Ten years ago organic foods represented 1.2% of foods sold in grocery stores. Organics were hot and going mainstream as soccer moms stuffed lunch boxes with the purist carrots and over-priced apple juice.  A decade later only 3.4% of grocery sales are organic, merely a blip on the radar. 

It is often difficult to predict if the latest and greatest is a fad or legitimate trend. Is the iPad merely an extension of the iPhone or is it a game changer? Certainly tech savvy early adopters are already scooping up the new device, but will the masses adapt to a new way of viewing media?

Our mantra in our firm, in my book and in this blog is that marketers must consider converging factors, and no more is that more true than in evaluating fads.  Within a complex socio-economic environment, changing quickly with the advent of technology, there can be immediate swings in demand of a given product or service.

The key to converging factors and understanding trends is the acquisition of current and relevant information.  The ability to understand trends, and convert the opportunities presented into competitive advantage is both art and part science.  Science is required in the accumulation of hard data, whether it be from public sources such as government statistics or through private sources such as market research or trade associations.

The art is focus on customer wants and needs in order to preempt the market with products, services or features that may not be offered or are framed differently. Often innovation is not presented in the formation of a new product but through the delivery system by which it is presented. The iPad, like the iPod before it is not delivering new media but is providing an improved gadget for accessing music, books and the Internet.

Often, the best way to define a new delivery system is to reverse engineer problems that customers have, and try to find new ways to solve them. This requires a significant intimacy where the vendor can gain a deep understanding of how the customer functions.

In the fashion industry, designers and buyers must accurately predict styles as far as a year in advance, and move quickly to capitalize on emerging styles. Whether your source of information tends to be closer to science or art, the successful marketer has their ear to the ground and is paying attention to all the inputs that determine fad or fashion.

If you were amused by last week’s post regarding the management acumen of Jerry Garcia (no, that is not an ice cream flavor), this week’s post will really rock your world.  It seems that Jerry was not to be outdone by David Lee Roth, the eccentric front man for Van Halen.

As Dan and Chip Heath (of Made to Stick fame) tell in last month’s Fast Company, Roth chronicles a provision in the standard Van Halen performance contract that a bowl of M&M’s would be provided back stage, with “no brown ones” included. Upon arrival at a new venue, Roth would immediately search the M&M’s to insure the brown ones had been removed (the agreement called for a cancelation of the show should they be present).

 It seems that Roth was using brown M&M’s as a predicative indicator. “Guaranteed you’re going to arrive at a technical error” quips Roth (in his new book) meaning that he used the brown M&M’s as an indicator of whether the venue’s management had read the agreement and were attentive to detail. Given the complexity of Van Halen’s massive production, he viewed brown M&M’s as a symbolism for work quality and in regard to setup of the band’s equipment, he wasn’t taking any chances.

The only way to insure service or work quality is to monitor such indicators. In my experience, world class operators are always masters at measurement. Quality programs such as TQM (total quality management), Lean Manufacturing and Six Sigma are rooted in such predictive measures of quality. Whether you are making widgets, or running a service firm, quality comes down to managing finite details.

Having strong quality standards may not be much of a differentiator any more, but it is certainly the cost of admission in most businesses. Buyers just have too many choices, and they will not accept quality that is subpar.

Businesses are well advised to have quality metrics that are measured in real time and made very public. Service errors need to be corrected almost as quickly as they are made.

What is your brown M&M?

I thought I had seen it all until a Business Week article last week entitled “What a long strange business plan it’s been”.  As it turns out, the Grateful Dead was quite a commercial enterprise. The band was highly profitable, had a Board of Directors, and a successful merchandising division whose lawyers protected its intellectual property.  Was Jerry Garcia a better businessman than the average Joe?

The real lesson here is the level of engagement that the band had with “deadheads,” the iconic fans that would travel the country to take acid and watch 5 hour concerts. “The Dead” had a phone bank announcing new shows and preferred seating for their best fans, a bizarre form of psychedelic CRM. This makes me wonder, if The Grateful Dead, who probably didn’t know what city they were in half the time could run a business with this level of sophistication, shouldn’t all businesses be capable of this level of structure?

We should at least aspire to have fans half as loyal. It appears that the deadheads would do just about anything to consume the product (I am talking about the music) time and time again. What can you do in your business to create raving fans? There are stories of how no two shows were ever the same which would suggest that the band relished the element of surprise. Fans never knew what would come next, and that was a big part of their fascination.

Business should find ways to do the unexpected for customers, like send a Thanksgiving card or an In-N-Out truck to their location. It wouldn’t surprise me if Jerry Garcia did the unexpected and showed up on stage some day.

In a remarkable irony, the seat of Ted Kennedy (who spent his life fighting for health care reform) was lost to a Republican who has now shifted the balance of power in Congress. With the threat of filibusters looming, Republicans have new found leverage. Will Obama’s sudden drop in popularity translate into a more modest economic agenda?

I always say that within our firm, our role is not to provide all the answers; it is to ask the right questions. As the new realities of the new year emerge, one must wonder if some widely held assumptions about pending legislation (that affect businesses) must be modified to reflect the political climate. Clearly, health care and other legislation will be watered down. What are the ramifications of a Congressional stalemate?

• What will the new health care bill look like? Will employers be burdened with extraordinary administration such as employer coverage requirements? Will Congress levy a tax on preferred health care plans?

• Will the administration, desperate to maintain a majority during the mid-term elections and facing the reality of 10% unemployment, introduce a new stimulus package?

• With labor’s agenda stalled, will the law that would have replaced secret union ballots with card checks stall?

• How will bank regulators respond when financial institutions, still mired in commercial real estate debt, begin to default?

• Will TARP money be spent on infrastructure? Will the Afghan war drive military spending, or will deficit woes bring about an early conclusion to the war?

• What will be done about the Federal debt? At $107,000 per tax payer (did you know you had another mortgage?), not including the looming deficits to Medicare and Social Security, the Federal credit card balance continues to swell.

• Will marginal tax rates (due to increase to 39% in 2011) be reset?

In the face of such uncertainty, strategists must continuously review their forecasts. If you own a small business, you must seek out external (government, industry, competitor, etc.) predictive indicators and monitor the pulse of the economy and your sector before it is too late to react. Businesses are also well advised to revisit their budgets regularly and make rapid decisions based on demand and socio-economic trends.

Amidst the scandal and meltdown in the financial sector, many have been waiting for a taxing regulatory response.  One was not forthcoming until last month, as the House approved the most significant expansion of Federal regulations since the Great Depression.  In an effort to avoid a repeat of the liquidity crisis, the bill includes leverage limits and the ability for regulators to break up large banks.

But the more ominous government action will take place in 2010, as the Obama administration is positioning for significant tax increases which will dramatically impact small businesses.  The Treasury’s recommendations to enhance “revenue” include:

* Tax cuts for families and individual in the form of more aggressive MWP (Making Work Pay) credits,  Earned Income Tax Credits (EITC) and Child Tax Credits.

* Reinstatement of the 39.6 tax rate, 36% for couples over $250,000 in income, and elimination of deductions for certain taxpayers in this tax bracket.

* Imposition of  a 20% rate on dividends and capital gains (at incomes above $250k)

* Changes in 401K rules that will encourage retirement savings for lower wage earners

* Elimination of Capital Gains taxation on investments in small business stock (primarily in manufacturing).

* Making the Research and Experimentation (R&E) credit permanent.

*Expansion of the Net Operating Loss Carryback.

The most dramatic of these changes is the 13% tax increase in the marginal tax rate for the wealthy.  In a remarkable irony, the 35% rate (due to sunset in 2010) was part of the Jobs and Growth Tax Relief Reconciliation Act of 2003. Now that some in Congress believe that jobs and growth are seemingly not as important, the proposed rate will escalate to 36.6% for high income earners should the legislation pass.

The news is not all bad for the manufacturing sector as new tax laws may include the elimination of capital gains taxes for non-service businesses. To qualify, stock must be issued in 2009 or later and be held for 5 years. Tax savvy manufacturing entrepreneurs should seek counsel from their tax professional (that would not be us) and watch as these tax rules unfold in the months to come.

As many view the holiday season as a glimmer of hope, I was struck by several news items this week:

 Apple vs. Google

The battle for Silicon Valley supremacy has heated up in the last few weeks as the two behemoths vied for two start-ups:  La La Media (bought by Apple) and Ad-Mob (purchased by Google in November).  As technology often drives M&A activity, these deals may be a spark for a wave of acquisitions, as investors who have been sitting on the sideline may re-enter the fray.  The release of operating systems from Microsoft have often been the trigger for waves of technology spending, and it will be interesting to see how the sector fares this year.

Retail Discounting

I was struck by an offer by a local golf course this week. It read “What Rain, Play all Day on Friday for $39”. It used to be that marketers offered discounts when demand was low. Now, everyone from carpet cleaners to retailers are trying to drive demand to offset over-capacity or excess inventory. Such a combination creates a double whammy, where high costs are only exacerbated by diluted margins. It appears as if our worst fears for the retail sector are coming to fruition.  A shocking 95% of Americans say they are holding off purchases to take advantage of last minute sales.

 The uber discounting in the retailer sector is truly horrific. Retailers used to make all their margin in the fourth quarter, but they are sabotaging any enterprise value by giving away the store.  If you feel compelled to start a price war in your business, do it at a time when you want to introduce new customers to your product or services, not when they are going to buy from you anyway.

Boeing Tests 787

 The aerospace sector has also been crushed by high oil prices, the recession and the delay of new products.  Yet this week Boeing’s 787 airliner will make its inaugural flight and begin a year of field testing. The 787 is Boeings’ response to the European Airbus A350, a generation of planes built using up to 50% composite materials.   

United Airlines ordered twenty five 787’s and twenty five A350’s, suggesting that airlines may be ramping up capacity, especially in more profitable long range routes.   With the exception of military suppliers, the American aerospace industry has been in a deep freeze and is eagerly awaiting a rebound.

It appears that some sectors of the economy are starting to improve while others remain stagnant.

It seems that corporate acquisitions have come full circle.  In the 80’s, behemoth conglomerates fell out of favor as many of them were seen as too fat and inefficient.  Over the last decade, specialization and commitment to “core competencies” have been the mantra of CEO’s and management consultants.

Yet a recent trend has emerged as companies are going vertical, and seeking out business combinations that enhance positioning within the value chain. Our firm has recently worked with several companies employing this strategy, at a time when PepsiCo is buying back bottlers they spun off in the 90’s, and Oracle is purchasing Sun to which Larry Ellison spewed, “We’re really brilliant, or we’re idiots.”

Two converging trends seem to be the impetus to a return of vertical integration.

• Complex computer and distribution systems make integration critical to the success of an organization.
• The movement towards thrift and efficiency amplify a basic rule of distribution-the last mile of distribution is the most expensive (the implication being that it is more important than ever to control the distribution channel).

Many U.S. companies who have outsourced manufacturing and service overseas are starting to see the  upside of owning their suppliers.  Recent activity begs the question, when do such acquisitions make sense?

Much research around M&A’s over the last few years has yielded data that suggests that return on investment in these deals is realized through incremental revenue, not through cost cutting and efficiency. With the staggering costs of completing such deals, shaving a point or two of margin does not provide a very enticing payoff.

Thus companies seeking alliances and mergers should be focused on acquiring companies that complement their business in a natural and synergistic way.  For example, buying a supplier of quality parts provides the opportunity of integrating systems which may optimize inventory, improve cycle time and enhance the customer experience. If such synergies translate into more revenue, vertical integration can contribute to both the top and bottom line.

As a champion of value creation, I wanted to vomit on Black Friday.  As abhorrent as the massive discounting was, it did serve as a reminder that customer expectations are always a moving target.  For retailers, the bar has been lowered to staying open all night and giving product away at cost.

 For those of us who seek value by providing better service, we must push the envelope with equal fervor. The service you provide is not defined by you or your competitors, but by Lexus, FedEx and Nordstrom. Customers have come to expect extraordinary service on their terms: quickly and efficiently.   Every interaction with a customer offers what one SAS executive refers to as a “moment of truth”. In a single transaction, an organization can have dozens of such moments with a customer.

 Every company should do a “touch point audit” at least a couple of times a year and assess every potential customer “touch”.  To complete such an audit, create a checklist of touch points such as web, email, phone system, reception, customer service,  invoices, packing slips, etc. that represent the opportunity to disappoint or delight your customers. We have all been to voice mail hell, had a customer service call mismanaged or used information on a website that was no longer valid.

 It is useful to have a 3^rd party conduct such audits. Another approach is to conduct customer interviews, peer to peer.  I once had a client send their CFO to meet with a client’s CFO only to find out that invoices were poorly labeled and confusing.  By making some minor adjustments to the design of the invoice, my client improved receivable cycle time with the client by 5 days.  The CFO may not seem like an important person in the value chain, but casting your net wide within clients is an important selling strategy, especially when every nickel is being scrutinized.  The point here is that today’s marketer must take the time to evaluate every conceivable moment of truth and design systems and processes that optimize (my favorite word) the customer experience.

 One source of innovation and strategic advantage is to take emerging technologies from other industries and apply them to your business.  In the 90’s, Dell was amongst the first companies to offer email confirmation and real time tracking of shipments.  As the technology spread, customers came to expect such a level of service for online shipments of everything from flowers to wine.  If you are not moving forward with richer customer experiences, service improvements and automation, you are likely falling behind.

Many of my older colleagues are feeling a bit out of sorts with Facebook, RSS feeds and the plethora of online media which have disturbed the sanctity of our desktops. Many feel compelled to join the party, regardless of their place within the world order. 

I wonder if all of this panic is really necessary.  For some, running Facebook ads seems trendy, but for others it is like selling Yankee pinstripes at Fenway Park. My point is that if you have an old world product, it is hard to convert to online marketing techniques overnight.

Peter Drucker said all management is marketing but I wonder if he is turning in his grave at the prospect of Twitter and its lack of a sustainable revenue model.  He couldn’t have expected marketing to change so dramatically, practically overnight.  Print advertising is dying a rapid death.  Yet some products and service have an experiential component that make Internet marketing difficult.  Companies are spending a lot of money on ad words and other SEO (search engine optimization) tools, sometimes void of any real strategy or measurement other than click through (which is a ridiculous measurement if I ever heard of one).

Companies are well advised to consider their Internet strategy within a broader effort that blends different approaches into an integrated marketing plan.  Marketers must take the time to acquire the skills, resources and technology to compete effectively in the online space. 

One advantage that online marketing offers us is the ability to measure specific outcomes of web traffic, and we should all be a bit more vigilant in measuring the effectiveness of our marketing so that we can better allocate resources to the approaches that work best.  See you all on Facebook.

Yogi Berra once said, “the future ain’t what it used to be”.

In a year of strategic uncertainty, our workplace culture has become an espresso crazed, frantic free-for-all, void of real planning. It is a remarkable irony that short-term thinking on the part of companies such as Bear Stearns, Goldman Sachs and General Motors brought about this economic malaise, which has only beset even more short-term thinking.

Conservatism has become pervasive, as many entrepreneurs have retreated to tactical approaches to managing their businesses. It is as if we are victim to a form of collective myopia, reacting to the news and adjusting budgets to make it to another day.

Survival may not be a very practical objective. If a company survives but alienates customers, vendors and employees along the way, there won’t be much of a business left with which to emerge from the trough. One can only cut costs for so long. It is time for businesses to start planning for the recovery:

Use planning as the catalyst for innovation.

Examples of innovation that occurred during recessionary times are well documented, from the birth of Microsoft to the development of the iPod. Strategic planning is not an optional exercise to be conducted only when business is robust. If you are committed to growth, retaining your best customers and acquiring new ones, the ability to establish long range targets, expand into new businesses, and improve internal processes should be explored on a continuous basis. The executives at Amazon, one of the world’s most dynamic companies, meet every week for three hours to discuss strategic issues.

Continuously improve your value proposition.

Such organizations are leaders in strategic thinking; making decisions based within a framework that supports something larger than the decision itself. In Amazon’s case, the decision to invest heavily in Kindle had enormous ramifications across the enterprise, as an attempt to take over a new industry in such a disruptive fashion requires significant resources.

For many companies, the opportunity to align behind a set of game changing events that can promote a new market position is opportune regardless of financial conditions. A value proposition is not a fixed state of being, but a fluid set of variables that change with the market and evolving customer needs.

Only manage a handful of initiatives.

At a time when resources are limited, organizations can only manage a few initiatives at a time. Select no more than 5 and focus the executive team’s attention on flawless execution.

 Build your team.

Organizations often utilize strategic planning as an opportunity to engage new contributors. Participation in a strategic meeting is often viewed as a reward for up and coming leaders and a coaching opportunity for those who don’t make the grade. Dwight Eisenhower said “plans are worthless, but planning is everything” meaning that it is not the documentation that is important, it is the learning that occurs in such meetings that can reposition organizations, reframe roles, and elevate performance. It is important to break down any team dysfunction at the onset if you want to have a productive planning meeting.

Tip the sacred cows.

Many an entrepreneur has lost their business because they were too stubborn to see the writing on the wall. It is human nature to hold on to our core beliefs. Psychologists refer to a phenomenon known as “confirmation bias” which is our instinct to seek out information that will confirm our existing beliefs instead of those that will contradict it.  Yet the greatest thinkers in history, such as Einstein, Newton and Galileo, spent most of their lives consumed with finding evidence that would disprove their own theories. Successful entrepreneurs surround themselves with people who are willing to challenge the assumptions about every product, service or process.

Be Proactive.

Many organizations intertwine strategic planning and business planning for the following calendar year.  It takes 90 days or more to unwind a business plan so the more proactive you are in your planning, the sooner you can begin to execute.