Word of mouth and viral marketing

At the time visionaries first reveal their visions there is nothing to distinguish them from hopeless dreamers. It is only in retrospect that visionaries are identified as such. This is because visionaries' visions (and hopeless dreamers' impractical ideas) are usually in the form of abstract models that are difficult to describe. Only the success of the outcome determines whether a person is a visionary or a dreamer.

It is very much like this with business ideas. When an idea crops up, it is usually in a form that only makes sense to the originator of the idea. Most times, these business ideas never pass the tests imposed by reality, but, just occasionally those ideas take off - only then do they become good business ideas. Whether this is a matter of luck or judgement is hard to say, but, what is true is that business ideas seldom turn into practical reality unless they are based upon a sound strategy.

Consider the phenomenon of the "craze", the sudden, rapidly accelerating need for a product or service. Crazes are most common amongst school children, where periodically something crops up that everyone has to have. The most mystifying thing about crazes is that they are seldom created through advertising: they are usually generated by means of word of mouth which propagates rapidly through a population.

This is frustrating for advertising and marketing specialists because they'd all like to be able to start a craze, but, the method by which a craze can be engineered is elusive. A craze is a kind of positive feedback, a reverberation between a product supplier and the market. Think about it for a moment. How would you go about starting a craze? How many people do you know who have started a craze? Is it something that happens spontaneously or is it something that can be arranged?

This is more than just idle curiosity because creating a "craze" is likely to be the marketing strategy of choice in the world of e-business. The connected world of the Internet is a perfect environment for creating crazes because of the ease and speed by which ideas can spread to millions of people through the modern day equivalent of word of mouth - person to person email.

This kind of marketing has a name, it is called "viral marketing". It gets this name because of the way an idea can spread though a population like a virus, multiplying and expanding outwards with a powerful and unstoppable momentum. It is the ideal marketing strategy for e-business, once the technique has been mastered.

In fact, the creation of a craze isn't as enigmatic as it might seem. It can be engineered and, as proof of this, I've used the technique many times to create crazes in the world of fashion. The trick is to take your mind off of the product or service and concentrate first on the strategy and the logistics. Once you have the strategy worked out you can then use a statistical method of trial and error to arrive at the exact nature of the product.

In fashion, the statistical method of picking a winner takes the form of creating many different designs that are offered to the market. Nobody can tell in advance which particular designs will work. I know this because I had a fashion design studio where each proposed design was first shown to all the designers, all the sales staff and a large assortment of customers for them to give their opinions. It never happened that a successful design could be recognised at this stage. Successes, when they came, were always unpredictable and were identified only through subsequent results on the shop floor.

It is extremely important to realise that in certain kind of markets a successful design will seem to appear at random rather than through a process of logical reasoning. Knowing this, the optimum design strategy is to create as many possibilities as possible and have a system prepared to follow up when a demand becomes evident. Thinking in this way is quite different from the way in which most products are conceived, planned and marketed in the world of bricks and mortar,. But, this may well be the most appropriate strategy for the massively connected environment of the Internet.

In 1977, practically every teenager in the UK was wearing button badges. It was one of those emergent crazes that from time to time seem to come out of nowhere and spread like wild fire. This was the result of a predetermined strategy. I know, because that strategy was mine and I supplied all the button badges that fed this particular craze - millions of them.

When I first explained my idea to a group of friend's in the Shakespeare's Head ( a pub where we used to hang out in Carnaby Street), it was met with derision. I spoke of the power of evolutionary biology and the way those principles could be used to create businesses. At the time, this pub was a hang out for dope dealers so it was assumed by my friend's that I'd been sampling their wares. Nobody took me very seriously.

In fact I was serious. I'd just spent a miserable time recovering from a disastrous business experience that had seen me go literally from riches to rags. With absolutely no money left, there was little to do but spend my time contemplating the world, trying to think of a way to start up some kind of new business enterprise. In what was left of my possessions, I had a two year collection of New Scientist magazines. I'd always had an avid interest in science and had been buying this magazine many years.

It occurred to me that I might find a good idea for a business somewhere in these pages, so, having nothing better to do, I started to read through the magazines one by one. Without consciously realising, as I read sequentially through the weekly editions I became interested in the many different articles relating to evolution. Gradually, it occurred to me that this was an was a phenomenon that could inspire a business strategy.

Having spent five years at a scientific research establishment that was developing guided weaponry, I was fairly familiar with system control theory. But, evolution seemed to involve sophisticated systems of automatic control that went far beyond anything I had ever come across before. What was most surprising to me was that biological systems, in the form of organisms and nervous systems, were being designed without any theory or planning: sophisticated control mechanisms were just appearing. A process of breeding and selection was turning chaos into order. It was against reason and couldn't be explained by any kind of logic that I was aware of.

Finally it clicked. This evolutionary process was a kind of natural feedback loop, that caused a system to auto correct as it proceeded towards some form of optimum efficiency. Moreover, systems evolve towards a particular state according to what rules are used in the selection process. This I could understand. I'd spent years studying the nature of negative feedback and the way in which it can be used to give a predetermined stability to inherently unstable electronic circuitry. The idea caught my imagination. If evolution resulted in viable organisms emerging out of inert chemicals, then there was every chance that these same principles could be used to create a viable business enterprise.

Nothing specific came to mind, but, several months later I saw a hippie selling button badges in the Portobello Road market. It struck me immediately that this was a neat way to earn small amounts of money to get by each day. Only a week later, I was at a trade show and saw a stand selling very cheap button badge making machines. The technique was very simple. It needed a circular punch to cut out a picture and a special press that clamped a circular metal frame around it. Hey presto! A button badge, for just the few pennies it would cost for the components. Here was a way to eke out a living while I worked on a real plan for my next business venture. So I bought a cutter, one of the presses and a few hundred components.

It was easy to make the button badges, but, I was faced with the problem of what to put on the badges. How could I know what kind of badges would sell? It was then that I thought of the way in which evolution finds successful genes: it tries a whole lot of them out and lets the results separate the winners from the losers. With this thought in mind, I used the cutter to cut out a random selection of pictures from various magazines. By putting them all on a board, and observing which sold and which didn't I could use this as a guide to making more. Those that didn't sell I could throw away.

I'd arranged with a friend of mine who had a shop in Carnaby Street to let me put a badge board outside his shop for a percentage of the takings. Pretty soon, this board was acting like an intelligent marketing device: showing me what kind of badges were selling and which were not. It was so successful that some of the other shops in Carnaby Street were asking me if I could supply them with a board and some badges. It was then I had this great idea.

In the Shakespeare's Head that evening, I explained my idea about how the principles of evolution could be used to expand my little badge board into a national business. I asked if anyone wanted to come in with me. There were no takers. They just laughed and asked me where I was getting such good dope.

But, I'd seen the light. I was soon attracting the attention of many other traders who wanted to buy my badges, they'd noticed how my board was always surrounded by customers. With this wholesale trade increasing, I'd stopped using cut outs from magazines and was using a photocopying shop around the corner to print many copies of the designs that were selling well. Soon I was employing outworkers to make up the badges for me.

It wasn't long before I had to give up running my badge board to concentrate on supplying badges to my wholesale customers. Even so, the increasing demand was exceeding my ability to supply and I was forced to look for a new manufacturing solution. It was then I noticed that in some of the shops there were a few button badges that had been around since the craze on the Beatles - some ten years previously. These were similar badges to mine except that they had obviously been mass produced.

I tracked down the supplier and found it to be a company whose main business was making ornate metal cake tins. They'd perfected a technique of printing onto enamel coated steel sheeting and besides pressing these out into cake tins, they'd branched out in the 1960's to use the technique to make button badges for the Beatle mania.

It was a solution to my problem. They had the facilities to produce any number of button badges I could possibly need. The snag was that their technique and machinery was based upon printing very large sheets of steel - which printed 340 badges on every sheet. As it was not viable to print less than 100 sheets at a time it meant that my minimum order had to be at least 34,000 badges.

A few calculations told me that I could sell this number of badges but the problem then became which designs to choose to be printed. My evolutionary system was great for providing instantaneous customer response - printing on demand - but, as this demand was continually changing, it wouldn't be any use in helping me predetermine an advance order of many thousands.

It was then that I applied the evolutionary model again. Evolution works by putting genes into an ecosystem, letting the unsuccessful die out and the successful survive and multiply. How could I apply that principle to a button badge making system? It then occurred to me to think of each button badge design as a gene. If I printed 340 of designs on a sheet, it would be the equivalent of testing the market with 100 each of 340 genes.

As this method of manufacturing was cheaper and there was a high markup on the cost to sale price, I figured I could work like nature and allow for some redundancy. A back of the envelope calculation told me that the business would still be viable if the manufacturing costs were doubled. This would allow me to work with a fifty percent redundancy rate. In other words, if like nature I created a surplus and allowed for half of the badges not selling, I could still be profitable.

Effectively, this allowance for waste halved the number of badges I needed to sell. Instead of having to sell all of the 34,000 badges in a print run, I'd only need to sell 17,000. As by this time I was selling around two thousand badges a week, it meant that within two months I would need to print more. Looking at this in terms of an evolutionary strategy, this second print run would in effect be a second generation. By copying nature's strategy, I could arrange for this second generation to repeat on the designs that had sold from the first print run and leave out the others. This equates with the strategy of nature, which increases the successful genes at each generation while reducing those that are less successful.

After the first two months of sales, it was becoming clear that some of the designs were far outselling the others. It was only common sense therefore that these designs were repeated several time in the second generation of printing. This meant that instead of 340 different designs, the second print run (generation) would contain less than 100 repeats of the designs - some of them being repeated two, three, four or even more times according to how well they seemed to be selling. At this second print run, the second generation, I also took the opportunity to add in 50 fresh designs to try out. This is exactly the way nature works: multiplying the best, reducing the worst and adding in a few new variants (mutations).

When it came time for the third print run (the next generation). I could look at the stock of badges and set the 340 designs such that it would replenish designs running low, allow for the increased sales of the best sellers, plus add in a few more variants. This ensured that I always had a regular stock of the button badges that were selling and at the same time continuously increasing the variation of the range. This strategy I could continue for any number of generations.

Certainly some of the designs turned out to be duds; sometimes best sellers were over estimated in some generations; but, overall this method of working in generations and adjusting the designs to respond to the constantly changing demand for button badges was surprisingly efficient. There were many badges that remained unsold but these turned out to be far less than expected such that this method of creating a "living" and "adapting" product resulted in only a ten percent increase in costs through wastage. This was easily absorbed by the profit margin.

Another advantage was that it was easily scalable. As the craze for these badges took hold and I started supplying shops all over the country, I could use exactly the same method of production but increase the print run every month. To increase the efficiency, I could divide the print runs such that print runs of three or four hundred would be used to print the best sellers, while shorter runs of 100 would be used for the slower sellers and the new experimentals.

When I'd begun to supply other traders with badges, I'd realised that I couldn't rely on magazines for designs because there would be problems of copyright. Besides hiring some designers, I also made a deal with a photographic studio who supplied pictures to magazines. He had hundreds of thousands of pictures for me to choose from, but, I had no idea which would be the best ones to choose - especially as I had to pay not an inconsiderable amount for any that I did pick.

Remembering my evolutionary strategy, I explained to the owner of the studio that I had no idea which would sell and the only way I could find out was to try them out. I proposed that instead of paying for selected designs, I gave him a regular sum of money each week to be able to experiment with his photographs to find out which worked and which didn't. This arrangement was accepted, so, for a relatively small overhead I had access to a large gene pool of button badge designs that I could regularly introduce into my evolving system.

This simple application of nature's evolutionary strategy allowed me to create a successful and efficient business that fed a runaway craze with the utmost of simplicity and efficiency. That happened a quarter of a century ago. Since then, I've used variations of that evolutionary strategy in all kinds of businesses since, often with spectacular results.

To me, the e-business environment offers the ideal situation for this strategy to be employed in many different ways. Particularly so, because in the time since I first used it to create the button badge business in 1976, many more secrets of the evolutionary process has been revealed. This allows the concepts of evolution, generations, genes, selection and mutation to be applied not only to designs and print runs, but, to people, ideas, information and knowledge.

For the rest of this book I shall be speculating on these possibilities and I hope the reader will not react like those friend's of mine did in the Shakespeare's Head - who thought the ideas were simply those of a dreamer who had smoked too much of the "funny tobacco".