business advice | Paul Wallbank - Communications Professional

Irrelevance and the media

Real problems are ignored as the big boys play games

It’s a shame we weren’t around when dinosaurs became extinct. Then again, maybe we are.

News Limited business commentator Terry McCrann writes about the “Bleakest of views from the shopfronts” in his Sunday column describing the problems of retail.

All of the problems Terry cited are from big retailers – Woolworths, Dick Smith, Harvey Norman and JB HiFi. To make it clear he was talking about corporate issues there’s even a reference to General Motors.

Nowhere does Terry talk about smaller businesses or those challenging the big guys, folk like Ruslan Kogan or the Catch of the Day team. It’s all about the big end of town.

Terry’s article illustrates the problem of relying on incumbent mainstream media commentary; that it is Big Media talking about Big Business and Big Government.

“Small”, “ordinary” or “average” has no place in their conversation, if you can call the pronouncement of mainstream media commentators a conversation at all.

We can understand this – for a journalist, it’s good for the ego and career to look like a “heavy hitter” in big business. For the politician, small business and community groups can’t pay the speaking and consulting fees paid by corporations to supplement their meagre retirement benefits.

Increasingly what happens in the corporate board rooms or the once smoke filled rooms of political caucuses is out of touch with the real world.

This has become particularly acute since the responses to the 2008 crash proved to the management classes that their bonuses and perks will be protected by government bailouts regardless of how many billions of shareholder wealth they manage to destroy.

In the United States we see this in political controversies being focused on contraception – an issue settled forty years ago – while the country faces fundamental challenges to its economic base and the basic welfare of its citizens and industries.

While in Australia the media ‘insiders’ rabbit on about pointless internal party politics and soothing articles on how everything else is fine, we just need to be more optimistic. Yet the real questions about how we take advantage of the country’s greatest export boom, position the economy for the next 50 years and the nation’s dependence on the Chinese economy are being ignored.

Terry McCrann’s story is emblematic of just how out of touch Big Media, and their friends in Big Business and Big Government, are with the real world.

All we can do is let them get on with it and not take them too seriously.

Why we should give Gerry Harvey a break

Big retail’s problems could be ours as well

Gerry Harvey’s been having a bad year. This time last year he was moaning about the Internet stealing his business and now his profits are down.

In Mark Fletcher’s Newsagency Blog, Gerry gets a serve for dragging the entire retail channel down.

Mark quite rightly points out that Gerry’s problems are of his own making and his chain’s difficulties aren’t necessarily those of the rest of the industry or even shared by individual franchises within the Harvey Norman group.

While I’ve been as critical of Gerry as anybody else, maybe it’s time to give him a break.

It’s worth considering how Gerry made his billions. When he started in business in the late 1950s, it was tough for the average person to get credit. At best working families could get something put aside at the local store or enter into an Encyclopedia Britannica style subscription plan.

Gerry and his generation of retailers changed that. They made credit available to the masses who could suddenly afford to buy household appliances and electrical goods without years of savings.

I remember my parents buying things from Norman Ross, Waltons or the ACTU’s Burke Street store (Bob Hawke once stepped on my mum’s foot while she was shopping for a sofe) because working class people could get credit there.

Gerry was at the beginning of the consumer revolution that defined the second half of the Twentieth Century.

In the late 1980s financial deregulation changed the game again and Gerry’s business took off as credit became even easier to get with new providers entering the market. First we saw three month interest free offers and by the mid-2000s six year interest free deals were available.

These deals were so good that Harvey Norman franchisees often made more money selling the credit deals than on the actually product that the ‘no interest’ loan had been taken out to buy.

For Gerry, this was insanely lucrative as his business was able to clip the ticket at almost every level of the retail and distribution chain while moving much of the risk and capital cost onto franchisees and landlords hungry for high traffic anchor tenants.

In 2008 this entire model changed as the credit boom came to a crashing halt and consumer spending with it.

Business models based on cheap credit now have to find something else that works and this is what Gerry Harvey is now struggling with.

To complicate matters, the Internet has changed the distribution model that worked for Harvey Norman and other bricks and mortar retailers. All of them are now having to make a major shift in the sales cultures.

Adapting to this new world is tough for everybody and we should have some sympathy for Gerry Harvey as our businesses and jobs are being affected by exactly the same forces.

How Gerry adapts, or doesn’t, could be a bellwether for our own industries.

The clique

Who is putting your interests first?

A Fortune story about the inner workings of social media service Facebook reportedly claims the business is increasingly dominated by friends of the Chief Operating Officer.

On Sheryl Sandberg and the circle of friends she has brought into the company: “There’s a term spoken quietly around Facebook to describe a cadre of elites who have assumed powerful positions under the leadership of Zuckerberg’s chief operating officer: They’re FOSS, or friends of Sheryl Sandberg.

Most tellingly is the quote, “‘You can’t really cross a FOSS,’ says one former senior manager.”

While this may not be true at Facebook – the reporters are quoting anonymous sources so their story can’t be taken as gospel – when a small, interconnected clique runs an organisation things usually don’t turn out well.

It’s bad enough when it’s a government agency like a police force or a not for profit like a charity, but in big and small business things are usually worse.

The main imperative of clique is to protect its members regardless of the damage they do to their organisation or even the global economy, as we saw in the banking crisis of 2008.

Inside the clique, you often have incompetence, corruption and almost always a strong thread of nepotism. None of this makes for an effective organisation or efficient business.

As investors, employees, suppliers, customers and taxpayers we have to be on guard against these cliques as they rarely act in the interests of those outside their circles.

It may not be the allegations at Facebook are true, but this is happening at other organisations right now. It’s probably happening in your government as well.

Omni Channel Buzzwords

Can nice phrases save a declining business?

Retailer entrepreneur Gerry Harvey yesterday unveiled his strategy to arrest the declines in his home goods chain’s sales.

One of the key points in his investor presentation was “continued investment in strengthening our Omni channel strategy”.

When asked exactly what an “omni channel strategy” is, Gerry reportedly admitted that until last week he had no idea what it was.

For an entrepreneur whose business model is suffering badly in the face of changed markets, Gerry seems to be remarkably flippant about how he and his team are going to react to the challenges.

Gerry lack of understanding is bad news for his team, because appears there is no management commitment to the major changes Harvey Norman, and many other incumbent retailers, are going to have to make in order to recover the sales and margins they have long been used to.

The “omni channel strategy” is an interesting beast, which was described by Myers CEO Bernie Brooks last April on ABC’s Inside Business.

We’re building our own omni-channel approach, which will include everything from kiosks in store right the way through to being able to provide very good office online up to 250,000 items, free delivery.

What’s interesting with the retailers’ talk of “omni-channel” is the talk of service. Both Myer and Harvey Norman claim customer service is the centre of their strategy but their emphasis in the past has been to reduce customer service.

The reduced emphasis on service has been part of the decline of the both chains; Harvey Norman could get away while consumers were happy committing to “no-interest for 72 months” finance plans, while Myer steadily declined as their key difference with discount chains like K-Mart and Target was eroded.

Hopefully both Gerry Harvey and Bernie Brooks will get their omni channel strategy strategies working, though it will be interesting whether both can get their management teams to re-discover the meaning of “customer service”.

Without getting the service right, their “omni channel strategies” will just appear to be another management buzzword in a declining business.

Competing in a high cost world

Business can compete when costs are high and currencies are strong

It’s often said that Australian businesses can’t compete and the nation can no longer can support manufacturing or high tech industries.

With the high Australian dollar, many economists, business leaders and politicians have said industries have to adapt to being an expensive economy. Interestingly, few of these experts explain how businesses should, or can, adapt.

At the recent Kickstart forum I had the opportunity to meet two Australian companies succeeding with high tech products and using the high dollar to their advantage.

David Jackman of Pronto Software, a thirty year old business intelligence company, is proud of the fact the business he leads does most of its development in Australia. As business owned by it’s employees – Pronto had an employee buy out in the late 1990s – he sees his role as building the business to last centuries like some European businesses.

Linus Chang developed his Melbourne based business, Backup Assist, when he discovered the data backup tools built into Microsoft Windows weren’t very good. Taking the basic Microsoft products, he added the features that made these tools usuable at a fraction of the cost of bigger companies’ data backup software.

Today Backup Assist is sold in 124 countries with the US as the biggest market.

Both Backup Assist and Pronto find keeping the bulk of the software development in house in Australia makes sure they are producing high quality, effective products.

Software development isn’t the only sector dealing with the high cost evironment, David Jackman says Pronto has many customers in the Australian manufacturing industry who have adapted to a high cost environment with niche and high value added products.

Identifying these opportunities is where the challenge lies; what do our businesses do well that customers in international markets are prepared to pay for?

We also have an advantage in being a relatively open economy with first world standards. This is another reason why investment in new infrastructure like the National Broadband Network is important.

One thing is for sure, selling low priced commodity products with small margins is not where the future lies, even if the Aussie dollar collapses.

We have success stories and businesses adapting to being a high cost economy, it’s a matter of understanding how our industries can add value while do this.

Pro Bono

Exposure rarely pays the bills.

“Could you write a guest post for our corporate blog?”

“Sure, I’d be delighted. How much are you paying?”

“Sorry, we don’t pay. You’ll be getting a lot of exposure.”

This organisation had a profit of over five billion dollars last year. Imagine how much the outfit would be making if the managers and executives contributed their time for free in the hope of getting some “exposure”?

It’s nice to be recognised as an expert, but if you’re not going to make a living then it’s just an expensive, time consuming hobby.

The over reach

Sometimes we take things too far

Sometimes we’re on a roll, all is going well, everything we touch is successful and those around us seem not to be able to win a thing.

Then we over-reach.

We get smart, we get cocky, we decide one more demand or humiliation will show the other guy just how good we are.

And everything starts to wrong, because we took things too far. We over-reached

The greatest asset all of us can have is a little humility and respect.

Rather than wanting everything, maybe leaving a little bit on the table for the other guy may turn out to be a wise business move.

The limits of SEO

Having a nice web site is only part of a winning business

On their busiest day of the year, the florist site Ready Flowers had a shocker. With dozens of customers upset their Valentines Day flowers didn’t arrive.

Their reaction was to stop answering their calls, as one Ready Flowers angry customer on the Whirlpoool website said;

Calling through to their 24/7 hotline was no good, all it told me (after 30 mins on hold) was a automated message saying it was valentine’s day (duh), that they were busy and that I should leave a message.

So on their one key day of the year, they didn’t have enough staff to meet demand.

Ready Flowers has been a success story expanding to 17 countries since being founded in 2005. The service is a modern version of the Interflora model where the company takes the order which they pass onto a local florist who creates the flower arrangement to Ready Flowers’ or Interflora’s specifications.

The risk for Ready Flowers is that the local florist isn’t very good and that’s where customer support and tight supplier management comes into place.

Which is clearly where they fell over on Valentines Day.

In a 2009 interview with the Financial Review that’s quoted in the Sydney Morning Herald, Ready Flowers’ founder Thomas Hegarty claimed his success was due to good search-engine optimisation, online advertising, and landing pages for every delivery location.

Missing is the term “customer service” – in that interview Thomas went onto say, “We saw that we could add value by applying more efficient technology without needing a large number of people to run the business”.

This is the flaw in the web 2.0 business model. In the real world, businesses don’t run on remote control – mistakes are made, deadline missed and people do dumb things which the algorithm can’t handle.

Over the last thirty years, customer service has been seen as an unnecessary cost centre. This was fine in a world where automated, low margin and fast moving goods were seen as the business model to emulate.

If you can’t compete on price, it’s service that matters and this is where you’ll need more than a lost cost call centre and a well optimised website.

Finance by the masses

Can crowdfunding work for business?

“Crowd” is one of the hot terms of the moment – the idea that groups of connected, motivated people with the right incentives can deliver great value when their skills and talents are bought together.

One of application of this idea is crowdfunding where businesses, artists, writer and movie producers can call on the community to donate or invest small sums into a project in return for a benefit like a copy of the book or being an extra in the movie.

The biggest success in this space is the New York based Kickstarter which was founded in 2008. Pozible, an Australian equivalent, that provides local creatives with the opportunity to raise funds without dealing with the hassles of US bank accounts or social security numbers.

Both of these services make money from taking a commission on the money raised, for Pozible users this fee ranges from 5 to 7.5%.

While the focus of Pozible and Kickstarter is on creative projects like books, music and movies, it’s interesting to consider how this model can work for other businesses.

Perhaps an IT business can offer a free year of support or food delivery service free shipping in return for a donation. The possibilities are endless.

It’s not without risks – there’s no doubt the regulators will at best be suspicious of fund raising through these services and anyone participating has to accept the risk of not getting any sort of return.

Since the 2008 banking crisis, funding for small business has dried up around the world. Many viable enterprises found their lines of credit being withdrawn and some even went under as a result.

With banks rationing small business credit, there’s a need – we could even argue an economic necessity – for alternative sources of capital. Crowdsourcing could be an option.

Now the days of easy credit are over; businesses, banks, investors and governments have to adapt. Believing models and regulations that were designed when capital was cheap and abundant won’t work in a very changed economy.

Crowdsourcing will be one of the issues confronting regulators, it’s going to be interesting to see how they deal with it.

Scammed

Social media opens up new opportunities for conmen

“Executive-level income without leaving home” claims the Facebook page, a sign at the end of my street promises a six figure wage from your own computer and one of the lead stories in this morning’s news is the tale of retirees being ripped off by ‘boiler rooms’ offering high return ‘investments’.

We all believe we have the right to be rich so the quick, easy option and the promises of those that say we can be wealthy by simply handing over a modest amount of money or trusting our investments to someone else is a tempting offer.

Deep down we know we’re being scammed.

Right now nations are on the verge of collapse because politicians promised easy wealth, corporations skirt bankruptcy because executives were entitled to bonuses regardless of performance and in the suburbs desperate people clinging to the middle class lifestyle they believed was theirs by birthright fall for get rich quick scams.

Just as the railways opened up opportunities for snake oil merchants in the 1850s and cheap telephone systems gave rise to the boiler room ripoffs of the 1970s and 80s, social media tools open up a whole new range of possibilities for the sneaky to fool the gullible or desperate.

Naturally we’ll get the nanny goats and nincompoops demanding something be done about Internet scams – maybe a law, perhaps a treaty or a code of conduct – all of which will be as effective as stopping railways, telephones or the postal system in an effort to stamp out fraud.

Fraud is technologically neutral; fraudsters just use whatever happens to be the most effective tools available at the time.

The sad thing with the social media based scams is we get to see who among our friends and family have fallen for it. Invariably when we warn them we’re told off because we aren’t believers.

Again though this is nothing new, the same thing happened when the snake oil merchant came to town or the shaman visited the village.

In the 19th Century the phrase “there’s a sucker born every minute” was coined. In today’s hyper connected world, there’s one born every second. Don’t be that sucker.

On becoming a Captive Business

On being trapped by your suppliers or customers

I’ve been writing a lot recently about the risks of businesses aligning their interests too closely with one or another platform, last weekend The China Law Blog discussed the opposite – being a captive customer.

The term “captive customer” is new to me but it’s a familiar concept; in the IT industry most of us found ourselves hostage to Microsoft’s whims at one time or another and it wasn’t a good place to be.

Many smaller businesses and consultants fall for the trap of having just one big customer which their income becomes dependent upon.

While Dan’s point on The China Law Blog is about manufacturing, this risk is becoming even more pressing on the web where there’s a tendency to be captured by one platform or another.

Sometimes entire industries are captured – the Search Engine Optimisation sector is wholly dependent upon whatever Google chooses to with their search algorithm. To make things worse, no SEO expert knows exactly how Google’s equations actually work.

We’re seeing the mass media being captured in a number of ways – by granting licenses to Facebook, one suspects unwittingly, or developing content for Apple’s iPad.

For startups depending upon cloud services or single payment platforms like PayPal there are serious risks as we saw with the co-ordinated takedown of Wikileaks.

In nature, the animal or plant that depends on one source of food or habitat is at risk from even small changes in their environment. Be careful you aren’t a business dodo.

The New Soviets

For many companies, customer service owes more to the Soviet Union

US based investment writer Mike “Mish” Sherlock called Sony’s support line to get a repair for his recently purchased laptop computer.

What followed was something from the 1970s Soviet Union – a simple request turned into a twelve day, 34 step odyssey of structural incompetence on the part of Sony.

The tragic thing is Mike’s tale is all the result of mis-matched rewards in Sony’s organisation;

Sony’s management wanted to increase profits
Extended warranties were identified as a revenue generator
A senior manager decided cutting support costs would improve returns
The technical support is outsourced
Costs are saved by splitting contracts
Each outsourcer has a different IT platform
The outsourcing contracts have quotas and penalties
Individual staff are penalised for escalating problems
Support staff have tight performance criteria

At every level performance indicators were met, despite the whole process costing far more than fixing the problem efficiently would have had – not to mention the loss of Mike as a customer – something that Sony can ill afford.

Not surprisingly, the computer ended up being fixed by a local IT guy. Richard almost certainly earns a fraction of Sony’s Executive Vice President Group General Managers, or whatever the title they have to match their compensation packages is, yet he gets the job done.

In Sony we see the Soviet model of management at work – an unaccountable, out of touch cadre of apparatchiks meeting their requirements under The Five Year Plan and are rewarded accordingly.

Just like today’s Executive Vice President Group General Managers with their KPIs and bonuses.

As we all know, the Soviet Union failed in 1991. One wonders when we’ll say the same thing about Sony or the dozens of other large corporations that have lost their way.