C-NotesDesigning Business

I’ve been hanging out in San Francisco the past few weeks and one topic that keeps coming up is Prop 19. It’s a measure on the California ballot this year that basically makes it legal for adults to grow/possess/smoke marijuana. I was having a drink with my friend Judy last night, and she made me realized a few things that sort of blew my mind.

I’ve always been a little live and let live around the pot issue; you like it fine, you don’t like it fine. I though it was novel that they might legalize the substance and tax it to help California climb out of the financial gutter. With that in mind, it didn’t seem like the worst thing in the world. It also seems like in some ways it could mellow out the drug war that we fund so ferociously on the border. Anyway, musings aside I started to think about what the business around the legalization would mean and it was sort of jaw dropping. The issue seems like a pretty crazy social iceberg.

Let’s play this through. Lets say Prop 19 passes (which by the way, looks like it won’t). If it were to pass, it would basically create an instant industry. I get that there are all sorts of illegal pot practices, but if it became legal large corporations like RJ Reynolds and Altria would immediately enter the space. They would set up shop with so much capital to operate you wouldn’t even remember it was supposed to be a local business growth initiative. If they can make a tobacco operation profitable, they would go bananas growing marijuana – much higher profit, much smaller operation. Much like factory food, they would systematize and standardize the product; it would eventually get cheaper and stronger, etc. And, if the measure held, they would lobby for national legalization. It would be pretty impossible to keep California from become the pot supplier to rest of the US. So even if it didn’t pass, people would buy it on the web.

As this all started to sink in, I realized that there’s just a massive irony to the story for me. This Proposition is sponsored by this progressive pro-pot activist in Oakland. (How he got thousands of pot-heads motivated to get enough signatures to force a state ballot proposition, I have no idea.) If that initiative passes, there’s a good chance he could create a market so appealing that bigger players would move in and put him right out of business. Most companies have a really hard time sizing new, untested markets. This markets been more or less sized through the war on drugs.

I don’t think I can think of any single event that has the potential to instantly create an industry. And to top it off, from a business perspective the measure seems like it would cause more problems for the people who hoped to benefit from it the most. We live in interesting times.

I’m having a tough time with this whole Groupon phenomenon. Every time someone mentions them as a great example of a new business, it makes me nuts. Now, I have respect for anyone who can launch and idea into a business, but I feel like the service is missing a bigger point. The idea of group buying isn’t new; consumers have been consolidating their buying power for better deals for a long time, but Groupon isn’t a function of consumer buying power. It’s an exercise in heavy-handed, value-driven marketing that put’s Groupon in the center of the universe, not the consumer. Harsh words I know, let me explain.

The way the service works is that businesses contact Groupon about a partnership and together they create a bargain that will run in over a period of time – could be a one day blitz, could be a longer-term cupon. (This deal includes Groupon earning around 50% of the coupon price for its service.) Since the business is deciding what to push and Groupon serves as the delivery channel, that’s not actually consumer buying power. It’s not driven by consumer demand, the Groupon community isn’t polling it’s users to figure out where they would like deal; Groupon makes the call. Groupon’s main customer is the business offering the bargain, the Groupon community is a means to an end. The service isn’t even a platform that allows consumers to connect with each other and organize for buying power – it’s a pop-up, loss-leader service that businesses can rent by the day to drive consumers through their doors.

So, say you’re a small business, Groupon sounds like a pretty great idea, right? All of a sudden you can help people learn about your services and it’s cheaper than buying expensive advertising, right? Well, maybe. Groupon reports that about 22% of the people attracted by their make return purchases. Growth can be good, but what about the customer experience?

Let’s say you just opened an ice cream store and the first time a new customer walks into your shop it’s jammed with people looking for a $1 ice cream cone (that usually costs $3). It’s hectic, everyone’s very transactional because they came for the deal, and it’s very hard to engage with the ice cream store because all of the electricity in the air. People are pushy, lines are long. The extra sales are great for the buiness, but you aren’t building any new relationships, you’re just ringing up (discounted) sales. It seems like if you want that atmosphere maybe you should open Crazy Eddie’s Bargain Basement, buy lots of sales advertising and run that game every day. (The WSJ ran a story yesterday with some small business owners with similar sentiments.)

I’m frustrated because I know the experience could be designed with the end customer in mind. Groupon could connect people, look for shared interests, and source a mix of deals tailored for their community. Groupon could encourage people to share reviews that would help the businesses they serve so they can improve (right now, all discussions are about ‘the deal’). Groupon could really would be help businesses grow on their own merits. I feel like Groupon could be about more than just blatant consumerism. I’m sure it will be a big business, I think it’s a big idea, I just wish it had a little higher purpose.

Ok, so I hate airlines.

Actually, there’s a little more to it. In general, I’m OK with the flying experience. I know it could be better, but for the most part, it’s good hearted people doing the best they can in a very tough, complicated, interlocking service industry. (Full disclosure: my bother is a pilot.)

The hatred I have for airline comes from their management decisions. I hate them for their inhuman inflexibility. I hate them for their nickel and dime tactics. They remind me of banks, both lay out very narrow rules of engagement and give themselves the right to tax you if you deviate from the plan. They let the policies play bad cop and stand unaccounted for some pretty unfair treatment.

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