Stop Believing in the Power of Freemium Thinking
The following excerpt is from Benjamin Gilad and Mark Chussil’s book The New Employee Manual: A No-Holds-Barred Look at Corporate Life. Buy it now from Amazon | Barnes & Noble | Apple Books | IndieBound
The original idea behind “freemium” was ingenious: Offer basic features for free, but for quality features, you have to pay. The trick is, of course, to make the basics lousy enough to nudge people toward higher quality, but not so lousy they will be turned off completely.
In competitive strategy, freemium thinking is the act of repeating past strategy without putting a lot of effort and thought into how the future will be different. It’s easy, and it costs little in cognitive effort. Just follow the formula that brought you success for so many years. But the most basic lesson from economics is that there really is no free lunch -- you get what you pay for.
If you go for the freemium, expect the quality to be consistent with the price. And freemium thinking doesn’t only make companies copy other companies. The basic axiom of “You get what you pay for” gets a reverse translation in the C-suite: You’ll pay a fortune for consultants that end up making your company look just like the consultants’ other clients.
But your growing similarity to your competitors starts to erode the foundation of your competitive advantage and strategic positioning that made your company great in the first place.
And if you proceed to hire more consultants in an attempt to slow the erosion, that just accelerates the spread of the freemium thinking that gets more and more expensive. And now it’s a race to turn the massive ship of industry. Will the inertia of coasting run your ship aground, or can the mavericks navigate skillfully enough?
Other missteps include paying a fortune for advertising that can’t prove its worth, hiring agencies that advance the claims of “brand awareness” indexes, and working with lawyers who can prove anything you want. Like the consultants, many of these outside vendors sell their formulaic, off-the-shelf thinking to many clients. And you might be happy to adopt the vendors’ advice because freemium looks so efficient. After all, the vendors’ list of other clients includes all the big names.
Original, rigorous thinking requires tremendous effort. It’s premium thinking, and it’s costly in terms of time and hard choices to be made. It’s easy for us to say that competitive strategy is about doing something your competitors aren’t doing, but it’s very hard work. If your company simply adapts a “proven business model” from the consultants, it may share the fate of the Neanderthals, who simply disappeared. The consultants still sell the “proven business model” successfully.
How to diagnose freemium thinking early
How do you know your company is decaying at the foundation of its once-formidable competitive skill? Think of how pest specialists track termites.
Termites must be identified way before they settle in and eat your house. Specialists set “termite traps” around the house’s perimeter. If termites are in the area, they’ll show up in the traps. The pest-control company then comes in and sprays chemicals to clear the infestation before it does damage.
You can spot the “termites” in your company by setting traps for conventional wisdom. Ask politely, “Why are we doing it this way?” See how many times the reply is basically “It worked before.” When the accumulated weight of those replies exceeds a threshold in the traps, it’s time to act.
Some companies with impressive track records stick to their formula -- why not, it works! -- and keep executing it religiously until the house comes down or an activist comes in. P&G, Kodak, Sears, Black & Decker, Sunbeam, Polaroid, Sharper Image and Radio Shack are a few examples. Sticking to a formula is freemium. It’s the cheapest way to select and execute a strategy without having to think too hard, develop foresight, anticipate change, go proactive and all those tiring, resource-consuming mental activities.
Following the formula is also the least risky act in a successful company. Experiments demonstrate that people seek risk only to avoid the prospect of catastrophic loss and avoid risk if they face uncertain gains. This is known as prospect theory. Companies that don’t believe they face catastrophic losses are, therefore, risk-averse: They’ll take the smaller, more-certain gains that come with repeating formulas over the big, hairy risks of a bold move. It’s rational for a lower-level manager to be risk-averse in a risk-averse culture. But this rationality has its price: It’s how you’ll sow the seeds of your own failure. It’s easy to see in retrospect but hard to see in prospect.
Formulaic thinking is easier, cheaper, and much less demanding than fresh, unorthodox ideas, but it’s lazy. Mavericks come under heavy pressure to accept the formula. Don’t succumb! It could mean the death of your independent thinking.