Green Mountain Needed Green Ideas, Maybe

After visiting my brother- and sister-in-law I was tempted to buy a Keurig coffeemaker, just to enjoy the one -cup convenience. However, I just couldn't justify the higher cost of the coffee as it came in the one-cup package. Now Green Mountain Coffee Roasters seems to be struggling because the sales of the coffeemakers are declining. Their strategy had been to sell the brewers at a low margin and make up for that by selling the K-cups at a higher margin. It's a lot like printer companies giving away the printers knowing you're going to be buying ink cartridges; they waited to get their money periodically through the purchase of supplies rather than at once through the purchase of the equipment.

But like printer companies facing 'no name' competition through refillable cartridges, Green Mountain is also facing competition for K-cups and even refillable coffee cartridges that allow you to use your own ground coffee in your Keurig brewer. When I saw the latter, I was tempted again to go get a Keurig.

It seems the business model of giving away product for free (or low margin) and then making your profit on the supplies needs a revision. You can't think the model's going to work forever. It has a life cycle. And with some clear business precedents, you can easily determine what that life cycle might look like. Therefore, you should plan to make your business plan obsolete by creating your own competition. How would your competition cut into your business? Do it yourself. Plan to sell your own 'refillable cartridges', so the sales of your main product will continue in your favor.

And then what's the next step? How do you create and plan for 'planned obsolescence' through value? This is the example from radial tires that increased the life and reduced the number of tire purchases. Similarly, wireless or networked printers avoided the need to have a printer for every computer. You sell fewer but you're creating a greater value. Hmm, maybe there's a better price point and margin with this concept?

Better Forecasts?

Industry Week published an article recently about how forecasts are wrong but can be a lot less wrong. I've often told companies and business leaders that forecasts are always wrong. What makes us think we can predict the business and economic future when meteorologists (aka weather-people) can't predict tomorrow's weather very well with over a century's worth of data (365x100x #of weather sites) at their disposal. We know our 12-month forecast will be wrong. Perhaps our six-month forecast will be less wrong. Certainly, there won't often be dramatic influences in the next 30 days, so we could hope to predict our business in the very-near-term.

But what I really like about the article is it's emphasis on financial forecasting, especially cash flow and all the requirements for cash--e.g. payroll and inventory--and its lack of "inflow" like accounts receivable. Some of the featured companies in the article talk about eliminating budgets and working from a financial forecast even at the business units and departments.

Springfield Remanufacturing Company--the creators of the Great Game of Business--use forecasts too. And they're dynamic so that everyone can take into account new information. The forecasts get updated every week, every month. And everyone responds to them.

A budget is something you can't take action on very often. Oh sure, in a crisis, management will create an edict commanding department heads to adjust the budget. But a forecast is adjusted often and is something to which you need to take action if the results are not favorable. A forecast creates accountability: say what you're going to do and then make it happen.

As I've said in other blogs, if you have to have a budget, treat it as a roadmap. As conditions change--like road construction, traffic jams, etc.--adjust your plan. Don't use a budget as a recipe and the only way to cook your results into existence. It's better to use a forecast. Check out the link. Also check out the methodology that SRC makes available through Great Game of Business.

Sunshine tomorrow? You betcha.