Arnold Waldstein's Blog

Some truths bear repeating and this is certainly one. A number of events over the past week inspired me to write this post.

First some context.

Discovering the value chain between customer and company is what successful business people do every day. They fill endless whiteboards, figuring out who they are, what their customers value and how to deepen this connection.

Pre the real-time web, this process was predominantly company centric. The center of the marketing bullseye was the company or product, with circles of distribution, partnerships and campaigns pushing the customer touch points out to the store or marketplace or channel.

This was a loud world of exported interrupt messages. It was difficult and expensive to manage.

The game has changed; so have the rules. The customer, empowered by the breadth of purchasing choices and the power of personal referrals, is at the center of the commercial world and the marketing bullseye. Winning, of course, is still measured the same way, but the path to get there is strikingly new and uncharted.

I’m frequently in discussions around social media and commerce and regardless of context, the crux is always connected to this power shift. Once you acknowledge that the nexus of power has jumped from the company to the customer, all the permutations and the logistical noise around social tools fall into place. Referral-based selling, community dynamics, customer support morphed into sales, and social commerce all stem back to this core shift of control and value.

Realistically, does the customer control the company and dictate pricing?

Not overtly of course but pragmatically and directionally, most certainly. With unlimited access to products though an endless array of channels, the customer has the choice to buy wherever and from whomever they want, to tell their friends to buy or not, and publish their impressions and recommendations to the world. Social nets are the amplifiers for both customer satisfaction and discontent.

If you want to build and grow your business, whether you are a start-up or a global brand, you need to pay attention and pay homage to your customer as key. You need to hand them the microphone. And you need to listen hard.

The benefits embracing this are significant when they work. The best example of doing this right from a customer centric support perspective is Apple.

One of the jokes in the blogs is that Apple makes crappy products but has the best support on the planet. I disagree but it makes a point.

I think Apple makes life changing products but their support in store, on the phone on and online is part of the product experience and unchallenged as the best. We like to buy their products, line up to buy new ones at premium prices. Stopping at the Apple store to resolve an issue and shop is part of life. Apple customers are their marketers, their sales force and their brand ambassadors.

One of the rules of marketing is that you can never stop communicating the most important facts. The realities of a customer-centric world prove this well.

A few examples.

A comment string on AVC.com about the new Gary Vaynerchuk book the other day found me in debate with Phil Sugar, a sharp marketing and business veteran who was quite vehement that companies who cared about their customers always provided a call in number with a human being to talk to.

Yes, it’s great to call the company, not so much if it’s a call center in Asia with an hour wait time and untrained employees. This is not about phones. Nor social tools to communicate. We don’t need to call the company; we need support and a system that respects the consumer pre and post sales.

You need an ecosystem of product and support that starts with a customer-centric premise. With this as the golden rule, not only do product and support exist on the same continuum, but also customer support and the customers themselves become the sales force for the company at their Apple-style best.

Phil and I were agreeing at the core but from different vantage points.

Donna White, a top tier and category-defining executive recruiter on the same comment string, reported that at a tech pitch event in Los Angeles she attended, there were a handful of startups whose disruptive strategy was by “being user/customer-centric”. Who would have thought that viewing the world as customer driven was disruptive? Proves that what you thought everyone understood simply isn’t and still new in many places.

And the next day at Media Summit 2011 in New York , media execs from Verizon, Starz and HBO on a panel argued about whether the pendulum of control in TV today was swinging toward content owners or distribution.

I asked whether the customer wasn’t in control? Whether the population growing up with webTV not cable, who never had a landline and just want to buy and watch what they want whenever they want to didn’t hold the true baton of power?

Their answers were “Yes, but…”. Big media certainly loves their fans and provides them a social playground of Twitter feeds and Facebook pages. But their model is stuck in the past and they can’t see past it. Social, for them, is a campaign, an ameliorator and a pacifier. Eventually this lack of a customer centric strategy will backfire.

The publication of Gary Vaynerchuk’s new book “The Thank You Economy” corresponds perfectly with this idea. Not only is his book a manifesto of the seismic shift—amongst other things–towards a customer-centric society, but Gary himself, his story and his business success is a living, breathing exemplar of this idea.

Business is complex. Understanding the social web is inspiring but dauntingly interconnected and overwhelming at times. And building a communications platform for your customers is non trivial.

But if you push the complexity aside, rise above the tactics and objections and start with the value chain of customer not company as key, things fall into place.

How you communicate. How you sell. How you determine pricing and support. Think customer first and you have a point of view to make decisions against .

There’s no guarantee for business success. Building community. Empowering your customer. All this is hard. Even when everything is perfect, there is luck and magic that can’t be planned for nor bought nor bet on.

But I can’t imagine any successful business starting today that doesn’t embrace this reality of a customer-centric world. Nor any successful company looking for expansion that doesn’t surface their customers themselves as the key to growth. Putting the value on what you provide to your customers and letting them speak for themselves, is no guarantee, but the best bet on the future of your company that you can make.

2010 was a great year. Not perfect nor easy, but really inspiring and productive.

These are my top takeaways from last year…in life and in business…and what I’ll carry into 2011.

1. Stretch your vision, think big…but sweat every detail. Execution is everything.

Strategy and vision are what starts the ball rolling but execution is where genius finds root and creates the new future. And it happens every single day for the life of your company.

2. Everything is iterative in business and life.

There is no perfection, no absolute, no end point. Internalizing that and still driving for perfection is a key factor to balancing working like a demon with maniacal focus but with manageable stress.

3. Inventing something new is not essential to create value and win big. Tilting the spectrum to look at basic commerce and connections in unique, social, creative and aggressive ways is.

Look hard at Gilt Groupe and Groupon. At their core, they have not created a new genre. Far from it. But with brilliant brand marketing for Gilt and executional excellence on a simple social idea for Groupon, these companies have redefined the ageless concepts of email database marketing and brand integrity.

They are both creative execution on a core idea with a personal brand twist at its best.

4. Technology is no longer a genre or a business type. Simply the plumbing for everything we do. This is especially true if you or your business have embraced the social web, which, of course, you must.

We all live at the intersection of the web and the real world. In fact, the real world ‘is’ that intersection. Successful ideas or products or companies have to empower in some way, not just provide technological plugs. Technology like social savvy are tools, not the end game in themselves.

Apple exemplified this for the world and used technology to empower new human capabilities. But every company whether you make collective check-in services for connected TV, raw juices, organic winery tours in Sicily, or artisanal salsa in Brooklyn is now in the same place…and on a level playing field. The same upside and same challenges to harness technology to create value and a community applies to all equally now.

5. Scarcity is dead as a business model. Ubiquity is the norm. Brand value is essential.

Pre the global and real-time and social web, creating scarcity was a core component of business value. Exclusiveness. Control of supply and demand. Information packaging and control. All of this is now gone as a value scale. Information and markets and access are everywhere. Omnipresence and ubiquity are the new norms.

And in this world where everything is available to everyone all the time, brand value and social connections are more key than ever before. This is the beginning of a new social marketing ecosystem that is just being defined.

6. Do what you love…which is usually what you are good at. This almost always works out. If it doesn’t, something is wrong.

And while this may have been true always, it is much moreso in an iterative social business environment where the honesty and passion of how you communicate is as important as what. You can only really excel at what you truly believe in. The rules have changed and core connections with work and yourself seem more visceral then ever.

I thank my clients for the privilege of working with them and creatively solving some unique business opportunities. We pondered pieces of each of these six ideas and made them unique to their businesses.

And a special thanks to my friends and new blog friendships from a host of online communities, especially, my daily conversation with the community at AVC.com.

Happy New Year! It’s going to be a good one.

As Naked Wines CEO Rowan Gormley puts it…”Some businesses just couldn’t exist without social media.”

Certainly Naked Wines is one of those. It’s a refreshingly disruptive idea for the online wine business, creating a community empowered value chain from the vineyard to consumer. The results are large discounts, next day convenience and a true partnership with the winemakers.

Most social commerce solutions today are global brands or e-businesses layering in a social component, usually through Facebook to add traffic to an established business model. Interesting, but a bolt-on and rarely social at their core. Naked is decidedly different.

Naked Wines DNA is social by design

Naked Wines uses social media as an intrinsic design element to create something new and unique to the needs of wine buyers. There are Facebook fans and Twitter followers aplenty, but this is not an add-on to the big social networks. It’s an open web community with a referral-based economy and customer funded investments in their own supply chain of mostly artisanal vineyards. Socialization is tied to the commerce model itself, not an extension of Facebook ‘Likes’.

What wine consumers want, and what Naked Wines seems to have tapped into, is a community that is based on personal referrals, a social relationship with the producers themselves, resulting in significant discounts and a sense of control. They’ve skirted the legacy wine distribution and ratings system hierarchy by creating their own customer-driven system.

Most online wine clubs are based on discounts and remainder sales. Naked Wines is different. It starts with the concept of community that bridges both consumer and winemaker. The community chooses the wines, invests in the winemakers and sets the discount sales price. All with a bias towards the artisanal winemaker.

It started with a decision do something completely different

Per Rowan, CEO of Naked Wines, back in 2008, a group of 12 friends left Virgin Wines in the UK to do something brand new in the wine business. They had three guiding principals which are still the keys to decision-making today:

1. Create a virtuous circle, where customers helped winemakers who in return helped the customers
2. Be “Naked”–Be completely transparent (beyond the point of comfort) to the customers and the winemakers.
3. Have the fastest cheapest delivery in the UK (£4.99 for next day)

The Naked Wines concept

The service is remarkably simple as a general concept.

Invest in independent wine makers and get preferential treatment. Commit to buy early and get better prices. Then wrap these two age-old concepts in a social community, with complete transparency and you start to get Naked’s social commerce model.

How it works

Angels are ‘investors’ and the core of the model. It’s a really simple process. They ‘invest’ only £20 a month. In exchange, they get a 33% discount off list price plus next day delivery. Angels also choose the wines that get sold—through tastings, something seen or heard about and as part of a ratings group.

Kind of like a democratic inventory control by club members and very close to a pure referral-based model. You don’t have to be an Angel to purchase from Naked, but discounts are not as steep.

Angels today invest between £600k and £800k a month. This supports the winemakers that sell wine through Naked. The funds are multipurpose–from a salary for the winemaker to purchasing grapes and barrels to covering the winery and dry goods costs. The Angel fund is the currency for the model and acts as a community bank for the entire chain of supply and demand.

Wine economics are messy and ripe for a change

Approximately 30% of the cost of a bottle is for making the wine. As much for taxes and the remaining big chunk for marketing and distribution. By pre-buying the wine before production, 25% to 65% of the cost is removed. This is where the margin for the business and the discounts or the customers comes from.

The winemaker is bankrolled to produce the wine, guaranteed a per bottle price, profitable at a lower cost and motivated to socialize with the buyers on the site to stimulate sales. At it’s best, wine is made and sold at a profit with little or no risk.

A smart twist is that the winemaker can sell the same product through traditional markets. The higher price by comparison with Naked’s price, further accentuates the value of Naked’s community model. Clever marketing at its best.

Community basics

Naked Wines website intertwines community and commerce. Social referral systems and reviews, ‘those who liked that, liked this’, access to the winemakers, and an open discussion on quality, likes and appraisals. Where else do you see a return policy that says…if you don’t like it, just return it. And if you have less than five bottles of the order left, just give it away at no charge. Wallmart this isn’t!

Marketing to date has been almost entirely “STL” or Share the Love. No cost viral loops through word-of-mouth, Facebook and Twitter.

Check out their online community. I would join for certain if I lived in the UK.

Some business metrics

Rowan shared some general numbers with me. Since launch, just less than two years they’ve recruited 100,000 new customers in the UK. They are on track to do about 1.7 million orders bringing in £9m sales in 2010. Their goal is triple in size in three years. Really impressive stats.

Many web apps would be happy to simply have 100,000 active users, not to mention paying customers in that time frame.

I really like this model. Bold. Unique. Socially powered at its core. Born out of a love of wine, a belief in the small winemaker and a leap to give the community control. A simple idea but not trivial to pull off. It’s never easy to take a big principal and make it executionally natural and easy-to-use. Naked Wines is on to something here and the economics speak for themselves.

Wrapping up

Naked’s business model becomes more efficient and more profitable as it scales. To meet their goal of tripling in size means supercharging the viral loop. Funding advertising I bet as well. And increasing the pool of vineyards and Angels multiple fold.

The challenge for Naked will be getting larger and still being community driven. Scale is the unchartered territory of all community commerce plays and no-one knows how big a community can get and still function. But they certainly have lots of room to grow.

My completely unverified crystal ball says that niche geographical communities or a franchise model with central warehouses and next day deliveries are coming in other areas and countries. There is no shortage of areas that would relish having community-driven commerce around artisanal wines.

If I’m right…and who knows…I hope that NYC is next.

I love big ideas that deliver value, disrupt the status quo and put power and choice in the hands of the consumer. And I really love the idea of ordering discounted wines from artisanal vineyards recommended by friends that show up with no fuss on my doorstep, the next day.

Social media has changed the face of how we do business…no question, and dramatically so.

At one level social media and its impact is easy to understand.

Take the age-old ideas of earned media and community dynamics…add to that the requisite poise of corporate and personal transparency and you have the outlines of the core social media building blocks. Very few rules and seemingly simple.

The bigger and more defining idea for businesses is the reversal of power…the change of center from the corporation to the consumer. This democratization of control turns traditional business models and the world on its head.

This power shift gives people like ourselves, with our blogs and Facebook Walls and Twitter feeds and a Yelp-ish world view, a global network for our thoughts and likes and dislikes. If you think that Nike or Nordstrom or Best Buy is in control…not at all. The customer is, more than ever before. And this is a key building block…maybe more so, the overriding superset of the core elements of a social web reality.

This social landscape coupled with a global marketplace puts the consumer very much at the center of their world and more in control than at any other time in history. Their opinion really matters because of the network effect and with unlimited purchasing venues to choose from, they are the alpha customer. They don’t like a company’s politics? CLICK… Find the shopping process too difficult? CLICK… The typo on the catalog page really annoys them?  CLICK…and gone.

This is transformational. One happy and connected customer can start a spiraling of praise which can hyper accelerate building a global brand. And one maligned (or maladjusted) unhappy customer can put the breaks on a multi-million dollar campaign and bring pain to a huge company.

Social media is over analyzed yet often misunderstood and reduced to a list mania of ‘do’s and don’ts’. In actuality, it is difficult to articulate its import and relationship to a business building a brand in language that is not too high in the stratosphere to become abstract nor too detailed where it becomes trivialized and often incorrect.

The power of the social tools and platforms themselves are confounding.

We all remember “The medium is the message” refrain from Marshall McLuhan. Marketers especially have confused the eras. We hear often that the answer is in the tools like blogs or Facebook pages themselves. The ‘Build it and they will come’ mantra.

Not so. These tools, powerful as they are, are the channels–vanilla envelopes demanding personality and message and personae that will spur the broader community conversations. Twitter streams. Facebook pages. Blogs. Tumbleblogs and more. Wildly disruptive tools in the right hands. But remarkably hollow and empty until the spark of a personality or a company voice is found.

We’ve all been through this experiment.

Build and launch the blog…and sit back and wonder, why no traffic? Bring in tried and true traffic aggregaters using scientific SEM techniques. Traffic comes then bounces and is gone.

Start over…find your voice. Find a personal or company point of view and post and post and post…and build credibility and reputation and traffic comes and hangs around. Add scientific methods to the traffic mix, maybe some public speaking by the ‘expert’ or Meet Ups with your fans on top of this and poof…maybe you have a brand in the brewing.

Tools are present galore but just mixing these with a few social building blocks usually amounts to naught. No surprise…look around and you’ll find that what is obvious for success, is also rare. Go to a bunch of websites. Most I bet will be brochureware or raw catalogs with commentless blogs or one-sided twitter feeds and sparsely ‘liked’ fan pages hanging off the site like unused appendages.

For brands this social change appears remarkably difficult to understand…and even harder to execute on.

“Build a community.”“Establish trust.” “Listen to your customers as if they are the company.” “Be interesting”….Non trivial endeavors. And they sound so general and basic they appear wrong. And herein lies the crux why a social approach is so difficult for businesses–because while there are basic building blocks there are no predetermined models nor templates or roadmaps. This is a relationship between a brand and its community of individuals. Each solution is unique…built of like materials but personal and dynamic at its core.

This conversation about community and the customer/company power shift is the start of every meeting at every company, little or big when they begin to think about how social media needs to be part of who they are, how they relate to their customer and how this impacts traffic and commerce and an enthusiast community.

So…what’s the why of this?

Never has the upside for companies been greater, market building economics less prohibitive and the potential to build true brand value and dynamic communities as within reach. The examples are all around us. From large social platforms to innovations in social commerce to an ocean of new start-ups popping up out of the crowd daily.

Companies often act as if the openness of social media–especially between company and customers–is messy and unnatural. Actually, it is just the opposite.

In the proverbial hometown brick and mortar world of shops and customers, successful businesses were built on relationships with the community. They supported their communities, listened face-to-face to feedback and in turn the community supported them with loyalty and their patronage. A two-way street.

Connections between companies and communities is nothing unnatural. It just went missing. Online businesses lost the sense of local, community and connection with customer when they became just a click. Social media is local on a global basis and community dynamics on steroids. Not unnatural, but hyper real in its intensity and ability to impact brand, reach and economic success. Core human and business values on a global and local and real-time stage.

Social media certainly adds a new layer of tools and capabilities but even more, it’s a change of perspective that is not at all subtle. For businesses, it requires that they put a face or a human voice behind their URL. It requires that they listen and respond and host their communities with a place they can interact with other customers and the company itself. The power of conversations and loyalty of a community can’t be underestimated.

Building a brand is hard work. Always has been.

Now it’s easier actually–brick and mortar businesses need to find that tie-in of their value to a real-time connected, often geolocated world. Online businesses need to find a voice, if not a person, who can talk to their customers and create that reality that an online community is not comprised of clicks…but of customers and people.

My reactions from the first day of TechCrunch Disrupt in SF.

Thanks to Michael Arrington and the TechCrunch team for the blogger’s pass. It was well worth the trip to experience this event and great seats really make a difference!

This is a really smart conference design…household names and industry dominant companies counterbalanced with scrappy startups demoing to the audience. At its very best an homage to the entrepreneurial spirit.

Agenda of conference is here to get descriptions and bios of the speakers.

Brilliant pairing of Mark PIncus (Zynga) and Bing Gordon (Electronic Arts Founder, now with KP). Social game mogul by data analysis dancing with game studio creator by intuition and creativity. More to come on this.

Mess of a Super Angel Panel. Comical in its abruptness and squeezing seven panelists into a 30 minute spot. This is pulp VC at its most sensational and boring. I suggest you read Mark Suster’s post this morning in Both Sides of the Table for his point of view on the panel and what he really wanted to say. Thanks Mark!

Reid Hoffman (Founder of LinkedIn and investor) hitting it right that there is lots of room for multiple social networks (besides Facebook) but doing a less than clear job of articulating the difference between the two. Disappointing as this was a great opportunity for him to clarify LinkedIn’s unique DNA and future directions. I blogged on the missed potential of LinkedIn here.

Todd Bradley from HP topping the boredom chart with a corporate pitch for HP that was not only all spin but also arrogant in its defensiveness of the company. This was just out of place. He and HP are like Microsoft of old at their very worse.

Peter Thiel, Facebook Board member and Founders Fund. Articulate. Believable. Fascinating. Thoughtful.

Scott Cook from Intuit, a brilliant burst of fresh air, still excited, still the product guy for Intuit after two decades of caring deeply about the customer. Now tackling healthcare for the small business market. His standout quote of the talk was “I believe you either disrupt or get disrupted”.

Chegg CEO Dan Rosensweig, a detailed deep dive into an industry I knew nothing about but came away inspired.

Loved the start-up pitches to the audience and panel. Fun time and thought provoking. Broke up a long day with diversity and intensity.

Best part of the day for me was connecting with old friend Greg Woock, CEO of Pinger and getting to meet Mark Suster in person, after a year of conversations on his blog, Both Sides of the Table. Proof that friendships can really be created online that can move to the offline world.