The Seinfeld MBA: Case Studies #2 and #3

We’re continuing along with our Seinfeld-inspired 3 Level of Risk approach to business analysis.  Check out the last two days posts, or dive right in here. The following story is from Tim Wu’s book, “The Attention Merchants,” but the analysis that follows is our own.

Clark Stanley, aka the “Rattlesnake King,” claimed to have learned the medicinal secrets for snake oil from a Hopi medicine man in the 1870s. After becoming a hit at trade shows, newspapers like the New York Sun were an easy next step. On Level 1, he had a grandiose story pitched aggressively to curious consumers, and a low cost / high margin / “secret ingredient” product. On Level 2, he had the balancing act of sales against the costs of in-person presentations, physical advertisements, and actual production. On Level 3, he made decisions on how to invest in order to scale his operation up (over time) based on his understanding of these economic relationships.

Unfortunately for Stanley (and fortunately for the rest of us), he had a blind spot. He had no evidence that his product worked. Details! Imagine that.

Once newspapers figured out they were selling the consumer to the advertisers and not the information to the consumers, news itself began to evolve. Sensationalism played a major role (if you really want to understand fake news, see the 1835 Sun report on the creatures that live on the moon’s surface).  “Muckraking” was the beginnings of investigative journalism. Like sensationalism, exposes made for great gossip, AND had significant potential political appeal.

Patent-medicine, of which “snake oil” became the catch-all label, was analyzed and scrutinized first by journalists, then by the freshly created FDA, and finally publicly skewered by the masses. On Level 1, muckrakers offered gossip with verifiable truths behind it (that they had to find), with the objective of getting them printed in the papers. On Level 2, the story had to be sensational and appealing enough, while routed in enough fact and current public interest to not just disappear. The non-economic balancing act of public sentiment is tricky. It’s a Level 2 problem because you need to balance the story with current sentiment (think of it like catching a wave, you can’t be too early OR too late). On Level 3, typically the editor would balance the story, with the sentiment, with the timing of the release, and then the follow up. A book may endure under one idea, but a paper needs to keep finding stories to publish. Level 3 success includes not being a “one bit wonder” and figuring out how to create hits consistently.

We’ll end with this: you can, and should, break down businesses into their Level 1 transactions, then gain a Level 2 understanding of what a portfolio of those transactions should act like, and finally arrive at a Level 3 understanding of how that portfolio can adapt to changes in conditions over time. Once you start thinking this way, you’ll start to see examples everywhere.