Ask Better Questions

The Lizard is always listening, always watching.

It is the voice inside your head that fears and hates. The Lizard wants vengeance.

The Lizard is lazy.

My Lizard doesn’t like to dance.

I try to ignore my Lizard. I try to starve him to death.

My Lizard does tricks. He sounds like common sense.

His logic is impeccable.

My Lizard comes up with tons of reasons not to exercise.

My Lizard does not want to take my 15-year-old out to practice her driving. Neither do I.

Jules and I have been together a long time. Our Lizards like each other. They feed each other.

Our Lizards really hate it when we are the only ones dancing at a big party.

Other peoples Lizards laugh at us.

Maybe it isn’t enough to stop feeding your own Lizard, but we need to try to starve other peoples Lizards.

When you see people hating, fearing and gossiping, remember to talk to them, not to their Lizard.

Encourage your friends, families and co-workers to stop feeding their Lizards.

A lot of politicians are in the business of feeding Lizards. If you read the news, you’ll see lots of Lizards are being fed. Try to ignore them.

Have a great day. Hope your Lizard dies.

P.S. Seth Godin inspired this writing. My Lizard didn’t want to give him credit.

Do you really want a $3 haircut?

A few years ago, I went to a mall in Shanghai to get a haircut.  The menu listed the haircuts according to the city where the hairstylist had trained.
Shanghai was 300 yuan, about $3. Singapore was 600 yaun, $6, Sydney was 1000 yuan or $10, and London topped the list at 2500, $25.

I splurged, and went with the London. My pleasant Chinese stylist spoke very good English – she had obviously, indeed, trained in London – and about six people ran around doing nice things for me.  Three washed my hair, two brought me tea, and one gave me a shoulder rub.

It was a good haircut and a good example of the power of price. That was how I chose the London – simply because it was the most expensive, and I wanted quality. Price is an indicator of quality, often our first and often the signal that influences our decision the most.

As director of the Small Business Development Center, I meet with about 20 businesses a month – some small, some large, and a few start-ups. One exercise that helps them the most is a competitive map, where we sketch out how the market perceives the price and quality of the business and each of its competitors. It’s amazing to me how many companies believe that their own quality is actually much higher than what the market perceives, and yet they criticize their competition for being overpriced.

We also run into the occasional start-up whose business plan is to be known for “higher quality and lower price.”  This is a tough plan to pull off.  Human nature sees the least expensive option as the lowest quality.
Human nature goes with the London. We avoid the $3 haircut.

And you don’t have to go to Shanghai to figure that out. Go out for lunch in Mankato.

Mankato has several choices of Mexican food alone.  I recently spent $17 on two Chipotle burritos and an order of chips, and was pleased with the value, even though it was much more expensive than anything I could have had at good old Madison Avenue Zanz (two cheese chilitos, please).

I was happy with my high-end burritos because they were high-end. In almost every dining category, there is a choice – both in price, and value. What’s worth noting, for business owners, is how our perception of value is driven by price.

The $1 taco versus the $17 burrito meal. The $3 Shanghai haircut versus the $25 London. A well-coiffed, well-fed and happy Mike Nolan.

If you really have the highest quality, don’t you really want to say so with the highest price?

Marketwatch today ran the inevitable story: Apple passes Microsoft for second place in S&P 500.

Yes, Apple is now bigger than Microsoft. Marketwatch noted Apple’s $241 billion market cap to Microsoft’s $239 billion market cap.

This is what happens when a company manages to attain a high profile based on high quality and unapologetic high prices. It’s an amazing confluence, usually seen in the brief shelf life of fad products, but Apple’s not going anywhere. Instead of good luck and great timing, Apple earned this rare stature through innovative people, products and markets.

You know the products. They permeate pop culture with a confidence and cool that dares you to complain about their prices. And when you consider the context in which these things are selling, you’re onto a simple but fascinating lesson.

In an historically lousy economy, Apple not only sells music at the highest price on the internet, it competes against freaking free. Its computers cost four times as much as a PC. (Ask yourself: When was the last time anybody insisted you watch some trick they can do with their new version of Windows?) Apple’s $500 cell phone allows only one carrier while most carriers offer free phones. The company’s $200 mp3 players outsell $25 options that sound the same to the classic rock eardrum. Thousands of people each day are paying $500 for an iPad based on sheer faith that they will someday figure out why.

And Apple has $50 billion in cash and no debt.

How? Simple: They have indispensable people doing extraordinary things.

Microsoft has disposable people doing ordinary things.

How is your company facing the future?

Advertising will in the future world become gradually more and more intelligent in tone. It will seek to influence demand by argument instead of clamor, a tendency already more apparent every year. Cheap attention-calling tricks and clap-trap will be wholly replaced, as they are already being greatly replaced, by serious exposition; and advertisements, instead of being mere repetitions of stale catch-words, will be made interesting and informative, so that they will be welcomed instead of being shunned; and it will be just as suicidal for a manufacturer to publish silly or fallacious claims to notoriety as for a shopkeeper of the present day to seek custom by telling lies to his customers.

– T. Baron Russell, A Hundred Years Hence, 1906

100 years later, is anyone really hearing this message? If your game plan is to shout meaningless phrases at the masses, and hope it attracts just enough to stay in business… well, the end is near.

If your advertising copy contains the words “your _____ headquarters” or “for all your _______ needs” – please seek help immediately.

I recently fine-tuned my Financial chops at a week long National Development Association training on economic development finance.  It was a tough week, but a good one. I brought back some new tools we can use to analyze companies quickly and efficiently, and help determine debt capacity and operational effectiveness.

Here’s a concept that bears exploration, and one that I find is commonly underestimated by even the best managed companies – permanent working capital.

It’s the cash that’s tied up in your operations.  Here’s one way to think about it.  When I sold my radio stations in 2000 it was an asset sale – I still owned the accounts receivables and payables. Since radio stations have no physical inventory, this math is pretty easy – At close I started to pay all my left over bills – all the accrued payroll expenses, the snow removal bill, the phone bill, everything up to the date of close.  This drained the checking account down, but I was also receiving the income from all the advertising we had sold before the day we handed over the assets of the company.

90 days later all the bills had been paid, and all the receivables collected (with a few write-offs.)  What was left over  was my permanent working capital.

Calculating working capital requirements isn’t difficult – there are great tools to figure it out.  Understanding the concept is important.

There are two concepts of working capital – the first is the Balance Sheet concept – simply the difference between short term assets and short term liabilities, and is a quick method of gauging the debt capacity of a company.  Matching asset life and debt terms is critical to make sure that this concept is reflected accurately by the financial statements of a company.

My focus is on the second concept of working capital – the operating cycle.

The uncertain, un-synchronized cycle of payments and receivables.  Buy inventory, pay staff, accrue liabilities, make product, sell product, pay bills, get paid, etc. etc.

To calculate your companies cash cycle, take your annual sales (P&L) and divide it by your Accounts receivables from your year end balance sheet.  Multiply by 360.  this is your average days receivable.  If your terms are net 30, and this number is 30-35 – you are doing a great job collecting. Tracking this number over time is a great way to watch for operational effectiveness.

Days inventory = inventory (balance sheet)/COGS*360

You’ll also calculate days payable – accounts payable/COGS *360.

Days Accrual (all your payroll related stuff)/COGS*360.

Now you have all these days – the average turn on inventory – the average length of time it takes to pay your bills.

To calculate your Cash cycle – Days Receivables+Days inventory-days payable-days accruals.

That’s how many days you have of cash tied up in your operating cycles.

What’s the right number?  Depends – restaurants have a very short cycle – they buy food for cash and sell for cash the same day.  Ship builders have incredibly long cycles – years and years.  Dell computer made a billion dollars by figuring out how to pull off a negative cash cycle.

Track it, compare it, understand it.  Manage your finances to match short term capital with the seasonal fluctuations, and long term capital with the permanent, necessary portion of working capital.

Questions?  The Small Business Development Centers provides free counseling to businesses every day – give us a call!

I’m teaching an MBA course at Mankato State University – MBA 690 Executive Series.  The class is filled with amazing students – bright, inquisitive and well informed.

We’ve lined up some great speakers.  Our first guest was Lorin Krueger, former CEO of Winland Electronics and current start-up entrepreneur.

I’ve facilitated guest speakers before, but have never seen the level of engagement and “better questions” than I’ve seen in this class.  The students even started a blog to facilitate sharing articles and topic ideas prior to meeting Lorin.

The 2 hour exchange was amazing – the students really dug into his life’s story and drew knowledge that would have been left behind without their research and questions. Of course it does help to have great people like Lorin that naturally encourages friendly and frank discussions.

In the coming days I am going to try to chronicle the highlights of our class… stay tuned.

I was recently re-introduced to the “5 Whys Exercise” – used by Toyota during the evolution of their manufacturing methodologies.

Simply ask “why” five times to get to the bottom of things.

“We don’t have the proposal ready”  Why?

“Betty didn’t get it done” Why?

“She didn’t get started ’till Monday” Why?

“I didn’t send her the draft until Friday” Why?

“The boss didn’t email approval until that morning” Why?

“She was on vacation all week.”

Try it the next time you need to figure out the real reason something went wrong – or right.

Here’s a revisit of an article I wrote a few years ago while teaching at WHU in Germany.  I’ve updated it a bit…

All companies seek growth. Below is a plan of attack for identifying new venture opportunities within the framework of your current business. The key is to start with problems of your customers, suppliers and other stakeholders. If you can solve these problems, you’re bound to make money.

Problem

• Research problems of all stake holders – on both sides of the network
• Define the scope of the problem – dig for “pain points” and causes
• Segment into problem groups – shared problems across stakeholder

Idea

• Brain Storm – With each problem comes the solution brainstorm – think big, think
  wild, record everything
• Crystallize – Start to talk it out, dig deep, apply a little bit of real world
• Return to beginning – go through the list, record new ideas, dig into each idea little more
  

Opportunity

• Can we do it?
• Is it true to our brand?
• If we don’t do it, can someone else do it? Can we do it with a partner?
• What is its potential? – profitability, barrier to entry, stabilizing force, etc.
  

Plan

• Real business planning process – not just writing a business plan
• Weave a MAT – Milestones, Assumptions and Tasks*Assign Actions & Responsibilities – Senior management must not abdicate execution knowledge!

Execute

• Invite to succeed – Identify leaders & opinion makers and sell within first
• Re-examine against original goals
• Learn from failure – is it still a good idea? Can someone else do it better and still benefit our stakeholders? Explore cultural aspects of failure, and distinguish from technology, systems and HR factors.

*Thanks to Guy Kawasaki – The Art of the Start – a must read

“Happiness” is one of those weird spelling words – I think it should be “Happyness”, but I get a red squiggly underline, so I’m wrong.  I get a lot of red squiggly underlines.

“Happiness” is something I’ve been thinking about.

I lead a great life.  I have a fantastic wife who I adore, and seems to like me well enough.  Unbelievably wonderful, healthy, wise, outgoing kids who make me proud.  Yeah, they could do the dishes more often, but who’s perfect?

My immediate family is still close – I just spent Christmas with my father and step-mum Lynn – they are so happy and full of life.  My brother lives in town, and he and I still hang out – we’ll be going to a movie today.  My two sisters are close, even though one insists on living in Switzerland.

I am blessed with great friends.  We have a tight group that, frankly, is the closest group of friends my wife and I have ever had.  Yeah, the house is a mess, but Shelly and Ann did the dishes while Joe and I played guitar while Jules sang, so I can whip the kitchen back into shape before the family gets out of bed.

I’m still involved with my friends at Yovia.com – hosts of this blog.  I made an investment of both time and money to help the company over a year ago.  These are great people doing wonderful things, and I am impressed with what a great company they have built.

Now I call the South Central Small Business Development Center home.  I took over directing this non-profit.  I love helping new businesses get started, and helping existing ones grow.  I work with a great team, and am connected with dozens of partner agencies and a large network of people doing good work.

The stock market is back up.  My Apple stock is at an all time high. (I bought 10 shares in 1979, and a bunch more along the way.) It’s nice to see my 401k climb back out of the red.

So, how can I be happier? Fred Wilson blogged about it a few days ago, and he’s a guy I respect. Here’s a quote from Fed’s blog,which is a quote from a book I just ordered.

Second Splendid Truth
One of the best ways to make yourself happy is to make other people happy;One of the best ways to make other people happy is to be happy yourself. The Happiness Project Gretchen Rubin

My new years resolution is to be even more happy. Every day I will focus on making other people happy.  How hard can that be?

I will also seek to create Joy – lasting happiness.  Not only fleeting fits of giggles, but the joy of watching a business grow, of having successful kids, of helping your community.

What a great world this would be if everyone made – and kept – this same resolution.

Oh, and I’m going to lose 20 lbs.

Related articles:

• The Happiness Project – A New Year’s Resolution (avc.com)

From the Innovative Thinking Files: Eric Schmidt, CEO of Google, recently published an Op-Ed in the December 1st Wall Street Journal.

In his article, he looks ahead at what will probably be the future of “printed” media – electronic devices hosting customized, intuitive content.  Some of this subsidized by subscription, some by advertising, and some from corporate partnerships.

He deftly transitions to the current free-fall of the American Newspaper industry, and the recent reaction by some to blame Google for their woes.

He points out that Google sends over 1 Billion free clicks a month to printed newspapers.  How much revenue?  Here’s his statement:

The claim that we’re making big profits on the back of newspapers also misrepresents the reality. In search, we make our money primarily from advertisements for products. Someone types in digital camera and gets ads for digital cameras. A typical news search—for Afghanistan, say—may generate few if any ads. The revenue generated from the ads shown alongside news search queries is a tiny fraction of our search revenue.

It’s a great article, and anyone following the transition of media, and the price of attention vs. the price of delivering content, should read the article.

From a strategy perspective, I think this is a bold, genius move by Mr. Schmidt.  This is a positioning strategy, and negotiation tool, and a strong signaling statement roiled into one.

The tone of the article is clearly one encouraging cooperation.  By expressing it it the Wall Street Journal, the signal is clear: We respect journalism, and want to be a part of the solution.  The article clearly defines the partnerships Google is pursuing to accomplish this goal.

What can you learn from this?  Even small business can use signaling to foster “co-opetition” – the art of creating value by recognizing the interdependence with your suppliers, employees, competitors and your customers.

There is a very good book – I highly recommend – called Co-opetition (available here.) Here’s a quote from their website:

The best way to do this will obviously be different for different businesses. But one strategy that Co-opetition emphasizes is working with what we term “complementors.” A complementor is the opposite of a competitor. It’s someone who makes your products and services more, rather than less, valuable. Not surprisingly, the complementor concept is especially relevant to the builders of the Information Economy. Hardware needs software, and the internet needs high-speed phone lines. No one, alone, can, build the infrastructure for the new economy. It’s a whole new system made up of many complementary parts.

Drop me a note if this sparks any questions about your industry, and how you might take advantage of thinking a bit differently, and asking better questions.