You are currently browsing the daily archive for February 5, 2011.

Innovation Blog

Thumb, Gesturing Backward: Innovator, Can You Play 4th Trumpet

 Like Wynton Marsallis?

By Shlomo Maital

Wynton Marsallis 

 

“Founder’s Disease” – inability of entrepreneur/innovator to transfer the daily operation of his/her startup to a professional manager, often leading to collapse and failure.

   No catalog of diseases lists this one. But it is very very common. I’ve seen it often.  A gret deal of emotion accompanies the launching of a startup. For the founder(s), it is much like the birth of a baby. And who would put their baby up for adoption, unless absolutely necessary, by placing it in strange hands?  Yet this must happen, because the capabilities to run and build a global organization are far different from those needed to launch a startup. 

   Recently, on the CBS TV show 60 Minutes, Morley Safer interviewed jazz trumpeter and bandleader Wynton Marsallis.  Marsallis, who is 50, is regarded as perhaps the world leading jazz artist. His Big Band is regarded as the best of its kind in existence.  Marsallis travels the world with his band and is acclaimed everywhere.  The son of a musician, he grew up in New Orleans, and was trained in classical music.  He has an amazing work ethic, works harder than any of his band members, and travels the world, despite a deep fear of flying.

     Where is he, when his band plays? Out front, conducting and taking applause (like Duke Ellington)?  No. He plays 4th trumpet, in the back row.  Why?  When he tries conducting, one of his musician will “look down at the music and gesture backward with his thumb”, Marsallis says, meaning, “hey, man, you can’t conduct a paper bag, get back with the trumpeters where you belong!”.  And amazingly Marsallis listens.

    Innovator – remember this, when you launch your startup and you need to grow it into maturity.  Find someone to do it, unless you are a rare person gifted with managerial skills as well as creativity (rare as hounds’ teeth).  Remember the backward-thumb gesture, and Marsallis’ acceptance of it.   

Advertisements

Global Crisis/ Innovation Blog

Key Results of the Global Crisis: Martin Wolf’s Midstream Analysis

By Shlomo Maital

 

 

 Martin Wolf, FT

 Financial Times columnist Martin Wolf * runs the FT Economists’ Forum (www.ft.com/econforum), and his regular FT column is worth tracking carefully.  In his latest column, Wolf reviews the key results of the global crisis 2007-9.  Here is a brief summary.

1. Financial regulation has tightened. At last, the trend direction is toward tightened regulation, rather than loosened, for the first time in 30 years.

2. Private leverage declines. In America, private gross debt, as a per cent of GDP, rose from 123 per cent in 1981 to a peak of 293 per cent in 2009. (Why did we economists not treat this as a signal of looming crisis?).  That ratio has now fallen to 263 percent, a shedding of some $5 trillion in private debt in just a year. The financial sector also deleveraged debt worth 20 per cent of GDP in just a year. 

3. Global imbalance (saving in Asia, dissaving in mainly the U.S.) is being reversed, though very slowly.

4. Euro zone deleveraging is occurring, but slowly, imperfectly and bodes ill for the future.

5. G7 nations have taken on huge debt owing to fiscal deficits, their net govt. debt will soar from 52 percent of GDP in 2007 to 90 per cent in 2015.  So basically, private debt has become public debt, partly as governments bailed out failed banks and presented the bill to the public.

6. Global power shift from the West to the East, toward China and India, and toward Brazil. The IMF says the share of advanced countries in global GDP was 63 per cent in 2000, but will be less than 50 per cent in 2013; China and India account for 80 per cent of the rising share of the developing world.

   These six key trends all present major opportunities for investors, entrepreneurs and managers who are able to spot such opportunities, when others see only crisis and uncertainty.

* Martin Wolf, “How the crisis catapulted us into the future”.  FT, Feb. 2, 2011, p. 11.

Innovation Blog

The REAL Margin:  Customer Value Margin

By Shlomo Maital

  Innovators are taught to think about profit margins, even before they launch their businesses.  They are led to believe that to survive, they must make a profit and satisfy their shareholders.  The key is ‘margin’, can you make ‘margin’?,  operating margin (operating profit/revenue) or net margin (net profit/revenue).

   I believe this is wrong. In the next edition of our book Innovation Management, we will try to change this way of thinking.  The most important stakeholder for you, the innovator, is your customers, not your shareholders. If you satisfy them, you will also satisfy your shareholders.  And there is a way to measure customer value.  It is called ‘customer value margin’, and it is defined as the difference between the maximum your customer would pay for your product or service, and the price they actually pay.  As a rule of thumb, your customer value margin should be as large as your net margin.  MBA students insist this is dumb, that it is leaving ‘money on the table’.  I believe it is wise, the way to long-term sustainable profit.  And it is consistent with what CEO’s used to believe, that pleasing their customers came before pleasing their shareholders.

    Can you measure ‘customer value margin’?  You can.  Pick a typical customer.  By empathy, or direct questioning, find out the maximum they would pay for your product. Of course this varies across customers.  But it is powerfully influenced by differential value – the price of the closest substitute.  If you have no close substitutes, then you are generating strong customer margin. This is what you must shoot for.  Customer value margin is equal to V, the most the customer would pay, minus P, the price they actually pay.  Profit margin is equal to P, price, minus C, unit cost.  Total social value is the sum of customer value margin and profit margin, or V – C.  This is how innovation creates social value and divides it fairly between those who fund the innovation and those who buy it and benefit from it.  The bigger V-C, the bigger the social value. [See Figure]

    If you think in terms of customer value margin, primarily, you cannot go wrong.  In doing so, you are making meaning, not just money.  Innovators once thought that way.  They should do so once again.

   #……………………#…………………………..#

V                                P                                            C

.cust.marg…..   ………..prof marg…….

……  total social margin…………………

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
February 2011
M T W T F S S
« Jan   Mar »
 123456
78910111213
14151617181920
21222324252627
28  

Pages

Archives

Advertisements