Silicon Valley

The extremely expensive lies companies tell themselves

March 11, 2014: 1:31 PM ET

Fortune speaks with ReD's Christian Madsbjerg about flawed business thinking, the arrogance of Silicon Valley, and why he prefers to hire anthropology majors at his consulting firm.

Interview by Ryan Bradley

Christian Madsbjerg

Christian Madsbjerg

FORTUNE -- Christian Madsbjerg likes to talk about how booze companies often forget who their customers really are. Madsbjerg's consulting firm, ReD, had one such client that was spending $100 million on the stuff it gave to bars, which bar owners eventually threw in boxes, which then made their way to the basement.

After ReD convinced its client to eliminate those costs, sales increased, simply because the company's marketing was less annoying. There's a huge gap between what's important to a company, and what's going on in the real world, Madsbjerg says. Madsbjerg and his co-founder, Mikkel B. Rasmussen, refer to the instant a company realizes that what it's doing is at odds with what is going on in the real world as "the moment of clarity," which is the title of their new book.

Madsbjerg sat down with Fortune for a chat in ReD's New York City offices (which used to be John D. Rockefeller's). He spoke more about the lies companies tell themselves, as well as his childhood immersion in communism, and why he favors hiring anthropology majors over economics majors.

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Fortune: Your book looks like a business book and sounds like a business book, but you also use the fiction writer Alice Munro as an example, which has to be a first in the genre. Who is this book for? 

Christian Madsbjerg: Everyone, we hope, but the core point -- it's meant for challenging the way that business is done. I've spent 15 years inside of companies, and they see people as [those] who can choose between two things -- one thing is $4, the other is $5 -- and they'll analyze the numbers endlessly.

First and foremost, [companies] view people as rational beings. If you've studied a page of Western philosophy the last 100 years, you would know that's not the case. It's a bad description of what it means to be human.

You studied philosophy and started your career as a journalist in Copenhagen. Could it be that you are bending business insight to your own experience?

It's deeper than that. I was raised on an island in northern Denmark, closer to Sweden, really, and my family was very, very communist. I was part of the youth movement and trained in Poland, Russia, and East Germany to be the next generation that took over the revolution. I started reading Marx at six. By 11, I had shed it all. It didn't feel like how the world was. I was in Berlin when the wall came down. It was the biggest moment of my life. The relief, the feeling of freedom, it lasted 20 years. The whole world was new. From this comes my vaccination against dogma; learning that everything you've ever been taught was wrong, it gives you a skepticism toward anything people say is the truth.

So, how do you react when you first enter these large corporations you work with, like Samsung or Lego or Adidas?

I feel so uncomfortable in a corporate setting, where things are unchallenged. I feel physically uncomfortable. But I'm drawn to it. The worse the setting, the more stale the ideas, the better.

And what is it you bring to the table?

In any culture, you have a set of assumptions about how the world works. They're hard to challenge, then those grow into orthodoxies. The example at beverage companies is [the idea] that sweetness drives liking, but what does it mean to like something?

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Inside companies, it is nearly impossible to think outside the brand. At pharmaceutical companies, for instance, even when the patient is knocked out fighting for his life, [companies] still think people have a brand choice. Or at Intel (INTC), their dogma is Moore's law: twice as fast, twice as small. That's been their foundational insight. Intel has had two things happen: the smartphone and the tablet. They [missed] the boat on two main developments, and why? Because processing power isn't as important. It's about battery life, user experience.

So why do companies miss out on the changes around them?

It often comes from psychological things. In the pharma industry, they are selling to doctors with 10,000 patients in their experience, using a sales force of 28- to 29-year-olds. Do you think there's a healthy trust between the doctor and the sales rep? No. Which is why they have about two minutes of time [with doctors] which they buy with samples, and samples are around 40% of the cost. It's a waste. The only way to change that is to show that the world is different, that there is a way.

What makes you and your team better at showing companies this than, say, other consulting firms like Bain or McKinsey?

We have great skill moving from one world to another. That's why we hire anthropologists and journalists: They are probably some of the best at moving from one world to another. They pick up on what words to use, what is meaningful in certain cultures. So we study worlds, and within all worlds are commonalities in the different stuff they use. We call these chains of "in order to" -- you do this, in order to do that.

But describing doing one thing, in order to do another thing, isn't that pretty rational, and aren't you saying we're essentially irrational? 

Oh yes, look at the way we marry, or what razors brands we end up with; it happens in this swirl of decisions. We look at people who buy cars, and they do all this research, and then go with the one that feels right. With televisions, it's often the one that fits in my house; that says something about who I am, and that's not a rational thing, but it can be studied.

How?

Through observation.

Yes?

The big mistake of the $50 billion dollar industry that is asking people what they want is that we don't know.

I have a pretty good sense of what I like, though. Isn't there some study, very possibly made up, about how by the time you turn 30 -- men especially -- you have made basically all the major brand choices in your life?

Sure, but you also break habits all the time, so where does that leave you? We've done studies about big changes for life insurance. There are equal sized increments on a ramp, you just get older and older and older, right? I am 39 years old. But the way you experience age happens in these jumps. The example I use, I was walking down Franklin Street in SoHo and there was this gorgeous twentysomething, and she was not looking at me. And out of the corner of my eye, I saw her mother was checking me out, and I sat down and thought, I was a whole generation wrong. And my next thought was: I need a pension plan.

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But how do you study this? How do you find people in these moments of sudden great change?

It's a difference between a natural science and the study of experience. We look at fringe activities or minority practices that might represent a great, seemingly sudden change. So with TV, for instance, a lot of things that have happened to the TV have been happening in dorm rooms for a decade. Then we bet on behaviors that are fringe now but might ... become average everyday.

You're still placing a bet.

Yes, but not at all in the way Silicon Valley places bets. It's through a lot of careful study, observation, waiting, and watching in those dorm rooms. We bet on what fits best with average everydayness, and the Valley doesn't understand why I think it's a terrible bubble. I'm a big critic. The way they think about people is deeply problematic. They aren't even interested in what role a product plays in someone's life, it just has everything to do with how much they're willing to pay for it, which is why I think Twitter (TWTR) and Snapchat and Facebook (FB) is just a big volume of activity without much value. All that data is going to do what? Make informed decisions around advertising? Google (GOOG) has had a long time to make the algorithms better, but how come the ads I get are still largely irrelevant, or [for] something I just bought, which is even worse?

The most exciting things at Google, I'd argue, are physical things …

But what is the average outcome you want to have when you launch products? Google by any metric would fail. They come to it from a software engineering standpoint. Look at Google Glass.

What do you make of Google Glass?

I hate that product. If I wore it now, [I] would be on the Internet, and how uncomfortable is that? You can't do stupid things anymore.

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Saying Google didn't deliver anything meaningful is wrong. But I think MOOCs are a good example of the arrogance in Silicon Valley; that education could be vastly better because you're going to do it in the living room, without the deep understanding of what goes into an education.

What, or who, besides Silicon Valley, makes you angry?

Design thinkers. Or this idea that all you need are a bunch of designers in a room and the creative juices will just ... flow. That's terrible. And wrong. It's a painful, slow process and to say otherwise is a lie. The idea that creativity is easy, fast, democratic.

The most dangerous idea of all is when you say you can put five billionaires in a room and solve world hunger like that, boom. It's just so, so arrogant.

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