Wednesday, December 29, 2010
Friday, December 24, 2010
Recently, while flipping through channels in my free time, I came upon a show called “Cupcake Girls” which combines two passions of mine - baking and business. On the surface, it seemed like another cupcake show, but just a few minutes into it, I realized that was far from the core of it. After allowing the viewers to have a peak into their business model and presenting a few scenarios with show’s accountant, I realized the show cleverly figured out a way to insert many business lessons into their every-day lives at the bakery. For anybody willing to pick up on the small details, it gave many great tips. The lesson which stuck with me most occurred in the meeting between the accountant and the ladies who ran the bakery. In the midst of some financial difficulties for the bakery, the accountant let the owners know that the more cupcakes they were selling, the more money they were losing. I was confused for a few moments, then disassociated from the show while pondering this interesting concept. I tried to understand what that meant. In that moment, I had a flashback to the business camp I took over the summer, and remember what my professor told me at Stanford. Cost is different than price. In this situation, the cost to bake a cupcake must have outweighed the price. I’ll take a moment to explain the differences.
In the consumer-seller relationship, the buyer’s focal point is on the price (how much they have to pay for the service or product-in essence, how much money goes out of their pocket) while the seller’s focal point is on the cost, the amount of money it takes to get the product to the consumer.
The price includes the money needed for the time and labor that goes behind the product. For example, when going to the store to purchase something, you actually indirectly pay for the amount it took to transport that item, the money that went behind advertising it, and some of the money needed to have a manager and employees at the store on top of manufacturing cost.
In contrast, the cost is the money needed to pay the advertisers, transport the item, and the money it took to pay the employees.
In conclusion, in this scenario, the owners of the bakery must have spent more money on the employee labor, the ovens, and the ingredients than they were making.
©2010. All rights reserved
Saturday, December 11, 2010
As someone who hopes someday to earn money, I look forward to depositing a modest sum every month into my bank “for some rainy day”. I will enjoy watching the money pile up (slowly) and the added benefit is that the bank actually gives me a modest “interest” for the money I deposit – currently around 1% to 2% depending upon the terms.
When I was young I always wondered “How do they just MAKE money??” and how can they afford to do that – I’m sure a LOT of people don't mind just letting their money sit there and grow !”. As it turns out, the bank not only ACCEPTS money from its depositors in exchange for interest, but it also LOANS money to some borrowers – at a considerably higher rate ! That is where the bank makes money, and that is where the bank is happy to pay you a small amount to keep your money.
A bank will loan money to individuals for many reasons – Auto Loans, Home Purchase Loans, Business Loans, etc. Each of these loans will have a rate associated with it, depending upon the amount, length, perceived risk, etc. Sometimes to reduce their risk and your rate, a bank will make a loan which is “secured” – an agreement that you will have to give up something of value if you fail to repay the loan with the terms you have agreed. Loans vary widely but can be 3% to much higher depending upon various factors.
Your previously proven ability to repay loans also is factored in when a bank determines what interest rate they will charge you as a borrower. If in the past you’ve managed your money very well, the bank will likely give you a better rate. This is where your “credit score” comes in. Your actual credit score is a number that is determined by the “credit ratings” bureaus. The three main credit ratings bureaus in the US are Experian, TransUnion, and Equifax.
It’s important to keep in mind that banks don’t keep all deposits available in cash. Typically, a bank will keep between 5% and 15% of their cash on hand for cash withdrawals. Banks have expert predictive models and software to help them determine the likelihood and amount of withdrawals at any given time.
Finally, banks do make money in other ways, including overdraft fees, checking fees, ATM fees, etc, and also in some cases issue credit cards, which can have very high interest rates !
Depositors will deposit money and get 1% - 2% for their deposits
Borrowers take loans (secured + unsecured) and pay 3% and higher (depends)
Banks base their loan rate based on risk factors and credit ratings
Banks make money with other fees (ATM, Checking) and some issue Credit Cards.
It's a complicated process, but enough banks are doing this well that it's certainly a very proven system !
©2010. All rights reserved
Saturday, December 4, 2010
Giving away free stuff seems to go against the main purpose of a business - to grow and make profits. It's somewhat counter-intuitive that a company could gain or benefit from giving its customers something for free. Companies have interestingly found ways to be able to give away items for what is perceived as free, but ultimately does end up costing the consumer in some way.
(1) We'll give you free stuff if you remain loyal to us.
Anybody who has ever gotten the fifth sandwich free after getting a card punched four times knows about this one. Another example is the free airline ticket after you've accumulated a certain number of airline miles.
The most ubiquitous example is probably the free cell phone you get when you sign up and promise to stay on a mobile phone plan for two years.
(2) We'll give you free stuff if you pay attention to us (advertising)
This one is a little more subtle, but Google uses this one. You get to use Google's Search engine (a service really) for free, their maps are free, and all the other products are free. Quite remarkable when you think "when was the last time I used Google products (probably daily), and when was the last time I wrote a check to Google (probably never). Also, when at a convention, have you ever stood in line waiting to talk to the booth representative, so you can get yet another cheesy water bottle that you will never use ?
The most painful example of this category is the "get a free weekend getaway and listen to us for 3 hours harp on you to buy a timeshare". OUCH.
(3) We'll give you free stuff if you try it - and please spread the word how good it is.
Some of the fast food chains gives a free food item (fries, taco, milkshake, burger, whatever) when they're launching a new item - so you can experience how good it is. Photo labs used to give away free film so you would try their film processing. The toy in the cereal box is another example. My previous blog on the grand opening of the Movie Theater was a great example of a "free trial" at a soft opening of a new business. It definitely got me to try
(4) We'll give you a chance at really good free stuff if you give us your personal data
One Word: Sweepstakes. You know them. You love them. You have entered in them, and you never won any of them. The only thing you got was more junk mail. Ha ha.
(5) We'll give you free stuff because you're famous and we want the public to think you are associated with us.
Ironically if you want to really get great free stuff, become super rich and famous. When you no longer have to worry about whether or not you can pay for stuff, it automatically becomes free (sometimes). Donald Trump once stated that he can't count the number of times he's been offered a free meal, just because the owners were happy that he came to their establishment. Donald probably paid the bill anyway, because he is a truly classy guy.
I hope someone comes up with another scheme for how to make money in a business and still give away free stuff. We all love free stuff once in a while.
©2010. All rights reserved
Friday, November 26, 2010
There are some things that are universally loved by teenagers. Pizza, Ice Cream, A day without homework, and Movies. When my favorite movie theater closed for renovations several months back, I was extremely disappointed, especially since it would mean a summer of either not going to a theater, or finding a less preferable, further distant venue.
I knew they were renovating, but had no idea what was their intended outcome.
The theater that used to be my favorite has left me with something so much greater, but with a little disappointment as well. My theater is now an upscale dinner-movie experience. We were given a wonderful opportunity to see an "older movie" in a free screening to introduce people to this new concept. By "older movie" they meant movies that were no longer in the theaters, but not yet on DVD. I was not disappointed, because we chose "Inception", which I really enjoyed, just as much as the new dining format as well !
Here is a brief comparison to the "old style" theater and the "new" Dinner-movie experience.
Old: Popcorn, Big Candy Boxes, maybe hot dogs and nachos
New: FULL meal experience - Appetizers, Entrees, DESSERTS all delivered right to your seats.
Old: Sodas, Icee Frozen Beverages, Bottled Water
New: Sodas, Bottled Water, Full Bar including Wine, Beer, Top Shelf Mixed Drinks, and Coffee !
Old: Moderately comfortable, minimum reclining
New: WOW. Just as good as first class, very wide, with a button to call for service.
Old: Big, Great sound
Old: $10 per person
New: $15 per person (The seats are MUCH wider, much more comfortable)
Restrictions to entry:
Old: None, Really. If your parents felt safe dropping you off, you were allowed in.
New: Because of the Adult Beverages, No child under 18 without a parent or adult over 21. This last restriction makes me wonder how profitable the entire model will be - Parents can no longer drop off their 16 year old children to shop and then head to the movie theater. This will upset most teenagers -- a big piece of the Cinema business.
The overall cost of the food is approximately the same as a quality pub, TGIF, or Applebee's, but the food was fantastic.
For an average family of four, the entire experience will probably average around $100 - $125 for an evening, if not more, plus tip.
It is a fantastic experience, and I am sure it will be more difficult to be the first one to see the movie on opening day - far fewer seats and far greater demand "for the experience". My guess is that we'll start seeing many more people buying the tickets online to ensure their place in the theater, which will add even more profit due to the online ticket surcharge most theaters charge.
A quick survey around the country of this kind of movie theater has ticket prices varying considerably - from $7.50 per adult ticket in Aurora, Colorado to a whopping $27.00 per adult ticket in Redmond, Washington, EXCLUDING the cost of the food !
I can't say enough how awesome this concept is - I just hope it is sustainable for the business !
©2010. All rights reserved
Saturday, November 13, 2010
Recently, a 26-year old woman solved a Wheel of Fortune puzzle of seven words with just a single letter excluded. She won 53,000. It made me think about the entire business of Game Shows. Interestingly, there are no numbers or metrics that define the entire Game Show business - most of the information currently available points to the broader, more lucrative "60-Billion Dollar a year Gaming Industry" which includes video games, gaming systems, etc.
The business of Game Shows has a long history, dating back to the 1950's when televisions in homes crossed the "critical mass" of relevance in society. Television Game Shows have traditionally been a format where a network produces a game show which awards prizes to participants, and ultimately is created as an advertising vehicle for the network. Network Gameshows are able to give away prizes because they have advertisers willing to pay for time during the commercial breaks. The more successful game shows can charge more for their advertising time, ensuring their continued success.
As a child, I always imagined that game show contestants made a lot of money and could retire from it, but I now realize that many game shows gave away very little money, or nice prizes which weren't really "life-changing". One of the most successful game show contestants, however is a man named Ken Jennings who made most of his fortune on Jeopardy. Many of you might remember him as being the individual who had a 74-game winning streak on Jeopoardy.
Ken won approximately 2.5 million dollars during his 74-game winning streak.
Here are two charts - the first one is the longest running game shows in history, and the second is a list of the most successful Game Show Hosts in History.
The Top Game Shows and Longevity on the Air.
The Top Game Show Hosts and their Shows
Taxes on Prizes.
The game show contestant winners sometimes are faced with a dilemma as well. Since most game shows are taped in California, the tax code states that any winnings, either cash or prizes, are taxed as well. The original winner of "Survivor" - Richard Hatch - actually went to jail for not recognizing and following up on this fact.
Richard survived incredible torture to become the first winner of Survivor, and won $1 million dollars, but didn't realize he had to give around $400K of that money BACK to the government as taxes ! He unfortunately went to jail for this reason. If the snakes, alligators, and poisonous spiders don't get you, the Taxman will !
On an another note, Incidentally, my favorite Game Show is "Cash Cab!".
Sunday, November 7, 2010
This past weekend I experienced one of the most profound life-changing seminars I can imagine. I attended a 4-day seminar with a "Peak Performance Coach" (Tony Robbins!) who was able to evoke perhaps every single emotion a human is capable of within 4 days, while sharing some incredible wisdom.
While attending the seminar, aside from actually truly enjoying what I was learning, I was thinking about the actual "business" of coaching - whether it's someone who is a tennis coach, Performance Coach, or speech coach - and how it differs from other seemingly similar professions like Consulting and Teaching.
The similarities between Consulting and Coaching are:
- you generally have a set hourly rate
- you can purchase time in discrete units
- you do have differing tiers of expertise
- the best coaches can charge a lot more for their services
- generally you don't need certification but your ability to deliver results will be very relevant.
But then, what is the difference between a "coach", a "teacher", and a "consultant" ?
Here is what I've discovered:
Generally, it seems that a coach is much more "invested" in a student's success, where a teacher is a much more cut-and-dry professional function - though a very important one. I have been very lucky so far as a student with so many teachers who are also invested in the success of their students.
Any one of these, however, can be your "GURU"...
Saturday, October 30, 2010
As a kid, I always looked very much forward to Halloween. Halloween was a fun tradition that invokes a very sentimental feeling- walking in the dark with flashlights (with my parents and friends) and getting ridiculous amounts of candy is a memory I cherish to this day. Taking it from a different perspective now, I've learned that halloween is becoming a big business- much bigger than I imagined.
Contrary to urban legend that states that Halloween is the second biggest decorating holiday of the year, passed only by Christmas, it's NOT. It's actually number Six.
Winter Holidays: 457 Billion
Mother's Day: 13.8 Billion
Valentines Day: 13.7 Billion
Father's Day: 9.01 Billion
Halloween: The National Retail Federation predicts Halloween Spending (at retail - not counting Haunted Houses and Corn Mazes and Pumpkin Patches) will reach nearly $6 Billion dollars this year.
It could be that the reason for this placement is because all the holidays above Halloween have to do with gifting and restaurant visits.
Two things most people buy at Halloween: Candy and Pumpkins followed by Costumes.
In 2006, 85.3% of 18-24 year olds planned to celebrate Halloween.
In 2007, men between 18-34 were planning to spend the most per person on Halloween - $72 per person.
The Haunted House business is also growing - with between 3,000 and 5,000 Haunted Houses this year -up from 500 just a decade ago.
Corn Maze popularity is growing - in 1998 there were between 50 and 100 corn mazes in the United States. In 2008 there are an estimated 800, but an exact number is difficult because many mazes are privately designed.
The Most Popular Halloween Costumes:
Boys: Spiderman (Pirate is second)
Girls: Princess (including Disney Princesses)
Halloween Candy Sales will be at a record in 2010 - When sales will reach nearly 2.1 Billion dollars !
Here's an interesting list of the favorite (most popular) candies throughout the years (source: walletpop.com)
1896: Tootsie Roll
1898: Candy Corn
1900: Hershey's Chocolate Bar
1923: Milky Way
1928: Reese's Peanut Butter Cup
1930: Snickers Bar
1992: Dove Chocolate
2010: Surprise !! It's Tootsie Rolls again ! (followed by Hershey's Chocolate and Nestle's Crunch)
All this talking about candy is making me hungry !
Thursday, October 14, 2010
I can't help but think about how many times I've heard working people say "Thank God it's Friday" !
It seems that people who work (Blue Collar / White Coller or any Color Collar) always look forward to Friday, and the difference between a Monday Morning in an office and a Friday Morning in an office is dramatically different. Mondays you'll see people somewhat on the edge -- looking to kickoff and "get ahead" on their work week.
The difference is evidenced by various little observations on indirect behaviors.
Here's a completely unscientific view of Monday Vs Friday at the Office.
Not so overused
Work at Desk
Long Wait Time
Waiting for you
Any plans for the weekend?
Large companies have noticed that people very much look forward to their Fridays - it's an unavoidable fact.
Companies also surely saw a dramatic dip in workplace attendance on Fridays when people would take a vacation day to start their weekends early.
While shirts, ties, and dress shoes are the norm in a formal business environment from Monday through Thursday, many companies allow a behavior we are familiar to be known as “business-casual” wear on Friday.
Companies, in order to assuage people's desires to "just completely bug out" on Fridays and not show up at all, decided to allow employees to "be themselves" and work in a slightly more relaxed environment. While some people feel business casual attire may cause an overly relaxed environment, companies have a strong logic behind this idea. Friday night has traditionally marked the beginning of a weekend- representing relaxation, peace, and an environment in which work is not the prominent focus.
Throughout my experiences of school, and my limited but studied understanding of offices, Casual Friday gives employees a small incentive to show up at work, allows employees to have a greater comfort level, and also mends the disconnect between formal attire and a lenient environment.
Whether Casual Fridays were intended to reward employees for their hard work throughout the week, or to reduce the level of absenteeism on Fridays is debatable. In either case however, I believe it's a win-win for both the employees and companies, since employees who are allowed to dress down on Fridays usually end up with less stress, and are more likely to get to work. Also remember, "dress down Fridays" also applies to colleagues who run the HR department and the corner office, so I don't believe anyone is really complaining!
Sunday, July 4, 2010
Saturday, July 3, 2010
Recently, I had the privilege of going to Stanford University to study topics in Business at one of the esteemed programs. I was honored to meet so many great leaders, including my professors, managers at Apple, Tapulous, and other Palo Alto luminaries.
Many of these folks I spoke to were very intently focused on the Strategy of their organizations. They wanted to make sure that the right decisions were being made, and the correct paths were being pursued to grow their businesses.
What is Strategy, exactly, and why are the executives of a company so concerned with it ?
Simply stated, strategy refers to a plan of action designed to achieve a particular goal. If a business were continually reactionary in its activities -- simply reacting to daily events, then you can see how the company would only be chasing "operational viability" and not controlling its own destiny.
Strategy for a business is in its simplest form:
1. Knowing where you are NOW,
2. Knowing where you want to BE.
3. Knowing and having a plan on how to GET THERE.
The first part is relatively simple, but not always. A good leader knows his / her company strengths and weaknesses and general capabilities. We'll use the auto industry, and specifically General Motors, as an example.
The GM leadership knows how many cars they can produce, what kind of cars, and the general costs and features of those cars. That's part 1.
Next, knowing where you want to be is tricky. It involves some ability to know where trends are going, and where the marketplace in general is going. To achieve this, Leaders use the skills of Research specialists, and Competitive Intelligence colleagues. They can slice and dice any industry data, generate surveys, and come up with an Answer.
Our GM leader could (for example) hire a Research specialist who would be able to determine that based on research, the world's demand for electric vehicles is coming to a critical tipping point - people are getting ready to spend big time on alternative energy vehicles. The Competitive Intelligence colleague would be able to determine that competing companies like Toyota and Honda are spending considerable money on research as well, clearly indicating an interest within the industry. The decision is born and GM leadership's "aha moment" is to decide to spend money on creating an electric vehicle.
The third component - knowing how to get there - is a straight line role of a project manager. The project manager can bring in Business Analysts, and other team members to lay out the plan to "make it happen". A skilled project manager is critical to any company, and a new discipline called "strategic engineer" is emerging.
GM leadership would hire one (or multiple) project managers to set up a "Program" for creating electric vehicles. The Electric vehicle Program would consist of many different Projects all leading up to an Electric Vehicle STRATEGY for GM !
Strategy for any organization is critical, because it allows leadership to control the destiny of a company, rather than to continually play victim to shifting trends and competition.