John recommended Atlas Shrugged to me last week and I bought the Audible version to listen to while I work. While I found the writing superb and the story-line thought-provoking, I quit listening to it 6 hours into the 50+ hours program. I felt like I knew where the book was headed and, as a novel, was more about entertainment than communicating me the ideas succinctly. I don’t have time for it right now. I am focusing on content that is helping me as an entrepreneur right now and decided against this one. Maybe down the road.
I’ve been reading Call to Action: Secret Formulas to Improve Online Results and the authors advocate persuasion as the real goal of a commercial website, not usability.
Wandering through a website endlessly, but very easily, doesn’t do customers any good. They need answers. Answering the questions of different personas that visit your site persuades them to stick around and eventually buy.
The Persuasive Process
1. Who needs to be persuaded?
2. What actions does this person need to take?
3. How will you effectively persuade that person?
The book is fantastic and only getting better. More thoughts to come.
Game of Work
goals must be:
2. Your own.
4. Measurable and specific.
5. Stated in inflation proof terms.
6. Stated in the mosst visible terms available.
7. Made with a deadline.
8. Open to personality changes.
9. Contain an interrelated statement of benefits.
10. Realistic and obtainable.
Individual goals are the foundation of corporate human-resource development and planning.
No management by observation.
Winners keep track of results. Loosers keep track of reasons.
Sources of inadequate cash flow.
1. Too much inventory and other non-liquid assets.
2. Overly-high receivables.
3. Inadequate gross-profit percentages.
4. Unwillingness to implement cost-cutting measures.
5. Inappropriate compensation for the owner or key decision makers.
1. Scorekeeping must be simple and objective.
3. Offer a comparison between current personal performance, past personal performance and the accepted standard.
4. Scorekeeping should be dynamic.
spaced repetition is crucial to conditioning oneself to change attitude to change behavior to succeed.
FIELD OF PLAY
Define the following for each position:
1. Terminal Out of Bounds (fired)
2. Operational Out of Bounds (correction)
3. Minumum performance standard
4. Safety zone – humble player and helpful coach.
7. Between MPS and Paydirt is GOMB or “get off my back.”
Create a field of play agreement.
Last night I researched network marketing and direct selling on the Internet and then went to the library to pick up a half a dozen books. I was the very first to check out Creative Memories: The 10 Timeless Principles Behind the Company that Pioneered the Scrapbooking Industry from the Provo Library. They hadn’t even placed it on the shelf. I felt a connection to the book before I even read it last night and this afternoon. Cheryl Lightle and Rhonda Anderson truly had a vision for doing something good for the world. Their mission sounded so similar to FamilyLearn. Starting in 1987 with 2 consultants and no formalized compensation plan, they pioneered the scrap book industry and in 2005 they plan to generate 1/2 billion in sales.
Here’s the book captured:
Purpose: What principles were behind Creative Memories’ success?
- Operate from least to most.
- Embrace the abundance mentality.
- Keep the promise.
- Make it easy.
- Communicate clearly and concisely.
- Protect the relationship.
- Respect personal choices.
- Go for the good of the whole.
- Don’t knee jerk.
- Ensure sustainability.
Before I give an overview of these, read the beginning of their mission statement:
Creative Memories believes in and teaches the importance of Preserving the Past, Enriching the Present, and Inspiring Hope for the Future.
Sound like the FamilyLearn mission? Because we are a business of people just as they are, I had a lot to learn from Cheryl in this book. Now for an overview for my future reference.
- Operate from least to most. Cheryl talked mostly about transitioning to technology after 1996. Their first attempt was a total failure and left a bad taste in the consultants mouth for the Internet. They learned to introduce changes slowly and give people time to respond. They really fought the temptation to overhire during the growth of the 1990s and tried to outsource everything. They didn’t want to fire people later.
- Embrace the abundance mentality. Don’t spend you’re time fretting about the competition! Just make yourself better than the day before. Competition means more recognition in the Industry (of course there was no industry when this company began).
- Keep the promise. Simply doing what you and your mission and your guiding principles say that you’ll do. At Creative Memories, they have scientists who test and develop new products so that they will be archival quality. They define very carefully what archival quality means. Interestingly, they are 100 % ESOP (employee stock ownership plan) and proud of it. The employee ownership inspires success in the company. They have a “Great Performance” for each person in the organization that defines what the employee-owner can do to ensure the performance of the big picture of the entire company, of the department and of the team. The employees are also encouraged to work on their own albums to have passion for what they are doing.
- Make it easy. First for consultants to do business with the company, second for customers to do business with consultants and third for employee-owners to perform their job responsibilities. (Interesting that the consultant precedes the customer in this principle) For example, (1) they still spend lots of time on fax and phone orders because not all consultants like the Internet or feel comfortable with it. (2) They changed the packaging just to make it easier for consultants to dispose of it. (3) Resource One is a project to get the consultants onesies for their customers so that they don’t have to break open entire sets. This is not very profitable and a lot of work for the company, but it helps the consultants. (4) BusinessMate is a downline and business management software that they developed especially for team leaders.
- Communicate clearly and concisely. They explain “why.” They expect clear, concise and frequent communication that expect to be perfect, but they’ll accept excellence.
- Protect the relationship. This is very important to a direct sales organization. The business is built in relationships. Us, Not Us and THEM In the beginning they sold albums in retail while they were trying to define the business. They soon realized that they had to make a final decision about whether they’d be direct sales or not. It was self-defeating to compete with their distribution channel. This is a decision that we face right now. NOTE: customers make decisions to buy based on the following: (1) If they are treated with respect – 70 percent, (2) If they feel they are under no pressure to buy – 65 percent, (3) If they believe the returns policy and process is fair, (4) If they feel they receive outstanding service – 58 percent. All people related.
- Respect personal choices. This is important and most manifest in the way the compensate and give bonuses. Today, I read in an presentation encouraging golden handcuffs. The term bothered me a bit but I thought I understood the concept. Make more financial reasons over time that the top people will stay with the organization and continue selling it. Creative Memories doesn’t do golden handcuffs because they prescribe a lifestyle and the company feels that consultants and employee-owners should choose their own lifestyle. I like their style. I learned they use a UniLevel compensation model as described in this presentation.
- Go for the good of the whole. Sometimes, like when they discontinued their teal binder and many consultants complained, you have to do what’s best for the whole even if it’s difficult. In the case of the teal album, the discontinuance made room for the consultants to have more room in their inventory for more popular products. Only a few thousand out of 60,000 consultants were affected by the move. Give charitably where it will help the most people.
- Don’t knee jerk. They struggled with this in the beginning as a growing organization. Changes influenced all the consultants and they couldn’t make them too sudden or too often. However, when you make a strategic change with specific objectives in mind, you need to let it runs its course (sometimes taking over a year) to see if it produces the desired effect. Don’t go back on a change prematurely.
- Ensure sustainability. They have employee-owners work for other direct sales companies to understand and empathize with the consultants. They have executives be Creative Memories consultants to catch the vision themselves. These are good ideas. She also spoke of preparing the company to pass the torch.
Interesting things I noted in the book:
- 75 percent of their job is recognizing the consultants. Recognition as little as a consultant in ink can go a long way.
- They ship to consultants rather than to customers or party hosts.
- (not from the book) They don’t publish their compensation plan on the web for consultants, forcing you to contact a consultant.
- They assign pacing partners to each consultant to be their buddy and hold them accountable share friendly competition with.
- They say “When” rather than “If” when referring to bonuses and awards.
- Don’t say “no” Say what you can do rather than what you can’t. People need alternative solutions. I think about when someone offers me a job I can’t take. Do I refuse or do I refer them someone else I trust?
- They changed their main offices from “Corporate” to “Home” offices. It’s about US. An attempt not to alienate consultants.
- Alan Luce personally trains their employee-owners and is involved with DSA heavily.
- They have their employees do direct sells themselves.
I’ve just finished another book I’m adding to my list of favorites. The Art of The Start by Guy Kawasaki. Guy gets right to the point of what really matters and he’s entertaining.
For example, his chapters end with FAQs and his final FAQ of the final chapter was:
Q. People are always asking me for my expert advice, but it’s interfering with my ability to get my current job done. What should I do?
A. Write a book and tell everyone to buy it.
I laughed and laughed imagining how many ask him for advice.
Well, here’s my attempt at a capture and reference for the future:
How do I get a start up going?
Simply define what it is you’re doing (in less than 10 words) and focus, focus, focus on those things that will propel it forward and cut out anything that won’t. Most importantly, start doing.
The art of starting
Things that matter:
- Make meaning – make the world a better place with your product or service.
- Make mantra – forget mission statements and take your meaning and make mantra out of it.
- Get going – create and sell your product or service and don’t spend time on business plans, writing and pitching.
- Define your business model – create a sustainable business model that’s already been proven.
- Weave a mat (milestones, assumptions and tasks) – for staying on track when everything goes nuts, which it will.
Excercise: If FamilyLearn didn’t exist the world would be worse off because of family stories lost.
Mantra: The heart of life.
- Calculate your monthly costs to operate your organization.
- Calculate the gross profit of each unit of your product.
- Divide the results of step 1 by the results of step 2.
- Ask a few women if they think you have a chance of selling that many units. If they don’t, you don’t have a business model.
LOL, hilarious but so true.
Most important milestones:
- Complete design specs
- Finish a prototype
- Raise capital
- Ship a testable version to customers
- Ship the final version to customers
- Achieve breakeven
- key metrics
- market size
- gross margin
- sales calls per salesperson
- conversion rates of prospects to customers
- technical support calls per unit shipped
- payment cycle for receivables and payables
- compensation requirements
- prices of parts and supplies
- customer return on investment
Major tasks (not as critical as milstones):
- setting up account and payroll systems
- filing legal documents
- purchasing insurance policies
The art of positioning:
- why the founders started the organization
- why customers should patronize it
- why good people should work at it
What do you do?
FamilyLearn: We help you record and share family stories. (dry, but it’s what we do. I’m sure there’s a better way to say it)
Make a name that can be a verb. Google it.
FamilyLearn it. Ok, we blew that one, but oh well.
Don’t start into an auto-biography! Sorry Paul, you were one of my first victims on that one. I’m learning.
30 pt font text
Guy gives a great presentation format:
Slide 1: Title and contact stuff
Slide 2: Pain/ Problem
Slide 3: Solution
Slide 4: Business model
Slide 5: Secret sauce or magic in your product or service
Slide 6: Marketing and sales – how to market without breaking the bank?
Slide 7: Competition
Slide 8: Management team
Slide 9: Financial projections and key metrics
Slide 10: Current status, Accomplishments to date, Timeline, and Use of Funds
Slide 1: Title and contact stuff
Slide 2: Pain/ Problem
Slide 3: Solution
Slide 4: Current customers, clarity on the value
Slide 5: Secret sauce or magic in your product or service
Slide 6: Demo
Slide 7: Competition – why you’re good
Slide 8: Management team – make them feel comfortable buying with a start up
Slide 9: Trial period or test installation
Slide 1: Title and contact stuff
Slide 2: Pain/ Problem
Slide 3: Solution
Slide 4: Partnership model
Slide 5: Secret sauce or magic in your product or service
Slide 6: Demo
Slide 7: Competition (optional)
Slide 8: Management team
Slide 9: Next steps
Upon starting, ask:
“How much time may I have?”
“What are the most important things I can communicate to you?” (do as much of this in advance as possible)
“May I quickly go through the presentation and handle questions at the end? However, please feel free to interrupt me if you need to.”
Let them fantasize about the potential of your product or service.
Shut up and take notes, summarize, regurgitate and follow up!
Pitch constantly. Rewrite constantly.
The art of writing a business plan:
You have to have a plan. Focus on the executive summary. Pitch, then plan. Make it just like your pitch.
1. Clean, no more than 20 pages. Less is more.
2. One person should write the entire plan.
3. A staple, no fancy stuff.
4. Financial projections to two pages.
5. Key metrics.
6. Assumptions that drive your financial projections.
The art of bootstrapping:
Manage for cash flow, not profitability. Choose an auto-persuasive product.
Build a bottom up forcast. Each salesperson can make ten sales per day, there are 240 working days…
Ship, then test. Get it to the market.
Forget the proven team and go with energy and inexperience that believes in what you’re doing.
Start as a service business.
Focus on function, not form.
Pick your battles. Make money from your magic. Margins!
Go direct. Stay close to the customer. No multi-tiered stuff. You have to sell, not fill demand.
Position against the leader.
Take the “red pill.” Reality checks. Honesty with yourself.
Get a morpheus. Realist in the organization.
Understaff and outsource.
Build a board.
Sweat the big stuff. Pay for the stuff that matters rather than saving pennies.
The art of recruiting:
Hire “A” players.
Hire “infected people”
Use all your tools. Board, connections, etc.
Wait to compensate.
Double check your intuition. Would you avoid them when shopping?
Reference check. If they send you to a desk of a secretary, bad sign.
“The true measure of a man is how he treats someone who can do him absolutely no good.” –Samuel Johnson
Successful businesses and being good to the world are not opposing forces.
“There are few joys greater than helping others.” –Guy
Interesting note, he speaks in the last chapter of theories where there are different “classes” in Heaven.
I wonder if he was thinking of the 3 Degrees of Glory as one of those theories? Maybe I’ll ask him.
Seth Godin has rights to an ebook he wrote and he’s giving it away for free. I downloaded a copy and thorougly enjoyed the entire book.
THE JOY OF SMALL
Advantages of the big corporations
1. Distribution – they have huge, established distribution chains.
2. Access to capital – these guys are big and can borrow big bucks. They use this money to beat anyone out if they can.
3. Brand equity – Nike can command a pretty penny and has built a reputation.
4. Customer relationships – established customer relationships are a huge advantage. It’s hard to lure customers away.
5. Great employees – big companies, with their security and famous reputations, attract amazing people.
But the underdogs can play many things to their advantage:
Advantages of Bootstrappers
1. Nothing to lose – HUGE. While the big company’s beauracracy fumbles to make decisions trying to protect their old ways of doing business, you can move on the market and embrace new territory.
2. Happy with small fish – the first animals to die in the ocean are big fish because they need soooo much to eat.
3. Presidential input – the pres can actually positively influence the entire company.
4. Rapid R&D – Sometimes bigger teams doesn’t give a company an advantage.
5. The Underdog – Others are willing to help you out with discounts. Big companies are always charged full price.
6. Low overhead
7. Time – you aren’t forced to do things at certain times because you’re not answering to public shareholders. Big companies don’t have that luxury.
Don’t play the big companies’ game or you’ll get eatin. Play your strengths.
Id became famous for Castle Wolfenstein. The 4 guys who built it decided to follow their own rules against the big boys. They built Doom, gave it away for free, and millions loved it. Then in stage two they offered a deluxe version with more levels, more monsters, more everything and sold it directly by mail order. Id redefined the business and won.
A GREAT IDEA CAN WIPE YOU OUT
“What’s a great idea? Something that’s never been done before. Something that takes your breath away. Something so bold, so daring, so right, that you’re certain it’s worth a bazillion dollars.”
Stick with things that have worked before, in other industries. If it’s been done once, it can be done again. Get a real business model.
Distribution – Where is it sold to the customer?
Sales – Who is selling it for you and how will they be compensated?
Pricing – What do wholesalers and retailers and consumers pay?
Production – How do you make it?
Raw materials – Where do you get what you sell?
Positioning – How do the ultimate users position the product in their minds?
Marketing – How do consumers find out about it?
Barrier to entry – How will you survive when competitors arrive?
Scalability – How do you make it bigger?
First off, start the right business.
5. Exit strategy (optional)
Decide whether you’ll be a free-lancer (skills) or an entreprenuer (for business models’ sake).
Great bootstrappers find an existing business model and embrace it.
1. You can be certain it can be done.
2. You can learn from previous mistakes.
3. You can find a mentor.
4. You’re not alone.
Look at the value chain in looking at a business model.
1. Who’s going to buy your product or service?
2. How much are they going to pay?
3. Where will they find it?
4. What’s the cost of making one sale?
Take an extra month to get the business model right. Don’t plan too much because you’ll never get out and do it.
DOING THE MATH
A few pointers on debt:
1. Don’t, unless it’s professional.
2. Only get into professional debt when it’s to make money.
3. It’s better to save the money than to go into debt for it.
4. When you borrow from family and friends, spell it out very well.
The most important things is that you sale. You have sales. You can do almost anything.
1. Sell something that people want to buy and know how to buy.
2. Own the sells process.
RINGO WAS THE LUCKIEST BEETLE
Rule 1. Find people who care about cash less than you do.
Rule 2. Survival is success.
Rule 3. Success leads to more success.
Rule 4. Redo that mission statement and business plan every 3 months.
Rule 5. Associate with winners (customers, employees, vendors, and peers)
Rule 6. Beware of shared ownership (or, why Ringo was the luckiest beetle) Try 5/5 and split the other 90 over time according to performance.
Rule 7. Advertise! Spend regularly as investment, Persist, be clear, test and measure
Rule 8. Get mentored.
Rule 9. Observe those birds that clean the hippos’ teeth
Reilly’s ideas have spurred a revolution in the selling industry. It’s a positive revolution for the consumer because he encourages selling on the customer’s perception of value, not the sellers. Previously, companies tried to get people to buy what they need to sell rather than sell what people need to buy. So, after that brief blip, here is my capture of the book:
How can I sale competitively without lowering prices, decreases margins and thereby increase the volume requirements?
1. Stop focusing on price. Consumers don’t worry about price as much as salespeople do.
2. Focus on the cradle-to-grave mentality, rather than just on a transaction. It’s a lifetime relationship.
3. Join the customer on their journey through planning (when they need information), acquisition (when they need a smooth transaction and transition) and usage (when they need economy and productivity).
4. Realize that the overall cost of ownership is what really matters to customers. Focusing on low price is only about the transaction, leaving the customer with what they get.
5. Define your value-added in terms of (a) your product, (b) your company and (c) yourself. All of these bring together the experience for the customer.
Smart Mobs: The Next Social Revolution by Howard Rheingold
The famous sociotechnologist (sociologist studying the impact of technology on society), Howard Rheingold digs deep into the implications of technology becoming transparent.
How will our world change when computers become transparent?
Much like the tranformation of culture when the telegraph became the telephone, when the computer moves from desktops and modems to mobile devices and transparent technology, there are huge societal changes imminent. Mobile Internet brings computers and the Internet to the masses because it works into our everyday lives. Rheingold refers often to “wearable computing.”
What are the implications of these changes?
1. Bring information and location together. Imagine running to catch your flight and your contacts project a red carpet to your terminal. No guessing there. Imagine going on a nature hike and your glasses display information about each plant. If the information is not there, imagine contributing it to the web and having your GPS enabled mobile device record your lattitude and longitude with the information.
2. Ubiquitous computing can mean privacy concerns about how information is used. Potential corporate or government control.
3. Democratic power. In the Phillipines, the people, enabled with texting on the mobile phones, amassed a group large enough to oust the president.
What are the different outcomes possible?
1. Way more freedom. The ability of people to circumvent big business and big government and big media and mobilize movements for what they really want, rather than what big brother wants them to want.
2. Way less freedom. Depending on the technological infrastructure and legislation, the changes could imply that we loose our privacy and our freedom.
From a business standpoint, the mobile Internet presents new challenges, but also new opportunities if we choose to embrace it.
I’ll never remember these measures when I return overdue Intellectual Capital to the Library today so I’m recording them here:
Measures of the Whole
Market-to-book ratios: If Microsoft is worth $85.5 billion and its book value is $6.9 billion, then its intellectual capital is $78.6 billion. Three problems: 1) The stock market is volatile. 2) Evidence that book and market values are understated because acquired companies cost a premium over market capitalization. 3) While it’s nice to say Microsoft has $78.6 billion in Intellectual Capital, so what? What can I do with that info?
Tobin’s Q: Compare the cost of asset replacement with the market value of the assets. The closer to 2, the more you can command a price. You have something they don’t have. That could be a monopoly or that could be your intellectual capital.
Companies Fixed Assets and add back accumulated depreciation and account for inflation. This will show you what’s happening to a company over time. How well are they using their assets? A measure of Intellectual Capital.
Calculated Intangible Value: An elegant way developed by NCI Research. They wanted a way to convince to put money into businesses with very few tangible assets. This is a way to calculate the value of a brand. For example with Merck:
1. Calculate average pretax earnings for 3 years. $3.694 billion.
2. Go to the balance sheet and get the average year-end tangible assets for 3 years: $12.953 billion.
3. Divide earnings by assets to get the ROA: 29 percent.
4. For same 3 years, find the industry average ROA (for pharmaceuticals, 10 percent – if company below average -> STOP NCI method won’t work)
5. Calculate the “excess return.” Multiply the industry-average ROA (10 percent) by the company’s average tangible assets ($12.953 billion) to understand what the average drug company would do with the assets. Now subtract that from this company’s pretax earnings from step 1 ($3.694 billion). We get $2.39 billion.
6. Pay Uncle Sam. Calculate the three-year-average income tax rate, and multiply this by the excess return. Subtract the result from the excess return, to get an after-tax number. This premium is attributable to intangible assets. For Merck (average tax rate:31 percent), that’s $1.65 billion.
7. Calculate the net present value of the premium. You do this by dividing the premium by an appropriate percentage, such as the company’s cost of capital. Using an arbitrarily chosen 15 percent rate, that yields, for Merck, $11 billion.
That would be Merck’s calculated intangible value. This CIV permits company-to-company comparisons using audited financial data. A weak or falling CIV might hint that you’re spending too much on brick and mortar and not enough on R&D or brand-building. A rising CIV can help show that a business is generating the capacity to produce future cash flows, perhaps before the market–or budget committee–has recognized it. Over time, Tobin’s q out to be parallel to CIV. “Knowing a company’s CIV could help you judge whether a low price-to-book ratio reflects a fading business, or one that’s rich with hidden value that isn’t yet reflected in the stock.”
Human Capital Measures
Employee Attitudes: Correlation between happy employees and strong financial performance. Though not proven as cause, people who feel they are learning, needed, and useful will be more productive than people who are idle and uncertain of their role in the company’s success; they’re also likely to treat suppliers, customers and each other better.
So conduct employee surveys but be careful that some just generate what’s on people’s minds at the moment, which can be useful data.
Tenure, Turnover, Experience, Learning: Celemi International measures using the following:
1. Average years in profession.
2. Turnover among experts.
3. Senority among experts.
4. Value-added per expert and per employee.
5. Percentage of customers who are “competence-enhancing” or challenge the company to learn more.
6. Rookie raio (percentage of employees with less than two years experience).
1. Among the many skills possessed by your employees, which do customers value most? Why?
2. Which skills and talents are most admired by your employees? What accounts for any difference between what customers value and what employees value?
3. What emerging technologies or skills could undermine the value of your proprietary knowledge?
4. Where in your organization do high-potential managers most want to be assigned? Where do they least want to work? How do they explain their preference?
5. What percentage of managers have completed plans for training and developing their successors?
6. What percentage of all employees’ time is spent in activity of low value to customers? What percentage of expert employees’ time is spent in activity of low value to customers?
7. When competitors are hiring, do they hire from you?
8. Why do people leave you to accept jobs elsewhere?
9. Among experts in your labor market–including headhunters–what is your company’s reputation vis-a-vis its competitors?
The Knowledge Bank: Alan Benjamin, former director of SEMA group, one of Europe’s leading computer service companies, developed a measure of the value of the knowledge bank of a company. This is what Benjamin does:
1. Treats capital spending as an expense, not an investment.
2. Calculates the employee’s salary seeding the future as an investment and book it as capital spending.
3. Conservatively estimates the value added by R&D
4. Draws a new bottom line and calculates the knowledge bank which the company can call on in the future.
Sales $2.7 million
-Capital Spending $100,000
-Labor $1.5 million
Surplus would be about $600,000
Deferred Labor (added to knowledge bank): + $800,000
Expensed Labor (no residual value): -$700,000
Sales $2.7 million
-Capital Spending $100,000
+R&D value added $40,000
Surplus would be about $1,540,000
($600,000 cash and the rest in banked knowledge) Determining the bank is the first step. Then we find out our return-on-human-capital (knowledge bank divided by profit) which should be lower than ROA conventionally measured.
Structural Capital Measures
To picture this, you need measures of the value of accumulated stocks of corporate knowledge, and measures of organizational efficiency (the degree to which the company’s systems augment and enhance the work of its people rather than obstruct them).
Valuing Stocks of Knowledge: Anson considers structural capital in 3 groups: 1) a technical bundle (trade secrets, formulas, proprietary test results, etc.) 2) a marketing bundle (copyrights, corporate name and logo, warranties, advertising, package design and copyrights, trademark registrations, etc.) and 3) a skills and knowledge bundle (databases, manuals, quality control standards, asset managment processes, security systems, business licenses, noncompete clauses, proprietary management information systems, etc.) Three basic tests to the value of an asset: Does it differentiate your product or service? Does it have value to someone else? Would someone else pay a fee for it? Price the assets not by cost but by their comparable value in your industry. Then rate the relative strength of your asset versus the comparables using the scorecard called the Valmatrix. (0-5 scale, 100 total possible points, breadth of product line, barriers to entry, etc.)
Working Capital Turns: The ability to substitute inventory for information. Like Dell Be careful to measure everything. The goal is to see how much you save compared to others who have more inventory.
Measuring Bureaucratic Drag:
Suggestions made versus suggestions implemented.
Ratio between revenues and SG&A costs.
Set-up times, minimum profitable lot sizes, etc.
Measuring the Back Office: Value added=Change Don’t write 2X2X2, write 2
Customer Capital Measures
Customer Satisfaction: Loyalty (retention rates), increased business (share of wallet), and insusceptibility to your rival’s blandishments (price tolerance).
Measuring Alliances: Savings for both parties from shared processes such as inspection and electronic data interchange, figures on inventories for both buyer and seller and availability all help establish the value of intimate relationships between you and your customers or your suppliers. Keep track of your customers’ financial strength and growth and your share of their business: If you are a key supplier to a strong customer, you have a valuable asset.
What’s a Loyal Customer Worth?: What is the net present value of your customer base? How much is a new customer worth? How much is it worth to keep an old one?
1. Meaningful period of time over which to do the calculations.
2. Calculate the profit your customers typically generate each year you keep them. Both costs and profits. If possible, segregate this number into age, sex and other useful information.
3. Then chart the life expenctancy.
4. Once you know the profit per customer per year and the customer retention figures, calculate the net present value of a customer. Pick a discount rate–if you want a 15 percent annual return on assets, use that, since customer capital is an asset. Apply the discount rate to each year’s profit, adjusted for the likelihood that the customer will leave. In year one, the NPV will be profit / 1.15. In year n, the last year in the period you chose, the NPV is the nth-year’s profit/ 1.15n. The sum of years 1 through n is how much your customer is worth–the net present value of all the profits you can expect from his tenure: In effect, it’s what someone else would pay to get the customer.
You can use this information to determine how much it costs to acquire new customers. This is invaluable information.
Keep it simple. No more than three measures for each.
Be strategic in your measures. Measure those things that give you your competitive edge.
Measure activities that produce Intellectual Wealth.
Epidemics can rise and fall in one dramatic moment. That dramatic moment is the Tipping Point. There are social and viral epidemics. This book is concerned with the epidemics spread by people.
There are three rules to the Tipping Point.
1. The law of the few (Connectors, Mavens and Sellers)
2. The stickiness factor.
3. The power of context.
1. The law of the few
Paul Revere, on his famous ride informing “The British are coming!,” had a partner and fellow revolutionary, William Dawes, who rode with him on a separate route. Dawes headed for Lexington through the towns west of Boston, but he didn’t successfully gather the support that Revere did. Everywhere Revere went, his initial word to the towns spread like wildfire. Paul Revere, says Gladwell, was a Connector and a Maven. His message, the same message as Dawe’s, had far more impact because of it.
- Know everyone.
- Have unusual gift for rapidly making new friendships and acquaintances.
- Gladwell took 200 random names from the phonebook and asked people how many surnames were shared by people they knew. Connectors said 80-100+. Average was 21. My response was 26 :). I’m obviously not a connector yet.
- Roger Horchow airplane ride convinced Gladwell that some just have a gift.
- Important because of the sheer quantity of people they know.
- These folks know everything about a particular area.
- Airwalk hired a fashion Maven, on the edge with everything hip, to “Tip” their shoes into a larger market moving the company from $15 million to $175 million in two years.
- Mavens are valued for what they know. They are trusted by everyone because everyone knows that they know.
- Most likely to pass around deals and coupons.
- They are not persuaders.
- These people have an innate ability to persuade.
- ABC’s polls always favored Reagan more than other candidates because Peter Jennings unknowingly lighted up when he spoke of Reagan. He had the ability to persuade even though people didn’t know they were being persuaded.
2. The Stickiness Factor
An epidemic will grow or stop growing because of how much it sticks. The most popular children shows on TV: Seasame Street and Blues Clues demonstrate the importance of the stickiness factor.
- Seasame Street The folks at Seasame Street found the show on the premise that keeping a child’s attention was equivalent to them learning. They saw the success of commercials and patterned Seasame Street in short, 3-4 minute segments. They almost failed because the childhood experts told them not to combine realty with the muppets. But adding Big Bird to the street kept children’s attention far better. They determined the attention level of each program after they developed the distractor system to which was a slide show of interesting images that would compete with the program for attention. Whenever the children looked at the distractor, they assumed that part of the show wasn’t holding attention. They shot for 90% attention. Seasame Street was a huge success because it was sticky. They later learned from eye movement studies how to increase the amount of learning that took place on the show. If the muppets were too distracting, the children only paid attention to them.
- Blues Clues This show out did Seasame Street because they took 30 more years of child research and improved the show. Short segments aren’t as successful as story lines for children. Children love interactivity. They also love repetition. Blues Clues repeats the same show 5 times, but has enough depth that children love to watch it over and over. It may be the stickiest children’s show of all time. It beat Seasame Street because it focused on children and not on adults like Seasame Street.
3. The Power of Context
- New York Crime Example of the New York drop in crime rate because they repainted the subway cars faster than the gangs could grifiti them. They also put people in jail for trying to get onto the subway free or peeing in the streets. They stopped the little things and the murder rates and horrible crime dropped 60 percent in the area. Bernie Goetz drove these changes. Soon after New York put him in charge of the police department for the entire city and he turned the city crime rate around by 40 percent.
- The magic number of 150 In the army, in hunter gatherer societies, in the gore corporation and in Methodist churches (Divine Secrets of Ya-Ya Sisterhood moves to the Bestseller list overnight in San Francisco and the book clubs), 150 people tend to be the largest size you can get a group and have it actually act together as one voice, in unity without more complex structures of organization
Tipping Points can be caused or prevented. AirWalk shoes orchestrated a Tipping Point for their shoes. They can be deadly. Micronesian suicide rates show a Tipping Point among the teenage boys. Teenage smoking, in spite of the efforts to fight it, is still on the rise even though teens know that it’s not good for them. Teens choose to smoke to rebel and be cool like people they see smoking. They don’t want to hear adults tell them it’s bad for them. Some think people some smoke because it provides a drug to deal with depression. Treating depression may reduce smoking problems. There is a point when an occasional smoker “Tips” and becomes a chain smoker when they have sufficient levels of nicotene. Gladwell thinks it would be possible to stop the Tipping Point from moving to chain smokers by reducing the nicotene content so that they can never get enough nicotene.
Interestingly, in the afterword, Gladwell says the difficult challenge to cause a Tipping Point is to find the Mavens. They are more difficult to find. When Ivory soap places an 800 number for questions on their soap, it’s a Maven trap. No one but Mavens call those numbers. Connectors make it their business to find you. You don’t need to find them. Another example, Lexus, when they had to call back a large group of cars, was worried because they had marketed their perfection and reliability. They recalled the cars and while the owners waited, Lexus washed them and filled them with gas. Owners who lived 100 miles away from a shop received a visit from the mechanic at their home. Lexus even flew to one place to fix the car. This pleased the newest owners of Lexus so much. Plus these new enthusiasts were Mavens. They turned around and marketed Lexus for the company. It was the most impactful callback ever- impactful for the benefit of the company. There are ways to find the Mavens or get them to come to you.keep looking »