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Examining Your Profit Centers
ONCE A YEAR TO QUALIFY
Once each year, usually when you get your final results from the year just completed, it is a good time to contemplate the condition of your marketplace as it applies to your particular business. Where have we been, where are we now, and where are we going? An excellent beginning is to put these questions at the top of a pad of paper. Start making a list, and checking it twice.
While contemplating what will ultimately determine the future course of your business, the first thing you are most likely to realize is how many holes there are in your knowledge. This is a good thing. By finding out where the empty spaces are, you will be specifically directed to those areas where you need to acquire more information.
What are the sources for that information? I like to suggest the need to “hang out” and socialize, read the trades, talk to your competitors, search the Internet, and so on—but that really only scratches the surface. Now let's get to the meat of it. Because we are now a global industry with the capacity to send digital data and product via satellite or high-speed ground lines to the rest of the world, the necessity to develop a worldwide network of affiliates grows in importance. Global interconnectivity has already been demonstrated to us poignantly by the immediate effect on world markets during any major downside economic chaos, commonly referred to as a “correction.”
Let's make our own correction in our industry by finding out what our peers are experiencing in other parts of the world, how they interpret the current trends, and where they are going with this information. A great source of this information is the various trade shows in the major markets of the world. If you can't afford to go, call upon your trade association to provide you with information, or find the English language trade magazines that report on the Far East, the U.S., Latin America, and Europe. It is amazing what you will be able to determine about trends from these sources and from the magic of the Internet and e-mail.
If you do not currently have an active e-mail address for communication with your global peers via the Internet, you are living in yesterday's world. If you do have one, then use it more effectively! Spend some of your discretionary time examining the Web sites of hundreds of studios for the special services that our industry provides. If you see one that tweaks your interest, communicate with that company by e-mail with your questions about their operation. Exchange brochures as a start, and you will more readily understand their image and nature. You will be surprised at how receptive they may be and how much information you can glean from them. This can be invaluable in planning the future of your own business. I know. The World Studio Group has been networking on its Internet site since 1993, with excellent communication results. All of the members in productive regions of the world have the opportunity to understand the value of talking with and learning from one another.
The future of DVD—where the leading-edge technology is and what the timing is in your part of the world—is a worthy example. The ramifications for you with respect to the different opinions of countries such as Japan, as opposed to the U.S. or the EEC, depending upon how long the DVD format has been commercially available in each of those markets, may be very important.
The gross revenue impact on each of the different regional professional audio studios, depending on the time DVD was introduced and the current sales volume to consumers, could be totally different. This could also be very important to your planning. I read at least ten international audio trade magazines a week, and I don't recall anyone yet doing a comprehensive study of this global DVD impact. Perhaps you will reach your own conclusions, which could give you a critical competitive advantage. Competitive advantage means greater revenue.
The next step is to use this knowledge as a factor that could and will affect your business and our industry in your geographical area. “Who is providing 5.1 audio services for DVD visual and music only?” is a question that still appears to be unresolved. Will it be the postproduction houses or the music studios? This is a major new market that will lead to an entirely new area of business for those who understand how to take advantage of this emerging format. To find out your cost of entry, why not consult your peers in noncompetitive geographical areas, and communicate with those who are already in this business?
Music on the Internet, and its impact on your business, is another information adventure. From your point of view, does it affect your particular business in your geographical area? Most music distribution experts I know say it is a matter of “when,” not “if,” the Internet will replace today's methods of getting the music from the pressing plant to the consumer. This is saying that our entire music distribution network is already in a period of change. What role the contemporary music retailer will have in this new agenda remains to be seen. Stay tuned.
These are just two examples of the globally accepted changes in audio technology and its distribution that you should be investigating. Do your homework in order to enhance and diversify the special niche in our industry that your business occupies in your geographical market.
BUSINESS HEALTH
Textbook philosophy for the studio entrepreneur: “Identify, Maintain, Service, and Promote = Success.” In my opinion, the best annual way to create a Happy New Year is to make a list of resolutions using this principle.
At Record Plant, we would make serious money bets about our goals for the coming year—in the technical, creative, and business areas—and how we intended to reach them. These included 3-month sales goals with purchasing and promotional expenditures tied to our quarterly achievement. In addition to these revenue goals, we also projected the execution of various major tasks within a given period of time and budget.
The necessary upgrade and preventive maintenance of equipment, cosmetic and acoustic improvements to the facility, or the launch of a diversification to our present business was budgeted for time and money, agreed upon, and given a timeline. All the “serious money” we each bet was put into a “pot,” matched by the company, and given out by mutual agreement among our managers once a quarter. The “winners” were those who had made their numbers or accomplished their agreed-upon goals. This little competitive exercise provided a great incentive for each member of the team. They were inspired to project and budget their time and to spend the company's money wisely. At the end of the year, we all took another look at that previous January list and started the process all over again. You might be surprised how well it works!
How successful was your business this year vs. last year? What went right or wrong? What can you do to change it? Did you remember to express your appreciation to your clients at holiday time? Do you let your staff know as often as possible how much you appreciate them? Do you have your business and marketing plan together for next year? Have you scheduled your equipment purchases and how you will pay for them? Have you done a proper monthly budget of projected revenue and costs for your next fiscal year? Have you decided how you will diversify your business at minimum cost and maximum revenue for next year? Have you scheduled the necessary cosmetic and acoustical changes to your facility and considered the effect on your personnel requirements? A private checklist might be in order.
Most of you think about doing this type of annual business planning and forecasting for your studio. Unfortunately, many just don't get around to actual implementation, due to a variety of excuses and reasons. Then, when something goes seriously wrong they are thrown into a panic and forced to face facts. To me, it is as important to allocate a specific amount of time for business planning as it is to make the payroll. It just has to be done in order to remain successful.
Be honest with yourself. Take a serious look at the business decisions you have made this past year. How many were right? How many were wrong? Why? Did you streamline your facility to eliminate that part of your business that was not profitable? Did you seriously attempt to diversify by finding an additional demand for your specialty and expanding it with existing equipment and personnel so as to increase your profits? Did you keep yourself up to date by reading the trades and questioning suppliers, customers, and your competition? Did you recognize the industry trends that developed in your area and take advantage of them? Did you properly allocate your available funds for necessary equipment purchases? Did you buy the right equipment at the right time and price? Did you create a fresh “spin” to promote your company's image of success in a new and inexpensive way? Did you attract any major new clients? Did you lose any? Did you find new ways to service your existing clients and reward your personnel?
REINVENT YOUR BUSINESS
Reinvent your business at the beginning of each year. Learn from your mistakes and from the right decisions you made. Where will you find the new clients you need to make your business grow and the new personnel to service them? To what extent and when will you have to expand your present facility to accommodate this growth, and how much will it cost? What new gear do you know/think you will need, when must you have it, and how are you going to pay for it? What is your current equity in the business, and how much of that can be used as collateral, if it is necessary to borrow the funds to accomplish these plans?
To be successful in this industry, regardless of your geographical location, you should reinvent your business each year. An important part of that planning is to learn from your mistakes and from the correct decisions you have made during the previous year. Also, consulting the previous plan of the same type that you made at the same time last year should help you to determine if your conclusions are/were correct. Don't be a dreamer. Allocate available funds to marketing your facility as well as reequipping it and enhancing it physically and acoustically.