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My Industry is Unlike Every Other
We Still Do Business with People
I have been involved in many, many different types of business and experienced many different kinds of value being considered. When it comes down to it, we still do business with people - and that is where the common denominator remains - or is forgotten.
I really like to hear from someone when I enter into a consulting opportunity with a new company. The individual may explain to me how they go about purchasing some gadget they use or how they come to utilize some part or machine in a certain way. Inevitably I here the words, "this industry is unlike any other in the world so it is very difficult to understand...."
From the egg production business, to the dairy production business to the internet information world, to literally brain surgery and many other places in between, I have had an opportunity to evaluate and discern what are the drivers and how are decisions made. Purchasing, utilization, consumption, and exportation - all kinds of decisions must be made regarding the production, sales or distribution of products and services. They really all boil down to people, plain and simple. I could end here and have my 200 word hub, but it wouldn't be complete. Let's explore a few examples so you too can see your "unique" situation isn't that unique.
Egg Production and Processing
For the sake of discussion, I am going to stay in the United States for the most part in these comments. If I know a specific item is a certain way that is different in another country, I'll not that as well.
Egg production in the United States has moved primarily from tens of thousands of individual farmers having a few dozen hens running around the barn yard with access to a hen house where they hens would go inside and lay a clutch of eggs. The farmer would walk through the hen house early in the morning or late in the evening and steal the eggs and what he didn't need, he'd offer for sale to his neighbors.
Today, we call these "free range hens" not to be confused with free range chickens that end up on your plate in a restaurant. Hens have sexually matured, meat chickens aren't that old.
So it used to take about 24 to 26 weeks for a hen (female laying chicken) to get to sexual maturity. If the farmer timed it right, he could put down some baby chicks, half of which would be rooster chicks, half of which would be female or potential hens - pullets we call them, in the late summer planning for 6 months later when the days would begin to get longer and longer. This way, the hens would be hitting sexual maturity when the photo-period - length of day - was increasing. As soon as the hens hit the right weight and age, the farmer might start including a bit of oyster shell or limestone in the diet of the hens. Utilizing science, the combination of daylight, age and available calcium would trigger egg production and the hens would start laying eggs. As young hens they would lay small eggs, then mediums, then large, then extra large, then Jumbo and along they way they may lay double-yolks. The roosters would be used for meat and would be gone by the time the eggs started showing up.
Modern production concentrates more hens - and only hens - on a single farm. There may be as many as 3-4 million hens laying eggs on a single farm in a single day. Special care is taken to be sure the hens are kept at the right temperature, given the right amount of space, fed the best feed for the size of hen they are and the size egg they are laying and their age. They can start the hens any time of year because they can now manipulate the photo-period by turning on and off lights. The feed is made up of corn, soy bean meal and calcium carbonate (limestone or oyster shell) and a micro nutrient pack for vitamins and trace minerals. That's it.
Keep in mind, 4 million hens lay about 3,200,000 eggs on average per day. There are 12 eggs in a dozen, 30 dozen in a case and 750 cases fit on a tractor trailer. That leaves us with about 12 truckloads of eggs per day. But keep in mind as the hens age the sizes change. Remember we had small, medium, large, extra-large, and jumbo size eggs - then there are b-grade (odd shaped or slightly cracked but not leaking eggs and peewees. 7 different sizes - oh, and "nest run" which means we don't separate them by size but just put everything on a flat.
Keep in mind, the hen starts out with pee-wee sized eggs, then small, medium and as they age, large, X-large and jumbo...then none again. Since the farmer doesn't need all of one size, they have to stagger the start dates do the hens are all different ages so they get some smalls, some mediums, etc. More logistics!
These are packed in paper and foam cartons by customer. One company I ran had 81 different skus of eggs to deal with. To have the right sizes in the right cartons we utilized 11 different suppliers that could pack eggs in our customers cartons for us. We could do some for then at times too.
So we also have to keep in mind once a hen starts laying an egg, you can't just stop them. Your hens aren't the only ones laying eggs either - everyone's hens are laying eggs. In the US there are currently around 300,000,000 laying hens, usually about one per person. The market is dictated by supply and demand. Demand peaks every year around Easter. It always has, with a huge drop week after. Big holidays also put on more demand for eggs - Thanksgiving and Christmas - as families gather and more home cooking is done. Margins are made from several areas - efficiencies in processing, transporting, inventorying, shared production, production costs, and marketing arrangements. Again, though, once started, your can't stop a hen from laying unless you withdraw the feed or send her to be canned.
So what is so different from the egg business to any other retail production organization? If the egg is the widget, and the price of widgets in the market falls, you keep producing more widgets - eggs - because you can't stop. If the price of feed, by far the largest cost, escalates because the government decides to use a larger percentage of corn for bio-fuel production - you still continue to produce eggs even though in both cases you are losing your backside on every dozen. Of course when the opposite happens, you make bank every day!
The point is in the egg business, your production is regardless of the market on a year to year basis. Your end users or grocery stores and restaurants, usually buy about the same number all the time. Strange world pressures on the production costs or volumes of production sway the markets wildly and that can make for huge profitability or fantastic losses beyond your own management ability.
There are, however, breakers - companies that buy overages, and in the old days for the most part cracks, leakers, and double yolks - as well as mis-shapen eggs. They break the eggs, separate the white and yolk from the shell, and then can blend in whatever the end user may prefer - sugared whites, prepared yolk for noodles, etc. And, of course, this can provide a place for over production to some extent because the shelf life of dried eggs is years not days.
Compare this to your industry that is unlike any other - see any similarities? Places that you don't have control? No way of stopping the bleeding when it becomes a hemorrhage, huge swings in profitability, and real deadlines! Throw in a few more things - since it is a biological machine it produces biologic waste - and must make it to a field for fertilizer - good news is it is able to be used, bad news is there is a lot of it (roughly 0.25 pounds a day per hen).
My Business Model Is Like No Other:
Let's say you sprain your ankle this afternoon. You go to the local emergency room for a doctor to take a look. He orders an x-ray and prescribes for you some pain medicine. He then wraps it up and sends you home. What just happened? You just participated in 1/7th of the US economy. Think about that - just how big is health care? How complicated could it be?
I don't have enough gigabytes of space to write just how complicated it can be - but compare your retail model to that of a hospital. First, is your business for profit or a not-for-profit? Your hospital may well have both constituents. If you go to the bank, your bank wants to know how you are going to pay back your loans. What do you think a hospital has to do?
Since hospitals serve (literally) the area, and they are rarely small, they need a lot of money for a lot of equipment, specialized structures, patient handling processes and personnel. So a dozen or so rich doctors go out to dinner and each pitch in a million or two and they build the hospital, right? Probably not. First, since there may already be a hospital somewhere nearby - or 50 miles away - and they intend to take payments for service from the government - (US OR Other) a "certificate of need" may be required. In some countries - this could be the same for other products. If there are already enough people producing XYZ, the government may say no to adding to the production of more. In the US the only thing that stands in the way normally is getting together the money to enter it. No guarantee of profitability is provided.
So your good doctors get their certificate of need from the government. Now they have to begin to do their surveys to see if they can afford to do business. Before the CoN they may have done a preliminary survey - 50,000 people working for 1,000 companies 80% of which offer or provide high quality independent health insurance. This means there are 40,000 insured workers within the service area - and each has an average family of 2.5 people - 100,000 potential patients. Now the number crunchers can tell you from that 100,000 potential patients - the average anticipated amount of time at the hospital would be X and the revenue from those stays would be Y. So all the numbers come in and the certificate of need is adequate - and the Federal Government decides to support Obamacare...so now the number of people on high quality private insurance goes from 40,000 to 4,000 - and there isn't enough potential money to build the hospital.No bond company in their right mind would offer bonds based on these new numbers.
Millions of dollars intended for the growth of a new building, treating tens of thousands of patients based on numbers - that can't make something work - even a not-for-profit.
Or, let's say the companies in the area just say heck, we'll keep the insurance - the hospital gets built and people start to use it. So who hires whom? Do the doctors work for themselves or the hospital? Are departments part of or a part from the hospital? Is billing done here or in India? Here is one interesting thing I personally have run up on. In selling software to hospitals I mentioned the prospect of cutting costs by having the billing outsourced to a highly qualified group in India. They had a fit telling me how important it was to keep that information in the US and that it was too risky to use companies in India for insurance related discussions. Then, I looked right into their eyes and said, "I thought it may be helpful having your people talking to the insurance company's people IN THE NEXT ROOM!" In other words - the insurance companies are using Indian companies to handle the business - why not let them handle your billing! It was an eye opener!
A hospital may be union in departments - non-union in others. It may have hospitalists taking care of patients for their primary doctors so the primary doctor doesn't have to come to the hospital. From floor sweeps to administrators there are levels upon levels of jobs. It takes a lot to manage and a lot to make it break even or possibly turn a profit. How does this compare to your business? Like no other - and failure here - measured with the ultimate measurement.
Advertising - Like No Other Business
I have sold print advertising, Internet advertising, radio, television and mailers. What is different about the business of advertising? Probably the product - very much like life insurance. Selling the white space between the black lines isn't easy as it sounds - particularly in difficult times - when it should be the easiest. When dollars are scarce who do you think is going to get the most of them? The guy that remembers to advertise, of course.
Advertising is one of those things that is fun but difficult at best to put a value on consistently. I have sold the back page of an international trade publication for $6,000 and a quarter page of another publication for the same thing. I created an ad for a well-known handgun manufacturer who had just spent $25,000 having a commercial shot - and I sold mine to them for $250.
What is it you are selling when selling advertising? What is it you are selling when you are selling insurance? Intangibles can be the hardest thing to sell that there is. Tangible items at least can be held in your hand - not intangibles. Feelings, ideas, comfort, whatever it is you sell this way is like selling - air. Air can be fun!
My point to this diatribe is that rarely is the retailer out there anymore who buys wholesale products in for X, adds 15-50% to it, retails it out for Y and Z is their profit. The reality is - there are more ways than one to make money!