Shopping carts and business models

The government of Quebec announced an initiative to help stimulate the local economy.  The program seems pretty simple enough. It’s an online marketplace where consumers can find curated local merchants. Consumers benefit from local options, merchants benefit from increased demand. Et voila! One small step towards helping the provincial economy. 

It is a laudable effort to protect and promote local businesses that are surely suffering from the current pandemic.  That being said, In its current form, I believe the program to be insufficient to achieve any tangible outcome. This can of course be step one of a larger effort so I will be cautious before passing final judgement. 

The website is merely a directory and does not offer any transactional capabilities. That by itself is not the main reason it will not work. To achieve any tangible and sustainable outcome, the government must think about a bottom up & long-term effort. Local merchants must be better equipped to satisfy & delight customers and
offer their services online. The government must invest and enable new companies to be at the forefront of this transformation. 

What is different in the internet era is that consumers have all the control; and consumers go where they enjoy a better shopping experience. That is the reason large tech companies dominate. They simply provide a better service. Shifting ingrained consumer habits cannot be altered with a top down dikat. It must be earned with hard work and by helping local merchants better compete. 

Putting dollars to work

Luckily, political leaders have been making concerted efforts to invest in a more sustainable and local economy. Funding in startups from venture capital, private equity firms from the government has given rise to a booming technology sector. It is time for the government to take the next logical step and start a more comprehensive digital maturity program for the entire economy. The crisis can be a great excuse to take drastic measures that otherwise would have not been accepted. 

Get online now

It is painfully evident, local merchants need to have transactional capabilities as soon as possible. Many retailers I’ve spoken to during this crisis are seeing their online numbers explode. Yet a large percentage of Quebec merchants are simply inexistent online and not benefiting from this channel. Businesses need to accelerate their shift to ecommerce. A quick way that the government can help is by providing tax rebates to companies that invest in their ecommerce. 

Customer acquisition

The next step to bolster local businesses is to help them acquire customers.  Unfortunately, there are no shortcuts here. Local companies need to get good at digital marketing. And yes, that means boosting their proficiency on Google and Facebook in particular. To win online, you need to be where the demand is. Quebec consumers are overwhelmingly using these platforms as their primary information destinations. To acquire new customers, local merchants need to understand how these platforms work and invest accordingly. Local service providers like marketing agencies, development shops, etc. can provide a big step up. There is a deep talent pool in Quebec of digital experts that can help. There are no more excuses. 

The fact remains, we’re still stuck paying the piper (e.g. big tech). Long term, I believe there is a way to reduce dependence on these platforms; retaining your customers.

Retention is the key

Local merchants need to be able to provide the same level of service than their larger & more well capitalized US competitors. This isn’t easy, the biggest piece that needs to be solved is last mile delivery. There are many innovative startups in the space like RenoRun that solve that challenge in home renovations. The government can fund startups that are working to figure out this important hurdle. Companies like Intelcom offer this service as well but more competitors and options are needed. 

Amazon has a massive head start in its logistics and prediction/recommendation engine. Competing with the company head where it is strongest probably isn’t a good idea. Local companies have the advantage of proximity, high touch customer service and niche goods. We need to find ways to emphasize those strengths. If we can remove the biggest barrier which is easy online ordering and quick & cheap shipping, local merchants have a better chance of satisfying customers and keeping them long-term. Innovative business models like subscription will help merchants create a sticky consumer habit. 

What about the media in all of this?

I’ve argued for significant investment online and in startups and unfortunately none of this will go to local media – who are probably in dire straits right now.  I’ve long argued that the current business model of advertising in media is misaligned with consumers, the only alternative is having some form of direct reader contribution.  Tax breaks to consumers that subscribe is one way to lighten the burden of the media. Given the small population base, the NY Times or Washington Post subscription model won’t save the media alone. Local media need to diversify their revenue streams away from advertising as quickly as possible. I don’t have any silver bullets here but it is something that needs to remain top of mind for elected officials. Unbiased investigative journalism costs money and the traditional advertising complex is no longer a sustainable business model.  

Bigger vision needed

There are many industries that need to be reimagined once we get past this crisis. Some have brilliantly argued on how to do this. From areas like agriculture to health care to environmental sustainability, we need to build a more resilient economy that can face large scale threats like global pandemics. The short-term limits of globalization seem to have been reached. By having a strong buy first local economy, we will be able to weather future storms more effectively and perhaps come out even stronger. 

Schism

Photo by Jazmin Quaynor on Unsplash

What’s happening today is a human tragedy on a scale not seen since the second world war. It is most likely the most important global event in 70 years. It’s difficult to think about anything else than the human costs of this pandemic; death and misery is all around. As a means of escape, I’ve been thinking about this will mean once it’s all said and done and life comes back to “normal”. I took a deep breath last night and thought about this means moving forward. 

What this crisis is demonstrating is that many of our past behaviors will no longer make any sense in a post-pandemic world. The rise of connectivity have changed our behaviors, culture, economy and politics over the past two decades. Yet, these changes have coexisted with an industrial world that still believes previous ideologies dogmas. The shock & awe of forced confinement has laid bare many of these ideologies and is accelerating the transition to the knowledge economy (acceptance). After the crisis subsides a new reality will emerge with entirely new economic, social and political structures (acceleration). 

The future is yet to be written and it’s up for us to decide on what is acceptable and what is not. What I’m betting on is that everyone will embrace new mental models much more deeply than before and this will have important repercussions on the economy.

Acceptance

There is a cohort of people that don’t find computers intuitively easy to use. This is mostly due to the fact that they are not required to in their work. Which makes complete sense. It may seem quaint but the reality is this group makes up a large portion of the workforce and one with significant decision making power. This group is now being forced to work remotely, learn to engage with these tools all day long. A close friend of mine runs IT at a large university and he had to connect thousands of people to work remotely literally overnight. It is a drastic crash course in using digital programs and gaining fluency due to necessity. 

Now multiply this phenomenon across every public sector, large traditional corporations. You get the point. Many people will gain digital fluency that younger generations take for granted. 

We’re already started to see it play out. Social media platforms used to be disparaged by many are now seen as indispensable. During the early days of the crisis, while many governments were still not fully aware of the severity of the situation. Twitter was an excellent resource for quality information. Given the lack of gatekeepers like traditional media, Twitter provided the soapbox for experts to speak out and alert the public about the coming danger. Social media is already pervasive in many people’s lives and will now only become more entrenched. 

Acceleration 

Driving somewhere, fighting for parking and then walking randomly down a shopping aisle will seem rather quaint in a few years. Ecommerce adoption has been soaring as a means of avoiding venturing outside, further accelerating an important trend in shopping behavior. Amazon is being seen as a public utility and the food delivery category is exploding. 

Commercial real estate will also undergo a radical transformation. Remote work was a cute novelty that only a few tech companies had figured out (hat tip: WordPress). It will now be a common question during planning. Should I hire these lawyers that work in an expensive office tower? Or hire the same level of expertise by a legal team that is distributed at a lower price? This will reverberate across the entire service industry.  We will surely see massive deflation in commercial real estate costs as a result. 

If you ever watch a late night TV show, it reminds you of a bygone era of Johnny Carson and a three cable channel world. The current batch of late night TV hosts are now forced to record without live audiences. They are alone  simply facing the camera; and they are very clumsy at it. They are getting a crash course in what it means to be a YouTuber. Authenticity across a digital screen is a key skill of any online personality. The mobile phone is the key interface to access information. Most people will expect to consume content from stars using this platform alone. Live audiences will still have their place, but it will be ranked second. 

Evolution

The importance of quality journalism is never as evident as it is during a crisis. We are relying on journalists every day to inform everyone of key developments. The challenge for journalism is that its business model was already in decline prior to the pandemic. The radical decline of advertising dollars during a recession will accelerate the rise of subscription based models or reader funded ones. Individuals reporting news & opinions will also likely increase given the ease of use of subscriptions tools like Substack. 

Remote services will touch traditional physical services much more deeply, for instance health will be transformed. Telemedicine is a relatively new model with companies like Dialogue leading the way. It is apparent that health care will also need to be more distributed and accessible. 

With millions of parents at home being forced to play the role of teachers,  the cookie cutter model of education will also be challenged. More personalization education will become the new norm. Online tools enable students to learn at their own pace and teach them skills that they are uniquely suited for. The Taylorist classroom will hopefully transform to something more measurable, personalized and meaningful.

Entrepreneurs and leadership needed

“You never let a serious crisis go to waste. It’s an opportunity to do things you think you could not do before.” This quote by Rahm Emmanuel sums up the thought quite well. Hardship will breed a new generation of entrepreneurs and leaders that don’t take into account conventional wisdom.

Many opportunities will arise. With a likely increase of nationalism and the decline of globalism, buying local will become a bigger focus. Micro-brands selling local goods will flourish. 

A crazy theory I have is that Mother Earth created this virus to give humanity a wake up and to stop polluting/killing everything. I hope that we see more companies working on sustainability projects. Private equity and governments will provide economic incentives to these businesses which will move us to a greener world.

This is an opportunity to do things better. Let’s use this godforsaken virus as an excuse to change things and leave the old world behind. 

Intellectual Honesty

I’ve discovered a superpower, admitting that I don’t know what’s going on. I know it doesn’t sound like much, but it is actually quite powerful. When confronted with a challenging problem with no obvious solution, I now find it much easier to admit to innocence rather than trying to pretend to know the answer. 

I believe that we’re all fooling ourselves all the time, consciously and unconsciously and this can have a pretty dramatic impact when dealing with uncertain situations. Having intellectual honesty is the only way I’ve found to stop deceiving myself and try to get to the right answer. It’s also a powerful social signal to show humility and let others know that the truth is the only thing that matters. 

When faced with a business problem though, it’s largely a matter of probabilities rather than one singular right answer. There’s a typical gradient scale that can be applied; is the issue operational or strategic in nature? It resembles the certainty / uncertainty curve. Strategic questions are usually uncertain and have a high degree of variability. These are usually big important questions like where are we headed, who should we hire, what’s the next acquisition we should make, etc and only the people running a company can tackle. A leadership team needs to avoid bringing a false sense of bravado and ego when faced with these types of decisions. 

Intellectual honesty & probability

Leadership teams large and small can benefit from trying to eliminate bias in their decision making. One way to neutralize the uncertainty component is with probability. Map out the degree of confidence for each potential course of action and dissect the question at hand. One simple technique our team uses is Wardley Mapping. It is a map of the structure of a business or service, which maps the components needed to serve the customer or user. Mapping is a great way to dive deeper into a particular challenge and get everyone around the table to debate each of the underlying components. 

Having a high degree of intellectual honesty is a short of ninja mind trick. It helps eliminate bias when faced with important problems. It also sends a signal to the person that you’re dealing with that you’re only searching for the best possible solution. Socrates said it best, “The only thing I know, is that I know nothing.” 

Boards, what are they good for?

Four times a year, executive teams scramble to prepare themselves for the quarterly board meeting. This simple gathering can take dozens of hours to prepare for leaders of a company.  The tradition has become routine and its importance unquestioned. I want to ask if we can make this process better. 

A small disclaimer, I’m not an expert on boards. I’ve served on a few boards of small companies and nonprofits. In my line of work, I also deal with many boards and see how our customers interact & engage with them. Even with this small sample size, a few patterns have kept repeating themselves. My goal is to call out what I see as improvements.

The bad

Boards have been around for a while. Corporate governance by a representative board is a reflection of political practices dating back to the late Middle Ages. The board’s role is to protect the rights of the shareholders. Its long history has created many different ways of running a board (which isn’t a bad thing) but led to an overly important sense of decorum. The main issues I’ve seen are: 

  • Not talking about the important stuff: Many boards resemble sales pitches from the management team. Akin to a business development meeting where everything is hunky dory and there are no storm clouds at all. 
  • Onerous documentation: Documents are also too long to follow. A plethora of financials, strategic plans and other paperwork fill up the board’s members inboxes and often mix up what the real priorities are.
  • Lack of strategic insight: The role of the board should be to help with important decisions (M&A, strategy, exec team hiring/firing, fund raising, etc). Oftentimes, the issues debated are minor in importance. At the same time, board members can be disconnected from the reality of the business. They are selected because of their track record and network but often fail to grasp core fundamentals of the business they are trying to help. Advice can be too theoretical and impractical. This isn’t a knock on board members but rather the ones that don’t do the work to properly understand what’s going on. 
  • Lack of diversity: The challenge of diversity has been well documented. Older white men make up the majority of boards and diverse opinions are not heard.

What is the job to be done?

The board’s ultimate responsibility to increase *shareholder value* and these days stakeholder value (which is an entirely different post). Boards are elected by the people that own the company and are meant to look after their interests. They provide help in two big ways. 

The ability  to hire and fire the CEO as well as provide strong governance on important decisions. I’ll focus on the latter; making better decisions. 

An important question is why are the meetings only once a quarter? Why not monthly? Why not every two years? If a board is to help with key decisions, I believe that sticking to a quarterly structure is incongruent where a company needs to be constantly adapting to the market. In the old world of waterfall development, this made sense. In today’s, companies are responding much quicker to the market. Increasingly, strategic decisions are being made every week or month rather than at the solemn quarterly meeting. In order for a board to be able to accelerate the velocity of an organization, there needs to be a faster pace. Engaging with the board needs to be done on a continuous basis.  

A key aspect of helping with important decisions is also taking advantage of the board member’s network. Senior board members don’t have answers to every single problem a company is facing but most likely know people that have gone through a similar experience. Using this pattern recognition can be very helpful for an executive team facing a big decision. 

Caring and getting along

Ultimately, a board member is there to help and their own self-image is reflected in the success of the organization. A board should be comprised of people that care about the company and that get along with each other. Getting along sounds a bit quaint but is actually super important. When there are tough calls to make, there needs to be an underlying level of trust and camaraderie. It’s much easier for the right decision to be made when people get along, especially during tough times. 

Resources

Here are some great resources I found while researching this post

Managing your startup board by Mark Suster

The art of board leadership by Mike Volpi

Designing the Ideal Board Meeting Series by Seth Levine

Eating all of advertising

If you believe that software is eating the world, then you don’t need to look much further than the advertising space for evidence of its existence. The ad industry has transformed from a world of gut feeling and intuition to one of data science and engineering. It has not been an overnight affair and we’re still in the transitory phase. What is clear though is that the endgame is near. 

The previous paradigm

I worked for 10 years in the ad agency world at the beginning of this shift where digital advertising accounted for less than 2% of the market. It’s now over 50% and it will not slow down. That world was relatively simple. An advertiser gave money to a creative agency to come up with a campaign for its brand. A media agency then came in, prepared a media plan by talking to publishers and then ran the ads across different channels. 

The skill set that translated into a successful campaign were threefold: 1) being able to pitch & win companies with large marketing budgets, 2) have strong creative talent that can create remarkable campaigns and 3) tough negotiation skills to obtain good deals from publishers. 

The immediate feedback loop for a brand was almost non-existent. The publishers would share data on the reach & frequency of the campaign (god, I hated GRPs) and post-campaign surveys would calculate brand lift. Of course marketers would measure sales lift of their campaigns but the causation was often tenuous. 

Sadly, most campaigns didn’t work. Across the industry, it was very rare that a campaign moved the needle for a brand. What made this era special is that once in a while, there were home runs and they succeeded in spectacular fashion. Some campaigns legitimately were huge wins for the customer. Most of the time though, a marketer had to use soft metrics to prove the value of their work. Thus the outsized importance of awards and recognition. The entire edifice rested on suspending disbelief. 

This has obviously all shifted towards what we see today. The duopoly of online advertising is here to stay and looking increasingly solid.  

The end game

With the inevitable decline of traditional media, all forms of media are being connected. There are some pockets of resistance, notably with live sports but most people’s attention is already being eaten by their phones. It’s pretty clear to say that when people spend their time on a connected device, their behavior can be measured. I know this sounds like Big Brother but it’s what is happening today. With the disappearance of the cookie in the name of user privacy,  the large tech giants are being entrenched. 

So what does this mean for capital allocation in marketing? It starts with getting good at data and software. 

You need to embed software engineers in your marketing department. Most mature startups are already doing this. Some companies benefit from direct API access on Google and Facebook (past a certain amount of investment). 

Second, you need to have data scientists to run cohorts analyses et al. and help the team with their investment decisions. 

Creativity absolutely has a seat at the marketing table. When it comes to advertising though, the business decisions are increasingly based on metrics tied to financial outcomes. Only a small percentage of spend will be tied to a non-measurable outcome. 

Implications for competitive advantage 

I used to believe that the overall level of maturity in digital advertising will increase. That a rising tide lifts all boats. This isn’t the case though. Most companies I’ve worked with haven’t been able to develop their marketing engine and hone this skill set. 

I really believe that there is still room to build a strong customer acquisition team which in turn can create a competitive advantage. This is obviously a blanket statement and there are many variables (market, business model, etc.) which come into play. 

It’s now about the bottom line

Marketing used to be an expense. The people running the company would allocate a percentage to marketing every year and it would not be tied to a financial outcome. The model has completely flipped. Marketing can now be measured as a revenue driver and as such has a seat at the table. 

The destroyer of worlds

“Now I am become Death, the destroyer of worlds”. Those were the words spoken by Robert Oppenheimer, the father of the atomic bomb. The world in 1945 was nearing the end of six years of total war. This is when a completely new technology was unleashed. This type of weapon class emerged marked a complete shift. With the ability to unleash the power of the atom, war and politics would change forever. 

The two main protagonists in the post-war era were the United States and the USSR. They would quickly build up their arsenal but also struggle with how to handle these new weapons. There were no norms and conventions around how to use this new technology. 

What ensued in the following two decades after 1945 is mostly terrifying. Both countries had hawks in their military which argued for pre-emptive attacks on the other side. The rationale was both logical and insane at the same time; wipe out the other side before they do the same thing to us. 

What’s also interesting is the decision on how to handle this power. There were many different nuanced issues which ensued in the following years. The US president was granted sole arbiter in the use of their nuclear arsenal which centralized power in one single person. Some physicists argued to share atomic secrets with the Soviet Union in order to build trust. Some people tried to put the genie back in the bottle which was impossible. 

I can’t help but to draw a parallel with the advent of a connected global population. There is simply no precedent and predetermined rules for an era where everyone is carrying a supercomputer in their pockets. 

Just like the nuclear challenge, this is a deeply multifaceted issue where there are many complex questions.

What does user privacy really mean? 

When you use your map app, you are sharing your location information every second of the day to a private corporation. At the same time, you benefit from the application every time you use it. This a simplistic example of a much more complex issue. The balance between user privacy and benefit is not well understood. To make matters worse, privacy tends to get lumped into the debate as well. 

How should regulation work?

It’s become quite apparent that applying 20th century regulation to current antitrust issues won’t work. Well intentioned legislation often has the side effect of entrenching incumbents. 

This chart below highlights the online ad market share of Google and Facebook in Europe.

When GDPR went into effect, lawmakers in Europe hailed it as a win for competition when in fact the opposite happened. Strong first party data will outclass third party data in terms of performance. The clear winners will be the two companies that own that information. What has since happened is that smaller ad networks could no longer compete. Furthermore, incumbents have more resources to adopt to the new rules whereas the smaller players don’t. I don’t envy the job of regulators that have to take network effects into account.

Should algorithms be allowed to make life or death decisions?

A lot of ink has been written on how self-driving cars will have to consciously take lives in the future. Does the car swerve to avoid a family while killing its older driver? While I do believe this is an important question. The bigger question is how tools made for death will change the face of combat. Drones can already hit targets from the sky while its pilots are located on the other side of the world. What happens when algorithms take the helm and start pressing the kill button? The future of warfare just like everywhere else in society will be increasingly automated. Will it be more moral to be killed by a smart robot? 

What is the future of censorship?

Access to physical media is in decline. Sure, I own a turntable but I would not give it up for my Spotify playlists. I’d like to know who will decide what gets censored and for what reason on these platforms. For instance, there’s a classic episode of Seinfeld called Puerto Rico day. Jerry and Kramer are stuck in traffic during a Puerto Rican parade. Accidently, Kramer lights the Puerto Rican flag on fire. Hilarity ensues as the crowd believes he did it on purpose. When you watch that episode today on a streaming service, you will not find that scene. Some people might find it offensive but how will we decide what is appropriate and to whom?

These are important questions that are still barely understood. The more we dig, newer questions keep arising. That’s why it’s important that each question be well unpacked before we can move forward.

At the dawn of the atomic age, an important question was being asked, is there an ethical way to fight a nuclear war? Seventy years later, as we embark upon a new world, we’re still asking questions with no easy answers.