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Sporting Competition

Business is often compared to sports.  You hear of someone hitting it out of the park or the slam-dunk opportunity. When you need to get back to the basics, it is often blocking and tackling. And who hasn’t had to develop a game plan for the upcoming budget year.  But one thing that sports has that business doesn’t always is a clear opponent.  Sports are all about the competition.  Business, too, is about competition, but the opponents are often hidden.

Often, I have read business plans where the entrepreneur states that there is no competition for his particular venture’s product or service.  If I am judging a business plan competition (there’s that word again), I automatically downgrade a couple of points.  If, I am a mentor to said entrepreneur, that begins a longer conversation about the business.

My friend Jeff, the marketing strategist, likes companies to develop “Only” statements.  As in, the widget is the only product that will wash your floors and leave your mouth minty fresh.  I’m kidding, but Jeff is serious.  In marketingland, it is critical to explain why your product is the only way to get things done.  But from the other side of the fence, we understand that while we are the “only” X, our prospective customers also get to decide what is important to them and there are others out there who have something to say about their products.

Let’s face it, there is always competition. A few examples…

What about Microsoft, back when it was a tiny company?  There is the oft told tale of how Gary Kildall, founder of Digital Research was a strong competitor to Bill Gates’ early efforts at Microsoft and lost out on the original IBM PC operating system contract because he wasn’t willing to sign the IBM non-disclosure documents. Had Gary Kildall signed the contracts, no one would have heard of Bill Gates or Microsoft.  Instead of Windows, we might be using GEM.

But, really, when Henry Ford started making cars, he had no competition. Not so fast.  Henry Ford had lots of competition.  Besides the other automakers who were building cars on a custom basis, there was always the horse and buggy.  People did not really need the automobile.  Remember that “do nothing” is always a competitor in the minds of your potential customers.  What Henry Ford did was change a manufacturing process for a product that had already been in the market.

OK, then, how about Segway.  Dean Kaman built a product that no one had ever thought of.  It was an entirely new product and how could there be any competition?  Ah, but the competition was there, it was just disguised.  Let’s see, people could walk (buy nothing), purchase a bike, hybrid car, roller blades, scooters.  It depends on how they were looking at the problem. In actuality, the competition was what led to a less than successful introduction for the Segway and why they are still looked upon as curiosities, rather than a mainstream transportation choice for consumers.

I believe that you have to be honest with yourself when you look at your business.  There is always competition and you have to be ready to confront it.  Don’t forget about “Do Nothing” as a competitor. Look at alternative uses of other products and how your product may be viewed in the marketplace.  In fact, if you can honestly say that there is no competition for your product, I would question the value that the marketplace has for your product.

So, if we can agree that in order for you to be successful, there will be competition, then how can we develop strategies that will further your business idea?

First, we need to realize that competition is good.  In a way, competition validates the marketplace.  If others are selling into the consumer base, then we know that the consumers are able to purchase to solve their needs.  This gives you an idea that people may also buy your products, if they are marketed, produced and delivered with care.

Second, competition will force you to raise the level of your game.  You have to understand the marketplace and react to it on a regular basis.  This will hone your product offerings to be as good as they can be.

The one thing that I would emphasize to companies facing direct competition is, don’t play the other guy’s game.  Change the game and make him play by a new set of rules, if at all possible. Going back to the Henry Ford story, this is his true genius.  He was able to change his manufacturing process to lower the cost of the first mass produced automobile.  The consumer really didn’t much care that it was mass produced, but suddenly the price for an automobile was not a stumbling block and Ford was able to literally change the world.

For you, look for ways to change the game as well. Maybe there is something that you can bring to the table that doesn’t cost you much, but the other guy hasn’t cottoned on to.  Put your emphasis here.  Go to your customers and let them know about that extra special feature and try to get it written into specs.  Understand what is important to your purchasers.  Is it value, couture, large portions, safety from lawsuits?  Whatever it is, if you can provide it and your competitor cannot, you have a better than even chance of (sports metaphor coming…) landing the big one.

But, if you are successful, be aware that the circle has a way of coming back.  Look at Microsoft and Google today.  It’s all part of the game of business.  Real entrepreneurs don’t shy away from the competition, they look for ways to compete on the playing field.

The Myth of Homo Economicus

When I went to school in the Dark Ages, we were taught in Economics that there is such a thing as Homo economicus, a purely rational human who makes all economic decisions based on “What’s in it for me” — sounds a lot like Chicago aldermen, but I digress. In many ways, this short cut made economics much easier.  We didn’t have to worry about things like people’s desire for respect or willingness to impose “fairness” into our negotiations. But it was also a bit like physics, where we were told to ignore the effects of friction in some of our equations – a shortcut than didn’t really help our understanding of the world we live in.

As time moved on, economists and psychologists started to research whether the Homo Economicus was real or a fallacy.  Scholars like Amos Tversky, Daniel Kahneman, Ian Ayres, Dan Ariely and Richard Thaler ran scientific experiments to see if people really did act rationally when it came to economic decisions.  What they all found, in various ways, was that we are not rational at all when it comes to buying, negotiating, selling, responding to advertisements and even going to the movies. In fact, to steal the title from Dan Ariely’s most famous book, we are Predictably Irrational.

I have recently completed reading the book Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone. I had read a number of Poundstone’s books before. He wrote books on secrets and puzzlers like How Would You Move Mount Fuji?, but I wasn’t prepared for the level of detail and research that he had completed to write this book.
The book is structured into 53 chapters. Each chapter takes a specific pricing case and talks about the specifics of the deal. There is also a description of a scientific experiment that describes the psychology of the participants. I had read about a lot of the experiments before, but this book allowed you to tie the results of the experiment with the results of a pricing decision in a very real way.

Poundstone opens the book by retelling of the McDonald’s hot coffee lawsuit, where the attorney for the plaintiff in the case employed a simple scheme to raise the amount of the jury award — he simply asked for an astronomical award from the jury.  This raised the anchoring point for the jury so that while they awarded much less than the asked for judgment, they awarded much higher than any rational person would have considered the case to be worth.  Anchoring also works in the grocery aisle.  Not too long ago, the standard size for ice cream was a half-gallon.  Consumers had in their minds what they normally paid for a half-gallon of ice cream.  Manufacturers wanted to raise prices (their costs had increased) but were concerned that if they raised prices, people would notice and either change brands or even more worrisome, consider alternative dessert items.  So, now if you go into the grocery store, most ice cream is sold in 1.5 or 1.75 quart sizes (a reduction of 12-25%), but the pricing is kept in the same familiar range.  The average consumer doesn’t realize that they are getting less for the same price and the market share of ice cream as a portion of the dessert market is safe. Anchoring at its best.

One of the experiments that gets a lot of play in the book is the ultimatum game.  In this game, one person is given $10 and is told that they can give any part of the $10 to another player.  If the other player agrees, then the deal is done.  If the other player does not agree, neither party receives any money.  This simple game uncovers a lot of different outcomes.  Men perform differently from women, Type A’s perform differently from Type B’s, Liberals perform differently from Conservatives, sober people perform differently from those more tipsy.  Is the proposer most rational when he proposes $1 to be given to others while keeping $9 for himself?  Is the receiver rational when rejecting a deal that would make them $1 richer in order to punish the unfairness of the proposer?  The best example in the book of the ultimatum game in real life is the story of Jack Welch’s divorce negotiation.  While we normally think of Neutron Jack as a most savvy businessman, it was fun to read the story how of his former wife turned the tables on him using the precepts of the ultimatum game.

Each of the chapters talks about ways that we as consumers are manipulated to paying more or selling for less than our mythical ancestor Homo Economicus would have been expected to.  This is certainly important to consumers, because a savvy consumer who is aware of the psychological tricks can make smarter purchasing decisions.  As business people, it is helpful to understand how to price your products and services in order to reduce price resistance.

This book was a pretty easy book to get through with enough concrete examples to catch your attention. In the 1-5 star rating category, I would give this book a solid 4 star rating.

Funding, User Experience, Logic and Marketing

I was reminded recently that I haven’t done a links column is a while, so here goes for a few good reads:

  • Seth Godin writes about funding for a business.  The typical methods are debt (loan) or equity (stock).  He proposes a third way that might make some funding sources happy.  I am intrigued.
  • Dustin Curtis writes about the science of entrepreneurship.  This article was fun to read, but take a look at the rest of  the articles on his blogazine.  He is a talented User Experience designer and each article is beautiful and thoughtful. Also to be read are the two articles about American Airlines and their user experience. By the way, American Airlines fired the AA designer who wrote to Dustin.
  • Fun logic test here:  Are you a cognitive miser?
  • For entrepreneurs out there who are having problems with marketing, here are over 100 marketing questions that will help you get started thinking about how to market your company (or yourself).

Absence makes the heart grow fonder

Your mother was probably fond of the saying “Absence makes the heart grow fonder”.  Mine certainly was.  She usually trotted it out when she wanted one of us to go on a trip where we would have to leave the current boyfriend or girlfriend home for a week or so.

I was reminded of this when I read the book Yes!: 50 Scientifically Proven Ways to Be Persuasive on vacation. In the book, the authors use scientific studies to validate ways that people can be persuaded to do something.  Some of the ways involved differing methods of getting people to reuse hotel towels.  But what prompted this post was the idea that scarcity of a product can increase its demand.  Not absence, scarcity.  The idea is that if there is a hope of getting a scarce product, then consumers will desire it more.

They used the case of the Oldsmobile.  In 2004 GM discontinued the manufacture of the Oldsmobile line due to low sales.  The ironic thing is that the sales of Oldsmobiles in 2003 were their highest ever.  People were induced to buy because of the scarcity of the brand.

I am convinced that the popularity of the Wii gaming system from Nintendo was also a case of the scarcity inducing purchase envy.  Nintendo released the Wii with only a few systems available.  If you knew of someone who got one of the first ones, they raved about the user interface and the general fun factor of the games.  This just stoked the purchasing flames, when people could not get one.  Those folks staked out the Best Buys and the Costcos just waiting for the next shipment to arrive, so that they might get their hands on one of the 25 just arrived systems.

However, scarce does not mean late.  Note that Boeing has upset more customers with a late delivery for their 787 Dreamliner than made potential clients excited.  You have to make your dates.

Scarce also does not mean boring.  Something that is scarce and boring does not make people excited.  See any number of cell phones that are released for use on one cellular network and has me-too features.  Who really cares?

And despite what my mom said, absence won’t really get you talked about.  You need to have something there for people to get excited about and envision themselves owning.  Nintendo and Oldsmobile (probably inadvertently) got the mixture right.  This same story was critical in the Tickle Me Elmo, iPhone and Cabbage Patch Kids.

Find a way to make your product good and scarce.  It has to be both. And you just might have the next remarkable product in the land.

I yam what I yam!

There are so many great one line catchphrases that have come to us from cartoons.  But one of my favorites is from Popeye — I yam what I yam, and that’s all that I yam.  One of the things that I have learned over the years is that you have to know what you are, what your strengths are and look to enhance them, rather than look at trying to solve every weakness.

In business too, we seem this same dynamic.  Too many successful companies are looking for the newest thing when they have a good thing right in their own companies.

In Chicago, WGN Radio is a powerhouse.  It has a 50,000 watt transmitter that allows its signal to be heard in 37 states.  It is always in the top 2 in terms of market revenue.  If you asked anyone in the city what the demographic of the radio station’s listener was, they would know: it was an older, white, mixed politically, educationally advanced audience.  The station was a throwback to old times.  The announcers still read commercials live.  It had personalities who were engaging and a devoted audience for those personalities. The station had the ability to do indepth shows on topics that others could not. In short, it held its own place as a unique place on the radio dial.  But then Sam Zell bought the Tribune Company and with it, WGN Radio. In short order, their morning drive time host retired.  This was not a surprise — the host had planned his retirement for over 6 months.  Management named one of their afternoon hosts as the new morning host.  After 6 months, they moved him into a spot that they created by firing the hosts of a unique morning show directed at women that had been on the air for 20 years and had a hugely loyal following.  In the meantime, they fired the hosts of unique shows that focused on money, pets and gardening and replaced them with what the rest of the world sees in talk radio – bigoted, loudmouthed talk radio guys.  I am convinced that although WGN had a good thing going with their market, the moves that they made will make them a middle of the road player. By going after the coveted demographic segment (men 25-45), they will be indistinguishable from all of the other stations out there. The latest numbers are not in, but my prediction is that they will be trending in the wrong direction.

Consumers are looking for what you can bring to the table. They like knowing who you are and what you can do for them. Bring them something different, but don’t bring something different to an audience that is not yours.  Don’t be like everyone else.  Know what you are and bring it – better, faster, cheaper – but bring it.

Presentations

I have been a business plan competition judge for a few years now. Not as glamorous as the Miss America contest and not as tasty as a BBQ Competition judge, but fun all the same.  I really enjoy feeling the energy that comes through from the entrepreneurs in their ideas.  As part of my role, I have the opportunity to read a lot of business plans and watch some presentations to panels. I have also had the ability to see how groups of judges make decisions, as we all have our own points of view that must be aligned before determining the placing of the contestants.

A few lessons from the judge’s table (in no particular order):

Make your projections reasonable, meaningful and achievable. So many of the plans show either Year 3 earnings of $100 million or $200 thousand. Investors don’t believe the former and don’t bother with the latter. In any case, make it easy for the judge to vote for you.  Make sure that your financial tables foot, are right justified, have thousands separators, are complete and are rotated to allow for easy readability on the screen without printing it out. Take the opportunity to explain all assumptions that you make while determining your financials. Don’t assume that every month will be the same. Is there seasonality?  Will month 1 really be the same as month12? Include every expense that you can think of and make sure that the expenses that are outlined in the text portion are considered in the financial plan.

Detail your marketing plans beyond “advertising and trade shows”. Our world is changing faster than ever.  Don’t bet only on the same old strategies that our parents might have used.Try to stay away from discounting and couponing in the initial years.  You might have to resort to that if the economy goes south, but it probably is not a good strategy right out of the box.

Beware of planning your long term growth strategy on existing tools. Will Twitter or Facebook look the same in 5 years?  Will it look the same in 1 year?

Sample, if you possibly can. Let the judges (or angels, private equity folks, friends and family et. al.) touch, smell, see and taste your product.  Do a demo, if it is software, even in there is nothing behind the demo.  Don’t lie and tell folks that there is, just show them what you can.  In the last competition, one company had clothing, but did not let the judges feel or interact with the interesting material.  Another concept was a restaurant, where the chef came out and cooked for the audience.  Hearing the garlic sizzle in the fry pan and then smell the just cooked foods, made a huge difference in their presentation.

Leave the arrogance at home. Try to answer the direct questions as clearly as possible without signs of impatience or omnipotence.  Take a deep breath before answering, gather your thoughts and give the best answer you can, which might be “I don’t know, but I will find out and get back to you.”.  The judges don’t know your business as well as you do, but also, remember that they may be looking at it from a new angle that can provide insights to you.

Make sure to have people proofread and edit your submission. You may be the best interior designer in the world, but if your financial page is wrong or your marketing plan is half-baked, it is better to know and correct before the big day.

Presentation skills count. Think about how the presentation should flow.  If you have 3 founders, it is difficult to follow when each of you does one slide at a time.  Don’t read from your slides.  Your slides should guide your talk, not take the place of it.  See what Seth Godin has to say about presentations.  If you can add a video to break up your presentation, do so.  Practice, practice, practice.  If you practice enough, you will not be nervous at the time of the big show. Know how long it takes to give the presentation.  Use cue cards to make sure that you convey the right ideas for each slide – bullet points, not complete sentences.  Important – do not read your presentation from the cue cards.

Even if you are not entering a business plan competition, these are all good rules to think about when making a critical presentation.  It could be for an internal project approval at a large company or for venture financing.  You are the best sales person for your idea.  A great presentation will get you further along towards getting that approval than anything else.

Fun, Marketing and Big Picture

Fun: A quick time waster for those of us who like word games is DeepLeap.  A whole game is 2 minutes and is reminiscent of Scrabble.

Marketing: Marketing is an exceedingly hard thing to do well.  I love to find examples of people who try, but really “just don’t get it”.  This one was pointed out by my friend Kristin.  Check out this Twitter from Jason’s Deli:

Happy Passover folks! For the first ever, we are offering Matzo to customers. But I don’t recommend ordering a Reuben on matzo. Oy!

Nice try that they are offering matzo for customers who are celebrating Passover.  But, is there any reason that someone who would request matzo would go to a sandwich place for lunch?  Perhaps for their ham and cheese on matzo?

Big Picture: Dubai is the new shining city in the desert.  How did it get that way and what is coming next?  This article explains the dark side of the developing city.

Fun: As father of two umpires, this article by George Will made my day.


Behavior, Economy and Entrepreneur

Behavior: Can you name one question that Amazon uses to garner more than $2B in sales? Jared Spool can and he explains the whole process.

Economy: Hugh MacLeod, creator of the gapingvoid art and blogger, writes about how the economy of today is being purged of “Middle Seat Sellers” and how this is a good thing.

Entrepreneur: I just finished the book, The Monk and the Riddle: The Art of Creating a Life While Making a Living and I loved it. It is a very fast read and talks about the things one needs to think about before visiting your local VC or angel for funding.

Marketing, Quotable and Big Picture

Marketing: The folks in the UK have found solace in a bit of WWII history.  They have resurrected a poster created in time of war that is eerily appropriate for our current economic conditions.  However, the entrepreneur in me, likes this version even better.

Quotable: Justin Wolfers in talking about economics partnerships: “The best way to keep learning economics is to find opportunities to be the dumbest guy in a very smart room.”. I think this is true for all endeavors.

Big Picture: Clay Shirky writes a nice long blog post about the history of the newspaper business and what comes next, by looking at history.

Fun, Economy and Technology

Fun: If this isn’t a movie soon, I will be surprised.  Joshua Davis tells the inside story of a diamond heist that although a bit long, is totally mesmerizing.

Economy: While still remaining on the topic of heists, Vanity Fair magazine has a long article on how Bernie Madoff was able to perpetuate his scam.

Technology: Ever wondered how Google prices their ads?  Here is the scoop from the Chief Economist of Google.

Technology: I wrote about tools for the entrepreneur last week.  I have found a few more that just might make the cut for you.  Officezilla is a free tool that does much of what Basecamp does for project managment.

Economy: I am not sure that I can believe this, but the Boston Globe is reporting that the FDIC needs to borrow $500 Billion to potentially prop up bad banks.  What is most interesting is that the FDIC did not collect premiums from most of their member banks from 1996 to 2006.  Why didn’t they collect the insurance premiums?  Well, Congress prevented the FDIC from collecting because they felt the FDIC was so solidly capitalized. Whoops!

Fun: What does a trillion dollars really look like? I had no idea, but half of that picture makes up what the FDIC is looking for.  Ouch.