On The Web, Bad Reviews Are Good

The Wall Street Journal had an article a while back on online doctor reviews. It noted that 25% of patients are now viewing doctor reviews before booking an appointment.  For the segment of patients that either don’t have a doctor or are unloyal to their doctor (about 60% of patients) this ratio is far higher and growing fast. Like most products and services, patients want to see what the community has to say before “buying”.

This has fairly significant consequences for providers. In some ways this trend is commoditizing the big hospital brands. It used to be that you’d want to go to a doctor that was affiliated with one of the prominent hospitals in your community. In some ways this is still true; but today, if a doctor has good online reviews from other patients, the patient doesn’t really care as much which health system the doctor is affiliated with. The doctor can gain trust from patients without the big brand. The community replaces the brand. The larger implication of this is that in the future health systems will have to focus more on their product (cost and quality) and less on their brand. But that’s an issue for another day.

The article notes that many providers are uncomfortable with patients posting reviews about them for the world to see. This hesitation is completely understandable. But smart providers will embrace reviews rather than avoid them.

Case in point: just look at Amazon. There are 536 one star reviews of the new Kindle Fire on Amazon.com. Why would Jeff Bezos ever allow negative reviews to be posted about his product on his own website?

The answer is simple: it’s all about  trust. Bezos knows that the bad reviews increase trust and actually end up helping him sell more Kindles.

When eBay started many years ago, most of their transactions were small purchases like Pez dispensers and other low-cost items because buyers were worried about giving their credit card to a stranger over the internet.

Fast forward to today and eBay sells all sorts of very high ticket items on their site — they sell tens of thousands of cars over their mobile app. That’s right, people buy cars on their phone.

In order to buy a car on your smartphone you have to really trust the seller. That trust comes from reviews. It never would’ve happened without the trust that was built through seller reviews.

Providers need to embrace this as well. And some already are: Cleveland Clinic, the University of Utah and other big hospitals are now allowing patients to post negative reviews of their doctors on their websites. Like Bezos and eBay sellers, these providers understand that the trust gained from being transparent about a provider outweighs any negative perception that might come from bad reviews.

From hotels to taxis to healthcare, we’re seeing that the community is trumping the brand. Reviews from the community create transparency, and transparency creates trust, and trust creates growth.

Enterprise Software: Sales Still Matters More Than Product

Last week I spoke to a guy that works for a multi-billion dollar, publicly traded company that makes the software that runs a health system’s daily operations. The software that he sells is used by thousands of health system employees all day, every day. He told me that, in most cases, when selling his product he does not do a demo. No product demo at any point in the process.

So the executive team at a health system buys his software and then forces thousands of employees to use it every day (locked into a 5+ year contract) without ever seeing or testing its usability. As I’ve written many times in the past, this is why most B2B software is awful. Because it can be.

In big enterprise software, good selling is unfortunately still far more important than a good product.

Do What Computers Can’t

Zero To One I read Peter Thiel’s new book, Zero To One, the other night. I highly recommend it. It’s a quick read (about 240 pages) and is full of great insights on startups and growth. He talks about the fears that the public has over technology. At one time, everyone was afraid that globalization was going to take all of America’s jobs because there’d be someone overseas that would do our jobs cheaper than we would. Instead, American jobs have simply transformed. While’s there’s always some short term pain caused by a transforming economy, unemployment isn’t all that much different than it was 20 years ago. The new fear is that software and technology will take all of our jobs. Thiel points out that this is a myth as well. See this excerpt:

Now think about the prospect of competition from computers instead of competition from human workers. On the supply side, computers are far more different from people than any two people are different from each other: men and machines are good at fundamentally different things. People have intentionality—we form plans and make decisions in complicated situations. We’re less good at making sense of enormous amounts of data. Computers are exactly the opposite: they excel at efficient data processing, but they struggle to make basic judgments that would be simple for any human. To understand the scale of this variance, consider another of Google’s computer-for-human substitution projects. In 2012, one of their supercomputers made headlines when, after scanning 10 million thumbnails of YouTube videos, it learned to identify a cat with 75% accuracy. That seems impressive—until you remember that an average four-year-old can do it flawlessly. When a cheap laptop beats the smartest mathematicians at some tasks but even a supercomputer with 16,000 CPUs can’t beat a child at others, you can tell that humans and computers are not just more or less powerful than each other—they’re categorically different.

I love this. There are things that humans can’t do as well as computers and things that computers can’t do as well as humans. There is now and will always be a ton of opportunity to do things that computers can’t.

Should Amazon Be Profitable?

I’ve been meaning to write a post about Amazon and its strategy to never make a profit in a given year, but Benedict Evans beat me to it in this great post and podcast from a couple of weeks ago. I recommend reading the post.

After looking at Amazon closely, there are three things that really jump out at me:

1. Revenue has grown every year since 1996 and net income has remained flat, at near zero.

Amazon Growth

2. Every dollar in profit goes directly back into the business. They’re investing most of the profit into capital expenditures such as new warehouses and Amazon Web Services but they’re also using it to rapidly enter new verticals in e-commerce. There literally must be someone whose job is to make sure they don’t make a profit in any given year.

3.  A lot of people are asking how long Amazon will continue reinvesting their profits instead of passing them onto investors (even a great innovator like Apple pays out a nice dividend). How long can Amazon keep investing in themselves? Benedict uses a Wal-Mart comparison. Currently, while Amazon is an enormous player in e-commerce, they still only make up around 1% of North American retail sales. So asking Amazon if they should continue to invest in their growth is a little like asking Wal-Mart if they should’ve kept investing in new stores back in the 1960s. The answer for Wal-Mart was yes in the 1960s and it’s yes for Amazon in 2014.

Some Thoughts On Competition

I’ve written about this a bit in the past with regard to sales tactics, but I’d like to discuss this topic from a broader perspective. Here are some thoughts on competition:

  • When a company starts or a product launches, you’ll often hear talk about how they’re “better than the competition.” This is a bad approach. It minimizes the product’s unique value.
  • With the exception of super mature, commodity-based industries, there is no such thing as competition. Each company has built their product in their own unique way and others have built their products in their own unique way. If there is real competition then the product isn’t unique.
  • Companies should be bold about what their product doesn’t do or does do poorly. It’s not good at doing X because the company hasn’t prioritized X. And that a good thing. What a company decides to prioritize and deprioritize is what places them in a non-competitive space.
  • For the most part, companies shouldn’t stress out about keeping secrets from the competition or trying to figure out what their competitor will do next. They should watch what others are doing so that they are experts on their own space and they should look out for new ideas but the vast majority of energy should go back into their own product and story.
  • Andy Grove said “only the paranoid survive” but this shouldn’t be translated to mean that companies should be paranoid about their competition.  They should be paranoid that their product isn’t unique and that if it is unique that customers aren’t interested in that uniqueness. Companies should obsess about their own product and their product’s story.
  • Basic economics tells us that the market is trying to get prices down to zero marginal profit. Companies that are in competitive industries quickly get to zero profit.
  • Companies should be bold that if a buyer is looking for X-feature and their company doesn’t prioritize X-feature, then the buyer shouldn’t buy from them. And if the company knows someone else that does X-feature well, they should recommend that company.
  • When I worked in e-commerce, people would ask me about our competition. My answer would always be that we have no competition. There is no other company addressing the problem that we solve in the way that we solved it. Of course, if you’re asking if there are other places to shop online then there are tons of other companies. But none of them are competitors. They’re solving a different problem in a different way. Great companies compete in an industry of one.

I heard that Peter Thiel talks extensively on this topic in his new book, Zero to One. I haven’t read it yet but plan to in the coming weeks.

It’s Always Been About Trust

Sherpa Ventures released a comprehensive presentation on the “on-demand” economy the other day. It’s worth flipping through it if you have some time.

Slide 8 contrasts the “village economy” with the economy we have today and it got me thinking…

We’ve gone from:

  1. The general store where everyone in town knows and trusts the owner to…
  2. Large, main streets with lots of stores with less intimacy and less trust to…
  3. Larger, big box retailers with much less intimacy and much less trust.

As stores have become less intimate and less personal, retailers realized that, in order to compete, they had to try to maintain the level of trust that the owner of the general store had with his or her customers. That led to massive investments in brands – Wal-Mart, Best Buy, Macy’s etc.  They have built brands so that you know they’re low cost, high quality, reliable, etc.  

Every customer couldn’t know and trust the owner but every customer could know and trust the brand, the thinking went.

But in the new economy, constant connectivity, new payment platforms and reputation management programs (ratings and reviews) have recreated this high level of intimacy and trust, without the customer knowing the owner or knowing the brand.

“I don’t know that restaurant but it has a great rating on OpenTable.”

“I don’t know this artist, but people on Etsy like her.”

“I don’t know the guy that owns this apartment in Paris, but people on Airbnb trust him.”

The point of this post is that, regardless of the mechanics that drive our economy, it’s always been about trust. Whether your’e relying on your personal relationship with the owner of the general store on the corner, or you’re relying on Best Buy’s brand when buying an expensive flat-screen TV, or you’re relying on a five-star review rating when accepting a ride from a stranger on Uber — it’s always been about trust.

Innovation & CEO Tenure

Vinod Khosla interviewed Larry and Sergey from Google a couple weeks ago. I recommend watching the entire thing when you have some time.

At one point Larry explains the fact that the average Fortune 500 CEO’s tenure is approximately 4 years. He notes that it’s really, really difficult to solve big problems in 4 years. Twenty years, maybe. But 4 years, no way. So as a result we have a system where our largest companies are acting in a way that is very short-sighted.

We all know the stories of the giant, successful companies not seeing how things were changing and ignoring the little upstarts only to eventually get toppled by them. We’ve always chalked this up to naivety and arrogance on the part of large companies. Polaroid is a great example. They ignored the digital camera and didn’t recognize what its impact would be until it was too late and eventually found themselves bankrupt.

But when you consider Larry’s point, that CEOs are only focused on 4 years out, you can see how it actually made sense for Polaroid’s leadership to ignore the digital camera. New innovations move slowly, the best thing for Polaroid’s stock price (in the short-term) was to continue to focus on their core business — not to pivot and get ahead of a trend.

We’re about to see the same thing happen to big car companies. Self driving cars are the future. And they’re going to operate much differently than the cars we have today. But it’ll take a while, maybe 10 or 15 years. If you’re the CEO of Ford or General Motors, why should you redirect your resources away from regular cars, if you’re really only worried about the next four years? You’re much better off focusing on the here and now. Very logical, but also the thing that will wipe them out of the self driving car business. We can see it right now, it’s going to happen, but they won’t do anything about it.

I’m not arguing that companies should have 20 year terms for their CEOs, but companies do need to recognize that their short-term focus paralyzes the company in dealing with trends and getting ahead of the small upstarts. Companies would act very differently if they were looking further around the corner than the tenure of their leaders allows.

Some Summer Reading

I’ve been meaning to write a couple of book reviews but haven’t found the time so I decided to write a quick line or two about some of the books I’ve read over the last few months. I enjoyed a lot of them — I hope you will too.

To Sell Is Human

To Sell Is Human by Daniel Pink. This is a really, really good sales book that argues quite persuasively that we are all salespeople; that the most important thing that each of us does — regardless of whether or not we’re in sales — is sell. And that the jobs of the future (mostly focused around education and healthcare) are going to be all about “moving people”, e.g. selling people.  He gives really useful strategies for getting better at influencing and moving the people around us.

Where Does It Hurt

Where Does It Hurt? by Jonathan Bush. If you have any interest whatsoever in healthcare, disruption and where things are heading you should absolutely read this book. Bush is the CEO of Athena Health, an innovative healthcare software company, and while you may not agree with a lot of what he says the book is incredibly informative and important. I would expect to see a lot more books like this coming in the future. This is probably the most digestible and useful book I’ve ever read on healthcare.

Lead With A Story

Lead with a Story by Paul Smith. This is a book that teaches you how to incorporate the use of stories into your business life to help influence and inspire. Most of the lessons are somewhat intuitive and there are too many examples and I’d bet most of us do these things naturally, but the book is a good reminder that stories and analogies are a useful asset.

Amazing Things Will Happen

Amazing Things Will Happen by C.C. Chapman. I’ve been following C.C.’s blog and Twitter feed for a long time now. A speaker, marketing consultant and fellow Bentley grad, he is a really interesting guy. If you’re interested in how to manage and improve your personal brand, don’t bother taking a seminar or reading a book, just follow C.C. He is a brilliant at it. As for the book, it’s basically a series of short blog posts, each discussing a life lesson that he’s picked up over the years. Some of them are intuitive, but they’re great reminders. It’s also fairly short and can be read on a plane ride — which is the way all business books should be.

Body of Work

Body of Work by Pamela Slim. This is a really good and important book about how the way that we define a “career” is changing. We’re becoming our own brands and our own companies. Start-up jobs, volunteer work, content creation, freelance work and side projects are becoming the new normal for lots of people. This book does a great job of explaining this new reality and how you can succeed in it.

The Art of Learning

The Art of Learning by Josh Waitzkin. This is a true story about how Waitzkin went from being one the best chess players in the world to becoming one of the best martial artists in the world. He documents and dives deep into the learning process and how we can control it and speed it up to become an expert and master in any field. Highly recommended.

The Hard Thing About Hard Things

The Hard Things About Hard Things by Ben Horowitz. This about Ben’s startup experience. I’d highly recommend this book to any founder or potential founder. It chronicles the pain, the failures, the impossible decisions and the successes of a fast-paced startup. Painful to read at times, but a great book.

Cubed

Cubed: A Secret History of the Workplace by Nikil Saval. If you’re sitting in a cubicle right now and wondering how you got there, this book has the answer. A really interesting summary of work in the United States and how we went from the farms to the cubes. It gets a little dry and I wish it was a bit shorter and punchier but if you’re like me and you find this stuff interesting it’s worth the read.

Capital

Capital In the 21st Century by Thomas Piketty. If you haven’t heard of this one you’ve been living under a rock. Long, complex and controversial this is a magnificent summary of the economy and the steady increase in the wealth gap in the United States. If you’re not super interested in economics you might pass on this one and read some of the commentary around it — this book is being debated everywhere.

The Power of Habit

The Power of Habit by Charles Duhigg. This is a eye opening book about habits and how they dictate our behavior. I’ve always believed that creating habits is one of the secrets of high performance. It’s too hard to try to motivate yourself to go to the gym everyday. It has to be a habit (just like brushing your teeth). The Power of Habit validates this and teaches you to control your habits and perform at a higher level.

Finally, if you’re looking for a light, easy reading thriller that’s great for the beach pick-up Those that Wish Me Dead by Michael Koryta. I spent last weekend on the beach in Cape Cod and and I literally couldn’t put it down.

The Bright Side Of The Big Private Companies

There’s been quite a bit of talk in the blogosphere over the last few weeks about the death of the IPO. Most notably here and here. Most are blaming the paralyzing regulation that came along with Sarbanes Oxley following the financial crisis. They’re pointing to the fact that Uber, Airbnb and Dropbox recently raised private financing at $10 billion plus valuations. And that Twitter waited until they were worth $25 billion before going public. And that Facebook waited until they were worth $100 billion before public.

The problem with this is that most of the uptick in these valuations was missed by the average investor (U.S. law prohibits non-accredited investors from investing in private companies).

There’s definitely a problem here. And it’s terrifying to think about what Washington might try to do to fix it.

But rather than focus on the unfortunate aspects of the growth of these companies, I thought I’d focus on the good. Seeing these companies lumped together made me realize that these companies are all adding significant value to the economy, regardless of how they’re funded.

As the global economy continues to transform and push out jobs that can be automated or sent offshore, these companies are doing the opposite — they’re creating massive numbers of new jobs that can’t.

AirBnB has turned close to a million homeowners into part-time landlords (many of them in the U.S.). Uber has turned every street corner into a cab stand and in the process has created hundreds of thousands of near six-figure jobs.

Some might argue that these companies are just transferring hotel jobs and cab driving jobs to someone else. Not true at all. In industry after industry we’ve seen that as it becomes easier and more convenient to transact, more people get in the game. More people are traveling thanks to AirBnB and more people are hitching a ride thanks to Uber. These companies are growing the pie and helping the economy in the process.

There are lots of other marketplaces that are creating freelance sources of income (Clarity, Angie’s List and Google Hangouts to name a few). And I wrote about the enormous number of  jobs that the iOS and Android marketplaces created a while back.

There’s no doubt that most Americans are missing out on the big equity gains coming from these hyper-growth startups, but the jobs that these companies are creating is potentially far more impactful. And seeing new technologies create net new jobs in the short-term instead of wiping them out is a trend that shouldn’t go unnoticed.

A Mid-year Gap To Goal Analysis

Today is the second day of the second half of the year. It’s worth taking a couple minutes to assess where you are against your goal for the year. This is a great exercise whether you’re running a sales team or selling yourself. Below is a sample of a model I’ve used in the past.

Note that to build this for yourself you’ll have to fill in the fields in blue to match it to your pipeline (definitions of each field below).

Gap to Goal Analysis

Definitions:

  • Goal – 2014 goal
  • Actual – revenue closed to date
  • Value of late stage deals – deals that are either in contract or just about to be in contract
  • Late stage close rate – likelihood that late stage deals will close (in the next 6 months)
  • Number of highly engaged deals – number of early stage deals that you’re speaking to weekly
  • Highly engaged close rate – likelihood that you’ll close the average early stage deal (in the next 6 months)
  • Average deal size – for early stage deals you very likely don’t know how much their worth; go back and look at the last 5 to 10 deals that you’ve closed and take an average

The number in red should give you a very good sense of where you need to focus your time for the rest of the year. That is, should you focus on executing and growing deals that are already in motion or do you need fill up the pipeline with new opportunities. Based on this number, it’s a good idea to write down three things that you’re going to focus on over the next six months to ensure that you get to goal.

If you’d like the model in Excel feel free to email me