Category Archives: Business/Economy

Writings on business and the economy.

What Happens When the Marketing Mix Changes?

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What happens when you take away one of the 4-Ps? It makes the whole universe of marketing a heck of a lot harder. In essence, this is what has happened in the modern software business and this is why the smartphone world will never end up like the PC world.

If you are not familiar, the 4 Ps are:

  • Place
  • Promotion
  • Price
  • Product

When Apple came out with the iPhone 3G in 2008 it also changed the rules of software sales. By building an App Store, Apple took away one of the 4 P’s, Place, and put all the stress on Price, Product and Promotion. Not too bad, you’d think. Even I was a big proponent at the time. Back in the Palm days we talked about how much easier it would be for customers if there was one single place to purchase apps and download them directly to the device. After all our biggest problem in those days was awareness and our biggest support problem was installation. By having a store on the device that would take away these problems, our world as developers would be so much better. What could go wrong?

Yeah, well, the law of unintended consequences always finds something.

By removing Place suddenly all the emphasis was put on the other three Ps. Since all apps were in one spot, it became clear very quickly that reasonable software prices were not sustainable. App prices began to drop and drop and drop until prices for the average app reached about $0.35 each. With Place defined and Price so low, Promotion became a problem. Where can we each promote our apps and still make a profit when the average app is only a few cents? And how do we promote when the only place people go to find apps doesn’t take ads? So it all comes down to Product.

Don’t get me wrong, some products found their way in this world. Gaming, in particular, has done quite well with its pay-to-play models, where the app can build buzz, become its own network effect, and then build revenue off a small sliver of heavy users. But this hasn’t worked as well in productivity where apps are either a few bucks or, if you really want to be successful, free. Most of these free apps have some way of making money away from the app stores.

I’m only picking on software but this is also one of the major problems with smartphone hardware as well. Once upon a time we bought PCs from a plethora of computer, retail or web outlets. Now, unless you are an Apple customer, you head to your local carrier store. For device manufacturers Place is gone, too. The carriers dictated Price, Product features, controlled all Promotion. Compared to the carriers, app stores so far have been downright benevolent.

What breaks this logjam, at least for the software world? I don’t fully know but clearly business models are changing. Games have started to figure this out. Fewer and fewer of them are fixed price, buy once stuff. Pay to play models are more and more prevalent. The same will be true for productivity apps. The future clearly will be some sort of freemium subscription model. The beauty is these models don’t need to be expensive. The infrastructure is cheaper, the distribution is cheaper. But it still costs money every year to develop and support these products. I hope consumers will adjust.

The Burden Of Generations Past

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The reality is that each successive generation must deal with the mistakes made by the generations that came before. In particular what I am referring to is the decisions they made while in power that impacted generations that followed. For instance my great-grandparents generation, those born between the Civil War and turn of the 19th century, were in power from 1920 to 1960, encompassing Presidents Coolidge, Hoover, Roosevelt, Truman and Eisenhower. Their legacy was not only the Great Depression and recovery from it, but also WWII, Korea, the atomic age, Israel and the beginnings of the Cold War. These events shaped the lives of my grandparents’ generation, who were coming of age in this time period.

My grandparent’s generation, born in the time period between 1900 and 1925, were in power for 32 years. This includes Presidents Kennedy, Johnson, Nixon, Ford, Carter, Reagan, and George HW Bush. Just like the generation before, this generation had to deal with events already set in motion before its time. This includes Jim Crow/separate but equal, the Cold War, and the rise and fall of the US as the only industrial power. This group, though, also set events in action that shaped the next generation. Abortion rights, Vietnam, the rise of the Religious Right, the Kennedy assassinations, and The Great Society legislations, just to name a few. These are all events that shaped their children, the Baby Boomers, who are now in power.

It is easy to demonstrate these burdens. For example the US policy, in the time of my great-grandparents and grandparents, was to win the Cold War by playing god in other countries. We toppled leaders all around the globe, inserting our own favorites, even if those people were despots. One famous example, of course, is Saddam Hussein, who we armed in the fight against Iran. Another is Afghanistan, who we armed and trained in the fight again the Soviet Union and then abandoned as soon as “we” won. That war destabilized the country and led directly to the rise of the Taliban. In both cases, we ended up fighting wars to topple those we made powerful.

Iran, of course is another example. We directly disposed of a leader, inserted our own, who was later disposed by religious leader Ayatollah Khomeini, which led to the Iran hostage situation that the movie Argo portrayed. These events, while dealt with by Carter of my grandparent’s generation, were set in motion by great-grandparent generation leader Eisenhower when he helped the Shah come to power in 1953. The Baby Boomers in power now (and likely the generations to follow) will still be dealing with this fateful decision put in motion 60 years ago.

Of course not all burdens remain. I was born in 1973. Just a few years before, Rosa Parks refused to move, the march on Birmingham occurred, Selma happened, Malcolm X and Martin Luther King were shot, Watts burned. But these events didn’t encompass my generation; they are the burden of my parents generation and grandparent’s generation. I only know these events because of what I’m told and what I’ve read. They are not apart of my psyche. I’m not certain that the guilt over slavery, the guilt of “separate but equal,” hangs over my generation as it burdens my parents and shapes their politics and world views. The same is true of abortion and gay rights.

The Baby Boomers have now been in power for 24 years now (or rather will be when Barack Obama’s second term is complete). We are likely to see one or two more Baby Boomers elected president before us Generation Xers and Yers get our shot. What burdens will we carry forward? And which will roll off our backs?

 

The Key To Entrepreneurship

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Seth Godin writes:

I don’t think the shortage of artists has much to do with the innate ability to create or initiate. I think it has to do with believing that it’s possible and acceptable for you to do it.

I believe very strongly that the future of the United States is tied to our levels of entrepreneurship. We can’t be a successful country with everyone working for the man. I’ve also come to believe that Seth’s comment above is the most limiting reason we don’t have more of it.

I might have told this story before, but my cousin got married and graduated from chiropractic school about the same time. He worked out a comprehensive plan to build his own practice. His wife, though, thought the safer route was to work for someone else for a little while, learn the trade and business, and then go out on their own. My cousin didn’t even think twice about that option.

When we spoke about it, I told her that she needed to understand something: in our family we didn’t know any better. Our grandfather ran his own business. Our uncle ran his own business. My father and his father both ran their own businesses. Even my cousin’s older brother ran his own business. And of course I did, too. From birth, it was ingrained in each of us that running your own business is part of life.

So yes, most of us aren’t in a financial position where we can just quit our jobs and go out on our own. But that’s not the first step anyway. Being convinced that you can quit your job and go out on your own comes first.

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I’ve had a few comments so thought I would expand. My mom’s parents had three kids. Same for my dad’s parents. Of those eight families (including my grandparents) only one never worked for themselves.

Startup Doesn’t Equal VC

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Starting a business has nothing to do with VCs. Startups have everything to do with exploring a product that satisfies a group of underserved customers. Paul Graham wrote an incredibly good essay on the topic of coming up with startup ideas. He never talks about funding in the article. He talks about how to derive the ideas and determine whether any one idea is a good idea. In short, “Live in the future and then build what’s missing.”

This topic is very important to me, especially the part about funding and VCs. Venture capital is just one way of funding a business. So are loans, credit cards, side projects, full-time jobs, and getting customers to pay for stuff before they get the product. The myth that startup and VC is synonymous is propagated by the same people who have a vested interest in making the connection: VCs.

There is nothing wrong with a business that pays the bills. It is not a lifestyle business. It is fraught with the same risks as every other startup and every other company.

It is okay to build a small business. 99% of all companies in this country are small. There is nothing easy about paying the bills with a company you started from scratch. In fact I would argue that you can’t skip that step. Paying the bills from cash flow is the only way to really build a larger company.

And going after just 1% of US citizens is not thinking small. It is thinking big. 1% is 3.1 million people. At $10 per year that’s $31 million in revenue. There is nothing small about that, even if some people want you to think so.

Managing the Financials

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Brad Feld talked about a company that blew away his expectations for financial results and in the process he asked how we as entrepreneurs manage budgets and forecasts. Here is what I told him:

I do annual budgets based on the most likely known data and then show where the upside might occur and when. I’m very conservative by nature and, partly due to being raised without much money, always worried about cash. I adjust these numbers based on new data on a monthly basis, which means by the time I reach any given quarter, my estimates are stronger. Since I budget the current year and the next fiscal year, those changes give me a long-term window as well, so I have a pretty decent idea of where things lay over a longer window. As a part of my annual budgeting process, I look back over the previous year to see how close I was at the beginning versus where we ended up. This hones my prediction skills.

I traditionally have been very good at budgeting and watch the cash very closely. I’d like to be surprised on the upside, though, for a change!