Tag Archives: Amazon

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The Difficult and the Daunting

You may have heard recently that Amazon is pulling back a bit on hiring and warehouse space. With all their vast resources in strategic planning, the executive team there overshot on leasing square feet their forecasts no longer support. I suspect they will manage through this just fine in the long run with little impact on earnings, but it is a powerful reminder of how difficult it is to predict future business both when you’re in an up-market and a down one.

We all get this wrong now and again. It’s normal and usually navigable. The problems come when balancing present challenges heavily compromises a company’s future, or betting only on the future sours a company’s current performance to the point where no one cares about the future.

I am often humbled by the nagging paradox of making tough business decisions every day at the relentless pace of 24x7x365. Running a company in response to everyday circumstances in the present will always be difficult, Running a company for an opaque future will always be daunting.

We have to do both well to accomplish our current goals and set the table for the next generation of growth prospects. Favor either the present or the future too heavily and the question becomes whether you want to lose now or later. While that’s not an option any leader wants to consider, if we don’t see the delicacy in how one affects the other, our intentions can be undermined by our outcomes.

We often hear about the pressures of being a public company, how corporate leaders make choices to focus on quarterly earnings from which they financially benefit immediately over building strong companies for the long haul. I do think this happens at some companies where short-term stock performance can dramatically impact executive compensation. Too often those companies fall prey to what Clayton Christensen famously has called The Innovator’s Dilemma and allow their long-established norms of success to be fully disrupted by more nimble competitors.

There’s a more ironic take on this notion, where equity markets sometimes forgive emerging companies for failing to produce earnings at all in the near term in the hope that someday they will have gained so much market share that they will prove invincible. This all-or-nothing strategy has paid off handsomely for companies like Amazon that didn’t produce earnings for years, reinvested heavily in their growth, and today reap the benefits of that bet. Sadly, this example has been exploited by too many newly public companies that don’t even consider near-term profitability a goal, allowing lazy business models to overshadow unfounded optimism that someday their customers will reward them with enviable positions.

A company that bets only on the future, never becomes economically successful, and runs out of cash can be train-wrecked just as decisively as a once successful company that fails to address The Innovator’s Dilemma. If the executives steering either of those failures happen to be selling shares along the way to a company’s demise, a feast of lawyers will follow.

Inflation and rising interest rates make the cost of doing business higher for everyone. We painstakingly decide how much of these costs we pass along to customers and how much we absorb. The benefit of preserving current operating margins is always tempting, but the rewards of long-term customer loyalty and lifetime value speak for themselves. How do we decipher the balance between current and future financial results? Data will often shine a light on the path, but there are no conclusive textbooks with clear answers to these calculations.

It truly is hard to run a company both for today and tomorrow. We have to consider the staff sizes we need, the leases we’ll require, the stability of our supply chains, price elasticity, and the promise of our brands. We also carefully must watch cash flow, our balance sheets, compensation, incentives, technology advancements, and investments in future product cycles. What works today may or may not work tomorrow. It is seldom that what works perfectly in one set of conditions works just as well in another.

There are no perfect answers, but the fluidity of making a decision now for its short and long-term impact usually weighs heavily on those who wrestle with the impossible crystal ball.

Covid-19 has been a good reminder of how difficult and daunting decisions can be. We were all blind during Covid and it was easy to misread fluctuating data. No leader had substantial experience with stay-at-home working conditions. No one knew how long the pandemic would last, how it would impact supply and demand, or how it would impact investor sentiment. If that wasn’t enough of a challenge, most of what we thought going into Covid proved to be wrong, and most of our assumptions about how employees, customers, and investors would behave post-Covid have been equally wrong.

If you want to be humbled, try making decisions that address the unknown with this level of frequency. You’ll likely realize you’re wrong more than you’re right, but the less tangible skill we develop is how to rethink and react quickly when we discover we are wrong. That’s why the rewards for creating a company that is “built to last” are immense, but the odds of lasting fifty years are long.

When it comes time to decide short or long, know you have to do both, and do your best you to keep dialogue and debate flowing among diverse opinions. The decisions we make have an impact we might be able to see today, but unless you know someone who has a gift the world has never seen, we are almost always speculating on the impact a year or more from today. Sometimes it’s decades before we find out if we were right or wrong.

We choose to sign up for the difficult and the daunting. The longer I do this, the more humbling it is.

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Photo: Pixabay

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Gone So Soon

Recently I gave an interview about one of my favorite career projects, Carmen Sandiego. It was being researched by an archivist! I hadn’t been asked in years about the mysterious thief in the red trench coat and fedora. As big as she was in my life and on the national stage, save for a new motion picture in development, few people remember dear Carmen as much more than nostalgia. For that matter, who remembers the massive multimedia magic of CD-ROM computer games with all of 700mb of storage?

There she is. There she isn’t. Nothing lasts forever. Very little lasts long at all. That is the stuff of our culture. That is the stuff of our careers. Hold on too tightly to anything and you find yourself grasping ancient pixel dust.

Creative destruction is increasingly real and accelerating faster than ever. A new company comes, an old company goes. Brands emerge and evaporate before our eyes. In the start-up world, the notion of permanence is almost impossible to envision. Look forward with alacrity or don’t bother looking up from abandonment.

Contemporary taste is fickle. Technology trends are more fickle. Customer loyalty is most fickle.

Earlier this year I watched the National Geographic Channel limited series Valley of the Boom. I couldn’t tell if it was a dark walk down memory lane or an idealist’s time capsule of lost promise. Netscape—the big bang of the internet age—went from conception to extinction in all of about four years. The Globe—the biggest IPO of its time—was practically eviscerated at birth. Pixelon—a scam extraordinaire foiled by its own iBash—today doesn’t even make a decent trivia question on a game show.

Those were just three emblematic stories, real-world cautionary tales of boom and bust. You might remember the history of other exploded rockets, from Pets.com to Webvan. Maybe you don’t want to remember. Of the big consumer-facing internet companies that emerged from dotcom v1.0, it seems Amazon, Priceline, and eBay are the only lauded brands continuing to operate at large scale.

Google emerged in the second wave of the internet, capitalizing on all the failed portals’ inability to understand the essential nature of search, most notably the excruciating death spiral of Yahoo. Can you think of another important round-one bubble survivor? Which will be the next to vaporize? Jeff Bezos has already said Amazon won’t last forever. He knows inescapably it will be replaced by something fast moving and better.

Today there are reportedly 300 or so companies affectionately refered to as “unicorns.” These are start-ups largely in the technology sector with a valuation of more than one billion dollars regardless of revenue or earnings to justify the bragging rights. You are undoubtedly familiar with many of their quirky names: Uber, Lyft, WeWork, Airbnb, DoorDash, Slack, Pinterest, Instacart… these are widely regarded as some of the good ones.

How many of these brands will today’s schoolchildren recognize when they become adult consumers? You know they won’t all still be around. History assures us of that—unless of course this time is different (and when someone tells you this time is different, keep your hands on your wallet).

Early last year I wrote an article titled Is Facebook the Next AOL? At the time I wasn’t sure. Later in the year I wrote about it again. By then Mark Zuckerberg had testified before Congress and I had become sure. Facebook is going to fall hard. The level of cynicism over there is no different from the hubris of America Online. Today cash is pouring in and it has no serious competitors, so hey, it must be invincible, a forever brand!

Facebook only has one major problem corroding its innards: customers don’t trust the people running it. No product or service can last long that way. It’s hard to be a forever brand when your promise is held in contempt. You can pay lip service to addressing the failings in your business model, but if the core concept is fundamentally conflicted, you can’t beat the reaper.

Even General Electric has fallen from grace. GE, the one original Dow Jones industrial average company dating back a century, is no longer in the Dow 30 index. How can that be? Yes, it is still an enormous enterprise, too big to fail, one might say. Does that mean the brand matters a fraction as much as it did a decade or two ago?

Nothing lasts. Creative destruction is consistent that way.

Google will last a long time because it has built a mighty moat, but it won’t last forever.

Apple? Depends on how it deploys its seismic war chest of cash.

Netflix? Hard to imagine, but it seems like a transitional platform. It could be bumped off.

Microsoft is evolving again, truly embracing the cloud, so maybe it will be the new GE. It has lots of runway to continue reinventing itself, but like GE, no runway is infinite.

What’s the point? Think about your own Carmen Sandiego, that gig you love that will be gone someday, and plan your career accordingly. Are you ready to lose the inevitable and discover what comes next? The ship you are on may appear to be built out of steel, but steel eventually rusts. Are you looking beyond the bow?

Creative destruction wins every single time, but don’t despair. Where old jobs become obsolete with antiquated value propositions, new jobs emerge requiring fresh ways of looking at the world. I doubt that will change. While so many companies have come and gone in the last quarter century, the planet has lifted two billion people out of abject poverty. There are new pockets of middle-class workers emerging all over the world in an increasingly shared global economy. That seems like a decent enough tradeoff for a few trampled unicorns.

Maybe someone will even capture Carmen Sandiego. You never know what can happen when you let go of everything you don’t need anymore.

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But We’ve Always…

It’s December. For those of us who make our living in any form of consumer business, that usually means two things:

  • We have made it through Black Friday and Cyber Monday, with our projections now being evaluated against actuals.
  • In less than a month it will be a new year, where we can either make the same mistakes again or invent new ones.

That leads to two takeaways I would like you to consider before the year ends:

  • Customer behavior tells us almost everything we need to know to be successful in business, particularly when we study data and benchmark assumptions against metrics.
  • We ignore the realities of customer behavior at our own peril, but darn it all if we don’t come up with really good reasons to flagrantly repeat our mistakes with passion and conviction.

How does our eye come off the ball precisely when it is crossing the plate and our bat is in swinging position?

It all begins with three wretched words:

BUT WE’VE ALWAYS.

Perhaps you’ve heard a few of these pronouncements before:

I know our customers complain when we send them too many emails, but we’ve always sent them at least four offers on Thanksgiving Day.

I know our customers don’t trust our pricing, but we’ve always jacked up our regular prices in the weeks before Christmas so we can mark them “50% off.”

I know it’s irrational to cover the cost of free expedited shipping and lose money on every sale, but we’ve always managed to convince our boss that losing money is the only way we can compete with Amazon.

I know our brand promise is what matters most to our company, but we’ve always managed to slip in a few low-quality products with our best inventory to even out our margins.

I know we believe our customers are loyal and have a lifetime value, but we’ve always cut our customer service costs to force our bottom line into compliance with our budget.

Yep, we know what we are doing is wrong, but we’ve always found a way to justify our shortcomings, weak logic, or poor decision-making because we’re out of time, out of patience, or out of energy to argue for doing what’s right.

Earlier this year I attended the third-annual ShopTalk conference in Las Vegas. It had grown 50% over 2017 with more than 8400 attendees. Ecommerce remains an escalating magic buzz word. There were two types of presentations:

  • “People may think our proud, established, vastly well capitalized legacy brand can’t adapt to new technology, but we’ve always been a customer favorite and there’s no reason anyone should bet against us.”
  • “We’re a new brand and will lose our jobs if we don’t succeed, but our investors are betting that if we brainstorm new experiments and focus on customer behavior, the results will tell us what works and what doesn’t.”

Which bet would you place with your own money?

Let me restate the choice:

  • “We’ve been around more than fifty years, we know exactly what we’re doing having coined a business model for hard-won success, we’re a household name, and we’ll still be a household name fifty years from now.”
  • “We have no idea if we’re going to be around in two years, but we’ll take whatever runway we have to figure out how to do what’s never worked successfully before.”

Don’t bother answering—it’s a trick question. The truth is you need some of both to win the long game, some of the newbies and some of the dinosaurs. Yet too many people convince themselves there’s little downside to a buy-and-hold strategy with “forever” companies like GE or GM. They won’t invest in a risky start-up with a funny name and an unproven business model like Amazon or Apple until it’s a fully valued blue chip.

No one knows what companies are going to win in the future, whether cemented or emerging. They all have unpredictable choices to make. It’s supposed to be that way. It’s how new companies are born and old companies die, or old companies are reborn through reinvention. It’s called creative destruction.

My point has nothing to do with improving your stock portfolio. My point has everything to do with recognizing the death knell of an established brand and bringing life or invigoration to a challenger brand.

It can be a fair fight. An established brand can be a challenger brand when it acts like an underdog—when it stomps out the status quo and humbly looks to customers for confirmation or rejection of any working thesis.

I am willing to bet few employees at Amazon or Apple wander the halls uttering the words “but we’ve always” as a response to why they aren’t trying something new. Who knows, maybe I’m wrong, maybe they are becoming slow, cynical, and comfortable that they know what they are doing. I doubt it, but if they are, an opportunity for a challenger brand is out there for the taking.

I’ll bet they said “but we’ve always” a lot at Sears.

I’ll bet they said “but we’ve always” a lot at Toys ‘R’ Us.

When was the last time you said it? Still feeling good about that?

This year’s holiday shopping strategy is already behind us. There’s nothing we can do with history except study and learn from it.

The new year awaits all big ideas, particularly those focused on truly delighting customers with a sustainable business model and a resonating brand promise.

My advice going forward in whatever you are doing?

Eliminate the phrase BUT WE’VE ALWAYS from your company’s vocabulary before it eliminates you.

Erase those three words entirely from all conversation.

BUT WE’VE ALWAYS is defensive, uninspiring, and telling.

Try something instead that hasn’t worked, something that you think might work because you have reason to believe in a thesis. Measure the results. If there’s promise, hone it with precision. If it starts to work, stay humble. Stay inquisitive. Question the potential interpretation of every collected data point. Remember that every successful idea has a life cycle, and a bad idea yesterday might be reformed under changing market forces as a good idea tomorrow.

When an idea works dependably and someone questions it in a future review, just don’t say BUT WE’VE ALWAYS done it that way. You haven’t always done it that way. It had a beginning. It can have an end. What can’t end is innovation.

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Image: Pixabay

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The $20 Brand Bond

Amazon LogoLet’s talk about lifetime value of a customer for a few seconds. I use the term “a few seconds” purposefully.

Recently I bought one of those discount vouchers for a neighborhood deli, where you pay something like half of face value and then cash in full value when you’re at the restaurant. This one wasn’t from Groupon or Living Social, but from Amazon Local. When I went to cash it in, the deli was out of business. Tough times always for restaurant retail. It happens. Went to another place for lunch. Oh well.

I got home that night, went to the customer service web page for Amazon Local, found the template under Contact Us, and submitted a one-sentence email notifying them of the event. How long did the response take? Less than a minute. Full credit.

Yep, Amazon Local “bought” this voluntary endorsement for a whole twenty bucks. Plus my ongoing loyalty. My lifetime value to Amazon the Brand just increased a good deal more than twenty bucks, perhaps a hundred times that, maybe more. Why? Well, first because they respected me and my time, but more so because they laid the pipe to assure me that if something bigger ever needed to be addressed, I could count on them.

What did they do right internally to cause this function to be enacted externally? For one, they fully empowered their staff, someone in a call center likely on the other side of the world. There is no way in that brief turnaround their staff person had to ask anyone for permission to do anything. They saw an issue, they jumped on it, case closed.

We look for WOW THE CUSTOMER moments in business all the time. We spend hundreds of millions of dollars on advertising to get someone to sample a new product or service, so that somehow a WOW THE CUSTOMER moment can occur. This one cost an entire twenty-dollar bill.

Compare this experience to another I wrote about earlier this year, where try as I might, I could not get one of the largest retailers in the world to help me locate a $5 replacement part for a thousand-dollar appliance I had purchased from them. That retailer competes with Amazon, probably does not know it, and will never get another dollar from me. If you have a moment, go read the transcript I shared from that interaction. Coincidentally, I happen to have shared that post with a rising star at Amazon back when it happened who was aghast when he read it. He had no idea of the contrast to come.

This is not meant to be a lionizing of Amazon. Full disclosure, they were a minority investor in my previous company and proved to be a formidable competitor, daunting in many respects, not the least of which was their near-rabid obsession with precision, time to market, and transaction perfection. They had vast resources to call on that were not available to me, but they used them wisely and never skimped when it came to the customer experience. That is a big part of how they got to be best in class, and consistently one of the top performers in the Internet Retailer Top 500.

Germane to Amazon’s perfection is a mandate of setting a customer service standard that is so extraordinary and so rare it can seem financially irresponsible to emulate—so much of net margin goes right back into the expense line to serve the customer. Market analysts often shiver when they report on Amazon, wondering how their eye-popping trading multiples can last, with so much volume but so little relative profit. Amazon seems to pay little mind to these analysts, instead worrying instead about customers. That leaves them no choice but to focus on lifetime value, calculating it in complex equations with net present value back to the reinvested capital that most others would probably harvest.

How tempting it is to consume the fruit of that harvest, but harvest has to come each year, and that is why we focus on brands. Here I lionize the customer service commitment as an essential and grounding component of the brand promise. It is the shortest business case study in the world, yet almost every company you encounter gets it wrong.

A service culture in the information economy puts the CEO at the bottom of the hierarchy and the customer at the top. The customer is the boss. The people closest to the customer, individual contributors like those in customer service, are the ones who interact with customers. They make or break your brand. How much discretion and authority are they usually granted? None. How much should they have? As much as you can pile on. They own the customer relationship, so they own your future.

Go on, hire the highest paid consulting firms and retain power player ad agencies. Hold multi-day off-sites for brainstorming retention strategies. Give motivational speeches about reframing your mission and vision.

Or just be really, really, really appreciative of your customers. Love your customers, every single one them, embrace them as strategic imperatives, bonds that build moats.

What’s the ROI on world-class handling of those who frequent your brand? You tell me.