Some Things About Business

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As French unemployment creeps relentlessly higher, the country’s famously tough labor unions are getting even more aggressive. First, they tried “bossnapping” --taking their bosses hostage . Now, unions at a bankrupt auto-parts factory are threatening to blow the place up unless its two principal customers, Renault and PAS Peugeot Citroen, fork over some $14 million in severance payments to workers.

The unions say they have placed gas canisters throughout the New Fabris factory in the town of Chatellerault, about 200 miles southeast of Paris, and will detonate them on July 31 unless the automakers pay $42,000 to each of its 336 employees. “If we don’t get anything, they’ll have nothing at all,” a union representative told the newspaper Le Figaro, referring to factory machinery and inventory, valued at about $5.6 million, that either belongs to or had been ordered by the two automakers.

New Fabris, which entered bankruptcy proceedings last November, has few assets available to pay laid-off workers. But union leaders contend that Renault and PSA, because they have received nearly $4 billion apiece in government bailout loans, have an obligation to help. Not surprisingly, the automakers disagree. “We can’t be expected to support, by ourselves, the restructuring of 12% of the French economy,” a PSA spokesman told Reuters.

Jasmine Lawrence started her hair and body care products business when she was 13. She describes her speedy path to success

The Entrepreneur: Jasmine Lawrence, 17

Background: After chemical hair-care products caused much of her hair to fall out when she was 11, Lawrence began to research natural alternatives. Two years later, she started the hair care line Eden Body Works with $2,000 in seed money from her parents, after being selected to attend a business camp sponsored by the National Foundation for Teaching Entrepreneurship (BusinessWeek.com, 10/5/07). Since then, the teen has been featured on the Today show and Oprah. Her business has also been nominated by businessweek readers to our annual Best Entrepreneurs 25 and under roundup (BusinessWeek, 9/8/08) for the past two years.

The Company: Based in her family's basement in Williamstown, N.J., Eden Body Works has grown to 17 products that are sold online and via brick-and-mortar retailers including Whole Foods (WFMI). In 2007, Lawrence, then a junior at Williamstown High School, negotiated a deal to sell her products at Wal-Mart Store (WMT) nationwide.

Revenues: Over $1 million

Her Story: As if being a teenager weren't hectic enough—try being a teen and a CEO. That is the challenge that I am faced with every day. It all started four years ago, when I decided to start a company to make all-natural hair and body care products. Now I am managing national distribution chains and international online sales. At the same time, I am also trying to have a life. My day starts at 5 a.m. After school, I head straight to my room for an hour power nap, then pry myself awake for homework. On a normal day, after finishing my schoolwork, I answer e-mails, do interviews, and have a meeting or two with my four employees (one of whom is my mom—she is the head of business development).

On a not-so-normal day, I may be packing to take a trip somewhere across the country to speak at a school, a church, or a business event. At some of these events, I am surrounded by business people wearing suits and ties who are twice my age, if not more.

Switzerland's Barry Callebaut, the world's largest chocolate producer, has devised a new product that doesn't melt and has 90% fewer calories

Serious mountain climbers know the problem all too well: Packing chocolate in your rucksack only ends in frustration when you reach the summit. If you're walking in freezing cold temperatures, the chocolate bar becomes a rock-hard block that's impossible to bite into without breaking your teeth. But, then again, if the sun is beating down, it won't take long before the chocolate melts into a gooey mess. In the worst-case scenario, you reach the mountain top, finally at your destination, and it's completely liquified.

And even if the temperature is just right, there's still the problem of weight gain. As most of us have finally realized, chocolate is not one of the staple foods of the skinny minnie.

But one Zurich-based chocolate manufacturer thinks it has a solution that could make these problems a thing of the past. Barry Callebaut (BARN.MU), whose annual output of over 1.1 million tons of cocoa and chocolate products makes it the world's largest producer of chocolate, has developed a type of chocolate with completely new properties. According to the company's head developer, Hans Vriens, the chocolate has up to 90 percent fewer calories than regular chocolate.

What's more, high temperatures can't touch it—unless, by chance, they soar higher than 55 degrees Celsius (131 degrees Fahrenheit). Depending on its composition, traditional chocolate starts to melt at around 30 degrees Celsius. And that's the inspiration behind the tentative name its developers have given the new product: "Vulcano."

The bar's creators want to use it to tackle a growing problem: In Western Europe and North America, chocolate consumption has leveled off and, in some cases, begun to decline. In the past year, consumers in the eight largest western European countries consumed 2 percent less chocolate. In the US, consumption decreased by 8 percent. Under these circumstances, manufacturers are forced to rely on emerging markets for future profits.

The calorie-reduced "Vulcano" will be made available in both bar and cookie form. In this stagnant market, Callebaut hopes that it will raise widespread interest, especially in diet-obsessed America. Thanks to its ability to withstand high temperatures, "Vulcano" has a realistic chance of making a dent in the market in warmer parts of the world, as well. As things currently stand, marketing a heat-sensitive product in such regions without setting up expensive "cold chains," as temperature-controlled supply chains are known, is almost impossible. A chocolate product that could withstand high temperatures would solve this problem. According to Vriens, the company wants to start by targeting India, China and southern Europe.

"The idea sounds intriguing" says Daniel Bürki, a financial analyst at the Zurich Cantonal Bank. But he's still not fully convinced about the chocolate's chances of success. "Past experience has shown that melt-proof chocolate cannot compete with traditional products when it comes to taste," he adds. In his opinion, the special product is more important for the draw it has on investors. "They love these kinds of stories," Bürki says.

But if Barry Callebaut really has solved the problem of flavor, he adds, "Vulcano" could become a huge success. "In the warm emerging markets, particularly China, there is a growing middle class, which can afford to buy chocolate—and wants to," Bürki says.

As a rule, emerging companies focus most of their time and talents on meeting the needs of customers, as well they should. If they don't take care of the customers they already have, everything else will be academic. Strangely, however, many neglect the function of winning customers in the first place. Others naively assume that if they simply provide excellent products or services, their reputation will precede them. Call it the "build a better mousetrap" syndrome. But the world has too many other things to do with its time than beat a path to your door. That means you need to structure your profit-and-loss statement in such a way that you can profitably allocate a reasonable percentage of your revenue to marketing.

The Big Question: How Much?

While there is no definitive answer as to how much any business should spend on marketing, there are general guidelines any company can use to develop a formula that works for them.

Your first step should be to try to find out what the advertising-to-sales ratio typically is in your field. Public companies in your industry may give a figure for their marketing spending in their financial statements (found in their annual reports). With a simple calculation, you can figure out what percentage of their overall revenue that represents. If you can't find any public companies that seem similar enough to yours, you might want to start at 5% and then adjust your projected spending up or down based on the size of your market, the cost of media, what you can learn about how much your competitors are spending, and the speed at which you'd like to grow.

You'll also need to ask yourself if your business is built to leverage volume or to leverage margin. Even within industries, there are substantial differences in the marketing spend of volume-driven companies compared with margin-driven ones. Volume-driven companies tend to spend a tiny percentage of sales on marketing, in part because their large revenues enable small contributions to add up fast, and in part because of the margin pressures they face in having to compete with other high volume companies. By contrast, margin-driven companies tend to spend a larger percentage of sales on marketing: They have room in their margins to afford it, and they're often working from a smaller revenue base.

The Retail Industry provides some good examples. While Wal-Mart (WMT) might spend a meager 0.4% of sales on advertising, the sheer size of the company turns that tiny percentage into a significant budget. Wal-Mart's nominally higher-margin competitor, Target (TGT), spends closer to 2% of its sales on advertising, while Best Buy (BBY), as a specialty retailer, spends upwards of 3%. Finally, more upscale stores like Macy's typically spend on the order of 5%.

The same kind of ratios can be seen in the car industry (automakers' generally spend 2.5% to 3.5% of revenue on marketing), liquor (5.5% to 7.5%), packaged goods (4% to 10%), and every other industry.

If you're in a services business, you might want to bump your starting point higher than 5%. For example, like most professional services firms, my company is more margin-oriented than volume-oriented, so fueling its growth requires that we spend a higher percentage of our revenues. Last year, our number was just over 8%, and I've seen companies spend upwards of 15% when warranted—especially young companies that need to invest to build their brand.

Marketing, Not Just Advertising

It's important to make a qualification here. Giant consumer corporations such as automakers, packaged food manufacturers, and retail chains spend a huge percentage of their marketing dollars on paid media advertising, the most visible (and expensive) tool in the marketing toolbox. Depending on the size of your company and the business you're in, advertising might not be the right (and certainly not the only) tool for you.

A professional services company like my own is a good case in point. While we serve a national clientele, we are much too small to effectively advertise on a national scale. As a result, we don't purchase paid media advertising. But we do have an aggressive marketing program built around tactics like direct mail, online marketing and public relations. For a variety of reasons, paid advertising might not be right for your company either, but events, vehicle wraps, point-of-sale displays, or other tactics certainly could be.

The important thing is intentionally and deliberately to set aside some rational percentage of your sales to get out there. That way, the question you have to answer isn't "How much should we spend?" but rather, "How do we spend most effectively?"

Want some watts with that cheeseburger? A North Carolina Mcdonalds location is giving new meaning to the fast-food drive-through. According to Raleigh, N.C.-based paper The News & Observer, the hamburger joint is launching its first electric car charging station at a location in Cary, a Raleigh suburb, on Tuesday, July 14. The location will feature two charging stations at the front or parking spaces that customers can use to charge their cars while they eat. There is no fee for the charge.

It's a brilliant concept--that is, when and if electric cars become common enough to see widespread usage. Restaurants with valuable parking lot space and real estate have a great opportunity to rethink what other services they can offer their customers. But I'm surprised McDonald's is offering it free of charge. Seems like a great way to reap revenue from part of their real estate. If I had a car like this, I'd happily put a few coins in the meter to charge it while I'm eating. What do you think--should McDonald's ask customers to pay for the watts they consume with their food?