Your Business's Five Year Survival Rate


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The "5 year survival rate,” according to Wikipedia, is a medical term for estimating the prognosis of a particular disease. If you were diagnosed with cancer, you’d be faced with this morbid fact and would have to deal with it. It could be liberating or debilitating. The interesting thing is this: If you were told that your five-year survival rate was, say, 80 percent, you wouldn’t just carry on doing what you were doing. An 80 percent survival rate means you have a 20 percent chance of not making it through the next five years. A one-in-five chance is somewhat akin to playing Russian roulette—not a game that most people would rush to play.

More than half of all small businesses fail before the end of their fifth year and yet do nothing to change their behavior.

Can the disruption of traditional media by the web, teach us survival tips?

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Your Business's Five Year Survival Rate

  1. 1. K E Y N OT E In today’s dynamic and interac- tive marketplace, the resources dedicated to supporting a brand Stephen Randall, can grow and grow. Read on Founder & Chief Executive, to discover a strategy that both LocaModa Inc. leverages brand value and pri- oritizes the investments in this critical corporate asset. 6
  2. 2. The Social Web and Your Business’s Five-Year Survival Rate by Stephen Randall You don’t want to hear this: No one rate means you have a 20 percent More than half of all small busi- has a 100 percent chance of surviving chance of not making it through the nesses fail before the end of their fth the next ve years. No one. next ve years. A one-in- ve chance year, according to research conducted “ e ve-year survival rate,” ac- is somewhat akin to playing Rus- by the US Small Business Administra- cording to Wikipedia, is a medical sian roulette—not a game that most tion. Results are similar for di erent term for estimating the prognosis people would rush to play. industries, and design rms are cer- of a particular disease. If you were I know a little about this, because tainly not immune. Many factors help diagnosed with cancer, you’d be faced I went though that experience eight a business stay open beyond its fth with this morbid fact and would have years ago. I’m happy to say that I’m year, not least its access to and supply to deal with it. It could be liberating ne today—but it gave me insights of su cient capital and the motivation or debilitating. that were very valuable, as well as an and stewardship of a rm’s owners. e interesting thing is this: excellent excuse to accelerate deci- But, as always, it’s a business’s ability If you were told that your ve-year sions that might never have been to reach and retain customers that survival rate was, say, 80 percent, you taken without such a stark reminder becomes its ultimate route to survival. wouldn’t just carry on doing what you of my own mortality. Today’s Web is like a supercon- were doing. An 80 percent survival So what’s this got to do with you? ductor for ideas, messages, politics, © 2010 The Design Management Institute 7
  3. 3. The I mpac t of S ocial M edia on S er vice a nd Pro duc t B ra nds and business. Its multi-channel, that can’t be backed up. Just when is is just the start of the social real-time nature is the antithesis of you thought your website presented web (also known as Web 2.0 or the top-down hierarchical communica- you in the best light, you realize that real-time Web). I’ve chosen to use tions (see Figures 1 and 2). Its impact it is no better than a brochure—a the term social web to emphasize on traditional businesses—music, one-way communication tool to reach the social nature of its impact, but I photography, newspapers, books, and potential customers. Real customers won’t argue about which is the most movies—is palpable. But it’s not stop- don’t necessarily accept being sold appropriate term, as each has its ping there; it’s coming to a business to; they prefer to buy intelligently. merits (and each encourages bubble- near you. You should neither ignore Web-savvy businesses are equipped like frenzies that only serve to make its impact, nor assume that it’s some to encourage and foster that dialogue. the skeptics more skeptical). But in newfangled fad that will go away. It’s e best are seductive because they many ways, social media isn’t new. As here to stay. react to and interact with their cus- humans, we’ve always been adept at Today’s users, audiences, and cus- tomers in real time and can in uence nding the best methods, tools, and tomers are more informed than ever them—at the expense of traditional channels for communication. We before. ink of them as the “con- businesses that do not invest in those began by drawing on cave walls and nected class.” Products and services relationships, or are ill-equipped or progressed to writing on tablets, to are merely a click away from opinions, afraid to have such a direct connec- creating hieroglyphics and then the recommendations, and in uencers tion. (I’ll give some speci c examples alphabet, from inventing paper to that expose any marketing claims of this later on.) devising the printing press, from the Top-down communications Multi-channel communications Figures 1 and 2. The traditional top-down hierarchical communications structure (left) is the antithesis of the Web’s multi-channel communications structure (right). 8
  4. 4. The S o cia l Web a nd Yo ur B usiness’s Five -Yea r Sur vi val R ate beginnings of the postal system to disruptive when combined with the hindsight, it hasn’t been crazy; it has innovations like the telegraph, tele- exploding popularity of the Web. e actually been more like a Darwinian phone, radio, TV, and video, and from connective tissue of the Web, com- process. e successes—Amazon, the PC to the Internet, email, instant bined with inexpensive, powerful, and eBay, Google, and others—have been messaging, the Web, the mobile fast devices has and will continue to far more transformative than the phone, blogs, wikis, text messaging make social interaction more digital, failures—and yet the aftertaste of and, most recently, the real-time Web real-time, and interactive. disruption leaves many people with epitomized by social networks such as a propensity to look at the craziness Facebook and Twitter. is is not, of Change is here to stay of the failures as a better indicator of course, an exhaustive list of social in- In the mid ’90s, when the Web started why some technologies today will not teraction through the ages. But what to take hold (the rst release of the a ect our daily lives. e same is true is incredible is that the rst advances Mosaic Web browser was in 1993), concerning the social web. However, in communication took millions of it was, like many bubbles before and the issue is not whether companies years to evolve, the next advances took after, something that few people re- like Facebook and Twitter will be as impactful as Microsoft and Google. If those speci c companies do not create Now it’s possible to see dramatic changes in the a sustainable ecosystem, some other way we communicate in a matter of months. companies will. Regardless of who wins, the social web is not going away. e social web isn’t just about thousands, followed by hundreds, ally understood. Many were quick to access to data—it’s also about expres- then decades. Now it’s possible to see deride it. e dot-com bubble was sion. We have moved from an impres- dramatic changes in the way we com- marked by spectacular successes and sions-based world (for instance, TV, municate in a matter of months. some even more spectacular failures. newspapers, press releases, brochures, e reason for the recent ac- When the bubble burst, the naysay- and the like) to an expressions-based celeration in communication advances ers were only too happy to announce world (interactive media, blogs, is the combination of Moore’s Law that they “knew it was crazy.” In recommendations, and so on). A (the trend in digital devices that 1999, GeoCities was a trailblazer company’s reputation cannot simply predicts the number of transistors on and was acquired by Yahoo for $3.57 be stated; it has to be earned. Suc- integrated circuits will double every billion. Barely a decade later, Yahoo cessful marketers today are aware that 18 months) and Metcalfe’s Law (the has closed GeoCities and is strug- it takes a multi-channel approach to value of a network is proportional to gling to rede ne its own relevance build a strong and responsive Web the square of the number of connect- on the Web. e fact that, in their presence. It is obviously critically ed users). As a result, the advance- day, Netscape and AOL failed to important to understand how your ment in computing devices (such as live up to their promise did nothing customers discover your business and PCs and mobile phones) is even more to stop the Web from advancing. In how they can make or break it. When 9
  5. 5. The I mpac t of S ocial M edia on S er vice a nd Pro duc t B ra nds potential customers search for the those managing the welfare and ef- known serial entrepreneur, posted the kind of products or services you pro- ciency of their employees, and those following on Twitter: vide, what do they nd? Even if your delivering competitive products and “Looking for someone to make me company is among the rst 10 search services—to devote real resources to a logo &/or website for Open Angel results, it’s unlikely to be there alone. navigating and, ideally, staying ahead Forum, a free forum for entrepreneurs to Your company will be surrounded by of the chaos. pitch. Will give credit of course.” links to other companies, blogs, and Consequently, it is far from ra- Calacanis has more than 75,000 discussions on social websites such as tional to place a bet against the social followers on Twitter. He had been Twitter. If your business’s Web pres- web and its implications. One need waging a PR war against angel ence isn’t larger (much larger, hope- not believe in any of the thousands investors charging entrepreneurs for fully) than your website, it means that of social networking sites, tools, and pitching startup ideas, so this project no one is talking about it. And if no related businesses—but business was likely to get attention. It was also a worthy cause for a very connected technology community. No company is or will be shielded from the In little more than a couple of enormous turbulence in the marketplace. hours, Calacanis had not only vol- unteers but also 10 logos, as well as user-submitted comments on those one is talking about your business, owners must start to realize to what concepts. fewer still will be talking with your extent they will be a ected by the Many designers will be horri- business. decentralization of communications. ed by this story, but its implications Peter Drucker said, “You can’t If there are businesses completely are obvious. e double impact of manage change; you can only be una ected by the social web, they will inexpensive technology (design soft- ahead of it.” You certainly can’t win be the exceptions. Ignoring the impact ware, powerful PCs) combined with by ignoring it. Even if a company is of emerging game-changers will be as fast and ubiquitous communications on the fence about the importance profound as ignoring the impact that tools (in this case, Twitter) disrupts of the social web, it is unlikely that Google, eBay, and Amazon have had the traditional process. is is not all its clients are—so understanding on life as we know it. so much about professionals being the social web, even if a company isn’t Let me share a couple of exam- cannibalized by amateurs as it is an actively engaged in it, is still critically ples with you. example of how members of the “con- important. No company is or will be nected class” are able to get what they shielded from the enormous turbu- e Open Angel Forum want when they want it. In this case, lence in the marketplace. It therefore On Saturday, November 14, 2009 Calacanis went from design brief to behooves everyone—those responsi- (while many design rms were prob- proposed designs and user feedback ble for creating value for shareholders, ably shut), Jason Calacanis, a well- within two hours! 10
  6. 6. The S o cia l Web a nd Yo ur B usiness’s Five -Yea r Sur vi val R ate If you think this is an atypical ex- as ‘Brand’ Ambassadors.” He writes, six months, that number had grown ample—a business process that won’t “ rough extraordinary customer by more than one million (Figure 3). a ect your world—you’re wrong. service and exceptional customer At the time of this writing, the num- Business leaders who embrace these experiences, WFM believes it can ber of followers has grown to over 1.6 new tools will have the jump on their turn its shoppers into brand ambas- million, and Whole Foods Market is competitors. Any business claiming to sadors who will voluntarily extol the following more than 500,000 of them. be innovative should recognize what virtues of WFM to their friends and Anyone can see the brand reacting is going on here. family. So instead of using traditional to consumer suggestions, comments, advertising vehicles, WFM uses the praise, and criticisms in an open, Whole Foods Markets in uential power of customers as the public forum. It has an authentic John Moore, in a 2005 article about advertising vehicle.” voice, and the dialogue translates into Whole Foods Market,1 describes Whole Foods Market is also increasing brand value, helping the the company’s “10 winning ways.” visibly practicing what they preach. company sustain its position during Number 5 on his list is “Shoppers When I rst talked about the brand challenging times. 1. John Moore, “The Winning Ways of Whole Foods at a conference in May 2009, the Market.” Brand Autopsy Marketing Practice, October 16, company had barely more than A survival guide for the social web 2005. Available here: brandautopsy/2005/10/the_winning_way.html. 420,000 followers on Twitter. Within ese are just two of the many examples of how the social web is a ecting business. Whether it’s an entrepreneur seeking fast solutions or a national brand listening to and reacting to consumers in real time, the social web is enabling the rede nition of relationships among providers of goods and services and their custom- ers. It’s a revolution that is changing how information, products, and ser- vices are consumed. I don’t think it’s too bold to say that the consequences could be as radical as those of the Industrial Revolution. 1. John Moore, “The Winning Ways of Whole Foods e traditionalists out there Market.” Brand Autopsy Marketing Practice, October 16, 2005. Available here: might be hearing (or ignoring) a poor brandautopsy/2005/10/the_winning_way.html. ve-year prognosis. Yes, my message is Figure 3. Whole Foods Market uses social networks to encourage customers to become advocates. change or die, which may be a cliché, 11
  7. 7. The I mpac t of S ocial M edia on S er vice a nd Pro duc t B ra nds but unfortunately most companies you do, but free need not hurt good customer relationships by moving resist change. Even if they didn’t, businesses. Google has mastered away from more-traditional models. many would nd it di cult to keep free—attracting a massive user base up. For those brave few willing to go via free search, free operating systems, Tip #2: Focus more on your Web the distance, here are three tips to help and free applications, and monetizing presence than on your website. improve their chances of survival. that user base by selling advertising. Your website is what you say about Every connected business needs you—your Web presence is what Tip #1: Give away something to work out how to cannibalize itself others say about you. e latter is valuable. before competitors do it. To that obviously more important than the People won’t buy from you unless end, I believe that every company can former. at means your Web pres- you’ve proven you know what you’re adopt its own version of a “freemium” ence needs to be much more than just talking about. And you must keep model. Give something valuable away, your website. If your website is an proving it. Great, insightful, origi- but charge for features that sustain island, it is almost useless. Make sure it contains links to everything you feel best epitomizes your company and its capabilities. at might include People won’t buy from you unless you’ve recommended reading, blogs, videos, proven you know what you’re talking about. Twitter streams (tagged with your company name, products, services, and so on), and industry white papers. nal, authentic, humorous (pick one) your customers’ needs. If you don’t do e more you can recommend other content is one of the best ways you this, a competitor surely will—and sources of information, the more you can inspire your customers, new and then you’ll be faced with having to will be seen as an expert (as opposed old. When you give something away compete reactively. Work out what to having to convince people that you free, you are e ectively earning the you can give away, and why it’s valu- are one). Hopefully, people are talking attention, trust, and (eventually) the able to do so to get the customer over about you and your products and business of your customers. In the the threshold of your business. services (and doing so in a favorable meantime, if you are doing your job e Web’s freemium model light), and those comments can be right, your customers will become forces companies to think seri- linked and directed in such a way that your advocates (just as they did in the ously about where they add value and people searching for you will discover Whole Foods example). where they are being (or about to be) others beating a path to your door and Free samples were part of the commoditized. is does not work will want to join the stampede. selling process long before the Inter- for all companies, but I do think there Engage in a dialogue with your net put “free” on steroids. It’s laudable are opportunities to share risk and customers/audience in real time. to expect to get paid for everything reward and/or sustain more valuable Feature that dialogue, or “stream,” 12
  8. 8. The S o cia l Web a nd Yo ur B usiness’s Five -Yea r Sur vi val R ate prominently on your website. (Twit- works and what doesn’t. An example e social web presents enough of a ter provides code to simply embed of a simple goal might be to increase life-threatening challenge—especially streams on websites or blogs.) Spend the number of speci c mentions (for to traditional industries. It is and will less money on PR and more on instance, company, product, service, or continue to be a challenge for most commenting on blogs and Twitter, as personnel) by x% and to respond to businesses. But no self-respecting well as speaking and networking at comments on y% of those mentions company can a ord to ignore its pace conferences. Spend your time in the over an agreed period of time (say, six or power. is requires nothing less community of your industry peers months). ere are many free tools than the reinvention of your business. and customers. Your developing repu- available that will help you monitor And consider: As designers, tation will be worth far more than your Web presence. Keep with it. hasn’t reinvention always been our any pithy statement on your website. Learn, evolve, and repeat. mission? So how can we not relish You will probably fear that you’ll lose this challenge? control of your message—but guess Conclusion Reprint #10211RAN06 what? You don’t have control of your I have no doubt that the social web message anymore! Don’t let negative is here is to stay. It will change the feedback paralyze your e orts. Again, way we all consume and the way we consider the e orts of a brand like all do business. ere is no avoiding Whole Foods Market, and see that this, and I believe that your business criticism is an opportunity to im- simply cannot ignore this fact. prove, and in doing so to inspire more If you still believe that com- customers. munications should be a top-down, one-to-many process, you are almost Tip #3: Keep it up. certainly going to lose business mo- e conversation will happen with or mentum, trust, and customers. Fire without you. You de nitely don’t need your traditional PR rm, hire some to respond to everyone with a Twitter interns with ripped jeans and a heavy account, but you need to keep listen- social media bias, and don’t be afraid ing to your customers, competitors, to make mistakes—because you are and market in uencers. is will not already making more mistakes than change your business overnight, and they ever could. e cost and risk of you will nd it hard to keep energized not engaging is far higher than the if there are no obvious signals that cost and risk of engaging. the process is working. You should You shouldn’t need to be told have some simple goals and iterate that your ve-year survival rate is improvements as you discover what dropping to get motivated to act. 13