Archives for November 2015

Inspirational Quotations #608

November 29, 2015 By Nagesh Belludi Leave a Comment

Books are not made for furniture, but there is nothing else that so beautifully furnishes a house.
—Henry Ward Beecher (American Protestant Clergyman)

Criticism is often not a science; it is a craft, requiring more good health than wit, more hard work than talent, more habit than native genius. In the hands of a man who has read widely but lacks judgment, applied to certain subjects it can corrupt both its readers and the writer himself.
—Jean de La Bruyere

Men strive for peace, but it is their enemies that give them strength, and I think if man no longer had enemies, he would have to invent them, for his strength only grows from struggle.
—Louis L’Amour

There is a noble manner of being poor, and who does not know it will never be rich.
—Seneca the Younger (Lucius Annaeus Seneca) (Roman Philosopher)

We must use time as a tool, not as a couch.
—John F. Kennedy (American Head of State)

My theory has always been, that if we are to dream, the flatteries of hope are as cheap, and pleasanter, than the gloom of despair.
—Thomas Jefferson (American Head of State)

Truth is neither alive nor dead; it just aggravates itself all the time.
—Mark Twain (American Humorist)

To the psychotherapist an old man who cannot bid farewell to life appears as feeble and sickly as a young man who is unable to embrace it.
—Carl Jung (Swiss Psychologist)

Reputation is in itself only a farthing-candle, of wavering and uncertain flame, and easily blown out, but it is the light by which the world looks for and finds merit.
—James Russell Lowell (American Poet)

Picasso’s Blue Period: A Serendipitous Invention

November 27, 2015 By Nagesh Belludi Leave a Comment

The Soup, 1902 by Pablo Picasso (from his Blue Period)

In October 1900, Pablo Picasso (1881–1973) moved to Paris and opened a studio there at age 19. Shortly thereafter, Picasso was deeply affected by a close friend and fellow artist’s suicide. Art historians believe this event marked the onset of Picasso’s Blue Period (1901–1904,) during which he produced many stoic and sentimental paintings in mostly monochromatic shades of blue and blue-green. The Art Institute of Chicago remarks,

Picasso’s Blue Period … was triggered in part by the suicide of his close friend Carlos Casagemas in 1901. The works of this period are characterized by their blue palette, somber subject matter, and destitute characters. His paintings feature begging mothers and fathers with small children and haggard old men and women with arms outstretched or huddled in despair.

Perhaps Picasso’s Blue Period is an instance of serendipity. Legend has it that one day Picasso had only blue paint to work with. When he started toying with the effects of painting with one color, he discovered the potential to produce interesting paintings that conveyed a sense of melancholy.

In what would become the hallmark of this greatest artist of the 20th century, thanks to serendipity, Picasso leveraged an apparent constraint into an unintended creative outcome. As such serendipity goes, the confluence of many factors helped Picasso initiate a new art genre showcasing themes of alienation, poverty, and psychological depression that, though now considered marvelous, then kept potential patrons away.

How Johnson’s Baby Powder Got Started: Serendipity and Entrepreneurship

November 24, 2015 By Nagesh Belludi Leave a Comment

Making Fortunate Discoveries Accidentally

Alexander Fleming, the Scottish biologist famous for his 1922 discovery of penicillin, once said, “Have you ever given it a thought how decisively hazard—chance, fate, destiny, call it what you please—governs our lives?”

Serendipity is the accidental discovery of something that, post hoc, turns out to be valuable.

The history of science is replete with such serendipitous discoveries. “Happy findings” made when scientists accidentally discovered something they were not explicitly looking for led to the discovery or invention of the urea, dynamite, saccharin, penicillin, nylon, microwave ovens, DNA, implantable cardiac pacemaker, and much more … even the ruins of Pompeii and Newton’s law of universal gravitation. (I recommend reading Royston Roberts’s Serendipity: Accidental Discoveries in Science)

In each of these instances, the crucial role of discovery or insight occurred in accidental circumstances. Therefore, we must understand serendipity’s role in terms of the circumstances that surround it.

Serendipity has also played a pivotal role in establishing many successful businesses. In fact, serendipity is a rich idea that is very central to the entrepreneurial process. As the following case study will demonstrate, many experimental ideas are born by chance and are often reinforced by casual observation and customer input.

Johnson & Johnson Got into the Baby Powder Business by Accident

In 1885, entrepreneur Robert Wood Johnson was deeply inspired by a lecture of Joseph Lister, a British surgeon well known for his advocacy of antiseptic surgery. Johnson started tinkering with several different ideas in an effort to make sterile surgery products.

A year later, Johnson joined his two brothers to establish Johnson & Johnson (J&J) in New Brunswick, New Jersey. Their first commercial product was a sterile, ready-to-use, medicated plaster-bandage that promised to reduce the rate of infections after surgical procedures. As business developed, the Johnson brothers compiled the latest medical opinions about surgical infections and distributed a booklet called Modern Methods of Antiseptic Wound Treatment as part of their marketing efforts.

Within a few years, a doctor complained to J&J that their bandages caused skin irritation in his patients. In response, J&J’s scientific director Dr. Frederick Kilmer sent the doctor a packet of scented Italian talcum powder to help soothe the irritation. Since the doctor liked it, J&J started to include a small sample of talc powder with every package of medicated bandages.

By 1891, consumers discovered that the talc also helped alleviate diaper rash. They asked to buy it separately. The astounded J&J’s leadership quickly introduced Johnson’s Baby Powder “for toilet and nursery.” Over the years, J&J built on that huge initial success and created the dominant Johnson’s Baby product line with creams, shampoos, soaps, body lotions, oils, gels, and wipes.

J&J Got into the Sanitary Protection Products Business Too by Accident

Serendipity also played the key role in establishing J&J’s sanitary napkin business. In 1894, J&J launched midwife’s maternity kits to make childbirth safer for mothers and babies. These kits included twelve “Lister’s Towels,” sanitary napkins to staunch post-birth bleeding. Before long, J&J received hundreds of letters from women who wanted to know where they could buy just the sanitary napkins. In response, J&J introduced disposable sanitary napkins as part of its consumer products line. J&J thus became the first company in the United States to mass-produce sanitary protection products for women.

Inspirational Quotations #607

November 22, 2015 By Nagesh Belludi Leave a Comment

To be thoroughly conversant with a man’s heart, is to take our final lesson in the iron-clasped volume of despair.
—Edgar Allan Poe (American Poet)

Life doesn’t do anything to you. It only reveals your spirit.
—John C. Maxwell (American Christian Professional Speaker)

It is difficult, but not impossible, to conduct strictly honest business.
—Mohandas K. Gandhi (Indian Hindu Political leader)

We must lay before him what is in us, not what ought to be in us.
—C. S. Lewis (Irish-born British Children’s Books Writer)

The rich man is always sold to the institution which makes him rich. Absolutely speaking, the more money, the less virtue.
—Henry David Thoreau (American Philosopher)

The best mind-altering drug is truth.
—Lily Tomlin

We see the brightness of a new page where everything yet can happen.
—Rainer Maria Rilke (Austrian Poet)

There is none who cannot teach somebody something, and there is none so excellent but he is excelled.
—Baltasar Gracian

The human race has one really effective weapon, and that is laughter.
—Mark Twain (American Humorist)

Act enthusiastic and you will be enthusiastic.
—Dale Carnegie (American Author)

Without work, all life goes rotten. But when work is soulless, life stifles and dies.
—Albert Camus (Algerian-born French Philosopher)

The fact is, you have fallen lately, Cecily, into a bad habit of thinking for yourself. You should give it up. It is not quite womanly… men don’t like it.
—Oscar Wilde (Irish Poet)

Every period of life is obliged to borrow its happiness from time to come.
—Samuel Johnson (British Essayist)

Much learning does not teach understanding.
—Heraclitus (Ancient Greek Philosopher)

Praise shames me, for I secretly beg for it.
—Rabindranath Tagore (Indian Hindu Polymath)

When Getting a Great Deal Might Not Be Worth Your Time

November 20, 2015 By Nagesh Belludi 1 Comment

Most consumers love a deal. However, some of us spend untold time searching for the best possible bargains.

If you’re one of these obsessive bargain-hunters, unless you derive some hedonistic pleasure in snatching deals, you may not have considered the possibility that you’re putting too low a value on your time.

Perhaps you could benefit from some perspective: the time you spend hunting for deals and trying to save that last penny may not be worth it. While you can quantify how much money you save by shopping around, you may not realize the opportunity costs of deal-hunting: it often comes at the cost of your time.

You may have a vague sense of the fact that “time is money,” but this might not be telling enough. You can find the approximate value of an hour of your time by dividing your annual income by 2,000 (or, more easily, by disregarding the last three digits of your annual income and dividing the result by 2.)

Obsessive Bargain-Hunters, Coupon Craziness Set a cost threshold based on the value of your time, say $15 per hour, for deal-hunting. If you’re not saving at least this amount, deal-hunting might just waste your time and money. So, refrain from scouring the internet for a better deal on a weeklong vacation or bidding on eBay if you’re not saving $15 per hour. Likewise, don’t drive across town to Costco just to save a dime per gallon on 20 gallons of gas.

I’ve written previously that life is all about values and the priorities you assign to those values. Therefore, decide which choices in your life really matter and focus your time and energy there. Let numerous other opportunities pass you by.

Another part of leading a wise and meaningful life is not always seeking the best but instead making good-enough choices about the things that matter and not concerning yourself too much about the things that don’t.

Idea for Impact: Don’t spend more time on a task unless it really warrants this in terms of “time-is-money.” As the American Philosopher Henry David Thoreau said, “The price of anything is the amount of life you exchange for it.”

Clever Marketing Exploits the Anchoring Bias

November 17, 2015 By Nagesh Belludi Leave a Comment

In the ’70s, psychologists Amos Tversky and Daniel Kahneman were the first to study a cognitive phenomenon called “anchoring” and its influence on decision-making. Over the decades, extensive research on anchoring has explained that the way and context in which we receive information profoundly influence how we synthesize it.

The effects of anchoring are very visible in marketing, sales, merchandising, and product pricing as it profoundly influences consumer behavior. By offering clever price contrasts, marketers can shape customers’ purchasing decisions. For example,

By offering lower prices and promotional sales, department stores induce customers to compare the sale price against the original price—the “anchor”—and think they’re getting a bargain.
By displaying shiny, expensive new cars in the showroom, car dealerships encourage customers to accept the prices displayed on their used cars or less flashy models.
Patrons at restaurants tend to order the second least-expensive bottle of wine in an attempt to avoid looking cheap. Therefore, restaurants tend to put the highest markup on that very bottle.

The Case of the $429 Breadmaker

Anchoring Bias: Williams-Sonoma $429 Breadmaker Customers are usually more likely to purchase a product when competing alternatives are included, as opposed to having only one product option.

Consider a classic example of this “single-option aversion” phenomenon. A few years ago, Williams-Sonoma couldn’t get customers to buy their $279 breadmaker. They cleverly added a spiffier-and-slicker deluxe breadmaker model to their product line for $429. While Williams-Sonoma didn’t sell many of the new and expensive breadmaker, they doubled sales of the original and less-expensive model.

When the $279 breadmaker was the only model available for sale, customers couldn’t tell whether the price was competitive because there was nothing to compare it to. By introducing a better product for a higher price, Williams-Sonoma provided an anchor upon which its customers could compare the two models; they naturally sided with the $279 model as an attractive alternative.

The Case of the $69 Hot Dog and the $1000 Chocolate Sundae

Usually, absurdly expensive premium goods are less of publicity stunts and more of strategic marketing tactics.

Consider the case of Serendipity 3’s menu anchors. In 2010, the popular New York eatery introduced a $69 hot dog called “Foot-Long Haute Dog” with dressings as exotic as medallions of duck liver, ketchup made from heirloom tomatoes, Dijon mustard with truffle shavings, and caramelized Vidalia onions to justify the high price. Of course, Serendipity 3 gained plenty of publicity when The Guinness Book of World Records certified this hot dog as the most expensive wiener of all time.

The true purpose of these ridiculously priced premium items is to make the next most expensive item seem cheaper. Customers who were drawn by the Haute Dog’s publicity gladly ordered the menu’s $17.95 cheeseburger. Even if $17.95 was too pricey elsewhere, Serendipity 3 customers deemed it reasonable in comparison to the $69 hot dog.

A few years previous, Serendipity 3 similarly offered a $1000 “Golden Opulence Sundae” that was only available with a 48 hour-notice. They sold only one Sundae per month. Nevertheless, this was just a shrewd marketing ploy to convince customers to spend more on high-profit margin desserts such as the $15.50 “fruit and fudge” confection or the $22.50 “Cheese Cake Vesuvius.”

Unsuspecting customers ended up paying too much for other meals at Serendipity 3 while believing they were getting a great deal.

Idea for Impact: Be Sensitive of Anchoring Bias

In both the above case studies, even if the companies sold almost none of their highest-priced models despite the publicity they generated, the companies reaped enormous benefits by exploiting the anchoring bias to induce customers to buy cheaper-than-most-expensive high-profit products.

In summary, anchoring exploits our tendency to seek out comparison and our reliance on context. The anchoring bias describes our subconscious tendency to make decisions by relying heavily on a single piece of information.

Call to Action: Sensitize yourself to how anchoring and anchoring bias may subconsciously affect your decision-making. If you’re in marketing or sales, investigate how you could use anchoring bias to influence your customers.

For more on cognitive biases and behavioral economics, read 2002 Nobel Laureate Daniel Kahneman’s bestselling Thinking, Fast and Slow. Also read Nir Eyal’s Hooked: How to Build Habit-Forming Products on how to influence customer behaviors and build products and offer services that people love.

Inspirational Quotations #606

November 15, 2015 By Nagesh Belludi Leave a Comment

Let a man’s talents or virtues be what they may, he will only feel satisfaction in his society as he is satisfied in himself.
—William Hazlitt (English Essayist)

Act so that the maxim of your act could be made the principle of a universal law.
—Immanuel Kant (Prussian German Philosopher)

I hate it in friends when they come too late to help.
—Euripides (Ancient Greek Dramatist)

Hope is a prodigal young heir, and experience is his banker, but his drafts are seldom honored since there is often a heavy balance against him, because he draws largely on a small capital and is not yet in possession.
—Charles Caleb Colton (English Angelic Priest)

We degrade life by our follies and vices, and then complain that the unhappiness which is only their accompaniment is inherent in the constitution of things.
—Christian Nestell Bovee

I am accustomed to sleep, and in my dreams to imagine the same things that lunatics imagine when awake.
—Rene Descartes (French Philosopher, Mathematician)

No one’s a leader if there are no followers.
—Malcolm Forbes (American Publisher)

Positive anything is better than negative nothing.
—Elbert Hubbard (American Writer)

Time is a fluid condition which has no existence except in the momentary avatars of individual people.
—William Faulkner (American Novelist)

Hope is the most beneficial of all the affections, and doth much to the prolongation of life, if it be not too often frustrated; but entertaineth the fancy with an expectation of good.
—Francis Bacon (English Philosopher)

Surmounting difficulty is the crucible that forms character.
—Tony Robbins (American Actor Author)

Your expectations opens or closes the doors of your supply, If you expect grand things, and work honestly for them, they will come to you, your supply will correspond with your expectation.
—Orison Swett Marden (American New Thought Writer)

How to Make Tough Choices // Book Summary of Suzy Welch’s 10-10-10 Rule

November 13, 2015 By Nagesh Belludi 1 Comment

In “10-10-10”, Suzy Welch offers a simple, straightforward thought process for decision-making.

The fundamental premise of Welch’s “10-10-10 Rule” is that our decisions define us. Each of our choices has consequences, both now and in the future.

Welch advocates making decisions thoughtfully by considering the potential positive and negative consequences in the immediate present, the near term, and the distant future: or in 10 minutes, 10 months, and 10 years.

… there is nothing literal about each ten in 10-10-10. The first 10 basically stands for “right now” as in, one minute, one hour, or one week. The second 10 represents that point in the foreseeable future when the initial reaction to your decision has passed but its consequences continue to play out in ways you can reasonably predict. And the third 10 stands for a time in a future that is so far off that its particulars are entirely vague. So, really, 10-10-10 could just as well be referring to nine days, fifteen months, and twenty years, or two hours, six months, and eight years. The name of the process is just a totem meant to directionally suggest time frames along the lines of: in the heat of the moment, somewhat later, and when all is said and done.

Welch reiterates that decision-making should involve a clear understanding of all the attributes and the long-term implications of your dilemma, crisis, problem, or question.

10-10-10 does have a way of galvanizing people into forward-thinking action and out of a fixation on the present. … The third 10 in 10-10-10 has a powerful way of mitigating that tendency. It helps us decide whether (or not) it’s worth it to endure short-term flame-outs in the service of our larger, more deeply held goals in life.

The bulk of the book offers trite, protracted, and tiresome examples of people using 10-10-10 to make decisions related to friendships, dating, marriage, children, work, and career and life planning.

Welch explains that the perspective that accompanies considering our decisions’ immediate and long-term consequences can be very helpful.

“By having us methodically sort through our options in various time frames, the process … forces us to dissect and analyze what we’re deciding and why, and it pushes us to empathize with who we might become.”
“The process invariably led me to faster, cleaner, and sounder decisions.”
“The process also gave me a way to explain myself to all the relevant “constituents”—my kids or parents or boss with clarity and confidence.”

Recommendation: Skim. If you must, read the first two chapters for a long-form description of what I’ve summarized. You’ll find little of value in the rest of the chapters. Alternatively, read The Oprah Magazine article in which Welch first introduced her 10-10-10 idea.

Postscript: In 2002, Suzy Welch was launched into spotlight after getting fired as an editor of the Harvard Business Review following a scandalous affair with former General Electric CEO Jack Welch, who was still married to his second wife. Subsequently, Jack’s enraged wife revealed embarrassing details of his post-retirement compensation from General Electric, claimed a significant share of his wealth, and divorced him. Suzy and Jack got married in 2004 and have since authored two best-selling books, “Winning” and “The Real-Life MBA”.

Lessons from Sam Walton: Cost and Price as a Competitive Advantage

November 10, 2015 By Nagesh Belludi Leave a Comment

I recently finished reading “Made in America”, the bestseller autobiography of Sam Walton (1918–1992.) The book is very educational, insightful, and stimulating.

Walton, the iconic founder of Walmart and Sam’s Club, was arguably the most successful entrepreneur of his generation. From 1985 until his death, he was the richest man in the world. On the 2015 list of the world’s richest individuals, his descendants ranked at #8, #9, #11, and #12.

Despite his immense fortune, Walton lived a humble life right up until his death. He as an enthusiastic outdoorsman and lived in a modest home in Bentonville, Arkansas, for 33 years. On quail hunting trips, he slept in smelly, old beat-up trailers and ate peanut butter sandwiches for breakfast, lunch, and dinner. He even drove a red 1985 Ford pickup and famously said, “What am I supposed to haul my dogs around in, a Rolls-Royce?”

Sam Walton's Red 1985 Ford Pickup Truck

Cost and Price Control

One of the book’s key takeaways is to “control your expenses better than your competition.” Walton says that this focus on cost-efficiency contributed more to Walmart’s enormous success than did any other aspect of his business model:

This is where you can always find the competitive advantage. For twenty-five years running—long before Wal-Mart was known as the nation’s largest retailer—we’ve ranked No. 1 in our industry for the lowest ratio of expenses to sales. You can make a lot of different mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient.

A Child of the Great Depression Takes to Retail

Walton was a child of the Great Depression. The poverty he experienced while growing up in a rural Missouri farming community taught him the value of money, hard work, and perseverance.

Walton learned the value of a dollar early from his parents, who financially struggled to raise their family. The two squabbled constantly, except on one topic. “One thing my mom and dad shared completely was their approach to money: they just didn’t spend it.”

Walton was just plain cheap. His devotion to bargain became Walmart’s underpinning. He lived by a simple formula: pile it high, sell it cheap. “Say I bought an item for 80 cents. I found that by pricing it at $1.00, I could sell three times more of it than by pricing it at $1.20.” He refused to increase profit margins at the expense of price: “I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough.”

The Lasting Impact of Sam Walton

In 1962, Walton decided that the future of retailing lay in discounting. He studied his competitors and borrowed liberally. His strategy was to buy low, sell at a discount, and make up for low margins by moving vast amounts of inventory. Over the decades, Walmart has relentlessly squeezed as much value as possible from its supply chain and passed those savings on to consumers.

Walton’s passion to serve as the “agent” for consumers has changed retailing forever. It’s hard not to overestimate Walmart’s influence on local communities and economics. Walmart’s obsessive focus on low prices changed the way Americans shop. Its bargaining power, superlative size, and logistical efficiency not only dampened inflation, but also brought about productivity gains throughout retailing and manufacturing. Its dominance has attracted backlash from labor unions, anti-sweatshop campaigners, and anti-sprawl activists. Critics also blamed Walmart for contributing to the movement toward overseas production jobs, and for destroying small-town merchants.

However, Walmart’s business model has struggled overseas, especially with profitability in countries where it operates three fourths of its international stores.

Sam Walton’s Influence on Entrepreneurs

Walton inspired legions of other entrepreneurs who thrive on managing costs and prices to gain competitive advantage. Prominently,

Dell’s Michael Dell kept costs low by using direct sales as his primary sales channel and orchestrating Dell’s supply chain with that of its suppliers.
Ryanair’s Michael O’Leary used absurdly low fares to generate demand from fare-conscious travelers who would have otherwise used alternative means of transportation or would have not traveled at all. O’Leary’s operating costs (aircraft, equipment, personnel, customer service, airport access, and handling) are one of the lowest in the airline industry.
Amazon’s Jeff Bezos used innovative sales-discounting methods and a strong emphasis on customer service to grab market share from traditional retailers. Without the burden of operating physical stores, Amazon’s efficiency has played a key role in the structural shift away from brick-and-mortar retail.

The “wheel of retailing” theory in corporate strategy posits that a lower-cost innovator eventually undercuts every dominant merchant. To combat the risk of cost-leadership from Amazon and other online retailers, Walmart has made major investments in e-commerce, even at the risk of cannibalizing its in-store sales.

Inspirational Quotations #605

November 8, 2015 By Nagesh Belludi Leave a Comment

We know now that the soul is the body, and the body the soul. They tell us they are different because they want to persuade us that we can keep our souls if we let them make slaves of our bodies.
—George Bernard Shaw (Irish Playwright)

In putting off what one has to do, one runs the risk of never being able to do it.
—Charles Baudelaire (French Poet)

There is nobody so irritating as somebody with less intelligence and more sense than we have.
—Don Herold (American Humorist)

Freedom is man’s capacity to take a hand in his own development. It is our capacity to mold ourselves.
—Rollo May (American Philosopher)

A man goes to knowledge as he goes to war: wide-awake, with fear, with respect, and with absolute assurance. Going to knowledge or going to war in any other manner is a mistake, and whoever makes it might never live to regret it.
—Carlos Castaneda (Peruvian-born American Anthropologist)

No radiant pearl, which crested fortune wears, no gem, that twinkling hangs from beauty’s ears; not the bright stars, which night’s blue arch adorn; nor rising sun, that gilds the vernal morn; shine with such lustre as the tear that flows down virtue’s manly cheek for others’ woes.
—Charles Darwin (British Naturalist)

There is no witness so terrible and no accuser so powerful as conscience which dwells within us.
—Sophocles (Ancient Greek Dramatist)

Literature could be said to be a sort of disciplined technique for arousing certain emotions.
—Iris Murdoch (English Novelist)

Let the great world spin for ever down the ringing grooves of change.
—Alfred, Lord Tennyson (British Poet)

Archives for November 2015

Wondering what to read next?

Making Fortunate Discoveries Accidentally

Johnson & Johnson Got into the Baby Powder Business by Accident

J&J Got into the Sanitary Protection Products Business Too by Accident

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Wondering what to read next?

The Case of the $429 Breadmaker

The Case of the $69 Hot Dog and the $1000 Chocolate Sundae

Idea for Impact: Be Sensitive of Anchoring Bias

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Wondering what to read next?

Cost and Price Control

A Child of the Great Depression Takes to Retail

The Lasting Impact of Sam Walton

Sam Walton’s Influence on Entrepreneurs

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