Client Management Lesson #3: Manage Expecations

This is the third post in a seven part series on Key Client Management Lessons. Lesson #3: Manage Expectations

For this lesson I'm going to refer back to a post I did back in 2007 titled, The Best Business Lesson Ever.  Click here to read that post.

The lesson, in short, is this formula: Perception Minus expectations Equals Satisfaction (P - E = S).

Managing expectations is a critical part of client management, I'd encourage you to read the post and memorize the formula.

Going Mobile

I had some interesting discussions last week around mobile application development.  One thing that’s interesting about new and fast growing channels like mobile is that they cause entrepreneurs to develop products to serve the channel, rather than to build value and serve the user.  That is, businesses build apps to build apps, rather than build “products” that truly address critical unmet needs. 

For mobile to work, you must have a core proposition that works (very often, that proposition has very little to do with mobile). 

I built the following framework outlining when I believe web services should go mobile: 

1. More Exposure and Engagement: you have a product that works now on the desktop, you want people to engage ‘on the go’.  Action: build a mobile friendly website.
2. Better as an app: your desktop product doesn’t work well in a mobile browser due to site layout, widgets, flash issues, etc.  Action: build an app that gives users all of the functionality of your desktop site on their phones.
3. Must be an app: your product value proposition doesn’t work on the desktop (e.g. it requires geo-location, phone ‘bumping’ etc.).  Action: build an app and a desktop site to support user engagement.

Insulting Steve Jobs

I'm on a Steve Jobs kick lately; last week I wrote about how someday there may be statues of him all over the country. I came across this great video of him responding to an insult from someone in the audience at the 1997 Apple Developer Conference, just after he was renamed CEO.  If you listen closely, you'll notice that in his response he does far more than respond to the heckler.  He  lays out Apple's philosophy on product development that would fundamentally drive their outrageous success for the next 15 years.

Start with the consumer.  The consumer must drive the technology.  It's five minutes long but definitely worth watching.

[youtube http://www.youtube.com/watch?v=FF-tKLISfPE]

Google+ is Trying to Fix Social Networking

I’m a member of most of the big social networks (Facebook, LinkedIn, Twitter, Google+, etc.).  To me, the concept of online social networking is awesome.  Connecting and socializing through the web is a wonderful concept.  And it actually works pretty well in many ways. It’s incredibly easy to share online; nearly every website has “Like” and “Tweet” buttons and most sites are pretty easy to use.  And for the most part the people I want to share with are on the social networks I use.

But the thing that’s missing from online social networking, that makes it completely unlike real social interactions, is that there isn’t an easy way to share with discretion.

In the real world, using social discretion is extremely important and extremely easy to do.  There are things that I tell my best friend at work that wouldn't interest my friend from high school's mother.  There are things that I share with my high school friends that wouldn't interest my brother.  So in the real world, I simply don't share things with people that don't care about them.  This discretion is perhaps one of the most basic laws of social interaction.  But it's nearly non-existent in online social networks.  For the most part, when people share online, they share with everyone.

In the real world, sharing with everyone, without discretion, causes people to not like you.  Online, the lack of an easy discretion tool causes two other problems:

1. It creates a ton of "noise" -- unsolicited, superfluous information consumption
2. It prevents people -- especially adults, I would argue -- from sharing more online

Both of these are huge problems for social networking, and they're the reason I don't share more online.

It turns out that Google+ has a great solution to these problems.  They call it "Circles".  Take a look at the video below, it's only a minute.

I think Circles is a brilliant concept that has the potential to massively grow usage of social networks.  The challenge is of course that most people aren't on Google+ and I hear that ~80% of accounts are inactive.  Another challenge is that it takes a lot of time to build your circles and many people may not be willing to do that work.  Though I'm sure Google's technology and data could find a way to build Circles for you somewhat easily.

Regardless of whether or not Google+ takes off, the lack of discretion is the biggest problem with social networking and, in the long term, I'll be using the service that's easy to use, has the people I want to share with and facilitates simple discretion.

Statues of Steve Jobs

One of my management professors in business school once told my class that someday we'll see statues of Steve Jobs all over the United States.  

It was his view that Jobs literally saved the U.S. and its economy by recognizing the commercial potential of PARC's mouse-driven graphical user interface (GUI) back in the early eighties.  The invention of GUI led to the personal computer and put the U.S. in a position of power in the software and computing industry.  At a time when it seemed America was rapidly losing in every major industry (automobiles, electronics, manufacturing, etc.), winning in software and computing may be the reason the U.S. continues to be a global economic powerhouse (by most measures the list of the top software and technology companies is still dominated by American companies).

Regardless of whether he deserves the statues might be debatable, but his outrageous success as a businessman is not. The Economist had an article covering his resignation as CEO of Apple this week.  In it, they included a timeline of his career.  I pulled out a few examples and added some of my own to illustrate what an absolute business legend Jobs has been.  Amazing.

1976 - Co-founds Apple, launches first personal computer

1980 - Apple goes public

1984 - Launches Macintosh

1985 - Ousted as CEO after boardroom coup

1985 - Founds Pixar

1997 - Renamed Apple CEO

1998 - Launches iMac

1999 - Launches iBook

2001 - Opens first Apple Store

2001 - Launches iPod

2003 - Launches iTunes

2006 - Pixar sold to Disney for $7.4 billion

2007 - Launches iPhone

2010 - Launches iPad

2011 - Apple surpasses Exxon Mobil as most valuable company in the world

For more on Jobs, check out Jim Keenan's recent post that includes some of his favorite quotes on business. Some great stuff in there.

Disruption, Illustrated

I came across a two very neat examples of disruption over the past few weeks. The first is from Digital Music News and graphically depicts music distribution by medium since 1981, it's fascinating to watch cassettes and CDs grow exponentially and then disappear just as quickly.  Depending on your browser you may need to slide your mouse over the image to turn it on.

The second is from Chris Dixon's blog and illustrates recent disruption in the video game market.  Below are images of the instructions to play Angry Birds versus the most recent version of John Madden Football, arguably the most successful video game for the last ten years.

Over time the incumbent often builds complexity into its product to satisfy customers, to give them more.  But at the same time that complexity can leave new customers behind.  This creates the opportunity for a new entrant like Angry Birds to swoop in and provide a far more easy to use product for the majority of consumers.  At last check Angry Birds had sold more than 200 million downloads.

Angry Birds

Madden NFL 12

The Long Tail In Action

My favorite band, Micky and the Motorcars, is releasing a new album tomorrow titled, Raise My Glass. I'm pretty excited about it. I think I first discovered the band through Pandora -- they have a similar sound to many bands that I listen to.  I liked what I heard and bought a couple of albums and am now a huge fan.  I was finally able to see them live at the Bowery Ballroom here in New York last month.

Without the internet, I'm certain I never would've come across their music.  They're a little known "alternative country" band that doesn't get played on the radio even in Texas.  They currently have less than 9,000 Facebook fans (contrast that with U2's 10 million or Dave Matthews Band's 2.4 million).

I was thinking about buying their album and I realized that the purchase will be a perfect example of the "Long Tail" theory in action.  I built the graph below to help make my point.

The graph shows album sales for Michael Jackson's Thriller versus Micky and the Motorcars album that comes out tomorrow.  Thriller has sold more than 50 million copies whereas Raise My Glass will probably only sell several thousand. Marketers used to think that they had to find the next Thriller, the next huge album, if they wanted to make money. So they virtually ignored acts that wouldn't deliver an enormous fan base.  But the Long Tail theory tells us that there's actually more revenue to be had in the yellow section of the graph (the tail); that is, relatively low sales volumes of millions of different albums.; i.e. albums from bands like Micky and the Motorcars.

Because of distribution and marketing limitations, it was impossible to execute on the Long Tail theory 20 years ago.  But with technology, specifically the digitalization of music, the Long Tail is now no longer just a theory, it's a reality, and I'm happy to be part of it.

Leading Metrics

A couple weeks ago Techcrunch had a post titled, Don't Be Fooled By Vanity Metrics. In it, Eric Schonfeld calls out the difference between what he calls "vanity metrics" and "actionable metrics".

Vanity metrics are things like registered users, downloads and raw page views. These metrics, he says, are easily manipulated and don't necessarily tie to the metrics that really matter. Actionable metrics are the ones that matter. These are things like active users, engagement, revenue, profits, etc. He argues that startups should publish the actionable metrics from the start, instead of trying to fool the press and others with impressive, less meaningful numbers.

I'm always very, very careful about trusting any metrics that come from a startup and are published on a technology blog, vanity or otherwise. Entrepreneurs are very good at stretching or morphing the truth to tell the right story (they're probably not being written about in Techcrunch if they're not good at this). And in an interview with a tech blogger there's little fear of consequences from not telling the truth and big upside from stretching it. That said, if the metrics are accurate and honest, I think both vanity and actionable metrics are critical for any startup to track and manage to.

Instead of vanity and actionable, I've always referred to these metrics as leading and lagging. Leading metrics are indicators that have a strong correlation to more important lagging metrics. The simplest example of this is to apply leading and lagging metrics to a salesperson. For a telemarketer, number of dials is a leading metric for the lagging metric sales. If it takes 50 dials to get a sale, you can track the number of dials a salesperson is making to have a good sense of what sales will look like in a given period. If your salespeople aren't making enough dials or some of them aren't converting at 50:1, then you can make changes quickly. In web startups, leading metrics can be things like: registered users, unique users, emails sent, email response rates. Lagging metrics are closer to $$$ -- things like transactions, revenue driving clicks, number of revenue driving users, and ultimately, revenue.

Determining the right leading metrics to track is critical for any company. It helps management get a sense of how individuals, groups and the company as a whole is performing in real time, allowing for far more intelligent strategic decision making and tactical management.

Brown M&Ms

I've always loved the story of the brown M&Ms and Van Halen.  Chris Dixon posted it on his blog this morning and I thought I would do the same.

The background is that in every contract with every venue they would play in they required the venue to have a bowl of M&M's backstage with all of the brown ones removed.  From Chris' blog. 

That way, the band could simply enter the arena and look for a bowl of M&Ms in the backstage area. No brown M&Ms? Someone read the contract fully, so there were probably no major mistakes with the equipment. A bowl of M&Ms with the brown candies? No bowl of M&Ms at all? Stop everyone and check every single thing, because someone didn’t bother to read the contract. Roth himself said:

“So, when I would walk backstage, if I saw a brown M&M in that bowl . . . well, line-check the entire production. Guaranteed you’re going to arrive at a technical error. They didn’t read the contract. Guaranteed you’d run into a problem. Sometimes it would threaten to just destroy the whole show. Something like, literally, life-threatening."

Blog Comments

I've started commenting on blogs a lot more often and I'm finding it to be really fun.   Many times the comments section of a blog post is more interesting and insightful than the blog post itself.   And interacting with the blogger and other readers allows you to engage much more into the topic.

There's a web service called Disqus that runs the comments section of many popular blogs.   Initially the idea of a web service for blog comments seemed silly to me but it's actually pretty cool (except that it doesn't work well on an iPad or mobile device).  You can setup a Disqus account or simply log-in with Twitter or Facebook.    Once your account is setup, you can build a profile and an 'about me' page and the service will track all of the comments you make across blogs that use Disqus.   You can even "follow" commenters that interest you and be alerted whenever they comment.   You can see my profile here.

Disqus is brilliant in that has formalized the interactions we have on blogs. It allows us to learn about the people we interact with and easily stay in touch with them over time.  In many ways, it's really another social network...not that I needed to join another.

I could see Disqus being very useful for recruiting employees, consultants and partners.  A blog community that focuses on your industry is a great place to find people that can help your organization.   And Disqus allows you to interact with them, watch them communicate, understand how they think, learn more about them and get in touch.  

The Debt Ceiling and Politics

I’m certainly not a political or economic expert, but the debt ceiling debate in Washington seems to be much more about politics than it is about the viability of the economy. A few facts to consider:

•  Congress put the debt ceiling into place in 1917
• The purpose was to cap the President’s ability to borrow and spend money so it wouldn’t get out of control
• This was necessary back then because at the time Congress had little control over our budget
• That has changed
• Since the 70’s Congress has direct control over the budget each year (taxes and spending)
• The ceiling, which is now at $14.3 trillion, has been raised nearly 100 times since 1917

From what I've read, most agree that raising the ceiling would have little material effect on the economy, good or bad.  Though it would be an important, high profile, symbolic event reminding all of us that the U.S. needs to quickly get its spending in check.  I think we’re all for that.

But most also agree that not raising the ceiling could be catastrophic for the economy (though there's no precedent for it as it's never happened).  We’d default on our debt payments, raising interest rates and damaging the credit rating of the United States.  The economy would almost certainly fall back into recession.

So why all the support for not raising the ceiling?  Why not just raise it one more time?  What’s the big deal?

The answer is simply politics.  This symbolic event is a fantastic opportunity to make the President look economically incompetent.  Putting up a big fight puts a huge amount of attention on the fact that our national debt is out of control and makes the President look bad as he ramps up his re-election efforts.

While I recognize the need for political posturing, not raising the ceiling makes no sense given the fragility of this economy.  It would be a classic case of the punishment not fitting the crime (only we’d be punishing ourselves).

As James Surowiecki writes in this week’s New Yorker, it’d be akin to "shooting yourself in the head for failing to follow your diet."  Let's hope Congress puts politics aside and sees it that way too.

Personalization Doesn't Work...Yet

Most of us know that a huge trend in e-commerce is the personalization of websites and email content.  You'll log-in into a site and you'll only see the things that you want.  You'll receive emails that are personalized to your interests, you'll only see the things that matter to you.

While this sounds wonderful, it simply doesn't work well right now.  By "well" I mean it isn't profitable.

Here's a perfect example.  iTunes knows literally EVERYTHING about my taste in music.  They know my favorite songs and artists and my least favorite songs and artists.  They know the artists and albums and videos I've purchased.  And those that I've viewed, but chosen not to buy.  They know enough to have give me the most personalized music shopping experience on earth.  

But what do I see when I log-in to iTunes?  Huge display ads for albums from Lady Gaga, Katy Perry and Pitbull -- three artists I've never dreamed of buying.

Same thing with Amazon.  They know everything about my online shopping habits but all I can see on the homepage is a huge display ad for the new Kindle.

The reason for this is simply that personalization doesn't work in the short term.  And marketing managers that decide what goes on the homepage need to hit their numbers this week and this month and this quarter.

I can almost imagine the conversation at Apple:

CEO: Hey, we know so much about our users, why don't we show them albums that are relevant to them on the homepage?  Won't they convert better?

iTunes Marketing Manager: Well yes, they'll convert better but the incremental revenue from the better conversion doesn't even come close to the incremental revenue we get in fixed marketing fees for putting Lady Gaga on the homepage.  In addition, Lady Gaga's label pays us a larger revenue share per album.  Also, if we sell 50,000 Lady Gaga albums this week, we get a $1 million bounty from her label.  So while our homepage to purchase conversion may increase with personalization, it simply won't make up for the marketing revenue we're getting by broadcasting her album to all of our users.

CEO: But won't this turn some users off?  Won't they go somewhere else if we don't show them what they want right away?

iTunes Marketing Manager: I suppose that's true, but hey, I have a big goal this month that I need to hit.  I can't worry about that now.

Of course I'm completely making up the facts and numbers in this conversation, but this is the logic that's driving decision making for many web services that can personalize but choose not to.  It simply isn't profitable yet.  And most companies aren't willing to make the short term sacrifice to provide a better shopping experience in the long run.

That said, I do believe at some point the large web services' personalization tools will get smart enough where the increases in conversions from personalizing a site will outweigh their fixed marketing revenue.  But it's pretty clear to me that that reality is pretty far off.