Sears: From Wishbook to wistful thinking

I noted with interest yesterday morning that Sears Holdings would be closing 150 full-line stores but shrugged my shoulders as this was a necessary step for a retailer that has struggled for years. My eyebrows raised sky-high however this morning when I learned that they are also selling off one of the crown jewels, Craftsman brand tools, to Stanley Black & Decker.

January is always a date of reckoning for retailers as they examine whether the holiday sales propelled them into the black (in spite of the myth around the Black Friday moniker) or provided further evidence of failure in product mix, pricing and consumer engagement due to flagging same store sales. Obviously the news demonstrates that Eddie Lampert’s empire continues to crumble. Whatever the vision is here, the sale of Craftsman is the final nail in the coffin for Sears as an ongoing concern.  Yes the zombie business will continue to lurch about in the dark grasping for opportunities but as Seritage continues to close stores and attempt to recoup the value of the underlying real estate, it must be evident to anyone paying attention that Lampert is past the long game of building a successful Sears as a retailer.

Point of acknowledgement, I started my career at Sears working in the Credit division back in the heyday of Arthur Martinez and was at the cutting edge as the company dove into the nascent web.  But even more, as a kid, Sears was a core part of my childhood.  It was the department store we visited for the annual school shopping trip as my mother loaded up on knock off low top Chuck Taylors – or bobos as we called them back then – Toughskins jeans and striped shirts.  It was the catalog source of all Christmas goodness that a kid would study for weeks as he evaluated what was possible and created a wish list for Santa.  I even spent one Christmas season as a young teenager hired to demo the AG Bear and more importantly the Petster cat robot in the toy aisles of a Sears. It seemed like you could get anything at Sears from keys cut and Zippo lighters personalized – I still have the first one I bought as a 12 year old pyromaniac – to watches, tools, appliances, computers.  Honestly, we bought my first laptop from Sears, my first Armitron digital watch which happened to play Fur Elise, and most of my Dad’s tools. If we needed a new appliance we bought a Kenmore from Sears. If the dishwasher was acting up we visited the Sears Repair and Parts center for the necessary components. I recall more than one family photo taken in the Sears photo studio. And when the car needed a new battery we installed a new DieHard. When we needed a new mattress after getting married we bought it at Sears.

So that in part is what brings such dismay at the news that Sears is unloading the Craftsman brand. It was rumored back in June but I honestly didn’t believe that would  happen so soon.  Craftsman is such a fundamental part of the Sears identity.

When you walked into any Sears store you always knew that there was a guarantee that backed up a sale: “Satisfaction guaranteed or your money back.” And I was not surprised the first time I walked into Sears Headquarters on Beverly Road and saw those words fixed on the wall above the entrance in 3 foot high shiny aluminum letters. So storied was the Craftsman brand that my father liked to regale our friends with how he witnessed a guy walking into the tools department with a 16 inch long 5/16 slotted screwdriver, that had quite obviously been abused as a pry bar, requesting a new screwdriver because his could no longer properly perform its proper function. And the associate gladly exchanged the tool.  There was loyalty to the brand because the tools were reliable. Now, Craftsman has fallen on hard times and the quality of the tools are not always what they once were as I’ve found myself gravitating to Snap-On and other brands when I need a tool that I can count on. So perhaps this is just an overdue acknowledgement that more than just the store format and assortment has lost its way.

But once upon a time Sears was a serious innovator and this should be a cautionary tale for anyone who wants to build a brand toward greatness.  Most do not realize that Sears was a keen innovator in many of the evolutionary efforts to sell what consumers needed.  The catalog is well known but the movement into retail stand alone stores and malls in the suburbs was a big push by Sears.  The concept of a retail credit card started with lists of customers managed at each store and eventually the blue Sears card was the most common credit card in every American’s wallet to the point that 1 in 3 Americans carried and used it.

So what happened? Sears was a casualty of navel gazing and losing track of what made it great: delivering a quality product to customers with great service and providing what customers wanted at a good price.  The retail sector fragmented in the 90s and suddenly Sears no longer knew who their customer was.  Walmart and the Dollar Stores squeezed them from the bottom, Target brought design but budget conscious consumers great products in a bright and cheery buying experience, and all kinds of specialized box stores delivered higher quality products with a focused delivery in sectors like hardware, appliances, TVs and electronics.  No one thought of shopping at Sears because in being swallowed by Kmart it followed that business down the rabbit hole of little investment in the stores or the assortments.  I recall when the merger was announced sitting in a marketing class at Kellogg where a number of us in the class had experience working for Sears.  No one could come up with a defense for Lampert’s vision if it meant making the two stores remain successful and not going the route of Woolworths. We looked at the onslaught of Amazon and the encroachment from all other sides and determined the only way out was to capitalize on the assets. And that it seems is the logical demise of the store.

Yes, Lampert believes he can create this amalgamation of the new millennial retail with an innovative online presence welded to a brick and mortar presence. In 1998 we discussed a vision of allowing the customer to make the buying decision Any time, Any place, Any way – something that has evolved substantially since those early days of e-commerce and mobile computing.  But to me that obsession is no longer the issue for Sears. The bigger question is encouraging customers to shop at Sears. Why should I choose Sears over Target, Walmart, Costco, Amazon, Zappos, Nordstrom, JC Penneys? Every one of those retailers except for Amazon and Walmart has seen their market cap decline in the last 10 years but that really speaks to changing buyer behavior. The question that needs to be solved is who is the target Sears customer and what are they looking for?  As we discuss in ITW the question of who is your 80 customer drives every single decision.  Who are the customers that believe in your Brand and why do they shop with you? What can you do to increase the share of wallet they contribute to you?

My wife used to be a regular customer at Sears but she won’t even set foot in the store any longer because the layout and footprint are chaos.  “Too crowded (as in the racks are too bunched together), too hard to find an associate to help, too little in selection that is attractive to me or for my kids, the lighting is dim and the whole feel of the store is dismal.” This is the description of the Woodfield Mall store which for decades was the flagship store given its close proximity to HQ and placement within one of the best malls in the Midwest.  I haven’t used my Sears card in 3 years and I only make the trip to the Woodfield store if I need a particular tool that I can’t find at the closer Home Depot or can’t wait for Amazon and Snap-On to deliver to me. If Lampert wants to be the competitor to Amazon he needs to provide a more compelling offering than Prime 2-day delivery of practically everything a customer could need for their home with ease of delivery, excellent pricing and no fuss returns. I know this will pain friends I have on one side of the equation and delight those on the other but in our house Amazon, Target, Costco and occasionally Walmart trumps Sears 9 times out of 10.  Maybe we’re no longer the target customer but then who is?

Only being able to answer that question will resolve the problems Sears is facing.  Lampert once believed he would be the next generation Buffett and the SHLD stock skyrocketed in 2007 on the market’s perception that he could build a retail juggernaut with carefully curated selections like Land’s End, Renovation Hardware, and other key assets.  But to really successfully do that would have required a very different culture and a very different management style. My impression at that time when the firm I was working for was called in to present an approach for building a culture of innovation within Sears to the senior leadership on “Mahogany Row” was that the leadership, the vision, the intuitive understanding and the willingness to commit was lacking. We presented a plan and all I heard were platitudes and a view to chaos across an organization that was ingrained as historically extremely command and control. To manage the juggernaut that Lampert spoke of would have required a very loose and decentralized organization that allowed businesses to excel in pursuing their customers.

And hence here we are 10 years later watching the dying gasps of a once great company.  Gary Balter from Credit-Suisse put it quite succinctly: “We continue to believe that Sears will sell off or spin off assets in a controlled liquidation of its chain, monetizing the assets least tied in with Sears’ U.S. stores first. However, over time, selling off the profitable assets is unlikely to be a winning strategy.”

That was almost 5 years ago and Balter should hang his hat on that prediction.

Sad day indeed.

Finding Your False Narratives

How often do you discover that something you thought you knew about yourself was wrong?

I’m not talking about family secrets that suddenly surface years later when you’re an adult and sitting around the table talking with your favorite Uncle. This isn’t a let’s lay down on the couch and have a series of conversations moment but there certainly are some unconscious elements to the “stranger within” that drive our personal behaviors. No, the question here relates to behaviors and rationales for the actions you take in life, the way you do things, and perhaps your favorite activities or hobbies. Do you know why you always turn on the stereo before you put your seat belt on? Do you know why you prefer Jif peanut butter to Skippy? Do you think about why you always sit on the far right side of a classroom or meeting room, closest to the door?

Recently I discovered something fundamental about an action I take on almost a daily basis and have done so for twenty plus years was based on a different rationale than I have explained to myself and to colleagues who have queried me about it.

Let me first explain that I am a note taker, a scrivener, a scribe as it were, though writing as a journalist is certainly not my profession.  It’s possible that I was a stenographer in a previous life. As a result I have an extensive collection of professional (paper) notebooks that date back to my college days. These aren’t personal journals though I do sporadically keep one.  No, these are the insights, deliberations and decisions made in daily meetings captured in extensive detail. Sitting on a shelf in the office I think there must be at least 40 of these notebooks. And in general these are not 80 page half size Moleskines but 8.5″ x 11″ quad ruled 140 page composition notebooks. So yes, some of you, the designers especially, are nodding your heads, and like me as a serious fanatic of notebooks, may get kind of dreamy eyed when terms like acid free and 90 lb gsm roll through your heads and you think about the feel of the pen scrolling new thoughts across the page.  It’s true that I am also a touch typist with sufficient speed and concentration that I can capture practically word for word what is said in a meeting or conversation without detracting from the discussion – this is an extremely useful skill when you’re facilitating an interview – but there is greater enjoyment for me personally when those notes are taken on paper.

Suffice it to say that for my entire career I have maintained deeply detailed notebooks largely for work. Said notebooks once featured extensively in discovery and a 3 day deposition that surrounded arbitration over the earn-out for InstallShield’s acquisition by Macrovision. They say that he who captures his activities in writing leaves a record for posterity but it also creates a highly useful tool for discovery by hawkish attorneys.

I’ve long preferred graph paper in bound composition notebooks that fit in a leather sleeve. But most importantly, I have always only written on the right hand page and the left page was reserved for identifying action items or doodles.

Here’s where the discovery happened. Recently as I opened up a fresh ITW lab notebook, reserved for recording tests and results (for patent purposes) I noticed the instructions page. Now, I have not used an R&D notebook since my last internship at the IV Systems labs at Baxter in 1993.

But as I read the instructions it all came back that “the left hand page is to be used for calculations that do not require formal recording.” I always thought I left that side blank because I write with my left hand and this would mean fewer smears from wet ink. But instead this habit carried over from a requirement for note capture that definitely started in 1991. Avoiding smearing was a discovered additional benefit that eventually overtook the original rationale in my mind.

The engineers reading are all nodding their heads and reflecting back on their first exposure to this practice in the lab with courses like MIT’s 2.671 Measurement and Instrumentation. How could you forget what was drilled into your heads from day one that “keeping a complete and accurate record of experimental methods and data is vital part of science and engineering.” Well captured notes ensure the ability to replicate results and more importantly prove ownership of intellectual property.

Why does this matter?

Because this post isn’t really about me, or notebooks but about understanding customer motivations. It comes down to whether or not you trust what your customers tell you when you want to understand why they do what they do.  A core part of innovation is figuring out the job that a customer needs done, the solutions they hire to do that job, and the work arounds they create due to imperfect products. Every consumer insights specialist or market researcher knows that this leads directly to focus groups and one on one interviews, the grunt work of qualitative research.  But sitting down in a conference room or behind the glass wall is still an incomplete effort and no matter how brilliant the interview guide questions nor how creative the facilitator, you are still going to miss very critical insights that could mean life or death for your product.

You need to spend more time in the field, on the production line, in the home of the consumer, in the kitchen with the chef or under the car with the mechanic if you really want to understand the work they do. Immersion means getting your hands dirty and developing a fundamental view of the essence of the problem space. This is where so many new product development efforts fail.  Teams spend way too much time staring at columns of data and debating their personal views of the mindset of the customer based on anecdotal insights they’ve gathered through sales calls. The richness of your customer persona and how it incorporates the environment in which they operate will directly correlate to the eventual resonance your solution has in the marketplace.

Let me offer a couple of examples to better illustrate the benefits:

A manufacturer of power tools was working on their next generation nail gun and the common factors for improvement were under consideration: increase the power, reduce the weight and expand the nail capacity.  But this team has developed the focus of not just handing the tools to carpenters  to get their feedback in a laboratory. They also spent long hours on the construction site taking photos and watching to see how the nail guns are used.  One photo brought back a clear message to their development team as they observed a carpenter assembling walls with a nail gun in one hand and a hammer in the other.  Ask yourself, why does a carpenter need a hammer if he has a pneumatic nail gun?  There could be a number of answers to that question. This single insight would take the team down multiple paths of successful development as they explored the deeper questions that surfaced.

In the early days of Pringles the manufacturer was struggling with how to get a proper flavor into their chip due to the output from the factory line.  The food engineer given responsibility for solving this problem told me he knew immediately what the issue was as he drove down the road toward the factory.  The smell of boiled potatoes rising from the steam out of the exhaust pipes explained the loss of flavor. It helps to understand that Pringles were one of the first dough based potato chips where the potatoes aren’t sliced thinly and fried in oil but instead boiled, mashed, dried and then formed from a mixture of potato flakes and water.

But here’s where the insight took off.  This engineer and his team realized that since they were introducing a potato flavor back into the chip they could just as easily use the bland chip as a foundation for all kinds of new test flavors. Today there are well over a 100 different flavors globally of what is a Billion dollar snack.

I share two different examples to demonstrate that external, and internal customers deserve similar treatment as you attempt to find solutions for them.  Site visits bring a far more substantial set of insights because often the customer doesn’t even think about the work arounds they have put in place.  And if you asked them to tell you how they do their job they quite likely would not mention the additional steps.

This calls to mind my favorite chocolate chip cookie recipe which I happily share with anyone who asks.  The problem I found much later was that friends could not replicate my results.  Only when one friend asked to help me make cookies and learn the steps taken did I stop to think about how I beat the batter with a fork and not an egg beater, or how I use room temperature margarine and eggs or especially how I pop the dough into the freezer to let it firm before baking. My recipe card reflects none of these steps nor does it mention preferences in specific types of flour and margarine.

In the end, the outcome you seek is entirely dependent on the questions you ask and more importantly the manner in which you go about discovering the problems your customers are trying to solve.  There’s a reason why they’re called unarticulated needs.

 

Does Your Brand Tell Lies?

Speaking of orange juice, I completely forgot about this little gem of an article that came out of the Boston Globe two months ago and culminated in a significant change in behavior for my family.  After reading it you may join me in pondering how exactly Tropicana intends to respond to this disaster that will likely descend on them in about 60 days once this baby hits the morning news circuit.

The article is a Q&A with Alissa Hamilton, a Woodcock Foundation Food & Society Policy Fellow, discussing her forthcoming book, “Squeezed: What You Don’t Know About Orange Juice.”

squeezed1.jpg

Let me just cut to the pulpy core of the issue: practically every carton of “not-from concentrate” orange juice you could pick up in the refrigerated section of your local grocery is NOT what you think it is.

As Ms. Hamilton states,

It’s a heavily processed product. It’s heavily engineered as well. In the process of pasteurizing, juice is heated and stripped of oxygen, a process called deaeration, so it doesn’t oxidize. Then it’s put in huge storage tanks where it can be kept for upwards of a year. It gets stripped of flavor-providing chemicals, which are volatile. When it’s ready for packaging, companies such as Tropicana hire flavor companies such as Firmenich to engineer flavor packs to make it taste fresh. People think not-from-concentrate is a fresher product, but it also sits in storage for quite a long time.

Sitting in a metal vat for a year = freshly squeezed? Right, that’s what you’re drinking.  Not something that was freshly picked from the grove, squeezed and then rushed to your grocer in a matter of a few days.  Even though that is what they would like you to think and for which they expect you to pay a mighty premium.

Until February of this year, my family of 5 were loyal purchasers of the 4 pack of 64 oz Tropicana Premium from Costco and paid something like $4 a carton for what we thought was a close approximation to fresh squeezed juice. Give or take a couple of weeks.  I mean, look at the side of the carton where they romanticize the freshly delivered juice that is rushed up the Eastern seaboard from the grove to big cities in the refrigerated Tropicana Juice Train.

Is there any reason to believe there won’t be a huge outcry when consumers learn what they’re actually drinking is not fresh juice taste but a manufactured simulacrum of it? And that even worse, more and more of that juice is not fresh from Florida but instead shipped from Brazil?  At that point, the damage done by Mr. Arnell’s ill considered packaging refresh will be a tempest in a teacup compared to the response to Ms. Hamilton’s book explaining how inauthentic Tropicana’s pretty little cartons of juice really are.  Then Mr. Arnell can add yet another definition to what the phrase “squeeze” means in the minds of Americans today.

What change did the Breillatt household make, you ask?  We decided to go with the best tasting frozen juice we could find since it’s half the price of “not-from concentrate” and essentially the same except you’re not paying for shipping water and the more expensive manufacturing process. Plus you can determine how “juicy” you want your juice by reducing the amount of water you add. Costco has a 6 pack of their Kirkland brand that is actually really good.  And when we want that truly freshly squeezed taste?  Occasionally we’ll squeeze our own oranges to get nothing but juice.

What’s the lesson from this story?  It’s yet to be certain how much of a hit Tropicana and other juices like Florida’s Natural, Simply Orange, and even Minute Maid will take from this revelation.  But if they learned anything from the high fructose corn syrup debate, I’m sure they’ll be lining up their brightest PR stars to attempt to make this story go away.

The better answer though is to be truthful with your consumers.  In this era where their trust has been battered in multiple areas of our life, consumers are increasingly showing loyalty to brands that stay true to their promises.  There really is something to the maxim “authenticity speaks for itself.”

[Update] Seth Godin nails the authenticity trend with his brief post, “What you say, what you do and who you are.”

How Social Media Really Works

I went to email this to a friend of mine and realized that there was probably a better means of putting this thought out to him through Facebook.  Except Facebook is either down (earlier today they told me my account was inaccessible because they were doing update work on the servers) or is no longer accessible behind the work firewall.

WHATEVER – though there is probably something to be learned from that experience.  I’ll let you draw your own conclusions.  What happens when the services we depend upon are not accessible to us?  Those who are active tweeters who have experienced the fail whale on many occasions know exactly that of which I speak.

Fail Whale

With that said, here’s the main thrust of this post.  Hat tip to John Gruber for bringing Matt’s rant to my attention.

Maybe you’ve already seen Matt Haughey’s [founder of MetaFilter] rant on “How Social Media Really Works” on his personal website.  If not, it’s worth a read.

Make sure you read through the entire set of comments.  Basically his argument breaks down to: I research products by asking the people I trust and their opinion is really what matters most to me.  In the end, I want to buy the best products available so my suggestion to the marketers out there is build an excellent product and the voice of the masses will discover your excellence.  Gaming the system will gain you nothing if your product sucks.

In my mind there is strong value to his argument.  As the Cluetrain Manifesto once upon a time declared, markets are conversations.  Any attempt to game those conversations will eventually come back to bite the author / sponsoring company in the ass.  If you become a part of the conversation and realize that in today’s market, your brand is largely no longer controlled by you, then you have an opportunity to first hear, then learn from, and if you’re really good, educate your community.

A brand manager’s responsibility in this new era is to foster and cultivate their community by developing products and experiences that offer answers to the jobs their customers have that need to be done.  It means do an awful lot more listening and a lot less talking.

Decommoditizing a Commodity

Where did I go? What happened to the flurry of posts?  Well what can I say, I took the Summer off to spend time with my family, change jobs, and rediscover my priorities in life.  Today I am in a much healthier position than I was over the last 5 years while I was working, pursuing my MBA, and then moved on to consulting. 

I literally took time to smell and cultivate the roses in my backyard and clearly see the benefits of taking a 3 month sabbatical about every 10 years.

So with that said, here’s a fun little piece I wrote in response to a request from Jeff Lash who runs the Ask a Good Product Manager web site.  It’s always fun to flex the innovation fingers a little and think through the hard questions.  This will likely spawn about a half dozen other posts in the coming weeks on how to attack or defend a market with products and how to harness innovation in order to accomplish that endeavor.

So here’s the question: 

What do product managers do for commodity products like toothpaste, pens, pencils, staplers, coffee mugs etc. where customer needs have not changed for ages. How do you differentiate in an overcrowded market? 

Ah, the age old question, how do you survive in a market with slim to zero margins because consumers see no difference between your brand and that provided by competitors A, B, through Y and Z?  The simplistic answer is to use the cheapest raw materials possible, offshore your manufacturing, go for scale in distribution, build tight relationships with your channels, and roll up your competition until you own the market.  That used to deliver some success but in the world of Wal-Mart, Costco, private labels, and gads, a bazillion on-line stores, even that is not enough.  Why?  Because year after year, for any product that is the same as what you sold them last year, Wal-Mart will say, “Here’s the price you gave me last year. Here’s what I can get a competitor’s product for. Here’s what I can get a private-label version for. I want to see a better value that I can bring to my shopper this year. Or else I’m going to use that shelf space differently.”  

So what do you do?  Innovate!  And by that I don’t mean go brainstorm what the next new pencil or pen or stapler ought to look like.  What I mean is you need to reconsider the market you compete in and more closely examine the consumers you are serving.  Let’s walk through one of the examples you outlined and consider how one might differentiate within that market.   

Pencils

We’re talking about a writing implement that has been around for over 400 years, the basic form and construction of which hasn’t changed since originally designed back in the 1700s.  This should be the ultimate manufactured commodity product!  When we think of a pencil inevitably most of us think of the good old standard wooden yellow no. 2 lead pencil with a red (or maybe green) eraser held on top by a compressed aluminum or brass ferrule. 

What’s the benefit of the standard pencil?  Some people use pencils because they’re cheap and easy to replace if lost.  A former boss of mine, a professor, would use pretty much nothing but a no. 2 pencil and by observation I would say that’s because he’s an old creature of habit who wants an erasable writing implement but who also loses them or leaves them behind everywhere he goes.  Parents and teachers give children pencils because the impermanence of their marks makes them good for correcting mistakes as well as cleaning up stray scribbles on desks, clothes, and walls. Artists and architects prefer pencils for their ability to sharpen the point in the manner they like and the various textures this facilitates creating on paper. Obviously the lasting power of the wooden pencil is its ability to satisfy these needs and many others.   

 To put some numbers to that point, consider that in this era of modern technology where the pen followed by the typewriter followed by the word processor supposedly replaced the pencil, approximately 2.4 billion pencils of all types are still sold annually in the United States.  The average cheapo private label yellow no. 2 pencil based on a quick check at the neighborhood Staples sells for 99 cents a dozen.  In other words, the cheapest wooden pencil available sells for less than a dime a piece.  And a pencil is a pencil, right?  So how do you ensure consumers buy your brand at a premium price?  

The intuitive product manager might think, let’s consider what’s wrong with the no. 2 pencil: 

  1. You have to keep sharpening it

  2. You must have ready access to a sharpener

  3. The pencil shortens with every turn of the sharpener

  4. It’s a waste of natural resources because you never use the entire pencil (see #3)

  5. The wood shavings are messy

  6. The shape and diameter make it hard for young and aged hands to grasp leading to writer’s fatigue

  7. You keep paying for the container (the wood) when all you really need is the lead

  8. It doesn’t offer multiple lead diameters from very fine (.03 mm) to very fat (5.6 mm)

  9. You have to carry multiple pencils for various weights of lead

  10. The lead point is constantly exposed so the lead marks up whatever it rubs on or else it breaks easily

Given all of these problems the product manager might automatically determine that clearly there is a market for a mechanical pencil and they should start manufacturing those. Perhaps, but doing so requires completely new capabilities from the design to the manufacturing stage and if all you make is wood pencils, a shift like that represents significant capital investments to either build or acquire such specialization.  And yet given the continued demand for wooden pencils, there are interesting ways to differentiate within the confines of the original product definition alone – consider special hardwoods, eco-friendly renewable forests, recycled woods, and specialty leads.   

It’s important to frame this thought in the triangle of consumer values – sometimes called the Value Mix.  Consumers evaluate the benefits they gain from a product across three variables as described below.

Marketing Value Mix

This is an important framework to consider since with a commodity product, the functional requirements (wood, graphite, eraser, shape, size) are fairly universally met across available competitive offerings and therefore manufacturers are forced to compete on either economic (a race to the bottom for lowest price) or psychological (appealing to a consumer’s particular desires for esteem or recognition).  Ignoring price, this leaves us with a psychological approach that might be supported by adjustments to the functional attributes. Let’s think about the three groups of consumers discussed above and consider how a pencil manufacturer might effectively target each one of them in a manner that would drive a price premium and brand differentiator. 

Teachers

Educators who work in K-12 are a perfect segment for targeting given that pencils and school seem to go together like peanut butter and jam.  Consider that in primary education (Grades K-4) and secondary education (Grades 5-12) respectively, women comprise 89% and 63% of the teachers.  If women are a primary target, then perhaps aligning your pencil with a cause that they are passionate about makes sense.  For example, selling a pencil that is pink or covered with painted pink ribbons and marketed with a campaign that states a percentage of the revenues for these pencils are contributed to supporting breast cancer research, might be appealing to this group.  Dixon Ticonderoga sells just such a pencil and they retail at $4.29 a dozen.  That’s a 430% increase just by painting a pencil a different color and aligning your product with a cause. 

Children

Young children are going through the process of learning to write and doing so requires significant development of the fine motor skills in their hands.  Teachers and parents look for ways to help the child improve those skills and one approach is to increase the diameter of the pencil, thereby making it easier to grasp during the earlier stages of the learning experience.  One way to accomplish this is with one of those rubber triangular sleeves that covers ¼ of the pencil.  But an approach that plays to the pencil manufacturer’s existing capabilities is to simply increase the diameter of the wood encasing the pencil and the stick of graphite inside accordingly.  Take it one step further and market the pencils as “My First Pencil” and suddenly you have a product that retails for $5.29 a dozen.  Now considering that this pencil is 13/32” in diameter versus the typical ¼” diameter pencil, there is an increase in material costs but only by a factor of 2 while your retail price has jumped by a factor of 5.3!  That means you’re still making ~300% more in profits on a simple wooden pencil. 

And if you’ve already made a name for yourself with the teachers of these children, it’s highly possible your brand will be included in the list of recommended supplies to purchase that the teacher gives out at the beginning of the school year.  This is important because the 4 weeks preceding and 4 weeks following the start of school is when 25% of the annual school and office supply purchases occur. 

Designers/Architects

When you think of this consumer group you realize that functionality is critical to them since the pencil is a key tool of trade and therefore an important part of their work product.  But you also realize that their work is all about aesthetics so image has a strong impact as well in what they choose.  Two possible approaches here that both play on the same psychological dimension should be considered.  Take a typical pencil, die the wood black, paint it a glossy black, add raised dots to create a grip, get rid of the eraser, and suddenly you have a sleek black arrow that looks elegant on the desk or in the hands of the user.  This pencil reflects their style and sense of design.  And it also sells for $24 a dozen as the Faber Castell “Black”.  Even if the materials (graphite, wood, dye, paint) are 400% more expensive, you’ve realized a 2000% increase in profits where the pencil goes from less than a dime a piece to $2.00 a piece.

And if you think that is something, try creating “The Perfect Pencil” which is the combination of a fine cedar pencil with SV-bonded anti-break lead in B grade and sporting a soft non-smudging eraser with an aluminum extender (for when the pencil shortens) with built-in sharpener with a high-quality sharpening blade and a sprung pocket clip.  The price on this bad boy?  Between $75 and $250 for the pencil gift set (depending on where you buy it) which includes the extender and three pencils.  And then you can purchase pencil refills at 5 for $50.  That’s $10 a pencil.  Making it a 10,000% increase just connected to the prestige of a niche focused product.  Now granted you won’t find many who are willing to pony up that kind of cash for the Porsche of pencils, but that’s what segmentation is all about. 

Hopefully that helps you consider that there are always a variety of options available to the product manager even if they’re dealing with a commodity product.  Dixon Ticonderoga and Faber Castell, as the two largest pencil manufacturers have taken a targeted segmentation approach to their market that allows them to spread widely across their market and then benefit from deep opportunities where they are found. 

One of the key things I didn’t cover in this answer was that your marketing campaign will have to support the positioning chosen which in the CPG world means you’ll have to spend promotion dollars or else provide for a larger trade spend budget.  In some cases, like the specialized designer pencils, your better bet is to find the right avenues, potentially online, to work the small community of pencil connoisseurs and introduce your new product to them.  By support, I mean you have to nail the single advertising message that will connect your new product with your brand and the aspiration or interest of the target consumer.  That my friends, is no small feat and something to approached very carefully.

You Can’t Innovate Like Apple

Note: Experience tells me I must start with the disclaimer that I admire Apple but I am not a Macaholic or a Windows Geek.  I don’t care who has the better OS except to the extent that it provides examples for successful or poor innovation.

Apple!  Apple!  Magazines can’t possibly be wrong so Apple is clearly the Most Admired, the Most Innovative, and the Master at Design.

Let me tell you, when what you teach and develop every day has the title Innovation attached to it, you reach a point where you tire of hearing about Apple.  Because everyone believes the equation Apple=Innovation is a fundamental truth akin to the Second Law of Thermodynamics, Boyle’s Law, or Moore’s Law.  But ask these same people if they understand exactly how Apple comes up with their ideas and what approach they use to develop such blockbuster products and whether it is a fluky phenomenon or based on a repeatable set of governing principles and you mostly get a dumbfounded stare.  This is what frustrates me because people worship what they don’t understand.

I’ve been meaning to write this post for some time but finally sat down and put pixel to screen after coming across a description of Michael Lopp’s (a Senior Engineering Manager at Apple) discussion of how Apple does design during the panel he did at SXSW Interactive with John Gruber (yes for you Apple heads, that Daring Fireball guy) on March 8th titled Blood, Sweat, and Fear: Great Design Hurts.  I know, you’re saying, It’s been 13 days Alain, how slow can you be?  Well, I was waiting for someone to post an actual recording of the seminar but neither video nor audio seems to exist at this point.  If someone reads this and happens to have such a recording please, please, share!

What will follow then is a collection of insights that various attendees created from their notes of attending and then my own personal discussion of what this portends for people who aspire to be like Apple.  My intention is to attempt to synthesize what various attendees have written into a single representation of what Lopp and Gruber actually said.

Sketchnote of Blood, Sweat and Fear

Helen Walters at BusinessWeek summarized Lopp’s panel with five key points:

Apple thinks good design is a present.  Lopp starts off this section by discussing of all things, the story of the obsessive design of the new Mentos Box.  You know Mentos right?  The really odd packaging (paper rolls like Spree candy) promoted by some of the most bizarre ads on TV? It’s the candy that nobody I know eats, they just use it to create cola geysers.  Have you looked recently at the new packaging Mentos comes in?  Why did they change the packaging from a roll to a box?  I’ll do a post on this later but if you want to read about it here’s an article from 2003 discussing the rationale for the change.  Lopp says the new box is a clean example of obsessive design because the cardboard top locks open and then closes with a click – there’s an actual latch on the box and it actually works.  It’s not just a square box but one that serves a function and works.  I went out and bought a box just so I could examine it more closely and it’s an ingenious design of subtle simplicity that works so well even shaking it upside down does not pop the box open.

According to John Gruber, the build-up of anticipation leading to the opening of that present is an important (if not the most important) aspect of the enjoyment people derive from Apple’s products.  The world divides into two camps:

  1. Those who open their presents before Christmas morning
  2. Those who wait – they set their presents under the tree and like a child agonize over the enormous anticipation of what will be in the box when they open it on Christmas morning

Apple designs for #2.  No other company is so heavily fetishized in the online unboxing photo documentation phenomenon.  But few companies put as much attention to detail as Apple does to the fit and finish of the box let alone the out of box experience.  How many companies do you know that make packaging p*rn? And you can capture that Christmas morning experience more than once a year with every stop you make at the local Apple store.  Apple wraps great ideas inside great ideas and the whole experience is linked as the present concept traces from the bottom up: Apple’s OS X operating system is the present waiting inside its sleek, beautiful hardware; its hardware is the present artfully unveiled from inside the gorgeous box; the box is the present waiting for your sticky little hands inside its museum-like Apple Stores; and the bow tying it all together? Steve Jobs’s dramatic keynote speeches, where the Christmas morning fervor is fanned on a grand stage by one of the business world’s most capable hype men.

Pixel perfect mockups are critical.  This is hard work and an enormous amount of time but is necessary to give the complete feeling for the entire product. For those who aren’t familiar with the term this means the designers for a piece of software at Apple create an exact image down to the very pixel (the smallest point of light on your monitor – it is the basic unit of composition on a computer or television display) for every single interface screen and feature.  There is no Ipsum Lorem used as filler for content either.  At least one of the Senior Managers refuses to look at any mock-ups that contain such Greek filler.  Doing this removes ALL ambiguity – everyone knows and can see what the final product will look like and critique it accordingly.  It also means you won’t get changes by the designer or engineer after the review as they are filling in the content – something I have seen happen time and time again.  Ultimately it means no one can feign surprise when they see the real thing later on.

10 to 3 to 1.  Take the above concept and pile on top of it the requirement that Apple designers expect to design 10 different mockups of any new feature that is considered.  And these are not just crappy mockups, these all represent different but really good implementations that are faithful to the product specifications.  Then narrow these down to 3 based on specific criteria that the team spends months further developing until they finally narrow down to 1 final concept that truly represents their best work for production. This approach is intended to offer enormous latitude for creativity that breaks past restrictions.  But it also means they inherently plan to throw away 90% of the work they do.  I don’t know many organizations for whom this would be an acceptable ratio.  This is a major reason why I say you can’t innovate like Apple.

Paired design meetings.  Every week the teams of engineers and designers get together for two meetings.

  1. Brainstorm meeting – leave your hang-ups at the door and go crazy in developing various approaches to solving particular problems or enhancing existing designs.  Free thinking with absolutely no rules.
  2. Production meeting – The absolute opposite of the brainstorm where the aim is to put structure around the crazy ideas and define the how to, why, and when.

These two meetings continue throughout the development of any application and if you know the stories of Steve Jobs discarding finished concepts at the very last minute you will understand why the team operates in this manner.  It’s part of their corporate DNA of grueling perfection.  But the balance does shift away from free thinking and more toward a production mindset as the application progresses even while they keep the door open for creative thought at the latest stages.

Pony meetings.  These meetings are scheduled every two weeks with the internal clients (AKA God himself and his minions) to educate the decision makers on the design directions being explored and influence their perception of what the final product should be.

They’re called “Pony” meetings because they correspond to Lopp’s description of the experience of Senior Managers dispensing their wisdom and wants to the development team when discussing the early specifications for the product.  “I want WYSIWIG…I want it to support major browsers…I want it to reflect the spirit of our company.”  [What???] In other words, I want a pony.  Who doesn’t want a pony?  A pony is gorgeous!  The issue that anyone who has sat through these types of experiences can tell you [we do it all the time in our senior management interviews as we develop a strategic vision for new product development] is that these people are describing what THEY think THEY want.  Lopp cops to reality in explaining that since they are signing the checks you cannot simply ignore these senior managers, but you do have to manage their expectations and help align their vision with the team’s.

The meetings achieve this purpose and give a sense of control to senior management so that they have visibility into the process and can influence the direction.  Again, the purpose of this is to save the team from pursuing a line of direction that ultimately gets tossed because one of the decision makers wasn’t bought in.

Now, if you want to get the quick summary of what we just discussed, I highly recommend reading Mike Rohde’s SXSW Interactive 2008 Sketchnotes.  He took highly illustrated notes of the Lopp/Gruber panel.  Content for this write-up also came from: Scott Fiddelke, Dylan at The Email Wars, Jared Christensen, David at BFG, and Tom Kershaw.

What else does Apple do differently?  If you read the various interviews that Steve Jobs and Jon Ive have given over the last few years you’ll find a few specific trends.

1. Apple does not do market research

This is straight from the man’s mouth: We do no market researchThey scoff at the notion of target markets and they don’t conduct focus groups.  Why?  Because everything Apple designs is based on Steve and team’s perception of what THEY think is cool.  He elaborates further:

It’s not about pop culture, and it’s not about fooling people, and it’s not about convincing people that they want something they don’t. We figure out what we want. And I think we’re pretty good at having the right discipline to think through whether a lot of other people are going to want it, too. That’s what we get paid to do.  So you can’t go out and ask people, you know, what’s the next big [thing.] There’s a great quote by Henry Ford, right? He said, ‘If I’d have asked my customers what they wanted, they would have told me “A faster horse.” ‘

Said another way, Steve hires really smart people and he lets them loose on a leash since he overlooks it all with an extremely demanding eye.  If you’re seeing visions of the “Great Eye” from J.R.R. Tolkein’s books then you probably wouldn’t be too far off.  Here’s the way their simple process works:

  1. Start with a gut sense of an opportunity and the conversations start rolling…
  2. What do we hate? (Our cellphones)
  3. What do we have the technology to make? (A cellphone with a Mac inside)
  4. What would we like to own?(An iPhone, what else?)

But Jobs also explained that in this specific conversation, there were big debates across the organization on whether or not they could and should do it.  Ultimately, he looked around and said, Let’s do it. 

I think it’s clear they also benefit with the inauspicious leak out to the market – and by that I mean I think this overly tight-lipped organization occasionally leaks early ideas out to the market to see what kind of response they might generate.  Again, what other company benefits from having thousands of adoring designers who come up with beautifully photoshoped concepts of what they think the next great product should look like?

2. Apple has a very small team that designs their major products 

Look at Jonathan Ive and his team of a dozen to twenty designers who are the brains behind the genius products that Apple has delivered to the market since the iMac back in 1998.  New product development is not farmed out across the organization but instead is creatively driven by this select group.  Here’s how one journalist described them:

“Apple is a cult, and Apple’s design team is an even more intense version of a cult,” notes Riley. Actually, it’s not a big cult — just a dozen people or so. But they operate at an extremely high level, both individually and as a group. Ive has said that many Apple products were dreamed up while eating pizza in the small kitchen at the team’s design studio.

It’s a team that has worked in idyllic comfort for many years. Some designers were at the company long before Ive arrived in 1992. They rarely attend industry events or awards ceremonies. It’s as though they don’t require outside recognition because there isn’t any higher authority on design excellence than each other, and because sharing too much information only risks helping others close the gap. And they personally reflect the design sensibilities of Apple’s products — casually chic, elitist and with a definite Euro bent. The team, made up of thirty- and fortysomethings, has a definite international flair. Members include not only the British Ive but also New Zealander Danny Coster, Italian Daniele De Iuliis, and German Rico Zörkendörfer. “Its good old-fashioned camaraderie — everyone with the same aim, no egos involved,” says British fashion designer Paul Smith, a friend since the late 1990s when Ive sent him a new iMac. “They have lots of dinners together, take lots of field trips. And they’ve turned these gray frumpy objects called computers into desirable pieces of sculpture you’d want even if you didn’t use them.”

Most of Ive’s team live in San Francisco, and rumor has it that the starting salary for the group is around $200,000, some 50% above the industry average. They work together in a large open studio with little personal space but great privacy. Many Apple employees aren’t allowed in, for fear they’d catch a glimpse of some upcoming product. A massive sound system pumps up the music. Ive invests his design dollars in state-of-the-art prototyping equipment, not large numbers of people. And his design process revolves around intense iteration — making and remaking models to visualize new concepts. “One of the hallmarks of the team I think is this sense of looking to be wrong,” said Ive at Radical Craft. “It’s the inquisitiveness, the sense of exploration. It’s about being excited to be wrong because then you’ve discovered something new.”

Ive’s team at Apple isn’t the usual design ghetto of creativity that exists inside most corporations. They work closely and intensely with engineers, marketers, and even outside manufacturing contractors in Asia who actually build the products. Rather than being simple stylists, they’re leading innovators in the use of new materials and production processes. The design group was able to figure out how to put a layer of clear plastic over the white or black core of an iPod, giving it a tremendous depth of texture, and still be able to build each unit in just seconds. “Apple innovates in big ways and small ways, and if they don’t get it right, they innovate again,” says frog design founder Hartmut Esslinger, who designed many of the original Apple computers for Jobs. “It is the only tech company that does this.”

Jobs himself has delegated away many of his day-to-day operational responsibilities to enable him to focus half of his week on the high and very low level development efforts for specific products. 

3. Apple owns their entire system

They are completely independent of reliance on anyone else to provide inputs to the design and development of their products.  They own the OS, they own the software, and they own the hardware.  No other consumer electronics organization can easily do what Apple does because they own all of the technology and control the intimate interactions that ultimately become the total user experience.  There is no other way to ensure such a seamless experience – a single executive calls the final shots for every single component.

Jobs says this question of control is critical to Apple’s success:

I’ve always wanted to own and control the primary technology in everything we do. Take audio. For years, the primary technology was the [marking mechanism] inside a CD or a DVD player. But we became convinced that software was going to be the primary technology, and we’re a pretty good software company.

So we developed iTunes [Apple’s music jukebox software that later morphed into the iTunes Music Store]. We’re a good hardware company, too, but we’re really good at software. So that led us to believe that we had a chance to reinvent the music business, and we did.

4. Apple focuses on a very select group of products

 Apple acts like a small boutique and develops beautiful artistic products in a manner that makes it very difficult to scale out to broad and extensive product lines.  Part of this is due to the level of attention to detail provided by their small teams of designers and engineers.  To think that a multi-billion dollar company only has 30 major products is astounding because their neighbors at that level of revenues have thousands of products in hundreds of different SKUs.  As Jobs explains, this is the focus that enables them to bring such an extensive level of attention to excellence.  But it is also an inherently risky enterprise because they are limited in what new product areas they can invest in if one fails.

“Apple is a $30 billion company, yet we’ve got less than 30 major products. I don’t know if that’s ever been done before. Certainly the great consumer electronics companies of the past had thousands of products. We tend to focus much more. People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully.

I’m actually as proud of many of the things we haven’t done as the things we have done. The clearest example was when we were pressured for years to do a PDA, and I realized one day that 90% of the people who use a PDA only take information out of it on the road. They don’t put information into it. Pretty soon cellphones are going to do that, so the PDA market’s going to get reduced to a fraction of its current size, and it won’t really be sustainable. So we decided not to get into it. If we had gotten into it, we wouldn’t have had the resources to do the iPod. We probably wouldn’t have seen it coming.”

5. Apple has a maniacal focus on perfection

They say that Steve Jobs had the marble for the floor at the New York Apple store shipped to California first so he could examine the veins.  He also complained about the chamfer radius on the plastic case of an early prototype of the Macintosh.  You had better believe, given the 10 to 3 to 1 approach for design, that every shadow, every pixel is scrutinized.  It’s in their DNA.  They are willing to spend the money to make sure everything is perfect because that is their mission.  Just as an example, when Jonathan Ive and team developed the original iMac they wanted to give the colored plastic shell on the back a crystalline look:

To understand how to make a plastic shell look exciting rather than cheap, Ive and others visited a candy factory to study the finer points of jelly bean making. They spent months with Asian partners, devising the sophisticated process capable of cranking out millions of iMacs a year. The team even pushed for the internal electronics to be redesigned, to make sure they looked good through the thick shell. It was a big risk for Jobs, Ive, and Apple. Says one rival: “I would have had to prove that transparency would increase our sales, and there’s no way to prove that.” He figures Apple spends as much as $65 per PC casing, vs. an industry average of maybe $20.

So is it possible for you to innovate like Apple?

Now, given all of this, what is a company to do if they want to innovate like Apple?  First, forget about it unless you are willing to invest significantly and heavily to establish a culture of innovation like Apple has.  Because it’s not just about copying Apple’s approach and procedures.  The vast majority of executives who say, I want to be just like Apple, have no idea what it really takes to achieve that level of success.  What they’re saying is they want to be adored by their customers, they want to launch sexy products that cause the press to fall all over themselves, and they want to experience incredible financial growth.  But they generally want to do it on the cheap.

To succeed at innovation as Apple has you need the following:

You need a leader who prioritizes new product innovation.The CEO needs to be someone who looks out on the horizon and consistently sets a vision of innovation for the organization that he/she is willing to completely support with people, funds, and time.  Further, that leader needs to be fluent in the language of your customer and the markets you compete in.  If the CEO cannot be this person then they need to be willing to invest that role into a senior executive and give them the authority and latitude to effectively oversee the new product development process.

Jobs explains it this way:

You need a very product-oriented culture, even in a technology company. Lots of companies have tons of great engineers and smart people. But ultimately, there needs to be some gravitational force that pulls it all together. Otherwise, you can get great pieces of technology all floating around the universe. But it doesn’t add up to much. That’s what was missing at Apple for a while [during the 11 year period between 1985 and 1997 while he was gone]. There were bits and pieces of interesting things floating around, but not that gravitational pull.

People always ask me why did Apple really fail for those years, and it’s easy to blame it on certain people or personalities. Certainly, there was some of that. But there’s a far more insightful way to think about it. Apple had a monopoly on the graphical user interface for almost 10 years. That’s a long time. And how are monopolies lost? Think about it. Some very good product people invent some very good products, and the company achieves a monopoly.

But after that, the product people aren’t the ones that drive the company forward anymore. It’s the marketing guys or the ones who expand the business into Latin America or whatever. Because what’s the point of focusing on making the product even better when the only company you can take business from is yourself?

So a different group of people start to move up. And who usually ends up running the show? The sales guy. John Akers at IBM (IBM ) is the consummate example. Then one day, the monopoly expires for whatever reason. But by then the best product people have left, or they’re no longer listened to. And so the company goes through this tumultuous time, and it either survives or it doesn’t.

You need to focus.  A cohesive vision needs to be established that describes the storyline for your products and services.  That storyline needs to decisively state what is in bounds and what is out of bounds over an 18 month to 3 year period.  Everyone who matters to the development process needs to be in lockstep with this vision which means you need to have open lines of communication that are regularly and consistently managed.  This storyline or strategic vision needs to be revised according to market changes and the evolution of your new product pipeline.  It helps that Apple tends to approach their products with a systemic frame of mind, looking to develop the “total solution” rather than just loosely joined components.

Again, here is how Jobs describes their approach:

And it comes from saying no to 1,000 things to make sure we don’t get on the wrong track or try to do too much. We’re always thinking about new markets we could enter, but it’s only by saying no that you can concentrate on the things that are really important.

He continues the thought by describing that they focus on two things and the first one is to create the best products available whether its PCs, or phones, or music players or online media stores:

We don’t get a chance to do that many things, and every one should be really excellent. Because this is our life. Life is brief, and then you die, you know? So this is what we’ve chosen to do with our life. We could be sitting in a monastery somewhere in Japan. We could be out sailing. Some of the [executive team] could be playing golf. They could be running other companies. And we’ve all chosen to do this with our lives. So it better be damn good. It better be worth it. And we think it is.

Obviously, the other focus is to make a profit since that is what supports the continued efforts to design the next great product.  And when every one of the major products is a moonshot, they have to work to ensure it meets exacting standards to do everything they can to ensure success.

You need to know your customer and your market.  Steve Jobs and team can get away with not doing market research, identifying target markets, or going out and talking with customers because of the markets they play in and the cult-like customers who adore them.  Most technology companies believe they can get away with this and most technology companies get it wrong.  Quick, identify 10 different pieces of technology that truly understood and met your needs and don’t bug you due to a major flaw that you either have to live with or compensate for in some fashion.  Could you come up with more than five?  I didn’t think so.  We’re drowning in a sea of technological crap because every product that is released to the market is a result of multiple compromises based on decisions made by the brand manager, the R&D product manager, the marketing manager, the sales manager and everyone else who has skin in the game as they prepare the offering to meet what THEY think the target customer’s needs are.

The reason Jobs and Jonathan Ive get it right is because they design sexy products with elegant and simple interfaces for themselves and count on their hip gaggle of early adopters to see it the same way.  Once the snowball starts rolling, it’s all momentum from there.  Apple doesn’t sell functional products, they sell fashionable pieces of functional art.   That present you’re unwrapping is all about emotional connection.  And Steve Jobs knows his marketplace better than anyone else.

Because you’re not Apple and you are likely not selling a similar set of products, you must do research to understand the customer.  And while I’m sure Steve says he doesn’t do research, it’s pretty clear that his team goes out to thoroughly study behaviors and interests of those they think will be their early adopters.  Call it talking to friends and family, but honestly you know that these guys live by immersing themselves in the hip culture of music, video, and computing.

The point is not to go ask your customers what they want.  If you ask that question in the formative stages then you’re doing it wrong.  The point is to go immerse yourself in their environment and ask lots of why questions until you have thoroughly explored the ins and outs of their decision making, needs, wants, and problems.  You should be able to break their need or opportunity down into a few simple statements of truth.

As Alan Cooper says, how can you help an end user achieve their goal if you don’t know what it is?  You have to build a persona or consumer model that accurately describes the objectives of your consumer and the problems they face with the existing solutions.   The real benefit, as I saw in my years working at InstallShield and Macrovision, is that unless you put a face and expectations on that consumer, then disagreements on features or product positioning or design come down to who can pull the greatest political will rather than who has the cleanest interpretation of the consumer’s need.

You need the right people and to reward them accordingly.  The designers at Apple are paid 50% more than their counterparts at other organizations.  Now these guys aren’t working at Apple simply because they’re paid more.  They stay at Apple because of the amazing things they get to do there.  Rewards are about salary and benefits, but they are also about recognition and being able to do satisfying work that challenges the mind and allows the creative muscles to stretch.  Part of this also comes down to ensuring your teams are passionate about innovation and dedicated to the focus of the organization.  As Jobs says, he looks for people who are crazy about Apple.  So you need to look closely at who you are hiring and whether you have the right people in the organization in the first place.

It’s not much, but I’ve only begun to carve out what it takes for you to succeed at developing “perfect” products like Apple does.  And honestly, their products are far from perfect.  But that’s a post for another day.

Imagine It! – Creating Value From Nothing

Could you create value from nothing?  Do you think it takes a creative, entrepreneurial spirit in order to accomplish such a monumental task?

I promised yesterday I would share a case study I worked on recently, the Tata Motors $2500 car to be specific.  But snow blowing the remains of the still-going snowstorm this morning from my driveway sent my creative thoughts whirring around like so many snowflakes and got me thinking about an incredible documentary that was just released on Friday.  It’s called Imagine It! and it focuses on a collaboration that Richard Tavener from Infinite Loop Media did with Stanford University – and ultimately universities across the globe – in challenging students to be innovative with a common everyday object.

As Tina Seelig, Executive Director of the Stanford Technology Ventures Program explained, “We’re giving people an everyday object and then telling them to create value.”  Which according to the dictionary there are 18 different definitions of the term.  She continues,  “Students can do it by how much money you make, the amount of social value you create, the amount of entertainment value, how creative you are.  There are unlimited categories.

I mention this documentary because it’s an amazing example of encouraging young people to recognize and expose their own internal creative genie.  Creativity on one level is all about solving problems and this is a fantastic approach to help students tackle innovation in a fun and engaging manner.

The challenge: Take a pack of Post-it Notes and create something of value from them.  But as always there are constraints.  Participants have 6 days in which to create their value and then must report on it in 3 minutes either in a video or 3 slide presentation.  There are some great examples of creativity and problem solving that come out of it.

What I really love is all of the experts they interview throughout the movie – which can be watched in 5 minute segments online or downloaded in one single loop.  Some of the great moments included:

Geoffrey Moore (who wrote the seminal Crossing the Chasm business series on growing your tech business and more recently released a brilliant book, Dealing with Darwin, about matching innovation efforts with your organization’s role in its market ecosystem).  I love how Moore jumps right to the problem solving aspect of innovation:
Go to the problem and then imagine a world where that problem has been removed.  And then say well how many steps from this world to that world.

Guy Kawasaki (the original technical evangelist for Apple and now Managing Director of Garage Technology Ventures).  Guy is, well, Guy and he dives right into the analogy of how the constraints this effort puts on the participants is just like real life innovation that those of us who practice it struggle with every day:
It’s sort of a good preparation for later life.  Which is, you never have infinite resources and you’re given this constraint and it is constraining, it’s Post-it pads.  And when you’re out in the real world, you will also have constraints, you will not have infinite capital, you won’t have infinite employees, you won’t have infinite time.  And then doing his best Forrest Gump, Guy continues, Life is like a Post-it pad.

But my two favorite moments in the film are two specific comments that really nail the genius of this effort.

Randy Komisar, Partner Kleiner Perkins, Caufield and Byers:  It wouldn’t be Silicon Valley if there wasn’t a quote from some partner at Kleiner Perkins – the VC firm that birthed so many great internet businesses.  Randy discusses the challenge of getting past the blank slate and a discussion he had with  George Lucas about the creative effort.
It’s hard to look inside to get started.  That’s where people often get stuck.  It’s often easier to find something to rub up against.  It’s very difficult to make that first brush stroke on a white canvas.  But throw some dots up there, and then when you look at the canvas it’s very easy to put that first stroke on.  So find something to oppose, find something to merge with, find something to dance with.  And in the process you have creativity.

To the innovators out there, I would say, find a REAL consumer problem first.  When I was working at InstallShield with Viresh Bhatia, the co-founder of the company, we often discussed the same questions, especially as we looked at the mass of crazy projects we saw sprouting across the web during the dot-com phase.  The projects, the business ventures that succeeded in surviving, were always the ones that had found a single customer or customer group first and then developed a solution for them.  If you’re an entrepreneur, then it’s not good enough to come up with the most amazing technology ever if you can’t find any use for it in the real world.  The VC’s might support you for a while, but eventually you’re either solving problems or you’re out of money.

Debra Dunn, Advisor to Social Ventures.
[This project] taps into in some ways the rawest level of their creativity.  Because what you’re giving them is apparently, nothing.  And so you’re really asking them to create value from virtually nothing.  That’s sort of the essence of entrepreneurship.  No question about it, the thrill of any creative innovation effort is looking up after all the sweat and toil and realizing you have come up with something amazing and perhaps new to the world.  You have given birth to something that never existed before you set out down the path of creating it.  And if done right, it is destined to offer beauty and/or happiness when it is encountered.

The one last reason I absolutely love this idea is because I can see us using it in future solution generation sessions to help spark the group.  We use Post-it’s all of the time to encourage the people we gather for these sessions to help them develop an idea.  They’re wonderfully constraining because they force you to be economical in your description and pare the idea down to its very essence.  And then, you can stick them up on the wall to cluster in groups of similar or very different ideas to find amazing relationships that evolve into a single or even many brilliant solutions to the problem we are exploring.

On a personal note, I have to mention that my wife Julianna, who is often my muse when it comes to developing new ideas and thinking through a problem, came up with a brilliant business idea for Post-it notes that her brother-in-law Roger went on to implement as a full blown cottage business.  This was 12 years ago when she had noticed one day in church how Roger had all kinds of inspirational quotes on scraps of paper or scribbled in the margins of his scriptures.  She looked at them and said, You know Roger, I bet you could put those on Post-it notes and then you wouldn’t have to worry about them falling out of your scriptures.  In fact, I bet you could actually make sets of those and people would be interested in buying them.  Roger went on to make a pretty tidy penny off of that insight.  Talk about creating value from nothing!

Rubber Bands

Finally, the effort is not over with the completion of the documentary.  The challenge is intended to be an annual tournament – the Stanford Innovation Tournament Video Contest – and it kicked off on Friday with reveal of this year’s secret item: rubber bands!  Students are encouraged to participate in groups and submit their entries online.

Kuczmarski, Google, and Innovation

Early in December last year, Tom Kuczmarski, the Senior Partner of our firm was invited to come share his perspective on Innovation as well as discuss his latest book “Apples Are Square” with the bright and curious minds at Google.  Below is a video of the engaging conversation that ensued. 

Great questions from the audience included:

Can you routinize and processize innovation or does it have to be original every time?

We would say that innovation is only TRULY successful if you have incorporated it into your culture and it becomes a standard part of your product development efforts.  When I worked in software I often looked around at small and large successful tech companies and wondered what made the difference between those that were small one or two hit wonders that stall at $30-40 Million in revenues and those that just dominate a market (think Flickr or VMware or Microsoft or Google)?  There are several parts to that answer but there is no question that generally success is tied to an iterative, customer centric process. 

Being at Kellogg, how do your students respond to your discussions of innovation?  Are they excited about it, engaged and what kinds of examples do you use, what types of companies do you point to?

Since part of my regular work is to develop many of the cases Tom uses in his Kellogg and corporate presentations and we at the firm use for our client work I’ve been thinking it might be a useful approach to start fleshing these out in the weblog.  Look for a discussion of Tata Motors tomorrow.

And my favorite was, How do you make sure that what you innovate to is actually going to be demanded by the market ultimately?

See the answer to the first question.  I love how Tom phrases his answer, and no, unlike Hillary and Barack, we did not seed that question into the crowd.  The dimension of innovation that people and companies – especially high tech organizations – often forget about is that while we have to focus on the creative side of innovation, we also have to focus on how do we convert that into a successful business venture or new service or new product that ultimately will serve new customers and will be profitable to the business.  You have to be customer centric and you have to be willing to let go of your preconceived notions of what your target customers really want.  Either that or you have to accept that it may actually be a very different customer who finds an even greater value to your product or service while using it in a very different fashion than you originally envisioned. 

If you want Tom’s full answer to the last question then you need to sit and watch the video – the reaction from Google was very enthusiastic both during and after the presentation.

Innovation Done Right – The Best Thing Since Sliced Bread

Sara Lee SoftIn my last post I kept referring back to that old simile of building the next great thing since sliced bread. Well, believe it or not there is innovation in things as common as sliced bread and Sara Lee is an example of a company who gets it when it comes to listening to consumers, identifying the real problems they are trying to solve, and then implementing a product that exceeds their expectations.

Sara Lee was one of 11 winners in the Chicago Innovation Awards in October and the success the award celebrated was their new Soft & Smooth Made with Whole Grain White Bread. If you click on the CIA link and select “2006 Awards” at the bottom of the page you will see a brief video of Peter Reiner, VP of Sara Lee brands, discussing how they came up with the truly innovative new bread by leveraging deep consumer insights.

What is it: a whole grain white wheat bread with the appearance, texture and taste of a refined white bread that young kids and adults love.

What problem it solves: Consumers in general realize they need to improve their diets and “whole grains” is one of the areas that the FDA and nutritionists have identified as a lack in many Americans’ diets. Heather Hawkes on the Harvard Medical School Consumer Health Information site explains,

New government guidelines recommend that Americans make half of their grains whole, eating three or more 1-ounce servings a day. Yet it’s estimated that the average consumer eats less than one-third of the recommended amount of whole grains — and 40% of us never eat whole grains at all!

Moms want to feed their children healthy food and despair that their children refuse to eat wheat bread because it doesn’t taste good or is too “crusty” to eat. Kids want great tasting sandwiches made with white bread (that light and airy stuff with no nutritional value – think Wonder Bread when you were a kid). Just try to get a young child to eat wheat bread, experience shows they can be pretty intractable. One of the best insights I’ve seen came from a director of nutrition services in the Omaha Public Schools, “The hardest thing is to get a kid to eat something that’s brown or anything that looks like it has seeds in it.” Given the focus on children’s health and obesity, the Public Schools clearly have an interest here as well. In my house it’s not a problem, the girls eat nothing but Great Harvest whole wheat, but for most families this is a deep set issue.

But it’s not just about children either. As Heather Hawkes explains further in her article, research in the Harvard Medical School’s Nurses Health Study demonstrates that a diet with greater emphasis on whole grains also contributes to weight loss or maintenance for women.

Now if you know nothing else about food, you should quickly realize that children’s health and women’s weight are probably the two biggest lodestones when it comes to trends and issues in American eating. Find a product that reasonably and effectively answers these issues and you have just hit the mother lode.

So Sara Lee’s product captures both of these insights and satisfies both the target consumer and the target purchaser.

What are the results: The #1 selling bread in the bread aisle of your local grocer – a hotly contested shelf space. According to IRI data, Soft & Smooth sold 16.7 million 20 ounce loafs or $30.2 million in sales between the launch in July through December 2005. That’s $30 million in 6 months! Again, for those not in the know, a single new product launch into grocery that delivers $30 million in the first year is a homerun. Sara Lee knocked this one out of the park and on its way to the moon just on revenues. But other indicators show that this is not just a one hit wonder where consumers try it once and move on. A survey done by Sara Lee among the target audience showed that 90% of Women with Children in Household rated the bread in the top two boxes of Very Favorable or Somewhat Favorable and again 91% indicated a high intent to purchase again after first trial. The bread did so well for Sara Lee at launch that they cut ad spending and dedicated the marketing dollars to production in order to meet demand.

How did they do it: Sara Lee partnered with a K&A client, ConAgra Foods, (and by this I’m not implying we had anythig to do with the product development) and is leveraging their Ultragrain Whole White Wheat as a key ingredient. What is White Wheat you ask? According to Ms. Hawkes, it is essentially albino wheat with none of the tannins and acids that make traditional wheat bread (made from red wheat flour) taste bitter:

Traditional wheat flour comes from red wheat. The bran layer contains tannins and phenolic acid, which are bitter and account for much of the taste difference between whole wheat and white bread. The red bran coloring is responsible in part for the darker color of whole wheat.

White wheat is a natural albino variety. It does not contain the tannins or acids that red wheat does, so the taste is sweeter and milder. The flour coloring is lighter, more golden. What’s more, it is touted as being the nutritional equivalent of its red wheat counterpart.

Sara Lee has leveraged this success into Whole Grain hamburger and hot dog buns and other breads that are equally experiencing strong success. So not only is this a great product, it also established a great platform for further product development in related spaces. There you have it, a great example of how focusing tightly on the problems customers face can lead to significant product success and strong customer loyalty. Sara Lee did go out and ask customers what they wanted, but they also went deeper and worked to identify the underlying issues and emotional drivers. This is the key to new product success in any business. Most marketers nod their head and say “Yup” when you say, “Thou shalt know thy customer.” Yet all they know is quantitative data which will tell you whether or not they like your product or brand, but it won’t tell you the kind of data that is gathered through ethnographic interactions and cultural research. You have to peel back the layers on the realities of your customers’ experiences. You have to REALLY know your customer, the world they inhabit and the true sources of the problems they face to see this kind of success. Either that or be extremely lucky.

Spring renewal – or reinventing a product

Ah Spring in Chicago, you never quite know what you’re going to get.  In fact it is the ultimate in failed consumer experiences because in early March you often get a couple of days of really warm weather (up to 70 degrees this year) and if you’re not careful you develop the false expectation that the days will be warmer and sunnier from there on out.  But you have to remind yourself that YOU live in CHICAGO, where it can shift in a matter of hours from a balmy 75 degree morning with no clouds in sight to a wickedly windy 30 degree afternoon with snow and freezing rain.  Which was exactly the weather we experienced yesterday – the snow part I mean, definitely NOT the balmy part.  Praise the weather gods that my commute started at a quarter to 6 when no one was on the roads still, it was much worse for some of my other colleagues trying to make it down to Lincoln Park from the outer burbs at the typical rush hour.

In many ways, the unpredictable weather is like a poorly released product all hyped up with insufficient substance to support it. 

Follow me here and I’m sure you will recognize the symptoms of the 9 Steps to the Vault of Irrelevance

1. Marketing has identified the top 3 problems that they believe consumers are trying to solve and have tweaked the positioning to get the masses all excited about how this product will be the greatest thing since sliced bread.

2. The product requirements documentation is developed to match these specifications but no significant research is attached to it that provides the emotional expectations of the consumer and how they perceive each particular problem area.

3. Compromises are made in the development process to the point that only one of these three features is likely to make it into the initial release.  One feature would take too long to meet the release deadlines that the corporate honchos are demanding to cover the investments required and the other feature was caught up in a political debate about whether this is the type of product that “our company” or “our division” would build for “our consumers.”  Further arguments around the third feature force it to be shaped in unnatural ways to support the company’s proprietary solution or brands (think Sony portable audio equipment using Memory Stick technology, the Playstation 3 and Blu-Ray, or Microsoft software if you need examples).

4. In the meantime, Sales and Product Management are hyping up the soon to be released product promising that it will be the greatest thing since sliced bread while demonstrating all three features with the caveat that two of them will probably make it into the next greatest thing since sliced bread otherwise known as “version 2” or better yet, “service pack 1.”  One reason why they hype the product in this fashion is because they believe that this will convince consumers to adopt our product line and brand rather than the competitor’s.  Note: this used to work back in 1995 – todays bloggers and reviewers have seen one too many “phantom” vaporous releases such that they will pan your product hard if you attempt to overhype it – and they will be merciless when you attempt to release version 2 if it takes too long or fails to deliver the “forgotten features.”

5.  Beta releases or perhaps early R&D versions of your product are reviewed by journalists and enthusiasts and they really want to love your product because it seemed so cool when they learned of the concept, but they keep tripping over the interface, the unnatural lock-down to your proprietary technology, or the missing features that would have made this the “perfect product.” 

6. After two unfortunate delays due to [name your hardware, software, or manufacturing issue] which were completely foreseen but improperly planned for, your product is finally launched with enormous fanfare and so much enthusiasm by your target consumers that it’s absolutely guaranteed that yours will be the fastest adopted product ever, besting the Palm Pilot, the Apple iPod, Playstation, and Windows 95…oh wait, that’s right, Vista is now the fastest adopted OS ever, sorry Microsoft. (Only one problem, my totally unscientific poll (n=7) shows that in spite of the numbers claimed, every enthusiast I have spoken with tells me they have yet to adopt Vista for full time usage because it’s too slow, buggy, or incompatible with their existing software and hardware – and these are software guys who jumped at Windows 98, ME, 2000, and XP).

7. The first month’s sales report rolls in and little red flags are raised – people are kicking the tires but they definitely are not buying in droves.   Sales and Product Management continue to hit up the reviewers, the key influencers, and press interviews and push hard on their channel sales contacts.  The word that comes back is people want those missing features and they just don’t find your product very usable.  Or they find it very usable but not very deep in being able to help them solve their problems.  Either way, they’re not buying so you pray that it’s just early adoption issues.

8.  The first quarter’s sales report rolls in and not only are you not on track to be the fastest adopted product ever, you’re in serious consideration for being another one of those products that made it just out of the starting gate before collapsing. The consumer response is so deafening you can hear the crickets chirping.  Add to this the complaints that are coming in because the bugs and incompatibility issues are causing customers to call in requesting support for a faulty LCD, a general protection fault, or a locked up device when they hit the play button (or some other common action).  So even where you are selling product the margins are being further eroded by costs of technical support and RMAs.

9. A year later, your product continues to limp, even though you’ve released three “improvement packs,” and you’re trying to convince consumers that the forthcoming version 2 truly will be the next greatest thing since sliced bread. 

You simply cannot figure out why your presentations are greeted with hostility at best and indifference at worst.

So what’s the problem?  The problem started at the very beginning.  The product was pre-defined before truly capturing the insights of what problems consumers are trying to solve.  Now look, some of the issues identified above in the 9 Steps  are going to happen even if you do have a well defined product – they’re part of Murphy messing around with your process and bad things happening to good products.  But for a product to succeed you have to have a VERY clear message and a very simple solution path that resonates with everyone on the development and product teams.  They have to KNOW your target consumer so well that they can understand why a tweak in one direction would violate expectations.  What this does is clear the path such that you are not wasting time arguing over what is best for the product but instead focusing on avoiding the typical development, production, and marketing issues that can founder even the best of products being developed by the best of teams.

At K&A we call this developing an Innovation Mindset and it definitely starts at the top of an organization but it must be inculcated into the culture of the entire organization in order for you to succeed more consistently than the average bear.  The point in developing new products is not to fail fast, in spite of what some may say and many may believe.  In reality, it is capture the majority of your failures earlier in the development process such that a greater percentage of your successes make it to market and your investments are better than the typical 1 in 10 shots of a VC.  If you’re going to play that game, why not just take your money to the racetrack or the poker table.  You’ll at least have more fun in the process while you do flush your money down the toilet. 

We’ll delve more into the Innovation Mindset in future posts.