Confessions - the customer is not King and other heresies
Much of what I have been taught to believe unquestioningly turns out to be untrue
Increasingly I find that building the Good Growth Company is much like taking that pill in the Matrix, suddenly you become aware that the stuff you have taken to be true, the pillars on which pretty much every business you have ever been involved with operate, the articles of faith, the fundamental truths are....well....are not only simply not true, but more often than not the cause of a lot of the problems we face.
What follows then is a kind of confession - stuff I used to believe but now cannot. I am fully aware that to many this will sound like heresy or lunacy - and that's fine - but I am convinced that we have to recognise how the underlying structure of our system, and the assumptions upon which it is built, must change.
Good Growth is all about hard wiring regeneration into the core operating model of business. We're not interested in grafting on a bit of "do gooding" as a by product of business-as-usual, this is a fundamental redesign of the operating system.
Much of this design - maybe all of it - involves turning conventional notions of capitalism upside down. How businesses get funded, how value chains are built, who owns what, how products get made, what products are made. There's a ton of theory on all of this - but not that many people trying to work out how it all works on the ground in real businesses.
Depending on where you stand we're either creating a new version of capitalism, or a post capitalist model, or are completely nuts. I guess time will tell. The pilots we are building (initially fibre product from Mongolia and Patagonia) are explicitly conceived as vehicles to road test this new design. More of what we're up to can be found here.
"It is the world that has been pulled over your eyes to blind you from the truth"
So for me this design process is a bit like taking the red pill - only a bit less wham bam and a bit more creeping enlightenment. As we build up the model we find ourselves peeling back layers and layers of thought processes that had been so thoroughly drilled into us we never questioned them.
The only thing we are doing in all of this that is remotely innovative is designing from the ecosystem out, not from the market in. Everything else is just hooking together bits of business system that have been fragmented for years - making it whole again (to quote Atomic Kitten).
So instead of a market in approach where the source of origin is treated as the lowest point in the supply chain, we turn the whole thing on its head and make the source of origin the force that shapes the whole value chain
That one thing - designing from the ecosystem out, has a seismic, upending, impact on the whole system. It turns the operating system that I've been used to on its head. Here are just a few examples:
1. Brand valuation has nothing to with "value"
Brand valuation is always something that I have been sceptical about, some kind of pseudo science peddled by Interbrand etc. Fellow sceptics in the brand world would often say that a brand's value was no more than what someone was willing to pay for it. But even that is to reduce "value" to "price" - to surrender all of the breadth of the term "value" to a narrow financial definition.
It's this narrowing of what we mean by value (check out Mariana Mazzucato) that has got us all into such deep shit. If we can't put a price on it it can't be worth anything - right? So it comes as no surprise to find that the ways brand valuation works *actually* is merely a function of a financial view of a business.
Pick apart any brand valuation model and guess what - it's actually a model of financial value. They are all predicated by and subordinated to the standard "price of everything, value of nothing" business model. Tellingly the unit in which the models are expressed is $.
Even their attempts to measure "intangible" value are predicated on price premium and volume, whilst putting customer primacy, market share and customer loyalty into the mix over other factors.
"Brand valuation" is an area where brand businesses are bringing absolutely nothing new. The lower the costs in the supply chain the higher the brand value. Simples. And nothing at all to do with brand value.
So the more you screw your suppliers, and the people who work down the chain, and the places where your raw materials come from, and the environments which created those raw materials - the more you screw planet and people the higher the value of your brand.
Interbrand has the "best" brands globally as Apple, Google, Amazon, Microsoft, and Coca Cola. But in this context what the hell does "best" mean? Brand Finance can put Aramco straight in at #24 "following the largest IPO is history".
None of them poster children for a better planet.
2. Lean supply chains are not a good thing
"lean" was a gospel drilled into us all at VW in the 90s. The Machine that Changed the World was the bible. The Japanese were to be feared because they were so goddam efficient. They had Ninja like abilities called Kaizen to take out "non productive" cost or waste.
Supply chains are not stronger for being leaner. As we have seen all too clearly in this pandemic, a supply chain cost optimised to the nth degree is a supply chain that breaks under pressure.
Worse than wafer thin resilience is the damage wreaked on environment and communities. Supply chains that are designed to optimise costs don't pay any attention to the value that can be created at the source of origin, nor to the collateral damage wrought on environments and communities in the name of shaving a couple of cents off.
There is nothing regenerative about lean supply chains - and no consequence at all for making them extractive. Which is why so many are so very destructive.
Conversely value chains built from the ecosystem out are inherently value creative, and also (at least in design) regenerative from the get go.
3. Products are not defined by market needs
Follow this 'ecosystem out' logic through and how you make decisions about what products to make changes. Once upon a time at VW we made a very small estate car on the basis that it was in a segment "not currently occupied by the competition". Unsurprisingly we discovered that the number of people who needed such a tiny car (people who didn't buy anything bulky at the shops, didn't have suitcases and had extremely small dogs) was vanishingly small.
In the Good Growth model our product mix is determined by the needs of the ecosystem.
Commercialising a regenerative balance in the ecosystem means taking the raw materials available (in our case initially fine and coarse hair from different animals, mostly yaks) and turning all of those raw materials into commercial products. Ordinarily the coarse hair is ignored by brands - it's not worth as much as the fine hair. But we can turn it into mattresses, sleeping bags, natural insulation in jackets, horse blankets, curtains etc etc.
Clothing brands are not set up to turn coarse hair into blankets - so they ignore it. This means that the only way the herders can increase their income is by a) chucking the coarse hair away (about 75% of the yield) and b) having more animals. The upshot is an incentive to keep increasing animal numbers, with a consequent deleterious impact on environment and habitat. A little nuance that comes from this is that we don't attribute cost at the product level but rather at the whole animal level - the cost of raw material for a superfine jumper is pretty meaningless for us if it ignores the coarse hair from the rest of the animal.
Businesses built on industrial principles inevitably seek to industrialise their supply chains around high margin products and ignore the rest.
4. Shareholders are not prime, and nor are customers
In a previous life we had it drummed into us that "the customer always comes first". This phrase was on posters, on rulers, in training programmes, in meetings. It was a mantra repeated hundreds of times a day to justify whatever programme we were dreaming up.
To question this idea was heresy of the highest order. In most places it still is.
But it wasn't true then (actually we cared much more about what the German HQ needed), and moreover it really should not be our mantra if we want to build a regenerative model.
What customers want or need and what is needed to regenerate the planet are not always compatible. So no - the customer does not always get what they want. We can only make so many cashmere stuffed mattresses, so if a hotel chain wants more we're going to turn them down. In my previous life we would have moved heaven and earth to get them more - we'd do "whatever it takes" to meet their demands. And it's precisely that "whatever it takes" reflex in response to customer demand that has fucked us all up so very badly.
So our job is to find the right customers - which is a kind of inversion of the normal "marketing funnel"
And of course - as is now beginning to be recognised - shareholders are not prime either. Flogging the company to grow in order to meet some hockey stick shaped growth curve, or some end of year profit target, is actually pretty dumb. Just because VCs fetishise exponential growth (aka scale) doesn't mean everyone else should. They aren't the people who create the value.
5. Environment over humans
Last but by no means least we have to recognise that there are often conflicts and trade offs between profit and regeneration, and between meeting social needs and regenerating natural capital. In the old world a manager would bend over backwards to hit a profit target, but not so to hit an environmental or social objective.
We're going to bend over backwards to deliver regeneration - whatever it takes. But of course - as will increasingly become clear as we head further into the Anthropocene - there will inevitably be times when what's good for the planet won't necessarily be good for the humans.
In those cases we must always, always prioritise the needs of the planet. Black flowers.
There's more of this to come
We promised to make our process open - to share what we find as we find it. As I say - much of this may sound nuts, but if it does not, if it gnaws away at some unspoken thoughts or feelings you may have had for a while about what's not working, maybe you should get in touch.
#goodgrowth #regenerativeeconomics #tomorrowscapitalism #anthropocene