Archive for February, 2009

The head of an interior-design firm in the Midwest has a great opportunity to expand his customer base by building flooring store within a furniture store.  This owner is very excited about the prospects of the new deal and after performing months of work, he is about to open the new location.

The trouble is he’s going to use his existing model to secure business in a location where a new model must be built.

The existing model is when someone comes in the door they do what they can to secure the deal so that the company makes a profit, the sales people make a commission, and the store remains open in what is, in the year 2009, a dismal economy.

The store owner told me that December 2008 was the worst month he’s had since he’s been in business.

The challenge with applying his current stand-alone-store model within the furniture store is that it won’t create new business the way he expects in the new environment.

For one moment, take the position of the owner of the furniture store.  It’s the largest furniture store in town.  I bet you’d only bring in a new project joint venture with a flooring store if you felt that by bringing in the new services, you’d sell more furniture.  At least that’s what you’d expect.

Now fast forward and take a look from the hidden camera on the ceiling.

A customer walks into your store and is greeted by a salesperson.  She helps one of the few prospects for the day come up with a new living room set up with about $2700 worth of furnishings.  She then suggests to the prospect that they might want to look at flooring to enhance the furniture.  And she’s right.  New floors would make the furniture “pop.”

So you now can picture the salesperson who has a semi-closed sale with a couple walking into the furniture section.  The couple has no clue that the two firms–furniture and flooring–are not one.  The flooring expert then really does a bang up sale and in the end, the couple shaves two pieces from their original furniture purchase and re-allots the money to the purchase of some new flooring.  Most likely this was not in your plans.

That’s the reason the model must change.

In this new location, the owner must live by a different set of rules.  The objective is to help the furniture store grow and at the same time grow the flooring business.  This means that YOU, the furniture store owner, peering down on the floor of your building, would like to see a balance.

You’d like to see a customer who comes to purchase furniture and being simultaneously assisted by the flooring expert.  You want to see your flooring specialist bringing tiles or wood to the furniture side so that your customer sees an entire package, and both parts of the business are working together.

You’d like to see the flooring salespeople set some of their own boundaries and on occasion, even lose a sale so that your furniture sales people don’t lose business.

You’d like to see your sales people view the flooring experts as a bonus to the business and not competition for the same dollars.  You want your prospective customers to consider the new products as a one-stop-shopping convenience, so that both the furniture side and the flooring side function as a coordinated effort resulting in more closed sales.

Notice I did not say team.  My experience is that most people don’t know how to play as a team.  They didn’t play a team sport when they were young or older, and when they did, they hogged the ball or dropped the ball too often.

This means that the owner of the flooring business must change his model so that at times, even when he loses, he wins. The balance is crucial for his new venture to work.

In the 60 minutes interview this week, Chris discussed how he made sure he was delivering to his audience and how he knows he’s on target.

“The way I tell which songs are working and which are not is if you see silhouettes (in the exit halls, since they are white on a sea of black), then you are probably doing something wrong, and the audience members are probably  going to get a hot dog.”

He called it the Silhouette Factor

I understand that each market has the ability to influence prices and that there are decisions, some calculated and some on the fly, that determine a price that someone may pay for a product.  If a firm introduces a $500 item in a market where there are $400 competitors, for some reason they should be able to justify the difference, otherwise the product won’t sell.  They need a differentiation factor.

Leaders and managers that don’t understand simple facts like this put their firms in jeopardy.

In government, the challenge appears to be a little different.

While driving home from a wedding near New York City, our GPS routed us through New Jersey and Pennsylvania which are west of the city and then upward to Syracuse, steering us on to full 5-hour drive.  Nearing midnight and still in New Jersey, I thought I thought we should fill up our tank with gas so that we had no problems finding fuel later on in the night, since many stores close at 10PM-12AM.

After about a 20-minute ride, we ended up finding a station approximately 2 miles off the main highway where the gas options were $1.69 for regular fuel if you paid cash and $1.79 for the use of a credit card.

A bit later, we crossed the New York State line and drove past the first gas station, noticing its price sign for the same gas, not rocket fuel or space-age technology, of $2.12.  The difference was 43 cents or about 25%. What’s even more amazing is that in New Jersey, it’s illegal to pump your own gas, and the New York price was for self service.

Summing up the difference at face value, you’d have to say that the gas station owner does a better job of being efficient at selling and distributing gas. Even though this might be true, the truth is that in NY the majority of the 25% price increase is the result of state taxes.

These are taxes that are to help NY to have better roads and bridges, schools, and infrastructure. So how does NJ do it?  NJ has roads, bridges, schools, and infrastructure, but their gas stations don’t have to rape consumers to provide for them.

Once again I’m challenged.  In New York, just a decade ago, the budget for education was around $12 billion and today that same budget is around $23 billion.  That’s $17,000+ to teach a student for a year, up from $7000+. (Many other states deliver education between $7000-$9000.)

I have two kids in a quality NY state high school, and I still can’t see the educational improvement.  In fact, throughout NY, the government is cutting programs not adding them. Besides New York is losing residents due to the high cost of real estate taxes, consumer goods taxes, utilities, and home ownership.

Over the years I’ve heard of countless business leaders who have taken their businesses just one hour south to Pennsylvania and seen their cost of utilities, personnel, and taxes drop by a third.  Imagine the jobs, consumerism and opportunities if a person who takes home $50,000 a year can now take home $65,000 per year.

All this is due to mismanagement and there are lessons for everyone.

1.  In NY, the leadership does not fear that the entire state will move away, so decision makers don’t feel the pressure to make better than poor decisions.  A business person does not have this luxury.  Unless your business has a propriety product or a monopoly, your customers can choose alternative vendors, thereby making the decisions made by management more calculated and important.

2.  In NY, the leadership has gotten comfortable with playing as a losing management team.  They go to work every day comparing themselves to themselves and not to their nearest competition.  Again they don’t fear that everyone in the state will leave, so there is no resolve to actually change.  Business people also become comfortable in their roles until a new person shows up and rocks the boat.  New people are a great way to push the rest of the company to excel.  It’s why there are tryouts for the National Football League teams every year.  You’re not guaranteed the spot even though you have the contract.

3. In NY, the thought of competitive intelligence is not commonplace, and yet in business, scrutinizing the competition is often the way to win.  In business, you’re having to ask, “What are they doing and how can we do it better?”  Not just playing the best practices game.  We want to copy what you do.  It’s watching what competitors do and then blowing away their offerings with something better.  Great managers always have a thought about what’s happening around them while focusing on making progress as their primary goal.

4.  In NY (and around the nation), people in politics love to play politics.  They get a thrill out of playing the game.  It’s funny.  I’ve known so many people, including myself that would rather shoot themselves than go through the stupid rituals that make political people politicians for life.  They’ll even tell you they could never do the job.  Funny, these people are often movers and shakers in business.  Could we then suggest that people in politics are not the builders but love to play the secondary role they play? Mmmmm.

4. In NY, those in  office just don’t know how to fix the problems.  I ask this question all the time to people in business.  “If the people could show up to work and solve every problem they have, why wouldn’t they?”  I get all sorts of answers and occasionally I have someone burst out the answer.  They don’t solve all their challenges because, well, they don’t know how. Otherwise they would have done it.  They’ve had the time, and in NY state’s case, they’ve already had enough money to solve many of our challenges, too.  The same holds true in business.  If someone shows up to work every day and still, after working on something for a long time, he still has the problem or has created a new problem, he probably doesn’t know how to fix the challenge.

What needs to happen is that leadership and management needs to be changed or taught new tools to make the change occur faster or more efficiently.  Tools such as those in Enterprise Thinking or what I teach at NYU in my strategy and innovation classes.  Tools that make decision making more precise.

The fact is that a 25% difference in the same product, where the lesser even gives a better service, is disgraceful.  On your end, how do you compare?

Quite some time ago, prior to the global recession, I signed up for an email alert system from manufacturing.net where they send to me current news on the manufacturing sector.  What I’ve loved about the system is that during these past few months, I’ve seen both sides of the layoff situation and the potential solutions, and they’re being provided in a non-judgmental forum.  I get just the news…globally.

For example, in the posting below, the report notes global concerns in Italy & Germany.  The writers could have easily talked about green initiatives or what’s going on within the business.  They did not.

Italy Paying New Car Buyers $1,900
Manufacturing.Net – February 06, 2009