Internet, changes and business models

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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?

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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

How can we make employees go the extra mile…?

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Bruce Temkin wrote today about how contact centers need to redefine their purpose; their raison d’être and that made me think about an interaction I had with a kind of a contact center.

I am in the process of applying for a Ph.D. in business administration. This means I have to deal with a lot of bureaucracy. Because I am applying to a number of universities I need to make sure I follow the specific rules of each university. As an international student, the number of forms I need to fill and rules I need to comply is just enormous and I admit that I constantly get confused. As a client in this situation, I can attest that it is very easy to determine if a website is truly user friendly or not.

Anyway, in one of the applications I had a specific problem with one form which I wasn’t sure if I need to fill out or not. I sent an email to the Ph.D. admission office and got a reply. The reply said something like: “We think we know the answer, but we are not sure. You should contact the graduate admissions office”. I could not understand why they could not give me a straight answer, but I sent an email and the correspondence to the graduate admissions office. The reply said something like: “We don’t really know. You should contact the international student office”.

Think about how many service failures you can spot in this scenario. First, the fact that I could not even be sure by reading the instructions on the website. Then, when I approach someone who should be my contact point, he passes the responsibility back to me and points me somewhere else. This somewhere else turns out to be the wrong place and points me to a third place.

A few days ago I wrote about standing out as a manager after being inspired by a Jon Gordon blog post. It was so easy to stand out here. How would I have felt if the first representative wrote an email to me saying: “I was not sure of the answer so I contacted the graduate admissions office for you, turns out, it is the international students’ office that is responsible for this. Their answer is X. ” Honestly, they are working for the same organization. Shouldn’t that be clear? Isn’t that the obvious answer as it involves seeing me as a human being?

I am interested not only the fact that as a customer I feel like I did not receive adequate service but especially in the question what in the environment, culture and structure of the university makes employees refuse to give adequate service? What could these people managers’ have done to make sure that the reply will satisfy me? What is needed to make sure people go the extra mile to stand out?

I am not sure I have the answers. I know that an approach of Next as Seth Godin describes it today is part of the problem. I am guessing that rules have something to do with this approach. And I am guessing that these employees don’t see their service as a true calling.

What do you think?

Elad

What you aren’t seeing

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I started reading Bob Sutton’s Weird Ideas That Work: How to Build a Creative Company and came across this quote:

The British and U.S. air forces were concerned because many of their planes were being shot. They wanted to use more armor, but were not quite sure where to put it. Wald put a mark on every bullet hole in the airplanes that returned from battle. He found that two major sections of the fuselage – one between the wings and the other between the tails – had far fewer bullet holes. He decided to put the armor in these places, where he saw fewer, not more, holes. Why? Because it stood to reason that the planes were hit randomly. The planes he analyzed had not been shot down! So it was the holes he wasn’t seeing – in the planes that weren’t returning – that needed extra protection.

It reminded me of a concept I wrote about a few times before in my blog – the missing piece (see: 1, 2, 3).

We are so focused on one side of the question or issue, that we forget to consider the opposite side.

Instead of asking – how can we improve the product to attract more customers? – we should try asking – what will happen if we stop completely using the product? Instead of asking – what can I do to help my employees become better? – we should try asking – what am I doing that is preventing my employees giving their best work? Instead of asking – what is preventing me from reaching excellence? – we should be asking – what should I do in order to reach excellence?

It is not that the first questions are not important. They are. It is just that by changing our point of view, even just for the point of changing it, we open new directions and dimensions.

What is not there is sometimes just as important as what it there. Let’s try shifting our focus to the other side.

Elad

Not everybody can

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“Anybody can pour a cup of coffee, rent out cars, sell pairs of jeans. Except, of course, they can’t. The [businesses] that are the best at these things take ‘anybodies’ off the street and make them their own ‘somebodies”

I found this quote, by Alex Frankel (from his book Punching In: The Unauthorized Adventures of a Front-Line Employee), in a great post by John Moore from the Brand Autopsy Blog. Here is another part from the post that talks about the same point:

Turns out the quality of the employee is the difference-maker between an energetic store and a lifeless one. It can also make the difference between a loyal customer and an infrequent customer.

I really like these quotes because they touch upon a few powerful ideas I really believe in. More than anything else, it means that not everybody is equipped to do every job. I know it is not popular to say this, but we are not equal. And I mean this in the most wonderful way possible. Yes, most people can do any work, but they can’t excel at everything. They can’t create Art in the Seth Godin sense of the word. And excellence and Art is what is needed to create true engagement.

I can pour and prepare coffee. But I will never make connections with a customer in a way that makes him feel good about him or herself. And while I am sure I will make a very good employee and do everything needed, be on time and whatever else the “rule book” says, I will never be able to do the things that really matter in such a situation. I can learn how to “talk the talk” with customers, but inside, I would never “walk the walk”. I will never truly enjoy such an engagement with strangers. It is not in my character or personality. But others can. It doesn’t say anything bad about me or them. It just the wonderful differences between us.

A manager’s job is to make these connections between roles and people and in a way that contributes to the employee’s sense of self and to the goals of the business. It starts by choosing good people but it continues into listening to them, talking to them, asking the right questions and helping them find their strengths and flow.

Do that and the customers will follow.

Elad

Listening and not listening at the same time

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Dan Pink writes about a subject matter that I find important for every aspect of business and management (and politics). The concept of “listening to your customers”:

Give customers what they want.

It’s a sturdy principle of business, one that most of us endorse. But it’s also a principle that can carry seeds of its own demise.

Leadership and management are not a popularity contest. While listening to your clients, peers, employees etc. is not only important it is a must, knowing when to ignore them or do something they can’t even think about is just as important. As I wrote a few months ago:

I don’t know about you, but if a few years ago somebody would have asked me what do I want my cell phone to do, there is no way I would have said: “Oh, you know what, I want it to react to movements when I move it around so I can play games with it”. I don’t know it for a fact, but I think the people at apple just put that quality into the Iphone without people telling them that is what they want. And that is a one great quality for a product. That is a way to make it a purple cow.

It works with customers just as well as it works with employees. In all fields of life, the work of great change makers was first criticized, misunderstood and fought against. “Why the hell do we need that?” the critics ask. But the change makers are the ones that make an impact on our lives. This is the difference between incremental innovation and radical innovation. One improves on what you have; the other changes the rules of the game. As Henry Ford famously said: “If I have asked people what they wanted, they would have said: ‘a faster horse’”. This is how Pink summarizes it:

Enhancing a category is cool; creating a category is cooler. Providing people what they want is a smart tactic; giving people something they didn’t know they’re missing is an even smarter strategy. Listening to the customer can be helpful; listening to your own voice can be revolutionary.

Every word here can be applied to customer service, development of new products and more importantly, management of people. Listening to them is good. But giving them what they want is not always best. Like giving employees answers – they would want it, but it is not good for them. And this reminded me of what I was trying to say about effectiveness and efficiency:

What the definitions don’t tell us is the focus. Efficiency is about marginal improvements. We take the current situation and try to make it better. To make the most of what we have. To do better with what we have. And that is a very useful skill. But it rarely leads to huge leaps. And it rarely breaks the boarders and provides levels of performance we haven’t thought possible. Effectiveness, on the other hand is about change. Is about finding a better fit to our goal. It is making something work better, not in the margins, but in the core of its being. It is about finding the right solutions to the right questions. If you make something more effective, you are changing the way it works, re-inventing it (maybe a bit more similar to term Efficacious). And you are focused on the long-term effects.

Everybody will tell you that you should listen to your customers. But everybody tells you to do that, everybody else is doing it too. Why don’t you try to listen to them, but not listen to them at the same time? Now that is something special.

Elad

Did we fire anybody?

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I never bought anything from Zappos. I actually haven’t heard about it until last year. I came to learn more about it when it was bought by Amazon a while ago and we had an interesting debate among my classmates at AGSM MBA 2010 class about whether it was a smart move or not. But the more I hear about the company (and I wrote about it before: 1, 2) the more I come to appreciate it.

It turns out that a few days ago, Zappos had a little problem with pricing in one of their sister websites. The pricing issue meant that many products were sold for a small percentage of their original price for about six hours. This meant a loss of … wait for it… $1.6 million (gasp!).

Now, mistakes happen. Even big ones. The question is as managers and leaders, how do we cope with mistakes and prevent them in the future. Look what Zappos CEO, Tony Hsieh, writes about the incident:

To those of you asking if anybody was fired, the answer is no, nobody was fired – this was a learning experience for all of us. Even though our terms and conditions state that we do not need to fulfill orders that are placed due to pricing mistakes, and even though this mistake cost us over $1.6 million, we felt that the right thing to do for our customers was to eat the loss and fulfill all the orders that had been placed before we discovered the problem.

I see two amazing things here. First, a company that understands that values and a belief in something means difficult tradeoffs. Zappos is built around customer service and customer satisfaction. It is not always about going with the letter of the law or the contract. It is about acting right according to the principles that the company is built upon. They decided to fulfill the orders basically saying to the customers – “good for you!”

Second, they decided not to play the blaming game. Yes, there was a mistake. Somebody made it. Maybe even a number of people were responsible. But, that is in the past. The question is what do we do in the future. Susan Scott writes in Fierce Leadership that people should Model accountability and hold people able:

… Accountability begins (and in this case, ends) with you. You being accountable in front of everybody else. Not talking about it, not bragging about it, just modeling it. Doing what you said you’d do. Taking responsibility for disappointing results. Focusing on taking action. Asking, given this result what will I do about it? And if things go wrong with others, asking the same question. Given this result what are you going to do? And you must give up blaming.

Zappos decided to look at this as a learning opportunity. I am sure this kind of mistake will never happen again. Will we never see other mistakes? Not likely. And I ask you, what does that do to the confidence of employees? To their willingness and ability to take risks? And their willingness to make sure nothing like this ever happens. To go the extra mile to make share it will never happened. I think it will be a lot bigger than if heads would have rolled. Not only because it is the right and human thing to do. But also because it fits so well with the entire culture of Zappos.

Employee engagement does not start over night. It is about being consistent with every action and decision. Especially the hard ones. I agree with every word Paul Hebert writes about this:

The company decided that the process was the problem – not the people. From what I can read into this they started by deciding the people were competent, the people didn’t do this because they were stupid, lazy, disengaged, or malicious. They started with a positive view of the people.

I’ll ask you this… in your organization would this happen?  Would a $1.6 million error be handled the same way? That my dear readers is a quality organization.  If you want to know what a role model looks like – this is a role model.

Elad

The last ten percent

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A few weeks ago Seth Godin wrote about the last ten percent. The part of the work that is the hardest to do but makes all the difference. The change from standard to excellent. The change from ordinary to extraordinary.

The last ten percent is the signal we look for, the way we communicate care and expertise and professionalism. If all you’re doing is the standard amount, all you’re going to get is the standard compensation. The hard part is the last ten percent, sure, or even the last one percent, but it’s the hard part because everyone is busy doing the easy part already.

As I see it, a few question come out of this type of thinking:

1. Do you know how to recognize the difference between the standard and the last ten percent in what you do? Do you know what the little things that make a difference are?
2. Answer honestly now: in how much of your work do you put the effort of the last ten percent?
3. If you don’t, do you ask yourself why?
4. If you can’t because it’s hard or you don’t know how, what are you doing about it?
5. If you can’t because you are not the right person to for it, do you make sure to find the right people to collaborate with in order to take care of last ten percent?

My bottom line take: find the one place you feel comfortable doing the last ten percent and focus your attention on it.

Elad

Compromise or tradeoff?

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Two seemingly unrelated posts I read this week made me think again about an issue that I think is at the heart of business strategy and leadership. Tradeoffs and priorities.

In the first post, Hugh MacLeod describes the decision Howard Schultz of Starbucks tells about in his book, Pour Your Heart into It: How Starbucks Build a Company One Cup at a Time. Sometime in the 1980’s it was a really bad year for coffee crops. Starbucks had to make a choice. Either raise prices or start using cheaper coffee. Research said that using poorer coffee will only be felt by 10% of customers (as a non-coffee drinker, this number surprised me a little) while raising prices would be felt by all costumers. This is how Hugh described what happened:

The accountants, predictably, recommended that they go with the cheaper coffee option. Numbers don’t lie etc, it was better to tick off 10% of their customers than 100% etc, cheaper coffee was the “obvious” thing to do etc etc.

Howard didn’t do that in the end. Instead, he raised the prices accordingly, and left a note in every store, telling people why his company was forced to regretfully raise their prices. And he also told them about the option he could’ve taken but chose not to i.e. cheapen the coffee.

And you know what? The customers understood his reasoning, and stood by the business.

Eventually wholesale coffee prices came down again, allowing Starbuck’s to lower their prices as well. The company weathered the storm and the brand ended up all the stronger for it. Life was good again.

Sorry, Bean Counters. Numbers do lie. Sometimes pathologically so…

The other post was written by Jon R. Katzenbach and Zia Khan on HBR.org. they describe what they call “Proud to be Cheap: The “Secret Sauce” of Low-Cost Winners”. Most companies engage in cost cutting and try to reduce costs. But some companies, Katzenbacha and Khan claim, have it as part of their D.N.A:

In a nutshell, it is a culture that is “proud to be cheap” in good times and bad. Their people cut erasers in half, turn off the lights when they leave the building, bring their lunch to work, fly in the back of the bus, and stay in Day’s Inns. More important, they are always on the alert for ways do things on the job more cheaply, without compromising quality and service standards. Nothing is wasted, nothing is redundant, and nothing is overlooked when it comes to doing it on the cheap.

These seem to be two very different stories. But actually, they are the same. It is the stuff success is made of. Tradeoffs. Priorities. Consistency. Average is the most dangerous path. If you do something, go all the way. Pure you heart into it. Make everything about your concept. Build the decision around it. Sure, at times it might not seem like a good idea. At times, everybody will tell you that you need to settle. That principles are good but they don’t provide a living or they don’t satisfy the shareholders they will say. I think it is all nonsense. Ignore Everybody.

The problem with stories about companies’ strategies and CEO’s decisions is that sometimes they seem distant. How many of us are going to be CEO or make decisions that have so much impact? In this case? Every day. Every one of us makes many choices every day. And each of these choices could be comprise or could be a tradeoff. What will your next decision be?

Elad

<a href=”http://www.amazon.com/gp/product/0788195336?ie=UTF8&tag=thecompaadvan-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0788195336″>Pour Your Heart into It: How Starbucks Build a Company One Cup at a Time</a><img src=”http://www.assoc-amazon.com/e/ir?t=thecompaadvan-20&l=as2&o=1&a=0788195336&#8243; width=”1″ height=”1″ border=”0″ alt=”” style=”border:none !important; margin:0px !important;”

What you don’t stand for

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I was reading an article titled building Your Company’s Vision By James C. Collins and Jerry I. Porras (the authors of Built to Last: Successful Habits of Visionary Companies), when I came across this quote:

The point is that a great company decides for itself what values it holds to be core, largely independent of the current environment, competitive requirements, or management fads. Clearly, then, there is no universally right set of core values. A company need not have as its core value customer service (Sony doesn’t) or respect for the individual (Disney doesn’t) or quality (Wal-Mart stores doesn’t) or market focus (Hp Doesn’t) or teamwork (Nordstrom doesn’t). A company might have operating practices and business strategies around those qualities without having them at the essence of its being. Furthermore, great companies need not have likeable or humanistic core values, although many do. The key is not what core values an organization has but that it has core values at all.

I love this quote. Many reasons. The main reason – it exemplifies the fact that sometimes what you are not, is just as important as what you are. What isn’t there can often trump what is. The point is that it is not only about choosing some core values. It is about making the choice to begin with thus excluding other choices. Making a deliberate decision to say – this is what I am, which means I am not something else.

We have, in the westernized world, a culture built around stories of great success. Of people who did it all. And we get a sense that we can have it all. But we can’t. Nobody, be it company or individual, ever does everything well. It is those who choose, make tradeoffs and focus that become the best.

I think people easily forget this. This is why you have so many value statements about core values that are not worth the paper they are written on. It is easy to say these are the values I want to stand for. It is easy to say we will focus on customer service. It is much harder to admit that the values we stand for mean that we don’t stand for other things. That our focus on customer service has to come on the expense of something else.

So, what do you, your team or your company stand for? what don’t you stand for?

Elad

Built to Last: Successful Habits of Visionary Companies<img src=”http://www.assoc-amazon.com/e/ir?t=thecompaadvan-20&l=as2&o=1&a=0060566108&#8243; width=”1″ height=”1″ border=”0″ alt=”” style=”border:none !important; margin:0px !important;” />