A couple of weeks ago I was lucky enough to see a presentation by Ruslan Kogan (kogan.com.au) which was put together by the MBS Marketing Association (but more on that down below). Apart from being a really engaging presentation, there were a couple of key items which have stuck with me and I’ve been meaning to share.
As a bit of background, Ruslan started Kogan by importing a container of TV’s (I guess they were plasma’s given the vintage) from China after identifying the price differential between what was being offered ($3-4k plasma’s through Harvey Norman and JB-Hifi)and what he could source (a $1200 TV with the same components, from the same manufacturer, without the Samsung or Sony branding). From this he’s built the biggest online electronics retailer in Australia and topped the Richest-Australian-Under-30 list last year.
He’s made a name for himself by being innovative, taking on big-guys like Harvey Norman, in an established industry and doing it successfully by bringing a new business model into the market. The first time I heard about Kogan was their “Don’t buy into the cable con” promotion when JB Hi-Fi were upselling to HDMI cables to TV and Blu-ray purchasers for hundred of dollars. An HDMI cable connects devices together and because the signal is digital, it doesn’t degrade like analog so there’s no appreciable difference in signal quality between a $5 cable and a $200 cable. Because the customer is instore and in many cases, needs to buy a cable to connect their new toys, the only choice they have is to get gouged for a cable with a 4000% markup. It’s like saying that a streamed video looks better on your laptop because you upgraded your ethernet cable… it just doesn’t make sense!*
Two things really struck me about his presentation. Firstly, he’s a guy who is always looking for the win-win. This is a fantastic attitude to take in business because when you succeed your partners succeed which makes everyone rich and happy. There’s no point in developing supplier relationships where you’re out to screw every last dollar out of your partner, if they’re not making money then they aren’t going to provide you with the level of service you need to keep your customers happy. By way of example, the automotive industry is often quoted here. Toyota works hard with it’s supplier to improve their efficiency and profitability, to the point where if a supplier is struggling, Toyota sends in process engineers and analysts to support the supplier. Other manufacturers (GM is often mentioned) have an adversarial relationship with their suppliers. They’re constantly pushing for the lowest price-point and threatening to remove contracts. That sort of activity breeds an unsustainable working relationship. Suppliers are no longer trying to help you, they’re just trying to get what they can and get out.
Ruslan was talking about manufacturing in China and how, in the initial negotiations with the factory they started talking dollars and once they settled on a price the factory manager told him how well he’d done and how the factory was losing money because Ruslan had done such a good negotiating job and Ruslan said “I don’t want to work with you” and walked out. The manager is sitting there shell-shocked and Ruslan’s translator is running along behind him saying “what are you doing, what are you doing” and Ruslan turns to the interpreter and quips: “Either this guy is an idiot and he’s not going to be running a business in 6 months if he makes deals that he loses money on or he’s a liar and I don’t deal with liars”. It’s interesting because you can approach that idea of sustainable business and win-win from another angle. Apart from the idea of a situation where both parties do better as a result of the deal we’ve also covered the concept in class of creating a deal where the costs of not completing the deal are greater than the potential benefits of ripping the other party off. If you’re interested in the idea, have a search for transaction costs and transaction specific assets or drop me a line and I’ll send you some stuff.
The second idea that Ruslan really pushed was something that’s consistently mentioned by all the entrepreneur-oriented speakers I’ve heard, the importance of failure and of persistence. I don’t want to tell all of Ruslan’s stories (if only because I don’t do it nearly as well as he does and I’d hate to steal his thunder if you ever get a chance to see one of his presentations) but he makes himself relate-able by talking about the ways in which he failed. Working at a high-profile consultancy firm and the frustrations associated with that. The failed business ventures and the opportunities that he had a go at but didn’t get up and running. Apart from the humanizing aspect to that, he identifies a cultural component as well as a personality aspect that contribute to his willingness to get back on the horse and have another go at things. Kogan was a big roll of the dice for him, his first container-load of TV’s placed him in debt after he’d just lost his job but you get the sense that even if that TV venture hadn’t gone right for him, he would have licked his wounds, built some capital and had another crack at something else. And I find that heartening…
One of the things that was pointed out in our very first week at MBS was that, by-and-large, the people that were sitting in that room were winners, were successes and had probably succeeded at most of the things they’d ever done. But there’s some instances in which that’s not such a great thing. Success is a lousy teacher so when you eventually fail, you’re worse off for not having the support network and coping mechanisms for being able to deal with it. Entrepreneurship is all about failure, as much as it is about anything else and that’s something that a business school affords you, a chance to fail and a chance to learn from that without burying yourself in debt or being so demoralized that you don’t ever have another go. I don’t believe that persistence is something that can be taught, the best you can hope for (I suspect) is picking it up by osmosis from your peers. The people you surround yourself with and how they react, either in support of or by criticizing you for your failures, will be a primary factor in whether you continue down that path. For me, the opportunity to access that peer group and environment is something unique and valuable that a business school can offer.
*Note that you can buy more “fully featured” cables which support higher bandwidth or audio return etc. but that’s a case of features, not quality. These additional features are for users with specific needs, they aren’t something that anyone with a system under $100k is going to use.
What Tim Learned at Business School 