THE INNOVATOR’S PARADISE
NEW YORK (Fortune) — There doesn’t seem to be a recession on at Fahrenheit 212. Stepping into the boho-chic downtown Manhattan office of this “innovation consultancy” is something like stepping into a time-warp. Cheeky foyer art? Check. (Fahrenheit’s is a gorilla beauty queen done in oils.) So many glass walls they ought to be a workplace hazard? Double-check. Completely anachronistic mahogany library, complete with rolling ladder? Does one even have to ask? And everywhere you look, beautiful, bright-eyed people skipping around like it’s 1999.
But it isn’t, and with 2009 as abysmal a year as most of us can remember, just about the worst thing to be is a consultant, let alone an innovation consultant.
It’s hard enough to sell yourself as an ideas shop for Fortune 500 companies when times are good, but how many suicidal executives are going to sign on for your big, risky (and expensive) propositions at a moment when many stalwarts of industry are struggling simply to stay solvent?
Well, for Fahrenheit 212, more than one might expect. The whole world is in recession, industry is under attack, and the likes of Procter & Gamble, Coca-Cola, Hershey (HSY, Fortune 500), Samsung Electronics, Starbucks (SBUX, Fortune 500), Capital One Financial (COF, Fortune 500), Starwood Hotels & Resorts, General Mills (GIS, Fortune 500), NBC Universal, Nestlé, Warner Music Group, Clorox (CLX, Fortune 500), Adidas, and Gucci Group turn to…25 guys in skinny jeans running around a downtown Manhattan loft?
All right, there are girls, too. And a couple of the jeans are boot-cut. But that hardly explains why, with the business already booked for next year, Fahrenheit will see a 300% jump in the first quarter of 2010 compared with the same period in 2009, putting the company on track to grow 100% next year. Or how, given the trials of 2009, the company still saw a marginal increase over 2008, in which revenues rose 80% over the previous year.
It’s true these numbers aren’t exactly unheard of for startups in the early going — Fahrenheit was founded in 2005 — and whatever the growth, when it comes to revenue, Fahrenheit brought in less than $12 million this year. But what this consultancy’s bit of success represents is a serious investment from the last place one might expect right now — major corporations.
So just what is it about this tiny startup? Presented with that question, co-founder and CEO Geoff Vuleta leans back in his chair and waxes thoughtful about his native New Zealand. “There’s a lawn at Oxford with a sign on it that clearly says, ‘Don’t walk on the grass,’” he says. “And at 18, every kid in New Zealand goes off to England and walks on that grass. We all do, and I certainly did.”
While it may not be immediately clear how this is even remotely relevant, spend a few hours at Fahrenheit and hearing this sort of quirky “Kiwi” wisdom becomes positively routine; the tenets of Vuleta’s scrappy island upbringing inform just about every aspect of the company. And that means the entire staff walks on the grass for a living.
They’re so full of verve and slogans and unabashed optimism, it’s a little disconcerting, but that enthusiasm has allowed Vuleta and co-founder, president, and head of innovation Mark Payne to create a kind of paradise for modern thinkers (that is, the sort who’d prefer to make money, too): Companies bring Fahrenheit the big, esoteric, potentially bottom-line-boosting problems they can’t seem to solve internally — issues of product, process, and long-term vision.
Fahrenheit’s band of innovators — a term that loosely describes the company’s diverse staff, which ranges from analysts to actresses, with a few Englishmen and Americans thrown in for good measure — apply their happy, hyper minds to the puzzles over a five-month session of what’s probably best described as controlled chaos.
Somewhere along the way, innovation happens. And if it works out, clients pay. Well. Even now.
The downturn - A perfect time to innovate
To understand Fahrenheit 212, you’ve got to start with Ernest Rutherford: Kiwi lore tells us that when native son Rutherford, known today as the father of nuclear physics, split the atom in 1917, an American journalist asked him how he — someone from a South Pacific backwater — did what so many European and American thinkers could not. He famously replied, “We didn’t have the money, so we had to think.”
This fundamental principle of Kiwi thinking has never been more apropos. “What gets in the way of transformation,” Vuleta says, “is money.” And now that it’s in short supply, his company’s doing better than ever. Because, believe it or not, recessions may be just the time to make it in corporate America.
While most companies go into a kind of power-save mode in this environment — tightening their budgets, reverting to their core businesses, and basically lying low — a few will choose to reset.
Faced with more frugal consumers and lacking the advertising dollars to court them, these companies will instead reevaluate their businesses and invest in one or two bold moves to make them stand out in the competitive landscape.
These are the gambles that often lead to innovation, propelling the intrepid few past their more conservative counterparts, and it’s perhaps best to take such chances in lean periods like ours: A 2007 Bain & Co. study of 700 firms over six years found that, during the 1990-1991 recession, more than 20% of the companies in the bottom quartile of their industries moved to the top, and more than 20% of those at the top fell to the bottom.
And while these shifts were significantly more pronounced than in stable times, their effects weren’t confined to the recession. More than 70% of those companies that made strides in the downturn were able to sustain them through the next boom cycle, while fewer than 30% of those that lost ground were able to gain it back.
“The worst thing companies can do in a downturn is pull back really hard,” says Keith Wilmot, who has worked with Fahrenheit as Coca-Cola’s global director of Insights, Ideation & Creativity. “Because the recession isn’t forever, and companies that pull back too far won’t be well positioned in the long term. Even if the economy wasn’t where it is today, we’d still have limited resources, so obviously we want to spend on what’s going to make a big impact.”
And Fahrenheit’s clients certainly spend. It runs about $1.5 million for a Fahrenheit innovation assignment, a standardized operation that generally goes something like this: Executives share the problem they think their company has. Fahrenheit does four weeks of industry immersion to find out that it’s not the problem at all. Then the Fahrenheit team spends two months generating ideas and two more months optimizing those ideas with consumer research and the like.
The result is a portfolio of six to eight concepts meant to be both transformational and readily implementable, addressing the client’s actual problems in what Fahrenheit hopes are creatively fresh and strategically relevant ways.
And because up to two-thirds of Fahrenheit’s fee is contingent on performance milestones its clients set, the company delivers concepts that are fully formed, vetted for technological and commercial viability, often complete with business plans and impact projections.
Considering that, in the innovation world at large, more than 80% of the products that actually make it to market fail to hit their objectives, this is exactly the kind of buffer that risk-wary CEOs can use.
“When you talk to CEOs about what’s really keeping them up at night these days, it’s not that they don’t see growth opportunities on the horizon,” says Payne. “It’s that everything they look at is out of control. If you’ve got the surest bet for growth, you can’t get anybody to put the money on the table. Your share price is decoupled from any realistic notion of the value of a company. There’s no rhyme, no reason. So in this climate, interestingly, innovation becomes one of the few things they actually can control.”
Given that, Fahrenheit’s all-encompassing tack seems to make it uniquely attractive to clients.
A management consultancy might tell them what needs doing from an academic perspective but not necessarily how to do it in practical terms. A product-design shop might invent snazzy new technology, but wouldn’t be responsible for its commercial applicability and success. And advertising agencies, however creative, are usually expected to add interest with sexy campaigns at the end of the process, whether a product actually merits it or not.
But in the nascent field of innovation consulting, Fahrenheit defines its role by bringing all of these together — doing more than any one could or would do alone, and faster, too.
Take Samsung, for instance, a Fahrenheit client whose struggle was essentially market creation. The company came to Fahrenheit with a brief: Find new applications for a key product — LCD screens above 10″ — that would move 600,000 units or more. Costly to produce but central for Samsung, these screens seemed to have reached maximum capacity with televisions, monitors, and digital cameras.
The Fahrenheit solution? Put them on vending machines — as large, dynamic, touch-screen displays — and revive the stagnant vending industry along with Samsung’s LCD business.
A wireless connection would give vendors access to the entire network of machines, allowing them to monitor inventory and other functions remotely, offer nutrition and ingredient information, and unlike what the static marketing vending machines are known for now, update and target dynamic messaging in seconds — “literally,” according to Vuleta, “creating a media channel for them in the malls and high streets of the world.”
Coca-Cola (KO, Fortune 500) licensed uVending first, unveiling its machines to queues of people at the 2008 Beijing Olympics. This year, Coca-Cola introduced uVending machines throughout the U.S. in Simon Malls — the nation’s largest owner of malls — and the technology won a Gold Lion at the 2009 Cannes Lions International Advertising Festival. (Kraft Foods (KFT, Fortune 500) has since joined in, presenting its machines at this year’s Consumer Electronics Show in Las Vegas.)
And that was just one of the ideas. “What they’ve effectively helped us do is invent a completely new business or revenue stream for flat panels — a very important business for us,” says Stephen George, director of Global Marketing Operations for Samsung Electronics. “It was a fairly tall order — a blank-slate brief — but Fahrenheit is one of those firms that thrives with that kind of challenge.”
Fahrenheit’s approach - Losing is not an option
To understand the way Fahrenheit does business, you’ve got to understand “velocity made good”: Yachting is huge in New Zealand, and VMG is the sailor’s term for speed toward the next mark — not straight-line speed, but the rate of travel after adjusting for current, leeway, and other variables that might affect it.
Vuleta almost called Fahrenheit “Velocity Made Good,” he so wanted to make a statement about innovating for success, rather than just for innovation’s sake. So when Vuleta and Payne founded Fahrenheit 212 — named for the boiling point of water — as a small subsidiary of global powerhouse advertising agency Saatchi & Saatchi, it was aimed specifically at major, influential projects. (Vuleta had been a global board director for Saatchi in the U.S., and Payne had spent a long career helping companies like P&G (PG, Fortune 500), Coca-Cola, Nabisco, Lexus, and Citibank (C, Fortune 500) develop new products and bring them to market.)
By the end of 2006, Vuleta says, Fahrenheit’s goals and the scope of its work had outgrown the advertising business. And while the company did part ways with Saatchi in November of that year, much of what the two men learned from advertising informs what they do today — insofar as, now, they do exactly the opposite.
For starters, Fahrenheit doesn’t pitch. “Pitching business is the single most inefficient business model on planet Earth,” Vuleta says. So instead of coming up with elaborate pitches for clients who haven’t signed on yet, Fahrenheit just pitches itself. Some witty repartee, a few mocked-up examples of the work, and a reputation that precedes them is all it takes, apparently. Oh, and the contingency-fee model.
Then there are the ideas themselves. Rather than simply showing paper concepts once a client’s on board, Fahrenheit creates video prototypes — professionally produced trailers that present the product or project as though it existed, complete with spokesmodel, soundtrack, and all the potential applications TV magic can render.
These are showcased in swanky four-hour meetings, along with physical prototypes and website visuals, where applicable. (On a project for a major packaged food company, for example, the client walked into a rendering of a small retail store in China with its product as the centerpiece.)
It’s flashy and a tad frivolous, for sure, but it has a purpose, too: Envisioning ideas in this holistic way allows clients to react to the innovations as though they were already in the market — which can go a long way in working out the kinks — but throughout the innovation process, it also helps Fahrenheit’s team see new and better applications for the tools and technology that clients already have.
At P&G, executives were excited about a technology that let the company make its Pringles chips out of rice, which would retain less fat from the fryer than potatoes. But they couldn’t figure out how to use it effectively: In the words of P&G’s project leader David Cotter, “Most consumers think rice snacks suck. They also think low-fat snacks suck. Good luck.”
So what else could rice offer? Fahrenheit’s team consulted chefs who said that rice actually topped potatoes as a flavor carrier, and inspiration hit. When it came to making flavored chips, seasoning could only be sprinkled onto a potato chip once it was cooked.
But Pringles were made from shaped dough — something for which they’d been criticized by potato chip purists — and that meant flavor could be blended in directly. So a rice Pringle would not only be better for you, but far more flavorful.
That tiny insight led to the launch of Pringles Rice Infusions in 2007. After 10 months on the market, Infusions were in more than 4 million households, driving P&G’s overall chips and snacks category into positive territory. And while the line wasn’t expected to pay back its total investment cost for several years, it reached that benchmark in just 12 months.
Naturally, that last bit — market success — is the destination. Fahrenheit most often takes on projects where the client is looking to bring in $80 to $100 million in new revenue. And with proposals that are as surefire in terms of time, cost, and commercial outcome as one can get in the innovation business, Fahrenheit’s clients often prefer its method to their own.
“One client told us it cost them about 6 million bucks a year to run a fully-staffed innovation program,” Payne says, “and that’s well before they had any clue whether any shareholder value would come out the other end.”
That actually makes Fahrenheit a bargain, relatively speaking. So it becomes the fully-staffed innovation program-for-hire, a model that’s been increasingly popular as Fortune 500 CEOS have begun looking for large-scale innovations beyond their own internal research and development shops — most notably, with former Procter & Gamble CEO A.G. Lafley’s announcement in 2001 that the company would aim for 50% of its innovation growth to come from the outside. (It had been 10%.)
And because Fahrenheit’s codified its process — rather than reimagining it on a case-by-case basis or for particular categories — it’s possible for the company to innovate from “adult incontinence to haute couture jewelry,” as Vuleta’s fond of putting it, with equal zeal.
Whatever the project, though, the bottom-line remains the same: Losing is simply not an option for Fahrenheit. Because, unlike many of its consulting counterparts — and against most conventional innovation wisdom — it has a stake in the game, too, and a project that flops is as good as money in the trash. “We aren’t just filling the room with ether and big prognostications,” says Payne. “We have to deliver.”
The Fahrenheit team: ‘The Money’ and ‘The Magic’
To understand how Fahrenheit’s team works, you’ve got to understand the All Blacks: New Zealand’s rugby team is known for its cocksure attitude — embodied by a fearsome, Maori-inspired pregame display called the haka — and its egalitarian, no-excuses slogan, “Black is black is black.” It is the winningest team in the history of all sport.
Talent is everything at Fahrenheit. To score in innovation, every question must be interrogated, every suggestion must be cerebral, and that means every individual must be exceptional. Because an unexceptional person simply wouldn’t make it on this geek-chic team: Ask how innovation happens here, and you’ll get an answer that starts with Howard Gardner — a Harvard psychologist who contends that humans have multiple unique intelligences, including musical, spatial, and interpersonal — and ends at Fahrenheit’s “Ten Tenets of Transformational Thinking,” an amusingly earnest attempt to catalogue the team’s very thought process. (No. 4: “Think in jazz.”)
But that’s the unconventional perspective Fahrenheit executives want, and they’re constantly looking for more. So when a brilliant young illustrator came to their attention, for instance, they took him on without an actual job for him to do. (As it happened, he was the perfect person to take up the task of video prototyping once Fahrenheit introduced that internal innovation later on.)
And Fahrenheit’s collaborator network is just as nerdy, from design standout Yves Behar, who pitched in on a device for Samsung, to George the Bulgarian digital renderer, who became a contractor for life when Fahrenheit discovered his work on the web and wooed him with some (admittedly self-serving) state-of-the-art hardware.
As crucial as the creative can be at Fahrenheit, though, it’s the commercial that ultimately assures a win, so it gets equal play in Fahrenheit’s model. That’s grounded in the company’s management structure, which is — with nary a trace of jest or self-consciousness — broken up into “The Money” (operations and analysis folks) and “The Magic” (designers and other creative types). The two groups occupy the same amounts of square footage in the office, and all their denizens weigh in at the start of every project, straight through to execution.
It’s a structural nod that’s comforting for clients who need projects that score in both areas: “Fahrenheit’s a firm that has a tremendous amount of creativity, but also focuses on the core value of business,” says David Flueck, vice president of Starwood Preferred Guest Program and Operations at Starwood Hotels & Resorts (HOT, Fortune 500), which is working on a new project with Fahrenheit. “It’s quite rare to find both of those in a partner, and it was the most compelling part of their approach.”
And to ensure everyone stays accountable, Fahrenheit has one more innovative process of its own: Every 100 days, the entire staff gathers, the doors are closed, cell phones are confiscated, and a company-wide strategy session begins to set Fahrenheit’s goals for the next 100 days, and hear how well employees (including Vuleta and Payne) have done with their individual deliverables over the last 100 days.
And if the fear of being embarrassed in front of your rowdy colleagues weren’t enough, staffers work with their managers to grade themselves on these “100-day plans,” and at the end of the year, the scores are added up to help determine incentive bonuses and future compensation.
It sounds simple, but the transparency and nimbleness it enables are foremost for Fahrenheit. “One meeting every 100 days,” says Vuleta, “means that we can never be more than 100 days out, more than 100 days wrong, more than 100 days from confusing being busy with being productive.”
When Geoff Vuleta was a young ad man in New Zealand, he wrote letters to the people he considered New Zealand’s 50 most prominent citizens asking them to reflect on their successes. It’s a testament to the sort of person Vuleta is that this even occurred to him — and a testament to the kind of country New Zealand is that he received 50 responses.
One of his favorites came from Kiwi runner Rod Dixon, who won the 1983 New York City marathon by nine seconds in an epic come-from-behind victory. According to Dixon, the prestigious race was simply the only place to go after he’d won his local championships — in the small town of Nelson on New Zealand’s South Island — and his country’s national title.
“When we look out in New Zealand,” Vuleta says, “we only see the sea — no horizons. So once he’d run up all our hills and won and won, all that was left after that was to know the time it would take to win the New York City marathon. Which he did in his first attempt…. To him it was just three steps from winning his locals to the top of the world.”
Which may explain why Vuleta always seems seconds away from setting off on a race of his own. Whether he’s climbing the nearest banquette — he has a tendency to scale any available height in casual company conversation, like a surveying country lord — or, forced to sit in a meeting, making loafer scuff circles beneath his chair, he seems to be in constant forward motion. And he expects his company to be, too.
But what remains fixed, Vuleta says, is Fahrenheit’s unofficial motto: “Amaze each other daily.” If they can do that, he’s convinced, they won’t have any trouble amazing their clients. “It sounds wanky,” he says, quite seriously, “but it’s not.”
Actually, it absolutely is wanky. But it turns out Fahrenheit’s version of wanky — belief, bravado, earnestness — might be just what it takes to innovate. Especially right now.
By Nadira A. Hira, writer
Fortune.com, December 16, 2009