This book holds that the sequence technological revolution – financial bubble – collapse – golden age – political unrest recurs about every 50 years and is based on causal mechanisms that are in the nature of capitalism. These mechanisms stem from 3 features of the system, which interact with and influence one another
The fact that technological change occurs by clusters of radical innovations forming successive and distinct revolutions that modernize the whole productive structure
The functional separation between financial and production capital, each pursuing profits by different means; and
The much greater inertia and resistance to change of the socio-institutional framework in comparison with the techno-economic sphere, which is spurred by competitive pressures
The techno-economic paradigm is both a propeller of diffusion and a delaying force – it provides a model that can eventually be followed by all but this learning must eventually be overcome
It is precisely the need for reforms and the inevitable social resistance to them that lies behind the deeper crises and longer-term cyclical behavior of the system. Each technological revolution, originally received as a bright new set of opportunities, is soon recognized as a threat to the established way of doing things in firms, institutions and society at large
Old industries rejuvenated as well
New input (iron, steel, chips) reaches mass scale economics which creates massive price drops and it can therefore spread further
All areas of society are interconnected and impact each other – technological, social, political
Big bang leads to irrational exuberance which leads to structured adjustment, then installation period (irruption and frenzy), and eventually to deployment (synergy and maturity)
How new tech goes to third world and financial / debt’s role
Financial capital plays a crucial role all along. It first supports the development of the technological revolution, it then contributes to deepen the mismatch leading to a possible crash, it later becomes a contributing agent in the deployment process once the match is achieved and, when that revolution is spent, it helps give birth to the next
Regulation is the last part that is needed as part of the cycle
Monopolies, oligopolies in phase 4 must try radical innovations to stretch lifecycle, reduce cost of peripheral activities
Installation leads to turning points which leads to deployment
The turning point has to do with the balance between individual and social interests within capitalism. It is the swing of the pendulum from the extreme individualism of Frenzy to giving greater attention to collective well-being, usually through the regulatory intervention of the state and the active participation of other forms of civil society
Related services, cultural adaptation, education, regulation all come up
Becomes ubiquitous, common sense which leads to coherence. When exhausted and tired, ripe for new paradigm
Financial vs. Production Capital
Financial capital – invest, money to make more money
Production capital – builders, scaling more profit, making capacity
Little knowledge in an area vs. a lot; foot loose vs. roots
When productional capital is in control (post bubbles) it leads to real wealth creation
Financial capital should be the facilitator, not the game itself
When the companies (engines of growth) start seeking unorthodox ways to deploy their profits, that stage is at maturity (M&A, conglomerates)
In maturity, financial capital also becomes unorthodox. Idleness leads to bad loans
Provides the funding for the next paradigm
Taking a successful behavior to its extreme causes failure
Big crashes teach big lessons, but are often short lived
Cost reductions in the core inputs/infrastructure leads to further explosion
What I got out of it
Love seeing and learning about these centuries-wide deep dives that helps stitch together patterns. The cycle from irruption to frenzy to tipping point to synergy and finally maturity plays out time and again and having the image and jargon to think about it is so useful
This book is about understanding, defining, and influencing where your customers are going and who they want to become when they get there. The Ask offers a lightweight but high-impact methodology for aligning strategic, marketing, brand, and innovation leaderships around customer transformation. That transformation comes from innovatively investing in who you want your customers to become.
Innovation is an investment in human capital—in the capabilities and competencies of your customers. Your future depends on their future.
Innovation is about designing customers, not just new products, new services, and new user experiences.
Customer vision is as important as corporate vision. Your corporate vision and mission statement should respect and reflect your vision of the customer.
Align customer vision (what you want your customers to become) with user experience (what you are asking them to do).
If you can’t be your own best beta, find and design the customers who can.
Anticipate—and manage—the dark side of The Ask.
Customers don’t just adopt innovations; they alter them, adapt to them, and are changed by them. Like economic Charles Darwin’s, successful innovators strive to observe and understand how their customers evolve.
Successful innovators don’t just ask customers and clients to do something different; they ask them to become someone different. Facebook asks its users to become more open and sharing with their personal information, even if they might be less extroverted in real life. Amazon turned shoppers into information-rich consumers who could share real-time data and reviews, cross-check prices, and weigh algorithmic recommendations on their paths to online purchase. Who shops now without doing at least some digital comparisons of price and performance? Successful innovators ask users to embrace—or at least tolerate—new values, new skills, new behaviors, new vocabularies, new ideas, new expectations, and new aspirations. They transform their customers. Successful innovators reinvent their customers as well as their businesses. Their innovations make customers better and make better customers.
Google continuously improves the quality of its search by improving the capabilities of its searchers—and vice versa. As Google’s searchers grow smarter and more sophisticated, so does Google. Win/win.
What does our proposed innovation ask our searchers to become?
“The entire corporation must be viewed as a customer-creating and customer-satisfying organism. Management must think of itself not as producing products but as providing customer-creating value satisfactions . . . In short, the organization must learn to think of itself not as producing goods or services but as buying customers, as doing the things that will make people want to do business with it.” The innovator’s ask refines and reframes Levitt’s organizing insight. What business a company is in depends, in large part, not on existing customers but who tomorrow’s customers will—and should—be.
Who do our customers want to become? What kind of customers should we be investing to create? What kind of customers will our innovations “buy”?
Let’s update Becker’s comments in light of how innovation transforms its beneficiaries. Perhaps the innovator’s most important assets “by far” aren’t its employees. Suppose its most important asset is its customers, and how it invests in its customers, how it treats its customers, how it raises the skill level of its customers. Maybe that’s a dominant factor determining whether this business is going to succeed.
Innovation should be an investment narrative explaining how customers become more valuable.
Google brilliantly reinforced its “innovator’s ask.” Its innovations asked customers to become people who expected immediacy. Google’s UX economics made search faster and easier. Users could literally do more in less time. Speed enabled and accelerated how Google transformed customer expectations. A Pavlovian would say Google conditioned its searchers to immediate gratification.
Conventional management wisdom has evolved from thinking about innovation as designing for customers, to innovation as designing with customers. The Ask takes the next essential leap: thinking about innovation as designing customers. Innovation should be treated as a medium and method for (re)designing customers.
Training people to use shopping carts not only transformed how shoppers shopped, but increased how much shoppers bought.
Visionary organizations that value innovation should have simple customer vision statements. They need to imagine—and articulate—who and what their customers should become.
What customer values, expectations, perceptions, or behaviors does your vision transform? How do your innovations enable your customers—or key customer segments—to achieve this? Your innovations are investments in realizing the customer vision.
Apple trained its customers to become design connoisseurs.
Microsoft’s innovation asked for real commitments of time, thought, and effort. What did Windows innovation upgrades and updates ask customers to become? Experts. Microsoft’s complex—and complicated—flow of feature and functionality innovation asked customers to become students of Windows. Was this a stupid ask? Absolutely not. It created commitment.
For Apple’s and Pixar’s innovators, the value of self-awareness trumped any need for customer focus. By designing for themselves, they transformed their most demanding customers.
The “being one’s own best innovator/customer” paradigm enjoys a fantastic business history. Henry Ford, George Eastman, and Edwin Land were all DIFY—do it for yourself—entrepreneurs.
All innovations come with risk. But the dark side of The Ask is not about the innovation’s riskiness but the customer weaknesses and vulnerabilities that innovation might expose. To argue that these innovations represent inherently bad investments overstates the case. But the inherent nature of these asks means these investments can lead to bad outcomes for both customer and innovator.
The Ask shouldn’t be monolithic; it’s an invitation to segmentation. Customers and clients aren’t created equal.
What I got out of it
Fascinating way to think about innovation and asking the simple question of “who you want your customer to become” can be insanely clarifying and focusing.
Types of opportunities – paradigm shift, new product / business model / me-too product
Opportunity recognition – markets that change and are receptive to change, badly understood (big and misunderstood), fast growing, incumbent players cannot move, little competition
Process of Opportunity Recognition – intuitive, analytical
Seek a mission-critical pain killer, not a vitamin
Be extremely specific in defining your customer
Great entrepreneurs tend to be generalists – breadth > depth
Founders need to understand the market, product, and execution. Need to be focused on value creation, not control
Risk Identification and Elimination – raise money to reduce key risks – market, technical, people, financial
Decision making – the implementor should be the decision maker
Flexibility – In the planning process, understanding the variables is more important than the plan. It is as important to understand the other players’ plans as it is to figure out your own plans
Focus is paramount – with limited time and resources, specialization is key – should be saying “no” to 9/10 things
Focus and speed are a startups’ key advantages
Split every problem to its smallest atomic problem
Be as useful as you can to others, have vision, form win/win alliances
Focus all your efforts to satisfy the first 20% of the market segment. the others will follow
Design partners, best references, proven success
People – overqualified so the company can grow into their skills
Processes must be scalable – at some point speed becomes a liability and the need to build systems to scale operations becomes obvious
Management needs to live 3-6 months in the future
What I got out of it
Interesting that Oliver Samwer, of Rocket Internet, started his entrepreneurial career from an academic angle. He certainly doesn’t abide by all the lessons – culture, for example – but fascinating to see the lessons he pulled out and applied (ruthlessly)
Luxury is about elevation, social stratification, the object must be handmade, the service rendered by a human, hedonistic more than utilitarian, timeless, have both a social and personal component, elicit dreams but not envy, be superlative and not comparative.
Luxury items share a common core made of six criteria:
A very qualitative hedonistic experience or product made to last
Offered at a price that far exceeds what their mere functional value would command
Tied to a heritage, unique know-how and culture attached to the brand
Available in purposefully restricted and controlled distribution
Offered with personalized accompanying services
Representing a social marker, making the owner or beneficiary feel special, with a sense of privilege.
A luxury product is rooted in a culture. In buying a Chinese luxury product (silk, let’s say), you are buying not just a piece of material but a little bit of China as well – a luxury product comes along with a small fragment of its native soil. This does of course mean that a luxury brand has to stay absolutely true to its roots and be produced in a place that holds some legitimacy for it: by remaining faithful to its origins, the luxury product offers an anchor point in a world of cultural drift, trivialization and deracination. A luxury brand should not yield to the temptation of relocation, which effectively means dislocation: a relocated product is a soulless product (it has lost its identity), even if it is not actually anonymous (it still bears a brand name); it no longer has any business in the world of luxury. We shall be returning to this later and in greater detail, but we need to understand one thing right away: a product whose production centre has been relocated loses its right to be called a luxury product.
A luxury brand that cannot go global finishes up disappearing; it is better to have a small nucleus of clients in every country – because there is every chance that it will grow – than a large nucleus in just one country, which could disappear overnight. That’s the law of globalization.
In addition to this key social function, luxury is an access to pleasure: it should have a very strong personal and hedonistic component, otherwise it is no longer a luxury but simple snobbery
When it comes to luxury, hedonism takes precedence over functionality.
Luxury has to be multisensory: it is not only the appearance of a Porsche that matters but also the sound of it, not only the scent of a perfume but also the beauty of the bottle it comes in. It is multisensory compression.
It immediately follows from this analysis that if one wants a luxury product or service to be a lasting financial success (which is the point of this book) it absolutely must possess the following two aspects: a social aspect (luxury as a social statement in relation to other products or services – connecting luxury, brand status); a personal aspect (luxury as an individual pleasure – cocooning luxury, customer experience).
a luxury item is both timeless and of the here and now. Put another way, a luxury item has to appear both perfectly modern to the society of the day and at the same time laden with history.
Now we come back to what we said at the outset: price, and therefore money, is not a determinant of luxury. It is quite obvious that price on its own does not make something a luxury; an ordinary car will cost more than a luxury bag, and it is a common error to believe that to turn any product into a luxury product all it takes is to raise its price, which will soon bring about financial failure – a product that is more expensive can often turn into a product that is too expensive, one that nobody wants, rather than a luxury product that people long for. For anyone looking for financial success (which is the point of this book), things are even more clear-cut: within a given range, the most expensive products are never the most profitable, and a company that makes only very expensive products does not generally have any financial success (as in the case of Rolls-Royce, for example), or is likely to find it outside of its core production (designer jewellery and haute couture, for example). Too narrow a client base would entail crippling costs; Volkswagen has publicly admitted that each Bugatti Veyron costs the company over €4 million to produce, whereas it is sold for (only!) €1 million.
Money fuels the luxury engine but is not the engine; the engine is the recreation of vertical hierarchy or social stratification. Luxury converts the raw material that is money into a culturally sophisticated product that is social stratification.
In placing ourselves in the territory of value, so dear to economists, we could say that luxury introduces a new notion of value that goes beyond the classic dialectic of use-value and exchange-value: symbolic value.
the extent to which luxury and fashion differ from each other in two fundamental respects: relationship to time (durability versus ephemerality); and relationship to self (luxury is for oneself, fashion is not).
The parallelism between religion, art and luxury is striking: all three are concerned with eternity, or at least timelessness. We call what survived through the ages art, religion promises eternal happiness after death and luxury is about timeless objects of extra quality and beauty. But the comparison extends to luxury brands behaviour per se: luxury brands start small, with few clients acting as a sect of believers. Later the brand wishes to enlarge this sect, building a real community of faithful. Structurally, like religions, most luxury brands have the following: They have a creator. They have a founding myth and legend. Storytelling will maintain mystery about them. There will be a holy land, or holy place where it all started. There will be a chest of symbols ( logos, numbers, signs, etc) whose signification is known only by those who have been initiated. Luxury brands will have icons (products endowed with a sacred history). Flagship stores for these brands will be seen as new urban cathedrals. There will be regular moments of communion (called ‘community management’). Sacrifices will be involved. The most important is price. One should recall the Latin etymology of sacrifice (‘making sacred’). It is the ability to sacrifice a high sum that seals the sacred dimension of the object. A nice jewel is only nice: once you pay a lot for it, far beyond what reason or function commands, only then does it become fascinating. The sacrifice is the right to wear the object, as one has to pay a fee to enter a club. We are also close to the initiation rituals involving a physical sacrifice or at least deprivation, as described by anthropologist Mauss (1950).
He reminds us also that it is only by spending on non-productive items that people signal their rank. Here lies the difference between luxury and premium. People buying premium or even super-premium cars like to justify every dollar by a return on investment. Premium means pay more, get more in functional benefits. Luxury is elsewhere: it signals the capacity of the buyer to transcend needs, functions, or objective benefits.
Luxury is superlative, never comparative. Comparisons must be avoided at all costs. Upper-premium brands remain comparative, whereas luxury is superlative. The price of any upper-premium car must be justifiable by its utility curve.
Two observations need to be made at this point. First, the history need not necessarily be a long one: new genuine luxury brands will be born tomorrow. Second, history alone is not enough: it is necessary to create a myth, a legendary discourse that gives birth to the dream. This is what distinguishes luxury from the brand, even from the upper-premium brand.
In this chapter we shall be putting forward 24 management principles, which we call anti-laws of marketing peculiar to luxury, as they are at the opposite extreme of what marketing doctrine normally preaches – and rightly so – concerning products and brands, even premium ones.
Forget about ‘positioning’, luxury is not comparative
When it comes to luxury, being unique is what counts, not any comparison with a competitor. Luxury is the expression of a taste, of a creative identity, of the intrinsic passion of a creator; luxury makes the bald statement ‘this is what I am’, not ‘that depends’ – which is what positioning implies.
Does your product have enough flaws? Their ‘flaw’ is a source of emotion. In the world of luxury, the models and the products must have character or personality.
Do not pander to your customers’ wishes
There are two ways to go bankrupt: not listening to the client, but also listening to the client too much.
Keep non-enthusiasts out
When it comes to luxury, trying to make a brand more relevant is to dilute its value, because not only does the brand lose some of its unique features, but also its wider availability erodes the dream potential among the elite, among leaders of opinion.
Do not respond to rising demand
‘When a product sells too much we stop producing it,’ says Hermès CEO.
a luxury brand must have far more people who know it and dream of it than people who buy it.
Dominate the client
The luxury brand should be ready to play this role of adviser, educator and sociological guide. On this account it simply has to dominate.
Make it difficult for clients to buy
People do eventually get to enjoy the luxury after passing through a series of obstacles – financial obstacles, needless to say, but more particularly cultural (they have to know how to appreciate the product, wear it, consume it), logistical (find the shops) and time obstacles (wait two years for a Ferrari or a Mikimoto pearl necklace).
To create this obstacle to immediate consumption, it should always be necessary to wait for a luxury product – time is a key dimension of luxury,
Protect clients from non-clients, the big from the small
In practice that means that the brand must be segregationist and forget all society’s democratic principles. In stores, for example, it is necessary subtly to introduce a measure of social segregation: ground floor for some, first floor for others.
The role of advertising is not to sell
Advertising feeds on a sustained myth, mystery, magic, racing, highly people-centred but private shows, product placement, and art – as we saw above, an extremely important element for any luxury brand.
Communicate to those you are not targeting
Luxury has two value facets – luxury for oneself and luxury for others. To sustain the latter facet it is essential that there should be many more people who are familiar with the brand than those who could possibly afford to buy it for themselves.
The presumed price should always seem higher than the actual price
Luxury sets the price, price does not set luxury
Raise your prices as time goes on in order to increase demand
Keep raising the average price of the product range
Do not sell
You tell customers the story of the product, the facts, but you do not pressure them into making a purchase there and then.
Keep stars out of your advertising. If celebrities are used to promote the luxury product, the status of the latter is reduced to that of a mere accessory.
However, it is legitimate for a luxury brand to test new products with a selection of existing good customers of the brand, and especially on the shop floor, where a real face-to-face discussion is possible. Not only is the opinion of these brand-lovers good to collect, as they share the dream of the brand, but also it helps them to feel more ‘part of the club’, enhancing their brand loyalty.
Do not look for consensus
Do not look after group synergies
Do not look for cost reduction
Just sell marginally on the internet
This marker conserves in its genes this first function: maintaining rank, and the visibility of rank. This is why it must be highly visible: like a social seal.
It is noticeable that the brands themselves diminish the size and visibility of their logos for their products in the more expensive price ranges. It is obvious for the accessories
The internet is a fabulous place to sell fashion or premium products, but a very dangerous one to sell luxury ones.
Today you can reach the masses, but you have to do it through communities.
In order for a luxury product to succeed, it is important to master three concepts: the separation of the dream aspect from the functional aspect, the holistic understanding of the competitive universe, and management of the time relationship.
The conclusion is that initially it is necessary to expend all your energies and resources on fine-tuning the product and conquering a first core group of clients who will be the brand’s advocates. Once critical mass has been attained, it is then better to stabilize the offer and no longer invest heavily in the product, but reorientate your financial investments towards distribution and communication.
The luxury product is not a perfect product, but a sacred product
Extraordinary customer care needs extending to boundaries beyond the company’s natural expertise, to an individual and customized approach, and finally surprise and delight.
More than empathy, anticipation of desires is also required.
the true role of the salesperson is not to sell the product – it is to sell the price.
The sales personnel should never earn direct sales commission
The second challenge linked to globalization can be summarized by the statement: one brand, one world.
An own brand store makes it possible, in particular, to know exactly and in real time which products are selling, leading to a very precise steering of the logistical chain. On this point, the system is very effective: we calculated at the time that a competitor, not having integrated its production and not selling through its own network, would have had to sell a bag at twice the price that Louis Vuitton sold it in order to make ends meet. In fact, the exceptional (sometimes criticized) margins at Louis Vuitton did not arise from excessively high prices, but from the removal of all costs and damages due to intermediaries. Louis Vuitton’s competitiveness was therefore structural.
You need to sponsor an event – since you can then control all its parameters – but not a competitor (Louis Vuitton sponsors the LV Cup, not a boat; Hermès sponsors the Grand Prix de Diane, not a horse). You must choose an event that is coherent with the universe of the brand’s core, its roots (Hermès and horses; Louis Vuitton and travel, therefore boats), and concentrate on the most prestigious events.
One last point: the luxury brand should not disperse itself across multiple events in multiple sectors but concentrate fully on a single universe, in which you can develop a very strong image by devoting all your available means to it. For instance, Royal Salute has chosen Polo only.
Premium and luxury differ in their use of these strategies: premium uses an ambassador, luxury shows testimonial users.
The black and white ball organized by Truman Capote on 28 November 1966 at the Plaza Hotel in New York remains a model of the genre. The dress code was dinner jackets and long dresses, with a mask: even the journalists and bodyguards had to wear masks. Truman Capote invited 540 friends, only the rich, powerful or famous. But he made 15,000 enemies that evening: in fact, he organized a leak of information and the New York Times published the list of invitees. All those who had not been invited therefore knew that they were not members of the club, and would do anything to be invited next time.
There are nine systematic and necessary elements of the signature of a luxury brand:
The figure of the brand’s creator, the individual who made the brand a work and not a production.
The typographical logos, generally short and very visual, such as Chanel’s double
A visual symbol that accompanies the typographical signature: Aston Martin’s wings, Mercedes’ circle.
A brand colour: Tiffany’s blue, Veuve Clicquot’s orange.
A favourite material, such as silk for Hermès or python skin and ostrich leather for Prada.
The cult of detail, to the point of obsession, which is expressed visually, for example through close-ups on the seams and the lock details at Louis Vuitton. The constant hymns to the manual work, to the excellence of the artisans who have contributed to each object, to the know-how.
A way of doing things that is typical of the brand: whether it is the ‘Chanel style’ so visible in the woman’s suit – an icon of the brand – or the quilting of the Chanel bag, or the typical driving experience at the wheel of a BMW.
The creator–manager tandem is a characteristic of luxury. In contrast, Pierre Cardin’s solitude was the cause for his decline, despite his immense talent.
There are few real synergies within a group. In fact, groups that work well, such as LVMH, are associations of companies each with its own brand, teams, CEO, and considerable freedom of management, with just a small central holding activity, limited to the management of only part of the finances and human resources, and not rigid, heavy structures managing subsidiaries dependent on an all-powerful headquarters.
This is a major characteristic of this business model: you need entry products, that is, ‘budget’ products, but you need as few of these as possible, since they are not there to ‘meet a quota’ or ‘make money’.
You need to begin local and specific (one place, one product) in order to ensure coherence and the personal link to the clients from the start, and then become regional, and finally national. We have seen that the luxury product always carries the marks of its birthplace, which forms part of the client dream. Wine is French, silk is Chinese, caviar is Russian, Rolls-Royce is British.
This step is crucial, and requires skilful steering. In particular, you should not launch ‘in all directions’, nor choose markets according to their size. You must begin with those whose clients are most receptive to the brand, and who will accept the product as it stands, without modifications, as a luxury product.
Scarcity is painful, but rarity, if well managed, can become a dream.
The essence of luxury strategy is to never sacrifice long term to short term.
What I got out of it
A really thorough book on the ins and outs of luxury. Luxury is superlative, not comparative. It has to have personal and social ramifications
The 80/20 Principle applied to business has one key theme—to generate the most money with the least expenditure of assets and effort. But, what is the 80/20 Principle? The 80/20 Principle tells us that in any population, some things are likely to be much more important than others. A good benchmark or hypothesis is that 80 percent of results or outputs flow from 20 percent of causes, and sometimes from a much smaller proportion of powerful forces…The 80/20 pattern that we have come to recognize for over a century—and which has been remarkably consistent, varying mainly between, say, 70/30 and 90/10—is rapidly increasing to 90/10 and 99/1. Understanding this trend and how to be on the right side of it can change your life
It is very rarely true that 50 percent of causes lead to 50 percent of results. The universe is predictably unbalanced. Few things really matter. Truly effective people and organizations batten on to the few powerful forces at work in their worlds and turn them to their advantage.
In 1949 Zipf discovered the “Principle of Least Effort,” which was actually a rediscovery and elaboration of Pareto’s principle. Zipf’s principle said that resources (people, goods, time, skills, or anything else that is productive) tended to arrange themselves so as to minimize work, so that approximately 20–30 percent of any resource accounted for 70–80 percent of the activity related to that resource.
In 1963, IBM discovered that about 80 percent of a computer’s time is spent executing about 20 percent of the operating code. The company immediately rewrote its operating software to make the most-used 20 percent very accessible and user friendly, thus making IBM computers more efficient and faster than competitors’ machines for the majority of applications.
The reason that the 80/20 Principle is so valuable is that it is counterintuitive. We tend to expect that all causes will have roughly the same significance. That all customers are equally valuable. That every bit of business, every product, and every dollar of sales revenue is as good as any other. this “50/50 fallacy” is one of the most inaccurate and harmful, as well as the most deeply rooted, of our mental maps. The 80/20 Principle asserts that when two sets of data, relating to causes and results, can be examined and analyzed, the most likely result is that there will be a pattern of imbalance. The imbalance may be 65/35, 70/30, 75/25, 80/20, 95/5, or 99.9/0.1, or any set of numbers in between. However, the two numbers in the comparison don’t have to add up to 100. The 80/20 Principle also asserts that when we know the true relationship, we are likely to be surprised at how unbalanced it is.
Related to the idea of feedback loops is the concept of the tipping point. Up to a certain point, a new force—whether it is a new product, a disease, a new rock group, or a new social habit such as jogging or roller blading—finds it difficult to make headway. A great deal of effort generates little by way of results. At this point many pioneers give up. But if the new force persists and can cross a certain invisible line, a small amount of additional effort can reap huge returns. This invisible line is the tipping point. The concept comes from the principles of epidemic theory. The tipping point is “the point at which an ordinary and stable phenomenon—a low-level flu outbreak—can turn into a public-health crisis,”10 because of the number of people who are infected and can therefore infect others. And since the behavior of epidemics is nonlinear and they don’t behave in the way we expect, “small changes—like bringing new infections down to thirty thousand from forty thousand—can have huge effects…It all depends when and how the changes are made.”
A few things are important; most are not.
The common view is that we are short of time. My application of the 80/20 Principle suggests the reverse: that we are actually awash with time and profligate in its abuse.
Conventional wisdom is not to put all your eggs in one basket. 80/20 wisdom is to choose a basket carefully, load all your eggs into it, and then watch it like a hawk.
A new and complementary way to use the 80/20 Principle is what I call 80/20 Thinking. This requires deep thought about any issue that is important to you and asks you to make a judgment on whether the 80/20 Principle is working in that area.
Application of the 80/20 Principle implies that we should do the following:
Celebrate exceptional productivity, rather than raise average efforts
Look for the short cut, rather than run the full course
Exercise control over our lives with the least possible effort
Be selective, not exhaustive
Strive for excellence in few things, rather than good performance in many
Delegate or outsource as much as possible in our daily lives and be encouraged rather than penalized by tax systems to do this (use gardeners, car mechanics, decorators, and other specialists to the maximum, instead of doing the work ourselves)
Choose our careers and employers with extraordinary care, and if possible employ others rather than being employed ourselves
Only do the thing we are best at doing and enjoy most
Look beneath the normal texture of life to uncover ironies and oddities
In every important sphere, work out where 20 percent of effort can lead to 80 percent of returns
Calm down, work less and target a limited number of very valuable goals where the 80/20 Principle will work for us, rather than pursuing every available opportunity.
Make the most of those few “lucky streaks” in our life where we are at our creative peak and the stars line up to guarantee success.
Consider the Interface Corporation of Georgia, now an $800 million carpet supplier. It used to sell carpets; now it leases them, installing carpet tiles rather than whole carpets. Interface realized that 20 percent of any carpet receives 80 percent of the wear. Normally a carpet is replaced when most of it is still perfectly good. Under Interface’s leasing scheme, carpets are regularly inspected and any worn or damaged carpet tile is replaced. This lowers costs for both Interface and the customer. A trivial 80/20 observation has transformed one company and could lead to widespread future changes in the industry.
Understanding the cost of complexity allows us to take a major leap forward in the debate about corporate size. It is not that small is beautiful. All other things being equal, big is beautiful. But all other things are not equal. Big is only ugly and expensive because it is complex. Big can be beautiful. But it is simple that is always beautiful.
All effective techniques to reduce costs use three 80/20 insights: simplification, through elimination of unprofitable activity; focus, on a few key drivers of improvements; and comparison of performance.
Because business is wasteful, and because complexity and waste feed on each other, a simple business will always be better than a complex business. Because scale is normally valuable, for any given level of complexity, it is better to have a larger business. The large and simple business is the best. The way to create something great is to create something simple. Anyone who is serious about delivering better value to customers can easily do so, by reducing complexity. Any large business is stuffed full of passengers—unprofitable products, processes, suppliers, customers, and, heaviest of all, managers. The passengers obstruct the evolution of commerce. Progress requires simplicity, and simplicity requires ruthlessness. This helps to explain why simple is as rare as it is beautiful.
But profitability is only a scorecard providing an after-the-fact measure of a business’s health. The real measure of a healthy business lies in the strength, depth, and length of its relationship with its core customers. Customer loyalty is the basic fact that drives profitability in any case.
When something is working well, double and redouble your bets.
Impose an impossible time scale This will ensure that the project team does only the really high-value tasks:
When I was a partner at management consultants Bain & Company, we proved conclusively that the best-managed projects we undertook—those that had the highest client and consultant satisfaction, the least wasted time, and the highest margins—were those where there was the greatest ratio of planning time to execution time.
Build up a long list of spurious concerns and requirements early in a negotiation, making them seem as important to you as possible. These points must, however, be inherently unreasonable, or at least incapable of concession by the other party without real hurt (otherwise they will gain credit for being flexible and conceding the points). Then, in the closing stages of the negotiation, you can concede the points that are unimportant to you in exchange for more than a fair share of the really important points.
If your insights are not unconventional, you are not thinking 80/20.
We have been conditioned to think that high ambition must go with thrusting hyperactivity, long hours, ruthlessness, the sacrifice both of self and others to the cause, and extreme busyness. In short, the rat race. We pay dearly for this association of ideas. The combination is neither desirable nor necessary. A much more attractive, and at least equally attainable, combination is that of extreme ambition with confidence, relaxation, and a civilized manner. This is the 80/20 ideal, but it rests on solid empirical foundations. Most great achievements are made through a combination of steady application and sudden insight. The key is not effort, but finding the right thing to achieve.
The Top 10 highest-value uses of time
Things that advance your overall purpose in life
Things you have always wanted to do
Things already in the 20/80 relationship of time to results
Innovative ways of doing things that promise to slash the time required and/or multiply the quality of results
Things other people tell you can’t be done
Things other people have done successfully in a different arena
Things that use your own creativity
Things that you can get other people to do for you with relatively little effort on your part
Anything with high-quality collaborators who have already transcended the 80/20 rule of time, who use time eccentrically and effectively
Things for which it is now or never
When thinking about any potential use of time, ask two questions: • Is it unconventional? • Does it promise to multiply effectiveness? It is unlikely to be a good use of time unless the answer to both questions is yes.
It is important to focus on what you find easy. This is where most motivational writers go wrong. They assume you should try things that are difficult for you;
The 80/20 Principle is clear. Pursue those few things where you are amazingly better than others and that you enjoy most.
10 golden rules for career success
Specialize in a very small niche; develop a core skill
Choose a niche that you enjoy, where you can excel and stand a chance of becoming an acknowledged leader
Realize that knowledge is power
Identify your market and your core customers and serve them best
Identify where 20 percent of effort gives 80 percent of returns
Learn from the best
Become self-employed early in your career
Employ as many net value creators as possible
Use outside contractors for everything but your core skill
Exploit capital leverage
Obtain the four forms of labor leverage. First, leverage your own time. Second, capture 100 percent of its value by becoming self-employed. Third, employ as many net value creators as possible. Fourth, contract out everything that you and your colleagues are not several times better at doing.
Koch’s 10 commandments of investment
Make your investment philosophy reflect your personality
Be proactive and unbalanced
Invest mainly in the stock market
Invest for the long term
Invest most when the market is low
If you can’t beat the market, track it
Build your investments on your expertise
Consider the merits of emerging markets
Cull your loss makers
Run your gains
No doubt you have your own pressure points. Write them down: now! Consciously engineer your life to avoid them; write down how: now! Check each month how far you are succeeding. Congratulate yourself on each small avoidance victory.
I think I know the explanation, and it also explains why 80/20 is becoming even more prevalent, affecting our lives in mysterious and perplexing ways. The answer is in the burgeoning power of networks. The number and influence of networks has been growing for a long time, at first a slow increase over the past few centuries, but since about 1970 the increase has become faster and more dramatic. Networks also behave in an 80/20 way—in the way characteristic of 80/20 distributions. And often in an extremely lopsided way. So the principle is becoming more pervasive because the same is true of networks. More networks, more 80/20 phenomena.
In keeping with the selective nature of the principle, this short chapter gives you the five most potent hints that I have discovered in four decades of searching.
Only work in networks
Small size, very high growth
ONly work for an 80/20 boss – someone who consciously or unconsciously follows the principle
Find your 80/20 idea
Become joyfully, usefully unique
Those who have embraced the principle find that the line between work and non-work becomes increasingly blurred. In this sense, the yin and yang of life are re-established. Although there are two apparently opposite dimensions to the 80/20 Principle—efficiency and life enhancement—the dimensions are entirely complementary and interwoven. The efficiency dimension allows us room for the life-enhancing dimension. The common thread is knowing what gives us the results we want, and knowing what matters.
What I got out of it
Nothing “new”, but incredible reminders and thoughtful ways to implement 80/20 thinking into your life. Be ruthless about finding what these things are and double down on them
Diving into the rise of the epic tech companies of the 21st century – Uber and AirBnb
Travis’ Law – politicians who are accountable to their people can be influenced if the product or service being delivered is markedly better than the status quo
The best but hardest solution is to meet the people who hate you – Brian Chesky
Amazing how often a company has to recreate itself as it scales. The right approach, leadership, philosophy, strategy, mindset that gets you from 0 to 1, often isn’t the mindset that lets you create a large and enduring company
What I got out of it
An inspiring overview of the founding and growth of two epic companies. Makes you want to go out and build something world changing. Didn’t take a lot of notes, but the stories behind these two companies is so amazing to learn about
Singer describes his deep dive into meditation and what he calls his surrender experiment – letting go of everything he can, letting the flow of life take him where it wants
A constant practice of surrendering and non resistance. You do not control anything and are responsible for nothing. Do not give your mind the illusion of control, eliminate your personal preferences wherever you can.
Aiming to control everything creates a feeling of stress and pain. But you are not powerless – you have a personal will. Trust the natural process of life and that good things will naturally happen. It takes care of the entirety of the universe.
Use your free will to participate this flow of life rather than struggling against it. The question is: am I better off struggling to try to force what I want or am I better off surrendering and letting go of what I want, working with the natural forces of reality? This is the surrender experiment
By aligning your will with the natural forces around you, powerful things can happen
The ability to separate yourself from your thoughts and emotions is a superpower. Becoming aware of all this noise is the first step in this journey
Mickey had a moving experience while meditating that shifted his priority to never disturbing his inner peace. He had to learn to live and function in the real world while keeping his inner peace intact
Life has more to give us than we could ever take for ourselves
Surrendering does not give you clarity into where your life is headed, but it does clarify your preferences – your likes and dislikes – and giving those up on the whole provides a tremendous amount of freedom and opportunity. This allows your journey to be guided by the very powerful force of life rather than your preferences. It can all unfold by itself without your hand forcing it
Feel compassion for the human part of you, including all their faults and weaknesses
Mickey had a very monastic lifestyle where he woke up at 3, meditates for hours, did yoga, mediated some more. He eventually found that life was moving him from a life focused on self to one focused on serving others
Mickey and the rest of the senior team at Medical Manager were being sued by a disgruntled employee who had stolen nearly $6m and then blamed the senior team for making him do it. It took 5 years, but he was eventually found not guilty. By letting go at each step along the way, no scars were left on his psyche. He could learn from them, but like writing on water, the impressions would only last momentarily
When life’s way becomes your way, all noise stops and peace ensues
What I got out of it
A beautiful, grounding book on the power of surrender. Let go, don’t make things about you and your preferences, serve others, trust the natural forces of life
Jim Haslam, founder of one of the largest gas and convenience store chains, recounts the founding of Pilot and the principles of success that got him there
Never about me. If it were, I would be the ceiling. I always looked to share power and responsibility as early as possible. Gave away incredible responsibility to his kids while they were only in their 20s and 30s
We were lucky to be getting into travel centers and convenience/gas stores just as demand for travel was picking up thanks to the newly built Interstate Highway System
Marathon invested in us early on. This was a fantastic win/win as it helped them expand and it gave us the capital to grow our stores as well
You better know the numbers of your business
If you get relationships right, most everything takes care of itself
If there is a problem in your vicinity, take responsibility
Be an optimist with every fiber of your being. He thought of himself as “encourager in chief”
Life is better when it is lived for others
Some things are better caught than taught
Everyone in the family has a unique and special relationship with Jim
He writes handwritten letters to each of his family members 3 to 5 times a year telling them how proud he is of them and how much he loves them
Although he accomplished so much he was really easy-going and great with people, putting them at ease and easily building a connection with everyone he met
The book ends with each of his kids describing their father. He never missed any of their events although he was traveling like crazy. He was “all in” on their lives and this made all the difference
What I got out of it
Love seeing the humility and simple principles that helped Haslam achieve phenomenal success. Serve others and be others-focused, the importance of timing and relationships, keeping the most important things the most important things.
An innovation stack is a series of interconnected skills, competencies, products, services, that allow you to solve a problem in a way nobody else has and few others can.
An innovation stack is at the core of the most successful companies of history. They solve problems that nobody has been able to solve before. It forces you to be creative even if you don’t want to be
Words matter and in this case the author considers an entrepreneur somebody who is a crazy explorer. The perfect problem for the entrepreneur is one that can be solved but whose solution is not yet known
It is difficult to get feedback so try to parse through where there could be feedback failure and what that means for your product or service.
Making things a little bit difficult so the user really has to pay attention and struggle a little bit really helps damn remember and process what they’ve learned ( ikea effect)
There is a subtle yet profound difference between having low prices and the lowest prices. Low means always giving value to the consumer whereas the west is always relative where are you always have to keep an eye out on the competition and what they’re doing. Your prices should arise out of your innovation stack. You should seek low prices in order to build customer trust, corporate alignment, and competitive advantage. Every company the author studied sought out low prices
Disruption is an overused word today. The author found that the vast majority of successful companies brought new people into the market rather than simply stealing from the incumbents. The focus should be on building and not destroying. Copy when you can, but come up with new solutions when needed
VC’s fund expansion, not exploration
If you’re going to do something brand new, you will be afraid. You can’t get rid of this, but you can learn to effectively deal with it. There is no expertise for those who are truly innovative but these people share stubbornness and perseverance. They care deeply about the perfect problem they are solving for. When you solve a problem you care about, it brings you energy
Business people survive by copying what already exists and do so successfully. We survive because we can replicate. This is natures solution to entropy
Timing is everything m. Right feels early. It a critical component of your innovation stack doesn’t exist yet, work on other things until that step becomes feasible
The world is a series of interdependent innovation stacks. When something new is presented, a whole new world of possibilities is unlocked
You need to have every element in the stack for it to truly work. You can’t pick and choose and this is why copying a truly innovative company is quite hard l. Each element impacts every other element,/8 this quickly becomes an exercise in mathematics where the likelihood of copying 10 things correctly is really low
History is the best place to learn about innovation stocks. These are the truly world changing companies
Stay laser focused on your key customers and the innovation stack that serves them. This is much better than focusing on what the competition is doing
Getting statistics on a market that doesn’t exist yet is difficult if not impossible. Remembered that invisible does not mean not interested
Customers who trust you is more valuable than customers who love you.
There are no answers for the new. We all start at square zero when trying to solve something that hasn’t been done before
What I got out of it
Very helpful book to help frame different types of businesses, questions, answers, innovations. Creating interdependent, interlocking innovations makes you nearly impossible to compete with, especially when you are solving a problem that hasn’t been solved before
The “purple cow” concept is at the core of JB Hunt’s culture and way of thinking. Essential products and services that can’t be copied, unique,, doing things differently, earning above the cost of capital, an intense focus on solving the customer’s problems , embrace the more difficult business, do stuff that other people have trouble doing, be adaptable
Beware overcrowded spaces – have an intense desire to offer specialized and unique services that allow you to do what others wouldn’t or couldn’t
Differentiation, better customer service, a refusal to stand still, natural expansion with homegrown talent
Boring things – even if excellent – quickly become invisible
JB Hunt’s founder was impatient, wanted to maintain frantic growth at all costs, an idea man, was all over, didn’t want to let go
You learn a whole lot more from the struggles in the valley than you do on the mountaintop
Never feed problems while starving opportunities
Decision theory makes it clear that for a given set of costs and benefits, selecting alternatives with lower down-side risk, other things being equal, increases the expected payoff
We’ve never been concerned about cannibalizing one part of a company to offer a better solution to the customer. If there’s a better solution for the customer, we need to offer it. most companies won’t do that. We are not in business to support our trucking company. We are in business to support our customers with the best answer possible in that market
Must constantly adapt and iterate so that you never become stale and optimized for an environment that no longer exists. How you perceive a business segment can affect how you change the curve of the product life cycle
The customer is most certainly not always right. They are always to be respected, listened to, and served, but only when a return is generated
3 criteria needed to develop core competencies: provides potential access to a wide variety of markets; that it makes a significant contribution to the perceive customer benefits of the end product; and that it is difficult to imitate by competitors
Selling JBHT rather than just one segment results in more satisfied and loyal customers. Our bonus structure rewards leaders based on the company’s overall performance. When the company performs well as a whole, everyone reaps the rewards. Ironically, one of the things the original DCS leaders rebelled against was that bonus structure. There are legitimate arguments to do it other ways, but we find our approach fosters a one-for-all-and-all-for-one mentality. We incentivize the company’s success, not just the success of any one part of it. Sharing the wealth with those who helped create it has worked for JBHT for nearly 40 year.
We measure the quality of a team’s results against its peer groups, not against other JBHT units, so we put the emphasis on being “best in class” not “best within JBHT.” We’ve found this helps eliminate the popularity contests, lead to better decisions, and allows us to celebrate contributions that otherwise might get overlooked
Growth is key, growth is oxygen
A good message is clear, actionable, consistent. Give the what/why, not the how
What’s unique is that variables like time, growth and the influx of new people haven’t caused an erosion of our culture. Instead, they have added to it and strengthened it. We’ve been open to change, while staying true to our core; flexible enough to stretch with new ideas, but solid enough to maintain our identity. I credit this to the dynamic interplay between our culture and our leadership and management.
Intermodal – more than one mode of transportation to reach the final destination (ship to train to truck…)
Trucks first complemented and then competed with the railways
“partner with the enemy” became the right choice for railways and trucks as it gave the customer more options, increased efficiencies, grew the pie (win/win/win)
Developing Intermodal opened up new business lines that are now multi-billion dollar segments
Grassroots and top-down – go to local colleges and universities to recruit good students and home grow them. From the top-down, Hr goes to the company’s leaders and asks them for the names of 2-3 people they have in mind as their successor. Having a good understanding of the existing talent pool also allows us to know when we need to look outside the company, as was the case when we shifted our approach toward technology and engineering. Growing organically is really healthy and really great for your culture, but you do have to inject outside thinking strategically and purosefully from time to time.
What I got out of it
A great look inside the culture of a compounder who has grown steadily for decades now