The Challenge Dividend

Picture Another Net Business Challenge

I've written about so many business models that have been improved due to challenges from the Internet that I'm too tired to go back and link to them all.  But my buddy, Raman, points out yet another and I cannot resist sharing its success story.

If you're a parent you know that the cost and process of school pictures is absolutely unreasonable, and there's been little you can do about it.  The schools are pressured to contract with one of the handful of large national conglomerates that control the cost and hire local photographers at a poor rate.  As parents, you have the choice to pay a boatload or NOT get a picture of your child (yeah, right).  Meanwhile, every year our cameras get better and cheaper.

Finally, someone has taken the opportunity to add challenge and improvement to the market.  A company called Picateers, started by Larry Jacobs, a former manager at Oracle and IBM, created a business model in which local amateur photographers take the pictures and upload them for parents to view and select.  Prices are about the same, but this is allowing for more events to be photographed, and Picateers sends 50% of proceeds back to the school, versus about 15% for big guys like Lifetouch.

We'll see if Picateers is able to break the market open.  So far it has gotten $5.5 million in VC funding and has a presence at 300 schools.  The overall market for school photographs is $2.2 billion, so there's some room for a small player like Picateers to improve this stagnant market for the first time in decades.

Can Fuel Prices Force Better Meetings?

In the past few weeks I've been traveling a ton.  We're building a closer business partnership with another agency and I've found that literally "being there" is critically important to growing a trusting relationship.  Dialing into a conference call just doesn't cut it.  But the cost is high - being out of the office, away from the family, and racking up the expense account all take a toll.  So before each trip I think hard about whether or not it is necessary. 

And a few months back I blogged about a tool that tracks the cost of meeting time.  Now, Seth Godin brings up an interesting take on how the "fuel crisis" might force better meetings.  At some point, the airlines are going to have to pass expensive fuel prices along to its customers in the form of much higher airfares.  As a result, there will be more pressure on the decision to travel.  As Godin says:

"I think the standard for a great meeting or a terrific conference has changed.  In other words, 'I flew all the way here for this?' is going to be far more common than it used to be."

Godin predicts that the challenge of more costly business travel will lead to pressure to make these trips more worth the effort.  Challenge may lead to improvement.

I think it's smart thinking and clearly in line with the Challenge Dividend.  I think it's a little bit of a stretch to say that companies will really feel the pressure (or just pass the costs along to clients and customers).  But I think we can all agree that driving more effective meetings is a challenge worth taking on.

The Real Downside of Expensive Oil

I am just a little ashamed to say that while a great number of news reporters and American citizens are crying loudly about the outrageous price of gas, I'm actually celebrating.  It's not because I'm gloating as one of the ~5% of the population that does not drive an SUV.  Instead, I'm happy because I know that the high price of oil is the one challenge that will finally drive the innovation and improvement that will  free us from costly fossil fuels.  (For previous posts see here, and here)

Unfortunately, there is near term pain.  Of course we're paying more at the pump; but Thomas Friedman in the New York Times recently reminded us that the world's people feel pain when dictators with oil fields tighten their grip.  In 2007, the Freedom House, which tracks democratic trends and elections around the globe reported "the worst year for freedom in the world since the end of the cold war," as 38 countries declined in freedom while only 10 improved.  It also means that our democratically-elected President Bush must bow down to a tyrant to try fail to lower oil prices and help our economy.  Friedman calls it "The Democratic Recession."

"There are 23 countries in the world that derive at least 60% of their exports from oil and gas and not a single one is a real democracy." - Larry Diamond, Stanford

I first read this concept in the book The Paradox of Plenty by Terry Lynn Karl in 1998.  Her research showed a wide variety of historical examples of how too much easy money from natural resources have not only enabled firm control by dictators and monarchs, but also limited the development of vibrant, diverse economies.  The counter-point to the Challenge Dividend comes into play: lack of challenge leads to failure; and its been the case from the Spaniards taking gold from Mexico to Chavez taking Venezuela back in time forty years.

The good news, I believe, is that just as higher prices at the pump mean pain for us now, it is creating a powerful incentive for advancement in energy alternatives.  Ultimately, these dictatorships will fall and we will no longer have reason to station troops in Iraq or cozy up to the Russian kleptocracy.  I just hope it happens in my lifetime.

Moore's Law: Fact or Challenge?

In a 1965 paper, Intel co-founder Gordon Moore suggested that the number of transistors that can be placed on an integrated circuit had been and would continue to double about every two years.  In the more than forty years since "Moore's Law" was born, this exponential advance in transistor improvement has held true.  In reality, Moore's Law is more of a prediction of a constant rate of innovation, rather than a true scientific law.  But could it be more than a prediction, and possibly itself a challenge that is driving improvement?

Larry Page, co-founder of Google, believes that Moore's Law is actually a challenge that is helping driving the dividend of processor advancement.  In a recent interview for Fortune, Page says:

"People think Moore's Law is a description of what happened.  But Moore's Law actually caused people to do the right thing.  Everyone was organized about it - making things better quickly."

In other words, by suggesting that innovation in transistor advancement was a "law," companies and individuals felt confident that they could improve further - and they felt the pressure to be the first to reach the next level (otherwise someone else inevitably would first).

I have to admit, this is a pretty deep thought that I will have to ponder more than the usual time to put together a blog post.  I wonder if there are other ways we can artificially create "laws" that end up driving innovation.  Many people have attempted to set goals - like reaching Mars by 2030 - but we easily shrug these off as hopeful desires rather than inevitabilities.  There are also times when an innovation is near, and competition ensues to be the first to reach it.  For example, in the late 1930s as research on splitting the atom accelerated, scientists and military commanders realized that an atomic bomb was possible.  Thus, a deadly race began to reach this prize first.

I suppose we could look at the current fear of global warming as a "law" that is spurring concern, and innovation.  Most people agree that the Earth is warming due to human impact, and that negative consequences will result.  The law of global warming is gradually driving change.

If I could coin a law it would naturally be The Challenge Dividend - that challenge leads to improvement.  Sounds a lot better than Gilbreath's Law, and besides, there's already Gilbreath's Conjecture.

Service Faceoff: Donatos vs. American Express (UPDATE)

(UPDATE: Donatos just lost me as a customer for life.  Despite the great review below, I had an incredibly disappointing experience today.  After a long Monday, we decided to order pizza for dinner.  After about 45 minutes of waiting we got a call from Donatos.  The store worker said that they no longer deliver to our neighborhood so our order was canceled.  My stunned wife asked why, and he said they can no longer service our street in proper time.  Amazing.  Why not tell us this upfront and allow us to make other plans?  Obviously they discovered the error later - but then why not just deliver the darn pizza and tell us at the door that it was the last one?  Stupid, complete lack of common sense for a service business.

Here's the original post, for what it's worth now...)

It's mandatory for bloggers to periodically use their space to whine about customer service from some big, well-known company.  Today it's my turn.  But true to challenge dividend form, I don't want to just complain about American Express, I want to challenge the company to match the service level of my favorite local pizza chain, Donatos.  Bear with me here...

I've been an American Express member for a long time.  In my previous job at P&G I was mandated to have a company-sponsored Amex and charged well into the tens of thousands of dollars in my six years of business travel while at the firm.  I then got a Delta co-branded American Express card when I took my new job four years ago. 

I have been fairly happy with Amex except for one thing: When I closed my P&G-related account I had a $150 credit.  I don't know why, I think I must have double-paid a charge on at some point along the way.  Anyway, ever since I left American Express sends me a monthly statement telling me that I have this credit.  When I called to get a check, they said that their contract rules that I must go to P&G with a history of proof (like old statements, expense reports and receipts) that I overpaid in order to get approval for a credit.  Naturally I don't have the time or interest in calling my old employer and negotiating for $150.  Yet American Express continues to send the same monthly statement nearly 48 months in a row. 

My wife and I enjoy a small laugh every time the statement comes.  This weekend I suggested that American Express should be able to see that this account has the same name, address, social security number and mother's maiden name as the Delta card that I'm racking up a couple thousand bucks a month on.  I suggested that Amex could have a real-live person call me just once per year and ask, "Hey, Bob, how are we doing?  Anything we can help you with?"  And, of course, I'd mention the P&G card issue - and the real-life person might give me a final credit to my account.  I'd even be happy if they gave the money back to P&G and stopped sending the stupid monthly statement.

But, alas, no such phone call has ever taken place.  Literally a day after our conversation, however, another company did call our home.  I looked at the caller ID and saw "Donatos" name come up, it's a regional chain of pizza joints that we order with about once per month.  Puzzled and intrigued, I answered the phone.  To my shock, a real-life person introduced herself and asked how we enjoyed the pizza that we ordered with them last week.  I shared with her how I liked the new flat-bread pizza, but also mentioned that my wife was a little annoyed that the person who answered the phone couldn't tell us what was on the new pizza.  She looked up the order, saw that "Angie the new girl must not have known about the new items", and she said she would put a $4 credit on our account!

So, American Express, one of the largest financial services companies in the world, which has made a few thousand bucks off of me in the past few years has worse service than the small, but national, chain of pizza joints.  Wow.

Why do you, dear reader, think this is the case?  Personally, I think the local pizza place has more challenge than the faceless American Express.  Donatos has a real-life business franchise owner trying to keep her job, so she makes the effort to use her weekend to follow up on recent orders.  She has a small, manageable customer base.  But to Amex, an individual's satisfaction is truly meaningless - no real challenge begets no real improvement.  Better for American Express to play with big levers like huge TV commercial campaigns and special miles offers with Delta.

What do you think?  It's real easy to contribute, and you can even be anonymous...

Introducing "Free Range Kids"

At least three times in the past two years (here, here and here) I have hammered home on the danger of helicopter parents who have decided to do more than any generation in human history to protect their children from the harsh realities of life.  My belief is that by sheltering kids from rejection, failure and risk they will fail to learn how to survive in the "real world."

A couple interesting new items on this topic hit me last week.

First, I received an email from the Director of our children's school letting his Board members know that a little girl broke her arm on the school playground monkey bars.  It was the second arm break this school year.  While some parents might be concerned and even call for the equipment to be removed, my reaction was "it happens."  Of course I don't want anyone to have to learn the lesson and, yes, she could have broken her neck.  But word-on-the-playground from my children is that she was making a pretty spectacular leap across three bars.  This little girl was testing her skills and grabbing for glory.  She will learn, and kids heal pretty fast.  And as far as I've heard, the monkey bars will be there on Monday.

Second, I discovered (thanks to Cara) an interesting story that's getting some buzz.  Lenore Skenazy, a writer for New York Sun gained intense criticism for writing about how she let her 4th-grader take the NYC subway home by himself.  For this mother, it was his chance to gain some independence - and the boy was very proud of his feat.  But others have labeled her "America's Worst Mom."  Naturally the writer has created a movement with a blog, called "Free Range Kids."  I absolutely love the sub-title of her blog: "Let's Give Our Children the Freedom We Had!"

I'm glad to see a few small steps toward a re-evaluation of the helicopter parent mentality.  I do agree that one job of parents is to "raise our kids better than we were raised."  Finding ways to improve safety is smart.  But we must balance this with our job to make sure our children learn independence, responsibility, and that "life isn't fair." 

Support OxyNation

My buddy and co-worker over at Everyone But You is working a little experiment to pump up the search ratings for OxyNation (a very fun site - I LOLed).  He might have promised to make the term #1 in Google's search rankings in only a week.  Nice challenge, Jonathan, so it fits in this blog.  You've got my support.

OXYNation

The Stories of Self-Efficacy

Winston Churchill had to repeat a grade and twice failed the Royal Military Academy's entrance exam.

Michael Jordan was cut from his high-school varsity basketball team.

Walt Disney was fired by a newspaper editor who said he "lacked imagination."

It took Thomas Edison 1,000 tries before he invented the light bulb.

Obviously each of these men and many others became successful despite many failures and rejections.  Last week the Wall Street Journal shared a growing psychological assessment that they share a common trait that allows them to achieve greatness while others give up.  It's a trait that fits perfectly with The Challenge Dividend concept.

In the 1970s Stanford psychologist Albert Bandura described a trait called "self-efficacy."  Self-efficacy can be defined as "the unshakable belief some people have that they have what it takes to succeed."  Today, self-efficacy is gaining acceptance across fields such as education, health care, management, and sports.  Unlike self-esteem, which is merely a feeling of self-worth, self-efficacy is a judgment that one has specific capabilities that will lead to success.

Interestingly, a key part of developing self-efficacy is failure itself.  According to Prof. Bandura, "People need to learn how to manage failure so it's informational and not demoralizing."  They see failure as part of the process to success, and some of their finest quotes confirm this perspective:

• "I've failed over and over again in my life.  That's why I succeeded." - Michael Jordan
• "I didn't fail 1,000 times.  The light bulb was an invention with 1,000 steps." - Thomas Edison
• "Whether you think that you can or you can't, you're usually right." - Henry Ford

For me personally, the idea of self-efficacy makes a lot of sense.  Probably my favorite story of failure is the first brand I launched at Procter & Gamble, a "soap" for fruits and vegetables called Fit Fruit & Vegetable Wash.  We thought we had a winner, worked our butts off to get it to market, and it promptly failed.  Fit became the joke of the company and many people quietly denied that they ever worked on it.  But I took it as a challenge to learn and get new products right the next time.  I became obsessed with tracking other new products and created a massive file of case studies and key learnings. 

Two years later I had the chance to take on two more new product launches, Mr. Clean AutoDry Car Wash and Mr. Clean Magic Eraser.  Because of my failure on fit, I was able to succeed with Mr. Clean.  We turned the business around and the rest is history.

I recently learned that P&G CEO A.G. Lafley called Fit the "#1 worst innovation in P&G history" in his new book.  I enjoy telling people that I worked on a product with this dubious distinction, as it helps me remember that failure (challenge) can lead to success.

(Funny side note, last night I had a dream that I was working for P&G again and put on a team that was in charge of trying to re-launch Fit.  They had lost all of the old data and I was spouting off the ten reasons why we should not re-launch it.)

Putting a Number on Green Marketing

Thousands of business people around the world are sitting in conference rooms today working on how to leverage consumers' growing interest in the environment in order to sell more products and services.  It's predictable that businesses will exploit any change in consumer buying patters.  It's also predictable that many businesses will exaggerate what they are doing - a practice known as green washing.  Unfortunately, backlash against green washing threatens to kill the entire idea of buying with an eye for sustainability.  What's to be done?

Well, master-marketer Seth Godin suggests a single number that can be used to simply compare the environmental impact of our spending options.  For example, he writes:

Drive to Philadelphia: 150.
Take Amtrak: 22.

Stick with the light bulbs you have throughout your whole house until they burn out: 175.
Replace them all now with something better: 142.

Organic strawberries from California: 88
Frozen strawberries from California: 80
Apple from Dutchess County: 4

The idea of a "core score" is essential in The Challenge Dividend concept.  A core score allows competitors to track their progress, compare each other, and it defines a winner.  Imagine the airlines competing to offer the best sustainability score, a key number alongside price and on-time records.

While it's a great idea, I really don't think this will ever get off the ground.  There are simply too many ways to interpret environmental impact, and too many businesses with trillions of dollars in profit on the line.  If government was impartial, it would be an ideal creator of this concept.  But special interests and political bickering make this a non-starter.

The only way I see this happening is if a group of large companies gets together on its own to create and concur on a system.  An 80-for-20 of industry could establish rules and an auditing process.  And it their number starts running on enough products and services, other businesses will be compelled to join in.  It's a tough challenge, but challenge drives improvement.