Placement, Promotion, Product (Genesis)

Businesses have to do many things to succeed. But three areas encompass those many things: placement, promotion, and product.

Where is this sold? The placement includes distribution, retail (shelf space), shipping, etc.

How is it promoted? Also known as ‘marketing’ but includes how the customers understand the value.

What is sold? The ‘thing’. What are the trade-offs in the creation?

Consider toothpaste. It’s universal in retail, it’s promoted with national, regional, and local advertising, and it is designed to feel good.

Or, your local accountant. They have an office (Main St. USA), sponsor a little league team, have a weekly newspaper ad, and do a service many people don’t want to, or can’t, do.

Even, Google. It’s located in the world of bits rather than atoms, it spreads through word-of-mouth, and is the best search engine ever built.

Remove one area (placement, promotion, or product), and each business changes significantly. What if toothpaste loses shelf space to deodorant, if the local accountant stops advertising, or if Google search results become worse? These three areas are ‘gotta haves’.

We’ll look more at how Placement, Promotion, and Product influence how a business succeeds or fails.

Some parts of this diagram we’ve covered. If Product is the goal, then job to be done is the means. If Promotion is the goal, then Alchemy is the means. If Placement is the goal – well – this one we’ve looked at less, and it’s because of the internet which makes getting bits of data to anyone so simple it’s overlooked. We’ll fix that.

Follow along 👇

Blumhouse business model

“So how do you win, how can you make money if the dumbest guy in the room is the one setting the price?” – Jerry Neumann 

Every business has better or worse business models. Pixar only worked as a movie company thanks to the extensions offered by Disney. John Lassiter told Steve Jobs that each movie they made had to be the highest-earning animated movie of all-time every time. Unless of course there was theme park, merchandise, and licensing revenue too.

Another movie model is Thomas Tull’s experience at Legendary Pictures. There the goal was to “stand as close as you can to absolute talent” and be mindful with the marketing. Great directors (Nolan, del Toro, Jonze, Snyder) with established characters (Batman, Superman, Jurassic Park) and good marketing meant Legendary worked. 

A third movie model is the Blumhouse model. How does it work? 

1/ Horror is the minivan of Hollywood. One day I went to a friend’s house to play pickleball. They love pickleball and painted a court on their driveway. I parked in the grass, got out of the car, and was welcomed by the question you bought a minivan?!?!?!

Yup. Besides the practical aspects, minivans are don’t include a “signaling premium”.  It looks cool to ride in a Suburban. A minivan is much much much less cool. Because it is ‘hired’ to do fewer things it’s cheaper for the other jobs. 

In Hollywood action movies are Suburbans and horror is the minivan. “It’s very hard for producers and executives in Hollywood,” Blum said, “to get out of their way.” Horror movies don’t have an ego reward.

2/ Control the costs. Blum does this three ways.

  1. Actors get the minimum plus bonuses. “Few locations, few speaking parts, and we shoot 90% of our movies in Los Angeles. It’s twenty to twenty-five days and everyone works for the least they’re allowed to be paid from the union.” It’s a venture capital model. 
  2. There’s no meddling. “I’m not an artist,” Blum said, “I leave that to the directors.” If you hire the right people they don’t need to be told what to do. At Seinfeld, they celebrated the 100th episode with an enlarged list of requests from NBC – none of which had been made. People are willing to work for less because there’s also no “note tax” on their psyche.
  3. Moneyball hiring. “James Wan and Leigh (Whannell) had done Saw together and they came in my office and pitched Insidious,” Blum said, “Leigh and James had done two movies for Universal that hadn’t worked very well and I think Hollywood judges all of us too harshly on our last work as opposed to our body of work.” Blum found metrics that were underpriced by the market due to recency.

3/ Total addressable market. The movie business model affects how many and what kind of movies there are. The 1990s saw a bunch of movies because there were many screens. The 2000s saw a bunch of DVDs because of their high margins. The 2010s saw a bunch of superhero action movies because they easily translated across languages. Horror does too.  

4/ Sequels. Each movie is a test. If the ‘proof of concept’ works, Blum and his team add to it. The Purge was made for $3M and earned $90M in 2013. The sequel, Anarchy, was made for $9M and earned $110M in 2014. There have been five Purge films (so far). 

Is there such a thing as a bad business? There are poorly run businesses. Some businesses attempt the wrong thing. There are business cycles. But every business has a model that works. Jason Blum utilizes ego and lack of to compete and compensate in a unique way. Much like a CAC of zero changes the unit economics, Blum’s approach opens up a business model that works.

Seriously, 1999.

KISS the Afterpay business model

Many actions are taken because they are easy. What did you last eat for lunch? How did you drive to where you are? What browser tabs are open? And ease is context-dependent. What is easy for one person may not be easy for another. 

Ease is a tool. Make it easier and people will do more of it. 

And it doesn’t have to be that easy: Framing makes comparisons better. Any fast associations will do.

The ‘buy now pay later’ company Afterpay succeeded for many reasons, one was a focus on ease. 

Easy for the consumers. Pay one-fourth now, then one-fourth every two weeks. That’s easy. There’s no consideration of credit card balances or APR. 

The terms also make it easy for the consumer to legitimize. If the offer was too good to be true consumers would sniff it out and balk at the purchase. 

Easy for the merchants. Say you own a store. You hear about Afterpay. Wait! They charge, 4% of the transaction!?!?! Your store can’t afford that. 

So how did Afterpay make it easy? 

Merchants don’t have to handle the transaction costs (~1-2% anyway) or the chargebacks. They don’t have to worry about bounced checks or building out their own software. Afterpay increases total order size and serves as a marketplace. The deal was so good it was irresponsible not to be a customer

Easy for regulators. Every business exists within a system of rules. One of the largest agents in the system is the government. Relative to credit card companies, Afterpay has a consumer-friendly profile and consumers love it. 

BONUS: Easy for Afterpay. Yep. Afterpay made it easy on themselves too. Co-Founder Nick Molnar told people his ideal customer was someone buying a purple polka dot dress. This customer was fixed on the fashion and unlikely to miss a payment. 

Fashion customers also skew younger, are more open to options, and want creative financing. While Amazon is convenience shopping, Afterpay became experience shopping. 

Afterpay found an opportunity by reshuffling the costs of doing business. Merchants do pay more per transaction but have more and higher transactions. Effectively Afterpay took money from the marketing and rent buckets and moved it to (their!) processing bucket. 

Within Afterpay, it is CAC reshuffling. If Afterpay is more lenient in approving customers, they have more loss. But they get more customers. Longtime users use Afterpay 29 times each year! While the fraud and loss figures increase the other forms of CAC do not. 

An Acquisition Anonymous Amoeba

This post is best viewed on a tablet or computer window.

There is a business. It sells things. From the outside it looks just like a business should.

But.

This business has something.

This business has potential.

Who notices the potential?

Maybe the current owner. Maybe she knows that some parts are humming along and some parts need some work. Maybe she’s up for it.

Maybe she’s not.

The gap between the business and the potential is the acquisition appeal. Another person sees this. Another person wants to buy the business from the owner and grow the business.

They want the business to reach its potential.

They have ideas.

Even better, they have cash.

Hopefully they have experience too.

Experience matters because some parts of the business are at their potential. “Do not change these things” the buyer’s silent voice says. “Just because you can doesn’t mean you should. Don’t just do something, sit there.”

“Look here” says the silent voice, “work on this.” The buyer looks. Over there the business has not reached its potential. Over there is the success gap. “Work there,” says the silent voice.

This post came about after listening to a lot of the Acquisitions Anonymous podcast. Businesses truly are unique opportunities and success seems to come from someone having the time, space, and skills to notice where a business can grow and where it cannot. Technology sometimes helps a lot and sometimes doesn’t (though behind the scenes it seems like it always helps). Hire sales and scale sometimes works, and sometimes doesn’t. E-commerce best practices sometimes help a lot, but sometimes a business is at its potential.

And sadly, my favorite brunch place no longer has the digital queue. Servers slinging names is the potential.

Car sales and skin creams

One prompt for a business is to ask: where are my customers and what do they see? The answer and application leads to the Customer Acquisition Cost. The best businesses find creative answers and the answers aren’t always obvious. Where are Gen Z customers? TikTok and Target. But a beauty brand cannot sell in Target.

The Target problem for a natural beauty brand has to do with the second half of the question. Gen-Z-beauty-LC may be at Target, but so are a bunch of other products, mostly at cheaper prices. The customers compare brands and framing on price is powerful.

A good business then, finds customers and frames their value relative to what the customer sees.

In 1918 Ford’s market share was 50%. A dozen years later it was 25%. Oof. Competition. One innovation where Ford floundered was financing which Henry Ford considered reprehensible. But the innovation treadmill continues today. “There is so much competition,” in the auto market, said Carvana founder Ernie Garcia, “which leads to the need to be more creative to monetize the transaction.” Dealers don’t just make money selling cars.

Dealers began with: Where are your customers and what do they see? For auto dealers this happens on multiple levels. First regionally, dealerships have geographical footprints and internet homepages. At that level the customer communication has to be big and use framing (zero anything works well too).

Zoom in and the next level is the dealer lot. Here customers are captive, and unlike Gen-Z at Target, there’s no framing. Dealerships use financing, warranties, trade-in offers, and accessories to enhance their margin becuase it’s hard for customers to shop around. Amazingly it seems that even the medium of contracts affects sales.

There are multiple JTBD for new cars and skin screams. One is utility. Another, like Aviation magazine, is appearing cool (and these status games are okay). When car dealers use fat margin products they can ‘offer’ sticker discounts or trade-in boosts as visible and easy-to-understand wins for the consumer. Getting a good deal and sharing the story is a job to be done too.

Business is hard. Innovation and its competition are never ending but this is a good challenge. One way to face it is to ask, where are my customers and what do they see?

I did not follow my own advice – always buy two new cars – and bought a minivan. It wasn’t a blast. But I did sell my old car using Carvana and that was pretty good.

NBA 3s

There’s one honest sport.

When asked if the NBA will soon move back the three point line Mike Zarren said probably not. The reason is probably the business model.

“At the end of the day we are an entertainment and I would want to hear from fans that they are not liking the game as much. That’s not what we are hearing now (2021). You have to listen to the customer and people love the NBA right now…

“You also have a problem with the three-point line corners. The further out you move the crest of the line, the bigger the disparity between the corner-three and the other threes, and we’re not going to make the court wider because that would mean less seats and fewer tickets.”

It’s fun to talk about BIG CHANGES rather than “things are going well, let’s keep working hard and marking small bits of progress every day.” So it’s fun to talk about moving the NBA three-point line further from the basket or having a four-point shot or whatever. But those things won’t happen, chiefly because of incentives. The NBA, like movies, is a business, and like movies, those business incentives dictate the easy and difficult changes.

Selling shirts, planning planes

We’ve looked at a few different customer acquisition cost strategies : F1 racing, Zappos’s mistake, and P.S. I love you, from Hotmail.

The CAC ideal is to acquire the best customers for free. That’s ideal. L.L. Bean started when Leon Bean mailed his catalog to out-of-state hunters. Michael Dell sold newspaper subscriptions, but sourced his leads from the “Just Married” records. Both men found pretty-good customers for a pretty-good price.

Customer acquisition might be the most interesting puzzle in business because the lower the CAC the more flexible the business model. Today we’ll add two more.

About Mike Wolfe, of American Pickers:

“He would go from barn to barn and buy some cheap stuff, something sold in the store for fifty bucks. We would buy something like an old motorcycle that was art which we could sell for twenty grand. And each day all these people, from all over the country, would come into the store and we would probably sell five-thousand-dollars worth of items and probably thirty-thousand-dollars worth of t-shirts.” – Sam Parr, My First Million, August 2021

The American Pickers television show is the customer acquisition vehicle for selling merchandise. Brilliant right? Okay, the second one.

“Growing a financial services company is so brutally difficult, and the growth is so restrained by customer acquisition costs that it is literally worth it to start flying people around the country. That is the most cost effective way to sign people up for credit cards, and the credit card business is so lucrative it is actually worth it.” – Byrne Hobart, World of DaaS August 2021

The business model of airlines is to operate a hub location that allows for network effects and to maximize the capacity of each plane because each additional customer costs, per Hobart, a drop of fuel and bag of nuts. Hobart’s whole interview is wonderful.

Finding customers has evolved over time. When customers were rural, catalogs ruled the day. As customers moved to cities, it was the department store. Then customers got cars, and the mall and big box retail came to be. The most recent step then is to the internet. It’s the same question Bean bandied in 1912: where the customers for what I am selling?


bonus: look for ‘lost’ monetization opportunities, like Matt Levine’s Money Stuff Bloomberg email.

NFTs and Gary Vee

One way to support this time is different… is to say that the technology has changed. The smartphone’s GPS, camera, and chips all allowed a slew of businesses to serve customers in new ways.

Another way to see change is to ask the Bob Pittman question: is this another one of these? MTV followed from the idea of narrow-casting radio stations. If there was a rock station, country station, oldies station and so on on the radio shouldn’t there be something like that for television: a news station (CNN), a movie station (HBO), a music station (MTV)? This too was a technology shift.

“I believe there’s not a single sporting event or concert in ten years that the ticket is not an NFT. There’s no incentive for that organization or artist to launch it as anything but an NFT. A QR code or piece of paper means nothing. But if Luka Doncic drops a hundred points in that game it becomes a forever collectible. There’s a trillion-fucking-dollars worth of ticket stubs that have sold on eBay over the last twenty years.” – Gary Vaynerchuk, My First Million podcast, August 2021

A third way to consider change is to ask about the business model and the incentives. Sport is not a competition, sports is entertainment. Bob Iger wrote that he learned this lesson working the 1974 Olympics. “We weren’t just broadcasting events, we were telling stories.” There’s only one sport honest about this.

Are NFTs a new technology? Yes. Is this (NFTs) ‘another one of those (collectibles)’? Yes. Does the business model allow for this kind of innovation? Yes!

Every Business is Two Businesses

From Bill D’Alessandro on Circle of Competence #149.

The latest ILTB podcast here, provides examples specifically around media and content companies. Dave Portnoy being the starkest example.

And regarding franchising on Business Breakdowns. Along with never get in a land war in Asia, never take your burrito to Latin America— but your processes will probably do fine.