alliance with Edison, dating back to Kodak’s development of flexible film in the 1890’s. Eastman also gave Edison the technical formulation for celluloid, needed by Edison’s phonograph company for the successful creation of commercial recordings.” © 2009 by Ronald W. Brown Page 10
  • 11. 10. Refocus on execution45, and execute successfully, even it that means through accelerated failure by mastering the four P’s of successful execution: planning, preparation, practice, and performance.46 11. Understand the Business You Are (Really) In, then Review and act 47 holistically to improve your business model48 and business ratios As HBS Professor Theodore Levitt pointed out in his classic article on marketing myopia, some companies make the mistake of defining the business they are in solely by the product or service they offer. Rather than a product or service approach to defining the business, focus on a marketing approach of what customers want and need. Levitt pointed out that railroads thought of themselves as being in the railroad business rather than in the transportation business. Applying Levitt’s question “What business are you in”: Are newspapers in the newspaper business or in the information content business? Are gasoline stations in the business of selling gasoline or are they in the business of providing a one-stop service location to meet multiple needs of travelers? What business are you really in? “Think business model. Most managers tend to focus on cost management and operational efficiencies when they strategize during a downturn. While there is nothing wrong with that, I do not think such measures often miss the unintended consequences of the actions. Cost cutting can severely impair your ability to be competitive and could cause you to lose customers. This creates an opening for entrepreneurs who think holistically. They consider mutually reinforcing changes in the entire business model that encompasses many interconnected elements: customer acquisition and retention, costs and productivity, firm scope, pricing, growth platforms, etc.’ “ 12. Get “out of your [business] boat”49 by “going to [your most important] source to make wise decisions.50 Going to the source is “the relentless pursuit of information from the field”. As an example, a CEO who decided to spend two-thirds of his time gathering “unfiltered, unbiased information… [through] firsthand observation and conversation”, got to the “real story about why a critical tool used by cardiologists was failing and used that information to fix a systemic problem within the company.” The CEO was in an operating room observing a surgeon perform an angioplasty using a catheter manufactured by the CEO’s company. The catheter failed during the operation. The surgeon removed the bloody catheter and through it at the CEO. After you gather and understand that information you can move forward, for example by deciding to fail internally at an accelerated rate51, provided you quickly learn from each accelerated failure and treat that failure as a stepping stone to external success.52 13. Systematically indentify “downturn needs” and seize the opportunities those downturn needs present. ”There are many different kinds of such needs. First, there are needs that are created by the substitution effects. Second, there are needs that emerge because of the availability of excessive time or the unavailability of productive employment. The third category of needs is a more obvious one: products that deliver value for the money spent on them”. 53 © 2009 by Ronald W. Brown Page 11
  • 12. 14. Aggressively start to “find solutions in search of a problem”54 After you do this, try to adapt existing products and services, as well as look at innovative new product55 or service opportunities.56 You may be able to identify incremental service or product innovations for which you may have a competitive advantage due to high entry barriers for those not already in the market. Pursuing innovation can be harder than it may seem at first glance. As the Boston Consulting Group’s Innovation Practice has observed: “New ideas are rarely in short supply. In fact, as we see every day in our innovation practice and our work with companies, most organizations have an abundance of good and often great ideas. But generating ideas and being able to turn those ideas into cash are entirely different things.”57 15. Bring in experienced and trusted advisors who can steer you in the right direction because they have “been there and done that”58. 16. Make your case by being your own best advocate In his best-selling book Do You!. Russell Simmons’ present his first law as “See your vision and stick with it” and he quotes Vincent Van Gogh “I dream my painting and paint my dream.” To extend this thought, if you can conceive, and believe, you can achieve, but you must be able to communicate your vision, your story, your passion, your commitment from you heart as well as you head, in the first person. In doing so, it is important to also remember the unforgettable lessons of Business Latin59 101: ‘Illigitimi non carborundum’: “Don’t let the bastards wear you down”. VII. EIGHT RULES TO USE IN MEETING THE CHALLENGE OF CHANGING TIMES A. EIGHT RULES 1. Don’t try to solve everything by yourself Even superheroes have sidekicks. As Michael Jordan observed, “There is no “I” in team but there is in win” So “we” should find the best practical solution to “our” challenge. The Boston Consulting Group stated this proposition as follows: “You re not alone as a leader. As much as possible, bring in your broader leadership group to understand the challenges, participate in the planning, and cascade changes throughout the organization. There is power in numbers. The members of a broader team will provide complementary skills and multiply the manpower and brainpower available to tackle critical issues.”60 © 2009 by Ronald W. Brown Page 12
  • 13. 2. Remember, everyone has to obsessively work for the customer today, tomorrow is too late61 “The fact that every employee works for the customer is a simple notion, but surprisingly difficult for some people to completely grasp. There are some workers who believe they work for a union. Wrong! They belong to a union but work for the customer who is paying their company. Some public sector employees believe they work for the motor vehicle department, or for the police department, or for the government, or for the teacher’s federation. Wrong! These people work for the citizens whose taxes fund their paychecks. The citizens, the subway riders, the students, and the students’ parents are the paying customers. Some people believe they work for the marketing department, for XYZ, Inc., for the charismatic boss, for themselves, for a charity, for the church. But no customers, no money. No money, no mission. No money, no ministry. No money, no military. No money, no managers (no bosses).The customer is the real boss. And the dissatisfied customer fires employees every day.” 3. Stay accountable62 One way to stay accountable is to demonstrate leadership in conserving cash, reducing costs and expenses, preserving assets, by not making it another project but rather making it an ongoing heroes or heroines primary quest to meet the challenge of changing times. “Accountable individuals… make solid agreements and take 100% responsibility for their experiences and commitments. They look inside themselves, wondering about their contribution to problems, rather than making them somebody else’s fault. They communicate frequently with updates, they’re reliable on tight deadlines, and they rarely drop the ball. If they must change an agreement, they let those who will be affected know and renegotiate that agreement.” 4. Review your value proposition and competitive strategy Determine how you can create new value for your customers, perhaps through product or service innovations in “uncontested market space” 63. 5. Visualize and Take Advantage of Change A powerful image has the ability to capture our imaginations, inspire our spirits, and energize us to go beyond normal limitations. Simply put, such an image can be transformative. For example, in the film Men of Honor, Carl Brashear (Cuba Gooding, Jr.), has his leg partially amputated, and wearing his prosthesis is faced with the challenge of having to take 12 steps wearing a diving suit weighing 290 pounds. Despite the impossible odds and the enormity of the challenge, Master Chief Petty Officer Brasher, with Master Diver Billy Sunday (Robert DeNiro) providing verbal support ---“The Navy diver is not a fighting man. He is a salvage © 2009 by Ronald W. Brown Page 13
  • 14. expert. If it’s lost underwater, he finds it. If it’s sunk, he brings it up; if it’s in the way, he moves it--- pushes the principle of perseverance and practices the discipline of determination to complete the twelve steps, triumphantly salvaging his career. This is the type of vision you need in your business to meet the challenge of changing times. Change can be a disguised opportunity, but you may need the perspective of someone else to see it, and you may need more than one perspective to go from seeing to visioning.64 Visioning is expressed and ends in one thing: day to day operations. “A leader always has to be looking beyond the next horizon. He or she has to be aware of the old Chinese proverb, Be careful what you wish for; you may get it. He or she has to be asking, constantly, ‘what happens if, against all these long odds, I succeed? ”65 “While there is nothing that builds confidence more than winning against the odds, believe it or not, losing against great odds builds it as well. Most great companies love people who take big swings even if they have to walk back to the dugout on occasion and sit down.” 66 6. Keep your eye on the fundamentals of entrepreneurial economics and your quantitative diagnostic indicators67 7. Face fear of failure68 and have the courage to step out of your business boat onto the deeper waters, even fail faster if necessary, but never forget what it takes to be a water- walker69 Failure has a value if you can learn a lesson from it and if it reinforces an unshakeable determination to succeed the next time. When failure is not an option, make it a transforming opportunity. But if you must fail, then, as Maximus (Russell Crow) in the movie “Gladiator” might advise, do so with “strength and honor”, meaning with dignity and character meeting the highest ethical standards. Reflect on these words of an Inc. Magazine 500 company CEO when asked to name his biggest mistake in business: “Not being ethical. I paid a very high price for it and will never make that mistake again. Unfortunately, I cannot reveal the details due to an out of court settlement.”70 “At first, your rarely succeed. Hence you need to…fail, fail again. Consider my mantra: No failures…no successes. No fast failures…no fast successes. No big failures…no big successes. No big, fast failures…no big, fast successes.” 71 “Water-walkers must master fear management. Walking on water means facing your fears and choosing not to let fear have the last word”. “When Winston Churchill was asked if he had failed a year in grade school, Churchill replied “I never failed anything in my life. I was given a second opportunity to get it right“. © 2009 by Ronald W. Brown Page 14
  • 15. “In losing streaks, it seems as though talent has disappeared and decline is inevitable ---or else why would the workers, the managers, the politicians, the players let the situation continue to deteriorate? The opposite appears to be at work in winning streaks---that individuals can perform miracles, that they do indeed walk on water. But every water walker needs the stones to make it possible to move across the water. Knowing that what’s underneath will hold you up and help you rise to victory is the essence of confidence. Even athletes, whose height, and talents can make them seem like giants, are standing on the shoulders of others---the team that surrounds them, the organization that guides the team, the leaders who define the context, and the extraordinary network of all those other people who cheer them one, invest in their success, and indeed make the game itself possible. We can applaud remarkable achievements of individuals, while remembering that they are not succeeding, or fumbling, alone.” 8. Learn everything you can, from every source you can, at the lowest cost you can72 In this vein but in a very different venue, Arthur ‘Dooley’ Wilson, otherwise known as the piano playing singer “Sam” in the 1942 film “Casablanca” had it right, the fundamental things do apply as time goes by. Sam’s singing observation that the fundamental things apply could also be translated into the way Stephen Covey expressed the idea in First Things First: the main thing is to keep the main thing the main thing.” In real life, Wilson was a drummer and a singer who led his own band in London and Paris in the 1920’s. In the film Wilson pretends to play the piano which was actually played by an off-screen African-American pianist whose hand movements Wilson imitated on-screen. This exemplifies another lesson: learn from anywhere and anyone you can in order to produce the required performance. You never know when that so called esoteric or arcane bit of knowledge will be transformative, leading you to ask an “I wonder”, or “Why not” type question and to see a way “how to”.73 “Using the phone as a way of getting paid suggests a radical remake of the phone’s functionality. The phone is the best micropayment device that exists today. Phone companies have developed systems that are very well suited to tracking and billing penny-level transactions. Why not use the cell phone as the primary payment device? At the end of a meal, the restaurant would give you a number to call. You’d type the number, confirm the amount, input your code, and transfer the money from your account to the restaurant’s. This concept is being test-marketed with vending machines---dial 888-THIRSTY for a soda. The phone company has taken too narrow a view of its business. It could well be the preferred financial payment option.” 74 “You really have to open your eyes to see existing solutions in a new light. Take the telephone keypad, for example. Can you think of some new applications? David Pogue, Mac maven and gadget guru, has a startlingly simple proposal. ‘PUNCH-IT-UP ALARM CLOCK: The modern clock radio can play CDs, wake up two people at different times, and even beam the current time onto the ceiling. So why do we have to set the time using the same controls cavemen used © 2009 by Ronald W. Brown Page 15
  • 16. in the Stone Age? You still have to hold down slow, imprecise buttons that on most models go only forward in time…Haven’t those companies ever heard of a phone-style number keypad? We should be able to set the alarm for 8:45 just by tapping the 8, 4, and 5 keys in sequence. You’d save to minutes a night which you could use for any number of activities, like sleeping.”75 “[W]e may end up spending just as much on pharmaceuticals as we do on doctors. These medicines do not have to be pills or injections…They could be part of the food you eat every day, your soap or cosmetics…Perhaps you will inhale them or simply put various patches on your skin. This is why Proctor & Gamble is thinking of merging with a pharmaceutical company, why L’Oreal is hiring molecular biologists, and why Campbell’s is selling soups designed for hospital patients with specific diseases.”76 “Mosquitoes are flying hypodermic needles. They can infect you with malaria, dengue, and other awful things. They do so by transferring a little bit of genetic code through their saliva… Into your bloodstream…Which then reprograms part of the way your cells operate…Bu changing your genetic code ever so slightly…In ways that can make you very sick. So why not engineer mosquito genes so that they have the opposite effect? If mosquito saliva contained antibodies…Or if you made it hard for malaria to mutate inside a mosquito body…You could immunize people and animals…By making sure they were bitten.”77 IX Closing Thoughts A BGPS answers four questions: (1) Where are you? (2) Where are you going? (3) What’s the best way to get there? (4) When will you get there. I believe that a BGPS can be employed as part of a blue ocean strategy to identify and capture those who are at present non-customers, in uncontested market space, creating new demand through a new value curve. In Blue Ocean Strategy, W. Chan Kim and Renee Maugorgne describe ‘red oceans” as known market space in which businesses compete using a market-competition strategy and describe ‘blue oceans” industries not in existence today, untainted by competition and for which market creating strategies can be utilized. They state: “Whereas blue ocean strategies create new market space and change industry dynamics, they are not necessarily initiated by new entrants to an industry. In our work, we looked back over 100 years of data on blue ocean creation to see what patterns could be discerned. We found that blue oceans were created by both industry incumbents and new entrants, challenging the lore that start-ups have natural advantages over established companies in creating new market space. Although the term blue oceans is new, their existence is not. They are a feature of business life, past and present. Look back one hundred years and ask yourself, how many of today’s industries were then unknown? The answer: Many industries as basic as automobiles, music recording, aviation, petrochemicals, health care, and management consulting were unheard of or had just begun to emerge at the time. Now turn the clock back only thirty years. Again, a plethora of multi-billion dollar industries jumps out---mutual funds, cell phones, gas-fired © 2009 by Ronald W. Brown Page 16
  • 17. electricity plants, biotechnology, discount retail, express delivery, minivans, snowboards, coffee bars, and home videos to name a few.”78 Kim and Maugorne specifically describe “how to create uncontested market space and make the competition irrelevant by…creating a leap in value for buyers and your company, thereby opening up new and uncontested market space” and by creating “value innovation…by aligning innovation, with utility, price, and cost positions.”79 In a nutshell, Blue Ocean Strategy posits that the “three criteria that define blue ocean strategy are focus, divergence, and compelling tagline”80, for example Southwest Airline’s “the speed of a plane at the price of a car---whenever you need it”, by simultaneously pursuing low cost and product/service differentiation to reach new, heretofore untapped markets and customers. Blue Ocean Strategy seeks to create innovative value by simultaneously creating or reducing costs and by raising or creating values. Most blue oceans are “created within red oceans by expanding industry boundaries” although some blue oceans are created well beyond existing industry boundaries. Here’s an example of the Blue Ocean strategy principle of creating new market demand by focusing on non-customers. “Think of Callaway Golf. It aggregated new demand for its offering by looking at noncustomers. While the U.S. golf industry fought to win a greater share of existing customers, Callaway created a blue ocean of new demand by asking why sports enthusiasts and people in the country club set had not taken up golf as a sport. By looking to why people shied away from golf, it found one key commonality uniting the mass of noncustomers: Hitting the golf ball was perceived as too difficult. The small size of the golf club head demanded enormous hand-eye coordination, took time to master, and required concentration. As a result, fun was sapped for novices, and it took too long to get good at the sport. This understanding gave Callaway insight into how to aggregate new demand for its offering. The answer was Big Bertha, a golf club with a large head that made it easier to hit the golf ball. Big Bertha not only converted noncustomers of the industry into customers, but it also pleased existing golf customers, making it a runaway bestseller across the board….Where is your locus of attention---on capturing a greater share of existing customers, or on converting noncustomers of the industry into new demand? To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation.81 I believe that the following two examples are consistent with those concepts. A. Woolen Underwear”82: © 2009 by Ronald W. Brown Page 17
  • 18. An example is provided by Joseph B. Lassiter, III, in the following striking but true case involving the sale of “woolen underwear”: “A young entrepreneur in New Zealand named Jeremy Moon created a company called Icebreaker. Everybody knows that wool underwear is terrible: it's itchy, it smells bad, it gets oily—just a whole bunch of problems. So Jeremy Moon runs across a pair of wool underwear made not out of everyday sheep's wool, but from the merino sheep, whose long, fine wool is used for suits and ties at the high end of the market. He sees that a product can be created that's light, not itchy, and captures no odor. Of his first $200,000 in seed financing, he spends a $100,000 creating a quot;brand blueprint,quot; an architecture for what the brand needs to look like some day to exploit this advantage in natural fiber. He then thinks quot;backwardquot; to identify what he can do to get started building a global brand. Again, he sees the technology, what's available from the wool. He understands what outdoor athletic people or design-conscious people might want. He makes assumptions about how these are going to fit together over time, and in the end, he turns that strand of wool into the tapestry of a brand. You see that way of realizing the core product-customer link, and then going out and building an alliance with merino suppliers, so that he's got a steady supply of a rare product, and with machine providers so that the product can be spun and worked into outdoor gear. He builds up a worldwide supply chain by recruiting people who want to gamble that there is a customer need not being met by polyester.”83 B. SpinBrush I believe that Spinbrush provides another example consistent with Blue Ocean strategy. A profile of John Osher observed that his SpinBrush toothbrush solved the problem created by his SpinPop lollipop. SpinBrush was the first low-cost, mass-marketed mechanical toothbrush.84 Though electric toothbrushes had been around for many years, the price was about $80. Osher’s team decided to focus on “trying to design up from 80 cents, while everybody else was trying to design down from $79.85”86. Here is the story in a nutshell: “Tom Coleman and Bill Schlotter, two postal delivery men, were inspired on Halloween night 1987. They saw a kid carrying one of those bright, green-glowing cyalume light sticks. What else could these light sticks be used for? Have you considered glowing candy? If you mount a lollipop on top of one of those sticks, the light would sine through the candy, creating a weird and fun effect. Coleman and Schlotter sold their Glow Pop to Cap Candy. Their next innovation was an even bigger hit. Licking a lollipop is so much work. To make that job easier, they developed the Spin Pop, a motorized lollipop holder that spins the candy around to make it ever so much easier to lick. Spin Pop was a wild success, the first hit candy holder since the Pez dispenser Yet, John Osher, who headed Cap Candy, felt that © 2009 by Ronald W. Brown Page 18
  • 19. the Spin Pop had not even hit its full potential. After Hasbro acquired Cap Candy, Osher left to look for new problems that the simple spinner motor might lick…..Why not create a $5 electric brush using the Spin Pop. The result was the Spinbrush…In a little under four years, Osher and his team turned a $1.5 million investment into a $475 million payout when Proctor & Gamble bought them out.”87 A BGPS is simply a tool. Like any tool, its’ usefulness is determined by whether or not it assists you in getting something done. Before we had a GPS in our cars to help us navigate, we relied on printed paper maps---and some of us still do---- and simply asking people for directions. Here’s a recent example. My brother-in-law Ray, his wife Margaret Ann, and their pre-college daughters Dana and Leah flew in from California on Sunday, landed in Connecticut and rented a car with a GPS. On Monday they toured a college and afterwards, began driving to New Jersey. About 4:30 p.m. they had to decide whether to stay on 95 South and come across the George Washington Bridge to the Turnpike or to take the Tappan Zee bridge to the Parkway. Ray decided to stay on 95 South and was a bit surprised when Margaret Ann said: “I sure wish we had an old fashion fold out paper map”. Ray said: Why? We have GPS”, to which Margaret Ann responded “Yeah, it’s calling out streets I’m not seeing and not saying what I’m seeing (miles of backed up traffic)!” In business, if your BGPS is indicating things you are not seeing, first look closer, and then decide if you need to look up and around to get directions from another source. Asking someone for directions can still be a useful skill, for example if your GPS is not charged, and if the person you ask can give you clear and correct directions. Similarly, even with a BGPS there are still some things that a business entrepreneur needs to be able to do. Here is a list of 22 you should know and do88 with or without a functioning BGPS: 1. “Everyone has to care about the customer. We call it a passion for the customer. That may sound corny, but I don’t think so. It’s simple and it’s right. 2. As Managers, have some contact with your biggest clients so they’ll remain with your company even if a “salesperson” leaves. 3. Success is all about communication—in every aspect of business. To succeed against the competition, know when to talk and when to listen. 4. Create a formal method to share information among “divisions” in order to support cross- selling efforts. 5. Turn “reps” into coaches and foster communication within your sales force by having your salespeople talk to each other about what has worked and what has flopped recently. 6. Learn more about customer’s markets by interviewing their customers, suppliers, and competitors. 7. Talk to your customer yourself—they hold the clues to a more efficient sales process. 8. Train anyone who has customer contact on how to ask for more information about clients’ needs. 9. Talk to customers. Set up focus groups or send out surveys. Understand what customers’ value about the product or service, and what differentiates it from the competition. 10. Set a clear strategy. Know which customers to target and how to reach them. 11. Pinpoint those equities that your brand has, and build your strategies to support them. 12. Realize that branding is much more than advertising. Every time the customer comes into contact with the company there’s a chance to make an impression. © 2009 by Ronald W. Brown Page 19
  • 20. 13. Establish a consistent message, logo and color scheme for every business card, trade show booth, and Web page. 14. Get all employees involved. The service staff and the sales force can communicate the brand message and create value. 15. Don’t make promises that your brand can’t deliver. 16. Continually ask your customers how they feel about your current level of service and/or the quality of products. 17. Ask customers if they think your firm’s level of services has been improved, deteriorating, or has remained steady in the past six months. 18. Calculate what a loyal customer is worth to your organization over the course of three years. 19. Track how many customers you’ve lost in the past several years, and how many you’ve added. Calculate the cost of adding each new client as well as the cost of losing a client. 20. Ask current customers for referrals. 21. Establish relationships with executives in related fields. 22. Stay current with the industry associations.” One of the action steps that may be overlooked in challenging times is using a BGPS in order to make adjustments in where you want to go and how you want to get there. Using a BGPS will assist you in being able to navigate around potholes and detours in your road to economic success. © 2009 by Ronald W. Brown Page 20
  • 21. © 2009 by Ronald W. Brown Page 21
  • 22. 1 As The Future Catches You, by Juan Enriquez, at 11-12 2 Forbes, April 13, 2009 3 “Creative Entrepreneurship In A Downtown”, Q &A with Bhaskar Chakravorti, Harvard Business School, Working Knowledge, February 23, 2009. Bhaskar Chakravorti is senior lecturer in the Entrepreneurial unit at Harvard Business School, a partner in McKinsey & Company, and a leader of that firm’s Innovation practice. 4 The McKinsey Quarterly, April 2009, “Surveying the Economic Horizon: A Conversation with Robert Shiller”. Robert Shiller is Arthur M. Okum Professor of Economics at Yale University and a Fellow at the International Center for Finance at the Yale School of Management. 5 Kenneth Chenault, Chairman and CEO American Express Co, in Take A Lesson, at 8. Caroline V. Clarke, editor. 6 Steven K. Scott, The Greatest Man Who Ever Lived Secrets For Unparalleled Success and Unshakable Happiness From The Life of Jesus at 11. 7 For example, GPS Industries INFOREMENT golf product not only gives the distance from tee to green but also includes a fly over view of the hole such as you might see during a televised pro golf tournament, on screen golf tips from pros (‘This three shot par 5 is uphill till you get to the green. Ideal lay-up shot will leave you on the right side of the fairway to avoid a deep bunker in front of the green on your 3 rd shot’), a menu screen from which food and beverages can be order ahead of the turn at the ninth hole with the total charge displayed, a feature which allows a messages to be sent from the clubhouse, for example about pace of play, and also has screen space for advertising. Some golf course owners buy the product, others lease it, and still others lease and share in the advertising revenue stream. Here is a link to a CNBC Video about the GPS Industries’ INFOREMENT golf product : http://www.gpsindustries.com/media/cnbc_segment.html 8 Adapted from “Everyday Mysteries: What Is GPS and How Does It Work.” http://www.loc.gov/rr/sci/tech/mysteries/global.html 9 “Performance Dashboard”, Bain & Company, (“A Performance Dashboard is an integrated measurement system, often put in place to track the progress of a new strategy or change program. It can show the completed and in-process steps, illustrate the critical path for a project plan, as well as indicate resource consumption and overall timeliness relative to goals. Ideally, monitoring and feedback systems are designed to tie directly to corporate financial performance issues such as return on equity.” ) 10 “Social Enterprise”, Small Business Notes. www.smallbusinessnotes.com 11 See Booz & Company, Strategy & Business, “Not Just For Profit”, Spring 2009. (“One helpful way of thinking about these designs is a representing a hybrid between the traditional for-profit archetype, which has profit as its nucleus and the traditional nonprofit archetype, which has social mission as its nucleus. This type of hybrid has been dubbed the ‘for-benefit enterprise by Heerad Sabeti, CEO of the TransForms Corporation—A North Carolina based manufacturer of wall decorations with about $2 million in revenues, which routinely employs people with disabilities and invests heavily in developing its workforce…. Today, at least three broad approaches to for-benefit architecture offer promising models: stakeholder-owned companies, which put ownership in the hands of nonfinancial stakeholders; mission-controlled companies, which separate ownership and profits from control and organizational direction; and public-private hybrids, where profit-driven and mission-driven design elements are combined to create unique structures.”)
  • 23. 12 Id. (“A social business is a profit-making company driven by a larger mission. It carries the energy and entrepreneurship of the private sector, raises capital through the market economy, and deals with ‘products, services, customers, markets, expenses, and revenues—but with the profit maximization principle replaced by the social-benefit principle.”) 13 “Social Enterprise”, Small Business Notes. www.smallbusinessnotes.com (“One of the most promising developments in social entrepreneurship is the emergence of ‘venture philanthropy’ funds. Under the venture philanthropy model, an organization funds and helps guide nonprofit organizations in planning, launching and managing new programs that are designed to provide ongoing funding for the organization. While primarily supported through donations, the funds also generate income through loan generation fees, interest on loans, cost-sharing fees for consulting services, and interest income on cash balances.”) 14 http://www.corporation2020.org/ 15 See V. Kasturii Rangan, Herman B. Leonard, and Susan McDonald, “The Future of Social Enterprise”, Harvard Business School Working Paper 08-103 . 16 Martha Lagace, Interview with Tarun Khanna, author of Billions of Entrepreneurs in China and India, Harvard Business School, Working Knowledge, January 28, 2008. 17 Rosamund Zander and Benjamin Zander, The Art of Possibility: Transforming Professional and Personal Life at 9. 18 Id. at 11. 19 See Rosabeth Moss Kanter, “Four Actions To Survive the Recession and Emerge Triumphant”. (“In these days, doing nothing is not an option. Here are four things I’ve seen work: Move while others are distracted; Announce and own a grand concept; Get rid of things that have outlived there usefulness; Concentrate on helping your users, clients, or customers succeed.) http://blogs.harvardbusiness.org/kanter/2009/01/four-actions- to-survive-the-re.html. See also Rosabeth Moss Kanter “Thinking Differently In A Recession: Today’s Whole Earth Catalog”. (“In 2009, …four Whole-Earth-type ideas are among the biggest opportunities to think differently. They are aligned with survival strategies for the recession. They can inspire innovation. [Three out of those four ideas are]: Green Awareness; Self-Sufficiency; Healthy Behaviors…”) http://blogs.harvardbusiness.org/kanter/2009/04/thinking-differently-in-the-re.html. 20 “Understanding The Drivers of Value”, McKinsey & Company, Valuation: Measuring and Managing The Value of Companies. (“A value driver is a performance variable that has impact on the results of a business, such as production effectiveness or customer satisfaction. The metrics associated with the value drivers are called key performance indicators (KPIs). Such metrics might be capacity utilization or customer retention rates. KPIs are used both for target setting and for performance measurement. Three principles are central to defining value drivers as well: 1.Value drivers should be directly linked to shareholder value creation and cascade down through the organization. 2 Value drivers should be targeted and measured by both financial and operational KPIs. 3. Value drivers should cover long-term growth as well as operating performance.”) 21 See Henry Chesbrough, Executive Director, Center of Open Innovation, Haas Business School, “The Business Model: A Primer. 22 See Jeffrey J. Fox, How To Make Big Money In Your Own Small Business: Unexpected Rules Every Small Business Owner Needs To Know . 23 http://business-model-design.blogspot.com/2005/11/what-is-business-model.html.
  • 24. 24 http://en.wikipedia.org/wiki/Business_model 25 Robert Lynch, Business Alliances Guide: The Hidden Competitive Weapon, at 148 26 Id. 27 Attributed to George Dacey, The Bell System 28 Jeff Cannon and Ltd. Cmdr. John Cannon, Leadership Lessons of the Navy Seals: Time-Tested Strategies for Creating Successful Organizations and Inspiring Extraordinary Results, at 7. 29 See Nuts!: Southwest Airlines Crazy Recipe for Business and Personal Succces at 29. (“From day one, Southwest challenged the assumption that permanently reduced fares would cut revenue.”) 30 Philip Kotler defines market demand this way: “Market demand for a product [or service] is the total volume that would be bought by a defined customer group in a defined geographical area in a defined period under a defined marketing program.” 31 See “The 10,000-Hour Rule” in Outliers: The Story of Success by Malcom Gladwell. See for example, “Managing the Medici String Quartet”, HBS Working Knowledge, September 10, 2007. 32 Dick Connor, Increasing Revenue From Your Clients at 31 and at 36. 33 Id. at 119-120 34 Don Peppers and Martha Rogers, Return on Customer: A Revolutionary Way To Measure and Strengthen Your Business. 35 Compare the view in Fast Company, The Rules of Business, Rule #11 (“In the proverbial 10 words or less, here is the key to customer service: Ask customers what they want, and give it to them) with the view of Judy Estron ( “If Henry Ford had asked his customers what they wanted, it would have been a faster horse”) The McKinsey Quarterly, January 2009, A Conversation With Judy Estron. 36 “Going Global—Staying Local” by Joseph B. Lassiter (“Entrepreneurial marketing is ‘reverse engineering’ with your goal matched to you model of adoption yielding your product roadmap, customer roadmap, partner roadmap, and people roadmap, moving in anticipation and evolving against the realities of your venture and your roladex.”) 37 Harvard Business School, Working Knowledge, “Turning High Potential into Real Reward”, interview with Joseph B. Lassiter, III. 38 See Jeffrey J. Fox, How To Make Big Money In Your Own Small Business: Unexpected Rules Every Small Business Owner Needs To Know at 138 (“Your market is that number of customers that you can realistically and profitably identify, attract, get, and keep. Your market, your customers, are found in your trading area. Your trading area is geographical, and might be local, national, or international, or any combination.”) 39 “Going Global—Staying Local” by Joseph B. Lassiter. (A strategy is “ an integrated set of choices positioning a firm in an industry to earn superior financial returns over the long haul.”) 40 Ram Charan, Leadership in the Era of Economic Uncertainty The New Rules for Getting the Right Things Done in Difficult Times
  • 25. 41 See for example, Robert Porter Lynch, Business Alliances Guide: The Hidden Competitive Weapon; How To Plan, Negotiate and Manage Strategic Partnerships for Increased Corporate Profit at 13. 42 Peter Day, Presenter, “Young Gifted, and Not For Profit”, April 25, 2006, BBC News, http://news.bbc.co.uk/1/hi/business/4939642.stm, provides two striking examples. One example is a social entrepreneur in San Francisco to whom the Bill and Melinda Gates Foundation has given funding to change distribution channels of medical drugs for the poor. 43 Henry Chesbrough, “Introduction to Open Business Models”, http://openinnovation.haas.berkeley.edu/openbusinessmodels.htm. 44 Id. . 45 Ram Charan and Larry Bossidy, Execution: The Discipline of Getting Things Done (“the missing link between aspirations and results”). Execution is a “systematic process of rigorously discussing how’s and what’s, questioning, tenaciously following through, and ensuring accountability”. Operations Strategy is another core component of execution. “The strategy process defines where a business wants to go and the people process defines who’s going to get it there. The operating plan provides the path for those people.” 46 John Wooden, Wooden on Leadership, at 15 47 Bahaskar Chakravorti, “Creative Entrepreneurship In A Downturn. 48 Lowell Bryan and Diana Farrell “Leading Through Uncertainty”, The McKinsey Quarterly, December 2008. (“Companies engaging with the capital markets will encounter funders who are less tolerant of risk, a reduced ability to hedge it, and greater volatility. Hardest hit will be business models premised on high leverage, consumer credit, large customer-financing operations, or high levels of working capital. Businesses with long or inflexible production cycles or very long-term investment requirements will find it especially difficult to manage their funding. Some won’t make it, so industries will restructure.”) and Brett May and Marc Singer, “:Unchained Melody: The digitization of music has industry execs in a twist., The McKinsey Quarterly, February, 2001.(“ What will happen to the major record labels when all of the music ever recorded becomes available on the Internet? Will music listeners—that is, pirates—continue to pay $15 for a compact disc at the store? Will the industry survive when they don’t? In reality, record labels may have little to fear in the long run. Smart ones may eventually turn to a subscription-based delivery model not unlike that of today’s cable television companies. If this happens, the global $40 billion retail music industry might well double in size.”) 49 John Ortbert, If You Want To Walk On Water, You’ve Got To Get Out Of The Boat (“ When Winston Churchill was asked if he had failed a year in grade school, Churchill replied “I never failed anything in my life. I was given a second opportunity to get it right.“ and (“ Water-walkers must master fear management”), and (“Walking on water means facing your fears and choosing not to let fear have the last word”). 50 Bryn Zeckhauser and Aaron Sandoski, How The Wise Decide: The Lessons of 21 Extraordinary Leaders . 51 However, a combination of new and faster failures, technologies, and products or services can be like the convergence of the storms in the film The Perfect Storm. See for example, Robert Porter Lynch, Business Alliances Guide: The Hidden Competitive Weapon; How To Plan, Negotiate and Manage Strategic Partnerships for Increased Corporate Profit at 13 (“When expectations into new new technologies are coupled with the development of new products for new markets, it is like solving a simultaneous equation with three unknowns. In many technology alliances, the alliances themselves did not necessarily fail; instead, the challenge of the technology was insurmountable, and then the alliance no longer served its purpose.”)
  • 26. 52 Fast Company The Rules of Business , at 201, Rule #55 (“If you haven’t had one spectacular failure in your life, you haven’t tried hard enough.). See also Henry Chesbrough, “Sometimes Success Begins at Failure” Harvard Business School, Working Knowledge, December 1, 2003. http://hbswk.hbs.edu/item/3807.html , observing how “the history of innovation is full of examples where the eventual best use of a new product or technology was far different from the initial intended purpose of the idea”, discussing the need to be able to spot and manage false negatives and giving these three memorable illustration respectively from Pfizer, Xerox, and IBM: 1. (“In the late 1980’s scientists began testing what was then known as compound UK-92,480 for the treatment of angina. Although UK 92,480 seemed promising in the lab and in animal tests, the compound showed little benefit in clinical trials in humans. Having discovered these negative results, some firms might have thrown in the towel and moved on to other projects. But Pfizer’s scientists picked up on—and decided to pursue—what they thought might be an interesting side effect. That side effect led the process of innovation in an entirely new direction—one that eventually resulted in a historic windfall for the drug maker soon after it began marketing UK-92,480 under the brand name Viagra.”) 2. (“Xerox created a number of false negatives out of its Palo Alto Research Center lab. When it didn’t see the results it sought, Xerox terminated further funding for the projects that we know today as Ethernet (by 3Com) and PostScript (by Adobe). These projects were evaluated within Xerox and judged not to warrant further internal spending because the company did not see a market for the technology (Xerox thought of itself as The Document Company, not a software company.) 3. (“If a project isn’t moving ahead inside the company, maybe someone outside the company can think of something to do with it. IBM took an approach along these lines with a particular software project that had been kicking around in its labs for some time but did seem to have any further potential. Once the project was sidelined, IBM decided to publish it on its AlphaWorks Web site, where outsiders could examine and download various IBM software. Soon thereafter, IBM managers noticed that this particular piece of software code was being downloaded at a rate ten times that of other code posted at the site. To IBM’s credit, this surprising level of external interest trigged an internal reconsideration of the software code. We know it today as the SML (Extensible Markup Language) parser, and it is a core feature in IBM’s nest-generation WebSphere software to manage Internet services.) In a related but slightly different vein, Nalebuff & Ayres, in Why Not”, at 5, tell how the idea for liquid paper came into being. (“Liquid paper was invented in 1951 by Bette Nesmith. Working as a secretary, she wondered why artists could paint over their mistakes, but typists couldn’t. In her blender, she mixed up a batch of water-based paint to match the company stationery and brought it to work in a nail polish bottle. With that small brush, she could paint over and fix typos. Some twenty-eight years later, Gillette bought her company for $48 million.”) 53 Bahaskar Chakravorti, “Creative Entrepreneurship In A Downturn. 54 Barry Nalebuff and Ian Ayres, Why Not? How To Use Everyday Ingenuity to Solve Problems Big and Small. 55 An example in the product area is “gesture technology” (“Real-world devices with gesture-reading abilities are set to debut next year… The market for screens capable of sensing touch is expected to expand fivefold by 2013, to $500 million.”)(BusinessWeek, April 13, 2009 at 052). An example in the service area is a Cost Segregation Study, such as offered by Melanie Berry of Cost Segregation LLC, http://www.mberry.costsegstudyllc.com. (“A cost segregation study is the process of identifying personal property assets that most often get buried or lumped together within the real property asset. Our engineers reclassify those assets based on IRS guidelines to the shortest possible depreciable life to help the real estate owner to maximize their tax depreciation, thus reducing current income tax obligations. Approximately 95% of all commercial real estate is depreciated over 39 years. A cost segregation study identifies 10-50% or more (depending on the industry) of assets that may qualify and be depreciated over a 5-, 7-, or 15-year life. The result is an increase in depreciation expense which reduces taxable income which increases cash flow.”) 56 “The 10 Emerging Technologies of 2009”, March/April 2009,Technology Review, published by MIT (“Each year, Technology Review chooses 10 emerging technologies with the potential to change lives around the world. Some of this year's choices, such as paper-based medical tests and intelligent software that acts as a personal assistant, could reach the market within a year. Others, like biological machines and nanopiezotronics,
  • 27. could take longer but promise fundamental shifts in fields from computing to medicine, communications to manufacturing. The list includes technologies miniature and massive--from fast, cheap, capacious computer memory to batteries that can store enough energy to power a city. All are technologies that we bet will make a huge impact in the years ahead.”) http://www.technologyreview.com/computing/22110/ 57 The Boston Consulting Group, “Innovation 2009: Making Hard Decisions in the Downturn”, April 2009, at 11. 58 See for example, Ed Story’s firm, Ironwood Advisory, www.ironwoodadvisory.com. 59 Jeffrey J. Fox, How To Make Big Money In Your Own Small Business: Unexpected Rules Every Small Business Owner Needs To Know At 49-50. (“Whatever your native language, you should know some Latin… And, of course, for certain, without doubt, you have to have the…never quit, keep going essential Latin phrase: ’Illigitimi non carborundum’. A literal translation is ‘don’t let the illegitimates wear you down.’ The saltier translation is stern advice…’Don’t let the bastards get you down.’ You have to be tough, gritty, persevering to make your business successful. You can’t let troubles, setbacks, dark times, dunning creditors, bad luck, bad weather, bad news, or customer rejection get you down. You must not let the illigitimi, regardless of their disguise get you down….Live the motto…’Aspirando et perseverando.’ Aspire and persevere.” 60 Boston Consulting Group, “Leading Change in Turbulent Times”. 61 Jeffrey J. Fox, The Customer Is the Real Boss 62 Kate Ludeman, Ph.D. and Eddie Erlandson, M.D., Radical Change, Radical Results: 7 Actions To Become The Force For Change In Your Organization, at vii-viii. 63 See Kim and Mauborgne, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant at 12, at 13, and at 29 (“ To reconstruct buyer value elements in crafting a new value curve…there are four key questions to challenge an industry’s strategic logic and business model: Which of the factors that industry takes for granted should be eliminated?; Which factors should be reduced well below the industry’s standard? Which factors should be raised well above the industry’s standard? Which factors should be created that the industry has never offered?). The authors use Cirque du Soleil and the introduction of [yellow tail] wines into the United States by the Australian winery Casella Wines as examples of the application of Blue Ocean strategy. See, for example, at 4. (“Cirque du Soleil did not compete with Ringling Bros and Barnum & Bailey. Instead it created uncontested new market space that made competition irrelevant. It appealed to a whole new group of customers, adults and corporate clients prepared to pay a price several times as great as traditional circuses for an unprecedented entertainment experience.)(“Red oceans represent all the industries in existence today. This is the known market space. Blue oceans denote all the industries not in existence today. This is the known market space. In red oceans…as the market space gets crowded, prospects for profits and growth are reduced. Products become commodities and cutthroat competition turns the red ocean bloody. Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth Although some blue oceans are created well beyond existing industry boundaries, most are created within red oceans by expanding existing industry boundaries as Cirque du Soleil did.”) 64 Vince Lombardi, Jr. What It Takes To Be #1: Vince Lombardi on Leadership at 248. 65 Id.. 66 David Calhoun, corporate executive, at Virginia Tech University (2005) quoted in Here We Stand:600 Inspiring Messages from the World’s Best Commencement Addresses
  • 28. 67 See, Chris Zook. The Economic Crisis Requires Returning To Your Core (“The ‘profit from the core’ principles and findings seem increasingly relevant given the structural crisis in business that the world is facing now. Among these findings, which are again returning to the fore are the following: Sustained profitable growth requires a strong, well-defined core; Most sustained, profitable growth companies have leadership positions in their core that forms the epicenter of their strategy; The number-one rule of strategy is to discourage your competition from investing in your core; The greatest source of strategic error stems from an inaccurate understanding of the core and its full potential; Strong cores often contain hidden assets that prove to be the seeds of the next wave of growth.”). 68 John Ortbert, If You Want To Walk On Water, You’ve Got To Get Out Of The Boat (“ When Winston Churchill was asked if he had failed a year in grade school, Churchill replied “I never failed anything in my life. I was given a second opportunity to get it right.“ and (“ Water-walkers must master fear management”), and (“Walking on water means facing your fears and choosing not to let fear have the last word”). 69 Rosabeth Moss Kantor Confidence: How Winning Streaks and Losing Streaks Begin and End, at 368-369. (“In losing streaks, it seems as though talent has disappeared and decline is inevitable ---or else why would the workers, the managers, the politicians, the players let the situation continue to deteriorate? The opposite appears to be at work in winning streaks---that individuals can perform miracles, that they do indeed walk on water. But every water walker needs the stones to make it possible to move across the water. Knowing that what’s underneath will hold you up and help you rise to victory is the essence of confidence. Even athletes, whose height, and talents can make them seem like giants, are standing on the shoulders of others---the team that surrounds them, the organization that guides the team, the leaders who define the context, and the extraordinary network of all those other people who cheer them one, invest in their success, and indeed make the game itself possible. We can applaud remarkable achievements of individuals, while remembering that they are not succeeding, or fumbling, alone 70 Inc. Magazine, “500 CEOs Name Their Biggest Mistake in Business”, September 2008. 71 Tom Peters, Re-Imagine!: Business Excellence in a Disruptive Age at 329 72 A number of leading universities offer free, on-line courses, open to anyone and these on-line course are taught by some of the universities most distinguished faculty. For example, in Open Yale Courses, Yale offered ECON 252: Financial Markets, taught by Professor Robert Schiller. You can access audio, video and course materials. Here is the link to that course. http://oyc.yale.edu/economics/financial-markets. 73 For example, I wonder if bacteria or algae could be use to make a fuel ( Harvard Professor George Church’s start-up company LS9 is doing just that (See Matthew Herper, Forbes, April 27, 2009, ‘Going to Church: Biotech’s genetic prophet explains why we need to redefine privacy, reengineer algae genomes, and study mole rats’, describing how Church ‘foresees using bacteria and algae to suck the carbon dioxide that causes global warming out of the air to create fuel, plastic, and asphalt ) or why not ( why not have congestion pricing for museums to increase revenues and manage crowds especially during blockbuster exhibits (Question posed by Judith Dobrzynski, Forbes, April 2007, ‘Variable Pricing for Museums: Art Institution Directors Should Start Thinking Like Airline Yield Mangers.’) 74 Why Not? At 124. 75 Id. at 95. 76 As The Future Catches You, by Juan Enriquez, at 9. 77 Id. at 5. 78 www.blueoceanstrategy.com/q1/AnswerArchive.php
  • 29. 79 Id. 80 Blue Ocean Strategy at 40. 81 Id. at 102-103. 82 See Icebreaker new releases (“Launched in 1994, Icebreaker was the first company in the world to develop a merino wool layering system for the outdoors. It was also the first outdoor apparel company in the world to source merino direct from growers, a system it began in 1997. There are now 10 distinct pure merino fabrics in the Icebreaker system, covering underwear, mid layer, and outerwear. Icebreaker is sold in nearly 2000 stores in 24 countries throughout Europe, Asia, Australasia and North America. Based in Wellington, New Zealand, Icebreaker uses only pure merino hand-picked from 120 high country stations in the country's Southern Alps to create edgy outdoor clothing that combines nature's work with human technology and design “) See also http://www.icebreaker.com/site/aboutus/index.html and http://www.ellis-brigham.com/icebreaker (“Compared to traditional wool, the Merino fibre is a fraction of the diameter which is one of the reasons why Icebreaker doesn’t itch. The large scales on traditional wool act like barbs against your skin. Merino feels like silk. Outstanding Warmth: Icebreaker is so warm because of the millions of tiny air pockets in the fabric, which trap air and lock in body heat. Temperature Regulation: Your Icebreaker can warm and cool your body by absorbing and releasing moisture. Breathable: With Icebreaker the fibres breathe as well as the fabric, keeping you dry and comfortable. Icebreaker pulls moisture away from your body. No Odour: The natural Anti- Microbial properties of Icebreaker mean an odor free undergarment. Good for you and for those around you! Warm When Wet: Damp or wet, it still insulates, restricting loss of body heat at vital times. Bio Electrical Harmony: In tune with your body's bioelectrical fields, so no static cling.”) 83 Harvard Business School, Working Knowledge, “Turning High Potential into Real Reward”, interview with Joseph B. Lassiter, III. 84 Toys and Spinning Brushes: How John Osher Found His Way To Profits”, November 19, 2003, Knowledge@Wharton 85 86 Id. 87 “Einstein You’re Not—and don’t Have to Be”, Harvard Business School, Working Knowledge, November 3, 2003. ttp://hbswk.hbs.edu/archive/3763.html. 88 Sales & Marketing Management, October 1998