Tag: TiVo problem

A Monster JTBD

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One of the best-performing stocks of the last twenty years – a famed 100-bagger – is Monster Energy.

Why didn’t we see this?

If you want to succeed at investing, Howard Marks wrote, you have to be different and you have to be right. Embedded in that is the notion that being different is hard.

If different was without social, financial, political, emotional, or mental costs then everyone would do it.

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Monster Energy faced at least two of our common business headwinds. First is the TiVo problem. Can an innovator (like Monster) gain distribution before market leaders with distribution (Coke, Pepsi, Anheuser Busch) gain innovation?

It’s remarkable that Monster succeeded. Their competitors already made sweetened caffeinated beverages. They already managed brands and distributed millions of liters of fluid to every gas station, bodega, and grocery store across the country.

The second is category creation. If you can’t be first, notes the second Immutable Law of Marketing, create a category where you can be. Buy-now-pay-later, fast-casual, on-demand-storage, and hard seltzer are all examples.

But the ‘energy drink’ category had a market leader: Red Bull. Not only that, the market leader had existed for nearly twenty years before Monster Energy began.

So what happened?

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Sometimes the category isn’t the competition. Snickers and Milky Way don’t really compete. Honey Baked Ham, Chinese restaurants, and ordering pizza are all holiday meals but not many consumers debate between those three. It’s homemade or Honey Baked.

“Red Bull and Monster consumers are unique. Red Bull went after the extreme consumer but early on focused on on-premise service: bars and restaurants. As a result, it morphed into what I would consider a white-collar beverage. Partly because of the premium price, partly because the smaller can…Monster decided on a 16oz can – the same price for twice the volume and marketed it towards more blue-collar workers. They also focused on palatability, especially from a sweet standpoint.”

Mark Astrachan, Odd Lots podcast

That ‘Monster’ can was a focus group suggestion.

A canonical Job-to-be-done example is the McDonald’s milkshake. The five-minute clip of Clayton Christensen is worth watching and the explanation probably mimics hiring Monster. It’s sweet and caffeinated. It’s large, so it lasts. It also means something to the consumers. Here’s a Google Trends map from January 2023.

There’s something about Pennsylvania through West Virginia, Ohio, Kentucky, Tennesse, Arkansas up through Missouri, Iowa, and Wisconsin consumers. Monster Energy tapped ‘that thing’.

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Related: Bitter Brew tells the story of Anheuser-Busch’s history. For God, Country, and Coca-Cola tells the story of Coke and highlights the importance of distribution advantages as Coke employees were the rear guard of the Allied forces marching across Europe in 1945.

Does the bundle explain it?

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Defaults are a design tool to frame thinking. One designed-default is mean reversion. For most situations, said Cade Massey, “Try regression to the mean on for size and see if that can explain it.” Another is to start with the base rate: what typically happens in situations like this? During the Summer of 2021 there were many comparisons of vaccinated and unvaccinated Covid infection rates. This was a case of base rate neglect.

Mean reversion and base rates are good starting ideas because they prevent our Narrative Spin Drives from jumping into high-output mode. For instance, there’s an annual NFL video game known as Madden NFL. There’s also a Madden curse. If someone appears on the cover they have a terrible season after. It’s happened to eighty-two percent of the athletes!

Or it is base rates and mean reversion. To earn the cover rights, a player must have an excellent season, and their “success equation” benefited from a few lucky bounces. That happens. But bad luck happens too.

To add to the value of starting with base rates and mean reversion we can add “The Bundle”: the idea that a JTBD is a collection of things.

Marc Andreessen talked about the bundle of education: a dating scene, knowledge, social interactions, signaling, potential professional connections, cheap financing, and so on. Part-of-the-reason education innovation hasn’t gained distribution is that online only addresses parts of the bundle. It’s hard to date or build friendships on a video call.

Another bundle is the meal. Every meal is a combo meal: social interactions, nutrients, calories, taste, and so on. We can see bundles further yet. Food is more than the sum of its vitamins and nutrients. Eating an orange is more than theVitamin C, fiber, and sugar.

Work is a bundle too. Economist Tyler Cowen often notes that part-of-the-problem with Universal Basic Income is that it doesn’t address The Bundle. From NPR:

“Companies, like those in the tech industry such as Google and Apple, built enormous offices and put them all right next to each other in Silicon Valley and the office expanded what it was in people’s lives. They became like a second home. They had fancy food, concerts, dry cleaning, free meals.” – Stacey Vanek Smith, Planet Money, August 2021

Okay, a confession. I love Ted Lasso. It’s my favorite show since Parks and Rec. What I admire about Lasso is that he sets a tone (assuming for a moment it’s a real football club but this ethos may exist in the real production). Players begin the day and “Believe”. That’s what starting with base rates, mean reversion, and the bundle does too. Starting with those prompts prevents the Narrative Spin Drive from generating primarily palatable explanations.

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One thing I’ve changed my mind on is reading fiction. Fiction, like Ted Lasso, appeals to us because it is a fake premise sharing a human truth.
Also, the idea of online education needing distribution is from Alex Rampell, a colleague of Andreessen, who asks: Will disruptors gain innovation before innovators gain disruption? This is the “TiVo Problem.”

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April 2022 update. Taylor Pearson highlights Kris Abdelmessih’s post.

The TiVo Problem (trailhead 1)

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This post will act as a trailhead for the TiVo problem. Coined by Alex Rampell, it’s the contest between incumbents and innovators. As a question: can incumbents get innovation before innovators get distribution.

Examples:

  • Netflix innovated to distribution before Blockbuster distributed innovation.
  • White Claw innovated to distribution before Budweiser distributed innovation.
  • Tim Ferriss innovated to distribution before Known-Media-Personality-A distributed innovation.

In the Netflix example, Mario Cibelli spoke about how Netflix fixed many small problems that accompany innovation. That work on a small p, large N problem helped Netflix stay ahead of Blockbuster.

But it’s not easy.

Kara Swisher joked that Evan Spiegel (of Snapchat) is the chief designer of Instagram; an ongoing contest between the distribution of Facebook/Instagram and the innovation of Snapchat. Bill Abbott, CEO of Hallmark complained about the distribution advantage that Lifetime has, as a Disney owned company, riding along on sister-site Hulu.

One of the more interesting instances ‘cheating’ on distribution. That’s the case of 5-Hour Energy, whose founder Manoj Bhargava noticed that getting in the convenience store coolers would be a tall order. But getting on the cash register counter was much easier.

For Innovators, there appear to be at least two techniques:

  1. The weak/strong dichotomy. This was the 5-Hour Energy plan. Coca-Cola’s manufacturing and marketing strength was also their weakness. Innovators then should go where Distributors can’t because of their established business.
  2. In his original assessment of the Innovation-Distribution race, Alex Rampell suggested to ‘Be Boring‘. This is unglamorous fixing of sorting machines at Netflix.

Large N, small p (cancer, Netflix)

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In addition to the first post, we can add two more ideas of small probability times a large number yielding a significant result.

In the first instance, our large N is t (time), and the small probability event is genetic mutations which lead to cancer. Jason Fung writes about mutations: “This small likelihood of success explains why cancer often takes decades to develop, and why cancer risk rises sharply in people over the age of forty-five.”

The second is an idea from Mario Cibelli about accumulating advantages. Cibelli told Patrick O’Shaughnessy that he visited a Netflix distribution center during their DVD heyday.

“I think what we saw essentially was an operation that was very, very hard to replicate. They had years and years of finding and bumping into bottlenecks and eliminating them, and getting more and more and more efficient. That would range from how labor was used, the lack of storage of DVDs. They actually didn’t store them anywhere, they always remained on the desks. The manager explained to us how the DVDs were always looking for a home. They weren’t trying to find the DVD that the home wanted, they would have the DVD in hand and say, “Hey, which home wants this?” To a bunch of machines that they bought that sorted the material that didn’t work, that destroyed a number of DVDs, and that they had to customize.”

Each obstacle was small, take many small improvements and you’ve got a business. Netflix’s small p large N effort was how they won the TiVo Race.

The TiVo Problem

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Via Alex Rampell (2015):

“The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.”

White Claw succeeded, gaining distribution before Budweiser could imitate/innovate. Hallmark is entangled with this problem as Disney/Hulu carry Lifetime. Barefoot Wine succeeded finding the overlap between price-point, JTBD, and non-wine-snob. Snapchat introduces stories, Facebook copies. Innovation vs. Distribution.

There are a few options given this condition.

1/ Rampell suggests to “be boring”. Or, to be first in the chronology. Customers wanted Comcast before the wanted Tivo.

2/ Innovate where the competition can’t. This is (was?) the SoFi plan: filter better borrowers who default less lowering costs and pass on the some savings.

3/ The system might change, as in the case of medicine where the large firms (Glaxo) mostly license innovation.

This post will be the first thread in a larger exploration of this idea. For instance, Etsy seems to have held off Amazon Homemade and Candy Crush is still crushing it.