1: Getting better at getting better is what RiseWithDrew is all about.
Monday through Thursday, we explore ideas from authors, thought leaders, and exemplary organizations. On Friday, I share something about myself or what we are working on at PCI.
This week, we’ve been examining some lessons from Carolyn Dewar, Scott Keller, and Vikram Malhotra‘s terrific book CEO Excellence.
Specifically around the importance of not only having a bold vision, but also a bold strategy to bring that vision into existence.
Life is not a straight line, however, and sometimes the path gets bumpy.
Yesterday, we looked at Netflix CEO Reed Hastings‘s 2011 decision to divide the DVD-by-mail and unlimited streaming offerings into two separate services while implementing a 60 percent price hike for customers who wanted both offerings.
Things didn’t go well. “Millions of Netflix customers fled and the company’s stock price dropped 75 percent,”
Despite the setback, however, Reed and the company soldiered on. The authors praise his willingness to navigate the rugged terrain.
In time, “while the DVD-by-mail service became a niche,” they write, “Netflix has grown into an immense streaming business with two hundred million subscribers, $20 billion in revenue, and nearly nine thousand employees.”
Today, the firm is valued at nearly $300 billion.
2: One strategic insight I’ve been thinking about recently came from Alex Hormozi‘s book $100M Offers.
Two years ago, we started a new division within our company called StoryCause, which provides fundraising services to non-profit organizations and universities.
We are starting to get traction in the healthcare market. Which is very exciting.
So what is our natural inclination when we start to have some success?
Double down. Triple down. Sign up every potential customer. As quickly as possible.
Not so fast, Alex suggests.
Instead, what if when demand increases, we decrease supply?
“People want what they can’t have,” Alex writes. “People want what other people want. People want things only a select few have access to.”
Or, as Naval Ravikant says, “Desire is a contract we make with ourselves to be unhappy until we get what we want.”
3: Alex shares the following example:
“We have two supply-demand scenarios: Scenario one: We sell 10 units at $500 each (sell the entire pyramid at a price all say yes)
“Scenario two: We sell two one-day workshops 1-on-1 for $5000 each. (skim the top of the pyramid, with 80 percent not purchasing)
“It’s worth noting that each of these prospects has a different buying threshold. In my experience, demand for services is non-linear. Instead, I’ve found demand to be fractal (80/20). In other words, one-fifth of the prospects are willing to pay five times the price (or more).
“In the example, I might have ten people willing to pay $500, but two of them willing to pay $5000. So, I would make more, have lower costs (more profits), provide more value, and increase the demand in the remaining prospect base by selling fewer units.
“Think about how exclusive scenario one vs scenario two would feel. Think about all the people who would want to purchase but would not be able to.
“Would this increase or decrease their desire? It would increase it, of course.
“On top of that, if people see that others who ‘were able to get in’ are loving it, it would further increase their desire. And the next time, they would act with more urgency, and be willing to pay more for the same thing than they originally did.
“So now, in the aftermath of our second scenario, we still have eight people who have unsatisfied desires. This increases their desire further. And to boot, we now have new prospects who weren’t in the original pool who now want what we have.
“The next time we promote scenario two, we then open three spots at the same price and sell them all (still leaving some prospects with pent up demand!) This is a continuous theme.
“Conversely, if we were to promote scenario one again (the $500 price point), we would probably sell fewer slots the second time around.
“Why? We have no pent-up demand. All desire has been satisfied.
“When we ‘pull the trigger too early,’ each successive instance we promote, we sell even fewer. Eventually, we run out of sufficient demand to make even a single sale. This is the sad state many businesses find themselves in always trying to generate more demand to make another quick sale,” Alex writes.
The bottom line?
“We must,” Alex notes, “endeavor to keep our supply (and satisfaction of desire) under the demand that we are able to generate. This maximizes profits and keeps desire ravenous in our customer base. This is the real key to never going hungry.”
More next week!
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Reflection: How might I apply the scarcity principle in my business?
Action: Do it.
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