Project: Liftoff

I think I mentioned that I recently took a vacation – a great trip around France, if you’re interested in the details. Of course, to get there, we flew. The way there we took Air France, but, on the way back, we flew Delta and saved a lot of money. Along the way, I saw several business lessons. Air France is pretty well-known as a premium airline. They offer good food and their in-flight entertainment deservedly gets high marks. Delta is the biggest airline in the world and offers your standard US airline experience – older equipment, bad food, and cranky flight attendants. Of course, that Air France ticket is a lot more expensive than that Delta ticket. Air France offers a premium, distinctive product that I can’t get elsewhere; does it  at a premium price; and hasn’t recently been tremendously profitable, because of relatively higher costs. That’s OK; they couldn’t be lower-cost and still offer the level of service that makes them distinct. Delta is low-price provider of commodity service that I can duplicate by flying any other airline, but they’re profitable because of their low costs. I can switch to anybody else and get at least the same experience, but, because Delta is so large, they have economies of scale and can offer that return ticket a lot cheaper than their competitors. You need to pick: cost or quality. Delta and Air France did. Even if you can do both, like Virgin America, your customers will talk about one, just as everyone always talks about the great experience of flying Virgin America with its food, in-flight entertainment, and distinctive cabin lighting. And you need to pick one and stick with it; the other won’t be sustainable for you. For instance, Delta put fancy wood floors in their bathrooms. I could tell they were nice, but we were flying older equipment and, years after these expensive floors were installed, they just looked dirty. Easy-to-clean plastic would’ve been better. It’s not a bad thing to be a commodity provider, undistinguished by quality. There will always be many customers who are price-motivated. If your exit is to be acquired, it may be smart to be a commodity. For instance, Northwest was a commodity provider. Initially, they had a defensible position because they served unique geography. Recently, Delta was able to buy them because Northwest offered exactly the same kind of commodity Delta did. Delta couldn’t acquire, for instance, Southwest, because that company is run too differently from Delta’s model to be integrated into their service. If you can imitate Northwest’s strategy, being a commodity may offer a unique benefit to you in the long term. But remember: few start-ups are actually low-cost. Southwest was a low-cost startup, but that airline is an exception because they have very unique business practices. Usually a startup appears to be low-cost because it’s small and can make low-cost, low-volume choices. When you increase the volume in which you provide your product or service, you suddenly find yourself buying the same expensive equipment that your larger competitors are spending their money on – and that is keeping their prices high. It takes practice and diligence to be low-cost. For many start-ups, going the premium route is more sustainable. And it can last too: just look at Air France.

I just returned from vacation, and came home to find that some things just weren’t working… (As you can probably guess, this video was made before Time Warner fixed things, but posted after, so the Internet’s working again!)