Teenage Sex and Drug Dealer Profit Margins – TiE Innovation April 2006 event


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published April 1, 2006

As a moderator, Mohanbir S. Sawhny certainly speaks what is on his mind. The first bursts of nervous laughter become more comfortable with time as he vividly compares innovation in a graphic manner to teenage sex. He then discusses how innovation can lead to “drug dealer” like profit margins.

The conversation throughout the evening was engaging and outstanding. The distinguished guests were Michael W. Ferro, Jr., Chairman and CEO of Click Commerce (CKCM) and David Kalt, CEO of Optionsxpress (OXPS). Both are successful founders of Chicago based profitable growth companies with dynamic cultures.

These are both service organizations that are passionate about continous incremental improvements in everything they do for their customers! It is as much if not more about the corporate culture encouraging improvement driven from the entire organization as it is about marketing and execution. It was highly refreshing to see a panel discussing what innovation truly means to me service based organizations acting in the above manner.

Michael Ferro, Jr. is often credited as the “father of the extranet”. He stated that, “Growing an innovative company like Click Commerce takes longer than you think and nearly 10 years into it, the company is just hitting its’ stride.” Michael also talked about the concept of how acquisitions are often cheaper today than creating new ideas and stated that Click Commerce made nine such acquisitions in the past year.

One item I found particularly interesting that it would be great to learn more about is Michael’s discussion about choosing customers carefully and making them qualify. In the earlier days of the company, he talked about making large organizations prove that they had successfully purchased and partnered with small companies with examples and how this was important to help focus on true prospects instead of idea shoppers.

David Kalt tells a different but very similar story. Optionsxpress has a culture of irradiative development that releases new versions of its’ transaction platform every month. David stated on multiple occasions that closing the gap between technologists and customers was one of the primary reasons for the organization’s success. David discussed that the best businesses are the ones that take existing business models and improve on them and says people within the firm look to Peter Drucker frequently for guidance. The three E’s that Optionsxpress lives by are education, evaluation and execution.

The evening ended with some highly spirited questions from the audience and hearty applause.

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About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.