The Blueprint

If It Can Be Digital...It Will Be Digital

When Antionio M. Perez was hired as the CEO of Kodak he noticed the offices were full of signs that said "Expand the Benefits of Film".  He asked a room full of film factory workers how many had digital cameras at home.  About 40% raised their hand.  He quickly changed the signs to "If it Can be Digital...It Wll be Digital".

Every industry that had an analog base is moving quickly to a digital base.  If you are in AEC reprographics you are determining how to provide more digital services.  Some are moving towards display graphics because of their competency in wide format printing.  This may be a smart move or may not.  Time will tell.  One thing is certain is that world will go digital also.  If you are providing display graphics you are in the marketing and advertising ecosystem.  

Here is a picture I snapped yesterday in Chicago O'Hare airport.  Notice the sign hanging to the left.  Notice the large LCD screen to the right of it.  I was watching people at a restaurant nearby and I noticed that people were watching the LCD screen.  An LCD screen can display multiple advertisements.  The owner of the screen can charge more money for more frequent advertisements, or more money for certain times of the day.  They could even charge a fee to advertise during certain infrequent and unpredictable events such as a winter storm when everyone is trapped at the airport.  Do you even need the hanging printed sign?  The point to this is as Perez said.  It will be digital.  If you are moving into the display graphics business you should ask the question whether you are going into the display graphics business of the advertising business.  How long will the print business last before it goes to more digital than print.  If you want to play in that market then what staff, skills, know-how, technology, and partnerships do you need to acquire be successful in that business.  

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.    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...

Misery and Uncertainty

I heard a quote yesterday that caught my attention.

“Most people prefer the certainty of misery to the misery of uncertainty.”  - Virginia Satir

This holds true in an industry that is under a tremendous amount of external change.  If some do not make changes they will face certain misery, but they prefer this to making changes that involve unknowns and uncertainty.

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.

No More Meals in Coach...or Free Deliveries

Continental is the last major U.S. air carrier to stop serving meals in coach class.  Traveling by air used to be a luxury.  People expected frills.  If you are paying that much money you should get treated well and a good meal was expected no matter how short the flight was.  Airplanes have become buses in the sky.  You don't get a meal on a bus.  Air travel is no longer a luxury.  It is a commodity.  Companies like Southwest or Ryanair set out to compete with travel by car.  As a market becomes commoditized and profits race towards zero there is little room to "throw in" additional services.  The irony is I'm sure many people in the airline industry resisted this change.  "If we don't provide meals we will loose customers."  I'm sure there were people at Continental who said "This is one of our competitive advantages.  If we take this away we will lose customers."  I don't think so.  Its also not just a matter of taking things away.  It is an opportunity to change the service.  They take away the "free" meals in exchange for a better meal as an option at a reasonable price.  I prefer to have a decent meal before or after the flight.  If I choose to buy a meal on the fight I expect to get something good rather than the mystery "meat stick" I was tossed on a United flight two years ago.

Printing services are being commoditized.  Just like the airline industry can't afford to offer all the frills, some of the services that have been offered in this industry cannot be offered for free anymore.  Examples of these are free pickup, free delivery, unreasonable turn around times, and unlimited file preparation.  Changing your pricing and service offerings is not something to be done whimsically.  You need to think through how it is presented and received by your customers, but the alternative to not addressing this is declining profits.  I have found that somewhere in most companies you can find a reasonable ear that understands that their vendors must run profitable businesses.  As I heard from Cameron Herold at BackPocket COO.  "You need to look at other industries to see how they dealt with challenges you are facing.  More than often other companies or other industries have experienced similar issues.  Engage in R&D (Rip-off & Duplicate)."

Will Printing Decrease?

Many in the industry are wondering if printing will decrease over the long-term.  I think most believe they know the answer.  I came from the manufacturing industry where we sold software that facilitated a decrease in centralized printing.  We sold document distribution software that was in many ways similar to planroom software.  We allowed end users (or document consumers) in the manufacturing plant to get web browser access to engineering content.  Once they had access to this information they could view it online, order prints from the central printroom or download and print it.  Once our software was installed the traditional processes of ordering prints from the printroom and "pushing" physical engineering drawings to the document consumers decreased substantially almost immediately. This caused a dramatic drop in the amount of printing being done in the central printroom.  So the printing decreased?  Not exactly.

Once the document consumers had more efficient access to the content they were more likely to print it.  There were times when a document consumer just needed to look up a dimension.  In this case they didn't print the drawings.  If they needed the document to do work they printed it.  In fact they printed it, used it, and threw it away.  If they needed the same document the next day they printed it again.  We didn't collect exact statistics on whether the net printing decreased or increased, but there were some undeniable facts:

• Centralized printing decreased dramatically
• Printing on demand increased dramatically (it was non-existent before)

The same trend is happening in the construction market right this minute.  Are you positioned on the right side of this shift?

What Everybody Ought to Know About Market Segmenting

In a previous post I talked about the difference between fidelity services and convenience services.  In the AEC reprographics industry this is mostly divided between design (A/E), and construction (C).

A/E = Fidelity

C = Convenience

For the industry to be successful it is important that the services provided to these two different market segments be differentiated.  They should be differentiated by service, quality and price.  Here are a couple of comments I have heard within the industry over the past few years.

"We don't sell to contractors because they are too cheap."

"I was forced to lower the price with my largest revenue customer [Architect], because he found the price I was charging to another customer [GC]."

"My customer would never accept the quality from that brand printer because they have high standards.  I don't understand how the other guy gets away with it."

"We are losing bids because we just won't lower our price to the ridiculous prices that are being thrown around."

"I can't service the GC's at the cost structure I have in place."

"Those guys don't understand the value we provide."

"I just bought a shop in another city and they were selling the services for too low of a price so we went in and raised the prices to what they should be."

"I can't believe the other guy won a bid at that price.  How can he do work at that price?"

When you take a step back and say what are the market requirements of each of these market segments and are you matching our services and price to those markets?  

Quality - Architects and engineers typically demand high fidelity.  The documents produced represent their work.  They want it to look as professional as possible.  Contractors don't care about the quality.  They just need to be able to read the dimensions and understand what is expected of them.  To satisfy architects you should be producing documents on the highest fidelity 600DPI printers(at least).  To satisfy contractors you could use a lower quality 400DPI printer.

Service - Most companies who service architects and engineers spend a lot of time going back and forth with their customers making sure that all of the required files are present; making sure the right revisions are in place; and sometimes providing proofs to make sure the quality is acceptable.  Contractors usually require you to simply print the documents that they gave you.  There is very little back and forth and double checking.

Price - An architect or engineer is willing to pay more to make sure that their work product is represented correctly.  Since it is their name on the documents they do care about the attention to detail and service that is provided.  They are buying fidelity.  They want a "triple shot, extra hot, no foam, caramel macchiato."  The fact that they are often not spending their own money is also a factor.  Contractors are looking for convenience.  They want the drawings printed quickly and cost effectively.  They are generally not willing to pay extra for the attention to detail, at least as it pertains to quality.  There is value in the content management and revision control, but that service needs to be separated from the printing as they see printing as a necessary evil.  They just want a cup of coffee and they can't understand why anyone would pay four bucks for a cup of coffee!

Those who understand that they are not providing simply printing to the AEC industry, but meeting the unique requirements of specific market segments can find hidden profits.  Those who cannot differentiate between these market segments will be either overpricing their services and loosing business, or underpricing their services and losing money.  Either one means decreased profits.  In some cases you should be lowering your prices and in other cases you should be raising your prices, but you must also describe in detail what the differentiated services are for that price (i.e. resolution/DPI, quality control, turnaround time, etc.).  There are many details to be worked out and expectations to be set or reset with customers.  You also must have the internal process to make sure you can execute.  Sure some say "it won't work in our market".   What's the alternative?

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"] 

Napster is to iTunes as FTP Sites are to Digital Services

Before there was iTunes there was Napster.  Napster was hugely disruptive to traditional music distribution model.  People getting  away music for free!  Even respectable law abiding citizens were downloading illegal music for free.  It wasn't just because the music was free.  It was convenient.  It was easy to search for the music you liked and get the instant gratification of a download.  At the time Napster came about the next best thing was going to the store and buying a CD.  What if I only wanted one song?  What if I wanted it now?  The cost of distribution was too high to get the song.  The old model was out of date and inefficient. 

Steve Jobs and Apple introduced the iPod and iTunes.  He offered the same convenience for a reasonable price - $0.99 a song.  For that price the law abiding citizens would rather pay $0.99 and be legitimate.  Would Apple have been a successful if they came out with iPod and iTunes before the Napster revolution?  Maybe, but it would have been a lot harder.  Napster created pent up demand.

Many people in the reprographics industry complain about the hidden enemy "FTP Sites and CD-ROM distribution".  Maybe some of your customers didn't find the cost of the convenience of your service desirable so they decided to invest in their own technology.  Now that they have tried to do it themselves are they more or less interested in digital services.  I would argue that many would not go back to the inconvenience of analog distribution, but are disillusioned with the headaches with performing and maintaining digital content distribution services.  To sell your digital services you can't lead with "why printing is better".  You may overtly or covertly get the door shut in your face.  You should lead with how you can perform the services more efficiently and more cost effectively than they can.  There is one important point.  The pricing will have to appetizing.  It has to fit the same buying mode as iTunes.  For example "for $0.99 a song I'm willing to NOT use Napster".  You customer will have to say "based on that proposal we are willing to NOT create CD-ROM's and hosting an FTP site".

What Does Starbucks and AEC Reprographics Markets Have in Common?

When I first entered this industry I was curious when I would hear two companies in the same market claim that they didn't see the other as true competition and rarely ran into each other.  They would claim that the reason the other company wasn't competition was because of their superior service.  What I came to realize is that these companies didn't run into each other because they were servicing different market segments.  They often didn't realize they were servicing different segments because over time Mr. Market did the segmenting.  The segmentation was mostly down the lines of design market versus construction market.

The economic downturn has caused business owners to look much more closely at their business and the market in general.  They are understanding what markets they are currently servicing and looking to expand into the other segments.  What is important to understand is that these different segments have very different requirements especially price requirements.  If your pricing and service differentiation are not carefully thought through it will erode your margins instead of growing your business.  In this environment nobody needs more margin erosion.  An article in CNN Money talks about Starbucks struggle between the competing value propositions of fidelity and convenience.  This is very similar to differences in the AEC community.  Design professionals want fidelity and construction professionals want convenience.  Your pricing and service differentiation should match these market requirements otherwise you will loose business by charging too much, or erode margins by charging too little and having to provide more services.