2018 – End of Year Review

Year End Review – 2018

The Road More or Less Traveled

If you are looking for the December Surfactants Review, this is not it. Follow this link. Here we have my year end musings. You won't learn much if anything about surfactants but you will enjoy some good music and maybe learn some things you did not know about P&G and the world of advertising.

Aah yes, the road less traveled. It’s definitely the way to go for the original thinker, the leader, the visionary. All great business and personal accomplishment has been found down that less traveled road, bravely trodden with fortitude and determination. True? I’m not sure about that. In fact I tend not to believe it without overwhelming evidence. I remember telling one of my protégés early on when discussing a rather unusual career aspiration that “There’s a good reason that particular road is less traveled”. As a sometime hiker and skier I can tell you there’s usually a great reason why certain routes are less traveled. There’s obviously a reason behind every road’s degree of travel and it’s probably worth thinking about those reasons first before making a commitment.

It was a 1916 poem by Robert Frost that got this whole “road less traveled” malarkey started. Here’s a great animated reading that appeared in the Atlantic Magazine.

Look, Frost himself warned against misinterpretation of the poem. The roads mentioned are really “about the same” and the whole poem was meant as a gentle tease for an indecisive friend of Frost’s. Unfortunately for the last 100 years, countless pop-psychologists and graduation speakers have used it to mislead hapless youths into thinking that the unusual and unconventional choice is the always the right one. Baloney, in my humble view. It’s usually the wrong one and that’s assuming you have the perspicacity to figure which road is in fact the more or less traveled one. I would say that if you are going to take the road less traveled, there’d better be a really really good and clear reason. And sometimes there is.

In our 2017 end of year review, we gave some substantial attention to P&G. They had rough year, ultimately (and wisely I think) acceding to activist investor, Nelson Peltz’s demands for a seat on their board. It was a great story, chock full of logic, analysis, strategy, emotion and personality , as all good business tales are. And it’s not over of course. Success is not final. Failure is not fatal (as WC said) so I wanted to continue where we left off and see what else we can learn, in 2018, from one of the largest users of surfactants in the world.

P&G had a rough start to 2018  as moronic teenagers voluntarily ate and even huffed their Tide Pods https://www.wsj.com/articles/p-g-grapples-with-how-to-stop-a-tide-pods-meme-1516449600. I am not putting any youtube clips here, because they are dumb. Suffice to say that Darwin is proven right on a daily basis on that platform it seems.

In April, however, P&G blew my mind with a new media buying model. That sounds boring but it is much much more than what it seems. P&G actually formed (or should I say “sponsored the formation of” ) a new ad agency comprising employees of at least 3 competitive ad agencies – all working together physically, in a couple of office locations (New York and Cincinnati), working on their sole client, P&G’s account. The 3 competing agencies are Saatchi & Saatchi, Grey and Marina Maher. I don’t know the other two but Saatchi’s work is legendary in a love ‘em or hate ‘em kind of way. Here’s one I love from 1992:

So anyway, P&G says – “OK we are going to pick the best of the bunch and have you guys all work together to meet our advertising needs”. Cool right? But it goes much deeper than that and here’s where I think the real genius comes in. According to a Wall Street Journal article, which I now quote but the italics are my thoughts, the “…new agency model is expected to reduce the number of people working on P&G’s marketing efforts, strip away excess resources and ultimately save the company money” yeah, yeah right… but keep reading. “Currently, around 50% of P&G’s appointed (i.e regular) [ad] agency staffers are creative, while the remainder are account managers, planners, production talent and media buyers, among others (that is non-productive overhead). [P&G] wants to increase the percentage of creative roles on P&G accounts, while reducing the (martini quaffing) others.” That’s it right there! Does this interest and excite you as much as it does me? I love this for so many reasons. Here’s a couple of the key ones. First I have spent the past 7 years teaching the Surfactants Business Essentials course and often I have spent the better part of an hour with the class (and eating into their lunch-time) talking about my GM (Gross Margin %) vs SG&A (Selling, General & Administrative Cost %) chart in which we plot the financial results of a company’s business units on a GM (y axis) vs SG&A (x axis ) matrix and think about the distribution and then also think about what to do when the market makes GM change. I don’t really want to go into the whole thing here (you gotta be there, remember!) , but here’s the point. We always start with the big circle in the bottom left hand sector of the chart. That is a large revenue business with low GM (Gross Margin) and low SG&A costs. That is your LAS business with P&G. They want the product, in spec and on time and .. er… that’s it. They don’t need to be wined and dined. They don’t need tech service or formulations help (“here let me show you, P&G, how to uses this LAS in your products” – Nah we’re good. We got it from here.!). They don’t need regulatory help, handling advice, nothing. They just need the product, in spec, on time, thank you very much. Oh and cheap!; natch. We make this stuff too you know, so er don’t go charging too much. So…. As with raw materials (above the GM line) costs, so with the, much greater, SG&A (below the line) costs

Clearly P&G management has been listening to the Tom Tom Club – no? As above. So below.

Or maybe they realized just how much of their agency spend has been going directly to purchases of gin (ok and olives but still..)

Or have they taken inspiration from closer to home? Because this is kinda like P&G Chemicals right? Except the employees aren’t even part of P&G. Sorry if you guys are totally on board with this already, but I had no idea. I’ve just read it and, to me, it is an incredible breakthrough. P&G just synthesized an “in-house” ad agency from existing external parts, with a cost structure properly aligned to the needs of its business. Wow! But keep thinking. If you are a surfactant manufacturer, your mind is now churning so fast because if this works for ad agencies (IF – I said IF - It’s too early to know yet, but IF..) then why not raw materials? Forget anti-trust and all that for the moment. If P&G likes the anionics of Stepan and the amphoterics of Evonik and the cationics of Akzo and the nonionics of Shell but really wishes they would all be more like P&G Chemicals (their first love and favourite supplier), then why not? Why not put them all together like the newly created ad agency – and create essentially an outsourced P&G Chemicals Doppelganger? Yeah I know, physical assets complicates it, but think about it. Why not? I can assure you of this; if I am realizing and writing about it now, someone at P&G is already seriously working on it. (I have no specific knowledge; just speculating). With P&G Chemicals, they are already half way there, they just need more suppliers like that and that is hard to achieve without this sort of collaboration approach.

One of the effects of my mixing and mingling with the venture capital community (apart from learning to use the ABE financial metric (Anything but EBITDA)) is that you also learn their conversation patterns. One of their favourite questions of their investees is “Why do you even exist”. Actually they don’t say “even”. That’s implied. Also the question refers to your company, not you personally, although on the first couple of outings the green young entrepreneur’s instinct is to mumble something about their mam and dad, love and the back seat of an Oldsmobile.

Anyway, coming back to P&G. Such things (like the answer to the “why do you exist?” question) there are not left to chance. One can imagine the eager young, tousle-haired, first-year recruits at P&G Chemicals being drilled in their “chemicals catechism”.

Who made you?

P&G made me.

Why did P&G make you?

To know her, love her and serve her in this world and to be happy with her forever in the next.

 [Sorry if I offended anyone with this warped time-machine trip back to 2^nd grade at St. Bernard of the Saponification's Catholic Academy, and I know I am stretching an analogy way too far, but you have to admit, it’s pretty darn accurate!]

It is clear then, that P&G Chemicals has a really outstanding “reason to exist” as far as P&G is concerned. But what about those other suppliers? How does their catechism read? Don’t know; let’s take a look. Stepan’ s corporate materials contain their mission and vision. One statement that I like I lot is entitled “Why Stepan?” and reads “Stepan Company prides itself on ethical chemical manufacturing, excellent customer service and dedication to our craft.” I like that a lot and that last piece about dedication to their craft really sums them up. When you buy from Stepan you get that whole package and there is no doubt they are continually refining and improving what they do – to the benefit of their customers. But there’s nothing about P&G in there!? OK how about Evonik? They have a very interesting piece on their website called “The Creative Power of Specialty Chemicals”, which I also like. In there, they state with typical Teutonic precision that “More than 36,000 employees are bound by a claim: No product is so perfect that it couldn’t be made better.” Nice. I could definitely get behind that assertion if I was a Voniker. But again, what’s in it for P&G, specifically? I could, and may, go on, but you get the picture. When it comes to suppliers, P&G certainly must and does play the field but as Joey Ramone croons in this 1979 tribute to his first girlfriend, P&G just wants their Chemicals group around.

So the road has been more traveled, I think. P&G has had its own chemicals supplier for almost 200 years (182 this year) and now they want to have their own ad agency but with a buzzy-wordy and really-actually-very-ballsy-asset-light-outsourced approach. So can this new approach now be turned back to chemicals.? Can P&G pull together its favorite bits of its favorite (non P&G Chemicals) suppliers and say basically “here you guys get together and bring us the best of your respective strengths – oh and er.. leave behind all that overhead that we never use anyway”. Maybe P&G Chemicals is the cornerstone around which this new edifice is built? Look, in a sense, it is already happening that way. On their website, the section “What makes P&G Chemicals unique in the industry?” has a laundry list (pun intended) of things which seems as much directed to suppliers as to customers. These include, in part: “We work to give extreme supply assurance to P&G” (yeah well, who made you?) but also then “Our link with P&G serves as a unique point of access for suppliers to build their business and create joint value.” And also “We optimize our supply network by linking with others to leverage mutual strengths and capabilities.” So there you have it. Can it be long before a loft in SoHo, a WeWork in Venice or a Beach House in Spring Lake hum to a mellifluous mélange of Dutch , German and American accents as previous competitors collaborate to bring their best to P&G with an, if necessary, completely inverted, cost structure?   Yes, amateur-lawyer, I know, anti-trust, intellectual property and all that. But look, if P&G can do it with the once gin-soaked, now tattooed, pierced and THC-marinated ad agency crowd, chemicals should be a breeze no? This road really has been more traveled.

By the way, if you’ll permit me a diversion (from the already existing diversion above) into today’s world of advertising, I have this true story for you. A young lady of my close acquaintance works for a modern boutique advertising agency. This is a woman-owned, millennial run, SoCal domiciled progressive agency. I mean this company ticks PC boxes that you didn't even know existed- so you have the picture right? Along comes a big prospective client which is a well known brand of Scotch. The agency puts together a team to pitch the heck out of this client. It's a huge fish to land. And, of course, the creative pitch team is all men, because, you know, dudes like whisky. And chicks, well, they drink like cosmos and stuff right? These are roads well-travelled no? Believe me, when money and stereotypes collide, principles go out the window, apparently.

Anyway a week passes. The team is struggling and the big (female) boss wanders by our young lady protagonist’s desk and nonchalantly asks if she would mind helping polish / refine some of the Scotch creative team’s ideas. Our young lady takes a look and of course it’s all garbage. She rewrites a whole set of new concepts and copy in a day or two and the client now loves it. Maybe this could have been foreseen. I suspect the darkest drink most of these blokes had ever consumed was the hippest hoppiest coffee/cumquat/cannabinoid mirobrewed ale from the people’s brewery collective down the street. Which roads, more or less traveled, could our progressive ad agency have followed.? First, the one they followed, let’s call it the Stereotype (only dudes like Scotch) road, wasn't appropriate. They could also have gone the opposite route and picked a team that checked every real or imagined demographic box, regardless of ability or aptitude. No reason to believe that would have worked any better. The third route, which they eventually took was based on talent regardless of boxes or stereotypes, and seems to have worked out just fine. The best people for the job. A road worth traveling. A lot.

Not that complicated

We’re not done yet with P&G. Again from the WSJ: In May, the company decided to go open-kimono [my words] with customers and let them know what all is inside their products. Via a partnership with Smart Label, the company is disclosing ingredients in most of its over 3,500 products. An interview with Kathy Fish, Chief R&D and Innovation Officer, goes into some of the reasons. She notes that they will eventually get into disclosing all the ingredients in the fragrances (up to 100) as well as the main product. It’s worth a read, although you may need a WSJ subscription. The conversation moves quickly into the subject of natural raw materials and consumer preferences for such. Fish makes a lot of good points about ingredient provenance and safety, but maybe misses an opportunity to emphasize the company’s natural history going back to 1837. They were built on soap and glycerine for gosh-sakes. What could be more natural than that? In any case, I am in two minds about ingredient disclosure on this scale. I agree that it is inevitable but the risks for P&G are much larger than for a garage based startup. It takes one mis-step or oddly named ingredient to set the internet on fire. If you are going open kimono then you better look good in your undies (or indeed whatever is traditionally worn, or not, under a kimono). Enough said. I trust P&G to have thought of this.

In November, P&G finally adopted Nelson Peltz of Trian’s plan to reorganize and get rid of the sales presidents. https://www.wsj.com/articles/p-g-moves-to-streamline-its-structure-1541713822. After Peltz excoriated P&G, its management and board, many by name, in a white paper (Download the Trian white paper here.), the company seemed to adopt many of his proposals. The various sales and other presidents, so odious to Peltz were restructured or downgraded in a streamlining of the company structure. The number of business units will reduce from 10 to 6, each headed by a CEO. 4 of the unit presidents will now report to the CEO and 2 sales presidents will have their roles reduced, according to the WSJ. I must admit the more I look into P&G the more there is to admire, but even so, the plethora of presidents seemed a bit much and Peltz had a good point there. I much prefer the lean and hungry look (as WS said) of P&G Chemicals as a kick-ass, get-it-done model. Perhaps P&G parent can learn a bit from the daugher in this regard. In any case, some kings were killed (metaphorically) and Peltz is placated. For now.

Rainbow on a Road more or less traveled? Too easy.

Right.. so. Here’s what got me thinking about this whole road less traveled business. Some early folks who dashed headlong down the road less traveled and into history were the shepherds who were present at the nativity. They had one job. Stay in the fields until the sun came up and instead they raced off into town after the craziest of rumours. But they had a clear signpost. In fact I would assert an irresistible message that told them in fact, yeah – this is the way to go guys. They had 3 good reasons. They had a brilliant star, an angel choir and a trumpeter, as so beautifully intoned by the Canadian Brass in this short song.

Listen to that trumpet solo for the first 50 seconds. Not exactly “Christmassy” is it? No snowbells jingling or dinglingalingaling? In fact it’s rather plaintive and melancholy. It could almost be a foreshadowing of the fate that was to meet the baby in the manger in a little over 3 decades. This solo reminds me a lot of the The Lark Ascending by Ralph Vaugh Williams. Check out the first couple of minutes of this performance by Hilary Hahn.

Wow right? Red meat for the classical music carnivore. Focus on Hahn though. Yes, I know she’s other-world beautiful, but it’s more than that . Her face is virtually expressionless during the whole 15 minutes. No histrionics, no drama. All I see there is focus and, maybe I’m over-interpreting, but a desire to perfect her craft (like Stepan above). She still wants to improve. I like that. She must have played this hundreds (thousands?) of times, but it still seems like she’s finding new ways to be better. It’s a road more traveled for sure. She’s practiced for thousands of hours. But then she’s still pushing for new levels of achievement – some less traveled ways at the same time.

Lest you think I’ve gone all highbrow on you, here’s something brought to my attention by friend of the blog and regular speaker at my conferences, Mike Fevola VP R&D at Inolex. I had never heard of the band Clutch, one of Mike’s favorites, so I gave them a listen. I think you’ll agree they are following a road more travelled but in a very intense way. Hard rock. Craft being constantly perfected. This short song is a teaser. Not a groundbreaking riff (smoke on the water-ish?) but one you wish was about 10 minutes longer, I bet.

After sleeping on it; do you think Clutch may have listened to some BÖC along the way? Cities on Flame (with Rock and Roll )

OK let’s listen to some Rush now because that is what we tend to after a while on the blog. This next 3 minute clip features a certain slice of the Rush fan-base expressing an emotion that I think is a sort of pure distilled vindication. We started off 40 - 50 years ago down a path that we thought was less traveled. It really wasn’t that untrodden a route that we may have thought back then and I’ll explain why below; but it was less popular and it was certainly 100% less fashionable or hip than some other paths. So now let’s listen in as Rush are introduced as inductees into the Rock and Roll Hall of Fame. After a roll call of pop and rock icons, including even Donna Summer, at about 1:30, decades worth of emotion spills over.

The look on Geddy Lee’s wife’s face is one of incredulity and astonishment. I have to chuckle; when your own family finally realizes you did something pretty cool. But back to our essential question. Did Rush and their fans go down the road less traveled? To some extent, yes, but not as “less traveled” as we thought. Let’s go back 44 years to a concert in Los Angeles, 1975. Rush is playing “Finding My Way” from their first album [Band Clothing Warning – be ready]

A solid rock song, performed with energy and precision. Not groundbreaking. Not original. But loaded with commercial promise. Following this album, however, the group entered a commercial desert but a creative rainforest. Some of their greatest work was done during this period but to near universal critical condemnation and anemic sales. Then in 1976, 2112 altered the course. The album was a creative and commercial triumph. After this, the record company “left them alone” to make the music they wanted. The cognoscenti still looked down their noses at Rush, but the band flourished for 40 more years. Let’s treat ourselves and listen to the title track of 2112 performed live in Toronto.

Now I know for some of you, this music is headache inducing and you have turned it off after a minute. It’s personal taste, I know. So just believe me when I say that, to a teenager in 1976, music was not supposed to sound like this. 2112 was something simply not thought possible. Heavy. Progressive. Rock. Flawlessly executed. But was the road less traveled? Not so much, and that’s OK. Others had been down the road and provided some guideposts for our three young lads from Toronto. Let’s hear it in their own words as they introduce their heroes and mentors on the same Cleveland hall of fame stage.

Wait what? Yes inspired Rush? More than that. They showed Rush what music could sound like. They shone a searchlight down the path and said – hey guys, this is the way to go! Their own version of the brilliant star, the angel choir and the trumpeter. Alex and Geddy got their 10,000 hours in listening to and imitating Steve Howe and Chris Squire. That’s how dreams are realized. And honestly, many other musicians had also gone down that road, ELP, Genesis, King Crimson, The Nice etc.

Not convinced? Put your feet up and listen to these next two songs back to back. The incredible Close to the Edge (stick with it for the first 4 minutes if you don’t have time for the whole thing) followed by La Villa Strangiato (listen to it all please).

So, now you have that Yes song in mind. Go straight to La Villa, live in 1979, and see what you think. Especially about the most beautifully restrained guitar solo at 3:52.

You’re with me I hope? If not, then I hope you’re at least enjoying the music. For purely gratuitous reasons now, I am going to wind up with some selections from the aforementioned set of other musicians that, in my view, at least helped flatten the path for Rush’s transition from heavy rock band to, well, Rush.

If you are jazz fan, you might like this from ELP:

Then there’s this. Aah Steve Hackett; was there ever a guitarist as under-rated (5:46) ?

A chill piece from King Crimson.

And this from Nice. Classical? Jazz? Beautiful!

So wrapping it up in one easy message. Don’t be seduced by pop-culture aphorisms about the road less travelled. We’re sitting on several thousand years worth of human knowledge and experience, so maybe check that out first.

That’s it. I’m out of time and inspiration. Stop by one of our events in the coming year and we can continue the conversation if you like.

Neil