Dream Business Model for Hardwood Industry

The Foundation of Business Sustainability

2010-08-12T16:39:00.002-05:00

In the woodworking and furniture industry, why can companies like IKEA continue to perform well even after being in business for over 60 years, while others have failed and faltered?

To answer such a question, I draw on over 30 years of study and research, especially on the companies I have visited in Taiwan, the U.S., Canada, Korea, Japan, Singapore, Indonesia, Thailand, Malaysia, China, Vietnam and Russia, to find the link in their prosperity and sustainability of their operations. My research approach is rather extreme. After 10 years of being an academic, I chose to become an entrepreneur myself in order to identify the gap between theory and practice.

From years of hands-on experimentation I have concluded that there are four elements required in sustaining a business’s prosperity, namely having the right motivation, executing the fundamentals well, seeing the big picture and having an innovative business model that warrants long-term growth.

When we first start a business, survival is the name of the game. A startup must grab any business opportunity that comes its way. In other words, the company must be short-term goal oriented. The meaning of “having the right motivation” is how soon the company can grow out of short-term thinking. The reality is that most business owners never end up changing their way of thinking. That is why the majority of startups don’t last more than 6 to 10 years.

The logic behind business owners having to think long term is very straightforward. I often hear my fellow businesses owners complain about their employees not being motivated. However, they are seldom inquisitive about why motivated people would want to work for them when their businesses have nothing to offer the employees for their personal long-term growth.

If business owners care to look at things from the employees’ angle, they would naturally be on the right track for long-term thinking. In other words, instead of just chasing immediate profits, business owners also would have to address the issues of business fundamentals. Business fundamentals are the management disciplines required to shape a good company, such as having a clear company goal, a productive company culture, good control over cost and quality, and most importantly, the willingness to invest in the education and training of employees.

Exercising these disciplines is not at all easy, but they are essential to a business’s sustainability. Case in point, a company without a clear long-term goal is equivalent to not providing a direction for employees to better themselves or providing employees hope for their futures.

However, even companies who think long term and practice good management disciplines may still be adversely affected by the effects of globalization such as imports competition. In other words, if businesses can’t see the big picture in global competition, market changes, raw material trends, economic cycles, etc., they will still have sustainability issues.

The signals of changes in the environment are usually pretty clear, but the effects are gradual. We business people, however, tend to be overly optimistic and resistant to making any major changes. Therefore, there won’t be any miraculous change for the better; failure is usually just a matter of time.

Ashley Furniture is a good example of effectively seeing the big picture. They started their import program over 30 years ago. But instead of closing down their domestic productions like some other large companies, Ashley imports only to compliment their domestic manufacturing thus maintaining their flexibility. Once they began retailing their own products, Ashley became the number one furniture company in the U.S. while doing around $3 billion annually.

From my 20 years of hands-on research on business models and sustainability, I believe that in our industry only IKEA has a “Blue Ocean Strategy,” which means “Creating an Uncontested Market Space and Making the Competition Irrelevant. IKEA has created a unique retail business model that enables them to keep innovating their products, services, manufacturing and store design. That in turn renders them capable of generating $30 billion in revenues annually with only about 300 stores. And they still have plenty of room to grow in the global market.

A worthwhile question to ask is that if a company happens to come up with an unprecedented business model to compete in the market, will that ensure their sustainability? The answer is definitely no, unless they can anchor securely the other three foundation elements: motivation, fundamentals and big picture. The fate of iFurniture is a clear illustration of my point.

So I have made my observations about what has been happening in our woodworking industry for the past 30 years and have talked the talk. What then can I suggest companies to enhance their sustainability and walk the walk? Although there are clear paths and methodologies for any situation regardless of the size of the business, there are no short cuts. One place to start is to step outside your box and find opportunity to interact with academics. At least they can help you with seeing better the big picture.

As a non-consultant businessman, I believe that I have done sufficiently enough to share my general perspectives. If any reader wishes to discuss specifics, I am willing to try it openly in this blogosphere.

* The above blog I wrote also to post on the Woodworking Network

Want to be Proud? Must Dare to Dream & Dare to Do

2010-07-29T12:44:00.001-05:00

After being a member of the forest products community for over 40 years, I have yet to see our community demonstrate continual progress or the know-how to become better. Case in point: although we have the technology, raw materials and markets in our own back yard, the imported wood furniture has still taken over two-third of our own domestic market share. While we move our furniture manufacturing offshore to make easier profits, foreign companies such as IKEA are making major capital investments in setting up their production here. While forest products are still the largest or second largest industry in some states, the forest products departments in the state universities, however, can hardly find enough students interested in enrollment. Just how can we feel proud of being a member of this community if we continue to keep going downhill? Are there any ways that we can revitalize our community?

As a research scientist who has witnessed and even participated in the export furniture boom in Taiwan for 10 years, I have always been inquisitive about these exporting companies’ sustainability in a matured market. In order to find out how woodworking companies can manage to stay prosperous and achieve sustainability, I decided to carry my study further and become an entrepreneur to research for answers in the matured market of the US. After 10 years of being an academic plus 20 years as an entrepreneur, I believe that I can provide further insight and ideas on how to revitalize our forest products community. In this blog, I will start with sharing a rewarding experience of mine with my fellow academics, and then propose an innovative approach to strengthen our forest products education.

It is easy to see that there is a disconnect between academic institutes and the industry. Just which side should take the initiative to close the gap? If we want to be inquisitive about this, we have to start by first acknowledging that even academic institutes need to generate products, namely graduates and research findings, in order to get funding. Where then is the market for our products? Apparently the industry is our largest market. Therefore, there should be plenty of incentives for us to study our own market in order to generate better products. If we fail to attempt that, we are either short-sighted or simply lazy.

In order to make the distinction between theory and practice, we need to learn how businesses are operated from business people first. We can then know how to advise them effectively. From my own experience, once I had gone through this process, my teaching and research projects have all become much more meaningful. I would also emphasize that, while dealing with the industry, maintaining our modesty and integrity can carry us in a long and rewarding way. From this reciprocating process, “Knowledge is power” will become even more evident to us academics. And that can really make us feel proud.

If I was a university professor now, I would put together an elective entrepreneurship course for sophomores and up in the school of forestry or school of agriculture. The objective is to expose students to the concept of becoming an entrepreneur early on. The design of the course should first cover some concepts in the basic disciplines required in running a small business, and then invite in small business owners and entrepreneurs as speakers to share their real life experiences in this two hours a week class.

The purposes of having this class are threefold. First is to show students that most businesses compete with their expertise knowledge and capability. Thus the students may be motivated in having a sense of direction and study harder while in school. Second is to let students be aware that just having good ideas and a willingness to work hard are no guarantees for success in the business world. They are better off forming the notion that they should work for other people first to gain experience and put their abilities to the test. The third is to allow students to know that becoming an entrepreneur is not for everyone. From learning how challenging it is to run a business, hopefully they can appreciate their prospective employers more and even develop better work ethics. I am confident to say that for every accomplishment achieved in life, it all started from having a correct concept. Providing this correct concept is what this entrepreneurship class is all about.

Yes, I dare to dream about that a lot more well-educated and well-prepared entrepreneurs will join us in the future. With their youth, energy, creativity, and passion for success by adopting correct methodology, our community will have better chance of being revitalized. We can then all feel proud again. To make this possible, we academics must dare to break the status quo now by creating an entrepreneurship class in the school of forestry in our universities.

How Important is the Forestry Industry Now and in the Future?

2009-06-07T21:57:00.007-05:00

Since the objective of my blog is to promote the forestry industry and to exchange entrepreneurial experiences in this industry, I’d like to first define just what exactly the forestry industry is and define its significance to society.

Any business that has revenue generated from the forest or forest land belongs to the forestry industry. The ones most well-known to us are the lumber and paper industries. The ones lesser-known to people are the medicine, food, bio-energy, and recreational forestry industries.

Just how important is the forestry industry in the US? About 33% of the total land area in the US is covered by forest. In some eastern states, the forest land even covers 80 to 90% of the states. The traditional wood industry is often among the top three manufacturing industries in many eastern states; for example, it ranks number one in Alabama with total annual revenue of $15.9 billion in 2005.

We have been harvesting trees from the forest lands in the US for decades. Nevertheless, we have more forest inventory now than we had 60 years ago. Not only is it because trees grow back naturally, but also because we manage our forests intelligently and utilize the wood efficiently. Most critically, from our needs from paper to lumber, we absolutely cannot live our daily lives without these forest products.

In recent years, global warming due to carbon release into the atmosphere has become a major issue in our society. I happened to run into some statistics showing the carbon release data for different raw materials, shown in the following table:

Total Carbon Release for Gathering,

Processing, Manufacturing, and Transporting One

Metric Ton of the Following Raw Materials

*carbon sequestration before logging

In other words, wood as a raw material was not only essential to us centuries ago, it is still just as important now and will be crucial to us in the future.

With all these important merits, does the forestry industry today have a great social standing and reputation? Not really! The public generally tends to think that if we continually use wood products, we are helping deplete the world’s forests. It is a misconception propagandized by some special interest groups to meet their own agenda. However, we have nobody to blame but ourselves for having this kind of image stored in people’s minds. Because we, the members of the forestry community, have not done a good enough job to promote the right image for our industry.

So what is my proposal for a solution? Through using this blog, I will try my best to promote this fascinating industry by sharing my 35 years experiences in the industry (see my personal profile), especially the experience of being an entrepreneur.

Feel free to message me any questions or remarks you may have so I can start to blog some specifics!