Brand Like Amazon:
Even a Lemonade Stand Can Do it.
Jeffrey and Bryan Eisenberg with Roy H. Williams
CHAPTER ONE
The car door closed and they were alone. As the old man backed down the driveway, the younger man spoke. “Thanks for doing this with me Poobah.”
“It’s what Poobahs are for, Sunshine.”
Nothing else was said until they were on the highway. A billboard announced “Starbucks 12 miles ahead.”
The younger man turned off the radio.
“Why do you call me Sunshine?”
“Because you’re very bright and you give me a warm glow.” The old man looked at him. “Is there something else you would like me to call you?”
The younger man said nothing as minutes passed.
A billboard, “Starbucks. Next Exit.”
The young man said, “Let’s grab a cup of coffee. It’s going to be a long drive.” Then he smiled. “And by the way, you’re buying.”
“I’m buying? I thought you were making a small fortune.”
The smile disappeared as if the old man had blown out its candle. “I am making a small fortune, Poobah. The problem is that I started with a large one.”
A few minutes later the old man handed a twenty to the server at the window and she handed him two Ventis in return. He passed one over to the younger man and put the other in his cup holder. The server was holding out his change. The old man looked at her and said, “No. That’s for you,” then gave her a smile and a nod as he pulled away.
“I’ve watched you do that my whole life and I’ve never understood it.”
“What do you mean?”
“You always over-tip. Always. Even when you get lousy service. Why? Why do you reward incompetence?”
“Ah. You think the tip is about them.”
“Of course the tip is about them. Who else would it be about?”
“The tip is about me, Sunshine.”
“You give a stranger at a window ten bucks just to prove you’re rich? Hell, she knew you were rich when she saw the car.”
“I surprised her with something she didn’t expect. It makes me feel good to know she’s having a better day right now than she was having 5 minutes ago.”
“Does it make you feel ten dollars good?”
“Easily.”
“You’re nuts, Poobah.”
“Always have been.”
Minutes passed.
Sunshine nested his empty cup inside Poobah’s empty cup.
“Sunshine, you said you were making a small fortune from a large one. I take it you’re talking about the money from the investors?”
The young man nodded.
“Sunshine, tell me what you know about unifying principles.”
“Cells, evolution, genes and homeostasis?”
“Not biology. Business.”
“I don’t follow.”
“Unifying principles bring all the facets of a business into alignment.”
“Diamonds have facets, Poobah. Businesses have departments and divisions.”
“Businesses that sparkle have facets.”
The younger man gave a sigh of resignation. “Okay. Give me an example.”
“George Eastman organized the Eastman Dry Plate Company in 1881 under four unifying principles
1. Keep the price of the product low so the customer will find more uses for it
2. Always sell by demonstration.
3. Be the first to embrace new technologies.
4. Listen to what the customer tells you.
Any time there was a decision to be made, the CEO would choose the solution that best aligned with those four unifying principles. In 1976, Eastman Kodak sold 90% of all the camera film and 85% of all the cameras in America. By 1988 they had more than 145,000 employees worldwide and in 1996 they had 16 billion dollars in annual revenues and a valuation of 31 billion.”
“And in 2012 they went bankrupt, Poobah. I hate to be the one to tell you, but Kodak went broke. Dead and gone. Times have changed.”
“Kodak went broke when they abandoned the unifying principles that gave the company it’s vision and purpose and strength.”
“You’re talking philosophy, Poobah. I’m talking bankruptcy. I’m talking facts.”
The old man smiled. “Okay, Sunshine, here’s a fact. Principle number 3 was, ‘Be the first to embrace new technologies.’”
“You’re saying Kodak should have pioneered digital photography.”
“No, I’m saying their own unifying principles say they should have pioneered digital photography. Kodak went broke because they decided they were in the camera film business. They quit listening to the customer.”
“The internet changed everything.”
“Not as much as you think.”
“Poobah, I understand that you’re trying to help and I love you for that, but things aren’t like they used to be when you were my age or even when Mom was my age. Business today is all about metrics, numbers, outcomes.”
The old man looked at him a long moment, then back at the road ahead. “Outcomes and numbers and metrics are generated by actions. Behavior.”
“The customer’s actions and behavior. Yes.”
“But the customer’s actions can be altered by our own actions.”
“I have good people, Poobah. They know what they’re doing.”
“They’re doing what they believe is right.”
“They know what they’re doing.”
“Every action is an expression of a belief. This is true whether you are a customer or an employee or a CEO.
“You’re saying we need better marketing to change what our customers believe about us?”
The old man shook his head. “I’m not talking about marketing. I’m talking about making choices and taking action. I’m saying you need to look beyond the data about company performance and see the data that reveals your customer’s reality.”
“Things are different today, Poobah. Things have changed.”
“Some things never change.”
“No one believes that but you.”
“Bezos believes it, too.”
“Jeff Bezos of Amazon?”
“I’ll tell you about Bezos after I tell you about the four people you meet on the ocean of life.”
“Can we skip the ocean of life and go straight to Jeff Bezos?”
“No. It’s a long drive. We have time to talk about both.”
The young man reclined his seat, crossed his arms and closed his eyes as the older man continued.
“There are only four people on the ocean of life and you meet them over and over again. The first person you meet is drifting. The winds and waves of circumstance push the drifter this way and that way and the drifter just ‘goes with the flow.’ You know you’ve met a drifter when they say, “Whatever. It’s all good.”
His eyes still closed, Sunshine smiled and said, “You sounded just like Bobby Marino when you said that.”
“The second person you meet is surfing. Surfers seem to be having a good time, but they never really get anywhere unless it’s by accident. The surfer is just looking for a wave to ride. ‘The next big thing.’”
“Am I to understand that the wind and the waves represent our circumstances and the surfer is an opportunist that’s looking for a wave to ride?”
“Yes.”
The young man’s eyes popped open. “So what’s wrong with that?”
“The surfer isn’t focused on a destination. He’s just trying to stay on top of the wave.”
“But if he’s skillful, he can ride that wave all the way to the end.”
“The danger isn’t that he’ll fall off, Sunshine. The danger is that he’s riding a wave to nowhere.”
“You’re talking philosophy again.”
“The third person you meet on the ocean of life is drowning.”
The young man closed his eyes again and settled back into his seat. His words were softer now. “That’s how I feel.”
“I know, Sunshine. But you’re not a drowner.”
The younger man turned his head toward the window. The old man continued.
“Each of us, if we’re healthy and normal, might need to be rescued two or three times in our life by someone who loves us. It might be financial rescue or emotional rescue or chemical or relational, but we’ll need someone to reach down and grab us and pull us back to where we can breathe. That’s normal. We need rescuing because we’re human.”
Sunshine shifted in his seat.
The old man went on, “But this third person is a professional drowner. You’ve met them. They whine and cry, ‘It’s just been the worst week of my life. I don’t know what I’m going to do.’ So you help them. You get them back on their feet. Then, when you see them again and ask how it’s going, they say, ‘It’s just been the worst week of my life. I don’t know what I’m going to do.’”
“Uncle Todd. Rick the postman. Mom’s friend, Sharon.”
“Like I said, we’ve all met them.”
“So who is the fourth person?”
“The fourth person you meet on the ocean of life is the one that you and I want to be.”
“Successful?”
“They usually succeed sooner or later, but success is an outcome. The reason they succeed is because they’re navigating.”
“A navigator uses numbers, Poobah. Metrics. Graphs. Pie charts.”
The old man sighed. “We look at the numbers to see where we are. Numbers show us the outcomes of all the decisions we’ve made so far. But they don’t tell us where to go.”
“So how does the navigator navigate?”
“A navigator is guided through the darkness by something that isn’t connected to the wind and waves. The North Star has been a guiding light for thousands of years because it’s the only star in our sky that doesn’t move.”
“Are you sure about that?”
“The southern hemisphere has the Southern Cross.”
“So you’re talking about the northern hemisphere.”
“I’m talking about where you and I live.”
“Go ahead.”
“The North Star, Polaris, is located directly above the axis of the earth. Every other star in the sky and the earth itself revolve around that guiding light. It is a unifying principle, a non-negotiable standard.”
“Great story, Poobah. Now tell me about Bezos at Amazon.”
“We’ll let Bezos speak for himself. Google ‘The 20 Smartest Things Jeff Bezos Has Ever Said.’”
A moment later the younger man said, “Here it is. The Motley Fool. Morgan Housel.”
“That’s the one. Now look at number 6 on that list.”
The younger man began to read out loud. “I very frequently get the question: ‘What’s going to change in the next 10 years?’ but I almost never get the question, ‘What’s not going to change in the next 10 years?’ And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time. … In our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff I love Amazon; I just wish the prices were a little higher,’ or ‘I love Amazon; I just wish you’d deliver a little more slowly.’ Impossible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.”
The younger man looked up from his phone and out the windshield.
Minutes passed.
“Sunshine, do you believe that if you take the right actions, the correct results will follow?”
“Why do I feel like you’re sneaking up on me?”
“To change a person’s actions you must first change their beliefs. I’m not sneaking up on you, Sunshine. I am, however, trying to change your beliefs. But I’m doing it openly. There is no sneaking. Now Google, ‘Bezos letter to shareholders. 2010′”
A moment later, the younger man began reading, “In a letter to shareholders in 2010…” His voice drifted into silence then returned to full volume moments later. “‘Senior leaders that are new to Amazon are often surprised by how little time we spend discussing actual financial results or debating projected financial outputs. To be clear, we take these financial outputs seriously, but we believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.’”
The old man smiled as he asked, “What did Bezos say was the most effective way to maximize financial outputs over time?”
The younger man looked at his cell phone, “‘We believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.’”
The old man said, “I wonder what he means by controllable inputs?”
The younger man said, “I’m entirely certain you already know and I’m pretty sure you’re about to tell me.”
“As I said, you’re a very bright boy.”
CHAPTER TWO
“Sunshine, do you remember the four unifying principles of George Eastman?”
“I remember one was, ‘Keep the price of the product low so the customer will find more uses for it,’ and another one was, ‘Listen to what the customer tells you.’”
“Jeff Bezos brought those ideas into sharp focus when he said, ‘When things get complicated, we simplify by saying ‘what’s best for the customer?’ And then we take it as an article of faith that if we do that, it’ll work out in the long term.’”
“He actually said ‘an article of faith?’ Those are his words, not yours?”
“His words. Not mine.”
“That blows my mind a little.”
“Sunshine, every company begins with the customer in mind, but then management begins thinking in terms of divisions and departments and before you know what’s happening the company is spending a lot of energy managing internal struggles and battles because the divisions have been given conflicting goals.”
“And unifying principles solve all that?”
“They do if everyone in the company has those principles baked into every action they take.”
“My company has a mission statement.”
“‘We want to provide a pleasant working environment for our employees, deliver exceptional service to our customers, make a fair and honest profit and deliver a healthy return-on-investment to our investors.’”
“Oh! You’ve read it!”
“No, that’s just what they all say.”
“Ouch.”
“I wasn’t trying to hurt you, Sunshine.”
“So how are unifying principles different than mission statements?”
“A mission statement is propaganda. Unifying principles are an operating system.”
“Look at you, Poobah. ‘An operating system.’ You used a contemporary metaphor.”
The old man smiled. “Sunshine, if you truly make the customer the center and the beginning of every initiative, you can hardwire that mentality into your company culture. Mission statements and slogans don’t change what people believe, because most people aren’t listening to what you say. They’re watching to see what you do.”
After a silence, the younger man spoke. “I Googled ‘unifying principles, Amazon,’ and ‘unifying principles, Jeff Bezos,’ and neither search came back with anything that looks like what you’re saying.”
“Jeff Bezos doesn’t refer to his deepest beliefs as ‘unifying principles,’ that’s just what I call them. But if you listen to what Jeff is always saying and watch what Jeff is always doing, it’s easy to see that Amazon.com was built on four stone pillars.”
The young man spoke quietly, “To change a person’s actions, you must first change their beliefs.”
The old man said, “These are the four stone pillars of Amazon.
ONE. Customer Centricity.
TWO. Continuous Optimization.
THREE. Culture of Innovation.
FOUR. Corporate Agility.
These are the essence of the Amazon brand.”
“But Amazon isn’t a brand, Poobah. It’s a distribution channel.”
“Amazon is most certainly a brand.”
“I think we may have two different ideas about branding.”
“Google what Bezos has to say about it.”
The young man spoke a few seconds later, “Bezos says, ‘Your brand is what other people say about you when you’re not in the room.’”
“A brand isn’t what you say about yourself, Sunshine. Your brand is built on your actions. Your performance. And the performance of your products.”
“It’s easy to wow the customer when you don’t have to make a profit. Amazon has never made a profit, Poobah.”
“That’s a popular myth but it’s not true. Amazon became profitable in the 4th quarter of 2001 when they reported a net income of $5 million. In 2003, net revenue grew to $5.26 billion and they had a $35 million net profit. In 2015 they became the fastest company to ever reach $100 billion in annual sales and they also happened to generate $8 billion in free cash flow after all the bills were paid and all the investments were made. Fifty percent of all e-commerce went through Amazon that year and the percentage is going up.”
“Why do you know so much about Amazon’s finances?”
“I bought my Amazon stock back when it was $10 a share after falling from its previous price of more than $100.”
“How did you know it was the right thing to do?”
“When short-term thinkers start selling their stocks in companies with long-term vision, that’s when your Poobah buys stock.”
“Why does everyone say Amazon isn’t profitable?”
“Because TLB’s always have to justify their short-term thinking.”
“TLB’s?”
“Twitchy Little Bastards. Marshmallow eaters.”
The younger man’s face exploded into a smile. He looked down and shook his head. “You’re nuts, Poobah.”
“Always have been.”
“I can see that you’re dying to tell me about the marshmallow eaters, so go ahead. We’ve got time.”
The old man raised an eyebrow. “I’m not dying to tell you anything. If you want to know, you’re going to have to say, ‘Please, kind Sir, tell me about the marshmallow eaters.’”
“Please, kind Sir, tell me about the marshmallow eaters.”
“It’s good to see you smile, Sunshine.”
“Marshmallow eaters.”
“Back in the late 1960s, a couple of psychologists at Stanford conducted an experiment on a bunch of 4 and 5 year-old kids.”
“They experimented on kids?”
“About 600 of them.”
“They couldn’t get away with that today.”
“It was harmless. They took each kid into a room and put a marshmallow on the table beside them and said, ‘You can eat this marshmallow if you want, but if it’s still here when I come back, I’ll give you a second marshmallow and then you’ll have two marshmallows to eat.”
“They were testing the kid’s patience.”
“The experiment was supposed to be about instant gratification versus deferred gratification.”
“So how did it turn out?”
“Most of the kids ate the marshmallow.”
“How long was it before the adult came back with the second marshmallow?”
“About 15 minutes.”
“I’m not sure what I would have done.”
“You’re not a marshmallow eater, Sunshine. You’ve just been trying to make a bunch of marshmallow eaters happy.”
“I’m not sure I see the point of the story.”
“That’s because it’s not over.”
“Please, kind Sir, finish the story about the marshmallow eaters.”
“So they had the names of all these kids and video footage of each one sitting next to a marshmallow until the kid finally gave in and ate it. But that’s not the interesting part.”
“Please, kind Sir, tell me the interesting part.”
“Several years later, they decided to track these kids down to see how each of them turned out.”
“And?”
“The longer the kid was able to wait before eating the marshmallow, the higher they scored on the SAT in high school.”
“You’re making that up.”
“I promise you I’m not. They also had lower levels of substance abuse, lower likelihood of obesity, better responses to stress, better social skills and higher scores in a wide range of behaviors that psychologists call ‘executive function.’”
“The ant looks to the future but the grasshopper doesn’t. That’s why the grasshopper dies in the winter.”
“I’m surprised you’re familiar with that story.”
“Why?”
“I didn’t think anyone told it any more.”
“It was a bedtime story when I was little.”
“Your mom?”
“Yeah.”
The old man smiled. “Did I tell you there was one kid who waited the whole fifteen minutes and never ate the marshmallow?”
“Just one kid?”
“Mark Zuckerberg.”
“You made that up, right?”
“Only the part about Zuckerberg. The rest is completely true. You were asking me why people claim Amazon isn’t profitable. Have you figured it out yet?”
“Let’s see. It sounds like you’re saying people trash-talk Bezos and claim Amazon isn’t profitable because they’re ‘Twitchy Little Bastard Marshmallow-Eating Grasshoppers’ who have no stomach for delayed gratification.”
“Forget the TLB’s, Sunshine. They’re mosquitoes.”
“Mosquitoes are hard to ignore.”
Warren Buffet ignored mosquitoes. So did Steve Jobs, Mark Zuckerberg, Howard Schultz, Julius Rosenwald. Jeff Bezos plowed Amazon’s profits into R & D because he was unwilling to make Kodak’s mistake.”
“So if Jeff Bezos had been CEO of Kodak, we’d all be carrying cell phones filled with Kodak technology right now?”
“Badda-bing, badda-bang…”
“Badda-boom. I think you might be right.”
“Kodak was a technology innovator for nearly 100 years before they began to think of themselves as a camera film company. ”
“Just how much does Bezos spend on R & D?”
“I remember one year – I think it was 2013 – when Bezos was pouring money into Amazon Web Services and refining the Kindle and expanding his robotics in the warehouses and investigating deliveries by drone, he spent nearly as much on R & D as Google and Apple combined.”
“You can’t mean that.”
“I do mean that. Bezos spent $15.4 billion. Google spent $9.8 and Apple spent $6.6.”
“They were the 3 big spenders?”
“More or less. IBM spent $9.7 billion. Alibaba spent $8.9. Lilly Pharmaceuticals spent $4.7. FaceBook spent $3.7. I can’t remember more than that.”
“I’m blown away that you can remember all those numbers. I never thought of you as a numbers guy.”
“I pay attention to the numbers that matter.”
“You’re saying R & D numbers matter?”
“I’m saying innovation matters. Experiments matter. Thinking ahead matters. Companies who think ahead and experiment are the ones who innovate. Brands that look beyond look beyond the data about company performance to see the data that reveals the customer’s reality are the brands that continue to impress us.”
“I’m beginning to see why you say a brand is built on actions more than words.”
“Again, that’s why I call you Sunshine.”
“Do you believe that any tech company can brand like Amazon?”
“It has nothing to do with tech. Even a lemonade stand can brand like Amazon. If you don’t eat the marshmallow, you can build anything you want on those four pillars.”
What were they again? I’m going to write them down.
The old man smiled. “Customer Centricity. Continuous Optimization. Culture of Innovation. Corporate Agility.”
“Give me the deep dive on those.”
“Happy to, Sunshine.”
CHAPTER THREE
“Turn around and go back to that Starbuck’s, Poobah. They’ve got Wi-Fi and I want to use my laptop.”
The old man took the next exit, looped under the overpass and headed back the way they had come. “Do you want me to start the deep dive now or wait for your scuba tanks?”
The younger man never looked up from his cell phone. “I’d like to show you the information I’m looking at and I can’t do that while you’re driving.”
“I’m going to stop at Walgreen’s before we go to Starbuck’s.”
“Are you taking medicine?”
“No, Sunshine, you are.” He smiled. “And frankly, you’re doing it rather well.”
The old man walked out of Walgreen’s, opened the car door and tossed a bag of jumbo marshmallows into the lap of the younger man who pretended not to notice. The old man smiled as he closed the car door. Putting the car into reverse, he said, “The first of the four pillars is customer centricity. Bezos says, ‘If you’re truly obsessed about your customers, it will cover a lot of your other mistakes.’”
The younger man looked up from his cell phone. “But Jeff Bezos didn’t invent customer centricity, Poobah. Sam Walton was customer centric before Jeff Bezos was even born.”
“And Cornelius Vanderbilt was customer centric before Sam Walton’s grandfather was born.”
“Talk to me about that.”
“Vanderbilt noticed that all the little boats hauling passengers and freight between Staten Island and Manhattan were making their customers wait until they had a full load before they would make the trip across New York Bay. So he borrowed a hundred dollars from his Mom to buy a little boat, then he posted a schedule of his departure and arrival times on both sides of the river. Vanderbilt stuck to that schedule no matter whether he was carrying one passenger or a boatload of freight and people. It didn’t take long before Vanderbilt had everyone on board.”
“Is he the one they called ‘Commodore’ Vanderbilt?”
“They started calling him ‘Commodore’ when he began hauling passengers and freight up and down the east coast on steamships. Commodore Vanderbilt made his name and his fortune by leaving on time, arriving on time, and not losing your luggage.”
“Isn’t that how Herb Kelleher built Southwest Airlines?”
“You read his book?”
“Didn’t know he had one.”
“It’s called Nuts. Vanderbilt and Kelleher were the same guy. They just had different haircuts.”
“I thought the Vanderbilt fortune was built on railroads.”
“No, the Vanderbilt fortune was built on customer centricity.”
“But didn’t he buy a bunch of railroads?”
“Sure. When all the railroads were going broke, Vanderbilt spotted their problem, bought several of them with his steamship money, and then did what he always did.”
“Leave on time, arrive on time, and don’t lose the customer’s luggage?”
“Badda-bing, Badda-bang…”
“Badda-boom. Same guy with a different haircut.”
“By the way,” said the old man, “when Vanderbilt died in 1877, he was worth a hundred million dollars. That was a lot of money back then.”
“It’s a lot of money now, Poobah.”
“Is it?”
Minutes passed as the old man drove. The car was silent as the younger man’s fingers flickered across the screen of his cell phone. The old man spoke, “A little while ago you said, ‘Sam Walton was customer centric before Jeff Bezos was even born.’ How did you know that?”
“When you were in Walgreen’s I read where Sam Walton said, ‘There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.’”
“Sam was as customer centric as technology would allow at that time,” the old man said, “but after he was gone, Wal-Mart fell way behind.”
“Are you saying Sam was a warm and fuzzy guy?”
“It doesn’t matter if he was or not, Sunshine. Customer centricity isn’t about customer love. It’s about learning what the customer wants and then giving it to them.”
“You can’t exceed a customer’s expectations until you know exactly what those expectations are.”
“Were you able to identify Sam’s unifying principles?”
“He called them his Ten Commandments,” said the younger man.
“Read them to me.”
“Sam Walton’s 10 Commandments:
1. Commit to your business.
2. Share your profits with your associates and treat them like your partners.
3. Energize your colleagues.
4. Communicate everything you possibly can to your partners.
5. Appreciate everything your associates do for the business.
6. Celebrate your success.
7. Listen to everyone in your company.
8. Exceed your customers’ expectations.
9. Control your expenses better than your competition.
10. Blaze your own path.”
“Has the company remained true to those principles since Ol’ Sam passed away?”
“Well, Poobah, it looks to me like they’re all about #1 and #9, but everything else has sort of fallen by the wayside.”
“And now you know why I don’t own any Wal-Mart stock.”
“But they’re still America’s largest retailer.”
“Before them, Sears was America’s largest retailer. And as long as Sears remained committed to the principles of Julius Rosenwald, they were the financial juggernaut of America. But Rosenwald died in 1932. And battleships like Sears and Wal-Mart can coast for only so long before they start to sag and creak and groan.”
“What made Rosenwald special?”
“Rosenwald was quick to help when he saw good people struggling.”
“So he was a lot like Sam Walton.”
“Same guy, different haircut. Except one was a Protestant from Oklahoma and the other was a Jew from Chicago.”
“Sam Walton was Jewish?”
“A person might think so by the way he treated his people. When Sam Walton was alive, Wal-Mart was customer centric and Sam’s Ten Commandments about partnering with your employees could almost have been taken from the Talmud.”
“Tell me more about Rosenwald.”
“Google ‘Julius Rosenwald’. Look for the reference that comes up from the Sears Archives.”
“Got it.”
“Click it.”
“Julius Rosenwald was born, blah, blah, blah…” The younger man went silent, then spoke again. “Rosenwald insisted that the company’s primary goal must be responsibility to the customer. He established the ‘satisfaction guaranteed or your money back’ pledge and conducted his business dealings by the creed ‘Sell honest merchandise for less money and more people will buy.’ Under Rosenwald’s direction, the business positioned itself as a direct extension of the farmer’s eyes, ears and wallet, making purchasing decisions in the best interests of the farmer. After Rosenwald stepped down as Sears president in 1924, he devoted most of his time to philanthropy. Over the course of his life, he donated millions of dollars to public schools, colleges and universities, museums, Jewish charities and black institutions. Of all his philanthropic efforts, Rosenwald was most famous for the more than 5,000 ‘Rosenwald schools’ he established throughout the South for poor, rural black youth, and the 4,000 libraries he added to existing schools. The network of new public schools subsequently employed more than 14,000 teachers. In 1927, Rosenwald received a special gold medal for Distinguished Achievement in Race Relations for his contributions to the education of black youth.”
“That was Julius Rosenwald, Sunshine. He cared about his customers. He cared about his suppliers. He cared about helping people so much that he occasionally had to borrow money to pay his own living expenses.”
“Why did he have to do that?”
“He would literally give everything he had. You see, Rosenwald was so spectacularly wealthy that he was often worried that his children would never experience the joy of pushing, working, struggling to reach a goal. And he was a huge promoter of the YMCA back in the days when it was a major force for helping lift people from difficult circumstances.”
“The Young Men’s Christian Association? Are you sure this guy was Jewish?”
“Jews have always been like that, Sunshine. Have you ever looked at the percentage of Nobel Prizes that are awarded to Jews?”
“I’ve always wondered why so many of your friends are Jewish.”
“They’re customer centric and they don’t eat the marshmallow.”
“You’re not going to start talking religion now, are you?”
“We’re talking about people – customers and employees – and we’re talking about making the world a better place, Sunshine. We’re talking about business.”
“Okay, tie all that together for me.”
“Moses ben Maimon was a Rabbi who lived about a thousand years ago. He’s usually called Maimonides, or Rambam. Anyway, he said there were 8 different ways to help people and all of those ways were good, but some were better than others.”
“Okay, I’m starting to see a little bit of a business application. Keep going.”
“He said the least effective way to help someone is to hand them the cash they need.”
“Why did he consider that to be ineffective?”
“Two reasons. Number one, it’s not sustainable. Number two, a person needs money because there is a problem. If you really care about them, you won’t just hand them the cash and walk away. You’ll get involved and try to find a long-term solution. Traditional Jewish thinking is all about sustainability. Always has been. That’s why they’re such amazing business people.”
“Okay, what did this Rabbi Moses-whatever say was the best way to help?”
“Take a guess.”
“Give them a job? Or maybe help them start a company, so they can also give jobs to other people?”
“You’re more Jewish than you realize, Sunshine. Now tell me how that connects to what Bezos has been saying.”
“Well, Bezos said, ‘We believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.’ In other words, he believes in making investments that will yield long-term results, year after year. Julius Rosenwald believed in the long-term benefits of a ‘no questions asked’ return policy and the long-term benefits of education. Neither one is a TLB.”
“Okay, what else?” asked the old man.
“Bezos is all about taking action, doing experiments, and looking toward the future. He said, ‘I very frequently get the question: ‘What’s going to change in the next 10 years?’ but I almost never get the question, ‘What’s not going to change in the next 10 years?’ Bezos said the second question is the more important of the two. Bezos is all about things that don’t change. He doesn’t let the merely urgent displace the truly important. Rosenwald was like that, too. Bezos and Rosenwald are navigators, staring at a star that never moves, forever twisting the rudder and adjusting the sails to stay on course and accelerate the journey.”
“And what do you suppose is the star that never moves?” asked the old man.
“The customer,” said the younger man.
“So tell me how Walmart, the world’s most data-centric company at the time, took their eye off the customer.”
“Walmart innovated a solution for inventory management that set a new standard for the world. They were the kings of logistics and they rode that wave all the way to the beach. But while they stayed focus on company performance data, Jeff Bezos was looking at what each customer looks at, listens to, reads and shares. And most importantly, what they buy and enjoy. Bezos was looking at customer reality data.”
“And that’s why I call you Sunshine.”
The car pulled into the parking lot at Starbuck’s. The old man opened the bag of marshmallows, put one in his coat pocket and said, “Can you handle another Venti?”
“Let me grab my laptop.”
CHAPTER FOUR – Customer Centric
The younger man took a seat, positioned his laptop on the table and immediately went to work. The old man carried two Ventis to the table, placed the jumbo marshmallow alongside the younger man’s computer, then quietly snapped and uploaded a photo. The younger man never noticed.
“Take a look at this, Poobah. In the early days of Amazon, back when they were positioning themselves as ‘The World’s Biggest Bookstore,’ Amazon’s employees wrote most of the book reviews. Bezos told his people to be honest about their opinion, so naturally some of the reviews were negative. Bezos recalls getting an angry letter from a book publisher implying that Bezos didn’t understand that his business was to sell books, not trash them. ‘We saw it very differently,’ Bezos says. ‘When I read that letter, I thought, we don’t make money when we sell things. We make money when we help customers make purchasing decisions.’”
“That’s customer centricity, Sunshine.”
The younger man continued to read, “Although it seems counterintuitive on the surface – a little bit insane, even – Bezos knew that making honest reviews available on each product page was the right thing to do for the customer. Today more than half of all retail purchases begin with a visit to Amazon to look at product reviews.”
“Are you saying that Amazon.com has become the primary search engine for consumer product research in America?”
The younger man looked up and locked eyes with his inquisitor as he nodded. Looking back down at his computer screen, he said, “In this 2013 interview with Matt Kelley, Bezos said, ‘If there’s one reason we have done better than our peers in the Internet space over the last six years, it is because we have focused like a laser on customer experience.’”
The old man sipped his coffee. The server at the window caught his eye, then smiled and waved.
“Take a look at this, Poobah.” The younger man spun his laptop around so the old man could see the screen. “The top ten and bottom ten rated public companies in the Customer Experience Index at Forrester Research are called Customer Experience Leaders and Customer Experience Laggards. This chart illustrates the performance of equity-weighted, annually readjusted stock portfolios of Customer Experience Leaders and Laggards relative to the S&P 500 Index.”
“Okay. It looks like this was for the 6-year window from 2007 to 2013.”
“Yes.”
“It’s showing us the S & P 500 Index was up 14.5% at the end of those 6 years.”
“Yes.”
“But the stock price of the Customer Experience Laggards was down – minus 33.9%.”
“But take a look at the Customer Experience Leaders, Poobah.”
“Up 43%. So this chart seems to indicate that a company’s stock price falls when they disappoint their customers, but it rises when their customers think they’re awesome.”
“Poobah, that’s a stock price swing of 76.9 percent over a 6 year window.”
“So in the long run it pays to be customer centric,” the old man said with a smile. “Is that what you’re telling me?”
Staring into his computer screen as he typed, the young man said, “Stock price goes up when you’re customer centric. Stock price goes down when you eat the marshmallow.”
Minutes passed. The old man wandered off to the bathroom. When he returned, the younger man was waiting for him. “Poobah, I’m confused.”
“I’m always confused, Sunshine. Don’t worry, you’ll get used to it.”
“I was looking for the kinds of things Bezos might consider to be measurable inputs when I found these analytics used by Amazon’s Category Managers. And as you might expect, every one of the 4 is customer centric.” He spun the laptop around so the old man could see the screen.
Customer Analytics: Selection: 7x the category depth.
Price: 5% to 13% lower than top 5 competitors.
Availability: 20 inventory turns indicate that customers are finding what they want and are pleased with the quickness of delivery. Most orders are delivered from warehouses within the customer’s own zone or a zone directly adjacent.
Experience: 13% above the American Customer Satisfaction Index.’
The younger man asked, “But does this illustrate Customer Centricity or is it the result of Continuous Optimization? Or does it indicate a Culture of Innovation? Or is it Corporate Agility? Inputs that would create those outputs don’t line up under just one pillar of Amazon. They line under up all four.”
The old man stood up as he extended his hand and said, “Congratulations.”
The younger man stood to his feet and shook hand the old man’s hand with a confused smile. The barista was watching from across the room. “You just discovered the power of unifying principles, Sunshine.”
Sitting back down, the younger man said, “Now I’m more confused than ever.”
“As I was saying, you’ll get used to it.”
“How does my inability to categorize these metrics demonstrate the power of unifying principles?”
“Do you remember when I told you about the four unifying principles of George Eastman?”
“Of course I do.”
“Do you remember how I told you those principles helped him choose which path to take when he came to a fork in the road?”
The younger man looked at his notes. “You said, ‘Any time there was a decision to be made, Eastman would choose the solution that best aligned with those four unifying principles.’”
The old man continued, “When your thinking is split into departments and divisions, it’s easy to put things in neat columns. It feels right. It’s tidy and organized. It gives you a way to hold people accountable. It gives you someone to blame.”
The younger man looked at his notes again. “You said, ‘Unifying principles bring all the facets of a business into alignment.’”
“Do you remember what you said in response, Sunshine?”
I said, “Diamonds have facets. Businesses have departments and divisions.” Then the younger man smiled and said, “Businesses that sparkle have facets.”
“You have a bright light bulb hovering in the air above your head right now,” the old man said. “What did you just realize?”
“An option that lines up with two of your unifying principles isn’t as good as an option that lines up with three of them.”
“And an option that lines up with three of them isn’t as good as an option that lines up with four,” said the old man.
“So if the best decisions are the ones that align with all of your unifying principles, the metrics they generate will probably line up under all of your principles as well. The key is to look beyond the data about company performance and see the data that reveals your customer’s reality.” The younger man’s eyes became unfocused. “I get it… I believe I actually get it.”
“Very few people ever do, Sunshine.”
The younger man looked down at his notes. “We look at the numbers to see where we are and where we’ve been. Numbers show us the outcomes of all the decisions we’ve made so far. But they don’t tell us where to go.” Then he looked at the older man. “Unifying principles married to data about the customer’s reality us where to go.”
CHAPTER FIVE – Alignment of the Pillars
“Sunshine, when you were looking at Sam Walton’s 10 Commandments, you said you felt Wal-Mart was still being guided by 2 of them, but that the company seems to have abandoned the other eight. Do you remember what those 8 had in common?”
“Seven of them were about caring.”
“Explain.”
“It hit me when you were talking about the Rabbi, Poobah. Sam Walton’s actions proved that he cared about people. He cared about his customers, his employees, his suppliers.
1. Share your profits with your associates and treat them like your partners.
2. Energize your colleagues.
3. Communicate everything you possibly can to your partners.
4. Appreciate everything your associates do for the business.
5. Celebrate your success.
6. Listen to everyone in your company.
7. Exceed your customers’ expectations.
“I’m impressed you saw that, Sunshine.”
“Sam’s tenth commandent was about having a Culture of Innovation. Jeff Bezos appears to have picked up that torch when Wal-Mart dropped it.”
“What was Sam’s tenth commandment?”
“Blaze your own path.”
The old man sipped his coffee. “You’re right about Sam Walton, by the way.”
“How do you know?”
“John Huey sat at Sam’s bedside while Sam was dying and wrote a really amazing book from that experience called Sam Walton: Made in America.”
“I’ll have to read that.”
“You should.”
“Poobah, why do smart people do dumb things?”
“What do you mean?”
“Kodak abandoned the principles that built their company and it looks like Wal-Mart is doing the same. Why would someone quit doing the things that made them great?”
“Sunshine, smart people are good at rationalizing things they came to believe for non-smart reasons. Smart people are able to brush off criticism since they’re convinced they’re right and, due to their superior thinking abilities, they can usually out-argue their critics even when the criticism is on target. This is how and why smart people often quit caring.”
“Are you talking about how Wal-Mart treats their employees?”
“Should I be?”
“Yes, I believe it’s worth talking about. Wal-Mart famously ignores the fact that their management policies abuse their employees and push them to poverty, but check out how Jeff Bezos responded when he was accused of pushing his people too hard and not being sensitive to their needs.”
“I’m all ears.”
The younger man looked at his screen. “In August of 2015, The New York Times published an exposé accusing Amazon of pushing its employees too far to achieve unrelenting ambitions. The article was titled, ‘Inside Amazon: Wrestling Big Ideas in a Bruising Workplace.’”
“So how did Bezos respond?”
“Instead of ignoring those accusations or explaining them away, Bezos immediately encouraged his 200,000 employees to read the story. He told them that he didn’t identify with the picture the exposé painted of Amazon, but that he would be making immediate changes to ensure that Amazon was the kind of employer it ought to be.”
The older man asked, “But when Jeff Bezos instantly embraced that criticism and made changes in his company, which of his four pillars did it align with? Was it Customer Centric because happy employees create happy customers? Was it Continuous Optimization in a Culture of Innovation? Or was it an expression of Corporate Agility, a willingness to change?”
“You know the answer, Poobah. It was all of those. Bezos took that action because it was the only choice he had that would align with all four pillars of Amazon.”
“And that’s why I call you Sunshine.”
“Did you know that when Rosenwald was alive, Sears was as powerful as Amazon is today?”
“But the next generation of leadership slowly abandoned the customer centricity that gave Sears its power. They developed a taste for marshmallows.”
The younger man said, “Sears ate its last marshmallow in January of 2017.”
“Craftsman tools?”
“Let me read this to you. Craig Fitzgerald said, “Sears, the legendary retailer that started out selling shovels and pickaxes to pioneers through its mail order catalog, announced today that it was selling the Craftsman brand for $900 million to Stanley Black & Decker… The trouble for Sears is that you can only do a deal like this once… For many consumers that have watched Sears degrade from a retail powerhouse to a slightly upgraded Dollar Store, the Craftsman brand was about the only reason left to ever enter a Sears location… Stanley Black & Decker sells tools everywhere, from the last few remaining mom and pop lumberyards and auto parts stores, all the way up to major retailers like Home Depot. As soon as consumers know they can purchase a Craftsman tool without entering the depressing husk of a once-proud store like Sears, they’ll shop elsewhere.”
“Now Google ‘Edward S. Lampert.’”
“Why?”
“Unless I’m mistaken, he is currently Reigning Emperor of the TLBs and King of the Marshmallow Eaters.”
“He turned Rosenwald’s beautiful dream into a nightmare,” the younger man said. Both men were silent a moment. “You never did answer my question, Poobah.”
“Sorry. Which question?”
“Why do smart people do dumb things?”
“Because dumb things produce immediate results.”
“Are you saying that immediate results are bad?”
“No. Immediate results aren’t always bad. They’re only bad when the actions you take to generate those results aren’t sustainable. Sunshine, when you’re doing the wrong thing, it will produce big results immediately, but it will work less and less well the longer you keep doing it. When you’re doing the right thing, it usually hurts a little at first. But it works better and better the longer you keep doing it.”
“Can you give me some examples?”
“When I got my drivers license at age 16, General Motors sold two-thirds of all the cars in the United States. It was the bluest of all blue-chip stocks. Chevrolet, Pontiac, Buick, Oldsmobile and Cadillac were 5 distinctly different brands and the car you drove said a lot about you. It let people know how you saw yourself. It let people know what you believed.”
“So what happened to Pontiac and Oldsmobile? Do they even make those anymore?
“No. In the mid-1970s, GM decided to boost profits by eliminating the design costs and re-tooling costs of maintaining 5 separate product lines. They figured they’d just build one car, hang some different chrome and change the headlights and taillights a little and cover the seats with a different fabric and badda-bing, badda bang, you’ve got yourself 5 different brands. GM was selling 5 different versions of the same car at five different prices by calling the first one a Chevrolet, the second one a Pontiac, the third one a Buick and so on.”
“So who was the genius that made that decision?”
“It was a guy named Thomas Murphy. GM immediately began making record profits, of course, because brand loyalties were deep and loyal customers aren’t quick to abandon their brand. In 1980, GM still had a 62.9% market share in the US.”
“But they were watering the soup.”
“Exactly. They added a little water to their fantastic soup and people still bought the soup. They said, “Hey, look! No one cares!” So they added more and more water until, one day, no one was buying their soup anymore. This is what happens when an executive uses ‘linear no-threshold thinking’ when examining data.”
“‘Linear, no-threshold thinking?’”
“If 72 out of every 100 motorcycle riders die when they try to take a corner at 100 miles per hour, linear no-threshold thinking will tell you that 7.2 riders will die if they try to take that corner at 10 miles per hour.”
“I get it. There is a mile-per-hour threshold at which the corner becomes dangerous.”
“Murphy was the classic, no-threshold accountant. So he started sticking Chevy motors in Oldsmobiles, Pontiacs and Buicks because he had surplus capacity in his Chevrolet motor factories. Keep in mind this was when the Olds Cutlass was the top-selling car in America.”
“This guy is not customer-centric.”
“He literally said, ‘General Motors is not in the business of making cars. It is in the business of making money.’ This little turd of an accountant was heralded from coast to coast as a business genius when he took customer loyalty for granted.”
“How did the public respond to having a Chevy motor in their Oldsmobile?”
“People were furious. They felt their car had been degraded.”
“What did Murphy do?”
“He sent some people $200. He sent other people $400.”
“He was still thinking like an accountant.”
“But wait. It gets worse. He then decided that GM would abandon its traditional once-a-year price increase when the new models were released and replace it with random price increases multiples times a year. Sometimes the price increases would be double-digits. This is when the term ‘sticker shock’ was born. The end result of all this blurring of the brands was that GM had to shut down Oldsmobile in 2004 and Pontiac in 2009. GM’s total market share had fallen to just 19.8%.
“Hang on a second, Poobah. You’re saying that GM fell from 62.9% market share to just 19.8% market share? Where did you get those numbers?”
“Google it.”
Moments later, the young man looked up from his computer. “You’re quoting Susan Helper, chief economist at the US Commerce Department, and Rebecca Henderson, a management professor at Harvard.”
“I don’t make this stuff up, Sunshine.”
“I’m sorry I doubted you. Give me another example of smart people getting short-term positive results by doing something really dumb.”
“Okay, here’s a related flashback. When I got that driver’s license and started driving my first car, no one was allowed to own more than 12 AM radio stations, 12 FM radio stations and 12 TV stations because the government didn’t want anyone to be able to buy up all the broadcast stations and control the news. But in 1996 that policy was repealed and Wall Street went on a buying spree. Investors would buy 5 radio stations in a city and dismiss 4 of the General Managers, 4 of the sales managers, and replace most of the announcers with a satellite feed that was customized to sound local. Payroll was slashed and profits skyrocketed.”
“That just sounds like efficiency to me.”
“There are two kinds of efficiency, Sunshine. The first kind of efficiency helps you serve the customer in the way the customer prefers to be served. The second kind just makes the product a little worse so you can sell it a little cheaper, or even worse, sell it at the same price and make a larger profit. We’re talking about why smart people do dumb things, remember?”
“Watering the soup.”
“By 1999 these radio guys were making record profits. But cutting the fat is one thing. These guys were cutting muscle and bone. That announcer sitting in a studio in Los Angeles isn’t going to show up at the local concert or restaurant or car dealership in Cheyenne, Wyoming. Or even Charlotte or Chicago, for that matter. And a salesperson selling 5 different radio stations doesn’t have the passion or the confidence of a salesperson representing just one station. Back in those days, your automobile and your radio station were the robes and feathers of your tribe. When cars and radio stations became homogenized, people began to treat them like the faceless commodities they had become.”
“But some people would say import cars killed the domestic car business and the Internet made TV and radio obsolete.”
“Those same people would say Commodore Vanderbilt built his fortune on railroads.”
“But you say he built it on customer centricity.”
“Lots of people were going broke in the railroad business at precisely the same time Vanderbilt was becoming one of the richest men in the world. Success isn’t determined by the business you’re in, Sunshine. It’s determined by how you run your business.”
“So how did the radio thing turn out?”
“The biggest of the bunch accumulated more than 1,200 radio stations, 130 major concert venues, 770,000 billboards, 41 television stations, and the largest sports management business in America.”
“Why would they get into concerts and sports management?”
“I suppose it was the lure of cross-promotional efficiencies. When you control the media, you control the news, remember? The illusion is that you’ll have the power to make stars and break them, set up puppet kings and depose them.”
“So how did it turn out?”
“In 1993, their stock opened at $4.60 a share. In January of 2000 – just 35 months after broadcast ownership was deregulated by the government – that stock had soared to $95.50 a share. It looked like a rocket ship headed to the stars but really it was really just a company burning itself to ash, although no one realized it at the time. Investors were dancing in the street.”
“So how did it end?”
“Fifteen years later, a pale remnant of that company was $21 billion in debt and on March 30th of that year, its stock was selling at $1.01 a share.”
The younger man spoke quietly. “I know how that feels.”
The older man said nothing.
The younger man spoke as he typed.
“ONE. Don’t water the soup. It’s dumb to do things that produce immediate profit when what you’re doing isn’t in the best interest of the customer.
TWO. Don’t fall into the trap of linear, no threshold thinking when looking at data.
THREE. For the love of god, don’t eat the marshmallow!”
The young man looked up with a bitter smile.
After a few moments of looking at each other, the old man spoke. “Jeff Bezos made peace with the fact that doing the right thing hurts at first because he knows it will work better and better as time goes by.”
The young man said. “We talked about what would’ve happened at Kodak if Bezos had been CEO, but how do you think he would have approached the car business and the radio business?”
“Bezos would have employed continuous optimization, but in a way that was customer-centric. No watering the soup. His organization would remain agile and foster a culture of innovation. He would have lifted those businesses to new heights and made them more beloved than ever. He would have looked beyond the data about company performance and seen the data that revealed his customer’s reality. Jeff knows that regardless of whether a company is B2C or B2B, its customers are having their expectations set by performers not even in that category.”
“Do you think Bezos is unique, Poobah?”
“Don’t be ridiculous. Lots of bright people are building companies on those four pillars. Like I said, even a lemonade stand can brand like Amazon.”
“Give me some examples.”
“Put on your sunglasses, Sunshine.”
“Why?”
“You’re about to be dazzled and amazed.”
CHAPTER SIX – Continuous Optimization
“Sunshine, when you
care about your customers and
care about your employees and
care about your suppliers and
care about your investors,
you can build a rocket ship while you’re flying it.”
“Is caring the fuel that lets you fly?”
“Caring is the fuel.”
The younger man spoke a sudden realization. “Continuous optimization is a by-product of caring.”
The old man nodded. “When you really care, you never quit trying to make things better.”
The young man reached into his laptop bag, found his sunglasses and put them on. “Now dazzle me.”
The old man took the chair across from him. “A guy named Richard Kessler had a little jewelry store in a strip mall on a side-street in a town you never heard of.”
“Try me.”
“Menomonee Falls.”
“You’re right, never heard of it.”
“It’s north of Milwaukee.”
“How did Kessler build his rocket ship?”
“By caring.”
“Okay, but how did he care, specifically?”
“The first thing he did was put the real price on his jewelry.”
“What do you mean, ‘the real price?'”
“Jewelers usually put an inflated price on their diamonds so they can offer a discount or let customers negotiate. But Kessler believed everyone deserved the best price he could give them, even if they didn’t negotiate.”
“That’s customer centric, but his profit margins would be too small to ever offer anyone a discount.”
“He’s never offered a discount. Never. Not even to his closest friends. Everyone gets the lowest price that will allow him to stay in business. You don’t have to negotiate. You don’t have to wait for a sale.”
“I’ll bet customers love that.”
“Yeah, but they love his ‘Miraculous No-Loopholes Guarantee’ even more.”
The younger man waited for the old man to continue.
“Everything at Kesslers is guaranteed for life and all maintenance is free. Even if you lose the center diamond, Kesslers will replace it. They take complete responsibility for everything they sell. Forever.”
“Wow. That’s hard-core customer centric.”
“Kess gives new employees 8 weeks of training before they’re ever allowed to speak to a customer. Then on Graduation Day he says, ‘When you’re talking to a customer and there is a decision to make, make it. The price is the price, but customers are going to ask you for a thousand other things. Sometimes they’ll ask for something small. Sometimes they’ll ask for something impossible. You are the company. Don’t check with anyone. You’re not an intermediary. Just make a decision. Figure out how to make your customer happy.”
“Do his employees always make the right decision?”
“Of course not. And Richard knows they won’t. The very last part of his speech to them is this, ‘Out of every ten decisions you make, there is going to be one decision that I’m going to wish you had made a little differently. But I’m happy to pay that price to get the other nine decisions out of you.”
“He really puts himself at the mercy of his employees?”
The old man chuckled. “I remember this one time after he opened his second store, it was on the south side of Milwaukee, his people said, ‘Richard, we’d like to fix up the bathroom to make it more cozy, like the kind of bathroom people have in their own home.’ Richard said, ‘Sounds great! Do it!’ They said, ‘Give us a budget.’ He said, ‘Nope. No budget. When in doubt, just do the right thing.'”
The younger man smiled in anticipation of a punch line. “So how did it turn out?”
“A few days later Richard drove down to see what they had done. It was fabulous. I’ve seen it. Wallpaper, a rug, paintings, candles, a make-up mirror. Really nice.”
“You’ve seen it? You know this guy?”
“We’ve been friends since before you were born.”
“How much did they spend?”
“Four hundred dollars.”
The younger man rolled his eyes. “So a guy in Milwaukee let his people spend $400 on a bathroom? I don’t need sunglasses for that.”
The old man continued. “Just before that new bathroom came together in the south store, the north store in Menomonee Falls moved from the strip center into a stand-alone building that used to be a bank. Red brick, colonial columns, big lawn, nice landscaping…”
The younger man pantomimed a yawn as though he was getting sleepy.
“Upon hearing what the team at the south store had done, one of the staff in Menomonee Falls said, ‘Richard, I’d like to hang some lights and other decorations and really make this store a showplace at Christmastime.’ And Richard, of course, said, ‘Do it.'”
“And?”
“Several weeks later Richard came to work and it looked like the circus had come to town. There was an 18-wheeler in his parking lot with 10 guys hanging Christmas lights from bucket trucks and ladders and 6 guys positioning a big sleigh piled high with gifts and teams of 2 were carrying 8 life-size reindeer. And they had only just begun to empty the truck.”
The younger man started laughing and slapped the table, “That’ll teach him.”
“Richard knew if he reacted the wrong way it was going to destroy the courage and confidence of his people.”
“So what did he do?”
“He walked in, got a cup of coffee and went down to his office in the basement and started working, just like always.”
“Seriously?”
“Yep. Richard says he’d been working for about 2 hours when a young man came down and asked if he had a moment to walk outside. ‘Sure thing!’ Richard said, ‘Let’s see what you’ve got happening!’ His young associate took him outside, walked him around and explained how everything was going to look when it was finished. After awhile, Richard casually asked, ‘How much are we spending on all this?’ And the fellow replied, ‘About $36 thousand.'”
The younger man whipped off his sunglasses as his jaw dropped open and his eyebrows went to the top of his forehead.
The old man said, “Yeah. And this was back when $36 thousand was a lot more money than it is today.”
“Poobah, I’m not dazzled, I’m dumbfounded.”
“Put your sunglasses back on, Sunshine. This is where it gets dazzling. Richard said it was the best money he ever spent.”
“What?”
“Every television station in Milwaukee sent reporters with camera crews to Kesslers Diamonds to show the never-ending line of cars driving slowly past the store each night after dark. The newspaper published a big feature-story about the display and the mayor gave Kesslers Diamonds a City Beautification Award. Richard says it took less than 24 hours for those lights to pay for themselves. Loading up the family and driving past Kesslers became a Milwaukee Christmas tradition.”
“But it doesn’t always turn out that way.”
“No, but the big wins more than pay for the losses.”
“Bezos said something like that.” The younger man looked down at his laptop. “Here it is. ‘Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments…'”
The old man sipped his Venti and nodded. “Kesslers isn’t just customer-centric, they’ve got corporate agility and a culture of innovation.”
The younger man said, “Do you know any other Kesslers?”
“Sure. There’s Ramsey’s in New Orleans, Shreve in San Francisco, Reis-Nichols in Indianapolis, Barnes in Amarillo, Occasions in Midland, Miner’s North in Traverse City, Schiffman’s in Greensboro…”
“North Carolina?”
“Yeah, and just down the road in Charlotte is Dewey Jenkins. But he’s not in a sexy business like jewelry.”
“What does Dewey do?”
“He does whatever it takes to make the customer smile and say good things about his company. Whatever it takes.”
“I mean, what business is he in?”
“Heating and Air Conditioning.”
The younger man took off his sunglasses and smiled a crooked smile. “I’m not seeing much of a possibility for dazzlement.”
“I told you to prepare to be amazed.”
The younger man put his sunglasses back on and the old man continued talking. “The crown jewel of Charlotte is the Levine Children’s Hospital. It’s kind of like the Mayo Clinic for kids. Several of America’s top A-List celebrities support it and Ryan Seacrest built a broadcast studio in the lobby. So who do you think the hospital asked to be their spokesperson on TV?”
“Seacrest?”
“Dewey Jenkins.”
“The air conditioning guy?”
“One year the city fathers asked him to lead the Labor Day parade and a record crowd showed up to wave at Dewey and shake his hand.”
“The air conditioning guy?”
“People call the TV stations in Charlotte to ask when Dewey’s next ad is going to air. I’m not making this up.”
“How did he get to be so famous?”
The old man said, “ONE. Customer Centricity. TWO. Continuous Optimization. THREE. Culture of Innovation. FOUR. Corporate Agility.”
“The Four Pillars of Amazon.”
The old man nodded his head. The younger man said, “Keep talking.”
“Do you know what the customers of home service companies hate more than anything?”
The younger man growled, then said, “Sitting at home all day waiting for the repair guy.”
“The service techs at Morris-Jenkins come whenever it’s most convenient for you. They take service calls until midnight, 7 days a week, no extra charge for evenings and weekends. Same prices.”
“Same prices?”
The old man nodded. “Do you know what service technicians hate more than anything?”
The younger man shook his head no.
“Writing up the service ticket with all those part numbers and prices. It’s tedious.”
“Paperwork usually is.”
“And then they have to restock their trucks at the end of the day when what they really want is to go home and play with their kids.”
“It’s hard being a grown-up,” said the younger man.
“The only thing worse than restocking your truck at the end of the day is looking for the part you need only to find that you forgot to restock it.”
The younger man’s forehead wrinkled. “Now you’ve got to drive all the way back to the warehouse while the customer just sits and waits for you.”
“Dewey has his warehouse team put bar codes on every part and when a service tech takes one off the truck, he just scans it with a bar code reader. Then at the end of the job his iPad automatically creates a detailed invoice with part numbers and prices. Presto, zippo, bingo. And as the invoice is being printed, the warehouse crew is informed of what was taken off his truck, so they put one of each item in a big plastic tub that has his truck number on it.”
“When the service tech gets back to the warehouse at the end of the day, all he has to do is pick up that tub and restock his truck?”
“Nope. The technician gets in his car and drives home. The warehouse team restocks the truck. Seamless. Effortless. Elegant. No wasted motion. Continuous optimization.
The younger man said, “I can see how Dewey keeps his employees happy, but you said he does ‘whatever it takes to make the customer happy. Whatever it takes.'”
“What do you think the biggest problem is in the air conditioning business?”
“No clue.”
“When you’re installing a new system, customers often recall something they were told by an estimator from another company and then ask if you’re planning to do it.”
“But it wasn’t part of your quote?”
“Nope. It’s something that some other company promised. But that company didn’t get the job.”
“I can see where that could lead to some pretty ticklish situations.”
“Not at Morris-Jenkins. He trains his service technicians just like the diamond consultants are trained at Kesslers.”
“They’re trained to make the customer happy?”
The old man nodded his head in an exaggerated manner.
“What if the customer says, ‘Hey, weren’t you supposed to walk my dog, paint the back fence and cook me dinner?”
“A Morris-Jenkins tech would say, ‘Where is the dog, what color would you like the back fence, and what do you want for dinner?”
The younger man laughed.
“And his TV commercials are very entertaining,” said the old man.
When the younger man finished laughing, he sat quietly and stared at the tabletop.
“Building a business on the Four Pillars of Amazon is simple, but it’s not easy,” the old man said.
“Warren Buffet said the same about the stock market.”
“Making money on stocks is dead-simple; buy low and sell high,” the old man smiled.
“Yeah. Simple, but not easy. Knowing something isn’t the same as doing it.”
The old man leaned forward and extended his forefinger toward the younger man. “Knowing something isn’t the same as doing it. Write that down, Sunshine, and put today’s date on it. I want you to always remember what you just said.”
The younger man cocked his head. “Why are you making such a big deal of it?”
“The world is full of book-smart morons, Sunshine. Jeff Bezos never said this, but I’m pretty sure he works hard at weeding those people out.”
“What people?”
“The book-smart morons. You’ve met them. They can plan, plan, plan, and talk, talk, talk a thing to death, but when it comes to taking action – getting things done – they haven’t got the horsepower to pull a fat kid off the toilet.”
Both men started laughing. A fart rang out like a rifle shot. Now they were gasping for air with tear-filled eyes. The old man stood up, walked out, looked up and laughed into the sky until he regained his composure. The barista and the window waitress watched with amusement from behind the counter as the younger man laughed face-down on the tabletop.
When the old man came back inside, the younger man was sitting at the table wearing his sunglasses. His chin was high and his arms were crossed. “Dazzle me with flying lemonade stands, Poobah.”
CHAPTER SEVEN – Flying Lemonade Stands
“A few decades ago, a guy named Doug Spence decided to display – in wide open, unlocked showcases – every style of engagement ring in the world. And not just every style of ring, but every size and shape of center stone in each of those different styles. We’re talking thousands of rings out in the open. Customers could just walk in, pick up a ring, read the price tag and try it on.”
The younger man asked, “How long did it take them?”
“Take who?”
“The security guards.”
“What?”
“The security guards at the insane asylum. After Doug Spence escaped, how long did it take them to recapture him?”
The old man chuckled. “It sounds crazy, I know.”
“How much money did Doug have on display?”
“A hundred and eleven million dollars if all those rings had been made of diamonds and gold.”
“He was selling fakes?”
“No. Spence sells diamond engagement rings of the same quality you’d buy from the jewelry stores on Fifth Avenue.”
“Now I’m confused.”
“Are you getting used to it yet?”
“Almost.”
The old man continued. “The goal of Doug Spence was to give customers Fifth Avenue quality, but at a price regular folks could afford. The rings he put on display were designer prototypes. But prototypes aren’t what put Spence on the gold medal podium at the Olympics.”
“Doug was an Olympian?”
“That was just a metaphor. Prototypes aren’t what made Spence a huge success.”
“Is Spence huge like Kesslers?” the young man asked.
The old man nodded. “But in a different way.”
“So there’s more than one customer-centric way to run a jewelry store?”
“There’s more than one customer-centric way to do everything, Sunshine.”
“So the prototype idea wasn’t a big innovation?”
“It was big, alright. But huge success requires more than a single innovation. You’ve got to have a culture of innovation. Hundreds of jewelry stores have prototypes on display, but only a few can compete with Spence.”
“Why not?”
“Their engagement ring prototypes are supplied by the manufacturers they buy from; the customer picks out a ring, the jeweler orders it from the manufacturer, and then adds his retail markup to the price.”
“Isn’t that normal?”
“Sure. It’s normal, but that’s not how Spence does it.”
“What does Spence do?”
“Doug Spence sold his stores to a young man that worked for him. A kid named Sean Jones.”
“Spence Diamonds is obviously customer centric and Doug launched a culture of innovation, so what exactly did Sean Jones add? What was his super power?”
“He added badda-bing and badda-bang. ”
“Continuous Optimization and Corporate Agility?”
“Badda-boom, Sunshine, badda-boom. Spence Diamonds creates engagement rings on demand. They don’t pay someone else to manufacture the ring and then add a retail markup. They bring that ring into existence themselves. The manufacturing facilities at Spence look like the operating room in a hospital. Spotless. Immaculate. Pristine.”
“They eliminated the manufacturer’s markup?”
“Yes, but not just that. They eliminated two other layers of cost with it.”
The younger man’s forehead wrinkled, “What other layers are there?”
“One: the inflated cost of correctly-cut diamonds.”
“But aren’t diamonds a commodity? Doesn’t everyone pay about the same price for them?”
“More or less, Sunshine, more or less. But don’t be fooled. The beauty of a diamond isn’t unleashed by its color or clarity. The beauty of a diamond is determined by its cut.”
“You’re saying Spence hires their own master diamond cutters?”
“No, that’s not it.”
The younger man smiled, “I’m definitely getting used to this feeling of being confused.”
“Every diamond cutter knows how to cut a diamond perfectly, but most diamonds are cut so they sparkle dimly.”
“Why in hell would a diamond cutter do that?” asked the younger man.
“Because diamonds are sold by weight, Sunshine.”
“Carat weight?”
The old man gave a single nod as he continued, “If I gave you a one-inch cube of pure, 24-karat gold and a special knife to carve it into any beautiful shape you wanted, but all the shavings would be lost forever, what shape do you think would be most beautiful?
The younger man was beaming. “Poobah, I’ve never seen a shape quite so beautiful as a one-inch cube.”
“That one-inch cube would be worth $21,400 at the world’s record price of pure gold. But a single ounce of 1-carat diamonds – at an average value of just $6,000 each – is worth more than $850,000 dollars. So now you’re a diamond cutter. What’s your favorite shape now? How much of that rough diamond crystal do you want to grind away?”
“I’m cutting that diamond as close to the shape of the original crystal as I possibly can,” answered the younger man.
“Most rough diamonds don’t lend themselves to efficient cutting,” said the old man.
“That’s why diamond cutters make diamonds too tall and give them a thick girdle. It increases their weight, but it causes the facets to be misaligned so the dazzle of the diamond is forever diminished.”
“So where does Spence find diamonds that are cut correctly?” asked the younger man.
“From the same diamond cutting houses as everyone else.”
“You were right, Poobah. Confusion is beginning to feel natural to me now.”
“But Spence doesn’t pay a premium for correctly-cut diamonds like the Fifth Avenue stores. They get them at rock-bottom prices.”
The younger man’s eyes were squinted as he asked, “How?”
“By stationing a man at the door of each cutting house at the end of the day with cash in hand.”
“Most jewelry stores ask for payment terms?”
“Badda-bing,” answered the old man.
“And I’ll bet most jewelry stores ask that the diamonds be brought to them for evaluation?”
“Badda-bang,” said the old man.
“Badda-boom,” whispered the younger man. “Spence gets first pick of the diamonds and better prices because they’re on-site and they’re paying cash.”
The old man said, “Sean Jones made Spence a customer-centric company with a culture of innovation that employs continuous optimization with corporate agility.”
The younger man said, “I can see how Spence avoids having to pay the diamond cutter’s carrying costs, but you said they also eliminated a third layer of cost.
The old man nodded. “Spence eliminated the cost of financing an inventory.”
Manufacturing on demand,” said the younger man.
The old man said, “The average jewelry store turns a multimillion-dollar inventory one-and-a-half or two times a year.”
“That’s a pretty crappy inventory turn.”
“But the last time I talked to Sean Jones, “Spence’s inventory-on-demand model was giving them a 27-time inventory turn. They operate with a 2-week supply of gold and a 2-week supply of diamonds.”
“They buy diamonds every day?”
“They buy diamonds every day,” echoed the old man. “Simple, but not easy.” Then he stared hard into the younger man’s eyes as if he was trying to hypnotize him or read his mind, “Take your inspiration from wherever you find it, Sunshine, no matter how ridiculous.”
“When is inspiration ever ridiculous?” asked the younger man.
The old man said, “A little boy named Brian Scudamore begged his mother to buy him Lucky Charms breakfast cereal. Do you remember the TV commercials with the leprechaun?”
“It’s magically delicious!”
“Brian’s favorite movies were Willie Wonka and Peter Pan and Doctor Doolittle.”
“Is Doolittle the one that could talk to animals?”
The old man nodded as he continued, “Scudamore was inspired by the way Wonka and Pan and Doolittle always made people happy. Wherever they went, everything glittered and twinkled with fairy dust and people could laugh and fly and their magic seemed to happen so effortlessly.”
“You’re saying this Scudamore kid built a business inspired by ‘magically delicious’ breakfast cereal?”
“Take your inspiration from wherever you find it, Sunshine, no matter how ridiculous.”
The younger man heaved an exaggerated sigh and said, “Now this I’ve GOT to hear.”
“Scudamore dropped out of school at 18 and was waiting for a burger in the drive-thru line at McDonald’s. Just ahead of him was an old pickup truck filled with junk, and spray-painted on the side were the words ‘Junk Hauling’ with a phone number. Scudamore looked at the truck and said, ‘I could do that.'”
“Now THAT’s a lemonade stand,” laughed the younger man.
“You might think so,” answered the old man, “but when I first met Brian Scudamore, 1-800-GOT-JUNK? TM was doing about $25,000,000 a month.”
The younger man spewed coffee across the table. The waitress from the serving window ran over with a sponge and a towel to clean it up. The old man smiled a big smile and said, “Thanks.”
The younger man looked sheepish and said, “I didn’t mean to do that. But $25,000,000 a month!”
The waitress hurried back to her station as the old man said, “Oh, that was awhile back. Brian has since started 3 new franchises and he’s cheerfully headed to a billion dollars a year.”
The younger man laid his forehead on the table, his arms hanging limply at his sides. “A billion dollars a year… A billion dollars a year…. A billion dollars a year.” Then, looking up, he asked, “How does he do it?”
“Brian Scudamore decided his full-service junk removal company would deliver a magical experience.”
“Like the breakfast cereal leprechaun?”
“Yep,” said the old man, “like Wonka and Pan and Doolittle.”
“So how does he do it?”
“It’s a lot like Disney World,” said the old man. “His people are always well groomed and happy and they look for opportunities to delight people. They say, ‘All you have to do is point.'”
“And junk disappears?”
“Like magic. And they work until midnight, 7 days a week and all calls are answered by a crack team of telephone elves working in a single location.”
“You’re describing Santa’s workshop.”
“The customer’s experience is the only thing Scudamore cares about,” said the old man.
“You say he started 3 new franchises?”
“Shack Shine TM makes your home sparkle.”
“Sparkle?”
“They clean the windows and power wash the exterior walls, sidewalks, decks and driveway. Their ‘before’ and ‘after’ photos will convince you magic is real.”
“What else?”
“WOW 1 DAY PAINTING.”TM
“Let me guess… They show up at your house in the morning and by the time you come home from work, your whole house has been painted inside and outside in whatever combination of colors you want?”
The old man just smiled and said, “You’re catching on, Sunshine. And then there’s ‘You Move Me,’ TM Scudamore’s magical moving company.”
“They show up in the morning and when you sit down to eat dinner that night, you’re completely moved into your new house?”
“Effortlessly. Seamlessly. Happily. Like magic.”
The younger man shook his head slowly and said, “Their technology and training must be astounding.”
The old man said, “customer-centricity, a culture of innovation, continuous optimization and corporate agility.”
But what blows my mind is, where does he find the people? How does he know whether a potential franchisee is made of the right kind of stuff?”
“It’s almost impossible to buy a franchise anymore,” the old man said. “Scudamore prefers to promote from within.”
“He promotes people to ownership?”
“Brian Scudamore has made dozens of multimillionaires.”
“That’s some serious mojo, even for a leprechaun,” said the younger man.
“Brian will hire a person to manage one of his companies for him, and if they do a magical job, he’ll set them up with a franchise of their own. His recruitment ads say, ‘We’re not looking for franchise partners with money in their pockets. We’re looking for partners with happiness in their faces, determination in their hearts and attention to detail in their eyes.'”
“You know a lot of interesting people, Poobah.”
“And you’re one of them, Sunshine.”
The younger man said, “Sean Jones and Scudamore know how to make big things happen fast, but not in a way that works less and less well as time goes by. Their corporate agility and continuous optimization make their customer-centric innovations work better and better as time goes by.”
“The big fish aren’t eating the small fish, Sunshine. The fast fish are eating the slow.”
The younger man nodded slowly as his unfocused eyes stared into the distance. A few moments later he mumbled softly, “Look beyond the data about company performance and see the data that reveals your customer’s reality.”
The older man finished his coffee, then poured half of Sunshine’s into his cup. After he had finished that, he said, “Sunshine, do you understand the principle of a flywheel?”
CHAPTER EIGHT – Culture of Innovation
The younger man lifted his eyebrows and nodded, “Sure, I know how a flywheel works.”
The old man continued. “The Four Pillars of Amazon accelerate each other to create a sort of flywheel that spins faster and faster with every innovation, every optimization and every movement toward greater customer centricity. But you’ve got to remain agile or you won’t be able to keep it going.”
“What keeps companies from being agile?”
“Bureaucracy. Arrogance. Fear of making a mistake. If even one of those creeps in, you no longer have corporate agility.”
The younger man said, “I read that Bezos paid Jim Collins to participate in Amazon’s 2001 executive retreat just before his book, Good to Great, was published. Collins told the Amazon team, ‘Picture a huge, heavy flywheel — a big metal disk about 30 feet in diameter and one foot thick, mounted horizontally on an axle. Your job is to get that flywheel spinning and keep it going as fast as possible. It’s hard at first, but if you don’t give up, pretty soon you’ll have that flywheel going faster and faster, even though you’re pushing no harder than you were in the beginning. Every time you touch it, you’re building on all your earlier efforts. The momentum of a flywheel is a wonder to behold.'”
The old man said, “An arrogant person would never have asked for advice in front of his team. Bezos is focused and intense, but he’s never been arrogant.”
“As Collins was talking about the flywheel, Bezos said, ‘Lower prices lead to more customer visits. More customer visits increase the volume of sales and attract more commission-paying third-party sellers. This allows us to get more out of our fixed costs, like the fulfillment centers and the servers that run the website. This greater efficiency enables us to lower prices even further, which leads to more customer visits…'”
“Jeff Bezos grabbed hold of that flywheel and he’s been slapping it faster and faster ever since.”
“It seems so simple,” said the younger man.
“Simple, but not easy,” replied the old one. “Sunshine, do you know what I think is Jeff Bezos’ greatest innovation?”
The younger man turned his palms upward.
“Bezos insists that every idea be presented in writing in a document of very few pages. He says, ‘When you have to write your ideas out in complete sentences, complete paragraphs, it forces you to think with deeper clarity.'”
“You think that’s an innovation?” asked the younger man. “That sounds completely retro to me.”
“Have I ever told you about my friend, Don Kuhl?”
“I’ve heard you mention him. I think I even met him once. He’s the behavior-change guy, right?”
“Yeah. Don’s big into evidence-based research. Some of his people even wrote the protocols used by psychiatrists when they admit patients into the hospital.”
“In other words he’s not a philosopher, he’s a science guy.”
“Badda-bing. Anyway, Don invented a thing called interactive journaling that has been proven to be very effective in the rehabilitation of addicts and criminals. When it comes to behavior change, there’s nothing like it.”
“How does it work?”
“Basically, people in jails and prisons and rehab centers are given a journal containing a few easy-to-agree-with facts followed by interesting questions followed by blank lines where they can write their responses to the questions. These people are told they don’t have to turn these journals in. They don’t even have to fill it out if they don’t want to.”
“Do most people fill it out?”
“Yep. There’s not much else to do when you’re locked up.”
“And they really don’t have to turn them in?”
“They really don’t.”
“Then how do you know it’s working?”
“Millions of people have voluntarily turned in their journals because they wanted someone to read what they wrote. It’s not unusual for people to have a life-changing epiphany during the time they’re contemplating their answers to the questions in the journal.”
“Really?”
“Your mind goes to a different place when you’re writing than it does when you’re talking. There’s a solitude in writing. A level of introspection we don’t experience when we’re speaking.”
“So explaining an idea in writing really is the best way to refine it?”
“Sunshine, have you ever heard of Professor Steven Pinker?”
“Can’t say I have.”
“TIME magazine named him in their list of ‘The 100 Most Influential People in the World.'”
“Badda-boom!”
“Pinker was the chair of the department of Brain and Cognitive Science at MIT for a number of years, then he was hired away by Harvard to head up that same department for them. He’s written a bunch of books you might find interesting.”
The younger man opened his browser to Amazon.com. “Tell me what they are.”
“Start with The Language Instinct.”
“Got it. Steven Pinker. What else?”
“His newest book is about writing. It’s called The Sense of Style.”
“The Sense of Style: The Thinking Person’s Guide to Writing in the 21st Century. Got it. Anything else?”
“That’s enough for now,” said the old man.
The younger man looked down at his computer screen. A minute later he said, “Did you know that at any given moment since 2004, Amazon has had at least 200 experiments running concurrently?”
“Yes, Sunshine, I did know that.”
“This is Bezos: ‘One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.'”
The old man poured the other half of Sunshine’s coffee into his own cup while the younger man continued to read. “Bezos says, ‘If you double the number of experiments you do per year you’re going to double your inventiveness… Some decisions are consequential and irreversible or nearly irreversible—one-way doors—and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that—they are changeable, reversible—they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high-judgment individuals or small groups. As organizations get larger, there seems to be a tendency to use the heavyweight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.'”
The old man said, “It takes courage to have a Culture of Innovation.”
Without looking up, the younger man continued reading out loud, “Timothy B. Lee writes, ‘Jeff Bezos has been fanatical about letting teams operate independently of one another. It doesn’t matter what technology teams use at Amazon,’ one of the company’s former engineers wrote in 2011. ‘Bezos has explicitly discouraged the kind of standardization you see at companies like Google and Apple, encouraging teams to operate independently using whatever technology makes the most sense… Amazon is a modular organization with a minimum of company-wide policies. That has made Amazon’s internal culture somewhat chaotic. An engineer on an Amazon project can’t easily jump to another project the way they can at Google or Apple. Friction between teams with different cultures may explain why some people find Amazon a stressful place to work. But this chaotic culture is also hospitable to innovation. A new team can use the tools and processes that make the most sense instead of feeling pressure to conform to company-wide standards.”
“Who did you say wrote that?
“Timothy B. Lee at Vox.com. December 28, 2016.”
“What else does he say?”
The younger man began to read again, “A key factor in making this work is that experiments start small and grow over time… Amazon doesn’t spend too much time on internal testing. They prioritize launching early over everything else. Launching early with a ‘minimum viable product’ allows Amazon to learn as quickly as possible whether an idea that looks good on paper is actually a good idea in the real world.”
“In other words, Ready. Fire. Aim.”
The younger man said, “In the Navy, that’s called ‘finding your range.'”
“In the world of business, it’s called Corporate Agility in a Culture of Innovation.”
“Another innovative slap on the flywheel of Amazon happened in 2008,” said the younger man.”
“Oh?”
“Bezos said, ‘I think we’ve all experienced the frustration that sometimes occurs when you try to get a new toy or electronics product out of its package,’ and he announced Amazon’s Frustration-Free Packaging initiative. In addition to making packages easier to open, a major goal of the initiative was to be environmentally friendly by using less packaging material.”
“We can also assume that less packaging material costs less money,” said the old man.
“Which lets Amazon reduce prices even further.”
“Which accelerates sales,” said the old man.
“And that flywheel just spins faster and faster,” said the younger man. “In 2016, Amazon became the fastest company ever to reach $100 billion in annual sales.” After a moment’s pause, he continued, “Two billion dollars a week.”
“Two billion a week,” smiled the old man.
CHAPTER NINE – Corporate Agility
“Poobah, it seems to me that Customer Centricity, a Culture of Innovation and Continuous Optimization would be impossible to manage if you didn’t have Corporate Agility. A company has got to be nimble and quick.”
“The big fish aren’t eating the small fish,” said the old man.
“The fast fish are eating the slow.”
The old man said, “Not many years ago, if you stopped someone on the street and asked ‘Who is the dominant seller of books in America?’ their answer would have been ‘Barnes and Noble.’ But by early 2017, Amazon had not only blown past Barnes and Noble, but its market value was higher than Barnes & Noble, Best Buy, Target, Macy’s, Kohl’s, Sears, JCPenney, Dillard’s, Gap and Nordstrom, combined.”
“And you attribute that to Corporate Agility?”
“Absolutely,” said the old man. “Have you heard of Bezos ‘two-pizza rule?'”
“He won’t allow a team to be bigger than what you can feed with two pizzas.”
The old man said, “When your people have reliable data regarding the customer’s reality, and crystal clarity regarding their mission and purpose, you can give authority to small, nimble teams. Bezos has figured out how to combine the entrepreneurial culture of a small company with the financial resources of a large one. And that allows Amazon to tackle and solve problems that other big companies can’t quite wrap their arms around.”
The younger man said, “I see how a lemonade stand could brand like Amazon, so what keeps other big companies from building on those same four pillars?”
The old man answered,
“ONE: An Organizational Focus keeps them from Customer Centricity.
TWO: Risk Aversion – maintaining the status quo – keeps them from Continuous Optimization.
THREE: A Competitor Focus – watching the industry leaders – keeps them from having a Culture of Innovation.
FOUR: Misplaced Accountability – the need to place blame – keeps them from Corporate Agility.”
“But a minute ago you told me bureaucracy, arrogance, and the fear of making a mistake kept companies from being agile.”
“What is bureaucracy but an Organizational Focus? And doesn’t arrogance always lead to Misplaced Accountability – the need to blame someone else? And what is Risk Aversion but the fear of making a mistake?
The young man’s face grew serious. “It’s fear that causes companies to have a Competitor Focus, Poobah. Fear.”
The old man’s eyes grew hard and his mouth became a thin, straight line. He leaned across the table and motioned the younger man to lean in toward him. He said, “What most CEOs need to do is hire an old woman to knit them a pair of balls.”
The younger man started to laugh but then he saw the old man wasn’t smiling.
The old man leaned back in his chair. “There’s another big company in America that’s every bit as good as Amazon.”
The younger man raised his eyebrows. “Do tell, Poobah, say on.”
“Costco is another big company built on the four pillars. Go to Fortune.com and look for a story about Costco in December, 2016.”
“I found it,” said the younger man. And then he began to read, “If you think Costco should be emulating Amazon, consider this: Jeff Bezos’s company has adopted Costco’s membership model with Amazon Prime, as one analyst noted to me, rather than Costco adopting Amazon’s e-commerce model.” A moment later, he began reading again. “Costco is a retailing colossus. Its worldwide sales trail only those of Walmart, which has 11,528 stores compared to Costco’s 715, and Amazon, which just climbed into second place. Costco is the world’s largest seller of choice and prime beef, organic foods, rotisserie chicken, wine, and it moves more nuts than Planters. Its private label, Kirkland Signature, which sells everything from beverages to packaged goods and apparel, generates more revenues than Coca-Cola.”
“With only 715 locations, compared to Wal-Mart’s 11,528…” The old man paused a beat to let that soak in. “Sunshine, there’s no one at Costco that needs an old woman to knit them anything.”
The younger man began reading again. “But Costco, big as it is, prides itself on not being your typical multibillion-dollar company. That is where the culture comes in. Executives frequently answer their own phones. “I may get a call from a cashier,” admits CEO Jelinek, “who says, ‘I’m not getting enough hours.’”
“Caring and humility lead to Corporate Agility.”
The younger man looked up and locked eyes with the old one. Then he looked down and continued reading, “Costco is a lean company. The company’s spending on basic overhead—the selling, general, and administrative category – is only 10% of revenues, compared, for example, with about 20% at Walmart.”
The old man said, “And Costco pays its workers an average of $20.89 an hour, compared with Wal-Mart’s average wage of $11.83.”
The younger man continued. “Among Costco’s efficiencies are the fact that it doesn’t advertise; it has a limited selection – only 3,700 products compared with 140,000 at a Walmart superstore and half a billion at Amazon.”
Looking down at his screen, the younger man read silently for awhile. Then he looked up and said, “Jim Sinegal was an 18-year-old college student who became the protégé of a guy named Sol Price who, during the Great Depression, saw a lot of people gouged by unscrupulous merchants. Sol Price taught Sinegal his Golden Rule of Business: Always do the right thing.”
“Where have we heard that before, Sunshine?”
The younger man looked up and said, “Richard Kessler,” and then went on, “In 1983, Jim Sinegal and Jeffrey Brotman decided to open a warehouse store. But they didn’t see it as a company. They saw it as a mission – a better way of doing business. ‘Do the right thing’ is still the company mantra and Costco employees really do try to live up to it. People who work at Costco say they hear it every day.”
The old man asked, “Does the Fortune story describe how Sinegal and Brotman defined their mission – this ‘better way of doing business?'”
The younger man looked down at his screen again. “It means never trying to gouge vendors or customers or employees. It means facing up to mistakes and making them right without being forced to do so or making excuses. It even means maintaining a return policy without restrictions, even though they know some customers abuse it. Poobah, it says when Costco discovered that a shirt they had advertised as 100% silk wasn’t actually silk, they contacted each and every purchaser and refunded all their money.”
“Who does that sound like, Sunshine?”
“That sounds like Julius Rosenwald and Sears before the Marshmallow Eaters took over.”
The old man said, “Costco is a company that looks beyond the data about company performance. They’re obviously looking at the data that reveals their customer’s reality.”
The younger man looked down at his screen one more time. When he looked up again, his eyes were big and round. “It says here that Costco executives occasionally invoke Sears as a cautionary tale of a company that was once great and then lost its sense of identity. Jim Sinegal says, ‘Culture is not the most important thing. It’s the only thing.'”
CHAPTER TEN – How Do You Start with Why?
“Sunshine, go to TED.com and pull up the transcript of Simon Sinek’s talk, ‘How Great Leaders Inspire Action.'”
“His famous TED-X talk in Puget Sound?”
“That’s the one.”
“I love that guy.”
“Me, too,” smiled the old man. And then he looked at the younger man and said, “You run a business. You believe in your company. You believe you deliver a better experience than your competitors.”
The younger man nodded his agreement.
“Is your confidence based on your intentions, your goals, your values and your personal commitment to your customer’s happiness?”
The younger man looked mildly confused, but didn’t answer. The old man continued, “We judge ourselves by our intentions, but customers judge us by our actions. Judging yourself by your intentions isn’t a danger among friends, because a friend knows your heart. But it’s a very real danger in business. What happens when a prospective customer makes contact with your company? Do they meet your best employee on that employee’s best day? Of course not. They meet an average employee on an average day. Or worse, they meet a below-average employee on a below-average day. And then you are confused by those negative reviews.”
The younger man looked puzzled, then concerned.
The old man continued. “Sad, isn’t it? Your intentions and motivations and personal commitments never quite made it to the party.”
“I don’t know what to say, Poobah.”
The old man smiled, “Wouldn’t it be great if your employees were consistently delivering the experience you believe in?”
The younger man leaned forward. “Tell me how to make that happen.”
“Look at the transcript of that TED talk.”
“You’re not going to tell me to ‘Start with Why,’ are you?”
“No, I’m going to tell you how to actually do what Simon is talking about.”
“I tried to ‘start with why,’ Poobah, but it quickly became fuzzy and generic.”
“The key is to take what’s in your heart – your highest and brightest and best intentions – and bury those intentions and motivations deep in the hearts of your employees. Frances Frei, that most beloved of Harvard Business School professors, says, ‘You can’t change a person’s performance until you first change their beliefs.’ And my friend Don Kuhl agrees with that. Listen closely to what Simon Sinek says, ‘People don’t buy what you do, they buy why you do it. And what you do simply proves what you believe. In fact, people will do things that they believe.'”
“I remember Simon Sinek saying that,” the younger man said, “but I focused on the word Why. Are you suggesting I should have focused on the word, Believe?”
“You and everyone else,” the old man said. “Now a look at that transcription. Count how many times Simon Sinek says Believe right after he talks about Why.”
After a moment the younger man said, “Here’s one. At the 4-minute mark, Sinek says, ‘Here’s how Apple actually communicates. ‘Everything we do, we believe in challenging the status quo. We believe in thinking differently.’ And at 5 and 1/2 minutes, he says, “People don’t buy what you do; they buy why you do it. The goal is not to do business with everybody who needs what you have. The goal is to do business with people who believe what you believe.’ Why have I never seen this before, Poobah?”
“Keep reading.”
A moment later, “At 7 and 1/2 minutes, he says, ‘The goal is not just to sell to people who need what you have; the goal is to sell to people who believe what you believe. The goal is not just to hire people who need a job; it’s to hire people who believe what you believe. I always say that, you know, if you hire people just because they can do a job, they’ll work for your money, but if they believe what you believe, they’ll work for you with blood and sweat and tears…’ Wow. Here’s another one, just before the 11-minute mark, ‘People don’t buy what you do; they buy why you do it. If you talk about what you believe, you will attract those who believe what you believe.”
The younger man looked up from his laptop. “Okay, Poobah. I’m convinced.”
“Now look just beyond the 15-minute mark, where he starts talking about Martin Luther King.”
“Here it is. Speaking of Dr. King, he says, ‘He went around and told people what he believed. I believe, I believe, I believe, he told people. And people who believed what he believed took his cause, and they made it their own, and they told people.”
“Sunshine,” the old man said, “You’ll find your corporate ‘Why’ when you write 10 true sentences that each start with ‘We believe…’ Do you remember Dewey Jenkins?”
“The air conditioning guy in Charlotte?”
“Goettl is another air conditioning company that’s loved like that.”
“Where?”
“Arizona and Nevada.”
“This is what Ken Goodrich says about his company, Goettl.
We believe in showing up on time.
We believe in doing things the right way, not the easy way.
We believe in super-sealing the air ducts because no one needs to air condition their attic.
We believe in eliminating every squeak, rattle and hum, because if you don’t, bigger problems will come.
We believe air conditioning should be quiet.
We believe in replacing every screw – even the ones other people left out – so that we can tighten the unit up like new.
We install everything level, plumb and square because this is the signature of a superior technician.
We believe every customer deserves our very best work.”
The old man continued,
“Jean Hunt and her partners run Ski Cellar Snowboard in Calgary.
We believe in helping people find exactly what they’re looking for.
We believe your time is valuable.
We believe low quality products are never a good value.
We believe in giving you back your money when something’s not right and we can’t fix it.
We believe the hill is more fun when your stuff is waxed and tuned.
We believe you don’t have to be cold in winter.
We believe you have an inner child that wants to play in the snow.
We believe that being outdoors is good for you.
We believe in slippery hillsides and gravity.
We believe you’d be happier if you played more.
We believe in letting you trade stuff in when you outgrow it.
We believe anyone can learn to ski. Even you.
And we believe you were born to snowboard.
Sunshine, do you know about DigitalMarketer.com?”
“Of course. Ryan Deiss.”
“Here’s Ryan’s ‘We Believe.’
We believe the best product – not the best marketer – should win.
We believe we shouldn’t teach something until we do it first.
We believe the biggest marketing sin is being boring.
We believe theory is for posers.
We believe in sharing and even celebrating our failures.
We believe it ain’t braggin’ if it’s true.
We believe nothing happens until something is sold.
We believe in making decisions and owning the results.
We believe you should have at least one good belly laugh every day.
We believe in leveling the playing field so those who truly give a damn can win.
And speaking of “give-a-damn”…
We believe give-a-damn is essential for success, but, sadly, can’t be taught.
We believe the duck billed platypus is proof that God has a sense of humor.
We believe you don’t have to crush your competition to succeed.
We believe that girls are usually smarter than boys, and harder working.
We believe it’s ok to be proven wrong.
We believe it’s ok to change your mind.
We believe it’s ok to cry when you’re having a really crappy day.
We believe the best ideas often come from the most unlikely of places.
We believe Google sometimes does evil.
We believe in delivering step-by-step solutions, NOT data without interpretations.
And speaking of “data without interpretation”
We believe that’s for cowards.
We believe that’s unhelpful.
We believe that’s the primary source of all the world’s logical lies.
And speaking of logical lies…
We believe they wind up in a special circle of hell along with the people who popularize them.
We believe in saying “sorry” when we screw up. Like just now, for example… sorry about that “circle of hell” thing… that was maybe a little harsh.
We believe in passing knowledge down.
We believe if you have to rely on deception to sell, your business doesn’t deserve to exist.
We believe it’s usually better to ask for forgiveness than permission.
We believe no one has all the answers.
We believe in doing the hard work FIRST.
We believe Kanye should smile more. And so should you.
We believe success and failure are temporary conditions.
We believe “chucklehead” is a word.
We believe information is worthless absent execution.
We believe half-assed is better than no ass.
We believe being an asshole should be a crime.
We believe it’s ok to call someone an asshole publicly when they’re being an asshole.
We believe in giving everyone the benefit of the doubt.
We believe if you buy something from us and it isn’t a fit – even if it’s your fault – you should get your money back.
We believe in always saying “Please” and “Thank you”…”Sir” and “Ma’am”.
We believe you should never, NEVER stop learning.
We believe in knowing what others don’t, and doing what others won’t.
We believe small businesses can change the world.
We believe we can help small businesses grow and succeed…
And therefore…
We believe we can change the world.”
“Are you catching on, Sunshine?”
“Wow. When you hear a company’s We Believe statements, you really feel like you know them.”
“And when your We Believes are accelerated by your Brandable Chunks, it creates a kind of marketing flywheel that will outdistance anything else you can do.”
“Brandable Chunks?”
“Brandable Chunks are memorable phrases that become identified with your company. If you use these phrases in your advertising and make sure your people say them to your customers every day, Brandable Chunks accelerate your culture and amplify your brand and allow you to articulate your Why at every touch-point with your customer. The strongest companies have between 8 and 14 of them.”
“Give me an example of Brandable Chunks and how they work with We Believe.”
“Okay. Peoria, Illinois.”
“What’s in Peoria?”
“Sherman’s”
“What do they sell?”
“Appliances. Electronics. Furniture.”
“Does Peoria have Best Buy, Home Depot, Lowe’s and Sears?”
“Of course they do.”
“Do you know this Sherman guy?”
“His name’s Paul. He’s a friend.”
“It’s hard to believe he’s selling any appliances with all four Big Boys down the street.”
“Sunshine, Sherman’s sells more appliances in Peoria than Best Buy, Home Depot, Lowe’s and Sears combined. He’s got a company culture so alive it’s electric.”
“Combined?”
“Combined,” said the old man. “These are Sherman’s We Believes:
We believe in listening.
We believe you should know exactly which products have the lowest return rates, the highest national reviews and the strongest endorsements by experts.
We believe in doing exactly what we say.
We believe in delivering mattresses and appliances tomorrow.
We believe we should offer to set up and connect any electronic components you buy.
We believe our in-home repair team should be able to service and repair any appliance we sell.
We believe we should be willing to haul away any furniture or appliances you no longer need.
We believe in taking the time to help you find exactly the right furniture for your home.
We believe in being nice, no matter what.
We believe you’ll be happy you chose Sherman’s.”
“You said you would give me some examples of Brandable Chunks.”
“Listen for how they reinforce and agree with all of Sherman’s We Believes.”
“These are the phrases that will be used by the staff and in their ads right?”
“Right,” the old man said. Here are the Brandable Chunks:
‘I’m listening.’
‘The lowest return rates, the highest national reviews and the strongest endorsements by experts.’
‘I promise we can do exactly that.’
‘We can have it to you tomorrow.’
‘And we can set this up and connect it all together in your home.’
‘Our in-home repair team can service and repair any appliance we sell.’
‘We can haul away any furniture or appliances you no longer need.’
‘It takes time to find exactly the right furniture for your home.’
‘I’ve got all the time you need.’
‘I’m really glad you said that.’
‘You’ll be happy you chose Sherman’s.'”
“Where did you learn about Brandable Chunks and We Believe, Poobah?”
“Wizard Academy.”
The younger man started to laugh.
The old man said, “Believe it or not, it’s a real place and it’s older than the Harry Potter books. Wizard Academy is where business people, entrepreneurs and like-minded lunatics learn big things quickly in a fun environment.”
“Big things quickly?”
“How to grow a business. Most classes are 2 or 3 days. The Academy tower sits on a plateau overlooking Austin, Texas, from 900 feet above the city.”
“It sounds amazing.”
“I think you might finally be ready to go. You know the stories I’ve been telling you?”
“You mean about Kessler and Dewey Jenkins and Brian Scudamore and Spence Diamonds and Don Kuhl?”
“And Paul Sherman and Ryan Deiss and Goettl and Ski Cellar Snowboard and several hundred other highly successful small companies. Everyone we’ve talked about today, except for the Fortune 500 folks, are alumni and supporters of Wizard Academy.”
The younger man was looking at his laptop.
The old man wandered up to the counter and came back with two cups of cocoa. The younger man took a sip, smiled, then raised his cup in a toast. “Here’s to We Believe and Brandable Chunks.”
The old man lifted his cocoa and said, “May your crazy stay this side of legal, and may you return to us before we have time to miss you.”
“Where did you hear that?” asked the younger man.
“It’s the parting toast given at the end of every class by the vice-chancellor of the Academy.”
“What, exactly, do they teach?”
“Most of the curricula was created by reverse-engineering the successful actions of talented people.”
“I don’t get it.”
“Talent is unconscious competence, Sunshine. Talented people know the right thing to do, but they usually have a hard time explaining it. But if you reverse-engineer the actions that led to their success, you can teach regular folks how to achieve similar results.”
“So if talent is unconscious competence, what do we call conscious competence?”
“Skill.”
“Like the four pillars of Amazon?”
“And a long list of other things, too.”