Delocalization of Events

Shannon Love writes about learning of a major news event 5 miles from her house on national TV. She notes that the internet, twitter, and 24 hour cable news are 'delocalizing' events. This ties in with Seth Godin's notion that "Big Events" are increasingly ineffective, that companies should only hold events if they are "mega" and can drive serious national attention.

For knowledge based businesses selling to narrow audiences, delocalization presents significant opportunities for better targeting and communicating to your audience: how can you stage online 'happenings' that draw your interest groups? Can you replicate the community aspects of major shows and events online? Can your brand replace the independent event?

Something to think about while you're sitting out on the Openwater.

A Knowledge Based Business that might go away?

Ken Cooper, Founder of portfolio company EJ4 sent me a link to news about MacMillan (the publisher) and Amazon's deal to sell MacMillan titles on line. It seems Macmillan is using the power derived from owning popular content titles to capture the lion's share of the value, despite the fact that Amazon created the business in the first place.

It seems to me that despite MacMillan's short term power, they are the ones not long for this world. You see the reason that Publishers have historically had market power is because there has been a minimum necessary scale for book publishing. The costs in capital and distribution prowess were such that publishers could choose between a wide variety of content providers and select a small subset of their products to list. With the advent of online publishing and readers like Kindle and Ipad, the economics of publishing are radically changed. No longer is there a minimum scale necessary to bring a title to market, no longer can a publisher earn economic rents by being a branded gate-keeper. The true value creators - the authors - are now able to go around the publisher and deal directly with the e book sellers. Think about it as a shift from three tier to two tier distribution, with the publisher role parceled out among the e book seller and various niche service providers.

The result, no room at the Inn for the Macmillans of this world. And velvet for customers.

If you'd like further explanation of this content phenomenon, I recommend you read Chris Anderson's The Long Tail - using a Kindle, of course.

Branding vs. Execution

Here is a classic example of a well branded company: Whole Foods coming into contact with a superb execution company: Wal Mart. The story is about how the taste testers preferred Wal Mart's produce to Whole Foods.

On to the details: Kummer buys two batches of nearly identical groceries at Wal-Mart and Whole Foods. He has them prepared in a restaurant kitchen and invites taste testers to make a blind side-by-side comparison. The Whole Food grocery set cost $50 more, $20 of which is spent on top of the line chicken breasts (Wal-Mart didn't really offer equivalently high-end meat.)

The taste testers preferred the Walmart veggies overwhelmingly, with complaints about the meat and dairy. "The tasters were surprised," he writes, "when the results were unblinded at the end of the meal and they learned that in a number of instances they had adamantly preferred Walmart produce. And they weren't entirely happy."

But the real story is how the Whole Food produce cost $30-$50 more. Well defined and marketed brands can generate huge premiums over those that focus just on execution.But there's a catch: the brand needs to continue to innovate, bringing new solutions to the customer that can't be easily copied by the Wal Marts in their industry.

Brands are like sharks, if they ever stop innovating, they suffocate.

And notice the last, throwaway comment: about preferring Wal Mart. Who do you think will feel the wrath of their unhappiness? Not Wal Mart.

Think about where you create extraordinary value and where you get paid for it. Are you staying ahead of the metaphorical Wal Mart? And if you don't think you can, look at those Whole Foods price margins: It would be a lot better to sell when you still have them, then after they've gone away.

Relationship Leverage and Ntrinsx

Relationship Leverage is the notion that one can use technology, particularly social media and video tools to radically increase your capacity to communicate and create meaningful value for your extended network. One of the keys to effective relationship leverage is understanding just how your clients, prospective clients, partners and influencers like to be communicated with - what is their style? How do they behave? Our portfolio company, Ntrinsx has developed an extremely intuitive, consumer friendly online personality assessment tool that gives its users an easy to learn and communicate language for understanding human behavior. It's based on 4 colors for the four core behavior types. Companies use Ntrinsx's color methodology to communicate the behavioral strengths, weaknesses and preferences of their team. For example, here is how Google uses the Ntrinsx color schema to communicate the behavior preferences of its top executives:

, fall

Note the colored spheres beneath the pictures: the big sphere is the dominant behavior type, the smaller one is the secondary type. For example, Eric Schmidt is dominant Orange, which means agressive, outgoing, interested in the new thing, while his minor is Blue - relationship oriented, focused on people. Sergey Brin's dominant color, by contrast is Yellow - focused on responsibility, structure, order, as is Larry Page's minor.

Ntrinsx is a highly customizable web service that can be integrated quickly into any workflow to meet a wide range of assessment needs: customers/prospective customers, recruits, employees, trainees. The technology allows companies to assess an entire distributed population in a matter of days.

By being able to get a clear picture of who you're interacting with quickly and cheaply, you can better focus your communications and ideas so that they will have impact for each person's style. Using on line tools to understand and adapt to you customers and relationships' preferences is one way to get relationship leverage.

For more information, visit http://www.intrinsx.com/

The Implications of Exponential Change

Ray Kurzweil wrote a "Big" book: The Singularity is Near. He makes a lot of frankly fantastic predictions but he bases them on a very specific insight: Technological change is not arithmetic in nature (2, 4, 6, 8) but exponential (2, 4, 8, 16) and over a long enough timescale the implications are truly stunning. For example: the computing power of a $1,000 PC roughly doubles every year (combining processor, RAM, storage media, WAN and software gains), this means the processing power grows by a factor of 1,000 each decade and 1,000,000 every 20 years.

Think about your business, indeed your life tethered to technology that will be a million times more powerful (and ubiquitous) in two short decades.

Very little will remain the same.

Is it a lousy time to sell your company?

The conventional wisdom holds that recessions - which depress business asset values - are lousy times to sell successful companies. This is both because earnings are down and the earnings multiples that buyers will pay are lower. It is said to be a 'buyer's' market and sellers should stay away. But that analysis ignores several salient facts: Yes your asset's value is down in value, but so are everyone else's. If an owner is taking stock in payment, it's the relative performance of the buyer vs. the seller in the cycle that matters. If you're taking cash, it depends on what you intend to do with it. Financial assets, luxury homes, even trophy wives are cheaper during downturns.

It's much more important to pay attention to what is going on in your sector and what your goals and intentions are then to slavishly go to market when everyone else goes. It could be that if you're the only asset in a sector available, you could set off a bidding war between all those 'bargain hunters'.

Food for thought while sitting out in the Openwater.

The Power of Potlach and Comunicato

OWA is developing a product in partnership with the Knowledge Transfer Company called Comunicato. Comunicato is a highly effective way to enable any professional to create low cost, professionally designed and edited videos that can be sent to customers and viewed on their smart phones or PCs. The key to the solution is sending thoughtful ideas that clients can use. By doing so, the knowledge based service provider can increase his share of mind or "personal branding" with his target clients. The tool is inexpensive and can be delivered from a client's site. No expertise or skill in video is needed.

I was reminded of the core value of our product when reading Seth Godin's blog. Seth emphasized the value of giving gifts as a tool for developing relationships and networks. The key to Comunicato is using the tools to teach your network something of value, something you know that they don't. This type of Potlach marketing is key to anyone who sells knowledge based services for a living.

Ej4 and Video

Ej4 is a portfolio company of ours. They specialize in developing training video that "Moves the Needle". Usually training is just an expense, an enormous waste of time. Here's a video by yours truly that talks about a different way to use training. Training to 'move the needle'.

Watch it here.

Welcome to the Openwater Advisors Group Blog

We are an investment banking and strategic consulting boutique composed of former PwC partners. Our goal is to help mid-market knowledge based service business owners build their businesses by partnering with, selling to or being acquired by the Fortune corporations, private equity and venture capital firms that we and our network has relationships with. Openwater is composed of a significant and growing number of partners, some who work full time for the Firm, others who partner with us on specific clients and engagements. If you have a background in high quality professional services and want to find out how you might work with us, please contact me, Bill Reeves at breeves@openwateradvisors.com.