Supported by Greenhaven Road Capital, finding value off the beaten path.
A business succeeds when it creates sustainable profits by serving customers. Sustainable profits come from LTV, CAC, and making the trains run on time. Serving customers comes from figuring out what people want (or will want) and providing it.
We guessed in the Restaurant post and podcast that food quality past a point doesn’t matter. A rare few dine for the sublime. Most people hire a restaurant to have a good time. This is something the beer brands have done quite well. In Knoedelseder’s Bitter Brew, he writes about Anheuser-Busch:
“It all went back to the beginning, when his grandfather Adolphus first explained to his new partner and father-in-law, Eberhard Anheuser, that their business was not just making beer. ‘Making friends is our business,’ he said. Gussie had made that his motto; rarely did he go a day without uttering it.”
Ron Shaich of Panera was probably the most persistent person we’ve profiled. When he started selling cookies out of a small urban storefront he started with the Tollhouse recipe off the bag then asked people what they liked or didn’t.
Then when Shaich started selling bread and baked goods he asked why people had their orders sliced. “You didn’t have to be a Harvard MBA to say, the real thing here is that the baguette is not the end, it’s the platform to sell sandwiches. My whole view of business is that if you really focus on listening and seeing you’ll learn amazing things.”
Thanks to technology there are other ways to ‘talk to your customers’. Michael Smith is a researcher at Carnegie Mellon and advisors to technology and media companies said this:
“The advantage Netflix got was from using its data was to do something that no traditional broadcast network could replicate. Netflix’s advantage didn’t come from knowing how many fans of Kevin Spacey were in the audience. Netflix’s advantage came from knowing exactly who they were as individuals and promote content to them directly based on their individual preferences.”
Netflix, we don’t think, uses data to dictate the creative aspect. Instead, they use a decentralized command. Ted Sarandos told Marc Andreessen “We’re way better off taking someone’s creative vision and putting it through the service than us trying to go in and retool it.”
That is, Netflix listens to the customers to a point. They do not, we think, dictate direction with data. “At the end of the day if the creator says, ‘That’s my show.’ we put it up.” Sarandos added, there’s an audience for everything.
Netflix creates digital content and targets viewers.
Buzzfeed creates digital content and targets consumers for physical products.
The Tasty One Top, Tasty Cookbook, (formerly) Homesick Candles, and Glam Spin are all physical products that came out of digital content. Head of product labs Ben Kaufman said, “In our research group at Buzzfeed we saw that a lot of people that consume lip gloss content are also consuming fidget spinner content.”
Consumers conversed with Buzzfeed with clicks. Buzzfeed listened and made products molded in those patterns.
Even when the ideas seemed silly. Kaufman thought the idea of combining lip gloss and fidget spinners was silly. But his team trusted the data (aka the consumer) and the product reached number seven on Sephora.
Ditto for the One Top. Before joining Buzzfeed Kaufman founded Quirky and describes it as a rollercoaster ride with big ups but bigger downs. He’d been burned by IOT devices, and the One Top was going to be an IOT device.
People opened a recipe in the app and then the One Top set the temperature and timer for each stage. Kaufman and his team partnered with GE for the device and sold out. Then Tasty partnered with Costco and doubled sales of their air fryer. Then Tasty partnered with Oster and sold out of their seven-minute grill.
Why can Tasty/Buzzfeed boost sales for Macy’s, GE, and Costco?
They know what customers want.
Our final example comes from Kai-Fu Lee who believes that China’s AI efforts will surpass the American ones. His case rests on two data points; China has more people, and what you say isn’t necessarily what you do.
Before AI we need better algorithms and better algorithms aren’t a quality problem, they’re a quantity problem. Simpler math with more people is better than fancier math on smaller data sets.
Chinese consumers are a huge data set and better connected to be counted. As Connie Chan of a16z has noted it’s a different structure. Lee said, “People’s spending patterns are so much more valuable than their clicking patterns.”
Rich Barton is the co-founder of Zillow and said that figuring out what customers want is both an art and a science. Businesses have to have empathy and listen to what people say. They have to ask questions that pass The Mom Test. Form a hypothesis from there, and said Barton, “we have tons of data on how (it’s) used and that’s where the science comes in.”
Thanks for reading.