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.

Building A Valuable Creative Business: Step 3 - Change The Conversation

Yesterday was an interesting day for the future of creativity. An extensive article in Fast Company analyzing in some depth the state of the advertising industry. 

By 1pm it had made its way round the business.

By 2pm I’d received emails from three clients asking whether issues raised in the article had been considered in our most recent recommendations. They had. Relieved clients are happy clients.

By 3pm, I’d received a call from a journalist asking for my thoughts on the article. I said I thought there was one fact that stood out.

The average tenure of a CMO is 22 months.

You want to become more valuable to the economic buyer, solve that problem.

The question is how.

If you’re a regular reader here, you’ll know that I’ve been offering a practical, step by step guide to creating change. The guide begins here.

Step 3 in The Guide to Valuable Creative Business is:

Change The Conversation.

You can’t engender fundamental change in your business or your life in an instant. The organism, human or cultural, won’t allow it to happen easily. Or at all.

Instead, identify your smallest client, the loss of whom would not keep you up at night. The purpose of which is not to minimize your potential loss, but to minimize the resistence you have to overcome in order to take this step.

Ask to meet them in their office. Tell them you’re looking for an opportunity to invest in improving a client’s situation. Then ask them these five questions:

1. Why do you buy services from companies like mine?

2. What’s the best outcome of that work?

3. What’s the worst outcome?

4. What are the three biggest problems your company faces every day?

5. If I told you I was willing to invest $25,000 of our services to help you solve one of those problems, with an agreement that if it works we are paid $40,000 and if it doesn’t we are paid nothing, would that be valuable to you?

The value of this process to you is driven not by whether number 5 creates a new opportunity - one that realizes a 38% return incidentally. But by the knowledge you gain from numbers 1-4. And the confidence that comes from realizing that changing the paradigm starts by changing the conversation. And where it happens. 

 “Most significant changes that happen in society will happen from the bottom up, little phenomena that start locally and then multiply exponentially. Once you do that math, the exponential multiplication results in dramatic change.” Vinod Khosla

What you do with the information you gather, we’ll discuss next time.

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. 

The Art of Change: Step 1 - A New Perspective

Change is difficult. A justification that explains the headlong race into business irrelevancy perpetuated by companies clinging to the status quo.

"Difficulty is the excuse history never accepts," said Edward R. Murrow. A man willing to take on the status quo, and create a new reality based on simple truths.

And the truth is simple. And much as we or others try to dress it, pervert it and twist it to our own needs, it is both resilient and reliable. Waiting patiently for us to come home, rewarding us with the joy that we are back, and reminding us again of the pleasure of belonging to something on which we can count.

For those whose life is devoted to selling creativity, our truth is that creativity possesses the power to change attitudes and behaviors. 

The value of which we deny when we charge only for the time it takes us to create. A perspective which also explains why we are unwilling to rock our own status quo.

For if we see change only as a by-product of what we do and not as the benefit of what we do, we focus only on the act of change. Not the outcome. Rewarding ourselves not for moving closer to our goals, but for simply surviving another day. A business plan that ends inevitably and ironically in change. Uncontrollable. Unavoidable. Unbearable.

But change is not a by-product or an after-thought.

Change is the result of the work we do.

And the better we do it, the more change we produce.

A perspective that we need to harness if we are to define our futures on our own terms.

Which brings us to Step 1 in:

The Guide To Valuable Creative Business.

I. Defining Change.

Email yourself the answers to these questions:

1. If I bought our largest client, what would my three biggest problems be?

2. Would I hire us to solve any of them?

3. What change would I expect to be caused by hiring us?

“A journey of a thousand miles starts with a single step,” Confucius said.

On Thursday, we’ll take step 2.

Changing The Focus

I attended the AICP conference in New York on Tuesday. It wasn’t perfect. But it was a start. And it could become much more than that. I hope so. Industries facing the kind of seismic shifts going on in the world of advertising and marketing need provocation, illustration and guidance. In that order.

One of the themes at the conference was fear. The unwillingness of so many companies to act differently even when living a reality they can’t afford, and hoping that if they can survive, somehow that will equal success.

In the current production company model, $30-50 million in gross revenue generating a 5-8% operating margin is pretty common. 

For agencies, 20% margins are the benchmark. Two thirds of which goes to the holding companies. Some do better. Some worse. 

In both cases the business model is based on selling time.

Shoot days or people. The sell is dressed up in different ways. Director’s reel. Client case study. But the income stream is built on the same premise. 

How long it takes to make the work is more important than the impact it has.

An approach which would radically change our view of value if applied to the rest of the world.

Suddenly a painting that took a year to create, is 52 times more valuable than a Picasso that took a week.

And we would price music based on its length.

Which would instantly make, ‘The Chosen Priest and Apostle of Infinite Space’ the most expensive piece of music in history. If you want to listen to it, start today and you’ll be finished just in time for New Year. It’s two months long. And on the basis that a 3 and a half minute song on iTunes is $1.29, The Chosen Priest will cost you a little under $32,000. 

Price books the same way? Dickens wrote a story a week. Devalue him because of the ease with which he wrote.

And put aside creativity. Would you pay more for a longer or shorter flight to the same place? A longer or shorter dental appointment to cure the same toothache? 

The truth is, time is money. But not in the way that creative companies use it. 

For it is our time that we should value most. The one thing in our lives we can not control. None of us having the capacity to forecast our own death. Or, therefore, to place a ‘unit price’ on the value of a day. The language of procurement and cost consultants.

I believe the madness of creative companies has to stop.I believe that creative companies have to start selling their capacity to cause profound change in people’s attitudes and behaviors based on the value of that change.

I believe creative companies have to define the future on new terms. 

Otherwise, as James Akers, the Senior Director for Worldwide Procurement at Pfizer promised on Tuesday, “we will.”

A call to action for an entire industry.

Next week I’m going to start examining in practical terms how that change can actually take place. And how your company can start to take action that will create a different business model, one step at a time.

The Value of Talent

Sports team are creative companies.

At their best, collections of world-class talent expressing themselves within a strategically designed and sensitively managed system.

At their worst, indulgent, inconsistent and reactive rabbles.

As a case study in long-term excellence, the English football team Manchester United takes some beating. Analytically as well as physically. A painful confession for a lifelong Chelsea FC supporter.

Last week, however, saw the removal of a cornerstone of Manchester United’s business success.

The belief that no one individual is bigger than the whole.

A critical foundation for any valuable creative service business.

Manchester United is a business with a history of having employed some of the greatest talents in its industry. George Best. Eric Cantona. David Beckham. Roy Keane. To name but four.

In each case, their individuality was the fuel of their genius. An explosive combustion the club measured and managed, and always framed within that cornerstone ethos.

And in each case, once the balance tilted, once complacency started to rival contribution, the club severed their ties quickly and decisively. Always before anyone else had recognized the threat.

Last Thursday, Manchester United threw those standards away. Deciding that a 24 year old forward by the name of Wayne Rooney, who has showed periods of greatness during his six years at the club, should be treated differently.

This comes in the wake of Rooney: dramatically underperforming during England’s World Cup this summer; being photographed publicly urinating on a golf course during a round with his English team mates; being photographed publicly urinating in the street outside a Manchester nightclub; alleged to have been repeatedly unfaithful with a prostitute while his wife was pregnant; publicly arguing with his manager - Sir Alex Ferguson - about whether he was injured; scoring one goal since March, and last week announcing his intention to leave Manchester United because of both their “lack of ambition” and his concern at the club’s inability to attract the world’s best players. A damning indictment of previously loyal, and world-class teammates.

Manchester United’s response to this series of self indulgences in the midst of growing pressure from their fans and the press?

To sign him to a new five year contract at more than double his previous compensation.

Thereby throwing away, overnight, one of the foundations on which more than fifty years of success has been built.

As a piece of adaptive preference, I understand why Manchester United would convince themselves this was the right decision. The need for talent being the most common rationale for bad decision making in any talent driven business.

As a Chelsea supporter, I am thrilled they did

Long term success takes a long term to create. But only a moment of self deception to undo.

Define your principles. Then resist, resist, resist the temptation to throw them away when the pressure is on. They will see you through.

Welcome to: Art, Meet Commerce

Since I began this blog I’ve written about issues that affect the leaders of businesses. Both practical and personal.

In my mind, I’ve been vague about the kind of business the blog was designed to help. After really thinking about it, I’ve decided I’m ready to be more focused.

So, I’m going to write about ideas that will help creative companies become more valuable businesses.

And I’m calling it Art, Meet Commerce.

Because after all, that’s the balancing act we all confront when we sell subjectivity.

What makes a business valuable depends on your perspective. It’s the most personal of definitions. And I hope to explore as many of them as I can. And any you suggest.

I’m also conscious that many of these ideas will apply to many kinds of businesses. After all, creativity is the fuel of innovation. And every business must innovate. Or die. There being no company that has survived by maintaining the status quo. 

But instead of trying to reach the broadest audience, I’m going to provide a narrower audience with deeper insight.

An audience that uses the power of creativity to change behavior. Who are motivated to be paid relevantly for that change. And who want to leave a legacy. 

In some cases I’ll write a series about a topic that requires more detail. In others I’ll pull examples from the news and talk about how they apply to creative companies.

You can expect to see a couple of posts a week from me. A realistic output that I can sustain. Probably Tuesdays and Thursdays. With the occasional spontaneous outburst thrown in.

What you’ll read will be unbiased and unvarnished. I’m trying to help. Not please. 

And I welcome dissenting opinions, alternative points of view, and honest, open debate.

Speaking of which, I’ve been watching a lot of Mad Men recently. 

In the infancy of Sterling Cooper Draper Pryce, following Don Draper’s laconic interview with Ad Age, and its ensuing disastrous results, Betram Cooper admonishes Don’s diffidence.

“Turning creative success into business is your work. You failed.”

Is this, in a nutshell, the Purpose of every creative business? And what is a creative business, anyway?

Answers to these, and many other questions will be forthcoming.

Stay tuned. 

And pass it on.

Thanks.

A Week’s Worth of Mistakes: # 3 - The Temptation of Price

I watch buyers of services haggle over prices almost every day. A fanatical fixation on fiscal fine tuning.  

The result of which is the buyer saves some money. The seller feels worth less. And the process is constantly measured by both to ensure the output is worth the price.

An exercise in defining the bare minimum.

In any negotiation, price is only one reference point. The other is value.

A focus that motivates both parties to work on creating more.

It is the difference between negotiating a price. And negotiating a deal.

A difference that recognizes that profit is only minimally affected by how well you save your money.

But massively affected by how well you use it.

Selling Nothing

I wrote a blog for Boards Magazine last week. Typically I keep my writing for them separate from this blog. However, Dennis Ryan wrote a post yesterday that picked up one of the thoughts from a slightly different perspective, and made me think it would be valuable to link them together.

The underlying theme to both pieces is that how we value something depends on many things.

One of which is not whether it actually exsts.

A thought to ponder as you think about how to improve your business.

Dennis' post is here.

My post from Boards is here.

Or here.

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Make a product. Provide a service. Exchange them for money.

The foundations of commerce.

Except on the web. Where new definitions of value are throwing traditional models under the bus.

In 2009, Lady Gaga sold more digital music than any other artist. 15.3 million tracks. She also gave away hundreds of millions more. On MySpace alone her songs were played 321.5 million times. All for free.

Today, many see her business model as a blueprint for the future. Give away the music and sell concert tickets, merchandise and anything else that the artist’s brand associates with. In Lady Gaga’s case this includes Polaroid and Estee Lauder. The high rent district indeed.

The magazine and newspaper industries, by comparison, look like scruffy kids playing stick ball in a derelict neighborhood. If you’re wondering what print real estate is worth these days pick up a copy of Time and feel for yourself. A business illness created by the willingness of those industries to jump in to the digital revolution before they understood what it meant to them. And proof that innovation is a kissing cousin to professional suicide if you don’t understand what makes your business valuable to your customers.

After all, what any of us are willing to pay for something is defined by two criteria. Its price. And our perception of its value.

When the price is zero, are we really going to argue the seller is wrong? That they have underestimated the value of what they are selling. More likely is that we will come to believe that our perception of its value was misinformed. That in the future we should expect more for less. Else we be taken for fools.

Value is a delicate balance. One that readers of Boards are involved with articulating every day. Choose this versus that because...? Take your pick. It works better, looks better, feels better, defines you better, is priced better.

Indeed, every piece of marketing ever created has been an articulation of value. A statement I invite you to challenge.

The problem comes when we ourselves undermine our own value proposition by letting others define what our stuff is worth. As 41 production companies who signed the P&G Preferred Vendors agreement recently discovered when P&G then hired someone else to shoot their Winter Olympics opening Anthem spot.

Or by giving away our stuff for free without a plan to make money on the back end. A problem that some in the print industries are now trying to correct.

Subscribers to The Wall Street Journal are mostly unwilling to pay for the newspaper’s web-based version. Since a lot of it has always been free, they don’t see why they should now pay for the rest.

By contrast, few have an issue paying an additional fee for the smartphone version of the Journal.

Because they were never told they could have it for free.

The perversity of this is that we expect that the medium in which the Wall Street Journal works best - desktops and laptops, complete with screen sizes and bandwidth that optimize the experience - should cost nothing.

But reduce the type to 4pt helvetica, and the download speed to the vagaries of AT&T and Verizon’s wireless networks, and we’re only too willing to add $4.99 a month to our bill.

A definition of value based entirely on perception.

Indeed value is so much about perception that if we limit our own company’s pricing structure to simply cost plus profit, we define ourselves as a commodity based business long before our customers see us that way.

Enduring business models are based instead on the understanding that people make buying decisions that are subjective. That is, as consumers we are motivated as much by how a purchase makes us feel as by an analysis of how efficiently it fills a need.

Which explains why in 2009, in the midst of economic catastrophe, U.S. consumers spent more than $1 billion on virtual goods and services.

Virtual, as in they don’t exist. Except in online worlds. Like FooPets, where you pay to adopt and care for a virtual pet. http://www.foopets.com/

FooPets has four million members. And is adding 20,000 new members a day.

Which is great news for Purina.

After all, they sell bags of virtual Purina Puppy Chow for $3.

That’s three real dollars. For digital dog food. Eaten by digital dogs.

So the next time you wonder why your customers want to pay you less, consider this.

Is it their perception of the value of what you’re selling that’s the problem.

Or yours?

Pragmatic Visionaries

I was in a meeting yesterday morning and the subject of embracing the new while protecting the old came up.

It’s a delicate balance for any business owner to strike. One that compares the potential of what might be against the cost of change.

Companies that navigate this transition successfully are led by Pragmatic Visionaries.

They are defined by two characteristics.

Their confidence in the value they provide their customers.

Their clarity of the business they want to build.

Lovin’ It

45% of Americans are satisfied with their jobs.

Which means if you are, the next person you encounter today probably isn’t. A sobering thought if you’re responsible for managing your company.

All of which entirely ignores whether satisfied is a measurement we should be striving for in the first place.

Passionate seems like a better threshold. The kind that comes when we believe what we’re doing is contributing to something significant.

Great companies are evangelical. They are clear about what they’re building, passionate and consistent in how they articulate that vision, and realistic about which people can help them get there. And which ones can’t.

A distinction that separates supporting employees from enabling.

Building an evangelical company requires finding the story that separates you from everyone else.

A skill missed by even the great brands.

Take McDonald’s.

McDonald’s is a remarkable business. They serve 58 million people a day. Which is tantamount to feeding all of Great Britain. Every 24 hours. It makes one wonder what they might be able to do managing health care.

I have spent a lot of time at McDonald’s - the corporation - at various stages in my career. It is a company that elicits pride and passion among its executives.

But it is a company that has also systematically focused on the wrong story.

The food. An area which they have done much to address over the last few years. But which still remains a bigger obstacle than it does a benefit.

People don’t go to McDonald’s for the food. They go because they know what they will get.

Value.

And a great experience for their kids. Which is why McDonald’s distributes more toys than anyone except Mattel.

Those two attributes are global truths. And helps to explain why, as Thomas Friedman points out in his excellent book The Lexus and the Olive Tree no two countries that have a McDonald’s have ever gone to war.

I don’t think either of us would theorize that the solution to world peace is simply to build McDonald’s.

But what is undeniable is that McDonald’s brings people together.

And that’s as evangelical as it gets.

Philosphical Friday: Perspective

Sitting on board an American Airlines plane to New York, I write this courtsey of wireless internet.

Interesting that a technology which so threatened our safety two years ago that we had to "turn off portable elecronic devices" within a three mile zone of our flights, is now less of a concern when the airline can charge $12.95.

A matter of perspective, I suspect.

The Starving Artist Strategy

I attended an advertising industry event in Hollywood last night. An incongruous juxtaposition for a business a long way away from the glamorous days of Mad Men.

We frequently work with companies that sell creativity. Their success depends on balancing art and commerce. A recipe that requires sensitive scales. Too much of the first. You’re brilliant but broke. Too much of the second. You’re irrelevant. Or unsatisfied. Or both.

Creative companies that have been around for any length of time are rarely run by the artists. If they’re talented, they don’t have time. And the insecurity that often drives great creativity is a bad foundation from which to negotiate fair payment.

Insecurity makes most of us act in a way that works against our self interest. And does much to undermine the inherent value of whatever we produce. A confident salesman sells more than the nervous one. Even if the merchandise is inferior. And though great work can speak for itself, it does better in the spotlight offered by the assured than in the shadows of self doubt.

When what you sell is subjective, the value is defined not only by the market but by how  well you frame the market’s perception. Exclusivity and aspiration are perceptions first and last.

I have watched, for some time, the systematic commoditization of many creative services. The failure of those industries to first value what they do, and then to present that value cogently and powerfully to their respective markets results always in the same conditions. Reduced prices. Lower margins. And the perceptions of product parity.

When individual companies then accept - or worse, establish - short-term business practices aimed only at bolstering revenue and profitability, they add their own high pressured hoses to the erosion.

Shooting themselves would be faster and less painful. But the net result is the same. And accompanied always by the complaints of company owners that the conditions in which they work are unfair.

As a business strategy, playing the victim creates neither sympathy nor success. And ignores the responsibility inherent in every industry that sells subjectivity.

The need first to take responsibility for how your customers perceive your value.

Which means establishing business practices that inherently command respect.

That requires confidence. A trait in short supply at the moment. But one that returns quickly with small victories.

The alternative is to sell cheap, pray hard and prepare for poverty.

It’s a strategy known as The Starving Artist.

Practiced by people who want everyone else to value their work more than they do.

Don’t Confuse Busy for Successful

There are lots of things you could be doing rather than reading this. And lots of things I could be doing rather than writing it. We’re busy people.

Somewhere along the way we both decided this was worth our time. That it was valuable.

I’ve probably analyzed that decision more than you have. After all, I have more at stake. Time and reputation namely.

And every day is a chance for us both to re-evaluate. Which raises the bar for me and the return on investment for you. Because if I don’t keep trying to make this informative and insightful, you won’t be back.

The short term contract this blog represents is a good thing. Because it highlights the discretionary nature of most of what we do in business.

Because when we start to see everything we do as essential, we fill our days with activity and work harder at being better at doing more.

A strategy which undeniably makes us busy.

And distracts us from where we should be focused.

Just being better. 

5 Benefits To Negotiating Flat Fees

The days of hourly legal fees are behind us.

This is not news to our clients. Nor to the lawyers and accountants we work with on their behalf, who have long understood our belief that flat fees create a win-win scenario.

In fact, we have been hiring lawyers and accountants on a flat fee basis for almost a decade.

Through experience we have learned there are 5 benefits to doing so:

1. Both sides have to take responsibility for defining the scope of work before the agreement is struck

2. The service provider is motivated to get the work done as efficiently as possible.

3. The service provider is motivated to do the work as well as possible so that the can get hired and recommended again

4. The buyer is motivated to support the process they agreed to so they don’t get hit with change of scope fees

5. Both parties learn from the process. About their own methods and each other. This leads either to a better process next time. Or a quick end to a the relationship.

Either side can undermine this structure.

But there is a cost to doing so in the loss of future opportunity to work together.

If that’s not a cost to you, you’re doing business with the wrong people.

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.

Why The Web is A Bad Business Model

The internet is the greatest missed opportunity in the history of business.

Doubt that? Compare how much you have received from the internet to how much you have paid.

You’ve paid the people who laid the wire. The people that made the modems. The people who make the processors, the keyboards and the screens and the smart phones. And the people who sell you things through it.

But have you ever paid for it? And would you now?

At a breakfast meeting in LA last week, a group of highly influential media and communications industry executives were asked how many read the Wall Street Journal. Everyone raised their hand. Then put them down when asked if they would pay for an online subscription.

We all regard the internet as free.

Not because anyone decided to make it so. But because no one decided not to.

An event that went unnoticed at the time. Because no one was looking.

Today, YouTube streams 1.2 billion pieces of video. Per day. Which means every person on the internet, on average is watching one YouTube video per day.

A recent analysis suggests YouTube’s financial performance is improving and it may only lose $170 million this year. 

Although Credit Suisse back in April forecast a $470 million loss this year.

Either way, imagine creating something that is being used 1.2 billion times a day worldwide and worrying how much money you’re losing. If they charged a nickel, they’d be pulling in $60 million a day.

A lot of people are spending a lot of time trying to figure out how to monetize the web. And eventually, undoubtedly they will. Mobile apps are part of the solution.

But as you build your own business, the history of the internet offers an important lesson.

What happens today affects tomorrow. Often more than we want.

Changing that around means being conscious that today has two agendas. The present and the future.

Ignore the latter if you wish. You’ll see it again soon enough. Only this time, it will be calling the shots.

Your Business is Unique. Your Problems Are Not.

A little while ago, I put up on our website a list of the nine biggest mistakes we see entrepreneurs make. You'll find it here.

I re-read it again this weekend to see if the list needs updating. Instead, I was struck by how consistently we come across these issues, even in the most diverse businesses.

In the past month, we have started to see another.

Companies that believe the economy has turned around and that their problems are subsiding. That is now number ten.

We see ourselves as business optimists. We look for what can be done. Not what can't.

But we're also pragmatists. Who don't often accept the first answer as the whole story. And the story on this recession is a long way from being over.

House sales are up but prices are way down. The single largest deflationary influence in the American consumer's portfolio. Earning are up, but based on one-time savings in the form of lay-offs. Of consumers who can't contribute to the recovery until they get a job. And unemployment is forecast to rise through the first quarter. At least. Which doesn't address catastrophic vacancy rates in commercial real estate which don't have thirty year mortgages to act as safety nets. Many in fact come due in the next year, with the majority of borrowers upside-down on an asset-value to debt ratio.

If your business has still to define its essential value to its customers, and you're still acting reactively to surrounding events, you are guaranteeing only that you will continue to be a victim of other people's mistakes.

Not all companies have suffered in this economy. Hyundai and Apple, for instance, are having record breaking years. At a time when a new car and a new computer would seem low on anyone's list of priorities, understanding why they are thriving is valuable information.

The answer is simple. Value.

What's yours?

How do you release it?

And what are you going to do with it?

Business Unusual: Boards Summit '09

Earlier today Chris and I hosted a session at the Boards Summit called Business Unusual. It was an exploration of how companies can and must fulfil their long term potential if they are to meet the seismic changes facing creative businesses today.

I opened the presentation with a recap of the issues as we see them, then turned it over to Chris who hosted a compelling conversation with the owners of three companies: Furlined, Epoch and Motion Theory.

The text of my talk is here, together with the extraordinary images from Rodney Smith's work that I used to bring the narrative to life.

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Good morning.  Welcome to Business Unusual.

To start, can I ask how many of you have a definition of what business AS usual means today?

Or are comfortable predicting what the rules will be a year from now.  Or five years from now?

The reason that no-one raised their hand is that the advertising food chain is dead. The model on which this industry has depended for fifty years, advertiser - agency - production company - post production and music doesn’t exist any more.

Today, everyone in this room faces a future that is entirely unknown.

One of the themes of the last two days has been the advertising industry’s adaptation to the digital age. Bob Greenberg’s talk this morning describes how the production model needs to adapt to the demands of digital technology.

Clearly, he’s right. He’s also one of the best, and only examples so far, of a company that started as one thing in the advertising supply chain evolving into something quite different. In the ten years since he led the way, you could argue no one has followed him.

But, in my view, talking about digital at all misses the point. It’s not the demands of digital that this industry is responding to.

It’s the demands of the consumer.

Which starts with the inability of traditional agencies to connect clients to audiences with the insight and impact they used to. Which in turn is creating all kinds of opportunities for other companies to step into that void.

Today, some of it is being filled by companies who are mastering the fact that connections to consumers are evolving weekly.

But even companies like Mekanism and Motion Theory and the Barbarian Group are faced with the reality that for all their fluidity and media ambivalence, where we will be as a society a year from now will require a completely new perspective.

Because the differences we’re participating in require a much bigger leap than even the introduction of television demanded.

The first television commercial was broadcast in 1941. To 6,000 homes in the New York metropolitan area. If the media planner had added Chicago to the buy, they would have reached another 50 television sets.

It took television 13 years to reach 50 million people.

It took facebook 9 months to add 100 million users. The same time it took Apple to download a billion iPhone apps.

The world is changing in real time. And when, almost certainly next summer, we are introduced to devices that finally merge entertainment and information into one by combining the best of our laptops and our televisions, it will all change again.

And yet, while the way society communicate undergoes a revolution, the advertising production community is gingerly exploring evolution.

The introduction of AICP Digital for instance, while clearly a step forward, also highlights how far this industry has to go. After all, today, what’s not digital?

The production community is trapped by its past. And can’t yet see its future. Which is no surprise. Give that we’re living through an epoch. A period of history that will be measured by what came before and what comes after.

Which makes the production community its own greatest obstacle.

Creative companies are usually started by people with a single-minded passion for a craft.

After working for someone else, they realize they’d rather work for themselves. Their talent and determination establishes their success. They focus on the work. Which attracts other like-minded people, the business grows, bringing financial success, more talent, perhaps another office, and for a number of years, 8-15 typically, they run a successful, and largely satisfying business.

Of which they are an integral and usually essential part.

Which isn’t a problem until one of two things happens. 

One, the founders start thinking about what they want to do next, even if that is simply less of what they do now. Which reduces the company’s emotional and talent power supply.

Or two, the industry changes overnight, and redesigning the business model means the founders have to see themselves entirely differently.

Because they are the business.

After working for someone else, they realize they’d rather work for themselves. Their talent and determination establishes their success. They focus on the work. Which attracts other like-minded people, the business grows, bringing financial success, more talent, perhaps another office, and for a number of years, 8-15 typically, they run a successful, and largely satisfying business.

Of which they are an integral and usually essential part.

After all, what’s MJZ without David Zander? Radical without John and Frank? Smuggler without Patrick and Brian?

We see this model all the time. It’s why there are very few creative service companies that are more than twenty years old.

A tiny handful that are thirty.

And only one that we can think of that is forty.

Because creative companies almost never outlive their founders.

Which if you think about it as an industry, is an extraordinary waste of human, emotional, financial and creative capital.

After all, why shouldn’t there be great long-term brands in the creative services arena. Why shouldn’t Smuggler, Epoch, Human, or Framestore be just as relevant thirty years from now? Adapting, innovating, leading the change into the beam-me up Scotty world of 2040.

We believe every company has the potential to outlive its founders.  And that would change everything.

Because when no one can predict what the world will look like even five years from now, those are exactly the kind of companies we need to build.

Companies that are fluid and adaptable.

Companies that see Business Unusual as Business AS Usual.

Companies that in our vernacular Plan The Last Day First.

This would represent a sea change. One that would unlock innovation in torrents. After all, creativity is the fuel of innovation, a natural resource in this industry.

It requires four things.

First. That we see the industry differently. Which the last two days have started to bring into focus. And which Bob’s talk provides one lens on. Though one that I think is still too agency centric.

Second. That we see our companies differently. And specifically, that we see what makes them great. Which is usually not what we think. After all, for 100 years Kodak thought they were a film company. They weren’t. They were an image capture company. A difference they realized too late.

Third. That we see ourselves differently. As innovators. Not passengers. Today, you can sit as high on the creativity food chain as you think you have a right to.

And Fourth. That as founders we learn how to make ourselves irrelevant. A condition most business owners avoid pathologically until it is too late to make a meaningful difference. But which is essential if your business is to outlive you.

Today the advertising food chain is one link long.

The advertiser.

What you do about that depends on how you build your company from here.

Chrysler. A Case Study In Unconscious Capitalism.

Why does the world need Chrysler? Or General Motors?

As business models they are subsidized blackmail. In which the American taxpayers provide the subsidy and the guilt.

Were Chrysler or GM to fail, the loss of jobs and the reverberation through the American economy was deemed to be so devastating that we are told it is worth the price we pay to keep them both around.

In which case, wouldn’t it be better to use all this political, emotional and financial capital to build companies worthy of the investment.

Great companies, big and small, are run consciously.

They know why they are in business. The know what they are trying to achieve. And they work to create value for four groups of stakeholders.

• Customers


• Employees


• Suppliers


• Owners

There is no order of priority to that list. Great companies work equally hard for all four groups. And, unsurprisingly, the businesses who succeed in every area, produce the best financial results.

Both Chrysler and GM are off to a lousy start. As my friend Jerry Solomon wrote today, General Motor's self-serving approach to one group of suppliers is extraordinarily destructive. To any supplier short-sighted enough to accept their terms. And to themselves.

The Obama administrations have revealed their shock at the state of both companies.  And came close to letting them fail. The inside story is here. It's worth reading. Chrysler were ultimately saved by the deal with Fiat. Which came with a heavy price.

Chrysler's new marketing chief, Olivier Francois, is also responsible for: marketing all of Fiat’s brands; leading all of Chrysler Group’s advertising; brand development and strategy development, and is also CEO of Chrysler. He will “execute his duties via a trans-Atlantic routine.”

His reputation as a marketer is that his work should first of all be noticed. And he is stronger on style than strategy.

Hardly a platform for a turn-around.

Perhaps we should collectively ask him to step into our office. Since, in large part he works for us.

Or perhaps we should simply decide that Chrysler and GM are both past saving and build companies that create things the world wants.

Starting with respect.