Steven Kates has it wrong on Starbucks

A recent article in the Financial Post by Steven Kates, SFU Business Professor, prompted me to reply.

I also use Starbucks as an instructive example for other businesses. But Steven Kates has it wrong in suggesting that Starbucks needs to "emphasize that it is continually learning how to be a good corporate citizen, not simply appear as one." Sorry, but that is not a relevant response to recessionary times.

He has it right in the first sentence of his article, "I have an abiding love for the Starbucks brand." That is the hot button to push for Starbucks - their astonishingly loyal, dedicated customers. Leverage that relationship to make the business recession proof. Recognize and reward loyalty. Keep them coming back; don't disturb or distract them from the attraction of the ambiance and the attitude that comes with visiting Starbucks. I know of no other brand loyalists that are such fierce defenders of their daily fix. (Some even admit that it's somewhere between an addiction and a cult.)

Starbucks customers might back off the $5 latte for a cup at $3.95 in response to current economic pressures, but they are unlikely to go to Tim Horton's for their coffee.

My advice to businesses in these difficult times is to focus on key customer relationships and know what will continue to work and what needs to change for them to stick with you. Starbucks is doing that very well by eliminating outlets in oversaturated markets and by returning to the service concepts that made them indispensable in the first place.

Ideas for Difficult Times

Ignoring or avoiding the current challenging business environment is simply not possible. The credit crisis, stock market meltdown, and looming recession are all affecting the attitudes and actions of consumers, employees, investors, lenders and business managers. What are some helpful ideas to respond effectively?

Stay focused

Avoid being distracted by the bombardment of bad news. Stay focused on customers and employees, especially the ones that you have and you want to keep. Don’t freeze. But don’t over-react. Be calm, rational, reassuring and pro-active. Don’t just share their pain, provide relief. Misery may love company, but everybody still remains miserable if you just talk about it and do nothing. Try to be more creative and take appropriate action. Don’t neglect the good news – the Canadian dollar and interest rates are down so maybe you can expedite US dollar receipts or re-finance some lending to improve your results.

Be relevant

Take a close look at your customers’ changing needs and your product or service offerings. Do you have recession proof products or are they vulnerable? Costumers will be postponing or redirecting their purchase decisions in the current climate. Can you keep their business with a new cost-reduced service or more creative approach to packaging, pricing, terms and conditions?

Leverage the sense of urgency

Nobody is unaware of the current circumstances affecting your business. Employees are already focused on the problems, so it will be easier to get them to accept the solutions. That means being more receptive to expense reductions, removing frills, postponing projects, reducing assets and conserving cash. It may be opportune to revise compensation or bonus plans, change distribution channels, move marketing programs to lower cost Internet approaches. Take advantage of the sense of urgency that exists. Now is the time to resolve lingering problems; just be cautious not to do permanent damage to key employee, customer and supplier relationships that you want retain.

Recognize the changing environment

You probably started the year under different assumptions. That affected budgets and compensation plans. Sales targets may now be unrealistic and should be adjusted downwards to continue to reward and motivate top performers. Try to use an external benchmark to justify the adjustment and not give the impression that you are forgiving poor performance.

Look for opportunities generated by the crisis

If you have been smart enough to stash cash and build a relatively secure business, then you can take advantage of some unique opportunities that exist. Build your team by attracting top performing employees who may be ready to move from your competitors into your welcoming arms. Or take out a competitor if the whole company is for sale at a bargain price. The big boys are doing it; so can you.

Avoid being the unwilling prey

Competitors may see you in difficulty and recognize their opportunity to raid key employees or buy you out at a bargain price. You need to keep close to your key employees and ensure their career plan remains with you. If you are a likely target for merger or acquisition, then start working on your choice of preferred partner and determine your business valuation under normal circumstances, not distress pricing.

Talk to your banker

Make sure she is not worrying unnecessarily. Or at least worrying for the right reasons and hearing them directly from you. If you are in better shape than most and credit is available, then increase your credit limits now to support the opportunities you want to take advantage of.

Be focused, be flexible, and be creative.

Analyze, decide, and take action. You and your business will be better for it.

Guy Kawasaki

Introducing Guy Kawasaki, former Apple Mac evangelist, venture capitalist and business philosopher.

I've added him to my recommended Blogs, based on two great articles; 10-20-30 guide to PowerPoint and Zen for Business Plans (look 'em up on Google before you see it here).

His first Blog by way of introduction.

Better Late Than Arrogant

Welcome to my first attempt at blogging. Admittedly, I’m three years behind the bleeding edge, but I had to get over the inherent arrogance of blogging: that people would give a shitake about what I have to say.
A book every two or three years is one thing, but a daily blog? (Not that I’m committing to daily blog.) However, many people pounded on me, so here goes. Not that you can hold me to this, but I’ll write about entrepreneurship, venture capital, innovation, public speaking, Macintosh, and hockey.
From time to time, I will also discuss things that I do not “know,” but I’ve never let ignorance get in the way of expressing an opinion—and clearly, very few bloggers do! So let the good times roll…

Written at Atherton, California.
December 30, 2005.

I have to agree with what he says about bloggers. I reached the same conclusion about writing for myself - who cares if I know what I'm talking about! I have an opinion or an idea and I'm determined to share it. Although I do try to remember the warning from my mother, "Don't waste your time confusing them with the facts when they've already made up their minds." I don't want to be one of those people.

Mixed messages

Thumbs up or down for GM?

It seemed like a strange combination on the same page of the Business Section in a national newspaper.

All the headlines were about GM and the risk of bankruptcy. One of America's largest and most important corporations in dire straits because of the economic circumstances. Should they get bailed out by the US treasury? Something must be done to save them and all the jobs that depend on GM.

And across the bottom of the same page a full colour ad for the new Cadillac CTS with 556 horsepower for zero to sixty in 3.9 seconds at only $68,500. Just what we need for difficult times.

It seems to me that one message explained the other.

Bad management leads to bad results and the free market economy will help to decide who consumers (i.e. taxpayers) should support.

Working like a dog?

Harvey Mackay has some great suggestions on learning from dogs. Here is an extract from his recent newsletter (Nov.6/08).

We can learn a lot from dogs. Live simply. Love generously. Care deeply. Speak kindly. We give dogs time we can spare, space we can spare and love we can spare. And in return, dogs give us their all. It's the best deal anyone has ever made.

When loved ones come home, always run to greet them. Dogs treat us like celebrities when we come home. There's nothing wrong with showing people that we care about them.

Never pass up the opportunity to go for a joyride. On warm days, there's nothing wrong with stopping to lie on your back on the grass. I think of Richard Gere's character in the movie Pretty Woman. He was so busy working—doing big business deals—that he never stopped to enjoy walking barefoot in green grass until Julia Roberts showed him.

Take naps. Many of us are on overload, so in life you have to know when to throttle up and throttle down. If you can't take a nap, at least take a break. It will improve your disposition.

Run, romp, and play daily. If you have a chance to have fun, go for it. Life presents plenty of difficult times, and we all need a break every now and then. My motto: work hard and play hard.

Let people touch you. Don't be aloof. Allow people to get close to you.

Avoid biting when a simple growl will do. Just make sure your bark isn't as bad as your bite. It's okay to warn people that you're upset or even angry, but keep your temper in check.

When you're happy, dance around and wag your entire body. Happiness is the American way. After all, the Declaration of Independence says we are endowed "with certain unalienable rights that among these are life, liberty and the pursuit of happiness." So we have a right to be happy!

Delight in the simple joy of a long walk. Exercise is always good. I've been doing it all my life. It just makes me feel better, gives me energy to work more productively and, I hope, live longer. My philosophy is: Exercise doesn't take time; it makes time.

Be loyal. In a recent column about loyalty, I wrote that one of the first qualities that I look for in both employees and friends is loyalty. And my friends know they can expect my loyalty in return.

If what you want lies buried, dig until you find it. I'm constantly asked what the secret of success is, and persistence is at the top of the list. When you study truly successful people, you'll see that they have made plenty of mistakes, but when they were knocked down, they kept getting up ... and up ... and up.

When someone is having a bad day, be silent, sit close by, and nuzzle them gently. People remember two things in life—who kicked them when they were down, and who helped them on the way up.

Mackay's Moral: My goal is to be as good a person as my dog thinks I am.

For more from Harvey visit: harveymackay.com.

Elvis is No. 1

Here is an inspiring fact about Elvis. Among dead celebrities he is still number one in annual income. More then thirty years after his death in 1976, he is still earning in excess of $50 million a year! (OK, he's not earning it, his heirs and successors are.)

An impressive example of building a business model that ensures recurring income long after the initial work is delivered. It works for recording artists, authors and others that receive continuing royalties or sell continuity programs, memberships, subscriptions. Some of the highest earning consultants, advisors and coaches are the ones that are smart enough to sell their services with a percentage override on future sales revenue or cost savings.

Is there an opportunity that you're missing in your business? After selling the product or service are you selling the add-on warranty support or technical service?

Wouldn't your kids be pleased to know they'll still be getting cheques from you long after you're gone?

Running into a burning building.

Another exciting week for investors.

Was it the bottom finally? Did you have the nerve to jump back in and was your timing right?

The advice of most so-called experts was either to stop watching and worrying or start buying at the bargain prices available. The latter advice sounds to me like being at a big game when someone yells "Fire!" and thousands panic and run for the exits, but your buddy suggests now is a good time to buy front row tickets from someone on their way out; then head back in.

That's a good plan if the fire is out and the game is back on. Not so good if its getting worse before it gets better. Maybe if you can grab a season ticket at a good price then be patient until everyone comes back in again.

Who knows?

It's a good time to remember it was always a risky investment and we've been here before. This too shall pass.

Twenty-something employees

I was in a good discussion today on the special challenges of managing young employees from the twenty-something generation.

There is often a large gap in job expectations between the 30 to 40-year old managers and their younger staff. Loyalty, extra hours, and commitment to the company are concepts familiar to the managers but foreign to new employees. Their key issues are flexibility, social time, open communication and personal attention. Work habits may include continuous connection to their cell phone and online text messaging. These young employees present management with new challenges to attract, recruit and retain them.

Meeting their needs is difficult in an environment that has to remain equitable for all employees and still be a productive and customer-centered work place. Progressive companies have found creative ways to achieve their goals and to meet the expectations of desirable young employees.

They have implemented flexible work schedules within reasonable limits, make senior managers accessible, and recognize personal needs that have priority over job responsibilities. Adapting old personnel practices to the expectations of the newest employees requires careful assessment and implementation. It is worth learning from the successful employers so that your company can also become recognized as a great place to work. It is key to attracting and retaining the best qualified employees.

Summer doldrums

Quietly drifting in no particular direction. That's what the doldrums mean to me, based on vague memories from high school history classes of the great explorers in their sailing ships . (Confirmed by Wikipedia it's apparently an area near the equator, famously described in the "Rime of the Ancient Marine" by Samuel Taylor Coleridge.)

For business it often means a quiet period too. Everyone is enjoying their family holidays or summer recreation activities rather than starting new business activities.

But it can also be an opportunity to spend more time building stronger client relationships because there is less pressure and conversations can be more relaxed and informal. It may be a good time to reflect, plan and strategize with key customers before the hectic season of "back to school" arrives. Trying to fit in some social contact with customers during the summer doldrums may help you be more successful during the winter flurries of activity that follow.

Another lesson in Business Planning

The most common reason for preparing a business plan is because the bank asked for one before evaluating a request for financing.

We've already discussed that a well prepared business plan document may still not be enough when it's finally delivered. Next comes the negotiating phase. The lesson that was recently confirmed was not to be deterred by questions and requests for more information, but do not be persuaded to go back and revise the Business Plan document. That will only cause the bankers to recycle through the process of internal review, look for the answers and revisions and probably come up with more questions. It may be a good stalling strategy to avoid the "no", but the entrepreneur wants to move forward to a clear "yes", or "no".

So we agreed to respond to the specific questions in a short follow-up note using the approach of "Thank you for reviewing our plan. Here are the answers to your questions and we now look forward to a favourable reply to our request for funds". It worked.

And I got that very pleasant consulting feedback of: "Hey Del, they really liked the Business Plan and our answers to their questions. We're getting the financing!"

A good lesson in effective use of the Business Plan as a negotiating tool. I hope it works for you.

Still a necessary step

I had a banker comment this week on my earlier posted opinion that it is important to know all the requirements before starting on a futile business planning exercise that still won't get the financing required.

He disagreed.

It's always a necessary and useful step he said. And he's right.

At some point the entrepreneur has to test his plan against the real world and its better to know now, rather than later, that the plan needs to be changed for it be a successful business. If more equity is required or a new cost and risk reduced plan is necessary, then at least we now know exactly what is required before we get a third party to invest. It also helps to look further ahead to make sure we don't just have enough financing to dig ourselves into a hole and not enough to work our way out of it.

It's a good start along the path of "no surprises" management.

A Business Plan is not enough

Asking for more information is often just another way of postponing the inevitable "no".

I've learned this is often the way potential investors or bankers manage to turn off the entrepreneur without ever being so direct as saying "No, I'm not interested." It would be even more helpful if they continued with "because ...". But they usually don't offer much explanation (or the real reason) and the entrepreneurs doesn't ask.

The first question investors and lenders do ask is, "Can I see your Business Plan?" And that often leads to work for me to help with the strategizing, documentation and financial analysis, but I always ask the entrepreneurs if the Business Plan is the only thing left to satisfy the lender or investor. Too often, after we have spent time and effort and cash to prepare a solid business plan that confirms the prospect of a viable business and the potential returns to investors and lenders, we then discover that the owners cannot put up the equity or the collateral that is required. We should have known that from the start.

It may come out during the planning process and the analysis of cash requirements, but it would be helpful to know the guidelines in advance. If you need $500,000 then the banker or investor probably wants your investment and guarantees to be a lot more than the $25,000 you've arranged.

All lenders and investors have a checklist. Be sure you are aware of the whole list and whether you can meet all the requirements, beyond a good Business Plan.

Good for your health

I recently participated in a breakfast seminar with some associates, clients and friends where the guest speaker was Dr. Oomen from the Cardiogenix Medical Centre in Montreal. He is a very dynamic and animated speaker who presented the topic of "Health is Wealth, De-stress for Success" and he had us all motivated to follow his advice and lead healthier, stronger, longer lives.

We were left, however, feeling inadequate trying to be as effective as he was at passing the message on to family, friends and employees. Employees are a particular challenge. Some participants spoke of their frustrations with various programs, large investments and a great deal of time and effort with very marginal results for their staff. Only a few had lost weight or stopped smoking, even with financial rewards or other incentives.

Dr. Oommen seemed to agree that making real progress needs constant attention. Continuous communication, support and encouragement, measuring and rewarding results will all be required before momentum is created and new habits become established.

Nevertheless, it is worth the effort. Everyone wins.

Effective Branding

The value of a good company name struck me en route to spring skiing on Sunday. Flying by on the freeway I suddenly noticed two distinctive names that seemed to stand out in the row of businesses along the highway.

Stonedge and Simple Signman.

Memorable don't you think? A catchy, meaningful and memorable name is always a huge advantage in building brand recognition and corporate identity. Especially if it is a good fit to the business and its strategic positioning.

In working with entrepreneurs I often have to get them to re-think their planned business name after we've completed a thorough review of their corporate strategy and marketing communications plan because it is simply not consistent, not supportive, and often in direct conflict with the message and the corporate identity. For example; "J&B Java" for a retro '60's style diner and gift shop. Or "PBX Services" for an architectural and interior design consulting firm. It's worth the extra effort to try and be more creative and consistent with your marketing image.

You may want to invent a new word for your name, like Yahoo or Google, but unless you can spend a fortune making it known and putting it everywhere, like Starbucks or EXXON, then try something that is more meaningful and memorable.

Imagine the additional business that comes from customers who will instantly recognize who you are and what you do, as well as those customers that will more likely remember you for next time. Think of a good name as a valuable silent salesman - always working for you.

Evolving loyal, long-term customer relationships

Sometimes we get so preoccupied with marketing and sales activities and all the associated details that we forget the original strategic objectives.

The basic objective, of course, is to generate and grow sales revenue. But to have sales you need customers. And to have sustained, profitable and growing sales, the best strategy is to develop loyal, long-term customer relationships.

So the marketing, sales and customer service activities should all be aligned to deliver a customer experience with you, your company and your brand that evolves from a first time buyer to a loyal, long-term customer.

The customer experience typically evolves through four levels:

1. Satisfaction with price and availability

On the first exposure to you and your business, customers will quickly, maybe even subconsciously, compare price and availability to their expectations based on prior experience with your competition. There will likely be no sale, and maybe no second chance, if this minimum expectation is not met.

2. Recognition of superior service levels

The first point of differentiation and the first step to building a stronger customer relationship will be when the customer recognizes that you offer superior service. You can demonstrate it in many ways – faster response to inquiries, easier access, more stock, better prices or terms, better delivery, better warranty service and support.

3. Appreciation of the value of your knowledge and experience

After the basic needs of price and availability are met, and you have distinguished yourself with superior service, the customer experience should then lead to an appreciation of the added value of your knowledge and experience. This will be demonstrated by applying your product knowledge, training, education and experience to educate the customer and give him/her the confidence to make better purchasing decisions. Now you are building a valuable customer relationship.

4. Connection on values, mission and vision

The final step in cementing loyal, long-term relationships will occur when the customer recognizes a common sense of values, mission and vision in the way you both do business. This connection will be developed over several interactions, particularly when problems are solved together, or you meet on non-business related issues.

The sooner you can meet customer expectations at these four levels, the faster you will build lasting and loyal customer relationships.

Super Bowl decisions

Super Bowl ads are always part of the attraction for the 95 million viewers from around the world. For advertisers it was a $2.7 million decision to book 30 seconds.

A good or bad marketing decision? For Budweiser or Pepsi it's a small drop in the bucket of advertising millions they spend every week. For smaller companies it may be an all or nothing budget item and can be a risky bet. In the dot.com days there were always a few that spent their venture capital dollars on a Super Bowl ad just because the notoriety was worth the expense. This year there were still a few Internet companies in the mix.

The most controversial ad decision was the commitment to 60 seconds by Under Armour, an athletic underwear brand name that was launching its new line of training shoes. The six million dollar cost represents the equivalent of one month's net income (last quarter was about $17 million). Somebody really believes in the value of advertising.

When will they know if it was worth it?

Blinded by concentration

I was at a seminar recently which for some reason digressed into demonstrating how we can be so focused on a particular task that we fail to observe what is going on around us. The presenter gave a few demonstrations that we found interesting but unconvincing, then he proved it to us with a group experiment. The object was to watch a short film of students passing basketballs among themselves and count the number of passes, but only betweeen those students in white T-shirts, not those wearing black. OK, we watched closely for about 30 seconds and I counted 12, some said 16 or 17.

He asked, "Did anybody see the gorilla?" What gorilla? Most of us didn't know what he was talking about. So he showed the fim again and, to my amazement, somebody in gorilla costume walked into the middle of the scene, paused, waved at us, pounded his chest, and walked on. Wow. (It wasn't a different film because some people had seen the gorilla the first time.) I always knew I was able to concentrate and ignore the background noise, but this surprised me.

I was reminded of the story by this morning's newspaper article about Barbara Ann Scott who is celebrating the Sixtieth anniversary of her Olympic gold medal in figure skating at St. Moritz in 1948. (The first and still the only Canadian woman to do so.) Apparently in her early routine on the outdoor rink, a helicopter flew over and hovered to watch her perform. When asked if it bothered her, she said, "What helicopter?"

Being able to focus is obviously important to performing a task at our best, but occasionally we need to look up and be aware of our surroundings. Maybe the gorilla is not friendly, or the helicopter is crash landing.

Looking back and planning ahead

The start of a new year is a good time to look back and plan ahead. (Sounds dangerous. May explain the pain in my neck.)

However, looking back at 2007 can you conclude on the mistakes you would rather not repeat or the things you would like to do more often? Or maybe the issues and ideas that were completetly neglected? Select your priorities and include them in your plan for 2008.

Is it time for a radical new strategy or simply continuous improvement of a well established formula for success. Don't forget to look outside your business at your personal priorities. Is it time to fix the foundations of family, friends, physical and financial health?

And don't try to do too much. Small successes will usually add up to more than a few big ideas that don't get finished. Good luck.