Net Neutrality Friday

There are a couple of terms that are floating around in the IT and Communications space and I want to give some background around them and then talk about how they might impact consumers and businesses. These terms are Network Function Virtualization (NFV) and Software Defined Networks (SDN).

I will start off by talking about NFV. In a lot of ways, this is the way many things work today including many websites. The notion is that computing is so fast now that you can run products on all of or part of a standard x86 based server. The IT world has been doing this for some time and not only can you find all kinds of software products that work that way but many things that used to be called “appliances”. The term appliance in this case means a box dedicated to a specific function like a Firewall or a Load Balancer. If you go back 10 years, you would find IT departments loaded with toms of single function boxes that did dedicated jobs of one sort or another. But if you opened up many of these boxes, you would have found that they were actually just running on a computer. So two things happened. Customers and vendors worked at separating the hardware and software so that the customer could operate the software on any appropriate hardware. Thus, if the customer had spare computers they could just put them back into service to do something new. On top of that, there was the development of a middle layer of software to put between the hardware and software. This middle layer allows the computer hardware to be shared between multiple programs. This turned out to be so useful people use this middle software to allow applications to be “moved around” or “turned up” on all kinds of different computers. It gave IT teams all kinds of flexibility in performance, location and quantity of functions. So, communications companies want that same capability for various network functions (Thus it is called NFV). It is not greatly different than what the IT companies have been doing and continue to do. Separate the hardware and software. Allow the creation of new network functions by software on an as needed basis.

SDN is a little less complex but more confounding. The Internet today is primarily a distributed control system. Each system makes its own decisions. There are boundaries to this and not every router in the Internet can make every decision. But recall that the entire reason that the Internet exists was to replace the central control of the telephone network. DARPA was worried that a central control could be nuked (literally) and they hoped that the Internet would continue to work even after an nuclear exchange. Well, having a distributed control system makes some kinds of services much more complicated. So SDN is a way of at least organizing a more centralized control scheme and be able to adapt to network conditions – like network functions appearing and disappearing (see NFV). The reason that it is confounding is it will be interesting to see how much of this is opened to businesses to use versus will remain inside the ISP. There are large security issues in opening up things. Hackers could disrupt all kinds of other customers if things are not done extremely well.

So not much of this is going to be directly visible to consumers. What is likely to happen is that some businesses will be able to build their services out more efficiently with this new technology. That should keep prices down and may allow for some new innovations. But it is possible that this is another set of buzzwords in the hypecycle.

Have a great weekend!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

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Know Your Numbers: OPEX

OPEX or Operating Expenses is one of the least sexiest topics in Business. However, it is one of the most important. The reason is pretty simple. Every dollar of OPEX comes straight out of profit. So, the easiest way to grow profit is to save a dollar of OPEX. However because this is not a sexy topic, many Business Owners ignore looking at OPEX. I will give you a view to what is in OPEX and then why you should care about it.

All your Operating Expenses that are not part of COGS (see last week’s post) are part of OPEX. What is not is financing expenses or taxes. That is why the result of removing OPEX from your Gross Margin is called EBITDA (Earnings BEFORE Interest, Taxes, Depreciation and Amortization). So, think of the result as the Operating Profit from your business. This is a great measure to know if your business is operating effectively or not.

The first reason to care about OPEX is that it is important to look at when business is good. Why is that? Well, victory tends to cover up a multitude of sins. Being inefficient will only come back to your business in hard times. The problem is that you will then have to fix things in a problematic way. Now if you are just wasting money, that is one thing. But many of your expenses are built into your Business Processes and you need to change those processes to make a significant difference. To do so, will cost some time and money. That time and money is easier to come by when things are going well. So, it is always time to think about what you can do better. There is a term called “Zero Based Thinking” which people use to describe a thought process where nothing is assumed. Do you really have to do things the way you do or is it just inertia? At least some of your competitors will be looking to improve the way their business works. Can you afford not to? Now, you won’t make grand changes all the time. Small changes add up as well. But be on the lookout for the way to make your business work better.

The second reason is that OPEX naturally increases every year due to inflation. Think about what is in OPEX. Most of it is based around people’s salaries and they want raises. Benefits increase in costs every year, especially health benefits. Insurance rates go up. So does rent and utilities. When I was at AFC, we used to estimate that OPEX went up 7% per year if we did nothing. That means that either we have to sell a corresponding amount of more stuff to get the money back from revenue or we have to spend less or both. Both is the easiest solution. Think about what could happen if you sold 20% more stuff but needed no new people to do so? It would likely mean an increase in profit, but probably not as much as you would like.

As an Executive, it is this balance between growth and profitability that you need to keep your eye on. It is easy to let the two sides of the coin (expenses and revenue to get out of balance). You can not cut your way to revenue growth, but revenue at any cost is a way to go bankrupt. That is why it is important to be efficient and the best way to track that is OPEX. For example if you are trying to grow by hiring more Sales people, you need to ensure that they have the same level of quotas as existing people. At some point, you will have reached your natural audience and more people won’t help. You can see this in many companies where Sales and Marketing expenses grow faster than Revenue does. If the company is entering a new market or territory, this is natural. But if this becomes the new norm, there is a problem.

So, I hope I have made OPEX important if not sexy!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Net Neutrality Friday

I saw a number of things this week that want to point to extending the life of twisted pair copper for telcos. If you are a consumer, should you care about the underlying technology involved? I think there is value in understanding why companies make these decisions from a cost standpoint and then what the differences are in the service that you would receive. One of the bigger ones with copper is that telcos want to use the infrastructure that is in the ground. The problem is that as you want to raise bit rates, you have to have shorter runs of copper. The reason for that is that there is a term called “Signal to Noise Ratio” or SNR. This represents how much random environmental noise is in the transmission path. To think about SNR in a really simple way, think about the quality of FM radio versus AM radio. FM is “better” and has a higher SNR. The signal is clearer. In the world the transmission mediums (from worst to best from an SNR standpoint) are Air, Copper, Coax and Fiber. No matter what you do it will always be easier to transmit high rates over long distances on fiber.

There are a couple of other problems with copper. One is that the copper network is built in 50 wire bundles built in 25 twisted pairs. The pairs are insulated wires, but are braided to make the transmission quality better than two wires laid side by side. The wires don’t just transmit energy through them, but generate electro-magnetic fields that are picked up by nearby wires. Those fields generate noise which lowers the SNR. On top of that any anomalies in the copper like broken insulation can cause additional noise. That means as copper ages it has more and more problems. As a consumer this means your service might get worse over time, even if the telco is not trying to make that happen.

This trend to keep copper has been around since FTTH has been deployed in volume in a few places. The reason is pretty simple. The less that a telco spends to deliver service the sooner it gets a positive Return On Investment. The thing is that this means that upgrades to the next level of performance require new network construction. With FTTH, the fiber that is laid is useful for much higher rate that people deploy today. It is (at worst case) a need to change the equipment on both ends or (in the best case) a provisioning change to allow the user to have access to more bandwidth. At some point the amount of money to extend the life of copper will greatly exceed the cost to lay fiber. Part of the reason is that to get very high rates means that most of the distance to the telco Central Office has to be fiber anyway. If they have to replace copper because it is bad, it will be time to move to fiber. So, slow but sure copper will leave our local outside networks. In building, it will probably be there for a very long time. As copper goes away it will be easier to build, operate and upgrade high speed access networks.

And that is what consumers want!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Sonoma County: News and Notes

I want to thank everyone who came out to the Workshop yesterday. I hope they all got great information and met some other excellent business folks here in Sonoma County. My next event is likely to be in January – so look for information on that soon. Also, shortly we will be back to Earnings Season for Q3. I will be interested in hearing the progress from our local companies.

I am getting ready to go to a BNI mixer and I was thinking about what I would do there. Mixers like that are great Networking Events that can help you meet new potential clients and partners. But to me, they are netWORKing not Networking. That may not be true for everyone, but if it is there are some simple things that you can do to help yourself.

First and most important is showing up and as Woody Allen said, “90% of Success in Life is just showing up.” But with Networking there is a twist to that. In most cases, these events are periodic. They happen weekly, monthly or quarterly. If you show up just once, your chances of getting business is pretty low. The best thing that you can do is be a regular attendee of these events. People get to know you and feel more comfortable. You build trust and trust is the start of most business relationships.

Second, is talking to people you don’t know. Now it is fine to connect with friends and colleagues. But if you want to grow, then you need to meet new people. I know this can be scary for a lot of folks. But you can keep a couple of things in mind. Everybody is there to meet and talk to others. They want you to meet them. That is why they are there! But it can be hard to break the ice. So if you are not great at introducing yourself, then ask the other person about themselves. Most people love to talk about themselves, their businesses and their passion. If you give them the chance, they will fill the air until you feel comfortable.

Third, get some contact information from them. If you are going to do business, then you need to get a hold of them. This means you want their Business Card. And you need to be ready to give them yours. Bring plenty! This is not a time to be stingy. The more you give out (even to people that are not likely to be clients) the more likely you will earn Business.

Fourth, have an elevator pitch. You need to be able to explain what you do quickly and concisely. Try to do so in 30 seconds or less. If you can, then you will be able to help people understand what you do. But don’t forget, you have a Unique Value Proposition. You need to be different than your competitors and be able to explain it to those you meet.

Fifth (and Finally), you need a follow up plan. I have one for every event and everybody I meet today can expect to get an email from me at the very least. Don’t expect others to reach out. You need to reach out to them. Back to showing up right? Not everyone will follow up with you, but some will. That allows you to build that relationship to the next stage.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Know Your Numbers: COGS

No, this is not an episode of the Jetsons. We are not discussing Spracely Sprockets or Cogswell Cogs. This week we are starting to dive down into the difference between Revenue and Profit. Since we have discussed Revenue in a previous post, then we need to start talking about the costs involved in making product or Cost Of Goods Sold. This is what COGS stands for and it is an acronym that relates to the direct costs of making your product or service.

Couple of notes before we dive in. If you are a Sole Proprietor and deliver a Professional Service (like say you are a Business Coach), then COGS is not a very useful thing to discuss in their own business. Everybody else should be greatly concerned with COGS. The second thing is there is some minor parts of variability in the way these costs are accounted for per company. As long as you follow the general guidelines, your particular variant will be fine. The biggest thing is to be consistent. In the future, we will be talking about other costs and I hope to be clear on why we separate them.

COGS is all about variable costs. If you sell something that has an intrinsic cost to make, then the number that you sell has a direct impact on the costs in your business. The fewer that you sell, then the lower your cost is of making your product. Of course, the lower your revenue as well. So, what comprises COGS? The materials and labor directly associated with making your product available to sell. There are a few things to think about when we talk about costs.

Most larger companies work with something called “Standard Cost”. That means they don’t calculate the actual cost of a specific item. They have a standard that they use and then track variance from that standard. The standard is set annually in most cases. Now why do that? Suppose you make cupcakes (in a nod to the E-myth). Let’s say there is a sale on Flour. That means your cupcakes are less expensive to make, since your ingredients are cheaper. But you might also run out if you have a large order. To meet the order, you go to a local grocery store and that costs more than your normal supplier. Keeping track of each cupcake’s cost at that point seems like a lot of work. To simplify this, companies simply track their variance in purchasing and deal with it as an overall average.

Second, many small business owners are directly part of the production. How do you account for your own labor? Well, the best way is to “pay” yourself like you were an employee that you would assign to your work. Don’t forget when you do that you need to use “Burdened” cost. That means you not only have to include salary but the total cost of employing the person (Workman’s Compensation, Benefits, etc.).

Now, why is this important? Once you have all your COGS, you subtract that number from your Revenue. You end up with a number called “Gross Margin”. This is not your full profit, but the money that you have from the sale of the item. Most companies state this as a percentage (“We have a 45% Gross Margin). This means that this is the Percentage of Revenue that you can use to pay for everything else that you do (You have 45% of your Revenue left after you have made your product).

This percentage varies in different industries and tends to be similar for all companies that are in similar businesses. There are companies that can provide standard information for what your Gross Margin percentage should be based upon what other’s are getting.

Next week its all about OPEX!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Sonoma County: News and Notes

This will be my post in this format about the Workshop I am co-hosting on October 20th. The workshop is titled “How to Grow and Manage Your Business Profitably” with Don McMahan and Shane Campbell. The Workshop will be held at Noon at the Finley Center and Lunch will be provided. You can click HERE to register for the Workshop on EventBrite. The cost is $25 and each attendee will also receive a copy of “The Exit Strategy Workbook“. I am looking forward to seeing many of you there next week. This is going to be a great event!

I also want to let you know that the Lime Foundation (run by my friend and BNI compatriot Letitia Hanke-Ryzhkov is holding a fund raiser on November 7th from 6 – Midnight at Sally Tomatoes. All the proceeds will be used to help those hurt in the Valley Fire. You can register for the Fundraiser by clicking HERE! The Lime Foundation is also accepting gifts of Food and Water to help those in Lake County. You can find out more about the Lime Foundation if you click HERE!

On November 12th, two coaches within FocalPoint are hosting a conference in San Francisco. It is called “Green and Gold: Making Money While Saving the Planet”. It will be held from 9:00 – 5:30 at Conference Center located at 499 Illinois Street in San Francisco. There will be many fine speakers and you can find out more information about this event HERE! The cost to attend is $99 and you can register to attend by clicking HERE! If you are interested in learning how to raise capital, market, and operate a Green Business for Profit, then this is the event for you!

As an update to the issues that I talk about regularly, let us start with housing. The Average Single Family Home price has now crossed $500,000 in Sonoma County. This means that first time home buyers are going to find it dificult to get into homes straight away. The issue continues to be the availability of homes to buy (aka Inventory). There is nothing that is going to change this very soon, but there is some relief coming eventually in Rohnert Park. There is a substantial development near the Green Music Center that might see homes begin to be sold in a year or so. The pricing out of first time buyers and the prospect of new homes coming on to the market, might put a cap in the rise of home prices for now.

Now, let’s move to water. The good news (I think) is that El Nino continues to look like it is going to happen. The last time we had an El Nino of this magnitude was 1997. I remember that well as it was my first year in Sonoma County. We had flooding that brought water to the doorsteps of AFC. I remember buy lunch for the entire building that day so that folks would not have to go out for lunch. I think it was around 50 pizzas. But it was the right thing to do to keep our employees safe. We had a number of them cut off from homes in Marin County so we put them up for the night in local motels. Not the Ritz, but we did try to help!

Finally, this week I want to let everyone know that the FocalPoint Coaches in Northern California have opened up a new site called the FocalPoint NorCal Forum. The goal of this site is to provide educational videos on various business topics to those who want to view them. You can also learn about the different FocalPoint Coaches in Northern California and their expertise. I hope that many of you will take a look and find something of interest. It is all free and please feel free to use it as you will.
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Know Your Numbers: Prospects

Last week we talked about Customers and the Sales Process. That leads us to the top of the Sales Funnel and Prospects. Not all Prospects are created equal. We will talk about that as we get into the Sales Funnel, but first we need to talk about how they get there.

The job of creating Prospects is Marketing. Essentially, the job of Marketing is to create awareness of the Company, its Products and its Services. This can be done in a wide variety of ways. Print, Networking, Referrals, and Websites are just some of the many ways to create the awareness. Once people are aware they become part of the Audience. Audience members have at least some awareness of you.

Next, you try to impress your Brand on your Audience. This is done through the wide variety of messaging that is available. However if you have read my posts over the past couple of years, you will recall that when I talk about Brand it is an operational thing. That is partly because of the change in Consumer Feedback. You can call this the “Yelp Revolution”. In the past, generally reviews of your Business were controlled by you through testimonials/reference accounts. Any external feedback was local to a few customers and their friends. With on-line tools, reviews can be created and distributed broadly. So, to maintain your Brand you need to execute every time. Even a few bad experiences can be a problem.

So once an Audience member begins to show interest in purchasing your Products and Services, they become a Prospect (others can call these Leads – and the activity Lead Generation). We covered last time some thoughts about converting Prospects to Customers. However, there is another way you can use the Sales Process. That is to test the effectiveness of your Marketing. One way to look at Marketing is unto itself. In this case, Cost per Prospect is the way to go. But you can track the Prospect all the way through the Sales Process. Then you can look at a couple of other Metrics. The first would be the Conversion Rate by Prospect Source. If you know how a Prospect comes to you (and you won’t always know), then you can know what percentage of Prospects from any Marketing Mechanism become Customers. This can help you focus on the Marketing Mechanisms that work best for your business. You can also look at Average Prospect Value. How much is an Average Prospect from a specific Marketing Channel worth (you can do this by following the Revenue from Prospects and Matching this up to the Marketing Mechanism used). Again, this can help you understand the efficiency all the way through the Financial Results of your Business.

And this last, is the point of all this. If you understand how your Sales and Marketing activities convert directly to your Revenue. This means that you can convert this to a Return On Investment (ROI). Now you know whether it is worth it to invest in specific Marketing activities and how they impact Sales productivity.

Next up – COGS!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!