Archive for the 'Future thinking' Category

Wall Street’s sour grapes shouldn’t set Main Street’s teeth on edge

“The fathers have eaten sour grapes and the children’s teeth are set on edge.”

When Jeremiah and Ezekiel so prophesied 2600 years ago, it was to offer hope for a time when the Children of Israel would stop having the sins of their fathers visited on them. As a student of the evolution of American capitalism over the past half century, recent observations have moved me to paraphrase the ancients with a new marketplace maxim that I pray will not become prophetic:

“Wall Street has eaten sour grapes and Main Street’s teeth are set on edge.”

Alas, my passage is not about hope for a sweeter time, but rather, a lament of concern for the opposite.  My perspective is informed by three periods of time: The Reagan Boom, post 2008 financial crisis, and post 2016 election. I’ll split the latter into bookends around the other two.

Post 2016 Election
When we awoke on Wednesday, November 9, 2016 to the shocking Electoral College tally showing Donald Trump had preempted the anointing of Hillary Clinton as president, the Dow Jones was already in record territory at 18,323.  By closing bell that day, the Index was up 265 points. Since then, the “Trump Bounce” has driven the Dow Jones through the once-mythical 20,000 level on the way to 21,000, the fastest 1,000 point run in history.

Meanwhile, out here on Main Street, the 44-year-old NFIB Index of Small Business Optimism reported its own historic spike in that sentiment since the election. But a small business can’t eat optimism, and my recent online polling indicates less than a third of our respondents are seeing customer enthusiasm actually ringing a cash register. After a tough decade, unlike investors, consumers are more measured than manic, so it’s likely to take months of sustained optimism to manifest as Main Street sales growth.

The Reagan Boom
Once upon a time, small businesses benefited from an exuberant stock market.

Beginning in the third quarter 1982, the Dow Jones caught a rocket to a 52% increase over the next four quarters, to 3071. And with the exception of a correction or two along the way, including the 1987 “Black Monday” crash, Wall Street didn’t look back until the turn of the new millennium when it closed at a record high of 11,722 on January 14, 2000.

Main Street businesses had much to be excited about because in those days it was an article of faith that “the stock market was a leading indicator of the national economy.” During that same period, as it had always done, the rising Wall Street tide raised Main Street boats too. Indeed, in that 18-year economic expansion, plus a shorter one from about 2002 to 2007, the old “leading indicator” dynamic between Wall Street and Main Street was made manifest during what has been called the “Reagan Boom.” As Wall Street reached new records, annual GDP growth, the favored indicator for small firms planted in the ground, averaged a beautiful 3.5%.

Post Financial Crisis
American macro-capitalism changed significantly beginning in 2007 with the Great Recession, which overlapped the financial crisis of 2008. In the process of surviving those two gut-punches, Corporate America and Wall Street shifted their business practices by focusing inward more than ever before. Inward, meaning investing less in the Main Street economy, to the extent that the once-dependable maxim, “Wall Street is a leading indicator of the economy,” morphed into my observation that Wall Street is now merely a leading indicator of itself – Main Street is on its own. Here’s my evidence:

  • While the U.S. economy was experiencing essentially a lost decade (2007-2016), with GDP growth averaging 1.4%, including barely 2% annually for the seven years following the end of the recession, the stock market spent the last five years setting new records.
  • For three years running, in the first quarters of 2014, 2015, and 2016, two things happened simultaneously that had only happened before in Bizarro World:
    • GDP went perilously negative in 2014 (-2.9%), 2015 (-2%), and achieved only .5% growth in 2016 (U.S. Dept. of Commerce).
    • The Dow Jones reached new record highs in all three first quarters.

Again I ask, what’s wrong with this picture?

Back to the future
There’s been no corporate earnings performance since November 8 to justify spikes of 15% for the Dow Jones and 11% for the S&P. Where’s the fundamentals evidence one would expect to cause equities to wander into unicorn territory? It’s true: The hope of a more business-friendly government is raising optimism in all sectors of the marketplace. But unlike Wall Street, a small business can only spend what it takes in by serving customers. Our top line manna falls from customers, not mania or manipulation.

Smarter people than I are forecasting a stock market correction if, for example, there’s no tax reform this year. My “sour grapes” concern is that having already “clipped its coupons” on the post-election exuberance, a correction this year for any reason it will set the economy back abruptly, derailing Main Street’s bounce before it ever happens.

No one on Main Street begrudges the success of Wall Street. But right now the disconnect between the two once-symbiotic sectors is at once illogical and unsustainable. When the irrational exuberance of Wall Street ultimately reconciles with reality, that event should not cause Main Street to become collateral damage before the latter ever gets to play in the game.

Write this on a rock … When Wall Street eats sour grapes, it should not set Main Street’s teeth on edge.

Eight questions and four fallacies about business growth

Giant sequoia redwood trees grow very tall. Bradford pear trees, not so much. It’s all in the genes.

But there’s no genetic code for a business. While a Bradford pear can’t decide to compete with a redwood, a business can become whatever its owner makes it. And that last fact creates two questions we go to sleep asking ourselves and wake up trying to answer:

1. Should I grow my business?
2. How big should I grow my business?

In his book, Warp Speed Growth, my friend and Brain Trust member, Peter Meyer, lists four fallacies of growth which every business owner should consider. Here they are, each followed by my comments.

Fallacy 1. You can grow out of organizational problems.

In a state of denial or ignorance, small business owners sometimes think getting bigger will fix management and organizational shortcomings. If a tree is bent, fertilizing it won’t make it grow straighter – only faster in the wrong direction. If you have organizational challenges, don’t grow until they’re resolved.

Fallacy 2. Growth equals profitability.

Yes, increased sales volume can help you improve vendor discounts and therefore, gross margins. But that doesn’t mean your organization can manage the extra activity well enough to convert discounts to the bottom line. One of the rudest awakenings an owner can have is when projected sales growth is achieved, but profit is no better, or perhaps worse, than a period of lower sales. Remember Blasingame’s Growth Razor: “It’s not what you make, it’s what you keep.”

Fallacy 3. Profitability improves when every customer is yours.

Being the market leader is overrated. Peter cites research showing only 29% of market leaders were also profit leaders. Not only are you not going to sell every customer, you don’t want every customer. Many customers, and some customer profiles, aren’t profitable. Remember, you don’t spend sales.

Fallacy 4. If you grow, customers will benefit.

Peter says focusing on growth is focusing on yourself. Every minute your company focuses on itself is a minute diverted away from focusing on the customer. One of the classic examples of a company’s self-absorbed focus on growth is when it uses the term “fastest growing” in marketing material, as if this benefited customers. What makes you think customers don’t like the size that you are? What makes you think they’ll like your next size?

Don’t get me wrong: I’m the last person to say growth is bad, or that you should be happy with the current size of your company. I’m a capitalist, and capitalists LOVE growth. But I do encourage you to make sure that when you grow, it’s because you’ve thought about why and how. Here are six growth reality checks, each followed by a slap-in-the-face question to ask yourself.

• The marketplace is pretty full already. Is there a real opportunity to grow?

• Growth requires capital. How will I fund the growth I am planning?

• The rewards of growth are typically delayed. Can my organization wait that long for the payoff?

• Growth takes a company into unfamiliar operational territory. Do I have the staff and systems to blaze that trail without creating a casualty list?

• Being a business owner should be a source of happiness. Will I be happy with a larger business?

• Every business has corporate values, good or not so much. If our values are good, can we scale them? If they aren’t, why would we scale them?

Ask the growth questions and answer them as Polonius instructed Laetres in Shakespeare’s Hamlet: “This above all, to thine own self be true.”

Write this on a rock … Just because you can grow your business doesn’t mean you should.

How to connect with global prospects – and get paid

In case you haven’t heard, the seven billionth Earthling was born recently.

For the global marketplace, seven billion prospects is exciting. But 96% of those folks live outside the U.S.

Once, small business growth meant expanding across town or the next county over. But new technologies and demographic shifts have made expanding outside America’s four walls increasingly compelling. It’s also produced three elemental global business questions: Who are my prospects, how do I connect with them, and how do I get paid? Let’s focus on the “Who” first, with these global stats from National Geographic, plus my editorializing.

  • Nineteen percent of Earthlings are Chinese, 17% are Indian and 4% are American. By 2030, the first two will invert.
  • In a historical shift, just over half of Earthlings are now urbanites. Remember, city folk use different stuff than their country cousins.
  • Globally 40% of us work in services, 38% in agriculture and 22% in industry. This means different things to different industries, but it means something to all businesses.
  • English is the international language of business, but is the first language of only 5% of global prospects. When doing business outside the U.S., be culturally sensitive and patient with the translation process.
  • Breaking news: 82% of your global prospects are literate. If you can read and write you can improve your life, which explains the growth of the middle class in emerging markets. A growing global middle class means millions of new, affluent consumers each year.
  • Computers are luxuries for most Earthlings, but mobile networks are exploding across the globe. Soon billions who never owned a computer or used the Internet will do both with a smart phone. What does your mobile strategy look like?
  • For American small businesses, export opportunities abound in our own hemisphere without crossing an ocean, especially Canada, Mexico, Panama, Columbia and Chile, where trade agreements are in place. But keep an eye on the Trump trade tactics, part of which may manifest in tax reform.

The good news is there are two government agencies standing by to answer questions about your export strategy. Each one provides digital information, human assistance and global networks designed to help a small business maximize its opportunity to create and execute a successful export strategy.

U.S. Commercial Services

The, “How do I connect with global prospect?” question can be answered by this agency, and it should be your first stop for education on finding and converting global prospects into customers. It’s a virtual one-stop shop for developing and executing your export strategy: a great website (Export.gov); a toll-free number (800-872-8723) answered by a real person; over 100 offices around the U.S., plus dozens more around the globe you can walk right into and ask for help; and their book, “A Basic Guide to Exporting,” which includes an excellent tutorial and several case studies. It’s all free except for the book and any direct expenses they incur on your behalf.

Export-Import Bank

This is where you get the “How do I get paid?” answer. Part of the U.S. government, Ex-Im Bank (exim.gov) will assist with the financial elements of your export sale. They’ll coordinate with the banks on both sides of the transaction to transfer funds, provide loan guarantees, and even pre-delivery working capital for you and post-delivery financing for your customer.

For generations, big firms owned the franchise on global business. But shifts in technology and demographics are making the global marketplace more compelling and feasible for small businesses. And for all the government agencies that gets in our way, these two will actually help you.

Write this on a rock … The global marketplace – and 7 billion prospects – are waiting for you.

Four new marketplace truths every small business must know

What is our value proposition?

For 10,000 years, during a period I call the Age of the Seller, answering this question was the focus of every business as it went to market. Indeed, customers refined their search for products and services down to the semi-finalist sellers based almost entirely on components of the classic competitive value proposition: price, product, availability, service, etc.

But then something happened.

The Age of the Seller was subducted by The Age of the Customer. In this new era, where value is now presumed, the prime differentiator is no longer competitiveness, but rather relevance. Today the question every business must focus on when they go to market is: What is our relevance proposition?

So does this mean sellers no longer have to be competitive? Not at all—no one will pay you more than they should. But consider four new marketplace truths:

  1. With value now presumed, customers expect to find what they want, at a price they’re willing to pay, from dozens of sellers.
  2. They don’t care if they do business on Main Street or cyber-street.
  3. Prospects are self-qualifying themselves and pre-qualifying a business based on relevance to them before a competitive position has even been established.
  4. Prospects are doing all of this before you even know they exist.

That last point is perhaps the most breathtakingly disruptive development in the shift to the new Age. As this shift plays out, two types of sellers—Hidebound and Visionary—currently exist in parallel universes, but not for long. Which one are you?

Hidebound Sellers
These companies are so invested and entrenched in the old order of control that they deny the reality in front of them. They can be identified by the following markers:

Misplaced frustration: As performance goals get harder to accomplish, frustration makes those who deny the new realities think their pain is caused by a failure to execute.

• Bad strategies: It’s said that armies prepare for the next war by training for the last one. So it is with Hidebound Sellers. While Age of the Customer pressure makes them think they’re being attacked, they persist in using Age of the Seller countermeasures.

• Destructive pressure: Convinced of execution failure, pressure brought to bear by management results in an employee casualty list and a shrinking customer list.

• Equity erosion: Defiance in the face of overwhelming evidence sustains the deniers until they run out of Customers with old expectations, and their equity and access to credit are depleted.

Visionary Sellers
These sellers are adjusting their plans to conform to the new reality of customers having more control. Visionary Sellers are identified by these markers:

• Acceptance: They accept that customers have new expectations about control and make adjustments to this reality.

• Modern sales force: They hire and train their sales force to serve increasingly informed and empowered customers.

• Technology adoption: They offer technology options that allow customers to find, connect, and do business using their expectations and preferences.

• Relevance over competitiveness: They recognize that while being competitive is still important, it’s been replaced in customer priority by the new coin of the realm: relevance.

• Special sauce: They combine and deliver high touch customization with high tech capability.

In The Age of the Customer, Hidebound Sellers are dinosaurs waiting for extinction. Visionary Sellers are finding success by orienting operations and strategies around a more informed and empowered customer seeking relevance first.

Write this on a rock … What’s the verdict? Are you Hidebound or Visionary?

What Macy’s and Sears didn’t know about barbells

The American retail industry has been going through a major shift in recent years, but very recently we’re seeing increasing pressure on the Big Boxes.
In my last column, I introduced the macro-economics concept of The Barbell Effect now being created by this disruption in the retail sector. This column reveals why that macro-disruption should be good for Main Street businesses out in the micro-economy. If you missed the first column, check it out. In the meantime, here’s the gist:
The Barbell Effect occurs when entrenched, legacy practices are disrupted by forces like new technology, innovations, and shifts in demographic behavior, like when people stop going to malls. Those industry players who fail to adapt to the shift are forced to retreat into the contracting middle, the bar. Those who adapt will prosper in the bell ends, where most customers are going. Remember, the barbell doesn’t exist prior to the disruptive pressure — it’s the result, not the cause.
As the Big Boxes are being squeezed into the claustrophobic, bar-of-irrelevance, they’re closing stores faster than you can curl a two-pound free weight - by the hundreds. Their legacy model — customers walking into their stores to buy stuff — is built around a 150-year-old paradigm that’s shifting. Futurist and implications expert, Joel Barker warns, “When a paradigm shifts, everything goes back to zero.”
The energy driving this shift is the fast-evolving customer expectations, which are increasingly associated with e-commerce. Customers are finding it easier to shop for and acquire stuff online, which fits their 21st century lifestyle and saves them time. Here’s the retail barbell by the numbers: currently, online sales are just over 8% of all retail, but with a bullet of a half-point a year. Meanwhile, the legacy brick-n-mortar sector has seen 27 months of declining sales (Bloomberg).
Of course, we know who’s greasing this shift: the 1200-pound Internet gorillas like Amazon and Google, plus one more disrupter — mobile. Mobile computing wasn’t any part of our past, but with 20% of online sales and a faster bullet, it will dominate our future — as in tomorrow. You must have a mobile strategy.
In his 1982 book, Megatrends, John Naisbitt prophesied, “The more high tech we have, the more high touch we will want.” Make no mistake — this retail Barbell Effect is the fulfillment of the Naisbitt prophesy. The good news for small business is the Big Box retreat is leaving a High Touch vacuum you can fill, if you understand what’s happening on the ends of the barbell:
  1. The digital bell - for when customers seek sexy, high tech, virtual contact, while allowing Big Data manipulation and scratch-your-own-itch service;
  2. The analog bell - where customers go to satisfy their craving for that special sauce made from Main Street high touch AND slightly-less-sexy high tech. It tastes like this: “We’ll help you scratch your itch” customization; “Good to see you again, Mrs. Smith”; “Thank you for your business;” “Be sure to check out our mobile site.” “Follow us on Facebook.”
The reason it’s The Barbell Effect, and not The Lollipop Effect, is because of the primal truth that powers the analog bell: One hundred percent of customers who demand digital are themselves 100% analog. You and I, and every one of our customers are as analog as a caveman or a kumquat, which means we’ll always have analog, high touch itches. And with all the high tech leverage they can muster — 3,642 backscratcher purchase options (I checked) — Amazon can’t scratch one analog, high touch itch.
In the wake of the big retreat of the big retailers, combined with the analog limitations of the big e-tailers, that High Touch vacuum will be filled by Main Street businesses delivering their high tech/high touch special sauce. And since your small business doesn’t have to conquer the world to be successful, you don’t care if the digital bell is sexier and bigger than your part of the analog bell. The big guys need all of that to survive — you don’t.
Write this on a rock … Vacuums don’t stay vacuums for long, and there’s no room for you in the bar. Tick tock.

Beware the Barbell Effect, unless you’re a small business

Once upon a time, in a land far, far away – in Internet terms that’s about 10 years ago – a small business owner didn’t have to worry too much about macro-economics. Well, that was a nice trip down Memory Lane.

Today, Main Street business owners have to operate every day in their micro-economy, while keeping an eye on what’s happening at the macro level. Alas, macro-economics isn’t easy to get your head around when your highest priority on Monday morning is to cover payroll on Friday.

Here’s a handy macro-economy metaphor: the Barbell Effect. Essentially, this phenomenon occurs when natural forces – new technology, innovations, shifts in demographics and behavior, etc. – disrupts entrenched, legacy practices of an industry. The disruptive pressure squeezes industry players who fail to adapt causing them to contract into the bar. Those who adapt find their way to the bell ends, where there’s room to expand.

At the macro level, the barbell doesn’t exist prior to the disruptive pressure – it’s the result, not the cause. In the marketplace, the energy causing the disruption is customers empowered with new expectations. This will be on the test: When customers are empowered, businesses are disrupted and barbells are likely.

There have been many examples of the Barbell Effect – some small and local, and some even global. I read recently about a housing barbell in one city where units on the high and low ends – the bells – were selling well, while the ones in the middle – the bar – not so much. The American banking industry has experienced its own Barbell Effect this century. As big banks got bigger on one end of the barbell, community banks hung in there on the other end, while medium-sized banks experienced financial claustrophobia as the bar got thinner and thinner.

Right now, the Barbell Effect is creating an existential reaction that can literally be watched by Main Street small businesses from their front doors as no-longer-relevant retail giants are closing hundreds of stores at a breathtaking pace. Here are some numbers: As of this year, 200 Sears stores closing brings their numbers down 60% in the past 5 years, while K-Mart is shuttering over 100 locations. Macy’s is closing 100 stores, and JC Penney is projecting 300 store closings. And besides these big guys, many medium-size retailers are also making the acquaintance of the bar between the bells.

The pressure creating this retail barbell is arising from new and evolving customer expectations, which increasingly means higher adoption of e-commerce – online shopping/purchasing. But the new expectation isn’t about unique products, lower prices, or better service, it’s the most powerful relevance advantage in The Age of the Customer: saving time. Technological innovations and customer care practices – easier mobile shopping and electronic payment, plus free delivery and easy returns – are saving customers enough time to change their shopping behavior and create a barbell.

As we witness the disruption – if not the end – of traditional, big box retail, let’s remember the good news about the Barbell Effect: It has two fat ends – the bells. On one end of the retail barbell are disruptive companies like Amazon, Google, and any other purveyors of the online retail model. On the other end are small businesses that understand that the online, digital model cannot fulfill all of the expectations of their analog customers. Indeed, the current Barbell Effect is producing a customer experience vacuum that will be filled very profitably by small retailers who deliver the special sauce of the both/and business model: traditional, analog retail (High Touch), combined with online, digital capability (High Tech).

In my next column I’m going to reveal what it takes to maintain occupancy of the fat ends of the barbell, and why this current retail phenomenon is great news for small business CEOs who see the micro-impact of the macro-economy.

Write this on a rock … Blasingame’s Law of Business Love: “It’s okay to fall in love with what you do; it’s not okay to fall in love with how you do it.”




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