by Adam Hartung | Aug 25, 2010 | Books, In the Rapids, Leadership, Lock-in
Summary:
- We are biased toward doing what we know how to do, rather than something new
- We like to think we can forever grow by keeping close to what we know – that’s a myth
- Growth only comes from entering growth markets – whether we know much about them or not
- To grow you have to keep yourself in growth markets, and it is dangerous to limit your prospects to projects/markets that are “core” or “adjacent to core”
Recently a popular business book has been Profit from the Core. This book proposes the theory that if you want to succeed in business you should do projects that are either in your “core,” or “adjacent to your core.” Don’t go off trying to do something new. The further you move from your “core” the less likely you will succeed. Talk about an innovation killer! CEOs that like this book are folks who don’t want much new from their employees.
I was greatly heartened by a well written blog article at Growth Science International (www.GrowthSci.com) “Profit from Your Core, or Not.. The Myth of Adjacencies.” Author Thomas Thurston does a masterful job of pointing out that the book authors fall into the same deadly trap as Jim Collins and Tom Peters. They use hindsight primarily as the tool to claim success. Their analysis looks backward – trying to explain only past events. In doing so they cleverly defined terms so their stories seemed to prove their points. But they are wholly unable to be predictive. And, if their theory isn’t predictive, then what good is it? If you can’t use their approach to give a 98% or 99% likelihood of success, then why bother? According to Mr. Thurston, when he tested the theory with some academic rigor he was unable to find a correlation between success and keeping all projects at, or adjacent to, core.
Same conclusion we came to when looking at the theories proposed by Jim Collins and Tom Peters. It sounds good to be focused on your core, but when we look hard at many companies it’s easy to find large numbers that simply do not succeed even though they put a lot of effort into understanding their core, and pouring resources into protecting that core with new core projects and adjacency projects. Markets don’t care about whatever you define as core or adjacent.
It feels good, feels right, to think that “core” or “adjacent to core” projects are the ones to do. But that feeling is really a bias. We perceive things we don’t know as more risky than thing we know. Whether that’s true or not. We perceive bottled water to be more pure than tap water, but all studies have shown that in most cities tap water is actually lower in free particles and bacteria than bottled – especially if the bottle has sat around a while.
What we perceive as risk is based upon our background and experience, not what the real, actual risk may be. Many people still think flying is riskier than driving, but every piece of transportation analysis has shown that commercial flying is about the safest of all transportation methods – certainly much safer than anything on the roadway. We also now know that computer flown aircraft are much safer than pilot flown aircraft – yet few people like the idea of a commercial drone which has no pilot as their transportation. Even though almost all commercial flight accidents turn out to be pilot error – and something a computer would most likely have overcome. We just perceive autos as less risky, because they are under our control, and we perceive pilots as less risky because we understand a pilot much better than we understand a computer.
We are biased to do what we’ve always done – to perpetuate our past. And our businesses are like that as well. So we LOVE to read a book that says “stick close to your known technology, known customers, known distribution system – stick close to what you know.” It reinforces our bias. It justifies us not doing what we perceive as being risky. Even though it is really, really, really lousy advice. It just feels so good – like sugary cereal for breakfast – that we justify it in our minds – like saying “breakfast is the most important meal of the day” as we consume food that’s probably less healthy than the box it came in!
There is no correlation between investing in your core, or close to core, projects and high rates of return. Mr. Thurston again points this out. High rates of return come from investing in projects in growth markets. Businesses in growth markets do better, even when poorly managed, than businesses in flat or declining markets. Where there are lots of customers wanting to buy a solution you simply do better than when there are lots of competitors fighting over dwindling customer revenues. Regardless of how well you don’t know the former or do know the latter. Market growth is a much better predictor of success than understanding your “core” and whatever you consider “adjacent.”
Virgin didn’t know anything about airlines before opening one – but international travel from London was set to boom and Virgin did well (as it has done in many new markets.) Apple didn’t know anything about retail music before launching the iPhone and iTunes, but digital music had started booming at Napster and Apple cleaned up. Nike was a shoe company that didn’t know anything about golf merchandise, but it entered the market for all things golf (first with just one club – the driver – followed by other things) by hooking up with Tiger Woods just as he helped promote the sport into dramatic growth.
Success comes from entering new markets where there is growth. Growth can overcome a world of bad management choices. When there are lots of customers with needs to fill, you can make a lot of mistakes and still succeed. To restrict yourself to “core” and “adjacent” invites failure, because your “core” and the “adjacent” markets that you know well simply may not grow. Leaving you in a tough spot seeking higher profits in the face of stiff competition — like Dell today in PCs. Or GM in autos. Sears in retailing. They may know their “core” but that isn’t giving them the growth they want, and need, to succeed in 2010.
by Adam Hartung | Aug 24, 2010 | Current Affairs, Defend & Extend, In the Rapids, Innovation, Lock-in, Web/Tech
Summary:
- It seems like the best way to find old success is to do more of what used to make you successful
- But lack of success is from market shifts, meaning you need to do more things
- Investing in what you know gets more expensive every year, with little (if any) improvement in returns
- To regain success it’s actually better to get out into new markets where you can compete with lower investment rates, generating more profitable sales
- Apple increased its sales of Macs not by focusing on Macs – but instead by becoming a winner in entirely different markets creating a feedback loop to the old, original “core”
MediaPost.com, in its article “Enterprise Sector Takes a Shine to Apple” has some remarkable statistics about Apple sales. At a time when most PC manufacturers, such as Dell and HP, are struggling to maintain even decent growth (even after the launch of upgraded Windows 7 and Office 2010) Apple is dramatically increasing its volume of Macs – and gaining market share. In last year’s second quarter:
- Mac sales jumped almost 50% in the business sector
- Mac sales jumped a whopping 200% in the government sector
- Mac sales rose over 31% in the home sector
- In Europe, Mac unit sales doubled their market share – and more than tripled their share in dollars
Yes, Macs are a small part of the market. Around 3.5% in the U.S. But, if you’re an Apple employee, supplier or investor that doesn’t matter, does it? In fact, it comes off sounding like a PC fan pooh-poohing a really astounding sales improvement. Nobody is saying the Mac will soon replace PCs (that’s more likely to happen via mobile devices where Apple has iPhone and iPad). But when you can dramatically increase your sales, especially as a $50B company, it’s a big deal.
The lesson for managers here is more unconventional. For years we’ve been told the way to grow your sales and profits is to “stick to your knitting.” To “protect your core.” The idea has been promoted that you should jettison anything that is a diversion to what you want to do best, and completely focus on what you select, and then try to out-compete all others with that product. If things don’t improve, then you need to get even more focused on your core, and invest more deeply. And hope the Mojo returns.
But that’s exactly the opposite of what Apple did. When almost bankrupt in 2001 Apple jettisoned multiple Mac products. It invested in music and entertainment products (iPod. iTouch and iTunes) to grab large sales with lower investment rates. It then rolled that success into developing the mobile computing/phone business with the iPhone and all those apps (some 250 thousand now and growing!). And it built on that success with a mobile tablet called the iPad. The Mac is now growing as a result of Apple’s success in all these other products creating a favorable feedback loop to the original “core”.
Apple spends less than 1/8th the money on R&D as Microsoft. And an even lesser amount on marketing, PR and sales. Yet, by entering new markets it gets far more “bang for its buck.” By entering new markets Apple is able to develop and launch new products, that sell in greater volumes and at higher profits, than had it stuck to being a “Mac company.” In fact, back when it only had 45 days of cash on hand, if it had stayed a “Mac company” Apple would have failed.
What we now see is that constantly re-investing in what you know drives down marginal rates of return. It keeps getting harder and harder, at ever greater cost, to drive new development and new sales with upgrades to old products. Look at the sales and profit problems at Sun Microsystems (world leader in Unix servers) and Silicon Graphics (world leader in graphics computers) and now Dell. What we’d like to think works at driving revenue and profits really raises new product costs and creates an easy target for new competitors who attack you as you sit there, all Locked-in to doing more of the same.
Contrarily, when you develop new products for new markets you grow revenues at lower cost, and thus higher profits. And you create a feedback loop that helps you get more sales without massive investments in your historical “core.” Think about Nike. It hasn’t been a “shoe company” for a very long time – but its shoes are greatly benefited by all the success Nike has in golf clubs and all those other products with a swoosh on them.
When confronted with a decision between “investing in the core” – or “protecting the mother ship” – or investing in new markets and solutions —- be very careful. Your “gut” may lead you to “in a blink” decide the obvious answer is to invest in what you know. But we are learning every quarter that this is a road to problems. You get more and more focused, and less and less prepared for the market shift that sent you into that “core focus” in the first place. Pretty soon you’re so far removed from the market you can’t survive – like Sun and SGI. It’s really a whole lot smarter to get out into new markets with White Space teams that can generate revenues with a lot less cost by being a smart, early competitor.
by Adam Hartung | Aug 23, 2010 | Current Affairs, In the Swamp, Leadership, Web/Tech
Summary:
- Market shifts can lead to new solutions that are free
- Free products often cause historical competitors to fail
- Microsoft is at great risk as the market for business applications is shifting to free solutions from Google
More than a decade ago Microsoft made the decision to bundle, at no extra charge, an encyclopedia with its software. Almost nobody had heard of Encarta, and it had never been a serious competitor to Encyclopedia Britannica. But when it came on a CD for free it stopped a lot of people from buying a new set of books for the family. It only took months for Encarta to become the #1 encyclopedia, and Encyclopedia Britannica found itself in bankruptcy. While quality is always an issue, it's very tough to compete with "free." Now Wikipedia, another free product, dominates the encyclopedia market.
For decades people paid for access to news – via newspapers and magazines. Advertisers and subscriptions paid for news. But when newswriters started offering news on the internet for free, and when readers could access news articles on the web without subscriptions, publishers found out how hard it is to compete with "free." Several magazines and newspapers have failed, and several publishers have entered bankruptcy – such as Tribune Corporation.
Now Crain's New York Business headlines "Google's Free Appls Click with Entrepreneurs." Companies are learning they can accomplish the tasks of word processing, spreadsheets, website creation and enterprise email for free via Google apps. And this is not good news for Microsoft.
Microsoft has 2 product lines that make up almost all its sales and profits. Operating systems for PCs (Windows 7) and office automation software for businesses (Office 2010). That there is now a viable offering which is free has to be very, very troubling. How long can Microsoft compete when the competitive product is, quite literally, free? If you adopt cloud computing applications, you no longer need a PC with an operating system. You can use a much simpler device. And you can use Google apps for business applications at no charge.
Microsoft is a huge company, with an incredible history. But how is it going to compete with free? And as computing becomes more and more networked, and Microsoft loses share in mobile devices from smartphones to tablets, what will be the sustaining revenue at Microsoft?
Investors in Microsoft have a lot to fear. As do its employees and suppliers. As do supply chain partners like Dell. When markets shift – especially when led by a shift to free solutions – the impact on traditional competitors can be extreme. Even the very best – such as Encyclopedia Britannica – can be destroyed. Sun Microsystems led the server business in 2000, with a +$200B market cap. Sun is now gone. Market shifts can happen fast, and when products are free shifts often happen even faster.
by Adam Hartung | Aug 19, 2010 | Current Affairs, Innovation, Leadership, Web/Tech
Summary:
- By 2015 or 2020 cash, checks, debit and credit cards could disappear
- Smartphones are positioned to eliminate old financial transaction tools, as well as land line phone service and PCs
- All businesses will have to make changes to deal with new forms of payment processing, and early adopters will likely gain an advantage with customes
- There will likely be some big winners and big losers from this transition
Can you imagine a world with no cash? It could happen soon, and how will it affect your business?
Bloomberg.com headlined “AT&T, Verizon to Target Visa, Mastercard with Smartphones.” The business idea is to replace your Visa and Mastercard with a smartphone app that acts as your debit and/or credit card. Doing this makes it faster and easier for smartphone users to place transactions – online or in person – without even bothering with a card or any other physical artifact.
This is a big deal, because according to Mediapost.com “Smartphones Nearly 20% of All Phones Sold.” So smartphones are starting to be everywhere, and at current rates will replace old mobile phones in just a couple of years. They are increasingly replacing traditional land-line service as headlined in DailyMarkets.com, “Cell Phone Only Use Hits New High of 24.5% in U.S.” People are abandoning the historical land-line telephone.
The traditional “phone company” and its services are rapidly disappearing. After all the effort Southwestern Bell put in to recreating the old “ma bell” of AT&T, it now looks like that entire business is in decline and likely to become about as common as CB or portable AM radios. What is the future of AT&T and Verizon if they front-end Discover as the payment processor? Will these companies transition to become something very different than their past, and if so what will that be? Or will they be an early proponent for change but let the business value go to others – as they did in mobile phones, ISDN and other internet connectivity as well as cable entertainment?
Mediapost.com also reports “PayPal Making Micropayments a Reality.” Which gives us the last piece of the puzzle to just about guarantee old payment methods are likely to be gone by 2020 (possibly earlier – 2015?). People are giving up old land-line telecom for mobile, and mobile is rapidly becoming all smartphones. Smartphones are getting apps allowing them to conduct financial transactions without the need of a credit card, debit card or (going ultra low-tech) check (no printer needed – lol – which has to be a concern for companies like Zebra that make the printers). In fact, you can even make all kinds of payments, even really small ones under $1 – not just big ones – using your cell phone by opening a Paypal account. What you can easily see is a future where you don’t need a wallet at all. Everything you’ll need for financial transactions will be on your smartphone. (How much you want to bet somebody will figure out how to put your driver’s license on the smartphone too?)
Ultra convenient, don’t you think? You won’t need a credit card, or any other card. You won’t need a PC to do your on-line banking. You won’t need cash for small purchases – you can even do garage sale transactions or buy gum using your smartphone. And there’s sure to be an app that will consolidate all your payments and set up to automatically do transactions (like your mortgage or car lease) without you even having to do anything. And all from your smartphone. No more wallet, no more PC, no more coins or bills in your pocket.
So, what happens to cash registers, and the folks that make them? No registers in restaurants or hotels? What happens to desk clerks in hotels – will they be necessary? What about cashiers in retail stores – any need? Will banks have any need for a local branch? Why would ATMs exist? Quite literally a raft of companies would be affected that deal in the handling of transactions – from Visa and Mastercard to IBM and Diebold. Even those little printers in cabs could disappear as your phone now pays the cabbie directly what the meter requires. You could even pay modern parking meters with your smartphone!! What happens to companies that make mens and women’s wallets? Will purses and clutches disappear from style? How much easier will it be for the IRS to track the income of people that have historically been in cash jobs?
Do your scenarios of 2015 include this kind of change in payments? Should it? What will be the impact on your bank? On your credit card supplier? Will your customers want to change how they pay? How will you need to change your order-to-cash process? Are you ready to be an early adopter, thus aiding revenue generation? Or will you let others steal sales by moving quickly to these modern payment systems?
There’s precious little that’s more important in business than collecting the money. A new set of technologies are sure to be changing how that happens. Will you leverage this to your advantage, or will your competitors?
by Adam Hartung | Aug 16, 2010 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Leadership, Web/Tech
Summary:
- Dell has remained focused on its core market, and as a result growth has stalled for 5 years.
- Cisco has aggressively developed entirely new markets, and it has grown 60% the last 5 years.
- To keep growing, and maintain your business value, you must CONSTANTLY keep developing new markets
Dell helped create the PC revolution. It’s simplification of the PC business into a limited set of technologies, no R&D, then putting its energy into lowering costs by focusing on supply chain made PCs very, very cheap. it was an idea never before attempted, and this Success Formula allowed Dell to become a household name around the world.
Unfortunately, the demand for PCs has flattened. And competitors have learned how to match (maybe beat?) Dell’s “core capabilities.” When markets shift, a company has to develop new markets, or risk hitting a growth stall.
Source: Silicon Alley Insider
And that’s happened to Dell. Revenues have not continued to grow, Dell has remained focused on its “core markets” and “core capabilities” but without growth in those “core” areas the company has been severely hampered. Revenues are still 72% in “core” but there’s little reason to own the stock because company revenues are at best flat (despite volatility) the last 5 years. Dell is going nowhere – except following the problems at Microsoft. Since it’s now so late to mobile phones, any sort of tablet, or other markets with growth its unlikely Dell will be able to profitably develop any new businesses to replace the deteriorating PC market. Dell is stuck in the Swamp, so busy fighting alligators and mosquitoes that it’s no longer growing. It’s stuck in a low-no growth “core” market.
To remain a healthy business you have to constantly enter new markets.
Source: Silicon Alley Insider
You may want to think of Cisco as a router, or router and switch company. That was certainly the company’s early Success Formula. But unlike Dell, Cisco has invested heavily in other businesses. Now Cisco revenue is 60% bigger than it was five years ago, while its percent of revenue in routers and switches has actually declined! By aggressively moving into new markets for “advanced technology” and services Cisco has improved its overall revenue, and kept the company very healthy. It has growth precisely because it moved away from its “core” to develop new markets, new products, new solutions and new revenues. Cisco keeps maneuvering itself back into the Rapids of growth before the current slows, and thus it avoids the growth stall eating up Dell’s value.
It is so easy to be lured into focusing on your “core”. Especially if you listen to your existing big customers. But markets shift, and you inevitably must move into new markets. And market shifts don’t care what your market share or your industry view. It’s up to all leaders to stay ahead of shifts by constantly developing scenarios for new markets, studying competitors for new insights, disrupting the old Success Formula Lock-ins and setting up White Space teams to develop new revenues and keep the business growing!
by Adam Hartung | Aug 13, 2010 | In the Whirlpool
Summary:
- GM is replacing its CEO and preparing to sell equity to the public
- Don’t buy the stock. GM will not be a market winner
“GM reports $1.3 billion in Q2 profits, Preps for Stock Sale” is the Detroit News headline. So, are you interested in buying some GM shares? If you do, can I interest you in a bridge I have for sale???
In addition to reporting 2 consecutive positive cash flow quarters, the CEO Ed Whitacre announced he’s leaving the post to be replaced by a different telecommunications executive, Don Akerson. Are you excited?
There are at least xx reasons NOT to buy GM shares:
- The company lost market share last year. It’s slide from dominance has not stopped. It has less than half the market share it had just 2 decades ago.
- GM lost $12.9 billion in the same quarter last year. There is no doubt the company brought forward costs last year to worsen the financials, thus making them look better than they should be now. Financial machinations are common in poorly performing companies, especially around bankruptcies
- The departing CEO, and the incoming CEO, are retired telecom execs. How many successful (meaning growing revenues profitably) telecom companies do you know? Now wait a minute…. right.
- To hit revenue targets GM increased fleet sales. Interpret that as chasing low-margin business for volume. It also means selling on price, not the desirability of the products to end users.
- GMs pension funds are underfunded to the tune of some $26 billion. When will they fulfill it?
GM hit a growth stall in the 1970s. Since then the company has steadily lost market share while watching profitability deteriorate to nothing. Fewer than 7% of companies ever consistently grow a mere 2% after a stall, and there’s nothing saying GM will be in that exceptional group.
GM downsized its exciting brands. Chevrolet is about as exciting as….. The big “hit” car is a re-release of the Camaro – a car that was successful way about 40 years ago. GM isn’t a leader in any new car segments, or new technologies.
GM has no White Space. It is run by retirees that really should go to Florida – year round. They keep trying to do what worked for their personal careers 30 years ago – and not what will make a company succeed today. There isn’t a single thing about GM that would make me want to own it.
Go buy Apple. There you get innovation, growth, new markets and a leader in several segments.
by Adam Hartung | Aug 12, 2010 | Defend & Extend, General, Leadership, Openness
Summary:
- Your view of today will be determined by your future success
- Conventional wisdom – often called “best practices” – will lead businesses to cut costs in today’s economy, leading to a vicious cycle of reductions and value destruction. “Best Practice” application does not improve results
- Winning companies don’t focus on past behavior, but instead seek out new markets where they can grow – Apple, Google, Virgin, etc.
To paraphrase Charles Dickens (A Tale of Two Cities) are these “the best of times” or “the worst of times?” Few new jobs are being created in the USA, its hard to obtain credit if you’re a borrower, but there’s very little return to saving, the stock market has been sideways for a decade, asset values (in particular real estate) have plummeted while health care costs are skyrocketing. Look in the rear view mirror at the last decade and you could say it is the worst of times.
But the answer doesn’t lie in the rear view mirror – the answer lies in the future. If you succeed in the next 2 years at achieving your goals, you’ll look back and say this was the best of times.
In “Do You Have the Postrecession Blues” at Harvard Business Review blogs the author tells of two shoe salespeople that show up in a remote African village. The first sends back the message “No one here wears shoes, will return shortly.” The second sends the message “No one here wears shoes, send inventory!”
The history of business education has been to teach managers, usually by studying historical case experiences, the “best practices” employed by previous managers. But BPlans.com tells us in an article headlined “The Bad News About Best Practices” that this is a lousy way to make decisions. “..most of the time, they won’t work for you or me. They worked for somebody, some time, in some situation, in the past.”
The New York Times deals with fallacious best practices recommendations in “From Good to Great… to Below Average.” Best selling Freakonomics author Steven Levitt points out that most business authors try to push somebody else’s Success Formula as the road to success. However, the most popular of these are really very inapplicable. Those held up as “the best practice” have most often ended up with quite poor results. So why should someone else follow them? Nine of eleven of Collins’ “great” companies did worse than average!
Best practices has led businesses to cut heads, slash costs, sell assets and in general weaken their businesses the last few years. Most leaders would prefer to believe that they have somehow improved the business by eliminating workers, the skills they bring and the function they perform. But the result is less marketing, sales, R&D, etc. How this ever became “best practice” is now a very good question. What company can you think about that “saved its way to success?” The cost cutters I think about – Sears, Scott Paper, Fannie Mae Candies, etc. – ended up a lot worse for their efforts.
These can be the best of times. Just ask the people at Apple Cisco Systems, Virgin and Google. These businesses are growing as if there’s no recession. Instead of “focusing on their core” business with defend & extend efforts to cut costs, they are entering new markets. They are going to where growth is. Amidst all the cost-cutting, best practice applying grief these are examples of success.
So will you continue to operate as if these are the worst of times, are are you willing to make these the best of times? You can grow if you use scenarios and competitor analysis to find new markets, embrace disruptions to attack Lock-ins that block innovation, and implement White Space teams that learn how to develop new markets for revenue and profit growth.
Postscript – entire Dickens’ quote: It was the best of times, it was the worst of times, it was the age of
wisdom, it was the age of foolishness, it was the epoch of belief, it
was the epoch of incredulity, it was the season of Light, it was the
season of Darkness, it was the spring of hope, it was the winter of
despair, we had everything before us, we had nothing before us, we were
all going direct to heaven, we were all going direct the other way – in
short, the period was so far like the present period, that some of its
noisiest authorities insisted on its being received, for good or for
evil, in the superlative degree of comparison only.
Post-postcript – I am trying a new format for the blog. Please provide your feedback. I’m dropping the bold enhancements, and replacing their intent with an introductory summary. Let me know if you like this better. And thanks to reader Jon Wolf for his specific recommendations for improvement.
by Adam Hartung | Aug 11, 2010 | Defend & Extend, Food and Drink, In the Whirlpool, Leadership, Lock-in, Television, Web/Tech
“Playboy’s Circulation drops 34%” is the Chicago Tribune headline. Is anyone surprised? If ever there was a brand, and business, that was out of step with current markets it has to be Playboy. That the business still exists is a wonder. But let’s spend a few minutes to see why Playboy has fallen on hard times, and what the alternative might have been – and could still be.
The Playboy Success Formula is really clear. Since founded by Hugh Hefner, the company has focused on titillating the male libido with a magazine that focused on pictures of naked women, videos of same (physical videos, on-line videos and television), radio talk shows about sex, and alternative lifestyle issues such as recreational drug use. At one time this was unique, and in a male dominated 1960s it was even tolerated. Although never mainstream, the business was very profitable early in its lifecycle. Thus the founder kept doing more of the same, building a small empire and eventually taking the company public.
But the market shifted. Larry Flint and others ushered in a new era of pornography altering the market for prurient, sexually oriented material. Women in the workforce – and I’d like to think a heavy dose of decency – made public toleration of such material unacceptable. You couldn’t read a Playboy at work, or on the airplane, and you wouldn’t have a business lunch at their clubs. Other magazines sprung up to deal with men’s interests in automobiles, clothing, music, sports, etc. in a more acceptable – and for most people more significant and intelligent – manner. Other lifestyle publications were developed that discussed illicit drug use and non-traditional ways of life more directly, explicitly and with greater advocacy. The advent of cable TV and then the internet increasingly made access to the key features of Playboy’s product readily available, very inexpensive (often free) and targeted at niche audiences.
Yet, despite these many market changes, Playboy’s founder and his daughter, the company CEOs for 40+ years, steadfastly stuck to their old Success Formula. They kept thinking that people wanted those “bunny eared” products. They talked a lot about the heritage of Playboy, how it broke ground in so many markets, and opened the door for lots of new competitors. But they kept doing what the company always did – including foisting upon us the ever aging founder as a “role model” for male menopause and the anti-family aged entrepreneur. Playboy today is what it always was – and there simply aren’t a whole lot of people with much interest in those products any more. Nobody mismanaged the brand, the market just walked away from it. Sort of like the demand for Geritol.
Playboy focused on its core. And now its on the edge of bankruptcy. The company keeps outsourcing more and more of the work, as the staff has dropped to nearly nothing, cutting costs everywhere possible. Sales continue to decline, and the brand looks like it will soon join Polaroid and Woolworths on the heap of once famous but floundered companies. Playboy’s fatal mistake wasn’t that it was started as a prurient men’s magazine – but rather that for 40 years its leadership kept Defending & Extending that original Success Formula despite rather dramatic market shifts. Now, today, Playboy is a sour lemon that not many a marketer would want to be stuck promoting.
But – it didn’t have to be that way. Just imagine if you’d been given control of Playboy 30 years ago. What could you have done?
As soon as Hustler hit the newsstands, and the first women’s right protests developed – including the early push for the Equal Rights Amendment – it was clear that the future of the magazine was in jeopardy. Instead of doing “more of the same” could you have considered something else?
The growth of women in the workforce meant a lot of new opportunities. Why not jump onto that bandwagon? If you’re really at the forefront of “lifestyle” issues, as the leadership claimed, then you would have identified that women in the workforce meant something new was brewing – a group of consumers that would have more cash, and more influence. And not only would that be an appealing market, but so would the men who would be adjusting to new lifestyle issues as homes became dominated by 2-worker leadership.
Playboy was well positioned to be Victoria’s Secret. At a time before anybody else was really thinking about a significant market for attractive and comfortable lingerie Playboy certainly had the leading edge. Or, even more likely, the water carrying publication for Dr. Ruth-style discussions about sexuality. There was an emerging market for information targeted at increasingly affluent women about automobiles, stereos, apartments, resume writing, job hunting and even at-work etiquette — all topics that had been the dominant discussion areas for Playboy’s historically male readership. Had the leadership at Playboy opened its eyes, and scanned the horizon for growth markets being developed as a result of the trends which were negatively impacting it, these leaders would have been able to create a bevy of scenarios that were filled with opportunities for growth.
It’s hard to imagine today Playboy being anything else. But all that stopped stopped Playboy’s evolution was a commitment to its “core” – to its old Success Formula. That the CEO for over 20 years was a well educated woman is testament to the power of “core” philosophy versus a willingness to look at market opportunities. By keeping Playboy’s Success Formula tightly aligned with her father’s founding ideas she quite literally led the company into smaller and smaller sales with less and less profit. The big loser was, of course, investors. Playboy is worth very little today as Mr. Hefner hints at making a bid to take the company private once again.
Singer was once a sewing machine company. But when Japanese products surpassed Singer’s product capabilities and achieved a cost advantage in the 1970s, Singer leadership converted Singer into a defense contractor. And Singer went on to multiply its value before being acquired by General Dynamics.
IBM was an office machine company famous for mechanical typewriters and adding machines. The founder said he would never enter computers. Fortunately for employees and shareholders the founder’s son took the company into computers and the company flourished as competitive typewriter companies such as Smith Corona – stuck on the core business – disappeared.
There’s a time for lemons – in your tea or on a salad. But when markets shift, lemons just turn sour. If you want to succeed long-term you have to shift with markets. And that might well mean making significant change. Adding water and sugar to the lemons is a good start – as lemonade is less about lemons than what you’ve added to it. After you open that lemonade stand, see where the market leads you.
No matter where you start, every day offers the opportunity to head toward new, emerging markets. No matter what your historical “core” you can literally become any business you want to become. Coke was founded by a pharmacist who wanted to boost counter sales in his store – and it was worth a lot more than the pills he was constructing. Those who develop scenarios about the future prepare for market shifts, understand the competitive changes and use them to identify the opportunities for a new future. Then they use White Space teams to move the business into a new Success Formula. Anybody can do it. You could even have remade Playboy. So what’s the plan for the future of your business? More of the same …. or …..
by Adam Hartung | Aug 10, 2010 | Current Affairs, Food and Drink, In the Rapids, In the Swamp, Leadership, Lock-in
Nearly 20 years ago the Clinton campaign inspired itself with the mantra “It’s the Economy, Stupid.” Their goal was to remind everyone that the economy was critical to the health of a nation, and the economy hadn’t been doing so well. Now we could retread that for business leaders “It’s About Growth, Stupid.” For some reason, all too many seem to have gotten caught up in downsizings and cost cutting, forgetting that without growth there’s no way to have a healthy business!
I’ve long been a detractor of Sara Lee. As the company undergoes a change in leadership, the Chicago Tribune headlines “Nobody Doesn’t Like Sara Who?” Under CEO Brenda Barnes, Sara Lee sold off business after business. Now the company is so marginalized that it’s an open question if it will remain independent. For years the leaders said asset sales were to help the company “focus.” Only “focus” made the company smaller, without any growth businesses. Why would an investor want to own this? Why would a manager want to work there?
Had the asset sales been invested in growth, perhaps a positive outcome would have developed. But Sara Lee was like most companies, as that rarely happens. Had the money been paid out to investors perhaps they could have invested those gains in other growth businesses. But instead the money went into the company, where it propped up no-growth businesses. Leaving Sara Lee a smaller, no growth, low profit business. This leadership has not benefited investors, employees, customers or suppliers.
Likewise, draconian cost cutting does more harm than good. The National Public Radio headline reads “Extreme Downsizing May Hurt Companies Later.” Using deep cuts at Alcoa as an example, Wayne Crascia, professor at University of Colorado, points out that it’s unlikely Alcoa has really “prepared itself for future growth.” Instead, cost cutting often eliminates the ability to compete effectively, by cutting into R&D, marketing and sales in ways that are impossible to rebuild quickly or effectively. By trying to save the old Success Formula with cuts, rather than growth initiatives, the leadership hurts the company’s long term viability. Sort of like repeated vomiting by anorexia sufferers leaves them skinnier – but in far worse health. Even though Alcoa still boasts 60,000 employees it’s very likely the company has permanently Locked-in its old Success Formula leaving itself unable to emerge as a stronger company aligned with new market needs.
Yet, while so many company leaders are trying to “retrench to success” it’s clear that growth still abounds for the companies that understand how to create value. BrandChannel.com headlines “The Elastic Brand: Virgin Expands in Every Direction.” Instead of retrenching to focus on some sort of “core” the article points out how Virgin’s leader, Sir Richard Branson, keeps taking the business into new, far flung operations. Defying conventional wisdom, Virgin is in money lending, mobile phones, gaming, social media, international airlines, domestic airlines and even intercontinental flight! By intentionally avoiding any kind of “core” Virgin keeps growing – even during this recession – adding jobs for employees, higher value for investors, more sales opportunities for suppliers and more chances to buy Virgin for customers!
Conventional wisdom be danged ….. maybe it’s time to look at results! Organizations that whittle themselves down to “core” by asset sales or cutting destroy value. While it may feel self-flaggelatingly good to talk about cuts, it does not create value. Only growth can do that. And there is growth, when we start focusing on market needs. Virgin is finding those opportunities – so what’s stopping you? Is it your “focus on your core” business? If so, maybe you need to read the Forbes article “Stop Focusing on Your Core Business.” It may sound unconventional, but then again – isn’t it those who defy conventional wisdom that make the most money?
Postscript: I offer my personal best wishes to Ms. Barnes on her recovery. It has been reported in the press that Ms. Barnes recently suffered a stroke. I know how difficult a time this can be, as my wife stroked at age 54, and I was her personal caregiver for 3 years of difficult recovery. Stroke recovery is hard work. For the patient as well as the family it is a tough time. While I have been a detractor of Ms. Barnes leadership at Sara Lee, in no way did I ever wish my comments to be personal, and I would never wish anyone suffer such a difficult health concern as a stroke. Again, my best wishes for a full recovery to Ms. Barnes, and for both her and her family to have the strength and tenacity to come through this ordeal stronger and even more tightly knitted.
by Adam Hartung | Aug 5, 2010 | Current Affairs, In the Whirlpool, Lifecycle, Lock-in, Web/Tech
“Blame Piles Up in Tribune Cos. 2007 Buyout” is the Chicago Tribune headline. After months of research the bankruptcy judge has released a court ordered report on the transaction that left Tribune Corporation insolvent. Apparently, lots of people were aware that ad demand was falling like a stone. And that there was little hope it would recover. But selling executives shopped for a valuation company until they found one willing to say that management’s projections were plausible. Of course, they weren’t. The transition from print to digital was well along, and the projections were never going to happen.
What’s more startling is the hubris of Sam Zell to close the deal. Apparently he too had doubts about the forecasts, but he went ahead and borrowed all that money to close. That he would ignore all the market signals, and plenty of opportunities to obtain outsider input on the likely continued demise of newspaper ads, shows he wanted to close. He wanted to control Tribune Corporation. Even if it would cost him $300m.
Success Formulas are very powerful. And successful entrepreneurs often have them so locked-in that there’s no other consideration. Success, and personal fortunes, causes them to ignore external data, and external opinions, when they fly in the face of their historical Success Formula. They want to apply it to a new business, and they are ready to go! So damn the torpedos! Full speed ahead!
It’s too bad that our hero worship of successful entrepreneurs too often leaves them insufficiently challenged. Unfortunately, a lot of people got hurt in the calamity that is now the Tribune Corporation bankruptcy. Employees have lost pay, benefits and jobs. Chicagoans have seen the paper get even smaller, and the amount of local news coverage decline. And the city’s reputation has certainly not benefited.
As much as people despise consultants, it would seem that Mr. Zell would have been a lot smarter to ask some bright strategists what the future was for the newspaper before abetting the close of such an onerous, and destructive, transaction. Outsiders, including consultants, are valuable at pointing out the range of potential outcomes – not just the one that fits your Success Formula. That’s why successful organizations use outsiders to help develop scenarios and study competitors, as well as design Disruptions and establish White Space projects. Outsiders can help overcome Lock-in to historical assumptions, biases, prejudice and viewpoints in order to reduce failures and improve success.
And this is some advice hopefully Leonard Riggio will heed. “Barnes & Noble Considering Sale of Company; Possible Buyers Include Founder Leonard Riggio” is the Chicago Tribune headline. Barnes & Noble as an acquisition looks a lot like Tribune did 3 years ago. Product sales (printed books) are in a free-fall as people choose alternative products – especially digital books and journals. Books themselves are struggling to avoid obsolescence as digital publishing makes shorter format more valuable in many instances. Brick and mortar shops focused on printed material – from bookstores to magazine/news stands – have been failing for 10 years – and in fact overall brick and mortar retail across the board has declined the last 4 years as internet retailing has grown. The leading competitor (Amazon) has led the transition to digital, and is competing with an enormously successful tech company (Apple) for the future of digital publishing. Barnes & Noble may have a fledgling product, but it’s about as competitive as a junior leaguer compared to someone on the Yankees!
The Success Formula of Barnes & Noble, as created by the original founder, is obsolete. And B&N is not in the game for where the marketplace is headed. Just because he knew the business once, years ago, gives the founder no leg-up on resurrecting the company. Contrarily, his background is a decided negative as he’s likely to attempt a “throwback” strategy. Since the world goes forward, never backward, those simply don’t work. We could expect lots of store closings, layoffs and inventory reductions – but the future of publishing has radically changed and will continue doing so, and B&N has little input on that outcome. Amazon, Apple and Google (the largest purveyor of digital words through its search engine) are the giants in this game and B&N will get crushed.
And the city of Milwaukee should consider hiring some consultants, as should Harley Davidson. “In Quest for Lower Cost Harley-Davidson Considers Leaving Milwaukee after 107 years” reports Chicago Tribune. Harley would like subsidies, from its workers (unions) as well as the city and state, to keep from moving its factories. But Harley’s problems are far worse than hourly wages for plant workers, and everyone needs to be careful not to get sucked into a Tribune Corp. deal of trying to save a floundering ship.
Harley Davidson’s product has been largely unchanged for a very long time. Despite all the hoopla about tattooed customers, for 30 years competitors Honda, Suzuki, Kawasaki and Yamaha have been innovating and running circles around Harley. Their businesses have grown. Not only by dramatically expanding their motorcycle products, but adding ATVs, snowmobiles, boat engines, automobiles, electric generators, yard equipment and a raft of other products (Honda even makes a commercial airplane!) They have brought in millions of new customers, while Harley’s customer base is eroding – largely dying off as the average age of buyers has risen to well over 50!!
While competitors have pushed forward with new technology and products, and developed new markets and customers, Harley has tried standing still. So, its now an historical anachronism. Interesting to look at, and with some intriguing niches, but not really important to the industry. Should Harley disappear nobody in the motorcycle business will really notice, because almost every competitor now has a Harley-inspired v-twin motorcycle they can sell. Few people realize that most dealers make more money selling jackets and other Harley-Licensed gear/apparel than motorcycles! Harley’s days have been numbered since they let the v-Rod, a motorcycle with a Porsche engine, languish in dealer showrooms – allowing their “customers” to keep them locked-in to aging technology at ever rising prices (they typical Harley prices for over 2x the price of a comparable Japanese produced motorcycle.) Harley should have paid more attention to competitors a long time ago (instead of deriding them as “rice burners”) and a lot less attention to those very loyal – but diminishing in numbers – dealers and end-use customers.
All 3 of these companies, Tribune, Barnes & Noble and Harley-Davidson have great pasts. But the risk is thinking that means anything about the future. Tribune was fatally harmed by adding debt to a company that needed to refocus on new internet markets, then continuing to try to keep the old Success Formula operating. Barnes & Noble is the last prominent brick and mortar book retailer, but there is little reason to think there will be a need for them in just 5 years. And Harley-Davidson every year appeals to a smaller group of buyers in a niche market with aged technology and a tiring brand. In all cases, caveat emptor! (Let the buyer beware!) Before accepting any management forecasts, it would be a good idea to get some external opinions!
