20 Practical Performance and Profit Pillars continued --- Page 2 Nobody really knows how the story ends, or if it ever will end. If you believe it to be a fairy tale, you would look for a castle and a happy ending. If you believe it to be a mystery story, you would look for a “Killer Application” that gets caught in the end. If you believe it to be a tale of history, you would look for how it will influence the future by studying the past. But, if you view the story as one that has a hidden meaning—an allegory—then you will look for absolutes that you can count on in the midst of all the coming chaos; foundation blocks that assure you will remain competitive and profitable and growing; pillars upon which the business must stand regardless of the numbers of channels or the complexity of those channels or the vagaries of the Geek Merchants and their influences. Here, then, are 20 practical foundation blocks that you can count on to give you the best possible ending to the story. All of these are direct from the real world—from your companies, your catalogs, your multichannel experiences. All of them are observed in vivo at living companies with real problems and real successes. These are the 20 foundation blocks of a successful, high-valuation direct merchant business. They are timeless and they are essential. And they are outside the ephemeral nature of technology, outside the excessive focus on the Next Big Technology and Web 2.0, SEO, Social Networking and Mobil . . . outside of the Land of Online. These are the bones of the business, the skeleton framework of any and all successful businesses. These are the strategic pillars that create success, dominance, wealth and the ability and capacity to absorb any channel or technological evolution and harness it to your advantage. Without these 20 pillars, you would not be able to compete or survive, regardless of the channel or the technology. For just a short time, think inside the box. Forget the hype, the buzz, and all of the gauzy prophets of the future. Instead, for just an hour or so, think hard and critically about your foundations and the granite bedrock upon which you are building your company. Vision A successful company has a vision. Almost always, the business was started by the visionary and has been built with that vision intact. The vision is usually simple. It can be stated clearly and everyone can understand it. It’s not a mission statement; rather, it is a reason for being. Recently, I have been working on a sale of a company, and the entire reason for the company’s success is that all aspects of the company were intentionally built. The owner intentionally set out to: 1) serve a defined niche in which he had exceptional knowledge; 2) make it easier to do what the niche does through unique, proprietary problem-solving products; 3) have the very best quality products and never compromise; 4) offer exceptional customer service; 5) respect the customers; 6) participate in the niche as a source of knowledge and innovation; 6) develop great employees; 7) operate with honor and absolute honesty. Rarely do I see companies that have intentionally been built with those seven foundation blocks from day one. Many direct merchants are twenty, thirty or forty years old and have never been able to articulate what they intentionally set out to do, much less actually accomplish those objectives. The company I have described doesn’t have a mission statement; wouldn’t know how to create one. But, the seven vision foundation blocks are part of that company’s DNA. Every employee has been inoculated with the vaccine. The company lives beyond the influence of the founder; he has imparted himself to all of the managers and associates. And the company owns its niche and has exceptional earnings and, as a result, valuation. The vision has led to a superb balance sheet, no debt, strong ever-escalating sales and earnings, a fine facility in pristine condition, wealth, security, compassionate employment, industry respect and admiration, and customer loyalty. Too often, I suspect, the vision only goes so far. It is to make money or to dominate a niche. It is almost never a rounded vision that encompasses products, customers, quality, people, knowledge, service, and money. There are, it seems, two classes of visionaries: short-sighted and far-sighted. The very best companies—as measured by the things that really count, as well as wealth—are all far-sighted. One of the greatest rewards for the executive leader is to devote time to a thoughtful and complete vision of the company as it is desired to be in the years ahead. Taking that time now will guarantee much larger rewards along the way and at the time of the end-game. Of all 20 foundation pillars, this is the one where it all begins. Product Great companies—more often business-to-business—have exceptional products. In the homogenized, see-one-see-them-all, commodity product environment of today, products that are absolutely innovative, unique, one-of-a-kind, and proprietary are a thing of beauty. It is easy to knock-off some other company’s products (and many of our successful companies have been started that way), but when products come from understanding the niche to be served from a position of knowledge and experience inside of that niche, the products can be exceptional. A good example is the legendary New Pig catalog’s spill absorbing products. These were born out of first-hand experience by the founders in containing and cleaning up noxious liquids. The entire spill absorbing industry was created from these initial products and New Pig has been very successful as a result. It is very difficult work to find a niche and create unique, proprietary products that serve that niche and do it better than anything the niche has now. Those are truly breakthrough products and are almost guaranteed to be successful and to create utility, satisfaction and wealth, the basic economic components of success. Something else I see often with highly successful product-oriented companies is patents. These companies protect their proprietary products and their trade names. This goes beyond just the protection; it becomes a brand. Every successful direct merchant with the foundation blocks firmly in place has an above average brand in their niche. The brand is what the customers value. Again, the brand has been intentionally created as a part of the vision. Most commonly, I see owners, merchants and product managers who all source products. Rarely do I see individuals at any level who look at a niche, focus on needs and then create product solutions that do it better. Our product gestalt begins and ends with sourcing from someone else; hardly a creative effort that warrants an above average economic reward. What our market does not need is more people selling the same stuff; we need fewer people selling more proprietary stuff. If we accept the first foundation block is vision, then we must, by definition, accept that the second foundation block must be product; product that is innovative, creative, problem-solving, proprietary and intentional. You may have a fully-furnished vision, but if you don’t have a product to sell you have only a dream. Not enough energy is spent in product ideation. We adapt products, adopt products, improve products, and expand products; rarely do we ever scrutinize products and their applications and uses in order to go beyond the norm to the point of solving needs through innovation. That is the hallmark of a product master. Taking a year to think about products and find things to do with them that have never been done before is to devote one year to perhaps a successful history stretching 20, 30 or more years into the future. It is this combination of concentrated thoughts and ideas that creates great product companies that achieve market leadership. Distribution Model As we Direct Merchants engage with a multiple channel market, we find ourselves competing with retail, direct sales forces, telemarketers, online marketers, wholesalers, and combinations of all of them. Worse, we commonly find ourselves competing in three or more pricing environments: high, middle and low price positions. Add to that the competitive positions of service, speed, selection, and stocking versus drop-ship. Ten years ago the distribution model for direct merchants was quite simple: catalog and telephony, stocking, central warehouse, and national 3-5 business day shipment. Product selection started with breadth and then slowly expanded to depth, best-sellers to low-sellers. Today, that simple model may or may not work. As I look ahead, I see very different distribution models being created. For the largest companies, the model will be decentralized warehousing, a mix of stocking and drop-ship, a mix of catalog, telephony and field sales, a mix of direct, inside and wholesale sales, and a customer-driven product distribution matrix (products positioned in stock and geographically to serve those customers who buy them). It makes more sense to stock ice-melt products in the Midwest rather than in the south and emergency generators in Florida rather than in Ohio. The distribution model demands operating platforms that allow the model to work. All too often, I see operating systems that do not allow for multiple warehouse models or strategic product movement. The technology is driving the distribution model, and that is fatal in every instance. For some, these domestic distribution models have already expanded (or will soon) to a multinational or global distribution model. And, let’s face it, the U.S. market may not sustain the necessary growth; it may be required to do business internationally. In 1983 to 1993, direct business-to-business merchants tried international expansion and, by and large, failed. Some—such as Seton—did well and have never looked back. It will more than likely be required if growth is to be chased; this time it will have to be done right and the distribution model will be much more elegantly defined and designed. If there is one thing we can learn from Wal-Mart, it is that distribution logistics are the frontier. Annual inventory turns of 30, 40, even the 56 times that CDW is thought to do, will be the distribution model benchmarks for the next generation of multichannel merchants. At its foundation, the distribution model pillar does only one thing: get more products to the right customers faster. Local or regional positioning, reduction of shipping distance, reduction of shipping cost, in-stock and on-time delivery performance, and reduction of multiple shipments all will define the distribution winners and also-rans. In three years, if you are a one-warehouse company in Buffalo, you will likely not be the niche leader. Many leaders have not given much thought to the future distribution models in their markets. In fact, most of the business-to-business companies have had the same distribution model for a long time; a few have added new distribution; a small number have made it a strategic essential, completely changing their model time and time again until they dominate. |
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