I’ve been a long time champion of Don Peppers’ work and so it was especially fun to conduct this CMO 2.0 Influencer Conversation with him. Don is the co-author of  eight books, his latest one being Rules to Break and Laws to Follow, and he is also the co-founder of Peppers and Rogers.

We started off by having Don give an overview of his latest book, which came out last year. At a high level, the book deals with the evolving landscape of business competition and the changes that are caused by the rise of social media – with customers increasingly talking with one another.

In it, Don and his co-author Martha Rogers argue that while businesses operate under a set of assumptions that sound logical, they are, in fact, fundamentally flawed. And, as the title of their book advocates for, it’s these rules that need to be broken.

The first one is that the best measure of success for your company is current sales and profits. They think that this is a false assumption because customers don’t just buy things from you today. When they do buy things they also have an experience that changes their impression of you or their affection for you, which in turn changes the likely amount of business you’re going to get (or not get) from that customer in the future. So, the customer lifetime value goes up or down based on current buying experiences, and that is the metric companies should track – not current sales and profits.

The second rule to break, or false assumption that companies operate on, is that with the right sales and marketing efforts you can always get more customers. In reality, they argue, we have a surplus of products and services, and a shortage of customers – customers are the new scarcity and should be thought of as a productive resource the same way we think of capital or labor as productive resources. You cannot just get more customers with more marketing – there is a limit. Note that Don and Martha are not attacking the whole notion of customer acquisition, they just don’t think that it’s the only way to create value.  The other side of this coin is that capital is an infinite resource – you can always get more capital.

The third rule to break, also widely accepted as truth by most businesses, is that company value can be created by offering differentiated products and services. Products and services don’t create value – customers do when they buy those products and services. Customers create value in two ways. Short term, by buying products from you now. Long term, by buying more from you later and by creating additional business for you through their referrals.  So you should think of customers as productive assets.

Don then talked about a new customer-based metric that companies can use to measure the efficiency with which they are using customers to create value – Return on Customer. Return on Customer is very analogous to Return on Investment. If I have a customer who has a lifetime value of $100 and I make $5 in profit on that customer by selling him stuff during the year, and by the end of the year I’ve been able to increase his lifetime value to $110, then my Return on Customer is 15%.

We also talked about customer acquisition strategies and how you need to evaluate the total customer lifetime value when you prioritize which customers to attract. The least valuable customers come in for the most valuable offers – so having a customer acquisition strategy focused on discounts is not exactly the smartest thing to do. Research that we found as part of research for our own book, about which I will blog about separately, showed that customers who are acquired through word of mouth have not only a higher lifetime value than those acquired through traditional marketing programs, they also bring in more new business through their referrals. So, when you calculate customer lifetime value you need to include the business that will come to you because of a customer’s positive word of mouth. That is especially true in light of other research that Don mentioned, which shows that your highest spenders are not always your highest referrers.

We then talked about another important topic in all of Don’s writing – trust. Customers make most of their buying decisions based on trust, and they think that you are creating the most value for them when they trust you. So if you want to maximize the value your customers create, you need to focus on earning and keeping their trust. And you cannot have a trustworthy business unless you trust your employees.

We closed our conversation with a discussion around the evolution of CRM, and how CRM systems will have to start incorporating people’s social profile, not just their buying history with the company. Don also warned that if companies think of their CRM system as a tool to sell more things, they will fail. CRM systems should be put in place to create more value for the customers – create better offers, better delivery, or whatever will increase value for the customer.

Don had an interesting parting piece of advice for marketers:

…in the era of social media you should always step back from whatever marketing policy you’re considering, whatever kind of new idea you have and ask yourself, ‘Gee, if this became public, would it be an embarrassment to us? Would we be proud of it? Would some of our customers hold it against us?’

Because, you know what? It’s a really good chance it will become public in today’s age and if you want to protect yourself then you really have to have clean hands, not just a good alibi.

Other things we discussed include:

• How trust is a combination of intent and competence
• The impact of technology on corporate hierarchies and processes
• How successful companies of the future will have a high degree of self-organization
• The importance of culture in successful companies
• How the most influential customers don’t want to be sold to

As usual, you can listen to the podcast below.

CMO 2.0 Influencer Conversation with Don Peppers [ 59:07 ] Play Now | Play in Popup | Download (7867)

Having been a customer of Fast Company since the first release and having been an early advertiser in the magazine, I truly enjoyed having my CMO 2.0 Influencer conversation with Alan Webber, the co-founder of Fast Company, and most recently the author of a great book called Rules of Thumb.

As usual, we started by having Alan give us some context about himself – incidentally, one of his rules of thumb (#32  – “content isn’t king, context is king”). I had forgotten what the first cover of the magazine said: work is personal, computing is social, knowledge is power, and break the rules. Talk about being ahead of your time – that was 1995! That was a true manifesto which led to Fast Company becoming one of the fastest growing publications and the second largest acquisition in U.S. magazine history.

Rules of thumb pulls together 52 core lessons that Alan learned during his 40 years of working in government, academia and publishing at the Harvard Business School, as an entrepreneur at Fast Company, and as a globetrotting, global “detective,” as he describes himself, trying to make sense out of all the changes that are currently going on in business, politics, and society all over the world.

Next we touched on Alan’s Rule #15 – “every start-up needs four things: Change, Connections, Conversation, and Community” – and how that happened at Fast Company. Fast Company, of course, was one of the first companies to successfully leverage communities as part of their business model. Readers of the magazine formed a real tribe – one that wanted to hang together in the context of ideas and conversations about the trajectory of change in business, work, competition, and in individual’s careers. The tribe, as you may recall, was called Company of Friends – and like most successful communities it became a true movement, one that the company would have been hard-pressed to close down.

Bouncing around a bit we next talked about rule #42 – the survival of the fittest is the business case for diversity. Not only did they have tremendous diversity within their employee base, with people coming from all over the world, with different backgrounds, different educations, race, color, etc. , they also had a lot of diversity among their readers. The diverse employee gene pool allowed them to be very innovative – for example making them one of the earliest magazines to turn their customers into co-marketers by giving away their web content for free with the first “send this page to a friend” feature.

Next we spoke about a number of rules related to talent and leadership, including Rule #19, “memo to leaders: focus on the signal-to-noise ratio,” or Rule # 21, great leaders answer Tom Peter’s great question: “How can I capture the World’s Imagination?”, or (maybe my favorite) Rule #26, “the soft stuff is the hard stuff.” Alan sees a shift from leaders who have all the answers to leaders who know the best questions to ask. He thinks that in the wake of this economic crisis, many of us feel like we’ve been let down by those leaders who were supposed to make sound business decisions. The problem is that they did not ask the right questions and in many cases did not ask any questions. Good leaders, he explained, are those people who start out thinking they are not necessarily in positions of authority to give everybody answers. They’re in a position of authority to ask really tough questions that make their organization think very hard about what they’re doing and why they’re doing it. Good leaders in this period of economic retrenchment should have a mix of intelligence and humility – they don’t need to be the smartest person in the room, but they do have to be the person who’s willing to ask the hardest questions and insist on really good answers. As a leader you need to have clarity about your purpose, honesty about your values, and focus about your metrics.

Next we talked about the importance of  knowledge flows and how you absolutely have to have trust within organizations for knowledge to flow. We also touched on talent being one of the key drivers in successful business and the irony associated with the fact that while most leaders will agree to that, they will also promote CFO’s before HR VP’s, and at the first signs of trouble ditch the talent in order to get their stock prices up.

Alan then spent a fair amount of time talking about a new movement he sees emerging, that of social entrepreneurship and social innovation – a topic he covers in his book as well. People are no longer waiting for governments to come up with solutions to small and big social problems – they are assembling the best of business practices with a strong social mission to tackle the problems as for-profit, non-profit, or hybrid organizations.  They are baby boomers as well as young people right out of college. He believes that social entrepreneurship, which is a true global phenomenon, is changing the world.

In a way, Rules of Thumb is very much a book on leadership. It tries to get people to be leaders on their own terms, and to mint a new group of people who don’t look to others to provide the rules.

Other things we talked about include:

• The need to match left brain people with right brain people
• How most successful magazines mobilized a community that didn’t know it was a community until the magazine came out and gave it the organizing principles so people knew they belonged to a community
• How leadership is a test of character
• How you need metrics to show people how they are doing but how you cannot have too many metrics

CMO 2.0 Influencer Conversation with Alan Webber, co-founder of Fast Company [ 1:04:22 ] Play Now | Play in Popup | Download (7567)

I had another great CMO 2.0 Influencer Conversation with Dave Logan, the co-author of “Tribal Leadership,” professor at USC and co-founder and Senior Partner at CultureSync.

Dave started off by talking about the research that he and his colleagues, John King and Halee Fischer-Wright, did over a period of eight years and which led them to uncover five distinct organizational cultures. The context: as you move up through the various stages, everything you want – such as effectiveness, productivity, and innovation – increases, while everything that you don’t want – such as stress, anxiety, and even workplace violence – decreases.

Dave then took us through the aspects and details of the five tribal leadership stages and what the key motivator is for each. Worth noting: the reason they settled on a tribal metaphor is because they found that it is not the individual that determines a company’s culture, nor is it the organization as a whole. Rather the culture gets determined by ‘tribes’ – those naturally occurring groups of 20-150 individuals in organizations through which the work gets done.

Here is a summary of the five stages of Tribal Leadership:

• Stage 1 is motivated by the motto “life sucks.” This is the domain of workplace violence and it makes up about 2% of tribes.
• Stage 2 is motivated by the theme “my life sucks.” These tribes move very slowly, they don’t collaborate and they have very low performance – in fact they do the bare minimum not to get fired. They also have a high degree of cynicism (done that, been there) and they comprise 25% of the tribes.
• Stage 3 is where people think “I am great, but you are not.” Productivity and effectiveness in these tribes increases, but they need to verbally compete to operate.This stage is very typical of professions where knowledge or personal achievement is key – or where you need to outperform you peers to get ahead. Again there is very little collaboration at this stage and people talk a lot about themselves. They comprise 48% of the tribes.
• Stage 4 is where people are motivated by “we are great and they are not.” You find those cultures primarily in young organizations and high tech environments where there is little bureaucracy, making it easier to get things done. Because they are based on shared values, there is less politicking going on, less anxiety and much more collaboration. They make up 22% of the tribes.
• Stage 5 cultures no longer need rivals and their theme is “life is great.” It’s focused purely on values – e.g, curing cancer. This is where the breakthroughs happen and they make up 2% of the tribes.

As a leader, you need to stabilize the level that your tribe is operating before you can work on moving them up to the next level. If you do not push into a new level from a stable position at the previous level, your tribe will operate in a position of weakness and have a high likelihood of regressing back. Of course, that also means that you cannot skip a level. Dave used the example of many dot.coms to make that point. They deluded themselves into thinking they were operating at level 5 without having gone through the previous stages. When the bust hit, many of those tribes regressed multiple stages – some as far as Stage 1.

As he describes it, one’s goal should be to reach Stage 4 and then stabilize your tribe there. That requires you to constantly review the values that you share with your team – always making sure that you are still fighting for the same thing. You also continuously need to connect people with other people as Stage 4 is characterized by fused relationship – where groups of three operate as a single unit.

Organizational change can come by changing one tribe at a time, and if you want to change the level of an organization as a whole, you have to start with the most senior executive tribe first. That is especially hard considering that traditional management structures are very much designed as Stage 3 environments – the leader is great and most others are not, they are dominated by two-people relationships, and they are very political.

The most important leadership skills for tribal leadership are: 1) the ability to notice and identify tribes, and 2) the ability to assess tribal stages, which is primarily based on listening skills to uncover what language tribes are using and what values they share. Transparency is important as well. Without it you cannot build the trust to get to Stage 4 and 5.

Other topics we discussed include:

• Co-existence of the different tribal leadership stages within companies
• How people in Stages 1-3 feel threatened by people who are better than them and therefore hire people who they can control – and how companies at Stage 4-5 develop processes to avoid this
• Some simple techniques to help move an organization forward
• How people can belong to multiple tribes, some of which span the corporate boundaries, and what that means for companies.
• How good leaders get (re)defined by their tribes

As usual you can listen to the recorded podcast below and soon we will be putting up a transcript.

CMO 2.0 Conversation with Dave Logan [ 56:04 ] Play Now | Play in Popup | Download (7004)

My CMO 2.0 Influencer Conversation with behavioral economist Dan Ariely, who is also the author of one of my favorite books, Predictably Irrational, was particularly insightful and instructive.

Dan started the conversation by talking about his past, and how a life changing event – having about 70% of his body burned  by a magnesium bomb that detonated close to him – led him on a path of human experimentation.

We quickly moved to one of my favorite topics – how people make decisions either in a market framework or a social framework, and how mixing the two, which inevitably happens in the world of business, is not a good idea.

People are inherently social creatures, and when we talk about money we create a different set of expectations than the ones we have in our social world.  The social world and the market world have different rules and regulations. What do you think would happen if instead of taking a bottle of wine to a dinner party you were to give the host cash so that she could buy her own bottle? It would no go over so well, would it?

In the business world we have no choice but to mix the two together, as we hire people in return for a salary, but also tap into social drivers that money cannot buy (i.e., an extreme example of that is firefighters putting their own life on the line, which could not be motivated by any amount of money). Too many companies try to put a monetary value on things where they would be better off leaving it in the social realm. They need to understand the trade-off between economic efficiency and social efficiency. Who would be more motivated to work overtime when you need it – the person who got a $1,000 cash reward for doing well or the one that was sent on a trip to the Bahamas worth $1,000? Research shows that it is the person getting the gift. The same is true for healthcare – why put a monetary value on the healthcare services that you provide to your employees? It does not buy you social efficiency which you could otherwise derive from providing them with that service as a social reward.

Next we talked about group dynamics, especially herding, and how that affects people’s buying behavior. People tend to herd – buy the music that got the most downloads, stand in line at the restaurant that has the longest line, etc. We also follow the herd of our own self, meaning that we buy things based on the way we bought before – even if that was based on a random act.

Dan also reviewed recent research that shows how we internalize the social. In an experiment he gave some people shirts with the term generous printed on it and others with the term stingy printed on it. After wearing the shirt in public for awhile people who had the generous shirts were behaving in a more generous way than those that had the stingy shirt. The interesting part of the experiment is that he got the same results when people were wearing shirts with the same terms printed on the inside of the shirt – so in a way that they were the only ones to know.

Another issue near and dear to many marketers is that of free trials. Free trials for products that are known quantities, i.e., Godiva chocolates, will not lead to the depreciation of value of those products in our mind. Free trials for products that we do not know, and do not assign value to, will diminish the value of that product so that when you start charging for it we will refuse to pay for it.

Other things that we talked about include:

• The dark side of social rewards
• How the feedback you get from focus groups can be very suspect because people have bad intuitions about their own behavior
• How ideation works best when other people can build on your ideas
• The importance of experimentation and business education in business
• How pricing is not determined by supply and demand and the importance of self-herding
• Behavioral economics and its impact on the economy and the stock market
• The honesty mindframe and its influence on cheating

As usual you can listen to the podcast below and soon we will be putting up transcripts of this CMO 2.0 Influencer Conversation.

CMO 2.0 Influencer Conversation with Dan Ariely [ 55:32 ] Play Now | Play in Popup | Download (6862)