Pinterest

A lot has been written about Pinterest, the social photo sharing website, in the last few weeks.  Fastest company ever to get to 10 million monthly uniques.  Very impressive.  What's even more impressive is how they're monetizing these users at a very early stage with a somewhat brilliant idea.  Here's how it works:

• I post a link to a pair of sneakers that I like from say, Sports Authority, to my Pinterest page
• You see the image and click on the link
• Pinterest runs an instant query to determine whether or not Sports Authority has an affiliate program
• If they have one, the link is automatically converted to Sports Authority's affiliate link and you're sent to Sports Authority's site
• You make a purchase from Sports Authority
• Pinterest takes their commission

A very innovative (and frankly gutsy) idea.  Twitter and Facebook are probably kicking themselves for not thinking of it years ago.  

The Razorblade Strategy

Yesterday I wrote about how I'm long on Amazon. One of the reasons is that they’re in the process of aggressively implementing the Razorblade Strategy.  The Razorblade Strategy is when one item is sold at a low price in order to increase sales of a complimentary good.  It was made famous by Gillette -- they sell their razors for next to nothing and the blades at a high premium.  This creates a profitable recurring revenue stream, and recurring revenue is generally better than one-time revenue.  Printer companies also do this very well.  Printers cost almost nothing and Hewlett-Packard, as an example, makes nearly all of its profits on the sale of the toner (again, recurring revenue).  I remember reading that one ounce of HP print toner costs more than one ounce of Dom Perignon...

The price of Amazon's Kindle has nosedived over the last several months -- you can get one for $79.  Rumor is that they’re even losing money on manufacturing the devices.  They're hoping that by lowering the price more people will buy a Kindle and then buy the profitable digital media to put on the device.  This is a perfect example of the Razorblade Strategy at work and exactly why I believe they’ll compete well against Apple in the digital media space.

Typically, the major risk involved with the Razorblade Strategy is when the price of the complimentary good falls.  But with Amazon's scale and dominance in media there's relatively little risk for them there.

Amazon should race as fast as they can to get a Kindle in the hands of every consumer.  Good execution of the Razorblade Strategy, and a price of $79 versus Apple’s cheapest iPad at $499, is a critical and promising step in that direction.

A Viral Marketing Framework

Uzi Shmilovici had a good post on Techcrunch yesterday on the 8 different ways one can do viral marketing.  I’ve written in the past how I don’t believe you can “do” viral marketing. But I do believe you can do a few things:

1. Build a product or service with ‘network effects’ so people are intrinsically inclined to tell their friends: (e.g. the telephone has a network effect because it’s a worthless product if your friends don’t use it -- it's naturally viral)
2. Build a product or service that’s so awesome that people are inclined to spread the word
3. Make it really easy for people to spread the word about your product or service
4. Use gimmicks to get people to tell their friends.  I don't mean 'gimmick' in a bad way but there are tactics you can use that give you a temporary bump in new customers.  Though they're not truly viral marketing activities as the increase in customers doesn't continue to spread past a few degrees as a real virus would

That said, Uzi's 8 ways of doing viral marketing are interesting.  I'd encourage you to read his post before reading on.

To help me think through his approach, I've applied his 8 methods to my framework above and included an example of each:

1. Network Effects

(1) Inherent Virality – your friends must use the product for it to work (example: the telephone)

(2) Collaboration Virality – the product is more valuable if your friends use it (example: Amazon’s ratings & recommendations system)

2. Make an Awesome Product or Service

(8) Pure Word of Mouth Virality – people tell other people because the product is awesome (example: most of Apple’s products)

3. Make it Easy to Tell People

(3) Communication Virality – include your tagline with the product (example: tagline in Hotmail’s email message stating, “sign up for a free Hotmail account”)

(5) Embeddable Virality – include a link back to your product in your content (example: link to Youtube in embeddable Youtube videos)

(6) Signature Virality – include a “powered by” link even in white labeled products (example: Intel logo on laptops)

(7) Social Virality – allow users to broadcast that they’re using your product through social networks (example: Turntable.fm forcing users to attach their account to their Facebook account)

4. Gimmicks

(4) Incentivized Virality: give users a benefit for telling people about your product (example: Living Social’s me+3 = free promotion)

As I've said before, viral marketing should be a mostly passive activity -- it's an output of building an amazing product or service.  So while all of the above are worthy activities, most of your energy should be spent building that amazing product or service that people can't wait to tell their friends about (see #8 above).

Touchpoint Frequency Graphed

A couple weeks ago I wrote about Touchpoint Frequency & the Attention Asset.  In short, if you touch a client or prospect too often with communications that are of poor quality, you will deteriorate the value of the attention you've built with them. I built the graph below to illustrate this concept.  The idea is to walk that fine line of communicating extremely high quality messages with the right frequency.  I believe that you can communicate every day, as long as the message is of high enough quality.  The challenge is staying on the blue line...

Touchpoint graph

A Couple More Thoughts on Enterprise Tech Versus Consumer Tech

Two other quick thoughts on this topic... Why is enterprise tech behind consumer tech?

1. Slower development cycles: B2C companies can innovate and release much faster than B2B (often B2B product changes need multiple approvals), "MVP" as a development strategy doesn't go over well with big companies

2. Many large companies (especially banks) are still on old operating systems and web browsers -- many top banks still use IE6.  This requires enterprise providers to dumb down their products and allows for less innovation.  I don't think Facebook or Youtube are even operational in IE6

Microsoft Office: Winning at B2B and B2C

I've been thinking more and more about how and why consumer technology is so far ahead of enterprise technology.  There are a variety of reasons why, though as I've said, I believe that the primary reason is simply that it can be; i.e. the "B2B" structure simply allows businesses that are focused on the enterprise to get away with less than cutting edge technology and products (i.e. a good Biz Dev team just needs to sell a few people on the product and those people force their employees to use it). That said, there are certainly exceptions.  Take Microsoft Office for example.  An almost ubiquitous enterprise product that is used in the office and at home.   Employees use the product in the office and they like it so much that they buy it for their home computer.  By creating an awesome product, Office has been able to dominate both the B2B and B2C markets.  This is an amazing accomplishment when you think about it.  To do this they have to have the unique combination of an elite Biz Dev team and an elite product/engineering team.

Of course, Google Docs and other web-based applications are legitimate competitors to Office and are taking market share.  As more and more users begin using Google Docs at home you could see them demanding that their IT departments switch over to the enterprise version.  To obviate this, Microsoft has created a "Home Use Program" where they offer their enterprise users Microsoft Office Professional for use at home for only $9.95 (the same product goes for ~$382 on Amazon).

A very smart and probably necessary pricing strategy to help Microsoft keep their unique stronghold on both the B2B and B2C markets.

Beware of the Low Hanging Fruit

One of the most significant challenges that comes with the launch of a new initiative is knowing whether or not it truly has long term potential.  

To make this assessment even harder, when most initiatives launch there's always some low hanging fruit that can give you the perception that the initiative is working.  Smart engineers or good business people can usually prioritize the quick wins and grit their way to some success in the first few days or weeks of a launch.  But what's hard to evaluate is what will happen once all of that low hanging fruit has fallen off the tree.  A couple ways to help address this:

1. Ask each team member to create one perfect case study of success out of the initiative as fast as they can.  Rather than going out and getting 30 wins, ask them to get one win and dive into the detail.  Why did that win work?  What were the challenges in getting it there?  What might make this win different than others?  What might make it similar?   By diving into intense detail and building a case study on a winning opportunity, managers will be able to understand the strengths and challenges that they didn't know about at the beginning or can't see just by looking at results.  So often the true path to success lies in the detail.
2. Keep a simple to read and easy to update log of initiatives; include learnings (what worked/didn't) and results against your goal.  Use this log to set a benchmark for future initiatives.  Over time, this log will help you get a good feel for when the initiative has turned the corner on the low hanging fruit and is picking up steam or fizzling out.

Low hanging fruit is a good thing.  It can help build momentum and excitement around a new initiative and is often a great way to pick up insights that help a team move faster or prioritize more effectively.  But it can be a trap that leads to over-investment.  The simple steps above have helped me avoid that trap in the past.

Charge More than your Competitors

Jim Keenan had a good post a while back titled, The "Lowest Price" is a Business Model not a "Sales Tactic". The key line in the post was:

Pricing is a business model, it's not a sales tactic.  Yes,  you can wiggle a little on price.  It's to be expected, but competing on price has no place in sales -- unless it's your business model.

It's a great post, I recommend checking it out when you get a chance.

That said, I'd like to extend the idea a bit.  In my mind, a good salesperson shouldn't want to compete on price; in fact, on the contrary, they should want to be the highest priced player in the market.  Not only does the highest price lead to higher commissions but it also implies that you're not afraid to compete on product (to justify the price, you must have good quality).  And it raises the bar on the quality of your sales talent and sales approach (you have to be better than the rest).

A while back, I was on a sales call and the prospect said, "you know, I've done some research and it seems that your product is more expensive than your competitors."

Our answer was this: "well, you can stop doing research on that, because our prices are higher than anyone else in the market, much higher."

While bold, most people would be amazed at how productive this can make the sales process.  It also goes right to the heart of the matter (gets the elephant out of the room) and levels the playing field in the process; i.e., "do you want to work with the best?"

Apple is a perfect example of this approach -- their prices are far higher than Dell, HP, Lenovo, etc. but they can justify it because they're perceived to have higher quality products.  Apple never competes on price strategically, and I'm sure their salespeople on the ground don't even try.

Of course, this sales tactic has to be supported by product quality and company strategy, but regardless, I want the salesperson that wants to sell a product that's of the highest quality and proudly quotes a price that is consistent with that value.

The "I'm Here" Rationale

In the offline world, once you get a customer into your store there’s generally a good chance that you’re going to get them to buy. 

They took the time to drive to the store, park, get out of the car and walk inside.  There’s a negative feeling of wasted time if they don’t buy something.  So if your store doesn't have the best price or best selection the consumer is still likely to buy: “well, this shirt isn't perfect, but I’m here, I might as well buy it".  I’ve felt this way many times as a consumer.

This feeling doesn’t exist online; if it does, it exists to a far smaller degree.

The cost of leaving an online store is less than a second (just close the browser window).  The "I'm here" rationale doesn't work.

This is an important insight as it disrupts many traditional conversion methods used by marketers.  For example:

1. Loss leaders don’t work online: if you get someone to your site with a great deal and they miss it, they won't buy something else, they'll go somewhere else
2. Impulse buying -- a huge offline revenue driver -- is almost impossible to replicate on the internet; you’re not stuck in a checkout line, the line moves as fast as your internet connection 

Of course there are multiple other examples.  Like so many other things, the internet is disrupting old fashioned conversion tactics and putting the consumer back in the driver's seat.  A good thing, in my view.

Usage Metrics

Most web services closely track their site usage and site conversion.  A "user" that "converts" equals $.

In e-commerce, you could describe it like this: get people into the box (drive usage) and do well for them when they're in the box (drive conversion).  

I thought I'd take a moment to clarify a few of the key terms associated with usage metrics in e-commerce as there's often some confusion around how these metrics are defined.  In a subsequent post I'll talk about some of the key conversion metrics. 

Usage Metrics:

• Registered User: a new user, or a user that came to the site for the first time in a given period and accepted terms of use and (generally) provided the site with their email address
• Total Registered Users: sum of all new users
• Unique Users or Unique Visitors: the number of individual people that came to the site in a given period (only count 1 visit per person)
• Sessions: the number of total site visits during a given period (count all visits for all people)
• User Activity: the % of total registered users that visited the site in a given time period

To keep it simple, when evaluating a web service's usage I really only want to know two things: 1.) how many total registered users do they have and 2.) what % of those users visit them each month?

Generally, I find that usage is pretty healthy if around 25% of registered users are coming back to the site each month, though this can vary widely depending on the vertical.

Touchpoint Frequency & the Attention Asset

We all know that the more spam you send or the more often you bother a sales prospect the more likely they are to begin ignoring you. Said differently, if you have built up a certain level of trust and credibility,  you have built up an "attention asset" with a user or prospect -- and spamming them will quickly deteriorate the value of that asset.

The conventional solution to this problem is to simply stop touching the user or prospect, or to at least do so less frequently.

While certainly intuitive, this is exactly the wrong solution.

Instead, I believe companies should strive to touch a prospect or user every single day, if not more often.  BUT, at the same time they should challenge themselves to bring the prospect or user enough value in every single touchpoint, every single day, so that not only do they not deteriorate the attention asset, but instead they increase the value of it.  I wrote a post back in April titled, Drip Marketing that outlines this approach.

In practice, of course, you don't have to reach out every day (be sensible) but I do believe that the approach of reaching out every single day will require you to create content that is compelling, interesting and highly valuable.  And that this is a far better approach than taking the easy way out and solving the problem by simply backing off.

"User-First" Client Acquisition

I built the simple framework below to help me think through the enterprise product conversation happening yesterday.

A B2B company could find itself in one of four situations.  The goal is to be in the top right quadrant (good sales talent, good product quality) so that you can simply accelerate what you’re doing.   But the most interesting to me – and the one that I think will be the fastest growing – is the top left quadrant: when you have a good enterprise product but little or no sales talent.  I’ve seen more and more startups come along that have super cool products but no enterprise sales experience or talent.

The old fashioned solution to this problem would be to hire, partner or find an experienced distributor that could move product for you.  But largely because of what I think is an increasing hesitancy among early stage companies to over-invest in sales & marketing, there’s a ‘user first’ strategy that seems to be gaining traction.  Companies like Yammer are providing value at no cost to individual users but charging the company for “premium upgrades”: system integration, security, admin rights, etc.

At its core, “User-First” seems like a no-brainer: get employees to use your product and love it so much that they demand their companies purchase the upgrade.  But like most things, the challenge may lie in the details of the sales process; i.e. how does this approach align with a potential client’s buying process?  Good B2B salespeople have adapted their process to match their prospects’ buying cycles.  And in my experience the buyers like the process, control, security (and bureaucracy) that these cycles allow.

Products that decide to go “User-First” will have to learn these details and adapt their upsell process to fit in neatly with institutionalized buying cycles.  If they can’t do that well, “User-First” will simply be a fancy lead generator and sales talent will continue to be a requirement for B2B success.

Never Underestimate the Network

Chris Dixon likes to say that the next big thing will start out looking like a toy.

Some good examples are companies that are building networks on the web.  In the beginning, many web services can look like they’re serving relatively frivolous needs.  Sharing photos or music, booking reservations, writing reviews, playing games, shopping, etc.  It seems that most of the popular web services currently aren’t filling critical human needs and solving critical human problems.

But what all of these companies are doing is this: they’re building huge networks of individuals connected by common interests.  And the services that capture the critical mass of users in any given space are in the best position to begin to start to solve the more important problems of that space.  Many problems can’t be solved on the web until a strong network is built on the web

Facebook is a good example.  Today, it seems that they’re filling a somewhat unimportant need: connecting friends and providing entertainment (allowing people to essentially kill time).  But by building a platform that does these few things better than anyone else, they’ve built a network that is almost impossible to match or displace.  And it is this network that provides the foundation that allows web services to solve far more important problems.  I would bet a lot of money that ten years from now Facebook will be solving problems that we (and the founder) haven't yet imagined.

In short, the point of this post is to say be very careful of dismissing any web service that is building a network as just a toy.  It’s likely that they’re simply undershooting, or haven't fully realized, the full breadth of their users' needs and the problems their network can solve.

Start With The 'Why'

A colleague shared a Ted talk with me today from Simon Sinek, it's currently Ted's 19th most watched video.

It's about 18 minutes long and definitely worth watching.  You can watch it on YouTube here.

Simon's theory is that most companies and individuals sell and talk about features; i.e. "what we do".  He argues that this is a mistake.  That the super successful individuals and companies sell their inspiration, or the "why we do it".

To make his point, he asks the question: what makes Apple so different?  They're structurally the same as any other computer company.  But for some reason, we will buy computers, MP3 players, phones, music, almost anything from them.  Whereas for a while Dell sold great MP3 players and nobody would buy them.   And Gateway sold great flat screen TVs and nobody was interested.

He argues that the reason is that Apple is selling the "why" while the others are selling the "what".  Instead of saying we have the best computers or the lowest cost computers or the best designed computers (the "what"), they say: we're going to challenge the status quo with masterful design (the "why").  People don't buy what you do they buy why you do it.

The most compelling part of the talk is his comparison of TiVo (a failure) to Martin Luther King (an immense success).  TiVo had the best product on the market and aggressively sold their features: ability to skip commercials, pause live TV, see recommendations, etc.  Instead, they should have sold the 'why'.  Something like: we want to give you control over the smallest aspects of your life, by giving you the ability to skip commercials, pause live TV, etc, etc.

On the other hand, in 1963, Martin Luther King was able to bring 250,000 people to Washington, DC on a hot and humid day in August.  They all came on the right day and at the right time.  He didn't send an E-Vite and he didn't Tweet about the event.

These people didn't go to DC for him or to hear a plan that he concocted.  They went because of what he believed.  They believed what he believed.  He didn't even mention a plan.  He talked about his "dream", which was the same as their dream.  He inspired.  They didn't go there for him.  They went there for themselves.  

Similarly, people don't stand in line for 6 hours the day that the new iPhone comes out for Apple, or for the new camera on the phone or for the new screen on the phone.  No. They go there for themselves.  They buy the phone on the first day because it makes them feel a certain way.   Apple's cause or their "why" is aligned with their cause.

It's a great concept, and I've touched on this theory a bit over the years with colleagues and clients.  But I haven't heard it articulated this crisply in the past.  I suspect I'll be thinking (and perhaps writing) a bit about this in the coming weeks.

Missing Projections

Here's an interesting framework to use when considering why a group or company misses projections.  I'm sure it's not perfect, but it's interesting to think about it this way.

When you've missed goal by:

50% - Blame the strategy (it's way off)

20% - Blame the manager (you have an execution problem)

5% - Blame the team (they're either not paying attention or they're not accountable)

Evil Plans

I've always believed that most business books never should have been written.  Instead, the ideas in the book could have been summed up in a couple of blog posts or a long-form article.  I prefer to digest business content in the form of a blog rather than a book.  Too often business books are stuffed with superfluous examples and repetitive fluff in an effort to turn a somewhat simple concept into a 300 page, $14.99 book.  Like most people that are apt to read a business book, I don't have the time or the desire to read a lot of fluff.

Hugh Macleod, the blogger, artist, and writer must share this opinion.  He's an excellent business writer.  He writes a bit like he's paranoid that the reader is going to get bored.  He knows how to write books for people that are busy.  He makes short and simple points (often with a real life example) and moves onto the next thing.  He almost forces you to read faster than you normally would.  He did this extremely well in his first book, Ignore Everybody: and 39 Other Keys to Creativity.  Ignore Everybody was one of the best business books I've ever read.  It's full of insightful ideas that are communicated concisely, without the fluff.  I wrote a post on Ignore Everybody a while back where I called out some of the best tidbits.  I highly recommend reading Ignore Everybody.

Over the weekend, I finished reading Hugh's latest book, Evil Plans: Having Fun on the way to World Domination.  While not as insightful as his first, it's just as inspiring.  In short, Hugh asks his readers to develop and act on an Evil Plan.  What's an Evil Plan?  Hugh sums it up well in this line from the book:

"It has never been easier to make a great living doing what you love. But to make it happen, first you need an EVIL PLAN. Everybody needs to get away from lousy bosses, from boring, dead-end jobs that they hate, and ACTUALLY start doing something they love, something that matters. Life is short."

The book is written with a sense of urgency that suggests that the writer has some personal interest in getting you to move on your plan.  Now.

The book is a great reminder that with nothing but a laptop and an internet connection, we all have the power to shape our lives and careers and link up what we do each day with what we love and are passionate about.

If you're looking for a bit of inspiration to get off your butt and start moving on what you love, I'd recommend picking up a copy of Evil Plans.  It won't be a waste of time and I guarantee that it'll at least make you challenge whether or not you should be working on what you're working on.

Talk to Everyone

Over the last several weeks I've been lucky enough to talk with at least a dozen founders of web startups.  It's fun to hear their passion, ask them challenging questions and talk about where they see their products and companies going.  The thing that they all have in common is that they love to talk to about their businesses.  This is a key component of success in business.  Talk to everyone.  It reminds me of an experience I had earlier in my career. Several years ago when I was working with a biotechnology startup we we were looking for a commercial application for a diagnostic device that we were developing.  One of the promising applications was to measure levels of e. coli in meat.  We believed that we held a market advantage in two areas:

1. We could measure these organisms more accurately; specifically, we could reduce the number of false negatives (i.e. if the meat was tainted with e. coli, we were more likely to catch it)
2. Our tests were significantly quicker; they didn't require incubation, we could do a test in four hours versus the standard 10 hours

We flew out to Kansas to meet with a potential customer, a large meat processor.  We took a tour of their plant, talked to them about our product and everything seemed to be going great.  They were interested in the device, it seemed we had identified a pain point that we could address.

But that night, after a few drinks and a lot of steak, we began to hear a much different story.  It turned out that the beef companies were actually not interested in reducing the number of false negatives -- because it would increase the number of positive tests.  And when there are positive tests, they have to shut down the plant, send people home and clean the entire line.  This is extremely costly to them and they didn't want any more line stoppages than they already had.  This seemed counter-intuitive to us.  If the company let meat with e. coli out their doors and someone got sick, they'd be in big trouble.  Surely they were interested in more accurate testing, right?

Not exactly.  It came down to the law of small numbers.  From our contact's perspective, the odds that the e. coli in the meat would survive the ride to the distribution plant and then the ride to the supermarket and then the ride to a customer's home and then the 5 or 10 minutes on the customer's 500 degree grill was extremely unlikely.  Frankly, it wasn't a problem worth really worrying about.

Further, the time advantage we were excited about wasn't all that valuable either.  We learned that the plant works in 8 hour shifts, and as long as the meat was tested and ready for the next shift, 10 hours was fine with them.  Our time advantage was a 'nice to have' not a 'must have'.  And in order to truly win in this business, our product needed to be a 'must have'.  In short, by talking to the right guy, we found that we didn't have a market for our product.

The insight we gained from our trip to Kansas wasn't easy to get.  We had to fly out there and talk to a real insider, off the record, to determine that we didn't have an advantage.  And that's really the moral of this story...when you're working on a startup, talk to everyone that you possibly can.  Insiders, outsiders, friends, family, users, anyone that will listen.

You'll be amazed at how much you learn from bouncing ideas off of other people.  So often, businesspeople get burnt because they just don't know what they don't know.  Talking to everyone prevents you from getting burnt.

eBay's Mobile Growth

This week TechCrunch reported that eBay is projecting $4 billion in Gross Sales Merchandise (GSM) for 2011 -- that is total sales volume through their marketplace, not revenue.  That's 100% YoY growth in that metric.

I'd estimate that they'll do about $80 billion in total GSM this year, which means that ~5% of shopping on eBay will be done through their mobile applications.  Mobile commerce is becoming real.

The article also notes that they sell 2,600 vehicles through their mobile application each week.  Mind boggling. 

Client Management Lesson #3: Manage Expecations

This is the third post in a seven part series on Key Client Management Lessons. Lesson #3: Manage Expectations

For this lesson I'm going to refer back to a post I did back in 2007 titled, The Best Business Lesson Ever.  Click here to read that post.

The lesson, in short, is this formula: Perception Minus expectations Equals Satisfaction (P - E = S).

Managing expectations is a critical part of client management, I'd encourage you to read the post and memorize the formula.

Going Mobile

I had some interesting discussions last week around mobile application development.  One thing that’s interesting about new and fast growing channels like mobile is that they cause entrepreneurs to develop products to serve the channel, rather than to build value and serve the user.  That is, businesses build apps to build apps, rather than build “products” that truly address critical unmet needs. 

For mobile to work, you must have a core proposition that works (very often, that proposition has very little to do with mobile). 

I built the following framework outlining when I believe web services should go mobile: 

1. More Exposure and Engagement: you have a product that works now on the desktop, you want people to engage ‘on the go’.  Action: build a mobile friendly website.
2. Better as an app: your desktop product doesn’t work well in a mobile browser due to site layout, widgets, flash issues, etc.  Action: build an app that gives users all of the functionality of your desktop site on their phones.
3. Must be an app: your product value proposition doesn’t work on the desktop (e.g. it requires geo-location, phone ‘bumping’ etc.).  Action: build an app and a desktop site to support user engagement.