ProfitXL: Selling A System (Part 5)

Show, Don’t Tell

Let’s say you are the marketer of an ecommerce brand. You have two options.

Option 1

  • Keep spending 85-90% of your marketing budget on new customer acquisition (with half of it being wasted on wrong acquisition and reacquisition and CAC rising 40-50% year-over-year)
  • Not fix the broken customer experience on your website/app arising out of poor catalog data and silo-ed interaction data resulting in sub-optimal relevance and omnichannel personalization
  • Not create differentiated and delightful experiences for your correctly identified 20% Best customers who account for 60% of revenue and 200% of profits
  • Continue to be over-reliant on web/app for conversion, accept attention recession on push channels, and miss out on new super-effective funnels
  • Live with less happy customers, hyper-competition, and lower or no profits

Option 2

  • Do the opposite of Option 1 choices, thus transforming broken customer moments into beautiful experiences, and creating the ultimate business moat by maximising industry profits (what I term as ProfitXL).

What do you choose?

The answer is of course obvious. The challenge is how to bring this to life? Because for ProfitXL to work, it is not just adopting a single point solution, but instead buying into a system which inverts the funnel by making the Best customers as the priority and ensuring that paid new customer acquisition is the last resort.

This is the conundrum I have been working on for the past few months. My natural approach is to show the power of the products we build, rather than present the problem first. For ProfitXL to succeed, I will have to make the problem visible and then talk about the system which leads to the solutions. In fact, more than talk, I realised I have to “show”.

As I was pondering about this, my mind went to the Broadway shows I have seen. No written description can do justice to the experience of being there in person and watching the live action take place on the stage. The constraints of space are blown away by the ingenuity of the show creators. For a couple of hours that a typical play lasts, the audience is transported into a different world of action, dialogue and music – happening right in front. “Hamilton” transported me back to the America of the late 1700s, while “Some Like It Hot” took me back in time a hundred years to the Prohibition Era.

The question that I started to think about: could I create a (virtual) Broadway-like show to persuade decision-makers about the power of the ProfitXL system, and thus create a “landing idea” before the product-centric “land-and-expand” approach kicks in? I decided to ask ChatGPT.

Thinks 889

Shane Parrish: “If someone admits they made a mistake, have the grace to let it go. Holding it over them ensures they won’t be quick to admit they were wrong in the future. Outcome over ego.”

Entrepreneur First: “We believe that building technology startups will become the ‘default’ career path for the world’s most ambitious people. I argue three things below. First, that digital technology is the most recent in a series of ‘technologies of ambition’ that have enabled ambitious people to maximise their impact over the last millennium or so. Second, that technology entrepreneurship is likely to become the dominant ‘technology of ambition’. Third, that new institutions will be needed to channel, focus and amplify this new ambition.”

Robert Caro: “Explore a single individual deeply enough and truths about all individuals emerge.” Dwarkesh Patel: “Robert Caro’s The Years of Lyndon Johnson are not only the best biographies I have ever read – and not only the best histories I have ever read. They’re perhaps the best books I’ve ever read.”

Sapient Capital: “As you become more fitted into your niche, your area of expertise, it discloses more information back to you. An elite martial artist squaring off in a bar fight will instantly notice the balance of his opponent, striking distance and potential weapons nearby. This gives him more options for action. He literally inhabits a richer world, and this makes him more powerful than an average person. He quite literally “sees through the matrix.” When it comes to understanding the connection between “openness” and wisdom, the expert is more open to the world, and the world is more open to him. So when Charlie Munger “reasons by analogy” he’s reaching back into his case studies to find a relevant comparison to the current situation. By extracting and recombining multiple pertinent details (what Cedric calls “fragments”), he might literally be seeing a pattern nobody else can see, which is why he can invest in a totally differentiated way. Like the cardiac nurse, he’s observing the entire whole, rather than applying a single concept to the situation. The apex of wisdom is a sage. His disciplined usage of his attention has helped him become flexible, because he can literally see more and act decisively with less effort. But his domain isn’t limited to stock markets, a tennis court or a chessboard. He sees the whole world that way, and he is more powerful within it. It’s why sages are associated with miracles of congruence like snapping one’s fingers to make a thunderstorm appear. They have harmonized with deep reality and act from within it, rather than the modern man who too often tries to rigidly impose his rules from without.”

ProfitXL: Selling A System (Part 4)

Selling the Problem

The first step towards selling a system is to sell the problem. In the ProfitXL case, the problem is that brand profits are being hurt by the twin problems of low revenue growth and high marketing spending on new customer acquisition. The challenge is that in most B2C/D2C businesses, profitability is not the responsibility of the marketer. The marketer’s focus is to grow revenues. This can be done in two ways: get more from existing customers (a hard problem) or to get new customers (an easy problem, thanks to the digital advertising platforms). No prizes for guessing what really happens in brands! This channelling of funds to auctions for customers has perhaps been the single biggest transfer of profits in history – from brands to Big Adtech. Marketers do not want to see their budgets slashed so they do not admit that half of the spending is actually being wasted – and unlike in traditional media, with digital it is possible to track this waste. CEOs and CFOs do not focus on the spending as much because of the belief that reducing spending will hurt topline growth which would be extremely harmful for their careers! So, we have the perfect happy cycle of spend-to-grow for everyone (except investors and shareholders). Low profits? Blame it on rising CAC (customer acquisition cost).

There was no escape route for brands and marketers – until now. A number of innovations can drive more revenues from existing customers along with a reduction in AdWaste. The problem is: who will bell the cat? Marketers will see this as much more grunt work as compared to calling an agency and giving them a budget for new acquisition. CFOs do not understand the world of marketing so they tend to stay away. CEOs worry about managing the Board and overall business growth. With investors hungry for growth, it is much easier to keep the spending train running rather than experiment with new ideas. The question then becomes: how to break this cycle? My hope is that the funding winter and the consumption slowdown will make businesses re-evaluate their spending priorities, thus creating an opening for new ideas.

ProfitXL is one such idea. It is centred around the belief that businesses can build a profits machine leading to a profipoly if they take good care of their existing customers. This means systematically weeding out everything that creates a broken customer experience. Each friction is a profit killer. ProfitXL is the system which eliminates all such pain points, thus converting the broken experiences into beautiful experiences. It is this idea that needs to be sold to CMOs, CFOs and CEOs; it is that ray of hope that it is indeed possible to build a profits machine which can fund continuous product innovation to create a moat and monopoly.

Thinks 888

Morgan Housel: “Venture capital is a tail-driven business. You’ve likely heard that. Make 100 investments, and almost all of your return will come from five of them; most of your return from one or two. Correlation Ventures crunched the numbers. Out of 21,000 venture financings from 2004 to 2014, 65% lost money. Two and a half percent of investments made 10x-20x. One percent made more than 20x return. Half a percent – about 100 companies – earned 50x or more. That’s where the majority of the industry’s returns come from. It skews even more as you drill down. There’s been $482 billion of VC funding in the last ten years. The combined value of the ten largest venture-backed companies is $213 billion. So ten venture-backed companies are valued at half the industry’s deployed capital…A takeaway from that is that no matter what you’re doing, you should be comfortable with a lot of stuff not working. It’s normal. This is true for companies, which need to learn how to fail well. It’s true for investors, who need to understand both the normal tail mechanics of diversification and the importance of time horizon, since long-term returns accrue in bunches. And it’s important to realize that jobs and even entire careers might take a few attempts before you find a winning groove That’s how these things work.”

Marc Levinson in 2020: “The [cargo-shipping] container era began in April 1956, when the Ideal-X, a converted tanker left over from the war, carried fifty-eight aluminum containers on its deck from Newark, New Jersey, to Houston, Texas. No one imagined this concept would turn the world economy upside down. It was conceived with an entirely different purpose in mind: to shave a few dollars off the cost of moving trucks between North Carolina and New York.” [via CafeHayek] Donald Boudreaux: “It cannot be said too often: Entrepreneurial innovation is inseparable from capitalism. It is indispensable not only for economic growth but even for the maintenance (if such were our goal) of our current standard of living. (When objective facts on the ground change, innovation is necessary to deal with these changes. If, say, a source of raw materials dries up, innovation is necessary to find new sources or sufficient quantities of acceptable substitutes.) Yet industrial policy necessarily is hostile to innovation because innovation necessarily is not part of the industrial-policy plan. The fact that industrial policyists continue to ignore this reality should embarrass them. Alas, it seems not to do so.”

Julia Angwin: “Nearly all of the tech platforms developed extensive and detailed rules banning hate speech after finding that the first thing that happens on a new social network is that users start tossing slurs at one another…But fear is weaponized even more than hate by leaders who seek to spark violence. Hate is often part of the equation, of course, but fear is almost always the key ingredient when people feel they must lash out to defend themselves.”

WSJ: “Many countries are competing to be the “plus one,” with Vietnam, Mexico, Thailand and Malaysia in particular contention. India must still overcome entrenched problems that have kept it a bit player in global supply chains. Its labor force remains mostly poor and unskilled, infrastructure is underdeveloped and the business climate, including regulations, can be burdensome. Manufacturing remains small relative to the size of India’s economy. Nonetheless, after decades of disappointment, it is making progress. Its manufactured exports were barely a tenth of China’s in 2021, but they exceeded all other emerging markets except Mexico’s and Vietnam’s, according to World Bank data. The biggest gains have been in electronics, where exports have tripled since 2018 to $23 billion in the year through March. India has gone from making 9% of the world’s smartphone handsets in 2016 to a projected 19% this year, according to Counterpoint Technology Market Research. Foreign direct investment into India averaged $42 billion annually from 2020 to 2022, a doubling in under a decade, according to central bank figures.”

ProfitXL: Selling A System (Part 3)

Switch Pitch

Many years ago, I attended a course on how to improve personal productivity and plan better. It was offered by the company selling the FranklinPlanner. For those who have never seen or used it, it looks like this:

Here is Wikipedia on the FranklinPlanner: “The Franklin Planner is a paper-based time management system created by Hyrum W. Smith first sold in 1984 by Franklin International Institute, Inc. The planner itself is the paper component of the time management system developed by Smith. The planner pages are drilled, loose-leaf style pages in different sizes and formats. Formats have been updated through the years, but most planners contain areas for an appointment schedule, prioritized daily tasks, and notes. A key section at the rear of the planner contains addresses. Other inserts include ledger sheets for tracking finances or vehicle mileage, exercise logs, and other individualized reference materials. Smith named his planning system after Benjamin Franklin (1706–1790) who kept a small private book.”

The day-long course was about creating a personal productivity and time management system: how to prioritise tasks and make sure things get done daily. The course did not mandate the use of the planner, but the pitch was obvious: Productivity and Planning = FranklinPlanner. I bought into the philosophy and adopted the FranklinPlanner. (I used it for many years, before moving to the simplicity and infinite space offered by my spiral notebooks.)

I mention the story about the FranklinPlanner because the ProfitXL challenge is similar: I need to get marketers to buy into the philosophy (existing customers matter more than new customers) first. Only then can I pitch the ProfitXL system. To buy into the philosophy, I have to persuade them about the problem: the low/no profit of the business is because of overspending on new customer acquisition, much of which is wasted.

The key takeaway: I have to sell the idea before I sell the product. I have to persuade marketers that they have to shift their mindset from trying to optimise their adtech (new customer acquisition) spending and instead focus on martech (retention and development of existing customers). By focusing on selling the solutions, the competition is with every other company offering some variation of customer engagement, retention and personalisation. But if the frame of reference can be changed to solving the problem of low or no profits, there is an opportunity to stand apart from the competitors. In other words, to achieve the goals for Netcore’s products, I need to sell a system that offers a completely new way of solving the problem. The FranklinPlanner course did just that – it first put into focus the problem of low productivity and wasted time, and then offered a solution.  I would thus need to position ProfitXL as a system for marketing (and business) success, a path to building an enduring, great brand – none of which can be done without sustainable profitability.

Thinks 887

Vint Cerf: “I think we’re still in a very peculiar period of time, where we’re trying to characterize what these things can and can’t do, and how they go off the rails, and how do you take advantage of them to do useful work? How do we get them to distinguish fact from fiction? All of that is in my view open territory, but then that’s always an exciting place to be — a place where nobody’s ever been before. The thrill of discovery and the risk of hazard create a fairly exciting mix — an exhilarating mix.”

Token Dispatch: “Dynamic NFTs function by storing data in a format that can be edited. While static NFTs are usually created using the ERC-721 token standard, dynamic NFTs use the ERC-1155 standard. That type of token standard is sometimes referred to as “semi-fungible” because it can be changed if required. Changes to a dynamic NFT can be triggered by a smart contract. Typically, an oracle will send external data to the smart contract, which triggers a change in the NFT’s metadata. The characteristics of that NFT, like its appearance, will then be updated…Dynamic NFTs are the gateway to a world where your digital possessions come to life.”

Rob Toth: “When it came time to choose a career, I didn’t start a business of my own—instead I got a job at this newspaper, and have worked here for three decades as an editor. Even as other friends founded their own companies, and some became impressive successes, I’ve followed other bosses and gotten my checks from a payroll department. Now I’m starting to wonder why. Don’t misunderstand: I love my job, and I’ve been fortunate to have had the opportunity to do it for so long. And there is nothing wrong with sticking with a good thing. My father and mother stayed with their employers for decades, doing demanding work so the family could have everything it needed. But lately I’ve been thinking about why I never did launch a business of my own—and if I should have. Was it fear? Was it common sense? And most of all: Was it a mistake? Would I have been happier had I built something from nothing and answered just to myself?”

WSJ: “‘Robber barons’ of the 19th and 21st centuries enrich, not exploit, the poor and middle class…As American capitalism blossomed, some got rich. In 1892 there were 4,050 millionaires, with less than 20% having inherited their wealth. The rest created it and in the process reduced poverty, expanded general societal prosperity, and made it possible for millions of immigrants looking for opportunity and freedom to find both. That mattered little to progressives, who were so obsessed by the 4,050 millionaires that they turned a blind eye to the 66 million Americans whose economic well-being improved faster than any people who had ever lived on earth…At its root, progressivism is based on a myth and fueled by envy—the same caustic force that has destroyed prosperity and endangered freedom from the time of the ancient Greeks.”

ProfitXL: Selling A System (Part 2)

Goals and Systems

When I started thinking about ProfitXL as a system, I was reminded of the difference between goals and systems, as outlined in Scott Adams’ book “How to Fail at Almost Everything and Still Win Big.” He writes: “A goal is a specific objective that you either achieve or don’t sometime in the future. A system is something you do on a regular basis that increases your odds of happiness in the long run. If you do something every day, it’s a system. If you’re waiting to achieve it someday in the future, it’s a goal… Goals are for losers and systems are for winners. People who seem to have good luck are often the people who have a system that allows luck to find them.”

James Clear adds: “The purpose of setting goals is to win the game. The purpose of building systems is to continue playing the game. True long-term thinking is goal-less thinking. It’s not about any single accomplishment. It is about the cycle of endless refinement and continuous improvement. Ultimately, it is your commitment to the process that will determine your progress. Goals can provide direction and even push you forward in the short-term, but eventually a well-designed system will always win. Having a system is what matters. Committing to the process is what makes the difference.”

Kurtis Pykes writes: “Systems eliminate the guesswork about what you must do to achieve what you want. Goals without systems create chaos in your life… Unlike goals, systems emphasize process…Systems treat the cause of a problem, and the symptoms (outcomes) change as a by-product… The secret to building an effective system is incorporating small, consistent wins into your life.”

Darius Foroux writes: “Goal = Event in the future. System = Recurring process… Instead of focusing on the destination, focus on the process.”

Chat GPT: “A goal is an outcome or a desired state that someone wants to achieve. It is typically a specific, measurable, achievable, relevant, and time-bound (SMART) objective that a person or an organization sets for themselves. For instance, a company may set a goal to increase their sales revenue by 20% in the next quarter. On the other hand, a system refers to a set of interconnected components that work together to achieve a specific purpose or function. It is a collection of processes, tools, and resources that are designed to work together to achieve a goal or a set of goals. For example, an organization may have a system in place for managing their customer relationships, which includes a database of customer information, a customer service team, and a set of protocols for handling customer inquiries and complaints. In summary, a goal is the desired outcome or objective, while a system is the collection of resources and processes that are designed to achieve that goal. Goals and systems are often interrelated, as a well-designed system can help to facilitate the achievement of a goal, while a clearly defined goal can provide the focus and direction needed to design an effective system.”

Thinks 886

Christopher Penn on open-source AI models: “Fine-tuning a model isn’t nearly as costly as building the model in the first place. If entrepreneurs and engineers wanted a custom model for a specific task, it’s far easier to fine tune an existing model, as long as the source model is high enough quality. And that’s what LLaMa is – a very high quality starting point for a lot of innovation that Facebook released to the world. Think of LLaMa like this: let’s pretend that generative AI is like pizza. Up until now, you had to order pizza delivery from OpenAI, right? Through ChatGPT and their APIs, they were the only game in town. You might have thought about making your own pizza from scratch, but for a variety of reasons – time, money, talent – you just didn’t. Along comes Facebook and LLaMa, which is like one of those pre-baked pizza kits. Now all you have to do is customize the very nice pre-made pizza with the toppings you want, but you don’t have to go through all the work of making the pizza from scratch.”

Shane Parrish: “When we know a lot about a topic, it can be difficult to write about it in a way that makes sense to the layperson. To improve writing, Cognitive psychologist Steven Pinker suggests several strategies: 1) Use concrete nouns and refer to tangible things instead of abstractions. 2) Assume that readers know less about the topic than you do, but are still intelligent and sophisticated. 3) Have someone from the intended audience read your work and provide feedback. 4) Allow time between writing and editing, so you can approach your own work with fresh eyes.”

RMI: “The energy transition is a technology revolution. At the heart of the energy transition lies the fact that renewable technologies are far superior to fossil fuels. The energy transition is a shift from a concentrated, expensive, polluting commodity-based system with no learning curve, to an efficient, manufactured, technology-driven system that offers continuously falling costs and is available everywhere. It is moving from heavy, fiery molecules to light, obedient electrons; from hunting fossil fuels to farming the sun. Like past technology shifts, it is a transformation, not merely a substitution. As RethinkX notes, this is not a brown caterpillar to a green caterpillar, but rather a caterpillar to a butterfly, which means different economics, geographies, winners, and energy carriers. Just like past technology shifts, the falling costs of the new render the old obsolete…When it comes to the renewables revolution, linear is the default perception, but exponential is the default reality. The growth of the key new energy technologies is exponential.”

Emergence Capital: “Founders building in generative AI today can take many paths, but I see two ways forward to build a lasting, defensible business. First understand your and your team’s core strength, then, choose one of these options: 1. Major in generative AI’s emerging technical capabilities and hunt for a function or vertical problem that benefits from your insights. Or… 2. Major in deep domain expertise and market relationships, and form a team to add in the technical knowledge. Given the broad accessibility of AI capabilities, both of these strategies can lead to large opportunities for startups…In the age of generative AI, one lesson remains true: the tighter your context and industry, the wiser your model and product.”

ProfitXL: Selling A System (Part 1)


I wrote previously about ProfitXL: Supersize Profits with the SHUVAM Framework: “ProfitXL is built around five themes: the need for one-way push channels to become two-way conversational pathways thus bridging the chasm between acquisition and conversion, the transition from point solutions on the brand’s properties (website and app) to a unified martech stack, the identification of Best customers and creating differentiated experiences for them, getting  close to zero CAC (customer acquisition cost) for new customers, and measuring growth based not on paid marketing spends but on repeat purchases from existing customers and revenues from referrals. This is ProfitXL’s SHUVAM framework: Story, Hotlines, Unistack, Velvet Rope Marketing (VRM), Acquisition (done right), and a new set of Metrics to measure progress.  SHUVAM is the path for exponential forever profitable growth. If followed rigorously, it can help a brand create the ultimate endgame and moat in a business – a profits monopoly (“profipoly”). The ProfitXL mindset and SHUVAM strategy will help marketers increase revenues, reduce spends and improve shopper experiences.”

Since then, I have been thinking about how to get wider adoption for the idea. While ProfitXL will help Netcore sell its products, there is a bigger agenda: to lead an industry-wide movement away from wasteful overspending on new customers (“AdWaste”) and shift focus to building deeper and profitable relationships with existing customers. There is thus an opportunity to position ProfitXL as a system, defined as “a set of ideas or rules for organizing something; a particular way of doing something.” Many of the actionables listed in ProfitXL’s SHUVAM framework are not being implemented by marketers for their brands. This is what needs to change – not just at the level of a single brand, but as an industry. Eliminating the “profit killers” in marketing is about instilling good habits in the marketing strategy which can lead not just to profitable growth, but also make it enduring, and eventually help the brand to creating a profipoly.

This essay is about the idea of how to sell ProfitXL as a system for marketers to adopt and make part of their day-to-day operations. ProfitXL is more than a single point solution or even a stack (multiple interconnected solutions); it is a bigger idea that the marketing industry has forgotten – how to ensure existing customers come back for more and bring their friends. ProfitXL is about creating a disciplined process which can deliver 25% year-on-year growth for long periods of time and at the same time cut marketing spending by 50%, leading to a dramatic improvement in profitability as the table below shows.

This is just in the first year. Imagine the power of growing revenue and profits growth over multiple years. ProfitXL is the system which can help any consumer-facing brand build a compounding machine, the secret of an enduring, great company. My challenge: how do I persuade marketers to adopt the ProfitXL system?

Thinks 885

Warren Buffett: “What gives you opportunities is other people doing dumb things. In the 58 years we’ve been running Berkshire, I’d say there has been a great increase in the number of people doing dumb things.” More: “You should write your obituary and then try to figure out how to live up to it.”

Technology Review: “A growing group of experts and educators are trying to figure out what the relationship should be between digital technology and reading instruction. Both reading and digital tech are world-expanding human inventions, and laptops and smartphones have arguably given humans unending opportunities to read more; you can access pretty much anything in print within a few seconds. In terms of “raw words,” the cognitive scientist Daniel T. Willingham has said, kids read more now than they did a decade ago. But many reading experts suspect that the technology may also be changing how they read—that reading on a screen is fundamentally different from reading on the page.”

WSJ: “The tools of our lives, from car dashboard screens to buzzing phones, fracture our attention while promising that we can do it all, all the time. Except we can’t. “You can’t multitask,” says Earl K. Miller, a neuroscience professor at the Massachusetts Institute of Technology’s Picower Institute for Learning and Memory. Our brains are wired to do just one cognitively demanding thing at a time, he says. We tell ourselves we’re multitasking, when what we’re actually doing is task-switching, rapidly shifting from one thing to the next.  As we toggle, our minds stumble as we try to recall where we were and what we were doing, he says. Juggling tasks makes us less creative and more prone to errors; the quality of our work suffers…Our brains aren’t wired to juggle tasks.”

WaPo profiles Dean Koontz: “Author of more than 110 books…he’s sold more than 500 million books, writes two novels every year, lives like a prince and keeps his manuscripts in the fridge in case of fire.” More: “Koontz is billed as the “international best-selling master of suspense,” though he eschews labels and writes in multiple genres — supernatural, science fiction, young adult, manga, dog. Frequently, his books fuse several and are dusted with humor. “You can’t tie him down,” his friend and fellow best-selling author Jonathan Kellerman says. “He just works all the time. He has a lot of anxiety but manages to channel it into fiction.” Ten hours a day, six days a week — more nearing the end of each book, “when momentum carries me like a leaf on a flood.” He revises constantly, an average of 20 times before he proceeds to the next page. “When the writing is working, nothing stops me,” he says.”