One of the interesting things about business is the different ways companies go about trying to attract customers. When a business has a large customer base, they have created a valuable asset. I think one of the major mistakes any owner or management person can make is to not understand the critical importance of attracting customers. Here is a simple idea- without customers, no business survives. Most starting entrepreneurs fail because of the inability to attract customers. What is great for all potential owners is we are now living in an age where it is more cost-effective than ever before to be able to reach customers because of the internet, social networking, and mobile devices. You can see that by seeing the growth of services like Facebook, LinkedIn, YouTube, Etsy, Instagram, Pinterest, etc. These companies have been built-in a relatively short period of time. Conversely, look at the episode of what is taking place at J.C. Penny's. The company is over one hundred years old and is now facing the grim task of rebuilding a tarnished brand. Much of the problem was created in the last two years because the management did not think about the importance of their existing customers. Yes, the customer base is older and more discount oriented, which are long-term problems which need to be addressed. Still, when sales are down 25-30%, the issue is you have alienated your buyers. Without customers, no business exists. Not a hard lesson, but many ignore it, at their own peril.
Another key takeaway from the JC Penny's fiasco is the retail business is an investor's graveyard. Over and over again, when you look at retail companies, you see how volatile their results are. It is often feast or famine, with hot concepts doing well for a few years, and then flaming out when their concept becomes less attractive compares to a new one. Very few management teams can continue to build a retail businesses over a long period of time. Those which are fortunate enough to do so can create very large companies and can generate a lot of value for shareholders. However, to do so is not easy, with plenty of obstacles lying in the way of ambitious organizations.
Well the market got another surprise in the Herbalife drama. KPMG, the company's auditors, decided to resign from those responsibilities. Investor's typically do not want to see auditor changes, resignations, or any sniff of an accounting related problem or discrepancy. Accounting is the so-called, language of business, and I am not talking about tax accounting. Without a good knowledge of accounting, any investor puts themselves at a big disadvantage to those who understand it thoroughly. You want to give yourself every opportunity to do well in the market, and understanding business accounting is a great place to start.
Friendships are very important in life as there is nothing like spending an enjoyable evening with people you respect and like. Friends can add a different viewpoint, a unique perspective, or world experience which add clarity. Just as important, a good friend can lend support and reassurance when people can get nervous about something which could adversely affect ones life. Support networks are crucial for anyone, in any city, in any industry, dealing with any of life's invariable questions. You cannot have enough friends, and I very much appreciate mine and the wisdom they provide.
The more I read about the venture capital industry, the more I question the wisdom of investing in startups. It seems there are lots of people who are investing in start ups these days, but the odds dictate very few of these investments end up providing attractive returns. With poor odds a probable outcome, investing in start ups is not for the faint of heart. Facebook and Twitter are alluring, but very seldom does the large pay off actually take place.
Here is a nice article about price optimization software for supply chain efficiency-http://www3.cfo.com/article/2013/3/applications_pricing-price-optimization-software-saas-cloud-zilliant-shaw-industries-gartner-strategy
The window for initial public offerings is wide open and there is a long line waiting to list-http://www3.cfo.com/article/2013/4/capital-markets_ipo-supply-initial-public-offering-filing-pricing-jobs-act-renaissance-capital
Both JC Penny's and Macy's won and lost in the Martha Stewart case this week-http://www.bloomberg.com/news/2013-04-12/macy-s-loses-bid-to-broaden-ban-on-penney-s-stewart-sales.html
Thank you for reading this week, sorry it has been a while, and I hope you have a good weekend!!! If you have any comments or questions about the blog, please post them!!!
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.
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