Archives For September 2012

Tom Pirelli ESI Baby

I caught Tom Pirelli on his mobile phone one morning last week. He was near his house in Jupiter, Florida preparing his thoughts for an afternoon meeting about his latest venture, (something to do with using therapeutic lasers to manage chronic pain). He immediately strikes me as a man overflowing with energy, though he is not so young anymore.

I learn that he made a noble attempt at a leisurely retirement after selling his software company, Enterprise Systems, 15 years ago. But it would seem retirement did not fit his constitution. He has since started an ambitious foundation to provide better affordable housing options to impoverished communities in Mexico and Haiti. He has worked with USA Rugby, and took great pride in seeing his favorite sport included on the roster for the 2016 Olympics in Rio. And, of course, he has involved himself deeply in this new laser therapy business.

Tom is a success through and through with the sort of bona fides that might just turn a less humble man into a braggart. Yet despite his litany of accomplishments, this is the picture for which Tom is best remembered:

We’ll return to that later…

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Exceptional Business Pic

I’m testing a theory here, the driving question of which is What are the cardinal traits of exceptional software and technology businesses?

The term “exceptional” is as qualitative as it gets. Perhaps we’ll give it more definition as we proceed, but for the time let’s be comfortable with former U.S. Supreme Court Justice Potter Stewart’s threshold test for obscenity: I know it when I see it.

I’m suggesting four criteria and using them as a framework for evaluating various businesses in different stages of development, as early as start-ups and as late as technology that has been retired from companies that have long since moved on. The application for what we learn will resonate most, I think, with young businesses either in their fledgling stages or otherwise still able to mold their cultures and their values.

My early thesis is that the exceptional software and technology companies share some combination of the following traits summarized below in very rough form:

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The Little App That Caused So Much Trouble

I have this little app on my smartphone called Amazon Price Check. I can take it into Target, scan the bar code of any item I’m thinking of buying, and Amazon will check its catalog to let me know if it offers the same thing at a better price. If so, I make an instant decision whether to walk out of Target with purchase in hand or wait for Amazon to deliver it to my doorstep, exercising some patience in exchange for saving a little cash.

This is a ruthless test of how well stores are maintaining the protection of the convenience barrier; how well “have it now” is holding up against the customer decision to delay gratification and wait for delivery.

The real melee from this little app came last Christmas when Amazon went right for the stores’ jugular. Not only could you conduct the price check, but Amazon would subtract an additional five percent of the purchase price if you bought it from them on the spot. Vicious!

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Amazon has stated over and again that it wants to be THE place where shoppers can find anything being offered on the internet. It wants to go as far down the long tail of selection/demand as it possibly can, offering products even in the deepest niches being purchased by the fewest customers.

The objective is clear: Amazon wants no excuses for shoppers to go to competitive sites to peruse potential purchases. And if Amazon can press its growth levers to the extreme – offering the best convenience, the widest selection, and the lowest prices – why would shoppers even bother looking somewhere else? For that matter, why would they even bother running a Google search when they can just go straight to Amazon and save an extra step?

In short, Amazon wants to be ubiquitous.

Having the widest selection possible is crucial to achieving ubiquity. Amazon can offer a wider selection than Walmart by virtue of escaping the tyranny of physical space. Well, mostly escaping that tyranny anyway. It can pack a wider selection into its 70 or so fulfillment centers than a traditional retailer could ever imagine stocking in its stores. But those warehouses – as big, efficient, and cheap to run as they may be – are still constrained by their four walls.

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The Long Tail

Chris Anderson of Wired.com popularized this metaphor with a thought-provoking piece in 2004, The Long Tail. He followed it up in 2006 with a well-received business book of the same name. Both are worth reading.

(We introduced the idea in the last article, Walmart’s Selection and Long Tails.)

The key points are these:

1. Store-based retailers fall victim to what Chris calls the “tyranny of physical space.” They are limited by real estate location and a finite amount of shelf space. As he puts it:

 

An average record store [for the young readers, this breed went extinct about two months after Chris wrote his article] needs to sell at least two copies of a CD [likewise extinct] per year to make it worth carrying; that’s the rent for a half inch of shelf space…retailers will carry only content that can generate sufficient demand to earn its keep. But each can pull only from a limited local population – perhaps a 10-mile radius for a typical movie theater, less than that for a music and bookstore…