HBS Working Knowledge, in an article on lean principles in services industries, lists the four principles that the Toyota Production System is based on:

Rule 1: All work shall be highly specified as to content, sequence, timing, and outcome.
Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes or no way to send requests and receive responses.
Rule 3: The pathway for every product and service must be simple and direct.
Rule 4: Any improvement must be made in accordance with the scientific method, under the guidance of a teacher, at the lowest possible level in the organization.

I love stuff that saves me reading a whole book, but would this work in a food / retail environment? I can't say 100%, but I can hypothesise.

Let's take a restaurant or coffee-shop. The way I see the information-flow is in the shape of a funnel, which is wide on both ends and quite narrow in the middle.

lean funnel.JPG
(If the words are unclear, it's, from left to right, a. customers, b. information, d. goods, and b. production (though the last should be c.))

Essentially:

  1. customers have a ton of choice when they order
  2. they narrow down this choice to their selected items
  3. pass it onto the waiter
  4. who passes it onto a kitchen
  5. where another wide selection of ingredients is narrowed down
  6. and the end-product is produced
  7. which is again delivered to the customer.
And let's take a look at how this would work if the rules were applied.

Rule 1 - Specification of content, sequence, timing, and outcome?
Content is the stuff on the menu, which can be set to a limited number of choices, matching the availability of ingredients in the kitchen. Sequence are points a to d on the picture. Timing is an unwritten agreement between the customers and the food-place that their order will be delivered as quickly as possible. Outcome will be the satisfied customer (who will pay for his order).

Rule 2 - A direct customer-supplier connection / yes or no communication?
Again, this should be possible, by making the menu as transparent as possible and the kitchen organised to produce pre-specified combinations quickly. As for the direct connection, there are several ways this could be happening. A low-tech way would be a number associated with an item on the menu. Little miscommunication can happen on the way to the kitchen. One high-tech way being used right now is electronic notepads, which communicate with the kitchen or bar. I'm not a fan of it, because I think it erects a barrier (of slowness) between the customer and the waiter, but ok, it's a somewhat direct link. Another way could be to simply give the customer an electronic menu. It works online, why couldn't it work on a food-venue environment? The customer presses some buttons, the kitchen gets the order, the waiter delivers or the customer picks it up. Simple (but probably expensive).

Rule 3 - Simple / direct pathway for every product or service?
I'm a little confused by how this differs from rule 2, so I'll probably have to pick up the book after all… damn.

Rule 4 - Bottom-up scientifically co-ordinated improvements?
The key to successful growth is writing a manual / formula that can be reproduced over and over. If you can capture the components of quality that distinguish your venues from competitors, you can take over the world. What this rule means to me is that with a manual should come expertise, and this expertise should be used to train people from the lowest level upwards. The lowest level in the restaurant-scenario is the customer or the customer-interface. Placing experts in that vicinity, ensures a good bottom-up approach and improvements that are targeted at improving the customer-experience. This will also provide quick feedback about what could be wrong in other parts of the supply-chain, e.g. the communication, the timing, the quality of the food/drinks, etc.

Final thoughts
Now, of course, I won't pretend that these four rules are a replacement for me learning more about lean operations. I'll definitely be picking up The Toyota Way, to grasp the more subtle nuances. This was simply an exercise to see if lean principles can be applied to other—non-car—areas. I think they can. At the same time I don't think that leanness is necessarily an excuse for frugality either. It simplifies operations to focus on other areas instead, like e.g. improve the end-product quality for customers.

5 links to think

  • Seth Godin on Permeability - essentially he presents a simple test to see how well integrated an organisation is. Also food for thought for top-managers at a firm. Do my employees know my name and what I stand for? If not, why not?
  • Hugh MacCleod on De-Commodification - his current business is wine, and he rightly asks about guarding against being just one of the many. His answer: blogging, aka. micro-branding. I think he could've dug deeper.
  • S.B. Johnson on Literary Style and word-count - this one made me think. Steven analyses the average words-per-sentence in best-sellers and classics. His conclusion: books with an average sentence word-count of 20 words or less sell better. Made me count the words of my own sentences in my blog-posts.
  • HBR on managing innovation - a nice Q&A in regards to management, creativity, disruption, and solutions. Answers are broad and range from deconstruction, to isolation, to building communities.
  • NYTimes on a strange cultural trend in Japan - apparently fear is the new black and designers are creating clothes resembling everyday street-objects, like vending-machines. I can't yet draw any conclusion from this, except that Japan is a different place.
These and more can be found in my ever-growing list of bookmarks.

month2.JPGIt's time for another monthly summary (a few days late). This time, rather than the rather unattractive list-view which I used for my month 1-summary, I'm going to try turning the past month's posts into a little story. As I wrote, this blog is my way of learning about this industry, so let's take a look at what I've covered so far.

The Human element
I started the first post of month 2 with one related to self-development, and I kept that thread going for a while. This post was on the the way that leadership has evolved throughout society, from an individualistic to a social kind of leading. A lot of developments today, in business, politics, or other arenas, are so complex, that a form of collaboration is more constructive than tyrannical leadership. This is perhaps made clearest in in the example of Ikea and eBay, who—often by necessity—used collaborative methods to develop and introduce new features and innovations.

Again related to self-development, I also looked at particular careers in retail (with a nice chart) and in knowledge-based firms. Apart from simply researching the functions out there, my conclusions were that different roles require different talents, and that a manager/founder/entrepreneur should take care to surround himself with a diverse kinds of people. A similar point was made in a post on doing what you do best. Again, in the eBay-post, I discussed professionalising your firm quickly, by bringing in talent that can help in growing the business.

The strategic lens
A second big thread last month was business strategy. I started with the coffee-business, mentioning some examples like Coca-Cola, who is expanding into canned coffee, and Leonidas, a chocolatier, who is starting coffee-shops. Later, in two follow-up posts (1 and 2), I drew the conclusion that the coffee-arena is pretty crowded and that I wasn't sure if that was the best area to start a business in.

I also looked at the area of value chains and Porter's five forces, using examples like Ikea, Apple, and Amazon, and before that China and the issue of meeting it's exploding beef-demand. Generally, and the same applies to coffee, I think it's useful to take a horizontal and vertical view at how the industry is organised and find opportunities that way. In the case of China, which imposes some barriers to beef-imports, the answer was to import methodologies and grow beef on Chinese land. Other examples are mentioned in my five-forces post.

Another big topic is climate-change and it again helps to analyse this in terms of the value-chain, i.e. looking at all the internal and external activities related to your company and related to bringing value towards customers. And optimising those to take the cost of climate-change into account, which can later be turned into a significant competitive advantage over your competitors.

And I looked at some examples of Franchising in Germany, noting that retail is clearly leading in that field, and that a big challenge is to transmit tacit knowledge down your (largely decentralised) organisation.

Branding & marketing
Another large topic this month was the issue of customers, and how you market to them. IBM presented a nice white paper, of which I discussed the Well Curve as a possible methodology to understand the customer decision process, which was a second post on this topic.

I also looked at the way some business interact with customers, including T-Mobile and Harvard Business Review, and observed that conversational marketing is definitely a way to increase price-elasticity.

I have not looked much at food-business so far, but I did manage to discuss two restaurants: a pancake-place, where I discussed methods on how to make me remember its damn name, and a restaurant in Germany, which I thought received excellent advice in a show called "Rach - the restaurant tester," in regards to geographic marketing and building a brand.

Finally, even though my forte is not advertising, I came up with a—possibly stupid, but fun—idea on how to advertise a new concept coming to a town near you.

Innovation
Somewhat of a micro-topic, I looked at the way that music-media and money evolved and how that illustrated that customers love convenience, as well as how the Ford SYN-US was developed from start to finish. The latter is very interesting for thinking about what it takes to come up with new innovations.

Finance
Another micro-topic, which I will have to spend more time on in the future. I approached this in two posts. In the first, "other people's money," I reflected on some of the different types of investors there are and how some can add considerable value to growing your business. Also, in the eBay post, I looked at why it was so important for eBay to involve venture capitalists, even though it didn't need the money. The right kind of investor for your business will help you professionalise your business, by helping you find more talent, setting targets to meet, pressuring you to grow, and (hopefully) much more, all besides investing in your business, and taking shares.

Final thoughts
So, pretty diverse stuff I think, and while I could be writing more about food and retail—which will happen—I'm happy to have written and learned about all of these interesting topics.

For the future, I hope to look more at franchising, in-store activities, and particularly at supply chain topics, such as lean manufacturing, logistics, and anything dealing with the supplier-perspective. My future reading-list includes: The Disney Way, The Great Good Place, and The Toyota Way, as well as countless articles, pdf's, blogs, HBR-magazines, and so much more.

Well, here we are. Another month flew by! I enjoyed writing this post, and hope you enjoyed reading it too! For past coverage, you can check my slightly less aesthetically-presented month 1 summary. For more in the area of food and retail, I do encourage people to check my blog-roll on the right, and my bookmarks, updated 24/7.

The picture is an exercise of drawing a (my) hand in 5 min. or less.

For those that don't know, "The Perfect Store" tells the story of eBay, how it was started, who was involved, its community, its growth, and the IPO, basically everything up to around 2001. The book was very well-written, I thought. So much so, that I felt more affinity with the company before it went public than afterwards. For the entrepreneurial section of the book, I was eating the pages up, breathlessly soaking in the stories of many of the people involved—these large number of perspectives included in the book, are one of its strengths. Then, after d-day, the IPO, my sentiments sank. I felt the floor opening up beneath me, all my pioneering instincts gone, given away to the "suits." But I imagine some people will see it from a different perspective, and that is how well-written "The Perfect Store" is.

Normally, I would review a book in pieces, but since I read the book some 4-5 months ago, I'll instead try to summarise the key points I got from the book.

Where you are from matters to where you are going: I notice this over and over again. Pierre Omidyar, eBay's founder, is a Libertarian, which rougly translates to letting people solve their own problems, with as little interference as possible. You can see this play out in eBay's largely decentralised shopping-model. The lesson here is not, I think, that everyone should be like eBay, but that whatever you do, should in some way reflect what you believe in.

Be professional quickly: I don't think eBay would be where it was today, if Pierre hadn't immediately tried to attract talent, starting with Jeff Skoll, an acquaintance and Stanford MBA, all the way up to Meg Whitman, who was instrumental in handling the IPO and is still eBay's CEO today. Many entrepreneurs are in the game because they want to be independent. Opinions may vary, but a smaller piece of a bigger pie is usually better than a small pie all to yourself.

Venture capital is not just money: eBay was consistently profitable from day one, so they actually didn't need financing. But there was one important reason for going to a venture capitalist: professionalisation. eBay needed to send a signal to the world, that it was an important player on the market. It needed to attract talent, and form a growth strategy. All of which happened after it took on venture capital.

Community matters: eBay's key to success was not only her low capital costs (no stock, little overhead), but also her close ties with the users of the site. At the beginning, little in features was introduced on the site without consulting the users first. Because of this and ultimately the high switching costs, eBay benefited from what is known as the Network Effect. That said, as a company grows, community-involvement cannot be as strong, and new mechanisms must be put in place to place to stay in touch with your core-users. eBay had a lot of problems in this area.

IPO's can be traumatic: Somewhat related to the point about communities and change, when Ebay went public, it created a rift between the core-values of her original workforce and users, and the values of the financial community and the media. There's not much to say about this, except that just as it takes a particular type of people to start a company, the same applies for people taking a company public, and as a founder (and start-up-employee), you must learn to let go.

Make your IT-infrastructure scaleable: this is the only tech-advice in this post, but Pierre had no idea how quickly eBay would take off, and the company was plagued by technical issues from the start. Only some years later, when Meg Whitman became the new CEO, did proper staff get hired and was the infrastructure upgraded for scale.

That's about it. I'm sure, I forgot some key-points, and would appreciate comments on this, if you have read the book. I do remember thinking that "The Perfect Store" was the absolute best book I ever read on starting a company, interacting with community and stakeholders, and the effects of an IPO. So, highly recommended for this reason alone, and also to gain a good insight into eBay as a business until 2001-2.

(This review is mirror-posted on Tech IT Easy.)

Interlude: Do what you do best

war_and_peace_1956.jpgNote: I decided to rework the first paragraph a little.

It's funny how we perceive people. Yesterday, I had a discussion with my 19-year old brother about his social behaviour, which can sometimes be called "dick-like." I did not mean this as an insult, rather I told him to turn what might be perceived as a weakness into a strength. Because believe it or not, sometimes the world needs people to be a little unpleasant. 

The point is that we are all good for something in life, while society is trying to turn us into mindless drones all good for the same thing: be nice. That's not good at all. In a project—and I remember listening to a podcast about this at some point—there are number of diverse, but vital roles. There's the pusher, there's the devil's advocate, and there's the mediator. Only the latter has to be nice. The first has to do, and the second has to keep it real.

How do you notice what you are? I think you notice by doing stuff and measuring your own level of uncomfortableness. Mediators are used to finding the middle-ground, and will feel uncomfortable having to choose sides that make other sides unhappy. Pushers want to do and feel uncomfortable sitting still. And the real-keepers feel uncomfortable in the unreal setting.

Society is a bunch of people, who all fit in different camps and really want other people to be more like them. But what they often don't realise is that if everyone was the same, we would all be making the same mistakes. There would be no growth. Society needs arguments, wars, the occasional explosion, because it shows truth (can you tell my star-sign is Aries - god of war?). After which things need to get done to fix what happened and we finally need to head in the right direction.

The reason I write this, as unrelated to this blog as it may seem, is because every single project will suffer from people-problems. There will be majority and minority groups, there will be a vision that may not match all these groups. There will be a reality that may not match that vision. And there needs to be a middle-ground so that the people and the organisation can continue to function, while growing at the positive rate that it should.

What this means, in a managerial context, is that teams should consist of vital counter-figures, to create a cocktail of vision, execution, reality, and diplomacy. And the best way is to choose people who do what they do best. Not people who bend at every breeze (though during storms, it can be wise to bend), but people who put up a good fight for what they believe in.

OK, my philosophical point, which was inspired by countless hours of sleep-deprivation, is now over. Tomorrow, I'll get back to business as usual. The picture is of course of the movie "War and Peace," based on the equally-titled book by Tolstoy, recently released in a new and better translation .



Porters_five_forces.PNGThe five-forces model, as developed by Micheal E. Porter, illustrates the biggest factors that may enter into the strategic decision-making process. These are, on a vertical level, suppliers and customers, on a horizontal level, competition from products, new entrants (can also be vertical), and rivals.

To explain the horizontal/vertical, often when you talk of horizontal, you mean companies and products that are on the same level as you, competing for the attention of the same customers (and suppliers). Vertical relationships are those which a company depends on, either their relationship with suppliers or their relationship with customers. Each of these also operates on their own horizontal axis. The more powerful players on that level become, the more they can affect players on the other levels.

There are different levels of importance per force, depending on the context and type of the firm. When a company is more powerful horizontally, a market-leader, even a monopolist, it does not have to worry about suppliers as much, and is perhaps able, financially, to integrate vertically, taking over some of its suppliers and/or some of the middle-men that stand between the company and its customers. Vertical integration can be important when you want to control the supply chain for some reason, e.g. to increase the level of quality of your products. It can also become important if competition on your horizontal axis is threatening or may become so in the future.

3 examples
You can see this play out in a number of retail-situations. Apple, which is strictly focussed on design and marketing, outsources the manufacturing of most of its products, but is fairly vertically orientated towards the customer-side, doing most of its business in its retail-locations and online stores. Because of this concentration of power in the middle and proximity to the customer, it also has more power over its suppliers, able to make strong demands, and it's also better equipped to compete with horizontal players like HP or Sony, who are not as vertically integrated towards the consumer. The added benefit of a close customer-presence is also that you can use this as an opportunity to create customer-focussed products, something a lot of non-verticallly integrated players are not so good at.

Another fascinating company is Amazon, who spotted an opportunity to surpass brick & mortar stores, by becoming a distributor with a web-based store-front. Traditionally, the book-industry was organised as follows. A book gets printed, it then gets distributed, it then lands in a store, and then the customer buys it. Amazon integrated three of these functions: distribution, store, and customers (four, if you include ebooks into the formula). The end-result was that the customer became empowered: he could review books, even sell books second-hand. Which disempowered other stores where this was not possible, and publishers, who were before able to simply push out best-sellers downstream. Publishers are still powerful of course, essentially acting as a gatekeeper to writers, but this will change as soon as online publishing can be consumed comfortably.

A final example is Ikea, which is surprisingly similar to Amazon. It also started as a distributor, back in the day when a store-front was a newspaper-advert and phone-line. Ikea saved money, by working closely together with manufacturers in Poland, even building and buying machinery for them. The end-result were standardised designs, at low costs, and produced on a massive scale. It became close to the customer, by using its warehouses as store-fronts, and enabling customers to buy via catalogue and later via the web-site. Its competition was the traditional furniture store, conservative and producing designs that were both expensive and focussed on exclusivity (which translates to small-scale production). Because of this perceived strength, they were arrogant enough to not worry so much about prices on the vertical axis, both from their suppliers and for their customers. All of which could be exploited by some frugal and out-of-the-box thinking (a combo which fits surprisingly well together).

These are all three examples of durable goods. If you get into food however, even restaurants, the formula changes. But that is a story for another day.

Be a thief
Isn't 5-forces fun? I think so. So what can we learn from this? For one, that it's important to consider strategy on multiple axes. How will a business deal with its suppliers, its customers, its competition?

Also, it is actually a weakness to be too vertically or horizontally integrated, as that creates a certain arrogance and/or passivity towards how you deal with these parties. New entrants will eventually come, and probably on a different axis all-together. Being too integrated, means that the business has many dependancies, which will make it all that more slower to react to changes.

What I think always pays off, is to be close to customers. By constantly adjusting your strategy, so that the value proposition for customers is increased and personalised for them, you ensure a certain loyalty (which gives you time to change) and you can sense it sooner when their attention drifts towards other types of products.

A final thought. Business is very much an art-form and in art there is one great saying: "Good artists copy, great artist steal." The copying refers to that everything has been done to a degree. People have sold computers, books, furniture, and those products are clearly fulfilling a demand, which, for now, continues to exist. Where people can innovate is in creating new combinations of things. In other words, if you copy a competitor's business-model, you gain only the part of the market that does not already get served by the existing business-model.

If instead you steal the good parts from other business models, and create your own combinations of these good things, you can create greater value-propositions for customers than already exist. This applies just as much to combinations of five forces, as it does for anything else.

A quircky little marketing idea

pendulum.pngHere's an idea on how to market an entirely new concept coming to a town near you. Let's say you rented a store-space in a shopping-street and you have to make modifications. Normally this would be dead time where you would just be spending money on construction.

Reserve a space of about 1-2 metres (3-5 feet) depth behind the shop-window. Make it so that people can't look at all the construction going on behind it, and have a little curtain that you can hang in front of it.

And everyday that you are building, create a different display. One day, you could display a series of pies, another, you could display some bridal dresses. Etc. etc. One day, you could even put some people there, having coffee and reading a book. All the while, keeping the passer-bys guessing at what this new store is about.

What this accomplishes is simple. In our transparent little world, what people love most, is things that stand out and things that are mysterious. And your ever-changing display will keep them wondering during the time where you really can't do much in the way of enchanting customers.

Another thing that you could do is actually use these displays to advertise shops in your street. "Buy pies at neighbour Joe's bakery!" "Get your coffee at Jane's delicious coffee-shop!" Not only does this increase your clout with your neighbours, it may make you some money, and more traffic to them automatically means more traffic to you too!

Of course, one of the dangers is that you're building your momentum up way high and like a pendulum, if you don't prepare for the automatically high expectations that follow, it might swing out of control. So you better end up delivering a nice end-product when your store actually opens!

The picture is courtesy of marwantaher.com

Watching this as I drink my Pepsi Max. Thanks Fred Brunel!

The Consumer Decision Process

IBM's nice white paper, which I briefly touched on before, describes a model for mapping how customers make decisions in a given setting. It looks at three types of retail-outlets: Grocery, consumer-electronics, and apparel (clothing), and explains how each type of store has different types of customers, with different motives for visiting, and different in-store behaviour.

For instance, with grocery-shoppers, they map two types of shoppers, those that shop for replenishment and those that shop for convenience. The figure below shows the different reasons why they would visit a store and what they value inside the store:

grocery shopping.jpg

Really, what this flows out of is an analytical technique, IBM calls: "consumer decision process (CDP) modelling," which analyses consumers in five phases:

  1. Qualitative market research, to identify elements that impact target decisions: what, who, when, where.
  2. Create individual CDP maps and organise elements into stages
  3. Validate and create a market-representative view
  4. Develop quantitative model to prioritise impact of 100s of "why" elements
  5. Leverage CDP insights to drive revenue opportunities
In English: data is collected through traditional research methods, and IBM crunches this data into a system that scores different variables according to their importance and comes up with focussed advice on how a retailer can improve their marketing strategies and the shopping experience.

For instance, in the case of customers for complex electronics, like high-end sound-systems, customers would benefit from a focus on education at the beginning of the decision-making process, and on a high level of technical support after the purchase had been made. This has implications on staffing and marketing. At the same time, this can also affect stock-inventory. With products like these, where people prefer home-deliver and possibly installation, it is often not necessary to carry large amounts of stock within the store, again reducing costs on that front.

Note: this article will be mirror-posted on Tech IT Easy.

Bioenergy_Cycle.jpgA few weeks ago, I wrote a little about how small leisure-businesses deal with ecological issues, and how that is sometimes stimulated by government-subsidies. In my ignorance, I saw this mostly as a marketing-issue, though an article by Michael Porter and Forest Reinhardt in the October-issue of HBR, made me look at it a little differently. In it, Porter and Reinhardt propose a strategic look at climate issues, both inside-out—pertaining to the company's activities—and outside-in—assessing how external factors can affect the business.

Inside-out
By looking at activities along the value chain of a business—meaning all the activities that affect the final value to the customer—and calculating eco-costs per activity, the company can evaluate what activities cost in terms of total emissions and make a decision as how to deal with them. Note, that both in a strategic and a marketing-sense, both direct and indirect costs are relevant.

Assuming that emission costs are a certain expense in the future, looking at a value chain in this way can have severe consequences on seemingly innovative activities, like just-in-time supply chain management, which is quite transportation-intensive; e-commerce, which often depends on small shipments; and offshoring, which can severely lengthen transportation-routes.

Some examples of how to deal with emissions inside out are:

  • Using tools within the enterprise, like Toyota's life-truck, that is designed all around for reduced cost to the environment.
  • exchange information with your partners regarding gas emissions, reduction targets, and other climate-change targets.
  • Have your own procedures in place to evaluate not only your own emissions, but also those of your suppliers' products coming in and those of your end-products, when used by your customers. This also involves visiting your partners' production-facilities, forming collaborative emission-reducing strategies, and understanding how your customers use and dispose of your end-products.
  • Creating an incentive structure with your partners, which involves carbon credit-trading and other rewards for their good behaviour.
  • Similarly, set up information-exchange policies on a departmental and business-unit-level regarding emissions and reduction-strategies, and implement a reward-system.
  • When on land, using rail-road transportation instead of road, as that is far more efficient in terms of emissions.
  • Evaluate your activities, and focus on optimising the high-value ones and either eliminating the low-value ones or outsourcing them to more efficient companies.
  • Jeremy Fain, at Tech IT Easy, also proposes some measures on how to implement IT-related cost-reductions
Ultimately, the company that can be most innovative in its emission-reducing process, can gain significant cost-advantages over those that are lagging in this respect.

Outside-in
According to the article, there are two external threats to businesses: that of actual climate-change and how that will affect regions that may be important to a firm's bottom-line; and regulations imposed by governments, which may impose costs on certain activities. Both are very hard to deal with.

Obviously, for the latter—the regulations—the best way is to implement as many "inside-out" savings as possible. In addition, it is important to work closely with watchdog-agencies and institutions to be compatible with most recent trends, as well as be prepared for what may come.

For the first—safeguarding against climate-change—only companies that can either keep their supply-chains flexible enough to deal with regional changes, or those that can invest in scientific "cures" for climate-changes, such as drought-resisting crop, can have some sort of advantage in this regard.

Final thoughts
The scientific community is fairly aligned in their perception of the problem. And for the business-world, Porter and Reinhardt see this as a revolutionising force, equalling or outweighing globalisation and information technology.

A lot of business are still receiving mixed messages from the political, scientific, business, and consumer-community. But what is certain is that legislation will continue to become more strict in this regard. So from a cost-perspective, it certainly is a wise choice to implement emission-reducing measures as early and as wide-spread as possible.

Similarly, as I wrote in my last post, there is a public-relations angle. Customers are becoming much more aware of environmental factors, and may prefer to shop at places which respect this reality.

The picture is courtesy of firstnationalpower.com.

Ikea - strange, alien values

Ikea alien.jpgAs has become my custom, during my brief life as a blogger, I like to review books, while reading them, not necessarily after I'm finished. The book, I'm currently reading, is aptly titled "Ikea - The Secret of Its Success," a Dutch translation of a German biography of the business and its founder, Ingvar Kamprad. I've until now read very little in terms of European business, and looked forward to getting a grasp on the European mentality if there is such a thing. To be honest, there are vast cultural differences between countries in Europe, though Ikea's continental growth does serve as an interesting lens to understand some of the issues at play.

My initial thought when meeting people and businesses is that where you are from and when you are from matters a great deal to where you are going. There are a great number of social values that come from living in a given location, at a given time. Similarly, Ikea has had a particular past, which I think define the company and explain its goals.

Where Ikea's from, Sweden, is a strange, alien place to me, even more so, 80 odd years ago, when Ingvar Kamprad, Ikea's founder was born, and 60 years ago, when he founded the company. Painfully, I notice that my own business-education has been coloured by "Western" values, or rather Anglo-saxon capitalist ones, which give (the illusion that) individuals (have) pretty much free reign to reach their dreams, and Ingvar's story is very different from that (though he did achieve his dream, I think).

Briefly, before I describe Ikea's history, what is different about the company, as opposed to other multinationals?

  • It is still a private company
  • It thinks like a community, which has major consequences on work-relations and innovation
  • Work-relations: historically, wages are kept low, workers are treated like family, there are no large power-differentials, and I don't think people get fired much.
  • Innovation: the way the business develops often comes out of collaborative thinking—how can we make life easier for our workers, how can we make life easier for our customers? Very organic, pragmatic, and frugal!
Ikea was started in Sweden, a country marked by deep socialist (or shallow communist) values that have affected the way businesses were run and even lead to (insane) tax-levels up to 85% (and even more in some cases). A kind of media-revolution was started by the author, Astrid Lindgren, who noticed that she was paying over 100% in taxes on her income and wrote a lengthy article about it, which was published in the Swedish newspaper, Expressen. This ultimately lead to the fall of Swedish socialist democratic party in 1976, who had been in power for 40 years, though later they would regain their throne.

Ingvar Kamprad, who had by that time already migrated to Denmark for related reasons, had himself had a particular past. He grew up on a farm in a small commune, where value was placed on hard work and family. Originally of Germany, emigrated to Sweden, his family felt some affinity with the Nazi-cause of freeing parts of Germany, separated after the first World War. Ingvar only abandoned these values in his late 20s, after having finished a business-degree and getting married.

By that time he already possessed a strong trader's spirit, importing small goods like pens at low cost, and selling them via mail to his customers at a small profit. He later expanded this to furniture, which organically evolved to what became Ikea. Much of his thinking was pragmatic and he wasn't afraid to listen to the advice of his co-workers, and ignore the advice of his competitors—the more established furniture-retailers. Business boomed, of course, and he soon built more warehouses (which acted as store-fronts) in other major cities in Sweden.

But the taxes were killing him. So much so, that he had to live in debt for several years, while being the owner of a very well-todo store. So, for this, and other reasons, he decided to migrate with his family to Denmark, while keeping Ikea in Sweden. Later he would move to Switserland and do something that probably goes against the grain of every capitalist out there. He gave the business away.

He did so for reasons of continuity. He did not want there to be confusion after he was gone, and he did not want his kids to feel pressured to take over the business. Instead he created a foundation (stichting), called INGKA, in the Netherlands, to make sure that Ikea belonged to Ikea, and not to the whimsical demands of its (future) leaders.

That's as far as I'll go today.

Every book has a different lesson in it. This one on Ikea is about its heritage, its values which are deeply ingrained into the Swedish perception of social community, and how these can be preserved as the business grows. I can't wait to learn more about Ikea and find out. I'm about 50% into the book, writing this, and I want to write about Ikea's expansion at a later date, as well as their internal workings. If you do read Dutch, I do recommend picking the book up here, and for German, check the German Amazon-store here.

For other book-reviews, check out my look at McDonalds "Grinding It Out" here and here, as well as at Starbucks' "Pour Your Heart Into It" here and here.

5 links

van gogh church.jpgSince I feel thoroughly uninspired to finish several half-written posts, I decided to post some links I enjoyed these last few days.

As always, these and more can be found on my never-ending stream of bookmarks: here.

Is coffee is dead? Part 2.

dead coffee.JPGNot too long ago, asked the question about whether coffee is a bad business to be in, taking into account the exploding number of quick coffee-stops, as well as the fact that global players like Starbucks, and the soon-to-come McDonalds café, are saturating the market. There's another part to this, which I actually discussed before, but I didn't make the connection: coffee as a soft-drink.

In the Starbucks-book, "Pour your heart into it," Howard Schultz talks about how Starbucks got into the canned coffee business, with the help of a chemist and Pepsi. The chemist had come up with a method to captured the essence of coffee into an extract, which enabled Starbucks to add it to a number of new products, such as ice-cream and indeed "porta-coffee," also leading to more business-opportunities outside of Starbucks-outlets. Pepsico had the "porta" knowledge, as well as the distribution-channels, and from what I hear their partnership was a raging success.

About a month ago, I wrote that Coca-Cola had entered a partnership with Nestle, to develop similar products, and just read about a another partnership between Coke and  illy, a premium brand of coffee and related products.

The rest of this post is speculation:
Now I'm sure that the coffee-makers will do their best to not have the can equal a taste of fresh coffee, though at the same time more competition in canned coffee will definitely drive the quality upwards. Perhaps up to a point where it will perhaps convince customers not to wait in the long queue associated with "good" coffee, and instead get a quickie at a supermarket or in a machine at work. Similarly, an increase in downstream-marketing by producers, may lead to an increased demand for these products up the chain, at cafés, giving Starbucks-, illy-, and Nestle-outlets an advantage over generic coffee-producers. Thinking defensively, all of this sounds pretty bad for existing cafés. I'm not a fan of thinking defensively however.

Offensively speaking, this is an opportunity. Comoditised coffee means that there is more space left for other activities which help increase the value of "third places." Comoditised coffee also means that the overall quality of coffee will go up, and that consumers will look for other selling-points. By taking a license on illy or Nestle coffee (I don't think/know if Starbucks licenses), cafés can profit from the downstream marketing that is already happening. Even cans of coffee can present an added value, for instance in large queue-situations (like the ones I discussed last time), which I perceive as an excellent opportunity for offering tasters.

And really, this may not change much for cafés. The manufacturers' downstream marketing towards consumers may cause an increased demand for illy or Nestle-coffee (or cans) in cafés, pressuring them to take it into their assortment. But the same has happened with drinks like soda and beer for decades, though I'm sure that there are some horror-stories to tell here too. And so far, canned coffee has definitely been lacking the taste department, so it may not all represent competition for existing drink-venues. I may be making an elephant out of a fly. In any case, interesting to think about and to see how this will play out.

Oh, and the picture is meant to represent a cup, spilling coffee. If it looks like crap (the coffee kinda does), my apologies.

rach1.jpgFinally, something more food-related! On television, there seem to be two types of shows related to the business of food: apprentice-type shows like "The Restaurant," which present a new challenge every episode and where one team/person loses and gets kicked out; and then there's another type of show, not quite as successful commercially, in which an expert is brought in to help a business in need. Last night, in a bout of insomnia, I got a chance to watch an episode of the latter category, a German show called Rach the restaurant-tester, where Christian Rach, an experienced cook and food-entrepreneur helps restaurants get back on their feet.

This one dealt with a restaurant in Berlin, called "Die Blaue Ente" (translated: "The Blue Duck"), which had some interesting ideas surrounding it, but many were unfinished, and was located in the middle of nowhere, in the outskirts of Berlin.

The restaurant had several things going for it. The cook (59), was energetic and outgoing, had lots of ideas, loved animals and even had a little zoo going with ducks and other farm-animals. The food was adequate and the atmosphere inside was friendly. His wife took care of the welcoming and did so authentically.

But the restaurant had been running badly for some time. The founder had many ideas, but many were unfinished. The restaurant served all kinds of diverse dishes, but there was no clear menu-identity. And the cooking, while good, was disorganised and slow. The business was in trouble.

The challenge was two-fold. Establish a clear identity for The Blue Duck and make people in Berlin aware of the restaurant.

Brand-idenity
The cooking was already good, but it needed to shine. People needed to come to the restaurant for a reason and leave with good memories. The straightforward answer was to make the food and the name one and the same. Bring more duck-like dishes on the menu, but with a twist. So gone were the diverse dishes that had previously been served. Rach gave them a couple of easy ways to create a broad offering of "winged" dishes, which were not only easy to prepare but also allowed for synergies in cooking (you can make a lot of different dishes from one chicken). But the challenge was to bring the food to the people, and that is exactly what they did.

Creating awareness
The founder had previously been toying with an idea to serve food on the road, with the help of one of those catering-trucks. He bought a second-hand one, but had abandoned the idea and left it rusting in the garden. This gave Rach an idea though. If the people weren't coming to the food, why not bring the food to the people? So he bought the restaurant another small catering-truck, one with which they could use to serve Blue Duck-snacks at a market in Berlin. And he got them a transportable oven, which they could use to keep the food warm, and attract visitors with sweet scents. Bingo! Not only was the cart a raging success, but it lead to exactly the desired result. People started coming to the Blue Duck.

Final thoughts
I wanted to write about geographic marketing for a while, because I consider it a vital ingredient to the leisure business. As a restaurant or other leisure-venue, you don't have much flexibility to move, and I think that the thinking goes that you must be located in a premium location in order to be successful. That's true, but it also reminds me of the gold-rush during "cowboy" times, where everyone would move to the same place to mine their gold and when the gold was gone, the town would be dead. Premium locations are like goldmines, and there's a great first-mover advantage. Instead, an interesting concept is to choose any location (within reason) and try to bring customers to you based on the quality you bring.

An entrepreneur in the tourism-industry, who taught at my school, told us about a similar thing he did. He asked: "as a local tourist-attraction, how important is international business?" As it turns out, it was very important. To him, international activities involved advertising in travel-agencies all around the world, as that is where he would get the majority of his clientele.

Frequently, when I see restaurants/cafés where the staff seems depressed and business is bad, that's the first thing that comes to mind. Have you done geographic marketing?

As for the brand, not much to say there. Clearly no marketing can make a bad product good, and establishing a clear identity is key in differentiating yourself from competitors, and more importantly, gain loyal customers.

It was a really nice show, I thought, more constructive than the typical apprentice-styled alternative. Competition is perhaps part of life, but there are a lot of smart people out there who can help you just as well. All it takes is a little altruism…

horizons.jpgOver the years (I've been actively blogging for about two), I must have read around 50 blogposts advising me how to blog. I won't bore you with details, but it all starts with a good title, a good picture tells a 1000 words, and if you can use 5 words instead of 10 to explain something, use 5. That's all true (note that in this post, I'll ignore all of this advice). In addition to that, there are ways to game Google, ways to monetize blogs, ways to draw in crowds, etc. etc.

But really, blogging is nothing new, it's just the word that was new, 5+ years ago. What all this advice, I read about, is for, is copywriting. For that purpose, I'd like to refer people who want to find out how to copywrite, to a blog called "copyblogger," because that one seems to capture most of the essentials. I like their latest post on blogging.

Now, for myself, why do I write? I'll make no pretences, I don't necessarily write for others. http://foodandretail.blogspot.com is the first serious attempt I made at blogging—everything before and during has been and is just for fun. But to me S+FnR is more of an information-system being built, instead of a "copyblog" for others. Sure, it's important to (learn to) write for an audience. I would call it an essential skill, as better writers are also better at a number of things, like debating, analysing, logic, etc.

But what really motivates me is to engage my brain, learn more about how businesses in my sector of choice work, work in that industry, and start my own business there. Over the last year, we've had a lot of discussions on the value of comments over at Tech IT Easy, a sister-blog on technology. The general consensus was that comments are great if they add value. A community is great. But what we wanted over there was to primarily create a group of intelligent contributors, who could maybe teach each other something. I think we have succeeded, though the Tech IT Easy roadmap is long.

For S+FnR, the roadmap is long also, and somewhat mapped out in stages, but mainly a way to grow for me, and hopefully my readers… though the value for them depends entirely on their level of development (mine is low) and their areas of interest.

S+FnR is nearly two months old now, meaning another monthly recap will be posted soon. And I will continue to post a lot of stuff that I find interesting and potentially relevant to this industry, whether it be on marketing, strategy, innovation, finance, logistics, tech, design, food, merchandising, career-choices, music, other media, and whatever else could fit.

I'll also try to post daily, which I started because I thought it might be good for readers, but I also began to get addicted to, not to mention learn more in less time. Of course this is entirely dependant on my time and energy to post!

What else… blogging? Forget about it! This is an information-system which I'm updating 1 day at a time, which you can always comment on/add to, and which will hopefully someday, become a valuable resource for other like-minded people.

P.S. there is of course another, slightly more subtle, motive. The more drawings I create and post on my blog, the closer I come to reaching my goal of becoming the next Vincent van… Gogh… hahahahaha (evil laugh)! The above was a copy I made of this one.

I stumbled across this through an IBM white paper on consumer trends. The "Well Curve" is a term, coined by Daniel Pink at Wired Magazine, describing an inverted bell-shape, where people are expressing preferences in either affordable mass-products on one side of the spectrum, and on the other side, demand for luxury products which possess emotional qualities to the consumer. The companies that fall in between suffer from a lack of identity and demand. This phenomenon can also be observed in politics and the way organisations structure themselves.

the well curve.jpg

This demand-curve is stimulated by a number of trends, made clear in the white paper. On the demand-side you can see that:

  • Customers have access to virtually an unlimited* amount of information
  • Customer values are fragmented and drive fragmentation in markets
  • Customers become more guarded about how their privacy / personal data is used*, which requires changing marketing strategies
(* This is true to the degree that information is understandable/trusworthy/accessible; ** I think there are cultural differences there, and this is targeted at US-sentiments.)

And on the supply-side, you can see that:
  • Megaretailers are "expanding across geographies, formats and product/service categories, blurring market segments and devouring market share."
  • Companies are forming flexible “value networks,” which offer more value to consumers are hard to replicate.
I personally recognise the trend, but at the same time find it's quite simplistic, as perhaps its predecessor, the Bell Curve, was. Instead of assuming that consumers are a collection of mindless drones who want similar things, it now assumes that consumers are slightly less mindless and want two similar things: acceptable quality at low prices, and emotional quality at high prices.

What about emotional quality at emotional prices (my emotions definitely prefer low prices)? While this sounds like a joke, I'm completely serious about it. The reason why marketeers don't like emotions, is because they seem very hard to measure. Instead, replace the word by 'individualistic.' Individualistic quality at individualistic pricing. The curve, which right now is 2-dimensional, would then have to be shifted to represent a number of overlaying curves, sort of like waves in an ocean, representing all the individual demand-curves that are possible. I suppose, I could coin it the "Wave curve."

To an extent, you can see this being played out in some business models that have come forward in online music. Radiohead just released their latest album "In Rainbows," at a price which downloaders can decide. Similarly, the Freakonomics-blog describes the phenomenon, as they do in their book, in regards to bagels.

Of course, this can also be viewed as one part of a greater selling-strategy. "In Rainbows" may be selling online at emotional prices, but at lower-than-cd quality. At the same time, Radiohead are also selling cds, which are claimed to contain extra content, as well as selling out at concerts (a true example of emotional value at high prices). So not much has changed there.

An alternative model would the auction-method, though I think that this only works if there is a restricted supply, made possible with rare goods or airplane-seats, but not so much goods that can easily be mass-produced.

It's hard to predict whether a wave-type curve would work as a viable revenue-model, but what is clear is that when you give consumers a real choice, they will choose more than one or two variables, instead maybe ten or twenty. And I suppose that the next best solution for that is simply the free market.

Every blog comes with its opportunity costs, in this case: writing or designing. For today I chose the latter, using a Wordpress-theme, called K2, modified for Blogger. I think it looks better, and gives me a little more width to play with when I write text and add images.

Since this took the greater part of an hour, I've decided to not write anything today and instead wish you a happy weekend!

Oh, and the header is inspired by the most beautiful toilet in the world. If you are going to install a toilet, you might as well make it a nice one. This is not in any way meant to be an analogy on how to design blogs (though if you are going to have one, you might as well make that nice too).

Top-franchises in Germany

franchise.JPGI just picked up the German magazine "Starting UP" (initial impression, so-so), which featured a number of stories interesting to me. One was the 30 top-franchisers in Germany. I'm a little confused by how they rank these things (English translation: annual growth-rate of franchise and nominal growth-rate), which resulted in some kind of numbering system, where the number 1 got over 3000 points, and the number 2 939 points. Actually, I'm more than a little confused, but it's probably too early in the morning to me.

In any case, the number 1 was Subway, which grew from 190 German partners in 2004 to 600 in 2007 (and got 3113 points). And number 2 is DATAC, which provides accounting-support and proprietary software. It grew from 312 partners in 2004 to 522 in 2007 (and got 939 points.. ah I see, nominal = probably company growth rate). I'll list some more in a second.

Unfortunately the article was very sparing with its analysis regarding what makes a good franchise, which I would've found useful. The advantages listed for Subway are however:

  • Low initial investment (ca. USD 10k entry-fee; charges around 8% of profit + 3.5% advertising fee)
  • Strong international brand (28343 partners in 86 countries)
  • flexible venue-size (doesn't take up much space / can be take-away or seated)
  • simple operation (no frying, etc.)
  • large health-factor / range of ingredients
From their franchisee-brochure (pdf), I also got some more details on the help you get:
  • A 2 week training
  • Help with site selection
  • Help with restaurant design (though I think personal taste is very limited)
  • Help with equipment ordering
I have some more data about what it takes to run a good franchise, so I'll try to write more about it soon.

Back to the list. I segmented the list of franchises into what I considered their primary focus to be.
  • Consumer-services: 4 (PC-Feuerwehr; Schulerhilfe; Agentur Mary Poppins; Stage-coach)
  • Logistics: 1 (Fastway Couriers)
  • Business services: 4 (Datac; Mail Boxes etc.; Im-Press Promotions; Ultimo)
  • Food: 4 (Subway; Joey's Pizza; Blizzeria; Haagen-Dazs)
  • Health: 5 (CC Calorycoach; Bellissima; Ruck Zuck; Curves; Alkromat-Patrouille)
  • Retail: 9 (Engel & Volkers; Videotaxi; Town & Country; Harper & Fields; Mobilcom; Re/Max; Das Futterhaus; Tiroler Bauernstandl; Babyone)
  • Installation-services: 3 (Twintop; ; Isotec; Scheibenglass)
Retail is the clear leader, probably because it requires very little in specialised (read: tacit) knowledge to be passed on from the parent-company, and distribution is of stuff like electronics is much easier than say for fresh foods.

There are other underlying factors in running a good franchise, which I will write about at another point. Important to realise is that just because a company grows fast, doesn't mean that it's actually a good company. Many franchises, in my experience, suffer from a lack of shared standards of quality, which can be overcome through a number of methods, but often suffers because of the lack of a centralised control over who works for the company and how they interact with customers.

I still think my last post on how to shift tacit knowledge into the explicit kind is relevant here (also the one on the knowledge-spiral), as what we are speaking of here is really similar. A company is not just the product it sells, but the values of the people, and how to communicate that down the chain is a vital skill for successful companies and franchises alike.

The picture is, if you're wondering, meant to display a room in which you have a choice of (food-)products to sell. Eh, yeah… I'll improve someday, I promise! ;-)

I have to admit that I sometimes write just to write, or rather because in the future I will come up with ideas I would not have come up with without going through this accumulative process. One of my greatest interests is in innovation, however abstract that may sound, or put otherwise: the business of creating novel things. I'm not at all sure whether this is a subject food or retail businesses think a lot about, but I do believe that forward-looking companies, who appreciate and integrate principles of innovation, are surer to succeed than companies that don't. So here goes.

This is taken from an HBR-article (pdf-link) about Japanese firms, written in the 90s. As such, I'm not 100% sure if it is still applicable today. The core-ideas should make sense though.

excellence.jpg

I've written about the transition from tacit to explicit to tacit before, on my post regarding the design of the Ford SYN-US, where I also mentioned the knowledge-spiral, and this sort of fits with that.

Underlying conditions
There are actually some underlying conditions for the optimal diffusion of knowledge to occur, most of which are, unsurprisingly, based on how humans interact within the structure of a firm.

Create redundancy: meaning to create an environment that is based on much dialogue and communication. This leads to the situation that many people share overlapping information and can sense what others are struggling to articulate. In other words, it helps the transition from tacit to explicit knowledge.

Internal competition: Essentially the idea is that, by implementing a situation where many different teams try to get the answer from different paths, the "best" way will ultimately be found. The unpleasantness of people taking competition to seriously is, I guess, a necessary price.

Strategic rotation: I think I wrote about this before in "creating a leadership brand." This essentially involves shifting people's activities between different functions, so that they get a better grasp of what is involved in getting the project/business to work.

Free access: By sharing all company information (except for personal data), with people from all levels, you ensure that everyone communicates at the same level. This is really interesting!

Human implications
If the goal is to come from knowledge to product, this implies a number of functions within an organisation.

The "front-line:" these are people in immediate vicinity to the market. They are the first to be aware of what consumers would need. If you remember my post on the SYN-US, these were the researchers. The problem is that these people can be so immersed in information (e.g. the typical knowledge-worker today) that it's difficult to frame a viable vision.

The "vision:" these are the visionaries, who create metaphors, analogies, set goals for the company to be in in 1-15 years. They ask questions about what we are doing today and why. This vision must not be too strict however, giving employees the freedom to come up with unpredictable ideas. Most often this role is taken by senior management.

The "knowledge engineers:" Having information and having vision does not make a cake. Somebody needs to bake it. There needs to be a link between the above two types, which is fulfilled by the middle-manager, who mediates between the current reality and the future one.

Concluding thoughts
Innovation is a scary business, mainly because it is so hard to grasp and the outcome is so risky. For an alternative take on how to structure innovation in businesses, you can read a post I wrote on Tech IT Easy, regarding portfolio management and the case of the failed Foleo.

I have no intent to make up a bullshit comparison to food or retail, but I think there is a truth here, which applies to any type of business. There is a constant struggle between imagination and pragmatism, between creating beauty and making money. I titled this post "career choices," but the question is whether there really is a choice, in the sense of choosing where you fit best. For entrepreneurs, I don't think so. He or she must be both be on the frontline, have vision, and manage the process of bringing it together. A little nightmare, I'm dreaming about often.

The picture* is courtesy of Hugh McCloud, definitely someone I will mention more often on this blog in the future. What is the relationship between cartoons and food anyway? (note to self: start drawing again)

I'm taking a little breather (what again?), to prepare some longer posts, a media-related one for Tech IT Easy, and some more tech- and logistic-related ones which I plan to mirror-post on both this blog and TIE. Hopefully, I'll be done with that soon.

In the mean time, I was thinking that there are actually quite a lot of songs inspired by and named after cities. The first one that comes to mind is Jacques Brel's "Le Port d'Amsterdam" (see video at the end of this post), also more commonly known as just "Amsterdam." I don't have the time to create a world-map of songs, though quite a few come to mind, which I may write about at a later date. And I'm also thinking about themes for food-venues, and where they come from.

There is a famous café in Brussels, called "A la Mort Subite," which Jacques Brel used to frequent and which has pictures of him hanging on the wall. I think it represents, for those that care, a great tourist-attraction and a piece of history. It's hard to control that, and I'm sure the café would have ended up differently, if it wasn't for Brel.

a la mort subite.JPG

My dad told me a story about a café started in Bonn, Germany, which became a centre for political journalists in the 80s. As the interim capital of West-Germany, Bonn was important back then and it was only natural that such a place needed to exist. The café is dead now, of course, after the government moved to Berlin. Similarly, there is an artist-hangout in Dublin, one of the few authentic pubs left, and probably there since James Joyce, for all I know.

How this all happens, seems out of the control of the owners. Maybe just the right time/place, or the price being right for starving artists/journalists, who knows. Maybe there were other factors that can be "engineered." In any case, food for thought.

Enjoy the video. Le Port d'Amsterdam is incidentally also a Dutch pub in Paris.

queue.jpgIt's a fair question. Look at the picture on the right. This should be a familiar view in just about any city: a long queue for a tall latte. The picture suggests several things. One, that coffee seems to be a popular product; two, that there is space for more coffee-shops; or three, that this particular coffee-shop should perhaps improve its service.

The truth is that this trend is scary for many an existing coffee-shop owner. Because the café, in Europe, has been around for quite some time, centuries for all I know. Yet if you walk just down the street from where I took that picture at a Rotterdam coffee-shop, you'll see a line of traditional cafes, spacious and atmospheric, yet entirely empty. The fact that people would line up at this particular coffee-shop—the only Starbucks-like venue in Rotterdam—suggests that they don't care about space, about atmosphere. All they are about is convenience (if you call waiting for 5 mins. a convenience); coffee-to-go; and exotically-named and expensive coffee. What is happening here is not so much the comoditisation of coffee itself, rather the comoditisation (read: non-importance) of the coffee-selling venue.

I'm not sure if people would care whether they bought a coffee at McDonalds or the Metropole-cafe in Brussels anymore, to be honest. If the selling point is how quickly you can get the coffee and get out, what does it matter if the venue is a palace, ready to serve its customers on its hands and knees?

There are plenty of stories about "how Starbucks drove me out of business" (here's a borderline case), strangely outweighed by stories about "how Starbucks saved my life" (here's one). And with McDonalds increasingly getting ready to become a competitor to Starbucks, and other venues, like Leonidas, a Belgian chocolatier, transforming their previous chocolate-laced focus into a coffee-one, I don't think it's unnatural to be afraid. If a coffee-venue is a commodity, then how hard is it to change your existing venue? Insert some coffee-pumping machines, put a to-go sign on your door, and you're set.

So what should an entrepreneur do? Leave or fight? Yesterday's odd post about Beef, of all things, did suggest another way of looking at business: on a system-level. What was essential to the Chinese beef industry, to meet demand? Proximity to the market, amongst other factors. And what is essential to the coffee-industry? Probably not more coffee-venues, but maybe something else.

When you look at the way the coffee-industry is structured, and probably most industries, it's like a funnel: there are a number of coffee-producers (not sure how many), and a definitely greater number of coffee-venues. The latter is battling for the attention of customers. They do so by engaging in new business development opportunities, both internally (e.g. music), and externally (e.g. coffee in cans). They need to open more and more locations to maintain their air of convenience, just look at the picture above. They need to brand themselves as the number one place to go, versus all the 100s of other new and traditional venues. They need properly trained staff. They need good coffee, and other quick food-products, etc.

This would suggest following openings*:

  • marketing consultants
  • new business developers
  • new business providers
  • real-estate agents
  • customer service consultants
  • coffee-buyers
  • temp-agencies
  • quick food producers, e.g. a bakers
  • and I don't know what else.
(* disclaimer: none of the above can be taken as sensible business advice, without conducting your own study)

The point is that, while a certain, most obvious, business opportunity is shrinking, doesn't mean that there isn't a need for more business. As a (creative) entrepreneur, you just have to look outside the coffee-cup (read: box) and see if customers and coffee-venues would not be in need of other services. And perhaps I am wrong, and because it is so easy to implement a "to-go" formula, it is actually easy to start some kind of food-related venue and add the coffee on top.

Anyway, all this coffee-talk is making me thirsty for one myself.

China and its golden cow-business

western cattle company.jpgA few weeks ago, it was announced that the world's dairy prices (and anything related to that) will rise by a few percentage points. The reason being that the demand for dairy-products, most often in the form of milk-powder goods, is soaring in China.

But it's not only milk that's hot in demand, another cow-related trend is making the rounds. Surprisingly (or perhaps not), this trend was started by McDonalds-restaurants, who have been in China since 1990. And while traditionally, the use of beef was sparingly reserved for stir-fry dishes, the Mac in McDonalds has caused a drastic taste-change towards more beef-orientated dishes.

Beef-importers would be all excited, if it wasn't for one little snag: the mad cow disease, which lead to at least a few countries being banned as beef-importers to China, including the US. This certainly can't have been comfortable for them, considering they exported around $3.19 billion worth of beef in 2003, which fell to $605 million in 2004 (after the ban), and, only in 2006, did it pass the $1 billion mark to $1.63 billion.

Time Magazine writes about how Western Cattle Company found an interesting method to get around the ban, by breeding the cows in China itself. In other words, they are exporting their know-how to Chinese farmgrounds, in the city of Hohhot, China's dairy capital, which houses two of China's biggest dairy companies, Mengniu and Yili, as well as around a million cows. The Western Cattle Company is not importing cows, it buys them, fattens them up, and its off to the slaughterhouse.

The company plays both a smart and risky game. With China's beef-consumption up 31% since 2006 alone (source: USDA), and US-imports being banned, it firmly implants itself as the leading US beef-producer in China. At the same time, several similarly-aimed joint ventures have failed in the past and a large reason is both the risk of competitors and the lack of a good supporting infrastructure. As for the first, China, as with most of Asia, clearly has a reputation for being quick on the uptake and even quicker to copy. And with a lacking standard-setting authority in China, consumers will find it hard to judge whether beef comes from an authentic source or a local competitor.

Still, beef-businesses are hopeful, that as demand soars, so must complex and hard to replicate mass-production-methods. With large quantities of beef being produced comes a new problem however, that of guaranteeing the safety of the environment. Even if the cows are kept safe, there is no guarantee that the water or air is pollution-free, and that the corn being fed to cows is clear of pesticides.

Clearly, setting up shop in China does not only depend on being there quickly, but also on being able to produce mass-quanities of goods to meet the staggering demand, doing so in a fashion which makes it hard to replicate by the locals, and implementing a lobbying campaign focussed on improving the infrastructure around your production-facility. The last of which will be a nightmare for many, I'm sure.

A few days in limbo

Taking a few days off blogging. For some, easily explained reason, I'm completely burned out and unable to phrase intelligent arguments about why food and/or retail is great... or anything else for that matter.

I leave you with this video from "Lost in Translation," because that's how I feel. But don't worry, I'll be back and on fire before you know it.



The song is "Moby - Porcelain."

Ramit Sethi, on the "I Will Teach You To Be Rich" blog, writes:

"I’ve run this site for three years without ever running ads, so this is new for me. If you have any feedback, good or bad, please let me know. I take it really seriously and will reply to every single email...”
His post is about adding adverts to the side, but note the "I take [feedback] really seriously and will reply to every single email."

I think being explicit like this is really important in communication, particularly the online kind. Most people write (hate-)mail, assuming that no-one is listening. They generally write a lot, assuming that (just look at blogs, haha). Clarifying that you, the consumer, are important is vital to start a meaningful conversation, especially in an environment where it's hard to convey that kind of information.

I also like that the about-page is basically an outline of the whole blog, and that the more info-link (top-right) is the email-adress of Ramit (founder of IWTYTBR). Informative and to the point. Nice!

(Short*: This is just a short update to my last post on the topic of conversation.)

Conversation and price elasticity

barrista.jpgSomeone smart once said:

If "markets are conversations", then yeah, how you talk to people is the DNA of marketing.
Becky Carroll, from the Customers Rock! blog wrote a good piece on what customers want yesterday. I'm afraid that I'm not at the stage yet where I can clearly express what customers want (need to do more research), but something struck me as interesting. In her post she also referred to something Michele Miller wrote (me linking to something she's linking to is very metaweb, I know), namely what actions of retailers make her less price-sensitive.

One is very cool, a free return policy on shoes at NB Web Express (though they also write personalised notes to customers). This is a very interesting business-tactic, and I will certainly discuss this further, probably on Tech IT Easy, in relation to similar strategies on the web.

The two others are examples where the retailer took the time to inform the customer via conversation.

What is interesting here, is that it's very hard to place a value on conversation, yet it is incredibly valuable to people. I sometimes chastise myself for falling for another "special" deal, simply because the person selling it to me seemed so nice and personable. Which brings forth the point that it's very easy to fall into the trap of being perceived as manipulative.

The way to get around it, I think, is to put people on the store-front who are both passionate and well-informed about the product. Passion is an emotion, very hard to fake, or acquire.

For example, in the last year, I've (inadvertedly) convinced about five people to buy Macs because I love my own so much. People actually tell me I should work for Apple, because I make such good case for their products. My passion for Apple comes from spending years building and repairing PCs and digging the Windows OS, so much so that I hate it with a passion. And as soon as I entered the world of OS X, I was in love with it's simple elegance… OK, I'm not going to do a sales-pitch on you, but beware! If you ask me for support on Windows. I'll just advise you to get a Mac.

Imagine the idea of the Apple Genius in the store, or the Starbucks Barista. And then, come down from the cloud and realise that you're actually paying a premium for both of these companies' products.

That is the value of conversation, the value of passion.

The picture is of James Hoffman, during the World Barista Championship.


 

Copyright 2006| Blogger Templates by GeckoandFly modified and converted to Blogger Beta by Blogcrowds.
No part of the content or the blog may be reproduced without prior written permission.