Category Archives: Success

The Need For Speed

Written by Áslaug Magnúsdóttir, co-founder and CEO of Moda Operandi for The Business of Fashion.

When founding a company, one of the most important decisions you will make is how and when your company grows. Growing a young company is not an involuntary, linear process, like how a baby grows. Growth tends to happen in sizeable, step-up increments, like a set of stairs, based upon deliberate decisions you and your team make. The key is to balance careful planning with speed of execution.

The implications of this tricky balance are multiple and very real. Do you “get it right first,” subordinate growth to perfecting your product or service, or do you “get big fast” and shun polishing the decks while it’s full speed ahead?

As you will hear me say often, there is no right solution to this kind of puzzle. But as co-founder of Moda Operandi (M’O), I mulled this balance carefully and decided I needed to “get big fast.” I saw an opportunity for M’O to be first to market with our unique “pre-order luxury goods” concept and I knew that meant aligning myself with key people and companies to help me do it quickly and cleverly. In short, I felt the need for speed was a critical competitive advantage that outweighed hoarding equity and control. This decision had significant implications for how I thought about taking on a partner, where to raise financing, and how much. And since, 16 months later, M’O remains the only store in the business with our dedicated pre-order model, this decision has turned out to be one of the most important I’ve made for the company to date.

TO PARTNER, OR NOT TO PARTNER

One of the first decisions to make when you come up with a business idea is whether to do it alone or with a partner. You have probably heard that entering into a partnership around a company is like entering into a marriage, and it is true. Partnerships, like marriages, are exciting because the whole is greater than the individual parts and together amazing offspring can be born. But also, like marriages, partnerships require work and compromises and they have real costs. Decision-making and control is shared; equity and wealth potential is diluted. So just like getting hitched on a whim in Vegas is not necessarily a great long term idea, you shouldn’t pick a partner unless you think you need to. And if you do need to, make sure that person is kick ass.

I knew Lauren Santo Domingo, my co-founder, would be the perfect partner. Why?

    • Lauren got it immediately (Warning: if you have to explain the concept twice, it’s probably not a good fit.)
    • She added to it immediately (i.e. “We should do this as well, we should call them as well,” etc. Her complementary experience was apparent from the get-go.)
    • She threw herself into it immediately (“When do we start?” No dilly-dallying, this was a partner who wanted in yesterday, already.)

After our first chat about it, I knew there was nobody else I wanted as a co-founder of the company. But we can’t all be this lucky. And taking on a bad co-founder can kill your business before it is born. So here are a few things you need to think about when making the decision about partnering-up or going solo:

    • Is there a sizeable hole in what you bring to the table (skills, relationships, experience, etc)? If yes, would that void be better filled via a partner, or a contractor, consultant or temporary hire? In short, do you need a partner?
    • Do you generally prefer to work in teams or alone? Put bluntly: can you have a partner? (What does your significant other think? Always a good reality check.)
    • Is the scope / complexity of your business idea robust / complicated enough that you need a partner during those crucial initial months? In other words, does the company need a partner?
    • Is the size of your business big enough to support an additional partner? Can all mouths be fed? Can your company support a partner?

Divorce is a mess, not least because it will really slow you down. So only pick a partner if you need to. And if you need to, pick someone who will help you get there faster and smarter. The last thing you need is the old ball and chain.

INVESTOR EXPECTATIONS

Investors are your friends. They give you money, you build cool things, consumers spend money, everyone is happy. However, there are different kinds of investors and each has pros and cons. Specific to speed to market, here are a few things to consider:

    • Angel investors are typically more flexible and hands-off, but often lack industry expertise. They are your rich uncle who ponies up cash and wishes you the best, but doesn’t really want or know how to help you do your thing. This is not always the case — some angels are brilliant and available — but this is what you should anticipate.
    • Venture capital investors (VCs) typically have deeper pockets, can provide good advice and resources, but require a lot of control and hand-holding. They’re professional money makers, so understandably, they want to know what the hell you’re doing. This can be a good thing but it also takes up valuable time. Again, there are exceptions, but this is a general rule.

The key point: if you believe you need to get your company to market now, make sure you match your expectations with those of your potential investors. You may not have the luxury of options. But you don’t want to take on an investor who wants you to get it right first, when you’re focused on getting big fast.

HOW MUCH MONEY IS ‘ENOUGH MONEY’?

Another common question I am often asked is, how much money should I raise and how quickly should I raise it? Fundraising is painful and time consuming. Some founders prefer to raise just enough to get something to market now. On the other hand, some founders prefer to go the extra mile and aim for a bigger raise so they won’t have to suffer through the process all over again in just a short while. There are pros and cons to each approach.

At M’O, we went the extra mile. While we were fortunate enough to have some seed money to get our proof of concept going, we parallel-tracked the fund raising process in full swing until we secured our first round of venture capital. Grabbing market share was critical. We had to build the car while driving it down the highway.

This may not always be the right decision. A young company might be better served in its early days focusing its attention on perfecting the product rather than on fundraising. And depending on the economic environment and the appetite of the investment community, raising more early on might mean giving up more equity to investors than if you wait. But you probably will need more money than you think. And it is always good to stash away cash today for a rainy day tomorrow, like a sudden downturn in the market or the unexpected arrival of a formidable competitor.

During our latest fund raising, I had a meeting with a Chinese businessman, one of the most successful retail tycoons in the world. He said, “You guys are hot. Everyone is talking about M’O. Raise as much money as you can now.”

The point? If capturing market share is of the essence, raise as much money as you can now. Having too much money is a good problem, even if it means dilution, giving up control and sharing the throne. But get to market. Raising all the money in the world means nothing if you aren’t open for business.

Tagged , , ,

From Big Idea To Launch

Written by Áslaug Magnúsdóttir, the co-founder and CEO of Moda Operandi for the Business of Fashion.

In February 2011, I launched an online store — Moda Operandi — with my business partner, Lauren Santo Domingo. Moda Operandi (M’O) was the first of its kind, offering the latest runway styles for immediate pre-order following their presentation at fashion shows in New York, London, Milan and Paris. The site was the result of an idea that I had back in the Fall of 2009 while I was running the premium division at Gilt Groupe: why not allow fashion lovers to buy anything off the runway, in any size offered by the designer, from the comfort and privacy of home? That idea became an obsession that I knew I had to see through to fruition. And I did: Friday last week, M’O announced a Series C round of financing in the amount of $36 million. Investors in the round included venture capital firms RRE, NEA and NAV, as well as strategic investors Condé Nast, LVMH and IMG. Champagne was uncorked. M’O was cemented as a real business.

While celebrating the closing of our latest round, I sat down for coffee with my friend and former McKinsey colleague, Imran Amed, founder of The Business of Fashion.  Imran suggested I write a column for BoF about my experience as a founder and CEO of a fashion startup. Our conversation got me thinking about my career, M’O and how it all came to be. Specifically, what are the key requirements for success as an entrepreneur? Why do some start-ups prosper while others fail? How much of it is a result of planning and skill, and how much is just dumb luck?

There is no perfect script for launching a business and I don’t pretend to have all the answers to these questions. But I do hope that sharing my thoughts and experience over the weeks to come can shed some light on the issues that fashion start-ups face and tease out some lessons learned. And, most important, I hope that my story might help others obsessed with an idea to take the plunge to see it through.

1. SOLVE A PROBLEM, EVEN IF OTHERS ARE ALSO PRESENT

You have heard it before and you will hear it again: a start-up that solves a problem, addresses a need and/or fills a void is one that is best positioned for success. The fact that M’O fills a gap in the market has been one of the key factors that has taken us this far. M’O also is unique in that it is the only business specializing in letting consumers pre-order the latest designer runway styles. But if solving a problem is critical to a company’s success, is uniqueness a requirement as well? Absolutely not. Many examples exist of successful companies that were not the first of their kind. In the online fashion space, Gilt Groupe is a good example of this. Gilt took its concept (selling exclusive fashion at a discounted price through limited-time “flash sales”) from a business previously launched in Europe, Vente-Privée, but shaped the concept to address the needs of a US customer base. And Gilt is not alone: flash sale sites have taken the US by storm, delivering discounted goods and services to customers who crave them. The bottom line is that while filling a void is key, being first to do it is not.

2. ACTUALLY, IT’S REALLY ALL ABOUT THE TEAM

When I started thinking about the concept for M’O, I immediately knew that Lauren was the perfect business partner. We had both worked in the fashion industry for a long time and we had complementary skills. My background was steeped in the business side of fashion, having worked as both an investor and consultant to fashion brands. Lauren’s expertise was in the creative side: a long time stylist and editor, she has an exceptional eye for fashion and deep relationships with designers around the world. We knew that technology was our weak spot, so we embarked on the notoriously difficult task of finding a qualified CTO in New York. Once this problem was solved, we knew we had the key skill sets covered. We could then move on to building our initial website with a small, but highly qualified team of passionate people.

The key take-away? Your initial team is everything. Nail down the key people at the get go who are critical to success and then get going with it. Don’t get bogged down with hiring in non-essentials at the early stages. Outsource other needs or just acknowledge to your investors and partners you aren’t wasting time on those areas now and will address them later.

3. PASSION WILL GET YOU FAR

People often ask me what it is like to be a founder and CEO of a start-up and whether this is a path I recommend. My answer is simple: don’t start and run a company unless there is nothing else in the world you want to do. Being the CEO of a start-up is all consuming. You no longer have weekends, holidays or a truly carefree drink after work. You are on constant alert, thinking about the people who work for you, planning out the future of your company, fussing over every small detail that might contribute to the success (or demise) of your business. The ups and downs are real and extreme. So the one thing you absolutely need to keep yourself and your team motivated is complete and utter conviction in and passion for what you are doing. Anything short of that and your team will smell it, your partners will smell it, your customers will smell it and you will fail.

Years ago, while living in London, a business partner and I spent several months researching and developing a concept for a healthy fast food chain. Despite it being a solid business concept that catered to a real need in the market, it just wasn’t my passion. And when things started to get tough, I didn’t have the conviction to keep myself going. M’O, on the other hand, has captivated me from the day I picked up the phone to call Lauren. With that kind of love for our company, I am motivated to wake up every day to nurture and grow the company.

4. LIKE IT OR NOT, CASH IS KING

At the risk of stating the obvious: you might have a wonderful business idea, but unless you are independently wealthy or able to convince someone else to fund your idea, it is unlikely to go much further than the drawing pad. Raising money is like most things in life, an acquired skill that requires practice and dedication. When I moved to New York in 2006, I started an investment company, TSM Capital, with retail legend Marvin Traub. TSM invested in fashion brands, such as Matthew Williamson and Rachel Roy, and I spent a good deal of time (and heartache) raising capital for early stage fashion companies. This was an extraordinarily difficult task, as many investors were not comfortable assessing the competitive advantage of individual fashion brands. I had to hone my fund raising skills by learning the do’s and don’ts of selling brands to investors: what motivates them, what scares them. That learning was critical during M’O’s fund raising process and we have been blessed with the ability to access capital to fund our growth and development, having raised nearly $50 million in under two years. Without this money — and without knowing how to raise money — the beautiful idea behind M’O would have stayed a sketch on the drawing pad.

5. LIFE IS ALL ABOUT TIMING

This lesson is may be the hardest. Timing is everything, too. Some ideas are great but they are just too far ahead of their time and they fail. Some ideas are great but they arrive at the party too late and they fail. This is as true in the online fashion world as anywhere else. Gilt got its timing completely right, launching just when the economy was experiencing a significant downturn and full price luxury sales were suffering heavily. As a result, Gilt’s business, selling discounted fashion merchandise from previous seasons, was an instant success.

At M’O, we knew our time was now. We saw the writing on the wall. Consumers were demanding online access not just to commodity products from Amazon but luxury goods from designers. With the economy rebounding, we worked hard to get to market fast — even at the expense of making mistakes along the way. As a result, M’O has been able to generate the sales and financing required to put the company in a unique place. In short, while you can’t time everything, do your homework to determine the right moment for your idea. Once you see that wave coming, paddle as hard as you can to catch it. There might not be another big one on the horizon for some time.

Tagged , , , , ,

The Business Plan Is Your Roadmap

This article is a blatant copy and paste job from The Business of Fashion but upon reading it I thought it was such golden information I had to drop it here for future reference.

Written by Áslaug Magnúsdóttir, co-founder and CEO of Moda Operandi.

NEW YORK, United States — Early stage entrepreneurs often ask: is a business plan really that important or can you get away without one?

The quick answer is: yes, it’s really that important, and, no, you cannot get away without one. If you’re looking to third parties to raise capital, they’re understandably going to want to see a plan for what you want to do and how their money is going to be spent, with some very specific topics addressed along the way.

Certainly, there are exceptions to the rule. Friends and family sometimes just want to fund your business no matter what, or maybe you’ve found an angel with such an understanding of your concept that a plan isn’t necessary to get the checkbook out. My partners and I at TSM Capital sometimes invested in fashion brands that did not have business plans, but did have management teams with very clear ideas about growing the business. But even in those situations, our first order of business was always to sit down together and map out a plan. A business plan, at its core, forces the entrepreneur to clearly articulate the business in writing so that the entrepreneur, key team members and investors all stay on the same page in terms of product, strategy and financial expectations.

In short, you’re most likely going to need a business plan to get funded. And if you’re lucky enough to get funded without one, you’re still better off having one as it will serve as a roadmap for your early months.

So beyond wanting exceptional management to be pioneering a high margin, scalable business that takes advantage of an exploding industry trend, what else are investors looking for in a business plan? Here are a few general rules to keep in mind in terms of the presentation of the plan itself:

Be brief. Professional investors like short business plans, generally no more than 10 pages and certainly no more than 20. Remember that you are catering to a short attention span, since these people see lots of plans. Get in, make your points and get out. Yes, there can be exceptions: The investor deck for Moda Operandi’s last round of financing crept up to nearly 70 pages, since we had multiple investors with numerous requests, and, thankfully, we ended-up being oversubscribed. But honestly, what do you accomplish with 70 pages that you can’t with 20?

Be visual. If a picture is worth a thousand words, in a business plan, a picture might be worth a million dollars. Your goal is to make sure your potential investor understands and is focused on the beauty of your concept and good graphics help convey good ideas. I learned this the hard way: an ex-lawyer and a McKinsey alum, I drowned M’O’s first business plan in a sea of microscopic data, lists and charts with very few pretty pictures. One investor, gasping for air, (who, fortunately, did come in on our Series A) asked whether I came from McKinsey’s German office! Your business plan needs to let investors breathe so they can digest what is going on. I now always balance key data with gorgeous visuals, and I have a brilliant art director who helps create this precise aesthetic.

Be numerical. As you might imagine, financial investors are particularly focused on — you guessed it — the finances. Not only do they want to see financial projections, they want to see these same financial projections twisted and contorted into a baffling array of numerical analyses: P&L projections, cash flows, unit economic analysis, customer acquisition costs, customer lifetime value analysis, conversion funnels, etc. At the risk of jeopardizing the brevity point: the more numbers, the better.

If you want to stick to the 10 page rule, below is a framework that works for most businesses:

Page 1 – The Team. Either start with “The team” or “The summary of the concept” (see Page 2 below). I like to start with The Team because when you’re presenting to investors in person, it makes sense to introduce everyone at the beginning of the meeting. The goal is to give investors a quick summary of the experience you and your team bring to the table. Don’t spend more than a minute on this when presenting.

Page 2 – Summary of the concept. Here you want to give the big picture about your concept before diving into details. For example, at M’O, this was a description of an “online trunkshow service that sells luxury clothes and accessories to consumers immediately following their presentation during fashion week,” plus a couple of other points.

Page 3 – The problem you are trying to solve. This is critical. Why is there a need for your business? What real problems does it solve? What voids does it fill? Investors are going to love to debate this one with you so make sure you really drill down to the specific value add your business provides. M’O example: “Customers can only purchase a small percentage of a designer’s overall collection at traditional retail and often only in a limited number of sizes.”

Page 4 – Your solution to the problem. What is your solution to the specific problem? How does it benefit the various stakeholders (customers, businesses etc.) M’O example: “M’O consumers can order any item from our designers’ runway collections in any size the designer offers, from the privacy and comfort of home.”

Page 5 – The size of the opportunity. This one is also critical. You want the bread baking in the oven and wafting over to the dinner table. While some investors are willing to invest in strategic but financially “small potatoes” opportunities, most VCs are looking to invest in businesses that have the potential to generate hundreds of millions of dollars in revenue. So you need to research and quantify the opportunity and then paint a picture that tells it clearly (and aggressively), i.e. a top down analysis of how big the market is to how big a share your company will take.

Page 6 – Your competitors. Who else has tried to solve the specific problem, or a similar problem, and how have they done it? What makes you unique versus them? How do you position yourself versus them?

Page 7 – Why will your concept succeed. Time to peacock. Why are you good? What is your competitive advantage? What assets — IP, expertise, contractual rights, relationships, technology etc — do you possess that will allow you to demonstrate success? You want to show off here anything that is unique or superior. Don’t be bashful.

Page 8 – Your marketing and customer acquisition plan. Assume in the beginning that you are unlikely to have a significant marketing budget. How are you going to get the word out there about your business without breaking the bank? Think PR, partnerships, customer relationships, social media, etc.

Page 9 – Five year financial projections. Full disclosure: no one has a crystal ball and it is unrealistic to create a perfect (or even near perfect) five year plan for a completely new business. Investors know this, too, but they want to see how YOU think about growing the business; whether you’re really in it to win it. There is no right answer to how you shape these financial projections. Different entrepreneurs have different approaches, ranging from being aggressive (fearing investors will deflate the numbers anyway) to under promising and over delivering (hoping investors will appreciate a conservative tact). Bottom line, the numbers need to look attractive but achievable. You need to show them the money. And if you can’t, then why are you launching this business?

Page 10 – Next steps. Take a deep breath, you’re almost done. Let them know quickly where you are in terms of the product, the team and your timing. “Next steps” is less about what’s on the page and more about how you talk around it: that this is a huge opportunity for investors, that other investors are interested, etc. Remember that fundraising is like dating: honesty is important but go slow. Don’t reveal all of your quirks and flaws on the first date, it is up to the other party to discover those attributes over time. By that point, hopefully both parties will be in love.

 

Tagged , , , , ,

Reconsidering Decisions

The following excerpt I cannot source, I can only confirm that someone emailed it to me, but I thought it was worth sharing. Kudos to the author.
————————
Care.

Care more than you need to, more often than expected, more completely than the other guy.

No one reports liking Steve Jobs very much, yet he was as embraced as any businessperson since Walt Disney. Because he cared. He cared deeply about what he was making and how it would be used. Of course, he didn’t just care in a general, amorphous, whiny way, he cared and then actually delivered.

Politicians are held in astonishingly low esteem. Congress in particular is setting record lows, but it’s an endemic problem. The reason? They consistently act as if they don’t care. They don’t care about their peers, certainly, and by their actions, apparently, they don’t care about us. Money first.

Many salespeople face a similar problem–perhaps because for years they’ve used a shallow version of caring as a marketing technique to boost their commissions. One report by the National Association of Realtors found that more than 90% of all homeowners are never again contacted by their real estate agent after the contracts for the home are signed. Why bother… there’s no money in it, just the possibility of complaints. Well, the reason is obvious–you’d come by with cookies and intros to the neighbors if you cared.

Economists tell us that the reason to care is that it increases customer retention, profitability and brand value. For me, though, that’s beside the point (and even counter to the real goal). Caring gives you a compass, a direction to head and most of all, a reason to do the work you do in the first place.

Care More.

It’s only two words, but it’s hard to think of a better mantra for the organization that is smart enough to understand the core underpinning of their business, as well as one in search of a reason for being. No need to get all tied up in subcycles of this leads to this which leads to that so therefore I care… Instead, there’s the opportunity to follow the direct and difficult road of someone who truly cares about what’s being made and who it is for.

Tagged , , , , , ,

Death of an Oligopoly – an op-ed on Australian Marketing & Brand Management

The following article was described as the best article ever written on the Australian marketing landscape by the Creative Director of the agency I work for. Written by Mark Ritson and posted on bandt.com.au on April 19.

Australian brands need to take a reality check: the days of being an oligopoly are finished, writes Mark Ritson.

Oligopoly. It’s a word that originated from the Greek word monopoly in the 19th century to describe a situation in which a small number of companies dominate a large proportion of a particular category or market.

The marketing implications of an oligopoly are as ancient and well established as the concept itself. With a distinct lack of competition, incumbent brands can achieve relatively high prices and profitability while reducing or eliminating product innovation. Lesser competition also creates a false sense of brand superiority in the organisations and a dismissive and overconfident rejection of the threat of possible competitive entrants. With limited options the oligopoly tends to largely ignore the actual consumer because they have such little market power – so consumer orientation is low in an oligopoly and the investment in market research tends to be low to non-existent.  As a result of all this, oligopolistic brands are usually high in brand awareness but very low in brand associations and exhibit low differentiation from each other. Ask a consumer trapped in an oligopoly to name some brands and they can rattle off four or five immediately. Ask them to then tell you what each of those brands stands for and, more often than not, the question is met with a blank response and a shrug of shoulders.

Sound familiar? It should. For the past 40 years, while the rest of the world increasingly embraced international trade and fierce global competition, Australian has ticked along very nicely with a very limited set of international entrants and a very healthy – some would say too healthy – domestic competitive environment. And the result has created one of the biggest and most oligopolistic markets in history. Across Australia, until very recently, you could find classic oligopolistic conditions in most categories. Two brands with 70% share of the usually fragmented and ultra-competitive grocery sector. Four brands with 80% share of national retail banking. Three companies controlling 80% of the news media. Three airlines with almost all of the domestic flights under their control. Two companies with a stranglehold over the vast majority of beer drunk in Australia. I could go on.

It’s more than just the presence of a small number of Aussie brands dominating the domestic categories that makes us a classic oligopoly, however. Australian brands also consistently exhibit all the hallmarks of oligopolistic behaviour. For example, there is no better evidence of the presence of the oligopoly than an arrogant, dismissive response to external entrants. And we have seen that response time and again in Australia. Aussie winemakers dismissed the threat from South American vines because their wine was “shit” and not up to the standards of Aussie production. When Aldi announced it was entering Australia there was an outpouring of scorn poured on the ability of a German player to be able to handle the extremely difficult and very different Australian market. Eight years later Aldi continues to grow at a very healthy pace and rates Australia as one of its most successful markets. Costco can tell a similar story. Each foreign brand was warned that Australia was a tough market to crack, and yet each one has cut through incumbent local brands like a hot knife through butter.

It was the same scenario among the fashion retail circle in 2010 when the potential threat posed by the fast fashion brands of Zara and H&M was initially debated in Sydney and Melbourne. Once again incumbent executives were sceptical of Zara’s potential down under and its ability to negotiate the Southern hemisphere seasonality into its offerings. And once again the brand found Australia both fruitful and easy to enter. Meanwhile, such is the oligopolistic attitude of the domestic brands that many of their leaders continue to dismiss Zara as “nothing special” when they mystery shop their Spanish rival.

Australia has also been clearly guilty of another oligopolistic trait – low consumer orientation. It’s best exemplified by the almost total lack of regular and recurrent market research taking place in many of Australia’s biggest brands. In contrast with Europe or America my decade in Australia has taught me that it is entirely possible to be a marketing director or brand manager here and have absolutely no consumer research of any kind. While about six in 10 brands track their brand equity on an annual basis in America, less than 10% manage to do the same here. Our oligopolistic tendencies are also reflected in our leaders. Whenever I give a talk in Australia about being better at branding the inevitable question from the audience is how Aussie marketers can convince a senior management team bereft of marketers and devoid of any consumer orientation of the branding imperative – and the honest answer is that you can’t. Many Aussie businesses were built around the ridiculous belief that their success comes from their sales figures and their stock price. The idea that both these two metrics are in turn driven by the consumers that pay for everything is entirely lost on the sad, old white men that disrespect marketing and run most big Australian brands.

Combine an unhealthy internal arrogance and a distinct lack of consumer focus, and the third classic feature of an oligopoly – lack of Australian product innovation – becomes easily understandable. And once again Australia has proven to be a perfect exposition of low product innovation from incumbent firms. There is no better example than the general approach to wine production in this country. More than 70% of the wine grapes under production in Australia are derived from just Chardonnay, Shiraz and Cabernet Sauvignon. When Dan Jago, the wine buyer from British supermarket Tesco, came to Australia in 2007 and warned producers their lack of innovation in lighter styles of wine and in less homogenous varietals was going to end in disaster his comments were met with characteristic oligopolistic arrogance. Jago was told he should go back to “selling dog food” and leave the wine business to the Aussie experts. Five years on, his comments have proved prescient in the extreme. A lack of product innovation has been endemic across Australian business for decades. From Gerry Harvey making an entirely ridiculous argument why Harvey Norman had decided not to sell their products online – ““Online people do not make any money. The whole world was conned with online retailing… it’s a con, a complete con.” – to our big two supermarkets only finally committing to proper private label strategies more than a decade after every other major grocery industry had developed one. We moved slowly in Australia – not because we like moving slowly – but because the oligopoly allowed us the luxury of laziness. Competition was dull and therefore so was the response to it in innovation terms.

All of this has played out in the enormous disparity between domestic prices and those paid overseas for exactly the same products overseas in more competitive markets. There is no better example than in foreign cars. Take Mercedes, for example. In the US you will pay about $200,000 for the new Mercedes SLS roadster. That same car, inexplicably, will set you back more than double that price here in Australia. In an oligopoly the lack of competition allows competitors to charge more for products and decades of its existence has encouraged consumers to accept blatant overpricing as something endemic and acceptable in their market. That’s why, despite the American and US dollars enjoying parity in recent years, we pay double the price for our Grande Latte than an American pays for exactly the same beverage. The impact of the internet on domestic Australian retailers such as Harvey Norman and Dymocks is not simply a story of technological change. It is also one of pure competition in which a newly globalised consumer can and will seek out better prices, for the same products, outside of the oligopoly they have been constrained within for so many years.

And the end result of all this is weaker brands with low differentiation and relatively low brand equity. The valuation firm Brand Finance has repeatedly shown that Australian firms derive less of their overall enterprise value from brand equity than their international peers. Or to put that in layman’s terms, our brands are less valuable than our foreign competitors. And is that really any surprise? Most Australian managers still over rely on sales promotions which destroy brand equity. Most still underspend on integrated marketing communications. Most still eschew consumer research and tracking in favour of “gut feel” and “instinct”. Have we really created that many distinctive brands in Australia? For all the talk, for example, of the battle between DJs and Myer – if I was to knock a passageway between their two flagship stores on Bourke Street Mall in Melbourne, how many consumers would really notice they had switched stores?  The cosy nature of our Australian oligopoly has meant that our competitive brands have coexisted rather than competed with each other.

Make no mistake, there is nothing illegal about an oligopoly. In fact you can make a very coherent argument that if you are one of the brands operating inside an oligopoly you should de-focus on consumers and differentiation and ramp up prices and margins. While it would be easy to criticise Coles back in 2005 for an incredibly poor operation, low consumer focus and sub-standard retail standards, one could only be impressed with the sustained and consistent profits that the company was able to extract from the market at this time. But the killer point about oligopolies is that eventually they implode. Just as nature hates a vacuum, capitalism hates oligopolies. A dangerous transition is now taking place across Australia. As our dollar grows in value and our population gradually inches towards 25 million the eyes of foreign brands turn southward towards us. In America the parity with the dollar makes us roughly as valuable as New York or Texas. In Europe a jittery economy and long-term market decline make Australia’s relatively stable and cashed-up economy a very attractive target despite the long distances involved. Australia is suddenly a focus for global brands and the recognition that the local brands here are poorly run and devoid of brand equity makes the attraction all the greater. One global marketing director I spoke with at Christmas described Australia as “a gold mine currently being exploited by locals with pick axes”.

Personally, I prefer the metaphor of the small town disco. Imagine a small country town where the women outnumber the men four to one. The Saturday night disco has been an easy place for the local men to get lucky. Now imagine a mine opens just outside town and there is a sudden influx of young, fit, rich, single men. The local men are out of shape, under-dressed, and over-confident about their charms because of years of success. They are unprepared for the deluge of new suitors now heading to the disco every Saturday night. In contrast, the local single women cannot believe their luck and are quick to see all the advantages. They now openly reject the local men who they once aspired to date. Indeed, it becomes the fashion in the town to only date the new men because the locals are seen as being old fashioned and out of touch. Bereft of company, the local men debate whether to head to the nearby city on Saturdays to meet new single women – but they have become so reliant on the local dating scene none of them know where to hang out or what to say in other locations. It’s a crude metaphor – but a good one for the years ahead in a newly competitive Australia.

The problems of an oligopoly only become apparent when it starts to break down. With the arrival of foreign competition the local incumbents are simply not ready to compete at the same level. And here we glimpse two of the other implications of oligopolistic behaviour. First, a lack of real competition has left most firms unable to react and respond to new threats in a strategically successful way. The response of local brands to the threat of internet imports in lobbying the government for a change in the tax policy was a classic example of how old world oligopolistic brands try to respond to new threats. To take another example, the management team at Coles have been forged from the crucible of foreign supermarket competition and are subsequently running rings around Woolworths with smartly marketed, consumer-based strategies. The old world response of Woolworths thus far has been to play the classic oligopolistic response: we will copy you. You get a chef, we get a chef. You get a meat policy, we get a meat policy. But this is no way to respond in the long term.

The second implication of the oligopoly is the most troubling of all, however.  The internal market has been so easy and profitable most domestic brands have refused to countenance major foreign expansion. For all its country brand attractiveness, Australia does not have a single strong international brand. And I am not counting brands such as Ugg and Fosters beer, which are successfully run by foreign owners who understand international expansion and brand management unlike most of our domestic executives. Yes Collette Dinnigan sells a few outfits in Europe but the brand would have less than 0.1% unaided awareness among fashion buyers there. Okay, Harvey Norman does a decent trade in Singapore and Slovenia – but that’s hardly a global brand is it?

We talk a good game in Australia when it comes to brand equity and brand management but the harsh reality is that our brands are weak and they are struggling. Groups that owe their success to brands and branding such as Billabong, Goodman Fielder and National Foods have all stumbled in recent years. The recent acquisition of the former-Fosters group by SAM Miller highlighted both how poorly our domestic brand management has fared and how much easier foreign acquirers could improve things quickly by doing the basics well. The cosy, profitable nature of the Australian oligopoly has had a double impact on our foreign competitiveness: making us both a soft target for the foreign brands now entering our domestic market and having limited our interest and ability to successfully enter and export our brands to foreign markets.

The popular press has been too keen to paint a picture of a major high street recession for Australian consumers. Clearly this has not been an easy 12 months for Australian consumers. But mixed into this minor recessionary story is a deeper and more troubling malaise caused by weak domestic brands being attacked by stronger international entrants. How else do we explain the success of international players such as Costco, Apple, Zara, Burberry and Gucci in Australia if there is such an enormous recession going on? The bitter legacy of living and managing in an oligopoly for so long is that we simply do not build strong, differentiated brands well in this country. The sooner we accept this fact, the sooner we can do something about it.

Unfortunately, however, one of the classic characteristics of oligopolistic firms is that they cannot see the competitive threat in these terms. They would rather blame the government, the economy or even the consumers for their downturn in sales and profits. The first step of an Australian renaissance on the high street is the acceptance that the threat from foreign brands is real and the current ability to meet that threat with our domestic marketing competence is low to non-existent.

It’s time to wake up and recognise the new reality of Australian marketing. We are an oligopoly no more.

Professor Mark Ritson is a consultant to some of the world’s biggest brands. He teaches brand management at Melbourne Business School and on the AMI’s Masterclass program.

This article first appeared in B&T’s sister magazine Professional Marketing.

Tagged , , , , , , , , , , , ,

Eye to Eye with Paul Smith

I stumbled upon a great interview with Paul Smith, courtesy of Bloomberg TV’s Eye to Eye program. In the interview he describes growing his business slowly, how he has remained independent through the clever management of his cash flow, and setting the old fashioned expectation of going into business to “just have a nice day.”

It might sound silly but with a growing empire and employees who have been with the brand in excess of 15 years he must be doing something right…

http://www.bloomberg.com/video/78248062/

Tagged , , , , , , , , , ,

Built to Sell

Here at EF we’re not really about flogging others peoples products, but this one time we felt like this one needs to be out there. Over the weekend we came across a unique business book titled “Built to Sell.”

The book written by John Warrillow is ranked one of the top 10 business books ever written by Inc.com. It explores why a business should be built forever but also always ready for sale, and profiles the story of an advertising agency transforming itself into a sellable business.

This writer personally found it a paradigm shifting read and one that would resonate with almost any boutique or young designer toiling away at building their our  cog in the fashion business machine.

To really understand the implications, reasoning, and steps of making your business sellable you need to read the full story (you can read the book cover to cover in a single day), but below are the core tips of the story.

Follow these to make sure your blood, sweat, tears, passion, and excitement for your design and entrepreneurial zeal are one-day duly rewarded.

 

TIP 1) Don’t generalise, speciliase. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve and you will stand out among your competitors.

TIP 2) Relying too heavily on one client is risky and will turn off potential buyers. Make sure that no one client makes up more than 15% of your revenue.

TIP 3) Owing a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product.

TIP 4) Don’t become synonymous with your company. IF buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.

TIP 5) Avoid the cash suck. Once you’ve specialised your service, charge up front or use progress billing to create a positive cash flow cycle.

TIP 6) Don’t be afraid to say no to projects. Prove that you’re serious about specialisation by turning down work that falls outside your area of expertise. The more people you say no to, the more referrals you’ll get to people who need your product or service.

TIP 7) Take some time to figure out how many pipeline prospects will likely lead to sales. This number will become essential when you go to sell because it allows the buyer to estimate the size of the market opportunity.

TIP 8) Two sales reps are always better than one. Usually naturally competitive types, sales reps will try to outdo each other. And having two on staff will prove to a buyer that you have a scalable sales model, not just one good sales rep.

TIP 9) Hire people who are good at selling products, not services. These people will be better able to figure out how your product can meet a client’s needs rather than agreeing to customise your offering to fit what the client wants.

TIP 10) Ignore your P&L in the year you make the switch to a standardised offering even if it means you and your employees will have to forgo a bonus that year. As long as your cash-flow remains consistent and strong, you’ll be back in the black in no time.

TIP 11) You’ll need at least two years of financial statements reflecting your use of the standardised offering model before you sell your company.

TIP 12) Build a management team and offer then a long-term incentive plan that rewards their personal performance and loyalty

TIP 13) Find an adviser for whom you will be neither their largest nor their smallest client. Make sure they know your industry.

TIP 14) Avoid an adviser who offers to broker a discussion with a single client. you want to ensure there is competition for your business and avoid being used as a pawn for your adviser to curry favour with his or her best client.

TIP 15) think big. Write a 3-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.

TIP 16) If you want to be a sellable, product orientated business, you need to use the language of one. change words like ‘clients’ to ‘cusotmers’ and ‘firm’ to ‘business’. Rid your website and customer-facing communications of any references that reveal you used to be a generic service business.

TIP 17) Don’t issue stock options to retain key employees after an acquisition. Instead use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in tow or more instalments only to those who stay so that you ensure your key staff stays on through the transition.

Tagged , , , , ,

The Apple Marketing Philosophy

Today I am simply going to let this picture talk for itself. There is something in this for any business in the game of selling products. Whether it be clothing, technology, ball bearings, you name it.

Tagged , , , , , ,

Steve Jobs – Standford University Address

At its purest level the world of fashion is created by people following what they love and making products that allow for the expression of self. I came across Steve Jobs’ Stanford University commencement speech today and could not help but set the dots connect between what he is expressing and the work of the finest design minds.

For anyone looking to start their own creative pursuit faith in the dots joining together and following where you heart takes you is of critical importance. Enjoy and be inspired.

Tagged , , , ,

Success is CRAP

Just like your grandmothers cookies – this is an oldie but a goodie… A little late night inspiration.

To succeed in anything in life can be a tricky game sometimes. Whatever it is you choose it is as certain as death and taxes that you will encounter CRAP. That is:

– Criticism

– Rejection

– Assholes

– Pressure

All the very best have encountered this. Chanel was famously rejected on multiple occassions. Valentino almost went bankrupt. YSL did. For a short and sharp expose on all things CRAP check out Richard St John’s 2006 TED presentation.

http://video.ted.com/assets/player/swf/EmbedPlayer.swf

Tagged ,