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Google Zeitgeist October 15, 2012
The World We Design
>>Lorraine Twohill: Last session of today. This is very uplifting session to bring us
home for the day. Before we start, I wanted to quickly mention Jeremy's Icebreaker is
giving everybody a gorgeous Icebreaker T-shirt. You will find a card in your room you need
to bring to the concierge's desk to get your T-shirt. They are very, very cool. Thank you
Jeremy. This final session is called The World We
Design. We have a phenomenal moderator who is going to join us on stage, I want to introduce
Andrew Ross Sorkin, who is a financial columnist with the New York Times. We are thrilled to
have you here, Andrew. Andrew is also the co-anchor Squawk Box on CNBC and has written
a very famous book, Too Big to Fail. So Andrew, please come on stage. Thank you.
[ Applause ] >>Andrew Ross Sorkin: Thank you very much.
We've had a great couple of sessions this morning. And we're going to be talking to
a number of very special and amazing people this afternoon, who are going to be telling
stories and hoping to inspire us about new business models, habits, social and sustainable
mission and new ways to think about stories through photographs and motion pictures. But
before we do that, what I wanted to do, if I could, was to take a moment to speak briefly
about a theme that I imagine we're going to be hearing about a little bit this afternoon
from our presenters, especially those who are starting and creating and running emerging
businesses and emerging enterprises. It has to do a lot with their success and
the success as a result of what I'm going to describe as long-term thinking and patience.
And the reason I wanted to bring up this idea of long-term patience in terms of thinking
-- I was about to say iPhone, I shouldn't. I should say their Nexus device or their Samsung
device or whatever they have, Android device, and we live in this very, very instant world.
We want instant gratification, we want response time, we want to tweet, we want to FaceBook,
we want to do whatever. But when it comes to business, and when you
think about your own enterprises and the decision making that goes into it, one of my greatest
worries these days is that when you think about markets and specifically capital formation,
there's become a remarkable sense of short-termism that has creeped into every facet of business
thinking. I want to give you some stats just to hopefully make everybody think here for
a second. Consider these numbers. The average stock today in the public markets is held
for -- can you guess? 22 seconds. [ Laughter ]
>>Andrew Ross Sorkin: Okay. Now, 70% of the stocks that trade in the market on any given
day, the volume you see on CNBC at the end of the day is being moved by computers, high
frequency trading. The other 30% of stocks, out there in the world, the average hold time
is seven months. That's the number. So take out high frequency trading, seven months is
the long-term holds. Of the world's actively managed mutual funds
in this country, nearly 100% of the portfolios are turned over every single 12 months. Okay?
A survey of more than 400 corporate managers recently found that almost four out of every
five respondents indicated that they would decrease discretionary spending on areas such
as research and development, advertising, maintenance, and hiring in order to meet short-term
earnings targets. And more than half the respondents said they would delay new projects, even if
it meant sacrificing value creation. They say that -- they actually responded and
said that the object for doing so was to smooth out earnings or to actually hit the quarterly
target. Now, I say all of this -- by way of background
in that we live in a time right now where we keep talking about shareholder democracy.
And we claim that we, all of us in this room and the country, wants more shareholder democracy.
We want a bigger seat at the table. We think that if we just had a seat at the table, we
would be the long-term thinkers. But I would argue to you that we are the problem.
That we have become the ultimate ADD nation. And in many ways, when you think about what's
happening in corporate America, we are getting exactly what we are paying for. Now I wrote
this book Too Big to Fail, to quote FDIC chairwoman Sheila Bair, she said the overarching lesson
of the financial crisis was the pervasive short-term thinking that helped bring it about.
And she's absolutely right and we absolutely have a problem.
I was with a CEO last week, you all know this CEO, a Fortune 50 company. She has made some
serious investments over the last couple of years that have not paid off, not yet. They
may or may not pay off in two years. I will bet you within the next two years she will
lose her job or the company will be broken up. That can't be the right answer. Now some
say we need to incentivize managers differently. We need to give them more skin in the game.
That's what we say. We want everybody to have skin in the game. And every time I think about
skin in the game, I therefore think about *** Fuld, the former CEO of Lehman Brothers.
This is a number worth remembering. *** Fuld had a billion dollars of stock in his company.
He had, quote, unquote, more skin in the game than just about anybody in the business. He
rode his billion dollars of stock all the way down to $56,000.
That's the number. When you really think about what we can do
to incentivize people and motivate people to make the right decisions, it is a very,
Finally, Google, FaceBook and others, have created governance systems to try to push
back on some of this pressure. But in all honesty, my worry is it's only going to really
help at the margins. Ultimately we are going to need a new level of trust and patience,
and that's something that's only going to come from everybody in this room, hopefully
not just today, but when you go back to wherever you came from, to talk about that patience
that's needed. We're going to be hearing from some tremendous people this afternoon. I want
to get some thought about some of these issues. Let me do this. Let me introduce to you two
women who are very special. They are my new friends this afternoon. And they are doing
very big things in the not-for-profit world of sustainable and social businesses in an
effort to create profitable businesses. If you would join me, please, Leila Janah, the
CEO and founder of Samasource Social Business -- please, please, it's a social business
that connects people -- [ Applause ]
>>Andrew Ross Sorkin: -- living in poverty to microwork. And basically what they do is
that you would not believe. Samasource I should say has partnered with many tech companies,
including Google, Microsoft and LinkedIn and she's going to talk a little bit more about
that in a moment. Then Linda Rottenberg is the CEO of Endeavor,
a not-for-profit that identifies and supports high impact entrepreneurs in emerging markets
>>Andrew Ross Sorkin: And this is a great fact, Endeavor has helped its entrepreneurs
generate more than 90,000 high-quality jobs. So I welcome both of them.
>>Linda Rottenberg: 200,000. >>Andrew Ross Sorkin: 200,000? Your bio is
wrong, it says 90,000. I apologize. What I'm hoping that you can do, just to start us off,
is just explain a little bit about what these institutions do. Because I'm not sure the
audience does. But answer this while you are doing it, if you could. In a world when we
enterprises grow, how do you think about that? How do you go to countries that have looked
at our version of capitalism here in the U.S. and say, you know what, we just watched what
happened here and this may not work the way we thought. I am going to start with you,
Linda. >>Linda Rottenberg: Well, your question, also
about patience, really gets to the heart of Endeavor's model. So in the mid 1990s, I was
living in Latin America, I had fled from Yale law school knowing only that I was never practicing
the law. I was struck by how many young people aspired to government jobs. I didn't understand
this. And how many taxi drivers had Ph.D.'s in engineering. So I kept asking why is no
no role models, no venture capitalists, no mentors, and then also they were seen as greedy
and corrupt. Why would you aspire to do that, anyway? I said no, no, no, I'm talking about
entrepreneurs, people who innovate, create jobs.
And I used the story about the computer. And people would say, "Nice story, but guys like
me, we don't even have a garage." So Endeavor was really set up to address this
>>Andrew Ross Sorkin: And your investment -- one of the things that's so interesting
will become an NPO and take that profit turn around and invest in other emerging businesses.
Endeavor Catalyst. It's actually acting as an endowment, so it's taking donor capital
and we talk about return on donated capital, RODC. And the idea is we are co-investing
to make Endeavor sustainable and to go to the next countries where they don't yet have
through what you do, because it's pretty crazy and pretty interesting.
from a tobacco company, from the Lorelei Tobacco Company. And I decided to use it and volunteer
in Africa. So I went to Ghana, in West Africa. I was assigned to a small school in a little
village. And I thought that I was going to go there and save the world. And yet my students
senators, which by the way some of my high school classmates couldn't tell me. And I
thought this was the great untold story of poverty and development. There is a mass of
studied development. I wasn't really thrilled with what I saw in the traditional aid model,
which is essentially that we view poor people as these passive recipients of handouts and
Sama means equal in Sanskrit. And we connect some of the world's poorest people, people
living on less than three dollars a day, to work via the Internet. This is a really interesting
five years, Internet connectivity and thanks to Moore's law, really cheap computing devices
taken advantage of this new infrastructure and this new connectivity to take people who
are living at the bottom, 4 billion on less than three dollars a day and connect them
like image tagging, like transcription, like captioning, captioning videos, and we send
Haiti. And today -- we started four years ago, we
before, have actually made this money doing real work for companies like eBay.
We've paid out 3,000 women and youth and we've also paid them over $2.5 million in real revenue
live in is that people are starting to realize that capitalism and charity don't have to
-- be this dichotomy that's existed for so long. People really want to embed the meaning
of their lives into their businesses. >>Andrew Ross Sorkin: So, for example, if
I am living I don't know where, you come to me and you say you're going to train me to
that. If we did that, probably no one would want to work with us.
partners. The work can be a little bit boring. But here's how we do. So we work with local
NGOs that operate in slums and villages that do things like training people in leadership
us and they send people to our local partners. We have a network of 16, some for profit,
computer centers, in developing countries. These people then, as an agreement with Samasource,
hire poor people to do the work in exchange for us sending them the contracts that they
>>Andrew Ross Sorkin: So here's the question. Google is a client, if you will, or a partner,
says social responsibility or social mission or something? Or do they work with you because
ultimately they're getting a good value for what you are actually doing?
would behave like consumers do. Consumers in many cases are willing to pay a premium
not. Businesses pay us to deliver good quality services, with competitive costs and competitive
found is that the social mission is really the icing on the cake. The good quality services
have to be there first and then all other things being equal, of course people would
>>Andrew Ross Sorkin: If you succeed, what happens when an entire village is tagging
photos and doing all sorts of things, realizes I can be an entrepreneur, and they get involved
know can I use you" or do I -- or do you consider that success?
>>Linda Rottenberg: But success is a good thing. Look in our case. We are seeing these
you would never -- Egypt after the revolution. In Greece now. These are places that you wouldn't
Greece. >>Linda Rottenberg: We just started in Greece.
>>Linda Rottenberg: I know. You call me crazy again. And I said when the economy looks down,
is a catalyst. Chaos is your friend. But what's interesting is we looked -- we went to Argentina,
Jordan, Turkey, Brazil, we said all right. We want to investigate all of these start-ups
We take companies, you know, one to $20 million in revenue.
who mentored you? Number three, who if anybody actually invested in you? Number four, did
5 years ago, there was no word, there was no company, there were no role models.
What happened is they started referring back to the companies. We started seeing patterns.
the venture capitalists. When you take them away, the ecosystem disappears. So what happens
paying it forward, it creates the next generation of a multiplier effect that happens very rapidly.
What you are doing at Samasource, we hope they will be the one that entrepreneurs would
>>Leila Janah: I have a great story. I just wanted to show you an actual worker if we
Jacquelyn (saying name). She's 25 years old, she's from rural Kenya. She's from a country
where the vast majority of people make less than two dollars a day. That's, by the way,
That's where they she lives. And yet 95% of people under 30 in Kenya can read and write
in English. She's one of them. So Jacquelyn came to us, then this next slide, shows you
what she's doing now. She came to us, she had never had formal work experience before.
fees. And she got this job at one of our computer centers in Nairobi about a year and a half
ago. She made enough money to pay her rent, her single mom's rent herself and put herself
work than doing basic formal employment. And then she left and actually the ideal scenario
is -- for us is for our workers to leave after six months or a year and earn higher paying
people forever. And so I hope that some day she becomes an entrepreneur and works with
stories also grew up in the favela, slums of Rio, and her mom was a maid and her father
was a janitor and she got a job at McDonald's. She said, "You know what? Why can't I do this
franchising thing, but for poor people? Why can't poor people feel beautiful."
her when she had two salons. You think oh, that's a nice story. They had actually concocted
We found them and there were like four hour and six hour waits at the salon, so we helped
them understand franchise and get mentors. And today Beleza Natural, it's a $75 million
business. They employ 1500 mainly women who grew up in the poor areas of Brazil, and she
that if you tell them it's amazing, young kids sitting in these places today think,
investing in these businesses now, you talked about not return on equity, you said return
>>Andrew Ross Sorkin: What's the threshold? Especially when you are doing it, I assume,
who want to make a profit. >>Linda Rottenberg: Yeah. Although we hopefully
and by entrepreneurs. We are neutral. We don't set the valuation. We actually did a notional
fund. We said okay, what would have happened if looking back over 15 years we had done
3x, 48% IRR. These are for an emerging market venture fund, that's great. The difference
is that when we hopefully become profitable, we can move on to the harder places. We can
come. We hope one day we are not needed in Brazil, but we need an organization that kind
of creates the ecosystem in neutral way. >>Andrew Ross Sorkin: Hardest country so far?
do Egypt, let's say Egypt. >>Andrew Ross Sorkin: I'm curious on your
goal ultimately to raise the skill level? Meaning is that something that you want to
do or is that a different business? >>Leila Janah: I think that would be a different
and write in English, who can do our work but just don't have access to it. And so many
companies have this work that's just sitting there that we could do.
And to Linda's earlier point, we look at a similar measure. We look at how many people
we are able to move over the poverty line and for much donor capital. What's so exciting
a very limited amount of your funds, we can actually move somebody over the poverty line
and all of the evidence suggests that they don't go back to it once they've had formal
vision for my organization, which is to become like the *** of social enterprise. I think
that Sama could eventually become an incubator for various other social businesses that all
>>Linda Rottenberg: One interesting point that gets to your point about how we do business
of the private sector, right? And we're aiming for profit, both with our businesses and ultimately
we want to be self-sustaining. And we're generating profits, just turning it back into ourselves.
I call psychic equity. I think that so many times when you think that you have all of
these financial equity to give, you don't take -- you don't take the care to think about
like they're making a contribution? I think these young people, these millennials, are
to actually make a difference. And I think that comes --
>>Linda Rottenberg: Yeah, I think they care about making an impact. I think companies
that tap into that, and actually make their profits but give people the sense of ownership
you have to. I do. >>Andrew Ross Sorkin: We're going to be talking
to some people after this, who have done something like that and have some interesting stories
talking before this session, you were saying that -- that you end up actually competing
in a space that some people call it crowdsourcing that's now filling up with new companies that
tasks. Amazon runs one called Mechanical Turk, we used to share office space with a firm
called CrowdFlower, which also does what we do. So we're in a competitive industry. Actually
thing that I could come to you for right now? >>Leila Janah: Writing content. Writing content
for your website. Maybe not the kind of content that you write, but --
[ Laughter ] >>Andrew Ross Sorkin: What kind of content
image or a video. We do -- we do a lot of really short form content, so answering questions
that, you know, communities online don't want to answer. Maybe fact checking for news stories.
intelligence work. So requiring literacy and a little human ingenuity.
in this generation? I think we're all part of the same generation, and I have to admit
We actually did a study and in fact, companies that are aiming for profits scale faster.
I'm not saying that companies should become Ben & Jerry's with that mission or talk with
they're going for social profits oftentimes have a hard time scaling. That's all I'm saying.
impact and that your business is making a difference in the world.
>>Leila Janah: I buy it and here's why. The Internet has dramatically broadened our circle
human dignity that we can afford to provide her.
are looking for meaning in their jobs and they don't want to relegate meaning to weekends
and after hours nonprofit work. They want meaning to be central to what they spend the
run what I call an investment banker reform program. We get a lot of consultants -- not
to insult any investment bankers in the room. We have a lot of people who used to work at
lots of money for the man and now I want to do something for mankind. And I see that as
a broad trend that is shaping my industry and many others.
patience? When we started out no one believed there
including my parents, didn't know what I had done, I had gone to law school and gone into
retirement, they thought. I said, you know, what we're doing is bottling
no support. That's what I'd say. And today I'm asked so many times on college
campuses to do the inverse. I say now that people in Jakarta and Rio and Istanbul may
there's no stability. I can't become an entrepreneur. IT's too scary out there. What will happen?
And I think if we bottle up this energy that half the Fortune 500 companies today were
you have to think in the longer term, you have to be more patient, and it's the best
time to start something up. Because the idea that we're creating this
>>Andrew Ross Sorkin: On that very promising note we're going to leave it there.
Thank you to both of you, Linda and Leila. This was tremendous. Thank you, thank you.
my honor to introduce not only a great writer, but a friend. Charles Duhigg -- and a colleague
by the way. Charles Duhigg is an author and colleague of mine at the New York Times Company.
Why -- the subtitle -- I'm trying to sell your book. They get it for free. Why we do
what we do in life and business, which explores the science of habit formation in our lives.
I should also note if you don't read what he's doing in the "New York Times," you should.
series examining Apple's manufacturing in China, many of you have seen it, the challenges
awesome. I wish you luck, Charles. >>Charles Duhigg: Thanks so much. Thank you
all for inviting me to join you this afternoon. I'm a reporter at the New York Times and the
author of this book the Power of Habit, which will hopefully come up in back of me at some
be because you read a piece in the "New York Times" magazine about how Target was studying
or you might have seen a piece in Sunday in the paper about how the Obama and the Romney
campaigns were studying voting habits in order to try and entice low propensity voters into
is I want to talk to you about a product that you might not have heard about, or maybe some
of you have, named Febreze. And I'm going to admit at the outset that
and convince you that we are living through this golden age of understanding the science
of habit formation. We're learning more and more about how habits work, and the same things
own lives to make the world a better place. So you can tell me at the end if I'm actually
successful at this. And in order to do this I first have to start
at MIT who is a neurologist, and for years she had been doing experiments to try and
get sensors into the craniums of rats so she could measure what was going on inside their
heads as they went about their daily business. As you can imagine it took a long time and
could get about 150 sensors into a rat's cranium. And she would do the same thing with every
single rat. After the surgery she would take them and put them in the world's simplest
maze. This maze works the same way every single time. There's a click, the partition moves
what you know is when you drop a rat in a maze like this it looks like the world's stupidest
animal. The rat will run up and down the center aisle and sniff and scratch. When it gets
to the end it will actually see the chocolate and then go the opposite direction.
that if you can teach a rat something you must be able to teach any animals anything.
So she would do this experiment, but for the first time she was able to see what was going
a rat is dropped in this maze. What you will notice is that its brain is
actually working hard the entire time. So when the rat would scratch on the walls, the
up. It's actually trying to process as much information as possible. This is what learning
and drops them in 100, 150 times. And as imagine, over time the rats learn how to navigate through
the maze faster and faster. Click, the partition moves, the rat will make a beeline to the
sees for the first thing what is going on inside the rat's cranium.
As the rat gets faster and faster, as the habit to find the chocolate becomes stronger
This graph at the bottom is a simplified neurological graph of the 150th iteration of a rat running
through a maze. And that dip you see right there is the same dip that you would see if
couple of years ago who did a study to try and figure out how much of your day was habits.
She followed a bunch of people around and found that 40 to 45% of the actions we take
And if I could somehow stick 150 sensors into your head which I would not recommend, then
to yourself or making automatic decisions, I would see your brain looking like this.
When there's the click we see a burst of neurological activity and then essentially the brain almost
goes to sleep. Then the rat finds the chocolate and it's if as the brain sort of wakes itself
This is the neurological signature of a habit. This is what we've discovered in the last
enshrined in psychology and neurology as what's known as the habit loop. We now know that
every habit has three components. There's a cue, which is like a trigger for an automatic
And the reward is how your brain, and in particular the part of your brain named the basal ganglia,
learns to remember this pattern for the future. For centuries when people thought and talked
it's actually the rewards and the cues that shape how habits work. That's how we influence
Just to give you an example let me tell you about an experiment that was done in Germany
where they took about 700 people and they wanted to get them to exercise. So they took
one group and told them to choose a cue, like go running at the same time everyday or always
out they should eat a small piece of chocolate, which of course is counterintuitive because
But what they found -- and the reason why they found this is that people who did this
exercised twice as much habitually as other people, and the reason why is because you
and that you hate exercise. And so in order to convince your basal ganglia that you should
actually form this habit, you have to pair the activity with a reward you generally enjoy
the neurotransmitters that are released by a physical activity are a pleasurable sensation
But as I mentioned, the reason I'm telling you about this is because I want to talk to
you about Febreze. Does anyone in here use Febreze? Is anyone a Febreze customer? So
but the initials are HPBCD, that was discovered about 11 years ago by Procter & Gamble.
This guy who was a smoker was working in the lab one day and he used this chemical and
What he figured out is this chemical, if you aerosolize it you can spray it on to fabric
or other things and it will draw out the molecules, the scent molecules, and as it evaporates
because for years consumers were saying they wanted some product that would not just mask
bad smells, but make them disappear. So this guy goes to his boss and says, "I think I
years later he comes up with Febreze, this product that they're going to sell.
The executives turn around and say we need to give this to one of our marketing teams
So they give it to this guy named Drake Stimson, a mathematician on Wall Street. He has a whole
bunch of psychologists, consumer psychologists working with him, and they come up what they
The cue is going to be if you have a bad smell in your life you will spray Febreze and it
So they make a couple of test ads because they wanted to test this out and they actually
showed them in three markets, including here in Scottsdale, this was one of the test markets.
>>> The stinky chair. >>> I have a stinky chair problem, too. His
of fabrics for good. It's called Febreze. It's new. And you won't believe how many places
you'll find to spray it. >>> Febreze will clean fabrics in a way you
fabrics and gently cleans them away as it dries.
>>> Check this out. >>> It's safe from dress blues to teddy bears.
>>> I wonder if they'll call it the sleepy chair now.
esthetic until you see it in that old commercial. So they did this ad and this ad actually won
awards before it even aired. This was considered a model for explaining a new technology to
They roll it out in the three test cities, they send people tons and tons of free product.
Actually, Drake Stimson told me that they were so certain they were going to knock this
to buy with their bonus, and he wrote down that he was going to buy a Ferarri and a Ferarri
for his girlfriend. It was the height of like "I'm going to be successful."
flop in Procter & Gamble's history, a company that's been around for over a century. They
had spent more money trying to get Febreze into a product than anything else and nobody
So Stimson goes in and says, Look, give us one more chance. We just want to figure out
what's going on here, And he gets this team and they come out here to Scottsdale and they
In particular the dime dropped for them when they interviewed this one woman who owned
your hand if you own cats. A couple of people. You know cats have a certain
scent about them, you know, you grow to appreciate. This woman owned a huge number of cats.
cats that when the researchers walked into her house one of them started gagging when
But what was weird is this woman is kind of a neat freak. Everything was fine except for
the smell of cats. So they sit down with her and they say, "we
She says, "Yeah, I used it a couple of times." And they say, "would you ever use it for the
cat scent?" And she says, "A couple of time I've used it for the cat scent."
right now for the cat scent?" And she kind of smiles and says, "you know,
I don't like to brag, but I have the best cats. They hardly ever smell." Which is of
you have bad smells in your life, you become desensitized to them.
smells don't know that they have bad smells, right?
We spent our entire seventh grade year being in fear of the fact that we smelled bad and
So as a result none of the marketing worked because the cue was something that people
in the first place. So they all go back to Cincinnati where Procter
& Gamble is based. They go to the lab. Now, Procter & Gamble has the largest library of
won't let me show any of the tapes. They started by watching videotapes of people
in a corner and she would start vacuuming backwards like this, and when she was done
she would go back to the beginning and she would line up the wheels so they were exactly
when she was done with the entire carpet, she just kind of looked at it and, like, smiled.
And then -- I'm going to show you my favorite photo of all time. Because there's nothing
I like more in the morning than having some special time with my daughter cleaning the
This is obviously a staged photo. But what they actually found when they were
they would spray the mirror with a spray and then wipe it like this. And then and then
look at their reflection and smile at themselves. But you're laughing because you've done this.
paid attention to before, is that cleaning had its own habits, cleaning had its own rituals.
They figured out to sell Febreze, they could piggyback on existing habits rather than trying
built around a habit loop. This time it's when you're cleaning, at the end of your cleaning
ritual, pull out the Febreze and spray it so that you can make things smell as good
So they went back into the laboratory and they spent another $3 million inventing a
perfume that was strong enough to withstand the chemicals of Febreze so they could pour
>>> (Bell chiming.) >>> Get your fix of freshness. Febreze. Anytime,
>>> Shouldn't I be the one on the couch, doctor? >>> No!
>>Charles Duhigg: Here's what I'd submit to you, if you came over from China and you saw
these ads and you had never met an American, you would think that we were a country that
designed to apiece that. Also mention one other thing. The second ad
shows that ad on the coasts, everyone knows what's going on. When they show it in the
middle of the country, it totally flops. People have no idea what is going on in that commercial.
ads out in the test markets and then they end up going national with them. And it's
is one of 13 Procter & Gamble products that's a billion dollar a year product. Procter & Gamble
has hundreds of products. Only some of them sell a billion dollars a year, and Febreze
they created a new -- they piggybacked on an existing habit instead of trying to create
a new one. In fact, the campaign's been so successful that now, a decade later, if you've
that are disgusting, and they can't smell anything. For the first time, Febreze can
actually admit to people what the product does, which is, it kills bad scents, instead
But the reason I'm telling you this story is because you can grasp this understanding
of how habits work, I think to make the world a better place. To give you an example of
problem, which is that they sell customer service; right? They kind of nominally sell
they have to hire thousands and thousands of people who are 18 years old who have never
had a real job and get them to deliver customer service. What they found was that a whole
bunch of people at the beginning of the shift could do a really good job of greeting a customer,
they're rude back or they get drawn into workplace drama. This became a problem for Starbucks
because they had a couple of incidents. Let me show you a tape of one of them. And before
I show this to you, just imagine that you work for Starbucks; right? You spend as much
your kids. But you believe in Starbucks. You believe in teaching the brand, that this is
a place you can come and relax. You come home, you turn on the television, and this is what
loved the coffee, loved the service. But that changed a few weeks ago. This native New Yorker
when she called our Nina Pineda and ordered a special brew of fully caffeinated 7 On Your
Side. >>> And then when you looked at it, what did
cup. On the side, a Starbucks employee wrote what she ordered, a Carmel Frappuccino. Instead
of writing her name on the side, she says he wrote the "B" word.
wondered what $100 million in advertising sounds like going up in flames all at once.
This is a huge problem for Starbucks. Howard Schultz, who had just returned to being the
CEO of the company after being chairman, calls together all his executives, because they
to increase workers' willpower. And to do that, they have to teach them new habits,
that they teach in their training manual called The Latte Method. And this is what it is.
They tell employees, when an angry customer comes in, that's your cue. And you use "latte,"
acknowledge their complaint, you thank them for complaining, you take care of their complaint
by giving them a new cup of coffee or whatever they want, and then you explain why this will
many of you have children. If I could teach my son that when I come up and I'm angry at
him, he should listen to Dada's complaints and acknowledge, Dada, I understand that you're
I think this kid would go on to be president. And, in fact, in the book that you'll get
tonight, there's actually the story of Travis who is this kid whose mom was a ***,
and his dad, the first time he saw him overdosed on ***, he was seven years old. And he
a woman came in and he thought she was rude to him, so he took the McNuggets out of her
box and threw it at her head. This is a kid that, basically, life had failed and was destined
to be kind of a failure himself. And then he started going to Starbucks, and he learned
now of two Starbucks, and he oversees about 60 employees, about $1.2 million a year in
revenue. He just signed his first mortgage. I guess the reason I'm telling you about this
you try and share this science with your employees or with your customers, with your families
or with your coworkers, you have this capacity to change lives. We understand now how habits
and the rewards in their life, you give them this tool to change these small patterns that
they feel powerless against otherwise, including all of us. And I hope that this is something
>>Andrew Ross Sorkin: Charles Duhigg, everybody. I should also note, Charles takes the advice
of his own book. He lost about ten pounds, actually -- can I say that? -- as a result
in action. Very cool. It is my pleasure -- I apologize for doing
we were having before with three other very interesting people who started some very cool
Neil Blumenthal and David Gilboa, you know both them -- come on up. They are the founders
of Warby Parker. And they're wearing their glasses. The product is on their face.
interesting story. I should also note that they give away a pair for every pair that's
sold, sort of a Tom's model. And we're going to talk a little bit about that.
to get one of these merino wool sweaters or tee shirts today. When he was 24 years old
-- I hope I'm getting this right -- 24 years old, back in 1994, he was with an American
fabric of 100% -- a merino grower showing this 100% merino wool which you've developed
I wanted to try to continue the social mission conversation for just a minute, and then I
want to get into the actual pieces of both of your businesses, because you're really
But when you think about glasses and when I think about whether I'm going to go buy
pair to someone who needs one? >>Neil Blumenthal: So our research has shown
that for the consumer to actually buy the glasses, it's actually not that significant.
glasses, the most important thing is how those glasses look on their face. So when we describe
because that's the foremost reason why people buy glasses.
if at all, our social mission. That's not to say that our mission, which is to transform
the optical industry and to demonstrate that companies can scale, can be profitable, and
The strong business rationale helps us retain and recruit top talent. It helps keep us motivated
more likely to tell their friends, but we're not sure that it helps them actually make
that first purchase. >>Andrew Ross Sorkin: Okay. But when you started
>>David Gilboa: I think all of us on the founding team, Neil and I and our two cofounders, were
we saw this massive industry, $65 billion worldwide, that really hadn't had any innovation.
And we had the opportunity to disrupt that industry, provide great value to consumers.
that we were excited by just getting up and going to work to every day. And we wanted
to just do something good in the world. >>Andrew Ross Sorkin: Okay. But you have some
in fashion companies and who I imagine can't really be thrilled that you're buying carbon
we do on the social mission, whether it's being carbon neutral as an organization, distributing
a pair of glasses for every one that we sell, getting involved in the community, investing
add to the expense portion of our P&L actually enhance our brand. They allow us to attract
and retain the most talented employees. They allow us to build closer relations with customers.
positive returns for those investors that are motivated purely by financial returns.
>>Andrew Ross Sorkin: Jeremy, the same question to you. Look, the sweaters is gorgeous. The
I would buy it because of how it looked. But you guys have a whole other ethos that's part
of this. >>Jeremy Moon: If we go back to that kind
hated because I had to wear it when I was a kid, and I was so shocked because it didn't
itch. But then I got into it, and I discovered that it was superior to the other products
out there, because it was renewable, and it felt soft and it let my body breathe. And
I realized it all was made out of plastic. Every brand which was about connecting people
with nature was using petrochemicals, polypropylene or polyester. Here was this kind of undiscovered
And it just needed to be packaged. So I started off wanting to build a sustainable
product, but when I spent time with the farmers and in the manufacturing, I really tried to
want to build a fashion company. I wanted to build an alternative to -- based on something
increasingly unreal, the value of what is real goes up. And I think that's kind of behind
some of these amazing founding stories and these new birth of businesses that are being
Warby Parker for a second. I want to talk about glasses, the business
are typically ridiculously expensive, couple hundred dollars a pair, if not more. You sell
you look at this industry, it's dominated by a few large players, one of which is Luxottica,
an Italian company that is basically vertically integrated. So over the last 30 some odd years,
>>Andrew Ross Sorkin: But am I wrong in saying virtually every major either glasses or sunglasses
>>Neil Blumenthal: Exactly. So they own Oakley, Ray-Ban, Oliver Peoples, Persol, Arnette.
LensCrafters, Pearl Vision, Sunglass Hut, Sears Optical and Target Optical. And then
>>Andrew Ross Sorkin: People talk about regulating the tech industry. I don't know about maybe
>>Neil Blumenthal: Our thought was, what if we could design the frames that we love, use
the suppliers and then sort of bypass the industry, bypass the middleman and go direct
to consumers by selling online. And with that, we could cut -- sort of basically sell the
are they getting and are you getting? >>Neil Blumenthal: Typically, glasses are
marked up between ten and 20 times. And when you look also at the retail level,
half X. We're able to give all that sort of retail markup to consumers. And because we
developed our own brand, we're not licensing a brand, that licensing fee we're able to
offer a product that normally costs $500 for $95 by cutting out the licensing fees and
company, for those who don't know about it. But those who do, it is a strong brand that
happen in just such a little time period? >>David Gilboa: So we really wanted to design
just glasses that we loved. I lost a pair of glasses. They cost me $700. And I couldn't
figure out why glasses cost more than an iPhone or an Android phone. And so we -- we decided,
beautiful design, convenience, but at a great price point for customers. And then we wanted
to build a business that did something good in the world. And we think it's an inherent
the stakeholders that we touch. So our employees, the environment, close to a billion people
around the world don't have access to eyeglasses, and they can't function the way that all of
did this before? Why -- like, why did nobody else try to undercut Luxottica?
They're sort of benefiting from the status quo. We were consumers. We had that experience
out feeling like we got punched in the face. And we sort of -- We knew what it actually
cost to manufacture glasses. I used to run a non-profit that would train low-income women
communities. And one of the things that we found is that people would rather be blind
than wear a donated pair of 1970s cat eyes, because you just -- you'd look ridiculous.
ridiculed by your neighbors and friends. I'd see coming off the production line glasses
that we were selling in Bangladesh and parts of rural India alongside some of the biggest
know where you want to go. >>Jeremy Moon: Well, I just want to jump in.
The rules of business have changed. So I started Icebreaker 16 years ago. And I had to go around
with my samples and say, look, it doesn't itch, and get people to wear it. And it was
years ago or even ten years ago, you had to be -- you had to be a wholesaler. You couldn't
afford to open your own stores. There was no online commerce.
company, we can have our own stores. We've got ten stores in the U.S. We can have an
online business. We can supply thousands of outdoor stores around the world. And we can
a total rebirth of what these business models are.
he just said, which was that you don't think of yourself as a fashion business. Why not?
>>Jeremy Moon: Well, companies are defined by their founding moments. And for me, it
me meant stuff which was disposable. So, look, I'm no purist here. I fly on airplanes. I
wear Gortex. But I didn't want to wear polyester and all those fabrics that stunk -- I need
the outdoor industry would know the downside of them.
about people in nature, it was about men and women. It used to be only about kind of sweaty
men climbing mountains. So we wanted to redefine what the outdoor industry was about. And also,
we wanted to make products that lasted. So I wanted products to last for five or seven
what you want to wear in three years. So we're trying to build in values. So our product
is more expensive than a typical outdoor product, and I think it's better valued, because it
optimizing for long-term customer value, not short-term value.
You started your business, as he just said, online. And in many ways, you're going backwards;
What's that about? Does it have to happen that way?
and mortar and e-commerce. When we were thinking about business, the thing that we couldn't
sort of get over was, would people buy glasses online if they couldn't try them on first.
of trying to figure this out. And we came out with this idea to do a home try-on program
where people could select five frames, we ship it to them free of cost, and they have
five days to try on those glasses at home before actually purchasing and before we put
the barriers to purchase, it would help reduce return rates and -- when somebody scratched
What happened is that when we launched, we launched to features in Vogue and GQ, and
the company just took off like a rocket ship. We hit our first year's sales targets in about
three weeks, sold out our top 15 styles in four weeks, and had a wait list of about 20,000
And people started calling up and saying, "Hey, I heard you're in Philly." At the time,
And we said, "You can come by our apartment." And people would come in, and we'd lay the
glasses on the dining room table. And at first we thought this was going to be a very suboptimal
these customers had a chance to meet the people behind the brand, which is pretty rare these
So when we moved back to New York and set up our office, we set up a showroom in the
office. We've now moved on to our second office where we have a showroom. And about 600 square
feet. Last month, we did over $220,000 worth of sales, you know, selling a $95 product
beating that, like, Tiffany's and Apple. So we now had sort of the customer service
component, like, wow, this sort of helps. And that we can do it profitably, why not
around the country that sell, you know, many leading sort of contemporary apparel lines
and we'll rent sort of a wall from them to display our glasses and pay for a staff person
it to them. And now we're opening up our first flagship store right on Prince and Greene
in Soho, next to Ralph Lauren, across from Apple, because we think that this will help
>>Andrew Ross Sorkin: Is the dream of online only, of online only retail, is that dead?
I mean, does there have to be -- maybe you can speak to this. Does there have to be a
>>Jeremy Moon: This is my position at the moment. So we're selling in 40 countries.
And 80% of the business is still wholesale. But I know, you know, that my role is to learn
five years is about changing that percentage to at least 50% direct.
the first touch. The role of retail is a high-touch personal experience. The roll of online is,
obviously, convenience and depth of storytelling and repetitive. So there's harvesting and
you're doing, can you help me? [ Laughter ]
to evolve the brand and the model. Can I just pull up one slide?
>>Andrew Ross Sorkin: Go for it. >>Jeremy Moon: So the company's a little bit
eating grass. And he lives in the Southern Alps. If you go to the next slide.
So we buy about -- if you go to the next one. We buy a quarter of the merino wool, which
they realize they're not just having some mass-produced product. There's this whole
kind of back story about a product that's born in nature. And if I can't show them that,
So the whole thing, then, is about transferring that story into stuff that you can wear. But
got that much of REI -- you can't do that. In your own retail stores, like in Soho, we're
around the corner, or online, you can do that. So it's actually coming about storytelling
telling are what people connect with. There's this new age of storytelling being born.
>>Andrew Ross Sorkin: In the last session with Leila and Linda, Linda in particular
and social mission. And I wanted to end on this issue, which is profits.
that you take, the way you think about the business? You obviously -- Everybody here
is involved in a sustainable business. How do you think about that issue?
take probably the opposite point of view, where we're out to prove that a business can
be scalable and really profitable while doing good in the world. And so we don't think that
are going to be built, you know, as businesses that solve real problems and create value
>>Andrew Ross Sorkin: But let me ask, Neil was saying to me during lunch that a lot of
the people that have come to work for you come to work for you because of the social
>>Andrew Ross Sorkin: If they see this company making billions of dollars -- God bless you
if you do -- how does that change the dynamic? >>David Gilboa: I think it's all about the
employees and our customers are demanding transparency and authenticity. And so as an
report. It was pretty sparse on financials. But we gave people an inside view on the impact
that we were having and kind of little tidbits about our team, you know, the breakdown of
to kind of provide a window into how our company operated. And that was tweeted out thousands
of times and it drove our three highest consecutive days of sales and drove an engagement between
us and our consumers. And I think just millennials in general want information. They want to
and people outside of our organization. >>Andrew Ross Sorkin: Jeremy, I'll leave you
sustainability. So I don't want to -- both those things are critical; right? We must
It's a good piece of advice. So we in the business view profit as like
So I believe that our customers have a shared value. It's not everyone. It's for people
who care. We're trying to create a conscious business. We're appealing to people with a
People will pay a premium for that. The thrill is to try to make profit and sustainability
for the conversation. This was really very special. Thank you very much.
Trey Ratcliff is a photographer, an artist, and a writer and an adventurer. Some of you
may know him. You should if you don't. He posts a new photo on his Web site called StuckInCustoms.com,
every single day. These are gorgeous photos. He's best known for being a pioneer in what's
multiple levels of light are captured for a particular scene and then combined into
as a photographer, he's blind in his left eye. Is that right?
[ Applause. ] >>Trey Ratcliff: All right.
talk about, I'm going to give you the story about how I stumbled across this new kind
of photography, how it changed my life and how I believe it can change your life, too.
one shot at life, so you might as well make it awesome. I believe that a life worth living
is a life worth recording. So here's a few examples of this new kind
the integrity of photography than anyone else in the world, end quote.
given permission to millions of people around the world, and I give permission to you today
to -- to break all of these hallowed rules of photography and go ahead and post-process
to have fun and find your own childlike sense of creativity. I think that photography is
something that you can easily add into your life, whatever you have to be doing, you can
right brain that's kind of been there along with you the whole time. I don't think that
post-processing is evil. In fact, I think that the use of artifice in your craft is
[ Laughter ] >>Trey Ratcliff:
out to be sort of a weird thing but actually a tremendous advantage. Because we all kind
of see the world in 2D now, don't we? With flat screens? We look at screens all day.
We actually see a 3D world in a 2D device. So this has been a fun challenge for me, one
that I kind of keep examining, how do you take a 3D world and present it in 2D? Because
are and paths and all of these kind of things that are very deep inside our brains.
So -- so fast forward a few years, I go to university and I fall in love with algorithms,
this style of photography that I stumbled into. The question is about light. So if you
are in a given situation, you want to try to capture it, how it really feels while you're
there. Maybe you go into places and you take photos, they come out flat, you are just disappointed,
Your camera, even a good camera, can probably only capture three stops of light. So what's
can see about 11 stops of light. That's a huge disconnect. Three stops of light versus
11 stops of light. In any given situation into which you might find yourself, there
I get to practically how it's done -- the philosophy is you are taking your camera,
you are using it to sweep through all of the available light. You capture it, you go back,
you dump all of that light back on your computer and then you bend the light to your will.