エピソード
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I realize there has not been an essay or a briefing in a while. I am trying hard not to let this newsletter distract me from writing comedy. It’s coming along nicely, but at some point I will pivot back to writing more here. In the meantime, I hope you continue to enjoy these short conversations I am having with Peter and we are hitting the more interesting marketing news in any given week or two.
In other news, my 1960s comic book podcast is re-branding. “Super Serious 616” is becoming “WHAT IF… MARVEL was real?”. I wrote a little about why we are making the change here. The big impedes was a big advertising push we are doing later this week that should (if all goes well) blast us to the top of the Apple Podcast charts. The hope is that after an artificial boost or two to the top of the charts, we can use the momentum to maintain that position naturally. It will be an interesting experiment. In the meantime I think the quality of those podcasts have gotten better and better. If you are at all interested, now may be a good time to jump onboard. In the latest episode we discuss just how fast Thor would have to fly in order to cross the Atlantic Ocean in three minutes, and what that means for situations like saving someone from a speeding truck.
Now onto this newsletter’s podcast:
Full Transcript
Edward: Peter, when was the last time you saw a movie in the theater?
Peter: Oh, we go every couple of weeks. Every now and again, it's a very different experience now with, the big crazy seats and having to pick your seats in advance. And it's just, it's not like it used to be, but still it's a nice getaway.
Edward: Nice. So you paused during covid, but then you're back at it the same frequency there before.
Peter: Actually, even during Covid we'd go a couple of times. There was one time we went to tenant. Only people in the theater .
Edward: My crazy tenant story is, for a buddy of mine's birthday, I rented the entire theater so the two of us could go see it.
Peter: There you go. Well, we didn't have to rent the theater, we just bought regular tickets and you still got it. Don't think or so, but during Covid when no one was going to theaters, it was like the safest place you could be cuz no one else was there. So fair it out. So we'll still do it, every now and again. But it is funny how the industry has changed and maybe not funny, maybe sad how it's changed so much.
Edward: Yeah, I think it's interesting how little theaters have changed over the years, and it feels like they're changing quite a bit now. As you said they've made changes in terms of the seats are fancier and more comfortable and they're serving better food and so on. But in terms of like things like pricing, pricing has been, Hey, pay one price. Everyone pays the price to walk in and sees the theater. When you're dealing with a product that has an expiration date, like after 8:00 PM on Thursday, anyone who's not bought the ticket, those empty seats in the theater are going unsold. It's very much like an airplane, but theaters have never been priced like an airplane.
Peter: I have never understood that. Yeah, they should definitely be using different kinds of dynamic pricing. And of course it's not just them. It's gonna be the same thing with sports venues and concerts and yeah. It's funny in those domains, you keep hearing a lot about it. Sometimes controversial, but movie theaters seem to be just clinging to their kind of dinosaur ways. Although I guess just now starting to change.
Edward: And then even things like. Not just dynamic pricing, but even pricing by title. If you go and buy books, books vary in price. Every book you buy, I don't know what the price of the book is gonna be until I look at the price on it. And they're all over the map. Whereas when you go to see a movie, whether you're gonna see a 500 million avatar sequel, or are you gonna go see a nice little small new indie. They're all the same price.
Peter: That, and that's why it's so interesting. So there's that new, 80 for Brady movie just came out and there's all this headline news about it's going to have a different price as if this is a radical. Even in the articles, it's saying this bold move just cuz they're charging a different price for movie. Yeah, they're absolutely right. That should be the way it always works. Not, this kind of one time weird.
Edward: And apparently it has been done in Europe, so in Europe they have priced blockbusters at different prices than like smaller indie, lower budget movies. But in the US there's been a tendency not to do that. And I think the logic is like right or wrong, the logic has been if we price a movie at a lower amount, it will signal that the movie is flawed in some way and therefore it'll drive, even though it's almost like the idea of a luxury good. If I go and start discounting a luxury good, then maybe. Price elasticity is a negative elasticity. It might drive people away because it's considered bad because it's a lower price and it seems like that was the fear in the US if we reduce the price of the movie, people are gonna think it's a bad movie and no one's gonna go.
Peter: And that's why we shouldn't teach economics courses cause people jump to these ridiculous conclusions, you know? You know, it was the same thing with professional sports a lot of major League baseball teams were saying, oh, no, no, no, no. We can't change the prices. Same issue that we don't want to devalue the product. And now they're doing it all the time, not only charging different amounts for different games. But changing the pricing as the game gets closer and even based on weather and who's pitching and so on, that's just become the rule. Now. It's just a matter of how you do it. It's just weird that some sectors, like movies have just stayed behind and just haven't gotten with the times.
Edward: I went and saw, David Chappelle and Chris Rock were in town here in Seattle in December, and we went to get tickets. They like most of the seats in the house were at set prices now. Like the better seats were, better prices and so on. But the best seats in the house, it said this on the website, our top seats are dynamic pricing changing on a day by day basis based on demand.
Peter: That's kind of interesting cause like go to a restaurant where they have fixed prices for everything, but then there's that, special steak or fish market price, which implies that everything else charged isn't at. Prices, everything should be in a market price and people get used to it. That's The Thing a lot of these venues hesitate to do it because of some sense of fairness or something. It's like, oh no, we don't wanna go down the same path as the airlines, but people get used to it. People understand that, as long as they're not being gouged, the fact that they bought the tickets later or they're buying better seats they should be willing to pay a little bit more.
Edward: That's right. And, I think, maybe the airlines get us used to it, to a point where now it's not a big deal when it happens in the movie theaters. I remember it was probably 2003, 2004 was the first time I went to movie theater where I bought my ticket, like I bought my seat of where I was going to sit. Prior to that, I think every time I went to the movie theater you'd buy a ticket and then it was first come, first serve for where you were gonna be in the theater, of course. And it was around that time, 15 years ago or so where they said, Hey, no, you can actually buy your seat and now you can buy in advance. And now you can show. Just before the theater, just before the movie starts. And I think the concern at the time, at least what I heard prior to that was we don't want to do that because we want people to get to the theater early so we can serve them the ads. And if we start letting them buy their seat, they can show up at the last minute and they won't be able to advertise to them.
Peter: Wow, that's such bad logic given how much of a premium they can make for those better seats. It's a whole lot more than putting a couple of eyeballs in front of ads. And in some way the psychological weirdness of having to choose the seat, I think is actually less painful, less cognitively taxing than the idea of paying a little bit more money because, you're closest to the showtime. It's a different kind of process and people adapt to it and become second nature just as dozen these other domains.
Edward: And what's fascinating too, I think is who controls this pricing. When I was at Proctor and Gamble, we could go to the retailer and say, Hey, we want Swiffer to sell for nine 90 but we couldn't tell them that Walmart would, whatever price we told them, Walmart would put it lower and we'd be like, please don't put it lower. We're like, we want this be higher. We want this be high margin product. We want everyone else to charge more money for it. But they could do whatever they wanted. We couldn't force 'em to do anything. Now, we could rent ads on television saying, go to your local retailer and pick up your Swiffer for 9 99. But at the end of the day, the retailer decided, and it's that it's the same way with theaters. And so Paramount, you mentioned 80 for Brady. They can't set the price.
But what they did is they went and spent a whole ton of market research and then put together a research pack. Basically it was a sales pitch. So they went all the big theater change and said, we did some research and it shows that the price sensitivity for 80 for Brady is really, really high. And if you reduce your price, you can fill seats with older people who otherwise wouldn't even go to the theater at all. And they had to make a pitch. And apparently, I guess that pitch. .
Peter: That's great. And that's the way it should be, to get, whether it's the theater owners or again, any kind of venue, to run experiments that take chances, I think there's a real opportunity, whether it's the studio itself or some third party to come on in and start offering that, that kind of pricing expertise. Now, the next thing you gotta wonder about is will there start being a secondary market? For movie tickets. You know it's the idea is ludicrous right now, but anything's possible.
Edward: Yeah. It just, it feels like, at least right now, the supply of seats is so much higher than the demand for seats. And also you have a zero marginal cost electronic product that you can just put more showings, right? So if you don't go and see it at a certain time, they can run another showing at another time. Like unlike live shows like a Beyonce show or Taylor Swift show, like Beyonce can only be in so many places at once. It can only be so many shows. They can keep showing avatar forever and ever and ever. And you're gonna get this almo, if not the same experience. Pretty close to the identical experience. No, no matter when you. .
Peter: No, that's a good point. That there's not as much of a necessity for a secondary market as there is for sports or concerts. But on the other hand, there's a lot of people who are becoming accustomed to buying their tickets through the secondary market. You know, they'll start by going to StubHub or SeatGeek, and to see what's available. They, don't want to go to the primary market. Maybe it's cuz they don't trust the venues who are selling the tickets, or maybe they have a good experience with the secondary market. So I think it will emerge even if it's not quite as vital.
Edward: So we've talked about this, these companies that have been very reluctant to move into this direction. Right. So Airlines did this decades ago. Hotels did it decades ago. Cruise ships have done it decades ago, like movie theaters took a long time to do it, like athletic venues like baseball and stuff took a long time to move in this direction. Is there any example of a company that started moving this direction or an industry that started moving this direction where it was a mistake? We keep talking about, everyone's like afraid to do this. They're like, oh, I'm afraid to put them, buy their seats in advance cuz they'll will miss the ads. Or we're afraid to do this cause our customers will hate us. But is there an example where they were right, where like they should have moved more slowly or not moved?
Peter: Well, in terms of the overall movement, I don't think it's ever a mistake, but there's no doubt there's specific times, you know, specific games, specific sections of seats that are either gonna be priced too high or low. That's just the chance that these organizations take. I mean, let's face it, every game or movie or concert, they're never gonna get the pricing exactly right for every seat. So you just have to hope on average that works out in their favor. But, it's not an exact science, but it's a hell of an interesting science, no doubt about it.
Edward: But is there an example of where dynamic pricing wasn't the right choice? That like, Hey, we had fixed prices. Oh, everyone wants us to move to dynamic pricing. We think it's a bad idea. Every example that we're talking about. It was actually a really good idea. Theaters are slow. They should have done it earlier, but is there an example where someone moved too fast and they shouldn't have done
Peter: Oh, yeah. I'll tell you where the third rail is. Personalized pricing. Yeah. A lot of people mix that up with dynamic pricing. Of course, with dynamic pricing, as we get closer to the date or if it's a better seat or whatever, anybody would, would pay that higher price but personalized pricing to say, based on, given your characteristics, we're gonna charge you differently than me, even though we're coming in to buy tickets at the same time. Back around, right around the turn of the century Amazon experimented with that little bit and they got caught. They were charging two different people at the same time, different prices. And they, boy, oh boy, did they back down on that? They apologized, never again. It was just a little experiment. So yeah, that's a real danger zone. Not, to say it can never happen, but given our kind of how naive we are, even with just regular dynamic pricing. That's a step too far.
Edward: Well, it's interesting you say it's funny, I remember that when that happened at the time, I didn't make the connection, but you're right, they did that. Where they got nailed, I think, was personalized pricing where some people were paying higher prices than others. We do personalized pricing where some people pay lower prices than others all the time, and no one gets upset about it. Like if rather than charging $8 for this CD for most people, but $10, if you, we knew you're like a high level, like a adamant CD buyer and you're priced in sensitive. They could have just priced it at $10 and offered $2 off coupons to a whole bunch of people. Instead of pricing at $8 for everybody and 20% of people paid 10, they could just price it at 10 for everybody and 80% of people got $2 off, and everyone would've been fine with that.
Peter: That's a great point. As long as you separate out the list price from that discount from the coupon or whatever, then it's okay as long as people have to do something. But when it's just offered. And then when the face value is different for different people at the same time. And you're right, it might sound a little, hypocritical, but, that's the reality that we, haven't yet come to grips with.
Edward: One thing I see on Amazon all the time now, not all the time, but fairly consistently, is I'll go to buy a product and on the main pages listed at one price, after I click through and go onto the product page, there'll be a little box and it says, Hey, click 5% off coupon, click here. Yeah. And I see that regularly. I wonder. If I imagine that's probably personalized that I'm getting, I'm seeing that coupon and other people aren't
Peter: that's right. And that again that's fine. That's totally kosher and people are good with that. It'll be interesting to see it. At what point though, do we graduate from that to just showing different prices and calling a spade a spade?
I still think we're a long ways away from that.
Edward: Fair enough. This has been fascinating, so think we're agreed that theaters are smart to do this. They should have done it a long time ago. The consumer backlash is going to be negligible. Theaters are just coming up with excuse, that's the word I'm looking for. It's an excuse rather than a reason.
Peter: That's right. They're not willing to do the hard work. They're not willing to figure it out. And given the state that they're in economically, man, they better do some homework. They better find these kinds of revenue opportunities if they're gonna stay afloat. Cuz the old rules do not apply anymore and they get a adapt or die.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
Some quick updates:
* I have an essay in progress. Will hopefully get it to you in the next couple of weeks
* Stand up comedy is coming along. My first “big show” is on Tuesday. If you are in Seattle feel free to stop by at Club Comedy.
* If anyone is interested in learning how to edit these podcasts and is willing and able to do fast turn-arounds, just reply to the email and let me know. It’s not hard and it’s kind of fun with the software I am using, but it is something I am ready to get off my plate.
Quick Take aways:
* Here is the article we talk about in the podcast (free link): With New EVs Arriving, Brand Loyalty Goes Out the Window
* Here is the book Peter mentions: How Brands Grow
* Too long/didn’t listen: EVs have not changed the rules of loyalty
Full Transcript
Edward: Peter, now that electric vehicles are around brand loyalty doesn't matter anymore. It's all the Wild West. That's what the Wall Street Journal is selling.
Peter: Oh man, I've heard this song before . It's the same old tuned men whether it was gonna be the internet, oh, that's gonna change everything. Or social media or covid. It's gonna totally upset the rules of loyalty. Yeah, those rules are pretty locked in and I'm willing to say same story here.
Edward: So what are those rules of loyalty? What are the rules that the Wall Street Journals claiming are garbage now? Or are they just missing the entire.
Peter: It all depends on how we define the rules. Where I'm coming from it coming forward it is from the top down. If we just look at actual behavior and just look at the choices that people make over time and how often they switch around and what they switch around from in two, there's some very regular patterns to that.
And we could talk about it, but all if you go a level deeper and say, what are they thinking? How are they making these decisions? Sure. Maybe the psychology's a little bit different, but from a business standpoint, that's all cheap talk. All we really care about is what are people doing?
And in that regard it's no different than people rolling a dye to say, which, which of these different items am we gonna buy?
Edward: What they're, so let me quote from the actual article. It says that basically in the past, whenever someone bought a Ford vehicle, 58% of the time it was a Ford vehicle. Now, when they're buying the Ford Electric vehicle, 66% of the time, it's not a Ford vehicle. So there's significantly more people switching to Ford to buy the electric vehicle than we're switching to Ford to buy the non Ford vehicle.
Peter: Yeah. First of all, we don't even know if it's significant or not, but second of all, it's cuz the set itself is changing. The number of electric vehicles out there is really different. It, no that's just nonsense. It's cherry picked, rubbish.
Yeah. The way it's interesting that we talk about cars cuz the people who first set out these rules that I'm referring to and I know you know it well. There was a guy in London called Andrew Berg and his heir Byron Sharp at the University of South Australia.
They basically say that it's you have your die. I have my die. And what drives our choices is, It's just as if random, and it's remarkable how well that story works. The do sleigh model as we call it. And there's no reason to believe it'll be any different here. Do you think So?
Edward: You say it's random, but that's not entirely true. It's weighted random, right? Because if I have, if I bought, if my last car was like a Subaru Forester I think when I go buy to buy my next car, I'm more likely to buy a Subaru Forester than amped. Whatever the average of all the other market shares are. I assume
Peter: you are so right about that.
It's, yeah. It's not that we're all rolling a six-sided equally way to die. In fact, it's not like we're all rolling the same dye that, that there's gonna be this distribution of dice and even that is gonna be well described by again, a. Jewish lay distribution. Look that word up. And yeah, you, but you have your die.
And the important point is that your die doesn't change very much over time. So whether it is covid or internet or EVs, you're rolling pretty much the same die. And there's just so much randomness around the choices that you make that it appears that there are some patterns, but there's really.
Much to it. The only thing that could be going on here is that we might sometimes. what these like guys like to call a structured submarket. So it could be that though that that just as gasoline split off into leaded and unleaded, then people would move into one corner of it. Maybe we'll see something like that.
But it's not some kind of fundamental change in the way that people make decisions.
Edward: So again, I go back to. We're talking about, there's no, like the brand loyalty is not a thing, but brand loyalty in that example is right. There's something to, even if it's not oh, I love my Subaru Forester.
It's the fact that. That I had a Subaru Forester before, I'm more comfortable. I'm the type of person who would buy a Subaru Forester the first time, which means I'm probably still the type of person who's gonna buy it a second time. Plus the fact that now that I'm used to using it, right? So I'm the, and I know it works and I know it.
Presumably it operated the way I wanted it to operate. And so when I go to buy my next car, my default choice is the same car I had before. Now it could change, but the default choice is there, and that's a form of brand loyalty.
Peter: But, so there, there's two pieces to brand loyalty and you described them really well.
One is just that you just have this natural propensity for whatever reason, to buy some things more than others. That part Absolutely. Positively. And that's why your die might be, a little bit weighted more towards the Subaru Forester. And mine might be weighed a little bit more towards, I don't know, a Tesla or something.
Edward: And is that the selection effect? The fact that I bought a Subaru Forester means that, I'm probably the type of person who buys Subaru forests.
Peter: Exactly. Yeah. Cuz then the second piece to it, which is the part I take issue with is this idea of lock in this idea that my propensities get shaped by my behavior over time.
There's not much evidence to that. Again, if you're a supervisor person Yeah. Then you're gonna lean towards it more than most people would. But your propensity to do it isn't gonna get higher over time. It's pretty. Maybe, but it's gonna pretty much stay at that same level no matter how many times you, you roll that die or buy a car, that's the big piece of it.
We don't see that kind of lock in. We don't see that kind of learning. We don't see all of that romantic stuff that we like to talk about where the customers learn to love us and we learn to serve them better. There's not much to that
Edward: really. But I feel like. Say I'm doing, let's switch to a new category.
Let's say I'm doing laundry. Let's say I moved to a new country, so now I have no brand loyalty at all. The first time I go in I, I look at the shelf and I pick one effectively at random, and I take that home and it works. I feel like the next time I go to the store to buy laundry, I'm gonna go and buy that same one.
Just cause I know No, it works. Rather than trying to gamble on something that I don't know that.
Peter: First of all, what you said effectively at random, there's gonna be a lot of influences on it. It could be the brand name. It could be where it's located on the shelf. It could be the colors, it could be stuff that you heard about, but you haven't even thought about, seeing ads for it on the subway or hearing people talk about it.
So there's a lot of influences there that. Things look random, but they're not. And those messages, one way or another got through to you. So it might be less about the actual experience you had with the product and more about the, some of that implicit prior exposure you had to it, that's gonna drive those choices that you make.
That's, that, that's the real important point.
Edward: Sure. And so I, so you say, Hey, the, whatever those influences were the first. They're gonna influence me the second time, but doesn't, the fact that I used it and it worked influenced me like I feel like it does. I feel like. Once I have a chocolate bar that I like, I'm more likely to buy that chocolate bar again.
Even if it was, let's say it was gifted to me. Let's say someone gave it to me rather than me choosing it. Once I have something that I know works, it feels like why wouldn't I stick with what works
Peter: well? Because of all, you might, you just might have a propensity to, to stay with that chocolate bar, but there's all kinds of reasons why it might be just variety seeking, that let's just try something different.
I like this thing, but, ,
Edward: that may, maybe that makes sense for chocolate bars, but I. For cleaning my clothes. You know what, let's just .
Peter: But, but it could be a situational thing that, oh, my mother-in-law is staying with us this week. And, and she only likes certain kinds of things.
And so there could be things that, that might be perfectly rational. Why you're switching around. But to, to me, as an outside observer, I'm just looking at that sequence of choices. And man, oh man, it looks an awful lot. , rolls of the dice. Now to be fair I mentioned all this work by Aaron Bergen Sharp, and they basically said, you have your dye, and it never changes.
Now, I myself have written a bunch of papers that show that, that model's a pretty good first pass. But every now and again, people. Do throw the old die away and do start with a new one. So I don't rule out the idea of changes, what we technically call non-stationary. But the times that you do that tend to be relatively infrequent and they tend to be dare I say, random.
It's not like necessary because of a pandemic or a or change in the macro economy. It's just, there's just something in your life that. Be related to anything anyone else is doing that just causes you to shift your preferences. And it doesn't happen that often.
Edward: What about sampling? So say I'm a I'm a loyal, I don't know, strawberry jam eater, and I'm doing it all the time. Not because I'm loyal, but because I have a propensity to eat Strawberry Jam. And then I go into the grocery store and they give me a sample of, I don't know, grape. , does that have no influence on the chance of me eating crypto jelly?
Peter: I did say that in, in fact, I'd say it's stuff like that. It's sampling, it's word of mouth. It's seeing a Super Bowl ad that sometimes we'll have people switch around a bit. It could be just a change in which things are on which shelf in this store. And and that's why to, again, to me as an outside observer, I see some switching around again there.
Perfectly good reason. It's cuz someone, forced that grape jelly on me. But it makes it seem like that you are rolling a die. And so yeah, a lot of these influences will will have some impact on it. But to the outside observers, it looks pretty random and it looks relatively steady over time.
Edward: But if, again, if I outside observer, if I'm the marketer who's running the sampling program, , I r I go and start sampling a bunch of these jams stuff. Can I expect that my jam sales are gonna increase and that the people who switch over to start buying that grape jelly are more likely to buy grape gel in the future? Like the impact is more than just the next purchase, but it might be like a series of purchases after that.
Peter: This starts where it gets really interesting. So again, a lot of this. Great. Work by Aaron Berg and Sharp. And Byron Sharp has this book that I'm sure some of your listeners would know called How Brands Grow. And they talk about a thing called Double Jeopardy, which again, I know you know Ed, which basically says if you can get more people to buy it, if you could increase the penetration, the footprint, just the overall number of people who tried The Thing at least once. That in and of itself is gonna be associated with higher degrees of loyalty. So yeah, your point is pretty good. You get more people to buy it, they're gonna tend to buy it more often. They're gonna appear to be slightly more locked in having a slightly higher propensity to buy it. It's really counterintuitive, this idea of. Double jeopardy. But it's really powerful. It's pretty much universal. And it's something you should expect to see instead of it being the exception.
Edward: Yeah. So then looping back to the wall Street Journal Electric car article sounds like they're doing the right thing by introducing the electric cars, they're getting people, so Ford introduces an electric car and it's getting people who didn't buy Ford before to be more likely to buy them now.
So it's a customer acquisition play it brings and it brings 'em into the Ford fold. And then once they're in there, Ford's market share increases because they now have more customers they acquired with a electric vehicle. And then once that happens, the double jeopardy kicks in and they should. Those people who have bought those four vehicles the first time, more likely to keep buying them in the future.
Peter: So you will see some of that. Absolutely. The big key is how to get that wonderful cycle going. And in other words, how do you do the acquisition? And again, going back to the great work of Aaron Bergen Sharp and others, you can't just lean on one attribute. You can't say, this is the coolest, newest electric vehicle. You gotta. Broadly appealing. You gotta really punch up a number of different attributes that, yeah, it's gonna save the environment. But you know what? It's all, it's also fun to drive and it's very safe and and your friends will like you better. So you don't lean too heavily. Don't nichey yourself.
You want to make yourself broadly appealing and that's gonna bring in more people and just, implicitly get them to do to. Or to roll your side of the die a little bit more often. It, it really is amazing how counterintuitive that he did. Double jeopardy is, but you just see it it's funny to see a lot of companies stumbling upon it as if it's something new and unexpected, it's been there all the time.
Edward: And what's neat about this is it does hint at that, the next paragraph in the article talks about how these people buying these $70,000 new electric vehicles it what says they're, I dunno if this is actually true, but this is what the journalist is saying. They're as likely to own a $30,000 Subaru Outback as they are to buy, as they are to have previously owned a $100,000 Porsche 9 1 1 sports car. And whether that's true or not, the idea that we should make these vehicles to appeal. Everyone rather than just some sub-segment. Sounds like a step in the right direction for the marketers anyway.
Peter: Yeah, it, and it goes against the grain of so much of what we've taught and learned in the marketing 1 0 1 s. We just figure out what your distinctive attribute is and hammer that and find people who care about that instead. We're trying to say, not so much be all things to all people, but a step more in that direction.
Edward: Great. Anything else to add, Peter?
Peter: We just want people to appreciate that this is the way the world works, whether it's electric vehicles, whether it's soup, whether it's hotels we expect to see these kinds of patterns.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
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Happy new year! Expect fewer posts this year. I will keep going with this podcast, but I am shifting my time commitment to (1) get the book over the line. No more excuses; and (2) Work on developing “business comedy”. I will write more about #2 at some point, but for now enjoy the podcast, and be happy if you weren’t flying Southwest the last few weeks!
Full Transcript
Edward: Peter, how were the holidays?
Peter: Wow. It seems like a million years ago, doesn't it? It's amazing. We had that kind of one day after New Year's adjusting and then boom. But it was great. I went down to Antarctica and it was amazing. Super fun, super interesting. What about yourself?
Edward: We tortured ourselves by taking our four little children to Guatemala and Belize.
Peter: Wow, that's bold. That's bold.
Edward: But I think the nice thing is both of us missed the travel meltdown that happened. I think we both got out before everything started falling apart across America.
Peter: It was amazing actually being down in Antarctica. where it's kind of warmer and more pleasant than it was in most parts of the us. What a mess that was
Edward: Go to Antarctica for the heat .
Peter: Well, it was summer and, I think unfortunately the repercussions of that are still rippling through and it's gonna be a while before that all settles down.
Edward: It's interesting. We were flying on Alaska and there's now a direct flight between Seattle and Belize City. and there were three flights before ours, and they're a limited number of flights now that go back and forth. Like they're only every couple of days. And the three flights before ours were all canceled, so we're on the edge of our seats and whether we were gonna get back on time.
Peter: And between all the cancellations that were happening earlier in the summer for different kinds of reasons, staffing, and now all of the kind of Southwest mess, which is more kind of operational issues, we have a very different feeling in the stomach when we pull up to the airport these days.
Edward: One of the news this week, southwest Airlines had a big, big mess up where every, all the airlines kind of had trouble, but I think Southwest had the most at one point, I think they'd canceled half their flights. It was like a huge, huge, huge.
Peter: Yeah. And I guess, if you read, some of the, articles and blogs about it, it seems like it was, it was inevitable, right? That they've been on a bit of a downward spiral in recent years and letting go of some of the operational aspects that would've never happened back in the old days. But, it's a shame it had to hit. Abruptly, and it's such an inconvenient time.
Edward: Well, that's what's gonna happen, right? When you run really lean, if everything's going well, it's not a problem. It's when things start to go wrong, all of a sudden they can go really, really wrong because that's when things break.
Peter: Exactly. And of course, the lessons to be learned are, How not to let them break, but also how to, how to recover from it. And I still think there's a lot of lingering questions about that.
Edward: I think the Wall Street Journal was just publishing earlier this week about how Southwest is now saying, sorry. They're admitting their failures. They're offering, they said 25,000 frequent flyer points so that passengers hit by the travel meltdown. What do you think of that? Like, what is the value. The passengers who are getting that treatment to get them to come back? Or is it the signaling to non passengers that, Hey, we really.
Peter: It's very interesting. My, initial reactions be really, really fun to, to talk through, was not a positive one. About that move. Couple of reasons. Number one, devalues the point. It's like, we're just gonna throw some stuff at you. You spent all this time trying to get people to value points and earn and get status and all the great things you can do. But just to use it as a way just throwing stuff at you, it kind of makes you wonder about the value of that currency and what it really means to Southwest. So there's one reaction. What, do you think about that?
Edward: I think they claimed in that same article they said, those 25,000 points is worth $300, which would, which you put each point at worth more than a penny, maybe it's $300 if you do it absolutely perfectly in how you use it. But I think most people value these points at less than a penny. But you're saying that the fact they're giving points at all rather than giving people the $300, in either future travel or $300 in cash, the fact they're doing it in points, what degrades the value of the point .
Peter: I think it does, maybe less from a fungibility standpoint, but from a psychological one, we try to associate these points with good things and aspirations and bonuses and like, wow, look at all things we can do with it. But here we're framing it or they're framing it as, this is a way that we're covering our ass and, and making up for a problem. And, I think it taints the idea of, of what these points are all about.
Edward: I'm just thinking, when I was traveling, I stayed at,, back before Marriott bought them. I was staying at Starwood Hotels and they offered points for all sorts of things, but that was their go-to for both good things for, Hey, do these things we want you to do and we'll give you bonus points., get our credit card, we'll give you bonus points, stay in our hotels, get more points. But they would also use them for when things went wrong. And I remember times where like, Hey, they messed up my hotel room. Or there was really loud noise at night. Or they had, the pool wasn't working. And in those cases when you said, Hey, you guys made a mistake, their go-to thing was, well, here's some points. And I don't think I felt bad about that. I felt, I think I felt good about that.
Peter: = I think it's different. I think it's a very different situation because, I've of course been in many of those situations myself, but, when it happens on an ad hoc basis like that, it's like, look at me, you know, I was a good negotiator. Look at what I got out of them. So at that point, it seems like a bonus. , I got something that other people might not have gotten. Whereas in this case it's a blanket offer, so it's not so no one's gonna feel like that they got something that they earned it, they're being treated all the same, and it's just sort of being thrown at them. It's not the outcome of some kind of, negotiation or something like that. So I think it's the points are framed very differently.
Edward: Should they have done it below the line? . So instead of announcing that the Wall Street Journal they were doing it, should they have just approached each individual independently and said, Hey, we felt really bad. What happened to you specifically? Here's 25,000 points to make up for.
Peter: And maybe vary the amount of points based on what people paid for the ticket or just how much inconvenience they were. Something like that. I think if they tried to make it a little bit more personal instead of just, again, sweeping it under the rug. Here you go, people, here's your points. Now shut up and let's keep going. I think that it might have just felt a little different.
Edward: Who's to say they're not doing that? Maybe, they led out with the top line saying, Hey, it's 25,000 points to everybody. Here's the Wall Street Journal article. But maybe below the line they're saying, Hey, we're giving 25,000 points to everybody. But for you, We're gonna give you 30 or we're gonna give you 40 because of what happened to you and we wanna make so special.
Peter: Or maybe it opens up that negotiation where people will go back to 'em and say, 25 isn't enough. I deserve more. In which case they would feel a little better about those incremental points that they were able to negotiate for. One of the other things that I find interesting about it, and this just kinda shows our age over here a little bit, is that Southwest, unlike the other airlines, hasn't been as, Has dependent on the loyalty program. They haven't called attention to it quite as much, and for years and years and years, they actively resisted having one. They always said that, look, we're just giving you a good deal. We're gonna treat you really well. We don't need to sweeten it in the way that some of these other big evil and personal airlines do. I kind of admired that about them, but then eventually they caved in. Everyone has to have it, but
Edward: now they're so much money and a credit card.
Peter: They have to do it, and that's fine. It's inevitable they would, but now they're calling even more attention to the program. And again, they're doing it in a way that has nothing to do with loyalty, that has nothing to do with that good feeling. It's just another currency. And it, takes, something special out of it and makes you start thinking about Southwest in a slightly more, I don't know, commoditized way .
Edward: Have you looked at cohorts like this? So, like either an airline or something similar where something really bad happens. The people who experience that really bad thing, do you see what happens to their lifetime value? Does it drop significantly?
Peter: I love that. I I love that. I can't believe that you raised that before I did. We do that all the time. In fact, the most obvious example being covid. But plenty of others, you know, we'll, we'll find cases where there's some kind of either competitive entry or the company engaging in some kind of other big strategic change. Not so much the first thing to do, but maybe the most telling thing to do is to say, , what's the nature of those customers, of the customers acquired during that time and how do they compare, you know, better or worse to, to others? I think that's a really great analysis to do and ends up being, I think, much more telling about the impact of that intervention than just a lot of the kind of day-to-day moment to moment. Nonsense on social media. So it's a great analysis. Now let's press pause on that and pick it up, a year from now and it would be great if Southwest would divulge some of that data.
Edward: To me there's, three effects. There's one which is Southwest did this big mess up. It's in the news. How is that gonna affect my future travel with Southwest? Like how many times was I going to travel with Southwest? I wasn't affected by it, but I heard about it. Is that gonna drive down my future likelihood to fly Southwest then? Then number two is the people who were actually affected by it. They were traveling on Southwest, they released somewhat loyal to Southwest and that they bought one ticket. How is that going to affect their future travel with Southwest and is it gonna be more so than how my, I'm affected? You can even break that down even further by. People who, people who that was their first flight with Southwest. That's their only experiences with those Southwest. Versus a frequent traveler. And then number three is what effect did the intervention have? And I think the problem with this is that, Number two and number three, we can't separate because they're giving it to everybody. Now, if they've done it below the line, they could have just given it to like 90% of the people and 10%, 10% get nothing. You're screwed, buddy. Just so they can measure the effect of whether their intervention paid out.
Peter: I love that. I love that. Or at least to communicate it differently to different people. Some people it could be a more positive message like, Hey, you get a free vacation on us. Or with other people it might be a, oops, we screwed up. You know, we feel bad. So that there still could be ways that they could try to get some insight from it. I suspect they're not, I suspect they're gonna try to make it as blanket and generic and, just get it out there and forget about this thing, which of course raises another problem which is they, giving points away isn't addressing the problem. all the operational issues that have been creeping up on them. The last thing they want is to throw a bunch of points at people and to see issues like this keep recurring, even if it's not quite as severe and public as what happened a couple of weeks ago. They're gonna still have operational concerns. And this whole points thing, the fact that weren't even talking about it, might call even more attention to future problems they have.
Edward: Have you seen any examples like that? Like what should Southwest expect? What should it do to propensity to fly for people like me that weren't, didn't experience it? What should it do to the propensity to fly to the, for the people who got hit?
Peter: Maybe The Thing to do, you gotta give some points or money or do something. But maybe it should be more communications around here's what we're doing to fix the problems. You know, here are the new people we're gonna hire and the new systems we're gonna integrate, and the new processes that we're gonna have to try to keep people alert. Again, I haven't stayed that close attention to this, but, I'd rather hear about the issues and how they're addressing them, rather than trying to just, throw points at people and pretend it's all better.
Edward: I imagine this what the investors would care about more than anything else.
Peter: Sure. And ultimately that might be what matters most, cuz there's no doubt they took a big hit here and I think people are gonna be looking at 'em skeptically for a while now. They need to earn people's trust back and again, it's not clear that 25 k points, closes the chapter here.
Edward: They need a new, what's their tagline? Like, flying the Friendly Skies. Is that Southwest?
Peter: No, that's, United.
Edward: Oh my gosh. What's Southwest tagline?
Peter: Oh, geez. , we should know our airlines better here. You're look, looking it up.
Edward: Lofas. Nothing to hides. That's transparency. That's their, oh my gosh. That's terrible. .
Peter: Yes, exactly. And, and here they're, they're trying to hide a lot, . And again, it's not very evil. It's not a conspiracy, but they're not being transparent. They're not addressing the issues. At least through this one tactic,
Edward: they can do the new tagline. We will try harder. We'll do better.
Peter: and we'll throw some points at you if it doesn't work.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
Essay and Briefing production has been low the last few weeks as I have been spending more time on building a GPT-3 powered comedy writing tool (and writing “business comedy” with the tool). If you have not checked out ChatGPT in the last two weeks, you should really do so. It is much slower now than when it launched, but still mind blowing. If it is too slow you can just use the GPT Playground, which is powered by the same back-end. GPT itself moved from 3.0 to 3.5 right around when chat launched. 3.5 is very impressive (it can rhyme now!). Spend some time playing around! It’s not often that the most interesting, most advanced cutting edge technology can be in your hands this early (and practically free).
Marketing BS is on vacation the next two weeks. In early January I will be back with another podcast episode (moving to Fridays), and hopefully some more text. Have a great holiday!
Full Transcript
Edward: Were you a Westworld fan, Pete?
Peter: That first episode in the first season was one of the most awesome pieces of television I ever saw. I was hooked with the first season and maybe watched one or two more episodes. That was it. How about you?
Edward: One or two of the first season, or finished the first season and then one or two of the season?
Peter: Finished the first season, that was, must watch tv. And then in my view, it jumped the shark very quickly after that. In fact, when I saw that news that H B O is gonna give up on it I thought they were just killing the program, but I didn't realize they were actually killing the, getting rid of the catalog too. That, that's crazy.
Edward: Is this the first example of hbo? So HBO has pulled stuff from their catalog before, like they, they pulled some Sesame Street episodes people were upset with, but is this the first time they're pulling their own content from...
Peter: It's the first I know of and indeed, the Sesame Street thing is different because that's not their content, but for them to have stuff that, that should be uniquely associated with them and still does, and on catalog basis, we'll have some value for them to say, nah, we don't need this anymore. It does have me scratch in my head.
Edward: So there's no actual cost for them, whether they put it on the platform or not. There's no cost. But what there is an opportunity cost, and I think that opportunity cost has really been ignored in the past. And now they're saying, Hey, we can take this product that we have and instead of using it on our own platform, we can turn around and sell to some, sell to Netflix, sell to Amazon, have someone else owed it exclusively instead of...
Peter: But it does make you wonder, like sometimes you'll sell content outright and say, here, it's yours now. Or sometimes you'll just license content. Or access. You think about lots of examples where, I don't know where Verizon will let Comcast use Verizon's phone services as a private label kind of play. So they're not giving up on it, but they're saying, Hey, we can have other access points to it as well. I just wonder if, maybe providing broader access rather than giving up on their own access makes sense.
Edward: HBO has done that before, they kept Sopranos on their system, but they offered Sopranos to Amazon as well. So you can go on Amazon Prime and watch Old Seasons of the Sopranos. But what was happening there is it was non-exclusive. It was still available at hbo, but also available at Amazon. I think what's happening here is that there is a higher value in a piece of content that's exclusively available someplace else, and HBO's gonna try to realize that with Westworld.
Peter: So you think it's an opportunity play for them that they'll make more money by auctioning it off to the highest bid. you don't think a kind of a cost cutting move
Edward: No, I don't think there's any cost. The cost to have more video on your platform is as close to zero as it comes. The storage cost is you're storing it anyway. And I think this and the streaming cost, if they're not streaming, that they're streaming something else, or they're streaming a competitor and you don't want your customers to do that. That's how you churn your customers. And so there's no actual cost for them to have it on there. There's an opportunity cost where they can go to Amazon Prime and Amazon Prime may pay, I don't know, 10 million to stream Westworld or 30 million if they get the exclusive rights to it.
Peter: It's all about exclusivity. But again it's interesting how sometimes, people do put a premium on it and other times they say, nah, come on we don't care what door you come through.
Edward: I think what's interesting is that all these streaming services are effectively competing with each other, but they're finding ways that they need to cooperate at the same time. And so you can go on Amazon. Amazon Prime is competing against HBO and Disney Plus and so on, but you can also buy HBO and buy Disney Plus when you're on the Amazon Prime platform. If you go on Hulu that's owned by Disney, you can buy HBO on through Hulu and so they're both, what's that word? Where you're competing and your friends at the same time?
Peter: Frenemies.
Edward: Frenemies. They're frenemies.
Peter: Yeah. And that whole thing about the these kind of affiliate acquisition things that are going on just as you described that the companies getting some kickback from the content providers for selling subscriptions to it, that's something that we as consumers don't really understand a lot of money, a lot. Here it is company like, I dunno, Comcast will pay a bunch of money to get access to the HBO content, so get paid every time they bring subscribers in. It's weird how it goes both ways.
Edward: I've tried to dig into that and I don't know what they actually pay. So when you buy HBO through Amazon, you pay your $15 a month, Amazon gets paid for that. I don't know if Amazon's getting a lump sum for getting the new subscriber, or they're getting like $5 a month for one subscriber. As far as I can tell, that data has not been shared publicly anywhere.
Peter: The data's not shared. And again, I think very few consumers are aware that these things go on. So when a company starts calling attention to it, like Verizon is now doing, you want, maybe you want to elaborate on that a little.
Edward: So Verizon, that is they offered a new deal yesterday. I believe that if you go and use their marketplace, I didn't even know Verizon had a marketplace. Like it never would've occurred to me to go and buy my HBO through Verizon. I have a Verizon phone, but that's not how, if I wanted to buy hbo, I'd probably do it through. Go to hbo.com or maybe I'd pull up my Amazon fire television and buy it. I don't think I'd open my Verizon app on my Verizon phone to go and buy hbo, but that's what they want me to do. And if I go buy HBO through my Verizon app, the. Verizon's gonna give me Netflix for free for a year. So they must be making something from that .
Peter: Oh, clearly they are. And you gotta wonder what the play is there that maybe if they can be your gateway to more and more services, then you'll consider adding others and see them as a bonafide, app store in a way, even though we're, blissfully unaware of it. Maybe that's what they're thinking.
Edward: I assume that once I subscribe to HBO through the Verizon store, I'm not, I'm still using the HBO app to watch my shows. I'm not going through the Verizon app to get the HBO stuff, which I think is what happens on Hulu. I can buy HBO through Hulu and now all of my HBO stuff is available right inside my Hulu app.
Peter: So in a way they're trying to build a walled garden of sorts. But it's not so much financial considerations or even exclusive access, it's just that one, once you're seeing it through gateway, you're just not gonna switch. And then while you are using that gateway, you might access other things through it. Very different than, the traditional approach that apple's taking.
Edward: It's customer acquisition, right? So if Verizon can get me to go buy my HBO through the Verizon app, and now all of a sudden I'm getting Netflix through the Verizon app, I've, they've now acquired me as a customer and getting that second, the second or third purchase, when I decided to go buy Paramount, maybe instead of going to paramount.com. My natural inclination, at least my on the margin, I'm more likely to go buy that through the Verizon app now as well.
Peter: That's the bet they're placing. It'll be interesting to see if people feel any kind of loyalty to one Gateway or another. And what would drive that? Is it the brand? Is it the the interface that lets you access it? It's funny that we always talk about content being king, but now it's at least the presumption is that being the gateway to content might be the king. Not a lot of evidence for.
Edward: It feels like in the real world, we see this all the time, clearly, like I don't buy my tide from Proctor and Gamble. P and g might have a direct to consumer tide business, but it would never occur to me to go to p and g or tide.com to go buy Tide. Instead, I either buy it through Amazon or I. Go to my local grocery store, my local Walmart, and pick up the tide. And it feels like in the digital world, the competition is like a drive away versus in the digital world, competition is a click away and it seems a lot easier switch from one storefront to another.
Peter: Exactly. And what's interesting about it I don't know about you, but I have zero loyalty to any of them. I don't look at any of the, these interfaces and say, that's a good one. If anything, especially when you're doing it through the television, you're trying to spell out names of programs by using arrow buttons. Just horrible. So it's I don't think they've done a good job of, the customer experience of being content retailers in that regard.
Edward: But I think there's something to be... there is a friction for leaving somewhere. So if you are on your Amazon Prime TV or on your Roku tv and you decide, I wanna watch deadwood on hbo. One way you could do it is go to your phone or your computer, sign up for hbo and then go and link it to your Amazon Fire television. Or the other way is you go on Amazon Fire Television and say, hbo, click here, sign up. I'll bet there's a lot of people who do that ladder rather than the former.
Peter: And in the case of Verizon is that a presumption that people would be consuming the content on their mobile device because it's not clear that the Verizon gateway would help you with your home television?
Edward: No. I'm a bit of a loss for the Verizon model, although, yeah if the Verizon, if presumably Verizon has, I didn't even know Verizon had a store, but they had a store and you could buy other things through that store. You could imagine a lot of these guys have these discount stores. You can imagine that you go on Verizon and buy your, I dunno, your AirPods through Apple at a $10 discount if you buy it through the Verizon store. And so if you get, if you start getting used to doing that, the reason to go, the reason to buy through the Amazon Fire television is because it's convenient and it's right in front of you and you're already using it. The reason to buy through the Verizon store is there has to be something else. There has to be the convenience is not there, so they better compete on price or something else.
Peter: I think it's Apple envy I think that folks just have this feeling if we build it, they will come. That we can build the same kind of walled garden that Apple has. If they could do it, why can't we? And just makes you wonder a, is it is it that easy to do? And b well, you look at what some of the pressures apple's facing, is that even the right way to go? If you can.
Edward: That's the other big news we've had this week is that, the EU is now gonna force Apple to have competing app stores. So up until now they've had a monopoly. If you wanna buy something through your phone, you have to buy it through. Apple. Now there's gonna be an, in theory, there can be other stores, but again, we're gonna have that same problem of why would you, as a consumer, why would you go to one of these other stores? Unless they're competing on price or they're not gonna, it's unlikely this other stores gonna have as better a better experience than Apple. So they better just offer things at lower prices.
Peter: It's another example where regulators are stepping in trying to do things that, in theory is in the consumer's best interest. But you go back to G D P R, the whole data protection thing. There, it's, great idea in theory, but now every time you're dealing with the European firm, just all the accept this, click on that. It's, it ends up being a worse experience. You know what just take my data, but leave me. And I think it's the same thing here that they'll have a million stores. You won't know which one is which, and in the end, you're just gonna end up just choosing to go to the regular Apple one and, and paying more and getting less. But it's the one you know and you're comfortable with.
Edward: The one thing the law is doing so I think that this, again, I'm with you, especially eu, they've made so many poor choices and there's some pretty terrible stuff in this recent law. But one thing that I think it's doing right is it's. Companies to basically circumvent Apple payment rules. So right now, like I can't buy a book through my Kindle app because Apple is gonna require 30% payment from Amazon. Amazon's not making 30% margin when they sell the book. And so the result is it's just lock out completely and I need to go. Into my browser, go into app Amazon, buy the book, and then push it to Kindle. And not only can I not buy through the Kindle app, Amazon can't even tell me in the Kindle app how to buy a book and use this new law is going to fix that. It's going to allow people to go and make in-app pur purchases by clicking off their app. They can tell people that they can go to their website to buy. They, it's still not gonna be a seamless solution, but at least the customer communication's gonna be a lot.
Peter: Here's one thing I'm curious to get your take on it. Where I think where the EU stepping in is gonna be a tremendous benefit for consumers, and that's the cables connections to your Apple devices. Pushing people to, u s, BBC or some kind of standard instead of having their own proprietary thing. I don't see any downsides to that. Curious to get your take.
Edward: Oh, really? So I think this is a huge mistake. We've come to, we've come to our point of disagreement. So USB cables have improved dramatically over the last 20 years. What EU is going to do is say, Hey, going forward, you have to use this technology this way. They're basically saying that we have now mastered the USB cable and there's no further technological advancements possible until we as bureaucrats decide to change the law.
Peter: Oh, I wasn't aware of that. I was just thinking of them telling Apple that they gotta get in line with everyone else, but they're telling everyone, everybody has to get in line.
Edward: This is the new, this is the new standard, and the new standard for USB cables is this, and it's not changing.
Peter: Oh, ah yeah. Okay. Yeah, that's that's thrown out the baby with the bathwater. That's a shame. . Yeah, because you can imagine if governments had stepped in, just how bad the technology would be today. If technology didn't decide that in a market-based way. Wow. Yeah.
Edward: All right. Hey. I think we've been all over the map today. I think just I think to wrap it up, to talk a little bit about traditional retail and how, if not just these, all these streaming stores, but actual physical retailer, they've always been in this place. The stores are selling Tide, whereas, HBO is selling movies. But you also have private label stuff that you're selling on your own. And so you are in constant competition with the person supplying all of your product. 90% of your products are being supplied somewhere and you're competing with all of them while you're selling them at the same time. And I think what we're seeing. The streaming world is as it's getting more developed, it's becoming more and more similar. To what we've seen in retail for the last a hundred years.
Peter: And it's great. It's great as long as we can let you know, market forces determine winners and losers. And you we're seeing quite a bit of that happening in the streaming space. It'll look different a year from now, but hopefully better both from a consumer standpoint and from a ability to make money standpoint.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
Last week I published the first chapter of Peter’s new book. This week I interview Peter on the book, who should read it, what the conclusions are, how it is different from his last two books, and why he is like George Lucas.
If you are interested in buying the book, you can do that on Amazon, but this week it is 40% off if you buy direct from the University of Pennsylvania press. Use the code “HOLIDAY22-FM”
Full transcript below.
Main Takeaways:
I fed the full transcript into ChatGPT and asked it for the main take-aways from the podcast. I then probed it for more, but it could not come up with anything else. I THINK that it only “heard” the first part of the podcast and ignored the rest. But here is what the AI thinks are the take-aways:
Peter's third book, titled "The Customer Base Audit," is a prequel to his other books on customer centricity. The book focuses on providing insights into customer data and is considered a foundational work. Peter believes that if the book were released first, it would not have had the same impact as it does as a prequel to his other books. He believes that starting with the "sexy stuff" and then diving into the details is a better way to grab readers' attention and get them to care about the subject matter.
Full Transcript:
Edward: All right, Peter. We're back. We're back.
Peter: It's always good to talk to you. Ed. What are we gonna talk about this week?
Edward: We're gonna talk about your book.
Peter: We're talking about my book. Love it.
Edward: I know there's a heck of a lot going on in the world, but we're gonna take a break from fraud and we're gonna take a break from Elon Musk. We're gonna take a break from ai. We're gonna talk about your book.
Peter: We promise not to mention any of those things.
Edward: We told the audience that we're gonna do it. We did an excerpt from your book last week in the newsletter. So if you those listening who have not seen that, you should go back and check that out. And now we're gonna talk to the man himself. It's interesting, Peter, this is your third book, correct? I got the number right?
Peter: It's crazy, but true. Yes.
Edward: Okay. And so my concern always for like big thinkers when they're writing multiple books, is that the first book. The Thing that they've worked their whole career on. It's like the first Beatles album. They've worked on it for the last 20 years of their lives, and they get it down and now two years later, they have to get another album out and they just, okay, let's see what else we can get out. And the sophomore albums tend to be weaker than the first, I feel like with big thinkers like like Clay and Christensen when he releases innovators Dilemma. Earth Shattering book blows our minds on how to think about strategy. And then he proceeds to release four more books after that, that are frankly derivatives of innovators dilemma. Are you being derivative, Peter? What's going on?
Peter: Actually it's a great question. Cuz this book actually comes first, and I mean that literally and figuratively that, if you look at the, of course the book is called the Customer Base Audit, but the subtitle is the first step on the journey to customer centricity. And literally it goes back to a conversation that I had with one of my co-authors, Bruce Hardy, back in 2004 long before I had any inkling of the other work that I would then write on customer centricity. So this stuff is actually much closer to the work that I really do for a living day to day with customer data and so on. Those other books are more of the the so what, like what do we do with the these insights. But this is the book that gives the insights. This is the book that if you were to read the first two and say, wait a minute, how would I know that this stuff is true? Prove it to me. This book does that.
Edward: So is This is like George Lucas making Star Wars. So after he is made that then he can go back and make the movie he really cares about,
Peter: It is the prequel to the other stuff. And again, in some ways it is foundational. In some ways it's really quite different. But I don't think anybody, I'm not saying everyone will like the book, but no one's gonna read it and say it's.
Edward: Okay. And so which I guess if someone's coming to you for the first time, then do they read this book first as a prequel? Do they jump to the prequel? Or is it like, Hey, watch Star Wars first, enjoy that, and then read the next book to understand where that, where that song came from?
Peter: Know, That's beautiful metaphor. And I actually agree with that. See, here's The Thing. I've been doing this kind of work forever. Even since, you were an MBA student 20 years ago and, 20 years before that. And for the most part, with some exceptions, like you people would ignore me saying it's all just quanti and who cares? So what, so I wrote the other books to basically say, pay attention. This stuff matters. You should care your business depends on it. And that's a great way to grab people's attention and get them to lean in and say, oh whoa, how do we do this stuff? This is the book that begins that, how do we do this stuff if we release this one first? People would've read it and said I guess that's nice, but so what? So it's nice to lead with the so what to lead with the sexy stuff and then have people roll up their sleeves and want to dive into the details.
Edward: Got it. So the first book is customer centricity.
Peter: Focus on the right customers for strategic advantage.
Edward: And that, so that book is the why, right? This is how. Not. Not the how, but the why to do it. Why customer centric? So both the what and the how. Which is what and the why.
Peter: Yeah, exactly. What are we talking about and why do we care?
Edward: Cause people, I think back then, I remember talking to you and a lot of people think things like, oh, customer-centricity just means doing whatever all your customers want. Which is, that book says, no, that's not what it is. Let's redefine what customer centricity.
Peter: That's right. And again, it's gotten a lot of people to pay attention and say, wait a minute, we should be doing that. Or, wait a minute, we've been thinking along those lines, but we thought we were alone. So let's start at the C level to get people to really care and to, care about, everything from incentives and organizational structure and corporate culture and stuff that I know nothing about. And then it's gonna charge the the. Quine nerdy people to to do their thing at the service of customer centricity.
Edward: Got it. So number one is, Hey, yeah, buy in. We know what customer centricity is now and we think we want to do it.
Peter: Yep.
Edward: The second book is the Customer Centricity Playbook. Is that like the project plan to actually implement customer centricity?
Peter: Exactly. It's the how do we do it. Yep.
Edward: Got it. And so now we've gone full circle. Now we're back to the prequel, which is the customer based audit, which is the new book. And so that's about. I guess not. I was gonna say how, but it is it how
Peter: it's first steps? It's step one of the how, which is get your data in order. Okay. Don't take our word for it. Look at your data. Let's not even run any models or forecast or lifetime value or any of that stuff, just given the data that you. Look at it the right way. And you'll notice that not all customers are created equal. And you'll get all kinds of insights about how customers change over time. Stuff that you know, I, and you to a large extent take for granted. But for most companies it's sometimes news they don't know about and sometimes it's the polar opposite of what they think they'll see when they look at their customers.
Edward: Who should read which book first?
Peter: See, it depends who you are. That's right. So if, so again if you're c level, as much as I'd like them to dive right into the audit I recognize its place, it would be start with books one and two again, just to be motivated to wanna lean in further. If you are someone who plays around with data, you're a data scientist or maybe you're someone in the CFO's office where you're comfortable with numbers you're, you're interested in accountability and rigor marketing often lacks. Then maybe you start with the audit and maybe after you see the patterns, then you start to say, what does this mean? What do we do about it? And that leads to books one and two. So it really does vary about, who you are and where you are in the org chart.
Edward: Got it. So it, it feels like if you're the CMO and you have the authority to like make this happen, you should probably read the other two books. Probably read the first book. Read customer centricity. If you haven't been bought in on the whole thing, that's gonna get you bought, that's gonna get you bought in or you're gonna reject it, but at least you'll know what you're rejecting and so on. If you're not in the marketing department, so if you're not in the marketing department at all, if you're in the finance department, you could be as bought in as you are on customer centricity, but you're not gonna be. The marketing department to do what you want it to do instead, read the customer based audit. Now you can go and , it's right in the title. You can go and audit the marketing organization to to see what's going on with your customers. And you can provide that information just generally to the organization. And hopefully that causes things to move.
Peter: That is exactly right. And really. That's a really big part of our motivation for doing this. A lot of the work that I've been doing recently, as has been this idea of customer based corporate valuation. Let's basically show the finance people that we can be their friend. We can be their partner by basically projecting revenue and free cash flow accurately and diagnostically. And again, this would be the first. Towards that. Cuz doing that requires models, projections, forecasts and sometimes people will be skeptical about that. How do we know you can forecast it? If we can look at the raw data, simple, just simple data summaries as we say in the book, unashamedly descriptive and see some of these patterns. Daring us in the face about the differences across customers and all that then it just makes you more curious, more willing to start taking that next step and forecasting things out. So this is the starting point for all that.
Edward: It's more than just the numbers though. It's also how you interpret those numbers. Cause I feel like if you just come up like a chart and these are the numbers, that's one thing. But if you pull up the chart in the numbers and they look in a certain way, and you could, and you know what that means when they look that way? Then that's a lot more powerful than just having the chartered numbers.
Peter: So let's talk about that. It's a really great point because yeah, just charts and numbers, eh but on the other hand, if we over interpret, if we start, getting too colorful with the interpretations and start bringing in things like you, Demographics and personality, character no. For us that next level down would be instead of just looking at overall sales, let's break it down into, were you active or not? How often do you buy, how much did you spend when you did? So let's come up with a, simple but powerful decomposition of sales and start looking at those separate drivers.
And here we are, it's holiday season and every company is out there acquiring a bunch of really bad customers. Why are they bad? Is it cuz they're not gonna stick around or they're not gonna buy often or they're only gonna buy when things are on sale? It's really good to know that stuff. And then you could bring in the marketing messaging and all the targeting and all that stuff to basically, Either take advantage of or combat some of those next level patterns.
Edward: So I remember even back when I was a student of yours, we talked about, you talked about how you use this the, when you go and do these analyses, these datas you see the same patterns everywhere, whether it's a long before eCommerce came around and then eCommerce companies, church attendance going to on cruise ships. It just didn't seem to matter what you were doing. You kept seeing the same patterns. I assume that's still the case.
Peter: That's it and that's why doing it in this audit manner, that sounds so formal. And that's exactly the point that instead of just making it up as we go along, which is all too often what happens on marketing because we expect certain patterns to be relatively persistent, that we should be doing basically the same kinds of analyses on a persistent basis every quarter, every year, whether there's a crisis or not, whether there's a new product being launched or whatever. Let's look at things the same way, anticipating that those basically same patterns are gonna be there. And if there are differences, that's when it gets interesting. And that's when we get,
Edward: So let's talk about that. So if the patterns are gonna be the same all the time, you do the audit and you almost know what your answer's gonna be before you start, because hey, this is just, it's almost like a. Let's go and measure. I remember we do these science experiments when I was a physics major in undergrad, and you do the science experiments and at the end of the day, you knew what the answer was going to be before you started because physics is what it is. And if it was wrong, you were more likely that you did the experiment wrong. Then gravity is different than it was last week. And if that's the case here where it's, hey, these are almost laws of nature, that you're gonna see these same patterns over and over again. But what are the differences in the audit? What's the gravity's not changing? What are the variables that change from one audit to the next?
Peter: I love it. So we can take the, the two most obvious metaphors. One would be a financial audit. Again, you do your required financial audit from one quarter, one year to the next. And 99% of things haven't changed. But it's, the little bit of stuff that has changed is what makes the audit interesting and valuable. It's those discrepancies. Those variances, and then, Understand what happened and what we need to do about it. Same thing here. The basic patterns are gonna be the same but the, there's gonna be some nuanced differences for from one period to another. So just like we look for those variances in the financial order. The other great example would be your. Your annual medical checkup. just an audit of a sort and you want nothing to change. , you want it to be exactly the same from one year to the next. That's good. But there's always gonna be some kind of variance. And once again, we're gonna wanna understand what that means. I think it's a absolutely perfect analogy for why we do this and what we expect to see from it.
Edward: And so can we get specific, are there examples that you can be like, okay, here's an audit. Or even a specific company, whether it's disguised example or not, of we did this audit, here's. The second audit, here's the third audit, here's what changed, or here's what we saw. Here's what surprised us to the, even the first audit. Let's start there. You do a company, you do a first audit. What are the surprises that you saw in a specific example?
Peter: Yeah. One of them, as I alluded to before, and again, you and I have talked about endless times, is the holiday season is those customers who we acquire in q4. And again, I've gone on and on about this for years, about how those customers be acquired during that season aren't so good. And sure. Boom, we do this, you using real data set from a real company. And not only is it plain as day when you see it, but it's nice to then be able to go that next level down and say, again, as it purchased, frequency or spend or whatever. So we'll just see differences across, say, Cohorts of customers might be due to holidays, might be due to new product launch competition. Who knows what. You'll very often you will see those kinds of cross. They're slight, but they're persistent and they're important cuz it might be the case that you've overfished your waters. There are no new customers left to acquire. You're only getting crappy ones. So if you start seeing. These cohort level changes, it might tell you that your company is, your customer base is going over Cliff. So it's it's really good in that way. And the other part would be to tie it back to action, to tie it back to products. So let's, instead of just looking at which products we sell the most, let's look at our products through the lens of what's the quality of customers who buy. And to give us real guidance about what kinds of products we should be producing, developing, promoting and it's just, it's a whole different way of looking at product development, but through the appropriate lens.
Edward: Got it. So the customers that bought Product A tend to churn out fast product customers that with their first purchase of Product B tend to last a long time. Therefore, we can afford to lose money when we sell Product B, but we can't lose money when we sell product a.
Peter: Exactly. And I've been saying stuff like that and, General hand wavy terms for years. But it's really great to actually not only demonstrate that it's true, but to be a little bit more specific, a little bit more guided about it. Say, here's how you look at the data to see those differences and again, what they mean. And then of course, the back end is. Audit to action, what do we do about it? And that's where our third coauthor, Michael Ross comes in. Cause I'm like Hardy and me, he's a real world guy and he's been basically doing this kind of thing, again, not a formal audit like we're proposing but informal bits and pieces of it. And then talking about the, so what he's been doing that for years. And all we're trying to do is to make it a little bit more formal, make it a little bit more standardized. And I think the subsequent actions will be easier
Edward: great. Excellent. So that's the first audit. So now you've done that and you've found all those low hanging fruit and you've made the changes but now you recommend what an audit every year, every quarter. How often?
Peter: Yeah. It depends on the cadence of the company. For a lot of, I don't know, say a packaged goods company or a restaurant chain. Yeah. Quarterly would probably make sense. If you're selling mattresses, then probably yearly is more than enough. Really. It's not much different than how often you should be doing a financial audit. It just depends how how turbulent the company or the the ecosystem is. Could be a lot of different factors. You know what, I love that question cuz it implies we are gonna do it regularly. , you know how often I like that as opposed to should we do it at all?
Edward: That is my next question, which is, okay, so going to the specific examples, we've done the audit once we've cleared up all the low hanging fruit. Now is there an example of a company who's done that and then when they do their second or third audit, they find something new and different because of some sort of.
Peter: Oh yeah. Inevitably that's gonna happen. Again, it might be small. You of hope it's small, you kinda hope there's nothing. But the, but unlike physics, the world is constantly changing. There's all these forces on us, and in many cases we don't recognize the nature of the impact of that change until it's like too late and it's really showing up on the bottom line. The audit's kind of a, an early warning system about that. So again, it's fine if nothing's going on, that's good status quo, stay right on course. But when you see those little changes, then you're gonna wanna pursue them because those little things can become big.
Edward: You talked about this kind of like being at the same cadence as financial statements is there any company that's sharing, is any publicly traded company that's sharing these as a financial statements or even, I guess a private company that's sharing it in board meetings privately that are doing these on a regular basis and sharing them public?
Peter: We are starting to see it. And through my company, theta, there's been a couple of companies publicly traded, big, dry and publicly traded companies who have said that we want to start disclosing some of these metrics. We wanna know which ones we should disclose. We want to know what, caveats and guidance we can offer as a result of it. And then basically educate our investors and analysts to understand what that metric means and how it, it shines. A better light on just how healthy our company is. There, there's one that's about to start doing it I think in their next quarterly filings in in probably in February. And it's been really gratifying to see that again, though, I gotta admit, those companies are still exceptions and we want it to be more rural, that more companies will be doing this thing just on their own without needing us read the book and. Do it and that companies are doing it voluntarily just for, the right reasons instead of doing it because they're in trouble or they're defending against something.
Edward: It almost feels more and more like this book should be targeted at finance rather than marketing. I, what I was writing my figuring out who my target audience was for, even for the newsletter, for marketing bs. And I often thought, you know what? I'm saying marketers are doing stuff wrong and people don't like to be told they're doing it wrong. When I get brought in to help out companies, it's almost always the CEO who's bringing me in or the investor bringing me in, not the cmo. If the CMO either is you know what? I'm comfortable with what Ed's doing, I don't need his help, or he's, they're like, you know what? I don't like what he's doing. Please don't help me. And so it's usually the CEO or the CFO that's bringing me in. And so I almost thought about, hey, marketing BS and having a tagline of marketing for finance people. I don't quite go that far, but this almost feels like it's that far. It almost feels like you should be going on finance podcasts and telling them all, start doing this audit, your freaking marketing team.
Peter: Yeah, it's no doubt, and of course we're not doing out there to trash CMOs but you do have to acknowledge that the CEOs and CFOs do have more power and. In many cases are skeptical about, all what those customer experience campaigns or The Thing or the or, a lot of the other customer experience campaigns. What all that is buying them. This is a way to hold marketing accountable to basically say let's see, in the audit, can we see that we're getting a different mix of customers, that they're doing more stuff with us. So again, it's a very regular, accountable, rigorous way to demonstrate the impact of those marketing actions. We hope that the C'S will embrace it as well because they really are moving the needle. This would be the best way to demonstrate it, as opposed to, brand favorability, indices or customer satisfaction. Not that there's anything wrong with that stuff but the audit on these more financial metrics are kind of closer to the bottom line and therefore closer to the hearts and minds of the people who matter most.
Edward: You know what I think this would be great for is a new cmo. If I'm going into a new business one of my philosophies when I started a new company is the first most important thing is getting all your metrics in order and get all your reporting done and getting that all set up. And then, and only then do you create five or six initiatives that we go after this stuff for. And then figure out if you have the team to do it, and then go and figure out your team. But this feels it's like a standardized way to go in and be like, no matter what your company is, use this format to go and get all your metrics set up. Cuz chances are when you come in, they aren't gonna be set up this way. And you need the, if you get them set up this way, you'll understand the business a lot more and you'll be able to track whether your initiatives and your team are gonna be. Moving things in the right direction.
Peter: Amen. I like to give you a specific example of that. I know you like specifics. One of my favorite people who's been doing this, even if you haven't called it an audit for quite some time, is Zachary Anderson who runs all data analytics for NatWest Bank over in the uk, but in his previous gig in the same role at Electronic Arts, the gaming company, that's what he was tasked to do by the ceo, Andrew Wilson said, Zach, I want you to give me the four or five metrics that I should care. And I'm going to tie my compensation like for the next year or two to those metrics. And it was wonderful to see, first of all a CEO kind of going out on a loom like that and trusting marketing type metrics. Giving this kind of marching orders to not just one person but the entire organization and then saying some wonderful results emerge from it. So we wanna see that kind of thing happen. And once again, The metrics shouldn't be cherry picked by the CEO or any one person in the company. We should agree in advance should be a standard set of metrics, standard set of analyses that would apply to pretty much any company. And again, that's what the audit's all about.
Edward: That's great. And so I think what we should do is in February when this company you think is gonna release their financial statements with this format, we should definitely dedicate an episode just to walking through those statements.
Peter: I would love to do that. And of course, this is the kind of thing we're doing informally all the time. Big shout out to my former PhD student and co-founder, Dan McCarthy who really we talk about customer race, corporate evaluation. He's the man he invented as part of his dissertation and every time he sees companies talking about different kinds of customer metrics, like just last week he was talking about clear. Wonderful company and they put out some really interesting metrics and it was just really great to see Dan tear them apart in a positive way to say what it all means and what this, what light this sheds on the company that we wouldn't have known otherwise. And so then there's a lot of examples like that. And again, We just want that to become part of just the, a regular process and not this kind of one off thing that occasionally happens.
Edward: That's good. Hey let's start here. So instead of just talking about Elon's latest adventures, let's when companies release earnings that have this information, or Dan releases one of his deep dives, let's make sure we talk about it on here and we can be the the heart bringers of.
Peter: This is the right place to talk about Ed. Cuz not only do you appreciate and understand this stuff, but you do a great job of putting it in the right context to know where it all fits in. It's not just metrics for the fun of it. And I think it's important to get that full picture.
Edward: That's right. Come here for your marketing news and your Star Wars metaphors.
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Today’s episode further explores topics discussed in this week’s essay. In the preamble to that essay I said that there would be no content next week. I am going to reverse that. Next week will be an excerpt from Peter Fader’s new book. Stay tuned!
Full Transcript:
Peter: Ed, I love your piece on strategy versus tactics at Disney, Twitter and Dominion Cards. I love the way that you're weaving together a narrative that's taking three of the super hot, interesting topics and a fourth one that most people don't know about.
Edward: It's funny, the whole Dominion Cards thing. I've been, I started playing this card game back in 2011. I went to the national Championships in 2012. And I just really enjoy it. It's like the only game I can think of where you actually need to figure out a strategy at the beginning of every game.
I've been sitting on this idea of dominion cards as a way to talk about strategy versus tactics for many, many years now. And I've never felt really found the right kind of hook to put it in. And then when this thing happened at Disney on Sunday, I was like, aha, the hook is here. It's time to pull this out of the filing cabinet.
Peter: Love it. Well, as a, reader of the column and as someone who thinks about these issues, there's kind of two natural questions that just has to be asked. I wanna get your take on it. So, first. How do you define or where do you draw the line between strategy and tactics?
Edward: I think strategy is figuring out what you should be doing and it's trying to figure out what the end point is of where you're going for, and tactics is all the stuff that gets you there. Strategy can be done a bit in isolation. You can go back into your ivory tower and think about what the dynamics are coming out with your strategy and then tactics are going to be very much based on what's happening on the ground. What's happening at any given moment, how the competition is reacting, how economics is changing what type of people you have on your team and any given moment. Those are all tactical decisions like that a consultant is not going to be able to help you with unless he's actually there on the ground.
Peter: So I always have a hard time with it, to be honest. Maybe this is just me being narrow minded or something. It's not just the next move is it the next three or four moves. Be specific about strategy versus tactics in chess, and then let's branch out to these other real world stories.
Edward: I'm not an expert in chess. I'm actually teaching my kids how to play now, I'm learning along with them. But I think in chess there is a correct strategy. I think strategy in chess is things like control the center of the board would be a strategy. Be willing to sacrifice your piece in order to gain position in the board, or, move your pieces in such a way that you're able to castle fairly early in the game. Those would all be strategies, things that you're working towards over a longer period of time. Tactics are, given what my opponent has just done, what should I do next? And tactics can, you can look far into the future for tactics. There's nothing that stops you from looking nine moves ahead to the right tactic would be in that particular situation. But I think strategy stays in chess at least. I think strategy stays the same. There are correct strategies into chess and there are incorrect strategies in chess. Whereas tactics are gonna change every given game depending on what your opponent does.
Peter: So let's take that, and again, it's still little fuzzy. I mean, you're being more specific, but still, and I'm not gonna press you on exactly where one begins and ends, but Disney. Disney. Disney. Disney. It seems like the narrative as you said is Iger had the strategy. Chapek's job is to come in and execute on it. Few missteps here and there. Expand on that beyond what you've said in the piece about that trade offering strategy and tactics.
Edward: I think most people are agreed, even the disgruntled shareholders, is that Iger's strategy was the correct one or is the correct one, which is that the cable bundle is getting hammered and Disney in the past basically had a huge amount of leverage over the cable providers and was able to extract large amounts of money from the cable providers by the fact that they had this differentiated content both the traditional Disney content, but also the sports they had with ESPN. And that was a great place for Disney to be and it still is, frankly, they still extract a huge amount of money from the cable providers, but that is not the future. Clearly we see more and more people, especially young people cutting the cord, not going with cable television and moving into streaming. And it was really a question of when did Disney need to move in that direction and how long could they keep their pound of flesh from the cable companies and hold onto that as long as possible?
So the strategy then becomes let's move on. Let's go direct to consumer and scale up our Disney Plus product. There's tactical problems in doing that because, Disney bought Fox, which came with 20th Century Fox, which allowed them to add a whole ton of more content to get like the breadth required to win in a streaming war. They got control over Hulu, but they didn't get full ownership of Hulu. And so Comcast still owns a chunk of Hulu in the US which makes all sorts of challenges for Disney on a tactical level on how to actually get to the place where they wanna be. But I think the strategy is clear. It's we wanna get to the point where we are owning that direct to consumer relationship. We are monetizing through a subscription product. We are monetizing through additional add-ons that people can do on top of that. And we are monetizing through our vast aray of merchandising, theme parks, cruise ships, and everything else to allow people to spend more and more and more with us. That strategy is still where they're going the last two big things Iger did before he left, were launching Disney Plus and buying Fox,
Peter: LEt's be clear that Chappek isn't against any of those things. Strategically as you've pointed it out, he's on the same page. It's all just tactics not being quite the same as what Iger might have done or might now do.
Edward: And even on tactics, I'm not sure, if you look at the things that have hurt the stock price and where Chap has taken ahead, like first of all, Disney Plus has grown faster than they ever thought they would. He over delivered on that. Whether that was his doing or the, the fact is the metric is much better than anyone expected, but there were mistakes along the way. He has fought. There's been lots of fights with the creative side of the organization. Chapek comes from the theme park side. He came into the CEO role and then immediately Covid hit and the theme parks all went to zero. So he was forced to figure out how to do Disney plus where all their revenues coming from for the foreseeable future. Now things have flipped and the theme parks are just minting money. They're doing really, really, really well. But he's pissed off a lot of people by raising prices dramatically. But again, I'm not sure what Iger would've done differently in that case because the demand for the theme parks has has gone way, way, way up. So in the short term, you can't go and build more theme parks. So supplies is what it is. And so you're left with two choices. Either you are raising prices or you are giving a poor consumer experience, either because the parks are just packed full, and they're just unpleasant, or you're turning away people at the door who have booked a vacation. And so none of those options seem great, and of those options, it feels like raising prices was probably the one that Iger would've done as well.
Peter: Exactly. So here's the big question. I agree completely with that. It might be that how things play out now tactically and strategically would be the same regardless of which Bob is at the helm, but just having Iger just seems to have this warm glow that will just make the same tactics, not only more palatable but downright genius because they're coming from Iger instead of Chapek. What do you think?
Edward: I think that's absolutely right. They're in such a tough spot right now. There's so much going on and it's super, super, super risky what they're trying to do. I think everyone knows that there's really no choice but to go down this path. But also everyone knows that it's a really hard path to go down. And so not only do you need to have the right strategy, which I think people think that is true. You need to have the right tactics, which frankly I don't think Chapek, if he messed up on tactics, it was on a marginal basis. But where there was a bigger mess up was a bunch of execution of those tactics. And so things like the Black Widow movie early on in the pandemic, they decided to take that out of the theaters and put it onto Disney plus. And I think that was a very rational tactical thing to do given the situation they're in. But in execution, Chapek got into a big fight with Scarlette Johansen, who really came down hard, sued Disney. They hurt their relationship with her. Now. Disney ends up hurting their reputation as a good place to go and work if you're a top tier creative. In the short term, maybe they make a little bit more money on the movie, but in the long run they damage the relationship with the very people that are creating the product that they need to excel with.
Peter: Fair point. All right, let's pivot from DS to SBF and FTX. There you say that, or at least you're quoting SBF saying strategy was fine. The tactics were at fault. You don't really mean that, you're just saying that's what he said, but you think otherwise.
Edward: I'm no financial expert, but I've been following it as closely as I can and it sure looks to me like there was all sorts of... So Fbf owned two companies. He had ftx, but he also had the trading arm, Alameda Research. And there was money traded back and forth between those two organizations. And what I understand is. So imagine if FTX had, I'm making up a number, 10 million tokens and they're sitting on them and those things are worth whatever someone's willing to pay for them and Alameda comes on and says, Hey, I'll buy one of your tokens for a thousand dollars. So now all of a sudden the stock value of those tokens is a thousand dollars times 10 million, which is a huge amount of money they're sitting on. And then they basically end up using that valuation as collateral to do all sorts of loans and leverage to go and do other things with their money. FTX then takes in a bunch of customer deposits and then loans those customer deposits over to Alameda. Alameda then is then sitting on a bunch of these tokens that they're using as collateral against the borrowing of that real money that people put into ftx. Alameda then loses a bunch of that money and it all comes tumbling down when they realize that their collateral is not worth anything. It's all made up collateral. That's my understanding of what happened. Nothing like that has happened exactly before, but things like that have happened before. It's effectively fraud. It's fraud and theft. SBF, however, went on and interviewed Kelsey Piper over at Vox, and his argument was hey, we were doing was great. We were doing all sorts of awesome things, but our record keeping was terrible. We just made a bunch of like rookie terrible, incompetent mistakes. The new CEO who came in to run the company, Is backing SPF up in that yeah, this whole thing is a mess. That everything here is. What was his quote? I quote, I quoted him on my piece. He said, never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. And this is from the guy who also oversaw the bankruptcy of Enron.
So it was a mess. They clearly, clearly, clearly were tactically incompetent and SBF is claiming that they didn't know they were stealing all these funds. It's entirely possible that he's right because they seemed like they didn't really know anything that was going on. And there was no financial backups and no guardrails for anything. But generally the overall strategy was built on a house of cards to begin with. So whether their tactics were correct or not maybe it wouldn't have collapsed as badly if they had great tactics, but it was gonna collapse one way or other.
Peter: In this case, it's not strategy versus tactics, as you say in the title of the piece, it's and. They're doing bad and both, and it's hard to, pin the blame on one type of decision or another.
Edward: The hard part of writing this piece was that given the fact that their strategy was so unethical and terrible and their tactics were so incompetent, how did they manage to get as big as they did so that they caused this disaster to happen.
Peter: It's crazy. But but then speaking of which, it takes us to our third character of the week, Elon Musk. Now, you and I had a conversation a couple weeks back. We were saying generally positive things about verification, badges and just the possibilities of getting the business model right. And of course it's too early to tell for sure. But, these couple of weeks since that conversation, well, things have gone differently.
Edward: Specifically the thing that we talked about, which was the Twitter blue, $8 a month to get certified.
Peter: Verified.
Edward: Verified. Verified. And what happened was that the verification process was effectively just having a credit card. So it wasn't like they matched. Your name that you put on Twitter with the name on your credit card or check the address, or had you send a a driver's license with the verification, it was a matter of pay the $8 and you can name yourself whatever you want.
In terms of. Strategic idea, allowing people to pay $8 to get certified seems like a very valid idea and a very, I don't know if it's, it is the right strategy, but arguably, at least we argued a couple of podcasts ago, is that it was a good strategy. In execution what that allowed them to do because they didn't create any of those guardrails, they didn't have any verification process beyond paying the $8 is people impersonated all sorts of companies. They impersonated Elon Musk, they impersonated giant companies and had them say ridiculous things with a certification check next to them, and it became a big joke. And so an example of potentially a good strategy with very weak tactical execution.
Peter: And what about the broader issues? The way he's running the company, day to day tactics, strategy, whatever it is, it's not good, but what, which basket would you put it in?
Edward: I think there's an overlap. First of all, part of it seems like he's kind of changing his strategy on the fly. He's going back and forth and changing what his strategy is, but I think in general, his thesis going into the company was that this company was mismanaged. We need to eliminate a large number of people at the company and replace them with other people. We need to change the culture of this place from one of working from 10:00 AM until 3:00 PM to one where you're working from 7:00 AM until midnight and coming in on the weekends and turning into a hard driving startup type culture with a much smaller team that's much more dedicated and highly compensated. And it feels like that's his strategy. And he wants to go to create a company that ships product really quickly, makes mistakes, fixes them, and keeps going. That is something that I think most owners of most businesses would want for their companies. The challenge becomes how do you get there from here? And that's where there's been lots of flailing and failing. That doesn't mean the whole process is gonna fail, but there's been lots of mistakes made in that process of getting from A to B. In a situation we're getting from A to A to B is gonna be hard no matter what, even if you did it perfect.
Peter: So what's your longer term prognosis? Do you think that he'll get this strategy right and line up the tactics appropriately?
Edward: I don't know. It's so hard to know. I think the strategy is right. The question is whether the company will survive the process of getting them there. They're burning through cash. As an example, they laid off a bunch of people via email that work in Europe, and you can't actually do that. It's illegal to do that in Europe, so all those people that they fired in Europe actually aren't fired, they turned off their salaries. They're not making any money anymore, but all those people have a class action lawsuit that's going to go against Twitter and there's going to be a huge fine. That type of stuff matters in a situation where it, if they succeed, it's gonna be by the skin of their teeth. They're the Amazon in 2001 where we need to keep doing everything right and working our butts off to keep this plane flying over the treetops so that we can take off and circle the planet. But before we can circle the planet, we need to get over these trees. If they get over the trees, I think there's a good argument. Twitter's a fantastic, unique product that can do all sorts of incredible things and far more than the old team was doing. But he still has to get over the trees and that's where it's a lot unclear.
Peter: Yeah. So it takes us to kind of the bottom line, as you say, and I don't think anyone would disagree. Strategy becomes far more urgent in rapidly changing environments. Who could argue with that yet at the same time, in rapidly changing environments. We start rearranging deck chairs, which is far more tactical.
Edward: I think when things are going smoothly, when things are not changing, strategy frankly doesn't matter very much. Tactics matter a little bit, and execution matters a lot. When you're in a place where things are changing rapidly and you need to get to someplace new, all of a sudden strategy matters a lot. But that doesn't mean that tactics and execution matter less. They still matter a lot too. It just becomes like everything matters. It's becomes so easy to fail. You only need one chin in the chain to break and you're not gonna get there.
Peter: And I think all three of these cases show that interplay. So again, it's not strategy versus tactics, but focusing on the and, getting to sync up properly and, easier said than done.
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I have been exploring a new AI tool that is allowing transcript creation while I edit the episodes. It’s not perfect, but it’s pretty great for those who prefer reading to listening. I plan on including transcripts of all episodes going forward.
Also: Apologizes that yesterday’s essay did NOT have more than 1-second of audio. I am still working through these tools. The audio should be live on that post now (I chose not to re-send it to your email)
In This Episode
Fader and Nevraumont discuss Elon Musk’s plan for charging $8/month for a blue checkmark (plus other benefits). What metrics should they use to know if it’s working? Can subscription revenue compete with advertising revenue? What are the different types of Twitter users?
Keep it Simple,
Edward
Full Transcript
Edward: So, Peter, do you have a blue check mark?
Peter: I do. I'm so fortunate. Of course the question is how long will I keep it and what will I have to pay to do so, and what benefits will I get associated with it?
Edward: How did you get it? Was there a process you went through? Did the school help you do it?
Peter: No, it was actually through my previous company, Zodiac the one, we sold to Nike. That at that point the CEO said, You know, we ought to get blue check marks just to give us more credibility. It was a pretty simple application process, but you know, a lot of people who have been trying to go through it, who are at least as qualified as I am. It seems like there is, or at least was, something pretty arbitrary about it, but hey, I'm one of the lucky ones. ,
Edward: You're part of the in group. When I was at General Assembly, the, my head of PR came to me like basically on day one on the job, and she's like, We need to get you a blue check mark.
And I had to go and change my Twitter account was linked to my Gmail address and I had to switch it to my general assembly email address, and then she went to town and did her PR stuff to try. Get the blue check mark, but it never happened. Two years of trying it and never got the check, I even as a CMO of general assembly I was not renowned enough to get the check.
Peter: That's exactly my experience cuz I think you honestly, in a position like that, deserved it more than me. I think maybe the professor thing helps, but there's plenty of professors with the big followings and great content who don't have it either.
So maybe that's what the, All the musk nonsense will actually bring some order, some predictability to who gets a check or who gets which kind of check cuz there really should be more than one of them.
Edward: There kind of is. So I guess for those who... I imagine all of our listeners know what's going on right now, but just a really quick summary is that Elon, there was a rumor that went out. Was it Vanity Fair or The Verge? It was the Verge last weekend that talked about how all the blue check marks are gonna have to pay 20 bucks a month just to keep it. And then yesterday we're recording this on Wednesday, yesterday, on Tuesday, Elon came out and said, No, it's gonna be $8 a month.
And it includes not just the blue check mark, but a bunch of other kind of benefits, if you will. And then on top of that, really red down people like Joe Biden for example, will get a, not a blue check mark, but like an. A descriptor underneath them that says that they're authentic and real. Which was the original purpose of the blue check mark to begin.
Peter: Right, right, right. Yeah. Really a validation, not just a status symbol. But if you look at some of the benefits that they're talking about, some of those benefits make sense for creators. Some of the benefits make sense for readers, and I think it's important not to mash the two together.
That's why they really should be a different kind of subscription based on what you're using. Twitter.
Edward: I guess so, so big part of this, it's interesting. The last essay I wrote for for marketing BS couple of weeks ago was all about paying for status. And this, it feels initially like this is paying for status and a lot of that's what it is, right?
So you pay to get the blue check marks right now are primarily a status tool, although I know you have some features that us non-black marks don't have. But going forward this is going to replace that blue check mark you are paying for the status. But the benefits you get seem to be around production.
So if you, the tweets that you produce are more likely to be seen by other people you're, you get listed first in the mentions. You get move to the top of the replies. And so there's a bunch of features like that. So you, the stuff that you produce is more likely to be seen, I don't think.
And that makes sense. Yeah. And that's good for everybody in some ways too because it kills the spambots or if you're a spambot, you're not going. Verified, you're not gonna get the blue check. And so all the spam bot stuff gets pushed to the bottom. But so does everybody. So do all the non blue check mark.
People get pushed to the.
Peter: Now for me personally I, yeah, I'd pay something to keep the blue check, but I'd also pay something to improve my reading experience. I would love to have more control over the timeline. I'd like to get inside some of the curation algorithms and, tweak them to, to, to my benefit.
To me that that's more important as a Twitter consumer than a Twitter.
Edward: And, but now, so those benefits though, should, are those benefits that they should be charging for, because every social media platform has that, which is, hey, we want to show people the content that engages them, that they would enjoy.
Why if you're able to do that, if you're able to show people better content, they're gonna use your platform more, and you're gonna make more money on ads, at what point would you be like, Hey, you know what? We could make this person's experience better, but we're gonna put that behind a paywall and we're gonna give them a worst experience.
That just, it feels like that's not The Thing you want to be charging for.
Peter: That's a big philosophical question, but you're right. That, that this is how everybody does it. So presuming that a Twitter's gonna follow that mold, the most obvious one of all is if I pay a reader subscription.
Don't show me any ads, right? Just like with Spotify, give me, gimme the ad free version or maybe have, a new Netflix one where it's a lower price with some reader control but some minimal number of ads. So there should be something about that. But also if I'm gonna pay that I wanna have complete control over whether things are in chronological order or whether I want to trust their recommendations I'd.
Do my own curation like that.
Edward: That's fair. But you can do that now. It's Twitter's ability to produce things and new product features have been very slow. But right now I think your default is a algorithmic feed. But it's fairly simple to change that to a chronological feat if you want to. I don't think many people do but it, but the ability is,
Peter: I find that it still does chronology in a weird way and sometimes then jumps back a few hours in time and maybe it's just me, I don't know.
But they, they definitely can and should clean that up. But like I said, there, there should be different kinds of features for different kinds of users that would involve different kinds of subscriptions. And of course there'd be the grand subscription that would give. Everything for a super power user who's creating and consuming, get all those features.
Some, bundled price.
Edward: Nice. And so right now, I was I guess the question on everyone's mind right now are the screaming and shouting people on Twitter are talking about the fact that hey, the, like Steven King for example the writer. Went and posted something about how he's, there's no way he's gonna pay for this because Twitter should be paying him.
And in some ways he's right. Because if you look at right now the new Blue Check mark program is gonna be, the benefits are not for the readers. I guess the little bit they think he said something about half the normal ads that you would normally see, but majority of the benefits are, hey, the status benefit and a bunch of production benefits, like your content gets seen more often.
So it's producers that are gonna be charged for this, but at the same time, isn't it the producers that create the value for everybody else?
Peter: Of course that's true with all social media platforms. I don't think Twitter's any different in this regard. And I think a lot of people are making noise about it.
Because of who is in charge now. I think it's just a visceral reaction. Oh, it's Elon Musk. I think if Twitter had announced changes like this at another time, a lot of folks, I'm not gonna speak for Stephen King or some of the other celebrities would say yeah, it's about time that, that I get those extra boosts that I deserve.
And you know, what, eight bucks a month I'm paying more money than that for a lot of other content subscriptions that are used far less.
Edward: Fair enough. How what do you think, how, what percentage of Twitter's revenue then, if this, assuming this thing works and it's successful at all, like, how much revenue can you get from this subscription product versus the advertising model?
Peter: It's a great question. It goes right into my strike zone, which is we could look at the next year o over the short run. They're so reliant on advertising that there's no way that they could come close to matching it with subscription revenue. But in terms of long run customer lifetime value, if they start to ratchet down the ads and focus on bonafide benefits to creators and readers through a different well calibrated subscription services. You give 'em a couple years and they could completely flip it and make it almost entirely subscription based. And that's the direction they should be moving in. Not only would that be steadier income, you'd have a better sense of who's doing what you'd have much better metrics to use for internal and external guidance. Right now, everything they're doing with monthly active users and daily active users doesn't make a whole lot of sense. It's not easily tied to, to revenue so that they can really improve the stream of revenue, but also the predictability the understanding of it. And that's great.
Edward: So your prediction is, call it in three years, the majority, more than 50% of the revenue comes from subscriptions
Peter: If they play their cards right, and it's real hard. To be pro Elon. It's just unpopular position to take, but it's...
Edward: low status. It's low status these days,
Peter: ...and so I'm gonna avoid the personalities and I'm gonna avoid endorsing or critiquing some of the statements you've made. But just if you just look purely at the business decisions and the urgency that he's bringing to it, it's about.
Edward: The only other social network I can think of that has this both model where you can use the network for free or you can pay to get effectively a blue check is LinkedIn. Like LinkedIn, you can become an in member or something like that.
Peter: Yep, yep.
Edward: But I don't think LinkedIn makes much money off the in members, do they? It's not significant, is it?
Peter: I don't know. I don't know if they break that out, but I know I'm paying my $300 a year to, to get some of those benefits and so on. I don't use them all that much.
But but sometimes it's really really valuable whether it's for some of the companies I'm running or the books I'm writing. I do it without batting an eye. Now granted, it is covered under my university, research and teaching budget. But I do it with without even thinking. And that's, I'm paying I think a good bit more money than I'd be paying for Twitter, which I use a lot more than LinkedIn.
Edward: Yeah, fair enough. What, so what do you use the LinkedIn one for? So you're paying for the premium, like I've paid for it from time to time, mainly for recruiting purposes. What are you using it for?
Peter: So a part of it is to have a little bit more control to both the get a better sense of who's looking at my profile. To have more control about being the block who sees mine being able to send, not that I do a ton of these InMail messages, but again, just sometimes I do want to do a bunch of that.
I run a separate group and to have a little bit more control over there as well. So it's a bunch of little things. Again, any one of the things, the most important things I get out of LinkedIn would be far less significant than the benefits that I'd seek from Twitter. But I still do it anyway. I don't have a problem doing, so it's just matter of finding the right price point.
In LinkedIn's case, they have a bunch of different tiers. I'm not even sure which what I have, and that's the direction Twitter will go as well.
Edward: That's interesting. You're gonna pay for the Twitter check, and you're gonna expense it through your department?
Peter: That's a good question. Whether I, I could do that or I guess so. I mean it's in some sense no different than LinkedIn and I certainly spent a lot of time talking about my research, my teaching, the books that I'm writing on behalf of Wharton, including a new one that just came out this week, The Customer Base Audit.
Edward: So we should talk about That should be our topic next week. Next week our discussion gonna be your book.
Peter: I'd love to do that, but right now it's Blue Checks instead of Blue books. So yeah I think I would do that and I would encourage others to do the same.
Edward: That's an interesting point too. You got your blue check because of your work with your last company, you're gonna be able to pay for this next check with the expense it, I imagine the CEO of every company in America is gonna expense this and then the executive team and all the PR people.
Right now it feels like the blue check marks are disproportionately journalists and authors, but is in the new blue check mark world become people that can expense it will just take over.
Peter: And of course then there'll be a hierarchy of checks and there'll be clear criteria beyond money about what it takes to achieve one. You can't just purely pay for blue check. You have tweet enough. You have to show some credibility that there was. That application that you and I have both tried to fill out. And so if you start making it aspirational that in order to move up to, the next check you have to tweet a certain number of times, you have to engage and, do other things that are beneficial to the Twitter community. If we make it incentive compatible for people to, to lean in and participate, that's great. It's good for everyone.
Edward: That's interesting. So you're saying $8 a month is not gonna be enough, $8 is what it costs, but you still have to, You have to jump through some hoops in order to be allowed to pay the money.
Peter: That's right. Exactly. You have to, again, establish your credentials and you have to participate enough to really earn it.
Edward: It goes back to the, what I talked about a few weeks ago, which is here you're paying for status, but if it's only dollars, then there's no actual status involved.
So it has to be, you have to do a bunch of stuff. You have to be legitimate, and then you can pay for the status levels. It's, I did some math this morning. So right now if every single blue check mark on Twitter starts paying for it. And no, no one else does. Only the blue check marks pay for it, it's pretty minimal revenue. It's something like 50 million per year on a business right now is doing what, 4.5 billion? And so if that's all it does is he ends up milking the blue check marks. It feels like this is a bunch of noise for nothing. And so it only really works if he gets a significant percentage of the base.
I think it was something like, If 10% of the base start doing it, it gets can't remember what the exact number was, like half a million dollars or something like that. He has to get a pretty high number in order for it to be significant against his advertising, at least at this price point.
Peter: And that's exactly why it's a multi-year initiative. It, it's not gonna happen overnight. And again, with all these haters out there, whatever he tries to do, people are gonna declare it to be a failure a few months from now. But it is a behavioral change on the part of people to actually not only seek out the status and pay for it, but to change their Twitter habits to.
Be a better member of the community. So I think as he changes, not just check marks and basic functions, but as he changes the nature of the way that, that people use Twitter I think people will start to see more and more value, more and more urgency to start doing it. Instead of feeling that that he's holding a gun to their head.
Edward: What metrics should he be looking at? So he goes and pulls the trigger on this and some people sign up for it and some people stop using Twitter. What numbers should he be looking at to know whether or not this is going in the right direction of whether this is trending to the place where three years from now it's gonna be the majority of his?
Peter: It starts to become the things that we really can measure and manage effectively, customer retention. So we can say, how many new people have signed up for a particular status? Of all the people who signed up last year how many of them have retained it? Things that are very easy to measure.
You think about all these lawsuits, obviously the big one that more or less forced them to buy the company. There was another one last year that I was actually an expert witness on Twitter's behalf about measuring daily active users and monthly active users. It'll be great to move away from that to metrics that are harder to argue about and are more directly related to the health of the business.
Edward: And measuring the growth of this thing is easy, right? So you can, How many people signed up and are paying $8 a month? What's your arr? How much revenue are you making on this new product? How many people are signing up per month? How many are churning out and canceling after one month? That feels like the upside, the revenue side is easy to measure. The downside of "Hey, because this is there, I'm Steven King and I'm gonna stop producing content on Twitter'" how does he know how much damage he's causing because of this?
Peter: That's a great question, and of course we'll never know for sure from what people are saying. You have to run the experiment. You have to try it. Again, maybe with multiple tiers. I think Musk, I think to his credit, look, the fact that the rumor started at 20 and now he's saying eight. I think he's finding out what the market will bear. Both in terms of price and in terms of what features and functionality needs to offer.
I think they're gonna find a pretty comfortable middle ground where serious producers will be compelled to stay with it, but will feel that it's worth their while.
Edward: But what's, the metric? does he take number of tweets written by non-paying customers and track that on a day to day basis. Is he doing like an individual customer level model where he takes all his producers, everyone who's producing tweets and tracks them over time and. Use, almost like almost treats like a tweet, like a transaction to try to measure if someone's, if a transactor, a transactor, a producer is churning off rather than buying a product.
Peter: I would love to see that. And if we think about that kind of behavior we see very commonly in, in different kinds of settings, like even for a lot of different non-profits. A museum will look to see how many people are going to the museum and how that relates to whether they renew their their membership. Companies are doing that kind of thing all the time. Again I've seen some of the insides at Twitter and they have not managed that well. They've had a lot of really ad hoc measures, some of which have been around spent, time spent on the timeline tweets post and so on. But they haven't come to agreement on it and partially cuz these measures they've looked at haven't been directly tied to revenue, which is engaging with.
Edward: But it's interesting though, cause there's two parts of it. There's the producers and for them, whether they look at ads or not is almost not relevant. It's whether not they creating compelling enough content that's keeping other people engaged on Twitter? Because where the revenue's coming from is all those people who are just reading the tweets and seeing the ad spending to me it's being a daily active user and a monthly active user and time spent on site. That's the metric that's determining how well they can monetize is not?
Peter: And, but I love the way a company like Spotify is doing this sort of thing. And now again, we can't call them necessarily a paragon of business success just in terms of raw profitability, but I think there's a lot of respect for what they do and how they do it in these terms, having the advertising based model, the subscription based model.
And they know that when they're bringing a new artist on board they will look to see. Not only how often that music is listened to or downloaded, but the value of the customers who engage with it. And so they can actually start to put a price tag on an artist based on the value they're bringing to the platform. Of course, that's something that, that's negotiated, but they're doing it in a data driven way. No reason why Twitter can't be doing very similar kind of thing.
Edward: Got it. So yeah, so they can put up like, Hey what, how much value is is Donald Trump bringing to our platform? How much value is Taylor Swift bringing to the platform in terms of driving other people to engage in that content and keep them on the site longer so that they can sell the ads?
Peter: And staying with the Spotify or even Sirius XM model, there might be cases where it makes sense to pay someone, especially as other micro blogging platforms arise. And we hear a lot of talk about them, usually for political reasons. Sure. We might have bidding wars about about content creators. That would be a very healthy ecosystem, and at that point, they really have to deliver meaningful value to the creators and the consumers.
Edward: It's interesting. Spotify is doing the reverse right now, and so everyone's getting paid to be like all the music, all the musicians, all the, every time a song is played, the musicians are paid, but they're allowing musicians to basically bid to have their songs played more often on playlists and so on. And effectively the musicians don't have to pay themselves, but they're basically bidding in lower. Lower royalties. "Hey I'll take a lower royalty in exchange for being played more often". And I think it's almost like Twitter's doing the reverse of that. If everyone's gonna need, everyone's gonna need to pay. But now, once I know the lifetime value, once I know that Taylor Swift is worth a lot, I can go and take that $8 that she's paying and I can discount that to her.
Peter: Love it. I love it. Now, of course, Spotify has it much, much tougher. It's a much more competitive market and dealing with all those royalty issues dealing with the music industry. Oh the cost, the complexities, the limitations. Twitter has it easy. They really do, at least right now. And yet they still can't, punch their way out of a paper bag. I think if they really start to look at some of these other business models and practices and emulate the good ones, the ones that they can really capitalize effectively, I think the skies might be very blue for Twitter.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
Hi everyone,
Post-send note: In the original post the audio was only 1-second long. That has been fixed now.
As mentioned in yesterday’s email, I will now begin including an audio version of these essays. The audio is created in my voice with an AI. For those who listen please provide feedback on the quality and whether it is worth continuing.
Between Meta’s stock collapse and Musk’s takeover of Twitter, the future of social platforms dominated headlines last week.
On that note, today’s essay looks at VR/AR and Meta’s new headset.
—Edward
Real Fidelity
In January 2020 — before most North Americans had heard of COVID-19, let alone started processing its impact — I wrote a Marketing BS essay that connected the science of music technology (CD vs vinyl vs live concerts) to videoconferencing and office productivity. Specifically, I coined the term “real fidelity” to explain why our enjoyment of an experience — music or sports or work or anything, really — is significantly shaped by our perception of its “realness.”
Eight months later — with many people using technology to connect with colleagues, classes, and friends — I wrote a follow-up post that expanded upon the idea:
The term fidelity refers to the formats we use to communicate sounds, images, or experiences. Fidelity plays a fundamental role in the effectiveness of a marketing strategy. For instance, video can deliver a message more effectively than audio. And a video played on a large, high-definition screen is more impactful than one played on a small, low-quality screen. The most powerful fidelity is real life. A live presentation in an auditorium (usually) holds people’s interest better than a YouTube video of the event — a phenomenon that many parents discovered [in 2020], while watching children struggle with Zoom-style classes.
In that second essay about real fidelity, I used the concept to explain why companies like Netflix, Meta (then Facebook), Google, and Amazon were betting on a post-pandemic return to the office. The reason? Co-workers felt like something was missing from their collaborations. Despite the improvements in technology, videoconferencing didn’t feel as “real” as face-to-face interactions.
Humans crave that sense of “realness” — so much so that it drives many of our decisions. As I wrote in my first essay about real fidelity:
At times, our compulsion to attend live events seems to defy logic. I would never pull up YouTube and watch an hour-long lecture, but I was drawn to go see Bill Clinton during one of his “live in conversation” tours. For an $80 ticket, I sat at the back of an enormous theater, with a view far worse than the one I could have watched on my laptop.
That is the power of real fidelity.
Better Fidelity
On October 11, Meta announced that their new virtual reality headset, called “Quest Pro,” would ship by the end of the month — at a cost of $1500. Unlike their earlier Quest headsets (cost ~$400), the new device is aimed at the enterprise market. The Pro model offers multiple technical upgrades that support AR (augmented reality), like higher resolution, wider peripheral vision, automatic eye tracking, and the ability to see full color in both the virtual and physical environments. Plus, the device’s improved processors allow people to engage in more seamlessly immersive (and therefore “more real”) business meetings, brainstorming sessions, and more.
Most pundits from the mainstream media, as well as many of the smart analysts I respect (Ben Thompson, Benedict Evans, John Gruber, Kevin Roose, John Carmack, etc.) reacted to the Quest Pro announcement with skepticism. There seems to be a critical consensus about two key points:
* Meta is too early: Useful VR is still ten years away — especially the social aspects. Plus, there are limited barriers to entry; when VR tech finally matures, another company can just come along and leapfrog Meta.
* Customers don’t want full immersion: Meta believes that VR is the future for both office productivity and personal recreation. This strategic bet assumes that immersiveness is a defining characteristic in the tech continuum from desktop computers to laptops to mobile devices to VR. But smartphones are actually LESS IMMERSIVE than desktop computers. The shift from desktops to laptops — followed by the mobile revolution — was the result of consumer demand for convenience, not immersion. Where’s the evidence that customers are clamoring for VR experiences?
Point 1 could easily turn out to be true: Meta might be too early for VR, just like many mobile-focused companies in the mid-90s were too early.
For Point 2, though, we still don’t know how consumers will feel about immersive tech (it’s hard for any of us to have a strong opinion until developers refine the VR gear and platforms). Instead of focusing on immersion, then, I might suggest an alternative way to frame Point 2: “convenience is the most important element for bringing a new product to scale.” Getting someone to try something new is HARD — just ask P&G about the challenges with teaching people to use fabric softener. As such, I agree with critics who think Meta faces an uphill battle convincing consumers to make “putting on a headset” part of their everyday routine — especially at a cost of $1500. (The early research isn’t encouraging. Only 28% of current VR set owners use their devices daily.)
And yet…
VR has a “killer app” — presence. And, as I wrote in my first real fidelity essay almost three years ago, presence really matters. There are many types of experiences that work much better (or only work at all) when humans are physically together in the same space.
By definition, VR cannot achieve 100% real fidelity, but the technology is definitely approaching interactions that “feel” real. Nothing on a two-dimensional screen comes close. Could VR attain a level of sophistication that replicates the feeling of collective presence? Meta seems to think so.
And if VR does, in fact, ever manage to offer a reasonable facsimile for physical presence, here are some likely applications for VR (in order of “corporate-ness”):
* Meetings
* Conferences
* Sales
* Learning
* Comedy
* “Hanging out”
* Tabletop gaming
I’m probably overlooking some other important use cases, but that list of seven is a good place to start discussions about how things might play out in VR.
Meetings
Clearly, Meta understands that workplace meetings will be a core piece of their VR business.
The company has already launched Horizon Workrooms — “a virtual space that brings teams together in the metaverse.” There is a web app version of Workrooms that anyone can use on their computer, just like a regular video call. But to access the VR features, you need a (base model) Quest headset. And with a Quest Pro, you can unlock AR functionality, which allows you to build a virtual model of your physical office; that way, you can interact with other people’s avatars in your familiar office environment (with the same placement of your monitors, keyboards, etc.). With Workrooms, you can also bring your computer into the space, so you don’t have to give up multi-tasking in big meetings (or if you want to pull up a slide or a spreadsheet, you don’t need to leave “the room”). You can collaborate with colleagues on whiteboards. You can throw around ideas.
Plus, Quest Pro can replicate elements of human communication. If you smile in real life, your avatar smiles. If you look away, your avatar looks away. If you put up four fingers to drive home a point, so does your avatar.
Workrooms is more than just a novelty — Meta is developing a business tool that evokes the “presence effect” of collaboration. If you have not tried a headset yet, I highly recommend it, if only for 15 minutes: The experience really does feel like you are “there” — as long as you can get over the cartoon-like graphics. It is nothing like the rows of video screens you experience on Zoom or other video platforms.
Moreover, the virtual space offers some advantages over real life (beyond the obvious convenience of working in different parts of the world regardless of time or distance). In addition to Workrooms, there are third-party software programs that allow you to build and manipulate three-dimensional designs, create and shape chemical molecules, and generate housing and infrastructure projects. Given that most people haven’t even put on a modern VR headset, it’s incredible how many high-quality third-party applications are being developed — and most are free or very inexpensive.
Last week, I was working with some clients; they are debating whether to remain a remote-first company or to establish a physical office. They see the benefits of building a company culture with in-person collaboration, but they also recognize the challenges (real estate costs, recruiting talent, and office distractions). I suggested they pause their decision — until they purchase three Quest Pro headsets ($4500) and experiment with some team meetings in Horizon Workrooms. When I receive their feedback, I will report back.
Ultimately, I expect virtual meetings will be THE feature that eventually convinces users to adopt Meta (or whatever company leapfrogs them). For the rest of today’s essay, I’ll describe how other activities might develop viable use cases for this nascent technology.
Conferences
Let’s be clear: no one decides to attend a conference because of the keynote speakers (no matter how prestigious they might be). The profile of the speakers is a way to signal the conference’s quality, so that potential attendees know the event (and its networking opportunities) will be worth their time.
For many people, the value of a conference comes down to these things:
* Sales
* Account management (i.e., meeting with existing clients all in one place)
* Job search (subsidized by your company)
* Vacation (subsidized by your company)
* Love (or sex, for the cynical — subsidized by your company)
* Serendipity (The most productive time I ever spent at any conference was sharing a taxi back to the airport with a random stranger who eventually became a lifelong friend)
As everyone realized over the last few years, online conferences can’t really accomplish any of those things. In turn, many people have opted to give up on online conferences altogether.
But what if you could attend a virtual conference experience that still managed to check off several of the above points? A virtual event won’t get you a vacation, but there might be ways that new tech innovations could provide suitable alternatives for the other conference goals (with a big asterisk on point 5…).
Sales
Part of the reason salespeople travel to the client is signaling. They are showing you just how much they care. Taking a client to dinner or lunch or a live sporting event can be a great way to build relationships. Duplicating those experiences in a virtual space might not be possible. But there are also millions of sales calls that have been enhanced by moving from the telephone to Zoom. And I expect that shifting those Zoom meetings into the virtual space will enhance things one step further — with a more interactive way to get to know each other, to understand the client’s business, to identify pain points and solutions, etc.
The hard part will be getting the client to put on the headset.
To reduce that hesitation, here’s an idea: for big enterprise sales with a very high potential contract value, what if you sent the CMO (or CFO or CEO) a Quest headset, along with an invitation for a meeting in virtual space? That approach is obviously expensive, but so is any tactic that tries to interrupt the workflow of a senior executive. If the take rate for the meeting is high enough, a $1500 (or even $400) headset might deliver a better ROI than sending another branded paperweight.
Learning
There’s a cringeworthy Meta ad that shows students visiting Ancient Rome and watching debates with Mark Antony. The problem isn’t the lack of possibility — exploring virtual 3D worlds is possible now, and the fidelity will only increase over time. The issue is Meta’s misunderstanding about how people learn history. Watching an experience in VR isn’t much better than watching a documentary on those old rickety TV/VCR carts (while your teacher sits at their desk, grading papers). We also know that sitting down to watch a lecture — either on a Zoom screen or in a physical classroom — is a pretty terrible way to learn anything.
There aren’t currently any large-scale education platforms for VR, but there are signs that learning may be another killer app. Motive is a Canadian tech company that’s been creating immersive video games since 2008. They’ve partnered with companies in the mining industry to develop VR-based safety training modules. In the computer simulation, workers move through an interactive mining environment that requires them to recognize hazards and operate machinery. Sitting at a computer station is obviously much safer than conventional workplace orientation methods, but what are the results like? Early studies suggest that learner retention is significantly higher than other modalities. In another example, the University of Maryland ran a test/control study of AR training versus desktop training — they found 90%+ higher retention with the AR approach.
I believe the two most important training use cases are situations where training in “real fidelity” is either very expensive, very dangerous or both. Even if VR is not as good as training on site, if it can reduce the time required working with expensive equipment (i.e., in a mine), or save lives (i.e., allow a junior surgeon to practice without the risk to a real human being), then it seems like mass adoption for those situations is not unreasonable.
Consumer-aimed educational products are also emerging. PianoVision is a VR tool to help people learn to play piano. You can imagine how effectively the right software could help someone develop muscle memory for a stationary task like that. I expect similar possibilities for activities like golf or table tennis. (In fact, there’s already a free table tennis app where you can play against another user or a “perfect AI” that feels shockingly like the real thing — without the dirty work of picking up the ball when you drop it).
Comedy
Comedy is much funnier when you are in a social setting. (This phenomenon might explain why comedies are on a downswing in Hollywood — fewer and fewer people are seeing movies in theaters, compared to solo viewing at home).
During the COVID era, there was a rise of online comedy shows. Many of the shows resembled Zoom videocalls, while others had comedians standing on stage, performing in front of a wall of screens (like this one). Many of the shows experienced tech hitches and logistic limitations — the same types of issues that companies discovered when they shifted meetings online.
For comedy, getting the right mix of audio is particularly tricky. Muting the audience makes the show feel dead, but turning on everyone’s mics to allow laughter can overpower the comedian (especially if they have to compete with random babies and dogs).
Improvements to VR could make an online comedy show feel like a social situation, with the “presence” of other people laughing around you. There would definitely be market demand for live comedy shows that people could watch from the comfort of their home.
The industry would quickly change. Stand-up comedians spend a lot of their life on the road (which is a lonely experience for many of them). With a more immersive tech platform, comics could put on a headset at 7:00 pm, deliver their 40-minute set, and take the headset off — and already be home to tuck their kids into bed or spend the night with their partner.
For producers, the cost to book a higher-profile comedian would decrease (no need to book large venues, etc.); as such, stars would have more opportunities to reach audiences around the world. Bookings might be harder to come by for emerging comedians, who would now be competing in a global market (which isn’t that different from the story of the last 20 years, as technology has reduced friction in everything).
The biggest technical challenge here is supporting large groups of people simultaneously in the same space. Right now the cap for the number of people who can be live in a single venue is only 20. That makes for a pretty poor live comedy show.
Hanging Out
VR platforms offer lots of ways for people to connect socially. Internet chat forums evolved into social media platforms; the next iteration might include having people’s avatars interact in a virtual space. Groups of friends could “gather” to watch a football game or awards show on TV — with everyone in their own individual houses. You can’t really go on a (physical) walk with someone, but you could play games like mini-golf together.
The business opportunity in “hanging out” might not be immediately obvious, but a lot of value in companies comes from lunchtime conversations, post-work drinks, bowling nights, etc.
Remote employees miss out on those types of social connections and outings. Company off-sites and retreats can help bring everyone together, but those events, by definition, will happen infrequently. VR could provide alternative ways to build a close-knit team.
Tabletop Gaming
Demeo is a VR game that allows friends to play a Dungeons & Dragons-type adventure together — controlling characters, solving puzzles, and defeating monsters. When you play, you can opt for a view that looks like a digital version of an in-person roleplaying game (people sitting around a board, moving pieces, and rolling dice). But the VR functionality also allows you to change your relative size and position, so you can zoom in and become part of the action.
Many tabletop games have already been ported into electronic form (I’ve seen families playing Carcassonne on their tablets, online chess is growing dramatically, and anyone who owned a Windows device in the 1990s knows the rules to Solitaire).
Imagine a VR environment with virtual dice, cards, and tables. People could gather and play countless games, without the need to program any “rules.” Of course, this would require players who know the rules, but no more so than playing a game in real life – only now you can do it with someone on the other side of the continent. And if you did want to learn the rules for a new game, current VR headsets aren’t good enough to let you read text from a book, but linking to a computer is an easy way to bring in written material from outside the virtual setting.
Will Meta even be around to see this?
On October 27, Meta announced their latest earnings (or lack thereof). In response, their stock quickly dropped 28%. The company is now worth $266 billion, down from over a trillion dollars last September (just before announcing the rebrand to Meta). They have fallen a long way. If they continue along this trend, will there even be a company to realize their vision of the Metaverse?
One thing VR-believers have going for them is that Mark Zuckerberg has maintained control over the business. While he only owns 14.6% of Facebook stock, his “founder shares” give him 58% of the voting rights. There is nothing stopping him from continuing to spend $10 billion per year on VR and AR R&D. While Facebook’s net earnings and cash flow have dropped dramatically from 2021 (when they were bringing in $10 billion or more of both per quarter), they still made $4.6 billion in net revenue and almost $200 million in positive free cash flow in Q3 2022. If the company ever found themselves in serious trouble, Zuckerberg could just reduce VR investments by a billion or more dollars to keep the company liquid. Meta is in no danger of folding.
The real risk to Meta is holding onto their talent. Employee compensation at Meta is a roughly 50/50 mix of cash and stock options. When the stock price drops by 70%, that means a 35% pay cut for everyone who works there. If you are smart and talented, why not leave to build products somewhere where you will be better rewarded? The silver lining right now is that there are hiring freezes at most of the big tech companies these people would consider jumping to. But that situation won’t last forever; sooner or later, Meta is going to have to address compensation. And beyond compensation, Meta will need to ensure that a very large workforce (now almost 72,000 employees), still believes in the company, their mission, and their chances of success. Zuckerberg may be a true believer in VR, but how do the marginal employees feel?
If Zuckerberg can somehow keep his employees happy and engaged, then there is nothing stopping him from going all-in on virtual reality. As a clue, here’s what one of Zuckerberg’s friends and former professors wrote about the CEO back in 2012 (in response to a Quora question about Zuckerberg’s attitude to money):
Mark's main motivations were pretty clearly based around materially changing the world and building technology that was used by everyone on the planet. It's not like he didn't know that if he was successful, he'd become incredibly wealthy - and I wouldn't go as far to say that he would've done everything he's done if there wasn't a big financial payout from it all. But that always seemed like a happy side-effect of his true goals. My impression back then was that if he had to choose, he'd rather be the most important/influential person in the world rather than the richest. And I think that's visible in how he directed the company to focus on user growth and product impact rather than revenue or business considerations. Even today, while Facebook makes a ton of money, it could probably make magnitudes more if that were its primary goal.
The post continues to explain that Zuckerberg was happy living in a small apartment and sleeping on a mattress on the floor, before his security team dragged him into a more protective environment.
It’s entirely possible that Zuckerberg is not focused on maximizing shareholder value of Meta in either the short or the long term. It’s possible, even likely, that he is spinning the story enough so that he has the flexibility to spend Meta’s billions of free cash flow towards building what he sees as the future.
If effective VR is only possible by spending $10 billion per year with a negative ROI, then without Meta’s investment it might not otherwise happen — or only far into the future when the related costs have been reduced by tangential technologies. Zuckerberg may be okay with that. He owns the wealth to make that investment. But, since his company is public and employs tens of thousands of people, even if he believed that, he could not say it. Zuckerberg has to build the narrative that the investment will eventually pay off (and that shareholders and employees are smart to invest their time and dollars with him).
It remains to be seen if Meta will be the one to make VR happen, if VR will go into another long winter, or if Meta will kick things off before another company takes it over the finish line. But it sure looks like Zuckerberg is ready to either swing for the fences or go down swinging.
Keep it simple,
Edward
Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, check out Marketing BS.
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I have been playing around with some AI audio tools. This should allow all podcasts going forward to have full transcripts. It has also allowed for pretty fantastic text-to-voice applications. I spent an hour recording my voice to have it analyzed by the AI. This allows text editing of podcasts (i.e., In the live recording I say “price insensitive” when I should have said “price sensitive”. I can use a text editor to just delete and replace and the AI will put the new words in seamlessly - in my own voice. It’s like a personal deepfake).
But the tool can do more than just find and replace words. Attached to this post is the full text of last week’s essay “Paying for Status” in audio form, read in my voice from an AI. It is also available via the Substack player, and all major podcast apps. If there is any interest at all, going forward I will include audio like this in all essays (and transcripts for all audio).
The AI audio is not perfect, but, to me, it sounds a LOT better than most of the “robot” customer service voices one has to deal with in every day life. I would love your feedback on what you think of it. Just reply to this email.
What else to expect this week:
* This week’s essay is coming (Hopefully tomorrow. It was delayed due to Halloween). Topic is VR/AR and Meta’s new headset
* Weekly marketing take with Peter Fader is on schedule for Thursday morning (now with a transcript!)
* For those that are interested in our analytical exploratory take on the early Marvel Universe, a new Super Serious episode will also drop tomorrow - also now with a transcript for those who prefer to read rather than listen
Keep it simple,
Edward
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The experiment continues. Fader and Nevraumont explore the latest earnings results where brand spend seems to be up, while direct response spend is down. This is very different than any other downturn we have seen in the past. What is going on? We explore at least three theories.
Thank you for the feedback on last week’s episode. I WILL work on getting some sort of “instant transcript” for these so they can be read as well as heard, but it may take me a while as it does not land on the top of my priority list. In the meantime know that these are very short and only once a week, so hopefully their value per minute of your time is high.
Keep it simple,
Edward
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A new experiment!
Wharton Professor Peter Fader and I are going to try something new. Ever Wednesday (give or take) we will spend 10-20 minutes discussing the marketing implications of something topical in the news. In this first episode we discuss the parallels between P&G’s recent announcement that they are raising prices, and Netflix’s recent earnings call (and their move into a lower-priced ad-supported tier).
Some relevant links:
Peter’s two part interview with Edward in November 2020: Part one. Part two.
A 2019 essay about Amazon Prime Day and discounting where I quote Peter: Happy Double Prime Day
The WSJ article we discuss in the episode (free link)
The October 18th, 2022 Netflix earnings call transcript.
We would love your feedback on this experiment. Please reply to this email with your thoughts. I will forward all messages to Peter (unless you tell me not to). We do NOT have transcripts for the episodes yet, but if there is interest I will work on a solution. The provider I have used for my CMO interviews would be too slow, but there are acceptable AI solutions now that should be able to turn things around quickly at reasonable quality.
Keep is simple,
Edward
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
This is Part 2 of my interview with Stuart Wood (CEO of Caravel Law). Part 1 here. In this part of the interview we talked about how one goes about marketing professional services firms. Stuart marketed both the leading firm in Canada, and now oversees a “start-up” law firm. There are some similarities and some real differences in how marketing is done in these environments. I hope you enjoy this - it is a little different than our normal discussions on Marketing BS.
Transcript:
Edward: This is marketing BS. This is part two of my interview with Stuart Wood. Today we're going to dive into his experience overseeing marketing at two Canadian law firms, Caravel and Torys. He was CMO at Torys and CEO now at Caravel. You were CMO at Torys, which is a very, very established law firm in Canada. Now you're CEO of Caravel, which is a much newer law firm, relatively new. How do law firms differentiate themselves? What makes someone choose one law firm over another?
Stuart: It's a challenge for every law firm, I think. Because what you'll see, if you look at law firm marketing, there's a lot of the same language, a lot of the same descriptors that they're trying to use for themselves. There's a lot of generic terms that are used. You'll see a lot of advertising, which are things like chess pieces and these strategy images that they think are going to really differentiate their firm, but it really is a lot more and more of the same.
We try to differentiate ourselves in a few ways. But one of the keys for us is to try to differentiate through innovation and our business model. We've taken a lean approach to legal services, the same way that I applied lean principles to different businesses when I was a consultant, playing them here at Caravel as we take out everything that doesn't add value to the client as a way of trying to get the costs as low as possible.
We practice in a different way where our lawyers—well before COVID hit—all practiced remotely as a way of eliminating the cost of a large expensive office on Bay Street. That means that we attract talent—great lawyers that have 15+ years of experience and just for whatever reason are looking for the flexibility of being able to work remotely.
Nowadays, that's something that all law firms are trying to do, but for the founders of this firm 15 years ago, it was a pretty innovative idea to get rid of the office and have all the lawyers practicing remotely.
We try to essentially implement legal technology in a way that actually delivers value for the client as opposed to just looking good in a press release. We use contract automation software and different things so that it feels different when our law firm is working with you versus when you're working with a traditional firm. We're not trying to just be a less expensive version of a traditional firm. We're trying to feel different from the client when we provide our services.
Then lastly, I think law firms really try to differentiate on service. It's hard for me to compete with a big firm that has a team of staff on a client floor—the art collection, the filtered water, and everything like that that gets delivered.
We have a director of client happiness and another person who works in our client happiness department. We really try to distinguish ourselves in the way that we care about our clients and pay attention to what's going on in business and how we can be helpful.
Edward: A lot of those things sound like great ways to make your clients happy and to keep your clients from churning, from sticking with you. They don't sound like top-of-the-funnel ways to get people to even know about your firm, to consider your firm, or to select your firm when they're deciding which firm to choose. How does someone know? Do you do marketing to let them know that, hey, we have a different model, come and check us out?
Stuart: Yeah, we do. Some of that is through the types of work that we do. We really try to grow through referrals. We try to do as much as possible to have our existing clients help us grow and be a part of building the firm, but we try to market ourselves in different ways as well.
We have a podcast, which is called Business Decisions where I talk to entrepreneurs and speak with them about their businesses, how their businesses are evolving, and the kinds of challenges and business decisions that they're facing. Then, I talk to one of my lawyers about one of those business decisions and the legal implications of that. So bringing together the startup world and the small business world with the legal challenges that they have to deal with.
One of the ways that we try to reach that audience is by showing that these are the kinds of clients that we work with and the kinds of things that we help people with, and hope that that resonates with people.
Edward: Does that work? There was a company here in Seattle called Avvo that was basically a marketplace for lawyers, but where they did fairly well were these Q&A things where people would post questions and lawyers would answer those questions. The reason why lawyers are answering those questions for free was the idea of someone who would read that answer and be like, oh, that's the problem I have. I should go and talk to that specific lawyer who answered that question. Is that what you're trying to do with the podcast?
Stuart: Yeah, a little bit. Most law firms are trying to do content marketing as much as possible. It's one of the things that lawyers are particularly good at. This has just happened, this development and this new legislation. Here are what the implications are for you. That's one of the things that all law firms try to do and what we're trying to do with our podcast, but also with some of the things that we put out.
We try to really think about it from the perspective of the clients and what actual business decisions they're facing right now. In particular, if you look at the COVID-19 situation, there were a lot of questions at the beginning, which were not huge legal challenges but I don't think I'm going to be using my office for quite a while. Can somebody help me understand what my options are for my commercial lease? If I have to renew my lease in the next little bit, how should I be thinking about that, one of those challenges are?
We tried to show up at TechTO events. We sponsored one of the TechTO events and had four lawyers there just to answer questions from entrepreneurs. We created a free legal help desk for people to contact us with COVID-19-related legal questions, which were largely employment, real estate, those sorts of things, and contract analysis. What does this mean? Just things that people hadn't considered until they were forced to consider them due to the circumstances.
We'd really try to just put ourselves in the shoes of our clients. What are they wrestling with? What's top of mind? What do they need help with? How do we put something out that's helpful and useful to them?
Edward: Does that work? Have you been able to track that top-of-mind awareness you get from doing that type of work through a new client coming in the door?
Stuart: I don't really try to get all that granular with my tracking on some of these things so I couldn't tell you specifically which of these initiatives is working.
The firm is growing pretty quickly. In particular, in 2021, it has been a pretty dramatic growth year for us. It's an endorsement that the things that we're doing are working. But if you were to ask me how much of that comes from the podcast, how much of it comes from the client's happiness efforts, and how much of it comes from the monthly newsletter that we put out and the content that we share to try to be helpful to our client base? I couldn't tell you what percentage belongs to each, but they all add up to a recipe that's working well for us.
Edward: When a new client comes in the door—not expanding on an existing client, but a brand new client comes in—do you ask them, how did you hear about us?
Stuart: Yeah. It's almost always from someone. Hiring lawyers is a little bit different. There are certain types of law where maybe you're going to go onto Google and just type in personal injury lawyer or something like that, and maybe you get leads that way.
In general, what we're really trying to do is make sure that we are a law firm people have heard of that have some familiarity with it so that they'd speak to one of our clients and they hear what a great experience that client is having. That we're not a name that they've never heard of or a firm that they're not familiar with. That we're in the consideration set already so that when they hear more about us, they'll reach out and get in touch.
Edward: Stuart, do people even hire law firms? Going on a little bit of a tangent, are they hiring law firms or are they hiring the individual lawyers? We talked about this referral, I’ve heard of you. Are they hearing about Caravel, or are they hearing about an individual lawyer at Caravel?
Stuart: It's definitely both. It's a little bit different than other professional services businesses. In consulting, people generally will talk about the firm and will mention the firm name. You see a lot of lateral hiring in law firms of lawyers moving from one firm to another, and the clients go with them to their new firm because the loyalty is really to that individual lawyer as opposed to the particular firm.
Sometimes it is, but a large part is the relationship with the person who's actually doing the work matters a lot more in legal services than it does potentially in other professional services for sure.
Edward: How do you do that as a running marketing for the firm? Are you trying to reduce the amount of marketing to the lawyers, or do you increase it and then leverage it for the firm?
Stuart: At the firms I've worked at—in particular at Torys—I started an initiative where we did video podcasts. We were the first firm to do that. That was really to get my lawyers out in front of people. They could see them, they could hear them, and they could see that they're not intimidating.
Torys is a pretty strong brand in legal services in Canada. In some cases, it can be an intimidating brand, so I really wanted to put people front and center so that you could see our people, hear them talk, and hear what it's like to have a conversation with these people. I think that was very effective at humanizing the firm and getting some inbound interest in the firm that way.
We would do dinners with CEOs to try to get and have speakers come in as a way of getting exposure so that more people who talk to one of my lawyers had a chance to see that they were both excellent lawyers but also excellent people to work with in difficult situations. I thought that was really important.
We do the same thing at Caravel. I have just an amazing team of lawyers. I just want more people to know about them and to have a chance to listen to them or see them in a video, at a conference, or something like that. Because the more exposure people have to my lawyers, the better the firm is going to do because we have an incredible group of lawyers.
Edward: Is the idea then that you have to have a group of lawyers at a time? It's almost like you're going to sell them as a bundle rather than as individuals. I can imagine that if you start raising the profile of any given individual lawyer, they can take that with them. That brand equity takes the elevator down from every evening at 5:00 PM.
Stuart: Yeah. To a certain extent, you have to rely on the culture of your firm and the firm that you're trying to build, that you give them a reason to choose to practice with you as opposed to going someplace else.
Certainly, you can read all these stories in The New York Times about partners that are moving from one firm to another for what I think seems like outrageous sums of money. They're worth it because they bring all that work with them.
That's certainly something that you have to be mindful of. I had one client that said to me, I'm sure you have a basket full of stars at your firm. I just don't know who any of them are. That's going to work against you if you don't put your people upfront and give people a chance to see that you do have excellent legal talent that can really help them, and that would be thought partners, real support, and trusted advisors for those clients
Edward: Are all these top law firms priced the same, or is it significantly different from law firm to law firm?
Stuart: There are definitely differences. Caravel is a lot less expensive than a traditional Bay Street law firm in Canada. It depends on the market. The rates are different in Vancouver than they are in Toronto, for example. To a certain extent, people want to feel like they're getting great value more than they want the cheapest lawyer for sure. I think legal services have signaled quality through rates.
How do I know this woman is a great lawyer? It's because she charges $1000 an hour. She must be a great lawyer to be able to charge that much for her time. That's a really important signal that they send to the market through their rates.
I'm not sure that clients want to find a lawyer that has the lowest rates because they will associate that with lower-quality either work product or service. What they really want to find is that person who feels like an excellent value. I'm getting that lawyer who's a great lawyer and who I know is going to do a fantastic job for me. I feel like what I'm paying is fair.
Edward: How does Caravel get around that? You guys are cheaper than (say) Torys. Does that signal that you're lower quality? How do you manage that?
Stuart: I don't think it signals that we're lower quality. I have a huge amount of respect for the big traditional law firms. Having spent time in one for a long time—six-plus years—I feel like I have a real appreciation for all the things that they are very good at.
There are the types of files that big, traditional, national law firms can handle that we would not be the right fit for. But I do think it means that we have to explain and share with people what is different about us and why we are at the rates that we're at. That is different than just lower quality because I tell all of the clients that I speak to that I don't want anybody to be holding us to lower standards than they hold their traditional law firm to just because we're less expensive.
We think that we provide as good or better service than all those firms, and our lawyers are all experienced great lawyers who have relevant industry experience and exceptional training. They are every bit as good lawyers as what they would find elsewhere. You have to do some education to make sure that people don't just see that it's a lower-cost law firm, but a different way of practicing.
Edward: How much of your marketing has to go towards lawyers rather than clients? I imagine, to your point, what you're selling as a business is effectively the people that are working for your business as a service firm. Having really strong lawyers is really, really important. Is marketing a part of that to make sure you can attract really strong lawyers?
Stuart: Absolutely. There's certainly a virtuous circle that gets created. The best clients attract the best lawyers, and the best lawyers attract the best clients. Once you get that virtuous cycle going, it's a nice flywheel effect that you end up with.
The matters that you're handling, the financing rounds, the IPOs, and the M&A deals that you're doing, people notice that and you end up attracting talent as a result of being seen as being in the mix and serving the kinds of clients that people want to serve.
The nice part about Caravel is we serve a lot of innovative leading startups across Canada. In a lot of cases, the fact that we serve some of these technology companies or what have you that have garnered headlines and attention over the last decade is a vote of confidence from one of those startups. It carries a lot of weight with other clients that then consider Caravel to assist them.
Edward: I see that. If you go and say, hey, we serve Google, Facebook, and Apple, that's a really good signal for clients to be like, oh, I want to go and be with a law firm that serves those guys. It's also a good signal for the lawyers to be like, hey, I want to go and work for the guys that serve those guys.
Are there other other types of things that don't have that flywheel effect? Is there a trade-off? Is there marketing that you can send out to be like, hey, this is going to be good for the clients but bad for the lawyers, or bad for the lawyers but good for the clients?
Stuart: There's always the tension in a professional services firm that jumping through a lot of hoops to make your clients happy can often come at the expense of the consultant who's asked to travel more than you would say is a reasonable amount or late nights for a lawyer that may affect their work-life balance.
To a certain extent, if you're trying to market to both at the same time and you're sending a message out to lawyers that, hey, we have a flexible model that allows you to practice from wherever you are, you have to be mindful of how that message is going to be received by any clients who are seeing that marketing.
If you are talking about what exceptional lengths to go to to provide service that goes above and beyond to your clients, that may have an effect on lawyers thinking, well, that sounds like long nights that maybe is not what I'm looking for. You do have to manage that trade-off for sure.
Edward: It's interesting. Google doesn't have that problem. Google can advertise that they have free lunches, pedicures, massage therapists, volleyball courts, and laundry on site—all these employee benefits. But that doesn't make me be like, oh, their staff is going to be coddled, therefore, I'm not going to use their search engine.
Maybe I do that if it's a lawyer who talks about, hey, we have all these special things that make people super relaxed and so on on-site. That doesn't make me want to use those lawyers anymore.
Stuart: When you hear all that, oh, that's going to be expensive might be the first thing that comes to mind. You do have to manage that.
To a certain extent, as you are out there in the market trying to tell clients about your services, it certainly is always in our mind that the people we want to come work with us are also reading those ads, reading that content, and are learning about our firm at the same time. We do always have both audiences in mind with whatever our marketing efforts are.
Edward: Which is more important? If you had to choose between marketing to lawyers or marketing to clients, which one wins?
Stuart: I generally think of most of my marketing as being towards the clients, but I am always aware that if I don't have lawyers, I have no business. I really try hard to make sure that I'm always respectful to my lawyers and trying to create an environment where they feel appreciated and respected for the skills that they have and the hard work that they put in.
Then, I rely a lot on the fact that my lawyers have all been practicing for a long time. They know a lot of the people in the market. In general, if a lawyer is considering coming to work at Caravel, they're most likely going to know somebody that works at Caravel and are going to call that lawyer and ask them what it's really like to work here. I expect that a lot of the marketing or the representation for the firm is happening without me knowing anything about it or being aware that it's even happening.
Edward: It seems like referrals are extremely important for your clients, but also extremely important for your lawyers. It feels like that's the number one marketing channel for both sides.
Stuart, before you go today, tell me about your quake book or quake article. What quake content have you read that has fundamentally changed the way you think about the world?
Stuart: In the startup world—which I came to later in my career—I would say one of the books that really had the biggest effect on me was The Hard Thing About Hard Things by Ben Horowitz. I actually take a great deal of comfort from the fact that it's supposed to be hard. I think that's true at the law firm as well.
The challenges that we've talked about today are all challenges that all the law firms face for sure. Law firms are unique businesses maybe because of the nature of the services that we provide, but they're at the core of their businesses.
We have to take care of clients, and we have to take care of our talents to make sure that they are there and ready to do a great job for our clients. We have to market. We have to worry about pricing, where we are, and what our competitors are doing. We have to think about innovation, technology, and everything like that.
A lot of times, it seems very hard, and there was a part where I took a great deal of comfort in the message that it's supposed to be hard. That's actually a sign that we're on the right track.
The piece that I always go back to and I share with people the most is this Fast Company article from the '90s which was by a world champion juggler. It was all these lessons from juggling that he shared in the article, which I thought was really insightful. It was all the things like you touch something, you let it go, and then you have to trust it's going to come back into your peripheral vision at the right moment to deal with what agony does, and then you have to let it go again.
This idea of, how do you manage all the things that you have to manage when you're a CEO or when you're running a team—as I was early in my career of a couple of hundred people? You can't watch things all the way into your hand and watch that because everything else will fall if you try to do that. You have to trust your process. You have to trust that you'll see things at the right time and have the right systems in place. You have to trust your team to do good work and manage those things.
I've shared that article with probably 40 or 50 people, I would say, in the course of my career.
Edward: That's a great way to end it. Thank you so much, Stuart.
Stuart: It's a pleasure.
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Thank you for your patience as I take time with the new baby. It has been pretty great barely working (professionally) for the last six weeks. I have half-written a briefing that I keep thinking I will finish and send, but it continues not to happen. I have not decided when I will really ramp back up. In the meantime, here is another Marketing BS interview. This one is pretty unique. Stuart was CMO of the largest law firm in Canada without ever being a lawyer (and is now the CEO of a newer firm). Part one, like always, is about his career. Next week I will drop Part 2 which explores the mechanics of how he thinks about marketing a law firm (with all sorts of learnings for service businesses). Enjoy.
The Transcript:
Edward: This is Marketing BS. My guest today is Stuart Wood, CEO of Caravel Law. It's a leading law firm based in Toronto, Canada. Today we're going to cover Stuart's path becoming a CMO and now CEO of a law firm, but not actually a lawyer himself. He was at Loblaws, McKinsey, Torys, Exact Media, and more. In the next episode, we'll dig deeper into what it means to run marketing for a law firm. But today, I want to focus on Stuart.
Stuart in 2005, you were an engagement manager at McKinsey. It's not uncommon for people to leave McKinsey when they're engagement managers, but it is fairly unusual to leave and become a CMO immediately. It's also extremely unusual, I think, to leave work for a law firm. Tell me exactly how that happened.
Stuart: The main reason that it was unusual was that I joined a client that I had been serving as a consultant. I had a consultant's worst nightmare. You put forward a series of recommendations and then the client turns around and says, well, hey, why don't you come on board and do all this stuff that you said we should do? The list of recommendations that I had made was now recommendations to myself. I was in a unique situation of trying to take all the analyses that I've done and all the recommendations that I had put forward, and now put them into action.
It was a unique opportunity, a chance to implement what I had seen. I'd had a chance to work with the team for three and a bit months. I really had a good feel for the people. I really liked the environment. I really liked the leader of the firm, Les Viner. I jumped at the chance to join the management team at Torys.
Edward: You came on at that project work, the McKinsey work you were doing for them. Was it a marketing project?
Stuart: No, it was really a full strategy review for the firm. The firm had expanded into the US and had done a number of interesting things. We're five years onwards, wanted to take a look at some of the decisions they've made, whether they still made sense, whether there were execution issues that they could tighten up, that kind of thing. So I came in and led that project to make a set of recommendations overall for the firm.
Edward: Who was the individual at the firm that was your client? Who was thinking through the strategic problems that you're giving these recommendations to?
Stuart: I've worked most closely with the managing partner at the firm. But I really worked closely with the entire executive committee, which was made up at the time, I believe, of seven senior lawyers at the firm including a managing partner.
Edward: They were all lawyers. They were all practicing lawyers who were presumably trying to hit billable hours, targets, and billing clients and managing teams, and then they're doing this on the side, which is like, what is the strategy of our firm going to be?
Stuart: Yeah. The managing partner at that firm doesn't actually practice and doesn't work with clients any longer. His full time job was running the firm. But the other six members of the executive committee were active leading senior partners inside the firm who ran practice groups, had responsibility for the most important clients at the firm, that kind of thing. So they had to juggle all the strategy responsibilities and talk through all the business decisions at the same time as maintaining an active practice.
Edward: Then why bring you on as a CMO? Why not head of strategy or chief strategy officer?
Stuart: I was essentially in charge of business development, marketing, and strategy for the firm. I became a non-voting member of the executive committee. So I had an opportunity to attend all the executive committee meetings and participate in all the decision making that went on from that point forward.
Edward: Why call it marketing? The three months you spent were doing strategy work for the firm and now you come on board to implement it, but they're calling you marketing.
Stuart: I think the intention wasn't for me to do a lot of marketing work, but they had a 14-person marketing department. I was nominally replacing the person who had run the marketing department. The thought was at the time, it's a high-performing group, it won't require a lot of your time. But a lot of the stuff that you're going to do with clients and with the overall strategy we want of the firm, we want that to dovetail nicely with what the marketing department is doing.
Edward: Got it. When you were at McKinsey, were you a marketing specialist, or are you more of a strategic specialist?
Stuart: I was more on the strategy side. The first marketing job I ever had was chief marketing officer, which is an odd path for sure.
Edward: Yeah, I get that. Now you're at Torys and you're the CMO. How much time are you spending on marketing versus what you'd call strategy?
Stuart: I would say it changed. I was there for 6 ½ years. I would say the first two or three years, there was a lot of strategy work, there was a lot of organizational work, getting the office in New York and Toronto to work well together. We ultimately then went on to open an office in Calgary while I was there. They've since opened a couple more, but there were three when I left.
There was a lot of work like that that I did. But ultimately, positioning the firm in the market became a big important part of my job. How we represented the firm out into the market and a lot of the things that I think of is marketing like pricing, how we treat our alumni from the firm, and things like that. That became a bigger part of my role over time.
Edward: How did you learn those skills? Was it just learning from your direct reports, the people had been doing marketing?
Stuart: Yeah. I would say I had some learning from the team. It was a strong team, so I was able to leverage that. In particular, for things where you don't have a lot of experience naturally from just being part of companies and working your way up. There are things like running events and some of the marketing stuff. I had very good outside advisors. I had an excellent advisor who I really trusted and came to rely on heavily who was helping me with public relations and some of the other things that I didn't know very much about.
In my second week at the firm, there was a situation where the firm was in all the newspapers, and reporters were calling me, and I went out to talk to my assistant. I said, why are all these reporters calling me? She informed me that I was the chief spokesperson for the firm, which hadn't come up in the interview process.
I ended up having to deal with this situation and having never been trained on any of that stuff, just really at the start trying not to make any horrible mistakes. But pretty quickly, I realized that I needed someone to come in and give me some media training and how to be able to handle those kinds of questions without inadvertently making the problems worse for the firm.
Edward: That's crisis communications. It's not just a CMO specialty. It's a subspecialty within public relations, which was a specialty. It's right down there. You thrust into that without any background in it, it's got to be challenging.
Stuart: It was challenging for a couple of reasons. One was—this is going back a little bit but—blogs were coming out. I'd have the Wall Street Journal Law Blog calling me about this situation looking for a comment within just a couple of minutes because they're about to go live with this. It wasn't like these or newspaper articles that were going to come out the next day. These were a lot of things that were going to be going online within minutes and you have to provide a comment.
Oftentimes, with regards to a courtroom situation, I had people in the courtroom who were providing me with updates. But if I hadn't gotten an update by the time reporters were already reaching out to me, I was in a certain sense flying blind. I had two individual lawyers who were really involved in this case who were providing testimony. I felt a lot of responsibility for their situation, their individual careers, and how their reputations were going to come out of this.
Because I believed then, I believe now that they hadn't done anything wrong. But there were a lot of things that were being suggested and you want to be very careful about how you manage that because it wasn't just the firm's brand that I was trying to protect, I was also trying to protect those two individuals and make sure that the things suggested about them weren't accurate.
Edward: I want to go back a little bit on the path that you took to get there. What were you passionate about when you were 12–14 years old?
Stuart: I would say I had two passions, which were really just sports and music. I was either outside playing sports or I was inside listening to music. Those were the two things that I was really passionate about.
Edward: Where did that lead? You did a lot of music at that age. I tend to believe that the stuff you do at that age does carry through the rest of your life. Did it for you? Is music still a thing and it didn't affect your career in any way?
Stuart: It is still a thing. I still have an active band that we play in clubs around Toronto when pandemics aren't stopping us from doing so, which is a great outlet for me, and write songs and things like that. It gives a creative outlet for me for sure. I ended up going on to play sports all through university. I was the captain of my university volleyball teams. I was on the university hockey team.I played that way.
I think you'll learn a lot of skills in terms of teamwork, leadership, overcoming adversity, and things like that when you're playing sports all the way through.
Edward: Related to this, is there anything that you believe strongly that many other people don't?
Stuart: One of the things that I came away from McKinsey really thinking was that most of the time when I would go into an organization and spend time with the senior leadership, there was really not a lot of magic to it. You meet these people, they'd be smart and talented people. But a lot of the business challenges that we were working on were not enormously complex. Sometimes that outside perspective was really valuable or the ability to look at a lot of data and pull out some insights that they could action were. But actually, it was really taken by how straightforward a lot of the business challenges that we were working on were.
In particular, one of the things that really, I think, separates good consulting from bad consulting is the degree to which people are actually bringing creativity and ideas to the table. That's carried forward in my legal law firm career. I used to say to the lawyers at Torys, and I say it to my lawyers now all the time, that if you want to demonstrate thought leadership, it actually involves thinking. You have to sit down and think about it.
If all you're doing is reporting like, well, here's what the government just announced and here's what the rule is now, that's not really thought leadership, that's reporting. But if you want to actually demonstrate thought leadership, you take the time, you put some thought into it. I really enjoyed that part of my consulting career. Where I had an opportunity to take a problem and try to come up with a creative or innovative solution to it, or think about it in a way that they hadn't thought about it before, as opposed to just, well, this is a strategy study so let me get out the slides to have the pillars in it because that's what we do on strategy studies kind of thing. I think that's one of the things that I've tried to bring to the rest of my career following consulting.
Edward: What did you do when you graduated college? What were you thinking at the time? Where did you go?
Stuart: I'd had two plays that I wrote in university that got put on, one by the Halifax Theatre Explosion Festival or whatever. I had the opportunity to sit in the audience and listen to actors on stage saying my lines and reciting the rants, speeches, or whatever I had told my jokes. I just found that intoxicating. I really loved it.
When I graduated from university, I wanted to be a reporter or a writer of some kind. I did think about going to journalism school. I actually went through the steps of applying to journalism school but ended up concluding that actually creative writing, screenplays, a novel, or something like that were more what I was interested in doing. That's what I thought I was going to do after I graduated from university.
Edward: Did you say thought? So you did not go that path. What happened?
Stuart: I did one of those traditional post-university backpacking trips across Europe visiting a lot of countries and journaling through a lot of that. Doing a lot of writing while I did that and then I came back and determined that I really wanted to focus on this. So I ended up actually moving to Hawaii, really just as a place that I thought would be a lovely place to spend some time where I wouldn't know anybody and I could really focus on writing and just see if I had things to say and things that I wanted to express.
The interesting part was that you're right, I did finish a few things. I was pretty critical of my own writing, I would say. I wasn't really sure that I had the right career path for myself and ended up after about a year coming back and then starting to get a job.
Edward: You chose Hawaii. Do you think you would have had more success if you'd gone to a colder or more miserable place?
Stuart: Maybe. Actually, I found the environment pretty inspiring. I took up running and eventually became a scuba diver. I lived with three guys who were all surfers. There was a certain uniqueness to the place, which I think also was helpful to the effort.
Edward: So then you came back to Canada and you started working in the supply chain. Is that right?
Stuart: Yeah.
Edward: How did that carry through to the rest of your career? What did you learn there that was valuable?
Stuart: I think supply chain logistics was a great foundation because it's all about problem-solving and it's all about problem solving under difficult circumstances or constrained resources. I would be faced with challenges like, this truck is hitting 8 hours north with 21 pallets of groceries and 1 pallet of meat was left behind. Now, what are you going to do because you can't have the grocery stores that are six or eight hours north of the city not have meat to sell?
You can't just put that one pallet on a truck and ship it up there because the economics don't make sense. You got to get creative and figure out how you're going to solve that problem.
I did some really interesting projects there. We opened up a new distribution center for slow-moving goods. I got to design those systems for Loblaws across the province of Ontario, which was great. I eventually got to lead a three-shift operation for Loblaws where I had 230 people who I was responsible for. I had to learn how to communicate with people on other shifts that I wouldn't actually see and have a chance to speak with directly before they started their work that day.
There were a lot of things that I learned from that experience, which I think have helped me throughout my career for sure.
Edward: What was the biggest failure point in your career? Where did things not go as expected?
Stuart: Definitely after I left Torys, things didn't go as expected. I would say there were two things. One was I was really disappointed after I left Torys to then start to look at what my career choices were at that point and to learn how little that law firm marketing experience was valued outside of the law firm world. I really thought that Torys was the best law firm marketing job in the city of Toronto. I wasn't looking to do that again after I left.
After 6 ½ years, I really felt like the partners had heard everything I had to say. They would know what I was going to recommend to them with regards to a client before I even opened my mouth. I really felt like the impact I was having was a lot less after six years. It's the right time to leave, but going on to do something afterward, there was really a sense of, it's not the kind of marketing experience that you're looking for.
You're senior enough that you can't go into the junior marketing roles that maybe would give you the chance to get the experience to move into the senior marketing roles in a consumer goods company, for example. You can't go into those roles, but also, you haven't done all the jobs coming up that would prepare you to be the head of a marketing team that's much larger than when I was managing at Torys.
That part, I came to view as, I didn't necessarily make the best choices as to what to do with my career next. I ended up going out and starting my own company, which was a learning experience, but it didn't go well. There were a lot of things that I, in retrospect, could see that I did wrong that I could redo. It was really when I got into the chief operating officer roles that I moved into next that my career went in the right direction again.
Edward: Is there any learning from that? Is it like, hey, you learned that, maybe you can pass it on to somebody else? But going forward in your career, is there anything to take away from that like, hey, don't get yourself trapped in a situation like that again?
Stuart: I'd be curious to see what happens next. I may have done the exact same thing to me now being someone who's not a lawyer but is the CEO of a law firm. The firm has done very well. I think Caravel Law has been very successful in my three-plus years as CEO. However, I'm not sure what opportunities there will be for me after this.
If there's a next act, what that would be is a little bit unclear. I guess maybe I haven't learned that lesson as well as I should have. But for sure, I think, to make those choices intentionally, and I'm thinking about it more than I did the first go-around.
Edward: What are your productivity tricks? What do you do to be productive that most people don't do?
Stuart: One of the things that I think was particularly helpful early on in my career—when I had things happening on another shift that I wouldn't actually be there and see—is I don't try to overly control what my team is doing. I'm fortunate at Caravel. We have a great team. I have people that work with me that I really trust and rely on. But I'm not scared of mistakes, something getting out that doesn't go particularly well, or an ad that maybe comes out and some of the lawyers are not big fans of.
These are all things that you learn not to stress too much about and taking the time to try to get complete control over those sorts of items so that no mistakes happen, nothing gets out that shouldn't have, that the team is perfectly managed at all times. I think one of the keys is to trust. I trust my team. If they make a mistake, we work through it, we come out the other side of it, and everything's going to be fine.
Edward: Stuart, this has been great. We're going to pick this up in part two when we dive into some of the work you did in the law firms.
Stuart: That sounds great.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
You can find Part One of my interview with Vineet Mehra here.
In Part Two of the interview I spoke with Vineet about his time at Walgreens. We talked about what makes Walgreens/Boots different from CVS and their other competitors. We dove into how Vineet used the vast amounts of data Walgreens was collecting (>80MM people in their US loyalty program) to fairly radically change business processes (including eliminating the flier completely). Enjoy.
Transcript:
Edward: This is part two of my interview with Vineet Mehra, Chief Growth and Experience Officer at Good Eggs. Today, we're going to dive into his time as CMO of Walgreens Boots Alliance.
Hey Vineet, I think we can safely assume that our listeners are familiar with Walgreens. Walgreens is slightly behind CVS in terms of number of pharmacies in the US, but you're way ahead in terms of number of pharmacists. You can say the similar thing in the UK. Boots has almost twice as many locations as the number two player, but more than three times the number of pharmacists.
Let's start there. Why do Walgreens and Boots have so many more pharmacists per location than their major competitors?
Vineet: At the very core of Walgreens—and we'll focus on there for now—is this idea that the biggest asset the business had even in a digital age was that Walgreens had the best corners in America in terms of where our stores were located. You go to any major city, any suburb of a major city, places where you least suspect a Walgreens, and it's on that perfect corner. It's easy to get in and out of. It's centrally located. We had a Walgreens within 2–5 miles of every single person in America.
That makes a really big difference in a business. Even in a digital age, believe it or not, physical location matters. I'm sure we'll get more into that, but that was a big part of what our difference was.
Edward: Does that explain why you have more pharmacists? Because every location you have is a busier location than where your competitors are placed?
Vineet: Yeah. We had some extremely busy locations and good corners where there's a lot of traffic. That probably does explain some of that for sure.
Edward: How does the business do that? Is it just because you guys were around longer? It feels like every pharmacy would want to be in the best location. Why did Walgreens get the better locations and your competitors did not?
Vineet: I definitely wasn't around for that period, but I'll tell you that the history of the company is fascinating at Walgreens. That idea of the best corners in America has been something that's been permeating in the company for multiple decades. While it sounds obvious, it's also not the cheapest play to go and acquire the best real estate in the country—the best corners—and build those out.
I wouldn't say that that is the most obvious play in terms of economics, but Walgreens always had foresight. The team that built up this business up to almost 9000 stores across the country really focused on that fact.
Isn't that how most great businesses are built? There are two or three things that initial leaders and founders think about, and they're uncompromising about it. In the case of Walgreens, it was all about finding the most convenient and easy locations for customers and patients to take care of their health.
Edward: Does that philosophy continue? I know you used the word convenient. Clearly, most drugstores, pharmacies, and convenience stores—convenience stores even have the word convenience in their name. How much of that flows through the company, this idea of convenience? Being in those great locations is convenient. Are there other things that pushed you in that direction?
Vineet: It's really about enabling people to take care of their health, but this idea of convenience is something that—as you see today—is all over the place. Convenience is taking different shapes and forms. Especially in a world like today where we live in an omnichannel world, people want to either pick up something. They want something delivered. They want something dropped off.
There are so many different ways that people want to acquire the goods and services today that convenience remains a big part of not just Walgreens but of the industry. You think of the entire categories and businesses designing themselves around getting goods to you as quickly as possible, on demand as possible.
I'd say that the Walgreens real estate strategy was just V1 of a world and human nature where people want things when they want them. That's especially true in healthcare and when you want to take care of a family.
Edward: Let's talk a little bit about you coming on board. Clearly, the real estate play has already happened, but you got to keep this business growing. What are the next levels? What do you do as CMO to get this business growing? Because again, that's what you're responsible for inevitably, getting this thing to grow faster than it was before you came along.
Vineet: It comes down to any job you get into. You look at what are your differentiated assets when you enter a role? Probably, that's part of selecting whether or not you join a company as well. Do you believe that if you join, there are differentiated assets that you can really leverage to drive competitive advantage?
In this case, one of the things Walgreens Boots had was an unbelievable loyalty program membership. Walgreens had close to (say) 80 million, 90 million people in this loyalty program. Boots had—from a ratio standpoint—a similar percentage of the UK population. Let's call it 15 million–20 million.
You put all that together. What I saw in a world where marketing was becoming increasingly digitized and increasingly programmatic was that we had access and understanding of what customers were doing because the vast majority of purchases happening at Walgreens were done as "logged-in users" of the Walgreens loyalty program. When you have access to that many customers and you have a platform like that, the opportunities in today's marketing ecosystem are endless.
Step one was really thinking about what was the future of that loyalty program? How would we leverage our understanding of consumer behavior at the identity level in the most powerful way possible? That's where we went with our strategy. We call that mass personalization.
Edward: Before you came on board, this loyalty program already existed. They already had these members, but you saw an opportunity to leverage them in a way they weren't doing before.
Vineet: Yeah. The program was extremely successful, but it was largely a couponing program. You would log in and then get access to different coupons. You could use (if you recall) the Walgreens flyer or the paper pamphlet that will come into your mailbox every single week. There was a lot of that happening.
You would get Walgreens points. You could use them to drive further discounts off the products you were buying. That's actually what it was. It was a promotion and discount program.
Coming out of Silicon Valley myself right before the Walgreens opportunity, I saw an opportunity to drive personalization and not use such blunt instruments as general couponing, general paper flyers, and things going to people's homes.
In today's world, if you get the right ad and MarTech in there, you can do things in a much more customized way. That's where we went off.
Edward: This couponing program was not personalized coupons. If it was a diaper coupon, it went to everybody, whether or not they thought that person had kids or not.
Vineet: There was some level of personalization, but it was things like you were part of a parent's club or you were part of another club. You were opting into different sorts of things where—as you know where the world's going today—can you almost predict what that person's next purchase is going to be and almost delight them before they're even thinking about the topic? It's all about can brands delight customers and do that at scale? That's what this strategy that we put in place called mass personalization was all about.
Edward: That mass personalization, was it effectively hey, we're going to keep doing the coupon program we're doing before, but now, instead of sending everybody the same coupon or coupons based on their affinity groups, we're going to change those coupons up per person in a way that we think is going to drive conversion higher?
Vineet: That was part of it, but it was so much bigger than that. It went all the way from shifting our media mix from being 70% bought in the upfronts—many of your listeners will know the upfront TV network buying situation—to 70% programmatic where we would buy most of our (let's say) CTV work and radio all programmatically because we could literally match customer cohorts through The Trade Desk and through DSPs into the the media world and get much more targeted in the messages we were sending.
It went all the way from the media down to things like how we were doing couponing which became much more personalized. We actually eventually ended up eliminating the paper flyer and roto completely which was quite a big move at Walgreens because that was a huge part of the shopping experience and journey at Walgreens. Our coupons and our personalization became so much more effective from a redemption standpoint than just a blunt instrument and then all the way down to creating new revenue streams.
We launched something called the Walgreens Advertising Group which was a way for CPG companies who really struggle with direct attribution of their marketing spend to actually buy into us almost like a media network and be able to track conversions with every dollar they spent.
It went all the way from completely transforming our promo and couponing world, to programmatic media becoming the source of our growth dollars, to an advertising network, through to (lastly) the launching of a new app which was irreplaceable.
I was in a retail pharmacy business at the height of COVID. People have to do vaccine setups, vaccination appointments, and testing. We created an app where personal health became the center of that app as opposed to couponing. The app became the digital front door for Walgreens which would then show you that you could go into shopping. You can go into healthcare. You can go into finding care. It was a total reinvestment in our app as well that became personalized to you as a user.
Digital front door, media, couponing, and programmatic advertising really just transformed the infrastructure of the company.
Edward: There's so much meat there. I want to dive into bits and pieces of this and we'll see how much time we have today. Let's talk about killing the flyer first. You had this flyer that existed for 100 years at Walgreens, and you killed it.
First of all, how do you get that decision through internally to go and kill something that's been around for so long? Then, how do you know what it's costing you after you do it?
Vineet: I don't know if it was really around for 100 years, but it's definitely around for quite a while. We're in this new golden age of marketing. What I love about this age we're in is that everything is measurable. Nothing has to be done with a blunt instrument.
This was done very simply. We first ran A/B experiments. We took certain areas where we might have pulled the flyer, and we ran only couponing programs. We looked at redemption rates. We talked to manufacturers who were supporting a lot of those coupons. We basically looked at raw data and the cost of producing that flyer—which is not cheap. You've got to print it and there's a lot of labor that goes into planning this. It's almost like you're releasing a little mini magazine or you have local paper every single week because you got to pick every box. There was a lot of cost involved in that.
We compared that cost to the upside of personalized couponing. We ran that in a very controlled way across the country in different areas with different cohorts and with different segments, and eventually got to the conclusion that hey, the data is now indisputable. The time is now.
We made that call. Was it an easy call? No. Was it data-driven? Yes. Was it a popular call? I'd say with half the company, the people understood it. Probably, the other half of the company, to this day, would want it back because there are just no perfect decisions. You're inevitably going to leave some customers not happy with the fact that you make that call. But you take all of the costs and more importantly the mindshare of people who are investing weekly and making that flyer happen every week and you repurpose that to the future of what retail is going to be that also pays dividends. Less hard to measure, but sometimes as a leader, you've got to make those calls.
Edward: Yeah. That's your limiting factor always, the number of smart people you have working for you and what they're spending their time on. What's the difference between couponing and flyers? Are those like electronic coupons? What do you mean by couponing?
Vineet: The flyer was essentially something that would go into your home and you'd see all the sales at Walgreens that week. Couponing would be like you get those paper coupons you can cut out. What we moved to was much more digital couponing. Literally in your inbox, here are the best coupons for you this week. We would use that instead of the flyers themselves.
Edward: Let's talk next about buying a television. You're buying 70% upfronts and then you switched to 70% programmatic television, is that right?
Vineet: Programmatic media in general.
Edward: A lot of programmatic media are things like digital paid social, Google Ad Network, and so on. Does that mean you shifted your spending from television to online digital?
Vineet: Not necessarily. Programmatic is a word that gets used and abused in many ways in our industry. At least the way my mind captures it, there's the direct response which are AdWords and some of the social media networks that are there. We continued to do that. That was never going to change in our mix.
What I'm talking about is more of the mid and the upper funnel where we did a lot of radio buys, TV buys, and some of that area that a lot of companies call brand media, a bit higher up in the funnel. A lot of that money was actually spent in the upfront. We would upfront-buy a whole bunch of TV inventory and lock that in. The problem with that is you don't have flexibility. If you try to cancel it, you get all these giant fees.
It was really in that space around TV which we moved a lot more to things like CTV, over-the-top players, full-episode players, and things like Hulu, YouTube TV, et cetera.
We started to shift a lot more money into still linear TV played on your screen but done through tools that were much more precise like connected TV and radio. Instead of going from general radio, we'd use things like Spotify and other ad networks that were much more logged-in, ID-based networks.
You got to remember, because we had this loyalty program, we had IDs. We could actually match IDs in a much more powerful way than most companies could. For all intents and purposes, we almost created our own walled garden media network in a way. We were able to do that in a pretty powerful way.
Edward: When you do that, do your CPMs go way up? When you're buying connected television or Spotify ads versus all city radio on the big station, your CPMs must be a lot higher.
Vineet: CPMs will go up just due to scale. Frankly, a lot of those audiences in CTV are more expensive to buy than linear, but ultimately, effectiveness goes up. That's why I think you've got to really look at things like attribution and those kinds of things more than CPM to make these kinds of decisions.
Edward: You could measure the lift when you started doing connected television because you could apply it to 80-million people on your loyalty program. How do you compare that to what it was before though? When you're running a national television ad, how do you know how effective that was?
Vineet: It's what everyone does. What's that saying? Fifty percent of your marketing is wasted, you just don't know which half. I think the way you look at it is you look at things like foot traffic. You look at things like redemptions. You look at things like online site visitors.
In the past, they were largely just multi-touch attribution tools that I would say are 60% at best. Even the best vendors in multi-touch will tell you these are not perfect tools. They're directional tools. But once you can get to ID-based and you can actually look at behaviors of groups of people that have been exposed to these ads within your own ecosystem, you can literally see what action they take after looking at that ad. It's almost taking a direct-to-consumer playbook to retail at scale. That's why we call it mass personalization.
Edward: Is there a risk though that now, because you're doing these connected television, that's a lot more trackable? You spend $1 and you know you're making $1.50, whereas before, you were spending $1 and you didn't know how much you were making. To your point, you're 60% accurate. Is it possible that you end up trading accuracy for impact? Is it possible that television before was more impactful and you just didn't know?
Vineet: It's possible. It's not that we moved out of TV. We were just rightsizing the amount of investment. We still did it upfront. I think that upfront TV is always going to play a role in large companies' marketing mix because you've got to raise top-of-mind awareness especially in a category like ours which is a high-frequency category.
It played a role, but again, everything is A/B tested. We would take control groups, we would remix things, and then we would go to the next one. As long as as a marketer, you're focused on experimentation and A/B test-based decision-making, you can work your way through this world of imperfect data that we have. That was the approach that we took.
Edward: Vineet, this has been fantastic. I would love to spend more time talking about basically the advertising group that you're building. I feel so many retailers are doing that now and I think digging into how you guys were thinking about it would be awesome, but we are going to wrap it up.
Before we end, can you tell me a little bit about a quake book that you read that changed the way you think about the world?
Vineet: Yeah. There's this amazing book by Bharath Anand—who I actually asked to join my board at Worldwide Effie—called The Content Trap. We live in a world now where with personalization, what's happening is we have so many channels we need to fill with content constantly. You've got journey after journey of email. You've got all these programmatic channels. You've got all these direct-response channels.
The key really is how do you not get wound up in this trap of infinite content and instead focus very clearly on what the role of content is meant to do in every channel and really enable your business to not focus on volume but impact?
It's a great book that is a great distraction of our time as marketers, which is how much content do I need? He really calls that the content trap. It's something worth talking about and reading.
Edward: Vineet, thank you so much for your time today. This has been fantastic.
Vineet: Thanks, Ed. Really appreciate it. Good to talk to you again.
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I delayed this week’s edition on the hope I would spend Tuesday after the long weekend completing a briefing. I have a ton of great stuff to share with you all, but the time to write it all down did not happen. Instead I want to share with you a great interview I did with Vineet Mehra. In part one we talk about Vineet’s big break to a head of marketing role in his early 20s, and how he leveraged that into the career he has today. Lots of great stuff in here on how to think about things like “General Management roles” vs. “Functional Area Leadership”. Part Two will cover some of the fascinating work he did at Walgreens. As always you can listen to the interview in any podcast player (click on the link next to the imbedded audio for the links.
Transcript
Edward: My guest is Vineet Mehra, Chief Growth and Experience Officer at Good Eggs. Today, we're going to cover Vineet's path to CMO: P&G, General Mills, Novartis, Avon, and Johnson & Johnson. He was a CMO of Ancestry, CMO of Walgreens, and now at Good Eggs.
Vineet and I worked together two decades ago at Procter & Gamble. Super pumped out on the show today.
Vineet, let's start off: You've had a killer career, but I'd love to talk about a few of the big leaps that you had. If you want to start, in 2008, you went from a Marketing Manager at General Mills, and then you took on the Head of Marketing job for all of Canada for Novartis. Talk to me a little bit about how you made that transition happen.
Vineet: First of all, Ed, thanks for having me. Obviously, it's so great to see you after almost two decades. I remember us playing foosball in a room as account managers trying to grow our businesses at retail over there in Canada. It was a real highlight of my career, I remember. It's great to see everything you've done as well.
I have definitely had a couple of leaps that have happened. This specifically that you're talking about—going from General Mills over to Novartis Consumer Health in Canada where I had the opportunity to run that business—was honestly a little bit of good luck and a little bit of knowing the right people at the right time, which truthfully, if anyone tells you anything differently, that's how a lot of us get our first big leaps.
In this case, there was actually a headhunter or a recruiter in Canada who knew me from the time when I was an assistant brand manager. She happened to be doing this search and just thought, hey, why not? Why don't I just throw his name in the hat? It's a long shot, but you know how recruiters need to build this portfolio of candidates—the young up-and-comers, the established players, and the people in the middle.
I think I was just thrown in as the young up-and-comer. Like yeah, we'll just give you the high-energy 20-year-old and see what happens. It just so happened that the President of Novartis, Canada at that time—who, by the way, is still at the company, running the Global Oncology business now, he's an unbelievable talent—took a liking to me.
We met a couple of times. One way or another, the headhunter's long shot, 20-year-old candidate ended up getting the job. There I was, I ended up becoming the Head of Marketing for Canada.
For those of you that are Canadian listeners, Novartis has brands like Buckley's, NeoCitran. These are just unbelievably Canadian brands.
It was such a great opportunity to spread my wings for the first time. But knowing the right person, luck, and just going for it (I guess) played a big part in that leap.
Edward: I definitely have been in places like that where the headhunter brings you on and you're like, I am clearly not the right person for this role. You totally have me there so that you can show them a balance of range of, hey, here's the person that's much less experienced than the person you need and here's the person who's much more experienced but way too expensive. Let me just show you what they're like out there so that when I show you what you really need, you actually jump at it.
They're almost giving you people that they know you're going to reject because they know you want to reject somebody. They make it a lot easier themselves.
Vineet: There you go. It's like going around and looking at houses with real estate agents where they take you into the cheap house to the expensive house that you can't afford. I was definitely the cheap house that she didn't think anyone would want, but also, I wouldn't harm the process or her reputation as we were going along. That's definitely what I was. There's no doubt about it.
Edward: That's how you got in front of him. Apart from just being personable, why did he take you versus the one that she was trying to sell him on?
Vineet: I think energy is everything. I really do. I'm a big believer in positive energy and connecting with people through energy. You see a lot of books, and I'm not saying these are wrong around things like active listening and all these tools to connect with humans. You need to do those things. Those are important, of course. But in this case, I was just really excited. I was the underdog. I was just excited to even have a chance to talk to someone like this.
I think that energy just rubbed off on him. He very much took a chance. It's a true story I'll never forget. Even though there's always a gap between when you get the job and when you start on the job, there's always a little bit of space there.
I remember that the head of HR at that time had told me that when my name was announced to the organization, because I was essentially the youngest person in the marketing organization as the head of marketing at that time, people went to the CEO of Canada and said, is this what it takes to be the head of marketing of Canada? They looked at my resume, saw how short it was, and were like, I can't believe that this is who you choose.
I remember him telling me in a conversation later on, he said to me, I just told them do you not trust me? It was an amazing thing where this is totally a thing of him taking a chance and him believing in the energy I had to really make a difference. I think he saw in me a desire to make an impact and grow the business.
It just came down to him making a bet on frankly, my excitement, my energy, and the impact that I could make. It was really that.
Edward: When you came into that interview, how did you prepare for that interview? Did you give him like, hey, here's my five-year plan for how I'm going to run marketing for Canada, given that you've never run marketing before?
Vineet: I wouldn't have even known how to do that. I could do that for a brand or two, but I wouldn't have known how to do that for an entire department.
There were a couple of things. There was a brand in Canada—which you'll remember well, Ed—called Buckley's. The tagline was "It tastes awful. And it works." It was this huge cough syrup in Canada.
I remember growing up with that. I told him a story—I still remember this—about my experience with Buckley's when I was a kid. My dad was a pediatrician. He used to give it to me, and it was the nastiest thing I'd ever had. I told him some ideas I had which was specifically, hey, why don't we turn the bad taste—if I just get technical for a second—into a reason to believe in the product as opposed to making that benefit?
We talked about that a little bit. We just went deep. We talked about what a creative campaign could look like. From there, we just connected and we actually ended up doing that. Buckley started growing crazy. That all came out of that conversation in the interview.
Some of these brands I have deep familiarity with, we did some riffing on what these brands could be and how we could position them. That's pretty much as much prep as I need to do because you got to remember that at that stage, all I really knew was brand management, not necessarily department leadership. I stuck to what I knew, and we did that.
Edward: You come on, and you take on this role of running marketing for Canada. What did you not know that you had to pick up on the job?
Vineet: I didn't know anything.
Edward: You knew how to run brands. You've been a brand manager. Now, effectively, you've moved from running a brand to running all the brands.
Vineet: Yeah. Even more than that. I had people that were running those brands. Actually, what I didn't know is how to onboard onto a business. Onboarding as a department head is very different from onboarding as a person taking over those brands because the last thing those folks wanted to see was I was going to come in and do their jobs for them. These are smart, empowered folks that I had to figure out how do I onboard and set the right tone appropriately? That was a big part for me.
The second part that I didn't know was the role of a department head across a company in terms of creating followership, not just inside your department but across the company. That's another really misunderstood thing that you don't see. When you're growing up, you don't realize that the department head has to create followership, not just from within marketing but IT and all the other functions that need to support customer-centric growth of a business.
Frankly, I had to learn a lot about hiring and making the right talent decisions. I made some early mistakes because I just hadn't hired at that level before, and I was looking for the wrong things.
In that job, while in the end, we were very successful, we had great business success, and it took me around the world—that opportunity at Novartis—initially, I'll tell you that that year was tough. I was working tons of hours and I thought that outworking everyone would solve my problems. What I learned really early was that it wasn't about the work. It was what I was focused on, the talent I was bringing in, and how I was leading. I learned a lot in that first year.
Edward: How did you learn that? Did you have a mentorship? The CEO that brought you on, did he sit you down and say, hey, Vineet, you know what, for the first month, I need you to go have lunch with all these people so that you can build your relationships? Oh, by the way, I want you to talk to the head of HR about how to hire people. How did you pick up those two skills?
Vineet: It's really interesting. I didn't really have mentorship because frankly, I didn't have a network at that stage in my career that was "high-powered" enough where I could just call people and say, how did you do this? Actually, this CEO or president of the Canadian business was very high-performing and team-oriented.
What I mean by that is we would do all these high-performing team sessions where we would go offside, give each other candid feedback, and do these round robin-style feedback sessions. I'm sure you've been in those before. I got my butt kicked in those sessions. I would literally go through these sessions and my peers actually would just give me feedback.
Vineet, I know the business is growing, but stop doing this. They were brutal with me. I was 10, 15 years younger than everyone, and they just let me have it.
I tell you, in many cases, I thought it was inappropriate—the way they were giving me feedback—but at the same time, it's entirely warranted. To be honest, Ed, it was situational. Again, a little bit of luck, a little bit of me being really open to listening, but I happened to be on a team where high-performing team norms, feedback, and candid peer feedback were a core part of how this leadership team ran.
If it wasn't for that, I'm not sure I would have learned lessons as early as I did in my career. I'm not perfect by any means at this stage as well, but man was that a crash course.
Edward: It's interesting. I came from the consulting world where you receive harsh feedback all the time. There were times when I was at McKinsey where I'd come home and I'd cry. It was so brutal. But as terrible as that was, you're still forced to learn even from some of the bad feedback I was given at McKinsey.
One time, I had a partner that told me that my notebooks were too small. He was very insulted by my small notebooks. I think even in situations like that, you can say, hey, even if I don't buy his feedback, I can still understand that now, I know that somebody thinks small notebooks are inappropriate. Now, I have that piece of information in the back of my head.
I wonder, in the situation like you're in where all your peers are maybe a little bit threatened by you because you're 15 years younger than they are and you're all reporting to the CEO, they feel like, hey, I can be negatively constructive on this guy because I'm not threatened by him in the same way that it would be with a similar-age peer. While it becomes negative and hard on you, it allows you to learn at a faster rate than you otherwise would from people who are more polite.
Vineet: I think you're right. It was well said, Ed. The other part is what people don't always internalize, which I learned in that. We talked a lot about deep, personalizing feedback. That was huge to the point where it's like, this is feedback. It's not an insult.
As a young kid in your mid to late 20s—I think I was 26 or something—that's a hard thing to figure out. To this day, many of those peers of mine on the leadership team are still dear friends, and I would have had it no other way.
Edward: I want to talk a little bit as you're moving on through your career. You spent a lot of time in marketing in packaged goods, but you also had some GM roles. If at all, how did you think about managing your career moving back and forth between pure marketing roles and general management roles in terms of advancing?
Vineet: My whole career theory is all about chasing experiences, not necessarily titles or pay. What I mean by that is if you dug one layer deep into my career, I've taken three pay cuts in my career. I've just been chasing experiences.
To me, those general manager types of roles—my biggest one was later in my career where I became the Global President of the baby care division for J&J, that's a big role—were just about continuing to learn and continuing to grow. That's really how I thought about it.
I'd be lying to you if I would say I was playing this perfect chess game where I perfectly planned it. I was literally just chasing learning. I was always curious. If general management was the thing that was going to teach me a lot at that moment, that's what I was going to do. If going international was the thing that was going to teach me a lot at the moment, that's what I was going to do. That's essentially how I played that.
Now, in hindsight, general management teaches you amazing skills because by definition, as a general manager, you're not an expert at really much of what you're leading and you have to rely on others. It teaches you a lot. I was just really simply chasing experiences as a curious person.
Edward: Is a lot of that being opportunistic about pull opportunities? A recruiter comes to you, and you say, hey, you know what, that's too similar to what I've been doing before. I'm not that interested. Oh, that's really different. Let me go, throw my hat in the ring, and jump for that.
Was it even more aggressive where it's like, hey, if I want to advance my career, I need an international opportunity, so I'm going to go out and look for one?
Vineet: It wasn't really that aggressive. People say, hey, what's the secret? How do you get a good career? How do you move quickly through your career? I know it sounds cheesy, but I just answer by staying curious and exploring learning.
A lot of my moves were internal moves. The company would take me international or give me a general management assignment after a marketing assignment. In other cases, it was a recruiter or a headhunter giving me a call. In both cases, those were enabled because my curiosity led me to build a network, to ask people for help, and to be really open-minded to things that others wouldn't be open-minded to.
Ultimately, it came down to not necessarily chasing things, but definitely chasing experience. I wasn't actually chasing an international career because that would unlock a move or two moves from now. I was definitely paying checkers, not chess. I guess that's the way to put it.
Edward: Sure. But even with those international opportunities, was it a matter of you saying, hey, current manager, for my next role, I'd really like to do something international? Or was it a matter of Emma's going to nail this role, this international opportunity comes up, and they say, Vineet, would you be interested?
Vineet: It happened one time in my career when I was an intern where I asked for an international assignment. That was at P&G, I recall. I went to India with P&G. I was just like, hey, can I do something international because I had nothing to lose. I was a university kid on my second internship with P&G.
Every other role was happenstance. When I went to Europe for the first time with Novartis, there was a new CEO who had come in. She saw me in a meeting and said, Vineet, I need you to go to Europe.
My story was I literally bought a house with my family, my first house in New Jersey. We never even moved into the house. Two weeks before closing, I moved to Switzerland. I was definitely not planning to buy a house. We moved to Switzerland two weeks before that. My wife was pregnant. I got asked. I got tapped on the shoulder. This is what has happened constantly in my career.
I think it's just that energy. It's the focus on impact. It's just being open-minded—when someone asks you that question—to say yes. I think people would be surprised how many times where if you really look at it, you might have had an opportunity that you just might not have been listening for. That's an important thing to think about.
Edward: I love that. That's really great. Vineet, what are the biggest failure points in your career? Where did things not go as expected?
Vineet: We've all had plenty of those. I would say for me, I already told you the Novartis story, that hard lesson of learning to be a department head and a leader. That was honestly a really tough time in my career. Because my career was moving so quickly, that happened multiple times in my career. I had to take 6–12 months and really just make that work. I went to Switzerland. I became the head of marketing for Europe there. Big job. I was 29 years old at that time.
I'll never forget that I had onboarded with my team. I was living in Switzerland trying to lead an organization, all of whom are sitting in their countries. I was sitting in Switzerland by myself, so it's remote leadership for the first time. I really struggled with that as well.
I'd say in my first six months, I got pretty challenging feedback on how I was leading remotely and how I was connecting with folks in terms of just not being able to make the same connection I could in person.
I had a boss who (today) is a great friend. At that time, I thought I was going to lose my job in my first six months over there in Switzerland. Again, it just came down to that side of it.
I've also had really challenging moments during business and brand launches, product launches, and things like that where things don't go the way you want in your first six months. You're literally fearing for your job because at a certain point—and you know this Ed—you're paid to deliver. There's nothing like feeling when you're going out in the world, trying to deliver on your business, and essentially, you just don't hit the numbers. I've had moments like that through my career as well. You just learn from each and every one of them.
Edward: It's interesting. One of my early managers told me to think of your career as two-year chunks where you come into a new job, you spend a year really learning the job, then a year delivering on the fact that you figured out how to do it, and then you move on to your next thing.
Looking at your LinkedIn profile, it seems you've done a lot of that. These two-year chunks where you come in, the first six months challenging and trying to do the job or you're going to get fired, the next six month learning the job, getting better at it, spend the next year delivering, and then you go and repeat the process again.
Vineet: It's just been the way it's been. I was at P&G for eight years. I was at Novartis for seven or eight years. I was at J&J for four years. It just so happens that every company, every two years, they were either moving me or I got pulled into my next challenge. It actually has worked out that way.
Every couple of years, I've been in a new role because the company sees the impact exactly like you said in that second year. They're like, hey, can you do it in another spot in this company, and someone pulls you on the other side.
The faster you can get up that learning curve in those first six months, the more impact you can have at speed. That's really what I focus on, the learning curve which again goes back to that notion of curiosity and just being willing to listen.
Edward: Vineet, do you have any productivity tricks? Do you have things that you do to be productive that most people don't do?
Vineet: Yeah. I'm really fanatical about productivity. I have one mindset and one trick, I would say. I'm sure one of your listeners have listened to this and have experienced this idea of energy for performance. I definitely do not focus on managing time. I focus on managing energy. It really is this idea of being a corporate athlete. How do I feel about myself? What do I eat? When do I eat? How do I sleep?
One of my most productive uncertain tasks—which is a very different way of managing things than managing just a calendar and your time—is I'm very focused on managing energy and managing the different roles in my life, whether that's being a father, a husband, a leader in a company, an advisor, or a board member. I've had all these different roles that I have and I think about how do I keep my energy high for all those things? That's the mindset.
In terms of actually managing and hacking a calendar, for a lot of your listeners who have either admins or their own processes for managing things, I read this book that changed my life. It's called Getting Things Done. I'm sure many of your listeners have listened to that.
There's this total tactical hack here, this app called To-Do. Shameless plug for the app. I am relentless. Any time I ask for a follow-up, any time I want to book a meeting, everything goes into that place.
What it does is it clears my brain. Everything is in that place. A lot of people work off lists. I don't have lists. If I have something to do, I'll put it on the date that I think it needs to be done. A lot of people will put it today. I'll put it two weeks from now. I open up my app and it's staring in front of me like, oh, I have to get that done. I never feel this burden every day of looking at a giant list and checking things off. It's much more planned and I don't get overwhelmed by the day.
The second hack is that my admin has the same app. We have this amazing system where she has the same view that I do, so she knows exactly which codes are hers to take care of and which codes are mine. She takes care of all of that. We're almost in-sync with each other without thinking. That's a huge part of it.
I've seen a lot of people bring in admins and executive assistants into their lives as they get more senior and they're just ineffective with that person beside them. That's another thing. Find someone you appreciate, show them tons of respect, and create a system that is invaluable. As you get more senior in your career, that also matters.
Edward: Vineet, this is great. We're going to pick it up with part two shortly.
Vineet: Let's do it.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
This is Part 2 of my interview with Angela Rizzo. Angela was the CMO of eSentire, a leading company in the cyber-security space. Since the recording of this episode she has left eSentire and is looking for her next opportunity. If you would like to get in contact with her, please just reply to this email. (For all interviews you can click on the link next to the audio player to add the stream to a podcast player).
I expect to be back with an essay or briefing next week. I will also be going back to dropping a second post per week with interviews shortly. Enjoy!
Transcript
Edward: This is Marketing BS. This is Part 2 of my interview with Angela Rizzo. Today, we're going to dive into her experience as CMO of eSentire.
Angela, can you start by explaining what eSentire does?
Angela: Yes, I'd be happy to. At eSentire, we provide an affordable, premium cybersecurity service with end-to-end proactive protection. eSentire invented a new category of cybersecurity. We call it Managed Detection and Response and I'll refer to that as MDR. MDR was invented to do two things—detect the fact that bad actors are attacking a customer environment, and then take action to contain the attack before the bad actors can do any harm.
We think of these attacks in three categories—vulnerabilities, threats, and breaches. Vulnerability is defined as a weakness in a customer environment like a bad patch management practice. A threat is an exploit of the weakness by the bad actor. That's where they're trying to get into the environment. A breach is the successful exploitation of a threat. That means they're successfully able to get in. We monitor and manage for vulnerabilities, threats, and breaches. Time is critical to detect these things. Once we detect something, we then isolate and contain the attack.
Edward: There are thousands of cybersecurity companies out there now. What are you doing? What is eSentire doing that's different? Or is it a matter of you're doing the same as everybody else? You're just doing it better?
Angela: Managed Detection and Response is its own unique category. We have to think back to the fact that cybersecurity is a massive data analysis problem. In order to effectively provide cybersecurity protection, you have to be able to find the needle in the haystack. This is the simplest understanding of what we do.
We do this in combination with three key things. First, we have our Atlas platform. There is a term that is going around right now in the analyst community and in the market called extended detection and response or XDR. This is the platform that is needed to ingest, normalize, and analyze all of this data. The second thing we do is called multi-signal ingestion. There are some cybersecurity companies out there that just ingest one signal. They'll do endpoints, or they'll do logs. We ingest multi-signals. We monitor customers' networks. We work with best-of-breed third-party companies, and we ingest their endpoint signals.
We just announced our alliance with Microsoft to ingest the Microsoft Defender endpoint signal. Customers who have Microsoft licenses can work with eSentire and eSentire can manage the MDR associated with the endpoint.
Edward: If a company isn't using you then, are they not analyzing these endpoints? What are the other cyber companies doing?
Angela: I mentioned there were three things. You've got the platform, the multi-signal, and then the people within the SOC, within our Security Operation Center, and within our threat response units. You have to have the combination of these three things to be considered MDR, Managed Detection and Response. Many cybersecurity companies are either selling a point solution, or they're selling software, or they're claiming that they're selling MDR, when in fact they don't have all three of these things working in unison.
Edward: Does a company need to use you in addition to someone else? Are there other elements in cybersecurity that you guys don't handle that they need to supplement?
Angela: Yeah. Companies need to have basic security controls in place. They need to have firewalls. They need to have next-generation antivirus software. They need to have multi-factor authentication. They need to train their employees to understand phishing and not click on emails, if they don't know who these emails are from, and not click on any links. If they have these four things, these are like table stakes from a security perspective. You add an eSentire to provide this overall MDR service. That allows us to fully understand what's going on in the customer's environment so that we can hunt and contain those threats on our customer’s behalf on a 24/7 basis.
Edward: If I were to use the metaphor of a house, which people would understand. Someone needs to train the people in the house to lock the door when they leave, and that's not you. Someone needs to build the walls to make sure they're super secure and strong locks on the doors and plexiglass windows, and so on, guard dogs. All of that stuff is protecting the house. Your job is, hey, someone is going to actually breach the house. They come in and they try to open the door. You know when that happens and you set off the alarm so you can react.
Angela: You can think of it as a house or you can even think of it instead of a house, as a small business. You've got all of this traditional security—the locks on the doors, the guards sitting at the desk, the dogs barking. Sometimes employees will open the door, like my example on phishing, employees will open the door, and let these guys in without knowing who they are. Now, the bad actor is in the building, and we can detect when they're in the building. But now they're searching. Is there personal identifiable information of the employees that I can gather? Is there a bank statement and information on customers that I can gather? Is there an intellectual property that I can gather?
You think about this. We’re in the digital world, and we're able to see who is actually doing these types of things in the customer's environment and have the ability to determine this isn't an employee looking at this stuff. This is somebody who got in via a backdoor. We have the ability through eSentire Managed Detection and Response to isolate that person, and to contain the threat so that this bad actor doesn't start moving laterally through the company to continue to gather more data and more information.
Edward: Your company gets better as you get more clients, as you get more signals.
Angela: Exactly. If you’re customer number 1025, you have all the learnings from customers 1 through 1024. All of the learnings that we have had up to date are now applied to your environment.
Edward: But more than that, that new customer now, because just the fact that they're on your platform, if anybody attacks them, that information gets shared to all the customers that came before them. There are positive externalities in both directions.
Angela: Exactly.
Edward: What do customers do that don't use you? It sounds like your product is pretty essential for protecting against these threats. Presumably, you don't have 100% market share, what is everybody else doing?
Angela: There's some confusion in the market because there are a lot of people, a lot of companies that claim they do Managed Detection and Response. They're slapping the MDR label on their service, when in fact they don't. We invented MDR as I mentioned earlier. We have a very strict description and definition of what MDR is. We believe that, again, they don't necessarily have the combination of all three things and do the three things the way in which we do it—the platform, the multi-signals, and the people.
There is some thought out there, and I think about that, too, as the CMO, as to why are they not banging our doors down, knocking our doors down to get our service because it is something that is very unique in the market and our customers are pretty happy.
Edward: That brings me to my next question. When companies are seeking you, I know they are, is your product sold or bought?
Angela: It's a service. Typical customers are small and midsize enterprises, SMBs, and small enterprises. We target companies from 250-5000 plus employees. Typically, the CISO, CIO, or head of IT are the people that are looking to buy this service.
Edward: Are they out there looking for your solution? Or is it a matter of your sales calling them up and making sure they're aware that the solution exists and they should buy it?
Angela: I see what you mean. Yes, absolutely. Sorry. It really gets sold. We have to sell it. We're a private company in Canada and one of the things we're working on right now is improving, and increasing our brand awareness. We do that via a variety of methods. But yes, some customers will come to us via customer references. A customer works with someone in the same industry and they've had a very positive experience. They'll refer them.
We also have roughly 100 channel partners that are out there, selling eSentire to their customer base. Roughly 40% of our new bookings come from our channel. We're constantly educating the market. Part of the problem, Ed, is that a lot of people don't think that they have a problem, and a lot of these SMBs don't think that they're going to be a target. These bad actors aren’t going to come after me. They’re after the Marriotts and the bigger companies, and we're saying no. These bad actors are going after all companies of all sizes, and SMBs are targeted because they aren't putting these types of protections in place.
Edward: I would imagine, again, you're an SMB. You have a lot going on, a lot of decisions to make, and your cash is very valuable to you because you have a high cost of capital. Going in putting money into security is downside protection rather than upside growth.
Angela: The other thing is we have to convince people that they have a problem because they don't think that they really have a problem. Quite frankly, the industry has confused a lot of buyers. You go to a trade show like RSA. There's 3000 plus security packages software you could purchase. But what they don't tell you is you have to have people behind whatever you buy.
Let me give you a great example, I'm sure you've heard of SIEM, Security Information and Event Management software. You put this SIEM software on your environment and it basically logs, then sends you alerts. If you're an SMB, you can be flooded with up to 10,000 alerts a day. What is a small business going to do? When I talk about finding that needle in the haystack, there's no way they're going to find that needle in the haystack if they're getting 10,000 alerts a day. You cannot hire enough people to actually do that work. That's why having a platform, being able to ingest all the signals, and then having the right people focus on those things that are truly the red flags, that's really what companies need.
My job is to convince them that they have this problem, and once they understand it, the sale is actually pretty easy. But we really have to get people to understand what we do, and how we do it, and how it sets us apart.
Edward: I imagine many companies treat security as a checkbox of the CEOs sees to the CTO, or the CIO, do we have security in place? The CIO goes out and finds one of these packages and buys the package, and slaps it on, and tells the CEO that they're good. Unless something goes disastrously wrong, nobody asks the right questions.
Angela: That's a good point. I also think that you've got a couple of other things that are occurring. You have people that say, in order to be compliant, I have to put A, B, and C in. You go ahead and put in A, B, and C, but just because you're compliant, doesn’t mean you're 100% protected.
Edward: That's right. People are jumping through hoops rather than actually solving them for the problems. Frankly, most of the time, when they don't solve the problem, they’ll be okay. But in some percentage of the time, they won't be. If that happens, the CIO probably points to the attackers and says, this was unavoidable. There's nothing I could have done and nobody knows any different.
Angela: It's interesting because people know that they need to have basics. They need to have the next-gen firewalls. They need to have antivirus software. They need to have multi-factor authentication. They need to train their employees around phishing. Don't open an email, and don't click on a link if you don't know who it's from.
You have all those things, then, you also need eSentire on top of that to provide the MDR service so that you have a service that understands fully what is going on in your environment. Again, when the red flags pop up, you have the resources at eSentire that hunt and contain those threats on behalf of our customers.
Edward: You mentioned before that once you get the conversation started, your conversion rate is pretty high. How long does that take you to convince somebody that this is a real problem that they need you to solve?
Angela: It depends. If a customer has already been breached, we can probably get in there and up and running in a matter of a few days. If this is a new lead that has come in through one of our webinars, or they've engaged with the website or content, it could take anywhere from two to three months to get them on board.
Edward: If the first thing happens, if they've just started being breached, they feel a sense of urgency where like, we need to fix this so that it doesn't happen again, whereas if a breach has never actually happened, it feels like this is something that can always be put off to tomorrow. It might be important, but it's not urgent.
Angela: Exactly.
Edward: Do you need internal champions? Do you need multiple people in the organization to buy in before sales happen or if the CIO says, hey, let's do this. Does this just happen automatically or do you need to provide the CIO with materials to help convince the CEO and other people in the organization that it's worth investing in?
Angela: It's interesting because typically, we work with the CISO or the CIO. From a technical perspective, they get it and they understand the value. Now, they have to go get the CFO or whoever has to approve the purchasing decision to sign off on it. I don't know if the CFO is really going to care that much about the technology. What they need to understand is, what is the risk that we are avoiding by having eSentire? What is the return on investment by making this investment in eSentire? How many people do we not need to hire? How do we ensure it again? This is basically a risk in our ROI.
We provide that information to our prospects in the selling cycle so that they can go back and articulate that back to the buyer—the person who has to make the buying decision, and approve the final buying decision.
Edward: How do you divide your marketing budget? How much of your budget is spent on the direct acquisition of trying to get those people that just had a breach, and they're searching for a solution to come to you, versus brand-building and content, and creating a perception in the marketplace that you're out there?
Angela: It's probably 50/50 right now, in terms of building the brand because even though we have been working with MDR, even eSentire's been around since 2001, the term MDR was coined five or six years ago by Gartner. Internally, we think that we know MDR, but we still have a lot of education to do in the market especially, when you have other companies like MSSPs or other companies that are adopting the MDR term, but they're not really doing MDR. We have to educate people that, no, when we say MDR, it really means this. The people that you're talking to, our competitors, are not really doing what we define as MDR.
There's still quite a bit of education that we need to do. We're spending a lot of time, quite frankly, in PR—driving more earned media, getting our experts in our threat response unit, in our operations teams, in marketing—to go out and talk about what we do and how we do it. We’re getting those stories published in tier 1 and tier 2 publications to get the word out in terms of what we do and how we do it.
Edward: How do you know if that's a good ROI, good-spent ROI in your spend? On the direct acquisition stuff, you can measure it. You can measure whether your click on paid search led to a lead, which led to a SQL, which led to an opportunity or a sale. But when you do that PR and the top-of-the-funnel stuff, how do you know you're not wasting your money?
Angela: We watch our share of voice, which as you know, identifies how many times we get the mentions and our share of voice. We're about 20 points ahead of any other competitor in the MDR space. We measure that.
Edward: Angela, a lot of companies that sell products like yours—these SaaS bit products to these SMB businesses—swear by account-based marketing, but you guys generally have not had a lot of success there. Why do you think so?
Angela: For account-based marketing, I'm not simply seeing the ROI at this point. I suspect that one reason is that we rolled it out to the entire sales force and then we declared victory.
Edward: You basically did what you're telling your clients not to do, which is don't just buy a software solution and check the box, and say you're done. That's what you guys did for ABM.
Angela: Exactly. Guilty as charged. ABM requires focused attention and alignment for marketing and sales. You've got to have the right targeted personas, you have to have the right content. We went too big, too fast. We rolled the program out to all of the sales without a real clear focus plan on, are these the right segments? Are these the right personas? Do we have the right content?
Sales reps get busy, especially, you get to the last month of the quarter, they're going to focus on closing those deals. They're not going to be focused on the ABM. They need marketing to help bring them along. What we've done is we've scaled back our efforts on ABM. We're now focused on one rep in one specific segment and she's totally bought into the ABM program.
What I believe we need is we've got to build a successful program. Let's start small. Let's build this program. Let's understand what we need to do to make it work, and then let's figure out how we roll it out more widely.
Edward: That makes a ton of sense. Figure out how to work at a small scale, and once you have it working, then scale it up, rather than trying to scale it up, and then figure it out after big.
Angela: Exactly.
Edward: Forty percent of your leads or your revenue come from these partner relationships. As a marketer, do you spend much time trying to help the partners sell more, like providing the partners themselves with tools?
Angela: Oh, absolutely. I have a field marketing team that is tightly aligned with our regional vice presidents in the field. Then also, we're aligned with our vice president of channels. We are working very closely to not only enable the channel partners. We think of our channel partners as an extension of our sales team. If we're going to go out and build content for the field sales reps, we think about, how is the channel going to use this? How do we create this in such a way that if we modify it at 2%, then any channel partner can use it? They can slap their logo on it and they can leverage it.
We also work with our channel leader to look at how we recruit more partners. How do we ensure that we're getting the right partners to continue to drive because the goal this year is to drive 50% of our bookings through the channel? We need to grow it by another 10%—really super tight alignment with the sales teams in the field, and with the channel sales team.
Edward: Angela, thank you so much for being on the show today. Before you go, tell me about your quake book and how it changed the way you think about the world.
Angela: Oh yeah, my quake book. I read this book a while back. It’s called A New Earth by Eckhart Tolle.
It was very eye-opening for me. His perspective is that we're so caught up with our ego and we allow ourselves to get caught up in our own thoughts. Our thoughts really are not reality. They're just our thoughts. He encourages you to focus on the present moment. The present moment is all we have. The past is gone, the future is not here yet. It's all about the present.
The other thing is to help me realize that we really have no idea what other people are really going through, especially now. We just need to be kind. Be kind to each other because we just don't know what people are actually dealing with in their own lives.
Edward: That's a great note to end on. Thank you so much, Angela.
Angela: Thank you, Ed.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
I wasn’t sure I would have a new essay for you this week. Unfortunately the new kiddo has had to spend more time in the hospital (nothing serious, but out of caution “just in case”). I’m not worried about him, but it has taken up a fair amount of time (beyond the normal baby-taking-care-of time). Rather than leave you with nothing this week (and next) I am polishing off this interview that has not been released yet. Angela WAS the CMO of eSentire, a leading company in the cyber-security space. Since the recording of this episode she has left eSentire and is looking for her next opportunity. If you would like to get in contact with her, please just reply to this email. (For all interviews you can click on the link next to the audio player to add the stream to a podcast player).
Transcript
Edward: My guest today is Angela Rizzo, CMO of eSentire. Today we cover Angela's career and path to CMO—Sprint, EDS, Hewlett-Packard. Angela is now the CMO of eSentire, the global leader in managed detection of cyber threats. I'm super pumped to have this discussion.
Angela, you were recently promoted from VP of marketing to CMO. How has your job changed? What did you do to get that promotion?
Angela: I joined eSentire as VP of marketing in July of 2018. When I came on board, most of the marketing focus at that time was on face-to-face events. We knew that we needed to add more programs that delivered higher quality marketing-qualified leads.
I realized that the team was really talented. They just needed a bit more direction and leadership support. I moved quickly to work with the team to expand our focus from an events-only focus to include integrated campaigns, focused on what issues the customers were really grappling with, and how eSentire MDR could solve those issues.
We started doing more paid promotions—Google display ads, paid social media, SEM, SEO. I put in a lead-scoring program. We also started doing a lead-nurture program. We started to build transparency in reporting by creating new marketing dashboards in the sales force that covered everything from where were these MQLs being created to how much pipeline were we actually generating that was marketing-attributed.
Edward: You were doing all that as the VP of marketing, or you didn't start doing that until you became CMO?
Angela: That's correct. That's what I was doing as VP of marketing that I think led to the promotion to CMO.
Edward: What happened when you became CMO? How did the job change? Did you take on other responsibilities, or was it just an escalated title and compensation package?
Angela: No, I did take on more responsibilities. I actually took on the corporate comms function which I had never run before. That included analyst relations, public relations, community relations, and employee relations. This was January of 2020. I get the promotion at the end of the month, and then COVID hits at the end of February. Now, I'm finding myself focusing on how we need to communicate to our customers on what's going on with the company so they can be assured that we're still going to have 100% operations.
Edward: Did you have any experience doing those things before you became CMO?
Angela: No, I did not. Along with putting together the customer communications, we also worked doing employee communications. We were at a point prior to the pandemic where we were doing quarterly employee all-hands. We actually went weekly once the pandemic hit in March.
We were actually pretty fortunate, Ed because the company was prepared to have every single employee work from home. Everybody started working from home in mid-March, and we were doing weekly all-hands meetings. As the CMO, I was actually pulling together the content, making sure that these meetings got scheduled. Our CEO and entire leadership team participated in every meeting because we felt that it was just critical that we kept everybody up-to-date on what was going on.
If you recall, a year ago nobody really knew what was happening day-to-day. We have employees all over the world. We have employees in North America, Ireland, London, and Canada. We just needed to have this regular cadence of meetings to keep folks informed. I think at the end of the year, we ended up doing 20 all-hands meetings starting in mid-March.
Edward: It worked out great. Obviously, you stepped into the role and you did fantastically. How did they trust you to do that though? You had no experience doing that particular part of the job. Why did they thrust you into that role?
Angela: I demonstrated as VP of marketing when I first started that I could look across the organization and figure out what are the things that are either broken or need some TLC. In addition to the marketing function, I actually took on the business development reps when I first took on the VP of marketing role.
I did that because I thought we could do a much better job flowing all of our leads and MQLs into the business development reps if we were part of the same team. I was demonstrating as VP of marketing that I could take on roles that might not have traditionally been part of marketing, and almost, I would say immediately, within a few weeks or a few months, start to show progress.
Edward: When you took on those BDRs, you had never led a team of BDRs before. Is that correct?
Angela: I did have some experience at HP. We had an SDR team down at Conway, Arkansas when I was running the cloud team. I worked with a small group of those SDRs. But this was a little bit different because the entire company was focused on this group of BDRs. They did nothing else other than support what we're doing at eSentire.
They were aligned with sales, and I had convinced leadership that if we could align these BDRs with marketing, I really felt like we could improve productivity. We could make sure that they're focused on all the inbound leads as well as doing the outbound, and it would probably help us with better alignment across the employee base. I have to tell you, I'm proud to say that we did exceed all of our key objectives in the calendar year 2019 as we were going into 2020 when I received the promotion in January of 2020.
Edward: Your success there with the BDRs, do you think that was instrumental towards the organization taking a risk on you, bringing you in as CMO, having you oversee these areas that you'd never overseen before?
Angela: I was able to demonstrate that I really like to get my hands on the things that are most broken, and see what we can do to really fix them, and move them forward. This was an area at the time in the business that we really weren't getting what we needed out of this team. To turn it around and to see the progress within the first 30 days, and then to really see it mature over the next several quarters was really a feather in my hat. It really did help move the business forward in terms of providing more top-of-pipeline opportunities for sales reps.
Edward: I want to go back now to see the path that got you to where you are now. What were you like when you were 12-14 years old?
Angela: I'm number six out of seven kids. I was the entertainer in the family. I always had the ability to make people laugh. I love the crowd. When I was in junior high—I guess that would be when I was 12 or 14—I ran for student body president of the school and won. That was the beginning and maybe close to the end of my political career.
I was a pretty happy kid. I was very upbeat, and I just loved surrounding myself with people. Back in the time I grew up, Ed, it was in the 60s and 70s. There wasn't an internet. There weren't iPads. There weren't cellphones. We played outside. We were always active, always engaged with other people. My dad worked, my mom stayed at home. It was pretty much a traditional family at that point.
Edward: A little later on when you were about 18, you started doing stand-up comedy?
Angela: Yes, 18 or 19 years old I did stand-up. People always encouraged me to try to do it. They thought I was funny. I thought I'll give it a shot. I have to tell you, the first time I was on stage and told a joke and got a laugh, it was amazing. It's like a drug. I have done stand-up comedy off and on throughout my life. The first time I did stand-up I was 19 years old, and then I didn't do it for a while.
When I started working at Sprint, we started going to a local bar down the street from the office. I was going there doing amateur comedy nights once a week. I probably did it for a couple of months and then I thought, I want to focus on my career. I don't think being a standup comedian is really going to make it for me. I really want to focus my time and energy on building my career.
Edward: What did you take away from that time, if anything, from years of comedy? Was it a pure distraction, or did you learn anything there that you use today?
Angela: Back then, I was really struggling with my sexuality. I was gay and was having a hard time dealing with who I was and being my authentic self. I found that back then, I really couldn't talk about the things about my life because anytime you start to talk about your life you expose who you are and how you feel. The comedy that I was doing was very surface-level.
Fast forward a few years later, I realized that once I could get on stage and just be myself, talk about my life, and be authentic, I think having that level of authenticity is really important because if you're hiding something, whether it's something personal about you or something you don't want people to know, you can't be truly authentic.
What I learned from comedy was, yeah it's fun to get up, tell a joke, and get a laugh, but if you really want to do stand-up comedy, you really have to talk about your life and talk about who you are. I didn't really do that until probably, fast forward 15-20 years later when I was in Kansas City doing stand-up comedy and then really just being able to be my authentic self.
Edward: Let's jump ahead a little bit. Where were you in your career when you were 25?
Angela: This was a tough time in my life. I just mentioned being gay, and I was actually married when I was 19. I got recently divorced at 25. I was very disconnected from my family. I was unemployed at the time. I was having trouble finding work. I only had a high school diploma. I did not go to college because I got married at a very young age. It was a very difficult time and one of my brothers is a podiatrist, and I convinced him to hire me part-time just to help him in his office. He had an office in San Francisco.
I would schedule the appointments for him. I'd do the billing. Those were the other key roles. One of the things that I had to do in this role is I had to rub lotion on the feet of old people. His patients were really old. I recall the moment that I was doing it for a patient and I just said to myself, this is not my life, I can't do this.
It's circa 1987, Sprint at the time was headquartered in Burlingame, California and they were running a job fair. I applied and I was hired at Sprint as a customer service rep. That really was the big change in my life when I was 25 years old. I ended up getting on at Sprint, and then three months later, I was promoted to supervisor. Eighteen months later there was an opportunity to move to Kansas City.
There was a huge contract that Sprint won that I thought, I can just start up my life over. I can start in a new city with a new job at this company that I've been with for a few years. Let's go for a few years. Let's see what happens. The rest is history. I've never looked back from that time.
Edward: You spent 12 years at Sprint, moving up progressively more senior the whole time you were there. What skills did you develop there at Sprint that serve you now as CMO?
Angela: It comes back to building great relationships with the people that you work with especially with customers. I love working with customers. I work very hard so that people—not only my peers and people who I work with but also customers—know that they can count on me. I took advantage of every opportunity that I was afforded at Sprint. I really developed this reputation as someone who could get stuff done.
When I had the opportunity to move to Kansas City, I jumped. I thought I would be here in Kansas City for a few years. I was actually here for 10 years. I moved back to San Francisco and then back to Kansas City, but we might get into that. I have to tell you that in order to think about what skills I learned as a CMO, I was in a support position after I moved to Kansas City. I'd learned over time that the best thing that I could do is find ways to say yes when somebody came to you with a problem.
Somebody wants something, how do I get to yes? It wasn't always that way. At first, when somebody would come to me with an issue, I would find all the reasons and excuses why it couldn't be done. Back at that time, I was really the office of no. It was because at that time, I had a boss who had very adversarial relationships with his peers. I realized I was modeling his behavior. He left Sprint. I started reporting to a new boss, and this is probably one of the people who has had the most influence in my life, my new boss at that time.
Again, this was 1990-1991. Her name is Nancy Cole, and she taught me that in order to succeed, I need to focus on what could be done, not what could not be done. How do you say yes when somebody brings a problem? They don't want to hear why it's hard. They need you to figure out how to get it done. That approach and perspective changed everything for me.
It was also at a time where I was encouraged to get my undergraduate degree. Nancy wanted to promote me to director but she couldn't do it until I had my degree. At the time, I was actually in a non-traditional college. I was going to school at night taking an accelerated program every five weeks, earning three credits. I needed to go faster so I doubled up on the course work in an accelerated program, two classes a week. These were four hours every evening and I was still working full-time.
I ended up graduating with honors in '94 with a Bachelor in Business Administration, and then shortly thereafter, I was promoted to director. It really was this lesson of someone in sales, a customer, or someone in another department comes to you and they need something, how do you say yes? How do you figure out how to solve their problem?
Edward: I want to jump ahead to your time at HP. You were there for a decade, advancing in sales, getting progressively more senior in sales, and then you switched into marketing. How did that happen?
Angela: My entire career to date spans over 34 years in technology. I've had the opportunity to lead many functions in my career—sales, operations, customer service, product management. Marketing was the one area that had always interested me, and I'm always up for learning new things. When the opportunity presented itself for me to move into a leadership role from sales to marketing, I really jumped at the chance.
Edward: I want to talk about how that happens though. You, obviously, at that point had demonstrated your ability in sales. Marketing is very different from sales, and you jumped in at a fairly senior level. What did they see in your sales skills that they thought you would excel in a marketing role?
Angela: I've always had a knack to be able to translate really technical concepts to non-technical teams, look at what customer requirements are, and then translate what the customer requirements are back into the technical teams. We thought the skill would bode well in marketing, really understanding what is it that we're trying to deliver to the customers and how do we translate that back into not only the technical teams but into how we market the offerings.
Edward: What are your productivity tricks? What do you do to be productive that most people don't do?
Angela: I really believe that people do not need to be micromanaged. Most people and most people that I have come across in my career, there have been very few instances where I have come across an employee who doesn't want to do a good job. Most people want to do good. They want to succeed. They want to work hard. They just need guidance. They don't need to be micromanaged.
I treat my relationships with my employees almost as a partnership. These are the things that we need to accomplish. This is the time frame of when we need to accomplish these things. Let's figure out how we're going to get there. Let's establish these goals. Let's measure. Let's adjust. Let's repeat. It really boils down to just trusting my team to do their jobs and being available to them when they need my support.
Edward: Angela this has been fantastic. We'll pick this up tomorrow with a dive into your time at eSentire.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
Sam Heath and I worked together at McKinsey many many years ago. He is now responsible for marketing Tim Horton’s in Canada (where it is by far the largest quick service restaurant chain), and Timmie’s fledging business of selling its product in grocery stores. Last year, out of nowhere, Sam’s heart stopped and he “died”. Last week we explore how that event affected him and his overall career in this episode. This episode dives into Tim Horton’s - both the stores and the CPG products - and how he is growing the two inter-related businesses.
You can also listen to these interviews in your podcast player of choice: Apple, Sticher, TuneIn, Overcast , Spotify. Private Feed (for premium episodes).
Transcript:
Edward: This is Marketing BS. This is part two of my interview with Sam Heath. Today, we're going to dive into his experience as head of retail for CPG and Tim Hortons. Sam, we're both Canadians, and every Canadian in the country understands Tim Hortons down to their bones. But for American listeners, can you describe a little bit what Tim Hortons is and what it does?
Sam: This might be a little bit of a long answer and I'll come at it in two ways. One way, our former CEO tried to describe this to everyone at Burger King right before the merger happened. He said, imagine if Coke operated restaurants in the US and there was no Pepsi, which is a pretty good idea of how important the brand is. Fundamentally, it's a coffee shop/ breakfast/ lunch space that has about a 50% share of the QSR market in Canada, which for context is the sum of what the next 13 chains combined. The next chain is McDonald's. It's just absolutely massive in terms of what it means for Canadians who want to eat.
Edward: In the US, McDonald's has the number one share of the QSR market, is that right?
Sam: Yes.
Edward: What percentage would McDonald's have in the US roughly?
Sam: I'm a few years away from this, but probably 20%, 25%.
Edward: Got it. McDonald's is in the US, Tim Hortons is at 2 ½ times that in Canada.
Sam: It's the only market McDonald's operates in globally where they're not number one, and they're a distant number two to Tim Hortons in Canada.
Edward: Got it. Tim Hortons is almost even more than that in Canada. I don't think there are many Americans who define themselves by McDonald's, but it almost feels like there are Canadians that define themselves by being a part of the Tim Hortons community.
Sam: Yeah, and this is the other way that I wanted to try to get at it. If you're a big fan of an NFL team, or maybe even better, a college football team in the US—that type of just extreme buying of what that brand means to you, what that team means to you—that's the place that Tim Hortons takes in Canada. College sports are just much less important. People get Tim Hortons tattooed on themselves regularly. Weddings happen at Tim Hortons every year or two. People choose to get married there. It means things in a way that I don't think anybody truly understands.
Edward: How does that happen? At the end of the day, they serve donuts, coffee, and sandwiches. Why are people getting married at Tim Hortons?
Sam: In the 80s and 90s, a big problem for Canadians is who are we as a country, as a people? All of the answers up until that point, it's we're like Americans, but—we're less this than Americans, we’re more this than Americans. Sometime in the mid-90s, there's a book published called Timbit Nation that tried to answer this. The book said we’re a nation of people that have Tim Hortons and go to Tim Hortons, to a lesser extent Canadian Tire.
The way the brand got there is it is a brand by Canadians for Canadians. It's always being 100% franchised. The people running Tim Hortons restaurant have been members of the local community. There’s been this really intuitive sense of how you make coffee, donuts, bagels, breakfast sandwiches, and things for the people that are around you that are like you. No one ever planned strategically. It just evolved. But after 40 or 50 years of that, you end up looking around going, Tim Hortons represents us because it's just us trying to do the best we can for each other.
Edward: How does Tim Hortons think about marketing in Canada? I can imagine awareness is not a problem. What problem are you trying to solve with marketing in Tim Hortons?
Sam: That's a good question, and no, awareness is not a problem. It's 99%. I keep saying, I want you to introduce me to a person who's not aware of Tim Hortons in Canada. It's more a matter of how you express that Tim Hortons is Canada in a way that does not come across as seeming arrogant.
Canadians feel like we're part of them and we're in us. We are number one. Canadians don't want to hear us tell them that we are number one. We're Canadians’ favorite coffee and if we tell Canadians we are your favorite coffee, there’s dissonance. There's a clash between how people think about us and how we're talking that comes out there. They want us to be humble and they want us to serve them. That's the difficult part in all of our advertising, is reflecting that humility, which is tough when you are so big and when you are 50% of QSR.
Edward: What is the goal? What metrics do you measure to say like, hey, our marketing is doing well?
Sam: Ultimately, we measure the same thing that everybody in marketing does, which is sales. Are sales going up? But that's often a trailing metric for what really matters. We're also looking at brand health, brand connection, and share of preference. Do people say that we're their favorite coffee? Do people say they look forward to going to us? Do people trust us? All of the things you can imagine to define a brand and how people feel about the brand that we know, end up over months or a year leading to declines in visitation or in sales.
Edward: If you run those correlations, do you look at how much people trust Tim Hortons, then look at what the sales are six months after that, and see whether or not there's an R-squared that you can measure?
Sam: We do. We try and find them in simple marketing ROI metrics that try to tease out all the different factors that go into your marketing that will often reveal things like this. But ultimately, the link ends up being soft. This is one of the arts of marketing. You have to take it on faith. There is a general correlation. But nobody can say that if trust drops six months later, this goes down because trust can also be affected by macro factors that have nothing to do with Tim Hortons specifically.
Edward: You can imagine a world where even if trust goes down, people continue to shop there because McDonald's has a bad quarter or because of something else that happens with your competitors.
Sam: That's exactly right.
Edward: You operate on trust a little bit, or you just have a certain belief that these are the good things to do. Those good things sound like, hey, creating advertisements that drive up trust, creating advertisements that drive up, would you say, that this is my favorite coffee. Is that a statement that you measure and track overtime?
Sam: Yeah, we do track favorite coffee, that’s the exact wording of it. It’s now lost to me. We track, favorite coffee. We track, it’s a place for people like me, which is one of the standard brand metrics. That one tends to be quite important for the crowd, people, feel about the brand, overall.
Edward: How do you build marketing that does that? What do you do that's different from many other places that are trying to build awareness or consideration? You're trying to build, hey, this is a place for me. What does that look like?
Sam: This gets into the qualitative pieces of marketing a little bit. There's a weekly comedy show called This Hour Has 22 Minutes. They fairly regularly, for a while, would produce parodies of Tim Hortons’ ads. Tim Hortons would make an advertisement, and the comedy show would recreate the advertisement as a comedy sketch, and air that for free in one of the country’s most popular comedy shows. Imagine if McDonald's US and Saturday Night Live will recreate your latest ad and air it on Saturday Night, it's a pretty big deal. That tells us we're doing the right things. We look for those types of ads.
Other ones literally pull on the heartstrings. There's a series of ads that we ran over a while that made people cry watching them. An immigrant father taking his kid to hockey practice, and then his kid growing up, and taking his kid to hockey practice, and how Tim Hortons played a part in that whole. There's one about Wayne Gretzky meeting Tim Horton at the first store he opened, and talking about how he went into hockey, partially because Tim Horton told him to keep playing.
Those are the ads that we know are driving the brand. Ultimately, we also have to launch our latest cold brew coffee, which is really important. But we know that if people are crying or making fun of our ads, then they're linking to people on a pretty deep emotional level.
Edward: Tears and laughter. Is that the metric?
Sam: Tears and laughter. Although we found that one hard to get a quantitative measurement of.
Edward: Tim Hortons is this dominant player in Canada. I imagine your brand has not succeeded as well in the United States. Why do you think that is? Is it just too tied to Canada?
Sam: We've done really well in a few US markets—Buffalo, where we're number one by market share similarly to Canada, Detroit, Columbus, Rochester, a few of these, Upstate New York, Ohio, and similar locations. We have close to 800 restaurants in the US and they do quite well in the markets that we’re in.
I think a lot of our success in those places may be due to the fact that we entered at a time when a lot of brands are pulling out of these rust belt cities when manufacturing is getting hollowed out. We came in and there's a lot of emotional goodwill towards the brand from locals in those US cities who remember us coming in when a lot of other brands won’t. We have had some success in the US.
Edward: These are all franchise models in the US as well?
Sam: They are. Yeah.
Edward: The same thing that happened in Canada, where it was the local people building this business happened in these upstate US markets where it was local people—maybe in a time when the community was struggling—local people were stepping up and running these things, and they connected to the local community.
Sam: We ended up with a similar type of connection as we had in Canada in those markets. But when you look beyond those markets, you're right. We have struggled to move out, to establish the brand. In some parts of New England where we've expanded two or three times had been forced to retrench. We just couldn't make our stores profitable, and we had to pull back.
Edward: It's interesting that these markets that you are successful in, tend to be almost like border cities. They're very close to Canada. Is that something to do with it or do you think it was just the timing? If you had entered Alabama at the same time period back when these other markets, other quick users were pulling out, would you have been as successful there or does it tie to the fact that these people know what Canada is because they live on the border?
Sam: When I write my alternative history book, I will explore that in-depth and until then, I'd just be guessing.
Edward: Let's talk about the CPG business. You've been running the CPG business for a while now. Even for our listeners, describe a little bit. What does the CPG business mean for Tim Hortons?
Sam: I’ll give it a quick history which describes what it is. We started selling some of our packaged coffee in grocery stores in Canada around 10 years ago because the grocery store came to us and said, hey, would you consider selling it as your packaged coffee? We'd like to put it on shelves. Which is not normally how grocery stores interact with their vendors.
Edward: This sounds an awful lot like how you've managed your career. The Tim Hortons-CPG business grew the way Sam grew his career and they came to you.
Sam: It's just, oh, I guess we can do this if someone does it. Exactly. From there, in 2015, we decided to get strategic, small as strategic, and say, what if we actually went to the grocery store and asked them to list our product and that led to just pretty rapid growth between 2015 and we decided to do this. By late 2016, we became Canada's number one CPG coffee brand, neck-and-neck with the other two.
Since 2017, 2018 with a couple of adjustments, strategy, and more products, we now have probably doubled the market share of the next largest coffee brand on shelves in Canada. We've also expanded into soup, granola bars, through licensed deals, and ready-to-drink coffee, and cereal. In 2017, we entered the US CPG market, although so far really just with coffee.
Edward: Let's start with the Canadian business first, how do you think about growing the CPG business from a marketing perspective different from retail? Or is there a difference? Do you just basically coast on the back of the retail brand?
Sam: In terms of brand strength, we are a very small part of Tim Hortons’ total sales, what it means in Canada. We're not having a significant impact on the brand. Clearly, the overall brand strength which comes from restaurants is why we've had success in CPG? What we really try to do is make sure that nothing we do can harm the master print. If we started selling Tim Hortons pencils and USB chargers in retail that would probably annoy Canadians like, what are you doing? You're just putting your name on everything? We try to do what we can to reinforce it, but we're a small force overall for what Tim Hortons means in Canada.
Edward: The purpose of CPG then is it's almost like, hey, we've already built this brand in retail. Let's go into CPG. From the minimal additional effort, we can make some profit. Every time you see Tim Hortons on a shelf in a grocery store, it's the equivalent of a billboard on the side of the street advertising the retail.
Sam: From a marketing perspective, it absolutely is. We've got some pretty good research that says, the more you see our soup on grocery store shelves, the more likely you are to go to a restaurant to add soup for lunch.
The other thing though, is 80% of coffee is still consumed at home, despite how much coffee we sell in our restaurants in Canada. We didn't want Canadians going home and going, I want to make myself a nice cup and then have to look to our competitors for their at-home coffee. If you're reaching for coffee at breakfast in the morning when you don't go to Tim Hortons restaurant, we wanted to make sure we were there so that we stayed present [...].
Edward: Got it. CPG is a lot more of a defensive play then than an offensive play?
Sam: It's a bit of both. The sales and profit are nice, but it's also a matter of people expecting us to be there. Again, you look at the brand, it's about being humble and doing what Canadians want us to do. They want to drink Tim Hortons coffee at home. I'm not going to tell them they can't.
Edward: Do you do any marketing specifically for your CPG side of things, or is it just a matter of like, hey, you've done the marketing for the retail and CPG is just a distribution channel?
Sam: It's largely just a distribution channel, and the marketing that we do for CPG products tends to be to raise awareness that they exist in this format or just getting more prominence in the grocery store aisle. When you are shopping for your coffee, we want to have our displays, our signage, our offers jump off the shelf. Unlike with restaurants, you've got to decide where you're going for coffee well in advance of picking up the coffee, or either walking down the street one way to Tim Hortons and the other way to go to McDonald's. On the grocery store shelf, you just raise your hand 6 inches and you're buying a different brand. The more permanent we can be there, the better our sales will be in the grocery.
Edward: Yeah. I know you're not a digital marketing guy, but I kind of think a little bit like your retail business is top of the funnel. Do marketing, do brand, do television, but then your CPG business is almost all direct response stuff. It's like this equivalent of paid search or by the corner display or getting on eye level or hitting the person with the flyer as they're walking in the door to say, hey, it's $0.10 off today.
Sam: Or a $1 off. That's exactly it. If we can get the display or in the aisle that interrupts the shopping experience that gets it in front of you. The reason that the brands do this and why we do this is we know that it works. The more display space you can get, especially outside of the coffee aisle, the more likely you are to pick up sales from people that otherwise might choose to buy a different brand.
Edward: Do other direct response stuff work for you? What about something like direct mail? Could you use direct mail to drive this business?
Sam: We've used direct mail in a couple of specific instances and they're basically new product launches. We launched instant coffee in 2019, and we mailed sachets to people to sample at home to drive awareness and trial. We're doing something exactly equivalent with a granola bar, food lunch. If you're in Canada listening to this, you might get a Tim Hortons double chocolate granola bar in the mail. You might have received one. That is designed overall awareness where that's a new category for us and awareness is 17% for our granola bars. We know that we can drive it higher. We've got a great product and we want people to try it.
What we've found is absolutely no correlation of those activities with sales. Again, we're taking it on faith. We know that 50,000 people tried the product within the country of 40 million people. That's not many.
Edward: That's interesting. When you run those direct mail tests, you don't do them like, hey, we're going to do some in the East side of Toronto, not the West side of Toronto, and then see what happens to sales over the next three months?
Sam: We have tried those and we cannot find a signal among the noise of our sales data. We keep doing it because we know that it does mean 50,000-100,000 more people have tried the product and the demand made by. Some things you just have to take on faith. In the tests that we've done, we can't get a response high enough to actually measure.
Edward: That's interesting. Is that because you don't do it at the scale necessary to measure a response? Or do you think that the response isn't there?
Sam: It could be both, getting to the scale necessary is either fabulously expensive. If you're mailing out instant coffee to be in the households who would never consider buying instant coffee or wasting a lot of your marketing budget on people that just aren't in the category, or it could be that it's just not there. Having sent the infinite marketing budget to get to the scale that we need, it's really hard to say.
Edward: How do you think about marketing the US differently than Canada on the CPG business because you don't have that giant retail brand behind you that's giving you 99% awareness? Do you need to do things differently in the US?
Sam: I love this question because we have a very specific answer to it. We re-did all of our packaging 1 ½ ago. In Canada and the US, we tested a set of about 10 different taglines. In Canada, the tagline that we put on all of our packaged coffee now says, “Roasting in Canada since 1964.” Which is correct, we've been roasting our coffee here. We haven't changed the blend since 1964. Canadian thought, you've been here for a while. You're like us.
I've been in Canada since 1964 when I was born here. People liked the sort of comfort routine of that. In the US, that was mediocre at best. What the US liked, whether it was in a market where they know as well like Buffalo or a market where much less known like Texas is, “Canada's Favorite Coffee.” Which, if you recall, we tested in Canada. Canadians hated that. It probably would have hurt sales if we used it. In the US our bags say, “Canada’s Favorite Coffee.” We've got the research to back up to make sure we're telling the truth, but in Canada, it says, “Roasting in Canada since 1964.”
What that's reinforcing is we realized we needed to tell Americans something about our coffee. We couldn't just say, hey, we’re the stuff you get in the coffee shops. We need to say there's a reason to buy this and Canadian coffee is a unique selling proposition. It may not be the strongest possible way, but again, we didn't design this brand.
We have to sell what we have and that's worked really well. We're growing at something 25% per year, five years straight in the US grocery market. In March, we're number two by dollar sales growth, 2021 versus 2020. It seems to be working.
Edward: Sam, this has been great. Thank you so much for being on the show today. Before you go, can you tell me about your quake book? The book that you read that changed the way you think about the world.
Sam: Absolutely. It is The Three Marriages by David Whyte. He is a poet-philosopher who does an awful lot of corporate speaking engagements. He basically says work-life balance is [...] for two reasons. It implies that there's a static balance point that you're trying to get between work and life and two, there's no place left for the self. He says that in life you have three marriages. One, your traditional marriage with your significant other, two with your lifelong work, and three with yourself. Each of those marriages is a conversation, and each of the conversations is in conversation with each other. It sounds high-level, highfalutin poetic. It was one of the most profound things I've read. It helped me get more effective at work and think about work differently and the relationships for the rest of my life.
Edward: Sam, thank you so much for being here today.
Sam: Thanks, Ed.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com -
Sam Heath and I worked together at McKinsey many many years ago. He is now responsible for marketing Tim Horton’s in Canada (where it is by far the largest quick service restaurant chain), and Timmie’s fledging business of selling its product in grocery stores. Last year, out of nowhere, Sam’s heart stopped and he “died”. We explore how that event affected him and his overall career in this episode. Next week we dive into Tim Horton’s - both the stores and the CPG products - and how he is growing the two inter-related businesses.
You can also listen to these interviews in your podcast player of choice: Apple, Sticher, TuneIn, Overcast , Spotify. Private Feed (for premium episodes).
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Transcript:
Edward: My guest today is Sam Heath, head of retail for Restaurant Brands International. That's the CPG group for Tim Hortons. Today, we cover Sam's path to overseeing the restaurant chains, the entire CPG business—Brown, McKinsey, OLG, Burger King, and Tim Hortons. I worked with Sam when we were both at McKinsey Canada. I'm excited to chat with him today.
Sam, in 2015, you were the Senior Director of Innovation for Burger King, but then you left that to run all of marketing for Tim Hortons Canada. You've never had a marketing title before. How exactly did you get that role? How did you jump from running innovation to running marketing?
Sam: At the time, Burger King was a little bit crazy in a way that I describe match my type of crazy. They took people that had done well in whatever roles that they'd had and gave them more stuff to go do. I'd look at marketing. I've done analytics. I've done other things like that, but I'd never done the actual direct-to-consumer go get impressions, sell the product, sell the brand marketing. It was a really pretty big jump. It was taken by the people I work for on faith that I could do a good job at it.
Edward:At that time, Burger King owned Tim Hortons. It was one organization.
Sam: When I joined, it was just Burger King, but when they moved me up, it was about a year after the merger had happened.
Edward: You had delivered for them around innovation. They said, hey, we trust you to run innovations. Now, we're going to trust you to run marketing.
Sam: For the most iconic brand in all of Canada, yes. Go from this team of six people that are sampling hamburgers in the test kitchen. Why don't you take over this team of 70 with a $300 million marketing budget up in Canada?
Edward: Why did they think you were capable of doing that? I know you're capable of doing that, but why did they think you were capable of pulling that off? That seems like a big risk.
Sam: It is a big risk, but it was taken by people who had taken risks like that at Burger King and seen them paid off. They also were willing to replace me if it didn't look like it was working.
Edward: You said they took risks like that before with you, or are they just risk-takers in general?
Sam: Just risk-taking in general. It was very much the culture of the organization. This was a bunch of people who looked at Burger King and said, this is a good brand—it's just clearly not doing well back in 2011—bought it and said, we need to change everything to turn this around.
They went from a 300-person organization in 2011 when they acquired Burger King, I think about 20 of those people were left when I had joined 2½ years later.
Edward: When that opportunity came up, did you put yourself forward for it, or did they come to you and say, hey, we have these gaps. Sam, can you step into it?
Sam: It was very much the second. They said, we have this gap. The semi-annual upside is what's happening. I got invited there under the pretense of making a presentation on something else. When I met with the President, Tim Horton, he said, congratulations, we've got a new role for you. It was a jump of a couple of levels, at least, and an order of magnitude more responsibility.
Edward: What do you think when you do that? Did you think you had the marketing skills to do this? Did you think you're going to figure it out as you go along? What was going through your mind?
Sam: I've always been interested with everything that's going on around me. It's not like I was ignoring the media advice and the creative that was happening while I was designing hamburgers or working on pricing. I just liked to see how things plug together and organize, and I trusted myself to learn the pieces that I didn't know. Also, as you get more senior, you trust yourself not to need all the details and build a team that's capable of filling in for your own gaps.
Edward: What skills did you think you were missing going in? What did you think that, hey, these are the things I need to figure out fast if I'm going to be successful on this job?
Sam: Honestly, all the pieces that people traditionally think about as marketing—creative review, creative design, how do you translate what the brand stands for into what you're actually saying in the advertising, going from overall marketing strategy down to campaign, sliding down to briefs, down to approvals of the creative that's going out on television, digital, and other places.
Edward: Now you think you know what you don't know. How do you go about getting those skills? What did you actually do to be ready?
Sam: The previous CMO did a great job of setting me up for that. I had his team to rely on. Clearly, Tim Hortons was a brand that had had a positive store sale count for over 20 years. They had a team that knew how to do this. Just being gentle and being careful. Just being given a job doesn't mean you need to change anything. Often, you're a caretaker for what came before. It's a mistake marketers make to say that, well, I'm here now. I need to change everything. Rule number one should be first, do no harm.
Edward: It's interesting. Oftentimes, when things are going well, that's not when they replace the head of marketing. Here's a place where they replaced the head of marketing. They brought you in but things were already going really well.
It feels like that's a time when you hire someone who is a caretaker marketer, but you're in a place where they brought in somebody who wasn't even a marketer at all. That almost feels like they want to shake things up, but in this case, they didn't want that.
Sam: There was, again, that culture piece from Burger King of risk-takers, people who want to be bold and change things up. They wanted to put that culture in place at Tim Hortons. They wanted to maintain the results but still move over to what is now the RBI culture of being a bit more bold and taking a few more risks.
Ultimately, if you look at the performance of Tim Hortons in the few years after that happened, there was a bit of a stumble. It was a bit of a mismatch for the brand. We can talk about strategically, whether that was the right choice, but that's the position that I was placed in.
Edward: That's interesting. I'm thinking about you, particularly, rather than the company. How do you think about changing things up and making things better when you don't have a lot of expertise? You're reliant on the team because they're the experts on this, but at the same time, they hired you on to change things. How do you make those changes without messing things up?
Sam: If you have learned how to do a new job enough times, you start to get an idea of what it feels like to learn a new job. You know that there is a structure that you're trying to understand, a set of processes, a set of routines, and things that are done for particular reasons. You have an idea of what that wheel looks like once you do understand it as you're trying to figure out.
Taking that meta approach to learning a new job while trying not to disturb things, what I try to bring to that was I like to measure everything. I like to have a bottom-up roadmap or scorecard of how things fit together so that we can see whether things are going well or not.
Often, that type of high-level organization, that connective tissue that plugs together all the little bits and pieces that marketers are doing every day, every week, every month, that I found is where I can usually add value and help people see what they're doing better.
Edward: I want to go back and talk a little bit about the path that got you there. What were you passionate about when you were 12–14 years old?
Sam: I was passionate about Space Lego and role-playing games, whether computer games or specifically, Dungeons & Dragons.
Edward: Do you think diving into Lego, diving into D&D affect your later life at all? Did you develop skills there that play out today or was it a one-off and it didn't really matter?
Sam: I'm not sure that I developed skills during Lego and D&D that changed me. I think it's more that I chose the things then that I liked doing and I honed skills that I may have already had.
Lego is a lot of organization, seeing how things get put together, and being patient as you meticulously follow these rules to achieve a great product. D&D is just a really interesting game. It lets you explore everything from how rules create conduct in the world to all sorts of other things that are useful for managing around the management table.
Edward: Let's go forward a little bit and talk about your first job. In your first job, you were a bike courier?
Sam: Pretty much, yes.
Edward: Talk to me a little bit of what you learned as a bike courier and how that affected things later.
Sam: First, just to set the stage, in the 90s, there were a lot more bike couriers hopping around than there are now. You've probably seen a few in cities but they have largely been replaced by Adobe Acrobat, esigning, and things. There were hundreds in Vancouver.
Edward: This was not a food delivery. You aren't Postmates of the 1990s?
Sam: No. I was doing bank deposits, getting documents signed, dropping off documents to be signed, everything else.
At one point, I showed up at the bank and realized I've been riding around with $40,000 cash in my backpack for the previous 1½ hours. People would hand you deposits. It was interesting, which was for some reason really motivating and inspiring for me. It felt like I was the grease that was helping the wheels of commerce keep turning. I was helping real estate deals get signed, seeing big contracts get closed, seeing how and why people were soothing each other for different things because these were the documents I was carrying around.
Edward: You became aware of that stuff or was it a matter of, hey, Sam, take this piece of paper and get it across the street? It was like you've learned what the pieces of paper were for and the impact of your decisions were.
Sam: You do because people don't call a bike courier when a document needs to get there eventually. I would show up at offices seven minutes before a bank six blocks away was going to close and something you needed to get to the back before close. They wanted me to know how important it was.
There were times I was delivering legal depositions or summons and I couldn't deliver it. I would go back and give a statement that would get taken down and taken to court.
People would talk to me. People like talking to people. I was friendly and personable. I learned a lot more of how these businesses were running and people would think I would.
Edward: It's almost like those stories of the guy working in the mailroom who learns how the CEO operates and then moves up to the ranks.
Sam: The secret of my success.
Edward: You got your PhD in Computer Science. What were you planning to do with that before you actually left the world of academia?
Sam: I planned to leave the world of academia since I realized that I was in the world of academia pretty much. I thought that getting a PhD in Computer Science would be a good way of getting a good-paying job as a teacher. I like teaching people. I like helping other people understand problems and dive their way through things. Once I realized that all I had to do was research and that was what I've built myself a path to, I got out as fast as I could.
Edward: You went to McKinsey. Why did you end up in McKinsey?
Sam: I ended up at McKinsey because they dropped off a stack of brochures in the mailroom of the computer science department where I was at. A friend of mine said that one of his high school friends went there. They were smart, liked it, and so would I. It was no more strategic than that.
Edward: On that note, I want to jump ahead a little bit. In 2013, you joined Burger King to develop their pricing strategy. After spending a bunch of time doing strategy at McKinsey's, strategy at OLG, you're doing more strategy at Burger King, but then you left a year later to run product innovation. That seems a pretty big switch for someone who had been spending their career doing strategy. How did that happen?
Sam: One thing, you may have guessed from why I decided to leave academia, every time I've tried to make a strategic choice or plan out who I want to be in five years, I've been spectacularly wrong in my career. A decent explanation of what strategy works is the questions that clients don't know even where the question fits. It's not even that they have a question they don't know how to solve. They don't even know where it fits. They go, oh, it's not operations or it's not marketing. It's a strategy. Let's call in somebody.
Edward: It's the other.
Sam: It is really the other bucket. After a career literally of answering the random questions that nobody could figure out how to answer, I got pretty comfortable with just jumping into, this topic looks interesting. I'll go do that now.
The opportunity came up in Miami to go do pricing for a year. I did that. Because I correctly guessed that Burger King was a company with a culture that was pretty well-attuned to how thought, after a year of doing pricing, they said, hey, why don't you move to the test kitchen and figure out what sauces we should put on our original chicken sandwich and extra-long cheeseburger? You seem like you might be good at that. I'm like, okay.
Edward: It is interesting the way you describe it because it feels like coming from a career in strategy, people think of strategy as, hey, what's the five-year plan? What's the 10-year plan? But for your own career, you're saying that strategy is the last thing on your mind.
Sam: It could sound like that, but in my experience, strategy isn't a bottom-up, let's think about what we should be doing in five years. It's more a matter of, we're doing a bunch of stuff and we don't know how it fits altogether or we don't know that it all makes sense. Can you come in and take a look at all the things we're doing and make sure that there is a connection to our underlying core of who we are as a company?
I think of strategy not as a bottom-up, high-level thinking but more of an organization, seeing how things that a company is already doing fit together. I think that's similar to how I've thought about my own career. We can figure out how it fits together afterwards. It's more a matter of making sure that the individual ideas make sense at the time.
Strategy is looking across things going on and plugging them together. Career decisions are doing things and figuring out how they fit together afterwards. You've probably got a pretty good intuitive idea of what you want to do next.
Edward: It almost sounds like strategy is story-telling.
Sam: I think that's very, very much the case. You need to help senior executives figure out how to tell the story of who they become as a company.
Edward: Your career is almost the same idea. You do the things. You take opportunistic chances. Then, after the fact, you can go back and tell a story about how it all fits together.
Sam: Which interestingly, if you go back to when I was 13 years old and running a Dungeons & Dragons game, sometimes, your players just do stuff. You go, yeah, that makes sense. I can fit that together into the story I'm telling. It's not that it was pre-planned. You're just working with what exists.
Edward: Sam, what were the biggest failure points in your career? Where did things not go as expected?
Sam: I think if you look at any of the times I've switched companies or switched careers, that's when I realized that the current plan that I was on wasn't working anymore. I [...] those things as failures. I spent five years getting a PhD that I realized four years in I did not want. At one point, I realized that I didn't want to be a consultant anymore.
There haven't been any spectacular failures where people have come to me and said, you've really disappointed us and we're going to fire you now. Instead, I'm more a matter of the thing that I thought was interesting. It evolves or changes in a way that I no longer like or I evolve and change in a way that I'm no longer interested in. That happens every 3–5 years. We just change.
Edward: Sam, you're now a head of the retail of Restaurant Brands International. I want to cover more of that in part two, but I want to touch on an experience you had last summer, if you're comfortable talking about it. Tell me, about 40 minutes last summer, you died and they managed to bring you back to life. In a movie, that would cause you to reevaluate everything in your life and change who you are and what you think about. Did it do anything like that for you? How did you change after that event if at all?
Sam: That's a really good question. For anybody thinking about business was spectacular, it would be like a scene from the most over-the-top hospital drama you've seen. The first defibrillator did not work on me. They had to go find an antique one that happened to put out more power. That's what eventually restarted my heart back to life.
I thought about this and I still think about whether I should be reevaluating my life, but my approach of, am I happy with what am I doing right now and if not, then I'll go find something else to do has served me pretty well. I haven't spent 10 years chasing a goal that's 10 years down the road in the hopes that once I achieve it, I'll be happy. I try to make sure that I've enjoyed what I'm doing along the way.
I came out of that. Actually, the first thing I did was send a selfie while I was still intubated to my Microsoft Teams group at work saying, don't think I'll be in at work today. I was back on the job within 8 weeks of meeting 39 minutes of CPR with a very talented team at the Toronto General Hospital.
My reevaluation of my life ended up not really being one. I'm still pretty comfortable with the choices I've been making.
Edward: Sam, what are your productivity tricks? What do you do to be productive that most people don't do?
Sam: You're either doing things or you're not doing things. If you're doing things, it's less of a worrying about focusing on staying on one task or focusing on the highest priority item, than continuing to work on it until you lose momentum, you lose steam.
I would rather finish 60% of one task, get distracted, go to 50% of another task, go back to the first one, and then force myself to finish something after I lose interest. As long as I am being productive, I don't really worry necessarily whether it's my top priority item or third or fourth in my priority list. I just enjoy the fact that I'm getting things done.
Edward: There's something about that. Like prioritization is overrated in that you're much better just be getting something done than spending a lot of time trying to optimize for the right thing to do.
Sam: Things are either important or they're not. If they're not, they shouldn't be on your list. If they're important and they're on your list, as long as you're doing anything, you're doing well.
Edward: I read somewhere—I can't even remember who it was—their model of as long as your distractions are also something you want to get done, then you're fine. If you stop doing what you want to do because you go and spend time on Facebook, that's not so good. But if you're stopping doing project A because you're distracted to do project B and then you get distracted and start working on project C, you're probably going to be in a good place by the end of the month.
Sam: Yeah. That's exactly right.
Edward: Sam, this has been fantastic. We're going to pick this up next week under my new publishing model. We'll pick up with part two. We're going to dive into Tim Hortons’ business.
Sam: Right. Thanks, Ed.
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My editor lost Internet yesterday causing the Tuesday essay to be delayed. It will be released later this week. In the meantime here is part two of last week’s interview.
My guest today is Charbel Zreik, managing principal Manifestation Capital. In 2012 Charbel founded a search fund, purchased DCI (a hospitality-focused telecom company), successfully turned it around, scaled it to a national footprint and then sold it. He now advises entrepreneurs attempting to scale similar sized businesses. This is Part 2 of the interview where we talk about DCI and how he turned around and scaled the business. Yesterday we explored Charbel’s career and path to CEO.
You can also listen to these interviews in your podcast player of choice: Apple, Sticher, TuneIn, Overcast , Spotify. Private Feed (for premium episodes).
Transcript
Edward: This is part two of my interview with Charbel Zreik. Today, we're going to dive into his experience as CEO of DCI. Charbel, can you start by explaining what DCI does or what they did?
Charbel: Yeah. DCI—when I acquired them—went into hotels around the country and put in telecommunication systems. They put in the phone systems that managed all the phones in the room—including putting all the phones in your room, but also they put on the telephony that managed the call center, the software that managed the call center where the calls came in to make reservations and things like that.
At the time, they had just started doing WiFi management. Going in and putting in all the access points to transmit the Wi-Fi, to design the WiFi system, and what’s going to get perfect WiFi coverage in a hotel. As well as take the calls from the hotel guests when they couldn't connect to the WiFi system so that it's remote monitoring of the system and remote help desk support.
Edward: Was DCI a commodity then? I assumed that you didn't have a monopoly on this business all across the US. What did hotels do, that you weren’t using you?
Charbel: Yeah, we did not have a monopoly at all. Mostly they had other service providers like us. But sometimes they had local guys—just random Joe Doe, two men in a van that went around and did IT support for the local hotel. Yeah, we had local competitors. There were 10 or 20 other national competitors like us doing the same thing. And in the rare situation, they had their internal IT guys doing it.
Edward: What made you different from the other 10 or 20 other companies doing what you guys are doing?
Charbel: At the end of the day Ed, it was two things. One was just service. Literally, the reputation that we had around jumping through hoops and being able to contact the owners at DCI in the middle of the night when things went wrong to make sure that you weren't getting some random person in a call center, but you were getting the highest level of expertise to solve your problems. That was one thing.
The second thing was that we did more than one thing. Yeah, we were just starting out on WiFi at the time. But when we did the telecommunication system and the WiFi system, they really liked that because it was one throw to choke and it wasn't having to go to multiple places. Because these systems ultimately were interdependent on each other.
Edward: Most of your competitors were doing one of the two?
Charbel: Most of the competitors, exactly.
Edward: If you’re a hotel, you’d have a WiFi provider, you’d have a telephony provider, and you guys come in and replace them both?
Charbel: Exactly, and sometimes, when one went down it was the fault of the other. To troubleshoot it, you'd have to go through the process with the first vendor, and then they'd be like, hey, we can't find anything. Our system is saying it's the other vendor that's down. You're going back and forth between the two to try to figure it out.
Edward: What did you see when you made the acquisition? What was the opportunity there that you thought you could buy it and make it worth more than what you bought it for?
Charbel: There were probably three things that I would point to, Ed. One was the fact that they were just starting up in WiFi, and I saw WiFI as critical and central to the success of the user experience at any hotel. We all know that anecdotally. It’s really important to have great reliable internet access at a hotel for a guest because that was a growing part. I was like, okay, if we could take that part and really scale it, we can have a much more valuable asset, number one.
Number two is I saw six owners who were technical geeks. They were very skilled in their technical trade, and they had two guys outselling. I thought that we could come in and slap on a sales and marketing engine, attach it to this great technical know-how, and really scale the company from there.
The third thing I saw was phones were a dying technology in hotels, no one was using the phone in the room anymore. But there was an emerging technology, which was taking these phone systems and making them remote, making them hosted—putting them in a call center. You’re deploying these voice systems at a fraction of the cost. Because even though people weren't using them, they were still important and necessary for 911 regulation and other reasons. Bringing in this hosted voice concept was something that I saw that was emerging in the industry that I thought we could really take advantage of.
Edward: How is the company getting new clients? You talked about a sales team. There were two sales guys. Was it all inside sales? They would just call hotels and ask if they wanted the service?
Charbel: Pretty much. That was the main thing they were doing. They were working one hotel at a time. One relationship with a general manager or IT director at a time. The head sales guy, who was super talented at the company actually, was also forming a lot of partnerships with, for example, the guys that did the original construction or the cabling that pulled the original cables for the technology in the hotel. Those guys will pull them in on a project, and then likewise, he would pull them in on his projects.
There's a lot of different components in a hotel. There’s the mini-fridge, there’s the in-room controls, there’s the audio-visual. There’s a lot of different components. He was really in the middle of that ecosystem and would count on a lot of cost referrals to happen.
Edward: How many of your new clients then were new hotels versus finding an existing hotel to switch over to you as a service provider?
Charbel: It was probably 20-80. 20% were new hotels and 80% were us gaining market share by infiltrating the market. That’s just sheer numbers. The hotel supply only shifts between 2% and 4% every year. By definition, there were just not that many new builds every year. We were capturing more than our fair share of new builds. But still, as a percentage of our own business, shifting existing properties was probably closer to 80% of it.
Edward: How do you get someone to switch then? If I'm a hotel and I have telephony—assuming it's working and the WiFi is working—why would I switch? Or is that the opportunity? You jump in when something goes wrong.
Charbel: Yeah, you hit the nail on the head, Ed. You got to stay around. Have a great reputation. And when something goes wrong or the contract is expiring—a lot of times it were contracts, especially on the WiFi side, there were three-year contracts—you would come in and build that relationship. Or if you're doing telephony already, a big part of the opportunity for us is going to the guys where we do telephony and say, hey, when is your WiFi contract expiring? Why don’t you give that to us in addition to the telephony and just have one less vendor to manage? So that was part of the value proposition.
The other part was you’re always looking to do something new and innovative no matter how small it was. On the WiFi side, there was much more room to innovate. We were fortunate enough to team up with some more innovative brands along the way. Those customers pushed us to innovate.
For example, Kimpton was one of our customers, and they were really paying a lot of attention to the user experience. When a guest walked in from one Kimpton to the other, they wanted to recognize the device and say, hey, welcome back, good to see you. Because you're a loyal customer, here's level two free access of 15 megabytes for you. That's for free because of your loyalty to Kimpton. We're doing some innovative things like that. That helped differentiate us and helped us win some new customers.
Edward: Before you were there, there was no marketing function at all. You planned to build a marketing function. Did you actually build one? Is marketing important?
Charbel: You really bring out my humility here because I never actually got around to building one. That, I would say, held this back from really turbocharging our growth. I really focused on sales and I grew that team from 2 or 3 people to 17 people by the time I left. It was a really strong emphasis on sales and creating multiple departments within sales, account manager, and things like that.
I always had one of the more junior salespeople also contributing on the marketing front and trying to do that. We have a baseline marketing function. We went to a lot of tradeshows, spent money on the in-person type of marketing events. But we never had a marketing machine that could make our cold calls a little warmer.
By the time we're reaching out to totally new customers, they would have seen our brand, they would have gotten a pamphlet from us, they would have seen our newsletter. We never really had that. That was going to be the next step that I never really got around to before selling.
Edward: It's hard when you try to build something new like that. It takes a while to build, and not only does it take a while to build, once it's built, the impact of that is also spread out over a long period of time. If you're in a place where you're planning to hold the business for five or even eight years, unless you do that right away, it's hard to see the return on that investment in the time that you want to sell.
Charbel: Totally right on. I ended up signing that company in a little bit under four years. It ended up happening much faster than we thought. I felt like the low hanging fruit early on was really all about sales. Especially because these guys were going out to one hotel at a time, and one of the major things that I did was go to the national brands. Walk into Marriott Corporate or walk into Starwood Corporate and really start working more closely on that corporate level, and doing everything that needs to be done in order to accelerate traction at the corporate level.
They had a couple of corporate accounts when I came in, but a place like Marriott, for example, that demands so much of a company in terms of its infrastructure and its processes, they did not have the whereabouts to get into before I got into the company. Really doing that major account management, I felt like it was a lower hanging fruit then gearing up our marketing function.
What's interesting is when we were acquired, our acquirer combined us with a company that does TV for hospitality. Now they have a phone, WiFi, and TV all in one, but those guys had really tuned up their marketing function. And then when you talk to their sales team, their life was so much easier than my sales team. My sales team was working so much harder without a marketing function than those guys that had a really well-honed marketing function. All their initial calls we're that much easier.
Edward: I believe it. It's one of those things where it's hard to see until you have the contrast happening right in front of you. Because we have built a marketing organization, three years later your sales team had it much easier, but they wouldn't remember three years earlier when they had it hard.
Charbel: It's so true, man. It's so true. It's one of these interesting things. And I, myself was a victim to that type of thinking. It was very hard for me with all the urgency that I was feeling. With a quarter to quarter targets to hit, it was hard for me to really think of a longer-term strategic initiative like marketing. Sales just feel a little more controlled. How many people did you get out in front of? How did the conversations go? It just feels a little bit more controllable. But when I finally saw it, I was like wow, okay, now I really understand the importance of marketing.
Edward: A fast feedback cycle, you also know whether you’re doing it right or not. If you hire a bad salesperson, you're going to know pretty quickly. If you're doing bad marketing, you may not know for quarters and quarters and quarters that it's actually bad. It all depends on how well the person spins it—who tells the story rather than how effective they are.
Charbel: Yeah, that's a great point, too.
Edward: So much of what you were doing, the execution was important. It was less about having the perfect strategy and more about executing really well, and that relies on having really good people. In a business like yours where you're not like a Facebook or a Google, you're not even a Verizon—you're selling telephony to hotels. It's almost the opposite of a sexy business. How do you attract really top talent that you need to succeed in a company like that and have awesome execution?
Charbel: Definitely one of my top three challenges. If not the top challenge. It’s very difficult. And on top of that, we were located on Long Island—nothing against the Island. There's a lot of wonderful things about it, but it's a tough place to pull. It’s not New York City. You couldn't live in New York City and work out of our office. It was just too far. It was a challenge. It really came down to, I really, really believed in the vision of the company. I had a very clear vision to be the number one converged network provider of IT services to the hospitality industry in North America.
My vision was very clear. I knew what that meant in numbers every year all the way through year five. I knew what that would likely mean in terms of an exit. I would just paint that vision and I incentivize my top managers with equity. I'd be able to also dial it back to an exact dollar number that person would get if this vision became a reality.
That's really what I would do. I would talk to these great talented senior managers and I would share with them my excitement, my vision, why we were poised to really do well on this market, and what that would mean for the company, for the investors, but also for them personally. I think that really helped us to get a couple of players that made ultimately a lot of difference.
Edward: A lot of what you’re doing—it was this awesome, awesome execution—was very similar to what a McKinsey turnaround process would look like. Was there anything that was not in the traditional McKinsey turnaround playbook that you used to be really successful and turn this thing around?
Charbel: Yeah, absolutely. I think there were a lot of grassroots things that I had to do that we would have never talked about at McKinsey. For one, I stepped into a culture that was very insular, very close-knit. Getting the allegiance of the people inside the company was very challenging. It took a combination of, for one, I gave equity down one notch to about the next 15 or 20 employees. That's something that not only McKinsey wouldn't do. My board was like, hey, you're crazy. What are you doing? Why are you getting so many people on the company equity? We never do this. We give like two or three people equity and that's it.
But I was in a company that had a lot of talented people. I felt like it was important for me to really let them know that this is, I'm coming in, I'm going to demand more of them, but it's not just going to be about me. The return is going to be for all of us. Spreading that equity down the chain, even though it was very much unique and unpopular with my investors, I think ultimately helped me be successful.
I also just formed very personalized relationships and understood individuals’ motivations. My top sales guy was a very talented guy and was producing amazingly well when I came in. But I got to know him and I got to really build a lot of trust between the two of us. I got to know him, his quirks, and the things that drove him really well. I just developed every year a custom incentive plan for him. Like literally given his personal situation. Was he buying a house, was he not buying a house? What worries you moving through the time?
I was able to triple his productivity, and he was already producing at an amazing level. That's because we formed such a close partnership, trusted each other, and I was able to tweak the incentives in a very personal way. That's something else that comes to mind.
Another thing was just being very entrepreneurial and going with your gut. I remember, soon after I came into the company, I had a call with Marriott who we’re trying to win as an account. I remember the guy at Marriott, this brash guy from Boston literally yelling at me, being like, Charbel, I don't care about McKinsey or Wharton. I don't know what you think you're doing here. I don't care about any of that. At the end of the day, you've got a shitty product. I'm not going to put it in my hotels. Call me back when you got a better product. Click.
Within two months of that phone call, that guy at Marriott was on my team. He had quit Marriott, he was working for me, he was incentivized with equity around building that new product that he had wanted to build. Doing things like that—you're not going to find in a book—it's just the opportunity comes your way, you have to recognize it, and you have to go with your gut and move quickly.
Edward: That's amazing. You managed to call him back and offer him a job?
Charbel: I managed to call him back, have very careful conversations around his interest in working with me, and then I had to figure out how I pull it off without pissing off Marriott. It was a very fine dance between interviewing him, screening him, and making sure he's the right person for the job. Then allowing Marriott to be part of the decision and to give me the blessing on me hiring him, and really just do the dance around that to make everyone feel like we're doing the right thing and not screwing someone who ultimately became a very important customer for us.
Edward: Charbel, this has been fantastic. Really, really impressed with what you built there and the fact that you turned around and sold it in four years. Before you go, can you tell me about your quake book? The book that really changed the way you think about the world?
Charbel: Sure. There's been a few of those. But for me, the really, really influential book on me was the book written by Eckhart Tolle called A New Earth. That book, in some ways, talks about a lot of the things that we talked about with regard to meditation. But really puts the onus on one, to become aware of this precondition mental state that we’re in of the fact that our mind tends to run rampant most of the time.
There's a lot of benefit and power that could be obtained by coming into your body, coming into the present moment, coming really into a fully integrated power of being, if you will. I really had that message solidified in me through Eckhart Tolle's A New Earth. He also wrote The Power of Now, which is more popular and has a very similar message. But for me, A New Earth was really his masterpiece that made a big influence on me.
Edward: Thank you so much for your time today. This has been fantastic.
Charbel: Thanks so much, Ed. I have a lot of fun. Appreciate it.
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