Category: business advice

The rise of the connected consumer

Forget the technology, it’s all about customer service.

Last week in Sydney the Federal government’s Online Retail Forum, set up after the first round of big-retailer complaints about Internet shopping, was held to discuss the threats and opportunities that lie in the connected economy.

The event’s location and timing, being held at the old Sydney Post Office the day after the Angus & Robertson book chain went into administration, was somewhat symbolic of the changes facing the retail industry.

Australia Post itself is a good example of a business dealing with change, their traditional mail business is shrinking while the move to online commerce is driving and growing their parcels business. As traditional post offices selling stamps become less important, new opportunities open in the logistics of getting physical goods to Internet shoppers.

The old post office itself is an example of that, as technology changed how mail is sorted and delivered the need for a big downtown building disappeared and today the mail service occupies a tiny corner of the massive building which is now a hotel and office complex.

How post offices changed is a big lesson for commercial landlords, and our super funds that invest in them. COSBOA’s Peter Strong pointed out on the opening panel how the business model of ever increasing rents forcing out smaller retailers and replacing them with cookie cutter national chains and franchises is one that is already struggling to cater for the online consumer.

Customer service is the opportunity missed by the big ‘bricks and mortar’ retailers, a physical store has the advantage of being able to deliver a personalised, friendly experience yet what we find when we visit a big department store or electronics ‘category killer’ superstore is service that often leaves much to be desired.

The participants of the online retail forum’s panels covered how the online retail industry is filling the customer service void; Mike Knapp, the co-founder of Sdyney’s Shoes of Prey, explained how their consumer friendly return policies encourage sales while logistics companies like DHL, Temando and Australia Post described how tracking the delivery of Internet purchases was essential for customer confidence.

Most importantly, much of the morning emphasised that e-commerce was only a small part of what the Internet has to offer the retail industry. The web has become a monitoring tool for both buyers and sellers as well as improving the supply chain and radically changing the marketing industry.

Google’s Jason Pellegrino explained how many of the US electronics chain Best Buy stores now keeps floor stock for consumers to feel and touch but then places orders through the net for delivery to the buyer’s premises. Not keeping anything more than display stock dramatically improved the efficiency of Best Buy’s stores.

Interestingly Dick Smith Electronics employs the opposite model, with their “click and collect” service customers can order online and nominate the store they want to pick up the product which gives the retailer an opportunity to cross or up sell.

Both models illustrate how retail can adapt and take advantage of shoppers using the Internet and with some creative thinking can open up new opportunities which enhance their traditional sales models.

The message from all the industry panellists at the retail forum was consistent; the net is giving power back to the consumer who is using it. For retailers to compete, they have to be dirt cheap or offer excellent customer service.

What the event showed is the customer is more important than the technology – the point of going online is about improving the offer to customers be it by cheaper prices, faster delivery or better service. If the technology happens to improve our margins then that’s a pleasant benefit as well.

Customer service is something our bigger corporations like the retail giants, banks and telcos have forgotten, it’s now turning around to bite them and that’s probably the biggest opportunity for the rest of us – to adapt technology to our business in ways that deliver a better product.

It’s more than just having a website and online shopping cart, these changes are affecting almost every business. It’s important we all think about how our ventures are going to adapt to markets where our customers have more power than ever.

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The tipping point

An important change has happened on the net which is changing the way we do business

Late last year the Internet quietly entered a new stage in its development as smart phone sales surpassed those of personal computers. This represents a fundamental shift on how society uses the web and how it will affect markets and our businesses.

The mobile workforce

Our staff and suppliers are going to be increasingly mobile and available. Logistic programs similar to Red Laser – which we discussed last year – coupled with recognition systems, virtual reality and always on wireless broadband are going to enable business, whether it’s a multinational trucking company or a local plumber, to have shorter supply chains and faster response times than ever before.

Going on the cloud

For ourselves it means increasingly we are going to be using mobile platforms like iPads and smartphones. It means we’re going into the cloud as the cost of maintaining the back end of these services are too prohibitive for many businesses.

As we discussed a few weeks ago there are a number of risks in the cloud that we need to understand and be aware of, but as the commenters to the Smart Company column pointed out, we can’t ignore the cloud.

The pervasive customers

Our customers are using the cloud on their smartphones as well, A presentation by silicon valley stock analyst Mary Meeker late last week emphasised the process that’s underway. Mary’s colleague, John Doerr calls this evolution of the mobile Internet SoLoMo – Social, Local, Mobile. People are using their mobile phones to quiz social networks to find local businesses.

This is going to challenge all businesses, particularly those who’ve resisted going onto the web until now, as we have to make sure our presence on the web is more than just a pretty web site with a token Facebook Page and Twitter account

Fancy a bowl of noodles, need your lawn mowed or toilet repaired? Increasingly we’re going to be using the mobile web and making note of what our friends say about these services. Even those business like the trades that have got away without going online are going to find it increasingly necessary to sign up to services like Google Places.

Change has arrived

The time for procrastinating about how our businesses are changing is over; the changes are happening now. Our customers are looking for us online and our competitors are reaping benefits from the various mobile and cloud technologies.

You need to be across these changes, just as telephones, cars and computers revolutionized most of our industries through the 20th Century, the mobile web is the first big change of the 21st. If you want your business to be part of the next decade, you have to start thinking about how you can use these tools.

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The local business revolution

ABC 1233s Carol Duncan discusses how local businesses should use the net

While the big retailers are moaning about lost offshore sales, local business is changing as customers go online and expect their local suppliers to do the same.

The great thing is many of the local tools are free and easy to use. There’s no reason for any business not to be online and local right now.

Join Paul Wallbank and Carol Duncan to discuss how local businesses can grab the opportunities in the connected economy on ABC 1233 Newcastle and Upper Hunter.

If you’d like more information on how your business can use the local business directories, we describe them in our Why Online Listings Are An Essential Business Tool post and we can help you through our new Netsmarts service.

You can listen in on air or stream the broadcast online. We love your comments and questions which you can call in on 1300 233 222.

If you’re on Twitter you can also follow Carol at @carolduncan or Paul at @paulwallbank.

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Losing faith in the cloud

There are risks when trusting the net, we need to understand them.

Over the last few years, I’ve been a great believer in the benefits of cloud computing but events of the last month have shaken my faith in trusting data to another organisation’s servers.

The most immediate challenge was a trivial, but irritating, crash last weekend when I lost my monthly client newsletter just before sending. The really frustrating thing was there was over a month’s worth of relevant, interesting web links for clients along with six hours lost work in writing the vanished work.

While trivial, my little disappointment illustrates the fundamental problem we have with cloud computing – we can’t trust the businesses and governments  who control the net.

Simply put, the Internet itself isn’t as trustworthy as we’d like.

Egypt’s closing Internet links, Wikileaks being hounded off the net and the Queensland floods all illustrate this on a far bigger and more important level, we cannot take the cloud or Internet access for granted and when service is interrupted the failure is total.

Natural disasters like the Queensland floods or the 2009 Victorian bushfires give rise to the trite response that “the Internet is designed to survive a nuclear war.” This is true, but view overlooks the Internet maintains service by finding a detour around the damaged areas

Which is problematice if you find yourself in a distressed area and the Internet has routed itself around you and your modem, which is something we should keep in mind everytime someone suggests using social media tools for disaster management.

It doesn’t take natural disaster for you to lose access to your data. The hounding of Wikileaks off the commercial, US operated parts of the web shows how much of the Internet is controlled by corporations enforcing spurious terms and conditions.

You don’t have to be Julian Assange for this to happen to you, last year a Sydney Jeweller had her Facebook page shut down because her doll showed too much nipple while last week an English healthcare assistant had her account suspended because she had the same name as someone famous.

Like Julian, both had their access frozen without notice and struggled to receive any sensible answer from their service provider. Unlike Julian, subsequent media embarrassment finally forced Facebook not only to acknowledge their customers’ concerns but also reinstated the services.

Far more worrying are government controls. Until last month, most of us in Western democracies – this writer included – conveniently ignored how quickly telecommunications companies and Internet Service Providers will accede to the demands of governments.

Both the Egyptian shutdown and Wikileaks reminded us how wrong we were. Governments of all persuasions can and will shut down Internet services to suit their domestic political agendas.

Here in Australia there are proposals to filter the Internet or shut down accounts to protect us from what Canberra and various lobby groups deem to be copyright infringement, pornographic material or video games unsuitable for 14 year olds to play.

Even without the more extreme proposals being introduced we’ve seen the websites of Queensland dentists and political satire sites being blocked or shut down on these grounds. In both  cases the actions were taken without the site owner’s knowledge.

As our businesses and society in general becomes more dependent upon the Internet, we need to keep in mind there are risks which need to be managed. Cloud computing itself is a great business tool but we need to understand the risks and costs of depending upon other people.

If you’re looking for cloud services, you’ll need a product that offers a backup to your systems. Business is built on trust and right now there isn’t a lot of it around in the online world.

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The Rumsfeldian business plan

The unknown is our greatest risk and opportunity.

There are known knowns; there are things we know we know.
We also know there are known unknowns; that is to say we know there are some things we do not know.
But there are also unknown unknowns – the ones we don’t know we don’t know.

– Former US Defense Secretary Donald Rumsfeld

For business owners, the “unknown unknown” is always lurking – the risk of being caught by something we couldn’t see coming is one of the reasons investors and business owners accept higher returns than putting their money on deposit with a bank or taking a safe clerical job at the same financial institution.

Being able to respond quickly to the unexpected is an important factor in a business’ survival and that flexibility is what gives the small, lean enterprise the advantage over big corporations that can’t move rapidly in the face of change.

One of those “unknown unknowns” are changes to the market, the story Groupon is a great example where the owners of an older failing business decided the “group buying” model was a market worth trying.

This is what we should understand when writing a business plan, that there are “known knowns” such as rent, “known unknowns” such as customer demand and “unknown unknowns” such as market changes, recessions and natural disasters.

“Known unknowns” are always an interesting group as we tend to assume when doing the sums on a new business idea that there is a level of demand and all costs are immediately identified. Often, once we’ve set the business up we find that we’ve miscalculated our costs and sales, sometimes happily and often not.

This is why it’s not worth spending too much time diving into detail on a business plan as all of us almost certainly will get the numbers wrong due to the “unknowns” in the equation.

Those “unkowns” often bite us in other ways as well in that what we think we know turns out to be an “unknown”, often we overestimate our own abilities which turns what should be a manageable “known unknown” into a high risk “unknown unknown”.

When choosing a business partner, it’s worthwhile noting what they know about themselves – if your future business partner doesn’t know they are knucklehead at marketing or accounting while being a star salesman or programmer, then all your trying to convince them that you should hire in a marketer or accountant and let them focus on their strengths will fall on deaf ears and your partnership is probably doomed unless your strength is being a diplomat.

Having an idea of what is unknown is a great strength in business, it allows you to properly evaluate risk and be flexible in face of the unexpected. Of course, knowing the “unknown unknowns” such as sports results and share movements is the whole reason match fixing and insider trading is so lucrative.

Risk, and the reward for taking it, is the basis on which a capitalist economy is built. We shouldn’t be afraid of the unknown but acknowledge the unknowns are out there, identify those unknowns we can see and have the skills, flexibility and financial reserve to deal with those we can’t.

Dealing with the unknowns is what really marks the successful business.

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Choosing a business partner

Being involved new enterprise is like a marriage, similar care needs to be taken.

The continuing fights between Mark Zuckerberg and the Winklevoss twins over their share of Facebook shows choosing partners to help you establish, fund and grow a venture is one of the toughest things in business.

Good partners are a formidable combination. Together two, three or more well matched businesses partners with complementary skills can give a startup huge advantages. Warren Buffet and Charlie Munger at Berkshire Hathaway are a good example of business partners whose skills and personalities build on each other.

Sadly those perfect partnerships are rare and all too often the differing personalities coupled with the financial and emotional strain of starting a business lead to the partners falling out. So what is it that makes the perfect business relationship?

Complementary strengths
All of us have weaknesses, in business these can manifest themselves in things like an inability to see bigger trends, too much focus on detail and – probably the most common of all – a boredom with doing paperwork and accounts.

The best partnerships are where each party adds something to the team, one partner might do the “big picture” strategic work while another focuses on the detail orientated operations. If you can find one that loves doing the books, marry them and do everything you can to retain them in your business.

Tolerance of weaknesses

The flip side of having complementary skills is that each partner has to be tolerant of the others’ weak spots. In any relationship, business or personal, that understanding of a partners’ weaknesses is essential to success.

Respect
All of the partners have to respect each others views and strengths. The moment one partner feels they are not being valued, even if it is only a perceived lack of respect, the relationship is heading for the rocks.

Equal contributions
In many small businesses, the biggest cause of friction is one partner not putting in an equal contribution. If all parties aren’t putting in their fair share of labour or capital then the arrangement is going to hit problems, particularly if the venture is successful as we’ve seen with the Facebook disputes.

Unequal contributions hurt, particularly in small businesses where one partner may have contributed a far greater slice of their capital or time than others. This is often the problem where some of the partners are working full time on the business while others have corporate jobs and can’t put in the hours required to be equal partners.

Some friends of mine had a falling out over what was looking to be a successful business when one of them found they couldn’t continue to juggle a successful corporate career with a running a start up as a part time job. The others in the partnership were running the new venture full time and were severely unimpressed with the threat to several years hard work on their part when they too could have been chasing a big business salary.

The worse possible small business partnership is where one of the partners subsidises the business from their other income, another friend of mine subsidised a cleaning business for two years while his partner forgot to put in invoices or quote for new work. When the business folded, my friend was out much of his savings from those two years.

Mismatch of expectations

People go into business for all sorts of reasons; some for love, a few to build empires and others with the expectation of becoming billionaires. Many of us find ourselves building businesses because we’re unemployable anywhere else. Having a common vision of where you want to the business to go is also essential or again the partnership will fall apart over those disagreements, often at the worst possible time.

A business partnership is very much like a marriage and can be just as expensive to undo, choosing the right business partners can make the difference between a middling small enterprise and a fantastic success. The right partners are a great asset to your business, but choose carefully.

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The global online sales battle

The fight between governments, retailers and online traders has some big stakes.

Gerry Harvey’s and Bernie Brooke’s Fair Go for Retailers campaign drawing attention to the GST treatment of online overseas purchases is part of broader battle being fought around the world between multinational corporations, governments and small business. How it is resolved is going to affect all of us.

Last week, while Australians were focused on their major retailers campaigning for changes to GST rules, Internet retailer Amazon wrote to its Illinois affiliates warning that should the state legislature pass a law imposing sales tax on Internet purchases, the company would cut off their partners in that state, just as they already have in Colorado.

The actions of the Colorado state government, the Illinois proposal and Amazon’s ruthless response are just the latest phase in a longer term struggle between borderless online retailers and those governments, and businesses, limited by their physical locations.

What’s making this particularly acute in the United States is state governments are struggling to balance their budgets and sales tax is the one of the few avenues they have to raise revenues in an economy where incomes and property markets continue to stagnate, if not fall outright.

That balancing act isn’t just confined to the US, the UK government has increased VAT rates from the beginning of the year for the same reason and is facing discontent over increasing tax burdens, particularly on fuel prices.

For the moment the UK government and customs authorities seem to be fairly relaxed about the leakage of VAT income that has seen some British supermarket chains shipping online orders from their Channel Islands branches to avoid local taxes in the way Gerry Harvey and Bernie Brookes proposed last December when the floated the proposal to move their online stores offshore.

The British public hasn’t shared their government’s sanguine response with organisations like UK Uncut blockading stores accused of dodging taxes or owned by alleged tax avoiders.

Governments aren’t the only ones affected, while in Australian it’s the retailers who are publicly worried about their loss of sales at present, other sectors, particularly those providing business to business services, are even more at risk.

Last month The Economist described how US law firms are seeing high margin but relatively low skilled work moving offshore to India and it’s likely those contractors are offering similar services to Australian law firms and corporate clients.

Online bidding sites such as Freelancer.com, O-desk and 99 Designs are offering almost every business support service imaginable, from virtual offices to logo design. Anyone competing locally against foreign contractors on those sites starts from exactly the same GST disadvantage as Harvey Norman, Myer and the local shoeshop.

The power of international retailers and service providers like Google and Amazon to avoid taxes and deliver lowest cost products to customers are challenges to both businesses and governments.

Julia Gillard’s and Bill Shorten’s almost condescending responses to the retailers shows the politicians are somewhat more in tune with the public mood than the retailers. But we can be sure that should the porridge in Australia’s Goldilocks economy start going cold, then Treasury will start looking for those lost GST dollars.

While we can criticise Gerry Harvey, Bernie Brookes and the others behind the “Fair Go for Retailers” campaign for being out of touch and failing to respond to obvious threats to their markets, most businesspeople – and politicians – shouldn’t think for a moment they are immune from the same forces the retailers are complaining about.

Few of us, whether we run businesses or not, will be untouched by these forces realigning the global economy. We all need to understand what these changes mean to our livelihoods and investments, lest we get caught out like Australia’s big retailers.

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