Unconventionals Podcast | Season 6 Episode 6

Mind the Gaps: How Peloton, Warby Parker, Lagunitas, and Converse Asked the Big Questions that Changed their Markets

If you’re a marketer, it’s a good time to look for gaps. We live in an age of asymmetrical advantage, and emerging companies have access to the same computing power, networks, and channels that everyone else does. 

Tune into this Unconventionals episode to hear how finding the right gaps can propel a business and change a market. Look at the beer market—5,000 breweries today vs. 90 in in 1985. Market gaps are buyer needs exposed, and gaps often begin as questions. You’ll hear the questions directly from the founders of Lagunitas, Peloton, and Warby Parker: Why do eyeglasses have to be so expensive? Why did American beer have to be so boring for much of the 20th century? PJA’s Mike O’Toole and Robert Davis will talk about how to find the questions that can unleash your own business. 

PODCAST TRANSCRIPT

Mike O'Toole:
I'm Mike O'Toole. The Unconventionals is a podcast series produced and distributed by PJA Advertising. Along with our academic partners at Columbia Business School, we're proud to bring you The Unconventionals. The companies we feature aren't clients. There's no financial relationship. No promotional agenda. Just the stories of companies and entrepreneurs that remind us that the biggest risk in marketing is being like everyone else.

Speaker 2:
Next, on PJA Radio's The Unconventionals.

Neil B.:
Low and behold, in the same factories where I was manufacturing glasses for people living on less than $4 a day, I would see, on the production line next door, Marc Jacobs glasses coming off the line. And all these sort of major fashion labels.

Mike O'Toole:
Now, if you're a marketer it is a really good time to look for gaps. That was Warby Parker founder Neil Blumenthal talking about an enormous one, which is the huge disparity in cost and retail prices for eyeglasses.


So why is it such a good time to find gaps? Well, we live in an age of asymmetrical advantage. We've left the era of scale and homogenization, and now companies like [Ways 00:01:19] and Warby Parker have access to the same computing power and networks and channels that everyone else does.


Now, gaps are really questions that expose some big unmet buyer needs. And later in that interview with Neil, he posed it as a question: why do eyeglasses have to be so expensive. And there have been so many questions in my conversations with The Unconventionals that were provocative that way. Like, why was American beer so boring for most of the 20th century? Why can't we use part of our marketing budget to open a recording studio versus run ads? Why is there still so much hype and misinformation when it comes to training and performance.


On this special edition of The Unconventionals, we're going to revisit some of these questions. These mismatches, these Darwinian gaps. Partly because they are just great fucking stories. But also to see what we can learn about finding and fixing gaps in our own companies.


I'm Mike O'Toole, host of The Unconventionals, and the good news is I don't have to go solo here. I'm joined by PJA's Head of Strategy, Robert Davis. Hey Robert Davis.

Robert Davis:
Hey Mike. Good to be here.

Mike O'Toole:
Yeah, no, this will be fun! These really are good stories. And I think we should start our tour with Lagunitas. You know, it's Friday afternoon, why not talk about beer. And it was Tony Magee, founder of Lagunitas, that actually coined 'Darwinian gap' as a term.

Tony Magee:
Allow me to back up just a step. Forget about craft. The beer business. So, craft itself is a perfect example of The Unconventionals. The biggest breweries in the country were not always the biggest breweries in the country. You go back and watch an old Dirty Harry movie I always point out that it's Schlitz he's drinking. And that's Schlitz neon on the wall. That was the most important brand in the United States at that time. These other brands are coming up. So they've all worked its way to an end point of consolidation. I saw a paper that someone had done a study back in the 30's before prohibition, the minimum economic scale for a brewery was about 50 thousand barrels. Which is about what it is now. And over the years of consolidation and growth of the United States population, as well as the consolidation of the beer industry into just a handful of big brands, it became 3 million barrels, was the minimum economic scale to open a brewery. You couldn't even enter the industry as it was, without being a 3 million barrel business on the first day. And that's impossible.


So, what craft represents is a resetting of the value proposition that facilitated a resetting of the minimum economic scale. And all of a sudden a brewery could make money at 35 thousand barrels again. That's like almost a story that really isn't told. There's always these ideas of people and consumers kind of wanting the things they want and companies noticing and filling the gaps. But the truth of the matter is sometimes there's these Darwinian gaps that open up. And there's this enormous gap of a niche differentiated beer. So craft itself represents complete, fundamental different approach to the world.

Mike O'Toole:
Yeah, no, I buy that.


I actually love that whole conversation with Tony Magee. But the way he talks about gaps, there's your garden variety gaps, but then it all ... sometimes there's Darwinian gaps, where there's this enormous yawning structural gap between what the buyer really wants and what the industry is providing. And that, I think, certainly was the beer industry.


It's a structural gap in the industry and I think part of what I think everyone should think about is, where are those structural gaps in your industry. But it's also a gap that's rooted in unmet needed a buyer. Beer drinkers had a latent desire for more interesting, diverse beers. They maybe just didn't know it 'cause they were having trouble finding it in the United States for most of the 20th century.


I also really like that notion, Robert, that craft is about a permanent resetting of taste, right?

Robert Davis:
Yeah, I think that's exactly right. Craft isn't just for beer. The idea that, sure there's a structural gap in the industry, there's a deeper gap that lies in the mind of the buyer. And I would take it even one step further, I think there's an even deeper gap that really lives in the soul of the American consumer. Which is, our lives have become so dominated by corporate interests, that our craving for the truly authentic was just there, and it was under the surface and beer kind of cracked it open. But boy, did Tony really kind of expose this real desire that we have for more authentic crafted experiences. And now, you can go anywhere in this country and you can get a pretty good local beer and, in some cases, a great local beer. But boy, you can also get the local pickles, I mean, you name it. Right? I mean, we really are-

Mike O'Toole:
Local burgers, local ...

Robert Davis:
Yeah! Just getting more acquainted with the things that we make for ourselves and that they just taste great.

Mike O'Toole:
Well, you know, I think that's right. And you know it's a real- craft is a real thing. And you know craft beer is a real thing when you see the big companies paying attention and fighting back. So, the big movement in beer is that the big companies are buying back the craft breweries. What's really fun, if you've seen it, is this ad campaign by the Brewer's Association, which saw the independent brewers, and their campaign is to buy back Anheuser Busch and InBev for $213 billion. So they're like, the battle is on.

Robert Davis:
Yeah, and I do drink small beer. I have not sent my check in yet. I have to admit.

Mike O'Toole:
Come on! It's like NPR. You gotta-

Robert Davis:
Exactly.

Mike O'Toole:
So, we opened up the show with that clip from Warby Parker, and you could say that the founding insight for that company actually started with Neil Blumenthal's recognition of a moral gap. That there's 1 billion people in the world who need glasses and can't afford them. And so he did a bunch of work in his pre Warby Parker days with a non-profit called VisionSpring. And that's where he saw those glasses on the production lines. The Marc Jacobs glasses were being made in the same production lines that were making his glasses. So let's actually hear him talk about the moral gap.

Neil B.:
To get a billion pairs of donated glasses, it's not feasible. Not to mention that, people are losing and breaking their glasses. Their prescriptions are changing. And then each year, more new people need glasses. So you needed a sustainable solution and I thought that this idea to actually create jobs about giving eye exams and selling affordable glasses, just made a ton of sense. So I moved down to El Salvador to work on sort of the pilot program, ended up becoming a director of this non-profit VisionSpring, and spent 5 years expanding the program to about 10 different countries. And one of the things that you find is that, when you treat people as value conscious consumers, you treat them with dignity, give them the choice to buy. You learn a lot versus just giving away used glasses.

Mike O'Toole:
'Cause it turns out maybe people don't really like wearing used glasses, right?

Neil B.:
Exactly. Like, just because people don't have a lot of money, doesn't' mean they don't care about how they look. And I'd literally meet people, it could be in northern Bangladesh, who would rather be blind than wear a donated pair of 1970's cat eyes. 'Cause they get laughed at by their friends and neighbors.

Robert Davis:
So I think, Neil's personal experience with VisionSpring, is the part of the Warby Parker story that people don't know as well. When you hear it, it gives you such a clear sense of this strong sense of mission that exists in this brand. And his strength of vision around that mission is just a huge part of what makes this such a powerfully magnetic brand. And then that's more than an idea. It's really functionally institutionalized in their buy one and we will give one model. And that's just incredibly powerful. And so you've got this notion of a brand role where there's a bigger idea about, yeah, there's the savings, let's make life better for a buyer. But then there's this mission driven side about making life better for lots of people all over the world. It's a really killer combo.

Mike O'Toole:
Yeah, it makes brands magnetic. 'Cause it's a brand that you as ... and I'm a Warby Parker customer. I'm constantly telling people about the company. Part of that is I think I feel smart and good about sharing information about inexpensive, well designed frames with people. But also I feel good about the mission too. And I know that's a big part of why the company spread.

Robert Davis:
When we talked about craft, we found sort of a deeper gap in the, as I said, in the soul of the consumer. And here's another one. Sure there's kind of a structural gap in really expensive glasses that really aren't good for the world, and you can kind of fill that for me and I can get better value. But there's also the gap between the amount of good I'd like to do in the world and the amount that I can personally finance through donations. Right? So, when I can add to that with an experience like this, I think that also just really helps me feel like I'm doing something to help.

Mike O'Toole:
As part of my every day, right?

Robert Davis:
Yeah.

Mike O'Toole:
Yeah, and I like that because I think when we talk about brand role, it isn't so much the notion of corporate social responsibility. Like you give some percentage of your profit to a worthy non-profit. Which is good stuff! But how can you [inaudible 00:10:43] more intrinsic to your business and your product, how can you be contributing to a bigger idea, a bigger mission, that's consistent with what you do. So it's not on the sidelines, it's consistent with what you do as a business. And Warby Parker is in the business of selling glasses, doing a buy one give one is right square in what they do.


If I think about, so if we move on from this notion of a moral gap, there's also this structural gap and Warby Parker. Part of why I like to refer people to Warby Parker is the mission, but it's also, nobody likes to get played. I mean, we've all had that moment where we walk into a eyeglass store and you find a pair a frames that's supposed to be $300, $400, but by the time you get the coatings and the ... it's like $600 or $700. You just feel like you're getting played. And I think that, fundamental industry insight that he talked about in the opening clip is that, eyeglasses are too expensive. And partly it's because there's a vertical integration to the market. Luxottica, the Italian company, owns designer brands. They own a lot of the eyeglass retailers. And the own the manufacturing. And so they're the ones setting the prices and defining the experience for us. And that's what I think is so valuable about Warby Parker's insight is that, they were able to break open that structural gap.

Robert Davis:
And as a consumer, once you know about that, boy it makes it really hard to pay full prices for another pair of glasses.

Mike O'Toole:
Absolutely!

Robert Davis:
Right?

Mike O'Toole:
Yeah, and then like any good disruptive model, Warby Parker was an innovator. There are a whole lot of places now to find good looking designer glasses on line for a whole lot cheaper. Which I'm sure makes it a little harder for Warby Parker, but it's also has been a great sort of innovation in the industry for all of us.


And, you know, Neil makes very much the same point in this clip.

Neil B.:
This business, Warby Parker, really came from our own personal experiences. Walking to an optical shop, getting excited about a pair of glasses, and walking out feeling like we overpaid. The story is that, we paid too much, but we also wanted beautiful glasses. And we also think that glasses stand for something. And brand is important. So it wasn't just about getting a bunch of cheap glasses and selling it online. It was about how are we going to transform this industry that has been ripping people off for decades.

Robert Davis:
So the savings are important, but I think another thing that makes Warby Parker just so interesting, and frankly, a little more durable than those online offerings, is that they did aim higher than just having cheap glasses online. The glasses are beautiful. And I think they're ability to branch out into the retail stores, also is all part of an experience that says, you're not just paying less, you're really getting a beautiful pair of glasses that are gonna make you look great and feel good about yourself.

Mike O'Toole:
All right, let's move from eyeglasses to fitness. And we're gonna talk about Peloton, one of my favorite interviews. There are just a ton of gaps in fitness.

Robert Davis:
I'm not speaking from personal experience at all, Mike, but I've got a gym card on my keychain and that's not enough to get me out of the house and over to the gym every morning.

Mike O'Toole:
Yeah, we join gyms that we don't use. These product gaps, I have my iPhone, which tracks my steps and my Fitbit and they don't talk to each other. So they're giving me different information all the time.

Robert Davis:
And they're not keeping track of what you actually eat during the day, are they?

Mike O'Toole:
No.

Robert Davis:
So there's a gap.

Mike O'Toole:
Yeah, exactly.

Robert Davis:
We all know what we should do.

Mike O'Toole:
And maybe the biggest gap is like we are really unhealthy as a country. Right? We are far from fit.

Robert Davis:
Absolutely.

Mike O'Toole:
So, I think Peloton's insight was that, if you can find and meet a bunch of these gaps, rather than just focus on one. And by the way, funders love for your to focus on one. You can create uniquely valuable business.


So here's founder Tom Cortese talking about one of those gaps, which is essentially a content gap.

Tom Cortese:
Sometimes when I talk about this I like to rewind it back to 1980.

Speaker 7:
Get on your hands and knees. Weight evenly distributed on your hands. These are called rovers revenge. One, two-

Tom Cortese:
If you look at fitness content of yesteryear, it was great. I know it was great for my folks when that first VHS tape from Jane Fonda came out. That they were able to put in their VCR and do their aerobics class at home. What's interesting is that the content side of fitness, for home fitness, really hasn't evolved from that moment in 1980. What's happened is it's changed medium. So it's the same content from VHS to DVD. They've probably got it on laser disc at some point. To steaming, apps, now you can probably get it on your smart TV. So it's changed medium over time, but I hasn't morphed into something more and it hasn't adapted to the capabilities of today.


So, what we hone in on is the ... we see ourselves as the first modern interactive media company. Period. So you've got this massive HD video of the live instructor. It's a real, live, raw energetic class, coming from our studio here in New York City, broadcast to homes everywhere. You see the folks in the front row, they're not actors. They're not staged. They want to be there. They paid to be there in our studio to struggle along with you. And you see Jess King starts her ride with a face full of make-up and 30 minutes into a 45 minute ride, she's a hot, sweaty mess. There's a big guy in the front row who's hunched over feeling the pain and you feel his pain and maybe Jess King shouts out to me and says, "Hey, Tom in Brooklyn, thanks for being here for the 3rd time this week! You're nuts!"

Mike O'Toole:
Though Peloton addressed this content gap by live streaming 12 amazing, world-class trainers to people who take their classes in real time. In their basements. Which is, by the way, how they address they convenience gap we were talking about that we join gyms that we don't go to. So they put their studio, and this experience, in everyone's basement. They also designed a beautiful bike and a beautiful screen. So they really did try to address all parts of the experience.

Robert Davis:
One way companies measure that is with the net promoter score. The one number to manage to. And, interestingly, I think of Peloton as really sort of, not just doing a better job of something that had been done before, but in a way kind of inventing a new kind of interactive, content based, personal experience around exercise. And so, I think that's kind of what iPhone did, not just the phone, but the whole Apple ecosystem that surrounded it, was huge. Completely transformed an industry. So what's interesting is when you look at the iPhone net promoter score right now, it's in the 60s. Right alongside other transformative brands like Amazon, and Netflix.

Mike O'Toole:
That's pretty great. Sixties is pretty great.

Robert Davis:
So, Peloton, 91. I don't know about you but, for me, I ride a bike, I don't do Peloton but I have 3 friends who do. And they are just absolutely rabid evangelists for what this experience is like. How important it is to them, how crapy they feel if they don't get to go do it, because it's just completely transformed their exercise experiences.

Mike O'Toole:
Yeah, same thing. They go out of their way to try to get you to do it, right?

Robert Davis:
Absolutely.

Tom Cortese:
We control the end-to-end user experience. And that's what's important. We think about crafting an experience for you in your home. We don't think about creating a piece of equipment, we don't think about creating software. We think about what's it like to wake up in the morning and want to work out. How can I make this enjoyable? How can I have a fun start to my day? And by crafting a bike that is designed for your home, we were able to think about the home user. We were able to think about ... I was able to think about my kids sleeping in the next room and. We live in New York City, so I was able to think about the woman who lives in the apartment below me, who doesn't like when I make too much noise.

Mike O'Toole:
Coming up, from the boot strap to world-class recording studios, how a brand old and a brand new cracked gaps in fitness and sneakers.

Speaker 8:
So put a spanner in the works of your mind. It's easiest to work, but I don't mind. You're better in defeat, so just don't try. To take away all the things so dear in my life. I have to break down ...

Speaker 2:
You're listening to The Unconventionals. A podcast produced and distributed by PJA Advertising. We're always on the hunt for great business stories. Not about share price or scale, but the element of surprise. To find out how to apply the best practices and behaviors of companies like GE, Warby Parker, and Big Ass Fans, to your business, visit our website, agencypja.com.


Our academic sponsor's the Center on Global Brand Leadership at Columbia Business School, which turns the research of academia foremost thinkers on branding, into practical tools and insight for real-world application. Learn more at globalbrands.org.

Mike O'Toole:
Welcome back. I'm Mike O'Toole and I'm here with Robert Davis, who heads up strategy at PJA. We're taking a walk through the unconventionals, looking at the Darwinian gaps, those huge, monster size mismatches between buyer needs and what the category's providing. That some of our companies have addressed and solved.


Our next gap comes courtesy of WHOOP. WHOOP has really reinvented the fitness tracker market. And they've got a completely different goal than brands like Fitbit. The aim is to transform performance, not count steps. And they've introduced whole different ways of thinking about performance, whole different data points for tracking performance, that haven't existed before.


I really like how founder Will Ahmed here talks about how he identified this particular gap.

Will Ahmed:
Well, I think the most important thing is really to focus on the problems. So, a lot of times people focus on 'what', and I think you really have to focus on 'why'. So with WHOOP, why do we exist? Well, we want to prevent injuries. We want to prevent over training. We want to be able to predict that an athlete is gonna play well. And those opportunities, mission statements, those are things that have not been fulfilled. Now, there's products out there that monitor things about the body, or monitor steps. But are they necessarily gonna be able to predict an injury? Or prevent an injury? No. And so that's where I think just the framework around what you're really trying to do is so important. So it would be, I think, challenging for Fitbit to claim that their mission was to unlock human performance. It would probably sound more like, improve awareness of you're daily life, or daily activity. So, it's just different mission statements.


And generally speaking, early on, I think a lot of people quickly get pulled to, well what's out there, what's out there, what's out there. Versus why are you trying to solve this sort of lofty mission.

Robert Davis:
What I really like about this gap is it seems so clear in hindsight. The idea that an athlete might want more data than somebody's who's just working out. But that's not really where this industry started, right? We got really basic information out of that first generation of fitness trackers. And I think there's something to learn from that. There's nothing wrong with that. But sometimes a minimum viable product, won't find all the audience that's out there. And so got get into that gap a little bit and identify really kind of a unique space, that you can come in and take advantage of. And, one way I like to think about gap identification and MVP is, sometimes if you just say to yourself and think about minimum lovable product. As opposed to minimum viable, then you're really thinking about that person out there who you're trying to reach, who you think there's a gap and their needs may not be addressed. And you're getting at that more passionate buyer. And that's absolutely, I think, where WHOOP is with this. That passionate athlete who's just driven to excel without pushing too hard and too far.

Mike O'Toole:
And looking for an edge. Yeah, exactly. As opposed to marketing the 7th fitness tracker with some different features. It was about going after the top of the market. And he's got the NFL, he's got the Major League Baseball, he's got the NBA, so he's succeeded.


And I like that too, Robert, because what it says is the gaps are not always that obvious. That you have to look a little bit deeper. And I actually think that's true with the next company. We're gonna finish with Converse here. Because Converse is a brand that's been around for a long time. Sneaker marketing is kind of like fashion marketing. Seems like it's all been done before. But I think Converse, and then CMO Geoff Cottrill, looked really deep and said, "We're not gonna try to address a gap that we have as a brand. Like, how do we uncover something that helps us sell more sneakers." They actually said, "Let's go to some of our core customer segments. The people who are most passionate about us," see your same point about WHOOP, "And what can we do for them? What problem can we solve for them? What need do they have in their lives that isn't about sneakers, but is something that we can do for them that makes their life a little bit better."


So, here is Geoff Cottrill introducing the notion of Rubber Tracks.

Geoff Cottrill:
We sell sneakers to young people all over the world. Young people are bombarded with messages every single day. They can't escape them. In fact, none of us can. And the idea of let's not focus on what the message is, let's focus on the experience for the consumers and then let the experience be the message. Let their experience and what they remember and what they take with them, be the message. And we think that in the 14 or 15 months we've been open, between the 'A' studio, the 'B' studio, the rehearsal space, and the performance space, we've connected with more than 400 artists. And I haven't heard any of them say anything bad about their experience with us. That will last for years to come. That's sort of some of the thinking that kind of went behind that.


This idea that there are so many young artists who are emerging artists out there, that don't have the means to get into a recording studio. They'll tell you, "God we can't get signed until we get a good recording, but gosh, we can't get a good recording until we get signed, we don't have the money."

Mike O'Toole:
So, what Geoff is talking about is Rubber Tracks Studios, which, when we spoke to him almost 5 years ago now, it was really one studio in Brooklyn. And these studios are world-class recording studios that are open up to musicians who can record for free, no strings attached. What started in Brooklyn is now several studios all over the world. Traveling studios, pop-up studios at places like South by Southwest. It's become a really big part of the Converse brand. And a really big part of what makes life work for musicians today.


And he also talks about how, for the cost of doing TV advertising for a month, you could actually fund a studio for many years. And that kind of provocative and innovative insight, I think, allows for something really special here.

Robert Davis:
Yeah, we've talked about that as the rent versus own analogy more than a few times. So, addressing the gap of the musician who has this need and can't satisfy it, is super interesting and obviously has been really successful. I think there's another way to look at, and maybe it's retrospectively but, there's sort of this idea, there are the iconic creators who have worn Converse. From James Dean to Cyndi Lauper to Pharrell Williams. Throughout many generations there are super creative people who've been seen doing great things in Cons. And then there's, you know, we walk through Harvard Square and there's kids on the street every day with their Cons on. And they put them on and they feel kinda cool and they feel a little bit creative, and that's part of the magic and mystic of that brand. And then there's that gap of the people in between. They're not stars, but they've got all the energy, enthusiasm, and talent to do something creative.

Mike O'Toole:
They're artists.

Robert Davis:
Yeah, they're artists. And tapping that, it just enriches the brand in a whole nother level.

Mike O'Toole:
Like, one things I was thinking about is that, in that interview Geoff talked about how Rubber Tracks Studio actually was an expression of Converse's brand values, which I think is the point you're kind of making Robert. And one of those brand values is, blank canvas. And I love that because you see people drawing on their sneakers. But you also see a recording studio. What is a recording studio but a blank canvas for some artists work. It really does feel like ... 'cause we've made this point that, the best gap is the one that your brand is best prepared to meet. And Converse had those deep brand values, and so perhaps it was only Converse that could have this insight to set up a recording studios.


This is Mike O'Toole, and you've been listening to The Unconventionals. Thanks for carrying us through another great season. A special thank you to Robert Davis for adding his time and thoughts. Thanks Robert.

Robert Davis:
Always fun Mike.

Mike O'Toole:
Until next time, this is The Unconventionals.

Speaker 11:
[inaudible 00:29:06]

Speaker 2:
The Unconventionals is written and produced by Mike O'Toole and Reid Mangan with Graham Spector. Production and technical direction by Reid Mangan. Additional media by Anthony Gentles. Our Executive Producer is Phil Johnson, with PJA Advertising and Marketing. I'm [inaudible 00:29:30] [Lahey 00:29:30]. To listen to more episodes of The Unconventionals, visit agencypja.com/theunconventionals.
 

THE UNCONVENTIONALS
THE UNCONVENTIONALS

Discover more incredible stories of counter-intuitive moves that paid off big.

EXPLORE

NEVER MISS AN EPISODE.

Subscribe on iTunes now.

NEVER MISS A STORY

Brand for change

Life is too short to build an ordinary brand. Get ongoing perspectives on marketing that creates your highest value opportunities.