My family is dealing with a lot of bittersweet right now.  It turns out, bittersweet is underrated.

Sammy is changing schools for 5^th grade.  We loved Rodeph, it was nurturing, well structured and rigorous – the educational foundation was excellent.  Sammy has great friends there and we love the community.  Unfortunately, the school only goes to 8^th grade, so we needed to make the switch sometime.  We applied to what has long been our first choice for Sammy – an amazing all-boys school in our neighborhood.  We were thrilled when he was admitted to Collegiate.  The school gives Sammy the chance to grow, expand his independence, and explore academics, arts and athletics in greater depth than Rodeph could offer.  We loved Rodeph and owe the faculty, staff and families a true debt of gratitude.  In this case, bittersweet feels great.  We had an amazing experience, and I would not change anything about the years we spent there, at the same time we are excited for the next chapter.

I am facing the same emotion with my career.  I have left NCI and am joining Boston Consulting Group.  Again, bittersweet.  NCI was a great place for me.  I had a chance to work with people I trust and enjoy.  Dan McCarthy, the CEO at NCI, has been a mentor to me since we first worked together in 1998.  Dan and I have been great partners at both Primedia and now at NCI.  I have tremendous respect for him, his loyalty to NCI, his vision and his leadership.  Gerry Parker, the CFO, is a straight-shooter with an amazing grasp of the macro and the micro (Gerry seems to remember every bill ever paid by NCI).  Gerry has great judgment, an extremely even keel and the ability to guide the organization in growth and in decline.  I will sincerely miss working with Dan and Gerry.

At NCI, we had the opportunity to be resourceful, aggressive, move fast and do things most of our competitors were unwilling to try.  I had the opportunity to work with a team who had a bias for pace and execution that continues to amaze me – in fact part of the bittersweet nature of the departure is leaving the Interactive team and the By Design Publishing team in such capable hands.  I know that TJ, Scott, Belinda and Teresa are up to the task and have developed great decision making frameworks to drive the business in the right directions.

In moving to BCG, I had significant time for introspection.  I know what I excell at, and I know what I love to do – I love solving tough problems, I love analyzing complex situations, I love working with smart teams, I love finding the creative solution.  I had worked with the BCG guys when I was at Cendant and was impressed by the team, their approach and their work.  I am truly excited for the change and thrilled to be joining the BCG NY Office.  While the change is bittersweet, I have no regrets about NCI and nothing but enthusiasm for the next chapter!

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I have been re-reading The Curse of the Mogul.  It is a “must read” for media professionals.  One of the footnotes references an article that I found really interesting; All Strategy is Local by Bruce Greenwald and Judd Kahn from HBR in September of 2005.

The premise of both the book and the article is the same; strategy = finding and maintaining competitive advantage and the lack of competitive advantage requires achieving superior efficiency to retain profitability.  The HBR article goes on to show how smaller, better defined markets are easier places to find competitive advantage.  A theme that I have seen over and over again in my career.

One of the first points that Greenwald makes is that barriers to entry are easier to maintain in tightly defined markets.  This was certainly true at NCI, where great performance both for NCI and for our advertisers was almost always a function of local market competition.  A great example is the magazine, “At Home in Arkansas”.  It is a terrific producer of leads and client satisfaction for our advertisers.  It gets great reader ratings as it truly speaks to the local market and local design vernacular.  It also generates outstanding profit.  Being a tightly defined market, there can not be outsized expectations for growth, but so long as the team keeps barriers to entry high by maintaining a high quality product with exceptional advertiser returns, it can sustain that profit for the foreseeable future.

Another example comes from the Apartment Finder brand.  The Apartment Finder print product exists in markets where there are anywhere from zero to three competitors.  Almost universally, fewer competitors leads to better results – again for both our advertisers as measured in cost per lead and for NCI as measured in profitability.  NCI recognized that raising price in lightly competed local markets would invite competition entry and ultimately destroy profitability for us and destroy efficiency for our customers.

The inverse can be found on the national real estate listing sites (Realtor.com, Zillow, Trulia, etc.).  As Zillow and Trulia have demonstrated, barriers to entry are relatively low.  They have both been able to gain share of visitors over a short period of time with relatively small investments (when compared to the inception to date investment from Move.com and its “high-ground” position being the only national site with all MLS data).  There is very little differentiation among the offerings, very little differentiation among the pricing strategies and every innovation is matched tit-for-tat.  In this space, I would expect efficiency to ultimately define the winner (a pseudo-regulatory advantage granted to Realtor.com did not create enough of an advantage for sustained profits).  In this case I would look at revenue and visitors per employee or per capital dollar as the key measure to identify the future profit winners.

The biggest question that remains to be battled in this space is the impact of the national web businesses on the local media markets.  I believe that the question boils down competitive advantage.  If the goal of marketing is to stand out in your well defined local market so that you can have more than your ratable share of the profits, can locally distributed, local media be more efficient in creating marketing differentiation in that well defined geography than a national media product?  It is the same question for local radio, newspapers, magazines, direct mail, local TV buys and billboards.  So, while record stores are mostly a memory (almost all music can be purchased digitally, what competitive advantage can a local retailer provide?), no one has replaced my local dry-cleaner, my local restaurant or my local doctor (yet).

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In my last post about business and technology, I described the current state of low-cost, low-risk innovations that permits our company to have a “bias to test”.  We have low hurdles to try new ideas, can test them on a portion of our audience, can explicitly measure the results of the test and deploy what works.  I answered a bit about “what works” in a prior post about metric myopia.  In this world, with low capex risk, low consumer perception risk, low client perception risk, the game becomes that of metabolism.  How quickly we can evolve our products becomes our competitive advantage.

Our push right now is to keep our innovation cycle (hypothesize, test, measure, tinker, deploy or kill) as short as possible so that we can try as many things as possible.  It is a bit Darwinian, but think of each of these tests as a mutation – it either helps, hurts or is neutral.  So long as we can quickly identify and eliminate the “bad” mutations, we will be getting forever more effective.

Some tests are simple, like “does an orange call-to-action button test better than a blue one?”  Other tests are a bit more complex; “what grade reading level for our content posts drives the most engagement?”  The key here is frequency.  It is working for us remarkably well.

It is also working for Apple.

There have only been 3 releases of the iPhone so far (and one strategically dropped prototype).  But the metabolism rate of the iPhone is incredibly rapid.  The basic functions don’t change (make a call, take a picture, locate yourself, get info from the web, post info to the web…) but the apps do.

For a consumer, investing in almost all apps (with the exception maybe of TomTom), is an almost no risk proposition.  You are paying a buck or two in order to find out if your iPhone can become of greater utility than it was two minutes ago.  I have not yet seen a report of iPhone virus apps.   If the app sucks, delete it and maybe read a couple of more reviews next time.  If the app is great, it is as if you just got a slightly better version of the phone beamed to your hand.  The product is constantly evolving, being driven forward by a volunteer work force (in Apple’s perspective), constantly innovating to make a better mousetrap.

So, what are the hallmarks of a good, fast metabolism?

• low consumer cost for each incremental change
• an environment that can immediately assess good vs. bad changes
• low business risk for each change introduced (you should be more thoughtful when “betting the business”)
• have a going in hypothesis to test (otherwise, how can you tell if it worked)
• develop a bias for facts as opposed to opinions
• be happy with failed tests – if every idea is better than what you already have, what you already have can’t be very good

The iPad corollary – just because you have a product with a fast metabolism (the iPhone), does not mean you can’t benefit from quantum changes (Apple seems to be selling a bunch of iPads).  Just remember, the risk-reward profile is vastly different and requires a different kind of innovation approach.

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