Building Tomorrow’s Company, Today

Most businesses find themselves precariously balanced between reacting and planning. 

It’s a battle almost always won by the need to tend to the impact of decisions we made yesterday, the consequences of which we couldn’t or didn’t see at the time.

This creates a defensive, reductive view of a company and its possibilities, and usually results in neither the business nor its people fulfilling their potential.

Regular readers here will know that I am an impassioned practitioner of the power of envisioning the future we aspire to create - for ourselves and our business - and then designing and building a model capable of fulfilling that vision.

At the Wired/MDC conference on Tuesday, I listened to the founder of Netflix - Reed Hastings - describe the quite remarkable story of how he and his partners built their company. 

Netflix started its subscriber-based movie and TV show rental business twelve years ago. Today, it has 23.6 million subscribers, and has just passed Comcast Cable in audience size. 

Quite something for a business whose original business model was mail-order DVD rentals.

Except that its original model was not mail-order DVD rentals. 

Its original model was the one it is living today: real-time streaming of movies and TV shows over the internet. 

A model which follows a strategy borne of a simple realization. That the Purpose of a movie rental company is to offer its customers the widest choice of rentable movies whenever they want to watch them. Or as Reed Hastings wrote in 2005, "We rent movies. But the real service we provide customers is convenience."

Back in 1999, when Netflix signed its first subscriber, anyone on the web looking for content was going to AOL.com and listening to their modem sync up to the AOL servers at 56K. If you were lucky, you got mail. And if you waited long enough, a picture or two. You would have waited a long time for a movie. For some movies, you’d still be waiting.

In 1999, the best way to rent movies was to go to Blockbuster. And from Blockbuster’s perspective, they were fulfilling the movie renters' need. Some people got their first choice movie. The stores were pretty close to most people's homes. And as long as you got the movie back within a couple of days, the prices were competitive.

Except, if you looked closely, they were doing it on their terms. Not on their customers. And whenever you build a business based on what works for you, you leave a gap for someone else to build a business that works for the customer.

Enter Netflix.

“They built the railway line over the Alps before there was an engine capable of making the journey.”

One of the rock-like foundations on which the Technology Age has been built is Moore’s Law, which states that computer processing power will double every 24 months. Its accuracy has allowed for technological R&D to produce rapidly iterative design and capability.

Were all of life based on such certainty, our time here would be both richer and poorer. But when it comes to building a scalable business, speed of success is dramatically encouraged by predictability of resources.

Reed Hastings and his partners pulled out a spreadsheet and applied Moore’s Law to bandwidth expansion. Were the same growth-rate to hold true for both, when, they asked, would Netflix be able to satisfy the purest definition of its Purpose, and deliver streaming movies in real-time over the internet?

The answer, their spreadsheet projected, was 2008.

From that day, and every day for the next nine years, they worked to build a business capable of delivering the widest selection of movies as fast as possible to their customers based on current technology. It was a business whose end they had already designed.

The business was home delivery of DVDs, and they used it to create four long-term assets:

1. A brand synonymous with being the best way to bring movies into our living rooms
2. A reputation for a broad, deep and growing catalog
3. A loyal and growing subscriber base
4. A reputation for customer service

Everything else about Netflix 1999-2008, they planned to throw away.

As it turned out, the spreadsheet was right. And so was the strategy. 

In the meantime, Blockbuster - which already possessed all four of the foundations Netflix aspired to create - continued to look backwards.

Driven by its historic success, and an operational model based on number and location of storefronts, Blockbuster convinced itself its approach was right. And if its approach was right, the answer to falling revenues must be to address the fundamentals.

Extended rental periods; reduced late fees; earlier new releases; increased inventory. All of which added cost, cut into margins and did little to arrest declining interest.  Fundamentals in terms of Blockbuster’s business. But increasingly meaningless to its customers. 

Because in the pursuit of its long term strategy, Netflix had discovered that choice and convenience were more important to most renters than immediacy. And so, knowing they didn't yet have the means to satisfy the entire Purpose, they built a model that in the short-run would satisfy two thirds of it. And they started mailing out DVDs to its customers. No more disappointment at the store. No more store in fact. Just ease and choice.

And, even better, Netflix knew this was just a stepping stone. They knew that the third leg of the strategy was just a matter of time. Their spreadsheet said so. They just had to wait for the technology to catch up. 

When, in 2008, it did, Netflix satisfied their ten year old strategy to stream movies straight into the home. It took a couple of hours to download a movie, and the quality was only alright. But, innovation is about improvement, not perfection.

The results are astounding. Today, Netflix is valued at $12.5 billion and has recently committed $100 million to produce its own programming for the first time.

Blockbuster was sold a month ago for $400 million. $87 million of which was debt. From a high of 4,000 stores, its new owners are hopeful they will be able to keep 400 open. 

This week, Comcast announced a new residential internet service that will allow its subscribers to download an HD movie in 3 minutes. 

For Blockbuster, it probably means nothing.

For those waiting for new releases to be instantaneously available in 3D, it’s progress.

For Netflix, it’s just one more step on a journey that began when Reed Hastings pulled out his spreadsheet and designed the future of his company.

For the rest of us, it's perhaps a good reminder to make sure we're clear about what business we're building.

How The Airline Industry is Mis-Using Creativity

There are three types of change in running a company. Those that fix the problem. Those that make the problem worse. And those that look like the former but accelerate the latter.

If you apply the forces of creativity to them you greatly accelerate the results. A fact the U.S. airline industry is already experiencing.

This week the eight largest U.S. airlines announced their highest profit margins in a decade. Projections are that in 2011 the industry will earn $5 billion. If all goes well, next year that number will rise to $5.6 billion.

Which sounds healthy, until you realize that during the past nine years the airlines lost $60 billion. And 160,000 jobs.

Which means that even if they can sustain these new levels of performance for another ten years or so, by 2021 the US airline industry will have spent two decades producing a net return for its owners of exactly $0.

And that’s the best case scenario.

The worst case is that this turn-around will collapse like a suddenly depressurized cabin. 

If you believe in the power of creativity bet on the latter.

Because the airline industries have used a lot of it to create this turnaround. And most of it has been applied to finding new ways to take advantage of the customer. Bag fees. Change fees. And now potentially, use of the overhead storage compartment fees.

In fact the additional fees charged by the airlines in 2010 are higher than the industry’s actual profits. Which means that without those fees the airline industry is a loss making business.

But, when the gain to a business comes at the expense of its customers, with no improvement provided in return, the inevitable outcome is short-term increases in profitability followed by long term damage to the desire of the customer to be a customer.

Let’s apply positive creativity to this issue.

Peter Drucker once famously said that the Purpose of a business is to create a customer. The ability to provide something that people value and the ability to do so profitably.

But when a business focuses only on price, it makes irrelevant the thing that is actually most important to its customers.

The reason they paid the money in the first place. Whether that is whiter whites, lower taxes or satisfaction of a personal vanity .

And when judged by the results of a purchase, the airlines offer something of inestimable value.

Our lives.

The virtual guarantee that they will get us to our destination safely.

A value proposition on which to change the world. And one which supported by fair pricing, comfortable seats and an investment in the future would radically change their future.

It’s late in the game for the airlines to be re-establishing their core value. Perhaps too late. 

And when airline travel is finally replaced by something that makes sense, something that delivers us quickly, comfortably and safely without destroying the ozone layer and ending the existence of Polar Bears, something that has no need for pat-downs and retinal scans, something that greets its customers with enthusiasm and innovation, something that stimulates and satisfies its employees, and something that creates shareholder value, it is unlikely that whatever that something is will carry the names of any of today’s airlines. So small is the value of those brands in the eyes of their customers.

Unless, of course, the airlines unlock the power of positive creative thought, and apply it to creating long-term value.

For us.

And thus, for them.

Is Steve Jobs A Fool?

First, may I wish you all a Happy New Year. My goal is to make more change happen.

There is a story told by former Apple employees of Steve Jobs' instinct for self indulgence.

At 1 Infinite Loop - Apple’s Headquarters in Cupertino - there is a staff parking lot which is notable for two reasons. Its size. And the absence of pre-assigned parking spaces. The strategy being to encourage early arrivals by the simple expediency of offering a shorter walk to the office. 

Steve Jobs is not an early arriver by all accounts. But apparently overcame the penalties for this trait by parking in the spaces reserved for the handicapped. And when in a particular hurry, would park so as to occupy two of them.

This personal inelegance was finally confronted by one of his employees who posted a note on his windshield with a simple suggestion. 

‘Park Different.’

News yesterday that Steve Jobs has to take another medical leave of absence once again raises the issue of his ability to see himself contextually within the company he has built since his return in 1997. And whether Apple is anything like as well designed as the products which have made it such a vibrant business.

To date, the indications are that it is not.

I have long believed that on the day a new product is launched, Steve Jobs (with the money I’ve spent on Apple products I’m sure I’m entitled to a first name based relationship) has a clear vision of the tenth version of that device. What we are sold, is essentially a stripped down version of what Steve already has in his head for the distant future. Which makes both design and construction relatively more impactful, since the company focuses on solving macro level problems, not small iterative ones. 

Thinking on that level is extraordinarily rare since it requires combining the aspirational with the practical. A relationship that most business leaders fail to consummate. Either because they live too romantically or too functionally, and surround themselves with mirrors. Not lenses.

But while each successive Apple product introduction provides us with capabilities that are simultaneously inevitable and awe-inspiring, the management structure of the company has been infused with a particular brand of arrogance. Indestructibility.  As though days like today were not part of a future Steve has been willing to foresee.

The impact of which is that both rumors and realities of Steve’s health have a direct impact on consumer confidence and company valuation. In early trading yesterday on the New Zealand stock exchange - the only one open when news of this latest leave of absence was announced - Apple shares fell 7% in value on the news.

Because when what you’re selling is so clearly presented as one man’s vision, the risk of the man being removed is tantamount to removing the company’s entire operating strategy.

This makes Steve Jobs the equal of most owners of creative businesses who build the company around themselves. An approach which guarantees that the day they are done, so too is the company. A waste of most of that which they and those that work for them have invested.

But, Steve Jobs is a man capable of seeing the future. In ways that would make Nostradamus resentful.

That he is unwilling to incorporate his human limitations into his company’s organizational structure jeopardizes the future of his business.

That his departure, whenever it comes, will take with it the unrealized potential of possibilities the rest of us can only dream of, makes him selfish.

That he knows all this and does nothing to remedy the situation, makes him tragically human.

The Art of Change: Step 2 - Self Awareness

Creative companies are floundering on a commodity based pricing model. One that pays for process not outcome. 

Which is ironic, because a lot of people tell me that it is the process that is broken. That creativity is most powerful in an environment free of restrictions and rules.

Which means that many creative companies live within a model that pays them for a process which they believe hurts the creativity that they are hired to produce.

Which is like being a doctor who believes he is giving poison to his patients. But takes their money anyway.

The good news is it’s not true.

Creativity is borne from restrictions. Of media. Or space. Or time. Those challenges being the fuel on which inspiration depends. 

And applying rules to the process ensures not the process but the outcome. The power of creativity being time and context sensitive.

Small solace to those committed to fighting only their most immediate problems. Shrinking margins, increased competition, a lack of respect. All of which are the by-product of a broader issue. 

Why do companies really pay for creativity?

The marketing industry - and its dependent, advertising - has one purpose. 

To create a relationship between a business and its customer. 

If what you’re doing is not doing that, why are you doing it?

And if you are doing it, why are you not being paid for doing it?

Because there isn’t a business in the world - that you want as a client - who would place more emphasis on your hourly cost than on your ability to help them create relationships with customers.

The cost benefit of which moves beyond the office of procurement, and into the office of the chief executive. A position that has never been filled for very long by anyone whose strategy is to save their way to success.

That you can create those relationships cost effectively is a requirement - the customer who comes at a marketing price tag of a million dollars per, being neither reliable nor scalable.

That your value will far exceed your current pricing methodology if you do so is a given.

Step 2 in The Guide To Valuable Creative Business is, therefore, as simple as this.

Be aware this weekend of how much is being spent by businesses trying to create a  relationship with you. 

And how little of it is impacting you. 

West Point

We're on the train into the city today. A stunning ride along the magnificence of the Hudson.

As I write this we're passing West Point, a powerful monument to strategic positioning and strong foundations. I'm struck by its permanence.

And after being home sick for a week, by our fragility.

I emerged back into the real world this morning, grateful for the power of antibiotics, but regretting last week's decision to rub my eye in an airport terminal filled with germs. It seemed unimportant at the time. Six days later, it's now clear it was not.

The power of technology has allowed me to remain productive. Virtual meetings, online presentations and free conference call services maintaining both our methods and our margins. Important foundations on which to build a better business.

The diversity of companies with which we work continues to expand. One week, a solo entrepreneur. The next, a global holding company. The scale and complexities change, of course. But the fundamentals remain inexorably the same.

What are we trying to achieve?

Why are our customers our customers?

Who will be our next generation of customers?

Every other question becomes a subset of these three.

Profitability: Do you want to maximize operating margin or build scale? Are we a parity product competing on price, or have we found a way to articulate our value in unique ways?

Expansion: Are we taking full advantage of the talent and capabilities we've already built? Do we add offices, services, both or neither?

Marketing: Are we built to talk or built to listen? Are we consistent? Are we surprising?

Talent: Will the people we have today solve the problems our clients will have tomorrow? Do our systems and workflow help them do better work, and help us identify the great ones faster?

It requires discipline to ask these questions. And honesty to answer them clearly.

And you may have temporary success without them.

But if the effort you put into your business is not matched by the quality of the foundations you are building, one of two things are certain.

The cost to repair them will be memorable.

Or fifty years from now, passers by - whether physical or virtual - will be looking at something other than the business you so painstakingly built.

iWant

Most business owners spend a lot of time figuring out how to give their customers more of what they want.

At various points in the business cycle they add better and cheaper to the analysis. An approach that creates productivity and efficiency. But little originality.

It is a strategy that also systematically undermines the value of those businesses. By turning the unique into the common and individuality into commodity.

My brother-in-law showed me a quote last week that described Steve Jobs’ approach to building his business.

“First he creates black holes. Then he fills them with stars.”

If we seek to only do better that which has been done before, we will eventually optimize ourself out of business.

But if we focus instead on what makes us magical to our customers, we will be irreplaceable.

Going Horizontal

Adding new offices to an existing business is almost inevitable if you’ve been around long enough.

In part this is a practical result of looking for new ways to expand once local markets have been maximized.

In part it’s anthropological. A nod to the explorer that exists within every entrepreneur.

Adding new offices is rarely done well. And often in such a way that the potential benefits are reduced by more than fifty percent and the costs increased by a third. A quantifiable piece of analysis based on comparative studies.

Most businesses succumb to these results because they fail to identify the characteristics that made them successful locally.

1. They understood what they were selling


2. They understood why that was valuable to the local market


3. They were trusted by local customers


4. They learned from their mistakes and applied the knowledge to make themselves better


5. Their systems were designed to support their business and improve their customers’ experience


6. The employees believed in the owners’ vision and were motivated to help the entire business grow


7. Employees were rewarded for creating value


8. Investment decisions were made that benefitted the whole company

When you add a second or third location, each of these characteristics is immediately put under threat. And many are eliminated entirely.

They need not be. But getting geographic expansion right requires the following:

• A clear strategy


• The ability to identify your company’s core DNA and to find someone who can plant it and nurture it in new locations


•  The elimination of the ‘not invented here’ pathology that most human beings instinctively bring to the table


• Systems and practices that don’t just connect each location, but inter-twine them


• A financial management and compensation philosophy that aligns everyone's interests


• A willingness to defend the whole while supporting the parts

These are not easy to come by. But they are critical to any successful expansion.

And to making sure that ‘going horizontal’ is a growth strategy.

Not an analysis of your P&L.

Philosophical Friday: Better For The Sake of Better

What was the last thing you did to create a better experience for your customers that wasn’t caused by one of these three things?  

1. Your competition.

2. A belief it would increase revenue.

3. A response to a customer’s complaint.

Sometimes, making it better for the sake of making it better is the right answer all by itself.

Month 13

The first day back to work brings both hope and depression for many business owners.

Hope that somehow this year will be better. An unnecessarily limited ambition on which to base this particular new year.

And depression because if you regard January as Month 1, matching last year’s numbers - never mind beating them - looks a long way away.

A mindset which focuses too narrowly on consequences, not actions.

Businesses don’t create sales. They create customers.

And the best ones do it as part of a long-term approach that builds over time.

Which allows them to use each January as a moment to assess how far they have come.

But also ensures they never see it as Month 1.

Why The 12 Days of Christmas Are Worth Only 9.6.

In 1993, the Wharton School economist Joel Waldfogel published an article called ‘The Deadweight Loss of Christmas”.

He contended that when you matched the cost of each gift with how much value the recipient attributed to it, there was a shortfall of $12 billion.

Thus empirically proving the concept that it is better to give than receive. About 20 percent better in economic terms.

Which strikes me as a lesson for any business.

Knowing what you can sell your customers and knowing what they would like to buy are two different value propositions.

And when your customers finally figure out that they are more valuable to you than you are to them, they won’t be thinking about how to ‘re-gift’ you.

They’ll be thinking about how to return you.

Unopened.

The Purpose of a Company

Defining the purpose of a company is the hardest and most necessary step to building a Better Business.

Peter Drucker, probably the most acclaimed management consultant in history, believed the core purpose of any company is, ‘to create a customer.’

I mis-understood this the first time I read it and replaced ‘create’ with ‘get’.

Which is a bit like replacing ‘sell’ with ‘buy’ in your view of the world. A mistake which many companies are making at the moment.

Getting a customer is child’s play. And usually a one-way transaction. They win. You lose.

Creating a customer means selling something of value.

To them. And to you.

Life Lessons

My father reads my blog.

Which represents a sea change in our relationship.

Because until April 28th, we had spoken only once this Millennium.

We parted ways on Christmas Eve, 1999. For most of the nine years we were estranged I thought of him as dead. Not wishing he were. Simply an emotional reality that arrived naturally. A matter-of-fact state of grace for a painful relationship.

My father was an ad giant. A cerebral thinker who defined global advertising. Among his vast portfolio are two of the world’s iconic pieces of global brand building.

When Sergio Zyman plotted the introduction of New Coke, my father told him that wasn’t his call. “You don’t own Coke,” he said. “The American people own Coke. They won’t let you change it.” Two months and several hundred million dollars later, the American consumer proved his point.

Assuming you know better than your customers is a lesson learned expensively. And often only once.

The trouble was that all my father's big picture, macro-marketing, advertising-for-the-ages achievements came with a large price tag. Paid by his family. It’s an old song. My mother, sister and I weren’t the first to be sacrificed at the alter of ambition. And we won’t be the last. But over time, everyone gets a bill.

What someone is prepared to sacrifice in order to succeed is the most personal of equations. And those for whom the choices made at the prime of their career came with a side of guilt, never find a payment plan that gets the balance to zero. A realization that always comes too late.

Because the consequence of any decision is hard to see in real time. And the urgency of today usually overwhelms the warnings of tomorrow.

But conscious decisions made within context stand the test of history. And come with fewer regrets. If any. Because though we can’t know the outcome, we can be satisfied with how consciously we made a choice. A difference my father would accept today. A late maturity in which he is not alone.

At eight years old, I knew my father was in trouble. He left for a month - his first significant absence - and we held each other and sobbed as the cab waited outside. It was the last time for forty years that he was present emotionally. His physical disappearance took a little longer.

Over the next ten years, the absurd become normal. We were used to him traveling all the time. We were used to him missing, well, everything. And when, in 1978, he made it home only for the day after Christmas - only meaning one, out of 365 - we accepted that as normal too.

Life is informed by perspective. And we often see what we want to see. A fact that makes life simpler in the short run, business riskier in the long run, and the end result anything other than that which we hope for.

As 1979 broke on the horizon, my father and my future lay elsewhere. And my past was about to seem a very long way away. 
 

Money Can't Buy You Love

Chris and I were in Bloomingdale's in Manhattan last week. It was the first time either of us had stepped inside in two decades.

It's possible we'll go again. If we live to be 100.

Bloomingdale's used to be IT. When I last lived here in the early 80s it was a destination filled with atmosphere, attitide, aspiration and Big Brown Bags.

Today all that's left is the attitude.

Bloomingdale's owns Macy's. Who own Thanksgiving. And large parts of Christmas. Well, one street's worth.

Macy's is spending several millions of dollars refurbishing Bloomie's. Construction is everywhere. Which gives the impression for a few minutes that something is happening.

It is.

Money is being wasted. Display case fulls at a time. Because regardless of what they stock, Bloomingdale's staff is singularly uninterested in selling it.

In a twenty minute excursion we asked for help from five different people. To say we were an inconvenience would be to suggest that root canal during love making is a distraction. And the person who smiled at us most warmly? The man who held the door open as we left. As he pulled it closed we turned, half expecting to see the staff offer us a collective grimace before returning to the pursuits we had clearly interrupted.

Building a better business means making sure what and where you're selling comes after who you're selling to.

Because once they've walked out the door, all the fresh paint in the world won't bring them back.

Thinking on The Run

The return of the NFL to a couch near you shines a spotlight on an attribute that separates great athletes from also rans.

Thinking clearly under pressure.

Building a better business asks the same of you. The ability to isolate the important from the irrelevant no matter how loudly the latter is yelling.

Doing so demands you get and keep perspective. Which requires answering two questions.

1. What does your business do that your customers can’t do without?

2. Will what I’m doing today help us do it better?

If you’re not certain you know the answer to 1, the answer to 2 is just a guess.

A strategy that will quickly make the answer to either question irrelevant.

People. People Who Need People.

We have an apartment in Manhattan. Great location. Great views. But the best part. The doormen.

We had a chance to move a few months ago. Better location. Same amenities. A bit cheaper.

I stayed because Jose, Chris, Nelson, Dufresne and Euder make me feel I’m coming home every time I walk in.

Doing so is a simple formula. They remember my name. They remember Chris’s name. And they seem genuinely pleased to see me. Every time.

That cost the building something. Hiring people with the right personality. Training them. Managing them. Giving them technology that identifies residents easily. Staffing properly so that they have the time to be welcoming. Serious thought went into this. Great service is not an accident.

But great service is the difference maker because it appeals to a basic human need to belong.

Even when we know money is the motivator, we choose the places that make us feel we’re part of the fabric over their better but disinterested competitor.

In an era when change is the currency of the moment, change anything that prevents you from being happy to see your customers.

Or they’ll find someone who is.

The Best Business Is In The Eye of the Beholder

I don’t read USA Today.

Its bite-sized editorial style limits the depth of its reporting. There are better ways to get in-depth analysis on the stories they cover. And faster ways to get the box scores. In the real world it suffers from being inconvenient and a limited experience.

Chris, my wife and partner, does.

But only when she flies. And then from cover to cover. Because in that environment it is convenient, and its broad approach to news gathering becomes a vibrant alternative to anything else you might do. And inevitably she teaches me something when she’s finished.

Back in 2006 she taught me about fidelity and convenience. An article in that day’s edition by Kevin Maney introduced the concept to us for the first time. We were fascinated then and I’ve kept it in the back of my head until now.

Kevin’s thesis is that when consuming media, we instinctively evaluate the fidelity of an experience in the context its convenience. Watching a live U2 concert is high fidelity but low convenience. Transistor radios are low fidelity and moderate convenience. The theory goes that iPods took off because they filled a gap. Better fidelity than other portable alternatives. Incredible convenience.

And the same applies to movies. The initial introduction of television in the 1950s decimated movie box office sales. In 1950, three billion movie tickets were sold in the U.S. Ten years later that number had halved. By 1970, it was down to a billion. The movie industry’s response was to use emerging technology to create special effects blockbusters and big-scale productions that television couldn’t provide. You may have seen Star Wars.

By 2003, movie sales were back up to 2 billion a year, - despite the fact that everything on tv was now in colour, there were hundreds of channels and portable sets would fit in your jacket pocket. The TV manufacturers responded by improving home viewing systems so that movie night at home was a higher fidelity experience and then let convenience tilt the equation back in their favour.

The movie industry’s response? 3D iMax. Fidelity. Pre-assigned seating and in-seat waitress service. Convenience.

Anyone in the advertising and creativity on demand business instinctively recognizes the ying and yang of this. Traditional advertising is moderate to low fidelity. But convenient. Excessively so, in that we can get as much of it as we want whenever we want. In that industry the challenge is to improve the quality of the user’s experience while making advertising more convenient to the recipient - on their terms. After all, advertising is most convenient when we’re in the market for that which is being advertised. Or in the mood to be wooed. Good luck to whomever is working on that algorithm.

But I think the fidelity and convenience equation has an even more powerful role to play in designing better businesses. Which is one of the things I care about most.

Think about your business for a second. Do your customers have a high fidelity experience when they work with you? Or do you provide convenience?

Not sure? Or worse, do you think it’s both? Whatever your answer, your customers do not use use you because you are both the best and the most convenient.

In which case, you have a big opportunity.

If you provide a service, I believe it’s important to aspire to be the best. Those standards keep you moving forward. Keep you looking to improve.

But if you sacrifice the opportunity to be more convenient to your customer in the quest of being the best you will ultimately lose. Because someone will come along who is as good, or nearly as good, and more convenient. And that combination wins 9 times out of 10.

The only way you win by being the best is if your pricing premium is high enough to offset the 9 opportunities you are losing. In this economy, that won’t work.

So look at all the ways in which you can become more convenient to your customers. Think about your business from their eyes. What would make their lives easier - the ultimate definition of convenience.

Provide that without lowering your standards. And you might just create that 3D iMax in my living room experience that I’m waiting for.

7,6#5$4@3*2f1 Reasons Why Your Systems Are Critical

Fred Wilson blogged yesterday about his recent problems with American Express.

Last I checked there were 133 comments on his post. Fred is apparently not alone in his experiences with AmEx’s declining customer service standards. Things have fallen a long way since the days of Karl Malden.

The issues at American Express can be attributed to many well discussed macro-economic factors, none of which, as entrepreneurs, we can do much about.

But one particular comment on Fred’s post stood out to me as indicative of a deeper issue at AmEx. It’s an issue that I see most business owners fail to address until the problems are so deep rooted that there’s no viable solution.

Their information management systems.

Most entrepreneurs are in a hurry to put some foundations in place and get into business. If they hire great lawyers and accountants they get great operating agreements and financial reporting. If they don’t, they don’t. The rest they learn as they go.

But when it comes to managing the information around which their company operates, they often focus only on their current business needs. And almost not at all on what they might need five years later. As though thinking about it will jinx it. This happens all the time. Even among people paid to think ahead.

Remember the Millennium bug when the world's computers were supposed to come to a halt because most of their operating code had been written with two digit calendar years? After all, who could envision the world reaching the year 2000 all the way back in the uh, 1950s.

A version of this has affected American Express. In their case the issue is the account number structure they used in the 1970s. I’ve reprinted the comment added to Fred’s post this morning:

“I'd had an AmEx Platinum card for nearly 30 years, never missed a payment. Last year I wanted to arrange for the card account to be paid automatically from a bank account. AmEx said sorry, the auto-payment feature wasn't available for my card, even though the feature was offered on their website. I escalated through SEVEN layers of managers, being stone-walled at every level, until the highest VP finally told me that AmEx cards with older numbers were handled on a different computer system which couldn't be upgraded. My only option was to cancel my Platinum AmEx and open a new account, which would have a new number and be hosted on a newer computer system where auto-payment was available. This was so incredibly incompetent that he convinced me that it must be true.”

The issue, of course, is not that American Express physically can’t transfer the data. It’s that they feel that the cost of translating and transferring it to the new systems is cost prohibitive to them.

Even if we forgive them the limitations of their early account numbering system as a result of unforeseeable technological evolution, they’ve compounded the mistake at least twice more - each time exponentially.

The first, by deciding not to perform a comprehensive system upgrade of all their customers when the new system was implemented. The second, by deciding to then highlight the inadequacy of their original planning by offering their new customers better service than the original card members.

Offering your oldest customers less service than your newest is a quick way to making sure your newest become your oldest really fast.

Ultimately, the random, volatile behavior of their customer service department is more indicative of the lack of trust they have in their own philosophy, their systems and ultimately themselves.

If you want your business to last you have to build it to last. If you design a spectacular house and then run the plumbing through cardboard tubes, eventually the Fed Ex guy is going to find water coming through the front door.

Companies work the same way. The outward face of a company is always a reflection of its inner workings. And no amount of customer service training can hide a badly built business.

So take a look at your information systems and think hard about whether they’re built to support your company’s best case scenario ten years from now.

If they’re not, you’re just planning for failure.

Earn It.

In the late 1980s, Smith Barney ran a series of commercials with the actor John Houseman, star of the television series about a law school - the Paper Chase.

He had a distinctive and very deliberate speaking style (the agency creative director calculated that any 30 second script for John could not exceed 45 words) and he finished each ad by drawing out, even more emphatically, “Smith Barney. We make money the old fashion way. We earn it.”

John Houseman died in 1992, right about the time the financial industry stopped trying to earn customers’ trust, and started buying it instead.

Today, Smith Barney is Citi Smith Barney, and in January they announced the formation of a joint venture with Morgan Stanley to create an industry leading wealth management business.

As an example of a business model in transition - and without purpose except survival - it’s hard to beat. It’s also hard to trust.

By contrast, Fred Wilson - a New York based venture capitalist who focuses on technology driven companies - blogged yesterday about the idea of 'earned media' - media that you don’t buy but earn through customer experience and word of mouth. The concept, initially crafted by Jerry Solomon, has recently become much more potent thanks to the advent of social networking and the evolution of the cell phone and sms which creates viral word of mouth in real time.

The issue is a fascinating one. But I think the foundation is slightly different than the one they postulate. From a business owner’s perspective, the focus is not on whether you earn the media. But on whether you earn the audience.

Do they believe you, trust you, value you? Are you empathetic? Are you understanding?

If the answer is yes - regardless of the medium you choose or can afford to use - you gain their attention. And their loyalty.

The old fashioned way.

Imitation Is The Sincerest Form of Imitation

Change is tough for a lot of people. And when you’ve built an entire company around one way of doing things, it’s hard to find another way - even if suddenly you really want to.

When someone has the insight, the clarity and the courage to invoke fundamental change into an industry or a company it’s amazing how quickly the initial nay-sayers jump on board once the results come rolling in.

I’ve blogged about Hyundai’s innovation of protecting car buyers from losing their jobs by offering a guarantee that they can return any new Hyundai they buy this year.

While the Big Three were pre-occupied by heading to Congress with hands outstretched, Hyundai got about the business of change. And it worked.

Now that the evidence is in, both Ford and Saturn have offered similar approaches. Typically, they are trying to hedge their bets by limiting the amount of the guarantee.

The good news is they’re trying something.

The bad news is that by putting limiters on the program, they also limit their own learning.

In this case it’s particularly short-sighted because they already had a case study to follow. If they achieve less than Hyundai’s results, will that be because (a) consumers wanted a cast-iron guarantee (b) liked Hyundai better (c) wouldn’t buy an American car at any price or (d) none of the above? Answers on a postcard.

If you’re going to try something. Try something. Even if that means you start by following someone else’s success. The process will teach you something about your business you didn’t know.

And that is the definition of growth.