Brand marketing vs. performance marketing

There’s a simple procedure I use for creating or evaluating an organization’s marketing strategy. It starts with:

  1. Clarifying the opportunity we’re going after
  2. Articulating and segmenting the specific stakeholder relationships we must foster to capture that opportunity
  3. Designing and managing clear, custom funnels for each of those relationships

These last two steps lend themselves to an easy-to-remember progression of images, where we could first depict an organization’s relationships with the outside world using a Venn diagram:
 
Brand diagram #2
 
And then pour each of those external circles into the top of a traditional marketing funnel, as if they were gumballs:
 

 
And then, over time, we can check to see if the top of the funnel (TOFU) audience targets match the bottom of the funnel (BOFU) highly engaged brand evangelists:
 
Top-down and bottom-up segmentation
 

Using this model, we can assess if we are actually managing the relationships we intend to, or if we are discovering or drifting into new audience targets.

We can also compare—in aggregate and by audience, channel, tactic, cohort, or experiment—the top-of-the-funnel customer acquisition cost (CAC) with the bottom-of-the-funnel lifetime value (LTV).

In other words, at each step of the funnel, we can assess both the strength of the relationships we’re fostering and our efficiency in monetizing those relationships. This echoes Avinash Kaushik’s recommendation that every critical funnel metric should have a complementary “BFF metric.”

This overall approach has many benefits.

First, it prevents some major marketing errors:

  • doing marketing without a clear business strategy
  • using marketing to compensate for a lack of business strategy
  • doing marketing without knowing or segmenting the audience
  • using a channel-centric approach instead of an audience-centric approach
  • driving top-of-the-funnel traffic that doesn’t convert or stick around

Second, it’s flexible and adaptive:

  • It provides a scalable template to take key audiences from unaware to deeply engaged, while maximizing cost efficiency.
  • It works for organizations of many different kinds and sizes.
  • It works for all important external stakeholder groups and not just customers.
  • It mirrors the structure of sales pipelines and digital product clickstreams, thereby facilitating collaboration between Marketing, Product, Operations, and Sales. (Funnels, pipelines, nurture trails, and clickstreams are all different metaphors for essentially the same thing.)

Two kinds of marketing

I’ve shared this flow of logic over the course of several previous posts, all hyperlinked above.

There is one last graphic I now want to add to this sequence. It involves choosing the optimal balance across the funnel between brand marketing and performance marketing.

To clarify, by “brand marketing,” I mean any kind of marketing that has a high CAC and high LTV, and by “performance marketing” I mean any kind of marketing with a low CAC and low LTV.

Here are some alternative nomenclature pairs that make a similar distinction, with different emphases:

And here is how some common marketing techniques and channels fall across this divide:

Stereotypically, brand marketing tends to make customers happy and performance marketing tends to be annoying. But performance marketing also clearly works, or else our inboxes and social media platforms wouldn’t be filled with ads, and opera companies wouldn’t be calling us each night to remind us to renew our membership.

And now an important, and possibly contentious, point:

At every step of the marketing funnel, brand marketing and performance marketing are in dynamic tension with each other.

Meaning: whatever we do to make one better will make the other worse.

Let me illustrate what I mean, using several levels of zoom:

Organization
Within any organization, assuming a finite marketing budget, any money spent on brand marketing will deplete the available resources to spend on performance marketing, and vice versa.

Audience
If our marketing approach strongly favors either brand or performance marketing—say, with frequent promotions—we will train the audience to always expect that one thing. They will wait for the sale before they purchase.

If we change gears at a later date—say, with luxurious brand advertising and higher prices—we will confuse, if not lose, the audience, since our new marketing methods will conflict with the established value proposition.

Communication piece
For every communication piece—say, a radio ad, SEM ad, or landing page—we must consider the relative proportion of brand elements and performance-related calls to action. They fight each other for priority and relevance. An equal emphasis between them would often be incoherent.

For example, look at the following imaginary ads:

And the following real ads from the famous Smokey Bear campaign:

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Which ads will optimally make a deep impression? Which ones will optimally drive measurable web traffic? Which ones will maximize reach?

Because this dynamic tension between brand and performance marketing plays out across the entire marketing funnel, I often have clients draw visually where they think the balance should fall for their organization:


 
There is no universal right answer, but I think it’s helpful to be deliberate here and to choose the balance that is in-line with the business strategy and prioritized audience segmentation. Are we trying to pick up all the money on the table, or build an enduring brand? Are we trying to maximize existing contracts or land new ones? How are we intentionally balancing lead quality with lead volume?

Counterarguments

I find that savvy executives understand the tradeoffs here intuitively. For example, Marc Benioff in his book Behind the Cloud talks about how Salesforce evolved from a free product trial to a paid trial to capture enterprise customers, an instance where a tried-and-true performance marketing strategy (the free trial) was demonstrably hurting long-term relationship-building with a new audience target.

I sometimes get pushback to my general statement that brand and performance marketing are in dynamic tension with each other. I acknowledge that there are some situations where this tension will not be apparent.

Examples:

  • The organization’s marketing strategy is channel-focused, not audience-focused. Data to inform the conversation will not be available, because the processes to capture it will not exist.
  • The organization is almost-exclusively focused on either brand or performance marketing, and that balance is rational for their current circumstances. Apple and Cartier, for example, are focused almost-exclusively on brand. Some arbitrage-based businesses can succeed for a while focused solely on lead gen. These situations are rare, but they happen. When the marketing strategy is this polar, there is no tension between the two approaches.
  • The marketing organization is highly sophisticated, drenched in data, with cross-channel, full-funnel visibility. Deep in the tweaky nuances, some performance marketing techniques seem to not just complement, but measurably improve brand marketing efforts, and vice versa.

This last, and obviously desirable, situation merits a comment. I tried to make my original statement digestibly simple and universal, but to make it more accurate and nuanced, I would amend it as follows:

Brand and performance marketing are in dynamic tension with each other when an organization is setting top-down strategy, though in execution, they can sometimes be synergistic.

For example, content marketing on Facebook can augment ad success and vice versa. SEM ads can drive clickthrough while positively (if nominally) boosting aided/unaided brand awareness.

Once a marketing machine is up and running, with clear scaffolding and full-funnel visibility, a team can use data to test hypotheses and run experiments about how High CAC/LTV techniques can be embroidered into Low CAC/LTV techniques and vice versa. This advanced stage is for some people, self included, where marketing gets really fun.

Summary

This blogpost is part of a continuing series on marketing strategy. The recommended steps I’ve shared so far are as follows:

  1. Start with a clear business strategy, brand strategy, and audience segmentation.
  2. Design clear, custom, cross-channel funnels for every audience. Start with the bottom (BOFU) and go to the top (TOFU).
  3. Ensure a full-funnel line of sight for all audiences, with clear, paired KPIs at each step of the funnel.
  4. Choose a balance between brand and performance marketing that delivers on business priorities.
  5. Optimize brand and performance marketing techniques within and across channels.
  6. Run experiments to test hypotheses regarding synergies across the funnel.
  7. Scale successful experiments.
  8. Revise as business priorities evolve and new audience targets emerge.

Additional resources

For further reading, I heartily recommend the following:

You can also sign up to receive regular updates about business and personal transformation from The Next Us newsletter.


What is positioning?

Positioning is important for every organization. Yet there is no consensus on what the term means.

Among positioning experts, Michael Porter talks about strategic advantage, Seth Godin talks about purple cows, and Clotaire Rapaille talks about tapping into enduring cultural archetypes. Are we really all discussing the same thing?

Here is a simple description that I use to align teams and viewpoints:

Positioning defines how external audiences see a company or product relative to its competitors.

In practice, positioning answers three questions:

  1. Where are we in the competitive landscape?
  2. What is the nature of our offering?
  3. How are we situated in stakeholders’ minds?

Let’s look at each of these questions one by one.

1. Where are we in the competitive landscape?

This is a pure business strategy question.

Answering it involves:

  • Quantifying the Total Addressable Market (TAM) and each pertinent category and customer segment
  • Assessing the company’s absolute and relative presence within those categories and segments
  • Acknowledging disruptive trends that could change the boundaries or dynamics of the relevant categories
  • Assessing the strengths and potential trajectories of known competitors in the market
  • Defining a strategy for maintaining and expanding our beachhead
  • Ensuring we’ve segmented the market in a way that’s rational and aligned with investor and analyst perspectives and our own business goals

There are many potential formats for drawing competitive maps, including spider and bubble diagrams, 2×2 grids, and more nuanced, data-rich analyses. The primary audience for these maps is internal, since organizations typically don’t want to share their game plan with the outside world, except in closed-door meetings with trusted partners such as analysts, key clients, board members, and large investors. Once finalized, these maps of where-we-are and where-we’re-going directly inform the strategic plan, product roadmap, and any M&A strategy.

Competitive maps can either expose or obscure important business risks. These risks tend to occur in predictable patterns. Here are some specific risks that I look for:

  • We don’t know what category we’re in.
  • We understand product categories but not customer categories.
  • Our category is dominated by larger players with whom we can’t compete.
  • Our category is shrinking.
  • There is no real category—we’re a feature or fad.
  • We don’t have a clear distribution strategy to maintain our position.
  • We are optimizing for distribution partners who will eventually squeeze us out.
  • Our market segmentation doesn’t acknowledge critical risks, disruptive trends, or indirect competitors.
  • We lack internal alignment to maximize our preferred position.
  • We lack full understanding of regional barriers to entry and critical success factors.

One facilitation tool I use to surface and resolve gotchas like these is the Eat Big Fish framework that I shared in an earlier post. This is an admittedly crude tool, but it quickly forces companies to articulate the specific categories they are leading. Baked into the tool is the idea that every company must eventually become the leader of its core category.

At the end of this exercise, an organization will have:

  • a bespoke, comprehensive view of the competitive landscape
  • a defensible point of view regarding its placement and relative size within that space
  • the existing or emergent category (or niche) it wants to lead
  • the investment strategy to protect the current position and expand to its desired future position
  • the measurable share of market it wants to own over a specified time period

This is the best possible foundation for a solid and scalable marketing plan.

But a visual depiction of our place in the market doesn’t by itself answer how an organization should tell its story to the outside world. For that we need to turn to the next question…

2. What is the nature of our offering?

This is a pure a marketing strategy question.

The answer typically comes in the form of a “positioning statement.” There is a template for creating these that’s widely known and often taught, and it reads something like a Mad Lib:

For [insert Target Market], the [insert Brand] is the [insert Point of Differentiation] among all [insert Frame of Reference] because [insert Reason to Believe].

 
I’m going to break ranks with some fellow marketers and say that I hate this template. I have two problems with it. First, many companies try to use it as a starting point to excite and engage customers, and at that it fails miserably. Second, I have never seen a company actually use this template to write their external copy.

Notice that organizations often do use something along these lines in their PR boilerplate, as Nike does here:

NIKE, Inc., based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities.

 
But that lick of copy is about a zillionth as exciting and memorable as a typical Nike ad:

Also note that the Nike positioning statement omits both the Reason to Believe and the Target Market. That’s fairly standard, in part because most companies have multiple Target Markets and Reasons to Believe.

My own, more open-ended formula for creating an external positioning statement is as follows:

Describe the company/product in a way that’s clear, relevant, different, and better for a broad range of likely audiences.

 
That’s it. Good positioning statements that meet these criteria, like the Nike one above, help companies describe themselves in an intentional, ownable way. They are invaluable in aligning internal teams, investors, partners, and press. For consumers, customers, and populations served, they are also useful, albeit just one tool in the toolbox.

Crafting a good positioning statement is often hard work. A writing challenge that comes up frequently is what I call “the noun problem.” It’s usually a bit of a stumper to pick the single word to best describe the nature of an organization or product, and the category we perceive ourselves to be in, to the degree we currently want to share that information with the outside world. For example:

  • Is Nike a sportswear company?
  • Is Apple a consumer electronics company?
  • Is Facebook a digital lifestyles company?
  • Is the nonprofit you work for a catalyst, a service provider, an incubator, or something else?

Each word could send an audience down a very different path.

Many companies try at some point to duck this challenge by writing a positioning statement that avoids referring to themselves as a noun. This usually ends up sounding evasive, like an unplanned birds-and-the-bees conversation with a young child: “Well, it’s what happens when…”

At the end of this exercise, a company will have a thoughtful, effective way to describe itself to a general or unknown external audience.

But that one sentence doesn’t give us everything we need to capture the hearts and minds of our target customers. For that, we must turn to our third question…

3. How are we situated in stakeholders’ minds?

This is a pure brand strategy question.

In order to position ourselves effectively in our customers’ minds, we can’t just chant the words we want them to remember… we must design our experiences carefully across our entire marketing mix, and ensure that all the interactions our employees have with the outside world reinforce a singular and positive impression.

Credit: Neutron, LLC

A good tagline helps, but words simply reinforce or influence the overall customer impression—they don’t create it on their own. Notice that most taglines make no sense out of context: imagine “Think Different” on a Lenovo computer or “Just Do It” on a can of spaghetti sauce. Brand strategy is about creating the right context, not just finding the right words.

I’ve described the craft of brand building in a separate post. One new point I want to make is that brand positioning tends to require a different procedure as companies grow and evolve.

All rights reserved (c) 2017 The Next Us

There are three major stages to consider:

New market entrant
If you are a niche player or new market entrant, just lead with your primary user value proposition—the specific emotional or functional benefit you provide. If you’re small or new, you want people to understand your unique value quickly, without too much poetry or a time-consuming set-up.

Some well-funded, category-creating companies skip this stage.

Category challenger
As you move into a “challenger brand” position, taking on your local market leader, you must amplify your distinctive difference. Here’s when it makes sense to lead with a Big Idea, one that’s a bit provocative, maybe even a slow-get.

Salesforce did this well with their famous no-software icon. Snap is doing this now when they call themselves a “camera company.”

Category leader
Once you’re the market leader, you will want to trumpet the fact that you’re king of the mountain, perhaps while beginning to assert an even broader aspiration—i.e., becoming a challenger once again.
 
 
That’s my short and sweet introduction to positioning. If you’re interested in further reading, I recommend the works of Michael Porter, Clayton Christensen, Steve Blank, and strategy+business magazine (for market positioning) and Al Ries, Jack Trout, Seth Godin, George Lakoff, and Clotaire Rapaille (for brand positioning).

You can also sign up for The Next Us newsletter, where I regularly share ideas related to business and personal transformation.

In the meantime, I’d love to hear from you. Which of the three positioning questions above is your organization struggling with? What specific challenges are you facing?


Becoming #1, part two

Francis-Noël Thomas and Mark Turner write:

“When we open a cookbook, we completely put aside—and expect the author to put aside—the kind of question that leads to the heart of certain philosophic and religious traditions. Is it possible to talk about cooking? Do eggs really exist? Is food something about which knowledge is possible? Can anyone else ever tell us anything true about cooking? These questions may lead to enlightenment or satori; they do not lead to satisfying dinners.” (Clear and Simple as the Truth: Writing Classic Prose)

And later:

In [nonclassic self-conscious styles], the writer’s chief, if unstated, concern is to escape being convicted of philosophical naïveté about his own enterprise.”

Just a heads-up: today I am serving satori, not dinner.

I. How can everyone be the best?

I asserted in my last post that every organization, in every space, is forced to describe itself as the best at what it does.

Something about this is clearly bananas.

First of all, the notion that everyone is the best defies basic logic. It’s as delusional as saying that in Lake Wobegone, all the students are above-average.

If every company is #1, then none has any meaningful competition. Yet venture capitalists, who tend to know a thing or two, advise entrepreneurs all the time to acknowledge their broader competitive environment:

“[E]verybody has competition. There’s never been a company with no competition, even if the competition is the old way of doing something. I want to know exactly what your competition is, and that will help me judge how you fit into the whole operation.” (David Rose, How to Pitch to a VC)

If smart people behind closed doors acknowledge their competition all the time, why should it be any different in the magical world of marketing?

Or is modern marketing in fact just a propaganda machine of “it’s toasted” alternative facts, the kind should make any concerned global citizen or clear-headed businessperson run screaming from the room?

To some extent, clearly yes.

Something is very wrong, even broken, in how organizations communicate and the economic, social, political, and technological contexts in which they do so.

II. Diving into the wreck

I recently experienced a version of this decadence, this brokenness, in Venice when I visited the tedious yet captivating Damien Hirst exhibit Treasures from the Wreck of the Unbelievable. The campy, overwrought premise of this exhibit is that Hirst has recovered ancient artifacts from the bottom of the sea… all of which turn out to be anachronistic totems of contemporary consumer culture. Each image has been exaggerated with allusions to ancient mythology and the imminent effects of climate change.

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It’s impossible not to look, be overwhelmed, want to vomit, and take a selfie all at once. I commend Hirst for a bit of truth-telling and buzz generation, and at the same time, I personally felt ill after having spent twenty-something euros to see this. That’s the unbelievable wreck of modern consumerism for you.

But hating on consumerism, or marketing, or capitalism is easy. It doesn’t change the fact that major segments of our economy run, for better or for worse, on capturing attention. We all work for organizations that either we believe in or at least pay our bills. We want them to market themselves well.

So, if we suspend our horror for a moment and pretend that what we care about is not changing the world order, but making sure our own amazing, well-intentioned, bill-paying organization succeeds, then it would be good to start by looking at how successful organizations actually do market themselves. And if we do, we’ll notice that what I asserted previously is correct: successful companies always position themselves as superior to their competition.

This is almost banal if you stop to think about it, but if you need proof, look around at the products you use every day, and see how they market themselves. Or imagine as a thought experiment what it would be like if companies did acknowledge, directly or indirectly, an inferior market position:

  • Diptyque: When you can’t find the candle you really want, there’s Diptyque.
  • Devialet: Bigger, better, and pricier than Bose!
  • Wal-mart: We love you more than Amazon!
  • Starbucks: Not the coffee you want, but the coffee you deserve.

Even with a different list of companies, and more realistic taglines, this would never happen. We’ve long outgrown a time when Avis, or any company, could say “We try harder because we’re #2.” Instead we’ve shifted into what Milan Kundera might call a “kitsch” universe, where #2 simply does not exist.

III. The map is not the terrain

The notion that every company is #1, or should say so regardless of the facts, might provoke outrage if we believe that competitive spaces have firm boundaries and clear, objective leaders. But that idea is pretty bananas, too.

Any competitive “space” or map thereof is an abstraction, a metaphor:

  • A comprehensive view of all the players in a category must still rely on subjective judgments about who gets included and who doesn’t.
  • Snapshot assessments can show current realities but do not capture historical or future trends.
  • Theoretically independent assessments can be biased by pay-to-play influencers.
  • New technological innovations can rewrite category boundaries in a blink.

My point is: there is no perfect map. Even if we could somehow analyze and incorporate every datum, drawing convincing category boundaries and then determining the “leader” would still require interpretation.

We could make our maps better and better, but they would still be metaphors because human thought is inherently metaphoric. It’s metaphors all the way down.

The Eat Big Fish map tool that I introduced in my previous post is one such metaphor, and it’s admittedly crude. Its value is not that it’s true, but that it’s useful. It’s useful specifically to someone trying to *do* marketing. A head of M&A looking at long-term external trends or an entrepreneur seeking the next big untapped opportunity would want a different kind of map. But in any complex human endeavor, it helps to have multiple tools at our disposal. Dani Rodrik made the following comments about economics, but I think his insights also apply to business and marketing strategy:

“Rather than a single, specific model, economics encompasses a collection of models. The discipline advances by expanding its library of models and by improving the mapping between these models and the real world. The diversity of models in economics is the necessary counterpart to the flexibility of the social world. Different social settings require different models. Economists are unlikely ever to uncover universal, general-purpose models.” (Economics Rules: The Rights and Wrongs of the Dismal Science)

IV. Deep blue sea

I want to end this post by ruminating on something that fascinates me: the fact that aquatic metaphors, specifically, are very powerful.

Personally, I have always loved and feared the sea. One of my earliest memories involves seeing Orca at age four, in the beach town of Stone Harbor, New Jersey. Understandably, this memory would make the wide ocean, and big fish lurking underneath, powerful images for me.

But water is an evocative metaphor and sense memory for everyone. Our bodies are mostly liquid, and we’re programmed biologically to relax at the sound of the tide. It seems like half the movies I’ve seen recently—Moonlight, Julieta, A Bigger Splash, Stranger by the Lake, It Follows—use water to represent birth and death, baptism and violence, womb and dissolution.

Eating the Big Fish is a memorable title and memorable concept. The even more popular business book Blue Ocean Strategy that came out a few years later uses similar imagery to make similar points. In both these books, oceans serve as ready analogies for “competitive environments” because they are first and foremost spatial metaphors—i.e., oceans have boundaries. Yet they also bring up rich associations that are visual, kinesthetic, auditory, historical, and sensual. The Hirst exhibit is a reminder of how seductive those associations in fact are.

As a thought experiment, try re-writing the basic argument of either Eating the Big Fish or Blue Ocean Strategy without their aquatic metaphors. Can you come up with something equally succinct and memorable? It’s quite challenging.

But just because a metaphor is expressive doesn’t mean it makes any logical sense. If you start picking apart the Eat Big Fish metaphor, it quickly collapses. Are freshwater piranha eating saltwater sharks? Or if sharks are eating whales, won’t those sharks then go extinct through lack of a food source? The Blue Ocean Strategy metaphor falls apart just as quickly if you start to analyze it (though it did inspire an awesomely catchy song).

We could search for better metaphors, but we will never get it perfectly right. Every metaphor, every map, every business framework, and every word is flawed. All we can do is keep trying to communicate, invoking one flawed paradigm after another, tweaking them as we go.

As Flaubert wrote:

“Language is a cracked kettle on which we beat out tunes for bears to dance to, while all the time we long to move the stars to pity.”

Or Isaac Newton:

“I don’t know what I may seem to the world, but as to myself, I seem to have been only like a boy playing on the sea-shore and diverting myself in now and then finding a smoother pebble or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered before me.”


Becoming #1

Long ago a colleague recommended that I read the book Eating the Big Fish by Adam Morgan. I did. At the time, I thought it was interesting, if simplistic. And then I continued to use it as a key tool in my professional work for the next dozen years.

The core idea in Eating the Big Fish is that there are large incumbents in every market space, but “little fish” can come to dominate the ecosystem through effective brand-building and communication. The book came out at a time when “brand” was the buzziest of buzzwords, one that could smother any attempt at critical thinking. Yet the book has endured as a modern business classic.

Eating the Big Fish starts with the thesis that in every competitive environment there are two leaders: a market leader and a thought leader. The thought leader—aka the “challenger brand”—must do several things to create awareness and pull attention away from the market leader:

  • Break with the immediate past.
  • Build a “lighthouse identity.” Stand for clear and different ideas,
    communicated loudly.
  • Reframe the conversation.
  • Create symbols of re-evaluation.

There’s perhaps a mixed metaphor here, with small fish building lighthouses (underwater?), but I’ll forgive it. This is a really good list. And its logic makes sense: if you’re not the leader yet, you must create a unique, compelling, and highly visible presence. Otherwise, no one will be able to remember you or understand why your offering is better.

As I said, over the past decade or so, I have found myself often returning to this idea of the challenger brand, and using it with a wide range of clients. The wisdom of Eating the Big Fish appears to be broadly useful. But why would that be?

I think the reason the book remains relevant, and broadly so, is that its narrow focus obscures a deeper insight about our current economy and media ecology:

Every brand communicates as if they are #1 in their respective space.

To explain why this might be, I want to share an adapted version of the Eat Big Fish framework that retains its original metaphor, but extends it to make a few additional points.

In every “space,” we find:

  • A monopoly or ecosystem owner
  • Optimizers within that ecosystem
  • Niche brands who are only going after a small part of the overall opportunity

 

 

Each of these levels has an objective leader who owns the largest share of the overall market. All these leaders are #1.

Each of these levels also has a primary market challenger, a disruptor who is trying to change the terms of the overall space. Like the market leaders, these challenger brands are also #1… in leading the new categories that they themselves are defining.

 

 

This crude breakdown gives you a sense of why every organization positions itself as #1. It’s not that they’re all lying—it’s that, in a way, they are telling the truth. They are each excelling at the unique thing they are trying to do. And Jack Welsh’s famous notion, when not taken to extremes, remains correct: if you can’t be #1 (the market leader) or #2 (the thought leader) in your core category, you do not have a future.

If you’ve been in business long enough, you begin to understand that being the challenger—the category disruptor—is the only way for the mid-sized and bigger fish to survive and thrive over the long haul. Companies die quickly or slowly when they optimize within the parameters of their existing space. They run out of room to grow. Geoffrey West has written about this poignantly, and it’s one of the reasons companies like Amazon, Nike, Facebook, Google, Apple, and Tesla are always signaling that they are, in Jeff Bezos’ words, “Day 1” companies. Permanent disruptors.

The corollary is that every organization finds based on its environment that it must become either a small, niche success or a “challenger brand.”

So… the reason every brand communicates as if they’re number one is not that they’re blind, smug, stupid, dishonest, or lucky.

It’s because—they have to.


The future of consulting

I’ve been thinking a lot about the future of consulting lately. This is a bit of an occupational hazard… I’ve been a consultant for almost 20 years, based in San Francisco, and I’ve run my own practice for eight years and counting.

A long time ago I remember telling a colleague:

“The consulting space is massive: multi-billions of dollars globally. Even if it were to shrink by 50%, there’d still be money on the table for those who know how to find it.”

That remark, though not particularly insightful, is still correct and evergreen. There will always be money to be made in consulting… the question is who is going to make it and how.

Here is some of what I see looking around me and looking ahead, with some hat tips to others who are doing the same.

This has all happened before

I made the comment above back in 2001, when my consulting firm employer was between rounds of layoffs and many of our competitors were either closing their doors forever, merging with each other, or being unbundled from their previous corporate parents. Old-timers like me may still have t-shirts from that era with names like Viant, Scient, Monday, BearingPoint, General Magic, and marchFIRST.

It’s incredibly obvious to anyone in the space right now that we’re undergoing another period of rapid change in the consulting landscape. Writing in HBR in October 2013, Clayton Christensen, Dina Wang, and Derek van Bever nail the big takeaway:

“We have come to the conclusion that the same forces that disrupted so many businesses, from steel to publishing, are starting to reshape the world of consulting.” (“Consulting on the Edge of Disruption”)

The most visible forces are macroeconomic, the results of which mirror what’s going on across much of the private sector:

  • Near the top of the consulting food chain, we’re seeing a lot of value consolidation through mergers and acquisitions. For example, this year two of my past employers — Stone Yamashita Partners and Sapient — have been acquired by larger firms. PwC and Booz&Company have merged into Strategy&. In recent memory, independent, marquee firms in the Bay Area like Hot Studio, One & Company, Pivotal Labs, and Adaptive Path have all been absorbed into enterprise clients (a kind of exit that a decade ago would have been highly unusual).
  • At the tippy-top of the food chain, the “big fish” consulting firms are having a crisis of relevance, which is what you would expect from any massive organizations in times of rapid change. According to a recent New York Times piece, McKinsey is undergoing a particularly turbulent evolution as it responds to scandals and replaces long-held values with new, more stringent rules. Monitor Group has ceased to exist on its own. Some massive “full service” incumbents will weather the storm as always, but deep bench strength requires deep pockets, and accordingly the meat and potatoes clients of the big firms will always be Big Enterprise and Big Government, not the next generation of edgy startups. Success at the top of a food chain is somewhat like being the Red Queen: you have to run as fast as you can forever to stay where you already are.
  • Meanwhile, as in other industries, new innovation in the consulting space is most obvious when looking at the “small fishes.” New and smaller firms are finding they can succeed by combining differentiated and sharply positioned services with innovative organizational design. Distributed teams and new org structures supported by the latest networked tools can sometimes deliver boutique results without the overhead of a traditional agency. My own firm The Next Us falls into this category, as do other organizations like Undercurrent, Neo, and Context Partners. Here’s prominent Seattle tech investor Chris Devore forecasting a broader trend of small agency innovation back in 2011:

“[I] see an opportunity for a “virtual industry” of boutique advisory firms, led by “partner-level” refugees from the old pyramids who understand how innovation happens now. These “innovation boutiques” will call in elite teams of specialists, assembled from the emerging class of high-performance talent marketplaces (think Forrst and Dribble for visual design, GroupTalent and oDesk for software execution, Contently for content creation, etc.), to deliver short-duration, high-impact solutions to their corporate clients.”

Other small firms are thriving by becoming exquisitely specialized. Think Droga5 for big brand ad creative, Outcast for media relations, and Kepler Group for marketing strategy, analytics and optimization.

So times are good for those who are correctly positioned. That said, while some consulting work is shifting or evolving, some of it is indeed disappearing by going in-house. As part of the overall value consolidation trend, Apple has decided they can handle advertising on its own thank you very much, and Netflix and Kellogg are two of many, many companies who have decided to take their programmatic buying internally.

Agencies will still be a vital part of the ecosystem, but their assignments may be narrower and less lucrative than before. Specialization and commoditization often go hand-in-hand.

And it will all happen again

Is there a chance in these current throes of change, or near-future ones, that consulting could effectively end entirely? Many might greet such an ending happily. In the novel Life, the Universe and Everything, Douglas Adams described an advanced alien civilization that decided to maroon its telephone sanitizers, management consultants and public relations professionals on another planet. The perception that consultants are by definition useless persists in some quarters to this day.

But — and I admit I can’t be objective here — I think there will always be consultants because the roots of the consulting industry aren’t in temporary macroeconomic or talent trends but instead basic human psychology. For at least several decades more, the average human brain is still much smarter than the smartest networked machine. We need human insight to spark and execute new ideas and maintain transformative change. At the same time, the human brain gets bogged down in very predictable ways. In particular, the larger an organization, the dumber and more insular it gets. Dmitri Orlov talks about this tendency memorably and rather colorfully in his article “Understanding Organizational Stupidity.”

With more positivity, Paul Pangaro looked at organizational stagnation back in 2002 and in the wonderful Little Grey Book used the insights of cybernetics to illustrate the continual need for leaders to look outside their organizations for fresh ideas and perspectives.

Little Grey Book image

From the Little Grey Book. Designed by Dubberly Design for Sun Microsystems. Used with kind permission of Oracle. Copyright ©2002, Sun Microsystems.

Consultants fill this “outsider” role perfectly. Writing more recently, Venkatesh Rao asserts that the primary value of a consultant is indeed his or her outsider status combined with the ability to safely comment on and sometimes attack the internal organization’s sacred beliefs:

What the ideal consultant really brings to the party is a lack of a sense of the sacred. This implies a lack of a sense of the profane as well, and a lack of unexamined trust in the ideas and reasoning patterns of insiders. This state is not easy to achieve. You have to get practiced at systematically dismantling notions of sacredness, both the client’s and your own, to get to a sufficiently clean slate.

So the consultant is often just an outsider who is roughly as smart as the insiders who are hiring him or her, but processes differently by virtue of a missing or dismantled sacredness module.

This is the same reason therapy persists as a profession. Our brains are wired to seek clarity from people who are outside our group and have the requisite training not to get caught up in our internal story.

The connection between business, personal, and social transformation is in fact a strong and enduring one. In his book The Age of Heretics: A History of the Radical Thinkers Who Reinvented Corporate Management (2nd edition), Art Kleiner of strategy+business places consultants in a multi-century lineage of heretics and outcasts who have led disruptive change. And he describes in detail how many specific trends in 20th century management consulting drew inspiration from social phenomena like the human potential movement, communes, Buddhism, and LSD. (For more quality writing on this theme, I recommend Steve Silberman’s retrospective of Steve Jobs, as well as Fred Turner’s From Counterculture to Cyberculture.)

Kleiner describes an almost-linear progression of 20th century heretical ideas— from balanced scorecard and scenario planning to quality management and lean manufacturing to re-engineering and knowledge management— each of which was absorbed, metabolized, bastardized, and discarded by the general business culture. Following this line into the 21st century, we could add things like “innovation,” lean startup, mindfulness, and resilience. These ideas are all worthy, but what’s notable of course is that they all have expiration dates. Once the intended clients have grokked the essential concept, and incorporated it as Paul Pangaro describes, there’s nothing for an idea-centered consulting firm left to sell, perhaps other than simple training.

So what’s new this time?

For that reason, I’m hesitant to say that the future of consulting is all about resilience, lean startup, Big Data, crowdsourcing, or any such theme that will have its moment in the sun before we move onto the next unsolved problem and genuine new idea. I will say that some new ideas are better than others. E.g., Venkat at Ribbonfarm has skewered “design thinking” and sharply critiqued lean startup — his essay on innovation methodology generally, “Product Driven Versus Customer Driven,” is still my favorite business read this year.

But the general list of trends I expect to bear most fruit include:

  • Emphasis on “zero to one” value creation over optimization and incrementalism
  • Increasing specialization and unbundling of services
  • Deeper collaboration between and integration of skill sets: e.g., ad creative and buying, product and sales, marketing and IT, data science and everything
  • Business models that can permit slower growth
  • Increasing hybridization of services and products. (On this general theme, Aaron Dignan and Bud Caddell of Undercurrent note that for today’s organizations “Doing is cheaper than planning.”)
  • GitHub-like idea exchanges, perhaps replacing 20th century conferences. (Twitter, Reddit, and Slack to an extent are filling this role already.)
  • Overall, more activity in liminal spaces between the salaried world and the consulting world, with more porous activity at the membrane, including things like: highly involved angel investors; consultant/salaried hybrid roles; programs like Designer Fund’s Bridge that prepare freelancers for startup culture by immersing them deeply and thoughtfully in those environments; aggressive transparency à la Buffer, thereby blurring the distinction between what’s “inside” vs.“outside.”

After 17+ years in the consulting world and 41+ on Planet Earth, I’m old enough to remember where we’ve been and still be excited about the future. I’m looking forward to it.