Library

The Inevitable Economics of Trust

Mark Achler · January 17, 2020

Transcript

I actually want to talk about the trust between companies and all of the, let's see if I can get this to work, there we go, trust between the companies and all the different stakeholders that companies interact with. And I think of trust, I think of trust as purposeful, thoughtful. So my class I teach at Northwestern, it's called Building Innovation

teams and culture. And part of culture is a culture of trust. And I'm going to talk about

what happens between making the short-term trade-offs versus long-term trade-offs. And I

think of trust almost like a muscle that you have to exercise and be purposeful and thoughtful

in how you build it. All right, so the question I like to ask entrepreneurs,

I don't just say, do you have a culture of trust?

Because everybody would say, of course we do.

So I ask questions like, what do you measure?

Do you measure transactions?

Or do you measure the lifetime value of a customer?

Because if you're measuring transactions,

then you're really short-term in your orientation and your focus.

and we have all been in situations where people have made sometimes difficult decisions

or challenging decisions to make a quarter.

They could be, I've seen CFOs do a natural X.

I've seen salespeople sell things they shouldn't have sold.

If you're thinking in the short term, you're going to act in a certain way.

and so what I really want to know is how do you treat your customers how do you

treat your employees how do you treat your partners and I'll give you an

example many people here know about the gig economy right I ask CEOs all the

time sometimes entrepreneurs will pitch me and they'll say oh yeah yeah it's the

gig economy and our employees they're not employees the people that we use are

1099 and we don't have to pay them benefits isn't that great I say well what do you what's your

investment in customer acquisition and how about training and you're gonna spend all this money to

get a customer to come to you and then you're going to have this you're you're at the end of

the day your interaction is by somebody that you haven't really trained well that you're not in

control over, and you're going to have a lot of churn.

So I'll give you a concrete example. Anybody here know Instacart,

the delivery service? So a good friend of mine runs

half of the United States for Instacart. He has over 80,000

1099

part-time employees that come and deliver.

And I said to him, what's your churn rate?

what do you think it was?

Their churn rate is 70% every six months.

So think about this.

80,000 people churning over 70% every six months.

I was just in a grocery store, and I saw a promotion for Instacart,

and they were giving $100.

I don't know if you've seen that promotion.

$100 and $100 of free delivery service.

So they're investing $100 to get customer acquisition.

But at the point of service, the point of contact, the point of relationship with the customer,

you've got somebody who every six months, 70% of your workforce is churning over.

So let's take a little deeper dive on that.

So trust has been in the news a lot lately.

Every day there's another headline about trust.

Here in Chicago, I don't know if you've read the headlines about outcome health.

Personally for me, I was really sad about outcome health, about all of these transgressions,

but particularly for outcome health here in Chicago.

The co-founders were friends.

I was at Shrada's wedding.

it was such an important piece of Chicago, the technology scene.

And to have that come as an outcome,

I'm just really profoundly sad for them and for the city

and for technology in general.

And it's so unnecessary, right?

And I want to talk, I'll give a case study about Facebook.

So show of hands, how many people here still use Facebook?

how many people use it less today than a year ago how many think about your kids are your kids still

on Facebook a little bit so most of the Millennials I speak to or the what's after Millennials is it

Gen Z or yeah Gen Z they're either off of Facebook or they use it for events and group planning but

they're really not on it very much anymore.

And I think of Facebook in a couple different ways.

So the first argument is, are they a publisher or are they a platform?

Now, the technology community will make the argument that it's a platform,

that they're not accountable or responsible for the news that's on,

whatever gets published on their site.

I believe that when over half of the people in the country get their news from Facebook, I think they've crossed over.

I think that they really are a publisher and that they are accountable and responsible for the information that gets published there.

User manipulation.

Have you ever gotten an email that says, oh, you haven't been on the site for the last three days.

Here's all the posts that you've missed.

They have armies of people who do nothing but figure out ways to get you to spend more time on the site because you are the product.

And every email you get, the one email is fine, it's okay, but it's like the straw that breaks the camel's back.

Eventually, you know you're being manipulated.

You can feel it.

You know that they're taking advantage of you, just innately.

And lastly, we were talking about cybersecurity earlier.

They just haven't been good guardians of our data,

whether it's because they're actively selling our data or data breaches.

They just haven't been good guardians and custodians of our data,

and they have fundamentally broken our trust.

but I want to give you a little bit of historical context

this is not the first time

if you go back to colonial days

and you look at the

what they call in sheets

just the news of the day

or you look at the civil war

if you actually do some research

and look at the political parties

and the lies and the manipulations and the fake information.

And it culminated in the late 1890s.

So one little piece of your history books,

if you remember back from your history class,

the Spanish-American War in the late 1890s.

And there was something called yellow journalism.

Do you guys remember the concept of yellow journalism?

And what happened is the newspapers back then

like today, they know that blood and guts

sell. And so what did they do? They made up a lot

of information. And they promoted, and they promoted, this

is in Joseph Pulitzer's New York Journal.

It's hard to read, but the whole newspaper is, we're going to give you

$50,000 if you can give us information that led to the

sinking of the main. Day after day, drumbeat after drumbeat,

they kept on making up false information.

And what had happened is we ended up going to war and people died.

Well, it turns out what most people don't realize

is that there were consequences to that false information.

And the part of yellow journalism that most people don't realize

is that afterwards the public got fed up.

And they were really angry

that that information was

they felt like they were being manipulated

and they called out to their leaders

and Congress went to

the journalistic community

and they said clean up your act

and if you don't do it we're going to do it for you

so this is a cartoon

beginning of the 1900s

that's Joseph Pulitzer and William Randolph Hearst

so you might know the Pulitzer name today

So in a great sort of PR spin move, how do you burnish your legacy?

You create the Pulitzer Prize.

Where do you get all his money?

Yellow journalism.

Right?

So I think of it as the pendulum swings.

The pendulum swings one way.

The pendulum swings back another.

And I think that we have control and that trust matters.

Integrity matters.

So here's an example.

So the journalistic community got together and they said,

all right, we're going to clean up our act,

and we're going to be accountable and responsible,

and we're going to have a journalistic ethic.

And I picked that.

It could be any newspaper of the day.

I happened to pick one from Chicago Tribune in the 1960s.

In the 1960s, if you think about a newspaper,

they published news.

They published editorial.

They certainly had their bias.

and this particular newspaper had more of a Republican bias,

but they had a journalistic ethic and they had a journalistic board

that they had to run everything past.

Well, they also had op-eds.

So in the newspaper, and if you had an op-ed that violated their journalistic integrity,

it didn't get published.

And they had advertising.

So they had big, giant display ads, and they had want ads.

Remember when the newspapers, a third of the newspapers were the want ads?

And guess what?

If there was an ad that violated their journalistic code of ethics, did it get published?

No, it didn't.

And if you thought that your local hometown newspaper,

that the Russian government was putting in disinformation in advertisements

in your local hometown newspaper in the 1960s, what would you have done?

You would have canceled your subscription.

So why aren't we doing that today?

So I think of trust in the business sense.

I think of trust as both offense and defense.

So I live in the world of startups, and in the world of startups, part of the reason we exist is because brands falter.

And when they falter, we could talk about it's a complicated matrix of why, of innovation.

There's lots of different reasons.

But one of the reasons that startups have a chance to dive in there and grab market share is because there's a failure of trust on the brand's part.

And I think of trust also from a defensive point of view as a corporation that, you know, the saying goes, it's really hard to earn trust.

It's really easy to lose it.

And I think that you have to, as a company, you have to operationalize trust.

And you have to be really thoughtful of the promises you make.

You have to keep those promises.

And keeping those promises creates longevity.

So Laird was talking about millennials earlier today, and he said millennials are not necessarily loyal.

I don't know that I agree with him.

I think it is really hard to change customer behavior.

It's really hard.

And once you start to establish a pattern, you build loyalty to a brand or a company, and it's hard to disrupt that.

And one of the ways that you disrupt that relationship is by breaking your promise.

So let me give you some specific examples.

So I'm going to talk about some companies, and I'm going to talk about the promise and then how they break them.

So just as some examples.

So Nike, the promise is inspiration.

I think about promises like either values or experiences.

Facebook, belonging.

You're belonging.

In fact, the last ad I saw for Facebook was be part of a group.

New York Times, truth.

You know, we talked earlier about Amazon being convenient.

It just shows up.

So it's either a value or it's an experience.

And it creates, I really believe that trust creates loyalty.

Now, what happens when you break that trust?

So, you know, at Facebook, you don't really belong, you are the product.

Or Uber, if it's offline, if technology fails, or Apple degrading batteries on purpose, right?

And we can go down the line, there's a list of all, we can do this for hours, of companies

and the promises they make and the challenges they have with those promises.

And so here's, I love this chart, so life changes.

So here's the Fortune Top 10 in 1969 versus today.

And if you know, there's only one company that's still, it's the same from 1969 to today.

I guess it helps when you have a natural resource like oil.

Like, hard to mess that up, right?

But life changes.

And if you're not being thoughtful and purposeful about how you manage your brand and how you manage your trust, you're going to be vulnerable.

And so here, I was trying to figure out, I have an investment thesis.

I think companies that build a culture of trust will deliver better long-term shareholder results.

And I was doing some research.

I was trying to find a proxy for that.

And this is a chart from Fortune magazine.

They did a chart of the best companies to work for from 1998 to 2016.

and they said if you invested $1,000 back in 1998

in the Russell 3000 versus our best companies to work for index,

here's the results.

So here's what I'd like to think about.

I think companies will perform better

because if you have a culture that values trust,

trust with your employees, trust with your partners, trust with your customers.

You're going to have more motivated and energized employees.

You're going to have happier customers.

You're going to be more agile and resistant in a world that's full of change.

And I think you're going to have better business outcomes.

And so I hope that you flex those trust muscles.

So thanks.

Well, I'll start with this.

Human nature is we gravitate to how we are measured and how we're compensated.

So one of the things I ask enterprise salespeople is I say, who's your champion?

And it's always somebody.

And I say, well, what are their KPIs, their key performance indicators?

At the end of the day, how do they get a bonus?

What's important to them?

What are the financial levers?

I'm a real big believer in empathy

and so I think that

the more you understand how somebody

is compensated, how they're measured

how they get a promotion, that is the front line

for how they're going to behave

and if you understand that

and then you can layer on top of that

I think it comes from the top

I'll give you an example

Do you guys know Redbox, the movie kiosks?

So I was the head of innovation,

chief marketing officer for Redbox.

And we got to a size where we were buying

a billion dollars worth of movies every year.

And we decided we better have a policy about gifts

because some of these Hollywood studios

were giving us some pretty lavish gifts because we were buying a lot of movies.

And the CEO says, okay, we came up with a policy.

We're not going to accept anything over $100, whatever.

And the very next day, and he's a New Yorker, lifelong New York Giants fan.

And the very next day, Verizon calls him up and says, hey, we want you to come to the

Super Bowl.

The Giants were in the Super Bowl that day, you know, that year.

We want you to come.

All expenses paid.

We're going to take care of it.

And Verizon cared because we had 46,000 kiosks.

And then at that time, we didn't have wireless connections.

We had a mobile.

We were connecting through mobile.

We were paying Verizon a lot of money.

And his eyes got big.

He went, ooh, giant Super Bowl, yes.

Oh.

And he didn't do it.

He didn't do it.

And so I think actually leadership is a really important part of that equation.

How many questions?

Yes, Scott.

What company today that we would all know do you think meets that trust relationship with customers generally?

Because I agree with that being both it's hard to find financially,

financially, but clearly the relationship with the customer.

Keeping your customer is always far less expensive than required to do.

Of course.

What's the best example today?

That's a really good question.

You know, there are like North Face.

Somebody said Tom's Shoes.

You know, I don't know.

Maybe you guys have some ideas of which brands that you like.

There's a few out there that I think are, and it's not just consumer brands.

You know, there are a lot of B2B companies or manufacturing companies.

Best-run companies, of course.

Of course.

But you have to stretch a little bit to think about it.

Yeah.