Thursday, June 23, 2011

Marketing Myopia on Ice


1960, Theodore Levitt’s “Marketing Myopia” was published in the Harvard Business Review.  It became an instant classic by reminding leaders to focus on the customer instead of the product.  

This challenged CEOs to properly define their business: Railroads should have discovered they were in the transportation, not railroad, business.  When TV appeared, Hollywood should have found itself in the entertainment, not movie, business.  And oil companies should have defined themselves as being in the energy, not oil, business.  (Except for those that went into the nuclear energy business, and then they should have stayed in the gold old oil business.  Every concept has its limits.)

Anyway, that was in 1960, a long time ago.

The other day I stumbled upon a November 1928 (even longer time ago) letter from George B. Bright of George B. Bright Co., Refrigerating Engineers and Architects, of Detroit.  Bright found himself uncomfortably straddling two sides of a great divide, with his old ice manufacturers on one precipice, and the new mechanical refrigeration guys on the other.

In 1928, ice was clearly on the backside of its lifecyle.  An important growth industry for a generation, there had been 35 commercial ice plants in America in 1879 and 2,000 by 1909, while ice consumption tripled to almost 15 million tons annually.  Clever men like Frederic Tudor made a career of sawing pond ice and delivering it mostly intact to faraway places.  The ice wagon became a familiar sight on city streets, the “Ice Today” sign in windows.  Every home had a wooden icebox, and a water pan that had to be emptied daily.

Then, out of the slaughterhouses and breweries came a singularly disruptive consumer technology, mechanical refrigeration.  Ice wagons became a thing of the past and the Ice Man didn’t cometh.  In the 1920s, the household refrigerator became an essential piece of kitchen furniture: In 1921, 5,000 mechanical refrigerators were manufactured in the US; in 1931, over one million, and six years later, six million.

That’s the impossible situation where George B. Bright, refrigeration engineer,  found himself in 1928.  And, in the interest of preserving the peace and cultivating all of his clients, he wrote them a letter:
Things have been and are moving fast in the entire refrigerating field.  Three years ago we saw the ice industry ‘run down at the heels’ while its new competitor the mechanical refrigerator was in the first flush of exultant prosperity.  The old established order of things seemed doomed and the extremes of optimism and pessimism were on every hand. . . 
Today much of the chaff of competition has blown away and tho there is a never-ending group of newly hopefuls entering the mechanically cooled refrigerator field---those most firmly entrenched have settled down to a steadier gait, both as to production, advertising, and ethics.  Much good has already come out of it all.  The mechanical group has learned a healthier respect and a certain tolerance for the older order of things while he in the ice industry on the other hand is learning to become a business man—a merchant if you will—finding curiously enough that there is room enough for everybody and that the other fellows advertising is doing more good than harm. . . .


Now comes the line that Ted Levitt might have referenced, but 32 years later: “On every hand is a growing appreciation of the fact that what we all have to sell is ‘Refrigeration’ and not Ice as a commodity nor even a machine as such.”

Cool, eh?  George Bright, refrigeration engineer from Detroit--when Ted Levitt was just three years old--already had it right.  Nah, he didn’t say it like some high-falutin academic.   But he understood a central truth of Marketing in a crazy time of rapid change: His old clients weren’t in the ice business.  And his new ones certainly weren’t in the mechanical refrigerator business.  

What they were selling to consumers was refrigeration.

Bright seems to have been successful in his chosen field, and with that kind of calming wisdom, you might understand why.  He could well have closed his letter with the Eskimo proverb which says, “You never really know your friends from your enemies until the ice breaks.”

Sunday, June 19, 2011

Daddies Don't Let Your Babies Grow Up To Be Entrepreneurs

Some ruminations on Father’s Day, in three Acts.

Act I

Many years ago when I was a second-year MBA student, I made a little extra coin by working a couple of afternoons a week in Admissions.  My job was to provide informational interviews for prospective students, telling them about the school, the admissions process and my own experiences.

On a typical afternoon I might see three or four college juniors and seniors, each for an hour or so.  Occasionally, however, I would be visited by a high school sophomore or junior being towed in by his or her parents.  The four of us would settle into a room already claustrophobic for two and then, inevitably, the father would look me in the eye and ask, “How do we get into Harvard?”

Now, at 25 years old I did not yet have a finely honed sense of irony (“We?  Do you have frogs in your underwear?”), nor did I possess the full firepower of my current passive-aggressive arsenal (“So, young man, how long ago was your father rejected?”).

The truthful answer to the old man’s question, “How do we get into Harvard,” was: First of all, we don’t.  And second, quit worrying about it.  If your kid has some ability, and more interest, and a boatload of luck, and really wants it, and it’s four years later, there will be a chance.  Yes, he can go to a good college and work hard and start a student laundry business or a campus computer business or work for P&G or Goldman Sachs afterwards.  All that helps.  But even back in the good old 1980s when grad school competition was less intense, the folks in Admissions could still receive10,000 applications in a season, struggle to winnow them down, and still have about 2500 great candidates for a class of 800.  So, even great candidates only had a 1 in 3 chance.

That’s a roll of the dice.  In fact, that’s a roll of the dice to which you should not aspire in high school.  Most of all, that’s not a thing a Dad should do to his child.

Act II

Now, want to know something far more of a crapshoot than getting into an elite business school?   Being a successful entrepreneur.  We can quibble about success, but you know what I mean:  Launching a product or service that truly disrupts the status quo, creates jobs and customers, and builds value for investors.

If you have children, you’ll be able to understand this next scene:  Your toddler wants to put his finger in the electrical socket.  Or maybe stick a toy in it.  Or maybe he just wants to lick it.  In any case, the electrical socket is the most fascinating thing in the world.  You move him away once.  Then twice.  You distract him, but about five minutes later he’s at it again.

Hold that thought.
I read with interest the recent Wall Street Journal article, “How to Raise an Entrepreneur: Tips On Putting Your Kids on a Path to Running Their Own Business.“  This, of course, takes my old MBA loco parentis interview to a whole new level.  Now, it seems, we’re going to shape our child’s entrepreneurial success not from high school, but from birth.  

There are, the author writes, “crucial psychological traits an entrepreneur needs to succeed. . .and parents should help kids develop them at every opportunity.”  The attributes turn out to be: adventurous (“parents should urge kids to explore their environment”--like on vacation: try different restaurants!), dependable, conscientious and emotionally stable (urge children “to take steps such as waiting to respond when they lose their temper), observant,  team play (ah, sports can be great for entrepreneurial values), and leadership by example.

Frankly, this doesn’t pass the smell test for me. There’s nothing particularly entrepreneurial about any of these traits.  Said another way, aren’t these good things to teach your kids in order for them to be successful at most anything?  Butcher, baker, candlestick maker.  Cowboy.  Fireman.  Teacher.  Fortune 50 accountant.  Entrepreneur.

Do you want an emotionally unstable dentist?  How about a bus driver who is undependable?  

I keep coming back to this simple idea that classifying entrepreneurs as a particular kind of personality type is just plain misguided, especially when the list is entirely anecdotal in nature like this one.  I can show you an entrepreneur with great observational powers, and one with severe tunnel vision.  I can show you entrepreneurs whose egos are so large they can’t possibly be team players, at least for long.

I have seen exactly one academic study on the topic--highlighted in this post--which came to a single and powerful conclusion: The overwhelming trait of successful entrepreneurs--far above anything else--is persistence.  

The study does not disambiguate the quality.  It can be persistence because an entrepreneur sees the world more clearly than others, or because she is smarter.  Maybe, though, it's because he won’t listen, or because he’s blinded by other factors, or because he is desperate and has no other choices.  Persistence comes in many flavors.

And, while everything else is secondary to that quality, the author of the study fully acknowledges that persistence might also be the number one quality of the failed entrepreneur.  In other words, persistence may give your child  the very best chance of being a successful entrepreneur, but is clearly not enough.  Some of those other skills listed in the WSJ article surely come into play, as does sheer horsepower under the hood, great networking, available capital, a good business model, sleepy competition, and copious amounts of good timing and luck.

My theory is this:  An entrepreneur is not defined by some Freudian analysis, or by being exposed to new restaurants as a child,  but by what he accomplishes. An entrepreneur creates value by disrupting a traditional business cycle.  That’s all.  The proof is in the doing.  Some of those entrepreneurs who have been successful doing this have very few of the qualities we admire.  Except,  I’ll bet you dollars to donuts, they are persistent.

So, the fourth time your persistent toddler tries to put his tongue in the electrical socket, and you’ve run out of those safety plugs and you can’t distract him or her, be aware that you are forming a little entrepreneur.  

After all, what says “entrepreneur” better than the third time your 18-month old daughter  throws her Cheerios on the floor?   Or the persistence with which your youngest daughter waits to go to the bathroom until she’s placed in the bathtub with her two older siblings.

Encourage that kind of activity.  Persistence is, after all, the one true quality of future entrepreneurs.

A joke there, Dad.  Sort of.

Despite 54 kid-years of experience,  I don’t profess to know all that much about bringing up children.  I do think, though, that there are two really important things dads can do for their kids: keep them safe, and help them find the thing they love.  It could be software, teaching, automobiles, the outdoors, stars, biology, writing, accounting, history, bugs, physics or comic books--whatever.  One day, after they’ve left home and they’ve done what they love for long enough to truly get it, they’ll also begin to understand where and how it can be improved.  Or disrupted.  They’ll understand the real pressing problems of their craft or business.  They might even spot a breakthrough.

That is the best time to become an entrepreneur.  Maybe the only really good time.  Knowing a little about the world before launching a company keeps young folks from trying to solve a problem that doesn’t exist with a solution nobody cares about--a core disease of the twenty-first century entrepreneurial economy.

Kids.  Keep em safe, Dad.  Help them find the thing they truly love.  It’s from that place the happy and gifted entrepreneurs come.

Act III

In 1965 my father gave my mother a beautiful Seth Thomas, 8-day clock for their anniversary.  He wound it every Sunday evening, somewhere between Mutual of Omaha’s Wild Kingdom and The Wonderful World of Disney, when the hands allowed access to all three keyholes on the face required to keep the time, chimes and hourly gong going. 



The clock sat on their fireplace mantle for decades, chiming every fifteen minutes all day and all night--a marvel at first, then a distraction, and finally a part of the rhythm of our home.  I remember lying in my bed in junior high and high school, unable to sleep in the wee hours of the morning because of a big test the next day or some other adolescent angst, with those comforting chimes keeping me company.

We lost my parents--both way too young--and our home inherited the clock.  Now, every Sunday morning, I take the key and wind the clock.  And for the minute or so it takes me to make sure everything is in order, I have a conversation with my dad.  I give him a quick update on life, he gives me a little good advice, and maybe we laugh about something one of the kids did.  Then I slide the key back under the clock and go about my business for the week.

It’s one of my favorite moments of the week.

Happy Father’s Day, Dad!

Wednesday, June 15, 2011

The Echo Chamber: Sounds Just Like Heaven

On an April evening in 1960, small-time crook Rocky Valentine was shot by police, only to awaken and find himself unharmed and in a world where everything he wanted he got. Every wish he desired was granted.

Of course, this all happened on small black and white screens across America in an episode of The Twilight Zone called “A Nice Place to Visit.”  We watched Rocky for most of the 30 minutes granted him--a month in TV time--as he luxuriated in his good luck at having ascended into heaven.

Sunday, June 12, 2011

When Loose Entrepreneurs Get Tight

There’s a fascinating study out in Science magazine which says that the competition among nations isn’t about East vs. West, communism vs. democracy, or Christianity vs. Islam.  It’s not even about those with and without McDonald’s.

It’s about what researchers from the University of Maryland refer to as “loose” vs. “tight.”  

“Loose” describes nations like Brazil and United States that have relatively weak social norms and a high tolerance for deviation.  “Tight” describes nations with strong social norms that punish anti-social behavior, like Japan, Singapore and Pakistan.

Nearly 7,000 people from 33 countries participated in the survey, and researchers are quick to point out that they’re not making value judgments.  (You’d have to admit, though, that it gives the old plumber’s reminder of “righty tighty, lefty loosy” a whole new meaning, doesn’t it?)

What’s even more interesting, however, are the underlying conditions that give shape to this phenomenon.  Want to organize a “tight” nation?   Think high population density, scarce natural resources, a history of conflict over the last century, and regular outbreaks of disease.

The topic of loose vs. tight is a staple of management, made perhaps most famous by In Search of Excellence where leaders were encouraged to embrace “simultaneous loose-tight properties.”  So, one company might give authority to issue customer credits up to $5.00 to Customer Service Reps, $50 to Customer Service Managers, and $250 to Customer Service VPs.  That would be a tight, rules-driven, high conformity ship.  Another company might tell its team  that “One of our core values is to take care of customers” and then let each Customer Service Rep (and everyone, for that matter) solve customer service problems as they see fit.  

The price of focusing on values instead of rules is generally education--you’ll then need to train the folks in customer service to really listen to customers, understand their issues, and not try to solve everything by automatically giving away money.  But it’s always worth the effort. Rules take obedience; values take smarts.

And, unlike the Maryland researchers, we don’ t have to be politically correct about that conclusion.

It’s probably fair to say that we all know bunches of small, loose companies, and bunches of  large, tight companies.  And there are a few companies, like Google, that got so large so quickly and with such abundant resources and so little conflict --and nary an outbreak of disease--that it’s managed to remain very loose.  That’s why we marvel at it; it’s so different from what we’re used to.  Of course, the next decade will be the real test, as Google absorbs body blows from China, the publishing industry, Bing and Facebook, governments concerned with privacy and governments worried about monopoly and governments dealing with revolutions.  We can reasonably predict that Google will be tighter a decade from now (despite the new CEO’s impulses); it’s just a question of how tight.

The other odd extreme, however, is the small, tight company.  The really wired-up start-up.  They happen, and they happen more than you think because entrepreneurs bring lots of baggage to a start-up.  If the particular leader has personally taken a bunch of body blows, he or she is apt to be wound in ways that can make for a stifling organization, despite the fact that start-ups and emerging companies that don’t stay fluid often don’t stay around.

This is all just thinking-out-loud conjecture, of course, but I wonder if it doesn’t explain why failed entrepreneurs don’t seem to do better the second time out.  (The post is here and it says: First-time entrepreneurs have a 22% change of success, experienced successful entrepreneurs a 34% chance, but experienced entrepreneurs with a previous failure have only a 23% chance of success.)  My hypothesis would be that failed entrepreneurs taking a second bite may have learned tons from their first experience, but those lessons are more than offset by the “tightness” that comes from taking all those body blows.  So, they’re made smarter by failing but able to tolerate less of the fluidity and values-based leadership required to pilot a successful start-up.

I was on the phone just last week with a friend who was being driven from (what he believed) could be a very successful start-up by a CEO who was running things so tightly that nobody could breath.  Worse, the CEO wouldn’t go out and raise capital the company required for fear of giving up some of that control.

I assume smart investors figured out this loose-tight trade-off a long time ago and have a way of sussing it out in due diligence.  On the other hand, only 1 in 5 failed entrepreneurs is successful the second time out, so maybe it’s harder than that, or not as well understood.

I once interviewed a gentleman, maybe 40, and I asked him about his most spectacular failure.  He told me, not only had he never had a spectacular failure, that he’s never failed at all.  That would be classic tight--40 years old and couldn’t admit to a single failure.  So tight, in fact, that I kept waiting for his head to pop-off during the interview.

It didn’t, but it might have happened later.  Maybe even in the parking lot after the interview. I just know enough about tight to also know I didn't want to be around to watch.