by Adam Hartung | Jul 30, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
When I was young (40 years ago) GM and Ford made cars and trucks. Harley Davidson made big, loud motorcycles. Boeing and Cessna made airplanes. Briggs and Straton made the engines for lawn mowers and other yard equipment. Today, you pretty much can make those same statements.
In the 1960s a company named Honda came to America with a little 50cc motorcycle. No one knew much about this company or what it did. But today, Honda does a lot. Motorcycles, all terrain vehicles, personal watercraft (jet skis), automobiles, full size pick-up trucks, electric generators, lawn mowers and garden tractors, outboard boat motors, water pumps, scooters, snowblowers, robots and airplanes. So, what market are they in?
Honda eschewed the commonly held notions of "core market" and "core customer". They don’t try to be #1 or #2 in their markets (they are the #3 Japanese auto company, for example). You can’t define them in any easy way. Just that they keep growing well above the market average, they keep making money, and they keep providing a doubling our tripling of value for their investors every 7 years or so (quite better than the market average.)
So what drives this success? A focus on innovation as a tool to avoid Lock-in. Let’s look at their recent move into jet airplanes (could you imagine GM, Ford, Harley Davidson or Briggs & Stratton announcing they intend to make and sell airplanes?) The project is led by the V.P. of North American R&D – not the Marketing or Strategy head. His approach has been to apply innovation. Honda is using unique engine mounting (top of wing instead of on the fuselage), building with composite material instead of aluminum and implementing a unique wing shape which achieves a larger interior cabin, higher cruising speed and greater fuel efficiency.
Of course, the competition is belittling this new Honda entry with statements like "It’s a brand new territory for Honda… It’s very different than the consumer market." OK. Sounds a lot like what the original players said when Honda entered the motorcycle market, the auto market, the lawn/garden market, the full-size pickup market and then the outboard motor market. Yet, in each, the innovations Honda brought to market allowed them to attract customers for their products at a good price and a great margin.
Honda does not fixate upon its "core markets", it’s "core capabilities" or even its "core customers". Instead, it constantly looks for new opportunities to innovate and add value. It does not fear new markets, but rather sees each new market as an opportunity to Disrupt itself and create White Space for a new solution. Then, they are merciless in their efforts to do what no previous competitor has done to create value for customers. And now, they are far more successful than #1 or #2 in almost every market they compete.
by Adam Hartung | Jun 21, 2006 | General, In the Rapids, Leadership, Openness
I recently attended a great event. A marketing company offered $3,000 to the start-up with the best idea – an idea they had only 3 minutes to explain. This was a competition for companies looking for angel or venture funding.
As the dozen companies put out their ideas, which ones do you think the 100+ event attendees most backed? Quite simply, they were the ideas that allowed the audience to imagine doing something currently well known better, faster and cheaper. The audience members had a fast, positive, visceral favorable reaction to the ideas that Defended & Extended existing behavior. When it came to thinking about giving away money, they were most ready to support an idea that took the least effort to develop.
The fact is that upon further discussion, the Defend & Extend ideas looked to have a fairly short half-life. Many of the other ideas showed greater long-term value, but they would require finding early angel customers, and white space to actually test the idea and develop a valid implementation. Many audience members could not see past the development problems, and were unwilling to fund White Space for these ideas to possibly flourish.
We all are susceptible to More, Better, Faster. We all have our Lock-ins, and we quickly recognize and accept things which Defend & Extend existing behavior. If we don’t Disrupt ourselves, we’ll never really think about new solutions – and never grow the way we all can. And we’re very susceptible to favoring ideas we see as easy – rather than the ones with greatest potential value.
by Adam Hartung | May 12, 2006 | Disruptions, General, In the Rapids, Leadership, Openness
Last week Starbucks beat analyst estimates as profit rose 27%. Same store sales were up 10%, the 57th consecutive quarter of sales increases in stores open a year or more. Starbucks now has over 11,000 stores. It has opened 900 so far this year, and will open 900 more before year ends. This is definitely one heck of a growth story, and the company stock has soared 7-fold in the last 5 years.
No company can achieve that kind of growth without significant Disruptions, and lots of White Space. Starbucks has no end to the many flavor varieties of coffee it offers. But, it also offers tea and has seen tremendous growth from Green Tea of late. And to keep promoting itself, the company did an advertising first as it gave away (as in free) 500,000 beverages on March 14 just to remind people it’s spring and time to get out and enjoy the Starbucks stores. And in Chicago, they are starting to sell hot sandwiches – a new test for growth.
Starbucks is not just a coffee shop, of course. Their coffee (as beans and ground) is available in grocery stores, and they are the #1 market player in prepared coffee with their Frappucino, Iced Coffee and DoubleShot drinks, bottled and distributed by Pepsi. You also can get Starbucks Ice Cream and Frappucino bars in most markets. And for the late night adult crowd there’s now Starbucks Coffee Liqueur at the liquor store.
But, the Starbucks White Space goes far beyond the beverages for which they are famous. Starbucks has emerged as a major player in the music business. In 2005, they demonstrated their growth skills as they launched and were the #1 distributor for Ray Charles final release Genius Loves Company. Unbeknownst to many, Starbucks has a music division. Of course it creates all its own in-store music – and offers that on CD. But it also is a major force behind bringing new acts to market and distributing major artists such as Alanis Morissette, ColdPlay and the Dave Mathews Band. Starbucks has even inked an agreement with the famed William Morris Agency to find new talent for them to release.
And Starbucks just co-produced the LionsGate movie Akeelah and the Bee. Although it has gotten off to a sluggish start, the mere fact that Starbucks is into movie production demonstrates the lattitude with which the company will use White Space to drive new business opportunities. Look for tie-ins and promotions in your local store.
Could you imagine CD’s or movies made and distributed by McDonald’s? Or purchasing a frozen Pizza Hut pizza at your grocer? Why not? Any company can keep itself constantly Disrupted and filled with White Space. And for that, you will be rewarded with growth, and a high P/E multiple for investors. And you can provide ALL of your employees with benefits, even health benefits for part-timers (hear that Wal-Mart?). Everyone wins when you avoid the tendency to Lock-in on your first Success Formula and instead focus on White Space.
by Adam Hartung | Apr 25, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Would you get into the wireless phone business today? Can you think of a more cutthroat competitive marketplace than cell phones? Can you think of a market that has more disappointed investors than mobile communications – voice or data? If I told you a company was getting into mobile communications, you’d probably say "good luck." And then you’d make sure you don’t have that stock in your portfolio.
Unless the company is Apple. Last week the reporters started talking about Apple’s potential jump into cellular phone service (see article). For most companies you’d laugh. But, for Apple, you probably believe it. And you likely think they just might pull it off. After all, why not a cell phone iPod?
Why change your opinion when you hear the company name? White Space. Apple has demonstrated it is willing to Disrupt its Success Formula to open up White Space and develop new markets. By demonstrating that skill, Apple is now able to keep competitors off balance. Even competitors in industries where Apple formerly did not participate. Apple creates possibilities for investors and employees, and concern (if not fear) in competitors just because it has shown that by using White Space it can tackle and win in new markets.
Virgin is like Apple in this regard as well. From a recording company Virgin is now an airline, a retailer, and a cell phone company. What is Virgin’s great skill? It is willing to Disrupt itself and create White Space for launching new businesses and entering new markets. By doing this Virgin, like Apple, has demonstrated an ability to remain evergreen. And create concern and doubt amongst its competition.
The Power of White Space. It keeps your company fresh, and long lived. And in the short term, it keeps you competitors off balance. You don’t have to do everything you announce, nor even succeed at all you try. Merely by demonstrating you will do it you create competitive fear – and an advantage for yourself.
by Adam Hartung | Apr 21, 2006 | General, In the Rapids, In the Swamp, Leadership, Lifecycle, Lock-in, Openness
Wow, have you seen the share price of Google? Google’s value has more than doubled the last 12 months, and risen about 5-fold since going public some 21 months ago. Why is this happening? Simply because revenues are more than doubling annually, and profits keep exceeding everyone’s expectations; including management! Google is into the Rapids. After fighting to create a viable business model, it is now exploiting its advantages in traditional, and new markets, every month. It is winning share versus competitors (such as Yahoo! and Microsoft), while it is entering new markets and launching new products. Google is living in White Space, and exploiting its advantages.
Yahoo‘s valuation has remained flat over this period. And Microsoft has also failed to gain value. Why? Aren’t these great high-tech companies? Yes they are. But unfortunately, for the last two years they have been trying to Defend & Extend their old Success Formulas. Their management has fallen into the "me-too" category with its products, and has failed to find new markets. These companies have been great companies, but they are Locked-in to what first gave them market dominance, and they are missing the opportunities Google is finding.
Lock-in can affect any company, causing it to lose sight of the prime objective – growth leading to enhanced results. Poor Kraft has been stuck for 5 years, and despite owning some of the greatest names in consumer products managed by some of the industry’s most talented people, it can’t find a way to overcome focus on its past. Thus, its sales don’t grow and its value remains – stuck.
As we can see, this phenomenon is not limited to older companies, like Kraft. Even worse than Yahoo! and Microsoft has been Sun Microsystems. An early pioneer in developing servers for corporate and internet use, Sun got so locked into its formula of selling boxes loaded with their own software that the company almost went bust. Sun’s value is only about 7.5% of what it was a mere 6 years ago. Despite being the dominant hardware supplier at the time, and one of the most important companies for launching the internet.
Creating success has the same requirements, no matter what industry you’re in. Disrupt your Lock-in, maintain White Space to explore new opportunities, and above all – fight the urge to focus upon Defend & Extend.
PS – Eric Schmidt is the CEO at Google. Did you know that when Sun Microsystem peaked, he was the company Chief Technology Officer? When all looked good at Sun he went to Novell where he led a turnaround of what many thought was a dead networking company. Oh, and before Sun Eric had been an academic – not in business but in computer science. And an R&D geek at Xerox PARC, Bell Labs and Zilog. Eric is a great example of a person who avoids Lock-in, Disrupts himself and keeps looking for White Space where he can grow. The Phoenix Principle is as important for individuals as it is for work teams and businesses.
by Adam Hartung | Apr 10, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Do you remember 1-800-Flowers.com? You probably think that was one of those dot-coms that dot.bombed since 2000. After going public in 1999 the stock shot to $22, only to fall to about $2 the next year. The company is still around, but it gets very little attention – why even a search on Forbes.com search shows that the last time someone featured this company in a newsleter was way back in September, 2004.
If ever a name would Lock-in a company, this one should have done it. Yet, 1-800-Flowers.com, which was certainly Challenged by the bust, has done a lot to open up White Space and find a new future. Only about half today’s revenues come from flowers and plants. It sells home and garden merchandise under Plow & Hearth, popcorn from The Popcorn Factory, cookies from Cheryl & Co., gourmet foods form Greatfood.com, children’s gifts from HearthSong and Magic Cabin and wine gifts through the Winetasting Network. And last week they announced the acquisition of Fannie Mae candies – a brand that had fallen into bankruptcy under old management.
There’s a reason we use the term "dot.bomb." Lots of companies were Locked-in to their initial business plan (remember pets.com?) and they failed. But 1-800-Flowers.com is still growing. By avoiding Lock-in they are finding new White Space opportunities for growth and value creation.
The stock still sells for under $8/share, so it is warranted to to say that there is ample risk in this as an investment. Yet, with so much White Space, 1-800-Flowers.com is a company to keep watching. They are avoiding the traps that have killed so many other companies, and show considerable opportunity to become a break-out success story.
by Adam Hartung | Mar 25, 2006 | Disruptions, In the Rapids, Innovation, Leadership, Lifecycle
In my presentations I impress upon people the need to look into the future to recognize Challenges and unearth opportunities. Don’t let Lock-in keep you projecting the future from the past.
A great example showed itself recently. The Chicago Tribune (see article) wrote about an emerging new jet (as in airplane) that was smaller, cheaper to buy and cheaper to operate. Now, you might say "but I don’t need a jet" and pass this article by. That is Lock-in; the decision to fly by the ariticle was created by what you do today, not what you could do tomorrow.
We all know that air travel has become grueling in recent years. Long gone are the days when flying meant you were treated well, with good service and a nice meal. Today, the airline charges for everything from pillows to potentially an aisle seat. Free meals are a thing of the past. And overworked, underpaid flight attendants struggle to keep a smile as they herd passengers, like so much cattle, onto and off the plane as fast as possible in an effort to drive up usage — and maybe someday create a profit for the lackluster industry.
And all that is after you deal with the struggle of simply getting your ticket, boarding pass, checking bags and clearing that long TSA security line (where you got to take off your belt and shoes, while tearing apart your handbag to place items in separate bins for x-ray screening.)
The whole process of air flight is simply not glamorous – not fun. In fact, it is stressful, and tedious. And for business travelers, the grief and cost have become so great that it’s harder and harder to justify those trips to customers and vendors that you know you really should make.
That’s today. Does it need to be the future? Several new firms – air taxi services – have emerged that offer flight service the way we use taxis – "Take me to there, and maybe back again." They provide the equipment, the pilots, everything to make the trip. They fly from very convenient, small airports nearer to more offices (as well as the large airports). The pre-flight screening is a comparative breeze, the stress of missing flights is gone, flexibility grows immensely, and you can get more done since you aren’t hanging around airports and struggling with the crowds.
You’ll say that sounds good, but isn’t it expensive? And that’s where the Tribune article comes in. While we weren’t watching, lots of these new taxi and charter services have brought on-line aircraft that are cheaper and more fuel efficient. They also have streamlined their business processes to make the system more efficient. The result is much lower cost to use a taxi plane than most of us imagine.
Could the future have business travelers bypassing United and American to visit customers? Maybe. And that makes this a trend worth watching, and considering. If a salesperson makes twice as many calls as her competitor, or is first on-site to deal with a customer problem by using this service it just might lead to more revenue. It could be a competitive edge. And as more people use these services processes will improve and technology will be applied, and who knows what the future opportunity will be in just 10 years?
We have to avoid defining the future by looking in the rear-view mirror. We all have a tendency to project the future off our past. We fall into the mode of extending our old Success Formulas. But, innovations appear that change the environment. And we need to be looking for them. We have to keep our eyes on the windshield if we are to identify Challenges to old ways and start looking for White Space opportunities to test new ideas.
Maybe next time you want to visit a vendor in Omaha, or a customer in Wichita, you should hit the web, find some air taxi services, and find out just what the possibilities are. And keep your eyes open for these new jets – they potentially might change our whole view of personal travel.
by Adam Hartung | Jan 15, 2006 | Disruptions, General, In the Rapids, Lifecycle, Lock-in, Openness
I’m a boomer, and for my generation going to the movies was a primary pastime. With only 3 channels of TV, we looked forward to the movies as an alternative. We also enjoyed the big screens, the color, and the immersion experience that the theatre provided. And all of it was available for as little as $.25 for a matinee or just a dollar or two for a weekend feature with your date.
My how times have changed. As demonstrated at the recent Consumer Electronics Show, one of the hottest items is home theatre. We now have huge screens, crystal sharp images, bone jarring audio systems and even the ability to put in place theatre seating to give viewers the "movie experience" right in our homes.
Yet, most movie producers still release movies to the theatres. Maybe that’s why movie viewership, revenues and profits were down in 2005. They are still following an outdated distribution model. For many of us, going to the movies means a trip to our family room. And the movie itself might come from the video store, or from the video showing up in our mail, or via a download from the cable or satellite TV company – or maybe even a download to our PC.
USA Today ran an article about changes in the wind. Small producers are starting to distribute their films straight to video (on-demand or on DVD) the same day they go to theatres. Why fight (and pay big bucks) for distribution to theatres if the majority of viewers are waiting for home release? While the big studios aren’t doing this yet, the appeal to most consumers is clear.
This is the way markets shift. Slowly, but following definitely, in an evolutionary road toward the needs of customers. Who fights this? Those most invested in the old ways and are Locked-in to them. Just like the music industry largely missed the shift from CD to MP3, the theatre operators and the large studios run the risk of missing this shift in movie viewership. The studios’ largest customers are the theatre operators, and they will trumpet their superior environments and the rare viewer that will watch a movie multiple times there. The risk to studios is they listen to these customers, who are ignoring the Challenges, and they too miss the shift until its too late.
The opportunity exists for the small player. The companies that can move quickly to meet customer needs with equipment (hardware and software) to augment the trend, and the new producers who aren’t vested in the old system of distribution.
For investors, the threats are real. Investing in theatres is very risky going forward. And investing in studios that don’t recognize the shift, and take advantage of it, has risks as well. The opportunity, likewise, exists for investing in those who will be leading this shift by offering the products that consumers want when they want them.
Today each of my 3 teenage sons has a home theatre audio systems, with those thumping subwoofers, that make the house shake. Their auto systems rival the ones in their rooms – and we have video in at least one car. They are acquiring better monitors all the time. They still like an occasional movie on a date, but 90%+ of their movie viewership is at home. What do you think movie viewership will be like in 10 years when they are in their own homes and starting their own families? Are you positioned for the shift – or are you planning on an extension of the past?
When markets shift, you can’t Defend and Extend your old Success Formula. And you can’t count on participants in your distribution channel to point out the shifts of end users – because they are busy defending their own business. You have to be very wary of emerging new competitors. And it is critical to create White Space to explore and learn about new ways to compete. The Challenge today is very real for Disney and other large existing players. Look for effective White Space in those companies – or find the new players who offer better opportunities for growth.
by Adam Hartung | Jan 8, 2006 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Motorola has done it again. As reported by every news agency that attended the Consumer Electronics Show, Motorola has joined up with Google, Yahoo and Kodak to improve its products and make new products. This is, of course, after partnering with Apple months ago.
What’s really important about this news is it shows the ongoing effort to create White Space in Motorola. As I blogged a year ago, Motorola’s efforts to create White Space where new innovation can flourish is a key success factor for turning around the struggling behemoth. Now, it’s ventures not only are opening the product development doors for licensing and creation, but in fact the Kodak venture will co-locate people from both companies into a joint development facility.
Many people have pointed out that several new products, including the RAZR, were mostly developed prior to Zander showing up. So why am I such a fan of Zander? Why so eager to talk about these projects? Because Zander Disrupted Motorola and unleashed the creativity which was there. The sparks already existed, but previous leaders did not know how to Disrupt the environment, attack the Lock-ins that held Motorola hostage to its worn out Success Formula, and create White Space to migrate the company into a new Success Formula. What’s happening in Motorola’s turn-around isn’t just a product story. It’s a story about how to overcome Lock-in to the past and launch yourself forward. And for that a lot of credit does go to Mr. Zander.
A lot has happened at Motorola since Ed Zander took over. Most of it, from raising cash by selling automotive businesses to aggressively promoting DVRs to putting real pizzaz into the phone marketing and creating new ventures has all been good. This is a company to watch, and probably a stock to own.
by Adam Hartung | Jan 2, 2006 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
Most people I know think Howard Stern is an oddity. Although he’s had a loyal following for 30 years, most business people never listen to his show. And they can’t believe he’s being offered $500M to change his broadcast to satellite radio. Of course, few of them listen to satellite radio, either.
But, I think anyone who uses radio advertising had better get serious about Sirius. Many electronics stores (Best Buy, Circuit City) sold out of satellite radio equipment this Christmas. Sirius now has over 3 million subscribers. XM Radio (the competitor) has over 5 million subscribers. Quarterly subscriber growth, before Christmas, exceeded 20%.
Back when Ted Turner launched 24 hour news, and "America’s Team" (the Atlanta Braves) to fill programming for his cable TV stations most people thought cable TV was an oddity. Now, the networks have long lost their grip on market share as customers flock to targeted stations on cable TV and increasingly avoid commercials with Tivo and other Digital Video Recorders. Do we think the transition in radio will be slower, or faster? History would say that the adoption rate of similar technologies is exponentially quicker.
If you own stock in a radion station, and think people want "local programming", you’d best be taking stock of Sirius and XM. This is a serious shift in behavior. Sirius only needs 1 million new subscribers to make the Stern offer profitable. Since they added nearly 360,000 new listeners in the third quarter that looks pretty likely.
Challenges to business don’t often present themselves like a hurricane. They are subtle. Business people have to read the Challenges to catch winds early and make changes. The Telltales are showing that something is happening in radio-land. Don’t take long to prepare. If you invest, or if you depend on radio advertising, you had better pay close attention and start making your contingency plans. As shocking as Howard Stern is, he won’t cost you money like the shock of missing the lastest shift in behavior.
You don’t want to be committed to CDs when iTunes hits. You don’t want to be long on newspapers when Google’s classified ads start making inroads. And right now, I’d be paying close attention to listener behavior in radio — and thinking about how it will impact your business and investments.
