The Flywheel

Sham economy? Great news indeed!

I just read this take on Wired by Bruce Sterling on the black, counterfeit economy in Serbia. As a parting shot, he says:

These organizations are right to worry. Black globalism extends well beyond easy, offhand intellectual property thefts like videotaping first-run films and burning them onto DVD. It commandeers the manufacturing, distribution, and business infrastructure in a parasitic rejection of the global order that is the engine of our collective future. The folks who made my shoes have everything it takes to make excellent footwear. Yet they choose to make counterfeits. It's a brave, new, destructive world of manufacturing and marketing: Just fake it.

I think Mr. Sterling could not be more wrong about the impact this will have on IPR owners and local economies. For, this is great news indeed! Having lived through one of the defining moments of India in 1990, I can say without a doubt that this bodes well for companies and globalization. For one thing, the rising supply of fake brands means that people have stopped worrying about their survival and started to grow materialistic aspirations. Back in late 80s and early 90s, India was awash with fake Nikes, Levis etc. But today, India is one of the more vibrant economies where all the western IPR owners are making huge gains. As I posted elsewhere, economies who do not have stable and strong supply chains settle for poor imitations; they will not stop consuming. At the same time, they are not stupid enough to believe that these are the genuine articles. However, as time passes, people become more savvy about quality (as their need to wear a label is sated) as their income grows and demand better quality from manufacturers. The question is how savvy are Nikes of the world to keep tabs on this and enter the country when the timing is right?

These counterfeiters are doing a service for Nikes by offering such poor quality knockoffs. They are building brand awareness while at the same time increasing discontent with fakes. Nike should be more worried about a local company offering fake labels with higher quality!!

Long Tails & Masters of Youniverse Or, Why small businesses can become endangered species.

Those of you who are into blogs or are regular readers of Wired, do not need a special introduction to the Long Tail effect or to Chris Anderson. Long Tail effect first (as far as I know) burst into public awareness when Chris Andreson wrote an article about it in Wired. In essence what it postulates is that the emergence of blogs, podcasts and vlogs will result in a transfer of economic and social power from masses to niches. Because of new media, it will be far easier to find, target, communicate to and market to small segments making it increasingly irrelvant to adopt least common denominator marketing. To quote Mr. Anderson from his blog,

The Long Tail is the yellow part of the sales chart at left, which shows a standard demand curve that could apply to any industry, from entertainment to services. The vertical axis is sales, the horizontal is products. The red part of the curve is the "hits", which have dominated our commercial decisions to date. The yellow part is the non-hits, or niches, which I argue in the article will prove equally important in the future now that technology has provided efficient ways to give consumers access to them.
The two big points of the Long Tail theory are these: 1) The yellow part potentially extends forever to the right; 2) The area under that line--the market it represents--may become as big as the hits at the left.

While the article was far more articulate and wide-ranging, I first came across this trend through a small(?) newsletter called (appropriately enough) TrendWatching. About 5 months back or so, they were talking about trends with interesting names like Massclusivity, GenerationC, Masters of Youniverse etc.

What does this mean for a small business like mine? I got one word: disaster! The way I see it is like this: the rise of long tail means that markets will get splintered into smaller and smaller segments. When it comes to splintered markets, the only companies who grow are platform owners and platform innovators. The best way to exploit splintering markets is through mass customization of products, brands and marketing systems. What is the one thing common to all these three? Platforms. Mass customization of products will prove to be enormously capital intensive; mass customization of brands and marketing systems on the other will require huge knowledge capital to effectively target and tap into chosen segments. This in turn means that the industrial eco-system will split into 2 or 3 kinds of players: Platform owners who provide the infrastructure; product innovators who license the platforms to come up with cool, new products aimed at niche markets; marketing system owners who are optimized to reach micro niches more effectively than anyone before them. In some cases, we will see a single entity doing both product innovation and marketing system creation; in very few cases we will see a single entity doing all three functions effectively and efficiently. What are the economic engines for these 3 functions? The platform ownership is driven by scale; product innovation is driven by people and knowledge and marketing systems are driven economies of scope. Where will the biggest chunk of profits go? To the marketing system owners of course. I always believed and experienced that the entity closest to the customer will enjoy the most profits and the product innovators will enjoy the most profitability.

Platform owners will be the giants of the landscape; their business is driven by long term trends, R&D, PR and driving platform adoption. Any names? Well, in technology, I think it will be Intel, IBM, Verizon, Microsoft, TSMC, ebay & Google (or some other search company). Google is in an interesting position because they of all the people will benefit the most from splintering of markets. One fall out of splintering is the emergence of search as a critical piece in the jigsaw. Search or ability to find the right customers and partners will be the glue and lubricant that will make the new reality work. In consumer products it will be TetraPak, SealedAir and P&G.

Product innovators will be organic to the extreme. They bubble up, exploit fleeting trends, micro niches and vanish just as quickly. Who are they? The best example is Hollywood! Others could be fabless designers in semiconductor industry, fashions,

Marketing system owners will be of two kinds; a physical store infrastructure backed by internet and a direct sales infrastructure supported by internet. Some names will be quite obvious: Wal-Mart, Walgreens, Metro, Tesco will definitely grow in significance and strength. On the other side,  Avon and Snap-On are two companies that bubble up right away. These two will move from a closed business model to an open business model where they bring to bear their reputation and field sales force for a variety of products developed by product innovators.

In the next post, I will describe why this trend could mean disaster to my company and countless other small firms.

In praise of the boring (in) businesses

Way back, when I still smelled of baby powder, an ad for a clothing company used to be aired quite regularly on Indian TV. It was about this young man who discusses his career options and his contempt for dad’s business. His point is that his dad wants him to join the family ball bearing business, which he finds oh so old fashioned. “Me? Selling ball bearings?” is his refrain. He wants to get into fashion designing! Isn't that cool? What comes through is not that he loves fashion, but that ball bearings are passe. I cannot imagine a more stupid attitude. What is this hunt for the cool, in business. Not cool, as in, "wow, my products really solve customers' problems!" but "wow! I want me and my company to be featured on Page 3!"

Now, 10 years later and 6000 kms away, I see that nothing has changed. Recently, we were looking for some really aggressive, intense sales leaders for our company. In all the interviews we do, majority of the people want warm, cushy jobs that require them to be in office and leave at 4 PM sharp. For the others, health products are not “cool enough”. The refrain goes: "Health products? No way! Gimme IT and I will try! Working in the field? Getouttahere!" Why is it that as long as an industry, company or job looks glamorous, fun and crazy, people are queuing up to get a piece of the action? Is it because they think cool, glamorous and visible equals attractive? Is searching for a partner and searching for a job fundamentally different? Do they really look deep into what makes a business tick? What separates successful businesses from failures?

What is the ultimate goal of a business? To create profits? To create a fun workplace? To create customers? If your answer is something like the above, you are probably right. But what if you dig deeper? Just what exactly is a business? I am sure all of us have our pet definitions about what exactly we mean by a business. Some look at it from anthropologic perspective and say that it is a collective of people trying to achieve some common goal; some look at it from economic perspective and say that a business is a deployment of resources in the most efficient manner. My favorite is a physical science perspective; a business is a violation of 3rd law of thermodynamics. You know the 3rd law: the law that says all systems in the universe move from ordered to chaotic state. That entropy always increases. Machines break down; people die; energy dissipates; all because of entropy. In a deeper sense, all human endeavors are a struggle against entropy. That is why, businesses like P&G, GE strike a deep chord within us. They have defied entropy far longer than a majority of human institutions. We might revile them; we might mock them as "old economy"; but the fact is deep down we hold them in awe because they managed the entropy creep successfully for so long. How did they do that? By imposing an order on the chaos of marketplace. By making the art of making money a science or at the very least, a boring, routine craft.

Do we want the process of delivery schedules to be exciting? exciting as in uncertain? or do we want them to be boringly predictable? Do we want the companies where we hold the shares to be predictable in their earnings? or do we want to hold our collective breath every time the earnings season draws near? Do we want our products to work with predictable efficiency? Or do we want to wake up every day and wonder if our car will start this morning?

I had enough of this celebration of glamor and fun and excitement. I want to stand up and celebrate the boring. I want to make my company the most boring company when it comes to its ability to deliver results, deliver products. I want my company results to become a cure for insomnia among my shareholders.

Now, that is an exciting challenge!

Social Networking Websites - Do they work? (An update)

I use LinkedIn as a networking website of choice. Sometime back, I posted a rant against networking websites primarily because I got burnt by accepting an invitation from a stranger just to increase my connections base. That post generated some thoughtful responses from some of you out there. This, combined with my own experience for the past few weeks made me reconsider the value and role that I can now expect LinkedIn to play in my life.

My first mistake is to expect that LinkedIn will make me a much better networker than I am in real life (or, in physical world). It is obvious now that this can never happen. LinkedIn is a tool; it can make me more efficient certainly, but not more effective. Obviously, as a tool, LinkedIn should remain in the background and help me make my work easier; it can and more importantly, should never do my work for me.

Social networking websites are just tools designed to make my networking more efficient. Probably they can make managing relationships with my existing network more effective, but they can never replace or subvert the rules that apply in the physical world. What I mean is, if in real world you will never refer or give your personal details to a stranger, why will you do that online?

Secondly, the size of network you can build is never an issue. Now, I am not an expert on social networking or the science of networks. In fact apart from a general interest in how networks function, I do not profess to any experience or knowledge on this topic. However, as an individual, I find it hard to accept there is a natural or universal limit on the number of connections I can effectively manage. If I have a lot of contacts in real world, there is nothing wrong with having them online too. In fact, my suspicion is most of us have bigger and higher quality networks offline than online.
For example, I studied in 3 universities and worked in 4 companies in the past 15 years. This in turn gives me a contact base of at least 300 people I know quite well. However, I have only 17 connections on LinkedIn, mostly because I am not sure if I want to invite all my contacts (since some them will not find it especially useful) and secondly, some of them are just not interested in networking or sites such as these. However, when it comes to accepting connections on LinkedIn, both my offline and online networks will have a role to play. From all my 300 connections, perhaps 30 could constitute my Inner Circle. It will be this Inner Circle which will determine if I will pass on a reference. But what if I want to build my network online?

For me, the ability to build an online network is defined by your profile/activities in real world. Now, I work in a country and industry, where technology does not play a significant role. So, the chances of me networking in real world with someone who is on LinkedIn or would be interested in joining LinkedIn are quite remote. So, as my offline network grows, my online network languishes.
Assuming I want to see a healthy, growing online network, what are the options I have? As Bren argued sometime back, the answer is blogs. Because of the specific character of my blog, I will attract interest only from people who are interested in the topics I find fascinating. LinkedIn, in spite of the endorsements feature, cannot provide this kind of filter. In addition, a blog gives sufficiently deep insight into my character without being intrusive or intimidating. Any visitor who wishes to make contact can do so through a variety of options, need not be under pressure to make something out of it and as the dialog progresses, both of us can decide whether it makes sense to connect or not.

Thirdly, Jeff explains it best. Do not connect with someone you do not know or is not referred by your trusted Inner Circle.

Personally, I got the best value from LinkedIn when I was able to find friends who dropped out of contact in the past 5 years. This alone is worth putting my profile out there on the website.

Fast Company on Unbundling - Is it valid?

Fast Company says that unbundled of products and services is on the rise. FC in the essay argues that this is a trend that is on the rise as technology makes comparison shopping easier. Maybe so, but I am not yet ready to unbundle construction of my house.
My opinion is that as customers, our primary goals are twofold: convenience and peace of mind. Convenience has to do with the fact that most of us hate the info search part of shopping. We are like bees flitting from shop to shop and tasting samples and make decisions on the go. We love it if someone can come along and give us a complete package and take this hassle out of shopping. We love to shop; not to search. 

On the other end of spectrum lies peace of mind. This has to do with our self image and social image. All of us love to think of ourselves as savvy, pragmatic and hard nosed customers. We hate it if we get the feeling that we are not in control. The bigger the purchase decision, the more we hate it if we do not know what exactly we get for spending so much money. Think cars, think houses, think spouses. We will never, never buy package deals on these categories. We will always want to break it down (do I have to take the in-laws with the spouse?), itemize it, guesstimate the value of each item and then collapse them back into the package. In such cases, if someone comes along who offers to take the hassle out of this analysis, puts together great credentials to build trust into the process and creates enough safety net, we will be more than happy to buy bundles. Consider the case of multi-specialty hospitals in India. They are growing by leaps and bounds because you go to one place and get every kind of care possible. You are maximized on the convenience dimension. What about peace of mind? All these hospitals have swanky facilities, advertise a lot, hold many conferences and do some good PR so that an average person on the street thinks that he will not be ripped off and given a raw deal if he uses these corporate hospitals.

What does this mean? This means that peace of mind is a hygiene factor in Kano's customer decision model. Unless this is satisficed, convenience cannot play a role. Where this peace of mind is threatened, we want to unbundle everything and dig deep. Once this need is addressed, we hate to unbundle and love to buy in packages.