Rita McGrath, the esteemed professor and expert on discovery driven planning and growth concepts recently shared some excellent content on her blog regarding methods of calculating NPV. Watch the video link and learn how to evaluate and value opportunities given uncertainty and how the role of finance should be approached amid the unknown. Here is her post, watch the demo and learn:
My esteemed colleague, Mac, is featured describing the application of the “BareBones” NPV tool in this video.
At $20 Billion in annual revenues the US health club industry, like most bricks and mortar centric business models, is coming under increasing financial and market pressures. Rising costs and consumers being offered increasingly low cost alternatives, either via new bricks and mortar models or alternatively with the deployment of digital tools to deliver value at much lower price points, are creating a ripe field for disruption.
Many players in the fitness industry are at great risk and the opportunities for those with vision are enormous. Yesterday I witnessed yet another innovation that speaks to this future learning of Pocket Innovation, watch the demo . This morning when I read Ray Algar's tweet, wherein he shared his recent presentation below, I was only further convinced of the future. Ray is a strategic marketing expert who advises the fitness industry. We share very similar views on the future of the fitness industry. although his presentation does not touch upon the new paradigm of wellness - another topic. Here is an excerpt from his web site:
I was in London last night at a Leisure Property Forum event to present my thoughts on the low-cost (budget) gym trend that is now gaining momentum in the UK. This presentation looks at some of the key 'drivers' of the trend and also case studies the growth of McFit in Germany. My thanks to Niels Gronau, a member of the Deloite Corporate Finance team at Deloitte in Germany, who helped with background data on McFit.
John Treharne, CEO of The Gym Group was also there to discuss the company's strategy. John was fresh from this week's opening of their new Manchester club, which means they now have five clubs open, with Leicester due to open in the first quarter of 2010. The Gym Group has an ambition to open a further 10-15 clubs during 2010.
In all industries the former 4 P's of marketing (price, place, product & promotion) are being replaced, in order, with new value exchanges, the merger of the physical and digital, the experience and engagement. Additionally, by leveraging technologies fewer people can deliver more engagement and greater value. If your fitness organization is not adopting these strategic orientations in its business model you will be in for a rough future. Afterall, why pay a monthly fee to use a treadmill on occassion? This is the question more and more consumers are starting to ask, given all the options available. and what is happneing in the market It is also why cancellations for the industry on an annual basis amount to nearly 40% of the customers.
I had an interesting exchange with a very reputable business associate yesterday, during which the topic of "ownership" came up as central to his business objectives. We all understand the notion, dedicate yourself to a company, build it up for years and then perhaps sell it for a premium value as you sail away into the sunset. As I woke this morning having thought about the prior days chat, another friend, Rasmus Elmann Ingerslev, had recommended a video on socialnomics that I watched, shown below. I am uncertain if most really understand what socialnomics signifies, as I've concluded its only the beginning of a far larger trend with greater implications beyond those of my facebook account. Similarly I am unclear if most business owners understand what the value of something really is and how these trends will impact it. Hence this post.
What socialnomics represents is the first wave in a series of approaching changes brought on by technology, which will deconstruct numerous and long standing economic paradigms including, among others, distribution, value creation and value exchange. How ? Because social technologies decentralize everything by empowering choice through the ubiquity of information. Social media is but the beginning of a series of tools that will provide users complete control over what is authentic, valuable and meaningful to them, thus obfuscating centralization in any and all systems. This is the essence of "socialnomics": economic rules redefined via new "social media", I call it technological, tools.
How economics are redefined by socialnomics is very simple. In the past people created wealth largely through one basic principal - they had information others did not and exploited that information to their benefit at the cost of others. These information disparities could last for extended periods and therefore organizations could be sustained for periods of time wherein an advantage existed. In the new economics this will become increasingly difficult because of the ubiquity of information. In "free markets" margins are driven towards zero. Therefore, value will have to be created in new ways, largely via increasingly short term creations of unique solutions. Thus value will be driven increasingly by what customers choose - not in how they are exploited by sustained information disparities or anomalies: a concept shared by the like of Toffler, Anderson and others.
The implications to organizations are enormous because competitive advantages will be increasingly fleeting. In Fung and Wind's book Competing in a Flat World, the notion of value and network organizations is craft fully set out, particularly how organizations must reengineer to become valuable. I've posted on the matter previously. In the old paradigm you could create something of value, build a fence around it and get someone to covet it enough to purchase it. In the new world, the platform is the value, change is too rapid to maintain an extended advantage and in the end your value is only that which your customers deem you deserve. With increasingly lower barriers to entry and free information too many alternatives are available. Think about it, who "owns" Google ? Truthfully, its customers do. If tomorrow everyone stopped using Google its "value" would be zero. Socialnomics reflects a free market in the purest sense and therefore, I ponder if many in business have grasped that fact when they imagine their sailing away into the sunset as a result of something they've built over years. That, I think, will becoming an increasingly rare occurrence.
The Web 2.0 summit just wrapped up in SFCA this past week. There are some noteworthy observations and content on their web site and in particular Mary Meeker's annual overview of Internet trends . Take an moment to review her indepth presentaiton below. A huge surge in mobile access is about to, yet again, revolutionize businesses and the adoption of new technologies using cloud infrastructure and location centric applications will become another key influencer of shareholder value and produce and service niche differentiation. Among the conferences many revleaing presenters Mary put forth a revealing observations that platforms which combine social networking with mobility will drive "unprecedented change in communications + commerce." As Richard MacManus points out, that statement seems a little hyperbolic, but we have undeniably seen an uptick in usage this year of companies like Foursquare, Loopt and Brightkite. Later in the presentation, Meeker predicted that Facebook will be a major player in this market in the near future. Hold onto your hats.
Daniel Boorstin, author and historian, was right when he observed that, "the greatest obstacle to discovery is not ignorance: its the illusion of knowledge." Its true; to realize the potential this exciting time of change offers requires letting go of certain past assumptions. Disengaging from old thinking enables a consideration and potential adoption of innovations impossible before but central to driving new opportunities. When evaluating every industry today, the primary barriers to moving ahead toward a positive future have much more to do with interests vested in the past than the potential the future offers. Nowhere is this more accurate when considering the struggling music industry of today.
Enter Spotify. Founded in 2006 by Daniel Ek, former CTO of Stardoll, and Martin Lorentzon, co-founder of TradeDoubler, in Stockholm. The company is fast catching up with Twitter as the most talked-about internet site and has been called a “21st-century jukebox”. A library of millions of songs, both pop and classical, can be accessed by users through their computer. Tracks are not downloaded, but merely played once. The effect is similar to listening to the radio - but you choose all the songs. Spotify is unique in that it is both free and legal. Experts think it represents a new model for people to buy music and watch television and films in the future - as reflected in the brief advertisement below.
More interesting than the innovative business model itself is the founder's recognition of where the barriers to success lie. Ek explained the notion of overnight success as "very misleading and actually rather harmful to any hope for long term and sustainable growth in this industry" during a recent interview. Despite this, he called out the music industry for doing just that and expecting to see business models proven "within months of inception." "That's just not how it works", he says, reminding us how iTunes was not initially the powerhouse it is today. Apple missed its iTunes revenue targets by 30% and most label executives doubted its staying power at the time. While Ek realizes that comparing iTunes to Spotify is wrong given the very different business models for each company, it does prove the overall point: success in this industry or any industry takes a long time. More importantly, the long time is more a result of the industries lack of vision and acknowledgement of a solution - a clear demonstration of "the illusion of knowledge" blocking discovery.
If it was up to Spotify, the music industry would be embracing the future instead of fighting against it. Ek opines that for the industry to find success, it must recognize the new business model as "a mix between ad-supported music, downloads, subscriptions, merchandising and ticketing where the user comes first and where the key to monetization comes from portability and packaging access rights." If willing to adapt, the industry could then have the potential to grow stronger than it ever was.
Its not just the music industry that is in desperate need for new thinking in leadership to reach its potential. See his recent interview video below to learn more about Ek and his views here.
