About an author:
Svyatoslav Biryulin is an experienced CEO and business consultant. He started his career as a sales rep and within 10 years he was promoted several times, up to CEO position. As a CEO he ruled several companies from different industries with turnover of up to $1 bln and with staff up to 3500 employees.
Since 2012 Mr. Biryulin has worked as a strategic consultant and as CEO of his own company, KVAN consulting. During this time he has helped a lot of companies from different countries develop new successful strategies. See more at www.en.kvan.si
This short book came about as a result of Mr. Biryulin’s thinking and critical comprehension of some popular modern ideas about business, of some “new approaches” which pretend to be new “big things” but sometimes don’t work as efficiently as we expect.
This is not a manual. This book is just a way for the author to share his ideas with other managers and businessmen. And the author would be glad if some discussion about the book will begin. If you have any questions or just want to share you ideas about business please do not hesitate to contact us by e-mail firstname.lastname@example.org
Chapter 1. Concentrate on the ball
I often ask the audience while holding seminars or workshops — why do your businesses exist? What is the destination of your companies? And very often (actually much more often than I would prefer) I hear the answer — profit. People — entrepreneurs, CEOs, top-managers believe that the main purpose of their businesses is net profit.
Usually I ask them afterwards — would you agree that the main purpose of your life is money? Your annual income? Nobody agrees. We don’t want to live just to get paid — we prefer to get paid in order to live. We would like to dedicate our life to something more significant than money. To our children. To a spiritual life. To our beloveds. But these good intentions disappear as soon as we start thinking about business.
Peter Drucker claimed that if you thought that your business existed only for profit it meant that you knew nothing about business. Ichak Adizes compares making business with playing tennis. One can’t win if he (or she) concentrates only on the score on the table — and score in tennis is symbolic “net profit”. If you want to win you have to concentrate on the ball. And on your rival. Steve Jobs criticized his predecessor, John Sculley, for being concentrated on the net profit too much.
What’s wrong with the net profit?
The net profit is important. There is nothing good if your business is losing money. But net profit is similar to body temperature — if it is normal it doesn’t necessarily indicate that you are healthy. There are a lot of diseases that are without fever. If your company made a large net profit last quarter it doesn’t mean that it is “wealthy”. The only thing it means is that last quarter it made a large net profit.
Net profit is the consequence but not the reason. The good consequence if you have done everything properly, if you have done the right things and done them right. The lack of the net profit is just an alarm, a signal that you’ve done something wrong. That you should have done something better than you did.
Approximately two years ago Apple for a short period of time became a company with the highest capitalization in the world. Apple is a big and very profitable company. But the name of this company is familiar to everybody (or at least almost everybody) in the world not because its shares are very expensive. We all know and some of us love this company because it creates beautiful and user-friendly high-end devices bought and used by millions. You may make your calls using iPhone or Samsung, search on the web using Google or Yahoo, you may drive your Tesla, Lexus or BMW knowing nothing about their net profit. You don’t do it because they are profitable. On the contrary, they are profitable because you do it.
There are different ways to increase the net profit. For instance, a company may cut expenditure. Sometimes it is the best way to make your company more efficient, but sometimes not. Sometimes a company should increase CAPEX or OPEX to be successful, but a CEO is too careful — because she (or he) cares too much about current net profit. If a company’s shares are traded on the stock exchange the CEO is under a lot of pressure. The majority of investors are not interested in long – term conceptions, all they need is quarter net profit because it pushes the price of their shares (and therefore the value of their assets) up. If it doesn’t happen they will just sell those shares to re-invest their money in other assets. But any business is a long-term story. Companies have their ups and downs, sometimes they just must lose their profit or to forward their cash flow and efforts to more prospective projects, markets or regions.
Jack Welch, ex-CEO of General Electric, used to close or sell companies belonging to the group if they hadn’t become a leader in their markets. He said that if a company makes a low net profit sometimes it is even worse than it is loss-making company. If a company doesn’t make any profit it is a clear indicator that something went wrong. But when a company, especially if it is a part of a big holding, makes a profit but this profit is not significant a CEO and shareholders of the holding may believe that everything is normal (or is going to be normal soon). But keeping such a company in holding means to spend precious resources on something that doesn’t bring dividends. Welch believed that the best way in this case is to sell the company and to reinvest resources (not only money but people, technologies, patents etc.) into something more prospective. So sometimes net profit is not a good sign.
But even if your company is profitable, and a net profit is high enough it is not guaranteed that you will have the same profit tomorrow. The line “net profit” or “EBITDA” in your financial reports may tell something about your past but nothing about your future. And the only thing that can tell something about your future is your customers and their attitude to your company and your products.
If your company manufactures good and asked-for products, if it provides high-quality service, if you pay enough attention to relationships with your customers and think everyday of how to improve them you have a chance, even if right now your company doesn’t make a lot of money. But even if your company is profitable but your products are outdated, if the quality of your service is poor your company is doomed. You will have to change — or die.
Of course it is important to keep your gross margin bigger than your overheads. A company can’t be loss-making forever. For instance, businesses like Uber or Twitter have never made any profit so far. They are popular among investors because they still believe in future of these companies, but sooner or later they will demand their money back. But it is a much easier task — to think about how to get a profit having many loyal customers than to think how to get many loyal customers even having a large profit.
Concentrate on the ball. Think about your customers. About your rivals. About your products. Of course think of your net profit as well but just as of one of the things, not as of a main goal. Usually net profit is not the reason to work harder, it is a consequence that you have worked hard enough.
Chapter 2. Don’t think for your consumers
Every year at least several customers — CEOs or entrepreneurs, — come to us with the same request: their products are not demanded by consumers. And every time when it happens we ask them to show us the results of the last market research they did. “Market research?” — they typically ask, being obviously astonished, — “We didn’t do any market research!”.
Very often (actually, much more often then we should) we think that we know very well what our customers (or consumers) need. We are sure that they will like the taste of our new beverages or food, or that they will be crazy about the new design or packaging of our gadgets. We believe that they will appreciate the usability or appearance of our new web site or mobile app. We are positive that they will love our new ads and will be happy to become customers of our bank or car-sharing service. And very often we feel deeply disappointed afterwards. So do our consumers.
There is only one way to know exactly what consumers have in their mind — to ask them directly. Of course it is not that easy if you have thousands of them but even in this case there is a solution. You may ask them online (which is much easier) or use one of several marketing tools.
Marketing is a science helping you to learn more about your consumers — what they like, what they dislike, what they believe in and whom they trust. This book is not about marketing (hundreds of good and interesting books about marketing are available in almost any bookstore around the globe), this is a book about the idea that knowing your customers deeply and well is very important. And it is not as difficult a task as some people think.
One of our customers invested millions in a new concept for his chain of fast-food restaurants. He got that idea while reading an article in a newspaper. It was written in that article that people all over the world thought more and more about healthy food and that soon all food, including the fast kind, would be healthy. That even McDonalds would have to serve healthy food in their restaurants because otherwise people will stop visiting them.
He decided that it was a brilliant idea and that he had to forestall the market. Especially because he was a health food eater himself. He ordered sophisticated (and rather expensive) equipment to produce new dishes including fresh salads and low-fat hamburgers. He renovated the signboards above of his restaurants doors and renewed the chain’s logo. He created a new menu list — now it consisted generally of healthy dishes, which was new, unique and very attractive for his customers. At least he thought so.
Unfortunately the customers thought differently. Maybe in some countries the popularity of healthy food is indeed rising but in his motherland the food consumption culture was still rather conservative. People believed that fast food dishes must be high-calorie, which means that the food would be fatty and not very healthy. It is not that they didn’t like the new concept at all — it was just not attractive enough for them, so the chain didn’t get any new customers. The revenue continued decreasing and it became a problem, considering the investments he made on credit. The only thing that entrepreneur should have done is to conduct market research beforehand which would have cost him much, much less than he invested.
Some people believe that when you create something absolutely new it is useless to ask consumers before you show them the product (or, at least, a prototype). They often quote Henry Ford: “If I had asked people what they wanted they would have said faster horses”. Or recall that Honda bikes in the distant 60s became popular in the USA only because of their handlebar’s specific curved shape, and that they had got this shape only because this way they were similar to Buddha’s brow. And that Honda’s head believed that was a good sign — so it was not a typical way of making strategic business solution.
These people suppose that Steve Jobs was a genius ignoring the marketing laws and creating Apple products as an artist creates his picture — intuitively, instinctively. That every new product is a result of a miracle, of the mystical insight of a creator. That inspiration is all you need to invent a new product or a new service for your business. But that is not true. Behind all the gifted inventors and innovators in business are an army of marketers and researchers who are looking for new ideas and test these ideas before they are put on the shelves. But those marketers and researchers rarely get on the covers of Forbes or Fortune.
Procter&Gamble has existed since 1837. It is one of the oldest and most successful companies in the world. Their turnover in 2010 was almost 80 billion dollars. Billions of people all over the world use products manufactured by the company every day. You may find a lot of stories about the company but you won’t find among them a story about Alan Lafley, a CEO of P&G, inventing (on his own) a new type of washing powder or a new brand of soap. From the book “Playing To Win: How Strategy Really works” you will learn a lot about how P&G releases new products to the markets and how much of a marketing job they do. Maybe because Alan Lafley doesn’t think he is genius — he is just an extremely successful CEO.
Business heroes, such as Elon Musk, Richard Branson or Jack Ma are more attractive faces for cover stories than ordinary marketers doing their boring day-to-day job. That’s why we won’t see their faces on the magazine cover. And we’ll never see on the cover faces of million start-uppers who launched their projects without testing the market, thinking that they were able to foresee their consumer’s wishes. Every day a number of new programs, web sites, phone apps, services or even factories appear just to disappear without a trace in a couple of years. According to Forbes, nine of ten start-ups usually fail. And even though all of them are different the reason is usually the same — they appeared to be unable to suggest to their customers something they need.
Chapter 3. What does it mean — to be the boss?