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Why the internet works (and doesn't) for your business. And vice versa.

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The Big Red Fez

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The Dip

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We Are All Weird

The end of mass and how you can succeed by delighting a niche.

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Whatcha Gonna Do With That Duck?

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THE DIP BLOG by Seth Godin




All Marketers Are Liars Blog




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« January 2011 | Main | March 2011 »

The simple two-step process

Step one: Open all doors. Learn a little about a lot. Consider as many options as possible, then add more.

Step two: Relentlessly dismiss, prune and eliminate. Choose. Ship.

The problem most people run into is that they mix the steps and confuse them. During step one, they aren't open enough, aren't willing enough to consider the impossible. And then, in step two, fear of shipping kicks in and they stay open too long, hold on to too many options and hesitate.

Simple doesn't always mean easy.

Wonder and anger

It's hard to imagine two emotions more different from one another.

And yet one can easily replace the other. A sense of wonder and grinding anger can't co-exist.

Great innovations, powerful interactions and real art are often produced by someone in a state of wonder. Looking around with stars in your eyes and amazement at the tools that are available to you can inspire generosity and creativity and connection.

Anger, on the other hand, merely makes us smaller.

A linchpin hierarchy

  1. Do exactly what the boss says.
  2. Ask the boss hard questions.
  3. Tell the boss what your best choice among the available options is. Insist.
  4. Have co-workers and bosses ask you hard questions.
  5. Invent a whole new way to do things, something that wasn't on the list.
  6. Push and encourage and lead your co-workers to do ever better work.
  7. Insist that they push and encourage you.

30%, the long tail and a future of serialized content

The 1960s and 70s were the golden age of magazines. Why?

  • Lots of people wanted to read them
  • The newsstand could only hold a few of them (barrier to entry permits some to win)
  • The winners had no trouble selling ads because they had motivated readers, in quantity
  • The cost of making one more edition of the magazine was relatively low

Enter tablets. To some, it feels like the dawn of a new golden age. People page through apps like Wired and gasp at the pretty pictures and cool features. Surely, we're going to recreate that moment.

Here's the problem, and here's how Apple is making it much worse:

The newsstand is infinite. That means that far more titles will have far fewer subscribers. There are more than 60,000 apps on the newsstand. Hard to be in the short head when the long tail is so long...

plus, the cost of each issue is far higher, because it costs a lot more to pay a videographer, a video editor, a programmer, etc. than it does to pay John Updike to write 4,000 words...

plus, advertisers are harder to come by, because the number of readers is always going to be lower than it was back then, and the ads are easier to skip.

Of course, the good news is that the publisher doesn't have to pay for paper, so the profit on each subscriber ought to be way higher. Except...

Except Apple has announced that they want to tax each subscription made via the iPad at 30%. Yes, it's a tax, because what it does is dramatically decrease the incremental revenue from each subscriber. An intelligent publisher only has two choices: raise the price (punishing the reader and further cutting down readership) or make it free and hope for mass (see my point above about the infinite newsstand). When you make it free, it's all about the ads, and if you don't reach tens or hundreds of thousands of subscribers, you'll fail.

In a rare glitch, John Gruber got Apple's decision about the 30% subscription task completely wrong. By his logic, Apple would have been just as good for its users if the tax was 60%.

For content to be fabulous, for tablets to be more than game platforms, folks like Apple need to do two things:

  • Reward creators instead of taxing them.
  • Create promotional channels so that curated great stuff (not merely things from big companies) has a chance to reach a mass audience.

The web has been a hotbed of siloed content, of deep dives for small audiences. The large scale stuff, though, has tended to be mostly about gossip and other quick reads that's cheap to produce. Tablets offer a new chance to create content worth paying for. Paving the way for that to happen is a smart move for anyone who cares about the audience and the devices.

Making a straighter ruler

It's not easy. It's hard to get straighter than straight.

Over time, processes that seek to decrease entropy and create order are valued, but improving them gets more difficult as well. If you're seeking to make the organized more organized, it's a tough row to hoe.

Far easier and more productive to create productive chaos, to interrupt, re-create, produce, invent and redefine.

An atomic theory of business size

The magic of the periodic table is that every atom is one thing or another--there isn't a stable element that's sort of oxygen and sort of nitrogen. If there were, there would be millions of elements, not a few hundred.

That's because electrons are (more or less) either here or there. The quantum levels ensure that there are no weird hybrids.

A business follows a similar model. A local mom and pop store is just the right size for mom and for pop. The rent is low enough for the two of them to cover it. It's stable. They can't afford a $200,000 a year CFO. It wouldn't be a stable situation.

This is backwards but here you go: businesses that exist exist because the marketplace allows them to function at the right size. There were a lot of bowling alleys in the 1960s because the number of people you needed to run one plus the rent was just covered by the revenue you could expect. There was a right size, one that people were willing to take on and run.

The next level up from Mom and Pop feels different. Different furnishings, different rent, different payroll. It's not a little bigger, it's a whole quantum level different. And then down the street is the chain store, the one with 40 outlets and regional vice presidents and regional newspaper ads. Those things naturally go together, the scale is right.

Rightsizing your business is one of the most important decisions you can make. Just because you're thriving at one scale doesn't mean that a little more effort or a little more investment magically take you to the next. They probably don't.

Want to sell your popular donuts at Whole Foods? That's a quantum leap, not an incremental step.

Want your auction software company to become a public behemoth? It requires a leap of size and commitment, not a gradual creep.

Want to go from freelance work as a programmer to running a business like Fog Creek Software? Totally different list of requirements.

This is actually a good thing. It's good because rightsizing allows you to be profitable and live as a human. Those chasms in between are where people fall down.

One of the side effects of the internet revolution is that several new stable business sizes appeared. Groupon can do a billion dollars in revenue nationwide with far, far fewer employees than it took Target to hit the same level. A solo author can reach more people and generate more impact than she ever could have a dozen years ago.

These new sizes don't mean that the rules of quantum scale have gone away, though. That popular self-published author might be able to successfully employ six people, but there's no way she magically scales to sixty without something else changing. Several times I've run businesses that the market liked but couldn't find the right scale... adding more people didn't add a significant enough amount of revenue, and fewer people would have cost us our customer base. Just because it's a good idea doesn't mean that there's a scale that works.

When in pain, consider your scale. When you're too big or too small for the revenue or the impact you seek, you'll feel it in your bones. Leap.

A flip side: the asymmetrical gift

Yesterday I bummed you out with a riff about favors becoming impossible to fulfill. Worth a thought: the alternative, the good news that comes with the bad, is the massive asymmetric gift.

A gift is not a favor, because no recompense is implied or expected. A gift is just from me to you, that’s it.

The internet makes it easy to give gifts to large numbers of people at very very low cost. Editing a wikipedia article, for example, is a gift for the ages, one that might be seen by a million people over three years.

This leads to a new clause in the social contract. In this environment, we expect that civilized participants will give. Just because. Because they can. Because the gift makes all of it work better.

While mass favors have to fade (too easy to ask for, too unfair at scale), mass gifts show up to change the equation. Gifts are easy to scale, now, the more generous, the better. For all of us.

Asymmetrical mass favors, a tragedy of our commons

If the farmer and the baker make a trade, both win. The farmer benefits from having someone turn his wheat into flour and bake it, and the baker gets money from the bread he sells that he can use to buy things he needs (like food).

This sample math of the transaction (Pareto, et. al.) created the world we live in. It also is connected to the idea of a favor.

A favor is the first half of a transaction. I ask you to do something for me today, something where I will probably benefit a lot in exchange for a small effort on your part. Inherent in the idea of a favor, though, is that one day soon, the transaction will be completed. One day, I will do something for you that gives you a benefit.

As Pareto and any economist will tell you, we willfully engage in this transaction because we'll benefit. Maybe not right now, but soon.

By spreading the idea of the trade over time, the favor makes trades more likely to occur, and also makes sure that they are even more efficient. If I’m already holding open the heavy door, holding it two more seconds for you is easy for me. And then, the next time you’re holding open the door, you’ll be more likely to hold it for me.

If I recommend you for a job, it doesn’t take much effort on my part, but you might get three years of gainful employment out of it. And of course, you’re happy to complete that transaction as soon as you can, because no one wants to walk around owing favors.

The efficiency caused by this sort of exchange is so extraordinary that we built it into the social contract. I’m not just selfish if I let the door slam as you walk toward the elevator--I’m rude. I’m risking becoming an outcast.

Favors are so ingrained that the next step was inevitable: Mass Symmetric Favors. Halloween is a great example: How else to explain a hundred million people buying half a billion Snickers bars? We give away the candy because it’s expected, and because people gave us candy when we were kids, and because people are giving our kids candy as well. To opt out is uncivilized.

School taxes create a similar obligation. If you don’t pay when you’re childless, there will be no one to pay when your kids are in school. (And you have to live in a world with uneducated people). And so the transactions are spread out over time, everyone giving and taking, not so much keeping score as knowing that a key part of civil society is to participate in these mass fungible favors.

But!

There’s a big but. The internet and other connecting tools now make it easy to create the asymmetrical mass favor--in which one person can ask a large number of people, some of them strangers, some friendlies, some friends--for an accommodation that may very well never be repaid.

The simple example is the person running for the Metro North commuter train that leaves at 5:20. She’s only 2 minutes late. If she misses it, she’s delayed half an hour. Surely the people on the train can wait a hundred and twenty seconds.

Not really. Not if there are 300 people on the train. That’s a ten hour penalty on the passengers, and if there’s no reasonable expectation of each of them somehow finishing the transaction one day in the future, the entire system will fall apart. No, in the abstract, we WANT the conductor to say ‘sorry.’

It gets far more dramatic when we think about spamming 10,000 or a hundred thousand people with your resume or plea for help.

The problem is that under the cover of the social contract, under the guise of doing what’s civilized, what some people are doing is beginning exchanges that they and those they engage with know will never be consummated. She's not transacting, she's taking.

And people resent her for it. “It can’t hurt to ask,” is almost never true, but here, especially, it hurts a lot. What the person looking for the favor is doing is actually undoing the tacit agreement we all live by, by seeking a favor when the recipient has no real (social) choice in the matter.

The favor is too important to be discarded, but the internet is making things that look like favors (but are actually asymmetrical takings) more and more common. It's putting pressure on people who are usually open to a favor to do the difficult thing and just say no.

[Tomorrow: the other side]

Date certain

A powerful marketing tactic: tell me exactly when I'm going to get it.

"This project will be done noon on Tuesday."

"You'll get the shipment at 4 pm."

Fedex has made billions shipping packages that didn't even have to be there fast, they merely needed to arrive at a time that we knew about in advance.

We don't want to hear, "up to 11 business days." We hope you care more about our project than that.

Bankruptcy

"Declaring Chapter 11"

What a poetic phrase, starting with 'declaring'. Not sighing or announcing or admitting, but Declaring!

Chapter 11 refers to part of the bankruptcy code that covers reorganizations. In Chapter 11, you don't shut down your business. Instead, faced with failure, you suspend certain agreements and debts and negotiate in a way that permits you to continue.

Chapter 7 is very different. It means "I give up." You shut down, it's over.

Metaphorically, we have the chance to declare either kind of bankruptcy whenever we work on a project or consider a habit, a social media addiction or even a job.Teetering on the edge of bankruptcy is painful. Declaring is often a relief.

Acknowledging that you're stuck is the very first step in getting unstuck...

Perhaps it's time to stop fighting a losing fight and start creating value doing something else instead. Bankruptcy is never fun, but when you give up something that wasn't getting you where you needed to go, sometimes you discover a future better than you ever expected.

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