YakShaving

So. Good.

“We don’t make movies to make money, we make money to make more movies.”
Walt Disney

(via redcact.us, via daringfireball.net)

A designer makes things. … Typically his making process is complex. There are more variables—kinds of possible moves, norms, and interrelationships of these—than can be represented in a finite model.

Donald A Schön, The Reflective Practitioner

Understanding how people learn (and improve skill level) is complex.

Designing elegant stuff is also complex.

Put them together, and you basically get a cluster@#$.   Fun stuff, if it doesn’t make you literally go insane in the process.

It’s the little things. I love this: when you forget your Apple password, you go to “iforgot.apple.com”

Lately I’ve been trying to understand strategically the creation of 2 sided networks/marketplaces and turning them into {web} businesses. I’ve come across some interesting articles and thought I’d brain dump them and share them here with other people who are trying to pursue similar end goals.

Two sided networks are interesting: They’re characterized by extremely high entry costs, which means, they’re HARD to start, but once you’ve built them, they’re really hard to disrupt. That sounds like a fun challenge, doesn’t it?

Various awesome links

Six strategies for solving the Chicken or the Egg Problem
The Ladies Night strategy, by Chris Dixon.
2 Sided Markets on Wikipedia. academic/informative, it’s wikipedia, whaddya want? The best advice here is: “..subsidized the more price sensitive side, and charged the side whose demand increased more strongly in response to growth on the other side.”
Strategies for 2 sided Markets
Competition in 2 sided markets This one has pricing model implications, but still very academic.
Quora answer on 2 sided marketplaces and conflict resolution

Chicken and egg problem on HN
Strategy Letter on Chicken & Egg Problems
Inventing Demand. “It’s a bit like asking two people who don’t know each other to fall in love. To solve this problem I decided to ‘Invent Demand’. This is how I did it.”
Market building dilemma. Focus or Buy your way in. Incentivize one side of the market to kick things off.
OnStartups answer to Chicken/Egg problem Low Risk Buyin for Sell side, Partnering with existing business, Scaffold. Great advice: ACTIVELY PICK A SIDE, don’t waffle. Actively “Simulate” one side of the transaction.

At some level, any 2 sided marketplace is competing with that ultimate – garage sale of the internet site — Craigslist. there was a hilarious hackernews thread that discussed businesses that geeks try to start. a Craigslist disruptor with an awesome user experience “on top of the Craigslist” data was on the top 5 list. My general hypothesis going in is that 2 sided marketplace businesses need to provide lots of “thick” value. In these cases, thick value could be defined as customer service, amazingly simple interface (where interface literally means the interface between the sell side and the buy side) — which has to be facilitative, simple, and a magnitude better than plain old “email” — or even what CL offers.

My other informed guess (ok, it’s kinda obvious) is that you have to start with the supply side first and then move to the buyer side.

I’m curious to learn more from other people who have gone about doing the same thing. In particular, I’m interested in: marketing strategy, pricing (lumpsum vs recurring vs transactional), and “order” of operations.

startup, strategy, design, marketplace, business

Recently, I stopped by the new Whole Foods in Lincoln Park here in Chicago. Immediately after stepping into the massive space, I was impressed by its ability to stay and feel fresh, and more like a marketplace that you might see in another country. Because it was so big, it contributed to a feel of open air. There were separate stalls or spread out all over the store that visitors could shop at. It felt a lot more like a series of little merchants: It would not surprise me if the same employees worked there at the little stalls, week after week and started developing a relationship with customers. I myself had a great discussion with a man who had a huge beard and looked like Rutherford B. Hayes. The employees that I talked to were all smiling, friendly, and incredibly approachable.

As I strolled through the store, and looked at the prices (I don’t normally shop at whole foods) I realize that shopping here would be extraordinarily pricey. And yet, I walked out with breakfast and an arm full of groceries.

This got me thinking about the benefits that are conferred to a company that does the “right” thing. Perception in the marketplace is incredibly important, any more, and companies cannot afford to have a tarnished reputation.

Now, take everything I just said nice about Whole Foods, flip it on its head and you have Wal-Mart (aka Failmart).

From Bob Sutton’s blog:

One interesting thing that happened while I was on vacation was the news that Wal-Mart is test-marketing imitations of the two best-selling Girl Scout cookies, Thin Mints and Tagalongs.

But when “everyday low prices” is the solution to every problem and — despite lip service to other constraints — almost nothing else drives your behavior even when it hurts you badly (as in this cookie caper), your core cultural values can hurt you badly.

My prediction is that they will come-up with some bullshit business reason to do so. If they were smart (and there is research on this, on how to deal with mistakes, which we talk about in Hard Facts and I touch on here and here) they would: 1. Confess it was a mistake, that they should have been more sensitive to the importance cookies to Girl Scouts; 2. Explain this episode has made them more sensitive to how pure business decisions need to be considered in light of community relationships and their corporate image; 3. Announce and take formal steps to show they have learned this lesson.

Apparently Walmart executives are not this bad typically. It’s interesting to me that good people can make terrible decisions sometimes. I wonder what the best way is to stop horrible decisions like this from happening in the first place.

I didn’t fully appreciate the lessons that I received from Larry Keeley’s Innovation Frontiers class last semester until I started to explore the X-prize model in depth.

Listen to their elevator statement:
“The mission of the X PRIZE Foundation is to bring about radical breakthroughs for the benefit of humanity. The Foundation fosters innovative, high-profile competitions that motivate individuals across all boundaries to solve grand challenges.”

That’s all great and fine, but it is the method by which they do it that is so interesting to me. The actual price money itself is paltry compared to the scores of people who are willing to dedicate time and invest money towards achieving the goal (and subsequently winning the prize).

When I learned about the history of the X-prize, I found out that it was modeled after the famous Orteig prize. Nine teams who attempted to win the Orteig prize together spent nearly $400,000 for a $25K prize. Charles Lindbergh won against all odds in 1927. The rest was history, of course.. and now I’m able to hop on a plane from here to Europe with relative ease.

…By the way, Charles Lindbergh is an amazing man. I love this quote:

What kind of man would live where there is no danger? I don’t believe in taking foolish chances. But nothing can be accomplished by not taking a chance at all.

In any event, the Orteig prize spurred innovation because it changed the public’s expectation about flight– NOT because there were any associated technology breakthroughs. The technology breakthroughs came as a result of a paradigm shift… and an increased level of public confidence and sparked imagination. It was this same imagination that was sparked during the Apollo missions that made Dr. Diamandis want to create the X-prize about commercial space flight.

Now there are multiple X-prizes, as outlined here:

• Ansari X PRIZE (space; won Oct. 4, 2004)
• Archon X PRIZE for Genomics (medicine)
• Progressive Automotive X PRIZE (automotive)
• Google Lunar X PRIZE (space)

Dr. Diamandis’ innovation (or the innovation he borrowed from Orteig) is a financial one: It recognizes fully that the small prizes create unsurpassed leverage. Because of all the positive social and communal externalities that are generated by winning a prize, it can be the most effective tool for venture philanthropy yet.

The most powerful idea is yet to be unleashed by the x-Prize foundation, something they are calling “My X-prize”– which puts the power of spurring innovation into the hands of local communities. Imagine smaller purses of prize money being created to solve a social ill in a smaller setting. The same rules regarding leverage apply — Now, combine this large-purse idea with a networked crowdfunded system, and you might be able to build better governments and communities with fewer elected officials. Or maybe that’s a pipe dream?

What if the platform we created for Design Planning (two semesters ago) could be combined with an X-prize? That would be interesting.

On May 22-23 (Thursday and Friday), the Institute of Design is hosting a Strategy Conference at the Museum of Contemporary Art.

As usual, I’m pretty excited about the speakers: notably, Bill Buxton, AG Lafley, Roger Martin, John Seely Brown, and Paul Polak! How amazing is it that we get so many great minds in one spot every year talking about design as it relates to strategy, both for the public and private sectors?

Kevin and I were requested to host a lunchtime discussion on our work this past summer in China. If anyone is interested, feel free to sign up. Although, you probably could just come and talk to me in the hallway about it if you really wanted to!

Here’s a short description of our topic area:

As companies increase their product and service offerings in China, effective structuring of user research has become a key to success. This discussion will cover the advantages of doing activity-focused user research versus culture-specific/product-specific research to create concepts for emerging markets and how to train non-experts in conducting ethnographic research for faster, cheaper, deeper user research.

Disclaimer: I am in no way affiliated with Unilever or associated brands. These are just my thoughts on a heated debate.

Sometimes, it’s hard to get people to talk about selling to the Base of the Pyramid and looking to the emerging markets as a source of revenue. I think the latest BoP debate between CK and Aneel Karnani is fascinating.

For the uninitiated… Unilever is a large company. A very, large company.
They produce fast moving consumer goods across multiple markets.
The same company that makes THIS:

Also makes THIS:

The first campaign is the Dove Campaign for Real Beauty. It emphasizes that women are naturally beautiful and their skin car products bring this beauty outward. Thus, women are beautiful when they age (yielding a line of products called pro-age). I particularly think this little video snippet is interesting, and I think has made the rounds on Youtube.

The point to take away from the Campaign for Real Beauty is that Dove is a progressive brand, and they want to make women feel good about themselves (and sell more product).

Now, let’s look at the emerging markets, such as South East Asia. The product that Unilever offers in this market is known as Fair & Lovely (second campaign shown above). It is a skin lightening cream that has received lots of fire lately, from BoP critics. (CK mentions Fair and Lovely in previous case studies as an example of BoP merit). Whereas proponents argue that the whitening cream helps its consumers portray a positive image, critics posit that Fair & Lovely engenders race bias (In places like India, fair skin is deemed more attractive. See this set of interesting facts from another blogger). As he also points out, India’s “fairness industry” accounts for 60% of skincare sales and $140 M in revenues.

Check out the commercials from Fair and Lovely that run in India.

The question then becomes how can a company that is so progressive in their marketing campaign towards the developed world… offer products that are essentially taking advantage of cultural race bias?

There are a few reasons. First of all, I want to start out by saying that I do NOT believe that Fair and Lovely is the best example of a BoP product that successfully *improves* the situation for people. In fact, the question whether Unilever sells F&L to these markets is of complete irrelevance– that’s an ideological question. Companies have been peddling their useless diet products in the United States and developed world for several decades now, and no one seems to be up in arms to stop them.

Unilever has a set of corporate values that influence their managers to make decisions about what product lines to sell. These decisions are still largely based on cost-benefit analyses and ROI methodology. (And why not? That’s how managers are incented). Social values differ from region to region, and our social consciousness is evolving here in the developed world in unprecedented ways (So much so that I sometimes think that Dean Cornish’s altruism wildcard might just come true).

The fact that Unilever is serving BoP markets with the access to products– and more importantly EDUCATION and means to a social ladder by providing social entrepreneurs in villages the chance to be an intermediary (wholesaler?) of products is fantastic. The net social impact of Unilever paving the way for other organizations to enter and offer catered services is positive. Eventually, products like F&L won’t be sold in India and many other countries. But until then, I am pleased that profits from the purchase of this brand will help invigor thought into more productive ways to serve humanity.

I’m interested in corporate social responsiblity and the evolution of enterprise (I am brewing a post on this subject that will be up here soon). Tangentially related to corporate responsibility is the notion of consumer responsibility. How does one, as a product designer, inventor, or entrepreneur create platforms that create infectious positive social behavior?

The universe of consumers is dramatically larger than the universe of producers. So much of product design and development is focused on understanding what users (consumers) need, and then synthesizing a solution that addresses the need. It can’t always be about what users “need” in the near term. In the big-picture-long-term-view, we ALL need more sustainable ways to transport ourselves and our goods than we currently have. Whose job is it to educate consumers about this need? And, once they’re educated, don’t the producers have to deliver alternatives? Alternatives that may, at first, cost more than the conventional product… but alternatives that are differentiated to be superior in the consumer’s mind.
A potential solution might be the company that causes all its consumers to think differently about reducing, recycling, and reusing their products in different ways. We could take a step back and think about companies that might foster constructive (e.g. entrepreneurial) behavior in its consumers. What if the longevity and sustainability of the company actually depended on their consumers behaving in a certain way? Well this already happens to a certain extent (customer evangelism like Apple fanboy sites), but it doesn’t necessarily have a positive social benefit all the time.

Design thinking is evolving to “get it”.

I’m writing this post to resolve, in my mind, the approach for MNCs toward opening product and service offerings in the developing world targeted at consumers who earn $2 a day or less.

I am currently working on a project called Design for the Emerging Markets here at the IIT Institute of Design… We changed the name recently from Design for Base of the Pyramid. A majority of the projects that we do here at the ID are funded by corporate sponsors; When I say this, most people automatically assume that these projects are written off as donations to charitable or scientific causes. Definitely not the case.. In my estimation, the benefits of sponsoring a design innovation project are vast– and the potential return on limited investment is immense. The company gets an addition to their workforce of young, talented design-minded students with the very best in design methodology. In return, the student has access to a well capitalized project in which they can complete research, and synthesize their insights into a new product platform or service offering. These byproducts then become part of the corporate intellectual property, and the student’s portfolio. A definitive win-win.

Now, back to my project. We had some doubts whether we are putting our best foot forward by naming our project “Design for Base of the Pyramid”, as it doesn’t seem to be directly aligned with corporate interests. Long term strategy dictates that creating markets for future revenue streams depends on creating a footprint– whether this means using the labor pool in a developing country, or seeking to sell a line of products there and developing brand consciousness. Whether or not the customers/employees benefit from this relationship is irrelevant, right? Hmm, not so much. Forward thinking, sustainable companies already think about the value of their brand– The warm fuzzy feeling associated with their brand has immense intangible value.

Moreover, let’s look at the other groups that wouldn’t be considered “Base of the Pyramid” in developing countries. The aspirational middle classes in countries like India and China are consuming like never before and are adopting Western consumerism at an unprecedented rate. Multinational corporations who seek to serve these markets need to ensure they are offering sustainable products that are ecologically friendly, and encourage reuse/recycling. These next-generation products, unlike their native counterparts that they might potentially displace, need to be functionally superior and offer more utility to their users.

Ideally, product platforms and services that are enablers of local entrepreneurship should be encouraged. Companies who seek to develop communities, improve lives and foster growth for the long haul should receive incentives by the Indian government for their FDI contributions. Ravenous, plundering corporations with the intent to seek profit only in these markets will fail, by virtue of their spoiled brand consciousness.

I know Stuart Hart might disagree, but I think that allowing companies to proclaim they are focused on selling to “emerging markets” to appeal to Wall St., but approaching this endeavor with the intent to enrich and sustain is OK by me.