Daniel Lock's blog

This is the typed notes from my last breakfast I ran 2/12/2008. I have had numerous requests for the notes, so here they are.

The next event is 20 January, 2009. Click here to book.

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How To Thrive In These Economic Times

Panic, Panic, Panic!  2008 will be remembered as the ‘year of the credit crunch’ up there with the depression in 1929, the 1987 crash and oil crisis in 1974.
Right now, this is CRAZY market.

Where the media is in a frenzy and many people are just sitting tight to ride it out and work out what is happening next.

All of you are here because you are interested in an approach to take advantage of the current conditions and thrive.

Many of you have been in management roles for a long time. So what I am about to present will allow you to build on what you already know.

As we go through this session, keep thinking about how you will apply this to your business. I will make the case that if you can follow these principles you will thrive as a result of these time.

1. Mindset

Truism: What you believe is what you get.

Henry ford said” If you believe you can, or if you believe you cant, either way your right”

Adversity is when we usually go on to create amazing success, for example Coke formed out of prohibition 1886. Prior they had a wildly successful wine laced with Cocaine. They responded with a dry version. How could they have known at the time?

Recent survey of CEO’s and boards quoted in a business week article mentioned how they will be asking how to minimise impacts to short term profits as opposed how to take advantage of conditions and build value for the long term.

What is your strategy, long term of short term?

Other example of counter intuitive thinking:

Warren Buffet in the last 3 months has invested $13billion dollars

• $3billion in GE
• $5billion in Goldman Sach’s
• $5billion in a variety off ordinary shares.

Warren is no slouch. He knows what’s going on. He is the richest man in the world. Last year he was quoted as saying that h couldn’t find anything to buy, as everything was too expensive. While everyone else was in greed trying to ‘get in on the action’.

Now is the time companies will dominate their industries. The next two years will make more millionaires than the last eight combined. Why? because most people will get caught up in the media driven fear and pull back.

2. Know Thyself

• Re-group, re-organize, re-view
• Above all Know thy self.

Step 1 breakdown your business by customer type. And understand your core competencies

Find out your core competencies.

Finding out what you do that others cant do at all, or fail to do even poorly.

Example:

• The Japanese who are outstanding at miniature electronics components, which is basically the art of 300 year old tradition of painting landscapes onto miniature lacquered box,
• Or Mark & Spencers being able to make ready-to-eat gourmet meals for the middle class person.

We need to shift core competency analysis from anecdotal to hard analysis and this is why we need to breakdown the business into sub-sections as seen by the customer.  Peter Drucker called it “result control”. That is under stand exactly how much it cost to generate a result.

But the problem almost all organisations run into, is they don’t have the information, this is because of the accounting system, which is 500 years old and has barely evolved. Therefore it has to be built. Once you have it, you will be amazed at the negative correlation.

I explains why Return on sales appears high but you aren’t making any money.

3. Focus Relentlessly

•    Find the 80/20 rule in your business. The pareto principle.

•    80% of the value comes from 20% of the inputs

•    80% of value generated in business will come from 20% of it products.

•    Separate your business as defined by your customers perspective

The only place where more accurate accounting exists is manufacturing which in the western world is about 15% of GDP.

The key, and for most of you in ‘service businesses
‘ (or knowledge businesses) is being able to relate expenditures to results. In most of your businesses you know where it comes from, and where it goes, but no one has any idea about to relate expenditures to results.

All CEO’s use the accounting system to manage the business. But we all know it can be manipulated and that cash flow is a better indicator.

The big problem is that traditional accounting systems are based on what HAS happened as opposed to meaningful data that can be used to indicate future performance.

Toyota is the best publicized example of this type of accounting systems. It manages the costs of suppliers and distributors, and measures all it products from the perspective of the customers, not line item expenses in it P&L.
All on one stream

4. Know Your Market – the Need for external information

• To develop a strategy we need organised information about the external environment
• What you don’t know will hurt you.
• In order to find the opportunities you need to know what’s going on In your market.
• In the army the call it ‘intelligence’
• Customers & non-customers alike\
• The biggest challenge for businesses that I see is lack of external information.
• You need it now more than ever.

Example:

The invention of the pace maker, wiped out the profitable cardiac medication companies.

Even if you had 30% market share – which is huge, still there is 70% of customers you know nothing about.

Example:

• Until the 1980’s American department stores had 28% of the market share.
• Nobody knew more about there customers
• But 72% of people didn’t shop there – people they had no idea about.
• They were unaware that new customers and the affluent didn’t shop at department stores. Nobody knows why – they just don’t.
• By the end of the 1980’s they had become the dominant group and dictated how we shop. And the department stores died.
• Market share plummeted.

The big companies, Coke, Nestle, and some Japanese companies do it well. Almost no medium company does it at all.

In tough times here is a definite way to thrive, by understanding your business in terms of results, as viewed by the customer. And gathering external information, not just about your customers, but non customers and related or adjacent markets.

5. Innovate!

3 Rules for Innovation
1.    Based on what you do best
2.    Ensures leadership – catch up innovation aint much fun
3.    Reinforces and extends profitable variation – happier customers with lower costs

4 Types of innovation:

1. New value to existing – deepening relationships offering them more and more features
2. New products – Rule of thumb – ‘few,big,core’ Coke with Fanta & Diet coke creating huge value.
3. New channels – think internet trading, opening up trading to more and more investors.
4. Sell to new customers – by far the most risky. The safest way to is to take an existing product and sell it to new customer base.

• Ones that are most like you existing customer base.
• Classic gambits are to move up or down market
• Example: Honda started in scooters before moving on to the larger and traditional market of motorbikes.

6. Cut the fat not the meat

Two studies by McGraw-Hill

• Advertising during a recession creates 132% subsequent 5-year sales growth compared to competition who didn’t or cut back.
• Advertising during 1981-1982 recession creates a 275% sales growth by 1985.

SPEND, SPEND, SPEND… on advertising & marketing
.
If you take nothing else from this presentation, understand this point.

Cutting spending would be staying in a down market hotel, but not traveling to meet with a client is suicide.

Coke is classic at this, they just increase spending, now they have massive budgets, and I am not advocating spending up big on TV – which is dead anyway.

I mean creating meaningful relationships, and deliberately creating word of mouth. Seth Godin has a new book called “Tribes’, he talks about actively building strong relationships with ‘your people’.

How do create relationships and words of mouth. Get in front of them often. And be patient.

If you were posting information quarterly – make it monthly. If you were asking for referral quarterly do it monthly.

Ultimately you need a process. Lately – naturally I have been studying consulting firms. Bain & Co. now a heavy weight, when they started had a simple 6-step model:

1. ID newly appointed CEO
2. Research the companies and work out how to help them
3. Procure a meeting
4. Use the research to get them to open up
5. Layout the value proposition
6. Get an existing customer to say how great they were.

Easy.

You need a simple formula (that you can measure) – but remember it is all based on the value proposition innovated earlier.

Get out there and network more, send hand written notes instead of emails. Follow up on people’s birthdays. Be someone who cares.

And always, always, offer value when you call.

If you take nothing else from this presentation, understand this point.

6. Implementation Formula

• Peter Drucker said “What get measured gets done”. Therefore rule number one is measure what you want.
• Number two – get organized. Super organised and clean. But, organise for rapid response. Customer equate quality with rapid response

Implementing is the hard work, you have to push through the dip.

In tough times the key is to measure more and get organized. Super organized.

Organise for rapid response

When I was at the Bank, in the hey day of the mortgage boom 5 to 6 years ago. It was about turn around time from enquiry. When I started it was 7 days. Then it was 3 days, then 24 hours. The idea was take them out of the market ASAP.

You need to do the same. A prospect or a client asks for something, courier it, get it there immediately. Return calls the same day, emails the next day.

This is the stuff you measure. Because it has tangible results.

Get organised personally too.

The biggest problem is that we have is that all of the above mentioned activity takes effort, and in order to do so you will need the time and capacity to do so. Getting personally organised is the first step. Then flow it on to you organisation.

So called ‘work/life’ balance is a cock-eyed look at balance. Work, and non-work, well it all just ads up to a “life”. Everything affects everything else. If you are un-organised and unbalanced in you home life, how will you be able to concentrate and be present with a client. Cant happen.

Sort out problem relationships, exercise, get rest, and reduce your unnecessary obligations. Then focus that energy onto your work and relationships (work or otherwise).

Recap

1. Mind set – what you believe is what you get, are these times of opportunity or not?
2. Measure your business from the customers perspective to understand the 80/20 relationships
3. Get external data about you market, then use that combined with your strengths to identify opportunities
4. Using the data to innovate – this is hard work, but it has to be done.
5. Cut the fat not the meat. Market like crazy – with a focus on building relationships. Organise a simple sales process and measure it.
6. Get super organised for rapid response

Closing quote from Warren Buffett:

“We attempt only to be fearful when others are greedy, and greedy when others are fearful”.