by Oren Klaff
If it sounds new, we can be sure to get a solid look, a return phone call, or an in-person meeting based on novelty. When people hear new ideas, they initially get excited, which provides social validation and gives the seller the illusion of an elevated interest level. But this rise is temporary, and when the exhilaration of new and different wears off, the desire for tried-and-true takes over, and it is surprisingly difficult to get people to actually change their behavior.
One example of this today is with self-driving cars.
For the first time in history, we are seeing the commercial release of the fully autonomous drive-you-anywhere-you-want-to-go car. General Motors makes one, and Ford and Tesla do too. So do Toyota, Nissan, Porsche, and Mercedes, and even Kia will have one soon. Let’s assume the cars work like any other, except the one I’m suggesting you buy has no steering wheel you can turn, no brakes you can push, no turn signals or any other controls. The only thing you can touch is the radio knob. So now let me ask—when are you going to buy one?
Your answer to this question will tell me what risks you’re willing to take in life. If your reply is, “Did you say no steering wheel or brakes? No way, I’m not buying that until hell freezes over,” then you are probably a late adopter, an average consumer who buys around the same time everyone else does. You got an iPhone when the hundredth person in a week pulled one out to show you what they had for breakfast.
Maybe your answer is “I have to have the very first self-driving car available.” There aren’t a lot of you guys out there, because you people are the crazy ones Jobs was talking about. The crazy ones pursue new technology products aggressively and buy the moment they hear “We have two available—want one?”
But this early versus late adopter market segmentation concept falls apart when the stakes go up. Time and time again my team has found that the bigger and more important a decision is, the more likely it is to be made based on conservative criteria. When lives are at stake, jobs are on the line, and the company has to meet its goals to pay the bills, new and exciting ideas will almost always be considered but passed up. Ask someone who is into driverless cars what they think about fully automated surgeon-less heart surgery. Oh, they’ll be interested to hear about it, and they’ll approach, but when it’s time to commit, the avoidance behavior is going to win out.
This leaves us with a problem. The best method to get people to listen and pay attention to our ideas is to make what we are saying seem new and exciting. But doing so can trigger anxiety and avoidance, and they won’t be likely to take action when it counts later on. On the other end of the spectrum, if we make our message seem normal and nonthreatening from the beginning, it’s possible nobody will listen to it.
Where’s the balance?
The trick is to use a technique called Novelty Chunking to make it seem like your deal is different from “normal” in just one key way, while everything else about the deal is completely Plain Vanilla. Then you show the buyer that what’s normal is shifting, and the one key, different thing is really popular today. There is a new normal.
Unfortunately, I hadn’t yet discovered this foolproof formula when I got stuck staring down the Kobayashi Maru that was Mahalo Marketplace.
A NOVEL IDEA ON MAHALO
Two weeks had passed since Logan signed us up for the suicide mission of selling Mahalo for $50 million. I started sleeping at my desk. I was eating there too. The workload and stress were taking a toll on my health.
Our entire plan for selling Mahalo centered on a single man: Mitch Preston, a prominent real estate investor in Hawaii who basically had a hand in every large real estate deal being done at the time. Mitch was so respected in the market, I knew other investors would follow his lead if I could get him to buy into Mahalo.
But after running my research on this deal and glancing through the specifications of Mitch’s most recent investments, I knew exactly what his reaction was going to be: “Yes, it’s super profitable, but it’s just too different.” He had a formula that was making him a lot of money. Like all good investors, he would want to stick with what he knew. Mitch’s formula was pretty simple: He ran a portfolio of large commercial properties; he held on to buildings for a few years, slowly found creative ways to raise rents, then sold at a profit.
With the clock ticking, we didn’t have many choices of serious people at Mitch’s level. If he said no, we would have blown our best shot at getting the deal on track.
The fastest way to get Mitch to buy into my deal was to convince him that Mahalo was just like the other properties in his portfolio at the time—that his standard formula would work perfectly on this one. But the more closely I looked at Mahalo, the more problems began to emerge. No way around the facts; this place was nothing like his other properties!
Here was the cold hard reality:
We had sixty-eight tenants, almost none of whom had good credit, and they were all on short-term, one-year leases instead of more desirable ten-year leases of the kind you might get from Starbucks.
Many tenants were small vendors taking up less than 250 square feet.
Tenants did business mostly in cash, which invites IRS auditors to stick their noses in everything.
The property wasn’t much to look at and lacked what developers call “curb appeal.”
These vendors sold food that was so fresh, a lot of it was still moving when they handed it to you. Nothing was frozen, packaged, or processed.
So what we had was not ideal, and it didn’t fit what investors were normally looking for.
It was time to hit the phones and start some additional research. I was making call after call, searching desperately for a way to highlight Mahalo as the new normal.
“Hey, Chad,” I would say when I got a real estate analyst on the phone. “Just wanted to see what the latest trends are that you’re seeing in large commercial real estate deals. What have you come across lately?”
“Beverly, quick question,” I said to a leading real estate broker. “If you had to guess, what would you say the next ten big deals will look like in the market?”
“Brett, my main man, what’s new in your market right now?”
I jotted any interesting responses down on Post-it notes and whiteboards. The key would be to find a trend that I could use to put this new deal in context. Meanwhile, Logan hired a couple of analysts named Jon and Mike, and I had them reading through mountains of paperwork on other big real estate deals currently on the market around the world.
We kept asking the same two questions: What parts of our deal would attract Mitch and what parts would push him away? In other words, “How is this deal the same as Mitch’s other deals?” and “How is this deal very different and unique?” The plan was to find the perfect way to explain Mahalo as the new normal.
But as the days ticked by and the meeting drew closer Jon and Mike grew increasingly agitated. “This is a waste of time!” Mike exploded at me with about twenty hours left until the meeting. “We need to be writing the offering memorandum, not looking for a needle in a haystack with all this psychological BS.”
“Yeah,” Jon chimed in. “This is a joke. We’ve spent the last week reading about all-glass malls and malls with luxury apartments in them and Disney malls and that insane mall in Dubai with a ski slope in it. We should have been focusing on the mall we’re actually trying to sell.”
“OK,” I said, nodding. “You guys are right. Why don’t you both get a few hours of sleep while I look over all of this once more? Then we’ll throw the proposal together in the morning.” They agreed and left the room in a huff.
I sighed. As much as I hated to admit it, Jon and Mike had a point. We had wasted a ton of time researching other deals and now had no time left to create our pitch deck. To make matters worse, we hadn’t uncovered any brilliant insights during the research that we could use to get Mitch on board. None of the lucrative malls
of the past few years looked anything like Mahalo.
My knees ached and I had to slide into a nearby chair. My breaths came quick and shallow. For the first time ever I had genuinely gotten myself in too deep. Or Logan had. I wasn’t even sure whose fault it was anymore. And now I was just hours away from completely embarrassing myself, sinking our firm while broadcasting to the banking community that we couldn’t close deals or meet commitments on time.
Jon’s and Mike’s words echoed in my head.
“Waste of time.”
“Needle in a haystack.”
“This is a joke.”
And for some reason, I kept thinking about the last thing Jon had said: “. . . all-glass malls and malls with luxury apartments in them and . . . a ski slope.”
Wait a minute. A number of the large deals on the market at the time were malls with some type of big differentiator. These weren’t your regular malls; they all had something to set them apart. Malls with a theme. I looked up that mall in Dubai, and implausibly it did have its very own ski slope. It’s called Mall of the Emirates, and it has a hundred restaurants and eighty luxury stores, and is home to Ski Dubai, the Middle East’s first indoor snow park. It had recently been named the World’s Leading Shopping Mall at the World Travel Awards. And it was profitable too. Investors had put $218 million into it and were taking a lot more out.
I shot to my feet and started rifling through a stack of papers on my desk, pulling files that fit with this potential theme. There was a mall under construction in Thousand Oaks, California, that the developers were calling a village—which just meant that they had built some residences in addition to the shops. There was the mall Jon had mentioned, Westfield Century City, which had the same shops as a normal mall but had an outdoor bazaar look and feel. There was a mall that just sold in Canada where the theme was pirates, and there was even a large pool in the center with a giant pirate ship in it.
All big deals, all malls with a theme.
This was exactly what would make Mahalo work. I could easily show Mitch that this property was themed as an authentic Chinese open-air market. I could chunk the many novel features surrounding Mahalo as belonging within this same category. Then I could suggest that this was the new normal for shopping centers. Many of the big malls on the market today are themed as well.
If you’ve ever had the experience of seeing the answer you seek crystallize in front of you just in the nick of time, you know how I felt at this moment—ecstatic. I turned the song “Eye of the Tiger” on full blast and discoed around the office for about three minutes. Then I buckled down. I now had a few hours to actually write the pitch and get it ready to deliver to Mitch.
CHUNK THE NOVELTY INTO ONE CATEGORY
Every buyer has a slightly different level of tolerance for risk, or what I call a novelty preference point. Once you push a buyer past this preference point, anxiety, stress, and a host of problems start to occur and he or she will begin to back off.
My team and I have found that the best way to introduce new features, sexy concepts, wild ideas, and forward thinking without going past the novelty preference point (so that it will appeal to virtually any buyer) is to use Novelty Chunking. As I’ve mentioned, this is the practice of grouping everything new and potentially scary about your deal into a single category and then telling the buyer that your deal is just like every other deal in your industry, except for one key aspect that’s totally new.
The idea is to carefully control how new and risky your deal seems to the buyer, because buyers add up risks, almost like a point system. If you have many new and unproven features and ideas, then you have many risks. It’s as if it doesn’t matter how big the risk is; it matters how many risks there are. To control the way risk is perceived, create a list of all the novel or scary things about your idea. Then figure out some way all these items are related to each other. This becomes the “chunk” that you’ll use to explain how your idea is different in one key way from the status quo.
For instance, Microsoft Word is by far the most widely used word processing program today. In fact, one of the top ten phrases used in business is “I sent you the Word doc.” It’s hard to get more Plain Vanilla than that. But let’s say you were trying to get someone to switch from Word to a newer word processor, like Google Docs.
There are plenty of things about Google Docs that are different from Word. It is accessed through a web browser; you don’t download it or start it up. Documents are saved to your Google account, not your hard drive. In Google Docs, multiple people can be working on the same document at the same time, a feature Word does not support very easily. But Google Docs didn’t become popular because Google promoted these and seventeen other new things about it. Instead they built buzz on just one: Everyone works in one document; see changes immediately.
So to write a Plain Vanilla script for Google Docs you would first focus on how similar it is to Microsoft Word. “Hey, look, Microsoft Word is fantastic. It’s the perfect desktop word processor, and I would never change a thing about it. The simple interface with the ruler and toolbar at the top of the screen makes word processing a breeze. Google Docs keeps everything that makes Word great. The text editor feels almost identical. You can save, edit, spell-check, word-count, comment, and even track changes.”
Once you’ve established the many aspects of the product that haven’t changed, it’s a simple matter to introduce the Novelty Chunk: “But there is one key difference that sets Google Docs apart from Word. It is cloud based. This means the document lives in the cloud and multiple people can access it through a web browser from anywhere on the planet simultaneously.”
In essence, you combine everything new about your idea into one Novelty Chunk. Then you explain to your buyer that the status quo is great and works just fine. Acknowledge that they probably aren’t looking for a replacement. Finally, introduce the one way your idea is novel and show why this novelty is good—and how it’s the same thing nearly everyone is doing (collaborating on projects in the cloud is the new normal).
And that was exactly my plan for selling Mahalo Marketplace. Except I only had a few hours to pull it all together.
THE MAHALO MARKETPLACE PITCH
By the time Jon and Mike showed back up at six a.m., I’d already figured out most of the details. “It isn’t enough to just build a regular mall anymore,” I said when they walked in. “You need a big extra feature, a theme.” I spread six files on the table. Jon and Mike looked on, eyes bleary. “Here’s our examples. We frame this as the trend right now. Then we show that Mahalo is no different from any other new mall. By the numbers it is a standard mall. The theme is that it is an open-air market with fresh seafood and authentic Chinese small goods.” They weren’t happy about the early call time, but they got to work right away. We buckled down for four hours and pumped out a pitch deck.
Then Logan and I, extremely sleep-deprived, showed up at Mitch’s office to meet with the one man who could save us from our Kobayashi Maru. There hadn’t been any time to write a complicated pitch, so what we ended up telling him was very simple.
“You’ve probably noticed the latest trend in large commercial real estate,” I started. “Shopping malls with a theme. There’s this ski resort mall in Dubai, this pirate ship mall in Canada, this all-glass mall in L.A.” I casually tossed the files for these projects onto Mitch’s desk as I referenced each one. “These projects all sold in the last year for over a hundred million each.”
“And we’ve got the next one,” said Logan enthusiastically. “It’s right here in Hawaii. By the numbers, it’s a standard, Plain Vanilla shopping mall like you might find anywhere. It’s insured, bonded, up to spec on health code, and seismically sound. It checks all the liability boxes from an investor standpoint.”
“But there’s something very unique about this property,” I continued. “It doesn’t feel like a regular old mall when you step inside. It feels
exactly like an authentic Chinese open-air market. The vendors are all small and quirky, selling exotic and fresh items from all over the world. The layout is based on an actual market in China that dates back to two hundred BC. But the location is smack in downtown Honolulu and all the permits are good for at least another twenty years, just like the other properties in your portfolio.”
“Yep,” Logan repeated. “Plain Vanilla. No frills. Straight up the middle.”
“We’re selling it in the next five days,” I said with as much confidence as I could muster.
And we stopped talking.
Mitch leaned back in his chair and stroked his chin. He was over seventy years old, and now that I was up close, he almost looked frail. But he clearly had an incredible mind for real estate. “Financial projections?” he asked.
“Page thirty-four,” I said.
He flipped through the pitch deck and examined the page where we’d laid out the revenue pipeline, rent roll, annual bumps of 5 percent, and low monthly expenses, and we were even up front about the HVAC needing an update within five years. The guy didn’t even get out a calculator. He just started crunching numbers in his head and muttering to himself.
I looked at Logan, who shrugged at me.
Finally, after what seemed like ten minutes during which none of us uttered a single word, Mitch broke his state of trance and looked back up at us.
“I like it,” he said.
My natural instinct was to say, “Great! We can take you down and show you the property immediately.” In other words, to suggest a next step and try to lock him into a yes. That’s how sales works, right? You always have to be in control and push the buyer to do things on your agenda, right?
Except I resisted that urge. All I said was: “How do you see us working together on this?”