Aaron Hoos

One of my clients is an automotive insurance company. The other day, while a few of us were working on a positioning document, one of my contacts at the company observed that their company seemed to be held up to higher scrutiny than other organizations (like the power company or water utility).

They were right — that IS the case. They ARE held up to higher scrutiny and the resulting (and often caustic) criticism that comes with it. It’s not that they are doing something bad. The reason is: When people plug something into an electrical outlet, they get a tangible result and they know that the power output will be reflected on their next bill from the power company. And, when people turn on the tap and fill a glass with water, they know that their drink will be reflected on their bill from the water utility. In both cases there was a tangible result for a specific cost… And the more of a result that is needed, the higher the cost. It makes sense.

But that’s not the way it works with automotive insurance. You pay a pre-determined amount, which you might or might get a benefit from. Some people pay and pay and never need it; others need it frequently and get a better benefit. In other words, it doesn’t feel (at least to the consumer) like there is a direct result associated with a specific cost.

Insurance companies have tried to do something about this, including offering rebates to good drivers, but I don’t think any of their efforts are as successful because the end result is still the same: People pay for a service that they may or may not need. As a result, insurance is commoditized and people look for the cheapest insurance, they barely understand what their coverage offers, and they are quick to complain and switch companies.

There is, however, a type of insurance that is growing in popularity in the UK that could be the answer North American insurance companies are looking for: Pay-As-You-Go insurance.

With Pay-As-You-Go insurance, you basically pay for the miles (or kilometers) you drive. Your car is always covered with some basic coverage (in case someone steals it or in case it spontaneously combusts) but when you drive your car, you pay by the mile for additional coverage in case of collision.

By using GPS, insurance companies can see how far you travel and bill you accordingly. If you’re the kind of car owner who only uses your car to go to church on Sundays, you’ll pay less insurance than someone who goes on cross-country drives. That makes sense. And although it doesn’t completely eliminated the commoditization of insurance, it does create a clearer sense of pay-for-use, similar to what people understand when they plug things into their electrical outlets or pour water from the faucet.

I realize that there are other issues that need to be worked out. Privacy issues will need to be addressed. Customers will need to be assured that their car’s GPS information will only be used to determine distance. Speed and destinations cannot become part of the equation. If that issue can be resolved, I think we’ll see this as the Next Big Thing in the automotive insurance industry. Customers will enjoy rates that are more clearly linked to usage and good drivers won’t end up paying higher premiums because there are a lot of bad drivers on the road.

“Good Fast Cheap. Pick two” is a well-known and much-quoted maxim. It succinctly communicates the value you can provide to customers, as well as the relationship between what your customer wants and what they are willing to give up to get it.

But I don’t think it’s entirely correct. Certainly, it’s easy to remember but following it too closely could steer entrepreneurs wrong and may result in lost sales.

The reason? I believe the “2:1 ratio” (i.e. Good plus Fast but not Cheap) is not the diametrically opposed model we have come to expect. By choosing two and giving up one, entrepreneurs are making assumptions about their prospects and customers, which is what will ultimately drive prospects away.

THE CURRENT GOOD-FAST-CHEAP MODEL
Let’s use a simple diagram to illustrate. We’ll start with the current and widely accepted model, below.

Along the outer triangle are the customer’s “must have” elements. The inner triangle is the element that the customer is willing to give up.

So the current thinking is: a customer who wants something Cheap and Fast will give up Good in order to get it. I’ve illustrated that below. The “must-have” elements of Cheap and Fast are shown in red on the outer triangle; the “don’t need” element of Good is shown in green on the inner triangle.

THE PROBLEM WITH “GOOD FAST CHEAP, PICK 2″
The problem with this model is that a customer might not be so firm on their desire for Cheap and Fast that they will give up Good to get it. (Likewise, a customer might not be so firm on Good and Fast that they’ll give up Cheap to get it, or a customer might not be so firm on Good and Cheap that they’ll give up Fast to get it). customers want two elements and will give up one… but there is a often little more room for negotiation than we have come to believe.

A NEW GOOD FAST CHEAP MODEL
Rather than a 2:1 diametrically opposed position, what if we considered something else: a model in which the customer has a primary “must-have” element, an element they’re willing to give up, and something in between – an element that has some room for negotiation.

Consider of your perspective as a buyer for a moment and I think you’ll discover that this makes sense. There is usually an element that you really, really need: Either Good or Fast or Cheap. And, there is usually an element that you are willing to give up: Again, either Good or Fast or Cheap. And somewhere in the middle is something that you’re willing to negotiate a little, perhaps relenting slightly on your “must have” element or accepting more of the element you don’t care that much about.

EXAMPLE 1
Let’s look at an example of a customer that we may have once thought of as wanting Fast and Cheap but not Good. In our conversations with them, we may have heard them point out how important Cheap is and how unimportant Good is… and we have assumed that Fast is therefore very important to them, too… thus we have thought of them as the Fast and Cheap but not Good customer.

With this new model, and a little more listening in our conversation with the prospect, we discover that they really want the product or service to be Cheap and they don’t care how Good it is. But we also discover that Fast isn’t as much of a non-negotiable as we may have thought. In fact, there is some room for negotiation.

As a result, we might give them some speed-of-delivery options. They can pay slightly more to get the product sooner, or they can pay slightly more for a higher quality product. Ultimately, we can offer these customized add-ons to them because we know what their negotiable element is.

EXAMPLE 2
Let’s look at another example. Once, we thought of a customer who wanted a product or service as Good and Fast but understood that it would not be Cheap. Perhaps we hear them say something like “I need it tomorrow” and “I’m willing to pay whatever it takes”. Therefore, we assume that they want it to be Good.

With this new model, and a little more listening in our conversation with the prospect, we discover that (along with what we already know about them wanting a Fast delivery at any price) that their definition of “Good” is negotiable and maybe we can offer them something faster by cutting back on how thorough our service is or offer them something slightly more expensive by achieving a level of higher quality.

The key is: They can decide and we have the opportunity to earn higher profit through a more customized approach.

As you can see, Good Fast Cheap is still an important concept, but it’s no longer about picking two at the expense of a third. Rather it’s about finding the must-have element and the “don’t need” element and then engaging in negotiation.

WHY IT MATTERS
I think there are a few reasons that this matters to entrepreneurs and business owners.

First, you want to run a profitable business. By finding the negotiable element, you can add value in the areas you do well while you pull back in areas you can’t deliver on as successfully, thus creating a high value product while minimizing your weaknesses.

Second, you can deliver exactly what a customer wants. If a customer wants something cheap and they don’t care how good it is, that doesn’t mean they want it really fast. There may be room for negotiation. You can deliver various levels of quality at various levels of speed. This creates some customizable options, giving the customer a sense of control over the uniqueness of their purchase.

Third, you can capture more sales from contacts who might not have otherwise bought from you. If a prospect feels that your “Good and Fast but not Cheap” model wasn’t a right fit, they might go somewhere else. But if that same customer felt that you would deliver Good with some flex in the Fast and Cheap elements, you open the door further for them to explore doing business with you.

“Good Fast Cheap. Pick two” sounds good. But a better model that can lead to more profitable sales is: “Good Fast Cheap. Pick one and negotiate”.

You’re probably already familiar with Foursquare, the social media site that lets you “check in” to venues and leave tips and to-dos while generating a stream/timeline of where you go and what you do.

I like Foursquare. I think it combines two powerful forces on the web right now: social and local. It gives you the ability to share with those around you in a way that can be practical and valuable (for your friends and for you). Regular use of tips and to-dos, as well as the marketing opportunities that businesses can enjoy because of Foursquare, makes this site a potentially powerful tool.

But Foursquare is also a game. The game seems to be an integral part of the site — people collect points and badges (even though they have little use right now). In fact, Foursquare even says they’re a game.

Foursquare isn’t a game in the same way that, say, chess is a game, or World of Warcraft is a game, or Monopoly is a game. It’s not a separate environment with distinct rules and winners and losers. Rather, it’s a social utility that has an element of gaming to it: Incentives and a dash of fun… more like an environment where good-natured competitiveness and one-upmanship can thrive.

Recently, I heard about another site that offered something similar: It, too, is a social utility with a gaming element.

EmpireAvenue is a site that helps users put a value on their social “footprint’ while at the same time acting as a sort-of stock market where you can buy and sell shares in people.

I just signed up to check it out (so I might not have all of my facts nailed down) but it basically works like this: You sign up and get some money (“eaves”, I think they’re called). You can buy shares in other people. The price of their shares rises and falls based on — (well, I haven’t fully figured that part out yet) — something to do with their social network.

What’s also interesting about EmpireAvenue is that they have a monetization model that could be very beneficial for social influencers down the road.

Like Foursquare, it’s not a game but a site that has a practical purpose but in an incentivized, enjoyably competitive environment.

LIFESTYLE GAMING: A NEW TREND?
This has me wondering if we’re seeing the beginning of a new trend. For lack of a better word, I call it Lifestyle Gaming — that is, the addition of a gaming element to something you would normally use in your life, perhaps to enhance your lifestyle.

There are Foursquare alternatives out there (off the top of my head: Loopt, Gowalla, and Facebook Places) and they don’t have the gaming element that Foursquare has. And, there are social media valuation/measurement tools out there (Klout is my favorite) that again does not have the gaming element that EmpireAvenue has.

Are there others that I’m not aware of or have overlooked? Where might we see additional Lifestyle Games appear? Are there current sites that would benefit from the addition of Lifestyle Game attributes? I’d love to hear your thoughts on this!

HP recently hired former SAP CEO Leo Apotheker as their new CEO. Some people are calling it a foolish move. I think it’s smart. I think HP is making a big bet on a strategic move that could transform the company.

THE BACKGROUND
First, a little background, just to review some of the recent events at Hewlett-Packard:

1. CEO Mark Hurd, who made HP into a lean, financially successful organization (with significant marketshare in hardware) in the past five years, was faced with a sexual harassment accusation.
2. An investigation determined that the company’s sexual harassment policies were not violated but the company’s business and conduct policies were violated, due to some inappropriate payments from HP to an HP consultant with whom Hurd had a personal relationship.
3. Hurd resigns.
4. Hurd is hired by software giant Oracle.
5. HP threatens that it will sue Hurd for a non-compete clause in his contract.
6. HP backs off of their lawsuit.
7. HP hires former SAP CEO Leo Apotheker as CEO.

That’s the backstory. Now let’s dig a little deeper:

STUPID AND SMART
Admittedly, Hurd did something stupid and his resignation is not a surprise. Oracle made a good move in hiring him because Hurd’s background as an efficient, cost-cutting machine will help turn Oracle (which tends to be somewhat inefficient because of its acquisition-heavy growth-plan) into a more profitable enterprise. [Note: It's already doing well… but Hurd will make it better].

HP was wise to back off of its threat to sue Hurd. That would only attract bad press and make HP seem to be a poor loser.

But what about its move to hire Apotheker? That has been met with some mixed opinions. (If you haven’t yet, check out this BusinessWeek article which points out that SAP suffered under the 2-year-long leadership of Apotheker).

In spite of some of Apotheker’s baggage, I think HP is making an aggressive — and fairly smart — move. Here’s why:

COMPETITIVE STRATEGY: SOFTWARE
Hewlett-Packard has long competed in the computer hardware space, easily straddling both retail and business sectors and enjoying a fairly significant marketshare (thanks to Hurd). Consumers probably think of HP as “the printer people”; medium and large businesses may have desktops supplied by HP.

The problem is, hardware is a commodity business and very price sensitive. Prices are aggressively decreased as low-cost competitors vie for limited dollars. Equipment is easily outsourced, driving costs and prices down. At the same time, businesses with pinched budgets look to extend a previous computer hardware investment by delaying equipment upgrades.

For companies with good marketshare, there is some benefit to being in this space (as HP has shown), but expenses are high and there is a lot of downward pressure on price, so profits are always a struggle.

The real money is in software. Software – especially enterprise software – can be expensive to development but, once built, it is very cheap to sell and install. (Similar to pharmaceuticals, where the first pill sold cost millions to develop but subsequent pills cost a mere fraction of a cent).

Not surprisingly, HP is looking to compete in the enterprise software space. HP offers some enterprise software solutions but their offerings pale in comparison to the offerings at Oracle and SAP.

SAP is the only company that offers any competition to Oracle. (Well, maybe IBM is up there, but I don’t think it’s as significant of a player). HP tends to be down one tier, competing with other smaller players for the scraps left over from Oracle and SAP.

Apotheker knows software, and as a former SAPer, he knows his main competitor Oracle. In fact, he likely knows more about Oracle than Hurd knows, he definitely knows more about SAP than Hurd knows, (thus he brings a superior competitive advantage) he likely knows more about enterprise software than Hurd knows, and he has experience in the enterprise software space – the very space that HP covets.

I believe Apotheker’s biggest challenge will be turning a hardware company into a software company. Apotheker’s primary experience in leadership has been in growing a software company. He’s been with SAP since the late 1980′s and although his work as a CEO wasn’t met with enthusiasm, he did have some success in the previous years where he founded country-specific versions of SAP and was president of regional teams.

WHAT APOTHEKER SHOULD DO

• HP has an interesting advantage over Oracle (and SAP). They have hardware in a lot of companies. I believe they could easily achieve a foothold in the same way that Microsoft does – by adding basic HP software on their equipment, then creating enterprise solution add-ons that customers can purchase which run seamlessly with the pre-existing HP software.
• Find a space where Oracle and SAP are lacking and innovate there. (SAP has been slow to move into cloud-based computing and social media adoption. I think Oracle is a little better but maybe HP has an opportunity here).
• HP should also start playing catch-up, Oracle-style: by acquiring or developing significant joint partnerships with smaller innovative software players looking for funding and growth.

Want to read more? This Wall Street Journal blog offers some additional insight and background.

Disclosure: I have written content for SAP (while it was run by Leo Apotheker) through a SAP content partner, and I am currently in a consulting contract with HP as a technical writer. These are my opinions only! I have tried to remain as neutral as possible and have not received compensation for this blog post, nor have I been asked or authorized to write it.

I was reading Alan Weiss’ book Million Dollar Consulting. It’s a pretty good book (although I like his Ultimate Consultant Series better). In the Million Dollar Consultant he mentioned something that I thought was a valuable way to look at gaining a competitive advantage:

Weiss suggested that there were 3 “levels” of value on which you compete: At the competitive level, in which your offerings are similar to your competitors; at the unique level, in which your offerings are – obviously! – the only ones on the market; and at the breakthrough level, in which your offerings are so insanely valuable and insightful that the others aren’t even in the same league.

That makes sense and I think most entrepreneurs would agree that these are the three levels of value a business’ offerings should have if the business is going to survive.

But here is where Weiss takes a surprising turn: He says that your products should be competitive, your services should be unique, and your relationship with your customer should be at the breakthrough level.

Weiss suggests that it is expensive to implement breakthrough characteristics across all three offerings (products, services, and relationships), and that products and even services can easily be copied by competitors. So instead, he says, your products should only be at the level equivalent to compete with your competitors… the real difference is in the relationship, which should be astonishingly value-added.

I’ve spent some time thinking about Weiss’ ideas and am building on them with my own ideas below:

HERE’S WHY THIS IS GOOD NEWS FOR EVERY BUSINESS

• Existing businesses spend a lot of money on product innovation while their relationship-building remains lackluster at best. Investing even half of the money spent on adding innovating product value into adding relationship value can have a huge impact on customer retention and word of mouth.
• Some businesses – especially smaller home-based businesses (Tupperware, Norwex, Avon) and businesses where there is no product differentiation (real estate, investment firms, accounting firms, dentists, freelancers) – simply CAN’T innovate their products or services. So relationship value is going to be the key differentiator.
• It costs money to innovate products (and often services). It doesn’t cost as much money to innovate relationships. Rather, it costs time.
• Start-ups that have a simple product and not a lot of money can still compete in the big leagues with unparalleled relationship building.

HERE’S WHY BUSINESSES WON’T FOLLOW THIS MODEL

• Product innovation is sexy and gets way more funding in budgets than relationship-building
• Linking sales to products is much easier than linking sales to relationships – and when you innovate your product and see sales go up, it’s easier to make the connection between product innovation and sales.

WHAT CAN YOUR BUSINESS DO TO ACHIEVE BREAKTHROUGH RELATIONSHIP BUILDING VALUE?

• Start by analyzing your sales funnel to understand how you market, sell, and build relationships. Understand how specific activities in your sales funnel move contacts forward.
• Implement a CRM system. In other words, stop leaving customer names on sticky notes on your office wall. Tie your CRM system to your sales funnel.
• Keep diligent notes on your clients.
• Market your ass off to load up your list of prospects and build relationships with those contacts. Sales will happen if you do that.
• During a sale, keep your customer informed at every step. Don’t ever let them wonder about what the next step is or whether you’ve forgotten about them. (Note to self: I’m definitely guilty of this).
• Find out what your competitors are doing and go an extra mile. No, wait. Go an extra ten miles. Call your customers more (without bugging them). Email them. Follow them on various social media. Participate in their conversations.
• After the sale, remember that you have a relationship with them. Don’t ignore them. Don’t treat them like a prospect. Build an entire system around the post-sale customer. Send them valuable things (not just coupons for another product, but information that you think they’ll find valuable). Take a personal interest in them. Figure out what they need in their business and connect them with people and information that can help them… even if it means no additional revenue for you.