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Here’s the program.
Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of mixergy.com, home of the ambitious upstart. How do you identify demand and build products to meet that demand? That’s what I invited Rick Kash to talk about. He is the founder and CEO of the Cambridge Group, a growth strategy consulting firm. And he’s the co-author of this book, there it is, make sure it’s on camera, “How Companies Win,” which shows how to profit from demand driven business models. Rick, welcome to Mixergy. It’s good to see you.
Rick: Hi, Andrew. Thanks for inviting me.
Andrew: So you had an example in the book here of a pet food company that segmented its market in a new way and by doing that identified new opportunities for products that they wouldn’t have come up with the old way. Can you describe what the old way of understanding their market would’ve been and then how the new landscape is?
Rick: I’m going to do that instantly. However, I just want to comment on your word about, your use of the word opportunity because the way my co-author, Dave Calhoun, and I think about the book is it’s plain and simply a book about opportunity. So the opportunity that giving the dog food company a completely different view than its competitors, what that provided was that they knew where the profitable demand was. So what they had been doing, like all of their competitors, was segmenting the market on some very logical bases. One, what kind of dog did you have? Small, medium or large? Second, what kind of dog food did you buy? Wet, dry, or a combination of the two? And in a world where there’s so much competition, it’s absolutely critical to understand how a market segments amongst its customers so you know which customers provide you the most profit.
So what we did was to do a bit of work and found out that the real way in which market segment, what segment means is that there’s a group of people in that segment who act similarly and have similar demands. And what we found was that the market segmented on demand. And the real demand in the dog food business is the relationship you want with your dog. If you’d like I’ll explain the segments to you.
Andrew: Absolutely. And by the way, I thought that I saw myself within that old framework. I have a small dog. I need dry dog food because I don’t want to keep track of wet dog food in the fridge or an unopened can, and I thought that’s the way the market was. And then I saw the new way that you described the demand landscape, and I saw myself in a different way. And I’m sure that they saw their customers in a similar different way. So what are the different categories that they discovered?
Rick: Five to six different categories, and what I’d urge your listeners and viewers is to think about themselves as dog owners or people they know. So the first and most profitable for our client was somebody called the loving indulger. They think about the dog as their child. They anthropomorphize the dog, make it human. They call it their child. They carry pictures, and they’re completely price indifferent. Why? Because their demand is to make the dog love them. Then you’ve got three different kinds of family dogs. There’s dog as family member. There’s dog as family pet. And then there’s dog as family furniture. I don’t know, there’s one of those sitting over in the corner, we feed it once a day and everything seems to be okay.
But then there’s this other group where there are multiple dogs and these are called tolerating functionalists. These are people who live on farms or ranches. They have four, five, six, eight, ten dogs and they think of the dog as a farm implement or a tool. And they feed the dog something that’s just a half a phylum above sawdust. So depending on what you make as a manufacturer and how you advertise the product, you’re going to satisfy the demand of one of those five segments or what we call demand profit pools.
Andrew: Okay. So if I were sitting on the sidelines watching the industry as it used to see itself with the old categories of wet, dry, small, big dog, and I said I want to get in there, I want to disrupt and I want a piece of that market, I might do what you just did, which is divide up the market in a new way and then I would identify certain people, like the pampering parents, the concerned caregivers, the performance fuelers and so on. How do I know which one to jump on and make my first target customer so that I can build enough profit and enough of a foothold in the marketplace to then maybe go after the others?
Rick: Perfect question. The critical word is alignment. So if you imagine that the top of the page are the segments, at the bottom of the page is the supply that you manufacture, the channels that you sell in, and you align your supply so that it can capture the most profitable demand available to you. So for that loving indulger who wants a dog to love them, they want something that’s as close to human meat and food as possible. If I’m a dry dog food manufacturer, I’m going to go after the tolerating functionalist because they buy 50 pound bags and they buy an enormous amount of it.
So the critical term and the critical method is to first understand demand and then align the supply that enables your company the most profit.
Andrew: I see. Okay. I could see how this would be useful if I wanted to say disrupt the technology industry. If I wanted to jump into e-mail today, I wouldn’t try to create another Gmail or another Yahoo, I would say let’s segment the market. Who’s in this market? There are some people who, it looks like everyone’s e-mailing the same way, but there are some people who see their inbox as their dashboard to the world. They want everything in there. There are other people who see it as a big pain in the butt that they have to deal with as little as possible. So who do I want to go after? Well, maybe it’s the dashboard people, how do I give them more functions in their e-mail? If it’s the pain people, how do I reduce their workload and reduce the amount of e-mail they get. And then I find the target, I find the group that I want to go after and I build a product for them.
My question then is, now that I know how to use this, how do I create these groups? How do I study and analyze a market to understand who’s in it in this new way? How do I come up with the framework?
Rick: So if you know what the framework is, what the different segments or demand profit pools are, there are usually six to seven questions you can ask that will help you determine with close to 100% accuracy which of the segments they go to. So if you’re a small business owner and you’ve put together this framework, Andrew, you go to your customers and you ask them these six or seven questions.
Let me give you an example. In a small company where they were making loans to small businesses, they were calling on people and they were saying our interest rates are lower, our people are friendlier. But when they walked into the small business and asked a few questions, what they found was some small businesses wanted to remain small, some small business wanted to get to be medium, some had aspirations to be quite large, some were family businesses. And so by asking some very simple questions, your customer tells you what segment they’re in and then you know which product or offer to make to them.
Andrew: You brought up a good point in “How Companies Win.” You said, when you ask customers what they want, they act more rational than they really are. So they might say that they want a company that’s on their side when really what they have in, what the key aspect that they make their decision on is what’s cheaper or what’s more profitable and so on. How can you separate what they say they want from what they really want?
Rick: Well, if you just ask your customers, it’s way too late because they’re telling your competitors the same thing they’re telling you. So what you want to do is ask questions indirectly. So by that what I mean is when we figured out what the demand for dog food was, we didn’t ask them questions about dog food. We asked them questions about their relationship with their dog. We asked them, how do you think about your dog? We asked, where do you keep the dog at night? We asked, how often do you take it to the vet? So you have all of those questions that are indirect and ultimately they either say well you know what I really want is to make my dog love me. Or you look at all of the answers, and you say my goodness, there’s a pattern here. These people are answering the question this way and those people are answering the question that way. So it’s really creating a set of hypotheses and then going to your customers and asking them. You must begin with several different hypotheses and then enable your customers to tell you which one will satisfy their demand.
Andrew: Have you ever had a hypothesis that wasn’t wrong but was just off base, the categories you had just weren’t the right categories? And how did your customers tell you what the correct categories were?
Rick: Let me take a case from the book.
Rick: Best Buy formerly had organized their customers, they called them Barry, they called them Minerva, they called them people’s names. And they were organized by demography — how old they were, where they lived– and they put that into play for two years. The problem was the demography didn’t explain the difference in how you would shop for and what electronics you would buy. So then what Best Buy did was go on to find out what is the difference between people who want electronics? For some, it’s the center of their life. They love shopping for electronics. They love to be in stores. For others, it’s simply a means to an end. They buy it and put it up on their wall. So the idea was that understanding the demand as opposed to the demography or the behavior. Demography’s interesting. Behavior looks through the rearview mirror. If you want to segment a market, you have to understand the rearview mirror but be able to clearly see the road ahead. And that’s what demand gives you, because it enables you to see three flavors of demand — current, latent and emerging. And Best Buy now understands latent demand, and they’re satisfying it as opposed to the other perfectly logical system that was interesting but not very impactful.
Andrew: I see. Now before I get into current, latent, and emerging demand types, what I’m wondering is if you have one framework and you’re going in one direction, how do you understand that you need to shift to the other? How do you make that shift? For example, I could see Best Buy maybe sitting around and saying we just didn’t break down the categories properly. We shouldn’t have looked at people in their 20s as one category. We should’ve said 20 to 24 is one category and so on and that was our mistake. How do you take them from one direction to the other?
Rick: There’s two, there’s two ways that your viewers and listeners should think about it. If they created a framework, number one, does it work? Is the use of this framework improving your business? And you can see by virtue of how they interact with your viewer’s products whether or not that’s accurate. The second one, which is equally important, is do you have the same framework as all of your competitors? Because if all competitors have the same framework, they all do the same things, you get parody, you have to discount, and it’s not very successful. So the two characteristics are, one, is my framework different than my competitors? Does that framework begin to explain my business and therefore it improves my business?
Andrew: Okay. So going back to the point that you brought up earlier, three types of demand, what are they and do you have an example of each of those three?
Rick: Sure. Current demand is what everyone’s doing today. It’s the way everyone competes. Latent demand is the demand that customers or consumers have but have not yet expressed. And the businesses that break through, the businesses that become very large are the ones who understand the latent demand and then begin to satisfy it. Let me give you an example.
Anheuser-Busch had a 50% share of market. Very few businesses get to be above 50%. Now for just in case anyone in your audience happens to occasionally drink beer, you know that beer is mostly about bitterness and hoppiness. But it turned out that when one of our people looked outside the beer category and into the right next-door alcoholic beverage category, the fastest growing products were sweet. They were flavored vodkas. So you create a hypothesis that is well, beer is alcoholic, vodka’s alcoholic. I wonder if there’s a place for a sweeter beer in the category. Turns out that 29% of the people who drink beer want some portion of their beer to be sweeter. Anheuser-Busch introduces Bud Light Lime. It becomes the fastest growing beer in 30 years. Nobody ever walked into a beer manufacturer or into a focus group and said, “Hey, how about a sweeter beer?” But because they were broadly based in Anheuser-Busch and were looking for what they couldn’t have consumers say to them, they found sweeter beer.
Now, emerging demand is the demand that is just beginning to grow, and you want to pay attention to it. I’ll give you an example of emerging demand. Why is it that Google beat Microsoft to the Internet? And how is it that Facebook beat Google to social media? And how in the world did Twitter beat Facebook to instant messaging? Because while each of those great, rich companies was focused on current demand, right next door was latent demand, which two guys in a garage went out and captured. So the thing for all of us as entrepreneurs, and I am an entrepreneur, I’ve started lots of businesses, we have to be ambidextrous. Ambidextrous is usually is left hand and right hand. For a businessperson, ambidextrous is you have to be able to work with current demand but also keep your eye on latent and emerging demand.
Andrew: Okay. Let me dig in deeper to that. First let’s talk a little bit more about latent demand because that seems like it’s a huge windfall today. With emerging demand, you have to wait for it to emerge. With current demand, there are a lot of other people who are chomping at the bit and a lot of other people who are actually on that demand. Latent is interesting. How do you test and make sure that the latent demand that you imagine is there is actually there? For example, as you said, if you were to talk to consumers and say do you want sweeter beer, most of them would say are you kidding me? Beer is not supposed to be sweet. You’re going in the wrong direction. How do you know that you aren’t, that you’ve found something?
Rick: One of the biggest mistakes that all of us as entrepreneurs make is we get a great idea or what we think is a great idea, we invest our money, and we see if it works in the market. There is a step in between, which is you always want to take what you think is a good idea and test it with the people whom you think have the demand that your idea will satisfy. And all the time we see small businesses and entrepreneurs saying what a great idea. They ask their friends, neighbors, relatives, none of whom happen to use the kinds of products that the entrepreneur makes or manufactures or the services. They say, “That’s a great idea, Andrew.” You must first have the hypothesis about latent demand or an idea, then you go ask 10, 20, 30, 40, 50, 80, 100 people. They will not only tell you at the first level good or bad. More often than not, they’ll improve it. So before Anheuser-Busch brought out Bud Light Lime, they not only first tested the idea. And people said wow, I’d love to have a sweeter beer in the summertime. But then they went to those 29% of the people who said I’d like a sweeter beer and they tested it with them. And those people said take down the carbonation a little bit, put it in a little different can, take up the lime flavor a little bit. So the three steps are: one, imagine, create, develop a hypothesis; two is test it; and three is sit back and reap the benefits and spend the profits.
Andrew: Did Miller go after that market first, after the same product?
Rick: They . . .
Andrew: Why didn’t they do as well?
Rick: Well, they went after, they had an idea and they focused on the supply. Anheuser-Busch at about the same time had an understanding of demand. And if you compare the two products the Miller product — Miller’s a very good company — the Miller product was too salty. It was kind of bitter, not very sweet. It stayed too long on the tongue. The Anheuser-Busch people who tested it with three or four hundred people whose demand they were trying to satisfy got it right in the center of the bull’s eye.
So even though two businesses can have the same idea simultaneously, the one who gets the target, whose demand they’re trying to satisfy, to kind of tell you yes or no or fix it around the edges, they’re going to win 100% of the time.
Andrew: I want to understand that more, because that’s one of the big points, if not the big point to the book. I understand the distinction I mean between supply and demand, focusing on what you can supply in the supply chain and focusing on what your customers demand in the demand chain. We understand now the demand because we spend so much time on it. What’s the wrong way to look at things? How does somebody who’s focusing on supply think? How does a company think with that mindset?
Rick: So when I first started the Cambridge Group, the strategy consulting company, the idea was one must look at their business through the eyes of their customer, not look at the customer through the eyes of their business. So if you look at the customer through the eyes of your business, you say, “This is the business I’m in. How do I sell you more of what I make?” If you see the view of your business through the eyes of your customer, you are in fact demand focused and you’re understanding what they demand, what they want, what they need, what will give them product and emotional satisfaction and you just go out and deliver it. It’s that simple. It is a fundamental difference of how you manage your business. Is it this is what I make, how can I sell you more? Or what is it you want more of? Then I can go make that in order to satisfy your demand. It’s that simple.
Andrew: Why is it so hard, if it is that simple, for companies to accept that?
Rick: Because supply is physical. You can touch it, it’s tactile. And it’s also true that for the last 30 years we’ve all been focused on supply chain. We’ve all been focused on I can make that cheaper over in Wisconsin. Or I can get that made cheaper in China. Now we’re in a very different business environment. Businesses work best when supply is short and demand is long. We’re in exactly the opposite economy. We will, for the next several years, be in an economy where there’s tremendous oversupply and because of the nature of the economy we’ll have flat to contracting demand.
So in the past 30 years we flexed our supply muscle. Now, when demand is the most precious commodity, we have to strengthen, build, and use our demand muscle. So the difference is when there was plenty of demand to go around because we could get mortgage loans or we could load up our credit cards, we focused on supply because there was plentiful levels of demand. Now when demand is very much short and supply is very long, the nature of what the businessperson ought to do is I better understand it’s the primacy of demand.
Andrew: So to put a face on that. One of the heroes of the old way of doing things was Michael Dell who found a way to just reduce the cost of computers so that he could supply more and get them out there. One of the heroes of the new way of doing things is Steve Jobs who says what is it that customers really want? What are they doing with their phones and computers? How do we find a way to get that to them?
Rick: That’s a perfect example. I set in at a meeting at Dell. It’s not in the book so you wouldn’t know this. I set in at a meeting in Dell ten years ago, and they were getting only 16% of the follow-on peripheral. So if someone ordered a Dell, 84% of the add-ons or the apps were bought somewhere else. And we sat in a meeting and said there’s a huge market for you to satisfy that demand. And what they said to us was no, no we have a supply chain and if we interrupt that, we will lose our advantage. And my partner, Jason Green and I said, “If you don’t interrupt that, you will really lose your advantage, because no company in the history of business has ever continuously won only on supply.” And Dell is now coming back, but your examples are perfect example.
Andrew: Thanks. All right. So now that we understand latent, what about emerging? That seems a lot harder to capture. How do you do it? What advice do you have?
Rick: Emerging demand is a question of observation, it’s a question of reading, it’s a question of looking for trends. And I’ll give you an example. I’ll give you two. Our book was the cover story in this month’s issue of Inc. magazine. The cover story is the demand economy. And they asked us to provide for them a couple of ideas of where there might be emerging demand. And what we said was that in the face of this healthcare bill that will surely pass, it has passed and will remain in some form, there are going to be 40 million people coming into healthcare. It will overload the hospitals. But if you’re what’s called a nurse practitioner and there are tens of thousands of them, we think that emerging demand will be satisfied by nurse practitioners opening storefronts in neighborhoods. They’re able to prescribe medications, they’re able to do analysis. And there is an emerging demand for what used to be the old house call doctor who came to your house or was conveniently in your neighborhood. That’s an example of emerging demand.
Andrew: You know I love how your book and the Inc. article are full of case studies and examples. How do you do your research? How do you put so many case studies, how do you put them together?
Rick: Well, you start by understanding that if you are only focusing on customer need, you’re way too late because your customers are telling your competitors the same thing. So you begin by saying how might I do this differently? And it doesn’t matter whether we do it for a giant automotive company or we do it for a small entrepreneur, the process is still the same. You begin by first doing what you said at the beginning, putting together a framework and say this is how my market works. And if you’re in the cleaning business, for example, you say, “Well gee, look at this. There are people who want same day service. There are people who want storage of winter goods. There are people who want a drive-through. There are people who want alterations.” So you create a framework. You then understand which supply do I have that will best satisfy that demand, and then on a constant basis you are interrogating your customers and looking all around you for ideas like Anheuser-Busch did. They didn’t say, “How do I make beer better?” They looked to see in another category how they made it better and said, “Gee, I wonder if this would work in beer.”
The whole industry of healthy dog food, you know how that started?
Rick: I’m about to tell you. They looked at these two targets called the loving indulger, who thought of the dog as a child, and those people who thought of dog as family member and 20 years ago there was enormous growth in humans wanting to eat healthier. And so this dog food company said, “Gee, if those people want to eat healthier, maybe they want their dogs to eat healthier.” It was just that simple.
Andrew: Now . . .
Rick: So the answers are always there. You just have to find them.
Andrew: I see. In an emerging demand, you would say people are eating healthier. They might soon want to get their dogs to eat healthier. How do you test that hypothesis? How do you test that hypothesis?
Rick: Well, you first begin by testing with the people who you think might want their dogs to eat healthier. And then, this is really important, you don’t then just ask them would you buy healthier dog food and everyone raises their hand and says yes. To test a new product idea, you have to first say, “Would you like this?” “Oh yes, I’d really like it.” “What would you be willing to give up?” “Well, wait a second. My dog really likes the current dog food. I guess I really wouldn’t buy it.” So you not only have to say would you like this, you have to test it even deeper and say, “Okay, you like the idea. Would you be willing to switch what you’re currently doing to what I’m suggesting you might be doing?” And if people tell you absolutely, positively I would switch, you would do it.
Now if you’re a smaller business, you simply ask enough of your customers. If you’re a little larger business, you can do something that’s called quantitative research. It can be done for five, six, seven thousand dollars. And for most companies, that’s a small price to pay to have an absolute certainty before you commit to chasing that emerging demand.
Andrew: How is that done?
Rick: Well, you can look in the Yellow Pages under research. You go in and you talk to somebody, and there are things called Omnibus studies. And they are sending out questions all the time. They send it out to lots of people, and they send it out for maybe five or six or eight companies at a time. You can put six or eight questions on one of their Omnibus studies, and you say only people who drink beer or only people who buy dog food or only people who wear blue jeans or only people who eat healthier food. And only those people answer those questions. Then with some very, very simple statistical applications that the research company will do, you have your answer.
Andrew: So simple survey gets you that much certainty?
Rick: Absolutely. And simple survey can be done by asking 100 of your customers. If you ask the right question, if you don’t lead them, and you get a majority of them say yes, you’ve got a pretty good bet.
Andrew: Is demand really just another way of saying customer needs?
Rick: If your listeners and viewers take away nothing else this is the thing to take away. Customer needs are about current demand. That’s what everybody knows. Demand, as we said before, is about current, latent, and emerging demand. So if you ask your customers, you’re already too late. But then you want to divide demand as you’ve been asking me about current, latent, and emerging. And it’s also true that customer needs are usually about products. Demand is about the product and the emotional benefit you get from using or purchasing that product. And lastly, demand has economics attached to it. It’s from Adam Smith’s Law of Supply and Demand. So it comes in different flavors, it changes your view versus your competitor, and it comes with economics. So you test do I have the supply that will enable profitability if I pursue that demand?
Andrew: We talked before this interview about how you said now’s a great time for newer, scrappier companies to outperform their competition. Why is now such a good time, and do you have some examples of companies that have done it in the past in situations like this?
Rick: Now is such a good time for a couple of reasons. Number one, in times of recession, most companies pull back so that the young scrappy company with a good idea can stand out more. Number two, I’m going to give you a list of companies who came out of prior recessions. So we’ve had three recessions. Let’s talk about ’90/’91, 2000 and 2001, they always seem to come at the end and the very beginning of a decade, and right now. So if you think back 20 years ago to the recession of ’90/’91, here’s the companies who emerged — Best Buy, Starbucks, The Gap, Nike, and Home Depot. I wish we could go back 20 years and you and I could be partners in one of those.
In the recession of ten years ago, it was Under Armour, oh my goodness, Amazon, and Vitamin Water that Coca-Cola bought for $4.1 billion. And what’s come out of this recession so far? Groupon, which is going to be maybe the second most successful social media company, Green Mountain Coffee, which has gone from $150 million to $1.5 billion in six years because they found latent demand for a better cup of coffee at home, Zipcar, which has just gone public, and Pandora and one of my former partners, Mark Balance, who bought a little margarine company, put a chemical in it safe for the body which reduces cholesterol. A recession is a great time to find unsatisfied demand and you be the next Home Depot or you be the next Groupon or you be the next Pandora.
Andrew: I see that speaking of Pandora. I could see how in a better economy satellite radio would’ve been stronger to take them on. They’re doing what satellite radio geared up to do. In a better economy, terrestrial radio stations would’ve been able to take them on with new technology. But they were also hurting because their revenues were going down. I could see how in that one example there’s an opportunity to jump on. So, sorry go ahead you were going to say something.
Rick: I was just going to say also that there’s a chapter in our book, which is, you were kind enough to hold up, “How Companies Win,” and you may be getting to this. It’s a lot of people who studied marketing know that the four P’s for marketing for the last 50 years, the four P’s are price, product, place, and promotion. Well, one of our chapters says the fifth P is precision, and what Pandora, which also happens to start with a P, really does is precision. It says if I tell you the music I most like, you’ll tell me precisely the other music I should go listen to. So precision is an extremely important part of business success these days. And the way we think about it, when the margin for error goes down, the need for precision goes up. So when I started businesses, I got as much information as I could so I could precisely go after the demand I thought I could satisfy.
Andrew: I see. I would tend to think of precision, before I read the book, as precision in manufacturing, making sure that the car comes out without any flaws in it, that the process of creating the car is smooth. You’re saying precision in demand. Can you tell me more about what precision in demand is and how to understand it?
Rick: Precision goes back to your first question about the framework. Precision says precisely what is their demand, not broad and sloppy, but precisely what is their demand. And how can I create my supply so I better satisfy that? Precision is currently still in manufacturing but there’s technology. Let me give you an example.
Today, the Nielsen Company and the CEO of Nielsen is my co-author, there are 500,000 stores in America today where you can buy beverages or food products. Nielsen has developed a technology where for every one of those 500,000 stores they can tell those retailers amongst all the products they could put in that store what are the right brands for that store, what is the right pack type. So if I’m Anheuser-Busch, should I put in 6-pack of bottles or a 36-pack of cans.
What promotional material should I put in that store? What’s the mix and assortment, and then what’s the price I can charge in that store.
So imagine, from a central place, Nielsen can now tell manufacturers precisely what to do in a store in Bangor, Maine or in San Diego, California or anywhere in between. So in the age of Google and GPS, precision is an expectation, not a want to have.
Andrew: I tend to think of that kind of precision as only being available online where we know where our user is coming from, what he did before, who his friends are. It’s interesting to see that it happens offline too. What are some methods that offline companies are using to get that kind of precision?
Rick: Well, one of the things they’re doing in retail for example is they’re looking at the kinds of people who live around a retail store. And it is absolutely true that in an inner city area, where there’s young professionals, busy lives, buy different products and have different shopping behaviors than people who are older and very different than people who live in suburbs who have families. So the precision is, what merchandise do I bring into that store in order to better satisfy the demand of the people who walk into that store?
Andrew: I see. Okay. What about this? We’re so obsessed with innovation right now. With innovators, they are now idealized with the products they create. I will sometimes, despite myself, waste 20 minutes, half an hour just looking at the latest products because they’re so amazing. How do you achieve that kind of innovation? How do companies compete and deliver that kind of innovation in a marketplace where people are demanding it?
Rick: Well, innovation is a very interesting word, and it’s frightening to about 90% of people because innovation says I’m a creative person. Only about 10% of the people define themselves as being creative. So we tend to go to our clients and say, “Look, innovation’s an interesting word. Let’s park it for a few minutes.” The real thing you’re saying is let’s find a better way. “Oh, is that what innovation is? Finding a better way.” And finding a better way is usually finding unsatisfied demand and fulfilling it. The reason that 80 to 90% of innovation attempts fail is because somebody thinks it’s an interesting idea, there just happens to be no profitable demand to absorb that idea.
It is a completely true statement to say that there has never been a successful innovation activity which didn’t align with unsatisfied profitable demand. So if that’s the case, why don’t I start with what is most necessary, which is finding the profitable unsatisfied demand and then developing a product to fulfill it? Now Proctor & Gamble invented the Swiffer. Now did it take a genius or an $80 billion company to know that people hate mopping their floors. It was actually developed by a tiny company in Cincinnati and it was sold to Proctor & Gamble. So if you look at things that people don’t like to do or would like to find a better way to do, start there and then see if you can imagine and create supply that better satisfies that demand. So innovation starts with supply. Find a better way starts with demand. It works 100% of the time.
Andrew: See, that’s very reassuring, because when I think of innovation, I think of go lock yourself in a room somewhere, be creative, throw pencils up at the ceiling, get them to stay like all the creative types do in the movies, and when you come out of the room, come out with some stroke of brilliance. You’re saying, no, talk to customers, be engaged, see what they’re looking for, what their problems are. And based on that research, the innovation will naturally come up.
Rick: And look at other categories around you. The first drive-through cleaner came about as the first drive-through restaurant. This is literally true. A person owned a cleaning shop and saw McDonald’s drive-throughs and said, “My goodness, would that work in cleaners?” So you shouldn’t try to do innovation just with yourself or your own employees. Look at what’s going on around you and say, “My goodness, would that same idea work in my business?” And the answer is, lots of times the answer’s yes. If not, keep looking at other different kinds of businesses.
Andrew: So I get inspired by success stories, and you’ve shared a bunch with us, including that one. But I also somehow, maybe this is just me, I get inspired by seeing people who don’t jump on opportunities, who miss out, by seeing companies that don’t get it. Do you have any examples of companies that don’t get it to inspire us that maybe we can jump in there and compete with them?
Rick: Well, one would surely be Dell, who is now trying to get it, but they’ve got a very long way to go. Another would be AT&T. They were very, very late in coming to mobile phones, and as a result they’re really trying to catch up. Another would be why isn’t Keds Nike? Keds kept trying to make the same shoe and said well, the same shoe for those of you old enough to remember Keds, they kept trying to make the same shoe and make it good for basketball, football, baseball. And Nike was saying, “No, wait, wait. We can introduce different kinds of shoes.” So there are lots of big companies that don’t get it. Zenith should be Sony. Sears should be Walmart. So there are lots of giant companies that don’t get it, and there are surely companies today that aren’t getting it.
Andrew: I would say too if Zenith should be Sony, Sony should be Apple.
Andrew: All right. Finally, you’ve given people a lot of ideas. What’s one thing that they could do right now in their companies to try to take advantage of the ideas that we’ve used today, that you’ve shared with them today?
Rick: Aside from spending $17 on Amazon on the book, I really believe it’s to stand back and honestly appraise whether they are a supply driven business or they understand demand and here’s the one question they can ask. Sit down in a room and see if you can write down an answer to this question. What do I know about the demand of my most profitable customers that my competitors don’t know? I’m going to repeat that. What do I know about the demand of my most profitable customers that my competitors don’t know? There’s two parts to that. One, figure out who is your most profitable customer, and two, figure out what their unsatisfied demand is. Those are simple, they are successful, and they are the absolute certain path to growth and success.
Andrew: That’s one of the sentences I highlighted in the book for myself here, I’m looking at my notes. You can get started in the right direction by identifying the top 10% heaviest spenders in your market and asking what do they have in common and you have a list of other questions that you can ask. Great place to leave it.
All right. So the book is “How Companies Win.” It’s available at Amazon apparently for less than what is this, $27 what it says on the book itself. But you’re saying the discount at Amazon, go get the discount people.
Rick: Once you get it on Amazon Hot Read List and we’ve got a Twitter and I answer all Twitters as does . . .
Andrew: You’re on Twitter, what’s your Twitter handle?
Rick: The Twitter is HowCompaniesWin.com.
Andrew: No, Twitter needs to be something different. What is a Twitter, we’ll find out?
Rick: I’ll get it to you. I walked in here without it, I’m sorry.
Andrew: Hang on here. Let me see. Let’s keep people waiting here while I look for your Twitter. Let’s find it. It won’t be long. And the website then is?
Rick: The website is HowCompaniesWin.com, and we’re on Facebook as well.
Andrew: What is this? I’m finding other people on Twitter here, some bad Googling. I’m going to do How Companies Win. Oh, there it is, How Companies Win. The Twitter is @howcompanieswin. So send Rick a tweet, follow him on Twitter, get the book, and come back to Mixergy, give me feedback. Thank you. Thanks Rick.
Rick: I’ve thoroughly enjoyed it, Andrew. Thanks for being so thoughtful about your questions.
Andrew: You too. And I’ve got to also thank you in addition to doing this interview, guys, Rick spent time with me doing a pre-interview and who was it at your office who helped me out to get the system put together.
Andrew: Angela. Yes, thank you Angela. Thank you, Rick. Thank you all for watching. Bye.
Rick: Thanks. Bye Andrew.
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