Sounds + Food 'n' Retail

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.

As some readers may know, I've both read and commented on Malcolm Gladwell's Tipping Point, and found it an interesting book to think about the nature of communities and how certain individuals or groups of them are more influential in passing on ideas than others. That said, while I believe that such "influencers" exist, also from personal experience, I know fairly little about the science of it.

Similarly, Duncan Watts a research scientist at Columbia, working at Yahoo, questioned that principle, asserting that news travels fast, through whatever type of individual. I have no doubt that Yahoo has amassed vast amount of data on what source of del.icio.us bookmarks receive the most clicks, etc., and that the nature of the internet allows even the lowest of the lowest content-provider or -mediator (e.g. yours truly) to lead people to news.

A recent HBR-article gave me some insight into the complexities for companies to measure the value of such referential actions, something they call Customer Referral Value (CRV). It is calculated by estimating the number of successful referrals made by a customer, but differentiating between new customers that came because of his/her referral, and those that would have come anyway. It's a fairly complex formula and requires some extensive market-research, but you can find a good overview in the HBR-article.

This is opposed to a customer's lifetime value (CLV), the traditional way of measuring the value of customers, which looks at the amount that the customer's purchases contribute to the companies operating margin, less the marketing costs to him or her, and projected over a certain period of time.

Using this methodology, the authors of the article measured both the CLV and the CRV of 9,900 customers at a telecom-company and came up with following results:



I added the totals myself, because I thought those would also be interesting. What you can see here is that those with the highest CLV also presented the highest total value to the business, though CRV added considerable value also. What's also interesting is how these are distributed. The high value shoppers added relatively little in referential value, and only in the medium-levels do we see a high amount of CRV.

Through three one-year marketing-campaigns aimed at the high shoppers with low referential value, the medium CLVs with high CRVs, and the low of both, the company tried to stimulate the customers with lower values in either segment to do more, either by spending more or by referring more. The result was a 15.4 return on investment on the marketing-campaign, meaning that for each dollar spent on marketing to customers, $15.4 was gained in revenue.

Clearly, I could say more about how the authors went about it to make these kinds of gains in both CLV and CRV, however that's why this nice article was written about it and I encourage people to check it out if they're interested.

Are there implications for the Gladwell vs. Watts fight? In my opinion, either could be right. What Gladwell has merely done is open our eyes a little towards this whole viral marketing-thing, though certainly some companies were already busy with it. And what Watts is pointing out is that there is great value in building on top of existing networks, something I'm sure the telecom-company benefited from also. The greater lesson here is to look beyond the CLV of a customer, though that already brings a high value to companies, and focus on methods of stimulating word of mouth in innovative ways. How that is achieved depends on the type of business and the networks that it can use to communicate with its customers. Certainly, Milner cheese, which I wrote about a few weeks ago, offers one possible answer. Update: and so does the recent marketing-move by Etsy on Twitter.

This article is mirror-posted on Tech IT Easy.

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.

Arguably, I managed to write some strange posts while I was writing my thesis… some of which seem completely unrelated to this blog, and which I may shift to another blog, my first blog, which I'm resurrecting just for these types of "philosophical" topics.

Still, I liked my post on the lowest common denominator (LCD) from a few months ago, simply because I can still apply that thinking to other disciplines also. To remind you, the LCD is defined as the "lowest"—least useful, least advanced, or similar—member of a class.

The LCD of business-components
It came back to me last night, when thinking about what I wrote in my last post, on how it was difficult to sell a lifestyle product, if conditions for that lifestyle are not yet present. So you find other unique selling points (USPs), and in this case it was health as that was a key driver. To me that is finding the LCD in marketing—you find the "keyword(s)" that connects your product's message with the context of the customer.

Another example. I was thinking about writing about IKEA this week again, but it was such a simple point that a paragraph will do. IKEA is well-known for its design, yet also for its low prices. Actually design was never core-objective, it was finding the cheapest way to produce and to distribute. Design came afterwards, and was even then a matter of working with what you have: whether it's a certain kind of wood from Poland, or the hollowing of walls to make them lighter, or removing the legs from a table for packaging. It's all a matter of lowering the costs, and only afterwards about making it look nice. The LCD of production is finding that sweet spot between a cost that works for a business and a design + price that works for the customer.

Business-planning = the reduction of assumptions
One of the first things we learned in our entrepreneurship-masters, is that business-planning is a fantasy-story—we make up stuff that we hope is believable. If we can reduce the assumptions in the document, however, to the level that an outside party (and inside parties) start finding it believable, that is the key to the mission-statement, the operational plan, and to finding funding.

Bringing things down to the LCD is a way of reducing assumptions and convincing others of my idea. Explaining that production is subject to costs and design comes later is logical; or that reaching customers is a matter of finding the simplest things that connect us.

Essentially, a business-plan is a simplification of reality. Your financial predictions will likely be off by a lot or (hopefully) a little. Your marketing-plan will make certain simplified assumptions about your customers. Your production-plan will assume that all goes well. Keeping it essential, however, does have a better chance of convincing investors, etc. that you can see through the mist and identify the key-drivers for success.

Simplicity, yes, but not of skills
As I wrote last time, it's good to know the LCD of whatever you're doing for yourself. It's not good to shout it out to the world (oh, the irony!), as that really decreases your competitive advantage.

Still, while focussing on LCDs arguable simplifies the strategy, finding those LCDs and profiting from them is a matter of skill and study, of knowing your processes, your industry, your customers, etc.

Abstraction…
Now if all of this seems pretty abstract to you, you're not alone. I'm still trying to figure stuff out for myself. One reason is certainly the fact that you need to have the skills, the know-how to accurately identify key-aspects of a business-strategy, which differs from business to business. Another possible reason is that I'm completely wrong about this (let's hope not).

A final reason is that I still need to write a recap of months 3-6, which I'll try to do this weekend, before going on to other topics.

Anyway, agree or disagree? Let me know in the comments.

One of the downsides of not being at home for three months is that the mail tends to pile up. The culprit is The (weekly) Economist, which forced my landlord to dedicate a special cabinet just to accommodate them all. He was happy to see me.

My thesis is handed in, and while I'm anxiously waiting for the feedback / grade, I'm doing a variety of stuff to diffuse the thesis-haze that was in my head these last months. One of these is thinking about how I will organise the research that I collect for my work / blog. This is part of a dual trajectory I'm pursuing—one side is research, which I use to build up my knowledge about the field of food & retail, the other side the practical path, which I can now finally pursue freely.

The pile of 15 or so Economists is actually a good exercise to think about what really matters, and I'm going through them quickly, marking the articles that are interesting to read, and later cutting them out and adding them to special folder, after which I may categorise them by country and subject perhaps.

It's easy with The Economist, but there other publications that I'm much less eager to chop into pieces. My books are filled with pencil-marks, as are my Harvard Business Reviews, but there's no way that they'll ever feel the cold blade of my scissors. With those publications, I'm forced to keep all that extra paper and try to get my thoughts to paper as quickly as possible.

The other, sort of, complication are web-articles. I've been printing stuff to pdf and have a special S+FNR folder, reserved for anything from fashion-trends to human-resource management. I'm also going to print them out and add them to my folder for future analysis.

As you can see, I take my research seriously. A probable after-effect of writing a 180-page thesis, studying three academic fields—innovation, entrepreneurship, and finance—and interviewing roughly 300 businesses.

But I wonder how the real bloggers do it. If you're someone who takes blogging seriously, how do you organise your material, or do you organise it? If you do so on paper, I'm curious as to what kind of folders you use (incl. a link to a photo if possible).

Note: If you use a computer to store stuff digitally, I assume you use a personal database, like Devonthink or Jojimbo for the Mac. I'll tell you right now, I've used them all (to organise my thesis) and found it frustrating that they wouldn't do everything I wanted and tried to lock me in in the process (I've spent many hours migrating everything from app to app—it sucks!). They also don't help you much with paper-based materials, like mags, journals, and books. No, on the computer, I prefer a regular folder and to add text & pdf to it. Simple, portable, and cross-platform.

• Cordless earplugs that are also headphones - imagine going to bed and blocking out your partner's snoring, and waking up to the sweet sounds of […insert your sweet sound here…].


• Fluorescent permanent marker - to convert my non-pro Apple laptop-keyboard, into one that lights up in the dark.


• A binder/folder that allows me to bind printed web-articles into an easy to read non-webzine.


• A mobile (!) pad that allows me to draw on paper, which stores these drawings electronically, and allows me to later transfer them to my computer - saw this somewhere for €80, always regret not buying it.


• Some kickin' clothes.


• For my Laptop and iPod to last me through their 3rd year.


• Anything on my wish-list.

For 2OO9

• An Apple laptop that is as light and as thin as possible - So no disk-drive as that can be external. 3-4 USB-ports to compensate would be nice.


• The next OS (10.6 or 11.0) from Apple.


• An iPod with a nice screen and no phone - for music, video, books on the road.


• A small car (unless I live in a big city, then a good rent-a-car service).


• Orexin A.


• More public wifi / or a pan-European service.


• A Wii / DS and time to play it.


• Some kickin' clothes.

I'm not a big lover of self-help books. My favourite quote of all times regarding this topic is from a movie called "School for Scoundrels," and goes something like this:

"How can you help yourself, when your self sucks?"

Indeed.

My attitude towards "The War of Art" is not much different. I actually bought it as a gift for an artist that I know, realising shortly after that giving a book on creativity to an artist is about as useful as giving a book on parenting to an grandmother… or something to that effect.

So I started reading it myself. I call this a "mid-book-review," because I don't like reviewing whole books, rather I prefer writing what comes up from however many pages I read. Also, the first half of The War of Art is quite monotonous and, I would say, masochistic to read.

The first 70 or so pages are all about the barriers or resistance we encounter before we create. Essentially nearly every page describes another type of resistance: drugs, jealous people, procrastination, etc. If I were to read this book for myself, I would feel more and more beads of guilty sweat streaming down my back. My god, how badly I've been treating myself over these years trying to produce a thesis.

There must be some pedagogical law that guilt is not the best teacher. But ok… after reading about ca. 30 guilt-inducing types of resistance, I skipped this part and went straight to the good stuff. How to be a professional artist.

Now, I haven't read much—this is a mid-book review after all—but I think the gist of being a professional is discipline. Getting up early, going to your office (wherever that may be), and producing. But that's not all.

My artist-aquaintance is actually a tremendous producer. She produces paintings like a factory. But she does not get paid. And that I think is the other side of being a professional artist—the paycheque.

From what I can see, The War of Art is meant well. It's meant as a kick in the ass. But, just like all self-help books, it does not actually do the kicking, rather it's you that's meant to kick yourself… easier for some than others.

What is needed then is a framework, a recipe that people can follow to indeed transform into the professional artists they are meant to be. I have not yet found anything resembling that in this book. Instead, just like, I guess, the book, whose title it was inspired by, The Art of War, it is a collection of advice and up to the reader to follow and consult it again and again over the years. When the productivity is falling… what is that resistance? Ah yes, time to kick my ass again.

But I still have to finish the book before I can give a final judgement. If, incidentally, this final judgement is not printed on my blog, then you know how much, or rather, how little there was to say about the final 70, or so, pages…

Some eternal truths, I've learned myself, from producing what seem like countless pages for my thesis, include:

• After a while you enter the zone. It takes around 30 mins to 1 hour then your set to go. I can work for hours on end after that.


• The more your practice, the easier it is to enter a zone. Ever since I started blogging, I've essentially been writing creatively for several hours a day. And I can produce a piece of text fairly quickly, and get into the zone after a few mins already. And I notice the same when you draw on a daily basis or do whatever art you want to do. It all eventually gets easier, and that's why a daily discipline is important.


• Balance is vital. Nothing sucks as much as working your ass off, not quite finishing what you planned (perfectionist), and the only reward there is is the lonely tv, the only thing still "awake" in the middle of the night. Instead, people and experiences are the reward. These experiences also recharge you way more than a workaholic lifestyle ever could. Breaks are, as paradoxical as it may seem, vital to becoming a true workaholic—one who gets intoxicated by his work, sometimes referred to as loving his work.


• Little triggers matter. The greatest trigger ever? Feedback. Packaging your work into little chunks which people can evaluate really helps here. And getting feedback really forces you to create better work.


• It's all about the paycheque. You could say this doesn't apply to a thesis, but it does. A thesis is a piece of work that will be a reference for future job-applications for a long time. It will also help in managing future creative projects that do pay. So it really helps to factor that into the schedule: you are producing, not for the art itself, but because you want to achieve something. What that is is up to you and varies from project to project, but ultimately financial reward—direct or indirect—is a great motivator, not to mention fuel for the engine allowing for the creation of more things.

Some, not all, of these tips come from the only self-help book that did not make me feel guilty. Neil Fiore's "The Now Habit".

For now, my recommendation is: if you want to create, just do it. Don't waste time, build up a daily discipline, reward the little successes, get lots of feedback along the way, and always remember to get paid. And if you want to learn, then learning from doing is usually a better choice than learning about learning.

OK, I know I said I was going to break for 12 days. But it's just to tempting to blog (I need to find some kind of bloggers-anonymous meeting). In any case, I'll try to restrict myself to reproduced content only—no original stuff! Here's a good comment I found on writing marketing plans. From mooders @ askmefi:

Okay. In a nutshell, you need to:
a) Define the current state of the market - your competitors, the industry, the problems your products or services are intended to solve, the Political, Economic, Social and Technological contexts within which you operate and so forth. This is the Marketing Audit

b) Next, you need to define to whom you are marketing. Define the industry, define the sector within that industry, e.g. Financial Institutions and retail banks with significant offshore presence.This is your Segmentation and Targeting

c) Define how you will position your product or service in the minds of the target customers. This is your Positioning

d) Write down what you need your marketing plan to achieve - increased revenue, increased customer base, increased feedback, increased market share and so on. Make these Marketing Objectives S.M.A.R.T.

e) Write descriptions of the following:

• e1) Product / Service
• e2) Pricing strategy
• e3) Distribution channels
• e4) Promotional activity - how / where / when / what you will advertise your product or service and its features and benefits

f) Calculate your budget to do all of e) and achieve all of d)

g) Assign roles, responsibilities and timelines to each of the Objectives and any other activities defined above

h) Define some means of measuring progress against those Objectives and controls to implement to minimise the chances of straying too far from them

Bare bones, this is enough to be a marketing plan. In terms of numbers, you need to use as many real, hard numbers as possible and make sure you detail where the numbers come from and the assumptions you have made in drawing those numbers up. You could add this into the appendix of the overall plan.

For more detailed info, I suggest you pick up a book or two on marketing plans. Something like this would be enough for your purposes. If nothing else, google for 'marketing plan template' which will provide a fair few resources for headings etc.

Thanks mooders!

The picture is courtesy of milosobel.com

A blog is a service—both to me, and to you, the reader. To me, it serves as a way to collect a large amount of information, and, more importantly, process it so that it stays in my brain. The better, and more focussed the information is, the more it helps me, and the more it becomes useful as a general information-source for you too. There are a couple of specific goals I have, which will certainly affect the status and value of this blog. These are, as follows:

1. Develop a framework of how everything in a food- and retail-business fits together
The reason why I write about a large number of topics is because I see any business as system or a machine made up of a number of components. I need to think on four dimensions: the business-components; the value chain; the past, present, and future of this industry; and how people (incl. me) fit into the picture.

Implication: This simply means that my broad coverage of topics will continue, but that the implicit understanding is that it all needs to fit into one of these four dimensions. It also means that, in addition to researching these topics, I need to start converting the broad framework I have in my mind, to paper.

2. Gain practical experience
I see this on two levels. One, I need to seriously understand the process of retail or food business from start to finish. The best way to accomplish this is to learn by doing. This can be achieved in two ways: the more logical one would be to work at a business that offers a good amount development opportunities—allowing me to see many aspects of that business; and eventually I see myself starting my own business also. The second reason why practical experience is important is reputation. This business in particular is pretty resource-intensive. To start a business you need to have access to a good network of people, and investors. Both trust you more, the more practical experience you have. Put your money where your mouth is.

Implication: This is still some months off, because I still need to finish some business before that. When it does happen, I think it will affect the blog in two ways: one, I will have less time to blog. And two, I will have more practical data that I can share (within reason).

There is a third point—starting my business and everything that involves, but that's a topic for another day. For now, if you have questions or comments about the above, feel free to share.
This blog will continue as usual for now. Expect a new post tomorrow!

The non-sensical picture is a few months old… until I get my camera back from the store (any week now), my ability to draw and and scan into the PC is somewhat constrained.

Still following the great book on Retail Marketing, by Dr. P. McGoldrick, this time I'll cover the different types of cost that are included in buying, developing, and running retail locations. For previous coverage, check out post I and II

Before buying property, considerable data analysis must happen in regards into estimating turnover, which comes from data on competition, accessibility, and population. And a calculation of costs must happen, least of which is the purchase price, and more complex will be three types of cost: development costs; running costs; and contextual* costs (*: for lack of a better word).

Much of this cost data will likely come from negotiations with site developers, lease owners, and an estimation of the costs involved in the development of the location.

Naturally, with the proliferation of the internet, there are plenty of databases that offer interested parties an overview of typical sums per region or type of location. Though the following are mostly aimed at private individuals, both My-Currency and Zillow offer these types of services, and Jeremy Fain wrote about a French service, called BMyKey.com on Tech IT Easy.

Purchase price
Traditionally, rent bid theory explains a lot of price-differencials within an inner-city environment. Variety and women's clothing stores would typically pay the highest rents and grocery stores the lowest. With the emergence of superstores and their focus on out-of-town locations, this formula can not be applied so generously anymore, though, as mentioned, I think that it should logically still apply to inner-city environments, and probably to inner-malls ones also.

And while buying the property may cost a certain sum, it is not atypical that the three of the following types of cost will far outweigh the initial purchase price.

Development costs
Three types of estimates need to be made here: design estimates, which include the costs of the architectural work; bid estimates, which involves negotiating the costs of labor, material and equipment; and control estimates, which are the costs of monitoring the project-development. For more info on these, check out this document.

In addition to this there are a number of costs that can be substantial, but are sometimes not taken into account. One is site preparation, which be steep, especially if the land needs to be converted or extensive demolishing needs to take place.

In addition to this local authorities can impose a number of restrictions on the height of the building, other architectural and landscaping aspects, and demand significant concessions from retailers to build there. All of which can at the very least slow down development considerably.

Running costs
The choice of location, site, and design can greatly affect the cost of running the operation once it's constructed. For instance, multiple floors and parking will mean that lifts will need to be maintained regularly. A location with a high crime-rate will require higher security-costs and lead to more theft. And high employment and income areas will also lead to issues regarding staff recruitment and retention.

Contextual costs
I made up this term, but it actually includes costs like delivery, promotion, and the impact on other branches of the business. Delivery costs are affected by the location choice of the outlet—how accessible it is via road or otherwise; how remote it is from the main distribution network. Promotion costs are also a factor (but a topic for another day). And the impact on other branches are a very important factor to consider. The higher the existing market-share in an area, the greater the potential loss, though, according to the book, this is often accepted as a necessary trade-off to a high growth strategy.

Final thoughts
Clearly real estate is something that needs to be thought about as part of a long-term strategy and with the help of professionals. And some of this is probably not applicable to start-ups in the retail-space. That said, choosing a location by itself is already a science—whether you rent, lease, buy, or build it. And both the direct costs—purchase or rent—and indirect costs—development, running, and contextual—will play an important part in the decision-making and business-planning.

Until now, I have mainly covered the issue of competition and cost in relation to a real-estate strategy. I'll probably not go into population and accessibility just yet, and will instead focus more on more complicated tools used in real estate strategy, beyond the simple checklist, which I covered in my first post on this. These include mathematical, mapping, and some other models, as well as, hopefully, some more data on the role of IT in this process.

For a more in-depth reading, I of course recommend buying the book on Retail Marketing, which largely inspired this article.

I've written two posts in the past, reviewing Gladwell's books, Blink and The Tipping Point. Both posts are no longer online and thus game for reproduction. Following will be these two reviews (lightly edited), which were already rather short, and would make for a good marketing-related interlude.

"The Tipping Point - How Little Things Can Make a Big Difference" (reviewed October 2006)
I read The Tipping Point by Malcolm Gladwell, about a year ago, a slightly older book from 2000, but with some timeless insights on viral marketing and tipping the user-adoption scale.

Essentially, the author takes takes cues from biology and epidemiology to explain how ideas can spread like virusses, facilitated by three key-players: Connectors, Mavens, and Salesmen. Each of these play a role at different stages of the adoption process, with Mavens acting as the knowledgeable early adopter, the Connectors acting as hubs between groups of user, and Salesman taking care of the last mile, the mainstream-market.

The book explains how people take in information, using a variety of examples from TV-shows to Sneakers, as well as how companies can shape their marketing-efforts to gain access to those three key-figures. Only in the afterword, does Gladwell cover issues like email and the rule of 150 - the latter refers to “Dunbar's Number,” which proposes there are limits to our cognitive social functions and that it's only possible to actively maintain a certain sized (150 people) social circle (Whether this still applies today can perhaps be disputed).

The Tipping Point does a fairly good job in translating social theories to practice, better so than recent attempts like Freakonomics (which, in my opinion, was too abstract), and the insights will continue to be relevant. That said, I expect that some trendspotting-practices of companies will change, or have changed drastically since the time of writing, in the sense that consumer-driven products seem to be taking off, as well as “long-tail” business (which may or may not be the same thing) . Perhaps his newest book, Blink, corrects this.

"Blink - The Power of Thinking Without Thinking" (reviewed December 2006)
“If you Blink, you're dead!” This must be a phrase you hear in movies often, mostly when one character has a gun pointed at another (editor: seriously, this must be the corniest start of a post ever). Gladwell has definitely taken this phrase to an extreme, attempting to research everything about it.

My first reaction when hearing this book was  “Malcolm, what were you thinking when wrote this book?” The space of two seconds—the time it takes to blink—turns out to be gigantic and many people wouldn't even know where to begin exploring what happens there. But mr. Gladwell does his best, looking through the lenses of experts from various disciplines and giving a broad range of examples.

The book starts with describing the purchase of a statue by a museum. After consulting many experts they decide the statue is authentic and pay a huge sum for it. Then, however, another expert, one from the field this time, takes a quick look and feels something is wrong with it. And he's right, the statue is in fact a fake. Malcolm Gladwell asks the question as to why some people have an instinct that can judge things, people, and situations more quicly, than studied experts can over the space of weeks, months, or years. The answer is perhaps obvious: practice.

Following this example, Gladwell proceeds to describe the fields of rleationship-therapy, facial recognition science, security, sociology, and some others, where the practice of instinct, or rather the rapid understanding of situations, is very important, so much so that there are therapists that can predict whether a relationship will end quickly or last forever, are able to tell if you're lying, can teach policemen to judge whether a person is drawing a gun or a mobile phone. But where the book really shines is in understanding where racism and discrimination comes from, which, Gladwell shows, can have deadly consequences in fields like police-work, and which continues to be relevant in today's polarised society.

I see Blink as a book aimed at experts, but sold in a mainstream-market. There are principles in the book which are clearly valuable to everyone, yet to get there it takes hard work and practice. But, having read and reviewed his previous book, The Tipping Point, I believe the point is not for the reader to become a genius. Rather, it's to surround yourself with the right people that have access to this knowledge. The example of the museum clearly shows the usefulness of this.

For further reading you may want to check out this Scientific American Mind article, on the science behind facial recognition (and exposing lies).

Final thoughts
Blink and the Tipping Point are at different points in Gladwell's evolutionary scale, and I think, judging by his latest speech and his soon-to-be-released book on "the workplace of the future," he's more and more moving towards understanding the upper regions of the brain. At the same time, an inherent risk in this approach is usually that you forget that there are real people involved, and I don't get a sense that this is happening.

Rather, when you listen to his speech on the nature of intelligence, and read his books, you see that he is very careful to understand the context of why something happens, not just the occurrence itself. And that context alone makes for some excellent reading, because I suspect that that is one of of the secret ingredients to becoming one of the geniuses that Gladwell describes.

Really no shortage of interesting links this week, which is always nice. At the same time, it makes choosing 5 that much harder, but here goes.

• An Alien in Japan: Charlie Stross describes his trip to Japan last summer. …From Yokohama to Tokyo to Kyoto; …about shaved cats, getting lost in shopping malls, to Hello Kitty, and extreme bathing, to monorails and re-building history. A very interesting read, which presents some insights into that alien world, Japan.
• Blasting scents into coffee-consumers' brains: Roger Dooley explains the importance of environment to sensory experience, and describes how Nestle's Nespresso found their way into people's noses, brains, and hearts. In coffee, just as with good food and wine, scent is everything! Food for thought.
• Can experience be designed? After reading Bob Jacobson's essay, I'm not so sure. He writes about placing human experience into the centre of the design process, about systemic relationship between information and the environments (see above link as an example), about the difference between user- and human experience design, and how you can probably never design an experience to completely meet a person's expectations. At least, I think that's what he writes. So much of this text is far above my head, but worth reading to guide your mind into new directions, and a must-read for anyone interested in creating experiences. It's all a pre-cursor to a book, which, judging by the range of material, I expect to be published in 2 to 5 years, but which will be well-worth the wait. In the meantime, check out Bob's great blog.
• The downside of franchising: Richard Layman, in his artsy urban blog, writes about how franchises have transformed L.A.… into a clone of just about any other city. A little anecdote: I observed a similar trend when I was last in Belgrade, Serbia, which I hadn't visited since the war. It looks just the same as any other city, and that's sad because I remember there being a lot more authentic clothing- and food-venues. When I see this, I'm not sure I'm a fan of globalisation, or franchising for that matter.
• A twosie on Human brand-carriers (Sounds like a disease, doesn't it?): Two articles discuss this, one, by the NY-Times, on rock-stars and their interaction with brands. As one artist put it: "The barriers are changing and we as artists are making less and less money, and we have to get creative." At the same time, I have great sympathy for artists like Springsteen, Tool, and N.I.N., who refuse to corrupt their art. And another article, by HBR, on endorsements in sports, which is, at last count, a 100 billion dollar industry. I'm fascinated by this phenomenon, so maybe I'll write something about it in the future.

Enjoy! As always, these and more can be found on my non-stop list of bookmarks (rss-feed).

I don't know anything about real estate. My sister wants to buy an apartment in Dublin. My father used to own several houses in Germany, the Netherlands, and Belgium. Back in his day, banks were much more liberal about lending money to house-buyers, often sponsoring up to 90% (I think). The climate is far less friendly now and I hope my sis has better luck in Ireland, where house-prices are booming.

Apart from the finance-question, there are of course questions pertaining to the actual and future value of your purchase. Is the price good and will the value increase? Is the location good, why, why not? Does the building need work, how much will it cost? How will your repay the money you borrowed / spent on it? What is your exit-strategy?

Retail Location-location-location

"You can be the best retailer in the world, but if you set up shop in the wrong place, you'll never do much business. If you operate from the wrong properties, you start with your hands tied behind your back."

(Clarke and Rowley, 1995, from a book, called "Retail Marketing," I had on my bookshelf)

While many variables in the marketing-mix can be adjusted in a fairly short time-frame, setting up a new location can take years and the price of failure is high. Hence it probably represents the most important decision a retail-business ever has to make.

According to 1999-stats, each square meter (±3 square feet) in a British grocery-superstore was estimated to cost €750 (±500 UK-pounds). And we are talking several 10,000s square meters for that type of store. Such serious commitments automatically mean that a retailer needs to incorporate a real estate-strategy into his business, estimating whether the future will make his asset a profitable one, or a liability. McDonald's, and I'm sure any major player in this arena, operates much in the same way.

A little anecdote. The reason why I read the McDonald's-biography, was because of these words:

After a few beers in hand, and there was a pause in the crowd, Ray [Kroc, founder of McDonald's] asked everyone in the room, "What business am I in?" The room was silent and people were laughing. No one gave Ray an answer so he asked the question again, in a more serious tone, "What business do you think I am in?" A brave soul yelled out, "Who in the world doesn't know you're in the hamburger business?" Ray laughed and said, "No ladies and gentlemen, I am not in the hamburger business. I am in the business of real estate."

Location Techniques
While, in theory, a systematic sequence, starting with the general appraisal of the area down to the specific site characteristics, would be optimal, this usually only works well with businesses that have medium- to long-term real estate-strategies. Other businesses, where the need for speed is higher, often do not benefit from the luxury of such an approach. Generally though, a location strategy can be split into three:

1. Search: where the focus would be on finding the right area for a location
2. Viability: where more focus is placed on specific sites and estimating turnover
3. Micro: where the features of the site are examined in the context of potential store performance.

Each level can vary according tot the level of specialisation and convenience that the retail-outlet is targeting.

The Checklist
This is the most common tool, at least reported in a study from 1996 (see the "Retail Marketing" book for more). The reasons mentioned at its relatively low cost and technical expertise requirements. While I imagine that today's location-suveyor has more sophisticated tools available, I don't think that factors such as cost and technical expertise should be left out of the picture. In many cases, a checklist will be the first tool that people, especially those with small businesses and limited budgets, will reach towards. For similar (well time-related) reasons, I will focus on this tool alone today, and look at more sophisticated tools in a future post.

Essentially we are speaking of lists, which can vary according to the focus of the store, and cover a series of key-areas. As for the first, the positioning of businesses, the book mentions four dimensions: price, convenience, variety, and proximity, and presents checklists according to each factor. For instance, for convenience, we would be looking at traffic flows to and from the store, visibility of the store, distance to competitors, and geo-demographics. You get the idea.

As to the areas to cover in a checklist, those can include: population-data, such as disposable income per capita, home-ownership levels (which would affect DIY-stores), current shopping patterns, etc. Accessibility-data, which can include public transport infrastructure, parking, access to staff, access to pedestrians, etc. Competition-data, which looks at variables such as existing retail activity, saturation of demand, etc. And finally, cost-data, which includes, well everything that needs to be paid.

Each area will require different research-methods also, ranging from going to your local government, to using commercial databases, to surveying customers directly.

Final thoughts
I'm being a little vague here, because I happen to know and like the professor, Dr. Peter McGoldrick (with his funny-looking moustache), whose book I'm quoting from and hope that people, who are interested in this subject, will buy it.

I'll go more into the subject of locational positioning at a later date. The book does cover more sophisticated methods, such as mapping, geographic information systems (GIS), the analogue method, and mathematical models like multiple-regression techniques. I'll look at those, and at more current developments, as stuff may have changed since the 2002-edition of my book.

The picture is courtesy of currentanalysis.com

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.


(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.

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.

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:



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.

A 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.

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.



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.

I 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! ;-)

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.