Under the Influence with Terry O'Reilly - Burn The Boats: Brands That Risked and Won

Episode Date: October 29, 2022

This episode looks at the concept of “Risk.” We tell the stories of the marketers who took the biggest risks, and reaped the greatest rewards – including how one of the best loved movies of all time only survived because the producer risked his career on it, a board game that dared break the conventions of the category, a watch company that risked all and saved the Swiss watch making industry in the process, and a CEO who made a decision that was so unpopular even his board of directors bet against him. They are the true warriors who “burned the boats” so there was no turning back – and then made history. Hosted on Acast. See acast.com/privacy for more information.

Hi, it's Terry O'Reilly. As you may know, we've been producing a lot of bonus episodes while under the influences on hiatus. They're called the Beatleology Interviews, where I talk to people who knew the Beatles, work with them, love them, and the authors who write about them. Well, the Beatleology Interviews have become a hit, so we are spinning it out to be a standalone podcast series. You've already heard conversations with people like actors Mark Hamill, Malcolm McDowell, and Beatles confidant Astrid Kershaw. But coming up, I talk to May Pang, who dated John Lennon in the mid-70s. I talk to double fantasy guitarist Earl Slick, Apple Records creative director John Kosh. I'll be talking to Jan Hayworth,

who designed the Sgt. Pepper album cover. Very cool. And I'll talk to singer Dion, who is one of only five people still alive who were on the Sgt. Pepper cover. And two of those people were Beatles. The stories they tell are amazing. So thank you for making this series such a success. And please, do me a favor, follow the Beatleology interviews on your podcast app. You don't even have to be a huge Beatles fan, you just have to love storytelling.

Subscribe now, and don't miss a single beat. Due to popular demand, we've dug very, very deep into our archives and are pleased to announce the re-release of episodes from the last season of The Age of Persuasion. And we've remastered them to fit our Under the Influence format. Here is an episode from 2011. This is an apostrophe podcast production. Your teeth look whiter than noon, noon, noon You're not you when you're hungry You're a good man with all the teeth

You're under the influence with Terry O'Reilly. Play it, Sam. Play as time goes by. Oh, I can't remember it myself. I'm a little rusty on it. I'll hum it for you. Sing it, Sam. Casablanca was, in the words of those involved with it,

the movie from hell. Jack Warner, who ran Warner Brothers with an iron fist, told everyone it would be a disaster. The film's stars found the production process so excruciating, they couldn't even talk about it with their closest friends. When the Allies invaded North Africa in November of 1942, and because the city of Casablanca was in the news, the studio executives decided to rush the film into release, calling it the film's only hope. But the single reason Casablanca even exists today is because of the vision and tenacity of producer Hal Wallace.

Wallace had received a copy of a failed play called Everybody Comes to Ricks. He couldn't get his first choice of director, so he settled for Michael Curtiz, a Hungarian filmmaker. To adapt the play, Wallace hired Julius and Philip Epstein, screenwriting twins who were known for their excellent dialogue. But they only managed to write a third of the screenplay before being pulled over to another job. So an army of writers were brought in to try and salvage the script.

Meanwhile, Wallace soldiered on. He didn't get the director he wanted, the script wasn't working, and when it came to casting, Wallace wanted Anne Sheridan, but couldn't get her either. So he settled for Ingrid Bergman, who wasn't yet a star. As all this chaos was unfolding, Jack Warner was clashing with Wallace almost daily. Warner wanted George Raft to play Rick. Wallace stamped on his hanky for Humphrey Bogart and managed to get his way. Bogart and Bergman would huddle together at lunch,

where their only conversation was how to get out of doing the picture. They thought the plot was not believable and the dialogue ridiculous. Where I'm going, you can't follow. What I've got to do, you can't be any part of. I'm no good at being noble, but it doesn't take much to see that the problems of three little people don't amount to a hill of beans in this crazy world. Someday you'll understand that. No, now.

He's looking at you, kid. Even as the cameras started rolling, new pages were sent to the set daily, and the script had no ending. Eventually, Wallace decided to shoot two endings, but after the first one was shot, they called it a wrap, not because they loved it, but because they ran out of budget. The Epstein brothers previewed the film and declared it a flop,

writing a memo to Hal Wallace telling him so. The stars of the film braced for an embarrassment when the film was released. Casablanca, city of hope and despair, located in French Morocco in North Africa. The meeting place of adventurers, fugitives, criminals, refugees, lured into this danger-swept oasis by the hope of escape to the Americas. Through the lack of faith that surrounded him, through all the obstacles, all the unrest on the set, and all the budget issues, Hal Wallace never wavered in his belief in the film. It was a huge risk to his reputation.

He had pushed and battled so many people to get the movie made that many were relishing his failure. But when the Academy Awards were announced, Casablanca netted eight nominations. That night at the Academy Awards, Casablanca won the top three Oscars, Best Picture, Best Screenplay, and Best Director. To this day, Casablanca is regarded as one of the best motion pictures of all time. Yet, it wouldn't have seen the light of day without the conviction of producer Hal Wallace.

Wallace had taken a huge risk, but what a payout. Risk has been the catalyst for the most amazing achievements of our time. And risk is at the heart of almost everything in the world of marketing. You can never guarantee success. Yet some marketers are willing to take the biggest risks. And they've enjoyed the biggest wins. You're under the influence. The concept of risk is one of the most contentious subjects in advertising. More blood has been spilled in boardrooms debating that topic than over agency compensation. Advertising agencies, as a rule, are pro-risk.

Their company cultures reward risk-taking. Most advertisers, on the other hand, are anti-risk. The majority of advertising clients are very conservative, color inside the lines, tend to water down brave creative ideas and rarely roll the dice. Yet, they hold their advertising agency's feet to the fire if they don't produce results. And therein lies the tension between many advertisers

and their advertising agencies. But every once in a while, you meet an opportunity. Many years ago, my company was approached by a client who wanted to advertise the new board game he'd invented. The game was called Mind Trap. He told us he didn't have enough money to advertise on television, but he could do a radio campaign. He had two goals. He wanted to advertise Mind Trap in time for Christmas

when 80% of all games and toys are sold and he wanted Toys R Us to hear the commercials and want to stock his game. So he gave us a copy of Mind Trap, we played it at the office, it was a lot of fun and then we sat down to write the commercials. The resulting idea we presented was highly unorthodox. It broke the rules of board game advertising because the ads didn't feature people playing the game. Think about every game

commercial you've ever seen or heard. They all have people sitting around playing the game. We decided not to use that cliche. Our client was justifiably nervous. It was a risk. And this was his one shot at a launch. And we didn't want to play his game in the commercials. But in our minds, it was a calculated risk. Here's why. The game was simple to explain. It had a lot of humor in it, which we could leverage on radio. Plus, the game was unique, so the commercials should be too. And more than anything, my mantra when it comes to advertising is this.

People don't buy three-quarter-inch drill bits. They buy three-quarter-inch holes. In other words, smart marketers sell the benefit of the product, never the product itself. With MindTrap, when you answered

the brain-teasing questions correctly, you got to show up everyone else in the room. Therefore, we based the idea on the benefit, the satisfaction, of one-upmanship. You probably know someone who thinks they're pretty smart. Chances are, you're related to them. In fact, they're usually married to your sister. Yes, the brother-in-law. You know the one. Six-four good-looking, fertile vice president, stock options won the lottery, bottlo sold high, your parents worship him, good hair. I hate him already, and I don't

even know him. Yes, you've been paddling in his wake for years, then suddenly you discover, mind trap, the game. The idea behind it is simple. Whoever answers the most brain-teasing questions wins. It's all a matter of lateral thinking, thinking being the operative word. There's long questions, silly questions, murder mysteries, funny questions, and short questions like this. If the maker doesn't want it, the buyer doesn't use it, the user never sees it, what is it? The answer is a coffin. Try that on Mr. Good Hair. The best thing about Mind Trap is you don't have to be a nuclear fusion expert to guess the answers. It's a level playing field. So invite Mr. Good Bone Structure over and kick some Butinsky. Buy Mind Trap and just do what I did. Read all the

cards and memorize the answers. Mind Trap. It's a game of one-upmanship and just do what I did. Read all the cards and memorize the answers. Mind Trap, it's a game of one-upmanship and your ship just came in. Even though our client was nervous, he was also bold and willing to take a risk with those commercials. And that risk paid off. Mind Trap became the number one selling board game in Canada. And Toys R Us stocked the game immediately. Neither of those two goals would have been achieved if we had played it safe.

Risk is one of those four-letter words that makes people recoil in fear, yet inside risk lies great opportunity. As someone once said, you can't steal second base and keep your foot on first. That was a lesson that Nicholas Hayek learned back in 1983.

Switzerland was the world's undisputed watchmaking capital. It boasted the most desired brand names in timekeeping, like Omega, L'Angine, and Patek Philippe. But in the early 1980s, out of nowhere, Japanese watch manufacturers had swept in and stolen their market share. Sales had fallen to 15% of the world market, dropping 25% in a single year.

As a matter of fact, as Jonathan Mantle notes in his fascinating book titled Companies That Changed the World, the fabled Swiss watchmaking industry was near the breaking point. Japan had figured out a way to create digital quartz watches. Brands like Seiko, Citizen, and Casio had become the top sellers. When two leading Swiss watchmakers went bankrupt as a result, a man named Nicholas Hayek was called in to organize the liquidation. But while completing that task, Hayek wondered if he could, in fact, turn around the fortunes of the Swiss watch industry.

Hayek knew that the traditional Swiss reputation for high quality was no longer enough to compete with the Japanese. But he sensed that a more efficient manufacturing process and lower production costs, coupled with Swiss ingenuity, could compete. He also banked on one other thing. That the Japanese assumed the Swiss would withdraw from competing at the lower price level and would instead concentrate on the production of expensive high-class watches, essentially leaving the entire lower-end watch category

all to themselves. So Hayek decided to take a huge risk and compete with the Japanese head-on. He automated the production lines and reduced the number of components in his new Swiss watches from 91 to 51. He introduced radical, wildly colorful, and cheeky designs to his watches, the likes of which had never been seen before. He also priced his watches very aggressively. The Japanese, in a word, were flabbergasted, and before they could respond, Hayek's watches took off.

He called them Swatch. Swatch. Swatch. Always different, always new, fashionable. Swatch. Many assumed the name Swatch was a contraction of the words Swiss and watch, but Hayek chose it to stand for second watch, suggesting the watches were a secondary fashion accessory

and disposable. Swiss made. Swatch, the new wave in Swiss watches. That was a long walk from the conservative, high-priced philosophy of the Swiss watch industry, where watches were made to be handed down from generation to generation. Not so with Swatch. The low price point and Hayek's marketing encouraged multiple purchases.

People even began wearing two at a time, sometimes one on each wrist, sometimes one on a wrist and one on an ankle. People bought different Swatch colors to match their clothes or their moods. Soon, Swatch mania spread beyond Switzerland, across Europe, to North America. Swatch hoped to sell 1 million watches in the first year. They ended up selling 3.5 million in the first 21 months. By 1993, Switzerland was back to commanding

over 50% of the world watch market thanks to Swatch. It was a remarkable comeback story. And all because Niklas Hayek had taken a huge risk that will be remembered in the watch world for a long, long time. But what happens when a CEO takes a risk, discovers he can't meet payroll,

then decides to roll the dice in Vegas? Fred Smith was born in Mississippi in 1944, grew up with a great interest in flying, and became an amateur pilot while still a teenager. Later, attending Yale, he wrote a paper for his economics class outlining the idea for a company that could deliver packages across North America overnight. It was a radical notion. Apparently, his professor gave him a C on the paper, saying he could have received a higher grade if the idea had been more feasible.

That didn't deter Smith from pursuing his concept. While in the Marine Corps for four years, he got to study the Army's logistics systems firsthand. He watched closely how they delivered supplies and moved packages across long distances with accuracy and punctuality. In 1970, he bought a small aircraft company and began trading used jets.

Then he raised an astonishing $91 million in venture capital, added an inheritance of $4 million to the pot, and in 1971 founded a company based on his Yale economics paper. He called it Federal Express. Smith's idea was a huge, unprecedented gamble, because a delivery company based on an air and ground strategy had never been done before. Plus, Smith based his company on a big, risky promise. Overnight delivery anywhere in the United States.

His firm advertised itself as, quote, a freight service company with 550 mile-per-hour delivery trucks. It took a lot of money to get FedEx up and running with jets, jet fuel, trucks, and hundreds of employees. Soon, Smith was burning through cash. So he approached another venture capital firm for a loan, but was turned down. That's when Fred Smith took the second biggest risk of his life. While on his corporate jet one night,

wondering how he would meet his payroll, Smith impulsively turned the plane around and headed for Las Vegas. When he landed, he walked into a casino and put what was left of the company's money on the gaming tables and won $27,000. That got him over the payroll hump.

But more importantly, it gave Smith an omen that things would get better. Sure enough, they did. The rest is overnight delivery history. Google the FedEx logo and look at the space between the orange E and the X. You'll discover an arrow you probably never noticed before. It signals perpetual motion because FedEx revolutionized the delivery business. It also created some of the most memorable advertising of all time. This ad features the world's get to work. Thank you for taking me. Peter, you did a bang-up job. I'm putting you in charge of Pittsburgh. I know it's perfect, Peter.

That's why I picked Pittsburgh. Pittsburgh's perfect, Peter. May I call you Pete? Congratulations on your deal in Denver, Dave. I'm putting you down to deal with Dallas. In this fast-moving, get-it-done-yesterday world, aren't you glad there's one company that can keep up with it all? Federal Express.

When it absolutely, positively has to be there overnight. As of this writing, FedEx owns the largest fleet of cargo planes in the world and delivers an astounding 3.4 million packages a day. And it was all born of a seemingly impossible dream made into reality by an entrepreneur who absolutely, positively took a huge risk. Legend has it that centuries ago, ancient warriors would sail their ships to the shores of their enemies.

Once the men had been offloaded from the ships, the commander's first order would be to burn the boats. The sight of the burning ships was a galvanizing moment for the men. It removed any thought of retreat from their minds or surrender from their hearts. There was no going back. They simply had to win. In 1971, another warrior named Darwin E. Smith was promoted to CEO of the Kimberly-Clark Company.

For a warrior, he didn't quite fit the bill. He was modest, shy, and quiet. Few in the company thought the introverted Smith was the right choice for CEO, including Smith. But he assumed the job in a modest, humble way and then set about revolutionizing the company. His meek exterior hit a fierce, razor-sharp mind and a resolve that didn't shy away from making tough decisions. As a matter of fact, only two months into his CEO position, Darwin Smith was diagnosed

with nose and throat cancer. His doctor told him he had less than a year to live. Smith gathered his board of directors, told them the news, and said he had no intention whatsoever of dying. Then went on to be CEO

for another 20 years. When he assumed the reins at Kimberly-Clark, he analyzed the company and came to a conclusion that its core business, which was manufacturing industrial-coated paper,

was doomed to shrink in the future. That's when Smith made a dramatic announcement. He wanted to sell Kimberly-Clark's paper mills, even the one in Kimberly, Wisconsin, the company's namesake. It was a monumental decision. To sell the mills was to sell the very reason the corporation existed.

Kimberly-Clark was, essentially, a paper mill company. Smith wanted to yank the company out of making paper products for other companies and thrust it into the business of making paper products for the public.

But in order to do that, he had to throw Kimberly-Clark into the business of making paper products for the public. But in order to do that, he had to throw Kimberly-Clark into the fire of competition with the giants, the Scott Paper Company and Procter & Gamble, two of the most successful paper goods companies in the world. The warrior in Smith believed that world-class competition would force his company to react. As writer Jim Collins says in his terrific book, Good to Great, Smith essentially gave the company one option, succeed or die. In other words, burn the boats. The business press called the decision plain stupid.

The financial markets immediately downgraded the stock. It was a polarizing moment for the Kimberly-Clark Board of Directors, and one member called it the gutsiest move a CEO has ever made. But Smith stuck to his battle plan and sold the mills. He took that war chest of money and invested heavily in people and marketing. One of his leading brands was Kleenex, which began decades ago as a table napkin. Kleenex was later marketed as a tissue and went on to command over 50% of the tissue market. Smith also pushed the company

into the highly competitive disposable diaper category in 1978. Again, he was entering an arena dominated by P&G and their number one Pampers brand. But by 1984, even with formidable competition, Kimberly-Clark's Huggies

captured over 50% of the disposable diaper market. Here's a very amusing Huggies commercial for diapers that look like blue jeans. The tagline was, the coolest you'll look

at pooping your pants. My diaper is full. Full of chic. When it's at number two, I look like number one. I poo in blue. The limited edition doggy's jean diaper. 25 years after making the monumental decision to sell the paper mills, Kimberly Clark beat

Procter & Gamble in six out of eight product categories. They would own Scott Paper outright and had $7 billion in revenues. Darwin E. Smith burned the boats, but he and other warriors like him took a risk and made history. Nothing exciting in life can be accomplished without taking a risk. When Hal Wallace took a risk with Casablanca, he paid a price. Warner Brothers canceled his contract, but he produced one of the best films of all time. We all take risks. Our marriages, our careers, our house, having kids.

Those are the big beats in life, the meaningful ones. Each involves risk. But those risks are the times in your life when you feel most alive. Yet in business, where accomplishment is the only yardstick, so few chances are taken. But the ones who do take calculated risks

reap the rewards. When the inventor of MindTrap wanted to stand out in the crowded game category, he took a calculated risk with offbeat radio commercials. Just when the Swiss watch business was on its knees, one man took a risk and rescued the industry. The founder of FedEx risked it all on the gambling tables in Las Vegas to save his company. And the CEO of Kimberly-Clark pulled his company kicking and screaming out of one category

and landed it smartly into a more profitable one. It's not easy being a warrior. You have to be willing not to fit in. You have to overcome fear of failure, fear of humiliation, and fear of rejection. Here's hoping that more smart companies take more calculated risks and that more shoppers like you will choose to spend your money

with the advertisers that dare to be different. Because every now and then, it's time to burn the boats when you're under the influence. I'm Terry O'Reilly. This episode was recorded in the Terrastree Mobile Recording Studio. Producer, Debbie O'Reilly. Sound Engineer, Jeff Devine. Under the Influence theme by Ari Posner and Ian Lefevre.

Music in this podcast provided by APM Music. Follow us on Facebook, Instagram, and Twitter. See you next time. Fun fact. Back in 2015, a collection of 5,800 swatches went up for auction and sold for $6 million. That's a lot of scratch per swatch.