Finding the Next Bubble

Following dot com failures, oil and corn, investors are asking themselves where they can jump on the next bubble. Matthew Lynn writes for Bloomberg:

One thing we know for sure about today’s global economy is that there is always an investment bubble somewhere. If you get in early enough, you can make a fortune riding the boom.    

Investors are quick to spot a perceive trend. They pile on in swarms, weighing down the possibility of the trend becoming a success before jumping on to something else. Lynn argues the next bubble could appear in five segments, and none of which are particularly surprising.

• Automobile industry
• Old Europe
• The United States Dollar
• Stockbroking
• Private islands

Lynn adds by reminding us that while many companies fail to generate much of a revenue in these bubbles, few actually move to become incredibly profitable.

How Retailers are Surviving the Economy

With the current economic slowdown, high fuel prices are pushing consumers to cut back their spending.  No industry is recession-proof, but teenagers still reach a bit deeper to buy their favorite brands. Julian Geiger, chairman and CEO of the New York-based retailer Aéropostale, said on Nightly Business Report,

“Parents tend to sacrifice [for] themselves before they sacrifice [for] their kids”    

He should know. Aéropostale’s second quarter was up 43% versus the previous year, while other retailers like Abercrombie & Fitch are suffering through stagnant or declining sales to prevent jeopardizing their brand’s authority and reputation for a temporary situation. Other shops have found a new solution to increasing revenues during a recession, and it doesn’t involve manipulating prices. Erin Armendinger, managing director of Wharton’s Jay H. Baker Retailing Initiative, Wharton’s retail program, writes in an article for Knowledge@Wharton:

Noting that some teens are unaffected by the economy and will continue to shop where they want, Armendinger says that to be popular, teen retailers must offer something unique and desirable. “If you’re differentiated, you’ll win,” she says, pointing to the example of Philadelphia-based, multiple-brand retailer Urban Outfitters, which reported in early August that its second-quarter earnings were up 79%. “Urban Outfitters has very little competition in terms of their store design and products —and guess what, they are doing very well.”   

Armendinger’s examples offer hope for all executives that some businesses can survive while maintaining their premium prices.

Game Site Grows Up

Launched in an apartment during the dot com boom, Miniclip has grown into an online empire with more than 43 million unique visitors a month. Their target audience skipped the typical teenager and tween crowd to gather adults and working professionals with a few minutes of free time during their day.

Miniclip had a novel business plan for the time: don’t charge visitors to play games, and collect revenues from advertising. The difference between Miniclip and the millions (literally, millions) of competitors on the web is that Miniclip has been profitable for six of its seven years in business. That’s an accomplishment that was almost unheard of during the dot com bubble when they launched.

But now the company is forced to implement a new structure as it grows. An article in the Financial Times says Miniclip co-founder Rob Small has a few changes on his hands:

With so many potential deals on the horizon, Mr Small says the company must now develop a more sophisticated structure. He has recruited a new chief operating officer, employed more managers and created distinct departments for finance, marketing, graphics and game development.

It will be interesting to watch this small but profitable startup make the leap that all small businesses hope for.

Form With Function

Since 1997, Masamichi Udagawa and Sigi Moeslinger of New York City-based Antenna Design have been finding a balance between art and commerce, public and private, and information and objects.

The beginning of their careers involved clashes with businesspeople and design teams when neither Udagawa or Moeslinger could communicate their ideas in the boardroom.

In an article from BusinessWeek:

Udagawa thought they didn’t get it—and told them so. But then he began taking business classes in the evenings to better understand his colleagues’ perspective and to learn to communicate with them. “‘How do we make money?’ is the obvious common language between business and design,” says Udagawa. Laughing, he adds: “It took me quite a while to understand; I learned the hard way.”

Now, with their experience and MBA, they can justify their decisions with businesspeople. That ability may have singlehandedly allowed them to grow from a little studio to a corporate design firm.

Implementing a Successful Corporate Turnaround

Greg Brenneman spent a good portion of his career serving floundering corporations, including Continental Airlines, Burger King and Quiznos. So how does Brenneman save a dying company? In an article from The Economist, he gives two not-so-simple steps: Stop the activities that drain your bottom line and then formulate a clear strategy, and stick with it.

His recruits have been impressed by another Brenneman tactic. “He’s taught me the importance of seizing the airwaves and making clear what the business agenda is,” says Dave Deno, Quiznos’s new boss. Each Friday the fast-food chain’s franchise-holders get a voicemail updating them on the business. Many of these have been left by Mr Brenneman, but occasionally other managers take a turn. The plain-speaking Mr Brenneman likes this because, he says, “if someone gets on a voicemail and promises something to thousands of people, they will do it.” All voicemails and e-mails from franchise-holders must be answered within 24 hours. This has helped thaw relations with disgruntled restaurant-owners, though some lawsuits still rumble on.

Still, even with a clear strategy, something must be said for putting in the hours and enduring hard work.

Fostering Innovation in Mature Companies

Strategy+Business shows why innovation can be so challenging for older and established businesses. Their case study: Mars Inc. In the 1990s, consumers audited their diets to remove chocolate covered, sugar-loaded treats to welcome the Atkin diet and other weight loss phenomenons. As a result, Mars had to develop new products to meet consumer demand, but their innovation process seemed flawed.

According to Strategy+Business:

Why do mature businesses struggle with innovation? Much of the problem can be traced to conventional wisdom, which goes something like this: The secret to growth in the consumer goods arena is to de­velop new products based on consumer needs, which are discovered through consumer research and focus groups. And what if a new idea is not great? No big deal. Marketing and advertising can always step in, turning a so-so concept into a hit. And the first to market, goes the reasoning, will capture most of the profits. This kind of thinking leads to innovation cultures that deliberately develop a long list of line extensions — new flavors of an established soda brand, say — rather than the kind of game-changing innovations that can make a real difference to the bottom line.
  

While Mars relied on a formula for healthy profits in any economy, experienced business execs understand there is no formula for success. 

How Pixar Fosters a Creative Community

When the media lists creative companies, Disney’s Pixar often falls at the top of the list. And how could anyone disagree? Since the release of Toy Story in 1995, Pixar has debuted a strong line of eight animated blockbusters. The surprising thought is that Pixar never bought or licensed a single script, song or character; everything was created behind their doors by their talented employees.Pixar co-founder Ed Catmull writes in an article for the Harvard Business Review on how to cultivate a sustainable, creative organization. Their secret: work in a group.

People tend to think of creativity as a mysterious solo act, and they typically reduce products to a single idea: This is a movie about toys, or dinosaurs, or love, they’ll say. However, in filmmaking and many other kinds of complex product development, creativity involves a large number of people from different disciplines working effectively together to solve a great many problems [...] The director and the other creative leaders of a production do not come up with all the ideas on their own; rather, every single member of the 200- to 250-person production group makes suggestions. Creativity must be present at every level of every artistic and technical part of the organization. The leaders sort through a mass of ideas to find the ones that fit into a coherent whole—that support the story—which is a very difficult task. It’s like an archaeological dig where you don’t know what you’re looking for or whether you will even find anything. The process is downright scary.    

Catmull offers advice for every organization when he says, “Creativity must be present at every level of every artistic and technical part of the organization.”  He also touches on the topic of taking risks. Executives are typically accustomed to reducing potential risks in an organization, but Pixar embraces new concepts. According to Catmull, when executives avoid risks, they fail to surprise anyone. That may be why Hollywood continues to be criticized for releasing similar or redundant films. From a business perspective, the goal of avoiding risks may be why we’re seeing so many similar business models in new organizations.

Short Term Innovation Plagues Silicon Valley

In an article from The New York Times last week, former chief technology officer of Cisco Systems Judy Estrin discusses a potential problem with innovation in the US’ tech sector. She recently wrote a new book called Closing the Innovation Gap, which points to struggles with elementary education and traces emerging problems to the initial tech boom.

As a technology expert herself, however, she pins most of the problems on the industry:

Ms. Estrin traces Silicon Valley’s troubles to the tech boom. She said that’s when entrepreneurs and venture capitalists started focusing more on starting companies to turn around and sell them and less on building successful companies for the long term.

Her call to action asks investors and venture capitalists to begin taking greater risks. According to Estrin, only through failure can we again achieve a higher level of innovation.

More Bootstrapping: VirtualTourist.com CEO J.R. Johnson (Part 3)

SM: What was your plan for monetizing the site? How did you do it?

JJ: During that time I convinced GoTo.com, which later became Overture.com, to allow us to take their paid links and put them into our content. I made the argument that a user who had to click six times to get down to our London page was a better advertising target than someone typing in “London hotels”.

[Sramana Mitra on Strategy]

More Bootstrapping: VirtualTourist.com CEO J.R. Johnson (Part 2)

SM: When did you launch VirtualTourist.com?

JJ: In 1999 I started talking to Tilman [Reissfelder], who is now my partner. He had the website, which at the time had a clickable map, some open source content, and some paid links. Reflecting back on my travel experiences, I suggested we build something that gave people a platform to share their travel-related experiences, ideas, and desires.

[Sramana Mitra on Strategy]

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