For your business (or even yourself) to stand out, you need to be noticeably different from the rest of the crowd, in a way that is sustainable. Your strategy needs to be based on defensible differentiators, things that you can maintain and that others can’t copy. At least, not easily.

It turns out the free is easy to copy, and that means it doesn’t make for a sustainable differentiator. Even worse, people get used to it. As Seth puts it in Too much free:

If you want to know who’s a newbie on a film set, just watch what happens at lunch. Major films have huge buffets laid out for cast and crew, and the newcomers can’t resist. It’s FREE! Over time, of course, the old-timers come to the conclusion that it’s just lunch, and the crew gets a bit more jaded and learns some self-restraint as well.

Seth goes on to argue that the next logical step on from the offer of “it is free” is “I’ll pay you to try it” – I’d say that is arguably happening already, with the way that some companies and social media agencies are engaging with bloggers and the digerati. It might be a great short-term tactic, but it isn’t one that is sustainable in the long-term. That isn’t in the best interests of either the businesses or  users. What’s that? Gmail went down again? Where do I send my Paypal details?

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The whole ‘free’ thing is worth wrapping your head around. It is probably worth starting with Chris Anderson’s article from last year, but then reversing out a bit with Alan Patricks two great posts on Freeconomics: PART I and PART II and his notes from the panel: CHINWAGGING or the podcast). You can read a journal of the panel session on the Bluedoor blog, where Abigail has blogged her tweetage, as it were, and there is a full write up at Brandrepublic.

You see, ‘free’ isn’t really free at all. It’s been funded by the VCs and selling data, and the VCs aren’t playing anymore. The concept of Anderson’s free is that transactional costs (the price of ‘doing things’) tends to zero on-line and at scale. However, transactional costs tending to zero is very different then them being zero see… Someone’s got to pick up the tab, see Nic Brisbourne’s post, and I quote:

The other takeaway that I hadn’t considered fully is that for many services in reality the marginal cost of delivery is not zero.  This was made most forcefully by panelist Alan Patrick, but also by panelist Bruce Daisely of YouTube who made the point that the worlds favourite video service now accounts for 10% of total bandwidth consumption – which I’m sure costs Google a lot of money.  This point knocks a sizeable whole in the ‘free’ argument, although ‘free’ fans would argue that these costs are going down all the time.

So, I threw in a question at the end, on the basis of these three forces “Won’t free end up eating itself?”

1. Free Attracts The Freeloaders.

If you advertise your service as free, hoping to up sell people to a paying service later (the freemium model), you may well be attracting the wrong crowd. I don’t mean in the sense of bad people, but rather the people that want something for free. That leaves those who want to pay as potential customers for a competitor. More importantly, you have probably attracted ‘customers’ that choose on price (free), rather than features. I put the word customers in quotes there very deliberately. Since they aren’t paying you anything, they aren’t really customers. They are prospects. And that is where ‘free’ is interesting: As a marketing ploy. It is a good one. But wait up…

2. Free Drives Value Out of the Market.

Imagine there’s a nice bar. A really nice bar. They charge £10 per drink, but it’s nice and you like it there, so you pay your £10. Now, someone opens up a bar next door. The drinks are free. I mean £0 free. You’re going to check it out aren’t you? Seriously. At least once? The £10 bar is going to loose at least some revenue, if not customers. You’re running the £10 bar. What will you do? Drop prices? A buy-one-get-one-free offer?

Markets are elastic. If someone enters the market with a lower priced offer, it drags prices down. It’s called competition, and it’s generally a good thing. As customers, we like it. However, when someone enters the market at ‘free’ it isn’t the usual ‘more efficient competitor’ entering. No, it’s a value destroying monster. Value will disappear from the market. That inevitably means that companies will too, which will reduce competition in the long run – and that isn’t good. And the competition that’s left? Oh, it’s bad…

3. Free Spreads Across Markets.

Traditional competition focusses on price. As marketers, we try and combat price competition by introducing features that (in our minds at least) create value and preserve the price. Some choose to build more efficient businesses, so that they can compete on price, but maintain margins. In the world of ‘free’ you can’t compete on price. You have to compete on features (or quality, which I’d argue is a feature anyway). That means wherever two players are in the same market with a ‘free’ offer, the temptation, if not the action, will be to gradually add more and more features. Think about the value for the market. More and more of what was revenue, ends up as ‘free’. Remember those ‘freemium’ businesses, giving you free stuff, hoping to upgrade you? There is less and less to upgrade you to that isn’t free.

Free is a Short-Term Win and a Long-Term Lose

‘Free’ feels good, but it is really an inevitable race to the bottom, ensuring that markets are destroyed by low price expectations and poor (service) quality. Watch the providers of ‘free’ – as advertising revenues (and tolerance for advertising) falls, and VC money dries up, expect them to come asking for money or to start selling your data to the highest bidder. The end of ‘free’ might well come from the strangest of places: mobile e-commerce. The latest iPhone software let’s you make payments within iPhone apps themselves. That’s iPhone apps that you probably paid for in the first place too! Nokia, Microsoft and a host of others are planning similar offers.

The Way out of Free is Utility

As much as product marketers bang on about the latest much have feature, one thing that we do pay for is utility. I can make a local phone call very cheaply, if not for free – depending on where I am. That same phone call costs significantly more on a mobile/cell phone, and yet the technology took off. People were paying for utility: being able to make calls from anywhere, not just when they were stuck in the house or the office. It made great sense as people became more and more mobile. And, as the technology took off, people got more and more mobile in their work and social lives, driving the technology even faster.

So far, the Internet is just catching up with the whole mobility thing. Web browsers are improving in leaps and bounds, as is the provision of mobile-friendly websites and improved screens on phones. Mobile Internet is taking off. And do you know what? It probably isn’t going to be ‘free’.

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The challenge for businesses is that there in the ideal outcome there is no end – an even greater cause of discomfort when it comes to planning your life! A vision statement isn’t always about a final destination, more the furthest point we can feasibly conceive. Depending on the rate of change and what is known, this is most likely 3 to 5 years out. A vision statement describes the ideal, but achievable, situation at this future point.

Vision Statement

Creating a picture of the desired future distils our hopes and sets them in a practicable context. There will be some hard constraints or specific beliefs that shape our view of this future. Most business management teams have strong opinions about where their industry is headed, and what the company’s place is in that industry. This provides a skeleton for the vision, that can then be fleshed out with relevant detail. Where is the world going, from your perspective?

Placing Your Bets

These opinions and beliefs are the basis of ‘the big bets’ you have to place to be successful. Right now, in the software and communications industry, there is a huge deal of uncertainty. These times of change are the best moments to place these ‘big bets’, if you can call the changes, you’ll come out ahead.

Not everyone will come up with the right answers. That means there will be winners and there will be losers, and you will have to make adjustments. In business, as in life, we don’t always get it right first time, but we still take our best shot. Remember, no vision is the default ‘do nothing’ position, and it is a losing one.

With the economy in the US on the turn, and uncertainty in the economy, having a strong vision is key to getting through. In the same way, a strong personal vision gets you through tough times and helps to hold you true to your beliefs.

Somewhere to Head to

A vision statement captures this view of the future and documents your preferred place in it. Just as importantly, it acts as a reference to re-evaluate your core beliefs with over time. This works just as well at a personal level as it does at a company level.

To use a sailing term, vision provides a ‘point to steer’. However the tides and storms may push, you keep on adjusting course towards that point. It may not be the ultimate and final destination, but it is the course for right now. Once you get to it, or perhaps just near to it, you may choose to switch to a new course for the next section of the journey. This is the way that a ship charts its course as it tacks against the wind.

Once the vision is determined, the mission will fall in to place.

Next, Part III – the mission statement…

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Serendipity is putting mission and strategy in the middle of my world. They are curiously emotive terms, dividing people into either cynics or firm believers in a single breath.

My passion for strategic planning has caused me to dig into these topics many times over the years. I firmly believe that you get the best results by being focussed, and by playing for the long term. Taking short cuts and only acting tactically results in burn outs and blow ups. This series of posts walks through a framework based on vision, mission and values, exploring how they are constructed and how they function.

Is Mission a Dirty Word?

The ‘mission’ word, like the ‘strategy’ word, is often abused these days. Recently I heard someone say “we have a strategy of handing out leaflets”. That isn’t a strategy. It is doing things. Doing things is valid, but don’t be fooled into thinking that doing things is the same as having a strategy. Herb Kelleher, of Southwest Airlines, once said “We have a strategic plan. It’s called doing things” – that probably says a lot about the airline industry. To be fair, Kelleher’s preceding words were “‘Strategy’ overrated, simply ‘doin’ stuff” underrated”, and I’d agree with the sentiment. All strategy and no doing is not going to get you far, but neither will doing with no strategy. The majority of people and small businesses don’t have a mission statement, and so end up all ‘doin’ and no strategy. Big businesses, in contrast, often end up all strategy and little doing. To be effective, you need a foot firmly in each camp.

Writing off the Mission

A strategy is the series of plans carried out to achieve the mission. Many people don’t like the idea of having a formalised, written ‘mission statement’ and see them as nasty, cheesy things. Good mission statements are actually exciting, motivating and empowering. Sorry to drag films into it, but if you aren’t convinced about the power of mission, think about great spy film heroes, think Mission Impossible II or James Bond. But this isn’t the stuff of fiction, studies have revealed strong links between clearly written mission statements and success. If you want to get to ‘mission accomplished’ you need one foot in the doing camp, and one foot in the strategy camp

Don’t Waste Any Time

Mission gives purpose to how time is spent. It guides actions and informs plans. If you haven’t got a mission, you can’t have a strategy, and if you haven’t got a strategy, then you are just ‘doing stuff’. There is much more to life and business than spontaneous actions, driven by life’s random events. Writing down things down flushes out differences of opinion. In the case of personal mission statements, it can surface internal conflicts. These hidden tensions hold up progress and waste valuable time.

When mission statements are implicit, people often believe that everyone is on the same page. That belief is misplaced. The process of writing thoughts down makes things explicit and concrete, enabling clarification and debate. Only then do the hidden conflicts surface – sometimes to the great consternation of those involved. People realise that there are different things in different people’s heads, at different times. Writing things down crystallises thinking and is the first step to resolving these conflicts and creating consistency.

One Step At a Time

Getting to a mission statement and building out a strategy is a process. All it requires is a few simple steps and the upfront investment of some time. Are you ready to accept your mission?

In part II, what is vision, and why do you need it?

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