Getting rid of the middleman.

About technology, business & management issues..

Surely you have purchased an item online through your computer. Just as you have probably bought a plane ticket or an entrance for the next concert of your favorite artist. It is valid to believe that most Internet sales are composed of small items or products with little value per se.

But perhaps you´ve  been a little more risky and decided to buy a laptop online. Surely the name that has come to you is that of Dell. Why would you buy a highly specialized product, like a laptop, at Dell´s? What if you better go to some of the stores selling electronic equipment in the shopping mall closer to you ?

The advantage of Dell, which is the basis of his success as a company selling computers, is that it can provide products of good quality at a relatively affordable price  rather than buying the same computer through a retailer. The secret? as simple as the strategy in the Dell supply chain: got rid of the dealers or brokers of their products, which causes the product to be charged an extra fee on the sale price you normally would  on the shelves of stores specializing in electronics.

In theory this is very simple: after you enter the Dell website you can choose from one of the models offered by the company or literally create and order to build your own computer based on the requirements that you need. Once done, you go to pay your computer via your credit card and  it immediately sends an order to Dell's manufacturing sites worldwide. Your computer is built, shipped and delivered through a courier company within days at the door of you house.
This approach in the supply chain has allowed Dell to reduce its inventory times to a minimum of three days. Usually the electronic equipment industry handles inventory up to 35 days. The savings resulting from efficient management of supply chain coupled with the elimination of distribution channels (retailers) is reflected in a considerable decrease in the price of Dell computers compared to their competitors.

This business model has been somewhat taken by various companies in various industries. The owners of car manufacturers like Ford or GM have modified their distribution channel of cars and often dispense with traditional distributors, even without going beyond the financial service which they provided via commercial banks to offer their own financing facility. One could argue that this has not necessarily led to a substantial decrease in the price of cars per se but it has led to an increased generation of options for people who are thinking about getting a car. Options that only 15 years ago were unthinkable.

Other companies like Cemex started selling their products such as cement or concrete through its stores named Construrama. Same approach taken by some large franchise chains (Alsea, Pharmacy Savings, Mc Donald's) that have created a scheme where otherwise control their outlets franchisee without using  a third party to deliver and distribute their products ,that extra saving cost´s reflected in the selling price plus the advantages of direct control of the business.

No doubt the idea of ​​Michael Dell to cut out the middleman was difficult and took time to develop. Obviously it is impossible in many businesses to eliminate traditional channels of distribution that, I would say that 90% of cases, do not add any value to the end customer.

If you can develop a strategy where somehow you can eliminate the middlemen in the supply chain it will definitely generate a competitive advantage in your company which is very difficult if not impossible, to surpass even by your most fierce competitors.

www.clarensyst.com.mx

The power behind the customer experience

About technology, business & management issues..

  The same phrases are repeated ad nauseum: "You cannot continue to operate the business as  your father  does or your grandfather did in his  time, things have changed" or the favorite of many so-called "experts": "you need to innovate your business" .

 Surely it is the concept of "innovation" the most hackneyed in the world of management for several decades, but today more than ever the question is relevant: How to differentiate my product from the competition? How to avoid price war with other suppliers?

One of the best ideas that has been executed, consistently, for many of the most successful companies in their industries (starting with Amazon to Wal-Mart) has to do with creating the concept behind the product or service. According to the academics and scholars  examples of companies like Apple or Starbucks are evident:

a)  You need to create a concept that differentiate and add value to the customer's mind (often it is the ego or status). Starbucks makes it great: you sell a $ 5 coffee in which you have no problem in buying, but would not be paying over a dollar if you took a coffee (same product!) right out from  seven eleven. That is, the product packaging, the friendly staff, the comfort of Starbucks and the local design (blend of  stronger colors with other pastel tone) makes you psychologically prepared to pay a price to 400 % larger than a coffee at any establishment around the corner.

b) This also happens with Apple, possibly an iPod does not add real tangible value to your life (unless you try to spend an enjoyable time listening to music) but you cannot resist the urge to buy the product: its elegance , aesthetic design and ease of handling makes you not hesitate to pay more than $ 100 for the latest version. We would not even discuss the case of Ipads or Iphones whose prices are quite prohibitive for many people but the latter have not prevented them from erupt and dominate the market for tablets and smartphones.

But what happens if my company does not have a new product? What if you only offer a service that fails to differentiate from the rest?

The business gurus have the solution for the latter:  to prevent your service from commoditization, do not enter the price war and  just turn your business into a Starbucks coffee and not a seven eleven kind of coffee. To do this you develop your business and its  processes to achieve a perfect customer experience .There is no better example of this experience that anyone found on Amazon:

a) From its website, well designed with a nice and simple interface lets you know for sure how to find your products and how to proceed with the purchase of them.

b) The implementation of the concept of "one click" effectively professing by the  people of Amazon. With the fewest number of clicks in your browser should be able to find, order and pay for the purchase of your products.


c) An excellent after sales service. An almost immediate attention of the people in charge of following up on your claims for products that have not reached its destination and return of your money, almost immediately, if  you are not satisfied with the service offered by the company.

In the end, it is not surprising that Amazon is self declared the company "that focuses more on customer service around the world." Just awesome. If you have a service that integrates some of these  same concepts then you`ll hit the jackpot.

www.clarensyst.com.mx

The Long Tail

About technology, business & management issues..

  Much has been said about the concept of The Long Tail, which was widely popularized by  technologist Chris Anderson in his best seller "The Long Tail: why the future of business is selling less of more". The term and its concepts quickly made everyone's mouth, from academics to marketing gurus.However, there are many wrong  ideas and interpretations of the concept put forward by Anderson some years ago:

A) While the idea of ​​"The Long Tail" is handled as an abstract concept is actually supported by statistical theory of the normal distribution. Anyone who has taken a basic course in probability and statistics knows that the theory was created many decades ago. If anything, Anderson contributed to an interpretation of it but he cannot be considered the inventor of it.

B) While the management framework used by Anderson in his book has much to do with retailing in digital markets (Amazon, Netflix) the same concepts applies to many other services from consumer products to financial services focusing on low- income niche markets that have historically been ignored by commercial banks.


C) The term refers only to that there are many digital consumer goods which do not constitute higher turnover per se, but if we accumulate all of these unavailable goods,  thus we can create a world of customers who do not have ease of getting these products (think of a b-side of a CD of your favorite artist or that lost Muppet´s film video from 1987) so long creates a whole market for these "lost" or "hidden" goods.

This is contrary to what many people think in the sense that "The Long Tail" refers to products sold in mass or  that have a large base of demand from its customers. In any case, they are talking about a traditional business model:  quite the opposite of the Long Tail.

D) Although the theory has been proven historically successful in many cases and technology companies within the retail industry, it still has its detractors especially in the academic world in business schools around the world.

In the coming years will have a clearer picture of the influence of this statistical  and business models on their viability in the application of other business areas which are invariably not digital.

www.clarensyst.com.mx

Failed Idea, Failed Business..

About technology, business & management issues..

 One Saturday afternoon three years ago chatting with a friend who has always been restless and had started at a young age many  fast-food related businesses with moderate success. During the meeting he was talking about his new idea: a chain of laundries where people from lower socio-economic status, those who did not have the facility to have a washing machine at home, could go weekly to wash their clothes.

In the description of his business, my friend had already displayed several important points: the laundry would be located in several central points of the city, where the movement of people was important especially during the weekends. They would also be located near shopping centers and universities, the idea of ​​hundreds of students desperately searching for a place to wash the clothes particularly appealed my friend.

So far, it sounds like a viable idea: serve a market of low-income that was convinced to go, on a regular basis, to a public laundry center. There seemed not to be an idea out of the ordinary or the ticket to become the next millionaire in the country but as a business painting noble enough to be happy. The problem arose when my friend began to describe what the point of sale should include: rest rooms, where you could wait to wash your clothes, a snack bar where people could eat and drink a soda or a coffee and, of course, wireless high speed internet for people to have as entertainment while they waited.

Hearing all this I remembered what had once read in an article written by C. M. Christensen (The innovator `s dilemma) where he talked about the" failed ideas " that will eventually produce" failed businesses ". In his narrative the author exemplified in a different context, it is worth noting, as entrepreneurs and business managers include their personal preferences, prejudices, preconceived ideas and aspirations in the products and services they wish to offer. In the case of my friend wishes were obvious but probably would not fit with the reality of the market:

a) Sought to provide a wireless internet service high speed in a country like Mexico, where thanks to monopolies, the internet penetration in the country barely reaches 30% of the total population. While the service could be appealing to niche market as students it was really irrelevant to the people who had to walk or take public transportation to go and wash their clothes weekly. This goes without saying that most likely these people  do not have a laptop computer and, just as students, their budget is so small that they could not pay a higher price which include the Internet service.

b) The idea of ​​the snack bar is clearly a subconscious desire of my friend,  he thinks about the customer experience was the same as if he was to use a weekly laundry service, so the place would have an air-conditioned atmosphere  where he could connect his laptop and surf while sipping a cappuccino in the snack bar and wait for his clothes. There could be nothing further from reality.

c) At present it is clear those ideas would get my friend is to consider an increase in  the initial investment needed to bootstrap the business and at the same time would increase the cost of the service to pay for all the extras  services (snack bar, internet , air-conditioned space), which could put his business at disadvantage compared to his current and future competitors.

Christensen mentioned that the main mistake of managers and entrepreneurs is that they still rely on their hidden desires, believing that the world needs to see and what they want. The key, according to the academic, is to get rid of all market research, focus groups and really engage in actual field research. Try to identify the drivers of the market you´re going to lead.

It's time to leave the office and have a clear idea of ​​the reality you face.

www.clarensyst.com.mx

Do you sell houses?

About technology, business & management issues..

 In one of the last meetings with the sales team of a low cost- social housing project we were discussing the effectiveness of advertising and marketing efforts made by the company. The result was unsatisfactory: there was really no indications that our  media efforts were helping us to attract people and there was even less information about what tools were effective in order to close sales.

The sales team, made up of several middle-aged women, had been doing a great work in the field for awhile: they did not expect sales efforts to reach customers, unlike applied a variety of "guerilla marketing" strategies themselves going to the cruises, markets and convenience stores, implemented information delivery stands, contacted middle managers who were working at the banks and lending institutions and they had enough contacts to be able to access government offices and canteens in companies. The result was impressive: it was a vending machine.

This resulted in a couple of important insights:

a) That the field work and traditional marketing is still essential when selling your products. In an age where digital advertising has taken a lot of strength, traditional marketing critics predicted the latter's death in a matter of time: They could not be more wrong.

In a market as affordable housing (social interest) in Mexico, where the Internet service penetration in the population is very low (almost nonexistent) digital marketing does not work: no one buys a house of 200 thousand because because they saw it announced in a page on Facebook or it was found through a search on Google. The property market in Mexico is far from finding a mechanism in which the marketing and advertising to be truly effective (even in higher socioeconomic levels). Buying a home is an important part (in most cases the only) of household wealth. Therefore the effort and the sales strategy is still a 90% emotional.

b)  When talking to the vendors and see their field work as I am aware that they have transformed their operating model. Looking for clients who do not understand that they are entitled to a housing loan through Infonavit (the Mexican agency that supports the acquisition of the property), who have enough empathy and ability to communicate in the educational level of their customers (often low) and are able to explain, in simple terms, financial concepts and credit and payment terms that often people from middle school and higher education lever find extremely difficult to understand them fully.

The latter allow sellers to offer services tailored to the clients . As a result they surely find a credit scheme that fits your own needs.

As salespeople said: "We are  not dedicated to selling houses, we sell opportunities." That was right: they do not sell homes, they  sell financial products and services, the houses are only the means to do it.
www.clarensyst.com.mx

Innovating again

About technology, business & management issues..

In the past 15 years the term "innovation" has been a constant in the vocabulary of entrepreneurs, business consultants and academics from business schools. However, the term is somehow misunderstood by entrepreneurs of small and medium companies, it is logical: it rather sounds like one of those business practices that apply only to big business.

This opens the door to ask how to apply the concept of innovation in SMEs? How can I differentiate my product or my business from the rest? How to compete effectively with few (or no) resources? The idea of ​​innovation’s got a conceptual logic connotation to my knowledge. Although the great management gurus try to rationalize it , actually it goes through a review of concepts that have their foundations in a simple logic. Among them are:

a) How to solve the problems of my clients in a straightforward and easy way? How do I help them to improve their annual sales by 10%? How do they reduce operating costs by almost 20%? Logically, any customer will be willing to pay you anything if your service or product allows you to accomplish this. No brainer.

b) How do I define the market to which address?  Should I try to create a generic product or should I try to specialize in solving the problems and needs of a niche market? This point is not so obvious to most people: the appeal of creating a service / product for "everyone" is always very tricky, where few companies throughout history have done it. As a matter of fact is way more profitable  to exploit a specific market niche and  once achieved then it would be feasible to venture other markets.


c) How to reinvent my product or service to make it more attractive? Will I create something that the market is looking forward but has not been invented yet? The first question regarding the current trend is to grant a "service" to your client holistically. It is not only delivering a product, you have to help understand how it will facilitate your customer’s life or business, how else  they can use it so you have to show them the money they invest in your product is money well spent.

For years companies have tried to ignore the customer service in all these aspects. To date it is evident that any business that wants to grow needs to see itself as an integrated service. Regarding the second question, the answer is even simpler: unless you're Apple, there is no company in the world right now that creates markets for their products out of nowhere. It is the only one who has been able to do at least in a massive and successful scheme. Better focus your business efforts to reinvent your concept, to differentiate from the competition and become more attractive to your market.

Finally, all these ideas will be developed to better work in an environment of easy  streamline decision- making and to promote team building among the different area within small business (production, finance, marketing). The cooperation and understanding between all areas of business will be the key to the transition from a traditional business model to a model where the company becomes a dynamic entity, evolving and constantly innovating.

www.clarensyst.com.mx

Financing & venture capital.

About technology, business & management issues..

A few weeks ago, while reading the newspaper I noticed an article in the business section. Constantly these items appear, with due intention, to promote the financing of small and medium enterprises through government and venture capital (VC) of Mexican investors and some foreign investment funds.

The article talked about the Mexican government's efforts to try to encourage small entrepreneurs and mentioned the millions of pesos provided by the funds. Of course, it never mentioned the results of such programs or its mechanisms to access this capital. It is not necessary: ​​it surely requires a lengthy bureaucratic process, as well as connections with the officials who manage and make decisions in these bodies.

On the other hand , there were the venture capital investors where, in his clear love of  this country, decide that they need to create and develop the corporate culture amongst Mexicans and invite entrepreneurs to submit their  businesses ideas, as any beauty pageant , to assess whether it was "worth" taking into account to invest in them. Of course the amount contributed was a joke considering the slice of the business  VC´s owners would get in return for its "contribution."

What surprises me is that some people actually get to create great business ideas, but by one or more reasons are not willing to take a leap of faith required to develop their businesses. I remember reading about a young mechanical engineer who had developed software that would help the auto manufacturing lines to properly combine the colors of the pieces. The software would have allowed to save up many man- hours and reach even higher levels of efficiency. She had a booth of its business, had created a logo, website, business cards and brochures of her product presentation. It also had a video tutorial explaining in a very concrete way what was her idea about and how the software would help manufacturing companies.

Her big problem?  She needed some investors to put up around $ 85.000 pesos to develop the sales  strategy (already had some potential customers) of the product. As I read the latter  I could not believe she had  such a brilliant idea that apparently was able to capture a market of millions of dollars and yet had been unable to get that amount of money and was hoping some private investors snatched a significant amount of their business in exchange for an amount that, being honest, means nothing if compared with the potential profits of her business idea.

As you read this I got the idea that perhaps the main problem is that within the corporate culture in this country is  all about copying schemes operating in other developed countries where venture capital is abundant and where entrepreneurs believe that only by having a brilliant idea, surely someone else will come and provide the funding.

The problem with this scheme is that it does not apply in Mexico. Unfortunately for the entrepreneurs there is either the government or private initiative the ones who would finance business ideas. So what's the solution? In my opinion it would first try to bootstrap your business so you do not have to waste time accountable to anyone, nor will be subject to attempts to tell you how to run your own business. Surely this young have a way to get those $ 85.000 pesos, perhaps with the good old-uncle who lives in another city, the mother who has the money under the mattress or just looking to finance with your own suppliers.

But I am sure that if  she develop a viable idea to turn it into a profitable business, getting the capital should be the least of her problems.
www.clarensyst.com.mx