I keep hearing people saying you will say to your AI find me a skiing holiday and it will provide you with a perfect skiing holiday.

And I keep saying people don't decide like that.

When you allow tech bros too much power over decision-m along with their running dog lackey in kind of management consultancy you're optimizing for something which may be very very distant from what your real world customers really care about.

What makes Dyson so effective at advertising?

Actually, it's it's not advertising. It's marketing and it's customer experience.

What's the difference between marketing and advertising?

Advertising is a subordinate part of marketing.

And do you think we're looking for efficiency in the wrong place?

We usually do.

And so, you focus too heavily on cost reduction and too little on value creation.

What are the rules of good copy? If I asked you to teach me how to write good copy, how would you do that?

I think a large part of it comes down to

So, we first we were talking about this in the elevator. It was nine years ago.

She back when podcasting wasn't even a thing.

We must be able to dig out the original content presumably. Yeah.

What was it? It was your podcast number 47 or something, was it?

Oh, no. I think it was like 16 or something. Really? It was really low.

We'll have to dig out the number, but uh it's been a long time since then.

Oh, fabulous. Yeah.

And and podcasting has exploded. I've been following Farum Street devotedly.

Appreciate that. Um and uh it's always always interesting very very interesting on and I mean the whole question of the decision sciences uh is I think at the moment completely critical and actually by the way it'll be very very interesting with AI because I keep hearing people saying you will say to your AI find me a skiing holiday and it will provide you with the perfect skiing holiday and I keep saying people don't decide like that at the very least you'll have to show them three or four or five skiing holidays from which they choose because we can't really choose in the absence of comparison.

Appreciate that. Um and uh it's always always interesting very very interesting on and I mean the whole question of the decision sciences uh is I think at the moment completely critical and actually by the way it'll be very very interesting with AI because I keep hearing people saying you will say to your AI find me a skiing holiday and it will provide you with the perfect skiing holiday and I keep saying people don't decide like that at the very least you'll have to show them three or four or five skiing holidays from which they choose because we can't really choose in the absence of comparison.

It's what do you see what I mean? It's a sort of freakish element of free market capitalism which is we can only like something if we choose it in preference to something else.

Like if you said I'm going to India to chat GPT and you're like plan it for me versus you go to a travel agency and you're like I'm going to India plan it for me.

Well among real estate agents there's apparently a kind of little bit of a trick which is you always in before you show someone the house you want to sell them. You show them a less appropriate house, ideally that's slightly more expensive, say, so that when they see the house that you want to sell them, it's now clearcut because they can say, "Ooh, it's a bit cheaper than the other one and it's got a conservatory."

There's contrast.

So there's a kind of decoy effect, a bit like the famous economist experiment with a decoy effect.

So, you know, well, you know, one of my interesting questions is, you know, what interface will AI deploy to help us make choices and will it make the mistake that you could very easily make?

If you think about it, nobody clicked the I'm feeling lucky button on Google.

I think it's still there, isn't it? It's been there for years and they've removed it and found that it slightly reduces the appeal, but the number of people who actually click it, i.e., I'm feeling lucky, take me straight to a single page, is vanishingly small.

people want to choose between, you know, effectively above the fold options.

And um so, you know, I'm just intrigued because it's very very easy, I think, for people with an economic or tech background to make assumptions about what people are trying to do and how they choose and that we're, you know, utility maximizers and all this kind of thing only really to be completely wrong.

Do you think we're looking for efficiency in the wrong place?

We usually do uh in the sense that when you pursue efficiency there are quite a few problems.

But when you pursue efficiency generally you start looking at numerical or mechanical factors and of course in the process you disregard psychological factors where the greater gains may be found.

And so you focus too heavily on cost reduction and too little on value creation.

I mean, one of the greatest forms of efficiency, by the way, is employing a human being who's really, really nice.

Now, this is complete anathema to people in tech who love to define business processes so as to make them susceptible to automation.

You know, person X does this. We will take that function, we will replace it with algorithm Y.

And it's a very beguiling message because it usually comes with cost savings attached.

You might have heard of my thing, the Dorman fallacy.

remind

I'll remind the viewers and listeners uh which is simply that you know you you have a hotel it's a five-star hotel it has a dormant someone who welcomes incoming guests

you know a combination of say McKenzie or Accenture and a tech firm will come in and say your dorman currently costs you $X,000 a year we have defined his or her function as opening the door we will replace said dorman with automatic door opening mechanism and an infrared human detector and we'll save you 30 $40,000 a year

and then they walk away.

They take the credit for the costsaving

and then two years later, you know, the hotel's a catastrophe.

The rack rates fallen off a cliff because the dorman was doing multiple things, many of which were human and kind of tacit.

Security would be one.

You know, there are no vagrants to sleep in the doorway, hailing taxis, dealing with luggage, recognizing regular guests, providing status to the hotel.

There are loads and loads of value creation components to that dorman which aren't captured in the open the door definition.

Is that an example of where the costs are really visible, but the benefits are

correct?

Yeah.

So you it's very very easy management consulting firms uh if you if you're in a business and and some management consultants come in go to the management and say are they on a gain share agreement.

So you it's very very easy management consulting firms uh if you if you're in a business and and some management consultants come in go to the management and say are they on a gain share agreement.

A gain share agreement is a management consulting scam where you claim uh a certain percentage of the cost savings you identify in year one.

Now as Roger L. Martin, your fellow Canadian and my own personal Svengali says, "Any idiot can cut costs."

Okay.

What takes real skill is cutting cost in a way that doesn't destroy value.

One of the things that I don't think is understood by tech nerds and if I'm being really cruel, you know, males in general in in many cases is the extent to which in evaluating any business or experience, the human component of it, the face-to-face component does really really heavy lifting.

And I've got a lovely story to illustrate this which I think is fantastic.

It's the absolute perfect example of misalignment of optimization through quantification bias.

So wonderful man Alex Bachelor used to be the marketing director of Royal Mail, but you know similar to what you have with Canada Post, right? USPS.

Mhm. Sorry, not US. Yes, just USPS.

And they couldn't make any sense of the fact that the brand perception of Royal Mail bore no relation to service levels.

So there would be districts and areas where you know every single firstass letter arrived early the following day extraordinarily reliable levels of service and royal mail wasn't particularly held in affection or esteem.

There were other areas where the service was frankly a bit ropey and people seemed to love it.

Now, this obviously upset them because they thought that all the billions or certainly hundreds of millions they'd invested in service quality improvement should translate into customer satisfaction and therefore, you know, some sort of brand voltage.

And someone had a theory and they said, I think something else is going on.

And the theory which was put to the test and proved absolutely right was that the major determinant of whether you liked royal male or not was whether you liked your postman or posty technically to be used the genderneutral term.

So people who had a rather unreliable service but the postman did the odd favor for them left things in the porch had a chat with them.

Okay, those people thought it was a brilliant organization regardless of the actual metrics that were being pursued.

And I think that's very true in uh any service organization.

You know, you may there's an electricity company, a gas company, a water company, a utility.

You may interact with them online 95% of the time, but the one or two occasions where you interact by telephone or face to face disproportionately affect your your perception of the organization.

And I've argued for quite a time if I were being completely honest, I've worked in advertising for 36 years.

And if I were a wholly honest person, uh, without, you know, fear of annoying my colleagues, probably 50% of the time, I would advise to a client, take 10 to 20% of your marketing budget and spend it on upgrading the call center.

Pay the people too much.

Get the best practitioners.

I think it's perfectly legitimate.

In some organizations, there should be the very best call center people should be on six figures because it makes if you're good and nice, that's how much difference it makes.

In other words, it more or less drowns out all your other stuff, all the other noise.

If every time you have a personal experience, you have a good experience, then broadly speaking in the human brain, uh that's a good organization which I can trust.

And when you think about it, I suddenly realize why this probably is.

We don't really have much evolved experience in evaluating postal efficiency, do we?

Okay, we have quart of a million half a million years of evolved experience in deciding who to like and trust because for most of our evolutionary, you know, existence, that was one of the most fi five most important questions to get right.

You know, do I trust this person?

You know, will they attack me? Are they an ally? Are they a foe?

Uh if I pay them money, will they deliver?

And so consequently, I think what we do in our brains is we use our human judgment as a proxy.

Now, a story to back up that, you probably remember this, okay?

It's in my book, Alchemy, which is imagine you're turning up to buy a secondhand car and you turn up at the house, nondescript house, and the car is parked outside the house and you have a look at the car and you judge the, you know, whether the pedals are worn and the condition of the body work, and you have a look around the car.

It's in my book, Alchemy, which is imagine you're turning up to buy a secondhand car and you turn up at the house, nondescript house, and the car is parked outside the house and you have a look at the car and you judge the, you know, whether the pedals are worn and the condition of the body work, and you have a look around the car.

and you decide you're interested in paying, let's say, $5,000 for this car.

So, you go and ring on the doorbell of the vendor and the door is answered in one situation

by, for example, a female vicar.

Okay?

Could be Catholic. Well, they can't be Catholic, but you know, Episcopalian, doesn't really matter.

Okay? Female vicar.

And it's a tidy clean house.

At that point, you probably upweight what you're prepared to pay by 20% or so.

In in a parallel universe, the door is answered by a guy in his underpants.

In other words, someone with no shame.

In that instance, you devalue the car, I suspect, by about $1,000 or more.

In fact, you may not even buy it at all.

And what we're doing here is we're effectively

saying, what I'm going to do is a standin for the question, do I buy the car, which I don't have the technical knowledge to answer.

I'm going to ask a supplementary heruristic question which is do I trust the person who's selling the car to me?

And it's an interesting question.

You my mother didn't know anything about cars, knew a lot about people.

I think she would very reliably go around buying cars just through her assessment of the seller.

And similarly, I think she might do better than someone with an engineering qualification who ignored who the seller was and their personality and character.

Now, as a bit of evidence of this, I discovered because I've been investigating this, uh, various real estate agents have said to me that every estate agent does their utmost to make sure that until things are signed and sealed, the vendor never meets the buyer and vice versa.

And the reason for that is if one of them doesn't like the other, they won't buy or sell.

Now, when you think about it, that's completely unless the person's moving next door.

Obviously, if you're buying a house from someone who's planning to move next door and they turn out to be a psycho, that's relevant information.

But it seems to be the case that if you meet the the vendor and you basically don't trust them or think they're a bit shifty, it doesn't matter what the price is.

It doesn't matter the condition of the house. Suddenly, you revise your valuation of the house downwards if you don't like the person selling it to you.

And so that's one of the reasons why apparently uh real estate agents will leave any kind of contact between the two uh until after at least a survey has been done and enough commitments taken place.

I once by the way I once didn't buy a house basically because the guy was being an about the fridge.

Now the fridge was only worth uh you know I think 0.2% 2% uh of the value of the house or 0.02% of the value of the house. I can't quite remember.

But because he was being a dick about the fridge, I no longer trusted him about the house.

Yeah.

Weirdly, it turned out my instinct was right because then a friend of ours went to buy the same house.

They got some separate land registry search done and found out that a chunk of the garden actually belonged to Network Rail, not to the house.

It effectively filed a large part of the garden.

So does that mean I just want to go back to the the real estate thing for a second.

Does that mean pretty or attractive real estate agents would be more successful than

It's a really interesting question which is I think we you know I think we ought to study these things much more because the assumption of an economist is that you need to disintermediate

you don't need estate agents we just go on willow Zillow sorry or right move in the UK or whatever it is what's the Canadian equivalent

I don't even know

cababins.com or whatever okay.com

Yeah, we go.

Exactly.

You go on one of those things.

You choose the house you want.

You look at it. You then look at the house, get a survey done, buy the house.

We assume that there is, you know, this is a purely transactional exchange.

Maybe in a rational world, that's exactly what it would be.

But for one thing, actually, someone who's invested 15 years in doing up a house probably cares about what the person buying it is going to do to the house.

So, my parents-in-law, for example, are fanatical gardeners.

Uh, don't get into this.

Seriously, get into something like crack.

We have no worry that I'm going to

No worry you're going to become an enthusiastic.

Can barely keep a plant alive.

Good, good, good.

Okay. Um, but I guarantee if you went and looked around their house and placed an offer while being an expert in botany and generally quoting people like Gertude Jel and, you know, prominent garden designers and Sissinghurst and Da uh you could you could buy their house for 200,000 less than if you turned up and said, "Brilliant, we can knock down that tree and put in a helipad."

uh you could you could buy their house for 200,000 less than if you turned up and said, "Brilliant, we can knock down that tree and put in a helipad."

Yeah.

You know, I think if you said, "We can knock down that tree and put in a carting track."

Right.

I don't think they'd sell it to you at any price.

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Is that because people want to feel good about the transaction?

And feeling good is more than maximizing.

Richard Thaylor did I think his most interesting work of all is actually on the concept of transaction utility which you may remember do you remember this

a little bit

yeah it's in I think it's in nudge and the famous thought experiment is this which I find fascinating and I think it's a really insightful thought experiment so the idea is you and your best friend are lying on a beach somewhere and it's hot and you're very thirsty and about quarter of a mile down the beach there's a place that sells ice cold beer And your friend says to you, and he asks people to imagine this, your friend says to you, "I'm off to blank to buy a beer. Tell me what the maximum amount you're happy to pay for a beer is. And if the price they quote falls below that threshold, okay, I will buy the beer. And if not, I won't."

yeah it's in I think it's in nudge and the famous thought experiment is this which I find fascinating and I think it's a really insightful thought experiment so the idea is you and your best friend are lying on a beach somewhere and it's hot and you're very thirsty and about quarter of a mile down the beach there's a place that sells ice cold beer

And your friend says to you, and he asks people to imagine this, your friend says to you, "I'm off to blank to buy a beer. Tell me what the maximum amount you're happy to pay for a beer is. And if the price they quote falls below that threshold, okay, I will buy the beer. And if not, I won't."

And he asked people to imagine what the threshold would be of what they'd pay for a beer on a hot day when they were parched on a beach for a cold beer.

the beer is going to be consumed back where they're sitting.

So the ambiance or you know the the clientele of the establishment selling the beer is irrelevant because you're not going to consume it there.

And the interesting thing is in one situation he says there is a boutique hotel selling chilled beer

and in the other situation he says there's a shack selling cold beer

and your price changes

and your your your readiness to pay changes partly in accordance to what you imagine to be the overheads of the establishment selling the good.

Even though the

even though the the utility of the beer as distinct from the how good the transaction feels

the actual utility of the cold beer is identical in both cases.

I think that's a I think that's Richard Thaylor and I think it's extraordinarily interesting because I think we can make

you car car salesmen will know this you know make the transaction feel good make them feel good when they drive out of the place that was uh segini right you you know people are more likely to buy from you if they like you they're more likely to uh like you if they trust you and you have something in common with them and and you can use all of these things to manipulate people unfortunately

you car car salesmen will know this you know make the transaction feel good make them feel good when they drive out of the place that was uh segini right you you know people are more likely to buy from you if they like you they're more likely to uh like you if they trust you and you have something in common with them and and you can use all of these things to manipulate people unfortunately

It's not manipulation.

Be careful on that because No, no, no.

We got to be really care.

I think we got to be really careful here.

One, one thing might be that a genuine cold-blooded psychopath would intentionally might find it difficult.

This is a Jeffrey Miller theory that if you're on a first date, there's an element where apparently, it's a long time.

I've been married for 30 something years, but women on a first date will turn up a bit late or do something a little bit annoying.

And Miller's theory is that it's a psychopath detection test.

So that if you

Interesting.

So, you know, one of the worst things that can happen to women is to get into a relationship with someone who's, you know, psychopathic because you end up with an empty bank account and a, you know, and, you know, your sister's pregnant by her everything go, you know, everything goes hopelessly wrong.

Someone who's written very interestingly about this, by the way, is fabulous woman who writes about education and absolutely brilliant.

I I'll remember her name in a second, but she's written quite about this having a psychopath in the family.

Likewise, Kevin Dutton um has also written about this about his own father.

There are certain things which you can do which make it very likely that psychopaths will out themselves.

So the perfect test might be you bribe the waiter to tip soup on them.

Oh, interesting.

And they'll lose it.

Or you turn up late and someone like assuming you're not a psycho because you're Canadian.

So you know that's probably

by default we're not

relatively low. We're too polite.

You're too polite.

Exactly.

Yes.

It'd be too tiring to be a psychopath in Canada, wouldn't it?

Soup on me.

I'm sorry. I shouldn't have been sitting here.

It's I shouldn't have been here.

My fault.

I got in the way of your soup.

Uh the psychopath will lose lose his rag.

Um uh and can't control this.

And likewise, if you turn up late, there's a chance they'll go, "Look, I've been sitting on my own like an idiot for 15 minutes."

Whereas you and I would go, "Oh, I know.

I only just got here myself.

The traffic's terrible."

Yeah.

We don't fully know, you see, the value of what is going on in using a personal quality as a proxy for a decision which is simply too complicated to legalize or to reduce to numbers.

Also, it is I'll completely agree in economic terms, it's suboptimal, but if it leads to downside variance reduction, which is what we're really trying to do.

We're not trying to optimize.

We're trying to reduce the risk of downsize.

Yeah.

Downside variance, you know, and that's true in all sorts of things, investment strategy, etc.

You know, the barbell approach, you know, first of all, make sure you don't don't do anything disastrous.

You know, the barbell approach, you know, first of all, make sure you don't don't do anything disastrous.

Then after that, try and get lucky.

You you say it like it's a conscious thing, but I think it's an unconscious because because if it is conscious, it's probably a reverse signal that you're actually a bit uh offkilter.

if you're consciously doing that.

In fairness, if if you study social science matters, you've probably but I agree with you that the I mean my wife occasionally gets a bit annoyed with me because I'll get you know I will literally apply TALB logic to decisions.

Just to give an example, I always argue that over 36 years holidays where I've rented a car are better than holidays where I haven't.

And my argument is you have more optionality.

See?

Oh, interesting.

So if you've rented a car and you find the hotel's a bit meh or the hotel's not in a great area, you can just get in the car and go and find a beach somewhere else and go there every day.

You know, in other words, you know, so I deploy occasionally we'll deploy these kind of taleb lines and I, you know, I'll also say let's fly from so and so because you know it's the satisfices.

You you're the one who I remember this you said you should always fly from the smallest airport that's convenient for you. Is that it?

Oh, I'm I'm a big small airport thing person.

Okay.

Yeah.

Yeah.

Actually, it's it's kind of interesting because airports are schizophrenic in a way because the clientele of an airport is roughly speaking a 50/50 mix between people who fly a hell of a lot and just want to get through the damn thing as quickly as they can.

Actually, it's it's kind of interesting because airports are schizophrenic in a way because the clientele of an airport is roughly speaking a 50/50 mix between people who fly a hell of a lot and just want to get through the damn thing as quickly as they can.

And people who only fly once a year who regard the trip to the airport as part of the holiday and they love going through a shopping center and looking at Hermes outlets or whatever.

And so airports are effectively catering for two totally disperate groups of traveler.

And you can separate these people in the security line effectively.

You can absolutely you can separate them.

And that's why you know um in a weird kind of way I think you notice sometimes that the queue for the priority lane in security is longer than the queue for the amateur lane.

But frequent business travelers will still join the priority lane on the assumption that the people in front of them are more competent.

I mean there's a George Clooney up in the air gag about that right

and so it is very interesting because is it is it irrational

if it's a very reliable mechanism

so all right one example would be I don't think it I don't think it works very well nowadays because there are enough posh spivs around but in the you know in the 19th century if you were a posh and respected real estate agent you had a lot of reputational skin in the game in the local community both commercially in people, you know, so you were highly vulnerable to reputational damage both commercially and also socially

so you were highly vulnerable to reputational damage both commercially and also socially

because you know a small town or a you know would have been to a large extent a prestige economy

and therefore you know dealing with the posh local estate agent rather than some guy who claims to be cheap is not irrational.

you know then that you know the commission may be higher whatever it may be but in terms of reputational skin in the game as insurance against being you know treated appallingly but and you know I think there's a kind of weird thing going on which is that uh you know the the job of the real estate agent is to some extent to be the person who stays behind in the place where the house is sold to suffer the reputational consequences of you know of anything outrageous because the vendor of the house isn't really reputationally vulnerable if they're moving 300 miles away.

and you know I think there's a kind of weird thing going on which is that uh you know the the job of the real estate agent is to some extent to be the person who stays behind in the place where the house is sold to suffer the reputational consequences of you know of anything outrageous because the vendor of the house isn't really reputationally vulnerable if they're moving 300 miles away.

Mhm.

And so, you know, some of the role of these intermediaries is just highly complicated.

But when I say that, you know, we fundamentally seem to attach very very high waiting to, for example, a call center experience versus website design.

I'm not suggesting for a second website design isn't really important.

It's it's almost like there's some experiences that are sort of additive or subtractive and then there's some that are multiplicative

like you can multiply by zero or you can multiply by 10 like a difference in that one particular factor.

There's a there's a really interesting organization I can't remember what they're called online they call this a brand quake.

A brand quake is where you do something.

It could be resolving a problem really well.

That would be a very good opportunity for a brandquake.

The person has a problem. you put quite a lot of effort and intelligence into solving it very effectively for them.

Um and then you ring them back to check that the problem has indeed been solved.

Now that would be an example of something I'll give you the per okay I'll give you the perfect story of this.

My father uh who is you know half Scottish and um without stereotyping anybody was quite parimonious with what he bought generally.

I mean I'm not I'm not saying it's genetic by the way.

just culturally he was descended from long lines of Highland Scots who didn't get where they were today by you know splashing out

and he had a I think three um when he died he had three or four Dyson devices which he'd bought from new in his home he had one on each floor to save from carrying them upstairs.

Now these are by any objective measure pretty expensive vacuum cleaners.

Mhm.

One of the reasons he was so fanatically loyal was that Dyson, now interestingly, I'm going to make a point here, which is a privately owned company.

Mhm.

And that and do not do not underestimate the importance of this.

PLC's or um uh or or companies on the NASDAQ or the New York Stock Exchange are incentivized to behave like psychopaths because they're optimized around short-term transactional value, not long-term relationship building.

I think maybe the the generalization is that like if they're private companies led by a founder, then they're not run by the finance department.

It's so interesting.

I think about this a lot where you you have these short-term optimization and long-term effectiveness are two completely different.

Short-term money off versus long-term value on.

Yeah.

Yeah.

And so you can there's always somebody making more money than you, but you maybe they're cutting corners, maybe they're doing things that are unsustainable.

And like you said, you can always save money in the short term, but do you damage your brand in life?

By the way, my theory is the primary reason for the success of these private companies.

It the secondary reason is they look after their consumers better because they're effectively uh unwittingly their practitioners in the customer value movement, not the shareholder value movement.

Well, Buffett had this saying where his directive, his letter I guess to all of his CEOs after he acquired the company was the only expectation I have for you is to treat this company as if you and your family have 100% of your money in it for 100 years and you can't take it out.

Exactly that.

Yeah.

And and I think that that approach enables even in a public company that enables people to take long-term do the thing that's optimal.

actually they do something they do something they look after their customers and there is an interesting exception to this probably which is for example Costco which and actually enterprise rental car is familyowned isn't it enterprise is familyowned

and actually enterprise rental car is familyowned isn't it enterprise is familyowned

enterprise is familyowned

in the and I've told everybody this in the IPA advertising effectiveness awards in the UK my argument is that with the exception of PNG Dagio unilver marketing le companies I don't think that plc's what do you call them in you know publicly traded

I don't think they can actually do marketing very well

because the requirement for short-term self-justification and numbers effectively overrides the real purpose of marketing which is investment in long-term customer value.

I think this is why generalizing a little bit but this is why founders outperform even when they lead public corporations.

They have the same pressures, the same analysts, the same but they also are considering posterity aren't they?

What is my legacy?

I mean, it's interesting actually the German car industry, although their public companies are sort of familyrun.

Aldi famously, which owns Trader Joe's, is basically owned by actually two German families.

They had a huge feud, but some things going on there.

One of the things they do is they look after their staff better.

And I think when you look after your staff better, the customer notices.

Well, this is part of the Costco thing.

So, I mean,

Costco.

Exactly.

But that comes from the Saul Price line of thinking which when he started FedMart he sort of outlined the obligation of our business is we have a fidiciary relationship with a customer.

Yeah.

And Jim Sagal who founded Costco was a student of Saul Price and later on they would merge the companies.

Of course they did, didn't they?

Yes, you're absolutely right.

Yeah.

Yeah.

And I I think that's interesting right where you treat your employees better.

Uh nice story from Dyson which is familyowned.

In fact, I think familyrun companies, this would include people like um SC Johnson.

I think they should wear a badge.

Do you see what I mean?

Just as you have a kite mark on British

Well, Lob Laws is familyowned, isn't it?

For example, in Canada, family,

family control McCain family control.

Mhm.

So what I was saying about the advertising effectiveness awards, four out of the five gold winners, it's only every two years this award and it's very very rigorously judged.

Four out of the five winners, namely McCain, your Canadian uh heroes.

Um McCain, Yorkshire Tea, Specs Savers, and Laithweights, a wine company.

Four out of the five winners, the fifth one was Guinness, which is sort of a family company in a sense, although it's owned by a Dio.

And so my point is that I, you know, we should actually have a kite mark that allows consumers to prefer to buy from companies which aren't listed on some stock exchange somewhere and hence aren't controlled by the finance function because they're more trustworthy.

That's an interesting

I don't know if I agree with that, but u it's interesting to think.

Well, is Rogers what's is Rogers still family controlled?

I mean, Canada's absolutely packed full of Canadian tier.

What about that?

Increasingly you get family controlled but not economically controlled.

So you have like a dual class.

So the western family would control lob laws to some extent even though they're not majority shareholder.

Well I think if you if you have a corporation that's hundreds of billions and you control 10 or 15% of it.

You effectively have control over the company.

Of course.

Yeah.

Ford Motor Company falls into that definition.

I think the f you know the family or some there's a particular class of shares.

A lot of dual class coming.

But hold on, I want to go back to Dyson for a sec.

What makes Dyson so effective at advertising?

Actually, it's it's not advertising, it's marketing and it's customer experience.

What's the difference between marketing and advertising?

Advertising is a subordinate part of marketing.

And uh in many cases, even though I've worked in advertising for 36 years, I I I want to think of myself probably unsuccessfully, but I still aspire to be a marketer, okay?

not an advertising person because advertising is a useful toolkit available to the marketer and by the way generally is pretty effective

but Peter Ducker the purpose of business is to find and keep a customer profitably uh that's the purpose of marketing it's to you know to you know to either create or find uh customers with whom over time you can engage in mutually advantageous relationships to mutual profit that's it

so what makes Dyson so good at marketing?

Well, the story I heard from someone who worked at Dyson for 12 years is that he was sitting in a presentation, James Dyson presiding

and they were presenting the call center sort of efficiency statistics.

By the way, I'm absolutely fanatical about call centers because I'm terrified that in an AI age, people will try and effectively automate them.

Uh I think what you should do instead is make them slightly smaller but a lot better

because I don't think you can substitute for the human in cases of unusual problems, special circumstances, empathy generally.

Don't get me wrong, I think you can get AI empathy.

I'm not suggesting that AI is going to be completely unempathic, but at some point it's rather like the equivalent of I want to speak to the manager.

There will be situations where you want to speak to a person who can understand your specific situation and has the power to intervene to override the normal rules and regulations to solve your problem because it is common sensical to do so.

Even if you know our what service level agreement doesn't normally allow us to send out a replacement part.

In this case, since your part is faulty,

somebody who has the power to do the right thing

Got it.

Exactly.

And I think you know I I think that will ultimately you'll have to have the human as the last port of call on that.

Also your call center is the only way you can find out the problems that people can't solve anywhere else.

Do you see what I mean?

So there was a very smart person I met at Microsoft who when they uh when they took over some fairly niche Microsoft product they put the call center in the middle of the development team.

I mean, I would argue that the call center of British Airways should be on the same floor as the boardroom

because it's where you find out where you're going wrong with your existing customers who are the most important people.

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It's the map territory problem, right?

So often the businesses are run by the map which is like the spreadsheets, the volumes, the wait times, the whatever, but the territory is the customer calling in and the problem.

That's cool, isn't it?

The map is not the territory.

Yeah.

That they're experiencing.

And so if you're not touching reality, you can get distorted by the map.

But I want to go back.

You've said by the way exactly the same thing Dan Davis did which is one huge advantage of being a customer value company not a shareholder value company is that customers live in the real world and therefore you are actually rooted in reality whereas shareholders by the way not share owners but the shareholders are principally interested in justifying their own existence to their investors and therefore they're dealing with a highly artificial construct in terms of defining the value of a customer

But I think what's best for the shareholders is what's best for the customer.

It's just the timeline mismatch that people have.

So if your timeline for well it's incoherent by the way the shareholder value movement is totally incoherent because over what time frame which shareholder is what are you optimizing for?

It's a completely incoherent nonsense which is very very friendly to stock market analysts who want a ready supply of quarterly data so they can their way out of things.

How valuable it is to people with pensions is a completely separate matter because one of the things it does is it prevents companies from innovating effectively and it prevents them from investing properly in customer relationships.

Okay.

Come back to Dyson.

You were telling me this story.

Somebody had worked there for 12 years.

So they were going blah blah blah average call time blah blah blah average wait time and it was the standard kind of call center metrics about effectively how quickly can we get these people off the phone.

I mean it's a bit more sophisticated than that.

You know, I'm sure there's some measure of satisfaction, but it was kind of evaluating the call center on an operational efficiency standpoint.

And Dyson basically said, "Stop right now.

You've got this all wrong.

The way we should look at this is we should treat it as an honor if one of our customers chooses to get in touch with us, and we should therefore respond to them accordingly, as if we're flattered by the contact, not as if we're bothered by the interruption or words to that effect.

I'm I'm putting words in his mouth, but this is roughly speaking what the person said happened in the meeting.

That makes a lot of sense.

I mean,

and by the way, that's why my father had four Dyson.

Stingy man though he was.

I hope he won't mind me saying this, my late father.

But every time he rang them up, which might have been only once every year.

Yeah.

They did something astonishing and they were really, really helpful and they solved the problem and the part arrived the next day.

Sometimes they didn't even charge for the replacement part and therefore he completely trusted those people and therefore was willing to pay an enormous premium really over other vacuum cleaners which might have had the same notional you know effectiveness precisely because of that trust.

There's so much opportunity here, right?

If you think of you competing in a world where we're moving to AIdriven call centers, uh if I took the exact opposite approach, which is by the way, you should do both.

A really, really good service organization allows for very streamlined efficient service for people who know exactly what they want and extremely emp empathetic service for people who are undecided, uncertain or find themselves in an unusual situation.

And so you need to do both.

And that's that's where I think the tech bros have got it all wrong because they see the opportunity of tech as being a one-way street towards ever greater efficiency, streamlining.

And let's face it, tech bros are not neurotypical in terms of what they want from things.

When you allow tech bros too much power over decision-making along with their running dog lackey in kind of management consultancy, you're optimizing for something which may be very very distant from what your real world customers really care about.

You're using tech crows as like a

No, no, no, no.

It's perfectly reasonable to say that the people who work in this field and not representative of the whole human population.

That's a reasonable assertion.

What is it you're representing when you say tech bro though?

Um, anybody in a tech industry, just as anybody in advertising, myself included, is overweighted towards a belief in the ability of advertising to solve all problems.

And I will truly admit that I am guilty as charged.

Um, however, ad people don't get that much opportunity to convince other people of the rightness of their argument.

What has happened is that in marketing for example the tech companies the consulting firms that sell stacks and I owe a lot of this to a guy called Adel Bori very interesting self-taught Libyan marketing writer former boxer Annel Bori

and I coined the phrase technopplasmosis by analogy with toxopplasmosis

which is tech people and consultants have taken over the finance department

so that the marketing metrics the finance department has faith in and demands from marketing are not those metrics which are most conducive to building brand and customer value over time.

They're the metrics which are most conducive to selling tech solutions to the companies.

What are the metrics that are most

well it's all about short-term transactional uh bottom of the funnel um clickth through you know how can you shovel money to meta in a slightly more efficient way.

It's not about long-term value creation at all right now.

Now, don't get me wrong.

All that bottom of the funnel short-term transactional stuff is very important to get right.

I'm not I'm not disparaging it, but it's only a third of the game,

right?

And they're not interested in the other two/irds of the game because they don't make money if someone spends money on their call center or, you know, upgrades their call center staff or allows the call center staff to call out.

It's sort of like cyber security.

It's seen as a cost.

It's a cost.

Yeah.

Yeah.

Yeah.

Yeah.

I mean, Bonnie Blue would do really well in this because she's all about the numbers, not about the quality of the relationship.

You know, funny enough, she did work in NHS finance procurement.

Ironically, or no, finance recruitment actually.

She recruited people for N for National Health Service finance.

So, her approach to sex is merely an extrapolation of what she learned, I think, recruiting finance people for the National Health Service.

All all about the quantity, not about the value creation, the the relationship.

I like this quantification bias thinking

I mean Buffett okay you're quite rightly your hero um is he was obsessed with the quality of the management of companies with whom he invested wasn't he

well I mean I'm obsessed with personal factors

I've read a lot in I think I'm going to give a nuanced answer here

I don't know the answer so I'll preface that with that

I did read a lot about what he used to do in the 60s and he used to hire like private investigators

And what he was trying to determine, I don't think it was anything about the person other than does what they say line up with who they are.

And if the answer's yes, I can deal with that because I know what to expect.

And if the answer's no, if they're they can't go to work and, you know, claim to be a penny pincher, because if they go to work and say they're going to cut costs, but they're driving around with a Ferrari or whatever, like this is a thing that it doesn't line up.

And so I I feel like he was always just trying to assess the predictability of people if that makes sense.

if that makes sense.

In other words, by looking at their consistency

consistency

did the management

do what they said they were going to do.

the balance sheet changes over you know like he was a very he had a different emphasis on things than people I think realize and I think with a lot of his investments I mean my personal take is he was looking for predictability and it wasn't about massive disruption it was never about things being turned around

he got out of that in the late60s with diversified refilling was the last real turnaround situation they sort of got themselves into they exited quickly

and when They got burned.

Did they quite

Well, they didn't really get burned, but I was talking to Munger about this over dinner one day and he's like, "We just realized that we made a mistake.

Uh, we were never going to make a lot of money in this business and it was highly competitive and we had no edge and so they got out as quickly as they could."

Uh, and I think that the predictability of what he buys, at least his long-term holdings, like if you look at that, I think it's really interesting because it's like you can kind of see it.

The railroad, people are going to be using the railroad in 50 years.

That's a great example.

So, it will be unbelievably difficult to build a competing one,

but you can also you can leverage it if it's predictable.

And leverage is is this interesting thing where he says they don't do a lot.

And they don't when you look at the whole company, but on the railroad, for instance, they'll a decent amount of debt in the railroad because they know what the earnings it's very predictable

the same as the energy where they're putting a lot of capital they put a lot of debt in and I talked to this guy in um Nova Scotia John Bragg and he sort of did the same thing

and so he c he created Oxford frozen foods he's this incredible story he's this billionaire from this small town of 1100 people he started

I've been to Nova Scotia

what's it called

Oxford Nova

it's called Oxford Nova Scotia and started not one, not two, but three multi-billion dollar companies from this small town of,00 people.

Is he still there?

He's still there.

Yeah.

They're like that.

Such a great guy, too.

And it was fascinating to talk to him because he basically was like, "Look, you know, he owns North America's largest private telecommunications company."

And he said, "I wasn't afraid of debt at all."

No.

And we levered up massively.

We went all in multiple times acquiring more assets, acquiring,

but if there's something more volatile, he gets very nervous about the debt.

So, he wouldn't do it if there was volatility.

But he also had this thing where it was so counterintuitive to what you hear on Wall Street, which is is like, I don't mind paying more, you know?

I don't mind paying the most.

Uh, and I was like, really, that surprises me.

And he's like, well, a lot of these things only come up once.

And he's like, well, a lot of these things only come up once.

I don't get another shot at it.

And if I'm a private company, I don't have public company shareholders, uh, and it takes me, you know, 5 years versus 3 years to get my money back out of the deal, why do I care?

I'm never going to be offered this again, and they're not going to build another one.

No.

So, when it comes to fiber optic in the ground, he's like, it's getting harder and harder to do.

What is this company, the Canadian company in telecoms?

Uh, it's East Link Cable Communications.

I've heard that.

Yeah.

And so, but they not only do they deliver cable to a large portion of Canada, but they own a lot of infrastructure that people aren't aware of.

And he's like, well, what difference does it make?

And I've been chewing on that nugget ever since.

And you know, you can apply this from a marketing perspective as well, right?

If you if you have a client or go back to real estate for a sec.

I have a client who's looking at a lakehouse or a cabin or a cottage or whatever you call them in in the UK or in the United States

and you get a property and you say my budget is I don't know say 500,000 and you find a property that's seven and is it worth splurging on the $700,000 property or whatever it is

and the answer is is this like a once in a generation property that I'm never going to have the shot at again

and if you can frame frame things

is also much more likely to be scarce

the rarer you get generally

and then overpaying you make overpaying seem rational and in a way it kind of is rational where it's like well this is only going to come up once so like I I have a friend actually going through this now they're looking at buying a family cottage and I'm like how do you think about these things he's like I saw this one it was perfect but it was a little more money than I brought this up having a cottage on a lake on which yours is the only cottage is the kind of gold standard for Canadian property.

I brought this up having a cottage on a lake on which yours is the only cottage is the kind of gold standard for Canadian property.

That would be the dream.

Have a lot of lakes.

Yes.

But I'd always heard that as a kind of

but it's sort of like what what do you want?

If you want a second property, you want proximity so it's easy to get to.

You want privacy.

Uh so there's not a lot of things around it.

And these things just don't come up very often as many lakes as we have.

I mean the the prime properties come up maybe once every five or six years per lake.

and as Kaden said, in the long term, we're all dead.

And we're all dead.

So anyway, an interesting aside here, but when we sat down, we were talking about high trust versus low trust societies and introducing friction.

Yeah.

I'm wondering, spend a beat on that for a second.

Well, I met um someone you must interview, by the way, called Philip K. Howard, who's written various books called Life Without Lawyers.

He's just written a book which is coming out right now called um uh I think it's uh can do which is restoring the spirit of American can do

and he argues that a large part of economic decline and social malaise has come from the overintrusion of law and regulation into practices which should properly be left to subjective human judgment.

that we've created a culture where people are so afraid of making a subjective decision that they fall back on often totally inappropriate rules and regulations.

And there are a whole bunch of people who are employed not always by the government just as much by the private sector who are much more interested in adherence to uh approved procedure than they are in quality of outcome.

Because you can't get fired for

you can't get fired for following the rules.

You can't get me in trouble.

Well, you told me to follow this proced and common sense would be to opt out at some point in certain situations and use your brain and judgment and uh but if I do that if I have if I do very little parapet there's no upside

uh and there's considerable uh reputational risk and and career risk

from doing something slightly perverse and different.

But there are a whole bunch of arguments.

First of all, an awful lot of quality human decision-making of necessity has to be tacit and instinctive, not regulatory.

There are various people I think it might be Michael Palani who says most of life is like a kaleidoscope.

We never completely encounter the same situation twice.

Mhm.

And therefore regulating for the universal when in fact the great evolutionary gift of the human brain is adapting to context

is inherently lawyers love it of course because they make money out of this.

You know, arguably uh the legal system, particularly in the United States, has strayed into all kinds of areas which were once settled by two humans amicably discussing something and possibly finding a creative resolution to to the trade-off that's replaced by effectively we will take this to a legal decision

and that starts to infect um particularly because there's no tor law reform in the US and that's partly Because I was told yesterday trial lawyers are among the largest donors to the Democratic Party because they resist any kind of tort law reform.

M

this has led to things that should be solved through our evolved human talent for conflict resolution being solved through totally inappropriate application of of uh legal structures to a situation which is uh in many cases not really adequately captured by law or where a legal decision is made which makes perfect sense within one setting but which sets a precedent which leads to ludicrous second order consequences.

Yeah.

So for example, if you accept the fact that a I think has happened in one of uh Philip K. Howard's cases, someone demanded that trees were dropped down in their street because one of their grandchildren was allergic to the nut that came off the tree.

The argument would be that if you accept that, which may seem kind-hearted and uh you know and and generous within that particular frame of reference, ultimately you've opened up the path to widespread deforestation

because nobody can grow a tree anywhere to which anybody could claim to be allergic.

There's an interesting case um in England where someone broke into a theme park or some park of some kind and then while drunk dove into a pond which wasn't really deep and hurt themselves and then sued

in the lower courts they said there should have been a notice warning of the shallow water because you could reasonably anticipate this problem

and then it went up to the high whatever whoever it was the lawlords at the time and they said if you took if you took this ruling to its uh uh you know natural consequences you would have no lakes you know you would have no swimming you would have no swings you'd have no playgrounds because everything would have to be ge around with warnings about every possible anticipated negative consequence that could arise from this part of the environment

and so what what happens is that uh you've created a kind of idea I suppose where the legal solution has become the default

uh when it should in fact be the last resort.

What happened to common sense?

Well, this is this is the argument being that that your fellow countrymen, what's his name?

Um Rston Saul, John Rston Saul.

Have you come across him?

No.

You Canadians totally underrate yourselves.

You know, you produce wonderful people and you're always trying to import people like me from the UK or people from the US.

John Rolston saw wrote this book which I think is called Voltater's Bastards

and he argues that human brains have evolved with a variety of mental capabilities only one of which is the capacity for reason.

There's also the capacity for imagination, creativity, common sense, you know, etc.

We have a whole variety of different mental mechanisms at our disposal gifted to us by, you know, a few million years of evolution as a social species.

And yet we've made rationality the gold standard.

This is what's weird about working in advertising, by the way.

And I think it's probably similar to theoretical physics and it's probably similar to entrepreneurialism.

Okay.

which is what's unusual about those fields is that rationality is the bronze standard

in advertising.

If someone says, you know, uh this is the problem and you come up with a completely rational solution, um people don't go, right, that's perfect.

let's go and do it

as they would do in a finance setting or a compliance setting.

Okay?

In most of decision- making in institutions, rationality, i.e. quality of argumentation is the gold standard.

In advertising, if you came up with a rational ad, people go, "Yeah, it's all right, but can you do a bit better?"

You know, is there an ad that says the same thing, but in a more emotionally engaging way?

Is there an ad that says the same thing in a way that's funny?

Is there an ad that says this in a way people will remember or will act on?

So what is funny about being an advertising creative and you know I spent 20 years of my life either in or managing those departments is you know the rational solution is where you start

you use it as a springboard to something better.

There's a famous quote, you know, fascinatingly from Neil Spore who said, "You're not thinking, you are merely being logical."

Isn't it?

I think you'll know that

he was an interesting guy, wasn't he?

In terms of his because he also was the person who said the opposite of a good idea, you know, in boring physics, the opposite of a good idea is wrong, but in high level physics, the opposite of a good idea might be another good idea.

Mhm.

Yeah.

What can we learn from marketing from the madmen era that's still true today?

Uh

I think there was an understanding then and the remuneration of agencies respected this because you were paid on commission.

So if you had a big idea and you came up with a campaign and the client spent millions running the campaign, you made money from that campaign for years after you'd conceived it.

So it was rather like having royalties on a book.

Oh, okay.

We didn't realize that at the time.

Then media independence came along and so we had to be paid by the hour like lawyers and management consultants and we've never recovered because it's a catastrophic way to be paid.

And the reason it's a catastrophic way to be paid my argument is that marketing is actually fat tailed

so is innovation

R&D pharmaceutical research science okay

in other words 5 to 10% of what you do delivers perhaps 110% of the value and therefore paying people by the power and demanding that every quantum of effort has to be matched to a quantum of value creation in some neat proportion.

This is so the way market never mind advertising that okay right let's look at the whole of marketing as a discipline within an organization of which advertising is not a not necessarily very important part

you know for a lot of organizations it may be you know relatively trivial what they actually spend on bought communication

on the other hand uh you know how you design your reception or you know whatever you know that's still affected the application of psychology to value creation

let's say you have a brilliant idea

and the value of that idea last goes on for 10 years.

And I've seen this happen all the time.

The agency, let's say an agency had the idea.

It may well have been the client who had that idea.

They are held responsible for every single unit of cost they incur

year by year by year by year.

You cannot offset any of those costs against the value you created in 2023 by having a huge idea.

Let me give you an example.

There's an enormous idea for a very large enormous American, let's say, fastmoving consumer goods company.

There's an idea conceived by Oglev Australia.

It has made that company in excess of a billion dollars in the last 10 years.

It's still running.

It runs in something like a hundred markets.

Still useful today.

For that idea, the agency in Australia got paid $350,000 Australian dollars.

Or rather, that's what they made from it.

So in other words, you have a billion dollar idea, you get to buy a small flat in a crap part of Sydney.

Now what I'm saying is that this is not me bleing about the advertising industry.

It's saying that anything like R&D or marketing which is fat tailed, in other words, a small percentage of what you do, it's Jeff Bezos's point about in business, you know, in baseball you can only score four, in business you can score a thousand.

In marketing

when you score a thousand which and the purpose half the purpose of marketing is not operational gradual incremental improvement it's finding another way to hit the ball out of the park and score 100.

If you cannot claim the credit for that except to the extent that it delivers value in the quarter in which you had the idea or the financial year in which you had the idea you are underfunding your marketing effort.

So, it's like saying to imagine if you went to JK Rowling and said, "Yep, you can have the royalties on the Harry Potter books, but only on the first edition."

And consequently, long-term marketing ideas when you're paid by the hour or when you're evaluated by the quarter as marketers would be.

Now, you wouldn't go into a pharmaceutical research company and said, "You invent a blockbuster drug this week."

No.

Or you're all fired.

You accept the fact that you spend a load of money effectively.

Okay, this is the brutal truth.

Okay, you don't you don't find entrepreneurs in chess clubs.

You find entrepreneurs in casinos.

They're playing poker.

They're playing bat gam.

You know, they're playing games of chance with an occasional very high payoff.

And a lot of life is exactly like that, but you don't know where the huge payoff's going to come in advance.

The people who are running these organizations for the benefit of financial predictability are trying to make it chess.

They're trying to turn it into a reductionist game where the most you can score is one for a win.

They're trying to put a ceiling on.

They're trying effectively to to to pretend it's a high variance mechanis low sorry a low variance mechanistic predictable process.

50 50% of your effort in life once you've ensured the fact that you're not going to starve to death, die, etc. You know, you've looked after your children should be attempts to get lucky.

In other words, what Nim would say, I love this phrase, uh, increasing your surface area exposure to posit to positive upside optionality.

You know, finding opportunity.

But hold on for one sec.

I want to think about this out loud here.

And maybe I'm wrong.

With a book, it's great.

I write a book once, I can sell it for the next hundred years, assuming I've earned it on my road.

Yeah.

If you have a great marketing idea which continues to add value for the next 15 years, the difference some of that credit should be offset against your current marketing costs.

Fair.

The difference is marketing also can go the other way and and like Jaguar perhaps or Cracker Barrel, I don't know if you followed the So you can create negative value.

So you can create negative value.

It's not like the baseline is zero and there's only upside and the upside is like one to 1 million.

You can actually destroy a company through marketing.

The case is okay.

And advertising.

Uh some of those I'm going to defend the companies.

Oh, please do.

Yeah.

Yeah.

Because in the case of Bud Light,

are you defending Bud Light?

I want to hear this.

Yeah.

No, no, no.

They could not have necessarily anticipated that because it was confected outrage.

Look, I'm politically on the right.

Okay.

I get just as angry from confected outrage on the on the right, which is, "Oh, they've gone woke

when, you know, you're merely showing, you know, a mix of ethnic groups you're advertising or something.

This is bull, right?"

And and the right do it and the left do it.

Uh there's confected outrage on the left, I would argue, about um American Eagle, and it's confected outrage on the right.

It's done for signaling purposes by a very narrow group of people.

Do those cases actually damage the business?

I don't know the figures.

Gillette did.

There was an extremely Now, this wasn't confected outrage because Gillette ran an advertisement.

They realized they had to move on perhaps from the best a man can get despite the fact obviously that their customer base is overwhelmingly male for fairly obvious reasons.

And they produced an ad which I would argue and even my wife would argue was needlessly um insulting towards men in that it conflated the me too movement with barbecuing.

Okay.

In other words, it seemed to take a definition of toxic masculinity which went which went the whole spectrum from things which all rightinking men would quite rightly condemn to things which for example two boys having a you know a small scrap on a patch of grass which all primates play fight.

It's not, you know, don't get me wrong, sorry.

If, you know, there's a kid wailing on another kid with a plank of wood, uh, you know, I'll be quick to condemn it, but I'm not totally, you know, the odd play fighting thing, barbecuing, I don't think is particularly objectionable.

And that was a case where it was almost a kind of act of deliberate affronttery to your core target audience.

The Bud Light thing, to put it in context, was a influencer marketing campaign of which most people in the company were probably unaware where they sent personalized caners of Bud Light to a variety of different uh influencers, one of whom was Dylan Mulvaney.

Um, now I've got to confess about this as a Brit, you're Canadian.

Mhm.

The gender thing isn't quite the flash point in