Order of Magnitude CEOs

Are You the Local Maximum Provider in your Area - How Do Local Clients Describe You: “Best” Chinese in Albuquerque, “Best” Thai in Telluride, “Best” Car Detailer in Monmouth (or “Average” Sushi in Wichita)?

I got back from a snowboard trip to Telluride, Colorado with a short stopover in Albuquerque, New Mexico. When came it time to grab dinner in Telluride the night of the Super Bowl, we opted to do carry out at the “best”, at least according to the local residents, and only Thai place in town. Yes, “best” sounds funny in a town the size of Telluride for Thai but the food at Siam lived up to its hype, we were all impressed. Similarly, in Albuquerque the night before flying back, the choices were an average Sushi place or the “best” Chinese in town, with a name to match - Best Lee’s. It was no contest; we went with the Best (awful pun intended). When I got back to town this past weekend, my younger daughter got sick in my car and so I needed to get it detailed. Although there are many car wash and detail places in my neighborhood, my wife knew which one was best in our area, “go to the Auto Spa on Route 35,” she said. Although there many closer ones and I passed a few on the way, you know where I went, the Auto Spa - Blue Wave Auto Spa.

In almost any category, there is a market share game going on. So, if a category’s entire worth is $100X and 1^st place is worth $50X, and 2^nd is $25X, 3^rd is $12.5X, 4^th is $6.25X, 5^th is $3.125X, and so on you can see that there is a big difference between being the best and falling short not only in terms of your annual profit but in how you will be valued upon a possible exit down the road. In addition, being the best, also means it’s easier to have higher margins and charge a higher price, if you so desire. Even if the category is huge and you aim to just grab a small share, say 1% of a $10 billion market ($100 million), it is much more likely that the top players or best players in the space will end up driving your market share lower and lower and lower until it approximates 0. In my experience, being the market share leader in a small space that you can grow is much better goal than aiming to get 1% or 2% in a very large category.

You don’t have to be the absolute best at what you do like Amazon or Costco in retail, or what I like to call a global maximum, just be the best compared to the others in your area like Best Lee’s in Albuquerque is for Chinese, or what I call a local maximum.

If you don’t know it yet, who does your typical target customer regard as the best provider in your area or category (local maximum provider) at what you do today and what moves can you make to be the local maximum provider at something down the road?

My Triglyceride Level is High – This is My Public Declaration that I am Lowering It, What’s Yours?

 

As part of my annual physical in December, my blood was drawn and a few days later I got a call from my doctor with the results.

As with past years, I am doing well except for my HDL (good cholesterol) being slightly low (37), the medical profession likes it to be at least 40. What was different than previous years was that my Triglyceride level is high (243) where under 200 is considered ok, and under 150 is the goal. Until I overheard two older ladies discussing their Triglyceride levels in a local Costco about five years back I had never even given a thought about my Triglyceride levels. Times change. I just turned 44.

During the initial phone call with my doctor, he mentioned that I cut down on baked goods and other sugar based products.  After the call, I realized it wasn’t specific enough for me on what I needed to do. So, in early January, I made an appointment to visit with the explicit purpose to really understand what are the one or two specific things that I could do, to lower my triglyceride level. The answer: lower my daily intake of carbohydrates and increase exercise. Shocking!

So why am I sharing this information publicly. Because I am committing to myself that without medicine within one year will I not only lower my Triglyceride level to below 150 but that I will also raise my HDL level above 40 as part of my overall goal of living a healthier life.

Reducing my daily intake of carbohydrates has opened up a whole new world for me.  Now, when making decisions on what food to eat or in a specific category, like cereal to buy, I have an easy way to do it. All things being equal, what is the amount of carbohydrate grams per serving?

As for exercise, it has always been hard for me to stay motivated, because there hasn’t been a purpose that mattered to me. Until now.

By making this declaration public, I speculate I have now made it more likely that I will continue to do the right activities, towards lowering my triglycerides and raising my HDL, at least until my next blood test in about 5 months.

Is there something truly important in your business that has had a lack of focus for you? Perhaps increasing 1^st appointments with prospects, or building a scalable sales team, or developing a strong brand, or perhaps making that COO hire to help you grow. Make a declaration to yourself, even better to your team or the world and increase the chance of you working on making it come true.

(Note: A great example of a public commitment by a business is Salesforce.com’s trust dashboard regarding their Service Performance History.)

The $12 Nuisance Fee and Other Unintended Stories Your Customers Are Telling About You

 

I took my kids for ice cream a few nights back to the Ice Cream Palace, a local ice cream store.  As usual, there was a line out the door and as usual my younger daughter got strawberry ice cream in a cone.  Just as we sat down outside the store to eat the ice cream, she dropped it on the floor.  I brought the ice cream and cone back and as soon as I said that it had accidently fell on the floor the customer facing person, who by the way did not serve me, gave me a new one immediately in a happy manner.  Meanwhile the local Carvel franchisee directly across the street from the Ice Cream Palace was empty and the Cold Stone Creamery franchisee one block away has shut down.

I recently switched insurance providers and so when I called my local dentist to make an appointment, I informed the office manager.  I asked if my dentist took the new provider.  She said I would have to call my insurance provider to find out or I could risk coming in.  I asked who would be responsible for the difference if the dentist was out of network.  “You would be,” she replied.  “Interesting,” I thought as I hung up the phone, “I wonder if my dentist knows about this policy especially since he comes in routinely at 7am and has evening hours to accommodate busy schedules like myself.”  How hard could it be to create a simple process for letting a patient know whether the dentist takes a specific insurance or not (if only he knew)?

My local bank recently charged me a $12 nuisance fee.  I politely asked to have the fee waived just because (it was my first such request in at least 10 years with the same bank).  The manager told me she didn't have the discretion to waive the $12 fee but could raise the issue with her regional manager.  I said it wasn’t necessary and not to check.  “I was just checking to see how you valued me as a client.  Think of it this way, would your marketing department authorize you to give $12 to obtain a new client or to get me back as a client if I left?” 

Last week was the end of my family’s week long vacation to South Carolina.  At the beginning of the drive back my wife asked me to be on the lookout for a Dunkin’ Donuts so she could get her Iced Coffee fill.  Along the way, she had a number of opportunities to get coffee from other stand alone places as well as other chains.  A devout fan of Dunkin’ Donut coffee, she waited.  Unfortunately for her, Dunkin’ Donuts appears to not be as plentiful in the Carolinas as it is in the Northeast and we ended up driving around 400 miles, 12 miles before the Virginia border before we spotted the first one on our trip.  We pulled over.  Michelle went in by herself and emerged about 20 minutes later.  She was not happy.  “She toasted the bagel even though I asked her not to, I had to remind her about my Iced Coffee after my order was complete.  And to top it off they were out of donuts.”   The only part of the experience that was good for her was the taste of the iced coffee.  If we had not experienced the Dunkin’ Donuts experience hundreds of times in the past, this single store could have ruined the brand experience for us.  Perhaps it has for potential customers in the Carolinas?

For a large franchisor like Dunkin’ Donuts or for any customer facing business, which is all of us in some fashion, the policies you set or don’t set and the training or lack of training of your customer facing staff can have intended and unintended consequences that can lead to a line out your door or your best customer leaving you without an explanation.  What stories are customers telling about your firm? 

What to do about it?  Of the experiences above, only Dunkin’ Donuts made it easy for the customer to tell the story directly to them.  On the receipt was a link to a website survey to discuss the experience.  My wife, as an avid fan of Dunkin Donuts, wanted to let Dunkin’ corporate know about the experience and so she immediately filled out the survey on her smart phone.  One of the last questions on the survey was what caused the bad experience.  My wife checked the box “training.”  If there was better training, all the problems with the experience, I didn’t even mention some other minor issues, would never have happened.  As I mentioned in an earlier post about the iPad, measure the customer experience to ensure your customers are getting the experience you expect, so if not, you can do something about it.

What to do in a World of Infinite Shelf Space

Last week, I was speaking with Fred, a business owner that had paid a social networking firm to build his firm’s presence on Facebook (and Twitter) and now had over 10,000 people that “like” his business and that follow him.  “Isn’t that awesome”, he exclaimed to me.  “That’s great Fred, how has it helped your business – are you getting more leads or is it helping in some other way?” I asked.  After further discussion I learned that these 10,000 people were spread across the world and they were neither prospects nor trusted influencers to his prospects. Unfortunately for Fred, we both concluded that this particular investment had not helped his business at all and in fact was a distraction. 

Later on the same day I met with Rachel, another business owner, who mentioned to me that by strategically using LinkedIn to connect with clients and partners over the years, it had helped her multiple times separate her firm from the dozens of other firms that had a similar offer.  For example, Rachel explained that a large prospect decided to go with her firm after using LinkedIn and discovering that a number of important business relationships were also connected to Rachel.  These relationships vouched for Rachel and her firm, all behind the scenes, with Rachel only finding out later.  Rachel’s investment in social media had paid off.

These conversations reminded me of my time at The Discovery Channel in the mid 1990s when I spent a couple of years working in their consumer software division.  In my last role, I was the product manager for their Family/Kids line of consumer software titles.  We produced a bunch of titles based on Discovery Channel properties that were either strictly educational with catchy names like Sharks, Whales, and Animal Planet as well as Kid games (“infotainment”) such as Skytrip America and Invention Studio.  Amazingly, a number of these titles can still be purchased from Amazon.  But they’re not.  At least not in any quantity or price point that is valuable for anyone.  With infinite Shelf Space, more than ever it is not just about getting shelf space, but selecting the right shelf for your products and services and counterintuitively, where do you not want your offer to show up.

While at Discovery Channel, I spent a great deal of time evaluating all the ways and places that our target customer of kids 8-12 years old and their parents (Kids Love, Parent Approved) could find out about the titles I mentioned above.  For instance, I would go to retail stores ranging from Wal-Mart and Costco to specialty stores like Egghead Software and Babbage's to see how many titles they carried and how they appeared on the shelf.  I would watch parents and kids go into the kids section to try to understand what mattered in selecting one title over the next and even if it was worth trying to get shelf space or great shelf space, like an endcap, with that particular retailer.  

The most important questions I had to answer were “how important was it to be in that particular retailer’s stores and how valuable was the shelf space for our title(s) compared to other retailers?” 

The incite for business owners is that no matter what you sell, it still comes down to decisions regarding marketing and distribution.  I don’t care what the product or service is.  And with more choices than ever for the buyer, the business must make choices on where not to be in order to focus on the shelf space that matters.

If you are spending a significant amount of resources selling, marketing or distributing via a channel like Facebook, is that a conscious choice?  If not, you may be allocating limited resources on getting premium shelf space where it doesn’t matter for your prospective customer.  This is why Facebook matters for some businesses and is completely irrelevant for others. 

By systematically understanding and then ranking your choices for the marketing and distribution of your offer, you can take steps to ensure that if your offer is intended for high income families it is not relegated to the equivalent of a single SKU in the wrong section of Whole Foods or Wegmans.  Or even worse, end up as an endcap in the equivalent of the local Dollar Store.

Are You Offering The Equivalent Of Free Wi-FI Access Or Are You Still Charging To Use A Desktop Computer?

 

Last month I was in Manhattan with time to kill between meetings and it was hot.  I noticed that Burger King was pushing an Icee drink so I quickly ducked in to get one.  While I was waiting for my Icee, I noticed in the middle of the store a couple of computers connected to the Internet.  Not only were the computers outdated, Burger King was charging to use them as if it was June 2000, not June 2010.

Walk a few blocks in either direction and there are Starbucks’s and McDonald’s, who both decided in 2010 to offer Wi-Fi access for free.

I thought long and hard, well actually for only 10 minutes, I could not come up with a good current value creating reason for Burger King to have a desktop computer located in the central part of their restaurant, actually they had two, connected to the Internet that customers must pay to use.  This particular Burger King store appears to be competing more with the local library than its nearby quick service restaurant competitors.  More likely, for this particular Burger King, it was a conscious decision 5 or 10 years ago to offer Internet access for a fee that has now become an unconscious decision to keep it there.

I checked the market cap of all three firms and it will be a shock to no one that as of  Friday, July 2, 2010, both McDonald’s and Starbucks are roughly an Order of Magnitude or more valuable than Burger King.

Market Cap as of Friday July 2, 2010

McDonald’s:  $71.15  Billion

Starbucks’s:  $18.14 Billion

Burger King:  $2.26 Billion

I am consistently surprised by business owners that do business the same way they did it three, five, even ten years ago.  Three recent personal examples of business owners who have had trouble making their own move to “free Wi-Fi” access for their business:

I walked into a local toy store and when asked to defend a policy that the owner agreed did not make sense for the customer, the owner’s explanation, “we have always done it this way and so do all of our competitor’s”.

A successful franchisor when asked about changing his policy for franchisees that would make new franchisees more profitable, “I know it’s the right thing to do but it’s too hard at this point to change”.

When selecting a local restaurant, I now use Yelp from my phone or laptop and no longer Zagats.  Zagats, which owned social media for restaurant reviews before there was even such a term, is on it’s way down while competitor’s like Yelp, have taken Zagats initial concept and made it much more relevant, convenient and useful for both creators and readers of reviews.  The result: Yelp easily passed Zagats in valuation. 

From conversations I have with business owners, most know change and innovation is required to move their business forward.  Instead, they unconsciously opt to do nothing which in turn leads to an unconscious choice to not improve the value of their business. 

“Fresh Eggs” -- If You Think You Have A Commodity Offer, You Probably Do

My wife came home last week very excited.  “What’s going on”, I asked, win the lottery?”  “Even better”, she replied, “FRESH EGGS.”   “Huh, what do you mean.”  “Ondrush Farms didn’t open yet but they posted a sign announcing in big letters - FRESH EGGS -  with a phone number.   So I called them up and just got home with a few dozen eggs.”  “Great, how much did they cost?”  She had no idea.  Eggs for the Silbert household, were no longer a commodity.  

Just look around and you’ll notice that almost all industries that have been supposedly “commoditized”, still have brands that resonate more to the customer than other brands because they refuse to accept the commodity label.

Here are three commodities I experienced in the last week: Airlines, Water, and Pizza.

Airlines

I flew JetBlue for the first time out of JFK.  I live in New Jersey so I almost always fly out of Newark.  Due to JetBlue having a direct flight to Austin, I took the train to the plane from Manhattan which worked out quite well.  JetBlue has a great terminal, friendly staff and has plenty of well documented perks that I finally experienced for myself, including Satellite Radio, DirecTV, and extra legroom that you don’t find on other airlines.  I had heard great things about JetBlue and now I experienced firsthand the subtle difference of flying JetBlue compared to other airlines.  In the last few years and even more so in the past year, the majority of airlines have made the act of flying closer to taking the bus.  I did not feel that way with JetBlue.

Water

While at the JetBlue JFK terminal, I arrived early for the flight and thus decided to eat ahead of my 8pm departure.  As I waited for my food from the Chinese quick service restaurant, I went to select a drink.  There were a number of choices and I narrowed it down to Black Cherry soda which is typically not carried everywhere and water.  As you might expect there was 1 brand of Black Cherry and about half dozen brands of water.  The bottles of water came in all different shapes and sizes with all different price points.  The interesting thing is that as far I could tell all the different brands of water cost more per ounce than not only the black cherry soda but the other drink products as well.  I ended up paying up for the Fiji water, which had a similar price point to the other bottled waters but to me was a premium “bottled water” brand and thus it was easier to justify the ridiculous airport terminal price point.  Some bottled water firms, like Fiji, over the last ten years have figured out how to differentiate the ultimate in commoditized industries… water.

Your Local Pizzaria

In my neighborhood, there are conservatively 20 pizza restaurants within a 7 minute drive of my house.  The majority of them are surviving but there is one, Denino’s, that rises above the others.  It is consistently packed during dinner hours and in fact during some days they do not allow individual slice purchases, they are just too busy.  Denino’s takes pride in their pizza.   A great example is a few days back they brought out a pizza for my family  where part of the crust was partially dented.   As the pizza was being put down on our table, our server informed us they were bringing my family another pizza because of the dented crust.  They did this even though their restaurant was just starting to fill up and thus they could have immediately filled the table. 

The more you look around the more you will find that your industry is less commoditized than plenty of other industries and it is only when you start believing it yourself, can you make the bold moves required to differentiate your offer and your brand from your competitors.

By the way, my wife just got home, all excited again, “what now”, I asked, “Fresh Eggs from Ondrush Farms again”?  “Fresh Corn”, she replied with a smile (this time knowing the corn was 3 times as expensive as the corn from our local super market).

Five Differentiation Strategies I Noticed In Park City, Utah

I just got back from a long weekend trip to Park City, Utah where I went snowboarding with some friends.  During the trip I noticed the various differentiation strategies that businesses in the town used and thought it would be useful to share some of them (I’m sorry I just can’t help myself!!) - :

1.  Location:  the closer to the Park City slope the more a business can charge for its service.  Since I do not own snowboarding equipment, I rented right next to the mountain.  It was very convenient and definitely more expensive than renting a few miles from the mountain or even a few blocks away.   Even better is to be on the mountain, I gladly paid $6 for a slice of pizza on Monday and earlier I paid $8 for a cup of soup.

2.  Brand:  There were a number of clothing stores on the main street selling branded Park City, Utah gear.  They all charged similar prices except for two places.  Roots, a Canadian brand, which sold similar clothing as other places in town although at a higher price point.  There was also a Marmot store.  A couple of interesting items about the Marmot store:  they had no Park City, Utah branding on their products and they had by far the highest price points.  Why?  Marmot has established a great brand among avid skiers and snowboarders.  In fact it was the only store that a friend and avid winter sports enthusiast from Boulder, Colorado actually wanted to go in.

3.  Word of Mouth:  There were a number of bars on the Main Street.  The one that seemed to be the most crowded whenever I walked by was a place called No Name.  It has been around since 1903 and in the town it has done the best job of creating a space where people meet each other after a day on the mountain.  Their staff are friendly, the prices reasonable, and the atmosphere draws people in as they walk through the town.   Every time I heard people deciding where to go to just meet, No Name was the first or second choice.

4.  One of a Kind:  On the main street, there was one olive oil store and there was one hot sauce store.  I am not sure about their business models, but if you were looking for a gift that was not clothing, each store had an offer that was truly unique in town.   At these stores it was evident the importance of having employees who get the purpose of your business.  The staff was much friendlier and knowledgeable in the Olive Oil store.  The person in the hot sauce store barely said anything – most likely it was just a job.

(Note: So not a surprise that purchases were made in the Olive Oil store but not the hot sauce store.  I personally could not purchase from the Olive Oil store as I have a friend who owns Carter & Cavero, a great Olive Oil store located in Red Bank, NJ and in Long Branch, NJ)

5.  Target Customer/Segmentation/Geography:  There were many different restaurants to choose from on the main street. Some catered to the breakfast crowd (Eating Establishment) and others to a meal experience (Chimayo).  Restaurateurs that typically do the best know their offer and seek to be the best at it in their given geography (think Danny Meyer/ Union Square Hospitality Group who since the 1990’s has focused on the Union Square area in New York City with highly regarded restaurants in this area including Union Square Cafe, Gramercy Tavern, Tabla, and Shake Shack  before branching off into other parts of the city).

If you own a business and cannot describe why your offer is different and execute on making it happen, you might as well be selling shirts on Main Street in Park City alongside the Roots and Marmot stores because  it will be very difficult for you to create Order of Magnitude value.

One Soup at a Time: Order of Magnitude Conversation with Andrew Schnipper, Founder of Hale and Hearty Soup

I recently sat down with Andrew Schnipper at his new restaurant concept, Schnipper Quality Kitchen, to talk about the value creation of his previous retail success, Hale and Hearty Soup.

Hale and Hearty Soup was founded in 1995 by Andrew along with his brother Jon.  From friends and family initial funding in 1995 and then seed funding the following year that valued the business at a couple hundred thousand dollars, they were able to create 100 times of value (or 2 Orders of Magnitude) by the time they sold the business in 2006.  There are now 17 locations across New York City, Long Island, and New Jersey.

In our 7 minute video conversation below, Andrew outlined the 3 Keys he used to build an Order of Magnitude multi-unit retail business:

1.  THINK MICRO (Focus on the Bottom Line):  For the first location of Hale and Hearty, Andrew stressed the importance of making sure it was profitable and thus worthy of scaling to additional locations.  From the start he was conscious that the journey is an iterative process with changes made along the way.

2.  THINK MACRO (Build a Brand):  Andrew then highlighted that there is a difference between having a chain of retail soups stores and a chain of retail soup stores under a brand that has meaning with its customers.  The subtle difference: the Hale and Hearty brand connected with its customers in terms of the experience, promise and reliability which made it significantly more valuable to the owners then just another retail chain.

3. ONE SOUP AT A TIME:  To create an Order of Magnitude retail business, Andrew knew that one Soup or one customer experience, or the profit on that one soup or customer would have zero impact on the value of Hale and Hearty.  Yet at the same time each soup or customer experience is exactly what would determine if Hale and Hearty would reach its goal of selling millions of soups profitably to millions of customers.

At the end of the conversation, Andrew discusses the significance of what I call playing the game instead of focusing on the end result of making money.  Know your goal (his example: running a marathon) and then focus on knowing and then executing the incremental steps required to make it happen (which can be months or more likely with a business years until the goal is reached).

Andrew is using his own 3 Keys to turn his latest venture, Schnipper Quality Kitchen, into an entity that potentially could be valued 1000X what it is today.  If you are interested in seeing it in action (this time “One Burger at a Time”), the restaurant is located in the New York Times building at 41st and 8th avenue.