The Order of Things

I know many entrepreneurs and am struck by a common thread that runs through their lamentations. When entrepreneurs struggle, they inevitably point to not enough capital as the major reason for their struggle. I believe this is wrong.

If a lack of capital is not the number one problem for entrepreneurs, what is?

After years of many successes and failures, I think the major problem afflicting entrepreneurs is doing things out of order. What I mean by this is that too often assets are acquired in the wrong order; processes are added in the wrong order; people are hired in the wrong order; functions are added in the wrong order and the list goes on.

While an abundance of capital might ameliorate some of the problems of getting the sequence of events incorrect, Nature shows us many examples of what happens when the order of things is wrong. Take embryology as an example. For a healthy fertilized egg to develop, it is clear that the timing of when cells differentiate is critical to maturing into a healthy organism.

If organs develop out of order, the developing fetus often spontaneously aborts. This happens all over the animal kingdom, including humans. It is sequencing that is critical for the health of an organism. One can also see the analogy between how the brain develops and its eventual importance to organisms. We intuitively understand this with the cliché, “walk before you run”. This is a nod to proper sequencing. Organizations abort or fail with the same regularity as organisms.

This essay is not an instructional outlining the proper sequencing for a company. Each organization has its own sequencing or order of things. Marketplaces and platforms like Lyft and Uber are often well funded and this has actually covered up some of their sequencing problems. Actually, excess capital may delay catastrophic problems of getting the order of things wrong. Sometimes the delay gives the entrepreneur time to reorder their sequencing. But the overwhelming majority abort…meaning organizations go bust.

But why do entrepreneurs think capital is their number one constraint? In the 21st Century, it has never been a better time to be an entrepreneur. Think about this. The lap top I am using is more powerful than the main computer used to land a man on the moon. And it cost around $1000. We have the cloud that scales with a click of the mouse. Terabytes of information can be stored for a few dollars. Email can be deployed for practically free. Skype is free and you can speak to people all over the world for the price of an internet connection.

If the above was not enough, we have an online media landscape that is choking on overwhelming supply and increasing exponentially while a comparatively modest increase in advertising demand leaves trillions of impressions woefully under monetized. This is pure opportunity for marketers to acquire new customers at reasonable costs.

Yet the old canard of capital constraints still holds on as the number one reason for failed organizations. This is the business equivalent of fake news. One reason this notion persists is that it is a simple reduction, a simple explanation. And by the way, VCs and PE firms who control capital like to promote the primacy of capital. This is what gives them power.

But just as a botanist might know a great deal about the order of things when it pertains to how an acorn develops into an oak tree but knows very little how an egg develops into a chicken, VCs are notoriously bad at understanding the order of things with new companies. How do I know that? Look at the failure rate of VCs and Private Equity groups.

Each organization needs to understand its own order of things. Failure to understand that and your company will be aborted.

Jaffer Ali is a serial entrepreneur and currently the CEO of PulseTV, an e-commerce company. He recently started his ninth entrepreneurial adventure; TrySERA.com, a data company that identifies website visitors and allows marketers to re-market to them via email.

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Interview with Jeff Einstein, digital media pioneer.

Jaffer Ali [JA]: Jeff, what do you see as a major problem of the 21st Century?

Jeff Einstein [JE]: Like the citizens of Aldous Huxley’s Brave New World, we are undone in the digital 21st century less by the things we fear and more by the things we love and invite into our homes and lives.

JA: Jeff, you have been writing and speaking about how media has changed and is changing our lives. Why did you decide to make a film about it?

JE: In today’s visual world, each photo or image is worth much more than a thousand words. So when in Rome…

JA: What is the major premise of your film?

JE: Brave New Digital World: The Revelation describes what happens to our time and money and freedom in a dystopian society ruled and controlled by a state-sanctioned meta-addiction to digital media and digital media devices. It explores what happens when addiction emerges as the default social condition, the rule rather than the exception.

JA: Why do you think that Huxley’s dystopian vision is more on point than Orwell’s vision?

JE: Although Orwell’s Big Brother and Newspeak are clearly hard at work in 21st-century America, his vision of a society ruled with an iron fist by the things we fear has been eclipsed in recent years by Huxley’s far more insidious vision of a dystopian society ruled by the things we love and trust, the very things we invite into our homes and lives.

JA: How did we get to where we are so fast? Or has it been gradual?

JE: There’s a reason why secular fascism and radio both emerged at the same time in the early 20th century. Unlike print, which promotes linear thought and reason, electronic media all promote raw emotion, tribalism and corporatism. The political legacy of print was democracy whereas the political legacy of electronic media is fascism. As I say in the video, contrary to what the drug lords and high priests of digital media tell us over and over, the true bias of digital media isn’t personal empowerment, isn’t freedom and certainly isn’t democracy. The true bias of digital technology and media is the accelerated consolidation of institutional power and wealth among institutions — corporations and government agencies alike — already far too powerful and far too wealthy. That’s why we’ve seen such a rapid and dramatic polarization of wealth in the first digital generation. Digital merely amplifies and accelerates the inherent bias of all electronic media, from early radio to smartphones.  Sometimes we forget that the Age of Reason ended more than two centuries ago.

JA: Is “fake news” really new?

JE: Hardly. The Spanish American War was an invention of yellow journalism. The Viet Nam War was predicated on news reports of a fake attack on a U.S. warship in the Gulf of Tonkin. The war in Iraq was predicated on news reports of Saddam Hussein’s non-existent weapons of mass destruction. The dot com crash of 2000 and the housing and credit market crashes of 2008 were both media-driven. Just about every major man-made disaster in my lifetime has been driven by the self-proclaimed watchdogs of democracy and some form of fake news.

JA: What are ways we can find our way to cope with our over-mediated world?

JE: The solution to media addiction is the same as the solution to any other addiction, regardless of the narcotic: moderation. As individuals we need to moderate our consumption of media and learn once again to trust ourselves, our families and communities. We need to reinstate the meaningful rituals replaced by the rituals of our addiction to all things media and all things digital over the past generation. Families need to reinstate the dinner table as the only true source of meaningful — and actionable — news. As communities, we need to reinstate a day of rest. We need to push back against the vilification of organized religions as the enemies of all things progressive, and realize that they now stand as the final bastion of critical thought in a society that blindly worships instead at the alters of Apple and Google and Facebook for hours and hours and hours each and every day. We need to stop calling for the diversification of everything except thought. We need to think and act locally. We need to exercise skepticism as the first obligation of free adults in a free society. We need to slow down.

For a link to Jeff’s film, visit: http://www.bravenewdigital.world

 

The Secret of Victory

By George S. Patton
With commentary by Jaffer Ali

What follows is one of the most significant treatises on business and success that you are ever likely to read. Of course it was not written with this in mind. This was published in a book called “Corporate Soul” written by Jaffer Ali and is being made available free in this e-book.

Patton meant to outline his philosophy for becoming victorious on the battlefield. Once upon a time it was vogue in business schools to read The Art of War by Sun Tsu and now it is time to learn from another warrior, General George S. Patton, Jr.

Those who are only familiar with Patton from George C. Scott’s brilliant portrayal in the 1969 feature film are in for a treat. Patton was much more than a warrior, although he epitomized what a warrior was and remains to be. He was a poet, philosopher, classicist and historian. He was a renaissance man in a field not usually known for embracing notions of reincarnation (in which Patton ardently believed) or for allowing discussions of Soul to permeate one’s discourse.

The following liberal excerpts from his essay are reprinted from Patton’s personal papers. It was written March 26, 1926 when he was a Major. He had not yet achieved the fame that was to be his in WWII. His references to The World War refer to WWI. The perceptive reader will immediately see the analogies between many facets of Corporate Soul discussed throughout this book.*

I have interjected commentary throughout. Patton’s words are in boldface type and my own words bracketed and in regular font. Patton’s prose has a poetic quality so the reader may first want to read all of the excerpts first and then indulge in the commentary. For clarity of purpose, I have taken license to edit his essay and italicize certain of his phrases that are of special relevance to the topic of this book. It is with profound hope that we all can learn about creating a successful organization as well as living a victorious life by listening to what this marvel philosopher/warrior has to say.

Despite the years of thought and oceans of ink which have been devoted to the elucidation of war, its secrets still remain shrouded in mystery… War is an art and as such is not susceptible of explanation to fixed formulae. Yet, from the earliest times there has been an unending effort to subject its complex and emotional structure to dissection, to enunciate rules for its waging, to make tangible its intangibility. One might as well strive to isolate the Soul by dissection of the cadaver as to seek the essence of war by the analysis of its records.

Yet, the impossibility of physically detecting the Soul, its existence is proven by its tangible reflection in acts and thoughts.

[Patton is a New Paradigm thinker who does not believe that we can reduce reality to formulas. When we dissect reality, we lose the intangible, human characteristics of Soul. He further believes that we come to know Soul by indirect means, its reflections in acts and thoughts. This is common to synchronistic events.]

So with war, beyond its physical aspect of armed hosts there hovers an impalpable something which on occasion so dominates the material as to induce victory under circumstances quite inexplicable.

To understand this ‘something’ we should seek it in a manner analogous to our search for the Soul; and so seeking we shall perchance find it in the reflexes produced by the ‘Great Captains.’

[Patton is not a philosophical materialist. He believes that “something” animates material and this something is what we have been calling Soul. When the Soul dominates, victory comes inexplicably. He further suggests that we can learn the secrets of success from past great warriors since it is in the reflection of greatness that we come to know it.]

But whither shall we turn for knowledge of their very selves? Not in the musty tomes of voluminous reports or censored recollections…nor yet in the countless histories where lesser wormish men have sought to snare their parted ghosts.

The great warriors were too busy and often too inept to write contemporaneously of their exploits… While what they later put on paper as biographies were retrospects colored by their vain strivings for enhanced fame… War was an ebullition of their perished past. The violent simplicity in execution which procured success for them and which enthralled the world looked pale and uninspired on paper; so they seasoned it…

[In order to understand the secret behind success, Patton challenges the way in which we get our information. Although Patton was a military historian, he had little use for historians. He thought of them like wormish business consultants. They could only write about greatness, not experience it. Great warriors are like great business men. Many do not write about what made them great because they are too busy being great. Those that do write about themselves often appear as if their PR departments wrote their biographies in their name. How can they capture the ebullition, which means overwhelming passion, of “their perished past?” They cannot! So often those giants fail to write about their greatness or make up things that sound good.]

So with the soldier. To pander to self-love and [human] urge he attributes to his acts profound thoughts which never existed.

The white hot energy of youth, which saw in obstacles but inspirations, and in the enemy but the gage to battle, becomes too complacent with age. The result of mathematical calculation and metaphysical erudition; of knowledge he never had and plans he never made.

With the efforts of the historians, the case is even worse… no matter when he writes, is by nature a man of thoughtful and studious habits utterly incapable of appreciating the roaring energy of a soldier… Colored by self deception, shaded by scholarly bookworms, our soldiers stand before us as devoid of life as the toothless portraits of Washington which adorn the walls of half our schoolrooms…

[Patton is cautioning against relying upon soldiers’ recollections as well as historians. We cannot apprehend the secret to victory with this often faulty information. A soldier’s diary written years after the battle does not capture the “white-hot energy” nor does it capture the inspiration or passion of the effort. Historians do no better in capturing the spirit of the soldier.]

Seeking obvious reasons for the obscure, we analyze their [warriors’] conduct as told by historians and assign as reasons for their success, apparent, trivial things.

Disregarding wholly the personality of Frederick, we attribute his victories to a tactical expedient, the oblique order of battle…Yet through the murk of fact and fable rises ever to our view this truth; ‘The history of war is the history of warriors; few in number, mighty in influence.’

Alexander, not Macedonia, conquered the world. Scipio, not Rome, destroyed Carthage. Marlborough, not the Allies, defeated France. Cromwell, not the Roundheads, dethroned Charles.

Were this true only of warriors we might well exclaim, ‘Behold the work of the historian,’ but it is equally the case in every human endeavor. Music has its myriad musicians, but only its dozen masters. So with painting, sculpture, literature, medicine, or trade. ‘Many are called, but few are chosen.’

[Patton betrays the position of his class here. He was born into wealth and privilege. He believes that understanding greatness lies in studying great people. Understanding personality, which Patton uses interchangeably with Soul, is the way to greatness…victory. Through the murk of trivial facts and exaggerations of fabled actions, the truth shines through. In every human endeavor, including business, we must get to know the masters. Are masters born?]

Nor can we concur wholly with the alluring stories in the advertising sections of our magazines which point the golden path of success to all and sundry who will follow that particular phase of ‘home education’ that they happen to advocate. “Knowledge is power,’ but to a degree only. Its possession per se will raise a man to mediocrity, but not to distinction. In our opinion, indeed, the instruction obtained from such courses is of less moment to future success than is the ambition which prompted the study.

In considering these matters, sight should not be lost of the fact…there is much similarity…between the successful soldier and the successful man in other professions. Success due to knowledge and personality is the measure of ability in each case; but…with the soldier success or failure means infinitely more as it must of necessity be measured not in terms of personal honor or affluence, but in life, happiness and honor of his men–his country.

Hence, the search for that elusive secret of military success; Soul, genius, personality–call it what you will– is of vital interest to us all.

[Knowledge itself is important but not sufficient to master a profession. At least its acquisition can lift a person to mediocrity, but not to the genius (master) level. Ambition in the individual is more important than obtaining information. This springs from inside and cannot be learned. Information without ambition is sterile. It must be infused with Soul for greatness.

One of the premises of this book is that we need different criteria for success rather than personal honor or wealth. Should not success be defined in terms of life, happiness and honor of an entire organization…even country…world? A Soulful organization judges its success using the same criteria Patton used for military success. Soul is of ‘vital interest to us all,’ and it is truly the elusive secret of corporate, military and life’s success.]

… A British writer has said, ‘The characteristic of war is its constant change of characteristic,’ but as ever the case with aphorisms his remark needs explanation.

There is an incessant and constant change of ‘means’ to attain the inevitable ‘end,’ but we must take care not to let these inevitable sundry means, past or predicted, attain undue eminence in the perspective of our minds. Since the beginning, there has been an unending cycle of them, and for each, its advocates have claimed adoption as the sole means of successful war. Yet, the records of all time show that the unchanging ends have been, are, and probably shall ever be, the securing of predominating force, of the right sort, at the right time.

In seeking a premise for the enunciation of the rules for the employment of this predominating force, we must cull from past experience, or study, the most permanent characteristics, select our weapons, and assign to them that importance which reason and the analogy of experience indicate that they will attain.

Bearing these considerations, and the definition of predominant force, in mind, we shall resume our search for the secret of victory.

No matter what the situation as to clarify of his mental perspective, the conscientious soldier approaches the solution of his problem more or less bemuddled by the phantoms of the past and deluded by unfounded or unproven hopes for the future…

[Patton begins his own dissection of what it takes to achieve success. We need to examine the means we use to reach our goals but stop short of believing that the same methods will work in every situation. We are reminded here of business panaceas that are touted by various consulting “gurus” who apply one method for all corporate ends. These go in and out of fashion. There is TQM, Just In Time inventory management, reengineering, etc. Victory and success cannot be reduced to a formula given to us from a book or consultant.]

In this scholarly avocation, soldiers of all important nations use at the present moment [a] method [that] not only familiarizes the student with all of the tools and technicalities of his trade, but also develops the aptitude for reaching decisions and the self-assurance derived from demonstrated achievements.

But as always, there is a fly in the ointment. High academic performance demands infinite intimate knowledge of details and the qualities requisite to such attainments often inhabit bodies lacking in personality. Also the striving for such knowledge often engenders the fallacious notion that capacity depends on the power to acquire such details, not the ability to apply them.

Obsessed with this thought, students… perish in a morass of knowledge where they first browsed for sustenance.

[Patton is not against attaining knowledge. This is an important attribute of success. He believes that it is essential to learn the technical aspects of one’s trade. But he is quick to note the limits of knowledge and the limits of the quest for knowledge has in attaining victory. Often those people with the most knowledge are those who have spent the most time in school. They acquire great detailed information and Patton believes that these are the people who are most in need of Soul. He uses the word “personality” but as we have seen he uses this word interchangeably with Soul.

Also Patton believes, quite correctly, that the ability to acquire knowledge in no way gives that person the ability to apply that knowledge. Whether we gain knowledge from military institutions like West Point or business schools like Harvard, academic excellence is not the secret to victory. We all know articulate idiots who possess reams of knowledge but lack any faculty for its practical application. Patton had little patience for these people.]

When the prying spade of the unbiased investigator has removed the muck… from the swamp of the World War, then the skeletons of many such military mammoths will be discovered. Amidst their mighty remains will lurk elusive the secret of German failure.

Beyond question, no soldiers ever sought more diligently for pre-war perfection. They built and tested and adjusted their mighty machine and became so engrossed in its visible perfection, their masterpiece proved inefficient through lack of the divine afflatus, the Soul of a leader.

[Patton believed that there was no war machine quite like the German machine prior to WWI. How could they be defeated? No amount of technical genius will substitute for Soul on the battlefield supplied by an inspired leader. No corporation with technical wizardry can lead to sustained success without inspired leadership infusing the enterprise with “divine afflatus,” which means inspiration. Soul lies outside the realm of visible perfection and therefore victory and success also lies beyond this realm.]

Here we must most vigorously deny that anything in our remarks is intended to imply belief in the existence of spontaneous untutored inspiration. With the single exception of the divinely inspired Joan of Arc, no such phenomenon has ever existed… We must require and must demand all possible thoughtful preparation, and studious effort possible, so that in war our officers may be equal to their mighty trust– the safety of our country.

Our purpose is not to discourage such preparation simply to call attention to certain defects in its pursuit. To direct it not towards the glorification of the means–study, but the end–victory…

[Patton believes that divine inspiration, or Soul, favors the prepared mind. He does not want to be misunderstood to sound as if he is against scholarship. Learning one’s trade is essential to success. He is not a dualistic thinker that believes in one side of the dichotomy to the peril of the other. His audience was to a group (fellow officers) who believed in the infallibility of reason…much like many of today’s corporate CEO’s and managers. So with his audience in mind, he continues to stress the limits of reason. He wants to direct the pursuit of knowledge toward the only purpose he has in mind… the end…victory.]

We must guard against becoming so engrossed in the specific nature of the roots and bark of the trees of knowledge as to miss the meaning and grandeur of the forest they compose.

Our means of studying war have increased as much as our tools for waging it, but it is an open question as to whether this increase in means has not perhaps obscured or obliterated one essential detail, namely the necessity for personal leadership…

All down the immortal line of mighty warriors the same is true. Hannibal, Caesar, Heraclius, Charlemagne, Richard, Gustavus, Turenne, Frederick, Napoleon, Grant, Lee, Hindenburg, Allenby, Foch, and Pershing, were all deeply imbued with the whole knowledge of war as practiced at their several epochs.

[Whether seeking to understand war or corporate affairs, we can not surrender to a view of reality that reduces what we are looking at to such minute details that we lose sight of the larger picture… the totality that represents the “grandeur of the forest.” The whole knowledge of war is necessary, but not enough.]

But also, and mark this, so were many of their defeated opponents. As has been pointed out, the secret of victory lies not wholly in knowledge. It lurks invisible in the vitalizing spark, intangible, yet as evident in the lightning— the warrior Soul.

There is no better illustration of the potency of this vitalizing element than is portrayed in the story of the ‘Maid of Orleans’ [Joan of Arc]. For more than 90 years prior to her advent, the armies of France had suffered almost continuous defeat at the hands of their British opponents. The reason for this state of things lay not in the inferiority of French valor, but in the reappearance of the foot soldier armed with the missile weapon–the longbow–as the temporary dominating influence on the battlefield. As a result of the recurrence of this tactical condition, France suffered almost continuous defeats with the result that her people lost confidence. They developed an inferiority complex.

Then came Joan, whose flaming faith in her heaven-sent mission rekindled the national spirit. Yet, as great as were her powers, it is idle to suppose that, all unschooled in war as she was, she could have directed, unaided, the energy that was produced. Like the fire beneath the broiler, she produced the steam…

[Patton is saying that the passion and energy emanating from Soul needs direction. What can guide this enormous power? Reason supplied by those who lack inspiration may possess enough faculties to direct even heaven sent passion and energy. Patton clearly believes that a leader is supposed to supply the passion, energy and Soul to an organization. This is another secret to victory.]

The happy coincidence of her ignorant enthusiasm and their uninspired intelligence produced the phenomenal series of victories which freed France.

It seems a far cry from the Virgin Maiden to the professional pugilist, yet there is much in the way of their similarity in their dominant characteristics. In all closely contested ring battles between opponents of equal weight the decision almost invariably goes to the fighter who is better endowed with faith, self-confidence, and a courageous spirit. But, we must again point out that no pugilist, no matter how confident or courageous, has ever succeeded over an enemy unless to his special attributes he has added the combined knowledge of, and skill at, his profession.

[“Ignorant enthusiasm,” which is passion without reason can team up with “uninspired intelligence,” which is reason without passion. Success can not be sustained without each other. One must learn about one’s profession, whatever it is, be it pugilist, warrior or CEO. But also skill without Soul is inert material. If we cannot combine or overcome the duality of Soul and reason within ourselves, a valid course of action is to ally yourself with the other half of the duality. If this combination conquered France, it should work for capturing a market!

Patton wants to reemphasize that no amount of inspiration can leads to victory without adding the combined knowledge and skill to the mix. Whatever is your profession, there is no short cut to victory or success that bypasses preparation.]

We shall now seek to evaluate and place in their just ratio the three essentials to victory; Inspiration, Knowledge, and Force (Mass).

Considering Napoleon as the apogee of military ability, we note that whereas he won many battles with numbers inferior to the enemy, he never lost a battle when he was numerically superior. In other words, even his transcendent ability was not equal, on every occasion, to the task of counterbalancing numerical inferiority…

So it was with Caesar. Against the Nervae he was a consuming flame, yet against Romans a successful contender. Grant in the Wilderness was as nothing compared to Grant at Donaldson before Vicksburg.

The three preceding cases represent the highest type both mentally and spiritually, but perhaps a shade more emphasis on the spiritual side.

By way of contrast we may note how the learned, but uninspired, Prussians of 1870 triumphed over the poorly led French while, in 1914, their equally uninspired descendents were far less successful in the face of better opposition.

We may therefore postulate that no one element, be it Soul, Knowledge, or Mass is dominant; that a combination of any two of these factors gives a strong presumption of success over an adversary relying on one alone, and that the three combined are practically invincible against a combination of any other two.

[Patton identifies the three essentials of success; Soul, which he uses interchangeably with many words including inspiration, Knowledge (reason), and Force (mass). We have spoken about Soul and reason, but what is this force-mass thing? My first reading suggested that Patton was in some way alluding to the equivalence of mass and energy. But Patton, though educated, was not schooled in the physics of his day. He was referring instead to the resources at a leader’s disposal. In war that would be armaments, gas, troops, etc. To the corporation, force would refer to capital and personnel.

He attempts to apply a ratio as to “how much” Soul, Knowledge or Force is required for victory. While admirable, this is not possible and he misses the mark. We cannot quantify Soul. But he does identify the likelihood of success if these three essentials are forged together. His methodology may be weak but his insight brilliant. Below he compares the state of US prospects for success against that of others. All CEOs need to do a proper analysis of the competition as well.]

Comparing our own resources as to mass with those of any other possible opponent or group of opponents, we strike at least a balance.

The demonstrated ability of our trained leaders in the past wars show that, so far as education is concerned, our officers have no superiors and few equals. This being so, victory will fly to or desert our standards in exact proportion to the presence, or absence, in our leaders of the third attribute [Soul]. Of what does it consist?

[US resources and knowledgeable commanders were at least as comparable to their counterparts. Patton squarely believes the decisive characteristic of victory lay in the development of Inspiration, Passion, Intuition, Creativity… those reflected attributes of Soul.]

As has been noted, the records of all trades and professions show that it is the rare individual, rising like a mountain peak through the clouds of billowing mediocrity, who attains success.

He starts from the same upper reaches, be it hill or hero; yet the cataclysm which causes the former is imponderable as the conditions which produce the latter. So it seems… so surely is the leader the product of obscure, yet ascertainable, circumstances.

The future happiness and existence of races cannot be relegated to the realm of uncertainty contained in the plausible but indefinite assurance that, ‘Genius is born, not made’…Certainly, despite a superabundance of educated aspirants [in WWI], none of the participants produced an inspired leader.

It would be impious to attribute this dearth to God alone. The system of military education, and be it noted, the universal system (of the draft) must be at fault.

[Patton does believe that genius can both be made and born. The old Nature/Nurture debate is not being taken up as an either/or situation. He overcomes this dichotomy by acknowledging Nature’s role then sets about to tackle the inadequate attempts at education of our leaders. His reasoning still holds true when comes to educating our business leaders.]

… ‘As a man thinketh, so is he’…contain[s] an infinity of truth. Dry knowledge, like dry rot, destroys the soundest fiber. A constant search for Soul-less fundamentals, the efforts to regularize the irregular, to make complex the simple, to assume perfect men, perfect material, and perfect terrain as the prerequisites to war, has the same effect on the soldier student…

[What a wondrously poetic way of saying that we can destroy our brightest students, our soundest fiber, by pursuing professional education without the fundamentals of Soul. In our military and economic educational institutions we spend much time on technical issues but little time on Soul. Patton is not an evangelist and he is not talking about religion…he is writing about searching and teaching about Soulful fundamentals that are secular, yet spiritual.]

War is conflict. Fighting is an elemental exposition of the age-old effort to survive. It is the cold glitter of the attacker’s eye, not the point of the questing bayonet, that breaks the line. It is the fierce determination of the driver to close with the enemy, not the mechanical perfection of the tank, that conquers the trench. It is the cataclysmic ecstasy of conflict in the flier, not the perfection of his machine gun, which drops the enemy in flaming ruin. Yet, volumes are devoted to armaments; and only pages to inspiration…

[How true this is! Recalling my own business education, few pages were devoted to inspiration, values, responsibility, passion, and the essence of greatness. These less formal topics have a place in the classroom and boardroom. If one, as a leader, could spark the “cataclysmic ecstasy of conflict” in a WWI pilot, if one could foster and inspire the creative impulse of a computer programmer, lift the passion and energy level of a sales force, or develop a vision for your department or company utilizing the many faceted gifts of Soul, then you will distinguish yourself. You will poke your head above the clouds of mediocrity.]

Obsessed with admiration for the intelligence which history has ascribed to past leaders, he forgets the inseparable connection between plans, the fruit of the intellect, and execution, the fruit of the Soul… Hugging the notion of ‘intelligence,’ he pictures armies of insensate pawns moving with precision of machines…

Doubtless, he further assumes this same superhuman intelligence will translate those somber sentences into words of fire, which shall electrify his chessmen into frenzied heroes who, heedless of danger, shall dauntlessly translate the stillborn infants of his brain into heroic deeds.

Was it so with Caesar as he rallied the 12th Legion? Could the trackless ether have conveyed to his soldiers via the medium of radio waves the inspiration that Napoleon imparted by his ubiquitous presence when before Rivoli he rode five horses to death, ‘To see everything for himself’?

Staff systems and mechanical communications are valuable, but above and beyond them must be the commander. Not as a disembodied brain linked to his men by lines of wire and radio waves, but as a living presence, an all pervading visible personality.

[Patton eloquently pleads for uniting the intellect and Soul. Reason can be substituted for intelligence in his writings. He does not want our Reason to dehumanize our troops into insensate pawns. It is interesting to note that a Tibetan Monk thinks executing simple tasks like washing dishes can be a Soulful experience and yet we treat even our most momentous activities as if Soul were nonexistent. Patton believes executing plans must be Soulful if success is to be gained. This is not achieved by treating soldiers or workers as if they were machines devoid of feelings.

A leader must convey passion to the troops. Napoleon rode five horses to death! Patton was always near the front lines and showed himself to the troops in WWII. He took his own advice. If you run a department or company and you do not show yourself to the “troops,” how can your passion be conveyed? By memo? By telephone? E-mail? Nothing replaces the connection between leader and follower face to face.]

…[The secret of success lies] in the inspiring spirit with which [commanders] so inoculated their soldiers as to lift weary footsore men out of themselves and to make them march, forgetful of agony, as did Massena’s division after Rivoli or Jackson’s at Winchester…

The ability to produce endurance is but an instance of that same martial Soul which arouses in its followers that resistless emotion defined as élan…it is akin to that almost cataleptic burst of physical and mental exuberance shown by the athlete when he breaks a record or plunges through the tacklers, and by the author or artist in the creation of a masterpiece. The difference is that in the athlete or artist, the ebullition is auto-stimulated. With an army, it is the result of external impetus–leadership.

[When you build an organization or department, it is up to the leader to infuse the enterprise with that vital spirit. When your people are weary you must arouse them. You must supply them with energy. I depart from Patton when he suggests that athletes supply their own energy. In team sports this can be achieved from the roar of the crowd or an inspiring talk from a Lombardi or Riley. But it is the case that good leaders bring passion to their profession.]

In considering war, we must avoid that adoration of the material as exemplified by scientists who deny the existence of aught they cannot cut or weigh… History as read does not divulge the source of leadership. Hence, its study often induces us to forget its potency.

As a mirror shows us not ourselves, but our reflection, so it is with Soul and with leadership. We know them but by the acts they inspire or results they have achieved.

[Here is Patton’s simple statement against philosophical materialism. He does not want to reduce reality to things you can cut or weigh. There are other things that exist beyond that which we can measure…like Soul.

We get to understand Soul indirectly. Jung called this method “circumnabulation” or talking around a subject to elucidate it. Patton comes close to the Biblical analogy of knowing a tree, “by the fruit it bears.” We see the Soul at work by its fruit.]

Like begets like. In the armies of the great we seek the reflections of themselves and we find: Self-confidence; Enthusiasm; Abnegation of the self; Loyalty; and Courage.

Resolution, no matter how so adamant, mated to knowledge, no matter how so infinite, never begat such a progeny.

Such offspring arises only from blood lines as elemental as themselves. The leader must be incarnate of them…

[When like begets like, Patton is suggesting that we reap what we sow. If we have dignity, honor, passion, and Soul then we will receive this type of effort from those around us.

We see reflections of the Soul in the traits great leaders have exhibited. Resolving to acquire these traits does not insure their acquisition. Even when that resolution is wedded to “infinite knowledge”, there is no progeny without Soul. Only when these traits emanate from the Soul does the leader emerge from its expression.]

There are certainly born leaders, but the soldier may still overcome his natal defects by unremitting effort and practice… The enthusiasm which permits the toil and promises the achievement is simply an all-absorbing preoccupation in the profession elected.

Loyalty is frequently only considered as faithfulness from the bottom up. It has another and equally important application; that is from the top down. One of the most frequently noted characteristics of the great (who remained great) is unforgetfulness of and loyalty to their subordinates. It is this characteristic which binds, with hoops of iron, their juniors to them.

A man who is truly and unselfishly loyal to his superiors is of necessity so to his juniors, and they to him.

Courage, moral and physical, is almost a synonym of all the foregoing traits. It fosters the resolution to combat and cherishes the ability to assume responsibility, be it for successes or for failures.

Can a man then acquire these characteristics? The answer is: they have–they can. For, ‘As a man thinketh, so is he.’

The fixed determination to acquire the warrior Soul, and have acquired it to either conquer or perish with honor, is the Secret of Victory.

–Maj. George S. Patton Jr., March 26, 1926

[Patton does not want to give the impression that we cannot overcome “natal defects.” Through perseverance of spirit and study, a leader can become great. He must be selfless toward his men and courageous in assuming responsibility. How often have you seen managers run for cover to avoid responsibility? It is all too often common. Its practice can never lead to greatness.

Patton comes full circle and gives hope to those not born with all the natural gifts from the Creator; “As a man thinketh, so is he.” This combined with the journey to acquire not only knowledge but the Warrior Soul is the path to victory. This journey is a sacred journey for every profession. Those who instinctively understand this are given a gift from above. Those who come to understand that that this Soulful journey itself is what makes greatness will prevail.]

* A note about Jaffer Ali.

Jaffer is a serial entrepreneur and currently is the CEO of PulseTV and is a long time online advertising executive. He has published over 200 articles on politics and business. His interest in Patton spans over 30 years and this little known essay of Patton’s first appeared in print in a book entitled, “The Unknown Patton”.

The Secret of Victory with commentary by Jaffer appeared in his book, “Corporate Soul”.

Moore’s Law of Media

“The observation made in 1965 by Gordon Moore, co-founder of Intel, that the number of transistors per square inch on integrated circuits had doubled every year since the integrated circuit was invented. Moore predicted that this trend would continue for the foreseeable future. In subsequent years, the pace slowed down a bit, but data density has doubled approximately every 18 months, and this is the current definition of Moore’s Law…”
–Moore’s Law, defined in Webopedia

Essentially, Moore’s Law describes a technological landscape that doubles processing power every 12 to 18 months. This keen insight has held true for over 50 years. It is now time to apply Moore’s Law to a new landscape; the digital media landscape. I call this, “Moore’s Law of Media“.

It is now axiomatic that data and information is exploding. We are doubling information every 12 months. This also means that we are doubling our data collection even faster. Data collection has become the number one online activity for media owners. The reason? Data now equates with advertising or media. This is where the money is.

It may not be immediately apparent how data and media have become equivalent in the 21st Century. We will leave this explanation for another time, but it should surprise no one that digital media is doubling every 12 months, hence the moniker, Moore’s Law of Media. This includes hundreds of billions app impressions created from millions of free apps.

You will not read a lot about the overwhelming media supply in the digital landscape. Why? It is not good for media owners’ businesses to let the cat out of the bag that scarcity is not an issue. Scarcity drives up prices. This leads to creating a fiction surrounding the supply that industry trade publications gladly propagate. The lack of discussion about digital media supply is in contrast to digital ink devoted to the need for targeting.

So if media supply is doubling every year, what is the growth rate in media demand? Here we have many folks weighing in. The range of growth in demand is usually cited between 12%-20% annually. Are you beginning to see a problem or opportunity here?

What does Moore’s Law of Media mean for the online industry?

I cannot be more emphatic. It has never been a better time to be a marketer in the history of the world. I am going as far back to when cave dwellers chiseled marketing messages on cave walls. With media impressions doubling every year and demand at best increasing 20% annually, there is a tremendous opportunity for marketers to collaborate with media owners and share revenues. This means that unsold advertising creates real opportunity for savvy marketers.

However, for publishers Moore’s Law of Media describes a landscape of falling CPMs and trying to rely on extreme targeting to counter falling CPMs. This strategy cannot work for publishers in the long run. To understand this last statement, one only needs to contemplate a thought experiment. If I told you that you could have your marketing message seen by 7 billion people on the planet free or you could get your marketing message seen by your ideal target audience for $100,000, which option would you choose.

Only a fool would choose to pay money. The subset of the target would be in the 7 billion anyway. Understanding Moore’s Law of Media leads any thinking person to the conclusion that as supply increases, prices fall and as prices fall to near zero, targeting becomes an exercise in stupidity.

Publishers should cast their lot with good quality marketers rather than holding on to a model that will soon come crashing all around them. For marketers, understand Moore’s Law of Media before all your competitors do.

Entrepreneurship – What It Takes

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Orange Grove in Botanical Park and Gardens, Crete by Rolf S. Katzenberger

Entrepreneurship runs deep within my family. In the past five generations, four of those have listened to the call of being one’s own boss. This went back to my great-great grandfather in Palestine who accumulated a lot of land and in the earliest part of the 20th Century started planting orange trees until he owned one of the largest orchards in the country.

 

He sired ten sons, probably to help him move from a peasant farmer to a gentleman farmer. It seems sons were cheaper than livestock. The entrepreneurial bug skipped many of his ten sons, which included my great grandfather…which is why the family tree is four for five entrepreneurial generations. My great granddaddy did not hear, feel, nor even smell the calling.

In 1948, after the creation of the state of Israel, all the land and oranges were lost to the new state, although one of my cousins still has the land deeds somewhere. But that story is for another essay. What follows is my first attempt at trying to explain what I believe it takes to be an entrepreneur.

The Calling

The “calling” for an entrepreneur is powerful as that for the priesthood or nunnery. It is existential even more than economic impulse. To be sure many become entrepreneurs through circumstances like being fired, but the vast majority of us travel our own path because we cannot NOT answer the “call”. I am not trying to be metaphysical here, but explaining the source of passion that drives entrepreneurs. If you are lacking in this drive, you may want to opt out.

So after one answers the call to become an entrepreneur, what else is necessary to make a go of it? After tasting success and failure several times, I think there are a few heuristics that have emerged in my mind. These rules of thumb are not set in concrete, but they are pretty good rules that apply in most cases.

Operational Speed

A Good plan violently executed now is better than a Perfect plan executed next week.”
–General George S. Patton

I am fond of saying that one does not have to be the best chess player to win a match if you can move twice for every time your competitor moves once. You can even have significantly less resources at your disposal and still come out on top. Try this. Sit down with a better chess player than yourself and let your opponent pick any three pieces (except the King) to take from your side of the board before the game begins.

This puts you at a disadvantage regarding resources for the game. Now, start playing with a new rule where you move twice for every time your opponent with more resources moves. Play the game until someone is in checkmate. Even with less initial resources, you will most likely win more times than not. Try it.

The metaphor holds for entrepreneurs. Those that join entrepreneurial ranks from large corporations often cannot get the rhythm of moving twice as fast as their competitors. Large companies with all the controls, politics, fear, and CYA (cover your ass) mentality fosters an operational mindset that kills speed. But experienced entrepreneurs understand Patton’s quote.

Successful entrepreneurs are bold if nothing else.

Fear of Failure

If you want to conquer fear, don’t sit home and think about it. Go out and get busy.
–Dale Carnegie

If you think entrepreneurs who are risking everything do not have fear, you are simply mistaken, but they are not paralyzed by that fear. Courage is not the absence of fear. It is about conquering that fear and not letting it have power over you. For real entrepreneurs, failure does not bring shame. Walt Disney, Henry Ford, Colonel Sanders and Fred Smith are just a few that failed miserably (or honorably if you like). My father failed spectacularly a couple of times before retiring when he was 49. I went bust more than once before experiencing success.

There is no question that I learned more from failures than my successes. Don’t get me wrong, failing was not fun, but the lessons learned are hard wired and prepared me. If you are the type that is defined by failure (or success), maybe entrepreneurship is not right for you.

Tinkering

“Tinkering by trial and error has traditionally played a larger role than directed science in Western invention and innovation…we must recognize that there is an inverse relationship between the amount of formal education that a culture supports and its volume of trial-and-error by tinkering.”
–Nassim Taleb

I think we have more MBAs in the US than factory workers. MBAs are generally theory driven and entrepreneurs must resist “experts” that interfere with the business of doing. Theory is fine, but doing is even better. Tinkering becomes a way to improve quicker. Think of evolution. Nature tinkers in a non-directed manner and introduces many more failed tests than successes.

Start-ups need to test, try and move over and over. Related to operational speed, entrepreneurs must evolve or die. As is often the case, resources may be more limited than competitors, but you can still find hundreds of things that lend themselves to tinkering your way to solutions. Just make sure you manage the downside. Tinkering suggests smaller “tweaks” than major shifts.

Trial and error has a bad rap in the 21st Century world where we like to think of imposing some algorithmic top down solution. Tinkering is bottom up and much more humble. It is hypothesis driven rather than driven by someone else’s theory. With enough tinkering, you can start with an amoeba and eventually evolve to an elephant.

Embracing Uncertainty

“For my part I know nothing with any certainty, but the sight of the stars makes me dream.”
–Vincent van Gogh

I saved the most difficult for last. I wrote about this in more detail here:

We all crave to know what is going to happen. In business we have a term, “visibility”. Who does not want to see through the fog? This desire has created an industry hooked on predictive methodologies. This has been in tandem with our ability to collect more and more data. I will not go into a treatise today on how more data does not bring better prediction.

So what do I mean that entrepreneurs need to embrace uncertainty? Stop planning? Stop forecasting? Stop projecting into the future? I think former President and General, Dwight D. Eisenhower had it right when he said, “In preparing for battle I have always found that plans are useless, but planning is indispensable.”

Embracing uncertainty doesn’t mean you stop planning. It means humbly having back up ideas of what to do if and when your plans prove wrong. Embracing uncertainty recognizes the limits of what we know. If you want a more detailed explanation of this idea, read Hayek’s Nobel acceptance speech, “The Pretense of Knowledge“. It is short and quite brilliant.

Embracing uncertainty means you should take all of the predictive nonsense with a healthy dose of skepticism. It means you need to build flexibility in yourself and your organization. The future will not resemble the past when the environment changes so quickly. Blackberry found that out ten years ago when Apple came out with the iPhone.

I will end with a snippet of a poem by Guillaume Apollinaire, Picasso’s friend that captures the entrepreneur well:

Come to the edge he said.
They said: We are afraid.
Come to the edge he said.
They came.
He pushed them, and they flew…

The Online Industry And NSA Connection

“The fact that private industry now works in tandem with the government to stalk and track us online may deflect but cannot dilute the moral argument. It seems little considerations like the prohibitions against “unreasonable search and seizure” enshrined in our Bill of Rights never made it onto the Behavioral Targeting agenda. –Jaffer Ali in Chief Marketer, Oct.1, 2009

Before the new buzz word Big Data, many of us critics were railing against Behavioral Targeting (BT for short). Essentially BT is the same thing as Big Data and actually more descriptive of what marketers and the NSA do with all this data. “Targeting” is exactly both want to do. Big Data is just more innocuous sounding and before Snowden’s revelations our government was getting away with unlimited probing without our knowledge.

Let’s set aside for the moment the entire question of whether Big Data is worthwhile for marketers. I have argued elsewhere that it is more akin to snake oil than a helpful elixir. Big Data’s efficacy shrinks compared to its immoral essence. The soulless justifications are hollow and come from the massive service providers and media entities that sell the data to not just marketers but…wait for it…the government!

We now witness the likes of Google, Facebook, AT&T, Microsoft, Yahoo, AOL, Amazon and other online data collectors claim “they didn’t know” that the government was tapping into their back doors. Who can believe this?

Google has been in bed with the NSA (and other government agencies) for years. Conspiracy theory?  Before this became public, you had to don the tin foil hat to believe it. Give me a break.

And we all have given our information to these private, corporate behemoths willingly. These entities like the ones mentioned above sell our personal data directly to the US government. When the sales route is not direct, subsidies come in a different form. Amazon’s new web service AWS, secured a $600 million+ deal with the CIA even though its bid was significantly lower than IBM’s bid.

The online industry as a whole has lost its way. Its love affair with “efficiency” rarely led to questioning moral foundations. In fact, Big Data media and marketing practitioners have “legitimized” its use and paved the way for government snooping. How could a marketing executive rail against government snooping when they themselves have been doing it?

Online media and marketing companies give full-throated support for the death of privacy. Former Google CEO, Eric Schmidt dismissed the importance of privacy back in 2009. I say to him, Bull Schmidt! Do you think Google will protect your privacy? Facebook? Amazon? Of course not.

I have not even mentioned Axciom , Experian and Choicepoint. Their largest customer for data and information is the government. The online media and marketing community have wittingly paved the way for shredding our privacy. Fellow blogger and futurist, David Houle, offers a bleak and I dare say disgusting POV when he recently said, “This is the world we live in. It is time to accept this reality, happily or not, and move on to how we need to change our morality, ethics and social contracts in such ways that will allow freedom and democracy in a world of no privacy.” [His full post is here]

In case you might miss what Houle is saying, let’s break it down. Privacy is dead as a matter of fact. THEREFORE we must change our notions of ethics and morality. By that logic, concentration camps became ubiquitous in WW II, so it is incumbent upon us to change our notions of morality because of the facts on the ground. We live in a nuclear age with devastating weapons. Therefore we must change our notions of ethics and morality to fit the facts on the ground.

For anyone still reading, we must resist the Eric Schmidts and David Houles of this world who don’t quite understand the difference between what “is” and what “should be”. Morality and ethics lie in what “should be”, something the online industry and government don’t seem to get.

The End of Direct Response As We Know It

[This was a keynote speech I gave at a direct response marketing conference in 1997. It was the last time I was ever asked to speak at the conference in any capacity.]

When I was asked to speak here, I hesitated because first and foremost I am not a public speaker and secondly I was not sure how a topic like “The End Of Direct Response As We Know It” would be received at a direct response convention. But I believe the challenges ahead for anyone using direct to consumer marketing methods are as profound as any in the history of our industry. How we respond to the challenges will dictate the future course of our industry.

Challenges and how we respond to them is what business is all about. This reminds me of a story about a town that only had three stores in the entire town. They were all located on one street. To make matters even more difficult, these stores were lined up three in a row, side by side by side. They were all friendly competitors until the store on the extreme left decided he was going to change the rules of the game to get a competitive advantage and he posted a huge sign that stretched across his entire front window….ROCK BOTTOM PRICES.

This threw his two competitors next to him into somewhat of a frenzy because they were at a considerable disadvantage and did not know quite how to respond. A week went by and then the store on the extreme right figured he would respond and fired the next salvo. He posted a huge sign in his window, stretching from one end of his front window to the other … LOWEST PRICES IN TOWN… Now the store in the middle was in a fix… ROCK BOTTOM PRICES to the left of him, LOWEST PRICES IN TOWN to the right. He didn’t quite know what to do. And then one day he figured out a way to meet his challenge. He printed a full length banner and hung it across his entire store front. Each of the ends of the banner extended all the way to each end of his building, nearly touching each of his competitors’ property. His sign read… MAIN ENTRANCE.

In many ways I feel we are all like the store in the middle with competition to our left and competition to our right, and the specter of decreasing margins facing us. What we need to do is find a clever way to meet our challenges. We must figure out what banner to place on our storefront.

Just as the middle store saw his entire retail world changing, the Direct Response industry’s world is changing just as dramatically. This change is what this talk is all about … The end of Direct Response as we know it. So, let’s take a look at what is to the left of us and what’s to the right.

The first thing one notices is how the competition landscape is changing. Where direct response was once the exclusive domain of entrepreneurs, now the new entries in the DR industry are coming from well healed Fortune 500 companies. These are the companies that are shaking the very economic assumptions of the direct response business. They have larger objectives than simply making a profit for each order generated from the television direct response campaign.

I sincerely believe that those companies that must live or die with the profitability of their direct response campaign are quickly becoming a dying breed. If you need to have a Cost Per Order that yields significant profitability… you should probably rethink your business plan. Years ago it was common place for a company to air commercials touting their latest widget and reap large profits from a well crafted DR television campaign. Competition wasn’t as stiff and there was plenty of premium cable time to sell one’s wares.

These were the times when it was common for people to define themselves as “Direct Response Companies”. Some of us are nostalgic for the times when chances for profitability from a television campaign were one in four and the chances for a smash hit were one in seven. What are the odds of success now?

I was a co-owner of a fulfillment house for over ten years which gave me a unique perspective because we annually fulfilled hundreds of new products that were advertised on television. Each year we noticed fewer and fewer campaigns that survived the anxious moments of the test phase.  By the time my interests were sold in the fulfillment company, there were less than 1 out of 30 offers that even made it past the test phase. We also began to notice that campaigns that made it into roll out were somehow different…  It was not so much that the products were so much different, but the companies themselves were different.

Before we define what these noticeable differences were, let’s take a look at what is driving the changes in the direct response industry today.

If you have marketed any products via direct response recently, chances are you have heard from your media agency… “Avails are tight right now.” I call this the media mantra.  Of course the availability of time is tight, there isn’t enough good quality time to go around. We have more and more cable and viewing choices… which means a more and more fragmented and smaller viewing audience. And yet, the offers by self described direct response companies still keep coming, one after the other. This rush to test new products is just one reason that media rates continue to escalate.  How high are the rates?

In the immortal words of Johnny Cash… “They’re 4 feet high and risin'” Each media rate increase brings us closer to The End Of Direct Response As We Know It.

So it seems that a major economic pressure facing our industry is an irrational escalation in media rates. It is “irrational” in the sense that rates are no longer predicated on performance. In the past, what distinguished direct response television advertising from other advertising was its devotion to accountability. This accountability and measurability could be counted on to keep media rates at “rational” levels. But now, with companies utilizing direct response for broader objectives other than cost efficient CPO’s, we seem to be experiencing a never ending escalation in direct response rates. This is so even as order response rates are declining for reasons we will discuss shortly.

Escalating DR rates are being driven by new entrants into the industry, eager to market their products by merging image advertising with a direct marketing component. This may be as simple as posting an 800 number on screen to generate leads. Pharmaceutical companies are just one type of new entrant making large commitments to DR. Upjohn alone spent $500 million in direct marketing in 1996. Why?

First, they discovered that DR could be used to sell more than miracle cures for impotence. Secondly, they discovered that by placing an 800 number on the screen that they could lower their advertising rates, increase the length of their commercial time, and establish a one on one relationship with users of their products.

In addition to pharmaceutical companies touting their wares on television and in print, we have other large Multi-national companies like Toyota and Ford investing heavily in DR to generate leads which is designed to create traffic at their local dealer network.

These well heeled competitors are shifting their budgets away from straight “image” advertising to measurable, DR advertising.  They are purchasing up to 5 times more air time without increasing their budgets at all!

This change is not necessarily welcomed by the owners of media. If cable networks have been used to getting $20,000 for a :30 “image” spot and now they have to sell a :60 spot to that same advertiser for $5000, they lose considerable income. Owners of media are not exempt from the economic realities facing the industry.

Cable and Broadcast networks sell more and more time for less total revenues to them. The first casualty of these well heeled competitors entering the business bidding up media rates, is PI time. PI used to be a key way in which we marketers lowered our risk. This was Direct Response as we knew it.

Now we see such former bastions of PI like the Turner Networks completely eradicating the notion of PI. Earlier this month we were notified by our PI agency that the Turner Networks would no longer accept PI advertising. This makes economic sense for them as long as there are enough marketers willing to pay escalating media rates regardless of the efficiency of media.

Cable and Broadcast networks, eager to recover the loss of “image” advertising revenue have had to raise the water level on their lowest rates. Media rates can only go as high as people are willing to pay. As mentioned previously, many companies marketing via direct response today are willing to pay more for media because they do not necessarily have to turn a profit with their DR campaigns.

So, if many of today’s companies marketing via DR have larger agendas than simply turning a profit per order; what are they? For one new comers are using direct response for missionary purposes to create brand awareness. The other major objective of direct response is to drive retail sales. This makes the marketer who must turn a profit on the DR campaign at a distinct disadvantage.

So, to our left we see looming these large, multi-national companies entering the DR business and changing some of the most cherished economic assumptions of the business. What do we see to our right?

Well it seems that those very companies who in many ways owe their existence to DR … the Cable Networks… are now getting in to the business of competing with marketers for their own time.

Cable Networks like BET, A&E, TDC,TWC, Lifetime, Family Channel, and others are now using their air time to extend or expand their brand. They use their air time to sell everything from audio and video to skin conditioners. Even the most staid of organizations, ABC, NBC and CBS are getting into the business of Direct-to-Customer sales.

Now if you are a partner with someone who owns their own media, that’s great for you. But if you have been buying time, slugging it out as rates climb, and your media supplier begins to compete with you… this is serious business.

So, to the left of us we have large multi-national companies who are not necessarily CPO driven and to the right of us we have the people we have subsidized climbing into marketing ring and hitting us squarely in the jaw… now who else is lurking?

Another serious change leading to the “END of Direct Response As We Know It” is the change in DR advertising agencies themselves. In what is almost a dirty little secret, more and more DR agencies are getting into the business of offering their own products.  Some agencies at least have created new companies but others simply make partnership deals. Others take complete ownership of products to market and compete with their clients. This is one way in which traditional direct response agencies are responding to the new realities.

You may ask yourself… so what! Well, if a Persian Gulf War started tomorrow or we, heaven forbid, had another OJ Simpson trial, and if you wanted to sell your product on CNN or Court TV, you would soon know what difference it would make if your Agency was marketing a product.

Time is not infinite. There are only so many CNN and Court TV avails and your agency may only have so many spots allocated to them…the temptation for a conflict of interest to arise is too great to avoid.

Once again, if you are making a partnership with an agency-it may work for you. If not, agencies getting in to the DR marketing business inherently changes the nature of the relationship between you as a marketer and them as an agency. Economic pressures caused by a dysfunctional industry creates many unusual responses. What I mean by a dysfunctional industry is one that no longer follows the same rules it has historically followed.

Direct response media rates are no longer a function of efficiency as we have already noted. This creates economic pressures for everyone, including agencies who have traditional clients that need efficient, profitable CPO’s. This is one reason that drives many agencies into creating these new relationships.

While I am on an agency kick, let me tell you another dramatic issue that has arisen due to economic pressures. Many agencies, especially in the Infomercial end of our business, own or control media time. If your agency owns their own time, at minimum, you should know this. You need full disclosure from your agency. In what I believe to be one of the most monumentally absurd practices is for your agency… who is supposed to be your agent…to also sell you time they own.

How can an agency negotiate with itself? If they represent you, it is their responsibility to negotiate on YOUR behalf… not their behalf. I won’t go into this anymore now but it is my opinion that relationships are best served when both parties share the same agenda. This particular practice is just another symptom of a dysfunctional industry.

So now that we’ve looked to the left of us, to the right, and even in our own stores we see new relationships and increased competition everywhere. Why should competition in and of itself mean an end to direct response as we know it? The simple answer is that it doesn’t.

The industry is being changed by more than just increased competition. The direct response industry is being transformed by attitude. The new breed of marketer is not just defined by his pocketbook…but by his attitude as well.

I’ll never forget the time when a prominent DR agency was giving me important advice when we were marketing a video.

“Jaffer…you have to remember that the person buying your product is one step removed from a retarded chimpanzee. You gotta talk to them like that.”

Rest assured, the new breed of marketer is not coming in and believing the person that is buying their product is one step removed from a monkey.  Instead they are more apt to think of the customer in terms of lifetime value. If profitability for them is not simply measured by the initial sales transaction, an attitude must be brought that extends beyond this first transaction.

We have spoken about how the competition landscape has had an effect on media rates, now let’s take a look at the economic landscape of the direct response television industry itself. The new landscape is changing the foundation of direct response as we know it.

There is an old Hollywood adage that goes, “Nobody knows anything.” This was meant for Hollywood executives who would spend millions of dollars on movies in the hope that they would catch a hit movie. This adage is even more true for DR TV at this stage in the development of the industry. Nobody knows what is going to be a hit anymore.

With the success rate of DR TV campaigns plunging annually, and the predictability of that success getting more uncertain…we are in a new ball game. The industry is mirroring a new economic model that resembles the forecasting of the Stock Market, the weather and Hollywood hits. The economic model is “chaotic.”

We won’t go into the details of Chaos Theory today but the basic application of the principles of Chaos is that our economic system is seemingly random and small changes in the information cascade can have dramatic effects in the outcome of a marketing campaign. The system appears random due to the phenomenal increase in the complexity of the system.

The often used example of chaos theory is that a butterfly flapping its wings in Japan can set off a chain reaction that leads to a hurricane off the coast of Florida. Now before you start scratching your head and say…”What does weather forecasting have to do with Direct Response…” let’s examine our industry at a glance.

Presently we have more than 70% of the households passed by cable, over 85% have VCR’s, over 13 million people have internet access and over 7 million households have satellite dishes at home.

What this all means is that consumers now are inundated with information and choice. I was at my sister’s house flipping through the channels on her satellite dish and I honed in on the Farm Channel. This was an entire channel devoted to farming! This exploding choice not only fragments the mass consuming audience into niches, but makes each individual’s decision making process more complex and more difficult to predict. To be sure, a hit campaign is ultimately determined by the collective effect of many individual human decisions. If individual human decisions are affected by exploding alternatives beyond our control, it stands to reason that a major challenge for all marketers is to rise above the clutter. If you are a traditional “mass marketer”, which is what DR used to be, the cost of media is getting higher to penetrate the de-massified audience. The information cascade is getting more unstable and unpredictable due to this exploding choice.

The more choices consumers have, the more unpredictable they become. This is largely because it becomes more difficult to control the information cascade that influences success.

Does anyone out there really believe that the “Tickle Me Elmo” phenomenon last Xmas was predictable? As direct marketers, we have a goal to influence the information landscape as much as we can to create a hit DR campaign. If you are only using television to do this, you are probably in big trouble.

Those marketers who hold on to marketing in the same manner as in the past are clinging to a model that doesn’t exist anymore.  The economics of letting DR campaigns “take root” are too expensive. What I mean by this is that in the past, a marketer could stay on the air and build frequency of impressions, which is certainly a component in influencing the information cascade, until the campaign could “catch on”.

With escalating media rates, promotions are often killed before they get a chance to create a buzz. Only those exceptional promotions that come out of the gate as runaway hits survive.

It is hard to believe, but once upon a time it was possible to predict which promotions would come out of the gate as runaway hits. The components of hit campaign were broken down into formulas that still survive into today’s Direct Response thinking.

The end of direct response as we know it means that if someone believes they can predict which products are hits, they are kidding themselves. The multitude of choices and increased complexity means that chaos has been ushered in and chaos does not lend itself to simple, discernible formulas.

Prediction has become mystical… not scientific. When the mass market was not fragmented into dizzying choices, the DR process, which product selection was just one process, could be broken down into formulas to create hit campaigns. But today, we need to glean the hidden connections that are buried within our chaotic industry by utilizing our intuitive capacities. This does not mean that we need to pick up the latest copy of Shirley Maclain’s New Age book on channeling. Complexity ushers in the need to conduct business in ways that do not lend themselves to neat formulas. Even scientists recognize the need for intuiting hidden secrets of success.

Jonas Salk, the discoverer of the polio vaccine wrote a book about how science needs to be conducted in today’s environment. He could be talking about more than just science, he could be talking about how we should be conducting business. He wrote:

“A new way of thinking is now needed to deal with our present reality. Our subjective responses [and here he means our intuition] are more sensitive and more rapid than our objective response.

Jonas Salk was writing about how the pursuit of science itself cannot be reduced to formulas. Complexity in any system, when it crawls over the edge to chaos, does not lend itself to control or simple prediction. He is suggesting that we need to intuit our way through the information swamp.

This is extremely unsettling for any marketer or investor who is putting up their own money. Worse yet, try going to a bank to borrow money and tell them, “I have a great product but I am not sure if it will sell…in fact nobody know if it will sell” I doubt that any investor or bank would take solace in the adage…Nobody knows anything. They will not be persuaded any more by your “feeling” either.

Once upon a time marketers could control the information cascade due to consumers’ collective attention being  directed toward fewer informational outlets. Consumer tastes were less fragmented as well. Consumers were more connected with each other through their limited information choices.

In today’s marketing world, the “collective mind” is harder to glean. The direct marketer cannot hope to control information filtering in to consumers. Incidentally, I believe this is one reason why the government is having so much trouble with discontent bubbling under the surface. They are having as much trouble controlling the information cascade as marketers. Everybody must deal with diversity and fragmentation which has ushered in a world of uncertainty in which many believe is hopeless to tame.

So, does the end of Direct Response as we know it mean the end of Direct Response? Absolutely not. It only means the end of direct response for those who cling to the old way of thinking…for those who fail to respond to the challenges to the left and right of them…

The fragmented, de-massified audience cannot be controlled as I said before any more than the weather can be controlled. But it is not the same thing to say that we, as direct marketers, cannot influence the information cascade.

This descent from control to merely influence is humbling because it means that we have more uncertainty and increased risk. If one is in the television, Direct Response business and you are only using television commercials to influence the information landscape, then the odds are overwhelming that failure will result.

The end of Direct Response as we know it is ushering in the end of television direct response as a stand alone business. It doesn’t make economic sense. So, what are the choices ahead for the television direct response industry?

We see the changes happening as the economic pressures drive creative attempts to meet the challenges of influencing the collective mind. More companies are using print, inserts, web sites, radio, home shopping outlets, retail outlets, outbound telemarketing, etc. all in the hope of influencing the information cascade to the point of hitting a home run.

Television direct response companies used to believe, and many still cling to this notion, that a product cannot be at retail and still be a viable product to be sold on television.

Conversely, many retailers used to think that products sold on television hurt their sales since these were sales that would presumably go into their stores. Today, retailers routinely acknowledge the benefit of a direct response campaign, be it in print, radio or television.

Although no one can quantify the exact effect of a direct marketing campaign has on retail sales, it is undeniable that a positive effect is achieved. I will also go out on a limb by saying that a retail presence can also have a positive effect on your television direct response campaign as well. Some will say this is heresy but with the Riverdance video DR campaign, it does not appear that we have been hurt one bit by the retail avalanche that continued to come down the marketing mountain.

We believe that all marketing initiatives have a sort of halo effect that casts its glow from one initiative to the other. Each initiative helps influence the information cascade by increasing the frequency of impressions for a product. The net result is positive not only the campaign, but for each participating marketer in the campaign.

Television Direct Response is being transformed from a stand alone business to one that is just a phalange or segment in a total integrated marketing approach. Television Direct Response used to be a business, capable of standing on its own, but now is becoming only one piece in the puzzle of an entire marketing picture.

It takes an integrated marketing approach to influence the fragmented audience’s buying habits. Television direct response is just one form of direct marketing, which is just a subset of a products’ overall marketing campaign.

Earlier I noted that direct response was now serving larger objectives. A campaign that has missionary purposes that creates brand awareness is another way of saying that direct response can be used to influence the information cascade.

In addition to developing simultaneous distribution channels in the hope of creating an integrated marketing campaign, we think it is time to truly diversify and develop one’s direct marketing business. Direct response television advertisers have often ignored the concept of a database, believing that once a sale was made to the consumer, that was the end of their relationship.

If any of you out there come from a catalog direct marketing background, the term “back-end” marketing means developing your database of buyers by remarketing other products to them. In the DR TV industry, Back End marketing has been relegated to alternative markets in which to market your product.

The idea that you can develop your database and continue to make money from the same people who originally purchased from you rarely gets beyond the outbound telemarketing campaign stage.

If you make the initial sales transaction a pleasant experience for the consumer, it is easier to sell them another product than to find a new buyer. Studies have shown that someone who has purchased a product from you is seven times more likely to buy a new product from you than a non-buyer. I believe that those companies who will build a database, and not just a list, and then build long term relationships with their customers are at a distinct advantage.

Remarketing begins when they first call to order on the phone. That is when you try to upsell or cross sell another product. It should continue with a bounce-back piece that accompanies the delivery of the original order. Also mailings, brochures, and outbound telemarketing solicitations all can be additional revenue streams. Each sales transaction should feed into one database.

You can develop an entire business that is profitable simply by paying attention to developing your relationship with the people buying your product. Obviously you need to first make the original sale, but the more money you make on the “back-end”, the more money you can afford to spend on media to get more new customers.

All of what I have been saying so far is that the direct response television industry cannot continue marching blindly forward using the same formulas, attitudes and methods that have worked in the past.

The end of Direct Response as we know it means that those of us who remain complacent and fail to open our eyes to what is going on means we will not survive. The old guard being replaced with a new breed whose energy is overtaking us. General George S. Patton wrote an obscure treatise called; The Secret Of Victory in which he outlined the same issues that are before us when we speak of meeting challenges. In 1926, Patton wrote the following words, The white hot energy of youth, which saw in obstacles but inspirations, and in the enemy but the gage to battle, becomes too complacent with age…Knowledge is power, but to a degree only. Its possession per se will raise a man to mediocrity, but not to distinction.

It is up to each and every one of us to view the obstacles before us as inspirations and our competition as a means to gage our wits. Unfortunately there are no rules for us to follow and even if there were, at best our possession of them would barely raise us beyond mediocrity.

I’d like to end this little talk with a quote from a noted writer on the new realities facing executives at every level. It is particularly true for our industry. Michael Ray wrote:

If you sense that a profound change is happening in the business world, but you’re not quite sure what it is; if you’ve noticed that old visions and strategies don’t seem to work anymore; if you need to learn new ways to lead… you are not alone.

Zero Marginal Media Costs – The Marketing Windfall

Jeremy Rifkin coined the term, The Zero Marginal Cost Society*. His premise was that costs in the 21st Century were declining across the board and a sharing economy was about to crush traditional capitalism.

This missive suggests that digital media has reached such a stage where traditional media economic models must give way to a new reality. It is my contention that we are experiencing digital media costs so close to zero, let’s call them zero. These costs extend from content creation to distribution. Not only are the marginal costs of digital content and distribution costs near zero, but the fixed costs of the infrastructure are also near zero. A pimple-faced teen with an internet connection using Amazon’s cloud can create a scalable media infrastructure.

So what does this mean for marketers?

For one, it has NEVER been a better time for marketers. The low cost of creating and distributing digital media has created an almost unfathomable oversupply of potential online advertising impressions. Online page views are basically following Moore’s Law…something I call “Moore’s Law of Media”. This makes sense when you know that data and information is doubling every 12-18 months and data in a 21st Century version of media. More data equals more media.

With an average page impression carrying at least 3 ads per page, we have exponential growth in advertising supply. But all estimates of the increase in advertising dollars spent are in the range of 12%-20%. Are you seeing a marketing opportunity yet?

With an oversupply of advertising and a near zero marginal cost of creating new content (User generated content and curated content), online publishers cannot possibly maintain CPMs or CPCs. In 1922, Walter Lippmann wrote about how journalists and media owners created a “pseudo-environment” within which people act upon fictions instead of reality**.

Presently, marketers are operating in a pseudo-environment of media scarcity. This is cleverly supported by publishers. One CEO from a marketing company told me that Facebook sold 100% of its inventory. My first thought was that he was an idiot (and that has not abated) and the second thought was how successful powerful online media companies have been in creating this pseudo-environment.

The actual online environment is overwhelmingly different, following Moore’s Law of Media mentioned above. The real windfall for marketers can only come if they see through the pseudo-environment and acknowledge how they can benefit from media oversupplies and media costs being driven to zero. In other words, it is a much better time to be using and/or buying media than selling it.

* Zero Marginal Cost Society, 2012 Jeremy Rifkin

** Public Opinion, 1922 by Walter Lippmann

Hammurabi’s Cure For A ‘Lemons Market’

If a herdsman, to whose care cattle or sheep have been entrusted is guilty of fraud and makes false returns of the natural increase, or sells them for money, then shall he be convicted and pay the owner ten times the loss.
–Hammurabi’s Code, Law #265*

My last post outlined why I thought the online media market was a “lemons market.” The post did not encounter a single refutation of the premise. The criticisms received largely concerned my writing style. That will not change any time soon.

I was sad to miss Bob Garfield’s media conference due to a scheduling conflict. The topic discussed was about how to rehabilitate the dysfunctional online media ecosystem. So let me take a crack at it with this missive that acts as a follow up to my last article.

We take as a point of departure that fraud is near the top of the list of problems to confront head on. Pricing in fraud for media buys is a TERRIBLE strategy and will not work in the long run as the fraudsters just double down and deliver more fraud impressions. That strategy is not workable and generally proposed by simpletons. But maybe the way forward is to explore some of the concepts animating a code developed in the time of the Mesopotamian King Hammurabi.

Hammurabi’s Code was a collection of 282 laws inscribed on a 7 1/2 foot pillar around 1754 BCE. It was rediscovered in the early 1900s. Hammurabi was a facilitator of commerce and understood shared risk. For instance, if you were a builder and the walls caved in and killed the person you sold the home to, the builder would be put to death.

If a builder builds a house for someone and does not construct it properly — and the house which he built caves in and kills its owner, then that builder shall be put to death.
–Hammurabi’s Code, Law #229

This is a far cry from how business and especially the online media ecosystem works. Hammurabi knew that risk and skin in the game could but SHOULD NOT be eliminated from economic relationships. He absolutely would have put modern day bankers to death for shifting all risk to taxpayers while reaping only rewards when things go well. Hammurabi may not have been the first to discuss skin-in-the-game, but he sure did try to systematize it.

In the online world, we have consultants, service providers, publishers and online networks doing EVERYTHING they can to avoid risk or skin in the game. They want the upside and put all the downside on the merchant purchasing services or media. The first digital agency was created way back in 1985 by media pioneer Jeff Einstein. Here is what he had to say about advertising media:

Today’s media is not about what works, it is about what can be sold.
–Jeff Einstein, Media pioneer and critic

In a market filled with rampant fraud as is the case in the online media landscape, it is not surprising that media owners and all the middlemen shun risk. They KNOW that advertising on their websites does not work well. The proof is when simple deals to share risk are proposed, these deals are quickly discarded by the charlatans. They rather look for the next sucker who will pay them and absorb all the downside.

Once the incentive for selling garbage packaged in sweet perfume to hide its stench is removed, we can begin to solve the crisis. Even when there is not outright fraud, Hammurabi would have believed media owners have a responsibility to keep their asset in good, workable condition.

If anyone be too lazy to keep his dam in proper condition, and does not so keep it; if then the dam breaks and all the fields flooded, then shall he in whose dam the break occurred be sold for money, and the money shall replace the corn which he has caused to be ruined.
–Hammurabi’s Code, Law #53

This means media owners/publishers cannot flood their properties with useless impressions (we term this “impression inflation”). Publishers and those networks peddling media assets have been worse than lazy and have let the dam brake…and flooded the field with useless impressions, not just fraud. An example of this flooded field are those ridiculous ad impressions used by “clever” publishers where they have 53 slides of celebrity photos festooned with a dozen ad impressions on each slide.

What do you think is the value of the ad placed on the 17th page? Yet each page is filled with one of a dozen ads from various ad networks filling this useless space. And of course the agency or consultant is happy to spend the advertiser’s money on this madness…as long as there is no skin-in-the-game for the peddler of this garbage. All risk is on the sucker purchasing the impressions.

As soon as you introduce anything resembling Hammurabi’s Code to the media ecosystem, all Hell breaks loose. Why? Because almost everyone seems to know that the dam has broken. There are still some media buyers that are not aware of this, but they represent a shrinking minority. But if the media really worked, 80% would not still go unsold.

To add insult to injury, publishers compete with advertisers for audience attention. Another online media pioneer, Larry Smith, developed a metric called “SOX” (Share Of Exits) which measures the share of exit links on a page. To increase impressions on websites, publishers have links to other stories. The audience exits the page with the ad impressions to read the next story on Caitlin Jenner or whatever. These links compete for audience attention with an already overly saturated page filled with too many ads.

Several years ago Mr. Smith calculated more than 170 exit links on an average Yahoo page. The dam has not just broken; the entire landscape is under hundreds of feet of water. And if by chance you are a publisher that understands quality in a ‘lemons market’ it is difficult to compete with cheap lemons. Remember, in a Market for Lemons the general trend is for quality to be driven out of the market.

Moving on from the publisher or owner of media assets, let’s take a look at another culprit in this dysfunctional environment: Agencies. Here, Hammurabi has something to say:

If a merchant entrusts money to an agent for some investment, and the agent suffers a loss in the place to which he goes, he [the agent] shall make good the capital to the merchant.
–Hammurabi’s Code. Law #102

What a foreign concept it is for agents in the media landscape to actually have skin in the game. They have no downside except losing their job…which means they have to find another sucker to pay them. It is common for agencies to straddle the fence regarding their fiduciary responsibilities. They often “represent” media sellers more than to whom they owe fiduciary responsibilities. For some agencies, clients come and go but the media owners are thought to be more stable (questionable these days).

Now Hammurabi was not just interested in the rights of the merchant. If a merchant cheated an agent, they had to pay the agent six times the money they owed as punishment. Hammurabi was interested in shared risk and thought that this concept was the great leveler.

The way forward is to construct fair deals that share risk amongst media buyers, media sellers and agents. This may not be easy, but without heeding Hammurabi, we will continue tasting sour lemons.

* Hammurabi’s 282 laws can be viewed here. I am indebted to Nassim Taleb for introducing me to Hammurabi’s Code.