Happy New Year's Everyone!

It has been a challenging year on many fronts for so many people I know. Rather than wax philosophic about this past year and the one to come, I will merely leave you all with the wise words of Mary J. Blige:

We don't need, don't need, no haters
Just try to love one another
We just want y'all have a good time
No more drama in your life
Work real hard to make a dime
If you got beef, your problem, not mine
Leave all that BS outside
We're gonna celebrate all night
Let's have fun, tonight, no fights
Turn the Dre track way up high
Making you dance all night and I
Got some real heat for ya this time

Happiness, love, health and success to all in 2010.

Falling Prey to Tigers. . . Why are We So Gullible?

"What’s striking instead is the exceptional, Enron-sized gap between this golfer’s public image as a paragon of businesslike discipline and focus and the maniacally reckless life we now know he led. What’s equally striking, if not shocking, is that the American establishment and news media — all of it, not just golf writers or celebrity tabloids — fell for the Woods myth as hard as any fan and actively helped sustain and enhance it.



People wanted to believe what they wanted to believe. Tiger’s off-the-links elusiveness was no more questioned than Enron’s impenetrable balance sheets, with their “special-purpose entities” named after “Star Wars” characters. Fortune magazine named Enron as America’s “most innovative company” six years in a row."

--Frank Rich, New York Times, Dec. 20, 2009

 

"A man hears what he wants to hear and disregards the rest."

--Paul Simon, "The Boxer", 1968

 
Frank Rich's [unusually apolitical] editorial in the New York Times makes an interesting point: this past decade has been marked by our falling for egregious and sometime ludicrous hustles time and time again. In the first ten years of the 2000s, we have become a nation of suckers and patsies--your humble author very much included.
 
I went to University of Georgia to get my MBA in 2001 with the goal of graduating and getting a job at Enron because [hold your laughter please] they were widely heralded as innovators in non-fossil energy. But wait, it gets better....As the first questions about Enron's earnings began to arise, my Accounting professor at the time, who had been head of the Financial Accounting Standards Board throughout the 1990s, explained to our class how the market had over-penalized Enron for its accounting error(s) and that he had bought a bunch of stock that morning to take advantage of the market's overcorrection. Within a month, the stock had cratered. Within three months, my professor was testifying to the Senate Banking Committee about the ruse that Enron had accomplished.
 
While fooling me is no mean feat, fooling my Accounting professor is another matter--he not only knew the rules, he wrote a lot of them. Which brings me back to Tiger. The level of shock and attention this is receiving is a combination of three things:
 
1. His fame.
2. The spectacular nature with which this story broke--from his wife smashing the windshield with a golf club, to the endless parade of porn stars and cocktail waitresses that have come forward.
3. Our preconceived notion of what his personal life was like.
Yet, if you have ever been around celebrities or even read the tabloids for any period of time, you know that Woods' infidelities were the rule for athletes and celebrities, not the exception. There is something within us that made us want to assume things about Woods' life despite our really only knowing one thing for certain about the man: he can knock the snot out of a golf ball.  And while that singular certitude has no bearing on his personal life, we somehow translated his excellence in one thing to mean he maintained excellence in all things.

The same way we wanted to believe in Tiger is the same way we want to believe that politicians, pundits,  celebrities, advisors and other figures in our life are not serving their self interests. The fact of the matter is that it is the exceptional and rare person who is not serving his own self interest. The entire study of economics is based on that fact. Yet, the only people we can all agree deserve to be viewed with a skeptical eye are are:

1. Politicians from the party that you don't vote for
2. Auto mechanics

The next few articles will focus on the likely factors contributing to our "suckertude" as a nation, including:

1. Conditioning: The principal in psychology that people generally believe what they are prepared to believe, rather than the most convincing array of facts and figures at a time
2. Trust: how it happens and why
3. Gullibility: what makes a person more likely to buy into fraud?

As we have found out over the last decade and beyond, these issues factor not only into marketing, but how we as individuals and organizations interact with and treat one another.

When Marketing in a Recession Works. . . And When It Doesn't

The last piece on recession marketing for a little bit will focus on some work by Raji Srinivasan at University of Texas on determinants of effective recession marketing.

Dr. Srinivasan begins with a historical context of great marketing dividends paid during recessions and even the Great Depression, including:

• Brands that made a marketing big push and took market leadership during the Great Depression: Camel, Chevrolet, Ivory Soap and Crisco
• Brands that experienced wildly successful marketing campaigns in the recession of 89-91: Saturn, DeBeers and Intel, featuring an excellent quote from an Intel executive: "you don't save your way through a recession."

They also do a nice summary of other, recession marketing research which includes these findings:

1. Firms increasingly focus on marketing for cutbacks during a recession. The recession of 2001-2003 saw the largest cutback in advertising budgets since before the Great Depression. (This, despite substantial evidence that companies should do the opposite. Marketers, ironically, need to market their impact better.)
2. In recessions, market leaders profit from marketing investments and suffer from marketing reductions.

Lastly, Srinivasan's own research finds that firms which are historically aggressive marketers in both good times and bad tend to reap a larger reward proportionally got marketing in a recession than the market laggards. The author points to these companies likely having stronger marketing assets (brand name, recognizable images and messaging, a more experienced & elite marketing team) PLUS the fact that advertising costs less and fewer competitors advertise during a recession, so they get more bang for the buck.

While he identifies these interesting dynamics in recession marketing, questions still remain: do the leaders continue to grow in a downturn due to marketing acumen or because of a thinning of the competitive herd? And, in a threatening environment, do buyers place a premium on company stability over an individual product's appeal?

Please email me with any thoughts or put in the comments below. For the next series of articles, I will be heading to the tabloids for inspiration.

The Ghosts (and Lessons) of Recessions Past: 1990-91

The economic notion of "creative destruction" is an interesting and useful one that states the constant change within society and economies creates new opportunities. (example: the Internet is dismantling newspapers, but it is also providing opportunities for people like Matt Drudge, Arianna Huffington and so on.). And with shifts in economies--good or bad--comes hope for innovation and opportunity.

That said, it's still cold comfort when you are wrestling with a nasty recession and trying to make payroll, cover your bills and survive.

The 1991 recession. . . You should see the photo of the current recession.

A 1997 article by John Pearce of Villanova University and Steven Michael of George Mason which published the results of a study of effective marketing strategies from smaller, entrpreneurial firms durring the recession of 1990-91. The study focused on small, entrepreneurial companies' marketing strategies before and during a recession and how they affected the firms' profitability during the downturn.

Alright, since you asked, here is a picture of the current recession.

Besides being recessions, what do the 1991 recession and current recession have in common? Well, the root causes were similar--collateralized debt (read: real estate deals and the secondary market for the debt underwriting those deals going in the toilet). And, the projections for the recovery from this recession are similar in nature to the 1991 recession. That is, a slow recovery with little-to-no job growth for the first year or two of the recovery. Ahhhhhhhh, good times.

Otherwise, the '91 recession was a gentle kiss on the cheek compared to the repeated-crotch-kick-with-steel-toed-boots that this recession has been and continues to be. Without further ado, here's what the research found:

Why They Did It: There is surprisingly little research in recession strategies in business, but what there is typically focusses on "retrenchment" and "turnaround strategies"--two terms that mean slashing & burning overhead wherever possible, particularly in marketing. This survey was designed to test those theories as well as provide a specific focus on smaller, more entreprenurial companies which typically have the hardest time surviving downturns.

What They Did & How They Did It: They issued surveys to senior executives from 451 public companies (primarily in manufacturing) with sales of $10-100 Million and accounted for less that 0.5% of their respective markets. They ended up using 114 of the surveys that came back to them. The survey focused on recession strategies including:

1. Marketing Efficiency: Attempting to consolidate functions of product development under a smaller team.
2. Streamlining Value Chain: Dropping distributors
3. Retrench into Core Business: Dropping underperforming products and geographic markets to get "more bang for the buck"
4. Expand Into New Markets: the opposite of "Retrenching"

 The Results

"Sur-veyyyyy SAID..."

The key findings of the study were:

• Marketing related to core business is "the major determinant of profitability in good times and bad."
• Expansion in good times offers no assurances for durability during recessions
• Expansions that do pay off? Sales force and advertising increases pay dividends in any economic cycle.
• Retrenchment is generally a mistake. Most executive reported that the cost cuts in marketing hurt them.

So, when your boss or client starts to sing the "we have to cut back, beginning with marketing", please point them to this study as well as others covered on this blog.

Have a great weekend everybody!

The Next 12 Months of Tiger Woods' Life. . . PR 101

I am going to depart from my usual format to comment on what Tiger Woods will--or at least should--do over the next 12 months. Is the Woods story critical the study or practice of marketing? Not necessarily, but my wife has told me she is sick of discussing the story with me. So, to feed my addiction to this story, I am hoping there are people out there who share my fascination with this spectacular meltdown of what was once a global brand. This meltdown was further accentuated by news today that El Tigre has been linked to a Canadian doctor currently under investigation for dealing in illegal performance enhancing drugs.

Without further ado, here is what I would advise Tiger if he were my client:

1. Click Here for good advice from Jim Carey. Good PR does not require that he and his wife reconcile. What is does require is that Tiger try and put together a stable environment. If his wife divorces him--as harsh  as that may be--most people can relate to that. But, to lead an out-of-control life that continues to inflict pain on his wife and children will not be acceptable to the public. Find resolution and stability.

2. Tear Up The Prenup: Rumors are that the Elin has already retained divorce council. She also allegedly has a prenup saying that she will only get $5 million if she divorces him now. The best money Tiger could spend is to tear up the prenup and give her $100 million Anything less than that and he will be incentivizing her to:

a. drag him into a highly-contested, very public divorce hearing
b. write a book and drop bombs on his image rehab that will begin in 2010.

He is worth over a billion dollars--mostly from endorsements. It's money well spent, especially if it means his endorsements come back.

3. Let the Dust Settle: He appears to be doing this. You don't want to claim to be a changed man when the last three women in the United States who haven't announced a sexual liason with him finally do so. (Plus this steroids story is going to take several months to come out.) As Tiger's counsel, the trick is going to be getting him to admit all the bombs that are out there waiting to drop.

4. Get Your Story Straight: As with any image rehab, you need a believable reason for behaving like a scoundrel. His story should go something like this: Child star pushed into the limelight too early who didn't know how to handle himself once his father passed. . . The pressure of mega-stardom with a lack of structure and a burgeoning sexual addiction culminated in an out-of-control lifestyle that destroyed his life and deeply hurt his beloved family. . . He paid the ultimate price for this by losing his beloved wife Elin. Now that he is receiving treatment for his addiction. . . blah bluh blah blah blah. . and, oh yeah. . . the doctor who gave him performance enhacing drugs was the result of the constant pressure to be the best. . . blah blah. Speaking of the steroid piece, depending on how the investigation is unfolding and the advice of his attorneys, he may want to get a jump on the story and just admit he took some stuff that "in retrospect, probably was not in keeping in the spirit of true competition."

5. Choose Your Venue: Given the gigantic size of this story, he needs the biggest and most credible outlets out there which would mean "60 Minutes." I would say he should do it following the Super Bowl for the biggest audience, but I think it's likely too soon. In the months following, he should do some public initiative for children with his charitable foundation and do a press tour to promote it. That second press tour should focus on women-friendly venues--Oprah and "The View" (assuming Tiger can resist hitting on Liz Hasselback. . . Hiii-yoooooo!).

6. Win: Everyone loves a winner and his winning will help move the Tiger story line from "Girls Gone Wild" to his ability to persevere and overcome. And winning is the thing he does best.

Assuming that there are not other, weirder stories getting ready to come out (which appears to be a BIG assumption), his 60 minutes spot in the Spring combined with a couple tournament wins by Mid-Summer should assure that Tiger, Inc. will be back in full "shill for every product known to man" mode by 2011.

Harvard Business School Tips To Marketing Your Way Through a Recession

I've gotten a lot of good feedback on the blog thus far, but the most common criticism to date is "a weekly post does not a blog make." So, I will try and post more frequently.

Most of my marketing brethren and sistren--particularly in agencies--are fighting a tough battle in convincing their clients to maintain their marketing spend in this dismal climate. And, your client is going to glare at you when you insist that now is precisely the time you must market as much in the past--if not more. The glare is not because what you said is untrue. It's very true. The glare is because the statement:

1. Is self-serving AND
2, Asks the marketing manager to try and make a tricky sale internally.

I will be posting a series of summaries of articles from preeminent researchers making the case for marketing in a downturn to try and arm my brothers and sisters with credible information when they have these meetings with their clients.

Today's article comes from the March 3, 2008 issue of the Harvard Business Review. HBS professor John Quelch wrote an article entitled "Marketing Your Way Through A Recession." The crux of the piece is that companies should market less in a recession, they should market differently. Businesses and markets are dynamic organisms and must adapt to new environments or stimuli. Quelch's tips include:

1. Focus on Research: The goal of market research is to be able to target business more precisely. If you grow any part of your budget, make it research.

2. Modify Advertising Imagery: Riskier times create a need for the feeling of security. "Hearth and home" images play best in a down market.

3. Maintain Marketing Spending: If you are playing one-on-one against Kobe Bryant, do you cut back on your effort? Cutting marketing is cutting your competitive effort--which is exactly the last thing you need to do when more people are competing for less business.

4. Thin Your Portfolio & Adapt: Down markets favor multi-purpose products. Also, thin your product line to focus on the winners.

5. Offer Inventives to Distributors: They will be more sensitive to holding inventory so you need to offer inventives (usually in the form of credit) to keep your product on the shelves.

6. Modify (not necessarily cut) Pricing: Price promotions--bundles, flexible payment terms, frequent short-term discounts--will help bring in the weary buyers.

7. Focus on Market Share: Bad times are good times if you are liquid. Efficient companies should look for strategic acquisitions that will maximize your market share now and when the market rebounds.

More to come on this topic soon. Have a great weekend everybody!

The "Free Bird" of Marketing Theory -- Bass' Diffusion Model

Funny thing about the song "Free Bird": People like to make fun of it because it has been referenced and played to exhaustion. But, there's a reason it's been overexposed--it's a good song. And, whether you are shouting requests to the New York Philharmonic or grinding with a biker chick at the local VFW, that's the song you go to because it gets the job done -- it always satisfies.

The same could be said of Bass' Diffusion Model (BDM).

First appearing in 1969 in Management Science, Frank Bass of the University of Texas, Arlington, published an article "A new product growth model for consumer durables". This piece established a series of equations to determine the speed of adoption of new products and predict the arc of its sales. The article has been cited over two thousand times (an astronomical number) in other academic works and was recently named the journal's top five articles of all-time (the only marketing article to be included in that list). Bass' model is the standard for forecasting new product sales worldwide as well as the basis of many commercial software packages. So, what is the Bass Diffusion Model? Here's one way of describing it:

 Here's another:

 Diffusion is the study of how quickly a new product can spread in the market. Typically, new products spread throughout market segments in this order:

1. Innovators
2. Early Adopters
3. Early Majority
4. Late Majority
5. Laggards

Influencing the rate at which these new products are accepted in these audiences include  A.) product attributes (price, market segment, etc.) and B.) social pressures to use the product  derived from the number of people who had already adopted it (think anything made by Apple, North Face or Miley Cyrus).  Bass called A "The innovation coefficient" and B "The imitation coefficient" (what economists would call a "network effect") and incorporated them into a formula to enable the forecast that product's peak in sales.

Billy Bass sings, "Log of the coefficient of imitation, q, minus the coefficient of innovation,

p, divided by the sum of p and q, ye-ah-ah..."

Bass developed his formulas using historical data, looking at product introductions of previous years. Then, as the true test of the formulas' potency, he used the formula to forecast peak sales of color television sets. Where industry analysts had predicted skyrocketing sales into infinity, Bass predicted an initial peak of sales in 1968 and then a drop off, with the product having hit a saturation point in the market. His prediction was right on the money.

He published his findings in 1969 and the first marketing science rock star was born.

Lance Bass of N'Sync says, "You don't have to be an astronaut to use 

the Bass model, but it'd be rad if you were."

Since the debut of the Bass Model, it has been enhanced/modified to apply to a wide array of scenarios. For instance, to predict sales for new releases of products, to adjust for pricing levels and so on. The Bass model is important not only for its commercial applications but it stands as a powerful example of the pool of marketing knowledge out there about which many in industry are unaware.  

When business people stare into the abyss of a new market, they often find only darkness and the dizzying swirl of hopes and fears the go along with significant risk. What Bass (among others) proves is that there is a pool of powerful and elegant knowledge that can be applied to reduce risk and increase certainty in new products and ventures. 

That's terrific Bass. 

When do Chief Marketing Officers Matter? -- A Marketing Manifesto

The plight of marketers from a political and organizational standpoint is significant and includes: 

• Everyone in the organization thinks they are a marketer.
• Few take marketing seriously or understand what it is--but are "pretty sure it consists of making catchy jingles."
• Most organizations view marketing purely as an expense and when the going gets tough, apparently the tough start slashing marketing budget and laying off marketing staff before they touch anything else.
• In smaller companies, marketing is held in such low esteem that marketing duties are often given to <>. . . secretaries who are told to "make a brochure. . . or something." 

And we marketers weather these indignities despite everyone being confonted with a constant tidal wave of evidence that marketing makes all the difference:

1. The companies we admire most (Apple, Nike, Starbucks, etc.) are--without exception--monster marketers.
2. Generally, the first thing we decry about companies we don't like--cigarette, alcohol, pharmaceutical companies and so on--is the fact that their marketing is so effective it appears to turn people into zombies walking the Earth in search of Camels Lights, Michelob and Viagra.

Well, the good people of marketing academia are trying to aid our plight. Dr. Eric Boyd has written a paper analyzing when Chief Marketing Officers make a difference which is slated to be published in the Journal of Marketing Research in 2010. The paper looked at, and found, the following:

1. The effectiveness of a CMO can be greatly diminished in the face of extraordinary customer power. Company sales are becoming more concentrated in a few large clients. With that comes a large influence of that customer over policy and a risk aversion that can hamstring the marketing function (as well as other functions). For instance, if WalMart accounts for 20% of your company's business, as nice as it would be to pull in a Target or Lowe's as client, Job #1 is going to be to keep WalMart happy. And that perspective can be suffocating to marketing and business development.

"So, CMO, what is it you would say that you do here. . . exactly?"

2. CMOs can provide the largest effect on firm value (for better or worse) if that executive is brought in from outside the firm, is given a broad mandate and has the seniority and experience to gain internal credibility. Some of this sounds like commonsense, but it really comes down to commitment. Many companies who do not have a history of marketing and then decide to hire a marketing "guru" often hamstring that professional through an aversion to change and risk. But, to hire a CMO and then not utilize that person's talents is like getting engaged with the idea that you can still date--it's not going to work and besides, what's the point? Organizations need to decide what they want to be and then own that decision. The firms studied that did this, on average, achieved a significant ROI for their marketing investment and a resulting increase in share price.
As we have seen in other articles, when it comes to business strategy & marketing, doing nothing is better than taking half-measures. If you are going to be a bear, be a grizzly. Don't get Fred the office manager to make a brochure in his spare time and pretend you are "ramping up" marketing. That's like asking Paris Hilton to fix your car or Terrell Owens to do your taxes. Activity does not equal results. Firms need to hire skilled professionals and then let them do their job, otherwise you are just wasting everyone's time, money and energy.

The Power of Gratitude

"And in the end, all that remains is our friendship." So says consoliere Tom Hagan as he reassures a bewildered US Senator that the murdered prositute in the Senator's bed would "disappear. . . as if she never even existed" in in the cinema classic Godfather II.

I thought about the Godfather movies while reading the latest research on customer gratitude and it's effects on business relationships. After all, nearly all of Vito Corleone's business was based on gratitude--doing favors for people who would not only repay the favor but also spread word of The Don's generosity and. . . um. . . capabilities. Prostitutes, horse heads and the like notwidthstanding, it's the model most businesses--especially service businesses--use.

First authored by Robert Palmatier of University of Washington with an assist from others including consumer behavior guru Frank Kardes, the article examines how feelings of gratitude strengthen business relationships as well as the key components to engendering that feeling within customers. They performed a big market survey plus extensive experiments with a large number of subjects. Here's what they found:

Four Factors in Creating Gratitude with Customers/Prospects
1. Doing something that is perceived as being of your own freewill--not something either contractually required or perceived to be "part of the deal." Those of you who have read the negotiating bible "Getting To Yes" will recognize this, where they advise you to "throw something in at the end" to make the customer feel like they have won something. So, even if the customer was already going to get the "Hannah Montana Back-To-School Commemorative Place Mats", make it seem like a spontaneous act of generosity.

2. Perceived Motives: The customer must perceive your motive as being earnest--or at the very least not malevolent. This is a hard one to break down, but I would liken it two very different experiences getting your car serviced. When you get your oil changed and the Jiffy Lube guy says "Would you come out here for a moment?", you prepare yourself for the shakedown ($3,000 tune-up) that is about to happen--you knew it was going to happen, but you still walk away from the experience thinking less of the Jiffy Lube and the guy. Conversely, if you hear a knock in your engine and the mechanic tells you, "We can completely fix it for $1,500 or do a six month band-aid for $200" you are likely going to tell all your friends to come to this mechanic because you do not question his motives.

3. Risk Undertaken By Seller: Without exception, doctors, lawyers, consultants and brokers have nightmare stories about prospects who sap every fiber of their being trying to get free services and advice. While those people represent A Bottomless Hole of Time, Money & Energy (aholes, for short), spending time off the clock with a prospect or customer is builds gratitude and trust. The trick is distinguishing the aholes from the prospects with potential to protect your own resources and sanity.

4. Meeting "The Customer's Perceived Need For the Received Benefit": The quotes represent the authors words. I would merely call it thoughfulness. If you take the time to really consider your client's needs and help, research showed it made a big difference. For instance, if you receive a holiday business gift of, say, Godiva Chocolates, you might very well think, "Nice chocolates--either all the other clients got this or this is a re-gift." However, if your contracts attorney calls you out of the blue and says, "I remember you mentioned a problem with your property taxes, so I asked a buddy of mine who is a real estate attorney and he said..." That's big and, more importantly, it provides value to the client's specific situation.

Lastly, the authors conducted a large survey to see what effect gratitude had on relationships and purchasing intentions and the effect was hugely significant. In short, for a customer, gratitude and the trust & obligations it generates, an offer they can't refuse.

Zen And The Art of Business Execution

When you launch a business or a product, one of the hardest things to do is set boundaries for yourself or your company. As an entrepreneur, your job--and your nature--dictates that you constantly be on the lookout for opportunities to exploit. And, it seems logical that the more opportunities you research, the more likely you are to strike gold. Sooner or later, something has got to work out if you just play the averages. . . right?

In the words of Lee Corso: Not so fast, my friend.

A team of professors, led by Rajesh Chandy (currently at the London Business School) published a study in the Journal of Marketing Research focusing on the Pharmaceutical Industry and companies' ability to get products from the conceptual stage, through the epic FDA process, all the way to market. In other words, they wanted to see who could execute and why.

Given how highly regulated the pharmaceutical industry is--thereby generating a ton of documentation--it provides what might be the only opportunity to be able to document most companies' journeys from concept to market. Here's the breakdown of the study:

What they did and how they did it
Chandry and his associates looked at all 1,573 drug patents filed between 1980 and 1985 and followed them to market. Of those, 18.30% (@ 285) made it to market.

They filtered further by weeding out companies that either were acquired or that acquired the drugs from other companies so as to only look at groups that could take an idea from start to finish. So, in all, 654 drug ideas from 88 companies represented "the field."

What they found: 

"Focus Power": Many pharma companies are known for a particular expertise (cardio, neurologic, cancer, etc.) Those companies which stayed within their primary field of expertise had the highest rate of success. So, in pharma, as with any endeavor, you have to pick what you want to be and stick to it. That's especially hard in new ventures and expecially service industries--where you want to explore any and all opportunities for revenue, but likely at the expense of fully exploiting your core business.

There are those companies which can branch out into new endeavors (ala iPhones, X-Boxes, Britney Spears' acting career--wait, scratch the last one), but they represent the exception, not the rule. And for every iPhone and X-box, these same companies have also attempted the Zune and Apple TV. These moves are best tried by strong brands from well-established companies as they involve risk and brand dilution.

Focused Company

Unfocused Company

Additionally, Chandry et al looked at the number of ideas firms tried to develop. Many in industry and research had postulated that the more ideas you generate or pursue, the greater your chance of achieving success. The study found that the opposite was true. All ideas, even bad ones, put a drain on a company's finite resources and hurt the progress of good ideas with real potential. So, make choices--thoughtful, well-considered choices--then own those choices and move forward. Otherwise, you (and your company) spin in circles like a five year old having had six Cokes and a box of pop rocks.

"Speed Kills...Slowness Kills More":Probably a poor choice of words when discussing medications, but those companies that attempted to move the fastest from concept to market had a much higher failure rate. Further complicating matters was that being the slowest represented an even higher failure rate (in addition to potential massive loss of revenue in terms of development expenses and lost patent protection time.) So, focused, deliberate progress is key.

"Experience and Expertise in Management Matters": Yes, yes, this seems obvious. But remember that people had been getting beaned with apples for centuries before it happened to Isaac Newton who then developed the law of universal gravitation. Documenting and proving what may appear to be common sense is important and necessary. Too often, entrepreneurs either think that it's enough just to be smart & aggressive, or that if they have succeeded in one thing, they can succeed at anything--only to find out that they deeply, desperately suck at their new venture (prime example).

The average cost to take a drug from concept to market is $802 million. Yes, the regulatory environment for drug approval is stiff and capital intensive. But, the two greatest contributors to that number are the quantity of failed ideas and time to market with the successful drug. And in that $802 million number, there is a tremendous amount of variability from firm to firm. The range in time for market ran from three to fourteen years. In other words, lackluster, unfocused management appears to drive the high cost of drug approval more than anything else.

Freezing and Starving: The Pioneer Experience

"If you're not first, you're last"

--Will Ferrell in Talladega Nights

The experience of being either an entrepreneur or a product manager is emotionally wrenching. You are awash in uncertainty and feel the crush of expectations. When launching a business or introducing a product, despite whatever research, analysis or reports, the entire endeavor hinges on a belief--a belief in yourself, your product and/or your judgement. Nothing is for certain until the product hits the shelves or the business opens its doors.





To minimize the uncertainty, many cling to trying to be the first to pioneer a product, service or idea. And, over the years, there has been a lot of research by some very smart people saying that being first makes all the difference. In fact, some of these very smart people have even said that they could not find any instances of pioneers that have failed.

There is some wonderful research by the very talented tandem of NYU's Peter Golder and USC's Gerard Tellis on new product introductions that shows that the "pioneer" advantage is overblown at best. Specifically, they say that the race does not go to the swift--the pioneers--but instead to "early entrants" who aren't the first to market, but rather, the first to get it right. And in their extensive analysis of companies from the late 19th century forward, it turns out that pioneers failed at about the same rate as other businesses while early entrants have a lower failure rate and a much higher instance of market leadership.

So, what determines, "getting it right"? The criteria identified by Golder & Tellis include:

1. a vision of the mass market
2. managerial persistence
3. financial commitment
4. relentless innovation
5. asset leverage

The "Vision" Thing: Pioneers obviously have some amount of vision in order to be ahead of the pack, but where their vision has failed them in many instances is not being able to see beyond their product to their customer. A great example they cite is the video recorder market and the product pioneer Ampex. If you have never heard of Ampex, chances are that you have also never paid $50,000 for a video recorder. Their technology in 1956 was revolutionary and they were able to sell products commercially. However, given their monopoly on the market at the time, they set forth on the ambitious mission of making an even better $50,000 video recorder. That, at the time, likely seemed like a wise decision. After all, if it ain't broke. . . At that same time, a couple of start-ups, Sony & JVC, set their sites on making video recorders house hold items at about $500 a unit. I am told that both Sony and JVC became successful companies.


So, while Ampex had a great vision for the technology, their vision for the market? Eh, not so much.



Managerial Persistence & Financial Commitment: This is probably the most difficult aspect of success. New products often take several years--in some cases a generation--to become mainstream. And in the meantime, stake holders in that product have to be convinced to stay the course. This is no small task when shareholders, financiers and leadership are demanding compelling returns and you have to stake your job and reputation on asking them to wait to see the fruits of their investment. Further complicating the analysis is that companies often have a bad strategy or product and in those instances, the right decision is to pull the plug.

Golder & Tellis offer a few examples of companies jumping ship too early, including Rheingold Brewery which introduced the concept of light beer in 1967. In the face of sluggish sales, Rheingold not only abandoned the light beer product, they fired the managers who had championed the concept. Lite Beer from Miller was introduced eight years later, advertised heavily and has been wildly successful ever since.

With business, as with any of life's greatest endeavors, there comes a gut check--a point where trust and commitment are all you have. And at that time, if you believe in what you are doing, you must press forward and accept risk and uncertainty. As Golder & Tellis point out, the great companies are the ones that can do this.
Relentless Innovation: One of the hardest things to do in business is to knowingly cannabilize your own revenue. But, it is always better to eat your own lunch, than have someone else eat it for you. They point to Gillette's cannibalization of their razor businesses over the years in order to renew its market leadership. I like to also point to The Dayton Company--an owner of department stores--which saw that traditional department stores were giving way to large scale discounters, so they founded one of their own, called Target.


Asset Leverage: What Golder & Tellis call "Asset Leverage", I might call "dropping the hammer." It's using your most compelling tools to the utmost. Large, successful companies have tremendous assets at their disposal--brand recognition, complementary products, financial resources, distribution networks and more. And in enterring a market, these companies can utilize those assets in a forceful way. There are a large number examples of this we can all cite. Golder & Tellis reference "Diet Coke" crushing the pioneer in diet sodas, Royal Crown. (My favorite is Microsoft's Internet Explorer, though their asset leverage aroused the interest of regulators worldwide.)


Given all of these examples, Golder & Tellis would seem like they are saying that an untried trail is a fool's path. Not so. They are merely saying that it's better to do it best, than to do it first.

They did a couple of articles on this topic, one in the Journal of Marketing Research, which is more technical and theoretically oriented, and the other in MIT's Sloan Management Review (article found here, subscription required). I would highly recommend that any entrepreneur or manager read the Sloan article. It is well researched, powerfully written and reads like a strategic manifesto. Perhaps most importantly, it gives perspective on the patience, hard work and (to quote the professional wrestler Gorilla Monsoon) "intestinal fortitude" it takes perservere in the market.