The Business Bullshit – Deciphering Harbaugh
This week, I got a quickie e-mail from my buddy Michael over at Concrete Wave Magazine, pointing me to Jeff Harbaugh’s latest and greatest bit of “Market Watch” writing (which can always be found at www.jeffharbaugh.com, for those that thuly love these sorts of business babbles). Before I begin having my way of skewering Harbaugh, let me start by saying that Jeff is a super-smart bloke (nay, “brilliant” might be far more accurate), and has been authoritatively writing about the skateboard business for, oh, maybe fifteen years now? His work was a massive influence on me: I used to practically memorize his TransWorld SKATEboarding Business pieces whenever they’d arrive at my office. So even though I may appear to be making a bit of fun of Jeff, my admiration for the guy is absolutely astronomical.
That said: Given his brilliance, I was a bit perplexed by the timing of this piece. It’s been very common knowledge for the past five years or so that our distribution model… while not exactly “broken”… is at the very least, obsolescent. If not direly obsolete. So to get my new Market Watch just this week was a bit of a shock to me.
What’s even worse: Jeff isn’t always the plainest of speakers. He seems to forget that skaters [like me] are typically befuddled by big words and complex concepts. Problem is, this industry is largely owned and managed by “skaters [like me]“. So whoever Jeff is writing for sort of eludes me from time to time.
That said, I figured that a new column that serves to translate Jeff’s work into skater-speak might be a damned fun time. While allowing me to toss in a quick barb and little bit of extra perspective here and there. So, let’s get started:
(Jeff’s quotes will be the ones in big, bold italics. My babbling bullshit will be the plain-text crap. Just sayin’.)
“The Skateboard Distribution Model- It Never Was Broken”
Let’s begin with the title. For the business newbies out there: The “Distribution Model” of our industry is the way that we get a skateboard from the manufacturer of the product (a woodshop, in most cases), delivered to a marketing brand’s warehouse (“Foundation” would be an example of a marketing brand), then sold through what I like to call a “Primary Distributor” (“Tum Yeto” would be Foundation’s Primary Distributor)… then, oftentimes to a “Secondary”, independent, regional distributor (Eastern Skateboard Supply, AWH, South Shore, Rax, Atlantic, and a few others would all be examples of Secondary Distributors)… to a local retailer… and finally, in your hands. “You” being Average Skateboard Customer. This, my friends and enemies, is our “Skateboard Distribution Model” of 2011. Which is the same model, more or less, that we’ve been using since 1974 or so.
The question is: Is it “broken”? Well, no. I guess it isn’t “broken”, per se. But it doesn’t exactly work very efficiently either, and might not be the right fit for a 2011 world anymore. I used this anology just last night, in discussing this topic with one of my good friends:
Let’s say that Chrysler Corporation unveiled, as a 2011 model, their 1973 Dodge Dart. The ’73 Dart got maybe 13 miles per gallon, weighed about 5,000 lbs (dry), burned regular “leaded” gasoline, ran on narrow bias-ply tires, was powered by a cast-iron, carburated lump of an engine, and had a cutting-edge entertainment system featuring an analog AM radio and an 8-track player. It was a nice little car… by 1973 standards. I’d have to guess that it ran pretty well. And thus, it “worked” just fine and dandy, as defined by Jeff Harbaugh. Which means, it’s not “broken”. In a strictly literal sense.
But, here’s the question: Would a modern-day car buyer buy a 1973 Dodge Dart, brand-new, off the lot, as a practical daily driver, in a 2011 world? Heavens no. Not unless they’re some sort of retard or something. And thank God they wouldn’t. Because a ’73 Dart is pretty much a rolling environmental disaster made for geeks that can’t afford Hemi Chargers.
Moral: Although not “broken” by definition, the fact remains that this system just might be an antiquated dinosaur being utilized by retards. That’s all I’m sayin’ here.
“Distribution has always been a bit of a contentious issue in the skateboard industry. I’d regularly go to the IASC sponsored breakfasts at ASR and listen to the participants agree that the industry should “do something” about distribution. Then came the implied blame and pointing of fingers as the brands, retailers and distributors all looked at each other. Needless to say, nothing much was accomplished.”
Yeah… this isn’t really the way to make “progress” happen. When I go out to learn a new trick, I don’t point at Danny Way after I slam, and go “Geez Danny, why didn’t you make this happen for me, huh?! I mean, you’re the pro skater and all that’s supposed to be leading me down the path of perpetual progression and shit”. Hey, IASC Members: Instead of pointing the finger (in vain) at somebody else, why don’t we try finding the strength within ourselves to find creative and intelligent solutions to a long-standing problem…? Try doing what skaters do every day: Have a go at it, slam a couple times, figure it out, and get that bitch done.
Fuckin’ A, you’d think this industry was run by money-hungry business douchebags or something. Not skaters, for cripe’s sakes.
“‘The industry,’ of course, is never going to ‘fix’ distribution. Every company, if I can recite for the umpteenth time what seems to be becoming my mantra, is going to do what it perceives to be in its own best interest- as it should. And, by the way, distribution isn’t and was never “broken” and doesn’t need fixing. As it does in every industry, it just evolved based on consumer requirements and competitive actions by companies. Distribution may be inconvenient and not the way we’d like it to be, but it’s not broken…”
This is where Jeff is dead wrong. The Industry has to “fix distribution”, if it’s ever going to survive and prosper in this brave new world of ours. Jeff: Having worked in the snow sports industry, you should know better than this. What skate needs to do, is streamline distribution, to get to the results that it percieves to be in its own best interest. What are those results? Better margins across the board (for brands, as well as retailers). More control over where their products are represented, and how they’re represented. Better, more direct relationships between the brands and the representing retailers. MAPs and MSRPs that actually work for everybody up and down the supply chain. These are all things that snow has [largely] accomplished, and that skate has [largely] failed to accomplish. The reason? Skate’s overly redundant, 1970′s-designed distribution model.
So Jeff, the problem is that skate distribution has not evolved based on consumer requirements (although consumers definitely are forcing a long-overdue change with their buying habits these days… but we’ll get to that in a minute).
When something is inconvenient, and not working the way that it needs to work in a 2011 world… I’m sorry, but I’m calling that one “broken”, buddy.
“A Little History, The Distributors, A Different Point of View…”
… blah, blah, blah. Jeff keeps on truckin’ right along, filling in a bunch of human/business nature (“It’s all about me and my money!”), historical context (A detailed description of how and why a ’73 Dart works), and a brief glimpse into how other industries (“snow”, in this case) actually do manage to work (which is easy- they make less, and rake in more cash. Brilliant!).
The problem is, Jeff only gives us vague, veiled hints at how we, in skate, might go about “solving” this nonexistent problem. Apparently, those snow dudes have a much more efficient distribution model that cuts out a whole lotta middlemen, which makes the few remaining hands in the pot a whole bunch more money. They make a technologically advanced, well-engineered, high-dollar product that’s pretty hard to duplicate by the average copycat. And, they’re a little less greedy and stupid over there in snow world. They actually have the foresight to make a little less product (read: supply), which drives a little more demand, which cuts down on the after-season markdowns, and gets everybody along the way a few more duckets. Except for the customer. Because he ends up paying more for a snowboard than he did last year. Which is not necessarily bad for the customer (so long as I’m fully stoked on snowboarding, I’m totally fine with paying whatever it takes to get my ass on, and down, a fucking mountain), but is always great for the industry.
There’s a little quote that I learned from my time in management school. It goes a little bit like this: “Don’t Bring Me Problems, Bring Me Solutions”. Jeff effectively denies that a problem exists, and then fails to deliver solutions. Yay for us. Well, I’m not Jeff. I’m not afraid to tell you point-blank that this shit is fucked up. And I’m also gonna tell you how it’s going to end up getting fixed. Right from the top, to the bottom.
First problem: There are way too many distribution options. Half of those need to go. I’ve been saying this for years, by the way… so if it sounds familiar, that’s because it is. Eastern, AWH, South Shore… they are all dead businesses. Because they perpetuate a dead paradigm: The Regional, Independent Distributor.
So, what is going to replace the regional independents? Primary Powerhouses. Which are going to form via industry consolidation. Which, ironically, has historically been one of Jeff’s favorite talking points. In the future, I see a series of consolidations happening that will bring us down to a Big Three-to- Big Five of Primary Distributors. Examples? I could very easily see Deluxe (Real, Antihero, Krooked, Thunder, and Spitfire) strategically merging with Street Corner (Venture, Hubba, Think, City, Lucky), forming a San Francisco-based Mega Distributor. Which would save them immediate infrastructure costs (warehousing, sales staff, support staff, management, etc). Likewise, I could see a strategic merger happening between Tum Yeto (Foundation, Toy Machine, Ruckus, Pig, etc) and Black Box (Zero, Slave, Mystery, Fallen, yadda yadda yadda). Obviously, I’m totally making these up, based largely on geography and history. At the same time, they do illustrate an overriding goal: To bring families of brands together under one roof, saving money, and offering something that approaches one-stop shopping for the [few remaining] retailers out there. By building stronger Primaries, the need for Secondary distributors rapidly diminishes.
Thus: If I was a responsible brand manager today, my first job might be to start exploring sensible partnerships with other strong brands. Likewise: If I ran a Primary Distributorship, my job would probably become:
- Looking around for established brands to bring into my fold, via a merger,
- Looking for a promising upstart to bring into my fold, via a buyout, or
- Cultivating a next generation of leading brands, in-house.
The “biggest” problem of them all… and the perpetual problem that plagues our industry… is that all of these things require imagination, creativity, vision, and strategy. None of which are routinely employed by our industry leaders. Job One in our industry can easily be defined as “Maintain The Status Quo At All Costs”. Everybody wants to be the king of their own island, and nobody seems to think very far beyond today. So, whenever any sort of “problem” arises, we all head back to our little islands, stick our heads in the sand (or up our asses), and put off for tomorrow what we really should have done today. It’s this mentality, this “culture”, that has gotten us to this point: Driving a 1973 Business Model in a 2011 World. We have literally been putting this off since 1974. Which doesn’t say anything good about our leadership, now does it…?
Ultimately, Jeff is entirely correct in this regard: The Customer Ultimately Gets What The Customer Wants. Even if it means wholesale abandonment of a legacy paradigm… oh well! The customer has spoken, and made his or her intentions clear. The customer wants more skateboards. The customer wants more variety and options. Not just new graphics or pros, but entirely new ways of skateboarding (the explosive growth in longboarding is a testament to this one). The customer wants quality product (as always), but also wants prices to come down (as always). The customer wants a whole world of selection at their fingertips… and why shouldn’t they? It is, after all, a 2011 world. It’s all about more choices, and more immediate gratification. Our industry- as represented by IASC’s members- does not easily deliver. This distribution model- as defined by “Everything from the manufacturer, to the retailer”- no longer works for the customer. So, they do the most sensible thing of them all: They abandon it altogether.
What am I saying here? Here’s what I’m saying: Even if we step it up, and make the changes that we’ve needed to make for decades in streamlining our business models… we still might fail. Because the current customer demands even more streamlining than we’re functionally capable of surrendering. The current customer lives in a world where “retail” is a couple of ginormous online supercenters… and if those fail for some oddball reason, you can always order direct from the mega-manufacturer as a last-ditch resort. In skate, you also have the luxury of tiny, boutique, microbrew brands that are entirely relateable, fun, and innovative. These guys don’t have any use for our archaic “Business Model” at all! They don’t need distributors, or even retailers. All they need is a small band of loyal customers to support their fairly limited (by IASC’s standards) business goals, and to support them directly and consistently. And that too, is largely done via the web these days.
At the end of the day, we are all responsible for our own individual successes and failures. Finger-pointing and blaming some other chap for our own fuck-ups accomplishes nothing. Maybe we- us, in the industry- would serve ourselves far better by standing back, manning up, taking responsibility, and realizing the full extent of our failures. Only then will we finally find the inner fortitude to finally go about re-engineering this mess to serve everybody’s needs and better interests.