at the time of our writing this, an increase of more than 100-fold. At the end of Q3 in 2020, Netflix was approaching 200 million paying members (the last published statistic at the time of writing) and had a market capitalization in excess of $200 billion.
At the same time, the executive team at our client (who introduced us to the person in the story) followed a different strategy. Based on their early insight into this trend, they realized they were now effectively a wind-down firm. A wind-down firm is a cousin of the pop-up firm, which itself is launched to capture a narrow window of market demand – think of a Halloween store that pops up on October 1 and disappears on November 1. The difference is that the wind-down firm had as its original intent the goal to “last forever,” but is now riding the wave to obsolescence whether its executives know it or not.
Because of their early insight, our client realized that, without meaningful reinvention, their business model was dead, despite still being highly profitable. So they sold the business. The choice to sell was ultimately a good one for them. They were able to cash out in time, whereas companies with similar assets, capabilities, and business models continue to struggle with the growing segment of customers that prefers to have more control over their content experience through companies like Netflix.
While choosing to become a wind-down firm is a completely legitimate strategy choice, there is a lot of potential value creation in adapting and successfully pursuing new market trends. That's what we want to explore with Provoke: as leaders, we all need to have better pattern recognition capability to enable us to spot trends and move to where the world is going to be. Even if you ultimately decide not to pursue the trend, the moves we describe will ensure you are making that decision on your terms and not those dictated by market forces.
But before we get into how to spot those trends, we need to identify – and correct for – the fatal human flaws that get in the way of us seeing these trends in the first place. In Chapter 2, we'll address how to go from “ifs” to “whens” – that is, how to stop treating trends that are already unfolding as mere possibilities.
NOTES
1 1. Christopher McFadden, “The Fascinating History of Netflix,” Interesting Engineering, July 4, 2020, https://interestingengineering.com/the-fascinating-history-of-netflix.
2 2. Arnold Zwicky, “Just between Dr. Language and I,” Language Log, August 7, 2005, http://itre.cis.upenn.edu/~myl/languagelog/archives/002386.html.
3 3. For more on the “winner take all” economy, see Roger Martin, When More Is Not Better (Boston: Harvard Business Review Press, 2020).
CHAPTER 2 On the Importance of “If” versus “When”
Daddy, I used the “Dude Wipes” and my tushy feels minty.
—Grayson Goldbach, age 5, during the great toilet paper shortage of March 2020
Before the pandemic, you probably took toilet paper for granted. And reasonably so. It's one of many things that we use every day without much conscious thought. It's something we just assume will be there for us – until it's not. That's when people go into a mini-panic. Remember the episode from the television show, Seinfeld, where the antagonist du jour told Elaine, “I don't have a square to spare”? The pandemic gave us a window into how humans would behave if a TP shortage were an ongoing challenge.
We believe human behavior is the most basic “subatomic element” of business. The pandemic gave us many opportunities to observe human behavior under periods of severe disruption. And it turns out that, when faced with such massive disruption, toilet paper is one of the things that helps people feel secure when on hand in large quantities. We also learned that people really have no idea how much toilet paper they actually need … so much so that in early 2020, a plethora of toilet paper calculator sites suddenly started to pop up on Internet ad feeds – something neither of us had imagined needing before.
The combination of fear and poor estimation led to some pretty interesting hoarding behavior and a resultant run on toilet paper. Rational or not, it was most certainly the case that when you went to buy TP it was difficult to find.
Before getting into this any further, let’s just be clear – we are going to devote a fair bit of Chapter 2 to the behaviors around, well, Number 2. Why must we talk about something that makes everyone just a slight bit uncomfortable? This was the best example of something that literally everyone must do, and, as it turns out, there were many new and interesting ways people dealt with the potential shortage. And new and interesting human behaviors are the building blocks of opportunity.
In one instance, we saw consumers leverage technology to make the sharing of toilet paper simpler. One such instance was captured on film in San Francisco, the technology hub of the world, where a person flew a drone to a friend who was in need. (It's worth the reading break to watch the video here: https://mashable.com/article/drone-delivery-toilet-paper-san-francisco-coronavirus/.) Could you imagine this as a business at scale? Instead of ride sharing, imagine a local TP sharing service with delivery-on-demand via drones. Maybe not. In another instance, we saw South Carolina police handing out toilet paper instead of tickets as a gesture of goodwill at the start of the pandemic.1
As it turns out, though, the need for actual toilet paper is not the issue. It's the fear of being without toilet paper that leads to hoarding behavior. We wish we could say we were “enlightened consumers” and didn't hoard, but we'd be lying. We freaked out, too. Steve did the grocery shopping in his household during the pandemic (a behavior that stuck as the initial lockdowns lifted) and was instructed to buy whatever toilet paper he could find on every trip. His family ordered commercial-grade toilet paper with a delivery date of six weeks out, just in case. They even ordered a brand of wet toilet paper they could find online for quicker delivery: “Dude Wipes.”
In times of dramatic change, humans are known to change habits, which can lead to permanent behavior change. At the time of writing, it's not yet clear what new habits will stick once we emerge from the pandemic, but it is clear that many longstanding habits will be challenged. A greater proportion of people will certainly be able to work remotely on a more frequent basis, even when there is return to office work. People will likely pay more attention to frequent handwashing. And maybe people will continue to make sourdough regularly at home.
Habits are a critical underpinning to businesses. Think of all the brands that you buy all the time without thinking – including, most likely, your brand of milk, your laundry detergent, and your deodorant. You probably have a habit around your morning coffee, whether you make it at home, pick it up at a basic local coffee shop, or pay premium prices from national retailers. And, until you read this last paragraph, you probably didn't think about it much.2
During the pandemic, many of these habits were challenged. For both of us, used to getting “our coffee on the outside” (to quote another Seinfeld line), we had to adapt during the lockdown. Geoff returned to getting his coffee on the outside as businesses opened up, while Steve is more than happy to continue to brew his own, having become proficient at making coffee with a French press. As sticky as they are, when habits do change, they impact businesses considerably.
So,
