Disruption

Welcome to the Part Three of a series of musings on Entrepreneurship. 

Disruption

What is disruption?

Welcome to the Martin Haese Report. If you have already read my previous posts about entrepreneurs and intrapreneurs, you will have noticed that one word has influenced both – disruption.

For the last decade or so, the word ‘disruption’ has usually been preceded by the word ‘digital’ and many businesses have gone down the path of building their digital footprint with websites, online stores, blogs and dedicated social media teams. 

These platforms are all valuable tools for businesses and even the humble corner shop should, at the very least, consider updating their details with Google. However, each of these digital tools are just that – tools.

I closed out my last post in this series with the statement:

“For many years, the biggest threat to most businesses was competitors with cheaper prices – a relatively easy problem to counter, but over the last decade or so it has been competitors with better ideas.”

Disruption happens when a new idea is enabled by technology.

I cut my teeth in the retail sector and retail has a long history of disruption. From the first chain stores of the Hudson Bay Company in the 1670’s through to mass production made possible by the first industrial revolution, disruption in the retail sector has been ever-present. 

The World's first shopping mall - Southdale Centre, !956

Southdale Centre, opened in 1956, was the world’s first shopping mall. Designed by Victor Gruen, the shopping mall significantly disrupted the retail sector.

The advent of the department store in the mid-19th century, vending machines and mail order in the 1880’s and supermarkets, big box stores, credit cards and suburban shopping centres in the mid-19th century were each significant developments resulting in various levels of disruption. This has all happened in an industry that the pundits first pronounced dead in the 1880s when the Sears catalogue was produced. 

In the last quarter century, we have seen a sharp acceleration in the pace of new technology and with it, an explosion of new ideas.

Suddenly, anyone with a computer can open a shop and take orders from around the world, but it will be new and better ideas that determine which ones will be successful or not.

Global Disruption

In my last post I talked briefly about the epic disruption caused by the widespread use of the iPhone and I used it as an example of how it upended the photographic industry in a very short period. 

By enabling access to the internet, smart phones became increasingly indispensable and adding a camera meant that our way of thinking about photographs was always going to change. 

Smart phone technology didn’t happen in isolation – it required big leaps forward in both internet connectivity and wireless technology, but it has disrupted and destroyed many industries and created many new ones.

Happy 40th birthday – Sony Walkman

The Sony Walkman turned 40 on the 1st of July this year and it is important because this unassuming little box changed many lives.

The Sony Walkman

The Sony Walkman turned 40 this year, forever changing the way we listen to music.

The recorded music industry emerged as a disruptor to the sheet music printers at the beginning of the 20th century. Phonograph records had been available since the 1880’s but back then, new technology took a little longer to catch on. 

Recorded music enabled broadcast radio in the 1920s which brought music to the masses and with it came an explosion of artists, record producers, sound engineers, recording studios and companies, record player manufacturers and record stores. 

Many industries emerged from that first idea and the music industry grew apace.

Video killed the radio star … or not?

Video Killed the Radio Star by the Buggles was released in 1979 and the song predicted the demise of records and cassette tapes. It was, unsurprisingly, the first video aired on MTV in 1981.

Coincidentally, the beginning of the disruption of the music industry began in the same year with the release of the Sony Walkman – it was the triumph of an extraordinary idea over an otherwise good one.

The Buggles - Video Killed the Radio Star

The Buggles predicted that the future of music would be visual, in the same year that the Sony Walkman was released.

Up until that point, music wasn’t very portable – at least not in the way it is today.  Radios, record players and cassette decks were getting smaller, but most people still listened to recorded music in their cars or more commonly in their homes. 

Music videos seemed like the next big thing, a logical next step forward. However, music videos weren’t revolutionary as adding visuals didn’t radically change the way people listened to music, only their visual appreciation of it.

The revolutionary development or ‘better idea’ was in fact allowing people to listen to their favourite music anywhere and at any time and the industry continued to grow.

So, where did it all go wrong? 

Even better ideas.

Advances in technology led to digitised music in the form of the compact disc and later digitised music files, stored on your device or on the cloud – streamed, downloaded and endlessly shared.

By making the physical product redundant, the music industry has saved billions of dollars but that in turn has led to the demise of many jobs in the associated industries that supported it.

Some argue that it has also affected the quality of new music – when people paid for records, we had David Bowie – now we’ve got Chris Brown.

Local Disruption

Global disruption is usually easy to identify but what of the small-scale disruption going on around us every day?

Talking to business owners, I have noticed that many are doing it tough while others seem to be doing better, and this is most apparent in the food and beverage industry.

In the last few years we have seen the emergence of a new kind of business owner, one who is both entrepreneurial and curatorial. 

This new retailer has observed a niche in the market and has created and ruthlessly curated their business to that fill that niche.

A tale of two cafes

Not that long ago, successful cafes were much larger and had seats for 80+ people. 

They sold coffee and served a tried and tested menu of focaccia, bruschetta, pizza, pasta, cakes and ice cream – something for everyone.

Patrons would find a table, then go to the counter to order their food, shuffle across to another counter to order their drinks and come back with a table number and wait for their food.

This format worked well for a long time but lately that format has been challenged by a new type of cafe.

New Cafe

A new cafe format has emerged to cater to a new generation of patrons

For starters these new cafes are harder to find. They pop up in the least expected places. They don’t always want or need a mainstreet shopfront and they don’t need to pay inner-city rents because there are plenty of customers and very little competition in otherwise under-serviced suburbs. 

These new cafes are a lot smaller and less likely to be fitted out by a commercial shopfitter – they often have mismatched chairs and tables and the smaller size means they are quieter and more intimate.

Most of these cafes offer a wide selection of vegan and gluten free options because they know that an estimated 12% of Millennials identify as vegetarian or vegan and the percentage of Generation Z is likely to be even higher.

Don’t be surprised if your cup and saucer or knife and fork don’t match – it’s almost as if they’re saying, “who cares about the utensils – we’re all about the food.”

The lessons for traditional retail 

If food and beverage operators are finding niches and exploiting them, why aren’t other sectors of the retail industry?

There is an orthodoxy that every retail business should be heavily data driven like the Fast Moving Consumer Goods (FMCG) sector – an orthodoxy that involves no human curation and puts them into direct competition with the likes of Amazon.

I recently read this from Seth Godin in a blog post about curation:

“Amazon is good at selling everything, but they’re terrible at selling a thing … The platforms (Amazon et al) are built on the idea that the audience plus the algorithm do all the deciding. No curation, no real promotion, simply the system, grinding away. This inevitably leads to pandering, a race to the bottom.”

He goes on to say that, in the past:

“Curators and their curation led to promotion and attention. There was a cost to picking junk, and a benefit to earning trust.”

and it is this trust that builds customer loyalty much more effectively than a rewards card or complicated points scheme. 

You can read the whole post here

It is also entirely possible that many retailers have failed to change with the generational shift in the market. In some cases, the business practices that made them successful and endeared them to the Baby Boomers and Generation X are now their biggest liability with Millennials and Generation Z.

Disrupting your own customer base.

What do Nike, Michael Hill Jewellers and Gillette have in common?

Until recently, they all had a younger target demographic but an older client base – the customers that made them successful were becoming their liability.

When you think of Nike, Nike wants you to think of young, lean and strong sporty types, but their loyal customer base is often the exact opposite.  

Michael Hill was just another jeweller selling expensive baubles to Baby Boomers using the imagery of Generation X.

Gillette is a heritage brand and part of the global Gillette/Schick duopoly for razors, both are under increasing pressure from subscription razor models (another ‘better’ idea)

Millennials are just as rebellious as every preceding generation and wearing the same brand shoes as your dad or the same ruby earrings as your grandmother was never going to wash with them.

Faced with this reality, those companies made concerted efforts to win Millennial customers by deliberately letting go of some of their existing customers.

Nike 

Colin Kaepernick, Quarterback for the San Francisco 49ers, began protesting his country’s treatment of minorities in 2016 by kneeling during the national anthem and he continued to do so at every game throughout the 2017 season. 

Many Americans were incensed and Kaepernick was heavily criticised.

Under increasing pressure, Kaepernick opted out of his contact to become a free agent but was not picked up by another team.

While standing up (or kneeling) for what he believes in did not align with any of the other NFL teams brand values, another brand thought Kaepernick was a perfect fit.

In September 2018, Nike launched a campaign to celebrate the 30th anniversary of their “Just Do It” tag line. 

Colin Kaepernick - Nike - Just Do It

Nike chose Colin Kaepernick to disrupt their customer base

The campaign featured Serena Williams, skateboarder Lacey Baker and others but it was the inclusion of Colin Kaepernick that ‘inspired’ some Nike wearers to make YouTube videos of themselves threatening to boycott the brand and burning their Nike branded T-shirts and socks.

It would be easy to think Nike misjudged public sentiment, but I would argue that Nike doesn’t make mistakes like that. It was instead a calculated attempt to distance themselves from people they didn’t want to wear their brand in order to attract people they do want wearing their brand.

The campaign resonated with Millennials and Generation Z and Nike sales and shares soared in the direct aftermath.

Michael Hill Jewellers

Support for marriage equality has been high in western democracies for at least the past decade but especially amongst younger people and inter-racial marriages barely rate a mention.

But still, there was controversy and like many other things that older generations get ‘worked up’ over, most Millennials simply couldn’t understand what the fuss was about.

This sentiment was fertile ground for marketers tasked with differentiating their client from their competitors and in 2015, Michael Hill Jewellers released their stunningly beautiful ‘we’re for love’ campaign.

This two-minute-long advert marked a departure from hackneyed jewellery advertising with their unrealistic portrayal of glamorous women on the arms of handsome men or sparkly product shots. 

This ad shows product but if you blink you will miss it – the focus here was on real people and real love, no matter what form that takes.

I remember bumping into a jeweller after this ad was released and it came up in conversation. He was shocked that they chose ‘such ugly models’ by which I assumed he meant ordinary people.

This ad signaled to younger people (by far and away the largest target market for wedding and engagement rings) that Michael Hill was the destination of choice.

Gillette

There’s nothing trendy about razor blades – at least not since the heyday of Punk Rock in the 1970s and it’s difficult to instill brand loyalty in what amounts to a grudge purchase.

Until recently, the razor blade duopoly had little competition but the subscription models have chipped away at the younger market (older users generally don’t buy their own blades) by removing the hassle of having to remember to buy them, then lining up at a special counter and having to ask for them because they aren’t kept on the shop shelves. 

Earlier this year, Gillette set out to win Millennial hearts and minds with an advert squarely aimed at toxic masculinity with the ad riffs on Gillette’s tagline asking, “is this the best a man can get?” 

The ad caused an immediate backlash from some consumers and again, angry customers posted videos of themselves binning Gillette products on YouTube.

But for many, the ad tapped into the horrific revelations exposed by the #metoo movement and shone a light on other aspects of society that are all too often tolerated or excused. 

Here was a big corporate calling out bad behaviour, no matter the cost of doing so.

It is difficult to gauge the impact on sales, Gillette reported that sales were down 3% on the previous year but without access to historical sales data, we don’t know if 3% down on last year is an improvement in their long-term sales trajectory. 

We do also know that Gillette management reported post campaign sales were in line with pre campaign sales suggesting that Gillette gained as many customers as they lost.

5 ways to become a disruptor.

1. Embrace disruption

When speaking to business owners about disruption, they invariably see it as something they must counter rather than something they should be actively encouraging.

I can guarantee you that your competitors who are growing and thriving, those ‘challenger businesses,’ have a very different view of disruption – they see it as an opportunity. It often helps to cast your mind back to where it all started and think about how you would open your business today, knowing all that you know now.

2.  Think

I recently read about a senior executive who displayed a large framed poster in front of his desk that simply read ‘THINK’.

His reasoning was that we all spend far too much time working in the business rather than working on the business and the poster was a constant reminder to stop occasionally and think about the bigger picture.

When I owned my retail business, I consciously set aside most Fridays to work ‘on’ my business and not ‘in’ it. I credit this discipline as being one of the key reasons why the business was able to achieve size and scale faster than many others.

I often break the process into smaller pieces, concentrate on one aspect of the business and depending on the situation put myself in the customer or employees’ shoes before looking for pain points and opportunities.

3.  Competitor analysis 

Every now and again, someone will ask me for business advice. If it’s an industry I’m unfamiliar with, I will often ask what their competitors are doing and I’m frequently shocked by how many people say they don’t know. 

Getting out and about to see what the market is doing is one of the most important things you can do – If you don’t, you’re running your business in an echo chamber.

4. Educate yourself

You’re already reading my blog so that’s a great start but also consider booking yourself into an industry conference or trade show, take a short course in social media marketing or read books or listen to a business podcast. 

I am a voracious reader and often come across books, biographies, journals and articles that I sense you would benefit from. To provide you with even greater value, I will soon share some of these with you in future posts on the Martin Haese Network. 

You have the entire sum of recorded human knowledge at your fingertips – use your time wisely. 

5. Ask for help

Nobody expects you to have all the answers, so ask for help. 

Your first step is to ask your employees (see The Talent Within: Entrepreneurial Employees) but failing that, customers, colleagues, close friends and family each have different perspectives and they all want to see you succeed. 

Thank you for subscribing to my blog. 

If you haven’t already joined my network, you can sign up here for free and please don’t hesitate to recommend my blog to any of your friends, family or colleagues who share our common interests.

With kind regards,

Martin Haese MBA

Next blog post: 

Part Four – Social Entrepreneurs – can the world’s problems be fixed by entrepreneurs?

Expect Change

Expect Change

Expect Change

As a former national retailer, I like to pay attention to what’s happening in the retail sector. I also like to keep a close eye on this sector as it is a barometer for growing consumer confidence, or the opposite.

The news this week is that Woolworths will close thirty BigW stores effective immediately with two regionally based distribution centres marked for closure in the next two years. The business commentariat has flagged competition from online as a major contributing factor. Oddly enough, no-one seems to have noticed that BigW’s competitors in the Discount Department Store (DDS) sector, Target and Kmart, are seemingly less affected. The truth is that BigW’s problems started a little over a decade ago in South East Asia when Wesfarmers placed a call to Mr Guy Russo, the then retired President of McDonalds Greater China and former Managing Director and CEO of McDonalds Australia.

Someone at Wesfarmers had decided that Mr Russo might be able to salvage something from the emerging train wreck that was Kmart Australia. Mr Russo’s appointment was to be the last roll of the dice for Kmart which had had something of a revolving door for senior managers with three Managing Directors occupying that position in 10 years. Mr Russo took some convincing, after all, what could a guy with 34 years of fast food experience have to offer a department store?

As it turns out, quite a lot.

Company Culture

I had the privilege of hearing Guy Russo speak at a conference just a few years after this spectacular turn around. A down to earth, unassuming man approached the podium and asked the audience to guess how much his outfit, a suit and tie, shirt and shoes, cost. He didn’t tell us then, he instead saved that for later.

Mr Russo recounted the phone call he had received and his own trepidation about it but then pivoted to what we were there to hear, how he turned around a monolithic company like Kmart from the brink to setting the pace for other in the DDS sector to follow. How did he manage to make Kmart so ‘cool’ that numerous Facebook fan groups have popped up, boasting no less than a combined half a million followers; something unheard of for an Australian retail corporate.

In short, Guy Russo did nothing except listen for several months. He listened to the Buying and Marketing teams, he listened to the Retail Operations teams, he listened to the upper, middle and junior managers but perhaps most tellingly, he listened to the floor staff; even the 17 year olds that hand out garment tickets at the entrance to the fitting rooms.

Unsurprisingly, he discovered that after more than a decade of flagging sales, uncertain job security, heavy handed management, staffing cuts and other by-products of economic rationalism, the company had a culture problem. The people themselves had most of the solutions and they were more than happy to share them but collectively, Kmart didn’t know how to win anymore and no-one even knew what the brand stood for.

The situation at Kmart was so dire that Wesfarmers, quite rightly, were not prepared to throw good money after bad and this presented yet another challenge for Mr Russo. He would have to change the company’s culture on a shoestring budget.

Mr Russo called in his Senior Management team and work-shopped the feedback he had received over the previous months. The team looked at every business function and gradually a way forward emerged.

Expect Change

It was at about this time that Kmart launched a new TV marketing campaign. These weren’t the adverts with people bouncing around to funky covers of 80’s era one hit wonders; that would come later. These were simple ads that stated ‘Expect Change.’

I remember discussing those ads with a colleague at the time; the genius of those two words as a slogan, their double meaning. The message that something was happening at Kmart and it was going to be affordable.

Meanwhile, the Kmart Senior Management team were reinventing the whole company and Mr Russo was proud of the fact that reinvention didn’t automatically mean redundancies. He mentioned that some people left because they did not like the changes that were happening but no-one left Kmart during this period involuntarily. Mr. Russo was intent on refocussing as many of the existing personnel and putting their ideas into practice, building capacity and creating a winning team.

In an unusual move, much of the early focus fell on the buying department. Mr Russo tells the story of how, prior to his arrival, Kmart stocked somewhere between 20 and 30 different outdoor barbecues. Several brands with many options and this was whittled down to 3 barbecues – a good, better and best option.

During this time, some departments disappeared altogether which is why you can’t buy plants and garden accessories at Kmart anymore. National brands were also in the crosshairs and Bonds was one of the first casualties. Why buy from an importer with no control over how their brand was discounted when Kmart had the resources to import their own product and sending buyers overseas with empty ‘Open To Buys’ led to further opportunities.

Mr Russo and the Senior Management team turned their attention to pricing and earned sage nods from the audience when he related that using pricing that ends in 0.95 or 0.99 cents is equivalent to lying to your customers; you both know that the item is the rounded up figure so why pretend?

Next it was the store’s turn. New floorpans were introduced and the aisles were cleared of clutter. Does anyone remember the large cardboard bins full of $2 DVDs that obstructed every Kmart aisle? Those bins were bought and paid for by the suppliers but Kmart’s profits from DVD sales were in steady decline. Those bins were removed for economic reasons as much as aesthetic ones.

All of this newly found space was filled with new stock. The buyers had been busy buying all those new product ranges that half a million Facebook Mums now love Kmart for.

Marketing then had its turn. Do you remember the last time you received a Kmart catalogue in the post? Me neither … and this proved his point before he made it. Mr Russo described the decision to drop catalogue advertising was like giving up cigarettes or hard drugs. For years, Kmart’s poor performance was propped up and papered over by a regular cycle of catalogues. When catalogue advertising was dropped, Kmart entered a year long period of barely meeting last year’s sales and many counselled starting them up again to arrest the situation. However, steady improvements in other areas of the business enabled them to justify and continue with the plan.

With all of these exciting changes happening elsewhere in the business, it must have been tempting to leave Retail Operations alone. However, Senior Management had a plan to change the company’s culture and part of that involved giving staff members more control over the stores that they worked in. A new set of operating procedures were introduced where floor staff were empowered to make some decisions without the need to refer to their managers. I have personally experienced this when an item scanned at $10 instead of $5. The situation was immediately rectified without making me or the staff member feel uncomfortable; it’s a nice way to shop.

The Cost of Change

None of the above changes were implemented without associated costs but they were cost effective (remember that shoestring budget?) and they changed the entire company culture at Kmart.

Target and BigW both noticed Kmart’s resurgence on their sales performance and ultimately it’s dominance of the DDS sector. In 2016, Mr Russo was promoted as CEO of the Wesfarmer’s Department store division (Kmart and Target) and at the same time he was made Managing Director of Target. From that time, Target also started to change (for the better).

BigW tried to emulate their competitor’s success but as events of the last few days show; it may have been too little too late.

And Mr Russo’s outfit? Suit, shirt, tie and shoes came in at slightly under $100 from, you guessed it … Kmart.

 

 

 

 

 

 

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