This article originally appeared on Entrepreneurship & Art on October 3, 2020.
The Touch-Margin Matrix is a crucial top-level filter with respect to directing your business orientation; my hope is that — at minimum — you now have a marginally increased degree of clarity in terms of the advantages and potential pitfalls related to your objectives. Certainly, no one should now be thinking, “Yes, indeed, I’m going to start myself a high-touch/low-margin business.” And, again, hopefully, there is an increased focus on determining if the idea you are gestating upon is or can become a low-touch/high-margin operation.
I’m going to now add a wildcard into this equation: whatever you think your product is — whether it’s high, low, or middle margin — it won’t be forever...or even for long.
Since the Industrial Revolution, capital markets have organized around the idea of “commoditization.” This is due to scale being the ultimate goal. Scale, of course, is the contingency for that grail-like low-touch/high-margin business. Henry Ford articulated this most cogently by saying: “‘Any customer can have a car painted any colour that he wants so long as it is black.”
This well-worn business axiom is often left as sort of a dangling participle; why can they only have black? Is he an asshole? Maybe. But he understood something profound, as is articulated in his autobiography, My Life And Work:
The salesmen, before I had announced the policy, were spurred by the great sales to think that even greater sales might be had if only we had more models. It is strange how, just as soon as an article becomes successful, somebody starts to think that it would be more successful if only it were different. There is a tendency to keep monkeying with styles and to spoil a good thing by changing it. The salesmen were insistent on increasing the line. They listened to the 5 percent, the special customers who could say what they wanted, and forgot all about the 95 percent, who just bought without making any fuss. No business can improve unless it pays the closest possible attention to complaints and suggestions. If there is any defect in service then that must be instantly and rigorously investigated, but when the suggestion is only as to style, one has to make sure whether it is not merely a personal whim that is being voiced. Salesmen always want to cater to whims instead of acquiring sufficient knowledge of their product to be able to explain to the customer with the whim that what they have will satisfy his every requirement – that is, of course, provided what they have does satisfy these requirements.” (Ford. Page 71).
There are two competing forces going on here. The first: Ford knew that the customer was NOT always right, and that, in fact, if a firm doesn’t fire the 5% of the customers who push them off mission, they will be chasing “personal whims” rather than staying focused on what they believe the majority of the market wants, and, in so doing, alienate the majority while chasing the whims of the unsatisfiable customer.
The second force is more troubling: Ford knew that customization — chasing “personal whims” — does not scale. In order to scale, Ford had to rely on the thesis that most people do not want something unique, but, rather, they want what everyone else has.
This shift introduced the role of the modern day marketer; in which the marketer’s job is not to match unique buyers with sellers that satisfy uniqueness needs, but rather to convince customers that they will be happy if and only if they have the same things their friends have. Commoditization. Much more on this in later articles, but for now, it’s important to understand both the danger of this type of thinking (it’s a step away from fascism) and its power: the unification around a common purpose.
Ford’s scalable product was the Model T. It was not his purpose:
I will build a motor car for the great multitude. It will be large enough for the family but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one – and enjoy with his family the blessing of hours of pleasure in God’s great open spaces. (Ford. Page 73)
Words like “family,” “individual,” and phrases like “...enjoy with his (sic) family the blessing of hours of pleasure in God’s great open spaces” articulate something much more than a focus on product. Ford’s words articulate purpose. We can argue whether or not it was a virtuous and authentic capital “P” Purpose, or simply a great marketer doing what great marketers do: conflating commerce with lower-case “p” purpose in order to manipulate people into deluded aspirational consumerism.
I would suggest that it’s more the former than the latter, and I would support this by the fact that....over a hundred years later....Ford is still selling a lot of cars. There’s something there. Something Henry Ford baked into the company that aimed at a higher order, capital “P” Purpose that has endured as the product — we ain’t driving Model Ts anymore — has radically changed.
Ford was in some ways the Steve Jobs of his era. Ford’s quote above showed that his Purpose had at least something to do with the car bringing people — families — together. Jobs had the following inscribed on the Pixar University logo’s crest: Alienus Non Diutius.
This Purpose — “Alone no longer” — guided not only the “nerds” (again, I say that as a compliment, and a member of the club) to feel that they had found their people/community, but also gave them — and, soon enough, a re-invigorated-upon-the-return-of-Jobs-at-the-helm Apple — a Purpose: revel in the fact that we (employees) are no longer alone, and build things that make customers feel the same way.
This ethos coursed through the resurgent Apple. To my mind, the greatest run of consumer advertising ever occurred in the 80s (The Apple 1984 TV spot) and — again, upon Jobs’ return — the “Think Different” (sic) campaign, which did not show Apple’s products, but instead presented a “mirror” to the customers that they were not only not alone, but — via purchasing an Apple device — were part of the same club of iconoclasts — Dylan, Gandhi, et al. — as those who gazed back at them from the ads.
Jobs, like Ford, understood that Apple’s Purpose was greater than its product: the collision between technology and humanities; that “the best ideas emerge from the intersection of technology and the humanities” (New Yorker:
I learned about serif and sans-serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating.
None of this had even a hope of practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would never have had multiple typefaces or proportionally spaced fonts. (Stanford News)
Apple launched many products under Jobs. All of them were unified around the same Purpose: make people feel connected and creative.
That is really the JTBD that people hire Apple for: its Purpose, not its product.
I’ve been preaching the Purpose Not Product gospel for many years now. So many, in fact, that I fear it has become — ironically — a bit commoditized. I hear people say it; I see it on websites, etc. The immature part of me is happy about this; the more evolved part of me thinks, “Well, this ain’t right.” It sort of brought me to the trough of despair, but then I realized that there’s more to it than just Purpose Not Product; it’s really only valid if that Purpose extends out beyond yourself.
As above, Jobs and Ford — both salesman nonpareil — did, I believe, have a higher-order Purpose that was driven by more than selling; their Purpose and their companies were about more than achieving something for themselves, but really were about providing tools for customers to use to achieve something — near the top of Maslow’s hierarchy of self-actualization — for themselves.
And this is the wildcard that must now be inserted into your Matrix. It’s not enough to design the perfect low-touch/high-margin business. If that’s “all” you do, you will quickly be imitated, commoditized and a larger firm will replicate your model at scale and prices that you can not compete with.
The only way to avoid this is to truly define and commit to a Purpose Not Product...with the Purpose being something bigger than yourself approach. In this manner, you will always stay a step ahead of your competition; your Purpose is yours and yours alone and can not be commoditized. Thus, even if/when your product becomes imitated (it will if it’s successful), you will already be on your way to your next iteration thereof, because that Purpose-driven imperative mandates it.
Finally, it is this Purpose Not Product — with the Purpose being something bigger than yourself — can actually reconfigure the matrix. That is, you may very well find yourself with a model that is high-touch/low margin, or - more likely - mid-touch/low margin, but if you then recalibrate around the Purpose rather than the product, the balance will shift. First to high-touch/mid margin; then to high-touch/high margin; then to low-touch/high-margin.
Want an example? All artists begin as high-touch/low-margin. Many stay there, because they are overly concerned with product rather than purpose. At some point, they realize that they are miserable trying to make art for someone else, and begin making it for themselves. This takes them to high-touch/mid to high-margin (big gigs); then these people who come to the gigs begin telling their friends and shifting the burden of promotion, and the artist wakes up one day to find that their music is being streamed a ton, licensed a ton, covered a ton, merchandised a ton....all with the artist doing nothing more than what they authentically always wanted to do: create. But now — because their Purpose is bigger than themselves — they achieve the grail: Low-touch/high-margin.
What’s your Purpose? You have one. It’s yours. It can’t be commoditized. It will help others. Build around that.