This article in the September issue of the Harvard Business Review answers the question “What causes companies to fail spectacularly?” A recent study of 750 of the biggest U.S. business disasters of the past 25 years reveals that seven popular but risky strategies are often to blame. Drawing on that extensive research, Paul Carroll, a journalist, and Chucka Mui, a fellow at Diamond Management & Technology Consultants, describe seven sirens that lure companies onto the rocks. Click here to download an audio slideshow about how to avoid failure.
Starbucks vs The Little Guy
As anti-corporate crusaders are now discovering, instead of advocating for legal prohibitions on chain stores or attempting to zone the offending businesses off of Main Street USA, mom-and-pop shops can successfully combat the coffee behemoth by using old-fashioned market competition.
Click here to view the ReasonTV video called “Starbucks vs the Little Guy“
Solving the cost-price squeeze
According to Table 10 in today’s BEA report, real disposable personal income increased in July by 1.2% compared to July last year, following a 3.4% annual increase in June and 6.3% increase in May. Both growth rates (May and June) were above the 2.6% average growth in real disposable income since 2001, following 7 months (October 2007 to April 2008) of below-average growth.
Although real disposable income growth showed weakness in the last quarter of 2007 (0.6%) and the first quarter of 2008 (-0.7%), the above-average, year-to-year growth rates of 6.3% (May) and 3.4% (June) contributed to an 11.4% increase in real disposable income during the second quarter 2008 (see Table 6), one of the biggest quarterly increases in history, largely due to the Economic Stimulus Act of 2008.
Couple this increase in real disposable income with the core inflation rate holding relatively steady (see 8/15/08 post) and this means that [a sizable portion of] our end consumer in the green industry has the means with which to purchase our products and services, but do they have the desire — particularly at the prices we must charge in order to cover our current cost-price squeeze?
My friend, Lloyd Traven of Peace Tree Farm, just reiterated to me of how tough it is for growers right now given the “20% increases in pots, film, chemicals, and 30+% for fertilizers, soil, etc—and don’t forget to add energy, labor, etc. BTW, medical just went up again, and let’s not forget tuition.” The recent news of Hines Nursery’s bankruptcy (and the rumors of others pending) also reminds us that no one is immune from the effects of this cost-price squeeze.
But the key question is what to do about it? Logic would tell us there are only two options — either (1) employ the supply side strategy of continuing to shave costs out of the value chain internally or (2) opt for the demand side strategy of increasing price. Anyone who has been reading Making Cents for a while will readily know that I have been pushing for growers to embrace both strategies, but particularly option #2 (click on the differentiation tab on the right hand side of the page to view relevant posts).
On the flip side, however, never underestimate the value of a regimen of lean flow analyses on your value chain activities. Several growers at the Seeley Conference related some impressive cost savings testimonials to the rest of the group. You might want to give Gary Hudson a call if you’re interested in finding out more about lean flow. Also check out recent issues of Greenhouse Grower and GMPro for lean-related articles.
Stay tuned on more on the cost-price squeeze topic later…
Tired of doom & gloom? Part 3
Check out this interview of Bill Conerly about “non-recession strategies” by Jim Blasingame.
this recent interview with Jim Blasingame (on the Small Business Advocate show)
Tired of doom and gloom? Part 2
Monthly US data on payroll employment, civilian employment, industrial production and the unemployment rate are used to define a recession-dating algorithm that nearly perfectly reproduces the NBER official peak and trough dates. The only substantial point of disagreement is with respect to the NBER November 1973 peak. The algorithm prefers September 1974. In addition, this algorithm indicates that the data through June 2008 do not yet exceed the recession threshold, and will do so only if things get much worse.
Abstract from “What’s a Recession, Anyway?” by UCLA Professor Edward E. Leamer, NBER Working Paper, August 2008
Home prices increased in 30 of the 50 states this past year
From Mark Perry: The map below is from the latest housing report from the Office of Federal Housing Enterprise Oversight, showing the “Four-Quarter Price Change by State” from 2007:Q2 to 2008:Q2.
Notice that the biggest price decreases have taken place in 4 states: CA (-15.8%), NV (-14.1%), FL (-12.4%) and AZ (-9.2%), see previous CD post (data through 2008:Q1 for that post).
Further, house prices have increased over the last year in 30 states, including increases of above 4% for two states (OK and WY), and increases at or above 3% for 12 states (OK, WY, TX, OK, SD, ND, MS, AL, NC, SC, KY, WV). Finally, more than half of the states (27) have experienced home price increases of 1% or greater, and 30/50 states have experienced price increases over the most recent year (2007:Q2 to 2008:Q2).
Tired of doom & gloom? Part 1
Gas today was below $3.00 in Mississippi today…click here.
Farm Bill Side-by-Side Comparison
The Food, Conservation, and Energy Act of 2008, which governs Federal farm programs for 2008-12, was enacted into law in July 2008. ERS’ side-by-side comparison of this new Farm Act with previous legislation is now available (click here). Summarized but substantive, this comparison is a time-saving reference on farm bill provisions. Title X deals specifically with horticultural crops.
Real versus perceived value
Marvin Miller’s latest musings in the August 18 America in Bloom newsletter is a must read. Click here to view his comments. Pay particular attention to his “perceived” value comments.
Signaling perceived value is a key point in any successful differentiation strategy. The questions you must answer about these signals include:
- What mix of quality, price, service, convenience, and selection signals can influence perceived value?
- What signals work for your customers?
- Are multiple signals necessary?
- Does it depend on purchasing behavior, customer segment, or outlet(s) chosen, or all or the above?
Why does it matter? The greater the perceived value that higher the willingness to pay. Period.
America in Bloom is designed to increase perceived value by promoting nationwide community beautification programs through the use of flowers, plants, trees, and other environmental and lifestyle enhancements. AIB does this by providing educational programs, resources, and the challenge of a friendly competition between participating communities across the country.
The end result? Only a few things like improved quality of life, enjoyable end results, greater community involvement, recognition for volunteer efforts, inspired imaginations, beautified spaces, educational opportunities, shared ideas, and new friendships. Sounds like a good way to increase perceived value of our products and services to me.
Higher minimum wage effects
Teenage unemployment (16-19 years old, seasonally adjusted) for July (20.3%) was at the highest level in more than 15 years. It seems like that would be pretty newsworthy, but it received almost no media attention. Plus, the attention it did receive was mostly off-base, blaming on the country’s “economic malaise” and “economic downturn,” without a single mention of the increase in minimum wage.
The only newspaper report that linked the 20.3% teen unemployment rate to the increase in minimum wage was a story in the LA Times, which quoted David Resler, economist at Nomura Securities:
“The July jump in the federal minimum wage rate appears to have had the predicted impact on teen employment: The higher required rate enticed more teens into the job market to search for a smaller number of jobs on offer.”
Demand curves slope downward, whether it’s the demand for gasoline, the demand for cigarettes, or the demand for unskilled workers. We can argue about price sensitivity, elastic demand vs. inelastic demand, availability of substitutes, etc., but higher prices or wages result in a reduction in the quantity demanded. That is, we can argue about the slope, but the slope of the demand curve is always negative.
The bottom line: higher wages for unskilled workers equates to fewer jobs for unskilled workers which equates to higher unemployment rates for unskilled workers.