Upside Down
Business Breakthrough
Karnan Associates, LLC
A small business for small business
Parker Karnan
parker@karnanassociates.com
206.601.7019
www.karnanassociates.com
Upside Down
What is your Your #1
responsibility
In
Business?
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Are you leaning into
The Dip?
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What is your
“kiss
on the forehead”
test?
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How do you slow down your life
&
Speed up your business
SIMULTANEOUSLY?
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Are you managing
people or circumstances?
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What really is the difference
between
leading and a managing?
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What is your current
Rally Cry?
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A small business is
the direct offspring of
its owner.
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Knowing that you don’t know
something can be a problem...
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Not knowing that you don’t
know something can be fatal.
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Life is merciful, but unfair
Business is unmerciful, but fair
-Bo
Burlingham
Author of Small Giants
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Good managers do things right.
Good leaders do the right thing.
-Warren Bennis
Professor on Leadership
Univeristy Southern California
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The best course for any leader is
to be feared (respected) and
loved at the same time.
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But if it is impossible to be both,
then he should choose fear
(respect) over love.
-Machiavelli
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Failure of a leader to enforce the
rules out of a desire to incur the
affection of his followers…
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…can bring that leader to ruin in a
hurry.
-Steven
B. Sample
Author of The Contrarian’s Guide to Leadership
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Never make a decision
yourself that can reasonably
be delegated to an employee
-Steven
B. Sample
President of USC
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Never make a decision today
that can reasonably be put off
to tomorrow.
-Steven
B. Sample
President of USC
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If you leave a white post
alone, it will soon become a
black post…
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Briefly, if you want the old
white post, you must have a
new white post.
-G.K.
Chesterson
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Stewardship rates barely an
honorable mention in the lexicon
of current business terminology.
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A scan of cover stories business
periodicals revealed that ‘strategy’
was explored a total of 57 times.
Stewardship was completely
ignored.
-Life@Work
1998
Journal
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Energy is more efficient than
efficiency.
-Franklin
D. Roosevelt
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Anything worth doing
at all…
is worth doing poorly.
-Richard
P Karnan
Successful Father and Businessman
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When a new book appears,
one should read an old one.
-Winston
Churchill
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Effective leaders don’t run
their businesses.
If they did, they would be
called runners.
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Leaders lead individual
followers, who collectively give
motion and substance to the
organization of which the
leader is the head.
-Steven
B. Sample
Author of The Contrarian’s Guide to Leadership
Upside Down
Business Breakthrough
Karnan Associates, LLC
A small business for small business
Parker Karnan
parker@karnanassociates.com
206.601.7019
www.karnanassociates.com
Upside Down
The entrepreneur’s dilemma:
Is my
business
viable?
Focused on
Strategy and
Tactics
Managing
problems and
opportunities
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Session #1:
1:30-2:40 What to Manage and How to Measure it
Session #2:
2:50-3:40 The ‘Kiss on the Forehead’ test
Session #3:
3:50-5:00 How to Lead and build a Team of followers
When to hold on; When to let go
•Accessible v. Available
•Upward mobility v. Downward mobility
•Giving up the keys
Quantitative
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Revenue per Foot
2009 Sales Plan $1,000,000
Sq. Ft. 2,000
$500 per foot
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Session #1: Know what to Manage
It all starts with the
Sales Plan
Retail is a highly reactive business.
As a result you must be highly proactive
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Session #1: Know what to Measure
Gross Margin
Inventory Turnover
Average Inventory on Hand
Months of Supply (forward cover)
70% of your expenses go towards
Inventory and Payroll
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Think Real Estate not Product
QUICK TIPS
• Footwear capacity:
• Avg. Retail:
• Annual Footwear Sales:
1500 shoes
$100 X 1500 units = $150,000
$600,000
• Turns necessary to justify investment: 4
• Annual Sales per Style: 48 pair
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Tracking Average Inventory
Rolling Inventory
EOM March
EOM April
EOM May
EOM June
EOM July
EOM August
EOM September
EOM October
EOM November
EOM December
EOM January
EOM February
EOM March
EOM April
EOM May
EOM June
Avg Inv
Units
6800
7300
3300
6900
7400
7200
7500
6800
6500
5800
6800
6600
6700
6800
6700
8500
7017
Cost
166000
167000
154000
140000
151000
140000
130000
122000
123000
111000
150000
162000
152000
152000
145000
154000
152500
Retail
% foot
314000
72%
309000
74%
289000
71%
260000
67%
285000
74%
265000
67%
246000
64%
232000
65%
235000
63%
215000
63%
279000
70%
305000
75%
287000
76%
286000
77%
275000
74%
291000
74%
287167 $213,461
% app % other
18%
10%
15%
11%
19%
10%
18%
15%
15%
11%
17%
16%
19%
17%
17%
18%
20%
17%
16%
21%
15%
15%
12%
13%
12%
12%
9%
14%
13%
13%
11%
15%
$34,460 $39,246
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Step 1: Know your Capacity
Shelf 1
Shelf 2
Shelf 3
Shelf 4
Shelf 5
Shelf 6
Shelf 7
Shelf 8
Shelf 9
Retail Floor
Total # of pieces
Items Per
Columns Column
10
15
10
15
10
15
10
15
10
15
10
15
10
15
10
15
10
15
1
150
Total #
Items
150
150
150
150
150
150
150
150
150
150
1,500
= Variables that can be changed
QUICK TIPS
Compare current inventory with ideal capacity
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Step 2: Transfer Unit Capacity to $$ Capacity
Enter desired # of inventory turns throughout the year
Total # units sold throughout yr
Avg
Jan
WHLSL
$55.00
% of Sales
6.9%
Pairs
468
OTB
$25,740
Feb
Mar
Apr
May
$55.00
$55.00
$55.00
$55.00
6.5%
7.8%
7.5%
8.8%
450
528
504
492
$24,750 $29,040 $27,720 $27,060
Jun
$55.00
8.4%
612
$33,660
Jul
$55.00
8.2%
498
$27,390
Aug
$55.00
10.2%
534
$29,370
4
6,000
Sep
Oct
Nov
Dec
$55.00
$55.00
$55.00
$55.00
8.3%
8.9%
7.2%
11.3%
432
678
414
390
$23,760 $37,290 $22,770 $21,450
Total
$55.00
100%
6,000
$330,000
(based on Total Units & Avg Whsl)
= Variables that can be changed
QUICK TIPS
• Remember 3 months of Forward Cover
• The Rule of 4
• Justify Investment of niche categories like Trail, Spikes, and Walking
Specialty Soccer Profitability
Our Goal:
To quickly find the highest
price at which a product will
sell that will achieve our turn
expectation.
Upside Down
Why won’t it sell?
1. Something is wrong with the product.
2. Something is wrong with the price.
3. Something is wrong with the timing.
4. Something is wrong with the visual presentation.
How to know
1.
2.
3.
Get it in the Rotation
First markdown of 20%-25%
Hard markdown of 40%-50%
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Step 3: Create Markdown Strategy
a)
b)
c)
Booked Grid
# of weeks
Enter sales discount
Enter markdown % over time
Enter estimated sell thru % based on prior history and trends
(a)
(b)
(c)
Cost
$247,500
Net Retail
$450,000
Full retail
$450,000
Mgn%
45.0%
Disc%
Mkdn%
Sell Thru
7
$165,825
$301,500
$301,500
45.0%
0.0%
0.0%
67.0%
3
$81,675
$111,375
$148,500
26.7%
25.0%
33.0%
3
$0
$0
$0
#DIV/0!
40.0%
0.0%
subtotal
$247,500
$412,875
$450,000
40.1%
8.3%
100.0%
(a)
(b)
(c)
Fill in Grid
# of weeks
Cost
$82,500
Net Retail
$150,000
Full retail
$150,000
Mgn%
45.0%
Disc%
Mkdn%
Sell Thru
13
$82,500
$150,000
$150,000
45.0%
0.0%
0.0%
100.0%
0
$0
$0
$0
#DIV/0!
25.0%
0.0%
subtotal
$82,500
$150,000
$150,000
45.0%
0.0%
100.0%
Total
$330,000
$562,875
$600,000 41.4%
= Variables that can be changed
0.0%
6.2%
Upside Down
The best buyer combines a great
eye for product with a disciplined
flow and markdown strategy
QUICK TIPS
• Blend of art and science
• A well told bad story is better than a poorly told good story
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Session #2: The ‘Kiss on the Forehead’ test
Gross Margin Return on Investment (GMROI)
Gross Margin Return on Employees (GMROE)
70% of your expenses go towards
Inventory and Payroll
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Return on Inventory Investment
Annual GM$ 450,000
Average Inventory @ Cost $150,000
$3.00 ROI
Cost Analysis
• $2.00 is break even
• $3.00 is profitability
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Return on Employee Investment
Annual GM$ 450,000
Annual Payroll* $150,000
*Does not include owner comp, taxes, or benefits
$3 per Employee
Cost Analysis
You owe your employees a healthy business
What instills company loyalty?
Upside Down
•Avoid the popular trap: Establishing Expectations
•Avoid the spectacular trap: Building a Team
•Avoid the power trap: Encouraging Authenticity
Upside Down
The Non-negotiables 100% compliance
1. Be Reliable:
Allowing others to depend on you
• Punctual
• Ready to Work
• Proper attire
• Proper hygiene
• Consistent behavior with customers
• Never discuss wages
Upside Down
Creating value in Specialty Experience
2. Work with Customers:
• Greeting every customer as they walk in
• Learning their name
• Asking “Tell Me” questions
• Successfully handing off to other staff
members and departments
• Effectively working with 2-3 footwear
customers
Sales Associates: It must be measured to work
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Expanding your contribution and value
3. Add Responsibility:
• Effectively open and close
• Making every day like grand opening
• Creating compelling visual presentation
• Assisting in pricing and markdowns
• Cash drawer accuracy
• Owning specific weekly duties
Assistant Manager: Moving towards “Buy in”
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Bringing your talent & passion to the organization
4. Spearhead Projects:
•
•
•
•
•
Marketing newsletter
Customer Thank You letters
Personal Shopping
IT support
Website content
In Store Events
Graphic Arts
Database Mining
Apparel Line Review
Footwear Line Review
Manager: Moving towards Stewardship
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Healthy Team Culture
1.Dependability
4. Creativity
2. Workability
3. Responsibility
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The first 60 days: Setting the Expectations
Promoted to
Level 1
Sales Associate
New Hire
30 day probation
30 Additional
Days Probation
Promoted to
Level 1
Sales Associate
Terminated
Terminated
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3 to 5 months: Defining Progress
Level 1
Sales Associate
Promoted to
Level 2
Sales Associate
30 Additional
Days Probation
Promoted to
Level 2
Sales Associate
Terminated
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6 to 9 months: Cultivating Talent
Promoted to
Asst. Manager
Level 2
Sales Associate
Promoted to
Level 3
Sales Associate
30 Additional Days
Probation
Promoted to
Level 3
Sales Associate
Remains
Level 2
Sales Associate
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1 year: Establishing a Team
Promoted to
Manager
Asst Manager
Level 3
Sales Associate
30 Additional Days
Probation
Promoted to
Manager
Remains
Asst. Manager
Promoted to
Level 4
Sales Associate
Promoted to
Level 4
Sales Associate
30 Additional Days
Probation
Remains
Level 3
Sales Associate
Upside Down
Create
A
Rally Cry!
•Operation Race Weight
•Walk out Bonus
•Spoil the Customer
The Five Dysfunctions of a Team
Patrick Lencioni
Upside Down
Inattention
to Results Status and Ego
Avoidance of
Accountability
Low Standards
Lack of Commitment
Fear of Conflict
Absence of Trust
Ambiguity
Artificial Harmony
Invulnerability
Upside Down
Is this your job or your profession?
A profession is:
First: A honed skill as distinguished from a mere skill
Second: It is an occupation pursued largely for others
and not merely for one’s self
Third: It is an occupation where the amount of financial
return is not the accepted measure of success
Cost Analysis
• Personal reputation v. Potential for greatness
• Short term consequences v. Long term vision
• Personality v. Character
Upside Down
Business Breakthrough
Karnan Associates, LLC
A small business for small business
Download these materials and other
business tools at
www.karnanassociates.com