Howard Tullman defines his principles of a data-driven economy.
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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 …
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 …
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.”
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.
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 their, 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 …
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 …
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 …
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 …
HEFFNER: … on the scene and led to practically the extinction of the contemporary supermarket …
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.
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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