Seeing What Others Do Not Part Two

Continuing ideas from my 2001 book each Monday:

Here’s a good question to ask: What’s not in the headlines? If you can think of some subject or industry that has not been written up in years, you may be onto something that’s important and overlooked. The wholesale air-conditioning industry, President Rutherford B. Hayes, and the source of the Manoogian family’s wealth can go years without being mentioned in the press. The Manoogian family? You’ll find their name in the National Gallery of Art in Washington as major donors. They made their money from single-handle (Delta brand) faucets.
It’s not enough just to look behind the headlines — you need to look where there are no headlines, where other people aren’t looking. Headlines, whether on target or off, direct your attention to what everybody else is thinking about. To gain a broader perspective on the world, you need to spend some of your time looking at things no one else seems concerned with, thinking in ways other people aren’t thinking.
When we started BOOKSTOP, we thought about how best to design our circulation — the aisles and paths that lead people through a store. In the 50s, when I was little, my dad owned small grocery stores. Among his books was one about supermarket design. It told how the inventors of the supermarket had discovered something interesting back in the 30s: that people automatically turn right when they enter a store. And, if you put the high-traffic items — meat, bread, milk — on the perimeter of the store, customers will go all the way around the store to pick them up. In the process, they’ll see the other items, and probably buy some of them.
No one in the bookselling business had ever looked at store design the way the supermarket guys had. So when we opened our BOOKSTOP stores, we had a “raceway” aisle system that ran around the store in the shape of a baseball diamond. The three big traffic generators in bookstores — bestsellers, the newsstand, and children’s books — were at the bases of the diamond, and home plate was the cash register. The results were impressive. In an industry where the average bookstore did under $500,000 per year in sales, our average soon surpassed $2.5 million. One of the keys was that we did not think like booksellers. In laying out our aisles, we thought like supermarket operators.
At Citibank, I covered retail stocks working for one of the top retail analysts, Pete Wetzel. One company I studied was Tandy (now Radio Shack), one of the best retail chains ever. At its peak, it was spending close to ten percent of its sales on advertising. With the help of that big ad budget, Tandy obliterated its competition.
Another very profitable retailer of the time was Petrie Stores, which operated clothing stores for young women under the names Marianne and Stuart’s. Petrie spent zero on advertising. It put stores in regional malls and let Macy’s and Sears bring in the traffic. Tandy and Petrie showed me that there is a wide range of marketing strategies that can work.
A few years later, I worked in the department store industry, which at the time still had some creative energy in it. But even then I would sit in planning meetings where people would endlessly debate what percent of sales to spend on advertising. All agreed that the figure had to be between 2 and 4 percent. Anyone who suggested any outside-the-box amount — even 1.5 percent or 5 percent — would get laughed out of the room. Yet none of those department store companies ever matched the profitability of Tandy or Petrie.
Jack Welch of General Electric calls this phenomenon “pushing the peanut.” If you’ve budgeted 6.9 percent of sales for customer service for the last five years, you’ll probably consider going to 6.6 percent or 7.2 percent in next year’s budget, pushing the peanut a little bit this way or that way. You’ll spend hours debating which way to go. You’ll think of all the implications. You might get radical and consider going to 6.0 percent or 8.0 percent. But you will never, ever think about what would happen to your business if you slashed service spending to 3 percent, or raised it to 12 percent. Really good ruts are so powerful that we don’t even know we are in them.
Several years ago, the press and the futurists were saying that the price of oil would skyrocket to $100 a barrel. Gas would cost Americans $5 a gallon at the pump. The oil companies based their business forecasts on this common wisdom — except Shell. Shell asked, “What if oil prices collapse?” They didn’t predict a collapse; they simply planned what they would do if all the experts turned out wrong. In fact, the experts were wrong, and Shell was able to adjust quickly in a period of falling oil prices. The fact that Shell outsmarted its competitors was no surprise to anyone who has studied the long history of this fine Dutch-British company.
Unconventional thinking can and should be applied to every area of your business. As I go around talking to people about being an entrepreneur, I hear a lot of talk about how to raise money. The experts always mention venture capital, banks, angel investors, and strategic partners (big corporate investors). But in my experience, your best sources of financing are often your customers and your suppliers. If you can get your customers to pay in advance or join a club, if you can get your suppliers to either buy stock or extend credit terms, that money is just as good as any other. No one has as much to gain from your success as your customers and vendors. But this is not inside-the-box thinking, not part of the standard textbook approach to financing.
I’m always looking for lessons I can transplant from one industry to another. Where are things being done right, and where are they being done wrong? A key problem in the travel industry was training ordinary people to become experts in a complex business. One customer would come in the door asking for the cheapest airfare to Manila. The next person wanted a good bed-and-breakfast in Vermont. Our staff had to know the whole world. Anybody can get cheap tickets on the Internet, twenty-four hours a day, seven days a week. The only real advantage a travel agency can sell is expertise. But the challenge of developing expert staff was daunting.
Most travel agencies looked within the industry for answers. I could not help noticing Edward Jones, the stock brokerage with more offices than any other. When I compared the brokerage industry to the travel industry, I saw that it was equally complex. I saw eight-dollar Internet stock trades advertised continually on TV. I saw customers who were just as individual in their needs. The parallels with the travel industry were obvious – and Edward Jones successfully turns ordinary people into some of the best brokers in the industry. Because TravelFest failed, I never got to apply what could be learned from Jones – so I’m saving that lesson for some future business.  
Sometimes thinking creatively is just a matter of taking something we are all familiar with and turning it on its head. We’ve all been told since childhood, “Don’t play with your food.” But it took the creativity of Joost Elffers and Saxton Freymann to come up with clever “Play with Your Food” books and calendars.
Even people with opposing points of view are often locked into the same perspective. We can argue all day about whether General Motors or Ford uses better management techniques, until an outsider comes along and point out that DaimlerChrysler makes better looking cars. For years, IBM and Unisys battled for the large mainframe market while Bill Gates and Steve Jobs were talking another language. If you can get out of the channel everyone else is in and look at things from a different angle, you can often gain fresh insights.