However, there are actually 2 very important lessons all of us can learn from the rise, and fall, of Crumbs Bake Shop:
1 – Don’t believe in the myth of passion when it comes to business
Many management gurus, and entrepreneurs, will tell you to go into business following something about which you are passionate. The theory goes that if you have passion you will be very committed to success, and you will find your way to success with diligence, perseverance, hard work and insight driven by your passion. Passion will lead to excellence, which will lead to success.
And this is hogwash.
Customers don’t care about your passion. Customers care about their needs. Rather than being a benefit, passion is a negative because it will cause you to over-invest in your passion. You will “never say die” as you keep trying to make success out of an idea that has no chance. Rather than investing your resources into something that fulfills people’s needs, you are likely to invest in your passion until you burn through all your resources. Like Crumbs.
The founders of Crumbs had a passion for cupcakes. But, they had no way to control an onslaught of competitors who could make different variations of the product. All those competitors, whether isolated cupcake shops or cupcakes offered via kiosks or in other shops, meant Crumbs was in a very tough fight to maintain sales and make money. It’s not you (and your passion) that controls your business destiny. Nor is your customers. Rather, it is your competition.
When there are lots of competitors, all capable of matching your product, and of offering countless variations of your product, then it is unlikely you can sustain revenues – or profits. There are many industries where cutthroat competition means profits are fleeting, or downright elusive. Airlines come to mind. Magazines. And many retail segments. It doesn’t matter how much passion you have, when there are too many competitors it’s a lousy business.
2 – Trends really do matter
Cupcakes were a hot product for a while. And that’s great. But it wasn’t hard to imagine that the trend would shift, and cupcakes would be displaced by something else. Whatever profits you might have when you sit on a trend, those profits evaporate fast when the trend shifts and all competitors are fighting for sales in a declining market.
Remember Mrs. Field’s cookies? In the 1980s an attractive cook and her investment banker husband built a business on soft, chewy, warm cookies sold in malls and retail streets across America. It seemed nobody could get enough of those chocolate chip cookies.
But then, one day, we did. We’d collectively had enough cookies, and we simply quit buying them. Mrs. Fields (and other cookie brand) stores were rapidly replaced with pretzels and other foodstuffs.
Or look at Krispy Kreme donuts. In the 1990s people went crazy for them, often lining up at stores waiting for the neon sign to come on saying “hot donuts”. The company exploded into 400 stores as the stock flew like a kite. But then, in a very short time, people had enough donuts. There were a lot more donut shops than necessary, and Krispy Kreme went bankrupt.
So it wasn’t hard to predict that shifting food tastes would eventually put an end to cupcake sales growth. Yet, Crumbs really didn’t prepare for trends to change. Despite revenue and profit problems, the leadership did not admit that cupcake sales had peaked, the market was going to decline, competition would become even more intense and Crumbs would need to find another business if it was to survive.
Few trends move as fast as tastes in sweets. But, trends do affect all businesses. Once we bought cameras (and film,) but now we use phones – too bad for Kodak. Once we used copiers, now we use email – too bad for Xerox. Once we watched TV, now we download from Netflix or Amazon – too bad for NBC, ABC, CBS and Comcast. Once we went to stores, now we order on-line – too bad for Sears. Once we used PCs, now we use mobile devices – too bad for Microsoft. These trends did not affect these companies as fast as shifting tastes affected Crumbs, but the importance of understanding trends and preparing for change is a constant part of leadership.
So Crumbs Bake Shop failure was one which could have been avoided. Leadership needed to overcome its passion for cupcakes and taken a much larger look at customer needs to find alternative products. It wasn’t hard to identify that some diversification was going to be necessary. And that would have been much easier if they had put in place a system to track trends, observing (and admitting) that their “core” market was stalled and they needed to move into a new trend category.
I had two more Facebook ignorers this week. First was an old friend who didn't use Facebook, and could not imagine how it would be beneficial to his business. I responded with "that's kind of like the folks who didn't use a telephone saying that they didn't see any value in it for business." When you don't use a tool, it's easy to pretend it isn't valuable. Makes life easy on your competitors who do give it a try.
The second was a business that recruits people under 30. The top marketers at this company are still doing all their efforts with newspapers, radio and typical broadcast forms of media. They said they couldn't use social media to reach their base "because you can't control the message on Facebook." OK, so they don't use social media, and their focus is on message control so they don't intend to use social media. But their target is a population that every month uses less traditional media, and more social media. And these folks are wondering why media costs are up, and their success is way, way down. Uh huh.
At MediaPost.com "Avoiding Social Media Malpractice" Chad Cappellman tells the story of a hospital division that gets more people coming for insight through Facebook than come through the highlighted links on the hospital's own web site! People use Facebook today – a lot. We all would prefer a personal referral when we have a question. Often, a referral is better than 10 Google search hits at pointing you to the service provider or product which really fits your needs. And Facebook is a fast way to generate referrals. As is Twitter. So when you want potential customers referred your way, why wouldn't you try to maximize the use of social media? As the story above discusses, people would rather get info about a hospital (an example) from friends than from about any other source.
As for implementation, social media is part of the more sweeping market shift affecting all businesses. Historically, business people thought in terms of "control." The business had communication walls, internally and externally. More time was spent making sure information wasn't passed around than making sure communication was fluid and accurate. But in another MediaPost.com article "Twitter and Facebook Could Get You Fired" we see that approach simply won't work any more. We live in a "connected" and "networked" world today. There are precious few secrets when everyone has a mobile phone, and most of those have cameras, and texting is ubiquitous, and the vast majority of people under 35 have multiple social network locations.
Today, you can't win by limiting communications. That is a failed approach. Nor is it possible to "control" what is said about your business or its products and services. What you can, and increasingly must, do is monitor the chatter and be part of it. Of course some things will be inaccurate, so its now your role to help move the message in the right direction. Don't think about control, think about helping the message move toward accuracy. And leverage all the chatter to help you sell more stuff!
We live in a fast shifting world. That is not going to change. Slow moving traditional media is gradually dying. No competitor can succeed by avoiding the shifts. Those competitors that win will use scenario planning to help anticipate the shifts, and focus on fringe competitors to learn how to do new things which can create advantage. Success isn't going to come from trying to Defend & Extend the "core" – but rather by rapidly adapting to new market needs even if it means changing your "core." And the best way to stay connected to shifting markets today is through social media. It not only gives great, and timely, feedback but offers everyone the chance to enter into a dialogue with potential new customers at remarkably low cost. And in remarkably powerful ways.
"Strategic Plans Lose Favor" is a recent Wall Street Journal headline. Seems like some big companies, and big consulting firms like Accenture, McKinsey and the Boston Consulting Group are rapidly learning what this blog has been pushing for a few years. That flexibility trumps traditional approaches to strategic planning.
When Office Depot's strategic plan was leading to revenue struggles, the company set up a situation room to track key indicators and adjust to market shifts much quicker.
"Strategy as we know it is dead" according to Walt Shill, head of strategic planning at Accenture. "increased flexibility and accelerated decision making are much more
important than simply predicting the future." (Do you think he's been reading this blog and my book?)
"business leaders will start to rely less on static five-year strategic
plans and more on rough "adaptive" strategies that consider multiple
scenarios" according to Martin Reeves, Senior Partner at BCG. (Where'd he read that – on this site?)
""The rate of change and width of volatility is much wider and faster
than what we would have assumed coming into this," Jeff Fettig, CEO at Whirlpool
McKkinsey has opened a "Center for Managing Uncertainty." Really.
As this recession has come on, and lingered, businesses are clearly starting to realize that market shifts happen fast, and businesses cannot be slow to change. Adaptability is one of the most important capabilities to compete in the post-2000 business world.
And the real market leaders are incorporating this kind of thinking into their organizations. While the earlier quotes show how, caught on the defensive, organizations are finding new ways to react, the best performing organizations are taking market leadership by being Disruptive. Like Apple. In a Harvard Business Review blog Roberto Verganti, professor at Politecnico di Milano tells us "Apple's Secret: It tells us what we should love."
The good professor of design and management points out that Apple does not ask customers what they want. Instead the company designs products which take customers to new levels of performance beyond what they imagined. Instead of being reactive, Apple uses scenario planning to understand future market needs and create shifts with its products. This approach leads to breakthrough performance, such as the success of Nintendo and its Wii product line.
To be successful businesses can no longer try to Defend & Extend their old strategies. They have to be market focused, and flexible to manage through market shifts. And to earn superior rates of return they have to be market leaders that use scenario planning and White Space to launch new solutions meeting emerging needs which attract customers and grow sales.
As we enter 2010, is your business expecting a very different future – and have you started planning to implement new approaches based upon a different future? For example, how do you plan to acquire new customers, employees and vendors in 2010 and beyond? Do you still rely on traditional advertising? Do you use a web site? Is most of your on-line IT budget still dedicated to web site development? How much of your plans for 2010 are extensions of what you've been doing on 2009 – or maybe an ongoing trend from much earlier in the decade?
According to the Wall Street Journal in "Linked In Wants Users to Connect More," the number of Linked in users almost doubled in 2009, from 31.5M to 53.6M. And to drive additional user traffic the site is working hard to add applications which can help companies with recruiting, marketing and other business functions. With users jumping, and time on site increasing, is your company blocking access? Or is it figuring out how to leverage this leading web site to find new customers, recruit aggressive new employees and build a stronger business?
But Linked-in is considerably less successful than Facebook. Do you still think of Facebook as a site for college kids to plan drinking parties? If so, you've missed a tsunami in the making. Facebook's user base, at 350 million, is over 6 times Linked-in. According to ReadWriteWeb.com "It was a Facebook Christmas; Site Hits #1 in U.S. for First Time." On 2 days Facebook actually had more site hits than search giant Google! And Facebook was the #1 Google search in 2009. Facebook use is exploding. The average Facebook user spends over 3.5 hours in a session. Many Facebook users log in daily to keep up with their network and what's happening in markets of interest to them.
Increasingly, people don't do web searches to find out about restaurants, movies, products, services – or even jobs. They go to social media sites like Linked-In, Facebook and Twitter. If you depend on people to use your web site to learn about your business – that may be too late. When referred by a friend, what is the first impression a potential customer (or recruit) gets when reaching out to your LInked-in, MySpace or Facebook page? What applications or groups do you support to demonstrate your business and your ability to grow? How are you reaching out through these environments to meet the people who should be a customer, employee or vendor?
Increasingly, people don't even make their first touch with your business via your web site. iPhone users, and the soon-to-explode Android phone users, as well as all the other "smartphone" (or mobile device) users learn about your business from a very small screen that brings in small bits of information that is largely text. They often go to a PC and search a traditional web site only every few days. So how is your information presented? Is it largely graphical, with embedded objects that don't show up well (or at all) on a mobile device? Is it lengthy HTML pages that requires scrolling on a phone?
Increasingly, people looking for you will blow off traditional web pages in favor of easier to access and read information. You may hate the 140 character Twitter limit – but it's becoming a standard (the new "elevator pitch.") So is your on-line impression being driven by web developers, or by mobile device developers? Is your on-line environment all about driving people to your web site – which may never happen – or are you effectively connecting with them via Facebook, et.al. and informing them without asking them to go to your environment? Are you letting users control their access to your information, making it easy for them, or are you trying to control their behavior — and putting off many?
There are many reasons to think that in 2010 how people acquire business information will shift from traditional web sites to social media sites. First impressions, and a lot of the decision making process, will come from Facebook, Linked-in and Twitter. Is your business positioned for this shift?
Pepsi recently made a decision that appears forward-focused rather than following tradition. Pepsi is abandoning Super Bowl ads in favor of spending more on-line.MarketingDaily.com reports in "Compete: Pepsi's On-line Push a Smart Play" that Pepsi is reaching more people at a lower cost by investing in on-line marketing. Despite the historical role Super Bowl ads have played for big consumer products companies, Pepsi's decision is positioning the company to better connect with more users and drive more sales. Coke's decision to remain with traditional advertising looks increasingly expensive – and out of step with how people really make purchase decisions today.
Smart companies are already making changes to reach the tidal wave of people relying on social media. They are building a strong impression, and business applications, that help them grow using environments like Linked-in, MySpace and Facebook. And they employ people to keep their Twitter communications clear and strong.
So is your business taking actions – making implementations – that will support where the market is headed in 2010? Are you putting yourself where the customers and recruiting targets are? Or are you trying to do more of the same better, faster and cheaper?
In "Uptick Catches Entrepreneurs by Surprise" the Wall Street Journal points out that defensively-minded entrepreneurs are unprepared to undertake hiring or business expansion. Simultaneously, the Washington Post reports "Obama Preparing New Push to Add Jobs". What's clear is that there are incentives to undertake hiring, and with productivity at record highs it appears hiring needs are increasing. Yet, because they were looking in the rear view mirror many small business leaders are not prepared to participate and grow.
In "A Key To A Successful Business Plan" Forbes has just published my latest column, detailing why scenario planning isthe first step for any business to overcome inertia and grow successfully. Instead of planning by looking to the past, we need to spend a lot more time looking at the future. Building scenarios that help us figure out where we want to be, successfully, in 2 to 5 years – rather than trying to replay the last inning over and over. Look at how well it worked at Apple the last decade!
"Now is absolutely the best time for your business to succeed. As the
collapse of Dubai World just demonstrated, enormous market changes keep
happening. Laggards and the unwise are failing, and businesses that
position themselves smartly to take advantage of market shifts are
winning big gains. Look at Google. There's never been a better
time to move ahead by developing plans for leading your business to
dramatic growth in revenue and profits." (read more of the article here)
My previous Forbes columns focused on the many current maladies of management. Insufficient innovation caused by Lock-in and obsession with outdated best practices has far too many companies performing far too poorly today. But followers of The Phoenix Principle know that it is possible to break out of this "doom loop" and be successful at growth through innovation implementation. Scenario planning is the first step, and a powerful replacement for traditional planning which wastes far too many cycles trying to review the past.
