The Weekly: Edition #35 - March 6, 2020
The only certainty in business? Change.
This week, we shared our latest thinking on managing change within an organization.
Change in business is a certainty. Corporate governance will change, executive leadership teams change, industry dynamics will change, consumer trends will change, and technology will change. Navigating change is the top factor in whether a business survives for multiple generations. We'd like to highlight two additional pieces that we think will be helpful in framing the way you think about change in your organization.
Internal change is meant to reposition your organization for greater success. Whether this is in the marketing department, your balance sheet, or your operations, all change is meant to improve your business.
But not all change is good.
Take, for example, the consumer retail industry, which is awash in a sea-change of direct-to-consumer trends and companies. When direct-to-consumer came into vogue, many believed that this change would result in significant business opportunities. However, in the piece by Luke Weston below, we note three broadly applicable principles to which all companies should aspire: profitability, scalability, and durability. But in the DTC changes that swept through the consumer retail industry, many companies forgot basic principles of business.
Directly from Weston, good businesses possess:
"(1) Viable business model - can you make decent profits on the unit economics? (note: this means that DTC winners will, by and large, be premium-priced, with decent basket sizes, with efficient cost structures, and have repeat business with a customer rather than just one-off transactions)
(2) Scalability - can you stretch the company to scale its potential? (note: this can be any combination of additional sales channels beyond DTC and/or additional relevant product categories, and/or new geographies)
(3) Competitive advantage - do you have something unique which is hard for others to replicate? (note: brand positioning/messaging can be a feature of this, and first-mover advantage definitely helps if it gets traction, however ideally it will have novel features or capabilities that are challenging to replicate and solve an unmet consumer need)"
In addition, we work with many family-owned businesses as they transition ownership from one generation to the next or as the last generation retires. Boston Consulting Group has put together a framework for setting clear expectations, rules, and governance around family-owned businesses to ensure proper management from generation to generation.
BCG on ownership changes:
"Ownership Structure. Family members should get a baseline understanding of the current (and future) ownership structure. For example: Is ownership concentrated among a few family members or many? Are there two or more potential successors? Is current leadership near retirement age? Are family members deeply involved in running or overseeing the business, and do they want to be? Are members of the next generation capable of and interested in running the business? The answers to questions such as these can confirm existing norms and help decide if the family’s engagement structure with the business should change."
The bottom line is that change is inevitable in life and business, but with the right tools and strategies, you can ensure that your organization drives productive changes that will increase the profitability, scalability, and durability of your business.
How to manage change (Permanent Equity)
+ "Want to know a secret? We’ve never invested in a perfect company. In our Investment Criteria, we’ve built a framework that we believe helps us invest in healthy businesses. But over the course of nine acquisitions, we have yet to invest in a company that didn’t benefit from meaningful change. We’ve also never invested in a company that didn’t have significant advantages in their products, processes, and people. So how do you effectively introduce change in an organization without doing harm to what has produced its success?"
A potentially unpopular opinion on the future of DTC (Luke Weston)
+ "Fawning media lavished praise on the early movers... but how many of these new brands had products or business models that solved an unmet consumer need, or were truly better or truly different or truly breakthroughs? Better aesthetics, usually yes. More interesting brand messaging, usually yes. But how about viable business models, scalability, and competitive advantage? These normally critical parts of business success were largely ignored. Meanwhile, these upstart brands chased all-out growth, often at all costs."
Great family businesses need good governance (BCG) - H/T Stuart B.
+ "The role that family businesses play in advancing economic growth is hard to overstate. (See “An Economic Bedrock Through the Ages.”) In many major economies, family-owned businesses account for a significant share of all companies. Our analysis of Indonesia, India, and Germany found that family businesses represent 48% to 74% of all manufacturing companies. (See the exhibit.) They also create millions of jobs through direct employment and millions more indirectly. And they inject significant revenue flows into these economies. In Indonesia, family-run businesses generate more than $100 billion (roughly 10% of GDP). In India, that figure climbs to nearly $670 billion (about 25% of GDP). And in Germany, family businesses contribute a massive $1.8 trillion in revenue (approximately 49% of the country’s GDP)."
Do beauty-centric private equity firms need a focus? (Glossy)
+ "“From a competitive advantage perspective, having a specialty and proving you can deliver in a Sephora or Ulta or QVC moves the needle,” said Brian Thorne, Silas Capital partner. Silas Capital’s brands largely sell in those retailers. “Twenty-five years ago, L. Catterton’s differentiating factor was that it was practically the only dedicated consumer fund. Now there are a lot more out there. There is a vast amount of capital today than there was in the past, so when talking to founders, you have to prove your value add to win.”"
Is the music copyright business worth more than ever? (Billboard Insights)
+ "The total global value of the music copyright business reached $30.1 billion in 2018, an all-time high in nominal terms, based on the best available information, although still shy of its 2001 peak once inflation is taken into account. Currency fluctuations and the lack of exact statistics make it impossible to directly compare more than two consecutive years, but this 2018 total represents a 9.3% increase over 2017 — and an increase of $2.6 billion when measured in constant currency. (2018 is the most recent year for which accurate statistics are available.)"
Facebook advertising decoded in 15 Minutes (James Chadwick)
+ "The strongest mobile ads are built with ABC blocks — Attention, Benefit, CTA.
A — Does it grab Attention?
B — Does it communicate a meaningful and believable Benefit?
C — Is there a low friction Call-to-Action?"
Email marketing: the ultimate guide for 2020 (Buildapreneur) - H/T Lewis P.
+ This is a helpful guide that covers building, managing, and operating an email marketing list.
Managers, take your 1:1s to the next level with these 6 must reads (First Round Review)
+ "When it comes to holding more impactful 1:1s, asking better questions is key. But so is an ability — and a willingness — to go the extra mile as a manager."
Why America is losing the toilet race (NPR)
+ "Japanese toilets are marvels of technological innovation. They have integrated bidets, which squirt water to clean your private parts. They have dryers and heated seats. They use water efficiently, clean themselves and deodorize the air, so bathrooms actually smell good. They have white noise machines, so you can fill your stall with the sound of rain for relaxation and privacy. Some even have built-in night lights and music players. It's all customizable and controlled by electronic buttons on a panel next to your seat."
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