Saturday, July 17, 2010

Stagnation!

There is an old saying that goes something like this: "If an infinite number of monkeys were left with an infinite number of typewriters for an infinite period of time, sooner or later, one of the creatures would type something profound."

While there's much to be said about possibilities when you use the word 'infinite', the life of an industry has a beginning and an end.

Telegraph received a serious deathblow with the invention of the telephone and other than sustaining an ongoing service of generating money orders, the Internet has pretty much shoveled in the last spade-full of dirt on what was once the most revolutionary form of communications the earth had ever known.

It's almost impossible to find vinyl recordings anymore, bookstores are going broke left and right, major television networks are gasping for breath, and retail business closings are reaching epidemic proportions.

Time? We don't have much of it left. Keeping a small business producing a profit, which used to be a fulfilling challenge, has now become a life or death exercise and a struggle for survival.

What happened anyway? The answer is 'time', and the natural progression of evolutionary laws that have been going on for 13.8 Billion years. If your plan is to simply hang around until the money runs out — join the crowd. There's plenty more who feel the same way you do.

How can a 20th Century small business survive against the onslaught of big box retailers, the Internet, imminent hyper-inflation and a blood-thirsty government that's expanding at the speed of the universe times ten?

There's only one answer. You have to change. And you have to change right {deleted expletive} now. Not just once mind you, you have to be willing to change faster than a pass receiver on the gridiron and every bit as often; because, if you stay in the same place for too long, you're likely to be trampled in the stampede to the end-zone.

BUT THERE IS GOOD NEWS

You have not exhausted your battery of artillery just yet. You just don't know where it is. I want to help you find it. Like the skunk said after a furious event of procreation, 'I've enjoyed as much of this as I can stand!' More than ever we need a re-accounting of reality.

The problem most retailers face today is stagnation. You may have built up a powerhouse in the eighties and during the course of expansion you have forgotten what it was like to begin. You've developed a staff of once powerful employees and advisors, who at the onset, provided you with fresh new ideas that grew your business into the motivating force it was.

But people, like inventory, can arrive with an expiration date; and people, like inventory, can rot and infect everyone and everything around them.

I cannot emphasize enough the importance of assumptions. It's not so much the productivity of management that accounts for its value; it's the assumptions held by management that account for whatever results, good or bad, they produce. Assumptions have a tendency to find a home, and once there they tend to root.

Thirty years ago, I lived in the small community of Lufkin, Texas. We had one video rental store located inside a music store in the downtown area. They had a small section of the store dedicated to videos in Beta and VHS format. They even had a few titles on laser disk — now there was somebody's assumption that failed big time.

When the second video store opened up in the community, I assumed it would never last. What town needed more than one video rental establishment? Then there was another, and another, and with the opening of each new establishment, I came to the conclusion that no matter how many video stores opened, people would show up out of the woodwork to patronize them. Who would have imagined, a mere twenty-five years later, video stores would be disappearing faster than they opened during the industry's growth?

Common sense would tell us that video stores should have evolved with the times. But they did not. Blockbuster Video participated in its own demise — a perfect example of snatching defeat out of the jaws of victory if I ever saw one. Blockbuster reached a point of stagnation which created the perfect environment to be blindsided by a company like NetFlix.

Today, with a small amount of inexpensive equipment, brand new movies can be downloaded over the Internet. 'View on demand' has literally destroyed the video rental industry, an industry that a mere thirty years ago was growing faster than lawyers at a train wreck.

But here's an interesting phenomenon. What's happened to the local movie theatre industry? Well let's take a look: The movie theatre industry has a combined annual revenue of $12 Billion and is dominated by three major companies — Regal Entertainment, AMC Entertainment, and Cinemark. These, and some 47 lesser known enterprises, account for about 85 percent of the industry revenue.

The movie theatre industry is labor intensive, with the average worker accounting for about $90,000 in annual income. Ticket sales account for 70% of the industry revenue, food and beverage about 25% and on-screen advertisement about 1%. The remaining 4% or $480 million in revenue is a mystery. But companies like NetFlix that stream up and coming theatrical movie releases to in-home theatre systems are closing in, and the economy is creating the perfect environment for a major change in the way customers satisfy their need for 'entertainment.'

The movie theatre industry has been around for nearly 100 years. So far, they've managed to remain profitable. Not so fast, Leroy! There's a gossamer thread, stretched to the breaking point. All it needs is one more push and 'snap'! They are doomed and I'll tell you why.

An unknown entrepreneur started a business a mere eleven years ago, acquired 13 million customers and had $1.7 Billion in annual revenue in only ten years (1999-2009). His idea of building a company like NetFlix, Inc. wasn't rocket science. It didn't take a chalkboard full of physic's equations or a think-tank filled with Einsteins. It was a simple idea that DVD's could be circulated through the mail for a profit — period.

What the creator of NetFlix did was notice what I call a 'tear', or 'rip' in the movie environment and he went for it. I'm sure that many people in the movie industry probably had the same thought a thousand times, but what made the creator of NetFlix unique is he had nothing to lose. He was able to make a decision without a bunch of lawyers and CPAs giving him horrible advice. The only person he had to convince was himself, and maybe a few investors.

You see the movie people, who may have well thought of the idea long before he did, were eaten up by 'stagnation'. For that bunch, all it took was one accountant to point out the fact that selling movies through the mails or over the Internet would destroy their distribution channels (mainly the local theatres) and that was the end of it. 'Oh, yeah, you're right, Seymour. Let's go get a sandwich at the Brown Derby'. What was originally seen as a dangerous idea became even more dangerous as a result of the idea being ignored.

The lesson here is, no matter how comfortable you are in your assuredness that what you're doing is right, there is someone out there, right this very instant, that has you and your industry in their crosshairs.

In my years of working with convenience store operators I see complacency all the time. 'If it ain't broke, don't fix it' attitudes abound. The truth of the matter is, 'If it ain't broke, you just ain't noticed it yet.'

But, ignoring dangerous ideas aren't limited to marketing plans. They come from all angles to the point that if you have just finished with a grandiose plan, it's already obsolete before the ink dries on the paper.

In business, remaining where you are is suicide. I know … I know, you've heard it before, but how many actually live by that creed?

The convenience store industry hasn't even begun yet. It's about to be reinvented, and when it is, everybody will say, 'Damn … who would have thought …' but by then, it will be too late.

The convenience store industry began with a tear in the environment of the grocery industry. It will end in a rip of something else. Stop listening to the experts and listen to yourself, and most important of all, reevaluate your assumptions.

Remember, assumptions take root and tend to steer us in the old ways. Most of them can be disproven and eliminated. Bad ones are bags of rocks, tied to your neck and will strangle you if you don't get rid of them. Replace the bad ones with new ones and update the others. Then ask yourself this question: 'What do my managers, accountants, lawyers, employees and my customers assume about me?"

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