How Brands Should Evaluate Startups

May 22, 2012 by (author unknown)

Marketers are overwhelmed, but focusing on these criteria will help you see the forest for the trees when evaluating startups and new technologies.

The social side of strategy

May 10, 2012 by (author unknown)

Crowdsourcing your strategy may sound crazy. But a few pioneering companies are starting to do just that, boosting organizational alignment in the process. Should you join them? Read more on the McKinsey Quarterly >

Topics: Organization Strategy

Update your Quarterly feed preferences

What Does "Professional" Look Like Today?

May 9, 2012 by Allison Fine

As the online waters rose, executives at the Susan G. Komen Foundation huddled behind their fortress walls like first-class passengers on the Titanic. The AP broke the story of Komen de-funding Planned Parenthood Federation of America on Monday, January 30th. As the online world took them to task, according to marketing blogger, Kivi Leroux Miller, nearly 24 hours went by before Komen posted anything on its Facebook or Twitter accounts and three days before Nancy Brinker, Komen’s CEO, released a video statement.

Komen’s inaction contrasted with Planned Parenthood, whose facility with social media allowed the organization to respond immediately, on a variety of channels. The difference reflects Brinker’s top-down command and control management style versus Planned Parenthood’s CEO, Cecile Richards, enthusiastic embrace of social media. Richards is an avid Facebook and Twitter user and encourages staffers to do the same using their own voices. As she told me two years ago, “From day one, I said social media was here to stay and I was going to be personally involved in helping us use it.”

According to a Booz & Company/Buddy Media survey released last October of more than 100 large companies, only a third have a senior executive charged with overseeing social media. And just over a third (38%) reported social media as a CEO-level agenda item. There are nearly a billion people on Facebook — just about everyone, that is, except CEOs.

Since 2005, I have spoken to thousands of executives from corporations, government agencies and nonprofit organizations about their discomfort using social media for business purposes. The problem for them isn’t learning which button to push; if that were difficult seniors wouldn’t be the fastest growing segment on Facebook. The real problem is that using social media challenges their basic assumptions of what it means to be “professional.” The definition of professional behavior is an immutable set of behaviors developed early in one’s career.

For most people over forty it means wearing a uniform of some kind, talking in a certain language, carrying a briefcase (or more recently a Blackberry or iPhone), and perhaps, most important, keeping one’s private life private. Gen Y, or Millennials, — late teens to thirty year-olds, — have a vastly different notion of what it means to present oneself to the world wearing their business hat (so to speak.) The huge organizational chasm between Gen Y and Gen X and Boomers, is less a technological problem than a psychological one, and it manifests itself in the use of social media.

Social media’s threat to professional behavior for older generations is often expressed like this:

• We’ll be off message if our organization doesn’t speak with one institutional voice.
• I will be attacked out there by the wingnuts/trolls/nuts.
• We cannot have blog posts and Tweets go up and out with typos in it
• We cannot share plans and ideas in public before they’re fully vetted internally.

These concerns are understandable in a gotcha media world where every misstep is immediately uploaded, “liked”, and tweeted around the world. But as the Komen incident illustrates, hiding behind high walls and wide moats isn’t the answer. Charlene Li writes in Open Leadership, “The question isn’t whether you will be transparent, authentic and real, but rather, how much you will let go and be open in the face of new technologies.”

A new definition of professional behavior is developing in this social world. Here is the transition:

Social media enable people to be their best selves: honest, open, fallible, funny, and connected, but too many people and organizations are still trying their best to imitate automatons. Your organization, reputation, logo and staff are living, breathing entities that need to be out in the world to be effective.

Ford’s Alan Mulally on the Future of Driving

May 1, 2012 by Michael V. Copeland

NEW YORK — If you are trying to get a bead on what kind of car to buy next, you’d figure asking Alan Mulally, CEO of Ford, would be a safe bet. Should you go hybrid, plug-in-hybrid, clean diesel, high efficiency gas, or all-electric? Mulally doesn’t have an answer for you.

Ford is making bets on all those propulsion systems, because what drivers need and want, versus how global energy markets are going to shake out is far from clear even for a massive auto manufacturer. “We don’t know what is going to be the preferred long-term solution,” Mulally says. “The point of view we have is that we are all going to be paying more for energy worldwide.”

With that as a starting point, Ford is focusing on bringing better fuel efficiency and increased CO₂ reduction to its entire lineup of cars and trucks, whether it’s internal combustion or electricity moving the wheels. “It’s clear we need to invest in all of those because we don’t know which one is going to come along the fastest,” Mulally says. It’s simple economics, he adds.

How people make choices will depend a great deal on how quickly energy prices rise, and whether battery technologies in particular become economic in comparison. “Right now a battery costs $15,000 for a 100-mile range,” Mulally says. “Now, as energy goes up, you can start to make a case for the economics of all-electric. But the most important thing is finding a way to manufacture electric batteries in a cost-efficient way.”

Imagine a sensor that monitors blood sugar and can tell when you are on the verge of being in an unsafe state to drive.

While China has been cranking up its production of lithium ion chemistry batteries in particular, the Ford CEO still sees the U.S. as a potential center for battery manufacturing. “Our ability to design, create, and innovate is incredible; there’s no reason we can’t continue to compete with the best in the world,” Mulally says.

Embedding other technologies in cars is also an area of U.S. focus and Ford’s in particular. Along with efficiency, safety, and smart design, connectivity has become a key requirement of car buyers, Mulally says. Ford, through its partnership with Microsoft, is using smartphones and voice commands as the way to bring a variety of apps and services to drivers. The newest Ford SYNC-equipped vehicles, can field 10,000 voice commands and growing, everything from “directions home” to “what can I see?” and “what can I eat?” Some Ford models can tell you when you are weaving out of your lane, even parallel park your car for you.

Ford engineers are also working on bringing health- and wellness-focused apps to driving. Imagine a sensor that monitors blood sugar and can tell when you are on the verge of being in an unsafe state to drive. Or a sensor that monitors heart rate and can tell you it’s time to take a break from especially intense driving conditions. “Think of it as the end of road rage,” Mulally says.

On the subject of driverless cars, Mulally, who spent decades in the aerospace industry, is very clear on the future.

“The driver will be responsible,” he says.

If you parse that carefully, that doesn’t necessarily mean the driver’s hands will always be on the wheel. But as the aerospace industry has found no amount of automation is a substitute for an experienced pilot when it comes to anticipating and correcting for a potentially dangerous situation. “There will always be a person responsible for driving that car,” Mulally says.

What Do Consumers Really Want? Simplicity

May 1, 2012 by Karen Freeman, Patrick Spenner and Anna Bird

This post is the first in a three-part series

You’re probably familiar with the purchase funnel, invented in 1898 by the colorfully named St. Elmo Lewis: he proposed that consumers go from awareness to interest to desire to action, gradually reducing the number of options or brands they consider along the way. This has been adopted, with some changes, as the standard across industries. But the funnel model is fading. Decades ago, consumers may have methodically winnowed their choices as the funnel describes. But today’s consumers, barraged by information, are adapting their shopping habits to cope with the noise — and that has profound implications for marketers

In a survey of 7,000 consumers worldwide, we found the funnel is no longer the most common purchase path. In fact, only one third of consumers now use the funnel approach when they shop. Why the decline? The biggest reason, our research shows, is cognitive overload. Consumers are overwhelmed by the volume of choice and information they’re exposed to, and marketers’ relentless efforts to “engage” with them.

Their response to this overload has been two-fold: About 30 percent of consumers now anxiously embark on an open-ended purchase path, adding and dropping brands, caught in a loop and compelled to continue researching alternatives. Meanwhile, another 30 percent abandon the considered search altogether and simply zero in on a single brand. We call this latter path the “tunnel.” In our survey, the majority of tunnel purchasers were buying the product or service for the first time, so this wasn’t an expression of loyalty to a particular brand; rather it was a response to overload, a way to simplify what’s become a frustratingly complicated process. Either way, these 60 percent of consumers are responding to the bombardment in ways that can lead to poorly considered decisions — or no decision at all.

At first blush, the tunnel approach may seem like an efficient strategy that benefits consumers. And it may on occasion. But there’s an important downside: Have you seen the “I want an iPhone 4” video (warning, strong language)? In the animation, a customer insists she wants an iPhone even as the store clerk repeatedly tells her about better alternatives. An electronics store employee made the video to mock Apple fans’ single-minded pursuit of iPhones with no regard for the superior features and benefits of competing products. But that’s precisely the reaction consumers are having to cognitive overload in all purchase categories: self-imposed simplification of the decision process.

Brands suffer as well because tunnel purchase means tunnel vision. What do you do if your product is not the iPhone 4? Well, the fact that these changing purchase behaviors are a reaction to cognitive overload suggests a smart response. Because marketers have some control over the customer’s purchase experience, they can appeal to consumers by, simply, making it simple for them. In fact, we found that the single biggest driver of “stickiness” — customers’ likelihood of following through on a purchase, buying the product again, and recommending it — was, by far, “decision simplicity,” the ease with which consumers can gather trustworthy information about a product and confidently and efficiently navigate their purchase options.

The bottom line: These days making a purchase decision easy is what makes customers choose your brand.

Read our HBR article here to see how savvy brands are making it easy for consumers to navigate and trust information, and weigh options, on the path to purchase. That’s the winning formula for making consumers stick in today’s chaotic marketplace. Or, you can watch customers tunnel right by your product on their way to a competitor’s offering

Learn how simple — or complex — the decision journey is for your customers with this decision simplicity quiz.

Web 2.0 Is Over, All Hail the Age of Mobile

April 30, 2012 by (author unknown)

When they look back at this era, Internet historians will mark Facebook’s Instagram acquisition as the symbolic moment when the Great Shift was confirmed. Significantly, it also came soon after Steve Jobs’ death. The device that Jobs created had, within the space of five years, allowed a 551-day-old company with 14 employees to become worth $1 billion.

The Scarcest Resource at Startups is Management Bandwidth

April 28, 2012 by Mark Suster

When you work inside a startup with lots of clever and motivated staff you’re never short of good ideas that you can implement.

It’s tempting to take on new projects, new features, new geographies, new speaking opportunities, whatever. Each one incrementally sounds like a good idea, yet collectively they end up punishing undisciplined teams. I like to counsel that the best teams are often defined by what they choose not to do.

Let me explain.

As a VC I regularly meet with companies and listen to their plans. It’s a very common occurrence that a young startup with sub 20 staff and sub $2m in financing is racing around doing too many things. This level of complexity always worries me. A significant number of the companies I meet with get some form of feedback from me that:

“I’m a bit worried that you’re doing too many THINGS. You run the risk of being a mile wide and an inch deep. It’s hard enough to do X really well and succeed. I’m not sure how you do all these other things and yet I think they may end up being a distraction to X.”

I already know your response. Trust me. I hear it every week

“Yeah, but I’m just going to execute this [channel sales deal, international license of my product, new industry, new operating system, biz dev deal] and then it will pretty much run itself.”

It never does. That channel deal that you thought would take no times ends up burning scarce calories. The 3rd-party tries to sell your software – they just need your help with tech assistance to close the deal. They just need you to update your marketing materials. They got your last version working but since your latest release they couldn’t get it to work. That test you did on launching a RIM version of your product – it was only beta – now has 20 users who need a patch because it’s not working properly.

Every extra set of features that you added that served one narrow use case end up being features you need to support in future releases adding complexity to future development, usability testing, regression testing, etc.

Every team I fund comes across as laser focused on their core mission.

My advice?

I always tell teams I meet with, “The scarcest resource in your company is management bandwidth. Spend it wisely.”

Every company is built by a team and every team member matters. But as you know, a few key people in any business have disproportionate impact on the company’s ultimate success.  And nobody is more important in this regard than senior management. These people need need to be hyper focused on those things that matter the most to the company’s success. It’s why I don’t invest in Conference Ho’s.

Examples from discussions I’ve had this month that might resonate with your internal debates about how to prioritize

• We are giving a version of our product to a team in Europe who will start selling our product internationally
• We are signing up a channel partner to sell our product since we haven’t scaled our internal telesales team yet [yes, we know that they don't have experience selling IT, but they have customer relationships]
• We’re going to put a guy on the ground in the UK to address early leads we’re getting from ad agencies there [true, we haven't thought about employment laws, taxation, currency management, etc.]
• I know our product seems complex but we felt we needed to test lots of features to be sure we knew what would resonate with users … or … we aren’t committed to features x, y, z yet but we know our competitors are planning to so we wanted to be first to market
• We need to hire a team in financial services now to address the needs of that industry [yeah, I know we don't yet have big customers there. ok, I know our product isn't yet verticalized. still, we need to start now or we'll be behind.]

And so on. Trust me – each additional complexity you add before you’re ready decreases your probability of being truly excellent at the things you want to do extraordinarily well.

Instagram didn’t rush to Android. They also didn’t do video. They were truly excellent at what they did do.

What do you want to excel at? How will today’s “toe in the water” initiatives distract you or take your management’s time or attention off of your core business? How likely is your, “won’t take too much time” initiative to come back and bite you in the butt?

Beware. The best teams are hyper focused.

Image courtesy of Fotolia

** A note to readers. Sorry if you received an email with a draft version of this post. I had some problems with my hosting company. They were testing out what the problem was and accidentally hit publish on a draft post.

New or improved: What consumers really want

April 27, 2012 by (author unknown)

Do companies require radical innovations to woo consumers? New research suggests…no!

Strategy, Context, and the Decline of Sony

April 25, 2012 by Sohrab Vossoughi

Sometimes it’s useful to be reminded that a great strategy is only great in context. From the early 1980s and into the 90s, Sony’s was great. The unrivaled master of the consumer electronics world, its name was synonymous with cutting-edge technology, sophistication, and desirability. People had a collective vision back then of a thrilling yet humane future, and Sony’s hyper-capable, slightly fussy gadgets were its clearest expression. It was much more than just the Walkman and the Trinitron—everything the company made was of impeccable quality, satisfying to hold and intricately detailed in its functionality.

That last statement is still true today, but everything else has changed. Sony still makes exquisite products, but fewer and fewer people get excited about them. The strategy address recently delivered by the corporation’s new CEO, Kazuo Hirai, earned press coverage that verged on mocking, with The Wall Street Journal noting that the brand’s “once-sterling cachet has deteriorated,” and The New York Times going further, placing Sony in “a fight for its life,” and accusing it of “an astonishing lack of ideas.”

Both observations are correct, but they only hint at the underlying question: why is the strategy that once served Sony so well now failing so badly? It’s not as if its cameras now take fuzzy pictures or its boom boxes fall apart after three months. And the market for consumer electronics is larger than it’s ever been. The Times article rightly observes that Sony’s current product line is crowded and confusing, but offering customers a wide array of choices was fundamental to Sony’s success in the past. What changed?

Part of the shift is technological. Apple’s iPhone—the product often described as getting everything right that Sony got wrong—only comes in one current model and two colors, yet it’s tremendously customizable. With so much of the experience coming from the software, not the hardware, consumers aren’t using a product designed for them; it was designed by them. This is an especially powerful offering because it replaces the single moment of instant gratification—buying the perfect camera, TV, or phone—with dozens of such moments. Every time they install an app or download a song, users are getting a customized experience with an emotional impact on par with the one-time purchase of a product.

This suggests a more fundamental explanation: consumers today care more about the experience, but Sony is still focused on the product. It’s gotten trapped by its own past success. In the early 80s, simply delivering technology in a usable form was still the biggest challenge, and Sony got it right before anyone else. It had an astonishing ability to find the next technical hurdle—a brighter TV, a smaller tape player, an integrated camcorder—and leap over it with grace, before its competitors even thought to try. In an industrial, product-oriented economy, this was enough. Every year saw new products with unprecedented capabilities. As long as it could do something new, we didn’t seem to care what kind of experience we had using it. Plowing through 70-page manuals and fussing with Dolby II and Metal/Non-Metal switches was just part of the deal.

In the experience economy, these expectations are reversed. Technology is a given, and the question of “what are the specs?” has been replaced by “what is it like to use?” Sony’s expertise at making the next great thing has been matched by companies like Samsung and LG, and soon enough, they’ll all be caught by increasingly sophisticated Chinese manufacturers. Without modifying its business model, Sony has been left behind by a world that’s changed its relationship with technology.

What’s tragic is that Sony still has all the resources to execute well on a new strategy. Its engineering capabilities are impeccable, its R&D resources are highly developed, and it has massive amounts of high-quality media. The success of the Playstation shows its ability to deliver a good experience through an integrated ecosystem of products and content. But the Playstation is now just another platform struggling to keep up with innovative alternatives like the Wii, Xbox, and Kinect, and it’s been years since Sony’s other divisions unveiled a real game changer.

What’s missing is the strategic vision to emphasize the delivery of powerful and resonant user experiences. Mr. Hirai acknowledged several times the need for the company to change, but the goals he stated were still hardware focused: sell this many smartphones, that many camcorders. The user is still missing in this equation, as is a sense of what Sony stands for, and what its vision is for an integrated experience. For Sony, it may be too late.

For other brands, there may still be room for change. Every industry has its Sony, still trying to get ahead by solving a problem that’s already been solved. But every industry also has its Virgin Atlantic, its IKEA, or its Procter & Gamble: the major player that continues to innovate. Even Microsoft has shown signs of sensitivity to user experience in its latest mobile operating system.

There’s nothing magic about innovation, just as there’s nothing magic about technology. Both are hard work, but as Sony has shown, all the hard work in the world won’t matter if you’re working toward a strategy that was framed for an another era.

What If Web And Mobile Apps Are Like TV Shows?

April 21, 2012 by Fred

I was having lunch with a veteran of the entertainment and the video game business this past week. It was an interesting and wide ranging chat. One of the things we discussed that stuck in my mind was the thought that web and mobile apps might behave more like TV shows than traditional software applications.

I’ve watched my kids go from myspace to facebook to instagram over the past seven years. And who knows what social app will be their “go to app” in five years. This has always been the case in videogames. Farmville to Cityville to something else. Words With Friends to Draw Something to something else.

This round trip from nothing to everything to nothing again is also true at some level with many tech companies. Digtal Equipment Corporation was founded in 1957 and shuttered in 1998. RIM was founded in 1984 and in all liklihood will be gone before the end of this decade. Same with Sun Microsystems, Silicon Graphics, and many more iconic tech companies.

This concern or observation depending on where you sit has wide ranging implications for valuations, returns, and many other aspects of the startup economy. Companies are worth the net present value of their future cash flows. Said another way, if you knew that a company was going to earn $1mm a year for the next ten years and then be shut down, there is no way you’d pay more than $10mm for that company and certainly you’d pay something a bit less than that.

There are web and mobile applications that seem more immune to the “here today gone tomorrow” concern. Utilities like search, email, calendar, document store, etc feel less likely to be subject to this issue. YouTube also feels fairly secure. But purely social apps, the ones that depend on having your friends on them, seem quite vulnerable to a mass exodus. RIM’s demise among my kids’ generation had more to do wtih everyone leaving BBM than anything else. For as long as all of their friends were on BBM, they all wanted to be on it too.

Network effects are powerful in both directions. They can help you grow exponentially. But when they are going against you, they work just as fast. Myspace’s decline was mind blowingly quick. RIM’s has been as well. Who is next?

I am not writing this post to pour cold water on the internet sector. There are so many amazing things happenning right now. We are investing actively and agressively and are not the least bit bearish.

But it is important to understand the entire life cycle of what you are investing in. If you are playing a game of musical chairs, you have to know that’s what you are playing. Or you will be the one left standing with nowhere to sit. And that sucks.

Managing a Virtual Team

April 16, 2012 by Mark Mortensen and Michael O’Leary

Teams that are geographically-dispersed, or virtual, have now been used and studied for more than three decades — yet we all still wrestle with how to get them right. Managers frequently ask for best practices for managing their global teams, and recently we’ve noticed some common themes. Here are the three questions that keep coming up again and again, and what the research tells us about how to address them:

1. When and how often do we need to meet face-to-face (FTF)?

Despite the appeal of completely virtual teams, most team leaders try to convene their teams for face-to-face meetings at some point — leading them to ask how often and when should they do so. We share two robust findings to consider when planning face to face meetings.

First, research by Maznevski and Chudoba, Carmel, and others finds that FTF interaction is especially important early in a team’s life, particularly when the team is comprised of people who don’t already know each other. “Early,” however, doesn’t necessarily mean “first.” Having some initial virtual interactions before a first FTF meeting can actually enhance the benefits of that first FTF meeting by allowing team members to focus on things like who has what task-related expertise before they are influenced by the potential biases that FTF interaction can trigger. Then, the first FTF meeting can be used to establish the work practices the teams will need to effectively collaborate when the pressure mounts.

Second, Maznevski and Chudoba also found that repeated FTF meetings are best when occurring at predictable times and intervals. This allows team members to plan their time and interactions, reserving discussion of certain complex or delicate issues for those in-person interactions. As a result, teams with a predictable rhythm of meetings outperform those who choose to meet “as needed” — even if they have less FTF interaction overall. So FTF meetings should occur early and regularly.

2. What is the best technology solution for my team?

With the relentless advance of technology, many managers ask us which platform they should use to support their virtual teams. As any suggestion we make will be outdated before the pixels are displayed — we encourage managers to focus on the criteria that shape their daily behavior. We tell them: Ask yourself, why do we rely so heavily on phones and e-mail — technologies that haven’t fundamentally changed much since they were introduced? We rely on them day in and day out because they provide the communication trifecta: simplicity, reliability, and accessibility.

• Simplicity: neither require complex setup time or a steep learning curve — as soon as we have dialed a number or entered an address, we are able to focus on the message, not on the medium. Remember, rich interactions don’t require rich media.
• Reliability: despite the occasional service interruption, we spend very little time worrying about whether our messages will get through to their intended targets.
• Accessibility: phones and email both work just about everywhere we might want to use them — meeting rooms, field offices, airports, even our favorite coffee shops.

In the era of feature-creep, where each new version of a technology is marketed on the basis of countless incremental bells and whistles, remember: each minute your team members spend trying to get the slick new system up and running, bringing it back up after a crash, or unable to access it from a field office brings them that much closer to throwing in the towel and picking up the phone.

3. How do I coordinate work among dispersed members?

Many managers have recounted variations of the same story: they received an eagerly-anticipated hand-off from their distant colleagues only to discover that the work bore little resemblance to what they expected (and were counting on). The net result was wasted effort by their colleagues, unanticipated rework for them, and frustration all around. They ask us: “Why does this keep happening, how can I avoid such coordination breakdowns?”

People have evolved to become extremely good at dynamically adapting to our social environment. In teams, we constantly synchronize and modify our actions and expectations to keep them aligned with those of our collaborators. Unfortunately, this is precisely what distributed teams are bad for. Cramton’s study of dispersed teams found that dispersed team members lack a common, shared understanding — critically necessary for such adaptation. Making matters worse, Hinds and Mortensen found that when distributed, we tend to engage in relatively little of the spontaneous and informal “water-cooler” communication that both promotes shared understanding and is the vehicle for adaptation.

So managers of virtual teams should have dual, complementary objectives: structure and socialize. First they must shift their teams’ work practices away from the dynamic adjustment outlined above towards more structured coordination. Clear team-level work processes, output requirements, and group norms reduce the complexity of virtual team coordination from coordinating efforts across multiple sites to aligning one’s efforts with a single, consistent set of expectations. Second, as the speed of today’s economy means no team — collocated or distributed — can eliminate all such dynamic adjustment, virtual team managers also work to support and facilitate dynamic adjustment when it’s required by promoting and encouraging informal interaction.

This post is part of the HBR Insight Center on The Secrets of Great Teams.

Facebook Eats Instagram: Consolidation Time in Social Networking?

April 9, 2012 by Robert Hof

Consolidation is nothing new in social networking. In March, Twitter bought the blogging platform Posterous. Google has done a number of social acquisitions in the past couple of years, most notably the $200 million purchase of Slide, though it did little with it. Fading Hi5 sold out to Tagged in December. And of course, MySpace sold out eons ago to News Corp.

Article: Smartphones Continue to Gain Share as US Mobile Usage Plateaus

April 9, 2012 by (author unknown)

Majority of mobile users will have a smartphone by 2013

How to put your money where your strategy is

March 26, 2012 by (author unknown)

Most companies allocate the same resources to the same business units year after year. That makes it difficult to realize strategic goals and undermines performance. Here’s how to overcome inertia. Read more on the McKinsey Quarterly >

Topics: Organization Strategy

Update your Quarterly feed preferences

How to Charge a Fee (Without Starting a Customer Rebellion)

March 23, 2012 by Frances Frei and Anne Morriss

Consumers are up in arms. From airlines to banks to telecoms, companies are gouging us in our moment of need, piling shady fees on top of mediocre service as people struggle with the ongoing effects of the Great Recession. Getting trapped in a phone tree (“for what you don’t want, press six”) felt bad enough, and now we have to pay extra for the indignity.

In a climate like this does anyone dare charge a fee?

Delivering service costs money, of course, and delivering good service costs even more. It’s not just that some companies have the right “attitude” about customers. Some companies invest in the hard tradeoffs that make good service possible: more and better people, intuitive IT systems, convenient retail spaces.

But it’s not always easy to get paid for extra service features. Consumers are more comfortable paying for the components of a premium product — more computer memory, four-wheel drive — whose incremental value we can touch and feel and take home with us. In contrast, the cost drivers of service are often harder to see, if not invisible. We just know that a business isn’t answering the phone. We don’t think about what’s needed to provide that service properly: a 24-hour call center with enough skilled and available problem solvers to politely absorb random spikes in demand.

Consider the Frappuccino, whose high price tag is funding the track lighting and upholstered furniture in your favorite Starbucks. A big part of the service experience is the chance to linger in a beautiful space, a more tasteful version of our own living rooms, with clusters of attractive people thrown in. But there aren’t meters next to those couches; easier to charge more for the plastic cup on the counter.

So companies must work within the bounds of consumer intuition when trying to cover the cost of service. Central to this challenge is the idea of palatability.

Palatable fees are usually simple, transparent and fair. They feel reasonable to people — an honest price for an honest service — and they don’t violate the often unspoken contract between buyer and seller. As Verizon discovered , “convenience charges” attached to bill payment are particularly unpalatable, since they punish customers for trying to hold up their end of the deal.

The challenging part is that this unspoken contract between company and customer is highly variable. There are few universal rules on pricing and fees. The notion of fair can be highly subjective, and there aren’t stable industry standards. Your landlord can charge you to sleep in a room she owns, but it just feels wrong when your mother does it.

This is why the discount carrier Spirit Air can stop its seats from reclining and charge high fees for almost everything but the ticket, but Southwest Airlines can’t. Unlike Southwest, with its LUV stock symbol and playful pilots, Spirit isn’t trying to be our friend. Spirit is selling us a stripped down, no frills service, and starting with the assumption that we’re adults. The deal is clear: in exchange for a very low price, you’ll have to put up with some discomfort. If you want to be coddled, fly with someone else.

Finally, economic context matters. Pricing is a moving target partly because it doesn’t happen in a vacuum. Consumers are hurting, and the suspicion that the system might be rigged against us is growing. Companies who want to survive the volatility must tread carefully to maintain customer trust. Very little undermines that trust faster than seemingly arbitrary changes to our original contracts, particularly when those changes cost us money.

In short, fees can work, but they must be designed thoughtfully, with an appreciation for nuance and the humanity of customers. When it comes to pricing, businesses should just level with people. We can handle it. If companies treat us like toddlers — if they hide hard truths or tell us “Corporate America knows best” — we will continue to have tantrums.

Why You Should Think Twice Before You Send That Intro Email

March 22, 2012 by Mark Suster

Intros. They’re the lifeblood of networking – the currency of mavens. They are your route to angel money. Your entrée to sales meetings.

We couldn’t live without them.

But when misused, overused or abused they can diminish your personal brand, consume your valuable time and waste time of the relationships you value the most.

I would like to make the case for being judicious with your introductions. I would like to encourage you to closely guard your most cherished relationships. And in most cases I would heed Fred Wilson’s advice about the “double opt-in” email for intros – where you ask for permission before green-lighting an unsolicited introductions.

I give introductions frequently.  I also request them for time to time. So please don’t view this post as recommending not to do introductions. It’s a simple reminder that whom you do introduction for and how you do them will have a great impact on your credibility with those relationships you’ve worked so hard to build.

 The Details

Lately I’ve seen some friends and colleagues go nuts with intros. I’ve commented to several of them (so, no, I’m not talking about YOU. I’m talking in aggregate. Promise.) that I don’t understand their motivations.

At best “over introducers” are driven by a sincere desire to help other people. In reality it probably also has some element of ego because sending out many intros gives off the impression that you’re well connected. That you can “make things happen.” That you’re helpful. You’re trying to endear yourself to one side of the intro.

But here’s the thing – every time you send an introduction you’re obligating people. At a minimum you’re obligating them to ignore the email and feel like an arse for not responding to your introduction. More likely they either end up finding an excuse not to meet, delaying a meeting indefinitely or in most cases actually taking a meeting.

Over-introducers also consume a lot of personal time in making intros. It is very time consuming doing intros the right way. Ask yourself the tough question about how you might spend that time more productively getting your job done well.

There are many times when that meeting is a great fit and hugely appreciated. There are also many times where that meeting isn’t really focused or productive. Here are some of the underlying motivators and some thoughts about these introductions.

Helping with a Sales Lead
I do this often. Usually it’s on behalf of a portfolio company. After all, if your VCs won’t help you get access to potential buyers or business development partners – what will they do?

But I also try to help friends / close business associates get access to other people I know.

My personal rules are:

• I must know the individual whom I introducing well enough to vouch for their character and therefore the likelihood that their product or service is of high quality
• I must be able to mentally make a connection of how the person whom I’m introducing my friend / colleague to would benefit. If it’s strictly a favor I will ask before I intro and I will state specifically that it’s a person favor
• In 80% of the cases I will ask permission in advance. Where I don’t it’s usually because I’m highly certain of the relevant of the introduction.

I recognize that each time I ask I’m putting my reputation on the line. If I introduce a time waster or somebody with a crap product then the person whom I introduced them to will necessarily think less of me. If I do it to them twice it may start to affect our relationship or at least their willingness to take more meetings from me.

I carefully guard this privilege that allows me to periodically do high-profile introductions.

Helping Access Money
People need access to angels and VCs. I frequently tell startups that the best way to get a meeting with money is to get a highly-qualified introduction.

But all too frequently people send angels & VCs too many unqualified intros. Regardless – I do my best to respond to as many as I can. The thing about an intro is that I know that one person is trying to help a friend get access to me. So I feel that not acknowledging this is disrespecting the introducers.

And I understand that many people who send VCs deals think they’re doing you a favor. But the reality is that unfiltered intros just create work for the VC. And if you send an intro to a company once without asking – no problem. But if you start the send multiple deals and if the quality of those deals is not super hight then you begin to erode the trust that the VC has in your judgment.

My belief – unless you know the VC really well (you’re a portfolio company of theirs, for example) I’d always ask for permission first. It’s best if you send a deck so that the investor can review it for a fit before the introduction takes place.

If I get a plan I find interesting from somebody I trust I am always hugely appreciative.

And then there is the email blaster / form letter introducer. They think they’re doing the startup a favor by casting a wide net to VCs. By the time I’ve gotten 4-5 of these garbage emails I just start hitting delete (or ask them to remove me from their list). Remember as a startup – the person who sends the intro to the VC matters a lot.

Helping with a Job Opportunity / Career / Information Interview
This is one area where I really try to go out on a limb. It’s a matchmaking service. Companies are always looking for highly qualified talent. Talent is always looking for interesting opportunities.

This is the kind of intro I do most frequently.

It falls into 2 categories:

1. I know the company and the specs they’re generally looking for. I come across a person looking for a new role. This might be somebody I know well (thus the email will come very highly referred) or somebody I just met for which the company will get the “I just met this person. I haven’t referenced him/her. She looks very competent but you’d have to apply your own filter / check reference.

1. I know the individual well and they’re wanting information interviews to find a good home. Here I will usually ask in advance. I will make a clear instruction in the email that the meeting is 30 minutes. I will strongly encourage the person to respect time boundaries and to make sure to send a thank you note.

“You Guys Should Meet”
This is the worst kind. If you find yourself writing this in an email – think twice about sending it. I see way too many of these. You sorta / kinda know s0-and-so because you had a few too many beers together last year as SXSW. You remember that they work for Google / Microsoft / Zynga. You meet somebody new in business. They seem like “a nice guy.”

They mention something about trying to do a deal at Zynga. “Hey, I know a guy at Zynga. I should introduce you guys.”

I know you think I’m exaggerating. The tech world is filled with these kinds of intros. These drive me bonkers. They’re generally disrespectful of all involved unless previously clear with everybody. Even then you’ll find that some people just aren’t good at saying no. But they’ll still likely be frustrated that they now have one less hour of one less day.

In Summary

Introduce people. It’s good karma. But be judicious. Introduce people that would genuinely each benefit from meeting. Whenever possible ask permission. And if you’re tempted to be an “over introducer” please know that you probably damage your personal brand as much by burning people’s time as your perceived positive brand perception by making each individual connection.

LinkedIn CEO Jeff Weiner: More Ad Opportunities Coming for Marketers*

March 21, 2012 by Robert Hof

LinkedIn is sometimes forgotten in the huge shadow of Facebook, but it has managed to carve out a distinct niche as a professional network–and even beat Facebook to public stock status last year. It has also crafted a business model that, unlike many Web sites, even social networks, doesn’t depend chiefly on advertising. In its fourth quarter, its $168 million in revenues included $85 million from hiring solutions, $33 million in premium subscriptions, and $50 million in marketing solutions (advertising).

Amazon vs. Apple: Competing Ecosystem Strategies

March 19, 2012 by Ron Adner

The most viable rival to Apple’s iPad isn’t produced by a traditional hardware firm. Samsung, Motorola, Toshiba, HP, RIM and HTC have hardly made a dent in Apple’s dominance. Remarkably, the leading challenger is online retailer Amazon, with its Kindle Fire tablet.

The innovation game is changing. Delivering great products is no longer sufficient for success. And as the Fire’s limited memory, ho-hum processor, and and lack of camera demonstrate, great products may not even be necessary. Rather, what matters is delivering great solutions.

This shift from products to solutions matters to everyone. In industries ranging from consumer electronics to construction and from media to mining, the firms seizing the lead are those that can best align ecosystems of offers and partners.

In the past, product-focused success depended on exploiting capabilities — in branding, manufacturing, distribution, etc. — to deliver the best product. In contrast, today’s champions focus on carrying over relationships — with both consumers and partners — to deliver the best experience.

For example, when Apple expanded from music players to phones, it carried over to the iPhone not just the technology and software that powered the iPod but also users’ entire music collections and its music store’s entire supplier base. This was not about creating switching costs (iPod users could continue to listen to their iPod while using Nokia phones). Rather, it was about leveraging existing relationships to create enhanced offers (by porting over your iTunes collection, Apple made the iPhone more valuable to you). By carrying over elements from the iPod ecosystem, Apple gave the iPhone a running start.

In the rush to match the pieces, most of Apple’s rivals have missed the critical connections that draw the entire ecosystem together into a coherent whole.

The big exception is Amazon, With the Kindle Fire, which was introduced last year, it is pressing forward with a full-fledged ecosystem strategy. It is pairing substantial carryover (the entire range of its ebook activities coupled with current users’ ebook libraries) with substantial investment. Amazon is sacrificing hardware margins to position the Fire as a low-priced tablet and is subsidizing the participation of book publishers and movie studios in order to allow its core Amazon Prime customers to access books and videos with the device.

It pursued this very same course with great success when it launched the original Kindle in 2007. The big difference is that the eReader market of 2007 was an open field; the tablet market of 2011 had a dominant giant. Jump-starting a competitive value proposition this time around required a significantly larger ecosystem footprint and, as Amazon’s investors know all to well, a significantly larger investment.

Amazon is differentiating itself from Apple in terms of both its footprint and its profit model. Apple captures the bulk of its profits the moment an iPad is sold, while its partners capture value over time as users consume services. In contrast, Amazon’s profits accrue over the lifetime of the customer with every on-platform purchase In this regard, Amazon’s incentives seem more aligned with those of its media partners (“we win together over time”) than Apple’s with its partners (“I win first; you later…maybe”).

Aligning, enticing, and — occasionally — subsidizing partners are the new ante in the ecosystem game. Amazon and Apple will go down as case studies in alternative strategies for succeeding in ecosystems. Their product-focused rivals will illustrate what it means to be “stuck in the middle.”

Google Grows Up: A Necessary Evil?

March 19, 2012 by Joshua Gans

James Whittaker left Google and wrote about it. Long story short: Google came under “new” management (which was actually really old management returning) and started focusing on its core products rather than being “all about the technology.” The staff — and this is surely not a shock — don’t much like it. As Whittaker wrote,

The days of old Google hiring smart people and empowering them to invent the future was gone. The new Google knew beyond doubt what the future should look like. Employees had gotten it wrong and corporate intervention would set it right again.

But. But. Google was supposed to be different, folks. And what do you know? Like every start-up before it, it has matured and started to morph into a larger, more bureaucratic organization, concerned with threats and working to protect the core revenues. It was supposed to be different but, in fact, it is the same old story. The interesting issue is why.

The Old Google apparently died around the time Steve Levy released his great book about the old Google — last year. When that story ended, Google was just completing its Manhattan Project-like effort to counter the Facebook threat. Facebook’s threat was and continues to be to Google’s core product, search. Facebook gathers information that Google’s own success destroyed: the linking behavior of website developers and owners that allowed for citation-based search to organize the web. Once Google could organize the web for us, why link? Why set up a portal? Why set up a useful page directing people to various bits of information? There was no reason.

But Facebook has given people a reason to link again — to share information with friends. Facebook knew that this was the kind of information that Google lacked and threw up a wall around it, denying Google access. It was possible Facebook could flip a switch, team with say, Bing, and become a more relevant search engine. Google’s Hal Varian always claimed, especially in antitrust talks, that Google was vulnerable to entry. As the feeling has grown that Google’s search results have become a little less relevant (and, maybe, every so often, just an entrance to the right Wikipedia entry), that vulnerability has become more apparent.

Enter, Google+. The only way to keep the party at bay was to join it. I suspect that even James Whittaker, at the time, was excited by that prospect. The problem is that it was a different innovation exercise for Google — top down rather than bottom up, as its past successes Gmail, Google Scholar and Chrome and its failures, Wave, Buzz, Knol had been. But enough people at Google believed that they had no choice. And equally importantly, the bottom-up system that could build great products and complemented search, couldn’t change the core of search itself. Someone had to imagine that and then a great deal of resources needed to be devoted to the effort.

And so that is when, like others before it, the start-up turned into a corporation. It faced a threat that required a coordinated response and that response necessarily had to crimp the innovation system that had built it. The problem is that coordinated response had its own flaws. As I have argued previously, Google+ didn’t offer consumers much more, if anything, than Facebook did. It wasn’t technologically superior to Facebook. And while it integrated into other Google products, that wasn’t enough. Google Hangouts is great, but has nothing to do with Google+ and is much more a serious challenge to Skype and Cisco’s Webex than anything to do with social linking. Moreover, Circles — the apparent innovation that would encourage sharing — faced an initial default that discouraged sharing relative to Facebook. In any case, all of the good features of Google+ were quickly adopted by Facebook, but as an extra option rather than a default exercise. And the strong network effects from Facebook mean that it is hard for Google to generate even the minimal amount of sharing and linking to properly erect a defense to the threat it faces in search.

It would be nice to argue that the answer is for Google to go back to the old, bottom-up Google model. At some level, it should try to preserve that culture, but it’s really hard to do. My point here is that the “this time it’s gonna be different” mentality that start-ups believe they are founding is wishful thinking. Eventually, a threat comes along that requires a coordinated response. Sometimes that response works — think about Microsoft and its long history of these things — and sometimes it just isn’t going to happen. It is difficult to say what will happen for Google, but a good dose of self-doubt that they are somehow above it all is a good place to start.

Oh yes, and Facebook, if you are listening, all of the above applies to you too.

Fun Beats Fugly: Why Square Is Still Better Than PayPal

March 16, 2012 by Tim Carmody

Square Register screenshot from squareup.com. Look how pretty that is.

Thinking about Square, PayPal and other innovators in mobile payments, I keep coming back to something JP Morgan Chase’s Jack Stephenson told me: “Consumers don’t really have a mobile payment problem. Ninety-five percent of the time, paying with cash and credit cards actually works pretty well. Consumers have a mobile shopping problem. There’s a difference.” So when I read that PayPal’s “Here” will process payments for .05 percent less than Square, will scan personal checks, and has a credit card reader that works the same way, but (as ATD’s John Paczkowski said) looks like something that came out of a Happy Meal, I can’t help but think that the PayPal team is thinking about its entry into mobile payments all wrong. PayPal is basically just porting its utilitarian model for online payments into meatspace. It’s touting features like its advanced security protocols, because that was the main concern with doing transactions with strangers on eBay more than a decade ago. It doesn’t really address the fundamental security problems still built into all mobile operating systems. Maybe more importantly, it’s not rethinking the mobile shopping experience as much as it is trying to grab a slice. Fair enough — the market is exploding, plenty of share up for grabs. But Square Register and Card Case strike me as having rethought shopping for both customer and merchant in a much more fundamental way. “At Square, the phrase we use is improving the experience for ‘both sides of the counter,’” Square COO Keith Rabois told Wired in an interview conducted last week, prior to PayPal’s announcement. “For the merchant, we want to help them grow their business. For the customer, we want to make shopping more delightful. That means doing something beyond just reinventing the credit card. It means creating an emotional layer to the experience.” That means, in part, an Apple-inspired emphasis on elegant design, from the app to the interaction. Remember, this is shopping. It’s an entire industry built around making buying things fun, intuitive, fast, elegant, enjoyable, beautiful. The POS needs to feel the same way. Watch the demo video for PayPal Here. Now watch the demo for Square Register. Which point-of-sale setup looks better? Which looks easier and more fun to use, for the customer and the merchant? Which looks like something you would want in a store you owned, or in a store where you enjoyed shopping? It’s Square. Merchants place a premium on that kind of experience. They opt fun over fugly, even if it costs them five-hundredths of one percent more. On the merchant side, too, Square gets that the real issue isn’t payments, but services built around payments. As an iPad app, Register isn’t just a fancy menu; it gives a business the chance to track serious data about what gets sold and when. It’s about data made accessible. That’s what adds value, and that’s what helps a business grow. “We can show them the fundamentals of how their business is performing, and even helpful hints on how to optimize that in the future,” said Rabois. “For instance, on rainy days, it might be more effective to lower or raise prices, or to offer coupons to preferred customers.” This isn’t to downplay the importance of simply being able to accept credit cards or electronic payments. Moving from a cash business alone is huge for growth; Rabois cited figures suggesting businesses who accept credit cards can pull in 15-25% more revenue than those who don’t. But that’s a small, bootstrapping piece in an overall strategy to rethink how we shop. There’s a mildly-famous presentation Jack Dorsey gave to Square employees in 2011 where Dorsey compares his design-centric vision for mobile payments with the Golden Gate Bridge. David Kirkpatrick wrote about the speech in a profile of Dorsey for Vanity Fair:

“We’re the only payments company in the world that’s concerned with design,” the Prada-clad Dorsey begins. He shows a dramatic photo of the bridge taken from atop one of its towers. “This is what I want to build. This is classy. This is inspiring. This is limitless. Every single aspect of this is gorgeous… So your homework this weekend is to cross this bridge, think about that, and also think about how we take those lessons into doing what we do, which is carry every single transaction in the world.”

Sure, that’s the kind of speech any CEO might give to inspire his or her troops. But it’s also the kind of message that a retailer would be ready to receive, or that a consumer, who’s already blown a sizable chunk of change on a sleek smartphone, would be ready to believe. And that’s the edge Square still has.