JV’s – the Good, the Bad and the UglyMay 3, 2016 | Markus Schwarzer

Joint venture pointingAnyone involved in Joint Venture (JV) negotiations knows that it can be a tough and drawn out process littered with pitfalls.

Why form a JV in the first place?
in my experience the principal reason for companies to commit to a JV: Taking a risk together to generate a synergy that benefits both partners.

Let’s review some actual examples:

Example 1: Volkswagen Autoversicherung AG.

JV between Allianz Insurance (one of the biggest insurance companies in Germany) and Volkswagen Financial Services. Offering car insurances for VW, Audi, SEAT und Skoda cars.

Objective: To sell insurance at the point of sale.

  • You buy the car and at the time car insurance is offered.
  • In a neat bundle at a discount.

Both JV partners benefit from this arrangement:

  • Allianz keeps competitors out of this market segment and
  • VW offers its customer discounted insurance as part of the car purchase.

Result: win-win.


Example 2: FAW-VW.

FAW Chinese state-owned automotive manufacturing company (51%) and Volkswagen AG.

Objective:

  • Bringing together German know-how and access to Chinese/Asian markets.
  • In addition lower manufacturing costs for VW due to lower labour costs in China.
  • Although there are some concerns regarding alleged corruption and the murky flow of monies.

Overall result: winwin


Example 3: SB LiMotive

Bosch, German appliance and battery manufacturer and Samsung, Korean electronics giant.

Objective: to develop a rechargeable battery for electrical cars.

Bosch supplies battery packs (combined cells) in entire systems. Samsung wanted only single battery cells and not complete battery systems. Bosch wanted to apply the new technology to other products such as lap tops. Samsung disagreed.

The JV was discontinued. Result: LoseLose

Why do some JV’s succeed and some fail?

1 Planning. It is critical to allow sufficient time buffers to review the proposed mutual business model. How do we fit together? what does each partner bring to the party? Now and into the future. The below diagram highlights the value that could be at risk if shortcuts are taken during the internal planning phase prior to the JV negotiations:

JV planning

 

 

 

 

 

 

 

 

What to do? Improve the internal planning process BEFORE commencing detailed discussion with the new JV partner(s):

  • Allow quality time for the internal planning process
  • Review and hone on own goals and objectives
  • Carry out SWOT analysis and review with trusted third party advisors/mentors

2 Building Trust. The single most important factor in my experience. I have seen a number of JVs fail due to the lack of mutual trust. If the partners watch each other to gain an advantage over the other – the JV is bound to fail.

What to do?

  • Communicate as much as possible to ensure the JV objectives remain clear and measurable.
  • Adjust quickly to any discomfort and raise the issue
  • Ensure regular meetings of the key decision makers. Do not delegate this as this is critical to the success of the JV

3 Embed the processes. Planning and building trust are the cornerstones of a successful JV. Yet, this is not enough if not sufficient automatism are embedded:

  • Transparent decision making
  • Shared targets and measurements
  • Scaling the business must benefit both partners
Contact me for leveraging your business
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The vanishing monkey’s backsideApril 27, 2016 | Markus Schwarzer

 “The higher a monkey climbs the more you see of its backside.”
 Attributed to US General J Stilwell
monkey-butt

I am sick and tired of seeing the vanishing monkey’s backside. Not that a monkey’s hindside bears a particular appeal.

It’s a good metaphor – companies continue to watch their growth potential disappearing.

It’s tough out there in the market. Business owners fighting on multiple fronts: cash flow, demanding customers, social media marketing, innovation. Any military commander will tell us fighting multiple fronts is not a good option if one wants to succeed.

 

Yet business growth remains the measure of for most companies. Apple Inc just announced the first drop in revenue since 2003. It appears, not even the mightiest are prone against a drop in growth.

I want to highlight 3 points that are fundamental to business growth – in fact they are very obvious:

1 Growth for self-preservation
Companies exist to make a profit. A profit ensures existence tomorrow. This means to compete better than their competitors. Be better, faster, smarter.

Like any living being, companies have a self-preservation instinct – it must grow and adapt to survive.

2 Growth driving increased profitability
In principle, jumping on the growth wagon means applying economies of scale.

Again, Apple Inc designed this to perfection. Higher iPhone revenue meant lower manufacturing costs on a massive scale and thus delivered increased net profit.  Now iPhone revenue has dropped by 10 million units (compared to last year). Reverberations on the stock market are afoot.

3 Growth – a tough ask for many
Whilst we most of the time hear and read the success stories in the business world, there are a lot businesses out there that are doing it tough, real tough.

However, there is light on the horizon:

Changing the source of Growth

Growth 2009 to 2015

Companies seem to invest more (% to revenue) into R&D (including buying technical knowledge or information abroad) nowadays and focus less on broad-brush marketing.

Six years ago, companies R&D share was 37%, last year it was 52% – it appears that more work is being done to produce high quality products.

In sum: Most businesses have to fight ‘tooth and nail’ to keep growing. I generally advise my clients to grow slowly, use the learning curve to get better at what they already doing. Consolidate the core value proposition, and then expand. Doing the homework via R&D.

Need help with growing your business
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The Banana Skin – Creating Value is TrickyApril 11, 2016 | Markus Schwarzer

Screen Shot 2016-03-31 at 22.18.44                                                                                                                                            If you ever stepped onto a banana skin you know what happens next.

You either just manage to avoid a fall or you are indeed in free fall.

And preparing for a hard landing.

I found this similar to working with my clients on Generating Value for their customers or clients.

 

 

 

Creating value can be a tricky thing and I’ll recommend 2 things:

  1. Do the numbers
  2. Check your processes

Do the numbers
Check the internal process chain and ensure value (for the customer or client) is indeed created.
Beat me with a stick BUT if there are process that don’t add anything in value. Get rid of them. Eliminate. Say Good-Bye. Even to pet processes or my favourite “we always done it like this”…

How to 
Simple. Use the old Activity Chain Analysis – this tool has proven the test of time. Even in our digital world it remains very useful.

So what – give us a specific example?
One of the best examples I know: IKEA – the Scandinavian furniture designer that sells products that are simple, practical and at low cost to the consumer. I would estimate that 90% of German households have a least one item from IKEA.

How do they do it?
Constant review of their Activity Chain. The whole economic basis of IKEA’s is focussed on targeted cost. The relentless pursuit of optimising all processes in the company.

Wasting resources is a mortal sin at Ikea” Ikea founder Ingvar Kamprad

Activity Chain Analysis in action
If IKEA encounter a problem in their Activity Chain Analysis, they attack it and turn into an opportunity.

Solve big problems in small steps” Ingvar Kamprad

A strong focus on cost-optimised manufacturing. Yet they still sell attractive furniture for the mass market.  A fine balancing act indeed. IKEA also optimise processes with their suppliers and communicate closely with their customers.

Can I also use Activity Chain Analysis?
Yes, you can. The principles apply to small and big. Manufacturing or service industry. Online or ‘bricks and mortar’.  All organisations can benefit from this powerful analytical tool.

 

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Cash flow – the killer that keeps on killingMarch 25, 2016 | Markus Schwarzer

Yes, Bad Cash Flow is killing businesses worldwide – merciless and taking no prisoners.

Business failures chartBusiness studies identified poor cash flow as the main reason for businesses to fail.

80-90% of small businesses fall victim to bad cash flow.  It wrings the lifeblood out of most businesses. Start-up or established business. Many fall victim to this (avoidable) malaise.

Some say it an Art to balance your cash going out with the amount of cash coming in.  Well, it is not.

 

 

Why is this business killer so prolific?
It happens for TWO REASONS:

First. Businesses run out of money because they struggle to find a viable business model.
Simply, the business does not make enough money. Not generating sufficient revenue.

Second. Businesses run out of money because they don’t plan their cash flows.

Cash-flow-forecasting
Cash flow forecasting is the elixir to business survival. Essential like breathing for humans.
I am a strong believer in a rolling 12 months cash flow forecast. Perhaps even 18-24 months. And I still have a preference using the old Excel spreadsheet method.
Why?
Because it forces one to think and manually enter every possible future transaction: revenue, expense, tax.

Simple is Best
Don’t get fancy. Keep it simple and meaningful to You. Itemise revenue, expenses and tax. Be conservative and start thinking how revenue, expenses and tax will fall in future. Do use history as a base but don’t rely too much on it.

Review, review, review
Because cash flow forecasting is so vital go over it again, and again. Test assumptions and review with someone you trust: Mentor, another business manager, your accountant or bank manger. 

Don’t be upset if someone points out flaws in your forecast.

Surplus or Deficit diagrammeDecision points
Cash flow forecasting assists the business in which months you can expect to see a cash deficit, and which months you can expect a surplus.

More importantly, you’ll also get an idea of how much cash your business is going to require over the next year or so to survive.

Cash flow forecasting is also useful for decision regarding the next capital project. Growing usually requires investment.

Benefit of cash flow forecasting
I always expel a sigh of relief if a client of mine show me their cash flow. Then I know they have a basis for getting stuck in and improve their business to another level.

(Good) cash flow planning ensures survival of the business. It also puts the business in good stead with attracting investment or joint venture partners.

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Māori in business – Where is the trickle down?March 15, 2016 | Markus Schwarzer

Trickle down effect

Māori in Business
Māori (indigenous) economic development for me is an overall indicator how well we are doing in New Zealand.  
I am not Māori nor an expert on Māori Businesses.
However, I have worked with Māori and Pacific Islanders on developing basic business skills at the ‘coal face’.
I can only offer simple observations, having lived and worked in New Zealand for the last 30 years.

 

Trickle-Down-Effect
Trickle down economics is a term used to describe the belief that if high income earners gain an increase in salary, then everyone in the economy will benefit as their increased income and wealth filter through to all sections in society.
Well, looking around, particularly in Northland, New Zealand, I have not seen a lot of evidence of the trickle-down impact.

Māori authorities – Indicative for Business Success?
Within the New Zealand economy Māori businesses include Māori authorities, small- and medium enterprises, and Māori-in-business (self-employed).

Total income for Māori authorities increased $430m in 2012 to $2.9bn in 2013.*
This is a massive increase.

The following graphs look at the growth of Māori Authorities
and how many jobs were created:

Māori Authorities (units) – Indicator for Success?

Maori Authorities growth
Maori Authorities growth (units)

 

 

 

 

 

Total business growth in New Zealand
Total business growth in New Zealand (units)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 Reasons for Failure
The below reasons are based on my personal observation:

1. Lack of basic Business Skills
Basic business skills are quite often not present – either not been taught or people are reluctant to embrace.
2. Insufficient ongoing Support
Some polytechnics churn out graduates in business but its lacking a proper support network to sustain enthusiasm.
3. Failure to Understand Market and Customers
This is tricky at the best of times – requires the ability to do in-depth research which is quite often beyond people’s capability.

3 Ways to Ensure Success – and to fly like an eagle

1. Essential Business Skills
* Equip people with the basic business skills such as budgeting, cost control and marketing tools.

* I have seen huge development in people once the basic concepts were understood. Sure, some people will embrace it more than others, but once the confidence is built, people move into the ‘business zone’ with more ease than I ever expected.
* The training needs to be ‘hands-on’ right from the start – some could be linked to NZQA unit standards but it’s not vital.

2. Ongoing Support
This is a critical part in the development of business skills because there will be set-backs – some will be painful.
* Therefore a good support network of people with different business skills sets is critical to sustain the effort.
* Ideally an on-going mentoring programme that may include other core skills such communication, how-to research and social media profiling.
* Have a checks & balance system in place that helps people new to business and their mentors objectively check on progress.
* With providing on-going support the commitment (and confidence) will grow – and in turn create a positive outlook.

3. Embed in Local Community
Any Māori (indigenous) or non- Māori business venture needs to be embedded into the local community infrastructure including the local Chamber of Commerce, existing community groups and local business mentors.
*  Develop hand-in-hand partnerships at local level
*  Apply Best Practice methods – use what works
*  Generate local led employment, particularly for Youth

Running a business in isolation is not a good thing.

Do the 3 key areas really ensure success?
Yes, they certainly will go a long way to achieve more favourable results – whilst we hold on for the long-awaited Trickle-Down-Effect:
* Essential Business Skills
* Ongoing Support
* Embed in Local Community
I have seen it seen it first-hand: people looking after budgets, doing research how to reduce costs and teaching others – passing on essential skills.

Contact me for help in your business

 

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