Gross Margin, NASA, Priorities, GROW Model, Apple & Google Career
23rd August 2020 Evolution Partners Newsletter
“Try not to become a person of success, but rather try to become a person of value.” – Albert Einstein
Hope you’re Thriving!
An anniversary this week as it’s been one year since I re-started the weekly newsletter, having paused for the preceding two years to write Made to Thrive.
I hope you’re getting value, each week I contemplate how can I provide the most compelling read and how can I grow subscribers. So if you know someone who’d gain value from my weekly newsletter please forward it on or send them this subscribe link.
In the past week I’ve spent most of my time working on my new book, digging ever deeper into the data with 9,000 data points multiplied by over 1,000 respondents and for much of the time having 4 screens with Power BI, Excel, the Poll software and writing software all running. What have I learned this week? Onboarding produces significant, tangible results when done well, and 83% of leaders aren’t doing it well. I’ll keep you up to date as things progress.
Probably the most important thing you can do now
For Australians the end of the financial year is 30 June, so by now, most leaders should have a full set of annual profit and loss accounts. With that perhaps the most important thing one can do is look back at Gross Profit Margin percentage trends over the past 3 years, listed as 12 quarters and see what is happening to the Gross Margin each quarter. Like the frog in the pot set to boil, Gross Margin erosion occurs slowly and you often don’t know until it’s too late. Now is a great time to look over those numbers and try to understand why changes are happening. Here’s an example of what might be happening.
There is no substitute for Gross Margin percentage, and it’s probably the biggest lever you have.
When you understand why it’s changing, you can begin to build a waterfall graph per product line. What is the GM for each of the products or services you sell? How do they compare to one another? What has been each trend over the past 12 quarters and how are those GM’s affecting the overall GM trend? Again once you close out a period of accounting, it’s probably the highest impact analysis you can do as a habit because it helps to understand GM erosion and reset your priorities.
Priority shouldn’t be pluralised
“In four simple words, the foam did it,” said Scott Hubbard, who oversaw the dramatic foam strike tests as part of the investigation into the NASA Challenger disaster in 2003. And that simple explanation was easy to understand and made sense. It felt better also because it meant that the foam caused a tragic accident, rather than some other human error. Yet deeper within the investigation into the tragedy, the report goes on to say: “the NASA organizational culture had as much to do with this accident as the foam.” and then goes on to specifically mention “fluctuating priorities”.
This past week I came across a Quartz article discussing the importance of priorities at work, how so many leaders struggle to answer the question “what’s your number one priority” and the huge cost that incurs for the business – as displayed at NASA above. An absence of priorities prevents decision making from occurring and can de-motivate all staff as a result.
If everything is a priority, then nothing is a priority.
That’s why we prescribe that there can be no more than 3-5 priorities during a strategic planning meeting, and the leadership team must nominate their #1 for the company, and #1 for themselves.
It’s so important that in fact up until around the 1930s priority was barely used as a plural.
The word priority comes from the Latin word ‘prioritas’ which means “fact or condition of being prior”.
So we need to put our most important priority, prior to other things.
And getting back to the article, according to one organisational psychologist there is a simple exercise that leaders can do to boost employee morale in the complex world we’re living in — ask the management team to name their top priority.
Read the article here “The deceptively simple exercise that will boost employees’ spirits”
The leader as a coach
If management know their priorities (and their #1 priority!) it’s important to get the team to execute, and it’s been well established now that the top-down management style is ineffective primarily because ownership and accountability aren’t transferred, and that instead leaders should hand off ownership and accountability of issues, and adopt a coaching style to help people execute on their KPIs and Priorities. Why adopt a coaching style? Because a great coach asks the right open-ended questions of people at the right time in the right way to help them gain the insights they need to achieve what they need to.
Yet being a leader coach may be effective, but it isn’t necessarily that popular.
In Daniel Goleman’s classic study of leadership styles, leaders ranked coaching as their least-favourite style, saying they simply didn’t have time for the slow and tedious work of teaching people and helping them grow.
What’s more, it can make them psychologically uncomfortable, because it deprives them of their most familiar management tool: asserting their authority. So they resist coaching—and left to their own devices, they may not even give it a try.
This week I came across an HBR article which is really helpful for leaders endeavouring to become more effective using a coaching style.
Of particular interest is the GROW model
Goal – What’s your goal right now?
Reality – Ask key reality-based questions such as “What are the key things we need to know?”
Options – What are all the options – what are the upsides and downsides of each?
Will – (2 questions) What will you do? How likely is it that you will do this?
Read the HBR article here
The leader as a coach
Interesting tech developments
This week there were a few tech developments I found interesting.
First, Apple reached a market cap of $2 Trillion widening its lead as the largest company in the world.
It took Apple 42 years to hit its first Trillion market cap, but just over two years to hit the second Trillion.
The stock has doubled in 2020, yet profits only rose 12% in Q3, and they haven’t released a new product since the HomePod in 2018. The growth in market cap was primarily driven by stock buybacks from a 2017 US tax law designed to encourage US companies to bring money held offshore back to the US. But more than that, Apple has a relentless focus on the boring basics. It’s almost never the first to market with a product, it’s never releasing products that are the highest spec (such as speed or size). It just focuses on providing a good user experience. Beyond that though is a rapidly spinning flywheel and numbers that are centred around the Apple Profit per X – Profit per AppleID. Everything they are doing is working toward gaining more profit from each AppleID, the unique identifier given to a customer that is shared across every product – and gaining more AppleID’s (more users).
As Apple grows its Profit per X through various products and software one of the most successful areas of revenue and profit has been the App Store, which it’s estimated to have brought in $142 Billion in revenue, of which it has kept $42 Billion for itself over the past ten years using a 30% model whereby the developer gets paid 70% of the revenue an app gets. Now for context, the average retail store gross margin worldwide is around 50% meaning that the retailer, the ‘agent’ who sells the product keeps around half of every dollar sold. So for access to the Apple ecosystem, at a cost of 30% of every dollar sold is a better deal than retail.
And an interesting development in tech this week was the pushback from Epic Games maker of the game Fortnite, who makes a total of around $1.8 Billion in revenue per year, who are trying to cut out the ‘middleman’, their ‘agent’ Apple and sell direct, or at the least get a better deal, which ended up in them being evicted from the App Store. This is on the back of recent problems on the same issue from email provider Hey, from Spotify and also Tinder.
It’s not going away as an issue, but it does reinforce the really important point, who owns the customer? Fortnite thinks they own the customer, and Apple thinks they own the customer. In the previous example the retailer thinks they own the customer, yet so does the shopping centre the retailer rents from who brings customers into the centre, as does the manufacturer. Do you own the relationship with your customers?
Someone who does own the relationship with their customers is higher education. University students pay an incredible amount of money to get a degree and yet meeting the primary objective by producing job-ready candidates is somewhat elusive. More than ever with the pandemic now requiring remote learning, the higher education sector is ripe for disruption, and this week Google fired the first major shot to disrupt the sector launching Google Career Certificates. Similar to Lambda School where students don’t pay tuition till they get a job, Google is providing what the student wants, producing a job-ready candidate as quickly and cost-effectively as possible. Now, this might not be suitable for the top 2% who are attending prestigious universities, but for the average student, this could become a viable option really quickly.
Google hasn’t said exactly what each course will cost, but their first certificate costs $49 per month, and at that price, each six-month course would cost just under $300–less than many university students spend on textbooks in one semester alone), but more than that, students could start earning money in a job after 6 months, not 4 years.
The three new programs Google is offering, together with the median annual wage for each position (as quoted by Google), are:
• Project manager ($93,000)
• Data analyst ($66,000)
• UX designer ($75,000)
So a key part of selling the training is the salary the student will earn after 6 months.
The lesson for business owners?
– Are we hiring for character and training for skill?
– Can we attract candidates with better character and lower qualifications, then use similar educational programs such as Google Certificates and other online programs?
– Can we design our own training to increase our pool of candidates?
– Is it time to re-write our job descriptions and eliminate the requirement for a four-year degree?
This week on The Growth Whisperers podcast
On episode 19 of The Growth Whisperers, Kevin Lawrence and I talk about the following.
Managing mental health in business leadership during COVID19
The Growth Whisperers talk about a recent survey stating that 54% of employees are afraid to talk to their boss about mental health issues, why that is and how it impacts your business.
Kevin and Brad also discuss a tool to help leaders to assess both themselves and their employee’s mental health, why trust is so important to help your people, and how to get support for your people.
Listen to The Growth Whisperers
From the vault
The 10 easy questions your business plan must answer
There appears to be a long list of experts who are coming out now and recommending that entrepreneurs do not write a business plan. The advice is that you don’t prepare, but you simply build something and try to sell it and then change your offering as you move along. As Mark Zuckerberg famously said “Entrepreneurs don’t have time to write a business plan”
Of course, this is music to the ears of people who want to run before they learn to walk. Or existing owners those who hope to run the business on autopilot and wait for the business to grow by itself.
A business plan doesn’t need to be a 50-page document to impress your bank manager, however, it does need to answer some very simple questions.
Here is the list of ten questions your business plan must answer.
If you would like to receive our weekly newsletter as an email, simply complete the “subscribe to my newsletter” form at the top of this page.