Net Neutrality Friday

Well, now that the new FCC Chairman is in place we have a number of NPRMs being floated and issues being discussed.  In the grand scheme of things, I don’t think the outcome of all of this will amount to much in practice.  As you are probably aware by now, that the way I feel about the implementation of Title II for Internet Service in response to the question of Net Neutrality.  I don’t think that Service Providers have slowed the rollout of new services and networks.  I don’t think that anybody was slowed and now sped up.  I think this whole thing was much ado about nothing.

I do have one thing that troubles me with the discussions as they are held now.  The changes seem to have some political methodology in both the old FCC and the new one.  They have models of economics (which in this context is a political exercise) with more or less regulation and control.  I think that having these models is a wondrous thing but really don’t apply to this little branch of the world.  I have two reasons for saying so:  Technology and Natural Monopoly.

To address this first point, there is an ongoing evolution of technology.  If you go back 30 years, we had separate cable and phone networks and they served different purposes.  Today, these networks serve essentially the same purpose and that purpose is converging.  In the long term, there will be no residential and few business services not delivered over the Internet.  Some things will take more or less time to get there and it will be decades for this transition to complete.  Now, the only question is if there will be something to replace this connectivity that gets invented in the next 20 years or so.  It is possible, but going over the Internet is the trajectory we are on today.  There is significant change going on in the transmission world with the rise of mobile devices.  Internet connectivity of embedded devices under the IoT moniker is another change.  All of this and more will keep froth around the whole network in technology.

The second point is that there is this notion of Competition to drive behavior.  This works in some parts of our business and not in others.  Capitalism wants lots of competitors and allow them to compete with differentiation in the marketplace.  We work in a business of significant capital outlays.  Service providers work very hard to evaluate the Return on Investment on that Capital Outlay.  It has turned out to this point that we want more people choosing to deploy than are actually deploying.  I don’t think there is much we can do to change this.  If municipalities choose to add to the competition, it will likely mean the withdrawal of other Service Providers over time.  I think a more practical approach is to assume 2 – 3 (or some other low number) of providers in any area and manage to those numbers.  That is the method to overcome the Natural Monopolies in the Service Provider business.

So, I implore those in the regulatory world to be more practical and less dogmatic when they approach regulating the network.  The economy needs the network to be growing and robust, but also broadly available and affordable.  Those should be our common goals.

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

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The 4 Ps of Leadership: SWOT

As we evolve our thoughts from Process to Planning, we need to think about the Status Quo.  The first challenge to the Status Quo is Inflation which we discussed.  That causes a mix of strategic and tactical projects that change the Processes within a Business.  The challenge we then need to look at is the strategic context that the Business resides in.  The first tool that can be used to examine this is called a SWOT.

SWOT stands for Strengths, Weaknesses, Opportunities and Threats.  This is a tool to examine the current state of any business.  The idea should be obvious but each of the categories of the SWOT.  The one thing that may not be clear is that Strengths and Weaknesses are internally focused.  Opportunities and Threats are externally focused.  Most Small Businesses are pretty good about understanding their business so get the internal factors.  They struggle a bit with the external factors.

For example, here in Sonoma County there has been a rebirth of Passenger Air service in the last 5 years.  The flights are very full and a second airline has just come into the picture.  This is a major potential source of revenue for many companies.  There was significant construction required in a Runway expansion as well as an expansion of the terminal.  The number of passengers has increased, so it represents a potential market for travel.  So, there are literally a dozen or so industries directly and indirectly impacted by this growth.  Most small businesses did not give this expansion a second thought.  Because of that, there has been little to no involvement by smaller businesses.  They missed an Opportunity.

As more and more products are purchased on-line, brick and mortar retail is struggling with how to compete.  This extends to things like Insurance.  I have had agents complain about eSurance or Geico, but that is going to be the way the world works in the future.  It is simply a matter of time.  Really the question is what will folks in that business do in 20 years?  I suspect there will be specialty practices and markets that will remain with brokers for a very long time.  The question really is can somebody identify them and focus on these markets.  If so, they will survive the long term decline of the general market.  We see this in Print.  Print is dead right?  Well, general print is dead.  Specialty print is doing quite well.

So, do a SWOT for your business.  Engage with it and make plans to address your findings!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!

Net Neutrality Friday

Following on from last weeks post, I want to spend some time talking about the money problems associated with being an overbuilder like Google Fiber was. Now, why is the money discussion so important? People want to blame lots of things for why Google is pulling back. Most notably they want to talk about the right of ways and pole attachments. These are problems but not the big one.

So, let’s dispatch with these other problems first. There is a presumption that the ability to physically deploy was some revelation over the time of Google Fiber. The truth is that these are local laws (and each city is different) and have been around for decades. If this was a problem for Google Fiber, then I would them as completely unprepared for what they were attempting. I would argue that this was the point of making it a community-based request. Google wanted to them to waive all kinds of provisions to get the network built. If they thought this would be an impediment, then they would not have started.

I am going to use some round numbers from what Verizon told us about FiOS and then go on from a numbers standpoint. They told us that to “pass” a home was about $1,000. That to “connect” a home was about $1,500. Connecting a home is obvious. Passing a home means that all the construction and equipment was in place to be able to sell service to the home. So in math terms that mean that an actual connection cost was more than $1,500 and that includes all the money to buy the equipment, lay the cable, install the equipment and turn up the service.

To get the money back on this, you would need to earn enough profit to make the investment come back to you. One easy mistake that people make is that they start with revenue instead of profit in a Return On Investment (ROI) calculation. Let’s call a triple play home (voice, data, and video) $250. Profit margins on such a business might be 10% or $25 per month. That creates a break even of 5 years for the $1,500. Now, a more realistic break even is 24 months so the profit on these lines is more like $62.50. The problem is taken rate or the percentage of people that take the service.

Let me use 3 numbers for taking rate: 50%, 25%, and 10%. The profit from one home must cover the cost of all the homes that don’t buy. Or in each case a total of $2,500, $5,500, and $10,500 respectively. As you can imagine at really low take rates the ability to pay the kind of money it takes to build a network. At our $62.50 profit margin, these are break-even times of 40, 88, and 168 months (the latter is 14 years). Now this is just a model, but at even double that profit it is a 7-year payback at low take rates.

Now, be a 3rd player in the market. 10% take rate is actually reasonable for somebody in that position. You can see why being a 3rd player is such a bad deal. Having a 33% market share is no picnic. Compared to the rest of the returns on Google Investments it is terrible. Now Google could afford to build out the entire US. But it would be an awful financial move.

This is why expecting new players to come out makes no sense.

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

Change Your Business – Change Your Life!

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The 4 P’s of Leadership: Inflation

Well, Inflation is not a P word.  But it is important to our view of Process.  Product Portfolios are a bridge between Products and Process as they have to do with how companies optimize and a Portfolio Review is part of that Process.

Inflation is the key point to start with Process.  Costs go up all the time, whether that is cost of materials or just the costs to operate the business.  Employees need raises and Insurance goes up year after year.  It is part of doing business.  Of course, the challenge with these rising costs is that they eat into the bottom line profits of the company.  There are only two ways to compensate.  First, you can get more Revenue.  Second, you can cut Costs.

If we look at raising Revenue, then we need to remember our Gross Margin.  Every dollar of Revenue does not create a dollar of profit.  Some percentage goes into Costs of Goods Sold or COGS.  At 50% Gross Margin, we would have to make $2 of Revenue for every $1 of increased profit that is needed.  Any significant increase in Revenue may require different Sales and Marketing methods.  These new methods are a change in Process.  Most Sales Teams can estimate the dollar Revenue per Sales person.  This is a hard amount to change unless there are fundamental changes to the way that Leads are generated or Sales are conducted.  This is the first place where Process comes in.

On the Operating Side, there also tends to be inertia about costs as well.  Things in a business work a certain way.  Those things cost a certain amount.  For example, how much does it cost you to execute a transaction in your business: Invoice, Get Paid, Deposit Cash, Update the Books.  If you take Credit Cards, there are Merchant Fees.  Is there a better way for this to happen?  Is there a constraint on how it limits your ability to take on clients of a certain size.  When I worked at Red Condor, we accepted monthly payments through Paypal.  That worked very well in our small business customer base and we were able to support thousands of accounts with 1 person part-time.  We paid Merchant Fees but the whole process could be automated.  When Edgewave took over, they went to paper invoicing those same customers.  Merchant Fees were gone but the stress of generating $20 monthly bills was high.  In the end, it cost less but we could not scale that process.  The same was true with Onboarding customers between our SaaS offering and our Appliance offering.

All of these things make a difference in the structural cost of the business and the only way to change the cost structure is to change the processes that make your business operate the way it does.  That is why Inflation is the key to understanding why Business Processes are so important.

Have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!

Sonoma County:  News and Notes

Things have been extraordinarily busy for me over the past few weeks.  However, I was able to catch up with Jennie Jinnivik of Skin Care by Jennie recently.  Jennie has an office in Penngrove, but is looking for her own office in Santa Rosa.  If you know of a good space, let her know at either skincarebyjennie@hotmail.com or 707.793.9311.

Jim Sackman:  Jennie, you are an Esthetician.  Since many of my readers are men, can you fill us in on what that is?
Jennie Jinnivik:  Estheticians are not medical doctors; instead, they perform cosmetic skin treatments such as facials, light chemical peels, body treatments, and waxing.

Estheticians, also called skin care therapists, specialize in cosmetic treatments of the skin. If you’ve ever wondered what skin type you are, have trouble deciding on which skin care product to buy, you need an esthetician.  This is the skin care professional that can help teach you all you need to know about the proper care of your skin. Estheticians can help you create a daily skin care routine and suggest skin care products that are appropriate for your skin type. In short, estheticians can help you maintain a healthy skin.

JS:  Okay, well Skin is important!  I know that the Skin is the largest organ in the human body.
JJ:  That’s right and because of that we need to take care of our skin and promote health.  But that is only part of my job.

JS:  What is the rest?
JJ:  A lot of what I do is help people feel better about themselves.  If you look better, you feel better.  If you feel better, you look better.

JS:  So there is a self-esteem and confidence part of what you do.
JJ:  Absolutely.  It leads to one of the most important part of what I do differently than many others in my field.  Being an Esthetician, can be an extremely intimate experience with people’s bodies.  I want to ensure that everybody is comfortable and relaxed with the experience and that I have built trust with them.

JS:  Does that mean that you have a lot of long term clients?
JJ:  Yes, most of my business is long term clients.  There are many people that have not used an Esthetician before and are uncomfortable when they walk in.  I work to provide them with education on the different treatments and help them choose the products and services that are right for them.  My main goal is that everybody leaves satisfied with my work and that they are happier with their looks than when they came in.

I would like to thank Jennie for her time.  She is part of our Health and Wellness team at the Best Networkers in Town.  If you want to have breakfast with 50 Small Business Owners, come by Legends on Friday Mornings at 7 and visit our BNI chapter!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!