Small Fish - Small Business Tips and the Latest News
How to deal with price increases
Like night follows day eventually we all have to put our asking price up ... the question when and by how much?
Go talk to your accountan and she/he will tell you the best way to get an instant increased in profitability is to put up your price.
Small to medium sized business operators know how hard it is to win a new customer and how easy it is for regulars to stop buying, so naturally they want to be very cautious with price rises.
But your costs steadily rise, little by little they eat away at your profitability and probably more importantly the implicit value you have built in your business.
I am a coffee snob (well I am a bit of an all round food, wine and other beverage snob if the truth be known), so I take an avid interest in Starbucks fortunes since its grand plans for coffee dominance came crashing down in 2008 with the closure of 61 of its 85 Australian stores and divorce of 685 partners (Starbuck euphemism for employees).
With 22 stores left in Oz when I checked this morning (2 stores must have been closed on top of those announced in 2008) Starbucks Australia still lost $4,580,000 last year selling coffee. That’s a whopping average loss of $208,118 per store.
To gloat, 15 years ago I managed to convince a very large conglomerate not to buy the right to own and operate Starbucks in Oz. My other blue-suited pals within the company said it was “very brave advice” (translated .. are you completely mad!.. must avoid being seen around this one too much!). The company MD then went to the USA, got on the turps, and ended up buying “Denney’s” instead. Go figure!
Now, I have set up quite a few coffee operations in my time and I tell you there is real big money in coffee. But not for Starbucks in Oz... this story will have to wait for another time, because I am here to babble about increasing prices.
Conventional micro economic thinking is, when hard times hit cut back on expenses and cut your prices to keep the customers.
Starbucks in the midst of US recession did this. It also increased prices. Both things worked.
For number lovers see junk in box below;
Starbucks Score Card
Fiscal First Quarter 2010
* Consolidated net revenues increased 4% to $2.7 billion.
* Comparable store sales increased 4% driven by 1% increase in traffic and a 4% increase in average ticket.
* U.S. operating margin significantly improved to 17.3% from 5.8% in Q1 FY09.
* International operating margin improved to 7.4% from 2.6% in Q1 FY09.
What did they do?
Howard Schultz, chairman, president and ceo said
“Continued innovation, the successful enhancement of the customer experience and a transformed, more-efficient cost structure have brought Starbucks to a significant milestone---a return to profitable growth,”
But he is just joshing us. He got away with increasing his prices in a terrible recession by lowering those for which he had direct aggressive competition and increasing signature items.
Worked for Starbucks: store sales up 4%, 1% more customers and 4% increase in average spend.
The biggest selling stuff which has direct competition from MacDougal’s got lowered prices.
Their signature items, you know the ones with funny names, went up by 8%.
Note for all restaurateurs, pub owners and club operators.
Your “specials” need to be more expensive than your normal big demand items; otherwise we customers think you are just trying to shift old stuff or to address purchasing mistakes.
Try regular high volume stuff cheap and specialty stuff expensive.
Loyal customers are price sensitive. Howard (hope he won’t mind if I call him by his first name) gave a present to his price conscious regular users by decreasing their prices. They thanked him by staying with his enterprise. Mental note; do not read the popular book ‘The Loyalty Effect”, do give the regulars “mates rates” and they will keep coming back.
An unnamed Australian company spokesman said at end 2009 Starbucks “now believes that it is well positioned for future growth and will support the remaining 23 (sic now 22) Australian stores.”
I doubt it. But I have been wrong before –see Bledisloe Cup 2002 in Christchurch, even paid for an airfare to see us (Wallabies) beat them (whatever) at their place for the first time. As I said I have been wrong before but gosh that was a fun trip. Again, a story for another time.
Give some thoughts to Starbucking your products prices.
For your free e copy of “The loyalty effect: the hidden force behind growth, profits, and lasting value” by Frederick F. Reichheld and Thomas Teal, cut and paste this into your favourite search engine. http://books.google.com.au/books?id=JzkD_ooCNlYC&dq=the+loyalty+effect&printsec=frontcover&source=bn&hl=en&ei=MN2mS6GgK4rg7AOMlcGQCQ&sa=X&oi=book_result&ct=result&resnum=4&ved=0CBcQ6AEwAw#v=onepage&q=&f=false
Difference between Focusing on Problems (Challenges) and Focusing on Solutions
The following cases show the difference between focusing on problems (challenges) and focusing on solutions.
Case 1
When NASA began the launch of astronauts into space, they found out that the pens wouldn't work at zero gravity (ink won't flow down to the writing surface). To solve this problem, it took them one decade and $12 million. They developed a pen that worked at zero gravity, upside down, underwater, on practically any surface including crystal and in a temperature range from below freezing to over 300 degrees C.
And what did the Russians do...?? They used a pencil.
Case 2
One of the most memorable case studies on Japanese management was the case of the empty soapbox, which happened in one of Japan's biggest cosmetics companies. The company received a complaint that a consumer had bought a soapbox that was empty. Immediately the authorities isolated the problem to the assembly line, which transported all the packaged boxes of soap to the delivery department. For some reason, one soapbox went through the assembly line empty. Management asked its engineers to solve the problem. Post-haste, the engineers worked hard to devise an X-ray machine with high-resolution monitors manned by two people to watch all the soapboxes that passed through the line to make sure they were not empty. No doubt, they worked hard and they worked fast but they spent a whoopee amount to do so. But when a rank-and-file employee in a small company was posed with the same problem, he did not get into complications of X-rays, etc., but instead came out with another solution. He bought a strong industrial electric fan and pointed it at the assembly line. He switched the fan on, and as each soapbox passed the fan, it simply blew the empty boxes out of the line.
Moral : Always look for simple solutions.
Why focus on solutions rather than problems? Because you will always get what you focus on. If you focus on problems you will only get more of them. For a simple example, let's say you are driving along in your car and there is a big hole in front of you. If you focus on the hole, guess what! You will no doubt hit it because that is what you are focusing on . The trick is to look past the hole, that way you will avoid it.
I am the President of The Entrance Chamber of Commerce and am amazed at how many problems people seem to find when making a decision. What if this happens? What if that happens?
If the decision is based on what is best for The Entrance then surely that is the solution. Any problem on the way will simply be a milestone to achieve and guide us on our way.
If we keep putting problems in the way then nothing will get done.
Devise the simplest possible solution that solves the problems
We have a similar situation currently in Australia, where hundreds of thousands of small business owners are being sold high tech solutions to the issue of taking their businesses online. The people who are creating the high tech solutions are programmers who love to create high tech solutions. Also, because programmers can't sell and because business owners need to be SOLD to, marketers have become involved and of course marketers like to sell high profit solutions to clients.
In truth the solution for 95 % of business owners is simple, but as with the Americans at NASA who developed the pen that worked in space, the business owners have been convinced by the marketers that they need high tech expensive solutions.
You can view a low tech solution at http://www.page1.ws. Although you probably won't.
To do or not to do is the question
As the owner of a smallish business and faced with an unending list of the ever increasing To Do List, a very wise person once said to me -“just do what makes you happy”.
Huh ....I thought, all my education and training, all my experience, coaching/mentoring and advice, the web sites giving tips and lists of the five, ten, twenty “secretes to wealth and success” the logic and teachings of time management gurus says NO. This advise just does not fit my paradigm. It must be wrong.
I ignored it, treating those who offered such advice like I treat those who think a Leprecorn in the garden are responsible for some of our fortunes (hello mother), sort of well meaning wacky but harmless. (See what are leprecorns).
I went back to listing, organising, prioritising, setting performance objectives, triaging all emails by day end, booking jobs in, doing what’s critical first... well you know the drill. My well organised To Do List has been my daily companion sine I was 15 ½ years of age (at that time ACDC were making “Back in Black”).
Rene Descartes said Cogito ergo sum (I am because I think) Seamus O’Brien says “I am because I have a well organised To Do List”.
Last year the advice surfaced again and again and again. From highly qualified academics, serious first class professionals, very successful entrepreneurs and a very interesting Success Guru. I gave it a go. When faced with the To Do List and being stopped, To Do List block, just can’t face it any more, I asked myself, what would make me happy and do that?
Funny result, first I get stuff done, done well and I feel energised rather than depleted. Secondly and most surprisingly, after considering the options often what I end up doing to make me happy is something from the things that are high on my To Do List anyway, one of those things that need doing.
So when you run out of energy, get stopped, experience being blocked, are working ineffectively and efficiently try this- reorganise your To Do List on the basis of what would make you happy and pick that one, leave the rest.
Now test your energy, concentration, efficiency and focus levels, see if you are not powered up again and ready to face that BAS statement. Well maybe that’s a big call, but you get the drift.
Give it a go and let me know... now I must get back to work, where is my To Do list.. has the creepy Leprecorn taken it again.
Identification,
focusing on and prioritising key business activities as we all know is crucial
for a business owner. Often it is too easy to do the things you like or are
best at and ignore the more tiresome or challenging jobs. Sure you are still
working on something but sometimes to the detriment of the health or growth of
the business.
Marketing
is an example. Activities aimed at attracting new clients are a challenge for
some and are often ignored. Yet where would your business be without customers?
We would
all love a business where we just put the sign out and everyone comes to us .
This may have worked in the good old days but now in a very competitive market
where everyone is time poor and it’s hard to get attention, this is not a
reality. We need to market our businesses more than ever. Yet surveys say that
this is precisely what small business owners find the hardest – finding new
customers.
I’m a big
fan of working in your areas of strength but if that strength doesn’t fall into
a key business activity, not doing the necessary jobs is likely to be holding
you back. If you want to improve business performance you might have to
recognise that and do something about it.
Quite often
a business owner is very good at high value activities but will spend time
immersed in lowly paid activities. At these times it’s worth looking at the
opportunity cost involved and the possibility of getting outside help.
Coaching
will help you focus on the key activities your business needs to do to be able
move in the direction you want. You will identify what needs to be done and
work out who is going to do what and how often.
Most
businesses get their BAS statements out on time because Mr Tax Man says they
have to and therefore the business has a system which ensures this is done.
The
accountability to an outside party ensures that this is done.
I think it
would be better if Mr Tax Man identified 10 profit increasing activities which
had to be done each month.
I imagine that most business would implement a
system that complies. Personally I’d rather be accountable to a person helping
me forward.
In having a
coach you are “Employing a person to work on your business with you to
focus you, prioritise activity, implement systems and be accountable to.”
Hence the
power of the Small Fish Business Coaching process – Audit, Plan, Action.
Michael Gudgeon
Small Fish Business Coaching
How important is external advise to your bottom line?
Almost every successful person (whether they are a sports person, politician, business person, performing artist, etc.) needs someone they can refer to for objective advice. This coach/mentor must be someone who can really add value to the business and whose opinion and acumen the owner respects. Most importantly this person must also hold the owner accountable to agreed actions.
This PDF has the results of a study by Business Health Pty Ltd , which shows that the impact of external advice in the Financial Planning firms. The results illustrates that a strong external adviser can deliver (amongst other benefits), a very healthy increase to the bottom line.
Small Fish has come a long way from a team of 4 this time last year to now having coaches all over Australia and the USA. Since you will all be hearing from the new team members a lot more, we thought it only fair to introduce you to the team. Feel free to click through to their bios on our website.
Gordon Frandsen Dennis Montgomery Jerry Smith Randall Dalton (bio coming soon) Tim Reddington (bio coming soon)
Tommy Noyes (bio coming soon)
James Janish (bio coming soon)
Gayle Buckley Bio coming soon)
Chris Gilbert (bio coming soon)
James Houser (bio coming soon)
Salman Hasan (bio coming soon
Richard Baum (bio coming soon)
