How to Profit from the Big Business Backlash

These are angry times in politics and society. Populism is the mantra of the moment, whether it's "progressive populism" that targets the misdeeds of Wall Street and Big Money, or "Tea Party" populism that targets the heavy hand of Big Government and worships the infallibility of the Founding Fathers. In either case the spirit is the same. It's the people versus the powerful, the little guy versus the establishment.

Many pundits have studied populism as a powerful social phenomenon. But I'd submit it's a powerful business phenomenon as well.

The Power of "Business Populism"
Indeed, I believe there's a huge opportunity today for business populists - entrepreneurs and executives who redefine the terms of competition by challenging the norms and accepted practices of their industry before disgruntled customers or reform-minded regulators do it for them. When customers get mad, business populists get to work on making things better.

Consider the growth of ING Direct, the Internet-based savings bank. It was launched back in September 2000 by a maverick Canadian banker named Arkadi Kuhlmann. He invented a completely different kind of bank, with no brick-and-mortar branches, no traditional paper-based checking accounts-but a genuine strategic commitment to reimagine what it means to be a bank and why you'd want to be a bank in the first place.

The company has taken the US market by storm. In 10 years it has signed up 8 million customers, attracted more than $90 billion in deposits, generated annual profits of $300 million-all with 2,5000 employees. It is literally a money machine, signing up 100,000 new customers and collecting a billion dollars in new deposits every month.

It is an amazing technology story, an amazing business-model story. But when I went to visit Kuhlmann for the first time, he didn't want to talk about his company's technology or its business model. He wanted to talk about its value system-the ideas it stands for, what makes the company different.

Redefining Company Values

The core purpose of ING Direct, he said, is to "lead consumers back to savings." The company exists to challenge a financial culture that it believes encourages people to spend too much, save too little, and borrow too heavily. That wasn't a popular point of view back in 2000-but it certainly is now!

And that's why almost everything the company does-the products it offers, the customers it targets, the ads it runs, the political positions it takes-stands counter to how established banks do things. ING Direct has won big because it has changed the game.

Or consider the emergence of Life Time Fitness, a fast-growing company in a field (health clubs) notorious for bait-and-switch pricing, punitive contracts, and shoddy service. Under the Life Time Fitness model, customers pay modest up-front fees (with a full money-back guarantee) and don't sign long-term contracts. Instead, gym memberships run on a month-to-month basis and can be canceled for any reason at any time - no penalties, forfeited deposits, or hidden charges. In return, the company builds huge (more than 100,000 square-feet) all-in-one clubs that are open seven days a week, 24 hours a day, 364 and a half days per year.

Putting the Customer First in the Business Model

It's a new-fangled strategy for a workout company - and a strategy that has worked out big. Today, Life Time Fitness had 90 clubs in 19 states, thousands of employees, and a stock-market value of nearly $2 billion. Meanwhile, Bally Total Fitness, one of the well-known, mass-market giants in the field, filed for bankruptcy protection in both 2007 and 2008, and Crunch, a high-end brand with clubs in Manhattan, Los Angele, Miami, and other urban centers, filed for bankruptcy in 2009.

"The 'standard' business model was to charge a huge up-front fee, lock people in with long-term contracts, and sell as many memberships as you could as quickly as you could," explains founder and CEO Bahram Akradi. "Almost everything we looked at in terms of how this industry did business was designed from the club's point of view: What's good for me, not what's good for you. We were treating customers the wrong way, selling memberships the wrong way, serving members the wrong way.

"So we asked, 'What would this industry be like if we did things the right way?'" he continues. "What would a club look like if members designed it? What would the membership offer look like if the customer wrote it? What would the hours of operation be if customers set them? What if we let customers dictate how we did things? That's why we did away with contracts. A contract makes you fat and lazy. We have to win over every one of our customers every month. It forces us to keep getting better."

Spoken like a true business populist -the sort of voice I expect to be hearing more of in response to the cries of angry customers.

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