Entrepreneurial Predictors

 

Business Start-up Entrepreneurial Predictors  

The definition of an entrepreneur is one who organizes, manages, and assumes the risks of a business enterprise. While this sounds like an ideal life style for many of us, one must realize the realities in terms of personality, skills and determinants of success. The following are general lists to consider when evaluating your entrepreneur interests and potential. It is important to understand that this is a general list and one can overcome limitations with strong advantages in other areas. A major method is to surround you with resources that compensate for the weaknesses .In addition passion, commitment and energy can overcome a lot of obstacles.

Personal Characteristics

  •   Are you a self-starter?                                        
  •   Do you enjoy competition?                              
  •   Do you have will power and self-discipline?           
  •   Do you enjoy making decisions?                               
  •   Are you a good planner?                                  
  •   Do you manage your finances well?                         
  •   Are you willing to work 12-14 hour days?                
  •   Are you physically and emotionally strong?           
  •   Is your family supportive of your proposal?    

Skill Requirements

  •  Do you easily interact with other people
  • Do you know what specific skills you need to be successful in the business you wish to begin? Do you possess those skills?
  • If not, are you willing to delay your business start   until they are acquired?
  • Have you ever worked in a supervisory capacity?
  • Do you have any experience in a business similar to the one you want to start?
  • Have you had any business training in school?
  • Are you able to learn effectively by seeking new ideas and continuing to test, learn and benefit?

Predictors of Success

  • Do what you enjoy.
  • Take what you do seriously.
  •  Plan everything.
  • Manage money wisely.
  • Ask for the sale.
  •  Know your customers and remember it’s all about them.
  • . Level the playing field with technology.
  • . Build a top-notch business team.
  •  Be accessible.
  • Build a rock-solid reputation.
  • Develop your workplace , staff, organization , technology, presentation  and image for success
  • Take time off.
  • Set, revise, measure, and modify  goals constantly. You will make mistakes. 

Bert Shlensky 8-20-2013

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Updating Pricing

Rethinking Pricing

Pricing used to be relatively easily. You took your costs and your brand and developed a margin goal and a brand value and developed your prices and profitability. You then tweaked it a little bit with clearance  sales, supply and demand considerations , special  promotions , seasonality ,  product life cycle change , add ones (like cars) , hitting certain price points etc. You tested a little and voila prices were set forever or at least until you had a cost increase.

Everything in that model has changed as evidenced by some of the following observations:

  • Production and distribution techniques have both changed and become more efficient. This  created  great value opportunities from retailers  like   Costco, Amazon , and the Internet
  • The Internet makes price changes immediately visible and accessible to consumers. It has also developed new outlets like flash sites (Groupon, Gilt etc.)
  • There is much greater diversity. The same consumer who will buy $ 1000 shoes in better department stores will go to places like Costco and Amazon for unbranded commodities at 20-40% off.
  • The definition of the products keeps changing. Airlines  keep adding fees , restaurants  keep bundling , warrantees keep changing in both price and characteristics
  • Probably the greatest impact has come from FREE. Google, Facebook, the cloud, public organizations, open source programming all give things away to build their long term success.

Despite the increased complexity there are still some basic rules and simple tips to maintain volume, make money and establish long term success.  These result in increased opportunities to execute appropriate strategies but also increased attention to the process.    

  1. Pricing must be a part of integrated short and long term marketing programs that includes product, service, quality, logistical and other considerations.
  2. All pricing efforts should be monitored to identify both increased opportunities and potential challenges.  Ads, competition, new products etc. must all be watched. Testing and measurement must be critical components of any pricing effort. Understand your product. . What are the components, quality, service, presentation, and add on characteristics. What is your competition doing and what do your customers expect.
  3. Understanding and communicating prices also differentiates suppliers. I am not sure if anyone really understands pricing on products like cars, credit cards, phones, airlines, happy meals etc. Similarly costs can be greatly affected by promotions, buying shelf space; markdowns, packaging, inventory requirements, returns etc.
  4. Service, quality, selection, guarantees, delivery, and return police, expertise   assembly etc. can be critical dimensions of buying decisions and pricing.
  5. While price reductions can be used to test, develop customers, gain market share, meet competition etc. you must be profitable in the long run.
  6. Promotions are not a dirty word and don’t have to dilute the brand. New outlets (like flash sites or amazon), bundling seasonal etc. are all valid ways to offer discounts and increase volume without diluting the brand.
  7. Use and understand the internet. Selling direct , amazon, flash sites, industry sites etc. are all valid distribution vehicles
  8. Understand logistic, sourcing and distribution efficiencies that can be used to reduce prices and increase efficiencies for both you and your competition. For example amazon works on a 15-20 % margin while traditional stores work on 40-50%.
  9. Think FREEMIUM. It’s more than a business model; it’s also a pricing strategy. Offering a free product, and tacking on a set of ‘pay to upgrade’ features to that freebie and you have a Freemium  Strategy. Remember companies like Google were built on free. Samples , blogs, demonstrations , charities can all create awareness and build long term volume

In summary pricing may seem more complicated today. However it really is a more important vehicle to maximize marketing efforts. It can accelerate segmentation, branding, maximizing opportunities and looking differently your offerings. The important aspect is to aggressively manage and innovate the with the entire package rather than simply reacting to competitive pressures.

Bert Shlensky

June 4, 2013

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Demographics-The Elephant in the Closet

Increased diversity is a major evolving issue in culture. This is particularly with regards to sex, age, income, and race:

  • Demographics:  The growth of women in the labor force fueled economic growth in the 80’s and 90’s with the female labor force increasing over 50 million workers since 1960 and going from 39% to 47% from 1980 to 2009.  In contrast to that growth factor we now have workers over 45 increasing from 31% to 41 % of the population.
  • Employment statistics:  Everyone talks about manufacturing jobs going overseas. However, we ignore that fact that China pays employees 10-20% of what we pay in the U.S.  U.S. Manufacturing employment has declined almost 1/3 since 1992.  Even worse, manufacturing jobs for individuals with less than a high school education have declined from 11.3 million jobs in 1992 to less than 7 million jobs in 2009.
  • Income:  The top 1% of the population accounted for 60% of all such income in 2007, up from 50% in 1979.  While various factors are cited as the cause of this change, it is a complex topic.  For example, of the top 15 U.S. employers in 1990, 60% of the employees were in manufacturing.  In contrast, in 2010, 67% of the top 15 employer’s employees were in retail jobs.
  • Race:  Since 1990, the white population has decreased from 80% to 75% and is also expected to continue to decline over the next several years.  In 2012 there will be more non-white births than white in the U.S.

In summary, in 1960 the labor force was dominated by 21-45 year old white males. Today we have a much more diverse labor force by age, sex, and race.  That requires an entirely different structure of practices, strategies, and culture.  Baby boomers are the largest population group, and this group has led most changes in society over the last 30 years.  This group of managers is whiter, more male, worked their ways up in the organization, stayed in 1-3 companies, and is more company- than profession-loyal.  The solutions lie in new perspectives and programs:

  • We fail to recognize that old paradigms and structures are failing many of our largest and seemingly most powerful corporations.  They have experienced no growth or failed over the last ten years. Despite incredible investment, varying economic and political efforts, poverty, unemployment, and education among the poor hasn’t improved much in 40 years.
  • The greatest need for change is a commitment to open systems and collaborative models.  Open systems reject bureaucracy, authority, hierarchy, and closed decision processes.  They encourage participation, diversity, new rules, and to some extent chaos. One of the biggest outcomes from open systems is the collaborative decision model.  As decisions become more complex, the need for diversity, internationalism, innovation, and expertise are expanded.
  • Most calls for change like these are met with resistance and “shoot the messenger arguments.  This is clearly evident in this case by opponents who argue that ideas will destroy characteristics like competition and individual excellence. Nothing is further from the truth. In fact, it is the large scale bureaucrats arguing for the status-quo who are deterring innovation, entrepreneurship, competition, and excellence. This is particularly evident in examining some of the underperforming corporate giants and our government.

The greatest hope is probably from the emerging excellence and leadership among the 50 million new women in the labor force as they evolve.  In particular, they bring the openness, innovation, professionalism, and skills that we need to bring about change. Women like Sandberg, Kalgan, Sebelius. Gillibrand, Warren,Wojcicki, Clinton, Kullman, Rosenfeld, Nooyi, and Braly are breaking down barriers and creating exciting change.  I intentionally left out their full names and titles because they are and should be known for their accomplishments rather than status.  However, don’t bet against Sheryl Sandberg of Facebook being the first woman president of the United States.

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Key Strategies for Small Business Owners to Improve Profitability in a Changing Economy

For the most part, we’ve survived the economic crunch from 2008-2012. However, there is a lot of uncertainty around what to do next. Do we maintain our wariness or start looking for new opportunities?  With economists predicting moderate growth at best, small businesses are going to have to get creative if they want to keep cash in the bank and revenue coming in the door. Here are some strategies that SCORE thinks can help companies on opportunities in 2013.

  1.  When I talk to people thinking about starting a business, my experience has shown me two distinct concepts critical to success: Passion and Reality.  Starting a business is not easy, and entrepreneurs need to understand and express their passion while realistically understanding the problems, limitations, and constraints of the business. There are lots of good ideas. However, entrepreneurs need to consider whether they can execute the idea, make enough sales, and make money. One of the most common issues facing entrepreneurs is balancing these two needs.
  2. Operations and logistics are frequently viewed as secondary functions that can be handled by someone else. In reality, they present a huge opportunity for a business to become more efficient and differentiate itself.  A simple definition of this function is:  The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of meeting customer requirements and expectations. The key is maximizing forecasting and inventory control to maximize service, investment return, sales, and profitability.
  3. The economy has changed, and a company has to change along with it. Take whatever isn’t working and scrap it. If you haven’t looked at your business plan since you first wrote it several years ago, now may be the perfect time to dust it off.
  4. With the focus almost always on the product, marketing, and finance, an entrepreneur needs to remember that customer service is just as critical.  Service goals start with a total commitment to providing consumers with a great quality product and making the experience enjoyable. Remember, “Anyone can put product in a store or pictures on the internet and attempt to sell it. It is the differences in service that frequently differentiate.“
  5. Conduct a simple SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) to get a perspective on your business. The surprising aspect of this exercise is that we frequently take our strengths and opportunities for granted rather than maximizing them. For example, approaching key and repeat customers usually presents the greatest opportunity, lowest cost, and most profitable source of additional sales.
  6. Many operations experts have long promoted that 80% of sales are with 20% of the products. However, suppliers continue to produce styles, colors, sizes, models, and features to presumably serve more customers.  The flexibility rule is a myth, and the 80-20 rule rocks in business, marketing, and our personal lives.  We waste time, money, inventory dollars, and we frequently add confusion by adding complexity.
  7. Examine the mix of your business to focus on growing good customers and products while giving less marketing attention to declining customers and unprofitable products.
  8. Everyone is trying to stay competitive and many customers and suppliers will react to promotional opportunities. Examples include renegotiating leases, discounts from suppliers, and incentives for growing your customer’s business.  If you don’t ask you won’t know!  Rebidding is usually a good exercise to understand your suppliers and their trends.
  9. Do you really need to spend all that money? Can you work on less inventory, staff, or marketing expenses? Are you reviewing your computer, programming, and communications expenses to maximize productivity, efficiency, and cost?
  10. Join a networking group, put up a Twitter page, update your website, or raffle off a free lunch to anyone who puts his or her business card in your fishbowl. It’s all about putting yourself out there.
  11. You must react to the marketing environment which is constantly changing today. Do you know what companies like Pinterest, Groupon, Kings Road, EBay, Amazon, Google, and Apple are doing?  Amazon will achieve about $60 billion in sales this year and Google $40 billion in marketing revenue.
  12. Reacting to changing demographics is one of the most critical factors to success for today’s entrepreneur. The country is simply getting older, more diverse, and more educated.  These changes will dramatically affect both who we target as customers and how we will serve them.
  13. Another suggestion is to simply test some new and simple ideas.  Ask customers, resources, and staff how to do things better.  Attend a seminar or webinar.  Read a book, shop your competitor, or just visit an Apple store and try to figure out how you can generate just some of that business. These are all simple and easy to do and may spark inspiration.

SCORE WESTCHESTER can provide you with a sounding board, share with you expert advice, direct you to resources, and critique your corporate considerations on an individual basis. The business counseling is all FREE & CONFIDENTIAL.

SCORE WESTCHESTER, 120 BLOOMINGDALE ROAD, WHITE PLAINS, NY, 10605

914-948-3907     E Mail:  scoreinfo@scorewestchester.com

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Eighty-Twenty Rule Rocks

Operations experts have long promoted that 80% of sales come from 20% of the products. However, suppliers continue to create more styles, colors, sizes, and models to presumably serve more customers and their varying needs. There is even a book that promotes the concept of “The Long Tail” theorizing that the internet provides an opportunity to offer consumers almost unlimited variety and flexibility.

The flexibility rule is a myth.  The 80-20 rule truly runs business, marketing, and our personal lives. A Harvard Business Review article analyzed numerous business examples and found that products seldom increased profits by increasing offerings. We waste time, money, inventory dollars, and frequently add confusion by adding complexity.

The tough economy has produced a great opportunity to reduce proliferation of products that just aren’t selling. The selection of brands, products, and colors in cosmetics is simply overwhelming–confusing the customer more than anything. It took a crisis for GM to realize that most of their efforts were going into duplicating Buick, Pontiac, and Oldsmobile products, models, dealers, and advertising to basically sell the same car.   Much of the success Costco has experienced is by focusing on the best price for the things that sell rather than proliferating SKU’s.

There are various ways to reduce SKU’s and increase sales. All of these strategies center on the premise of having key items in-stock while maintaining low inventory levels on low-volume items. While this applies to most organizations, it is not applicable to businesses that are based on serving diverse needs like parts suppliers or retailers featuring selection or niche markets. Some examples are below:

  • As the head of a leading moderate price dress shirt company, we were looking to streamline our supply chain.  We implemented a strategy to halve our SKU’s by consolidating sleeve lengths. For example we used to make separate 33 and 34 inch sleeve lengths and consolidated them into a 33/34 length which was actually a 34 inch length.  The results were spectacular. Returns went down because people didn’t really know their size and were buying them too small.  Sales went up because the retailers were better stocked. Retailers also used some of the inventory reduction to buy more styles and colors–further increasing sales.
  • Nordstrom’s has taken this one step further by consolidating their entire on-line and in-store inventory in one system. The stores stock all the key items, sizes, and colors, but they allow customers to order online or from other stores with 1-2 day delivery if they are out of stock of any item they might want.
  • The highest priority is to be in stock on what sells most frequently and then to feature those items. This means better merchandising by size, color, price, and features. Many times this can improve sales by reducing consumer confusion and simplifying the decision process.

The best solution to most sales problems may simply be to get rid of many of the poor efforts and capitalize on the best existing products. Providing excellence in what we do best is simply a better strategy than diverting our time, money, and energy in projects that won’t work.

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Differentiation: What is it and how do we do it?

Most of us understand the marketing concepts of differentiating ourselves from commodities. This can be accomplished by various actions including creating brands, quality, packaging, marketing, social and web marketing, distribution, service, convenience, education, and serving niches. The purpose of these efforts is to avoid making price the main marketing tool and always being vulnerable to new competition having lower prices.

Frankly, I am tired of hearing about the success stories of Apple, Coke, Ritz-Carlton, Nike, Whole Foods, and BMW. These companies have been around a while, have lots of marketing money, are the leader in their industry or segment, and really have created something special.

 

I believe most of us live in a different world. I have counseled almost 400 start-up businesses in the last three years, and their issues are far different. They include restaurants, fitness centers, yoga studios, apparel companies, internet marketing companies, and various other services. I live in New York, and it seems like there are two pizza parlors, two nail studios, a Starbucks, and two bars or restaurants on every block.

I find clients are frequently excellent at describing how they perceive they are different.  For example, the best section of many business plans is the description of the product or service and the expertise of the company. In contrast, the weakest sections of the plans are frequently the analysis of competition, market research, marketing plans, and distribution plans.  There are, however, three areas where one can focus on differentiation in order to achieve greater success:

  • How are you different?
  • Do enough customers care about your difference?
  • How can you communicate your difference?

Does the consumer understand or care about their differentiation? Frequently we think we have something special and the consumer either doesn’t understand or care. For example:

  • I love everything about Costco, and I don’t care about the large packages, minimal service, and limited selection. They have what I want, it is less expensive than others places, and they have great hot dogs.
  • In contrast, I drink wine, but I have no interest in fine wine.  No matter how much background someone tells me, I can’t appreciate the difference between a $10 and $100 bottle of wine.
  • Special service can be a big differentiator. I love great hotels, the local deli where they know me and what I like, and even my gym where they are very subtle in asking me to move from the fast lane to the slow swimming lane when it gets crowded by telling me, “You will be more comfortable.”

These illustrate two critical concepts in differentiation. Can the customer tell or care about differences? While many women will crave expensive new shoes or purses, many men won’t buy new shoes until the rain comes through the holes in the soles. For years marketers spent millions teaching consumers that Coke and Pepsi or different vodkas are really different.

Another issue is what quality really means. Clients will talk about how their products are better because they are made in the U.S., use real wood, use real cotton, are handmade.  However, synthetics can be better because they aren’t as delicate, machine made can be more precise than handmade, and overseas can sometimes afford more quality control procedures and more detail than the U.S.

If there are differences, how do you communicate them especially without big marketing budgets?  Cars, phones, beer, detergent, cakes, and milk are nearly impossible to distinguish and communicate differences.  The biggest inspiration with regards to marketing and differentiation is bottled water. Who would believe someone could market a product for a dollar or more when one can get the same product for free?

Key dimensions that enhance communication with customers are factors like image, culture, packaging, and customer service. A customer knows the consistency of a Mc Donald’s, the service of a Nordstrom’s, and the appearance of a neighborhood store.  Many of these factors evolve from the culture of the organization which is based on excellence and respect.

In summary, differentiation is primarily a function of ensuring your product or service meets the needs of the consumer.  As one expert said, “We all know the adage….features tell, benefits sell. Then why do so many of us still speak in terms of features and not benefits. The prospect doesn’t care what your product or service does, they only care about what it does for them.”

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Passion, Reality, and Starting a Business

When entrepreneurs are thinking about starting a business, there are two distinct concepts critical to success that pop-up time and time again: Passion and Reality

Passion is best described by the following quote:

Because the people who are crazy enough to think they can change the world are the ones who do.  Steve Jobs

Starting a business is not easy.  Entrepreneurs need to understand and express their passion. This involves the enormous task of developing a mission statement and plan. But that is only the tip of the iceberg.  It also requires the enthusiasm, energy, and persistence to market the business concepts to suppliers, customers, and investors. For an entrepreneur to succeed today, they have to be willing to walk through walls. 

When we understand reality, we understand the problems, limitations, and constraints associated with any undertaking.

The emerging picture of many studies is that 10,000 hours of practice is required to achieve the level of mastery associated with being a world class expert in anything.  Quoted from Litwin in Malcolm Gladwell’s Outliers   

Good ideas are a dime a dozen. Your best friend   has the next million dollar IPad App idea.  Entrepreneurs need to consider whether they can execute the idea and make enough sales to actually make money.

How can entrepreneurs balance Passion and Reality?

It is excitement and energy that drives a start-up. However, new businesses frequently fail because small (but critical) issues are overlooked.

Why will you succeed with your Idea or Concept?

Most of us understand the marketing concepts used in differentiating successful products from commodities. For large companies like Apple, Coke, and Nike success comes a lot easier with what seems like bottomless marketing budgets.

But what about the little guy?  Entrepreneurs are frequently excellent at describing how they perceive their company as different.  In fact, the best sections of many business plans are the description of the product or service and the expertise each member brings to the team. Consistently, the weakest sections of the same business plans are competition analysis, market research, marketing plans, and distribution plans.

With these key elements missing, no wonder so many start-ups fail.  To avoid these pitfalls, it is necessary to examine these three areas of differentiation to achieve greater success:

  • How is your business different?
  • How can you communicate your difference to your target audience?
  • Do enough customers care about your difference to change their behavior?

The internet is a critical aspect of any marketing program. The first critical use is to research the product (and potential suppliers), market, and competition.  Having a website, social marketing, and an e-mail campaign are critical elements of most marketing plans– even for services and industrial products. Selling on the web is also becoming an important element of many programs and a great inexpensive way to start and test.

Key factors like quality, image, culture, packaging and customer service can be critical in affecting success.  You expect a consistent meal every time you walk into a McDonalds whether it’s located in Times Square or West Texas.  You expect the best in customer service every time you shop at Nordstrom’s.  These factors evolve from the culture of the organization—their core values.  Anyone can put product in a store or pictures on the internet and attempt to sell. It is the differences in service and other factors that separate the successful companies from those that fade into obscurity. For example, customers don’t care what your product or service does, they only care what it does for them.

Will you make money?

It’s easy to get caught up in product development and marketing. Early in the process, entrepreneurs need to project when their product will start to make money. Without steady revenue streams, businesses often stall before they can even really get started.

A preliminary marketing plan outlining channels and target markets is absolutely crucial. One of the most frequent red flags to potential investors is a business plan projecting multi-million in sales with minimal marketing expenses. Also, assumptions made about issues like pricing, costs, and revenue need to be understood and explained .

Are we telling customers why we are great?

How do entrepreneurs find and communicate with customers without big marketing budgets?  Startups frequently focus on how great their product is.  More focus needs to be put on how your customers will benefit.  Today’s technology allows what feels like a limitless amount of mediums to reach customers.  But once a customer is reached the message needs to be focused around how their lives will improve with the pitched product or service.

Can you deliver what you sell?

Operations and logistics are frequently viewed as secondary functions that can be outsourced. In reality, they present a huge opportunity for a business to become more efficient and differentiate itself.

Balancing and managing inventory to serve demand and reduce closeouts can be critical to success.  Reducing lead times, improving flexibility, and planning can all improve effectiveness and lower costs. Consider the 80-20 rule. Many operations experts have shown that 80% of sales are derived from 20% of offered products or services.  Entrepreneurs waste time, money, and frequently add confusion by adding too much complexity to their business models.

Starting a business is an exciting and potentially profitable effort. However it takes time, analysis, capital, and commitment. Entrepreneurs must allow their passion to drive them while staying vigilantly in touch with reality.

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Obstacles to Innovation

The statement by John F. Kennedy, “some people see things as they are and I see them as they could be, ” represents a concise statement on the dynamics of change and innovation.

Organizations constantly talk about creating an environment that encourages innovation, change, openness, and new ideas.  Product development gains, new products, and brainstorming sessions are all evidence of an organization’s presumed commitment to innovation. However, in many cases this enthusiasm ignores some powerful practices.

Innovation is greatly affected by the changing cultures of organizations. Two quite different circumstances feed innovation:

  • A crisis situation can create an innovative environment. The search for new solutions, the need for quick answers, and feelings of desperation all cause organizations to innovate in a period of crisis.
  • In contrast, some organizations have dedicated themselves  to searching for opportunities and supporting a creative and innovative culture.  There are several well documented characteristics of these organizations including:  flat structures, professional decision making, long term perspective, and excellent people.  Excellent and motivated employees are probably the most underestimated requirements for innovation.

Compare these characteristics to organizations that do not innovate. In many cases bureaucratic structure has blocked innovation by relying on tradition in decision making instead of looking for new solutions and assessing new realities. Innovation requires a culture of openness and willingness to take risk.

  • Bill Gates and Warren Buffet were in a televised seminar with college students where they were asked about the biggest mistakes they had made. Both responses centered on the opportunities they had missed. Their openness and desire to seek out new opportunities instead of worrying about making mistakes was impressive and indicative of why they had become so successful in their fields.
  • In a recent magazine article about Google, an incident was related where a subordinate confessed to the president about a several million dollar mistake. The point of the article was that the president was more pleased that the environment encouraged openness about acknowledging mistakes, which also resulted in tremendous breakthroughs, than the consequences of the mistake itself.

These examples illustrate how organizations are generally afraid of failure and avoid great ideas that are not slam dunks. It is well documented that people are generally risk averse even when the probability of success supports going for it.  Both a crisis situation and a supportive environment, while quite different, reduce structural barriers, increase propensity for risk, and encourage openness to new ideas.  How many corporations like Borders, HP, Sears, and Bear Sterns have gone out of business or dramatically shrunk because they ignored the events affecting their future?

Innovative behavior is frequently dependent on encouraging special vision and the enthusiasm that accompanies it. Many entrepreneurial successes are coupled with tremendous energy, determination, and going against the odds.  In evaluating ideas we sometimes ignore the trade-offs.  If you don’t make mistakes, you aren’t trying hard enough.

Recommendations to improve innovation are fairly simple and well proven. Leaner organizations, professional decision making, a commitment to innovation, excellent people, and long-term horizons are the key components. There is more an issue around how to create these characteristics. Some recommendations to achieve these changes are as follows:

  • Assess the structure, people, and practices of the organization to accommodate innovation.
  • Identify innovative organizational components and replicate and reward them.
  • Make innovation a key commitment with measured goals.
  • Understand and accommodate the different components of innovation such as time, perspective, passion, and personalities.

Caring about the people, process, and culture generally has more impact on innovation than the specific elements of the tasks.


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Excellence

I recently asked several professionals including teachers of developmentally challenged kids, emergency hospital departments, and fast food restaurant executives what they considered excellence. Their answers were simple:

  • Developing excellence in the process should be the major focus and direction
  • Focusing on results is biased by outlying variables
  • One needs to accept small gains and details and understand the differences in individuals and structures when defining success.

These were the consensus opinions as the teachers beamed about a child learning to say a color or being able to walk up the stairs. For the emergency department, reducing average patient waiting time a few seconds in their field could have a huge impact.  Those few seconds can prevent more severe complications from heart attacks. While many organizations state the goal of excellence, they frequently focus on specific actions rather than the culture and execution throughout the organization as illustrated below:

Many companies say they are committed to excellent customer service. However, there are organizations like Lands’ End, Ritz Carlton Hotels, Nordstrom’s, and L.L.Bean that have truly embraced it. There are several common factors in these diverse companies that illustrate the components of excellence. It is sometimes overlooked that it is the culture and the commitment required throughout the companies in developing excellent practices.

  • In order to offer unlimited returns you need to provide excellent quality.
  • Service companies like Nordstrom’s and Ritz Carlton both recruit and train staff to be excellent.
  • Most importantly, companies need to trust their customers. The reality is that most consumers are honest.  If companies are preoccupied with the few cheaters they will ignore many legitimate complaints.
  • Empowering employees both encourages satisfied customers and motivates employees to experience success.

Another component of excellence is identifying, nurturing, and realizing the potential of excellent people. While it is easy to extol the virtues of excellence, we frequently ignore the conditions and risk of not pursuing it.

  • Excellence requires integration with organizational cultures, structure, and collaboration.
  • Excellent people are deviant by nature and require a culture that encourages their energy, determination, and focus.
  • Company goals and procedures can compete with the excellent employee’s processes. In particular, excellent people tend to be more independent, arrogant, and self-centered than the normal organizational population.
  • Evaluating the potential of excellent people becomes complex. They are frequently introducing new concepts, processes, and technologies.  Evaluating both the risks and costs of success is frequently done in unchartered waters.

A major result of certain processes and structures is that we make more errors in constraining excellent people than we do in encouraging them. The reason is quite simple. Everyone is aware of the costs and failures of special programs that do not succeed. What we are not aware of are the losses we never realized in not pursuing new and exciting strategies.

These issues also relate to us as individuals. We all want to be effective at whatever we are doing. No one starts their days saying “I am going to do a lousy job today,” or “I am going to make my day miserable.” However, many times our aspirations, goals, and efforts become frustrated. There are numerous dimensions to this dilemma that can all contribute to our ineffectiveness.  Avoiding failure and stifling excellence has now become epidemic to many organizations. The organization builds layers to take every idea and ensure it is analyzed and reviewed to meet various legal, cultural, and strategic criteria. This almost always results in delays, watering down, and eventual rejection of the exceptional and different.

Some suggestions for creating a better environment and approach include:

  1. Recognize strengths and weaknesses—then pursue the strengths.  For example, in interviewing applicants I will focus on the strengths rather than the weaknesses to learn about the successes to understand the energy and dedication of an applicant.
  2. Find opportunities where one can succeed. People are frequently terrified to quit many dead end jobs or admit they are wasting their careers. This is particularly true in declining companies and industries.
  3. Provide the confidence to pursue what one should be doing. Many times both individuals and organizations minimize risk even if the payoffs more than justify the risk.
  4. Stop spending so much time trying to correct weaknesses.  Start exploiting advantages that can result in significant opportunities. Organizations continue to feed lost causes and ignore realities like changing demographics, technology, and competitive position.
  5. Organizations need to commit to professional decision making as opposed to position.  Companies need to start accepting expertise through giving more responsibility to their key employees and having flatter organizations. These organizations are also frequently more nimble and have lower costs.
  6. Within organizations, different cultures need to accepted and appreciated. For example, the accounting and product development teams have different roles and require different structures and rules to be optimally efficient.
  7. If an organization is not making mistakes they aren’t trying hard enough. This is the best phrase I have heard in terms of learning to accept risk. The key issue is not to encourage failure.  The successes will justify the total effort.

It is clear that both individuals and organizations have over emphasized the risk of failure versus the rewards of success. One need only look at the old line industries such as retail and furniture to realize that many of them are simply not adapting to their changing environments and taking the necessary risks to survive. Similarly, individuals underestimate the risk of staying in poor situations and the rewards of trying to maximize their capabilities.  Both individuals and organizations need to realistically assess the risks of failures and the rewards of success. As Gandhi said:

Many people, especially ignorant people, want to punish you for speaking the truth, for being correct, for being you.  Never apologize for being correct, or for being years ahead of your time.  If you’re right and you know it, speak your mind.  Speak your mind.  Even if you are the minority of one, the truth is still the truth.

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Traditional is Dead

You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new. Steve Jobs

I was talking to a university administrator the other day, and he was describing the differences between traditional (4 year on-campus) and online students.  He told me online enrollment was around 90% of total enrollment. However, the university was spending over 60% of their total expenses on the traditional on-campus students.  This is a telling example of how we analyze our businesses in terms of outdated parameters. We misallocate resources, underestimate the need for change, and avoid potential solutions. There are a number of other examples that are affecting our personal and business lives including:

  • The “traditional” family with two parents, two children, and a dog is now a minority. Many families are now single parent homes.
  • Many still think of the U.S. as a white dominated population. However, over 50% of current births and about 45% of the overall population are non-white.
  • Over recent years, America lost over 12 million manufacturing jobs.  The work force is dominated by service and technical jobs, and union membership is at its lowest level in decades.
  • The female work force has grown from 39% in 1973 to 47% in 2009.
  • Between 2010 and 2030, the U.S. population over 45 years old will grow from 39% to 45%.
  • 70% of the world and 90% of the U.S. population now have mobile phones. In addition, there are between one and two billion personal computers in the world– up from a few hundred thousand in the 1970’s.

In short, markets need to be described as spectrums or segments involving products, technology, and demographics.  Programs need to include new definitions of operations, customers, competition, and marketing. In addition, they need to offer integrated solutions to recognize changing demand, consumers, and opportunities. For example, the decline of print advertising and the availability of other detailed marketing information require new marketing strategies and approaches. A few examples illustrate how organizations are using new paradigms in their efforts:

Retail stores illustrate the new complexity. While stores like Best Buy, J.C. Penney, and Sears have uncertain futures, retailers like Wal-Mart, Target, Amazon, Costco, Macys, and Nordstrom’s seem to be thriving. However, they each have quite different models and strategies. Their marketing, pricing, margin, and inventory practices are all significantly different. It is important to recognize that the same consumer frequently shops all of these outlets with varying expectations and results. It is the development and execution of the strategy that causes success rather than determining which strategy is best.

The IPhone and Android-based smart phones are probably the best examples of the new paradigms. It is not really an IPhone. Rather it is a phone, map, shopping vehicle, game board, search vehicle, e-mail and texting tool, and camera–amongst many other things. In an informal survey of how people use these devices I found 80-90% of those questioned described their primary use as something other than a traditional phone.

Ideo is an award winning global design firm that takes a human-centered design based approach to helping organizations in public and private settings innovate and grow. They identify new ways to serve and support people by uncovering latent needs, behaviors, and desires. Design thinking is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success .The design thinking process is best thought of as a system of overlapping spaces rather than a sequence of orderly steps. There are three spaces to keep in mind: inspiration, ideation, and implementation.

In short, while qualities like experience, best practices, and reputation are still critical determinants of success, the “we have always done it that way” approach is dead. Even Apple and Facebook, the poster children for innovation and growth, saw their stocks dramatically decline recently. What is needed is a constant focus on innovation, feedback, research, and measurement. We simply need to accept that paradigms and traditions are changing faster than ever and that individuals and organizations need to react to those changes.

The statement by John F. Kennedy, “some people see things as they are and I see them as they could be” represents a concise and relevant statement on the dynamics of change and innovation.

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