Menchies and other self serve frozen yogurt shops are evil. No one should have unlimited access to caramel and fudge. It is just wrong.

I am completely fascinated by the business model.  Self serve yogurt franchises are proliferating, and clearly provide a mechanism for selling more products at a significantly lower labor cost. In a world where products are easily reverse engineered and replicated, attention to service model innovation is critical.

There is a Red Mango yogurt location close to my home.  In the space neighboring the store, there is a sign that indicates the store is relocating next door and will be going to “self serve”.  It is clear that in this location, Red Mango is acknowledging their traditional service model is under attack by the self serve locations such as Swirly’s and Tutti Fruiti.

Throughout Southern California, Golden Spoon is one of the predominant regional chains with loyal raving fans flocking to their locations for their tasty yogurt.  But its suddenly dated service model is creating competitive disadvantage. Its product may be exceptional but will undoubtedly lose share to the service innovation of their competitors.

The fundamental question that must be answered by the entrepreneur is “what job needs to be done” to satisfy the customer?  Technology has been an enabler to all types of transformation.

The NFL has a new service called NFL Ticket Exchange.  The job to be done is to fill stadiums with ticket holders at the optimum revenue.  But the traditional model of selling season tickets was somewhat threatened by a bad economy, and spiraling ticket prices.  With many season tickets finding their way onto to Stubhub and other online outlets, the NFL had lost control of an aftermarket of ticket distribution, so they created a new platform in the form of Ticket Exchange.  This strategy is a form of vertical integration in that it captures margin downstream, while providing a lower cost alternative for tickets that will spur demand.

The broader point is that companies cannot become complacent about service delivery methods. In a world of new realities, think proactively about the job to be done, and how you can radically alter your service model.

While it may seem entirely intuitive today, the concept of the “experience curve” was first offered in a Harvard Business Review article in 1964. The thesis was that as the number of units produced goes up, the cost per unit should come down.  Within the service economy, there are similar expectations. The bigger you are, the easier it should be to apply overheads and bring costs down.

Almost every industry is more competitive than it was 10 years ago.  Customers are more demanding than ever, expecting Nordstrom’s service at WalMart pricing. We have one client whose customers actually have efficiency gains written into their contracts (i.e. their customer EXPECT prices to go down, and not up). In things such as budgets and sales productivity, the entrepreneur must demand incremental improvements every year because that is what customers expect.

In order to survive the experience curve, the entrepreneur must seek out business model innovation.  In a world of reverse engineering, where your product can be mimicked around the world in a matter of days, sustainable advantage is more readily maintained through creating entirely new business platforms.

Amazon earns about a 5% markup and turns its inventory 25 times per year, compared to a discounter that might earn a 20% mark up and turn its inventory 5 times.  Unlike a typical retailer that is dependent on vendors and cash flow to fund inventory, Amazon’s model is “buyer financed”, creating a float of 41 days between the time a customer buys a book and the time the publisher is paid[i]. Thus Amazon has a distinctive cost and cash flow advantage, even over other internet retailers. In today’s environment, a two percent cost advantage can be material, and allow a competitor to undercut a market.

The quickest way to garner the experience curve is through technology.  Organizations can easily benchmark technology spending within their industry through the statements of public companies and the like.  If you are spending 2% of revenue on technology, and others are spending 4%, it is likely that some will outpace you in terms of efficiency, speed and cost.

Another experience curve gambit can be found in quality initiatives such as Total Quality Management, Lean Manufacturing and Six Sigma, all derived from a thirst for quality improvement, efficiency and cost cutting.  Becoming leaner is not a choice as much as a necessity, and the race is underway in manufacturing environments to be the leanest.  The race never ends.

Here we go again. Suddenly, people are fleeing the stock market for the safety of muni’s and other low risk investments. The U.S. dollar is strong only because of the weakness of the Euro and other foreign currencies supported by extraordinary deficits.  Emerging markets such as China, India and Singapore are the only ones growing and even China’s forecasts are cooling. Some economists are calling all of this a dreaded double dip.  Is this spasm an overreaction?

I am not here to offer a prediction as much as some perspective. Historically, there have been two elements that have preceded U.S. recessions.  Typically, there has been a scandal such as the Savings and Loan Crisis, Michael Milken, Enron/Worldcom, and most recently the liquidity crises triggered by the likes of Goldman Sachs, AIG, Lehman Bros, and Bear Stearns, where someone has manipulated a market (most recently derivatives and credit default swaps).  Secondly, the recession usually follows a bubble (dot.com, real estate, etc).  In other words, our economy gets fat and happy, investors take advantage, and then the bubble bursts.

We certainly have not seen our economy swell over the last 12 months.  People have been so desperate for good news that we accepted what little there was as signs of a recovery.  The reality is that our economy grows at about 5% in times of prosperity, and 2% in times of stagnation.  Three percent swings us from optimism to pessimism, which reinforces the magnitude of emotions in our decision making. Fear is always the most powerful emotion and motivator, greater than love and all the others.

So how will the next few months play out? I don’t have a concrete answer for that but what I do know is that our reaction to the sound bites from economists and experts is quite personal. Our practice is thriving at the moment (in part due to the acceptance of the book) which is proof positive that the performance of an organization can be driven in part by one’s confidence and sheer will. Certainly, market forces are in play and in some businesses (like construction) you can still hear the giant sucking sound.  In others the business can best be described as mediocre and the entrepreneur must decide how much investment (in sales and marketing for example) is appropriate.  What I have seen from manufacturing clients is that are petrified of expanding their factories out of fear that they will not be able to dial back capacity.

In a universe where most are passive, there is more opportunity for the aggressors.  I read of one recent investor who bought BP and shorted Apple, a counter strategy that clearly made him a lot of money. While I am not dispensing any investment advice, I am suggesting that we all must make individual choices on the level of risk we are willing to accept. In an age when things are uncertain, there is as much evidence that we will continue along a modest recovery path as there is that the bottom will fall out, and I have made the choice to stay on course. If you are not comfortable with the status quo, it may be time to find new product, services, channels or sectors because there does not appear to be a hockey stick coming any time soon.

I hear it from everybody, from the accountants to the architects, the world is simply much more competitive than it used to be. 

No industry has faced more brutal price competition than construction. In an environment where differentiation is hard to come by, The Concrete Network stands alone.

Concretenetwork.com is positioned on the Internet as the go to site for information on, well…concrete. The site provides everything from training on how to mix concrete to a database on how to find contractors.  They even have sponsors for their website. If an organization has the initiative and entrepreneurial spirit to be subject matter experts in an industry as basic as concrete, imagine what is possible for the attorneys, insurance agents, and manufacturers. It just takes some imagination.

I have spent the last year writing a book, blogging, writing articles and creating video testimonials to make my point.  If you don’t value your services, no one else will.  Creating a differentiated offer takes time, money, energy and resources, but mostly it takes will….the will to compete, the will to charge the hill and take on the competition. The easy thing to do is to whine that competitors are undercutting your prices and sabotaging the market. Of course, they do that because they are bit players in your production, but you have the ability to take them down.

Regardless of your offering, if you want to maintain price continuity and profit, one must find a way to add value whether it be through education, additional services, technology, support, etc.   You may need to experiment to find the right formula, but in the end, customers expect to pay more to vendors who offer more services and pay less to the lackeys who offer less.

Do you have the will to compete with the business that is replacing you?