A Lesson in Entrepreneurship from Marvel Part 2

In the last post, I unpacked the “Blue Ocean” strategy that took Marvel from a commodity producer in a highly contested market, to a box office behemoth, capable of generating demand on a whim.  The Blue Ocean strategy applies to the overarching outcome Marvel achieved; however, it was micro activities, driven by periodic shifts of organizational attention, that were central to the successful attainment of their grande goal.

The Concept of Complementarity

In their paper, The Art of Making Smart Big Moves, co-authors Paul Strebel and Anne-Valarie Ohlsson explain how companies manage to successfully reposition themselves in the face of macroeconomic shifts or business model deficiencies. The common strand amongst organizations that successfully made “big moves” was their adherence to the notion of complementarity.

At its core, complementarity refers to the ability of a business to adopt a learning logic towards activities of innovation, efficiency, and customer intimacy. Though all three forces are typically active in business to some extent, they cannot be pursued with equal intensity, as each element requires its own unique conditions to thrive.  For example, to promote innovation, entrepreneurship, and experimentation, companies require a flexible organizational structure. To create efficiency, a business must control wastage and push for seamless coordination across business units. To foster customer intimacy, there must be an environment that encourages listening, research, and relationship building with consumers.

Each of these areas can also be seen as a unique competitive advantage. Walmart is an industry expert in efficiency, having directed a modicum of resources to reduce supply chain costs. By perfecting their logistics, they’ve been able to get a leg up on competition and offer goods at a lower cost. Having listened to their customers’ requests on price, Walmart’s strategy fuelled a cycle of innovation which ultimately affected the efficiency of their operations. Each force sequentially triggered the next.

Phase 1: Efficiency

After being bailed out of bankruptcy in 1999, Marvel’s board and their newly appointed CEO, Peter Cuneo, were heavily focused on building out a strategy to reinvigorate the financial health of the company. Since part of Marvel’s initial spiral into bankruptcy was brought on by appealing to a saturated market of comic book enthusiasts, the company had to re-evaluate their entire business model. Generating revenue through product sales was no longer sufficient. Instead, Marvel deployed a licensing strategy that permitted the distribution of their intellectual property at a cost.

By allowing large-scale distributors to tack the Marvel logo onto consumer products, Marvel targeted a wider set of audiences through items like stationery supplies, T-shirts, and lunch boxes. Ultimately, cash began to trickle back into the business. Alongside a new distribution model, the rights to several marquee characters were sold off to film studios such as Sony Pictures and Twentieth Century Fox, sparking big-screen debuts for characters like Spiderman and the X-men. This strategy revitalized the bottom line at Marvel and fostered a global brand without taxing their small core team.

The leadership at Marvel also knew that cutting costs were critical to balancing the books. In addition to tapping into new revenue streams, the company became extremely frugal in nature, seeking to extract the most value from its current resource pool. This was a sentiment echoed across every echelon of the business with Cuneo himself serving as both the company’s CEO and CFO. A manic focus was placed on assessing the return on investment on items, only spending money if deemed absolutely necessary.

Simply put, Cuneo adopted a lean start-up approach a decade before the methodology was codified in Eric Ries’ book The Lean Startup.

Phase 2: Customer Intimacy

By the early 2000’s, Marvel had built tremendous global brand recognition with several successful films and the strategic distribution of licensed consumer products. It was an opportune time for Marvel to reinvest in its original publishing business. Not only did the hype generated by their product placement give them access to new customers but, by refocusing on publishing, Marvel sought to mend the rocky relationship with their previously loyal fanbase.

Unwilling to break the trust of their previous readers, Marvel set a new precedent. Moving forward, “average” was no longer an acceptable standard across all aspects of the business. To maintain reader interest, only the best comic artists were hired to retell previous Marvel storylines with stronger visuals, deeper character development, and shorter story arcs. The new focus on putting their customers first, along with the deployment of new distribution channels via book and convenience stores, ultimately resulted in a 25% market share increase for Marvel comics over the next decade.

Phase 3: Innovation

With a healthier bottom line, global brand recognition, and the renewed faith of loyal readers, Marvel was well poised to assess the future direction of its business and shift towards an innovative mindset.

Despite having characters like Spiderman, Wolverine, and Ghost Rider in cinemas, Marvel only saw a portion of the profit due to the licensing agreements.  Having witnessed the unparalleled ability of film to generate interest, revenue, and demand, Marvel boldly set out to launch their own movie studio. Their goal: to harness the creativity of their top talent, maintain a lean operational mindset, and ultimately reap a larger portion of the revenue generated.

With that idea and a 525 million-dollar loan, Marvel Studios was born.

Shortly thereafter, Iron Man was announced as the first in-house production of Marvel Studios, which in retrospect, was one of the most profound, unprecedented, and innovative plays in cinematography history having kick-started the Marvel Cinematic Universe as we know it.

Phase 4 and Beyond

After twenty movies and over 16 billion dollars in revenue, Marvel continues to be revered as the gold standard in the superhero film genre. Despite their massive success, complementarity is still prevalent in their operations.

Although production budgets may have gingerly increased with the studio’s success, the efficiency of their operations is reflected in the fact that their films’ earnings-to-budget ratio has steadily increased over the past decade, currently sitting at 4.5. In other words, for every dollar put into production, Marvel claims $4.50 in revenue.

In addition, regular engagement with fans continues to be at the heart of every move Marvel seems to make. Elaborate reveals at Comic-Con, investments into the D23 Expo, and social displays of actors and actresses thanking fans for their support all highlight the focus on customer intimacy that was first set forth in the late 90s.

Finally, with the recent success of movies like Black Panther, Marvel has received market validation to push the boundaries on its content. Future films will not only adhere to the traditional superhero arc, but will be forward thinking and draw upon racial, cultural, and gender themes to anchor the story in modern discussion.

After a decade of success, the next ten years are set to be another period of Marvelous entertainment by this phenomenal company.

Key Takeaway: Complementarity was central to Marvel repositioning itself after it’s financial peril. After fine-tuning their operations, listening to their customers, and innovating accordingly, they’ve become a juggernaut in the superhero film industry and continue to rake in revenue.

 

 

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