Applied Effection

[Cascade]

All the unicorns

In my industry the old hands I speak with keep repeating the same old storylines which only serves to emphasize that it took them 3 decades to build up the client book and new entrants must bide their time and accept the scraps.


Somehow each time I hear this there is a voice screaming inside “RUBBISH” because when I look around I see examples of this everywhere.

In another example
A decade ago I was one of the regularly pissed off taxicab customers and used to be quite good at cursing the taxi company and the lousy attitude drivers. There seemed to be a monopoly and the big boys knew it.


In my journal there are notes of brainstorming sessions I had with friends on how we would do something to solve this literal pain in the behind. So what stopped us from becoming Uber?


Best can describe was a strong fixation with Incremental Model Improvement (IMI) and each time the forecasts kept coming back to this massive capital investment needed to get started: either by trying to buyout or at least get a controlling stake in an existing taxi company or in imagining ways to get hold of a new license.


Earlier today, as I was taking a walk the thought struck me. Think about all the unicorns today such as: Google, Facebook, Uber, AirBNB, Netflix…what do they have in common?


They each did not Incrementally Model Improve! They totally changed the model. They changed in the most fundamental way the relationship between the consumer and the supplier.

OK so everyone knows this

I found more interesting that the unicorns also have massive scale; which by definition are providing services to the 99% and not the 1%. Have always found it interesting that an Apple fan in a developing country would consider the latest iPhone to be a necessity, even if it cost more than 1 month salary.

So all the unicorns have shown is the way to be the next unicorn is to scale massively. TMF calls the law of Effection


(Bonus section below)


Then it hits me quite hard: this is NOT my business segment

My industry targets affluent customers

And because the competition is so intense the service is increasingly customized to each client. This in turn drives up cost and prevents any form of massive scale. Margin compression results in competitors betting that scale and volume is the strategic play and so they bet on long term “total customer lifetime value” and incur some negative margins to literally buy market share.

Dammit. We are not in the acne cream business where there is a status quo of big boys willing to pour millions in customer acquisition because they will earn back much more over the years.

There are many competitors chasing the small number of demanding clients.

Anyone else in the business to primarily target affluent customers?

Well…here is the rub: The unicorns have proven that the path to massive growth is to have massive scale that redefines an industry to suit the demands of the “access economy”

If you are in the business to sell to the affluent, given the smaller demographic, how do you apply the Law of Effection?

Short of shifting industries, how ELSE to bring massive scale to affluent customers when by definition as a demographic they are a SINGLE DIGIT PERCENTAGE

Why this affluent segment?

The original insight was to follow the money and this chart (below) sums it up well

 

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