Packaging vs. Creating Value
You can decide between focusing on packaging better or creating value. This struck me when watching a video of Alex Hormozi coaching the founder of a failing theme park.1 I really like such businesses, so I was quite intrigued. Half an hour later I was rather disappointed: Never did the video touch on the actual physical elements of the theme park. Instead, it solely focused on marketing, most notably around a summer camp to be advertised. Hormozi created the arguably genius but also somewhat sinister marketing campaign to price the summer cap for children at $5000, give away one single free spot in a lottery and include a second price to get the summer camp at a discount, at $2000. The catch? Everybody who participated would be told they won the second prize. (Except for the one real winner, that is.)
Struggling theme parks made me think of one of my favorite passages, where Nick Sleep discusses the family activity centre of his investing partner, Qais Zakaria. Multiple competitors pose a challenge. The strategy devised by Zak and his family roughly goes as follows: Price a bit cheaper than the competition, spend a bit more on experienced and motivated staff, and invest into what makes the parents like these centres as it turns out that they are mostly driving the decision to visit them in the first place. Sleep’s actual, investing-related, insight comes after the competition has subsequently closed shop:
It is tempting for Zak’s relatives to think the battle has been won and, in line with many a business school case study, now gently raise prices to earn a monopolist’s rent. However, Zak’s advice to his relatives is counter-intuitive: take prices down (he is a hard man to have on your board). The risk with super-normal profitability is that the profits are an incentive for a new competitor: far better, Zak argues, to earn less, but for a much longer time. This is tough advice for the family members who have been cleaning loos and hoovering floors at eight o’clock at night, but the long-term logic is undeniable. To their very great credit the family are once again lowering prices just a little.2
What is the fundamental difference between these two approaches? I believe only the second one is focused on creating value. As in Sleep’s favorite investments, there are multiple win-win mechanisms at work: Staff earns more and facilitates happier customers; prices are kept low and repel potential competition. Happier families, more robust business. In Hormozi’s case, on the other hand, I see a basic win-lose relationship at work: Families are tricked into enrolling their children by making them believe they have won the second prize. How robust is such a strategy? As soon as families start to find out the others are also lucky second-prize winners they will feel cheated.
One caveat: In my work in project management, I learned how much value good packaging can bring to the table. I always had this idea that only content matters and how you present it is only superficial. This took a first hit when I studied philosophy and was always repelled by approaches that believed only the quality of the argument to be relevant and how the philosophical texts are written as irrelevant as long as it is as simple and easily understandable as possible. The main outcome of this approach are extremely bland and boring texts that do not foster thought. In philosophy, what you think and how you express yourself are deeply interrelated.
The same goes for PowerPoint presentations, Excel sheets etc. My point, however, is not that you only sell better by packaging better: Time and again I have experienced that well structured material fosters much better and focused discussions – by a wide margin. It’s almost a bit magical: If the underlying material is high-quality and flawless, the ensuing conversation’s level almost automatically rises.
Hence, what I am arguing for is not to focus on content at the expense of how it is presented. Instead, the argument focuses on putting the delivery of value front and center. This includes the packaging - as a function of the overall value-proposition.
I believe the impression that business was mostly focused on win-lose mechanisms, playing zero sum-games, instead of focusing on creating value, is one of the main underlying reasons for the negative attitude towards capitalism that many people have. You could, for instance, rephrase the corporate politics that everybody says they hate as prioritizing packaging over value creation.
The really interesting question is: If everybody was happier by focusing on value creation – why does it seem so uncommon to prioritize it radically? At least parts of the answer come down to this approach requiring more patience, hard work, and a long-term orientation. The companies practicing what Sleep calls shared economies of scale continuously plough back almost all their hard-won earnings ("cleaning loos" in the case of the family activity centre) into increasing value to their customers. Years and years on end, that means to forego the big paycheck while putting in the hard work. There has to be some element of dedication involved to sustain this. A dedication that cannot be faked.