Vincent Writes

Welcome to Vincent van Wylick's Website

Category: Entrepreneurship (page 1 of 4)

The strange transparency of Apple’s App Developers

Now, when I say transparency, I do mean that in a very limited way. Datapoints are being revealed left and right by developers, but even so the majority of app developers are keeping their sales numbers quite hidden.

A little background: Overcast, Unread, Monument Valley and several other more prominent developers have been quite open about the financial results of their respective apps (MacStories has more). In the greater context of things, this is perhaps not unusual. As I pointed out in previous blogposts, we live in an age where information is speeding up and increasingly becoming commoditized. Still, you don’t really see many commercial businesses revealing their numbers, unless they are public and obliged to do so to their shareholders.

So I have a few theories about this, the primary one being that the App Store is a learning platform for many developers. It has built-in tools, an audience, and a revenue structure that is by and large complete, just missing that special recipe that makes the app (what many have pointed out is lacking however is the App Store as a marketing and sales tracking platform). Apple is also quite transparent to not want anything more from its developers except for their 30% cut and certain, sometimes oblique, values to be respected (no adult content, spam, advanced functionalities in notification center?). Apple is also the market leader as far as these app platforms go (alternatives are Google Play, Amazon, Facebook, you name it), providing a certain stability and confidence in developers that it, at least, is here to stay. Finally, there is the combing trend of communities enabled by the Internet and even before that around Apple, that makes it easier for people to open to up to what they feel are sympathetic audiences.

The bigger question is will this lead to something? For many developers, I can imagine it will. You can do a computer science degree to learn how to code, you can learn how to code from the Internet. To run a business, the best learning is made from the marketplace and these kinds of ‘revelations’ are invaluable lessons to budding entrepreneurs. That said, there are no guarantees that the App Store is a viable platform forever. Marco Arment and others publish statistics about what it’s like to have a relatively successful app in that marketplace, with its inbuilt mechanism to make the purchase possible. Arguably building for mobile will always require some kind of App Store, but there is no certainty about it making you rich.

Is there room for pull-based cinema? [Republished from Tech IT Easy – 2011]

Seven SamuraiI cannot speak for everyone, but I often find myself at the cinema unsatisfied with the choices that the movie industry pushes out to me (without my input, exactly). The way mass market product development works is that products come out of research that reveals what a large percentage of a market would like and be willing to pay for. Movie-making is expensive (not always, but relatively compared to its perceived output), and a scientific approach to minimising the risk of losing money makes a lot of sense. A large portion of the budget is typically spent on marketing, an important argument against what I will propose in this post.

“Pull-based” cinema, not the sexiest term for this, would basically be a system in which a large number of people could vote on what is showing at a cinema at a given time. I imagine a kickstarter-like internet based service, that only gives the go-ahead if a certain amount of revenue has been generated for that night. The movies could be new or classic, niche or mainstream, it doesn’t matter as long as there is enough demand for a viewing.

A couple of uncertainties about this:

  • ◦ How are movies distributed and stored inside cinemas? If it is the bulky rolls that I remember seeing as a kid, then this is not viable on a large scale. If it is digital, then why not.
  • ◦ Is there enough financial incentive for cinemas, movie studios, and other parties, to make this commercially attractive? Also, how does it compare to revenues generated by movies that are new and heavily marketed?
  • ◦ What do audiences want and would there be enough market interest for such a service?
  • ◦ How simple and unpolitical is the decision making process for making this happen? This will always be a factor and should not be an argument against necessarily.

Practical solutions:

  • ◦ Start small: one cinema screen in a larger complex, perhaps 1-2x per month.
  • ◦ Scale big: use social services like facebook, meetup, and perhaps kickstarter to reach the masses.
  • ◦ If a clear market exists, focus: specialised cinemas and building up communities around movie lovers.
  • ◦ perhaps use auctioning systems like Easyjet’s (which also tried cinemas at some point) based on visitors and the popularity of movies. I’d easily pay triple for watching classics like Bladerunner, The Goonies, or Akira Kurosawa’s Seven Samurai on a giant screen.

Even though I would love such a system of watching movies in the cinema and think it’s completely part of the times, I have a feeling that it is by and large deemed economically unviable, because of the large capital investments involved in cinema real estate and technology, as well as new movie production and marketing. That said, in terms of pricing, cinemas are clearly stuck: they either have to charge the same for every movie, good or bad, or force ridiculous price increases down customer’s throats for 3D glasses or the concessions sold for less than half anywhere else. Connecting supply up to demand in real-time overcomes some of the pricing uncertainty around movies and actually allows for more premium pricing to occur for products & services that customers *actually* value. Similarly, the movie industry is stuck, creativity wise, preferring to invest in the less risky sequel, than new intellectual property. They clearly fear customers and their market research doesn’t work beyond counting how many tickets the previous movie sold. Pull-based cinemas wouldn’t exactly address this either, as the production cycle is too long and the funding needs are very large1.

Pull-based cinemas are a proposed solution for the choice that customers currently face: either between a selection of movies that are forced down their throats by the studios, or the unlimited selection they can get in their private homes. There’s a discrepancy there and as movie setups at home continue to become better and cheaper, it’s bound to get worse for cinemas.

I’m very interested in this subject and if anyone has a greater insight into this industry or knows of such cinemas existing or having existed, please send me a mail to editor at the domain-name techiteasy.org.

1. Though this could work for independent movies.

 

Three Starting Points of Entrepreneurship Considered…

Entrepreneurship is a way or life, or rather a choice in life to take the riskier, lonelier path, rather than the safer collective umbrella of working for existing organisations. You seize to be an entrepreneur of sorts once the company that you founded become one of these organisations, because start-up companies are centred around putting all their eggs in one basket, while existing organisations have the luxury of having more options, spreading their risks among them. You can continue to see yourself as an entrepreneur of course, as someone who is more flexible and in control of his own destiny, but context has to fit that feeling.I’ve always be a student of entrepreneurship, I guess, because I always wanted to be one. There is a choice you have to make early on, that of what kind of entrepreneur you want to be. In my view there are three or more separate choices, though not necessarily disconnected ones. These are: the creative entrepreneur, the process-driven entrepreneur, or the copycat entrepreneur (which I could also call scale-focussed).

Each of these entrepreneurs faces their own risks and their his own skill-set determining their choice. And each choice creates its own opportunity costs as well. For ease of reading, I’ve split the rest of this essay up into different sections discussing risks, skills and profit zones.

Risky Business
The creative or the artist type may never find a market at all. That is either because of a communication problem (“So why is a space pen a good idea exactly?”) or a resource problem of getting from creation to viable innovative product or service (“Ugh, I know it’s a good idea, but I didn’t quite think it through to the market.”).

The process orientated entrepreneur, by which I mean entrepreneurs like the ones that create enterprise software, a product that needs to fit within an, often, rigid system, faces the time consuming battle of having to convince his customers to change their ways. Even if they are good and/or connected, they still need to bridge the gap between pitch and purchase, which can take months if not years. They are also slave to the whims of their new masters, at times some pretty powerful corporate customers.

The copycat (or scale-focussed entrepreneur) will often grab readily available technologies to create & scale his business and will likely face competition that does the same. For him, it’s about speed and flexibility more than anything else.

Talent & skills
Talent or Skills can clearly be split into three categories as well. Creative people are often drawn to this path because they want to (and hopefully can) create something new. You could describe them as artist-business people and perhaps recognise the problems and trade-offs that exist in such a combination. Hence many artists are better at the art part and worse a business or, god beware, the opposite.

A process orientated entrepreneur is one who (hopefully) has a firm grasp if the market that he is developing solutions for. In my view, these tend to be smart people that would just as well in a corporate environment, but chose this other route because they want to accomplish more.

The copycat or scale entrepreneur has perhaps the best eye on the market and tries to take the path that leads him to reward he quickest. There are plenty of things to criticise as well as to admire about such a person, if they are successful.

If I were to tell you today which path to choose, it would probably not be the creative one, I think processes are great as long as you an an expert in them (otherwise they are not worth it), and he copycat is both the easiest and probably the smartest, as it’s less risky.

The real reason for writing this…
Is because I think about my own path from working in organisations to starting and closing several companies, to growing my career, to where I am today. I see writing as a product that I try to master, which is different from previous products where I felt less in control of the variables that go into e.g. creating a piece of complex electronics or into creating a consulting business with lot’s of (paying) clients. I don’t necessarily think that one needs to be a master of everything prior to starting, there is a steep but feasible learning curve involved, but it is good to master at least one, if not two areas (The three that I mentioned: creativity (the product orientation), the process, and growth (copycat or scale) are different points of the map of a possible personality for an entrepreneur).

The biggest risk that an entrepreneur faces, apart from laying all his eggs in one basket, is that he focusses only on one aspect of creating a viable business. Too creative and removed from the market, too slow a market or complex a product, or growing fast without fundamentals are all real problems that these people have to deal with every day.

In the end, I see everything as a positive learning point and an opportunity to do things differently the next time. And I hope that that is the one thing that you take away from this. Even if you are a certain type of entrepreneur, just take the leap to try something, fail hard and hopefully fast, reflect and start again when the time fits your context.

Some (disjointed) thoughts about entrepreneurial qualities

start-up entrepreneur qualities.jpgStill don’t have too much time at the moment, but trying to produce content if possible, in a quick and (hopefully) digestible format. Some qualities of entrepreneurs that I’m thinking about:

  • Perseverance: This is a tough, tough issue. I consider myself a person that bites into a project and doesn’t let go; at the same time there are times when you have to or should abandon an idea. Even so, a start-up is an 80 hour a week job (let’s say), it has stakeholders—investors, partners, employees—and it may take some time to go into the black. Perseverance is probably the most important quality to possess, but I’d love for it to be simpler to know when to persevere and when to abandon.
  • Instinct: it’s a funny thing, this one. There is of course good and bad instinct (e.g. bravery vs. fear), but sometimes a “bad” instinct is a good one too (fear > jump > evade car). And even if you try to follow your instinct, your rational self—your experiences, education, arrogance, other emotions—will want to interfere with it. The reason to follow instinct is because it’s quicker and a more natural way to be (and my theory is that natural = confidence = charisma and all that good stuff). Still a tough one.
  • Inside-knowledge: in an industry, sure saves you a lot of time finding contacts and focussing on the right stuff.
  • The numbers: are important in a numbers-business. And every business is ultimately a numbers business, maybe not at the beginning when there’s lots of growth, but certainly at that point when either your wallet begins to look empty or a competitor is moving in next door.
  • Money: is kind of nice. The more you have, the less you need to give away in equity. Of course, rich parents help, but so does having an investment-portfolio. Investing in your industry means that you keep track of the latest trends, of your competition, and if you make money from that, that’s a qualifier that your instincts are correct. And, ultimately, giving away equity to the right people, means having a smaller piece, perhaps, but of a bigger pie.

Other things I missed? Definitely! You can always drop a nice comment about it.

The picture is courtesy of fairinvestment.co.uk

Some disjointed thoughts about empowerment

power to the people.jpgDisjointed, because I don’t have the time or energy to write a beautiful essay about empowerment—I’m not even 100% certain what it means yet. And in a way, by writing about ’empowerment,’ I’m breaking the first rule, which is “Don’t speak about empowerment.” Or at least it seems that way. Currently, there’s around 505,000 articles online about the term, which qualifies it as a hype and as such something that has already been discussed too much. But also, empowerment is basically about trust, a behaviour, and how can you talk about a behaviour, you just behave.

I think I first came across the concept, without even using that term. A few years ago, I read a book on ants, called “Emergence.” It was a great book, I thought, about how ants at every level exchange signals, in the shape of pheromones, to indicate what they were doing and whether they needed help. A completely decentralised organisation, and the only thing the queen needed to do was produce babies, which, equivalent in business-talk, is, I guess, take care of human resources. I was so excited about it, that it became a research proposal for my master-thesis in strategic management, and was very quickly rejected, as I guess I hadn’t related it well to strategy.

I again came across the concept last week, after reading an interview with the then-CEO, Dennis Bakke, and the then-chairman, Roger Sant, of AES, a power-company, which was, at least at the time of the interview (1998), very big on empowerment. And it seemed to work pretty well for them, if you look at their share-price, it rose pretty steadily up to 1998, and even more up to ca. 2001. Though, it hasn’t been doing quite as well these last few years.

Reading the interview, I got the impression that empowerment is a religion, which in itself is hard to quantify into a set of rules. Essentially, at AES, it was (or is, I don’t know) a system of open exchange flows; people could evaluate each other’s performance, investment-decisions were decentralised and crowd-sourced, job-rotation was common, and micro-teams of ca. 10 people, focussed on different projects and tasks, were spread all around the organisation. And that seemed to work pretty well.

But there were also some downsides, such as that the company didn’t work well with other companies—rather, it preferred a contractual relationship—and there were constant pressure to revert back to the traditional top-down model, from the public, share-holders, even employees. Essentially, every employee at AES becomes a kind of mini-CEO, which is clearly not something everyone is conformable with.

And the question is, and I haven’t figure that out 100% yet, is how you come from that top-down view of human “resources,” to a decentralised ant-like model? The key-word, which is equally hyped but seems to apply, is “delegation“—i.e. shifting executive responsibilities out to a team.

I think the problem of this is quite well spelled out in a recent interview with Brad Bird from Pixar, who was at one point confronted with a team that was demoralised. The former director had taken their work and evaluated it in private, giving written comments to individuals, not giving them a chance to give any input. And in order to turn that team around, he had stand in front of them for two months, evaluating the work, in public, and encouraging to take part, through questions. Two months, it took to go from the traditional model to one of empowerment, and just for that team.

The good news is that for start-ups, this is pretty much the way it should be from day 1. The bad news is that for big companies, or as soon as a start-ups grows bigger, the dissonance between people becomes larger and larger. And you have to—if you want to, at least—find ways to decrease that gap, probably most easily achieved through team-building after team-building exercise.

Anyway, not much more to say about this for now, but empowerment is cool, let’s leave it at that.

Ah yeah, I forgot! I liked these interview questions, which were typical of an AES job-interview at that time, and made me think about my own opinion on empowerment:

  • Should everyone be treated equally? Explain.
  • What do you do when something needs to be done and no procedure exists?
  • What self-improvement-efforts are you making?
  • Recall a time when people around you weren’t being entirely honest. What did you do?
  • What does “fair” mean to you? How important is fairness?
  • For what have you been counselled about the most?
  • What is the most difficult situation you have faced? What did you feel? How did you react?
  • Describe two important achievements.
  • Tell me about a time when a decision was needed and no supervisor was available.
  • What kind of rewards are most satisfying to you?
  • What does “fun on the job” mean to you?

I guess, this suggests that part of the answer to my question lies in an organisation’s hiring practices.

The picture is of course of Che Guevara, who wasn’t an entirely nice guy, but does stand for this whole “power to the people” movement.

The value of support

All right, in 10 mins or less…

I just started reading a series of essays, entitled “Wish I’d known: Insights and inspirations from the journeys of successful entrepreneurs.” Do a search, and you’ll find it for free online. One essay finishes with:

“I wish I’d started younger and wish I appreciated how much family and friends would support me beyond what was reasonable and fair. I wish I’d know it was OK to have fun and in so doing not taken myself so seriously—the journey is often superior to the destination.”

Words to live by!

Last weekend, I wrote the acknowledgements for my thesis. The cherry on top, which I’d left for one of the last things to finish. And it would’ve been impossible to write it before anyhow, as even in the last lap there were/are people driving me on.

During the writing, one person died, another got terminal cancer. Both much too young and undeserving of such a fate. And both of whom I consider good friends, whom I trusted and who trusted me. In part it was the thoughts about them that prevented me from giving up.

But, strangely perhaps, it was also my little brother, just 19 years of age, that was unrelenting in pushing me forward and not letting me quit. It was as silly as him telling me 6 months ago, “I want you to finish this in three weeks,” which got me to get my act together, perhaps taking longer than three weeks, but not stopping until I was done.

And it was all the people I interviewed for this study—my subjects, and ultimately my customers—all of whom unquestionably agreed to share their wisdom and whom I ultimately do it for.

It’s only about a page worth of acknowledgements, but it is for the people on that page that I spent countless months writing, that I ultimately produced a 120 page-document for, and without whom I wouldn’t be anywhere close to where I am today.

That… is the value of support and why nothing is impossible!

(No picture, as I found nothing that could do them justice)

Food on a system-level

food crisis.jpgTake a look at this quote, which I posted a few days ago:

There should be a rule: before helping the environment in one market, we should be required to think through the impacts on other markets.” (source: Freakonomics blog).

Or, to put it differently, every action has a (sometimes equal) reaction (I think the traditional phrasing ignores the human element). The idea that everything is interconnected is both fun to right-brained generalists like me (not a compliment), and scary at the same time. The global economy is very complex and, I would say, impossible to regulate.

There’s a couple of things going on the world, which I’m sure everyone is aware of. There’s a number of wars, there’s the weakened dollar, there’s some kind of housing-related recession going on, there’s a shortage of oil, our planet is perceived as suffering and currently being saved (I hope), there’s India and China, the rise of the Anglo-Saxon system, etc. etc.

And some of the biggest problems facing the food-industry (depending where you are in the chain), are rising food-prices, which relates to that oil-shortage (both in terms of pricing, but also because of alternative fuels using farm-products), the rise of India and China, and some other factors; and the costs of keeping green, which has largely been inspired by companies like Wal-Mart, but also by the (exaggerated) need for global diversity by customers (which the food-industry is also partially to blame for).

The solutions vary, and are, so far, very defensive in their nature. For the cost of going green, most pollution comes from transport and the solution is to either use the most eco-friendly way to go: on land, by train, across water, by ship; or to go local—which companies like Marqt seem to focus on, but which also comes with the pitfall of seasonal shortage.

For rising food-prices, again one solution is to go local, to save on transport and have some control over how farmers work, and be able to charge higher prices to the rising local-conscious consumer. But a bigger solution is for more food-production to happen (much of it currently goes to India & China, or to biofuels), and possibly from smaller farmers. The problem here is that it will take time (some estimate decades) for smaller farmers to get ready.

Both are definitely big picture-problems, and will take time to solve. One thing, I’m personally looking at, are micro-lending sites like Kiva.org, which put you into contact with local farmers, allowing you to help them out in your own way. From a Venture Voice interview with one of the founders, I understand that some of these investments happen within the context of a community, where each member keeps watch over the other’s use and repayment of the funds, in order to ensure a good outcome, and so loans will continue to come in. But, while I think it’s well worth the effort, this is still a small-picture solution to a much larger problem.

The way it looks right now, the solutions have to be planned in the long-term and on a large scale. There is definitely space in the farming-segment for more production to happen. In the mean time, food-prices will continue rise, as will the price of educating consumers to make more responsible choices. I like Tesco’s approach in labelling the origins of their food and allowing people to make more carbon-friendly (locally focussed) decisions. But that doesn’t solve the problem for farmers in remote areas of course.

Sigh, if you just got a headache, I sympathise, as I just got one too.

Further reading:

The picture is courtesy of ABC News.

The Dutch horeca top-100

I’ve included just the top-25 and annotated their focus. What’s interesting, but not surprising, is that the majority of companies in that list are not independent horeca-orientated, apart from two: Hennie van der Most and Sjoerd Kooistra, both Dutch horeca-entrepreneurs.

The majority is hotel-chains, though the top-10 is quite diverse; a number of convenience-(fast)food places, resorts, as well as retailers. Interesting that both Ikea and Hema are on that list. Hema, as far as I know, has not been on the horeca-market for long (no revenue reported in 2006), but is already reaping significant successes. Probably my favourite retailer in the Netherlands, btw. Ikea, as I reported before, has been in the restaurant-business since 1971.

Misset Horeca - Complete ranglijst Misset Horeca Top-100 2008.jpg

You can see the complete top-100 at Misset Horeca.

Interlude: From medical to space-tech – How technology affects incubation-strategies

rocket surgery start-up incubator.jpgHigh-tech… My never-ending hobby! Read about it on Tech IT Easy!

Interlude: The flirt

flirt.jpgI took part in a “flirting in business” workshop last night, pretty fun and insightful. It tried to explain the fundamentals of communications to us—around 50 professionals, students, work-seeking-people, etc., both shy and outgoing, all with their own qualities and questions—and I took a lot home from it, including a book by the presenter.

So, apparently a “flirty” conversation has three main components:

  • giving attention;
  • showing curiosity;
  • showing trust.

An exercise to meet a stranger and asking them the name of a parent, illustrated the latter quite well, as I don’t trust many people with the name of my mother. 😉

Several things, like conditioning, fear, and ego stand in the way of change, and the only way to get around it, is to acknowledge the feeling as it happens and know that you have a choice. Good to know! Apparently, a conditioned change—one that lasts—can happen quite quickly, you have to practice it around 15 separate times for it to become internalised.

A round of answers were given concerning what people pay attention to during a first meet, the infamous first impression: it ranged from dry hands (which you can’t do anything about), tone of voice, general looks, and, most importantly, the smile, as that overcomes a lot.

It was also interesting to hear that only 7% of the message that we get from people is verbal, and the rest is sensory. That explains why I often don’t listen and go on instinct, I guess… 🙂

Did I take anything big back from that meeting? Not really, except that it’s really not that hard to sell yourself, as long as you have a certain awareness of what’s going on in your head and what matters to other people.

Interlude: Copyright or the *Right to Eat*

copyright right to eat.jpgRead it on Tech IT Easy!

Interlude: The detached business-person

detached business person.jpgAn interesting quote from the Economist this week. Particularly, because I personally suffer from it, and imagine a lot of other people & businesses do too.

Mr. Fellows [CEO of Callaway golfing equipment] believes that the “fundamental principles of running a company don’t change just because the product category is different.” In his view, Callaway’s problems stemmed from the fact that it saw itself as a golf business, not as a consumer-goods company. He resolved to focus on “what the consumer wants, not our own feelings about what the game of golf should be.

It doesn’t matter if you’re the CEO of a company, an investor, a sales-person, a blogger, etc., I think everyone has an idea of what they want and what customers should want. But what it really comes down to is the latter.

Face Value, my favourite section in the Economist, every week.

The picture is courtesy of digitalfreak.net

Financial beer-tactics

half full half empty beer funding bar.jpgNormally, you would say that alcohol & money don’t mix. But in the world of beer, at least in the Netherlands, there is tangled web that has been woven between financiers and the horeca-industry, which is difficult to unwind, and, some people argue, shouldn’t be unwound.

First of all, what is investing all about?
It’s all about profit, obviously, but it’s also about minimising the risk for investors. Two big risks facing investors are informational.

One the one hand, there’s moral hazard—the risk that entrepreneurs take their new assets (money) and misuse it in some way; On the other hand, there’s adverse selection—the risk that entrepreneurs are not as capable as they claim to be.

Either of these situations requires a different response and a different type of investor. For moral hazard, the typical response is for investors to mingle in the affairs of their investee’s operations and strategy and take equity; the so-called active investor, which includes business angels and venture capitalists.

For adverse selection, the typical response is to restrict the entrepreneurs movement through collateral, restrictive, covenants, and and short maturities, to minimise risk-engaging behaviour. This is the realm of the passive investor, which includes banks.

Financial beer-tactics
When looking at these two investors, you see some differences; Active investors take equity—become part owner of the firm—and they do this because they can’t do much else to influence the use of their money. Passive investors prefer to use measures like lend against collateral, e.g. real estate or other tangible assets, which they can claim if the investment were to go wrong.

In the case of horeca-owners, you typically do have some kind of physical asset. You occupy a venue, you have machinery, and inventory. This is much more the realm for passive investors, who can relatively safely lend some money against the existing collateral.

There is one complication, however; Horeca is typically known for high failure-rates. I’m not sure why this is so. I guess that the leisure industry is largely sensitive to seasonal differences and economic downturns. And perhaps, the barriers to entry are low; there could be a lot of low-skilled entrepreneurs out there, who are not as capable of running & growing a business as they think. And finally, growth in itself could be a problem, if the capital requirements are significant.

The way investors get around it in the Netherlands is actually not to invest. Instead, they leave it up to breweries, who, against a right of exclusivity, lend a certain sum to the business, or give it a discount, and provided it with the necessary materials, branded of course.

What’s the problem?
From my angle, there isn’t one really. If horeca is such a risky business, and other investors are unwilling to invest, then I don’t think an entrepreneur should complain about a simple exclusivity-contract. And particularly so, because of three factors.

For one, exclusivity is only valid if the brewery has less than 30% market-share. In the case of someone like Heineken, who also owns a number of other beer-brands, and has more than 30% market-share, you can quit such a contract after two months. Then again, Heineken does its best to provide other value-added services to make sure that this doesn’t happen.

And second, there’s a lot of consolidation in the alcohol-business. And just because a company has a certain exclusivity, it may have such a large portfolio of brands that there isn’t any shortage of choice for customers; neither do I think these exclusivity-contracts are 100% bullet-proof.

The third factor seems to be a problem. By not giving customers a choice, they have learned not to care about brand so much when they enter a pub. They just ask for a beer. So for them, unless they’re a beer-fanatic, it doesn’t matter much. For producers, on the other hand, their brand has become a commodity, at least where nightlife is concerned.

Who cares, right?
Heineken seems to care, and is all for the liberalisation of Dutch pubs. Ignoring that a. this would disrupt a pretty good funding situation for Dutch pubs, and b. that Heineken owns more than 30% of the beer-market, making their exclusivity-deals vulnerable anyway, I do kind of see their point.

By turning a brand into a commodity, you take away marketing-potential. If you can position your beer-brand above that of regular beer, then you can reap higher profits. That makes 100% sense to me, from the brewery’s perspective.

And, from what I understand, British pubs don’t actually have such exclusive deals with breweries. The question is then, how they get funded, or whether the failure rate is perhaps lower in the UK? That, for now, is a question unanswered to me, but I’ll do my best to find out.

(You can always give it to me in the comments.)

Part of this topic was inspired by a good article (unfortunately not online) in Dutch Marketing Tribune, still my favourite Dutch mag.

The "people business"

people business.jpgWhen I started this blog, and my general thoughts about the area of food & retail, it was all about the people. A quality staff and happy customers, what more do you want? And I have to say, from past experiences, that I don’t really like businesses that don’t place people first.

For instance, one individual I worked with, suggested using handicapped people to put together a product manually. I instantly disliked him. Not that I don’t want handicapped people to be productive, but it was the thought behind it; to find a “stupid” workforce, which you can save tons of money on. It was just distasteful.

Another company I worked for was very process-orientated.
There’s nothing wrong with that of course, but it was a big company with a reputation for innovation and that is why I joined. And you expect such a company to at least push forward a solid project. Well, as it turned out, the organisation’s core-strategy was to start a large number of risky projects and have them compete with each-other. Those that would fail would simply be abandoned, and their staff was expected to fall on their swords… metaphorically. The effect was an incredibly high turn-over of employees, all three projects I worked on no longer exist, and it deeply soured my feelings about this company.

Both these examples, to me, represent a lack of respect for the human element. I realise that business is a hard world, but if projects were designed to be solid in the first place, there would be less of a need for these kinds of practices. Just my 2 cents.

Part 2 – the challenges that people businesses face
HBR (Again! I’m sorry, but I read a lot of HBR-articles!) published an article about people businesses some time ago, which I enjoyed. Following are some notes + thoughts about it.

  • People businesses are defined as:operations which are characterised by 1. high overal employee costs, 2. a high ratio of employee costs to capital costs, and 3. limited spending on activities, such as R&D, aimed at generating future revenue.
  • In a top-40 list of people-businesses, published in that same article, only a few qualify as food and/or retail related. These are the Hospital Corporation of America, Tenet Healthcare, Marriott hotels, and Accor hotels.
  • For instance, a business like McDonalds does not classify as a people business; it has substantial assets in terms of brand & real-estate, and relatively low people-cost.
  • People-businesses face a number of challenges, related to performance measurement, people-management, compensation, and business models.
  • Measuring productivity is more important in these businesses, then other economic performance indicators, like return on assets or investment. The challenge is finding the right indicators (employee productivity & profitability), as well as benchmarking it against other companies (employee figures do not always need to be made public).
  • To manage people, you need to align employees’ interests with business objectives & execution. And you need to find ways to measure performance (see above) continuously and see where your weak spots are.
  • Compensation is key, as productivity is very sensitive to it, and is a primary determinant of shareholder risks & returns. Other factors to consider are variability—productivity varies across the workforce and how do you get the most out of a diverse workforce—and reach—sometimes the lowest on the ladder are as, if not more important to a firm’s performance, and how do you motivate these people to do their jobs as good as possible?
  • There are a number of business models are used in these types of businesses: pricing per hour is a safe method, but does not account for extra performance; a fixed price per output allows companies to shave costs off the inputs and thus increase their profit-margins. It is very susceptible to a high-skilled workforce; a success-fee or commission offers the best returns, but also the greatest risks; some companies use a hybrid of these three.
  • The strategic weakness with these types of businesses is that your assets are mobile and can walk out the door. By creating value above and beyond your employees, you can diversify some of that risk away. Of course, you could also try to keep your employees ;).

In other words, I am no longer sure if e.g. a retailer qualifies as a people-business. Looking at other large chains however—Starbucks, Ahold, Ikea—you see that considerable expenditure is geared towards training these people and the secondary conditions—healthcare, etc.—are extensive. But, I guess it depends on the ratio of physical assets & brand vs. employee-value. If the first two far outweigh the second, I guess that makes the difference.

I guess it’s up to individual businesses how they want to measure their firm’s performance. The most straightforward is certainly return on assets or investment. But even that leads to some question-marks, particularly in today’s highly software-based economy, where assets are no longer as necessary, or pricey, as they once were.

For my part, I still think that people are a key-asset to a business, and it’s interesting to look at how exactly you motivate a workforce and get the most out of them, as well as how to overcome the challenges related to a people-based business.

Equally interesting is how to align the business-model to match the needs of your assets—the people. Since people are motivated by (financial & non-financial) compensation, do you keep the pay-rate aligned with time-spent; fixed; aligned with performance; or a hybrid of the three? I think the hybrid is always the best choice, but even then some combinations work better than others.

And retaining employees is also an interesting problem; though much less so in countries like France, where getting rid of them is a problem, and differently in places like Silicon Valley, where inter-firm mobility is a key-requirement for many employees. I think the solution is completely personal and cultural, and everybody’s answer will be different on this.

The picture is courtesy of prairienet.org

Interlude: Top-bloggers’ competitive advantage

supergeek-1.jpgRead it on Tech IT Easy!

Interlude: The born bootstrapper

boostrapping.jpgI am not a born bootstrapper, let me make that clear from the start. I just like titles that include words starting with the same letter (is there a term for that?).

Bootstrapping is, in my own definition, “the ability to generate growth on minimal financial resources.” I was first going to call it “the ability to survive on minimal resources,” however that would make most of the third world bootstrapping-geniuses.

No, it’s when entrepreneurs have an idea that they want to grow into a commercial business, and since finding funding is difficult and less preferable for some, they do so with minimal financial means, perhaps while maintaining another source of income and by generating organic growth—revenues derived from within the company. In sociology, there is a concept called bricolage, which means more or less the same.

What makes a born bootstrapper, or rather a good one? I think it requires three qualities:

  • The first is certainly the ability to live cheaply, and I’ll refer you to one of Jeremy’s post where he makes the point quite eloquently. The ability to live without luxury, eating at discounters, buying second-hand furniture (or dragging it off the street), living in cheaper areas, and, most importantly, to delay paying the bills, are certainly key-components here. As is, making resource-choices for your business. Easy to do when you work in software, less so in physical businesses, though inventory is fun to play around with.
  • The second quality is time-management. You need to generate growth within your company and pay the rent, so you have to make choices. You have to find alternative revenue-streams, perhaps get another job, and work on your business during your free time. It requires you to set some clear priorities, skip the weekly cinema-visit or the time spent with your loved ones.
  • The third and final quality, is to be goal-orientated. You could place that under time-management, perhaps, but where bootstrapping is most likely to fail is when motivation drops. You need to keep your eye on the ball at all times; the priority for a bootstrapper is to grow the business, not keep a stable job, and you need to see the light at the end of a tunnel and keep going until you reach it.

Anything I missed?

The picture is courtesy of rockies-ice.com

Michael Masterson on entrepreneurship + some thoughts

sell entrepreneurship tips strategy.jpgTen tips, taken from an essay written by Masterson, entitled “The Winner’s Rule“, from the book “Just One Thing

Advice is a funny thing. I don’t think it’s advice at all; rather it’s a set of criteria or truths, and fairly shallow ones at that. They ignore the context a person, a reader, a student, a business goes through. And what if we all met these same criteria? Wouldn’t the world be a much more boring place? As such, treat all “advice” with care.

I can classify Masterson’s points into two categories: Business-related & person-related.

Business-related
1. It’s not a business until you make the first sale.

2. The most effective way to enter a new market, is to offer a popular product at a drastically reduced price.

3. Sell, sell, sell: keep on increasing the perceived value, allowing you to ramp up the price, and increase profit margins.

All of these are sort of straight-forward, I think, though certain terms should be qualified. For instance, what does a ‘sale‘ mean? It’s easy to understand it within the context of a product going over the counter, but what about service-companies or the many web-businesses that fund themselves through advertising (if that)? I would nominate the first “rule” to be: It’s not a business until you make money.

The second and third points, to me, seem like a typical VC-thing to say. Scale, scale, scale. Sell cheap and sell much. And worry about increasing the profit-margins later on. Again, it should be qualified, depending on the type of business. For instance, the internet is a market-place for countless cheap (or free) and mass-products; but as a result many products/services have become simple commodities, with no one willing to pay for them, and businesses having to look towards advertising as a funding-source (shudder).

Personality-related
4. When choosing a business, pick the one that can be grown without your personal involvement.

5. Before investing, know exactly how much you’re willing to lose, and get out before you hit that point.

6. First, improve your strengths. Then, eliminate your weaknesses.

7. Focussing is more effective, than a diversified approach.

8. Let your winners run, and cut your losers off… quickly.

9. 80% of success comes from 20% of your resources.

10. Try to always focus on the good of the whole, vs. the good of the one (applies to any relationship).

Lot’s more to say here.

Completely agreed with point four, as entrepreneurship should not be about enslaving yourself to another organisation, at least not for life. Many entrepreneurs seem to ignore that rule, however. Also, VCs often prefer to replace the founders with more qualified executives to “grow the pie.”

Point five is spoken like an investor and is very much dependant on the perception of risk you have. Entrepreneurs are reputed to be risk-taking people, however the smart entrepreneur takes a calculated risk, and understanding how much you’re willing to lose is part of that.

Point six and seven are a personal weakness of mine, I’m too damn curious for my own good sometimes, more interested in exploring areas (of myself or in life) that are unknown to me, rather than that which is known. That may change, but is certainly not a criteria that I personally meet. I wrote about focus before, btw. Differs from person to person.

Point eight comes with experience, I think. On the one hand, you need to have perseverance, even when things are hard or going badly, especially during the early stages of a start-up. On the other hand, a reality-check is price-less. I suggest bouncing your ideas off as many people as possible.

Point nine is true, nothing to add.

Point ten is about understanding the core-principles of business and, even as an employee, doing all you can to make that business (instead of yourself) profitable. Ram Charan is a good man to read on that.

Good essay, made me think about my place in the world.

Read more entrepreneurship articles here.

"The battle for stomach share"

I took this title from a report on the future of Dutch supermarkets (English pdf). It identifies a number challenges to come, one of which is “stomach share,” which is apparently a big deal because of the following three factors:

  • Population decline: which translates into less consumers buying food
  • Increased longevity: and older people have a lower caloric intake
  • Increased awareness of health-issues: which also translates to a lower caloric intake.

The market is shrinking, people are spending less of their income on food, which will have have consequences on the channel (supermarket), the sales concept, and the value chain. And it will affect those players negatively that cannot leverage these four factors for optimum positioning.

battle for stomach share.jpg

What the authors are seeing is that players from the bottom of the market (the discounters) are moving upwards, by broadening their assortment of goods, and players from the top of the market (luxury-stores) are moving downwards, by improving their prices. A number of underlying things are going on here: luxury-stores can become cheaper by improving the efficiency of their stores and sourcing cheaper brands. And discounters can increase their offering through their relationship with suppliers.

Following HBS-quote, from an article entitled “Finding success in the middle of the market”, sheds some light how Tesco does it:

A company controls midfield by fielding a complete product line that includes backs and forwards. In its supermarkets, Tesco, the successful UK retailer, offers consumers three options—good, better and best—in most high turnover product categories. In addition, Tesco doesn’t just sell groceries through one-size-fits-all supermarkets. Recognizing the need to shape as well as respond to an increasingly segmented market, Tesco reaches its consumers through at least seven different store formats, from convenient Tesco Express outlets at one end of the spectrum to full assortment hypermarkets at the other. But, within all its stores, Tesco implements the same merchandising principles: Better, Simpler, Cheaper.

Can you guess who the loser is yet? Well, according to both the report and much data on the net, the losers are the new, innovative concepts, that may offer certain values to consumers on an ethical or health level, but are not able to reap the same advantages as more established players are.

That is also the answer why so many organic companies are being bought up by fmcg-companies. There’s an interesting overview here; but if you want to follow one in real-time, check out this Inc. magazine blog run by Honest Tea, which has recently given away 40% of their company to Coca-Cola.

Of course that is only part of the answer. Consumers are not just focussed on price. And, while consumer-awareness of the global situation and their own health is clearly growing, that’s not the whole answer either. People’s lives are becoming ever more complex and convenience is a big selling point these days.

It’s those companies that can combine a high level of consumer-responsiveness, together with assortment and price, that will capture the hearts of consumers. But I guess what is out, is the solo single-product-serving player in the market, purely focussed on softer advantages like “ethics,” and forgetting that consumers still(!) have limited disposable income for their food-expenses, as well a limited time to engage in these activities.

Entrepreneurial method: believe something is impossible? Enter ‘double-think’

Yesterday, I read an HBR-article by Roger Martin, on his book “The opposable mind“, the ability for people to think contradicting thoughts and act on them at the same time (this may sound familiar, if you’ve ever read 1984).

My first instinct was to throw it out. I didn’t like that he used the first few paragraphs to discredit other thinkers on leadership; and I didn’t find his proposed method for coming up with a business-model particularly compatible with the general idea of “chaos” that he was proposing (more on that later). I even wrote an impassioned article about it, but waited a day before publishing it (no April fools from me this year). None of my criticism was directed at his core-concept, btw., I do believe in the ability to think contradicting thoughts, and act on them also.

After a night of sleep, I came to the conclusion that Martin’s article was effective. Because it required me to think the article had faulty qualities, while the core-idea was right. And that was the very idea of ‘double think‘! Then I started thinking, what other areas could you apply this to? Pick one!

  • My perception of the internet is that it’s indiscriminately linear—we forget things the day after they are published. So how could you make it less linear?
  • The perception of food is that it doesn’t do well in e-commerce—they perish and people value touch. So how can you sell food via the internet?
  • My perception of restaurants is that it requires a genius cook, who is both expensive and hard to handle. So how can you start a restaurant without such an individual, or better yet, how can you start a restaurant with one?

Essentially, ‘double think’ translates into a belief that the impossible can be made possible; all it requires is faith and homework!

Martin’s method for coming up a business-model looks like this:
integrative thinking.jpg
In other words, you need to identify your core-customers, understand that their decision-process is not linear; understand the equally multi-dimensional architecture of your business, industry, and economy; and come out with a product/service that meets these opportunities.

Whether this is the best way to come up with an impossible idea, I’m not sure. But it seems like a logical thing to do after you come up with an idea and are looking to place it within a commercial context.

He uses one example throughout the article, that of Red Hat Linux, which, I completely agree, is one of the best examples to choose. It is free software, but it’s a commercial success, which goes against conventional thinking, at least at that time. And instead of just acting as a commodity or becoming proprietary charge-ware, they decided to make a services-company out of it, and a market-leader at that. So how would you turn your open-source product into a commercial success? If that isn’t ‘double think’, I don’t know what is.

Some brief notes about restaurants (via the New Yorker)

Momofuku Ssäm Bar.jpgThe reasons to love bookstore-cafés is that you get a chance to discover new stuff to read. The reason to hate my particular café is that, every week, even when I ask for a *normal* coffee, the waitress continues to regurgitate the same phrase: “will that be a large of a small?” Anyway…

I read a nice article in the New Yorker today, about a stressed out restaurant-entrepreneur called David Chang, who runs several noodle-bar-styled restaurants in New York City. The Yorker’s articles are always so long, but it was a captivating article. I took some notes, which I’ll share with you now.

  • Waiters make way more money than chefs, simply because of the tips; the figure mentioned was $1700 per 32 hours vs. $350 that chefs make. Turning chefs into waiters, which seems like a logical decision in a noodle-bar, comes with the challenge that these types are not always that domesticated (can’t help thinking about Chef! here).
  • The front-end of a restaurant—servers(?), the set-up, beverages—is relatively simple (compared to the work that goes into cooking) and can be consolidated across multiple restaurants.
  • Personal integrity in cooking—e.g. cutting fish-cakes properly, even though the customer won’t notice them in a bowl of ramen—is the difference between a quality-restaurant and a McDonalds or Uno.
  • Standards: A piece of chicken can taste wonderful to a customer, he won’t know why, but it’s actually because it’s been prepared (marinated, dried, etc.) for more than 24 hours.
  • Quote: “The great thing about fast-food is that you could sell out without worrying about it, because fast-food isn’t pretentious and selling out is in the nature of the business.”
  • Quote: “Cooking is honest work; gives you a way to measure yourself.”

Thoughts
The thing about restaurants is that I’m painfully ignorant about so many things going on in that world. Cuisine is like art—it’s dynamic and filled with critics. For instance, there’s the “foam” trend, mentioned in the article, hot in the 90s, but which I never heard off.

For me, I’m always interested to find out more about this industry, because I want to be part of something that produces culture. But I’m constantly thinking about whether it’s wise to enter such an industry without a basic familiarity. It would be like me entering the tech-industry, without being aware of open-source, how to write code, or do project-management; it’s just not done.

Food for (mostly, my own) thoughts.

Older posts

© 2018 Vincent Writes

Theme by Anders NorenUp ↑