THIS is my 52nd and last article for
StarBizWeek. It started
more than a year ago out of a challenge from my golf buddy to
communicate with local entrepreneurs in a simple and straightforward
manner.
Since I am a simple and straightforward person, I believe
I have carried out my duties to the letter even though most of the
time, my articles did not make much business sense. But I did try to
inject a business idea or concept in each weekly article which I hope
did not put you in a further state of confusion.
I have not been
friendly to entrepreneur wannabes who wanted to start a business without
a solid business model nor having sufficient funding in place. I hate
to see precious capital and talent being wasted just to please the ego
of being your own boss. Starting a new business is exhilarating and
exciting but closing down is painful to your pocket and your soul. Some
people healed slowly and some did not recover at all.
If you
really do want to be on your own, may I suggest you prepare well, seek
experienced advice and stay humble. Lower your expectations and work out
survival plans on worst case scenarios. If you are worse off
income-wise, are you still keen to continue? Get real but stay true to
your dreams.
I have great admiration for the
AirAsia
business model, not so much for its originality but more for its
single-minded execution on its core strategy of low-cost high-volume.
The whole organisation is fixated on lowering cost across all expense so
that lower priced tickets can be offered continuously to secure
constant high volume on an Internet platform that works tirelessly 24/7.
This business model is easy to scale across the region which adds purchasing power when negotiating with
Airbus. All airlines pay the same fuel cost but
AirAsia,
with newer and lower cost planes, are much more fuel-efficient and if
you add its competitive edge of having the lowest operating cost per
seat, it now has a sustainable business model. While
Ryanair dominates Europe,
AirAsia will dominate the Asian airspace.
While
the low-cost model has been proven successful over short quick
turnaround flights of less than five hours, I was sceptical from the
beginning of the viability of the long haul low-cost operator
AirAsia X.
True enough, the numbers did not work out for 13-hour flights to London
and Paris. But it has found a profitable niche in six to seven-hour
direct flights within Asia. The management has been decisive (no
political interference) in pulling out of unprofitable routes and
concentrating all its resources on routes that makes commercial sense.
Just imagine the potential of
AirAsia X if
it is able to replicate its business model operating out of Indonesia
to Australia or out of Japan to the Middle East and beyond.
That's why I am looking forward to the listing of
AirAsia X this year. It will be the first successful long haul low-cost airline in the world.
Malaysia Boleh!
When
you think you have a viable and sustainable model, stay true to your
strategies and focus on executing the appropriate strategies across your
entire organisation. If you are a five-star operator, make sure your
organisation is able to deliver five-star services consistently to your
customers.
If you have a business model that is able to scale
across cultures and countries, your growth potential will reward you in
multiples. Big dreams are for those who look beyond our small domestic
market of 28 million people. But dreams will remain as dreams if you are
not successful with your home market first. You should only replicate
successful models.
If you do not find optimum success with your
business model or defined strategies, be decisive and admit to yourself
that it is not working as planned. Eat the humble pie and swiftly change
direction or tweak your business model to find a sustainable and
profitable niche where you can survive comfortably.
Do not be
afraid to change and do not delay until the shit hits the fan. Unless
you can go begging to the Government for more funds, it will be
difficult for you to find friendly benefactors to help you then. Your
business will suffer a slow and painful death and you will wish that you
have not been on your own.
I have been active in the consumer
product markets for the last 27 years and I have often wondered why the
multinational companies make more money per dollar sales than my
company. That is despite them paying higher salaries and spending more
on advertising and promotions. I consoled myself then by reasoning that
they had first mover advantage, better brand equity and they were
smarter than me.
After looking closely at their numbers, I
discovered that they have a higher selling price and a lower cost of
goods which means their gross margins are easily 10% to 20% higher than
mine. Their products fetch better prices because they spend more on
branding and they have a lower cost of goods because they understand the
supply chain system better than I did. They are brilliantly efficient
in logistics and channel management.
To compete, I have to match
them in all aspects. Share of voice, understanding the supply chain
forward and backward and having an efficient logistic set up. But you
can only compete if you have comparable margins. My business model was
subsequently amended over a few years to a comparable high margin model
with similar A&P spend.
Building brand equity
High
margins mean lower break-even point and less pressure on volume sales.
Less working capital required means less financial risk. It is easier to
make a profit in a high margin business but you have to find the
margins in the value chain.
Apple
makes 30% profit on sales but its OEM manufacturer Foxconn makes only
1.5% profit. Our telco companies make 30% on sales but their prepaid
card wholesalers make a 2% gross margin. Soft dollars versus hard
dollars.
To earn the soft dollars, you need to build your brand
equity. Whether it is product branding or corporate branding, you must
be committed and consistent in promoting your brand. Margins for great
brands differ substantially from commoditised generic products or
services. Differentiate or suffer low margins always.
I particularly like
SP Setia as a perfect example of how to build a strong corporate brand. However just as
Tan Sri Tony Fernandes is synonymous with the
AirAsia brand,
Tan Sri Liew See Kin is the face of
SP Setia. What will happen to the
SP Setia
brand after Liew leaves? Can he be replaced successfully by another
brilliant marketeer from the new owner, PNB? Your guess is as good as
mine.
There are many key words used by management professors to
describe the hectic changes in the current business environment but my
favourite phrase is the concept of disruption. Technological
advancements disrupts technological laggards which disrupts our
lifestyle as well. Phones gets smarter by the day, from voice to SMS to
data to watching
Astro on-the-go. Brands come and go at the speed of disruption. What was your favourite phone-brand five years ago? Can't remember? Me too.
My
thought process gets totally disrupted trying to figure out how to sell
products to the Gen Y segment. They don't watch TV and they don't read
newspapers. They socialise with screens and they communicate faceless
through a “book”. They shop anytime in the Internet mall and they sleep
in different time zones. As they are our biggest customer segment, we
have to tweet them with respect. Or for the heck of it, just blog them
into submission.
Gen Y and the Internet
Because of
Gen Y and the Internet revolution, entrepreneurs are getting younger and
younger. With a laptop, they trade anything and everything across
countries like borderless pirates while prim and proper Gen X
businessman worry about traditional sales team and distribution channels
across the country. They collect cash in advance directly from
consumers while Mr X gives credit to the trade. They have all the
personal details of their customers and they are connected on a daily
basis whereas Mr X can only guess that someone of a certain race, age
and size has bought his products.
E-commerce will be the single
biggest influence on rental rates of brick and mortar retail space.
Already certain successful e-commerce products like books and music have
decimated the traditional distribution channels of bookshops and music
shops. The middleman's job has been taken over by
Amazon.com.
Now
you see other products like shoes, apparels, contact lenses etc gaining
popularity on e-commerce platforms. And retail prices trending
downwards much to the delight of consumers.
The only option for
traditional businesses threatened by the e-commerce wave is to join
them. Sephora has seen its cosmetic and fragrance sales slowing down and
rental rates of their shops going up. So it set up
sephora.com which has been growing very well, protecting its overall market share in the luxury segment of cosmetics and fragrance.
For
traditional media companies, all the newspapers have a similar e
version now. Even though visibility of e advertising revenue is still
shrouded in fog, they are prepared for any eventual switch by news
hungry consumers to e-consumption. While
Astro offers TV couch potatoes with
Astro-on-the-go mobility,
Media Prima countered with
Tonton,
an e-content platform where you can watch missed programmes on the net
and on-the-go. Mind you, these massive investment and creative efforts
are made just to ensure its business stay relevant in the fast changing
landscape.
Just as I give an “A” to these top private companies
for their innovative business acumen, the Government and the GLCs
deserve an “E” for their involvement in business. I do agree that the
Government should play a major role in sensitive sectors of the economy
like utilities, education and national security but to be actively
involved in all businesses competing with the private sector is counter
productive and in most cases a waste of public money. Lack of
competition breeds inefficiency and lethargy. Enough said.
I am
pleased to note that there has been a major shift of public perception
towards politicians being involved in business. Politicians should stay
exclusively active in the political arena if they want to avoid
unnecessary accusations, nasty tweets and rumoured scandals. A clean
politician who cares and fights for the people that he represents will
always be voted favourably by his constituents. I read that from
Dummies for Politicians.
I
was born in 1960 thus I was given a blue Identity card. Having been a
Malaysian since birth, I grew up in Petaling Jaya and studied in local
schools and Universiti Malaya. I have worked all my life in Malaysia. My
wife is Malaysian and all my three children were born in Malaysia.
So
you can imagine my outrage when I am called an immigrant by some
senseless and dumb politicians out to score a point or two with their
supporters. As a Malaysian would say “I so angry until I cannot speak.”
But
speak out you must in the coming 13th General Eelection. Choose wisely
and please vote for sincere and smart candidates. Avoid wolfs in sheep
skin for the sake of our children's future. Do not live to regret.
It has been a fun write for me the last 52 weeks and I must thank the
StarBizWeek
editorial team for sacrificing valuable space to accommodate my
nonsensical and shallow articles. I hope I have given you some weekly
chuckles and brought a wry smile on your face on lazy Saturday
afternoons. I thank you for your kind patience. Goodbye.
The
writer has decided to go e-communicado. For further nonsensical musings,
stay in touch with him at thiamhock.com. You might just find some
useful tips on your own.
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