Insights from Amazon's acquisition of Whole Foods to build our own businesses
By Pavlo Phitidis
Online digital retailer, Amazon spent $13. 7 billion to buy 401 brick-and-mortar Wholefoods grocery stores! Why? Has Amazon lost faith in its business model because it doesn’t make any money? Or, is there a bigger plan at play? What can we take out of this to build our own business better, faster and smarter! This week, on The Money Show with Bruce Whitfield, on Radio 702 and Cape Talk interrogated and diagnosed the take-outs that we can apply to grow our business faster and smarter.
Amazon Doesn’t Make Any Money
It’s true. They don’t produce a profit! Importantly, this has been its stated strategy since Amazon was first established. All the funders and backers know about it and yet, they hang in there.
Our take out
Producing a profit when you have plans to grow is robbing your business of funding benefits. Think about it: a third of what you generate in profits goes to tax. If, for example, you produce a R3 million profit, a third of that - R1 million - goes to tax. That’s R1 million that you could have used to invest in accelerating the growth of your business that you would now need to get from a bank or funder – costs and hassles that could have been avoided.
To avoid this happening, you need to have a big vision for your business - something that will take you beyond a ‘mom ‘n pop shop’. This big vision needs to be built up into a plan of action. We spoke about this before. That plan of action needs to be activated and focused on ensuring that as you approach your financial year end, you don’t suddenly get surprised that you made a profit and frustrated that you have to pay tax. A good plan acts as a radar system, alerting you to the investments you need to make within the financial year to ensure that your hard earned cash goes to building the foundation your business needs to support the vision.
Snuza founder, Greg Gallagher, held on to his company’s long-term vision, despite a 4 year wait for their device’s CE approval, and is now the proud manufacturer of the only medical device in its category, available in Europe. His patience and big vision is paying off. Check them out here.
Amazon Enters a New Market
For Amazon, brick-and-mortar stores; perishables; fresh foods; fresh produce and a cold chain supply chain is new. My experience of Wholefoods began with delight and ended with frustration. Beautifully presented, exciting food choices ended with me waiting in queues every time and being treated like a number. The personal touch gone and my most precious commodity, time, stolen. Amazon is great at delivering customer experiences! Armed with this mind-set and deployed in Wholefoods could set the new standard for competing retailer who are working off the back foot.
Our take out
The benefits of building customer-centric businesses, a key element of an Asset of Value, is that you build experiences. Experiences are more appealing than products anytime, any day, anywhere. Understanding your customer group allows you to enter into new industries where these customers are buying other products or services but having a terrible experience in the process. If you can overlay your experience, for that customer group, in an industry that engages them, you may well be able to make a big play.
It’s said above. Build a customer experience business rather than a product experience business. If you focus on customers you are relevant consistently because if they like or dislike, you will know. If you are customer focused, you will innovate to stay liked. Remember all the time, only if you solve problems are you relevant in business.
Specktank founder, Martin Glauber embraces this idea. A chemical manufacturer, he needed a way to break into the ‘hot kitchen’ industry. In hearing and responding to the terrible, ongoing complaints customers in this industry faced, he innovated a solution to focus on redesigning their experience. With over 7,000 very happy customers today, he uses that same approach to turn a cost into a profit for his customers by introducing a revolutionary new disinfectant product.
Amazon Has Built an Asset of Value
Building an asset of value takes time, and Amazon’s CEO and founder, Jeff Bezos, knows this all too well. Amazon’s acquisition and investment strategies are all centered on the three levers of valuation that create capital wealth. By focusing on the customer, Amazon’s created long-term wealth and longevity.
Our Take Out
If 94,6% of businesses never get sold and there are only two destinations for your business, be concerned. Many smart, hardworking businesses owners invest everything they have into their businesses in the belief that their pay-day will be when they eventually sell their businesses. Statistically, this day never comes about because the way that we, as entrepreneurs build our businesses is very different to building a business into an Asset of Value.
We need to understand how to build an Asset of Value. It’s not that hard. Then we need a plan to get their and goals to achieve the many steps it takes to create the three levers of value in our own businesses.
Africa People Mover’sTumisang Kgaboesele takes the same approach – in an industry where his competitors are focused on profits, he’s ensured that his company focuses on the customer, by building a mobile interface between its assets – that’s buses – and public transport users. He is not focused on generating cash returns for himself and his shareholders. He is focused on being the best player in his industry by focusing on customer experiences rather than assets. Sticky customer experiences are the single biggest lever of valuation and through this, he is on track to build an Asset of Value.
Amazon is a Data Business
Amazon’s biggest asset is not what it sells – it’s the data that they generate and use to lead strategy and innovation. Amazon’s acquisition of Whole Foods creates opportunities to gather even more customer data, in a new sector, and provide holistic insights into purchasing behaviour.
Our Take Out
Data is invaluable if it’s used since it turns transactions into intelligence. Data can provide you with the roadmap that ensures your growth is in response to the reality of your environment and not your ideas. Ideas unsupported by data can seduce us down very wasteful paths.
Unless we build systems into our business, we cannot generate data. Remember, a system has 6 elements, one of which is measurability. Ideally, your business systems should run across the organization of your business and include marketing, sales, operational, procurement, people and money activities. A system driven business, key to building an Asset of Value, orchestrates all these elements to generate the ideal customer experience.
Lars Vuel and Cape Town Company, Pargo, uses data in a similar way, through its collection point network that makes online purchase delivery more convenient for customers. From the data that they collect, they have evidence that their service leads to more sales for both the customers making their locations available as pick up points and the retailers using their pick up points to reach more customers through their on-line retail stores.
Big moves in big businesses hold insights valuable to us all. Work with us to help get you and your business into that league by building your business into an Asset of Value.