I’ve been recently guilt tripped into writing a new blog.
Out of spite, I’ve decided to recreate our entire conversation in written form in an attempt to ensure no one else tries that stunt again.
I’ll also address other consistent blog-related criticism:
- You seem to be obsessed with Disney: You will find no references to that wonderful world.
- You seem to be a know it all: I admit that I am both the pot and the kettle.
- It’s usually light on story on heavy on words: No comment.
- Your obsession seems to have worsened over time: Curiosity has no depth.
- You have a lot of opinions: I have a lot of POV’s (opinion wrapped in expert condescension)
- I have a better idea: Happy to hear it, and disagree
Now back to our conversation….
Various industries are suffering through an economic downturn and we need to revisit what it will take to survive through the bad times.
Your company has had a long and successful history of selling ice cubes. You’ve evolved from the standard cube-shaped, sold by the dozen, consumer-focused offering to enterprise grade diversified shape/color and taste customized “frozen water”. While the company has always had cyclical selling cycles (90% of cubes sold in the summer months), you are starting to see a gradual reduction in sold units based on the water shortages and economics associated with it.
Fortunately there is a long tail for the company; the need to chill sweet tea while sitting on your porch swing in Savannah while waving to passersby’s, will always be necessary.
You have time to change, but you need to diversify and evolve the business to last another 100 years.
After acceptance of impending financial doom (several quarters of wishing for rain), you engage in the traditional approach of business evolution, a 3-pronged parallel activity of:
- Implementation of a Cost Savings program: production efficiency, zero cost budgeting, simplification of process, rationalization of facilities, and reductions in headcount in an effort to stabilize the financials
- This program has real limits, there is a realistic floor of possible cost cutting before negatively affecting the reputation of the business and/or satisfaction of the clients
- Considering you only have a single plant that manufactures the cubes, cost savings mostly is derived from shift reductions and scaling back product customization (only transparent cubes henceforth)
- Implementation of a Capital Diversification program: geographic diversity (open businesses where there are more summer months), acquisitions/mergers of competition (industry consolidation)
- This program assumes you actually have cash in the bank, or a means to acquire the cash necessary to buy a portion of your evolution
- One might think an ice cube business is a license to print money, ironically it’s not all that liquid. Most of the assets are in water futures.
- Implementation of an Organic Growth program: create and sell adjacent products and/or sell to new client segments
- Presuming you have a command of your marketplace, the net result of an Organic Growth program will have varied results (skewing toward a slight growth projection)
- Snow cones seem like an obvious adjacency to a whole new client segment, why not try that?
Certainly, there will be success in the traditional business evolution activity. However, there is also value in “differently thinking” about your business model instead (or in addition).
The 4th parallel activity should be a complete re-evaluation of your business model based on your central or core virtue, a symbol of the character of your business.
Your business model (how you describe your business) includes the attributes of: key partners, key activities, key resources, value propositions, customer relationships, customer segments, channels, and of course cost structure and revenue streams. As a whole they describe the operating nature and purpose of the organization.
For the ice cube business the business model would include:
- Partners: Water delivery provider
- Activities: Pouring water into trays and freezing them
- Value Proposition: “Why do the work when you can buy from us”
- Customer relationships: transactional, one cube at a time
- Customer segments: families and office management
- Costs: Water, electricity, and people
- Revenue: $/cube, capex model
What if you chose to re-think the problem by purposely ignoring the perceived business constraints and existing investments, and determine what is the single most important (core) character of the business. What single factor defines 1) who you know, or 2) what you are known for, or 3) what is your unique expertise, or simply 4) what defines your spirit and heritage.
It might be a client (or set of clients), an asset (or set of assets), an industry, an core subject matter expertise, a unique relationship, or technological/intellectual property. In a manufacturing business, it might be the patent on the widget. In a financial services company it might be a unique investment product. In an energy company it might be a machine.
In an ice cube business, it might be the source. Water.
Once you have discovered your core or central character, your entire business model is “up for grabs” for a well-researched and rational debate, and re-articulate of the various business model attributes. In the ice cube business, once water is determined to be your core character, you can brainstorm business evolution against all other attributes:
- Partners: water boiling provider, ice sculptors, hydrogen/oxygen separation services
- Activities: governing all the potential uses of water in various states
- Value Proposition: “Why worry about what you can do with water when we can do it for you”
- Customer relationships: transactional, by the gallon, customized, artistic
- Customer segments: individuals, families, corporations, and ourselves
- Costs: water, electricity, and smarter people
- Revenue: earn revenue as a % of utilization, opex model
Now repeat the new business model discovery discussion by identifying a different core character and repeat the process of identifying the new business models. Evaluate all options and appetite to dramatically evolve, and determine the “best bet” for longevity.
Or you can stay the same and find more costs to cut.
Something to consider....
Are you happy now sir? I posted another blog.