It's time to end the extraction economy, in which we suck out the value of our commercial and cultural capital, and get back to creating things of value.
Walk a mile (barely)
Young and a bit frantic, Tomás was already one of the world's great experts in footwear. Looking no older than 30, he rapidly informed us that he had already been repairing shoes for 18 years. His native Poland had Old World attitudes on apprenticeship, and apparently on child labor laws as well. He didn't seem to be exaggerating his depth of experience, as he quickly shoved business cards into our hands and began to sally forth on the State of the Shoe Business.
"I'm already repairing most of the shoes for Chicago's retailers," he said puffing with pride. "You take it to them, but they send it to me." I remarked that given the rotten economy, his business must be thriving. Barely allowing me to finish my sentence, he spurted, "Never better! Nobody buys shoes anymore! They take them for repair! And the stores send them to me!" Tomás explained that this was his only night off to go clubbing, to hear some music on the town before returning to his bench.
I paused to think of how lucky it must be to have a real trade that isn't based on the Ponzi scheme of financial assumptions and debt structuring, but on wood and leather. He opened the door further: "And lucky for me, people don't understand shoes."
This last bit is nebulous. Shoes aren't collateralized or securitized, its technology isn't really disrupted by Twitter or Facebook, so what's to misunderstand?
"Shoes aren't really supposed to be repaired anymore. People are buying shoes they assume to last for decades, 'investing' in brands they remember as great from 20 years ago. But there are no real shoes outside of Italy anymore. Maybe Church's, those $500-a-pair shoes, even those aren't what you remember." I recalled Johnston & Murphy. My first pair lasted 11 years. My second pair, six months.
"Exactly," continued Tomás. "The design of most of the shoe companies have changed in recent years. They are no longer making the top-quality shoes you remember, ones that stay in style over the years, ones that have the structural integrity to be repaired. They are making shoes reminiscent of those pairs you bought in past decades. But the costs of production are way lower, and the shoes don't last. It's the new business model for shoes."
Isn't this strategic suicide, I demanded to know? Aren't consumers wise to the game, angry that their goods are demonstrably worse for the money? "I don't know," he shrugged between drags off his cigarette. "I think people are just happy to repair shoes instead of buy them. Economy is bad, you know? For me, I buy either disposable shoes off the sale rack or the top Italian stuff. There's no middle ground anymore."
The State of the Shoe Business is no different from that of many industries right now. We are at the end of a period of draining the goodwill from brands into the form of profits on a balance sheet. Managers see brand equity as an oil well to be drained once, not as an ecosystem to cultivate from which to derive sustainable gains. And the well may be running dry.
Cooked
That strategy is reaching dangerous, possibly ridiculous proportions—the thought occurred to me as my Cuisinart threatened to self-destruct in my face, as if I were running a nuclear centrifuge in the final moments of a James Bond film instead of just chopping up carrots.
My wife and I are somewhat typical East Coast yuppies. We live in Washington, we have far too much education, we enjoy wine and cook with shallots in addition to onions—standard Yuppie stock. True to type, we enjoy quality cookware: aluminum-core pans, German steel knifes. According to wedding customs seemingly written in stone, several of her family members chipped into buy a KitchenAid mixer. I assumed we were launching some form of industrial baking enterprise, since the motor for this device has more horsepower than the average tow truck. It was explained to me that this was standard equipment for new urban housewives, who one day may need to bake as many as 23,000 muffins at a time.
But the house was far from complete, I was informed. We did not yet possess a food processor, leaving us to the unenviable task of fine-chopping our own shallots. If we weren't careful, we would be preparing pesto in some Cro-Magnon way, resigned to pestles, threshers, iron axes... pine nuts everywhere. It could be dangerous. For Christmas, the womenfolk of my wife's family stepped up and purchased the finest non-professional food processor, the much-vaunted Cuisinart. I remember my mother's food processor, which was solidly built, loud, and terribly effective. Perhaps the pesto of my dreams was really just around the corner.
The packaging of the food processor foreshadowed the experience to follow. The unit came in that thin cardboard that obviously passed slowly through the port of Shanghai, tearing at the edges and allowing the ink to smear the images on the box. The tape hung loosely off the carton, the sign of weeks at sea. We assembled the device, which was composed of a plastic more closely associated with Happy Meal toys. Time for a test-drive—carrots and onions, something simple. As the motor began to screech, the plastic hopper convulsed, making us both question whether we had put ice cubes and horseshoes into the machine instead. We looked worriedly as if we might both be injured before finishing the couscous. We've been hand chopping ever since. It seems that the 1980s, when my mother had a similar device, was a long time ago—a time before the brand was the most valuable thing about unit.
Brands, it has been said for years, are little more than a promise of a specific experience. The Disney brand is a promise that the kids will have a good time. The Coca-Cola brand is the promise of a consistent, refreshing-if-sugary beverage. BMW promises the best of German engineering, whatever that is at the moment. All of these brands are instantly recognizable—and, not coincidentally, decades old. For years and years, they have fulfilled their promise, and people assume that their next experience will be just as good. This is why purchasing any one of these brands would be considerably more expensive than even the present-value of expected revenue, because that promise—or its perception—is valuable.
Still, it is all too seductive for many managers to see this as a treasure chest to be raided. After all, it is easier and more profitable to derive revenue from value that other people have already put into a brand, without returning value back from whence it came. This is the business equivalent of water policies west of the Mississippi, where cities can drain water away from other aquifers without replacing it.
Rock on
The draining of capital applies to culture as much as business. Consider one of the great drivers of the videogame business, Guitar Hero, and its counterpart, Rock Band. These franchises have revolutionized gaming, moving it away from war simulations and hand-to-hand combat. Instead, these games entertain the whole family by letting them mimic the actions of drunken, coked-up, cop fighting, groupie-humping metal bands. This is draining the nation's strategic reserves of Rock and Roll, and it could be deleterious to our people as a whole.
Guitar Hero or Rock Band is a tremendously fun way to spend time, a set of games that allows us, in an interactive way, to take advantage of those beautiful hi-definition televisions everybody bought before the economy caught on fire. In the game, you play along with the bands in real time, following groups like Motorhead, Motley Crue, AC/DC, Led Zeppelin, and other classic hard rockers. These bands were of course not the only choice available to the designers in terms of music. They could just as easily have loaded up Anne Murray, Kenny Rogers, and Lawrence Welk tracks into the software. The clarinet riffs of "Begin the Beguine" are every bit as complex as "Let There Be Rock."
We all know why they chose Led Zeppelin over the Carpenters: Led Zeppelin is COOL. The brand promise is that you, too, get to have that cool rub off on you. But this too is a draining of a strategic resource, built up over decades of hard drug use and throwing hotel televisions into swimming pools. Cool is not something you come by easily. It involves public fights with your management, the death of your drummer(s), ill-advised marriages to supermodels, regrettable album artwork. But, in the end, it something you earned and get to keep long after you've cashed out.
Where is the actual music industry, the one that should be producing the cultural capital to launch the video games of 2025? That industry is recovering from a decade of suing its own customers for MP3 downloading, laying off staff, leaving new artists unfunded, and still trying to drain a few last dollars from starlets-turned-singers and their reasonable-facsimile siblings. In other words, the chances of Rock Band 2025 featuring current music are about the same chance as Social Security still being solvent. So, managers are getting the last few bucks off the cultural capital of late 1970s punks. These were people who became cool not through videogames but by participating in the Poll Tax riots in Britain; by following the Queen's flotilla down the Thames; and while setting New York City on fire during in the sweaty, polluted 1970s. They punched cops in 1979 so we could feel cool in 2009.
* * *
Brand equity from the old economy is about dead, whether it is in shoes, cooking equipment, or pop culture. The financial collapse is really a sign of a much larger movement that would have us stop draining off the reserves established by long-ago investors—commercial and cultural—and get us back to the business of making promises to tomorrow's customers.
It is time to start revitalizing, reinvesting, restoring. We can start with Rock and Roll, though our efforts would be better spent on infrastructure, healthcare systems, and even shoes.
Wherever we start, the accounts are about empty. It's time to start investing in the future, for real.
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