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RISK OR REWARD: SHOULD A MATURE BUSINESS TRY TO THINK LIKE AN ENTREPRENEUR? | August 15, 2012 (0 comments)
Merrick, NY—Entrepreneurialism lies at the heart of the fine jewelry industry, along with passion for both the product and being a part of people’s happy moments. The luxury jewelry business itself is a mature business, and pundits keep warning that the Baby Boom customer—a key demographic for luxury jewelers—is shifting its spending from luxury goods to luxury experiences like vacations and personal pampering. Retail jewelers, meanwhile, are continually faced with new avenues of competition and a constant whirl of digital developments that change seemingly overnight. Change is a big topic in the industry, but few can easily identify just what that change will look like.
Can a mature business inject a sense of entrepreneurial spirit into itself? Or is there too much at stake to risk upsetting the apple cart to try a new approach? But in an era of so much change, is there too much at stake not to risk it?
For perspective, The Centurion asked Dr. J. Robert Baum, a professor of entrepreneurship at the University of Maryland’s Smith School of Business. A former business owner, Dr. Baum teaches students in the school’s doctoral program, and also serves as chairman of the board of Highmark Blue Cross/Blue Shield in Pittsburgh, PA.
The Centurion: How can the owners of a mature business inject a sense of entrepreneurial spirit into it?
J. Robert Baum: Whenever a business has become mature and commoditized, there is not a lot of variance in what you can do to distinguish it from others. A primary competitive advantage [in an entrepreneurial business] is what we call WHL: work harder and longer. But is that what you really want to do when you’re 58 years old?
Reputation is a long-lasting competitive advantage, whether in a family business, luxury business, or any other business. My other favorite competitive advantages are a trade secret or disrupting the value chain.
Centurion: What kind of trade secret is an example of great success?
JRB: Hand-held devices are one example, and Apple is another. But trade secrets have a [shelf] life, and you see almost immediate competitors.
Centurion: That happens in jewelry, too. For example, bead jewelry and popular design trends like micro-pave.
JRB: Right. Then you have to find the next new thing. Maybe a complimentary product?
The Centurion: What about disrupting the value chain?
JRB: 20 years ago, Dell changed whole scope of getting personal computers to the customer. They brought the price down 50% from what it had been by eliminating retailers, distributors, stores, et cetera, and having customers buy components to put together a product that looked custom but really wasn’t.
Centurion: Blue Nile did that for diamonds and they’ve been pretty successful, though they’ve had some stumbles lately. But it was painful for jewelers till they shifted the paradigm from focusing on the center stone, which was the traditional way to sell an engagement ring, to focusing on the setting, where the margins are.
JRB: For any business, look at the components of what you’re selling. You’re selling customer experience, and also selling content—in this case a good—and service is a touch point that feeds into the customer experience. There’s a lot of stuff you can’t control, so you need to look at what you can affect.
Centurion: Like what?
JRB: A market is branded mature and commoditized because it’s full of people who are satisfied with the way they do business and don’t want to change. But if you’re not satisfied and you want to change, you have to experiment.
Centurion: What do you have to do to really change in a meaningful way?
JRB: Fear is a wonderful motivator. If you get scared enough, you can take a chance.
Centurion: But can’t fear also be paralyzing? Especially if you’re not 22 and you don’t want to blow your retirement savings.
JRB: You can minimize the risk and take small steps. You need to be willing to invest, but you also need to be cautious. But the dumbest thing is to stay in the business just the way it is and be miserable and unhappy.
We talked earlier about WHL, working harder and longer, also called the immigrant phenomenon. But there’s also what you have at stake and what you have to lose. Immigrants don’t have much at stake or much to lose, so they don’t feel the risk like someone 55 or 60 who has a business and savings.
How creative are you at thinking of options? For example, creative thinkers can think of many different ways to fix a wobbly table leg. People who don’t experience risk very strongly are often great options thinkers. They either don’t have much to lose, or else they just feel they can easily develop options if they get into trouble.
Centurion: Do you have any ideas for ways to change?
JRB: One strategy is to shrink the business and become an absolute expert in a focused market. If you’re worried about the [jewelry] business shrinking, consider that maybe it needs to be smaller. The market is changing and it’s going to take 25 more years for the next generation to have money to start spending on jewelry and they’re not necessarily going to go to a store. [Editor’s note: The huge Millennial generation will hit its peak earning years in about a decade if it follows historical patterns.)
Centurion: Any other examples?
What is happening in your industry is happening in so many industries. Cruises are hot, but the cruise industry is worried about the future. Our generation loves cruises but the generation behind us isn’t as attracted to being trapped in a big floating steel box and then carted around in busses all day when they dock.
The health care industry also is in the midst of chaos, but it’s a rich market. Older people are going to need a lot of service. I’m a big fan of going vertical, because you’ve got control over quality along the whole value chain. It’s happening in health care now. It’s always been that the insurer collects money from the employer and passes it along to the provider; i.e. a doctor or hospital. Now, insurers are buying doctors [practices] and hospitals, and hospitals and doctors are buying insurers. And our insurance also forces them into our hospital system.
Centurion: When Wayne Gretzky was asked what made him such a great hockey player, he said he skates where the puck is going, not where it is. How can jewelers see where the puck is going?
JRB: Be a customer. Go shopping. Go to another city and any kind of business (not just jewelry) that reminds you of what appeals to a customer. People who are in your store already chose you. You want to know why, but you also want to know from people who didn’t choose you, why not.