Whole Foods and Bad Analysts

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As is par for the course in this up-up-and-away market, Whole Foods appears to be feeling the singeing of activist investors looking for start-up like capital gains rather than dividends from an adult business.

The analysts have chimed in and the plan? Cut costs, and lower prices. Oh, and reduce the differentiators that’s made Whole Foods the sort of store we think of it as being.

The strategy prescribed by analysts sounds curiously similar to the sorts of strategy that’s been continuously not working for department stores, as evidenced in another Bloomberg article – where it’s obviously not working in spectacular fashion.

The store was never a price-competitive one. It never descended into the discount mud with Kroger or Safeway. Its draw was completely different. It is a destination store for a targeted audience.

If it’s losing shoppers it’s not because of the price (if price is the issue, they’d not have shoppers to begin with), it’s because the novelty of the store has worn a bit. The typical Whole Foods shopper isn’t that concerned about price, and they’re certainly not concerned enough to make the switch because the local grocery chain is having a sale. The switching is probably happening because the novelty of the store has aged to the point where the excitement to go has been bested by the convenience of a closer conventional grocery store.

What are the unique aspects of Whole Foods that attracted people to gladly pay more than other stores? Those aspects are many. For a start, it’s the pageantry of luxury where its shoppers can be seen affording to shop for artisanal local cheese and pay the organic tax. It’s because the store is also a very interesting restaurant offering many items that are new, exotic and perhaps even refined. It’s because the store carries local items like micro-brews and a far better wine selection than Yellow Tail or Fetzer (sorry Yellow Tail and Fetzer, but you know what I mean.)

Basically Whole Foods is the grocery store equivalent of buying a Tesla. The analysts’ rational, price conscious shopper probably wouldn’t buy a Tesla, they’d buy a Corolla (sorry Toyota, but you know what I mean) and drive it to Aldi.

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To wit, a price conscious shopper at Whole Foods

Dialing these things back doesn’t increase profits, it removes differentiation. Ask Macy’s about how well that worked out. 

So what is Whole Foods to do? It should stop listening to retail analysts and look at its own data. Look at how shoppers move through the store. Find the differentiators that aren’t denominated in dollars – the answers aren’t there.

The stores became magnets for foodies and affluent customers who were more likely to buy kale than iceberg lettuce. “

The real strategy is to create again an aspirational destination for shoppers. To double down on the perception of exclusivity in the event of shopping is key. Create reasons other than the necessity of buying eggs and bacon to come to the store, and more importantly, stay at the store longer.  Raise prices.

Think this is a preposterous idea? Well, let’s go back to Economics class and visit what’s called the Veblen good. Below is the graph for such a product.

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Yes, this graph is obviously for SaaS app pricing, but I like execution and text. Besides the economic concept still holds true whether for an app or a Ferrari.

Looks quite different than the regular supply and demand curve, right? Well when we leave the rational world and look at how real people behave, we get the Veblen curve where when something is priced high enough it’s perceived as higher quality and thus in greater demand.

So while analysts may be right about lowering prices to be more competitive for companies like Aldi and Safeway, they’d better reconsider what sort of shopper Whole Foods has because they operate far to the north of the Veblen curve vertex.

 

Looking at Complexity and Strategy

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Every once in awhile, a post comes along that is exceptional in its depth and its message. The Strategy and Complexity article by Terry Crowley is one of those for me and I’m excited to do my part to share it with the rest of the world.

Across the article, the author goes on a journey explaining software development programs that span an already exceptional career working on a number of high visibility projects. While I’m not going to do the injustice of paraphrasing the post here, I’d really like to highlight it for its indirect lessons in product management, the product life-cycle and the strategic arguments that I’m sure a lot of product managers have had – even ones outside the software development world.

The aspect I’m most intrigued by is how the post fleshes out the theories elucidated in The Innovator’s Dilemma. While I’m sure most are aware of the mechanisms in the book that lead to market leaders being usurped by upstarts, Crowley’s post floats a rather correlative trajectory in the notion that product complexity is one of the more potent causes for the increasingly slow movements of market leaders in the software industry. By deduction, the lack of complexity in products becomes the grease that slides new entrants past the established.

While The Innovator’s Dilemma points to an all-consuming capital and institutional investment in one particular technology or process that ends up handcuffing the firm when it becomes time to pivot, Crowley seems to indicate that this sort of ‘handcuffing’ in the software world manifests itself in the scale and structure of the code base. Over time, seems these code bases are just as difficult to change as a production facility or complex supply chains. The lack of complexity is exactly how simple things have that agility to make inroads against giants.

Please give this a read, it’s long but worth it. There’s also a lot of other gems in the article mine, as well. Personally, I find it quite satisfying to change out the specifics of software design and substitute the verbiage from other industries. I’m sure it’ll be enlightening for electronic controller market, yogurt manufacturers or other industries beyond software.

Where Humans will work

The HBR article, How to Win with Automation, got me thinking a bit. While the title of the article had me expecting something different than what was presented in the writing itself, it does present a glimmer of what jobs would be like in the future.

The author, Greg Satell, may be onto something about the evolution of the worker in the face of all  the developing technologies we see, like artificial intelligence, big data science and the internet of things (there, I said them – this is now a hip, cool business blogpost, right?) The article boils down to Satell positing that the human worker going forward will be working in the role of social interaction. Certainly a fair point, but I’d like to present an alternate path for the worker of the future.

It’s true that social interaction is important for business, especially at the consumer level, but increasingly these tasks are again being muscled into by things like artificial intelligence. Watson  can talk to you, and interactive bots that are less erudite can fill a lot of the customer service gaps left over. Couple this with the streamlining of business processes to prevent customer drop off, and actually putting solid UX thought behind user interfaces & interactions for tasks like applying for loans or even being an arbiter of entertainment taste, it makes it easy to predict that the vast majority of what we see as social interactions today be filled by robots in the not too distant future. Chances are, they won’t be cute little Wall-E machines but instances on servers somewhere and doing such a good job we won’t even be aware they’re actually software.

What, then, does that leave us regular humans to do? The same things we did when machines first invaded during the industrial revolution: be ready to react to the events that machines cannot.

A good example of this are commercial pilots. Today’s pilots may perform the take offs and landings by hand, but level flight to their destination is being taken over by machines. Today these pilots program the flight path, line up the plane for takeoff and launch the plane manually. Then, once the plane is safely at cruising altitude, the pilot engages the guidance system to take it to its destination. What does that leave pilots to do? A lot of things. The biggest task is to be ready to take action in the situations where significant deviation from the process occurs to the point where machine intelligence cannot cope.

It’s much the same for managing industrial robotics. Sure, the machines can do the bulk of the work, leaving operators to seemingly twiddle their thumbs and wait for replacement, but the primary goal is to be there when things go wrong. To reach in and fix the feed errors when the robot stalls or hit the stop button when the tool bit breaks.

Self driving cars have the most advanced AI operating them and benefit of a tremendous amount of sensors. They are ready to operate in case of a pedestrian or not and traffic or not, but what if there’s an event beyond the scope of the programming?

All programming is finite and the march of technology so fast that all conditions certainly cannot be accounted for. This gap is the niche that humans will work in – of course this gap will narrow day-by-day as the automation hones itself over time. For now, this will be what people will be there for: to make decisions and take actions after a significant amount of sigmas are crossed.

“Pre-Recession Levels” – It’s All in the Definition

There’s been a lot of sentiment that’s pointing to an upcoming recession. The pundits count the rather sharp down ticks in a number of markets as proof. There’s a lot that can be pointed to as the impetus for these movements. China’s over-production is one, the under performance of the Chinese market could be another. There’s the explosion of oil on the market that’s either helping or hurting. There is too much easy credit to be had in the US or too little easy credit available in the US. The Middle East is blowing up and then there’s always what whatever is going on (or not going on) in Europe. Playing games of permutations and combinations with these can get you any culprit you’d like.

My thinking is that all of these recession problems are not from whatever sort of immediate geo/financial/political issue we’re seeing currently but it’s more from simply how one uses the term “…pre-recession levels”.

For example, if you use the term as meaning “…pre-2007 levels” your graph of the global price of industrial metals from the St. Louis Fed looks like this:

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But if you were concerned instead with not just the last 10 years but the last 20 years, your graph would look like this:

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The difference from considering ten years to 20 or more years makes a big difference in how things look, huh?

What’s the problem with using this term as meaning from 2005-ish on? The problem is for nearly everyone using it, the graph looks like a typical recession/correction graph and gives perhaps false hope that the bubble of 2003-7 could be attainable again, and quickly at that. If one has a look at many of the easily available indicators including this minerals index, they show a similar rather swift uptick starting around 2003 to a level that’s at least twice the amount of the last ten years. I’m no economist, but I’m thinking the speed at which that jump took place and the distance it covered would indicate that the period between 2005 and 2007 – and by extension, the first part of 2015 – would be an unsustainable high, but certainly not a new normal.

If this is true (and only time will tell) then what we’re probably going to see is a return to the relative band of production and pricing seen prior to 2003. That would make this drop not a recession, but a correction to the band that things were moving in prior to 2003. We would return to not a ‘new normal’ but after the excess is driven out of the markets, we would fall back to the old normal that we had been in all the way back to the disco era.

The culprits for this jump section are probably the coming online of China as an industrial power and ridiculous credit availability in the US. One could be argued as a sort of false demand as it was created mostly by the Chinese government synthetically stimulating the market and more importantly, convincing the rest of the world into believing that this focus of stimulation would go on forever (a new normal). China doesn’t need to continue building that area of their economy and therefore we have reached the end of “forever”.

If things must have to return to pre-2003 levels. The world will have to right-size not just have to wait out a recession.

Why Apple May be in a little bit of trouble

I’m going to start off by saying that below is essentially a theorem – note not ‘theory’ – meaning it’s not proven beyond my own qualitative observations, but I’m thinking that Apple management may be struggling under the new regime. It’s also important to note the sort of trouble isn’t the sort that shows exponential stock drops any time soon. The aspects I’m thinking of could be seen in the latest new products, especially the ones released after Steve passed on.

Sure, there’s seemingly no issues with the march of improvements to the iPad, iPhone and laptops. Afterall, each are in a seemingly mature market, thus incremental improvements are par for the course.. In my mind, the trouble is with the new devices like the Watch and Apple TV. All reports point to the devices being of good quality and adequate performance in the face of their peers. But that’s the rub.

Apple products, as we have become accustomed to, are relied upon to somehow be a step above its competitors. Most claim the way the firm achieves this is usually through their ‘design’. Being a bit more specific, the difference comes from a more considered understanding of how these products will fit into someone’s life where they make experiences better – not by adding complexity but doing the opposite – distilling the functionality to what is only needed. Then Apple hones that experience until there’s no glitches or rough edges. For instance, the iPod took out all the complexity of MP3 players and made it gloriously simple to use. Instead of operating something that seemed like a PDA (or Newton) with hoards of setting and menus, it was as simple as using a Walkman again. The phone did the same thing. It took the vast capabilities of a smart phone and distilled it until Apple delivered a package for massive complexity that made it as easy as a swipe to operate.

Looking at the Watch or the new TV, this considered simplification doesn’t seem to be present. True, they have exterior styling that makes them attractive, but what of the utility? And it’s certain they’ll both sell extraordinarily well. The real question is will these products somehow transform each market they are in? Probably not, no.

Unlike the iPhone that had an experience that was head and shoulders above the competition, these items struggle to find any sort of function or feature that’s truly places them at the head of the pack. Apple doesn’t seem to be helping, either. Where with the iPod and iPhone, Apple saw the paradigm shift and built features around that. The company seems to be heaping on functionality (eerily like Samsung) on these items in hopes someone will see into them the paradigm shift the company can’t seem to find..

Framed positively or negatively, we can all agree that Steve was an idealistic and stubborn force to be reckoned with . Nobody (either from the inside or the outside) was going to pressure him to do anything. He could stand up to the demands and the shouting for new products and take whatever time was necessary to make sure they got it right. Even more so, a government-grade shroud of stealth cloaked products until they are perfectly ready.

The amazing lack of this perfection-seeking can be easily seen by comparing the launch of the Watch versus the iPad. With the Apple tablet, there were no advanced prototypes to be ogled and there wasn’t any official specifications released beforehand, either. Instead, it was just rumored to be and after Steve went on stage, it was essentially available to the public. Conversely, there were press conferences, sneak peaks, hints and and partial launches of the Watch where viewers were held to a safe distance. There was talk of ‘finalizing’ and eventually 6 months or so after the ‘launch’ you could finally start reading actual performance reviews and maybe get one of the few trickled into stores. Within about a  year of the Watch being out, it’s still somehow news when Best Buy finally started carrying them.

How could this happen? My thinking is that both of these new items were brought out not because they were finally ready with a honed, distinct market advantage for each, but management may have finally cracked under the pressure of shareholders and pundits screaming for Apple to match strides with their competition, as if they knew better than Apple to judge what it needed to launch. Or perhaps even more scary is this may be  the manifestation of a firm that’s now just trying to keep up with the Jones’ rather than leading the neighborhood. If either are true then Apple may just have that bit of a problem.

The Future of Modern

What is Modern Design? How do you recognize it? Most people would say it’s a style that’s clean of detail and somehow functionally formed. Maybe some would say expensive, or cold.

It wasn’t designed to be that way. The simplified, pure shapes must have looked like aliens had left them behind when they came out, and the left-field material selections and manufacturing processes didn’t help either. At the time, most people were deciding to buy either that ‘new’ Stickley stuff or go William Morris Bungalow. Comparatively, items by LeCorbusier and Gropious were outrageously Metropolis-futuristic.

Curiously, modern furniture wasn’t designed to elicit this response – its core principles were much more Utopian. If designers could somehow harness this mass-production phenomenon, perhaps they could elevate the underprivileged so as to live a life just as others do. If they could only reduce costs, the designers felt they could make these conveniences and necessities that much more approachable for everyone. Of course, this vision would come at a cost. They’d have to peel out a lot of the extra details, as those processes added cost. They’d also have to source newer, cheaper materials. Perhaps modern companies like these who pump out thousands of bicycles could also pump out furniture just as fast if it were made with the same tube? Prices would then surely be approachable.

Flashing forward through the ages, the concept of Modern, and its aim of elevating the masses was usurped by the fact that only the rich, it seemed, adopted the new looks. They wanted to be ‘modern’ and were the only ones willing to pay for it. Besides, the more cost-effective designs just didn’t resonate with the populace. Modern was re-labeled as the style of the rich. Sadly, only after IKEA made it big did Modern fulfill its pledged goal.

The aftermath is the current definition of Modern. Products with hefty, nearly unapproachable price tags peddled by the designer elite essentially for the elite style connoisseur. It means ‘clean’, ‘detail free’, form-following-function and more pointedly, a wealth of good taste. But just as technology paved the way for this thinking, technology once again is changing our perceptions.

The last decade has ushered in the direct connection between machines that make things and the drafting/modeling programs that design them. No more are we handcuffed by a human element in one aspect or another. Things can be designed and handed right off to the machines that make them – no human hands involved.

Suddenly, the very ornamentation that we loved and that we had to give up with Modernism is far more easy and cost effective to have than it ever was. It’s also more customizable than we could possibly imagine. The end effect is that designers and artisans no longer have to hone economy of line and shape. In fact, the programs and machines can make anything of nearly any possible detail.

As humans, we’ve essentially solved what’s the perfect dimensions for a chair. We’ve solved the structural requirements for a bookshelf and now we can ask a computer to solve both for us. The even more amazing thing is that whatever we draw, we can have made, and quickly. A talented and skilled craftsman does not have to be found. In fact, we don’t even have to actually draw things, we can have a computer do that for us, as well.

All this will come together to once again recast the definition of Modern. The modern that the next several decades will know is one that means extreme ornamentation. It will mean extreme complexity, mass personalization. It will also mean that if one has simple, form following function items, they must certainly not be well-off.

Branching Out and Digging Deep in Everyday Tech Stuff

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If there are actually return readers to this blog, they will probably see that a lot of the stuff on here is focused towards technology and where it may be going. Most of it is pretty top-level stuff.

The hard part about all this tech is that they work really well in a vacuum and sometimes they work really well with items from the same maker and the same time, but we all usually don’t have the opportunity to buy the whole product line at once. This puts us in a bit of a pickle as it certainly doesn’t make it easy to get all the benefit out of everything we buy. Most times, the manufacturers aren’t on our sides so there’s really not a lot of help out there. Thankfully due to the ingeniousness of the third-party manufacturers and relatively open standards, there are a lot of helper items that go a long way to connect the dots.

In light of that, I’ve decided to put together another sort of blog that will talk to more of the “dirty hands” portion of the march of technology. Sure, there’s a lot of places out there talking about the next new thing in mobile devices, laptops and such. I’m not going to throw out more of the same. Instead, I’m going to focus on looking at all the items and techniques that link together our devices and really enhances our total experience with them.

I think I’m going to focus on the more standardized methods of connection, like USB, HDMI, Bluetooth and Wifi. There seems to be a lot of green shoots in the adapter industry around these methods and there looks to be a lot of trick stuff that promises interesting results. Of course there may be a bit more esoteric posts as well. Perhaps in the future, there may also be some posts about software interactivity, but I’m not sure. To make things easier, I’m also going to post where I got these things from and focus on getting everything from Amazon – as there’s nothing worse than reading about something and then not being able to find it.

The new blog is EclecticTechConnector.com and I think the name really goes a long way at describing what it’s all about. That focus is on all the little connectors and helper devices that makes it easy for all our toys to work together or just work better. I’m going to sort of document my journey through all these helper devices and share what I’ve learned along the way. Hopefully, it will help all you out there as well.

Oh, and if you have some ideas on what to try next, go ahead and email me, or leave them in the comments!

When Microsoft Connects Windows 8 to Xbox, Will that Force Apple to Buy Sony?

From what the bloggers and the critics seem to be saying, this year has a good chance for being the year Microsoft makes good in the mobile arena. The launch of the new Nokia Lumina phone, featuring Windows 8 complete with the vaunted Metro interface, is getting a lot of good press. Even if the launch goes well, while that will be great news for Microsoft, it might be scary news for a lot of others, because the next thing MS is going to do will be to seemlessly connect Windows mobile devices with their Xbox platform.

See, the next war in consumer electronics is not about one product, like phones, media devices or readers, it’s all about platform and lock-in. Apple had a nice bit of lock-in with iTunes and iPods. If people wanted to buy from the great selection on iTunes, they almost had to do so only with an Apple product. Today, the scenery has changed and the lock-in platform has gotten larger. There are mow three peices to the platform lock-in puzzle: online delivery of media, mobile devices and home entertainment. Right now there are a few players who own perhaps 1.5 of the three pieces. The first to get all three will be the winner, of course. Perhaps if you can get two and just a taste of the third, that might just be good enough, too.

Right now, microsoft has the home entertainment portion locked down. The Xbox platform is manuvering itself as the first and last bit of electronics one needs for the living room. It streams movies and TV via Hulu and Netflix, browses the web and I hear it even plays video games. While Microsoft has toyed with media players and media delivery, the partnership with Nokia my prove to be where the real key to the second peice will come from. Creating a seemless link and interoperabilty between them will be an irresistable sell point for a lot of people. Strong enough to ditch the iPhone? You bet.

If this happens, where does it leave Apple? In the next year, things will get a bit more difficult for them, to be sure. The notion of owning music is waning in comparison to renting everything you ever wanted and more from services like Spotify, has diminish the hold iTunes had not to mention other services muscling in on the video aspects. iPhone, while still being the superior device, will continue to see its share eaten away by the diasporia of Android devices nipping at its technological heels and more importantly, undercutting it’s pricing. Finally, Apple’s home enterainment play, Mac TV, still seems to be a product looking for a market.

The upside for Apple is that they’re sitting on an abusrd amount of cash. They could easily buy themselves out of it. But what to buy?

My speculation is that the play would be into the games market. The companies competing within are most ripe for a takeover, compared to other pieces of the puzzle. The choices then would be either Nintendo or Sony. While Nintendo with their Wii platform would be a good play, I think they’d get a lot more from Sony. I would bet that Mr. Cook is far more shrewd of a businessman than an ‘innovator’ and could easily see that there are actually two prizes won with the purchase of Sony. There’s the obvious: Playstation.

The less obvious is the huge inroads into the television market.  Apple has been toying and teasing that market for an awefully long time. With the experience and the equity Sony can bring to the table, they could leverage themselves into home entertainment quite easily and locking-in the Apple experience in three areas. Would this mean the Sony brand would go away? I’m not sure, but it should be interesting to watch.

Nick R 61 – Carte Blanche Netlabel MP3 release

This release by Nick R 61 is like a little story, well it seems as so for me. A little adventure that is told though a ballad-like interpretation of the hardcore genre. The slower overall tempo makes for the opportunity to really savor the audio compositing, which is really tasty. It’s a lot harder to go slow.

Throughout the release there are sprinkled little skits or intros that set the feeling of a movie-like scenario. Some of these little intros are conversations in Russian. My Russian is terrible so I can’t make out what most of the words are but it all feels like something of a slightly romantic drama. Or, at least that’s what I am envisioning – I could be just projecting, so your mileage may vary!

The best part of it all are the honest music tracks in between. They’ve got a great hardcore feel to them, although much slower in tempo than what we all think of regarding the genre. Nick R  61 reaches out to a lot of differing references and musical styles to compile the album but to great effect. The Flint Glass remix hits a seriously nice groove. For me, though, tracks like Emigrant are where it’s at. Some really good, gritty tracks on top of purposeful, driving beats. This release has a few good ones on it – certainly enough cause to go download your own copy!

Download it here!

The Fusion Netlabel

Design, Individuality and Manufacturing

It seems really interesting to me the kind of macro-trends in styling that happen over time and how style really boils down to functions of manufacturing capabilities. I guess what I am getting at is that it seems the looks of things are really being driven by process more than anything else. This has brought on a really interesting arc.

The story seems to start out at the time when most items were really hand crafted. In this instance, I mean really made-by-hand manufacturing  – not what kind of passes as ‘hand-crafted’ nowadays. There were actually people making each one of whatever with essentially hand tools or something slightly larger. What is great about hand-made items is that it lends very easily to customization and embellishment. If you wanted something to fit only you or made in just a certain way, you could get it – within the capabilities of the craftsmen you’d have available.

When the industrial revolution finally worked its way through most of the industries, customization was wiped out but on balance, we all received far better products in trade. While we gained quality and interchangeable parts, we also lost quite a bit of artistry and personalization as it cost more to increase the complexity. Of course, there were other factors, we had trends like streamlining of the Art Deco years and so forth to add to the mix.

Luckily, modernism kind of took over, and fomented this state of styling cleanliness. I think manufacturers and designers also figured out that ‘modern’ could also be cost-effective (rather than modern being made *to be* cost-effective), so things moved toward cheap while being swaddled in ‘modern’ for quite some time.

Angularity was the flavor of the time. Angles are easier to draw and machine than curves  – especially compound ones. While everything was produced by machines, both the drawings and the tooling was still made by hand. It was hard and time-consuming to make complex shapes. Things got square. Products became a function of stacking and bracketing components together. Artistry and personality took a back seat to manufacturing efficiency.

Then, we discovered the wonder of computers. While they, as a product, never really felt the change, the computer allowed us to design things and control machines to make far more complex shapes. CAD programs and CNC made it possible to create the tooling for sensuous curves and more ergonomic shapes. The system allowed us to remove curve transitions, hide parting lines and generally work toward nearly seamless product orbs.

Well, what happens now? It seems that these very same tools are helping us move toward customization and intricacy once again – and away from our one-size-fits-all manufacturing world. Only this time, they will also give us the speed and capability to customize and detail at nearly the speed of mass production. Any shape we can think of (and even many that we can’t, like these great columns by Michael Hansmeyer, below) can be made easily in a one-off or short run scenario now without the all of the need for expensive tradespeople or the need for large factories.

Granted this little foray I just walked you through is certainly watered down, I think that these new capabilities will bring back the want for intricacy and detail that was strained out by large-scale manufacturing. Many call this mass customization but I think it will lead far past where this term ends. I think it could usher in a time of vast artistry where the clean modern world will seem dull in comparison to the individuality that will take its place.