Sounds + Food 'n' Retail

Hey, a little busy at the moment, but here's some links, I've enjoyed recently.

• Jim Donald's, former Starbucks' CEO, month by Patricia Sellers (Fortune): After listening to an interview with Frank Addante on Venture Voice, where he said "Time is a finite asset!", I looked up "time-management CEO" on Google, and this is the first thing I found. Some good tips on meetings, getting up at 6, and generally managing your time.


• Monocle design-notes by Dan Hill: I printed this 32-page (!) document out this morning, and it will probably take me a few days to digest it, but I'm already enjoying the first few pages, where he writes about the vision behind Monocle as a mag. and as an internet-publication and how the multi-disciplinary team reflected this.


• 10 Ways to Improve Your Programming Productivity by Matt Moore: I love productivity-stuff, and think most of these tips apply to any activity really.


• The 7th Deadly Claim — “Best Value” by Jeff Sexton (Future Now): "The problem for most companies is that they don’t do BOTH well: Either they don’t do enough to persuade customers of the product’s value, or they price their high-quality item even higher than what they’ve been able to substantiate to the market."


• How Facebook Is Like Ikea by Tim Harford (Slate): Considering I wrote about something related a few months ago…

The picture is courtesy of shoutwire.com

Yesterday, I read an HBR-article by Roger Martin, on his book "The opposable mind", the ability for people to think contradicting thoughts and act on them at the same time (this may sound familiar, if you've ever read 1984).

My first instinct was to throw it out. I didn't like that he used the first few paragraphs to discredit other thinkers on leadership; and I didn't find his proposed method for coming up with a business-model particularly compatible with the general idea of "chaos" that he was proposing (more on that later). I even wrote an impassioned article about it, but waited a day before publishing it (no April fools from me this year). None of my criticism was directed at his core-concept, btw., I do believe in the ability to think contradicting thoughts, and act on them also.

After a night of sleep, I came to the conclusion that Martin's article was effective. Because it required me to think the article had faulty qualities, while the core-idea was right. And that was the very idea of 'double think'! Then I started thinking, what other areas could you apply this to? Pick one!

• My perception of the internet is that it's indiscriminately linear—we forget things the day after they are published. So how could you make it less linear?
• The perception of food is that it doesn't do well in e-commerce—they perish and people value touch. So how can you sell food via the internet?
• My perception of restaurants is that it requires a genius cook, who is both expensive and hard to handle. So how can you start a restaurant without such an individual, or better yet, how can you start a restaurant with one?

Essentially, 'double think' translates into a belief that the impossible can be made possible; all it requires is faith and homework!

Martin's method for coming up a business-model looks like this:

In other words, you need to identify your core-customers, understand that their decision-process is not linear; understand the equally multi-dimensional architecture of your business, industry, and economy; and come out with a product/service that meets these opportunities.

Whether this is the best way to come up with an impossible idea, I'm not sure. But it seems like a logical thing to do after you come up with an idea and are looking to place it within a commercial context.

He uses one example throughout the article, that of Red Hat Linux, which, I completely agree, is one of the best examples to choose. It is free software, but it's a commercial success, which goes against conventional thinking, at least at that time. And instead of just acting as a commodity or becoming proprietary charge-ware, they decided to make a services-company out of it, and a market-leader at that. So how would you turn your open-source product into a commercial success? If that isn't 'double think', I don't know what is.

It's Sunday again, and I have a nice big collection of links today: on running a cheap yet effective start-up; on why brands exist; on creating happy places for yourself and employees; on the business of children; and finally on a whole load of neuroscience. The aesthetically pleasing picture of Marilyn links to a particularly disgusting image of a "healthy" burger—my initial choice of illustration. You have been warned.

Previous link-discussions can be found here.

Link 1: the obvious one - Seriously, unless you actually used this weekend to, eh, have a life, you'll have noticed the firestorm started by Jason Calicanis, continued with Duncan Riley, tempered by Jason Fried, and the final words of wisdom by Micheal Arrington. Crazy, how opinionated these entrepreneurs/bloggers are, right? Yeah, right. A good read if you're (thinking about) running your own business, with like lazy employees and expensive tables.

Link 2: A brief history of brands - well actually a blurb about a book. I like:

"Branding became necessary when large-scale economies started mass-producing commodities such as alcoholic drinks, cosmetics and textiles. Ancient societies not only imposed strict forms of quality control over these commodities, but as today they needed to convey value to the consumer. Wengrow finds that commodities in any complex, large society needs to pass through a "nexus of authenticity.""

Link 3: the architecture of happiness -

"There are three concepts central to the “yoga of the home”…. The first rule is to align your schedule with universal schedules by getting up and going to bed with the sun. “We try to keep lightweight and low furnishings in the north and east — to create an openness — so that we can draw in the healthy early morning sun,” says Cox. Heavier, taller furniture goes in the south and west. Second is bringing nature indoors — plants, natural fibers, no synthetics. “Vastu is the first intentionally green science,” Cox says. And last, vastu asks us to “celebrate who we are and what we love” by surrounding ourselves with things that have meaning. “When someone enters our living room and we’re not in the room yet, we want this guest to get a sense of who we are,” she says. “The room speaks of us.”"

I've been thinking about this topic and the general issue of creating happy places for a while. A worthwhile read is also Frank Addante, a serial entrepreneur, on choosing the office-space for his start-up: link 1 and 2.

Link 4: building a toy e-commerce store - since I linked to Lego last time this seemed appropriate. In all seriousness however, I think the subscription-model + children is a cash-cow; kids always want more stuff and have old stuff to get rid off. Applicable not just for toys, but clothing and furniture as well.

Link 5: Some neuroscientific stuff - ignorant shoppers are blissful, though information that stimulates the imagination still works (as do quality-labels as they allow you to charge a premium); body-language works for consumers, in other words an in-store-television-advert or one of those annoyingly friendly taster-people in supermarkets, should cause people to buy more food. A little bird tells me this applies more to the US than the French; 15% of women don't like perfume, which is interesting I think as I'm not a big fan either; and Art-adverts work, enough said. And yes, EurekAlert is my new favourite site.

Time for those Sunday-links again. Today, I'll discuss the cocktail that is smell and how some things just don't mix; how green is not all it's cut out to be; a possible shift of power from retail to farming (or not); how lego came to be and where it is going; and how to sell me online shopping.

Previous link-discussions can be found here and my bookmarks here.

Link 1: Starbucks Admits Sensory Mistake - These are the kinds of stories that make me I like the NeuroscienceMarketing-blog. If you follow the science-section of the Economist, you'll know that neuroscience is a big deal anyway. In any case, this story is about how Starbucks designs atmosphere, largely influenced by smells. Apparently, smell of heating egg and cheese sandwiches doesn't mix well with the coffee aroma.

Link 2: False 'Green' Ads Draw Global Scrutiny - Two problems linked to green adverts these days, I think. One is that consumers are growing tired of it. And two is that, as this story shows, just because companies say they are, doesn't mean they are. I like the Norwegian approach to this. They ban green adverts by products that cause more problems, no matter how innovative they are (about hiding it).

Link 3: Farmers Wonder if Boom In Grain Prices Is a Bubble That food-prices are rising is an inescapable fact. But it also presents an interesting shift in the status quo. In the food-chain of the grocery-business, farmers are pretty much at the bottom. Now, even though their own costs are increasing also, they can charge more on top of it and decrease retailers' margins. Time will tell if this is something that will be acceptable for a long time. Certain signals very much suggest to me that farmers may be in the right position to cut out the middle-man and become retailers themselves.

Link 4: The Making of…a LEGO - I'm still a kid at heart, so I love anything to do with games and toys. My parents never bought me much lego as a child, which I regret as I hear it breeds geniuses. In essentially two pages, the article describes how lego came to be, what makes it so perfect, and what the company's strategy is. I was always impressed with the brand-extensions they did with the games, the robots, and the theme-park. A company to follow.

Link 5: Online shopping at Hema.nl - I've linked to this on twitter before, but it brought another smile to my face watching it again. Just when I think that online-shopping has no future, innovative uses of technology surprise me again.

One of the stories, I covered last week in my links, uncovered an interesting statistic. Only about 3% of retail sales in the US happens online. I don't think these stats are at all coincidental. While I see a bright future ahead for the online retail of media-products, I find that what the internet cannot provide, is the "closeness," that is sometimes needed for evaluating certain types of goods, like food and clothing. I have commented on this before, implicitly, with a post on the web as a third place, and about the lack of cohesion that Facebook provides.

At the same time, as The New Yorker story reports, what the internet has changed is how we shop; it is much easier to research and comparison-shop than it was before the internet-days. A survey by Accenture found that ca. 66% of those surveyed compared products online, and another study showed that the internet played a significant role with ca. 75% of electronics purchases.

IInnovate has an interesting podcast interview with Scott Dunlap, CEO of NearbyNow, which has come up with an interesting way to exploit the informational advantages of the internet and mash that with the qualities of physical shopping. Following short video shows how their service works:



Clearly technology has evolved a lot in the last few years, making this possible. NearbyNow works via the web and via mobile. I'm not sure if they are using any location-tracking & matching services, but certainly they are heading in that direction. On the retailers' side, there is plenty of technology that makes this possible also. Electronic inventory and point of sale systems allow both for the checking of stock-levels and for consumers to reserve items to be picked up and tried on at a later date.

One issue that entered my mind, is that of efficiency. The way NearbyNow operates is through malls in the US, most of which are, as I found out, owned by 6 major companies across the nation. US's scale-economies win again! In Europe, the situation appears a little different. Culturally, linguistically, technologically, and legally, it is a much more fragmented market, with far fewer malls also, and that may make it difficult for a unified service like this to operate as efficiently as it would in the US.

There is also the issue of too much transparency, which is worrying to some retailers, and addressed in the podcast-interview. But what does seem certain is that this is exactly the type of service that consumers value, and as such one that any consumer-centric business should encourage.

Will a service like this ever replace shopping in its entirety? No, I'm essentially betting my future that there are plenty of qualities *real* environments will continue to offer over virtual ones. But there is no reason, none at all, to try to integrate the good qualities that the web does possess—information at your fingertips—as elegantly and effectively as possible into those experiences.

One of the things I do on this blog is deciding on the potential of industry-segments, ranging from farming to coffee-shops, and from grocery to other types of retail. On Tech IT Easy I've previously expressed my scepticism at media (in which I include text, art, audio, video, and gaming), especially in terms of business-models, which I think that segment lacks.

Equally so, I see fairly little space for it in the physical retail segment, simply because it is so much more convenient to purchase and consume it via digital means. The PC (and other tech-gadgets) have essentially become the hub for all things media, and creating barriers to that experience just leads consumers to pursue more convenient ways of experiencing that media. That search for convenience is something that I've also approached in a previous post on this blog.

Let's look at some media-types and how they are being sold online.

For Video - there's iTunes, consoles, and set-top boxes that are controlled by media-producers. In any case, the power-differentials between producers and intermediaries is very unbalanced and it isn't a nice segment to enter as a retailer. Also, let's not forget the free alternatives: YouTube et. al and piracy.

For Audio - again iTunes, Rhapsody, and Amazon MP3 Store, but also smaller digital store for independent artists, like CD-Baby (which operates through iTunes also). Let us again not forget piracy and the fact that much of music is being produced through digital means and it makes sense to organise distribution that way also.

For text - there's again online outlets like Amazon for eBooks (Kindle) and Zinio for magazines. And let's not forget that 99% of text-based media is viewable for free online. Still, admittedly, electronic devices for consumption are not yet able to compete with paper-based methods, at least where price is concerned. Also Audible should not be forgotten as a source for audio-books, recently bought up by Amazon and partially distributed through iTunes again.

For Gaming - I'm not too familiar with the online market for this one. Even so, there's Steam, a digital distribution system by Valve, a platform which they recently opened up for use by other game-publishers. There's also plenty of smaller games being distributed through Xbox-live, the future Playstation Home, and of course the internet.

Finally, Art - here the situation is more complex, while on the other hand being relatively simple. It is complex for artists like my mother, who paints, and conducts business on a personal level by interacting with her customers. On the other hand, there's photography and digital art, arguably the evolution of traditional art, which is easy (for some) to produce digitally and distribute online. I suppose every industry has that friction between the traditional way of doing things and "the new way."

All in all, I don't see media as a big cash-cow for physical retail. I like to think that, because production and distribution becomes cheaper, that its cost will eventually fall to a very low price, allowing for it to be included as an added-value component in the service-proposition of physical retail-outlets (to which I also include restaurants, etc.). I also like to think that creating environments that make the consumption of media a comfortable process (e.g. cinemas) also has some potential.

But my outlook for selling media as a product, something that could easily be sold digitally, remains bleak. Please let me know if there are arguments against my point of view, as I'm here to learn.

I'm a little distracted from blogging, I'm sorry. My current activities include a last-minute scrabble-play of my thesis, to make it a more logical read, and applying for jobs. And, not unsurprisingly, I'm having some writer's block as a result.

My post from a few weeks ago, about my anonymous friend, who's running a lifestyle-orientated business in a developing market, certainly opened my eyes to this area of the market.

Today, I'll talk about another company, Milner (cheese). There was an interesting article in Dutch marketing-magazine, Tijdschrift voor Marketing, on Milner's positioning-strategy from mass to lifestyle, which I'll discuss now, and which also lead to a post on Tech IT Easy about social networks as a strategic marketing-tool.

Milner = FMCG
Milner is considered a FMCG-company, that's fast-moving consumer goods, and falls into segment 2 on my food-industry map from last week. As I observed there also, this segment is usually the driver, if not always the conductor, of consumer-marketing.

The company is currently strongly present within the health-segment for cheese in the Netherlands, with over 50% market-share. This segment is also seeing between 60-70% growth from cheeses in general.

One thing that is clear for FMCGs is that margins are generally low (generally under 10%), competition is high, and as I made clear in my post on Tech IT Easy, features can easily be emulated by other companies.

Generating complex competitive advantages
The differentiating factor is the relationship the brand has with the consumer and vice versa. A brand that is designed for a lifestyle will generally have a much higher emotional value to consumers, than one based on features like cost or taste alone.

The logical conclusion is that those companies with deeper relationships to their customers will enjoy a higher competitive advantages over companies that do not focus on these relationships. And the complex nature of relationship is one that is difficult to emulate, hence giving companies a sustainable lead in the market.

But how to do that?

Paradigm-shift towards lifestyle
A lifestyle-product can be defined as a product that is built around the context of a certain group of consumers, resulting in an emotional value, as well as one based on features. This also has implications on the product-marketing strategies that a lifestyle-orientated company undertakes. As you may remember, the company my friend operates, still spends a considerable amount on marketing-activities after 2 years.

The theory that Milner cheese employs goes as follows. A great pain for food is health—which is really just an after-effect of the lifestyle people are leading. People are constantly looking for answers, so-called lifehacks, or more diet and exercise-related advice, all to regain power over their lives, minds, and bodies.

The key-issue is how to reach these customers. By addressing the pain that customers are feeling, by helping them live a healthier life, Milner is engaging in a relationship with its customers.

How does it do that?

How the internet fits into this
Traditionally, internet-marketing expenditure for FMCGs is quite low, around the 2% mark. Milner's budget currently assigns 10-15% to internet-marketing. It is able to do so, because it is already relatively well-positioned in terms of its brand and communication, so it feels more confident to experiment with new mediums.

As mentioned in my post on the food-industry-map, marketing to consumers is the responsibility of the consumer-goods-segment, however the degree that this activity is outsourced, depends on the amount of resources available to the company and the level of complexity of the activity. Arguably, both the novelty of internet-marketing to Milner, and particularly engaging into a relationship with consumers, make marketing fairly complex affair and the company did this via a third party, Advance, an interactive marking agency.

Advance set up a site called Je Beste Dag (translated: your best day), which advises visitors on how to have better days, based on a questionnaire they fill out. The first stage of the strategy is to build up a large mass of consumers that give out their email-adresses for further advice. Currently, there's 1 million people connected to the site. The second stage is to deepen that relationship, by encouraging return-visits and ultimately start a conversation.

It's both a time- and cost-consuming process for Milner. Essentially it is the sole sponsor of the campaign and has been running this campaign for nearly half a year no, without seeing any types of new product-developments yet. It is however working together with (other) marketing-agencies to develop its brands, which includes the design, positioning, quality, etc., as well as new product developments.

The interesting part of the whole process is that the majority of visitors already knows Milner, before even visiting the site. In other words, this clearly is an interactive marketing-campaign, which deepens the relationship between company and customer beyond the brand. Also, while the segment that Milner markets to via traditional channels, usually falls in the age-groups of 40-60, the age-group it is reaching now falls between 25-45, 60% of which don't yet have children.

Final thoughts
It is uncertain what exactly will come out of this. Milner is treating their internet-campaign as just another marketing-channel and holding Advance to targets it must meet. Which also allows them to measure its effectiveness. However, with a million young people connected to the site, and the communication-channels open, my gut tells me that they will be pretty happy.

The conversational aspects that the internet provides are certainly no surprise to the regular internet-user, however many web-companies are finding it difficult to generate sustainable business-models (e.g. Twitter / Facebook). As I made clear in my post on Tech IT Easy, I think these kinds of marketing-campaigns open up some possibilities there.

I'm writing this post for two reasons. One is that I am incredibly interested in the subject of leadership and try to learn about it in whatever way I can. A second reason is that, even though my main focus on my blog is food and retail, what Matthias calls "old economy" (thanks Matthias!), I try to also be very aware of "the past, present, and future of this industry," and (internet-)technology plays very much a part in the future of retail.

In terms of leadership, Amazon's Jeff Bezos is a good person to study—a man who created perhaps the most iconic garage-based venture since Apple, and who managed to not only take his company, Amazon, public, but also stay on as CEO until now, something that is rare amongst founders. In terms of retail, Amazon is itself great company to study. It has transformed the book-industry, and is doing amazing work in terms of providing infrastructure for web-based infrastructure. And, even though they are not as yet selling any books in the Netherlands. I'm hoping that SEPA, to be introduced next year, will change that.

Before I continue, this is not really a Kindle-related post. While we're on the subject, however, let me say that I'm a big fan of ebook-readers. At the same time, there are certain advantages to paper-reading, which I'm especially experiencing since I started my own blog—namely that I can write on them. I know I can take notes on Kindle, but it's not the same. And I think the price-point of either the device ($400), or the books (a $10 intro-price), or both, is just too high for something that can be produced in mass and has no printing-, and hardly any distribution-costs attached to it.

Speaking of notes, I took some while reading a nice HBR-interview with Jeff Bezos, in which he discusses his take on strategy, innovation, customers, ... and not Kindle. I'll share these, and my thoughts on them, with you now.

Innovation at Amazon
There are generally two types of innovation, the radical kind and the incremental (or process) kind. My general belief is that, while retail on the internet radically transformed the way we shop, and will continue to do so, ultimately it is an evolution in process. Instead of giving our credit-card to the clerk, we type in a number behind a screen, etc. etc. And, since the internet has taken off, this kind of process-innovation has become much more prevalent. Now, instead of clicking 5 times to buy a product, I can click once: yay! Before you ask, "so what is 'radical' innovation to you?" I'll just say: "Space, flying car, people living under water, that kind of stuff. So get busy!"

Amazon has of course just announced the Kindle, which could be interpreted as an innovative move. But again, what will make this innovation shine, if it does, is Amazon's incredible process-strength, namely that they can deliver the device to nearly every household in the Western world at beautiful economies of scale. For now, these are paying of for Amazon, but knowing their business-model, it's pretty certain that this will pay off for consumer too… eventually.

What I like about Amazon (and got from the interview) are that they have an incredible experiment-based culture and generally take a long-term view—both rare with public companies. In terms of experiments, these are encouraged on a company-wide level, and due to the nature of experiments, are both had to predict and not unknown to fail. One example of an experiment which became an enormous, but unplanned, success, is the Amazon-associates program.

As far as time-frame is concerned, innovations at Amazon usually take 5-7 years before they make any meaningful impact on the company's economic situation. This is a big risk and is offset in a number of ways. One is to minimise the costs of experiments. Amazon has a web lab just for that purpose, which undertakes these experiments on a massive scale, collects real usage data on what works best, and is constantly trying to push the costs of these experiments down. Again, taking a long-term view, it helps when building innovation on things that won't change in the next 5-10 years. For Amazon, these are basic customer preferences, such as: choice, low prices, and fast delivery (hello Kindle?).

There are three more core-attitudes, which I think have a big impact on the way innovation takes shape at Amazon. One is, to always ask the question "why not?" According to Bezos, the biggest mistakes at Amazon come from not doing something, rather than taking the risk. And asking "why not?" instead of "why should we do it?" opens up a whole other universe of possibilities. Similarly, there are lot of difficult decisions that Amazon has had to make over the years, such as allowing reviews on their site. The vital question there was "what is better for the customer?" Last, but not least, I like this line in regards to making experiments a success: "Be stubborn on the vision, and flexible on the details."

Strategy at Amazon
The other part of innovation is execution, some of which was already discussed above. Much of decision-making comes out of the way a corporate culture is shaped. Some cultures are hierarchical, some are flat, some are individualistic, some are collective. From my understanding of things, Amazon has both a departmental structure (which would suggest some hierarchy) and takes decisions collectively. Both senior management and departmental management have mechanisms through which this collectivity manifests itself. Seniors meet once a week for four hours and once-twice a year for a two-day meeting. Homework is assigned before and the latter type of meeting deals mostly with long-term issues. Department-management has a similar system.

Some more general characteristics of corporate culture were mentioned in the interview, namely that they can be incredibly stable over time, and are self-perpetuating in the sense that they attract people who like that culture (and repel those that don't). While a company's corporate culture is probably the hardest to replicate, and can thus be a tremendous competitive advantage, the rigidity of the culture can both mean that there are limits to what it can do (and should do), and it can sometimes hamper innovation during turbulent times. At the same time, a culture can by nature be open to change, which should overcome some rigidity.

A few weeks ago, on my blog, I wrote a post on Porter's five forces in which I outlined what I think matters in strategy, but also that it pays off to stay close to customers. Jeff Bezos shares a similar view-point, for a number of reasons. One, customer-needs change more slowly than a lot of other things, e.g. tech; and two, following the competition doesn't work well in fast-changing environments, e.g. tech. A third point is that being too competitor-focussed can result in a passive attitude once a certain dominance has been reached in an industry. You can argue about this either way, but when you look at certain large companies (no names), this "hey, we won, so why innovate?"-attitude, is definitely one that is recognisable.

One way that Amazon tries to stay close to customer-needs is by enforcing rotation. Every new employee has to spend time in their fulfilment-centres with the first year, every two years, employees have to do two days of customer service, and everyone has to be able to work in a call-centre. That includes Jeff Bezos.

Finally, he also had some advice as how to survive the transition from the founder of a start-up, to the CEO of a multinational, public company. It's simple (yeah right!). When you start, the main question is "How?"; as you grow, the question is "What?"; and when you're huge, the question becomes "Who?" There you go, the secret to being the leader of a big company.

Final thoughts
One of the weaknesses of secondary information, such as what came from this interview, is that I (and you) have to trust everything that is in the article. I can't ask follow-up questions and can't tell, by body-language, tone, or otherwise, whether some points are more important than others, or more true than others. Therefore I try to be careful to treat each piece of information as part of a greater whole. In other words, I may come across information that conflicts with what Bezos said in the interview. If it's noteworthy, I'll write a new post about it. One piece of important data, released perhaps a month after the interview, is the release of Kindle, which, as mentioned, I am sceptical of.

Two things I learned from the interview is that innovation takes time, especially to make it economically viable, for both the business and the consumer. In my opinion Kindle, in order to fit the philosophy of Amazon (which is not Apple after-all), has to drop in price, as do the books. It's a matter of ethics, of being customer-focussed, and of being a process-innovator. I can only assume, that over the next years, this is exactly what will happen.

The other thing I learned is to constantly be open to innovation that can benefit the customer. This point has been made many times in the words above, yet it bears repeating. A company can be incredibly rigid, the bigger it becomes. Competition can become incredibly threatening. Technology can change from one day to the next. But what doesn't change is that customers will pay you for products that make them happy. And I fear that a lot, a lot of businesses have forgotten that as they became big, arrogant, and focussed on anything but what customers want.

Finally, while I may be focussed on "old economy" topics, I think Amazon teaches some interesting lessons on how to remain high-touch in a high-tech environment. As such, this certainly won't be the last time I touch upon the topic of technology in retail.

Further reading
If you're interested in the topic of leadership, you mean also want to check out a list of free podcast-interviews with a number of CEOs, ranging from Google's Eric Schmidt to, indeed, Jeff Bezos, which I posted on Tech IT Easy a few months ago. Worth a listen. Oh, and don't forget to check out the original article on HBR.

This article is mirror-posted on Tech IT Easy.

Let's start with a brief disclaimer: I am not a lawyer, fiscal expert, EU expert, or anything that can constitute an authority in matters of European legislation. I have linked to relevant data at the end of this article, which I strongly encourage interested readers to check out.

SEPA, meaning “Single Euro Payments Area,” is an initiative, due to be launched in 2008 and fully implemented by 2010, but has been in the planning ever since the EURO-currency was unleashed upon the member-countries in 2002.

Essentially, while the EURO brought some transparency to consumers, banks, and businesses on a cash-level, SEPA is meant to be the non-cash equivalent, introducing a common standard of non-cash transfers between banks, businesses, and consumers across the EU-region. This is facilitated by a standard referred to as "straight-through processing" (STP), which allows for an automated processing of payments between banks.

Technically speaking, this means that payment-messages between parties will contain certain data-elements that include information on the amount, bank account details and the names of the sender and receiver, and is exchanged between banks through a common ISO-standard, called: UNIFI (ISO 20022) XML.

All of this mumbo-jumbo is governed by the European Payments Council (EPC) (see pic below), which is the decision making and coordination body of the European banking industry in relation to payments, and consists of 67 members, including banks and banking associations.


(click picture for more detail)

Benefits to consumers and businesses
These are manifold. Essentially, a harmonised standard allows consumers to easily, transparently, and securely make payments across borders, which also means that consumers don't need to open separate banks to handle their business in different European countries. In addition to this, it introduces a common standard for pension-transfers across banks (and I assume countries), and greatly increases the choice of financial service providers to consumers.

For businesses, the benefits are far more numerous. Essentially, having shared standards allows them to easily accept and process payments from any card from a SEPA-bank. National borders no longer need to be a barrier to growth and businesses can have a more direct financial relationship with consumers across the Euro-region. Similarly, B2B-transactions across borders enjoy similar "upgrades" and will require much less overhead, be more transparent, secure, and quicker than before.

For a more exhaustive list of changes, please check the EPC-report on Making SEPA a reality!

Final thoughts
While this all sounds very rosy-coloured, I expect that the key-factor will be marketing, i.e. communication about what SEPA is and how to use it. So far, there has been very little news on SEPA, even though it is due to be launched in less than 3 months from now. Similarly, a status-report by the EPC (pdf) points out that there has been very little communication from public authorities about their intention of using SEPA products, and another Dutch article, from a few days ago, reports that 92% of Dutch business-owners are not yet prepared for SEPA.

That said, if anything was needed after the EURO was introduced, it was increased transparency of financial services, and preferably on a pan-European level. Both the fact that businesses and consumers can run their financial affairs from a single bank in a single country, and that both also have more choice of service providers, is a huge improvement. For the latter, I hope the increased competition will lead to more efficient financial services. And for the first, I hope it will lead to more businesses expanding their operations across national borders, and more migration by European citizens across the continent.

Of course, much remains to be done before we can truly call Europe one "country," including a more harmonised patenting-standard, and of course overcoming many of the legal and cultural barriers which continue to exist. But the SEPA, if all goes according to plan, is a significant step ahead towards making this a reality.

Some helpful links

• The European Central Bank on SEPA
• The European Payments Council on SEPA
• EPC-report on Making SEPA a reality (very good to read!)
• Latest SEPA status-report

Any feedback on possible mistakes in my interpretation of the facts is strongly encouraged and appreciated!

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.)

The 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.

First of all, welcome to week 40 (or 39, depending on where you are). I'm feeling a little lazy to write today, probably because I need to re-enforce the rule of not writing on the weekends...

Part of customer-focus when blogging, is certainly "who are you writing for?" Fidji Simo, a much better blogger than me and a friend, asks the question on her blog and gets some great answers. I need to ask the question on mine at some point. If you treat the world as specialists, then who you're writing for becomes what you're writing about. I think I'm writing from the stance of an entrepreneur-to-be and an outsider to the world of FNR + business, doing research. So I write about a broad range of topics, and perhaps there are some like-minded people out there, perhaps not.

As I grow more experienced, starting a career in this field, starting a business, constantly keeping in mind the quote by Annie Dillard..

“If we listened to our intellect, we’d never have a love affair. We’d never have a friendship. We’d never go into business, because we’d be too cynical. Well, that’s nonsense. You’ve got to jump off cliffs all the time and build your wings on the way down.”

.. I expect to focus on more practical things.



So that is my "focus," but maybe I forgot the "customer" along the way? Note to self: don't make the same mistake when starting an actual business. Note to self 2: keep your sense of humour.

On HBR
So let's get back to Harvard Business Review, whose words I've been digesting slowly, but surely, over the last few months. There's a couple of things I appreciate about the journal, as a customer, and the most important one is their use of an editors' preview podcast to discuss next month's issue. Why I like that is because it saves me from going to the news-stand and leafing through it—however pleasurable that may be. BusinessWeek does something similar, as do other weekly/monthly magazines, I'm sure. But I really appreciate this from any news-vendor, because it's free, easily digestible, and is a great service.

And second, I appreciate their free content on the site; while it's not quite as valuable to me their magazine publication, it enforces the image that HBR is a quality-brand, worth paying € 15 for per issue.

By HBR
There have of course been some great words by HBR on the issue of customer-focus. As a matter of fact, I've just begun reading their special—OnPoint—issue on the lengthy topic of: "Staying focused on your customers, as you grow your business." I have only had time to read their editorial so far, but that already asks some great questions:

• What do customers really value in their relationship with you?
• How do they perceive the basic action of placing an order with you?
• Do you see total cost (in time/money) from their perspective?
• Do you understand the buying process of your most profitable customers?
• In designing new services, features, products, do you take a customer-centric stance?
• Can you clearly differentiate your products from those of competitors, in your customers eyes?
• How well do you learn about your customers' needs in the past/present/future? How wide is that learning shared, does it affect decision making?
• Is your customer strategy targeted enough towards acquiring, building a relationship with, and retaining them?

This has already given me plenty of food for thought today, and I hope it did the same for you!

The picture is courtesy of Solarseven on Stockxpert, but I was made aware of it via customersrock.wordpress.com.

Last Sunday, I finally got around to watching the F8 Facebook developers-keynote, which was released in May this year (Thanks Jeremy). Similarly, this morning I got to read the transcript of Mark Zuckerberg's, the CEO of Facebook, keynote and Q&A on the Techcrunch40 event. Both made quite an impression to me, enough, I'm sure, to warrant a discussion (not started by me) on Tech IT Easy, I hope.

During F8, Mark presented Facebook as combination of three consideration for developers:

• Deep Integration
• Mass Distribution
• New Opportunity

Ignoring the marketing-speak and the fact that Facebook is a software, there are many parallels to be found in successful retailing.

Deep Integration: Mark speaks of code, I speak of the source-code that a retail-outlet is made of, it's internal design, stock, packaging, marketing, etc. If you want to optimise the situation for both you and non-store brands, you should find a way to deeply integrate their products into your assortment, and adapt your marketing and design accordingly. There are subtle strategic considerations why this may not always be happening, mainly related to maintaining a power-balance between retailers and suppliers, but that is a conversation for another day.

Mass Distribution: This is based on both the number of visitors your store has and the number of outlets spread regionally, nationally, or worldwide. The more eyeballs you can offer third parties, the more attractive your store becomes to their presence.

New Opportunity: Mark speaks about revenue, offering application-developers the ability to integrate their own advertising and transaction-possibilities and to collect 100% of those returns. This would be very un-characteristic for "real-world" retailers, I would imagine. For one, their cost-structure is very different from Facebook. Renting out space to applications on Facebook is fairly cost-free, ignoring bandwidth, and would cost some real dollars in the real world.

In the software-world, there is the interesting concept of an API, an application programming interface. Facebook released one for its developers, and while they have the full freedom (within norms) to develop applications, there is still an underlying framework of how to build it and in what fashion to present it to users.

I'm just hypothesising, but this would be one way of integrating similar philosophies into food and retail places. Think about the way values are passed down to subsidiaries or franchises. By bringing a business to a level that much can be rationalised into training- and franchisee-manuals, you can apply similar thinking to 3rd-party's in-store activities.

One such example, at least it seemed that way, is a Naked Chef stand, which I came across in a Dutch department-store the other day.



As you can see on the picture above (I hope), the stand is located in the middle of the kitchen-section of the store. It features a combination of books by the naked chef, wines and other ingredients, and on the back, high quality cooking-utensils.

This is the kind of partnership that does well, I think, selling products from both parties in a symbiotic fashion.

The other big online retail-platform is of course eBay, and since I read The Perfect Store, perhaps I'll write more on that in the future.

It's funny how there are actually a lot of similarities between software design and architecture, and venue design and architecture. When building code, you decide on a path which may be difficult to break in the future. And the same when building or inhabiting a building.

And when designing software, you have to do so with the user in mind, or at least you should do so. It is the same with designing your venue for optimal interaction.

A site, I've recently been reading for general design-thoughts is GUUUI.com. It is mainly focussed on websites and designing for interaction, but I find a lot of similarities to the stuff I'm thinking about. Useful are for instance:

• how to structure sites with lots of content: which applies to stores with lots and lots of content as well. Unsurprisingly, it involves departments.

and the amusing:

• how to cure banner blindness: which has consequences on ad-design in the real world as well. Apparently plain text, faces, and cleavage / other "private" body-parts work well.

The use case
The costs of errors are great in both software and real-world venue design, though much greater, at least financially, for the latter. Still, it can very damaging to any business—soft or hard—to start of ill-designed, leading to bad reviews, and worse, scare of customers after the first impression. So it greatly helps to be prepared, even have planned out scenarios on paper or software. That's where use cases come in.

Wikipedia defines a use case as:
"describing the interaction between a primary actor—the initiator of the interaction—and the system itself, represented as a sequence of simple steps. Actors are something or someone which exist outside the system under study, and who (or which) take part in a sequence of activities in a dialogue with the system, to achieve some goal: they may be end users, other systems, or hardware devices. Each use case is a complete series of events, from the point of view of the actor."

Makes a lot of sense in in-store environments as well, doesn't it. You are designing your store as a system of parts—the room, the colours, the products, the placement, the people, the transaction, the exit, etc. And the customer / visitor is the actor.

In software, you would probably use something like Visio on Windows and OmniGraffle on the Mac to paint out scenarios. And I checked, OmniGraffle does in fact provide stencils for office-layouts, which could easily be adapted to store-enviroments. And Graffletopia.com, a site dedicated to user-created stencils, has a section on architecture as well!

Nice to know that tech and real life are not so different after all.

The picture is courtesy of simonyi

I don't like the principle of re-blogs, but sometimes, no many times, people say smarter stuff than I do (in this case, John Gruber), so here goes.

NBC, in a public statement, said following noteworthy things:

In addition, we asked Apple to take concrete steps to protect content from piracy, since it is estimated that the typical iPod contains a significant amount of illegally downloaded material.

and

NBC Universal also wants iTunes to stiffen anti-piracy provisions so computer users would not have easy access to illegal downloads.

Gruber's response:

This is straight out of the music industry’s playbook: assume your customers are criminals and treat them with contempt.

and

It Is Estimated That NBC Could Not Have Screwed This iTunes Thing Up Any Worse.

No, I don't highlight this because I hang on everyone of Gruber's words, far from it, but this does point out a core-problem in the supplier-retail relationship, in my opinion. That of disassociation.

Yes, their estimation of pirated content on the iPod is probably an accurate one, but what business is it of theirs? It would be similar to me entering a record-store and having to submit to a strip-search for "estimated" pirated content. It is disrespectful and any customer-focussed company would know that.

However, NBC is not a customer-focussed company. It is a supplier of content, which means it is a business-2-business company. It acts merely as a legal entity connecting the creators, e.g. the lovely Tina Fey from 30 Rock (who is clearly a human-being), to the owners of iTunes, Apple. They, in turn, sell their products to people, which makes them more customer-focussed (though online selling isn't exactly the same as being in the same room with your customers).

It is my personal opinion that people, and businesses, are the way they are, because of experience... at least as far as people-interaction is concerned (case in point: "the rise of tech is killing the art of chat?"). The more a business interacts with its customers, the human kind, the more it will start to see their point of view. Right now, NBC only understands contracts, and perhaps the creators point of view. But it does not seem to understand that people would be perfectly happy to buy their products, as long as the relationship is based on good value for them, which includes both respect and a fair price.

The way to get around this is not simple market-research. It requires a constant stream of information back to NBC, a barometer of moods, trends, and plain-and-simple information, which gives NBC an idea of where it stands. And of course that won't prevent mistakes. But it will lead to more mistake-fixing instead of making public statements where they call all of us iPod-owners pirates. For one method on how to accomplish this, read my blogpost about Proctor & Gamble's take on shopper marketing.

To a degree, it is understandable why this does not happen. It is not efficient, unless NBC has control over the sales-channel. And it is not efficient for NBC to enter sales, from their perspective, I think. But that is no excuse! If they don't understand a business, they must either gain the necessary knowledge to operate well in it, or stay out of the kitchen! [/end rant]

Btw, how does not having their content in a legal outlet, lessen the risk of piracy? Wouldn't that result in more piracy?