The Prof G Pod with Scott Galloway - Office Hour’s Best of Business

Episode Date: August 7, 2024

Today, we’re kicking off a special three-part series, featuring some of our favorite Office Hours moments: Best of Business, Best of Career, and Best of Parenting. In today’s episode, we start with Best of Business, where Scott answers your questions surrounding the brand era, big tech companies and their ethical responsibility, and when a founder CEO should step down.  Music: https://www.davidcuttermusic.com / @dcuttermusic Subscribe to No Mercy / No Malice Buy "The Algebra of Wealth," out now. Follow the podcast across socials @profgpod: Instagram Threads X Reddit Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Ready, set, grow. Go to ConstantContact.ca and start your free trial today. Go to ConstantContact.ca for your free trial. ConstantContact.ca Welcome to the Prop2Pod's Office Hours. Today, we're kicking off a special three-part series, uno, dos, tres series. That's right, featuring some of our favorite Office Hours moments, best of business, best of career, and best of parenting. Not good business or good career or good parenting, but the best of.

In today's episode, we start with best of business, where we'll answer your questions surrounding the brand era, big tech companies, and their ethical responsibility, and when a founder CEO should step down. So with that, first question. Hi, Scott. Matt here, and a big fan of your podcast. I've followed you for a while, and one of your enduring takes has been that advertising and building brand through paid media is a dying business strategy. Outside of some companies seeing hyper growth without big media budgets, mainly in the tech sector, most major firms continue to increase budgets. And those tech companies are now some of the biggest advertisers in the world. Even Tesla, famously averse to advertising, is now paying for media to try to differentiate versus the growing EV market. As someone who also falls this closely, there's been a golden age of

advertising effectiveness research from professors like Byron Sharp showing the value of paid media. I'd be curious how much of your successful prof media business, prof G media business, is supported by advertising. I work in this space, so I'm obviously biased,

but curious if you've amended any of your opinions here. Thank you for all you do, and go Gunners. Go Gunners. I love that. Look, I make these provocative statements that if you're advertising, it means your product sucks.

And I've also said, and this is, I think, more true. If you constantly are having dinner with strangers, it means you're selling an undifferentiated product. So if you're in the services business and your job is to have these full relationships with people, it means you're all selling the same damn widget and you're dependent upon relationships. One of the things I loved about, I started a brand strategy firm and basically we were good at what we did, but there were a lot of good firms out there, interbrand, doing brand strategy.

And the way we got business is I would develop sort of these proxy father-son relationships with the CMO or the CEO. And I found it just fucking exhausting. They were really interesting, wonderful men. And they were all men. This was in the 90s, but I'm an introvert and I I found it just fucking exhausting. They were really interesting, wonderful men, and they were all men. This was in the 90s, but I'm an introvert and I just found it difficult. I vacationed with clients. I mean, it was just so much. But anyways, I do think advertising is sort of a tell for a company that doesn't have a truly differentiated product. And I would push

back that the tech companies, yeah, they advertise a lot, but as a percentage of their top-line budget, they don't. And, you know, Netflix uses – I met with Ted Serrano, the CEO of Netflix, and I said, why wouldn't you start a TikTok competitor? I still, by the way, think they should partner with an AI firm and buy a hopefully divested TikTok. But he said, no, we use TikTok as free advertising. It's amazing. We give them a certain number of clips, and it's fantastic marketing for us. And they don't spend a lot of money, I don't think, on marketing. And I think the companies that have added the most shareholder value over the last 10, 20 years have a few things in common.

One, they're typically asset light. Why build a factory when you can just design the chip in video? Why invest in expensive real estate when you can just create a platform and take fees? Airbnb, why buy and maintain cars when you can just create software, a thick layer of software on top of them? That's Uber. They tend to have recurring revenue streams that are more predictable, like a software company. But also, I have found they tend to be less reliant on advertising. And the thing about advertising, one of the reasons Google largely killed the traditional ad business, and I think it has,

Google loses or gains the value of IPG, WPP, Publiscy, and Omnicon every day. Those guys used to be the big swinging dicks, and now they basically work, and they beg for the crumbs off of the Google and Meta cookie, if you will, is that those companies have difficult times finding attribution or building it. Basically, all the research that Condé Nast or IPG does all leads to one place. You should spend more money on our advertising, right? And it's kind of bullshit. And it's kind of a model where the lack of attribution was both the sin and the opportunity in the sense that brand building is difficult to reverse engineer to specific sales. So there's been a dearth of it, which probably means it's going to offer higher ROI. And direct response advertising, specifically meta and alphabet with their unbelievable targeting.

I mean, what, you only have 70% of your budget in digital marketing? It should probably be more. I mean, every year these companies just take more and more share of an industry. Advertising is a weird industry. It's always like one and a half percent of GDP. It doesn't go below that. It doesn't go above it. So this is not a growth industry, but you have some companies that are growing 20 and 25% a year, everyone from Meta and Alphabet to TikTok, which means they are sucking the oxygen out of the room for the other folks. Does that mean traditional-based advertising and brand building is going to go away? No, but it's going to be a shitty place to work or invest. If you're

absolutely in love with it or you're scaling and have senior level sponsorship or you're rounding third, then by all means stay there. But if you're younger, don't love it. I just think it's going to get more and more difficult for the traditional advertiser slash brand building complex. And this is from someone who made a really good living preaching about brand. I think things have genuinely changed. I think we've moved from a brand era, and I don't want to call it an innovation era, to a supply chain era. Most of the big, big advances in shareholder value, in addition to being asset-light, recurring revenue, lack of advertising, have been supply In addition to being asset light, recurring revenue, lack of advertising events, supply chain. So, you know, my brother, I just, and I'm a professor of

brand strategy. I think the era of brand, the sun has passed midday and Don Draper has been drawn and quartered. Thanks for the question. Question number two. Hey, Scott. This is Sean from Seattle. Love the podcast. Thank you so much for taking the question. Question number two. Hey, Scott. This is Sean from Seattle. Love the podcast. Thank you so much for taking my question. I recently fielded offers from Amazon and Meta and got into a debate with friends around which was less ethically problematic.

Given the contentious business practices and societal implications associated with both companies, do you truly believe there is a distinction in choosing one over the other for ethical reasons? Can someone really sleep better at night choosing to work at one big tech company over another? We'd love to hear your insight. Sean, this is the mother of all good problems. And so let me be clear, both firms from an employee perspective are great firms. I would say somewhere, probably a third of my kids, when I say my kids, my students, would go to work for big tech.

And at one point, 20% were going to Amazon. And the people I know that went to Amazon described it as intense, unforgiving, and very rewarding. Meta has a fantastic reputation in terms of how they treat their employees. They pay them really well. A lot of investments in human capital. Around the ethics. Um, I think your

first priority is to develop economic security for you and your family. And I think big tech is good for the world. I think if we had a button we could press and make big tech vanish, we would not push that button, that we are net gainers from big tech. The problem is with the word net, and that is we're net gainers from pesticides, we're net gainers from fossil fuels, I still believe, but we choose to have emission standards and an EPA. I would argue at this point, at this point, meta is probably a net negative, whether it's teen suicide, self-harm, self-cutting among girls, election misinformation. I mean, these guys really are mendacious fox and amazon might be mendacious fox but the implications of that are monopoly abuse and small retailers go out

of business and bigger retailers or great employers might have gone gone out of business faster than they otherwise would have but they're not spreading a conspiracy theory they're not they're not spreading anti-vax information and some of them might not be that the people are any less or more ethical. It's that they're just in different businesses. So if you really got to the point where it came down to who was less bad or more ethical, I would say you'd probably choose Amazon just by virtue of the fact that they're in the business of e-commerce and cloud versus media. Having said that, I think most likely you should probably make the decision based on what's best for you personally. Do you

want to live in Seattle? Do you want to live in the Bay Area? Where do you think you'll have senior level sponsorship? Where do you have a better rapport or relationship, do you believe, currently or that you'll develop with who you'll be reporting into? What does the career path look like at each organization? I find with decisions like this, you don't want to listen to a podcast or that is yours truly. You want to build a kitchen cabinet of people and say, okay, these are the offers. This is the opportunity. This is the division. What do you think? And then at the end of the day, you'll probably ignore all those decisions and just go with your gut and make your original

decision. So these are personal decisions. I would say the quote-unquote ethical stuff, if you will, is a tiebreaker, unless it's something that really weighs on you. Corporate America, these are platforms for making profits. And folks in the media and people such as myself, I think, play a role in holding them accountable and trying to urge our elected officials to put in place the regulations such that there's guardrails around these companies. But at the end of the day, they are going to do whatever increases their profits, full stop. That's just what they do. But anyways, like I said, let me end where I began. This is a great problem. Congratulations to you. Offers from Amazon and Meta. Jesus. Jesus, man. Good luck to you. That's

fantastic. We have one quick break before our final question. Stay with us. Welcome back. Question number three. Hi, Scott. My name is Melissa in Chapel Hill, North Carolina. I'm a four-time CMO in B2B SaaS with 30 years of experience and many startups. I saw your recent post about the probability a startup will be successful by the number of attempts. I've been part of startups that have been very successful and some that have been total flops. One thing I've noticed that is critical to success is the founder CEO. Many founder CEOs are not always strong business operators. They can be great ideators and innovators, but many don't seem self-aware of their shortcomings as operators. What are your thoughts about when a founder CEO needs to step aside to bring in an experienced team of business operators to drive the company's next level of growth?

Thank you for considering my question. Love you and love the show. Well, Melissa from North Carolina, I love you. That's a really nice thing to say. This is a tough one because you're exactly right. Entrepreneurs have role models as they should. And they look at Steve Jobs and Bill Gates, who are unicorns. They're a rare species. And that is, if you think of a company as an idea, is letter A. And then the startup, getting the initial seed funding, hiring and firing a group of people, like hand-to-hand combat for the first 20, 30 people. And that's what you have to do with the first 20 or 30 people and working around differentiated and is a real product that's generating more gross income or has positive gross margins. You don't need to be profitable, but when you sell a widget for a buck, it should be at least on a marginal basis,

and that is the cost to deliver that incremental consulting engagement or that incremental piece of software or that incremental whatever it is, widget, that you have positive gross margin. You say, okay, if I hire enough people here, I can start to scale, and I can build an enterprise and maintain some culture and show that this is more than just a practice. So the ones that succeed oftentimes never get to scale, and that is their practice. Typically, a small group of people in the services industry are great at PR, or great investment banking banking or great at a specific product or service. And the people who started the company are selfish and think that they're the real innovators and they don't want to share in the upside of people to scale the company. And so whenever I meet with people that have a great company, 20, 30, 50

people, and they're wondering why they can't scale, it's usually because you are too fucking selfish and don't realize that people want to have a nice life like you, and you need to give away large chunks of the company. If you want people to act like owners, which is the key early in a company, you have to make them owners. Anyways, back to your question. Most CEOs think they're Steve Jobs or Bill Gates, and they can go A to Z. And key part of self-actualization and also success is recognizing, as I did fairly early, quite frankly, as a CEO, that about the time we get a CFO, about the time we have someone in HR, it is time for me to step down as CEO and become kind of the thought leader, the person that is

responsible for driving new business. I really enjoy that, play a big role in strategy. But somebody needs to be Mr. or Mrs. inside and basically run the company. And I was always a fan of giving them the CEO title. Why? As a founder, my objective was always to build shareholder value and get economic security for me and my family, which is Latin for get rich. And titles are inexpensive. So I was always up for giving away the CEO title. I've never been the CEO of a company when I've left. Typically within three to five years, I find someone that is outstanding, that I want to retain, and I give them 5%, 7%, 10%, 15% of the company and say, congratulations, you're now the CEO. And this is kind of what I'm responsible for, and this is what you're

responsible for. A lot of founders never come to that conclusion. Now, the question is, how do you nudge them to that realization? That's a tough one. A board, I don't know how you tell someone to be more self-actualized and that they have limits on their capabilities and we'd all be better off if you brought in someone to run this organization that isn't you. It's a difficult one. Typically, typically, that's the kind of conversation a board should have with the founder CEO that used to be very common in the 90s. Essentially, it was thought there are absolutely no founders that are good enough to be CEOs. So what happened was a guy like Steve Jobs was immediately assumed to be crazy, and we need to bring in the gray-haired old guy from Pepsi,

John Sculley, and let him or her run it. Things have changed so dramatically. The pendulum has swung so far to the other side because of the return of Steve Jobs and people like Mark Benioff and Bill Gates that are able to build a company from A to Z and be outstanding CEOs. You should assume if you're the CEO, you are not Bill Gates. You should assume you are not Steve Jobs. I apologize. I don't have a direct answer for how to convince possibly your CEO to step down, but the fact you're thinking that way means you're going to be or you're probably successful and can kind of gauge whether or not this company has the right stuff to get to the letter M, cash in, cash in, recognize how awesome you are. And if you have the ability to bring in somebody who will be outstanding and compliment your skills, by all means, hit that bit. Thanks for the question. That's all for this episode. If you'd like to submit a question,

please email a voice recording to officehoursatproptimedia.com. Again, that's officehoursat propgmedia.com.