I have always believed that there is a natural, organic rate at which a business should grow, and that if we expanded too fast, the wheels would come flying off.  Then I came across a quote from Geoffrey Moore, who is best known for his best-selling book Crossing the Chasm, which is about how businesses cross over from their initial niche markets to dominate larger markets. In another book, called Inside the Tornado, Moore writes about the great battle between Oracle and Ingres in the early 1980s. The winner of that battle is well known: Oracle now has a market cap of more than $100 billion, and I’ll bet you’ve never heard of Ingres.  Moore explains that “for pragmatist customers, the first freedom in a rapidly shifting market is order and security. That can only come from rallying around a clear market leader. Once the apparent leader-to-be emerges, pragmatists will support that company, virtually regardless of how arrogant, unresponsive, or overpriced it is.”

The reasons why breakneck growth may be preferable to steady, conservative growth can be summed up in two bullet points:

1. As noted above. network effects that attach to the market leader
2. Generation of revenue and capital that can be reinvested in the firm to improve systems, products, as well as increase advertising spend and bolster sales efforts

To be sure, these are logical arguments.  However, I think to what extent the logic holds is dependent on a few factors, such as product and/or industry.  Additionally, whether a high-growth strategy will be successful depends in large part on whether their is a plan at the outset that includes provisions for how to effectively manage the growth.

First, network effects do not obtain in every industry or for every product. In some cases, like software, social networking websites, etc, a product’s worth is highly dependent on how many people use it. Issues of compatibility, integration, and utility will push customers to select the service with the highest volume of users. This in turn makes the service more attractive to additional users, etc, etc. When you look at business models like Twitter or Facebook, they’ve absolutely pushed to expand membership (basically, their customer base) at a pace that at times has outpaced their infrastructure and ability to delivery crisp service. However, they’ve built up such a lead in terms of users and customers that the barrier to entry for additional social networking or micro-blogging sites is extremely high. But this isn’t necessarily the case for all other products or industries. Take breakfast cereal. Is there some advantage customers gain by purchasing the highest-selling cereal in the market as opposed to the cereal that meets their taste and nutritional requirements? To be sure, branding can provide customers with a shortcut for their buying decision, but if quality deteriorates their are no shortage of competing products for customers to flock to.

A better example might be strategy consulting. McKinsey is often mentioned as the Cadillac of strategy consulting. To be sure, they are a market leader and employ tens of thousands of consultants. However, what makes them so dominant is not simply that their client base encompass most of the Fortune 500 or that they have thousands of consultants–it’s the quality of their work. McKinsey didn’t become a market leader because they grew rapidly. They became a market leader because the quality of their work was unmatched. McKinsey has relied less on a network-effect than on a halo-effect–the perception that their work is far superior to their competitors and, as a result, other firms feel compelled to leverage their expertise as a result. (If anything, the latter may have caused the former.) In other words, working with McKinsey is a best-practice. As the saying goes, no one ever got fired for hiring McKinsey.

Hypothetical Returns from Growth

Second, given the advantages listed above a business should certainly push the envelope but only to the extent that it can manage its rapid growth. Think of the relationship between growth rate and the return from that growth as a parabolic function. Like the Laffer Curve, the idea is that while increase growth theoretically bestows all sorts of advantages on a firm there comes a point where the growth will actually bring negative returns. As Spolsky notes, rapid growth can strain a firm’s ability to delivery quality to its customers. However, I would argue the difference between the wheels falling off altogether and reaping the full rewards of the growth is whether the business built itself as a platform for growth. What I mean by this is that firms that will be successful pursuing a high-growth strategy will have likely been engineered to deal effectively with that growth.  Here are just a few provisions/topics I think would need to be addressed at the outset:

• developing a strategy for recruiting and retaining top talent during growth phase, as competitors will likely try to siphon off employees in an attempt to catch up (this would include pay, recognition, promotion requirements, etc).
• identifying tasks that will need to be automated sooner rather than later as volume crosses various thresholds
• building systems that are scalable and amenable to rapid expansion and integration with customer and partner systems
• identifying alternative ways of meeting manufacturing requirements, either through acquisition, partnership, or outsourcing

Admittedly this is easier said than done.  However, the choice isn’t all or nothing.  Companies that consciously pursue a breakneck growth strategy out of the gate should do what they can to support that growth with a forward-looking strategy, not one that only focuses on how to grow, but also with what to do once you grow.  As they progress, the strategy will obviously need to be revisited and revised, but I would think trying to think through the implications of growth ahead of time will make a big difference.

How can we then decide that a campaign was “better” than another one? We rarely look at a campaign data – partly because the actual metrics data is proprietary and not available to anyone beyond walls of an agency and of their clients…

General, and generally available, feedback mechanisms and benchmarks for success don’t really exist. While it may not have been possible before to know exactly if a TV/print/outdoors/radio campaign influenced particular brand affinity and purchase decisions, digital lets us do things differently.

This means that we don’t have to judge works of others purely on elusive criteria of “creativity”, but on actual data on how this creativity fared with people (what did they do? and what did they do next?).

Read the whole thing.

Computer deciphering of word meaning is not always accurate and tone can be completely missed. Even the leading vendors acknowledge that the data is 70-80% reliable. For example, we may know that the phrase “quite interesting” means one thing in America, another in Britain, but the computer would see the same meaning. Note some of the long-standing issues with voice recognition technology.

There are questions about how robust or representative the data is. Are a brand’s tweeters the key WOM influencers or are they just a small vocal segment?

Some brands and products may be under the radar for this technology. Yes we love to chat about Apple but do we also regularly, enjoy blogging and tweeting about Charmin or business insurance?

There are conflicting approaches, metrics and offerings; over time a common Microsoft, Google, Nielsen type platform may emerge.

The notion of accurate sentiment analysis is very intriguing, but, as Randall notes, it is far from a finalized technology.

On the one hand, we now have access to an unprecedented about of data about people’s opinions that is in constant flux, constant evolution, and is constantly being updated. In business (and, I would argue, life) the key is lessening your information gaps, reducing the information asymmetries you face. Often times this can be accomplished by finding a way to take the private information people hold (e.g. opinions about a product or brand, their preferences and priorities, etc.) and making it visible. This is the essence of market/consumer research. The current environment makes the collection of that data much easier, especially at high volumes, and more cost effective.

However, the only way to derive usable, reliable information from this ocean of data is to properly code it. If we can develop reliable technology that overcomes some of the current shortcomings we will be in a position to literally visualize the collective mind, and do so real time. That is a very exciting prospect, but one that will be difficult to achieve.

And while the unit itself is doing well and was not responsible for the $99B in loses at AIG last year, there is the delicate issue of what to call the firm and how to position it since the AIG brand is basically toxic at this point.  The strategy seems to be: don’t stand out.

Becker goes on to describe the strategy:

The very recently risk-averse AIG is playing it safe with this one. Chartis, the name, is as inconspicuous as they come. It feels like one of those words that has been bouncing around the naming industry for some time now. It is descriptive without being specific. It is easy to pronounce and even easier to spell. As far as names go it is completely unobjectionable. So much so, that there are at least two other large, service-oriented companies that use the Chartis name and that’s probably ok. Sometimes a brand just wants to blend in. One could imagine the project brief went something like the scene from Oceans 11 where Matt Damon is coached on how to not stand out:

Don’t use seven words when four will do. Don’t shift your weight, look always at your mark but don’t stare, be specific but not memorable, be funny but don’t make him laugh. He’s got to like you then forget you the moment you’ve left his side.

Given the controversy around AIG it seems reasonable that what you may lose from abandoning the brand name that loyal customers know you by you more than make up for by leaving the Titanic that is the AIG scandal behind you.

The discount-brand is seemingly a reaction to the major hit P&G has taken on its premium brands.  The Wall Street Journal reports that P&G reported an 18% drop in its fiscal Q4 profits, due mainly to the sharp decline in sales of its premium-priced brands. The current move signals somewhat of a capitulation to competitor’s discount products.  P&G used to rely on “new and improved” versions of its products in order to avoid dropping its prices, but like many other powerful consumer brands they have recently had to bend and drop prices as structurally consumers simply didn’t have the budget to continue purchasing P&G’s products.

The money quote that sums up the challenge for premium brands in a recession:

After years of spending $17 on bottles of Matrix shampoo and conditioner, 28-year-old Ms. Ball recently bought $5 Pantene instead. “Buying the more expensive stuff just isn’t as exciting to me — it’s not as important,” she says. “I don’t know that you can even tell the difference.”

And herein lies the challenge to brands: there is seemingly a point at which consumers will focus their attention on quality and the relative difference between a premium brand and a low cost, generic brand.  If the difference is negligible (or perceived to be negligible) consumers will not pay a premium for the brand.  Below, I’ve posted a rough, hypothetical curve that represents what this relationships might look like. Early on, the brand’s power is enough to hold on to most consumers–possibly by signaling and being a short-cut for quality. However, as consumers disposable income (and savings) become more and more pinched by the recession the brand’s ability to extract higher prices than low-cost competitors declines. One simply reason may be that consumers begin to question the brand–the short-cut–and whether it really has a perceptible difference in terms of quality versus a lower cost alternative. Eventually, there reaches a sort of tipping point where the power of the brand dramatically declines across the consumer base (as even more financially secure consumers begin to preemptively cut back “just in case” the economy won’t be turning around any time soon).

The graph and the relationship between brand and depth of recession is hypothetical on my part–not based on actual data, etc. Would be interested hearing from actual brand professionals if this relationship is close to what has been observed, both historically and at present.

Would be interested to hear folks’ thoughts as I begin working on the post.