I don’t get it

“Getting it” doesn’t guarantee business success

“I don’t get Twitter or Facebook” says the talkback radio caller, “why would you want to tell the world what you’re having for dinner?”

Once upon a time people didn’t get the motor car. There were many good reasons not to – compared to a horse a steam or petrol driven vehicle was expensive, unreliable and restricted in where it could go.

The motor car ended up defining the 20th Century.

Those who didn’t get it – like the stage coach lines and later the railway companies – eventually faded into irrelevance.

Something we should remember though is that many of the entrepreneurs in the early days of the motor car who did “get it” went broke. As did those in earlier times building railways and canals.

“Getting it” is one thing, but it doesn’t guarantee it will make you rich or guarantee your business’ survival.

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Playing with Dragons

We should be careful how we treat our customers.

Chinese manufacturing has been in the news recently with various exposes of factory conditions by the New York Times, the now discredited Mike Daisey and a fascinating look at US store chain Wal-Mart’s supply chain by Mother Jones’ Andy Kroll.

In his examination of Wal-Mart’s Chinese suppliers Andy Kroll interviews factory owners and managers with a common theme, they are all loath to be identified for fear of incurring Wal-Mart’s wrath.

This is wall of silence is familiar in Australia; the reluctance of local suppliers to speak about the conduct of the Coles’ and Woolworths’ policies has hobbled enquiries into the domestic retail market.

Another aspect Chinese and Australian have in common is how the retailers drive down costs with big buyers insist upon regular price reductions from their suppliers.

This is what happens when your business is a price taker that relies on one or two suppliers; you accept what you’re offered or lose a large chunk of your business.

With many of Australia’s industry sectors now dominated by one or two incumbents, this way of doing business is now the norm rather than the exception.

As a nation Australia’s finding itself in that position as well. Now our governments and business leaders have decided Australia will only dig stuff up with a few favoured, uncompetitive industries like car manufacturing being being protected, the entire country is in a position not dissimilar to a Foshan coat hanger manufacturer.

Having that dependency on one or two major customers is a risk and when the commodities boom turns to bust – commodities booms always do – our relationships with these customers will be tested.

When that test comes, the clumsy way the Federal government has banned Chinese companies from tendering to the National Broadband Network or blocked investment in mining projects may turn out to be mistakes.

This is the problem with being a price taker selling a commodity product, you become hostage to fortune and when the market turns against you there isn’t a great deal you can do.

In the early 2000s computer manufacturers like Dell and HP decided to sell commodity products then watched with despair as Apple captured the premium, high margin end of the market. Neither business has truly recovered.

Being trapped at the commodity end of a market is not a comfortable place to be, particularly if you don’t have a plan to move up the value chain.

If your business is currently selling low margin, commodity goods then it’s worthwhile considering what Plan B is should the market turn against you. You might also remember to be nice to your customers

At least you’ll show you have more forethought than our leaders in Canberra who seem to like to play with dragons without thinking through the consequences.

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Killing credibility

One dumb campaign can hurt a brand

Microsoft’s Smoked by Windows Phone Challenge aims to show their mobile phones are the fastest on the market.

Unfortunately if you beat them, it appears you might not win the prize as Sahas Katta discovered.

Going back on a prize in a competition that already looks somewhat biased doesn’t just hurt Windows Phone’s credibility but it hurts the whole company’s – it looks cheap, lame and petty.

Realising the damage this does Microsoft’s brand, evangelist Ben Randolph offered Sahas a laptop and phone, although already the botched promotion has probably already hurt the product.

Windows Phone is a “must succeed” for Microsoft and that company would stage poorly thought out stunts with high chance of backfiring is disappointing given what is at stake for them.

Trust and reputation and the hardest things to earn and the easiest to squander, Microsoft’s management needs to be careful with this.

Hopefully Microsoft will show us some compelling reasons to buy an alternative to an iPhone or Android handset beyond dodgy marketing stunts.

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A website can’t save a dying business

Online tools can’t fix an organisation’s structural problems

The last week has seen some interesting changes in the local online business community.

Embattled department store David Jones’ announced they are following Harvey Norman into an “omni channel strategy”.

Harvey Norman chief executive in turn appeared on national television to state the “internet drives no sales.”

In the political field, it was reported the Australian Labor Party are looking at using Blue State Digital tools to counter voter and member apathy.

Each one in it’s own way illustrates how organisations can be distracted by shiny new technology while ignoring much deeper problems.

In the case of David Jones, the department store ignored their core competencies and tried to ape their down market competitors in milking the financial services cow.

This worked fine while they could offer 24 and 36 month interest free deals and as soon as their partners American Express started charging a monthly “Administration Fee” that business evaporated.

One of DJ’s down market competitors is Harvey Norman, co-founder Gerry Harvey has spent his life building a fortune based upon providing cheap credit to consumers.

It was always going to be a mistake for DJs to compete with Harvey’s as Gerry is far better at the business than the well connected, genteel board of David Jones and their snappily dressed friends in the store’s executive suite.

Worse for DJs, the whole strategy alienated their core markets and while management focused on financial services customers went elsewhere to find the quality goods and services that the upmarket department store should be providing.

For both though, the financial services business model is now fading as the 20th Century debt supercycle comes to an end; consumers no longer want to load up on “buy now, pay later” schemes.

So all the talk of “omni-channel strategies” really doesn’t address the underlying weaknesses in both business.

This disconnect with reality is true in politics as well where the ALP is reported to be considering using the Red State Digital tools that Barak Obama used so well in his 2008 US Presidential campaign.

While the tools are impressive, they don’t address the problem that the electorate – and the member bases of the major political parties – have become rightly disillusioned and disconnected from the political processes that exclude everyone except an increasingly smaller circle of cronies and insiders.

The only good thing that will come of using US political communications tools in the spectacular eruption the first time one of the ALP’s factional warlords encounters a grass roots online campaign like The Great Schlep.

Heck, the resulting furore might even see some of the apparatchiks distracted from partying and whoring on their union credit cards for a day or two.

All the frivolity aside, the reality for the Australian Labor Party, David Jones and Harvey Norman is their problems are far deeper than a well designed website and impeccably executed social media strategy can fix. These organisations need major rethinks about how and why they exist.

It doesn’t matter how much money you throw at the web or how effective your social media strategy is – if the foundations of a business are shaky then a nice “omni-channel strategy” aren’t going to fix things.

For some of organisations, a failure to embrace the online world may be one of the causes for their problems, for many though there are far more basic issues they need to address.

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Overstuffing the social media goose

Businesses are struggling with too many online services

“Small business has to get on Pinterest” urges the social media advisor.

“Oh no, not another of these social media thingummies” thinks the business owner or marketing manager.

Pinterest is just the latest of a dozen online services that businesses have been urged to join in recent years. An incomplete list would include the following;

  • Pinterest
  • Google Plus
  • Facebook
  • Facebook Timeline
  • Quora
  • Color
  • Yelp
  • Tumblr
  • Google Places
  • True Local
  • Blogging
  • LinkedIn
  • LinkedIn Groups
  • Twitter

The question for the time poor business owner or under resourced manager is “where do I find the hours for all this?”

It’s not just smaller businesses either – most corporations don’t have the resources to dedicate to all of these services, let alone provide the 24×7 coverage many are beginning to expect.

When it comes to online services and social media businesses owners and managers are like geese being stuffed for foie gras, they’ve had so much stuffed down their necks they can barely move.

Like the foie gras ducks, businesses have become glassy eyed – when someone tells them they have to sign up to another online service they just switch off.

We’ve reached the point where are too many networks for event the most underemployed social media expert to handle.

For those advocating social networking or other online services for business, it’s time to start acknowledging the time poor reality of most businesses and consider exactly which services are best suited for the organisation.

In businesss it’s not time to switch off, that could be the worst thing to do as so many new ways of talking with customers are developing.

Instead of feeling overwhelmed, it’s time to start carefully considering which services will work best with your markets, products and staff and choose carefully.

The days of just charging into the latest social media sensation are over, these services are growing up and they have to prove its worthwhile for businesses – or individuals – to invest their time.

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David Jones’ wasted decade

Poor decisions by unaccountable management are killing industry icons

In 2001 Australian retailer David Jones shut down their website.

Back then, the future was clear; profits were in financial services and certainly not in online sales or investing in improved stores and service.

Today the company released their strategic review that looks forward to financial years 2013 and beyond. You can downloaded it from David Jones’ investor website.

On Page 13, they show just how far David Jones has fallen behind their international competitors. Less that 1% of DJ’s sales are online compared to 4.5% of the UK’s House Of Fraser and 13% of John Lewis.

Australian executives claim they are in a global market for their talents which is why they deserve world standard remuneration. David Jones’ results show how hollow that mantra is.

The problems start with the board, five of the eight current David Jones directors were with the company when that decision was made in 2001.

None of them have been held to account.

David Jones illustrates the weakness in Australia’s business sector – largely unaccountable boards answering only to institutional investors who themselves have grown fat and lazy on clipping the compulsory superannuation ticket.

One hopes the some of the competitors who are displacing flaccid incumbents like David Jones are based in Australia or the locals may soon find that many of these sectors, not just in retail, will go offshore to better run companies.

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Milking the dead cow

How Sensis killed itself and the lessons for Australian business

Many big Australian businesses seem untouchable as they dominate their markets to degree almost unknown in most other developed countries. As the story of Sensis shows, Australia’s big duopolies may not be as strong as they appear.

The last few months have been tough for Sensis; revenues last year fell nearly 25%, the once strong business was folded into the latest incarnation of Telstra Digital Media and now the CEO Bruce Akhurst has departed after seven years.

What could have been a dynamic business is now shriveling away, what went wrong?

Milking the revenue cow

Bruce did a good job of keeping revenue coming in during a period that the then owners, the Federal government, wanted to maximise the book value of Telstra before its sale.

Year upon year Sensis could be relied upon to squeeze more money out of the businesses advertising in it.

Management were focused on extracting revenue from the existing client base rather than responding to the obvious threat from online search.

Expensive distractions

When senior management decided to respond to the online world, they were sucked into unnecessary and expensive distractions; the most notable being the 2005 launch of Sensis Search where the then Telstra CEO – the disastrous Sol Trujillo – famously sneered “Google Schmoogle”.

Three years and hundreds of millions of dollars later, Sensis admitted defeat. By then the small business advertisers who were the life blood of the directory market had woken up to the reality their customers weren’t using the Yellow Pages anymore. Sensis had missed the boat.

Clunky processes

Whenever I spoke to small businesses about Sensis through the 2000s there was the same complaint, “I don’t have time to deal with their sales people, just let me tick a box on a web page or send a fax!”

Purchasing space was difficult for customers, their 1950s Willy Loman sales model should have been automated in the 1990s and never was.

Instead Sensis was locked into a high cost sales model and added friction for advertisers which they shouldn’t need, not only were they expensive but they actually made it difficult for their customers to place orders.

Should Sensis have been sold?

At its peak in 2005, Sensis was valued at between 8 and 10 billion dollars as a stand alone company.

Many, including myself, believe that breaking Sensis away would have been the best result given Telstra were at the time focused on protecting their fixed line copper wire monopoly and the directories business was not getting the management attention or capital investment it needed.

History shows though that we might be wrong.

Commander Communications was spun off from Telstra in 2000 and like Sensis had inherited an almost monopoly position in the small business communications market.

By 2007 Commander was out of business thanks to a combination of incompetence, management greed and an inability to recognise the changing communications marketplace.

The Australian disease

Commander’s biggest problem was it saw its customers as cash cows, just as Sensis did. This exposes a much deeper problem in Australian industry and management culture.

Over the last thirty years Australian government policies have seen duopolies develop in almost every key sector of the economy.

All of these duopolies share the same “customer as a milk cow” philosophy which, along with the rampaging Australian dollar, has dragged Australia into being a high cost economy.

The banking industry, while not a duopoly for the moment, is an even more debilitating example of the cash cow syndrome where small business has been crippled by excessive interest rates and fees – particularly since the 2008 crisis.

Sensis’ demise is systemic of a culture that fixates on extracting maximum revenue from customers; concepts like innovation, R&D or adapting to market trends don’t have a role in this mentality.

Milking cows is a fine business, but sometimes you have to think about the health of the herd.

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