Kevin Minne
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Obscure Change = Big Opportunity?

9/30/2016

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Hopefully by now, every regular reader knows that change always holds hidden opportunity.  Sometimes the smallest and seemingly most inconsequential changes can spell big opportunity to those who are paying attention!  And even the biggest seemingly negative changes hold positive opportunity for those who are tenacious enough to find it!  Today’s post is intended to stretch your peripheral awareness of international events and their impact on your local world.  So, what little obscure change or changes might we be talking about, that could spell big opportunity at this time in history?
    For one, the Chinese currency is being included for the first time in the IMF (International Monetary Fund) SDR (special drawing rights) currency basket.  And two, Germany's Deutsche Bank which is one of the worlds largest derivative dealers appears to be in big liquidity trouble.  What does this mean for the non-financial nerd?  
    Well the SDR's are very much like a stock index such as the Dow Jones industrial average only this index is for currencies.  If your company is added to the Dow Jones industrial index you are one of the elite 30 companies that are considered the bellwethers of American industry.  Likewise if your currency is included in the SDR's it means your currency is one of the five most elite International trading currencies.  On October first the Chinese Yuan will make up 10.9% of the SDR basket of currencies which means investors worldwide are much more likely to use the Yuan for trade, for foreign investment or to store their wealth, which in turn strengthens Yuan even more.  Even though the US dollar gave up less than 1% of its position in the basket to make this possible, this little change could be the beginning of a new long term trend in declining Dollar power and rising Yuan power.  
    And as for Germany’s Deutsche Bank derivative problems we know all too well what the collapse of Lehman Brothers did to international liquidity in 2008.  Is there an opportunity for those who are prepared for tighter lending standards or reductions in credit lines?  What would happen to asset prices in real estate and stocks and commodities?  Even the UN is predicting an imminent financial crisis.  So it might be prudent to look for the opportunities in some of these possible upcoming changes!!   

Remember we stand ready, at Innovation Growth Systems Inc., to help you innovate with change!

By: Kevin Minne
InnovationGrowthSystems.com
720-354-0291

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Housing Identity Crisis,  Can We Afford to Innovate?

7/29/2016

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Even though the home building industry is ripe for disruptive innovation (BIG not incremental reductions in cycle times and costs) it might be that the industry cannot afford to innovate.
    The problem with the housing market (one of them) is a confusion of identity.  Just like a bank balance sheet where an entry can be both an asset and a liability, a house has the same two opposing identities.  For most people their house is their biggest investment (asset) and like any good investor the goal is to buy low and sell high.  On the other hand housing is a cost (liability) and it’s always good to keep costs low.  In other words when people can afford to buy a house they usually jump in and wait for the price to soar (meanwhile controlling their housing costs) so they can get rich selling to someone else.  But in order for home owners to get rich off this legal Ponzi scheme and for prices to go higher there needs to be more buyers than sellers.  (Simple stuff so far right?)          
    Unfortunately, the higher house prices go the fewer people there are that can afford to buy in and the chances of getting rich from selling your house diminishes.  That’s where banks step in with their version of a solution to solve the problem.  Banks have a vested interest in higher priced houses (protecting the value of your shared asset) so they facilitate the buy in by loaning more and more money to buyers which drives up prices and makes happy bankers and happy sellers.  (It’s all good right?)  Only it’s not, because the rising entry prices and falling incomes are eliminating more and more of the desperately needed buyers from being able to qualify for a loan and keep the cycle going.  (One recent Gallup poll over a two year period showed a 34% increase in the number of people who gave up hope of ever owing a home.)  For a market to be healthy there needs to be lots of participation and when participation drops it might be time to look out below.  (Are you with me so far??)
    So, this is where the identity crisis becomes a problem.  We need to be able to lower the entry cost of buying a home and simultaneously keep home values high for banks and owners.    (When you figure that one out let me know!)  But wait, maybe it’s time for a good old fashioned market correction to help make housing costs temporarily cheaper right?  Unfortunately, the last time this happened, lending standards tightened and many would be buyers lost their jobs which exacerbated the problem.  So, what do you do when the only people who could drive up housing prices can’t afford a house?  If we continue to loan money to keep prices up and increase participation we will have to have lower lending standards…. oh, wait we already tried that!  Or, we can focus on those really BIG not incremental (say 50% reductions in cycle times and costs and improvements in productivity.  But wait… if we cause a big drop in home building costs wouldn’t that lower the value of all homes overnight?  Think about what digital cameras did to film or the fax and email did to snail mail or cell phones did to land line phones, etc. etc.  
    The real questions are, can our whole “home owner investment philosophy” and our (still on life support) banking system and economy afford that kind of lowered housing price that might come from disruptive innovation?  And, how can we avoid another housing calamity if we don’t innovate to lower housing costs?

I would love to hear your ideas on how to solve this problem???  Just click the “comments” right below the “like” or “tweet” icons to add you thoughts.
    
By: Kevin Minne
InnovationGrowthSystems.com
720-354-0291

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The Debt Bet

7/15/2016

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To debt or not to debt that is the question.  Just about everyone has had to answer the question of whether to take on more debt in their personal lives or in business numerous times.  Debt is a part of our everyday lives and has been a part of the human experience all through history.  In fact the last time the United States was debt free was in 1835 under the Andrew Jackson administration because he wanted to abolish the old version of the Federal Reserve.  (Funny how his face is on a debt “note” known as the twenty dollar bill.)  However, taking on debt is not something anyone should take lightly in fact it should be very central to the ongoing evolution of all life and business strategies.  As we all know too much debt can bankrupt individuals, kill a business or ruin a nation, so debt choices are critical to success and one vital key to having an innovators edge.   
    Even the best innovators are subject to the fickle’s of finance.  Let’s not forget that any time we take on debt it is a bet on the future.  Any bet has unknown risks that come with it, but some bets are more risky (like horses and football scores) than others.  In business there are some economic environments where debt carries more risk than others and it pays to carefully consider what kind of environment we are in before crafting your strategy for the future.  For instance, the iconic investor Warren Buffet will only invest in companies whose products have long term predictable demand, such as Dairy Queen or Coke or shoes etc.  But even those products had a drop in demand in the last economic downturn, which wasn’t so predictable.  Unfortunately, much of our societal demand is driven by debt and there are very few people that can purchase with their own saved money.  Even demand for the most stable of staple products is highly uncertain when banks cut credit.  There was a time decades ago in many industries, when demand was so stable and predictable that more debt was the safest bet in order to win the market share and production war.  But now markets have definitely turned boisterous and unpredictable and debt can leave you imprisoned by an old and obsolete business model or product.  
    The deceptive lure of low interest rates can make it almost impossible to convince yourself to stay out of debt, because we say “it’s so cheap to borrow.”  Unfortunately, when investors are willing invest trillions of dollars in a negative interest rate bond to lock in a loss, it is sending a red flag that even though loans are cheap, all is not right in the economy….borrower beware!  Your investment in business or personal debt may also have a negative return whether you like it or not and now may be the worst time to be in debt.  Even the smallest payment can bankrupt a company when there is no money coming in!  So, be careful keeping your dream alive and don’t bet your future on debt.  Being debt free is just that, freedom to move and adapt to market wiggles unencumbered by debt.

By: Kevin Minne
InnovationGrowthSystems.com
720-354-0291

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Process Breakdown, the Innovators Opportunity.

2/19/2016

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Large organizations depend on processes that are strictly adhered to in order to produce consistent results.  The problem is, that many times those processes don't always produce the intended results, they can have unintended results such as an accident or injury.  The attitude toward the occasional unintended outcome is what determines the opportunity.  If the attitude toward the mishap is that no process is perfect and it’s just part of doing business, then the unintended outcomes will continue.  However, if any unintended consequence is seen as an indication that there is a breakdown in the process then it opens the door for innovation.  Much of innovation is a result of attitude, what we are willing to accept and what we are willing to roll up our sleeves and do something about.  George Bernard Shaw’s quote about all progress depends on the unreasonable man, because he tries to adapt the world to himself, is so appropriate since the unwillingness to accept the current results is what drives innovation and progress.  If we live by the popular phrase “if it ain’t broke don’t fix it” we will perpetuate what exists at the expense of discovering better products and services.  Sometimes what is profitable and working for our business is not working for the customer.  Eventually, someone will find a better way to serve the customer and it might be too late for us to change.  Like the obsolete business model of Block Buster Video that fell to the Netflix business model that served the customer better.  So, adopt an attitude of upending your own business model or processes to serve the customer better, even if they are profitable and working, or some other innovator will!!!

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Focusing on your core business might be the wrong strategy Part 4

9/25/2015

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To continue on the course of being open to changing strategy and creating a new strength and core business.  Let's think for a little bit in more extreme terms, such as what to do with your business when the economy is in real trouble.  When I used to pilot single engine airplanes, there was a constant awareness that the one engine that was keeping me airborne might fail, then what?  If you were a passenger on that airplane you wouldn't wan't a positive thinking pilot just thinking happy thoughts, you would want a pilot that had already thought of what to do if the unthinkable happened.  With any business there are times when the engine of your growth fails and you need to have a plan in advance of any trouble.  And, if you look at the world economy and the financial system you don't have to look very far to see a few clouds on the horizon.  Now, none of us know absolutely whether those clouds will turn into a real storm but we don't have to, our job is to make sure we have alternate routes for our businesses if it does.  

If the banking system or our currency were in real trouble, (and it might be) most businesses haven't given any thought about what to do in that situation.  Most businesses need to have a minimum of two strategies, one for growth and one for endurance.  We are due for the recession that pretty dependably comes every 6-7 years.  So, it may be that we are in a business that is recession proof but if we are not, we should think about what our strengths need to be in a recession.  The new strengths we may need could be a different kind of selling, maybe to a different customer and maybe even a new or at least different line of products that do well when money is tight and banks are not lending.  If you go a little further you could think about what you might do to endure a high inflation or more extreme circumstance.  There was a study that produced the "Hyperinflation survival guide - Strategies for American businesses", (Written by Gerald Swanson) that researched the effects of Hyperinflation on businesses in South America.  That might be a start, one key point from that study is that once inflation takes off only the flexible survive.  For manufacturing, (as resources dry up) it may turn out that production is not the best use of capital.  Some businesses survived by leaving their core business to speculate in commodities, so desperation can be the mother of invention.  This may not happen but being willing to look at this kind of event and its effects on your business can be very helpful and can actually bring to light opportunities outside of your core business that you would not have seen without your new perspective.  Remember that competitiveness is not about doing what you are good at, but being able to adapt and provide what customers value!  Customers have different values in recessions vs growth economies. 


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Why focusing on your core strength might be the wrong strategy Part 3

9/18/2015

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Walmart has the largest retail distribution of any company in the world, so you would think that your sales problems would be over if you could get your product in their stores.  However, even though they sell massive quantities of goods, they are only good at selling a very specific list of goods to fulfill a certain kind of customer need.  They are not, for instance, good at selling at the higher end of the market, speciality products, autos, airplanes, lumber, computers or anything that isn’t on their list.  And really, if you were to dig deep you would probably find that they are not all that great at selling any specific item, they just provide product access and very basic help and because of their size they have the volume.  So that leaves the door wide open for just about anyone to sell their own product much better than Walmart especially if your product doesn’t fit into their specific requirements.  You might even keep more profit and create more brand value by keeping it out of their stores.  Unique products do upset Walmart because they already have a business model that has worked and they are not about to change it.  That is one very critical barrier to selling a new product or service, you may need to find or create completely new distribution channels to have it sold effectively.  The point is, that what we see as someone else's core strength might not be, and it might be easier to create that function in house rather than outsource it.  Some of the reason we have such a compulsion to outsourcing is that we measure profitability by gross profit margins and not net profit.  Just changing the way we measure success can give new incentives to innovate with your business model and processes.  Dow Corning is one company that changed the way they measured success from gross profit margin to total net profit and it kept them in product lines that they would otherwise have gotten out of.  The new measurement helped them see the benefits of staying in those businesses that the old measurement kept them blind to.  Look at Virgin Group limited, its core business areas are travel, entertainment and lifestyle, and it also manages ventures in financial services, transport, healthcare, food and drink, media and telecommunications; together, Virgin's businesses consist of more than 400 companies worldwide.  So, what is their core strength?  I would say that the core strength of Virgin Group Limited is actually unlimited and so is yours but you have to think critically about what you need your strengths to be in order to make your business more successful and then go make it happen!


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Deep Builder-Vendor relationships…keiretsu  (Ka’ Retsoo)

3/20/2015

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The Japanese Keiretsu was made famous by Toyota (the largest and most profitable auto manufacturer in the world).  Keiretsu is close-knit networks of vendors that continuously learn, improve, and prosper along with their parent companies. Toyota city is an example of deep vendor relationships that inspires interdependencies that benefit the whole.  

Is it time for the home building industry to embrace keiretsu and learn like Japanese auto manufactures to keep your friends close but your subcontractors and vendors closer?  American auto manufactures dipped a tentative toe in Keiretsu and began to lower the number of vendors they used and award long term contract but they never moved away from adversarial relationships and thus have never reached the kind of productivity that Toyota and other Japanese manufacturers have.  It wasn’t long before american auto manufacturers jumped to the conclusion that the immediate benefits of low wage costs out of mainly China outweighed the long-term benefits of investing in relationships.  As a result the supplier relationships with american auto manufacturers is worse now than ever.  Fortunately, Toyota and Honda both have created successful supplier relationships here in america and proven it is possible.  See Jeffrey Liker and Thomas Choi for more on this article in the Harvard Business Review.  

For home builders in america it is clearly not an option to outsource much of their labor globally like the american auto manufacturers.  So, it makes sense that the old “arms length” relationship with vendors and subcontractors might need to be abandoned in order to reach new cycle time reductions that benefit the whole (which would include the customer).  The caveat being that the new deep relationship is a real one not just a paper one.

But what do “Real” relationships look like and how are they formed?  If you have spent a lifetime squeezing the last nickel out of your vendors and getting along in what might resemble a fragile ceasefire it won’t come easy.  Old habits are difficult to overcome but thankfully there is relatively new research that can help us replace them with new habits faster.  Practicing the following list over and over with vendors and suppliers can help jump start a new collaborative relationship quickly.   




1.  Lighten up!  Studies show that a little levity and a sense of humor engenders trust.

2.  Ask for help on a challenging problem.  There is no more powerful connection than helping a fellow human.

3.  Increase the number of connection points.  It is like the various touch points in sales, the more the better because anyone can get it right once.

4.  Tell the truth!!  Most of Americans think telling lies is a regular part of work but nothing builds trust like truth!

5.  Empathize with real care and concern.  Anything that is not genuine will sabotage the whole effort.

6.  Bring donuts, food is the proverbial olive leaf that says “I come in peace.”

7.  Schedule quarterly meetings to celebrate accomplishments and identify problem areas and do something about the problems.  If you ignore the problems your effort will be seen a total waste of time.


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What use to be Good News Isn't!

1/9/2015

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I couldn’t help but comment again on the wonderful “Alice in Wonderland” world of finance we live in.  Yes, it is very complex and shrouded in darkness but that is no excuse for ignoring it and burying your head in the sand.  We all need to be watching for economic indicators that help us know whether to expand our businesses aggressively or proceed with caution.  Now more than ever it is vital that an innovator learn as much as possible about the money system because it is so complex and can severely cripple an organization if it is not navigated carefully!  And “times they are a changin.”  In the old days things were much more straight forward, what you saw was what you got.  But now, a market like petroleum can be piggy backed by so much hidden Over the Counter Derivative liability that collapsing prices can cause more damage than good.  The dominant belief today is that markets need to be controlled and intervention is a good thing.  The arrogance that causes this belief has a perfect record of bringing about financial collapse in the past and that is a pretty strong guarantee that it will have the same affect in the future.  In the past a fall of energy prices by 50% would have been a great event that had very little down side.  Fast forward to today and the fall of energy prices now has lots of hidden land mines that can cause more devastation than high energy prices!  How can this be you ask?  The answer is in a little known financial invention called the “Over the Counter Derivative contract.”  Learn as much as you can about this market and you will begin to understand why there can be more financial loss created by falling energy prices than high “Stable” energy prices.  Financial institutions have made bets and written a type of insurance on the price stability of a commodity such as petroleum that far exceeds the entire value of that market.  So, when the market price does not behave in a way they had planned they can be facing huge losses.  The infamous energy company Enron went down in flames for this very same reason.  So, what does this have to do with your business you ask?  Number one, enjoy the lower fuel prices as long as it is available for sure!  Number two, consider the lower oil prices as a sign of ill economic health rather than “happy times are here,” when determining how to guide your business and invest for the days ahead.


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Money Measurement Mixture 

12/12/2014

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Being an innovator is great but even better to be an innovator that makes and keeps a profit.  It is hard to watch what’s happening in the world of finance the last while without having some trepidation about the stability of the system.  After all, the goal of being an innovator and constantly creating value is to be able to capture some of that value in the form of money.  The definition of money has changed numerous times over the centuries.  Money can be used to measure the actual success of your efforts.  But if the “Ruler” you are using to measure with is constantly changing it becomes less and less effective as a way to measure progress.  For instance, if you were driving across the United States and each state had a different number of feet between their mile markers it would truly be difficult to keep track of your progress.  As the value of the dollar and oil and food get more and more volatile it does make you wonder if our financial system is as healthy as we are told it is.  A 40% drop in the price of oil in just a few months is not a healthy environment no matter how much it may help at the gas pump.  The problems with collapsing oil prices are many, one being that all the money invested in new sources of energy may now be underwater with the price of oil under $80.  The collapse in oil prices may also be acting as the canary in the coal mine, telling us the economy might be in trouble.  If you are going to survive as an innovator, let alone thrive, you will need to take some risks and get creative with how you capture and keep the value you are creating in the market place.  The dollar has made a truly explosive move upward in the last few months and it could be a good time to move some of your liquidity into another asset such as commodities or into another currency such as the Euro or the Swiss Franc or even the Canadian Dollar.  It is as simple as making sure you don’t have all of your eggs in one basket.  Diversification is more important when there is uncertainty in the market place!  Just like an good export company you need to have the right money mixture.  If you are heavily invested in any one currency your company can be very vulnerable.  When you think like an exporter or a global business you will be an innovator with your profits as well as your products and people.


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Innovation for Money

5/16/2014

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The goal of innovation and innovative thinking is of course to make money.  The deep empathetic study of the product users’ needs is certainly to provide a worthwhile and possibly world changing solution to their problems but only if it can be done at a profit.  All the ideation, collaboration and utilization of cross functional teams must be resulting in a cost savings or a profit making.  Better ideas and solutions are a vital part of the long term sustainability of a business if it doesn’t cost more than it produces.  The goal is to make money!  In Jack Welches book “Winning” he makes it crystal clear that making money is very simply the reason for being in business.  If you can make money you can do a lot of great things for mankind but if not you become a drag on society.  Making money is what your guiding light for innovation should be.  Thomas Edison didn’t invent the light bulb to display it in a museum and Steve Jobs and Bill Gates were not creating innovative products to stay in the garage, they did it to make money and then to maybe get a shot at changing the world.  The best idea in the world is destined to die an obscure death if it cannot be made economically feasible.  Understanding how your efforts in any job you perform affect the profit picture of your company is so critical to being able to produce real value.  If all you are doing is performing work to accomplish some arbitrary goal set by someone in upper management or if you are doing it as a business owner because that is the measurement the industry uses and you don’t understand how it really affects the profitability of the business then it is time to learn or abandon.  There are many who would argue that most workers don’t need to understand how their job affects the profitability of the business but is that the truth or is it just hard to measure the effect of that knowledge?  True profit doesn’t come from selling one job but from establishing a track record of adding real value to the customer consistently over time.  Sometimes it might be easy to get a little too caught up in the mechanics of innovating and lose sight of the reason you are doing it.  To Make Money!


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  • If you ever wanted more than the daily work routine out of your job or business.  
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Then this book will provide tools to unlock the hidden explorer in you so you can discover and conquer new worlds of opportunity.


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