February 25, 2015, 12:59 pm
For some, today’s job market is as challenging as the 1930s Depression was for many. (Picture from The Guardian files.)
You have been imprisoned twice for a total of 8 years for non-violent offenses, both incarcerations related to drug use, drug sales, and property theft. You are off drugs now. You had no legal employment prior to your first imprisonment, but landed a job when you left prison in 2008; unfortunately you were laid off in 2009 as the economy worsened.
Unemployed, you succumbed to drugs again and committed the same crimes. You got your GED the second time in prison. A few gang-related tattoos are visible above your shirt collar, and there’s a scar on your face, the result of a prison fight that you did not cause. With a young child at home and a woman you love, you are determined to follow a different path this time. Your body and voice are strong, but your grammar is weak. You have no money for higher education. And, by the way, you live in Detroit where unemployment remains high. Your girlfriend, who has a low wage retail job, needs her mom’s help with childcare; so leaving Detroit is out of the question. You are 31 and black.
Your task is to find a living wage job to support your family. What steps could you take? (Remember, your Reality TV you lacks the track record, experience and upbringing that makes job searcghes relatively easy for people like me and your real life you.)
The smartest thing you could do is head to a social enterprise, a non-profit largely reliant on earned income, whose purpose is often to serve those facing employment challenges. Los Angeles Chrysalis is one. (You have to admire a non-profit whose website link is changelives.org!) It serves 3000 homeless and hard-to-employ people a year. Its philosophy is “a steady job is the single most important step in a person’s transition out of poverty and onto a pathway to long-term self-sufficiency.” Chrysalis Enterprises, which provides street maintenance, facilities management and temporary staffing, employs some of the Chrysalis participants in “sheltered work.”
Sheltered work environments offer job training and teaches soft jobs skills that enhance participants’ future employment potential. Once graduates are employed outside the sheltered setting, they continue to receive “retention support” from these non-profits.
A recent Mathematica Policy Research analysis shows that Chrysalis and six other social enterprises in the study produce high benefits not just for the participants but also for taxpayers. (REDF, a California non-profit that funds and provides support services to social enterprises focused on employment, six of whom were in the study, paid for the study.)
In the study, 69% of participants had a criminal record, 29% lacked a GED or HS degree. The average age was 41. Here are some before and after numbers for this population:
- BEFORE: 25% were never employed; 37% were unemployed in the prior year, and 84% were currently unemployed.
AFTER: 51% of people in sheltered work programs were employed one year after starting their social enterprise work, a 33-point increase in their employment rate. The comparison group was workers in the Chrysalis labor pool but not in its sheltered work program. Their employment rate was 37%.
- BEFORE: 71% of participants’ income came from government benefits.
AFTER: Government support as a share of income dropped to 24% as total monthly income increased from $653 to $1,246, a 91% gain.
- BEFORE: 85% lacked stable housing in the last 12 months.
AFTER: Housing stability tripled.
For every $1 the social enterprise spent, society received $2.23 in benefits and $1.31 in taxpayer savings. Retention support programs increased the return.
The lesson for me is that we have models that work — for the participants and for society — to address the crushing situation facing the hard-to-employ. The Mathematica study showed new and smaller social enterprises did not generate the returns of the larger, more established ones, so the key is to scale the successful ones. Finding capital to accomplish this is, therefore, critical.
An alternative is to offer more sheltered work in established for-profit companies. Here the benefits would include co-workers feeling they were helping people most in need of help. With a growing rate of long-term unemployment, public policy should create stronger incentives for companies to hire those facing employment challenges.
Imagine if Manpower, Adecco or a local staffing agency (like QTI) decided to expand its scope to advance the placement of hard-to-employ people. It could leverage its employer connections and, by collaborating with social service agencies, add wrap-around services to help these workers succeed in landing work and retaining it. What a difference that would make!
We all say we want to help every American have job opportunities. What are you doing as an organizational leader to put action behind your values and hopes?
February 20, 2015, 2:48 pm
Even the mightiest can fall.
Stars and companies fall from grace. Because of the public hanging, the fall is never pretty. And it’s far easier to explain what happened in hindsight than predict with foresight. Still, looking backward is how we learn our lessons. So here’s my take on NBC’s shocking change in fortune.
Breaking your brand promise destroys trust. News anchors must convey the objectivity, rationality, and truthfulness their viewers demand. CBS’s Walter Cronkite is the gold standard. When your chief newsman appears on late night shows and tries to be funny or raises his hand to be Jay Leno’s replacement—as Williams did—you have a potential branding issue to manage proactively.
Restlessness places brand promises at risk. Restlessness emerges when the status quo produces a feeling or reality of stagnation. John Stewart is exiting the Daily Show as he felt his viewers did not deserve a host with the “slightest bit of restlessness,” as he stated on his show. NBC appears to have had a restless anchor on its hands and mistakenly looked past it.
CEOs also get restless. They seek more boards and more public exposure. Boards also get restless for new leadership. Is this wise? If you recall, Good to Great author Jim Collins found great companies have less publicly visible CEOs, and these CEOs usually emerged from within the company. One exception to the external board role is when the board is strategically important to an organization (e.g., a Google senior leader sits on UBER’s board).
Companies can also get restless in pursuit of revenue growth. When the target for new revenue is consistent with the brand promise, this restlessness is great. Toyota’s move into hybrid engines under the Toyota brand was a great expansion. Toyota leadership was also restless to enter the luxury car market. But it wisely branded its luxury entrant, Lexus, independent of Toyota since the Lexus brand promise and therefore its business model were so different from that of the other car models.
Williams needed to find ways to stretch that were consistent with NBC News’ brand. Just as Toyota could not be luxury and basic, Williams could not be NBC news anchor and protagonist in his embellished stories. Great journalists are usually invisible in the story. Writing scholarly articles, moderating symposiums, etc. would could have challenged Williams and been consistent with a news anchor’s brand.
Address restlessness head-on, before it leaks out in dangerous ways. Often leaders enter periods I call “competent stagnation,” a situation in which they are performing adequately but feel restless, as they have lost their inner drive and spiritual passion. Like a virus, competent stagnation on the part of a leader can infect an entire organization, before an affair, depression or another symptom of underlying distress appears, with considerable organizational damage along the way such as a drop in staff morale or unwanted exits. Far better to raise your hand and say you are restless and decide proactively on how to manage it, than to act out in ways that may not be consistent with what your role and company need. We can forgive Williams’ desire to be more than a talking head. But there were many more places for him to grow, consistent with his brand, than moving to late night story telling.
When a crisis hits, control the public messaging from the highest level. Willams’ situation was worsened by his meek initial apology. NBC needed to take control of the situation earlier.
Governance and culture matter. A Washington Post column reveals that newsroom staff regularly raised eyebrows about Williams’ story embellishments. But who in the newsroom would raise his or her hand to complain about Williams when Williams, also serving as head of the newsroom, controlled which stories made it past the cutting room? Too often, companies give too much power to leaders without built-in checks and balances, or without the fluid communication channels that enable workers’ voices of concern to be heard by their bosses’ bosses.
When leaders are also the rainmakers, as Williams was, they can become more important than the organization’s values and brand promises. Stephen Paskoff, CEO of ELI, often writes about his problem. Big Shots, as he calls them, get away with adverse behavior because companies are frightened of losing the revenue they bring in. I admired Williams’ boss who said in announcing Williams’ departure, “We are bigger than any one person.” Any company is. Dismissing Williams sent the right message to the newsroom staff and the public. The statement was step one in rebuilding trust.
Which of these lessons apply to you?
© Mary Kay Plantes, 2015
February 9, 2015, 7:15 pm
Physical marketplaces where buyers and seller convene are giving way to online markets. Who benefits and why?
Marketplaces as physical gathering sites have a long and rich tradition in all economies. There, buyers and sellers meet to exchange goods for money. Public Markets are especially noteworthy. Madison’s Farmers Market, The Milwaukee Public Market, Boston’s Haymarket Square, Seattle’s Pike Place Market, and The Brooklyn Flee Market come immediately to mind as current examples. So do the local markets I’ve encountered biking through small European towns.
The Internet, however, has changed our notion of a marketplace. Markets used to require a physical space and, in the case of Public Markets, were created to advance a public good. Walking around Madison’s Capitol Square on Farmers Market Saturdays reinforced the Capitol as the physical heart of Madison and advanced the slow food, local small farming and buy local movements in Madison. Today, online markets pull us away from our communities in the same what way big box stores and malls pulled us away from Main Street. Online markets have also moved well beyond products to include the trade of services and even ideas.
Online markets benefit buyers in many ways.
- They make shopping more efficient. About 80% of B2B shopping is now done online before a buyer ever contacts a company representative. Why? It’s much more objective and efficient than speaking with representatives.
- They lower prices for comparable goods. The Internet has led to greater competition and more price transparency.
- They open access to sellers who would otherwise be impossible or too costly to reach. Rare book buyers have truly benefited from online used book markets.
On-line markets benefit sellers by expanding the reachable market, selling excess capacity, or lowering the cost of reaching, converting and serving customers. BOP, a Madison woman’s clothing retailer, became a successful online retailer and was eventually acquired by Amazon. BOP now reaches fashionistas around the world. It also recently closed its physical store. Dow Corning, as I have reported on in the past, sells excess capacity through its on-line business for commodity products, Xiameter. Expedia sells unused capacity for travel and restaurants respectively.
The valedictorian for creating an online marketplace is certainly Amazon. True, it had the unfair cost advantage of no sales tax requirements. Even with sales taxes, however, I’d argue that Amazon’s business model still would have won the day. It increased buying and selling efficiency, expanded potential customers for sellers, and improved access to products for buyers. The fact that Borders went out of business largely because of Amazon is proof of the value proposition to both sides of the book market.
Amazon has succeeded in offering its IT platform to other websites, a move consistent with its “marketplace” focus. Acquiring niche marketplaces like Zappos for shoes has also succeeded (at least in terms of revenue growth).
Where Amazon’s expansion efforts have failed (e.g., its phones and pads), Amazon has reached past its strategic role as an online marketplace. Shopping mall owners and tenants do not need to own the streets, buses and cars that enable shoppers to reach mall parking spaces. In a similar vein, Amazon does not need to own hardware to secure its customers. No wonder its expansion efforts along these lines failed: these are different businesses.
For the most part, online markets have mostly replaced or complemented physical marketplaces. Far more exciting to me is the trend towards new-to-market online marketplaces. SuiteHop rents unused suites in sports stadiums. Kickstarter campaigns make capital available to start-ups. ScienceExchange connects researchers to labs with excess capacity that can run experiments more efficiently and effectively, lowering the cost of science. Benefunder connects philanthropists to medical researchers. Airbnb monetizes unused rooms. These are but a few examples among many.
What are the downsides of on-line markets, beyond potential security and privacy issues? Buyers feel overwhelmed by too much access. Sellers complain of the challenge of getting heard amidst so much marketing message clutter.
What online marketplaces are in your future? Does your industry have a need not currently being met? If you are a non-profit leader, how might an on-line market better serve your target client or cause? The winning ideas will be those that reduce unutilized capacity, improve efficiency, open access to better products and services, or provide solutions previously unavailable.
January 28, 2015, 4:46 pm
The Law of Unintended Consequences often starts with a smug attitude.
The terrorists who attacked the Paris satirical media organization Charlie Hebdo hoped to silence its voice. Instead, 3 million issues were printed following the attack, compared to 60,000 before the attack. Welcome to the Law of Unintended Consequences.
Is this law a reflection of human nature or economics? Is there a mystical comic figure guiding our planet? Or, more likely, do unintended consequences emerge from the reality that every action in a system sets in motion a reaction? What I grasp from observation is that when you push something too far you always generate an unintended and undesired response.
A former Oscar Mayer executive told me that the company’s manufacturing leaders, in trying to pull cost out of its ham deli products, created luncheon meat that tasted more like water than ham. When sales plunged, the product managers regained their power in the corporate hierarchy over product decisions.
In response to a seemingly endless number of ads on TV shows, we now record the shows to avoid the ads.
To attract and retain fans, the national football league created rules and a culture that led to player brain injuries. Today, many rational parents no longer want their children to play football.
Political advertising has become so caustic and uncivil that young people drop out of mid-term voting; few people find the ads believable anymore.
The National Rifle Association protects the right of individuals to own the types of guns whose only purpose is military warfare, creating a backlash against an organization that used to be about protecting hunters’ rights. Protecting abortion rights resulted in Planned Parenthood supporting very late-term abortions. This action reduced support for its cause.
Arkansas’ efforts to lower the cost of Medicaid harmed children’s health and lowered their future earning potential and contribution to Arkansas tax revenues. Unhealthy children also drive up healthcare costs.
Moving to the right to win the GOP primary ensured Romney would not beat Obama.
In designing a healthcare bill that handled every single potential consideration and in believing the public sector could do everything better than the private sector, then First Lady Hillary Clinton created a monstrosity that went nowhere.
As to the future?
Wall Street’s efforts to castrate Dodd-Frank (yes, I do think that is the right verb) may give rise to Elizabeth Warren’s presidency, if not in 2016, then 2020.
Efforts by the Koch brothers and other lobbyists to keep climate change legislation from being enacted will lead to future laws with larger adverse impacts on those fighting climate change solutions today.
And the list can go on and on.
As you contemplate actions in 2015, think more carefully about the consequences. Are you pushing for more market share than is healthy for your industry’s margins? Are you squeezing your people at the expense of their loyalty, engagement and tenure? Have you voted for representatives who are so politically polarized that their legislative body can no longer effectively govern? There are many issues – adequate public infrastructure investment and lowering prison costs and recidivism rates among them – that demand an effective legislative body.
Talented leaders stop pushing before a backlash, or they pick a better strategy for achieving their aim, one with fewer unintended consequences. Below are some tools that will prove helpful for assessing your decisions.
Tools to help avoid unintended consequences
- Scenario-based planning in which you create three different scenarios of the future based on multiple known and unknown future events that will impact whether your planned action works out well or not. Examine the decision in each scenario.
- “And-then” improvisational storytelling starts with one person stating the planned action. Then each person (in turn) adds to the sequence of events to create an unfolding story. Each “and then” must be a logical reaction, but not necessarily the intended reaction to an action.
- Imagine the worst possible outcome of an action and conduct a post mortem of how this outcome came about.
- Experiment before committing in one direction.
- Identify all the assumptions you have made — explicitly and implicitly — in deciding your chosen path. Also, list all the “facts” supporting the decision. Invite an outsider into your group to decide if your “facts” are actually assumptions. Test the most critical assumptions.
© Mary Kay Plantes, 2015
January 21, 2015, 2:03 pm
Do the elements of your offering fit together in a way that creates customer value?
I just spent 10 minutes thinking unkind things about Eddie Bauer. I even shouted an anguished swear word, piercing the silence of my otherwise quiet home. My husband Nick had an overnight guest – our toddler grandson – while I was away and had forgotten to fold up the Eddie Bauer portable crib. Trying to be serious in my home office with a baby crib in my eye’s sight was not working for me, so I decided to take on Nick’s assigned chore and put the crib away.
The task should be straightforward I thought. (It’s not IKEA furniture after all with one page of instruction containing no words.) It seemed like I should have been able to unlock the crib’s sides by squeezing plastic handles to collapse the unit, and then put the far-more-compact unit into its zippered case. But as I started, Rube Goldberg came to mind.
Not one of the switches (hidden in the handles) that unlock the structure worked completely, which I didn’t realize until the zippered case appeared too narrow to hold the folded crib. Should I have pressed the plastic buttons at each corner while simultaneous pressing the handles? Or did I not press the handles correctly? Unsure, I tried many combinations until I finally got the crib to a far more compact size. (The buttons, by the way, turn out to be decorative.)
Then I realized the fabric storage holder has two compartments and the one I was trying to fit the crib into was for the mattress, not the crib. It took me another 5 minutes to secure the crib and then its mattress in the right compartments and with the right angle, so I could wheel the unit into our storage closet.
I get that companies want to expand their offering. I often suggest “moving up the food chain” to clients whose solution set is too narrow to solve pressing customer problems. Robert Finfrock moved from selling precast – prestressed concrete building components to constructing entire buildings. His is an American success story at its finest.
Also, the most profitable growth strategies often involve selling more to the same customer, as customer acquisition costs can be high. Amazon’s “Prime” shipping subscription and Walgreen’s move into stocking frequently purchased groceries reflect this strategy.
Finally, customers value one-stop shopping. In an era of entirely too much choice, consumers are drawn to brands whose product design or merchandising skills they trust. We want someone to simplify our choice set, as too much choice paralyzes us. It adds frustration, not delight. Target took market share from Walmart using this principle. And Madison Wisconsin’s SubZero moved from providing high-end refrigerators to being a high-end kitchen brand by acquiring Wolf ovens and adding a German dishwasher to its offerings.
But Eddie Bauer’s move from clothing to baby gear is moving out, not up, and into a category that has nothing to do with casual outdoor clothing. (The fact that Spiegel, the now defunct catalog company that competed with the once mighty Sears catalog, owned Eddie Bauer from 1988 to 1993 may explain the diversion.) I would trust Eddie Bower’s design choices for flannel shirts for my husband. But trust Eddie Bauer for baby gear? Or home soft goods like comforters and sheets? Is this breadth why the company can’t hold a candle to Patagonia and North Face, despite trying?
Of course, the retailer likely outsourced design and manufacturing of the crib. But what gives Eddie Bauer’s merchandisers the ability to source the right crib, one that makes a visit from a child effortless at both bedtime and clean up the next morning? A poorly chosen crib won’t ruin a grandchild’s visit, but it does detract from the crib’s brand.
The lesson: As you enter the New Year and think about how to grow, be careful in how you add to your offering. Lean more towards moving up one food chain—customer needs that are related in some way—versus moving out by tacking on unrelated products and services. Coach was smart to acquire Stuart Weitzman shoes as it tries to become a more upscale design brand. Duluth Trading’s “workshop” items enhance its brand. But categories like Eddie Bauer’s baby crib that have no intersection with competencies or other offerings bring incremental revenue at the cost of operational complexity and brand image.
Does your offering make sense? Does its breadth create customer value or merely confuse? Would a new customer identify a guiding principle – a brand promise – running as a nerve center through your offering? Or would your line look like a hodgepodge result of managers seeking growth from anywhere and anyone?
© Plantes Company, LLC
January 12, 2015, 8:34 pm
Wayfinding delivers value to mass and niche markets.
When I hike a mountain with many paths, I need a map, signposts, or, even better, a guide. Surrounded by too many choices, many leading in the wrong direction, I easily get lost. I need what my talented friend Cricket Redman of Cricket Design Works calls “wayfinding.” Wayfinding solutions like signposts not only help me get to my destination quickly but also avoid all the distractions of paths I don’t want to take. Companies that can help with wayfinding in different areas of our lives are becoming increasingly valuable.
All of us, for example, have wasted uncountable time going down digital paths and the opportunities for getting lost grow each second as digital data explodes. It’s no surprise that wayfinding companies like Amazon, Expedia, Netflix and Google have thrived in the digital world. They pull together options and serve as the curator for our search or, with Google maps, our step-by-step directional guide. The innovative platforms creating new markets, like Uber (independent car service) and Airbnb (rooms for rent), also act as wayfinders. Spotify and Pandora provide better wayfinding than iTunes by guiding us to new music based on examples of musical tracks we appreciate and enjoy.
These companies exemplify wayfinding solutions for the mass market. Companies with a ubiquitous technology often focus on the needs of the “average” customer who comprise the mass of a market. But one look at any mature market and you discover that mass markets typically splinter into niches. New companies target customers whose needs are not well served by mass-market approaches, and then established players try to catch up. Wayfinding companies had best understand this process.
For example, early in my career I watched a start-up Acuson (an ultrasound medical imaging company now owned by Siemens) take significant market share from industry leaders. It accomplished this by specializing sales and marketing and designing user features and interfaces for the cardiology, obstetrics and radiology markets, the specialties fighting to own hospital ultrasound imaging. Wayfinding companies can learn from what Acuson did—pay attention to the social influences and needs of different segments of the market.
Google’s platform shows some understanding of the niche process. It created a niche of its services, Google Scholar, by recognizing a set of unique needs. A scientist searching for scholarly articles on diabetes should never use standard Google for searching. I made the mistake of doing this for a project for Medtronics. Two years later I still get emails and Facebook posts about diabetes solutions for which I have no need.
A fresh example of a niche wayfinding platform is a home exchange website called Behomm, profiled recently in a NYT piece. The exchange serves the travel needs of a niche audiene – designers and creative artists. To become a member, you must work in one of the 90 careers, such as a graphic designer, interior designer, architect, creative director, landscape artist, hat maker, or fashion stylist. For all these types, visual sensibility often counts more than the location of a vacation property. Behomm members trust that a home of an artistic-type will be a more memorable spot for a holiday than options on a mass market site populated by suburbanite accountants, lawyers and professors.
With today’s proliferating options, it’s easy to feel the wayfinding markets are locked up. But entrepreneurs, who sniff out unique needs, could have a field day disrupting platform leaders. For example, the pages and pages of choices on Amazon exhaust me. I find I go to Amazon when I know the brand I want, and my Prime free-shipping program will lower my shipping costs. Other online retailers should offer a better wayfinding experience and free shipping (or perhaps a credit equal in value to shipping costs on my next order) to keep me, and others, from clicking on Amazon.
Even Google could be disrupted. Marissa Mayer’s biggest mistake in trying to “fix” Yahoo rests I think in not recognizing the importance of niche markets. She could better serve search customers (and beat Google) by segmenting the market on search situation and taste. And advertisers, who meet the unique needs of each searching group, would have higher click-through rates, raising Yahoo’s ad margins. Without this kind of strategy, Yahoo will remain a less attractive and complete tool than Google.
What wayfinding do your customers need? How can you help? Or, where do you get lost of frustrated? What could you do about it as an entrepreneur?
© 2014 Plantes Company, LLC
December 22, 2014, 1:37 pm
There are dangers, not just pleasures, in our digital world.
That word was my conclusion leaving a recent San Diego event on cyber-security. My city is exceptionally well organized around this topic, which makes my feeling all the more compelling. We have a non-profit to advance awareness, education, and preparation. A collaborative center for researchers exists. An economic cluster for cyber-security and the Internet of Things has been organized to attract money, established companies and talent to San Diego to further strengthen our security. And still another group is solving the workplace shortage of security experts. We are building a community more secure from a cyber attack of significant impact than most other cities.
But listening to the speakers at the symposium, I observed a passionate group of do-gooders holding their fingers in an increasingly fragile dike. One speaker captured our reality in a single sentence, “It will take one huge crisis – like an attack on our all our water districts” to wake people up.
If the Sony hacking did not scare us enough, what will? The FBI told the CEO of Sony Entertainment that Sony had excellent cyber-security. Specifically, 90% of companies in the US would have fallen victim to a similar attack.
Cyber-security presents a classic public goods problem. The more secure you are, the more secure I am to the extent our on-line lives intersect. But none of us acknowledge our cyber interdependency when we make decisions personally and organizationally about how much to invest in digital security. Our value calculation only incorporates how we directly benefit versus what we pay, not how others will benefit from our added security. As a result, we collectively under invest in digital protection relative to the level in society’s best interests.
One critical role of government is to catalyze an adequate provision of vital public goods, like cyber security. Investments in research, education, and solutions are government’s levers. Another tool is regulations that make it far more costly for suppliers, buyers and users of digital devices to ignore security. Fortunately, there’s some movement along all fronts.
The military has increased its spending on cyber security. Publicly owned companies must report on the risks they face from cyber-security issues and how they are minimizing them. And there is talk of holding C-Suite executives personally liable for privacy breaches of their employees or customers. (But how much do you want to bet that won’t pass?) And venture capitalists and start-ups, as well as giant tech companies like IBM, see the business opportunity in security, which will advance needed innovations.
But is it enough? We are becoming ever more dependent on digital communications and devices. Security experts must be right 100% of the time. Hackers only need to win the lottery once. And as our military might and those around the globe who hate us grow, we are likely to be attacked at our most vulnerable spots. Yesterday an airplane and buildings. Tomorrow, air traffic control by hacking the GPS system.
Cyber security is a surmountable problem. But it requires a long-term perspective. That is why I feel doomed. Politicians lack a long-term perspective. How else do you explain a Congress funding equipment the Defense Department does not want, rather than spending more money on cyber-security research? Corporations care more about this quarter’s bottom line and stock price than a vague risk somewhere in the future. And most of us know too little about security for our identity protection. Kids, work, fun, and sleep take priority.
One of the speakers suggested we all create a C-bag. It contains an electronic record of every important document we have – birth certificates, our marriage certificate, title deeds, settled and current mortgages, account numbers, passwords, etc. Keep it in a safe place, she argued, outside your house. It struck me that what I need as well are paper copies of valuable documents. There will likely be a time when access to computers will not be available.
Tomorrow, as you go about your life, become aware of how much you and we rely on technology. You’ll start your bag. You might also have a different stance on government regulation. Sometimes, it’s exactly what the public commons needs.
Copyright, 2014 Kay Plantes
December 4, 2014, 6:15 pm
A free offering can build an abundance of income.
Can a free offering and a financially sustainable business model co-exist?
Look at the evidence. Wikipedia. National Public Radio. Mozilla’s Firefox browser and the LINUX operating system. Facebook, LinkedIn, Twitter, Instagram, YouTube, Gawker. The Moodle software platform for on-line educational experiences. All free and all appear to be financially sustainable.
A free offering and financial success succeed when leadership is thoughtful about how it monetizes the free offering. Let’s explore why an organization may want a free offering and then how the organization can make money in other ways.
First, your target market may not be able to afford to purchase what you want to offer them, the case for most non-profits. UNICEF serves truly poor children around the world.
Or you may want to build volume to gain network or economies of scale effects. It is doubtful that Facebook would have taken off without being free. Its large user base makes it hard for new social media platforms to succeed unless they are entirely different, like Twitter’s messaging and Instagram’s enhanced photos.
Third, a non-proprietary offering invites others to improve it, which is the reason open-source software platforms exist. Better programming ideas, enhanced features, better monitoring for glitches, more rapid prototyping, broader adoption, meritocracy, and community building are among the many advantages of open source versus proprietary platforms.
Free and open source offerings are also transparent, which enhances their brand image. GreenScreen® for Safer Chemicals is an open-source method for assessing and benchmarking chemical hazards. It’s become a reference standard (e.g., in LEED certifications) because users know what’s behind GreenScreen benchmarks; they do not sit in a “black box.” (Disclosure: I work with GS.)
Finally, free encourages customers to try your offering. Luminosity, which offers on-line brain enhancing games, provides a set of tests and assessment of mental skills. Had I scored lower I might have subscribed. Maybe next birthday!
There are many strategies for monetizing free offerings.
Subscription services for support, training, and integration support is one. Redhat built a successful business on the free LINUX computer operating system used by HP, Google’s Android, and others.
Using the platform to sell advertising and ads-in-disguise as content is a common monetization strategy. Google, Facebook, Twitter…we all know this drill. Google’s revenue rose as newspapers’ advertising revenue fell as advertisers substituted digital ads for more expensive print ads.
Spotify and Pandora, both music platforms, built their revenue through advertising. They also offer ad-free premium subscriptions. Corporations, job seekers and talent placement agencies use LinkedIn premium subscriptions to gain faster and better access to talent and jobs.
Licensing is another opportunity for revenue. Moodle partners pay 10% of their revenue to Moodle to support its development and maintenance. The partners host applications, offer security solutions, install, set up and customize Moodle and train users. They also offer support and help desks to organizations using Moodle for their educational offerings.
Individual donors and foundations fund many free offerings. The Red Cross and Doctors Without Borders come to mind in light of the Ebola crisis in Africa. The problem with this model is non-profit leaders must spend valuable time raising funds. They feel diverted from their real mission – solving a social or environmental problem.
Earned income streams can lighten the fund raising needs of non-profits. The Red Cross offers CPR, lifeguard and babysitting training classes. TOMS® provides a free pair of shoes to those in need around the globe for each pair is sells to consumers who like the brand’s look and fit as well as the company’s purpose.
Selling data generated from the free offering is the final strategy on my list. LinkedIn is sponsoring a contest to ID ways to use its database to advance economic development. I suspect LinkedIn is looking for new business opportunities.
How might free work in your business model?
November 18, 2014, 10:14 pm
Deciding what is inside and outside the scope of your business is a vital strategic decision.
All too often, companies take the scope of their offerings as a given, delaying changes that make the organization ripe for disruption. Kodak stuck with “film” as its core business while competitor FugiFilm Holdings, Inc. accepted the inevitability of digital replacing film. Fugi transformed its business by leveraging its chemical and processing capabilities into liquid crystal displays and beauty products. The change was traumatic -– thousands lost their jobs -– but, unlike Kodak, Fugi company exists and is growing.
The WSJ is full of change-in-scope decisions. HP is splitting into two parts, enterprise solutions on one side, printers and PCs on the other. Unless HP can make a go of 3-D printing, I expect Lenovo or Dell will acquire the printing/PC unit as computing shifts to mobile devices. IBM is harvesting its more commodity-like businesses to double down on mobile, software and the cloud. HP and IBM exits from commodity markets make financial sense, but I for one feel a sense of lost opportunity. Apple integrates a broadening set of offerings in ways that reinforce its value promise. Why can’t IBM or HP?
P&G is doubling down on its leading consumer brands where differentiating innovation holds promise, selling off about half of its brand treasure chest including smaller, less successful or slower growing brands. For example, it is selling its Duracell brand (batteries) to Warren Buffet. Kraft is taking similar steps. In 2012, it put its fast-moving snack brands like Oreo into a new business called Mondelez International, and the remaining slower-moving grocery brands like Oscar Mayer into Kraft Foods Group, Inc. Apparently SG&A synergies are not as great for share price as showing Wall Street a rapidly growing business.
The right offering breadth is one that benefits your customers, creates hard-to-copy advantages, truly lowers your costs, or creates a stronger defense against rivals. In the past wider was usually better. But with today’s external sourcing of business services, breadth no longer necessarily lowers costs. Furthermore, the complexity of a broad offering can make your company react too slowly to change. In Medtronic’s acquisition of Covidien and Thermo Fisher’s of Life Technologies, scope is dramatically expanded. Leaders of the acquiring companies should focus on innovation and revenue synergies and not just eliminating duplication. Post acquisition cost cutting too often squeezes innovative juices from the acquired company and emboldens niche competitors.
I recently met with Damian McKinney, founder and CEO of McKinney Advisory Group (MAG), a real estate company that provides a strong example of how to expand scope. MAG has expanded beyond tenant representation to include brokerage, asset management, portfolio management, investment analysis, development services, legal services, project-management, and workplace optimization consulting. With this broad scope, MAG can serve as an expert (outsourced) real estate department for its clients.
MAG also takes a holistic approach to client needs. Following the 2008 downturn, a client seeking leased space mentioned they were having trouble attracting the interest of Wall Street in a $10-20M loan for expansion. “Our client saw money needs, and we saw an opportunity to bring clean tech jobs and a global customer base to a community,” McKinney stated. “We helped them raise $99M in development benefits from a competitive process involving 30 states for their new location. The publicity led Wall Street to their door, with attractive loan offers from patient capital providers.”
MAG has expanded its scope in yet a third way, empowering its brokers to give back to the San Diego community. Associates have 8 hours a month to volunteer alone or as a group. MAG also hosts an annual charity event that introduces area non-profits to its clients. RSVPs fill up quickly for the sold-out event where each guest is given $100 to give to one of the invited non-profits, non-profits with whom MAG associates have volunteered. “Our annual events help leaders think about causes they feel passionately about. They leave thinking about how they might use their time, talent and treasure to make a difference, just as we try to do as a firm,” said McKinney. And non-profits often leave the event with introductions to future board members and donors. Efforts like these make it easy for MAG to attract and retain employees who bring their full engagement, not just their bodies, to work each day.
McKinney’s daughter Rachael, who heads the marketing and corporate social responsibility efforts of MAG, says it best. “If you give yourself a bigger box to work in, you can do different things. You can also reach more people – partners, universities, non-profits that can then add value to your offering to your clients.”
How does your scope benefit your customers and earn your employees’ loyalty? What else (or less) should you be doing?
October 28, 2014, 8:43 pm
A general focuses on the battlefield and where the enemy is coming from, while the soldier in the foxhole keeps his sight within a 10-yard perimeter. In a similar vein, business leaders must understand the lay of a more expansive external environment while others define and execute day-to-day tactics. Leaders supply fresh strategic insights by connecting the dots between things they observe, read or hear about to identify patterns and themes. It’s called conceptual thinking. Let’s see how it works.
Strategists regularly connect the dots to surface important patterns.
Photo is Reconstruction #050814 by San Diego artist Scott Polach www.scottpolach.com
Three articles caught my eye in one day’s news. In the first article, The Council of Public Relations Firms was reported to be reinventing itself and the PR profession as traditional PR strategies of media relations and placement backfire in an era of consumer-generated social media. The profession made sense when NBC could reach 1/3 of US TV viewers. Now there are thousands of stations and networks and multiple platforms for viewing.
Frank Bruni of the NYT wrote about the bombardment of our visual and audio space by corporate messages, from sports arenas to music venues to TV show product placements. He ends by predicting our iconic bridges will be renamed after corporate sponsors. (In my mind, I envisioned a US President taking the oath of office surrounded by corporate logos and Super PAC names who influenced the election, but I digress.)
And in the final article – actually it was a 2-page ad – Whole Foods claimed that value is about values. Your purchases should advance values you hold dear, the ad copy stated. Amazing what the addition of the letter “s” is to an overused word – value – does. Value references profits (value maximization) and how far your dollar stretches. (“Save more. Live better,” promises Walmart.) “Values,” on the other hand, references the principles we hold dear – that matter, no matter what.
What is the theme connecting these dots in my mind? Values-based business models will break through the communications clutter and earn our attention and dollars, thereby disrupting industries.
Let’s look at disruption and why values-based disruption can work.
We work in an era of disruption. Only 57 of the original Fortune 500 are around and according to serial entrepreneur Jay Samit, the Fortune 500 in 5 years will be full of companies whose products and services do not yet exist. For example, Uber, he noted at the recent OnMedia conference in NYC, will leverage its platform by summoning driverless cars to our door.
In the tech world, disruption succeeds when new technology advances:
- Cost savings (digital versus printed newspapers);
- Speed (business intelligence software versus IT department coding);
- Ease (messaging versus e-mails, phone photos versus standalone cameras); or,
- First time capabilities (mobile computing).
Values-based disruption happens the same way.
Cost: Values-based business models can lower societal costs by reducing or eliminating adverse externalities, which are the costs companies impose on non-customers through corporate actions. Walmart’s low pay and poor health insurance policies cost local governments billions. Not so Costco, which offers all its employees a living wage. Buying from Costco versus Walmart will save your community money.
Speed & Ease: Values-based companies allow consumers to change the world more rapidly and easily than through volunteer efforts alone. Why buy Kate Spade flats when buying a Toms pair will also clothe a shoeless child? With the growth in apps and social media, we increasingly know about the practices of companies we buy from. Purchasing goods and services from organizations whose values you support is a daily way to slowly change the world, and feel good in the process.
Capabilities: Values-based innovation also encourages fresh approaches to societal problems by leveraging business capabilities. Boeing buys sheet metal from the manufacturing arm of Seattle-based Pioneer Human Services, which “serves individuals on the margins of society, helping them to become more successful through housing, employment, training, treatment, counseling, and re-entry programs.” Greyston Bakery sells award-winning baked goods produced by hard-to-employ workers, with profits funding low-income housing and childcare solutions. College grads are flocking to social enterprises and socially minded businesses to find meaningful work.
By connecting the dots I can better understand why the single bottom line of today – profits – will increasingly become a triple bottom line of profits, planet and people. If you want to be heard by customers and young talent, think about values, not just value.
In any case, regularly look for patterns across seemingly unrelated topics. And when you see an outcome that you cannot understand, work backwards to try to explain it. You’ll be preparing your mind for our increasingly complex economy in which strategic thinking is a competitive advantage.
© Plantes Company, LLC 2014