A VC in Vacationland

Marketing & Sales Innovators (Update): Zoom Systems

Image by Laughing Squid via Flickr

According to VentureBeat, Zoom Systems, the San Francisco-based provider of luxury-good vending machines, just brought in $20 million in fifth-round funding to increase its market presence in the U.S. and Japan. You may have already spotted its machines (termed “automated retail stores”) in airports and shopping malls. By and large, they sell major electronics from companies like Apple and Sony, and other swanky tech goods like Rosetta Stone language-learning software.

We originally reviewed Zoom Systems two years ago. They have come a long way in a tough economic environment.  The concept started as a vehicle for marketing Motorola products in 2006 — only 20 machines were supposed to be placed throughout the U.S. Today, more than 800 machines have been installed, bringing in about $40,000 per square foot of space they occupy per year in airports alone. While Zoom doesn’t actually make the machines itself (it outsources manufacturing to a partner), it says it takes care of installation, maintenance, security and supply monitoring.

With just 100 employees, the company claims the recent round will fund the rollout of 1,000 more machines in the U.S. and Japan by the end of the year. The money came from existing backers Sierra Ventures, Goldman Sachs Group, NeoCarta Ventures, Motorola Ventures and Starfish Ventures.

For now, it appears to be the only vending machine provider of its kind. Their minimal supply chain and sales cost per product will continue drive success for Zoom, even in a difficult economy.

Don't Lose Your Emotional Connections

Early customers often have strong emotional connections to start ups.  After all, they bought the unproven software from a tiny company with shaky finances, sometimes putting their own careers on the line to convince senior executives that already purchased SAP or Oracle suites could not solve the same problem.  They took a lot of risks and formed a close bond with the founders as they worked together to convince a skeptical management of the value of the solution.

Those early customers are the start up's principal cheerleaders--doer of webinars, approver of case studies and taker of many reference calls. They also get a lot of attention from founders, who favor the early customers with priority on product enhancements, superb support and detailed training.  The result is a nice symbiotic relationship between customer and start up which helps drive market growth for the company and career advancement for the buyer (assuming the software solution is consistent with the stated value proposition).

In many start ups, early customers get forgotten after a few years as the drive to add new clients focuses the start up on sales, rather than customer care.  Early customers are early adopters, willing to take a chance with unknown software to gain advantages in the market.  They help sell the next generation of fast follower companies, who generally wait until the early adopters have shown the usefulness of the tools. But as start ups acquire more customers, they often shift product enhancements towards less sophisticated customers with different needs than the early adopters.

As a result, early adopters begin to view the start up as not innovative in the space and begin to look for alternative solutions with new tools to further enhance their capabilities.  Sometimes they just stop using the software in favor of newer competitors.

How can a start up avoid such a fate? 

First, make sure you have constant contact with your early adopters, keeping track of original buyers as well as new users,  These contacts should initially be at the founder level, with the introduction of a trusted customer manager at the appropriate time.  The founders still need to be in touch with the user community, perhaps through quarterly newsletters and user forums.

Second, establish an on line user community/forum where users can post issues, request information from other users on how to solve specific problems, get up to date data on what's going on at the company and engage in dialogs with company executives.

Finally, develop a knowledge-based communication system, including webinars, white papers, and emails to inform current and prospective users of what's going on, not only in the company but in their industry.

Early adopter customer deflection is a warning sign to the marketplace that the start up is losing it's edge.  That may not be true.  It could just be losing its emotional connection with its early customers.

Supply Chain Innovators: On Line Book Sellers

I am a book collector.  Not a big one, but just first editions of books I particularly enjoyed reading and can reasonably afford. That does eliminate first editions of the James Bond novels, which can sell for $6,000 to $10,000 apiece in the rare book market today.  If I'd only known that when I first read them all.

Anyway, I noticed about a year ago that there were a growing number of 1 cent books being offered on Amazon, eBay and other auction sites. Being a supply chain guy, I kept wondering how anyone could make money on this business model.

Over the weekend, all was explained to me.  The New York Times Book Review published an interesting essay, Attack of the Megalisters. To cut to the quick, the money is made in the shipping allowance, currently $3.99 on Amazon. An exceptionally efficient seller, the essay states, can make 75 cents net margin out of a transaction. Not a fortune but multiply that by 100,000 sales in a year and someone can make a reasonable living in the on-line book business without the hassle of having an expensive store, employees and the mandatory cat.

So  where do all the 1 cent books come from?  Many come from "donations"--people who advertise, for example, on Craig's List and offer to pick up your excess books for free.  Others, like Thrift Books, acquires its stock by the ton, usually from libraries, secondhand stores and charities.

Most used or rare books, however, are not sold for one cent.  Many on line book sellers use sophisticated software, from companies like Fillz,an inventory and pricing service, to set prices on the web by optimizing across numerous variables, such as competitor ratings.  The industry has few barriers to entry and newbies often just screen scrape existing seller's listings, put them on their own site at a higher price, then buy it after they sell it from the unsuspecting competitor.

But many of the most successful players in the on line market are good old traditional book stores who use the web to reach a broader audience.  Who says you can't teach an old dog new tricks?

One could see a similar business model emerge for on line sales of vinyl records, CDs and DVDs.

A Supply Chain Management Wikipedia ?

WikiSCM is the latest addition to our knowledge base in supply chain.  While I am in favor of providing a clear definitions of various supply chain terms, this site falls far short. 

First, the site does not have definitions of the supply chain basics, like transportation management systems.  I realize that individual contributors need to add their input to the site to make it successful, but the founders should have done a better job recruiting experts to provide fundemental content on the site.

Second, the existing posts scream for an editor. Overly wordy sentences, pedantic writing styles and lots of irrelevant thoughts characterize many of the existing posts.  Personal opinion trumps fact in a number a cases, with the authors providing their own opinion of "how stuff should operate".  These are not necessarily widely accepted best practices (such as using Six Sigma to run your S&OP process--try explaining that to the sales guys). And the S&OP section did not mention Integrated Business Planning, the latest trend in managing supply and demand in a supply chain.

Finally, the identity of the founders and authors are masked, as in most wikis, so one does not know who wrote what.  Although the site does say the posts need to be non-commercial and not mention products or services, I was not convinced that the authors were not pushing an agenda.  Topic choice for posts was focused on issues that are hot among consultants, but not necessarily mainstream as yet, such as risk management.

My recommendation is to buy or borrow a good supply chain textbook, such as The Practice of Supply Chain Management: Where Theory and Application Converge by Hau Lee and other editors.  You will find well thought out explanations of how best to design and operate various supply chain processes to help you improve your supply chain operations.

WikiSCM may still end up being what it promises to be, but more people with direct knowledge of best practices in supply chain need to get involved.

Feeding Frenzy in Supply Chain Technology Markets

IBM acquires ILOG for $340 Million--July 28, 2008

JDA acquires i2 for $346 Million--August 11, 2008

 

The acquisition spree continues in the supply chain technology space as early pioneers opt to tie in with bigger partners.  IBM's acquisition of ILOG is clearly focused on adding the capability to manage complex supply chain outsourcing projects that IBM, Accenture and others are pushing hard in the marketplace.  JDA's acquisition of i2 caps the end of a long downfall by one of the early leaders in discrete manufacturing and supply chain technology and adds these applications to complementary consumer product ones acquired from the Manugistics deal last year.

What does it mean for competition in this market?  Frankly, not much.  The underlying software will continue to be sold and supported for as long as enough clients are attracted to the offerings.  The acquisitions clearly "throw in the towel" for certain, stand alone best of breed companies.  But many other healthy supply chain technology players still exist, such as HighJump (now owned by Battery Ventures), Descartes (which is enjoying record sales and profits), Sterling Commerce (still owned by AT&T!) and Infor.

Is best of breed software a bad bet in supply chain?  Hardly.  The rapid adoption of SOA software architecture will create infinite numbers of best of breed solutions--customized supply chain processes and procedures driven by underlying optimization and rules engines, such as those owned by ILOG and Fair Issac.  Savvy investors such as IBM are acquiring the building blocks of future supply chain software in these acquisitions.  The big difference between yesterdays and tomorrow best of breed software development is that it will be faster, cheaper, modularized and highly customized--while being easy to change and reconfigure without extensive and expensive version upgrades.

And let's not forget the data!  SAP and Oracle have honed their focus on owning the enterprise data.  Note the emphasis on enterprise.  A good strategy for managing inside the four walls, but obtaining real-time information on supply chain visibility and sharing data across supply chains continues to be a nightmare.  The emerging future strategy in supply chain management is decision making based on visibility of supply chain partner data, on a real-time basis.  This will give new supply chain technology entrants, such as LeanLogisitcs, a major advantage over competitors, since they collect and manage data on transportation moves that is not resident in enterprise data repositories.

So, if you ask for whom the bell tolls, think "old school" supply chain technology embodied in i2 and Manugistics.  The revolution is just beginning for the next generation of supply chain technology.

The Omnivore's Dilemma: Our Food Supply Chains

The Omnivore's Dilemma by Michael Pollan is one of the best supply chain strategy books ever written.  That's a pretty strong endorsement from a guy who's read most if not all supply chain strategy books produced in the last thirty years. It's not your classic supply chain strategy book, but one that explores where your food comes from, how it gets to market and how your consumption affects and is affected by the environment in which the food as produced.

At the supply chain strategy level, the book explains in great detail how our food is sourced through four distinct supply chains--industrial, industrial organic, pastoral and personal. 

Industrial refers to how the vast majority of our food is produced, using corn as a basis for many products, along with "healthy" doses of petroleum-based fertilizers and pesticides.  OK, not much new here, but the actual processes of how our industrial food machine creates and distributes so many products is fascinating reading.  Industrial organic refers to the Whole Foods supermarket world and related "organic" aisles at traditional grocers, with mega suppliers such as Cascadian Foods and Earthbound Farms providing huge quantities of "organic" (see the FDA guidelines and you will be surprised that the supply chain is only marginally different than the industrial, primarily in the use of pesticides and some fertilizers).  Pastoral refers to the "beyond organic" producers who are local providers of foods grown in a manner consonant with the environment, such as using manure and green plants as fertilizers and rotating crops to control pests. Personal refers to the "do-it-yourself" methods of hunter/gatherer food collection, including shooting your own meat, collecting your own greens and mushrooms,etc.

In spite of the fact the author is a vegetarian, he presents a very balanced view on the whole issue of animal meat consumption, mostly focused on the treatment of animals in the industrial and the industrial organic food chains.  I won't spoil the story, but it will make you think a lot about where you food comes from and under what conditions it is "harvested".

One interesting aspect of the book is that many of the industrial and industrial organic suppliers would not let him view their food production processes in detail, or at all.  Many suppliers cited national security concerns, so as not to give potential terrorists insights in where and how food is produced, as if they could not figure that one out for themselves.  The scary part is how easy it would be to disrupt parts of our food supply chains if terrorists figured out ways to poison food in process, something we manage to do quite well it seems all by ourselves--witness the latest salmonella scare with tomatoes (or is it jalapeno's?)and our inability to figure out where those vegetables were sourced.

Rethinking the Black Hole of Supply Chain Strategy

Where does your supply chain thinking stop?  When it goes out the door of your distribution center? At the customer DC? At the store back room or shelf?  Or as it goes out the door in the hands of the consumer?

For the typical consumer products company, I'll bet that it probably stops when it goes out the door of your DC.  You probably have a 95+% fill rate on orders at that point.  It then becomes the "responsibility" of your marketing and sales guys, right?  They are the ones supposed to make the sale happen at the consumer level.  But the reality is that average on-shelf product availability are in the mid 60's, according to numerous retailer surveys, and have remained at that level for many years.

When was the last time you saw a sales or marketing guy take an interest in the exotic logistics of getting the right product onto a shelf exactly when the consumer is ready to buy it?  Try never, or rarely, and that mostly consists of whining to the supply chain guys about why they can't get it right.

Last mile supply chain management--from the retailer DC to the store shelf, ostensibly the responsibility of the retailer, is the black hole of supply chain strategy.  Once in the store back room, on-shelf stocking becomes the job of low-paid and generally untrained store employees or merchandisers.  Hit or miss stocking strategies are often focused on replenishment schedules for employees defined by store managers, or specific days-in-store for merchandisers, only sometimes based on sell-through data or forecasts.

Why has last mile supply chain management never been taken seriously by supply chain professionals?  There are many possible reasons--it has not been taught in the universities, there is little research done on the subject, only a few technologies exist to manage the last mile, there is confusion between sales and supply chain and/or manufacturers and retailers about who "owns" the last mile, etc. etc. This is not to say that companies are not working on these problems.  A number of major consumer product companies are initiating collaborative work with their retailers to improve on-shelf availability.

So what are some ways to "fill" the black hole of supply chain management to reduce on-shelf product out-of-stock problems? Here are three ways in which supply chain professional can begin to tackle the problem:

1. It's the Revenue, Stupid.  For consumer product companies and retailers, low on-shelf availability cost them both money.  Retailers often say they don't care about on-shelf out of stocks because substitute products are only a few feet away. Consumer product manufacturers say that in-store supply chains should be "managed" by sales & marketing, not their supply chain guys. There are also data sensitivities as well as not wanting vendors involved in retailer decision processes. But this intransigence results in lost revenue for both parties, something that makes less and less sense in a world where long-term growth in consumer spending is threatened by energy and commodity price increases.
2. Who's on First? As we mentioned earlier, responsibility for in-store, on-shelf product availability management is a contentious area.  Retailers do not like vendors telling them they are doing a poor job. Similarly, most consumer products companies do not have solutions available to help retailers better manage in-store operations.  Before any meaningful progress can be made on reducing on-shelf out of stocks, retailers and vendors must engage in serious discussions about how changing the business models will benefit both of them.  One consumer products company is proposing a "turn-key" solution for their retailers, that involves the vendor suggesting product stocking levels at retailer DC's and eventually stores, along with measuring and reporting improved revenues for both parties.
3. Innovative Business Models. Most every vendor has shown up at a retailer sometime over the last decade with a mandate from their management to "do something to help you" to improve revenues. When asked how, words like "collaboration" and "account teams" are mentioned.  Rarely, however, have the vendors or retailers thought out the correct business model to make this happen. How are people going to interact, what new processes need to be put into place, what new technologies are needed, how will success be measured are only a few of the questions that need to be answered. Often, no one wants to put the time in to answering these questions and the initiatives become forgotten.

The big question is whether vendors and retailers are ready to tackle this problem.  For vendors, there is not much else they can do to improve their existing supply chains, which now basically end at the retailer distribution center.  The opportunity for vendors lies in defining new supply chain management capabilities that can reach into retailer stores to help them improve on-shelf availability without creating new issues and costs for retailers. Only then can they tap that huge lost revenue pool defined by a consumer showing up in a store and not finding the product(s) they wanted.

RFID Innovators: ThinkMagic

According to PE Hub, Cambridge radio frequency identification technology (RFID) developer ThingMagic, Inc. reports it has entered into a new partnership with power tool maker DeWALT and Ford Motor Company to equip new trucks with RFID-based asset tracking systems.

The partnership will equip 2009 Ford F-150 and F-Series Super Duty pickup trucks, as well as E-Series vans, with an embedded RFID asset tracking system, including readers from ThingMagic. The system, dubbed Ford Work Solutions Tool Link by DeWALT, uses RFID technology to track tagged assets, such as tools, construction equipment and materials, in the truck, ensuring contents are easily accounted for and quickly located at all times. Inventory of bed contents is taken by the readers and relayed to a screen in the cab.

The system also includes antennas, tags, and corrosion and impact resistant housings mounted on the vehicle, according to ThingMagic officials, who said the three companies have been collaborating on the project for more than a year. Financial terms of the deal were not released.

Finding useful, everyday problems to solve with RFID has long plagued providers of the technology, who seek stable and profitable markets for their products.  Rather than trying to solve "world hunger" (although I do think RFID could play an interesting role in food distribution in needy countries), companies like ThinkMagic are taking a more pragmatic approach and looking for simple problems to solve, like "where the heck did that saw or router go?" On the other hand, it is not clear that RFID solves the biggest problem with asset management on the  job site--the "five-finger discount".  At least the perp should not be so stupid as to try and use the tagged tool on the same site, or another one where the previous owner's truck is present.

DeWALT, which is a brand name of Maryland-based Black & Decker Corporation has built a reputation for advancing new technologies in the power tool industry. The company was among the first to use nanomaterials-based lithium-ion batteries from A123Systems, Inc. last year, and has integrated GPSS technology into products aimed at securing job sites for contractors.

Founded in 2000, ThingMagic has brought in more than $20 million in private funding. Investors include The Exxel Group, Morningside Technology Ventures Ltd., Inventec Appliances, Top Line Growth Capital and Cisco Systems, Inc.

Supply Chain Innovators: Weatherbill & GeoOptics

Can your supply chain be affected by weather?

Any shipper that has had to pay late fees to a retailer because they missed a delivery window may want to check out the newest way to hedge weather-caused transportation delays. Let's say you have a critical air delivery due to ship to a Wal-Mart distribution center, but see that the nearest airport is likely to be closed tomorrow due to T-storms.  You could potentially buy a contract from Weatherbill to protect you from any Wal-Mart penalty fees due to weather problems.

The following Q&A is lifted from the Weatherbill website:

What is Weatherbill?

WeatherBill is the first service to provide affordable and easy-to-use weather coverage to protect revenue and control costs for the millions of businesses impacted by the weather.

WeatherBill coverage is safe and reliable. There is no unnecessary paperwork, no claims process, no proof-of-loss and no waiting for payment. WeatherBill is the only service that enables customers to customize, price and buy weather coverage on line in just minutes, and pays automatically when bad weather occurs.

In addition to weather coverage, WeatherBill provides free services for businesses affected by the weather. Our free weather correlation tools help individual businesses understand how weather impacts their financial performance. Our research reports provide insight into the ways weather affects all industries. We believe every business should understand how the weather affects demand, yields, costs, schedules and the bottom line. WeatherBill can provide the earnings protection critical to every weather sensitive business.

What are Weatherbill contracts?

WeatherBill contracts are financial instruments that can be used by business managers and owners to protect against adverse weather. Adverse weather can be as simple as a rainy day or as destructive as a 6-month drought. If you know what weather conditions may impact your business, you can create a Contract that will pay you when the conditions occur, thus "hedging" your risk. Hedging your weather risk helps decrease the volatility of your business's profits. There is no minimum contract amount - you can buy protection for as little as $1.

Why would I want to buy a WeatherBill contract?

Each year, businesses around the world are financially affected by the weather. For example, in the United States $2-3 trillion of the GDP is impacted. Globally, climate change could cost between five and 20 percent of the annual global gross domestic product. Heat waves, hurricanes - even abnormally warm winters or wet springs can impact the operations of all types of business. Ski resorts suffer during a warm winter and amusement parks lose visitors on rainy days. Sound planning means putting together a solid business interruption strategy. Weather Contracts can help guard against some of the unpredictability's of weather. Use the WeatherBill Tools to learn more about how your business may impacted by the weather. 

Well, if one can hedge fuel costs, why not the weather?  Weather disruptions can mean big issues for supply chains, especially with retailers seeking penalties for any kind of shipment discrepancies.  Weatherbill provides a marketplace to hedge against thses issues, especially for expensive, high valued shipments such as computers or HDTVs.

Finally, feeding the correct data to weather prediction models is also a major issue. Current high orbit satellites provide overview information but no detailed atmospheric measurements. GeoOptics , a GPS satellite company seeks to revolutionize how private satellite data is collected. They are developing a low-orbit satellite system that collects atmospheric information by recording how radio signals bend as they travel through the atmosphere. Scientists can measure the bend and signal delay relative to unbended radio waves to produce readings on atmospheric temperatures, humidity, pressure and electron density. The resulting information will allow forecasters and WeatherBill to better predict the size, course and intensity of major storms (hurricanes, typhoons) as well as ordinary weather patterns.

Marketing/Supply Chain Innovators: Don Henley & The Eagles

I never thought that any supply chain or marketing innovators would get a editorial in the New York Sunday Times, but it happened.  The new Eagles album--Long Road out of Eden--was released in early November only in Wal-Mart.  With all the angst about the long-term decline in traditional distribution channels for music--and the propensity of the younger generation to think music is free and that artists do not deserve to be paid, only adored and shared with friends--it is interesting to see The Eagles looking for new distribution deals to reach paying fans. The Eagles released the album without a major record label involved, avoiding all their overhead and baggage, as well as arcane and expensive distribution channels.  Presumably, The Eagles cut the album, outsourced production, agreed on a marketing deal and distribution volumes with Wal Mart and shipped the product directly into the Wal Mart distribution system.  No muss, no fuss, and lots more money in the pockets of the band, if the early buzz on the deal is to be believed.

Let's be honest here--it's all about demographics, as the editorial points out.  Wal-Mart's aging customer base, while not the best news for Wal-Mart or its investors, is good news for the over sixties rockers.  Heck, we may see Mick and the Stones, Paul McCartney and all our other favorite '60s rock groups following behind, especially with the 710,000 sales of the new Eagles album produced in the first week of release.

Why not have younger music stars cut exclusive deals with other channels, like Amazon, that may fit their demographics?  Nothing is happening so far.  But for all I know, it may have already occurred as Billboard just added music sold only through a single source to their sales charts.  As usual, entrepreneurs like The Eagles felt the need to take control of their destiny and not go down with the sinking ship.

This is no cure for the overall problem of "free music" via file sharing. Radiohead's recent decision to sell their latest album, In Rainbows, on the web for whatever you are willing to pay, including free, shows that we have a long way to go to reverse the Napster curse.  Initial estimates reveal that over 60% of the "fans" chose to pay nothing for the download. The jury is out as to whether other singers or groups will go down this "innovative" path in the future.  My bet is the the single source deals may pay better in the long run.

Stay tuned.  A lot more innovation is coming in the music distribution channels in the next few years.

UPDATE: In the first week (early January 2008) of release as a physical album, Radiohead sold over 125,000 copies (not counting Internet sales). So I guess a lot of people still want that hard copy for the car, portable CD player or whatever.