I graduated yesterday, May 20th.  It was a day I’ll always remember.  My dad and brother traveled from the UK and we took them on whirlwind round of parties and receptions.  “Southern hospitality” is a concept they experienced fully.  I think their eyes were also opened by the American graduation experience, which is quite the opposite of the trend for understatement in our home country (Great Britain). 

The highlight of the day for me, and hopefully for them, was my delivery of the final speech at the Darden graduation ceremony.  I was elected to speak by my classmates, which was an honour that ranks amongst the greatest I have received.  More humbling than the election was the reception I received after the speech.  The occasion marks for me the culmination of an unforgettable experience here at Darden. 

As I alluded to in my speech, before Darden I felt that mediocrity was but a sniff away.  I’d had some tough times working in a business that was in terminal decline and attempting entrepreneurship in one of the hardest economic climates in living memory.  Darden helped to shape and steer me so that I can, if I want, now move in many directions and hopefully overcome similar situations and environments.  That is the true value of a first-rate education, in my opinion.

Next comes a return to the UK, where I’m going to be joining Amazon’s UK office as social media manager. It’s an unparallelled opportunity that I feel I can comfortably tackle and hopefully excel in. 

If you’re thinking about taking the plunge and wondering if it’s worth it, then my opinion is it definitely is.  Go for it.

For those interested, here’s a link to the graduation ceremony.  My speech features at 41 minutes.

A hefty chunk of MBA education is spent thinking and learning about a business philosophy that I would loosely term Lean Thinking, after the book of the same name.  Traditionally, Lean practices take place in manufacturing, as originally pioneered by Toyota in the post war period.  The Lean philosophy was born out of post-war constraints that limited companies’ abilities to stockpile inventories and drive high utilizations out of machines.  It is characterized by a few simple principles, which are neatly summarized on Wikipedia; essentially the Lean philosophy is concerned with eliminating waste in production processes.

Entrepreneur Eric Ries has used these philosophies in the start-up environment, and written a book called The Lean Startup which details how Lean principles can be used to encourage start-up success.  His practices will be familiar to observers of the technology space and fans of IDEO - style innovation:  bootstrapping, minimum viable products, rapid prototyping, small multifunctional teams. I’ve been interested in Lean philosophy and the music business.  If we set up a label, Lean Recordings, run along these principles, how would it operate?

The first change would be organizational.  Lean philosophy promotes the value of product -focused multi-functional teams; importantly, the notion of working on things in batches and sending them down the production chain is anathema to lean thinkers. In our example, A&R, marketing, publicity would be in teams working on specific projects from day 1 – thus, publicists and marketers could have input into the creative process from their perspective, as could the A&R man into marketing, etc. 

This isn’t new: many labels practice the “pod” system based on this idea, but it doesn’t work. In practice, the teams report to their functionally entrenched senior managers in A&R or marketing. The ingrained tension between talent and marketing people thus pervades - “When it left my desk, it was a hit” is a common joke bandied around the office. i.e., I found a hit record, and the marketing guys just failed to connect it to an audience.  On the other side, the marketing men claim, “you can’t polish a turd”.  Wouldn’t it be better to have project directors overseeing collections of projects, with responsibility for all aspects of the release? There could be no us-vs-them excuses for failure, and I would suggest that the team’s closeness to the release would flag up problem areas way upfront.

A huge aspect of Lean philosophy is the notion of waste: wasted time, inefficient process, cluttered work-flows.  The music business has undergone radical downsizing in the last decade, led by cost-cutting rather than strategy.  In practice, this means that say, 5 guys in the internal press department of a record label would laid off; they would then be re-employed on a freelance basis.  Headcount is reduced and some costs (such as employers contributions to national insurance, office space etc) are mitigated, but the structure remains the same.

This has led to absurd over-commitments of people to unprofitable projects in my opinion.  I remember sitting in planning meeting with 20 people to work on a project that at best was only ever going to sell 20-30k records, which would amount to £100-£150k grossrevenues. We had internal staff (A&R, promotion, marketing) then third parties that included national press, regional press, club promotion, regional promotion, online press, social media…I’m surprised we didn’t invite the cleaners in to contribute.  In a mechanized, online age, the majority of these functions can be automated.  The argument is strengthened when we have a media landscape with fewer and fewer outlets that can really make a difference at one end, and a huge array of outlets with minimal impact at the other.  

Certainly regional press, regional radio and club promotions could all be serviced through automated systems. Why pay someone to report what people think?  That part could be automated too.  Lean Recordings would have one person deal with media engagement (radio, TV and PR) and another customer engagement (blogs, social media and email). Servicing the music would be automated, so no more “mailing costs” invoices, and the people working for the label would be empowered and could make strategic, cross-media decisions in the interests of the label, instead of a third party making decisions in the interests of their business.  Given that only a few media outlets count, there’s no reason why one person can’t deal with editor, TV booker and radio playlist person. 

There’s also tons of waste (Mudain Lean terminology) in the recording process.  Making a record is a classic batch process. Demo leads to approval of tracks. Approval leads to rehearsal, then recording track by track (drums, then bass, then guitar, etc), then mixing, EQ’ing, mastering…then approval of the masters or re-mastering.  It’s often not until the latter stages that recordings are approved or rejected. Why isn’t it recorded concurrently? i.e, why aren’t all the tracks (instruments) recorded when the band play together?  Or even in rehearsals?  It’s surely possible that the band “nail it” in rehearsals, or that some of the tracks can be recorded at this stage.  It must be enormously frustrating to record and mix a track only to have it rejected because the song itself doesn’t make the cut, or to only realise there’s a problem with the way the drums sound a month after the drums were recorded.

A certain trend of the last decade has been the idea of speed and momentum in musical projects.  The online age, and the plethora of media outlets for music means that to achieve traction, the media and the audience have a very short attention span; buzz builds and dissipates with alarming rapidity.  I believe there’s a quantifiable value to be added from the ability to bring records to market as quickly as possible from the moment of signing, which, after all, will probably be the point of ultimate tastemaker buzz. To be able to capitalize on that buzz quickly, whatever the benefit of releasing recordings at that early stage (fan acquisition etc), would be incredibly valuable I think.

Lean Recordings would also not be shy about testing product versions in the marketplace as they evolve.  The old model is that recordings are made behind closed doors, tweaked and polished until glossy and gleaming, then released to a fanfare.  But this an inherently high risk strategy: with limited market feedback, A&R assumptions are not tested until the cold, harsh Ken Loach film that’s played out with the release of single 1, and moribund sales.

The internet gives us a fertile petri dish within which to test our early assumptions about tracks, mixes and versions.  Having developed an audience of early adopters - our first generation of fans - and tastemakers - our early blog and media supporters - we can use internet tools to see what works and what doesn’t.  Two tracks posted on a blog a week apart on the same day of the week would give us an idea of which one gets more traction.  Tracking retweets of free downloads for virulence, and looking at the tweeted comments about the track using search tools, would give us real-time feedback.  We could even A/B test different mixes of a track using Facebook’s ability to target by city or region to give us a basic straw poll of how the fans react to the music.  

Clearly, this only works with an artist that is happy to engage with his or her audience and is also prepared to accept the feedback from their fanbase.  Many artists, in my experience, struggle with this new paradigm; they feel their relationship with their audience, at least musically, should be didactic, an understandable and perfectly valid standpoint.  Many contemporary artists have turned this approach into a success story, however, but it takes a leap of faith to in your own creativity to be able to allow people to experience your creation as it’s being made.

In some cases, I’ll be preaching to the converted; labels like XL and 679 have been following the Lean approach in some format for a while, but if anyone else fancies giving it a shot, just drop me a line….  

Last month saw the BPI, the UK music industry’s trade body (who, incidentally, desperately need some search engine optimization), release figures about the state of the physical music market in the previous year (2011). Most notable to commentators include the fact that compact disc sales still seem to be holding up their share of the total album market and that digital single sales are increasing in volume. None of these things should be that surprising, as I hope to illustrate.

PIAS’s Darren Hemmings writes on the MusicAlly blog that CD albums are outselling digital albums by a factor of three to one.  This represents stasis in the growth of the newer format - which to me is interesting as it is in contrast to the US, where digital sales reportedly make up a 40% market share of albums.  He also comments that there’s excitement about the growth in digital single sales, but that this is misleading as these are in many cases purchases of single tracks from albums as opposed to “singles” which he defines as separate releases with b-sides.  He claims that “most people” would think of singles as such a purchase.

I would contest his latter claim; I believe consumers are now accustomed to purchasing single tracks, and don’t really see the difference.  At the point of purchase, I don’t think anyone cares whether it’s one track from an album or one track from a single. The notion of a “single” is probably moribund at this point.  I wish I had access to market research data, because I’m sure it would support my hunch. 

More significant is the question of whether single track purchases are cannibalizing sales of digital albums and thus slowing growth in the format.   We can’t really say without hard facts. It would be great to look at, say, Coldplay’s album, and see how many of each track was sold individually, and also how many the top-selling 4 tracks sold.  That might give us some insights; if you consider a hit album has 3-4 big radio records, that number could serve as a proxy for what use to count as an “album sale”.

We could also get an idea of the relative sizes of single tracks vs albums:  take the total number of single tracks sold from albums, divide by the average number of tracks per album during that period, and you’d get a rough and ready estimate.  If all of those 177M tracks downloaded in 2011 came from albums, and there was, say, 10 tracks per album, that represents the equivalent of 17M albums or about 60% of digital albums sold in that period.  That’s a big chunk, and I would speculate that the economics render these sales more profitable on an individual track basis, since there is no bundle-discounting as there is when albums are purchased.  Perversely, and counter-intuitively, perhaps it’s in the interests of the business to promote single-track purchasing in this new era?

There seems to be no thought given to price elasticity in any of the commentary I’ve seen, although David Balfour does allude to it in his editorial piece in Record Of The Day about January album pricing.  The demand for goods is relative to their price, and digital album prices seem to me to have been relatively static historically. Indeed, given the trend for large scale discounting which eviscerated the music business in the last decade, i was surprised on looking at prices at HMV.com, Amazon.co.uk and iTunes to see that prices seem to be at the level they were 4 or 5 years ago - around £8 for a top 5 album.  What’s also apparent is that there’s little disparity between physical and digital formats on price. 

Lana Del Ray is £8.99 on CD and between £7.49 and £7.99 on download; at most a saving of 17%.  Contrast that with the US where the same album is 9.99 on CD at Amazon, or 5.99 on download - a saving of 33%.  Adele is similarly priced in the UK; in the US, it’s $11.88 on CD and $7.99 on download, again, a saving of about one third.

It seems to me that people aren’t making the shift because they don’t perceive a big difference in value. We could fairly easily determine a correlation between price and demand if we had some sales figures to hand, but without such detail, it isn’t too much of a stretch to see that downloads are relatively cheaper in the US and consequently enjoy a greater share of overall sales. 

To go back to Balfour’s article, he shared with his readers the notion that some people have that “high profile albums from priority artists such as Kasabian or Professor Green ought to be able to maintain a top price tier for longer”.  Such an argument is to ignore the realities of consumer demand.  If the discounts are label-funded, it’s because they feel demand needs to be stimulated by a drop in price. They don’t maintain a top tier price because at that price, no-one wants to buy their album.

I wonder why savings inherent in the production of downloads haven’t been passed on the the consumer:  no variable costs from manufacturing (a cost saving of c.£0.25 - £1.00 depending on volume); no warehousing; no shipment costs; no capital tied up in inventories, etc.  I feel that in the US, these savings are inherent in the retail price, whereas in the UK, retail margins do not reflect them.

Perhaps there is a desire to maintain the flaccid status quo.  There are plenty more savings to be had I feel, but that’s the subject for another post. My personal feeling is that in a commoditized market, price is your strongest weapon so you might as well compete as much you can.  But I guess in an environment where the country’s last specialist music retailer, HMV, is threatened by financing issues, the industry is understandably nervous about shutting off a historically important entry point for the introduction of new music to the public at large. Perhaps converting consumers in greater numbers to digital albums through cheaper pricing may accelerate that retailer’s distress, and accelerate the creation of an ITunes/Amazon duopoly.

A huge part of being a business school student is developing the ability to deploy jargon with ease, so that even if you have no clue what you’re talking about, it seems like you’re eminently knowledgeable. This is a sensible strategy given that many B-school students have little real life experience. So here’s a quick primer of the key words and phrases you’ll need to survive, for those interviewing or soon starting their education.

FACTOR: Everything must be a factor of something.  Thus, factor becomes one of the most overused words in the classroom.  “Recession is a factor of growth”, “cashflow is a factor of sales and costs”. “Factor” is a nice catch all word that allows you to sound intelligent when stating the obvious. It can be used in a variety of contexts, thus “my hangover is a factor of the $2 rails at Boylan last night”.

OPTIMAL: Perhaps a “factor” of the mostly masculine constituency of business school, the quest for all things to be optimal besets every facet of life for MBA students.  “How can we get this balance sheet to be optimal”?  Again, used by many to mask deficiencies e.g “Professor, my comprehension of this subject is not yet optimal”.

“Learning team members, my preparation for tonight’s cases is sub-optimal” is a really nice way of saying “I haven’t done a stroke of work”. 

LIFETIME VALUE: An easy way to sound like you know something about marketing.  Given that no one really knows what customer lifetime value is, you can simply bandy the term around in the most unlikely of context and sound like you know something.  “When thinking about the viability of space travel, I think we should develop a customer lifetime value projection”. 

Recently, a trend has been developing among female students to assess potential suitors using a modified form of the classic CLV calculation. Suitors future earning potential plus probability of proposing and time to proposal are the inputs, such that

($F*P^(1/(T+1)))/T

LEVERAGE: The most overused word in business.  The ability to drop leverage into conversation is paramount for b-school students.  Not only is it necessary to use the word in classroom contexts, such as “leverage the equity in the brand” in marketing class. It is also imperative to use the word in social contexts - “I am going to leverage my personal cashflows to secure the company of an undergrad at The Corner this evening.”

Next week:  ARBITRAGE

What’s your hypothesis?  My hypothesis is that after this paragraph, there will be some more words; these words will be published on this blog, some people will read it, and others won’t. 

How can I test my hypothesis? I can use Google Analytics to see how many people have read the blog.  I can see where they have come from and where they are going, what source referred them and if they read any other pages.  I could then hypothesize, based on the data, that some content is more interesting to readers than others, or that posts later in the week get more hits than those posted on Mondays.  I could then use this data to form further inferences which could influence my posting behaviour.

I wouldn’t actually do any of this because it would be a waste of my time, but this bit of verbal sophistry allows me to nicely tee up a discussion about data-oriented analysis and creativity.  American academia has a long history of data-oriented analysis.  In the social sciences, the field in which I studied at undergraduate level, there is a well-known difference in analytical approach between American and European academia:  the former is statistically driven while the latter is much more qualitative.  My experience is that this focus on numbers permeates business here, and that this focus on metrics is influencing businesses all over the world.

In my previous career in the music business, focus on numbers was limited to sales and chart positions or how quickly we could accelerate myspace plays. Certainly, no one was running regressions, although we did employ shadowy analysts to tell us whether our TV advertising was effective or not. Sadly, it usually made no difference to our decisions.

So what of the overused term, Hypothesis?  The idea of the hypothesis is that we examine the evidence in front of us; form a “hypothesis”, that is to say a supposition based on our evidence; and then test our supposition based on fresh evidence, be it more observations, or in the laboratory, some kind of experiment. The terminology is oft used in b-school and businesses but rarely are the three steps performed.  Often, the practitioner has some intuition about the outcome which is their “hypothesis” and they go and look at the evidence to see if it fits their supposition.  If there are two or three supporting data points, the hypothesis is deemed to proved. 

This is often the basis for the presentation of ideas in the business context using the form of the “executive summary”:  effectively the premise of a business argument, the advantage of which is the brief encapsulation of the argument, which in time constrained environments has an obvious advantage. 

I would contend, however, that both approaches, while efficient, are somewhat invalid.  We should surely examine the evidence first and use what we find to form and support our arguments.  Show, don’t tell goes the old saying:  present an argument to your audience using facts to illustrate your narrative.  Allow your listener to reach a conclusion based on the evidence that you present.  And if you’re going to propose a hypothesis, make sure it’s based on evidence and then find a way to test it.  In the example I used earlier, I might compose two similar posts and post them on different days of the week to test my hypothesis.

Of course there’s an alternative explanation which is that some of what I write is interesting and some of what I write is not; the latter is what people read and share and so gains more traction.  That it is posted at the end of the week could well be coincidental.  We would have a lot of difficulty boiling this down quantitatively which is where a critical appreciation of creativity comes in.

How do we reconcile a data-focused approach and creativity?  These are uneasy bedfellows at the best of times.  Creativity thrives on the failure of ideas; we just keep producing ideas, some whither and die and others thrive and are successful. That’s why brainstorming is such a powerful tool:  we just keep throwing up ideas until we find a few that are good.

In business contexts that are purely creative, attempting to measure the essence of success is foolhardy:  how many movies have we seen that have a great idea on paper and a couple of big stars but leave us cold? Any attempt to reduce success to a formula had left us cold as viewers. Conversely, who would have said a movie about little people guarding a gold ring would be a global phenomenon, or that 4 guys from Liverpool singing R&B songs would invent modern pop music?

The idea of testing creativity is also a modern reality in the age of social media.  Creators can test their work in progress or bare ideas using web platforms, be they on slick blogs like Tumblr or music hosting sites like Soundcloud.  Their creations can engender feedback which can help to hone to process going forward.  Of course that works for some and not others, who prefer to unveil a final creation.  Certainly it has changed the nature of certain creative endeavors, which were about preparing the master opus behind the curtain, ready to reveal in a fanfare.

Data analysis can play a part in working out how we can best get our creative endeavours connected to a potential audience.  We might be able to make general inferences about which day of the week works best, for example, by observing trends over time which negate our concerns about quality.  We might see that using certain words in the title have a greater click rate, or that there’s an optimal post per month level at which we maintain our audience. 

But really, nothing beats a really good idea.  If only what I wrote was more interesting…

Autumn (“fall”) is here.  I’ve just finished the first quarter of my second year.  The pace has been somewhat breakneck; while some of my classmates have been living the second year dream (a.k.a living on the golf course), my schedule has been pretty hectic:  lots of early classes, plus involvement in the Media, Entertainment & Sports club and Rugby club. We are trying to revive the latter following a fallow year last year and early signs are encouraging, with a brace of experienced players making up the backbone of the team.

One of the highlights of the quarter for me came back in September. I was getting coffee between classes, and as is often customary, it was being served in the courtyard outside the Darden buildings.  The Dean and several professors were in the process of announcing the annual awards based on first year performance; they were discussing the qualifying merits for the Strauss Marketing Award, and to my astonishment announced my name. I performed something of a volte-face and, clutching a bagel in my left hand, walked up to collect the prize, which not only includes a dollar sum but also one’s name on a cup.  A fantastic honour, and after several years struggling to get recognition pre-Darden, a wonderful vindication. There’s an embarrassing video about it on YouTube

With longer nights (and no learning team thank heavens) comes the desire to stay in and watch telly of an evening.  And so the question arises, “what’s on tonight?”.  The networks have all unveiled some of their marquee shows for the season. This in an environment of uncertainty for TV networks in the US:  the switch to on-demand viewing habits, both set-top and online, is causing some opacity as to real viewing figures, and hence advertising clout.  An overview of some of the issues can be read in this Wall Street Journal article.

I can’t say that I have been that impressed by any of the fare on offer.  The CW network have a couple of new shows that it’s pushing. First up Hart Of Dixie, featuring the O.C’s Rachel Billson.  She stars as a New York doctor who is surprised to learn that she had a father in Alabama, also a doctor.  She moves to the small town (replete with some of the best looking people the South has ever created) to take up her inheritance; queue lots of stock-in-trade “city dweller in the country” type stuff. You would have thought the premise would lead to some introspection about her identity, but no, the real issue is which one of the good looking men in town she has the most chemistry with, which is a good thing, since she has no clue about actual chemistry i.e medicine. 

The other C.W show I’ve been watching is Ringers.  Here, Sarah Michelle Geller stars as as an identical twin; a fallen type, former stripper and drug addict.  Her twin sister led a charmed life with an archetypal nice-but-dim banker.  The sister has died in a boat accident and our surviving protagonist has assumed her identity. The plot thickens as various characters realize the deception.  Those familiar with Aaron Spelling’s classic daytime soap Sunset Beach may well be familiar with this type of plotline, and in essence the show has many of the same qualities; the actors and cinematography may be higher budget, but the script is not.

On Fox, Lost lookalike Terra Nova is winding on.  Again the premise is far-fetched:  a bunch of scientists from an apocalyptic future travel to the Mesozoic era to somehow alter the course of history some 250 million years later.  Any resemblance to H.G Wells’ classic The Time Machine ends here however.  Effectively this is like a combination of The Jetsons, Swiss Family Robinson and Walking with Dinosaurs.  The science is pure conjecture, but allows weekly scraps with vicious flying beasts and a bizarre vision of a 3D laboratory where DNA is manipulated like putty.  Shot in Queensland, we sadly see too little of the location and too much of studio interiors. The acting is so wooden that buried under ground it would, one hope, turn up in someone’s garden as the finest diamond around now. 

My friend Paul Soper tweeted that Suburgatory was a “solid comedy’, and certainly the acting is of a decent quality, though again one feels as if this is an assemblage of several other shows:  part Desperate Housewives, part The O.C with elements of Glee plus a little original comedy.  What strikes me as bizarre is the idea that the central character is supposed to be teenage; she looks 21 if she’s a day. Given some of the themes of the show, my guess is the network needed an actress that was believably grown up to avoid transgressing decency taboos.

To return to my original point, networks struggle with viewing figures and wonder whether the switch to streaming, retrospective on-demand viewing or other new ways of consuming the content are to blame.  One wonders whether the paucity of quality on offer has a contributing effect, however.  An environment of declining revenues means the rewards for hit shows are smaller, leading to less chances that a rare hit will pay for all the misses, which in turn leads to safe, middle-of-road content.  But it’s surprise hit shows that stir the public imagination and fuel publicity, in turn leading to a sense of vitality in the medium.  Interested to hear about any shows that people feel achieve that height.

I’m about to leave Seattle, where I have been since the beginning of June, to return to Charlottesville. I spent the summer interning at Amazon, where I worked within the Amazon Canada team on very fascinating and data-intensive analysis around the subject of growth.  Confidentiality prevents me from speaking too much about the specifics of the project, but I can relay some general thoughts about the experience here.

Amazon’s style of internship is very different. Whereas some companies use the 3 months as an opportunity to woo prospective employees, here the process is more a way for the firm to look for fit and the ability to adapt to their peculiar internal culture. The project is high-pressure, but prepares the intern very well for full-time should they be offered a position and choose to come back. Comfort with ambiguity and the ability to be self-starting are qualities that are essential to survive here. Darden’s pedagogy is excellent training, given its focus on analysis-driven decisiveness.

Other firms invest a great deal of money on extra-curricular activities. At Amazon the focus is more on making you comfortable through quality housing and a decent salary.  There’s a very big pool of MBA interns so plenty of opportunity for socializing, and the nightlife in Seattle is half-decent.

The weather here is not for everyone.  We had a generally poor summer; it was chilly and damp for much of July.  That said, there’s tons here for outdoor types; on the (rare) clear days, you can see the Olympic and Cascade mountain ranges from the city and majestic Rainier looms in the distance.  Being on the sea, there are ferries here and there, and plenty of water-borne pursuits for those with sea-legs. 

Some contrast to Charlottesville, then.  I’ve worn shorts probably 5 times in 3 months here; I am looking forward to wearing nothing but shorts for at least the next 2 months.  School starts on Monday.  The second year is an opportunity to cement some academic disciplines; to forge long-lasting friendships; and to enjoy the beautiful Virginia countryside.

Cheer up, London!