Big Brands & Startup Envy: The Irony Of Our Times

Coca-Cola logo
Big brands like Coca-Cola are beginning to adopt startup rhetoric and copy their methods, but do they really mean it? Rather than turning their business models inside out, they should stay true to who they are.
 
 
 
 
 
 
 
 
“Starting ‘lean’ is key, it’s critical to the future,” says Coca-Cola’s vice
president of innovation, but is that realistic for a big corporation like them?
Photograph: Kevin Lamarque/REUTERS
 

Big brands appear to be embracing a bizarre new trend where they covet the intensely-pressurised and restricted business models of startups. This sounds ludicrous, but when brand behemoths like Coca-Cola jump on the bandwagon, it becomes a reality.

 In November, Coca-Cola’s vice president of innovation, David Butler, said the brand is looking to the startup world for business model innovation and “Starting ‘lean’ is key, it’s critical to the future”.

 Butler’s statement followed the official opening of O2’s Tech City startup incubator, Wayra. The timing could be coincidental. But it shows brands are desperate for a touch of startup stardust; something that Silicon Valley has a lot to answer for, with geekdom becoming the 21st century version of rock ‘n’ roll.

 I can see Butler’s point. Brands are not immune to Darwinian evolution; they’re as vulnerable to the ‘survival of the fittest’ mantra as any other business. Developing a lean and agile business model feels apt when suffering from the hangover of recession.

 But it’s ironic that big brands want to mimic startup business models, when those very same startups would kill for a slice of that big brand’s privileges. So I’m jaded by this big brand rhetoric. If Butler et al really mean what they say, how about a month-long amnesty where they swap their unrivalled cash-flow for the startups’ habit of giving time away for free and worrying about how to pay staff wages? I’m game if you are, Mr Butler.

 Putting aside the questionable rational, it’s not even possible for big brands to act like startups. It would involve choking-off resources, finances, distribution networks and reach. Surely no right-thinking global enterprise would take these risks when there’s potential to upset shareholders, restrict cash flow or jeopardise prized staff with zero-hours contract.

 Every brand and agency, both small and large, has a role to play in making the system work. If all businesses involved in brand world began acting like startups, we’d become a homogenous bunch and few would retain stand-out.

 Perhaps this desire to stand-out is partly where the trend stems from. Because, granted, taking startup-style risks helps cut-through. Red Bull is a case in point. Run by an eccentric Austrian doctor, personal profit is reinvested in the brand’s marketing via brave and bold schemes like the Stratos Space Jump and F1 partnership.

 But the key difference is that Red Bull can afford to think like a startup because it’s a privately-owned company that’s not answerable to shareholders. Where private companies can afford to have a ‘gamble’ attitude, most big brands have to be constantly mindful of stock price and shareholders.

 To say that big brands should think like start-ups is a flippant comment. Perhaps what really belies the trend is that the big boys want to engender the hunger and creativity that tend to go hand-in-hand with startups. But this hunger and creativity would be better served via the carrot, not the stick.

 Big brands can nurture drive and innovation not by withdrawing the privileges that come with being a global player, but by focusing on them. So rather than mimicking the startup model of doing everything on a strangled budget, big brands should use their big advantages to develop a culture where these qualities thrive thanks to unrivalled incentives and working environments that look more like a film set from Big than the standard dreary office.

 We only have to look to the likes of Facebook and Google to see how these incentives foster the creativity, innovation, drive and hunger that big brands think they can recreate through startup-like conditions. Ironically, these companies started out as lean and agile start-ups, but are now all grown-up – and not at all afraid of acting like the big brands they are.

 At the other end of the spectrum is safe cosy John Lewis, an incredibly successful and well-loved brand that doesn’t seem interested in startup sexiness. In fact, FMCG and retail brands often provide a benchmark for relevant and effective marketing, with no need for startup-style risk or edginess. For proof, you only need look to the social media success of retailer Christmas campaigns. The sector is a shining example of big brands doing big and safe things, but doing them incredibly well.

 Startups inevitably have to find mould-breaking solutions in order to survive the intense pressures that come from starting out. But more often than not, this level of pressure creates failure, rather than success. Perhaps this is easy to forget if you’re sitting in a big luxurious office, safe in the knowledge you have enough financial security to plan for another five years.

 By trying to ape startups and their inherent financial restrictions, big brands are becoming oblivious to their privileges. Far better than turning their business models inside out, they should stay true to who they are and do their big things. They should just carry on doing them brilliantly.

By George Smart, founder of integrated creative agency, Theobald Fox

 

Shops Can Track Your Phone

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Washington – Should shoppers turn off their smartphones when they hit the mall? Or does having them on lead to better sales or shorter lines at the cash register?

US retailers are using mobile-based technology to track shoppers’ movements at some malls and stores. The companies collecting the information say it’s anonymous, can’t be traced to a specific person and no one should worry about invasion of privacy.

 

But consumer advocates aren’t convinced. It’s spying, they say, and shoppers should be informed their phones are being observed and then be able to choose whether to allow it.

The Federal Trade Commission held a workshop on Wednesday on the issue, part of a series of privacy seminars looking at emerging technologies and the impact on consumers. FTC attorney Amanda Koulousias says the commission wants to better understand how companies are using phone-location technology, how robust privacy controls are and whether shoppers are notified in advance.

Here’s how the technology works:

Your smartphone has a unique identifier code – a MAC address – for Wi-Fi and Bluetooth. It’s a 12-character string of letters and numbers. Think of it like a personal identification number, but this address is not linked to personal information, like your name, email address or phone number. The numbers and letters link only to a specific phone.

When your smartphone is turned on, it sends out signals with that MAC address (for media access control) as it searches for Wi-Fi or Bluetooth. Those signals can also be captured by sensors in stores that could tell a department store how often shoppers visit, how long they stay, whether they spend more time in the shoe department, children’s clothing section or sporting goods, or whether they stop for the window display, take a pass and decide to move on.

Companies that provide “mobile location analytics” to retailers, grocery stores, airports, and others say they capture the MAC addresses of shoppers’ phones but then scramble them into different sets of numbers and letters to conceal the original addresses – a process called hashing. This is how they make the data they collect anonymous, they say.

The companies then analyse all the information those hashed numbers provide as shoppers move from store to store in a mall, or department to department in a store. Mall managers could learn which stores are popular and which ones aren’t. A retailer could learn how long the lines are at a certain cash register, how long people have to wait – or whether more people visit on “sale” days at a store.

“We’re in the business of helping brick and mortar retailers compete” with online retailers, said Jim Riesenbach, CEO of California-based iInside, a mobile location analytics company. “The retailers want to do the right thing because they know that if they violate the trust of consumers, there will be a backlash.”

Not completely secure

Privacy advocates, though, argue that the scrambled or “hashed” MAC addresses aren’t completely secure. They can be cracked, says Seth Schoen, senior staff technologist at the Electronic Frontier Foundation.

And that could reveal data that people may not want to share.

“There might be some place that you go that you wouldn’t want people to know about,” said Schoen. While not necessarily worried about foot traffic at a mall, Schoen raised concerns about down-the-road scenarios, like apps that could track where a person goes, whom that person is with – possibly the kind of information a divorce lawyer or law enforcement might seek.

The retail tracking is a relatively new technology.

Nordstrom tried a small pilot test in 17 of its more than 250 stores in September 2012. The company posted signs at doors telling shoppers they could opt out by turning off their Wi-Fi. Nordstrom ended the trial in May 2013 after some customers complained, saying they felt uncomfortable, spokesperson Brooke White said.

An AP-GfK poll in January found half of Americans were extremely or very concerned about the ability of retailers to keep their personal information secure.

Older Americans were far more concerned about the safety of that information than younger ones – 59% of those age 50 or over said they were extremely or very concerned about it, compared with 46% age 30 to 49 and 32% of people under age 30.

Some of the major players in the field of mobile location analytics – iInside, Euclid, Mexia Interactive and others – have agreed to a “code of conduct” advanced by a Washington-based think tank, the Future of Privacy Forum. It calls for “hashing” MAC addresses, notification signs in stores for consumers and an opt-out website for people to enter their phones’ MAC addresses to prevent companies from tracking them.

 

SAA shows loss on all international routes

3805389401Johannesburg – None of SAA’s international routes is making a profit.

The route between Johannesburg and Beijing is the worst, with losses of R309 million a year. The route with the smallest loss is still a drain to the tune of R60m.

SAA’s new long-term turnaround strategy will result in the closure of two routes but on instructions from the government and with the agreement of the airline’s board the rest will be kept.

“We are flying to loss-making destinations. We are doing so in support of the country’s trade agendas,” SAA chief executive Monwabisi Kalawe told a parliamentary portfolio committee yesterday.

The route to Kigali, in Burundi, was closed in early December last year. The route to Buenos Aires in Argentina will be closed in March, saving the airline R86m a year.

To minimise losses on continuing routes like Beijing, for instance, SAA is negotiating better slots.

Despite these efforts, SAA would struggle to make a profit on international routes until it changed its long-haul fleet.

“At the moment we’ve got Airbus equipment. Most of them have four engines – these things are gas guzzlers. Most of our international routes are loss-making mainly because of these,” Kalawe said.

Fuel makes up 35 percent of SAA’s total costs.

What made matters worse was the R1 billion erosion of SAA’s earnings as a result of exchange rate volatility.

“Had the rand exchange rate remained the same, without even strengthening, we would have had a profit,” said Andile Khumalo, the chairman of the SAA board sub-committee overseeing the long-term turnaround strategy.

SAA also cited its “geographical disadvantages” as a reason for losses incurred on its international flights. Kalawe said that with most air traffic flowing between east and west, it was no wonder that SAA was in trouble while Middle Eastern airlines were successful.

“If you look in Australia, Qantas… are struggling because of their geographic location. Look at all the airlines who are… [at a] geographic disadvantage, they are struggling. That’s one challenge SAA is facing and we want to mitigate that by starting a hub in west Africa,” he said.

A feasibility study to establish the hub had been finalised. It had identified Ghana and Senegal as the best locations.

When SAA compiled its turnaround strategy, it projected that it would break or even show a small profit between the fourth and fifth year of implementation.

But chairwoman Duduzile Myeni said it should be recognised that SAA was turning its business around with a history of nothing and an empty balance sheet. She said the airline needed to close the financial gap that opened when it was unbundled from Transnet.

Kalawe said conversations with the Treasury and the Department of Public Enterprises about closing the gap had been “constructive”.

Myeni pointed out that SAA had two mandates to balance: the developmental mandate on the government side and its commercial mandate. – Business Report