Internet, changes and business models

Photo by hyku

Today, I listened to a great podcast from Planet Money dealing with the effects the internet is having over the music industry. In the podcast, they present Jonathan Coulton, who is making about half a million dollars per year just selling his music online with no label to support him. The discussion focuses on whether this is replicable and what it means for the music internet.

While I enjoyed the podcast immensely, I did finish with a bitter taste of disappointment. The story is told well and its hero, Coulton, is really relatable. However, I found the commentaries to be a bit simplistic from both side of the argument. Especially, the very shallow argument doubting whether Coultion’s story means a change for the music industry. I was expecting a bit more from a podcast dealing with economics.  At least three truly interesting economic issues have not been covered:

  • Distribution of wealth. In the “label model”, few artists and a few labels (and executives) made a lot of money. Do we prefer to have a few mega-artists making a lot of money or do we prefer many niche artists making reasonable sums? This is a microcosm of this bigger economic question (not only in the US). How can the internet affect the distribution of wealth?
  • Efficiency. I think the “Coultron model” makes more sense. Economics is about efficient use of resources. Are big labels using money to efficiently make art? No. Because of huge transactions costs. The labels, were (maybe still are), essentially a cartel or monopoly.  Monopolistic entities are (usually) not the best way to manage resources. What kind of economics is driving this change?
  • Death of The middle-men. The music industry is an example of industries that relied on middle-men and are slowly dying (see also newspapers, publishing and the movie industry). When transaction costs are almost zero and everybody is reachable, there is no need for a “power of scale” middle-man. Just check out “gapingvoid.com” or “the domino project”. As the story illustrates, there is a need for a new, smaller, savvy middle-men that will help artists focus on their art while taking care of some of the administrative stuff. What about them?

These are all issues to think about relating to the changes the internet is brining to business and economic models. The change is here. It keeps developing. You don’t have to be in the music business to be affected. It affects all of us. Isn’t it time we started realizing that? The question is what are we (as societies and individuals) are going to do with the opportunities it presents?

Elad

Isn’t it time your company got some haters?

Photo by recycledstardust

About a week ago, Matthew Rhoden wrote a post on HBR.org called: “Create Brand Superfans”. The idea in a nutshell, if I understand correctly, is as follows: Customer satisfaction is a lagging indicator which you can’t based future strategy on. The next level of customer satisfaction is turning customers into advocates. A customer turned advocate supports the brand, actively promotes the brand and is emotionally attached to the brand.

All well and good. My problem started with the prescriptions for action which constricted of three things: 1. Silence detractors. 2. Build a solid and positive customer experience. 3. Offer extraordinary experience. Specifically, I had a problem with prescription number one which Rhoden describes this way:

Silence detractors. Develop an environment where customers will not want to talk badly about a brand. I once spoke with an executive who said his goal was to “not have customers hate us.” Identify and prioritize customer pockets with a high concentration of negativity, and allocate resources to fix the root issues. In other words, to get your customer-experience house in order you must honestly focus on your most common complaints [Emphasis added]

Really? Have customers not hate us? Is that your strategy in order to make zealous advocates of your brand? Can we really talk today about silencing anybody? Seriously?

If I was asked to suggest someone with a way to transform customers into advocates, I would suggest exactly the opposite. Find ways to make specific customers hate you. Don’t waste time on fighting them, just on making their hate greater. Because their hate probably means other customers love you. Having haters means you are making something unique or strange.

In a great post about how overcome the fear of being bold Olivia Mitchell quotes Oren Harri who says:

Trying to get everyone to like you is a sign of mediocrity

Not having haters is a full proof strategy for mediocrity. And when you provide mediocrity, you can sure as hell give up on prescription number two and three: Positive customer experience and extraordinary experience – they are both the opposite of mediocrity. Bret L. Simmons writes in a blog post toady:

If you are going to have high expectations of yourself and others, there is no way you can make everyone happy. High expectations by definition means you have to take risks and try some things you’ve never done before, or make changes to established methods in search of continual improvement. When you take risks, some things are not going to work as well as you thought they might, and from time to time, they might even suck.

I hate to go to obvious example but look at Apple. Can you truly say everybody loves Apple? That nobody hates them? Of course not. Actually, some of their most salient value propositions are the ones that are most ridiculed. And if there was ever a company that had advocates in its consumers… I am not saying that companies should not listen to their customers or should not improve products and services. However, trying to make everybody happy (not to talk about silencing haters) is a sure proof way to not being remarkable. Seth Godin wrote a while back in post called The forces of mediocrity:

Maybe it should be, “the forces for mediocrity”…

There’s a myth that all you need to do is outline your vision and prove it’s right—then, quite suddenly, people will line up and support you.

In fact, the opposite is true. Remarkable visions and genuine insight are always met with resistance. And when you start to make progress, your efforts are met with even more resistance. Products, services, career paths… whatever it is, the forces for mediocrity will align to stop you, forgiving no errors and never backing down until it’s over.

Such resistance should be relished and not fought against. It is a clear sign you are on the right way. You can’t make everybody happy. Ever!

Does your company or brand have haters? If not, why not? What should you do to make some?

Elad

Emergence of excellence

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Two separate sources talked about the same issue today. Designing the conditions for success.

In planet money, the weekly podcast discussed the issue of job creation. The conclusion, job creation is not about one act of leadership. It is not necessarily about raising taxes (which could work) or lowering taxes (which could also work). It is about creating the optimal conditions in which jobs emerge.

Seth Godin discusses a different issue all together but so similar: customer service. Godin explains that it is not only about the person who actually provides the service, but actually many times, about how the environment was designed:

Too often, we blame bad service on the people who actually deliver the service. Sometimes (often) it’s not their fault. Sadly, the complaints rarely make it as far as the overpaid (or possibly overworked) executive who made the bad design decision in the first place. It’s the architecture of service that makes the phone ring and that makes customers leave.

And I ask you, as a manager, what are you doing to design an environment which enables emergence of excellence? Are you focusing on the conditions that support success? Why not?

Elad

Controlled Anarchy

Photo by Fail Blog

I have been delving into two sources of great management success stories in the last few days, trying to wrap my head around what exactly they have in common. Suddenly, I encountered the picture above and it suddenly made sense. Controlled Anarchy.

The first story was featured in a great podcast from the HBR Ideacast series. In this podcast they interviewed Jonah Keri, sports and stock market writer. Keri is the author of The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First. This is the book description from Amazon:

In The Extra 2%, financial journalist and sportswriter Jonah Keri chronicles the remarkable story of one team’s Cinderella journey from divisional doormat to World Series contender. When former Goldman Sachs colleagues Stuart Sternberg and Matthew Silverman assumed control of the Tampa Bay Devil Rays in 2005, it looked as if they were buying the baseball equivalent of a penny stock. But the incoming regime came armed with a master plan: to leverage their skill at trading, valuation, and management to build a model twenty-first-century franchise that could compete with their bigger, stronger, richer rivals—and prevail.

In the interview Keri talks about many things that helped this amazing turnaround to happen, but a few themes emerge – trust, attendance to disciplined process, focus on hiring and open-mindedness.

At the same time, I am reading A Chance to Make History: What Works and What Doesn’t in Providing an Excellent Education for All by Wendy Koop, founder and president of Teach for America. The stories of the schools that actually work, the schools that are able to take children from underprivileged neighborhoods and propel them all the way to college, show similar characteristics: trust, attendance to disciplined process, focus on hiring and open-mindedness.

In both these stories, between the lines, you read about a delicate balance:

1. A high dedication to numbers balanced with a focus on the people who drive them.

2. Focus on outcomes balanced with discipline to keep on the right process when the outcomes don’t come.

3. High accountability for results balanced with amazing trust in people to find their own best way to do what needs to be done to succeed and open-mindedness to their new approaches.

The last balance of the three, which is the most important in my eyes, is why I thought about the idea of Controlled Anarchy. These two success stories (and more I encountered in the past) seem to revolve around leaders and managers creating a very wide-set of boundaries and trusting their people to succeed in these boundaries. Instead of spending time and effort on micro-managing how people do their work, they focus their efforts on hiring the best available people, giving them the support and resources they need, and trying to learn from them while holding them accountable for the outcomes they produce. In other words, these leaders allow Anarchy in Controlled boundaries.

This Anarchy has another upside. As Steven Johnson illustrates in his book, Where Good Ideas Come From: The Natural History of Innovation, mistakes, failures and noise are an important factor in innovation:

The history of being spectacularly right has a shadow history lurking behind it: a much longer history of being spectacularly wrong, again and again. And not just wrong, but messy. A shockingly large number of transformative ideas in the annals of science can be attributed to contaminated laboratory environments…

Good ideas are more likely to emerge in environments that contain a certain amount of noise and error.

Is there Anarchy in your organization?

Elad

Interaction waste management systems

Photo by kyz

Waste is a natural part of many processes in life. Our body produces it all the time. Many chemical reactions have a main product for the reaction and waste-like by-product. Philosophies like Lean focus on eliminating non necessary waste and reducing the necessary waste to a minimum in business settings (the classical classification is to seven types of waste: Transportation, Inventory, Motion, Wait, Over-processing, Over-production, Defect).

Relationships and people interactions are also creating waste. Hurt feelings, frustrations, misunderstandings, tensions and negative affect are some waste by-products of any human interactions. Put a group of people to work together and you will no doubt have some of these to different degrees. However, while we have process in place to eliminate actual waste –in our bodies, homes and businesses (hopefully), it is not so common to have systems in place to take care of this interaction waste.

We all know what happens then – the waste accumulates until – in good cases – it blows up in one big explosion. Some people try to rationalize and claim that these things need to build up and that the big explosions are beneficial. “We had a big talk yesterday about all the tensions we had in the last few months and cleared everything up. I feel great!”.

Really?

It is like saying that instead of taking the garbage out regularly from your apartment you will hold all of it until there is no room and then take it all out at once. Yes, in the end the waste will be cleared, but what has this process done to your quality of life?

In a recent Freakonomics podcast called: “The power of poop” the emerging medical process of “fecal transplants” was discussed. Yes, you read it right. Doctors are taking feces from one person and transferring it to another person. It turns out that this process helps cure a wide range of diseases, some of which traditional medicine hasn’t been able to deal with. According to researchers, this works because the sick people waste management system is all screwed-up and by putting back a functional system (some good bacteria) you can re-create balance in the waste system that affects the whole body.

And if it works for our bodies, why wouldn’t it work for our interactions? What kind of interaction waste management system do you have for your team? how frequently is it being activated?

Elad

Why are they afraid?

Photo by Gianmaria™

I read an interesting article about teleworking in the latest edition of the Knowledge@ASB. Here is a short part of that article:

With evidence mounting for teleworking benefits, the obvious question concerns why so many managers are refusing to offer the option. “It’s fear of the unknown,” says Bevis England, director of Telework New Zealand and facilitator of the Telework Australia initiative. “Some managers are simply reluctant to change. They think ‘if it ain’t broken don’t fix it’. But the system is effectively broken. In business, we have spent about 200 years learning how to cram people into concrete and glass mausoleums, justifying the rental expenses by claiming greater productivity. Now we are experiencing a new evolution in which we must unlearn those lessons.

Management style, for those who are not used to looking after teleworkers, must also shift from process-oriented to outcome-oriented management, Ward and England agree. Once the teleworker has the tools – the training, the information and the ability to do their job – the worker must then be trusted to get that job done and judged only by the outcomes of their efforts”.

What is it that managers fear so much? Why is it hard for them to let go?

I think in part, this is rooted in our own conceptions of management and leadership as top-down activities. The thinking goes something like this: “if I am the leader that means I need to tell everybody what to do. If they are not here, I can’t tell them how to do their work. If there are not visible, they might try to do things their own way. Because it is not my way, then it must be wrong”.

Sounds kind of dumb when it is put like that, right? Well, it is.

As the last sentence in the above quote implies, it is about trust, which is slowing becoming the glue that holds organizations (replacing fear and rules).

Lynda Gratton put it wonderfully while giving a eulogy to organizational loyalty:

But whilst loyalty is dead…long live trust. Loyalty is about the future – trust is about the present. Trust is core to the relationship between the employer and employee – without it relationships become simply transactions and work is mired and slowed through continuous checks and monitoring. CEO’s may not believe their executives to be loyal in the sense that they will be with them indefinitely – but they have to believe they are trustworthy. Trust is one of the most precious organisational assets – slow to build and quick to be destroyed. The precursor to trust is fairness, justice and dignity – demonstrated in how processes operate and how people are treated when the going gets tough

Until we come to the understanding that in many areas of business, top down just doesn’t work anymore and embrace the ideas of emergence, Equifinality and trust, we would probably keep fearing the unknown and making excuses. Are these activities you are comfortable with? I know I am not.

Elad

Thoughts about the things we measure

Photo by tiffa130

In the last few days almost all of my information and knowledge sources (books, podcasts, blogs and RSS feeds and newspapers) have touched to a degree the idea of measurement. More specifically, the question – whether we are measuring the right things? One area where this question is particularly strong these days is the measurement of GDP and how good of an indicator it is for the state and growth of country. Here is, for example, the description of a Freakonomics podcast dedicated to the subject:

For decades, Gross Domestic Product (GDP) has been a standard yardstick for measuring living standards around the world. (The U.S., at $14 trillion, remains far above any other single nation in GDP.) Martha Nussbaum would rather use something that actually works… she argues that we should listen less to economists who tout GDP as a valuable measure of human welfare and look at all the things that GDP fails to capture — like what sort of opportunities are available to people, or as she puts it, “What are people really able to do and to be?”

In many of these discussions, people point out to the famous quote by Robert F. Kennedy at the University of Kansas on March 18, 1968:

Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife. And the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.

This line of thinking, however, doesn’t only apply to GDP. It is not only true on the national level but also on the business and personal level. The yardsticks we use should represent our values and the other way around. This is what I wrote on this issue a while back:

When you start treating management as a race for productivity you get an unnatural phenomenon. When you start using carrots and sticks like people are jackasses you get an unnatural phenomenon. When you rely only on measurement of the things you can measure to fuel management you get an unnatural phenomenon.

Here is what Nilofer Merchant wrote on the HBR.org blog a few days ago:

Words like “productivity,” “efficiency,” and “innovation” are defined by goal posts of our own creation: number of units shipped, revenue and profit, EPS and shareholder return. But when you think of the world this way, you forget two things: first, people, and second, that the numbers themselves are not a product. Both are symptoms of a soulless approach to business: when who we are is dictated by strategy and metrics, what we make lacks humanity — in terms of both our products and services, and the cultures we cultivate.

Are we too focused on things we can measure and not on things we should measure? Are we letting the measurable dominate our actions and discussion? Are we working hard enough to find ways to measure things that we should measure but are difficult to measure?

What are you measuring? What is your team measuring? Why?

Elad