Author: Jeff Severts

Do Politics and Brands Mix?

~ Jeff Severts ~ Leave a comment

Now that President D.T. Barnum is in office with his Greatest Show on Earth, it’s difficult for business stories to capture our attention.

One story that did manage to break through recently was Uber CEO Travis Kalanick‘s resignation from the President’s economic advisory council. The controversy leading up to his decision allowed Lyft to smartly gain some exposure and acquire some new customers.

Perhaps Lyft should adopt a new tagline: “Lyft. Only One Small Vowel Away from Left.”

This had me pondering an age-old question: Do politics and brands mix? Should brands bravely take political stands, or should they seek to be apolitical?

For most of my career, the answer to this question was clear. Brands were to stay away from politics at all costs. We brand managers used to cower in fear whenever a single, handwritten letter would cross our desks from CHASTE (Christian Housewives Against Satan’s Tools & Exploits) or some similar wacko organization.

But things have changed.

The Changing Role of Brands

The primary role of a brand used to be as a guarantor of quality to the consumer. When faced with the risk of buying something new, especially a high-priced product, a widely-known, well-respected brand provided us with valuable reassurance.

The ironic thing about that reassurance is that it usually came from the brand itself–in the form of advertising. This never was, nor could ever be, the objective truth. Instead, it was a sales pitch full of half-truths, myths, and misdirection, kind of like my marriage proposal.

Why did we accept this blarney as useful? Because it was the best thing we could get. Before the Internet, we couldn’t easily access objective information (e.g. product reviews; consumer testimonials) about a brand’s experience. Today, with that information so easily at hand, advertising sales pitches are far less useful to us.

So does that mean brands are dead?

No, definitely not. Some brands have always served a second useful purpose. Thorstein Veblen coined the phrase “conspicuous consumption” in his The Theory of the Leisure Class, a book I’ve never been able to finish, but nonetheless feel free to frequently cite. Veblen suggested that we are compelled to consume lavishly, if we are able, so that we can signal to others how important and successful we are.

Luxury brands have understood and exploited this phenomenon for a long time. A Porsche 911 is a great sports car, but a big chunk of its utility to its buyers is as a signaling platform to others, a declaration that the driver is wealthy and sophisticated. This allows Porsche to charge a large price premium over equally capable cars.

And don’t even get me started about Louis Vuitton handbags.

But it doesn’t always have to be about money, and that’s where the opportunity for many other brands exists. Brands can signal that their owner is hip and socially conscious (Starbucks), creative and tech savvy (Apple), outdoorsy (Patagonia), or doing their part to save the Earth (Tesla). On the other end of the political spectrum, brands can communicate that their buyers are authentically American (Budweiser; Jeep) or traditionally masculine (Marlboro; Jack Daniels).

All these brands are strong because millions of consumers want to use them to broadcast signals about themselves to others.

Today, if you want to have a strong brand, you should provide your consumers with a message they want to project.

Checklist for Getting Political

Strong brands stand for something. And when you stand for something, that means you stand against something else. While it may be possible in rare cases to do this without becoming political, it is difficult.

To be clear, by “political” I don’t mean identifying your brand as Democratic or Republican. I am instead talking about communicating a set of values that have political dimensions, or that some portion of the population will interpret as political. For example, if your brand is for “environmental sustainability,” it’s against tar sands pipelines. Some people will like that, and some won’t.

But before you break out your quill and parchment and spend all night composing your brand’s Declaration of Values by candlelight, I would recommend you go through this quick checklist.

Be honest with yourself—is your product or service naturally political in any way? Some products and services are inherently apolitical. I used to manage the Bisquick brand. There’s nothing political about Bisquick.

Some other apolitical categories quickly come to mind: ballpoint pens, dining room tables, toothpaste, and muffler shops. Introducing a political dimension into categories like these is likely to confuse and turn off consumers.

 

Just be careful about lulling yourself into complacency on this one. Things change quickly. A few years ago, I would have never said that parkas or peanut butter cups could be political. Now, it’s much less clear. Consumers who wear Canada Goose parkas or eat Justin’s peanut butter cups are probably trying to send us all signals.

Is your product or service used publicly? If nobody will see a consumer using your brand, then it will have no signaling value. Few people witness what toilet paper I use or what carpet cleaning service I employ, so those brands will not help me project messages to others.

Are you ready to leave some consumers behind? Strong brands create passionate advocacy in some by stirring distaste in others. Every strong brand, no matter what it is, has a group of people who detest it.

Many business people, and your boss is probably one of them, have an aversion to leaving behind ANY potential consumers. This is why most brands swim in circles in tepid pools of meaningless mediocrity, hoping that someday everyone will like them.

So go ahead and get political with your brand. Just make sure your career politics are in order first.

Marketing Is Too Much Like Bloodstain-Pattern Analysis

~ Jeff Severts ~ Leave a comment

This post may not work, because there is nothing funny about murder. Except Murder She Wrote. That was kind of funny–unintentionally. And Columbo. Peter Falk was very funny.

But real murder isn’t funny at all, which is why this may need to get yanked down faster than a Rosanne Barr tweet about African-American history. Should that be the case, please accept my tearful apology in advance.

I was inspired to write this post by an article in the New York Times Magazine about Joe Bryan. Mr. Bryan, a former high school principal, was convicted in 1985 of murdering his wife of sixteen years. He has been in prison for over three decades.

Mr. Bryan was convicted twice, the second time after an appellate court declared his first trial to be flawed. The evidence the State presented against him on both occasions was very thin. As the Times article states,

“Prosecutors asked the jury to believe that between 9:15 p.m. on Oct. 14, 1985, when the Bryans spoke by phone, and the following morning, when Mickey (Joe’s murdered wife)was found shot to death, Joe slipped out of his hotel in Austin; drove 120 miles to Clifton, at night, through heavy rain, even though he had an eye condition that made night driving difficult; shot his wife, with whom he had no history of conflict; drove 120 miles back to Austin; re-entered the hotel; and stole upstairs to his room—all in time to clean up and attend the conference’s morning session, and all without leaving behind a single eyewitness.”

Furthermore, the crack Texas lawmen investigating the case determined that Mr. Bryan was “queer” because he didn’t play poker or go fishing and instead liked to bake pies. This gay affliction, they concluded, must have driven him to murder his wife through pent-up sexual frustration.

Formidable logic, to be sure, but seemingly not the stuff of quick convictions, even in Texas. What could have caused a jury to throw the book at Joe?

The prosecution presented a police “expert” who testified about a flashlight found in the trunk of Mr. Bryan’s car, four days after the murder. The lens of the flashlight had some tiny flecks of type O blood on it. Mickey’s blood type was O, but that’s true of half the population.

This expert, a Mr. Thorman, “. . . testified that the flecks of blood on the flashlight lens were ‘back spatter’—a pattern that indicated a close-range shooting. He wove a narrative that placed the flashlight in the killer’s hand.”

Jurors found Mr. Thorman’s confident testimony very compelling. What they didn’t know at the time was that his bloodstain-pattern training was limited to a week-long seminar he had attended four months before the murder.

Even if Mr. Thorman had been the world’s foremost expert in bloodstain-pattern science, a jury should have viewed his testimony as just one piece in a complicated tableau of evidence. If Joe Bryan had no reasonable motive, if no physical evidence tied him to the crime, if he had thirty character witnesses testifying that he was incapable of such an act, then they should have felt free to question the veracity of the expert and his science.

This is especially true when the science in question is a pseudo-science, a discipline masquerading as a hard science. I’m not talking about things like climate change skepticism or anti-vaccine hysteria. Those cases involve people willfully ignoring the hard science.

I am instead referring to the application of data or “sciency” descriptions that lure the audience into setting aside all the other evidence, or the collective wisdom of their prior experiences. This is what happened in this tragic case, where the jury valued the bloodstain-pattern testimony over everything else. They did not understand that bloodstain-pattern analysis, as the National Academy of Science would describe in a 2009 report, is associated with “enormous uncertainties.”

Which brings me to the current state of marketing.

Marketing has always been about shaping human behavior, about getting consumers to make irrational decisions. This isn’t always true—sometimes a brand is clearly, objectively superior, and the marketer just needs to make consumers aware of its advantages. But often the differences between products are minimal, so marketers hope to convince consumers to buy their brand through “brand affinity,” an emotional connection to the brand that causes consumers to be something other than cold, rational calculators of utility.

This is why there are Coke people and Pepsi people. Or Ford men and Chevy men. Exactly how this happens is still poorly understood—no matter what somebody tells you at some conference.

Because we don’t really know exactly how this works, or perhaps more accurately, because how it works is unique to each individual, marketing effectiveness has always resisted precise measurement. This led to the now-famous adage, “I know half my advertising is wasted, I just don’t know which half.”

The digital revolution promised to change all this. Everything would be measurable now. We would know exactly what messages were seen by whom, we could track the consumer’s subsequent behavior, and we would be able to calculate, with complete precision, our return on our marketing.

Like bloodstain-pattern science, digital marketing uses data and all kinds of “sciency” language to impress us, to get us to ignore everything else we used to know about marketing. We don’t look at digital marketing’s output as a piece of evidence that fits into a tableau, we instead view it as the only evidence, the only authoritative truth because it has cold, hard numbers attached to it.

As I’ve written before, those numbers often don’t tell the whole story, or are even deceptive. They are crude simplifications of a complicated reality. At their best, in bottom-of-the-funnel applications, with proper A-B test protocols, they can be quite useful in helping us find what messages are most likely to cause someone to click and buy. At their worst, they absorb resources that should have been dedicated to affinity and consideration, causing us to stop tending the fields that will produce next year’s meal.

This is not an appeal to stop marketing through digital channels, or to stop striving to better measure your marketing effectiveness. This is, instead, a call for all of us to start using our brains and respecting our judgment again.

As one bloodstain-pattern analysis critic wrote about Joe Bryan’s case, “If you don’t understand the basic science, then you won’t understand its limitations.”

Amen to that.

Why Bad Bosses Are So Common

~ Jeff Severts ~ Leave a comment
Vlad the Terrible. Getty Images

Some secrets aren’t kept well. Take Putin’s secret missions, for example. Somehow his campaigns to assassinate political opponents always end up as front page news, with his agents leaving radioactive polonium-210 or Novichok residue throughout England, spraying these exclusively-produced-in-Cold-War-Soviet-labs toxins around like they’re using Glade in a bus station bathroom. Boris and Natasha were stealthy ninja warriors compared to these clowns.

Likewise, good management practices are not a well-kept secret. We all know that great managers do a few simple things:

  1. Hire talented people
  2. Treat them respectfully and trust them to do their work
  3. Encourage a culture of transparency and integrity
  4. Reward those who do the best work and make the whole team better

There’s no secret to great management because we all have been managed by others. We know how we want to be treated and we know what kind of environment allows us to be our best. It’s the corporate manifestation of the Golden Rule.

So why are we constantly assaulted with self-help business books and LinkedIn articles proclaiming that the author has discovered the secret to good management? Because even though we all know how to be good managers, few of us actually do it. We’re like dieters attending a frosted donut convention. We know we’re not supposed to be eating the samples at each booth, but we can’t help but succumb to the temptation.

I believe the reasons we fail to be great managers can be sorted into four categories:

Because We Are Afraid

We are afraid of not knowing all the answers.  Steve Levitt (the economist and co-author of Freakonomics) once told me that all business managers are loath to admit that they don’t know the answer to any question. When he first said this, I thought it was an unfair characterization—a smear, almost. But then I started watching and listening. I now think he is right.

Managers seem to believe that it’s their job to know everything about their area, whether it’s the technical dimensions of their function’s operations, or the most minute details of their team’s accomplishments. If they don’t, they feel like they’re not doing their jobs and, to be fair, they may actually face that accusation from their boss.

Steve noticed this I-know-all-the-answers phenomenon because it’s the opposite of an academic environment, where the unknown is celebrated as an opportunity to learn.  Let’s all take a moment to be thankful that business leaders weren’t tasked with fueling the Enlightenment.

Let’s all take a moment to be thankful that business leaders weren’t tasked with fueling the Enlightenment.

It is ridiculous, of course, to pretend one knows all the answers, but in the case of management behaviors, it’s also very destructive. It creates enormous pressure for managers to micromanage their employees instead of trusting them to do their job. Micromanagement is like Novichok to any high-performing employee.

We are afraid that we will be displaced.  Few people will admit it, but almost everyone fears this at some point in their career. In the olden days, you were relatively insulated from this threat when you reached the top, but now even CEOs are tossed out as if they were a carton of last week’s Chinese takeout.

What does this have to do with bad management? It’s as simple and as disturbing as this: Managers know, at least sub-consciously, that their bosses will view them as being more expendable if the team below them is strong.

This means that obscuring your team’s virtues and suppressing your reports’ development, though morally repugnant, may be an economically rational decision (for the manager, not the firm.)

Great managers won’t do this, of course, because they will be constrained by their moral code and they will understand how a great team contributes to their own success. But many other managers, especially those who aren’t confident they have the support of their boss, will stray faster than a Russian oligarch buys up Kensington real estate.

Because We Aren’t Humble

Humility usually wanes with success, unfortunately. With each promotion and the accolades that come with it, the temptation to think highly of ourselves grows.

This fading humility shows up in two important ways with managers. First, we tend to believe that our position in an organization is complete and permanent validation of our judgment. This is silly, of course, but it’s very real and it’s exacerbated by the modern mythology that holds that we live in a perfect meritocracy.

Second, we don’t understand or remember that with each promotion, our access to information about what’s really going on is reduced. The farther we get away from the coal face, the less we see and hear.

These two effects combine to ensure that many managers are overly confident about their judgment and mistakenly believe that they have a clear view of all the relevant information. With this skewed perspective, managers often feel compelled to overrule their teams’ decisions. To a high-performing team, this feels like gargling with a cup full of radioactive polonium.

Because We Are Rewarded For Bad Behavior

Our managers often don’t see how we lead. They usually only see the end product.

This is especially true as we get more senior. Boards often have little idea how the CEO is leading, CEOs have little understanding of how their EVPs are leading, EVPs have little . . . etc. And if we’re being really honest, even if they did know, they often wouldn’t much care. They value most the financial results that happen under a manager’s watch, regardless of how those results are achieved.

Laziness drives some of this. It’s easy to see the short-term results, especially if they can be reduced to a number on a financial statement. Understanding how well someone is leading a team, however, often requires a lot of homework.

Few things are more dispiriting to great employees than seeing a bad manager get promoted. It’s like being forced to look at a picture of a shirtless Putin with some kind of Clockwork-Orange-like-contraption holding your eyelids open.

 Because We Aren’t Self-Aware

Some managers are missing a gene or a set of developmental experiences that would allow them to accurately perceive how their behaviors are affecting others. There’s no malice or ill intent of any kind. They’re just bumbling along, thinking they’re doing a great job.

This should be uncommon, but it’s not—we’ve all seen it many times. It is a testament to how poorly organizations identify and address bad managers.

How Do We Fix This?

If I knew that, my friends, I would be a very rich man, able to buy yachts and dachas as big as any Russian bureaucrat’s. But I do have some ideas, and I have tried to keep them relatively free of platitudes.

Any senior leader who is serious about improving the quality of management throughout her organization should try to address the human failures enumerated here. She should be asking herself questions like:

How can I demonstrate that not knowing the answer is not only OK, it’s to be expected? 

How can I publicly reward managers who most effectively develop our next generation of leaders?

How can I model humility? How often can I admit that I don’t know what’s really going on in this organization, that my only chance of knowing is through my team?

How can I reduce incentives that reward bad management behavior? Should I insist on 360 degree feedback before anyone is promoted?  Should we have internal, anonymous employee ratings for senior managers (like student ratings for professors at college?)

How can I root out people who are not self-aware? Should we have psychological assessments performed on anyone who is about to be crowned a vice president? 

If someone can discover how to do these things well, that will be a secret worth keeping.

Four Business Lessons We Can Learn From Trump’s Election Victory

~ Jeff Severts ~ Leave a comment

You might as well read this column, because you’re not getting any work done today anyway.

Your head hurts. Your friends warned you against drinking that seventh tequila shot last night, either as you danced shirtless at the Trump victory party, or as you sat stupefied in front of your TV set, trying to make sense of what just happened. Michigan?!  Pennsylvania?!

Your stomach feels funny. Even if you’re the most ardent Trump supporter, you probably didn’t see this coming. And now everything you thought was unquestionably true just turned out not to be. It’s a bit frightening.

You’re a wreck. You need to pull yourself together.

Maybe you’ll feel better if you try to learn some lessons from all this. I’m not talking about political lessons. Leave that to the Beltway pundits and editorial columnists who are now questioning their career choices.

I’m talking about business lessons. You know, stuff you can actually use when the heavy fog of your hangover finally lifts.

So here it goes—four lessons you can learn (or relearn) from this campaign.

Everything starts with a strong positioning. What’s a positioning, you ask? Don’t let your marketing people make this complicated. It’s really as simple as defining what are you for and what are you against.

Great brands (and political campaigns) are unambiguously clear about this. Apple, for example, has always been for uncompromising design and against conformity—or least it was when Steve Jobs was alive.

A strong positioning is difficult to achieve because it requires sacrifice. What customers are you willing to ignore? What markets are you willing to forego? Don’t be seduced into believing you can be everything to everybody. Unless you’re Amazon, of course. The conventional wisdom does not apply to Amazon.

And don’t forget about differentiation. You can’t position yourself successfully if you land right on top of your competition. Your prices are great and your staff are friendly? Nobody will care because they’ve heard that promise a million times before. Find something different. Find the open ground.

Say whatever you want about Mr. Trump, but you have to admit that from the beginning of his campaign he has been perfectly clear about what he was for and what he was against. Many people found those positions to be objectionable, but everyone, even the most ambivalent bystanders, could articulate the basics of his platform. What presidential candidate could make the same claim? St. Ronnie? Maybe.

And differentiation? Has any candidate in recent history run on such an unconventional grouping of planks? A protectionist (blue), anti-immigration (red), hawkish (red), working-class champion (blue)? No political consultant could have ever dreamed it up, much less recommended it.

You are not your target (most of the time, anyway.) I recently participated in a strategy session with the leadership of a consumer products company. We started the conversation by trying to define the target customer.  The CEO described her as a 50 year-old woman with teenagers in the house who is well educated, attends yoga classes, and goes on periodic vacations to Mexico with her girlfriends.

This company’s current customer data were quite different. The customers were much older (average age over 70) and much poorer.  The CEO, perhaps unconsciously, had described herself.

To be fair, the exercise was focused on defining the customer target, not the current customer profile, so it could be a legitimate strategy to define the new target so differently. But only if it’s a deliberate, carefully considered decision.  In many instances, business leaders project their own tastes and needs onto their customers, which can be a terrible mistake.

Could all the pollsters, pundits, and opinion columnists be accused of the same? Were they projecting their own values and preferences onto the electorate they were supposed to be dispassionately observing?

Clearly Mr. Trump didn’t make this mistake. He knew that his target was less educated white men and kept his messaging entirely focused on them.  Even more impressively, he understood his target’s condition and never confused it with his own—a remarkable feat for a Manhattanite who gets spray tans and flies around in a corporate jet.

Don’t believe market research (or political polls) when the topic is vice or virtue. I’ve written about this topic before. Everyone wants to feel like they’re a good person and above average in every way. And we all respond to society’s sanctions, even if we consider ourselves to be rebels.

When faced with a barrage of messages declaring that a vote for Trump would be crazy or stupid, some people will stick out their chin and defy the pressure, but others will hide their intentions, consciously or unconsciously.

We saw this with Brexit, and we’re seeing it with Trump’s victory.  Remember this the next time you conduct a survey with your customers. If you’re asking them how often they eat cookies, or how many books they read to their children, or what percentage of their income they donate to charity, don’t believe what they tell you.

Traditional advertising media are dead. Well, maybe not dead, but certainly maimed and going into shock.

Secretary Clinton outspent Trump in traditional media by a massive margin. We don’t know the final tally, but if the early spending is any indication, the gap will be huge. Through the end of July, she had aired $70 million worth of television advertising. During the same period, he didn’t produce a single ad.

Trump ran a campaign fueled entirely by public relations and social media. It was a perfect tactic for his positioning. All he had to do was say a bunch of things that had never been said in a presidential campaign and the rest took care of itself. Even if Trump fails spectacularly as a president, he will get historical credit for reinventing the tactics of political campaigning.

 

Prince’s Performance Review from 1984

~ Jeff Severts ~ Leave a comment

March 3, 1985
Warner Bros. Records
4000 Warner Blvd,
Burbank, CA 91522
Dear Mr. Nelson,

We’ve come to that dreaded time of year again—performance review season.

HR is changing the performance review template for the fourth time in four years, and the new version hasn’t come in yet from the printer, so I’m taking the liberty of substituting this letter for the official form.

You’ve had a solid year with us, Mr. Nelson. The Purple Rain album and movie have done well, but I am sure you will agree that we all have opportunities for improvement. What follows is my assessment of your performance for fiscal year 1984.


SUCCESS FACTORS

Job Skills and Knowledge:  You write, arrange, produce, sing all the vocals, and play all the instruments on your albums. And Eric Clapton says you’re the best guitar player of all time. Eric Clapton, for Christ’s sake!  Still, I would like to see you teaching some of the younger members of the team more often.  You have so much to share.
Score: (4/5)

Teamwork:  While always polite to your fellow employees, we continue to be concerned about your aforementioned tendency to not involve other team members in the production of our albums.   We are happy to see you have finally brought in The Revolution to back you up for Purple Rain. This is good progress, but we hope to see you continue to improve in this area.
Score: (2/5)

Work Quality:  Purple Rain topped the Billboard album chart for 24 weeks. “When Doves Cry” and “Let’s Go Crazy” both reached #1, “Purple Rain” hit #2, and “I Would Die 4 U” peaked at #8. We sold 1.5 million copies in the first week of release. Two Grammys. One Oscar.
Score: (4/5)

Communication and Presence:  I don’t know if you’ve heard this feedback before, but you’re kind of a shy guy. You don’t speak much in meetings, letting others overshadow you. We would all benefit from you asserting yourself more. Please bring some of that stage presence into the conference room!
Score: (3/5)

Meets Deadlines:  I’m sure I don’t need to remind you that we barely made our target release date for Purple Rain. While I understand you were very busy with the tour and the movie preparations, you allowed these distractions to keep you from finishing all the tracks by the delivery dates outlined by the Project Management Team. Did you realize that Margie down in shipping had to use the express shipping option to get the promotional copies out to the stations on time? This was a costly mistake.
Score: (2/5)


ANNUAL OBJECTIVES

Album Sales:  The target for Purple Rain this year was 750,000 copies. Accounting is still finalizing the numbers, but it looks like we will beat that number by around ten million. Nice work. I would like to give you a higher score here, but remember that we’re still quite a bit off the pace of Thriller.
Score: (4/5)

Movie Box Office Sales:  I know from prior conversations that you believe we didn’t agree to a target for the film, but HR backs me up on this. We set the target at $65M, which coincidentally is right where the domestic gross is coming in. And while it may seem like a $65M movie with a budget of $7M should be very profitable, Accounting is quite certain that we will lose money on the picture (so don’t expect any big royalty checks in the future!) Even if I could share all the cost details with you, I suspect it would be too difficult for you to fully understand.
Score: (3/5)

Promotional Budget:  Our budget for this year across the album and the movie was $2.5M. Instead, we spent in excess of $3M because of your numerous requests for additional support. Here at Warner Bros., we take budgeting very seriously. Where would this company be if everyone exceeded their budget?
Score: (2/5)
SUMMARY

Average score on Success Factors: 3
Average score on Annual Objectives: 3

Final score: 3 (Meets Expectations)

I realize this score may be disappointing to you, Mr. Nelson, but please remember that you are still early in your career here at Warner Bros. With more time and additional focus on your development areas (teamwork, communication, meeting deadlines and staying within your promotional budget) you should easily exceed this score next year and put yourself solidly on track for promotion to senior assistant manager in the next several years.

Oh, and one more thing. It’s my pleasure to inform you that your performance review score qualifies you for a significant bump in your base bay. Look for the additional 1.0% in your check starting in May.

Best regards,

 

Jack Pearson
Special Assistant Vice President of Urban Funk Music for the Central Region
Warner Bros.

Dear Mr. Bezos

~ Jeff Severts ~ Leave a comment

Dear Mr. Bezos,

I fear you may be working on the wrong problem.

I placed an order for three umbrellas and some pet stain remover last Friday. It’s been raining a lot here in Chicago, and my dog has suddenly started mistaking my basement carpet for my neighbor’s yard, even though one is lush and green and the other is brown, stubby, and smells like polyester and those fluorescent orange cheese crackers.

I placed the order at 10:06 a.m. At 7:00 a.m. the next morning, on my way out to retrieve my newspaper, I nearly tripped on your Amazon Prime box that had somehow miraculously appeared on my doorstep.

Holy Supply Chain! The Santa Claus of my youth couldn’t have worked with such stealth and efficiency. And did I mention that the Friday on which I placed the order was Black Friday? The same Black Friday that crushed the Neiman Marcus site for hours at a time?

Clearly the tens of billions you’ve been investing in warehouses and systems are paying off. Either that, or the Mephistophelian bargain you made back at the Albuquerque crossroads continues to shower you with good fortune. Now that I think about it, it must be the latter–only the Devil is willing to work so hard on the day after Thanksgiving.

Anyway, you’re doing a hell of a job. But I do have one little thing I would like to point out: I don’t think I need to get my stuff that quickly. Sure, it was nice, but I think I would have been just as happy to get my pet stain remover on Tuesday.

So before you squeeze that delivery time down to hours or minutes, let me propose that you look into a bigger problem I have with your service:

What am I supposed to do with all this #%$&!* cardboard?

The picture at the top of this post is just one week’s worth of boxes delivered to my house (from Amazon and others.) I admit my family may not be normal, as we have the same aversion to shopping in stores as Donald Trump has to historical facts. But nonetheless, this will be everyone’s problem if your company continues to grow at the pace you’re planning.

It’s a serious pain to break down all these boxes and then bribe the recycling guy to take more than my allotted quota each week, but it’s an even bigger deal than that. It’s wasteful! Is there a greater sin in these times? With each box’s arrival, I feel like a Roman aristocrat eating peeled-by-eunuchs grapes as the Visigoths crawl over the gates.

Shame on me. And shame on you.

Ignore Your Customers on These Four Occasions

~ Jeff Severts ~ Leave a comment

Listen to your customers.  This advice is so old and so sacrosanct that I suspect Jesus used it while managing the apostles.

“Hey team, we just received a parchment survey from a very upset customer.  Apparently, at that last Sea of Galilee event, we were not getting those baskets of fish and loaves out fast enough.  Let’s sharpen our focus, people!  Leperpalooza is just around the corner and we need to be on our game!”  

The logic behind listening to your customers is blindingly obvious, so unlike the typical business book, I am not going to spend three thousand words trying to convince you it’s a good idea.  Instead, I would like to argue that in some situations, you should not follow this advice.

Here are four scenarios in which you’re better off consulting a clairvoyant than listening to your customers:

1.  Don’t ask your customers about anything related to money

First of all, never give customers the option in a focus group or on a survey to tell you your product should be cheaper. Their answer will always be yes.

Furthermore, don’t ask them to compare the price to other facets of your product.  If you give them a list of features or benefits and ask what they value most, they will consistently pick price first.  Even hedge fund managers talking about their mink-lined underpants will claim that price is most important to them.

And in the name of all that is holy, whatever you do, don’t ask them to tell you how much you should charge for the product.  The answer they give will have no relation to what they will actually pay.

Why are customers such unreliable guides in this area?  I don’t know, but here’s my speculation:

First, we are asking customers to cooly and rationally project what they will do, when spending money is instead an emotional, visceral action.  Few customers would ever predict that they would spend $1000 on a handbag, or $500 for an Oak Ridge Boys concert ticket.  But in the real world, these things happen all the time.

Secondly, most of us spend our entire lives being price takers.  This can make us feel powerless.  Participating in a survey may feel like a chance to finally stick up one’s middle finger at the powerful price setters.   Take that you monopolistic #&@$!

If you want accurate guidance on how much you can charge for your product, there’s only one reliable way to get it.  Put your product into the market at your favored price and see if customers are willing to pay it.

2. Don’t ask your customers about their vices or virtues

Many psychological studies have demonstrated that the vast majority of us think we’re better than average, whether it’s our attractiveness to the opposite sex or our ability to safely pilot a car.  I call this LWS–Lake Wobegone Syndrome.

This is why, if you’re anything like me, you are shocked every time you look in the mirror.  “Who the hell is that guy?” my internal voice screams.  The cold, uncompromising reality of the mirror clashes violently with my Adonis-like self image.  Where did my hair go?  Where are my rippled biceps?  And for some reason I am completely surprised every time, even though I looked into that same heartless mirror one short day ago.

Perhaps there’s an evolutionary advantage to this constant self-delusion.  Maybe believing we could outrun that lion saved some of us on the Serengeti thousands of years ago, giving us the confidence necessary to shave a few tenths of a second off our two-hundred-meter sprint times.  I don’t know.

Whatever the reason, LWS is very real and will show up anytime you ask customers to predict their behavior in ways that threaten or enhance their self image.

For example, everyone wants to believe they’re being responsible stewards of this planet–even coal company executives.  Several years ago, in the early days of environmental awareness, a paper goods manufacturer asked consumers if they would buy towels made from recycled paper, even if the quality of the product was a bit reduced.   The vast majority said yes–enthusiastically.  In fact, they said they would even pay a bit more because it was the right thing to do. Far be it from them to continue pillaging our forests just so they could avoid the inconvenience of washing a rag.

Using this research, the company launched a line of paper towels manufactured from recycled paper.  The quality was a bit less and the price a few cents higher than their conventional towels.  The results?  You guessed it.  The recycled towels collected dust on store shelves.

Please don’t misunderstand me.  I’m not saying people will never buy environmentally-friendly products.  I’m just saying that more people will predict they will buy them than actually will, even in this age of Teslas and organic house paint.

So people will overestimate their virtues, but what about their vices?  Well, let me ask you this:  How accurately will people estimate the number of hours they spend watching TV each day?  Or how many calories they consume?  Or how often they let their kids eat Pop-Tarts for breakfast?

You know the answer of course.  Customers will very consistently underestimate how often they commit these sins.  To do otherwise would defile their self image.

Listening to customers too closely in these kinds of cases can cause you to overlook lucrative business opportunities.

3. Don’t ask your customers what new products or services you should create for them

First of all, this is not their job, it’s yours.  And because it’s not their job, they haven’t been thinking about it.  So when you start interrogating them in a focus group, their answer is generally going to be some form of, “I don’t know.”

But even if they were thinking about it, they would have a hard time helping you imagine products beyond mildly improved versions of what they currently use. They, like the rest of us, are trapped in their current context.

There’s an old Henry Ford quote that goes something like, “If I had asked my customers what they wanted, they would have said faster horses.”  He probably didn’t say it, like most quotes you find on the Internet, but it nicely illustrates the point.

Great leaps forward in technology (cars, mobile phones, the Internet) are obvious examples of products that could never emerge from customer conversations.  But as Clayton Christensen illustrated in his The Innovator’s Dilemma, even modestly new products or technologies can be met with skepticism by customers.  Only innovations that offer more performance on today’s axes of utility will be greeted enthusiastically (e.g. bigger televisions with sharper images; chocolate chip cookies with more chips; etc.)  Do we really need to ask customers whether or not they would prefer more of something they already like?

4. Don’t ask your customers why they do what they do

There are exceptions to this rule.  Exceptionally gifted qualitative researchers, with the right research subjects and some luck, can sometimes pull this off.

And it’s often worth trying, for if you can figure out why people do what they do, it can be powerfully useful.

But generally, people don’t know why they do what they do.  They either literally can’t articulate the reasons, or the rational part of their brain deceives them and claims credit for the things the emotional part is controlling.  Dan Kahneman refers to this as the man riding the elephant.  The man (your rational brain) thinks he’s really in control, but the elephant (your emotional brain) can actually decide to do whatever it wants to.

On the rare occasions when customers truly understand what’s going on in their head, there are often good reasons why they don’t want to be honest about it, either for the reasons cited above (vices or virtues that challenge their self image) or for the simple reason that they may find it uncomfortable to reveal it to strangers.

So go forth and listen to your customers, just as the old adage suggests.  Just do so carefully!

6.9% Growth in China and Other Fairy Tales

~ Jeff Severts ~ Leave a comment

The Chinese government announced yesterday that its GDP grew 6.9% in the third quarter, a smidge less than its goal of 7%.

Right. And Osama bin Laden is alive right now, sitting poolside at the Bellagio, quaffing Tanqueray and Tonics as fast as the barman can set them up.

I am not the only one who is skeptical. The Internet is awash with skeptics. Seven percent annual growth is very difficult to reconcile with other economic indicators coming out of China. Little things, like a Shanghai Stock Exchange index that’s down 35% from its peak. Or a dramatic drop in Chinese dollar-denominated imports (down 15% to 20% every month since February.) Or massive capital flight ($150 billion poured out of China in the month of August alone.)

Some people seem to take great offense to this skepticism, as if the critics are heretics who are unwilling to believe in China’s economic miracle.

But this seems silly. You don’t have to doubt the legitimacy or endurance of China’s long-term growth to be skeptical about the country’s recent performance. You really only need to believe in two things.

The Business Cycle

First, you have to believe in the inevitability of the business cycle. Before deciding what you believe, just remember that no country in recorded history has escaped occasional downturns. It happens to the best of us. For reasons economists still can’t explain with complete clarity, recessions come along every once in a while and spoil the party.

The last guy to claim he had figured out how to eliminate downturns was Alan Greenspan with his Great Moderation. As you’ll remember, the Great Moderation was followed by another Great event that didn’t feel all that great to most of us.

Perhaps the best, recent historical analog to what China is going through is the United States in the late 19th century, when we grew from a modest player on the world’s economic stage to a global hegemon. Between 1870 and 1910, we suffered ten downturns, most of which were called a “Panic” of some sort.

China has experienced over thirty years of nearly uninterrupted growth. They have very smartly steered their development policies to create tremendous wealth, lifting half a billion people out of poverty. Unfortunately, none of that insulates them from a recession.

The Distortion of Information in Hierarchies

The second phenomenon you have to believe in is the predictable distortion of information in hierarchical systems.

Part of why the believers in China’s stated growth numbers believe is because they have a hard time imagining top Chinese officials deliberately lying about what’s happening.

I agree. I don’t think China’s leaders are purposely distorting their GDP figures.

But that doesn’t mean the numbers are true. It just means that China’s leadership believes the numbers are true.

Is it really so hard to believe that the leaders in the Chinese Communist Party may be receiving less-than-accurate information from the countless bureaucratic layers below them?

Powerful hierarchies produce lies because they produce fear. Every participant in the system shades the truth to their boss as much as they can. The Soviet Union experienced “record harvests” nearly every year until the fantasy could no longer be reconciled with the reality of empty grocery store shelves.

Even though Uncle Jinping can’t hold a candle to Uncle Joe’s despotism, China still executes over 2000 people a year. Some of those people are government officials. Knowing that, might a state-owned factory manager who has been diverting a few Yuan into his own pockets be tempted to inflate his reported revenues a bit?

But you don’t need to be literally afraid for your life to be motivated to enhance the truth for your boss. The stakes in nearly every job are high, even if you’re a low-level manager at an ordinary company. Your boss’s perception of you can affect your career prospects, your prestige with your peers, and your family’s livelihood. So small lies get created. And they accumulate as each layer of the bureaucracy adds its own lies to the pile.

Where’s the CEO in all this? Or Mr. Xi? Clueless. As far as they know, everything is fine. Their ability to know the truth is completely obscured by the distorting effects of the hierarchy. And that distortion increases as a function of the organization’s size and the power it has over its members.

So yes, I am a skeptic on China’s third quarter growth. I believe China is already in a recession, and the last guy in the country to know the truth about it will be Xi Jinping.

Why Your Next Car Won’t Be A Tesla

~ Jeff Severts ~ 2 Comments

Last week, at a PR event shamelessly modeled after Steve Jobs’ finest, Tesla announced the arrival of its new Model X sport utility vehicle (pictured above.) The Model X will start at $132,000.

In case you were wondering, here’s what else you can buy for $132,000:

  • A Maserati Granturismo Sport Coupe with Bianco Eldorado painted coachwork and a Rosso Corallo leather interior. Bellissimo!
  • A Peterbilt 386 Sleeper Truck with an 80” cab, a 10-speeds, 500 horsepower, and 1650 foot pounds of torque. Yeehaw!
  • An average home in Greensboro, North Carolina.

Elon Musk and his team are diving into a thin market for $130,000+ SUVs. One of the few models that can reach such nosebleed heights, the Mercedes Benz G63 AMG, only sells about 500 units per year in the U.S.

But perhaps today’s volumes are not indicative of where this market is going and Tesla is correct to go after it. After all, Bentley will be introducing an SUV in 2016. It will be called the “Bentayga.” I’m not kidding.

Anyway, maybe the world is full of more venture capitalists and Russian mobsters than I think. Maybe Tesla will sell as many Model X SUVs as they do Model S cars. That would double Tesla’s annual volume to 100,000 units, or roughly the same number of cars that Toyota, Volkswagen, and General Motors each produce every four days.

Who cares about how many cars Tesla produces? Well, you should. That is if you believe that converting to electric cars is one of the ways we’re going to keep this planet from becoming one large Swedish sauna (a debatable point we’ll table for another time.)

The biggest engineering problem automakers have to overcome to make electric cars compelling is the energy density of today’s battery technology. A gallon of gasoline has an energy density of 33.7 kWH, according to the all-knowing Google. The General Motors EV1, introduced in 1996, used 1300 pounds of lead acid batteries to capture 16.5 kWH. In other words, it required nearly ¾ of a ton of batteries to deliver the same potential energy as a half-gallon of gasoline. You can see why range was a problem for the EV1.

Tesla has tackled this challenge by wiring together nearly 7000 lithium-ion laptop batteries into one big pack. Doing so allows the company to cram up to 90 kWH into its Model S sedans. These batteries are still heavy (1200 pounds) and quite expensive. How expensive? Tesla isn’t revealing that number, but most engineering-types and Internet cranks believe a reasonable estimate is around $25,000 (the base price for a Tesla Model S 85D with the 90 kWH upgrade is $88,000.)

A $25,000 battery pack prohibits the company from delivering a car that normal people can afford. The average price paid for a new vehicle in the United States in 2015 is $33,560. That doesn’t leave a lot of room for such luxuries as brakes and seats.

So the only way Tesla can make a margin on a vehicle with this technology is to move it up market. And it has done that successfully. The Model S is a brilliant sedan that has won an impressive array of awards, even from some of the most hardened electric-car cynics. I am amazed at what Tesla has done.

But even after Donald Trump becomes president and implements massive tax cuts for all, most of us won’t be able to afford $90,000 sedans and $130,000 SUVs. Teslas will remain niche luxury vehicles.

The company says otherwise, promising to introduce a long-talked-about Model 3 in 2017 that will start at $35,000. To do so will require a massive change in the economics of lithium-ion batteries. Tesla suggests that the $5-billion-dollar “Gigafactory” it’s building in the middle of the Nevada desert will do exactly that, churning out 500,000 battery packs every year at a not-so-massive savings of 30% per kWH.

Now I’m no engineer, but getting this all done by 2017 seems a tad aggressive. In fact, I think it’s more likely that we’ll see Bernie Sanders in the White House that year, riding a 90% approval rating after completing the nationalization of Hershey’s and Fruit of the Loom. Kisses and tighty whities for all!

Let me be clear. I am not betting against Elon Musk in the long run. Unlike many Silicon Valley billionaires, this guy isn’t just lucky. He’s the real deal. He makes Thomas Edison look like a piker. Nobody else could do what he’s doing with Tesla; much less also build space rockets in their spare time.

But I have to think there’s an easier and faster way to increase the adoption of fully electric vehicles. Nearly twenty years ago, I wrote a paper in business school predicting the innovation path for electric cars. Almost none of it has come true, which may help explain why I’m such a bitter man. Nonetheless, I continue to hope!

In that paper I suggested that car manufacturers consider adopting Clayton Christensen’s disruptive innovation model. Instead of trying to beat internal combustion at its own game (power and range), I recommended finding new markets where electric vehicles’ limited speed and range would be virtues.

My favorite example was a car aimed at parents with teenage drivers. For this target audience, the limited power and range of electric technology is a benefit!

My pimple-faced Johnny can drive no faster than 65 miles per hour? For about 80 miles on a charge? And he has to come home to recharge it?  Where do I sign up?! 

Such vehicles could be simple, cheap, and trackable via embedded GPS (an unimaginable feature when I wrote the paper.) To increase their appeal for the teenagers, they could feature a kick-ass stereo, customizable body panels, and Chipotle burrito holders.

With such modest performance requirements, the technology deployed could be simple. More importantly, prices could be cheap–perhaps less than $20,000.

With a low price and a benefit the target audience craves, how many units could be sold? Hundreds of thousands? Millions? And with that kind of volume, wouldn’t it be easier for Musk’s brilliant engineers to extract more efficiency out of this technology, finally making it competitive with internal combustion for the rest of the market?

But alas, I fear this won’t come to pass, so start saving up your nickels. You will need 2.6 million of them for your first Model X.

Five Telltale Signs Your Company’s Strategy Stinks

~ Jeff Severts ~ Leave a comment

This article borrows heavily from Richard Rumelt’s book, Good Strategy/Bad Strategy, given to me by my friend, Joe Thacker. This is one of only three business books I recommend you read (most business books are only suitable for propping open windows with broken sash cords.)   The other two you must spend time with are Clayton Christensen’s The Innovator’s Dilemma and Sun Tzu’s The Art of War.

Actually, I’m just kidding about The Art of War.   That’s the book everyone recommends when they want to sound really sophisticated. Personally, I have never found any modern business meaning in Mr. Sun’s pearls of wisdom, such as this gem: “Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness.”

So that leaves us with just two. Mr. Christensen’s book is required reading, widely considered to be one of the seminal business works of the second half of the twentieth century. And Mr. Rumelt’s Good Strategy/Bad Strategy, despite its unimaginative title, should likewise join the petite canon of business literature.

Good Strategy/Bad Strategy is a Michelin-starred, seven-course tasting menu of brilliant insights.   What I’m about to serve here is a doggie bag full of his scraps, warmed up for you on a paper plate with a splotch of mustard on the side. If you find any of the following bits interesting, do yourself a favor and order his book.

Here’s my top five indicators of a suspect strategy:

1.  The strategy starts with a “vision” and a “mission.”

Do you know the difference between the two? Be honest now. Well, I certainly don’t. I do know one way in which they’re the same, though. Nobody in the organization can ever remember them.

This is a shame, because a “vission” (or “mision” if you prefer) is supposed to be there to inspire. How can people be inspired by something they don’t remember?

For a vission to inspire, it needs to be really, really good. And short. In practice, it’s rarely either, much less both.

Great, mission-driven organizations (e.g. the Mayo Clinic; the Red Cross; Harvard University; etc.) can stand for centuries. There’s something magical about such institutions, and corporations are right to try to mimic them.

But that magic is often rooted in authentic and meaningful missions that are deeply woven throughout those organizations’ histories. Let’s face it, most companies do unexciting work and have little hope of finding deeper meaning in what they do. Some stretch so far to make a tenuous connection to “improving lives” that the CEO must cringe every time she is forced to recite it.

“Jeff’s Plumbing, where our mission is to improve peoples’ lives by allowing them to relieve themselves whenever they need to.”

So why does nearly every corporate strategy document start with this kind of tripe? Rumelt explains that at some point in the last twenty years we became infatuated with the fantasy of charismatic, vision-led leadership, and that we started to confuse it with sound strategy work–a far less sexy concept. Great leaders have Vision, the movement reminded us, so you can’t ever hope to be the next Jack Welch unless you gather your team into a conference room and force them to agree on a vission in a single afternoon.

The implications, Rumelt says, are that this, “ . . . siren song of template-style strategy—filling in the blanks with vision, mission, values, and strategies . . . offers a one-size-fits-all substitute for the hard work of analysis and coordinated action.”

The inevitable product of this kind of process is insincere and uninspiring, causing employees to groan and roll their eyes anytime the CEO turns her back.

2.  The strategy uses lots of big words

Rumelt refers to them as “Sunday Words”, describing them as “inflated and abstruse.” It’s a bit ironic that he uses the adjective “abstruse,” which I had to look up (it means difficult to understand.)

Whether you use the term “Sunday Words,” or my favorite, “Fifty Cent Words,” we all know them when we see them.   They are especially nausea-inducing when they are trendy, recent additions to the sometimes nonsensical vocabulary of the business world, like “disintermediation,” or “omni-channel” or “employee engagement.”

Why is this necessary?   To prove that the people who created the strategy are smart? Wouldn’t it be better to use language that is simple and unambiguous? Wouldn’t an inspiring leader insist on that?

Rumelt writes, “A hallmark of true expertise and insight is making a complex subject understandable. A hallmark of mediocrity and bad strategy is unnecessary complexity–a flurry of fluff masking an absence of substance.”

3.  The strategy doesn’t define the problem that needs to be solved

This is the most important part of any strategy, yet most organizations skimp on it or skip it entirely. A strategy is a proposed solution. It has no meaning if the problem is not defined.

My first employer, General Mills, understood this. The annual planning process there always started (and still starts today, I suspect) with a presentation of “Key Issues,” the problems that prevented each business from growing at the desired pace.   We worked hardest and longest on this first stage of our strategy development because finding the actual causes of what ails a business is very difficult. It’s much easier to stop at the symptoms.

The benefit of all that hard work was that the solutions we prescribed would fall quite naturally out of the problems we defined. As Rumelt declares, “When you cannot define the challenge, you cannot evaluate a strategy or improve it. If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.”

4.  The strategy confuses objectives with strategy

I think we can blame the finance guys for this one. Strategy development in most companies starts with the board asking for multi-year projection of the business. This causes the CFO and his team to initiate a “strategic planning” process with the same enthusiasm that Chinese deep shaft coal miners feel when they enter the elevator cage each morning.

The strategy team, often an amalgam of cross-functional, mid-level management draftees who don’t have enough chits lying around to buy their way out of the assignment, will start with the numbers that the CFO wants in year five and work backwards. They will then, with as much creativity as committees usually muster, punch out a list of “strategies” that often look like this:

  • “We will grow revenues by X%”
  • “We will achieve a market share of X%”
  • “We will grow gross margins by X%”
  • “We will be an employer of choice”
  • “We will be a green, sustainable business and a good member of the community.”

These are not strategies. They are objectives. They are the ends, not the means.

Imagine if Eisenhower had declared that his strategy to win World War II was to win it.

As Rumelt writes, “ . . . most corporate strategic plans are simply three-year or five-year rolling budgets combined with market share projections. Calling a rolling budget of this type a “strategic plan” gives people false expectations that the exercise will somehow result in a coherent strategy.”

5.  The strategy doesn’t make hard choices

We have all seen strategy decks with long lists of “strategies” and initiatives.   Sometimes the lists are so long that they require fancy graphics to create some semblance of order or logic.

This, like the previous discussed theatrics around vission, makes the fatal mistake of over-estimating peoples’ attention spans.

But more importantly, these long lists reveal a leader’s inability to make difficult choices. I cannot possibly say it better than Rumelt, “ . . . the essential difficulty in creating strategy is not logical; it is choice itself. Strategy does not eliminate scarcity and its consequence—the necessity of choice. Strategy is scarcity’s child and to have a strategy, rather than vague aspirations, is to choose one path and eschew others”(the emphasis is mine.)

I once worked with a leader who would frequently make a speech about “the power of and instead of or!” We didn’t have to make difficult decisions, we just had to think positively and creatively about what was possible! This, that leader thought, was how you inspired people to do great things. You can guess how well that all turned out.

So we’ve identified the hallmarks of a bad strategy, but what characterizes a good strategy? You’ll have to read Rumelt’s book to find out.