Everything I Know About Sales Success
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Everything I Know About Sales Success THE WORLD’S G R E AT E S T B U S I N E S S MINDS REVEAL THEIR WINNING SECRETS
Gerhard Gschwandtner Founder and Publisher of Selling Power M C G RAW -H ILL New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto
Copyright © 2006 by Gerhard Gschwandtner. All rights reserved. Manufactured in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. 0-07-149157-0 The material in this eBook also appears in the print version of this title: 0-07-147387-4. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. For more information, please contact George Hoare, Special Sales, at
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Contents
A N OTE
TO THE
R EADER ix
PART 1
THE PEOPLE CHAPTER 1
LEARN HOW TODAY’S TOP CEOs SELL FROM BEHIND THE BIG DESK Sandy Weill, Maurice Greenberg, David Komansky, Michael Dell, and Martha Stewart 3 CHAPTER 2
THE SHY GUY The selling secrets of America’s most outrageously entertaining billionaire, Donald Trump 17 CHAPTER 3
THE ART OF THE DELL The sales and marketing concepts that led to Michael Dell Company’s $2 billion year
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CHAPTER 4
THE BEST SALESMAN IN AMERICA? How salesmanship took Arnold Schwarzenegger from bodybuilding to the governor’s mansion 51
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CONTENTS
CHAPTER 5
ANATOMY OF A BILLION-DOLLAR SMILE How Jay Leno uses sales techniques to generate billions
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CHAPTER 6
THINK BIG LIKE VIRGIN’S RICHARD BRANSON Success lessons from a rebel billionaire 75 CHAPTER 7
PARANOIA PRINCIPLE How Andy Grove’s fiercely competitive spirit drives success at Intel 87 CHAPTER 8
CROWNING GLORY At any age, George Foreman packs a motivational punch
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CHAPTER 9
BARBARA SMITH’S DELICIOUS SUCCESS How a small-town girl turned her natural good looks and invincible spirit into big city success 113
PART 2
THE COMPANIES CHAPTER 10
THE POWERFUL SALES STRATEGY BEHIND RED BULL How determination and global appeal helped one company thrive 123 CHAPTER 11
ROCK SOLID How German software giant SAP racks up profit records year after year after year 139
CONTENTS
CHAPTER 12
THE MARRIOTT MIRACLE Following in his father’s customer-focused footsteps, Bill Marriott Jr. has built a $9 billion hotel and real estate empire 161 CHAPTER 13
THE TOYOTA SUCCESS FORMULA By making some of the finest and most reliable cars ever built, Toyota just keeps getting better—and bigger 175 CHAPTER 14
BUILDING BILLIONS IN SALES How UPS makes $33.5 billion by delivering the three basics packages, information, and money 189 CHAPTER 15
BEST FRIENDS How salesforce.com CEO Marc Benioff plans to beat the competition 203 C REDITS 217 I NDEX 219
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A Note to the Reader
In the pages of this book you will find real wealth. Not just money, but wealth to last your entire life. Wealth that, once you find it, no one and nothing—not economic downturns or company restructurings or cataclysmic weather events—can threaten. Wealth, after all, is more than material things. Wealth is a state of being and a state of mind. Sales professionals, the successful ones, understand something fundamental about the selling process. They understand that sales is about helping people solve problems. It’s not about closing, prospecting, networking, or manipulating people into doing things they hadn’t thought about doing. Professional selling, the kind of selling that this book is about, underscores the idea that the more people you help, the more you help yourself. Not all the people profiled in this book are professional salespeople. In fact most of them are not. Yet all of them know how to sell an idea, a product, a service, or a concept. Here you have such diverse high achievers as Arnold Schwarzenegger, Michael Dell, Barbara Smith, Jay Leno, Richard Branson, George Foreman—all of them sharing the wisdom of their many decades of experience influencing people and serving people’s needs—and, by the way, winning big by creating wealth for lots of others. Their wealth can-
ix Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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A NOTE TO THE READER
not be measured in money alone but in admiration of their peers, acclimation for a job well done, fulfillment in meeting and achieving goals set high, and finally, achieving ongoing success over many years and after many challenges. There’s an old sales adage that goes like this: Nothing happens until somebody sells something. The amazing stories of the high achievers profiled in this collection prove that old adage beyond any doubt. In any story of professional success, there’s an element of selling that starts with selling yourself on the idea that, yes, you can do it. Every successful person encounters naysayers who predict that it can’t be done. After reading these chapters—about how Richard Branson overcame his shyness and stuttering to become one of the world’s great business risk takers, about how Jay Leno followed his father’s advice about selling and transferred it to a mega career in show business, about how Michael Dell dropped out of college to found a computer company that took on the behemoth IBM and won and about many others—you’ll see how a simple idea and the determination to see it grow can lead to fantastic success. By using this book as a guide for your own personal and professional growth you can expand your horizons, take hold of your dreams, and steer your own course for success in whatever you decide to accomplish. Each chapter includes step-by-step how-to information on everything from setting goals to maintaining a competitive edge and more. I urge you to read this book with pen and paper in hand. Take notes, study the chapters, absorb the wisdom. You can be whatever is in your mind and your heart. This book can help you develop the skills you’ll need to achieve the success you want. Good Reading! Gerhard Gschwandtner, Founder, Selling Power magazine
Everything I Know About Sales Success
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PART I
THE PEOPLE
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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Chapter 1
Learn How Today’s Top CEOs Sell from Behind the Big Desk Sandy Weill, Maurice Greenberg, David Komansky, and Martha Stewart
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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egardless of economic background or social status, anyone can become president. Or so generations of hopeful parents have optimistically informed their children. Today, parents might say the same about another lofty executive position: CEO. Sure, there are still plenty of the standard-issue CEOs who went the MBA route to become head financial honcho. And unquestionably, with today’s rapidly changing markets, accelerated globalization, and competitive pressures at unprecedented highs, the CEO must have a firm grasp on the numbers side of the business. But that’s no longer enough. To lead a global organization in the treacherous twenty-first-century marketplace, the CEO must frequently be the top-selling dog as well. CEO
IN
FIVE EASY STEPS
If your mother or father is currently the CEO of the company you work for, you have a good shot at being next in line for the corner office. The rest of us need all the help we can get. That’s where Jeffrey Fox comes in. Fox, the author of How to Become CEO: The Rules for Rising to the Top of Any Organization (Hyperion, 1998), suggests the following tips for any ambitious sales professional intent on making the transition from sales executive to chief executive. 1. Don’t chum up to the bosses. Salespeople are gregarious people—they like to make friends. But draw the
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line with your superiors. They are business associates. Trying to become friends with the boss will be perceived as a transparent attempt to mask your lack of talent. Be there to help solve problems, both personal and professional, but wait until one of you works for a different company to get too friendly. Buy into your company literally and figuratively. Commit to your employer by buying company products and stock and talking up its products and services wherever appropriate. Do all of this publicly. Do not work for a company you cannot get behind with this kind of dedication. Make one more call. The greatest athletes—from Joe DiMaggio to Michael Jordan—are renowned for practicing more frequently and harder than anyone else. Success, whether on the playing field or in the office, is measured in inches. Be the superstar who makes one more sales call than anyone else. Find a model. Most successful people credit mentors, teachers, or coaches with helping lead them down the path of success. Actively seek out your mentor— someone in a position of power and influence who will encourage, educate, and counsel you while remaining honest and open minded. Give out lines of credit. Give everyone who works for you 100 percent of the credit for what they accomplish. That’s the great thing about credit—you have a nearly limitless supply of it to spread around. Credit takers, as opposed to credit givers, tend to be insecure, dishonest, and grasping, and few others want to work with them. But credit givers become known as doers who get the most from the people working under them.
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SANDY WEILL Take the example of Citicorp’s Sanford “Sandy” Weill, one highprofile financial industry CEO who wasn’t born with a silver stock ticker in his nursery. The son of Polish-Jewish immigrants, Weill was the first member of his family to graduate from college. Afterward, in 1955, he got his start on Wall Street—literally—as a $35a-week messenger for the brokerage firm Bear Stearns. Five years later Weill and three friends pooled their limited funds to open their own house. There Weill’s acquisitive nature surfaced as he grew the firm by buying up much larger companies, typically ones with significant name recognition. Fortune magazine has said that Weill was to businesses what Imelda Marcos was to shoes. During its 25-year existence, Weill’s firm went through many transformations and names, not to mention partners, but kept growing the entire time. By 1981 he was able to sell the company, then called Shearson Loeb Rhoades, to American Express for just under $1 billion. In making this deal, Weill had an eye on jumping to the front of the line to become the next American Express CEO, but within a few years he realized that personal and professional conflicts with then-CEO James D. Robinson would preclude that possibility. Tired of playing a role he referred to as “Deputy Dog,” he quit in 1985 at age 52, signaling the death knell of his career, or so many industry experts believed. But someone forgot to tell the irrepressible Weill. By the next year he was at it again, this time investing $7 million of his own money to take over Commercial Credit, a consumer loan company, and beginning to buy up troubled players. In the following few years he would take ownership of Gulf Insurance, Primerica Corporation, and Drexel Burnham Lambert’s retail brokerage outlets, plus a 27 percent stake in Travelers Insurance. With an irony so delicious he can probably still taste it, in 1993 Weill reacquired his old Shearson brokerage from American Express.
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Most recently, in 1998 Weill’s company, then called Travelers Group, merged with Citicorp to create a financial supermarket capable of offering customers of all types nearly every financial service possible, including banking, insurance, investments, asset management, and many more. Weill then beat out Citicorp’s CEO John Reed to emerge atop the new entity they’d created, Citigroup, with 110,800 salespeople in the United States. Throughout the entire growth period, Weill maintained profitability and delivered results. In the past 10 years his shareholders have enjoyed an average annual total return of 40.8 percent, a record no company of a comparable size can match. One part of Weill’s success stems from his extraordinary ability to motivate. After taking over ailing companies with downcast and dispirited work forces, he cuts away all the fat (down to the bone, if necessary), then inspires the rest to get back on track, sometimes seemingly by sheer force of will. He has prominently displayed in his office a plaque identifying him as a “professional busybody.” And it’s true that Weill is not the type of leader to hunker down in his office poring over reports. Instead, he prefers to get out and glad-hand, chatting up the work force. He also exhibits both hands-on and hands-off tendencies. As long as his managers are performing up to expectations, he’ll generally leave them alone to run their own divisions. At the same time, he loathes surprises and insists on being kept up-to-date on everything that’s going on in every corner of the corporation. “I didn’t know” is not an acceptable excuse for a situation gone awry. With operations in 101 countries, staying informed has become a formidable task. But in concert with his attention to detail, Weill also exhibits an almost superhuman capacity for storing and recalling business information. “I do like to have various sources of information,” Weill says, adding that “you learn more” when you open yourself up to a range of opinions. “This company is too big to micromanage,” he continues, “but it’s not so big that you can’t know what’s going on.”
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Weill’s other key attribute is loyalty. In the Travelers Group days, he used to compel senior officers to swear a so-called blood oath that they would not sell their stock while they remained with the company. Histrionics aside, the loyalty avenue runs both ways, and Weill still surrounds himself with many of the associates he worked with during the Shearson days. Today Weill hasn’t lost his wandering eye. “We’re in the acquisition business” is the frequent catch phrase at Citigroup, and the company now has set its sights on emerging international markets. Banks in the United Kingdom and Poland have recently come into the fold, as well as the European American Bank of Long Island, which he snapped up for less than $2 billion (how could he say no?). The last few years have seen Weill running through airports and passports alike, as he’s made a busybody of himself at nearly every port Citigroup now calls home. In 1999 he and his wife of 40-plus years renewed their vows in India—with Weill decked out in a Nehru jacket. But building a far-flung empire is one thing; ruling it is another. Weill’s greatest internal challenge today may be persuading Citigroup’s diverse divisions to work together to cross-sell one another’s products. In order to promote such harmony, Weill agreed to establish weekly meetings of all senior executives. The meetings have become so popular that out-of-town executives call in to make sure they don’t miss anything. The jury’s still out on how well cross-selling will succeed at Citigroup, but few are betting against Weill—not as long as he keeps on acquiring and the company retains the mantra he’s always lived by: “Make your numbers; do what you’ve promised; work together; think shareholder value.”
MAURICE GREENBERG Citigroup is certainly making the most of its worldwide opportunities, but when you talk about companies that first saw the “glow”
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in globalization, Maurice Greenberg’s AIG has to be at or near the top of the list. Since its founding in Shanghai in 1919 as a two-clerk insurance agency, American International Group has always lived up to its middle name, even after moving across the Pacific back to the United States. By the time Greenberg arrived in 1960 to develop its overseas accident and health business, AIG already had branches in 75 countries including Western Europe, the Middle East, North Africa, and Australia. Seven years later, the ambitious and driven WWII veteran was named CEO, only the second in company history. In the subsequent 35 years, Greenberg has built AIG into the leading American insurance firm and the premier underwriter of commercial and industrial insurance. Fortune magazine calls the company’s 19 percent annual earnings growth over that period “sensational.” Two long-term business strategies have dominated Greenberg’s tenure. First, unlike many insurers that make money by investing customer payments and accepting losses from underwriting, AIG insists on making the underwriting operations profitable as well. Premiums must therefore exceed the amount the company is liable for when claims are made. Second is the international angle. Soon after assuming the reins in 1960, Greenberg expanded operations in Southeast Asia and Japan, and long before the end of the Cold War, AIG had set up joint ventures in communist-ruled Hungary, Poland, Yugoslavia, and Romania. Recent investments have brought Russia, other former Soviet republics, India, and Vietnam into the AIG fold. Guiding AIG’s success abroad is Greenberg’s understanding of a principle travelers seeking a good time have always known: The best bet is to get in with the locals. Greenberg views AIG as a collection of villages with chiefs who are granted the right to run their villages as they see fit—as long as they hit bottom-line numbers. And the local hires don’t always stay local. The company’s head of
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worldwide life insurance operations, Edmund Tse, was hired out of the University of Hong Kong in 1961 and is now an AIG director. As a result, AIG’s policies tend to reflect uniquely local realities and opportunities. In politically unstable Uzbekistan, AIG offers foreign joint ventures the opportunity to buy “political-risk” insurance. It’s difficult to imagine some of the more staid insurance houses offering coverage for kidnapping, product tampering, or the public disgrace of a well-known corporate official. Yet these are all highly profitable avenues for AIG. When asked to describe Greenberg’s personality, associates often come up with such adjectives as tireless, demanding, tenacious, and driven. No one knows the insurance industry better, and despite a far-flung empire of more than 300 divisions operating in 130 countries, Greenberg monitors nearly every dollar, yen, euro, or bhat that enters or exits company coffers. To keep informed, Greenberg books 50 hours or so on his fall calendar each year to hold budget meetings with as many as 25 different operating units. The units come bearing a business plan book that Greenberg will arrive having digested in full, and he will be prepared with a spate of pointed questions. Despite the meetings’ appearance of a criminal interrogation, absent only the exposed lightbulb hanging from the ceiling, Greenberg’s intent in these meetings is not to browbeat. His real priorities are innovation and creative thinking. And AIG has the results to show it. Fifteen years ago, anticipating the softening of core underwriting businesses, Greenberg went in search of new revenue sources. When the softening took place as he had predicted, AIG was protected with its new derivatives operation, commodity and currency trading interests, a startup credit-card affiliate in the Philippines, and even a division that leased planes to carriers around the globe. Asked by Best’s Review to describe the secret behind AIG’s success, Greenberg fell back on the notion of granting people autonomy. “Part of our culture is that you build people with independence, who are thinking people intellectually and who don’t need to have their hands held day-to-day in order to make decisions,” he said. “We
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build from within a group of people, with a common goal and common objectives, that’s almost self-cleansing. It’s not for everybody.” Despite such a succinct description from the CEO, many Wall Street analysts have chosen to give up trying to account for the company’s seemingly unstoppable growth. Lacking his eye for detail, they simply trust that by the sheer force of Greenberg’s personality, his capacity to stay one step ahead of the curve, and perhaps a sprinkling of fairy dust, the AIG CEO will keep the wheels turning and earning. At least they can rest assured that he has no plans to leave any time soon. When asked about the prospect of change at the top at AIG, the 76-year-old Greenberg dismisses those thoughts immediately. “I feel good,” he says. “I like what I do, and I haven’t had another job offer.”
DAVID KOMANSKY Like Sandy Weill, David Komansky worked his way up. When he began his career with Merrill Lynch in 1968 as an entry-level $650a-month sales rep, the working-class kid from the Bronx could scarcely have imagined that within 30 years he would be running the legendary brokerage house, which according to its listing in the 2005 Selling Power 500 has 9,000 salespeople in the United States. How did Komansky make it to CEO? First, by being a terrific salesman. A self-described backslapping, gregarious person, Komansky joined Merrill Lynch after interviewing with 11 Wall Street firms and took to the brokerage business immediately. “It was as though this industry was made for me,” he once said. “I had always liked an electric, highly charged life and being with other people, and all those ingredients were present.” After seven years as a broker with a proven record of sales success, Komansky took the job of branch manager. Then in 1981 he was promoted again, this time becoming the youngest regional di-
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rector in company history. He proved incredibly precocious at the Midwest division, rapidly turning Merrill’s worst performing region into its best producer. Komansky has said that the successful turnaround in the Midwest gave his confidence—as well as his career—a real boost. From there Komansky was put in charge of real estate and instructed to decide within 12 months whether the firm should stay in the property business or sell the division. He opted to sell. Soon thereafter the real estate market caved in, and the Komansky star at Merrill Lynch was burnished anew. Actors are taught, when offered a role, to always say yes to casting agents: “Can you ride a horse?” “I grew up on a dude ranch.” “Can you swing on a trapeze?” “I toured with Ringling Brothers for 10 years.” “Can you breakdance?” “I taught Michael Jackson the Moonwalk.” Komansky understood the principle at work. So when, after a stint as national sales manager, he was asked to head up capital markets, he knew enough to say yes. “I knew as much about the institution equity business as flying a rocket ship,” he once said, “but I wasn’t going to say no.” With temporary stops during the 1990s as vice president for the company’s debt markets division and later as president and COO, in 1996 Komansky succeeded Dan Tully and assumed the reins at Merrill Lynch as CEO. Since then he has helped steward the company through five tumultuous years in the financial world, which included the Asian meltdown, the tech-stock boom and bust, and the aftermath of the September 11 tragedy. Through it all Komansky has steadily increased Merrill Lynch’s global presence while remaining focused on one unifying goal: pursuing the impossible. “We have to be the best at everything we do, everywhere we do it,” he explains. “Pure excellence is probably nonachievable, but it is a marvelous goal, because it forces you to reach higher and
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higher. The organization has to keep reinventing itself, to drive itself to the edge of the envelope. The day you say, ‘We are number one—isn’t that great?’ is the day you are sure to be number two.” Komansky’s commitment to being the best has contributed to Merrill Lynch’s aggressive acquisition campaign in Asia, as well as to the bold decision in 1999 to accept online stock trading, a move that transferred substantial business away from the company’s army of brokers. But no single business move, regardless how bold, could compare to the management crisis Komansky and all of Wall Street faced on September 11. Though the company and its headquarters across the street from the World Trade Center complex were lucky to escape nearly unscathed, 9,000 of the company’s 68,200 employees were temporarily displaced and much of the company was in disarray. Despite a bad back, Komansky led a parade of Merrill Lynch people up Manhattan’s West Side Highway as the towers collapsed behind them. Shaken but undaunted, Komansky rallied the troops, making quick decisions on the fly about relocating people and offices while reassuring employees and the investment community about the company’s, and the nation’s, resilience. Whether in a time of crisis or not, he notes, the leader’s ongoing challenge is to spur others on to greater achievement. “The more demanding you are, the more people will do,” he says. “I am convinced human beings are capable of doing things they never dream of—and sometimes all you have to do is ask. This firm is going to come back. This place did not get to be what it is by having a bunch of pussycats here.”
MARTHA STEWART She’s unquestionably one of the most high-profile CEOs in the United States. Why? Perhaps it’s two bestselling eponymous maga-
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zines, more than 10 million books sold, a television show, a syndicated advice column, a radio show, numerous mail-order catalogs, a signature line of household goods at Kmart, and the envy of nearly every homeowner, amateur chef, and gardener in the country. That distinction belongs exclusively to the CEO whose name has become synonymous with exquisite taste and the unattainable ideal in the domestic arts: Martha Stewart. Far from some mere figurehead who’s trotted out by handlers for photo sessions while other, wiser heads take care of the business of running the business, Stewart has directed every minute detail on her path to building the “cult of Martha” into a billion-dollar empire. Many of the early steps on that path have become well-known elements of the Martha Stewart lore: a suburban childhood in Nutley, New Jersey; modeling gigs through high school, college, and afterwards; buying and renovating the showplace home in Westport, Connecticut; opening a catering business in 1976; publication of her first book, Entertaining, in 1982; and the unprecedented success that followed. What many don’t know is that before making one book sale, Stewart had already proven her selling chops. Married in 1961, she began investing some wedding-present money in the stock market. In the mid-1960s, as a new mother, Stewart decided to try her hand in Manhattan as a stockbroker, her father-in-law’s profession. She excelled at the small firm of Monness, Williams and Sidel, at one point earning $135,000 a year, a healthy paycheck more than thirty years ago, particularly for a woman in the testosterone-laden securities industry. Any questions about Stewart’s business acumen were answered on October 19, 1999, the day she went to sleep $763 million richer than she had been that morning. No, she didn’t cater a joint birthday party for Bill Gates and the Sultan of Brunei. That was the date of the initial public offering of stock in Martha Stewart Living Omnimedia.
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As with nearly any woman who has achieved business success, Stewart has acquired no shortage of critics along the way. But even the naysayers admit that the one-woman cottage industry understands her audience. She recognizes the power of the ideal, whether customers could ever hope to measure up themselves. “Having something to dream about is very important to most people. My books are dream books to look at,” she once admitted, “but they’re practical. Women can take the recipes, the ideas, and use them every day, because what I’m giving them is not a fantasy but a reality that looks like a fantasy.” As the dream has grown, managing the empire has begun to outstrip even Stewart’s legendary energy and overseeing capacity. Make no mistake, she still keeps up the same pace as ever—sleeping only four hours a night; conducting meetings all day interspersed with conference calls, photo shoots, and reviewing copy; then returning to one of her homes to plant bare-root roses, mull cider, or sharpen garden shears. But while she unquestionably still commands the Martha Stewart Living Omnimedia ship (she owns 60 percent of the stock and 96 percent of the votes), she no longer does it all herself. Not every word in Martha Stewart Living has been scrutinized by Martha herself, for example. She also recognizes that effective delegation to capable people is what will ensure the company’s continued success and growth—but only so long as it still reflects the tastes, idiosyncrasies, and unique stamp that have made her the most powerful one-woman brand in America. “I’d rather be writing the books, cooking the pies, making the meringue wedding cakes,” she admits, “but now I have to do it by offering guidance and planning. I have imbued this company with a tremendous amount of my spirit and my artistic philosophy. So much that emerges here now is a combination of that and other people’s creativity.”
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Chapter 2
The Shy Guy
The selling secrets of America’s most outrageously entertaining billionaire, Donald Trump
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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n November 1964, an 18-year-old Donald Trump, home in New York on a break from college, went with his father to attend the opening of the Verrazano Narrows Bridge. Recalling that cold, wet day many years later, he told a reporter that the event gave him an insight that has since helped drive his successes. “The rain was coming down for hours while all these jerks were being introduced and praised,” he said. “But all I’m thinking about is that all these politicians who opposed the bridge are being applauded. Yet, in a corner, just standing there in the rain, is this man, this 85year-old engineer who came from Sweden and designed this bridge, who poured his heart into it, and nobody even mentioned his name. “I realized then and there that if you let people treat you how they want, you’ll be made a fool. I realized then and there something I would never forget: I don’t want to be made anybody’s sucker.” In his intervening 40 years as a real estate magnate, casino operator, best-selling author, and perennial tabloid headliner, Trump has been called plenty of names, but never “sucker.” In amassing an empire estimated (by Trump himself, so allow for significant overage) at somewhere between $2 and $6 billion, much of which was built with the assiduous application of other people’s money, Trump has demonstrated an uncanny ability to identify and exploit opportunities, combined with an unusual gift for deal making. Say what they will about his outsize ego, unrelenting self-promotion, and tacky nouveau-riche lifestyle, few critics would argue that Trump ever lets anyone get the better of him.
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Nowadays Trump’s critics are vastly outnumbered by his adoring fans, anyway, and all thanks to the success of his hit reality-TV series, The Apprentice, which has launched the man who was once known primarily as the world’s most (and only) famous real estate developer into the celebrity stratosphere as one of the nation’s top TV stars. In any public venue where he appears, Trump is immediately mobbed by admirers who, almost in unison, happily shout out his now iconic tag line, “You’re fired!” The Apprentice, with Trump as king-maker, doling out gold-plated pearls of wisdom to a gaggle of aspiring Donalds and Donaldettes, is predicated on the idea of Trump as a sort of überbusinessman—a premise accepted by the contestants, audience, and naturally, the host himself. But to what extent does the reality measure up to the reality show? Under scrutiny, does Trump’s background justify this public coronation as this generation’s greatest business executive? Trump unquestionably embodies many of the qualities shared by top sales professionals, including vision, tenacity, charisma, and tough negotiating chops. He also has a knack for being able to grease the wheels to get things done, whether that means bullying, cajoling, or tackling a problem personally by getting his own hands dirty (metaphorically, that is—Trump is a notorious germophobe who loathes shaking hands and keeps plenty of sanitary wipes on hand for immediately afterward). E I G H T W AY S IN
BECOME MORE TRUMP-LIKE YOUR SALES CAREER
TO
By perfecting the art of the deal, Donald Trump has made himself into a billionaire, an international celebrity, and a TV star. Drawing on his wealth of experience, he can also help make you a more effective sales professional. How do you measure up in the following eight areas Trump rates essential for success?
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1. TRUMP: “To me, selling begins with investing time in preparation and planning. In order to be able to sell, I have to believe in the product.” Ask Yourself: • Do you plan each day the night before? • Do you update your list of things to do throughout the day? • What is your systematic plan to outwork and outsmart your competition? 2. TRUMP: “Good salespeople must rely on three key qualities: first, enthusiasm; second, an understanding of the people they are dealing with; and third, good understanding of the product.” Ask Yourself: • Are you thoroughly enthusiastic about your product? • Can you develop three innovative ideas for improving your understanding of your product and of your customers to increase your sales? 3. TRUMP: “Great salespeople truly understand the people they are dealing with. They know when to take a very low-key approach, when to be more assertive, and when to sell with pizzazz. Flexibility is the key. The biggest mistake you can make is to deal the same way with all people.” Ask Yourself: • How well do you adjust your sales approach to match the personality and body language of your customers? • What are your key strategies for figuring out the best way to approach a prospect—before you even walk into the sales call?
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4. TRUMP: “The speed of ideas is very important. You can’t afford to wait until other people come up with the same idea.” Ask Yourself: • Do you keep up with or lag behind the pace of ideas? • How much time do you dedicate each week to brainstorming creative approaches for solving your customers’ greatest challenges? 5. TRUMP: “A lot of people just have the ideas and don’t have the drive to turn them into reality. That’s the big tragedy with many people. There are those who dream and those who implement those dreams. There are many dreamers who can’t implement their dreams, and there are a lot of doers who can’t produce ideas. It is very rare that you find a dreamer and an implementer within one person.” Ask Yourself: • Are you a dreamer, an implementer, or both? • What can you begin doing today to improve the quality of your ideas or to transfer your dreams from the drawing board to the real world of action? 6. TRUMP: “Great salespeople have an edge because they are able to let go of obsolete ideas. New ideas are your best asset in selling and in negotiating. To generate new ideas you have to be flexible. One of the most important lessons I’ve learned is that there is no right way or wrong way of doing things. You have to understand that the world changes, and what might be right for you today may not work tomorrow. You have to be prepared for the next day—to do something entirely different.”
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Ask Yourself: • How well do you abandon obsolete notions and accept new concepts? • When one approach to a problem proves unworkable, how quickly will you move to find a new solution? 7. TRUMP: “Everybody gets rejected. That’s part of life. You don’t have the time to deal with rejection; you just have to get the job done. You have to keep on plugging. You go on to the next step. When my business was in trouble, I had to get back to work, make more sales calls, think more creatively, or accept failure. Today the business is stronger than it ever was.” Ask Yourself: • When you lose a sale, how long does the disappointment stay with you? • Do you dwell on it only long enough to learn what you could have done differently to improve your chances and then rededicate yourself to succeeding with the next challenge? 8. TRUMP: “Tough times should never prevent you from thinking big. To me it’s very simple: if you are going to be thinking anyway, you may as well think big. Most people think small because most people are afraid of success, afraid of making decisions, and afraid of winning. And that gives people like me a great advantage.” Ask Yourself: • Do you think big or small? • Do you ever let the competition get an advantage because you have not envisioned the big picture? • Are you committed to breaking out of your comfort zone to sell to a customer base that will appreciate bigpicture thinking?
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LEARNING THE ART From a selling perspective, Trump certainly got an early start in the deal-making business. While in college at the University of Pennsylvania’s Wharton School, he demonstrated that he’d picked up a few tricks from his father, a millionaire developer of Brooklyn, Queens, and Staten Island apartment buildings, by buying up and renovating small pieces of Philadelphia real estate. For the five years following graduation he steadily upped the ante, investing in larger and larger properties stretching from Virginia and Ohio to Nevada and California. By the mid-1970s, the young developer was ready to take Manhattan. On the limited strength of his name, an admittedly meager resume, and sheer force of personality, Trump talked his way into bank loans, tax deals from the city, and lowball prices from property owners. As a result, he laid groundwork for the city’s new convention center, bought up a variety of buildings around town, and rebuilt a hotel over Grand Central Station. It was this latter deal that first made heads in the Manhattan development scene turn Trump’s way. Sensing an opportunity in the dilapidated and failing Commodore Hotel around the crumbling 42nd Street area, he constructed the deal brick-by-brick, one sale at a time. He first secured an option for the property from the bankrupt Penn Central Railroad for $10 million, then persuaded the city to give him a 40-year tax abatement—something no commercial property owner had ever done. Next he brought in as a partner the Hyatt Corporation, which then just happened to be looking to add a New York location. With these commitments in hand, he secured a $70 million construction loan from Manufacturers Hanover. “I said to the city,” he told the New York Times, “ ‘I will build you this incredible, gorgeous, gleaming hotel. I will put people to work in the construction trades and save hotel jobs, and the Grand Central area will come around.’ So the city made the deal.”
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Had the project run aground, it would have likely spelled the end of Trump’s short career. But as construction progressed through 1979, the city’s economy began to pick up, hotel rates jumped, and the glittering new Grand Hyatt that opened the next year happily furnished accommodations for the growing influx of Manhattan visitors. Even Trump admits that luck played a key role in the hotel’s success. “It was timing,” he said. “In another year I wouldn’t have gotten the abatement, and no one ever will again.”
MUCH BRAVADO ABOUT NOTHING Fortune, of course, tends to favor the well prepared. In Trump’s case, audacity goes a long way as well. One of the best examples of this truism lies in the story behind the young Donald’s negotiations over Manhattan’s new convention center. Peter Solomon, the city’s former deputy mayor for economic development, recalled that during the negotiations, Trump offered to forego the $4.4 million commission his option contract stipulated if the city agreed to name the building complex after his father, Fred C. Trump. “We thought about it and we came to the conclusion that it might be worth the $4.4 million,” Solomon said. “But after about a month of knocking the idea around, someone finally read the terms of the original contract with Trump. He wasn’t entitled to anywhere near the money he was claiming. Based on the sales price we had negotiated, his fee was only about $500,000. “But what really got me was his bravado. I think it was fantastic. It was unbelievable. He almost got us to name the convention center after his father in return for something he never really had to give away. I guess he just thought we would never read the fine print or, by the time we did, the deal to name the building after his father would have been set.”
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HERE A TRUMP, THERE A TRUMP . . . Despite this “nominal” setback, Donald persevered and has managed to splash the Trump name on the occasional project or piece of real estate. Perhaps you’ve noticed. The Trump Tower, Trump Casino, Trump Plaza, Trump National Golf Club, Trump Shuttle, Trump Visa, Trump Ice bottled water—the list just keeps on growing. But as he maintains, in his position only a fool wouldn’t capitalize on such a powerful brand. “The first time I did it, with Trump Tower, maybe it was ego,” he admitted to Time magazine. “But now it’s economics. If somebody tells you you’ll do a hundred million dollars more business if you call a building Trump Parc than if you call it Tower on the Park or some other name, you’d have to be some kind of masochist not to do it.” His predilection for seeing his own name in lights reflects just one of the radical departures Trump brought to the staid real estate development business. As he is fond of pointing out, he was the first developer to place an emphasis on the kind of showmanship that would have made P.T. Barnum proud. To the public, the Trump lifestyle, epitomized by the showplace penthouse apartments, Palm Beach mansion, yacht, helicopter, and a succession of beauties on his arm, became indistinguishable from the marble waterfalls, gold fixtures, and other luxurious appointments in the properties he was selling. “I play to people’s fantasies,” he once said. “People want to believe that something is the biggest and greatest and the most spectacular.” The acquisitive 1980s provided the perfect backdrop for the fantasy world Trump created as he simultaneously rode the booming real estate wave while feeding the media’s insatiable hunger for celebrity gossip. And crow as they would about Trump’s love of the spotlight, even his harshest critics couldn’t deny that all the media attention translated into more business for nearly everything with the Trump name attached.
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ALL DEBTS ARE OFF But then came the early 1990s, when The Donald’s high-profile successes turned into an even higher profile comeuppance. Trump built his empire on steadily climbing property prices and a ready stream of credit. When both quickly evaporated, Trump rapidly found himself saddled with a level of debt typically associated with third world countries. Though he never conceded specific figures, at the time BusinessWeek estimated that Trump’s company was $8.8 billion in the red, while his personal debt stood at $1.5 billion. You wouldn’t have known it to look at him, though. With soonto-be second wife Marla Maples on his arm, Trump continued to blithely strut through the lobby and gaming rooms of his Taj Mahal casino in Atlantic City as if the creditors weren’t clawing at the doors outside. Haggling with his many lenders in private, he affected the same, unflappable attitude. True, he was forced to give up many holdings, including the yacht, the Trump Shuttle, one Atlantic City hotel, two mid-Manhattan apartment complexes, and 49 percent of the Trump Plaza, but hey—you can’t erase billions in red ink by just trimming fat. Most importantly, unlike many of his contemporaries caught in the same crunch, Trump was able to avoid personal bankruptcy. Having invested so much time in building up the Trump name and brand, he brazenly used the threat of his own collapse as a lever to gain what many observers considered favorable terms. Sure, a prolonged bankruptcy struggle would have hurt Trump, but it would have hurt his lenders, too. As Ralph Kramden might have observed, he knew it, they knew it, and he knew they knew it. In fact, at the time, Donald commented that rather than marking him and the Trump name as damaged goods, his financial troubles actually served to bolster his reputation. “I think it has greatly enhanced it,” he said of his name’s mystique. “There was a media stampede, but when you come through adversity, I think people respect that.”
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BACK IN BLACK Rapidly shifting gears, Trump set about preparing for the next market surge. In essence, he merely returned to the standard Trump playbook, which is defined by only pursuing the top-notch, or in real estate terms, “Tiffany,” locations and thinking big. While other developers were nursing their wounds and bemoaning the tough economic times, Trump forged ahead with such epic, trophy-style business ventures as the luxury Trump Parc condominium on the southwest corner of Central Park; the Trump National Golf Club and housing development on 250 choice acres in Westchester, New York; and the massive $5 billion undertaking on Manhattan’s west side known as Trump Place, the largest single piece of real estate on the island, which will one day consist of 18 buildings comprising 8,700 units and 5 million square feet of commercial space. In case anyone had missed the news of all these and other deals, Trump reminded the public that the world had returned to its proper order with the bestselling book, Trump: The Art of the Comeback. To the general public, the Donald Trump they watch firing young hopefuls each week on The Apprentice is the living embodiment of the American success story. Unquestionably, Trump has made a great deal of money, but financial success is often also defined by how much money you’ve made for other people. Bill Gates, for example, while acquiring billions for himself also created hundreds of millionaires among Microsoft’s employees and investors. Trump’s investors haven’t seen anything like these kinds of returns. In a piece of uncharacteristic (for him) bad timing, just prior to the airing of the first episode of The Apprentice’s second season, Trump’s publicly traded hotel and casino company revealed that it was entering Chapter 11 bankruptcy. Although Trump Hotels & Casinos represents just 1 to 2 percent of Trump’s net holdings, announcement of the company’s reorganization of $2 billion of debt represented a serious public rebuke to the self-styled “Master of the Deal.”
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But the truth behind Trump’s glitzy casino operations is that they have never been particularly profitable. Share prices that traded at $35.50 in 1996 are now worth less than 40 cents apiece. Analysts say Trump overreached by building multiple high-end locations, which, rather than attracting new business and visitors to Atlantic City, merely leached customers from one another. Much as he is revered by the public for his legendary business acumen, within the community of stock and bond traders Trump and his related investment opportunities are viewed with a much more jaundiced eye.
THIS MESSAGE BROUGHT
TO
YOU BY . . .
“A record of success makes it very easy to do deals. People want to invest with you.” So said a young Donald Trump after building his first hotel in Manhattan. What’s true in commercial development is equally true in developing commercial TV shows. Not only did Trump and co-producer Mark Burnett face a struggle in selling the idea behind The Apprentice to a network, but even when NBC bit, the show could find few sponsors to incorporate into the businessrelated challenges facing contestants each week. “We asked some big companies to participate,” Trump said. “Nobody wanted to go on television with some show that might not be a hit.” As a result, the junior executives wannabe contestants spent much of the show’s first season scrambling to sell T-shirts at a flea market or lemonade via streetside stands—tasks seemingly unrelated to the show’s prize, a $250,000-a-year executive position with the Trump organization. Ah, but what a difference a ratings season makes. Season one of The Apprentice was an instant hit, with 20 million viewers tuning in every week and the finale grabbing 40 million pairs of eyeballs. In exchange for being featured in three of those episodes, Marquis Jet Partners, a
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private plane timeshare company, merely had to subsidize the cost of one New York–Boston flight for each contestant. By contrast, the much higher profile companies appearing in season two—with names like Mattel, Levi Strauss, PepsiCo, and Delta Air Lines—each ponied up about $1 million for the privilege. If ad purchases are included, one company reputedly spent nearly $20 million. With the growth of TiVo and other digital devices that allow viewers to skip commercials, advertisers today are eager for opportunities to insert their products within the body of popular shows. And for their cool million, companies will get a lot more than just a quick product mention—a significant portion of each episode takes place on a sponsor’s site with contestants working on a challenge specifically relating to that company’s business. “The contestants are talking about your product throughout the whole show,” said Janice Smith-Gomez, vice president of marketing for Masterfoods, a unit of Mars that used the show to launch its new Amazing Bar. “That’s much more valuable than just having your product sitting in the background.” Despite the exposure, there was plenty of trepidation about corporate risk; each company gave up editorial control, trusting the show’s producers to provide positive coverage of their fiercely guarded brands. Most companies even had to wait to see their episodes along with the general public. Realistically, however, the sponsors had little to fear. Neither Trump nor Burnett, who also produces the reality-TV staple, Survivor, gained fame and fortune by killing the goose that lays the golden egg—or in this case, exposing it to be an ugly duckling. This season, in addition to demonstrating their skills by working with the individual products, The Apprentice contestants will
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not only be strutting their business savvy, they’ll also be paving new ground in the effort to bring product placement out of the commercial space and into the foreground of programming itself.
FIRED UP AGAIN Predictably, Trump has shrugged off this latest stumbling block, preferring to focus attention on his many other interests and the return of The Apprentice. An unexpected ratings smash in its first season on NBC (one wonders whether the ABC executives who originally passed on the show have a newfound appreciation for the show’s tag line), The Apprentice earned a choice spot in the peacock network’s Thursday night lineup, which was formerly anchored by Friends. Plus, Trump received a big pay increase, bumped from an estimated $50,000 an episode to $180,000 per. And that doesn’t include his producer’s fee, percentage of merchandise sales, or the spike the show will give to sales of his most recent book, Trump: How to Get Rich. NBC was willing to give Trump such a generous deal, not only because of The Apprentice’s large viewership, but also because of the makeup of the show’s audience. The Apprentice draws particularly good numbers among the acquisitive and upwardly mobile 18- to 49-year-old demographic that is highly coveted by advertisers. Not surprisingly, these are the same folks who buy Trump’s books, stay in his hotels, live in his buildings, play on his golf courses, and collectively fund his lavish lifestyle. But anyone who hopes to gain any insight into Trump’s business wizardry by tuning in to The Apprentice needs a wake-up call. Watching a group of suit-clad twenty-somethings trying to hawk lemonade on Wall Street and then tear into each other in an artificially constructed “boardroom” session is all about entertainment,
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not education. Trump admits that even the pointed “You’re fired” is pure artifice. “It’s both a horrible and beautiful phrase,” he recently told the Washington Post. “In real life if I were firing you, I’d tell you what a great job you did, how fantastic you are, and how you can do better somewhere else. Generally speaking, you want to let people down as lightly as possible. It’s not a very pleasant thing. I don’t like firing people.” But that’s what makes Trump’s ongoing success such a marvel: it’s constructed on a thin foundation of fantasy that his growing base of fans continues to buy into, blithely ignoring all evidence to the contrary. We’re told that his casinos are bankrupt, but that’s beside the point because on our TVs he’s still the cock of the walk, traveling everywhere by helicopter and limousine, living in lavish luxury, and engaged to an exotic Eastern European beauty. This image is why it ultimately doesn’t matter whether Trump truly is the business world’s answer to Hercules. What matters is that he believes it, and that he will work tirelessly to make sure we keep believing it as well.
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Chapter 3
The Art of the Dell
The sales and marketing concepts that led to Michael Dell Company’s $2 billion year
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
A
fter all these years some people still don’t take young Michael Dell seriously, and he seems to like it that way. Although press reports about his childhood business acumen are contradictory, they go something like this: At seven little Michael was ready to make his first big move. According to one story he tried to enroll in a correspondence school to get a college diploma. Another account has him taking mail order courses for his high school diploma. One thing is sure: he was in a hurry to get somewhere. Press reports say that at 12 (some say 13) Michael earned $2,000 selling stamps on consignment out of a rented post office box. Still other stories have him starting a mail order stamp-trading business by publishing his own list of stamps and auctioning them off. At 15 (or some say 16) he bought up lists of newlyweds from Town Hall, called them up to offer a subscription, and supposedly broke sales records at the Houston Post. Other reports say he recruited high school buddies a year later to do the same over the phone, netting Michael a cool $18,000 (or some say $17,000) that he then invested in a brand new BMW. According to Michael Dell, “In most counties in Texas, when you get married you have to register at the county courthouse. I had the idea of sending a direct mail offer to these addresses. I got this idea because I was selling subscriptions on the phone and people buying were often newlyweds. The other group that I found bought a paper most often had just moved to a new house. So I got lists from banks of people who had just gotten a new mortgage.”
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Even as a teenager, Dell instinctively saw the hidden power of using solid prospect lists and the telephone to close sales. Whether any of these accounts is the absolute, whole truth we’ll never know. By now the factual stories are likely forever buried in Dell Computer Corporation’s instant nostalgia file. Yet one fact remains. Before Michael Dell turned 30, he owned 30 percent of a company that currently does $2 billion in sales worldwide. At this writing, that computes to a stock value of $500 million. In the computer field, even upstarts have no business turning the billion dollar corner until they are at least 25. But this legendary dorm room computer entrepreneur seems to have eclipsed even Steve Jobs’s twenty-first-century-American started-in-a-garage success story. And it’s not over yet.
THE HUNTER (NOT YET THE HUNTED) With sales figures climbing above $2 billion and competitors running for cover, Michael Dell has all but declared war on the way computers have always been sold and serviced. In fact, some industry pundits believe that Dell has fueled a raging fire that will consume every also-ran in the business, leaving the computer consumer at a banquet with only four plates left on the table: IBM, Compaq, Dell, and Apple. Other management gurus claim that Dell has nowhere to go but, eventually, down. Nervous computer and peripheral dealers are looking over their collective shoulder to see whose neck will feel the ax next, while rival PC clone Compaq has dropped prices so fast that would-be buyers have hardly been able to rewrite their checks. To make the computer market even more itchy, a Wall Street analyst at Kidder Peabody recently remarked that Dell Computer Corporation had accounted improperly for foreign currency trades, sending Dell stock sliding nearly 10 percent. With Dell one of the hottest stocks around, the rumor sent paroxysms through Dell
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Computer Corporation’s headquarters in Austin. Managers scurried, spokespersons grabbed for phones, legal arms stretched across the country. By day’s end, the Wall Street analyst had suffered a slapped wrist, Dell had solidified its backing in the financial community, the foreign currency flap had been clarified, and Michael Dell had emerged—once again—the winner!
THE BEST TARGET TO SHOOT AT To those who have watched Dell’s rise from college hacker to corporate tycoon in just shy of nine years, this rise back to the top comes as no surprise. For Michael Dell is a fierce competitor. Willing to take on the biggest guns in the fleet, he sails into harm’s way with nothing more than a sleek plan to outfox even the most entrenched armada. What’s his secret? Well, his competitive spirit doesn’t hurt. Add to that the crystal-clear thinking of a visionary, the keen sense of what the market wants, a willingness to learn what he doesn’t yet know, and the desire to surround himself with the brightest minds to handle specific tasks—and you have one entrepreneur who is redefining the way America, and the world, buys computers. But there is just one more thing: Michael Dell is a brilliant salesman. Taken as individual units, none of these qualities would add up to the success story folks are spreading about Dell. Is he a genius? Well, not technically. That is, he didn’t come up with any technological breakthrough. He’s no Jobs or Wozniak. Did he sell out his year’s quota at IBM in one month and then sit around looking for something else to do? Well, not exactly. He never worked for anyone else. So, he’s no Ross Perot. Has he taken the systems that other people developed, looked at them in a fresh way, analyzed what the customer wants, cut margins, streamlined production, cut out the middleman, and turned telemarketing into an art form? Yes, that’s closer. Dell may be a
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new-age industrial cousin to Henry Ford. What Ford did for the assembly line, Dell has done for the marketing line. Dell’s delivery systems also may be the logical offshoot of Fred Smith’s predictable overnight service at Federal Express. M I C H A E L D E L L R AT E S H I M S E L F
• • • • • • • • • • • • • •
Competitor 10 Innovator 10 Goal setter/achiever 10 Entrepreneur 10 Exporter 10 Husband 9 Strategist 9 Problem solver 8 Manager 7 Marketing 7 Selling 7 Advertising 7 Production 5 Finance 5
AN OLD STRATEGY PAYS DIVIDENDS Let’s take a look at Dell’s theory and how he put it into practice. 1. Retail stores are not the best places to buy computers. Why? Because most of the people who work there know little about the computers they are selling. In many cases they know even less than the buyers. 2. Retail stores charge more for the added value that they rarely give the customer. 3. Retail stores sell end users off-the-shelf products that may or may not suit their needs.
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So here are lessons one, two, and three from Michael Dell on how to build a billion dollar business selling computers. “First,” he told PSP, “build the organization around the customer. When you look at this business, it’s been one of customer responsiveness and being able to satisfy the customer. Second, create a spirit of innovation within the business. We always look for ways to change things and ways to make things better. Customer responsiveness, innovation and change and ongoing improvement. Third, set objectives that stretch goals for building the organization.” That sounds simple enough. Dell goes on to describe the initial stages of his computer sales revolution. “The idea in my mind was that selling personal computers and related equipment through the dealer was very inefficient and the service was very poor. If you could sell the part directly through to the end user and talk directly to the end user you would have better support, more efficiency and a happier customer and you would have a great business,” he explained. That was in the beginning, way back in, oh, let’s see, 1983/1984 when Dell Computer Corporation was doing business out of Michael Dell’s University of Texas dorm room under the name PC’s Limited. Dell, who had taken to hanging out in computer stores during his high school years, one day went home and ripped the guts out of his Apple to see what made it tick. Now a college man, Dell began buying up surplus parts—disk drives and the like—from local dealers who had an excess of inventory that they were only too happy to unload on the bespectacled kid with a dream. (He wore thick glasses then; today he sports contact lenses and $600 suits.) Little did the dealers know he’d one day be cutting them right out of the picture as outdated and overpriced.
A BRILLIANT NEW MARKETING PLAN With the parts, Dell began to assemble—and sell—his first PC clones. By souping up stripped down IBM machines, he could pro-
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duce more speed and power at a fraction of the cost. He sold the first units to friends on campus and word of mouth spread. It was an underground of undergrads, smaller than the Elvis thing but with gestalt—the Beatles and MIT rock and rolled into one mighty marketing concept that must have burned brightly in the brain of young Dell. He even offered specific souping-up-on-demand service for businesses that were beginning to hanker after the speed Dell could offer. He became a man with a mission. And what about Mom and Dad, and the tuition they had shelled out? Well, Mom’s a stockbroker who understands the value of solid sales, and Dad’s an orthodontist who, by the way, showed up at sonny’s dorm unexpectedly one day and caught Michael and his cronies in mid-business transaction. It was time for a talk. The armistice they worked out looked like this: At the end of his first college year (May, 1984), Michael would take his profits ($20,000) and set up shop in an Austin storefront. If by the end of August things did not look bright and promising, the three Dells would redeal and Michael would return to his premed studies. Dell shifted into second to begin the long, uphill climb. He offered custom-built computers to doctors, lawyers, and small businesses, always getting half the money up front to buy components. These cash, credit card, or check deals kept Dell’s cash flow healthy. In the first month Dell and his minions sold $180,000 worth of computer hardware. By plowing every cent back into inventory and salaries, sales had soared to $6 million after nine months. By the beginning of 1985, Dell was employing 39 people and was set to launch a national advertising campaign to attract small- and mediumsized companies as customers.
IT’S WAR! The ads, a concept that the big guns in the business were too slowwitted to grab, offered an 800-number service to order customized
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machines. Users could select speed, memory, drives, and other peripherals. Because they were buying direct from the manufacturer (Dell was still assembling parts that he bought all over the place— the same parts everyone else in the business was using), customers got more performance for a much lower cost—up to 30 percent. What’s not to like? Well, for starters, customers didn’t want to have to lose their newer, faster, souped-up machines for two or three or more days when they needed service. Since Dell was an over-the-phone-we’ll-ship-it-outright-away-and-if-anything-goes-wrong-you-ship-it-back-and-we’ll-fixit-and-then-ship-it-back-to-you shop, customers were getting a little hot under the keyboard. This wasn’t service. It was tease and trap and decidedly ungood for business at both ends. Now here’s where the Dell competitive spirit really shines. A problem you say? Let’s fix it. Now! Dell made a service deal with a national company that already had a computer repair force all over America, and almost overnight, these techies were appearing at Dell customer sites to repair or replace broken boxes. In March, 1989, Dell made the same deal with Xerox Corporation, which took over the Dell repair contract.
INTERACTIVE CUSTOMER COMMUNICATIONS Dell also set up a toll free customer support service, which today registers calls in the tens of thousands. Such calls also serve to keep Dell aware of just where the market’s heading and what it’s hot for. By keeping records of all the order and support calls in a database, Dell engineers can call up anyone’s record instantaneously, offer a temporary solution, and then move right over to the research and development department to research the problem and come up with a permanent solution or new component. But we’re getting ahead of our story. That’s the way it is with Dell. Things always seem to move faster than you expect.
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Take the critics: Dell told PSP, “Early on, the company was always winning the editor’s choice awards.” Take advertising: “I can remember the first ad that we did. An ad guy literally sketched it out on the back of a pizza box. We just learned by what worked— by trial and error.” The ads that followed took direct aim at industry leaders IBM and Compaq. Again, that competitive drive. Take service: Dell has established an unbeatable reputation by being ranked number one for customer satisfaction by the J.D. Power & Associates survey of small- and medium-sized businesses. Well, OK, here we’ve got a whiz kid who’s not quite out of the whiz mold. He’s not just a techie, not just a businessman, not just a salesman, not just a fierce competitor. So what is he and what exactly does he do that’s breaking all the growth and sales records across the computer industry? To sum it all up, he’s a margin cutter. He’s cutting production margins, price margins, delivery margins, service margins, research and development margins, sales margins, and even time margins. He’s found a way to look at literally every function within his company and industry and cut the time it takes to perform it. As he said in an interview way back in 1987, “I’m fascinated with the idea of eliminating unnecessary steps.”
PRICE ALONE WON’T CUT IT And that’s what rival companies failed to realize about the Dell phenomenon. Dell is not just taking orders by mail and cutting out the dealer. He has conceived an entirely new way to approach a market, discover what it wants, and then respond to its demands quickly and effectively. He has invented and trained his sales and service army to use the marketing equivalent of a high-tech Gatling gun. He even has a name for it—direct relationship marketing. Yes, Dell has also made mistakes. The lack of effective service early on was one. And later, in 1989, Dell got caught with too
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many pricey memory chips for a less-than-hungry market. There was an ambitious but abortive attempt to build an engineering workstation. Stock slumped and Dell regrouped in characteristic fashion—fast. This year Dell stock has been an upward spiraling record of “beat out everyone in the fleet.” As sales approached the $2 billion mark, profit margins hovered within five to six percent. So competitive is this boy brain trooper that at one company party Dell showed up in army fatigues, signaling no let up in the combative stance he has always promoted toward the competition. And this after the company had won every bout in a knockout. It’s good to be king! It’s better to keep your forces on the alert for the next salvo. Maintaining high growth and profit at the same time takes, in Michael Dell’s own words, “A balance between the growth activities and building of a structure to support those. They have to be in concert because when one gets ahead of the other there is trouble. “What we did is actually build our team based on our capabilities. We had pretty well agreed to standards of performance and things that we would watch and identify. We carefully watched if we were not executing the business in a way that was correct. Today, obviously in a business like ours, inventories are watched very carefully, the margins, our expenses are watched very carefully, there is a very good understanding throughout the ranks of what the parameters are of success. “I think you must constantly have well established and well agreed to goals, especially when you are operating in a crazy environment, because you don’t necessarily have the time to sit down and have long meetings and develop strategies. But if everyone knows what the targets are, then you have a better chance of hitting some of them. My role now is to set the direction for the business. What markets should we expand to, what strategies should we pursue, what are the objectives we should have for our business?”
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AGGRESSIVE AND COMPETITIVE Michael Dell has managed to weather stormy seas and chart a clear course to the future by relying on some very sage advice: “My father used to say, ‘Play nice, but win.’ Basically the idea is that there are a lot of people out there who don’t necessarily play fair, but use tricks, or don’t use the highest ethical standards. “One of the things that are important when you have a very aggressive company, and a very aggressive strategy, you have to have very clearly established guidelines of what is acceptable and what is not. Sometimes in the pursuit of winning some people cross the line of what is acceptable, so it is very important to have clear, ethical guidelines for the company. So that someone does not do what he thought was the right thing for the company, but was wrong, or harmful or not legal. Dell Computer Corporation also has written guidelines that employees sign. “I think healthy competition is more than winning. Healthy competition is when all players in the same market are playing by the same rules.” To become a successful salesperson, Dell stresses “understanding the needs of the other person, and the ability of communicating the value of what you have to offer. Motivation plays a key role. In a business like ours, where there is ongoing growth and a lot of opportunities, it is easy to get excited by the success of the business. At the same time we have to leverage that excitement and energy toward the process of continuing that success. The key is to provide an environment that allows for growth and convincing our people that they can indeed achieve great, great things. Giving them the tools they need and having parameters for setting goals that are very aggressive.”
AN AMAZING CORPORATE CULTURE Michael Dell once said that he wanted to grow at outrageous rates and do amazing things. “We are pretty much on track,” he states.
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“Obviously we can’t grow at a 150 percent rate all the time. But this year many things happened, a whole series of things, the international expansion, the growth of our channels, our growth rate in mature markets, our ability to expand our internal cost structure. By 1987 or 1988 we realized that by 1992 we could do a billion.” As everyone now knows, Dell hopped over that mark to make it an even $2 billion. Corporate culture at Dell is clearly defined. Says Michael, “It’s very simple. Responsive, customer focused, high intensity level.” How does Dell handle rejection? “You stand up and fight back.” To recover after a disappointment? “Get back and fight harder.” How has Dell handled the shift from teenage tycoon to mature CEO? “There are a number of issues you have to deal with as a CEO that don’t directly relate to the business of producing and selling products. That’s stuff you have to learn. My philosophy is to have all the advice I can get from the most talented people I can find. I think you have to be confident, not arrogant. There is a big difference between confidence and arrogance. Confidence is belief in your abilities, and arrogance is disregarding reality.” Being on the inside of Dell Computer Corporation is similar to residing in the brain of Michael Dell. “One thing I will tell you,” says Dell of the company he has nurtured, “inside the company we are very self-critical. Especially within the top 100 managers in the company. We are very frank and very open about our problems in the company. And we are quite objective in the pursuit of an answer and I think that this is extremely helpful. You need to ensure that active and objective discussions are going on.” For Dell, moving forward is a process. “I try to get people to think about the process that I go through to come up with ideas instead of just saying, here is an idea. For example, when we were talking with CompUSA, a software house, I came in one day and said to someone, ‘We should be working with them. Go look at it and see what you think. And gradually he saw the learning process I would go through. I think you can teach people to be more in-
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novative. Because we accept change and innovation, and people are encouraged to argue, we have incredibly inventive and creative people, and that’s very positive.” At Dell Computer it’s not unusual to see signs that exhort you to take a risk. “The message is for everybody,” explains Dell. “Everybody is supposed to think about risk. The problem is not my taking a risk, the problem is that as the company grows, you want people to continue to take risks and be inventive and to think about ongoing improvement.”
GOING GLOBAL What about the future for Dell Computer? “I think that the information technology business is going to undergo huge restructuring from a technological standpoint, in the products that follow from that, in the ways that products are sold and the companies that sell them,” says Dell. “I believe that the traditional companies like IBM or DEC are going to be faced with a mammoth restructuring. That provides great opportunity for some fast and flexible companies that can provide the products and services required. They have an exceptional opportunity for the next few years. “To cash in on these opportunities,” Dell continues, “we’ll be building a global distribution system and relationships with our customers. I think it is having the production capability required to deliver those products to the customer, and growing the services we provide, and not just providing a box, but providing a complete computer or complete networks of computers and services and support that go around those computers. So, in essence, we will be delivering total solutions as they relate to all parts.” In fact, Dell has already made significant inroads internationally. After entering the European market in 1988 with zero sales, in just five years Dell was doing $240 million. European sales constituted 30 percent of Dell’s total sales.
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“We opened up directly into about 20 countries and we have distributors in 50 other countries. We are running at about one country a month in terms of direct distribution and in the last quarter in every country we grew over 125 percent including the United Kingdom, Germany, France and Canada,” explains Dell. How does he reproduce his American success over there? “I think you don’t necessarily transplant it,” said Dell. “You take an idea or a concept and then you mold it to the specific market. Get talented people from the particular market that you are entering, to execute that concept and then you leave them alone and let them do their thing. For example, if you look at our business in Germany there is a much higher content of eye-to-eye selling with large accounts, than there is in the United States. That is really a top requirement. “I think cultures are very different and there is no such thing as the correct way of doing business all over the world. It has to be a molded image in each market, but it should be equally positive and easy to any customer in any market. It’s just going to be slightly different according to the environment. For example, we’ve got the best service and support in Czechoslovakia, but it is different from service and support in the United States.” To be successful in foreign markets, Dell suggests building partnerships. “Basically, the idea is, get a bright person, an entrepreneur, or a businessperson who understands the computer industry, and looks at the model, understands why these concepts and ideas apply to that specific marketplace and has qualified objectives. The primary objectives are to establish the direct selling model and have a high level of customer satisfaction. The financial objectives are really secondary, because if we reach the financial objective, and not the customer relationship objectives, you get off to the wrong start. You start with getting the model in place and later on you reap the rewards.” Meet customer objectives and financial objectives will follow? Wall Street has to take a back seat to Main Street? What is this? Blasphemy?
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“It’s pretty obvious,” states Dell. “Lots of companies have gone through a lot of problems and we’ve learned from them. I have done a lot of reading and I have a lot of curiosity. I’ve listened a lot.” And after all the studying and reading and listening, Dell came back to basics. The customer is always right. Dell is actively selling in western and eastern Europe, and the company already has plans to start up in China; and, according to Dell himself, he has traveled to Japan twice a year for the past seven or so years. “Every time I go, I learn something,” Dell said. “There is a respect for the customer that is very, very strong. It’s the most interesting country in terms of contrasts. Japan is very precise. There is a great respect for excellence and a great respect for the future.” The same seems to be true at Dell Computer Corporation. And why not? Dell continues to stun his rivals and delight his customers. That seems to be an unbeatable combination. A TELEMARKETING EDGE
The Dell success story wouldn’t be complete without a look at the heart of its sales operation. Given the fierce competition in the computer industry, few outsiders are allowed to tour the Dell telemarketing facility. The direct sales division, one of four major sales operations, is located in a one-story flat-topped building in an industrial park in Austin, Texas. The parking lot is filled. A Pinkerton guard asks us to sign in. As in all Dell buildings we visited, security is tight. “We handle individual customers and small- and medium-sized businesses,” explains Betsy Blair, direct sales operations manager. There are over 200 telemarketing reps in one large office, each in a cubicle measuring 4 by 6 feet. Most of the staff consists of entry level salespeople who earn between $20,000 and $25,000 a year.
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Answers in a Hurry Dell’s telemarketing operation is a model of efficiency. Red computer displays on the walls monitor all telephone traffic in the telemarketing room. Each phone system is tied to monitors that tell managers how many callers are waiting for someone to answer the phone. We stop and watch the numbers change. First there are only five callers waiting, but the number rises to ten before it drops down to three calls. Another dial shows the longest waiting time. Right now the display shows 45 seconds and rising. The dial peaks at 64 seconds and then drops back to 20 seconds. Betsy explains that the average time to answer customer calls during the previous week was 17 seconds. Fewer than one percent of the customers hang up before her salespeople can answer a phone. Many times, a week goes by without a single call lost. As we walk through the rows of workstations, these young and dynamic salespeople continue their conversations without skipping a beat. As is customary at Dell, every Friday most employees sport casual clothes; many are in Dell T-shirts. Making Selling Easy We stop at a workstation and meet Kevin McGinnis, a salesman who just finished a call. Kevin explains how, within seconds of receiving a call, he can display customer records on the screen. Betsy shows how Kevin can fax a proposal right from the computer while he is still talking to the customer. What if the customer calls back while Kevin is on another call or not in the office? Betsy explains that his partner will take the order while Kevin will get credit for the sale. When Kevin’s partner is off, he will take orders for her.
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Literature requests are fully automated. The salesperson simply types a fulfillment code into the computer, which tells the mailing house exactly which package to mail. The information is downloaded to Dell’s fulfillment house in Dallas. They generate the label and mail the appropriate information package to the customer. Do the salespeople get calls from customers with technical questions after the sale? Yes. Doesn’t that cut into your selling time? Jennifer Frame, a telemarketer sitting across from Kevin, smiles as she answers the question, “No, because when you help a customer with a problem that’s the best time to get referrals.” 8,000 Calls Per Day During an eight-hour period, each Dell telemarketer will talk to 70 to 80 people. About 30 of these are outbound calls; the balance is from customers or prospects. During a busy day, the direct sales group may handle over 8,000 inbound calls. Dell’s telephone sales department is staffed from 7:00 a.m. until 9:00 p.m. (CST), seven days a week. There are four shifts with alternate schedules to cover the phones. If customers call during off hours, they can leave a message and receive a return phone call the next morning. A group of interns handles all the return calls. The weekend shifts are necessary to handle the calls that come from ads placed in computer magazines and in Friday’s Wall Street Journal. The $15,000 Sales Goal “My daily sales goal is $15,000,” explains a salesperson in a corner office next to the sales incentive score board. He has his best closes pinned on the wall divider: 1. How do you want to pay for that? 2. Will you be making a purchase today?
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3. When would you like the system shipped? 4. Have you decided on Dell? 5. There has never been a better time to buy. Wouldn’t you agree? He laughs when I ask him which close he prefers. “Number four will tell you quickly if they’re just kicking tires. If they are, you’ve got to get them off your line. You’ve got to move on to the next one.” How much sales volume does he generate? The twentysomething salesperson smiles and says, “About four million dollars a year.”
Chapter 4
The Best Salesman in America? How salesmanship took Arnold Schwarzenegger from bodybuilding to the governor’s mansion
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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n 1966, an unknown 19-year-old bodybuilding hopeful named Arnold Schwarzenegger shared with a friend his life’s aspirations. He said, “I want to be the greatest bodybuilder in the world, the greatest bodybuilder of all time, and the richest bodybuilder in the world. I want to live in the United States and own an apartment block and be a film star.” From nearly anyone else such ambitions might have sounded like a mixture of pie-in-the sky fantasy and unmitigated arrogance. Yet what is perhaps most striking about the young Austrian’s plans is that he actually sold his future short. Or perhaps he just forgot to mention marrying into America’s preeminent political family and being elected governor of California—not to mention becoming one of the top box office movie stars of all time worldwide. Oh, and let’s not forget that he also became a savvy and wealthy businessman. Today it’s almost easy to forget that the man known around the world as simply “Arnold” was not always the larger-than-life icon so deeply embedded into the universal consciousness. Arriving on these shores in 1968, he was just another immigrant—albeit one who could tear phone books in half—looking to achieve not just one American Dream, but all of them. Each step in Schwarzenegger’s unlikely climb from bodybuilder to movie star to politician required a selling job as formidable as any of the actor’s on-screen adversaries. First he had to prove to the public that bodybuilding—previously viewed by most as little more
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than a fringe curiosity—was a legitimate sport. Next he persuaded an entire nation to buy into the idea of a foreign-born action hero with an accent as thick as his oversized muscles. Most recently he sold Democratic-leaning Californians on the idea that a transplanted movie star with no political experience to speak of, and a Republican to boot, could spearhead an unprecedented statewide financial turnaround. Looking back, can there be any question that underneath the rippling muscles and behind that famous gap-toothed grin resides this generation’s greatest salesman? ARNOLD’S LESSONS FOR FLEXING YOUR OWN SELLING MUSCLES
• Plot your growth. Even from his earliest days as an amateur bodybuilder in Austria, the teenage Schwarzenegger was already planning his assault on Hollywood. Rather than merely dreaming about fame and fortune, however, Arnold carefully outlined the steps he needed to take to turn his dreams into reality. • Accept no limitations. If Arnold had a nickel for every time someone told him, “You can’t do that,” even he couldn’t lift them all. His remarkable personal story proves that there is no substitute for an unshakable faith in your own ability to overcome obstacles. • Seek out the best. Contrary to his action-star image as a solo flyer with no use for the opinions of others, Schwarzenegger has in fact always sought out mentors, surrounded himself with successful people, and learned from other high achievers. • Remember to stretch. Complacency is the enemy of true high achievement. Whether as a bodybuilder, businessman, actor, or politician, Arnold has never been content to rest on his laurels or bask in the glow of his achieve-
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•
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ments. He has always looked for new challenges, eager to leverage today’s accomplishment to help launch tomorrow’s success. This time it’s personal. Arnold understands that he is his own best advocate. Whether releasing a new movie, opening a Planet Hollywood restaurant, publishing a new book on fitness, or running for governor, Arnold has always dedicated as much personal energy to promoting his work as to the work itself. Failure is not an option. In 1993 Schwarzenegger starred in The Last Action Hero, which would prove to be the biggest box office flop in history. You wouldn’t have known it to look at Arnold, though. He remained cheerfully upbeat and refused to listen to critics who called him washed up. The next year he bounced back with the blockbuster True Lies. Today few even remember The Last Action Hero debacle. Use your personal charisma. Now that he’s governor of California, Arnold has taken his negotiating skills to a higher level. Taking over a state that has the fifthlargest economy in the world but also had fallen into a morass of deficits and debts, Arnold took his case directly to the people. He proved that when you want to convince someone of something, you have to use the personal approach. When California residents came home to supper one night, who was on their voice mail? Arnold, asking them to support the new fiscal plan he was proposing. Aim High. Arnold’s entire life proves that when you aim high, you’re bound to hit a worthwhile goal.
Growing up in Thal, a small village in southern Austria, the young Schwarzenegger was influenced by his disciplinarian father’s authoritarian ways. Often pitted against his older brother in boxing
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matches and skiing competitions, Arnold learned to equate winning with gaining parental approval. Even at an early age, the budding salesman was emerging, however. During the summer when he was 11, Arnold would purchase ice cream cones from a vendor and resell them for three shillings to visitors at a nearby park. As an athlete, unlike many of his classmates who pursued soccer and other team sports, Arnold preferred to stand out on his own. “The worst thing I can be is like everyone else,” he told Rolling Stone in 1985. “I hate that. That’s why I went into bodybuilding in the first place. It was the idea of taking the risk by yourself rather than with a whole team.” Having been exposed to bodybuilding through Hercules films starring the strapping Reg Park, 15-year-old Arnold resolved to use bulging muscles as his ticket to success, as well. Pursuing his goal with the kind of single-mindedness that would characterize many of his later endeavors, Schwarzenegger worked out seven days a week, often returning home as late as 10 p.m. On Sundays, when the local gym was closed, Arnold simply forced his way in through a window, smug in the knowledge that he was getting an edge on all his fellow gym rats. While working out he visualized himself being crowned Mr. Universe. “I was driven by that thought,” he once told an interviewer. “It was a very spiritual thing in a way, because I had such faith in the route, the path, that there was never a question in my mind that I would make it.” Not even Austria’s compulsory military service would deter him. Sneaking off the army base, the 18-year-old Arnold went to Stuttgart to compete in—and win—the Junior Mr. Europe title. Flush with excitement at his victory, he didn’t even mind the sevenday stint in the brig he was sentenced to for going AWOL. “I didn’t care if they locked me up for a whole year,” he wrote in his 1977 autobiography. “It had been worth it.” The Arnold Schwarzenegger who arrived in the United States in 1968 at age 21 was already a star in the bodybuilding world, hav-
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ing realized one dream by becoming the youngest ever Mr. Universe in 1967. In between competitions and workouts Arnold pursued his lofty financial dreams. With the goal of becoming a millionaire by age 30, he combined his entrepreneurial zeal with bodybuilding winnings to purchase a $10,000 apartment building. He and fellow muscleman Franco Columbu opened a bricklaying firm doing jobs around Los Angeles. In one memorable case the two took a job tearing down a customer’s chimney for $1,000. By lying on the roof and leveraging their powerful leg muscles, the two were able to complete the job in 10 minutes. The grateful client gave the bricks to Arnold, who then turned around and sold them as antiques. By 1975, having won the Mr. Universe contest four times and Mr. Olympia six times, Arnold was able to retire from bodybuilding confident of his place in the sport’s history. Plus he was ready for a new challenge and felt that retiring would help him focus on setting aside the body oil and stage posing in favor of a career on the big screen. “I stopped bodybuilding internationally,” he told USA Today, “to create the hunger for acting. That created the need to get attention somewhere else. I love it when the camera is on.” In his first film role Schwarzenegger followed in the footsteps of his hero, Reg Park, with the title role in the miniscule-budget picture Hercules Goes to New York. Other bit parts followed until 1981 when Arnold and his biceps first received top billing in a major motion picture, Conan the Barbarian. To prepare for the role, he got back into competition shape (coming out of retirement to enter and win an unprecedented seventh Mr. Olympia title for extra motivation) and even focused his energy on learning the craft of acting. “Acting was an enormous challenge for me,” he told one interviewer. “In physical competition I had to learn to keep my emotions under control. You almost have to build a wall around yourself—guard against your own feelings and the feelings of those around you, too, because lows or highs, coming at the wrong times, can negatively influence how you perform. I trained that way
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for a long time. In acting it’s exactly the opposite. You have to be sensitive to yourself and to those you’re working with. Stay open. Keep your defenses down.” Not surprisingly, the critics failed to be impressed with the sensitivity in Arnold’s portrayal of a sinewy behemoth who solves most of his problems by cutting a swath through anyone who stands in his way. But he wasn’t interested in impressing the critics; what mattered to Arnold—and to the studios—was that the film grossed more than $100 million worldwide, as did the sequel, Conan the Destroyer. Despite the seemingly insurmountable obstacles of a thick Teutonic accent and little acting experience, Schwarzenegger had successfully parlayed his bodybuilding success and renown into a film career. Eager to maintain the momentum, Arnold next signed on to portray what would become his trademark role in 1984’s Terminator. As his character so famously put it before destroying an entire police station, “I’ll be back.” Was he ever. Subsequent films in the 1980s included the slaughter-fest hits Commando, Predator, Running Man, and Total Recall, which together earned well over $1 billion. A true salesman, as his star continued to rise Schwarzenegger used the time wisely, learning to navigate his way through the show business ropes. In one memorable incident, prior to Commando’s release, he met with studio chairman Barry Diller to ask for more billboard advertising promoting the film’s release. Diller refused, saying, “I don’t believe in billboards.” Later Arnold repeated the conversation to other studio executives who laughed, saying, “He’s BS-ing you. On 48 Hours we had a big billboard on Sunset Avenue.” Rather than being angry with Diller, Schwarzenegger reproached himself for failing to prepare for the meeting. “I did not do the proper research,” he once said in an interview. “You’ve got to have your act together. You have to have a total understanding.” The 1980s were a watershed decade in Arnold’s personal life, as well. Having met Kennedy Clan scion Maria Shriver at a 1977 ten-
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nis tournament, Arnold wooed the telegenic newscaster until the two were wed in 1986. A staunch Republican dating back to his support of Richard Nixon in 1968, Arnold faced another daunting selling challenge: ingratiating himself to the nation’s foremost family of Democrats. Besides turning on the legendary Schwarzenegger charm, Arnold was also able to show his in-laws that his heart was in the right place by throwing himself into public service. He became a vocal advocate for the Special Olympics, an organization founded by his mother-in-law, Eunice Shriver, and worked with Nelson Mandela to bring the Special Olympics to South Africa. In 1990 the first President Bush named Schwarzenegger chairman of the President’s Council on Physical Fitness and Sports. Using his high profile and instant rapport with children, he traveled to schools, kids’ clubs, and childhood athletic competitions touting the benefits of exercise and an active lifestyle. The exposure to the realities facing many underprivileged children led Arnold to establish his own charity, the Inner-City Games, which now holds events in cities across the country. By this time Schwarzenegger’s film career was taking a new direction as well. In addition to the kind of roles audiences had come to expect from him in films like True Lies, Last Action Hero, and Eraser, Arnold was also exercising his comedic chops. In Twins, Kindergarten Cop, and Jingle All the Way he proved he could elicit laughs as well as gasps from an audience. But amid the laughter there were rumblings that Arnold was ready for an altogether new challenge: politics. As far back as 1977 he had told the German magazine Stern, “When one has money, one day it becomes less interesting. And when one is also the best in film, what can be more interesting? Perhaps power. Then one moves into politics and becomes governor or president or something.” Although he had supported Republican candidates for office in the past, for the first time in 2002 Schwarzenegger lent his considerable muscle to a single political issue. His choice was California’s Proposition 49, a ballot issue to provide state support to before-
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and-after-school programs. The proposition passed, and few question that Arnold’s support tipped voters into the “yes” column. His appetite for the political arena whetted, Schwarzenegger was rumored to be eyeing California’s 2006 gubernatorial race for his first office run. Then came the recall. Facing a $38 billion deficit and with Democratic governor Gray Davis’s approval rating hovering near absolute zero, California’s voters were receptive to the idea of making a change well before 2006. Backed by big dollars from prominent Republicans, the campaign for a recall election to oust Davis garnered enough signatures for ballot approval. But who would replace him? Speculation immediately surrounded Schwarzenegger, who went on The Tonight Show with Jay Leno on August 7, 2003, to announce he was throwing his hat into the ring for the election two months later. Perhaps figuring that his moderate politics would find a more ready audience among the general recall electorate than in a Republican primary race, Arnold hit the campaign trail running, taking his message of cleaning up the state directly to the voters. Knowing his appeal was strongest among the regular folks who went to see his movies, and not the critics who panned them, Arnold bypassed the media, forgoing interviews and nearly all the candidates’ debates. Inevitably, the press and other candidates chastised him for abandoning the traditional stepping stones to higher office. But Schwarzenegger shrugged off the criticisms, using them to burnish his new image as an outsider who could breathe new life into the state. This was no small order. It’s quite a leap from selling people on paying $7.50 to see you shoot up bad guys on the big screen to selling them on handing over control of the fifth-largest economy in the world. In other ways, Arnold was a traditional politician, however. Like virtually every office seeker before him, Schwarzenegger portrayed himself as a true “man of the people,” not beholden to special interests. With his star power, nearly universal name recognition, and wife Maria at his side (and despite being dogged by allegations of serial
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harassment of women throughout his movie career), Schwarzenegger managed to convince Californians that he had the right stuff to fight for their interests against the wastrels and spendthrifts who’d gotten the state into such a mess. That he was able to do so without offering much in the way of specific programs or new ideas merely underscores his political savvy and incredible personal charisma. Drawing support from Republicans, Democrats, and Independents alike, as well as a substantial bloc of traditional nonparticipants in the political process, Arnold swept into office, collecting just under 50 percent of the vote. This despite the presence of 134 other names on the recall ballot. With his celebrity, and amidst the carnival-like atmosphere of the truncated recall campaign season, perhaps it’s not surprising that an atypical candidate like Arnold would emerge victorious. But winning elections is one thing—effective governing is another altogether. Upon taking office, the state’s new chief executive gave voters a sense of how he planned to govern by making good on one of his few concrete campaign promises, to repeal the unpopular car tax. Then, using the same “take it to the people” tactics that worked during the campaign, Governor Schwarzenegger persuaded Californians to pass a $15 billion bond issue as a temporary solution to the state’s fiscal troubles. In dealing with legislative issues, Schwarzenegger adopts a twostage, carrot-and-stick approach. Perhaps the most gregarious governor in state history, he is an inveterate schmoozer, willing to share cigars with state legislators on both sides of the aisle. He’s also hashed out agreements with representatives from organizations traditionally hostile to Republicans, like the California Teachers’ Association and the public employees union. But behind the smile and bonhomie lies the ever-present threat to take his case directly to the public. Recently, when legislators were poised to defeat his plans to reform the state’s workers compensation laws, the governor grabbed a clipboard and headed for the parking lot at a nearby Costco. There he collected signatures from star-struck
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shoppers for a plan to put the initiative directly to the voters on the November ballot. The stunt led the evening’s newscasts around the state, and the dissenting legislators caved, passing the reform package with only six dissenting votes. Today, while there is certainly no guarantee that Governor Schwarzenegger will lead California out of its still-daunting budgetary morass, the state’s residents appear confident in their leader. According to a recent poll, 65 percent approve of the job he’s doing, the highest approval rating for any governor in the past 45 years, while 64 percent believe he’s performing better than expected. For longtime Arnold watchers, a more compelling question may be whether he’ll be allowed to finish the job at all. Last year Utah senator and Schwarzenegger pal Orrin Hatch introduced the Equal Opportunity to Govern Amendment, proposing to eliminate constitutional restrictions on those born outside the United States that keep them from running for the nation’s top office. For a man with an unblemished 35-year record of turning his most outlandish ambitions into reality, even the United States Constitution may be no obstacle. But President Schwarzenegger? That would be one impressive selling job, that’s for sure.
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Chapter 5
Anatomy of a Billion-Dollar Smile How Jay Leno uses sales techniques to generate billions
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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n the early 1970s, a student who had just been robbed received an enticing offer from the investigating officer: “I’ll have your 70 bucks for you tonight.” Surprised and pleased, the student agreed to meet the officer later that night. Rather than handing the student his money, however, the officer pitched a multilevel marketing scheme. “I’m going to help you get your money back by selling EKCO bakeware,” he insisted. The student slowly and diplomatically tried to extract himself from the uncomfortable situation, but the cop was persistent— even suggesting at one point that he might arrest the student if he didn’t sign up. When the officer finally got the message that he wasn’t going to make a sale, he complained bitterly saying, “Then what are you wasting my time for?” Despite the ham-fisted sales technique, that officer was by no means wasting his time. Had he succeeded in recruiting that student, EKCO bakeware would have hired a firecracker of a salesman—a guy whose people skills and business acumen eventually propelled him into one of the most visible and lucrative jobs in the entertainment business. The student’s name, of course, is Jay Leno. Leno is best known as the host of The Tonight Show, a position he’s held since Johnny Carson retired in 1992 (Carson died in January 2005). Since then, Leno has been something of a late-night icon, an everyman whom millions of people feel comfortable inviting into their bedrooms. His show has not only won multiple Emmys, but also it regularly achieves higher ratings than competing programs.
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Leno’s success on The Tonight Show has generated an estimated billion dollars of profit for NBC—but that’s not all. As a stand-up comedian, Leno regularly sells out the largest venues in Las Vegas. He’s also one of the world’s most-in-demand corporate speakers, with such big-name clients as Ford, Microsoft, and Goldman Sachs paying up to $200,000 for a single appearance. Interestingly, Leno attributes his success to his knowledge of old-style sales techniques. “Show business is not hard,” he told Fortune magazine, “It’s all just basic Dale Carnegie stuff.”
LENO’S BUSINESS WISDOM
• On employee relations: “You pay people right, you treat them right, you get a good product.” Fortune, February 2004 • On show business: “Contact with the customer . . . that’s what this business is all about.” Fortune, February 2004 • On self-importance: “I always remember I could be out on the street playing Giggles Comedy Club.” New York Times, January 6, 1998 • On his intended career: “I always thought I’d be, like, a funny salesman . . . I thought I’d have a job where I’d sell something and maybe be funny once in a while.” Fortune, February 2004 • On job performance: “You’re only as good as your last joke, right? I mean, if you think you’re anything more than that, you’re in a lot of trouble. You’re delusional.” Los Angeles Times, July 9, 2000 • On money: “People always say, ‘Oh, money can’t make you happy.’ But if you’re already happy, money can make you happier.” Los Angeles Times, July 9, 2000 • On buying from your customers: “This probably sounds dumb, but I live in America, and I buy Ameri-
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can products . . . These people watch our show. I’ll buy their product—one hand washes the other.” Los Angeles Times, November 8, 2001 • On celebrity: “You meet a guy on the elevator and you say, ‘Hello,’ well, for the rest of your career you are the greatest guy in the world . . . but if you go, ‘Excuse me, I’m busy,’ you are just an ass____.” Fortune, February 2004 • On competition: “My attitude is, sooner or later, the other guy is going to have to eat, drink, go to the bathroom or take a vacation, and that’s when I catch him.” Fortune, February 2004
EARLY YEARS IN SALES Leno comes by his love of sales honestly. Leno’s grandfather was a fruit peddler, and Leno’s father hawked nickel-a-week insurance policies in Spanish Harlem. Though he lacked formal education, Leno’s father rose up through the ranks at Prudential, eventually winning the plum job of office manager in the upscale Boston suburb of Andover. In Leno’s best-selling autobiography Leading With My Chin (HarperCollins, 1996), he explains that, because of his father’s example, Leno assumed as a child he’d eventually take a job in sales. Leno even learned his first lesson in salesmanship from his father: “Try to make a good impression!” he would tell the boy. Leno did end up in sales, at least in a sense. Leno views his television appearances as a constant battle for attention. “You’re only as good as your last joke,” he’s fond of saying. With that in mind, every night Leno sells himself to the American public. That Leno’s everyday personality is nearly identical to his nice-guy image doesn’t detract from this enormously successful job of salesmanship.
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Even at an early age, Leno showed an uncanny ability to achieve his goals. When he got fired from his first summer job at a Ford dealership, he wrote a letter to Henry Ford II, explaining that his family always bought Ford products and insisting he had been unfairly terminated. It was a classic case of the power of “calling high.” Leno quickly received a call from his former boss: “I don’t know who you know in Detroit, but if you want your job back . . .” Leno became a comedian in the early 1970s, long before comedy had become an (almost) respectable profession. In those days, comics basically appeared at two venues. The first venue was the coffeehouse, where comics competed for stage time with acoustic protest singers. The second venue was the strip club, where a distant echo of vaudeville remained and they still hired comedians to entertain the patrons while the dancers changed their costumes. Leno spent much of the earlier part of his career getting bookings for himself. His sales technique was a variation on the following sales principle: provide value first. Leno would walk into a club, slap a $50 bill down on the bar and tell the owner he’d like to go on stage, and if he didn’t do well, the owner could keep the bill. He always got the bill back and, more often than not, ended up with a paid gig. Unfortunately, Leno’s income from comedy wasn’t enough to support him, so he was forced to take day jobs during the Nixon recession. Jobs were in short supply, but luckily Leno was able to apply the provide-value-first principle to get hired. After the manager of a car dealership turned Leno down for a job prepping cars, Leno simply showed up and went to work. After a couple of days, the manager noticed his presence, but before he could escort him off the premises, Leno’s coworkers intervened and vouched that he was a good addition to the team. “Since he was a car salesman, I think he appreciated this kind of chutzpah and hired me on the spot,” Leno wrote in his autobiography.
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RISING TO THE TOP As Leno’s star began to rise, the day jobs became unnecessary and Leno tried to hand responsibility for selling his talent to an agent. It took him a long time to find the right person, though. The first potential agent he contacted told him there was no money in comedy and suggested that Leno become a professional wrestler. Another of his early agents landed Leno a week-long booking at a resort hotel. Although the pay of $120 for the week seemed low, Leno didn’t realize how low until he accidentally learned the agent was getting $1,200 that should have gone to Leno! In the late 1970s, the virtually unknown Leno struck up a relationship with Helen Kushnick, the manager of several then-hot comedians, including Jimmie Walker, star of the sitcom Good Times. Kushnick pushed hard for Leno, helping to set up several important deals, including a stint as the commercial spokesman for Doritos. That memorable series of commercials—“Go ahead and crunch, we’ll make more”—increased Leno’s visibility and showed how his likability could be a real sales asset. It was during this period of his career that Leno learned the importance of getting a broad base of support for any big sale. After being selected as the regular guest host for The Tonight Show, Leno was in competition with David Letterman for the position of permanent host after Carson retired. A major reason Leno won that competition was his willingness to spend his free time stumping in the boonies, doing hundreds of promotional spots at local NBC outlets. NBC executives (prompted by grateful station owners) opted for Leno, seeing him as more loyal than Letterman, who had threatened to leave if he didn’t get the job. Although Leno now sat in Carson’s coveted seat it didn’t mean he didn’t face challenges. One of the first challenges was his manager. She had been given the job of executive producer for The Tonight Show, but the pressure proved to be too much for Kushnick, who had recently lost her husband to cancer. She began to be-
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have erratically—throwing screaming fits and making unreasonable demands—until the network was finally forced to fire her. “I was the client who stayed with her the longest, but it just got crazier and crazier,” Leno sadly admitted to Entertainment Weekly magazine when Kushnick died of cancer herself a few years later.
NETWORK WARS Without Kushnick to do his selling, Leno was once again on his own, and it was not an easy sale. The public, accustomed to the calming nightly presence of Johnny Carson, was reluctant to accept a new face. To make matters worse, Letterman had made good on his promise and launched a competing show on CBS. The Late Show with David Letterman was doing better in the ratings than The Tonight Show, and with more of the audience turning to CBS, NBC executives must have wondered whether they might not have made a big mistake. Leno reacted to the situation as a true salesman. He decided to reposition his product away from the competition. To separate himself from Carson, Leno replaced the old, curtained stage with a more intimate stage layout that more closely resembled the comedy clubs in which Leno felt most comfortable. To compete with Letterman’s urban humor, Leno moved his show to the center, selecting jokes and routines that would appeal to the largest possible audience. Letterman might win in New York and Los Angeles, but Leno went after the heartland. It was a brilliant strategy, and by 1996 it had begun to pay off with higher ratings. Then, disaster struck. HBO broadcast a movie titled The Late Shift, which detailed the recent conflict between Leno and Letterman. The movie’s massive prepublicity painted Leno as an unlikable workaholic—a terrible blow to a man whose popularity rested on a public image as a likable guy. Leno’s reaction was textbook simple: Take the high road. While
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he may have been seething inside, Leno made light of the matter on the air and refused to fight back. This was a brilliant move, because if he had tried to sling mud at Letterman, it would have only reinforced the movie’s negative portrayal of Leno. Even when given the opportunity to rebut the movie in his autobiography (published the same year), Leno didn’t take the bait and instead wrote of Letterman with both praise and affection.
ROAD WARRIOR Once the difficult years were past, The Tonight Show quickly became one of the most popular programs in America. Leno regularly draws more viewers than Letterman, who earns nearly twice as much as the $16 million a year that NBC pays Leno. Despite his obvious success, however, Leno continues to sell his program, and himself, as if his career still depended on it. Leno remains, by all accounts, one of the hardest working entertainers in Hollywood. Unlike Letterman, who only hosts his show 40 weeks a year, Leno hosts 46 weeks a year. That helps keep his ratings up, because viewer numbers always drop during reruns. Even when The Tonight Show is on hiatus, Leno doesn’t take a vacation, but prefers to work pretty much nonstop, from 8 a.m. until well after midnight. Much of Leno’s free time is consumed by the 100 to 150 public appearances he makes every year. Some of those are Las Vegas headliners, but the majority of his appearances involve speaking at corporate meetings. Leno’s willingness to do his comedy routine in the corporate environment seems surprising considering his first experience with this type of event. While still an unknown, Leno was hired to soften up a group of drugstore owners so they’d agree to carry a new product. Leno arrived at the conference to find out the product was a cross between toilet paper and a Handi Wipe. The man who hired Leno insisted, as a joke, on introducing Leno as his director
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of sales, which made Leno’s comedy routine seem bizarrely surreal. By the time Leno was done with his act, the attendees were getting up to leave. The organizer blamed Leno for the meeting’s failure, and Leno was forced to accept, as payment, a case of “moist rectal towelettes” as Leno delicately puts it in his autobiography. Leno’s personal appearances net him an estimated $15 million a year, but his corporate work isn’t just a way to earn extra cash. Leno uses each appearance as an opportunity to expand the size of his television audience and to win fans over to his show. For example, rather than being quickly escorted in and out of meetings by security guards, Leno tends to linger with his audiences, shaking hands and making conversation. Leno’s constant drive to sell himself makes one wonder what might have happened if, long ago, he had actually taken up that cop’s offer of a sales job. Thousands of people—possibly tens of thousands—would no doubt have cupboards full of EKCO. HOW
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S E L L L I K E J AY L E N O
Everyone can’t be a talented comedian and talk-show host, but anyone can learn from Jay Leno’s life experience. He’s risen to the top through a combination of determination and likability. Here’s his recipe for winning: Lesson 1: Failure is never permanent. Leno was not immediately successful on television. While his initial appearance on Carson’s The Tonight Show was well received, his second and third performances were weak, and he didn’t appear on television for some years afterward. However, he kept honing his skills and eventually earned a berth as a regular guest on David Letterman’s original late-night program, which aired after The Tonight Show. His appearances were so memorable that NBC asked him to be Carson’s guest host, setting the stage for his greatest success.
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Questions: • Is there a strategic prospect whom you’ve stopped calling, just because you think you’ve failed? • Is there a completely different way to get a foothold in that account? • Who knows that firm’s decision makers? Lesson 2: Work is better than vacation—for me. Leno is famous for never taking a vacation and for spending his free time doing personal appearances that help his career. However, while he keeps to a rigorous work regimen, he doesn’t demand the same level of commitment from his staff. Although he prefers to work without a vacation, Leno gives his staff a generous six weeks off every year. Questions: • Do you enjoy your job enough to forego a vacation? • If not, what would have to change for you to take that much pleasure in your job? • If you do enjoy your job that much, are you careful not to force your work habits onto others? Lesson 3: Fake it before you make it. Leno has a history of sticking his neck out to further his career. For example, Leno essentially bluffed his way into his first paid jobs by letting club owners assume he was an experienced comedian. Similarly, when Leno was just beginning to appear regularly on television, his career got a big public-relations boost when he was selected “Best Face to Caricature” by the American Caricature Association—an organization that he had invented. Questions: • When you call on customers, do you exude the highest level of confidence?
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• When meeting customers, do you merely accept your firm’s brand image, or do you work actively to enhance how customers perceive your firm? Lesson 4: Everyone is a potential customer. Unlike celebrities, who remain distant from their public, Leno makes a point of being accessible. He invariably waves and smiles when he’s spotted driving in one of his many rare automobiles. When hired for corporate speeches, he connects like a politician, greeting and shaking the hands of as many people as possible. Questions: • Do you adopt your most positive attitude only when you’re talking to so-called important people? • Are you consistently friendly to underlings when you’re on a sales call? • Do you constantly look for new business, even when you’re not at work? Lesson 5: Treat your team as if they are the stars. Leno believes that if you treat employees well, you’ll end up with a better product. Leno pays generously and rewards employees for showing loyalty. For example, on the tenth anniversary of his tenure on The Tonight Show, Leno gave everyone on his staff a thousand dollars for every year they’d been with him. Questions: • If you’re a manager, are you doing what you can to ensure your team is being rewarded appropriately? • If your company is stingy, have you tried to get management to change its ways?
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Lesson 6: Give back to the community. One way that Leno builds his image as a likable guy is by dedicating time to community service. For example, Leno has been known to fly, at his own expense, to Chicago or Detroit to do benefits for the homeless. While Leno’s generosity is clearly genuine, there’s no doubt that it helps his sales efforts, because his brand succeeds or fails based on whether people view him as a nice guy. Questions: • Does your organization encourage community service? • Does it donate a percentage of its profits to worthy causes? • If not, have you taken any steps to promote these ideas inside your firm?
Chapter 6
Think Big Like Virgin’s Richard Branson Success lessons from a rebel billionaire
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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t’s like a financial fairy tale. A middle-class English lad, without benefit of education (he dropped out of high school) or family connections (they were about as far from wealthy as possible), starts his first business at age 18 (a newspaper targeting students) and makes his first million by 23. By 1992 he is worth a cool billion. After lengthy travels and numerous deeds of derring-do, he ultimately becomes chairman of the Virgin empire—comprising 350 companies that collectively took in more than $8 billion in revenue last year. Richard Branson’s personal worth? According to Forbes, which ranks him number 247 in the worldwide “wealthathon,” around $2.2 billion. While he owns luxury properties around the world (and flies between them on his own airline), he spends most of his time on his private (ruggedly beautiful) Caribbean island, Necker (he owns all 74 acres). He never carries keys. He never carries cash. He was knighted by Queen Elizabeth II in 1999—for business prowess, of course. In short, Richard Branson is very much like royalty, only richer (the Queen is only worth $660 million). Branson was born July 18, 1950, the first child of mildmannered Ted and determined Eve. Archetypal tales of his youth abound, but the most oft-quoted is that when he was four, his mother stopped the car, dropped him by the side of the road, and drove off saying, “Find your own way home, Ricky.” Eve repeatedly encouraged the young Richard to test his limits and bragged to her friends that someday her son would be prime minister.
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As it turns out, she aimed too low. Hampered by dyslexia, Branson was never much of a scholar. At 15 he dropped out of school and, along with two friends, founded a counter-culture magazine ironically titled The Student. His first real success came at the age of 20 when he got into the mail-order music business and founded the even-more-ironically-titled Virgin Records. In his autobiography, Losing My Virginity (Three Rivers Press, 1998), Branson credits a girlfriend with coming up with the name during one lazy afternoon. Virgin Records introduced the musical groups Culture Club and Sex Pistols to the world and ultimately signed such big-name artists as Phil Collins, Janet Jackson, and the Rolling Stones. Branson’s urge for expansion was relentless, and over the next 30 years he would buy or start more than 300 companies. Legend has it that once, while on vacation in Australia, he liked the drinks at a smoothie stand so much that he bought the company. He admits he can’t say no to anyone who comes to him with a good idea and describes his empire as “wildly kaleidoscopic” with interests that range from cosmetics to computers. Some experiments fail, but he’s quick to add, “I’ve never let a company go bankrupt. Even though we’ve closed a few of them, we always pay our creditors off and bow out gracefully.” The majority of Virgin’s revenue comes from a handful of businesses—Virgin Atlantic and Virgin Blue airlines, followed by the megastores, mobile phones, the V2 record label, and VirginTrains, which revolutionized rail travel in Europe. Each company in the Virgin group has its own CEO and board of directors, and Branson says success depends on “getting the right people around you and giving them incentives.” In the United Kingdom, it’s hard to walk a block without seeing the Virgin brand on a shop or billboard. Virgin ranked number two last year when European consumers were asked to name the companies that had the greatest impact on their lives. With Europe enthralled, and $450 million in cash burning a hole in his pocket, where does the 54-year-old Virgin king go next? America, obviously, and in a big way.
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COMPETING WITH AMERICA Branson is targeting the domestic American airline industry, which he describes as “the worst in the world. The best time to go into a business is when it’s being abysmally run by other people,” he adds, “so the time is perfect to launch Virgin America.” When Branson was a record executive, he says, he “traveled all the time and hated it. I knew I could do a better job of running an airline, but I also knew it was a statistically risky thing to do. The joke was that the fastest way to become a millionaire was to start out as a billionaire and go into the airline industry.” Although known as a daredevil, Branson has a practical philosophy of risk. “Before starting any new venture, I consider the downside,” he says. “I ask myself, ‘Can I afford the worst that could happen?’ I knew that the profits from the record companies could offset the inevitable losses, and in 1984 I stuck my toe in very cautiously. I leased a plane from Boeing for one year.” Twenty-one years later, Virgin Atlantic is the second largest airline in the United Kingdom and making a tidy profit hauling Americans back and forth to Europe. Branson didn’t become Branson, however, by leaving well enough alone. Will the same American businesspeople who fly Virgin Atlantic to London be willing to pay for luxury transport between New York and Los Angeles? Branson is betting $500 million they will.
A BORN REBEL Recently, in order to raise his profile in America, Branson created a reality series on Fox called The Rebel Billionaire. Sixteen contestants were in the hunt for Branson’s job, jetting around the world to exotic locations in what was essentially a 13-week commercial for Virgin Atlantic. The show tanked in the ratings but remains a fascinating study in the two sides of Branson.
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The first image is all James Bond—the show even had Paul McCartney and Wings’s “Live and Let Die” as its theme song. One reviewer described Branson as “swashbuckling,” an archaic adjective that seems fitting as he led the young job applicants through a variety of challenges, including bungee jumping, hot-air ballooning, and jaunts into the weightlessness of outer space. Branson is known as much for his adventuring as his business acumen, and he has racked up a long list of accomplishments. In 1986 his boat, the Virgin Atlantic Challenger 2, crossed the Atlantic in the fastest time ever. The next year he crossed the Atlantic in the hot-air balloon, Virgin Atlantic Flyer, with veteran balloonist Per Lindstrand, and five years later he set another record for a distance flight over the Pacific. The common denominator of all these quests is that the Virgin logo was smacked on the side of every vehicle. Branson is all about branding and using his fame to associate the Virgin name with adventure, excitement, sex, and youth. He promises that within four years the average citizen can go into space courtesy of Virgin Intergalactic. (Or at least the average citizen who can cough up the projected ticket price of $90,000.) Critics carp that Branson is turning space travel into merely another extreme sport and claim that Sir Richard is willing to risk his life to prove a point. He once sat in his pool during a hurricane on Necker Island in the Caribbean and let the storm blow around him just because he wanted the experience of riding one out. During his balloon adventures he’s had to be rescued from the sea on five different occasions. You may get the impression he created The Rebel Billionaire primarily to give himself 16 new playmates. There’s unfeigned glee as he shows off his biplanes, balloons, and boats—not bragging for the sake of bragging, but it’s rather an almost childlike shout of, “Can you believe how bloody cool this all is?” It isn’t only about the toys—it’s also about the girls. Beautiful women are everywhere in the Virgin world and Branson is a huge flirt, known for grabbing women and turning them upside down, a
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maneuver he pulled with, of all people, Ivana Trump. “I misbehave all the time,” he admits. Branson is sometimes presented as a man with an unfailing Midas touch, but there have been definite dips along the way, most conspicuously the failure of Virgin Cola. “This was the single biggest disappointment of my career,” he says. “I predicted we would take a third of the market share from Pepsi and Coke, and for about six months I honestly thought we’d pull it off.” He certainly began with a bang. In 1994 he drove an army tank into Times Square to announce the assault of Virgin Cola on Coke. An enormous Coke sign had been rigged with fireworks, so when Branson mock-fired on it, Coke erupted into faux flames. “It worked for a while,” Branson recalls. “We were beating Coke in the UK, which is absolutely unheard of, and then it just stopped. What I learned subsequently was that back in Atlanta there was an English lady working for Coke, and she noticed we were sneaking up on them quite nicely in the UK market. She went to the CEO and said, ‘Virgin should not be ignored. It’s a company to be reckoned with.’ Her boss set up a SWAT team with her at the head to go to the UK and smash Virgin Cola. They went into the corner shops that were stocking us and offered them the best terms possible with Coke. We were completely squeezed off the shelves.” How does he know this? The lady in question now works for him, and according to Branson, “One drunken evening at a party she leaned over and told me how she’d managed to personally crush Virgin Cola. It was quite funny.” Branson can afford to be forgiving. Even his failures, so long as they are duly noted by the media, are publicity coups. Besides, all is not lost. Virgin Cola still limps along as a brand, and the ever-optimistic Branson points out, “We’re number one in Bangladesh.” There are two modes of Branson. The engine-revving, spacesuitwearing, woman-dipping Bond side is tempered by a sweetness that may be, in the final analysis, a greater key to his success. At the end of each episode of The Rebel Billionaire, a rejected ap-
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plicant is left on the tarmac as the remaining contestants fly to the next destination of the competition. Branson is often compared with Donald Trump, and his show is clearly modeled on Trump’s reality series, The Apprentice, but when it comes time to eliminate the hopefuls, Branson is the anti-Trump. “You’re fired” could never be his catchphrase; as he says good-bye he often seems on the verge of tears. “I hate to fire people,” he says. “If someone in the company isn’t working out, it’s not like they’re shown straight to the door. We make a real effort to move them to a different job they’ll be better suited for, and if we ultimately have to fire someone it’s an extreme situation and something that any good manager should be upset about.”
INNOVATIVE IN EVERY WAY Branson remains close to his parents and two sisters and has been with the same woman for 28 years. (Although they have only been married for 15 of those years, and then only at the suggestion of their 8-year-old daughter.) Wife Joan has ridden out the cycles of the business with him. “In the ideal world you always cover the downside,” Branson says, “but there have been times I’ve gone to my wife and said, ‘Excuse me darling, could you sign here? Nothing too much to worry about, just another of those nasty mortgages.’ ” He dotes on his children. His beautiful 23-year-old daughter, Holly, is in medical school and son, Sam, 20, has recently finished his gap year between high school and college. Nothing delights Branson as much as when his children and their friends visit Necker Island, where he has been known to act as a human target, running back and forth along the beach while the kids shoot at him with paintball guns. The goofiness is characteristic, and it’s part of his charm. Back in London, he eschews the typical trappings of the high-powered ex-
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ecutive. There are numerous tales of him getting locked out of his own office, of having no cash to pay the cabbie, of writing phone numbers on his hand because he never carries a notepad. He claims to be incapable of turning on a computer. If publicity is on the line, he’s more than happy to play the fool, posing in a wedding dress to celebrate the opening of his Virgin Bride shop or arriving at a press conference via space travel with personal jetpack. One of Branson’s best known stunts involves a bet he made with Geoff Dixon, CEO of Qantas Airlines. When Virgin Blue first entered the Australian domestic airline market in 2000, that was merely the first move in Branson’s ultimate game plan—he wanted to get permission for Virgin Atlantic to begin international flights between London and Sydney as well. Qantas wasn’t pleased at the thought of the upstart Virgin cashing in on their profitable Kangaroo Route, and Dixon expressed doubts that Virgin would be granted the permission. Branson fired back with a wager. He said that if, Virgin Atlantic wasn’t flying between London and Sydney within 18 months, he would don a Qantas flight attendant uniform and serve Dixon’s passengers; if Virgin did get the route, Dixon would have to play air hostess on Virgin’s inaugural flight. The open letter included a picture of Dixon’s grimacing face superimposed on the body of a Virgin flight attendant. Dixon was not amused and replied, “I’m running an airline, not a circus.” Once again Branson carried the day with his puckish wit, getting both the route and the last laugh. Perhaps because of his utter lack of pretension, his employees are fanatically loyal. They all call him “Richard,” and even if Branson is halfway around the globe at the time, the comments of “Richard doesn’t like this” or “Richard expects it done this way” make it seem as if he’s just stepped out of the room. When he does show up, the energy level rises. On a recent flight I took between London and Johannesburg, Richard and his wife, Joan, strolled into the Virgin departure lounge in jeans and were immediately mobbed by upper-class passengers who greeted them like rock stars.
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Branson welcomed the upper-class passengers onto the plane and even gave the preflight instruction speech, closing with his signature “Cheers.” It would be easy to dismiss all the chumminess as public relations if I hadn’t awakened in the middle of the night in need of coffee and found Branson deep in conference with the flight attendants on how to better organize the galley. “We may be ordering as many as 100 more planes in the next few years,” he says, “so of course I’m asking the staff what they think. These ladies are the first to notice if the little details aren’t quite right.” That great American überbrander Walt Disney once famously remarked that he created Disneyland for his daughters, making it “the sort of place I’d want to take my own children.” Disney’s line presages Branson’s claim that he designed Virgin to be “the sort of airline I’d personally want to fly on.” When you travel upper class on Virgin Atlantic, you experience an almost Disney-esque immersion into one man’s fantasy world. The little details are evident even before you get on a Virgin plane. You’re picked up at home in a limo. The airport departure lounge is the prelude to a party: champagne, a salon and spa, lively music, free food, bright colors, and hip memorabilia from Branson’s early days in the record industry. You board the plane through a separate door, and the parade of indulgences immediately begins. You receive a black jersey sleep suit to serve as a pair of pajamas, followed by a flight of wines, a menu of entrées, a travel kit of amenities, and a staggering range of entertainment options. Virgin has coined a term for their frequent flyers—“jetrosexuals”—implying that their clientele is the new jet set, the select few who know how to bring style and fun back to travel. “I’m not the sort of person who wants to be stuck in a seat for 12 hours,” says Branson. “I wanted a bar, room to get up and mingle with the other passengers.” If you make a new friend—a distinct possibility in the world according to Virgin—he or she can join you at a foldout table for dinner. Throughout it all, an in-flight spa therapist wanders the cabin offering neck and scalp massages in case anyone
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is stressed, although it’s hard to imagine why anyone would be stressed. This is luxury travel in its highest form, a mile-high pajama party. In the words of one of the contestants on The Rebel Billionaire, this is what happens when a hippie makes a billion dollars. When it’s time to snooze, Virgin provides the longest and widest seat in the air, and on some flights, the seats actually flip over and transform into what Branson calls a “proper mattress.” (I slept eight hours between London and Johannesburg, a figure that matches the cumulative number of hours I’d ever slept on a plane up to that point.) After you land, the Virgin arrivals lounge offers showers, breakfast, a professional shave for the gentlemen or a shampoo and blowout for the ladies, and someone to iron your shirt. Between a solid night’s sleep and the chance to clean up, you hit the streets of the new city genuinely refreshed. Branson believes that Virgin America will flourish precisely because American carriers have cut back so severely on the perks in business travel. “Very few can offer an upscale experience,” he says, “which is why we’ve competed so well in the transatlantic market.” Going after these high-end clients is an expensive gamble, as Branson well knows. When Virgin Atlantic first introduced its upper-class sleeper seats in 2000, customers were displeased because the seats didn’t fully recline. The airline ripped them out and replaced them to the tune of $200 million. “There’s always a risk,” Branson says, “but the bigger risk is to let your reputation erode by not getting it right.” Virgin America will be fully frilled, meaning it will offer at least some of the same upper-class amenities that Virgin Atlantic offers on transatlantic flights. But here’s the kicker: According to Branson, “The team in America thinks they can deliver more frills than any other American airline presently offers and still keep the price in line with low-cost carriers like Skyblue.” High quality and low prices aren’t exactly terms one associates with the airline industry, but Branson is determined not to make the same mistake he made the last time he took on the big boys in America. “Our problem with Virgin Cola was that the product
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wasn’t differentiated enough from Coke and Pepsi,” he says. “Cola is pretty much cola, and they already had the clout and the counter space. But airlines can be very different from each other, and we’re nothing like the existing brands.” One thought kept running through my head during my Virgin flight—wouldn’t it be great to live like this all the time? Or, more to the point, wouldn’t it be great to be Richard Branson? Lots of people have money, but few seem to enjoy it as much. “I’m living my dream life,” he says. “Work and play are the same thing.” Will Richard Branson live happily ever after? What a silly question. He’s living happily now.
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Chapter 7
Paranoia Principle
How Andy Grove’s fiercely competitive spirit drives success at Intel
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
W
hen he realized there were no worlds left to conquer, Alexander the Great fell to his knees and wept. Unlike Alexander, unquestionable dominance has had the exact opposite effect on Intel Corporation CEO Andy Grove. Today, by any measure, Intel ranks among the most successful companies in history. Intel processors run on eight of every ten personal computers sold around the globe. The nearest competitor, Motorola, supplies fewer than one in ten. If anything, despite Intel’s success, today Grove is more intense, more concerned about the future, and more eager to find new worlds to conquer. Hardly prepared to concede victory, Grove sums up his attitude about competition in one oft-repeated motto: “Only the paranoid survive.” A glimpse through both Grove’s personal and Intel’s corporate histories helps explain why the man some have called the “Sultan of Silicon Valley” keeps a vigilant eye over his shoulder on any competitors who might be gaining on Intel. NINE MANAGEMENT TIPS
FROM
CHAIRMAN ANDY
1. To gather information about a corporate division or department, go for an unplanned visit and observe what’s going on. 2. Time is your one finite resource; remember that when you say yes to one thing you are inevitably saying no to something else.
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3. Schedule one hour every day to deal with inevitable interruptions in a planned, organized manner. 4. Rather than focusing on fixing today’s problems, think about what you have to do today to solve—and avoid—tomorrow’s problems. 5. Look upon your co-workers as your little microcompany’s customers, and do everything within your power to provide them with the best possible service. 6. If performance matters in your operation, performance reviews are absolutely necessary. 7. If a subordinate is not doing his job, there can only be two possible explanations—either the person can’t do it or won’t do it. To determine which, apply the following test: If the person’s life depended on doing the work, could he do it? If the answer is yes, the problem is motivational. If the answer is no, the problem involves ability. 8. All motivation comes from within. Therefore, the most a manager can hope to do is create an environment in which motivated people can flourish. 9. To be a good coach you must take no personal credit for the success of the team. You must be tough enough to get the very best performance your team can give. You have to have played the game yourself well enough to understand it completely.
FROM HUNGARY TO SILICON VALLEY In 1956, to escape Soviet expansion and communist oppression, the then 20-year-old Andres Grof emigrated from his native Hungary to New York City. After legally changing his name, the determined Grove worked his way through City College of New York, later earning a Ph.D. in chemical engineering from Berkeley. In
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1968 Grove and technological wunderkinds Gordon Moore and Robert Noyce formed Intel to sell the dynamic random access memory chip, or DRAM, a minuscule piece of silicon that forms a computer’s memory. Throughout the 1970s the company achieved a modicum of early success producing semiconductors, mainly for cheap calculators. After Grove was made president in 1979, however, Intel took a more aggressive stance. Grove launched Operation Crush, a campaign intended to grab 2,000 customers away from the Motorola fold. Not only did Intel beat that goal by 500, but among those new customers Intel managed to net the industry’s choicest plum— IBM. For its first line of personal computers, Big Blue chose the Intel 8088 chip. This meant that Intel chips would power not only all the IBM PCs, but also all PC clones produced by IBM competitors.
REVERSAL OF FORTUNE The IBM business buffeted Intel through the early 1980s, but by the middle of the decade Japanese competition had encroached dramatically on Intel’s DRAM market share. By 1986 the firm racked up losses totaling more than $200 million. After closing half a dozen factories and eliminating 7,000 employees, the company faced what Grove has called the most important crossroads of Intel’s 27 years. “There is at least one point in the history of any company,” Grove explains, “when you have to change dramatically to rise to the next performance level. Miss the moment and you start to decline. For us the moment was somewhere around 1985, when we decided to get completely out of DRAMs, the product our company was created to make. Our rate of change got accelerated by the fact that we were losing a lot of money. It’s easier to change when you’re hemorrhaging.
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“We came to realize that the formulation and articulation of strategy is the job of top management. Back then we had the very ridiculous system, common in American business at the time, of delegating strategic planning to strategic planners. The strategies these middle managers prepared had no bearing on anything we actually did. While they were writing reports and making presentations, our production planners were already doing what the business required: shifting our capacity from the DRAM business that the Japanese were taking away from us to this new business of microprocessors, 286s at that time. “But until top management recognized that change and articulated it as a strategy, Intel suffered from what I call strategic dissonance. While we were shifting capacity to microprocessors, we still had our best development people working on memory projects. That made no sense. So a major change in strategy can only happen when management reconciles action and speech. “Denial can blind people. We found it very, very hard to face up to the DRAM decision. Financially, it should have been easy. In retrospect, it should have been easy strategically too. Yet we, Intel management, were at each other’s throats over this.” I N T E L ’ S S TAT E - O F - T H E - A R T S E L L I N G
At Intel, salespeople view technology as both a product and a competitive advantage. Since taking over as the company’s top sales executive a little over a year ago, Intel’s senior vice president of worldwide sales and marketing, Paul Otellini, has already instituted a major sales force realignment. “Under one worldwide sales management system we’ve created three virtual sales forces. One focuses on what we call the Intel architecture, which is primarily central processing units (CPUs) and motherboards, another on selling our branded products, such as network cards and video
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conferencing to end users, and then finally, one directed at our classic semiconductor business,” says Otellini. The Intel Otellini describes stays steps ahead of most sales organizations in deploying the latest technological sales tools—but judiciously. “Although we very much want to demonstrate our technology, we’re pragmatists more than anything else. I wouldn’t deploy 2,000 Pentium notebooks just because we’re selling Pentiums. That’s just not cost effective. Our prime consideration is, ‘What does it take to do the job?’” Otellini says. The right tool to do the job depends on the mission of Intel’s salespeople. In addition to the more traditional sales representatives who may call on PC manufacturers or other prospects who buy directly from Intel, the sales organization also includes salespeople the company refers to as “architecture managers.” Intel’s Washington, D.C.-based architecture manager, David Sokolower, explains: “We call on the major users of computer technology. The first job is to find the right people to talk to. There are an infinite number of end users using computer technology. It takes just as long to talk to somebody who is going to buy 15 computers over the next year as it takes to talk to someone responsible for purchasing 300,000 computers. So we have to identify who is going to be buying large numbers of computers or, alternatively, who the strategic influencers, trendsetters, and technology leaders are. “With this customer base Intel’s mission for the architecture managers is twofold. One is to promote our architecture as a solution both on the desktop space and the server space. The second big mission is to understand what these organizations’ long-term needs are and take the information we collect from those sources and get it back into the product planning process within Intel.
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“The architecture managers are all users of our own technology. In industry jargon, some might say we eat our own dog food. In addition to our Pentium notebooks we have the latest in technology demonstration systems. We don’t do presentations with black and white foils or color slides; they’re all computer generated and incorporate multimedia, including digitized video clips, sound, and animation so that when we’re presenting concepts we’re using the latest technology both on the notebook and on the desktop. “Another innovation that I use for probably two to three hours a week is ProShare, Intel’s videoconferencing product. With ProShare, in addition to seeing the person, we can also document share. In effect, this means that while we’re talking we can also be sharing a Word document, or a presentation package document that allows you to both work on it at either end and modify and improve it. “So, for example, if I’m going to give a presentation to a senior-level government person, I can talk with the individual within Intel who knows the most about that subject, and the two of us can modify my presentation in real time and in the end I’ve got the modified version—I don’t have to wait for him to send it to me.” While he uses the visual technology most often to communicate with Intel coworkers, Sokolower says that videoconferencing has also proven invaluable in bringing important customer contacts face-to-face with Intel executives. “Salespeople need to see technology as a competitive weapon,” he says. “Today, being technologically literate is as important as being literate was in the old days. A salesperson who is not deploying any technology is competing with people who are. If you don’t have that com-
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petitive weapon, you’re going to be at a disadvantage. Rather than asking, ‘Can we afford this piece of hardware, software or what have you,’ managers need to ask, ‘Can we afford to sacrifice a significant competitive advantage in order to maintain the status quo?’ I think that for many organizations, increasingly the answer to that question will be a resounding ‘No.’ ”
INTEL’S OPEN ARCHITECTURE Words like “intense,” “relentless,” and “disciplined” are often used to describe Intel’s corporate culture. Much has been made of the open office structure at Intel headquarters—all employees, from the chairman down, work out of cubicles. Because the emphasis is on eliminating barriers to improve communication, closed offices are strictly verboten. This environment contributes to a process Grove calls “intellectual honesty.” Grove wants to hear what coworkers think, and he encourages them to open up to him, even if it’s to say that he’s made a mistake. “Management is about organized common sense,” he says. “We communicate and communicate and communicate, at every level, in every form. Anyone can ask anybody any question. We have probably shaken loose a lot of bad ideas that way. I don’t see a lot of companies carry it to the degree we do.” According to Intel Executive Vice President Craig Barrett, there’s nothing like a discussion with the chairman to draw out the flaws in an argument or an idea. “He uses the technique of successive whys,” Barrett explains. “He just keeps asking ‘why’ until your reasoning breaks down. On the fourth ‘why,’ a weak argument will break down.” While some might consider Grove’s tactics more appropriate to an interrogation room than the workplace, when you’re building the engines to drive the information age into the twenty-first century, there’s no time or place for dawdling.
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“The best thing is to make the right decision,” Grove says. “Making a wrong decision is OK too. The worst thing to do is to hedge. To hedge is to fail.”
PLANTING THE SILICON SEEDS Grove’s cardinal objective—that Intel produce processors that allow PC manufacturers to double their machines’ performance every year—has translated into unheard-of investment dollars. In 1994 alone Intel spent $1.1 billion on research and development and $2.4 billion on new plants and equipment, far surpassing the investment of competitive chip makers. This major spending also reflects a new approach to production. Until 1990 Intel’s engineers would wait to complete work on one chip before beginning on the next; today as many as five future generations of chips are in some stage of development. As a result of this almost religious zeal for investment, Intel has continued to maintain a healthy lead in development, production, and sales of each progressive chip.
BANG THE DRUM LOUDLY Despite Intel’s current fervor to satisfy the end users of the company’s microprocessors, this zeal is of recent vintage. Not too long ago most PC users had neither the slightest clue nor interest in who produced the chip running their IBMs, Compaqs, and Toshibas. In 1987, Intel spent next to nothing on advertising and promotion. But in the late 1980s, company executives began to realize the potential for building consumer demand for their chips. In 1989, Intel spent $5 million on its first advertising campaign. By 1994 that figure had ballooned into more than $100 million. As
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a result, today Intel studies show that the ubiquitous Intel Inside logo has greater consumer recognition than the Nutrasweet swirl. This shift away from addressing marketing efforts solely to computer manufacturers and into the consumer arena represents a different wave of thinking at Intel. By bypassing immediate customers and going straight to the end users, Intel has created such strong consumer interest in Intel microprocessors that manufacturers have little option but to arm their machines with the latest Intel chips. Grove’s sentiments echo this relatively recent development in the computer industry. “The microprocessor has become a consumer product,” he says. “Its role in contemporary society is not a passing phenomenon.”
THE DOWN SIDE OF FAME But advertising your presence to customers and end users also carries potential pitfalls. In late 1994, Intel initiated an advertising campaign around the hot-off-the-production-line Pentium chip. At the same time Intel’s number one client, Compaq, was pushing its less expensive line of 486-based machines through the Christmas selling season. Manufacturers had long grumbled that Intel cared more about itself than its customers and this incident almost caused an irreparable rift between the two companies. For major public relations gaffes, however, nothing in Intel’s history compares with the debacle that arose surrounding the socalled Pentium flap. Soon after its release the much-ballyhooed Pentium chip was found to make errors in performing division operations in specific instances. Reflecting the nature of a company driven by an engineering bent, and not a public relations–savvy consumer electronics firm, Intel initially clammed up. Intel planned to fix the problem, which by company investigations occurred in only the most demanding scientific calculations, on a regularly scheduled update timetable.
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Consumers were not mollified by Intel’s perfunctory attitude. Angry e-mail flamed across the Internet. IBM temporarily stopped shipping Pentium-based machines. Caught in the crossfire, Andy Grove stepped forward with an unconditional offer to replace any chip for free. Despite all the furor, Pentium sales dipped only temporarily, and the company seems to have emerged stronger than ever. Most importantly, Intel has learned its lesson. According to one Intel manager, in the future the company will be much more responsive and communicative with both manufacturers and end users. While Grove concedes that Intel handled the whole affair poorly, he does not feel that the Pentium flap points to the need for a total overhaul of Intel’s vaunted corporate culture. “We’re going to have tentacles into the PC-buying community,” Grove says, “that are going to get us closer and closer to the right answers. Whatever transformation this entails, it is going to require different skills, not a different culture.” Then the tireless pitchman adds, in case anyone has forgotten, “This is the best microprocessor ever.”
INTO THE CRYSTAL BALL From the decision to stop producing DRAMs to opening up communication lines with end users, Intel’s entire history reverberates with the theme of constant renewal. Ever vigilant of the need to produce for tomorrow’s marketplace, today the company no more resembles the Intel of 5, 10, or 20 years ago than a butterfly resembles a caterpillar. True to Grove’s dictum about paranoia and survival, Intel hopes to couple its lead in microprocessors with expanded chip capabilities, eventually growing to dominate the electronics world. For now Grove has boiled his goals down to a two-line message included inside fortune cookies he frequently hands out at Intel
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headquarters. Just like Grove, the message is brief and to the point. It reads: 1: Job 1 2: Make the PC “it” The first line serves as a reminder that Intel must constantly strengthen its position as the premier microprocessor manufacturer. Line two represents Grove’s long-range plan to remake the PC as the twenty-first-century medium through which consumers will access any and all information sources. In the short term Grove hopes to achieve Job 1 through both technological innovation and lowball pricing. Volume sales have become the driving force, even if margins shrink in the process. “I don’t give a hoot what percentage margin I have,” he states, rather unequivocally. “I want to increase dollar profits, and they are a product of margin times unit volume.” As for making the PC “it,” by producing more and more powerful microprocessors, Intel is better able to incorporate chips that surround microprocessors, such as graphics, math, and short-term memory chips, onto a single Intel chip. As a result, future microprocessors will subsume video, sound, and telecommunications functions now performed by non-Intel chips onto Intel’s all-powerful silicon fragment. If he achieves his goal, the PC will become an allpurpose TV, VCR, answering machine, cable box, videogame player, and Internet window—all powered by one Intel chip. But even as the microprocessor monster ventures further into the consumer electronics market, substantial competitors are rising to question Intel’s claim to this lucrative kingdom. In addition to IBM, Motorola, and Apple, such home electronics behemoths as Sony and Sega also hope to shape consumers’ high-tech future. But Grove says he welcomes the competition, as it prepares Intel for what he calls the “Megabattle,” when he will challenge the world’s top electronics providers. “We needed a little threat, a little target,” he says. “The juice is flowing. What I’m after is televisions and telephones and every
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single-purpose appliance. The best way for us to go for the 250million-unit market is to move video telephony and conferencing and entertainment and information access onto the PC and render those other things less and less relevant. We are making gutsier moves investment-wise, pricing-wise, every way, because we’ve got a competitive threat. The net result is we’ll get to advance to the next level of competition.” If recent history provides any indication, Intel appears stronger than ever and eminently prepared for this epic struggle. More likely than not, Intel chips will provide the engines helping twenty-firstcentury consumers motor their way down the information superhighway. When that happens, will Andy Grove finally take a well-deserved break from looking over his shoulder to bask in the success he’s created? Yeah, right . . .
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Chapter 8
Crowning Glory At any age, George Foreman packs a motivational punch
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
I
n 1987, following an unprecedented 10-year absence from the ring, former heavyweight champion George Foreman returned to professional boxing with one goal: to recapture the title he had lost 14 years earlier to Muhammad Ali. Despite Foreman’s newfound easygoing manner and upbeat attitude, George-bashing quickly became the No. 1 pastime among sportswriters. Chiding him as too old, too fat, and too slow to keep up with the new generation of boxers, most pundits took umbrage at the bald, grinning, chunky Foreman’s reemergence on the boxing scene. And what of his pledge to once again wear the champion’s belt? With not-so-thinly veiled references to Foreman’s increasing girth, most analysts’ only response was “fat chance.” But a funny thing happened on the way to Foreman’s assured humiliation. He started winning. Then he kept on winning. By 1991 Foreman had won 24 straight bouts, 23 of them by knockout. Even after losing a tough 12-round decision in a 1991 championship bout with Evander Holyfield, Foreman persevered to gain another shot at the title. In 1994, at the long-over-the-hill age of 45, George Foreman knocked out then-titleholder Michael Moorer to become, once again, heavyweight champion of the world. Today, some of the same experts who once decried Foreman’s return laud him as a hero for the fortysomething set: a man who defied the odds, the aging process, and all the fitness experts, eat-
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ing his way up a mountain of cheeseburgers to find redemption and championship winnings at the top. That image certainly meshes with Foreman’s public persona, his self-deprecating humor, and jokes about his opponents. But behind all the bluster and self-promotion lies the true George Foreman, a man whose relaxed style belies a life spent battling demons, pushing himself to the edge, and overcoming obstacles through renewal.
TOUGH BEGINNINGS Foreman’s story began in the ghetto of Houston’s notorious Fifth Ward, also known as the Bloody Fifth. There he grew up the fifth of seven children being raised by a single mother, often on as little as $26 a week. As a teenager, Foreman fit the profile of a typical inner city tough, with few marketable skills and even fewer prospects. Dropping out of school in the tenth grade, young George was soon drinking excessively, mugging pedestrians, and brawling with anyone who looked at him sideways. According to brother Roy, George’s size was so intimidating that he never even bothered to carry a weapon. Foreman’s heroes reflected this violent, dead-end lifestyle. “I thought a hero was a guy who came back from prison,” Foreman told Esquire magazine, “with a scar down his face, maybe killed a guy once. Can you imagine my goal was to have a scar down my cheek?” Foreman even took to wearing a Band-Aid on his cheek until the day when he could uncover a real scar of his own. Perhaps his life of crime could have gone on forever, except for one fateful day after a mugging, Foreman sought refuge from the police and their pursuit dogs in the mud beneath a house. He remained in the cold and dark down in the mud for hours listening to the dogs barking and imagining himself cowering thus for the rest of his life. At that moment something snapped in Foreman. He saw a life going nowhere, a life of hiding and fear. This experience, he
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says, forced him to realize that he had become a common criminal. If he didn’t change his life for the better, he realized, he would soon be in prison or dead. Foreman’s saving grace came in the Job Corps, a program created under President Lyndon Johnson to help young people develop job skills. There he met Doc Broadus, who took George’s natural talent for pummeling people and honed it into a true boxing proficiency. By 1968 Foreman had risen through the amateur ranks to win the right to represent the United States at heavyweight in the Mexico City Olympics. He then shocked the entire boxing world by besting all en route to winning the gold medal. Foreman’s stunning victory was overshadowed by politics. While sprinters Tommie Smith and John Carlos held their fists aloft in the black power symbol as The Star-Spangled Banner played, Foreman instead celebrated his victory by waving a small American flag at the crowd. He says the gesture was taken to mean something he had never intended. “When I was jumping up and down, waving that little American flag,” he said, “they thought I was rejecting the climate there. I wasn’t. For the first time, I had an identity. I belonged to a country.”
UNLIKELY COMEBACK Upon turning professional, Foreman used his rage, propensity for brawling, and devastating knockout punch to plow through opponents. By 1973 he gained a title shot against Smokin’ Joe Frazier in Jamaica. In just two rounds Frazier was out cold, lifted off his feet and onto the mat by a punishing Foreman uppercut. Despite the fight’s quick result, and contrary to appearances, Foreman says that entering the ring he was terrified of Frazier. “I’d seen him fight Buster Mathis like a Pac Man,” Foreman said. “I’d seen him stay on Ali’s chest like a conqueror. Boxers see
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things like that. Man, I just wanted to get out of there alive. Going into the ring, my knees shook like I was in an earthquake. I couldn’t stop them. I threw all that sick fear at Frazier.” Foreman’s title was short-lived, however. The following year, Ali bounced around the ring with his so-called rope-a-dope strategy, avoided Foreman’s powerful punches, and eventually put Foreman to the canvas in the eighth round. The loss sent Foreman into a downward spiral of anger, brooding, and paranoia that bottomed out after a tough loss to Jimmy Young in Puerto Rico. In the locker room after the fight, Foreman faced at once the most terrifying and emancipating experience of his life. He claims he saw blood oozing out of his forehead, hands, and feet and, as he puts it, “Jesus came alive in me. I literally died. All I saw was hopelessness under my feet, over my head total darkness. There was the smell of death. It still makes me nervous to think about it.” That fight and his subsequent conversion experience occurred in 1977. Immediately following that night Foreman decided to dedicate his life to God. He returned to Houston, first as a lay street preacher, then later as an ordained nondenominational minister. Recalling his troubled youth, Foreman used his substantial influence, name recognition, and financial wherewithal to develop the George Foreman Youth and Community Center as a magnet for Houston’s troubled kids. Ironically, it was just this newfound dedication to the community and its kids that drove Foreman back to boxing. Realizing that he could make more money for the center in the ring than by doing hundreds of personal appearances, Foreman agreed to once again strap on the gloves and stage the unlikeliest comeback in boxing history. Unlike other returning champions, however, Foreman set his own agenda and pace. “I knew it would take fights over a long period of time to do it right,” Foreman told the New York Times. “I’d seen others like Muhammad Ali and Joe Frazier fail in their comebacks because
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they were looking for overnight success. I treated myself like a young man, a prospect.” He called this process “puddle-hopping”—fighting light competition in such far-flung boxing meccas as Sacramento, Orlando, and Anchorage, all the while building to a title shot against then-champ Mike Tyson. While the sportswriters denigrated Foreman’s competitors as palookas, he ignored the naysayers and continued ballyhooing his barnstorming tour, fighting about once every six weeks. Most important, palookas or not, Foreman kept delivering knockout punches. It seems he was fighting for a greater cause that gave his punch extra power.
TURNING A NEGATIVE INTO A POSITIVE He also developed an ingenious method for handling the critics. Rather than trying to combat their slurs on his weight, age, and opponents, Foreman started cracking jokes at his own expense. To criticism of the caliber of his opponents Foreman would reply, “There are some who claim I don’t fight a guy unless he’s on a respirator. That’s a lie. He has to be at least eight days off the respirator.” On his age and weight Foreman was equally candid. “I should be carrying a cane,” he quipped. “My training camp is Baskin Robbins. But if Tyson wins, it’s only Lamborghinis and big houses for himself. Means nothing. If I win, every man over 40 can grab his Geritol and have a toast.” Not only did George win over the critics with this new attitude, he also began winning over fans in droves. With each knockout he became a more omnipresent advocate for the middle-aged. With a Bible in one hand and a cheeseburger in the other he would declare, “Forty is no death sentence. Age is only a problem if you make it one.” Rather than taking criticism to heart, George embraced it. If people wanted to poke fun at a man who named his sons George Jr.,
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George III, George IV, and George V, that was fine with George Sr. Foreman took advantage of the publicity, appearing with all four sons in a TV commercial for Doritos. Taken together, the barnstorming, bluster, and humor all served one unifying purpose: to bring public attention back to George Foreman. Understanding that the only bad publicity is no publicity, Foreman did whatever he felt was necessary to make a spectacle of himself. “When I was a little boy,” he explains in his autobiography By George (Villard Books, hardcover, $23), “street cleaners came by the house. Nobody paid attention. But let that fire truck come by. They all rushed out, chased it in pajamas, women with hair rollers. Well, I’m a fire truck. I’m happening. You’re all going to be chasing me because you know there’s a fire ahead of me somewhere.” But Foreman knew the fire truck would have to do more than swap jokes with the media and spout positive aphorisms to regain the title. Contrary to the Burger King/Baskin Robbins public persona, Foreman dropped from his prereturn weight of 315 pounds to a more svelte 250 on a diet of fruits, vegetables, pasta, chicken, and only the occasional treat. “If I’ve been training for five straight weeks, and I’m starting to get grouchy, I’ll go for the ice cream,” he says. “Or if I feel like eating five cheeseburgers, I’ll eat five cheeseburgers. I live by my cravings. Whenever I crave something, I know I should have that. But I use it as a training technique, as a reward.” Compared to Evander Holyfield’s carefully sculpted physique, aesthetically speaking, Foreman’s body-in-the-round style still gives weight trainers shivers. Even today he tips the scales at well over his preretirement 217-pound mark. Not a problem, he tells anyone who will listen. “What you have to do to get those designer bodies will get you killed,” he argues in By George. “You’ve got to have a body built for boxing, built for fighting and surviving, and I’ve got that body. There’s safety in being bigger. I’m a bigger man and other guys have
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to get out of my way. You ever notice how the guys you see lying flat on their back and knocked out—the guys you have to pump back to life—all have ripples down their stomach? Boxing is physical fitness, not beauty. And I’m the most physically fit guy on the scene.” Foreman may be right. What he lacks in muscle tone he more than compensates for in endurance. His self-constructed workout regimen is the stuff of legends. For two and a half hours, Foreman will run behind a pickup truck loaded with a heavy punching bag. While running he intermittently weaves, jabs, punches, and ducks, simulating action in the ring. Ten miles down the road he fits himself into a harness and drags the truck back for half a mile. His gym workouts are similarly intense. For an hour solid he will throw lefts at a punching bag then, at the sound of a timer, switch to throwing rights for another hour. With no rest in between, Foreman frequently spars with a variety of opponents, often for as many as 25 rounds. Add some serious weight training, wood chopping, and jumping rope until the wee hours into the mix, and in a nutshell you’ve got the George Foreman workout program. Only when he talks about his training does Foreman mention the concessions he has made to age. Rather than admit deficiencies, however, the ever-upbeat George says he merely redoubles his efforts. “I’ve had to train twice as hard as I did when I was young,” he allows. “I don’t have all the so-called youth to depend on, so now I depend on skill and conditioning. I knew coming back that if I got knocked down in the ring, the referees in their kindness and compassion would say, ‘Stop!’ So my legs need to be much stronger than they were when I was young. That’s why no one knocks me down.” Even if the redoubtable George had failed in his quest to regain the championship, by any other yardstick he has become an unqualified success. No longer the distant, angry thug the fans loved to hate, Foreman has been reborn in every way. Instead of taking out his pent-up aggression and rage on anyone who dared get in his
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way, the new George Foreman says he is full of love for everyone. And the public loves him back.
A SALESMAN FROM EARLY ON Since his triumphant return to the spotlight, Foreman has starred in the eponymous situation comedy George, announced fights at ringside for HBO, written a bestselling autobiography, and endorsed more products than anyone this side of Bill Cosby. Along the way Foreman has developed his own theory about what it takes to succeed in sales, and why people find him so convincing. “I learned something early in life,” he told the Washington Post. “If you sell, you’ll never starve. In any other profession, you can find yourself out on the street, saying, ‘They don’t want me anymore.’ But if you learn the art of selling, you will never go hungry.” “In time,” he says in his autobiography, “I think I became the best salesman around, not because I’m a better actor, but because I’m not. What I do is fall in love with every product I sell. If I can’t fall in love with it I don’t sell it.” Foreman also says that people know when you make claims you don’t personally believe. Honesty, says Foreman, sells. “Nobody seems to doubt that the George Foreman they see on the screen is the real George Foreman. Everyone thinks they know me. They do,” says the man who has broken myth after myth in a legendary boxing career. Looking ahead, no one, perhaps including George himself, knows exactly what the future will hold for George Foreman. Since winning the title he has fought one defense, winning a 12-round decision over Germany’s Axel Schultz. But rather than fight Schultz again, Foreman has agreed to give up the title, possibly to set up a rematch with Michael Moorer. And of course, hanging over every boxing decision Foreman makes is the omnipresent question of retirement. When asked about hanging up the gloves again he usually replies with the quintessential George Foreman humor: “The usual
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retirement age is 65,” he says, “but I’m not going beyond 63. I thought about 65, but that’s just too long. I’d say 63.” POSITIVELY GEORGE
George Foreman gives credit for a great deal of his recent successes to a vastly improved attitude. When he first retired from boxing in 1977 Foreman was surly and extremely sensitive to criticism. Today he exudes positive energy and ignores the nattering nabobs of negativity. As he explained to Men’s Health magazine, this new attitude now permeates every aspect of his training—and his life. “You can say to me, ‘George, I’m gonna make your jab faster,’” he explained. “But I will totally object to you telling me my jab is slow. You have to shut out negativity.” Foreman’s beliefs about aging and exercise reflect this belief that every individual controls his or her physical destiny. “If you exercise consistently,” he says, “that’s the pot of gold that will give you another 20 years. The human body is the greatest machine of all, because it can keep getting better. The dent I made in sports is going to be a drop in the bucket compared to what will happen in the next 20 years. Athletes are going to be performing better than they were at 21 or 22, and it’s not going to be a knock on the youngster. It’s going to be a blessing.” More than anything else, however, Foreman believes that a positive attitude helps people handle life’s inevitable setbacks. “Nothing happens for the worst if you keep living,” he says. “There’s a time you can say that, then there’s a time you can assume that, but then as you grow older, especially in sports and in life, you know that. It becomes your knowledge.”
CROWNING GLORY
PULL NO PUNCHES
Jack Dempsey 61 wins (50 KOs), 8 losses “To be a good fighter you have to have three things: You’ve got to be able to give it, you’ve got to be able to take it, and you’ve got to have a desire to win, a fighting heart. A fighter must always have that desire, and the confidence he’s going to win. Otherwise, it isn’t any use fighting.” Sugar Ray Robinson 175 wins (109 KOs), 19 losses “I was blessed with a talent in boxing which helped to introduce me to people throughout this world. One of the nicest blessings in the world is to know your direction, to know where you’re going. That doesn’t mean you know what’s down the whole road, but you know the direction you’re going in.” Floyd Patterson 55 wins (40 KOs), 8 losses “Whenever anyone told me I couldn’t do something, I’d work twice as hard to prove them wrong. Much of my success I have to contribute to the press. They kept me going, giving me something to live up to. They said it couldn’t be done. All right, it was done. They said, this is not that way. All right, it is that way. I never go by what other people say. You’ve got to learn to believe in yourself. If you don’t believe in yourself, forget about it. You’ve got no business being in the ring.”
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Chapter 9
Barbara Smith’s Delicious Success How a small-town girl turned her natural good looks and invincible spirit into big city success
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
B
eing the first person to try something doesn’t intimidate Barbara Smith anymore. As a teenager, she stepped out by leaving her small hometown to pursue what was to become a highly successful modeling career. Since then, Smith has been a cabaret singer, play producer, author, actress, television spokesperson, and today, owner and operator of the popular B. Smith’s restaurants in New York City and Washington, D.C. She may be most recognized from her Oil of Olay television commercials. That she was often the first African-American woman to take on certain roles makes her success story all the more remarkable. Reflecting on her diverse background, Smith credits at least a portion of her success to a seemingly boundless store of energy. “I have always been a busy person,” she explains, “and have enjoyed being busy. Even when I was a youngster growing up in Western Pennsylvania I was always involved in something. Although at the time it was pretty much unheard of, as a kid I was a paper girl, then by the time I got to high school I did a lot of fundraising, whether with car washes, bake sales or giving my time as a volunteer at the hospital. And that energy is still with me to this day.” LESSONS
FROM
BARBARA SMITH’S SUCCESS
1. Facing rejection and disappointment is a struggle, but it’s also a process. Learn from experience what tech-
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2.
3.
4.
5.
niques help you get back on that horse, then use them over and over. With practice you will learn to accept setbacks as inevitable obstacles on the path to success. Make all your relationships count. When you’re trying to get a break or nail down an important meeting, it’s often that person who answers the phone who can make or break your chances. If you’ve established a relationship then it’s much more likely that person will take a minute from his or her day to help you out. Get the people who work for you involved in your vision. Inevitably you will have employees who work for you only on their way someplace else. To get the best out of them, sell them on your dream. Motivate them to believe that by helping you achieve your vision they are taking concrete steps toward realizing their goals. Of course this means finding out what their goals are, but that should be a part of involving yourself in the operation of your business. Keep learning. No matter what we do we’re all always learning. That’s why I think everyone should receive student discounts. The difference among people is that some take a proactive role in their continuing education, while others merely let it happen. Seize responsibility for your own growth and your dreams will come closer to your grasp. The medium is the message. Where you go, who you see socially, and what you do all reflect on who you are. Are you sending a message out to people in your personal life that reflects the message you send in your professional life? If not, you may need to make some changes in one or the other.
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PERSISTENCE PAYS After finishing high school, Smith left her hometown of Everson, Pennsylvania (pop. 2,000), moved to Pittsburgh and landed a job as the first African-American ground hostess for TWA. For two years she worked for TWA while trying to break into the modeling business. Unlike most successful models, Smith says she was never “discovered.” “For two years in a row I tried out and was rejected for the Ebony Fashion Fair, a 77-city fashion road show. But then in the third year, 1969, I applied again and was accepted, which was a real dream come true for me. As a young girl I had told people that I was going to be in the Ebony Fashion Fair, and they all laughed, because no one ever leaves that area to do anything big. But that was the first big step in my modeling career. “Looking at my PR, many people would think I was an overnight success, but that’s not true. Everything I’ve ever gotten has come through perseverance, knocking on doors until my knuckles were bruised and staunchly refusing to take ‘no’ for an answer.” To take the next step on the path to success, Smith had to persuade modeling agency legend Wilhelmina to take her on. Again despite innumerable turndowns, “maybe laters,” and instructions to “get more pictures,” the persistent young woman finally convinced Wilhelmina to set her up with a photo session. With the resultant shots Smith soon joined the agency. But as Smith explains, just becoming a Wilhelmina model was no guarantee of work. In modeling, as with any profession, Smith says her success resulted from both perseverance and developing the ability to sell. “The Wilhelmina banner made a big difference in getting people’s attention,” she says, “but I still had to sell myself like crazy— maybe even more than before. I’ve learned that in almost any type of business, if you just hang in there you’ll eventually catch a break by the sheer fact that one day someone else won’t show up.”
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As a living example of this theory, Smith describes her experience selling herself to Mademoiselle magazine: “When I used to cold call them,” she explains, “this woman named Felicia kept looking at my book, but I never really got anywhere with her. But I persisted and then one day we had an appointment and she didn’t show up. I was disappointed of course, but through all those trips I had become friendly with the receptionist, who called to see if the beauty editor would see me. So the beauty editor looked at my book, scheduled me for a beauty try the next week, and from that session they did a cover for the magazine. That was 25 years ago, when I became the first African-American on the cover of Mademoiselle.” FROM MODEL
TO
MENTOR
Since childhood Barbara Smith has tried to find role models. Smith managed to find one she remembers well. “About 16 miles away from our mining town lived a woman named Sally Johnson,” Smith explains. “She had a traveling hair business that she would set up in the surrounding towns. In my hometown she set up in our house. So I could watch as she took care of all the people who came through, and then she would be gone for two weeks. “I used to love to listen to her talk about faraway places and all the beauty shows she’d been to. Plus she had her own car, which was rare for a woman. Sally Johnson was the first independent black entrepreneurial businesswoman I’d ever met.”
COPING WITH SETBACKS After that, being a cover girl opened a great number of doors and generally paved Smith’s way for steady modeling work. She notes, however, that she was able to take incremental steps toward achiev-
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ing her goals only by steeling herself to the inevitable rejections and finding coping skills that enabled her to keep picking up the phone and making calls. “There were a lot of things I would do to deal with the setbacks,” she explains. “Sometimes I cried; other times a quart of Häagen-Dazs would do the trick. There’s also a song that’s always inspired me, called With a Child’s Heart. It goes, ‘Go face the worries of the day/With a child’s heart you’ll turn your problems into play.’ And it certainly wasn’t easy picking that phone up again. But I’d make lists with the numbers of people that I had to call. And I knew it was just me and those phone numbers. Eventually, it came down to either I wanted to succeed or I didn’t. And if I wanted to succeed I knew I had to pick that phone back up or put that application in. And although many times it was painful, it became easier the more practice I had.” Even the most successful models know their time in the spotlight is limited, however. When she reached her late 20s, Smith began to give serious thought to a business idea that had been germinating during the years she strutted the runways of Milan, Paris, and Vienna. “In everything I’ve done,” Smith says, “I always put my ideas out on the table and talk about them with a lot of people. I’ve always had a keen eye for fashion, food, interior design and style, so I thought I could be very successful at running a restaurant. So I spent a lot of time talking to people in the restaurant business, talking about what I wanted to do. When I returned to the U.S. from Vienna I decided to really go for it, so I wrote down my goals and figured out exactly how I was going to get there.” Unlike some celebrity restaurateurs who show up for opening night only to follow the paparazzi to the next media event, Smith has been hands-on from the outset. To begin with she talked a prospective partner into letting her work at another restaurant from pre-opening day through its first year of business. Starting out as a hostess, she studied every aspect of running the restaurant, eventu-
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ally working her way up to being floor manager. At the end of the year Smith had so impressed the prospective boosters with her costconsciousness, attention to detail, and aptitude for building a customer base that she received the go-ahead to find an appropriate space to locate B. Smith’s.
EVERY MOMENT IS ABOUT THE SALE Today, this New York restaurant shows no sign of slowing down, and Smith has since opened a location in D.C.’s tony Union Station. Soon after opening the first restaurant, Smith says she discovered the inextricable link between entrepreneurial success and sales. “For a long, long time,” she says, “everything I did was by, for and about the marketing and selling of my restaurant. If I was out socially, where I went, whom I was with and how I comported myself all reflected on the restaurant and impacted my business. And that carried through to when I was in the restaurant itself. If it’s my name on the door, people expect to see me. So I built my business around going to all the tables and talking to every person sitting in the restaurant.” Never one to rest on her laurels, Smith recently expanded her resume to include authorship of B. Smith’s Entertaining and Cooking for Friends (Artisan Press, 1995), an upscale guidebook to food, folks, and fun. Just as when she started the restaurant, Smith found that people only took the book seriously once she made her commitment clear. “When I told people about the restaurant idea,” she explains, “they laughed or joked that the modeling business couldn’t be going so well. The book was the same; people said, ‘Oh yeah, maybe it’ll be a newsletter.’ With both I just explained that what I’m doing has to do with my dreams, and that everything had a purpose. From the time I decided to do it until printing, the book took four years. And today many of those people have come back to me to say, ‘Gee,
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it’s amazing; you’re one of the few people I know who said she was going to do something and actually did it.’” With her good looks, charm, grace, and style, Barbara Smith affects the demeanor of success made easy. As is the case so often, however, the truth is quite the opposite. But rather than deter her path to success, the myriad obstacles she’s faced have strengthened Smith’s resolve to reach even greater heights. “I’m a very positive person,” she says, “and for that reason people often think my life has always been easy. But there’s been a lot of racism, and at times it’s become very ugly and upsetting. When I opened the restaurant I got a few of those postcards that never have return addresses—the kind that say, ‘Who do you think you are?’ and ‘You should know your place.’ But you come to realize that it’s part of the ignorance that’s out there. And that makes you understand how important it is to be a role model and to preach the value of education. That’s always the key message I like to emphasize when I speak to children. We’re all students, and to continue growing and accomplishing our dreams we all need to keep learning.”
PART 2
THE COMPANIES
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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Chapter 10
The Powerful Sales Strategy Behind Red Bull How determination and global appeal helped one company thrive
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
R
ed Bull is an energy drink that doesn’t do well in taste tests. Some say it’s too sweet. Others just shake their heads, saying, “No.” Its contents are not patented, and all the ingredients are listed on the outside of the slim silver can. Yet Red Bull has a 70 to 90 percent market share in over 100 countries worldwide. During the past 15 years, the drink has been copied by more than 100 competitors, but such companies as Coca-Cola and Anheuser-Busch have been unable to take market share away from Red Bull. Says Red Bull founder Dietrich Mateschitz, “If we don’t create the market, it doesn’t exist.” Mateschitz’s secret to creating a $1.6 billion worldwide stampede for Red Bull lies in a highly ingenious “buzz-marketing” strategy that herds consumers to exclusive and exciting events that get high media coverage. Red Bull supports close to 500 world-class extreme sports athletes that compete in spectacular and often record-breaking events across the globe. Mateschitz explains, “We don’t bring the product to the consumer, we bring consumers to the product.” Today Red Bull is a powerful global brand and very few customers know the story of the highly talented, creative, and determined salesman, publicity-shy Dietrich Mateschitz. Tiny Austria’s only billionaire, Mateschitz located his office in the quaint lakeside village of Fuschl, near Salzburg, Austria. His architect is currently
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building a new office building in the shape of two volcanoes. His collection of 16 airplanes is located in a steel and glass hangar, which serves as an aviation museum and the home of the Flying Bulls at Salzburg Airport. He tries to keep it down to working three days a week. He likes to keep things simple. The size of his headquarter staff is only 200. Mateschitz farms out the production and distribution of the 1.5 billion cans sold worldwide. The total number of employees worldwide is only 1,800, which brings the sales volume per employee close to a million dollars. Mateschitz not only generates brilliant sales and marketing ideas, he is equally talented in the execution of the biggest and boldest business ideas. His latest project involves a $1 billion motor sport and aviation theme park in Styria, Austria.
THE TRAVELING TOOTHPASTE SALESMAN Mateschitz grew up in a small village in Styria. His father, whom Mateschitz didn’t meet until age 11, was held in a POW camp long after WWII ended. Mateschitz was surrounded by teachers, but he wasn’t a good student. When he turned 18, he went to the University of Vienna. It took Mateschitz ten years to finally graduate with a degree in world trade. His friends said that Mateschitz liked to play, party, and pursue pretty women. After graduation he decided to get serious and become a “really good marketing man.” His natural charm helped him land a training position at Unilever, and soon he was promoting dishwashing detergents and soap all over Europe. Colleagues described him as “funny, full of ambition and always filled with crazy ideas.” Mateschitz had a natural talent for selling. He was creative and had a knack for getting things done. He soon got promoted to the position of marketing director for a leading, international toothpaste brand called Blendax.
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After years of traveling and selling toothpaste around the globe, Mateschitz came to the realization that most successful managers live out of a suitcase, slowly turning gray and seeking comfort from a bottle or lonely women sitting in a bar. Mateschitz wanted more out of life; he expected more of himself and soon became obsessed with the idea of creating his own business.
TAURUS MEETS TAURINE To many people in Austria, Mateschitz has ambitions that know no boundaries. When he goes to a party, people on Europe’s “A” list show up. When he is the host, such international stars as Naomi Campbell or California Governor Arnold Schwarzenegger appear. Born on May 20th in the sign of Taurus, Mateschitz goes after opportunity like a bull homing in on a matador’s red cape. In the summer of 1982 Mateschitz read a story about the top ten taxpayers in Japan. He was surprised that a certain Mr. Taisho, who had introduced a high-energy drink to Japan, made the top of the list. On the next stop of his sales trip, in Thailand, he learned from a local toothpaste distributor that energy drinks were a hot item among tired drivers stopping at gas stations. The top brand was “Kratindaeng,” meaning water buffalo. The ingredients were clearly written on the can. Like the original Yellow Pages, there was no trademark or patent to protect the formula. Besides water, sugar, and caffeine (equivalent to that in a cup of coffee), this drink contains an ingredient named taurine, an amino acid that, according to Japanese studies, benefits the cardiovascular system. Sitting poolside with Chalerm Yoovidhya, the son of the toothpaste distributor, Mateschitz suggested that they form their own company with the objective of introducing energy drinks around the world. Each partner would contribute about a half a million dollars in start-up capital. Soon after the fateful meeting,
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the optimistic 40-year-old Mateschitz quit his job and applied for a license to sell the high-energy drink in Austria.
THE BULL FIGHTS FOR BUSINESS SURVIVAL Mateschitz recalls how his Austrian friends reacted, saying, “They didn’t think it would work.” They thought that he had made the mistake of investing his life savings in a fad that would fade. The Austrian bureaucracy didn’t allow the drink to be sold without scientific tests. It took three years and many sales calls to get a license to sell the product. While waiting for the official license, Mateschitz asked his old school friend Johannes Kastner, who ran an advertising agency in Frankfurt, Germany, to design the can and logo. Mateschitz rejected dozens of samples before settling on a macho logo with two red bulls charging each other. Kastner worked diligently on a snappy slogan, but Mateschitz rejected one after the other, each time saying, “Not good enough.” Kastner told Mateschitz to find someone else to come up with a better slogan, but Mateschitz pleaded, “Sleep on it, and give me one more tag line.” The next morning Kastner called and said, “Red Bull—gives you wings.” The slogan turned into a prophecy for the Red Bull brand, which continues to soar around the globe. Mateschitz still had to find a bottler to produce his drink. Every bottler he called told him that Red Bull had no chance of success. Finally, Mateschitz found a sympathetic ear in Roman Rauch, the leading soft-drink bottler in Austria, and soon the shiny silver cans rolled off the production line. Within two years, and after many creative promotions, sales began to grow, but so did his losses. While a million-dollar loss in two years may scare an entrepreneur into closing the business, Mateschitz was undaunted. He says, “As long as I can think clearly, I can think of alternatives. All you need is bright eyes and a clear mind.” After he spent his life savings on the start-up,
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Mateschitz financed everything without outside capital, and by 1990 Red Bull was in the black. He soon realized that Austria wasn’t a big enough market, and in 1993 he expanded to neighboring Hungary and then focused his energies on conquering the German market.
HOW RED BULL BEATS THE COMPETITION Once the news of Red Bull’s advancing sales spread in Europe, dozens of copycat competitors came on the market. Red Bull’s initial move into the German market was highly successful. After three months of skyrocketing demand, Mateschitz could not get enough aluminum to produce the cans anywhere in Europe, and sales of Red Bull dropped faster than a lead Zeppelin. A competitor named Flying Horse became the market leader. It took Red Bull four years to reclaim the top spot in the German market. The expansion to England proved to be even more challenging. The British marketing team was unable to use the term “energy drink,” since a pharmaceutical company owned that label. That forced Red Bull to use the term “stimulation” as a tag line to the logo. In two short years, Red Bull’s English operation was $12 million in the red, with only 2 million cans sold. Mateschitz fired the entire staff, pulled the product from pubs, and appointed an Austrian marketing director who concentrated on night clubs and the student market. In order to reach consumers without spending millions on advertising, Mateschitz resorted to buzz marketing to stimulate sales. He hired students to drive Minis with a big Red Bull can strapped on top. They cruised around campuses and offered free samples at parties. The rules for creating buzz are astonishingly simple. Marketers need to reach the “alpha bees,” and if they like the product, they will tell other people about it. The authority of one alpha bee can influence the buying habits of hundreds. The student marketing buzz boosted sales, and by the year 2000 Red Bull’s sales in En-
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gland soared to 200 million cans, which came close to its total of steadily growing sales in Germany.
RED BULL’S WINGS CLIPPED IN FRANCE Not every European country welcomes the sales of Red Bull. Denmark and Norway restricted distribution of Red Bull to pharmacies. Claiming health concerns, French authorities refused to authorize the sale of Red Bull in stores. Although France clipped Red Bull’s wings, Mateschitz isn’t discouraged, saying, “We are selling in 106 countries worldwide; we’ll save France for last.” He refuses to give up because he knows that his energy drink is not a health hazard. Mateschitz thrives on resistance. Always eager to push the envelope, he’s hatched spectacular new marketing ideas that get consumers to flock to events where extreme sports athletes perform stunning acts that leave audiences gasping for air. Events include street luge (with jumps of 94 feet), air acrobatics, surfing a 25-foot tidal bore for 34 minutes on the Amazon River, rail-sliding, mountain bike free-ride competitions, motorcross freestyle rallies, and many more. Mateschitz supports close to 500 daredevil, world-class athletes who come to invitation-only events from all corners of the world. While such countries as France put up boundaries to keep Red Bull out, Mateschitz knows no boundaries, and he sees no contradiction when he invites French athletes to compete in his events. Case in point, recently, the 24-year-old Frenchman Cedric Gracia won the 2003 Red Bull Rampage (a world-class, extreme mountain bike competition) in Utah. Last year Mateschitz sent a message to the French market and the world that the wings of Red Bull are alive and well. He sponsored an extraordinary stunt performed by the Austrian air acrobat Felix Baumgartner, who became the first man to fly the English Channel (22 miles) from Dover, England to Calais, France with a
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special 6-foot delta-wing made of carbon fiber strapped to his back. Baumgartner wore a special suit to insulate him against the freezing temperatures (minus 55 degrees Fahrenheit) when he jumped out of the airplane at 33,000 feet. He used oxygen for the first few minutes while he flew at a speed of more than 220 miles per hour. After less than seven minutes, Baumgartner pulled his parachute and landed safely in France. TV footage of Baumgartner’s world record event and the Red Bull logo were seen by more than 200 million people around the world. Today, special Red Bull events take place in Australia, Asia, Africa, North America, South America, Russia, and all over Europe. The pre-event parties include professional DJs, appetizers, photogenic women, and plenty of Red Bull. Some events, like Red Bull’s Flügtag, draw crowds of 50,000 people or more. There are always Red Bull signs in full camera view, an obligatory post-event party, and of course, extensive media coverage, including network TV and follow-up publicity on www.redbull.com, a spectacular global Web site. RED BULL EVENTS
AROUND THE
GLOBE
Here are some recent buzz marketing events staged by Red Bull: 1. Street Luge Racing—Red Bull Streets of San Francisco. Riding on skateboard-style wheels, pilots are dressed in full leather suits and motorcycle helmets. A street luge is no more than two inches from the asphalt and can reach speeds of 80 mph. The world record for a street luge jump is 94 feet and was set at a Red Bull competition on San Francisco’s Deharo Street. At very high speeds, the urethane wheels can catch fire and melt. Drivers refer to this event as “puking a wheel.”
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2. POROROCA—Surfing the Amazon—Amazon Delta, Brazil. A tidal bore is a truly spectacular natural phenomenon. It is a large surge wave that can be seen in the estuary of rivers. When the Amazon runs low, the big tides around full moon rush up the river and its tributaries. The muddy wave is called Pororoca and it can carry logs and tons of floating debris. The Amazon is home to anacondas, piranhas, and poisonous fish. Only the world’s most experienced, adrenaline-addicted surfers dare to ride this ferocious wave. In last year’s Red Bull contest, Picuruta Salazar, a local hero, set a new world record with the longest recorded single ride, which lasted 34 minutes and 19 seconds, covering a distance of more than seven miles. 3. Red Bull Big Wave—Cape Town, South Africa. Every year Red Bull organizes a Big Wave surfing event in South Africa unlike any other in the world. The world’s best surfers come to Cape Town to challenge the Dungeons, the biggest and most radical surf break on the African continent where 35- to 45-foot waves are not uncommon. 4. Rail sliding—Queenstown, New Zealand. Rail sliding is a progressive form of either freestyle skiing or snowboarding that needs no mountains and not much snow. Contestants race down a ramp and then hop on a specially designed Red Bull rail (with the company logo on the side in full view of the TV cameras) and perform stunts (front-side 270s) to compete for a $10,000 purse. Red Bull stages similar events around the world. In the U.S., recent rail sliding events took place in Salt Lake City, Portland, and Niagara Falls, NY.
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5. Air Acrobatics—Austria. Every year, Red Bull organizes dozens of spectacular air acrobatic events that include paragliding, skydiving, hang gliding, and skysurfing (where the athlete jumps out of an airplane with a parachute and a surfboard, surfing down on air). Red Bull acrobats also perform B.A.S.E. jumping stunts, like jumping off the Matterhorn from the Eiger North Wall.
RED BULL TURNS RED HOT IN THE USA With an indomitable spirit for turning setbacks into comebacks, Mateschitz set his sights on the U.S. and started to test-market Red Bull in California. In April 1997 he started to compete against the aging soft drink lion Coca-Cola. The slim 8.3 oz. can of Red Bull contains less than half the amount of liquid as a bottle of Coke, but it packs far more caffeine (80 mg), which gives it the advantage of greater efficiency. In the first year, Red Bull sold more than five million cans in California. Red Bull replicated the buzz strategy that worked so well in Europe. Volkswagen Beetles with huge Red Bull cans strapped to their backs showed up at the beach, at colleges, gyms, office buildings, or construction sites with free samples where people might need a boost. Congenial Red Bull salespeople (called Musketeers) offered free coolers to bars, and soon bartenders learned that this new drink was a money machine. Red Bull mixed with vodka or Jager became one of the hottest drinks across the nation. Bars in Los Angeles charged $10, in New York $12, and in Miami $16. Soon Red Bull was flowing across America. The U.S. marketing buzz-and-bull machine spun tales that were picked up by the press. Red Bull’s slogan, “gives you wings,” led newspaper reporters to print quotes from consumers like, “You can get drunk and stay wide awake,” or “It’s the poor man’s cocaine.” One rumor even claimed that the drink contains bull testicles.
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Mateschitz enjoys the free publicity, but he is single-minded when it comes to framing the real purpose behind his energy drink, saying, “The motivation to have a Red Bull at night is the same as during the day, to wake up, be at your best, and have fun.” As in Europe, news stories of Red Bull’s sales success spawned competition and many Red Bull imitation products were introduced to the U.S. market. SoBe’s Adrenaline Rush occupies second place with 12 percent market share. Anheuser-Busch has a drink called 180, Coca-Cola markets KMX, and Pepsi sells AMP. All come in slim cans, but none come with the energetic and emotional brand image that marketing master Mateschitz created. There are also smaller competitors like Pink, Vegas, Go Fast, or Rockstar, with small sales teams calling on bar owners and trying their best sales pitches against Red Bull’s marketing power. Four former Red Bull North America executives believe that they can compete against their former employer with a new drink named Roaring Lion. The sales pitch on their Web site (July 2004) tries to persuade bar owners by saying, “At $1.33 per can, the market-leading energy drink is your most expensive nonalcoholic mixer . . . Roaring Lion saves you 80 cents per 8.3 ounces. On a current usage of 50 cases per month of energy drink, you can expect to save $990 per month.” A beverage industry executive laughed at the threat, saying, “Red Bull’s sales keep on soaring; Roaring Lion is still snoring.” According to the Beverage Marketing Corporation, in 2003 Red Bull held a 67 percent market share of the U.S. energy-drink market with more than 500 million cans sold. Mateschitz believes that the potential could be “over a billion cans a year.”
RED BULL CATCHES AIR A few years before he launched Red Bull, Mateschitz developed a passion for flying. Once his company turned substantial profits, he funneled the excess cash into a superb collection of vintage aircraft. In 2000 he created a Red Bull subsidiary, named it Flying Bulls,
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and purchased and restored such planes as two Corsair fighterbombers, a twin-engine DC-6 that belonged to former Yugoslav Communist ruler Tito, a T-28-B trainer, four seaplanes, and a Bell 47 helicopter—16 planes in all to date. To create a suitable home for his growing fleet of Flying Bulls, Mateschitz worked with an architect to create a 60,000-square-foot airplane hangar. Not just a simple utilitarian box to store aircraft, mind you, but a superb, wing-shaped glass and steel air museum that not only displays each plane with an impressive Red Bull logo, but also has a lounge and a first-rate restaurant that rotates famous chefs from around the world. The builders used 1,200 tons of steel and 1,754 differentsize panels of special glass. To transcend the boundaries of aviation, Mateschitz added an art collection to the air museum that he branded Hangar-7. Recent exhibits included the photographic collection of the Wright brothers and sculptures and paintings by Jos Pirkner, who designed the Taurus trophy for the winner of the annual World Stunt Awards. At night the access road to Hangar-7 lights up like a runway to signal the visitor that this is a special place that gives wings to your imagination. After dinner, visitors can enjoy a drink at the bar called 360, which is located under the domed ceiling of the hangar and is accessible through a ramp that leads from the restaurant to the bar. What makes the bar the hottest place in Salzburg is the glass floor that allows patrons below to look at the soles of the feet of the bar guests 30 feet above. The bar is open every night until 3 a.m. Occupants of the bar have a spectacular view of the aviation museum below. Special lights embedded in the museum floor light up at night and give the visitor the impression of looking at the stars in the sky while they see the dark shadows of the aircraft below. A stickler for detail, Mateschitz decided that the star constellation must replicate the night sky of the day of the opening of Hangar-7. At the opening party of Hangar-7 last year, more than 2,000 VIPs paid $600 each to walk on a 100-foot red carpet, flirt with the press, tour the hangar, enjoy a fabulous reception, and witness a
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spectacular air show containing 15 different aerial scenes that followed themes from Greek mythology. For example, Zeus transformed from a bull into a fighter plane, and four violinists played a concert in four separate Blackhawk helicopters. Every Red Bull vintage plane in Hangar-7 is meticulously maintained and in top flying condition. In fact, every plane housed in the hangar has a full tank and is ready to roll out to the Salzburg airport runway and take off. On weekends, Mateschitz likes to take one of his planes out for a spin, flying over the beautiful meadows of the Salzburg lake region and enjoying the landscape below.
THE TAURUS AWARDS GIVES RED BULL EVEN GREATER WINGS Five years ago, Mateschitz called Arnold Schwarzenegger with his “big idea” to create an annual award for the world’s best stuntmen and stuntwomen. Arnold didn’t buy the idea, saying, “We already have too many awards in Hollywood.” But Taurus Mateschitz displays an uncommon tenacity when it comes to turning ideas into reality. Like a bull, he locks horns with adversity and never gives up. Mateschitz went back to the drawing board and began to recast his unique selling proposition. He began thinking about the needs of the actors who risk their lives performing dangerous stunts and established the Taurus World Stunt Awards Foundation, seeding it with a personal check. He also mandated that the proceeds from the awards show and related fundraising activities would help perpetuate the grant fund dedicated to the support of stunt performers in need. Stunt performers can apply for a financial grant in the event of any disability. Mateschitz commissioned artist Jos Pirkner to create The Taurus, an impressive 31-inch bronze statue that weighs more than 26 pounds. On May 20, 2001 (Mateschitz’s birthday), the first Taurus World Stunt Award show was held in Los Angeles.
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As a politically correct gesture to his Austrian buddy, Mateschitz handed Schwarzenegger his own Honorary Taurus Award. Few people in the audience had a clue what a gigantic sales effort enabled the show, which has grown bigger with every year. Even fewer people watching the star-studded award show on national television noticed the clever and subtle visual connection between the huge wings of the Taurus statue and the catchy Red Bull slogan “gives you wings.” It was Mateschitz, the subliminal image maker, who pulled the greatest Hollywood stunt.
THE BILLION-DOLLAR THEME PARK In May of 2004 Mateschitz celebrated his 60th birthday. At an age where the average Austrian ponders retirement, the Red Bull founder, whose net worth according to Forbes magazine is more than $1.4 billion, announced even bigger plans that dwarf everything he’s done before. Mateschitz has hired a team of 40 people to work on his idea of a motorsport and aviation theme park with a price tag of $1 billion. Including four open-air arenas capable of holding between 6,000 and 100,000 spectators, the park will be completed in three years. One of the race tracks will be reserved for Formula 1 races. Visitors will be able to race cars and go-carts, ride Enduro motorcycles, and fly different airplanes. There will be several restaurants, two hotels, and a shopping plaza. A motorsport and aviation academy will offer a high-tech training center for 700 students who can enroll in a nine-year academic education program that will end with a high-school diploma. The Austrian Air Force has expressed interest in the Aviation Academy’s pilot-training program. The theme park will attract between 2 and 3 million visitors a year. While Mateschitz thinks of his legacy, he’s unaware that he’s already turned into a living legend. He doesn’t like to talk to the
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press, but when he does he often makes references to mythical transformations. “Every boy is fascinated by mythology,” he once told a reporter. “I was most fascinated by Zeus, the king of the gods. When he came down to earth to see Europa, he changed into a bull.” In his heart, Mateschitz is still the little boy who loves to change into a bull and charge around the world with boundless energy. Mateschitz is fulfilling his dreams 1.5 billion times a year, for in every 8.3 oz. can of Red Bull resides his secret ingredient: an idea that took wings.
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Chapter 11
Rock Solid
How German software giant SAP racks up profit records year after year after year
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
T
hree years ago, software giant SAP seemed to be heading nowhere. Back then, the market buzz was all about dot-coms, and SAP’s software, which integrates such enterprise functions as accounting and manufacturing, seemed about as interesting as industrial plumbing. While the business press oohed and aahed over sexy e-business upstarts, SAP was relegated to the back pages, brushed aside by newer movers and shakers with shiny bells and flashy lights. Little did reporters realize. With e-business dot-coms suffering from a massive case of ill repute, SAP has come back to rack up record revenues and profits. For example, in the third quarter of 2003, SAP’s worldwide sales increased 23 percent over the previous year, and its profit margin leapt a full five percent. The firm’s brand equity leapt from 43rd place to 35th place worldwide, making it the third most valued brand in Germany, right behind Mercedes and BMW. Not surprisingly, investors are enthusiastic, and SAP’s stock prices have more than doubled over the past year. In December 2003, SAP’s market cap exceeded $50 billion. Transforming SAP hasn’t been easy, though. SAP’s top executives wreaked major changes throughout the company, from radically altering the marketing strategy to redeploying field sales resources. To fully understand the success story of this company, it’s important to know the inside story of how a small group of visionary executives transformed SAP into a rock-solid performer.
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TEN SUCCESS LESSONS
FROM
SAP
• Lesson #1: Avoid marketing fads. SAP tried to be a cool, hip Internet firm and ended up looking ridiculous. It became easier to sell for SAP when the company returned to its roots and positioned itself as a stable, conservative firm. • Lesson #2: Focus on customer needs, not corporate needs. SAP’s marketers developed an internal language consisting of acronyms and jargon that meant little or nothing to the customer. It became easier to sell for SAP when the marketing focused on solutions rather than product details. • Lesson #3: When in doubt, freeze spending. SAP continued to waste money pursuing bankrupt marketing strategies long after they had been proven ineffective. It became easier to sell for SAP once marketing stopped throwing good money after bad. • Lesson #4: Listen to customers and business partners. SAP’s marketing was ineffective when it took an ivory tower approach. It became easier to sell for SAP when the company’s marketing efforts reflected the concerns and opinions of SAP’s key customers and business partners. • Lesson #5: Take advantage of competitive weaknesses. SAP accelerated its marketing efforts when its competitors became bogged down in hostile takeover attempts. It became easier to sell for SAP when SAP was able to position itself as an island of stability amidst a sea of turmoil. • Lesson #6: Strategize globally, execute locally. SAP’s central marketing group took control of SAP’s overall image and direction, but left the details of tactical execution to the regions. It became easier to sell for SAP
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•
•
•
•
when the local regions could leverage a message that was consistent throughout the company. Lesson #7: Never lose a customer. SAP makes customer satisfaction its first priority, resulting in a fanatically loyal customer base. It became easier to sell for SAP when the sales professionals knew that prospective customers could contact a wealth of satisfied reference accounts. Lesson #8: Locate resources close to the customer. SAP restructured its U.S. division so that industry-specific resources were located in areas of the country where its target industries were concentrated. It became easier to sell for SAP when sales professionals could more conveniently draw on local expertise. Lesson #9: Make CRM a standard. SAP made CRM the “one standard of truth” inside the entire organization. It became easier to sell for SAP when the sales professionals knew that the extra effort to work with the CRM system would pay off with better communications with management. Lesson #10: Let Success Breed Success. SAP realizes that its greatest strength is the success of its customer base. It became easier to sell for SAP when sales professionals could more easily articulate SAP’s dominant role in the enterprise software market.
MARTY HOMLISH MANAGES THE MESSAGE When Marty Homlish came on board at SAP as the company’s first chief marketing officer in January of 2000, few of his new colleagues guessed that his arrival meant their own pet projects were about to bite the dust.
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Homlish joined SAP fresh from Sony Corporation, where he had the unusual distinction of heading five different operating companies in only 15 years. With a track record in making high-tech products successful, at Sony he was known as a fix-it man who repaired broken businesses. In fact, Homlish had been president of Sony’s PlayStation group when sales of the gaming console exploded from $0 to $1.5 billion in the short space of four months. Despite Homlish’s broad experience, he had never seen a marketing mess quite like the one that confronted him at SAP. “The company’s marketers had decided that we needed to be a hip, young, eBusiness, Internet, garage-start-up kind of company, when in fact we were a company known for high reliability, high performance and great engineering,” Homlish marvels. This misguided attempt to retrofit SAP’s staid image to the requirements of the dot-com revolution had resulted in some of the most awkward marketing in the high-tech world. For example, the company’s tag line—“You can. It does.”— sounded more appropriate for a soft drink than an enterprise software vendor. In order to make the company seem more hip to the Internet, even the company’s product line had been renamed “mySAP.com.” “It was like the company was going through a midlife crisis,” says Homlish. In addition, marketing activity within the individual geographies and regions had run completely amok. “We had more than 20 ad agencies globally, 25 different Web sites, and 5,000 brochures,” says Homlish, who seems almost ready to pull at his hair as he remembers. “We had a chaos of marketing noise, when what we needed was a symphony of communications.” Not surprisingly, the confusion surrounding SAP’s marketing was taking a toll on the company’s sales. Revenue growth in 1999, for example, was only 1.4 percent, a pitiful performance compared to the rest of the software industry, which grew almost 15 percent in the same year, according to IDC, a market research firm located in Framingham, Massachusetts.
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Homlish decided that the only thing that could fix SAP’s marketing woes would be to put the beast out of its misery. So, even though he had just been hired and had no allies inside the company, Homlish went to SAP founder and (then) co-chairman Hasso Plattner and told him that SAP had to completely stop all spending on advertising and marketing. “Spending more money would only make the situation worse,” he said. “I felt that only radical surgery had a chance of working.” Needless to say, Homlish’s idea didn’t win him many friends among the SAP marketing community, which for years had been telling the SAP management team that more marketing money would result in greater sales. Furthermore, by insisting on a spending freeze, Homlish was killing dozens of pet projects upon which other marketers were building their careers. Homlish declines to comment about the firestorm of complaints that erupted when the news broke about the spending freeze. “There were some interesting moments,” is all he will say. In the end, Hasso Plattner defended Homlish, mandated the spending freeze, and even suggested that Homlish move the global marketing function to New York City, where it would be easier to establish a new direction for the firm. “I give a lot of credit to Hasso,” says Homlish. “It was his idea to bring me into the company and to give me the freedom and autonomy that I needed to get the job done.” Once he was firmly in control of SAP’s marketing budget, Homlish “took a page out of the Sony methodology,” as he puts it. “Sony is successful in multiple markets because it really listens to its customers,” he claims. So Homlish went on a grand tour, talking to and listening to key customers, partners, and stakeholders. “My goal was to understand the essential character of SAP as a company,” he explains. “So I asked very simple questions, like ‘What does the company SAP mean to you?’ and ‘When you think about SAP, what comes to mind?’ ”
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Homlish learned that customers viewed SAP as a company that was conservative and stable, the exact opposite of the Internet-hip image that the company had been trying to encourage. “We had the world’s best product, but with a marketing plan that was 180 degrees away from the product’s actual personality,” he explains. Homlish also learned that SAP’s recent marketing had actually damaged the SAP brand image by devaluing the very strengths that customers valued. “We had an incredible perception issue, because the world now thought that we were slow and old and inflexible,” he says. Homlish decided that SAP’s future marketing strategy would attempt to leverage the stability and reliability of SAP’s products. The company’s first ad campaign under Homlish emphasized that, despite all the hype surrounding the dot-coms and the so-called new economy, the basics of doing business—like planning, infrastructure, and profitability—were what was really important. “We were the first company to predict the crash of the Internet bubble,” chuckles Homlish. In retrospect, it was a brilliant move, because the dot-com era was about to come to a dramatic end. Shai Agassi, the member of SAP’s executive board who is responsible for the company’s technology strategy, remembers how the dot-com crash changed the market for enterprise software. “In the 1990s, CIOs were more willing to dabble with products and technology from small companies,” he explains. “But many CIOs who built their architecture on those products got burned when the dot-com crash put some smaller technology providers out of business.” Homlish quickly adapted SAP’s new marketing message to leverage this sudden change in CIO buying behavior. He dropped the vapid “You can. It does.” in favor of a tag line that actually contained SAP’s value proposition: “The Best Run Businesses Run SAP.” Homlish further distanced SAP from the dot-com debacle by dropping “.com” from the mySAP product name. Homlish also
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simplified SAP’s marketing materials, reduced the overall number of collaterals, and made certain that all collaterals reflected SAP’s new and more realistic brand positioning. The alignment of SAP’s marketing messages with the desires and needs of its customer base has helped the company become more successful, according to Yvonne Genovese, an analyst at Gartner Inc., a market research firm located in Stamford, Connecticut. “SAP is a technology-driven company whose main market value is that there’s a big need for their software,” she explains. “Marty Homlish has definitely helped to clarify that message.” SAP
ON
PROCESS
1. Connect marketing to the core of your business. To appear in tune with the crazy dot-com era, SAP transformed its brand to mySAP.com and later changed it to You can. It does. Says Homlish, “The job of marketing is to create an image of the company that is based on core competencies.” To refocus the SAP brand, Homlish drove his team to “move away from the flavor-of-the-month advertising and dot-com references and focus on the core values of the company’s brand.” Today, SAP promotes the essence of the brand with the message “The Best Run Businesses Run SAP.” 2. Orchestrate globally and adapt locally. When Homlish arrived, SAP had 20 ad agencies worldwide and 25 Web sites. Every market promoted a different solution, and the result was a cacophony of messages. With the approval of the board, Homlish stopped all advertising, asked SAP customers what they thought about SAP, selected a single ad agency that promoted the business-to-business brand globally, and adapted the core message to 50 countries locally. Says Homlish, “Successful marketing requires a holistic ap-
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proach. Advertising and PR become useless if they are not connected to the fundamentals of the company.” 3. Have sales and marketing speak with one voice. Back in 2000, there was nowhere within SAP a document that explained the different products the company sold. Today, SAP publishes an internal master document titled “One Voice,” which serves as a comprehensive marketing and positioning handbook. This book describes products, explains customer benefits, offers marketing messages, and clearly defines marketing targets. “One Voice” serves as a guide to everyone in the company, from the software engineer to the marketing manager to the salesperson. Says Homlish, “Clarity boosts productivity. We want to deliver stunningly clear insights into customer needs, product benefits, and competitive advantages.” 4. Get everyone involved with building your brand. “We distribute a small booklet to every employee in the company that talks about our brand, our core values, our positioning, the brand attributes, the brand personality and our top priorities,” says Homlish. “Why? Because everything we do affects the brand. From the way we answer the telephone to the music we play on hold to the quality of a letter we write. We want every person in the company to know our mission, our vision, our values and our brand message. Ultimately, we want every communication with SAP to be a branded experience.”
HOW LEO APOTHEKER ADAPTS GLOBALLY For Leo Apotheker, the president of global field operations who oversees the company’s worldwide sales activities, the problem with
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SAP wasn’t just a counter-intuitive marketing message, it was a general inability of the marketing teams to communicate effectively with the field. Apotheker has previously been head of SAP France, head of SAP’s EMEA (Europe/Middle East/Africa) business, and interim CEO of SAP America. With that kind of broad experience across so many parts of SAP, it’s not surprising that he understands how difficult it can be to get tens of thousands of SAP employees, located in some 50 countries around the world, all marching to the same tune. Prior to Homlish’s consolidation, SAP’s collection of ad agencies and Web sites was a manifestation of the need for each region to cope with local market conditions, which can vary greatly. In Germany, for example, so many companies use SAP’s software that there’s little room to grow the customer base, and thus most of the marketing activity must focus on upselling. In China, by contrast, SAP’s installed base is tiny, so local marketing activities must focus on acquiring new customers. From the perspective of the regions, Homlish’s budget freeze and subsequent consolidation of the global marketing function represented a concentration of power at corporate headquarters that threatened their ability to execute regional-specific marketing campaigns. And that was where Apotheker has been able to help. He believes that the decision-making power should be shared between headquarters and the field. “We want the countries and the regions to have sufficient autonomy to execute within the context of the common vision,” he explains. As a result of this approach, SAP’s centralized marketing, while it controls the bulk of the marketing dollars, also behaves as if it were a service organization mandated to help the field. For example, SAP’s central marketing group publishes a special document that explains SAP’s brand positioning, states SAP’s core values, describes the attributes of the SAP brand and provides a roadmap of SAP’s key priorities. Every employee in the company receives a
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copy of this playbook in order to put context into the employee’s day-to-day activity. However, that playbook is not intended to be an intellectual harness or to constrain sales and marketing creativity in the field, according to Apotheker. “It makes the information easily accessible and puts it into a common framework,” he explains. “The guys who run a territory are the ones who are closest to the situation and, thus, must make the tactical decisions.” Apotheker makes certain that there is ongoing, two-way communication between Homlish’s central marketing group and the various sales territories. For example, from speaking with experts in the field Homlish learned that direct marketing to customers tended to generate more sales leads than other forms of marketing and advertising. He consequently gathered the best direct marketing techniques and materials that had worked in one region and made them available to other regions as well. Apotheker works closely with Homlish to make certain that SAP’s marketing efforts provide a major payoff in real sales situations. One of the innovations that has emerged from this relationship is SMART, the Sales & Marketing Asset Repository Tool, a database application that stores and categorizes marketing and sales literature, white papers, presentations, and marketing assets, in multiple languages, for use by SAP field sales personnel around the world. SMART is part of a new intranet that Homlish’s team developed, known as the Sales & Marketing Intranet (SMI), that allows Apotheker’s sales teams to select a target industry, the stage of the sales cycle, and the job title of the customer contact, and then automatically build presentations to help sell to that prospect. An interesting feature of SMART is that individual sales professionals can provide a rating of each marketing asset, indicating how useful it has proved in real sales situations. Gathering this ongoing input not only helps SAP’s sales professionals build more effective presentations and marketing packages, but also helps SAP’s corporate marketers create materials that actually help drive sales. Furthermore, the bulk of the material is available in many languages so that
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it can be more easily used in sales activities around the world. “Unless your business is deployed only by the United States, you need to be able adapt to local cultural differences,” Apotheker explains. A primary goal of SMART is to help SAP’s sales professionals act more as consultants than as sellers of individual products. “Selling solutions means acquiring knowledge of real business problems as well as gaining the capability to mobilize resources internally to bring those solutions to the customer,” says Apotheker. This consultative sales approach is essential for SAP because enterprise software doesn’t work out of the box. Instead, each installation must be customized to match the business processes of the individual firm, a process that can take months or years. This means that SAP must build long-term relationships with its customers, according to Apotheker. “SAP has close to 21,000 customers, and we’ve never lost one of them,” he brags. “We’ve had some struggles and issues, but we have always managed to keep the customer.” SAP’s consultative sales approach, customized to fit the requirements of the local market, proved particularly effective once the company’s marketing message came into better alignment with SAP’s brand image. For example, in 2002 SAP gained market share from its largest competitors, even though worldwide spending on enterprise resource planning (ERP) software dropped almost ten percent. Since then, SAP’s sales group has experienced extraordinary success developing new customer accounts. “Our new problem is that we have a giant waiting list, with customers calling sales and demanding the product,” Homlish says. SAP
ON
PEOPLE
1. Expect more to get more. Says Bill McDermott, “Good leaders constantly stretch people. We are asking people to walk, chew bubble gum and blow big bubbles all at the same time. What I have learned is, the more you challenge people, the more you ask them to do,
ROCK SOLID
they more they will do—providing that they believe in the cause.” 2. Become a master of change. It’s human nature to cling to the status quo. Bill McDermott says that change involves three elements. “First, over-communicate the reason that you need to change; second, involve people in the creation of change; and third, develop change around a transformational cause that’s worth fighting for. Just tell it like it is. People want the truth, and they can see right through the spin. You want people to become not only change agents, but also the stakeholders you need to win.” 3. Speed up decision making. “Many companies centralize all the power in the corner office,” says Bill McDermott. “As a result, they clog up communications and slow down the intensity around making the customer successful.” SAP empowers people to make decisions that are in alignment with the company’s vision, mission, and values as well as the organization’s strategic plan, says McDermott. “So if it’s right for the customer, just do it. If you blow a decision, you won’t be put down. I want people to look at a missed decision as an opportunity to learn.” 4. Apply best practices regardless of their cultural origins. SAP has learned to stay clear of cross-cultural conflicts and has openly integrated the best practices from European and American operations. Says McDermott, “While our competition focuses on the short term, we bring the European, long-term view to the U.S. market. Similarly, we use our U.S. aggressive, customerfocused, market-driven mentality as a model for our global operations. If you bring all multicultural assets together and celebrate diversity, you’ve got a powerful potion on your hands.”
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5. Create an indomitable intensity to win. When asked about the origins of SAP America’s passion for winning, Bill McDermott explained that his grandfather was a professional basketball player who was inducted into the Hall of Fame. McDermott’s father was a basketball coach and appointed his 11-year-old son as his assistant coach. Says McDermott, “I learned from coaching that you get better results when you focus more on what makes people successful. Many times, when you accentuate a player’s magic and ignore the soft spots, you’ll help them become super-successful. Over time we developed great talent with an indomitable intensity to win.”
HOW BILL MCDERMOTT REENERGIZES SAP USA When Bill McDermott joined SAP in September 2002 as the CEO of SAP America, it was his job to make SAP’s new market message and sales tools work inside a region that was lagging behind the rest of the company. SAP America, in fact, had been a drag on the company for at least two years. In 2001, for example, SAP’s U.S. revenue grew at little more than half the rate of Europe’s, and 2002 was even worse, with U.S. revenues dropping 6 percent year over year. “While SAP AG was heralded for their success in the applications market and was clearly the market leader, we were lagging and pulling the company’s results down,” says McDermott. Although, at 41, McDermott is one of SAP’s youngest executives, he had experience enough to know that in order to become fully productive SAP America would have to make radical changes. Before joining SAP, McDermott had been executive vice president of worldwide sales operations at CRM giant Siebel Systems in San Mateo, California, where he’d learned a great deal about what
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works and what doesn’t work inside sales organizations. Before that, McDermott had been president of Gartner Inc., the world’s largest high-tech research firm, and a division president and corporate officer at Xerox. McDermott realized that the U.S.-based SAP sales organization had to get closer to its customers. He quickly restructured SAP America to better match the firm’s 23 target industries, clustering industry specialists in areas of the country where those industries also tend to amass. For example, rather than keeping sales professionals who had experience with high-tech clients in, say, Florida, he moved them to Silicon Valley, where they’d be more likely to prove useful. “We deployed people who are literate on the issues and opportunities that are relevant to each industry,” McDermott explains. “Ultimately, our goal is to be close to the customer on a day-to-day basis and to earn a coveted ‘trusted advisor’ status.” SAP
ON
TECHNOLOGY
1. Maximize technology using tough love and leadership. “It takes no-nonsense leadership to create a culture that embraces technology on a daily basis,” says McDermott. “There is no point in having the technology if you’re not going to build your key business processes around it and if you’re not going to reinforce its use. All our top executives use CRM technology to manage their business in real time. I know that customer relationships change hour by hour. That’s why I expect us to respond to email between 9:00 a.m. and midnight. If I see somebody in front of the customer without the latest facts, they know it’s going to be a very difficult walk back to the taxicab. So, there’s also a tough love that has to come with the utilization and the maximization of technology.”
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2. Simplify and adapt product demonstrations. Product demonstrations are often challenging. Says Homlish, “The CEO doesn’t want to sit through a detailed presentation, but the CIO wants to drill down to the last line of code. The middle manager wants to see the functionality but doesn’t want to go too deep.” Homlish suggested creating three different presentations using the movie industry as the model. “Every movie goes through three phases: first the making of the movie, second the actual movie and third, the trailer. We adapted that model, and today SAP’s sales team can download and customize three different presentations depending on the needs of the three different audiences.” 3. Give your salespeople access to relevant information. SAP America salespeople can access a Web site called SMART and download or send out vital sales information. The purpose is to publish content that facilitates customer communications. For example, if a salesperson wants to make a call on Lockheed, he can log on to SAP’s Web site, click on aerospace industry, and review the “First Call Sales Kit.” This kit contains everything needed on a first call, from quick demos to customer success stories and a corporate overview brochure. Users can also check how other salespeople judged the effectiveness of a particular document. SMART is available in multiple languages and is updated daily. McDermott also decided that everybody in his organization would use SAP’s own CRM product on a day-to-day basis. “The highest executive managers use our CRM technology to manage their business in real time,” he says. The participation of top management was crucial, in McDermott’s view, because otherwise his
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organization would have to struggle with two systems: one computerized, the other paper-based. This would not only be inefficient, but also limit the effectiveness of the CRM system. “After the salespeople put all of this information into the CRM system, it’s very de-motivating when their own management keeps working with that information in a paper form, rather than bringing it up real-time on a laptop or a PDA,” he explains. Perhaps the greatest challenge that McDermott faced was getting his organization to embrace so much change in such a short period of time. “We were restructuring and retaining at the same time,” he says, “some people thought we were crazy.” However, McDermott believed that if he could convince his team that massive change was crucial to their success, they’d not only agree to the changes, but also actually drive them. “When you involve people in the creation of change and develop change around a cause that is worth fighting for, employees become not only change agents, but actual stakeholders in the change process,” he explains. This is not to say that the changes weren’t painful. In fact, by the time the restructure was over, all but two of McDermott’s direct reports were new faces. Similar changes in personnel rippled throughout the organization. “We decided that if people did not have both the talent and the heart for the job, they weren’t going to make it on my team,” he explained, adding that salespeople who had been “unlucky for too long” were removed from their jobs. The combination of SAP’s new marketing message, new marketing tools, McDermott’s restructuring, and use of CRM paid off quickly. In first quarter 2003, SAP America doubled profits and grew its sales revenue 34 percent year over year. SAP America’s new effectiveness became even clearer as the year continued. In June of that same year, one of SAP’s major rivals, PeopleSoft Inc. of Pleasanton, California, announced plans to acquire another SAP competitor, J. D. Edwards & Company of Denver, Colorado. A few days later, SAP’s largest competitor, Oracle Corporation of Redwood City, California, announced a hostile
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takeover bid for PeopleSoft. “Customers don’t know what the PeopleSoft acquisition means to the future of the PeopleSoft product, and that causes them to gravitate towards an SAP solution,” explains Steve Trotta, an analyst at Technology Business Research, a market research firm located in Hampton, New Hampshire. SAP America, like the rest of the company, has been aggressive in going after new business while its competitors are in turmoil. Says Trotta, “SAP has gained market share over all its competitors over the last rolling four quarters. And SAP will do even better as their installed base of customers invests more in IT as the result of a gradually improving economy.” Challenges still remain. Most large enterprises in the U.S. already have ERP software, so SAP’s future growth in the region will need to come from the SMB (Small-to-Medium Business) market. However, according to experts, as SAP does more business in this market, it will increasingly find itself fighting head-to-head with Microsoft, the only software company in the world that is arguably more successful than SAP. Even more of a challenge, SAP’s channel model, which depends heavily upon direct sales to manage customer relationships, may be better suited for handling a relatively small number of large customers than large numbers of smaller firms. However, Gartner’s Genovese believes that SAP can avoid competing directly with Microsoft by emphasizing SAP’s broad range of functionality, which exceeds what Microsoft currently has to offer. And McDermott has a plan to expand his sales capability into the SMB market by building a reseller channel for customers whose revenue is less than $200 million. “We currently have 60 resellers that work with us in the United States, up from none just a year ago,” he says. Another challenge? SAP’s software is designed to run inside a customer-owned data center, which may be inappropriate for smaller firms that would prefer ERP software that’s offered as a service across the Internet. However, SAP is working hard to make its software run more effectively across the Web, according to Gart-
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ner’s Genovese. “They certainly have a chance to do more business with smaller firms,” she insists. In short, SAP’s management team has managed to transform SAP into a company well positioned for future growth and continued profitability. While the company will no doubt face competition in the future, both from Microsoft and, once the dust settles, from Oracle and PeopleSoft, SAP has never been in better shape to ride out the storm as a rock-solid winner. FROM DELI ENTREPRENEUR TO CEO: H O W S A P A M E R I C A’ S C E O , B I L L M C D E R M O T T, BEGAN HIS SELLING CAREER
When Bill McDermott saw a “Help Wanted” sign in the window of a local delicatessen, little did he know that it was about to change his life forever. It wasn’t that McDermott needed a job. In fact, though he was still a kid in school, he already had three jobs. But there was something about the idea of working at the deli that appealed to McDermott, so he applied for the job and was hired on the spot. “I’ve always been a hustler,” he says, “I’ve always known that you need to work hard in order to get ahead.” McDermott soon learned that working in the deli was different from his other jobs. He now had to interact with as many as 400 customers a day, each with individual needs, and each with an individual personality. Soon McDermott was, for all intents and purposes, functioning as the deli’s manager. Then something unexpected happened: the owner put the deli up for sale. McDermott decided to make an offer of $7,000, an enormous sum for a teenager in the late 1970s. “I didn’t have the cash, so I had to borrow the money from the owner,” McDermott explains. “The only hitch was that if I couldn’t pay the loan in a year the owner would get the store back.”
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While he now owned the deli, he lacked the money to pay the distributors to stock his shelves. So he asked his distributors to give him the first delivery on consignment. “I told them that I’d always be loyal and that I’d make sure they’d get paid,” he says. They believed him, and with shelves now fully stocked, he forged ahead. But McDermott faced an even bigger challenge. The deli was only a block away from a 7-Eleven, which offered the kind of big-name competition that might easily drive a small, local establishment out of business. However, McDermott realized that the 7-Eleven was not addressing three important segments of customers: senior citizens, blue-collar workers, and high school students. McDermott knew from his conversations with senior citizens that they preferred to stay at home and didn’t like venturing out, even to shop for food. “So we set up a delivery service,” he says. McDermott also noticed that many blue-collar workers would get paid on Friday and then run out of money by Sunday. The deli decided to give the customers credit. “They really appreciated being trusted, and they always paid their bills,” he says. McDermott courted the high school kids by building a special room for coinoperated video games. “The 7-Eleven was treating the kids as if they were likely to steal merchandise, forcing them to line up at the door, only letting in four at a time,” he says. “We treated them like adults and welcomed them—and consequently got most of their business. It’s all about trust,” he says. McDermott is quick to share the credit for the vision of building a business and taking care of customers with his family. In particular, he gives the credit for all customer satisfaction to his mom, whose hard work, warm smile, and engaging demeanor made so many customers happy each and every day. “She really was the ultimate entrepre-
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neur,” he says. “Before too long, the whole family and an ecosystem of friends were extremely loyal to the cause, working long hours to build a business of the highest standard.” McDermott’s deli earned him enough money to put himself through college and even contribute to buying a family beach house. One of the deli regulars, a sales professional at Xerox, was always telling McDermott how much he enjoyed his job. McDermott was intrigued by the gentleman’s success story, and coincidentally, Xerox was among the companies McDermott targeted for a job. He landed a job interview at their New York City headquarters. On the day of the interview, McDermott’s father drove him to the train station. He guaranteed his father that day that he would be coming home with a Xerox employee badge in his pocket. McDermott’s father affectionately told him that he’d be proud of him regardless of whether he got the job. But McDermott was insistent. “I guaranteed him that I would get the job,” he says. After interviewing with several managers at Xerox, McDermott was taken to the corner office overlooking Central Park in order to meet with the big boss, the manager of Xerox’s uptown district. At the end of the interview, which was to be the final interview of the day, the district manager told McDermott that he’d gotten good feedback from the other interviewers and that Xerox would be in touch with him in the near future. But McDermott wasn’t willing to wait. He thanked the district manager for his time, but told him that he needed a commitment right then. When asked why, McDermott explained how he had promised his father that he’d come home with the job. “I told him that I had never broken a promise to my father
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and I wasn’t going to start doing so today,” he recalls. The district manager was suitably impressed, and he hired McDermott on the spot. McDermott soon found himself making cold calls in New York City. However, he had such a talent for sales that he was quickly given his own sales team, even though he was only 24 years old. He discovered that the members of his team had complementary skills: one was good at writing proposals, another was good at closing, yet another was good at canvassing and so forth. McDermott got his team members to work together to cover each other’s weaknesses. “We shared individual goals and wrote them on the wall,” He remembers. “And as we achieved them, we’d ring a bell and check off the goals one by one.” The team ended up a number one in the country, breaking every sales record in the firm. McDermott went on to become the head of Xerox’s sales operation in Puerto Rico, lifting that region from number 58 to number one in terms of sales performance. He then ran Xerox’s outsourcing solutions and services business, growing it 45 percent year over year. He finally ended his career at Xerox at the age of 37, as the youngest president and corporate officer ever appointed within the company. “And the rest is history,” says McDermott. “Everything I am and everything I will be I owe to the remarkable mentorship of my mom, a person who always believed that no goal was too big for me to achieve; the coaching of my dad; being close with my brother and my sister; marrying the woman of my dreams, who is my ultimate partner in life; and always putting my sons and family first.”
Chapter 12
The Marriott Miracle
Following in his father’s customer-focused footsteps, Bill Marriott Jr. has built a $9 billion hotel and real estate empire
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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f corporate America ever builds a hall of fame for customer service, it should dedicate an entire wing solely to the Marriott organization. Since J. Willard Marriott Sr. opened his first curbside restaurant in 1927, the company he founded has never wavered from one unifying goal: to deliver exceptional service to every Marriott customer. With a perfectionist’s attention to detail coupled with the fundamental belief that people truly make a difference, Bill Marriott Jr. has carried on his father’s legacy to create a $9 billion service-driven lodging and food service empire.
A PERFECTIONIST APPROACH TO CUSTOMER SERVICE Second-generation Marriott International CEO J. W. “Bill” Marriott Jr. says that he gained invaluable lessons in customer service from his father’s fanatically detail-oriented approach to running a chain of restaurants. “Long before he got into the hotel business my father was primarily a restaurant owner,” Marriott explains. “By watching him and going around to our restaurants with him I came to understand the importance of an absolute adherence to quality. He never tolerated anything less than perfection in operations. When he went into a restaurant he examined everything, from how clean the counters were to the food’s freshness. Then he would go through
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waitress line-ups to make sure their uniforms were starched, shoes and stockings straight and that they knew the menu and the daily specials. Nothing escaped his eye. Admittedly, he was very tough, but that was because his whole philosophy in business was to take care of the customer. So everything was focused on delivering that customer value and a really terrific end product.” According to Bill Marriott, despite the senior Marriott’s toughness he was still able to communicate his affection for his employees. “When I first started out in the business, I just couldn’t believe that he was never satisfied. I thought things were pretty good, and he’d always find something wrong with everything that was being done. Even when people tried extremely hard to do a good job, he had a great knack for simultaneously telling them how bad they were but also that he still loved them. “It was the old ham sandwich routine; he’d give them a kick, a kiss and a kick. He was great at telling people that they weren’t measuring up, while also telling them that he knew they could measure up and that he expected them to do better. He had a great affinity for his people and they had a great affinity for him.” Besides an eye for details, Bill Marriott emphasizes the impact his father’s perseverance made on the future CEO. “The other important lesson I learned from my father was ‘Never give up,’ ” Marriott says. “He was always determined to stay with something until he achieved it, no matter what the odds. He started out with absolutely nothing, and eventually built a really terrific company. A lot of that success stemmed from his unwillingness to give up or to accept anything short of the very best. “The story I like to tell about my father that really sums it all up is about the day he died. It was at a family cookout in New Hampshire. We had corn on the cob, and there were two pieces left, one fresh and one stale piece. We argued about who was going to get the fresh piece. He wanted me to have it and I wanted him to have it, and finally I got him to take it. After we both ate our corn, he got up from the table and said, ‘We’ve got to get some better corn
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around here.’ Then he went into the living room, sat down and died. To the very end he kept insisting on getting the best. That’s what I remember most about him.” UP
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RUNNING
Since joining the Marriott organization 28 years ago, Roger Dow has risen from part-time lifeguard to vice president of sales. Along the way he has been transferred 12 times, working in housekeeping, marketing, public relations, advertising, and sales. Today Dow spends much of his time on the lecture circuit, talking primarily about one key topic: how to build a customer-focused organization. Here are his lessons based on his experiences. In an interview with Personal Selling Power, Dow described the challenges and successes he has experienced at Marriott and on how the hospitality giant cultivates a topnotch 1,200-person sales organization. • Hiring. “If you want to attract genuinely terrific sales talent I say hire the heart, not the head. I look for potential and for things that indicate someone who likes to be involved with people. I want someone who is bright, enthusiastic, self-motivated, has a strong personality and wants to do something without needing constant prodding and pushing.” • Training. “We have an initial sales course that covers such issues as proper dress, how to make contacts and the other sales basics. “Then we have a more advanced course we call ‘Successful Selling’ which is more focused on building relationships. After four or five years we go into a strategic account management training. It’s much more strategic training compared to merely going out, writing contacts and reacting.”
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Dow also mentioned Marriott’s latest training salvo— programs that target specific market segments to help Marriott salespeople understand top customers’ needs. “We ask customers in a particular market what they would like our people to know. With the answers we create a video with a workbook that our people can take home and learn at their own pace. It can make a tremendous difference to customers if a salesperson knows something about their specific market.” • Improvement. Dow would like to improve Marriott salespeople in three areas. “I would like to improve their communications skills, especially in letter writing. “Second, I want our salespeople to continue to grow as business people. We want to help them build profits while meeting customer needs. “Third, I would like to see our people get better at building long-term relationships. It’s very gratifying to have a previous customer who may have a meeting planned in a different city feel so good about the relationship call and say, ‘Hey, we’ve got a meeting coming up and it’s not in your city, it’s in LA, but can you recommend something?’ To get to this stage you have to eliminate the short-term mindset that all that matters is booking the business and moving on.” • Sales Management. “Ten years ago we had a very youthful sales force. Today we have to find a way to provide opportunities as management matures while compensating people fairly but competitively. Balancing compensation, productivity and tenure is a challenge. “On the technology side we must integrate systems that enhance and empower our people and add value for our customers. Technology can enhance a salesperson’s ability to provide value for the customer. But
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for someone who spends two hours a day answering 60 unprioritized e-mail messages, technology can be a tool that saps productivity.” • Corporate culture. “Bill Marriott’s father had a philosophy that if you take care of your people they will take care of your customers and the business will take care of itself. And you can really sense that philosophy through Bill Marriott. He’s very customerfocused. “For instance, every month I get a list of the 20 top salespeople in the organization by percentage over goal. Bill Marriott calls the top five personally. The next five our president, Bill Tiefel, calls. Then the next 10 our senior vice president Steve Weisz and I call. Every month Bill picks up the phone, calls these people up and says, ‘Hi, this is Bill Marriott. I just saw that you’re at the top of the list this month and I wanted to call personally and thank you.’ “A call like this gets around the office quickly and generates a lot of enthusiasm and excitement about working for this company. And when your salespeople feel that kind of enthusiasm they’re just that much more likely to go out and create better relationships with your customers. I guess Mr. Marriott Sr. really knew what he was talking about.”
A NEW DIRECTION FOR GROWTH By the time Bill Marriott became president of the Marriott Corporation in 1964, the company had grown to encompass 45 Hot Shoppes restaurants, four hotels, and a fledgling airline catering company. The new president soon realized that in the restaurant
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business, it is almost impossible to maintain both rapid growth and control over quality standards. “In the 1960s we got into fast food,” Marriott explains. “But in the fast food industry you can’t grow by owning and running every restaurant. But my father was dead set against franchising because he had seen his friend, Howard Johnson, franchise and then lose control of his business. “I realized that in the hotel business we could make more money in two or three hotels than in a hundred restaurants, and it’s not as difficult a management job. Trying to run 100 restaurants is murder. When I became president I would go to 12 restaurants and six of them would be great while the other six would be terrible. Then I’d go back a week later and the situation would be reversed; the six terrible ones would be great but the six great ones would be terrible. There was never any consistency and it was driving me nuts. So I decided that since the hotel business was both more profitable and simpler to manage, that was the best direction for the company.”
MEET THE CHANGING CONSUMER While the elder Marriott left a perfectionist legacy on company kitchens and dining rooms, since assuming the company’s reins Bill Marriott has made the hotel side of the business uniquely his. In addition to the detail-oriented lessons and never-say-die attitude learned under his father’s wing, Marriott has created a service organization driven exclusively by the needs of the customer. In addition Marriott has exploited the changing needs of American business with canny insight. As suburban business centers arose in the 1960s and 1970s, Marriott built hotels offering ready access to airports, office complexes, and heavily traveled beltways and freeways. And by offering group rates, banquet fa-
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cilities, and other amenities, Marriott provided a genuine competitive advantage over competitors to mid-to-upper-range business travelers.
RESEARCH MOVES MARRIOTT FORWARD By the early 1980s Marriott realized that the traditional full-service hotel market had reached its upper potential. To maintain growth, Marriott looked to its Procter & Gamble-inspired market research apparatus. That research showed customers who were generally satisfied with hotels in the upper and lower ends of the market. Such mid-price hotel chains as Holiday Inn and Quality Inn were vulnerable to a competitor that could offer consistent service for a moderate price. Enter “Courtyard by Marriott.” Without bellhops, room service, and many of the other extras that helped make previous Marriott hotels successful, the new entry into the hotel market debuted in 1983, providing travelers with consistently high-quality rooms at a budget-conscious price. The Courtyards’ cookie-cutter design permitted rapid construction, and by 1989, more than 100 of these highly successful hotels were operating throughout the country. Market research also helps Marriott cater to customers’ needs in specific locales. To attract members of the local community, Marriott hotel and resort restaurants offer menus featuring regional cuisine as well as wallet-friendly value meals and early bird specials. Pizza prepared on the premises and solo dining areas featuring accelerated service are among the other specialized amenities Marriott restaurants offer. Market research suggesting that seafood could draw both locals as well as hotel guests led directly to the moderately priced Sea Grill restaurants, now featured in more than 15 Marriotts nationwide.
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Although extensive market research often tips the competition to plans in the works before actually getting a product or service going, Marriott rises to the challenge by being better, faster, and more economical. In April 1993, for example, Marriott introduced the Marriott Miles program. Members can earn frequent-flyer miles with six different airlines simply by staying at Marriott, regardless of whether they flew on that airline, or at all for that matter. As Joe Brancatelli of Frequent Flyer magazine says, “Marriott Miles may not offer anything newer than Hilton’s or Hyatt’s guest programs, but Marriott just packaged it better.”
CUSTOMER-DRIVEN CORPORATE DECISIONS Today Marriott continues its never-ending quest to find the most effective ways to deliver what Bill Marriott calls “a really terrific end product.” “We have an awful lot of ways to determine exactly what a Marriott customer values,” he explains. “One way is through focus groups that actively seek out customers and talk to them. To make these focus groups as diverse as possible, we target input from all Marriott customers, including business transients, men and women who travel just on business, associations—as many different important demographics as we can reach. “We also recently did a tracking study where we interviewed 700 different customers for 30 minutes each about their lodging experiences. We asked them everything from what they thought specifically about Marriott in terms of our strengths versus what needs improving, to what their experiences had been with other chains. We like to do this kind of customer research regularly because we want to know exactly where we stand with the customer. The more you know about the customer the better job you can do.”
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THE FIVE KEY DRIVERS Extensive market research is hardly unique to Marriott. But while other companies may survey their customers to the brink of exhaustion with little genuine change resulting, Marriott implements customer-driven changes faster than any competitor. As an example, Bill Marriott describes the process Marriott went through after determining the most important elements driving a positive hotel guest experience. “After extensive research,” he explains, “we found that customers at full-service Marriotts all want five things: a great breakfast, fast check-in, fast check-out, clean rooms and friendly service. And they want those five things consistently. And so we took them one by one. We said, ‘Alright, number one, what’s the problem with breakfast?’ The main problem was that waitresses were not in the dining room because they’re running back to the kitchen to get toast or to wait for an order, and meanwhile a customer is looking around for his waitress so he can get out quickly. So we’re not putting runners in the kitchen to bring out your food from the kitchen to the dining room. And in addition to putting more people in the kitchens to assemble orders we’ve actually moved a lot of the cooking into the dining room itself. “Number two, to speed the check-in process we’ve installed what we call the ‘First 10 program,’ where we bypass the front desk by pre-registering guests, meeting them at the door and immediately giving them the key to their rooms. Number three, for fast check-out we now slide the bill under the door at four a.m. so all guests have to do is pick up the bill, sign it and they’re checked out. I spoke to a customer the other day who said that he stood in line for 40 minutes waiting to check out of a competitor’s hotel. He was furious, and he was a big customer of theirs.” The fourth key customer issue was clean rooms. To make sure rooms are in full working condition before a customer crosses the
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threshold, Marriott has implemented a room-by-room monitoring system. Maids must follow a 54-step process in preparing rooms to make sure they are clean and that all electrical appliances, from TVs to air conditioners, are fully functional. “The system is better now,” Marriott says, “because it’s easier to eliminate problems. If we have a toilet overflowing in one room more than once, we know that the toilet in that room has a problem. Before, we would have kept fixing it without keeping any record, but now we can see by the tracking system that room 401 has had a toilet problem twice in a row and we can replace the toilet.”
GOING THE EXTRA MILE As for number five, friendly service, Marriott has long been renowned for competent, amiable, and efficient employees. “Chairman Bill,” as many Marriott employees refer to the CEO, believes that his people deliver superior service because they have an emotional investment in making customers happy. To emphasize this belief he refers to all individuals on the Marriott payroll as associates. “Our basic philosophy,” he explains, “is to make sure our associates are very happy and that they work to go the extra mile—take care of customers and have fun doing it. A lot of companies go through the motions but they don’t go the extra mile.” The first step in going that extra mile means making the effort to hire the right people. Well aware that in today’s business environment no company can expect to sit back and attract the best people through good karma alone, Marriott has developed a marketing approach to sell the company to prospective associates. As Senior Vice President Clifford Ehrlich says, “We approach it by saying we have jobs we’re trying to sell, and the prospective work force out there are the buyers.” In addition, Marriott focuses significant effort on
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retaining and promoting from within employees that have proven themselves capable. As a result, more than a third of the company’s managers have moved up from hourly wage positions. Once they’re on board, Marriott attempts to give associates the greatest possible amount of freedom and autonomy that corporate policies will allow. Another term for the extra mile at Marriott is “discretionary effort.” “That discretionary effort is usually the difference between a good hospitality experience and a bad one,” Ehrlich explains. “In the service business, tapping into the discretionary effort that people come to work with is very important. The trick in management is creating an environment in which people can contribute to the success of the business. You can’t practice a lot of strict top-down management and achieve that.” Marriott accomplishes the elusive goal of employee empowerment by allowing associates to determine for themselves how their days will be spent and using the one uniform concept, which eliminates strict job classifications among associates. At Marriott hotels, for example, every employee is cross-trained to handle all major guest services.
PRESSING THE FLESH Chairman Bill genuinely cares about what Marriott’s associates have to say about the way the company is being run. He logs an average of 200,000 travel miles every year visiting Marriotts, inspecting, and talking to associates. “I used to be able to visit every hotel every year,” Marriott says, “but these days I can only get to between 150 and 200. When I get to the hotels, I usually go first to the front desk to let those people know that I understand how important they are in helping customers begin their experience with us in a positive way.
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“Then I head for the kitchen to see if it’s clean, if the food’s fresh, if they have the right uniforms on, etc. I also like to see how the associates react. Are they happy to see me? Do they want to have their pictures taken with me? What is their level of enthusiasm? How do they like their boss? At one hotel the boss and I went into the laundry. The laundry people said to him, ‘Hey boss, why didn’t you come see us yesterday? You’ve been down in the laundry every day and you missed yesterday. Where were you?’ And to me that’s a great sign that he’s a good manager. He’s out of the office, with his people, and they appreciate and love him for it. “When managers are out with their people and with customers instead of sitting in their offices, productivity is higher and guest satisfaction is higher. But basically, when I meet with the associates, I just want to do whatever I can to let them know that they’re important to me.” Although some employees might have mixed emotions about these spot inspections from the CEO, they nonetheless appreciate the opportunity to speak directly with the man at the top. He places a tremendous value on these encounters as well. “CEOs don’t listen enough,” Marriott says. “The people who work for them know more about their particular areas than the chief executive does. It’s only from the associates on the front lines that I can perhaps learn about unique practices that I can then take and apply to other hotels.” But even the globe-trotting CEO cannot meet with each of Marriott’s employees. For this reason company policy states that any Marriott employee with a grievance who has not seen action after meeting with a supervisor can go directly to the chairman. Although this rarely occurs, Marriott claims that in more than one case he has interceded on an associate’s behalf. “One woman approached me,” he explains, “and said she was a cocktail waitress at the Marriott Marquis in New York. She complained that the shoes they were required to wear were too high and caused pain in their backs and legs. I told the people there, ‘Get
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them some lower pumps, guys.’ If they’re not comfortable, and if their backs ache, then they’re going to growl at our customers.” The results for the customer tend to be anything but ordinary, as in the case of the U.S. invasion of Panama when Marriott employees risked their lives to hide American guests in the laundry room dryers. Common courtesy can produce genuinely uncommon valor. At Marriott, fanatical customer service, perfectionism and attention to detail are learned, not inherited habits.
Chapter 13
The Toyota Success Formula By making some of the finest and most reliable cars ever built, Toyota just keeps getting better—and bigger
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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ravel nearly anywhere around the globe and certain brands are virtually inescapable: Coca-Cola, McDonald’s, Starbucks. And then there’s the Toyota Corolla. Since the day in 1966 when the first Corolla inauspiciously rolled off the assembly line, car buyers worldwide have clamored for the Corolla, and have made it the bestselling passenger car in history, with 25 million units sold in 142 countries. Positioned end-to-end, this cavalcade of Corollas would create a traffic jam 23 cars wide stretching from New York to Los Angeles. The Corolla is just one part of the remarkable Toyota success story, however. Emerging from the ashes of devastated postwar Japan in 1945 only to face the brink of bankruptcy after a crippling strike just five years later, Toyota somehow not only survived, but by 1957 had begun its assault on the vast-but-daunting U.S. market. Today Toyota is both Japan’s largest automaker and number three in worldwide sales (behind GM and Ford). During the past seven years, Toyota’s sales and profits have continued to climb while the fortunes of the Big Three declined. As Toyota cars claim a higher value after years of use, Toyota Motor Corporation’s $95 billion market cap is 26 percent higher than the combined market value of GM, Ford, and DaimlerChrysler. Toyota’s extraordinary financial performance makes experts smile while competitors shake their heads in disbelief. At the core of Toyota’s consistent success is an unwavering commitment to creating value for the customer, a
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high respect for people, a fierce determination to improve every business process, and a healthy philosophy of growing in good times and bad.
ONE WAY TICKET Since the company’s founding in 1933, countless other automobile manufacturers have either gone on to the great scrap metal heap in the sky or, failing that, ridden the kinds of highs and lows that would induce nausea in a stunt pilot. Yet for more than 50 years, Toyota has been nearly bulletproof—steadily growing, expanding its product line, developing new markets, and continuing the upward climb. Ask anyone affiliated with Toyota what the company’s key to success is, and you’ll likely receive a simple three-word response: “The Toyota Way.” What’s the Toyota Way? Some might say it’s equal parts manufacturing genius, a management philosophy focused on developing people and fostering relationships, a hyper-awareness of changing market forces, and a near-obsessive corporate focus on constant improvement. But current Senior Vice President and General Manager Toyota Motor Sales (TMS) USA Don Esmond prefers to use an anecdote about his experience as a newcomer to the company, fresh off a 12-year stint with Ford, to describe how he first came to understand that the Toyota Way was different from anything he’d ever experienced. “This was in 1982,” he recalls, “and we were marketing the Starlet, an overpriced model with old technology, terrible fuel economy—it was going nowhere. The following year we were going to get the Tercel, which was a great product. TMC [Toyota Motor Company] wanted us to take 10,000 Starlets, but no one at TMS wanted any of them. I sat in meeting after meeting, and as the new guy I didn’t say a whole lot. Finally, I asked one of Japan’s staff why
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they were so insistent on us taking these 10,000 Starlets. He said, ‘Well, if you can take the 10,000 Starlets, we won’t have to lay off anyone at the plant. Next year we’re going to be producing the minivan in this plant, so if you take the 10,000 no one gets laid off.’ I about fell on the floor, because in other corporate cultures that would have been a no-brainer—lay ’em off. So in the next meeting I raised my hand and said, ‘OK, tell you what. I’ll take all 10,000 of the Starlets and sell them fleet. I don’t know how, but I’m going to do that.’ And my staff did extraordinary things to get those 10,000 units sold. But we did it, and we did it for that reason.”
ALL TOGETHER NOW The mutually supportive relationship between the corporation and its employees that Esmond describes may seem out of place in an era where such stories as Enron’s and WorldCom’s dominate the headlines, but for Toyota there has never been any other way. Denny Clements, vice president and general manager of the company’s Lexus division, explains that fundamental to the Toyota philosophy is the notion that for Toyota to succeed, all Toyota’s partners must succeed as well. “Take, for example, a situation we might face on the manufacturing side,” he says. “It’s no secret that many suppliers lately have been told to cut prices. So a company in Detroit might say to the supplier, ‘We need a 15 percent price cut.’ What Toyota would say is, ‘We need a 15 percent price cut, but we will help you find a way to get that 15 percent, and we’ll share in it.’ We’ll find a way to get that increased cost efficiency, but not at the expense of one of our partners.” Clements adds that even in the automotive industry, where relationships between manufacturers and dealers can be downright antagonistic, Toyota manages to maintain unusually harmonious partnerships with the folks who sell the company’s cars.
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“Our first consideration on the sales and marketing side is always the success of our dealers and the welfare of our customers,” he says. “We have great products, but we don’t have a monopoly on great products. We have great dealers, but we don’t have a monopoly on great dealers, either. So that’s not why we’re successful. The difference is that we have advocacy with our dealers. Our dealers will do things for us they won’t do for other manufacturers because they know there’s a trust level and that, at our core, we’re with them. There’s never an adversarial relationship, because they know that the power and might of Toyota Motor Corporation is dedicated to their success every day. That is probably 180 degrees from where most manufacturers are and, frankly, it represents a huge competitive advantage for us.”
GROW YOUR OWN WAY Deliberately differentiating itself from other manufacturers has long been a hallmark of the Toyota Way. Ramping up production after World War II, company executives surveyed the international car-buying marketplace and quickly surmised that Toyota would soon be overwhelmed if it chose to directly take on the European and American automakers with their economic and technical superiority. So instead of matching the other manufacturers’ focus on medium- and larger-size vehicles, Toyota went with a smaller lineup. The strategy worked, and as the Japanese economy recovered, Toyota increased production and began to diversify the range of products offered to domestic consumers. To promote car ownership, Toyota even created a driving school that helped citizens acquire drivers licenses. The next task was to convince a nation of Americans in love with their own cars to drive Japanese cars instead.
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THE AMERICAN PROVING GROUND Today, with the benefit of hindsight, Toyota’s success selling to the American market may seem preordained and inevitable. And certainly the Japanese manufacturer’s ability to respond to the growing interest on this side of the Pacific in fuel-efficient cars, combined with U.S. carmakers’ legendary hubris and complacency during the 1960s and 1970s, sent droves of American consumers into Toyota dealerships. Yet as Esmond explains, contrary to the popular image of Japanese car manufacturers methodically plotting the execution of a plan to run Detroit off the road, in fact the U.S. market first had to prove itself to Toyota’s executives before they would commit to developing products just for stateside drivers. “The T-100 was our first effort with a full-size pickup,” Esmond says, “and that was an example where we weren’t fully prepared. It was produced in Japan, and they didn’t want to give us an eightcylinder engine, because where else could they sell an eight-cylinder engine? So it didn’t work here. It wasn’t what customers wanted. The same thing happened with the first minivan, which Toyota produced even before Chrysler had one. It was mid-engine, rear drive, with a short turning radius—basically designed for the domestic Japanese market. I remember time after time sitting down with chief engineers and asking for a V-6, front-wheel drive vehicle where you didn’t have to lift the front seat to check the oil. Eventually we got the Previa, which was a great vehicle, but still mid-engine; they’d turboed the four-cylinder but still didn’t give us a six. But now we have a next-generation Sienna that’s built here and targeted for this market. “I can probably attribute most of that success to Toyota’s deciding to finally produce products in this market. We had to prove to the Toyota Motor Corporation that we had the capability and the dealer strength to sell product here. And that gave the engineers the confidence to start designing products targeted to what the U.S. customer wanted. That’s why today we have the Camry,
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Corolla, Tundra, Sequoia and Avalon—all products designed for the U.S. that are doing very well.”
BEGINNER’S LUXURY Introduced to the American market in 1989, the Lexus marked a Japanese manufacturer’s first foray into the import luxury-automobile battleground then dominated by such Teutonic titans as Mercedes and BMW. Predictably, critics reacted to the news with a mixture of ridicule and disbelief. Sure, the Japanese could build perfectly serviceable economy cars, the thinking went, but luxury? Not only did Toyota build a luxury car to compete with the best Germany had to offer, but the Lexus in fact redefined the concept by setting a new standard for both European and American automakers to match—or be left in the dust. But as Clements emphasizes, what truly made Lexus different wasn’t the comfier seats, better handling, or features no one had ever thought to put in a car before. The difference, he explains, was in the service. “The LS400 was a phenomenal success for the first four or five months,” Clements says. “One of the articles said that the Lexus had gone ‘from a question mark to a benchmark.’ That helped dispel the notion that the Japanese couldn’t build a genuine luxury car and luxury channel. But then we ran into a quality problem—our first recall. At that time the people here elected to do something that no one else had ever done before. They had a massive recall, went out and picked up every customer’s car, made the repair, washed every car and then gave every owner a gift. Nobody had ever done that before—taken a recall and turned it into an opportunity to build customer loyalty. And what it did was give our dealers a level of authenticity—it showed that we were for real, that we meant it when we said we are all about a superb customer experience. So out of that initial adversity, we were very fortunate.”
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DISCRETION: THE BETTER PART OF VALUE The goal at Lexus, says Clements, is not simply to offer good customer service, a concept so bland that it has almost lost all meaning, but to surprise and delight customers in a way that no one else does. That requires an unexpected level of commitment, something the company calls discretionary effort. “Discretionary effort is when a company representative does something for a customer when no one is looking that he or she doesn’t have to do,” he explains. “You can’t pay people to do that. They have to really want to give it. And you can only get that kind of effort from loyal associates. You get loyal associates by having people who believe that this is a company that really cares about them as individuals and is going to give them the tools and training they need to be successful. And it’s not about money, although we have a lot of people here who are very successful. But money doesn’t get you a story like the one about the sales rep who was willing to drive 140 miles round trip to a customer’s house on a Friday night to demonstrate a car that the rep would have had no trouble selling to someone else the next day. That only happens when you have the loyalty of the people, when they believe that Lexus is a great place to work, a place where they can achieve their goals.” In a business environment where for many companies customer advocacy is more about public relations than genuinely expending the effort to put customers first, Toyota represents a refreshing departure. And rather than buying into the mentality that every corporate decision should be made with one eye nervously affixed on the stock price, Esmond says Toyota focuses its attention on smart growth that’s grounded in giving customers what they want and staying true to core company values. “Growth depends on how well you listen to your customers,” he says. “So the better the relationships you have with your dealers and your customers, the more likely you are to grow. You don’t get
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too greedy. You set your own internal targets and objectives and then play true to them. And in today’s day and time, you don’t read the newspaper, except maybe the sports pages. “From our perspective, it’s a real simple business. Our job as a manufacturer is to produce good quality products the customers want. Our dealers’ job is to sell and service the needs of customers. And, as long as we clearly separate that, it’s a partnership that’s going to work. When you start getting into trouble is when you start forgetting what your job is. Even though it’s not written anywhere into the Toyota Way, one thing I’ve found very clearly here is that the customer comes first, the dealer comes second, and then we come third. So as long as you always make your decisions with that order in mind, you should be all right.”
ENVIRONMENTALLY ALERT Esmond admits that simply listening to what customers have to say can only get a company so far, however. Sometimes more of a pushpull relationship is required to simultaneously move products and consumers forward. This is precisely the scenario Toyota has faced with its revolutionary hybrid vehicle, the Prius, he says, which was the first mass-produced automobile to combine a gas engine with an electric motor to deliver unprecedented gas mileage. “The Prius is an example of a product the consumer doesn’t know he wants yet,” he explains. “As we look at it, we believe we have both a social responsibility and a business responsibility. Right now there are close to 700 million cars operating in the world and 150,000 new ones are added a day. Toyota feels we have a responsibility to conserve fuel and do something about the environment. At the same time, we have to balance that attitude with what consumers are willing to accept, when they’re willing to accept it, and what makes good business sense. Fuel cells are probably in our future, but short term it’s not going to get us there. The hybrid tech-
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nology is an example of being socially conscious but at the same time practical from a consumer’s point of view.” In fact, the Prius represents just one aspect of Toyota’s move toward so-called green manufacturing. Today the company currently recycles 99 percent of the scrap steel at company plants and has moved to water-based paints on many vehicles. According to company chairman Hiroshi Okuda, Toyota plans someday to produce a fuel cell–driven vehicle that converts hydrogen to fuel, thereby producing zero exhaust emissions. “Many technological problems remain,” he said in a recent message from the chairman, “but in the midst of fierce competition we are steadily nearing our goal. Just imagine—if we succeed we will make an enormous contribution to the preservation of the global environment without sacrificing the valuable method of transportation that is the automobile. “As a leading manufacturer, Toyota must outline a unique vision for the role of automobiles and the future of the industry and take concrete steps to realize that ideal. I am convinced that unless the automobile industry develops in harmony and prosperity with society and individual lifestyles it will be impossible to preserve our stable long-term growth.” The chairman’s sentiments on a long-term, intelligent approach to growth reverberate throughout Toyota. That attitude also helps keep everyone at the company focused on constant improvement, Clements says, and minimizes the chances for complacency. “If your focus is always that the customer needs to win, then there is a certain limit to how much you should grow,” he explains. “Yes, you can take a short-term view and say, ‘We’re going to build as many cars as possible and just sell them.’ Or you can stay true to your core values and say, ‘We’re going to grow, but we’re going to do it at a level that sustains or even improves customer relationships.’ “Because of this mindset that all our business partners must be successful, we can’t become arrogant. It isn’t a matter of ‘We build great cars, we’re selling everything we’re making, and our market
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share is going up.’ The reality is, I have 200 Lexus dealers to worry about, to make sure they’re successful. This attitude keeps you from changing, growing and improving. A colleague once said to me, ‘You guys are a lap ahead, but you always act like you’re a lap behind.’ Success can be deadly because you forget what got you there, or you begin to feel like you’re entitled to it. That doesn’t happen here.”
BIG TIME PRODUCTION During a climactic scene in the 2002 blockbuster sci-fi thriller Minority Report, the character played by Tom Cruise chases a bad guy through a Lexus assembly plant in the year 2054. It’s impossible to know whether the film’s plot, involving cops 50 years from now tracking down killers who have yet to commit their crimes, will ever become reality. But the film’s producers were probably dead right that the Toyota Motor Corporation will still be manufacturing cars well into the future. Today the models of efficiency and intelligent design that double as Toyota factories produce nearly 6 million vehicles per year—an average of one every six seconds. And while the automobile manufacturing process itself has undergone dramatic changes during the company’s 70-year existence, the same philosophy of kaizen, or continuous improvement, that has made Toyota the standard-bearer for car-making excellence remains firmly in place. One critical element of kaizen was established during the 1950s when company executives committed to making ongoing capital investments in only the most up-to-date production facilities. The resulting efficiency improvements put the company in a prime position to take advantage of the increasing motorization of Japanese society during the 1950s and 1960s. In 1939 Toyota introduced the kanban, or synchronized delivery system, that is still in place today. Kanban is a classic pull system
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by which each member of a production line is akin to a grocery store customer. Whenever products are removed from any stage in the line, the “storekeepers,” or earlier members of the line, replenish the items to the extent that the stock is depleted. Kanban functions all the way through from the factory to the dealership, so that only after a vehicle is sold by a dealership is an order placed with the factory to produce a new one to replace it. Like a long chain stretching from customer to company suppliers, kanban connects every process in the chain and allows every step in the line to be free of excess inventory. Toyota Production System, or TPS, saw another watershed event in 1973. That year the Middle East War sparked the first international oil crisis, and Japan, a nation entirely dependent on imported oil, was particularly hard hit. Through the experience of this crisis, company executives realized that Toyota needed a much more flexible production system, capable of responding to rapid changes in consumer preferences. The result: Toyota eliminated facilities designed for single-model production in favor of factories that could speedily adjust production from one vehicle to another as the market dictated. Beyond the mere facility mechanics, Toyota has always understood the critical role played by its workforce in turning the executive-suite philosophy of continuous improvement into a shop-floor reality. Responding to changing demand requires flexibility from employees, who may be asked to move from one skilled operation to another with little notice. For this reason, a commitment to ongoing training and multiple cross-functional development has become another hallmark of the Toyota workplace. Since 1959, Toyota has also been producing vehicles in plants outside of Japan. As part of the kaizen approach, the company believes in funding operations in the regions where the vehicles and parts are most needed. In 1985, the company began constructing its first stateside plant, near Lexington, Kentucky. Today, Toyota operates seven plants in the United States, employing more than
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18,000 people. Last year, Toyota produced nearly 1.1 million vehicles in its North American facilities. In 2003, the company plans to expand production to 1.45 million vehicles. Today the Toyota factory floor is a buzz of highly synchronized, hyper-efficient activity as the 30,000+ constituent parts that make up a modern automobile are rapidly assembled into a final product. With the spirit of kaizen firmly entrenched, that will almost unquestionably still be true next year, five years from now, and quite possibly even through the year 2054. Who knows, it may even outlast former co-star Tom Cruise’s career as a box office draw.
TOYOTA WINS J.D. Power Awards
• Toyota has won more J.D. Power & Associates awards than any other automobile manufacturer (includes Lexus). • Lexus has been the number one car line in the Vehicle Dependability Index (VDI) Study for eight consecutive years (1995–2002). • Lexus was the number one car line in customer satisfaction for 10 out of the last 12 years (1991–2002) according to the Customer Satisfaction Index (CSI) Study. Public Awards
• Toyota is Fortune magazine’s 1998, 2000, 2001, and 2002 “#1 Global Most Admired Company—Motor Vehicle Category” and a top 25 company overall. • Toyota received the prestigious Deming Prize in 1965. Firsts
• In 1986, Toyota became the first import automaker to sell over one million vehicles (1,025,305) in the United States in a single year.
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• Toyota was the first company to offer a gas/electric hybrid vehicle, the Prius, in 1997. • In 1995, in its first year of eligibility, Lexus topped all makes with the highest J.D. Power and Associates’ Vehicle Dependability Index (VDI) score in the study’s history. Racing
• Toyota entered into racing in 1966 with the release of the 2000GT. In four days, the car broke three world records and 16 class speed and endurance records. • Toyota is the winner of the 2002 CART Manufacturer’s Championship. • Cristiano da Matta (Havoline Toyota) won the 2002 Driver of the Year Award from the American Auto Racing Writers & Broadcasters Association. Sales
• Corolla is the all-time best-selling passenger car in the world, with sales topping 25 million units in 142 countries. • Toyota Financial Services (TFS) surpassed the $100 billion mark for the financing of automotive-related retail and lease contracts. • In 1991, only two years after its launch, Lexus became the topselling import luxury brand, beating out Mercedes-Benz and BMW.
Chapter 14
Building Billions in Sales How UPS makes $33.5 billion by delivering the three basics: packages, information, and money
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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f someone appraised the value of UPS using the process jewelers use to appraise the value of a diamond, what would they look at? They may first look at the corporate colors. While IBM’s color is blue, ADP favors red, and SAP sports a yellow logo, UPS’s corporate identity is brown. While brown is an earthy and modest color, in recent years, brown-colored diamonds have outstripped the value of clear diamonds. Next, the appraiser would measure the weight (or carat) of the diamond. Counting the 88,000 brown vehicles and 582 brown airplanes moving more than 13.6 million packages and documents a day, UPS is fully justified in playing the role of Big Brown. UPS is the largest package delivery company in the world, and with $33.5 billion in sales it is the 42nd largest company in the United States. The third part of a diamond’s value is clarity. UPS runs its business on a transparent information platform that allows customers to track the movement of every package at any moment from pickup to delivery. UPS.com gets more than 115 million hits per day, including an average of 9.1 million daily online-tracking requests. It is the clarity with which UPS moves information that has quietly turned the company into a global leader of supply chain services offering an impressive range of options for synchronizing the movement of goods, information, and funds. The fourth driver of value in the diamond business is the cut. The experience and vision of the master diamond cutter transforms the raw diamond into a brilliant object that reflects light in a most
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fascinating and mesmerizing way. At UPS an army of 357,000 employees are busy polishing the diamond, and every one of its facets is a reflection of their passion for creating a satisfied customer with every transaction. The total value of the diamond called UPS is approximately $80 billion, which is the current market cap of the company as of May 2004.
FROM MOVING PACKAGES TO MOVING INFORMATION UPS is busy reinventing itself. Picture this: You fly into a distant city, and on the drive over to see your prospect you pop into The UPS Store (there are 3,300 in the United States plus 400 Mail Boxes Etc.s) where you can log into a WiFi network. You download last minute updates to your proposal and get your document printed, collated, and assembled into an attractive binder. Fast forward a few hours: You’ve closed the deal, but the client needs a few contract changes. On the way back to the airport you stop in The UPS Store, print out amended contracts, overnight versions to the client and your home office—and while you’re at it, you download your e-mail for reading on the flight home. Easy. “Wherever you are, we are. The power is in the network. We want you to make our brick and mortar, your brick and mortar,” says Nick Costides, corporate strategy and retail technology group manager for UPS. Guess what? That scenario already is in place for many salespeople today (UPS is deploying WiFi to all its stores), and importantly, this is just a tiny part of the transformation of the Atlanta-based UPS from a small package delivery company into a global leader in synchronizing what the company sees as the trinity of global business— goods, information, and money. The company calls what it does “synchronizing the world of commerce,” but from a selling point of view a lot more is happening because UPS is a company with an ambition to insinuate itself everywhere. A business has inventory in China and a need for enhanced cash flow in the United States? UPS
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might offer an inventory-based loan. A small business has some packages that need delivering? A smart-eyed UPS driver might note that and put into process the getting of a new customer for Brown. A mid-size enterprise has a supply chain that stretches from Siberia to Santiago with hundreds of points in between? UPS has the tools to manage and improve that supply chain. To make all these internal parts coalesce into a smooth organization, UPS relies on a polished, high-powered sales force that is well trained and capable of analyzing a company’s business flow to make UPS’s sales grow. For starters, consider the daunting scope of UPS’s sales mission. Fortune 500 companies have relationships with UPS. But UPS’s sweet spot is with smaller companies. “Domestically we have 1.8 million customers, of which 75 percent are small- to medium-size enterprises,” says Rich Bradshaw, vice president, sales for UPS Capital. How to get up close and personal with such a diffuse target as UPS, which has aggressively expanded into Europe, Asia, and elsewhere around the globe? That is the very question that stays top of mind for senior UPS sales executives, who readily share insights into how Big Brown is trying to make sure it expands sales far beyond the traditional package delivery services. But UPS’s transformation just may be emblematic of what is happening in many sales organizations as companies reposition themselves to better compete in the twenty-first century. UPS doesn’t expect to miss a beat as it sends out a newly invigorated, multidimensional sales force that knows its goal is to come back to base with ever more effective solutions for moving packages, information, and capital.
SELLING SMART How? Carl Strenger, vice president of e-commerce technology sales for UPS, reveals exactly the way UPS goes after a customer for its new products and services: “It’s a consultative sale that requires
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discussion across the supply chain. Our sales force looks at the customer’s business and tries to find ways to reduce costs or raise revenues. We go in and we learn about the business. We talk to the functional people—IT, finance and so on. Once we decide what’s important to this customer, we come up with a bundle of solutions to grow their top-line or reduce their bottom-line costs.” Keep in mind that Strenger’s mission is to connect customers with UPS’s suite of e-commerce tools that make it easier to process, track, and log packages and other goods—but never think package delivery is out of mind. “We usually couple our other ideas with a proposal to handle the customer’s small packages. We put all this together,” says Strenger, “and we underline the true dollars the customer will receive by going with UPS’s services.” Why is UPS getting so involved in complicated areas that seem to have little relationship to the old-fashioned movement of a package from A to B? Because, says Strenger, the company has no choice: “We want to drive deep relationships with our customers, and to do that we need these other components. We can no longer just handle small packages. Our customers are looking beyond that, and we have to, too.”
FACING THE SKEPTICS With all transformation comes the pain of change. Many UPS package customers don’t know about the many value-added services UPS can deliver. They don’t know that when someone orders a new camcorder from a Web site, it may be a UPS site processing the order or that it may be UPS handling the credit card and shipping the item from a UPS warehouse. They don’t know that UPS warehouses store and ship everything from auto and computer parts to sneakers and life-saving medical devices. In the field, UPS salespeople face customer disbelief daily. One of their key challenges is convincing prospects that the company
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that moves their boxes also can offer critical insights on maximizing efficiencies of the supply chain—and a first-blush customer response often is skepticism, admits John Haack, UPS vice president, supply chain solutions. But he adds, “We don’t have problems once we get in. Once we go through our capabilities—and our systems engineers are very good at weeding their way through a supply chain and finding places to improve—we can convince customers of our capabilities.” Haack personally oversees a lot of those extended capabilities because his group, he explains, provides everything except the brown vehicles and touches everything except the small packages on those vehicles. “We provide everything outside that. Air freight, ocean freight, warehousing, distribution, custom-house brokerage—it’s really the whole of the supply chain when you couple what we do with the small packages.” In 2003, supply chain solutions created a $2.3 billion revenue stream for UPS. How does Haack’s team stay on the cutting edge? He believes in cross-fertilizing the sales organization’s skills. “We mix people up. We put small-package salespeople and supply chain salespeople in the same classes, to raise joint awareness of each other’s skills,” he says. But this pairing goes a big step forward: “We’ll send them out on sales calls together,” says Haack. “We also try to leverage accounts. We might have a supply chain customer who doesn’t make heavy use of our small package solutions, so we try to work together to provide broader solutions. And of course the reverse is true too.”
UPS—THE LITTLE KNOWN BANKER But perhaps the swiftest way UPS silences skeptics about its new dimensions is with cash—and money still talks, but it talks especially loudly at UPS Capital, which has aggressively entered the financial
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services marketplace with a target audience of medium and small enterprises that don’t always have easy access to conventional capital. “We combine capital with transportation solutions,” says UPS’s Rich Bradshaw, who heads the comparatively new, 100-person UPS Capital sales team. A plus for UPS: traditional lenders such as banks still shy away from small- to medium-size enterprise, which often operate with substantial cash-flow constraints precisely because capital isn’t available, says Bradshaw. UPS is keen to alter that equation for two reasons. First—and this is key—the company has deep insights into potential borrowers’ business processes, and in many cases UPS even knows exactly where the raw materials and finished goods are because it is UPS that moves those goods. That boosts UPS’s confidence in lending. The other key is that, across the board, UPS sees money lending as a tool to augment the package shipment and supply-chain management aspects of the business. In most instances, too, UPS Capital sells in close coordination with sales executives from the package side. “We work to align with them,” says Bradshaw. “We prescreen their target list, to make sure we are pursuing targets that make sense from a capital standpoint. We’ll talk with the package account executive to gather intelligence, and frequently we’ll jointly call on the company.” Haack adds that his message quickly gets target executives listening: “We tell them we want to help enhance their cash flow. We want them worrying about margins, not about cash flow or transportation needs. That’s where we will help them. We’ll take those issues off the table for them.” And that’s a hard message for prospects to brush off.
SELLING TO THE “C-LEVEL” But all this innovation and brand extension raises two key questions: How does UPS keep its message consistent and straight as
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the sale has become more complex? And how does the company keep its sales force ready to handle a more analytical sales challenge? Dale Hayes, UPS vice president of sales, explains how the role of the UPS salesperson had to be elevated to the level of a trusted advisor who—with the assistance of the expert staff—will help direct the synchronization of the three flows of commerce: packages, information, and money. To Hayes, these strands obviously come together. “Historically we offered transportation to customers, but now we offer solutions to customers that include transportation as a core component. But we are also blending together information and financial solutions so that the product gets to the right place at the right time.” Something has changed, however, and that is the contact person who now is buying the UPS solution. Some years ago, the buyer was a logistics manager, often not particularly high up the food chain. Now UPS is aiming for a wholly different buyer. “As we offer supply-chain solutions, it is the CFO or CEO who becomes involved. C-level executives now are very interested in what we are offering,” says Hayes. “Staying on top of that is a core mission for us and for C-level execs.” How does UPS retool its sales force so that it can successfully sell to the highest levels of an organization? The key strategy is segmentation. UPS sends highly specialized teams into the market— supply chain experts, e-commerce pros, lending experts, and of course small-package transportation salespeople. The next step is “extensive training,” says Hayes. “That’s how the UPS message stays consistent. When we come out with new solutions for customers, we have an entire sales-training group that helps put these solutions into a context that highlights customer solutions. We provide consistent training all across the U.S. and, in fact, the world.” UPS training is not only delivered in classrooms. Says Hayes, “We embrace technology. Our salespeople have laptops and they receive training over their laptops.”
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THE HIDDEN ADVANTAGE Hayes stresses that UPS sales reps go into meetings with one key advantage that just may help close many prospects before the first meeting even takes place: trust. “This is a trust we have built over 96 years of delivering packages,” says Hayes. And it’s a trust that recently was spotlighted when Harris Interactive and the Reputation Institute ranked UPS its second most trusted organization (in a ranking of 60 highly visible entities). Customers come to trust UPS to deliver packages, and from there, it’s a small step into much bigger things. “They trust us to understand their business enterprise, and they trust us to help them improve their business processes,” says Hayes. “This is one of our greatest strengths.” With steady gains in business both domestically and globally, UPS has shown that there is no limit to how much a company can grow if it is able to leverage the customer’s trust while mastering change. UPS CEO Mike Eskew recognized the simple fact that there is a clear ceiling to the package delivery business, but there is no set limit to selling e-commerce and supply management solutions. While he keeps his eyes focused on the future, Eskew doesn’t want UPS employees to forget their earthy, humble roots. He says, “Dirt under the fingernails has more staying power than ink on a check.”
UPS MANAGEMENT SECRETS In 1907 there was a great need in America for private messenger and delivery services. To help meet this need, an enterprising 19-year-old, James E. (Jim) Casey, borrowed $100 from a friend and established the American Messenger Company in Seattle, Washington. Casey, who died in 1983 at the age of 95, provided the management and leadership philosophies that have stood the test of
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time, and they may well explain the secret to the consistent success of UPS over the past 97 years. Today UPS ranks fourth among Fortune 500 companies when measured by the number of its 355,000 employees. UPS employees are well trained; they follow a strong work ethic and enjoy the opportunity to grow with the company for decades. Casey rewarded talented, inspiring, and effective managers with greater responsibilities and higher ranks. It’s not surprising that many top UPS executives started as part-time drivers. For example, Senior Vice President of Worldwide Sales and Marketing John Beystehner joined UPS as a part-time audit clerk in February 1971 while attending Boston College. The UPS sales force has one of the lowest turnover rates among all sales organizations listed in the Selling Power 500. CASEY’S EIGHT TIME-TESTED MANAGEMENT SECRETS
Jim Casey believed that the secret to growing a successful company was a total dedication to ongoing improvement. 1. Be an inspiring leader. Casey spoke passionately about inspired management, suggesting that the company must create a succession of leaders and managers who are inspired by a dedication to principle, to people, and to service. At UPS, managers take their responsibilities seriously. UPS managers make sure that the levels immediately below do their job right. They take pride in doing their work personally and not passing it on to others. They continuously report and counsel with their managers. 2. Respect people. Jim Casey had a high respect for the individual. He said, “I envisage our organization as a means through which each member should be able to
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achieve a good measure of personal satisfaction and at the same time aid in the advancement of the interests of all the rest of us. I am convinced that these mutually desirable results will follow if we will but convey to each person in the company a clear understanding of what our purposes really are. Given that understanding, I feel certain that the average person will reconcile individual peculiarities with the needs of our company as a whole.” 3. Be honest. Casey also taught people to adhere to sound business ethics. “Once the people you deal with come to recognize that you do things from an honest heart, they will be surprisingly strong in their support of you. They will believe what you say. They will give you their loyalty. They will trust and follow you. Yes, right-thinking people have made our business what it is today. This is a place where ordinary people with honesty of purpose deep down in their hearts have accomplished far more than would have been possible for people of greater natural ability, but less integrity.” 4. Take action. The founder of UPS educated his employees early on about the virtues of taking action, saying, “We are practical people, not merely dreamers. We know that our dreams and plans won’t get very far unless we have the right people to make them realities.” Casey wanted his top managers to be selfreliant and resourceful. He said, “A person’s worth to an organization can be measured by the amount of supervision that is required. It will be a sorry day for us if plant managers and other top people require much of it. If a person is not a self-driver, if he does require constant supervision, he should not be in a high place in our organization.”
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5. Focus on results. Casey’s definition of good management focused on getting results through other people. “Good management is taking a sincere interest in the welfare of the people you work with. It is the ability to make individuals feel that you and they are the company—not merely employees of it. Good management is not just organization. It is an attitude inspired by the will to do right. Good management is your own worthiness to have and hold the confidence of others. Your associates really want to trust, respect, admire and believe in you. It is your own fault if they don’t. A person unworthy of another’s confidence is half beaten before the first move is made.” 6. Educate yourself. Good management is the result of ongoing training and self-education. Casey offered this advice to those who struggled on their way to success: “Take an inventory of yourself and see where you stand. Ask yourself a few questions: Is your mental attitude right? Is your education sufficient? Do you really know your job, and do you do your job? Do you allow yourself to get licked when the going is difficult? Do you finish what you start? Do you really have a plan for success? Are you able to lead other people? Do you train, encourage and inspire people who work with you to do a better job and thus help you also do a better one?” 7. Focus on the customer. Casey’s prime passion was the customer. He said, “Our real, primary objective is to serve—to render perfect service to our stores and their customers. If we keep that objective constantly in mind, our reward in money can be beyond our fondest dreams. In the early days of UPS, we didn’t look at delayed deliveries and other complaints as a mass of statistics to be filed away and forgotten. We looked at
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them almost with terror. We regarded every complaint, or cause for complaint, as a flaw in our service, and we trained all our people to prevent them.” 8. Create a positive impression. Casey encouraged his staff to look at itself through the eyes of the customer, saying, “Customers judge us by the visual and mental impression they get. If those impressions are to be favorable, we must have the appearance of doing a good job. Not only does this apply to the physical appearance of plants, cars and people, but it also applies to the impressions created by the work we do and how we do it. When a driver does not have the complete uniform, or wears an odd sweater or overcoat, when his uniform is soiled or his shirt has been worn for a week without washing—what kind of impression does that person create when making pick-ups or deliveries? And whose fault is that? The driver’s? No. It’s the fault of someone higher up for failing to insist that proper appearance is a requirement of the day’s work.”
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Chapter 15
Best Friends How salesforce.com CEO Marc Benioff plans to beat the competition
Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
A
nyone wandering into the corporate offices of upstart CRM solutions provider salesforce.com should expect to hear some barking. The source? It might be CEO and chairman Marc Benioff’s golden retriever, Koa, who is known to roam company hallways when the boss is in. Then again, the sound may be coming from salesforce.com itself, which although it only started operating in 2000, is actively nipping at the heels of such CRM big dogs as Siebel Systems and SalesLogix. The tale of salesforce.com is one of the few Internet success stories to emerge more muscular than ever after the exploded tech bubble. But today’s achievements represent just a small part of the Benioff’s vision. He’s after much more than just building his company; Benioff’s master plan is to destroy the traditional client-server technology concept itself. He calls it, “The End of Software.”
A NEW WAY OF THINKING Typically clad in a Hawaiian shirt, the 6-foot 5-inch Benioff makes an unconventional warrior, but in salesforce.com he wields a potent weapon. Unlike traditional CRM and sales automation applications that involve purchasing, customizing, and installing often-costly software onto company systems, salesforce.com offers a 100 percent Web-enabled solution for sales organizations, requiring little
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more of users than Internet access. Up-front costs are virtually nil and customers simply pay per subscriber, on average about $65 a month. Customers of salesforce.com now total 6,500 accounts, with 90,000 users. Benioff says that the idea for an entirely online solution germinated in his mind when, as a senior vice president at Oracle, he got his first glimpse of a commercial Web site using a robust Oracle database. “It was really the beginning of the Internet, and I was using this incredible application Amazon.com,” he recalls. “And I said, ‘Why can’t all enterprise software be exactly like this? Why are we still pitching this old client-server technology to companies when that’s not what they should be buying anymore?’ They shouldn’t be buying stuff like ACT, SalesLogix, Microsoft or Siebel that was written a long time ago. Even when the technology itself has been refreshed, the business models of these companies are still old. It was clear to me that the Internet is a network that spans utilities that should be built around business models that are subscriptions.” As a result of this revelation, Benioff says, he began to think about the Internet more as a pipeline network and to consider the possibility of delivering software the same way other consumer services are offered. “That’s the way all modern networks are,” he explains. “Take water. You don’t pay for water five years in advance. We don’t have to dig a well to get water. The same with electricity or sanitation. I don’t have to dig an outhouse, and I don’t pay for sanitation services 10 years in advance. So why is it with enterprise software that we’re making people dig outhouses in their backyards and pay for septic service years in advance? It makes no sense when there’s a modern network. That’s what the Internet is. I had this vision that people don’t have to buy software anymore.” To turn this vision into a reality, Benioff, with the blessing of his mentor and friend CEO Larry Ellison, took a leave of absence from Oracle. Combining $6 million of his own money and $2 million
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from Ellison with more than $60 million from other investors, Benioff rented a one-bedroom apartment in San Francisco and hired three developers to begin banging out the code that would one day become the salesforce.com product. That was in 1998. By December 1999, Benioff says, the company had lined up 20 customers, allowing him to depart Oracle and focus his activities entirely on the new start-up. BENIOFF SELLING 101
Back when he was winning awards as Oracle’s top sales executive, Marc Benioff built a reputation for putting together monster deals. Today, as CEO and president of salesforce.com, he’s using the same superior selling talents to take on the industry giants and win converts to his growing company’s unique online sales force automation and CRM solution. Following are a few of his suggestions for elevating your selling efforts to the next level. 1. Be yourself. Attend seminars, read magazines, listen to tapes, and seek out teachers, but don’t try to be someone else. Clients won’t buy from you unless you demonstrate the highest levels of integrity: Remain true to yourself, your character, and your beliefs. 2. Think big and long term. People always overestimate what they can accomplish in one year and underestimate what they can do in 10 years. It’s simple psychology: when you have a vision you must stay true to it and realize that things will work out for you, but only if you keep at it over a long period of time. 3. Lead on the level. There are different levels of leadership: The first is to lead yourself and your own energy. Second, you have to lead your friends and family. Are you setting an example of leadership in your personal
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relationships? The third level is in your organization. No matter your title, you can be a leader within the company. Fourth, lead your industry. Show customers what you think the future holds and then take them there. Finally, be a global leader. Are you prepared to step up and take a world issue on and lead that? More and more today that’s exactly what’s required of business professionals. 4. Create a vision. A great salesperson is one who can create a transcendent vision for the customer. Draw a roadmap for the customer, saying, “If you do this and buy these products, it will take you there. I want to go there. Do you want to go with me? This is a great idea—let’s do it together.” This is incredibly important today. 5. Reevaluate constantly. As the world changes around you, you must take a moment to evaluate how those changes affect your reality in the here and now. Ask yourself, “What do I want now? What’s important to me now? How do I get that now? What’s preventing me from getting it now? How will I know when I’ve got it?” The world today is not the same as it was a year ago, and it will be completely different a year from today.
FIVE STEPS TO UNDERSTANDING THE CUSTOMER Since then the company growth chart arrow has headed steadily northeast, with continuous growth in sales figures, client companies, and subscriber numbers. Not that everyone has been easily convinced of salesforce.com’s staying power. In April 2001 Tom Siebel unintentionally provided fodder for Benioff’s company bulletin boards when he volunteered to the press, “There is no way that company exists in a year.”
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That Siebel, the unquestioned top dog in the CRM software kennel, would take a moment to recognize a comparative pup like salesforce.com only served to validate the threat Benioff’s company and his application service provider (ASP) model represent to traditional CRM software vendors. Credit for the company’s success can’t be attributed entirely to the convenience and flexibility of the salesforce.com solution, however. Observers rate as equally important Benioff’s single-minded dedication to evangelizing not only to potential customers, but also to the press, investors, other tech-industry power players, and pretty much anyone willing to sit still and listen. But pitching product is nothing new to Benioff. At 22 and newly arrived at Oracle with an undergraduate degree from University of Southern California in hand, he was soon named the company’s rookie salesman of the year. At age 25 he became the youngest vice president in company history. The following year he was put in charge of direct marketing, succeeding none other than the departing Tom Siebel, who then got just the first of many glimpses of Benioff in his rearview mirror. During his selling tenure at Oracle, Benioff developed what he calls his strategy of modeling, which has nothing to do with high fashion but everything to do with fashioning a complete understanding of the customer’s needs. “Modeling means asking your customers questions that help you understand who they are as people,” he explains. “You want to know five things. First, what do they want? What is their vision? Ask them that and get them to be clear about what they desire. Then write it down. Second, why is that important? What are the values, the principles, and the beliefs that are guiding that vision? Get them to prioritize—is this more important than that? Is it more important than this? Once you understand your client’s vision and values, you are really able to communicate effectively to them how your product is going to help them.
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“Step three is, how are we going to get there? What is the customer going to do to achieve that? Ask that, and they might tell you, ‘We’re going to do an RFP, talk to competitors, check your references, get our legal department involved, get buy-in from the CEO and sign the contract. Then I’m going to an implementation training class.’ They explain all that and you say, ‘After you do all these things, will you have realized your vision? Will you have accomplished your goal?’ So you get a sense of that. Then step four is to ask what is currently preventing the customer from realizing that vision. I call these the obstacles. And they could be politics, a tight budget, the existing product, a good relationship with the current supplier—all that. You want to know what the customer’s roadblocks are.” Finally, Benioff says, salespeople need to determine what success means in the customer’s eyes. “You ask, ‘How will you know that you have reached your vision?’ ” he explains. “They’ll say something like, ‘Well, productivity will have increased 30 percent, my users will tell me how happy they are, our profits will be up 20 percent, our customer service will be better,’ and so forth. “Now as much as I believe in implementing the five steps, I still feel that salespeople have to be themselves and have to figure out what their own five steps are. You can get training and learn all about strategic selling, but ultimately you have to be true to yourself and determine how you want to get at the same core points. But for me, these five keys were critical to learning how to model my customers.” As Benioff has since discovered, however, the modeling strategy has applications beyond just the salesperson–customer relationship. He says the five steps now invigorate nearly every process within the company and have even helped salesforce.com stay on course in a rapidly changing business climate. “The five steps are a powerful tool for more than just modeling the customer,” he says. “At salesforce.com we model potential hires
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when we interview them. We model our business all the time. Getting clear about your vision and values is very important to make your own product and company successful. You can model yourself. You can model your product. You can model your company— whatever you’re working on. You can say, ‘What do I want for my company? What’s my goal? What’s important about it? How do I get it? What’s preventing me from having it? How will I know when I have it?’ You can model the whole thing.” Benioff admits that many of his philosophies about business and selling stem from a combination of his own experiences and the lessons eagerly learned by carefully studying successful individuals from an incredibly broad range of backgrounds. From Oracle’s Ellison he says he learned to constantly challenge and lead the market and industry. Leaders are never complacent, he says, and must constantly be growing, adding new products and new technology while always striving to improve as an organization. Another influential figure he identifies is Secretary of State Colin Powell who, in his work with the charitable organization America’s Promise, inspired Benioff to launch the salesforce.com Foundation (www.salesforcefoundation.org), a philanthropic initiative focused on providing relevant access to technology for youths in underserved communities. In the spiritual realm Benioff talks about being impressed with the boundless passion of Billy Graham and the impact of meeting the Dalai Lama who, he says, is that rare individual capable of combining in one person the tenets of compassion, nonviolence, and the search for self-actualization. Benioff even credits salesforce.com’s angel investor from Japan, Chikara Sano, with the idea for keeping a corporate canine around. Since prehistoric times, Sano told Benioff, people have unconsciously felt more comfortable and safer with dogs around, whether to ward off wild animals outside the cave or to identify the UPS delivery person approaching the home. Hence the frequent presence in the office of Koa, whose unofficial title is “Chief Love Officer.”
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LEARNING FROM AN UNUSUAL SOURCE But for evidence that Benioff is willing to take learning lessons from nearly every possible quarter, one need only ask which outside expert has recently had the greatest impact on the organization. The surprising answer: rapper MC Hammer. Says Benioff, “There are a lot of incredible people who have valuable ideas. MC Hammer is outside of the technology industry, but we’ve been glad to have him come in to the company a few times. He says, ‘Look, salesforce.com is a hit. Congratulations. Now you’ve got to do the four things that rappers building a hit song need to do. One, you have to create momentum to keep that song going. Two, you’ve got to get people talking about your song, get testimony, have people tell their friends how much they love the song. Three, you need to build a community of people who come to concerts—people who love using salesforce.com. And four, you need to make sure those people stay with you.’ “To do that,” says Benioff, “we have to create a great product and stay ahead of the curve, because there’s no barrier to entry. There’s always another rapper coming along. There’s no doubt in my mind that MC Hammer is a brilliant guy. He’s seen the highs, he’s seen the lows and he understands his industry and business very well. When I look at his industry, I think he has tremendous insight. Those four things are dramatically influencing a company like ours. We ask ourselves those questions: How do we increase momentum? How do we get more testimony? How do we build community? How do we make sure that we maintain market share with retention?” The title to MC Hammer’s signature hit, U Can’t Touch This, might also provide the perfect metaphor for salesforce.com’s continuing success despite the calamities that have befallen the tech industry. Follow Koa as he pads around the company halls, and you’d never know that the NASDAQ was hovering around Mendoza Line
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levels. Tight economic times notwithstanding, Benioff still places a high priority on fun—and backs his words up with cash. In February 2002, he threw a “Freedom from Software” party at Carnegie Hall, featuring a musical performance by David Bowie, and in September he dropped $100,000 to celebrate salesforce.com’s 5,000th customer by renting out Pac Bell Park, home of the San Francisco Giants baseball team. Asked if he agrees with the assessment that he’s a man who “always seems to get what he wants,” Benioff demurs, noting that what the CEO wants and what’s the right thing to do are not always the same. To underscore his point he cites some of the massive ethical lapses that have plagued Corporate America the past few years. “That may be a perception about me,” he says, “but I don’t feel it’s the reality. I try to create only what is ecologically sound. So if what I want does not promote the greater good, then I try my best not to create it. “In other cases where we have basic goals for market share, revenue and beating our competitors—those things are mostly ecological. But we have to pursue them with integrity, good business practices, consistency and leadership. I believe in our management team, and I’d put them up against anyone’s. But we will only do things within a certain constraint. There have been issues at companies like Enron, WorldCom and others where they created things that were not ecological. So that’s why we’ve built into the company structures to make sure we maintain the highest levels of integrity, ethics and values.” Benioff’s infectious optimism and faith in the Web-based delivery model aside, salesforce.com’s future success and the likelihood of “the end of software” are far from certain. On the one hand market researcher IDC predicts that ASPs will grow from $3 billion in sales in 2002 to $20 billion by 2006. Meanwhile Siebel is struggling, with a 50 percent drop in license sales in 2002. Yet the substantial majority of salesforce.com’s customer base remains among
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smaller sales organizations that can’t afford the high price tags that come with traditional CRM solutions. Some industry experts wonder whether Benioff’s charisma and enthusiasm will be enough to convince larger enterprises to abandon the security of control over their own information and technology. These are precisely the organizations salesforce.com is targeting, however, and a few recent converts include divisions of Avis, Kikkoman, GE, Nokia, and Time Warner. In addition, salesforce.com is running all North American operations for AOL. It’s clear that Benioff derives a great deal of glee from each account stolen away from his bigger rivals, many of which are run by former colleagues from the Oracle proving ground. But in harmony with his belief that the office door should never be an obstacle to fun or friendship, Benioff expresses regret that more of his competitors don’t share his Eastern-inspired perspective on the nature of business competition. “I’ve been disappointed by the way some of my friends have reacted when we’re competing in business,” he says. “The Japanese believe that business is temporary, but relationships are eternal. That means that one day you’re competing against somebody, one day you’re working for somebody, one day you’re partnering with somebody, but the relationship is the most important thing. I compare business to tennis. Larry Ellison, Tom Siebel, Craig Conway of PeopleSoft—all competitors of mine, and I’m playing tennis. I hit the ball over the net, the ball comes back, and it goes back and forth. But when we walk off the court we should still be friends—I don’t expect to make enemies playing tennis. But some people think that if you are competing against them in business it’s a personal attack. This is lunacy. And it also creates a situation where they lose perspective and they’re not able to lead their businesses properly. They should be friends with me, have lunch with me, want to know what I’m doing.” The rest of us don’t have to go to lunch with Benioff to get a pretty good idea of what he’s doing. Failing some major catastro-
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phe, he plans to spend the next 10 years playing enough tennis to build salesforce.com into a $10 billion company. That, he figures, should be just long enough to realize his vision of the end of software. In the meantime, the chief love officer should have plenty of tennis balls to play with. W H AT C U S T O M E R S S AY
ABOUT SALESFORCE.COM
One of the great challenges facing salesforce.com CEO Mark Benioff is persuading a wary sales audience that an entirely online CRM solution can deliver all the functionality, power, and security offered by his competitors with their more traditional client-server products. A single visit to www.salesforce.com should dispel most concerns. There, visitors clicking on the Customers link are taken to a page dedicated solely to the impressive list of current clients and details of the unique CRM challenges they’re solving with the salesforce.com product. Offering more than a mere description of the baker’s dozen highlighted clients, which include Time Warner, Fujitsu, Avis, Dow Jones, and USA Today, the page also runs through a comprehensive examination of the challenges faced by each sales organization, the solution developed by salesforce.com, and an evaluation of the results. And if you think Benioff is enthusiastic about salesforce.com, you should hear what some of his clients have to say. Here’s Ken Mason, Vice President of marketing for Fujitsu Technology Solutions: “Two years ago, we chose salesforce.com over a traditional software system and haven’t looked back once,” he says. “We’ve already saved over $1 million and have seen an ROI of over 750 percent. And since salesforce.com is so easy to use, organization productivity in finance, mar-
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keting, management and sales teams has gone through the roof.” Michael DeSimone, the director of business solutions for Travelex, a travel-related financial services provider, says that his company has mapped out savings of more than $300,000 annually over traditional software maintenance and support since rolling out a salesforce.com solution to the global corporate foreign exchange division. “Plus with a first-year ROI of 448 percent,” he adds, “salesforce.com has helped us stay ahead of the competition with improved sales productivity and increased customer retention. It’s rare that a CRM solution can address so many key objectives so quickly.” The Quantum Corporation was looking for a CRM solution capable of tracking global channel sales results with higher adoption rates than the company had enjoyed with a previous solution. According to John Todd, the vice president of worldwide sales operations, the salesforce.com solution has exceeded even his high expectations. “We completed a worldwide rollout of salesforce.com in three languages in just three months,” he says, “with robust functionality that people actually use. Because we can easily report on our global pipeline, we now have a clear forecast of worldwide demand and where it’s headed. This alone has made us a more successful sales organization and gives us a huge advantage over the competition.” The Weather Channel came to salesforce.com with yet another challenge. The company’s three separate business units—weather.com, ad sales, and affiliate sales— lacked any central reporting or common sales tool, and the lack of shared knowledge was hurting relationshipdevelopment prospects. Vicki Hamilton, the senior vice president for shared services and information technology operations, says that the new solution has brought sun-
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light to a problem that had hung like a cloud over the entire sales organization. “With salesforce.com, we’re leveraging a sophisticated CRM solution that has delivered powerful results from the very first day of implementation. salesforce.com gives us a 360-degree view of our worldwide customers so we can better serve our clients, maintain valuable relationships and grow new business. Now we can predict the weather and our sales forecasts more accurately,” she quips.
Credits
“Learn How Today’s Top CEOs Sell from Behind the Big Desk: Sandy Weill, Maurice Greenberg, David Komansky, and Martha Stewart” was written by Malcolm Fleschner. “The Shy Guy: The Selling Secrets of America’s Most Outrageously Entertaining Billionaire, Donald Trump” was written by Malcolm Fleschner. “The Art of the Dell: The Sales and Marketing Concepts That Led to Michael Dell Company’s $2 Billion Year” was written by Laura B. Gschwandtner. “The Best Salesman in America?: How Salesmanship Took Arnold Schwarzenegger from Bodybuilding to the Governor’s Mansion” was written by Malcolm Fleschner. “Anatomy of a Billion-Dollar Smile: How Jay Leno Uses Sales Techniques to Generate Billions” was written by Geoffrey James. “Think Big Like Virgin’s Richard Branson: Success Lessons from a Rebel Billionaire” was written by Kim Wright Wiley. “Paranoia Principle: How Andy Grove’s Fiercely Competitive Spirit Drives Success At Intel” was written by Malcolm Fleschner.
217 Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
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“Crowning Glory: At Any Age, George Foreman Packs a Motivational Punch” was written by Charles Lee Browne. “Barbara Smith’s Delicious Success: How a Small-Town Girl Turned Her Natural Good Looks and Invincible Spirit into Big City Success” was written by Malcolm Fleschner. “The Powerful Sales Strategy Behind Red Bull: How Determination and Global Appeal Helped One Company Thrive” was written by Gerhard Gschwandtner. “Rock Solid: How German Software Giant SAP Racks Up Profit Records Year After Year After Year” was written by Gerhard Gschwandtner and Geoffrey James. “The Marriott Miracle: Following in His Father’s CustomerFocused Footsteps, Bill Marriott Jr. Has Built a $9 Billion Hotel and Real Estate Empire” was written by Gerhard Gschwandtner and Malcolm Fleschner. “The Toyota Success Formula: By Making Some of the Finest and Most Reliable Cars Ever Built, Toyota Just Keeps Getting Better—and Bigger” was written by Malcolm Fleschner. “Building Billions in Sales: How UPS Makes $33.5 Billion by Delivering the Three Basics—Packages, Information, and Money” was written by Robert McGarvey. “Best Friends: How salesforce.com CEO Marc Benioff Plans to Beat the Competition” was written by Malcolm Fleschner.
Index
Advertising: by Dell, 41 by Intel, 95–96 by SAP, 145 on TV, 29, 107, 114 Agassi, Shai, 145 Airline industry, 78, 84 Ali, Muhammad, 102, 105 American Express, 6 American International Group (AIG), 9 American Messenger Company, 197 America’s Promise, 210 Anheuser-Busch, 124, 133 Apotheker, Leo, 147–150 Application service provider (ASP), 208, 212 The Apprentice (TV show), 19, 27, 28–30, 81 Automobile industry, 178–181, 184 Autonomy: business role of, 10–11 in decision making, 148 of employees, 172 in marketing, 144 B. Smith’s Entertaining and Cooking for Friends (Smith), 119 B. Smith’s restaurants, 114, 118–119 Barrett, Craig, 94 Baumgartner, Felix, 129 Benioff, Marc, 204–214 Best practices, 151 Beystehner, John, 198 Blair, Betsy, 47, 48 Bradshaw, Rich, 192, 195
Branding: by Donald Trump, 25, 26 enhancing, 73 by Jay Leno, 74 by Martha Stewart, 15 by Red Bull, 124 by Richard Branson, 79 by SAP, 140, 146, 147 by UPS, 195 Branson, Richard: background of, 76–77 as innovator, 81–85 rebel image of, 78–81 Broadus, Doc, 104 Burnett, Mark, 28, 29 Business strategy: globalization as, 9 profitability as, 9 responsibility for, 91 Buzz marketing, 124, 128, 130, 132 By George (Foreman), 107, 109 Carson, Johnny, 64, 68, 69 Casey, James E. (Jim), 197, 198 Change: customer-driven, 170–171 embracing, 151, 155 Chief executive officer (CEO): becoming, 4–5 responsibilities of, 44 site inspections by, 173 (See also specific CEOs) Citigroup, 7, 8 Clements, Denny, 178, 181, 182, 184 Coca-Cola, 80, 85, 132
219 Copyright © 2006 by Gerhard Gschwandtner. Click here for terms of use.
220
INDEX
Columbu, Franco, 56 Commando (movie), 57 Communication: corporate role of, 94, 165 with customers, 208 Compaq computers, 35, 41, 96 Competition: in computer industry, 35, 42, 98–99 Eastern perspective on, 213 in energy drinks, 128, 133 fairness in, 43 personal relationships and, 213 strategy for, 66 Computer industry, 35–42, 45, 88, 90 Conan the Barbarian (movie), 56 Conan the Destroyer (movie), 57 Continuous improvement (kaizen), 185, 186, 187 Corporate culture: at Dell, 43–45 at Intel, 94–95, 97 at Marriott, 166 at SAP, 153 at Toyota, 178 Costides, Nick, 191 Courtyard by Marriott, 168 Cross-selling, 8 Customer relationship management (CRM): at salesforce.com, 204, 208, 214–216 at SAP, 142, 153, 154–155 Customers: special needs of, 158 understanding, 20, 208–209 Customer service: at Dell, 38, 40–41, 49 at Marriott, 162–174 at SAP, 150 at Toyota, 181–183 at UPS, 200–201 Dalai Lama, 210 da Matta, Christiano, 188 Davis, Gray, 59 Deal making: by Donald Trump, 18, 23–24 by Marc Benioff, 206
Decision making: autonomy in, 148 customer-driven, 169, 183 efficiency of, 151 fear of, 22 hedging in, 95 Delegating, 15 Dell, Michael: as competitor, 37, 39–43 management philosophy of, 43–45 salesmanship of, 36–38 as young entrepreneur, 34–35, 38–39 Dell Computer Corporation: corporate culture at, 43–45 customer service at, 40–41 financial status of, 35–36, 42 global strategy of, 45–47 start-up of, 38–40 telemarketing at, 47–50 DeSimone, Michael, 215 Diller, Barry, 57 Direct marketing, 149 Direct relationship marketing, 42 Discretionary effort, 172, 182 Dixon, Geoff, 82 Dot-com crash, 140, 145, 204 Dow, Roger, 164, 165 Dynamic random access memory (DRAM) chip, 90–91, 97 Ebony Fashion Fair, 116 Ehrlich, Clifford, 171, 172 Ellison, Larry, 205, 210 Employees: hiring, 171–172 loyalty of, 73, 82, 182 managing, 150–152, 163, 199, 200 motivating, 7, 43, 115 support of, 178 treatment of, 65, 72, 166 Energy drinks: competition among, 133 popularity of, 124, 126 (See also specific drinks) Enterprise resource planning (ERP), 150, 156, 204–205 Entertaining (Stewart), 14
INDEX
Equal Opportunity to Govern Amendment, 61 Eskew, Mike, 197 Esmond, Don, 177, 180, 183 Ethics, in business, 43, 199, 212 Federal Express, 37 Flying Bulls, 133–134 Focus groups, 169 Ford, Henry, 37 Foreman, George: background of, 103–104 comeback of, 102–103, 105–106 new attitude of, 110–111 salesmanship of, 109 training regimen of, 107–108 Fox, Jeffrey, 4 Frame, Jennifer, 49 Franchising, 167 Frazier, Joe, 104–105 Fujitsu Technology Solutions, 214 Gates, Bill, 27 George (TV show), 109 George Foreman Youth and Community Center, 105 Globalization: by AIG, 9 by Dell, 45–47 by Red Bull, 128–133 by SAP, 141–142, 143, 146, 148, 150, 151 by UPS, 197 Goal setting: by Arnold Schwarzenegger, 52–56 at Dell, 42 by Jay Leno, 67 in sales, 160 Gracia, Cedric, 129 Graham, Billy, 210 Grand Hyatt Hotel (New York), 23–24 Greenberg, Maurice, 8–11 Grove, Andy: accessibility of, 94 background of, 89–90 business goals of, 97 competitiveness of, 88, 95, 98 management tips from, 88–89
221
Haack, John, 194 Hamilton, Vicki, 215 Hammer, MC, 211 Hangar-7, 134 Hatch, Orrin, 61 Hayes, Dale, 196, 197 Hercules Goes to New York (movie), 56 Holyfield, Evander, 102, 107 Homlish, Marty, 142–146 Hot Shoppes restaurants, 166 How to Become CEO: The Rules for Rising to the Top of Any Organization (Fox), 4 IBM, 38, 41, 90 Inner-City Games, 58 Innovation: stimulating, 38 teaching, 44–45 technological, 98 Intel Corporation: culture at, 94–95, 97 history of, 88–91 innovation at, 97–99 marketing by, 95–96 sales technology of, 91–94 Internet: ERP software on, 156 subscription model for, 205 Jingle All the Way (movie), 58 Job Corps, 104 Johnson, Howard, 167 Johnson, Sally, 117 Kaizen (continuous improvement), 185, 186, 187 Kanban (synchronized delivery), 185–186 Kastner, Johannes, 127 Kindergarten Cop (movie), 58 Kmart, 14 Komansky, David, 11–13 Kushnick, Helen, 68, 69 The Last Action Hero (movie), 54 The Late Shift (TV movie), 69–70 The Late Show with David Letterman (TV show), 69
222
INDEX
Leadership: achievement through, 13 improvement of, 210 inspiration from, 198 levels of, 206–207 technology and, 153 Leading With My Chin (Leno), 66, 70 Leno, Jay: business philosophy of, 65–66 career trajectory of, 68–69 salesmanship of, 66–67, 71–74 success of, 64–65 television strategy of, 69–70 work regimen of, 70–71, 72 Letterman, David, 68, 69, 70, 71 Lindstrand, Per, 79 Losing My Virginity (Branson), 77 Loyalty: as CEO attribute, 8 customer, 181 employee, 73, 82, 182
Mason, Ken, 214 Mateschitz, Dietrich: air museum and, 125, 133–135 background of, 125–126 lifestyle of, 124 stunt awards and, 135–136 theme park and, 125, 136–137 McDermott, Bill, 150–160 McGinnis, Kevin, 48–49 Mentors, 5, 53, 117 Merrill Lynch, 11–13 Microprocessors, 88, 90, 95–99 Microsoft, 27, 156, 157 Minority Report (movie), 185 Moness, Williams and Sidel, 14 Moore, Gordon, 90 Moorer, Michael, 102, 109 Motivation: environment for, 89 of work force, 7, 43, 115, 150–151 Motorola, 88, 90
Mademoiselle magazine, 117 Maples, Marla, 26 Marketing: buzz, 124, 128, 130, 132 direct, 149 direct relationship, 41 entrepreneurial success and, 119 fads in, 141, 143 (See also telemarketing; specific companies) Market research, 168–169 Marriott, J. W. (Bill), Jr., 162, 163, 166, 167, 171, 172 Marriott, Willard J., Sr., 162, 163–164, 166, 167 Marriott International: culture at, 166 customer service at, 162–164, 167–172, 174 market research by, 168–169 origins of, 162 quality control at, 173 sales training at, 164–165 Marriott Miles program, 169 Martha Stewart Living magazine, 15 Martha Stewart Living Omnimedia, 14, 15
NBC TV network, 28, 30, 65, 68, 70 Necker Island, 76, 79, 81 Noyce, Robert, 90 Okuda, Hiroshi, 184 Olympics: Mexico City (1968), 104 Special, 58 Oracle Corporation, 155, 157, 205, 208, 213 Otellini, Paul, 91–92 Park, Reg, 55, 56 PC’s Limited, 38 Pentium chip, 96–97 PeopleSoft, 155, 156, 157 Pepsi, 85, 133 Personal computer (PC), 90, 98, 99 Pirkner, Jos, 134, 135 Plattner, Hasso, 144 Powell, Colin, 210 Predator (movie), 57 President’s Council on Physical Fitness and Sports, 58 Product demonstrations, 154 Product endorsement, 109
INDEX
Product placement, 29–30 Proposition 49 (California), 58–59 ProShare, 93 Public service: by Arnold Schwarzenegger, 58 by George Foreman, 105 by Jay Leno, 74 by salesforce.com, 210 Qantas Airlines, 82 Quality control, 162–163, 167, 173 Quantum Corporation, 215 Racism, 120 Real estate business, 25–27 The Rebel Billionaire (TV show), 78–81, 84 Red Bull energy drink: marketing strategy for, 124, 128–132 start-up of, 126–128 in U.S. market, 132–133 Reed, John, 7 Research and development, 95 Restaurant management, 118–119, 167 Roaring Lion energy drink, 133 Robinson, James D., 6 Running Man (movie), 57 Salazar, Picuruta, 131 Sales: success in, 19–22 teamwork in, 160 techniques for, 206–207 technology in, 91–94, 149–150, 153–155, 165–166 training in, 164–165, 196, 207–208 Sales & Marketing Asset Repository Tool (SMART), 149, 154 Sales & Marketing Intranet (SMI), 149 salesforce.com: customer modeling by, 209–210 future of, 212–214 origins of, 205–206 success of, 204, 207–208, 211 salesforce.com Foundation, 210 Sano, Chikara, 210
223
SAP: in global markets, 147–150 management strategy at, 150–152 marketing strategy of, 141–147 transformation of, 140, 157 U.S. operation, 152–157 Schultz, Axel, 109 Schwarzenegger, Arnold: ambition of, 52–53, 61 background of, 54–56 movie career of, 56–58 multifaceted success of, 53–54 political career of, 58–61 stunt awards and, 135, 136 Sea Grill restaurants, 168 September 11, 13 Shearson Loeb Rhoades, 6 Shriver, Maria, 57–58, 59 Siebel, Tom, 207–208 Smith, Barbara: modeling career of, 114, 116–117 philosophy of, 114–115 as restaurateur, 118–119 success of, 120 Smith, Fred, 37 Smith-Gomez, Janice, 29 SoBe Adrenaline Rush, 133 Social responsibility, 183–184 Sokolower, David, 92–94 Solomon, Peter, 24 Sony Corporation, 143, 144 Special Olympics, 58 Stewart, Martha, 13–15 Strenger, Carl, 192–193 Supply chain management, 190–196 Synchronized delivery (kanban), 185–186 Taurus World Stunt Awards Foundation, 135–136 Technology: maximizing, 153 restructuring in, 45 in sales, 91–94, 149–150, 165–166, 204–205 socially conscious, 183–184 for tracking shipments, 190, 193 WiFi, 191
224
INDEX
Telemarketing, 47–50 Terminator (movie), 57 Tiefel, Bill, 166 Todd, John, 215 The Tonight Show with Jay Leno (TV show), 59, 64, 65, 68, 70, 71 Total Recall (movie), 57 Toyota Corolla, 176 Toyota Financial Services (TFS), 188 Toyota Lexus, 181, 182, 187, 188 Toyota Motor Corporation: achievements of, 187–188 business strategy of, 179 customer service at, 181–183 philosophy of, 177–178 production efficiency at, 185–187 social responsibility of, 183–184 success of, 176–177 in U.S. market, 180–181 Toyota Prius, 183, 188 Toyota Production System (TPS), 186 Toyota Starlet, 178 Travelers Group, 7, 8 Travelex, 215 True Lies (movie), 54 Trump, Donald: Branson comparison with, 81 deal making by, 18, 23–24 sales advice from, 19–22 success of, 25–31 Trump, Fred C., 23, 24 Trump: How to Get Rich (Trump), 30 Trump: The Art of the Comeback (Trump), 27 Trump Hotels & Casinos, 27 Tse, Edmund, 10
Tully, Dan, 12 Twins (movie), 58 Tyson, Mike, 106 UPS: customers for, 195–196 financial services from, 194–195 industry status of, 190–191 management at, 197–201 sales approach of, 192–193 supply chain solutions from, 193–194 transformation of, 191–192 trust in, 197 UPS Capital, 194–195 Videoconferencing, 93 Virgin America, 78, 84 Virgin Atlantic, 77, 78, 83–84 Virgin Blue, 77, 82 Virgin brand, 77, 78, 79 Virgin Cola, 80, 84–85 Virgin Intergalactic, 79 Virgin Records, 77 VirginTrains, 77 Weather Channel, 215 Weill, Sanford “Sandy,” 6–8 Wiesz, Steve, 166 WiFi technology, 191 Wilhelmina modeling agency, 116 Xerox Corporation, 40, 159–160 Yoovidhya, Chalerm, 126 Young, Jimmy, 105
© Hisham Bharoocha
About the Author A dual citizen of both Austria and the United States, Gerhard Gschwandtner is the founder and publisher of Selling Power, the leading magazine for sales professionals worldwide, with a circulation of 165,000 subscribers in 67 countries. He began his career in his native Austria in the sales training and marketing departments of a large construction equipment company. In 1972, he moved to the United States to become the company’s North American Sales Training Director, later moving into the position of Marketing Manager. In 1977, he became an independent sales training consultant and in 1979 created an audiovisual sales training course called “The Languages of Selling.” Marketed to sales managers at Fortune 500 companies, the course taught nonverbal communication in sales together with professional selling skills. In 1981, Gerhard launched Personal Selling Power, a tabloid format newsletter directed to sales managers. Over the years the tabloid grew in subscriptions, size, and frequency. The name changed to Selling Power, and in magazine format it became the leader in the professional sales field. Every year Selling Power publishes the “Selling Power 500,” a listing of the 500 largest sales forces in America. The company publishes books, sales training posters, and audio and video products for the professional sales market. Gerhard has become America’s leading expert on selling and sales management. He conducts webinars for such companies as SAP, and Selling Power has recently launched a new conference division which sponsors and conducts by-invitation-only leadership conferences directed toward companies with high sales volume and large sales forces. For more information on Selling Power and its products and services, please visit www.sellingpower.com.
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