Corporate Apr 9, 2012
Usually when I write, I talk about a problem or a situation and have a recommended solution or some idea to deal with it. However, in this instance I don't.
I am talking about a growing sad situation in business. It first hit me when a book store in my neighbourhood that I used to visit frequently shut down. Then, within months three more closed, in Singapore and India.
Now the shutting down of any business is sad. Of a bookstore seems sadder, because there is a lot of emotion and passion around the subject of books.
The reason for these stores shutting down, apart from the decline in buyers, is the dramatic increase in rentals. In fact hike in costs drove them to closure.
Sticking with the books business for a bit as I have a sort of front line perspective, is the simple issue of managing these increased costs.
So one starts with a bookstore, then to spread risks and to improve margin realisation per sq foot (consultant speak) the store adds stationery, DVDs, music, perhaps sublet some space for a cafe and, before you know it, the books themselves become a small part of the business.
Witness Landmark in India, as an example. Typically bookstores are started by an individual with a passion for the business. But the relentless need to maximise returns ends up with the situation I described above.
Many businesses that start with the passion of an individual rather quickly find themselves in areas of associated businesses that are not necessarily related to the original purpose.
At a different level, last year the much ballyhooed Singapore train network was hit by a few faults which caused national outrage.
Investigations are ongoing but one fact amongst all the reports struck me as a symptom of a wider problem. Income from property rentals was showing sustained growth. Essentially what the train company was doing was renting out space in its new stations to retail stores. The opportunity to get increased business from commuters is limited to their need to travel and ability to pay.
However, to meet the incessant demand of shareholders, the company has to show better returns. So what do they do? Find other ways to improve incomes. Retail stores in stations!
At a business level we see that companies are increasingly forced to get into areas that are unrelated to their actual purpose (create shareholder wealth, create customers etc are rather generic bland statements and miss the passion of the founder).
I believe this is so, because no matter what the purpose of business, the metric of evaluation is the same. Money...in any ratio you like. It's a bit like saying no matter what sport you play we will evaluate you on your speed. That cannot be good for passion-driven businesses.
Apple and Walt Disney are two rare cases of companies that have managed to connect their businesses and still keep shareholders happy. Apple, we know, nearly missed the boat/bus in the late 90s.
I think there's a reason that some brands create much greater affinity than others. It is because there's the feeling that the founder's purpose is alive and lives through the products they market. So be it high tech like Apple or services like Virgin or a tuition class run by a teacher, there is a purpose and it is visible.
What happens to businesses that dilute their original purpose to deliver on the metric imposed on them? Do we just have large faceless corporations that create brands that no one really believes in? I don't know.
But I do mourn the shutting down of Harris, Page One, Gangarams, Casa Picola and numerous such stores that sold books, food etc because they were pushed to dilute their purpose more than they could cope.