Three Leadership Lessons From Tree Climbing Goats

Three Leadership Lessons From Tree Climbing Goats

Tree climbing goatsNo. You’re not seeing things. These are goats in trees.

These goats love the fruit growing on argon trees west of Marrakesh, Morocco. They don’t care so much for the nut inside, so they spit it out.  People gather those nuts and make them into argon oil highly valued for food and in beauty products.

I was startled by these goats.  It was, at the very least, mentally disruptive.   As I thought about the experience, I realized there were leadership lessons to be learned from these tree climbing goats:

  1.  These goats don’t chase low hanging fruit. What they want is up in the trees, and the challenge did not stop them. It takes extraordinary measures to accomplish what they want, but they invested in the effort to be extraordinary.  Once they learned to climb trees, something they easily could say was “not their core strength,” they left behind what was on the ground for the riches of success.  These goats prove that if what you want is in the trees, you have to go for it.  One should not settle for less.  No leader should stay so focused on the past that they can’t figure out new ways to compete, and succeed.
  2. Once they became known for doing extraordinary things, people flocked to be next to these goats.  People want to be near goats that are unusual, and in some way better than other goats.  By seeking the extraordinary, and accomplishing the extraordinary, these goats merely need to “do their thing” and people are attracted to them.  People will feed these goats, and even pay their shepherds to be next to them and take photos.  Being extraordinary creates a winning situation that feeds on itself, creating additional wins – including attracting people to you.
  3. Because of their willingness to do something extraordinary, these goats have control over their shepherds.  In a real way, the shepherds need the goats much more than the goats need the shepherds.  The power wielded by tree climbing goats is not from being brutal, or micromanaging, or being “charismatic.”  They simply developed their power via their willingness to do something extraordinary — something their shepherds will not do.  Something most people will not do.  Simultaneously, the goats share their wealth with the shepherds.  While they receive lots of their favorite foods, the shepherds receive payments.  The goats have a symbiotic, sharing relationship with their handlers, and the people who visit and feed them, where everyone wins.

Here’s the bottom line:

No matter what you are doing, strive for the extraordinary.  You are not limited by “core strengths,” nor your past.  If you can visualize a goal you can seek that goal and you can work to accomplish that goal.  You can be extraordinary if you are willing to break out of your old self-definition and try.  These goats didn’t become successful tree climbers in one day, but by accomplishing their goal over time they became quite extraordinary.

It is good to be extraordinary.  Don’t just go for the low-hanging fruit, or what is easy.  Innovate.  Be disruptive.  The path may not be easy, or obvious, but the payoff can be as extraordinary as the accomplishment.

So what’s stopping you from being extraordinary?  What locks you in to your definition of your old “self?”  What goal can you set, and work to accomplish, that will set you apart and demonstrate you are extraordinary, and a leader someone should admire?

Congratulations Rangers Griest and Haver, You Aren’t Diverse – You’re Good

Congratulations Rangers Griest and Haver, You Aren’t Diverse – You’re Good

How clearly I remember.  I was in the finals of my third grade arithmetic competition.  Two of us at the chalkboard, we both scribbled the numbers read to us as fast as we could, did the sum and whirled to look at the judges.  Only my competitor was a hair quicker than me, so I was not the winner.

As we walked to the car my mother was quite agitated.  “You lost to a GIRL” she said; stringing out that last word like it was some filthy moniker not fit for decent company to here.  Born in 1916, to her it was a disgrace that her only son lost a competition to a female.

But it hit me like a tsunami wall.  I had underestimated my competitor.  And that was stupid of me.  I swore I would never again make the mistake of thinking I was better than someone because of my male gender, white skin color, protestant christian upbringing or USA nationality.  If I wanted to succeed I had to realize that everyone who competes gets to the end by winning, and they can/will beat me if I don’t do my best.

Army Officers and Rangers Griest and HaverThis week 1st Lt. Shaye Haver, 25, and Capt. Kristen Griest, 26, graduated Army Ranger training.  Maybe the toughest military training in the world.  And they were awarded their tabs because they were good – not because they were women.

In retrospect, it is somewhat incredible that it took this long for our country to begin training all people at this level.  If someone is good, why not let them compete?  In what way is it smart to hold back someone from competing based on something as silly as their skin color, gender, religious beliefs or sexual orientation?

Our country, in fact much of mankind, has had a long history of holding people back from competing. Those in power like to stay in power, and will use about any tool they can to maintain the status quo – and keep themselves in charge.  They will use private clubs, secret organizations, high investment rates, difficult admission programs, laws and social mores to “keep each to his own kind” as I heard far too often throughout my youth.

As I went to college I never forgot my 3rd grade experience, and I battled like crazy to be at the top of every class.  It was clear to me there were a lot of people as smart as I was.  If I wanted to move forward, it would be foolish to expect I would rise just because the status quo of the time protected healthy white males.  There were plenty of women, people of color, and folks with different religions who wanted the spot I wanted – and they would win that spot.  Maybe not that day, but soon enough.

In the 1980s I did a project for The Boston Consulting Group in South Africa.  As I moved around that segregated apartheid country it was clear to me that those supporting the status quo did so out of fear.  They weren’t superior to the native South Africans.  But the only way they could maintain their lifestyle was to prohibit these other people from competing.

And that proved to be untenable.  The status quo fell, and when it did many of European extraction quickly fled – unable to compete with those they long kept from competing.

In the last 30 years we’ve coined the term “diversity” for allowing people to compete.  I guess that is a nice, politically favorable way to say we must overcome the status quo tools used to hold people back.  But the drawback is that those in power can use the term to imply someone is allowed to compete, or even possibly wins, only because they were given “special permission” which implies “special terms.”

That is unfortunate, because most of the time the only break these folks got was being allowed to, finally, compete.  Once in the competition they frequently have to deal with lots of attacks – even from their own teammates. Jim Thorpe was a Native American who mesmerized Americans by winning multiple Gold Medals at the 1912 Olympics, and embarrassing the Germans then preaching national/racial superiority as they planned the launch of WW1.  But, once back on American soil it didn’t take long for his own countrymen to strip Mr. Thorpe of his medals, unhappy that he was an “Indian” rather than a white man.  He tragically died a homeless alcoholic.

And never forget all the grief Jackie Robinson bore as the first African-American professional athlete.   Branch Rickey overcame the status quo police by giving Mr. Robinson a chance to play in the all-white professional major league baseball.  But Mr. Robinson endured years of verbal and physical abuse in order to continue competing, well over and beyond anything suffered by any of his white peers. (For a taste of the difficulties catch the HBO docudrama “42.”)

In 2014, 4057 highly trained, fit soldiers entered Ranger training. 1,609 (40%) graduated.  In this latest class 364 soldiers started; 136 graduated (37%.)  Officers Griest and Haver are among the very best, toughest, well trained, well prepared, well armed and smartest soldiers in the entire world.  (If you have any doubts about this I encourage you to watch the HBO docudrama “Lone Survivor” about Army Rangers trapped behind enemy lines in Afghanistan.)

Officers Griest and Haver are like every other Ranger.  They are not “diverse.”  They are good.  Every American soldier who recognizes the strength of character and tenacity it took for them to become Rangers will gladly follow their orders into battle.  They aren’t women Rangers, they are Rangers.

When all Americans learn the importance of this lesson, and begin to see the world this way, we will allow our best to rise to the top.  And our history of finding and creating great leadership will continue.

Regulations Work – Applaud SOX and Dodd- Frank

Regulations Work – Applaud SOX and Dodd- Frank

Last week the National Association of Corporate Directors (NACD) pre-released some results of its 2015–2016 Public Company Governance Survey.  One major finding is that the makeup of Boards is changing, for the betterment of investors – and most likely everyone else in business.

Boards once had members that almost never changed.  Little was required of Directors, and accountability for Board members was low.  Since passage of the Securities Act of 1933, little had been required of Board members other than to applaud management and sign-off on the annual audit.  And there was nothing investors could do if a Board “checked out,” even in the face of poorly performing management.

But this has changed.  According to NACD, 72% of public boards reported they either added or changed a director in the last year.  That is up from 64% in the previous year.  Board members, and especially committee chairs, are spending a lot more time governing corporations. As a result “retiring in job” has become nearly impossible, and Board diversity is increasingly quite quickly.  And increased Board diversity is considered good for business.

Remember Enron, Arthur Anderson, Worldcom and Tyco?  At the century’s turn executives in large companies were working closely with their auditors to undertake risky business propositions yet keep these transactions and practices “off the books.”  As these companies increasingly hired their audit firm to also provide  business consulting, the auditors found it easier to agree with aggressive accounting interpretations that made company financials look better.  Some companies went so far as to lie to investors and regulators about their business, until their companies failed from the risks and unlawful activities.

Sarbanes-OxleyAs a result Congress passed the Sarbanes Oxley act in 2002 (SOX,) which greatly increased the duties of Board Directors – as well as penalties if they failed to meet their duties.  This law required Boards to implement procedures to unearth off-balance sheet items, and potential illegal activities such as bribing foreign officials or failing to meet industry reporting requirements for health and safety.  Boards were required to know what internal controls were in place, and were held accountable for procedures to implement those controls effectively.  And they were also required to make sure the auditors were independent, and not influenced by management when undertaking accounting and disclosure reviews.  These requirements were backed up by criminal penalties for CEOs and CFOs that fiddled with financial statements or retaliated on whistle blowers – and Boards were expected to put in place systems to discover possibly illegal executive behavior.

In short, Sarbanes Oxley increased transparency for investors into the corporation.  And it made Boards responsible for compliance.  The demands on Board Directors suddenly skyrocketed.

In reaction to the failure of Lehman Brothers and the almost total bank collapse of 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.  Most of this complex legislation dealt with regulating the financial services industry, and providing more protections for consumers and American taxpayers from risky banking practices.  But also included in Dodd-Frank were greater transparency requirements, such as details of executive compensation and how compensation was linked to company performance.  Companies had to report such things as the pay ratio of CEO pay to average employee compensation (final rules issued last week,) and had to provide for investors to actually vote on executive compensation (called “say on pay.”)  And responsibility for implementing these provisions, across all industries, fell again on the Board of Directors.

Thus, after 13 years of regulatory implementation, we are seeing change in corporate governance.  What many laypeople thought was the Board’s job from 1940-2000 is finally, actually becoming their job.  Real responsibility is now on the Directors’ shoulders.  They are accountable.  And they can be held responsible by regulators.

The result is a sea change in how Boards behave, and the beginnings of big change in Board composition.  Board members are leaving in record numbers.  Unable to simply hang around and collect a check for doing little, more are retiring.  The average age is lowering.  And diversity is increasing as more women, and people of color as well as non-European family histories are being asked onto Boards.  Recognizing the need for stronger Boards to make sure companies comply with regulations they are less inclined to idly stand by and watch management.  Instead, Boards are seeking talented people with diverse backgrounds to ask better questions and govern more carefully.

Most business people wax eloquently about the negative effect of regulations.  It is easy to find academic studies, and case examples, of the added cost incurred due to higher regulation.  But what many people fail to recognize are the benefits.  Thanks to SOX and Dodd-Frank companies are far more transparent than ever in history, and transparency is increasing – much to the benefit of investors, suppliers, customers and communities.  And corporate governance of everything from accounting to compensation to industry compliance is far more extensive, and better.  Because Boards are responsible, they are stronger, more capable and improving at a rate previously unseen – with dramatic improvement in diversity.  And we can thank Congress for the legislation which demanded better Board performance – to the betterment of all business.

How HR “best practices” Kill Innovation

How HR “best practices” Kill Innovation

Did you ever notice that Human Resource (HR) practices are designed to lock-in the past rather than grow?  A quick tour of what HR does and you quickly see they like to lock-in processes and procedures, insuring consistency but offering no hope of doing something new.  And when it comes to hiring, HR is all about finding people that are like existing employees – same school, same degrees, same industry, same background.  And HR tries its very hardest to insure conformity amongst employees to historical standard – especially regarding culture.

Several years ago I was leading an innovation workshop for leaders in a company that made nail guns, screw guns, nails and screws.  Once a market leader, sales were struggling and profits were nearly nonexistent due to the emergence of competitors from Asia.  Some of their biggest distributors were threatening to drop this company’s line altogether unless there were more concessions – which would insure losses.

They liked to call themselves a “fastener company,” which has long been the trend with companies that like to make it sound as if they do more than they actually do.

I asked the simple question “where is the growth in fasteners?”  The leaders jumped right in with sales numbers on all their major lines.  They were sure that growth was in auto-loading screwguns, and they were hard at work extending this product line.  To a person, these folks were sure they new where growth existed.

But I had prepared prior to the meeting.  There actually was much higher growth in adhesives.  Chemical attachment was more than twice the growth rate of anything in the old nail and screw business.  Even loop-and-hook fasteners [popularly referred to by the tradename Velcro(c)] was seeing much greater growth than the old-line mechanical products.

They looked at me blank-faced.  “What does that have to do with us?” the head of sales finally asked.  The CEO and everyone else nodded in agreement.

I pointed out to them they said they were in the fastener business.  Not the nail and screw business.  The nail and screw business had become a bloody fight, and it was not going to get any better.  Why not move into faster growing, less competitive products?

Competitors were making lots of battery powered and air powered tools beyond nail guns and screw guns, and their much deeper product lines gave them much higher favorability with retail merchandisers and professional tool distributors.  Plus, competitor R&D into batteries was already showing they could produce more powerful and longer-lasting tools than my client.  In a few major retailers competitors already had earned the position of “category leader” recommending the shelf space and layout for ALL competitors, giving them a distinct advantage.

This company had become myopic, and did not even realize it.  The people were so much alike that they could finish each others sentences.  They liked working together, and had built a tightly knit culture.  The HR head was very proud of his ability to keep the company so harmonious.

Only, it was about to go bankrupt.  Lacking diversity in background, they were unable to see beyond their locked-in business model.  And there sure wasn’t anyone who would “rock the boat” by admitting competitors were outflanking them, or bringing up “wild ideas”  for new markets or products.

According to the New York Times 80% of hiring is done based on “cultural fit.”  Which means we hire people we want to hang out with. Which almost always means people that are a lot like ourselves.  Regardless of what we really need in our company.  Thus companies end up looking, thinking and acting very homogenously.

It is common amongst management authors and keynote speakers to talk about creating “high-performance teams.” The vaunted Jim Collins in “Good to Great” uses the metaphor of a company as a bus.  Every company should have a “core” and every employee should be single-mindedly driving that “core.” He says that it is the role of good leaders to get everyone on the bus to “core.”  Anyone who isn’t 100% aligned – well, throw them off the bus (literally, fire them.)

We see this phenomenon in nepotism.  Where a founder, CEO or Chairperson who succeeds uses their leadership position to promote relatives into high positions.

Wal-Mart’s Board of Directors, for example, recently elected the former Chairman’s son-in-law to the position of Chairman.  He appears accomplished, but today Wal-Mart’s problem is Amazon and other on-line retail. Wal-Mart desperately needs outside thinking so it can move beyond its traditional brick-and-mortar business model, not someone who’s indoctrinated in the past.

The Reputation Institute just completed its survey of the most reputable retailers in the USA.  Top of the list was Amazon, for the third straight year.  Wal-Mart wasn’t even in the top 10, despite being the largest U.S. retailer by a considerable margin.  Wal-Mart needs someone at the top much more like Jeff Bezos than someone who comes from the family.

malcolm-forbes-publisher-diversity-the-art-of-thinking-independentlyDespite what HR often says, it is incredibly important to have high levels of diversity.  It’s the only way to avoid becoming myopic, and finding yourself with “best practices” that don’t matter as competitors overwhelm your market.

Ever wonder why so many CEOs turn to layoffs when competitors cause sales and/or profits to stall?  They are trying to preserve the business model, and everyone reporting to them is doing the same thing.  Instead of looking for creative ways to grow the business – often requiring a very different business model – everyone is stuck in roles, processes and culture tied to the old model.  As everyone talks to each other there is no “outsider” able to point out obvious problems and the need for change.

In 2011, while he was still CEO, I wrote a column titled “Why Steve Jobs Couldn’t Find a Job Today.” The premise was pretty simple. Steve Jobs was not obsessed with “cultural fit,” nor was he a person who shied away from conflict.  He obsessed about results.  But no HR person would consider a young Steve Jobs as a manager in their company.  He would be considered too much trouble.

Yet, Steve Jobs was able to take a nearly dead Macintosh company and turn it into a leader in mobile products.  Clearly, a person very talented in market sensing and identifying new solutions that fit trends.  And a person willing to move toward the trend, rather than obsess about defending and extending the past.

Quotation-W-Somerset-Maugham-trouble-men-charm-ideas-Meetville-Quotes-97641Does your organization’s HR insure you would seek out, recruit and hire Steve Jobs, or Jeff Bezos?  Or are you looking for good “cultural fit” and someone who knows “how to operate within that role.”  Do you look for those who spot and respond to trends, or those with a history related to how your industry or business has always operated?  Do you seek people who ask uncomfortable questions, and propose uncomfortable solutions – or seek people who won’t make waves?

Too many organizations suffer failure simply because they lack diversity.  They lack diversity in geographic sales, markets, products and services – and when competition shifts sales stall and they fall into a slow death spiral.

And this all starts with insufficient diversity amongst the people.  Too much “cultural fit” and not enough focus on what’s really needed to keep the organization aligned with customers in a fast-changing world. If you don’t have the right people around you, in the discussion, then you’re highly unlikely to develop the right solution for any problem.  In fact, you’re highly unlikely to even ask the right question.

Innovating to Solve Tanqueray’s Growth Quandary

Innovating to Solve Tanqueray’s Growth Quandary

If you don’t drink gin you may not know the brand Tanqueray, a product owned by Diageo. But Tanqueray has been around for almost 190 years, going back to the days when London Dry Gin was first created. Today Tanqueray is one of the most dominant gin brands in the world, and the leading brand in the USA.

Tanqueray London Dry GinBut gin is not a growth category. And Tanqueray, despite its great product heritage and strong brand position, has almost no growth prospects.

Any product that doesn’t grow sales cannot generate profits to spend on brand maintenance. Firstly, if due to nothing more than inflation, costs always go up over time. It takes rising sales to offset higher costs.  Additionally, small competitors can niche the market with new products, cutting into leader sales. And competitors will undercut the leader’s price to steal volume/share in a stagnant market, causing margin erosion.

Category growth stalls are usually linked to substitute products stealing share in a larger definition of the marketplace. For example sales of laptop/desktop PCs stalled because people are now substituting tablets and smartphones. The personal technology market is growing, but it is in the newer product category stealing sales from the older product category.

This is true for gin sales, because older drinkers – who dominate today’s gin market – are drinking less spirits, and literally dying from old age. In the overall spirits market, younger liquor drinkers have preferred vodkas and flavored vodkas which are “smoother,” sweeter, and perceived as “lighter.”

Smirnoff Vodka Group

So, what is a brand manager to do? Simply let trends obsolete their product line? Milk their category and give up money for investing somewhere else?

That may sound fine at a corporate level, where category portfolios can be managed by corporate vice presidents. But if you’re a brand manager and you want to become a future V.P., managing declining product sales will not get you into that promotion. And defending market share with price cuts, rebates and deals will cut into margin, ruin the brand position and likely kill your marketing career.

Keith Scott is the Senior Brand Manager for Tanqueray, and his team has chosen to regain product growth by using sustaining innovations in a smart way to attract new customers into the gin category. They are looking beyond the currently dwindling historical customer base of London Dry Gin drinkers, and working to attract new customers which will generate category growth and incremental Tanqueray sales.  He’s looking to build the brand, and the category, rather than get into a price war.

Building on demographic trends, Tanqueray’s brand management is targeting spirit drinkers from 28-38. Three new Tanqueray brand extensions are being positioned for greatest appeal to increasingly adult tastes, while offering sophistication and linkage to one of the longest and strongest spirits brands.

Tanqueray Rangpur#1 – Tanqueray Rangpur is a highly citrus-flavored gin taking a direct assault on flavored vodkas. Although still very much a gin, with its specific herb-based taste, Rangpur adds a hefty, and uniquely flavored, dose of lime. This makes for a fast, easy to prepare gin and tonic or lime-based gimlet – 2 classic cocktails that have their roots in England but have been popular in the US since before prohibition. And, in defense of the brand, Rangpur is priced about 10-20% higher than London Dry.

Tanqueray Malacca#2 – Tanqueray Old Tom and Tanqueray Milacca appeal to the demographic that loves specialty, crafted products. The “craft” product movement has grown dramatically, and nowhere more powerfully than amongst 28-42 year old beer drinkers. Old Tom and Milacca leverage this trend.  Both are “retro” products, harkening to gins over 100 years ago. They are made in small batches and have limited availability. They are targeted at the consumer that wants something new, unique, unusual and yet tied to old world notions of hand-made production and high quality. These craft products are priced 25-35% higher than traditional London Dry.Tanqueray Old Tom

#3 – Tanqueray No. 10 is a “super-premium” product pointed at the customer who wants to project maximum sophistication and wealth. No 10 uses a special manufacturing process creating a uniquely smooth and slightly citrus flavor. But this process loses 40% of the product to “tailings” compared to the industry standard 10% loss. No. 10 is the high-end defense of the Tanqueray brand (a “top shelf” product as its known in the industry) priced 75-90% higher than London Dry.

Tanqueray no 10

No. 10 is being promoted with “invitation only” events being held in major U.S. cities such as New York, Chicago and Atlanta. No. 10 “trunk events” bring in some of the hottest, newest designers to showcase the latest in apparel trends, accompanied by hot, new musical talent. No. 10 is associated with the sophistication of super-premium brands – individualized and rare products – in a members-only environment. Targeted at the primary demographic of 28-38, No. 10 events are designed to lure these consumers to this product they otherwise might overlook .

Rather than addressing their gin category growth stall with price cuts and other sales incentives, which would lead to brand erosion, price erosion, and margin erosion, the Tanqueray brand team is leveraging trends to bring new consumers to their category and generate profitable growth.  These innovative brand extensions actually build brand value while leveraging identifiable market trends.  Notice that all these sustaining innovations are actually priced higher than the highest volume London Dry core product, thus augmenting price – and hopefully margin.

Too often leaders see their market stagnate and use that as an excuse lower expectations and accept sales decline. They don’t look beyond their core market for new customers and sources of growth. They react to competition with the blunt axe of pricing actions, seeking to maintain volume as margins erode and competition intensifies. This accelerates product genericization, and kills brand value.

The Tanqueray brand team demonstrates how critical sustaining innovation can be for maintaining growth at all levels of an organization. Even the level of a single product or brand.  They are using sustaining innovations to lure in new customers and grow the brand umbrella, while growing the category and achieving desired price realization.  This is a lesson many brands, and companies, should emulate.

Apple – Leading Another Market Shift, So Buy It and Forget About It

Apple – Leading Another Market Shift, So Buy It and Forget About It

Apple was a high flyer. As the stock hit $700, analysts predicted it would reach $1,000.  Then Steve Jobs died.  He so personified the company that many felt his death left Apple leaderless.  So the stock lost 42% of its value dropping to $400.

Apple has now recaptured that lost value, and trades a bit above its former historic high.  Apple is the most valuable publicly traded company in America, worth about $700B.  For some perspective on just how large this valuation is, it roughly equals the combined values of Dow Jones Industrial Average stalwart, industry leading mega-companies Walmart ($281B #1 retailer,) GE ($242B #1 conglomerate,) McDonalds ($91B #1 restaurant,) and Dupont ($70B #1 chemical.)

Since Apple was on the edge of bankruptcy just 15 years ago, and its value has risen so far, so fast, many people question if it can go much higher.  Yes, it’s had a great recent quarter.  But can anyone expect this company to continue growing at this pace?  Won’t smartphones be commoditized causing Apple to lose share, sales and profits to alternatives?  And aren’t its new products like the  iWatch sort of “faddish?”

Apple is actually leading another new marketplace development that may well be bigger than any previous market development (digital music, smartphones, tablets) which could well send its value much, much higher.  This new market success revolves around developers, beacons, consumers, retailers and payments.  Just like we didn’t know we wanted an iPod until we saw one, or an iPhone, new products that exploit the Internet of Things (IoT) is where Apple is again leading the creation of new products and markets.

Start with Apple’s developer ecosystem.  No device has any value unless it has applications. Apple created the first smartphone developer network around iOS.  Because Android implementations vary based on device manufacturer, Apple’s iOS remains by far the largest installed common device base in the USA, and globally. Thus, developers are attracted in the largest numbers to develop applications for iPhones and iPads running iOS before any other device.  To have a sense of the size of this developer base, and the speed with which they develop for Apple products, when Apple launched its own software language for developers called Swift it was downloaded over 11million times in the first month.  These developer companies, in total, captured over $25B in revenue just in the 4th quarter from AppStore sales.

Crowded Apple Store Hong Kong 1-1-15

Understandably, these developers are constantly creating new products which leverage the installed Apple mobile base.  A base which continues to double every few months as globally people buy more iPhones (75million iPhone 6 and 6+ devices sold in the 4th quarter.)  And a base growing internationally, as Apple just beat out Louis Vuitton and Hermes to become the #1 luxury brand in China.  It is now a virtuous circle, where the more apps developers create the more people want iPhones, and the more iPhones people buy the more developers want to create new apps.

And this is not just consumer apps.  Increasingly business systems are being built to use Apple products. Many of these are small to medium size developers and resellers.  Additionally, in 2014 Apple and IBM joined forces to create IBM MobileFirst which is building enterprise applications for multiple industries which will allow people to do all their work on iPhones and iPads sold by IBM.  Even though IBM has struggled of late, its enterprise application skills have long been a corporate strength, and the first wave of products rolled out in December.

Now focus on iBeacon.  Beacons are small electronic devices which transmit a signal that can talk to a smartphone.  These can cost anywhere from a few dollars to a nickel, depending upon what they do and signal range.  Years ago Apple started developing beacons, and then optimized iOS 8 to selectively and efficiently pick up beacon signals and establish 2-way communications without dissipating the battery.  Without a lot of fanfare to the general public, they began rolling out iBeacons several months ago.

Today there are millions of beacons in place.  Miami airport uses them to help travelers find gates, food, etc.  The New York Metropolitan Museum of Art and Guggenheim Museum use them for wayfinding, virtual guided tours and buying products. The Los Angeles Union Station and zoo, as well as the Orlando Seaworld, uses beacons to aid the customer experience, as this technology has become ready for prime time. Starbucks uses them to help loyal customers place orders.  Retail applications are many, including finding products, couponing, product information, pricing and even purchase.  Chain Store Age says that 2% of retailers had beacons installed in 2014, but that number will grow to 24% by end of 2015.  A 12-fold increase in the installed base, at least.

Additionally, Facebook is now integrating beacons into the Facebook mobile app.  This means iPhone users won’t need to download a museum or store app to communicate with beacons for their personal needs.  Instead they can communicate via Facebook to find items, know what their friends think of the item, compare prices, etc.  When the world’s largest social media platform incorporates beacons Mobile Marketer says this bridges digital and physical marketing, increases personalization in use of beacons, and beacons now accelerate the move to seamless mobile marketing and sales.

So, beacons and your idevice (including your iWatch or other wearable,) with the help of all those developers who are writing apps to bring you information, now make it possible for you to find your way around and learn more about things.  And with ApplePay you can actually achieve the “last mile” of concluding the relationship between the business and consumer.

While mobile payment systems have been slow to get started, ApplePay has a lot more going for it.  Firstly, it has the support of about all the major bank and card-issuing institutions because they see ApplePay as possibly lowering costs and increasing their revenue. Second, 78% of retailers think mobile pay is better and faster than their current point of sale systems. As a result, 43% of retailers plan to implement ApplePay by the end of 2015.

So, during 2015 we will be able to use beacons to find our way around, use beacons to identify services and products we want, and use beacons to tell us about the services and products either with apps from the location and retailer, or via Facebook mobile.  Then we can buy those products immediately with ApplePay.

Even though Apple is a very highly valued company, it is again doing what made it such a big winner.  Pioneering entirely new ways for consumers and businesses to get things done.  New solutions are happening in all kinds of industries, pioneered by developers big and small.  And when it comes to IoT, Apple products are at the center of the next big wave.  Ancillary products, like watches and headphones, further support the use of Apple mobile products and the trend to IoT.  Apple’s had a great run, but there is ample reason to believe that run has not stopped.  There looks to be an entirely new wave of growth as Apple creates new products and solutions we didn’t even know we needed until they were in our hands.


Resolve to Focus on Goals Rather Than Results in 2015

Resolve to Focus on Goals Rather Than Results in 2015

Results, results, results.  We frequently hear that we should focus on results.

More often than not, focusing on results is a waste of time.  Because it is looking in the rear view mirror, rather than the windshield.

Someone asked me today what I thought of Janet Yellen as head of the Federal Reserve.  I found this hard to answer.  Even though Chairperson Yellen has been in the job since February, her job as lead policy setter has almost no short term ramifications.  It takes quarters – not months – to see the results of those policy decisions.  Even after a year in office, it is very difficult to render an opinion on her performance as Fed leader.  The fantastic 5% growth in the U.S. economy last quarter has much more to do with what happened before she took office – in fact years of policy setting before she took office – than what has happened since she became the top Fed governor.

We often forget what the word “results” means.  It is the outcome of previous decisions.  Results tell us something about decisions that happened in the past. Sometimes, far into the past.  We all can remember companies where looking backward all looked well, right up until the company fell off a cliff.  Circuit City. Brachs Candy. Sun Microsystems.

Further, “results” are impacted dramatically by things outside the control of management, such as:

  • Changes in interest rates (or no changes when they remain low)
  • Changes in oil prices (which have been dramatically lower the last 6 months)
  • Changes in investor expectations and the overall stock market (which has been on a record-setting bull run)
  • Inflation expectations (which remain at historical lows)
  • Expectations about labor rates (which remain low, despite trends toward higher minimum wages)
  • Technology advances (including rapid mobile growth in apps, beacons, payments, etc.)

We too often forget that last quarter’s (or even last year’s) results are due to decisions made months before.  Gloating, or apologizing, about those results has little meaning.  Results, no matter how recent, are meaningless when looking forward.  Decisions made long ago caused those results. “Results” are actually unimportant when investing for the future.

What really matters are the decisions being made today which can cause future results to be wildly different – better or worse. What we need to focus upon are these current decisions and their ability to create future results:

  • What are the goals being set for next year – or better yet for 2020?
  • What are the trends upon which goals are being set? How are future goals aligned to major trends?
  • What are the future expected scenarios, and how are goals being set to align with those scenarios?
  • Who will be the likely future competitors, and how are goals being set make sure we the organization is prepared to  compete with the right companies?

Far too often management will say “we just had great results.  We plan to continue executing on our plans, and investors should expect similar future results.”  But that makes no sense.  The world is a fast changing place.  Past results are absolutely not any indicator of future performance.

Windshield v Rear View Mirror

For 2015, and beyond, investors (and employees, suppliers and communities sponsoring companies) should resolve to hold management far more accountable for its future goals, and the process used to set those goals. maintains a valuation far higher than its historical indicates it should primarily because it is excellent at communicating key trends it watches, future scenarios it expects and how the company plans to compete as it creates those future scenarios.

In the 1981 Burt Reynolds’ movie “Cannonball Run” a character begins a trans-country auto race by ripping the rear view mirror from his car and throwing it out the window.  “What’s behind me is not important” he proudly states.  This should be the 2015 resolution of investors, and all leaders.  Past results are not important. What matters are plans for the future, and future goals.  Only by focusing on those can we succeed in creating growth and better results in the future.




How this Zebra Changed Its Stripes – Bold Move

How this Zebra Changed Its Stripes – Bold Move

Zebra Technologies is a company most people don’t recognize.  Yet, I bet every product you buy has the product on which they specialize.

Since 1982 Zebra has been the leader in bar code printers and readers.  Zebra was a pioneer in the application of bar codes for tracking pallets through warehouses, items used in a manufacturing line, shipment tracking and other uses for manufacturing and supply chain management.  As the market leader Zebra Technologies developed its own software (ZPL) for printing barcodes, and made robust printing and reading machines that were the benchmark for rugged, heavy duty applications at companies from Caterpillar, to UPS and FedEx, to WalMart.

Although the company dabbled in RFID technology for product tracking, and is considered a leader in that market, the new technology really never “took off” due to higher costs compared with the boring, but effective and remarkably cheap, bar code.  So Zebra plodded away making ever better, smaller, cheaper, faster bar code printers.  It may not have been exciting, like the nondescript headquarters in far-suburban Chicago, but it met the market needs.  Zebra was an excellent operational company that was delivering on its focus.

Even if it was, well …… boring.

But, like all markets, the bar code market began shifting.  Generic software companies, like Microsoft, produced drivers that would work from a cheap PC to allow

cheap generic printers, like those from HP, to print bar codes.  These were cheap enough to be considered disposable.  Not a good thing for the better, but more expensive, market leader.  Competitive, non-proprietary software and hardware leads to lower prices and margin compression.  It’s a differentiation stealer.

Worse, lots of customers stopped caring much about bar codes altogether.  Zebra’s customers realized bar codes were everywhere.  Nothing new was really happening.  When it came to delivering on the promise of really efficient, accurate and low cost supply chain management the bar code had a place.  But no longer an exciting one.  When your product is boring discussions with customers easily slip toward price rather than new products.  And when you’re talking about price, and how to keep existing business, relevancy is at risk.  You become a target for a new competitor to come along and steal your thunder (and profits) by relegating your product to generic-doom while taking the high rode of delivering more value by changing the game.

So hand it to Zebra’s leadership team that they observed the risk of staying focused on their status quo, and took action to change the game themselves.  Today Zebra announced it is buying the enterprise device business of Motorola.  And this is a big bet.  At a price of $3.5B, Zebra is spending an amount nearly equal to its existing net worth. And it is borrowing $3.25B – almost the whole cost – greatly increasing the company’s debt ratios.  That is a gutsy move.

Yet, in this one move Zebra will nearly triple its revenues.

This decision is not without risk. The acquired Motorola business has seen declining revenues – like a $500M decline in the last year (roughly 25%.)  With many products built on Microsoft software, customers have been shifting to other solutions.  Exactly how the old technologies will integrate with new ones in the Motorola lines is not clear. And even less clear is how a combined company will bring together old-line printer/scanners using proprietary software with the diverse, and honestly pricey, products that Motorola enterprise has been selling, to offer more competitive solutions.

Yet, investors should be encouraged.  Doing nothing would spell disaster for Zebra.  It is a company that needs to re-invent itself for today’s pressing business needs — which have little in common with the top needs 30 years ago (or even 10 years ago.)  In October, Zebra launched Zatar, a Web-based software that allows companies to deploy and manage devices and sensors connected to the Internet.  In December Zebra purchased a company (Hart) for its cloud-based software to manage inventory.  Now Zebra is looking to use these integration tools to bring together all kinds of devices the new company will manufacture to help companies achieve an entirely new level of efficiency and capability in today’s real-time manufacturing and logistics world.

We should admire CEO Anders Gustaffson’s leadership team for recommending such bold action.  And the company’s Chairman and Board for approving it.  Of course “there’s many a slip twixt the cup and the lip,” but at least Zebra’s investors, employees, suppliers and customers can now see that Zebra is really holding a viable cup, and that it is putting together a serious effort to provide better delivery to buyers lips.

This is a play to grow the company by following the trend to “the internet of things” with new solutions that are potential game changers.  And there’s no way you can win unless you’re in the game.  With these acquisitions, there is no doubt that what was mostly a manufacturing company – Zebra – is now “in the game” for doing new things with new technologies.

This does beg some questions:  What is your company doing to be a game changer?  Are you resting on the laurels of strong historical sales – and maybe a strong historical market position?  Do you recognize that your market is shifting, and it is undercutting historical strengths?  Are you relying on operational excellence, while new technologies are threatening your obsolescence?

Or — are you thinking like the leaders at Zebra Technologies and taking bold action to be the industry game-changing leader, even if it means stretching your financials, your management team and the technology?

Most of us would rather be in the former, than the latter, I think.

The Smart Leadership Lessons from Facebook’s WhatsApp Acquisition

The Smart Leadership Lessons from Facebook’s WhatsApp Acquisition

Facebook is acquiring WhatsApp, a company with at most $300M revenues, and 55 employees, for $19billion.  That’s billion – with a “b.” An astonishing figure that is second only to HP’s acquisition of market leader Compaq, which had substantial revenues and profits, as tech acquisitions.  $19B is 13 times Facebook’s (not WhatsApp’s) entire 2013 net income – and almost 2.5 times Facebook’s (again, not WhatsApp’s) 2013 gross revenues!

On the mere face of it this valuation should make the most dispassionate analyst swoon.  In today’s world very established, successful companies sell for far, far lower valuations.  Apple is valued at about 13 times earnings.  Microsoft about 14 times earnings.  Google 33 times.  These are small fractions of the nearly infinite P/E placed on WhatsApp.

But there is a leadership lesson offered here by CEO Zuckerberg’s team that is well worth learning.

Irrelevancy can happen remarkably quickly.  True in any industry, but especially in digital technology. Examples: Research-in-Motion/Blackberry.  Motorola.  Dell.  HP all lost relevancy in months and are struggling.  (For those who want non-tech examples think of Circuit City, Best Buy, Sears, JCPenney, Abercrombie and Fitch.)  Each of these companies was an industry leader that lust its luster, most of its customers, a big chunk of its employees and much of its market valuation in months when the company missed a market shift.

Although leadership knew what it had historically done to sell products profitably, in a very short time market trends reduced the value of the company’s historical success formula leaving investors, as well as management, wondering how it was going to compete.

Facebook is not immune to changing market trends.  Although it has been the benchmark for social media, it only achieved that goal after annihilating early leader MySpace.  And although Facebook was built by youthful folks, trends away from using laptops and toward mobile devices have challenged the Facebook platform.  Simultaneously, changing communication requirements have altered the use, and impact, of things like images, photos, charts and text.  All of these have the potential impact of slowly (or not so slowly) eroding the value (which is noticably lofty) of Facebook.

Most leaders address these kinds of challenges by launching new products to leverage the trend.  And Facebook did just that.  Facebook not only worked on making the platform more mobile friendly, but developed its own platform apps for photos and texting and all kinds of new features.

But, and this is critical, external companies did a better job.  Two years ago Instagram emerged as a leader in image sharing.  And WhatsApp has developed a superior answer for messaging.

Historically leadership usually said “we need to find a way to beat these new guys.” They would make it hard to integrate new solutions with their dominant platform in an effort to block growth.  They would spend huge amounts on marketing and branding to try overcoming the emerging leader.  Often they filed intellectual property litigation in an effort to cause short-term business interuption and threaten viability.  They might even try hiring the emerging company’s tech leader away to stop development.

All of these actions were efforts to defend & extend the early leader’s market position.  Even though the market is shifting, and trends are developing externally from the company, leadership will tend to look inside for an answer.  It will often ignore the trend, disparage the competition, keep promising improvements to its historical products and services and blanket the media with PR as to its stated superiority.

But, as that list (above) of companies that lost relevancy demonstrates, this rarely works.  In a highly interconnected, fast-paced, globally competitive marketplace customers go where they want.  Quickly.  Often leaving the early leader with a management team (and Board of Directors) scratching its head and wondering how it lost so much market position, and value, so quickly.

Hand it to Mr. Zuckerberg’s team.  Instead of ignoring trends in its effort to defend & extend its early lead, they reached out and brought the leader to them.  $1B for Instagram was a big investment, especially so close to launching an IPO.  But, it kept Facebook relevant in mobile platforms and imaging.

And making a nosebleed-creating $19B deal for WhatsApp focuses on maintaining relevancy as well.  WhatsApp already processes almost as many messages as the entire telecom industry.  It has 450million users with 70% active daily, which is already 60% the size of Facebook’s daily user community (550million.)  By bringing these people into the Facebook corporate family it assures the company of continued relevancy as the market shifts.  It doesn’t matter if these are the same people, or different people.  The issue is that it keeps Facebook relevant, rather than losing relevance to a competitor.

How will this all be monetized into $19B?  The second brilliant leadership call by Facebook is to not answer that question.

Facebook didn’t know how to monetize its early leadership in users, but management knew it had to find a way.  Now the company has grown from almost no revenues in 2008 to almost $8B in just 5 years.  (Does your company have a plan to add $8B/year of organic revenue growth by 2019?)

So just as Facebook had to find its revenue model (which it is still exploring,) Zuckerberg’s team allows the leadership of Instagram and WhatsApp to remain independent, operating in their own White Space, to grow their user base and learn how to monetize what is an extraordinarily large group of happy folks.  When looking to grow in new markets, and you find a team with the skills to understand the trends, it is independence rather than integration that makes the most sense organizationally.

Thirdly, back to that valuation issue.  $19B is a huge amount of money.  Unless you don’t really spend $19B.  Facebook has the blessed ability to print its own.  Private money that it can use for such acquisitions.  As long as Facebook has a very high market valuation it can make acquisitions with shares, rather than real money.

In the case of both Instagram and WhatsApp the acquisition is being made in a mix of cash, Facebook stock and restricted Facebook stock for employees.  The latter two of these three items are not real money.  They are simply pieces of paper giving claims to ownership of Facebook, which itself is valued at 22 times 2013 revenue and 116 times 2013 earnings.  The price of those shares are all based on expectations; expectations which now require the performance of Instagram and WhatsApp to make happen.

By making acquisitions with Facebook shares the leadership team is able to link the newly acquired managers to the same overall goals as Facebook, while offering an extremely high price but without actually having to raise any money – or spend all that money.

All companies risk of becoming irrelevant.  New technologies, customer behavior patterns, regulations, inventions and innovations constantly challenge old success formulas.  Most leaders fall into a pattern of trying to defend & extend their old business in the face of market shifts, hastening the fall into irrelevancy.  Or they try to acquire a new business, then integrate it into the old business which strips away the new business value and leads, inevitably, to irrelevancy.

The leaders of Facebook are giving us a lesson in an alternative approach.  (1) Recognize the market shift.  Accept it.  If there is a better solution, rush toward it rather than ignoring it.  (2) Bring it into the company, and leave it independent.  Eschew integration and efforts to find “synergy.”  (You never know, in 3 years the company may need to be renamed WhatsApp to reflect a new market paradigm.)  (3) And as long as you can convince investors that you are maintaining your relevancy use your highly valued stock as currency to keep the company moving forward.

These are 3 great lessons for all leadership teams.  And I continue to think Facebook is the one stock to own in 2014.


Yes, even you can innovate to grow – learn from Skanska

I like writing about tech companies, such as Apple and Facebook, because they show how fast you can apply innovation and grow – whether it is technology, business process or new best practices.  But many people aren't in the tech industry, and think innovation applies a lot less to them.  

Whoa there cowboy, innovation is important to you too!

Few industries are as mired in outdated practices and slow to adopt technology than construction.  Whether times are good, or not, contractors and tradespeople generally do things the way they've been done for decades.  Even customers like to see bids where the practices are traditional and time-worn, often eschewing innovations simply because they like the status quo.

Skanska, a $19B construction firm headquarted in Stockholm, Sweden with $6B of U.S. revenue managed from the New York regional HQ refused to accept this.  When Bill Flemming, President of the Building Group recognized that construction industry productivity had not improved for 40 years, he reckoned that perhaps the weak market wasn't going to get better if he just waited for the economy to improve.  He was sure that field-based ideas could allow Skanska to be better than competitors, and open new revenue sources.

Skanska USA CEO Mike McNally agreed instantly.  In 2009 he brought together his management team to see if they would buy into investing in innovation.  He met the usual objections

  • We're too busy
  • I have too much on my plate
  • Business is already too difficult, I don't need something new
  • Customers aren't asking for it, they want lower prices
  • Who's going to pay for it?  My budget is already too thin!

But, he also recognized that nobody said "this is crazy."  Everyone knew there were good things happening in the organization, but the learning wasn't being replicated across projects to create any leverage.  Ideas were too often tried once, then dropped, or not really tried in earnest.  Mike and Bill intuitively believed innovation would be a game changer.  As he discussed implementing innovation with his team he came to saying "If Apple can do this, we can too!" 

Even though this wasn't a Sweden (or headquarters) based project, Mike decided to create a dedicated innovation group, with its own leader and an initial budget of $500K – about .5% of the Building Group total overhead. 

The team started with a Director of innovation, plus a staff of 2.  They were given the white space to find field based ideas that would work, and push them.  Then build a process for identifying field innovations, testing them, investing and implementing.  From the outset they envisaged a "grant" program where HQ would provide field-based teams with money to test, develop and create roll-out processes for innovations.

Key to success was finding the right first project. And quickly the team knew they had one in one of their initial field projects called Digital Resource Center, which could be used at all construction sites.  This low-cost, rugged PC-based product allowed sub-contractors around the site to view plans and all documentation relevant for their part of the project without having to make frequent trips back to the central construction trailer. 

This saved a lot of time for them, and for Skanska, helping keep the project moving quickly with less time wasted talking.  And at a few thousand dollars per station, the payback was literally measured in days.  Other projects were quick to adopt this "no-brainer."  And soon Skanska was not only seeing faster project completion, but subcontractors willing to bake in better performance on their bids knowing they would be able to track work and identify key information on these field-based rugged PCs.

As Skanska's Innovation Group started making grants for additional projects they set up a process for receiving, reviewing and making grants.  They decided to have a Skansa project leader on each grant, with local Skansa support.  But also each grant would team with a local university which would use student and faculty to help with planning, development, implementation and generate return-on-investment analysis to demonstrate the innovation's efficacy.  This allowed Skansa to bring in outside expertise for better project development and implementation, while also managing cost effectively.

With less than 2 years of Innovation Group effort, Skanska has now invested $1.5M in field-based projects.  The focus has been on low-cost productivity improvements, rather than high-cost, big bets.  Changing the game in construction is a process of winning through lots of innovations that prove themselves to customers and suppliers rather than trying to change a skeptical group overnight.  Payback has been almost immediate for each grant, with ROI literally in the hundreds of percent. 

You likely never heard of Skanska, despite its size.  And that's because its in the business of building bridges, subway stations and other massive projects that we see, but know little about.  They are in an industry known for its lack of innovation, and brute-force approach to getting things done.

But the leadership team at Skanska is proving that anyone can apply innovation for high rates of return. They

  • understood that industry trends were soft, and they needed to change if they wanted to thrive.
  • recognized that the best ideas for innovation would not come from customers, but rather from scanning the horizon for new ideas and then figuring out how to implement themselves
  • weren't afraid to try doing something new.  Even if the customer wasn't asking for it
  • created a dedicated team (and it didn't have to be large) operating in white space, focused on identifying innovations, reviewing them, funding them and bringing in outside resources to help the projects succeed

In addition to growing its traditional business, Skanska is now something of a tech company.  It sells its Digital Resource stations, making money directly off its innovation.  And its iSite Monitor for monitoring environmental conditions on sensitive products, and pushing results to Skanska project leaders as well as clients in real time with an app on their iPhones, is also now a commercial product.

So, what are you waiting on?  You'll never grow, or make returns, like Apple if you don't start innovating.  Take some lessons from Skanska and you just might be a lot more successful.