This week, David Gardner cleanses his podcasting palate from last week's Rule Breaker Investing show about his worst losers by bringing us some of his favorite quotes.
In this segment, he offers up an incisive idea from noted economist and Harvard Business Review editor Theodore Levitt. The subject gets to the heart of how we create new things, how businesses can succeed or fail, and how to translate the potential energy of a plan into the kinetic energy actions that work.
A full transcript follows the video.
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This video was recorded on Jan. 17, 2018.
David Gardner: Great Quote No. 3: This one comes from the American economist and Harvard Business School professor -- also editor of the Harvard Business Review -- who died about a decade ago at the age of 81. Theodore Levitt. Born in Germany in March of 1925. Died in Belmont, Massachusetts, in 2006.
You might have heard this one before, especially if you're in marketing, and I quote: "People don't want to buy a quarter-inch drill; they want a quarter-inch hole." Love it. Love it! Love it! And the reason I'm threading it, here, as No. 3 is because it speaks back to the previous quote.
Harry Truman sets us up with what I'm going to call "potential energy," and Theodore Levitt is giving us some "kinetic energy." Now, I need to explain my terms a little bit with a brief story.
One of my favorite teachers was Mr. Haslam in fifth grade at St. Albans School in Washington, D.C. Of all the teachers I had at that very traditional school, Mr. Haslam was the only one who had his own grading system. When you started chemistry or physics in fifth or seventh grade -- the elementary school version of those things -- the first thing you learned is that you're going to be graded not based on whether you got an A on the final exam, or a B on the midterm. You're going to be graded by accumulating points from the first day of the class.
And you're going to be trying to amass as many points as possible. Mr. Haslam all had us working toward amassing points. Maybe a quiz would be worth 100 points and maybe a test would be worth 500, and maybe you wouldn't have done so well on the test. Maybe you only got, let's say, 370 of the 500 points. You got the equivalent of a 74 out of 100. Well, Mr. Haslam would smile at you and say, "Well, that's disappointing. I bet you wanted more from that. I bet you thought you could have done better. And you know what," Mr. Haslam went on to say, "you can prove to me that you can do better by putting in some extra effort on this side project where I will award you X number of points."
Mr. Haslam had his own system, and I liked it at the time, but in retrospect, now I kind of love it, because I recognize he was doing his own thing, and he was being constructive and productive, and it made science a lot more fun. In fact, sometimes his classes got a little too fun. One of the things I noticed at the end of the fall term, just before winter break, is that a portion of the final exam was multiple choice, as many are; but, in the case of this multiple choice, I noticed that the letters were shifting. Question No. 1 might give you five choices -- A, B, C, D, and E. But question No. 2 would all of a sudden be L, M, N, O, P; and question No. 3 might be D, E, F, G, H.
After about eight or nine of those, I started to realize that they're spelling something, and I believe, if memory serves me right, it spelled out something like, "Have a very merry Christmas and a great winter break." Something along those lines. And so, I quickly realized that I could speed through the multiple-choice portion of that final exam by just writing, "Have a very merry Christmas and a wonderful winter break."
So maybe Mr. Haslam was accused of having too much fun, but the reason I'm talking about him, beyond just my encouragement to all teachers to think about what feels most rewarding and productive for your students, is that I learned from Mr. Haslam the concepts of potential energy and kinetic energy.
Now, I never did go on to take physics in high school or college, so my only real exposure to physics was elementary school, and I'm happier for that, though I'm probably worse off for it, but stick with me, here. I think you probably already know the differences, but potential energy is a stone sitting up high on a mountain. As soon as we tip that stone and push it, and it starts to roll down the mountain, you're getting that potential energy translated into kinetic energy.
And that's what's happening with these two quotations, because Harry Truman has set us up to recognize who optimists are and how they think, but Theodore Levitt is giving us how to translate that potential energy into kinetic energy. Theodore Levitt says, "People don't want to buy a quarter-inch drill, they want a quarter-inch hole." Again, as investors and as businesspeople, I think we do better to be focused on solutions. Think past the product, think past the service, and ask, "Is this company I'm investing in, or is what I'm working on, a true solution, because solutions are what win in the marketplace."
And there are three quick traits that I can see in effective solutions in those quarter-inch holes out there. The first is that I see empathy, usually. I see the product design team. I see the purveyors of this product or service spending some time looking through the eyes of their potential customers and saying, "What do they really want?" It becomes, "What would I really want from this product or this experience?" Empathy.
The second trait is usability, because beyond just what you would want, is it actually usable? We continue to get phone calls from our members who sometimes seem lost within their product experience, or they've gotten lost somewhere on our website. They're not sure what they've bought. That's clearly a sign to us, as an organization, that we could do better at usability.
Good news! We started hiring usability experts. GUI interface designers to improve. Our sites have continued to improve. I think we still have a lot of room to go, but usability. Again, looking at the products or services of a company whose stock you're thinking of buying, or of your own organization is critical.
And then the third trait is just making sure that you're scoring your outcomes. Are the results of your empathy and your usability ultimately winning? Are the solutions being used and are you hearing back from people who are using them that you've improved their life?
Well, that's something for us here at The Motley Fool that's easier, maybe, than some other organizations, because if you're subscribed to Motley Fool Rule Breakers, or Stock Advisor, or any of our services, presumably you're looking at the numbers of your own stocks. You're seeing whether you picked good ones or bad ones. You're seeing, ultimately, whether you are doing better with us at The Motley Fool than you would have without us. I certainly hope you are, but making sure that we're scoring that and aware of that, and letting us know if we're helping you, closes the loop for us as an organization. And again, every organization should be doing that.
So, solutions are what win in the marketplace. Thank you, Theodore Levitt, for translating the potential energy of Truman's optimism into one way of thinking about making it kinetic.