Tuesday, April 23, 2013


By:  Jim Verdonik

I'm an attorney with Ward and Smith PA.  I also write a column about business and law for American Business Journals, have authored multiple books and teach an eLearning course for entrepreneurs.  You can reach me at JFV@WardandSmith.com or JimV@eLearnSuccess.com.  Or you can check out my eLearning course at http://www.elearnsuccess.com/start.aspx?menuid=3075 or http://www.youtube.com/user/eLearnSuccess or purchase my books at  http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW
 My last several articles have been about Zombie Businesses.  This is the last in a series of Articles celebrating April as Zombie Apocalypse month.

So, what's a Zombie Business? 
You know what I mean - businesses that no one in their right mind would start today, but that continue to exist because no one will put them out of their misery.  So, they continue to walk the earth powered by owners, managers and employees who can't (or won't try to) find something better to do.

If you have ever worked for a Zombie Business, you know how depressing that is.  No one ever gets excited about new opportunities.  The focus is in milking the last pennies from existing customers who no other businesses are targeting.  And forget about investing in new products or services.
Some readers have asked for examples of Zombie Businesses.

A couple of weeks ago I read about a classic Zombie Business - the US Postal Service. 
The Post Office is desperately trying to reduce expenses.  But a few weeks ago Congress vetoed a very sensible proposal by the Post Office that it eliminate Saturday deliveries.

Then, Americans would only receive junk that they don't read five days a week instead of six days a week.  Naturally Congress rejected this, because there are three 110 year old ladies who don't know how to read email.  Or was it the tens of thousands of post office workers and their families who vote and work in political campaigns?  You be the judge.
Apparently, Saturday deliveries are sacred to some voters.  Who knew?  Do many people in your neighborhood wait by their mail boxes on Saturday afternoons?

Refusing to cut delivery services is like refusing to throw a life preserver to someone who is drowning because it's Sunday and a day of rest.
That got me thinking about why the US Postal Service is a poster boy for Zombie businesses.  Having outlived its initial purpose, it's condemned to walk through its afterlife doing things no real business would do.

Was the Post Office always this way?
If not, how did the Post Office become a Zombie?

To answer these questions, let's trace the US Post Office through four basic stages that many businesses go through:
·         Start-up,
·         Success Creates Expansion.
·         Shrinking Market Share
·         Death Spiral

Start-up Phase

Most projects and businesses and even Government agencies start because someone sees a problem and develops a solution.  Every problem is a market opportunity.  The bigger the problem you solve for businesses and people, the bigger your market opportunity.
BIG was how the US Postal Service started.  America's Founders needed a way to unite a huge country with a small population.  If people couldn't talk to one another, then how do you develop a unified country?
With the exception of some difficulties from 1861 to 1865, the Post Office worked admirably to create a united nation.  Good job Post Office!
But a successful start-up is only your first challenge.
Success Creates Expansion
If a business really solves an important problem, word spreads.  More people want to buy your product or service.
Expansion sounds great.  Isn't that what every business wants?  Yes, but growth brings new problems and new risks.
One of the risks growing businesses face is fixed costs.  How do you grow to take advantage of opportunities without locking in much higher fixed costs?  Most opportunities are transient.  They're here today and gone tomorrow.  If you delay, you'll miss the opportunity.  That's why businesses need flexibility.  You need to be able to grow and cut back and zig and zag quickly to adapt to a changing market.
Other opportunities last years or even decades or a Century.  But don't be fooled.  Even these long lasting opportunities aren't permanent.  Or at least the opportunity changes so much that you have to reinvent your business to continue your success.
Businesses and Government agencies often make the mistake of not limiting their fixed costs as they grow after initial success.  They make decisions to meet market demand without thinking about when and how they will have to cut back later.  Every growth strategy needs a wind down plan that leaves the business in a better position to face new challenges than before you grew the business.  If you don't have a wind down plan, then growth is like the proverbial poison pill.
But building your wind down strategy into your growth is difficult.  In the case of the Post Office, every small town and neighborhood wanted its own Post Office.  The Post office also started offering conveniences that are killing it today. 
When it first started, the Post Office didn't deliver mail every day to everyone's door.  Most people picked up their mail at a post office (which was often in a store), of delivery was sporadic.  Most people didn't receive mail more than once a month before junk mail started.  It took more than a Century for the Post Office to offer to most of the population the convenience of daily door-to-door delivery service it offers today. 
People like the convenience of door to door service instead of going to the Post Office to pick up mail.  That pleased voters and created more Government employees, but it increased fixed costs exponentially on both real estate and employees.  Now, voters don't want to give up any of these conveniences that are killing the Post Office.
The best businesses are careful about not letting their fixed costs grow as their revenue grows.  or they cut back expenses as soon as revenue starts looking shaky.  There are lots of strategies for growing revenue while minimizing your fixed costs.  Businesses do this all the rime when they use channel partners.  They leverage the investments their channel partners make so they can keep their own businesses flexible to sustain itself during a downturn.  Check out this short video about channel partners:
But when your market is growing like America was growing, you might forget that today's growth is tomorrow's millstone around your neck.  So, the Postal Service ignored channel partners and other ways to cut back their fixed costs.  The Post Office did everything internally: it owned buildings, it hired lifetime employees instead of contractors and it bought fleets of trucks.  You name it and the Post office owns it.  Owning is great when your market is expanding.  It’s a problem when your market is shrinking.
Shrinking Market Share of Premium Customers

The US Post Office's market share has been decreasing for more than a century even while it was generating more revenue sand increasing its fixed costs.  Technological advances brought private competition using:
·         Telegraph
·         Telephones and cell phones
·         Federal Express and UPS
·         email and texting
·         Facebook
·         Twitter
Now, most people carry their personal communications center in their pocket.
Each of these innovations and businesses took a bigger and bigger share of business and personal communications away from the Post Office.
But the Post Office couldn't cut back its fixed coasts.  Voters in each town or neighborhood still demanded the very own Post Office and mail delivery six days a week even though they were using other communications services more and more.
Death Spiral
Any mass market business depends on volume to remain price competitive.  Many businesses also target users who pay premium prices for premium service.  The Post Office lost the premium service business to Federal Express and UPS.  It also lost the high volume business to email, texting and social media, where delivery expenses are minimal.
What's left is sporadic volume business from customers who aren't willing to pay premium prices – like bulk mail advertisers who get big discounts.
What's worse, most of the Post Office's customers actually pay nothing. 
The Post Office doesn't charge people for delivering their mail.  Only people who send mail pay.  So, the voters who pressure Congress to continue six day per week service are not really showing that they value the service.  They just want to continue free service.
And who doesn't like free stuff?
I learned the value of making people pay for what they say they want from my daughter.  When we were in a store and she asked me to buy her something, her desires were enormous as long as I was paying.  When I asked her if she wanted to spend her allowance to buy the item, she would often say it wasn't that important. 
Do you really have a business if no one wants to pay for our service?
The answer is no.
Someone has to be willing to pay.  That's why an important key to success is developing a workable monetization strategy.  Let's look at some short videos about monetization strategy.
So, what does the Post Office need to survive?
It needs fewer customers.
The Post Office needs to ditch customers who aren't willing to pay for the service they receive.  Then it can focus on winning more customers who value its service enough to pay premium prices.  The Postal Service's biggest problem is that it doesn't have "sweet spot" customers.
Let's look at these short videos about targeting the right customers.
Any business in this situation would cut free deliveries to one day a week to serve the senders and begin charging people want to receive mail more than one delivery a week.  Probably fewer than one in 100 people would pay for delivery every day.  Fewer than half of businesses would pay.  Eliminating the non-payers would allow massive salary expense reductions and closing underused locations.
But the voters just want to continue things the way they are until the inevitable crash comes.
And so, the Post Office will continue roaming aimlessly like a Zombie until someone gets the guts to put it out of its misery.
But enough of bashing the Post Office.
The important questions are:
How much like the Post Office is your business?
·         Are you developing flexible ways to operate your business that will help you to cut expenses quickly if your market opportunity shrinks?
·         Do you have a reasonable monetization strategy that charges the right prices for different products and services?
·         Are you targeting your customers or just selling randomly to anyone who seems interested?
·         Are you developing your business around a "sweet spot" that helps you attract and retain premium customers?
OR are you heading down the Zombie business road like the Post Office,?
How do you turn things around?
Stay tuned for future posts.
If you would like to learn more about learning how to grow your business by becoming more like a Zombie or other issues important to your success, you can reach me at JFV@WardandSmith.com or JimV@eLearnSuccess.com.  Or you can check out my eLearning course at http://www.elearnsuccess.com/start.aspx?menuid=3075



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