kottke.org posts about business
If you’ve bought a ticket to an event in the past, oh, 15-20 years, chances are you got it from Ticketmaster. Chances are also pretty good that you think Ticketmaster completely sucks, mostly because of the unavoidable and exorbitant convenience fee they charge. And that probably has you wondering: if everyone who uses the service hates Ticketmaster so much, how are they still in business? Because ticket buyers are not Ticketmaster’s customers. Artists and venues are Ticketmaster’s real customers and they provide plenty of value to them.
Ticketmaster sells more tickets than anybody else and they’re the biggest company in the ticket selling game. That gives them certain financial resources that smaller companies don’t have. TM has used this to their advantage by moving the industry toward very aggressive ticketing deals between ticketing companies and their venue clients. This comes in the form of giving more of the service charge per ticket back to the venue (rebates), and in cash to the venue in the form of a signing bonus or advance against future rebates. Venues are businesses too and, thus, they like “free” money in general (signing bonuses), as well as money now (advances) versus the same money later (rebates).
Read that whole Quora answer again…there’s nothing in there about TM being helpful for ticket buyers. It turns out asking “who’s the customer?” is a great way of thinking about when certain companies or industries do things that aren’t aligned with good customer service or user experience.1
Take Apple and Google for instance. Apple sells software and hardware directly to people; that’s where the majority of their revenue comes from. Apple’s customers are the people who use Apple products. Google gets most of their revenue from putting advertising into the products & services they provide. The people who use Google’s products and services are not Google’s customers, the advertisers are Google’s customers. Google does a better job than Ticketmaster at providing a good user experience, but the dissonance that results between who’s paying and who’s using gets the company in trouble sometimes. See also Facebook and Twitter, among many others.
Newspapers, magazines, and television networks have dealt with this same issue for decades now.2 They derive large portions of their revenue from advertisers and, in the case of the TV networks, from the cable companies who pay to carry their channels. That results in all sorts of user hostile behavior, from hiding a magazine’s table of contents in 20 pages of ads to shrieking online advertising to commercials that are louder than the shows to clunky product placement to trimming scenes from syndicated shows to cram in more commercials. From ABC to Vogue to the New York Times, you’re not the customer and it shows.
This might be off-topic (or else the best example of all), but “who’s the customer?” got me thinking about who the customers of large public corporations really are: shareholders and potential shareholders. The accepted wisdom of maximizing shareholder value has become an almost moral imperative for large corporations. The needs of their customers, employees, the environment, and the communities in which they’re located often take a backseat to keeping happy the big investment banks, mutual funds, and hedge funds who buy their stock. When providing good customer service and experience is viewed by companies as opposite to maximizing shareholder value, that’s a big problem for consumers.
Update: I somehow neglected to include the pithy business saying “if you’re not paying for the product, you are the product”, which originated in a slightly different phrasing on MetaFilter.
Update: One example of how maximizing shareholder value can work against good customer service comes from a paper by a trio of economists. In it, they argue that co-ownership of two or more airlines by the same investor results in higher prices.
In a new paper, Azar and co-authors Martin C. Schmalz and Isabel Tecu have uncovered a smoking gun. To test the hypothesis that institutional investors gain market power that results in higher prices, they examine airline routes. Although we think of airlines as independent companies, they are actually mostly owned by a small group of institutional investors. For example, United’s top five shareholders — all institutional investors — own 49.5 percent of the firm. Most of United’s largest shareholders also are the largest shareholders of Southwest, Delta, and other airlines. The authors show that airline prices are 3 percent to 11 percent higher than they would be if common ownership did not exist. That is money that goes from the pockets of consumers to the pockets of investors.
How exactly might this work? It may be that managers of institutional investors put pressure on the managers of the companies that they own, demanding that they don’t try to undercut the prices of their competitors. If a mutual fund owns shares of United and Delta, and United and Delta are the only competitors on certain routes, then the mutual fund benefits if United and Delta refrain from price competition. The managers of United and Delta have no reason to resist such demands, as they, too, as shareholders of their own companies, benefit from the higher profits from price-squeezed passengers. Indeed, it is possible that managers of corporations don’t need to be told explicitly to overcharge passengers because they already know that it’s in their bosses’ interest, and hence their own. Institutional investors can also get the outcomes they want by structuring the compensation of managers in subtle ways. For example, they can reward managers based on the stock price of their own firms — rather than benchmarking pay against how well they perform compared with industry rivals — which discourages managers from competing with the rivals.
Here’s a good explanation of what the One Ring from Lord of the Rings actually is and what it can do:
I transcribed a short passage from the video:
First, the ring tempts everyone (well, almost everyone) with promises that yes, this little ring can be a mighty weapon or a tool to reshape the world and gosh don’t you just look like the best guy to use it. Let’s go vanquish the powerful demigod who lives over there to get started, shall we? This is why the hobbits made great ring bearers, because they’re pretty happy with the way things are and don’t aspire to greatness. Of course, there’s Gollum, who started out as a hobbit, but all things considered, he held out pretty well for a couple hundred years. Set the ring on the desk of most men and they wouldn’t be able to finish their coffee before heading to Mordor to rule the world and do it right this time.
What’s interesting about hearing of The Ring in this focused way is how it becomes a part of Tolkien’s criticism of technology. The Ring does what every mighty bit of tech can do to its owner/user: makes them feel powerful and righteous. Look what we can do with this thing! So much! So much good! We are good therefore whatever we do with this will be good!
The contemporary idea of the tech startup is arguably the most seductive and powerful technology of the present moment, the One Ring of our times. It’s not difficult to modify a few words in the passage above to make it more current:
First, the startup tempts everyone (well, almost everyone) with promises that yes, this little company can be a mighty weapon or a tool to reshape the world and gosh don’t you just look like the best guy to use it. Let’s go disrupt the powerful middleman who lives over there to get started, shall we? This is why the nerds made great ring bearers, because they’re pretty happy with the way things are and don’t aspire to greatness. Of course, there’s Sergey and Larry, who started out as nerds, but all things considered, they held out pretty well for a decade. Set the ring on the desk of most men and they wouldn’t be able to finish their mail-order espresso before heading to Silicon Valley to rule the world and do it right this time.
Ok, haha, LOL, and all that, but it’s curious that nerds (and everyone else) shelled out billions of dollars to watch Peter Jackson’s LOTR movies in the early 2000s in the aftermath of the dot com bust. Those were dark times…the power of the startup had just been lost after Kozmo’s CEO Dave Isildur was slain by economists while delivering a single pint of Ben & Jerry’s Chubby Hubby to far reaches of the Outer Sunset and had not yet been rediscovered by Schachter, Butterfield, and Zuckerberg.
And these nerds, whose spines all tingled when Aragorn charged into the hordes of Mordor — for Frodo! — and whose eyes filled with tears when Frodo parted with Sam at the Grey Havens, came away from that movie experience siding with Boromir, Saruman, and Denethor, determined to seize that startup magic for themselves to disrupt all of the things, defeat the evil corporate middlemen, and reshape the world to be a better and more efficient place. And gosh don’t you just look like the best guy to use it?
Leo Gerard, president of the United Steelworkers International union, writes about a Institute for Policy Studies report called Fleecing Uncle Sam. One of the most eyebrow-raising details is this:
Of America’s 100 top-paid CEOs, 29 worked schemes that enabled them to collect more in compensation than their corporations paid in income taxes. The average pay for these 29: $32 million. For one year.
And from the report:
All seven of these firms were highly profitable, collectively reporting more than $74 billion in U.S. pre-tax profits. However, they received a combined total of $1.9 billion in refunds from the IRS, giving them an effective tax rate of negative 2.5 percent.
The seven CEOs leading these tax-dodging corporations were paid $17.3 million on average in 2013. Boeing and Ford Motors both paid their CEOs more than $23 million last year while receiving large tax refunds.
Are you ready for a new level of discomfort in air travel? A major US airline is considering a seating class called Economy Minus, which would offer smaller seats at a lower price.
Now a major airline may be considering another breakthrough idea: “Economy Minus,” a seat that offers less legroom at a discount price.
Before you scoff, consider that a new survey found that 42% of airline travelers said they would be very likely or somewhat likely to book a seat with less legroom if it means getting a cheap fare.
See also Why Airlines Want to Make You Suffer. (A: maximizing shareholder value)
My kids and I went to the new Lego Store in the Flatiron this weekend, and I again noticed how freaking expensive Lego sets are. The Death Star set is $400 + tax and even small sets are $30-40. Afterward I wondered if renting Lego sets would be an economically viable business and sure enough, someone is giving it a go: Pley. It works a bit like Netflix’s DVD service: you pay a flat subscription fee each month and can check out as many sets as you want, one at a time. Doesn’t look like they rent out Lego Stephen Hawking or Lego Mona Lisa though.
Last week, Emily Dreyfuss wrote a piece at about Why I’m Giving Wikipedia 6 Bucks a Month.
“Give me money, Emily,” Wales begged, “then go back to researching Beyonce lyrics.”
“Excuse me, Jimmy,” I wanted to say, “I don’t appreciate being watched as I read about how her song “Baby Boy” includes a lyrical interpolation of “No Fear” by O.G.C.”
Later, Wikipedia replaced Wales with other employees of the Wikimedia Foundation, which maintains Wikipedia with grants and donations. They moved me about as much as Wales did, which is to say not at all.
Today, while scanning my third Wikipedia article in as many hours, I saw the beggi…. er, note was back. It’s at the bottom now, without the pleading visage of a Wikipedian, and now includes an option to pay monthly.
I was annoyed, again. That’s the first instinct of anyone who spends time on the Internet and is constantly bombarded by pleas for money. But then I realized something: My annoyance was a symptom of my dependence on Wikipedia. I rely on it utterly. I take it completely for granted.
I found her argument persuasive, so much so that I just signed up to give Wikipedia a monthly amount as well. I consider it a subscription fee to an indispensable and irreplaceable resource I use dozens of times weekly while producing kottke.org. It’s a business expense, just like paying for server hosting, internet access, etc. — the decision to pay became a no-brainer for me when I thought of it that way.
Do other media companies subscribe to Wikipedia in the same fashion? How about it Gawker, NY Times, Vox, Wired, ESPN, WSJ, New York Magazine, Vice, Washington Post, The Atlantic, Buzzfeed, Huffington Post? Even $500/month is a drop in the bucket compared to your monthly animated GIF hosting bill and I know your writers use Wikipedia as much as I do. Come on, grab that company credit card and subscribe.
Casey Neistat visited several Apple Stores in NYC on the eve of the iPhone 6 launch to observe the folks standing in line. He found that many of those in line, particularly right in the front, were Chinese resellers.
The iPhone 6 won’t be available in China for several months, so a lively and lucrative black market has sprung up. The video shows several typical transactions: two phones (the maximum allowed per person) are purchased with cash and then the people sell those phones to men who presumably have them shipped to China for resale.
I remember last year, when the iPhone 5s came out, there was always a line of mostly Asian people outside the Soho store in the morning, even months after the launch. (via @fromedome)
Mojang’s popular game Minecraft has sold over 54 million copies. But that, and the $2.5 billion that Microsoft just paid to acquire the company, dramatically understates the impact that this game has had on [Dave Pell’s] third grader and his friends. They all wear Minecraft gear and watch Minecraft videos on YouTube. And several of them completed a week of Minecraft Camp over the summer. The way I see it, $2.5 billion just became the most anyone has ever spent on a babysitter.
The Verge: Why parents are raising their kids on Minecraft.
Markus Persson, the founder of Mojang (known as Notch), explains why he’s selling — and leaving — the company: “It’s not about the money. It’s about my sanity.”
Dang! It looks as though the Shake Shack is gonna IPO at a value of $1 billion. (BTW, $1 billion would buy you about 210 million ShackBurgers.)
At that level, Shake Shack would debut at 50 times projected earnings of about $20 million this year, the people said, asking not to be named because the details are private. The company has tapped JPMorgan Chase & Co. and Morgan Stanley to manage the share sale, said the people.
That valuation would put it in line with other dining chains that have tapped into investor appetite for new stocks in recent years. El Pollo Loco Holdings Inc. (LOCO), which raised $123 million in July, now trades at about 60 times projected 2014 earnings, while Potbelly (PBPB) Corp. trades at over 64 times estimated earnings, data compiled by Bloomberg show.
The Shack has about 50 locations worldwide. But their flagship Madison Square Park location will be closing for a few months soon for renovations…hopefully they’ll have it back open for the IPO.
Update: And the Shack filed for their IPO on Dec 29, 2014.
Shake Shack is a modern day “roadside” burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine. Founded by Danny Meyer’s Union Square Hospitality Group, LLC (“USHG”), Shake Shack was created leveraging USHG’s expertise in community building, hospitality, fine dining, restaurant operations and sourcing premium ingredients. Danny’s vision of Enlightened Hospitality guided the creation of the unique Shake Shack culture that, we believe, creates a differentiated experience for our guests across all demographics at each of the 63 Shacks around the world. As Shake Shack’s Board Chairman and USHG’s Chief Executive Officer, Danny has drawn from USHG’s experience creating and operating some of New York City’s most acclaimed and popular restaurants, including Union Square Cafe, Gramercy Tavern, Blue Smoke, The Modern, Maialino and Marta, to build what we believe is a new fine casual restaurant category in Shake Shack.
There are now 63 Shake Shacks. 63! I just wish the one across from the office would reopen. (via @caseyjohnston)
Update: From Tyler Cowen, Does the Shake Shack IPO mean you should stop eating there?:
A simple theory of IPOs suggests that they arrive when a product or company is experiencing “peak buzz,” or at least when the insiders in the privately held company think they are at or near peak buzz. This will maximize the expected returns on the IPO when it comes to market.
When it comes to food, peak buzz usually arrives a wee bit after peak quality, given reputational lags. So if you are seeing peak buzz, it is probably time to bail on the restaurant, at least on a restaurant which is going to be sold. Bailing on the restaurant may in fact be slightly overdue.
To test Cowen’s theory1, I went to the Shake Shack in Grand Central today (12/31/14). I stood in line for 10 minutes, ordered my customary Shack burger with fries (long live the crinkle cut), and then waited an additional 10 minutes for my food. Verdict: as delicious as ever. Service was snappy and friendly. Well worth the wait and price for me: I got exactly what I wanted.
Using Motorola, Nokia, and Nintendo as examples, Tero Kuittinen explains how dominant tech companies are lulled into “a comfy trip to the grave” by huge but ultimately short-lived successes before new paradigms take over.
For years, Nintendo has believed it could reject smartphone and tablet apps, yet still flourish. The reason for this delusion is familiar — it’s the toxic Last Blockbuster Syndrome that doomed the consumer electronics divisions of Motorola in 2004 and Nokia in 2007. Often at the start of a massive trend shift in consumer electronics, dominant dinosaurs get one massive hit built on a nearly obsolete paradigm, and that allows them to be lulled into a comfy trip to the grave.
The best example from the past few years is when Motorola, Nokia, and RIM were flying high with their phone products when the iPhone came along and changed the game.
A new study finds that insider trading is much worse than commonly thought: a quarter of all public company deals may involve some kind of insider trading. From the NY Times:
The professors examined stock option movements — when an investor buys an option to acquire a stock in the future at a set price — as a way of determining whether unusual activity took place in the 30 days before a deal’s announcement.
The results are persuasive and disturbing, suggesting that law enforcement is woefully behind — or perhaps is so overwhelmed that it simply looks for the most egregious examples of insider trading, or for prominent targets who can attract headlines.
The professors are so confident in their findings of pervasive insider trading that they determined statistically that the odds of the trading “arising out of chance” were “about three in a trillion.” (It’s easier, in other words, to hit the lottery.)
Only about 5% of the deals are ever litigated by the SEC. (via mr)
An instant classic John Gruber post about the sort of company Apple is right now and how it compares in that regard to its four main competitors: Google, Samsung, Microsoft, and Amazon. The post is also about how Apple is now firmly a Tim Cook joint, and the company is better for it.
When Cook succeeded Jobs, the question we all asked was more or less binary: Would Apple decline without Steve Jobs? What seems to have gone largely unconsidered is whether Apple would thrive with Cook at the helm, achieving things the company wasn’t able to do under the leadership of the autocratic and mercurial Jobs.
Jobs was a great CEO for leading Apple to become big. But Cook is a great CEO for leading Apple now that it is big, to allow the company to take advantage of its size and success. Matt Drance said it, and so will I: What we saw last week at WWDC 2014 would not have happened under Steve Jobs.
This is not to say Apple is better off without Steve Jobs. But I do think it’s becoming clear that the company, today, might be better off with Tim Cook as CEO. If Jobs were still with us, his ideal role today might be that of an eminence grise, muse and partner to Jony Ive in the design of new products, and of course public presenter extraordinaire. Chairman of the board, with Cook as CEO, running the company much as he actually is today.
This bit on the commoditization of hardware, and Apple’s spectacularly successful fight against it, got me thinking about current events. Here’s Gruber again:
Apple’s device-centric approach provides them with control. There’s a long-standing and perhaps everlasting belief in the computer industry that hardware is destined for commoditization. At their cores, Microsoft and Google were founded on that belief - and they succeeded handsomely. Microsoft’s Windows empire was built atop commodity PC hardware. Google’s search empire was built atop web browsers running on any and all computers. (Google also made a huge bet on commodity hardware for their incredible back-end infrastructure. Google’s infrastructure is both massive and massively redundant - thousands and thousands of cheap hardware servers running custom software designed such that failure of individual machines is completely expected.)
This is probably the central axiom of the Church of Market Share - if hardware is destined for commoditization, then the only thing that matters is maximizing the share of devices running your OS (Microsoft) or using your online services (Google).
The entirety of Apple’s post-NeXT reunification success has been in defiance of that belief - that commoditization is inevitable, but won’t necessarily consume the entire market. It started with the iMac, and the notion that the design of computer hardware mattered. It carried through to the iPod, which faced predictions of imminent decline in the face of commodity music players all the way until it was cannibalized by the iPhone.
And here’s David Galbraith tweeting about the seemingly unrelated training that London taxi drivers receive, a comment no doubt spurred by the European taxi strikes last week, protesting Uber’s move into Europe:
Didn’t realize London taxi drivers still have to spend years learning routes. That’s just asking to be disrupted http://en.wikipedia.org/wiki/Taxicabs_of_the_United_Kingdom#The_Knowledge
Here’s the relevant bit from Wikipedia about The Knowledge:
It is the world’s most demanding training course for taxicab drivers, and applicants will usually need at least twelve ‘appearances’ (attempts at the final test), after preparation averaging 34 months, to pass the examination.
Uber, in this scenario, is attempting to be Microsoft in the 1980s and early 90s. They’re implementing their software layer (the Uber service) on commodity hardware, which includes not only iPhones & Android phones, mass-produced cars of any type, and GPS systems but also, and crucially, the drivers themselves. Uber is betting that a bunch of off-the-shelf hardware, “ordinary” drivers, and their self-service easy-pay dispatch system will provide similar (or even better) results than a fleet of taxi drivers each with three years of training and years of experience. It is unclear to me what the taxi drivers can do in this situation to emulate the Apple of 1997 in making that commoditization irrelevant to their business prospects. Although when it comes to London in particular, Uber may have miscalculated: in a recent comparison at rush hour, an Uber cab took almost three times as long and was 64% more expensive than a black cab.
For three years, Nick Kokonas’s trio of eating/drinking establishments in Chicago (Next, Alinea, and Aviary) has been using a ticketed reservation system. In this epic piece, Kokonas details why they started using tickets and what the effect has been (emphasis mine):
Our ticket implementation strategy at Alinea was to create a “higher-touch” system than we had previously used at Next. Every customer buying a ticket at Alinea must include a cell phone number where we can reach them. About a week before they dine with us we call every customer to thank them for buying a ticket to Alinea, ask if they have any dietary restrictions or special needs, and generally get a feel for their expectations and whether it is a special occasion. We can, in fact, spend more time (not less) with every single one of our customers because we are only speaking with the customers we know are coming to dine with us. Previously, we answered thousands of calls from people we had to say ‘no’ to. Now we can take far more time to say ‘yes’.
The results on Alinea’s business are staggering. Bottom line EBITDA profits are up 38% from previous average years. No shows of full tables are almost non-existent and while partial no-shows still occur they are only a handful of people per week at most. That allows us to run at a far greater capacity with less food waste and more revenue.
Will be interesting to see if more restaurants adopt this model…I bet a bunch of restaurateurs’ eyes lit up at the 38% increase in profit. But not every restaurant is Alinea and not every restaurateur is a clever former derivatives trader.
Let’s talk cultural mesofacts. You likely recall 50 Cent as a rapper In Da Club but much has happened since then. 50 diversified like crazy: started a record label, parlayed a possible Vitaminwater endorsement into an investment worth $100 million, and, relevant to the matter at hand, wrote several books, including a pair of self-improvement books: Formula 50: A 6-Week Workout and Nutrition Plan That Will Transform Your Life and The 50th Law. Zach Baron recently recruited 50 Cent to be his life coach for a GQ piece and it ends up going way better than he expected.
50 Cent thinks for a minute. Actually, he says, my girlfriend — the one I just mentioned, the one I’d just moved in with? 50 Cent would like her to make a vision board, too. Then we’re going to compare. “Take things out of your folder and things out of her folder to create a folder that has everything,” he says. “Now the vision board is no longer your personal vision board for yourself: It’s a joint board.” That joint board will represent what we have in common. It will be a monument to our love.
But there will be some leftover unmatched photos, too, in each of our folders. And that’s what the joint board is really for — what it’s designed to reveal. “The things that end up on your vision board that aren’t in hers are the things that she has to accept,” 50 Cent says. “And the things that she has that you don’t are the things that you have to make a compromise with.” In a healthy relationship, he explains, your differences are really what need talking about. This is how you go about making that conversation happen.
This article just keeps getting better the more you read it. (via @ystrickler)
Internet mega-retailer Amazon is trying, mob-style, to pressure Hachette for better terms on ebooks by disappearing the publisher’s book from amazon.com.
The retailer began refusing orders late Thursday for coming Hachette books, including J.K. Rowling’s new novel. The paperback edition of Brad Stone’s “The Everything Store: Jeff Bezos and the Age of Amazon” — a book Amazon disliked so much it denounced it — is suddenly listed as “unavailable.”
In some cases, even the pages promoting the books have disappeared. Anne Rivers Siddons’s new novel, “The Girls of August,” coming in July, no longer has a page for the physical book or even the Kindle edition. Only the audio edition is still being sold (for more than $60). Otherwise it is as if it did not exist.
No question about it: this sucks on Amazon’s part and demonstrates the degree to which the company’s top priority isn’t customer service. Better customer service in this case would be to offer these books for sale. I noticed another less nefarious instance of this the other day: because Amazon is offering a streaming version of The Lego Movie (which presumably has a high profit margin), they are not currently taking pre-orders of the The Lego Movie Blu-ray (out on June 17), even though Barnes and Noble has it for pre-order and Amazon has no problem offering for pre-order a Blu-ray of The Nutty Professor that isn’t out until September. I guess it makes sense to drive sales to the high-margin streaming offering but not letting people pre-order what is likely to be a very popular Blu-ray is baffling.
Anyway, if this trend continues, I’d look for Amazon to start more aggressively promoting the Kindle editions of books, to the point of manipulating available inventory as with Hachette. That is, if they’re not doing it already.
In recent years, Chipotle has worked to promote their managers from within the company. And the tactic seems to be working.
The common element among the best-performing stores was a manager who had risen up from crew. So Moran started to outline a program that would retain and train the best managers, and reward them to the point where they would be thrilled to stay on.
After Flores expressed his frustration, Moran showed him his early notes for the restaurateur program, which is unique among fast food restaurants in that it ties pay and promotion to how well you mentor people, rather than store sales.
“It was a great meeting but I didn’t know what was going to happen. At most companies you meet the top execs and then you never hear from them again,” Flores says.
A few weeks after the October meeting, while vacationing in Houston, Flores got a call on his cell from Ells and Moran letting him know that he had been promoted to restaurateur and was getting a $3,000 bonus. Rather than waiting until he returned to Milwaukee to get him the check, it was delivered to him in Houston the following day. At the time his salary was around $38,000, and the bonus was meaningful.
“That’s when I knew the company was special,” Flores said.
Interesting bits of business wisdom throughout this piece.
Well, they do sometimes but not very often. Left turns cross traffic, which wastes time and causes accidents. So UPS routes are designed with mostly right turns…three rights make a left, you know.
UPS engineers found that left-hand turns were a major drag on efficiency. Turning against traffic resulted in long waits in left-hand turn lanes that wasted time and fuel, and it also led to a disproportionate number of accidents. By mapping out routes that involved “a series of right-hand loops,” UPS improved profits and safety while touting their catchy, environmentally friendly policy.
I wonder though, does this make the drivers unhappy?
Fast Company talked to a number of ex-Pixar employees about how they are using lessons learned at Pixar in their new endeavors.
“Delight” may be an intangible concept, but it’s a useful term to describe Pixar’s relationship with its audience, and one that any company can strive for even if they don’t make heartwarming cartoons.
It seems counterintuitive that simple pleasure would be a core principle of something as elaborate as a Pixar production, but Suzanne Slatcher says she has translated this idea directly to her new career.
“Food is a bit like cartoons,” says Slatcher. “It’s not some high-minded thing that people will make themselves like because they think they ought to. The food has to work on that very simple level of just someone is watching TV and they’re shoving it in their mouths.”
The idea that “everybody deserves quality” is a fundamental Pixar concept that Slatcher applies equally to snack foods.
“Pixar makes amazing, beautiful, hilarious, deep, wise films for kids, and adults can watch them and everybody watches them 25 times if they’ve got kids, and it’s still funny. It’s really, really great quality, where most things made for kids are made very cheaply. A lot of time and money is spent making the most accessible thing possible, and that’s such an inspiration and so not what you learn at art school,” Slatcher says. “The Good Bean could choose to be the darlings of the foodie world, using obscure, exotic spices, trying to be clever, but we’d rather make affordable, accessible food.”
Ed Catmull has written a book about Pixar’s creative process: Creativity, Inc.
Creativity, Inc. is a book for managers who want to lead their employees to new heights, a manual for anyone who strives for originality, and the first-ever, all-access trip into the nerve center of Pixar Animation — into the meetings, postmortems, and “Braintrust” sessions where some of the most successful films in history are made. It is, at heart, a book about how to build a creative culture — but it is also, as Pixar co-founder and president Ed Catmull writes, “an expression of the ideas that I believe make the best in us possible.”
For nearly twenty years, Pixar has dominated the world of animation, producing such beloved films as the Toy Story trilogy, Monsters, Inc., Finding Nemo, The Incredibles, Up, and WALL-E, which have gone on to set box-office records and garner thirty Academy Awards. The joyousness of the storytelling, the inventive plots, the emotional authenticity: In some ways, Pixar movies are an object lesson in what creativity really is. Here, in this book, Catmull reveals the ideals and techniques that have made Pixar so widely admired — and so profitable.
Catmull was a founder of Pixar and while he never got the press Jobs and Lasseter did, he was instrumental in the company’s success and is currently president of both Disney and Pixar’s animation studios. Fast Company has an excerpt of the book.
Candor could not be more crucial to our creative process. Why? Because early on, all of our movies suck. That’s a blunt assessment, I know, but I choose that phrasing because saying it in a softer way fails to convey how bad the first versions really are. I’m not trying to be modest or self-effacing. Pixar films are not good at first, and our job is to make them so — to go, as I say, “from suck to not-suck.”
Think about how easy it would be for a movie about talking toys to feel derivative, sappy, or overtly merchandise driven. Think about how off-putting a movie about rats preparing food could be, or how risky it must’ve seemed to start WALL-E with 39 dialogue-free minutes. We dare to attempt these stories, but we don’t get them right on the first pass. This is as it should be. Creativity has to start somewhere, and we are true believers in the power of bracing, candid feedback and the iterative process — reworking, reworking, and reworking again, until a flawed story finds its through line or a hollow character finds its soul.
I wrote a post the other day about how name-brand mattresses are a scam and lower-cost alternatives. In a 2009 interview with Terry Gross on Fresh Air, Josh Kosman provided one reason why mattresses are so expensive: private equity firms.
In the mattress industry, private equity firms bought Sealy and Simmons, the number one and number two brands by a mile. They stopped really competing against each other. They cut costs, and they raised the prices of the mattresses. They started focusing only on the top end and stopped even making mattresses really for middle-income people that cost less than $1,000. So basically simplifying this over time, as they bought Simmons and sold it to another PE firm three or four years later, and same with Sealy, the buyers — the sellers would make a lot of money, and the buyers felt, well, we can keep raising prices because there’s no competition. We own Sealy, and we own Simmons. It’s different firms, but they both have the same aim: to make a short-term profit, not to beat each other up on price. What happened over time was they couldn’t raise the prices anymore, and the prices were raised double the price of inflation, double the rate of inflation. They cut the beds in half, so you came up with no-flip mattresses. That cut their manufacturing costs, but it also…
…it also sent their earnings soaring, even though the beds don’t last as long. (thx, @gokari)
Maybe it doesn’t belong in the annals of great literature, but Seth Stevenson’s Slate piece on mattresses from November 2000 has been stuck in my brain for more than a decade. Mattresses are a scam, says Stevenson:
Is there a more maddening industry? They confuse us with silly product names (the Sealy Posturepedic Crown Jewel Fletcher Ultra Plush Pillowtop or the Sealy Posturepedic Crown Jewel Brookmere Plush?). They flummox us with bogus science (“pocketed coils”? “Microtek foundations”? “Fiberlux”?). And they weigh us down with useless features (silk damask ticking?). It’s like buying a used car, and almost as expensive — I’ve seen mattresses going for $7,000. What’s a consumer to do?
The secret to mattress shopping is that the product is basically a commodity. The mattress biz is 99-percent marketing. So just buy the cheapest thing you can stand and be done with it, because they’re pretty much all the same. And that’s all you need to know. But do read on — the world of sleep products is quite fascinating, and I’d like to share it with you.
So when I had to do some mattress shopping recently, I remembered reading a thread on Hacker News about Tuft & Needle. T&N is a start-up that, in the parlance of Silicon Valley VCs, is disrupting the mattress industry by offering products of similar quality at dramatically lower prices with an emphasis on customer service. Recode recently ran a piece on the company and their founders.
Park and Marino, who previously worked together at Los Angeles tech startup Mulu, turned to mattress-making in 2012 after Marino was disappointed by a $3,000-plus mattress. So the two posed as the owners of a small mattress store and called around to vendors to uncover the real cost of making Marino’s expensive purchase. The final calculation — a total of about $300 — confirmed their suspicions: There was significant opportunity to improve.
When I looked on Amazon, Tuft & Needle’s mattresses were, as billed, the top-rated mattresses on the site. So I bought one. (I also bought a DreamFoam bed, which is even cheaper than Tuft & Needle and also highly rated.) The beds from both companies come rolled up and vacuum packed. Once you puncture the thick plastic packaging, air comes whooshing back into the mattress, inflating to its proper size over a matter of hours. This process sounds exactly like the repressurization of an airlock from any number of sci-fi movies. As far as comfort goes, I can’t tell the difference between these beds and the $1700 memory foam mattress from Design Within Reach.
So yeah, if you’re in the market for a mattress, do some poking around…you might just save a few hundred dollars. (Note: these beds are memory foam beds, which are not everyone’s cup of tea. I switched to one several years ago and love it. YMMV.)
Update: Tuft & Needle is opening a retail location in SF. Not everyone is comfortable buying beds over the Internet I guess? (via @micahgoulart)
Update: Two months after I wrote this post, I asked people who had purchased memory-foam mattresses for their thoughts on them. The other day, Matt sent me a link to an online message board dedicated to mattresses called The Mattress Underground. One of the board’s admins did a long post comparing the choices in this category of mattress, which they referred to as “Simplified Choice Mattresses aka Disruptors, Bed In A Box, One Choice Fits All, Universal Comfort, Millennial Mattresses”. (via @mathowie)
I don’t know if Facebook buying WhatsApp for $16 billion is a good idea for Facebook or not, but I’m pretty sure it’s a potentially good idea. I’d heard of WhatsApp before, but I first took real notice of it last July when researching this post about Instagram businesses in Kuwait.
Several of the businesses I found used WhatsApp for messaging…browse via Instagram, arrange to buy via WhatsApp. Very low cost, more flexible than SMS, cross-platform, no giant social network appendage to deal with (e.g. Facebook/Twitter), and it’s not email. And, the thing that struck me, WhatsApp (and Instagram) being used for financial/business transactions. Services teens use for social grooming are certainly interesting and important (after all, teens’ social grooming is how, eventually, we end up with more teens), but when you’ve got something being used in all sorts of places all over the world as a social tool *and* a marketplace, you’ve got yourself a platform and that is potentially very valuable.
Your addiction to various things digital might be wasting a lot of your time. But it’s paying off in a big way for companies like King Digital Entertainment, the folks behind the wildly popular Candy Crush Saga. King just announced plans for an IPO. Can a company with one very big hit really go public? On one hand, consider this: “Of the 5000 companies in NASDAQ, only 6 have as much revenue ($1.88b) and fat profit margins (30%) as King.” On the other hand, it’s tough to stay on top in the hit-driven game industry. Want to invest in this IPO? First, you need to consider how long King will wear the crown.
Candy Crush Saga really has created some incredible numbers.
James Surowiecki writes about the similarities between confidence games and American entrepreneurial spirit.
It seems that con artists, for all their vices, represent many of the virtues that Americans aspire to. Con artists are independent and typically self-made. They don’t have to kowtow to a boss — no small thing in a country in which people have always longed to strike out on their own. They succeed or fail based on their wits. They exemplify, in short, the complicated nature of American capitalism, which, as McDougall argues, has depended on people being hustlers in both the positive and the negative sense. The American economy wasn’t built just on good ideas and hard work. It was also built on hope and hype.
From the cotton in the fields to the manufacturing machines to the container ships, NPR’s Planet Money looks at the often complex world behind the making of a simple t-shirt.
We flew drones over Mississippi. We got mugged in Chittagong, Bangladesh. We met people whom we’ll never forget — the actual people who make our clothing. At every location we had radio reporters and videographers.
Amazon introduced their Amazon Source program today, which enables indie booksellers to sell Kindles and receive a cut of future Kindle book sales made on those devices.
Retailers that are part of the program can use Amazon Source (http://source.amazon.com) to purchase Kindle devices and accessories for resale. Retailers can choose between two programs:
1) Bookseller Program: Earn 10% of the price of every Kindle book purchased by their customers from their Kindle devices for two years from device purchase. This is in addition to the discount the bookseller receives when purchasing the devices and accessories from Amazon.
2) General Retail Program: Receive a larger discount when purchasing the devices from Amazon, but do not receive revenue from their customers’ Kindle book purchases.
Amazon Source aside, I’ve often wondered if an independent bookstore could sell their usual selection of paper books but also sell Kindle books to those who wanted them. The bookstore would basically buy the books as gifts for the customer through Amazon and take the affiliate fee (which is 8.5% with sufficient monthly sales volume) as profit. (The fee on magazine subscriptions is 25%!) I love frequenting indie bookshops — the browsing experience of a good bookstore is still far superior to that on Amazon or a Kindle — but I don’t buy paper books anymore. So I usually leave bookstores with a list of 2-3 books I later buy on Amazon…it would be nice if the bookstore gets a cut of that action. If it worked well enough, the physical books in the store would be more like advertisements for the digital copies than salable items and you could change how you stock the store…less overall inventory or a more varied inventory with far less overhead.
Knowing next to nothing about the economics of bookstores, I don’t know how well that would actually work, but it would certainly be an interesting experiment. (via @tcarmody)
Usually open letters to big companies take the form of scolding. Chris Horst wrote the CEO of Costco a different sort of open letter.
For his entire life, Matthew has been classified and known by his “special needs”. Since the day he began at Costco, however, his coworkers and customers have valued him because of his unique strengths. There are many companies which “succeed” at the expense of their workers. I am a firsthand witness to a counterintuitive company: Costco succeeds through the flourishing of its employees.
Matthew worked for years in the Costco parking lot (bearing the wind, rain, cold and snow), taking pride when it was free of carts. And, true to the rumors (that Costco promotes from within), he eventually was given the opportunity to work in the warehouse as a cashier’s assistant, supporting customers as they check-out. He absolutely loves his job…and his customers absolutely love him.
Costco is a famously decent employer, as far as massive corporations go. Their workers, though mostly not unionized, are paid more and get better health care than their competitors. They promote from within. The CEO only makes 12 times more than a typical employee (Wal-Mart’s CEO’s salary was 58 times a typical employee’s salary). (via @khoi)
Ben Haggerty, better known as Macklemore, whose independently produced album The Heist went Platinum last year, reflects on the 12 months since the album’s release and his decision to go big in lieu of going home.
I was in Madison, Wisconsin. We were about two-thirds of the way through our first “World Tour,” a title we were beating people over the head with, trying to enforce our premature “stardom” on the world. I was skating around the city, looking for lunch, when Zach called me. And I’ll never forget the way that Zach explained what this deal meant in regards to me.
He said, “Basically, if you sign this deal there is a potential that you will turn into a super star. Your life will change drastically. And once that happens, there is no going back. If we don’t go this direction, there is a ceiling to your career. You can continue to play the same rooms you’ve been playing and have a strong run as an underground rapper. But taking it to the next level will not be attainable. I see positives and negatives to both sides, and will support you either way. What do you want to do”?
I knew immediately that this a decision that would alter my life forever. I knew that getting played on the radio would alienate a core group of fans; that I’d be labeled a sell-out, maybe even a “one hit wonder” if the song got big. But despite those risks, I knew at the core what I wanted.
Macklemore seems like a pretty solid guy, like the type of person who would sing questionable karaoke versions of his own hits:
See also: you’re not selling out, you’re blowing up and my thoughts on staying small or going big. (via bryce)
In response to a question on Quora of how significant transportation startup Uber is, Michael Wolfe offers an answer that isn’t so much about Uber in particular as it is a way of looking at businesses from the perspective of the owners/investors.
If you think of Uber as a town car company operating in a few cities, it is not big.
If you think of Uber as dominating and even growing the town car market in dozens of cities, it gets bigger. (Data point: there are now more Uber black cars in San Francisco than there were ALL black cars before Uber started).
If you think of Uber as absorbing the taxi markets, it gets pretty huge.
If you think of Uber as a giant supercomputer orchestrating the delivery of millions of people and items all over the world (the Cisco of the physical world), you get what could be one of the largest companies in the world.
Good companies always seem to be playing a different game than you think they are…outsiders see only the tactics and not the strategy. And the best ones succeed.
Jay Porter recently wrote a series of posts about his experience running a restaurant that abolished tipping. Here’s part one:
This is a summary of the experiences I had in our no-tipping lab, and in my next few posts I’ll dig a little deeper into each of them. Then I’ll finish this series by talking about what I’ve learned this year from a couple new friends who are researchers from the University of Guelph, and who have brought me in contact with some deeper thoughts about the tipping issue, from the social justice side. After seeing what they and their colleagues have uncovered, I’ve become convinced that thoughtful cultures who value civil rights will make tipping not just optional but illegal; and that this could actually happen sooner rather than later, when courts assess the reality of the situation.
If you want the Cliff Notes version, Porter wrote a shorter piece for Slate.
When we switched from tipping to a service charge, our food improved, probably because our cooks were being paid more and didn’t feel taken for granted. In turn, business improved, and within a couple of months, our server team was making more money than it had under the tipped system. The quality of our service also improved. In my observation, however, that wasn’t mainly because the servers were making more money (although that helped, too). Instead, our service improved principally because eliminating tips makes it easier to provide good service.