Slides and simulation results from a 3 hour lecture I gave on July 11, 2018 at Saint Mary’s College in Moraga, CA:
DIY toy taxidermy shop Build-A-Bear had decreed that Thursday, July 12, was Pay Your Age Day in shops across the U.S., Canada, and the U.K. The self-explanatory event lets bear lovers make a furry friend, stuff it with love, and pay a dollar amount that matched their current age—a payment model that vastly favored spoiled 1-year-old knee-biters over 50-year-olds who just needed something to love.
What could go wrong‽
The 21 year old company was likely planning on leveraging nostalgia from grandparents and parents while building loyalty with a new generation of toy-lovers. Now was an especially great time for this campaign as Toys”R”Us has shut down hundreds of stores worldwide and there’s marketshare on the table to capture – especially for a focused, experiential brand like Build-A-Bear.
It was a good plan and a great marketing idea, save for one tiny little problem—the fans loved it too much. In fact, they loved it so much that they started lining up before Build-A-Bear Workshops opened in the U.S. The long lines made the company nervous about crowds and maybe bear riots, so they sent out a statement on social media saying it would limit the number of people who could take advantage of the deal due to safety concerns.
Customers were pissed – especially those who lined up around the block. Plus no one wants to hear you make excuses, blaming “safety concerns” and “local authorities.”
Sadly, all Build-A-Bear had to do was test this genius, goodwill generating campaign at a single store and then in increasingly larger markets to work out the kinks. To make matters worse, Build-A-Bear didn’t jump on the bad press and make anything of it.
Takeaway: Launch slowly – even if you have a great idea – so that any mistakes in your plan or missed assumptions don’t spiral out of control.
The Boring Company Not-A-Flamethrower was casually announced by Elon Musk in this Dec 10, 2017 tweet.
The remaining promotional hats sold out quickly.
Seven weeks later:
100 hours later:
The Boring Company – Musk’s underground drilling company – sold 20,000 Flamethrowers in about 100 hours. That’s $10 million in top line revenue and millions more in free press and captured mind space.
Opps.. It’s not called a Flamethrower. It’s a “Not A Flamethrower” – a brilliant regulatory decision, drawing even more attention (and desire) to Musk’s scheme:
Musk drew some heat for this move – many criticizing him for making a flamethrower for his “rich friends” instead of giving a bunch of money to charity or ending world hunger.
What the non-strategic thinker missed was that Elon wasn’t making a toy for his friends. They have plenty of toys. This was a brilliant marketing stunt.
Of course it’s not just a stunt. The flamethrowers were real. And so is the deal the company just signed with the city of Chicago. The Boring Company will build an 18 mile high-speed (150mph) skate-based tunnel transit system between O’Hare International Airport and downtown Chicago.
Bottom Line: If Musk can get people excited about city planning and tunneling, you can get people excited about what you’re doing.
Entertaining review of the Not-A-Flamethrower pickup day in LA.
It’s one thing to be obsessed with our looks, our beauty…
As the demands of beauty rise, not only do we have to do more all the time, but their nature also changes. Beauty becomes more important. It has begun to function as an ethical ideal. Beauty is often what we — rightly or wrongly — value most. It is what we think about, talk about and what we spend our time and hard-earned cash on. If we are good at beauty, we feel we are good, virtuous; if we are bad, we feel we are no good, almost no matter what else we do. We judge others too on how they look. We make assumptions about what people are like and how successful they are. We read character traits directly from looks, and we start doing this as young as four years old.
…but it’s another thing to confuse beauty practices for health practices.
Consumers are allowing themselves to be manipulated by obvious marketing tactics and the beauty industry is capitalizing on the opportunity. These marketing and advertising tactics remind me of the diamond industry, which I’ve written extensively about.
Let’s take hair for instance. “Shaving, plucking, waxing and lasering” have become so normalized that hair removal is no longer a “beauty practice” but has been “redefined as a hygiene practice, as part of so-called “routine” maintenance.” And these redefined social norms aren’t just for celebrities – they’re for everyone.
Hair removal becomes something we have to do, a requirement. It is not an option to refuse — like teeth-cleaning, but without any of the health benefits. Beauty practices are indulgent and optional; hygiene practices are necessary and required. You don’t have to do a beauty practice; you do have to do something that is required to meet minimum standards, just to be normal. Once the shift to routine is complete, the fact that this is a demanding beauty practice becomes invisible.
The Beauty Market
The Economist reported in 2003 (Real Men Get Waxed) that the US male grooming market was $8 billion. 15 years later, that number has nearly tripled and is on pace to grow by 12% annually.
Bottom Line: Societal norms and their changes drive huge shifts in spending – especially when there’s strong emotional connection or potential for embarrassment. What shifting & emotionally-charged norms can you capitalize on?
Bianca del Rio didn’t set out to be “the nastiest bitch on the planet,” but she kind of is–and it’s really working for her career.
Del Rio, formerly Roy Haylock, is the crowned queen of the 6th season of RuPaul’s Drag Race. One key to her success has been simply embracing who she is and not copying what everyone else in her industry is doing.
The queens on RuPaul’s Drag Race were all competing as queens. Bianca Del Rio realized that she needed to stand out, to do things differently. Her management recommended that she record an album. Her reply: “I’m not going to do an album. There’s enough horrible drag queens singing.”
And Del Rio’s intuition is spot on. When everyone else is zigging, zag.
What Del Rio is doing is quite expansive. Since RuPaul’s Drag Race, Bianca has headlined and sold out standup comedy tours worldwide, starred in two feature films, released a satirical self-help book, and created a line of no. 1-selling makeup removers.
“It kind of snowballed. I didn’t plan to be a comedian. I didn’t plan to be a drag queen. It just kind of evolved,” says Del Rio, who was a professional costume designer before doing drag full-time.
As a host for drag shows Del Rio got a lot of stage time, dealing with back-stage delays, hecklers, and impatient patrons. She seized the opportunity and integrated insult comedy into her hosting routine.
Since then, Bianca Del Rio has bloomed and business has boomed.
“Everything is offensive, so I’m enjoying the fact that I’m anti-kind. You’ve got to go out and just speak your mind. It needs to be heard,” Del Rio says. “There was a young boy who was 13-years-old who was in drag with his grandmother that came to see me [during a comedy show] and I was nervous because he was like, ‘me and my grandma love Drag Raceand we watch the show together!’ And I looked at [the grandma] and I said, ‘you do know my show’s going to be a little racy?’ She goes, ‘well, what the fuck do you think I came for?’ So I’m bringing families together–through hate.”
Find your niche – no matter how offensive or off the beaten path.
[Photo: Daisy Korpics for Fast Company]
Profit and competition are inherently intertwined.
Profit is always being pushed down by competition. So profit is an unnatural thing. So you always have to to think: how can I make a profit? and once I make it how am I going to keep making a profit knowing that I’m going to attract competitors? — Stephan Kinsella, “Your Welcome” with Michael Malice 001 – Intellectual Property with Stephan Kinsella
The above concept is at the very core of profit-driven business strategy.
I wanted to dig deeper into what Kinsella meant by profits being “unnatural” so I pinged him on the twitters. Here was his reply:
Profit is in a sense unnatural–it tends to be driven down to the natural rate of interest as the market tends to equilibrium. Profit is hard to maintain in the face of competition. This is fairly standard Austrian economics AFAIK, though my argument doesnt depend on this insight — Stephan Kinsella
By the way: What he means by the “natural rate of interest” is the interest rate of borrowing money if we only consider the time-value of money and ignore the risk (and therefore increase in interest rates) associated with the borrower defaulting on their loan. Don’t worry if the natural interest rate part isn’t clear – I needed him to explain it to me as well and it’s not the point anyway.
Profit and Competition
More from the podcast:
When you’re selling a good on the market (or a service) you have to think “How can I make a profit on this good?” Because we know from economics [that] profit is – in a way – unnatural because profit is a deviation from the natural rate of interest and as soon as you make a profit you’re going to send a signal through the price system and through your activities to the market and you’re going to tell people “Hey! this guy is doing something that satisfies consumer welfare.. so come in and compete with him.
Kinsella added a few additional tweets as well to further flesh out the relationship between profit and competition:
Every entrepreneur who comes up with a business venture to make profit know that if he’s successful he’ll face competition and his initial profits will start to be eroded, so he has to keep on his toes an keep finding news ways to please consumers. — Stephan Kinsella
That’s why it’s hard to make a profit–you have to successfully forecast for the future in a world of uncertainty. But when you do this you make profit and this attracts competition, pushing down your profit, so you have to keep innovating. — Stephan Kinsella
Thanks Stephan – I appreciate the quick reply and economics lesson! FYI: Stephan Kinsella is the leading authority in the US arguing against intellectual property protection. Follow him on twitter (@NSKinsella) and check out his YouTube channel / podcast.
WeWork has new competition in Tokyo – Hooters. It’s all about utilization.
Hooters in Tokyo’s Ginza neighborhood has teamed up with Spacee – a space-matching service – to rent out work areas during the restaurant’s downtime.
Hooters has over 400 locations worldwide and they, like all brick and mortar businesses, have a utilization problem. After lunchtime traffic at the Hooters in Ginza dies down, 20 seats open up for rent via Spacee until the dinner rush begins.
While WeWork may not be worried about the competition yet, it’s going to be hard to beat the Hooters price. Spacee members pay only 50 yen, or about 48 cents, for a 30-minute work block, and that includes a discount on some beverages and an atmosphere that some will undoubtedly find truly inspiring.
(Oddly enough, students don’t have to pay the 50 yen fee. But if they’re under 18, then they have to be accompanied by a parent or guardian. Glad someone’s thinking about the children..)
From an entrepreneurial theory perspective, one enormous path for adding value is to reduce inefficiencies. Low utilization – especially for capital intensive goods – is a huge contributor to inefficiency. And over the past 10 years, a new wave of utilization-focused start-ups have flourished on the shoulders of both the internet and mobile phones.
AirBnB increases the utilization of your spare bedroom or couch. Getaround increases the utilization of your car. Lyft and Uber increase the utilization of your time (and your car).
What’s interesting is that these companies are all marketplace plays. The business is in connecting parties with spare capacity with parties who need capacity. Bring together both parties in a trusted forum and you’ve got yourself an interesting business.
Look around you: What inefficiencies do you see? Where is utilization low? Is the value being squandered worth recovering? Can you create a trusted marketplace? Can you acquire customers at a reasonable price?
PS: In other WeWork news, the company is continuing to expand very rapidly. You may have seen some misleading headlines about $18 billion in leases, but that number is the sum of many years of leases, $13.2 billion of which is for 2023 and beyond. Their 2018 and 2019 lease payments are for $706 million and $984 million respectively. Bloomberg covers the story here and here.
PPS: Hooters and strategy. Strategy and Hooters. Are you not entertained?
Withholding is a useful differentiation strategy for some organizations. Stan Phelps, IBM Futurist and Forbes contributor writes:
Most brands are trying to be strong, and they want to get stronger. They want to be powerful. This seems to make sense. Be the best. Do more. Expand. Grow. Benchmark your competition and then offer more features, more products, more services, and more locations.
Why do less? Why withhold?
Because withholding is zigging when everyone else is zagging.
Chick-fil-A, the chicken-centric fast food chain, is infamous for being closed on Sundays (amongst other things). And while withholding wasn’t an intentional tactic when the company was founded over 70 years ago, it has been an effective one. (Chick-fil-A chooses to remain closed on Sundays in order to give employees and customers a dedicated day to spend with their families and their communities.)
Withholding is doing less of what makes you strong, less of what customers love about you. It’s about limiting customer choices, limiting decision fatigue, and creating some scarcity – whether it’s false scarcity or not.
Withholding gives you or your business a chance to build anticipation.
Withholding involves offering fewer options, fewer locations, fewer features, fewer products, fewer services, fewer hours, fewer perks, and fewer discounts. This is about deliberately and relentlessly shrinking the things that everyone else is expanding.
Oddly enough, withholding is part of a differentiation strategy: Do less of something you’re good at in order to stand out even more. When executed properly, doing less can drive even more demand.
Growing up in Texas I’ve seen this first-hand a hundred times. Someone has the brilliant idea to grab some Chick-fil-A and you race over to the location down the street, your mouth watering. Before you even turn off the road you know something is wrong. The parking lot is empty. It’s Sunday.
While Sonic took our Sunday dollars, Monday was always Chick-fil-A.
Drive-thru Takeaway: How can you withhold to bring about more demand? To differentiate? How can you integrate doing less into your positioning and strategy?
I’ll leave you with a Chick-fil-A love song:
Vivienne Ming is blunt about her lack of traditional leadership skills:
I’m a pretty mediocre manager. I try to do the right things, but I’m much more focused on problems than I am on people. (HBR)
Ming is the co-founder of Socos, a machine learning company focused on helping people become better learners.
Ming is taking a different approach to leadership within Socos: leading by.. well not really leading. Ming focuses on solving problems, not playing CEO – an approach called “problem-led leadership.”
If I can get some people that are really good at the things that I’m not, then I can focus on my strengths. And my strengths are in creative problem solving — all the way down to writing the code myself.
The MIT Leadership Center is starting to research and codify this style. Problem-led leaders are distinct:
- They choose challenge over trappings.
- They let problems lead.
- They choose collaboration.
- They step up and step out.
- They work the problem tirelessly.
- They do what the data say.
This is a really different approach than we’re often encouraged to take. The obvious con to this approach is that if Ming’s team needs a leader and no one steps up, then the team goes without leadership and the whole project may fail.
But the pros are enormous too. Ming can focus on the big problem the company is trying to solve. And Ming always has the option to simply hire someone else to solve leadership challenges without forfeiting control of the company.
Finally, Ming is also sending a clear and consistent message about the company’s culture and values while also reminding employees that she’s not there to baby-sit anyone:
I get out there, and I solve problems. And I hope that motivates my colleagues to do the same.
Personally, I think problem-driven leadership is an interesting strategy. If more problem-centric individuals thought more about what leadership style would best fit their personality and strengths, we’d have a lot few bad bosses and a lot more successful companies.
This week I spoke twice at St. Mary’s College in Moraga, CA – 30 minutes east of San Francisco. I whipped together an hour long presentation for the students in a Strategy course in the Business school to answer the question: What is Strategy?
It was great to force myself to present some of my ideas – several of which were only half baked – and to get so much positive feedback and concrete recommendations for changes.
I haven’t had a chance to incorporate feedback into the deck yet so I just decided to publish it for you as-is. I plan to tweak things and give this talk again soon though.
One big note: I designed this deck to be presented by me so it’s not 100% ready for consumption without me. You’ll get the gist though.
I reference my piece last week about Puddles Pity Party and my research on Moneyball (the 2002 Oakland A’s season) – only some of which I’ve published so far. Check out those posts if you haven’t had a chance yet.
The students were excited that I was taking back the word “strategy” – not just using it sloppily like many of their course readings. They expressed a lot of interest in the etymologies that I shared too, which is surprising given how boring that sounds.
And, they really appreciated that I actually defined the word strategy.
What is Strategy?
Strategy is the process of creating a set of well-aligned activities with the aim of occupying a valuable position in a competitive landscape.
I really emphasized that strategy is a process, not a static outcome.
In case you missed some of my posts from the past few days, here they are:
- Best Strategy Books
- New AI Report
- Metrics Fixation
- Niche Positioning Lessons From A Sad Clown Who Doesn’t Talk But Sings His Ass Off
PS: This is just for you.
PPS: If you’re not familiar with the trivium (slide 3), you’re missing out. I might write about it more next week.