Category: Marketing

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Why cities and businesses benefit from clustering

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It’s easy to assume that if we had no competition, business would be great.

It turns out, however, that we are much better off being near competitors than far away – and this is because of the benefits of clustering.

Four benefits in particular stand out.

The first is access to talent More companies in a region means a greater need for people with relevant skills. This may drive up prices for talent and attract people from elsewhere.

Alternatively, a company may spawn a host of related businesses set up by ex-employees.

One of the most famous examples of this happening is the traitorous eight, employees who left Shockley Laboratories to found Fairchild Semiconductor.

Fairchild Semiconductor in turn led to birth of Silicon Valley and the creation of several companies, including Intel, founded by Gordon Moore (of Moore’s law) and Robert Noyce from the original eight.

Proximity leads to productivity When we have competitors operating close by we watch them carefully and try to match what they are doing and keep up or stay ahead in the market.

This sense of competition means that we’re always trying to become better – to become more productive.

In a global economy anything that is seen as a commodity sees margins fall the virtually nothing.

The only way we can make money is by doing more better with the things that go into our business – and that means being more productive.

At the same time, we want our local economies to succeed – we have common interests Businesses don’t start and stop quickly. They take time and effort and investment.

If we work on something for a while we’d like it to be sustainable and endure.

In addition, when the local economy does well, everyone does well. For example the value of the houses we own goes up. There are more jobs, and our children don’t have to move cities or countries to find work.

So, working together to make our local economies grow makes perfect sense.

Although we can work with anyone anywhere, we still like face-to-face Finally, we can hire people from anywhere. But our competitive advantages may lie in what is available closer to home.

We need a local touch to tap into the ecosystem around us – and this is still best done with face-to-face contact and a personal connection with others.

That’s when we realise that there are other people that are in the same position as us, and yet more that have gone through a similar process before and can share their knowledge and insights with us.

To benefit from an ecosystem we must invest the time to become part of the ecosystem.

It’s give and get, not just come and take.

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How to show why your product is valuable to a customer

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As product developers, we need to ask ourselves early and often whether what we are creating has any value to a customer.

There seems to be a belief that anything can be sold, no matter how rubbish it is.

That may only be the case in movies or in urban myths about salespeople – it’s not what we see in real life.

The action of buying and selling is so fundamental to human society that it cannot be based on anything other than the transfer of value from one person to another to be sustainable.

So, how should we approach the act of understanding the potential for value, creating it and communicating it to a customer?

Geoffrey Moore in Crossing the Chasm has a model that we can use to think our way through this as illustrated in the diagram.

We start looping round the model with FOR.

There are customers out there for our product, and there is everyone else. We are focused on creating something for our potential customers.

The quickest way to failure is to try and please everyone, so we need to be laser focused on the set of people that could buy what we have to offer.

The next stop in the model is WHO.

Only some customers need our product right now. The others may later, or may already be using something else.

The customers who are effectively thrashing about in the water and are in danger of drowning are the ones that we should focus on.

So then we move onto THE.

The product, that is. Our product may be a inflated rubber tube attached to a rope, or a heavy duty iron bar.

That may be how we think of our product – as a set of features and attributes. Our products were created using specific things and perform in a certain way.

Customers don’t care…

What they are concerned about is the next step in the model – the IS A.

Our product is a lifebuoy. Or an anchor. One is clearly a more appropriate one to throw to the person in the water.

Because of what happens in the next step – THAT.

The lifebuoy is something that the person can hang onto until being rescued.

The final part of the model is UNLIKE.

This is an important step that is often missed.

We might have lifebuoy to hand. We might also have a life jacket.

Which one would we throw into the water?

Both will float, but the lifebuoy is clearly easier to hold onto and float, unlike the life jacket.

If we can put all these elements together in a simple statement, we will be able to say why our product is valuable to a customer.

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What is the difference between strategy and tactics – and how do goals and objectives fit in?

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We often hear the words strategy and tactics, usually closely followed by goals and objectives. Is there a consistent way in which we can use them when thinking about a situation?

A good starting point is Liz Ryan’s story about how an old boss defined strategy as how to get out of the woods.

Thinking about a situation like being lost in deep woods is a good analogy for a problem we have to solve.

We know we need to get out but we can’t see very far ahead – so what are we going to do?

Jeremiah Owyang writes about strategy being done above the shoulders and tactics being done below them.

Strategies are about options. Tactics are about actions.

Before we delve into that – Mikal E. Belicove reminds us of the GOST model – Goals, Objectives, Strategies and Tactics.

A goal is somewhere we want to be – like an X on a map that marks where treasure is hidden.

An objective is something we can attain – a specific something – like getting hold of a ship.

A strategy, then, is to evaluate the options we have and select the ones with the greatest chance of success.

Strategies and tactics are linked – head and hands working together.

We decide that we will go a certain way, and that means we must do specific things in order to succeed.

Is it any use trying to get these words straight – will it help us in any way?

Yes. All too often, we see what others do and think that the way for us to succeed is to do the same things.

But, all we are seeing in action are their tactics. We don’t understand the strategy that led to the selection of those tactics.

All too often the ways that worked for others will not work in the same way for us.

Steve Jobs, for example, was apparently a tyrannical perfectionist whose near obsessive character built Apple into what it is today.

Should a modern CEO therefore cultivate a tyrannical, perfectionist and obsessive character?

Most would and should hesitate at the idea.

The classic quote about strategy and tactics is from Sun Tzu, who wrote Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

Strategy and tactics must be intertwined and executed in context. Some strategies work better than others depending on the environment.

If we’re large, we should use overwhelming force. If we’re small we should move quickly and be hard to catch.

We’ve got to find a strategy that is right for us – and then select and execute tactics that will help us win.

It’s really that simple. But that doesn’t mean it’s easy.

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What we should learn from the golden arches

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I watched The Founder last night – the story of how Ray Kroc took McDonalds nationwide and created the phenomenal company that now operates across the world selling burgers.

The film is emotive – showing how Kroc tried to work with the McDonald brothers to grow a fantastic new idea but then, after being frustrated with the way in which they didn’t embrace his vision, was shown that he had been thinking about his business all wrong.

He wasn’t in the hamburger business, he was told. He was in the real estate business.

The way in which Kroc wrested control of McDonalds from the founders was by realising that the value of the business lay in the land under it rather than the burgers that were cooked on the land.

Owning the land gave him control – he could control what was done on his land.

This is the same insight that Steven Levitt and Stephen Dubner explore in Freakonomics. The landholder gets the value – a great brand selling in a great location has to pay more to be sited there – so the landholder gets to charge more.

The other thing that Kroc saw was the brand.

All across America, as he travelled, he saw crosses and flags, crosses and flags.

They signified America – a god fearing, law abiding country – a country for families and wholesomeness and apple pie.

His vision was to see McDonalds as a brand for America – with the golden arches just as iconic as the cross and the flag.

That was the insight that made him – a 52 year old salesman – who was able to see how a brand for a restaurant could convey just as much meaning and signify all that felt good for people at that time in that place.

The film shows other points. Kroc worked harder and longer than anyone else. He had human frailties. He was misunderstood and mocked.

Which goes back to the old saying – first they ignore you, then they laugh at you, then they fear you and then you win.

Kroc is shown listening to motivational tapes – the kind that we still can get and listen to today that extol the value of persistence.

Talent is not enough. Genius is not enough.

Persistence is what matters – when the going gets tough the tough get going and all that kind of guff.

At the end its all still complex.

Kroc built an empire – and in the film he’s pictured as someone who wanted to win at all costs, someone who wanted to crush competitors and have it all.

But the point is that he saw something that no one else did in the same way then.

He saw just how much people yearn for meaning – the golden arches mean something – a place of safety and sanctuary for families.

And that’s why they just keep coming.

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How to write a case study to use in marketing a business or a person

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We will all need to come up with case studies for something or the other at some point.

A case study essentially answers the interview question of Can you give me an example of when you…?

So, why can they be so hard to write?

Perhaps it’s because we often default to thinking about ourselves – what we do and how we do it and start working on writing that up.

What is the end result we’re trying to describe? Is it that we made a customer happy?

Whether it’s for a business or a person describing how they did something in a particular role – the end result is that they made someone else happy about something.

Which means that they weren’t happy about something to begin with.

Neil Rackham’s best selling book SPIN Selling is perhaps the best model that describes what to do next.

In Rackham’s approach, good salespeople act as consultants acting in their customer’s best interests.

So, what does a consultant do?

Well, we start by understanding the customer’s situation – where are they right now and what is making them unhappy about something?

Perhaps they have been surprised by an unusually large bill for a commodity that has resulted in a big negative impact on their budget this year.

This has resulted in the CFO firing the financial controller and cutting staff and now the Board wants to make sure that this never happens again.

The problem is that the company operates in a fairly traditional way and is suspicious of things like financial markets, so makes decisions about commodities in the same way as it buys furniture.

But a commodity market is not like furniture. Prices fluctuate daily and are volatile – so prices could double or halve while decisions aren’t being made.

The implications are that the chances of being surprised again are quite high – prices go up and go down but have a nasty habit of being too high just when we are ready to buy.

The way in which we resolve the needs of the company might be to engage with a third party that will monitor the commodity markets daily on our behalf and calculate the impact of market movements on our position against a budget.

Such a report, issued to the CFO and financial controller regularly, would mean that they see changes early and can take a decision to manage their position and stay inside their budget limits.

Also, by being informed, they can manage how this information gets to the rest of the company and the Board so that there are no surprises.

A case study, in essence, is a story about how we made someone else happy.

This format will help us get the words down.

Next, we need to make it look pretty, but that’s another story.

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How to earn loyalty online

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We know its much easier to retain a customer than it is to find a new one.

The costs of acquiring a new customer run to many multiples of the costs of providing great service to an existing customer.

We all know this – but do we really understand it – viscerally understand what this means?

Robert Cialdini, the author of Influence: The psychology of persuasion had six principles that he found guided how people make decisions that guide their behaviour.

These are:

  • Reciprocity
  • Scarcity
  • Authority
  • Consistency
  • Liking
  • Consensus

In a nutshell, when someone does us a favour we feel obliged to reciprocate. We are galvanised into action when we fear we will lose something. We go with the experts’ views. We prefer to be seen as consistent. We want to be liked. And we often go along with the group’s view.

Things are different online – but the principles that affect how we react don’t change all that much.

The thing everyone wants from their customers is loyalty.

And customers are loyal to brands and firms that they trust.

One of the benefits of the connected world we live in is that it is much easier to redress an information imbalance.

For example, on platforms such as Ebay, the availability of seller and buyer scores and feedback mean that it is a better option to be a good Ebay citizen than a bad one.

It takes time to build a reputation, sale by sale, delivery by delivery.

People often pay no attention when something arrives on time in the expected condition.

It’s when things go wrong that the proverbial rubbish hits the fan.

That means an essential part of doing business online is to act in a trustworthy way. The incentive is to be good rather than take advantage of a customer.

In today’s connected world it’s not enough to be good – one has to make things much easier.

We are willing to pay for convenience. That’s why apps that make it easier to do things from order taxis to order food are changing how we move and eat.

That is a trend that will not change. Many of us are willing to pay a little more to park using our mobiles than carry around the exact amount of change.

So, how do we select with whom we should place our business?

Two of Cialdini’s principles stand out.

The first is that we prefer the most authoritative site. We would rather shop on Ebay and Amazon than on some unknown store or search engine.

The second is that of commitment and consistency. Once we have started doing things and engaging with customers in a particular way, we find it hard to change.

The point is that the online world is different – the content we put on our websites has to earn trust with customers, make things easier for them and come across as authoritative.

If they believe us, then they will engage and place business with us – and once that is done they will be committed and consistent in placing new business.

The good thing about the internet is that it makes information available to everyone.

So, when everyone knows whether we have been good or bad, it makes sense to be good for goodness’ sake.

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How to think about your business model in the digital age

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Every industry is being transformed by digital technologies in front of us right now.

The overlay of information and abstraction onto the products and services we use every day creates new experiences, expectations and possibilities.

While we see and talk about this often in the context of entertainment, advertising, social media and mobile technology the industries that feed, move and power us – agriculture, transportation, utilities among others – are also being transformed.

So, how can we think about this changing environment and where we fit into it?

Professor Venkat Venkatraman is the David J McGrath Jr Professor of Management and the Chairman, IS Department at the Boston University Questrom School of Business and writes about the interface between strategic management and digital technology.

His book, The Digital Matrix: New Rules for Business Transformation Through Technology, explores the kinds of companies that play in this changing business landscape, what changes and transformations they will experience and the strategic moves they can make to win.

Venkatraman says in an interview with Antoine Abou-Samra that we often use two main ways to think about situations.

First, we look at successful companies and see what they did and the lessons they might have for us.

Or second, we look at new technologies such as Blockchain or digital tracking and imagine the implications they might have for us.

Venkatraman argues what is needed is to have a framework that can be used to understand the players and the actions they might take, and use that to inform and position ourselves strategically.

An interesting framework that can be used to understand which business model we are using in the digital age is shown in the picture above, adapted from this summary.

Traditionally, we think about the business we are in and whether we provide a product or a service.

This single focus on ourselves and what we do has been how business has been done for a long time. We make something – a product – or we help someone get from one point to another – a service.

Products are developed in the office while services are provided to customers.

Digital extends this simple matrix upwards to turn us from a small village of trades to a global market for anything we want.

Two new types of models emerge in this space.

Platforms aggregate and put forward options we can select from and Solutions address complex and ‘wicked’ problems that we face.

This is an elegant and simple approach to thinking about what our business model needs to be in this new world.

Do we provide a product, a service, a platform or a solution?

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How to tell whether you act like a startup or a big business

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What is the difference between a startup and an established business? Is a startup simply a small company – a small version of a big company or are they fundamentally different?

Steve Blank thinks so.

Steve is the author of Four steps to the epiphany and writes extensively about startups, their characteristics and the strategies they follow.

Among these characteristics are three crucial ones – and successful startups do these very differently from big companies.

The first characteristic has to do with what they do.

Big companies are good at execution.

They create a vision, agree a mission, set goals and targets, allocate resources and set the machine in motion.

All the parts of the company work in a hierarchy, following what they are programmed to do to head towards the targets they have set.

A startup, on the other hand, searches for opportunities.

It has its eyes wide open, scanning the environment for signs that something is missing, someplace where it can add value through innovating, adapting and creating something new and different.

The second characteristic has to do with how companies do what they do.

The purpose of a company, according to Drucker, is to create a customer.

Big companies already have customers or believe they know what a customer wants – either because they know the market or because they have done studies of some kind.

This means that they can sit at their desks and get on with creating product following their usual process, which is some form of plan-do.

A plan-do approach means that we follow a structured approach to developing a product – starting with understanding requirements, gathering information, developing the product and finally shipping it to customers.

Startups recognise that no plan survives first contact with the enemy.

Instead, they follow a test-learn approach.

This means getting out of the building, going and finding potential customers and talking to them about what they need and testing whether what they say they need matches what our product does.

This matching exercise – sometimes called validation – tells us if we are on the right track or whether we need to change something.

As Gary Halbert wrote, what we need to succeed is a starving crowd – a group of people that are desperate, starving for a particular product or service.

Lastly, the two approach who they recruit differently.

Big companies have lots of roles that they fill with specialists.

A specialist is someone who is good at one thing – sales, marketing, operations.

They do what they do well and competently, but they often don’t have the capacity or ability to do more than they can with their two hands.

Startups need generalists, people comfortable with doing everything and with the ability to do much much more with very little.

Startups eventually want to become big companies, so will recruit specialists, but only later on when the product is more mature and its time to scale up.

In summary, the way to tell whether we act like a startup or an established corporate is to look hard at what we do, how we do it and who we recruit.

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Why we need to have a story

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Stories are how we make sense of things.

Whether we are coming up with a personal narrative or working on a company brand, we use stories to show and tell other people what we are all about.

Sequence is key to a story.

We link together human beings, actions, events and experiences to create a narrative that has a beginning, a middle and an end.

This is something we do all the time. To some extent, we don’t remember the past so much as recreate it through the lens of story.

We pick the events, actions and experiences that support and confirm what we want to believe, welding them together and trying out story arcs until we find one that fits.

Herminia Ibarra, in her book Working Identity: Unconventional strategies for reinventing your career, writes about this as putting a frame around experience – looking at what is happening now and what happened in the past and linking the two through story.

But it’s important to recognise that the things happening now and the things in the past are both being interpreted and reinterpreted – history is written by the victors.

I’ve written here about the kinds of stories we tell, and how we can structure success and failure stories.

Why is it important to have a story – whether personal or for a business?

Ibarra writes that it is only through a story that we can really get to know someone.

The story – the narrative – gives unity, purpose and meaning to their lives.

Whether we are trying to understand ourselves, someone else or an organisation, the stories we hear and tell bring things alive and create a sense of connection that it’s impossible to get in any other way.

Stories also help us step back and see the bigger picture.

As we tell and retell them, picking out events and experiences to recite, we start to create a narrative that seems more real and robust over time, until the story we tell is how it happened.

Which is why the reaction to many a fantastical story is often “Is it true?”.

Things happen.

When we’re in the middle of things, we look for a defining moment, a period where everything becomes clear and comes into focus.

All too often, however, we recreate that moment as we look back at the past and realize that it was one – the turning point of the story we are telling – and how it fits into our lives so far.

And so, to explain who and what we are, we need to have a story.

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How economics explains success in the modern world

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Steven Landsburg introduced his book “The armchair economist” with the words Most of economics can be summarized in four words: “People respond to incentives.” The rest is commentary.

That is the start of economic analysis. Supply and demand curves. p is for supply, q is for demand and they have a linear relationship.

In standard economics, demand (q) rises as price (p) decreases – and that is one of the first charts we learn in an economics class.

This assumes that people are rational, evaluating the costs and benefits of options in a logical way and taking actions that maximise their profit or utility – the satisfaction we get from a purchase.

But people aren’t rational. In reality, we are driven by emotion and our animal brains and this is where behavioural economics comes in.

For example, under pressure, we go into flight or fight mode and make decisions based on gut instinct – and that is what has kept our species alive.

Another way in which people aren’t rational is how they react to an unfair deal.

Take, for example, a game where people get a sum of money. One person gets to decide the share of the prize – and the other can accept or reject the offer.

In theory, any amount more than zero should be accepted by the rational recipient. In practice, many don’t accept anything less than a share closer to a fair one – a 50/50 split.

Shown as a chart, this might mean that demand is fixed at a range of prices, but over a particular level it increases.

The factors affecting the shift in mentality are more subtle – they are affected by the emotional processing that goes on inside our heads.

Then we have network economics. In this view, what we do depends on what others do – we watch and copy behaviour.

This is most visible in online behaviour. The top three results on Google get virtually all the traffic. There can be huge differences in views for very similar videos.

So, in network economics, price has little effect until we reach a tipping point, after which demand increases rapidly – but the tipping point is determined by the network effect.

The charts in the picture may not describe the situation accurately – real life is more complex than we can show in this way – but the interesting point is the impact it has for the choices we make as producers and consumers.

As producers, we can’t simply make better mousetraps cheaper and expect people to buy them.

Instead, we need to create cheaper products, think about how people will react emotionally to what we are selling and leverage the economics of networks to get our products to scale.

As consumers, we need to be mindful that price is no longer representative of value in many cases – so we need to be wary of using that as a heuristic or rule of thumb.

We also need to realize that producers use increasingly sophisticated techniques to appeal to our emotions, from subtle emotional cues to overt use of celebrity endorsements.

Finally, by copying what everyone else is doing, we may be missing out much that has real value and settling for the fads of the moment.

But, the changing world also offers unparalleled opportunities for those who are positioned where the three economic approaches overlap.

In the middle there, with a little bit of luck, new superstars emerge.