July 13, 2010

58) Dropbox

危 wēi  danger

MIT-grad Drew Houston was frustrated with how often he forgot his USB drive.  He was sure that there was a better solution, probably a Web-based file hosting service but he couldn’t find one available so he founded Dropbox with a fellow MIT-Grad to build it.  Shortly after receiving seed financing from Y-Combinator in 2007 they released a short video explaining their plans on Hacker News – the video received 1200 Diggs and Houston realised that they must be onto something.  They built the product (which is worth checking out for its wonderfully simple UI here) and officially launched at 2008′s TechCrunch50, an annual technology conference.  Initial users loved the product so the next logical step seemed to be to advertise and they launched an Adwords affiliate programme.  The results were shockingly poor – customer acquisition cost proved to be $233-388 (for a $99 product).  Perhaps the company’s VC backed competitors were overspending and the company would never be able to compete?

机 jī opportunity

The team interpreted the situation differently – they didn’t see the cost of Adwords advertising as the problem, they concluded that their challenge was that consumers don’t search for problems that they don’t know they have.  In other words the team needed to find a way to create demand, not harvest it.  The team knew that users that were referred to the product invariably loved it so they developed a system to incentivise the referral process (gifting both the referrer and the new users free memory – a 2-sided incentive).  The approach worked: user numbers from Sept 2008 to Jan 2010 have increased from 100k to 4m, and 35% of these new users joined directly from the referral programme.

How About…

  • Questioning whether your aim is to create or harvest demand?
  • Using 2-sided incentives to drive sales?

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I like the low-fi introductory video (the only information on their homepage), it reflects the team’s humility and dives straight into the benefit using an analogous situation:

March 15, 2010

44) Zara

危 wēi  danger

The $300-billion fashion industry has always struck me as a tough industry to disrupt – after all it’s dominated by global fashion houses that have enjoyed a near monopoly on trend-setting – trends that they drive through expensive fashion shows and enormous marketing campaigns.  The industry is highly seasonal (conveniently improving the fashion houses’ product turnover) and consumers have grown to accept that they have to wait 6 months or so to buy the clothes that they see on the catwalk (the time it takes the incumbents to organize manufacturing through third parties).

机 jī opportunity

Zara’s contrarian approach has turned this model on its head – instead of investing in setting trends (for many years it had a zero advertising policy) it is almost entirely reactive and focuses on keeping its costs low.  Its whole model is geared around speed to market and low cost experimentation – for example unlike other large fashion houses, Zara owns all of its designing, manufacturing and retailing operations – enabling it to retail product that it designed less than 2 weeks earlier. It relies on its frontline employees to feedback on emerging trends, and use PDAs to feedback instantly on the success of its new lines (which are initially made only in medium size to limit investment).  Stock is made to order and can be replenished within 36 hours in any store in the EU.  Zara’s pioneering approach, often described as ‘fast fashion’, has helped it overtake GAP to become the largest fashion retailer in the world – in part driven by the fact that its rapid stock turnover leads its patrons to visit its stores 17 times a year versus the industry standard of 4 visits.  Zara rightly is changing the industry and scaring the traditional firms - Louis Vuitton fashion director Daniel Piette described Zara as “possibly the most innovative and devastating retailer in the world”…

How About…

  • Harnessing your front-line staff to feedback consumer responses and set strategy?
  • Question the status-quo in industries that are structured in a way that detract from the consumer experience?

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March 8, 2010

43) Dr John’s Spinbrush

spinbrush logo

危 wēi  danger

John Osher is a serial entrepreneur.  After successfully selling his Spin Pop invention, a lollipop with a battery-operated handle that twirled in the eater’s mouth, he wondered where else he might apply the technology.  He hit on the idea of developing an affordable electric toothbrush. To succeed, the product had to cost only a few dollars more than a conventional toothbrush and had to have a long-lasting battery, to meet this target Osher set about designing up from 80 cents (while everybody else was trying to design down from $79). The finished design, the Spinbrush, was highly popular in early trials.  However, with no marketing budget and a product that was so different to anything else on the market would consumers actually give the product a go?

机 jī opportunity

In the book Diffusion of Innovations (1962), Everett Rogers defines several intrinsic characteristics of innovations that influence an individual’s decision to adopt or reject.

1)    relative advantage – how improved an innovation is over the alternatives (including any previous generations)

2)    compatibility – how easily the innovation is assimilated into an individual’s life

3)    complexity – how easy it is to use

4)    trialability – how easily an innovation may be experimented with as it is being adopted

5)    observability – how visible the innovation is to others

Osher’s experience had taught him that a great product alone wouldn’t guarantee adoption, he understood that trialability and observability were important too.  Accordingly, he launched the SpinBrush at $4.99 – $5.99 in 1999 with a patented “Try Me” feature that allowed consumers to turn the brush on in-store, stimulating fast in-store trial.  This low cost approach maximised ‘observability’, ‘trialability’ and demonstrated the low ‘complexity’ in the product thereby reducing the need for consumer advertising.  The strategy worked and within its first year SpinBrush accounted for 10% of toothbrush sales in the US.  Osher’s company was sold to P&G two years later for $475m and by 2002 the SpinBrush was the best-selling electric toothbrush in the US.  With P&G’s marketing and distribution muscle the product’s annual sales grew to more than $200 million in less than twenty-four months.

how about…

  • Designing for all of Rogers’ characteristics when launching new products and services – relative advantage, compatibility, complexity, trialability and observability ?

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