Archive for category: Improving Client Relationships

How can you get your message out in an insanely message-cluttered world?

Major media are re-organizing and/or in free-fall; new social media are emerging weekly. Should you blog, buy ads, buy an email list, publish a book (and if so, self-publish or not?), do podcasts, hire a publicist, jazz up your website, buy Google ad-clicks, devote resources to PR, hire an SEO specialist, collect 10,000 twitter followers?

It sounds clichéd, but it’s probably true: never have there been so many options for the would-be marketer. And never has it been so hard to evaluate the best solution.

Into this world comes a new solution—inbound marketing—which turns out to be based on some tried-and-true principles. How did we forget them in the first place?

The Challenge. There’s this thing called spam. And we have developed spam filters to fight back. Some of those filters exist at the email client level, others at the site or host level.

The concept of filtering, however, is not unique to email. We also have do-not-call lists, government-mandated ways of opting out of unwanted telemarketers pursuing us during the dinner hour. Caller-ID is a popular telecom feature for precisely the same reason—it gives the phone-answerer power over the phone-caller.

In the television world, the VCR allowed time-shifting and rudimentary editing—both ways of avoiding the advertising that funded the US model of television programming delivery. TIVO was an evolved technology for doing the same thing, forcing cable TV to respond in kind, carrying with its signal the means to avoid watching the commercial uses of that same signal. Podcasts do much the same for audio content.

The common theme is that media users—aka ‘consumers’—have increasingly gained the means of shutting out marketers. Marketers have upped the ante—sophisticated email blasts, product placement, infomercials—but consumers have arguably gained the upper hand.

What’s a poor marketer to do?

A New Answer: Inbound Marketing.

People are still buying—cars, iPads, restaurant meals, accounting services. The GDP may be slower-growth, but the decline in the power of media is not going to stop consumption itself. The question is: from where will people get their information and recommendations?

An increasingly common answer is Inbound Marketing. If that term is new to you, here is Wikipedia’s (as of March 2011) definition:

Inbound marketing is a marketing strategy that focuses on getting found by customers…related to relationship marketing and Seth Godin‘s idea of permission marketing.

Or, to put it more prosaically—we increasingly get our information and advice from those we trust. Or at least, from those we allow into our Facebook, LinkedIn, Twitter, no-spam email addresses, YouTube and Feedly lists. All else need not apply.

Inbound marketing means being invited in to the consumer’s living room, rather than continuing to knock loudly at the door as a stranger.

Sounds good, of course; but it begs the $64,000 Question: How Do You Get Them To Invite You In?

An Old Principle–Reciprocity. Why It Works.

The concept of Inbound Marketing is still evolving; one of the better discussions is by Hubspot Marketing, a highly successful practitioner of the approach. They tend to describe it in terms of recent technological innovation.

Third Tribe Marketing and Chris Brogan highlight something deeper: if you do things for other people, they tend to return the favor.

This is no random insight. Psychologist Robert Cialdini has for a couple of decades now been talking about reciprocity as the number one driver of influence among human beings. The generic form of reciprocity is:

If you do X for me, I will do Y for you.

This generic formula covers a multitude of human behaviors, from illegal monopolistic tie-ins and Mafia agreements to the rules of social etiquette. And despite a few decades of fixating on human behavior as solely driven by the rational pursuit of economic self-interest, the reciprocity principle is alive and well in business.

Reciprocity is simple: do good things for customers, and they’ll do good things for you. Samples-selling is one approach to it. Giving away a great diagnostic tool is another, the approach HubSpot takes. Complimenting and publicizing others has done wonders for Chris Brogan.

Reciprocity in inbound marketing is old wine in new bottles. That’s not a knock; good wine gets better with age. And reciprocity has a great lineage.

Dale Carnegie preached it; his number one to-do on the list of making people like you is—“become genuinely interested in them.” And the rest of the book is more of the same.

Zig Ziglar, the King of Cornpone and a great philosopher of success (and the best speaker I ever saw), puts it this way:

If you go looking for a friend, you’re going to find they’re very scarce. If you go out to be a friend, you’ll find them everywhere.

What Ziglar says precisely illustrates the paradoxical quality of trust: the best way to sell is to stop trying to sell; the best way to convince someone is to stop trying to convince them; the best way to make a profit is to let it be the byproduct of customer focus, rather than the ultimate objective.

These seeming paradoxes make perfect linear sense, if we think of them in terms of reciprocity. Do for others, and they’ll do for you. It won’t work every time; it shouldn’t—otherwise it’d just be a tool for manipulation and self-aggrandizement. What is given must be freely given. But it works on the whole, in the long run, in large part, for both parties.

Reciprocity is a major key to successful inbound marketing.

What You Can Do About It.

How can you use reciprocity to implement inbound marketing? Here’s a baker’s dozen of things you can do:

1. Go comment on other people’s blog postings—without using them to advertise your own material;
2. Give away free sample analyses or diagnostics, based on whatever it is that you do;
3. Give away free samples of what you actually do or sell;
4. Write a blog about the subject matter of your business—share your best thinking;
5. Invite other writers in your subject area (sometimes known as competitors) to guest-post on your blog;
6. Review books or interview authors of interest to your customers;
7. Offer to do occasional free talks or speeches to industry or customer groups interested in what you do;
8. Set up an occasional phone-in for free consultation “office hours” event—give free advice;
9. Tweet about subject-matter and related experts of interest to your customer base—include links to their articles and blogposts in your tweets;
10. Follow the Annual Rule of tweets—12 tweets about other people’s material to one tweet about your own;

11. Recommend people on LinkedIn without being asked;

12. Do all the preceding 11 items with good intentions—to improve the lot of your customers and others, rather than solely to make money for your business;

13. If item 12 is a problem for you, go back and read Dale Carnegie and Zig Ziglar. There’s very little new under the sun.

When Lou Gerstner took over IBM at a time of corporate crisis, he was asked if he would chart a radically new direction for the firm. His memorable response was, “The last thing IBM needs right now is a vision.”

For the past several decades, business has had a vision; one so dogmatically defined that we might even call it an ideology—the ideology of Capitalism 1.0. Now that vision has turned toxic. Many agree with Michael Porter that business is now facing a crisis of social legitimacy.

The question is–what to do about it? Does capitalism need a fundamental reframing? Or is the issue more one of execution, about getting along in broader society?

In this two-part blogpost, I’ll examine the case for radical reframing–let’s call it the search for Capitalism 2.0. Part 1 provides background and two approaches to Capitalism 2.0. Part 2 evaluates the results.

Re-framing Capitalism

One answer to the problem of business legitimacy is to re-frame Capitalism. Re-thinking capitalism is as tempting to capitalist ideologues as rethinking Marxism was to generations of socialist ideologues. ‘If “shareholder value maximization” isn’t working, then let’s come up with another encompassing business theory that is even broader than the old one, but that works. Let’s call it Capitalism 2.0.’

Two of our leading thinkers—Michael Porter, with Mark Kramer, and new kid on the block Umair Haque—are attempting an intellectual rebooting of the capitalist operating system. Porter’s concept, contained most recently in an HBR article, is Shared Value. Haque’s new book is called The Capitalist Manifesto.

Can capitalism truly be re-visioned from within? Or is it a closed system whose solutions must come from without? If anyone can square the circle, these authors can. Let’s start by understanding what they’re reacting to.

Capitalism 1.0

The full name of Harvard Business School used to be “The Harvard Graduate School of Business Administration.” In the 1950s, that name was apt. Adam Smith was rarely mentioned—Schumpeter and Hayek, even less.

It was pragmatic, non-ideological. Peter Drucker had just begun to conceive of management as distinct from administration; ‘strategy’ was an occasional term, borrowed loosely from military theorists.

In the 70s and 80s strategy went quantitative, bringing us portfolio management theory, the growth/share matrix and log-scale experience curves.

MBA consultants flooded boardrooms with models in lieu of gray hair. Consulting firms seized thought leadership from the business schools. An ideology was being born.

Capitalism 1.0, circa 1980

Around 1980, the core business ideology saw business as a corporate competitive struggle for dominance and survival. All players—producers, their customers, their suppliers, government and regulators—competed. Winning was defined financially, driven by market share, in turn driven by competitive strategy.

Economists and financial theorists joined the mix in the 1980s. One result was greater emphasis on debt, which led to junk bonds, LBOs, private equity and the S&L crisis. Another was the reign of Alan Greenspan and the Chicago School of Economics, whose contribution to dogma was the idea that markets are largely self-correcting.

As tech boomed, the public caught the bug as well. Wall Street created day trading, hedge funds and IPOs, and the public bought it.

Capitalism 1.5

By around 2006 capitalism’s dogma had become more sharply stated—something like:

Business is the value-creating engine of all society. It works best when left alone. Through creative destruction and the Darwinian efficiency of self-correcting markets, it creates value and wealth for all. All business transactions can and should be expressed in present value cash flows terms. The social purpose of a corporation is to earn a profit, and its proper goal is the maximization of shareholder value.

The dogma had held despite Michael Milken, Marc Rich, the S&L and Long-Term Capital crises, Enron and WorldCom. But then came the financial crisis of 2008.

Several items are striking. Alan Greenspan recanted his belief in Capitalism 1.X. Nearly every Chicago economist (notably excepting Eugene Fama) shifted back in the direction of Keynesian economics; Paul Samuelson says Milton Friedman himself would have done so.

The MBA Oath was created at Harvard in 2008. One of the group’s faculty advisors, Nitin Nohria, became the next Dean of HBS. He believes business needs to be more socially attuned–away from shareholder value maximization, toward broader social responsibilities.

In other words, Capitalism 1.X is under attack as a belief system. What will take its place?

The Search for Capitalism 2.0

Business strategists and economists love elegantly simple models. Many past successes have come via idea home runs—redefining paradigms, thinking outside boxes, changing game rules. Porter and Haque have made powerful attempts to do so, as follows:

Shared Value and the Capitalist Manifesto

Both approaches describe Capitalism 1.X’s failures sweepingly. They indict zero-sum thinking, short-termism run amok, and a systemic inability to link corporate benefits to social costs. If anyone needs a comprehensive statement of what’s wrong, look no further than these two works.

Each work also describes a better end-state; longer time horizons, broader collaboration, comprehensive calculations. Yet the solution, both Porter and Haque seem clearly to say, lies in ideology: in re-framing the tenets of capitalism.

Here is Haque’s version:

The industrial age’s dilemma is unsolvable if we’re still confined to thinking in yesterday’s terms…Escaping the capitalists’ dilemma requires a paradigm shift.

The outlines of an updated economic paradigm…include two fundamental axioms:

…first…through the act of exchange, an organization cannot, by action or inaction, allow people, communities, society, the natural world, or future generations to come to economic harm. [Italics are Haque’s]

Porter is equally didactic:

The purpose of the corporation must be redefined as creating shared value, not just profit per se.

The concept of shared value resets the boundaries of capitalism.

Not all profit is equal—an idea that has been lost in the narrow, short-term focus of financial markets and in much management thinking. Profits involving a social purpose represent a higher form of capitalism—one that will enable society to advance more rapidly while allowing companies to grow even more.

We need a more sophisticated form of capitalism, one imbued with a social purpose. But that purpose should arise not out of charity but out of a deeper understanding of competition and economic value creation…It is not philanthropy but self-interested behavior to create economic value by creating social value.

This all begs some pretty big questions: what exactly do we get with a new definition, a new paradigm, an axiom? Do the authors mean that the single biggest, most critical issue is to fix our thinking? Is it really necessary to have a new paradigm in order to get on with matters?

And even if it is necessary to re-think capitalism–is the re-thinking a sufficient condition for getting the job done? For that matter—can it even be done at all? Can we really stretch “capitalism” so far as to equate social good with corporate self-interest? Or is Capitalism 2.0 really a mirage, a distraction from more mundane but critical ways of changing business?

Beware of Closed Systems

Haque wants an axiom. Unfortunately for Haque, I don’t know of any organization for whom it is axiomatic that they cannot do any of the things he lists. Calling something “axiomatic” simply doesn’t make it so.

Porter and Kramer, in their treatment of Shared Value, use the word ‘must’ in a similar way (“The purpose of the corporation must be redefined as creating shared value, not just profit per se”). But the result is the same. Nobody ‘must’ do anything, as the human race perversely insists on proving time and again.

Karl Marx, in the Communist Manifesto, declared communism inevitable. Capitalism 1.5 had the same flavor. Haque’s ironic use of “Manifesto” and the language of ‘axioms’ suggest the same pull of logical necessity. But axioms are abstract, not empirical–they don’t drive action, unless someone chooses to act on them. And Porter’s ‘must’ has no causal force; it is exhortation dressed up in the words of logical necessity.

There is a beauty in such simple, powerful idea systems, a beauty well-loved by economists, mathematicians, physicists and strategists. The problem is–they are closed systems. That’s OK for math and physics. But for most other fields, once you get outside a closed system, things eventually degrade.

Inevitability Isn’t

Marx was wrong about communism’s inevitability. Greenspan was wrong about large companies’ inclination to self-regulate based on reputation. Friedman was wrong about the gyroscopic capabilities of the Invisible Hand.

If Porter and Haque believe that they have discovered an ideology as attractive, powerful and self-sustaining as those were, then we’re probably just looking at another shiny-object, perpetual-motion, too-good-to-be-true closed system.

In fact, it was our unquestioned belief in the closed-system aspect of Capitalism 1.X that helped cause Capitalism 1.X to fail. It all sounded so good that we wanted to believe it–until long after the writing was on the wall. Not for the first time, the charm of dogma blinded us to facts on the ground until it became not just overwhelming, but undeniable. We’re left thinking, “What were we thinking?” and the answer is, we weren’t. We were just believing.

The search for another compelling but unrealistic logic is likely to be equally misguided.

Both Porter-Kramer and Haque argue that systemic adoption of Capitalism 2.0 will lead to higher systemic profitability. This is certainly true. But the heart of the matter is not a systemic issue—it is whether individual companies will make decisions that are not profitable to themselves in the short term. And this is where ideology gets in the way:

What should, and will, a company do if an initiative is profitable in Capitalism 2.0 terms–but not profitable in Capitalism 1.X terms? Not every business problem is simply a failure of imagination, even if many–even if most–are. The problem of the commons remains unsolved.

I’m not optimistic that Porter can find a profit that is “imbued with a social purpose…that arises…out of a deeper understanding of competition and economic value creation.” I think that’s a circle that can’t be squared.

But it is also not necessary. The answer lies in sober thinking about how social change happens; not in a new Idea System.

Haque is most productive not when he’s offering ringing phrases, but when he’s offering examples of new business opportunities that are not only holistically profitable, but profitable as well in today’s simple quarterly income statement terms–examples like Threadless and Nike’s Considered Design.

Porter is today more famous for his early Five Forces model than for his value chain model, but the latter has probably had more impact. Similarly, his solid thinking today on clusters and the proper role of regulation may end up having more impact than his heroic effort to cognitively re-conceive competition.

There is richness in both works, worthy of a lot of thoughtful reading.

The Other Solution: Dial Back the Dogma

Ironically, it was Marx who said, “The point is not to understand the world, but to transform it.” Ideologues and dogmatists insist on the primacy of theory. Change agents are more pragmatic.

Parts of our society are addicted to dogma and ideology. Business, under Capitalism 1.X, is one; others are politics, academia and particularly economics. But it’s not the norm.

The legal profession isn’t dogmatic, apart from a general belief in advocacy. Education has many sub-currents but not one unifying theory. The practice of medicine, other than the Hippocratic Oath, is more practical than ideological.

If ideology is ultimately empty calories, then what is to be done? How else can we get to the alternate vision of business that both Porter and Haque so clearly, and rightly, envision?

First, we need to give up our addiction to ideology. What’s needed is not another intellectual home run, but a dogged effort to get better at getting along—on all social dimensions, not just those of business.

What can you do? Here are a few examples:

1. People with visible responsibility can start talking about civic and moral virtues, instead of the virtues of an abstract system which magically does the heavy lifting for us.

2. Porter, Kramer and Haque as writers–and all of us as readers–can use the rich and stimulating examples they have uncovered as a challenge to our imaginations, and a spur to creative thinking. The power of what they’ve written lies more in their examples and simple models than in the attempt at a Unifying Theory.

3. Measurements are powerful in business; many managers believe that management requires it. We can all support global attempts at Integrated Reporting accounting, combining traditional financial accounting with other socially-relevant measures. New vocabularies seriously drive new dialogues.

4. Trade associations can shift emphasis from narrow sectarian lobbying to offering education and perspective on increasing the long-term viability of their industries.

5. Business strategists and economists can look to outside functional arenas; negotiation and bargaining experts know how to integrate zero-sum oppositional positions with shared interests;

6. Politicians can rediscover bi-partisanship and compromise, rather than scorched-earth zero-sum competitive games; citizens can hold them accountable by re-discovering the same.

7. Elections and legislation are heavily controlled by corporate interests in the United States today. This is not long-term healthy even for business. Business organizations can collaborate with other groups to pursue campaign finance reform, thus putting stakeholder collaboration into serious practice.

8. Business education, mainly MBAs, can start emphasizing long-term sustainable collaboration, rather than Capitalism 1.X. Ethics courses are no good if they’re contradicted by 1.X courses in competitive strategy down the hall.

9. News media can try to stay sober, serious, thoughtful and responsible, not giving in to pure entertainment; business can play a role along with consumers in helping media resist the pull in that direction.

There is no unifying ideology; if Santa Claus can’t pull it off, why should we expect strategists and economists to do so?

But there are still guidelines.

“Be the change you want in the world.”
“The best way to make someone trustworthy is to trust them.”
“Ask not what your country can do for you, ask what you can do for your country.”
“Don’t argue over who gets the slice of the pie, focus on making the pie bigger.”
Maybe even, “Do unto others as you’d have them do unto you.”

When Gerstner took over IBM he said, “The last thing IBM needs is a vision.” The last thing capitalism needs right now is a new ideology. Business needs simply to take its seat among other social and political institutions, and to play nicely in the sandbox alongside them.