Category: Markets

Last week, I was in Costa Rica, bodysurfing waves in the warmest water I’ve ever swam in.

If you’ve ever surfed, you know that you can see the waves coming from a quarter mile out. You don’t know where exactly the wave is going to break, but you try and put yourself into a position where you’ll catch it right as its beginning to roll over.

For most of my life, environmentalism was a cause that was on the fringe. It was the butt of jokes and caring deeply about the environment made you a bit of a weirdo. But there had been pressure building up for years and years as climate change began to impact people.

East of Portland is a narrow valley that follows the Columbia River and is named the Gorge. If you drive through the Gorge on I-84 for an hour and a half you’ll arrive at Hood River, where you’ll see a river full of kite and wind surfers. In another hour, the terrain will shift from steep coniferous slopes to grassy desert and rocky walls. On both sides of the river these walls are topped by miles and miles of wind mills. The wind surfers and wind mills both harvest the natural energy created by the geography of the Gorge.

Similarly, external growth opportunities in your business concern harvesting environmental energy.

Here is a short list of possible opportunities you might take advantage of:

Imbalances. Change will regularly create imbalances where pressure builds up. As a simple example, over the course of twenty years a city neighborhood becomes gentrified. If there’s no coffee shop there, there will be soon. Unmet demand builds until someone takes advantage of it.

When I was in the Marines, my favorite form of entertainment was trying to pick up women in bars. Despite being decent looking and good with people, I was spectacularly unsuccessful. One of my theories about why I was so terrible was that I was incompetent at identifying women who were interested in meeting a guy in a bar.

I focused on my interactions with the women I talked to: being confident in my approach, making conversation, etc. My theory was that I should focus more on watching the people in the bar and getting better at discerning the signals that a woman was looking for romance.

My behavioral research came to an end when I met my wife in a bar and approached her after she smiled at me.

Your business needs energy to grow and that manifests itself in the form of a growth opportunity.

Yesterday, I had a call with a client that is looking ahead and thinking about how his business should change if we enter a significant recession.  He’s waiting for the GDP numbers to be released in January like the townsfolk of Punxsutawney waiting for Phil to come out of his hole and look for his shadow.

Of the local agency owners I know here in Portland, two of them had significant growth this year and one of them significant losses. And in my own business, we saw revenue increase in 2022.

My friend who lost clients could be a harbinger or just another anomaly.

I ran into someone at a conference who had just exited his agency. We had a conversation that lasted less than a minute. In that minute, it confirmed a perspective that I have about growth.

After I congratulated him on his exit, I asked him what it took to grow it to the point where he could sell it?

He said, “You know, it’s funny. I didn’t do anything. I never had any intention of growing, but we couldn’t not grow. Work was piling up and so I kept hiring to accommodate it.”

I used to roll my eyes at elevator pitches. They seemed to be the verbal equivalent of business cards. People toil over the design, the byline, and the embossed fonts and the result is that they get tossed into the garbage with everyone else’s beautiful cards. Similarly, folks will spend hours workshopping the perfect pitch, but I’ve never heard of a single sale occurring in an elevator.

Yesterday, I was running registration for our local Rotary Club with a product manager for a SaaS company. It was still quiet, before Rotarians had started to arrive, and we were talking shop. He asked, “What does your company do?”

I recently read “How Clients Buy,” a book on marketing consulting services. It was a good read, but I disagreed with the premises that they build their strategy upon. They begin by differentiating selling products from consulting and assert that consulting is fundamentally different and doesn’t behave according to normal market forces because it’s a “credence good.” This isn’t true and the misunderstanding leads to blind spots in pricing and marketing tactics.

The book quotes Asher Wolinksy, a professor at Northwestern to define credence goods:

“The term credence good refers to goods and services whose sellers are also experts who determine the customers’ needs. This feature is shared by medical and legal services and a wide variety of business services. In such markets, even when the success of performing the service is observable, customers often cannot determine the extent of the service that was needed and how much was actually performed.”

Asher wolinksy

To provide an example, if you’re like me and you know little about cars, mechanics are credence goods. I have no clue if I’m being charged appropriately, if work was done, or how to vet their work.

Yesterday, I took one of my friends sailing. Dan is another agency owner I’ve known for a long time. We’ve climbed mountains together, drank scotch together, and broke bread together. I really like the guy, enjoy his company, and want to see him do well.

In the 15 years we’ve known each other, I can’t remember ever referring Dan’s company. On his side, I know that he’s referred business to me just once.

Another local peer is Jim, who I really like, but rarely hang out with. I haven’t seen him in person in five or six years. I used to refer him all our overflow leads or leads that I didn’t think were a great fit. He made quite a bit of money off this arrangement.

In sum, no referrals for a good friend and many referrals for an acquaintance.

What gives?

When I was in high school I played soccer and wrestled a bit. Despite being diligent and applying myself, I wasn’t particularly good at either. In retrospect, I wasn’t well suited to those sports and how I played them.

One of my friends, Andre, could have started wrestling his junior year and still ended up on varsity and winning a fair number of his matches. I worked out often, year round, and I never saw Andre lift a weight or go for a run. However, he looked like a fit adult in his mid twenties, not his teens. In his weight class, he would have wrestled overweight juniors and beat most of them.

You might have noticed in observing a sport that it’s not uncommon for there to be an athlete that is a top performer, but that has deep flaws that affect them- lack of discipline or a mental game that is weak. Yet they still win.

Yesterday, I drove by a coffee shop I used to frequent and noted that it wasn’t open. It used to be a busy place, but a couple of years ago it changed owners and all that business dried up.

What changed?

Previously, it had a unique business design. They primarily focused on serving three different options of dark roast coffees that would rotate daily. When you entered the cafe, there was a little rack with tasting glasses and you would try each before deciding what you wanted to drink. There were several other touches that made the place different, but everything flowed from that little tasting station.

Even though it was a tiny space, in a lousy location, and only open a few days of the week, it was packed every minute it was open.