NBA Settlement Focused on Open Book Accounting

I often tell my students that management’s philosophy can make or break a business. A good example is the decision to practice open book accounting. The recent settlement between the NBA Owners and the players union focused on the split of revenues from basketball operations. The players have claimed  57% of net revenues since 2003 when the last collective bargaining agreement was signed. Most teams/owners claimed they could not make enough to cover this level of profit sharing so they locked out players on July 1st of this year. The league has been closed for business for the last five months.

Entrepreneurs succeed in a large measure according to how well they recruit and retain talent. One reason employees leave a position for another is higher compensation or the “potential” to make more through stock options or profit-sharing. Without profit sharing, players claim the NBA owners are making millions and stingy with player’s salaries. Owners complain that players high expectations and demands drive them into the red.

In order for profit sharing to work as part of an employee’s compensation, the workers or employees must agree to take a portion of the total net revenues whether they go up or go down. In some ways, the employees that accept profit-sharing become part-owners because their compensation contains a fixed and variable amount tied to the success and profitability of the venture.

Accepting a profit-share and opening the books are both conscious decisions that increase the potential for team oriented goals and decisions that impact all contributors to the success of the business or venture. The risk is misunderstandings and combative relations when a cohesive strategy is not agreed upon.

Employees or in this case, the NBA players union had access to the financial data for each club and from league operations since 2003. At a minimum the players wanted to see the franchisee’s income statement and balance sheet, but that information does not provide the “granularity” to determine what products are losing money and those that are extremely profitable.

In the ideal situation, a profitability analysis is provided along with a list of highly compensated managers. This requires a high level of trust between the owners of the business, its management, and the employees. This level of trust opens management up to criticism because under open book accounting, management’s compensation, major expenses, and income statements can be accessed and scrutinized by the employees or their union representatives.

On the other hand, management shares the real costs of doing business which is often hidden in public accounting reports. Employees often have the misperception that the company or certain profits are much more profitable than they really are.  For the season to begin the NBA owners required a reduction to 49% in the player’s profit-share. There was certainly more “give and take” to the final agreement, but we do not have those details yet.

For NBA players and owners, the 2012 season will be the one when all stakeholders decided to “share the pie”. For the NFL, the players and owners believe they can grow the pie and benefit all parties. It has been one key ingredient in the NFL’s success and sets the standard for all of professional sports.




Attention Getting Short-Cuts

I recently read an article praising the Oberlin College community for embracing a site that promotes the use of profanity in describing Oberlin as a great place to go to college. As a marketing professional in higher ed, I was surprised to see praise and compliments for a student or alumni site that promotes this site as innovative and creative.

In my review, I find both the site and the article praising the site as cheap. It uses some of the most vile profanity I have seen officially connected to any institution to gain attention and social media posts. Using this level of profanity is akin to using sex as an attention getting device. It is a short cut to gaining attention, but like the ads, it only keeps your attention for the shock value, and lacks the substance and creative content that would hold the audience’s attention in the absence of the obscenities.As the CMO of the college associated with this site, I would be embarrassed.

As advice to entrepreneurs vying for attention, don’t steep to this type of marketing and social media because the long-term damage to your brand’s reputation could be irreversible.

Marketing Mysteries

One of the marketing mysteries for most entrepreneurs is the evolution of their brand. How can I build brand equity? What can I do to leverage the power of my brand? How can I encourage more brand loyalty?

A brand is both intellectual property and a living, evolving asset that can be monetized. It differentiates one product from another when they are competing in a category of goods or services. Greater brand awareness can translate into more sales, but this is not a given. It is not a magical, mysterious process though. 

The brand building process requires investment capital and a strategy.  It begins with an understanding of the loyalty continuum. Understanding the importance of each step in the process does not result in brand equity, but knowledge and superior execution of tactics related to each step culminates in loyalty.  

What are the steps in the continuum?

1. Generating brand awareness-a brand that is not known is usually not considered or ignored by buyers unless it competes strickly on price

2. Consideration frame-differentiate and enhance the image of your brand and it will be considered a “viable choice” in a short list of brands for that category. An example might be three or four car models you would consider if you had to spend $30,000 on a new sedan.

3. Trial-whether it is a test drive or trial size of perfume, buyers want to try on or experience your product before they buy. How can you facilitate trial and incent more individuals in your target market to “try it on”  

4. Repeat/frequency-once buyers have purchased your brand, buyer’s remorse is the enemy of loyalty. You must reenforce the buyers decision and provide reasons and products they will want to purchase again and again. This behavior is habit forming and is closely tied to creating loyal customers

5. Loyalty-loyalty is the holy grail for brands because these buyers will accept no substitues and pay more for your brand’s version of quality. Apple is a master of moving people from trial to loyalty. See Alex Morgan’s comment to my blog on the Perfection Trap

The Perfection Trap

Many entreprepreneurs fall victim to what I call “the perfection trap”. What is the perfection trap? Working really hard and spending all of your resources in rehashing or reformulating a product that is 95% market ready. My advice to most entrepreneurs is to launch before you have it perfect. Then fix the bugs or problems during an in market test. Call it a “beta” product or product 1.0 but don’t get trapped in seeking perfection; never able to satisfy your customers basic needs. The “getting everything perfect problem” varies by industry but my experience in academia has taught me that what we think is perfect isn’t usually as close as we think. What our client thinks is perfect is not easily discernible without an experiment or test market.

Why can’t we just ask our client what she wants? Because she will “not know it until she sees it” or may not know what she really wants until she has to open her wallet and choose it over everything else she desperately needs to buy. There is no replacement for a test run with real customers that have to spend their own money on your product. You can’t control most external factors or trends that will impact the success of your product either, so let go–incremental improvement is more proven to drive entrepreneurial success than “hitting a home run on your first at bat”.

When I was doing marketing consulting I worked for a venture that suffered from the perfection trap. The CEO thought his tireless demands for perfection would create the perfect teen spending card based on the Visa platform. Despite some good technology and marketing we experienced a failure to launch.

Let me try an illustrate my point outside the realm of business. My daughter told me about a friend who has frequent headaches. She manages her pain using powerful drugs. The problem is the drug’s side-effects can be as damaging as the headache pain. This is analogous to getting it perfect. She feels perfectly well when on the drugs but comes down hard after its effect wears off. Most importantly, to achieve perfection she sacrifices her sensitivity to the outside world. Feeling a little ache or pain or even a headache periodically keeps you away from the debilitating side-effects of drug use. You feel the outside world rather than constantly balancing the facade you call perfection. It hurts to hear you did not “get it perfect” or even close to right, but that customer feedback is the key to continuous improvement and future product success.

Usually, entrepreneurs learn more from consumer or client feedback when the product has been “run through a few laps” by expert practitioners. In Japan, many companies are founded and launched based on an angel investor or corporate benefactors believing there is a market niche where no competitor is adding much value or they see companies in businesses they do not want to be in to satisfy customer demands. These business are ideal spinoffs for would be entrepreneurs who are “willing to make it pretty good for now, and better in the future.” Don’t spend thousands of dollars and three additional months getting some thing that is 95% there, perfect. You likely to find that your efforts stymied growth, deflated morale, and increased your risk because of the lack of in market data testing.

Silver Market Ripe for New Ventures

The silver market is described as those who are reaching retirement age now or already 60+ years old. They are referred to fondly as “baby boomers” or consumers born before 1960. In the United States, Europe, and Japan, these senior citizens are growing at an alarming rate comprising almost 20% of those nation’s population (Kohlbacher, 2008). This demographic shift creates a challenge to marketers, and societal issues for government policy makers to grapple with. For example, many families are providing home care and financial support over much longer periods for their parents and grandparents when compared to the generation in the work force after World War II. In both the US and Japan, the social security and private programs (funded by retirement plans, pensions, and 401 K’s) were originally designed, for workers who would retire at 55 or 60 and die before age 70. Today, that is not the reality. This market is changing due in part to longer life spans and better health care maintenance and access. Understanding the consumer mind set and dreams and expectations of older consumers can lead to great business opportunities. The senior market is now positioned to grow dramatically in product categories where services are not widely available or product selection is limited. Examples of a growth market are home health care, retirement travel, health care suppliments, prescription drugs, and financial services . The Japanese practice was children take care for their aging parents in the multi-generational home. This practice conflicts with the modern convention that a worker changes jobs and locations 6-7 times over their career. It is more and more difficult for modern families to acquire or “free-up” the space and time to care for their aging parents (Kohlbacher, 2008). Therefore, the opportunity to develop and maintain successful assisted living facilities or home health care could be part of a new business plan. There are too many opportunities to define all of them. The opportunities to market to older Americans offers a great opportunity to any entrepreneur willing to venture into services driven by senior demand.