by Adam Hartung | Apr 18, 2005 | Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Far too often we see companies merge in an effort to save an old Success Formula. The goal of the acquistion is to Defend & Extend an outdated business model by bringing together two less than stellar competitors. Because this is so common, it’s easy for analysts and pundits to become very jaded regarding acquisitions and mergers.
Today, however, just the opposite happened. Two good, high growth companies decided to merge in order to create new growth opportunities. Rather than merging to find cost synergies, they are merging in order to find new markets, develop new products and further grow.
The two companies are Adobe and Macromedia. According to MarketWatch "Both companies said the long-rumored acquisition was not to consolidate and cut costs but to help Adobe expand into new markets, particularly in the area of providing content to mobile phones and other handheld devices….This is not a consolidation play. This is all about growth," said Bruce Chizen, Adobe’s chief executive."
Because most acquisitions are about D&E, the stock market punished Adobe upon the announcement – sending it’s stock down about 10%. However, acquisitions and mergers can be very effective tools for creating white space and developing new growth opportunities. We should keep our eyes on Adobe, and consider it for a long term investment, since this could be the move that spurs its growth for another decade.
by Adam Hartung | Apr 12, 2005 | General, In the Rapids, Innovation, Leadership, Lifecycle, Openness
Louis Gerstner’s best selling book on IBM was "Who says elephant’s can’t dance." Now his successor looks to be a pretty good elephant trainer himself.
IBM has loaded itself up with more White Space projects. This behemoth is fast moving out of hardware (selling its PC business, for example) and moving into value-added process management. It’s using both divestitures and acquisitions to disrupt itself, and then using White Space to develop new opportunities.
Read the latests article in BusinessWeek for details. Let’s just say here that if IBM keeps spawning these White Space projects it can keep itself in the Rapids for quite a long time. You don’t have to be small to succeed – just willing to be disruptive and use White Space
by Adam Hartung | Nov 1, 2004 | In the Rapids, Innovation, Leadership
Starbuck’s has been breaking the rules ever since it was brewed up in the mind of founder Howard Schultz, and it looks like they are doing so again. Many of Starbuck’s innovations have been product-related breakthroughs such as Frappuccino and adding Music CD’s to the store’s inventory. These have been profitable innovations, but the first time the company really challenged its success formula is when it added wireless internet connectivity. Now the company is opening dozens of “media bar” stores that will enable customers to listen to and burn custom CD’s while they slurp down that Venti no-foam non-fat caramel Latte. This is a dramatic entrée into a new success formula that speaks loudly of Starbuck’s commitment to reinventing itself.
How are they able to do this when other companies struggle with even small innovations? I think there are three key elements. The first is the company’s commitment to ongoing innovation. CEO Schultz has created a climate where innovations are valued and can come from anywhere in the organization. For instance, the idea for Frappuccino came from two store managers who were experimenting with a frozen coffee drink.
A second factor is that the identity of the company is sufficiently large that many different strategic directions are possible. Rather than narrowly define itself as a coffee bar, Starbucks sees itself as a “third place”—a destination where people can escape from the rat race and other troubles, relax and experience a sense of well-being and community. Music is a natural addition to the sense of leisurely self-indulgence.
The third element is passion. I think passion is the secret ingredient in every really great success story. Why? Because business is about people, and people are passionate to their very core. Employees who are passionate about the business will give more energy, more creativity and will be more productive than the norm. Customers can tell when passion is in the air—it’s infectious and they start to catch it too. Passionate customers inspire employees in a positive feedback loop. Passionate customers also breed new customers. Someone who is crazy about your business will tell their friends and very nearly drag them to your store. In practically every early morning meeting I attend, someone is drinking from a Starbucks cup and telling somebody how they “never miss their Starbucks run in the morning.”
How much passion do you have for your business? How much passion do your employees and customers have for your business? In my experience, passion is something that leaders must consciously nurture. And it’s rare. I mostly experience it in growing companies that are still in the Rapids. Most mature organizations feel dead and (gasp!) business-like to me. Yuck! I want to feel a buzz in the air, some excitement, and people who are really happy to be doing their job that day. I get that sense at Starbucks, at CiCi’s Pizza, and at Discount Tire. It’s missing at McDonald’s, Pizza Inn, and Firestone. I’ll pick the first three over the second three at every chance, and I’m betting that most of you do too.
by Adam Hartung | Oct 18, 2004 | In the Rapids
Haircuts. Now there’s a market with nothing new to be added, right? Don’t say that to Sports Clips, which has been identified as one of Entrepreneur magazine’s fastest growing franchises. This company is a great example of looking at the same boring market as everyone else and seeing it differently. The result is a novel store model that has resulted in tremendous growth.
“We are changing what men perceive as a commodity to an experience,” says Gordon Logan, CEO and founder of Sport Clips. “We’ve done what no one else has – targeted 50% of the market.”
What does the company offer that’s so unique? It is designed solely for guys—a market segment that has had to choose between old-style barber shops and full-service hair salons, neither of which do a good job of providing great, affordable haircuts in an environment that is comfortable for guys (try to find a guy-oriented magazine in a hair salon!). That’s the essence of business opportunity, and Sports Clips has filled it admirably. Here’s their approach:
“Targeting men and boys, Sport Clips operators provide high quality haircuts in a fun environment, complete with TVs at every stylist’s station tuned to sports. Every Sport Clips has specially trained stylists who focus on providing the highest level of service to every client.”
Colleen Gaiser, manager of my local franchise store, gave me a tour last week. From the big screen TV broadcasting a college football game in the foyer, to the sports magazines, to the neck and shoulder massage; this place was custom-tailored for men. And it’s succeeding, with $25 million in sales and expectations to continue doubling in size. Companies in the Swamp, take notes: this is a case study in how to recognize a need and develop a custom designed solution.
by Adam Hartung | Sep 30, 2004 | In the Rapids
Napster absolutely must start making its profits now—regardless of what it does with its Success Formula. This will require that the company focus less on growth and more on efficiency and effectiveness so that it can make its profits now. But wait, you say. Isn’t market share the eventual pathway to profits and long-term success?
Well, no. That would be another aspect of the Myth of the Flats. There is little evidence to support that merely being big has any advantages at all for generating above average performance. It is well documented) that the company with the largest market share in an industry does not have a better likelihood than pure chance of having the highest performance in the industry. Companies must be distinctive in a way that matters in the market, and it’s becoming increasing difficult for big companies to do so.
Another basic tenet of the Phoenix Principle is Reap in the Rapids. There’s no evidence anyone is making profits in the online music industry during its current growth phase, which is a common mistake driven by The Myth of the Flats. According to the myth, companies should grab market share and not worry much about profits while growing. Then when the market slows, the dominant companies will be able to control margins and earn huge profits. Well, that’s a myth. In today’s copycat economy, there are no above-average profits in the Flats, you have to earn them on the way up—you must “Reap in the Rapids.”
So what should Napster do? One thing it could do is pursue any of the well-documented approaches to operational effectiveness available in the marketplace today. Another, less obvious but equally important action to take is to change its staffing mix.
People can be loosely grouped into two types, Explorers and Stabilizers. Explorers are hard-wired to be more comfortable with change and ambiguity and tend to be dominant in the early lifecycle stages, which is why efficiency takes a back seat. In contrast, Stabilizers are mentally wired to prefer making processes and practices consistent and dependable. Stabilizers are important in the early stages of the business—the Wellspring and the Rapids—to provide operational stability. Many companies in the Internet boom failed because they lacked the discipline and cautiousness that Stabilizers provide.
It is possible that Napster can make the changes needed to ensure enduring success. Whether they do or not depends on how locked in they are to historical methods for competing and seeking long-term success.
What are your thoughts: is Napster’s strategy solid or a setup for failure?
by Adam Hartung | Sep 29, 2004 | In the Rapids
After terrorizing the recording industry and almost single-handedly ushering in the future of the music business, Napster is going mainstream. Gone are the rule-breaking, paradigm-busting pioneers—replaced by traditional thinkers and strict adherence to the law. Napster lost its battle with the music industry and for a while lingered in bankruptcy, and now wants to play by the rules and make a go of it as a legal music service. Unfortunately, it is no more likely to succeed this time around.
Why? Even though Napster is a small startup in a hip new industry, it is already racing ahead to the Flats portion of the business lifecycle, and will soon be entering the Swamp along with all the other players in the online music market. Roxio, Inc. purchased Napster with the intention of leveraging its famous name into a large share of the music download market. That’s a tenuous hope at best.
One of the basic tenets of the Phoenix Principle is “be distinct or be extinct,” and Napster is not yet distinct. This is a crowded market with very little differentiation among the players, and new companies are still getting into the market. The latest heavy-weights to enter the fray include Microsoft, Virgin, and Yahoo (through its purchase of Musicmatch). Napster’s strategy, to provide subscription services, is already being offered by established music services and it puts forward nothing new there. Nor are its marketing ploys such as pre-paid gift cards and targeting college students with giveaways likely to distinguish it from the crowd. These are simply too easy to copy.
The online music services industry is still in high growth mode, projected to grow at a double-digit rate for several more years. That puts it in the Rapids, so all the players should enjoy high growth for a while. But what happens when the music stops (so to speak), that is, when growth slows and the market becomes saturated? Commoditization, that’s what. When that happens everyone who doesn’t have a differentiated service offering will be plunged into the Swamp, and companies will begin to fail or consolidate in a Defend & Extend effort to find and preserve some profits.
Napster isn’t earning any profits now and won’t for a while, so Roxio is depending on $100 million in cash to keep it afloat. That won’t be enough. Napster needs to revisit its Success Formula now and devise a truly distinct value so that when the industry stops growing, it will remain strong. For instance, it could leverage its bad boy image in many ways—constantly “tweaking the nose” of the majors might help it develop a huge and loyal following among the rebellious youth.
The Phoenix Principle predicts that Napster is already set up to fail and the clock is ticking. Perhaps it would have been better for this industry icon to remain a martyr than to end up as just another business model gone belly-up.
