Ride the Recession Wave

Interesting news day today. If you believe the economists, we are not in a recession. According to President George we are not headed into a recession. Hmmm. I have to admit that there is a part of me that enjoys delusional people. I mean I can be an optimist as much as the next guy, but at some point you need to recognize that Elvis has left the building and Rick Pitino was right - Larry Bird is not walking back through the door. So let's do it, let's make the official announcement of what all of us who make the economy run already know - ladies and gentlemen we are in a recession! (applause please)

Ok, this is not news to cheer about as we know there is a lot of pain being inflicted and there will be casualties. If we are not careful it may get you, me and my best friend's sister's boyfriend's brother's girlfriend plus a bunch of other people we don't know. But, as GI Joe once said - "knowing is half the battle" and if we are going to battle the recession we better face it head on. Therefore in officially acknowledging its arrival, I am pleased to provide five simple tips on how to ride the recession wave. The advice is free of charge, but donations are accepted!

Focus on what you do best
Yes, tip one is boring and for most of us pretty obvious, but you would be amazed at how many companies fail to get back to the basics. Your customers came to you and stay with you because of what you do well. So my first piece of advice is to retrench and focus on doing what made you successful in the first place. Starbucks is a great example of this. In as much as I hope they don't do something stupid with their coffee prices, I applaud them for announcing to the world that they stopped doing their core well. Shutting down for five hours to train employees cost a lot of money and shows some real commitment and testicular fortitude!

Get Creative about costs
Human nature seems to require us to cut the wrong costs as soon as things go bad. No raises for our best people this year, cut training, stop advertising, reduce research/development, etc. Please, I beg you, don't do it! Tell your controller to step back and think for a minute before slashing everything. Instead of just cutting costs, be creative in considering what to cut. I advise our customers to ask themselves and their management team to ask themselves two questions: 1) - what can we do to reduce the cost of producing/delivering our product/service by 25% without impacting our customer value proposition? 2) - what can we do to run our business more efficiently today without impacting our ability to grow? Positioning the cost cutting discussion in these terms should lead to innovative solutions that will help the business today and tomorrow while not being demoralizing to management and staff. It takes a negative and creates a positive that will hopefully position your company to ride out the downturn and come out faster/stronger than everyone else.

Invest in your brand
One of the first cost casualties when times get tough is the investment in branding initiatives such as new collateral, advertising campaigns, updating websites, etc. Go against conventional wisdom and take advantage of their unwillingness to invest. I know its painful and expensive, but by keeping your brand fresh and in the public your demonstrating to both current and potential customers that you are here to stay and that your confident about your business. Your brand is one of your most important assets, so treat it accordingly.

Get cozy with your best customers
Your best customers are your best customers for a reason. Unfortunately, if the 80/20 rule is right most of us are typically spending far too much time dealing with our smaller, problem child customers. Or, we are so focused on getting the next customer we forgot about why we got the good one in the first place. My advice - stop it! It's a lot easier and less expensive to grow an existing customer than to get a new one so spend some quality time with the ones you already have. Doing so is pretty easy as you already have the relationship. Take them lunch/dinner, out for a drink or just get them on the phone to talk. One of the things I try to do from time to time is engage my customers in general business conversations that I can steer towards specifics of their business. It almost always leads to more work.

The bottom line is that at some point your competitors will go after your best customer. You've got a much better chance of keeping them and surviving the tough times if you've built and managed the relationship . Now is the time to invest in your relationships.

Think
Its a concept that is largely underrated but one that really deserves most of your attention. I try to take one day a month to get out of the office and do nothing but think. In doing so, I might spend the day reading or just driving around but whatever it is, it provides me an opportunity to recharge my batteries and step away from the noise created by the day-to-day business challenges. In doing so I get to work on my business rather than work in my business. To be honest some of my best ideas (like this blog post) come from this process. Even if you can't get away for a full day, find an afternoon or two where you can do it. You'll be amazed at the solutions you come up with and the results you achieve.

So there you go, my free advice for riding out the recession. Hopefully it helps and if not, well you get what you pay for!

Starbucks - Just Say No!

Consider the recent news for Starbuck's:

• Overall transactions per store were down in the last quarter for the first time ever
  
• Dairy prices have significantly increased, negatively impacting margins
  
• Economic woes have consumers spending money on $3 a gallon gas instead of $4 lattes
• McDonald's has decided to throw itself completely into the coffee business; Dunkin Donuts continues its nationwide expansion
• Share price in the past year has been cut in half
  

Starbucks response to these market conditions was to fire its CEO and restore Howard Schultz to his throne as CEO. With his return Schultz sent a message to all employees that stated:

"We will be refocusing our entire organisation on the Starbucks experience, by going back to our heritage and what made us so successful in the first place. 'We are going to play to our strengths ... ethically sourcing and roasting the highest-quality coffee in the world; the relentless focus on our customers; the trust we have built with our people; and the smart, entrepreneurial risk-taking, innovation and creativity that are the hallmarks of our company."

Recognizing that the Company had been growing too fast, Schultz's first move was to announce that they were going to slow down the number of store openings this year. Good first move. His second move was announced this week - in the Seattle market the Company is test marketing the introduction of an 8oz cup of coffee for $1 and free refills. NO!

Wait a second - I'm upset about a company that I patronize almost everyday cutting their price? Yes I am! While it might be nice to get my Breakfast Blend for half price I'm extremely disappointed because its a very bad strategic move. Let me explain. You can argue that Starbuck's is a poster child of the Blue Ocean Strategy. It built its entire business on overcharging for a commodity and convincing us that overpaying was a good idea because the Starbuck's experience was worth it. It revolutionized the coffee house business and no competitor has been close in matching it. Now, at the first sign of trouble the Company's first real strategic move is to take a classic red ocean approach - lower prices, give the product away! Rather than focus on what made Starbuck's successful - customer experience, great coffee consistent customer service and innovative products its going the McDonald's and Wendy's dollar menu route.

The most overpriced mass consumer product in the history of the world is suddenly selling for a dollar with free refills? Great news you say its just one product and it shows they are focused on making the customer happy. Wrong - believe it or not, rather than build goodwill with its loyal caffeine addicted customers it sends the opposite message. Whether anyone realizes it or not, with this move Starbuck's is coming clean and acknowledging that they have lied to us for all these years. Even though we knew that coffee and lattes really didn't need to cost $4 we bought into it because we believed in Starbuck's, believed in the experience. and embraced the brand. There was a small part of us that wore our Starbuck's patronage on our sleeve. Being a Starbucks customer showed we were smarter than others because we had a knowledge of coffee and we were proud of our ability to pay ridiculous prices for a cup of coffee. Now, we find out that Starbuck's knew all along that they were price gouging and that there was nothing special about their product. After all, if I can get a bottomless cup of coffee for a buck at any local diner why should I go to Starbuck's anymore?

And, don't think it stops with a cup of coffee. In making this move Starbuck's has announced that price is an important factor in making your coffee purchasing decision. It will become ingrained in the mind of the consumer and soon it will impact other products. Once one price falls, the next product is bound to fall as well. Its the cold war domino theory modified for the breakfast wars!

Sadly, by pursuing this strategy, they are playing into McDonald's and Dunkin Donuts hands. Starbuck's currently has the upper hand in the coffee wars because of its market share and value its built as a brand. Before this move, there was no way that I would to to McDonald's for coffee, no matter what the price - its McDonald's and as we know about McDonalds, you get what you pay for. Now, I'll consider it because Starbuck's has informed me that if they can sell their product for the same price as McDonald's then there can't be much different. By engaging in a price war, its allowed its competitors to choose the field of battle. Price wars are those guys forte - they are transactional in nature and providing their product as cheap as possible is ingrained in their corporate DNA. That's not the case with Starbucks who have had an institutional arrogance about their importance for years and have been living off of huge margins. This decision reinforces that point. Smart companies don't engage in price wars unless they are positioned to win a price war.

Sadly, I fear that if this move goes company wide it will signal the beginning of the end of the Starbucks era. While it will try and try it will never return to its glory days when customers lined up to spend $4 on a double mocha latte. With one bad strategic move Starbuck's will acknowledge to the market that coffee is a commodity. Welcome to the red ocean Mr. Schultz.

By the way, on the day the $1 coffee and free refill was announced, Starbucks shares jumped 7%

Has "Passion" Jumped the Shark?

First of all, happy holidays and New Year to all. 2007 was an exciting year for us and we are looking forward to a great but challenging 2008 as we look to see where this economy takes us. I"m not going to get into my predictions on the economy because there are many far better paid prognosticators who will get 2008 wrong, so I'll leave it to them and get on to my post.

For some context as to the title of this post, "jump the shark" is a term that denotes the point when something has reached its pinnacle and is now about to begin to decline. The term comes from a Happy Days episode when Fonzie literally jumped the shark tank with his motorcycle. This was the climax for Happy Days and the show went downhill from there. There is actually a whole website dedicated to "jump the shark" moments - be sure to check it out.

As any of you who know the Vann Group know, passion is something we talk about quite frequently. Its one of the core tenets of Collins Hedgehog Concept. We preach it as part of our strategic planning process and even have a section on our website dedicated to our passion and the passion we look for in choosing the companies we work with. So you can imagine how much it pains me to even begin to contemplate the thought that term "passion" has joined the lexicon of business terms and concepts that have jumped the shark.

Two recent news/stories have led me to consider whether or not passion has lost its meaning. The first was this story about Bill Parcells, who announced in his inaugural press conference with the Miami Dolphins announced that he would only be drafting players who have passion. Yikes! If Parcells is talking about passion the term has had to lose its meaning. After all, the Tuna has only ever had a passion about his next job, certainly not for building organizational culture that survives for the longterm. From the context in which we apply "passion", Parcells in the antonym!

The second story was in Sunday's Boston Globe Magazine and entitled Married to the Job. The article is about romantic relationships and dedication to work (yes, Amanda was sympathetic to the story!). Beyond that what caught my eye it has a paragraph about passion that really hit home and made me consider whether or not passion has jumped the shark. Here is the key paragraph from the article:

"Consider: Some 978 of Monster.com's Massachusetts job listings have "passion" as a keyword. Companies want people who are passionate about investigating insurance claims, selling motorcycles, thwarting shoplifters, and replenishing the stock on the shelves of a discount clothing store. My favorite, placed by a restaurant chain, requires that all candidates demonstrate "a passion for casual dining." Do they rent rooms by the hour for that?"

So 978 job listings have the word passion in the description - amazing! Have that many companies gotten the religion of passion or has passion become just another buzzword that we are randomly applying because it sounds good to use? From a business sense has the word lost its meaning? Or alternatively, has it become a qualifier - as in you need a masters, 3-5 years experience and the ability to demonstrate passion about casual dining? I'm not sure, but what I do know is that once a word or phrase becomes ubiquitous it: 1) loses its value and 2) has a backlash against its use.

I would hate to see this happen to passion because much like the term "love" or "six figure bonus" when properly applied it communicates a powerful feeling. To have it watered down would be extremely disappointing because of what it does imply and what we believe. However, as I continue to assess whether or not passion has jumped the shark I've begun looking for other terms that I can use to communicate the principles of passion in the event I find that yes, passion is on the 2008 in/out list. So far, I'm not having any luck, as the thesaurus does not provide much help. Any suggestions you can provide would be greatly appreciated!

Lastly, I'm leaving for a European business trip on Friday, so look for a couple of posts in the next week or so as I will finally be able to catch up on my business reading.

Tattletale Ethics

Cindy, you know by tattling on your friends, you're really just tattling on yourself. By tattling on your friends, you're just telling them that you're a tattletale. Now is that the tale you want to tell?

Mike Brady

Now Mike Brady may not be Peter Drucker, but he does provide an interesting point in management advice – nobody likes a tattletale. We may think of a tattling as a childhood obsession but it has some real implications in the world of business. After all, many of us know something unsavory about a competitor or fellow employee or have had an experience with someone that exposes behaviors/traits/responses that do not match the public persona that the individual/company has presented. We would love to announce it to the world, but we rarely do.

Why it tattling not tolerated by us? Is it the so-called “honor amongst thieves”? Is it our own perception that we are taking the highroad and not resorting to negative behavior? Or, is it because all of our lives we have had the words of Mike Brady reinforced – nobody likes a tattletale?

Take the case of Mr. Eric Mangini of the New York Jets. No need to go into the details as they are on display in every sports section today, but Mangini became a tattler this year when he turned into the league one of his peers – Bill Belicheck for videotaping signals of the Jets and other teams in the league. The initial outcry in the press and throughout the league was shame on Belicheck and the Patriots for cheating.

Yet, as time started to drift, there seems to be a bit of a directional shift. The comments in the press are not about what a brave and noble thing it was for Mangini to come forward, but consternation for his betrayal of: 1) the coaching fraternity (as Jimmy Johnson notes in USA Today, he did it and everybody else does it to a degree); 2) his mentor who brought him along from an intern to a head coach; and 3) the New England franchise and the Kraft family who were loyal to him and provided him the opportunity that led to his job.

Today, the press isn’t moralizing about how the Patriots cheating betrayed the spirit and integrity of the game. Instead there are segments of the media and the blogosphere that are talking about how untrustworthy Mangini is and how New England is going to use this as motivation to destroy the Jets. The anticipation of perhaps the greatest single game demolition in the history of football is being gleefully cheered by the masses. Mangini and the Jets have gone from protectors of the integrity of the game to the main course for the lions (err Patriots) at the Coliseum. Apparently, Mike Brady was right – tattling just tells your friends you are a tattletale.

Is there an ethical obligation to be a tattletale? One can argue that no significant harm was being done. Mangini could have easily adjusted his signals and could have informally made it known to his peers to look out for this when playing the Patriots. Tattling is an option, but not the only one. Did Mangini create a greater sin in his peers and the publics’ eyes because the nature of his actions made it very clear that in tattling he was only doing so to hurt a competitor and conceivably gain an advantage? If so, does this mean that tattling is only acceptable when there is nothing to gain in doing so? In essence, should we only tolerate tattling when it is for the public good?

It is commonly accepted that the messenger is usually the one who pays for delivering the news. One would assume that a man with the nickname “Mangenius” would have known this. Apparently, he decided otherwise or that the gain achieved from outing the Patriots as cheaters would outweigh the cost. In making his decision Mangini has learned that there are consequences to tattling.

Right or wrong, in tattling Mangini has opened himself up to public scrutiny. Whether he is cheating or not, his ethics and motivations are being questioned and criticized on a far more fundamental level. After all, people can understand the motivation of a cheater – the motivation of a tattler is not easily understood.

As business owners and managers we have to make difficult decisions everyday and this situation teaches some fundamental points of leadership. We live in a complex world and decisions need to be considered from every angle not just what is right and wrong. We need to take into account all the impacts of a decision especially when they involve ethics. Ethics seem to be a fuzzy thing and when calculating the impact of a decision on our business and our employees we need to recognize that what we perceive is right isn’t universal especially when the decision is going to be a public one. In the business world being “right” from an ethics standpoint has very little to do with the final outcome.

I don’t know what Mangini was thinking when he blew the whistle on Belicheck but it’s likely he didn’t consider the full impact the decision would have on his team or his own personal reputation. Whether anyone involved will admit it or not, one has to assume that it has had a negative impact on his team. Time spent answering questions about “camera-gate” take away preparation time and focus. Worse, perhaps he lost some of his locker room because not everyone agrees with his stance. After all, how willing are they going to be to give their all to someone who betrayed and publicly humiliated their mentor? If so, it has a direct impact on their ability to perform.

Whether or not tattling was the right decision is a call only Mangini can make. In hindsight maybe he makes the decision again or maybe he realizes that the gain wasn’t worth the price. At the very least, I hope he can sleep well at night. When it comes to ethical decisions that is all you can really hope for.

Whoops!

I just noticed that the previous post was published uncompleted - apparently blogger decided I was done writing! I've finished the post so it doesn't stop in the middle of a sentence. Sorry about that. Look for another post in the next couple of days - the topic "Tattle Tell"

Some Odds & Ends

Clearly its been a while since I've last posted. I wish I could blame it on the holidays or the weather or even Dick Cheney, but alas, its all my fault. Yes, I'm taking the fall for my inability to maintain my blog site - clearly there is a discipline to this that I have not yet grasped. With that being said, I've been busy grabbing some miscellaneous insights into the world of business these days.

Last week I attended a rather enlightening credit union conference in Hawaii (go ahead sneer, the weather wasn't that good) and took along my family. That means Amanda and I took our nearly 1 year old daughter Abigail on a series of flights that covered almost 5,000 miles and 14 hours. At the time, I couldn't decide if I was just dumb or plain stupid! Amazingly enough, Abby is a fantastic traveler (she has already been to 10 states!) and was great on the plane so it was a great trip.

Anyways, I wasn't initially impressed with the conference proceedings, but as they soaked in, I was glad I went as I gleamed a number of insights. First, I should note that the keynote speaker was Charles Fishman of "the Wal-Mart Effect" fame. After hearing him speak and reading the book, I can say that he provided some fresh insights into Wal-Mart but certainly didn't provide the level of analysis on how smaller companies can compete with behemoths who have commoditized industries (paging Jim Collins). During his talk, Mr. Fishman spoke rather passionately about how challenging banking with Wachovia was and how wonderful it was to deal with his credit union. Mr. Fishman, in his discussion made it clear that the key to competing was to provide an unmatched level of customer service. However, it was very clear that despite numerous customer service problems his primary financial institution was Wachovia rather than the CU that served him so well.

During the Q&A I inquired as to why his PFI was Wachovia rather than his CU. His response was extremely enlightening. His CU was far away and despite moving to a new area he chose Wachovia with its many locations, great online banking and very competitive rate structure over finding a CU near his residence. Despite superior customer service, rates and convenience were so important to him that he didn't even bother looking into a credit union! What this proved is that while customers may scream about customer service a significant portion of any of our customers are just like Mr. Fishman - its the speed, convenience and price of the transaction that drives their decision - not customer service.

This clearly doesn't include every potential customer, but based on my reading of his book, I would have to say that it would be safe to assume that at least 1/3 of customers fit this mold. This means that at any given time at least 1/3 of your customers are ready to change their patronage of your business if someone faster, easier and cheaper catches their eye. Unless our plan is to compete in this type of red ocean this reality is extremely discouraging. However, the insight also provides a bit of a direction for building a Blue Ocean Strategy (yes we can help with that) if you desire to break away from servicing this element of the market.

Essentially, if can quickly conclude that at least 1/3 of the market of customers is not your customer you only have to worry about what the other 2/3rd's of the market wants. With some careful and thoughtful analysis you will probably determine that at least another 1/3 of the market is probably not your likely customer as well. This means that perhaps only 1/3 of the potential buyers of your product/service are your likely customer. I know this sounds strange, but take a look at your customer base today - what percentage do you consider truly loyal to you?

Recognizing that your market is a fraction of the size you thought it was can be strangely liberating as it allows you to truly identify who your ideal customer is and what it is that they want and need. With that knowledge you can then match it up against your core competencies to see where the gaps are and take steps to minimize them. In doing so, you will make your company more competitive and therefore more attractive to the customer you truly want as your customer.

Thanks Mark!

In my post yesterday I made a comment about not being able to discern the differences in customer service anymore. I've had an experience the past couple of days that shines a light on what an exceptional customer experience is. I was in Charleston, South Carolina this week on business. Thursday morning I received a call from my tenant that the smoke alarms were going off. The decision was made to call the fire department as there was no way for Amanda or I to get home quickly enough (obviously for me) to check it out. The fire department arrived to our house and were greeted by smoke pouring out of the windows. Fortunately, they were able to get in and contain the fire before serious damage was done.

Once I got word of what happened, I called our insurance agent, Mark Osgood from Label Lavigne Insurance in Chicopee, Massachusetts. I told Mark what had happened and within twenty minutes he was at the house to meet with Amanda and to handle all the details for getting our lives back in place. A restoration company arrived to secure the house and an adjuster arrived to survey the damage and provide us with directions on what we would need to do next. A cleaning crew is now in to clean the house from top to bottom (a lot of smoke damage) and a dry cleaning service was in to take virtually every piece of clothing and fabric cleaned. All these services are being billed directly to the insurance company so we don't have to haggle.

Life won't be back to normal for a little while, but thanks to Mark this near tragedy has been a lot easier to deal with. Thanks Mark!