Steve Jobs

Lots of articles in the past several months address the question of what is the relationship between failure and innovation... should you expect to fail if you want to innovate. How frequently should you fail? How quickly do we declare failure and move on to the next hypothesis? Some venture capitalists extoll the concept of "efficient failure", the art of recognizing a failure early and moving on. How does this attribute mesh with traditional notions of persistence or "stick to itiveness?

And, what kinds of environments foster innovation? Environments with open, loose standards in which people tolerate mistakes and don't demand much? Or environments in which leaders impose rigorous standards and show little tolerance for mistakes? Like most questions worth thinking about, this one has no easy answer... What do you think Steve Jobs would say?

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Encouraging Mistakes

How can we innovate without making (costly) mistakes? Basically, we can't. So, should we tolerate mistakes, or encourage them? Merely tolerating mistakes is not sufficient to encourage innovation and intellectual chance taking. The challenge for both individuals and businesses is to foster environments in which experimentation is encouraged and there are no (or few) inhibitions to trying out new untested ideas. If taken to its logical extreme, though, this philosophy might result in continuously failing businesses. One happy mistake after another.

So, somehow, we must communicate that there are no penalties for offering new solutions and there are rewards for offering up creative solutions while at the same time building our culture, which values intellectual honesty, integrity and rigor. This culture will enable us to test our hypotheses against our starting assumptions and objectives, and then efficiently discard those hypothesis (the majority) that don't  pass the test. We call this Efficient Failure.

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Moving from brand analysis to entrepreneurship

My interests are evolving.... I love teaching. Just accepted a very exciting assignment at Fashion Institute of Technology: to lead the effort to develop an undergraduate major in Entrepreneurship studies. I couldn't be more thrilled and frankly, somewhat intimidated, by this opportunity. At FIT, we have a very special mix of students, combining creative and business aspirations.  First job is to define what is meant by entrepreneurship.... to help our students understand what is the mindset of the entrepreneur. I'm thinking of this as my own entrepreneurial undertaking and hoping I can make it a success.

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The View from Savigny Partners

Savigny Partners, is one of my favorite and most reliable sources of information about the luxury sector. Written from financial perspective, their review is concise and informative. 

Sector Review

Issue 12, August 2010

S A V I G N Y P A R T N E R S L L P

SLI performance January 2010 to date – not quite out of the woods yet

A mood of cautious optimism in Q1…

The Savigny Luxury Index posted a solid overall gain of 22.4% since the beginning of the year, outperforming

the MSCI World index by 19 percentage points. The overall sentiment was that the sector is on the rebound,

with Bain forecasting a four percent rise in sales for the sector for 2010. Q1 results posted by our

universe of companies showed both strong sales and profit growth. Nevertheless the overriding message

was one of cautious optimism with some of the sales growth in Q1 being attributed to retailers restocking

depleted inventories. Some concerns were raised as to whether LVMH powerful Q1 growth, which sent its

share to a 10-year high, would be sustainable for the whole year.

… consolidated into very strong prospects for the sector

Signs of improved prospects for the sector continued to come out of company and sector announcements.

Swiss watch exports posted a healthy increase in June, and Hermès lifted its full year sales growth target

on the back of surprisingly strong Q2 figures released on 20 July (27% growth for the quarter or 20% at

constant exchange rates). The overall view is that more good news is to come, underpinned by strong demand

in emerging markets, especially China, and by the recovery of demand in the USA, which should continue

to prop up wholesale channels. LVMH recently released half year results confirmed the trend, beating

estimates with a 16% growth for the first semester.

Has the Aegean brew poisoned the equity well?

The Greek sovereign debt crisis which unfolded at the end of April sent global markets into turmoil. The

SLI was not immune and went into a tumble, losing eight percent of its value from end-April to mid-May.

The respite of the rescue package announced at the beginning of May was short-lived, with the fear of Aegean

contagion to other markets such as Spain and Portugal resulting in another dip in early June. Whilst

July saw both a strong recovery in the MSCI World index (+4.8%) and the SLI (+9.6%), there are lots of

frayed nerves as a result of this macro-economic uncertainty. The luxury sector is setting sail again but

the Aegean tidal wave continues to rock the fragile boat of recovery – the sails have been hoisted but will

the boat capsize?

Issue 12, August 2010

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Instead of Advising, Let's Create a Brand

It's been a very long time since I last posted to this blog; maybe I haven't gotten my thougts together, maybe I'm too deeply enmeshed in my current project. I'm not sure that I've had much original to say. So, what I thought might be interesting is instead of advising others about their brand related issues, let me see if I can create an authentic (if small) brand.

For the past fifteen months, I've been studying and playing with the work of pop artist, James Rizzi. I am lucky to have gotten to know James a bit, to talk and travel with him, to watch him work and to watch people react to his work. It's been inspirational. So much so, that I've convinced myself that at least part of his artistic legacy should be his connection with children. You can see some of my initial ideas at www.hwelt.com

Over the next weeks and months, I plan to use these posts to discuss the challenges I'm thinking about as we try to cobble together a coherent group of commercial products which authentically reflect James Rizzi's art and add something to peoples lives.

Please come along for the ride.

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The Benefit of the Crisis: A German View

From our colleagues at Schmid Preissler Strategy Consultants:

Due to current events, we are publishing this very special BriefLetter written by Dr. Thomas Schürrle. Dr. Schürrle is an attorney consulting globally operating businesses. It is due to this occupational activity that his point of view of the current situation is of particular value and interest.  Dr. Thomas Schürrle The Benefit of the Crisis A few years ago, the former president of the Federal Constitutional Court and Federal President Roman Herzog suggested suspending a percentage of all rules and regulations across-the-board with the reasonable expectation that the absence of numerous regulations would remain undetected. The criticism that this process has not been implemented quickly and noticeably enough has not yet faded away and the call for extended regulations and increasing legislative efforts already becomes loud again - to bring the financial market under control and to prevent systemic catastrophes within the global economic and fiscal system - which are currently dampening the future prospects.  Only at first glance there hides a paradox within the inconsistencies of both approaches. This is not a question of quality and quantity of regulation, but rather of market regulation as a whole. Apparently, the freedom of competition and management is, from experience, a better guarantee of the supply with economic goods and services than the administered planning via a centralized government. That both exponents view each other as opposites of the integrated whole without ever representing competing alternatives we know since the heuristic discussions about the viability of the particular economic system. The position of the pendulum of regulatory measures between both exponents generally reflects ex-post-facto reaction according to the requirements of the control of markets. Within a regular framework, public administration can and should impact the markets through control to a very limited degree.  However, it would have to do so to a much more considerable degree in order to keep the markets from reaching their target functions. If you examine the existing regulation of the financial markets under aforesaid premise, you will discover that the market for the supply with debt – with some regional distinctions – has been strictly regulated for the past few decades. Where as the market for the supply with equity is regulated only rudimentarily, either through private equity or hedge funds. Regulation of share derivatives and their trade, especially of those utilizing the leverage effect, is virtually non-existent.  Considering this background, it is fair to conclude that the markets and their instruments tend to develop into the area where they are subjected to the least limitations. Thus, the private equity / hedge fund business has grown considerably in the past two decades. The business with financial derivatives has exploded. Since the new development of products in unregulated segments was only profit-oriented and not controlled and it also was not subject to any self-regulating market conditions, fundamental principles were disregarded. One of these principles is that money cannot proliferate on its own. Appreciation of value which has a profit increasing affect on financial transactions based on derivatives must be generated by the underlying market economy. Furthermore, the extension of the derivative-chain does not simply increase the profit expectations but also the loss expectations and it simply defines the gradient of success or failure.  The increased dependence of the successful finance business on financial derivates does not square at all with the fact that banks, insurances and suppliers of proprietary capital have to primarily ensure the supply of external or proprietary capital. Trading with financial derivatives remains a secondary business, even if it speculates on the basis of short positions, unless strictly for hedging purposes only. If the financial leverage contingent on derivative trade typically leads to short term profits, it is at the same time inevitable that a market expanding in this direction will make out a draft on the future. Such drafts have been drawn in the past years and now it is time for payment: Since the market for financial derivatives inflated explosively, the bill is proportionately large.  This asks for more than drastic corrections. Trailing the runaway derivative market development with corrected touch-ups is doing too little. In view of the potency of this crisis and the magnitude of the dissipated finances, the main function of the money market to supply money has been jeopardized. In such a crisis, bans simply curtailing derivative trade or controlling managerial salaries do not work. In fact, approaches must be methodical and need to be all-encompassing. This is exactly what the crisis provides space for: Legislature can and should, during a free-enterprise regulation, conceptually make the markets more expensive where limits need to be imposed, especially in secondary and tertiary derivative markets, which do not primarily serve the goal of supplying the population with economic assets, services and capital. In return, legislature will prevent economic main and primary functions – namely the supply of the population with economic assets, services and capital within the intergovernmental or domestic segment – from being curtailed. Internal and external barriers to trade need to be avoided at all costs. They were the main amplification factor in 1929. Any form of accelerators, which neither serve supply nor its basic principles, need to be strictly avoided. This includes not only derivatives from the financial sector but also other disruptive factors that could unduly amplify cyclical value fluctuations of products, services and businesses through leverage. Even a short term duty to supply information and reporting requirement should be taken out of the market to allow for long-term planning, where since such reporting requirements are verifiably not useful or used correctly. Long-term orientation has to be the basis for the entire market regulations to effect adequate self-regulation. The awareness of what needs to be done is now forming in the crisis. Only the enormous pressure of a global economic crisis generates the necessity for clarity, thoroughness and strategy that is inherent to every great reform and creates the ability to get things done without endless debate. The industry has shown us the correct and successful path from a crisis jeopardizing ones existence in many cases, e.g. in the case of Siemens. Within a timeframe of just two years, the company was able to utilize a severe crisis in connection with dubious business practices and exchanged the entire top management and restructured nearly all internal control systems. Those familiar with Siemens before know that this equals the gutting of a building, and such a drastic restructuring would not have been possible without such a threat to the existence from the outside.  It is primarily the crisis that allows us to throw overboard pointless restrictions and enables the creation and installation of new and reasonable self-regulating market structures with a long term perspective. What proved to be imperative for the largest German industrial enterprise should also apply to the “site management” by political and administrative bodies, both on a Federal and a State level.

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From: Schmid-Preissler Strategy Consultants

Crisis, Recession or What?

Readers of BriefLetter or recipients of our Synesis have known our assessment for a long time already. What we mean is that what we are experiencing today is neither a crisis nor a recession. We characterize this situation as a break. A break with the past. We wrote about it in the essay “The last 50 years have passed”. 

It is not about pondering how to cope with the crisis, about how to get out of a recession. It is now time to define in every business, in society and politics, the future primary values and along with them to necessarily develop new strategies for the future. 

It is essential to take stock in all areas, to filter out the substantially valuable and to put it together to a new performance indicator. Less has to be more in the future. The “every year increasing turnover” can no longer be in the center of strategic thoughts. The goal has to be to achieve a substantial profit. Only with such a profit can new goals be reached. 

It is imperative to procure certainty in regard to availableness of knowledge and expertise of employees, because with too few or even no employees with enough knowledge and lots of experience a future cannot be shaped. 

It is essential to rigorously verify products and services in regard to their superiority as compared to the offer of the competition. In the best sense, distance has to be created and expanded. 

It is it is necessary to be prepared for consumers keeping a close watch on the price/performance ratio during purchases for products meeting needs. For purchases taking place in the big field of satisfaction of wants, more attention is going to be paid that the intrinsic value of immaterial values emanating from Premium and Luxury brands is going to be expressed and as such dreams and wishes of the buyer are going to be fulfilled. The latter is very important, especially in times where money is spent cautiously and prudently. Surely, it is going to be easier for people to extricate themselves from bad times, if they can strike a balance between reality and beautiful experiences. Wise and sensitive marketing are in demand here. 

We suggest to look less to the left or right, but to be self-concentrated and to concentrate on the relationship to the customer. The livelihood of a business and its success actually depend on ones performance ability and on ones attitude towards the customer.

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