WATCH THE SHOW HERE: https://www.thirteen.org/openmind/education/metrics-or-peril/5057/
WATCH THE SHOW: https://www.thirteen.org/openmind/education/metrics-or-peril/5057/
Howard
Tullman
Metrics…or Peril?
Air Date: April 11, 2015
Howard Tullman defines his
principles of a data-driven economy.
I’m Alexander Heffner, your host
on The Open Mind. We have a rare opportunity today to
explore principles of entrepreneurship with one of the nation’s leading and
most innovative business leaders.
Former Chairman of Tribeca
Flashpoint Media Arts Academy, Howard Tullman is the CEO of Chicago based 1871,
where 260 digital start ups are building their businesses every day. He’s also
General Managing Partner of Chicago High-Tech Investors, an early stage venture
fund and an adjunct Professor at the Kellogg Graduate School of Management.
As a tech upheaval shook the
traditional media market and wider business arena, Howard Tullman was inventing
dozens of Internet based companies, creating thousands of new jobs and breeding
a culture of honest entrepreneurship.
In his regular Inc magazine column Tullman considers the high
stakes and high demands of the contemporary start up venture. Intelligent
device driven interactions, Tullman writes, “are key to greater productivity in
a future that he says is exciting and still challenging and constantly
changing.
Tullman describes the cornerstones
of his philosophy in three P’s … purpose, perspective, and proportion. And
while he’s bullish on the value of a metric driven economy to spur growth,
Tullman understands the important of real knowledge. “Not knowing isn’t a bad
excuse any more, it’s a death sentence for your business,” he writes.
So, I want to begin by asking this
business titan when leaders in the community are drowning in so-called
strategy, how do they mine the maze of today’s information culture? And thank
you so much, Howard, for being here today.
TULLMAN: I’m happy to be here.
HEFFNER: So, in the plethora of
information in which business leaders are inundated, how do they find and
winnow through all of this data to make the most important decisions.
TULLMAN: You know, I would say that
there’s sort of three ideas … the first is filters, you know we … you know we
get 800 to 1,000 emails a day, obviously we try to be responsive, but filters
help a lot, so the idea of filtering what’s inbound is really critical in terms
of the glut of information just as you say.
The second one is triage which is to
absolutely prioritize what you can pay attention to and nobody can be all
things to all people. Nobody can be a mile wide and an inch deep. You really
have to pick your shots and go deep on a few things and really sort of focus
your attention there. And then last is, is snacking. I mean, snacking in the
sense that you do want to dip in because if you’re only looking at a standard
set of inputs, you’re never going to discover anything new. So I think there’s
an obligation to look beyond that.
One of the frightening things about
Google is the whole idea of the efficiency of “Search” is counter-intuitive,
because it doesn’t let us discover anything new. It feeds back to us … it’s
basically … instead of a window on the world, it’s basically a mirror that just
feeds back to us exactly what we look for and what we ask for. And one of the
great things … I hate to use this word … about reading a newspaper, god forbid,
in this digital world, is the serendipity that occurs in the broadsheet. You
know, all of a sudden you discover you’re reading an article that you would
never have imagined about, you know, reptile intercourse or something bizarre,
wonderful thing …
HEFFNER: (Laugh)
TULLMAN: And it’s purely the joy of
discovering new information and knowledge.
HEFFNER: Do you find that same sense
of discovery on Wikipedia?
TULLMAN: No, I don’t because I
think, you now, Wikipedia has become so, sort of neutralized. I mean if you let
everybody vote on every piece of wisdom, you probably end up with a bunch of
sort of neutral, you know, sort of not particularly informative information.
And I remember in the earliest days
of Wikipedia, you know, I’ve known him for a long time, Jimmy … (laugh) … you
know, when it first started … first of all Eric Schmidt when it first began
called it, you know, a poor man’s email … okay, just goes to show you that Eric
Schmidt isn’t always right, you know.
But I think the idea of Wikipedia
was … you’d put something out there and then people would say, “Well, I don’t
agree that that’s necessarily your birthday.” You know, I was like “Wait a
minute, you know, I sort of control my own facts:.” You can, you know, dispute
all you want … my opinions, but facts are facts. And Wikipedia is very
complicated these days it’s, you know, there are 74,000 people working every
day to edit it and on the one hand that leads to a very interesting process.
And on the other hand, I’m not sure
what the quality of information listed is …
HEFFNER: Are you afraid that by
tapping too much exclusively into the treasure trove of data, the metric
economy, that we’re going to lose sight of really the creative impulse?
TULLMAN: Well, look, you know,
metrics can only take you so far. And one of the interesting things about a
metric driven process is that it tends to move toward a point, let’s say you’re
96% effective. You think the goal is 100%, and so you focus you energies on
closing that gap.
What you don’t understand is that
the game might be 150% and so, if we’re too focused on metrics and on that kind
of measurement, we never think about disruption, we never think about sort of
leaping the gap or innovating in new and different ways.
So I think we can definitely be sort
of mislead to being too limited in our thinking by too much of an emphasis on
pure metrics. Now having said that, I would tell you as well that in education
and in health care, in particular, the two words that you’re going to hear for
the next decade are going to be transparency and efficacy. Today in the, in the
world we live because we can measure virtually everything, there are no
excuses, there are no places to hide. And we say that today there’s a guy named
John Wannamaker a million years ago, who said that half of his advertising was
wasted. He just didn’t know which half.
Okay, today, it’s “shame on you” if
you haven’t figured out how to measure the efficiency and the “bang for the
buck” that you’re getting with any kind of communication. And having said that,
you know, I think that what’s, what’s really going on is if you’re doing
traditional advertising these days, that’s sort of a penalty you pay for not
being inventive and creative.
HEFFNER: It’s one thing to measure
your success by efficiency. It’s another thing to measure it …
TULLMAN: Well efficacy is different
from efficiency. Efficacy means you’re combining cost effectiveness with
results …
HEFFNER: Right.
TULLMAN: Efficiency, you know, that
means you’re saving a buck in terms of how you deliver a process or a service.
HEFFNER: So that’s a nuance that I
think you would want to seep into the American business communities’
consciousness.
TULLMAN: Absolutely, because if
you’re just trying to save your way … I like to say, “you can’t save your way
to success.”
HEFFNER: MmmHmm.
TULLMAN: You know, in every downturn
in economy we’ve had for the last 50 years, the people who invested in the down
cycle were the ones whose business grew when the world came back, when the
economy improved. The people who tried to cut costs only and didn’t invest,
discovered that you never gain share in an up market, you gain share in a down
market. And it was the people who actually invested in the toughest times that
were able to bounce back much more effectively when we came out of even the
last recession, absolutely the case.
HEFFNER: Well, would you say that
post recession we are not, as a, as an American business constituency so glued
to the profit making as the central impetus and imperative. Is that …
TULLMAN: No, I think that the big
corporations really haven’t learned anything. I think that (laugh) they haven’t
figured that out. Now I can tell you a company, for example, like Kraft, has
said going forward 10% of the budget of each of our divisions is going to be
devoted to innovation and learning new things. But implementation-wise, we have
no idea what that means, and nor do they.
And so it’s nice that they’re making
the gesture, we need to figure out how to make it effective.
HEFFNER: In many business models,
the research and development end, which you allude to, is, is an after thought.
How do you bring that into the core purpose of a business enterprise?
TULLMAN: Well, it’s, it’s coming
back because for almost 20 years the way to save money in terms of this
measurement of profitability was in fact a cut back on R&D as you say, and
in the … particularly in the CPG area, consumer products, if you don’t invest
in replenishing your new product offerings, it’s about a five year cycle in
which case your products start to stall out on the shelves and if you’re not
bringing new products, you’re going to discover that you’re screwed in terms of
that.
So, the, the smartest companies are
doing R&D. It’s coming back, they’re trying to do that. But here’s, here’s
what I would say about that whole score and that M&A is the new R&D.
Because M&A has the charm of being off balance sheet. You know, you sit
back and you have a pile of money, but you don’t have a lot of good ideas and
you look at a place like 1871 … and by the way, we now have 280 companies …
because on any given day our statistics only last like through the end of that
day. But the idea is that you look off balance sheet, you look at five or six
companies … you watch them grow, maybe you even engage with them and then you
acquire them and as a result, you haven’t increased your payroll, you haven’t
increased anything. And even if you invest in them initially, that’s not
something that punishes your P&L and gives you a look over the horizon to
new ideas and new changes that are coming down the pike.
HEFFNER: Now you’ve reached an
informed readership at Inc magazine and in terms of the community that is
Chicago … the city, the nation … you identify in one of your columns, one of
the greatest obstacles you say to progress is this idea of ignorance … you say
it will lead to a kind oblivion … and you, you elaborate … “Your real knowledge
is as much about knowing the extent of your ignorance as it is about what you
actually do know.”
And, and I highlighted this passage
in particular because it seems to me that what is going on in 1871 is the
exception, it’s not the rule. How do you try to foster that climate and we got
at it with the example of Kraft.
TULLMAN: Sure.
HEFFNER: But beyond Kraft?
TULLMAN: Well, look I think … first
of all, you know, that’s the idea that today saying “I don’t know” is an
unacceptable phrase and that we’ve sort of outlawed it in 1871. Because today
it doesn’t mean you lack knowledge, today it means you’re lazy. And the reason
for that is because it means you didn’t take advantage of all the resources,
all the information, all the tools we have to find out the answers to whatever
you’re looking for, so this, this idea of inquiry is part of what’s going on
every single day at 1871 and that culture is going to expend beyond 1871. You
know most of … we have a couple of start ups and they are trying to improve the
way that education in, even, you know, in the grammar schools is going on.
And there, the thrust of their methodology
is about evidence based learning, it’s about problem solving, it’s not
memorizing facts, it’s not rote anything. And so I, I have some faith in the
future and that we will inject these new, sort of processes into education and
particularly into health care.
In both of those cases the biggest
initial save of technology will be …that if you talk to a teacher today or you
talk to a doctor, they say the exact same thing … which is that the
documentation and the paperwork gets in the way of care or gets in the way of
education.
And so technology will eliminate
that, then we’ll be a the next, much higher hurtle and this the quality of the
instruction once the teachers are actually free to spend their time
instructing. And the risk there is one size will never fit all, and so if you
have 25 students, you can’t be the sage on the stage and sort of pontificate
and assume that they’re all learning. We’ll see a classroom that is all about
differentiated learning and what that will mean is 25 kids will be sitting in
front of 25 devices, these kids will be doing extra credit, these kids will be
remedial, these kids will be on par. The teacher will have really what looks
like a dashboard or an air traffic controller, literally watching the progress
of these individual students. And that’s the only model that matters because
the school system hasn’t changed since the industrial, you know, sort of era
when it was designed as a factory. And that’s not the way anyone learns today.
HEFFNER: Can you tell our viewers a
little bit more about 1871 … because I think the idea of learning how to
perfect and master your business, as a unified collective …
TULLMAN: The whole idea of bringing
together a critical mass was to permit this shared knowledge …
HEFFNER: Right.
TULLMAN: … and reason that you can
only learn so much in a vacuum, that you can only learn so much if you’re
trying to build your one business in your basement, is … apart from the fact
that it’s lonely and, and awful, is that a lot of people are one step or two steps
or ten steps ahead of you and they’re learning can be shared. They don’t, you
know, you don’t have to be the 33rd pioneer to figure out who at CPS you need
to talk to in order to get certain kinds of approvals … you …
And this, of course, good news and
bad news. I mean we live in a world today of fast followers, of people who are
constantly riffing on new ideas. And honestly anything you launch today, if
somebody isn’t doing it quicker, faster, more productively in weeks and months
… it would surprise me.
And so there’s this prospect of
constant iteration and constantly moving the bar if you want to stay ahead of
the game. That we also spend a great deal of time on, focusing at 1871.
It’s like if you’re just standing
still today in the world that we live in, you’re moving backwards.
HEFFNER: I ask that question because
I’m thinking of your analogy of a, of a dashboard … if you were to imagine the
future of American education.
And, and I ask what ventures are
more or less successful because it, it gives an insight into what our culture
is. And one of the things you write about is, you know, we’re not always going
to be the, the masses. The wisdom of the crowd is overrated.
TULLMAN: So, these days I say that
the crowd is crap and, and the reason I say that is because we’ve learned that
the vast accumulated knowledge of a bunch of people that are mostly engaged in
watching cat videos …
HEFFNER: (Laugh)
TULLMAN: … may or may not have a
sustaining value. Okay? So, so I don’t think anybody cares about easily influenced
individuals any more. I think we care about highly influential individuals and
reaching them and engaging them and motivating them and so, it’s not the crowd,
it’s really the advent of niches and the, the …
HEFFNER: Specialized knowledge …
TULLMAN: … the thing about, you
know, niches is really that they’re not small any more. I mean, you know, there
are millions and millions of people. There are millions of opportunities and so
focusing on an engaged audience, focusing on people who value the opinion of a
small number of people who they know and why they, and who’s opinions they
respect, is much more the way of the future. It’s not going to be that the
crowd gets to vote on everything.
Now, having said that, there are
some things that the crowd can do better than anyone. And, we’re still seeing
that. We’re also seeing, sort of the return of human intelligence because there
are still some functions that no machine can do and so we’re seeing “Turkers”
which is a mechanical “Turk” … is a service set up by Amazon to let you recruit
people at a fixed cost to do all kinds of tasks, pretty much anywhere in the
world. And we’re seeing more and more of this sharing economy and more and more
of this distributed economy where work will be done, ah, by any body in any
location all over the world.
HEFFNER: There’s been an adaptation
and so Amazon drones a concept that once would seem radical, if not, you know,
outright scary, is something that, you know, after they watch a 60 Minutes
segment …
TULLMAN: Sure. Sure.
HEFFNER: … ?????? is, something,
well that I can get my product in …
TULLMAN: Well, listen …
HEFFNER: … ten minutes …
TULLMAN: … the scary part is not,
it’s not that, it’s that Amazon is actually shipping product to warehouses near
you that you’re going to buy, not that you’ve bought. And, how are they doing
that …
HEFFNER: Right …
TULLMAN: … they’re doing that by
actually watching your cursor movements while you’re shopping and mostly while
you’re looking around …
HEFFNER: Do you have ethical
objections to this?
TULLMAN: Well, first of all I call
that “digital drooling” because that means that I’m, I’m sort of about to buy
something, but I haven’t.
What they then do is accompany that
by a, an incentive, a coupon that says “You can have it tomorrow morning” and
if you don’t think that we live in a world of instant gratification, we
absolutely do.
So, so I’m just writing about this
as we speak on a slightly different note, which is when you talk about the drones,
when you talk about the dash-wand which is an Amazon tool that let’s you
automatically re-order something you were about to throw away and you scan it
and it will add it to your grocery list … that Amazon will ship to you, you
know, every week … one of the things that really interesting is … better than
70% of our grocery basket every month or every week when we go to the grocery
store is the same.
And that’s a, that’s a set up for
something that is ideal for Amazon which is, “If I’m going to buy the same
thing every week, why bother go t the store, right, why bother doing anything
if I can have a scheduled replenishment program and the 20%, or whatever the
number is … that we newly discover and that is discretionary, you know, those
are opportunities. But what that tells you is that if big box stories, if
traditional retail doesn’t want to simply be a showroom for Amazon in the
future, they’re going to have to engage us in new ways.
And they’re going to have t engage
us in two interesting ways. Number 1 is discovery and, you know, if you go into
Costco or Walmart they have a … first of all they brought back entertainment as
shopping. Certainly for husbands.
But the other thing that they’ve
done is they’ve created … they have rule that the end caps will never be the
same, you know, two weeks in a row. And the idea is to convince you that
there’s a lot of novelty, there’s a lot of new things.
That’s not even the most important
driver. I mean the new behaviorial driver is FOMO and FOMO stands for “Fear Of
Missing Out”. And what this means is that when you go into Costco today, if you
see the Christmas decorations today, you have been sort incentive and convinced
of an amazing fact … which is that if you don’t buy them today, they won’t be
there next week.
Now, every other store in the
history of time has said, “We’ve got a zillion of these things (laugh) our
inventory is bigger than anything.” Costco is like, “No, no, no … if you don’t
buy it like today, next time you cme back you’ll be sorely disappointed and
you’ll hate yourself and your wife or husband will say, ‘You idiot, you know we
could have bought the Christmas decorations already’.”
So that plays to this idea that we
want what we want and we want it right now. I mean there’s this immediacy
that’s just staggering in terms of how everybody’s expectations are constantly
progressive …
HEFFNER: Right.
TULLMAN: … in terms of these things.
HEFFNER: You talk about efficacy, I
mean one of the things that in, in New York and I’m sure Chicago, as well, but
Fresh Direct has emerged …
TULLMAN: Absolutely.
HEFFNER: … on the scene and led to
practically the extinction of the contemporary supermarket …
TULLMAN: Yup.
HEFFNER: … as a service that can
provide groceries and, and …
TULLMAN: And, and again … because of
this redundancy, because of the fact that we know that, you know, our purchases
have become institutional. Our staples are things that we just assume we have
automatically.
I mean one of the most successful
companies in the history of medicine, medical supplies was American Hospital
and they developed the “never empty” supply closet. And the way they did that
was almost like POS systems, point of purchase or point of use, systems and
they would just automatically restock the, the closet.
So the staff was of the view that
the closet was never empty. And it wasn’t ever really empty. But imagine how
difficult it was for a competing sales organization to come in and say, “We
want to do “x” or we want to do “y”, or we want to sell you these things. Or
change the procedures.” And everybody was like, “Gee, I don’t know, it seems
like it works (laugh) perfectly, the closet’s never empty and nobody every
asked about price because price was not the driver, it was the reliability and
the availability of these products at the times they needed them. And so they
were price insensitive, which, of course, the best kind of customer in the
world to have.
HEFFNER: You’ve been on the cutting
edge of new technology since before the dawn of Twitter and the new age of
social media. What is the end goal in terms of the kind of economy and the kind
of “tech” culture that you’re striving towards?
TULLMAN: Well, first of all, I think
that we’re going to, you know, we’re going to step back in some ways because
there are whole sectors of the economy that the technology has not even touched
yet. You know digital manufacturing is a perfect example of … when you think of
the average car dealership … about 30% of the plastic parts in the dealership,
cost more to ship to the dealership than the part costs.
And so when we, when you think about
3-D printing and on-demand printing and that kind of supply, we know that those
devices will now be present in the dealership and you’ll press a button and it
will manufacture the little thing you need when you need.
Now that’s a skilled operating job,
that’s not a robot. And it’s not a … so I think the future is about knowledge
workers, information based workers, about a lot of things where we definitely
are getting rid of the middle man … we going to have a bunch of laborers and
then we’re going to have a bunch of smart people. And the people who are going
to be punished in that new kind of economy are the people who are average. And
average is over. Average is just not acceptable on the global scale in the
global marketplaces where we’re competing and so, I think, you need to be
lifetime learner. I think you need to constantly be building your skills and
enhancing your skills because there’s no telling what’s coming around the
corner.
But that economy is coming. I mean,
I honestly hope that we continue to create precious objects and things that
have great utility. I mean I’m sort of afraid that if our principle exports
are, you know, crappy movies and things like that, that, you know, that it
doesn’t bode very well for the United States as an economy.
But, I’m hopeful that we’ll do more
than that, I’m hopeful that we’ll re-gain some leadership in education, that
we’ll certainly push the envelope in health care and then all the other things
that were doing are all similar in one respect. They’re all about innovation
which is the incremental improvement in processes that have existed for a long,
long time.
But those create enormous economic
values, those create huge businesses and they’re pretty accessible. And
Chicago, in particular, has really, has been the home of so many different
industries, that it’s a really exciting prospect to be here at this time.
HEFFNER: Certainly there have been
cycles of corruption and corporate crime in a nation that was questioning its
values. And you’re an example of the opposite, of the highest ideal and values
and standing up for integrity in the business process. But we’ve really, in
order to create a business culture that is going to sustain those values, we
have to start at first and second grade.
TULLMAN: Well, I think we have to
start with values. I mean I think you can’t create value unless you have a set
of values.
HEFFNER: Right.
TULLMAN: And I think this gets more
complicated than you would imagine because big companies can afford a set of
values, that are a lot different from a start-up. I mean a start up is trying
to survive and a start up is about immediacy and urgency and, you know,
mediocre projects can persist in large corporations … no body wants to be the
bad in someone else’s day. But their existential for a start up, you actually
have to build something and someone to buy something. So, so part of it, there’s
a, a sense of immediacy, but the other thing is, what we’ve said at 1871 is if
your dream is just about making money, you’re in the wrong place.
If it’s about making a difference,
making a real contribution and that’s somebody we want to talk to, then that’s
were we’re really focused.
HEFFNER: Howard Tullman thank you so
much for being on The Open Mind today.
TULLMAN: Happy to do it. And thanks
to you in the audience. I hope you join us again next time…for a thoughtful
excursion into the world of ideas. Until then, keep an open mind.
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