Lessons from Localist – the importance of failure

MIKE O'DONNELL
Last updated 05:00 12/04/2014

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OPINION: New Zealand Post came in for more than its fair share of criticism after last week's announcement it was selling Localist to management interests for an undisclosed sum.

I think such criticism fails to appreciate the importance of failure as a path to innovation.

NZ Post founded Localist in 2010, initially as an Auckland print business directory with five hard copy editions.

A year later it launched the website version of Localist, an online service directory with suburb-specific community content and the potential to provide hyperlocal advertising.

I recall a publicity photograph from the time featuring glamorous looking chief executive Blair Glubb surrounded by a bevy of cocktail dress-clad babes toasting the online launch.

It felt contrary to my experience of successful online community ventures, whose beginnings normally feature geeky kids wearing hoodies, looking awkward and drinking tap beer at Hashigo Zake or Pomeroys.

Glubb came to NZ Post from directory business Yellow, and a bunch of other Yellow staff followed him.

Just before Localist launched their online business, Yellow launched a collection of around 200 Auckland neighbourhood sub-sites and dubbed it Yellow Local.

Over the next three years, the two businesses went head-to-head in a battle for local eyeballs and community mindshare. Neither succeeded.

In the case of Yellow, a company that initially sold for over $2 billion was consecutively written down to a small fraction of its 2007 sales price, and is now owned by its bank creditors.

The winner was Google, whose ability to innovate and cross-fertilise between its search, mapping, video and community businesses was breathtaking and irresistibly efficient.

Ask yourself, if you want to find a plumber or the phone number of your mechanic, would you use the mind-numbingly awful search of Yellow, the "mall in a desert" feel of Localist, or just ask the Google monster? It's a no brainer.

So was NZ Post nuts to try Localist in the first place? No.

As early as 2009 it was clear that Post's river of postal gold was drying up. A business that had evolved to service huge volumes of snail mail, could see those volumes heading south and fast. And it wanted to stake out some of the digital landscape for itself.

So at the time it was a fair bet, though why they bothered printing directories I never understood.

NZ Post chair Sir Michael Cullen compares NZ Post's situation to being that of a horse and cart operator on a motorway, staring with awe at the shiny new automobiles passing them by.

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Ironically Post had the best chance to be one of the designers and drivers of one of these shiny new automobiles fifteen years ago.

Who better than Post to create the country's most trusted ISP or blogging platform? Now it's playing catch-up on this change journey.

The good news for us as shareholders is that there seems to be a new data point almost every month that NZ Post is executing on its change agenda.

The closure of three of the regional distribution centres, the renegotiation of the Deed of Understanding from six deliveries a week to three, the increased charges for standard letters and small parcels, and now the sale of Localist, all point to meaningful progress.

Over the last four years, NZ Post injected around $28 million to help the fledgling directory business get earnings positive. And even after that cash transplant, Localist isn't yet wiping its own face on a cash basis.

More recently it's been picked up and shaken down by new chief executive officer Christina Domecq, who led the management buyout announced last week.

While the price hasn't been confirmed, I'd be surprised if Post got more than a couple of million for Localist.

Frankly the ability to get out of this venture quickly and focus on its other digital plays like YouShop, YouPost and last mile deliveries of ecommerce goods - is the most important thing for Post, so any black ink is a fine price.

The new ownership makes sense, because if Localist is to make a fist of its new business, it must operate in a riskier way than Post could stomach.

However, a collection of solid digital businesses is no panacea for NZ Post. The elephant in the room is the fact that a postal business that owns a bank is rapidly becoming a bank that has to operate a postal service.

Calling time on a business that still isn't earnings positive, to focus on bigger things makes sense, and its come with some learnings.

The first is likely to be the folly of going head-to-head with Google when it comes to innovation and extrapolating synergies.

A second might be the danger of ponying up glorified telephone books with an online community.

And the third is likely to be the importance of making a good fist of a new venture if you can, but being prepared to fail fast if you can't.

Failing fast is also learning fast. And for old world industries like postal services, learning fast is imperative if they are to innovate themselves into the future.

Mike "MOD" O'Donnell is an ecommerce manager and professional director. His Twitter handle is @modsta and he aspires to wearing a hoodie while drinking beer.

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