Keynote speaker – Verne Harnish
Published: 24 June, 2016
The keynote speaker at this year’s NMBS Conference was Verne Harnish, founder of the Entrepreneurs' Organization, as well as founder and chief executive officer of Gazelles, a global executive education and coaching company with hundreds of partners across six continents.
Having spent more than 30 years educating and helping companies to scale-up, Mr Harnish’s speech focused on the entrepreneurial, business and start-up success that companies can achieve when they take risks and push themselves to make bold decisions in order to stay ahead of the competition.
“Making adventurous business decisions is one of the simplest and most effective ways a brand can push itself out of its comfort zone and to the next level,” he told delegates.
Explaining to the audience how many companies start-up, but how very few actually scale-up profitably, Mr Harnish informed NMBS members about how he considers successful scale-up companies to generate three to fives times the industry average when it comes to profitability.
Using IKEA as a successful example of this, Mr Harnish highlighted how the home furnishing and appliance company achieved more than €30bn in sales revenue last year, which equated to 11% of the company’s bottom line. “It’s important to note that at €30bn, IKEA only has a 6-7% market share globally,” he said.
Describing “revenue as vanity and profit as sanity”, Mr Harnish discussed the 7/70 rule and how it’s about devising a targeting strategy in an industry. He said: “Companies should focus on 7% of the target market that is most relevant to them and secure 70% of them as customers. Many successful organisations seemingly look away from perfectly good market opportunities to focus on the best. You have to make an investment in time and energy to ensure that you target the right 7%.”
According to Mr Harnish, so many companies get themselves into big trouble when they spend too much beyond their footprint, however, “the key to a lot of your success [the audience] is that you’re going after a very narrow segment, one that only represents 10% of an industry, yet you dominate 7% of that segment.
“Companies who do that are the ones who are insanely profitable. This is known at profit pools.”
One of the reasons why delegates are maintaining their profitability, according to Mr Harnish, is because independent merchants are coming together under the NMBS membership.
“You are pushing capabilities to local teams who are empowered to take risks without a second guess,” he said. “The nationals are trying to create what you have got. Therefore, the key to success is that everyone in this network has got to stay focussed on the niche you work in and dominate it. It’s about taking care of those customers in a way that none of the big companies can ever do.”
Return on luck
Maximising your return on luck was the next topic that was discussed with NMBS delegates. Focusing on maximising what Jim Collins, in his book ‘Great by Choice’, calls your “return on luck” – is what Mr Harnish considers to be one of the most important business concepts ever articulated.
He said: “As Jim Collins points out, great companies don’t have better luck than other companies. But what differentiates these great companies is their attention to maximise their return on luck. They look for opportunities in whatever hand they’ve been dealt—and then find ways to grow from the situation exponentially.”
Rapid changes in the global economy can shake up a company’s current situation at any time, however, no matter what the economy does, it’s about finding an opportunity and maximising a company’s return on whatever lucky, and unlucky, breaks it faces, Mr Harnish pointed out.
Described as one of the most valuable pieces of advice he can share with delegates, Mr Harnish explained how businesses should create a ‘luck investment account’. He explained: “It takes capital to invest in new ideas. If you don’t have any cash on hand, you’ll miss out, which ties into one of the other findings in the ‘Great by Choice’ book, which highlighted how the winners had multitudes of more cash reserves than the comparable companies – and thus had enough staying power to weather the bad luck and capitalise on the good luck.”
Mr Harnish continued: “Many of you have the profitability, but I’m not so sure that you’re protecting your cash well enough. By having cash reserves it means that when the good luck comes along you have got the cash to take advantage of it.
“There is always a crises and to have the cash in order to weather it is one of the single most important responsibilities of everybody in this room.”
Out with the Four Ps and in with the Four Es
While many at the NMBS Conference grew up with the Four Ps of Marketing - Product, Place, Price and Promotion – get these all right and your brand is set to go – Mr Harnish says that they are no longer relevant. Instead, we need to replace it with a new framework and embrace the Four Es: from Product to Experience, from Place to Everyplace, from Price to Exchange, from Promotion to Evangelism – which better reflect the dynamism of the marketplace for most industries today.
One area Mr Harnish was keen to focus on was strategic pricing. “One of the fundamental pivots that leaders of companies are going to have to make this century is to spend 80% of their time working on the costs of their business.
“Price is one of the single most important decisions a company will make, yet it’s one that we are most ignorant about in terms of strategy,” he said.
USA-based company BuildDirect offers real-time pricing on its building materials, with some of the prices of its goods changing on an hourly basis. “Merchants have a dependency about price and those prices usually remain unchanged for a long period of time. This idea that dynamic pricing and real-time pricing by the hour, depending on the demand, is something that Disney has just moved to,” explained Mr Harnish.
Another example he referred to was the pricing scenario at the 2012 London Olympics. Paul Williamson, who was responsible for managing the ticket program, used prices not only as an effective revenue and profit driver, but also as a powerful communications tool. The digits of the prices themselves were designed to send a message without any additional commentary. The lowest standard price for a ticket was £20.12, while the most expensive was £2,012.
For children under 18, the motto was “Pay Your Age”, which meant that a six-year-old paid £6, and a 16-year-old paid £16. Elderly people were also able to purchase tickets at lower prices too.
This price structure generated a positive response, as not only were they an effective means of communication, but they were also perceived to be fair.
Mr Harnish advised companies to look at their pricing structure on a weekly basis, as he believes that as independent merchants, they are “probably priced too low”. He continued: “See where the market screams and compare it with the level of service you provide your customers with verses the commoditisation of a particular product. You deserve that pricing structure and your sales people need to be skilled enough to defend it out in the marketplace.”
Shopping made simple
Posing the question: “What is your number one job as a company, and ultimately what is your number one job as a leader?” Mr Harnish believes that for customers it’s about making it easy for them to purchase materials from your company, whether it be at the touch of a button from a smartphone.
“The role of your company is to make sure that the service you offer your customers is simple and straightforward,” he said. “Ask yourself the following question: “What aspect of your company makes it difficult for customers to do business with you?”
Meanwhile, as a leader of a company your second job is to make sure that it’s easy for you staff to work for/with you. “Do you know what is happening with the lives of your staff? Mr Harnish asked delegates. “You have to lead and care for your staff, as they will then care for your customers.”
Finding time to interact with customers is another area where a leader of a company should focus on. Mr Harnish said: “If you are not out of your office at least 80% of the week, then there’s a fundamental issue right there. You should be able to manage the administration side of things one day a week.
“The rest of the time should be spent talking to customers so that you can carry out market-facing activities. It’s about spending as much time with customers and leaving the operations to someone else. All the while you are stuck doing your day-to-day activities at your desk, it is crushing your business.”
Mr Harnish continued: “Everyone says that the face of innovation is a 20-year-old techie, however, you often do most of your creative work after that age. We were innovated in our twenties, but you have got twice the amount of innovation if you put your mind to it and put it to work. It is the creative innovators who have always changed industries.”
Having a set of routines is what makes a company successful, acknowledged Mr Harnish, who said: “Your success is only tied to one thing. Is what you do more of, less of, or different every day? It’s routines that set you free. You can set goals, but if you don’t change what you do everyday, then it is just a bunch of hot air.”
‘Scaling up people’ was the final topic of discussion, with Mr Harnish posing the question: “Are all stakeholders (employees, customers, shareholders) happy and engaged in the business, and would you ‘rehire’ all of them, knowing what you know today?”
It’s an important question that requires one to face the brutal facts and make changes, explained Mr Harnish, who said: “If you fail to address these relationship issues head on, they will continue to drain your emotional energy, leaving little left to expend on the strategy, execution and cash aspects of the business.”
However, if you have got the right people in key roles, then your company will flourish. “You have got a network of collective intelligence around you who you can take advantage of to help you make better decisions in the workplace,” said Mr Harnish. “Those who are winning and winning big are triggered by how to get the most brains focused on the challenges they have got.”
Having a vision and having boundaries in place for members of staff is vital if a business is to succeed Mr Harnish concluded. He said: “You have to be clear where the boundaries are. Do people in your company know where the white lines are? If they step on them, they are out of bounds. Do they know what will happen to them if they get a yellow card or a red card?
“The most important thing to think about in business is what is the next step? If you want to 10 times the company, you have to 10 times the people. It’s also crucial to think about the answers to the following questions:
- Do you have the right relationships, customers, and team in place?
- Do you know where you can hyper-specialise and be the best at?
- Are you clear about what is the next step? What is constraining you tomorrow? That’s what you have got to go after.
- Outlining the competition. Get the A-team, the vision and the routine in place.