Gross profit margin, #1 Priority, Costco, Amazon, Disney & Balance sheet, profits and growth
17th January 2021 Evolution Partners Newsletter
Over the holiday season, I’ve collected some of my favourite articles from the year to share with you. Kind of like a best-of from 2020. Couple this with the reading list and hopefully there is something of real interest and value for you each week.
I’m keeping them short and sharp.
Enjoy your holidays, stay safe and I hope you enjoy.
See you in 2021!
My favourite articles
For Australians the end of the financial year has ended, 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 its 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.
How Costco Convinces Brands to Cannibalize Themselves
Finally this week I really enjoyed this article discussing Costco, a cost leader identified above, and how they manage to offer rock bottom prices, and yet still have some of the best products around.
The article details how Costco entice the best manufacturers in each category to actually make products for the Kirkland brand that are 1% better than the leading national brand. There are 3 main criteria to qualify as a Kirkland product in order to leverage the Costco customer.
- It must be as good or better than the leading national brand
- It must be sold for 15-20% lower
- It must be an important product for customers
Amazon was successful because Jeff Bezos outlined a winning strategy and refined if every year for many years into the future. A strategy is defined as creating a unique and valuable position in the market, and it’s achieved with consistency. Having leaders meet every quarter and every year as an evolution around key items over time.
This week I came across an Activity Fit Map which describes the recipe or map for strategy at Disney from 1957. When you look at it all the key activities both complement one another and contribute to one another creating two important outcomes. Firstly the whole is worth more than the sum – it’s as though 1+1 = 5 because there is an overall greater intangible value that’s greater than each of the individual components. Second, it creates a blocking tool for competitors. Trying to compete with Disney is difficult because you can’t just build a theme park to compete with Disneyland, or Disney retail stores as all the other factors come together to work against you.
This week on The Growth Whisperers podcast
On episode 40 of The Growth Whisperers, Kevin Lawrence and I talk about the following.
What you must do on your balance sheet, profits and growth and heading into 2021 (part 4 of 4).
This week on The Growth Whisperers we continue the fourth of a four-part series where we discuss the important things you need to do heading into 2021. In this fourth part, we discuss two aspects. How to focus on achieving consistent profit generation and growth in 2021, and how to build your balance sheet to withstand the biggest storms.
How to focus on achieving consistent profit generation and growth in 2021.
Brad and Kevin talk about the three critical things you must do now to ensure you can achieve consistent profits and growth heading into 2021.
How to build your balance sheet to withstand the biggest storms in 2021.
Next, they talk about why you need to strengthen your balance sheet and the main things you must do in order to achieve that heading into 2021.
Listen to The Growth Whisperers
Holiday Reading List
If you’re like me, you often think to yourself ‘how can I occupy my mind while I’m not working in an interesting way that’s improving both my knowledge and effectiveness?’ Maybe not, maybe you think I’m on holiday I want to rest. But either way, I’ve curated a list to get you thinking over the holidays. I’ve grouped these into my favourites for each section that you can browse to see what interests you.
Wait But Why – The Story of Us
Scott Galloway – The Algebra of Happiness — A video, not blog but the best way to spend 10 minutes.
Paul Graham – Is it worth being wise?
Naval – How to get rich every episode
How to write better emails
Blog posts I’ve written
Tim Ferris & Jim Collins First
Tim Ferris & Jim Collins Second
Joe Rogan & Naval Ravikant
How I built this with Guy Raz – Dyson, James Dyson
Sam Harris with Jonathan Haidt (The Coddling of the American Mind)
Shane Parish & Jim Dethmer: Leading Above the Line
Upcoming Event 1
As a part of the Evolution Partners network, you can save $100 on tickets to see the best-selling author of Good To Great, JIM COLLINS at his live global virtual event: Jim Collins – The Roadmap To Greatness on Tuesday 23 February 2021.
All New Findings & World-Changing Insights
Coinciding with the release of his new book, BE 2.0. business leaders and their teams will be among the first to receive Jim Collins’ highly anticipated business-changing framework, “The Map”.
A one-page framework, The Map distils 30 years of Jim’s revolutionary Good to Great® concepts into a single roadmap to build an extraordinary organisation; one that sustains high performance, leads and shapes its industry and remains great for generations.
SECURE YOUR ‘FRONT ROW’ SEAT IN THIS IMMERSIVE EVENT
One of only five business authors in history to sell more than 10 million copies worldwide, Jim has authored six best-selling books, but his appearances are rare.
This live virtual event provides direct access to Jim for 2.5 hours of deep learning, allowing time for Q & A on how Jim’s extraordinary guide to business success can be implemented into your company in 2021.
YOU WILL LEARN:
Drawing on three decades of rigorous research, Jim will equip you with:
• The Map — a one-page framework taking you on a sequential path to implement the Good To Great concepts
• How to achieve the outputs of a great company: superior results, distinctive impact and enduring change
• What great companies have in common that distinguish them from their competitors
• Critical strategies, disciplines and practical tools to build a great organisation
Align your leadership team with the most significant thought leader of our time.
Upcoming Event 2
My business would be so much easier if I didn’t have to deal with people!
There are many challenges in the world of business but getting the right people doing the right things, consistently, is the biggest most CEOs and leaders face.
I believe that most people have great intentions – then life and their own issues get in the way.
So, I’m excited to share that we are doing a two-day virtual Topgrading training session, with Chris Mursau, president of Topgrading. Chris is a master Topgrading professional, and a great guy to spend time with.
For the past few years, we’ve hosted a live session, for our clients and network, to learn Topgrading together. This year, my podcast partner Kevin and our team have been working with Chris Mursau on virtual sessions, which we’re pleased to bring to you, in the new year.
The training is designed for two or three people from your company to attend. This provides the best chance of implementing it and creating the changes you need.
If you’re not sure, watch our Topgrading webinar. Chris and Kevin talk about what it takes to build a notably stronger team and how your hiring process can drive that.
HERE ARE THE DETAILS:
Topgrading Virtual Workshop – Feb 2 & 3, 2021
7:30 am to 2:30 pm PST
Immerse yourself in the secrets, shortcuts and proven methods of Topgrading:
- Get hands-on experience conducting chronological interviews and creating thorough Job Scorecards
- Receive personal coaching from hiring expert and Topgrading President Chris Mursau
- Immerse yourself in the proven methods to hire high performers who will drive your company to succeed.
Following the Workshop, participants also receive:
- A complimentary 1-hour coaching call
- Access to an online tool kit
- A two-month free trial of Topgrading Online Solutions (TOLS).
For more information or register, please contact me directly by reply email.
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