Eatest Business Ideas of All Time
Eatest Business Ideas of All Time
Eatest Business Ideas of All Time
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Contents
Acknowledgements
Introduction
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Idea 10 3M
Idea 11 BMW
Idea 12 Federal Express
Idea 13 Ikea
Idea 14 Virgin
Idea 15 Honda
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Idea 24 Greatest ways of winning in the stock market? Run a unit trust
Idea 25 Run a private unit trust an investment club
Idea 26 Hedge your bets
Idea 27 Dealing when the directors do
Idea 28 Backing last years losers
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Idea 52 Disney
Idea 53 McDonalds
Idea 54 Coca-Cola
Idea 55 Kodak
Idea 56 Gillette
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Contributors of Ideas
Publications Consulted
Appendices
Index
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Acknowledgements
This book owes much to Katherine, Mark and Richard, all of Capstone Publishing,
who had the initial idea and gave me loads of support and help.
My thanks to the army of friends and colleagues who made lots of suggestions
and gave me loads of pointers. Their names are recorded at the back of the book.
Capstone arranged with Henley Management College that I should have the
use of their library. My thanks to the college and to Gail Thomas who was the
librarian at the time.
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Introduction
A famous business aphorism has been applied to many companies. It goes All their
plans were unsuccessful, and all their successes were unplanned. Planned or unplanned, the ideas in this book have the common factor of success, sometimes
simple but hugely significant (see the Biro Idea 57), sometimes hugely complicated
ideas whose physical success did not lead immediately to financial reward (see
Eurotunnel Idea 22).
Thus our definition of success can be seen as wider than financial gain. Overwhelmingly, however, the famous, occasionally infamous, great business ideas have
led to huge financial rewards to innovators (see Edison Idea 4) and shareholders (see
Coca-Cola Idea 54).
Perhaps the trickiest part of the title is the bit that says of all time. There must
have been a time before money Idea 39 was invented and that, along with interest
rates, really enabled almost all of the other ideas to be expressed and compared. To
look after this type of business idea, there is a section on great financial ideas that
enable business to exist.
When you look at great business ideas you are immediately struck by the fact
that, however brilliant they were, almost all of them needed to be sold. New selling
ideas are in abundance, from good old door-to-door salespeople, through great selling innovations to the wondrous activities made possible by the Internet. I also
include the greatest selling or closing techniques which, proven over the ages, are
still the best tips for selling things or just for getting your own way.
Then there is computer technology. This has growth on a logarithmic scale.
Microsoft Idea 50 had a growth rate that is far more dramatic than that of IBM Idea
92 as they each became dominant in their own area. One could be forgiven for
believing that nothing could grow faster than sales of Windows software, but only
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shortly afterwards comes the mobile phone Idea 96 whose growth we can still only
guess at, but in sheer volume will probably be the fastest ever, for the time being.
This last one, the mobile phone, has a well-recognised downside as do a remarkable
number of other great ideas. Where this is so, we have recorded it under the heading
On the other hand.
In technology as well, we have not forgotten the enablers of technological leaps
forward. Windows cannot exist without the graphical user interface (GUI), which
was the basic idea.
We have avoided the topics of inventions. We were looking for business ideas,
particularly ones that current managers might learn from, so generally speaking
there are no inventions per se.
This means that we have missed out, for example, the spectacular rise of glasses.
There is an Italian fresco of 1352, which is the earliest known representation of
spectacles. They were invented in medieval times to correct loss of accommodating
power, the change in middle age that makes reading difficult. The earliest, made
between 1268 and 1289, were two magnifying glasses with their handles riveted
together, which were hand held or balanced on the nose. Concave glasses for short
sight arrived in the sixteenth century. Bifocals, for short sight and loss of accommodating power, were invented about 1750 by Benjamin Franklin, the US statesman
and scientist. There is no doubt that a lot of people have made a lot of money out of
spectacles, but it counts as an invention and will not, therefore, be found in this
book.
But of course the way to become really wealthy in business is to take a cut of
other peoples labour, as any entrepreneur will tell you. How to organise people and
motivate them is another area where there have been some great ideas. Nineteenthcentury mill owners did it one way, the idea of Theory X and Theory Y Idea 62 did it
another.
In trying to pin down the 100 greatest ideas I also became from time to time
more philosophical. War Idea 72 and religion Idea 71 must have a mention as two
business drivers without equal. Now calling war a great business idea may seem
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Introduction
xvii
insensitive, but the financial side of them is never far buried and economics plays a
huge part in wars planning and outcome. I take no moral position on making money
out of war or religion; I just note the opportunities that arise from them. I have
drawn the line at slavery, where labour costs are literally minimised, as too close to
even the modern day bone to call a great business idea. It still exists in places.
There is a very successful bunch of people who make a lot of money eventually
out of doing absolutely nothing. Gamblers and franchise owners come to mind in
this regard, and we have looked at lotteries and the stock exchange for clues on
joining this particular band of money makers.
Product innovation, bumper stickers and training techniques all find their way
into the list, as do junk bonds Idea 69 and the South Sea Bubble Idea 70.
A lot of great business ideas are based on somewhat cynical ideas of giving the
public what it wants and outsmarting the competition, but there are some theories
of economics and some patient advisers on, for example, pensions matters who
genuinely made a positive difference to how we live. There are even some computer-based innovations that really do make life easier and we have included spreadsheets
Idea 48 and call centres Idea 51 as examples of great ideas that make their owners
money and the consumer happier.
We have not restricted ourselves to great ideas that benefit the customer or
consumer. Great business ideas usually make money for shareholders; sometimes
they benefit the customer as well. Indeed unit trusts Idea 24 is an example where the
benefits of the person offering the service are obvious, but the reasons for people
buying the service less easy to demonstrate.
How do you choose 100 ideas out of the millions that have created products,
services and profits? The answer is to ask a lot of people, and we have done this. We
have spoken to people on both sides of the Atlantic, which has tended to give the
ideas a UK/USA bias. We apologise for that and for all our readers pet ideas that
we have missed out. Researching the book has reminded us of the infinite ability of
man to think of and implement great ideas, and choosing a hundred is a more or less
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impossible task. But we have done it, and if you and a number of other people buy
the book, who knows we might have discovered number 101.
One of the main criteria for including ideas was whether or not we can learn a
quick and useful lesson from them. Where possible we have tried to draw hints for
the future from the great ideas of the past. At the end of many entries, Ask yourself
and Here comes the twist are challenges to the modern-day businessperson to
expand the original idea into their own environment. This should also ensure that
you can claim the books price on expenses. After all, anyone in business can become a billionaire; its just a question of implementing a great idea. Go on, prove
the old saw wrong, make a plan and then make it successful.
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Add to Sears idea the relatively new nation-wide railway system and post office, and the stage was set for the introduction of mail order. Sears understood the
farmers well and was able to attract them with the right products and advertising
campaigns as well as, of course, keen prices derived from the bulk buying
Add to Sears
of many products. To watches and jewellery were added shoes, furniture,
idea the
china, musical instruments, saddles, firearms, bicycles and many other
relatively new
things that filled the catalogue, which by 1895 went to 532 pages.
nation-wide
A fast expansion followed with a move to a 40-acre, $5 million mailrailway system
order plant on Chicagos west side. With more than 3 million square feet
and post office, of floor space, this was the largest business building in the world.
and the stage
Suited to mail order was the innovative technique of using a network
was set for the
or pyramid of people to distribute the catalogue. It is in the annals of
introduction of company history that in 1905 Sears wrote to the companys best custommail order.
ers in Iowa, asking each of them to distribute catalogues among their friends
and relatives. The original customers sent Sears the names of the people
they had supplied with the catalogue, and received gifts as premiums for their work.
But Sears innovation did not stop there. Attention to the market had alerted
him to the opportunity, listening to the customers forced the company to experiment and move into other areas. Mail order, when it got big, was hampered by the
physical difficulty of filling orders and the organisational problem of getting the
right thing to the right person at the right time. The company history includes the
story of the customer around the turn of the century who complained: For heavens
sake stop sending me sewing machines. Every time I go to the station I find another
one there. You have shipped me five already.
Sears executives worked hard on the logistics of mail order. Every order was
given on its arrival a time to be shipped, and managers accepted no excuses for not
making this happen. Products and parts had to be in the appropriate bin in the
assembly room at the assigned time. They travelled to the room by an intricate
system of belts and chutes perhaps the first automated warehouse.
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The success of the new system was measured in improved throughput, nearly
ten times the original capacity, and attracted the attention of no less an automator
that Henry Ford, who is reported to have studied Sears assembly line technique.
We have mentioned Richard Sears skills in writing advertising copy, and this
triggered the next piece of innovation into what was now a huge retailing company.
The copy had become more and more fanciful and flamboyant more suited to
selling snake oil than a full list of everyday requirements. Once again the executives
reacted to the complaints of customers, and decisions on catalogue copy started to
favour the factual rather than the fanciful. In the early years of the twentieth century
it is probable that Sears himself was becoming less active in the copywriting room;
oh, and they dropped patent medicines in 1913, with a banner headline in the
catalogue reading Why we have discontinued patent medicines.
So by listening to the market Sears produced the whole mail-order concept,
and by paying attention to customer service the assembly line methodology was
born. There remained only quality. Once again customer demand was that mailorder goods should be of no less quality than their more expensive rivals in retail
shops. The Sears response was the watchdog of the catalogue. They set up the first
laboratory in 1911 to suggest minimum standards for a number of products and
conduct spot checks on mail-order plants. They also made scientific comparisons
between Sears and competitor products. The policy at Sears became an unequivocal
money-back guarantee.
If only an entrepreneur could do something about the weather, farmers would
have nothing to grouse about.
Ask yourself
How robust is your company against the customers plea to Make it easy for
me to buy?
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By 1984 the relationship between a computer supplier and any of its customers,
apart from the very biggest, was through third parties. The next pioneering move
belonged to Michael Dell who formed his company in that year.
The aim was to re-establish the supplier/customer link by selling personal computer systems directly to corporate customers. The argument was simple. If you
remove retailers and resellers you remove time delays and costs, and most
If you remove
importantly you have a direct link between the supplier and customers
retailers and
problems and expectations. You order your computer by telephone or on
resellers you
the Internet and you get what you need, no more and no less. It was a
remove time
hugely successful selling innovation and the company has grown to a turndelays and
over of around $31 billion per year.
Always willing to change its strategy to meet new market conditions, costs and, most
importantly,
Dell has by no means stood still. Using expensive premises as owned by
you have a
Wal-Mart, for example, was discontinued in favour of further concentradirect link
tion on the Internet. The Web medium for sales is now approaching $8
between the
billion per year. This is my estimate starting from a number I got from
supplier and
Dell covering the period to 1999. Orders from the Internet go directly to
customers
the factory and the company boasts it can assemble and pack a customproblems and
built PC in less than four hours.
expectations.
Falling component costs plus its own efficiencies offer Dell yet more
ways to expand. At present Dell claims some 60% of the consumer PC
market where the price tag is between $2500 and $3000. It has only 1% of the
market for PCs below $1500. This is their new target. Relying on its brand name
and manufacturing efficiency, it expects to compete well in this arena without suffering a body blow from the squeezed margins, the bugbear of the current players.
The companys intention is to continue to develop its direct to customer business
model and calendar 2001 was the first full year in which Dell led the global computersystems industry, with nearly 14 per cent market share. The company tells us to expect
further growth, as it believes that the best days for Dell and the whole industry are still
ahead. Dell used a useful comparison to illustrate why this growth is likely to be true.
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In 1982 Intel introduced its 286 chip which was capable of processing 2.66
million instructions per second, or MIPS, at a cloc k speed of 12 million cycles per
second, or megahertz. Todays Intel Pentium II processors are capable of considerably more than 600 MIPS at 450 megahertz, and the sharp upward development
trend is expected to continue.
This is true as well. The Pentium 4 now goes at 3 gigahertz, six or seven times the
old 450 mentioned in the quote. MIPS are not such a relevant measure nowadays because of the different ways that processors use to obey instructions. Suffice it to say that
the speed of development has not faltered. Come on BMW/Rolls Royce, match that.
Ask yourself
When did you last review the channels through which your products and
services get to market?
Check that your competitors are not introducing new ideas in this area.
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differentiator. (It is said that another reason the president advocated this was that
the handlebars of the big bikes were shaped like the eyebrows of Buddha, and this
was an omen and a selling feature.)
In the event the big bikes did not sell well, and had mechanical difficulties because
of the different usage given to them in America, particularly in distances covered.
Short of ideas and also of money, the team in Los Angeles had to use their own
motorbikes to get around, cars being out of the question. President Honda had
always wanted to provide people everywhere with an economical form of transportation. For this reason he had designed and built small motorcycles which was the
form of transport the team used in the USA.
These bikes, as fate would have it, started to attract attention and some local
bicycle retailers enquired whether they could sell them. To begin with the Honda
managers kept to the original strategy and declined because they were trying to build
a reputation for big bikes. However, in order, it is said, to finance the work they
needed to do on their mechanical problems they agreed to sell some of the small ones.
To protect the image they were fostering for If its big bikes it must be Honda
their innovation was to sell the 50 cc ones from outlets other than their traditional
ones. This improved the depth and breadth of product distribution. From the opposite of the grand plan was success achieved. According to the Motorcycle Industry
Council in Irvine, CA, Honda had a 26 share of the 403,000 units sold in 1998.
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However long it takes, the problems and frustrations involved in selling products often seem anathema to the scientist or inventor who had the idea in the first
place. At least in one part of his life, Thomas Edison decided that the problems of
manufacturing were not at all to his taste, and he left the company premises at
Newark to concentrate on the research and development side of the business, which
he much preferred.
In 1876 Edison used the profits of his last invention, the stock ticker,
However long it to build an invention factory out in the country in Menlo Park some 25
takes, the
miles from New York City. This was the first time such a laboratory had
problems and
been built to pursue not academic research, but practical and commercial
frustrations
inventions.
involved in
The building itself was on two floors, with the factory itself above the
selling products floor that contained a library, a chemical laboratory and the necessary
often seem
office space. Over time the site expanded enormously.
anathema to
The expenditure on equipment was lavish. Edison supplied the best
the scientist or
and latest in instruments such as microscopes and machines for measurinventor who
ing light and electricity. He also installed his own electrical power generahad the idea in tors driven by a huge steam engine. In fact the factory held all the latest in
the first place.
electrical devices. Edison remained a businessman as well as an inventor
and set challenging performance measures. He is said to have told a friend
that he expected the factory to come up with a minor invention every ten days, and
a big thing every six months.
He made his own contribution, of course, roughing out sketches and draughting
ideas. The only person apart from Edison himself who had a share in the profits of
the business was his chief draughtsman, Charles Batchelor. The rest of the staff
were paid by the hour.
Incidentally, Thomas Edison in some ways behaved like the eccentric genius
characterised in cartoons by the mad professor with long wild hair. He was able to
catnap and be quickly refreshed, or sleep for periods as long as 36 hours. Prior to
the long sleep he could work more than once round the clock.
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The invention factory was a very profitable arrangement as the bulk of the profits came from the licensing of patents to companies. This meant that every patented
idea that was turned into a product contributed to the profits of the invention factory in direct proportion to the sales of the products. During the six years that Edison
was with the factory there were 400 patents produced. In the whole lifetime of the
factory the number exceeded 1000.
The selling of the idea rather than the product has been reflected in later years,
recently in the USA by Jay Walker the Chief Executive behind Priceline Idea 73.
Ask yourself
Are you involved in the most profitable part of the business you are in?
Is there some way that others could be found to take over some of the risk in
bringing your product or your skills to market?
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The huge change to this attitude has been made, whatever one thinks of banking services, in a remarkably short period of time. Banks have thought the unthinkable, and a leader in this process was First Direct a division of Midland Bank, now
a member of the HSBC. First Direct started in 1989 to offer a completely untested
and, to the majority of people, completely new idea telephone banking.
Since 1 October that year, the bank has never closed. It has proved to be a very
successful method of making financial transactions. Within ten years, 68% of their
900,000 customers were in the important 2544 age group and 11,000 new customers joined each month. First Direct has over one million customers and over 55% of
those customers are now banking electronically, either by Internet or mobile phone
text messaging.
Maybe the boldest part of the move was the setting up of an autonomous banking service, affiliated to another bank but not seeking wholly to offer the new service
to existing bank customers. On the contrary, it sought customers who were frustrated with the existing high-street way of doing business. Many such customers had
the impression that the branch cashiers took their lunch break at the same time as
everyone else who, of course, wanted to do their banking during their lunch hour.
As First Directs commercial director, Peter Simpson, explained, Direct Banking is a simple concept which has had a profound influence, not just in the financial
services industry but as the rallying cry for a new kind of retailing which revolves
around the needs of the customer not the supplier. He could have added that it is
also a profitable way for the supplier to do business.
From the original telephone service, First Direct added PC banking in 1998.
This is another mutually beneficial move as the customer has no delay in accessing
their banking information and First Direct replaces people with technology. The PC
offering is very wide. Customers can view and print transactions on their accounts,
move money, pay bills, view standing orders and direct debits, send e-mail to the bank
and apply for all the other services of the bank such as personal loans.
The non-core services have also been built up. Home and car insurance, share
dealing and First Direct shopping offers are all available. This last service exploits
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the banks ability to access information and obtain good prices for customers in
practically any area. Users of the service can make enquiries of the bank on any
topic. Researchers will find any product or service on which information is requested,
from holiday and travel information to ideas for birthdays and Christmas gifts.
For the future, First Direct depends on the continuing trend for people to work
longer and have less, and therefore more valued, leisure time. This, plus flexibility
in work hours and working practices, means that people will be more and more
under pressure. First Direct sees this as the driver of its long-term philosophy.
Another revolution in banking practices lies behind the customer interface, and
that is the requirement for a totally different type of human resource management
with an emphasis on the attractiveness of the workplace.
First Direct currently employs around 3600 people based at three sites two in
Leeds and one in Hamilton, Glasgow. The Banking Representatives (BRs) are the
people who first answer the customers calls, and from them the customer forms the
first impression of First Direct. They are organised in a network of teams and there
are forums for staff to meet and discuss suggestions and changes. The workplace has
to encourage the 24-hour working of predominately female staff, so security, safety,
childcare as well as sports and social facilities are an important part of the plan.
However good and efficient telephone banking is, there is still opportunity for
the high-street banks to sell to their customers, but the queues at lunchtime for
personal bankers, who do not know the customers from a bar of soap, must encourage people to wonder if there is not another way.
If First Direct stands still of course it will rapidly be replaced by other banks
coming through. This is particularly true with Internet banking. This offers pretty
much all the facilities of a banking hall on your PC in your office or home. You can
pay your bills, move money around and so on, once again at any time of the day or
month. The banks also reflect the cost-effectiveness of the Internet approach by
offering better deals on the Internet. Long-term Internet savings can be as much as
4% higher in their interest rate than their best high-street alternative, and often offer
instant access and no penalties as well. Today, for example, you can get 4% on a
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telephone account and 4.25% on the Internet. Such are the cost savings on offer to
the banks for people carrying out their own transactions.
When all is said and done, First Direct and its followers are a huge step for banking mankind who, only 15 years ago, did not join the bank to be a salesman.
Ask yourself
Are you using the telephone to its maximum extent for customer contact?
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respectability to the shops and products and encouraged women to think more liberally about sex and sensuality.
It works like this. Someone volunteers to house a party and invite as many of
her friends and their friends to attend. There are drinks and games as well as a
presentation of the Ann Summers product range and the usual product party invitation to buy. There are 7500 party organisers who do the presentations and more
than 2 million ladies attend in a year. In the lead-up to the Christmas period some
4500 parties are held in a week.
I am told that an Ann Summers party is brilliant fun and anyone who has been
to one reports spending a lot of the time roaring with laughter. Thats all I know
about them because men are barred from attending. Quite right too: men would
probably make the parties quiet and sad.
Party spirit, which, at best, is but the madness of many for the gain of a few.
Alexander Pope (16881744)
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from their newspaper who had to borrow the money from his mum. They collected
$40,000, rented an office and paid for some of the help with shares.
The first 1100 sets cost $75 each to manufacture. They sold them to
Today, people
retailers for $15 a game. These were newspeople, not businessmen, so
play Trivial
their misunderstanding of profits led to a rapid understanding of debt.
Pursuit in 19
In 1982 the US game company Selchow and Righter became interdifferent lanested. It hired a PR consultant who sent a direct mail campaign to 1800 of
guages not
the top buyers at the 1983 New York Toy Fair. And then, for good meabad for an
idea based on sure, it was mailed to all kinds of Hollywood stars. The mailshot included
a Trivial Pursuit card, often one that had the names of the recipients as
the premise
the answer or the question.
that every
Word of mouth took over. By late 1983, 3.5 million games had been
household has
eight games of sold. In 1984, 20 million were sold. Retail sales have now exceeded $1
billion. And Chris, Scott and their partners have become quite familiar
Scrabble.
with the concept of profits.
Today, people play Trivial Pursuit in 19 different languages not bad for an
idea based on the premise that every household has eight games of Scrabble.
Ask yourself
Is there some way that you could ginger up your Mailshots with a threedimensional aid related to, or a part of, your product?
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took it on with the service Pay as you Talk, a misnomer really since it is more
accurately Pay before you Talk.
The product is a telephone handset, charger and battery for a fixed price. Calls
and texting charges just get lower. A standard call at the moment is 25 pence for the
first three minutes and 5 pence thereafter. The call credit is kept on a card and
reduces as you use the telephone. When you are running low you receive a message
on the handset warning you to top up. You top up on the Internet, or by telephone
or by visiting a Vodafone store.
For people whose children have run up huge telephone bills and, for example,
for students who want to keep to a budget, this method of payment prevents any
nasty surprises when the bills come in. Since it is soon to be possible to access the
Internet from a mobile phone this could enhance the benefits of the service. Everyone remembers some of the bills run up by young surfers on their parents phones.
And from Vodafones point of view they are being paid in advance. Probably,
just as the mustard companys profits are left on the side of the plate, some of
Vodafones profits will be left on unused cards.
Ask yourself
When did you last review your terms and conditions for payment?
Is there any way you could argue for some money up front. Dont forget the
managers of many big companies are very interested in the price of what
they buy because it comes off their budget, but it may mean nothing to them
when your bill is paid.
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1970s there were literally millions of distributors, not only in North America but
also in Australia, the UK and Hong Kong.
In 1980 the company turnover broke the billion-dollar barrier and more plant
was added to keep up with demand. Another new product direction followed with
the introduction of the Amway Water Treatment System, distributed in the same
way as before.
This is what happens if you would like to become an Amway Water Treatment
distributor. You approach, or more likely are approached by, an existing Amway
distributor who becomes your sponsor.
The selling is done by the sponsor talking about the success they are enjoying.
The sponsor also shows the potential distributor a video which, amongst other things,
includes a series of endorsements from as eminent people as will agree to do it. At
one point in the UK, the video included an MPs wife with the politician himself in
the background. At some point the prospective distributor will be provided with the
Amway Business Kit, which contains basic Amway products and literature for use
in making sales.
The prospect is then invited to produce his or her first prospect list. The sponsor then goes through the list and probably keeps a copy in case you drop out. The
sponsor also helps you to sort your people into good, medium and poor prospects
by discussing their income level, lifestyle and so on.
You then place an order for the products you wish to buy and for some stock.
You are required to pay for your products immediately but have time to pay for the
stock as you, it is to be hoped, sell them. You make money out of your sales to
customers and so does your sponsor and his in turn.
Dont forget, this is person-to-person selling and, despite appearances, not pyramid selling. You are supposed to be building a business.
In 1997 Amway had a record year with retail sales of $7 billion. The number of
employees worldwide reached 14,000.
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3
4
5
A bumper
strategy that
sets the hearts
of Board
members
racing may not
work when
applied to the
storekeeper in
a remote
location in the
western
Highlands.
This last one may be impossible. A bumper strategy that sets the hearts of
Board members racing may not work when applied to the storekeeper in a
remote location in the western Highlands. This is why many companies
have a bumper sticker strategy that they publish to the world, while encouraging managers to adapt it to a local requirement.
Here are some bumper sticker strategies which are well on the way to
meeting all these criteria.
Idea 10 3M
Innovation working for you.
Idea 11 BMW
The ultimate driving machine.
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Idea 13 Ikea
Stylish furniture at low prices for young families.
Idea 14 Virgin
Debunk the establishment, business as fun.
Idea 15 Honda
Greatest engines.
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22
Idea 19 Volvo
Safe durable cars.
Ask yourself
What is your corporate bumper sticker strategy?
Which team in or with which you are working could benefit from a bumper
sticker strategy?
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Italy is credited with inventing the modern version of a lottery in the sixteenth
century. The purpose of public lotteries was to provide improved defences of cities,
or to aid the poor. The very first public lottery to have paid money as prizes was La
Lotto de Firenza. Later, when Italy was united, it hosted the first national lottery.
In the UK, Elizabeth I used lottery money to repair harbours and to finance
other public works. The Virginia Company was allowed to hold lotteries to fund its
pioneering work in the New World. Interestingly, business people regarded the
chances of a lottery fulfilling its purpose as very good. They became in fact the first
and most certaine way of raising funds.
It is hard to know how such enterprises as the British Museum and the infrastructure of America would have otherwise been financed.
While the state ran a fair competition, there were various ways that private
individuals could make money on the side. They would obtain tickets at
From the
low prices and sell them on at high mark-ups, and there was a thriving
earliest exbusiness in insurance bets. Since the state made nothing out of these sideamples of the
lines, they were cited as part of the reason for banning lotteries after 1830.
sixteenth
Ireland set the pattern for the modern lottery in Europe with the Irish
century masses Hospitals Sweepstake. Almost all countries in Europe, North America
of people have and Asia have national or state lotteries, the notable exceptions being China
been happy to and India. Australia is sometimes known as the home of lotteries since it
accept huge
uses them to finance much of its public works.
odds against
Against this background the Government of the UK offered a licence
winning an
to run a national lottery in 1994.
almost unimagThe story of Camelot, the company that runs the National Lottery in
inable jackpot. the UK, would not fit into a category the greatest risk takers of all time.
From the earliest examples of the sixteenth century, masses of people
have been happy to accept huge odds against winning an almost unimaginable jackpot. An awful lot of people will regularly venture a pound or more for the small
chance of being able to tell the boss what they think of him.
Camelot won the seven-year licence in May 1994 against seven other bidders.
The risks they took were cleverly mitigated in a number of ways. First of all, the
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shareholders were also the suppliers of products, services and expertise to the consortium. The current shareholders are as follows.
1
2
3
4
Cadbury Schweppes brings marketing and sales support with their extensive
knowledge of the UK retailing scene.
Royal Mail Enterprises are the largest retailer of National Lottery tickets.
De La Rue has the expertise and ability to print the high security materials
necessary.
Fujitsu Services at the beginning the Fujitsu subsidiary ICL produced the
lottery terminals and did the huge training job. They had to train more than
34,000 retailer staff in 10,000 retailers.
Thales Electronics are providers of electronic products and advanced systems.
The figures for the half year to September 2002 make sobering reading for the shareholders. From a sales turnover of some 2.276 billion, down 5.2% overall, half
went back to the punters as prize money. 27% went to Good Causes (Camelot
always spells Good Causes with capital letters), 12% in tax, 5% to the retailers and
approximately 6% covered operating costs. This leaves a modest 1% as the bottom
line profit of the business. This modesty is in better perspective when you note that
the profit before tax of 17.9 million was all distributed to the shareholders.
Camelot publicity makes much of the fact that they had an awful lot to do in a
very short time when the lottery was launched, and that the penalties for being late
were heavy. Quite so, but the risk that people would not flock to a well-advertised
opportunity to get away from the humdrum of work was historically quite low.
In 2001, against very stiff competition, Camelot won the renewal of their licence to run the National Lottery in a bitter and political campaign. They changed
the name of the main draw to Lotto; but at this time they are failing to reverse a
sharp decline in their sales. Maybe people are catching on to the real chances of
becoming a multi-millionaire and telling their boss where to stuff their job.
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If by the people you understand the multitude, the hoi polloi, tis no matter what
they think; they are sometimes in the right. Sometimes in the wrong: their judgement is a mere lottery.
John Dryden (16311700)
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The best illustration of the stability of the demand side is the fact that the drivers of prohibition were the evangelical Protestant middle classes who were anti-alien
and anti-Roman Catholic. They held sway in the rural areas of the country and were
generally opposed to the growth of cities and towns. Their attack on liquor was
successful because it was assisted by the rural domination of the state legislatures.
The result of prohibition was that liquor was more or less unknown in these
rural areas, while reasonably obtainable in the towns and cities. The people who
wanted to drink and lost out were the working classes who could not pay the inflated
prices that prohibition had guaranteed.
Successful businessmen in the liquor industry were very successful indeed. Al
Capone counted his annual earnings in tens of millions of dollars. There was a
downside. The gang wars, which accompanied the distribution of liquor, cost a lot
of people their lives. Historians of crime, however, maintain that a stable semimonopoly was emerging towards the end of the 1920s.
Also emerging at that time was a new attitude in the temperance movement
itself. Major supporters of prohibition gradually lost faith in it as they saw the increase in criminal liquor production, the development of the speakeasy and the
increased restriction on individual freedom. The Democrats adopted a platform to
repeal the prohibition act in the presidential election of 1932, which they won.
Most states immediately repealed their own laws, but some kept on until 1966.
Since then liquor control in the USA has remained at local level.
Ask yourself
Is there any way that your product could improve its margins by the slowing
down of supply without any consequent reduction in demand?
Join me in lobbying for the complete prohibition of business books.
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ment of the twentieth century. This was against other famous constructions such as
the Golden Gate Bridge and the Panama Canal.
The original licence was due to expire in 2042, but extra years were granted
and the company has sole rights to charging for use of the tunnel until 2086. Eventually this will be another licence to print money the opposite of Camelot, which is
relatively fast in fast out. The shareholders should have plenty to look forward to, or
at least their descendants should. Now that is planning in the long term.
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The latest presses can each strike more than 600 coins per minute to a standard
of accuracy imposed by law. To ensure that the composition of the alloy is correct,
samples of the molten metal are routinely checked by X-ray fluorescence
spectrometry. Each year samples of coins struck both for the UK and overseas are
presented to the annual Trial of the Pyx where they go through rigorous quality
examination by the Worshipful Company of Goldsmiths.
The number of coins in circulation in the UK exceeds 18 billion coins with a
face value of 2 billion.
In 1975 the Mint was established as a Government Trading Fund, operationally very similar to a government-owned company. For many years half its sales
have gone abroad. This role as an exporter was emphasised when it became an
Executive Agency, providing it with greater freedom to develop its business further.
The Royal Mint has maintained its position as the worlds leading exporting mint.
During 199596 the Royal Mint produced coins and blanks for 82 countries, from
Albania to Zimbabwe.
The Royal Mint can satisfy any requirement of a country for a complete range
of coinage. To ensure the uniqueness of any coin in any country, the Royal Mint
houses, on behalf of all the worlds mints, the Coin Registration Office. This enables advice to be given to countries considering new coins so that they can avoid
specifications identical to existing coins in other countries. The Royal Mint also
maintains close contact with the vending industry worldwide and continuously increases the range of security features that it can offer to discourage counterfeiting.
Of all the distinguished people to have served the Royal Mint perhaps the most
unexpected and highest ranked is Isaac Newton. The scientist had a 30-year association with the Mint as Warden and then Master. He took a lot of interest in the
Mint despite being informed on his appointment that it should not take up too
much of his time. In fact the Government wanted the Mint to provide Newton with
an income that still left him relatively free to pursue what they regarded as more
important matters.
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Newton became heavily involved in the dramatic increase in production occasioned by the great silver recoinage of 169698. He was actively involved in the
setting up of five mints elsewhere in the country.
But mainly his Wardens duties were concerned with the protection of the coinage from clippers and counterfeiters. This drew him into the underworld, where his
usual zeal turned him into a doughty and persistent opponent of such as the infamous William Chaloner, who paid for his forgery on the gallows.
As the Master he was more responsible for the production of coins, where his
desire for accuracy kept variations in the weight of new coins within very small
tolerances. It must have been a brave Company of Goldsmiths who challenged the
composition of the sample coins in 1710. It was particularly brave since it turned
out not to be true.
His name lent huge prestige to the Royal Mint and his advice was sought by
many. It was even sought by the Scots during the recoinage of the old Scots money
in 1707 caused by the Union of the Crowns.
Newtons contribution to the Mint was not so much in innovation or change,
but much more in the integrity and scientific accuracy of production. This legacy is
maintained to this day, and the reputation of the Royal Mint is still held very high.
And these I do not sell for gold,
Or coin of silvery shine,
But for a copper halfpenny,
And that will purchase nine.
Lewis Carroll (18321898)
Ask yourself
Who holds the licence to print money in your industry? Are they vulnerable?
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ment usually put forward for unit trusts is more questionable. The managers will
claim that they are experts in picking shares that are going to perform well. They
certainly need to be to earn their money so lets see how well they have to do.
Looking at what has happened over the last five years of the bull market to
1000 invested in the average unit trust you will find that, at 1999 prices, it had
risen to 1580. This is a compound rate of return of just under 9.6%. Could the
private investor have done better? If you take into account that the FTSE All Share
index, an index of capital growth without taking account of dividend income, did
over 16% per annum over the same period you should be able to take a view.
Of course the investor could have been lucky and chosen the best performer who
managed an incredible 4278 or something over 33% per annum. But they could
have picked the other end of the spectrum and lost more than half the original stake.
According to the Association of Unit Trusts the value of funds invested in unit
trusts went up between April 1998 and March 1999 from 170 billion to 192
billion. The managers initial charges that year at say 5% gave them 1.1 billion and
their annual 1.5% cost investors 330 million. Of course they have their expenses to
find out of that, but arguably they have very little risk.
That describes the good times when people were investing in unit trusts in a long
bull market. March 1999 saw the start of what now looks like an equally long bear
market, and investors are seeing the value of their funds and pensions diminishing
very rapidly over three and a half years at the time of writing. Again, it does seem to
be a heads-you-lose, tails-the-unit-trust-manager-wins situation, since most unit trusts
are losing much more money than the general stock market. They are simply not
appearing to be the hedge or buffer against hard times that they boasted of in the past.
And they still draw their initial fees and annual charges great idea or what?
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Office bearers. The club needs a chairman, a secretary and a treasurer. The
treasurer is highly significant in the club as he or she will keep the records of
the portfolio and all transactions.
Number of meetings per year. Some clubs meet monthly and others less often. It
depends on the subscription income and, to some extent, on the social aspects
of the club. Some clubs are primarily social and will meet frequently to socialise
as well as make investment decisions. Others are more serious in terms of the
objectives of the club and the likely level of the fund as it grows. In any case
there will be an annual general meeting.
How members are elected. Probably new members will be proposed by existing
members and their invitation to join ratified at a monthly meeting.
Subscriptions. The members must decide on the amount of the joining fee, the
upper and lower limits of monthly subscription, and upper and lower limits on
lump sum investments. I have seen clubs with monthly subscriptions as low as
20. The average for our club is about 95 per month, with the lowest sub
50 and the highest 250.
The rules also need to be clear on how the portfolio is valued for purposes of buying
units in the fund, or selling units back in order for a member to realise some or all of
his or her holding. Normally this valuation is made on the last day of the month and
the price used is the mid-price of each share as quoted in the Financial Times.
Members of an investment club need to have a common goal for the building
up of the portfolio. Individual reasons for being in the club may be very different,
but the investment goal needs to have the support of everyone. It is probably useful
to set it fairly wide. Taking that goal into account, individuals can then calculate an
appropriate subscription amount.
The investment strategy is the next important step. This should certainly include the level of risk to be taken. The members must agree what proportion of
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money is to be invested at low, medium and high risk, and what they mean by those
risks. Our club is a savings scheme so more than half of the money is invested in
FTSE 100 companies.
If some members are less interested in the nitty gritty of investment decisions,
they may leave that to others or even to a sub-committee; but the people with the
delegated authority to make such decisions will be bound to operate according to
the strategy or to go back to the whole membership if they wish to suggest changes.
The members, or the sub-committee, then choose shares in the way that the
members have agreed. Some strategies are no cleverer than sticking a pin in the
Financial Times, or using members knowledge of their own industries as a guide.
Here is a summary of a more logical way of team share choice.
Using their knowledge and observation they choose a sector for investment.
Using their strategy and current spread of the portfolio they choose the correct
level of risk.
Using the price/earnings ratio and yield they identify some four or more shares
which are in the category defined in the first two steps. They get the annual
reports of these companies. They probably action one or two members to do
the evaluation work.
Using published information they discuss the company strategy.
From the same information they calculate the key business ratios, discuss
whether they support the business strategy and possibly compare them with
industry averages.
They finally evaluate whether they believe the managers of the business can
carry out the strategy successfully and make a decision.
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Return on 1000
income reinvested
Belmont
Investment Club
Difference
One year
Three years
Five years
1034
1272
1618
1039
1564
1797
0.5%
22.96%
11.06%
39
We have not been immune to the huge bear market though and the value of our
investment has fallen dramatically. Time will tell if we can repeat this competitive
performance in hard times as well as good. I suspect we will.
You may remember the opening of the book by ex-Salomon trader Michael is a degree of
Lewis called Liars Poker. John Gutfreund, the Salomon Chairman, comes uncertainty, for
out of his office and offers to bet $1 million on a single game of Liars Poker
example of
with another senior manager. The bet goes One hand, one million dollars,
supply and
no tears. The no tears is to emphasise that the bet is for real and that the
demand,
loser will not whinge about his loss. Indeed, get a group of city types together
someone will
and they will find something to bet on. Wherever there is a degree of uncertake positions
tainty, for example of supply and demand, someone will take positions on it.
on it.
The concept of hedging rears its head in the futures markets in which
bets are taken on the value of commodities or shares some time in the future. The
history of what is now known as the derivatives markets goes back to some very sensible
insurance policies being taken out by farmers. If you are dependent on crops that only
grow once a year, you are dependent first of all on the vagaries of demand. How much
cocoa will the chocolate manufactures buy and use over the next one or two years?
There is also risk to supply as it depends on what the weather is going to be like.
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some 10% over the next three months to 725 and you have 2,000 to invest. In this
example I am going to ignore the costs of dealing to keep it simple. Remember every
trade you make whether in actual shares or options is accompanied by a cost which
will have the affect of reducing the numbers you are about to read.
If you buy shares in ECP and your prediction is correct you will make 200 or
10% in three months, which is not bad. But suppose you want more. You could buy
a call option for 31p giving you the right to buy shares at 650p in three months time.
Your 2000 buys you about 6450 calls. When the price goes up to 725p you can
buy for 650p and sell for 725p at the same time. Your sale profit is 6450 (725
650) or 4837, from which you subtract the original 2000 you paid for the option,
leaving a profit of 2837 more than fourteen times the profit earned in trading in
the underlying shares. You have received return on your original capital of an outstanding 140% in three months, a huge reward.
But a huge reward implies a huge risk. If the market goes against your prediction the outcome can be dire. In effect you are buying the shares for 650p, the
option price, plus 31p, the price of the option making a total of 681p. If the price is
below that you lose. If the price in three months is 665p then your losses are 6450
16 or 1032 and you have lost half your money. If the price drops below 650 of
course then you have lost the lot. The only people who cannot lose, naturally, are
the ones taking commissions on each transaction.
This principal of hedging and speculating can be applied to almost anything in
the stock market. You can, for example, hedge or speculate on movements of the
main market indices such as the FTSE 100. This means that your portfolio is protected if you were thinking of selling shares at a given point in the future. You can
bet on spreads of prices and so it goes on. If you need an insurance policy hedging is
a great idea, but if you decide to speculate, be sure you do it with money you can
afford to lose. Most financial advisers steer their clients away from speculating in
futures because of the huge risks, but as long as you can write the money off when
you place the bet its an excellent return if you are lucky. But dont forget what the
man said No tears.
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directors buy shares in their own company then you buy, and if three or more directors sell shares in your portfolio then you should sell.
It has worked in the past and it will almost certainly work in the future. The
only problem you are left with is knowing when.
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If a fund is not performing the providers will at some point change the team
running the fund. They do not want the fund to bring down their average and place in
the league tables for ever. They also do not want to appear for too long in the Worst
performing funds sector of Saturdays Financial Times. A change of management may
be all that is required to pick up performance and do better for their investors.
There is a strategy to operate on this, which is to buy annually the worst performing fund in any fund managers stable, on the grounds that the management
change may occur and the fund will do better during the next 12 months or even be
best in stable. At that point you switch and again buy the worst performer. It has
worked in the past, from time to time of course.
There is another piece of logic behind this strategy. At present most funds are
dual priced. This means that they have a bid and offer price with a spread that
includes the initial charge the managers take for managing your money (you remember the basic premise). As well as this there is a cancellation price. This is the
lowest price the management group is allowed to buy back units from you according
to the official price calculation. When the bid price is at or near this, the unit is said
to be on a bid basis.
This cancellation price is a useful guide to the current popularity of individual
funds. If the cancellation price is below the bid price, the price at which the managers will buy back your units, then it is a reasonable conclusion that more units are
being bought by investors than sold. The price is known as on an offer basis. It also
means that there is scope for a widening of the offer to bid price when the fund
becomes less popular.
What you want to do is to buy when the price is on a bid basis, and sell when it
has moved to an offer basis. This is more likely to happen if you buy the worst
performing fund in a stable.
There is a problem. I said that knowing the cancellation price was useful to the
investor, so it is no surprise to find that the rules have been changed. Up until 1995
unit trusts were required to publish their cancellation prices each day. Now they are
not, but if you request the information from them they must tell you.
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It is obvious what they were getting at, but none of these responses would be in the
objection handling bag of a professional salesperson. Indeed some professional
salespeople might describe the professional chartered surveyors remarks as bullshit.
The worst response of those above is probably the offer to match the competitors price. Salespeople feel that, say, 10% off the price is not a big deal, because
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they do not realise what it does to the bottom line. Heres an example of this from
the insurance business.
No, the correct way to handle a price objection is to use the trial close. It goes
like this:
If we were the same price would you prefer our proposal?
What is the client to say? Suppose they say Well no actually, seemingly the
worst outcome, at least you can now ask Why? and deal with the other objections,
real or imagined. Suppose they say Well, yes I think we would. At that point the
same question Why? will elicit what the client believes are your advantages as op-
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posed to the general statements above. Often in this last case, the clients are actually
trying to persuade themselves that the bit extra is worth it.
Incidentally the other selling technique that is tested by this method
Frequently the
of handling price objections is the ability to remain silent. Frequently the
Would you buy Would you buy from us if we were the same price as the cheapest? quesfrom us if we
tion leads to a lot of thought from the prospect. Keep your mouth shut
were the same and wait for the response.
price as the
cheapest?
question leads
to a lot of
thought from
the prospect.
Keep your
mouth shut and
wait for the
response.
This close is based on the activities of a person who sell pets. Look he
says to Mum and Dad, why dont you take the puppy home for the weekend and see how the kids get on with it. No obligation, if you dont want
it Ill come round Monday and take it away. What with? A small army?
The salesperson knows that by the end of the weekend the kids will
be as willing to give up the little dog as they are to give up breathing or
having a birthday. This technique is used by many industries in various
ways, and is linked to the idea of making sales by inertia. When did you last get an
offer to send in a direct debit for a magazine subscription with the promise that no
debits would be made until you had received your four free issues? Thats a puppy
dog close.
They are using it for credit cards nowadays and even IT equipment and software. It works where the product once experimented with becomes highly desirable
or where the customer continues with the product because they dont know how to
stop it coming, or they cant be bothered. Book clubs would hardly exist without
this close.
I have just received the Wall Street Journal free for four weeks. In the end I
declined to pay for it in future and sent the direct debit confirmation back marked
Cancelled. They sent me another one to make sure, with the extraordinary PS
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This is a risk-free offer. If you choose not to continue, the four weeks are yours to
keep free of charge. You mean there was a risk they might have asked for their old
newspapers back?
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The board is likely to be sceptical since this is new expenditure with no exceptional new results.
From what has gone before in this section you have prepared your closing question. Do I have your agreement to go out to the usual recruitment agency and
instruct them to hire two grade 4s straight away? Its nice and specific with no room
for ambiguity or subsequent backsliding.
Now think about your opening. A lot of people would fudge the opening, preferring to launch into horror stories of what has happened in the past,
Remember,
showing the board the list of extra shows that you could put on if you had
the resources and so on. This tends to put the board on its guard. Re- very few manmember, very few managers go to the board with any suggestion that does agers go to the
not require additional resources and it is frustrating when they do not board with any
suggestion that
have a clue about how much you are going to ask for.
does not
Much better is to signal the closing question right at the beginning of
require addithe presentation. It goes something like this:
You have given me ten minutes so Ill get to the point as quickly as tional resources
possible. I am going to cover three topics in the ten minutes. First I am and it is frustratgoing to go over the current situation we face in arranging and setting up ing when they
exhibition stands, then I am going to ask your permission to hire two extra do not have a
grade 4 people to carry out that role in the future, and with any time that clue about how
much you are
is left show you our current ideas for the next big show. Is that OK?
going to ask
The insertion of the closed question at the end of this statement can
for.
be very revealing. It can lead to a huge row. No you bloody well cannot
have more people, these shows are more trouble than they are worth already and so on. At least you are arguing about the point you are trying to make.
More often you will get a neutral reply such as Yes, OK, but if we have any problems with the first bit, we will not be agreeing to the second bit. Incidentally, if this
remark comes from the most senior person in the room it will generally get a laugh,
which is always good. Sometimes you will get a more positive response and you will
wonder why you are making the presentation at all.
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Whatever happens you will have made real progress towards getting a decision
and your own way.
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Growth was steady and by time the Industrial Division was 25 years old, it was
necessary for new headquarters to be found. In 1879 the building, which is still its
HQ, was opened in Holborn Bars. The Pru was also engaged in the pioneering work
of the day, to introduce women into the work force. The new building included
facilities for women clerks.
The companys publicity material records that By the end of the century, Prudential was well-established as the leading insurer in Britain regarded as a national
institution more than a commercial company. Across the country, one person in
three held a Prudential policy.
In the first half of the twentieth century the Prudential co-operated with the government in collecting contributions to the state sickness and unemployment scheme.
The branding of the Prudential as more than a commercial company continued with
the ending of gender segregation in offices. They also took on women and retired men
to replace those called up for World War I and did not charge extra premiums to
enlisted men. This time period also saw the expansion of the company into overseas
markets, with a network of agencies across Europe and the British Empire.
After World War II the Prudential started to use their agent organisation as part
of their advertising, and a real agent, Fred Sawyer from Kent, became well known
all over the world as the Man from the Pru.
From the 1970s most expansion came from the acquisition of other companies.
The Prudential is now a market leader in most areas of personal finance. There are
no door-to-door Men from the Pru now; they have been replaced by higher-tech
ways of doing business.
Prudential reported total sales of 4.4 billion in the first nine months of 2002,
12 per cent up on the same period the previous year. It owns a fund manager and a
bank. Along with other life companies that it owns it is still a massive player in the
global insurance sector. But the business was built on door-to-door collection agents
guaranteeing that poorer people could have a decent funeral.
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Ask yourself
When did you last check that you had the right amount of life insurance? By
the time they get to middle age, a lot of people when they add it all up find
that they have too much life insurance and not enough long term or pension
savings.
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The case of samples has gone, replaced by a catalogue containing over 600
items. The range has increased as well. It still has the Homecare section with cleaning materials and tools. To this it has added Home ideas, Personal care, Whats cooking and Garden & workshop. The catalogue is attractive and comprehensive, but I
wonder if children rush indoors to tell their mothers that the Kleeneze catalogue is
coming.
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Ask yourself
Does the gender and ethnic mix in your company reflect society in general, and
the market which you address in particular?
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MDCXXI + LCCIV
DIV CCCVII
CCCVI XI
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1 and was not liable for any further contribution in the event of the companys
insolvency.
Leading from the joint stock company is the need for a set of rules that managers have to obey in order to give a fair picture of the financial health of the enterprise. This is the audit.
The repercussions of the simple idea of shareholder investment are legion. Ideas
that would never have got started became possible and the current system of equities was born.
Takeovers became possible. Takeovers are a pretty good business idea if you
are one of the army of professional accountants, bankers and lawyers who charge fat
fees for making them happen, sometimes, some would say, at the expense of shareholders and workers. Takeovers also give the directors of the larger entity more
power and bigger salaries.
Convertible loan stock is a system whereby the shareholder takes a reduced risk
for the certainty of return in the early stages of an investment. Indeed it is possible to
describe the attributes of shares in any way that suits the board and the shareholders. Without these devices, for example, Eurotunnel Idea 22 would have long since
sunk.
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accountants
can and do
play a most
constructive
role in the
management
of businesses.
At least the
enlightened
ones do; the
others just keep
the score.
Whilst book-keeping can become highly complex, basically there are two
types of books used in the book-keeping process: journals and ledgers. A
journal contains the daily transactions (sales, purchases and so on) and
the ledger keeps the record of individual accounts.
From that basis each month the income statement presents the changes
that have occurred over the period in question, while the balance sheet
shows the financial state of a company at a point in time in terms of assets,
liabilities and the ownership equity.
Nowadays accountants can and do play a most constructive role in the management of businesses. At least the enlightened ones do; the others just keep the score.
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Ask yourself
A lot of non-financial managers discover late in their careers that a good basis
in accounting would have been a boon. Do you know enough about the bookkeeping and management accounts of the business you work in? If the answer
is no, put it right you could be working with one hand tied behind your back.
Profit margin
This shows the profits made on each pound of sales. As businesses grow their managers are concerned over time to maintain a good bottom line profit margin. It is
quite reasonable that peaks and troughs will occur. For example, where a company
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has been involved in a major expansion, it may take some time, measured in years,
to get back to its original profit margin and then exceed it.
Return on assets
This ratio is more important in some industries than others. Basically the clue is the
amount of investment in fixed assets required to create a going concern. In a firm of
consultants, for example, where there are few fixed assets since arguably the main
assets are the people acting as consultants, this ratio will have little relevance. In the
case of a telephone company with the hugely expensive asset of the network, this
ratio is crucial.
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Added value
The difference between the market value of a companys outputs and the cost of its
inputs. An improving trend here should augur a successful performance. The main
problem is to get the necessary data to make the calculation from published material.
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Ask yourself
Which ratios are the key ones for your business right now, and how is your last
year and this year performance against them?
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This consists of a costbenefit analysis and some risk analysis to assess the
downside of things going wrong. Finally it lands on the desk of financial controllers,
who put the numbers from the costbenefit analysis into a discounted cashflow. It is
a useful, though not vital, test of all projects. It allows us to compare one strategy
with another, or, for example, the relative financial merit of buying a computer
against the totally different proposal to open more depots. It is important, and if you
are going to work with us you had better learn how it works. Having said that, if
projects look good to the MD and me, they usually go ahead.
George went through the learning process.
Initial investment
Expected annual earnings
(before depreciation)
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Net earnings over 5 years
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Project 1
Project 2
10,000
10,000
2,000
3,000
5,000
7,000
8,000
25,000
15,000
5,000
6,000
7,000
4,000
3,000
25,000
15,000
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If someone borrows 100 now, they will owe interest of 10 by the end of one year
so the total outstanding will be 110.
During the second year, interest will be charged on the total amount outstanding of 110 i.e. interest of 11. The total outstanding would be 121.
During the third year, interest will be charged on the total amount outstanding
of 121 i.e. interest of 12.10. The total outstanding would then be 133.10.
We can see therefore that for every 100 borrowed, 133.10 must be repaid.
Therefore, solving the equation:
A 1.331 = 10,000
will tell us how much can be borrowed now, i.e. about 7,510.
This technique can of course be generalised to deal with any rate of interest and
any time period.
We can now develop a method to compare two projects. Cashflows due in the
future may be converted to equally desirable cashflows due today using the above
method. This technique is known as discounting and the equivalent cashflow due
today is known as a present value. This is shown in the following example.
Timing of cashflow
Amount of cashflow
Present value
Immediate
After 1 year
After 2 years
After 3 years
After 4 years
Net present value
(10,000)
3,000
4,000
5,000
3,000
1,835
1
0.909
0.826
0.751
0.683
(10,000)
2,727
3,304
3,755
2,049
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In particular, consider the discount factor used above for year three, i.e. 0.751. When
deciding how much we could borrow from the bank in respect of Aunt Marys bequest we divided 10,000 by 1.331. An exactly equivalent calculation is performed
by multiplying 10,000 by 0.751 the discount factor for three years at 10%.
The final result takes into account all cashflows and is known as the net present
value of the project.
If compelled to choose between two projects, we will select the one with the
higher net present value. If we have a large number of projects that can all be undertaken, then we should invest in every project that has a positive net present value.
In effect the discounting factor brings the value of each number into todays
money, present value, thus ensuring that you are comparing pounds now
The discounted
with pounds to be earned or spent in the future.
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cashflow and
net present
value earns its
place in the
100 greatest
business ideas
by its simple
ability to put
the logical
case behind
dilemmas or
decisions.
You can solve the problem of rent or buy. While the UK Government gave tax
relief on mortgage repayments it tended to be a relatively straightforward decision to buy the home you live in rather than rent it. This has become less
certain as the tax benefit has gone and it is theoretically worth making a comparison to check that financially it remains the thing to do.
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Imagine if unit trust managers Idea 25 had to publish their real results in such terms.
Might not the consumer get a very different opinion?
Ask yourself
Do you really understand discounted cashflows? If not do some more work
on it.
Somewhere in your working environment someone will be using investment
appraisal techniques that affect you. It might be the finance department in
your own company, or your suppliers, or your customers. It might even be
the people who are planning your pension, i.e. the people who are responsible for how poor you are going to be in your late old age. Find out how
they do it.
So how, after all this learning, did George fare? He sat down with the sales director
and worked out the likely benefits of the new stock control system. The main benefit
of course was rather intangible, i.e. difficult to put a number to. It related to the fact
that if the system were better there would be fewer stock outs and therefore they
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would sell more tyres and exhausts. After some bargaining the sales director agreed
that he would stand by a claim of 5% more sales. And so on. He built a case for the
benefits.
With the IT manager, George built a picture of the costs over a five-year period,
found that the project was profitable, but needed help to see if this was confirmed
by the cashflow. With some trepidation George went to see the finance director,
who took him through the calculation. Using the discount factor of 21%, the company norm, the project ended up with a negative net present value. George was
devastated.
He returned to the sales director crestfallen to report that all their work had
ended up torpedoed by the finance people. The sales director looked at the cashflow
and suggested that George should see if the case worked if he, the sales director,
agreed that a 10% sales increase was a more likely outcome. It did and George got
the order and a lot wiser.
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where a is the number whose square root is required, we will gradually get to a
better and better approximation to the answer. Suppose we wanted to use iteration
to find the square root of 2. If we start with
X1 = 1
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we get:
X2 = 1.5
X3 = 1.417
X4 = 1.414
so that with only three steps we have reached a very good approximation. It would
have taken many more iterations if our original guess had been much wider of the
mark. If, for example, we had started with X1 = 50 it would have taken nine iterations to get to the same point. The iterative process is continued until any desired
accuracy, tested for by the computer, is reached.
This is a very simple example. There are many extremely useful and sometimes
sophisticated iterative processes for solving various types of equation. Iteration is
also used in routines that are closer to business needs, such as sorting tables of data.
It is unlikely that all equations can be solved by iterative methods, but the computer
has certainly extended vastly the number that can be tackled in this way.
But it comes down in the end to a combination of man and machine. The better
the guess, from a better feel for the problem, the fewer steps it takes.
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then appended. If there is doubt about timescale or resources an optimistic, pessimistic and most likely estimate is used. The network on its own is a useful tool since
it points out to the designer or project manager the inter-relationships involved in
the project.
Then the computer comes into its own. The critical path of vital core activities
is determined by considering each event in turn and calculating the earliest possible
time at which the event can occur. The characteristic of events and activities on a
critical path is that, if any of the time estimates is not met, the completion date of
the project is affected. The other activities are ones with float that is, an amount
of spare time for completion.
When a project includes thousands of activities and interaction with other project
networks, it is impossible to conceive of doing the relevant calculations without a
computer. Managers look for the following attributes in critical path programmes.
It must:
1
2
3
4
Ask yourself
Would critical path analysis help to make sure your projects are under better
control?
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may be surprised to find that there are a number of brands of four packs of beer on
shelves beside the disposable nappies. The reason for this is the discovery, made
possible by relational databases, that a large number of husbands and partners get a
phone call towards the end of the working day requesting that they pick up a packet
of disposable nappies on their way home. So the supermarket manager wheels out
the four packs and tempts the father into impulse buying a beer to go with the
evening television.
This is possible for the supermarket to work out because of the high degree of
data integration available to it. There are at least three systems involved in this piece
of analysis the stock control system, the checkout system and the loyalty card
system. This strategy is part of the movement towards what the marketing people
call the market of a single person, where the supplier has access to such a large
amount of accessible data that it is able to target a market of one person with the
attributes the supplier believes fit the product it is trying to sell.
The technology involved in this has developed over many years. Indeed, some
computer salespeople claimed some 25 years ago that what we have now was available then. The underlying technology on which such specific marketing depends is
the database and database management systems.
A woman moved to London from Edinburgh. She lived in West Hampstead
and worked in the city. Everyday she commuted to work by tube, from Finchley
Road to High Holborn. The tube was her only method of transportation for the first
few months of her stay in the new location.
After three months if you had asked her how to get to High Holborn from
Finchley Road, she could confidently have told you to go past Swiss Cottage to
Regents Park. From there make your way to Baker Street and Oxford Circus. She
could have directed you all the way by the place names of tube stations, but asked in
which direction to walk to start the process of getting to Swiss Cottage she might not
have known. That is what computer life was like before databases.
The computer world before databases relied on traditional file processing. Applications systems reflected the previous manual environment. For example, the
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engineering department of a local authority held a record of all the street furniture,
lampposts, benches and so on, in its area. To put these items on to a computer gave
the engineers a number of benefits. They could schedule maintenance and repair
schedules much more efficiently to make best use of resources and save management time spent on that sort of activity. But the street furniture system had no
connection with, for example, the street opening (holes in the road) system.
As more and more systems were computerised, people began to see the need to
create reports based on data held in more than one application file. This gave birth
to the idea of a central database system.
In a central database system there are still the separate applications systems
such as accounts, stock and payroll, but the data for each is held centrally and the
individual systems dip into the database in order to process transactions. This leads,
at least in theory, to compatibility within systems, less duplication of data since each
item is held only once, and thus to more integrity of the data held.
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Ask yourself
Are you aiming your products at the so-called market of one? Are you using
collected data, yours and other peoples, to home in on the right people with
the right products and services?
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even in two years if the sales came in on plan, but they did not know, on the down
side, at what point the lack of sales would start to threaten the cashflow of the
company or the department involved. They did not know, on the upside, when
higher than expected sales would push the production people into further investment. But mainly they found it difficult to have a comfortable level of information to
compare one investment project with another when the type of investment was very
different. They need to be able to ask an infinite number of what if questions.
Various pieces of applications software were written and experimented with,
but it was not until the launch of the first spreadsheet system Visicalc in
the late 1970s that managers received the ability to create the models they The move from
dependency
wanted, and to break free from their reliance on the finance department
to measure, probably to five decimal places, the financial outcome of the on the finance
inspired guesses managers make when estimating the future. Computers department is
rendered
opened up a totally new planning environment.
useless, of
The move from dependency on the finance department is rendered
course, if it
useless, of course, if it leads to a new dependency on the computer department. Out of the prying department into the technical mire, you might leads to a new
dependency
say. Here also spreadsheets offered, and continue to offer, a simple to use
on the
mechanism that allows functional managers to create their own models to
computer
meet exactly the problem they are trying to solve. Spreadsheets are the
department.
antithesis of the general-purpose computer system that solves part of everyones problem but fails everybody in some way.
The use of the words simple and computers in combination always needs
careful examination, remember the cornered rat, but the spreadsheet genuinely can
be simple to use. It can then be stretched in a thousand ways to offer complex
solutions to complex problems. People who keep learning about them and using
them find that they are using not just an upmarket calculating machine capable of
producing models, but a powerful programming language of immensely wide value.
In fact, even seasoned spreadsheet modellers after some years are still aware that
they are only using a fraction of the power of the tool.
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It may be slightly esoteric to make a direct link of the work of Turing with the
modern day spreadsheet, but the argument has some merit. Essentially spreadsheets
allow the user to mix data and logic in a way that reflects how most managers think
and plan their businesses. Creative thought and intuition can be quickly tried out at
an overall level, formalised and developed according to the answers found to a series
of what if questions.
This flexibility makes spreadsheet modelling ideal for managers to analyse a
specific situation in a specific way. You can start where you like, for example from
sales or fixed costs. You can check that some variables in the middle of the model
stay within precisely or loosely defined parameters. You see the result of any formula as you enter it. This makes it likely that you will detect errors early. It also
means that you can pause after each step to recognise what you have learnt before
moving on.
Opinions vary as to whether spreadsheets are efficient if you take them out of
this personal environment and build models intended to be run corporate wide.
Intuitively I doubt it.
Experienced modellers volunteer the following tips to help newcomers wield
the power of the spreadsheet.
1
2
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Build it step by step. Make sure one month is doing exactly what you want
before copying it eleven times.
Build the assumptions table outside the model. This means that the top of the
spreadsheet has the assumptions that you are going to test, and further down is
the actual model.
Check each formula as you enter it. Since the assumptions are separate from
the model it is easy to enter new assumptions and check their impact on the
formula before moving on.
Check the overall model by seeing that it behaves as you would expect when
you give it new, or even extreme, variables.
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When, for example, you are happy with the one-month model and you create
the next month, error can easily creep in. Try the new month with the same
parameters as the original and see that it comes up with the same results.
Prepare the model using real prices and costs in the first place. Add in inflation
and currency variations at a later stage.
The financial services and insurance industries make much use of laptop computers
to aid their salesforce to bring another customer into their net. Spreadsheets enable
everybody to do this for whatever product they sell.
In summary, managers have the opportunity to become their own masters if
they learn how to bring this most powerful tool into their armoury.
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He was a member of the team at the Stanford Research Institute in the late
1950s and early 1960s. Engelbart was a visionary who started from a theoretical
framework for the co-evolution of human skills knowledge and organisations. At
the heart of his vision was the computer, acting as an extension of human communication capabilities and resource for the augmentation of human intellect.
In other words he worked on getting the computer out of the hands of the
technicians and into the working hands of the user. So what did the demonstration
contain? Remember that it was 1968 and the computer had had no visibility up until
then outside the air-conditioned computer room.
The demonstration, which lasted for 90 minutes, was for most people their first
glimpse of a networked computer system. This enabled a series of other firsts. It had
the debut of the computer mouse, two-dimensional display editing, hypermedia, (a
foundation stone of the Internet), multiple windows and on-screen video
teleconferencing.
The majority of the demonstration centred round Engelbart using the computer to plan out a set of things that he had to do later. The list of things was organised,
for example, as a graphical map of where he had to go, connected by the route he
had to take. His shopping list was also organised hierarchically by category and he
could easily expand or elide sections of the hierarchy or move items between sections.
Key to the humancomputer interaction was the fact that the interface was
intimately linked to the work environment and appropriate user-interface devices
were used. His desk and workspace were built around the computer, which was the
focus of attention.
This last aspect eventually found its way into the Macintosh and Microsoft
Windows. The mother of all demos became the standard transition from an ordinary desk into a multi-dimensional, flexible, self-organised workspace.
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which was supported by a huge advertising campaign spend of over $10 million in
six months. In return, Windows 3.0 sold 100,000 copies in two weeks.
1991 saw the continuation of a buying revolution. That year Microsoft shipped
four million copies of Windows 3.0 to 24 countries in 12 languages. The momentum
was kept going by PC manufacturers including Windows with their machines. The
following year, Microsoft used television advertising to reach an even broader audience.
Windows NT took the company further into business computing, offering client server solutions. After a big build up Windows 95 was launched in August 1995
to nationwide interest. It sold more than one million copies during the first four
days of retail availability in North America. By October that number had gone up to
seven million worldwide.
30,000
1800%
1600%
25,000
Sales
1400%
Growth
1200%
1000%
15,000
800%
10,000
600%
400%
5,000
200%
Year
Fig. 1
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2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
0%
1975
Growth
Sales
20,000
89
Internet Explorer became available to Windows 95 users free of charge, allowing many more people to use the Internet. The facts and figures never stop being
phenomenal. There were 30 million Excel users in 1996.
Subsequent to this, Microsoft has produced and sold a plethora of software
upgrades, from Windows 98 to Windows NT and Office 2000. It does seem that
this idea still has terrific legs.
Perhaps the easiest way to describe this great business idea is to show a graph of
sales revenues to date (Fig. 1).
Disregarding the 1977 growth rate, which distorts the numbers, the average
growth per year is 60%. If this average continues, then the sales figures will look like
Fig. 2. This predicts that in 2008 Microsofts turnover will be more than $475
billion. To put that number into context, the UK Governments total spend for
2000 is approximately $620 billion.
1800%
500,000
450,000
1600%
Sales
400,000
1400%
Growth
350,000
Sales
1000%
250,000
800%
200,000
600%
150,000
400%
100,000
200%
50,000
0%
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Fig. 2
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Growth
1200%
300,000
90
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Where things go non-standard, or when the skills and knowledge of a CSR are
required, a good IVR system will route the call to the person most likely to be able to
help. It will also entertain you while you wait. The technology can also tell the caller
how many people are in the queue and the approximate estimated waiting time.
When the customer is put through, a link to the computer systems means that the
CSR already has the details of the caller up on their screens before they start to talk.
As usual the quality of implementation of the idea is the measure of success or
failure. Does the supplier provide a customer interface that is efficient and pleasant
to use, or is a simple abrogation of the concept of service to frustrated customers.
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Brand weight: the influence or dominance that the brand has over its category
or market (more than just market share)
Brand Length: the stretch or extension that the brand has achieved in the past
or is likely to achieve in the future (especially outside its original category)
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Brand breadth: the breadth of franchise that the brand has achieved, in terms
of age spread, consumer types and international appeal
Brand depth: the degree of commitment that the brand has achieved among its
customer base and beyond; the proximity, the intimacy and the loyalty felt for
the brand.
Idea 52 Disney
You could say that the Disney company built its wholesome entertainment branding through the way it managed its people. Central to its success was the culture
created by Walt himself smart dress code, no swearing, and the use of euphemisms
to describe the people who work there cast members rather than employees.
Then, through the generations, the company has used its rich catalogue of films
and entertainment to merchandise its other products. So long as the movies are in
peoples minds merchandise can be sold.
The Walt Disney company also more or less invented the business of character
merchandising licensing other suppliers to use your brand. In character merchandising, the brand is usually represented by a character from literature, movies or
television, such as Mickey Mouse. The brand is then used on products that are not
directly linked to the character.
So, Mickey not only appears in films, books videos etc., but he is used to sell
clothing, watches, toys, jewellery and even food. For example, until 2002 Nestl has
had the exclusive right to use Disney characters on branded food in Europe. Disneys earnings from this has topped $150 million, and all they had to do for this
added profit was negotiate the contract. Everything else they were doing anyway.
They have been building the brand since 1928, and now have publishing interests, theme parks, movie studios, a mail-order business, hotels and a television channel. Their declared philosophy is to build an integrated system in which each Disney property enhances and reinforces the whole.
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It guards its brands tightly and is a wonderful example of the huge power of
building brands on values and managing them well.
Idea 53 McDonalds
Their managers sum up McDonalds as not just a product, its an experience.
Surely the proof of the greatness of the brand is that it was amongst the first companies to expand quickly into Eastern Europe after the Berlin wall came down.
The brand means America, and an enjoyable lifestyle. Thus the brand has been
built on cultural connection as well as commercial astuteness. It is a deceptively
simple and universal formula limited choice, quick service and clean restaurants.
In short Do the simple things well.
If the incursion into former communist countries is the big picture, then the
narrower context of the explosion that is McDonalds is product and design consistency. With few exceptions you can have a glass of wine with your burger in Paris,
and the restaurant opposite Windsor Castle melds into its surroundings more than
most you do not know where you are in the world when you are in a McDonalds.
McDonalds does not have the branding completely solved. It is a highly centralised operation and it admits that it takes too long to get new ideas into the field. Both of
these are difficult nuts to crack. The first requires a new way of motivating and empowering people, and the latter a faster cycle of listening to the customer and reacting.
Still, theirs is a big, global market. As McDonalds publicity bemoans, On any
day, even as the market leader, McDonalds serves less than one per cent of the
worlds population.
Come the start of the 21st century, McDonalds, though still a great brand, is
showing its first signs of mortality. A huge price war with its competitors, and possibly the result of its difficulties in bringing forward new experiences has raised questions about its future. Maybe McDonalds will end up as the greatest brand of all
time for the shortest possible time.
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But, the effect of the interiors, the concentration on families and children and
the classless dcor and appeal give the most truly international brand of them all. It
knows no divides. For example, when Nato was bombing Serbia in 1999 both sides
could eat McDonalds during the breaks.
Idea 54 Coca-Cola
Many people are expressing some concerns over the continuing viability
of the essential Coca-Cola brand image. In a world growing more cynical,
In a world
the values of freshness and naivet seem to require re-examination. But
growing more
the Atlanta management team have more than a century of experience to
cynical, the
call on to steer this incredibly successful brand forward, and the central
values of
message Coca-Cola is a refreshing beverage with a great taste needs no
freshness and
updating.
naivet seem
Cokes mission in the 1960s that the world should live by love and
to require rethat Coke was the spirit of love, made a whole generation take the drink to
examination.
its heart. Add to this the sheer embodiment of America that the red can
with its swirled Cs represents and one can see why the brand is distributed to more
than 195 countries through an innovative bottling franchise system.
Over the years the company took its understanding that branding was more
than packaging, but involved giving the product a personality, very seriously and
has produced a breadth of branding unequalled. It crosses age boundaries as effortlessly as it does national ones. This breadth reduces the threat to any brand of
changes in local tastes, regulation, or political or financial stability.
The final word on Coca-Cola probably belongs to its consistency of advertising. The contoured bottle was developed in 1915 and remains a part of current
advertising, which features it against the equally famous red disk logo. Overall
Coca-Colas global dominance shows no sign of slowing down despite pressures
from its arch-rival Pepsi and the emergence of own-brand colas.
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Idea 55 Kodak
The story of the next greatest brand, Kodak, has one major difference from the
previous two. Kodak has nurtured its brand not only on packaging, personality and
advertising, but also on its technical ability to be innovative and stay ahead in product terms.
Once again the brand has been developed over more than 100 years, from its
founder George Eastmans frequently ascribed quotation we have made the camera as convenient as the pencil. But despite huge changes in the technology of the
product, the consistency of packaging and advertising is again a striking part of the
brands success. The yellow packaging of its photographic and film materials along
with its logo is as well-known as any.
But what of the word Kodak? The name was registered in 1888 and Eastman
subsequently told how he created it. I knew a trade name must be short, vigorous,
incapable of being misspelled to an extent which will destroy its identity and, in
order to satisfy trademark laws, it must mean nothing. The letter K had been a
favourite with me it seemed a strong incisive sort of letter. Therefore, the word I
wanted started with a K. Then it became a case of trying out a great number of
combinations of letters that started and ended with K. The work Kodak is the
result. Sometimes great empires are built on genius being properly exercised and
channelled.
From the first camera advertised with the slogan You push the button, we do
the rest, through the immensely popular Brownie introduced in 1900, Kodak has
progressed to become a world leader in imaging technology with manufacturing
operations all over the world. It maintains its innovation with, for example, its development of photo CD in conjunction with N.V. Philips of the Netherlands.
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Idea 56 Gillette
You could say that Gillette has been at the cutting edge of marketing since it started
selling its razors in 1903. Gillette scores very highly in the assessment of weight.
This key component reflects its dominance over its particular market. But dominance must not hinder flexibility and speed of reaction to change. In the 1960s, rival
Wilkinson Sword launched a stainless steel blade and Gillette responded very quickly
for a massive company.
Today the brand serves as an umbrella under which the company markets a
range of male toiletries. They have managed also to be successful with women as
well with the first non-soap based shaving preparation for women Gillette Satin
Care for Women.
The brand continues with huge support and advertising including the slogan
that went round the world The best a man can get. The 2000s have seen further
relaunch of the branded products some with an easy-to-argue competitive edge, if
you will excuse the pun, such as the Mach 3 razor. It has been widely applauded for
its success in repositioning itself as a young dynamic brand despite its longevity. It is
seen as in tune with New Man as well as Macho Man, the marketing equivalent of
squaring the circle.
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The US market was the real competitive battleground, with two companies,
Reynolds and Eversharp, vying for dominance. On this occasion the war hurt both
combatants due to quality problems and huge numbers of returns. Neither firm
survived the price war, which saw prices going down from $12.50 to 50 cents. Parker
Pens eventually sold 3.5 million jotters in one year.
In the end BIC bought Watermans and sold pens at 2969 cents. This highly
popular version of Laszlo Biros pen has daily sales of 14 million pens. It is hard to
conceive of an office without this great little helper.
No man was more foolish when he had not a pen in his hand, or more wise when
he had.
Samuel Johnson
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owner of a local invention office where he invented the paper clip in 1899. Because
Norway had no patent law at that time, it had to be approved in Germany to secure
patent rights. Vaaler presented a number of designs.
It appears that his interest waned in following up on the German patent. Historians surmise that perhaps financial considerations kept him from doing more with
his idea.
Across the ocean in the USA, a patent for the paper clip was awarded to Cornelius
J. Brosnan of Springfield, Massachusetts in 1900. It was called the Konaclip. Gem
Manufacturing Ltd of England followed with the first double-oval shaped standard
clip. This familiar shape is still known as the Gem clip.
Several designs have followed these originals. Most failed to last, but some have
remained. Those still manufactured today, beside the Gem, include the Non-Skid,
which has small incisions cut along the length of the parallels, the Ideal pattern for
holding a thick bundle of paper, and the Owl, named for its two eye-shaped circles.
Owl clips did not get tangled with other clips, nor did they snatch at stray papers
that didnt belong with the clipped stack.
There have been many unusual applications of the paper clip. During World
War II, Norwegians were prohibited from wearing buttons imprinted with the Norwegian kings initials. Hence they fastened paper clips to show patriotism and irritate the Germans. Wearing a paper clip was often reason enough for arrest. They
were a Norwegian invention whose original function was to bind together. They
symbolised solidarity and opposition against the occupation.
Today a variety of uses exist, ranging from bookmark, money clip, and staple
remover to the item that holds a hem that needs sewing or serves as a hanger for
curtains, lights and pictures. Because of its price and availability, it is easy to see
why the paper clip is one of the most versatile of inventions.
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fish design, youre sure to find the right note to suit your style. With over 29 different colours, 56 shapes, and 27 sizes, Post-it Notes have certainly changed over the
years, but one thing remains constant theyre great for reminding yourself, communicating and organising your thoughts, to-do lists and ideas.
Post-its have had detractors, people who when they first saw them were mystified, thought them profoundly stupid, unnecessary and expensive; in a word a scam.
They probably buy them now in blocks of 64.
Idea 60 E-mail
I know a sales director who watched, at first calmly, a reasonably heated discussion
between two of his people who had a difference of opinion on the way forward for a
part of their business. He watched through his e-mail, as each and every salvo that
they fired at each other was copied to him. After a few days of this he took them
both metaphorically by the ear and put them in a conference room with an instruction not to come out until the issue was resolved. Their desks were about twenty
metres apart.
This downside of e-mail should not mask the glorious potential of global email. Apart from the possibilities it raises for making money on the Internet [see
Four Greatest Ways (So Far) to Become a Millionaire on the Internet], it is just possible
that the political impact of e-mail will be as great if not greater than radio and
television in terms of everyone having access to everyone all over the world. Dictators cannot like e-mail.
E-mail allows everything to happen simultaneously. As Oliver Freeman puts it,
E-mail provides a sporting chance that globalisation will not be imperialism under
a different name.
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report by how many of these assets they have been able to lay off during the years
cost cutting exercises. The current scandal of directors pay is another indication of
inconsistency, where the pay rises in the boardroom are running at an average of 7
8%, leaving the employees 34% looking second best.
And yet it must be better than it was, say, before the war. The culture change of
how management thought about their people was expressed by Douglas McGregor
in his book The Human Side of Enterprise (1960).
In this book McGregor invented theory X and theory Y as two distinct approaches to managing people. Theory X describes the traditional stick and carrot
approach to managing built on what McGregor calls the mediocrity of the masses.
This theory regards workers as lazy and unmotivated, seeing their jobs as a necessary evil to earn the money to live.
The premises of theory X, McGregor writes, are:
1
2
that the average human has an inherent dislike of work and will avoid it if he can
that people, therefore need to be coerced, controlled, directed and threatened
with punishment to get them to put forward adequate effort toward the organisations ends
that the typical human prefers to be directed, wants to avoid responsibility, has
relatively little ambition and wants security above all.
McGregor saw the implementation of this theory as a huge influence on the effectiveness of businesses. If there is a single assumption which pervades conventional
organisational theory it is that authority is the central, indispensable means of managerial control. He then goes on to show that theory X is not a reflection of the
people being managed, but actually the result of the management mode itself. It is,
so to speak, a self-fulfilling prophecy.
The other extreme is the theory Y company, whose assumptions are:
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1
2
3
4
5
107
that the expenditure of physical and mental effort in work is as natural as in play
or rest the typical human does not inherently dislike work
that external control and threat of punishment are not the only means for bringing about effort toward a companys ends
that commitment to objectives is a function of the rewards associated with their
achievement the most important of such rewards is the satisfaction of ego and
can be the direct product of effort directed towards an organisations purposes
that the average human being learns, under the right conditions, not only to
accept but to seek responsibility
that the capacity to exercise a relatively high degree of imagination, ingenuity
and creativity in the solution of organisational problems is widely, not narrowly,
distributed in the organisation.
You know if the
company is
practising what
it preaches by
looking in at
the shop floor,
not by reading
the section of
the annual
report on
human resources and
other assets.
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Starting from the heart of business life he says There is only one valid definition of business purpose: to create a customer. Markets are not created by God,
nature or economic forces but by businessmen. The want they satisfy may have
been felt by the customer before he was offered the means of satisfying it. It may
indeed, like the want of food in a famine, have dominated the customers life and
filled all his waking moments. But it was a theoretical want before; only when the
action of businessmen makes it an effective demand is there a customer, a market.
Such views are commonplace now, but they were originally propounded and tested
by Drucker. This means that the only essential functions are marketing and innovation, a truth brought very much home to the people compiling this book of the
greatest ideas.
From such philosophical beginnings, Drucker quickly gets to the specific practices required to run a thriving organisation:
1
2
3
4
There must be high performance requirements; no condoning of poor or mediocre performance; and rewards must be based on performance.
Each management job must be a rewarding job in itself rather than just a step
on the promotion ladder.
There must be a rational and just promotion system.
Management needs a charter spelling out clearly who has the power to make
life-and-death decisions affecting a manager; and there should always be some
way for a manager to appeal to a higher court.
In its appointments, management must demonstrate that it realises that integrity is the one absolute requirement of a manager, the one quality that he has to
bring with him and cannot be expected to acquire later on.
Probably the idea from The Practice of Management that was most seized and acted
upon is the idea of management by objectives. It is interesting to note, in Druckers
description of this, the overlap with McGregors The Human Side of Enterprise. Only
a theory Y company could live by Druckers statement A managers job should be
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5
6
manage by objectives
take more risks and for a longer period ahead
be able to make strategic decisions
be able to build an integrated team, each member of which is capable of managing and measuring his own performance and results, in relation to the common
objectives
be able to communicate information fast and clearly
be able to see the business as a whole and to integrate his function with it
traditionally a manager has been expected to know one or more functions but
this will no longer be enough
be knowledgeable traditionally a manager has been expected to know a few
products or one industry this, too, will no longer be enough.
Drucker re-evaluated some of his conclusions later, but The Practice of Management
was complete enough to act as the foundation for many of the developments in
management thinking in subsequent years.
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Ask yourself
How much time are you going to spend today on creating a customer?
How many of the seven new tasks are you confident about?
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It cannot be said that the year-long experiment did not work. Once the
situation was made more standard by lifting the level of profit centres, the first
line managers were much more conscious of selling profitably.
As became very obvious during the periods of trouble through which GM has
had to go, Sloan worried about the problems associated with the companys size. In
practically all our activities we seem to suffer from the inertia resulting from our
great size said Sloan in the 1930s. There are so many people involved
Sloans segand it requires such a tremendous effort to put something new into effect
mentation of
that a new idea is likely to be insignificant in comparison with the effort
the market
that it takes to put it across Sometimes I am almost forced to the conchanged the
clusion that General Motors is so large and its inertia so great that it is
structure of the
impossible for us to be leaders.
car industry
But prior to that in 1925 they had overtaken Ford. The new organisation and commitment to annual changes to its models had successfully and provided a
put the good old Model T into second place. Sloans segmentation of the model for how
market changed the structure of the car industry and provided a model firms could do
the same in
for how firms could do the same in other industries.
While remembered mainly for the product and organisational strat- other industries.
egy, Sloan, it is interesting to note, again took a very lively interest in what
we would now regard as progressive human resource management. Whilst he might
from time to time miss out on policy meetings, he always attended personnel meetings and invested a lot of time in selecting the right people for the job.
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But if you read the book twice you miss too much the first time because of
giggling there is solid sense behind a lot of what is said. He hates the trappings of
power, for example. His hit list in this area includes: reserved parking spaces, special
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quality stationary for the boss and his elite, muzak, bells and buzzers, company
shrinks, outside directorships for the chief executive and the company plane.
Townsends real claim to fame ought to be the fact that he was president of Avis
when that company successfully challenged the market leader Hertz. Many of the
tests of the organisation he suggests have been the subject of much effort by managers in the intervening years, but still cause the problems he identified. Heres an
example in full.
C: Call yourself up
When you are off on a business trip or vacation pretend youre a customer. Telephone some part of your organisation and ask for help. Youll run into some real
horror shows. Dont blow up and ask for name, rank and serial number youre
trying to correct not punish. If it happens on a call to the Dubuque office, just
suggest to the manager (through channels, dummy) that he make a few test calls
himself.
Then try calling yourself up and see what indignities youve built into your own
defences.
But the people side is uppermost in Townsends mind. (In fact he chooses McGregors
book The Human Side of Enterprise as one of the two best books he has read on the
subject of getting things done through organisations.)
Under P for personnel we get the succinct advice to fire the personnel department. His view is that they get in the way of managers hiring the people who they
can work with. The important thing about hiring is the chemistry or the vibrations
between boss and candidate: good, bad or not there at all. Leaning too heavily on
the personnel department is, in Townsends view, an abdication of responsibility
masquerading as delegation.
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There is some truth in the observation that all presidents or chairmen eventually fail. If you keep managing a company the chances are that you will drop the ball
at some point. If this is true, then Townsends final chapter Wearing out your
welcome has a powerful force behind it.
Nobody, he writes, should be Chief Executive of anything for more than five
or six years. By then hes stale, bored and utterly dependent on his own clichs
though they may have been revolutionary ideas when he first brought
If you keep
them to the office After five or six years a good Chief will have abmanaging a
sorbed all the hostility he can take and his decisions will be reflecting a
company the
desire to avoid pain rather than to do whats right.
chances are
Lesson for stockholders and directors: If the Chief Executive doesnt retire
that you will
gracefully after five or six years throw the rascal out.
drop the ball at
Perhaps his overall message comes through best with this: There is
some point.
nothing fundamentally wrong with our country except the leaders of all
our major organisations are operating on the wrong assumptions. Were
in this mess because for the last two hundred years we have been using the Catholic
Church and Caesars legions as our patterns for creating organisations. And until
the last forty or fifty years it made sense. The average churchgoer, soldier and factory worker was uneducated and dependent on orders from above. And authority
carried considerable weight because disobedience brought the death penalty or its
equivalent.
In an article published in Playboy in 1970, Townsend ventured into the minefield of attitudes to women at work and the glass ceiling. His style does not change
and his sympathy for working people shines through the hard hitting prose of The
Guerrilla Guide for Working Women.
He pulls no punches, as with:
Q Your job has grown to include occasional overnight travel. Your husband
and kids feel this cuts into their time.
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A Your husband is lying about how the kids feel. Ask them. Then ask yourself what makes your heart leap. Then divorce your husband or your job. Take into
consideration that good jobs are scarce and men are a dime a dozen.
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As Crainer says, Carnegies message remains relevant: people matter and, in the
world of business, how you manage and relate to people is the key to success.
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Ask yourself
Think of a key person you need to influence right now. Are you obeying all of
the Carnegie principles as you seek to persuade?
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A bias for action. Being proactive and looking for what needs to be done.
Close to the customer. The excellent companies really are close to their customers. Thats it. Other companies talk about it; excellent companies do it, they
say. They also have a suspicion of the too-smart managers. These are often
MBAs who write impressive plans, develop and get their brains round huge
spreadsheets (Idea 48) and have to hand 500-page market requirement documents. Sometimes such people are too clever for their own good. Our dumber
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friends are different. They just dont understand why every customer cannot
get personalised service, even in the potato chip business.
Autonomy and entrepreneurship. The excellent companies nurture such a culture throughout the workforce.
Productivity through people. Here it is again. Peters and Waterman quote a GM
worker laid off after 16 years making Pontiacs: I guess I was laid off because I
made poor quality cars. But in 16 years, not once was I ever asked for a suggestion as to how to do my job better. Not once.
Hands-on value driven. The authors believe that the role of the CEO is to
manage the values of the company. Executives in the excellent companies are
not people who hire assistants to get things done, but are right there with their
sleeves rolled up making things happen.
Stick to the knitting. The successful companies are totally focused on what they
have become good at and do not allow themselves ever to be distracted.
Simple form, lean staff. They write One of the key attributes of the excellent
companies is that they have realised the importance of keeping things simple
despite overwhelming genuine pressures to complicate things.
Simultaneous loosetight properties. This is probably the most difficult lesson to
implement or even really understand. It started a lot of hares with people
coming afterwards trying to put meat on these bones. Just how do you become
loose and tight at the same time? How are managers controlled and empowered? How do you overcome the paradox of being big yet small?
What then is their legacy? The fame and success of the book spawned lots more
academic and practical research and writing on the topics they discussed. The fact
that so many of their excellent companies fell from grace should not stop us using
their attributes at the time of their success as a template for excellence.
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Ask yourself
How does your organisation measure up in the eight characteristics they described?
Epilogue
One final word on the people thing. A manager attending the Wharton business
school was interested to note the decisions his fellow students took when faced with
the following dilemma. There was a conflict between two visiting gurus. One was
offering a lecture concerned with the valuation of companies by looking at their
cashflow, the other with a very people-related topic.
The students with little or no management experience tended to choose the
finance talk while those with more experience all went to the people-oriented class.
When asked which one he went to he replied, Oh the people thing, you can read the
other stuff in books.
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bonds themselves more risky. There is more risk, so the investors demand higher
return, which makes things a little worse if all goes well, or a lot worse if the companys plans underperform.
Junk bonds is the term used to describe such bonds. Technically they are not
rated as high quality by the US bond rating agencies. A high proportion of bonds
does not meet the stringent conditions demanded by these organisations.
So where there is a risk there is a market. Led by W.Braddock Hickman in the
1950s who showed that low-grade bonds would yield higher overall returns (even
allowing for failures), Michael Milken (known as the Junk Bond King) popularised
the idea and created the junk bond market.
Drexel Burnham Lambert, for whom Milken worked, promoted the idea of
diversifying risk in the form of mutual funds and unit trusts, and for a while these
proved successful in returning higher yield with reduced risk. The edifice went through
a well publicised crisis caused, on the one hand, by allegations of insider dealing
Milken got ten years and by a number of the companies so formed floundering. In
the end a series of defaults on junk bonds left a trail of business failures culminating
in the bankruptcy of Drexel itself.
Despite this infamous period, the high yield so-called junk bonds are still a
permanent and important part of the global economy.
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The total cost of the Scottish Parliament in a year is more than 10 million. As a
Scot long domiciled in England I am enthusiastic about devolution of power to my
native land. I am quite happy for there to be 22 ministers and a further 107 Members
of the Scottish Parliament. There is, however, still a Secretary of State for Scotland
and from where I sit the question is bound to arise what on earth are they all doing?
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to achieve immortality. As long, says Pat Robertson, as you are not a homosexual
or come from Scotland, which he describes as a dark land.
Religious business opportunities arise also from inter-religious feuds. They have
a habit of destroying each others religious sites when they are at war or trying to rid
their country of other religions. When and if the Serbs leave Kosovo, they are going
to try to get Nato to agree that they can leave some of their troops behind for the
task of guarding their religious sites.
This brings us logically to the next idea.
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The Allies might well have been better to leave the German machinery in place and
build their own from scratch. This might have slowed the German miracle down a
bit.
It is difficult to generalise about the beneficial impact of war on economies, so
let us take a quick look towards the scene of one of the most recent wars that in
Kosovo and Serbia. Some of the missiles and smart bombs used by Nato in prolonged bombing raids cost more than $1 million each and the stockpiles had to be
replenished. A Financial Times estimate of the cost of fighting the air war was $7
billion. The same article suggests that the cost of the peacekeeping force in Kosovo
will be more than the cost of the air war. Dont forget that, as wars go, this was quite
a small one.
The bombs knocked out most of the river bridges in the country and a huge
amount of other infrastructure. There were highly varied estimates at the time for
the repair of this damage starting at $15 billion and going as high as $90 billion.
Experience now suggests it will be nearer the former than the latter.
Whatever the bill is, many of the participating Nato countries supply the materials and expertise, and probably quite a lot of the labour to rebuild. The recent war
in Croatia holds many parallels with the situation in Kosovo. German, Italian and
French companies received contracts for building and other infrastructure work.
Britain sent a party of more than 30 companies accompanied by a trade minister to Croatia to get in on the act. Concrete was at a premium to rebuild the bridges
and a British company built a cement plant in Split. The power companies in the
UK and elsewhere took good advantage of the damage done to generating and distributing plant.
When Vegetius in the 4th century wrote Let him who desires peace, prepare
for war he could equally accurately have said Let him who wants economic growth,
prepare for war. Oh, and fight one from time to time.
At the time of writing the USA is building up a force of 250,000 personnel to
fight a war in Iraq. The build up is costing billions and that is before they start to
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consume the consumables such as missiles and smart bombs. Just look at the statistics of the only American aircraft carrier in the Gulf by the end of 2002 the 88,000tonne USS Constellation, (The UKs biggest, the Ark Royal, is a mere 20,000 tonnes).
The Connie carries 5000 people, 72 combat aircraft and 30 different types of airlaunched weapons. This includes the Slammer (stand-off land-attack missile expanded response), which can choose its targets as it goes along, after it has been
launched into the general direction of the enemy $500,000 a pop.
It is also not just a job for fighters fit to be heroes; to fight the war in Iraq will
require 1000 battle planners. So any type of person can get involved in a war, probably the greatest business idea of all time.
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I have picked three applications of the Internet. One illustrates the real benefits that
the Internet can offer companies in terms of building learning organisations Avoid the
epitaph They didnt follow through Idea 73; one that is becoming an important part of
retail life and getting towards profitability Never mind high tech, theres still money in
books Idea 74; and one that illustrates the point that new technology requires us to think
outside the square and look for ideas that are triggered from seemingly irrelevant events
An Internet company built on a sweetie dispenser what am I bid? Idea 75.
Finally, lest we believe that we are cleverer than our forebears I have added the
South Sea Bubble of the early 1700s to illustrate our current and continuing inability to learn from experience.
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training course is done they can then act as online mentors, assisting their delegates
to put into practice what they learned on the course.
The SofTools Integrated Performance Support System (iPSS) is a Web-based
system that enables business teams to apply best-practice methods consistently
such as business planning, risk management, or critical decision-making.
The iPSS is seen as a virtual business coach in that it will:
In the current economic climate, some would say that iPSSs are no longer optional
for survival they are a must-have. By licensing the iPSS to leading training and
consulting companies, the platform is used to address a variety of key issues currently facing modern businesses: how to make the sales force more effective at
planning campaigns, how to monitor and control operational projects, how to
increase profit awareness at all levels of staff, and so on without limit.
The iPSS consists of:
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More and more consultants and trainers are seeking to make their training courses
use new technology, but it is not until they could use such a platform as this that
they have been able to do it quickly and at sensible cost.
The global availability of the experience of all the people in an organisation to
each other will have many companies making money out of the Internet. Lets finish
this idea with a simple example.
A sales force was trained in a new process for writing proposals. They went into a
classroom for half a day and were introduced to the concepts of the new process. In
the next two weeks they were asked to write one of their real-life proposals to the new
standard. The expert who was teaching the process had access to their work and could
prompt those who had not completed the exercise, first by e-mail and then by telephone. The number who completed the work was far higher than normal.
By the end of a series of training events there were some 50 real-life proposals
on the companys intranet accessible through the iPSS. At around the same time, a
salesperson found himself writing a proposal at 2 oclock in the morning as it was
due in by 10 oclock that day (this is not an unusual scenario). He got to the point in
the proposal process when he needed to describe the competitive edge that he believed his product had over the competition and wondered if any of his colleagues
had produced a pithy and perhaps witty way of expressing this. By searching on the
keyword of the product he was selling he found a number of previously written
proposals on the iPSS and this gave him what he wanted. The sales director in this
example is able to look at what people are proposing to write in their executive
summaries in time, now, to be able to make suggestions for improvement.
Guess what? They are actually following through!
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Search for books by author, title, subject or keyword. For music, search by
artist, CD title or song title.
Browse for books in 28 subject areas or browse music styles.
Get recommendations.
Read reviews either media reviews or reviews entered by other Amazon customers.
See the bestseller charts.
Stay up to date by getting Amazon to send you reviews of exceptional books in
your area of interest.
Buy gifts painlessly.
You can even join the community by becoming an Amazon associate with the
opportunity to earn money by selling books on your own Web site.
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Bezos could not, of course, settle for being the leading online bookstore,
and Amazon.com has moved into many other areas. Amazon.com Auctions
gives its pre-registered customers the ability to buy and sell by auction items
in more than 800 categories. With its service customers can not only bid
easily for things but even have some insurance against the eventuality that the
seller fails to deliver what the buyer thought he was getting.
Then they started to think of other things that could be sold in this
way. No-one likes going to the drug-store says Peter Neupert, the Chief
Executive of drugstore.com. Amazon.com have invested in this online
source for thousands of brand-name health and beauty products. Pets.com
also attracted the companys attention with its popular and rare accessories, products and food for all sorts of animals.
Want to send a greeting to somebody who is on the Web? Use the
Amazon.com free greeting card service with a huge choice of illustrations,
pictures, animated cards and messages to choose from. If this seems a bit impersonal,
you also have the ability to tailor the stock messages to suit your own preferences.
There is no doubt that many other markets are ripe for the Amazon approach.
Huge markets in leisure, brokerage, cars, furniture, shoes and hardware are already
online or on the way.
Luckily for Amazon they proved strong enough to survive the bursting of the
Internet bubble and in the early part of this century are moving firmly towards
profitability, with turnover in the third quarter of 2002 at $851 million and the
quarterly loss down to $34 million.
It is plainly not
relevant to
value the
company on its
profits since it
has none, but
currently
shareholders
value it at
something like
15 times its
projected
annual sales.
Ask yourself
Have you thought through how your products and services could be sold
online?
Check out the Amazon.com Web site to see the potential.
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So, how does it work? Suppose you want to buy an antique Victorian pump
organ, with bevelled mirrors, candelabra holders and Victorian stool. First of all you
must be a registered user a free process. This allows you to browse through all the
antique Victorian pump organs with those attributes on sale (only kidding, the day
I looked there was only one). You get to it through the category Antiques: Musical
instruments.
Clicking on that item will give you the starting price or reserve and tell you
whether or not it has been met. You are also told when the auction started and when
it will end, the number of bids to date and where the article is. You can get a lot
more information on the item and sometimes pictures, all of which have been entered by the seller.
Noting the bid increment, normally $10, you enter your bid. You are advised to
enter the maximum you would pay for the item. This maximum amount is kept
secret and eBay will bid on your behalf by increasing your bid by the increment
number as necessary until your maximum is reached. You can, of course, review
your bid along the way if your desire for the said organ reaches a higher pitch.
In common with the other Internet successes noted before, eBay spends a lot
on advertising and promotion. There seems no way of short-cutting this expenditure. Indeed, it will be interesting to see if eBay can keep up its leadership as bigger
companies get on to the bandwagon with much bigger resources, both financial and
marketing.
So much for the past; analysts have predicted a bright future for eBay, forecasting $1.186 billion for 2002 and $1.83 billion for 2003. This is one company in the
bubble that seems to be staying the pace.
One of the greatest business ideas proposed in this book, courtesy of Dale
Carnegie, is the importance of listening. This includes listening to your partner
when they want to expand the number of sweetie containers in their collection.
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on the companys expectation that the end of the war of Spanish Succession would
signal a treaty to permit such trade.
The companys stock, with a guaranteed high interest rate of 6%, sold well, but
the relevant treaty was less favourable than had been hoped. It imposed a tax on
imported slaves and allowed only one ship each year for general trade.
The first voyage was moderately successful, but the real fillip to the share price
of the company came from the confidence created by King George I agreeing to
become the governor of the company. The lack of profits now, however, made loan
capital to the company very expensive, reaching 100% per annum at one point.
In 1720 there was an incredible boom in South Sea stock as the result of the
companys proposal to take over the national debt. The company expected to thrive
in terms of growing trade, but the real profits were made in the value of the stock.
The shares rose in January of that year from 128 to over 1000.
Overoptimistic company promoters inveigled a lot of people into a series of
unwise investments. The market collapsed in December 1720 and many people
were ruined. The share price returned to 120 and dragged many others with it. It
also damaged the value of government stocks. The subsequent enquiry by the House
of Commons uncovered a lot of fraud and corruption. At least three ministers had
accepted bribes and speculated for themselves.
Obviously this criminal activity was an unusual feature in the collapse, but the
situation reflects a truth about the underlying value of a company. The current
share price of a business does reflect its future earnings stream, but if the gap between todays business performance and that expected in the future becomes too
large, bubbles have a nasty habit of bursting.
Behind every great fortune there is a crime.
Honor de Balzac (17991850)
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Idea 83 Fermentation
O thou invisible spirit of wine! If thou hast no name to be known by, let us call
thee devil.
William Shakespeare (15641616)
What must the first person to discover the effect of fermented vegetation on his or
her mind and feelings thought? How easy it must have been even at the earliest stage
to trade such euphoria.
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The origins of the business idea of fermenting vegetables and selling the results
as alcoholic beverages, early on evil-tasting and later with a palate fit for experts,
goes back to prehistory. The likelihood is that fermentation was discovered accidentally in pre-agricultural times. Early man clearly liked the effect if not the
Few products
taste, and quickly moved to purposeful production. From merely gatherhave been sold ing the raw materials which grew wild, he planted vines and other suitable
in such a
crops.
flexible way to
Few products have been sold in such a flexible way to fit in with the
fit in with the
rituals that accompany the drinking of alcohol. The traditions and regularituals that
tions that surround the product have, on one hand, proved inhibiting to
accompany
the sale and consumption of the product. On the other hand, from the
the drinking of
earliest pre-literate times, alcohol was stitched into social ceremonies,
alcohol.
particularly rites of passage, marriage and so on. A guaranteed market,
with or without its potentially addictive nature.
There are records of the regulation of drinking houses in 1770 BC, and not
much later beer and wine were popular prescriptions of Egyptian doctors.
The growth of alcohol consumption continued into classical times with an ebb
and flow of what was regarded as an acceptable quantity to imbibe. From the GrecoRoman habits surrounding huge drinking binges in honour of the God Bacchus to
the Judaic intertwining of religious ceremonial, which to the present day links drunkenness to irreverence and inappropriate behaviour.
The conditions of early societies foreshadowed those of complex societies including our highly industrialised one. Its role in a modern-day diet is largely irrelevant, with only the calorific value adding anything to the easy availability of other
foods. As medicament it has a limited surviving place in tranquillising and pain
killing. In religion alcohol has a symbolic role where it is not completely eliminated.
What remains is the satisfaction of personal and group needs, a breeding ground
for advertising brilliance and long term marketing strategies of the highest order.
Alcohol consumption has gone steadily up since the 1950s and the market capitalisation of the UK drinks industry exceeds 65 billion, with combined sales of
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around 30 billion according to a spokesperson for the Wines and Spirits Association of Great Britain and Northern Ireland. These are very approximate figures.
If, however, you can still take a joke, you may be interested in a club formed by three
Brits in a bar in Chicago called BOWFACE. This stands for Bars Of the World
Found At Company Expense. Members must have had a drink in at least three bars
in at least seven countries in the preceding 12 months. Get in touch with the author
if you think you qualify.
We have come a long way since the first primitive discovered the properties of
mouldy vegetables, and millions of people have made a lot of money in the process.
Funnily enough higher margins are made when governments are trying to regulate
the product out of existence than in normal trading circumstances. See Prohibition
Idea 21.
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Idea 84 Explosives
A multi-purpose product, explosives have a wide range of possibilities for making
money. You can sell them as ammunition, the consumable of war Idea 72, as a
method of blasting in mines and quarries, to build tunnels, or if all else fails to crack
a safe.
One of the major quarrying companies in Australia, for example, has just placed
a five-year contract for the supply of dynamite at a total price of $1 billion Australian.
An explosive is any substance or device that can be made to produce a volume
of rapidly expanding gas in an extremely brief period. There are three fundamental
types: mechanical, nuclear and chemical.
A mechanical explosion is the sort that occurs when a container is overloaded
with compressed gas of some sort. This occurs more by accident than by application
in the businesses mentioned above.
A nuclear explosion is one in which a huge amount of energy is released by
sustaining nuclear reaction with almost instant rapidity.
Chemical reactions come in two types. Warriors use very large amounts of detonating or high explosive such as TNT or dynamite. The originating explosive, however, is the other type of chemical reaction deflagrating or low explosives.
There is a strong case for the first use of black powder, a low explosive, being
initiated by the Chinese although there are counter-claims favouring the Arabs.
Originally used in China for fireworks and signals in the tenth century, it is likely
that they moved quickly onto using it to make bombs. Certainly by 1300 the Arabs
had invented the first real gun, a bamboo tube reinforced by iron to fire an arrow.
Use of explosives in engineering was, to begin with, a very dangerous business.
Small quantities of black powder were lit in various containers, such as the goose
quill. These were unreliable and burnt erratically. William Bickford, who lived in
the tin-mining district of Cornwall, is credited with the invention of the safety fuse.
The present day version is not much different from the original, which was a core of
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black powder covered in textiles such as jute yarn. The cord is covered with waterproof material such as asphalt and finished off with a layer of textile, or nowadays
plastic.
Black powder is now illegal for use in mines in most countries and its use is
declining rapidly. However, it still has no substitute for certain military purposes,
and nothing equal to it has been found for making a safety fuse.
Ascanio Sobrero made the next big step forward when he discovered nitroglycerine or blasting oil. This compound was so unstable and its detonation so unreliable that it remained more or less in the laboratory until the work of Immanuel
Nobel and his son Alfred. They built plant for the manufacture of nitro-glycerine in
Sweden and the USA. However, most experts believe that Nobels invention of the
blasting cap, a device for detonating explosives, was the next major step forward
from black powder. Certainly the cap which Nobel created was still in use more
than 50 years later.
There still remained the problem of the instability of nitro-glycerine until Nobels
second most important discovery. He found that by mixing pure nitro-glycerine
with other substances, eventually known as dopes, he could render the nitro-glycerine stable and much easier to work with. Indeed he could vary the ratio of nitroglycerine to dopes to produce an explosive that was not only more efficient but
produced different strengths of explosion.
The military requirement for explosives has some differences to civil uses. They
need to be insensitive to shock and friction and unlikely to be easily detonated with,
for example, small-arms fire. They often have to withstand long periods of adverse
storage without deteriorating, and must be fired in projectiles or dropped in aerial
time bombs without premature explosion. Many types have hideously complicated,
not to say devious, fuses for detonation.
These requirements are met in the main by trinitrotoluene or TNT. Indeed
non-nuclear warheads still contain it as part of their chemical content, although
there are some other specialist explosives in use.
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There is an apocryphal story that emanated from the aerospace industry in the
1970s. It originated in the UK so it could well be put down to stereotyping and
prejudice, but it went like this.
Guided missiles have two main elements, the guidance system and the explosive. The difference between an American missile and a British one is the degree of
expenditure and sophistication between these two elements. If a missile cost $1
million, the Americans would spend $750,000 on the explosive and the remainder
on the guidance system. The British on the other hand would spend only $250,000
on the explosive leaving $750,000 for the guidance system.
The effect of this was that the British missile would seek, for example, an enemy plane with pinpoint accuracy and get very close to the engine of the plane. In
this case a relatively small pop would be enough to down the aircraft. The American type would get into roughly the same area as the aircraft and then a huge explosion would account for anything in the region.
This only leaves the use of explosives in safe cracking. I can never forget the
black humour of the film Butch Cassidy and the Sundance Kid. They too, on one
occasion, overdid the use of explosives when they meant to blow open a safe that
was being transported in a train, but actually blew the whole train into fragments
causing a rainfall of the dollar bills in the safe.
Idea 85 Radio
The number of products and services that owe their existence to radio must make
the discovery of radio waves and the development of devices that operate with radio
one of the greatest enablers of business.
Transmission and detection of communications signals, radio, consists of electromagnetic waves that travel through the air in a straight line or by deflection from
the ionosphere or from a communications satellite.
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The two significant characteristics of electromagnetic-wave motion are the physical length of the wave and the number of times the wave cycle is repeated in a given
period of time.
Radio first became a possibility when the English physicist Michael Faraday
demonstrated that an electrical current could produce a magnetic field. In 1864
James Clerk Maxwell, a professor of experimental physics at Cambridge, proved
mathematically that these electrical disturbances could be detected at considerable
distances. Maxwell predicted that this electromagnetic energy could move outward
in waves, travelling at the speed of light. In 1888 Heinrich Hertz demonstrated that
Maxwells prediction was true for transmissions over short distances.
At this point the Italian physicist Marconi perfected a radio system that in 1901
transmitted Morse code over the Atlantic Ocean. Next came the development of the
vacuum tube, which amplified or strengthened the radio signal that was received at
an antenna; thus, much weaker signals could be transmitted and received than had
previously been possible.
It was next discovered that the electric current in a vacuum tube could be made
to oscillate. An electric-tube oscillator was thus able to generate very pure radio
waves. Reception was improved with the refining of the tuning circuit. These and
other components needed to produce radio receivers of acceptable quality underwent rapid improvement in the period before World War II.
Individual broadcasting stations were assigned a portion of an arbitrary frequency scale, so that the signal of one station would not interfere with each other.
Other frequency ranges have been reserved for the many additional uses of radio
signals, which include navigational aids for ships and aircraft, two way voice transmission, and space and satellite communications.
Innovations after the war, especially the replacement of tubes by transistors and
of wires by printed circuits, drastically reduced the amount of power the receiver
needed to operate and allowed its components to be miniaturised. Other advances
included improvements in the sound fidelity of transmitting and receiving equipment and the perfection of FM stereo broadcasting.
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But the real and outstanding benefit of all time that radio brought were the
dialogues between the two chorus boys in the radio programme Round the Horne.
They did odd jobs for Kenneth Horne when they were between engagements, and
their opening went Hallo, Im Julian and this is my friend Sandy. Thank you Mr
Faraday.
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Ask yourself
1 Check your advertising against the criteria posed by Roderick White:
Does the ad make me stop and read it?
Is there an original unusual idea in it?
Does it work as a piece of design?
Is it easy to understand?
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New York City in the 1970s. She suggested to her client Alka-Seltzer that the photographs in advertisements should show a hand dropping two tablets into a glass
instead of one. They doubled their sales.
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There were various updates to the formula over the 15 years of the campaign.
The wifes appearance changed for example and the wit became more trenchant. In
one ad the men were eating cock-a-leekie soup and mourning the death of Moira,
the chicken they decided had gone into the pot to make the soup. The chicken then
turned up Voice Over: Knorr Stock cubes good soup and no bones about it.
Sales of Knorr cubes grew steadily over the years to become the brand leader in
Scotland. Almost as important was the fact that the growth was indeed based on
changes in soup making behaviour, which it was believed would not have occurred
without the campaign. Because the Knorr cubes sold at a premium to Oxo, the
share by value was two-thirds to Knorr. They became a 4 million brand compared
with Oxos 2 million.
So, a global brand can be encouraged in suitable local circumstances.
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customers of the need for the service showed a girl in a phone box outside a station
on a dark wet night trying to call her parents.
A campaign was launched, aimed at the parents of teenage children. If you can do it
The creative executions simply depicted people in miserable situations for call waiting,
trying to get through on the phone, a boy who had lost his bus pass failing you can probto attract the attention of his parents because his teenage sister was catchably tug the
ing up on the gossip, and so on. The advertising was in the press and on heartstrings for
the radio. It was timed to precede a mailshot. From a London testing it
just about
was seen to work well and was rolled out. BT recovered the direct costs of
anything.
the campaign from revenues within 18 months.
If you can do it for call waiting, you can probably tug the heartstrings for just
about anything.
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delivery sitting round the corner from the manufacturer in the suppliers delivery
lorries until the just in time order came.
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paperbacks need not look like cheap editions after all. This breakthrough was credited
to Joe Pacey of Panther Books in the 1950s. It broke Penguins stranglehold on the
word paperback and signalled the final curtain for the popular hardback.
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Similarly pubs, originally designed to make money out of drinks, now make the
real profits from food. Packaged holiday companies have wafer-thin margins on the
holiday itself but do well out of selling holiday insurance. And so it goes on.
The principle is simple. Use the core business to cover your costs and make the
cream on the top with other products, which can be cross-sold.
Ask yourself
Does such an idea have relevance in your business?
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Write the idea, or as many ideas as you wish in this blank space, tear it out and send
it to the author or the publishers (addresses at the front). Theres a bottle of
champagne for the best ideas, and if we get enough responses we will be able to
publish a sequel The Next Hundred. Now thats a great idea.
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Contributors of Ideas
I am grateful to all the people who contributed ideas, from the obvious to the brilliant,
from the merely creative to the truly bizarre:
Philip Allin
Penny Ariff
Philip Blackwell
Alan Bonham
Andrew Campbell
Stephan Chambers
Andy Davies
Oliver Freeman
Diana Hall
Gwyn Headley
Glenis Humphreys
Richard Humphreys
Chris Kerr
Art Kleiner
Alex Lajoux
Kate Langdon
Dean LeBaron
Graham Mackenzie-Washington (winner of the bottle of champagne).
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Publications Consulted
Advertising What It Is and What It Does, Roderick White, McGraw Hill, 1993
Amazon.com
Amway Web page
Ann Summers publicity and Web page
Avon Web page
Camelot Web page and annual accounts
Dell Web page and literature
Encyclopaedia Britannica
Eurotunnel Web page
Farepak Plc
First Direct publicity material
Forbes, global, March 22 1999
Forbes, global, May 17 1999
Honda Web page
IT Management Handbook, Edited by Rob Dixon and Ray Franks, Butterworth
Heinemann, 1992
Kleeneze Web page
Liars Poker, Michael Lewis, Hodder and Stoughton, 1989
Mousesite Web page
Post-it Web page
Premier Technologies Web page
Prudential Assurance Company Web page
Royal Mint publicity material
Sears Web page
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Appendices
Appendix 1 Answers to Idea 38
1
2
3
20iapps.p65
MDCCLXXXXV
CLXXXXVII
MMMCCCLXVI
167
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Date
September 1995
October 1995
November 1995
December 1995
January 1996
February 1996
March 1996
April 1996
May 1996
June 1996
July 1996
August 1996
September 1996
October 1996
November 1996
December 1996
January 1997
February 1997
March 1997
April 1997
May 1997
June 1997
July 1997
August 1997
September 1997
October 1997
November 1997
December 1997
January 1998
February 1998
March 1998
April 1998
May 1998
June 1998
July 1998
August 1998
July 2001
August 2001
September 2001
October 2001
Total
20iapps.p65
Number of
shares
bought Balance held
284
2
246
2
0
0
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
284
286
286
532
534
534
534
538
538
538
538
538
538
538
538
Feb May
Aug Nov
Year ends
Month cost
Dividends
Net selling
value
Monthly c/f
0.00
0.00
0.00
0.00
0.00
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0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8.53 4,589.81
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
-1,346.16
0.00
11.36
0.00
0.00
0.00
12.07
0.00
0.00
12.07
0.00
0.00
14.20
0.00
0.00
14.20
0.00
0.00
0.00
0.00
0.00
14.91
0.00
0.00
0.77
0.00
-2,039.98
3.19
0.00
0.00
2.42
0.00
4,589.81
0.00
0.00
0.00
0.00
0.00
1346.16
11.36
12.07
12.07
14.20
14.20
14.91
0.77
2039.98
3.19
2.42
8.75
DCF
Annualised
1.87%
24.86%
24.86%
168
21/05/03, 15:26
Index
advertising 3, 1515
Albee, Mrs P.F.E. 56
alcohol 267, 1435
Alers, John 158
Alka-Seltzer 1523
Amazon.com 1346
Amway 1617
Ann Summers 1213
AOL Time Warner 131
Apple Macintosh 86, 87
Association of Unit Trusts 35
Avon Products Inc. 567
Balzac, Honor de 140
banks 912
Barrie, J.M. 117
Batchelor, Charles 8
Bevan, Aneurin 28
Bezos, Jeffrey 1356
BIC 100
Bickford, William 146
Biro, Lazlo 99100
BMW 20
Body Shop 21
books 1346, 1589
BOWFACE club 145
brands 93
breadth 94
cameras 97
21iindx.p65
169
depth 94
drink 96
entertainment 945
fast-food 956
length 93
razors 98
weight 93
British Museum 24
British Telecom (BT) 1545
Brosnan, Cornelius J. 101
Brown, Louisa Alcott 60
building societies 141
bumper sticker strategies 1920, 212
Cadbury Schweppes 25
call centres 9091
Camelot 245, 29
Capone, Al 27
Carnegie, Dale 11718, 138
Case, Steve 131
catalogue selling 56
Chaloner, William 31
Churchill, Winston 28
closing techniques
ABC (Always Be Closing) 50
cup of coffee 49
puppy dog 489
tell them what you are going to ask for 50
52
04/06/03, 10:55
170
21iindx.p65
170
eBay 1378
Edison, Thomas 79
Engelbart, Douglas 856
ethics 21
European Union (EU) 124
Eurotunnel 289
Eversharp 100
explosives 1468
Faraday, Michael 149
Favier, Albert 28
Federal Express (FedEx) 21
Fielding, Henry 87
finance
accountants 141
Arabic numerals 59
building societies 141
cost-benefit analysis 678
discounted cashflow
mechanics of 6971
need for 689
uses for 713
double-entry book-keeping 634
investment trusts 142
performance ratios
added value 66
economic value added (EVA) 656
market value added (MVA) 66
profit margin 645
return on assets 65
return on capital employed 64
return on shareholders funds 65
total shareholder return 66
personal pensions 141
raising cash with limited liability 612
04/06/03, 10:55
Index
savings 142
total money supply greater than total amount
of money 6061
unit trusts 142
see also investment; stock market; wealth
creation
First Direct 912
Freeman, Oliver 103
Fry, Art 102
Fujitsu 25
Fuller Brush Company 55
furniture 21
games/toys 1314
Gamond, Thom de 28
Gates, Bill 87
Gem Manufacturing Ltd 101
General Motors (GM) 11113
Gillette 98
Gold, Jacqueline 12
gurus 10521
Hamel, Gary 117
Haney, Chris and John 13
Harben, Henry 53
Hertz, Heinrich 149
Herzog, Herta 152
Hickman, W. Braddock 126
highlighter pen 104
home shopping parties 1213
Honda 67, 21
Horne, Kenneth 150
How to Win Friends and Influence People
(Carnegie) 11719
Howe, John Ireland 100
21iindx.p65
171
171
HSBC 10
Human Side of the Enterprise, The (McGregor)
1068, 109
IBM 158
Ikea 21
In Search of Excellence (Peters & Waterman)
11921
insurance 534
Intel Pentium 6
Internet 5, 86, 103, 104, 1312
auction sites 1378
equal opportunities on 139
product/service availability 1346
support systems 1324
invention factory 89
inventions
office 99104
scientific 14350
investment 289
club 369
risk-reduction 345
see also finance; stock market; wealth creation
Jackson, Glenda 12
John of Salisbury 76
Johnson & Johnson 21
Joint Stock Companies Act (1855) 61
Just-in-Time 157
Kelloggs All-Bran 152
Kennedy, Joseph P. 160
Kipling, Rudyard 45
Kleeneze 556
04/06/03, 10:55
172
21iindx.p65
172
04/06/03, 10:55
Index
21iindx.p65
173
173
3M 20
Tanner, Martin 1345
telephones
call centres 9091
Call Waiting 1545
customer service 912
mobiles 912, 15960
Thales Electronics 25
Theory X and Y 1068, 109
Thomson, Lord 23
time-to-market 79
top management 11417
Townsend, Robert 11417
Toyota 1578
transport 20, 22
Trivial Pursuit 1314
Turing, Alan 767
unit trust 142
managing 345
private 369
worst performing 434
Up the Organisation (Townsend) 11417
US Securities and Exchanges Commission 160
Vaaler, Johan 100101
Van Andel, Jay 16
Vegetius 129
Viagra 159
Virgin 21
Virginia Company 24
Visicalc 83
Vodaphone 1415
Volstead Act (1919) 26
Volvo 22
04/06/03, 10:55
174
Walker, Jay 9
war 12830
Waterman, L.E. 99
Waterman, Robert 11921
wealth creation 123
agriculture 124
devolve power 1267
religion 1278
takeovers/junk bonds 1256
war 12830
21iindx.p65
174
04/06/03, 10:55