Rent-Seekers Part II: Incentives and Influencers

By Avi Deitcher

The smart people behind ET3, whom I mentioned in an earlier post, were kind enough to respond quickly via Twitter, which is public, so happy to repeat here. They made several key points:

  1. First the late 2013 3-mile long 400mph demo, then the flashy Web site with online reservations, features, etc.
  2. The real target market is the executive branch of the Federal government, who needs to line up behind this and drop expensive high-speed-rail (HSR).
  3. Once the public is aware of potential 400mph low-cost solar-powered ride, support for HSR will crumble, forcing regulatory change.

In this exchange, the management of ET3 made three assumptions, one of which is 100% correct, the others are close but no cigar (are we allowed to say that in today's smoke-free world?).

  1. Product before fancy marketing: YES. 100%. Don't start hyping something before you are ready with it. You need a minimum viable product, you need a proof of concept, especially for something so unbelievable, before investing efforts in flashy marketing, fancy Website features, and all the rest. Besides the wasted money when cash is far more expensive, you run the risk of generating interest and then having it taper off, finally turning to disbelief when you are ready. The only thing worse than the Hype Cycle is to have everyone be in the Trough of Disillusionment when you actually are ready!
  2. Targeted marketing = flashy Website and fancy features: NO. The name of the game here will be getting yourself the ability to operate in a market where there are very entrenched and influential interests. Sort of like Better Place (may that disaster not repeat itself here), investing too much in features too early puts efforts in the wrong place and costs precious time and capital. Targeted marketing means just the right amount and the right type of information, presented in the right way, targeting the right people, so you can build your brand awareness and strong customer desire. I hate to say you can manage reservations via the phone, or outsource to Expedia, but heck, if it allows you to focus on awareness, do it. Minimum. Viable. Product.
  3. Public awareness = public pressure. NO. I don't want to get into politics (not my thing), but general public awareness is (a) too diffuse to impact policy except in crisis or groundswell, and (b) subject to relatively easy manipulation. The number of people who actually control policy here is well below 1,000, most in executive branches of federal and state government, some in the legislative branch. These people have their own incentives: to get re-elected. To do so, they need focused "investors" (i.e. donors) who believe in them personally or their mission, focused activists and focused voters. The interests of (to be balanced) the SEIU and/or AHIP will almost always win out over the general public interest, because it is not focused and concentrated.

In the end, this is about strategic marketing and sales.

  • Marketing: Prepare the groundwork so that your target markets are aware of your value, benefits and brand. More importantly, properly select your markets for ones that you can win, that have great value, that will hunger for your service, and you can afford to win. 
  • Sales: Identify the economic decision makers, find their incentives and how to improve them better than the alternatives, and find the influencers upon them.

In this case, we have two markets: travelers themselves and policy makers.

Travelers

  • Economic Decision-Makers: travelers themselves, spouses, corporate travel departments
  • Incentives: time of travel, convenience of location, cost of travel, but also frequent-traveler status and benefits
  • Influencers: spouses, family, friends, and especially trusted colleagues who travel far more frequently and are viewed as experts

Policy-Makers

  • Economic Decision-Makers: Elected officials (legislative and executive branch) and bureaucracy officials (appointed and career)
  • Incentives: Get re-elected, get promoted.
  • Influencers: Lobbyists, media, but especially focused groups - labour unions, business associations, conservation groups, etc.

Notice: General public is not listed as an influencer because, well, they are secondary. So how does a company like ET3 sell to policy-makers? It needs to target the correct Travelers and Policy-Makers at the same time. In other words, it needs both to pick early-adopter travelers who hunger for the service and will talk about it heavily, and find influencers who will put pressure on policy-makers. The general public is not it.

Why not the general public? It is very easy to:

  • Ignore the general public, if you are an elected and especially an agency official.
  • Manage the "spin" (I hate that word, but it gets the point across), by presenting the issues as one of "safety" or "American jobs" or "lack of experience".

The latter is particularly important. Many lifesaving drugs languish in the FDA's pipeline for a very long time because of those issues. Those concerned about public safety side with the FDA; those with kids dying of a rare disease stand against it. You can pick which side you want, but it is a prime example of how easy it is to delay changes that would have life-saving impact for real people, far more immediate and pressing than air travel.

So how does a company like ET3 overcome this? Three-pronged approach:

  1. Pick an influential early market. Make it one that wants it so badly, they would sign up tomorrow even if it cost 3x that of air travel. And make sure they have or can become focused as a pressure group. They are your first and double-strength ally. 
  2. Find non-customer allies and work with them. Maybe they are the construction labour unions, perhaps conservation groups, maybe laid-off airline employees that can be re-"unionized", although it isn't really a union. Maybe it is city mayors. Look at the battle between pipeline builders and conservation groups over the Keystone pipeline - I would put money down that the Keystone builders actively recruited the builders' unions.
  3. Look for markets that are initially non-threatening. I love flying San Francisco to Washington in 45 minutes for $100, but that is going to scare the living daylights out of United Airlines. Airline management, ALPA, the flight attendants unions, the TSA agents union, the airport operators, the air traffic controllers' unions, the whole world will come up against you. Either find non-threatening markets, or ones that are harder to organize. Cross-country borders, or ones with intense competition (and hence lower profitability, a la Clayton Christensen's recommendations), are good characteristics to look for.

I think that ET3, if it can pull it off, can be the most disruptive force since air travel. The three biggest changes in 20th century were the airplane, the automobile, and the communications network (of which telephones, the Internet, television, radar are all offshoots). The biggest in the 21st could be evacuated tube travel and self-driving cars. I am criticizing their market strategies precisely because I want them to succeed. I am literally praying for their success.