The Genius of Apple

As a break from my daily routine I often like to think strategically about other companies. I particularly like to look at some of the bigger companies that impact our daily lives. Starbucks is one that I like to watch as is Dell. One that has caught my eye lately and that I find intriguing is Apple. Apple was recently named the most admired company in the world by Fortune Magazine. It's a good article as is the follow on piece about Steve Jobs. What makes Apple particularly interesting to me is their BHAG - "to democratize technology by providing products everyone will want to use". Apple pursues their BHAG relentlessly and utilizes this passion in their product development process which consists of three questions: : 1) what do we hate; 2) what do we have the technology to make; and 3) what would we like to own?

This is classic Blue Ocean Strategy. By focusing on democratizing technology Apple has transformed the digital market from one that focused on owning technical standards to creating products that people wanted to have. That is why today, I'm writing this blog on a Mac; its current sales growth is double the next competitor. As I type, I'm listening to music on iTunes; now the second largest music retailer in the world. Later, I'll go to the gym and will listen to those tunes on my iPod; that has 70% of the market for digital music players. And, the iPhone has been such a rage that people stood in line to buy one and Apple expects to ship 10 million this year.

Yesterday was an interesting news day for Apple watchers as word leaked that Apple is strongly considering some type of subscription model for music. As is typical of news about Apple moves, details of the plan are sketchy at the best so its virtually impossible to comment on the merits of the model. Rather, what is interesting about this "news" is that it appears to the pundits and followers of Apple that this is a significant change in Apple's strategic thinking. Steve Jobs is on the record as being against a subscription model as he believes that consumers want to own their music. If Apple does in fact come out with this type of model it would appear to signal a strategic change. Personally, I'm not sure that this really isn't just a long planned strategic move that gets Apple closer to its BHAG.

From a historical perspective I'm inclined to agree with Jobs about music ownership. As much as I use iTunes I have historically only bought singles, not albums online. There is something I like about having that CD in hand and know that my ownership is not limited. Given the success of the iTunes model and the lack of success for subscription models like Napster and Rhapsody, it seems that the market concurs.

However, as time has gone by I have gotten comfortable with online music and I have begun buying whole albums. I'm now buying all my music online. Because its all online, I don't necessarily feel like I own my music - that attachment is gone. To be honest, I don't miss the experience of having a CD in hand because I like the ease and depth of iTunes. Three years ago when I got my first iPod I did so because I didn't like the subscription model. Today I would be comfortable with a subscription model because the music ownership no longer has a personal connection for me. Rather, the idea of unlimited music at a fixed cost is hugely appealing.

Consider my conversion within this context. Apple indicates that it has sold 140 million iPods and over 4 billion songs on iTunes! It stands to reason that if a user like myself can get comfortable with buying all their music online and lose that attachment to the ownership aspect of music that the other 140 million users could as well. Assuming so, perhaps Jobs has determined that a tipping point has been reached in the need for music ownership.

The question then becomes is a subscription model a dramatic change in strategic thinking for Apple or a predetermined recognition that the need to own the music would disappear? If I didn't understand Apple's BHAG and approach I would concur with the pundits that this is a strategic change. However, knowing what we know about Apple its pretty clear that this strategic move has long been a foregone conclusion. Why do I say that? Well, think about the BHAG - "democratize technology". What is more democratic - ownership or unlimited access? Obviously unlimited access is as the ability to own is limited by the amount of capital you have to acquire. Also, unlimited access implies freedom of choice - I can listen to whatever I want whenever I want. The only constraints are my imagination and music tastes. In Apple's BHAG subscription based music becomes the ultimate demonstration of the democratization of technology!

Many will argue that Apple has been less than democratic with iTunes. After all, you can't play it on any other player besides the iPod. Also, Apple has been adamant about its pricing model when dealing with the music companies. All true, but if Apple determined long ago that the market was not ready for subscription music why would it bother pursuing that model? Additionally, by waiting for the tipping point to arrive Apple has been able to build a dominant market position in the music business. When subscription music finally arrives all those iPod owners will signing up for Apple's offering. And, as anyone in the banking, cable and telephone industry can tell you, its very expensive to convert customers. That's because people only change those services if the case for doing so is extremely compelling because its a pain to do so. Assuming Apple can continue to meet their customers expectations defections to other services will be limited.

The bottom line for me is that I think a subscription model done right could be pure genius for Apple. The reoccurring revenue they will generate will be mind boggling - do the math at any subscription number. If Apple can truly democratize technology with a subscription model, they will have happy customers and very happy shareholders.

So there you have it.

Recommended Cool Stuff

Being the inquisitive mind that I am, I am always on the lookout for cool stuff that can actually help our businesses run more efficiently and effectively. Since the theme of our week has been riding the recession, I thought I would further contribute to your cost saving efforts with some recommendations and links to tools that I have found. Many of these tools are free and can actually help you cut costs if you decide to use them. In no particular order, here are some of the ones that I have come across and that I am using.

On the telecommunications front we have a couple of different technologies that I have been using as of late. The first is Skype. Skype allows you to call anybody on Skype free of charge. You can also buy time and call a regular phone for a very reasonable price or for something crazy like $3 a month you can get unlimited calling. They also have video capabilities so you can see who you are talking to as well. I use Skype through my computer but you can also buy a standard handset to use it. We've been doing international conference calls with it for free and the quality is good.

Another telecommunications offering we use is Free Conference. With Free Conference you can either set up a 800 number for 10 cents a minute or get a general number and local rates apply. With Free Conference there are no more thousand dollar conference calls. I believe there are a couple of other competitors in this space, so Google "free conference calls" to find the others.

We are also beginning to use YuuGuu. This is a free web conferencing technology that allows unlimited participants on a web conference. For those of you spending a fortune on Web X, this is a great alternative. You can also use this to collaborate with others through the web. You can share documents and your photos and all sorts of other stuff on your computer.

For those of you who are not fortunate enough to use a Mac and the new Time Machine for backing up data, a great and economical solution is Mozy. Pricing is as cheap as $3.95 per month for online back up. A lot cheaper than having a server and certainly better than having everything lost when your Windows machine inevitably crashes!

Boot strapping your business and maxed out on the credit cards or don't want to pay the "market rate" of 22%? Or, got some extra cash lying around and want to get better rates than what you can get from your bank? Then check out some of the peer-to-peer lending sites out there that let you borrow up to $25K. The biggest is Prosper. But a couple others are coming on strong and have different structures. Also check out Zopa and Lending Club.

Does your son/daughter/wife or best friend want to borrow money from you? Formalize the process with Virgin Money USA. Formerly Circle Lending it provides all the documentation necessary to formalize the loan and they will even do the collections for you at a reasonable price.

Those of us in the service business know what a pain in the ass it is to track our time and do our billing. Check out Fresh Books which is an online invoicing and time tracking software. I'm just beginning to play around with this, but its pretty affordable and from what I've seen it does a pretty good job.

On the personal money management side there are a number of financial manager websites out there that warrant taking a look. A couple to check out include Mint, Wesabe and Smart Hippo. I can't provide recommendations on them yet, but each looks pretty cool and given that the recession is going to make us all watch our spending a little more closely they are definitely worth exploring to see which one works best for you.

If your like me and don't necessarily think in a straight line, it might be time to look into Mind Mapping software which allows you to actually connect those random thoughts together. I use Mind Jet, which I believe is the best software out there. I particularly like it because I have handwriting that even I can't read, so when I'm in a meeting I just Mind Map the meeting and save it. You can then export it to a Word document or a Powerpoint. Reasonably priced at something like $79.95.

Lastly, we can't be all work and no play, so check out GameTap. They have close to 1,000 games that you can play online. This includes some classic arcade games like Pac Man, Galaga, Dig Dug and Burger Time. They have free games or you can join the service for $9.99 a month. Amanda, if your reading this, I never ever have time to play!

That is all I have for today, if your like me and in the office on this snowy day, take some time to explore these sites. It will be worthwhile.

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"