Greg Tirico

February 28, 2021

Episode #329: Interview with Donald Hoffman - The Case Against Reality

Greg Tirico

February 28, 2021

Ron and Ed welcomed to the show the author of Ed's favorite book of 2019, The Case Against Reality, Professor Donald D Hoffman. (Or do they.) The show notes are below.

But first a bit more about Dr. Donald Hoffman…

Donald D Hoffman received a Bachelor of Arts degree in quantitative psychology from the University of California at Los Angeles (UCLA) in 1978 and earned his Doctorate of Philosophy in computational psychology at the Massachusetts Institute of Technology (MIT) in 1983 under David Marr and Whitman Richards. He was briefly a Research Scientist at the Artificial Intelligence Laboratory of MIT, and then became an assistant professor at the University of California at Irvine (UCI) in 1983. He has remained on the faculty of UCI since then, with a sabbatical during the 1995-1996 academic year at the Zentrum für Interdisziplinäre Forschung of Bielefeld University.

Ed’s Questions: Segment One

Welcome to The Soul of Enterprise: Business in the Knowledge Economy, sponsored by Sage, transforming the way we think and work so organizations can thrive. I’m Ed Kless, with my friend and co-host, Ron Baker. And folks, on today's show, we are very pleased to have our interview with Professor Donald Hoffman. Hey, Ron, how's it going?

Ron Baker

Very good, Ed. Looking forward to this.

Ed Kless

Yes. We’ve been marinating in Dr. Hoffman's work all morning, have a little bit of a headache, I must say. But that's okay. We will somehow persevere through this. Let me get the introduction done and over with so we can get right to the content here. Professor Donald D. Hoffman received a Bachelor of Arts degree in quantitative psychology from the University of California at Los Angeles and his doctorate in psychology in computational psychology from Massachusetts Institute of Technology. He was briefly a research scientist at the Artificial Intelligence Laboratory at MIT, and then became an assistant professor at the University of California at Irvine, where he remains on the faculty. Welcome to The Soul of Enterprise, Donald Hoffman.

So I have to give you the quick background story about how I came across your work. I'm almost certain that it was a reference that another one of our guests, Rory Sutherland [Episode #9 and Episode #267], who is the vice chair of Ogilvy and Mather, made to a TED talk that he saw you give, and I went through, and this is probably four years ago, loved it, went out and purchased your book, Visual Intelligence: How We Create What We See, and was so overwhelmed, and showed my daughter this, the picture of the thing called the ripple, which just absolutely blows me away every time I look at it, it is a two dimensional image, that when you look at it, you cannot but see it in three dimensions. And it is a wild, wild thing. So that was my quick introduction. I think it's on page two of this book. But I want to ask you a little bit about where did you come across this ripple? What, the background story about how you got to this visual intelligence piece before we get into the newer work of yours?

No, that would be very bad. So that image, the ripple, a computer would just see that as a 2d image because that's what a computer does at least initially, right?

So this led to your work on visual intelligence and then the your later work gets you to The Case Against Reality: Why Evolution Hid the Truth from Our Eyes, which is where I think we want to spend most of our time talking to you about. Before we start to get into the details of it, what was the transition like? You were coming from visual perception, then all of a sudden, the ideas of consciousness came into being? I'm trying to make that connection.

I love this, you write: “Cats can't do calculus, monkeys can't do quantum theory. So why do we assume that homo sapiens can demystify consciousness? Perhaps we don't need more data, perhaps what we need is a mutation that lets us understand the data that we have.”

Perhaps one of the more bizarre things that I came across after reading your work, that at least made me stop and go, hmm, maybe there's nothing to this, but there was a position that was put forward that said, perhaps people with advanced autism are an evolutionary step forward in their ability to process some of this stuff. And when you hear that initially that just seems ridiculous. But I guess it's theoretically possible that they are just perceiving things differently than we are.

Sure. Wow, this is just fascinating stuff. Thank you, Professor Hoffman, we are at our first break already, I can't believe it.

Ron’s Questions: Segment Two

Welcome back, everybody. We're here with Donald Hoffman, the author of The Case Against Reality: Why Evolution Hid the Truth from Our Eyes. Don, as we were talking about during the break, this book just really makes you think, and I love some of the metaphors you use, like the email on your desktop: it's there to hide the truth from you, and help you do useful things. And you say that's what evolution has done. And then you wrote this, you said, “The truth won't make you free, it will make you extinct.” And that's kind of where you begin to talk about the Fitness-Beats-Truth (FBT) theorem. Can you explain that?

You mentioned eye candy, and you have a beautiful discussion about beauty, and how it's not about objective reality. It's about fitness. And I just thought that was great. I remember, Ed mentioned Rory Sutherland, we had him on, and he says this all the time, that the peacock uses its tail as a way to signal and this is why women chase guys with Ferraris, not truck drivers.

That's amazing. The other thing I have to ask you about because it’s just mind blowing. If I'm sitting here looking at a spoon, and I turn away, is it still there? And you wrote well, “something is there, but it's not a spoon, and it's not in space and time”?

You even anticipate some skeptical questions, like, “If I don't see reality, why does my camera see what I see?” Or, “How does a driverless car work”? Can you explain that, because I can see people raising those types of objections?

Don, this is great, we’re up against our break. It’s like being in a graduate seminar. I really appreciate this.

Ed’s Questions: Segment Three

The book is The Case Against Reality: Why Evolution Hid the Truth from Our Eyes. The author is Professor Donald D. Hoffman, who is with us today on The Soul of Enterprise. And, Don, I want to ask you now about the concept of consciousness. You write: “All attempts at a physical theory of consciousness have failed. They have produced no scientific theory and no plausible idea of how to build one. The failure, I think, is principled, you simply cannot cook up consciousness from unconscious ingredients.”

So the assumption that neurons create, or that physical systems like the silicon circuits, create consciousness or could create consciousness is wrong from the get go, because we're assuming those things have an objective reality, and they don't.

It's funny, a high school friend of mine just posted an article last week from those two scientists that you mentioned about the microtubules. So thanks, you already covered the question that I had for you around that. So then you go the other way and say, okay, well, then what we need to do is we need to argue that consciousness is the foundational building block, and that it is conscious units that create more consciousness. Do I have that sort of right?

The book came out about two years ago [2019], at the end of the book you mentioned that you're starting these calculations with your team. I assume that since you're still talking to us two years later about it, you haven't falsified it yet?

Well, I've got only about a minute left with you and want to ask you what might be a deep question. And if it's out of bounds, please let me know. Has your research and work changed anything about how think about the divine in any way?

Wow, Amazing stuff. Thank you so much. Ron's going to take you the rest of the way home in the last segment. But I just wanted to thank you for appearing on the show today. It's been great to talk to you and a deep honor.

Ron’s Questions: Segment Four

Welcome back, everybody. We're here with Donald Hoffman, the author of The Case Against Reality: Why Evolution Hid the Truth from Our Eyes, which we highly recommend; I think it was Ed's number one book from last year. And Don, I wanted to ask you, on this consciousness topic, you seem to be fairly optimistic, or believe, that Artificial Intelligences can create real consciousness?

We've had George Gilder on the show [Episode #207], and he wrote Life After Google. He's an economist, he's got an information theory of capitalism which I find absolutely fascinating, and talks about some of the same things you do, some of your work overlaps. And I just wanted to get your reaction to this because he doesn't think that AI can, or could, create consciousness, and he wrote this: “The blind spot of AI is that consciousness does not emerge from thought; it is the source of it. The Oracle programmer must be outside.”

This is a business show, so I wanted to ask you about this because I found this fascinating in your book as well. You consulted, I think, for a jeans company, and you were an expert witness for T-Mobile. And you're talking about color psychology and how different colors conjure up different emotions and things like that. And I guess you coined the term “chromatures,” which give a richer structure, and trigger more precise reactions. You give the example of the magenta, T-Mobile's brand color. And I thought of the Tiffany's blue box, or whatever. Do you see this being used more in business and advertising and marketing?

You have a great picture in the book of a gal wearing jeans and both half's are different. And it's just fascinating. How's the book been received, Don?

Have you ever had a debate, like with a Michael Shermer, some type of skeptic about it?

[See YouTube podcast with Michael Shermer and Donald Hoffman here].

Science advances by dissent, not consensus, right?

Don, in the last half minute, do you got another book coming out, or in the works?

Well, if you do put out that book we'd love to have you back on to discuss that one. We're big fans. So Don, thank you so much for coming on the show. This has been an honor, as Ed said, and I really enjoyed the book and best wishes with your research. It is fascinating. Ed, what's on store for next week.

Ed Kless

Next week, Ron, we're going to talk about “In Search of Relationship Value.”

Ron Baker

Awesome. I will see you in 167 hours.

Bonus Content is Available As Well

Did you know that each week after our live show, Ron and Ed take to the microphone for a bonus show? Typically, this bonus show is an extension of the live show topic (sometimes even with the same guest) and a few other pieces of news, current events, or things that have caught our attention.

This week was bonus episode 329: “It's Por-SCHE, not Porsh”
Here are a few links discussed:

Click the “FANATIC” image to learn more about pricing and member benefits.

Greg Tirico

February 21, 2021

Episode 328 - Interview with Gene Marks

Greg Tirico

February 21, 2021

Ed’s Questions: Segment One

Welcome to The Soul of Enterprise: Business in the Knowledge Economy, sponsored by Sage, transforming the way people think and work so their organizations can thrive. I'm Ed Kless, with my friend and co-host, Ron Baker, and folks on today's show, we are pleased to have with us for the first time, Gene Marks. Hey, Ron, how are you doing?

Ron Baker

I'm doing good, Ed. I had an eye doctor appointment this morning, so my eyes are dilated and full of stuff, so I can barely see you. But I can listen, so that's good.

Let's get Gene on and welcome him to the show. Gene is the CEO of the The Marks Group, and also the host of the weekly podcast called Small Biz Ahead [presented by The Hartford]. And also Gene marks.com, to read his blog and other fun stuff, welcome to The Soul of Enterprise, Gene Marks.

That’s great. We've recently had Peter Robinson on from Uncommon Knowledge [Episode #320], who was a speechwriter for Reagan and wrote the “Mr. Gorbachev, tear down this wall” speech. And he told us the backstory to that, which was absolutely fascinating. The other thing is that speech that we play as an introduction is from his speech to Moscow State University. And it was delivered with the bust of Lenin is behind him. And he's talking about this economy and mind, no bounds on human freedom to create being the most precious natural resource, and we just think about that. And we think it's perhaps Reagan's best ever speech and the author of that speech, Joshua Gilder, is coming on in a couple of weeks [March 12, 2021].

I personally think that he was right about the Cold War, the Soviets just couldn't keep up with us from an innovation standpoint. And that's one of the reasons that this show is The Soul of Enterprise, because we believe that business has not only a material but also a spiritual component to it. And that was one of the things that was missing in the Soviet Union, not the religious, but spiritual component of business and the creativity.

He was great at that, Let’s hire good people and get the hell out of their way,” that was his motto. So Jean, there's so much we could talk to you about, but the thing that jumped out at me today in news: Bitcoin is over a trillion dollars in market cap. I'm fortunate enough to have some that I bought a long, long time ago, and I'm already out, and have gotten out what I put in. So now it's all house money. So now I'm like, it's either going to change my life in the future, or it's not. That's where I am with it. But I think this is a significant moment, or at least maybe through the next couple of months. I looked at this as a Crossing the Chasm kind of thing. Today, we are about 10% of the market cap of gold. And you know, that Crossing the Chasm, Mark, is that, you know, 10 to 14 to 18%, when you cross the chasm, and then boom, you get all of the early adopters who just completely come online. And, we're at a point now I think, an inflection point, a serious inflection point, whether this is going to make it or we're going to break it in the next couple months. Thoughts on that?

One of the things that Elon Musk talked about, and Greg [Tirico] who runs our social media, and I were talking about this earlier today is, first of all, he always clarifies that it wasn't himself who made the investment, it was Tesla who made the investment. And the rationale for it is really so that they would be less beholden to the volatility of it when they start taking payments in it. That was the thought process. Now, if this starts to happen with other companies, if Walmart, Amazon, starts to hold large amounts of Bitcoin, that's where you see…

I completely agree. So we've got about two minutes left on this segment, so I'm hesitant to bring up a completely different subject. I wanted to get your thoughts. Have you looked at all at the Australian link tax that's come out recently? I tried to post something today on Facebook and was told, nope, you can't do it because there's a link to Australia in there somewhere, And Australia has now put a thing where if you want to put a link up, there's a tax that has to be paid to do this. This is a really bad idea.

That might well be, but posting a link and a tax on a link seems to me that's not content, you're not publishing content when you're publishing a link. It seems to be a silly argument.

All right, we are up against our first break.

Ron’s Questions: Segment Two

Welcome back, everybody. We're here with Gene Marks. And Gene, I feel like we could go a million different places because I know you're a KPMG alma mater, but let me ask you this. This caught my eye looking at your bio, tell me about your book, In God We Trust: Everyone Else Pays Cash.

Fantastic. Let me ask you this, because I know you're a CPA, as am I? Do you think our profession is serving small businesses in this area of cash flow? Cash is king, right? It seems like we play historian with bad memories with the financial statements, but we don't help them model cash.

It seems like we pay lip service to the relationship we have with the customers that we're privileged to serve.

Tell me about your book, The Small Business Book of Lists.

That's phenomenal. It reminds me of the book, The Checklist Manifesto, but on steroids.

Ed and I work in the pricing space, and there's been this pricing revolution going on since at least the mid 1980s, in big business. And my question for you is, do you think that's filtered down into smaller business? In other words, have smaller business gotten more sophisticated with respect to pricing, moving away from the idea of cost-plus pricing and more to value pricing?

And it's good enough, right? It's what one economist called “satisficing,” we just do good enough, we don't set out to optimize or to maximize, we just do good enough?

I couldn't agree more. It is a totally amazing opportunity. And we've been trying to get CPAs to do it for their customers. And Gene, we've had more luck with bookkeepers; they can advise their customers because they seem to have a better relationship with them.

I was thrilled to hear you say that you've got an opinion on everything. So I'm going to switch gears really hard on you here. Grade president Trump's economic policies.

It's a great point. It creates a climate of uncertainty. I think you can equate it back to FDR during the Great Depression, all the programs he tried created enormous uncertainty in the markets. It probably stalled the recovery for more years. Gene, this is great. This is flying by.

Ed’s Questions: Segment Three

And we are back with the CEO of The Marks Group, Gene Marks, and also host of the weekly podcast Small Biz Ahead with The Hartford. Gene, you were talking pricing with my partner, Ron, and we have been doing a lot of shows in the last 18 months or so, including an interview with Tien Tzuo [Episode #230], who wrote the book Subscribed, about the move to the subscription economy. I’d love to get your thoughts on subscription based pricing, especially in the professions.

Let me recommend that you listen to our show from last week with John Warrillow [Episode #327], author of The Automatic Customer, who told a story very similar to yours, how he was working with one client of his that was ready to walk away. John’s big thing is built to sell, that's the name of his system. And he said the one customer in professional services industry, they were getting offers of 70 to 75 cents on the dollar of revenue. Another company, in the same industry, it was media. So search optimization, that kind of stuff, but it had a subscription model, they were getting offers of 13 times revenue.

Let's turn our attention to your latest article and talk a little bit about this, because I think that there might be something here. Your latest article in Forbes, published this morning, says that 48% of sales leaders say their CRM system doesn't meet their needs? Alright, so the good news is that's fixable. All right, why is it and how is it fixable? And let me pose this to you: Why can't you as a business owner make a subscription model around fixing it?

And that's the problem. I did implementations for a long time, both of CRM systems and accounting. And I always felt that the project is this summit, we always use this climbing the mountain metaphor. I was like a Sherpa, and I was helping my client get to the top of the mountain. And then I was taking a helicopter off and saying, “Good luck getting down.” And I think that's really the problem. So I think that by applying the subscription model, look, not every customer is going to want it, and it's going to be significantly less customers that do this. But I think that's really the issue. Let me tell you a quick story before the break. But here's an example of a great CRM system. USAA insurance, I had a little fender bender about two years ago, this was before COVID. So I call up USAA and they say, first of all, “Are you safe?” That's their first thing, customer service. Are you feeling safe? Yes, I'm feeling safe. That's great. Thanks, Mr. Kless, that's wonderful. Oh, and by the way, thank your father-in-law for his service.

Bang.

Remember Martha Rodgers and Don Peppers wrote all those marketing one-to-one books. I saw Martha Rodgers speak at a conference and she called it the “Dory effect.” Remember Dory from Finding Nemo? She had no memory. What paper would you like? The Wall Street Journal like I said yesterday.

Alright Gene. Well, thank you so much. I'm going to let Ron finish up with you for the last 15 minutes so let me say thanks for appearing today. We'll have to have you on again sometime, love talking to you.

Ron’s Questions: Segment Four

Welcome back, everybody. We're here with Gene Marks. Gene, you are an author, you've written some books. So let me ask you, we love to ask our author guests this question. What are some of the business books that have had a major impact on your worldview, your thinking, your behavior?

One of the books we highlighted on our show, Best Books of 2020 [Episode #326], and the one for me was Humanocracy by Gary Hamel [Episode #313]. I don't know if you've had a chance to read it. It is phenomenal. It’s a screed against bureaucracy in business. And it's, as usual, he's just way ahead of his time with that book.

I agree with you reading history, reading biographies, autobiographies, that's where it's at. I learn more from that. You mentioned the FDR book. I wanted to tell you about one of Richard Nixon's books. He wrote many books. He's got one called Leaders that I thoroughly enjoyed. It's one of the best, because I can't stand books on leadership. There's too many of them, they all sound the same. His is completely different, it profiles some of the greatest figures in history. And it's a really interesting perspective on leadership. Really, really good.

And I noticed just looking through your blog scroll that you tackle economic issues. So who are some of the economists that have influenced you over the years?

That's awesome, we're economist junkies. We've had a lot of guests that are economists. Are you familiar with Russ Roberts’ podcast, EconTalk?

In the spirit, since you like James Pethokoukis, you might also check out John Tamny, over at Freedom Works. He's written many books on economics just for the layperson, and he's got a different perspective—he bashes both sides. It's just really interesting [John Tamny will be on the show March 19, 2021].

And if there's inflation, we'll just raise taxes and suck the money back out.

Thanks so much, Gene. This has been wonderful having you on. Will definitely want to do this again.

And stay with us as we do our live close. Ed, what do we have on store for next week?

Ed Kless

Ron, next week, we are talking to Donald Hoffman about his book, ready for this folks, The Case Against Reality.

Bonus Content is Available As Well

This week was bonus episode 328: “Ed Is Off His Meds”
Here are a few links discussed:

Click the “FANATIC” image to learn more about pricing and member benefits.

Greg Tirico

February 14, 2021

Episode 327 - Interview with John Warrillow - The Automatic Customer

Greg Tirico

February 14, 2021

Ron and Ed welcomed the author of The Automatic Customer, John Warillow. John's work has been a staple of the presentations that Ron and Ed have given on subscription-based pricing since the beginning. His nine models for subscription businesses lay the foundation for almost all subscriptions you will encounter. Join us for what promises to be an enlightening conversation.

Ed’s Questions: Segment One

Well, let me get to the particulars and we'll get John right on because we have been looking forward to this day for quite some time. We've been following John's work for the better part of two years or so, since we've been starting to get into subscription economy. John Warrillow is the founder of the value builder system, a simple software for building the value of a company used by 1000s of businesses worldwide. He is the author of the best-selling book Built to Sell: Creating a Business That Can Thrive Without You, which is recognized by both Fortune and Inc. magazines as one of the best business books of 2011. His next book, which is the one that came to mind to Ron and myself, is The Automatic Customer: Creating a Subscription Business for Any Industry. This was released by Random House in February of 2015 and translated into eight languages. His latest book, which we'll perhaps talk a little bit about, released in 2021, is The Art of Selling Your Business: Winning Strategies and Secret Hacks for Exiting On Top. Welcome to The Soul of Enterprise, John Warrillow.

Well, I'm going to start with subscription. Let's dive full in: subscribers are better than customers. Explain.

And that was pre-COVID numbers. I'm sure it's even higher since then. One of the things that Ron and I had talked about in the professions is getting people to change from using the term client to using customer because of the nature of the word customer, it comes from the word custom, it is their custom to repeat business with you, it is their custom when they came into town to stop by your store. But do you like the term subscriber, or even member, better? For those reasons? Do you think changing that language has an impact?

Yeah, that's how we felt to, especially with the term customer. But I'm starting to like member better, what I think back is to that American Express ad campaign from, I don't know, maybe 20 years ago, membership has its privileges.

What are some of the key mindset shifts that a business owner needs to change when they're going to a subscription model from a product based model, let's say?

I listened to an interview in preparation for the show that you did probably four or five years ago now. And you were critical of Microsoft and how they were rolling this stuff out. Do you think they've improved on what they've done with Office 365? Or are they still struggling a bit in your view?

That was certainly one of our challenges at stage two. We sell business software as well. One of the things, and honestly, I don't know where Ron and I picked up this line from, it may have been your book. And as I was flipping through, I couldn't find the exact line. But our mantra has been that we need to price the portfolio in the subscription model, not price the customer or even the service. Because what you're really looking to do is you're trying to spread the risk pool, it's almost insurance, across the entirety of the pool. And I want to get your comments on that. Did we steal that line from you? Or is that not something you remember writing in the book six years ago?

I love talking about this stuff because people think, “Well, there's always some reason my business can't be subscription,” right? You just gave a great example of selling flowers. But what if I'm retail flower shop, I can't be subscription, can I? And I think, of course you can, maybe you could you could sell some subscriptions. And one of the things I like that you talk about, it's not about becoming a subscription model so much as it is expanding into one. Talk a little bit about that difference? I think it's a subtle but very important point.

I love that. As we would say in America, niche down, but I like niche much better. I think that's a a great phrase to “niche down,” to try to get to where you want to be. Well, this is flying by as I knew it would. We are already up against our first break.

Ron’s Questions: Segment Two

Welcome back everybody. We're here with the author of The Automatic Customer: Creating a Subscription Business for Any Industry, John Warrillow. And John wanted to ask you, by the way, I loved your book, I thought your book was excellent. How you laid out the nine subscription models, which was absolutely beautiful. You even gave a little bit of a history of how the European map publishers were the first to really offer subscription, which I found fascinating. But why do you think this subscription Renaissance is happening now? You mentioned the Columbia Record House, which ended up filing bankruptcy—I still think they're charging me by the way—but why do you think that this subscription Golden Age is happening now?

Sure. You wrote that nothing has been as successful in getting people to shop in new product lines. And what I love about this model is it does put a premium on the customer relationship, experience, innovation is baked into the model. You're constantly delighting the customer, you have to constantly exceed their expectations, don't you?

Because you’ve got to develop them into that habit of using you and make it part of their life. I love how you say “communicate like a giddy lover.” But if you do that too much, you can be too needy and annoying. That was a great analogy. I'm going to take your subtitle to heart: creating a subscription business in any industry, because we've been trying to do this, as we said before we went live, in the CPA, legal consulting, and advertising agency space. And I think the model is the concierge or direct primary care medical practice that, I don't know if you're familiar with this—I know you're in Canada—but throughout the United States there's about 14,000 of these general physicians that work in this practice where they have member subscribers paying them anywhere from a cell phone bill a month, or maybe a cable package a month, for access to their doctor: telemedicine, same day appointments, house visits, you name it. And it's just basically saying, look, you're covered for all your health needs, anything that we're capable of doing; if they have to go to a specialist or something that would be separate, their insurance might kick in. But I think that's the model, John, and that model has been around since 1996. A real smart team doctor from the Seattle Sonics founded this company called MD Squared. Do you think this subscription model is possible in the professions?

You mentioned the front-of-the-line model. And in terms of this concierge practice, I want to ask you about this too, because I also think it's tapping into your convenience model and your peace-of-mind model. And I think those are two areas that professional firms completely under invest in. We don't realize how good those make the customer feel. I remember talking to Jonathan Stark, he's got a concierge doctor. He's never used him in 10 years. He said, but I know if I need them, he's there, he'll be right there for me. He says I gladly pay for that. It's kind of like insurance, isn't it?

That's awesome. John, this is just flying by, but it’s great, thank you so much.

Ed’s Questions: Segment Three

Our guest today on The Soul of Enterprise is John Warrillow, author of the book The Automatic Customer: Creating a Subscription Business for Any Industry, published in 2015. Ron and I both highly recommend the book and it's been on our hit list for quite some time. John, I want to stay on the theme that Ron has been talking to you about and that is the nine subscription models. When you were developing the book, what was the process for limiting it to nine, to get to the point where you had something discreet about each of these, that made sense in your mind?

And for that [certainty] most of us would pay a little bit of a premium. One of the things I've heard you talk about is, and I love this analogy, the mindset to get into, rather than try to think about a way to give somebody a 10% discount for coming on board a subscription. What can you do to do something so that it's a 10x better than? So talk a little bit about that? I think that is a great way to think about things.

And people probably would use the carwash more, but that's okay. If I paid $30 a month for a carwash I would more likely use it than not, but that's okay.

Off the top of your head, of the nine models that you talk about in the book, have you seen any new ones emerge that made you say, “Ah, there were there was one I missed. I really need to include that if I ever do version two of the book.?”

Another great example of what you called earlier “niching down” that's a great example of that.

Another question that I have for you, you’re probably aware of Tien Tzuo, the CEO of Zuora [Episode #230] and his book Subscribed. His newsletter is fantastic, another one of the other sources that Ron and I go to. He has been begging Apple to get into the subscription business for their products. Right now, I think, about 70% of their revenue is subscription services, a lot of people don't realize that. But he's been begging them to do this for their products. Any idea on your part, why do you think Apple's hesitant to get into the subscription model for its products?

Outstanding. All right, we’re up against our last break.

Ron’s Questions: Fourth Segment

Welcome back, everybody. We're here with John Warrillow. And John, I want to stay on the professional firm and ask you this, talk me off the ledge on this because a lot of people say, “Well, for a law firm or a CPA firm, we have these big projects, or black holes, they're not common. They don't come up all the time. So we couldn't possibly put that on subscription.” Now, I don't buy that. But I know that you profile that Hassle Free Home Services business that will carve out a one-time project, build my deck or remodel my bathroom, and they charge those as one-offs. Is it possible to run a hybrid business model? That is, partly transactional and partly subscription, because that's where I get hung up, because I think these are such different mindsets, that the two don't play well together?

I couldn't agree more. And people are fighting about that with us. I don't know if you've read No Rules Rules by Reed Hastings of Netflix? But it just seems like this model does so many great things. First off, it puts the relationship at the center, but it also blows up silos, and it blows up bureaucracy. Everything revolves around the customer at Netflix. I learned this from the book, they don't have individual KPIs. You can do that in a subscription model. There is no way you can do that in a transactional model.

You've talked about multiples of earnings being the sales price. And I was just wondering, in the professional space, do you have any experience on what most accounting firms sell for, it’s usually one times gross [revenue]? I think if they are subscription they'd go for a higher multiple. Do you have any evidence to support that claim?

They just have to get over that all-you-can-eat fear, like the carwash owners, “Well, what if they come in a million times in a month.” And like you said, and it was a great point, if they did come in that much, it just shows you how much they value your service. It's going to diminish over time, but the value stays there. Another question I have for you is, and we talked a bit about this during the break, but why do you think companies like Audi and BMW have canceled their automobile subscriptions?

They have that one-on-one relationship, just like Harry's Razor and Dollar Shave Club, that direct-to- consumer is really powerful.

Any new subscription businesses that have come online that have impressed you, or that you've raised an eyebrow, we've got about half minute?

Brunswick is doing a subscription model with boats, and Roam is doing housing around the world, you can live in a house on subscription basis. John, this has been fantastic. Thank you so much. We are big fans of the book. We recommend it all the time. It's all over the place when we talk about this model, really honored to have you on. Ed what's on store for next week?

Ed Kless

Next week, Ron, we have author, columnist, keynote speaker, and small business expert Gene Marks.

Bonus Content is Available As Well

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Greg Tirico

February 7, 2021

Episode 326: The Best Books of 2020

Greg Tirico

February 7, 2021

An annual favorite, Ron and Ed talked about the best books they each read in 2020. Sometimes there is overlap, other times none. All book links are below including a special top 5 list that specifically includes authors interviewed on the show.

Let’s start with a quote:

“You don’t have to get people to burn books to destroy a culture. Just get people to stop reading them.” —Ray Bradbury, Sci-fi Writer

Ron’s Top Five books from authors we have interviewed (more in the bonus show)

5. How Ronald Reagan Changed My Life, Peter Robinson (Episode #320)

4. Snapshots from Hell, Peter Robinson (Episode #320)

3. Evasive Entrepreneurs, Adam Thierer (Episode #294)

2. The First Cell, Dr. Azra Raza (Episode #289)

1. Humanocrarcy: Creating Organizations as Amazing as the People Inside Them, Gary Hamel (Episode #313)

Ron’s Top Five Books of 2020

5. They’re Both Wrong: A Policy Guide for America’s Frustrated Independent Thinkers, John Tamny, 2019

Love this from the Foreword: “Just because an idea appeals to a lot of people doesn’t mean it’s wrong. But that’s a good working theory.”

4. How Innovation Works: And Why It Flourishes in Freedom, Matt Ridley, 2020

An excellent account of innovation, along with one of my favorite definitions for innovations: “Enhanced forms of improbability.”

Also, “The number of people predicting the death of Moore’s law doubles every two years.” –Peter Lee of Microsoft Research, 2015

3. Countdown 1945: The Extraordinary Story of the 116 Days that Changed the World, Chris Wallace, 2020

A page turner most momentous decisions in history made by a president who had no knowledge of the Manhattan Project. It was a day, he later said, “when the world fell in on me.”

2. Empires of the Sky: Zeppelins, Airplanes, and Two Men’s Epic Duel to Rule the World, Alexander Rose, 2020

Dr. Hugo Eckner, once the most famous person on the planet, and Juan Trippe, the founder of the first world-wide airline, Pan American. Ultimately the birds would conquer the clouds.

1. Witness, Whittaker Chambers, 1952

After his early years as a Communist Party member (1925) and Soviet spy (1932–1938), he defected from the Soviet underground (1938), worked for Time magazine (1939–1948), and then testified about the Ware group in what became the Hiss case for perjury (1949–1950), often referred to as the trial of the century, all described in his 1952 memoir Witness.

This is a classic, a work of deep philosophical meaning. His opening letter to his children is profound.

Ed’s Top Five Books of 2020

5. Apocalypse Never: Why Environmental Alarmism Hurts Us All, Michael Shellenberger, 2020

4. Gospel Parallels: A Comparison of the Synoptic Gospels, New Revised Standard Version, Burton H. Throckmorton, Jr., 1992

3. Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All, Deirdre Nansen McCloskey, 2019

2. The Great Gatsby, F. Scott Fitzgerald, first published in 1925

1. The Fabric of Civilization: How Textiles Made the World, 2020 [Episode #325]