When the seeds of failure grow through success

Several years ago I was lucky enough to inherit an enormously profitable international conference. It was by far the biggest event in its industry. Held in a European capital city, literally thousands of high-net-worth business people would descend on the city in that one week of the year to attend our conference.

It was so successful it had grown its own microeconomy of hotels, restaurants and taxis that would make Taylor Swift’s contribution to GDP look like a pub singer’s.

OK, I’m exaggerating a bit, but you get the idea. Everyone who was anyone in this global industry had to be there.

There was so much pressure on places that companies would book their tickets years in advance and rent rooms in hotels elsewhere in the city to entertain existing and prospective clients.

We had the biggest hotel in the city, which was a few miles outside of the centre, so we had a ‘captive’ audience.

We were the bees’ knees, elbows and ankles.

For at least two years after I joined, things continued to go seemingly well. Each year we would come up with a fresh agenda, visit the city concerned and sponsors from around the world, to sign the contracts to make sure that they could buy some profile and thought leadership at the biggest event in the calendar. It made over a ￡1m profit and had an obscene margin on 82%.

In the second year, it had become apparent that there was growing disquiet among the sponsors about the amounts that we were charging and what they got for their money.

They also feedback that the previous year many delegates had complained about the extortionate prices that they were being charged with little more than usual to show for it.

The view was that they were being fleeced.

These were very bright businesspeople, and they could do the numbers in terms of how much profit that we were making from the event, while delivering little extra value. They were paying more on the basis that “If you want to be in the room you gotta splash the cash”.

The supply delusion

We fell into the “supply delusion”.

We believed that, as we were the only game in town, we could command whatever price we wanted. ?The view was, literally, if you don’t like it, try and go elsewhere.

Over a few months the grumblings got louder. Then, one day, we got a phone call from a key sponsor and friend of the business, that a rival event was launching. It planned to launch the day before our event, have a conference format, and an awards ceremony (something that we had rejected because we had our own awards in another city later in the year), and, worst of all, at least three of our key sponsors had signed up to it.

We scrambled around to find out who they were, what their proposition was and try to work out a response.

They must be nuts

When we found out that it was a couple working out of their garage with some money that had been provided by one of their fathers, we relaxed a little. When we also found out that they were charging a fifth of our price for a delegate place and that their event would be a hotel that has a quarter of the capacity of ours, we relaxed even more. When we also found out that they were offering free places, AND free accommodation to buy-side clients we actually laughed, “How the hell are they going to make any money?” We actually saw it as a bit of a joke. They must be nuts.

Several weeks later, we stopped laughing.

We had started getting calls from clients asking us how they could sign up for this free accommodation and if it was right that the ￡500 we usually charge for buy-side delegates was now free. Not only that, but we also found out that more of our sponsors were moving over to the new event.

We were still fairly incredulous. How could anyone want to go to a much smaller scale event and miss the opportunity to be in the room with the great and the good?….

…but they did.

It was clear that quite a significant number of buy-side clients would quite happily take up the offer to be in the city that year without having to pay our delegate fee and have the chance to stay in a five-star hotel for free.

Foolishly, we tried to apply legal pressure on the new venture by filing a claim for passing off, which only managed to gain more sympathy for them in the market and helped reframe the narrative as “the greedy bullies from the big global media companies were trying to crush young, innovative new brand that only had our interests at heart.” We rapidly backed-off.

By the time the event came around, all the talk in the capital city that week was of the new venture and about how little we had responded. We had not dropped our price, in the belief that people would still need to come to our event, and we were steadfast adherents to the adage that cutting your price only confirms that you were over-priced in the first place and devalues the quality of your brand.

The problem was that we were no longer offering something that was worth that price and had boxed ourselves into a dark corner. The feedback was stark, the new event had been a small success. The following year, we started to bring in new features, we overhauled the agenda, put on free minibuses from the airport to our hotel, and even ran elite free dinner to the great and the good with a high-profile economist speaker.

But it was not enough, we had left it too late.

Our weak USP was exposed

It was clear that if we wanted to maintain that price point, we had to offer substantially more for what our customers had been used to receiving. The difficulty was that the clients would see this the same was as they would a price cut; if they are now giving us so much more to buy our loyalty now, why hadn’t they done this before the new competitors came along?

We had failed to innovate or offer any extra value to our clients. Our Unique Selling Point (USP) was simply that we were the biggest, had established the event and had dominated it for over 20 years. That USP was built on sand.

The new event had two really clear and clever USPs; the buy-side delegates could go for free and have free accommodation (we refused to go down that route because of the impact it would have on our margins – a problem that lots of big media and event corporates have). And their location, which was smack bang in the middle of a vibrant part of the city, full of hotels, bars and restaurants, when ours, though elegant, was out in the sticks near to the local equivalent of a Travelodge and a Subway.

?We no longer had the ‘captured’ audience that we thought that we had. In fact, our location, away from the centre of all of the nightlife and action, actually became a lodestone around our necks. Clients were literally jumping in taxis from our hotel to go to events that were being arranged in the evening at the several hotels that were next door to the rival event.

The corporate mental triple-lock

We were constrained by a mental triple-lock:

1. Fear - we had been at the same venue for years, but it was no longer big enough to hold the volumes of people that we had. We were too scared to take the bold move of moving into the city centre and using several venues rather than one, for fear that a competitor would just come in and take over our old venue. Our answer was, rather than move venues and open up our old venue to prospective competitors, we would just charge more.
2. Greed - In our peak year we achieved more than ￡1m of profit on this single event through high ticket sponsorship deals, we pushed the price up each year, as part of a company-wide policy, but did not treat each event, or each market as unique in its own right.
3. Imagination – Or lack of it. We had fallen into collective groupthink of believing that this was all simply about supply and demand and that all we needed to do was make a few tweaks to the agenda and throw in a few free minibus rides and people would come back to us. We lacked the ability to re-imagine the entire event. Rather than innovate we tweaked.

Big company arrogance

We were a big global media company with oil paintings of our founders in our meeting rooms; half of our executive board had been to Eton, the other half had carried their school bags for them (which ticked the diversity box); we had strategy days in New York; were given talks by blokes with manbuns who wore Jesus sandals and had invented cool things like email.

We were also all incredibly innovative; my division had launched four separate new tech products, three new international conferences; and a new awards ceremony in my time there. Other MDs and directors had similar records.

Some couple working out of their garage couldn’t seriously threaten us, could they?

…Well, yes. It turned out that they could.

Unfortunately, if you’ve come for some chicken soup, or an inspirational TED Talk, you’ve come to the wrong place.

Within three years, the rival event was generating, not only the same number of sponsors as ours, but similar delegate numbers, and our profits on the event had halved.

Two years ago, I heard that our old event had finally gone to the great venue in the sky, having suffered a slow, lingering and painful demise.

The upstart business had not only completely captured that market from under us, but most crucially, it stuck to its USPs – buy-side clients came for free; they get to stay in multiple hotels around the city and their conference and awards completely dominate that week in the city. The smart owners got that the best way to expand, and grow was not to ‘rinse’ their client base, but to offer more: more events, more opportunities and more value with things like data and technology. They also exported their model to Asia and the Americas.

The smartest people in the room don’t always do their homework

The thing about this story, is that we were not stupid people, many of the people running this business were incredibly bright, at least one has gone on to have a spectacular career as an event leader at another blue-chip media company.

The point is it happens to the best of us. The truth is we got carried away by the success. The numbers were great, the bonuses were great, but our success also carried with it our own destruction. We took our eyes off the ball, failed to listen and failed to do what we were actually extremely good at – innovate!

Though we had ticked lots of boxes – we had spectacular numbers of feedback forms to examine at the end of each event – largely because we offered a very desirable prize draw for completed forms. The problem was that, though people had actually been telling us for several years that we were getting too expensive and were no longer the value for money that we thought, we chose to ignore that – what could we do? The long-standing venue could not accommodate much more, and paying for big name speakers would just erode margins further and impact all our bonuses.

In fact, in a way, the feedback forms acted like an emotional prop. We were obviously asking the market what they thought, largely chose to focus on the positives and ignored the negatives because we either believed that we could not do anything, or we knew that doing something would hurt us all financially in the short-term.

The “supply delusion” was very real, and the internal disincentive to act was enormous. So we did nothing of any substance.

From extreme to the everyday

My tale is admittedly, an extreme one, but there are many examples of events and media businesses that build in vulnerability, through under-investment, a failure to properly listen to their market, and a failure to truly innovate. I don’t want to panic everyone and get them reviewing every bit of their offering, but this kind of situation is classic disruptor territory. The reason why Virgin Atlantic managed to steal British Airways market share, was largely due to the arrogance and monopolistic mindset that had set in to that carrier. The same goes for markets such as telecoms (Virgin media), supermarkets (Aldi and Lidl), and book distribution (Amazon).

Most of these succeed, not because they have a new technology, but because they have a new mindset, which usually focusses on making things easier, more convenient and delivering better value for customers. If you look closely at some of your bigger events, you may well find some of the seeds of your own destruction starting to emerge in lower renewal rates, grumblings about value and a general lack of enthusiasm.

Five key lessons from our experience

• The seeds of destruction were sowed in our success – we had been guilty of hubris and arrogance in the face of clear unhappiness among our clients
• We did not truly listen to the market, we suffered from groupthink and chose to ignore feedback that we did not like or did not fit our rigid business model
• We failed to see innovation as something that you need to provide on your existing brands and products, rather than reserve it for launching new brands and products.
• We failed to consider our true weaknesses, choosing to see them as strengths
• Sledgehammers are pretty useless when it comes to cracking nuts: but people who are a bit nuts can quite easily destroy a sledgehammer

Coach Class tips for protecting your business and your brand

1. Ask your customers awkward questions and the quality and value of your products
2. Listen to the criticism as well as the praise
3. Above all do not use the feedback as affirmation, use it as a building block for innovation
4. Put innovation at the heart of your existing product portfolio, with the principle that you are driving value for your customers
5. Look at all aspects of your business model and the assumptions that you make about customers, agenda, price, venue and experience. If you were starting this from scratch, what would you do differently?
6. Markets and industries change and evolve, are your products changing and evolving with them, or not? If not, change!
7. Events and media companies should continually monitor new and emerging technologies and innovative ways of offering value and be willing to invest in potentially disruptive innovations.
8. Be prepared to sacrifice some short-term profits for long-term, sustainable growth
9. Always be willing to challenge your business models and embrace strategic flexibility
10. Research, innovate, test, pivot, launch, repeat.

Further reading

The Innovator's Dilemma by Clayton M. Christensen (2016) This book examines why big successful businesses fail to adapt and innovate, despite having very smart systems and management practices. The become reliant on existing relationships that are defined by their business model. Innovation becomes incremental and piecemeal, rather than disruptive.