Ikea’s original strategy, Coles, Apple margins, Tony Hsieh & Places to be during COVID
6th December 2020 Evolution Partners Newsletter
The greatest enemy of creativity is common sense – Pablo Picasso
Hope you’re Thriving!
In the past week, the weather has been strange here!
Last week it was a maximum of 19c and next week it’s forecast to be 38c.
To be both cold and hot is a little unseasonal, but some people say we talk about the weather when there is nothing else to talk about, yet there’s a lot to talk about this week so let’s get into it!
I’ve been very busy of late running both quarterly and annual planning workshops, in the lead up to the Christmas break, and energised because of the awesome plans and strategies we’re building. Many of the teams I’ve been working with have had record quarters and record years, they’ve come to trust the system, and the evolution they are undertaking quarter after quarter, year after year, and some have been with me for 8+ years. Why stick with the same coach? To use a sporting analogy if you’re on a winning streak you don’t fire the sports coach, you double down!
IKEA’s original strategy
A couple of months ago I discussed IKEA’s new strategy and how they are launching a second-hand furniture store inside their existing stores which should improve their gross margins, and why it made sense because IKEA second-hand furniture is actually a competitor to new IKEA furniture.
Well, this week I came across a satirical 4-minute video demonstrating how was IKEA invented, and it’s pretty funny, especially if you spend a good deal of time in planning meetings as I do.
I hope you enjoy How Ikea was invented.
Coles new environmentally friendly strategy
Another interesting strategy from a retailer this week is Coles in Australia, who launched an eco-friendly store where shoppers can refill bottles of shampoos and soaps using reusable, recycled containers, rather than the previously used single-use bottles. Coles, who are following the eco-friendly trend, and the concerns of many customers, are trying to differentiate from their main competitor Woolworths by creating a mission to be Australia’s most sustainable supermarket.
Like IKEA I imagine the margins would be better on these new eco-stores and it begs the question what are the societal trends that may affect your industry, where you could differentiate yourself.
The interesting story of Apple margins
A good strategy should create and sustain an improving Gross Margin. And like Kevin and I spoke about in this podcast — Gross Margin – Understanding the most important number in your business an absence of a good strategy takes you toward commoditisation, then the only tool you have is to lower your prices.
This week I came across this fascinating graph showing the Apple margins over the past ten years.
You may remember from this newsletter I discussed the Apple Profit per X – Profit per Apple ID, how 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). In the red triangle on the graph below, you can see why Apple is so focussed on services such as Apps, Apple TV and Music because the margins are just so darn high. Also, that increase in services margin in percentage terms is offsetting the product margin percentages – as they have declined in recent years.
So you might be looking at it and wonder why does it peak around 2011 and then stabilise?
That’s when Steve Jobs resigned as CEO and subsequently passed away leaving Tim Cook as CEO.
Now Tim’s done a great job stabilising and maintaining margins, and growing revenues, but going from ~12% to almost 40% operating margin under Steve’s watch is pretty impressive.
Tony Hsieh RIP
Sadly, another brilliant entrepreneur passed away much too soon this week with the passing of Zappos online shoe retailer Tony Hsieh.
Here are 5 interesting things about Tony you might not have known.
- Hsieh twice built companies from the ground up and found big exits: Zappos to Amazon for $1.2 billion, and before that, LinkExchange, which Microsoft acquired for $265 million before Hsieh turned 25
- After one week in the job, new Zappos employees are offered $1,000 to leave immediately – to ensure we have the right people
- His favourite interview question was “On a scale of 1 to 10, how weird are you?” (1 = too straight-laced, 10 = too psychotic)
- In 2014 Zappos adopted Holocracy a decentralized system with “no job titles, no managers, no hierarchy.”
- He founded the Las Vegas Downtown project in 2012 to rejuvenate the city. To date, DTP has allocated/invested $350 million towards this vision, resulting in more than 165 new businesses and more than 1,500 new jobs.
A few years ago I was able to tour the Zappos office in Las Vegas and the culture and commitment to people was remarkable.
Digitally Native Vertical Creators and Warner Bros. thrive online
In the US summer of 2019 US moviegoers spent $4.86 billion, which effectively tied the all-time summer box office record of $4.87 billion set in 2013. The theatre business was booming. One year on, the 2020 US moviegoers spent only $12 million in total revenue. The box office has been so bad this year that a 29-minute movie called Unsubscribe, shot entirely on Zoom, topped the charts the week of June 10th with a $25k gross. We are witnessing the most dramatic collapse ever for theatrical Hollywood, due to the Covid-19 crisis.
Yet at the same time, Netflix and Disney have record subscribers, and the live online streaming market grew 45% in Q2 and is up 100% year on year.
This week Warner Bros. announced they will release all their 2021 film slate on HBO Max concurrent with domestic theatrical runs for one month in what must be a challenging blow for movie theatres.
The interesting trend through this is the way brands used to be central and would use celebrities for promotion, but now celebrities are building direct relationships with fans. Cutting out the ‘middleman’ as so many industries are.
Read more in this interesting analysis of the change, and consider how trends might be creating opportunities in your arena.
New media platforms are enabling a new creator type: Digitally Native Vertical Creators
The best places to be during COVID-19
Exciting news this week as the first COVID-19 vaccines being rolled out in the UK, which is fantastic if you’re in line for this, less so if not.
Also this week Bloomberg released their COVID resilience ranking showing the best place to live through the COVID pandemic, rating the COVID status and quality of life, including GDP growth forecast as partially shown in the image below.
Learn more in this interesting article The Best and Worst Places to Be in the Coronavirus Era.
As I mentioned it’s fantastic if you’re in line for a vaccine, but if you’re not, less so. Typically it’s taken around 20 years for vaccines to be delivered and to have completed it within one year is an amazing accomplishment. But as we work through the different types of vaccines, the sheer scale and complexity of vaccinating much of the world’s population is in some ways a much more difficult task. It’s not only the extremely low temperatures some vaccines need to be stored at but also the question of who goes first and why.
Thanks to Ron Huntington for sharing this article about the challenge we’re facing heading into 2021.
Jim Collins Beyond Entrepreneurship
Finally, this week saw the release of Jim Collins new book BE 2.0 (Beyond Entrepreneurship 2.0): Turning Your Business into an Enduring Great Company which brings all his concepts together into one easy to understand model he calls ‘The Map’.
This 5-minute explainer video from Jim explains how all the concepts come together on the map, and how his enormous body of research has determined how to build an enduring great company.
This week on The Growth Whisperers podcast
On episode 34 of The Growth Whisperers, Kevin Lawrence and I talk about the following.
The importance of working on your team’s recovery right now in order to succeed in 2021
This week on The Growth Whisperers Kevin and Brad discuss the effects that 2020 and the pandemic have had on leaders and their teams, and the important work that leaders must do now to reset and recharge both themselves and their teams, in order to succeed in 2021.
Successful teams know they need to take the time to rejuvenate as do successful athletes, but sometimes it’s hard to make it happen. Brad and Kevin provide stories, examples and a simple process to help you and your team reset for 2021.
Listen to The Growth Whisperers
From the vault
Start Stop Keep – Closing the Loop on Obstacles and Opportunities
Imagine a cartoon inspired by the famous workplace commentator Dilbert. It’s a cross-section of an office wall, and in the centre is the wall, on the right is a suggestion box, and then on the left, behind the wall is a rubbish bin. The hole through the wall means that every employee suggestion goes into the suggestion box, through the hole in the wall and straight into the rubbish bin.
In this scenario, which is what many sceptical employees likely suspect is close to the truth, two of the three key ingredients of employee feedback are missing, the discussion of suggestions by leaders, and closing the loop, ensuring that employees know what has been discussed and decided. The collection of suggestions is there, but the other two parts are missing.
Read more in this article Start Stop Keep – Closing the Loop on Obstacles and Opportunities
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