In The New York Times today there was this interesting article about startups and entrepreneurs and venture capital and it centered around a company called Scavenger (they should call Vanna White to report that someone stole their vowels).

The basic goal of Scavenger is, in the words of their Princeton drop out founder and CEO, to “build the game layer on top of the world.” and I agree that this is a huge idea that could  be the next Groupon, Facebook, Google, Twitter, Foursquare etc.

You can read the article for yourself, but at this point I think Scavenger is making a big mistake and I think Randall Stross almost got there in his article today in the same paper talking about why Netflix is beating Blockbuster (among other things).

Let me start with the Stross article.  A key observation that he makes is that both Redbox and Netflix are succeeding.  Redbox is the company that has kiosks in grocery stores and you can rent movies for a dollar and of course Netflix is the company that you subscribe to and you can get movies and entertainment mailed to you, or you can stream the content over the internet.  Part of the point of the article was that Blockbuster went out of business because they didn’t realize fast enough that the “bricks” element of their business wasn’t important to their customers.   The point that Stross didn’t make, that I think is vital for Scavenger, is why Redbox and Netflix can coexist and thrive in the same market.  There’s an easy and a harder explanation for this.  The harder involves market segmentation and the fact that Netflix isn’t competing with Redbox, they are selling to very different demographics.  The easier point is that Redbox got into the head of the customer and figured out that renting a movie could be a bit like an ATM in the sense that you know people are going to be at the grocery store – put your machine there so they don’t have to make an extra trip, and anyone can afford a dollar a rental.  Netflix has been in the head of their customer since the beginning and when DVDs could be mailed, they realized that was a better and easier way to rent, and now with iPads and high speed home connections,  a lot of people prefer to watch on demand and they are on top of that and their stock price reflects the success.

Back to Scavenger.

I totally agree that most of what we do as consumers can be boiled down to games.  That’s a great insight.  The trick is to get into the heads of the customer.  The games that a teenager will want to participate in are very different from the games a 44 year-old business executive like me will want to participate in.  So what?  Well in most cases I have a lot more discretionary money to spend and it would seem to make sense to to some of that demographic analysis to help prioritize where to focus.  And to the point of the writer of that article, if the games are product specific and don’t aggregate into a larger point pool, that needs to get changed ASAP.  I hope Scavenger realizes the potential of this big idea, I just think they need to do some major rethinking before they will actually be able to cause the kind of business earthquake Netflix has now created twice.

-Ric

P.S. Look for my next book “Surviving Business Earthquakes” starting in October at a Starbucks near you.

If you think your human resources team is there to help you when things get bumpy, well you might as well still believe in Santa Claus.

There are two really basic things your human resources team are measured on:

1) Helping to fill open positions

2) Preventing your company from getting sued

#1 is obvious, and #2 makes sense if you think about it.  In the case of #2, unless there’s a lot of evidence about an HR violation, when there is an argument between two people that involves HR, they are always going to prioritize a positive outcome for the company ahead of a positive outcome for you and that often means the more senior person in the argument wins no matter what.

Feel free to argue with me on point #2, but that’s not actually the focus of this blog entry.

The big risk to companies today is being asleep at the wheel at #1 – hiring.

Let me start with some recent examples involving Amazon and Google, two companies that are doing well and growing a lot today, which is great for them in an economy that is down overall.

I have spoken with a number of immensely qualified and accomplished people who have looked for roles at those two companies, and the response has been the same.  Even when they have a personal contact at these companies, the message that comes back from HR is that they need to find a specific open position before starting a conversation about where they fit.

If you are talking about a low skill position like flipping burgers I can see an attitude like that, but you have the chance to hire a really senior person with really great skills, that attitude is not only just plain lazy, it’s bad business.

A friend of mine who is a recruiter told me that part of this is because in a bad economy, people out of work are scampering for anything and everything they can get.  I get that, but putting it all on the job seeking side of the equation is a huge mistake.

For one thing, when a truly great candidate comes along, when money isn’t an issue (as it’s not for Amazon and Google) you should consider a defensive hire – hire the person just so your competition can’t.

Second, and more importantly, while I appreciate that everyone is really busy in these companies, you still need to take the time to consider that this person could transform a department, a division, or the entire organization even when there isn’t an open position that fits their exact background.  If you look at Microsoft in the 70s and 80s especially, one of the things they did with repeated success was  to take a really smart person and drop them into a spot where they had zero prior experience.  The belief that proved out was that really great people would figure out how to be successful in these new roles.  That’s not to say it will be successful 100% of the time, but more of that kind of attitude is needed today when there is so much incredible talent out there today.

To be fair, this doesn’t solely fall on the shoulders of the HR team, a lot of this falls on the shoulder of the executives and the company culture.  If they are executives, they ought to have enough pull to point out a truly great candidate and say “hey, we just need to figure out a place for this person to land and work with HR to make it happen.”

In an economy like this, this is the time to really have your sharp pencils out, looking for the next Susan Boyle, the person who isn’t an obvious fit immediately.  There are so many incredibly talented people out there looking for new roles, and I know people who have good jobs who are looking for other jobs – this isn’t just the unemployed people I am talking about.

Now is the time for HR teams to really shine and help their company find those great candidates.  Hiding behind the message of “find a position the fits your skills” for executive roles is lazy and dangerous for companies that really want to continue to do well in this economy.  If your HR team is that lazy, maybe those are the folks you need to consider replacing.

-Ric

P.S. By the way – if you don’t usually read Seattle Business magazine, there’s a great article about HR by Scott Rabinowitz in a recent issue.

Today I was talking with Tucker Max (author of I Hope They Serve Beer In Hell) of all people this afternoon and we were talking about how incredibly unpleasant air travel is, the way people take so much time to move down the aisle and get out of the way.

The fact is that people seem to have gotten increasingly rude in airports and on airplanes, at least in the US, and I am not really all that surprised that the flight attendant slid down the emergency chute a couple of weeks ago with two beers because he just couldn’t take it anymore.

But having done some rethinking about this, I shared an idea I had with Tucker, and he liked it so I am sharing it here.

The key to this idea is that it doesn’t cost the airline a thing to implement, except for a little bit of training, and maybe a minor computer change.

What if the airlines let it be known that at the end of boarding, a flight attendant would award the best behaved passenger with a free upgrade.  Consider it like a lottery ticket.  They airlines save one of their first class seats for this program, so people are very motivated to get the free upgrade.  My bet is that is enough to get people to be much more considerate and efficient in boarding (which also helps the airlines with on time departures).

I think it’s at least worth a shot.  Air travel is so unpleasant these days, they are going to have to do something, right?

While I am at it, I have two other ideas for the airlines to consider to make the experience better:

1) Full.  When the flight is really full, don’t announce that.  That’s almost like shouting “FIRE!” in a theater these days because we all know there’s a shortage of overhead space, unless we are in a special mileage club or first class, we might not be able to get all of our stuff into the overheads.  So don’t create the panic.  Don’t say anything.

2) Delayed.  for people who want to upgrade or who are on standby, the standard rule is that they won’t release those changes until 15 minutes before scheduled departure, and that includes if the plane has been delayed, which makes no sense to me.  First of all, with so many of us checking in hours before departure via the web, they probably have a really good sense of how full the plane will be, but when it gets delayed by say an hour, they should unlock those seats 15 minutes before the originally scheduled departure – that would give them a full hour to manage all of the seat juggling.

That’s my $.02 on how to make flying better.

-Ric

P.S. If you want to know why I was talking with Tucker Max, I would be happy to explain.

Back in May, David Streitfeld wrote this article about how, and why, people in the US aren’t paying their mortgages.  While it was one of the most troubling articles I have read in a long time, since then, I have spoken with a lot of people who think it’s crazy to make mortgage payments these days.   The thinking is that it takes at least two years to foreclose, and when they do foreclose, the house will be sold at auction for a fraction of the cost, and if people have the money, they can pay cash for the house and not need another mortgage and have saved a lot of money.

But as I thought through that, I realized that it meant that people don’t care what their credit rating is.  If just about anyone can get a credit card, which seems to be the case, then it starts to look like the credit score the some of us have worked so hard to keep high, is starting to matter less and less in transactions.  I realize it’s not quite that simple, but the trend is hard to deny, or ignore.

So just as the once sacred credit rating is now becoming junk, it’s not so surprising that a different way to judge us is emerging.  The “reputation score” –  that is, how trustworthy we are to participate in a particular transaction.

Jenna Wortham touched on this subject in this article last week, talking about companies like GroupOn, SnapGoods, NeighborGoods, ShareSomeSugar, AirBnB, and KickStarter that allow you to rent things from friends and neighbors in your community.  In the specific case in the article, Wortham rented a robotic vacuum cleaner for something like $10 a day.  This starts to sound a little bit like Ebay for rentals, and I think it is in many ways, and just as Ebay keeps track of feedback about things you sell through their site through what amounts to a reputation score, these other sites have to do the same.

That all makes perfect sense to me, but there seems to be one problem/opportunity here that’s being overlooked.  First of all, a site like SnapGoods only exposes things you want to rent to friends of yours on FaceBook and people you know through MeetUp.  That’s probably OK for the younger crowd that has thousands of Facebook friends, but for people in their 40s (like me) it’s more common to have 500 or fewer friends, and I don’t think there’s enough of a marketplace in a pool that size for the model to work.  The other side of that is for people in their 20s with 3,000 friends, they can’t know and trust all of those people, so there’s a flaw in the model on that end.

But the bigger issue is that if all of these sites have their own reputation score tracker, shouldn’t there be some reputation aggregation going on, like a credit rating, so we can go to one place to see what the person can be trusted to do.  In this case it has to be a little bit more complex, because there’s reputation for paying (large amounts, and small amounts), being on time, taking good care of the things that they rent, and so forth, but it’s not all that complex.  So there needs to be some rethinking there, but I would suggest that there be something like MyIDPal (a little bit like PayPal) that allows you to protect your identity, and transact while adding more nuance to your reputation.

I bet in a year or two there’s a service (even a standard?) for managing reputation scores that places like SnapGoods will have to, well, snap to, so that people can trust the transaction.

-Ric

Lots of things can go wrong in business, but for an established organization, it usually takes something really big.  We saw the big US automakers all almost go out of business because they lost touch with their customers, and that’s unsurprisingly fatal.

Juice maker Odwalla almost went out of business because some E.coli got into their juice and killed some children.  That’s also not a surprise that a major health issue could end a business life.

Companies have big issues and in a lot of cases, it’s how the company reacts to the problem that leads customers to decide whether they will keep buying the products or services of a company.  Tylenol is probably the biggest success story when cyanide was found in some bottles, they immediately did a total recall even though we later learned that it was product tampering in stores that had nothing to do with Tylenol.  But it sent a clear message to consumers that Tylenol cared.

This weekend Peter S. Goodman published this article about three companies that have really made a mess of things recently, namely Toyota (pedal sticking caused accidents and some deaths), BP (oil spill in the Gulf), and Goldman Sachs (selling things they knew weren’t great for their customers but were good for their shareholders).   Goodman’s article is very thorough in explaining many of the things that make them case studies in what not to do, but I think he missed a fairly key point.  He used the Tylenol example, and he also talked about the Audi acceleration problem in the 80s that essentially killed the Audi business in the US for 20 years even though Audi proved it wasn’t their fault.  I think there is a common thread in all four of the failure cases that is a huge danger in a lot of organizations today, which is quite simply that they are selling to people who have a very different set of values, who come from a different culture and when responding to an emergency, you have to do it on their terms, not yours.

I will start with the oldest one.

1) Audi.  It’s pretty uncontroversial for anyone who knows Germany to say that culturally there is a huge value on precision and facts and method.  They are a lot less sensitive than Americans, which is neither good nor bad.  Audi responded in a very German way when it very defiantly shared the evidence that they were right, when the American public just didn’t, and doesn’t respond to that sort of “in your face” discussion.

2) BP.  Similar thing.  England still has a much more pronounced class structure than we have in the US, so when their chairman pronounced, repeatedly that BP cares about the “small people” my guess is that a lot of english people would have been OK with that, but in the US it was far too condescending and adding a thick John Gielgud-like british accent on top of it didn’t help.  They finally figured out that they needed some american voices behind the microphone, but that was too late for Tony Hayward, the CEO who made more than his share of gaffes, including wearing much too formal clothing at the scene of the spill, and saying things like “I want my life back.”

3) Toyota.  Ditto.  Goodman mentions this in the article, but I think he makes too light of it.   The leaders of Toyota did what would be expected in Japan, to try to save face and try to find some other explanation.  They should have looked at the Tylenol case to get a sense of what makes sense in the US consumer world, and they would have fared far better.

4) Goldman.  This one may seem like the odd one out, but it’s actually pretty much the same, only this time the cultural difference isn’t a national one.  Executives at Goldman know that their #1 goal is to deliver shareholder value, and they know that certain types of banking are really complicated.  The average american doesn’t realize how complicated banking can get, and they also don’t realize that the #1 goal of companies not to deliver huge profits (if that were the case Microsoft stock would be doing a lot better), it’s to deliver shareholder value.  Even though what Goldman did still seems pretty dodgy, they still delivered shareholder value.  Their big mistake was not figuring out a way to communicate with the general public in a way that would resonate with them.  They stuck with the Wall Street speak and that really got them in trouble.

So the big risk is that if you are selling to people who really come from a different culture or have a different set of values, when you make a mistake that effects them, your response has to be on their terms, reflecting their values and expectations or you could be in real trouble.   It takes some real rethinking, but it’s worth it in the long run.

-Ric

One of the core points in my book Rethink is to help people on getting really clear about who their customer is and what the customer does, and doesn’t, value.

That may seem like an obvious and simple point, it actually can become pretty complicated pretty quickly.  That’s because companies don’t just have one customer, and quite often they don’t even know their name.  If the majority of your customers are 13 year-old girls in low income households, what they value is probably going to be radically different from a group of 44 year-old affluent male customers.  Then to complicate things further, what if both of those segments are actual customers of yours, for the same, or different products?  Do they care if you raise the price of the product by a dollar?  Will they notice, and leave you if you switch to a lower quality ingredient or raw material?  Are they buying it because they like the packaging?  Are they customers purely because of the location of your store?  What would cause them to stop being your customer?  What would it take for them to recommend you to their friends?  If they are buying different products, maybe one of the customer segments is more profitable to you so you might spend more marketing money on them than the other segment(s).  If you decide to make some change, if that causes one segment to away, will you get enough new customers from the other segment(s) to make up for it?

One of the reasons I like the company alice.com is because they capture all of that information and give it back to manufacturers so they can know exactly who their customers are and what they are, and are not responsive to, in terms of ads and coupons.

I heard that the restaurant chain Pizza Hut just decided to lower the price of their smallest pizza to $8, from $10.  I couldn’t help but wonder who cares about saving $2 on dinner so much so that if the pizza was $10 yesterday they would have chosen something else for dinner, but now that it’s $8, they are there.  Of course it’s an incomplete math problem if you stop there.  Unless a person is in a food court where they are choosing between Pizza Hut, a teriyaki chicken place, and a Mexican place, that’s one thing, but in most cases, there is time involved in going to the Pizza Hut, and probably the gas (if you aren’t taking the bus).  These things add up, and while I doubt many people calculate all of these things when they make their decision, it strikes me as a bold assumption on the part of the Pizza Hut folks that by changing nothing else, lowering the cost of their product will bring more customers.  No change in the quality of the ingredients, no change in the recipe, no change in the location of the restaurant, no change in how clean the restaurant is, no change in how friendly the employees of the restaurant are, or the hours of operation.

Wow.

I for one am not a regular at Pizza Hut and the $2 price change isn’t going to get me there any time soon, but I will be very interested to see how successful this change is.  I will be surprised if it has a big impact.  Whoever their customers are, Pizza Hut seems pretty confident that the exact price of their product is vital to the decision about whether to eat there. For me, time is most valuable, so if they offered free delivery, that would be a lot more interesting to me but I still don’t think I would order one.

Do you know who your customer is and what they value most?

-Ric