S Squared

The algorithm for value creation post-WWll was a mediocre product, wrapped in a tight brand code reinforced with cheap and efficient broadcast media, resulting in irrational margins. No more. The new algorithm is a firm or product that adapts faster to consumer needs and preferences. It incorporates technology to reverse the aging process and get better with use (Waze, Google, Facebook, Spotify, etc.). It’s a firm that reaches the kind of scale that attracts cheap capital, which is then reinvested at a rate the competition can’t match.

In today’s economy, two attributes are key:

— Speed
— Simplicity

Fast, Faster, Fastest
The world will be inherited not by the meek, but the fast. At L2, we made a big investment in technology, thinking it would make us faster. It helped us scale, but the attribute that made us fast was, and is, grit (get shit done … now). As everyone focuses on Amazon’s impact on retail, Fast Fashion has taken more from failing department stores than Amazon has. The ability to respond to signals (fashion shows, Google search patterns, Instagram engagement) and the capacity to translate those signals into product that gets into the channel fast (intelligence) is the strongest signal of a firm’s revenue growth.

Just as Dell, airlines, and quant hedge funds inspire an arms race that came full circle and bit them, I wonder if Fast Fashion will lose at their own game. The fastest-growing fashion brands on Amazon are Chinese manufacturers masquerading as brands. Similar to Amazon, these shadow retailers have data on what’s selling (orders from brands and retailers), and when they see opportunity, they use their excess capacity and material to produce knockoffs of the knockoff. The product is on Amazon within days, vs. weeks for Fast Fashion, and months for traditional retail. The constant change in product and styles also creates a sense of scarcity, and the low-low price lets the retailer exit the suicide pact of constant promotion that traditional retail is in.

As I tell my kids (students), it’s the boring stuff that will make you rich. A key competence separating winners from losers in the consumer sector will be supply chain speed and agility. The MIT grad who knows Python will always be in demand, but additional first-round draft choices will be people who can make a complex supply chain simple (like getting supplies to 73 submarines circling the globe that surface twice a year). If you aren’t in Navy logistics, there’s still hope. Speed is also a function of grit, holding others and yourself accountable, asking for forgiveness vs. permission, and getting shit done. It’s 2 am in Mogliano Italy, I’m sitting in the dining room of a bed and breakfast, whose proprietor is 10 Euros richer for letting me bogart their wireless, as I must…

Get. This. Shit. Done.

Simplicity

“I would have made this shorter if I had more time”
Pascal

A function of simplicity, good storytelling in the corporate world has become increasingly important to the markets. What do The Four (Amazon, Apple, Facebook, and Google) have in common? Simple, compelling stories, strategies, brands, and business models. Some questions your firm must be able to answer:

— what the firm does — one sentence max
— firm’s values — three words max
— brands — one max

Of the 13 firms that have outperformed the S&P 500 five years in a row, none are multi-brand conglomerates. The dogma of the brand era has cemented the incorrect notion that every brand has value. No, they don’t … and hundreds of brands will go away. Every brand is another mouth to feed (advertising, brand management, design, and culture). An absence of family planning by households or corporations results in poverty. Seemingly iconic brands and brands born in the digital age are not immune. Tumblr, Etsy, Gilt, Fitbit, Pandora, The Buffalo Bills, Sprint, Cinemax, Hulu, Snapchat, A&E, PBS, and Jet.com will join Saab and Pontiac — brands people assumed had substantial equity … but don’t. I believe, over time, even strong brands like YouTube and Instagram will become extensions — Google Tube, Facebook Images, as one brand / culture / message has less friction in the race to a trillion.

This will happen in B2B as well. WPP just announced Wunderman is merging with Possible. Why? Because these firms, who exist to help other firms differentiate from one another, are themselves exactly the same. What separates TBWA, BBH, JWT, MDC, BBDO, DDB, FCB, GSD&M, and R/GA? An address. Agency holding companies bought EBITDA and relationships with each firm and avoided client conflicts with different brands. The relationships have been replaced by algorithms and scale (need to cut costs), so firms pretending to be different (most of them) within holding companies will become product extensions of the few differentiated brands in the portfolio.

Client relationships, similar to brands, still matter … just less. Your client likes you, but would rather see the value of her stock options increase than hang, eat, or play golf with you. Sport outings, expensive dinners, and swag out your firm as undifferentiated. Very few people at The Four golf or take others golfing. Why? They have the economic success, and differentiated offerings, that afford them weekends with people they like more than you — friends and family. If people are constantly taking you to the latest Broadway show, golfing, or on “recognition” weekends, you’re in an industry in decline. Facebook, McKinsey, and Tesla don’t have “gold circle” weekends in Puerto Vallarta.

Every board director and employee should ask of her CEO / employer: how fast, and how simple?

I ❤ You

We have friends, a couple, who lost an extended family member to ALS. Soon after, they took stock of their blessings and asked each other, “What could we do to better seize the moments that are our life?” The husband is an adventurer and proposed that, with their three kids, they circumnavigate the globe in a high-tech catamaran. This would be insane if they weren’t both uber-competent people whom others trust with their lives and livelihoods (she’s a doc, he’s a CEO). Even so, on the open ocean supported by two giant boogie boards feels a tad crazy.

They did a test run, a week at sea, and I’ve been following them on Instagram. The night watches, rough seas, engine trouble … all of it. I didn’t get it. This seemed more like punishment than taking life by the horns. And then, in one image, it became clear. The husband’s joy was evident, even in two dimensions. To be with his family applying their skills, strength, and wits to embrace and conquer nature made him glow. No filter.

Partners who can take what they’ve built together and throw the full force of that at each other’s happiness is likely the root of our prosperity as a species. The most rewarding things in life aren’t accoutrements or our progress (Cartier or Nabisco) but things that have been baked into us over millions of years to augment the species. Alain de Botton says love is as much a developed skill as an experience that happens to you.

As my first marriage was crumbling, part of my penance was going to therapy. To my surprise I enjoyed it. Our therapist was a smart, caring man who seemed generally interested in my favorite topic … me. I believe a great deal of therapy is consumption, not healthcare, but that’s another post. I asked Boris (awesome name for a therapist) his definition of love. Boris felt love was a willingness to take the life you’ve built for yourself and tear it up for the other person. If you’re wondering what happened, let’s just say, at 33, I didn’t let my spouse change the radio station in our car … much less reconfigure my life.

So. Fucking. Selfish.

By this measure, I had never really loved anybody until I had kids. Instinctively and proactively, we suspend our lives and shape them around our kids. It took a while for me (see above: selfish). Babies are awful. But slowly instinct kicked in, and weekends are now soccer matches, birthday parties, and Despicable Me 3. Brunch with friends, tv, and sleeping in were great, but there’s a comfort in having the same answer to most of life’s questions: whatever is best for the kids. People without kids bask in the same light when they’re kind and caring to others.

Montezuma’s Revenge

I’m having trouble connecting with my youngest son — he’s six. My oldest, nine, spoils me, as we love to watch and play soccer together, and he, for some reason, thinks I’m the bomb. My youngest, not so much. However, recently I discovered he enjoys roller coasters. I get motion sick in elevators but willingly endure terror and nausea on Montezuma’s Revenge, a ride at Knot’s Berry Farm. He laughs uncontrollably the entire ride and, at the end, will ask “Wasn’t that great?” I lie, “Yes… great,” and in that moment we’re closer.

The other night we were with the boys at a family restaurant where there was a talent show. They had open-mic karaoke, and my older son, much to my horror, volunteered. He requested the Justin Bieber song “Sorry.” The words on the screen came too fast, and he froze. I instinctively leapt to his side and began mouthing the words in his ear to get him back on track. Didn’t work. There are few things I hate more than Justin Bieber or karaoke. But the things you hate become just inconveniences in the presence of loved ones.

Catamarans, roller coasters, and karaoke. Different ways of saying the same thing: My life is yours, and I love you.

Life is so rich,
Scott

No Mercy / No Malice in Your Inbox.

  • Scott, loved this one as it hits close to home, having just had my first child. I look forward to these. Thanks for taking the time to share your perspective.

  • Stuart McKinnon

    Excellent post Scott. You had me as usual with your always-inciteful brand discussion and made my day (daybreak Saturday in Aust) with your poignant personal concluding musings. ThankYOU

  • StevieB

    Nice one Scott.

  • Dan Markovitz

    Scott — I think that Nike has outperformed the S&P 500 for the past five years, and they’re a multi brand firm (Converse and Hurley; you could argue Jordan; and until recently, Cole Haan and Umbro). The road to bankruptcy is paved with comparisons to Nike, of course, but they do have to allocated money for the care and feeding of those brands.

  • Rodrigo Baroni

    good one Scott, btw as usual. loved the maze GIF.

  • Ruben

    love this blog post. every part of it.

  • Nacho Zuccarino

    Another blast from the fast.

  • Scott Horlbogen

    Scott, insightful as always! Thank you!

  • Juan Cabral

    Great post Scott. I’m not convinced of the death of brands or the failure of multi-brand firms. I think there will be more brands with differentiated products that are meant to stay small ($50M – $100M in revenue) and serve the emerging long tail. So, I think it makes sense a brand be part of a multi-brand firm that can pursue growth. For instance, Walker & Company (owner of the Bevel brand) is launching a new brand called Form. I think that is a better growth strategy for physical goods companies with really differentiated products or even media companies (Clique Media Group).

  • Scott Galloway

    agree, growth will be in the long tail.

  • Scott Galloway

    It’s the L2 creative team’s genius.

  • Scott Galloway

    Hi Dan,

    I can assure you, as a long-term Nike shareholder, the firm has not out-performed the S&P over the last 5 years–stock has been flat the last two. Also, Converse and Hurley are pimples on the elephant here. Really only one brand. Others are distractions. UnderArmour was on list until last year, has taken a beating. S

  • Scott Galloway

    Thanks for kind words Lance. S

  • alex

    Luv ya Scott…some 30 odd years ago David Mamet had Alec Baldwin summarize capitalism as “first prize a Cadillac, second a set of steak knives; third prize is: you’re fired.” Ie winner take all. Has anything actually changed? Is it actually even more winner take all? Is that logically possible? Or are things progressing along the same tracks but just faster?

  • My wife and I launched a start-up 4 years ago. It is the hardest thing I have ever done and we struggle on a daily basis. My wife said to me yesterday that she is sorry that she pushed hard for us to launch our business – life would be so much easier with a job. I have struggled over and over to explain why I am grateful that we are doing what we are doing. This morning you provided some clarity: love is a willingness to take the life you’ve built for yourself and tear it up for the other person. I’d add to that – we are willing to tear up the life we built for both of us, for the team we employ and for the vision we have to change the world (just a little bit). So thank you for your thoughts.

  • Scott Galloway

    Data would indicate things are worse. Tech/globalization and tax policy have resulted in 9 people having more wealth than (bottom) half of America. US headed toward 3mm lords and 350mm serfs.

  • Scott Galloway

    Hi Simon,

    This is (usually) the part where i tell you to ‘hang in there,” or “”never give up.” However, my advice is to sit down with some people you trust (smart business minds) and lay out the business (warts and all), your options, and ask for no mercy/no malice advice.

    Small businesses can be very rewarding, however they should never become a suicide pact. Good luck, S

  • Dan Markovitz

    Thanks for the reply, Scott.

  • Scott Galloway

    Thank YOU Stuart. And congrats on having the good judgment to live in AU. S

  • Kerstin Strubel

    Professor. + 2S for Sexiness & Scale. picking up the global crumbs of advertising budgets from a beauty parlor in Bangalore to a Yoga Shop in Queenstown to P&G and Unilever. It’s the global scale and ubiquity that makes Google and Facebook unbeatable. Amazon’s conquer the world attitude was laughed at and is now reality.
    The 4 horsemen are so sexy to skim off talent globally. The brightest kids much rather sell ads for YouTube than changing the world (kind of sad), let alone work for places like KraftHeinz or any other 3G shop (no one can blame them).
    Mogliano is a stellar choice and proves deep insight into the Italy holiday game. Tuscany is for beginners. For what it’s worth your presence in Europe is good news, anywhere.

  • Nate Davis

    “Future belongs to the fast.”
    “Very few people at The Four golf, or take others golfing.”
    Love as “willingness to take the life you’ve built for yourself and tear it up for the sake of another person.”

    –wrote those ones down in my Moleskine! Lots of food for thought. Cheers! (Nate, ad guy, dad, and startup employee.)

  • TC

    I come for the commercial insights. I repeat read for the relationship insights. Thank you for sharing and the provocations to make us better people.