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    June 30, 2010

    Cheap versus Free

    I recently read the book "Free" by Chris Anderson the author of The Long Tail.  It is a good read and really makes you think.  I don't agree with everything he says nor do others, but the one point he makes that really made an impression on me is the huge difference between cheap and free.  One example he gives is an experiment that is done by Dan Ariely the author of "Predictably Irrational".  They placed a table at a university where they were advertising chocolates.   6-30-2010 4-12-27 PM  They had Lindor Truffles for 15 cents (a high end chocolate which typically sells for much more), and Hersey Kiss's for 1 cent.  73 percent chose the Lindor Truffle over the Hersey Kiss.  They then decided to lower the price of each candy by one cent.  The Truffle was now 14 cents and the Kiss was 0 cents.  69 percent chose the Kiss.  What Ariely came to understand through this experiment and others is that the brain is constantly deciding how to allocate resources.  When faced with a choice where resources don't have to be allocated (i.e it is free) the brain is relieved from having to do work.

    How does this affect your market?  This is not just true for free goods, but also free services.  If there is no charge for deliveries or no penalty to ask for a faster turn around I will choose whatever I want because I don't have to allocate any resources.  This is not a new thought of mine.  This was actually in my first post on this blog.  Chris Anderson and Dan Airely just did a better job of explaining it.  More on this later...

    March 24, 2010

    Don't Be The Turkey

    Nassim Talem makes the point in his popular book, The Black Swan, that it is human nature to predict the future based on the results of the recent past, no matter how much evidence exists that the recent past may not be a good indicator of what the future holds.  The illustration he gives is a turkey on a farm thats wakes everyday to to be fed by the farmer.  He comes to believe that the farmer is benevolent and that humans are "looking out for its best interests".  He believes this until the day before thanksgiving when he comes to the rapid and startling revelation that his belief system may have wrong.

    A recent example is the earthquake in Haiti.  It was well known that Haiti was susceptible to earthquakes.   Since Haiti had did not have a major earthquake in the recent past its government and citizens planned their lives as if an earthquake wouldn't occur.  There is also the question "what could they do about it?".  This is a related but different and more grim discussion.  For example scientist estimate based on past data that a large asteroid will strike the earth about every 100 million years.  The last impact was 65.4 million years ago and wiped out most life on the planet.  A smaller asteroid would be pretty darn devastating and these impacts have happen much more frequently (about every 10,000 years).  What are we doing to prepare for this?  What can we do?

    Another recent example is the recent financial crisis.  This is probably the reason Nassim's book became so popular.  Wall street firms, many business and individuals were making so much money due to the increasing value of housing assets.  They thought it would never end.  The recent past was a prediction of the future.  They used the positive affirmation they received from the paper value of the properties and ignored (and often ridiculed) the contrarian feedback that this growth wasn't sustainable.

    There are cases of this every day, and a many of these situations are within our control.  There is a personal example that hits home.  I was leading a team of consultant for some departments of transportation in the 90's.  We saw huge bid set distributions being created and distributed to contractors and subcontractors.  When we followed the sets we found that a majority of the documents (whole sets or partial sets) were thrown in the garbage when they arrived.  I thought to myself "this is not sustainable".  

    As the market changes rapidly we need to be looking for clues as to what will be more or less valuable in the future and what are we doing today that might not be sustainable in the future.  We need to maximize the profits we make out of the services we have but not come to believe that these profits will continue for ever.

    October 14, 2009

    Are You in the Right Place at the Right Time?

    I just read the book Outliers, by Malcolm Gladwell.  It is a fascinating book.  The book is about how the supper successful achieved their success.  One theme in the book is that many of these people happened to be in the right place at the right time.  For example some of the most successful people in Silicon Valley - Bill Gates, Bill Joy, Vinod Khosla, Scott McNeally, and Steve Jobs were all born in 1955 or late 1954.  He shows how their age among other things created the perfect opportunity for these men.

    Gladwell also talks about how Joseph Flom, of Skadden Arps Slate Meagher and Flom, led his firm to become one of the largest law firms in the world.  He describes how Flom and his partners were doing corporate lawsuits and hostile takeovers before it was popular.  When they started their firm it was seen as uncivilized to take on this type of work and unworthy of the premier law firms.  As the market changed and corporate battles became commonplace Flom's firm was well positioned.  They had developed a deep understanding of the process and unique skills.

    As he told this story I couldn't help but think of the reprographics industry.  The reason I bought PLP was not because I saw a unique opportunity in large format printing, but rather I saw a market segment that was uniquely positioned for a much larger opportunity.  I come from the manufacturing industry where document control processes have reached maturity.  The construction industry is generally following the same path that as manufacturing companies - it is just many years behind.  Another difference is manufacturing companies set up processes and procure technology that last for years or decades.  They also purchase and deploy their own technology.  The construction industry is different in that most initiatives tend to be project based, and because of this technology needs to be deployed on a per project basis.  This also favors a pay-per-use or rental model rather than a purchase model.   Construction is also requires these services to deployed on a local basis.

    As technology becomes more commonplace in the construction industry and technology in general becomes easier to deploy, the opportunity to provide local pay-per-use technology services will grow.  Pressure to reduce costs, compress timelines, and reduce errors demands more sophisticated document distribution processes.  Many of these services will require a local presence.

    Another theme of the Gladwell's book is that besides being in the right place at the right time success of "the outliers" came from hard work.  At least 10,000 hours to be exact.  So those who have been spending a lot of time and money trying to figure things out - It's part of the journey. [An entrepreneur friend of mine just referred to this as "paying tuition"] 

    June 30, 2009

    As Seen on Twitter

    Do you remember the days when companies would advertise their products "As Seen on TV"?  AsSeenOnTV Because it was on TV it was supposed to be credible.  It was brought to my attention by a credible source that my previous blog post about the Chinese word for crisis was a fallacy.  I have to admit that I saw this on Twitter from a credible source (who I assume was also led astray).  Although new Internet technology can spread false information it is also as powerful at correcting inaccuracies.  Here are some links that correct the inaccuracies: straight dope and an American Sinologist.

    Chris Anderson, in his book "The Long Tail", compares Encyclopedia Britannica with Wikipedia.  In a study they compared a set of articles in both sources.  They found more inaccuracies in Wikipedia than they did in Britannica.  Success for Britannica?  No.  Wikipedia was quickly updated and corrected.  The inaccuracies in Britannica remained until the next edition.

    January 26, 2009

    Tough Talk

    Guy Kawasaki has an a relevant post on the American Express OPEN Forum on how a CEO should communicate with his or her employees in these difficult times.  Some of the statements are very tech industry / venture capital oriented, but the others apply to almost any business feeling stress from the economic downturn.

    The statements remind me of the Stockdale Paradox in the book Good to Great.  The author Jim Collins found that leaders whose companies outperformed their competitors "faced the brutal facts".  The Stockdale Paradox refers to Vice Admiral James Stockdale who was the ranking officer in the "Hanoi Hilton" prisoner-of-war camp in Vietnam.  James Stockdale did not tell his men "we will be rescued any day."  He basically told his men "It is going to be awful.  We will face more difficult times.  It may take years for us to be rescued.  Some of you might not make it.  But in the end we will prevail and we will get out of here."  This is the tough talk that employees need to hear as difficult as it may be.  They will have more faith in you as a leader if you are honest.

    The Stockdale Paradox

    Retain faith that you will prevail in the end, regardless of the difficulties.

    AND at the same time

    Confront the most brutal facts of your current reality, whatever they might be.

    A book by Victor Frankl, Man's Search for Meaning, describes a similar phenomenon.  Frankl, an Austrian psychologist, was a prisoner in a Nazi concentration camp.  He found that the people who survived unimaginable difficulties held on to some sense of meaning.  They believed that their circumstances would not change quickly, but they had their own very personal reason for holding on.  Those who lost that sense of purpose didn't make it.

    November 06, 2008

    The Change Function

    Pip Coburn has published an insightful book called "The Change Function".  The premise is that change is a function of the "current level of crisis" and the "percieved pain of adoption".  

    Change Function
    Successful technology vendors have focused on minimizing the percieved pain of adoption.  The easier it is to implement something in your company the more likely it is for you make the decision to do it.  In an economic downturn the current level of crisis in areas of your customers business is likely to be elevated.  If you can focus on minimizing the perceived pain of adoption you will see more success and may see your business grow in a downturn.

    November 14, 2007

    Intravenous Business Relationships

    We all talk of having strategic relationships with our customers, but Seth Godin in his book "Permission Marketing" categorizes stages of loyalty or trust in a commercial relationship.  The highest level is what he calls "Intravenous".  This is the relationship you have with your doctor when you are in a life threatening situation.  You put your trust into the doctors hands to save your life and you trust that he will charge you a fair price for his services.  You trust that the doctor will do the absolute right thing.  Many companies have intravenous relationships with a law firm or an accounting firm.  They trust that the law firm or the accountants are working in their best interest and rarely question fees.  This is the ultimate type of business relationship to have, but must be treated with the utmost respect.  All profits derived from this relationship must be without any doubt "good profits".  As soon as the customer believes that you are abusing the intravenous relationship and extracting value instead of adding value the relationship will end abruptly and the chance of resurrecting the relationship is slim.

    October 29, 2007

    Customer Satisfaction Surveys

    In case you haven't noticed I am a firm believer in the principle and methodologies communicated in Fred Reichhelds book "The Ultimate Question".  I recently stayed at a Hilton Hotel in London England.  I had a bad experience.  I am a frequent customer of Hilton Hotels and felt an obligation to provide them some feedback when they sent me a customer satisfaction survey.  It was a nice Web survey to make it easier for me to respond...yeah right!.  I went through page after page of questions.  There were so many pages that they required a status indicator at the bottom to show me what % of completion I was in the survey.  Every time I gave an indication that I was dissatisfied the screen changed and expanded.  Ten more questions appeared to ask why I wasn't satisfied.  The more I answered the further I was on the % completed indicator.  I was getting worried that I might spend the whole day just to finish.  It seemed the only way to finish was to either quit or to start giving satisfied or "not applicable" answers.  I reached the point of dissatisfaction that I was committed to finish just to show how dissatisfied I really was.  I finally go to the point where I could type in a free form response.  Here it is.

    Your surveys are awful.  Hopefully this doesn't get filtered out by the survey company, MarketMatrix.  If you own stock in MarketMatrix sell it.  This survey is way too long.  I spent over 15 minutes just to communicate to you I had a bad experience.  I will never respond to one of your surveys again and you will no longer know how satisfied I am.  Read the book the "The Ultimate Question".  Fire your survey company and do it yourself!  If you'd like to talk to me please give me a call.

    Following the methodology in The Ultimate Question they should have asked the following questions:

    1. Based on your recent stay at the Hilton London Euston Hotel would you recommend this hotel to a friend or colleague? (Please rate us from 0 to 10).
    2. If we didn't score a 9 or 10 what do we need to do to score a 9 or 10?  If we did what was the most important factor that influenced your decision?
    3. May we contact you to discuss this?

    If they use this methodology; the number of responses they will get will increase, the goodwill from their customers will increase, and the data they collect will be more meaningful and measurable.

    September 07, 2007

    Isn't All Profit Good?

    In the book "The Ultimate Question" Fred Reichheld distills customer loyalty into an extremely simple yet compelling metric called NPS or Net Promoter Score. He describes how most companies rely solely on traditional financial metrics like revenue and profit, but explains that these are short term measurements of success and are not highly correlated with long term sustainable success.  He describes the difference between "good profit" and "bad profit". Good profits are when you make money turning customers into enthusiasts and bad profits are derived from schemes such as locking in customers, tricking them through deceptive promotions, or hard selling techniques. Good profits create value for customers and bad profits extract value from customers.  Companies can hit short term goals with bad profits and sometimes more effectively than with good profits, but customers who had bad profits extracted from them will count the days until they can find an alternative vendor.

    September 05, 2007

    Measuring Service

    I mentioned in a previous post that most reprographers see customer service as their main differentiator.  Two fierce competitors in the same market will both claim their advantage over the other is better customer service.

    How do you measure the effectiveness of your customer service?  Verne Harnish, CEO of Gazelles, Inc. recommends a method developed by Fred Reichheld, author of the best selling book "The Ultimate Question".  The metric is called the Net Promoter Score or NPS.

    Using a metric like this will help you determine how good your service is and what steps need to be taken to improve it.