Monthly Archives: October 2013

Changing Business Models Around

Changing Business Models AroundSome business models and products have been around so long that we just take them for granted, while others concepts that are becoming new business models are so new that we’re not quite sure what to expect. It is probably easiest to explain what I mean and why this juxtaposition is important by looking at a few examples. Most of these examples involve challenging our orthodoxies.

1. Coffee Shops

In the typical coffee shop pretty much anywhere in the world, the business model works like this – you buy a coffee and it comes along with it the right to take up a place at any table in the café for as long as you want. So, coffee buys you time. An article I came across on NPR highlights an entrepreneur in Moscow that has opened a restaurant that loosely translates to the Clockface Café where instead of buying coffee and getting time, you instead buy time ($4/hr per person for the 1st hour and $2 an hour after that, up to a maximum of $12 after 5 hours) and get coffee for free. Ivan Meetin, the founder, plans to open his next café in London. Meanwhile I have heard of similar operations in Paris, and by now they can probably also be found elsewhere. So, in your business what do people get for free, and what do they pay for? And is there an opportunity to change around what you charge for?

2. Waste Disposal

In many businesses, and in the creation of most products, there is waste. And in most cases, businesses pay to have this waste removed from their premises. Or there may be waste that the customer has to pay to have removed. But this doesn’t always have to be the case.

KFC, McDonald’s, Burger King, etc. used to have to pay to have their used fryer oil picked up, but now thanks to the rise of biodiesel they may even make money from this waste product.

Chicken FeetChicken processors used to throw the feet away after processing a truckload of chickens, but after they discovered that chicken feet are a delicacy in several Asian countries, they stopped throwing them away and instead started exporting them. In fact, chicken feet sell for more per pound than chicken breasts in China.

Broken OREO’s used to have no value before Cookies ‘n’ Cream ice cream (and now Cookies ‘n’ Cream OREO’s) were discovered.

And finally, I came across an example of a bottle cap concept created by designers from the Lanzhou University of Technology in China, intended to give poor children access to building blocks for play, from what was previously thrown away.

Building Caps

3. Discounts for Data

Data security and privacy is becoming an increasingly hot topic, and in the past companies would either ask customers for their data and not give them anything for it, or just not ask for it. But now we are seeing some interesting models of companies asking customers for data and instead giving them something of value in exchange. For example, Urban Outfitters rewards users that respond to promotions inside their mobile app or to users that allow its app to connect to their Twitter or Instagram accounts with points that can be redeemed for sale previews, concert tickets, or early access to new pieces. What data do you want from your customers? What is it worth to you? How could this exchange be made engaging and not be seen as a purely financial transaction?

4. The Soft Drink Category is Saturated and Cold

Soft drinks… How many people out there think that the soft drink category is a blue ocean full of incredible opportunities for unbounded growth for established soft drink makers? Most people would say that this is a mature category and a tough place for companies, full of merciless competition. But yet, people continue to innovate and challenge this orthodoxy. Witness a couple of interesting new concepts.

Shericks ShakesBritain has always been a hotbed of innovation, and the country that brought us Pret a Manger and Innocent smoothies brings us this tasty treat. Mr. Sherick’s Shakes brings people a little bit of luxury to their day in the form of their high quality milkshakes.

Meanwhile in Japan, there is a growing trend manifesting in a wave of product launches in the soft drink category that are not cold, but instead hot. Witness this example of what has always been a cold drink, Ginger Ale, being brought into the Japanese market as a hot beverage by Coca Cola’s Canada Dry unit.

Canada Dry Hot Ginger AlePeople always love something new and different, even if it is something old that has disappeared from the market. This is why fashion runs in cycles, and in a mature category like soft drinks there is no reason why we shouldn’t keep these principles in mind and see if now is the time to bring something back, or to see if there is an orthodoxy that we shouldn’t now look at challenging to see if an opportunity might not be created.

Conclusion

Innovation transforms the useful seeds of invention into widely adopted solutions valued above every existing alternative. Value comes not just from physical invention, or business model innovation, but from psychological and emotional benefits as well and the creation of new psychological or emotional value can happen in any industry at any point in time, no matter how mature the category seems to be. We as humans are strange creatures and we simultaneously fight against change (and hold back innovation as a result) and embrace new things (or at least like to try them). So challenge your patterns of accepted thinking to look for opportunity and work to overcome your beliefs that everything that could be done has been done in your industry.

Keep innovating!


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Inside Look at Culture of WordPress

Inside Look at Culture of WordPressInterview with Scott Berkun

I had the opportunity to sit down recently with fellow author Scott Berkun to talk with him about his new book The Year Without Pants, which catalogs his experience in two years with Automattic, the company that runs WordPress.com.

Our conversation touched on many different topics including innovation, collaboration, and organizational behavior.

For those of you who haven’t read the book or who aren’t familiar with how Automattic runs as an organization, here are some of the highlights:

  • All of the staff used to report to Matt Mullenweg, the 29-year-old creator of WordPress and founder of Automattic
  • When they passed 50 or so employees, about the time Scott Berkun joined, they introduced team leads
  • Organizational changes happen organically in the company, primarily when the pain gets great enough to force change
  • Automattic now has about 200 employees
  • Email is not the company communications standard – instead they use IRC and Skype and WordPress
  • Employees can work wherever they want
  • They have a company headquarters in San Francisco, but very few people work there
  • All employees get together in person annually and teams get together maybe twice in person to recharge intangibles
  • Hiring decisions are made not with traditional in-person interviews, but instead primarily by evaluating test projects
  • All new employees spend a couple of weeks working in support before occupying their intended role

Scott during his two years at Automattic led the Social team for WordPress.com and one of the things that he focused on while he was there, and that the book focuses on, is experimentation. One of the things that was fascinating in his detailing of his experience was that there was little resistance in his team to all of the experimentation that they engaged in. His theory was that they were ‘makers’ (he led a team of developers) and so they didn’t feel that there was a need to justify their existence. We spoke a great deal about why the culture at Automattic might be so accepting of experimentation, where other organizations are not, and this led to a discussion of some of my theories about the effects of scarcity and lack of firm growth, and we arrived at some of Scott’s comments that focused on the fact that there is too much fear in most organization and most managers don’t invest much time or effort in actually managing. Most managers don’t work to impact the feelings or environment for employees in companies that aren’t growing and/or where job opportunities are scarce. We then dug more into the culture topic.

Changing Culture is Painful

When it comes to culture change, there are a lot of consultants out there that would have you believe that they can come in an change your culture in 30-90 days, and while this might be possible it wouldn’t come without a great deal more pain than most organizations would be willing to bear. The reason a great deal of pain is required to affect culture change is the fact that an organization’s culture is typically determined by:

  1. The organizations cultural history and inertia
  2. The prevalent culture comes from the things that the largest number of people reinforce

So, in most cases changing the culture will require you to stop reinforcing behaviors that are reinforcing the current culture and start reinforcing behaviors that will lead you in the direction of the culture change you desire. What will this mean for the organization? Half the organization might leave! Are you ready for that? Many people who felt comfortable in the old culture, or that derived their power source from their old behaviors will need to be asked to leave the organization, or hopefully, will leave by their own efforts. Add into this potential chaos the fact that in most organizations the culture problem is often being created by the person asking for the culture change consulting, and how many consultants will reveal and stand behind this fact if it occurs?

One of the ways to ensure a healthy culture is constant experimentation driven by experiments that are instrumented for learning and dedicated to its pursuit. If an organization commits itself to a continuous practice of testing and learning within its management practices, in the same way that it hopefully dedicates itself to testing and learning with its products and services, then it has a much greater chance of maintaining a healthy, productive cultural environment. On the flip side, the way that we promote people in most organizations undermines the existence of a healthy, functional culture and so we need to rethink promotion. We need to ensure amongst other things that people with technical proficiency have a career path towards greater compensation that doesn’t have to include management responsibilities for those that don’t embrace the challenge and willingness to experiment in their management approaches. One of the reasons that Automattic’s culture is so strong, is because it was built to be entrepreneurial, collegial, and collaborative, and people are trusted to do what they do well (in their own way).

Of course I had to ask if people had left Automattic, and yes they have. In most cases the left to join other startups, and Scott believes that Automattic will probably stay in their minds one of the best places they worked.

Pressures From Outside

Another topic we touched on in our interview was whether or not Automattic felt pressure to make money faster after taking some VC rounds, but Scott said that while Automattic took some investment from VC’s, it was already profitable at the time and didn’t need the money but took the financing to gain other benefits and wasn’t under undue outside influence. As a result, Matt was able to purposely not assign a team or an individual to focus on growing revenue every quarter. he wanted to be careful not to turn up the monetization dial too fast because in doing so you often make bad decisions by doing so (product, etc.). There was no Store team when Scott joined, but there is now. Matt and team are very careful to maintain a long-term focus and they could easily monetize the 8th most popular web site more than they are (that’s a valuable asset), but are being careful in how they go about it.

Another thing I asked about was the impact on WordPress.com of things like Tumblr and Instagram and others, and Scott said that despite a lot of other companies and supposed competitors that have come along that have been hypothesized to supplant WordPress, they’ve never been super concerned. The reason?

WordPress itself is very flexible and so people are able to easily create themes that replicate the look and feel of a lot of the supposed competitors. The large WordPress community will build Tumblr like themes, etc. And the company itself is very resilient, and so when something new comes out, people will have a look at it and will either incorporate some of what they learn from it or ignore it if there doesn’t seem to be anything there. And, another point on the Automattic culture, if someone were to say “someone should…” in relation to something they see outside, then typically that person becomes the person to take it on.

There is a lot more I think we can learn from the Automattic experiment, and I may talk to Scott again to explore some of the learnings in the second half of the book, but wanted to rush these thoughts and nuggets from the conversation out to you. I hope they have been good for thought and you’ll think more if you’re a manager about what experiments you might run to see if you can make your group function even better.

Final Thoughts

Team size and how the organization grows up around its founder make a huge difference in how the culture evolves and reacts to its environment, and in Automattic Scott’s team was four when he started and nine when he left. The Theme team had 15 people on it, and the Happiness team (aka customer support) was the largest team at 25 people. One thing that happened along the way was when Scott’s Social team reached eight people it sort of naturally started to evolve into two separate sub-teams, which they called squads. Squad leadership was informal. There were no raises or title changes, and the squad leaders had naturally earned the most authority. They actually tried rotating leadership, but the results were mixed at best.

Another thing I asked Scott Berkun about team size was whether he thought the loose oversight and team structure would scale well as Automattic grows. He feels that it if they were to grow from say 200 to 1,000 employees they would probably insert another layer of management and break into groups of 100-150 people centered around product unit owners with teams underneath. This reinforces the thinking that they have at WL Gore, where they consciously spawn a new organization when it passes 60-70 people if my memory serves me correctly.


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Shocking People into Buying Your Product

It costs a lot of money to make a television commercial, and at its core what is a television advertisement? It’s a short piece of video designed to reinforce brand values and attachment, or possibly with any luck, to drive purchasing behavior. But there are other ways to distribute video now of course, other than buying time on the major networks or the hundreds of cable networks. And sometimes alternative methods of video distribution actually work better for some creative ideas than traditional media buys.

And what do you do when you have a product that isn’t necessarily that easy to advertise in the traditional ways, for example horror movies or ultra high-definition televisions?

Products that in your advertising that you might WANT to shock people, because they like that, in the case of horror movies. Or in the case of a tech product where people are reasonably happy with what they have, your might actually NEED to find a way to shock people in order them to perceive the incremental benefits of what you’re offering versus what they already have.

In the first case, the people behind the new Carrie movie set out to create a telekinetic café prank in New York City to promote the movie:

While in the case of ultra high-definition televisions, which let’s be honest, aren’t SOOOO much better than HDTV’s that people are camping out in front of the electronics retailers to get one. So, companies like LG are going to have to go to extreme lengths to highlight the incremental value delivered by an ultra high-definition television over an HDTV. LG decided to engage some of the public in shocking scenarios utilizing their product (and film the whole thing) to try and show not just the people involved in the pranks, but the rest of the world at the same time, the shocking visual clarity of their ultra high-definition televisions. A great creative strategy, and a smart value translation approach for their potential innovations.

Here is an LG elevator prank:

Here is an LG job interview prank from Latin America:

And finally here is another LG prank in the men’s restroom:

So, as you are thinking about advertising your own new products and services, think about whether or not buying media is the best way of distributing any video advertising you might want to create. And also think about whether or not you might need to shock people into buying your product or service because they believe their existing product or service is “good enough”?

And is your product or service better than the existing ones by a wide enough margin to make customers care?

Something to think about…


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Who’s Your Daddy? – Business Models and Marketing

Who's Your Daddy RVFirst there was the ice cream man, then there was the book mobile, then came the popular food truck craze, and now the other day I came across a humorous new business on wheels – Who’s Your Daddy?

What service do they provide?

Well, the main service they provide is 24/7 on-site DNA testing and drug testing. This can be quite convenient for companies or courts that require the services and the employees or clients that they need to send to such a service (many of whom might be dependent on public transportation to get around), and on their web site you can check to see where you’ll find their RV’s (in much the same way you can check on food trucks).

Identigene Low Cost DNA TestI have a feeling the bulk of the revenue comes from the drug testing side of the business, but the catchy ‘Who’s Your Daddy?’ slogan on the RV obviously get the bulk of the attention.

It is an interesting business model choice for this DNA testing portion of this business and puts it in an interesting competition with the low-cost self-service take home DNA testing kits that you’ve been able for five years now to purchase from companies like Identigene at your local drug store, ironically in most cases, right next to the condoms and other birth control options.

Obviously the two business models can easily co-exist and the RV business model that Health Street is using will take a lot of effort to scale up, but it highlights that you can take a relatively small part of your business, do something interesting with it and use that creative endeavor to boost the more boring part of your business that drives most of your sales.

It also highlights that just because someone is already selling something, doesn’t mean that you can’t also enter the market and be successful, as long as you have something that they don’t – better location, different business model, better service, or whatever your competitive differentiation might be. So don’t give up just because someone is already doing something, just find a differentiated approach and execute with excellence.


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