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Tag Archives: Business

Human Capital, Competitive Advantage and Why We Are Willing to Happily Overpay at Whole Foods

With a global economy gyrating with sweeping political changes, technological breakthroughs and new emerging global markets, an entrepreneur must think and act strategically.  One of the most overlooked assets small businesses fail to capitalize on is intellectual Capital.  In his prophetic article “Shocking Truths About the Future” (Business Strategy July/August 1996) Futurist Alvin Toffler talks about the shift in the world economy from a base of financial to intellectual capital.  Toffler states “Knowledge is no longer just a factor of production.  It is the critical factor of production”.  Lets take this relatively esoteric concept of Intellectual Capital and break down the components:

Thomas Stewart in an article entitled “So you Think You’re Company is so Smart” (Fortune April 30, 2001) delineated three crucial elements:

1.  Human Capital is the talent, creativity, skill and ability of a company’s workforce.  This shows up in innovative strategies, plans and processes that the people in an organization develop and then passionately pursue.

2.  Structural capital is the accumulated knowledge and experience that a company possesses.  It can take many forms including processes, software, patents but most importantly, the knowledge and experience of employee strengths, abilities and challenges.  Essentially the entrepreneur will have a strong understanding of the feasibility of opportunities based on the capability of her staff.

3.  Customer Capital includes the established customer base, positive reputation, ongoing relationships and goodwill the company has built up overtime with its customers.

Given these three components how has Whole Foods used Intellectual Capital as a competitive advantage to carve out a strong customer base in the grocery business where mega chains such as Wal-mart and Kroger previously dominated?

Whole Foods invests heavily in Human Capital.  They spend time and money selecting Team Members (note they are not called employees implying a much more important role in the company’s success) by carefully screening job applicants to find those that love and have a passion for both customer service and natural food.  Each Team Member is carefully trained so they can demonstrate and explain the benefits of the company’s organic and natural food.  (Remember if you want to sell more, help educate customers and they will choose to buy more).  As a result, Whole Foods routinely lands on Fortune’s “100 Best Places to Work”

The Structural Capital component for Whole Foods comes from its increased knowledge of “local sourcing”.  As we become more connected globally, there is increasing concern by many consumers on how and where their food is produced.  Whole Foods has transferred this into a competitive advantage strategy of acquiring locally grown products.

Finally, with an immense amount of Customer Capital, Whole foods knows that its customers do not shop at the store searching for the lowest prices.  Rather store managers and team members have the autonomy to recognize and stock their store with regional food preferences that local customers demand.  The ability to quickly react and mix locally demanded products has created in the words of Matthew Mell “Disney for foodies”.

As we enter the Spring here in North America lets re-energize the Bank of Social Capital because no matter what the Federal Reserve may dictate, Ben Bernanke can’t diminish the value the relationships and goodwill you create.

Until next time, be good and cultivate your community of friends

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Walgreen’s, Nerf Darts and Using Creativity to Create Customer Goodwill

How can an 11 year old wanting to buy Nerf Darts teach us how to maintain both personal and business relationships?  I have one word for you:  Walgreen’s.  Is it just me or does it seem that when you go to buy the $.39 toothpicks advertised in the weekly sales flier, the item is either sold out, scans at the wrong price or that particular location never has and never will carry toothpicks.  As I went into Walgreen’s today I did not intend to buy Nerf Darts although my son did mention that he would like some extra ammo for an upcoming birthday party.  As I went down the toy aisle I saw a closeout on the exact replacement darts he uses.  Along with my other purchases, I brought them up to the register.  Two out of the 5 items scanned incorrectly and my total came to $54.  Upon closer examination I was incorrectly overcharged nearly $25.  When I questioned the manager for the correct price, her answer was, I can refund your money but I can’t sell you these items at the marked, posted price–company policy (Whatever the price scans at is what Walgreen’s will sell at).  This is a classic case of a self-defeating policy.  While a computer managed system of SKUs (Stock Keeping Units) certainly can be efficient, it does no good if a manager does not have the authority to over-ride and use her own judgement.  I left the store and will contact the manager tomorrow.

As usual I started to frame my experience and question what I could learn.  In a poll conducted by IBM among 1500 CEO’s from 66 countries and 33 industries more than 60% responded that the singular element of CREATIVITY will help companies navigate successfully through the increasingly complex global economy.  (here is a link to the poll http://www-03.ibm.com/press/us/en/pressrelease/31670.wss )  The situation described above happens in business even at the best companies.  However the Walgreen’s manager did not use creativity to respond to an error and take advantage of an opportunity to make me a loyal customer.  The Walgreen’s manager had a chance to offer me some type of goodwill but dismissed the opportunity using company policy as a damaging crutch.  While there may be many codes of company policy that are valid, make sure that the freedom to be creative is a part of your business culture.

Go out there and be creative, the worst that can happen is a mistake.  I love learning from mistakes.  At this point my mistakes are too many to count but I will get up tomorrow, learn and try to do better.

Stay tuned loyal readers, tomorrow I will be reporting on Toe Nail Fungus, Excess Capacity and Lessons in Depreciation!

Until next time, be good and cultivate your community of friends.

 

 

Doing God’s Work, Moral Bankruptcy and the Blues Brothers

Does it take the Blues Brothers for us to learn about faith, God and choosing to do the right thing?  In light of Goldman Sachs and Bank of America, I am sending my kids to the movies for a religious experience.  At least Jake and Elwood were convinced they were on “a mission from God” to reunite their band and keep the orphanage they grew up in from bankruptcy.  In fact, you don’t have to rely on my judgement of their intentions.  In observance of the 30th anniversary of the movies release in June 2010, the Vatican’s official newspaper L’Osservatore Romano has dubbed The Blues Brothers a “Catholic classic”.  In contrast Lloyd Blankfein, the CEO of the 143 year old investment bank Goldman Sachs stated in a November 2009 interview with The Times of London that he’s just a banker “doing God’s work”.  I guess in this case, toxic credit default swaps, government bailouts, excessive bonuses and acting with intent against the best interest of his customers are the work of a deeply humble religious man.  To put it bluntly then Greg’s Smith deftly penned op-ed fair-well was the work of an atheist or agnostic.  Another words Mr. Smith began doubting the holiness with which Mr. Blankfien served the creator.  This blight of the pen cost Goldman Sachs shareholders 2.2 billion dollars on paper and will make me think twice about how my business ethics and behaviors intersect with my religious beliefs.

Until next time, be good and cultivate your community of friends.

I am just a banker “doing God’s work”  Lloyd Blankfein CEO Goldman Sachs November 2009

 

Shareholder Value and Making the World a Better Place–an Argument for the Social Business Model

Is their room for global corporations to make the world a better place and actually have a double bottom line?  I would like to suggest an answer but ultimately this is an idea that marketplace will have to validate.  Lets back up for a minute and dive deeper into the question.

If we operate under the assumption that the singular outcome for a global corporation such as Amazon is to deliver value to the shareholders, is their room for a double bottom line?  That is, can Amazon deliver value to its share holders while at the same time contributing to a social cause or alleviate an injustice.  I strongly believe that this is possible, however the message has to start at the top.  If we look at a company like Amazon, its CEO Jeff Bezos would have to go on record and state that his intended outcome in addition to shareholder value is a designated social cause.  Moving forward Amazon’s shareholders would be able to decide if the monetarily immeasurable value of the intended social cause is important and  brings with it an intangible benefit.  Amazon shareholders would have to be willing to hold the stock knowing that the goal of a double bottom line may have measurable costs.

With all this said I think that Global Corporations have to at least consider what they can gain by supporting socially appropriate causes.  More importantly as consumers we must demand that corporations we interact with not only produce profits but they improve people’s lives.  So for all of the aspiring entrepreneurs out there  your job is to create change for society while maintaining your fiduciary responsibility to achieve profitability. 

Please let me know your thoughts about this.  Can we expect corporations to act for the common good when it comes to social causes?  Only the market will tell us.  In the meantime please take one small step toward making the world a better place before we meet again. 

Until next time, be good and cultivate your community of friends.

Bad Business Decisions, Moral Hazards and the Legal Way to Defraud the Public

As a business owner with numerous customers that have gone bankrupt in the last few years, there is one particular striking element that keeps me questioning the structure of our bankruptcy laws.  Recently I received a “Summary of Trustee’s Final Report and Applications for Compensation” from a former customer.  At one time this customer operated six retail stores before some bad business decisions and failure to pivot and adapt to customer demand ultimately caused his business to fail.  What is striking about the Trustees Summary is the amount of money owed to creditors $ 1,754,000.    The receipts from the debtor are $20,587.87.  Of course the bankruptcy attorney and trustee are receiving their fees paid in full.  After these fees totaling 11,217.64 are paid, this leaves $9,370.23 to be split among the creditors that are owed over $1.7 million.  Just as an example, the mall owner where these stores were located is owed $350,000 and will be paid $1,800.  I am owed $1,400 and will receive $1.36.

This begs the question many of have asked regarding the financial meltdown and this situation I describe.  At what point did the principal know he was going to fail and he made a conscious decision to extract as much cash from the entity knowing that there would never be re-payment.  In the case of AIG, Fanny Mae and Freddy Mac there is an inherent moral hazard with the full faith and backing of the federal government.  If profits are declining, increasing risk is a possibility to gain higher returns since a government bailout can be counted on.  I would pose a similar question to my former customer–at what point did he know bankruptcy was imminent yet he continued to spend other people’s money?

As my father taught me many years ago, life is not fair and the sooner you get over this notion is when you can be proactive and address some of life’s inequalities.  So if I walk into Walgreen’s tomorrow and I leave without paying for a roll of toilet paper, I can be arrested and charged with a crime.  However a bad or poor business decision that affects and hurts many more people will not be prosecuted.  I have many more similar stories to share at a later date.

When you wake up tomorrow morning, start your day by being honest with yourself and your product or service and make sure you are providing what the market values and demands.

Until next time, be good and cultivate your community of friends.

Do you have what it takes? “The Entrepreneurial Personality”

David McClelland‘s book “The Achieving Society” (first published in 1961) detailed six critical traits that entrepreneurs posses:

1.  Desire for Responsibility.  Entrepreneurs prefer to be in control of their resources and take  deep sense in the responsibility of the outcomes they achieve.

2.  Preference for moderate risk.  As detailed by Malcolm Gladwell in his article “How Entrepreneurs Really Succeed”, we are not wild risk takers, rather we mitigate, calculate and monetize risk.  Entrepreneurs serve more as risk eliminaters rather than risk takers.  A good way to minimize risk is to prepare a robust and competent business plan.

3.  Confidence in your ability to succeed.  Entrepreneurs are supremely self-confident in their ability to succeed.  In addition optimism allows us to continue down the path if multiple previous efforts have yet to be fruitful.

4.  Desire for immediate feedback.  Entrepreneurs are always looking for a way to improve and increase effectiveness.

5.  High level of energy.  This is a critical factor given the amount of effort both the emotional and physical  needed to create a new venture.  On average 66 percent of Gen Y entrepreneurs work over 10 hours a day and six days a week (from a survey conducted by American Express Open April 26,2007).

6.   Future orientation.  Entrepreneurs want to define their future for themselves and others.  Sitting passively is out of the question.  We look ahead to what needs to be done rather than revel in today’s success.

So for today, that is it.  Meet me at the next milestone with your acheivement in hand ready to change the world.

Until next time, be good and cultivate your community of friends.

Are You an Agent of Change?

101 years ago, Joseph Schumpeter in his book The Theory of Economic Development described entrepreneurs as more than business creators but rather as change agents for the entire society.  What was he referring to and how is this relevant today?  Entrepreneurs engage in “creative destruction” thereby creating new ideas and new businesses.  The result is a shift in the allocation of resources that creates a vibrant economy where these newly created businesses make some existing entities obsolete.  Think about mobile phones for a minute.  If any of you are old enough, you might remember a time when you could only make a call from a fixed land line that you were in close proximity to.  Now you can text, call, check e-mail just about anywhere.  It is becoming increasingly hard for consumers to justify paying for land based phone lines.  The constant “churning” that Entrepreneurship creates in a healthy and growing economy is finding better ways to serve and improve the quality of life of the region.  Schumpeter compares the list of leading entrepreneurs to that of a popular hotel guest list “always full of people, but people who are forever changing”.  I don’t think Joseph Schumpeter would have believed in The Eagles “Hotel California” where “You can checkout any time you like, But you can never leave!”

So for today, go out and innovate, creat positive change and report back.

Until next time, be good and cultivate your community of friends.

How to Learn from a Lame Duck

I once learned from a man who fired me that evaluating facts while  understanding history and context was the key to making an accurate assessment and sound decisions.  So I ask you to close your eyes for a moment and think back to January 2003.  The landscape as we know it was far different.  As a nation we were trying to spend our way out of the World Trade Center Attacks.  Homes were flipping more frequently then Mitt Romney’s political stances.  Our President encouraged us to keep shopping as a way to battle the enemy.  E-commerce was a dirty experimental word dominated by Ebay.  Social Media was just a twinkle in my eye, yet to be conceived.  Personally I was out of work (laid off in June of 2001) and was responsible for earning income for my household.  Being considerably more youthful at the time I was also sure that my command of the consumer market place was accurate.  Essentially I knew everything and was ready to create, manufacture, distribute and sell my own product.  To this point my wife and I had been prudent with our money as we saved for retirement and created a “college fund” for our young son.  During a restless night of sleep in January 2003 it came to me, clear as a biblical dream.  The world would soon see a collectible product that was revered by the three major religions.  I had the answer and was on the fast track to the American dream.  A Moses rubber ducky was what the American consumer wanted.  In retrospect the lessons learned were valuable, my passion for business runs deep and most importantly I have evolved as person and entrepreneur.  If given a Mulligan the three concepts I overlooked were:

A:  Clearly articulating my vision

This is where a short 25 word business concept statement telling others and myself the purpose of my product or service would have alerted me that maybe this product was more of whimsical idea rather than a solid business proposal.

B:  I did not do any market research or an Environmental Scan.  Checking on competition, getting feed back from focus groups or even friends and family.  This would have been a great opportunity for me to reach out to 10 acquaintances and get their feedback.  An acquaintance or a more one who offers more objective instruction is a great way to see if your idea passes the “smell test”.

C:  I did not build a recognizable and desirable brand.  I must have just watched the movie Field of Dreams.  “If you build it they will come” does not apply to Moses Ducks nor most business ideas.  Consumers and potential buyers need a reason to buy your product.  A Moses Duck had no practical purpose other than a collectible.  When creating a product based on brand appeal your item needs support from influencers of popular culture.

As a post script to this story, many ducks remain sitting in my basement and serve to ground and humble me everyday.  However wasn’t just yesterday when I was listent to Casey Casum’s top 40 and he said “Keep your feet on the ground and keep reaching for the stars”.

Until next time, be good and cultivate your community of friends.

My Personal "Mona Lisa"

I can see you through the haze

Everyone has a vision on how to make the world a better place.  Whether it is unconditional peace between all people or a high-tech innovation, we all have dreams.  However moving from a dream through execution to reality always proves more difficult.  Our most respected and effective visionaries, whether it be Dr. Martin Luther King Jr., Steve Jobs or your favorite community leader all are able to create a loyal group of supporters.  How do they do it and more importantly what key elements can we learn about communicating our vision?

1.  If you build they will come.  What James Earl Jones forget to tell Kevin Costner in Field of Dreams is that there are just a few other elements needed to get people to care about a baseball field in Iowa.

A.  Articulate in five minutes or less what you intend to create in the future–expressing your idea in a compelling, concise and confident manner is essential.

B.  How do you intend to get people marching with you and why should they care?  Integrity and Optimism are key leadership traits you must display.  Even on the darkest days of the civil rights movement, Dr. Martin Luther King Jr. would state “What a great time it is to be alive”.

Finally Dwight D. Eisenhower had a particularly telling statement on the importance of integrity in a leader:

“The supreme quality for leadership is unquestionably integrity. Without it, no real success is possible, no matter whether it is on a section gang, a football field, in an army, or in an office.”– Dwight David Eisenhower

With these thoughts in mind–dream it, do it and report back.

Until next time-be good and cultiviate your community of friends.