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Category: Innovation (page 1 of 4)

Kottke.org & the evolution of Link Aggregation

I probably started reading Kottke.org 5 or 6 years ago, but realise that in its near 17-year history, it has survived through some pretty radical changes on the Internet. Jason Kottke writes about this in a, perhaps inadvertently, revealing blog post on the topic of links—the essence of what makes the Internet the Internet.

I could write a lot about what I think defines Jason Kottke’s website as a go-to site for me. Yes, it’s not focussed on a particular topic-area (what are the liberal arts really, except everything), but generally the content is interesting, intelligent and, as a result, rewarding to read. I also appreciate the commercial direction that Kottke.org has taken. On a podcast-interview some years ago, Kottke said that he can’t have a similar sponsorship model to sites like Daring Fireball, because that site is focussed on a particular popular and profitable area (again, that indefinability of ‘culture’). Recently, Kottke.org took on a new sponsorship model revolving around Kickstarter projects, which seems like an excellent fit for the site and are ‘advertorials’ that I actually enjoy to read.

In the blog post that he entitled “The return of the remaindered links (sort of),” Kottke writes about the importance of links to Kottke.org’s initial growth and the subsequent commoditisation of links as the web evolved:

The links gave the site a velocity it didn’t previously have. I hadn’t really thought about it until I sat down to write this post, but that increase in velocity made it possible, more than two years later, for me to quit my job and do kottke.org full-time. But the web has changed. Sites like Reddit, Digg, and Hacker News and services like Facebook and Twitter are so much faster than this one man band…trying to keep pace is like racing an F1 car on roller skates. So, I’ve traded that velocity for quality (or, if you’d prefer, fussiness). I no longer post 10-12 things per day. Instead I post 4-6 of the most interesting things I can share with you on that given day.

With Twitter, things are changing for him again, but I understand the following sentiment quite well:

As my remaindered links experience shows, going fast without a plan can be beneficial in unexpected ways. With different tools and media delivery channels available to me now, I wonder: how fast can a one-person site go while still maintaining that choosiness?

To translate this into something more innovation focussed, we see phases of Kottke’s development:

  1. One of several blogs on the Internet.
  2. An increase in content and audience through the aggregation of links.
  3. Rise of link aggregators (along with, I believe, changes in the way Google weighs them) leads to a devaluation of the link concept.
  4. Refocus of site on quality over quantity again.
  5. Rise of Twitter as a personal link aggregation site (previous aggregators had much less identity associated with them).
  6. Attempt to reintegrate that into the Kottke.org brand.
  7. Next…?

There is no telling if his experiment will work, but my bet is that as long as he associates it with his unique vision about what goes onto the site, it will be somewhat successful. It’s important to note that his current advertising model (just referring to the sponsorships) is long form and therefore perhaps less suitable for a site that posts short links exclusively, if that is a possible direction he is considering.

In the end there is no such thing as sustainability, at least not in the “stay the same and make money” sense. Everything has diminishing returns as the rest of the “competition” eventually catches on. The key is to balance experiments with opportunity cost analysis (risks of jumping on wrong (technology) bandwagon, of alienating audiences or paying customers).

The complexity in innovation

As someone with an unbridled curiosity about how (any kind of) organisations innovate, combined with a passion and ongoing interest for all new technological developments on the market, I have had the luck to have some incredibly in-depth and specific conversations with innovators about what they are trying to accomplish.

Every organisation is trying to accomplish something, because every one of them feels the pressure of being left behind. Some governments offer some limited protection in the forms of subsidies, tax-breaks, and protective measures against foreign competition, but every company has to stand on its own two feet by the age of maybe 3-5 years old. When you are alone like this, it matters to both earn a living now and to provide the promise of earning a living in the future. That is where innovation comes in.

We all derive our inspiration from the intelligent developments around us. For many, it’s the market, new technologies being released that make us wonder whether this or that organisation could do the same. For some, it’s also public, but less accessible releases in the forms of scientific breakthroughs that may inspire the expert to build on top of that. For a few, it’s the scientific team in a closed off lab that comes up with an idea that can transform itself into an innovation downstream.

It’s always worthwhile to come back to the essence of what an innovation is supposed to be: an invention that has commercial application. An idea that transforms itself into a product or service that people are willing to pay for. There are very prominent elements within this definition of novelty and applicability, which is a tough balance to manage between getting inspired by existing market innovations and not yet commercial raw scientific ideas.

The truth of the matter is that these are all races of solutions for specific problems. In the end, the problem (market) can only sustain a few of these solutions, which means that speed and completeness of a solution are keys to success. It means that any organisation that seeks to innovate, must do so in the way of a well-oiled machine, while realising that that investment may not pay off now, but will pay off if you see it as a continuous muscle that gets stronger with every problem you are trying to solve.

To make things not at all easier, the rate of innovation is increasing with technological advances. Physical goods are catching up to digital goods, in the sense that anything can now be modelled and prototypes can be produced and tested at a faster speed. This could and will very likely end up in a downward spiral for business returns, because, much like in for instance the software market, the range of utilities makes the market more price-sensitive and less loyal, thus creating less sustainable rewards from single innovations.

The conclusion is therefore two-fold. One, no organisation can afford to not dedicate time and resources to consider their long-term positioning in the market. Two, organisations seeking to be though-leaders in the market, must make the difficult choice of continually innovating with the promise of smaller returns, or of finding alternative models that position them within an innovative ecosystem, without getting sucked down the spiral. A good example of this are the many platforms that continue to arise, though even those risk becoming commodities over time. That … is the complexity in innovation.

Publishing: Is free content an opportunity or a threat to scientific publishing?

Similar to last post from last Friday, there are other trends that are threatening the raison d’être of the traditional publishing model. This specifically being about publicly funded publishing, i.e. the scientific kind, being asked to become free content. What I find interesting is that this is not really for reasons of disruptive technologies like the Internet (even though Bill Gates is one of the initiators), but rather a much broader idea: that knowledge is important and must become free for the maximum benefit of societies.

The Bill & Melinda Gates foundation published a new manifesto / open access policy on their site a few days ago. It lists 5 stipulations that publishers associated to research sponsored by the foundation must follow:

  1. Publications Are Discoverable and Accessible Online. Publications will be deposited in a specified repository(s) with proper tagging of metadata.

  2. Publication Will Be On “Open Access” Terms. All publications shall be published under the Creative Commons Attribution 4.0 Generic License (CC BY 4.0) or an equivalent license. This will permit all users of the publication to copy and redistribute the material in any medium or format and transform and build upon the material, including for any purpose (including commercial) without further permission or fees being required.

  3. Foundation Will Pay Necessary Fees. The foundation would pay reasonable fees required by a publisher to effect publication on these terms.

  4. Publications Will Be Accessible and Open Immediately. All publications shall be available immediately upon their publication, without any embargo period. An embargo period is the period during which the publisher will require a subscription or the payment of a fee to gain access to the publication. We are, however, providing a transition period of up to two years from the effective date of the policy (or until January 1, 2017). During the transition period, the foundation will allow publications in journals that provide up to a 12-month embargo period.

  5. Data Underlying Published Research Results Will Be Accessible and Open Immediately. The foundation will require that data underlying the published research results be immediately accessible and open. This too is subject to the transition period and a 12-month embargo may be applied.

Of note, this is not a new movement. In 2012, the British government announced that tax-sponsored research would be freely accessible as of last year. The European Union followed suit, and some American institutes (the Gates foundation included) are requiring it too.

Having studied scientific publishing models for some years now, I believe that this will in fact become an unopposed reality. The reason being that scientific publishers are transforming into becoming providers of decision making tools for scientific advancement. They are still dependent on new publications, but having access to so much raw data means that they can create intelligence on top of that, making it more accessible to practitioners. That is becoming their new revenue stream, therefore reducing their dependence on the traditional model.

Whether this should be a universally accepted way of publishing, arguably it already has in some parts, since this and many other blogs are free to read. I have a feeling that book publishing is heading into a different direction, though still more and more cutting out the middle-man, i.e. the publishers. Where it leaves the latter and how this will translate to other publishing media is a big question I hope to get the answer to in the future.

On Technology: Cry Developer, Cry

There’s a new discussion out around revenues for independent app developers. I jumped into it via Marco.org and have a few minor points to make  below these quotes. The two apps that stood out to me in the discussion (though there are many viewpoints (not many perspectives) listed in Marco’s post) are Unread, an RSS reader, and Overcast, which I recently reviewed and am still using as my primary Podcatcher.

For Unread, its developer Jared Sinclair writes:

Unread for iPhone has earned a total of $32K in App Store sales. Unread for iPad has earned $10K. After subtracting 40 percent in self-employment taxes and $350/month for health care premiums (times 12 months), the actual take-home pay from the combined sales of both apps is:

$21,000, or $1,750/month

Considering the enormous amount of effort I have put into these apps over the past year, that’s a depressing figure. I try not to think about the salary I could earn if I worked for another company, with my skills and qualifications. It’s also a solid piece of evidence that shows that paid-up-front app sales are not a sustainable way to make money on the App Store.

He’s right, that is depressing, though I have some notes about it in a short while.

For Overcast, Marco writes:

It’s too early to know, but I doubt Overcast will have the financial success that Instapaper did. Instapaper rode the App Store boom because it was in the right place, at the right time, solving the right need — and Instapaper 1.0 only took three months to develop, even as my first Objective-C app and with the relatively primitive iPhone OS 2.0 SDK. Overcast has taken over a year of work to make a 1.0 that could be competitive in a much more crowded and narrower market, and there’s still a lot I need to do.

…..

Efficiency is key. And efficiency means doing more (or all) of the work yourself, writing a lot less custom code and UI, dropping support for older OSes, and providing less customer support.

On Efficiency, Benjamin Mayo also has a few telling words:

You have to be efficient with your time to make good ROI’s on the App Store. … If you want to maximise your profitability, make small apps that do a few things well. The amount of effort you put into an app has very little to do with how much of the market will buy it.

After all of these smart viewpoints (not necessarily different perspectives), here’s my view about it. All of these are individual cases highlighted by some pretty prominent independent developers. They are not by themselves a commentary on app development, except that people can learn from that and perhaps do things different.

Yes, efficiency is important, but lean development and management only goes so far, at some point spending money creates money and saving money results in lost opportunities. In any kind of development, software or other, you really always have two choices: you focus on small and repetitive or you focus on large and bombastic.

The first, I would call the franchise model. You build a model that you can replicate, whether it’s Starbucks, website development, or app development. Starbucks is just a wire-frame, lacking in atmosphere (somewhat) and you repeat in on every corner in every city. That means many small revenue streams that together add up to a lot. This is the so-called ‘efficiency’ mentioned in Marco’s and other’s posts.

The second is what I would call radically innovative or hard to replicate innovative products. It requires unique resources and perhaps a unique market to exist and gives both a tremendous advantage and represents a tremendous risk, because it often requires a singular focus and not a risk-reducing portfolio approach. Examples of these are rare, because those that we know have essentially already been mass-produced and probably have many competitors (iPhone, Toyota Prius, etc.).

Taking Overcast, I last wrote that I was impressed with the production quality of the app and I consider Marco an innovative developer. He also dedicated over a year to the development of Overcast, which I understand is a very long time relatively speaking. Is his market unique, no, and that will without a doubt reduce the ROI of his investment.

The same for Unread, which is an RSS readers in a market busy with RSS readers since Google Reader shut down. Is it innovative? I understand it to have a clean, minimalist reading interface (which is part of a trend in all things readers). But that does differentiate it from other readers, though every app should technically have differences with competing apps. As sorry, as I am to say it, because every developer loves their app the most, I think this falls more into the franchise model of apps.

There is the matter of unique resources, which are important in differentiation. Every developer has their unique skill-set and perhaps not unique access to resources. Apple opens up its development platform to the public, so technically everyone works with the same tools. I don’t know what Jared Sinclair’s background is and I sort of know Marco Arment’s pedigree prior to this app. I believe that programming and design can be unique, as can functionality, so it should be possible to create differentiated apps on the app store. At the same time, the universal access also facilitates the franchise system, allowing for ease of replication and lot’s of smaller revenue streams.

The general point is that while people may cry about the app store being to populated, this is a universal truth for most markets. There was a time where America had a gold rush, where gold diggers came to a river and fished gold out with their hands. Then more came and gold became sparser. So innovators focused on new technologies or new markets and got rich there. There’s nothing different here, except that the iPad / iPhone technology and OS is not mature yet, and that should still represent new possible functionalities for new development.

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.

 

The friendly new world of Publishing

Earlier this year, I visited a Nordic music festival, where I got to know some new artists that many people will probably never be aware of. It’s hard to break out in music, about as hard as writing, I imagine. I liked several of these artists on Facebook, just to be aware of new music releases and concerts. And last week, one of them published some news about a friend of her’s, that’s about to publish her first EP, and was giving one of her songs away for free to download. Of course, I listened to it, and noticed straight away a softness in the music that is so completely anti-pop, that you would never expect to see it published on a big music label.

The conversation has been happening for half a decade now, what social media represents within he cycle of pushing new items out to the public. I don’t think that these things can necessarily be put into a system, which is why the corporate approach of publish, measure, optimise, repeat, hasn’t worked quite so well. It’s just human voices, many of them, saying random things, some of which work better than others, and it’s the building of authority through consistency, boldness, and otherworldness that results in some being heard more than most.

After listening to this new artist’s single, which I like, I wanted more and turned to another artist that did get published more the traditional way. Why? Because I knew what I would get, which is the result of the predictability that comes out of such a system.

We are talking about an art form here, music, but this conversation could easily revolve around the difference between a bag bought on Etsy vs. one bought on Zappos. Do I want freshness and authenticity, or do I want reliability?

My view is that the corporate machine is best when working with existing creations, but not necessarily good at being responsible for creating them. The magic bright ideas that come to you in the shower, usually don’t appear while sitting behind your PC at the office. But the other side of the coin is that while a more bottom-up approach can be tremendously refreshing, innovating left and right, in the end there need to be systems in place that make these creations scale and sustain themselves. Which in turn results into a lessening of creativity or chaos (I write with a smile).

The difference between now and 30 years ago in publishing is that creativity can bubble up naturally, unimpeded by resource and time constraints. But to make it BIG, U2 big, it requires a machinery in place of many moving parts that allow fans around the world to experience what they love up close, whether it’s in the form of a professionally produced album or a sold out concert.  

#Free publishing is probably the future

I believe in analogies, at least I like to use them frequently. We are all producers, consumers, and distributors, that rationale can be transported to any industry with the differences being barriers to entry (affecting competition and price sensitivity). Low barriers to entry means that production is easy, prices are pushed down, and profit increasingly depends on speed rather than quality. Innovation can still be high, but because there are many players, it’s not nearly as valuable as it would be in e.g. the space race. My vision of written word publishing is very similar to that of software publishing, that eventually the business model of money up front disappears. Whether my assessment is true or not, that is why I’m starting this discussion.

The first element to look at is access, which is a broad term describing both access to resources and access to the market. From the industrial revolution onwards, it is clear that access to both has increased exponentially. Tools were developed to more easily produce in greater quantities and globalisation continued its exponential growth trajectory. With this development came greater cost saving, allowing for increasingly more output per money spent. That same phenomenon can be seen as growing a thousandfold with the internet and the development of the IT platform as an alternative to paper. With such new technologies, we can see that it becomes much more efficient to produce and distribute published works.

The second element to look at is competition. If you push costs down, it makes it easier for others to enter. It’s as simple as that. The greatest effect is on choice for consumers, who then become more price sensitive. In a vicious cycle producers and distributors are forced to also reduce costs or find other ways, e.g. restricting supply, to keep costs at sustainable levels.

The third element to look at is intellectual property, which is both a philosophical question and one about actual costs and associated value. We are talking about the creative industry, which has elements that cannot be reduced in cost. The writer of a book written in 1613 is in many ways just as valuable as the one in 2013, assuming that both are good writers. But that cost can now be split across many, many different customers, which was previously not possible. So intellectual property remains just as valuable, relative to the quality of it, but that value is now recuperated more effectively, again relative to the quality of the customer base.

What is my end conclusion? We are on a downward trajectory as far as pricing is concerned. Eventually it may be close to free, but it should never be completely free. There is value to the creative work, but the cost of access should reduce greatly. Both of these costs will never be zero, but can be split across so many payers that it may appear to be so.

I’ve ignored the perception of customers in this. Personally, I don’t think people want to pay zero money for content, because they realise that content production costs money. Content consumption equals time, which is something everyone values and people continue to be willing to pay to not waste their time. At least that’s how I think. It’s a “the king is dead, long live the king” situation and after writing this post (thinking out loud), I’m much more positive about publishing than I was before. 

Oxford University Press and the Making of a Book in 1920

The video is one of a series of videos of what the printing process looked like in the early part of the 20th century. Fascinating stuff.

I came across this via Coudal Partners. There’s also a discussion on Metafilter about it. 

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.

Restaurant dynamics

restaurant customer service.jpgThe world of business, I think, has a certain illogical—the “human element”—shell around it, but centres around the concept of supply and demand. How you create a business where demand is high, how to you make sure that you have sufficient supply and/or not too much supply. You can see this play out in a number of places, e.g. on the web you have scaling issues, when your service proves to popular (e.g. Twitter), or you have the case of the million+ blogs that are collecting dust, because no-one ever reads them, or because the blogger was unable to gather enough interesting supply.

In restaurants, or food-places, you also see this play out. A couple of months ago, I was going to write about take-out, how some businesses embrace and others avoid it, and why. I think the reason is, at least in part, to control supply. If you control supply, then you can focus on quality and charge a higher price. You also become an artist/creator, rather than a factory.

How do you limit supply? Two ways, I think. Mainly it’s the physical space; by limiting the number of seats in your venue, you ensure that a certain quota is set (of course, the question is also whether that quota is met, which comes from quality inspiring demand). By investing in quality-ingredients, you not only limit your budget, but also your production-capacity, and it forces you to limit supply. That’s a little vague, I know, I haven’t worked it out 100%.

The other way, is to have an increased level of supply. How do take-out and fast-food places do it? By standardising as much as possible. Whether it’s the ingredients, which are mainly starch-based (burgers, pizza, noodles, etc.) and cheap, the production-facility (often just an oven, a grill, or a big wok), or a standardised customer-space (from seats stapled to the floor, to waiting-lines, to a website/phone nr.). All of which enables you to deliver mass quickly.

I was thinking about this today after watching “Iron Man,” which is one big Burger King (and US-army) commercial, and getting a cheese burger afterwards. Burger King was packed and, ironically, slow. The “waiting in line” method doesn’t seem to work that well when you have 50+ people waiting, and a limited space behind the counter to deliver burgers and stuff. People on both sides were bumping into each other constantly, and I actually had to wait over 5 mins, even though I was second in line.

On some level, I like to think that technology can solve a little bit of this problem. If you look at Zara and H&M, which I wrote about last week, both are very advanced in this area, in order to optimise and speed up their production, logistics, and merchandising. Of course, that’s on a back-office level, and that’s not the same as the front-office, where customers interact with a business. No one wants to be confronted with a screen to do the ordering, but sometimes I wonder if people wouldn’t be happier just pressing some buttons in a fast food joint, rather than waiting in line. Of course that would mean more seats, as more people would sit down, and more staff, as someone will have to bring that food to the table.

In the end, it probably comes down to experimentation and constant improvement. That said, apart from the computers that cashiers operate, and quicker food-preparation, not much has changed in the last 50 years for the people doing the actual eating.

The picture is courtesy of lightningspeed.net.

Some initial impressions about Zara & H&M

Zara versus H&M.jpgTime for a wee break. In the last week, I’ve been researching Zara and H&M a little, to better understand the retail-sector and the fashion-segment. I’ll probably have to do a follow-up to this post, as there is lots to say about both businesses, but here’s some initial impressions, nevertheless.

First off, H&M appears a lot more clean in its approach. Judging by the annual reports alone, H&M not only has a 2007-edition (Zara is only up to 2006), but it is also only 85 pages long (presented in an eco-friendly 2-pages-per-side way), while for Zara, or actually Inditex, it’s mother-company, the annual report is a stunning 450 page long!

Now, that’s really not all that surprising, as Inditex is composed of a number of companies, and it is extremely vertically integrated, while H&M employs the Nike or Apple model—it designs and it retails, but it doesn’t produce.

Why this is so, I can only guess, is due to their origins. Inditex comes from Spain, traditionally a low-waged country, while H&M is Swedish, not a low-waged country. Similar to IKEA, I imagine it was an economical decision to outsource most of its supplies.

It’s very hard to separate Inditex from Zara, as both are founded and owned by the same person, Amancio Ortega Gaona, Spain’s richest man. Zara has been in existence since 1975. H&M was founded by a Swede, Erling Person, in 1947, who ran the company to ca. the mid-90s, but which has continued to be a family firm.

Their business-philosophies are fairly similar, a low-cost, high-quality approach to fashion, as opposed to traditional brands, where quality most often equals price.

Zara made lots of headlines with its extremely high turnover of products—it produces around 11,000 items annually (as oppsed to 2,000-4,000 for other retailers); 15-20% produced before, 50-60% at the start of the season, and the rest during. If a product fails to do well, it is usually removed after a week in stores.

H&M made headlines with its celebrity-marketing, which is noteworthy, as Zara has virtually no marketing. Instead, because it has such a high turn-over of goods, customers tend to visit it more often, expecting new things—an average of 17 times per year vs. 3 times for other stores!

Both employ mostly a wholly-owned retail-strategy, except in countries where this is not possible. And both are very advanced in their use of IT to manage logistics and production, which is definitely seems to be a key-characteristic of delivering fashion quickly and find ways to decrease costs.

H&M’s largest markets are Germany, Sweden, the USA, Spain, and the Netherlands (in terms of sales). For Zara it is Spain, France, Germany, and Mexico (in number of stores).

That’s all I can think of in 30 mins or less…

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.

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: Copyright or the *Right to Eat*

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

Coke Zero no.1 in the Netherlands

According to Distrifood.nl (Dutch) the “ man’s cola” showed a nice profit this last year, making it the top new introduction to a brand in 2007.

Retail - Coca-Cola Zero beste introductie in super.jpg
(Source picture: Elsevier.nl (Dutch))

I only point this out, since Coke Zero is one of the first food-related topics I wrote about on Tech IT Easy; a, fairly clear, signal that it was time to “spin-off” to this blog.

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

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

What a book on Ahold is teaching me

Albert Heijn AHOLD.jpgJust a short tweet.

I’m currently reading a Dutch book on the 2003 crisis at Ahold, but which is actually a historical account of how the corporation came to be. A couple of things I found interesting:

  • Ahold actually stands for AH (Albert Heijn) Holdings
  • We all know that things are cyclical, but it was interesting to read how a recession and high oil prices were a challenge that Ahold had to face in the 60s-70s, and how they managed to survive.
  • In order to inspire Dutch people to shop more, they introduced a financing scheme for fridges, which people couldn’t afford at that time. General Motors did a similar thing to help people afford their cars; seems like an interesting way to “upgrade” an economy.
  • The fear of a socialist government drove Albert Heijn to look outwards and form Ahold (similar to why IKEA decided to globalise also).
  • One of the consequences of politics at that time was the board of directors, meant to provide impartial guidance and represent the workers.
  • They made extensive use of consultancies (often McKinsey) whenever they decided on a strategic trajectory.
  • One of the directors was a big fan of Harvard Business Review 🙂
  • They use the US as a source of knowledge on how to design their supermarkets. Later on, moving to the US was also seen as a way to increase that learning, as well as a new revenue-source.
  • When AH moved to the US, they also brought their own ideas, like, eh, advertising (a terrible, terrible idea).

That’s it for now! I’ll go into greater detail at a later date.

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.

Fighting Starbucks – an opinion-piece

play it again, Sam-3.jpgThe argument for mass-production is that it enables innovations to become cheaper and hence raises the general quality of life of consumers. The argument against mass-production is a more controversial one: that it destroys the unique quality of, let’s call it, art.

Starbucks is a very good example of those principles. It brought a higher standard of coffee to the American masses, who, according to Howard Schultz’s Starbucks biography, had long been oppressed by low-quality coffee from retailers and coffeeshops alike. At the same time, as the recent crisis at Starbucks illustrates, it has reached a saturation-point: it has brought Starbucks-outlets to every corner in the US, as well as spawned a whole army of competitors, and its brand has become diluted. It has become a commodity.

Back to their roots?
The re-enstatement of Howard Schultz as CEO is a signal, that the business has lost some of its original spirit and is in need of a guiding light. A letter that is rumoured (!) to be written by Schultz confirms that Starbucks will be focussing on re-introducing that original spirit, as hard as that will prove to be. There’s only so much that you can change, after your company has reached a certain size. It would, at this point, be like saying that McDonalds is planning to become your corner-restaurant where everybody knows your name and favourite food.

The innovative angle
A friend of mine made me aware of a new coffee-brewing machine on the market, called Clover, which promises to deliver a higher quality coffee to consumers, though also at a higher price. According to Bruce Milletto, a retail consultant to the coffee industry, “a typical American café spends around $50,000 on equipment, about one-quarter of which goes on an espresso machine. At $11,000, a Clover costs the same again.” Thus the investment-proposition is not an attractive one to the average cash-strapped café, who would have to spend that kind of money and charge an expected $6 per cup to recuperate that cost.

Following the rules of mass-production, Starbucks + Clover makes for a match made in heaven, and so it is: Starbucks has in fact acquired Coffee Equipment Company, the four-year-old Seattle-based maker of the Clover coffee brewing machine, for an undisclosed sum.

Considering that Starbucks has long been threatened by the commoditisation of coffee in the US, through the birth of literarily 1000s of new franchisers who, on the surface, provide the same value-proposal, though perhaps at a lower quality and price, it makes sense to acquire one piece of machinery that makes a bit of difference in the eyes of certain consumers. Considering the recent partnership with Apple, I believe that these consumers share a similar taste and price-insensitivity, and since that segment appears to be growing, I believe that Starbucks made the right call. They appeal to the type of customer that will pay $6 for a cup, and with their economies of scale, that price is sure to drop to a slightly more acceptable level of (I guess) ca. $5.

The cultural angle
There is another side to this. The USA is not the world, and while Starbucks has been thriving over there, the Europeans (I can’t speak for other continents) have enjoyed a coffee-culture for quite some time. For people like my parents, who are respectively citizens from Southern- and Western-Europe, and avid café-visitors, they would not even consider going to the Starbucks in the centre of their German hometown, because there are plenty of alternatives with more atmosphere, more identity. To them, Starbucks is like a McDonalds, a franchise that in fact shares many cultural values—bringing a good to the masses—and does so by building ecosystems of services—from music-retail to the happy-meal—to deepen the (commercial) relationships with its customers.

Consciously and subconsciously, I’m a sympathiser of “unique” café-outlets. I like spending time in them, sometimes hours at a time, read my newspaper in peace, and enjoy a reasonably good coffee at slightly less than $2 a cup. I don’t actually care about spending twice that for a coffee, but all the Starbucks’s I’ve been too (exclusively in Germany and the UK, I must admit), have been so devoid of atmosphere that I don’t really spend more than a few minutes there, 30 max. The only thing that does attract me about them and similar stores, is that I can grab a cup-to-go, mostly in the summer, and enjoy it out in the sun.

As a citizen of Europe, I think I am a fan of the heritage of the traditional café and don’t really want it to go. If that makes me “backwards” or conservative, I am sorry. I want the chance to enjoy a Turkish coffee in Brussels, an Italian coffee in Cologne, or simply a Dutch one here in Rotterdam. I enjoy knowing the history of a pub that has existed for over a 100 years in Antwerp, and the same in Maastricht, or Amsterdam. I want there to be a diversity, and most important, I want that choice to be mine. I don’t want there to be a cloned coffeeshop on every corner.

One of the saddest things I heard, while I was in Belgrade last year, was the exactly such a historical café was replaced by a chain (and the coffee stunk too); and I was equally sad to see that nearly all of the traditional retailers I remember from before the war had been replaced by a cloned shopping-centre that would’ve made any Western city proud: from H&M to Footlocker.

Opponent: Starbucks?
Globalisation is a situation we must all deal with. Its oldest proponents are the FMCG-companies, who are focussed on producing the same good for millions of people. The question is whether coffeeshops should embrace the FMCG-principles like McDonalds and Starbucks clearly have.

Starbucks is a formidable opponent: it is both a roaster, a retailer, and an FMCG-producer. It is strong in the US, and has a significant presence in the rest of the world. It will not go away, And not all believe that their presence is all that disruptive. I don’t either, as long as Starbucks knows its limits. There are parts of the world that do not share the same qualities as US-towns. Some cities have long histories and places of heritage that should perhaps not be housing a McDonalds or Starbucks.

In a way cafés are stuck. They need the kind of innovation that Clover brings, but they are not in a position to buy their way in. If they did, they too would have to become mass-marketeers, in order to recuperate that cost. Instead they need to focus on what they do best, and coffee-machine makers to do the same and just license their technology. And whether the latter is able or willing to do that is the question.

I’m not sure how much Clover was acquired for, no one is. And I’m not sure how far Starbucks is willing to go to ensure their qualitative and quantitative dominance of the market. Will they grab every new piece of technology that promises to introduce a higher quality of coffee to consumers, keep it for themselves, and leave the traditional cafés to differentiate themselves simply by their “culture”? Sheer business-principles dictate that they will.

Howard Schultz made me believe, in his book, that it was Starbucks’ mission to bring better coffee to the world. Let’s hope that a richer coffee does not come at the price of a blander world.

This piece is in fact incomplete. Optimally I should write up a list of actions for coffeeshops to take. However, I am not yet that familiar with all the business-issues facing these organisations and all of my suggestions would be targeted at growing in size and battling on similar terms as a national or global player. And I’m pretty sure that many would not be willing to do that. So I think I’ll wait until I have a more objective grasp—from all angles—on the situation, before giving practical advice. Feel free to provide me with that objectivity through your comments.

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