Best Practices Not Included

Venture Capital A Systemic Risk?

I came across an article in TechCrunch on how the U.S. Treasury is also targeting Venture Capital (VC) in the plans to increase regulatory oversight on all private investment vehicles.  The rationale for this of course is in the name of systemic risk.   Systemic risk?  The entire 30 Billion invested from all Venture Capital nationwide is too small to pose any sort of systemic risk to the U.S. economy at large, not to mention Venture Capital investing involves little leveraging unlike the kind that went on in big financials.  We need to remember the structure of VC has made it one of the most effective and thereby important investment vehicles ever created. 

VC's put up equity under the knowing realization that they could lose it all.  The SEC is clearly moving in the direction of regulating risk taking being made for purpose of economic self interest.  The new administration needs to wake up and smell the roses, for when we examine history, we find that self interested investing aka 'greed' has been the economic growth engine in this country from day one.  How ever socially un-virtuous that my sound, it's the truth and the sooner we stop berating it as "unnoble" and segmenting everyone into two categories (Wall Street and Main Street). Regulating Venture Capital could have the same unfortunate affect as it had on Bernie Madoff's investors by creating illusions of safety in endeavors that are ultimately risky ventures.

But let's not forgot the societal benefits private sector risk taking through Venture Capital has yielded.  Companies like: Intel, Apple, Genentech, Cisco, Amazon, Google, Facebook, and Twitter would not be what they are today if they hadn't found funding from Venture Capital along the way.  Not to mention, the millions of jobs and economic growth spawned from this risky investing.  Let's think about, would the government have invested in any of these companies in their early stages?  And how would our lives be different without the innovation that's come out of these organizations.

As far as I can see, the only systemic risk the U.S. Economy faces going forward is for the government to convince the general public that we should let the SEC, Treasury, and Banking Committee put their hands in every privately organized financial decision made going forward. Thus lets continue to expand the size of public regulatory agencies like the SEC, an organization that has done nothing more than create a false sense of security as the suposed umbrella over the financial industry.  Tim Geithner, keep the government's business out of Venture Capital, I don't want the government's hand in innovation.

MovieCube = More Competition For Box Stores

If you've entered the Bellingham Fred Meyer from the North entrance lately, you've probably noticed the dvd rental kiosk known as Moviecube. I've rented 2 or 3 movies from it now and I must say that aside from a smaller selection, I would much rather rent a movie a for $1 from a conveniently placed kiosk like Moviecube than deal with Blockbuster or Hollywood Video paying $4 to $5 for a 5 day rental I don't need. Granted, out of 200 movies or so, there are only a handful I'm interested in seeing; as I would rather watch documentaries and other content farther down the long tail. But, moviecube and other kiosk competitors have the potential to take a majority share of the new release market from the likes of Blockbuster and Hollywood Video as overhead and wage requirements will prevent Blockbuster from competing with kiosks on a price level. All this will amount to these traditional brick and mortar stores losing more market share just like what happened when Netflixs came along.

Next time you walk into a Blockbuster or Hollywood video, you should ask yourself if all that space is really necessary. Do we really need 30 aisles of wasted space to stock a commodity product like a movie, a product that has very little physical value?

In the long run, content wants to be free to roam.  By that I mean consumers want the choice to purchase, view, and dispose of media in a proliferated manner.  Eventually, Blockbuster’s brick and mortar business will no longer be feasible as the convenience through at home streaming media rentals will force Blockbuster to close unprofitable stores.  In the long run, they’re costs in operating brick-and-mortar stores will make them uncompetitive.  They need to transition most of their resources towards electronic distribution, if they wish to survive with the likes of Netflix’s, Moviecube, or even Apple through its iTunes movie rentals.  Given, the average consumer does not yet possess the technological ease to order and dispose of content electronically and from their own home. In the same respect, most communities fail to possess the broadband capacity required to stream or download video in HD quality. It might take another 10 to 20 years until this becomes the standard. However, don't expect Blockbuster’s stock to do well anytime in the near future. Check out this article from Bloomberg back in 2007.

Paper or........

It was bound to happen eventually, but Kudos to Whole Foods for being a leader on this one.  Today Whole Foods announced that they will be eliminating the use of plastic bags in all of their 270 stores.  The company has committed to reaching this goal by April 22, which I might add is Earth Day for all of you keeping score at home.  It's been interesting to watch consumer perceptions change in recent years.  I'm only 22 years old, but I can positively remember an older time when this move would have been called a mistake by analysts and the general public would have been laughing.  Other domestic retailers will surely follow this trend as many retailers in Australia and China have also made commitments to stop using plastic.  Because of concerns over environmental impact, governments will without a doubt continue to crack down and eliminate plastics when it's feasible.  For this reason, Whole Foods efforts will continue to yield the organization competitive advantages in the retail sector.  Ingrained in Whole Foods core values has been caring  for the environment and localized community.  The company has said they will continue to offer 100%  recycled paper grocery bags.  However, I have to believe the company is hoping shoppers will bring their own reusable bags.  One thing is for sure, while these are only small steps towards a more eco-friendly society, we will continue to see major cultural attitude shifts when it comes to the environment and how we interact and co-exist with the planet at large.

Fiamma Burger - Taste The Difference

I've been back in Bellingham for about a week now and after being gone all Summer, it's been interesting seeing some of the changes taking place around town. I am dissapointed with the dismantling of the Up & Up.  Don't get me wrong, I love Rudy's Pizza's but it's a shame that the "Up" had to go.  And for those of you thinking to yourselves that it's still there, sorry all is lost, it will never be the same.  But thinking more positively, I must say that most of the changes are for the better...my neighbors new house, the student instruction center on campus, Bellingham's "beautification" aka concrete sidewalks and asphalt.  Lastly, I'm happy to say I enjoyed my first Fiamma Burger experience the other day.  I've always loved La Fiamma Woodfire Oven Pizza to say the least...next time your there try a panini!  It seems about a year ago I first heard the concept of Fiamma Burger.  Initially, I had my doubts about using La Fiamma’s brand equity, I’ve just never really liked this approach to branding.  I believe products should organically stand for something that’s their own.  However, in the case of Fiamma Burger, I felt it was totally appropriate.  Am I being egocentric?  It’s interesting though because in the restaurant business, you often don’t see this kind of direct approach to using brand equity.  But since the ownership of both restaurant’s are (correct me if I’m wrong) one in the same.  It made this option very feasible.  For those of you who know me well enough, I’m thinking of Fred specifically, you won’t be surprised I’m transitioning to this rant. 

The other point I would like to hit on is that we’ve seen to some extent the commoditization of the burger.  Come on, let’s be honest with ourselves, burgers from traditional fast food joints are all created equal, they’re basically the same because in essence they begin with the same ingredients which are then processed, distributed, and prepared in similar manner.  It’s been an absolute battle for a long time with the goal of cutting costs as much as possible to put an inexpensive burger on your plate.  So point being Fiamma Burger was smart not to take the “Dick’s” approach to the burger (by that I mean prices, not smaller menu selection because indeed Fiamma Burger is doing that).  Not to mention you would have undoubtedly hurt La Fiamma’s equity.  So realistically, if your Fiamma Burger, your competing against two of  Bellingham's staples being Boomer’s and Bob’s.  This is healthy competition to say the least.  I have reason to believe Boomer’s is more of a direct competitor we thinking about similarities between dining experience offered when you factor out the food itself.  Everyone will have their own opinion when it comes to the Bob’s, Boomer’s, and Fiamma Burgers.  So instead of offering my opinion, I’d like to offer Fred’s from his post on his Fiamma Burger experience earlier this month.  Here are some excerpts but if you would like to read his entire review check out his blog: http://stonecries.typepad.com/blog/2007/09/the-only-burger.html

“So, how good is the burger?  I think it tastes great.  The meat is lean (not dripping with fatty nastiness), the veggies full of flavor, the "secret sauce" is not overpowering, and heck--I could eat the bun by itself.  Some complain that the burgers are not as big as at Bob's (can't avoid the comparison, what, being across the street), and neither are the servings of french fries.  Personally, my appetite is rarely big enough to finish a full "platter of fries with side of hamburger" at Bob's, so that complaint isn't relevant to me.  For people just looking to throw back as many calories as possible for as cheap as possible, Fiamma might not be your place.  Let's just say that, as far as proportions go.  But if you are like me, and your appettite isn't that of a small rhinoceros, the meal is very satisfying.  The french fries are also good--still french fries, but not greasy, and not over-fried.”

“One thing you will probably hear about Fiamma burger is that it is over-priced.  I have responded to that review with the old adage, "It all depends on what you want, and if you're willing to pay for it."  Sure, I could get Five burgers from Wendy's for the same as One from Fiamma, but I want fresh ingredients, a clean restaurant, and (pardon me here) solid waste.  None of which I will get from five burgers at Wendy's.  For $4.75 you get the burger--for 75 cents you can add cheese, and for $1.50 you can add that delicious bacon I was telling you about.  For another $1.95 you can add fries.  So, say you get the bacon burger & fries--that'll run you about $8.25.  Seem like a lot?  Maybe, with the Bob's comparison ($8.95 for the platter of fries/bacon cheeseburger), but at Fiamma you aren't tipping waitresses and running to the bathroom in two hours.  So ultimately you pay about $3-4 less than at Bob's all things considered, and maybe $2-4 more than at Boomer's, but you get the best "quality" burger in Bellingham, and like I say, enough food to satisfy the appettite of anyone smaller than a small rhinoceros.”

There you have it.  As Fred stated, he cares about fresh ingredients and I have good reason to believe that in Bellingham there are many more like him.  So Fiamma Burger is in a very “healthy” niche…haha no pun intended.  In all seriousness though, it’s hard to say how Fiamma Burger will do.  It’s just questionable to me if for the price, there is a big enough market.  They’ve had a lot of initial expenses to get off the ground and even though the burger is using fresh and more expensive ingredients, I would think there has to be a nice margin built into the prices.  Time will tell, and I wish them the best, I know I enjoyed my experience and I would say Fiamma Burger is the best tasting one in town.  Business will probably be slow during the Boomer’s sale cause we all know how that can get patronized.

Company or Cult?

Alright, I'll be the first to admit that as much as I love Apple, I'm getting pretty sick of hearing people talk about the iPhone. So what am I going to do? I think I'll talk some more about the iPhone. I was going to refrain but over the last week, it has just been unbelievable how all things iPhone completely penetrated my life. Not sure if everyone else had similair experiences? Maybe I was just seeking out the hype? But, what we all witnessed is only further evidence at how powerful a tool marketing can be. That said, there is no other company on the planet that could even come close to pulling off what Apple's been able to do with everything iPhone marketing in the campaign's entireity. Apple set the bar pretty high with it's message regarding the iPhone. Steve Jobs was vocal about how he believed the device will change the entire phone industry. That's an incredible claim, and while this change will certainly not take place over night, we will begin to see some significant changes in the telecom industry regardless of Apple's entrance into this highly competitive market.

Prior to launch, there was a lot of speculation at how things would go down. We all knew it would be memorable and that's what sets Apple apart from every other technology company. It's the culture! For the most part, Apple delivers on experience! As much as this product has been hyped, being touted as the "Jesus phone" among other hubris claims, the reviews have come in and the concensous seems to be that Apple, if not delivering on all things promised, has come extremely close.

Aside from the success that Apple's achieved with it's launch, it's also important to note some of the failures. I heard about the compatibility issues with 64 bit Vista that frusterated a few folks. Even though Vista has been a collosal failure, especially compatibility wise, Apple should of had this under control. But all in all, this was minute compared to the stories about the horrible customer experience at AT&T. This should have been predicted. Maybe it was? Apparently, AT&T was forcing people that wanted to buy an iPhone to also purchase accessories. They were bundling it together and would not let people buy solely the iPhone like you could over at any Apple store. Mistake, Mistake, Mistake. AT&T is probably still wondering why all the lines were in front of Apple stores and not Cingular ones. More info about this can be found over at Gizmodo. It's stuff like this that still has me wondering why Apple went exclusive with AT&T? Obviously, AT&T probably offered them the most money, but at the same time AT&T will only hurt Apple's proven track record damaging the brand along the way.

Lastly, check out this video from the iPhone launch at 6pm right outside the Palo Alto Apple store. This kind of loyalty is one that any company would only dream to having. Indeed, we lived through what might have been the biggest product launch in history.

"Dude...Don't Get A Dell"

Some lessons in life have to be learned the hard way. There's an old saying I've always liked that goes "if your knowledge were your wealth then it would be well earned." It's always better to learn from the mistakes of others, yet it always amazes me that companies make the same mistakes over and over, especially in the digital space. Big companies will still try and throw their weight around and it will most likely back fire. A recent example of this was a couple of months ago when the AACS Licensing Authority, reacted to an internet posting of the “Processing Key" that unlocks the every Blu-Ray and HD-DVD disk that has been published to date. The AACS sent out threats to those who managed websites, most notably Digg. There's a good story that The Times did on the incident: In Web Uproar, Antipiracy Code Spreads Wildly.

To make a point, here is the processing key: 09 F9 11 02 9D 74 E3 5B D8 41 56 C5 63 56 88. Now, being someone that doesn't own anything Blu-Ray or HD-DVD, it's very unlikely I would have known this number exists if it weren't for the AACS poor practices. But, because they acted out of what they assumed to be "best practices", they added fuel to the fire and were burned badly. This incident drew national headlines and worst of all for the AACS, the key now widely available on the Internet. I would say this was quite the opposite of keeping things quiet.

Back to what I was orginally posting about, Dell has been an interesting case study over the last week. What's been going on is a former Dell sales manager wrote an article for the Consumerist blog: 22 Confessions Of A Former Dell Sales Manager. In the article, the author discussed tips and tricks to get the best deal out of Dell. Dell responded by sending the cosumerist a legal threat and demanded the story be taken down immediately. Of course, this backfired! The Consumerist replied by telling Dell that they had come by the story legally and voluntarily from a third party. They made it clear to Dell that they did not solicit any Dell employee's to breach contractual agreements in providing this information. Even worse, after those running the Consumerist became pissed off at Dell's demanding and overbearing requests, they posted the email trail on the Consumerist website. It's interesting to read the communication between the two organizations. I'd like to highlight the end of one email sent by Gaby at the Consumerist to the Dell counsel. She really put them in their place:

"In addition, as I am sure you must realise - and there is certainly a history of this with Dell already - consumers tend to react far better when a company responds collaboratively to criticism, than when they act heavy-handedly or dismissively. Removing this story would be far far more damaging to Dell, I assure you, than responding to it on the Dell blog or elsewhere, since in telling our readers that Dell shut down our reporting, we would unleash a chaos of fury and acres of criticism in the press. Forget any legal position you may want to take, meritorious or not, I am deadly serious when I say that I simply cannot recommend this as a course of action. I've seen it happen before and it is really not pretty and I have no doubt that you will regret it. Of course, it is your decision whether you want to pursue this matter, but I advise you to talk to the team that had to deal with the falllout from the Jeff Jarvis affair before you decide to try and silence your critics. Work for the customer, not against them. Best regards, Gaby"

The original story has recieved almost 200,000 views in just 4 days and the follow up story with the emails has recieved close to 120,000 views. Now, things got really interesting when just last night, Dell posted an apology on their Direct2Dell blog. I'm thinking they were humbled to say the least. This is how they opened:

"Now's not the time to mince words, so let me just say it... we blew it."

In addition, what follows is a list of Dell's own confessions (23 for good measure) that highlight many of Dell's services as well as explanations in how to get the best deals on Dell Products.

Side Note: I happen to own a Dell laptop, I've been relatively satisfied with Dell's product, but a few years ago, I had a horrible experience with Dell's customer service when I sent in my computer to get fixed. As a result, I don't think I'll be purchasing a Dell for my next computer. I guess I'm just looking for a reason to post this, but it's one more example as to why companies have to deliver on the experiences they promise. This is a letter I wrote to Dell's customer service about my experience: Download Hi

Aside from my possible bias and the as-of-late overall criticism towards Dell, damage control efforts were smart and necessary following the consumerist incident. It's clear the animosity was growing. The story circulated rapidly through the blogosphere and was all over the front page of Digg. WiseBread even went as far as running a poll where 54% out of 1937 respondents said they would boycott Dell if they continued the takedown efforts. For Dell, it hurts to admit you were wrong, but being open and transparent about the incident is what had to be done. On the plus side, this shows that the company is paying attention to it's consumers. Of course, avoiding the entire situation would have been ideal, but for Dell, or any other company going through a similar ordeal, it's important to embrace the failure. With the current state of the internet, organizational mistakes will be made. It's a given! What's more important is what can be learned as a result of these mistakes and more importantly, how can we turn this mistake into an opportunity? Dell seized the opportunity by creating and executing the 23 confessions list. At the end of the day, consumers appreciate this creativity. Dell's efforts demonstrate engagement through conversing with what happened. They should realize they are better off having dealt with these kinds of crisis. Lesson learned: let's engage with our customers, not fight them.

Book Review: The Long Tail

Well, I pretty much finished up school last Wednesday. I have one final on Thursday but it feels nice to be mostly done. I've had to neglect a lot of reading and blogging lately, but I was fortunate to finish up "The Long Tail: Why the Future of Business Is Selling Less of More" the other night. The book was written by Chris Anderson, editor in chief of Wired Magazine. It's easy to tell that Anderson used to work for The Economist, a great magazine by the way. In fact, if I were stuck on a desert island, and I could only take two magazines, I would chose Wired and The Economist. But back to the book, this read was thought provoking and full of economic models/concepts aiding in the explanation of how the internet is changing our world. What is a Long Tail? Statistics was never my favorite subject, but "The Long Tail" is simply a Pareto Distribution aka "Long Tail" distribution. It might sound complicated, but I can't think of a better way to metaphorically explain how the internet has completely changed culture and commerce as we know it. This translates into the book's main theme's: 1. with the long tail, there are far more niche goods than hits, 2. the costs of reaching these niches has fallen dramatically (i.e. internet), 3. the range of tools (i.e. search/recommendations/rankings) have helped shift demand down the long tail as people can more easily find useful/relevant niches, 4. demand curves will eventually flatten as the hits become relatively less popular and the niches continue to grow in popularity, 5. collectively the niches add up to comprise a market that rivals and sometimes outweighs the hits, 6. the internet helps reveal the natural shape of the demand curve, a curve that is undistorted by information scarcity, brick and mortar shelf space, and limited choice. 

The Long Tail discusses many concepts, here are a few of my favorites:

"Economics of Abundance", this is the idea of being able to have nearly unlimited choice. In this day and age, companies don't need to hold inventory in store fronts because they can instead sell online, Anderson references data and insights from companies like Amazon, eBay, iTunes, Google, Craigslist, Wikipedia, MySpace, and Rhapsody to support his argument. Furthermore, Anderson makes the point that The Long Tail is contributing to the slow demise of mass/pop culture and giving birth to niche culture and the idea of "less is more".

"98 Rule", Anderson explains that Netflix says 95 percent of its 25,000 DVD's rent at least once a quarter. Furthermore, after looking at it's book sales, Amazon suggests that 98 percent of its top 100,000 books sell at least once a quarter. Because the cost of digital space per book or DVD  is very cheap, Netflix's, Amazon, and other internet retailers can afford to keep in stock items that only sell once or twice in a given year. This is a huge advantage over traditional brick and mortar retail which fails to offer choice because of the inability to turn over inventory fast enough to pay for physical space. Anderson states that eventually, Amazon will localize the printing of digital media and produce books in seconds from never ending electronic catalogs. Also, DVD's will be replaced by wireless movie streams, this will increase the speed of distribution and the volume of sales of the media an individual prefers. The 80/20 rules are without question changing.

"Hit to Niche", Rhapsody offers more than 1.5 million tracks. The top 4,500 albums account for the top 25,000 tracks. This totals to 22 million downloads a month, which is nearly a quarter of Rhapsody's total business. What's so amazing about Rhapsody and iTunes for that matter, is that demand exists for almost every track in their infinite digitally-shelfed inventories. With 75% of sales coming from products that arn't available in traditional physical retail stores, these niche markets are for ever changing retail. This is further exemplified by the popularity of  myspace, purevolume, last.fm etc. WalMart is still the largest music retailer on the planet, but WalMart doesn't carry over 99 percent of music that is on the market. Again, the same thing goes for Blockbuster, out of the more than 200,000 commercially released films, TV shows, documentaries etc. Blockbuster's brick and mortar stores carry only 3,000 titles. However, since The Long Tail was written, Blockbuster has taken note of this and has transformed its business to compete with Netflix's and take advantage of these never ending markets.

Below is a graphical representation of "The Long Tail" in the marketplace:

This book was a great read, but at about 226 pages long, it could have been much shorter as many of the theme's became redundant about half way through. However, I would recommend this book to anyone who's looking for a formalized premise on how the internet has radically changed business models. Also, check out Chris Anderson's blog: The Long Tail if your interested in some more of the theme's surrounding this book.

Steve Jobs and Bill Gates

I love the dynamic between Steve Jobs and Bill Gates. It's just awesome every time these two guys get together. Here are some excerpt's from this year's D5: All Things Digital Conference. The interview transcript can be found here. The "Mac Guy" and "PC Guy" ad's get brought up, the reactions are pretty funny. My favorite part has to be at the very end when of course Steve Jobs would naturally make a Beatles reference when asked how he and Bill would define their relationship. A classic moment for sure. Enjoy!

Mitigating Junk Mail

Seth writes a great post and points us to GreenDimes.com.

GreenDimes is a business that takes your name and address and for 10 cents a day (for those counting that comes out to $36.00/year), they contact direct marketers and make sure your name gets taken off mailing lists. But that's not all they do, on top of this, they'll apparently plant a tree in your name every month. The philosophy here being to try and offset paper consumption by regrowing tree population. Seth had this to say in thinking about his junk mail experience:

"I had a thought: I'm going to rip all of these up when I get inside and just toss them. Why couldn't they just email me all this crap, right into my junk mail folder, where a nice little email service would delete it after 10 days. I took that thought a little further and began to think about all the paper that would be saved if all those marketers quit sending me all that junk."

I've heard of people mailing junk mail back on their own, but for most of us, we just don't care enough to take the time to do that. After checking out GreenDimes website, one of my favorite things about the organization is their integrated business model. Companies should ask themselves the questions: "what do we stand for" or "what are our values". As a business, you have to be cultured now a days. Green Dimes slogan is great: "our planet - do you give a dime?" Also, I love the impact widget on the right side of the homepage, this really helps send their message home. It seem's understandable why people are jumping on board this service. Seth, like myself, and most everyone are sick of having to deal with junk mail. We would all like to see this form of marketing die and in time, it will. These types of programs, national do not call lists, spam blockers etc. are all barriers we as consumers will only continue to put up if marketers keep resorting to these kinds of tactics.

Facilitate The Purchasing Decision

Great article just posted on CNN: GM dealers offer Toyota test drives

I guess it was only a matter of time before dealerships started taking this type of strategy towards facilitating the purchasing decision. I'm kind of surprised it didn't happen sooner, but with GM and Ford approaching their last laps, different practices had to be taken. When your GM and your up against the wall, you have little to lose. In today's world, it's about: Choice, Choice, Choice. The auto industry is no exception to this reality. Dealership business models are getting flipped on their heads. The article mentions a number of potential advantages to this type of  approach, but they didn't address what could be most powerful, the instant feedback. Just think how great this is. The customers driving experience with both the GM and Toyota vehicles can be heard first hand (Customer --> Salesman). At this most important touchpoint, customer disclosure is heard and can latter be documented by the salesman. Now, the challenge of this system will undoubtedly be creating an effective feedback loop. This will involve the continuation of breaking down old top-down business  models that used to sell cars. But in the end, this last step of the purchasing process turns into the first one. The salesman's duty to the car company has shifted, they are now the researcher. Harder said then done, there is a need for the car industry to change along every step of the process. Internal communication models shouldn't resemble ladders. There's is a long way to go but this is a nice step in the right direction for GM!