New Look and Feel – Recharge, Reignite, Regrow – Get America Growing

Those of you who follow my blog should have noticed a new look and feel today!  If you receive this missive in your email box via an RSS feed, I encourage you to stop by www.ThePhoenixPrinciple.com to see the new look.

As most of you know, I'm quite serious about helping organizations realize that they all can rejuvenate.  It's a mission I started in 2004, and devoted my life to in 2007 when I started writing Create Marketplace Disruption.  And now, in the midst of this terrible recession, it is clearer than ever that we need to realize that different phases of the lifecycle take different management approaches.  And for most companies today, old fashioned notions of "focus" and "hard work" simply won't pull them out of this recession and toward better returns

So I've rededicated myself to this mission.  And part of that rededication is hiring some professional help with this website!  Thanks to Public Words for the new design – and this is just a small part of what they will be doing to help me over the next year to increase the awareness of this mission and expand the base of people who want to help their organizations recharge, reignite and regrow!  I'm also spending more time public speaking to companies, leadership teams, industry events and multi-company conferences about what we need to do so we can get back to growing!  (If you know of groups, please let them know how The Phoenix Principle and Adam Hartung can help them get growing again.)

So, let me know what you think of the new look and feel!  Your comments can help the site be more productive for us all.  If you want things added, speak up!  I read all comments, whether here or emailed my way, and my new team will consider them all.  In addition to the look and feel, please offer your ideas for how I can drive more links, and attract more readers to our mission.  Some of you offered great ideas recently (special kudo to reader Bob Morris for his insightful recommendations) about how to better use tags, technoroti tags and trackbacks.  Please keep telling me places I need to link, and other things which can help grow readership.  Your help in spreading the word is greatly appreciated.

Also, if you haven't noticed I'm not twittering.  So you all are invited to reach out to me on Twitter – there's even a link to twitter me on the blog now!  I'll be getting my facebook page up soon as well.

I read a fascinating report published today you can dowload from Bank of America claiming that this recession actually began in 2000 – and we're somewhere between 60% and 70% of the way through.  Real estate could decline another 15%, and the big equity averages may drop another 20-40%!   Whether that's true, or maybe we're closer to "the bottom", for most of our organizations to be prosperous again will take a different approach to management.  One that overcomes Lock-in to outdated Success Formulas (often created in a previous industrial era) by obsessing about competitors to learn about market trends, never fearing disruption – internal or in the marketplace – and utilizing White Space to test new business ideas which can create better, higher return Success Formulas that fit newly evolved markets.

"Hiring Plans or Firing Plans" is the headline on Marketwatch.comPreviously, the lowest number achieved for "net hiring plans" was in 1982 when a net 1% of firms were planning to hire.  But in the entire 47 years of the Manpower hiring survey (since 1962) never was the index a negative – where more firms plan to lay off than hire!!!  That was until now, with the index at -1%.  Just one year ago the number was +17%! (Find the complete Manpower Employment Outlook Survey at this link to their site.)  More of the same "ain't going to cut it".  Instead of looking for reasons to lay off workers, we have to realize that there are a lot of reasons to hire more!  If we follow the right management principles – The Phoenix Principle – we can get going again!  If we encourage Disruption and keep White Space alive we can continue to grow!

A past client of mine recently discovered a way to introduce a new line of products with 80% less development cost.  But the new product is being delayed because the CEO feels he must lay off workers and slow down product launches – due to what he's reading about the economy.  The CEO is afraid that a new product launch, which would cement the company's #1 position ahead of competitors gnawing at their position the last 4 years, would be a tough sell to the Board of Directors.  The CEO is clearly focusing on the wrong thing – because his Board would be happier with growing sales and profits, and a reinforced #1 market position, than anything else!  Especially now!  But this company is almost afraid to grow, locked in fear of what to do next.  Instead of reallocating resources to growth projects, and jettisoning "sacred cow" products that are low-profit and declining in sales volume, management prefers to follow today's popular wisdom of cutting costs, cutting new product introductions, even cutting revenues by sticking with historical products nobody is buying - so that's what they will do!!!

So, please be a part of this journeyParticipate, don't just be a spectator.  Provide your feedback and comments.  And share the word!  Nothing is more valuable than debate.  Great ideas are developed in the marketplace, not in someone's head!  Pass along the message, and get others involved

This blog can now be reached directly via:

Admit shift happened – then invest in the future, not the past

The headlines scream for an answer to when markets will bottom (see Marketwatch.com article from headline "10 signs of a Floor" here) .  But for Phoenix Principle investors, that question isn't even material.  Who cares what happens to the S&P 500 – you want investments that will go up in value — and there are investments in all markets that go up in value.  And not just because we expect some "greater fool" to bail us out of bad investments.  Phoenix Principle investors put their money into opportunities which will meet future needs at competitive prices, thus growing, while returning above average rates of return.  It really is that simple.  (Of course, you have to be sure that other investors haven't bid up the growth opportunity to where it greatly exceeds its future value — like happened with internet stocks in the late 1990s.  But today, overbidding that drives up values isn't exactly the problem.)

People get all tied up in "what will the market do?"  As an investor, you need to care about the individual business.  For years that was how people invested, by focusing on companies.  But then clever economists said that as long as markets went up, investors were better off to just buy a group of stocks – an average such as the S&P 500 or Dow Jones Industrials.  These same historians said don't bother to "time" your investments at all, just keep on buying some collection (some average) quarter after quarter and you'll do OK.  We still hear investment apologists make this same argument.  But stocks haven't been going up – and who knows when these "averages" will start going up again?  Just ask investors in Japan, where they are still waiting for the averages to return to 1980s levels so they can hope to break even (after 20 years!).  These historians, who use the past as their barometer, somehow forgot that consistent and common growth was a requirement to constantly investing in averages. 

When the 2008 market shift happened, it changed the foundation upon which "constantly keep buying, don't time investing, it all works out in the end" was based.  Those days may return – but we don't know when, if at all.  Investors today have to return to the real cornerstone of investing – putting your money into investments which will give people what they want in the future.

Regardless of the "averages," businesses that are positioned to deliver on customer needs in future years will do well.  If today the value of Google is down because CEO Eric Schmidt says the company won't return to old growth rates again until 2010, investors should see this as a time to purchase because short-term considerations are outweighing long-term value creation.  Do you really believe internet ad-supported free search and paid search are low-growth global businesses?  Do you really believe that short-term U.S. on-line advertising trends will remain at current rates, globally, for even 2 full years?  Do you think Google will not make money on mobile phones and connectivity in the future?  Do you think the market won't keep moving toward highly portable devices for computing answers, like the Apple iPhone, and away from big boxes like PCs? 

When evaluating a business the big questions must be "is this company well positioned for most future scenarios? Are they developing robust scenarios of the future where they can compete?  Are they obsessing about competitors, especially fringe competitors?  Are they willing to be Disruptive?  Do they show White Space to try new things?"  If the answer to these questions is yes, then you should be considering these as good investments.  Regardless of the number on the S&P 500.  Look at companies that demonstrate these skills – Johnson & Johnson, Cisco Systems, Apple, Virgin, Nike, and G.E. – and you can start to assess whether they will in the future earn a high rate of return on their assets.  These companies have demonstrated that even when people lose jobs and incomes shrink and trade barriers rise, they know how to use scenario planning, competitor obsession, disruptions and white space to grow revenue and profits.

You should not buy a company just because it "looks cheap."  All companies look cheap just prior to failing.  You could have been a buyer of cheap stock in Polaroid when 24 hour kiosks (not even digital photography yet) made the company's products obsolete.  Just because a business met customer needs well in the past does not mean it will ever do so again.  Like Sears.  Or increasingly Motorola.  Or G.MThese companies aren't focused on innovation for future customer needs, they prefer to ignore competitors, they hate disruptions and they refuse to implement White Space to learn.  So why would you ever expect them to have a high future value? 

Why did recent prices of real estate go up in California, New York, Massachusetts and Florida faster than in Detroit?  People want to live and work there more than southeastern Michigan.  For a whole raft of reasons.  In 1920 the price of a home in Iowa or Kansas was worth more than in California.  Why?  Because an agrarian economy favored the earth-rich heartland over parched California.  In the robust industrial age from 1940 to 1960, the value of real estate in Detroit, Chicago, Akron and Pittsburgh was far higher than San Francisco or Los Angeles.  But in an information economy, the economics are different – and today (even after big price declines) California homes are worth multiples of Iowa homes.  And, as we move further into the information economy, manufacturing centers (largely on big bodies of water in cool climates) have declining value.  The market has shifted, and real estate values reflect the shift.  Unless you know of some reason for lots (like millions) of health care or tech jobs to develop in Detroit, the region is highly over-built — even if homes are selling for fractions of former values.

We seem to have forgotten that to make high rates of return, we all have to be "market timers" and "investment pickers."  Especially when markets shift.  Because not everyone survives!!!!!  All those platitudes about buying into market averages only works in nice, orderly markets with limited competition and growth.  But when things shift – if you're in the wrong place you can get wiped out!!  When the market shifted from agrarian to industrial in the 1920s and '30s my father was extremely proud that he became a teacher and stayed in Oklahoma (though the dust storms and all).  But, by the 1970s it was clear that if he'd moved to California and bought a house in Palo Alto his net worth would have been many multiples higher.  The same is true for stock investments.  You can keep holding on to G.M., Citibank and other great companies of the past — or you can admit shift happened and invest in those companies likely to be leaders in the information-based economy of the next 30 years!

Disruptive products for disruptive markets – Apple, Kindle, iPhone

I teach college classes on innovation, as well as speak regularly on the topic.  And I am frequenty asked how to determine whether new products are sustaining innovations, or disruptive ones.  In 2008, the most common product I was asked about was the iPhone.  To me the answer was obvious.  As a phone, the iPhone was sustaining.  But, as a new platform from which to do a multitude of things that went way, way beyond phone use it had the potential to be very Disruptive.  For those reasons, it's initial (if expensive) ability to be sustaining, coupled with it's long-term potential to be Disruptive (and therefore wildly inexpensive), made iPhone look like an easy product to introduce yet really important as time and applications progressed.  It was easy to predict the iPhone as a product that would make a big difference in the marketplace.

So far, I've not been disappointed.  Today, Apple announced an iPhone application allowing it to behave like a Kindle (read article here).  The Amazon.com launched Kindle was the most successful new product of 2007 and 2008 Christmas seasons, selling out production and selling in greater volumes than the initial launch of the iPod.  Kindle offers the opportunity to read anything digitally – from  the morning newspaper (why have a paper if you can get the info digitally), to magazines to books.  Literally thousands of publications and hundreds of thousands of books.  When I had to buy a Kindle device to gain this access, I had to deliberate.  Yet another device to carry?  But now that I can get this "library" access on a device which can also deliver internet access, text messaging, mass messaging on twitter, my PDA services and telephone connectivity — well this is pretty amazing.  It keeps demonstrating the iPhone as a device not like any other device in the market — a game changer – that can bring in new users to each of the individual markets it serves by offering such strong cross-market delivery.

Just 3 months ago tech reviewers felt that "netbooks" were the next "hot" item.  These downsized, book-sized laptops gave basic computer performance at a very low price.  And analysts chided Apple for not participating.  Forbes seemed to chide Apple recently with a headline that the company was living in denial (see article here).  But a closer read shows that the headline was tongue-in-cheek.  Forbes too recognized that Apple has a product in the netbook class – but it does a whole lot more – and its called the iPhone.  Meanwhile, Apple doesn't intend to lose value on Macs by chasing downmarket with the larger platform. 

I've told many audiences that sustaining innovations – those that do the same thing but a little better – create 67% of incremental revenue.  They feel comfortable, and are easy to launch.  And because they give revenue a shot, we justify doing more and more of these product variations and simple derivatives.  But, disruptive products produce 85% of incremental profitsVariations and derivatives are easy for competitors to knock-off, and their value is short-lived (if they produce any value at all).  Disruptive products are hard to imitate, and produce long-term profits.  The iPod disrupted the music business, and now years later it still has the #1 market share as an MP3 device (despite a market attack from behemoth Microsoft with Zune) and iTunes remains #1 in music downloads even though Apple produces no music.  iPod and Mac make money because they cannot be easily imitated.  And the same is proving true for iPhone.  It is more than it looks, and it has lots of opportunity to keep growing.

Apple demonstrates every day that even in very tough economic circumstances, if you go to where the market is headed YOU CAN GROW.  You don't have to sit back and bemoan the lack of credit or the change in markets.  You do need to have a clear view of where markets are headed, with vivid scenarios allowing you to track behavior and target.  You also have to be obsessive about competition, and realize you must relentlessly take action to remain in front.  And you can't fear Disruption as you use White Space to enter new markets and test new products.  That's why Apple stock is flat in 2009, while almost everyone else has gone down in value (see chart here).

Will incremental growth happen? – Panera Bread

Hats off to anybody launching growth projects in this economy.  With all the layoffs and other cost cutting, there are far too few companies looking for the opportunities these market shifts are creating.  So it's exciting to hear that Panera Bread is testing catering at its 80 Chicago locations (read article here).  But we have to wonder, will this generate incremental growth and profits?

The market view is that businesses are doing less dining out for breakfast and lunch meetings.  To keep costs down, they would prefer catering food into the office.  On the face of this, it's not a bad idea.  But of course, lots of people are having this idea today.  So Panera is not unique to begin thinking this way.  Perhaps we can use The Phoenix Principle to improve our odds of predicting the outcome accurately. 

Firstly, Panera is a restaurant.  Caterers are not restaurants.  If you look at successful caterers you will see they are experts at preparing food in special ways so it is finished, freshly, at the destination.  In addition to unique cooking approaches, to make sure food is not prepared too early and becomes unpalatable, they have unique equipment to transport the food in various stages of preparation.  And unique equipment to finish the dishes at the location.  And their employees are uniquely trained to make sure the on-site meal is the quality desired

The catering business is not an underserved market, simply waiting for Panera to enter.  So, when Panera says it is going to use its 80 area stores to test a higher focus on catering – the odds are it won't work.  Becoming a caterer would be a serious disruption to any restaurant business, and to pull it off would require implementing an entirely new operation from which to launch tests – not something run out of the back of the restaurant.  We can safely predict that Panera will not become a strong force in catering.

What Panera is much more likely to rapidly evolve to is not something as disruptive as catering.  Instead, they will quickly start trying to extend the existing restaurant Success Formula into delivery.  Here they will try to make small changes to the products, enhance packaging somewhat, and perhaps add some sort of delivery service.  They may well put in place special pricing for delivered orders, and even set up special operations for ordering and scheduling delivery.  Thus the activity will be an effort to Defend & Extend the existing Panera restaurant by implementing a sustaining innovation without really disrupting their Lock-ins. 

So, will this work?  Look again to The Phoenix Principle.  The company has seen a new opportunity in the market.  That is good.  But have they obsessed about competition?  Many other restaurants deliver food – from pizza makers to Jimmy John's sandwich shoppes – including dozens of small chanis and thousands of independents restaurants/diners.  Even the article quotes the Panera operations V.P. as saying that others such as Chipotle and Boston Market serve the target he's aiming toward.  What will make Panera unique?  Why will people want to buy Panera?  The market is pretty well served.  For Panera to succeed they will have to do something MORE than the competition.  As a D&E action, they have to somehow be BETTER, FASTER, or CHEAPER.

The Crain's article referenced earlier is precious short on any discussion of competition or value proposition.  And the interview didn't give any indication that the company had developed a really powerful competitive message – as much as they had merely identified an opportunity.  Without obsessing about competitors, the odds are very small that the project will make much difference.

The Phoenix Principle would predict that this project by Panera will hit the market with a lot of advertising and promotion.  But the company will probably under-excite customers, because they aren't really catering as much as delivering (like the named competitors.)  When delivering, without a powerful competitive position (MORE, BETTER, FASTER, CHEAPER) we can expect there will be early price offers to incent trial – but then Panera will find this is a very tough business to succeed in.  Panera's leaders will likely obsess about execution – but they are facing some competitors that already are pretty good at execution, and have a lot of experience to back up their practices.  The odds are high that the cost to then experiment, in order to become competitive, after already spending money on the launch, will seem pretty high – and the whole thing will go into a slow, delayed analysis.  Odds of succeeding in a year – about 20%.

I applaud the company for seeking out new markets.  But if you're an investor, wait until you see whether they truly intend to Disrupt opeations to enter catering – or if they go into this as a Defend & Extend action.  When it becomes the latter, you should expect the cost will not be well repaid, because their ability to beat the competition – which will remain fierce, and reactive to the Panera launch – will not be strong.  Thus, not likely to drive much incremental revenue and probably less incremental profit. 

Anyone can have a great idea.  But to be a successful innovation requires implementation.  And Panera doesn't look like they've figured out how critical it is to obsess about competitors BEFORE entering tough markets. Chicago has all the earmarks of an expensive test – where the company may declare victory but which isn't likely to do much for investors, employees or vendors.

Uh Oh at eBay

By now most people know the story of eBay.  Originally, the founders were looking at the internet as a place to trade PEZ dispensers.  But over the next 2 decades, eBay became the world's biggest garage sale.  If you have something to sell, you can list it on eBay to a world of potential buyers.  While there was a price to listing, it was small and eBay offered a nation of buyers compared to Craig's list which typically only got local buyers amidst a rash of junk listings created by their willingness to allow free listings of on-line items.

Given the current economy, you would expect eBay to be doing gangbusters.  When would be a better time to unload the stuff you don't need than now?  But unfortunately, eBay revenue is down 6% versus last year, and gross merchandise volume is down 12% versus year ago.  Even though eBay has expanded by adding Shopping.com, Stubhub and other sites, total revenue for the Merchandise unit is down 16% versus last year.  (read eBay results here)

eBay demonstrates the risk of being Locked-in to a single business model (and single Success Formula).  For about 2 decades internet growth has pulled along growing revenues at eBay.  Without doing anything differently, eBay grew because more and more people "discovered" the web.  As unhappy customers escalated in alarming rates, and lawsuits against unsrupulous eBay suppliers mounted, eBay blithely kept close to its "core," doing more of the same and only adding businesses that helped the "core" internet business grow – such as the acquisition of Paypal to handle small internet purchase transactions.  Many people thought eBay would grow forever – as the internet grew.

But now we can see that hiccups happen in all technology markets.  Customers are not only using the web, they are getting more savvy.  Fewer are willing to buy from unknown suppliers that may not follow through with promised products – and no back-up from eBay.  Fewer folks are willing to pay for listings as skeptical buyers are less trusting of those listings – and thus they turn to the free Craig's list.  Just being in the right technology market is not enough to keep a business growing.

Lock-in has served eBay well for 20 years.  But "times are changing."  Now customers are more sophisticated, and looking for more confidence and assurances.  They don't trust the eBay model implicitly, like they once did, knowledgable about increasing fraud and lousy customer service from sales people that don't care.  The simple eBay Success Formula isn't producing the results it once did. 

These latest results should worry everyone who depends on eBay as a supplier, employee or investor.  If things don't turn around in the next quarter, eBay will officially enter a growth stall. Even though eBay has been a huge success, like many internet companies eBay could rapidly see an equally remarkable fall.  Customers and suppliers can leave eBay just as fast as they left Pets.com.

Most companies expect their Success Formulas to help them grow indefinitely.  But we know that highly dynamic markets means this is extremely unlikely.  Markets shift – and right now the internet market is shifting fast along with the traditional retail market.  eBay is a company that has not prepared for market shifts at all, remaining exclusively tied to its original Success Formula.  As a result, the company has no plan to do anything differently even though the market is changing fast.  And that is the risk of companies that don't invest in scenario planning, obsessive competitor analysis and White Space during the good times.  They can all too easily wake up one day to a dramatic shift in fortune with no idea what to do about it.

You don't have to be GM or Sears to be Locked-in and at risk of market shifts.  Even leading companies run the risk.  If you devote yourself to Defending & Extending your historical business, ignore internal Disruptions and don't implement White Space to find new opportunities for growth, you risk the business.  Because no one can predict when, or how fast, markets will change putting the old business at risk.

Economical – or Locked-in?

As we enter 2009, more people than ever are talking about behaving ecomically.  From TV news to newspapers to web sites there are a rash of articles about how to save money.  Many of these talk about how to save pennies on things electic consumption (changing incandescent to flourescent bulbs) or food (buy raw ingredients rather than partially prepared frozen.)  It seems almost everyone is keen to find ways to save money.

When we look at American homes, the biggest cost is clearly housing.  Mortgate, insurance, property taxes (or rent) and heating/air conditioning are the biggest cost of practically every household.  The second, by a wide margin, is transportation.  The cost of automobiles, insurance and fuel far outweigh any other cost – including food – except for a minority of urbanites that avoid owning a car altother.  As we saw last year during the oil runup, for most people finding ways to save money on transportation is very high on the list of concerns. 

Yet, the easiest ways to save money are largely ignored.  We all know from advertisements on TV and public service announcements that mass transit is cheaper and more "green" than personal transportation.  Yet, Americans still prefer the flexibility of their own transportation.  Even though the fully loaded cost of a car averages between $500 and $800 per month (and can go much higher for pricier autos).

So, why don't more people drive motorcycles?  It is easy to find a used motorcycle for $2,000 to $4,000 - especially smaller engined machines that are ideal for commuting.  Most motorcycle insurance costs $100 per year, compared to more than $100 per month for most cars.  Most motorcycles average 40 miles per gallon, with some exceeding 100 mpg. And their 0 to 60 performance greatly exceeds low cost and low powered autos that seek higher mileage.  Even large motorcycles with big engines that easily tour along at 70-80 miles per hour achieve more than 35 mpg and can exceed 50 mpg on highways.  There is simply no way to ignore the fact that the cost of owning and operating two-wheeled transportation is less per year than a single month of even a cheap 4-wheeled auto.

If you go outside the USA, motorbikes are prevalent.  They are much easier to maneuver in heavy traffic – virtually ignoring traffic jams.  And parking costs range from $0 (because there are many places to hide one in an alley, on a side street or even on sidewalks with two-wheeled parking spots) to a mere fraction of an auto – which costs from $40/day to $200/month in most cities.  Where gasoline has long cost $4.00/gallon (north of $1.00 per liter in most countries) the benefits of motorcycles has led the rapid growth of riders.  In India motorbikes are so prevalent some cities have considered banning them in order to make more room for autos and "raise the community standars" – bans unlikely to pass and even less likely to be enforced. 

So why don't Americans buy more motorcycles?  Ask your friends and neighbors – and maybe yourself.  Odds are, you never considered it.  Somewhere in your mind, motorcycles are stuck in a strange land between gangs (the Hells Angels) and those who can't afford a car.  When someone asks about riding one, the immediate image is "dangerous" – yet statistics show that motorcycle riders are less than 5% as likely to be in an accident as an auto driver.  Motorcyclists are dramatically safer than auto drivers, and that is reflected in the remarkably lower insurance rates.  And when motorcycles are involved in accidents, the costs of repair are rarely even 10% of the cost to repair a car. 

Americans don't ride motorcycles largely because they never have.  America was always a "car" society.  The home of Ford, GM and Chrysler, people bought and drove cars.  Of course this was augmented by ample oil reserves leading to very low gasoline prices for many years – something not available in most countries.  Whereas in Europe and Asia motorcycles led the transportation movement.  It was much more common for the first vehicle to be two-wheeled rather than four.

People are talking a lot about how to be economical.  But the reality is that most people are locked-in to old practicesThey will switch light bulbs so they have more money for gasoline.  They will turn down the heat in winter so they can pay for car parking when going into the city or to work.  People will try to make small adjustments around the edges of life so they can Defend & Extend the lifestyle to which they are accustomed.

There are lots of opportunities for us to change our lives.  We can make big changes that lower the cost of living.  But to implement these requires we Disrupt our lives.  Until we challenge the status quo, and change our Lock-in to things we've always done, we don't really consider doing things that can make a big difference. 

In the meantime, take a look at buying a motorcycle (read more about motorcycle use in America here.)  You might be surprised just how economical they are – and how fun!  Your fear of leaving your car at home might dissipate if you ever took a ride on a motorized bike.  And you'll be surprised just how much money it can put back into your wallet every month.  And it will drop your carbon footprint more than anything else you can do – except switch to mass transit.

Do Marketers Lead, or Follow – MENG Study

The Marketing Executives Network Group (site here) has just released its second annual top marketing trends study (read press release and overview here, and study results here).  Kudos to MENG for keeping up the effort – and especially so given the surprising results.

Many people think marketers lead their customers.  Often, employees think marketers are the people charged with being ahead of customers, scanning the horizon for market shifts that can affect future sales.  The perception is that marketers are looking for ways to Disrupt markets, introducing new technologies, products and services to generate competitive advantage.  But the results of this survey show that isn't exactly what's going on – at least today.  Statistically, according to responses, it appears that most marketers are firmly Locked-in to Sustaining past company sales.  The results indicate that the 650 people responding to this survey are more deeply rooted in the past than in the changes now happening which are affecting results at many businesses to their core.

  • The #1 business book was considered Good To Great by Jim Collins, and #2 was The Tipping Point by Malcolm Gladwell.  No doubt, both of these books have been big sellers.  But, the first was published in 2001, and the second in 2000 – neither are exactly "latest thinking" about business, marketing or innovation.  Worse, both have been extensively reviewed in academia – and despite their popularity have been proven to be without merit as guidebooks for success.  While their logic is appealing, when backtested and when applied, both led to worse results, rather than better, than average.  Rosenzweig even has taken the time to publish The Halo Effect which is dedicated to disproving the validity of Mr. Collins (and other's) tales as benefactors of increased sales or profits.  A book not even on the list.
  • As gurus, the marketers like Seth Grodin, Warren Buffet and Malcolm Gladwell in the first 3 spots, with Tom Friedman in fifth.  Again, interesting array.  While Seth has an MBA, he was never a successful marketer – until he started selling short books with catchy titles and simple answers for complex problems.  Malcolm Gladwell and Tom Friedman neither have any business training or business experience at all – both having been writers and editors by academic training and career (The New Yorker and The New York Times, respectively).  I asked Malcolm what led him to write "The Tipping Point" and he said "you get paid a lot more to write a catchy business book than to do serious writing." And Warren Buffet is famous for his total disdain for marketing.  As he said in an interview once "if you have to spend on marketing your product doesn't sell itself – so what good is it?  Marketing dollars can be spent better elsewhere."

  • By far the #1 target market is considered Baby Boomers.  Interesting, given that all studies show that as Boomers are nearing and entering retirement their spending (in dollars, and as percent of income) is declining precipituously.  Neither Gen X or Gen Y received more than 2/3 the interest of Boomers – even though both are driving more consumption individually than the long-focused-upon but aging Boomers. Given that by 2015 there will be more non-European ancestry Americans than European, hispanics were only 76% as interesting as Boomers, and Asians were only 1/3 as interesting.  With President-elect Obama taking the most recent election while losing a majority of the Boomer vote – yet winning the younger and the non-white vote, it is interesting where these marketers showed a preference to focus.

  • Aligned with other responses, these marketers felt that Marketing Basics were the #1 issue for marketers, more than twice as important as innovation or "green"and more than 3 times as important as using technology.  Further, the leading disliked buzzwords included Web 2.0, Social Networking, Social Media, Blogs and Viral marketing.  Yet, the President-elect pulled off an incredible upset primarily by jumping past the old marketing basics and using the latter techniques to reach a new audience, build an amazing brand and create intense loyalty surpassing much better known and initially better funded competitors.  At the same time, in 2008 MTV stopped running music videos entirely because they could not compete with YouTube.com, and blogs have shown the ability to spread messages at a fraction of the speed used by traditional advertising or public relations

There is no doubt business saw a lot of change happen in 2008.  And we all expect considerable additional change in 2009.  But it would appear that the marketers in this study are customers of their own product – potentially to a fault.  Old brands (Collins, Buffett, Boomers) still captivate their attention, while newer, upcoming trends and messages are considered far less interesting.  As market shifts are happening, they seem more interested in defending past marketing approaches than moving to the front edge of what's working in a rapidly changing, digitized, globally competitive marketplace.

There's no doubt that a lot of marketing is about sustaining an existing business.  In most companies, Defending & Extending old products, old brands and old distribution systems get the lion's share of attention.  Unfortunately, this behavior can set up many companies to be "knocked off" by emerging competitors who don't operate by the old rules, or in the same way.  Google paid absolutely no attention to the gentlemanly behavior of the media as it systematically pulled advertisers to the internet – leaving newspapers and magazine publishers to decline, merge, declare bankruptcy and completely fail.  It's these Disruptive competitors, using new techniques, that today are putting many of our oldest businesses at risk. 

At times of great change, great opportunity emerges.  Someone has to lead the charge for identifying these opportunities and moving forward.  Success cannot happen by trying to Defend old Success Formulas after market change makes their rates of return sub-optimal.  For many of us, we want to turn to marketers.  And my guess is that marketers ARE the best people to discern these opportunities, and take the leadIt's important that now, more than ever, we encourage them to lead customers, rather than follow old markets.  Now, when investing in legacy brands, products and technologies is suffering rapidly declining returns, is when we most need our marketers to take to the forefront of exploration and chart a course toward new markets and opportunities. 

Use 2009 to grow! — Domino’s “Pizza” company vs. Microsoft

The prognosticators are busy forecasting a tough 2009.  Coming after the big slowdown in 2008, it would be tempting to do like Microsoft (see chart here) and cut costs in an effort to improve short term profits (read article here).  Microsoft hasn't developed new products generating excitement or growth for a few years.  It's botched effort to take on Google by purchasing Yahoo! was a disaster, leaving the company with no growth projects of note.  Meanwhile, Vista had a lackluster launch, and is now being forced on new computer purchasers who regularly say they would prefer to run the older Windows XP.  And every month Linux eats into Microsoft's market share.  So for the first time ever, Microsoft appears to be planning to layoff employees - of as many as 10%.  For a tech company dependent upon growth, this is not a good sign.

A better response can be seen at Domino's (see chart here).  Since inception, Domino's has been synonymous with home delivered pizza.  Although a leader in its segment, the company has not fared well for years, causing it's equity valuation to fall precipitously.  Price wars in pizza are constant, and new product varieties are consistently being brought to market by endless competitors.  In the last quarter, sales in open stores fell 6% versus a year ago, and net income fell almost 10%It would be easy for Domino's leadership to redouble its effort to Defend & Extend its pizza business, and let some franchisees fail as it shrunk the open store base and cut costs.

Instead, Domino's is going into 2009 with an attack on Subway's Sandwich shops (read about launch here).  In 2008 Domino's leadership recognized that following the pizza market into price warring would not improve sales or profitability.  So it Disrupted and explored new opportunities to grow.  After various tests, the company identified an opportunity in sandwiches, and a target competitor in Subway's.  Using White Space to test and refine the approach, the company developed its initial Success Formula modifications to move beyond pizza – which has long been part of the company name and identity – and enter this market, reaching new customers at new times of day with new products.  Confronting a difficult market, instead of "digging in" to an unprofitable war Domino's used scenario planning, competitor focus, Disruptions and White Space to identify a growth opportunity — even in a tough economy.

There are no rules requiring businesses keep doing what they always did.  Those who prosper realize that when growth slows it's smartest to find new markets in which to compete.  For every market suffering from price wars and over-competition there is a market with opportunity.  Maintaining long-term success requires moving into new markets, launching entirely new products and acquiring new customers.  Those companies exhibiting these Phoenix Principle behaviors will do a lot better in 2009 than those who focus on layoffs and cost cutting.

Creative Destruction or corporate Darwinism – Innovate to grow

2008 was quite a yearMany businesses came out far worse than they dreamed possible when the year started.  The Wilshire 5000 (one of the broadest measures of U.S. equity values) declined 40% – losing some $7trillion dollars of value.  More than 1.2million jobs disappeared in the USA.  Foreclosures and bankruptcies are at record levels.  Although we'd like to think this has been a very recent phenomenon, bankruptcies and business failures took a dramatic turn upward in 2000 (to what were then record levels) and remained at rates far above any historical norms for the decade.  Not only small, but very large companies (those with assets greater than $1B) have been failing at rates exceeding 10x the failures of almost all decades in the 1900s.  2008 was more the climax of a trend than really something totally new. 

So, what should you do about it?  One option would be to cut costs and try to "survive the downturn."  Unfortunately, that approach is very likely to doom the business.  Firstly, the recovered economy won't look like the previous economy.  Macro shifts in competitiveness and required capabilities to succeed have been happening since the 1990s, so the recovery will not benefit those who did well (and certainly not those who were mediocre performers) in previous times.  Second, more innovative competitors who are better aligned with current markets will steal sales, customers and share while you retrench.  Innovation doesn't stop during weak economies, and retrenching companies fall further behind while in survival mode to those who embrace the shifts and alter their Success Formulas. Just look at previous recessionary cost cutters like Xerox, DEC and Montgomery Wards.

With companies like Circuit City, Bed Bath & Beyond, The Bombay Company and Sharper Image failing while WalMart sales increased 3% in November, it might be tempting to say that now is the time simply to grow by doing more of what you've previously done.  Or by focusing on ways to cut costs.  But that would ignore the underlying trends that caused these companies to fail – and WalMart to stagnate with wickedly weak performance the entire last decade.  While the credit crisis pushed the failures over the brink, their troubles were tied to broader themes in consumer demand and retail expectations.  These companies were doing poorly long before the credit crisis emerged.  And customers didn't flock to WalMart.  3% growth isn't what would be called spectacular.  When WalMart looks good only because it isn't failing, it tells us that the future opportunity isn't to be like WalMart (which is the retail leader in low cost operations) – but instead to lead customers in new trends.  Customers don't want all retailers to be like WalMart (which happened to be in the right place when this once in a lifetime crisis happened).  They want innovation which will attract them.

Darwin himself said, "It is not the strongest that survive, nor the smartest…It is the most adaptable."

Increased use of digitization opened the floodgates to greater globalization.  The search for "low cost" went global seeking the cheapest labor and lowest currency values.  But it has also opened doors for more innovation.  Companies in the U.S., Europe, India and China all have the opportunity to bring forward innovation in new products and new services to delivery value.  The search for lower cost does not create growth, merrely lower cost.  Innovation leads to real growthThose companies which will emerge much stronger will be those who identify opportunities for real growth in these changed markets – by looking internally and externally for innovation.

If you find it hard to get excited about Delta, which is now the largest airline since merging with Northwest, don't feel bad.  Just because higher fuel prices pushed some airlines over the brink, and left others (like United) badly crippled doesn't mean Delta is going to be a leader.  Lower fuel prices short term, combined with decreased capacity due to failures, may increase short-term airline profits, but does not mean customers are any happier flying now than before.  To the contrary, now that customers have to pay for their own soft drinks and sandwiches (at incredibly expensive prices, by the way), pay extra fees for checking bags, have to take connecting flights more often with longer travel times and greater risks of delays, and deal with unhappy airline employees who are working for less pay, benefits and pension means customer satisfaction is at an all-time low.  It's not likely that Delta will lead people back onto flights.  Instead, customers are looking for a supplier that will use innovation to provide a better experience and value — possibly Virgin America?

If we all go into 2009 with plans only to cut costs and "wait it out" then 2009 will not be a good year.  What are we waiting out?  How can we expect things to "get better"?  But if we use 2009 to identify innovation which can better meet customer needs, we have every reason to be optimistic.  Now, more than ever, it is time to Disrupt our Lock-ins to old behaviors.  We don't need "more of the same, but cheaper".  We need to be aware of the limits in our existing Success Formulas by Disrupting.  And we need to explore White Space where innovations can be tested.  White Space will create new Success Formulas which will create growth – and that could make 2009 into a great year for those companies focused on the future and willing to adapt to this latest market shift.

Get out of the foxhole and Win – Tractor Supply and Papa John’s

We keep hearing about all the bad news in this recession (Tribune Company, GM, Circuit City for example).  You could easily believe there is no good news.  But if we look a little harder we can see that there are businesses which are looking forward and taking actions to build market share – winning against competitors that are reacting by retrenching and hiding in a foxhole.  There is a better way to manage when times are tough than cutting costs and "waiting for times to get better."

Ever heard of Tractor Supply Company (see chart here)?  If you live in a big city, probably not.  As the name implies, this retailer has largely supplied products to farmers and competitors in the agrarian economy.  Of course, the number of individual farms has been declining for decades as the economy shifted from agrarian to industrial – and now to information.  So you would expect Tractor Supply to be disappearing from the retail landscape, especially during times so difficult that much better known retailers are disappearing and filing for bankruptcy.

But that is not the case.  Tractor Supply realized that while "production" farms are fewer and becoming a less attractive market, on the periphery of more and more cities there were people with unsupplied needs.  And as cities expanded, and corporations moved headquarters to the suburbs, these ex-urban and suburban families were increasing the number of pets – and in some cases picking up pets like horses and other animals traditionally considered livestock.  "Gentleman farms" of only 5 or 10 acres were increasing, where families escaped urban lifestyles to enjoy a connection with gardens, small crops and a few animals.  They also needed tools, and hardware for fences and buildings – in short a panoply of products not readily available at Home Depot.  And with that insight to the changing market, Tractor Supply has been expanding.  The chain has 834 stores (and you never heard of them?).  The company opened 20 new stores last quarter, compared to 21 a year ago and 70 this year compared to 63 last year.  They are now opening 2 stores in outlying Chicago.  The company is growing more today than last year, and moving into new markets where even Wal-Mart has chosen to leave. (Read article about Tractor Supply growth moves here.)

Another great example is Papa John's pizza restaurant chain (see chart here).  We keep hearing about how people are eating out less now than before.  The marketplace is struggling, as chains such as Bennigan's have shut their doors, unable to draw enough customers.  So analysts keep talking about more failures in restaurants.  Yet, Papa John's ignored the analysts and figured out a way to grow.

Instead of restricting itself to the "tried and true" revenue growth approaches used by most chains – such as television advertising and newspaper coupons – Papa John's studied how people were using the internet, and created White Space to develop new marketing approaches.  They created a one-day campaign, flooding websites such as MySpace.com, NHL.com and others with display ads, via Google ad placement.  The result was a 20% revenue jump.  By driving people to order on-line, rather than old-fashioned telephone orders, they saw average ticket sizes increase 10-15% due to increased ordering.  And they have connected many more customers to Papa John's email marketing.  For example, on Facebook the number of Papa John's fans increased from 10,300 to almost 187,000 – an 18X increase in just 3 weeks!  Now Papa John's is adding more on-line opportunities for customers, such as advance ordering (up to 21 days – say for a party) and "repeat last order" capability to make transactions fast and easy.  As the world moves to the web, Papa John's is learning to use the web to connect with customers and grow!  (Read about Papa John's on-line marketing programs here.)

It's easy to bemoan a recession, say there's little you can do, and start whacking at costs.  It's easy to get down in the dumps, and lose interest in trying to do better.  Tough market news can breed discontent and worry and inaction.  In the cost-cutting process you well might lose some of your most valuable employees – and leave yourself quite unprepared for future competition (read here at Harvard Business Press about how traditional recessionary cost cutting reduces competitiveness).  Even worse, while you tread water, you greatly increase your vulnerability to competitors who focus on market shifts, analyze competitors to upend them, Disrupt their old behaviors to create future focus, and use White Space to try new things which can create a much better returning Success Formula in the changed marketplaceThese Phoenix Principle companies are the ones that will lead future growth in revenue and profits by not running for foxholes today, instead concentrating on how they can Disrupt and use White Space to become a far more successful competitor.