Peak – How Great Companies Get Their Mojo From Maslow

by Adrian Lloyd

Peak – How Great Companies Get Their Mojo From Maslow – by Chip Conley, Founder & CEO of Joie de Vivre Hospitality, and Stanford Graduate School of Business Graduate

 

Episode 1 Intro: We all know about Maslow’s hierarchy of needs.  Conley’s thesis is that the best businesses will focus on getting its employees, customers and investors (at least 1, if not 2 or all of these stakeholders) to reach the point of self-actualisation in relation to their business.  He simplifies Maslow’s hierarchy into 3 (vs 5) levels – Survival, Success, Transformation.  This kind of thinking is of particular interest to me, perhaps because my mother is a psychoanalyst and I have been surrounded by this language from an early age; perhaps because I spent 2 years at Stanford Business School drinking the Silicon Valley Koolaid; perhaps because it feels true and in the best businesses I have seen I can see it in action.

The below is an overview of the book Peak with its most salient points drawn out and a bit of commentary from our point of view.

First, the 3 level breakdown of Maslow’s usual 5 level hierarchy of needs for Employees, Customers and Investors:

 

Employees

  1. Money (Base)
  2. Recognition (Middle)
  3. Meaning (Peak)

Customers

  1. Meets expectations
  2. Meets desires (usually to do with relationship with the company and its staff)
  3. Meets unrecognised needs (surprises and delights….)

Investors

  1. Transaction alignment (i.e. RoI)
  2. Relationship alignment (you get on with your investors and visa versa)
  3. Legacy (i.e. makes you feel good and/or furthers a cause important to the investor)

 

I think it’s an incredibly important concept and one that all our startups should focus on.  It is arguably more applicable to consumer-facing companies, but that’s not to say there is a lot in here for enterprise focused businesses too.

He talks about encouraging CEOs to focus not on the base of the pyramid, but constantly on the middle and upper levels of the pyramid.  If you focus on the base, you won’t exceed the base….and “companies that cultivate an environment that allows for peak individual performance are rewarded with peak company performance”.

Conley started reaping the benefits of his focus on the peak of the pyramid(s) when the dot com bust decimated the Bay Area hotel market, where his business is exclusively focused.  Given the strong relationships he had formed with his customers, employees and investors, by focusing on their Peak needs, he believes he was able to grow during that downturn, taking large market share from his competitors that focused on the base of the Pyramid.

 

THE EMPLOYEE PYRAMID

 

Peak:  Meaning

Middle:  Recognition

Base:  Money

 

Extrinsic factors such as money and work-environment are base needs, but they don’t motivate people to work harder or smarter.  Intrinsic rewards do that – recognition and meaning in work.

  1. Money & benefits (base of the pyramid)
    • Particularly important to lowest cost workers who “can’t focus on their highest needs when they have an empty stomach and fears about how the rent is going to be paid.”
    • Satisfying this need well: one month paid-sabbatical every 3 years of continuous employment
    • Ask FTEs “what one thing could we do to improve your package of benefits”
    • Search for perishable assets that would make a difference for your FTEs (e.g. lending a Manager’s holiday flat that would otherwise be empty to star employees)
    • Ernst & Young e.g. – permanent 4-day holiday weekends around major bank holidays to allow FTEs to travel a day earlier than the rest of the country
  2. Recognition (middle)
    • People crave to feel important….so tell them they are, esp if you are their manager: “employees join companies, but they leave their managers”
    • “What people want most from their supervisors is the same thing that kids want most from their parents: someone who sets clear and consistent expectations, cares for them, values their unique qualities, and encourages and supports their growth and development”
    • Find out what each employee’s “personal favourites” are so when you reward them, it can be personalised (e.g. running shoes for Damien, concert tickets for Simon, Bonsai tree for Ash)
    • A study Conley cites shows that companies that have an employee recognition strategy show double the return to shareholders vs those that do not.
    • Must include formal and informal recognition to be most effective.  In person and verbal is most powerful, especially when public.
  3. Meaning (peak)
    • Often described in the mission statement of the company
    • Best companies inspire vs motivate their people.  If employees really believes they are making a customer’s life better, and they care about that customer, the company will prosper far more than in a company where employees don’t care
    • Conley ensures that representatives from the lowest paid front-line staff in his hotels are included in the off-site retreat for the exec team so they can have a say in strategy for the year ahead re customer service initiatives, capital improvement projects and enhancements to the employee work environment.
    • Google’s 20% rule (to spend on projects of choice) is a great example
    • Conley recommends you ask your employees regularly about “meaning” in their work – to find out what has given them meaning, what might give them meaning, how they can help give their customers meaning
    • Make a list of the 10 reasons people should join your organisation (excl cash and stock options).  Google’s example here

But how do you measure this?  Conley does it using Fortune magazine’s “100 Best Companies to Work for” survey, administered by the Great Places to Work Institute.  Take the survey and benchmark vs the best.

 

THE CUSTOMER PYRAMID

 

Peak:  Meets unrecognised needs

Middle:  Meets desires

Base:  Meets expectations

 

An initial step to understanding what the Peak needs are of customers is to think beyond the exact service/product the company is offering them and to instead think about the need it is solving.  E.g. Fedex CEO: “We thought we were selling the transportation of goods, when in fact we were selling peace of mind”.  Perhaps for:

  • CarWow: Not selling cars, but selling hours of peace and comfort on the daily commute / weekend trips with the kids
  • RaisingIT: Not selling a charity website solution, but selling the best way to communicate with your customers (donors)
  • SwiftShift: Not selling an HR tool, but selling a service that gives low-cost staff control & flexibility over their (work) lives

The best companies know their customers.  Really know their customers.  They don’t use research & surveys “as a drunk uses a lamp post….for support, not illumination” (David Ogilvy), they spend time with their customers, often just observing them, and they think hard, very hard, about what their customers want, and then deliver it fast.

Joie de Vivre did an interesting thing – they modeled each of their hotels around a magazine.  This was a way to create a theme for the hotel group, but more importantly it allowed everyone working in each hotel to understand what the ethnography of their guests was likely to be.  The Wired hotel clientele are different to the Vanity Fair hotel clientele who are different to the Rolling Stone hotel clientele etc.

As with Chip’s whole business, he created a hierarchy of needs for his hotel customers:

 

Maslow’s Hierarchy     Chip’s Customer Outcome

Self actualisation –> Identity refreshment
Esteem               –> Feeling like a VIP
Social/Belonging –> Responsive Staff Service
Safety               –> Well-lit parking, electronic door locks
Physiological      –> A comfy and clean bed

 

What does identity refreshment mean?  This mean going well beyond just satisfaction (that’s covered by the 1st 3 levels of the hierarchy) and to a situation where the guest is inspired by what they experience in the hotel to the extent that they want to make a positive change in their lives.  If you’re in the Rolling Stone theme hotel in San Francisco, you may want to pick up your old Fender guitar and start practicing again, or you may want to get your daughter music lessons.

The point is that you have to be disappointed with just “satisfying” your guests – that means you are reaching the industry average level of expectation.  If you want to stay ahead of the crowd you have to continuously push your industry to the next level – you have to be a revolutionary and so do all of your staff.  Give your employees permission to think radically and, to a certain extent, act radically.

If you manage that you won’t need to spend much on marketing – your customers will do it for you.

Some ideas:

  1. Use your customer survey results better – I recently stayed at a 5* hotel as part of a wedding.  It was amazing.  The only single thing I could give constructive feedback on was the way I was greeted when I first entered the hotel.  It was polite, but not warm, which was the opposite of what I experienced from every other staff member throughout the stay.  Two days after leaving the hotel I was asked for feedback – a Net Promoter Score survey.  I gave that feedback and within 24 hours I had a personal message from the head of client relations apologising for the service I had received on arrival explaining what they would do about it.  She also introduced me to the head of marketing for the hotel when I asked for the introduction so I could let him know about TripTease, one of our portfolio companies, that is looking for more 5* hotel customers.  That was awesome service.
  2. Make sure your survey is asking the right, direct, and actionable questions
  3. Don’t compare just to your peers, compare to the best in other industries too
  4. Engage your execs and employees in a brainstorming session about how you would apply Maslow’s Hierarchy of Needs to the motivations of your customers
  5. Test new ideas with your most valued customers – build a “learning relationship” with them
  6. Address your customers’ social and belonging needs by making them feel a part of something bigger than themselves – Harley Davidson is an exemplar with its HOG (Harley Owner Group) affiliation clubs which has 1 million members globally

 

How do you turn customers into evangelists?

Work out what business you are in (e.g. Joie de Vivre – selling dreams & providing priceless memories vs selling sleep), work out how you can help your customers self-actualise and sell that to your customers.  You want to understand your customer better than they understand themselves and therefore deliver experiences that they weren’t expecting and couldn’t imagine.

Apple does this through their Genius Bars and training sessions but helping their customers get more out of their Macs so they can get more out of themselves.  Steve Jobs famously said that the personal computer is a “bicycle for the mind,” giving people the ability to “explore like never before”.  The link between Apple and Joie de Vivre is actually pretty close when it comes to the Apple retail stores.  The former head of retail at Apple, Ron Johnson, asked 18 friends and associates who he considered thought leaders and asked them about their best service experiences.  16 of the 18 mentioned a hotel experience.  So Ron designed the Apple stores around the hotel experience – the greeter at the door, the “bar”, the VIP service through $99 ProCare which gives customers unlimited access to every service the store offers.  It has worked pretty well!

You not only have to know what business you are in, but also who your customers are – you need to position yourself in the market in the right way and once you know who your customers are you need to really get to know them.  Big companies use ethnographers and social anthropologists to tell them what their customer are like.  Intuit did one better – its QuickBooks division sent 500 employees on “follow-me-home” assignments for 3 days to view users using the software at home/in the office which yielded valuable insights.  This customer observation approach is a foundation of the amazing design firm, IDEO’s, approach which heavily influenced my Stanford MBA.  You can read (a lot) more about their approach here.

Can’t afford your own ethnographers – one hotel company simply gave its guests disposable cameras and asked them to photograph things they considered “magical” or “dreary” at its property.

Chip identified 4 themes at the top of the Customer Pyramid:

  1. Help your customers meet their highest goals
  2. Give your customers the ability to truly express themselves
  3. Make your customers feel like they’re part of a bigger cause
  4. Offer your customers something of real value that they hadn’t imagined

Some ideas for you:

  1. Do an off-site focused on creating your own customer pyramid
  2. Focus on the as many of the 4 themes above to help you address the peak aspirations of your customers – it may not be all 4, but hopefully at least 1
  3. When in doubt, be a “dreammaker” – create dreams, don’t sell sleep
  4. Measure and communicate the mood of your customers – a quick example of this.  There is a restaurant called The Inn in a remote valley in Virginia.  When you arrive there, the first waiter to come to your table scores the table on his tablet 1 to 10.  This score is shared with all the staff, front and back of house.  The number is constantly monitored and adjusted.  The aim is for all the table to receive a score of 9 or 10 before the end of their dinner.  If it is low, everyone tries a little harder to improve the experience of that particular table.

 

THE INVESTOR PYRAMID

 

Peak:  Legacy

Middle:  Relationship alignment

Base:  Transactional alignment

 

I’ll cover this part in a bit less depth than the others.

Transactional alignment:

The key components of transactional alignment are:

  1. Rate of return alignment
  2. Liquidity timing & strategy
  3. Board powers/controls
  4. Definition of the market & the company’s approach to differentiation
  5. Cash needs to execute on the business strategy
  6. A single metric that defines effectiveness

 

Relationship alignment:

The secret to great investing isn’t becoming the ultimate whiz kid at financial models or necessarily being the shrewdest negotiator in the room, it has a lot more to do with building long-term relationships with the entrepreneurs and business leaders who deserve your confidence.  Bill Price, cofounder Texas Pacific Group

If RoI is the only thing binding you and your investor(s) together, it’s going to be a rocky road to success.  When you are invested in by a venture capitalist, you will most likely have a very long relationship ahead with that individual and firm.  You have to get on.  You also have to try hard to ensure that if there are many investors, particularly if there are a few of equal size and importance, that they get on with each other.

The key to building these relationships is to collaborate with your investors to make them feel part of the business.  You have to of course select investors who are willing to get involved in this way.  Ask them before they invest: “What has been your most satisfying investment relationship and why?”

Perhaps consider some perks you can offer your investors through your company’s services.

 

Legacy:

Never doubt that a small group of thoughtful, committed citizens can change the world.  Indeed, it’s the only thing that ever has.  Margaret Mead

This is going to be less relevant to professional investors who run funds.  Their mandate is to select the most profitable investments for their own limited partners (their investors).

However, if you are looking for high net worth investors, it can only be of benefit if your company is having a clearly positive impact on the World in what ever way you can articulate it.  They want to hear how their money isn’t only making them money, but is making a difference to the lives of individuals or the environment.

 

BRINGING IT ALL TOGETHER

Business is simple.  Management’s job is to take care of employees.  The employees’ job is to take care of the customers.  Happy customers take care of the shareholders.  It’s a virtuous circle.  John Mackey, Founder & CEO Whole Foods Market

Chip put together all 3 pyramids into one giant pyramid as shown below.  Sums it all up well

Peak Maslow2

Click on the image to enlarge it

Suggested Articles

Rework
by Adrian Lloyd

The book is written by the guys who founded 37 Signals who make successful SaaS products Basecamp and Highrise. They believe the way companies work traditionally is ridden with flaws. Below is a selection of insights I particularly liked from the book, including some lengthy quotes where they write it better than I can summarise. Something we look for at Episode 1 are entrepreneurs who have been consistently successful in life. Not necessarily as entrepreneurs (though that is ideal), but…

Seedcamp & The Mom Test
by Simon Murdoch

I was a mentor at Seedcamp today in London. Will write more about it over the next few days – it’s on all week. One of the presentations I really liked was by Rob Fitzpatrick promoting his new book The Mom Test. Now I’m a big fan of Lean and especially of Customer Development, but as a VC, Rob’s assertion that everyone is lying to you as an entrepreneur really rang true with me. There’s no benefit to investors or…

Lean books every entrepreneur should take to heart
by Simon Murdoch

We are massive fans of the whole lean movement. Lean is usually thought of solely in terms of development methodology and there are lots of books about it. However, the customer development concept of lean is incredibly powerful for start ups and so we recommend all entrepreneurs should buy and read some or all of the following books. Feel free to get in touch if you need pointers on which relate best to your own situation. Choose from: Lean Startup,…

Episode1

Website by

We Are Ignition