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The Importance of Planning

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Excess inventory, cost management, and other issues are a reality for most businesses.  When uncontrolled, a business can face inadequate cash reserves and even bankruptcy.

To mitigate these issues, proper industry and market research coupled with financial planning for contingencies is crucial for any business.  Whether you’re in the ideation phase or are already up and running, knowing how much to allocate to the various activities a business engages in is difficult so contact me and let’s create a strategy that works for your business.

The Lean Startup

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Last week a client asked me about the Lean Startup. As a small independent baker, the Learn Startup methodology didn’t really meet his needs. Actually for many small businesses, they’re already utilizing some of the Lean Startup’s principles: split testing (e.g. which new cupcake idea is selling better), pivoting (e.g. advertise better selling new cupcake), build-measure-learn (e.g. ask customers what they like about each cupcake, why, etc. then adjust the recipe if needed).

The Learn Startup is more applicable to large/new & complex products and/or services. When you have hundreds of ideas, tweaks, iterations, it can very easy to get caught-up in the labyrinth of product/service development. Essentially, it comes down to starting with a minimum viable product (MVP), have users play around with it, gather data on (i.e. with actionable metrics, interviews, use studies, etc.), decide on which steps to go next. This measured, calculated, and insightful process prevents over-developed products/services that do not necessarily have a market/meed a need.

As mentioned, the Learn Startup method might not be useful for all entrepreneurs but if you are in the processes of developing a large/complex product or even a brand new/novel product, it might be worth your time to check out this book and install some informational gathering and pivoting processes to make sure that it closely meets a market need.

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What is Strategy Consulting?

Strategy

One of the services we offer is strategy consulting.  However, the name is quite vague so what is strategy consulting?  It is a lot of things.  It varies by the needs of the client.  Some clients need help developing an overall strategy for the business.

Say they have a product but not much else.  So they need everything from naming of their product, research on where to sell their product, team building, etc.  Naming might require a psychographic analysis of branding.

If they are a little farther along, it can be an audit of what they’re already doing, or analysis of where to go next.  A business might be looking at weighing the pros and cons of expanding to a new market, introducing a new product, do a product overhaul, etc.  Product overhaul might require a net present value calculation of multiple alternatives.

Every situation is unique so contact us and let’s figure out what you need.

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The Importance of Bootstrapping

The importance of bootstrapping cannot be emphasized. Most businesses fail because of a lack of cash and bootstrapping’s main objective is to do the most with the least amount of cash.

Bootstrap – adjective

A situation in which an entrepreneur starts a company with little capital. An individual is said to be bootstrapping when he or she attempts to find and build a company from personal finances and/or from the operating revenues of the new company.

“The business was a bootstrap operation for the first ten years.”

The importance of bootstrapping

Most startups do not have a bunch of cash lying around.  The importance of bootstrapping is all the more critical for them. Businesses have to make do with what little they have.  We often tell our clients that as the CEO/Founder, they are also the janitor. One potential client wanted to hire a marketing manager for her startup. Hiring a marketing manager was vastly beyond her revenue allowance. She should have allowed us to consult on how to manage her own marketing campaign. She then could’ve saved a fortune by being her own marketing manager.

The temptation to abandon bootstrapping is strong, especially when investors come knocking.  One of my clients attracted large investors with a business plan I had prepared for him.  Initially, I budgeted a modest salary for him in the financial projection.  He saw that there was a good amount of retained earnings (something investors want to see) and had since budgeted a larger salary for himself.  I had to tell him to reduce his salary.  I am not alone in emphasizing this sentiment:

  • A red flag goes up for Mark [Cuban] when a Shark Tank contestant says that he’d be comfortable with a six-figure salary.  Ultimately, Mark and all the other sharks walk away from the deal.
  • Serial entrepreneur Neil Patel, founder of Crazy Egg and KISSmetrics, reflects on how glad he was keeping a $5,000/mo. salary even after raising $4,000,000 in seed and series A rounds for KISSmetrics.

Your Startup Guru advised a client to pay himself less and take in dividend income instead because it is taxed at a lower rate.  In business, cash is king, and the CEO doesn’t want to be the kingdom’s worst drain.

Launch and Grow Your Business

Contact us today to learn how to bootstrap your business.

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Walmart hits the slumps

sad walmart

Walmart lost $21 billion in market value after it forecasts drop in 2017 earnings resulting in the steepest decline of the company’s stock in 25 years.

In layman’s terms:  Because Walmart said it’s expecting to earn less in 2017, lots of their shareholders sold their stock and lots of potential buyers said they weren’t willing to buy unless the asking stock price is lower.

Why

  1.  Amazon.

Amazon is crushing pretty much every retailer (except some custom designers; however with Amazon Local they are partnering with may of those product/service providers).  Amazon sells practically everything you can put in a box and ship.  At extremely competitive prices.  Free overnight/2-day shipping in some cases.

Walmart offers very very competitive prices and has locations pretty much anywhere in the US.  However, they are still a brick and mortar business so there is a limitation on floor space thus a limitation on product offerings.  I say brick and mortar instead of ‘click and mortar’ because even though they have an online store, it sucks.  Last year, I purchased a product online and selected in-store pick-up.  5 days later it was available for pick-up at he Walmart that is down the street from my office.  Walmart’s supply chain management system is one of the best in the world.  However, somewhere down the road there was an implementation issue of the online business with the existing business.

Walmart’s situation has similar elements to that of Blockbuster.  They have a size and first mover advantage.  However, over time they lost their position.  I doubt Walmart will face the same fate as Blockbuster but with a $21 billion dollar loss, it is not nothing.  You can read about Netflix/Blockbuster here.

2.  Other competitors

  • Dollar stores:  Walmart is known for low prices but no one goes lower than dollar stores.  Furthermore with the long-going Great Recession and great income disparity dollar stores enjoyed great profitability.
  • Grocery stores:  Walmart has Neighborhood Market stores in some markets and super stores (all encompassing stores) in other markets.  Nonetheless, companies that are just grocery stores are a big and aggressive competitor to Walmart.

Other Factors

Walmart is also facing PR issues:  1)  It is considered low-class.  There is a search term “people of Walmart” which shows rather uncouth individuals shopping in Walmart stores.  2)  Also, Walmart is criticized for killing off small, independent stores.

Walmart is doing many things to try to turn their path around.  We’ll see how effect these efforts are.

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How Quiksilver (and surf brands in general) can save it/themselves

Last week I highlighted aspects about Quiksilver’s bankruptcy.  So this is what Quiksilver and other surf brands do should to save themselves.

Sector downturn

Looks like the other big surf brand, Billabong is also hurting too with diminishing revenues and net losses from 2012 to 2014.

billabong financials

Recently Billabong also sold its other assets: DaKine, Swell.com and Surfstitch to enhance liquidity.

Billabong also thought about selling RVCA but didn’t.  I’ll get to that in a bit.

As I discussed in my previous post, Quiksilver bankruptcy is partly due to surfing not being as cool as it used to be.

So what is cool?

If extreme sports was cool in the ’90s and ’00s, extreme athletics is cool now.  MMA and CrossFit is cool.

In March 2015 WWE announced a 50/50 joint venture partnership with MMA brand, TapOut.  Founded in 1997, the brand had $200 million in revenues in 2010.   Later that year the founders sold it to Canadian company Authentic Brands Group LLC for an undisclosed sum.

CrossFit had 8,000 affiliates in October 2013.  As of January 2014 the company had 9,000.  In May 2014 it hit 10,000 affiliates.

As shown by strategyandanalytics.com’s graph featured in Fast Company’s article, CrossFit’s popularity growth is amazing.

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Of course, most people don’t actually want to do WODs and armbars.  They only want to dress like they do, much like surfing and snowboarding.

This is why it’s no coincidence that Reebok (doing well financially with 5% growth in 2014 and seven consecutive quarters of growth) has its hand in the UFC and CrossFit.

Under Armour is so popular.  Under Armour which also makes products for MMA and CrossFit enthusiasts were named as one of the most valuable American brands by Fashionista and as one of the top 10 MMA brands by FightState.

Heck, even Adidas (Reebok’s parent company) makes judo gis!

But Reebok isn’t a surf brand!!  Quiksilver isn’t an MMA/CrossFit brand!!!

So going back to RVCA.  RVCA, is a popular surf brand that is also popular amongst the brazilian jiujitsu crowd with its sponsored athletes such as MMA star BJ Penn amongst BJJ stars.  RVCA recently did a collaboration gi with uber popular gi brand Shoyoroll.  Billabong decided to keep this brand.

As RVCA has shown, it is possible for a surf brand to do a brand extension into other lifestyle activities.

So what should Quiksilver do?

Change their marketing communications.  Surf ads right now are blondes in exotic tropical locations.  Unfortunately for Quiksilver and other surf brands is that demographics are changing:  wealth discrepancy is large also Hispanics and Asians are the fastest-growing minorities in the US.  This growing market segment might not have the money or time to travel to exotic destinations nor do they even look like a pro surfer such as Alana Blanchard.

So abandon their existing surf model?  No, look at the other elements of surf.  The aspects of the lifestyle that are more relatable to this large, young, and growing market segment:

  • Surf spots:  Urban surf spots such as old Huntington Beach (it wasn’t always the gentrified “Surf City USA” it is now), Long Beach, Rockaway Beach NY, San Pedro, etc.  Even urban Honolulu can be a little edgy.
  • Embrace their connections with the skate world.
  • Athletes:  Add famous MMA and/or CrossFit athletes that also surf.  Especially with the Reebok-UFC deal, lots of MMA fighters are looking for more sponsorship money.  UFC middleweight contender Luke Rockhold surfs in Santa Cruz.
  • Other lifestyle images:  Tattoos and asphalt instead of sunsets and palm trees, turntables instead of ukeleles.
  • Diversify:  Buy or strategic partnership with boxing/muay Thai brand Fairtex/etc. or Brazilian jiujitsu brand Gameness/etc.

We’ll see what the future brings.

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The power of a good team

Yesterday I was watching the documentary Supermensch:  The Legend of Shep Gordon.  Shep Gordon is an ubermanager that managed Alice Cooper, Blondie, Groucho Marx, helped create the celebrity chef with his management company ‘Alive Culinary Resources’ (subsidiary of Alive Enterprises), and many others.

It reminded me how much entrepreneurs need a strong team around them to make their vision a reality.  In Shep’s case, his entrepreneurs were the musicians.  They were talented people that were passionate about what they were creating but in order to continue to create it and eventually profit from it, they needed a manager.

A lot of times an entrepreneur just has a vision.  An idea and little more than the passion to make it come to reality.  However, there are lots of technical skills that have to be utilized to make an entrepreneur’s vision come to life.

Lots of my clients have the same issue.  They have a great product but don’t have a team to make it happen.  I advise them to find all the areas in which they don’t have the knowledge/skills to make to launch their business.  Then hire the necessary person or hire/outsource that task.

If you don’t have the funds to hire someone, then you will likely have to offer equity within the company.  This is MUCH easier said than done.  Most people cannot afford to go without a steady paycheck for long periods of time in the hopes of future revenues.  That is why you gotta go through lots and lots and LOTS of candidates to find the right match; in skill sets, temperament, and even personalities (if you bring on the wrong person you will suffer, like one of my clients).  You have to sell yourself and your business to this individual.  You have to convince him/her to take this chance on your business.  Being persistent and persuasive is once of the most important skills an entrepreneur can possess.  You’ll need persistence and persuasiveness when finding partners, getting financing, negotiating rental terms, the list goes on and on.  In business school, I took a negotiating course and one of the themes was “You don’t get what you deserve.  You get what you negotiate.”  How right it can be.

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No one said starting a business will be easy.  It is not for the timid.  Nonetheless, for those that make it, the rewards are tremendous.

 

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