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What’s your industry? The answer may surprise you.

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The way people define industries is really quite interesting. I’ve once again been asked to be a judge for the Harvard Business School New Venture Competition. They asked what industries I’m comfortable commenting on. It’s a surprisingly hard question to answer, because it’s quite unclear what an “industry” is. Here are a sample of a few things that people call industries:

  • B2C internet
  • B2B internet
  • Health Care
  • Medical Devices
  • Energy
  • Financial Services

What makes these an industry? Is it that all members of the same industry share the same markets? Is it that all members of the same industry share the same employee skill sets? Is it that all members of the same industry produce the same kind of products?

Every definition I’ve tried has glaring exceptions, which makes me wonder whether thinking in terms of “industries” really makes as much sense as I’ve always assumed.

Perhaps it makes more sense to think in terms of:

  • companies/products who serve a given market
  • companies/products that require certain kinds of distribution
  • companies/products that require certain specialized knowledge on the part of employees

What do you think?

Please work for free. Not.

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I’m sure you have never asked someone to work for free. But just in case you know someone who has—or if you’ve ever been asked—here’s the kind of thing you really should say.

Today I received this letter:

Hello Mr. Stever,

 

I am writing to you on behalf of XYZ, a non-profit, CSR project of ABC (a $4 billion conglomerate operating in 16 countries). … We bring together advisors and speakers from some of the top business schools in the world… we are committed to building local intellectual capital and leveraging a business model that ensures sustainability and relevant development opportunities to our present and future business leaders.

 

To begin a relationship, we would be interested in having you as one of the subject experts for our Webinars to conduct a live complimentary webinar on a topic of your choice, and also offer you to write exclusively on our blog<.

My response:

I find your request confusing. I am a professional, who has spent several hundred thousand dollars and several decades developing my expertise.

 

While I believe I might have valuable content to offer, the key word is “valuable.” You say that you are a project of a $4 billion conglomerate, yet your business procedure seems to be asking people such as myself to work for free. That doesn’t sound like partnership; that sounds like crass exploitation. You have the money to pay your vendors, you would just rather have them work for free.

 

That is not the kind of business practice I stand for or am interested in. If you are training entrepreneurs, it is a business practice you should object to as well—any entrepreneur who does not make sure they are well-paid for their product will quickly go out of business. I strongly suspect that neither you nor the CEO of your organization work for free. I can only follow your lead and decline your offer, in favor of clients and partners who believe in paying for the value I provide.

Targeted Ads are the Worst of all Possible Worlds

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The justification used for the incredible invasions of privacy on the part of the internet marketers of the world is that they want to serve us “targeted” ads. Targeted ads are ads that relate to what we’re doing at the moment. Theoretically, if I’m having a discussion about how my child is dying from kidney failure, that’s exactly the moment when I’ll feet eternally grateful to be shown an ad for how to overcome that embarrassing middle aged male incontinence issue.

All joking aside, targeted ads seem worse to me than random ads, even aside from the privacy violations. I am online to get things done (sometimes work things, sometimes social). I am rarely online to buy things, and when I am, I know it.

A “targeted” ad has a much higher probability of successfully distracting me into a purchase experience and completely derailing what I’m trying to do. An untargeted ad, though distracting, is much easier to ignore and far less of a drain on my productivity.

Perhaps if I intrinsically valued purchasing things, I’d welcome targeted ads. But I don’t intrinsically value buying things.

So on the very rare occasions I’m in buying mode, targeted ads are a good thing. But in the rest of my life, which is 99% of the time, targeted ads are downright destructive.

Customer acquisition via poor service

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I’m curious. I’ve noticed some web sites, stores, etc. try to gain or retain customers by providing bad service. They hide their prices so you have to start the purchase process to discover pricing (just try finding out how much it costs to make 10 color copies at Fedex/Kinkos. I dare you.). Some web sites don’t have a cancel-my-membership button that’s easy to find and don’t give a customer service number. I’ve had magazines ask that I cancel my subscription in writing.

Do these tactics work? Hiding prices makes me less likely to use a site. Making membership hard to cancel doesn’t stop me from canceling, but it DOES convince me never to come back if I was canceling for a reason that might have been temporary.

How about you? Do you find these things actually work on you, or do you rebel against them? Or do you not even notice?

Meritocracy: A Fine, But Mythological, Idea

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I love the idea of a meritocracy! It’s a glorious myth that makes a wonderful story. But if you look at how resources, wealth, prestige, etc. get distributed, it’s very hard to make a case for meritocracy.

It’s no surprise we believe in meritocracy. We spend our entire first 18-25 conscious years in school. School is a true meritocracy. The more you work at mastering the material, the more you earn good grades. I don’t know about you, but school was the last meritocracy I had the privilege to enjoy.

At my very first job out of college, I was told, “You do the best job of anyone here, but you’re too young to be making any more money.” Sadly, I persisted in thinking that doing a good job was the way to get what I wanted out of life. I still think that way in my gut, even though I continue to see little evidence of it.

Many very successful people talk a lot about meritocracy and how they just worked hard to succeed. That’s all fine and good, but they’re looking at only their own story. They’re not looking at the vast majority of people in the world who work very, very hard, and don’t get rewarded nearly as well. I’ve also noticed that the people who are highly successful/rewarded/prestigious have a tremendously powerful psychological vested interest in believing in and trumpeting the idea of meritocracy. Otherwise they would have to confront the idea that maybe they don’t deserve all that money/power/fame, and it simply came to them because they were born to the right parents, or were in the right place at the right time.

In capitalism, we give the bulk of the value created by an enterprise to the owners. It’s far better to own 50% of the equity in a successful company that you left 6 months after founding it than to work your ass off for 12 years making that same company a success, but working on salary. What matters as far as material reward isn’t the work/merit, but the capital and ownership structure. (That’s a true story, by the way. The company founder never worked again. The employees, while doing reasonably well, are still working at the same or other companies to earn their daily bread.)

If you want to do a good job, by all means, do it. Personally, I like to be proud of my work, and I strive to do the very best. But don’t confuse that with getting what you want. When you’re designing your life, remember that producing good work may be something you do for the psychic and self-esteem rewards. When you’re going after other rewards, say, money, be as clear-headed as you can about what will help you reach that result. Hard work and skill may not have anything to do with living the kind of life you want.

The potential of the one stop shop

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Autumn is here, with a chill in the air. Which is why it was especially traumatic when our Rheem hot water suddenly stopped working last week.

Ever since we had this hot water heater installed 3 years ago, it’s been a problem. We went without hot water for almost a month while going through the Rheem step-by-step troubleshooting procedure, which involved sending us spare parts one at a time, scheduling a repairman to come out and install the parts, and then calling in again when the part didn’t work.

So far we’ve been 11 days without hot water this time (thank goodness for the gym showers!). We’ve been going through the customer service dance again. The contractor who originally sold us the unit is telling us to call the manufacturer. Rheem is saying we have to remove the hot water heater and return it to the contractor and then they’ll replace it. Really? Remove the hot water heater and bring it back to the contractor? By law, we aren’t even allowed to do that, since it connects to a live gas feed. It has to be done by a licensed plumber. Rheem may think it’s very clever, selling us a lemon and making it virtually impossible to get it fixed. The contractor, of course, is telling us that they can’t do anything, and we just have to deal with the manufacturer directly.

What neither seems to understand is that with this kind of behavior, we’re never going to be customers again of either the contractor or the manufacturer. The inability to get decent service has soured us on both parties.

People Want Solutions, Not Vendors

What customers want (in other words, what I want) is one person they can call to solve their problem. They don’t want you to forward them to your vendor, or to some third party. They want to call you and have you work the magic it takes to get the product working again.

Furthermore, you want them to call you, too. That’s the only way you can make sure the service experience is a good one. Our contractor is going to lose our business through no fault of theirs, but through the fault of the manufacturer. The fact that it’s “industry standard” for customers to deal directly with manufacturers does not matter to me. It’s a stupid standard that is making my life miserable.

What I wouldn’t pay for … a contractor who would sell me a hot water heater, install it, and be a one-call service center for me. Would I pay more for this than simply time + materials? You bet. The contractor would quickly get the experience dealing with the various manufacturers, and could streamline which products they recommend to be the ones that don’t break, or that can be quickly fixed when they do break. If they have enough customers, they could even get some negotiating leverage, either for service response time or price. (“I have 100 customers with your hot water heater in the Chicago area. Let’s negotiate a discount on replacement parts.”)

There’s a market niche, but so far, no one’s filling it.

What experience do your customers go through when your product breaks? Is there a chance for you to deliver serious extra value by being a one-phone-call provider for your customers? If so, will it give you the extra bonus of developing relationships or expertise that ultimately helps you work even faster, cheaper, and more easily?

Think about it. There’s power to being the only person someone calls when they need a solution, and that can be turned into a seriously valuable business.

Success Starts When You Stop Using Your Own Product

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Have you checked out your competitors recently? I was just reading a review that says the new Blackberry smartphone is by far the best, speediest, most elegant Blackberry ever. But the reviewer would not recommend anyone buy it. Why? Because it’s still missing a lot of the key functionality that other smartphones have. The hardware is leading edge, but they haven’t truly made the device do anything better.

What I want to know is what kind of smartphone the co-CEOs of RIM use? Do they use Blackberrys? I can’t imagine a worse choice. They should be using iPhone and Android devices for 95% of their calls and computing. We’ll let them use Blackberrys, but only on Sunday. And they’re not allowed to have their IT people set them up; they need to do that themselves. Then they’ll start to understand fundamentally what it’s like to use these devices, and why Blackberry is increasingly falling behind.

I’ve been in Blackberry’s marketing research list for years. I want so badly to tell them why my next phone will be an iPhone, and exactly how and why their platform falls short. But they never ask that. They ask too-specific questions about their guesses as to why I might prefer an iPhone. And their guesses are wrong, because they’re so steeped in their own product.

If you’re in a competitive market, you owe it to yourself to adopt your competitor’s product. Don’t just use it for an hour or a couple of days; really integrate it into your life. Understand its strengths and its shortcomings. Do this a couple of times a year. Only then will you have a hope of being able to take the next step and leapfrog what they’re doing with your own next product. Otherwise, you’re playing guessing games. You might get lucky once or twice, but at the end of the day, you can’t create a vision of a next generation product when you don’t even know what this generation holds.

Know the Lifetime Value of Your Customers

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When that lone customer arrives at your restaurant on a busy night, it’s tempting to make him or her wait, in favor of the party of 12 that’s sure to rack up a huge bill. But it just might not be wise.

When you’re deciding how to structure your business, who to give service to, and when to go the extra mile for a customer, don’t just consider the transaction you’re in the middle of dealing with. Consider the total lifetime of interaction with your customer. The “lifetime value” of a customer is how much you expect that customer to spend over the course of their association with you. That lifetime value is what you want to take into account when deciding how far out of your way to go. I’ve recently had a few run-ins with companies that have taken a short view, much to their detriment.

I eat lunch 5 times a week at the same deli. They discontinued my favorite kind of hot pepper, leaving no condiments that I enjoyed. I asked them to please bring them back, and they refused. I offered to buy my own jar for them to use. They refused. And I stopped eating there. Five days a week, times 50 weeks a year, times $7 per lunch is $1,750 of income a year they were happy to forgo to avoid dealing with the hassle of keeping a jar of peppers around. My new deli is part of a franchise. They are only supposed to serve their approved condiments. I spoke to the owner and he happily kept a special jar of peppers just for me. In the 3 years I’ve been eating there, they’ve made $5,000 and my previous deli has gone out of business.

My friend passes through Reno every year on the way back from the Burning Man festival. He stayed in Harrah’s because they gave him a free upgrade if they had rooms available. He then spent the money he saved in the Harrah’s restaurant and spent even more in the casino. They stopped giving free upgrades, and he changed hotels. It would cost them nothing to give him the upgrade, and instead, they’ve lost year-after-year of restaurant and casino business. Let’s not even consider how much Harrah’s would make on all the referral business my friend would bring. Smooth move, Harrah’s.

To return to the original example, while it may make sense on any given night to forgo seating one person in favor of the party of 12, if that one person dines at your restaurant three times a week, in the course of a year, they’ll outspend the entire party of 12. As unintuitive as it may seem, treating the solo customer well may be a better business decision than handling the occasional bachelorette party. And believe me—the cleanup’s a lot easier, too.

When you make decisions about your customers, do you consider their requests as separate events, or do you consider the lifetime value of each customer before deciding how much to commit to their happiness?

How The Rich Are Different (Hint: Not Much)

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I’ve found the older I get, the more I hear people talk about how some rich or famous person is so smart, generous, insightful, good at business, etc. Only these days, I actually know some of the people being placed on pedestals. I offer you this report as a public service, since I made this mistake for many years, often to my own detriment.

We get confused. We think that if someone’s rich, it means all kinds of other things about the person. We’re probably biologically hardwired to think this way. in our societies, money connotes status, and humans (being primates) seem to believe that status corresponds with all kinds of other qualities.

Let’s be clear:

  • Rich people aren’t necessarily smarter than you (though some are).
  • Rich people aren’t necessarily any better at business than you (no one ever writes an autobiography called “I was born to the right parents and was in the right place at the right time,” but they should. Nor do any tomes get written about the supremely competent who just happened to have bad luck)
  • Rich people aren’t necessarily any more moral than you (no matter what Ayn Rand writes in her fiction books)
  • Rich people aren’t necessarily any more generous, any greedier, or any more insightful as to what the world’s problems are or how to solve them.

The next time you go looking at a rich person and proclaiming how smart they are, how insightful they are, or how much good they’re doing for humanity, stop and double-check yourself. Go find some poor people who are also smart, insightful, or doing good for humanity. Then give a long, hard look and decide whether the rich person actually has all those qualities, or whether you’re confusing bank balance with human attributes.

(*) For the psychologically-inclined among you, this is called the “fundamental attribution error.” We tend to underestimate the role environment plays in outcomes, and overattribute outcomes to personal qualities.