How AirBnB’s Key Component Evolved Over Time

I recently had the pleasure of reading a case study of AirBnB entitled “AirBnB: The Growth Story You Didn’t Know” by Morgan Brown, which helps to illustrate how a company’s key component can and does change as it matures.

In reading this article, you can see how the founders’ individual key components, who they are, gained in value by attending the Rhode Island School of Design. Their design talents became their new key component, used in building and improving successive versions of the AirBnB website. The website thus became its own key component. And finally, in its most recent iteration the brand became the key component allowing the company to branch out into any number of complementary businesses.

What is fascinating to see here is how in the space of 4 or 5 years the business has reached a level of maturity that in the past required decades.

ROKC’in Normal Earbuds

Recently, a startup launched near me with a very interesting business model: 3D printed personalized earbuds. The company is called Normal and based on the different articles available online has been launched by Ben Kaufman’s (Founder, Quirky.com) wife Nikki and received $5 million in funding.

The startup is in a mixed use space combining production and retailing on 22nd Street which is zoned for it. The architects did a very nice job making a sleek, modern, store with a production area in a glass enclosed space at the back, reminiscent of a restaurant.

The business model seems fairly simple. They have developed an app which can be used to take a picture of each ear, select the color you want and send the order to the server. Technician use the picture to print a 3D earbud on these great big Stratasys machines that fits only that ear, insert the electronics, and ship it off to you. The whole process takes around 48 hours. Like I said simple. The company focused a great deal of attention of the production processes.

However, on the consumption side they don’t seem to have done so well. At least as far as we can tell from the traffic in front of and inside the store.

As we so often tell our clients, it is great to focus on the production process but you really need to pay an equal – if not more – amount of attention to the consumption process. Especially in an economy where over 65% of GDP is based on consumer spending, like the US.

We don’t spend a great deal of time hanging out in front of their door but when we walk by this beautiful store we almost always hear passersby asking each other – and some times us – “What do they sell in this great big store?” Notwithstanding all the work that went into the place, as a retail outlet it fails. In fact, the place is almost always empty and, more recently, the staff members are actually coming out onto the sidewalk to show the confused window shoppers what they sell.

Using 3D printers to personalize earbuds is a great idea. Unfortunately, the price point is very high for  such a value proposition. The earbuds are sold of $199 which is the on par with a high quality audio devices. And there is the problem! $199 for a high quality audio device makes sense while $199 for pieces of plastic is crazy. This sentiment is supported by the comments readers have left on various technology and news blogs we follow. Thus, the value proposition is wrong.

So what is the lesson to learned here? You really have to work hard on the consumption processes that support your business.

It seems fairly clear the company should have manufactured in the outer boroughs or even outside the city and located its retail space in a high traffic location. Likewise, the launch was premature with respect to the value proposition. Take your time and be critical of the choices you make. If your plans cannot take the heat of a lively and vigorous internal debate the market will even more merciless.

Normal is well bankrolled so they can afford to make mistakes and make corrections. Most startups are not and can’t. Good luck to everyone.

Letters to a Young Peter

Hello,

As I am reading through your thoughts I am trying to apply your terminology onto my perception. I failed to understand what is the link between return on key components vs. financial term internal rate of return.

Am I right if I state that ROCK is analysis of the very core of the business, process that takes assets, transforms into products and via distribution channels delivers to your customer. While IRR is simply monetary explication on how capital invested multiplies over the time period?

Which is something totally different because ROCK evaluates the core factor of business while IRR does not take respect to particular company operations creating added value yet both can be expressed in monetary terms?

Or is ROCK simply a selective yet precise analysis of company assets, transformation and delivery to customer without monetary quantification?

Or is ROCK added value with or without respect to price of initial assets?

Does it make sense?

Peter

Are You Your Key Component?

Let’s face it, history and philosophy and politics and economics and religion are all intimately intertwined. At ROKC, we focus primarily on the principle that property – what the business owns and/or controls – is the bedrock on which businesses are built. And for the most part this is historically true.

However, there is also the off the chance that we are at an historical turning point. It is our view that once an individual’s basic needs are satisfied they can aspire to a more fulfilling existent. Over numerous years of working with leaders across the world we have come to the conclusion that the ultimate expression of humanity of expression of the self. Not an easy thing to do. And leaders – with their qualities and defects – are truly good examples of people who are able to express their essence to the fullest.

When we think of business, we start with an asset that is owned and/or controlled that brings your customers a competitive advantage, makes their lives less uncertain. All the processes and risk management a business engages in to make their key component available to customers is the means. So if we transpose this model to the individual then we can make the case that who the individual is, their essential being, is their key component and all the decisions they make about schooling, work, friends, significant others,… is like the busy part of a business. They are there to make those essential qualities that the customer values available to them.

There is an enormous amount of research to support this thesis so we won’t go into it here. However, this framework should help you to gain a number of insights into yourself and your life that are quite revealing.

Likewise, there is a stupendous opportunity upon us. Using “Big Data” not for the benefit of the few but for the many. Employing the techniques of big data, it might be possible to unlock a new perspective on our individual selves such that each one of us becomes our own means of production. By mastering ourselves we can bring our own personal sense of being to a customer base that values us and compensates us for being who we are. Fascinating! No?

aereo antenna

ROKC’n Aereo’s World, The U.S. Supreme Court Rules Against The TV Streamer

Like almost every case that comes before a US court, the Aereo case was couched in property law. And, so was the supreme courts decision against the company. Arguments were formulated on both sides that pitted the copyrighted material owned by broadcasters against the technology owner end by Aereo.

The Supreme Court rendered its decision by assimilating Aereo’s service with that of a community antenna tv operator (cable tv, to the rest of us) which was only possible because Aereo owns – has the property of – the entire system. This includes those tiny antennas they use for capturing the Over The Air signals.

Based on our reading of the court’s decision, the only way the court could consider Aereo is providing public screenings is because they own the whole process: antenna tuning, signal capture, saving to server, and transmission to client. However, Aereo’s service is actually two distinct products: the antenna and the cloud-based storage system.

It is our contention that if Aereo changes its business model thereby breaking the chain of ownership they can circumvent the ruling and comply with copyright laws. The company should simply sell the antennas to the users and charge a monthly fee for antenna maintenance and the DVR service.

Once the antenna becomes the private property of the user there can be no doubt that the screening is a private screening.

To read the complete Supreme Court ruling, click here.

The Laundry Challenge Answered

We want to thank a number of our readers for courageously pitting themselves against the Laundry Challenge and coming out whiter than white. For those of you who didn’t do as well here is the way we assess responses.

Let’s start with a recap of the challenge for those who didn’t participate.

“We do an exercise with our clients to analyze – along with them – the limitations of their business reasoning. This short exercise is so effective we want to share it with you so you can perform a self assessment. Enjoy. It is supposed to be fun.

You are given a bundle of freshly washed clothes, a length of rope and clothespins, and asked to dry the laundry. What do you do?

That’s it. Nothing more. What do you do? How do you hang up the laundry and get it dry?

Metaphorically speaking this is a business problem. You have a client (the person asking you to dry the laundry), the activity you are engaging in brings them a benefit (dry laundry), you are given all the tools you need to get the job done (you have the means of production) and if you do this efficiently enough many other people may ask you to do the same thus allowing you to make a business out of it.

All the elements are there for a potentially successful business. It is now up to you to demonstrate how you approach the problem and make it into a business.”

The first mistake respondents make is assuming they have ground to stand on. In the problem, you are given laundry, a length of rope and clothespins but no lawn, courtyard, or even the alleyway between two buildings on which to stand and hang any laundry. As the ROKC approach states, you have to own and/or control an asset to get started. In this case, it is actual space.

The second error they make concerns where to attach the line. They assume they have someplace to fix the two ends of the line when they don’t. It is not a given. Often enough other assumptions are made such fixing the line to a couple of tress or posts or the sides of a building. All simply assumptions which allow them to over simplify the nature of the problem in front of them. In the case of fixing the line between two buildings there is the added challenge of obtaining permission from the building owners to actually do so and the consequences of not getting permission beforehand that complicate the situation even further.

The next challenge comes in the form of the additional resources that may be required to fix the ends of the rope. In some cases, a simple knot may do the trick – assuming the rope is long enough – however in others the task owner is obliged to acquire further resources: a drill and masonry bit to punch a hole in the walls, eye screws, a pulley system, a couple of posts, cement, a clothesline system, and so on. Basically, the lesson here is that there may be start up costs to get you to where you need to be to actually fulfill the task.

Now our respondent has a fully functioning system where they can stand on solid ground and fix the length of rope to two points, and all the rights to do so. The work of hanging the laundry out to dry can begin.

Most people describe the process of hanging laundry as placing a garment on the line and holding it down with a clothespin. Nothing surprising here you say. Well is it? Let’s take a look.

The actions required to fulfill this process usually, not always, involve having the laundry in some container that rests on the ground requiring the operator to bend down to select the next item to be dried. The item needs to be neatly folded over the line to allow the clothespin to be fixed, any budges may make it impossible to get the clothespin around everything. The clothespin is often in a container on the ground again requiring the operator to bend down to retrieve it. And so on and so forth until all the laundry has been hung. The opposite process ensues after the laundry has dried when it is retrieved.

However, here again we have an assumption which the text above does not satisfy: a container for the laundry and one for the clothespins. The fact of the matter is that we have neither. Thus, our operator needs to acquire even more resources.

Then there is the actual process itself. All that bending and picking and smoothing out and clasping is slow, back-breaking work. It isn’t very efficient. However when respondents are asked why they propose to do it that way they inevitably say those words that all leaders hate, “We have always done it that way.” Argh!! So what can be a more efficient way?

Based on our research the most efficient system we have found involves nothing more than a length of rope fixed to two points. But here is the “innovation”, the line is doubled up and twisted. By using the rope in this manner each item hung on the line increases the torque produced by the twist. As a result of this simple difference, the operator can confidently insert the item that needs drying in between the two lines; each item increasing the pressure. This eliminates any need for clothespins and the time it takes to fetch them from a container, smooth out the garment and clasp and unclasp the pin. Likewise, the operator can hold the laundry in their arms or over their shoulder – instead of in a container on the ground – because they don’t need to use both hands to smooth and clasp. This allows them to go much faster in hanging the laundry, as well as to remove it since all they need do is pull.

The inevitable question is, “If hanging laundry the way do is so inefficient, why do we do it that way?” The first answer is the one we saw before, “We always did this way.” However, if you give the question some more consideration you quickly conclude we hang laundry this way because we have delegated the responsibility to make our life easier to a business who hasn’t questioned what they do since its inception. And more often than not, that business was founded on the basis of how people hung laundry at that time. The business simply grew by scaling what was already done.

So here is the rub. The twisted double line method for hanging laundry out to dry is not innovative. This method has been used for decades/centuries in the Dhobi Ghat, the air dry laundry village in Mumbai, India. Getting “western’ consumers to hang their laundry out to dry in this method means bringing in a “foreign” or “alien” process they may not adapt to very easily. What we used to call “the not invented here” problem. Changes in behavior can be a very tricky issue for employees and consumers alike.

As ridiculous as the Laundry Challenge may have sounded to you to begin with, it does bring to light a great many issues that may be affecting your business: quick decisions bases on assumptions that don’t hold true in the real world, infrastructure dictating processes, vendors of infrastructure and processes who are selling your business inefficient products, incurring unexpected costs related to the implementation of that infrastructure and those processes, cultural/behavioral adaptation issues, and many others.

The ROKC method cuts through most of these business issues by constantly challenging the dominant paradigm governing your business culture. You should try it some time. It works!

The Laundry Challenge

We do an exercise with our clients to analyze – along with them – the limitations of their business reasoning. This short exercise is so effective we want to share it with you so you can perform a self assessment. Enjoy. It is supposed to be fun.

You are given a bundle of freshly washed clothes, a length of rope and clothespins, and asked to dry the laundry. What do you do?

That’s it. Nothing more. What do you do? How do you hang up the laundry and get it dry?

Metaphorically speaking this is a business problem. You have a client (the person asking you to dry the laundry), the activity you are engaging in brings them a benefit (dry laundry), you are given all the tools you need to get the job done (you have the means of production) and if you do this efficiently enough many other people may ask you to do the same thus allowing you to make a business out of it.

All the elements are there for a potentially successful business. It is now up to you to demonstrate how you approach the problem and make it into a business.

Give it a try.

Google’s move into the Internet of Everything

Seems kind of straight-forward to me. Google’s search engine algorithm is not as competitive as what can be derived from social platforms like Facebook. Their attempt to bridge the gap with G+ didn’t work. Consequently, faced with more competition from businesses able to do just as well as Google in the advertising market, the company is trying to move into a supplier of industry agnostic big data for other companies to develop their own goods and services. You know. The internet of everything.

Sounds like a sound strategy.

See the article What’s Driving Google’s Wild Moonshots? Desperation by Marcus Wohlson, Wired, 4/17/14.

Property & Power

Is it naivety or are most of us asleep in the wheelhouse? I don’t know for sure but I am concerned. What is so difficult about remembering that property is at the base of all power? It has been so since man started living in settlements and nothing has changed for around 10,000 years.

Sure, the needs of many are satisfied without property. Well, in many countries anyway. But does that mean we should fall asleep on our laurels?! Does that mean it is okay to aquiesse to anything those with power want?! No!

The basic premise of any business is ownership or control of assets that provide a competitive advantage. The ROKC method explicitly recognizes this historical fact and builds upon it. However, even belief systems recognize this fact. Most belief systems are road maps to help individuals understand how to be who they are. To be their specific and individual self. Why would we give that away?

This week, I have been reading Jaron Lanier’s Who Owns the Future with a certain amount of frustration. The primary source of my malaise is the degree to which he echoes my own thoughts and conclusions, some of which have been expressed on this website. The second source is Lanier’s inability to put a framework around all his observations which go all over the place. If Lanier stopped and focused on the relationship between property and power all would become much clearer to him and his readers.

Businesses exist to convert abundant and cheap resources into products valued by their clients. It makes no difference if the resource is land, a machine, an ore, or the individual expressions of millions of people using social media platforms or the computing power needed to analyze all that data. As long as their is a market someone will devise the means to use that resource. Even the converse is true. People will come up with a way to use the resource and then convince as many people as possible of its intrinsic value, some of whom will buy into it.

Just as we have done in the past, either legislation – or armed struggle – will be employed in order to control and mitigate the exercise of power that comes with the concentration of power that new technology brings. Any other solution does not exist. Or, to be more precise, is not part of man’s common experience.

So let’s stop the nonsense and kick our legislators collective butts to pass laws that protect our most basic and fundamental personal property, who we are.

OK. Now my rant is over. I can go on to finish Mr. Lanier’s book.

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